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Rise in Defaults - A Consumer Choice

It has been a month since repayments of student loans started and this might be one of the reasons that auto loans and credit card defaults have risen to a new high. Though it is early for such a conclusion, the rate of defaults in these categories is now accelerating.

Even the recent job reports indicated a new high for people holding two or three jobs same time. These indications are important to assess whether the consumers have run out of excess savings. And according to recent data releases they are close if not at that stage.

The real deterioration might start from January 2024 onwards as this festival season might escape from estimated downward pressure.

As the economy slows down the rate of job losses will get hugger resulting in high default rates from the next quarter if not before. The problem might get worse as inflation might remain higher than estimates forcing the Federal Reserve to act further.

If such a worst-case scenario plays out then it will be difficult for investors and other stakeholders to expect a rate cut during 2024 as the office stagflation period begins


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