Two months of cooling borrowing just got wiped out in one report. The Federal Reserve's monthly consumer credit data, released this morning, showed Americans took on the biggest pile of new debt in almost four years.
That puts the Fed in an awkward spot heading into its June meeting.
Consumer credit covers everything outside of mortgages, which means credit cards, auto loans, student loans, and personal loans all roll into one number.
In January, total borrowing barely moved, and February stayed soft at a 2.2% annual rate. Then March happened, with the gain coming in as the largest the Fed has reported since 2022 - back when stimulus had stopped and consumers leaned hard on cards to keep up with prices.
Both buckets jumped this time. Revolving credit, which is mostly credit card debt, picked up sharply. Nonrevolving credit, which covers auto and student loans, also expanded after months of weakness.
The catch: average credit card rates are still sitting above 20%, so each dollar of new revolving credit costs households more than it did during the last surge. New car loan rates are also still in the 7%-to-8% range, well above pre-2022 levels.
That makes this a more expensive borrowing wave than the one Americans rode three years ago, even if the dollar gains are similar.
There are two ways to read this, and investors should know which one the Fed is watching.
Read one is consumer strength. People only borrow more when they feel okay about their job and their income, so after months of soft retail data, a borrowing surge can signal that consumers are about to keep spending into the summer.
Read two is consumer stress. A jump in credit card balances at today's rates can mean households are stretching to cover groceries, gas, and rent. That read lines up with the New York Fed's separate survey, which showed unemployment fears at the highest level in over a year.
Delinquency rates haven't broken sharply higher yet, which keeps the Fed's options open - but a third straight month of strong borrowing combined with rising joblessness fears would tilt the read toward stress.
The Fed has spent the past year telling investors it wants to see the labor market loosen and consumer spending cool before cutting rates. Borrowing this strong gives the hawks on the committee one more reason to wait.
It also widens the gap between the Fed's actual stance and the market's expectations, since the bond market has been pricing in two more cuts this year. March's data argues for fewer.
The April release lands in early June, and that one will tell investors whether March was a blip or a turn.
