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Latest New York Fed Report Suggests Higher Rates For Longer

Last updated 03/15/2024 by

Miron Lulic

Edited by

The Federal Reserve Bank of New York has unveiled its much-anticipated Q4 2023 Report on Household Debt and Credit, offering a critical analysis of the nation’s economic landscape. Contrary to the alarmist rhetoric permeating social media platforms, the report reveals a reassuring reality: the United States is not teetering on the brink of a financial crisis. Let’s delve into the key findings and implications outlined in the report.
The latest findings from the Federal Reserve Bank of New York Report on Household Debt and Credit provide a critical analysis of the nation’s economic condition. Contrary to the bleak picture painted by some on social media, the report shows reassuring stability in the U.S. economy. Let’s explore the key insights and what they mean for the future.

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Delinquency rates at historical lows

The aggregate delinquency rates rose slightly to 3.1% of outstanding debt. However, the report highlights a crucial trend: overall delinquency rates have remained lower than their 2019 levels dispelling fears of an imminent economic collapse.
The “Total Balance by Delinquency Status” graph illustrates the percentage of outstanding debt by its delinquency status over time. The color-coded layers represent different degrees of delinquency, from 30 days late to severely derogatory (any of the previous states combined with reports of a repossession, charge off to
bad debt or foreclosure).

Transition into delinquency is higher but within historical norms

While there is a notable increase in the rate at which consumers are transitioning to delinquency, it is vital to note that these rates still remain within historical norms.
The “Transition into Delinquency (30+ days) by Loan Type” graph illustrates the percentage of each loan type’s balance that has transitioned into delinquency (i.e. more than 30 days late).

Foreclosures and bankruptcies are still at historically low levels

Foreclosures, bankruptcies, and third-party collections continue at historically low levels, underscoring the overall resilience of the financial system.
A decrease in the percentage of consumers with collections suggests that fewer people are defaulting on their debts, which speaks to an overall improvement in financial health among consumers. However, the rise in the average collection amount could imply that while fewer individuals are facing collections, those who do have significantly higher debts. This could be the result of accumulated interests, the nature of the debt itself, or a concentration of defaults among borrowers with larger debts.

Implications for interest rates

What does this mean for future interest rates? With core Consumer Price Index (CPI) on the rise, persistently low unemployment rates, and robust corporate profits, the likelihood of a rate cut in the near term appears slim. Federal Reserve Chair Jerome Powell would be remiss to enact rate cuts under these circumstances, given the economy’s stability at historically normal rates.
The possibility of a near-term rate cut hinges largely on the occurrence of a significant shock to the economic system. However, it is more plausible that we may witness one or more rate increases before a rate cut becomes a viable option. Despite this, it’s essential to acknowledge the caveat presented by the commercial office real estate sector. While relatively minor in the broader economic context, any downturn in this sector could prompt Federal Reserve intervention. Nonetheless, the Fed’s ability to devise regional bank liquidity solutions suggests that the financial system remains equipped to weather potential challenges.

The bottom line

In summary, the Federal Reserve’s Q4 2023 Report on Household Debt and Credit offers a reassuring glimpse into the nation’s economic health. Despite the pervasive fear-mongering on social media platforms, the data paints a picture of stability and resilience. As we navigate the economic landscape in the coming months, it is imperative to heed the insights provided by this report and maintain a cautious yet optimistic outlook on the future.

Key takeaways

  • The Q4 2023 Report shows stable delinquency rates and economic resilience.
  • Although the rates of transition into delinquency have increased, they are still historically low.
  • There is an encouraging drop in the number of bankruptcies and foreclosures, and the percentage of consumers in collections.
  • Interest rates are likely to remain high or increase before any potential cuts.

Miron Lulic

Miron Lulic is founder and CEO at SuperMoney, a service that helps millions of people transparently compare financial services such as loans, investments, and more.

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