The Fed uses inflation and employment statistics as key components in its interest rate policy.
Demographics, specifically for Gen Y, or millennials, suggests that interest levels will probably stay the same for now, as Gen Y is struggling to spend. Here’s why.
Baby Boomer-driven inflation losing drive
Inflation was largely driven by the Baby Boomer generation between 1969 and 2007; the 10-year Treasury yield averaged 5.1% from 1928-2013.
As Baby Boomers find themselves approaching or even in retirement, they have passed the spending phase, which means we now have to look for the next major group to drive inflation.
Naturally, the baton should fall upon a younger generation—the millennials.
Data from Pew Research, however, suggests that millennials not only have higher levels of student debt, but also lower levels of wealth and income than their predecessors. In a nutshell, this important generational group is not able to drive inflation as they should.
Author of How to Be Richer, Smarter, and Better Looking Than Your Parents Zac Bissonnette says: “It’s pretty clear that young people are facing a lot of things that our parents didn’t—[including] student loan debt, and very low job placement rates among recent grads. That’s a pretty devastating combination.”
Hard to find a job
This might also have to do with a shift in work values compared to their parents.
They “think they can sit idly until the government or the economy offer them a nine-to-five office job,” says blog writer for American Interests Russell Mead.
As Gen Y finds itself comparatively worse off to generations prior, the bleak opportunities in the marketplace give little comfort or hope.
According to the Employment Benefit Research Institute’s (EBRI) 2014 Retirement Confidence Survey, the percentage of workers who expect to retire past age 65 has increased from 11% in 1991 to 33% in 2014; another 10% did not plan on retiring at all. People are retiring later, while some don’t even want to retire.
This means fewer job opportunities and less spending money to drive the economy forward. While Gen Y remains in an unfortunate position, estimates suggest there are more Millennials than Boomers and Gen Xers.
Despite the gloomy market landscape for millennials, the sun seems to shine through the clouds for them.
Study lead author and associate director at Pew Kim Parker says: “In spite of hardships, they do have a real sense of optimism. They feel they have so much time ahead of them and that things will work out.”
So once Gen Y’s spending does kick in, we can expect the impact to be big.