US consumer borrowing surged again in April, marking a second consecutive month of substantial increases and representing the strongest back-to-back growth since late 2022.
Data released by the Federal Reserve on Friday showed total outstanding consumer credit in the US increased by $20.7 billion during the month, surpassing the median economist forecast of a $17.7 billion rise. The figure for March was revised upward to show a $22.2 billion gain.
Within the total, non-revolving credit—which includes loans for automobiles and education—increased by $9.1 billion in April. Revolving credit balances, primarily consisting of credit card debt, rose by $11.6 billion. The report does not include mortgage debt.
Many Americans are facing additional financial strain as rising gasoline prices erode household budgets. While the labor market appears to be gaining momentum, wage growth is losing steam, which may be prompting some consumers to maintain spending levels by taking on more debt or drawing down savings.
However, for Americans carrying credit card balances, the high interest rates charged on these accounts are creating a significant financial burden. As of February, the latest month for which data is available, the average interest rate on interest-bearing credit card accounts was 21.5%.
Borrowers are unlikely to see relief in the near term. Markets currently anticipate that the Federal Reserve will raise interest rates before year-end to combat renewed inflationary pressures linked to conflict in the Middle East. Interest rate swaps indicate traders are pricing in a 25 basis point rate hike by the December policy meeting, with the probability of an increase in October seen at approximately 60%.
Supporting the case for tighter policy, a separate report from the Bureau of Labor Statistics on Friday showed nonfarm payrolls increased by 172,000 in May, exceeding all economist forecasts. The April figure was revised sharply higher to 179,000 from an initially reported 115,000, resulting in the strongest three-month job growth pace in over two years. The unemployment rate held at 4.3% for a third consecutive month.
The combination of robust employment and elevated energy prices could increase pressure on the Federal Reserve to consider raising interest rates to curb inflation. Several Fed officials have stated they cannot support interest rate cuts while inflation measures persistently exceed the 2% target and the deviation continues to widen. In recent weeks, these officials have also signaled a greater openness to the possibility of further rate increases.
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