Rising Interest Rates Squeeze US Households' Spending Power

The rising interest rates in the US are taking a larger share of household income, with consumer spending still holding up. American households' annual interest payments surged to $604 billion in August, consuming 2.5% of disposable personal income, up from 1.5% in 2021.

This marks a significant increase of $326 billion since December 2021 and points to growing strain for rate-sensitive households. The Federal Reserve began its rate-hiking cycle with a quarter-point increase on September 16, and markets still expect another increase before year-end.

Consumer sentiment is weakening as these pressures build, with the Conference Board's Consumer Confidence Index falling 6.7 points in September to 81.9, its lowest level since 2014. The expectations index dropped to 63.6, a level associated with recession risk within the next year.