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Krishen Rangasamy, Research Analyst at NBF, suggests that monetary policy tightening by the Federal Reserve seems to be having the desired effects and while U.S. household debt hit a new record of US$13.2 trillion at the end of the first quarter, its pace of growth softened to just 3.8% year-on-year, the weakest since 2016.

Key Quotes

“Here the deceleration isn’t just about mortgages (which accounts for two-thirds of total household debt) but is instead generalized, with auto loans (+5.3% y/y) and student debt (+4.7% y/y) both growing at the slowest pace in years. The slowdown of household leveraging isn’t all about rising interest rates. Tighter lending standards, particularly for mortgages and auto loans, have also been instrumental in reducing the pace of debt accumulation.”

“In Q1 a third of auto loan origination (the highest share in 7 years) and nearly 60% of mortgage origination went to borrowers with the highest credit scores.”