Yellen on Record Amounts of Credit Card Spending for Survival: ‘I See that as a Normalization than a Disturbing New Trend’

Lawrence: “Last year, many economists predicted a recession this year. We haven’t seen it. It looks like we may not see one this year. But consumer spending, record amounts of credit card in order to just survive for basic things, they can’t afford basic items, how long do you think this credit card debt accumulation can continue?”
Yellen: “Well, credit quality remains excellent, and charge-off rates, delinquencies have moved up slightly, but from historically low levels. Most households, even including the lowest income households, saw their overall financial position improve during the pandemic. Their average level of cash balances went up. Their overall finances improved. Now, over time, they have spent some of that buffer of savings, and particularly lower income households are borrowing again on credit cards. I see that as a normalization, rather than a disturbing new trend.”
Lawrence: “But it does seem like prices are higher than when President Biden came into office. What do you say to the family that’s having to use their credit card to pay for food or possibly could lose their home because of debt that they have accumulated with the higher prices?”
Yellen: “Well, I think the single most important metric to judge how households are doing is their spending power, their real wages or real earnings, namely their earnings adjusted for inflation. And the statistic that I think captures things best is, if we compare it where the median worker is now as compared to 2019, just before the pandemic, that worker can buy the same bundle of goods as before, with $1400 left over to save or spend, so wages have gone up considerably, and that’s more than offset, for the typical household, the impact of higher prices.”