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Interest rate hikes may not slow holiday shopping this year

As the Federal Reserve raises interest rates in an effort to keep inflation under control, it may be hoping that U.S. holiday shopping will be more subdued than in the past.

But analysts say factors such as low unemployment and the potential for deep discounts mean this holiday season is shaping up to be busy.

In a sign of the uncertainty facing U.S. retailers, rival big-box giants Walmart and Target announced two markedly different holiday hiring targets this week. While Walmart is now targeting 40,000 new, mostly seasonal workers — up from 150,000 last year — Target is looking to recruit another 100,000 workers this holiday season. That’s the same number he set last year.

The uncertainty is also reflected in holiday spending forecasts. US consultancy Deloitte now expects overall holiday sales to rise 4% to 6% this year, down from 15.1% growth last winter. But he also expects e-commerce sales to climb 12.8% to 14.3% from 8.4% last year as consumers shop online for deals.

According to Ted Rossman, senior industry analyst at Bankrate.com, retailers continue to see a glut of inventory on many products, the result of improvements in supply chains, a shift in spending towards services and experiences and weaker overall demand.

This is also evidenced in inflation data, which shows that the prices of traditional gifts like toys and clothing, as well as electronic goods like televisions and stereos, have generally risen more slowly than the rate overall inflation.

Walmart has already announced that more than half of the toys on its annual Best Toys list will cost under $50, including many under $25.

Thanks to a still-healthy job market that’s helping people feel more secure about their finances, this holiday season is shaping up to be “the best buyer’s market in years,” Rossman said. .

Fed impact

On Wednesday, the Federal Reserve raised its key rate by 0.75% as it seeks to rein in inflation levels not seen in four decades.

The aim is to curb the post-pandemic demand boom, slow the economy and put downward pressure on prices.

In the short term, this means higher borrowing costs. Already, average mortgage rates are now well above 6%, the highest since at least 2008.

For consumers considering using a credit card to make purchases, average APR rates are currently at the highest levels since 1995, at around 18%, according to Bankrate.com, and near the all-time high of 19%.

But Rossman said there’s usually a one- or two-month lag before credit card interest rates rise after Fed hikes take effect. Plus, many people who already have credit card debt are generally willing to take on more, he said.

“There’s a bit of denial, or mental accounting, if you already have debt,” he said.

In general, Rossman said, household balance sheets remain healthy heading into the holiday season. It’s something he says helps “demystify” current readings of consumer sentiment which are at historic lows amid higher inflation concerns.

He said he doesn’t expect credit card delinquencies to rise amid higher APR rates.

“People still have more money in the bank,” he said. “They’ve paid off their debt, and while there are certainly warning signs on the horizon, many people are still starting from a position of strength.”

It’s a sentiment echoed in Bank of America’s Consumer Checkpoint report, which found that right now, consumers continue to feel “torn.”

“Consumers continue to show fairly robust spending growth,” BofA said. “They have recently benefited from lower gas prices and continue to benefit from a strong job market.”

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