As high inflation and high interest rates have pummeled consumers, many observers expected consumer spending to slow down this year, but instead, spending has shown “surprising” strength, according to a new analysis from the Federal Reserve Bank of New York. What’s behind consumers’ continued buying power? Households’ diminishing debts over the past three years have had a lot to do with it, New York Fed researchers found.
Debt burdens lessened during the pandemic, and that’s still allowing consumers to spend more money now. For example, some 14 million homeowners refinanced their mortgages, which made their monthly housing payments smaller and saved them an estimated $120 billion as of the second quarter of this year, according to the Fed report. Consumers also paid down their credit-card debts, and student-loan borrowers got a three-year break on paying back their loans, according to the New York Fed’s study on the health of the U.S. consumer. Since 2019, up to $510 billion has become available to consumers because they had fewer debts: $400 billion through mortgage refinancing, and $110 billion through non-mortgage debt such as student loans and credit-card debts, the study found.Refinanced mortgages saved homeowners money Homeowners that refinanced saw an average $220 decline in their monthly payments, previous Fed research has shown. Homeowners also withdrew “unusually large” amounts of home equity when interest rates were low through cash-out refinances, according to Wednesday’s study. The combination of lowere …
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