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It is a strange phenomenon. Federal Reserve’s higher interest rates is helping men and women who have retired to increase their consumer spending, which is partly firing the American economy. The richest economy in the world has been going through a rough patch caught between high interest rates and the prospect of recession.

In reality however, the economy has been showing string signs in the midst of sticky inflation. According to experts, the baby-boomer generation – many of whom were born in the post-World War Two period – have become affluent after years of hard work, paying off mortgages. But with high interest rates, their stock yields are giving them the extra return to spend on exotic foreign trips.

The just-retired 60+ generation is having the best of times, while the younger generation faces job uncertainties, higher mortgage rates and also unaffordable home prices. According to an Associated Press report, it is the affluent class of older citizens who are spending more on travel, entertainment and cosmetics, and it is this factor that is keeping the inflation level above three per cent, much higher than the mandated two per cent inflation rate. A good  example of the phenomenon is Joan Harris, 64, who has retired after working as an engineer for 29 years. She is planning to fly to Scotland in business class because she feels she has that extra money to do so, and that savings is not an attractive proposition.

In contrast, Harris’ 25-year-old daughter, Ruby, is finding it difficult to buy a home in a place she loves like Boston, because the prices are much too high. She has a well-paying job as a materials engineer, and she considers herself fortunate to have the job, but she says that it will be difficult for her to live in the area. Says Ruby, “In the long term, it probably won’t be affordable to stay here. Whereas the Midwest is more affordable but won’t have the neighbourhoods that I like.”

Experts are puzzled by the phenomenon, where the older folks – though only a small section – are enjoying themselves even as the younger generation struggles wracked by a sense of anxiety about the future. “The baby boomers are the richest retiring generation we’ve ever had,” according to Edward Yardeni, president of Yardeni Research. He says, “Not everybody is well-off, but we’ve never had a retiring generation with this much wealth. That’s one of the major reasons why the economy is strong.”

America is an affluent society because Americans earn and spend, and it is the higher consumption pattern that keeps the economy going. In contrast, many European and successful Asian economies earn on the strength of their exports and their savings rate is high as well. Americans are relatively low savers.

It is estimated that Americans over the age of 55 hold three-fourths of household wealth. The figure was 68 per cent in 2010. The wealth disparity remains very high in America. One-tenth of the population owns two-thirds of all household wealth in the country. But median wealth – the midpoint between the very rich and the very poor – rose 37 per cent between 2019 and 2022, which spans a year before the COVID pandemic and year after. Torsten Slok, chief economist at Apollo Group, an asset manager, explains, “People have had significant wealth gains in stocks, significant wealth gains in fixed income, significant wealth gains in home prices, significant wealth gains even in crypto. All that adds up to still a very significant tailwind.”

The situation may not hold for a long period, but it is clear that it is the moment of wealth and comfort for the many middle class Americans who had spent a lifetime building their assets in the hope of modest comforts in their old age. But it has turned out to be much better.