Economy

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The share of active credit card holders just making minimum payments rose to 10.75% in the third quarter of 2024, the highest ever in data going back to 2012.
The share of card holders more than 30 days past due rose to 3.52%, an increase from 3.21%, for a gain of more than 10%.
Even with the rising delinquency rate, it is still well below the 6.8% peak during the 2008-09 financial crisis and not yet indicative of serious strains.

In this photo illustration the Visa, Mastercard and American Express logo on various credit cards and debit cards are seen beside US one dollar bills on January 4, 2025 in Somerset, England. 
Anna Barclay | Getty Images

Consumer stress has intensified, with an escalating share of credit card holders making only minimum payments on their bills, according to a Philadelphia Federal Reserve report.
In fact, the share of active holders just making baseline payments on their cards jumped to a 12-year high, data through the third quarter of 2024 shows.

The level rose to 10.75% for the period, part of a continuing trend that began in 2021 and has accelerated as average interest rates have soared and delinquencies also have accelerated. The increase also marked a series high for a data set that began in 2012.
Along with the trend in minimum payments came a move higher in delinquency rates.
The share of card holders more than 30 days past due rose to 3.52%, an increase from 3.21%, for a gain of more than 10%. It also is more than double the delinquency level of the pandemic-era low of 1.57% hit in the second quarter of 2021.
The news counters a general narrative of a healthy consumer who has kept on spending despite inflation hitting a more than 40-year high in mid-2022 and holding above the Fed’s 2% target for nearly four years.

Signs of strength

To be sure, there remain plentiful positive signs. Even with the rising delinquency rate, the pace is still well below the 6.8% peak during the 2008-09 financial crisis and not yet indicative of serious strains.

“A lot remains unknown. We’ve seen in the past few days how quickly things might be changing,” said Elizabeth Renter, senior economist at personal finance company NerdWallet. “The baseline expectation is consumers in aggregate economywide will remain strong.”
Adjusted for inflation, consumer spending rose 2.9% on an annual basis in November, according to Goldman Sachs, which noted Tuesday that it sees consumers as “a source of strength” in the economy. The firm estimates that consumer spending will slow some in 2025, but still grow at a healthy 2.3% real rate this year, and Goldman sees delinquency rates showing signs of leveling.

However, if the trend of solid consumer spending holds, it will come against some daunting headwinds.
Average credit card rates have climbed to 21.5%, or about 50% higher than three years ago, according to Fed data. Investopedia puts the average rate even higher, at 24.4%, noting that so-called low-cost cards that are given to borrowers with poor or no credit history have topped 30%. Consumers haven’t gotten any help from the Fed: Even as the central bank cut its benchmark interest rate by a full percentage point last year, credit card costs remained elevated.
Those rates are hitting much higher balances, with money owed on revolving credit swelling to $645 billion, up 52.5% since hitting a decade low of $423 billion in the second quarter of 2021, according to the Philadelphia Fed.
Renter noted that an increasing number of respondents — now at 48% — to the firm’s own consumer survey reported using credit cards for essentials. Moreover, the NerdWallet survey also found an even higher level, more like 22%, saying they are only making minimum payments.
With average credit card balances at $10,563, it would take 22 years and cost $18,000 in interest when just paying the minimum, according to NerdWallet.
“With higher prices, people are going to turn to credit cards more to use for necessities. You tack on higher interest rates and then you have more difficulty getting by,” Renter said. “If they’re only making the minimum payment, you can go very quickly from getting by to drowning.”
The trend in that direction is not encouraging. A recently released New York Fed survey for December found that the average perceived probability for missing a minimum debt payment over the next three months stood at 14.2%, tied with September for the highest since April 2020.

Home loans slow

It’s also not just credit cards where households are feeling the pinch.
Mortgage originations hit a more than 12-year low in the third quarter as well, according to the Philadelphia Fed report. After peaking at $219 billion in third quarter of 2021, originations are just $63 billion three years later.
“With high mortgage rates, consumers who have locked in low fixed-rate mortgages have little motivation to refinance, reducing mortgage demand,” the central bank branch said in the report.
Moreover, debt-to-income ratios on home loans also are on the rise, hitting 26% most recently, or 4 percentage points higher over the past five years.
The typical 30-year mortgage rate recently has swelled above 7%, posing another obstacle for housing and homeownership.

