April 3 (Reuters) – Whether out of necessity, mistrust or
simply the feel-good factor of soaring asset markets, Americans
appear to be cutting back once again on saving.
The personal savings rate stood at just 2.6 percent in
February, down nearly one percentage point from the year before,
according to the most recent data. Taken with January’s 2.2
percent rate, this makes the first time since 2007 we’ve had two
months in a row below the 3 percent mark.
If low savings are driven by confidence, either in the
bounty of the stock market or the opportunities in the job
market, then the savings rate may stay low but interest rates
may soon need to rise. If, on the other hand, low savings are
being driven by a lack of faith in markets or institutions or
even by a simple lack of capacity, then we may well be looking
at an extended period of low rates and lousy growth.
There is also a third possibility: a winners and losers job
market in which the highly skilled are confident enough not to
save and the rest are simply unable.
TRIUMPH OF MONETARY POLICY?
The first, and perhaps most likely, possibility is that
savings are falling because the Federal Reserve desperately
wants them to, and has engineered conditions in which more money
is flowing to riskier assets such as stocks and real estate.