Credit Rejection Rates Surge in June Despite Fewer Applications, Reports NY Fed

The Federal Reserve Bank of New York released its latest data on Monday, showing a rise in credit rejection rates for June, compared to earlier this year, though slightly lower than the rates from the same period last year.

The June Credit Access Survey revealed that credit rejection rates climbed to 21.4% in June, up from 18.7% in February. This figure is just below the 21.8% rejection rate recorded in June 2023 and approaches levels last observed in the latter part of 2018.

The survey also indicated a decrease in the number of households applying for credit. In June, 41.2% of respondents applied for some form of credit, a decline from 43.4% in February. Additionally, there was a minor reduction in the number of respondents who expect to apply for credit in the future.

The increase in credit rejection rates coincides with the Federal Reserve's ongoing efforts to keep short-term borrowing costs high in order to address elevated inflation. Despite signs of financial strain in some households, the overall economic condition has remained relatively robust. With inflation showing signs of slowing, Federal Reserve officials are considering whether to adjust their interest rate target in the near future.

Goldman Sachs Chief Economist Jan Hatzius noted in a research report on Monday, "We may be nearing a critical point where continued softening in labor demand could result in a larger and less favorable increase in unemployment." He further stated, "There is a strong argument for reducing rates as soon as the July 30-31 meeting."

The data from the Federal Reserve Bank of New York highlights the delicate balance policymakers must maintain as they navigate the complexities of credit access and economic stability.

Also Read: Federal Reserve Chair Powell to Discuss Interest Rate Cuts as Inflation Slows