Consumer credit card delinquency rates for prime borrowers have not risen in the past two years despite higher interest rates as the Federal Reserve tightened monetary policy, wrote economist Jordan Pandolfo in a recent economic bulletin by the Federal Reserve Bank of Kansas City. He noted that delinquency rates rose for subprime borrowers by 5.6 percentage points over the same period but added that those borrowers make up only 23% of the total consumer credit market.
Revolving balances have also remained below pre-pandemic levels, which “suggest households are not rolling over additional credit card debt and are thus better able to pay off balances,” according to Pandolfo. Also, internal bank assessments suggest that the probability of default among subprime borrowers remains at historically low levels despite the increase in delinquency rates, he added.
“On balance, consumer credit markets show limited evidence of mounting stress, even among subprime borrowers,” Pandolfo wrote. “Although subprime delinquencies have increased, rollover behavior and bank forecasts for these borrowers do not indicate a major deterioration in credit quality. Moreover, the recent easing in monetary policy may limit further deterioration in this market.”
