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The most straightforward explanation is that it took a lot longer than almost anyone predicted to get back to normal after the pandemic. Inflation also turned out to be largely caused by supply problems. That’s unusual. Normally, demand is what causes prices to spike. The Federal Reserve then hikes interest rates to kill demand, but this typically brings big job losses and a recession. This round was different because, after the pandemic, it took a long time to fix supply chains. Plus, there was a labor supply problem, as it took a while to get enough people back to work. As supply glitches abated in 2023, inflation subsided around the world.

This isn’t the full story in the United States. Americans kept their spending sprees going all year long. This, too, was a big surprise. Experts had predicted spending would nosedive as people depleted their pandemic savings, and polls showed that Americans were gloomy, rating this economy as “fair” or “poor.” Yet people kept spending as though the economy were booming. JPMorgan ran the numbers and found that Americans are spending more now than they did before the pandemic, even after adjusting for inflation. This isn’t happening elsewhere in the world. In Europe and Japan, for example, consumers are spending the same as they did pre-pandemic.

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The massive U.S. government stimulus clearly worked. It boosted savings and kept millions out of poverty during the worst of the pandemic. It also fueled rapid rehiring, which gave people bigger incomes to spend. Other countries had strong fiscal responses as well, but the United States’ was one of the biggest.

Something more was also at play: In recent years, Americans have grown wealthier, and not just the rich. Households across the income spectrum have seen the largest surge in wealth on record. This was driven mainly by a surge in the U.S. stock market (nearly 60 percent of families now have some stock ownership, generally via retirement funds) and a gigantic rise in home values. The vast majority of homeowners locked in mortgage rates under 5 percent, which insulated them from the Federal Reserve’s painful rate hikes. (Most other countries do not lock in a........

© Washington Post