Interest rates continue to tick down very gradually after briefly moving above 7% in mid-January.
Not a good week in stock markets, as investors try to quantify a staggering number of uncertain political/economic variables, though with all the volatility seen over the past 14 months, jumping to conclusions is an iffy proposition.
Consumer confidence - as measured by the Univ. of Michigan Surveys of Consumers - plunged in February across all age, income and wealth groups in all 5 index components. Pessimism about the expected course of inflation was particularly pronounced.
A different measurement of consumer confidence (from the Univ. of Michigan's, illustrated above) is The Conference Board Consumer Confidence Index®. This is from its latest press release: “In February, consumer confidence registered the largest monthly decline since August 2021,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “This is the third consecutive month on month decline, bringing the Index to the bottom of the range that has prevailed since 2022. Of the five components of the Index, only consumers’ assessment of present business conditions improved, albeit slightly. Views of current labor market conditions weakened. Consumers became pessimistic about future business conditions and less optimistic about future income. Pessimism about future employment prospects worsened and reached a ten-month high.” February’s fall in confidence was shared across all age groups but was deepest for consumers between 35 and 55 years old.
Higher interest rates on credit cards are hammering consumers: "Over the last 10 years, average APR on credit cards have almost doubled ....to 22.8% in 2023 — the highest level recorded since the Federal Reserve began collecting this data in 1994." Consumer Financial Protection Bureau (when it still existed). According to Investopedia, the average credit card APR in February 2025 was 24.2%. Below is a chart of "serious delinquency - 90+ days overdue - in credit card debt - it is at its highest since 2012. Serious delinquency on auto loans has also been rising (not illustrated below), exacerbated auto loan interest rate increases.
The big jump in securities margin-debt levels from Jan 2024 to Jan 2025 speaks to a certain exuberance in financial markets.
However, seriously delinquent mortgages remain close to historic lows thanks to long-term fixed rate loans taken out before 2022 and to continued home price appreciation.
"Why have mortgage rates risen despite the Fed cutting [its benchmark] rate? The federal funds [benchmark] rate is the interest rate at which banks lend money to one another overnight, meaning it's an interest rate on very short-term lending...The 30-year mortgage, on the other hand, is a long-duration loan and thus has a different rate... [and] is determined in the bond market. The 30-year mortgage rate is benchmarked to the rate of the 10-year Treasury note [not the Federal Reserve benchmark rate]. As the rate on the 10-year Treasury note moves, mortgage rates follow suit...Since the Federal Reserve cut interest rates in September, the market has digested positive economic data releases, stickier-than-expected inflation data, and the outcome of the 2024 election. These have ultimately pushed the rate on the 10-year Treasury note upward, and thus mortgage rates have risen. " Fannie Mae Research, 12/11/24
Generally speaking, if federal debt continues to flood the bond market, investors would typically be expected to demand higher interest rates on treasury notes, which would keep mortgage rates higher. Federal debt has been soaring, "unsustainably" in the opinion of many economists. It really comes down to tax receipts (individual and corporate, per tax law) and federal expenditures - both of which are in a state of significant political flux right now.
The increase in interest rates over recent years is supercharging federal debt interest payments on soaring federal debt levels.
Share:
