Inflation erodes bottom-tier consumption, and the U.S. credit card default rate hits a new high since the financial crisis

The U.S. credit card default rate has soared to a 14-year high, with the financial situation of low-income consumers deteriorating after years of high inflation. According to data from BankRegData, the U.S. credit card default rate reached its highest level since the 2008 financial crisis in the first nine months of 2024, with total credit card loan write-offs amounting to $46 billion, a 50% increase compared to the same period last year. This indicates that financial pressure is gradually shifting to low-income groups, who are facing an increasingly heavy debt burden. Mark Zandi, Chief Economist at Moody's Analytics, stated: "High-income households are doing well, but the bottom third of consumers in the U.S. are running out of options. Their current savings rate is zero." Economic Pressure on Low-Income Households Intensifies According to the Financial Times, although banks have not yet released financial data for the fourth quarter, there are signs that an increasing number of consumers are experiencing severe delays in debt repayment. Capital One, the third-largest credit card issuer in the U.S., reported that as of November, its annualized credit card write-off rate had risen to 6.1%, up from 5.2% in the same period last year. During the pandemic, U.S. consumers saw a significant increase in savings, prompting them to spend actively after the lockdowns were lifted. However, the subsequent surge in credit card debt, which increased by $270 billion between 2022 and 2023, led to U.S. consumers' credit card debt surpassing the $1 trillion mark for the first time. This high level of consumption, combined with supply chain bottlenecks caused by the pandemic, has driven inflation, prompting the Federal Reserve to raise borrowing costs since 2022. In the past 12 months, U.S. consumers who were unable to pay their credit card bills in full paid $170 billion in interest. This massive interest expenditure has further strained the financial situation of low-income households, making it even more difficult for them to repay credit card debt. At the same time, despite nearly $60 billion in credit card debt being written off in the past year, there remains $37 billion in debt that is at least one month overdue. According to Moody's data, the credit card delinquency rate peaked in July, and although it has slightly decreased since then, it is still nearly one percentage point higher than the average level before 2020. Odysseas Papadimitriou, head of the consumer credit research firm WalletHub, stated: "Consumers' spending power has weakened. The delinquency rate indicates that more pain is to come." The market expects the Federal Reserve to only lower interest rates by 0.5 percentage points in 2025, down from a previous expectation of 1 percentage point, which means that consumers' financial pressure is unlikely to ease in the short term. Some analysts warn that if Trump follows through on threats of widespread tariff increases, it could further drive up inflation and interest rates, which will be "two issues consumers face in 2025." Risk Warning and Disclaimer The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk