The indebtedness of the American citizen is increasing at record rates
Americans’ debts and credit card debts rose at record rates by the end of last year, according to data released today, Thursday, by the Federal Reserve Bank of New York.
According to the quarterly report issued by the Federal Reserve, total household debt reached a record level, exceeding $16.9 trillion during the fourth quarter of last year, an increase of $394 billion, or 2.4% over the third quarter of the same year.
While the lion’s share of the debt was directed to mortgages, the report showed that credit balances were a source of concern for the bank’s researchers, as they not only reached record levels, but defaults also began to rise during the ending quarter.
And credit card balances increased by about 6.6%, to reach $986 billion during the fourth quarter, in the largest quarterly increase ever, according to data from the Federal Bank of New York dating back to 1999, while the increase compared to the previous year was 15.2%.
The Federal Reserve has raised interest rates eight times in a row, totaling 4.5%, over the past 11 months, in an effort to combat the highest inflation in more than 40 years.
The rise in interest rates affected the US housing sector, as housing construction declined during the last quarter of last year to 2019 levels, according to the bank’s report.
A historically strong labor market has helped sustain consumer spending; However, this spending is currently taking place in an environment witnessing historically high inflation and interest rates not seen since 2007, which witnessed the precursors of the global financial crisis.
“It’s a triple problem for credit card borrowers – balances are going up, interest rates are up, and more people are adding credit card debt,” Ted Rossman, senior industry analyst at interest rate site Bankrate, said in a statement.
And with this steady increase in debt, Americans are facing more difficulties in meeting their payment obligations, as the default rate has increased in almost all types of debt, and credit cards and auto loans have achieved the highest default rates.
At the end of 2022, 18.3 million borrowers were delinquent on credit card debt, according to New York Federal Reserve researchers, compared to 15.8 million at the end of 2019.
Particularly younger borrowers, in their 20s and 30s, are struggling to make payments on car loans and credit cards, the bank’s researchers said.
Although the total levels of defaults are still lower than they were before the outbreak of the epidemic, when it reached 2.5% of outstanding debts, compared to 4.7% at the end of 2019, the bank’s researchers concluded that the late payment rates are high, despite Of the strength of the labor market, which raised their concerns, according to the report issued by the bank.
Wilbert van der Klaau, economic research advisor at the bank, says that despite the historically low unemployment rates, which preserved the financial ability of consumers in general, “the stubbornly high prices, as well as the high interest rates, may be a test of the ability of some borrowers to pay off their debts,” according to CNN.
The United States of America has been suffering from economic inflation since the easing of restrictions imposed to limit the spread of Covid-19 in 2021, as the inflation rate recorded 9.1% last June, which prompted the Federal Bank to impose its strict policies, bringing the annual rate last January to about 6%.
