New York Fed Reports a Significant Surge in Credit Card Delinquencies in 2023
The Federal Reserve Bank of New York has released a report indicating a concerning increase in credit card delinquencies in 2023. According to the data, credit card delinquencies rose by almost 60 percent, reaching a total household debt and credit developments of $17.5 trillion. Of the $1.129 trillion credit card debt reported, 6.36 percent has fallen into “serious delinquency,” defined as being 90 days or more past due. While delinquencies in mortgage and auto loan debt also increased, they did not rise as fast as credit card debt.
The report highlights that delinquency rates have been rising from historically low levels in 2021, coinciding with a reduction in government support efforts. Auto loan delinquency rates, in particular, have surpassed pre-pandemic levels, suggesting increased financial stress among younger and lower-income households. This trend is worrisome as it indicates that these households are facing greater difficulties in managing their debt.
The rise in credit card and auto loan delinquencies reflects a broader picture of increased financial stress in the United States. Despite the economy’s overall growth and low unemployment rates, inflation has been high, prompting the Federal Reserve to aggressively raise interest rates and keep borrowing costs high. This has made credit more expensive and challenging for borrowers to manage.
Federal Reserve Chair Jerome Powell addressed concerns about high prices and dissatisfaction with the “good economy” during an interview with CBS’s “60 Minutes.” Powell acknowledged that people are experiencing higher prices, particularly for basic necessities such as bread, milk, eggs, and meat. He attributed this dissatisfaction to the impact of inflation on consumers’ purchasing power.
Powell further noted that interest-sensitive spending, including mortgages and durable goods, will remain expensive for some time. He urged patience from the public, acknowledging the difficult period they have been through but expressing optimism for the future.
Regarding interest rate cuts, Powell indicated that there would be no rate cut in the first half of 2024. While all members of the policy-making Federal Open Market Committee (FOMC) believe that a rate cut should occur this year, it is likely to happen in the second half of 2024. The Federal Reserve needs more time to assess inflation trends over a 12-month basis before making any decisions on rate cuts.
The FOMC statement from the January policy meeting emphasized the Committee’s careful assessment of incoming data, the evolving outlook, and the balance of risks when considering adjustments to the target range for the federal funds rate. The Committee stated that it would not reduce the target range until it has gained greater confidence that inflation is sustainably moving towards 2 percent.
Overall, the New York Fed’s report highlights the challenges faced by households in managing their debt, particularly with credit card and auto loan delinquencies on the rise. It also sheds light on the impact of inflation on consumer prices and economic satisfaction. While the Federal Reserve remains cautious about rate cuts, it acknowledges the need for further assessment before making any changes. The coming months will be crucial in determining the future direction of interest rates and the overall state of household debt in the United States.
