Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Does More Consumer Credit Mean Higher Taxes, No Fed Easing?


Consumer borrowing in the U.S. rose by far more than forecast in December—which may mean that the Fed will hold off any further quantitative easing for the time being.

Consumer credit rose by $19.3 billion to $2.5 trillion, according to figures released by the Federal Reserve Tuesday. That is far more than the $7.7 billion forecast by economists surveyed by Reuters.

This is the second month in a row that consumer credit has come in far hotter than expected. The November figures released in January showed an increase of $20.7 billion. Economists had expected an increase of just $8 billion.

The fact that credit is flowing to consumers in greater volume than economists expected may mean that the economy is growing.

The boom in consumer credit, however, may undermine hopes for a new round of quantitative easing from the Federal Reserve. Inflation hawks inside the Fed are likely to point to the new numbers as indicating that the economy does not need any additional monetary stimulus.

It may also give new ammunition to opponents of extending the payroll tax cut, which is due to expire at the end of February. With consumers credit expanding far more rapidly than previously thought, deficit hawks in the House Republican caucus will argue that additional fiscal stimulus is not needed.

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