Is a Looming Recession in the US Imminent Amidst Delayed Rate Hikes and Declining Consumer Borrowing?

Is this a relatively clear sign of a looming recession in the US, coming after the delayed rate hikes? If Americans stop consuming, will economic growth be stunted, because consumption is what drives the economy in the US? Data from tonight shows just how massive the rate hikes by the Federal Reserve on credit card rates and consumer credit.

US consumer borrowing slowed to a more than two-year low in May, reflecting the first decline in non-revolving credit since the pandemic began. Summarize Bloomberg: Total lending rose $7.2 billion, the smallest increase since November 2020, Federal Reserve data showed on Monday. The number, which is not adjusted for inflation, was below all forecasts by a Bloomberg poll of economists. The year-on-year rate of increase is only 1.8% – it was only lower in 2020 at -0.3% (Find the details in the original source HERE).

Non-revolving loans, such as loans for tuition and vehicle purchases, fell $1.3 billion, the first decline since April 2020. Five-year lending rates for new vehicle purchases hit 7.81% in May, the highest since 2006 According to the industry, auto sales cooled off this month.

Outstanding revolving credit, which includes credit cards, rose $8.5 billion, slowing from strong gains in the previous two months. Credit card interest rates were 20.68% in May, a record high in Fed data dating back to 1972 (up from 14.22% in 2018).

Adjusted for inflation, consumer spending has largely come to a halt after a surge earlier in the year. Meanwhile, default rates are rising. Looking ahead, the finances of households with student debt will continue to be stretched. More than 40 million Americans will resume student loan payments this fall after a three-year hiatus.

FMW: Massively increasing charges from credit card interest rates at over 20%, plus this resumption of student loan payments – this is eating away at Americans’ willingness to spend. Add to that mortgage rates, which are at their highest level in 22 years at 7.38%. All together it is a toxic cocktail that will probably slow down the economy? But that’s exactly what the Federal Reserve’s sharply rising interest rates are supposed to achieve, a slowdown in the economy. Only now you have arrived at the crucial tipping point. Will the Federal Reserve stop raising interest rates at just the right time and not stall the US economy too much?