The Cost of Liquidity Moved Before Consumers Noticed

The Spread Nobody Is Talking About

The headline consumer looks fine. Real spending rose 0.3 percent in May. Income growth outpaced inflation for the first time in four months. GDP was just revised up to 2.1 percent annualized for Q1. Tax refunds and stock-market gains cushioned the blow from higher energy costs. If you read the macro summary, the American consumer is resilient.

If you read the credit data, a different story emerges.

Credit card APRs averaged 16 percent in 2019. Today the average account carrying a balance pays 21.52 percent. New-offer APRs run 23.79 percent. The prime rate sits at 6.75 percent, and issuers have added 12 to 13 percentage points of margin on top. Despite the Fed cutting a full point in late 2024 and early 2025, card issuers passed almost none of it through. The margin widened. The consumer never noticed because the statement comes every 30 days and the rate is buried on page two.

Our view: when the Fed signals a hike — and nine FOMC members now project at least one this year — that margin does not compress. It widens further. The cost of revolving liquidity for the American consumer is structurally higher than it was at any point in the last 15 years, and the Fed just told you it is not coming down soon.

The national delinquency average hides the real signal. Prime-focused issuers report 30-day-plus delinquency rates roughly half the level of subprime and retail-card lenders. That spread between the top and bottom of the issuer stack is the widest it has been since 2010. The stress is not evenly distributed. It is concentrated in lower-prime and store-card portfolios where APRs run highest and borrowers have the least margin for error.

In this tape, the consumer balance sheet is bifurcating. Upper-quintile households hold record liquid net worth and carry no revolving debt. Lower-quintile households are paying 24-to-28 percent APR on balances that are growing faster than income. The aggregate number — 2.9 percent delinquency at all commercial banks — averages a story that does not average.

When a bank offers a 0-percent introductory APR on a balance transfer, that is not generosity. That is a balance-sheet decision. The issuer is buying a performing loan from another bank’s portfolio at par. The transfer fee — typically 3 to 5 percent — is the acquisition cost. The bet is that the borrower will either convert to a full-rate account after the promotional window or carry enough ancillary spend to justify the customer-acquisition cost. In a 21-percent-APR environment with charge-off rates at 3.8 percent, the economics of acquiring a known-performing borrower at zero percent for 15 months are better than the economics of extending new credit to the marginal applicant.

Worth watching: those introductory offers are the cheapest liquidity windows available to consumers right now. When the cost of capital stays elevated and the Fed signals it is not coming down, the supply of those windows tightens. Every month the prime rate stays at 6.75 percent or higher, the window to lock in a zero-percent transfer closes a little further.

The tech sell-off continues this morning. Nasdaq futures are down 1.2 percent. The Kospi triggered a circuit breaker overnight after falling 8 percent. The S&P is flat. Oil keeps sliding — WTI at $69.20, Brent at $72.47 — as the Strait of Hormuz reopens. Economists say yesterday’s PCE print likely marks peak inflation for this cycle as energy prices roll over. But core PCE at 3.4 percent means the Fed’s problem is not just oil. Services inflation — restaurant meals, auto repair, healthcare, housing — is sticky. The rate environment that keeps credit card APRs at 21 percent is not going away in the second half.