316 posts on "Liberty Street Economics"
March 31, 2025
Why Are Credit Card Rates So High?
Credit cards play a crucial role in U.S. consumer finance, with 74 percent of adults having at least one. They serve as the main method of payment for most individuals, accounting for 70 percent of retail spending. They are also the primary source of unsecured borrowing, with 60 percent of accounts carrying a balance from one month to the next. Surprisingly, credit card interest rates are very high, averaging 23 percent annually in 2023. Indeed, their rates are far higher than the rates on any other major type of loan or bond. Why are credit card rates so high? In our recent research paper, we address this question using granular account-level data on 330 million monthly credit card accounts.
March 27, 2025
An Interoperability Framework for Payment Systems
Novel payment systems based on blockchain networks promise to redesign financial architecture, but a notable concern about these systems is whether they can be made interoperable. This concern stems from the concept of the “singleness of money”—that payments and exchange are not subject to volatility in the value of the money itself. Volatility and speculation can arise from the payment medium, which may have speculative characteristics, or from frictions that undermine the ability of one or more payments systems to interoperate. In this two-part series, we outline a framework for analyzing payment system interoperability, apply it to traditional and emerging financial architectures, and relate it to the ability of the payment systems to maintain singleness of money.
Posted at 7:00 am in Central Bank | Permalink
March 26, 2025
Credit Score Impacts from Past Due Student Loan Payments
In our companion post, we highlighted how the pandemic and subsequent policy actions disrupted trends in the growth of student loan balances, the pace of repayment, and the classification of delinquent loans. In this post, we discuss how these changes affected the credit scores of student loan borrowers and how the return of negative reporting of past due balances will impact the credit standing of student loan borrowers. We estimate that more than nine million student loan borrowers will face significant drops in credit score once delinquencies appear on credit reports in the first half of 2025.
Student Loan Balance and Repayment Trends Since the Pandemic Disruption
This month marks five years since the start of the COVID-19 pandemic, after which subsequent policy responses upended most trends underlying student loans in the U.S. Beginning in March 2020, executive and legislative actions suspended student loan payments and the accumulation of interest for loans owned by the federal government. In addition, federal actions marked all past due and defaulted federal student loans as current, driving the delinquency rate on student loans below 1 percent by November 2022. Payments on federal student loans resumed in October 2023 after forty-three months of suspension. This post is the first of two highlighting trends in balances, repayment, and delinquency for student loans since the beginning of the COVID-19 pandemic and how trends may shift without pandemic supports.
March 6, 2025
When the Household Pie Shrinks, Who Gets Their Slice?
When households face budgetary constraints, they may encounter bills and debts that they cannot pay. Unlike corporate credit, which typically includes cross-default triggers, households can be delinquent on a specific debt without repercussions from their other lenders. Hence, households can choose which creditors are paid. Analyzing these choices helps economists and investors better understand the strategic incentives of households and the risks of certain classes of credit.
March 5, 2025
Firms’ Inflation Expectations Have Picked Up
Editors note: Since this post was published, we clarified language in the first paragraph about year-ahead expectations for manufacturing and service firms in the 2025 survey. We also corrected the y-axis range of Chart 2. (March 5, 11 a.m.)
After a period of particularly high inflation following the pandemic recession, inflationary pressures have been moderating the past few years. Indeed, the inflation rate as measured by the consumer price index has come down from a peak of 9.1 percent in the summer of 2022 to 3 percent at the beginning of 2025. The New York Fed asked regional businesses about their own cost and price increases in February, as well as their expectations for future inflation. Service firms reported that business cost and selling price increases continued to moderate through 2024, while manufacturing firms reported some pickup in cost increases but not price increases. Looking ahead, firms expect both cost and price increases to move higher in 2025. Moreover, year-ahead inflation expectations have risen from 3 percent last year at this time to 3.5 among manufacturing firms and 4 percent among service firms, though longer-term inflation expectations remain anchored at around 3 percent.
March 3, 2025
Comparing Apples to Apples: “Synthetic Real‑Time” Estimates of R‑Star
Estimates of the natural rate of interest, commonly called “r-star,” garner a great deal of attention among economists, central bankers, and financial market participants. The natural interest rate is the real (inflation-adjusted) interest rate expected to prevail when supply and demand in the economy are in balance and inflation is stable. The natural rate cannot be measured directly but must be inferred from other data. When assessing estimates of r-star, it is important to distinguish between real-time estimates and retrospective estimates. Real-time estimates answer the question: “What is the value of r-star based on the information available at the time?” Meanwhile, retrospective estimates answer the question: “What was r-star at some point in the past, based on the information available today?” Although the latter question may be of historical interest, the former question is typically more relevant in practice, whether in financial markets or central banks. Thus, given their different nature, comparing real-time and retrospective estimates is like comparing apples to oranges. In this Liberty Street Economics post, we address this issue by creating new “synthetic real-time” estimates of r-star in the U.S. for the Laubach-Williams (2003) and Holston-Laubach-Williams (2017) models, using vintage datasets. These estimates enable apples-to-apples comparisons of the behavior of real-time r-star estimates over the past quarter century.
February 27, 2025
Supply and Demand Drivers of Global Inflation Trends
Our previous post identified strong global components in the slow-moving and persistent dynamics of headline consumer price index (CPI) inflation in the U.S. and abroad. We labeled these global components as the Global Inflation Trend (GIT), the Core Goods Global Inflation Trend (CG-GIT) and the Food & Energy Global Inflation Trend (FE-GIT). In this post we offer a narrative of the drivers of these global inflation trends in terms of shocks that induce a trade-off for monetary policy, versus those that do not. We show that most of the surge in the persistent component of inflation across countries is accounted for by global supply shocks—that is, shocks that induce a trade-off for central banks between their objectives of output and inflation stabilization. Global demand shocks have become more prevalent since 2022. However, had central banks tried to fully offset the inflationary pressures due to sustained demand, this would have resulted in a much more severe global economic contraction.
Global Trends in U.S. Inflation Dynamics
A key feature of the post-pandemic inflation surge was the strong correlation among inflation rates across sectors in the United States. This phenomenon, however, was not confined to the U.S. economy, as similar inflationary pressures have emerged in other advanced economies. As generalized as the inflation surge was, so was its decline from the mid-2022 peak. This post explores the common features of inflation patterns in the U.S. and abroad using an extension of the Multivariate Core Trend (MCT) Inflation model, our underlying inflation tracker for the U.S. The Global MCT model purges transitory noise from international sectoral inflation data and quantifies the covariation of their persistent components—in the form of global inflation trends—along both country and sectoral dimensions. We find that global trends play a dominant role in determining the slow-moving and persistent dynamics of headline consumer price index (CPI) inflation in the U.S. and abroad, both over the pre-pandemic and post pandemic samples.
February 13, 2025
Breaking Down Auto Loan Performance
Debt balances continued to rise at a moderate pace in the fourth quarter of 2024, and delinquencies, particularly for auto loans and credit cards, remained elevated, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Auto loan balances have grown steadily since 2011, expanding by $48 billion in 2024. This increase reflects a steady inflow of newly originated auto loan balances, which in 2024 were boosted primarily by originations to very prime borrowers (those with credit scores over 760) while originations to borrowers with midprime and subprime scores held roughly steady. In this post, we take a closer look at auto loan performance and find that delinquencies have been rising across credit score bands and area income levels. We also break down auto loan performance by lender type and find that delinquencies are primarily concentrated in loans from non-captive auto finance companies.
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