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The New York Federal Reserve reported on Tuesday that credit card delinquencies will surge by more than 50% in 2023 as total consumer debt rises to $17.5 trillion.
Debt that has become “seriously delinquent,” or is 90 days or more past due, increased during the year in several categories, but the most serious was credit cards.
The Federal Reserve Bank of New York reported that credit card debt totaled $1.13 trillion in the fourth quarter, with a serious delinquency rate of 6.4%, a 59% jump from just over 4% at the end of 2022. Researchers at the New York Federal Reserve Bank said that on an annual basis, the quarterly growth rate was about 8.5%.
Delinquency rates also rose in the mortgage, auto loan and “other” categories. Student loan delinquency rates are down, as are home equity lines of credit. Overall, 1.42% of debt is 90 days or more past due, up from just over 1% at the end of 2022.
“Credit card and auto loan delinquency rates are still rising and above pre-pandemic levels,” said Wilbert van der Klau, economic research adviser at the New York Fed. “This points to increased financial stress, especially among younger and lower-income households. .”
Researchers at the New York Fed say that while delinquency levels are rising, total debt is rising at roughly the same pace as before the Covid-19 pandemic began in March 2020.
Household debt increased by US$212 billion this quarter, a quarterly increase of 1.2% and an annual increase of approximately 3.6%. However, credit card debt jumped 14.5% from the same period in 2022. Auto debt climbed to US$1.61 trillion, an increase of US$12 billion quarter-to-quarter and US$55 billion annually, an increase of 3.5%.
Borrowers are being hit with higher interest rates. During the tightening cycle from March 2022 to July 2023, the Federal Reserve raised short-term borrowing rates by 5.25 percentage points, raising the federal funds rate to the highest level in about 23 years. The base rate applies to most adjustable rate consumer debt products.
According to statistics, since central banks began tightening, typical interest rates on credit cards have jumped from about 14.5% to 21.5%. Fed data. Credit card debt as a share of income remains below pre-pandemic levels.
Joseph LaVorgna, chief economist at SMBC Nikko Securities, said that while the increase in delinquency rates started from low levels, the trend is “noteworthy because it is occurring while the economy is still growing.”
“What happens if the economy slows and unemployment rises rapidly? Delinquency rates could surge, leading to a self-reinforcing credit crunch,” LaVolgna said in a note. “In other words, a mild recession could It will turn into a severe recession.”
Fed researchers said rising interest rates may have had an impact on delinquency rates. Taking automobiles as an example, they said that due to the increase in the interest rate structure, there is little change in payment methods even if prices fall.
Student loan debt, an area of interest for Washington lawmakers, has barely increased during the pandemic and now totals just over $1.6 trillion. This was little changed from the third quarter, which was only a 0.4% increase from the same period last year.President Joe Biden Approximately $136.6 billion has been forgiven has been saddled with student loan debt since taking office. The proportion of seriously delinquent debt dropped slightly to 0.8%.
Mortgage debt rose 2.8% in 2023, while the delinquency rate rose to 0.82%, a 25-point increase from the previous year.
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