Impact of High Inflation and Borrowing Costs on Household Finances During the Pandemic

As the pandemic forced people to stay home, many households found themselves accumulating extra cash, stocks, and savings. However, a recent report from the Federal Reserve Bank of San Francisco has revealed that much of this liquid wealth has now been depleted.

With the easing of economic restrictions, the cost of living has surged, prompting the Federal Reserve to raise borrowing costs to a 23-year high in an effort to curb inflation. As a result, consumers have been forced to dip into the assets they accumulated during the pandemic to cope with the rising prices.

While higher-income households have been able to increase their liquid assets by moving them into money market funds, lower- and middle-income households have had to use their savings to deal with the high costs and interest rates. This has led to a rise in credit card delinquency rates, as many consumers are now relying on credit cards to make ends meet.

According to the Federal Reserve Bank of New York, non-housing related debt has also reached a record high of $4.9 trillion in the second quarter. This trend highlights the financial strain that many households are facing as they struggle to make ends meet in the face of rising inflation and borrowing costs.