Phil Rosen
Mon, July 31, 2023
Shoppers walking through a mall.
Kena Betancur/Getty Images
The Federal Reserve has raised interest rates 11 times in the last year and a half.
But the impact may not have hit most Americans, Moody's data suggests.
Americans don't have much floating-rate debt, which means many are likely locked into lower rates.
The Federal Reserve's historic rate hiking campaign may not have actually hit most Americans that hard.
That's because most household debt is likely still locked into lower, fixed rates secured before the central bank started aggressively ratcheting up rates to control inflation.
According to Moody's Analytics data shared with Insider, just 11.1% of household debt carried a floating rate as of the first quarter of this year, meaning that only a small amount of total household debt outstanding was adjusted higher as market rates climbed over the last year and a half.
That figure hovered close to 27% in 1997 and then 25% in 2000, but has since fallen steadily over the last two decades.
From the time of the Great Recession of 2008 up until last year, the US central bank kept rates historically low, leading many Americans locking in fixed rate borrowing costs on all kinds of consumer loans that are much lower than what's being offered today. This has prevented a lot of pain, as floating rate debt resets on a regular basis as benchmark rates rise.
In short: Americans sidestepped the worst of the Fed's monetary policy tightening campaign.
"US households have been largely insulated from Fed rate hikes, as most consumer debt carries a fixed interest rate, the bulk of which is in mortgages," Cristian deRitis, Moody's deputy chief economist, told Insider on Monday. He pointed to separate Equifax data that shows nearly 70% of mortgages carry an interest rate below 4%.
"Existing borrowers have not seen their monthly mortgage payments change even as the Fed Funds rate has risen," he said. "Most auto, student, and personal loans carry fixed rates as well, further insulating borrowers from interest rate increases."
While many US households aren't immediately exposed to rising rates, they have had a big impact on things like like credit cards. That could lead to higher credit card delinquency rates, deRitis noted.
Last Wednesday, the Fed announced a 25-basis-point rate hike to bring the federal funds rate to the 5.25%-5.50% range, with Chairman Jerome Powell maintaining that the inflation battle still hasn't been won. Markets, meanwhile, are acting as if it's the final hike of the year, and that policymakers will begin loosening in early 2024.
While the Fed's rate hike campaign may be at an end, anyone who took out a floating rate loan before the Fed started hiking rates —such as a home equity loan, a new personal line of credit, or certain auto loans–are likely facing higher payments today.
At the same time, at least some Americans are likely to have decided against taking out a loan because of high rates. Access to credit may have also diminished in recent months for some borrowers.
"Borrowers seeking new credit have been directly affected by higher rates leading some to forego taking on additional credit," deRitis said. "Tighter lending standards and a sharp increase in denied credit applications may further limit credit formation going forward."
The Federal Reserve has raised interest rates 11 times in the last year and a half.
But the impact may not have hit most Americans, Moody's data suggests.
Americans don't have much floating-rate debt, which means many are likely locked into lower rates.
The Federal Reserve's historic rate hiking campaign may not have actually hit most Americans that hard.
That's because most household debt is likely still locked into lower, fixed rates secured before the central bank started aggressively ratcheting up rates to control inflation.
According to Moody's Analytics data shared with Insider, just 11.1% of household debt carried a floating rate as of the first quarter of this year, meaning that only a small amount of total household debt outstanding was adjusted higher as market rates climbed over the last year and a half.
That figure hovered close to 27% in 1997 and then 25% in 2000, but has since fallen steadily over the last two decades.
From the time of the Great Recession of 2008 up until last year, the US central bank kept rates historically low, leading many Americans locking in fixed rate borrowing costs on all kinds of consumer loans that are much lower than what's being offered today. This has prevented a lot of pain, as floating rate debt resets on a regular basis as benchmark rates rise.
In short: Americans sidestepped the worst of the Fed's monetary policy tightening campaign.
"US households have been largely insulated from Fed rate hikes, as most consumer debt carries a fixed interest rate, the bulk of which is in mortgages," Cristian deRitis, Moody's deputy chief economist, told Insider on Monday. He pointed to separate Equifax data that shows nearly 70% of mortgages carry an interest rate below 4%.
"Existing borrowers have not seen their monthly mortgage payments change even as the Fed Funds rate has risen," he said. "Most auto, student, and personal loans carry fixed rates as well, further insulating borrowers from interest rate increases."
While many US households aren't immediately exposed to rising rates, they have had a big impact on things like like credit cards. That could lead to higher credit card delinquency rates, deRitis noted.
Last Wednesday, the Fed announced a 25-basis-point rate hike to bring the federal funds rate to the 5.25%-5.50% range, with Chairman Jerome Powell maintaining that the inflation battle still hasn't been won. Markets, meanwhile, are acting as if it's the final hike of the year, and that policymakers will begin loosening in early 2024.
While the Fed's rate hike campaign may be at an end, anyone who took out a floating rate loan before the Fed started hiking rates —such as a home equity loan, a new personal line of credit, or certain auto loans–are likely facing higher payments today.
At the same time, at least some Americans are likely to have decided against taking out a loan because of high rates. Access to credit may have also diminished in recent months for some borrowers.
"Borrowers seeking new credit have been directly affected by higher rates leading some to forego taking on additional credit," deRitis said. "Tighter lending standards and a sharp increase in denied credit applications may further limit credit formation going forward."
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