By James Saft
(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.