Card balances crossed the $1 trillion mark in September, according to the Federal Reserve
Credit card balances crossed the $1 trillion mark in September, according to a federal government report released Tuesday.
Consumer revolving debt, which is mostly credit card balances, jumped by $6.3 billion on a seasonally adjusted basis to $1.01 trillion, per the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 7.7 percent.It’s not the first time this year the Fed has reported card balances surpassing the $1 trillion mark. The revolving debt level was previously said to have done so in February, but the Fed’s July report revised card balances downward to $994 billion. Revolving debt had not been above $1 trillion since January 2009, in the early stages of a recession-driven decline that bottomed out at $832 billion in April 2011. Card balances have steadily marched upward since then.
Total consumer debt, which includes student loans and car loans along with revolving balances, increased by $20.8 billion to $3.79 trillion in September, an annualized growth rate of 6.6 percent. Student loan debt has grown by $35.2 billion to $1.49 trillion since the Fed last measured it in June. Auto loans have increased by $19.3 billion to $1.11 trillion since June.
Trump taps Powell as new Fed chair
President Trump nominated Fed board governor Jerome Powell Nov. 2 to succeed Janet Yellen as Fed chair when her term ends next year. Powell will step into the role in February, pending Senate confirmation.
Given his remarks echoing many of Yellen’s views on inflation and the economy, Powell’s appointment did not change analysts’ opinions about the trajectory of rate hikes. Many expect a new one at the Fed’s December meeting.
“Of all the apparent candidates \u2026 Mr. Powell is the least likely to disrupt the Fed, at least on the monetary front,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a Nov. 2 note to subscribers.
But Shepherdson cautioned that Powell may not always react to economic events in the same way Yellen would. He noted that Powell’s background is in law, investment banking and private equity, rather than economics.
“As a noneconomist, we suspect he will take greater guidance from the Fed’s staff and other FOMC members,” Shepherdson wrote. “But given the four empty governor seats, it’s not yet clear what that guidance might take.”
In a June speech, Powell expressed his view that recent weakness in inflation is nothing more than a temporary lull, and that the labor market would continue to tighten. Indeed, the unemployment rate continues to shrink and job gains have been steady. Nonfarm payrolls grew by 260,000 in October and the unemployment rate ticked down one percentage point to 4.1 percent, according to the Bureau of Labor Statistics. Wages were unchanged, compared to a 12-cent gain in September.
TD Bank Senior Economist Leslie Preston said in a Nov. 3 note the jobs report “certainly argues” for a rate hike in December.
“However, we still have yet to see a notable pickup in core inflation and now wage growth has disappointed,” Preston wrote. “We expect that Yellen will be comfortable taking rates another 25 basis points higher in what will likely be her second to last meeting as chair.” A basis point is a hundredth of a percent, so a rate increase of 25 basis points would raise the key federal funds rate from its current ceiling of 1.25 percent to 1.5 percent. Most credit cards are indexed to the federal funds rate, so if the Fed raises rates, most credit card rates would rise by an identical amount.
Rate hike could further fray consumers’ nerves
The expected action on interest rates could add to consumers’ already-growing fear of missing debt payments. The New York Fed in October reported Americans’ average expected probability of missing a minimum debt payment rose for the third month in a row. At 13.4 percent, the probability is still below last year’s peak, but the three-month trend is cause for concern.
Consumers’ anxiety about debt payments evidently hasn’t affected their spending habits. Personal expenditures rose by a full percentage point in September, per the federal government. Shepherdson of Pantheon Macroeconomics noted in an email the spending numbers were driven in part by a surge in auto purchases in the wake of Hurricanes Harvey and Irma.
“As a result, September spending was well above the average level for Q3 as a whole,” he wrote. “At this point we expect a partial correction, with spending then reverting to trend.”
Meanwhile, credit card users have enjoyed a relatively lengthy reprieve from interest rate increases. The national average APR for new accounts has held steady at 16.15 percent for the past seven weeks, as noted in the CreditCards.com Weekly Credit Card Rate Report. But that’s a record high, and it’s likely to be broken more than once before year’s end.
See related: Fed: Card balances rose by $5.7 billion in August