America’s inflation fight is ending, but it’s leaving a legacy

People with jobs have started showing up at homeless shelters in Atlanta. Families who can’t cover their grocery bills are pushing up demand at a Boston food bank. A dearth of available houses is plaguing Sacramento, California. Yet reports of recent raises abound, and a partly retired homeowner near Pittsburgh is happy about his savings.

America’s bout of painfully high inflation — and the period of high interest rates meant to cure it — is finally drawing toward a close. Price increases are nearly back to a normal pace, so much so that the Federal Reserve voted Wednesday to lower borrowing costs for the first time in more than four years.

But even as the nation’s tumultuous pandemic economic era begins to approach its end, the period is destined to leave lingering marks.

There are many things to celebrate about the current moment. Inflation has so far cooled without a major economic pullback, a development few economists thought possible. Consumers are still spending at a solid clip. Years of strong job growth and solid wage gains have lifted up many workers, and a run-up in stock prices is padding retirement accounts.

Yet the past several years have also brought serious and lasting challenges. Prices remain sharply elevated compared with their prepandemic levels, and many families are still struggling to adjust. Some have seen their wages fall behind costs. For others, pay gains have kept pace with inflation, but the memory of cheaper egg and rent prices endures, leaving an ongoing sense of sticker shock. And across the country, housing affordability has tanked, a trend that could take time and even policy changes to reverse.

Even as economic normalcy returns, its contours are different. Below are snapshots from around the country that show how things have changed — for the poor, for the middle class and for the more affluent. Some of the developments are worrying, others encouraging. But all show the ways in which this period has left a legacy.

It can be harder to cover the rent, as a homeless shelter in Atlanta has found.

The nearly 800 beds at Atlanta Mission’s network of homeless shelters have long been filled to capacity. But since the pandemic, Tensley Almand, the organization’s CEO, has noticed a clear shift in who is using them. Instead of going to chronically homeless individuals, the spots are increasingly being taken up by people who have lost their housing for the first time. Many have jobs but are simply failing to make ends meet.

“The stories that we hear from our clients: ‘Rent went up. I couldn’t make it,’” he said. “The number of people underemployed right now, we hear that over and over. They’re just not employed at a level that keeps up with their costs.”

Housing costs have climbed steeply over the past few years. Grocery prices also jumped sharply in 2022, though they are now climbing at a more modest clip.

And while wages have climbed faster than inflation overall for the past year and a half, the combination of heftier food and rent bills remains a strain for many families.

Poorer people in particular tend to spend a larger chunk of their budgets on those necessities. Also, for people who are not working full time — including those on reduced or unreliable hours — it can be tough to cover basic needs even when wages are higher.

What Almand is seeing in Atlanta matches national trends. Homelessness has ticked up in the past few years, point-in-time counts show. Poverty is also on the rise, based on recent Census Bureau data for 2023.

In fact, that marks a very recent shift. Poverty initially plummeted early in the pandemic, as stimulus checks, extra unemployment insurance and expanded tax credits for low-income families helped out vulnerable households. But then those supports faded just as inflation picked up.

“We’re seeing people who, there’s more month than there is money,” Almand said.

A Boston food bank is finding that poorer Americans are also struggling with food insecurity.

It’s not just housing that people are struggling to cover as high prices bite: It is also food. Jonathan Tetrault, vice president for community impact and operations at the Greater Boston Food Bank, watched demand for food assistance take off at the start of the pandemic. With high grocery costs, it has never really come back down.

The food bank has delivered more than 100 million pounds of food every year since 2020, up from less than 70 million in 2019.

“It’s extremely difficult for low-income residents to make ends meet,” he said, between spending on high food costs, expensive housing and other needs like medicine.

And while wage growth has been outstripping inflation recently on average, he pointed out that the positive trend isn’t true for everyone — and it certainly isn’t for many of the clients the food bank and its partners serve.

“Hunger is no longer this emergency situation,” he said. “It’s a daily, lived experience, day in and day out, that expenses don’t meet income.”

Middle-class workers also feel bad about price increases.

While America’s poorest have had a particularly tough time amid rapid inflation, higher costs have also left many middle-class workers feeling less secure. Ruby Webb, 60, is a case in point.

Webb said she has worked at the New York Police Department since 2015, and she has been in her current role in payments and scheduling for the past four years. Recently, her paycheck has started to seem uncomfortably small.

Webb has watched her groceries, cable and rent costs go up. She has received a raise, but it hasn’t been enough to keep up with climbing prices. The resulting squeeze has made her more cautious. She only buys exactly what she needs at the grocery store.

Prices are also affecting her plans for her economic future. She now thinks that she will work until 67, instead of retiring at 65, knowing that costs will probably remain much higher than she had been banking on.

