Total credit card debt in the United States hit a record high of $1.08 trillion in the third quarter, the Federal Reserve Bank of New York reported Tuesday.
In the third quarter, which ended in September, total credit card debt was up 4.7%, or some $48 billion, from the previous quarter — a sign that inflation and high interest rates are hammering consumers. The New York Fed started tracking total U.S. credit card debt in 2003.
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“Credit card balances experienced a large jump in the third quarter, consistent with strong consumer spending and real GDP growth,” said Donghoon Lee, a New York Fed economist.
The Fed has been hiking its interest rate target since March of last year, causing credit card rates to rise and making taking on and paying off debt much more expensive. That compounds the affordability challenges consumers were already facing with towering inflation.
Inflation was running at a 3.7% annual rate in September, according to the consumer price index — nearly double the central bank’s target. In 2022, people saw the biggest price increases in decades, with inflation clocking in above 9% at one point.
“Americans’ credit card balances have surged 40% since the first quarter of 2021. High inflation and record-high credit card rates are key contributors to this trend,” said Ted Rossman, a senior industry analyst at Bankrate.
Still, Rossman pointed out that the latest debt report from the Fed doesn’t distinguish between what is paid in full and what is not.
“Our research shows that 47% of credit card holders carry debt from month to month, up from 39% two years ago,” he added. “And 60% of Americans with credit card debt have been in credit card debt for at least a year, up from 50% two years ago. All of that is worrisome in the context of higher debt loads and high interest rates.”
Additionally, the Fed report showed that total household debt increased by $228 billion, or by 1.3%, in the third quarter to $17.29 trillion.
The major question Fed watchers have been asking is when the Fed will begin taking steps to ease monetary conditions. Just a year ago, many economists had predicted that the U.S. would be in a recession right now with negative GDP growth, but the economy has consistently outperformed.
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GDP growth accelerated to a 4.9% seasonally adjusted annual rate in the third quarter of this year, up from 2.1% the quarter before, the Bureau of Economic Analysis recently announced.
Because of the strong GDP growth and robust labor market coupled with the still-too-high inflation, economists now expect the Fed to keep rates higher for longer — meaning more challenges with taking on credit card debt and getting loans and mortgages for car and home purchases.