Credit card APRs have an 'economically meaningful' impact on consumer spending, Boston Fed finds
Why it matters: A 1‑point APR rise could shave $12 billion from U.S. credit‑card spending this quarter, hitting borrowers with high balances hardest.
- Federal Reserve Bank of Boston quantifies an “economically meaningful” drop in credit‑card usage when APRs climb, using transaction data from 2020‑2023.
- Households with balances > $5,000 cut spending by about 2 % per additional APR point, according to the paper’s regression analysis.
- Economists such as those at the Chicago Fed note the finding aligns with earlier research on interest‑rate sensitivity but stress that the magnitude is larger than typical mortgage‑rate effects.
A new Boston Fed study shows that a one‑percentage‑point rise in credit‑card APRs trims consumer spending on revolving debt by roughly 2 %, confirming that financing costs matter far more than many policymakers assume. The effect is strongest for households carrying balances above $5,000, where higher rates curb both discretionary purchases and debt‑service payments.
