Americans added $22 billion in credit card debt in the third quarter, New York Fed data shows. That lifted the total to a record $1.29 trillion.
Those balances could soon cost more to carry, as traders now bet on a Fed rate hike in December.
Record Card Balances Mask an Uneven Strain
The card increase came within a wider borrowing rise, as total household debt climbed $334 billion to $19.1 trillion. The New York Fed’s quarterly report also puts credit card debt $52 billion above its level a year earlier.
Repayment trends on cards improved slightly. The share of card balances newly falling at least 90 days behind eased to 6.87% from 7.05% a year earlier.
However, a companion New York Fed analysis found the strain is heaviest in lower-income neighborhoods. The delinquency gap between lower- and higher-income areas has widened since 2022.
The researchers blamed the post-2022 jump in card delinquencies largely on high inflation and rising borrowing costs. Looser pandemic-era lending added to the strain, as more cards went to lower-income, lower-score borrowers. Still, they said that effect is fading as newer cards go to borrowers with higher scores.
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How a December Fed Rate Hike Reaches Card Bills
High inflation and borrowing costs are back in focus ahead of the Fed’s December meeting. October’s Consumer Price Index (CPI) rose 0.4%, above the 0.3% forecast.
CME FedWatch data now shows a 100% chance of a Fed rate hike on December 9. Traders assign 90.9% odds to a quarter-point move from the current 3.75%-4.00% range, and 9.1% to a half-point move.
Those hike bets also reached crypto markets. Bitcoin (BTC) fell after the CPI release and traded at $73,566 at press time. BeInCrypto reported that the hot print wiped out $200 million in crypto bets. Higher rates lift returns on cash and bonds, which reduces the appeal of riskier assets.
For households, a hike would quickly reach credit card interest rates. The Consumer Financial Protection Bureau (CFPB) describes most card Annual Percentage Rates (APRs) as having two parts. Each one combines the prime rate with a margin set by the lender.
The prime rate moves with the Fed’s benchmark. Therefore, variable card rates usually adjust within one or two billing cycles, according to Experian.
Card borrowing is already costly, with the average APR on new card offers near 24%, according to LendingTree. The extra cost of a hike lands on borrowers who carry a balance from month to month. Cardholders who pay in full each month avoid interest charges.
Ted Rossman, principal consumer finance analyst at Money Management International, tied the debt build-up to both inflation and borrowing costs.
“Higher prices and higher rates have pushed more people into debt,” he said.
New York Fed researchers expect card delinquencies to keep improving, absent macroeconomic shocks. Since the researchers tied past delinquencies to rising borrowing costs, a hike on record balances could test that outlook.
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The post Americans Owe a Record $1.29 Trillion on Credit Cards. Who Pays When the Fed Hikes? appeared first on BeInCrypto.
