Rich Americans cutting debt before US Federal Reserve hikes rates

More wealthy Americans now say they’re reducing debt than at any time in the past decade, and the Federal Reserve may be the one to be grateful to.

About 15 per cent of high-income households, those in the top third of the earnings ladder, reported debt declined in September, more than any other time since 2005, according to Friday’s consumer-sentiment report from the University of Michigan. The share was only one per centage point lower than the 35-year peak reached in April 2000. Those same households reported making further progress on their finances, while the bottom two-thirds of the income distribution said their balance sheets worsened.

"The prospects of rising interest rates didn’t cause high-income families to borrow in advance of those hikes — it caused them to pay down their debt," Richard Curtin, director of the Michigan Survey of Consumers, said. "It could be that the dodging of the hike this month meant more consumers actually looked at their finances more critically." Fed policy makers delayed raising the benchmark interest rate at their meeting this month as market turmoil and international-growth concerns threaten to derail the US economy and slow down inflation even further. Still, Fed Chair Janet Yellen said on Thursday she and others on the Federal Open Market Committee are ready to raise interest rates this year.

A late-month confidence boost among wealthier Americans kept the broader sentiment gauge from falling as much as forecast. Michigan’s final reading for the month showed its confidence gauge at 87.2, the lowest level since October, from 91.9 in August.