U.S. consumer credit growth accelerated in April to the fastest pace since November 2022, according to recent data from the Federal Reserve.
The June 7 data on consumer credit, or G.19, comes after the Federal Reserve raised interest rates in May by 25 basis points, to a range of 5.0–5.25 percent.
Many economists are worried that the Fed will hike rates again when policymakers meet on June 13–14, which would be a burden on cardholders.
It has been thought that the slowdown in credit growth is the reason why consumers have purchased fewer big-ticket items amid inflationary concerns, which could lead to a slowdown in the economy.
Household Consumer Credit Debt Rises to New Highs
Total consumer credit rose $23.07 billion last month, up from a revised $22.83 billion gain in March, the Fed reported.Economists had expected a $21.6 billion gain, according to a Wall Street Journal forecast.
On a seasonally adjusted annual basis, consumer credit went up by 5.71 percent in April, after a downwardly revised 5.69 percent gain in the prior month.
The Fereal Reserve Bank of New York stated in its “Quarterly Report on Household Debt and Credit,” in February, that loan-delinquency rates had begun to surge.
“Although the overall share of debt that is delinquent remains below pre-pandemic levels, the relatively high transition rates into delinquency suggest a rapid return to pre-pandemic delinquency rates for credit card and auto loan borrowers,” the New York Fed reported.
There has been concern that American households are suffering from a rise of mounting debt and high borrowing rates, with the average credit card interest rate standing at 23.98 percent, according to LendingTree.
However, revolving credit, such as credit cards, rose 13.2 percent in April, slightly less than the 14.6 percent gain in March.
Economists Await Next Move by Fed on Borrowing Rates
Some analysts said that households and consumers with lower credit scores are now paying more for credit, which could dangerously worsen for other consumers later in the year.Philadelphia Fed president Patrick Harker told MarketWatch during an interview last week that he was not seeing a significant amount of credit tightening in his district, but he admitted that credit was potentially getting tighter.
“There is going to be some [tightening], how much we don’t know,” Harker said, adding that “in that circumstance, I just don’t see why we would climb up this hill very quickly. At some point, we’re getting in the fog at the top of the hill, let’s start to slow it down a bit.”
Harker, who is a policy dove, said that skipping June’s rate hike would be a return to normalcy.
“I think we’re close to where we need to be, [to] sit and hold for awhile. I don’t know if we’re there yet, that’s why we skip this one and see how it goes,” Harker added. “And if we need to raise, we raise at the next meeting.”
He said that some of the causes of inflation were on the supply side, like the labor shortage, which he says is happening at a pace that would be little affected by interest rate policy.
“We may have to do more … and I am open to that, but let’s give it some time,” he said regarding raising rates further.
Many economists fear that another hike in the borrowing rate will put further burden on the consumer.
There is still concern that the current credit crunch caused by the banking crisis in March will push the U.S. economy into a deep recession, but there are signs that consumer spending is still growing for now.
Consumer spending remained strong in April, according to government data, alleviating some concerns.
“We are watching these data for signs of strains on household balance sheets. But for now, a strong labor market is still supporting incomes and consumption and growth ultimately,” said Rubella Farooqi, chief U.S. economist at High Frequency Economics, told MarketWatch in an email.
