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Opinion
Tim Duy

Get Ready for a Supercharged Economy

Excess savings have supported households in 2020, and rising wages will boost them next year.

Things are looking up for U.S. workers

Things are looking up for U.S. workers

Photographer: Joe Raedle/Getty Images

The U.S. stock market had one of its best months ever in November, with the S&P 500 Index surging almost 11%. Many are again questioning whether equities have become disconnected to reality as the Covid-19 pandemic rages anew. Lost in the debate is the potential for an explosive economy in 2021 given the magnitude of excess savings that households have accumulated, a sum that probably totals about $1.4 trillion.

Even the Federal Reserve is starting to realize just how beneficial this pot of money will be to the economy going forward. At the November Federal Open Market Committee meeting, Fed staff no longer assumed that another round of fiscal stimulus is coming. The lack of such support was offset in their forecast by household saving. From the minutes of the meeting:

I have been focusing on excess saving for some time now, but my prediction it would replace fiscal stimulus as the economy’s primary measure of support was wrong. Savings did not cushion the economy after the first fiscal cliff this past July; wages and salaries were the cushion.