As Fed officials propose new hikes to interest rates, consumers have taken to “buy now, pay later” lending platforms.
Are these platforms heaven or a burden on the tight budgets of the American middle class?
More rate hikes coming, but unlikely
While markets are expecting additional rate hikes, they will likely come in small doses. according to Wednesday’s speech by Fed Chair Jerome Powell.
The St. Louis Fed president said, since March, that “the FOMC is removing monetary policy accommodation at its fastest pace since the 1980s in an effort to steer inflation back toward the Fed’s 2% target.” Jim Bullard,
In 2021, the Federal Open Market Committee, responsible for setting the federal funds rate, was expecting inflation to remain around 2% through 2022, which did not happen.
By September 2022, the average FOMC participant estimated headline inflation to be 5.4% and core inflation to be 4.5% at the end of the year.
According to recent data, Bullard says that “a policy rate hike of at least 4.9% would be needed to exert downward pressure on inflation.” The current fed funds rate ranges between 3.75% and 4%.
Bullard said the Fed’s role is to fulfill “the twin mandates of stable prices and maximum employment.” With employment still strong, the Fed feels comfortable raising interest rates further until inflation subsides.
“Even under liberal assumptions, the policy rate has not yet reached a level that can be considered sufficiently restrictive,” Bullard said.
on Monday, John C. Williams, The President and CEO of the New York Fed called inflation “the number one economic concern around the world.”
“Inflation is very high, and persistently high inflation undermines our economy’s ability to perform to its full potential,” he said, adding that although it is a complex problem, he is confident that the Federal Reserve’s actions will restore price stability. .
“Aggregate demand for labor and services still far exceeds available supply, resulting in broad-based inflation, which will take longer to roll back.”
Williams said the labor market is remarkably tight. Pointing to strong hiring and rapid salary gains.
However, development is slow. They estimate that the unemployment rate will climb to between 4.5% and 5% percent by the end of next year from its current level of 3.7%.
With interest rates dampening global demand and supply chain improvements from their disruptions, Williams expects inflation to be around 5% by the end of the year and “slow further to between 3 and 3.5 percent for next year.” “
Buy Now, Pay Later Thanksgiving Deals Hit Records
While rising interest rates are causing demand to slow down, “buy now, pay later” platforms (abbreviated BNLP), are helping consumers make up for the loss of purchasing power.
In a recent interview with Fox Business, max levchinco-founder and CEO of Voice AFRMOne of the largest BNLP lending platforms, said people need greater access to credit in an inflationary environment.
“They are literally losing their purchasing power and we are here to give it back,” he said.
This means that from Affirm’s perspective, inflation brings more demand for point-of-sale lending platforms like its own, paypal PYPL, sizzle SEZNL And afterpay,
Cyber Monday 2022 brought an estimated record revenue of $11.3 billion as BNPL purchases increased by 85% compared to the previous week.
In the case of Afterpay, the platform saw a growth of 120% over the past week.
Many users of the BNPL model are young consumers with subprime credit scores and unable to afford other types of loans. People living paycheck to paycheck are also turning to these platforms.
Many consumer transactions using the BNPL platform are interest-free for the customer, while the seller is charged a fee for being able to offer this service.
For consumers looking to quickly finance an article or service, a no-interest loan seems like a no-brainer. But users of these services must ensure their ability to make payments in due time.
Affirm’s latest report shows that alongside its growth, delinquency has also increased, meaning more people are missing their payments.
Benzinga’s take: A “buy now, pay later” platform could get many Americans out of a jam when money is tight. They can also be enticing offers to get the desired product or service without waiting.
However, the allure of interest-free loans should not be taken lightly, as non-payment can lead to a debt spiral leading to further financial difficulties.
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