Consumer Debt in United States Spikes to New ATH $17.05T in Q1 2023

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The announcement of higher United States consumer debt comes as debate for a national debt limit raises concerns over high inflation.

The New York Federal Reserve reported Monday that total consumer debt reached a new ATH of slightly above $17 trillion during the first quarter of 2023. AnnouncementTotal lending for the first quarter increased by about $150 billion, about 0.9 percent, to about $17.05 trillion. As a result, total consumer debt is set to increase by nearly 20 percent to $2.9 trillion by 2029 since the pre-Covid era.

Americans’ borrowing rates have continued to rise, despite an increase in the overall cost of taking on new loans. Notably, the Fed has raised the overall interest rate several times over the years, currently hovering around 5 percent with a recent 25 basis point increase, to discourage consumers from taking on new debt.

In addition, the Fed is looking to reduce high inflation toward the desired 2 percent and avoid overloading international investors and countries that hold the United States dollar as a reserve currency. In addition, many countries, led by BRICS, are moving away from dependence on the United States dollar in settling international trade.

Take a Closer Look at United States Consumer Credit

Mortgage lending increased by almost a trillion dollars in the past four months to about $12.04 trillion. Student debt also increased in the first quarter and currently stands at about $1.6 trillion. Auto loans also increased during the first quarter of the year to nearly $1.56 trillion. Credit card debt also registered a hit of about $986 billion during the first quarter of the year.

The announcement of higher United States consumer debt comes as debate for a national debt limit raises concerns over high inflation. While the prospect of a national debt default is unlikely, Congress is considering either eliminating the cap or raising the ceiling, which only postpones the challenge.

In particular, borrowers in the United States previously used the low interest rates to buy new homes and refinance mortgages. However, the latter saw a boom that appears to have come to an end.

“The mortgage refinancing boom is over, but its effects will be seen for decades to come,” said Andrew Hogout, director of domestic and public policy research at the New York Fed.

Interestingly, the Fed report noted that most mortgages were refined during the pandemic due to low rates, reducing their savings by about $220 per month.

“As a result of the significant equity drawdown, mortgage borrowers reduced their annual payments by tens of billions of dollars, providing additional funds for spending or payments on other debt categories,” Hougout said.