U.S. household debt increased to a record $16.15 trillion in the second quarter, driven mostly by a $207 billion jump in mortgage balances, with credit card and auto loan debt also rising as consumers raised their borrowing to deal with soaring inflation, according to a Federal Reserve report. The New York Fed’s quarterly household debt report indicates that overall delinquency rates rose modestly too for all debt types, with delinquencies for credit cards and auto loans “creeping up,” particularly in lower-income areas. Mortgage debt increased to $11.39 trillion at the end of June. Purchase mortgage originations were up 7% in the second quarter, with much of the increase attributed to higher borrowing amounts.
The U.S. central bank began increasing interest rates in March as it departed from the easy money policies it had kept in place during the worst of the COVID-19 pandemic in an attempt to shield the economy from lockdowns. Since then, persistently high inflation running at four-decade highs has pushed policymakers to raise the Fed’s benchmark overnight lending rate by 225 basis points. That rate is currently in a target range between 2.25% and 2.50%. Further interest rate increases are forecast for the rest of the year as the central bank attempts to quash inflation.
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