WASHINGTON — When an increasingly fractious committee of Federal Reserve policymakers meets next week, Chair Jerome Powell will need to forge a consensus.
One group of Fed officials would like to pause their relentless campaign of rate increases after 10 straight hikes to allow time to look around and assess whether higher borrowing rates are slowing inflation.
Federal Reserve Chairman Jerome Powell speaks May 19 at the William McChesney Martin Jr. Federal Reserve Board Building in Washington.
But a second group worries that inflation is still too high and thinks the Fed should continue hiking at least once or twice more — beginning next week.
So how will Powell achieve an accord between the two?
By turning what might normally be considered a “pause” into a “skip.” Whereas a “pause” might suggest that the Fed won’t necessarily raise its benchmark rate again, a “skip” implies that it probably will — just not now. When Powell speaks at a news conference next week, he will likely make clear that the Fed’s key rate — which has elevated the costs of mortgages, auto loans, credit card and business borrowing — may go even higher.
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One way the Fed may signal the likelihood of a future rate hike could come in the quarterly economic projections the policymakers will issue. The projections may show that the officials expect their key rate to rise a quarter-point by year’s end — to about 5.4%, above their estimate in March. This would illustrate their belief that next week’s rate decision isn’t so much a pause as a skip.
“That’s probably the only way to keep the committee cohesive in an environment where they seem to have somewhat broadening disagreements,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank Securities.
For more than a year, the Fed’s 18-member rate-setting committee has presented a united front: The officials were nearly unanimous in their support for rapid rate hikes to throttle a burst of inflation that had leapt to the highest level in four decades. (The committee has 19 members at full strength; one spot is now vacant.)
The Fed raised its rate by a substantial 5 percentage points in 14 months — the fastest pace of increases in 40 years, to a 16-year high. The policymakers hope that the resulting tighter credit will slow spending, cool the economy and curb inflation.
Yet several Fed officials contend that rates are already high enough to slow hiring and growth and that if they go much higher, they could cause a deep recession. This concern has left policymakers deeply divided about their next steps.
One camp is more “dovish,” meaning it leans against another rate increase. The doves, who include Powell and other top officials, think it takes a year or more for rate hikes to deliver their full effect and that the Fed should stop hiking, at least temporarily, to evaluate the impact so far.
The more dovish officials also worry that this spring’s banking turmoil, with three large banks collapsing in two months, might have compounded the brake on economic growth by causing other banks to restrict lending. Raising rates again too soon, they feel, could excessively weaken the economy.
The doves also think that pausing rate hikes to ensure that the Fed doesn’t go too far might help achieve the tantalizing prospect of a “soft landing.” This is the hoped-for scenario in which the Fed would manage to tame inflation without causing a recession, or at least not a very deep one.
“Maybe the majority of the tightening impact of what the Fed already did is still to come,” Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said last month. “And then you add the bank stresses on top of it. … We have got to take that into account.”
Another group expresses a more “hawkish” view, meaning it favors further rate increases. Although food and gas prices have come down, overall inflation remains chronically high, hiring remains hot and consumers are still stepping up their spending — trends that could keep prices high.
And some of the reasons Fed officials had previously cited in support of a pause no longer pose a threat. Congress, for example, approved a suspension of the federal debt ceiling, thereby avoiding a U.S. default that could have caused a global economic meltdown.
“I don’t really see a compelling reason to pause — meaning wait until you get more evidence to decide what to do,” Loretta Mester, president of the Cleveland Fed, said last month in an interview with the Financial Times. “I would see more of a compelling case for bringing (rates) up.”
For now, the doves appear to have the upper hand. Powell signaled his support for a pause in carefully prepared remarks May 19.
“Given how far we’ve come, we can afford to look at the data and the evolving outlook and make careful assessments,” Powell said, referring to the Fed’s streak of rate hikes.
More recently, Philip Jefferson, whom President Joe Biden has nominated to serve as vice chair of the Fed, also expressed support for a pause in rate hikes while making clear that it was likely to be a skip.
