Research and Statistics

Fed: Card balances fell $3.8 billion in January


Credit card balances fell in January, according to the Federal Reserve

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Credit card balances fell in January, according to a federal report released Tuesday.

Consumer revolving debt, which is mostly credit card balances, decreased by $3.8 billion on a seasonally adjusted basis to $995.1 billion, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was -4.6 percent.

December’s card balances ($998.9 billion, after revisions) were still the highest since January 2009, when they reached $1.01 trillion. Despite the drop in January, card balances are likely to once again surpass the $1 trillion mark this year.

Total consumer debt \u2014 auto and student loans as well as credit card balances \u2014 increased in January, reaching $3.77 trillion, an annualized growth rate of 2.8 percent.

January’s decrease follows a $3.6 billion rise in card balances reported in December.

Inflation stymies consumers’ buying power
Consumers saw their purchasing power decline in January due to rising inflation, TD Economics Senior Economist James Marple said in a March 1 research note.

While expenditures rose by 0.2 percent without adjusting for inflation according to the federal government, real spending fell by 0.3 percent. Meanwhile, personal income declined by 0.2 percent when adjusted for inflation and removing taxes. Core inflation \u2014 which excludes goods that experience short-term price swings \u2014 remains below the Fed’s target of 2 percent. However, it’s set to reach that mark by the end of the year, Marple said.

“This puts the onus for growth on stronger wage gains to drive increases in income and therefore spending,” he wrote. “Fortunately, with the labor market continuing to tighten, this remains a good bet.”

The federal government said last month 227,000 jobs were added in January, but wages grew only 2.5 percent.

The personal savings rate ticked up to 5.5 percent in January after dropping by 0.3 percent between November and December. Emergency savings will be critical to consumers as credit card balances continue to climb and more income is used to pay off balances and interest charges. Unfortunately, many are not in the habit of socking away extra funds.

Only 52 percent of consumers have more emergency savings than credit card debt, according to a February survey by Bankrate. Twenty-four percent said they had more credit card debt than emergency savings.

Additionally, a new study by Chase revealed that many families rely on liquid assets and tax refunds to meet major expenses such as medical payments. The bank said the average family’s revolving credit card debt was 9 percent higher on average one year after making a medical payment of about $2,000.

Rate hike rumblings
Several Federal Reserve policymakers, including chairwoman Janet Yellen, have publicly suggested a new rate hike could come this month.

“At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would be appropriate,” Yellen said in a March 3 speech.

Yellen’s comments echoed those made recently by Fed Governor Lael Brainard and Fed bank presidents William Dudley of New York and John Williams of San Francisco. The Federal Open Market Committee’s next meeting is set for March 15.

But some analysts believe the timing of the meeting could make a new rate hike politically awkward. Pantheon Macroeconomics Chief Economist Ian Shepherdson noted that President Trump is set to release his first budget on March 14, and it’s likely to include a spate of tax cuts.

“To raise rates just a day after the budget is released \u2026 would look to many Republicans like a deliberate poke in the president’s eye, no matter how hard the Fed tries to explain its actions in terms of the inflation threat posed by the labor market,” Shepherdson wrote March 3.

Many issuers bumped up card APRs in response to the Fed’s last rate hike of 0.25 percent in December. Average APRs for new cards have held steady for the past three weeks, but they’re at a record high of 15.50 percent, according to the CreditCards.Com Weekly Credit Card Rate Report. Another increase in the federal funds rate will push up APRs even further, and many observers expect additional rate hikes later in the year.

See related: Fed: Card balances up $2.4 billion in December

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