Cantor: Rising household debt bodes poorly for the economy

Cantor: Rising household debt bodes poorly for the economy

The Federal Reserve’s efforts to restore price stability to the current inflationary economy are the excess liquidity in the money supply. That’s up $6.23 trillion since February 2020, rising wages and $7.3 trillion in government debt fueled spending since 2020, all of which have pushed inflation up.

These factors have boosted consumer spending, pushing the consumer price index and producer price index up by 8.3% and 8.7% respectively for the 12 months ending August 2022. To keep these inflationary incentives in check, the Fed has initiated the two monetary policy options it has at its disposal to keep inflation in check and ultimately bring it to the 2% target.

The first is to remove liquidity from the economy at a rate of $95 billion per month, where it once injected $125 billion per month in liquidity to support the COVID-19 economy. The second is to start raising short-term interest rates after years of low interest rates. Currently, the short-term interest rate stands at 3.25% and is sure to rise to over 4% by the end of 2022. A result of the Fed’s policy of slowing the inflationary economy has led to the 30-year mortgage interest deduction. more than 6%, the highest since November 2008 and more than doubling from 2.86% as of September 2021. The spurt in retail spending, now 9.1% above August 2021, fueled by consumer debt, will boost the efforts of the FED however, making it even more challenging to reverse inflation.

Consumers, ignoring the increased costs from rising interest rates and higher inflation prices, have increased their credit card debt by $46 billion in the three months ended June 30, 2022, up 5.5% from the first quarter of 2022. with outstanding credit card debt rising to $890 billion, $100 billion in the second quarter of 2021.

New credit card bills are up 288 million or 13% from the second quarter of 2021, the biggest increase in 20 years and a record high since 2008, the start of the Great Recession. This additional credit card debt is now affecting households where household debt, as reported by the Federal Reserve Bank of New York, is now $15.6 trillion, growing from $312 billion in the first quarter of 2022, and up $2. trillion since before the pandemic hit everything. In terms of default rates, the New York Fed estimated credit card debt to be low. As the economy heads into recession, the low default rate will increase dramatically.

The financial situation of American households is deteriorating as inflation has increased food prices by 13.5% from last August, the most since 1979, rents by 6.7%, electricity by 15.8% – the largest since 1981, and health insurance at 24.3% – the largest ever.

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