The Federal Reserve Bank of St. Louis is warning savvy investors to be very wary about a little-known economic fact of soaring consumer debt.
“One may have missed the news that consumer debt has hit an all-time high of 26 percent of disposable income,” Ray Boshara, Senior Adviser and Director, Center for Household Financial Stability, wrote for the St. Louis Fed.
To be sure, outstanding U.S. consumer credit continued its upward climb in October, reaching a record $3.8 trillion, according to data compiled by the Federal Reserve. That figure has investors worried, but bank executives have insisted that borrowers have kept up with payments amid an improving economy and record-low unemployment.
“In just the past five years, consumer debt (all household debts, excluding mortgages and home equity loans) has grown at about twice the pace of household income. This has largely been driven by strong growth in both auto and student lending,” he wrote.
Rising household debt levels could mean that:
- More Americans are optimistic about the U.S. economy.
- More people are making investments in assets that generally build wealth, like higher education and homes.
- Consumers have paid off their loans to qualify for new ones.
At the same time, higher debt levels could reveal financial stress as families use debt to finance consumption of necessities. It could portend new waves of delinquencies and, eventually, defaults that displace these kinds of investments. And rising family debts could slow economic growth and, of course, even lead to a recession.
He cautioned that the topic of debt has to be carefully evaluated.
“Despite an incomplete understanding of the drivers and mechanism of household debt, we learned that increases in household debts can boost consumption and GDP growth in the shorter term (within a year or two) but suppress them beyond that.
Whether and how household debt affects economic growth over the longer term depends on three things:
- Whether family debts improve labor productivity or boost local demand for goods and services
- The extent of leverage concurrently in the banking sector, which is much less evident today than a decade ago
- The stability of the assets, such as housing, being purchased with those debts
Even with record-high levels of consumer debts, most symposium participants did not see household debts posing a systemic risk to the economy at the moment, though trends in student borrowing, auto loans and (perhaps) credit card debts are troubling to those borrowers and in those sectors.
Moreover, rising debt can be a drag on economic growth even if not a systemic risk, and longer-term reliance on debt to sustain consumption remains highly concerning as well.
Indeed, levels of household debt have often served as a reflection of larger, structural, technological, demographic and policy forces that help or harm consumers. It only makes sense, then, that policy and institutional measures must be considered to ameliorate debt levels and their impact on families and the economy.
“After all, what’s good for families is good for the economy, and vice versa,” he concluded.
Meanwhile, Brian Moynihan reportedly isn’t among those concerned about the debt levels of Americans.
“I’m not really worried about credit on the consumer side, especially for us because we stay at the very high end -- but even if you look overall,” Bank of America Corp.’s chief executive officer said in a Bloomberg Television interview Wednesday.
Still, Bank of America is expected to set aside more money to cover souring loans in the fourth quarter. Analysts in a Bloomberg survey estimate provisions for loan losses will climb 16 percent to $963 million in the period.
Moynihan, 58, said many lenders pulled back amid concerns about auto loans, while new worries have blossomed over unsecured and student loans, where his bank is less active.
(Newsmax wire services contributed to this report).
© 2026 Newsmax Finance. All rights reserved.