Delinquency rates across loan types are increasing as: 1.) debt loads and interest rates / interest expense grow and, 2.) consumers lose their jobs.
- Further weakening: We believe the consumer will weaken further as: 1.) the Fed tightens monetary policy, 2.) prices for goods and services remain elevated and, 3.) companies continue to lay off employees.
- Fed pivot: We do not expect the Fed to pivot until some corner of the credit markets become illiquid. Unemployment going from 3% to 4% is not going to trigger a pivot. Equities dropping 20-30% from current levels will not trigger a Fed pivot. The below charts are from the Federal Reserve Bank of New York’s Household Debt and Credit Report, for Q4’22 published on Feb 16th.
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