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.

One of the Fed's most notorious financial statistics is its "$400 emergency expense" question. This year, however, the answers to that question show something important.

Why it matters: For the first time since the survey began, the proportion of Americans who say they would cover a $400 emergency expense completely using cash or its equivalent dropped from the previous year.

• That's in large part a function of pandemic-era cash assistance programs ending.

Be smart: It is incorrect to subtract 63% from 100% and declare, as many pundits are wont to do, that the result is the percentage of Americans who don't have enough money to pay a $400 emergency expense.

• That said, the question does shed light on an important facet of overall financial well-being and, generally, how liquid American households are.
• The exact size of the $400 figure doesn't matter: The Fed also asked the same question with a $500 number and got almost identical results.

Between the lines: The largest decline was among parents. The percentage who would use cash for an emergency expense dropped from 64% to 57% after their monthly child tax credit payments expired in 2021.

The bottom line: In 2020 and 2021, most Americans received substantial amounts of cash directly from the government. When that cash stopped flowing in 2022, it stopped being available for emergency use.