Good morning! Surprise surprise, stocks swung again on Wednesday, this time into the red.

While we know what the Fed can do to interest rates, but what about what high rates do to everyday Americans? That’s our big story today.

Today’s letter is brought to you by iTrust Capital!

You can build your retirement account while leveraging top-performing assets like bitcoin — all without the tax headache.

Bitcoin has been one of the best investments of the last decade, but traditional exchanges mean hefty taxes. iTrust Capital offers tax-advantaged accounts to help you:

The best investors understand the power of an IRA. Open one today from iTrust Capital.

Record debt and rising

Everyday consumers — the backbone to the US economy — are sitting on an enormous mountain of debt.

But it isn’t growing as fast as it was before, according to data from the New York Federal Reserve.

In the second quarter, US household debt rose by more than $109 billion, or 0.6%, to hit an all-time high of $17.8 trillion. 

That’s slower than the first quarter’s 1.1% increase.

Fed researchers said the most recent quarter showed more moderate debt growth due in part to slowing growth in mortgage balances, a category that accounts for almost 70% of all debt.

Meanwhile:

Compared to the prior quarter, the share of consumers reporting delinquencies remained flat at 3.2%, below the 4.55% seen as the pandemic began in 2020. 

This measure is higher than the 2.8% seen before the Fed began its rate-hiking cycle in March 2022, but lower than pre-pandemic levels.

In addition, the recent rise has coincided with a rise in disposable personal incomes, according to Eric Wallerstein, chief markets strategist at Yardeni Research and a former analyst with the New York Fed.

“These numbers don't matter in isolation, they matter in context,” Wallerstein told me. “If your credit card debt is rising, but your income can still cover it, that’s great.”

Now, since the Fed’s first rate hike more than two years ago, nearly every form of consumer debt has moved into delinquency status at a higher rate. 

However, that makes sense because interest rates have seen a sharp uptick over that stretch.

People will hit credit card limits and enter delinquency faster than before when rates were lower, for instance.

“Delinquency rates are completely benign,” Wallerstein maintained, adding that the more important data lies with the total balance of debt in delinquency status, which hovers below pre-pandemic levels as the blue chart above illustrates.

“Incomes are rising quicker than borrowing, borrowing is slowing, and overall delinquencies are lower today than before the pandemic and trending in the right direction,” he said.

To be clear, the Fed report was not entirely good news.

New bankruptcies and new foreclosures both ticked up, with each measure hitting their highest levels since 2020.

All week, financial pundits and commentators have called for the Fed to initiate an emergency rate cut before September in a bid to quell recession fears and market volatility. 

There’s no guarantee that a spontaneous intervention would do either, but the data above nonetheless suggest that lower rates would ease some of the financial constraints faced by everyday Americans. 

Do you feel better today financially compared to pre-pandemic? Hit reply to this email or let me know on X @philrosenn.

*At a glance:

Elsewhere:

📈JPMorgan sees 35% recession odds by the end of the year. That’s up from the bank’s prior estimate of 25% as of last month. The firm’s economists pointed to weaker labor demand and “early signs of labor shedding” as reason for the updated outlook. (Bloomberg)

👀 JPMorgan’s Jamie Dimon sees no recession today, but expects one to come down the line. While his bank raised their odds for a downturn, the CEO downplayed concerns that the US is currently in one: “I think people overreact a little bit to the daily fluctuation of the market. Sometimes it’s for good reasons, sometimes it’s virtually no reason.” (Yahoo Finance)

✂️ An emergency Fed cut is looking less and less likely. Commentators in favor of a sudden move hope that it could calm down markets and recession talk. Yet it’s possible that any intervention from the central bank could inspire more chaos, rather than less. (Business Insider)

Rapid-fire:

Last thing:

Interested in advertising in Opening Bell Daily? Email phil@openingbellmedia.com