Credit Card Delinquencies Surged in 2023: New York Fed

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Federal Reserve Chair Jerome Powell said that interest-sensitive spending, including mortgages and durable goods, will be expensive for a while.

Credit card delinquencies increased almost 60 percent in 2023 as total household debt and credit developments reached $17.5 trillion, data from the Federal Reserve Bank of New York show.

Of the $1.129 trillion credit card debt reported at the end of 2023, 6.36 percent has fallen into “serious delinquency,” which is defined as 90 days or more past due.

Delinquencies in mortgage debt and auto loan debt also increased, but not as fast as credit card debt. Meanwhile, home equity line and student loan debt improved slightly in delinquencies.

The New York Fed said in a blog posting accompanying the report that delinquency rates have been rising from very low levels in 2021 amid a retreat in government support efforts. In the case of auto loans, delinquency rates are now above pre-pandemic levels “and the worsening appears to be broad-based,” New York Fed researchers wrote.

The rising delinquency in credit card and auto loans showed “increased financial stress, especially among younger and lower-income households,” said Wilbert van Klaauw, the New York Fed economic research advisor.

Overall borrowing levels in the United States rose modestly during the final three months of last year as more types of borrowing ran into trouble, especially on the auto front, even as overall difficulties remained below levels seen before the onset of the COVID-19 pandemic.

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Total household debt climbed by $212 billion in the fourth quarter of 2023, to $17.5 trillion, the New York Federal Reserve said on Tuesday in its latest quarterly Household Debt and Credit Report.

Amid the rise in debt, delinquency rates and the transition into troubled status were both higher.

The New York Fed said 3.1 percent of outstanding debt was in some type of delinquency, up one-tenth of a percentage point from the third quarter. But overall delinquency rates were 1.6 percentage points lower than in the last quarter of 2019 before the pandemic struck.

Being Stressful in a ‘Good Economy’

The New York Fed report describes credit conditions in an economy that has been growing strongly amid historically low levels of unemployment and rising incomes.

But at the same time, inflation has been high and the central bank has raised interest rates aggressively and kept short-term borrowing costs high, which in turn has made credit more expensive and challenging to manage for borrowers.

Federal Reserve Chair Jerome Powell attends a lunch hosted by the Economic Club of New York at the Hilton Hotel in New York City, on Oct. 19, 2023. (Spencer Platt/Getty Images)
Federal Reserve Chair Jerome Powell attends a lunch hosted by the Economic Club of New York at the Hilton Hotel in New York City, on Oct. 19, 2023. (Spencer Platt/Getty Images)

Some prices will still go up though the inflation is coming down, Federal Reserve Chair Jerome Powell warned during an interview with CBS’s “60 Minutes” on Sunday.

“The prices of some things will decline. Others will go up. But we don’t expect to see a decline in the overall price level,” he said during the interview.

People are unhappy with the “good economy” because of that.

“People are experiencing high prices. If you think about the basic necessities, things like, you know, bread and milk and eggs and meats of various kinds, if you look back, prices are substantially higher than they were before the pandemic. And so, we think that’s a big reason why people are, have been relatively dissatisfied with what is otherwise a pretty good economy,” he added.

Mr. Powell said that interest-sensitive spending including mortgages and durable goods will be expensive for a while.

He asked people to be more patient. “I think people have been patient and have been through a pretty difficult time,” he said. “we’re coming through that time and starting to feel a little bit better about things.”

Rate Cut in the Second Half of 2024

Mr. Powell also indicated that there would be no interest rate cut in the first half of 2024.

Every single member of the policy-making Federal Open Market Committee (FOMC) thinks there should cut the interest rate this year. But it most likely will happen in the second half of 2024.

The Federal Reserve has seen good data in the last six months of 2023, but still needs to hold on for another six months before a decision on a rate cut.

“We look at inflation over a 12-month basis,” Mr. Powell said.

At the January FOMC policy meeting, the central bank kept interest rates unchanged at a range of 5.25–5.5 percent. But it was what the FOMC statement said that caught the attention of investors.

“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the FOMC statement reads. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

At the post-FOMC meeting press conference, Mr. Powell revealed that it is unlikely that there will be rate cuts at the March meeting.

“I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting [to cut rates],” he said.

Reuters and Andrew Moran contributed to this report.

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