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.
Fed Rate Hike Odds For December. Source: CMEFedWatch
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 .