“A decision to hold our rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Jefferson said in a speech. “Skipping a rate hike at a coming meeting would allow (the Fed’s policymakers) to see more data before making decisions” about interest rates.
In March, seven Fed officials indicated that they preferred to raise the Fed’s key rate to about 5.4% or higher by the end of 2023. If three more policymakers were to raise their projections next week to that level, that would be enough to boost the median estimate a quarter-point above where it is now.
If only two officials raise their forecasts for rate hikes, it would leave the committee evenly split over whether to hike again later this year. This could create a more muddled message about what comes next.
The U.S. economy added 339,000 jobs in May, smashing estimates of 190,000, while the unemployment rate ticked up to 3.7%.
States Where People Are Using Credit Cards to Cover Basic Living Expenses
States Where People Are Using Credit Cards to Cover Basic Living Expenses
Photo Credit: Stokkete / Shutterstock
The COVID-19 pandemic altered American spending patterns dramatically. In the early days of the pandemic, social distancing and stay-at-home orders resulted in a shift away from transportation, restaurant, and entertainment expenditures. However, consumer spending has since rebounded, and now high inflation has raised the basic cost of living. In addition, rising interest rates are making the cost of borrowing more expensive. While many Americans use credit cards regularly for their rewards and benefits, more people are turning to credit cards for temporary relief as prices continue to rise.
Revolving balances are climbing once again after rapidly declining during COVID
In 2020 and 2021, large decreases in consumer spending combined with stimulus checks and other financial relief helped reduce revolving credit card balances, which is the amount that accrues interest carried from one billing cycle to the next. And in the spring of 2022, total revolving credit card debt reached its lowest level since 2014. But as consumer spending started to recover and inflation swelled, revolving debt has been climbing steadily and is now nearing pre-pandemic levels.
Unfortunately, at the same time credit card balances rose, the cost of carrying credit card debt increased sharply. In a bid to rein in inflation, the Federal Reserve raised interest rates 10 times since March of 2022. Consequently, the average credit card interest rate for accounts assessed interest swelled from 16.17% in early 2022 to nearly 21% in Q1 2023.
Difficulty affording basic living expenses and the use of credit cards to cover them is on the rise
The combination of high interest rates and rising costs has put American households in a challenging position. Now, nearly 70% of people report they are finding it difficult to pay for basic living expenses—up from less than 50% in May 2021, according to the U.S. Census Bureau’s Household Pulse Survey. At the same time, more and more Americans have turned to their credit cards. As of February 2023, 37% of adults said they used credit cards to cover basic living expenses, up from 23% in March 2021.
More than one in three adults used credit cards or loans to cover basic living expenses
Aside from regular income sources, credit cards or loans are the most common payment method used to cover basic living expenses. The 37% of adults who reported using credit cards or loans to pay for living expenses is nearly 10 percentage points higher than the 28% of adults who used savings, sold assets/possessions, or made retirement account withdrawals. Less common methods for paying for living expenses include borrowing from friends or family, various government assistance programs, and money saved from deferred or forgiven payments.
To determine the states where people are using credit cards to cover basic living expenses, researchers at Upgraded Points analyzed the latest data from the U.S. Census Bureau. The researchers ranked states according to the share of adults who self-reported recently using credit cards to meet their spending needs. Adults were surveyed during the month of February 2023. Researchers also calculated the total adults using credit cards to cover expenses, the share of adults with difficulty covering expenses, and the total adults with difficulty covering expenses.
Here are the states where people are using credit cards to cover basic living expenses.
