Inflation shades evaluation of financial well-being: Fed survey

Inflation cast a dark shadow over Americans across the income spectrum last year, despite an economy that was otherwise healthy and a booming labor market.

• That is the message from an annual Fed survey of American households that assesses their economic well-being.

Why it matters: Inflation was the defining feature of the 2022 economy. Consumers assessed their financial well-being as having plummeted, even in the face of the hottest labor market in years.

By the numbers: 35% of Americans said their financial situation was worse off than the prior year — the largest share on record since the Fed began asking the question almost a decade ago.

• The least-educated consumers were the most likely group to say they were worse off: 40% reported as much in 2022, up from 33% in 2021 and just 18% in 2019.
• But there was a historic jump in higher-educated respondents who said the same. Roughly 31% reported being financially worse off, a surge from 13% in 2021.

What's going on: Last year saw an important shift in the pandemic-era economy, with the expiry of stimulus checks, expanded unemployment benefits and more.

• More educated consumers "may have also been more affected by stock market declines," per the report.

Between the lines: There are signs that soaring costs were the biggest factor at play. Inflation was the top financial challenge cited among people of all income levels in 2022, which suggests "a widespread effect of higher prices across the population," the Fed writes in the report.

The bottom line: Americans downgraded their view of the economy last year, which helps explain a more generally downbeat view of economic conditions.

• The share of Americans who rated the national economy as "good" or "excellent" fell to 18% in 2022 — the lowest share since the survey began asking their rating in 2017.
• This share has "fallen a substantial 32 percentage points since before the pandemic in 2019," the Fed notes.