Shoppers are still struggling with inflation going into this holiday season, remaining "selective," as investment bank Morgan Stanley puts it, in what they buy ahead of Black Friday.
While inflation is well below its 9.1 percent high in June 2022, it remains slightly above the Federal Reserve's 2 percent target. Consumer prices rose 2.6 percent in October from a year earlier, up from 2.4 percent in September. It was the first rise in annual inflation in seven months.
The holiday shopping season is a huge opportunity for companies to make a profit while boosting the economy. Consumer spending makes up over two-thirds of U.S. economic activity.
However, consumers are still feeling the pinch of their wallets, which will affect how they shop this holiday season starting with Black Friday sales which already began for some retailers. Black Friday is on November 29 this year, but retailers have opted to start sales earlier in recent years, some beginning online promotions as early as October.
A Morgan Stanley survey released earlier this month found that 35 percent of roughly 2,000 consumers expect to spend more this season than the year before. But this doesn't mean they won't still shop the sales.
"Holiday shoppers are likely to increase their budgets this year versus last year but remain selective and are looking for discounts," Morgan Stanley analysts said.
Newsweek reached out to Morgan Stanley via email for comment Saturday morning.
Abby Roach, portfolio analyst at Allspring Global Investments, explained to Reuters that consumers still struggle with higher prices.
"It's easy to be excited about inflation coming down year over year, but...consumers are really still under pressure, and I think that's the biggest pain point," Roach said. "Consumers are continuing to feel like their dollars don't go as far as they did."
But there has been hope for Americans struggling to make ends meet with the Fed cutting its key interest rate twice in the past few months.
The key rate, known as the federal funds rate, was raised by the central bank 11 times in 2022 and 2023 to curb high inflation, which hit both the United States and countries around the world after the COVID-19 pandemic.
In September, the Fed cut the federal funds rate by a half-percentage point to between 4.75 and 5 percent. It was the first time the Fed cut interest rates in four years. Earlier this month, the Fed cut rates again, this time by a quarter-point, lowering rates to between 4.5 to 4.75 percent.
The federal funds rate is the target interest rate at which commercial banks borrow and lend their extra reserves to one another overnight. If the federal funds rate continues to decrease, the cost of consumer borrowing—including mortgages, auto loans and credit cards—should go down over time.
But Fed Chair Jerome Powell said last week that the central bank isn't in a hurry to cut interest rates further.
"The economy is not sending any signals that we need to be in a hurry to lower rates," he said during a speech in Dallas on November 14. "The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully."
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