AYESHA RASCOE, HOST:
During a Wednesday cabinet meeting, President Trump had something to say about affordability.
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PRESIDENT DONALD TRUMP: The word affordability is a con job by the Democrats.
RASCOE: When he was campaigning for reelection, though, he saw things differently. Here he is in October 2024.
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TRUMP: One of my top priorities will be to quickly defeat inflation and make America affordable again. We will quickly defeat it. We have to bring down prices.
RASCOE: But what are the numbers telling us, and will whatever the Federal Reserve - which is set to meet this week - do move the needle for the average consumer? David Tinsley is a senior economist with the Bank of America Institute, and he joins us now from London. Welcome to the program.
DAVID TINSLEY: Hello. Thank you.
RASCOE: Let's start with the September Personal Consumption Expenditures Price Index, or PCE. We got those numbers on Friday. It was delayed because of the government shutdown. It shows that inflation was up by 0.3% for the month with the annual inflation rate being 2.8%. What does that mean for consumers?
TINSLEY: Well, I think what it means for consumers, particularly lower-income consumers, is that their paychecks are not going as far. When we at Bank of America look at our own data, we find around a quarter of Americans are living paycheck to paycheck, and this kind of sticky inflation, sticky and high inflation, is an important part of that. That measure of paycheck to paycheck has been rising a little bit over the last few years, particularly for - I think for lower-income households.
RASCOE: The Fed is holding their final 2025 meeting this week, and we're hearing that they're likely to cut interest rates by another quarter percent. Will that make anything more affordable for the average person, including mortgages?
TINSLEY: Well, not in the short term, I don't think. I mean, obviously, for some people, it enables them, perhaps, to take out a new mortgage, but obviously a lot of people rent and a lot of people are on fixed-rate mortgages. For them, in the short run, the Fed cutting won't make a huge difference, I don't think.
RASCOE: If what the Fed is doing doesn't have, like, a huge impact on people, especially in the short term, why does it get so much attention from the president, from the media?
TINSLEY: Well, you know, it does matter in the longer term, the medium run. It matters for businesses - you know, their cost of finance, their ability to invest. It matters for the cost that the government itself can borrow at. Interest rate cuts are sort of stimulative for the economy, and that can be good for growth, ultimately for incomes and employment. You have to weigh against that, I think, the possibility that cuts prolong the period of relatively high inflation. And then that, of course, will continue then erode people's purchasing power. And I think that's a particular issue, as I was saying, for lower-income Americans.
RASCOE: The Bank of America Institute released a report in November that found that almost a quarter of American households are living paycheck to paycheck, meaning people are spending more than 90% of their paychecks on necessities. Are you seeing any trends within who is living paycheck to paycheck?
TINSLEY: Well, it's growing most amongst lower-income households. It's almost 30% as opposed to a quarter for lower-income households. It's not really growing so much for middle-income and higher-income households. And then when you look across ages, millennials and Gen X are filling under particular pressure. When you look around the country, you get a slightly different experience, depending on where you are. The South and the West have the highest rates of paycheck to paycheck. I think the South - that might surprise some people 'cause obviously affordability in terms of housing is a bit cheaper in the South than, say, you know, the Northeast, for example, but at the same time, the average wage is lower. And it's the interplay of those two effects that ends up influencing the proportion of people living paycheck to paycheck.
RASCOE: Regardless of what politicians are saying, what does all these different data points tell you about how Americans are feeling about their finances and the cost of living?
TINSLEY: Our data really does underline that you have two different experiences really. Higher-income households, where they're experiencing higher wage growth - their spending growth is higher. The average higher-income household also probably owns more assets, and they're experiencing equity market gains. So they're doing OK, and they're feeling better.
Lower-income Americans are seeing slower wage growth. Obviously, they don't tend to have the financial assets, and they are feeling much more squeezed, and we see that in our data, I think.
RASCOE: That's David Tinsley. He's a senior economist with the Bank of America Institute. Thank you so much for speaking with us today.
TINSLEY: Thank you. Transcript provided by NPR, Copyright NPR.
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