Households Pump the Brakes on Credit as Economic Uncertainty Looms

Americans are walking a careful line as they navigate inflation and household balance sheets, leveraging credit where needed but showing signs of restraint.

The latest Federal Reserve data released Tuesday (Oct. 7) paints a picture of consumers who still have “dry powder” in the form of available credit but are using it judiciously as the year winds down.

The Federal Reserve’s G.19 consumer credit report showed that total credit barely increased in August, advancing at an annualized rate of just 0.1%, a sharp slowdown from July’s 4.3% pace. The deceleration was driven largely by a 5.5% annualized contraction in revolving credit, a category that includes but is not limited to credit cards. That compares with a 10.3% jump the prior month and a flat 0.6% in June. The drop marks the steepest pullback so far this year and suggests that consumers are intentionally tempering use of short-term borrowing.

By contrast, nonrevolving credit, such as auto and student loans, rose at a 2% annual rate, also moderating from July’s 2.2% gain. Taken together, the data signals that households are managing balances more thoughtfully, likely prioritizing essentials while delaying big-ticket discretionary spending.

Even with the recent slowdown in borrowing, consumers still have significant unused capacity to draw on. As of July, total consumer credit outstanding stood at roughly $5.06 trillion (seasonally adjusted), well above year-ago levels, according to the Federal Reserve’s G.19 series.

Yet, utilization remains far from stretched: The 75th percentile of active credit card accounts was using only about 50.7% of available credit lines in Q1 2025, per the Fed’s credit card utilization dataset. That cushion suggests that, while many consumers could borrow more if they chose to, they are exercising restraint, saving that capacity for essentials or emergencies rather than fueling discretionary purchases.

The trend doesn’t indicate stress so much as deliberation. With job prospects less certain and inflation expectations edging higher, households appear to be recalibrating borrowing and spending ahead of the holidays, a season that typically drives credit growth.

According to the Federal Reserve Bank of New York’s September 2025 Survey of Consumer Expectations, median one-year-ahead inflation expectations rose to 3.4% from 3.2% in August, the third consecutive increase.

Lower-income respondents (under $50,000) registered the sharpest uptick, with expectations climbing to 3.5% from 3.1%. Higher-income households remained relatively steady at 3.2%, suggesting the persistence of price sensitivity among those least able to absorb cost pressures.

At the same time, confidence in future earnings softened. Expected one-year-ahead earnings growth fell to 2.4%, the lowest since April 2021, while household spending expectations slipped 0.3 points to 4.7%, marking the first sub-5% reading in a year. The divergence — spending growth expectations nearly two points above income growth — hints that consumers may bridge the gap through savings drawdowns or carefully targeted borrowing, rather than a credit-fueled surge.

The New York Fed’s survey also highlights growing unease about job security. The mean perceived probability of job loss over the next year ticked up to 14.9%, above the 12-month average of 14.1%, while the probability of finding a job within three months rose modestly to 47.4%, still below its 51% average. Encouragingly, the perceived likelihood of missing a minimum debt payment dropped to 12.6%, below the one-year average of 13.5%, further evidence that households are being proactive in managing liabilities.

Taken together, the Fed reports show consumers threading a fine line between resilience and restraint. Credit remains available and, in many cases, underused. But households appear more strategic, keeping lines open for emergencies or essential big-ticket items rather than impulse or seasonal spending.

With inflation expectations firming and job optimism softening, this year’s holiday borrowing season may look less like a credit binge and more like a balancing act. Consumers seem determined to stay in control — leveraging credit as a tool, not a crutch.

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