US consumer credit rose by $24.86bn in March, versus forecasts for a $12.5bn increase.
The March figure exceeded expectations by $12.36bn, meaning the rise was about 99% higher than forecast.
Consumer Spending Remains Firm
The March consumer credit number, coming in at nearly double the forecast, shows consumers are not pulling back on spending. This unexpected strength suggests the economy remains robust, but it also fuels concerns about persistent inflation. Consequently, we believe the Federal Reserve will see this as a reason to maintain its restrictive stance in the coming months.
This credit data is particularly concerning when viewed alongside last week’s April CPI report, which showed core inflation ticked up to 3.1%, stalling the disinflationary trend we saw earlier in the year. We saw in the minutes from the Fed’s last meeting that officials were already worried about inflation’s “last mile” being difficult. This new data point will almost certainly strengthen the hawkish voices on the committee.
Traders should consider adjusting positions in interest rate derivatives, as the odds of a summer rate cut are diminishing rapidly. Looking at options on SOFR futures, we see increased buying of puts, which would profit from rates staying higher for longer. This is reminiscent of the market action in late 2024 and early 2025, when similar strong data repeatedly pushed back the timeline for Fed easing.
Equity Positioning Implications
For equities, this creates a split outlook; consumer discretionary stocks in the XLY may see short-term strength from the spending data. We might look at selling out-of-the-money puts on strong retail names to collect premium, betting they won’t fall sharply. However, the broader market, especially rate-sensitive tech stocks in the QQQ, could face headwinds, making protective puts a prudent hedge against a hawkish Fed surprise.
