Question

The U.S. has been traditionally known as a relatively low saving country, compared to countries like Japan. The U.S. personal saving rate had seldom gone into the double digits since the early 1990s (Source: the Federal Reserve Bank of St. Louis).

In response to the coronavirus pandemic, people inevitably try to save more. We observe that the U.S. savings are rising in an unprecedented manner: the U.S. personal savings rate (personal saving as a percentage of disposable personal income) hit a historic 33% in April 2020.

What are the impacts of rising savings on the U.S. pandemic-hit economy?

Answer 1

With everything locked up amist corona pandemic, there are limited options to spend. There is a high risk of interest rate being low due to low spending in the economy which can lead to deflation keeping inflation low and economic growth can be low or stagnant for long time. The demand will be low, the jobs in the market will be low etc. This occurred even during Great Depression. Thus, with providing enough stimulus the demand can be increased else it could also affect the US dollar and exchange rates.