15. Florida
Photo Credit: Charles Morra / Shutterstock
- Share of adults using credit cards to cover expenses: 38.3%
- Total adults using credit cards to cover expenses: 5,933,666
- Share of adults with difficulty covering expenses: 72.7%
- Total adults with difficulty covering expenses: 11,518,683
14. Nevada
Photo Credit: f11photo / Shutterstock
- Share of adults using credit cards to cover expenses: 38.9%
- Total adults using credit cards to cover expenses: 856,412
- Share of adults with difficulty covering expenses: 75.4%
- Total adults with difficulty covering expenses: 1,694,172
13. Wisconsin
Photo Credit: f11photo / Shutterstock
- Share of adults using credit cards to cover expenses: 39.0%
- Total adults using credit cards to cover expenses: 1,623,222
- Share of adults with difficulty covering expenses: 61.8%
- Total adults with difficulty covering expenses: 2,607,624
12. Pennsylvania
Photo Credit: LittleKitty / Shutterstock
- Share of adults using credit cards to cover expenses: 39.0%
- Total adults using credit cards to cover expenses: 3,416,585
- Share of adults with difficulty covering expenses: 68.8%
- Total adults with difficulty covering expenses: 6,198,417
11. Maryland
Photo Credit: f11photo / Shutterstock
- Share of adults using credit cards to cover expenses: 39.1%
- Total adults using credit cards to cover expenses: 1,673,871
- Share of adults with difficulty covering expenses: 62.5%
- Total adults with difficulty covering expenses: 2,723,161
10. Colorado
Photo Credit: Andrew Zarivny / Shutterstock
- Share of adults using credit cards to cover expenses: 39.5%
- Total adults using credit cards to cover expenses: 1,598,071
- Share of adults with difficulty covering expenses: 65.0%
- Total adults with difficulty covering expenses: 2,677,301
9. New Jersey
Photo Credit: Sean Pavone / Shutterstock
- Share of adults using credit cards to cover expenses: 39.7%
- Total adults using credit cards to cover expenses: 2,422,101
- Share of adults with difficulty covering expenses: 69.2%
- Total adults with difficulty covering expenses: 4,331,596
8. Hawaii
Photo Credit: ja-images / Shutterstock
- Share of adults using credit cards to cover expenses: 39.7%
- Total adults using credit cards to cover expenses: 403,568
- Share of adults with difficulty covering expenses: 63.6%
- Total adults with difficulty covering expenses: 652,663
7. Texas
Photo Credit: Francisco Sandoval Guate / Shutterstock
- Share of adults using credit cards to cover expenses: 40.2%
- Total adults using credit cards to cover expenses: 7,575,103
- Share of adults with difficulty covering expenses: 75.1%
- Total adults with difficulty covering expenses: 14,510,810
6. California
Photo Credit: Ingus Kruklitis / Shutterstock
- Share of adults using credit cards to cover expenses: 40.3%
- Total adults using credit cards to cover expenses: 10,683,020
- Share of adults with difficulty covering expenses: 70.9%
- Total adults with difficulty covering expenses: 19,333,920
5. Delaware
Photo Credit: Felix Mizioznikov / Shutterstock
- Share of adults using credit cards to cover expenses: 40.4%
- Total adults using credit cards to cover expenses: 287,896
- Share of adults with difficulty covering expenses: 64.8%
- Total adults with difficulty covering expenses: 471,643
4. New Hampshire
Photo Credit: Jon Bilous / Shutterstock
- Share of adults using credit cards to cover expenses: 40.9%
- Total adults using credit cards to cover expenses: 414,589
- Share of adults with difficulty covering expenses: 65.8%
- Total adults with difficulty covering expenses: 678,271
3. New York
Photo Credit: Ingus Kruklitis / Shutterstock
- Share of adults using credit cards to cover expenses: 41.1%
- Total adults using credit cards to cover expenses: 5,413,583
- Share of adults with difficulty covering expenses: 70.9%
- Total adults with difficulty covering expenses: 9,529,943
2. Massachusetts
Photo Credit: Travellaggio / Shutterstock
- Share of adults using credit cards to cover expenses: 41.4%
- Total adults using credit cards to cover expenses: 1,993,177
- Share of adults with difficulty covering expenses: 64.3%
- Total adults with difficulty covering expenses: 3,186,312
1. Connecticut
Photo Credit: f11photo / Shutterstock
- Share of adults using credit cards to cover expenses: 42.5%
- Total adults using credit cards to cover expenses: 1,051,156
- Share of adults with difficulty covering expenses: 74.6%
- Total adults with difficulty covering expenses: 1,886,738
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