Escalating National Debt and Rising Interest Rates Contribute to Income Erosion from Inflation: TransUnion Survey
With the national debt exceeding $17 trillion and ongoing increases in interest rates, a substantial portion of Americans have witnessed inflation erode their income, as per a survey conducted by TransUnion.
In the second quarter of 2023, a significant 46% of consumers indicated that their incomes were unable to keep pace with the inflation rate, as reported by TransUnion. Moreover, 38% reported their financial situations to be worse than anticipated at that juncture. This represents a four-percentage-point rise from the previous quarter, as highlighted by TransUnion.
TransUnion noted in its report that “inflation has consumers in a recession state of mind.”
When respondents were asked to prioritize their concerns regarding financial stressors, the following responses were observed:
- Inflation: 79%
- Recession: 53%
- Housing prices: 45%
- Interest rates: 41%
To tackle their financial apprehensions, a significant number of Americans expressed intentions to resort to credit. Approximately 32% of consumers revealed plans to apply for new credit or refinance existing credit within the upcoming year, according to TransUnion’s findings. This marked an increase of three percentage points from Q1 2023 and a notable surge of six percentage points from Q4 2022.
Charlie Wise, Senior Vice President and Head of Global Research and Consulting at TransUnion, remarked, “We are living in uncharted territory from a consumer credit perspective. The combination of rising interest rates and elevated inflation, while not uncommon from a historical perspective, is an unfamiliar experience for many consumers, especially those in the Gen Z and Millennial generations.”
Wise continued, “It’s also likely why a number of people are expressing that they feel they are in a personal recession or soon will be in one, with costs rising faster than their incomes.”
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Escalating Household Debt Amidst Rising Interest Rates
Against the backdrop of persistently high inflation and looming concerns about a potential recession, the United States has reached a new pinnacle of indebtedness. Data unveiled by the New York Federal Reserve reveals that total household debt surged to an unprecedented $17.05 trillion in the first quarter of 2023.
This marked an elevation of America’s debt balance by $2.9 trillion compared to its position at the conclusion of 2019, prior to the onset of the COVID-19 recession.
The release of this report followed the Federal Reserve’s decision to raise interest rates for the 10th time since March 2022. Although inflation had receded to a year-over-year increase of 4.9% in April, a notable decline from its peak of 9.1% in June 2022, it remains distant from the Federal Reserve’s target range of 2%. Consequently, this hints at the possibility of further interest rate hikes, with the next set of actions potentially being decided as early as the Fed’s June meeting.
At an economic summit in Santa Barbara, California, in May, Fed Governor Christopher J. Waller stated, “I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2 percent objective.”
Fed Chairman Jerome Powell emphasized that the trajectory of interest rates hinges on incoming data. During a press conference in May, Powell remarked, “In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. We will make that determination meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation. And we are prepared to do more if greater monetary policy restraint is warranted.”
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