United States | Inflation increases debt and late payments

“Americans are borrowing more, but much of the borrowing can be attributed to rising prices,” the New York Fed researchers responsible for the study explained in a blog post.

Total household debt increased by $312 billion from April to June to $16,150 billion compared to the end of the first quarter (+2%). This is $2 trillion more than at the end of 2019 before the Covid-19 pandemic.

“But historically low rates of late repayment are coming to an end,” economists warn in the blog.

Generous financial assistance from the federal government allowed American families to save a lot during the pandemic. As these “become overdue, some borrowers have started showing difficulty in repaying their loan”.

Delays in credit card and car loan repayments are common, especially for low-income families.

Inflation in the United States hit 9.1% over the year in June, a record for more than 40 years.

To counter this, the central bank, the Fed, is tightening its monetary policy, which is raising interest rates on household and corporate debt so that they consume and invest less and ultimately reduce pressure on prices.

But with this voluntary slowdown in economic activity, fears of a recession have grown.

Breaking down the second quarter, total household debt is now $11.39 trillion, $207 billion more than three months ago and $945 billion more than a year ago.