The Federal Reserve raised interest rates by 25 basis points this week, the first increase since 2023, citing elevated inflation, a robust job market, and steady economic growth. While a single quarter-point hike isn't seismic, consumers carrying debt face higher costs for petrol and essentials. Over the past 30 years, consumer loan delinquencies have tracked policy rate changes — higher rates drive delinquencies up, looser policy brings them down.

What's especially concerning now is the low and falling personal savings rate, leaving consumers with little cushion when debts come due. "Households are saving less and borrowing more to sustain spending . . . If consumers become more dependent on credit during a Fed hiking cycle, we should expect delinquencies to rise alongside the interest rate burden," wrote Frances Donald of RBC in a note.

This threatens consumer spending, the primary US growth engine. When credit ratings fall, consumers lose credit access, creating ripple effects. Higher interest costs, low savings, and an energy shock form a tough combination. Chart of the Week pauses next week, returning October 3.