American credit card debt has surpassed $1 trillion for the first time, according to a new report by the American Reserve Bank of New York. Such news comes alongside several indicators of economic uncertainty.
In the second quarter of 2023, credit card debt rose by 5% ($45 billion), and the total household debt has now exceeded $17 trillion.
To fight inflation, the Federal Reserve has consistently raised the federal funds rate since March of 2022, when the rate was 0.08%; today, the rate sits at 5.33%. The Federal Funds Rate, the central bank's interest rate that controls how much banks pay each other to borrow money, is the basis for overall borrowing rates.
Last summer, inflation rates reached as high as 9.1%. The inflation rate was down to 3.2% last month as it continues to inch towards the ideal rate of around 2%.
The rate hike has contributed to the current debt increase. Consumers must pay extraordinarily high borrowing rates, including credit card rates above 20%. According to the Consumer Financial Protection Bureau, 47% of credit card users carry their debt from month to month.
Last year, only 7% of cardholders carried their debt. 55% of Americans report feeling insecure about their ability to pay off their credit card debt. The debt issue will only increase in October, as the pause on student loan payments will end, adding an extra monthly fee for many Americans.
However, New York Fed’s researchers who released the staggering $1 trillion in credit card debt number report reasons for optimism.
"Despite the many headwinds American consumers have faced over the last year—higher interest rates, post-pandemic inflationary pressures, and the recent banking failures—there is little evidence of widespread financial distress for consumers,” the article wrote.
In addition, delinquency rates have returned to pre-pandemic levels, even for lower-income earners, indicating sufficient ability to pay off credit card debt.
With largely uncertain data surrounding the exact state of the economy, Americans are still largely pessimistic. Only 34% currently support President Joe Biden's handling of the economy.
A CNN poll from July shows 44% of Americans believe the economy is the nation's most important issue. 75% of Americans agree that the economic conditions are poor, with 34% saying the economy is "very poor."
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