US consumer credit rose by $24.86bn in March. Forecasts had pointed to a $12.5bn increase.
The reported rise was $12.36bn above expectations. This means the increase was about double the forecast.
Implications For Growth And Inflation
This surprisingly strong consumer credit figure for March challenges the narrative of a slowing economy. A number this far above expectations suggests consumer spending remains robust, which fuels inflationary pressures. The Federal Reserve will therefore find it difficult to justify imminent rate cuts with this kind of data.
We’ve seen the market react swiftly, with the probability of a rate cut by the July Fed meeting collapsing from over 50% just last month to below 15% this week. This shift suggests traders should consider positions that benefit from a “higher for longer” rate environment, such as selling SOFR futures. This situation is reminiscent of the persistent inflation surprises we had to navigate through in 2025.
For equity markets, this creates a conflicting signal that will likely lead to higher volatility in the coming weeks. While strong consumer spending supports corporate earnings, the prospect of sustained high interest rates puts pressure on valuations. We anticipate the VIX, which has been hovering around a relatively calm 14, could test the high teens as the market digests this new reality.
Options on consumer discretionary ETFs might see increased activity, but we should be cautious.
Risk Of Future Consumer And Credit Stress
This level of credit expansion echoes the trend we saw back in 2024, when total credit card balances first exceeded $1.1 trillion, a development that eventually led to a rise in delinquency rates. Therefore, while spending is strong now, we are positioning for potential stress in the financial sector later in the year.
