According to famous economists, U.S. consumers are feeling the impact of increased interest rates, while financial firms seem to be reaping the benefits.
Rising Debt and Consumers Struggles Amid Feds Inflation Strategy
Economist Stephanie Pomboy emphasized that Fed price hikes were meant to help decrease inflation by reinforcing economic conditions; nonetheless, stock markets rose and perceived credit risks plummeted in the previous year. In the meantime, consumers did not only have to face important increases in the costs of food, fuel, houses and other services, but also the soar of car loans, credit cards and mortgages.
The economist pointed out the latest consumer-credit data published by the Fed this week as proof of a declining situation. Outstanding revolving credit surge by $19 billion to surpass $1.3 trillion in November, making an 18% increase from the previous year and a 35% rise from the end of 2020. There is a warning note from Pomboy suggesting that banks might witness a surge in loan defaults as individuals increasingly struggle with their expanding debts.
"I wrote this BEFORE seeing the latest Consumer Credit #s showing an eye-popping $19b increase in credit card borrowing in November […] I shudder to imagine what December's numbers will look like! whatever banks say this week, beware future Loan Losses!" she added in another post on X.
I wrote this BEFORE seeing the latest Consumer Credit #s showing an eye-popping $19b increase in credit card borrowing in November. I shudder to imagine what December's # will look like! whatever bks say this week, beware future Loan Losses!!! https://t.co/F83pRsiiFI
— steph pomboy (@spomboy) January 8, 2024
Concerns About Mounting Debt Amid Fed's Rate Hikes
Economist Stephany Pomboy sounded the alarm about the rising debt situation. In September, she cautioned that the Federal Reserve's rate hikes could have a "severe impact" on the economy, household credit and corporate sector. Furthermore, she anticipated that the in aftermath, Americans would be reluctant to accumulate credit card debt, drawing parallels to the post-mid-2000 housing bubble period.
Many other experts, such as JPMorgan's fixed income leader Michael Blurry, along with Bob Michele, have also expressed their concerns about the growing pressure on household economics. Nonetheless, the combination of sturdy economic growth, historically low unemployment rates and strong corporate earnings indicate that consumers are currently in a favorable financial position.