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Credit card debt is rising, and so may interest rates

Household credit card debt saw its biggest quarterly increase in at least 22 years, according to new data released Tuesday by the New York Federal Reserve.

Despite the $52 billion rise in credit card debt — the biggest since the Fed started tracking the data — the $860 billion balance is still $67 billion lower than when it started. of the pandemic, and the share of credit card holders in delinquency has decreased. The last quarter of the year is also when people typically splurge on holiday spending, so some of the increase is expected.

Nonetheless, after an initial dip at the start of the pandemic, credit card debt has steadily increased to the all-time high of $927 billion set in 2019, reflecting a broader trend not entirely explained by holiday shopping.

“We are starting to see the reversal of some of the credit card balance trends seen during the pandemic, namely reduced consumption and paying off balances,” says Donghoon Lee, research fellow at the New York Fed. , in the Fed’s third report. quarterly report. “At the same time, as pandemic restrictions are lifted and consumption normalizes, credit card usage and balances return to pre-pandemic trends.”

Inflation hasn’t helped either, as goods people usually buy with credit cards, like furniture, gas or hotels, have risen 7% over the past year, according to the report. ‘consumer price index.

To fight inflation, the Federal Reserve has indicated that it will almost certainly raise the federal funds rate in 2022, which determines the interest rate consumers pay for credit card purchases. When the Federal Reserve raises the federal funds rate, changes to credit card interest rates usually follow, usually within a billing cycle or two.

“The highest inflation numbers in four decades will likely prompt a series of interest rate hikes from the Federal Reserve, making it even harder for Americans to pay off their credit card debt,” he added. said Ted Rossman, senior industry analyst at Bankrate.com.

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