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TOKYO/GDANSK (Reuters) -The dollar touched a fresh two-week low on Wednesday, as a lack of clarity on President Donald Trump’s plans for tariffs kept financial markets guessing and left the greenback struggling to regain ground against major currencies.Trump said late on Tuesday that his administration was discussing imposing a 10% tariff on goods imported from China on Feb. 1, the same day that he previously said Mexico and Canada could face levies of around 25%.He also vowed duties on European imports, without providing further details.Despite those threats, a lack of specific plans from Trump’s first day in office saw the dollar start the week with a 1.2% slide against a basket of major peers. It stabilized on Tuesday, ending flat after an attempted rebound fizzled, with U.S. officials saying any new taxes would be imposed in a measured way.The dollar index, which tracks the currency against six top rivals, touched its lowest since Jan. 6 at 107.75 on Wednesday, paring an earlier rise in the index. It was last down 0.15% at 107.97. “Tariffs have again grabbed the headlines overnight as Trump commented in the evening that his threat of a new 10% tariff on China was still on the table…,” said Deutsche Bank (ETR:DBKGn)’s Jim Reid.”Trump’s comments leave plenty of near-term uncertainty even though the trade investigations from his day 1 executive orders will take some time to play out.” Trump on Monday signed a broad trade memorandum, ordering federal agencies to complete comprehensive reviews of a range of trade issues by April 1.The greenback rose 0.3% to 156 yen, edging up from the one-month low it touched the day before.INFLATION RISKSThe euro fell 0.3% in early trading, before it changed course and rose to $1.0457, its highest since Dec. 30. It was last up 0.07% at $1.0434.Sterling hit a two-week high against the greenback, but was last trading down at $1.2351.Analysts have said that Trump’s policies on immigration, tax and tariffs will likely boost growth but also be inflationary, but the more cautious tariff approach has fuelled some hopes that inflation risks could be more limited.Traders expect a quarter-point Fed interest rate cut by July, while another reduction by year-end is considered a coin toss.The Canadian dollar was slightly weaker at 1.4346 per U.S. dollar, following a volatile week that saw it tumble as low as 1.4520 overnight for the first time since March 2020, feeling additional pressure from cooling inflation last month.The Mexican peso gained about 0.3% to 20.547 per dollar.China’s yuan held steady at 7.272 per dollar in offshore trading, after pushing to the strongest level since Dec. 11 on Tuesday at 7.2530.”A 10% tariff on China imports would be far below the 60% rate he mentioned in his campaign,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.”On top of this is the general sense that Trump is not pursuing maximalist trade protectionism in his early actions, but appears to be positioning for trade negotiations,” Tan said.”Altogether these suggest that the U.S. dollar could drop further.” More

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DAVOS (Reuters) – The Bank of Israel could reduce short-term interest rates one or two times in the second half of 2025 as long as inflation moves back below 3%, Governor Amir Yaron said on Wednesday.Yaron said that while inflation readings have been good in recent months, easing to a 3.2% rate in December – just above the government’s 1-3% annual target – price pressures were likely to accelerate during the first half of the year before coming back down later in 2025.”We think in the first half we will see inflation still coming up and then moderating towards the second half into our target, which in our baseline case probably implies that in the second half, we could see somewhere between a cut or two cuts of interest,” Yaron said in an interview with Reuters on the sidelines of the World Economic Forum’s annual meeting.The central bank sharply raised the benchmark rate in 2022 and 2023 to a high of 4.75% from 0.1% due to a spike in inflation.It cut the rate 25 basis points in January 2024 but the rate has stayed at 4.5% since, as policymakers have been concerned with the effects of Israel’s war in Gaza against Palestinian militant group Hamas that helped to push up inflation, weaken the shekel and raise Israel’s risk premium. The shekel has since reversed course and has appreciated 2.5% against the dollar so far this month, while ceasefires with Hamas and Hezbollah have brought Israel’s risk premium down sharply.”If we see inflation moderating faster and more significantly and the shekel strengthening in a more permanent way, then that may allow us to be a bit more agile and faster in that direction,” Yaron said of the prospects for cutting rates.GROWTH REBOUND EXPECTED IN 2025Yaron noted that war-related supply constraints that have helped to push up prices have started to alleviate but “in the short run, we think demand is going to move faster than the supply constraints will get alleviated”.Israel’s economic growth was near zero in 2024, but the central bank estimates growth of 4% in 2025.Yaron cautioned that should inflation remain “sticky” or geopolitical issues push Israel’s risk premium higher again, “we will have to maintain a more restrictive stance for a longer period”.He pointed to a rise in value added taxes and other government mandated increases at the start of 2025 that would add to inflation pressures.Loose fiscal policies in 2024, mainly $25 billion in extra spending to finance Israel’s military conflicts, have also concerned policymakers, especially a budget deficit last year of 6.9% of GDP.Yaron, though, largely praised the government for an austerity budget for 2025 – which still needs final parliamentary approval – of spending cuts and tax increases to rein in the deficit.He expects higher defence spending to boost the debt burden in 2025 but hopes for a decline in 2026.”Probably some more fiscal adjustment will be needed in the 2026 budget to assure that the trajectory of debt to GDP coming down continues onward,” Yaron said.After a series of credit rating cuts in 2024, the government, he added, understood the importance of maintaining market confidence although “the composition of the budget could have been pushed more into engines of growth”.  More