What Will Tuesday’s Fed Speakers Add to the Rate Cut Conversation?

Fed’s Collins Says Economists Need to Understand Current Labor Force Participation Issues

1 hr 41 min ago

To get a better understanding of what full employment means, economists need to know more about what brings people into the labor market, Boston Federal Reserve President Susan Collins told a conference today.

As more evidence of declining inflation comes in, more Federal Reserve officials are beginning to talk about maintaining full employment, the other half of the central bank’s dual mandate.

“Understanding the behavior of labor force participation is important because when participation changes, the unemployment rate becomes an inadequate indicator of full employment,” Collins said. 

While cyclical economic forces have an impact on the job market, structural problems can also keep workers on the sidelines, she said. Collins said unaffordable child care was one of the leading problems keeping women out of the workforce, while men are finding fewer low-income labor opportunities.

-Terry Lane

Auto Loan Delinquencies Hit Highest Level in 14 Years As Monthly Payments Get Bigger

2 hr 6 min ago

Vehicle owners fell a month or more behind on their auto loan payments at an annualized rate of 7.7% in the fourth quarter. That’s the highest rate since the last quarter of 2010, according to the data released by the New York Federal Reserve Tuesday.

The data show how hard household budgets have been hit by the combination of prices for vehicles soaring during the pandemic and interest rates on loans jumping over the last two years because of the Federal Reserve’s campaign of anti-inflation rate hikes.

Growing numbers of borrowers have car payments that are more than $1,000 a month. The average monthly payment on a new car loan rose to $623 in the fourth quarter, the highest ever, despite a decline in car prices over that period.

The loans themselves are also costly. The average auto loan rate for a new car was 9.2% in December, and 13.8% for a used car loan according to auto market data company Cox.

Read more about how auto loans are putting financial pressure on households here.

Fed’s Kaskhari: Recent Inflation Data is ‘Surprisingly Good News’

2 hr 29 min ago

While Minneapolis Federal Reserve President Neel Kashkari didn’t forecast when the Federal Reserve would begin cutting rates, he did tell a local Minnesota business group Tuesday that recent inflation data has been “surprisingly good news.”

“When you look at six months of data, at three months of data, we’re basically there,” Kashkari said during a question-and-answer session with Greater Mankato Growth. “I don’t want to say we’re done yet, but fingers crossed, the data is looking positive.”

-Terry Lane

Credit Card Debt is Growing—But So Is Wealth

3 hr 7 min ago

Credit card debt hit a record high $1.1 trillion in the last quarter, according to a report from the Federal Reserve Bank of New York Tuesday. Does that mean it’s time to freak out about the economy crashing?

Perhaps not just yet. As Callie Cox, an investment analyst for financial services company eToro points out, the total amount of credit card debt is still pretty small compared to how much money people have in the bank.

While a growing number of households are having trouble paying their credit card bills, the total amount of credit card debt as a percentage of the bank deposits of households and nonprofits was smaller in the third quarter than it was before the pandemic.

“Context matters,” Cox posted on social media platform X. “If you’re looking for the big crack in this economy, you’re not gonna find it in one absolute, meaningless number.”

While credit card debt is indeed growing, and poses a problem for some borrowers, it’s doing so against the backdrop of a mostly healthy economy that’s made many people richer across all income brackets.

Read more about Tuesday’s report on credit card debt here.

Fed’s Mester Says Strong Economy Means Rate Cuts Not Needed Until ‘Later This Year’

3 hr 41 min ago

A strong labor market gives the Federal Open Market Committee (FOMC) more time to collect data on inflation before moving towards rate cuts “later this year,” Cleveland Fed President Loretta Mester said Tuesday. 

“This is better than finding ourselves in a situation where we begin easing too soon, undo some of the progress we have made on inflation, potentially destabilize inflation expectations, and then have to reverse course,” Mester told the Ohio Bankers League according to prepared remarks.

Echoing comments made by Fed Chair Jerome Powell this weekend, Mester pointed to strong economic data, arguing that conditions allow the central bank more time to evaluate the path of inflation before cutting rates.

The FOMC isn’t expected to cut rates at its next meeting in March, with only about 18% of investors pricing in a rate cut for that meeting, according to the CME FedWatch Tool.   

Mester said she expected household spending to slow down this year, and while the labor market is in better balance, some indicators point to a slowdown in hiring that she forecast would drive up unemployment later in the year. 

-Terry Lane

Higher Income Households More Likely to Have ARMs

5 hr 12 min ago

Adjustable rate mortgages (ARMs) have had a resurgence during the latest Federal Reserve hiking cycle, and households who can absorb increased costs are more likely to have them.

A report released Tuesday from researchers at the Federal Reserve Bank of St. Louis shows 18.8% of mortgage holders with the highest income have ARMs, while only 6.5% of households with the lowest income have one.

The researchers said those with higher income are better able to adjust when interest rates increase. On the flip side, they are also the ones benefiting when rates decrease.

“Households with lower income may not be able to afford their mortgage if rates adjust to a substantially higher level and thus prefer the predictability of fixed-rate mortgages, especially since they have the option to refinance at a lower rate if rates drop,” the researchers wrote.

ARMs were far more popular starting in the mid-1990s but the collapse of the housing bubble in the mid-2000s brought about reform and demand for the mortgage type diminished.

Fewer Workers Are Looking to Leave Their Job

6 hr 35 min ago

If there was any doubt left, new data Tuesday shows the Great Resignation is over.

According to data compiled by human resource consulting firm Robert Half, far fewer people are looking to leave their jobs in the next six months than they were last summer. Just more than one-third of workers the firm surveyed said they were planning to leave their jobs, compared to almost half in July 2023.

U.S. workers began leaving their jobs at elevated rates in the spring of 2021. At that time, many employers were attempting to rapidly restaff as COVID-19 vaccines became available and many restrictions were lifted. This created intense competition for workers, driving up wages and pushing down unemployment.

As the Federal Reserve has fought against inflation, that tightness in the labor market has eased.