And although inflation is cooling, that doesn’t feel like much of a relief to Webb. Like many Americans, she is more focused on price levels — how much things cost in dollar terms — than on price inflation, which measures how much they are climbing over time.

When it comes to purchases like meat, “it’s a higher level, and you’re getting less for your money,” she said.

That effect could fade with time, especially if the U.S. economy manages to avoid recession in the coming years. Already, many Americans have seen their paychecks grow more than prices: Wage growth was particularly strong for lower wage earners in 2022 and much of 2023. Pay gains have now slowed somewhat. But if they continue to gradually add up, more and more people should be able to catch up to the recent price increases.

So far, though, overall consumer confidence remains relatively depressed, which hints that high costs are still weighing on the national mood.

Business loans are out there but can be hard to come by, as a Virginia entrepreneur discovered.

America’s economic policymakers know how painful the fallout from inflation can be. That is why Fed officials raised interest rates sharply starting in 2022 to try to slow the economy and bring price increases under control.

But those heftier borrowing costs have had their own effects.

Higher interest rates are meant to cool the economy. They do that in part by making it more expensive to start or expand a business on borrowed money.

Fed survey data suggests that credit is still flowing to firms, but a smaller share of companies have been getting their loan and line of credit requests fully approved in recent years, a sign that borrowing has gotten tougher.

Reza Mohammadi, 42, arrived in the United States in 2022 after fleeing Afghanistan. He dreamed of setting up a tailoring shop like the one he had run at home, but it took time to secure the small business loan that he needed in order to make that goal into a reality. He didn’t have a U.S. borrowing history, he had a large family and he seemed like a risk to the banks he asked for money.

“They let me know, ‘Reza, it is not possible,’” he said.

Still, like many businesses in recent years, Mohammadi prevailed eventually. He landed a loan with the help of a friend who had connections at a lender. The rate is around 6% — on the low side for national business rates at the moment, which generally range from 6% to 12%.

And while it took him a while to access financing, his new company is doing well, as are many at a moment when American consumers are spending and the economy is generally strong. He opened his tailoring shop earlier this year in the Old Town neighborhood in Alexandria, Virginia, and he is already making enough to cover his costs.

“In the total, I am happy,” he said.

Home buying and selling is limping along, but an agent in Sacramento and a buyer in Houston are evidence of change.

Mike Cendejas, 45, is a Sacramento real estate agent with Redfin who works with both sellers and buyers. As Fed interest rates shot up, he saw his local market cool down sharply.

“Things almost came to a halt,” he said. After rates jumped over the summer of 2022, “it felt like a ghost town.”

But Cendejas said that just the expectation of lower interest rates has been enough to breathe new life into the local market. People who locked in mortgages when rates were low in the 2010s or in 2020 have become more willing to move as mortgage rates ease.

“We have seen an uptick in listings,” he said. “I’m optimistic. Thinking about 2025, I do see it being better than 2023 and 2024.”

Homebuyers are also staging a return. In Houston, Edison Lamsal, 32, has been waiting for years to buy. But he and his wife held off as rates and prices marched up.

Now, it feels like the time. Lamsal, an engineer by training, has been doing well financially: He works as a project manager at a company that makes water pumps, and he recently got both a promotion and a raise. And in recent weeks, as mortgage rates have begun to tick lower, he finally decided to take the leap.

He and his wife are under contract to buy a new construction house for $455,000. That’s far more than the $290,000 that the same house was selling for at the end of 2020, Lamsal said, but more moderate borrowing costs made him willing to stomach the amount.

“It’s slightly coming down, so I decided it was time to buy,” he said. “It doesn’t look like it’s going down to pre-COVID levels anytime soon.”

If you already owned assets, this has been a good run, as a near-retiree in Pittsburgh shows.

Of course, the era of rapid price increases and high interest rates hasn’t been difficult for everyone. It has also been a period of solid economic growth, climbing stock values and resilient home prices that have benefited many asset owners, especially those who were well off heading into this period.

Oren Spiegler, 68, is a partly retired administrative hearing officer who lives near Pittsburgh and who says he is doing well financially. He’s heavily invested in the stock market, so his portfolio has been increasing in value, and he has a locked-in 2.5% mortgage rate on the five-bedroom house that he purchased in 2019.

That means he has benefited from a run-up in home prices — his house is valued at $690,000 today, up from $520,000 when he bought it — without having to pay a lot more to live there.

Spiegler is far from alone. Household wealth is up over the four years since the brief pandemic recession, boosted by rising retirement accounts and real estate values. And while that has helped families across the income spectrum, the effect has been biggest in dollar terms for richer Americans.

“As the stock market has been close to record highs, I’ve done very well,” Spiegler said. He said it’s been “painful” to see increasing prices, but that he has shopped for bargains. “I can’t say it’s harmed me.”

This article originally appeared in The New York Times.

© 2024 The New York Times Company