Credit Sesame’s personal finance weekly news roundup May 7, 2022. Stories, news, politics and events impacting the personal finance sector during the last week.
- Fed announces largest interest rate hike in over 20 years
- Wages are up, but losing ground to inflation
- Theft of checks from mailboxes a growing problem
- Growth of buy now pay later programs includes traps for consumers
- Nearly two-thirds of Americans live paycheck to paycheck
- Bankers group hits back at pressure on overdraft fees
- Credit checks a barrier to some would-be renters
- Job openings and quitting reach all-time highs
- Employment gains continued in April
Fed Announces Largest Interest Rate Hike in Over 20 Years
In an effort to fight accelerating inflation, the Federal Reserve’s Open Market Committee announced a 0.50% increase in its short-term interest rate target. This marks the second interest rate increase this year, and the largest single increase since May of 2000. With a target rate of between 0.75% to 1.00%, the Federal funds rate remains well below the recent rate of inflation. The widely-followed Consumer Price Index increased by 8.5% for the year ending March 31, 2022. The Fed’s preferred measure of inflation, the Personal Consumption Expenditures price index, was up by 6.6% over the same period. In another effort to fight inflation, the Fed also announced that beginning on June 1, it would reduce its holdings of government and mortgage-backed bonds. That move is likely to have more impact on longer-term interest rates like mortgages than the hike of the Fed funds rate. Full FOMC statement at FederalReserve.gov.
Wages Are Up, But Losing Ground to Inflation
The Bureau of Labor Statistics released a report on employment costs that showed wages increased 4.7% for the 12 months ending March 31, 2022. That’s up from the 2.7% increase in wages for the 12-month period ending in March of last year. While faster wage growth might sound like progress, it hasn’t been enough to keep pace with the soaring rate of inflation. After adjusting for inflation, the purchasing power of wages actually declined by 3.6% over the past 12 months. Full release at BLS.gov.
Theft of Checks from Mailboxes a Growing Problem
Consumers trying to keep up with their payments have a new problem to worry about – a growing trend of the theft of payments from US Postal Service mailboxes. The problem, which accelerated when the pandemic struck, is rooted in a wave of armed robberies of mail carriers. The target of those robberies is the special key which mail carriers can use to open Postal Service mailboxes. That in turn gives thieves access to mailed bill payments containing checks, which can be redirected or used to collect account information. Besides the direct theft of checks and financial information, there is also a thriving secondary market involving selling checks and mailbox keys. Full story at NationWorldNews.com.
Growth of Buy Now Pay Later Programs Includes Traps for Consumers
Buy Now Pay Later services like AfterPay and Klarna have been used by one in five Americans, but some of those customers are finding out they aren’t as a good a deal as advertised. These programs allow consumers to make purchases with a relatively small amount of money down, with the remainder spread over a series of subsequent payments. These programs seem attractive because they require less of a credit check than applying for a credit card, and they claim not to charge interest. However, in many cases high late fees effectively act as an exorbitant form of interest. Full article at FastCompany.com.
Nearly Two-Thirds of Americans Live Paycheck to Paycheck
A new survey found that 64% of Americans reported living from paycheck to paycheck as of March, up from 62% as of February. Even relatively high earners often find there’s not enough cushion in their incomes to allow for savings, as 49% of people earning more than $100,000 reported living paycheck to paycheck. The report found that consumers who are unable to save money were more likely to carry credit card balances and carried higher balances. This compounds their financial difficulties by adding credit card interest to their expenses. Full story at PYMNTS.com.
Bankers Group Hits Back at Pressure on Overdraft Fees
In a statement submitted to the Senate Banking Subcommittee, the American Bankers Association (ABA) refuted some recent criticisms of overdraft fees. The ABA cited survey data showing nine out of ten bank customers find overdraft protection valuable. The ABA also claimed that without overdraft protection, customers would be subject to other types of charges for things like returned checks or late payments. Finally, the ABA pointed out that consumers also have ready access to accounts without overdraft protection, if that’s what they choose. The ABA’s response is part of an effort to head off possible legislation restricting overdraft fees. Full release at ABA Banking Journal.
Credit Checks a Barrier to Some Would-Be Renters
California’s legal protection of tenants against eviction has had an unintended consequence. Landlords have intensified their credit checks of applicants in an attempt to avoid leasing housing to people who won’t be able to pay their rent. Requirements of would-be tenants in the competitive Los Angeles-area market include high credit scores and incomes well in excess of the monthly rent payment. This type of intensive screening may prompt still more legislation favoring tenants. Full article at LAist.com.
Job Openings and Quitting Reach All-time Highs
Americans are quitting their jobs in record numbers. This is contributing to an all-time high in the number of jobs that are currently unfilled. Those are two big takeaways from latest Job Openings and Labor Turnover Summary report by the Bureau of Economic Analysis (BEA). The BEA data for job openings and resignations goes back to 2000, and neither figure has ever been higher than it was as of the end of March. As of that time, there were 11.5 million jobs open in the United States, and a record 4.5 million people quit their jobs in March. Despite all the quitting and unfilled openings, the job market did add a net total of 6.3 million employees in the year ending March 31, 2022. Full report at BEA.gov.
Employment Gains Continued in April
Despite an economic slowdown in the first quarter and high job turnover, employment growth continues to be strong. The Bureau of Labor Statistics reported a net gain of 428,000 jobs in April, identical to the number of jobs gained in March. Unemployment is now just slightly higher than it was before the pandemic hit the US in early 2020. Full release at BLS.gov.