Despite what many Americans have heard, interest rate cuts in 2024 aren’t a foregone conclusion—and may be delayed for another year as the Fed continues to fight inflation.

Torsten Slok, chief economist at Apollo Global Asset Management, says the economy isn’t slowing down fast enough for the Fed to justify rate cuts.

“The Fed will not cut rates this year and rates are going to stay higher for longer,” he said in a recent note to investors. “The bottom line is that the Fed will spend most of 2024 fighting inflation.”

Perhaps surprisingly, his view is echoed by top Fed executive Tom Barkin, who told CNBC that stubborn inflation is the final hurdle before central bankers can give Americans what they want.

“I’m still hopeful inflation is going to come down, and if inflation normalizes, then it makes the case for why you want to normalize rates, but to me, it starts with inflation,” Barkin said.

The Fed is caught between a rock and a hard place, so it has to be “very cautious when it comes to its decision-making regarding rate cuts,” Jacob Channel, an economist at LendingTree, told CBS News. “The reason for this is because they don’t want to start cutting prematurely and end up making inflation worse.”

Higher interest rates raise the cost of borrowing, leading to a reduction in purchasing power as more of consumers’ income goes toward servicing their debt. In theory, this should dissuade consumers from taking on more debt, just enough to cool inflation.

While inflation is down from its peak of 9.1%, progress hasn’t been as smooth as policymakers had hoped.

Making matters worse, Americans are using high-interest credit to fuel their purchases, creating an unfortunate feedback loop of rising debt and still-too-hot inflation.

Now, the bill for all that spending is coming due.

Interest payments balloon

According to the Bureau of Economic Analysis, Americans are now paying roughly as much interest on other kinds of debt as they are on mortgages.

On an annual basis, non-mortgage interest payments jumped to $573.4 billion in January—the highest on record, even when adjusting for inflation. Meanwhile, annual interest payments on mortgage debt amounted to $578.3 billion in the final quarter of 2023.

The most shocking part is that mortgages account for 70% of U.S. household debt, yet interest on the remaining 30% gobbles up just as much in payments.

Unlike mortgage rates, which can be fixed for 30 years, interest on revolving credit has variable rates. That means they’re more likely to sting consumers when rates rise, especially those who’ve taken on more debt.

“Consumers are carrying much higher balances than they were two years ago,” Charlie Wise, head of global research and consulting at TransUnion, told The Wall Street Journal. “There are always people at the margin where any increase in rates is going to hurt them.”

In addition to carrying higher credit card balances, Americans are likely being gouged by large credit card companies.

After analyzing the APR of more than 150 credit card issuers, the Consumer Financial Protection Bureau (CFPB) found that the largest lenders charged 8 to 10 percentage points higher than smaller issuers like credit unions and regional banks.

The largest credit card companies charge an APR of between 22.99% and 28.49%, with 15 institutions charging a jaw-dropping 30% or more.

Credit cards become a source of concern

Households added $50 billion in credit card debt in the final quarter of 2023, all while savings continued to dwindle. Americans now collectively owe $1.13 trillion in credit card debt.

Per Fed data, credit card balances grew by 14.1% between Q4 2022 and Q4 2023—much higher than mortgages (2.9%), auto loans (3.9%), and student loans (0.3%).

household debt chart

The concern isn’t credit card debt per se—it’s how Americans are acquiring it.

“Household debt burdens declined during the pandemic,” said Matt Schoeppner, senior economist at U.S. Bank. “Consumers paid off credit card debt and other high-interest loans.”

Then, in 2022, things began to change.

“As inflation became a burden and government payments ended, consumers were willing to take on more debt,” he said.

Households aren’t just using credit cards to pay for big-ticket items but for necessities as well. According to a recent study by NerdWallet, 48% of Americans with revolving credit card debt admitted that spending on essentials contributed to their debt.

A separate study by Clever Real Estate found that nearly a quarter of consumers go deeper into debt each month, mostly to pay for everyday living expenses.