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ABA: Bank card delinquencies fell in first quarter

The decline reversed an uptick in card delinquencies in the previous quarter

Summary

Consumers continue to benefit from economic growth, although Fed Chair Jerome Powell sees a rise in uncertainty, which could prompt a rate cut soon from the Fed.

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Missed credit card payments fell in the first quarter, according to new data from the American Bankers Association.

First-quarter bank card delinquencies dropped to 3.04 percent from 3.22 percent in the fourth quarter, ABA said, as consumers continued to benefit from an expanding economy. The decline in card delinquencies reversed a 0.17-percent-point uptrend in this category for the previous quarter. The average pre-recession delinquency rate was 4.33 percent.

“The benefits of a strong job market and rising wages continue to be reflected in relatively low credit delinquencies,” said James Chessen, ABA’s chief economist. “Banks continually adjust their underwriting standards to account for any potential headwinds, and consumers continue to do a solid job of managing their debts and spending within their means. It’s the right combination that keeps delinquencies at low levels.”

The ABA expects delinquencies to stay around the current levels for the near future.

“As the economy goes, so do consumers’ finances,” Chessen said. “The data points to continued economic growth and the Fed is likely to cut interest rates over the next six months, which will keep short-term rates low and continue to facilitate the ability of consumers and businesses to meet their obligations.”

See related:  Fed: Card balances jumped by $7.2 billion in May

Powell notes rise in economic uncertainty

Indeed, Fed Chair Jerome Powell’s remarks in a July report to Congress could be setting the stage for an upcoming interest rate cut as early as the next FOMC meeting later this month.

Powell noted that “uncertainties about the outlook have increased in recent months,” and is concerned that the “economic momentum has slowed” in some “major foreign economies,” and that the weakness could rub off on the U.S. economy.

“Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling and Brexit,” Powell said. “And there is a risk that weak inflation will be even more persistent than we currently anticipate. We are carefully monitoring these developments, and we will continue to assess their implications for the U.S. economic outlook and inflation.”

Powell is also concerned about labor market disparities across different groups and between rural and urban areas. Fewer adults in their prime working years are in the labor force in the U.S., compared to other developed economies. And inflation is subdued, running below the Fed’s 2 percent target.

But the Fed remains positive overall, with a baseline outlook “for economic growth to remain solid, labor markets to stay strong and inflation to move back up over time to the committee’s 2 percent objective,” Powell said.

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