Subprime credit quality is starting to deteriorate, but the big picture is that wage growth is high, and job growth is strong, particularly in service sector jobs in leisure and hospitality. Combined with a high level of savings in the household sector, this continues to support consumer spending, see charts below. These strong tailwinds to consumer spending increase the risk that inflation will become more persistent. Expect Fed Chair Powell’s speech today at noon to be very hawkish.
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