Michaelís Consumer Column

June 12, 2006
The Fed Can Count on the Consumer to Pull the Economy Along

While waiting at the CNBC studios in Englewood, New Jersey, I had a chance to chat with Michael H. Moskow, president and CEO of the Federal Reserve Bank of Chicago. I've known Mike for several years. An 11-year member of the Fed, he remains a calm and patient man. The Fed has been taking a lot of heat to slow the rise in interest rates, but Mike worries more about inflation than about how much it costs to get a personal loan. The Fed, which looks at huge amounts of data, has consistently drawn the line at fighting inflation, but it doesn't view the economy through the eyes of the consumer.

I told Mike about Treasure Hunt and said that I thought that the middle class in the United States had never had it so good. U.S. households with yearly income of $50,000 to $150,000 enjoy a higher standard of living than any other middle class in today's world and, for that matter, any middle class in the history of mankind.

But I know that having it good doesn't mean that the members of the middle class can buy anything and everything they want. They scrimp, save, and cut back on many kinds of goods and services so that they can splurge on others. They are extremely savvy buyers who regularly buy at discount outlets and warehouse stores and love to do price-oriented purchasing online, mostly at eBay.

The world may be waiting to hear whether the Fed will raise short-term interest rates by another quarter of a point. But that doesn't really matter to the middle-class consumer who knows how to deal with the changing economy: by trading up and trading down. Middle-class consumers will continue to balance their budgets, either splurging or restraining their spending to make the numbers work.