As a businessperson and consumer, your credit cards will likely rise on March 16 as the Federal Open Market Committee (FOMC) assembles to review the baseline rates. The likely rise will be 25 basis points (bp), which, based on the current prime of 3.25%, will likely yield 3.50%. Virtually all credit cards peg to the prime, so if you have a Chase Freedom Visa, expect your baseline rate of between 14.99% and 24.74% to rise to 15.24% to 24.99%.
A few bps here and there will not likely cause havoc to your household budget unless you revolve persistently, though for some, such as the 40% who carry balances over from month to month, expect a more pronounced impact on cash flow.
Timing is not great, as NPR mentions.
Amid Russia’s ongoing brutal invasion of Ukraine, gasoline prices in the United States have hit an all-time high. Inflation, which polling shows to be Americans’ top concern, is now at a 40-year high.
In an attempt to curb inflation, the Federal Reserve is expected this week to begin raising interest rates for the first time in three years.
And, of course, we are still recovering from the long-term implications of COVID.
For credit card issuers, timing is probably as good as it gets. As mentioned last week:
The first quarter of 2022 looks strong from a credit card risk perspective. Seasonally adjusted credit cards moved up slightly in February, up to $826 billion, from $802 billion in January. Reporting on delinquency rates, which lag portfolio values, ended at 1.62% in 4Q2021, slightly worse than the record low metric reported in 2Q2021.
On an FYF basis, credit risk pipelines for 2022 will lock on June 30, which means that all potential contractual credit loss is in the macro number, and credit managers need to drive down the risk during every remaining day in 2022. The genuine concern will be to 2023 metrics, and for that, we’ll have to watch how early 3Q22 numbers settle.
But for the prime, 3.25% has been around since March 16, 2020, so just hope for slow and steady increments as the Fed attempts to tackle the broader issue of inflation.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group