Americans are grappling with unprecedented debt levels that may grow more due to increasing interest rates, inflation and the end of the student loan moratorium.
In the second quarter of 2023, total household debt reached an all-time high of $17.06 trillion, according to a report from the Daily Caller.
Credit card debt alone surpassed $1 trillion, according to a report from the Federal Reserve Bank of New York.
Rising costs for essentials like housing and energy, coupled with the resumption of student loan payments, may make the debt burden escalate, economists estimate.
Peter Earle, an economist at the American Institute for Economic Research, expressed concern, stating, “The amount of debt outstanding, and in particular the surpassing of the $1 trillion mark, is significant and worrisome,” said Peter Earle, an economist at the American Institute for Economic Research.
“It owes to a combination of several factors,” he continued, adding the Fed’s pandemic policy of essentially lowering interest rates to zero made the amount of credit and the price of taking on debt extraordinarily cheap.
The Federal Reserve’s decision to increase the federal funds rate eleven times since March 2022 has led to a current rate range between 5.25% and 5.5%, the report noted.
The hikes were implemented to address inflation, which stood at 3.2% in July, a slight increase from 3% in June but a significant drop from 9.2% in June 2022.
“Interest rates on credit cards, car loans, mortgages, and other forms of debt have been shooting up, making the servicing of debt taken at low prices more expensive presently,” Earle explained.
“Record levels of outstanding credit card debt is concerning, especially in a time of rising interest rates,” said chief economist for the Center for American Prosperity Michael Faulkender.
“Overall debt burdens for many households are manageable because they locked in record low mortgage rates in 2020 and 2021.”
Potential continued inflation poses a threat, especially if real wages don’t adjust accordingly, which may lead to increased costs for consumers and pushing more Americans into debt.
Federal Reserve Chairman Jerome Powell projected that inflation might not stabilize to his target rate of 2% until 2025, despite elevated interest rates.
“For younger households facing rising rent, restart of student loan payments, and rising credit card debt burden, they are struggling,” said Faulkender.
He added that, when combined with wages that have not paced inflation, many households have nearly depleted savings accumulated during the COVID-19 pandemic.
“For these households, Bidenomics is a complete bust,” he concluded.