The leading indicators that have been receiving attention have deteriorated! Did the Federal Reserve's concerns come true?

Golden10 Data ·  May 29 16:39

Goulsby pointed out, “If consumer loan default rates start to rise, it is often a leading indicator that the situation is about to worsen.”

Chicago Federal Reserve Chairman Goulsby stressed that consumer default is currently one of the most watched economic indicators, and his previous concerns now seem prescient, as new data shows a significant rise in consumer default rates in the first quarter of 2024.

Goulsby pointed out, “If consumer loan default rates start to rise, it is often a leading indicator that the situation is about to worsen.”

The release of the latest data last week confirmed these concerns, showing that the overall default rate has risen. “By the end of March, 3.2% of outstanding debts were in some kind of default.” This marks a marked increase in consumers' financial woes.

The data shows that the rate of various types of debt shifting to default has increased dramatically. Approximately 8.9% of credit card balances and 7.9% of car loans became defaulted after annualization. Although the mortgage default conversion rate increased by 0.3 percentage points, it is still low by historical standards.

Joelle Scally, chief regional economic analyst at the New York Federal Reserve's Household and Public Policy Research Division, said: “In the first quarter of 2024, the proportion of credit card and car loans of all ages shifting to serious defaults continued to rise. More and more borrowers are missing out on credit card payments, showing that some families' financial woes are worsening.”

Faced with these worrying trends, the Federal Reserve has yet to identify a single reason for the rise in default rates. Instead, it believes it may be the result of a combination of factors.

Americans increased both their savings and expenses during the pandemic, and consumers are likely to continue to maintain high consumption levels without significant savings buffers, making them more dependent on borrowing.

Furthermore, there has been an increase in lending to borrowers with lower credit scores in recent years, which may also be a factor contributing to the rise in default rates.

Regarding US inflation, Goulsby said that he is “optimistic” and believes there is evidence that US housing price inflation will drop drastically, bringing the overall level of inflation down to the Federal Reserve's 2% target. In an interview, he said that as can be seen from the April CPI data, there has been a decline in housing inflation. He thinks it would be great if this continues. If this doesn't continue, then the Federal Reserve will have to investigate in depth to try to figure out what happened

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