Wall Street Projects Rapid Increase in Consumer Credit Interest Rates

Many economists and bankers are expecting interest rates to rise during 2022, but a number of investment banks on Wall Street are projecting that rates will rise faster and higher than initially estimated, according to a published report. This means that the interest rates on products from credit cards to auto loans and mortgages will go up during the course of 2022.

Where the Federal Reserve said in December that it expects to raise rates a few times during 2022, some banks are now projecting that the Fed will raise rates five times this year, while one — Bank of America — is projecting that the Fed will raise rates at each of its seven meetings that it will hold in 2022. One bank is also projecting that the Fed will abandon its normal course of raising interest rates by 25 basis points at a time and go for a 50-point-bump to help keep the economy balanced.

While rising interest rates mean more expensive access to credit for consumers, it should also act as a counter to the inflation rates that have been spiking in recent months. Noting that inflation has risen faster than expected and needs to be dealt with, Bank of America said in a report that “when you are behind in a race, you don’t take water breaks.”

Boosting interest rates will make access to credit more expensive and kick off the next phase in the economic credit cycle, which means higher delinquency and default rates. That should yield more placements for companies in the accounts receivable management industry, although there is a fairly significant lag between when rates go up and when delinquency and defaults start to tick up, too.

Concluded the report — “Americans might have mere weeks left to enjoy the record-low rates of the past 22 months. The Fed’s war with inflation is about to escalate, and borrowing is poised to get pricier and pricier.”

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