US consumer debt fears are overblown as borrowing slows and inflation cools, Moody's chief economist says

• US consumers debt isn't as bad as many fear, according to Moody's chief economist.
• Mark Zandi highlighted that borrowing has moderated since the start of the year as inflation cools.
• He added that student loan repayments won't cause delinquency rates on other debts to rise.

US consumer debt fears are overblown as borrowing slows and inflation cools, according to Moody's Analytics' chief economist.

In a post on X, Mark Zandi shared a contrarian view to ongoing chatter about US consumer debt.

Several market experts have rang the alarm on Americans' spending habits, flagging credit card debt at record highs as pandemic savings dwindle in the face of high inflation.

Total credit card debt held by US consumers smashed a record high earlier this year of more than $1 trillion. That could likely see the US economy "hit a wall" in the next eight months as higher interest rates, the resumption of student loan payments, and larger rents, worsen financial pressures for consumers, DoubleLine CEO Jeff Gundlach warned.

But Zandi is optimistic.

"There was cause to be concerned at the start of the year when borrowing was ramping up on credit cards, unsecured personal and auto loans. But borrowing has since moderated. This goes to slowing inflation, which is lifting household's purchasing power, and tighter underwriting," he said on Sunday.

US inflation has fallen to 3.2% from 40-year highs hit last year thanks to the Federal Reserve's aggressive interest rates hikes over the past year.

Zandi also highlighted that mortgage equity withdrawals - when households borrow against their homes - has also stopped, thanks to lower inflation, and higher mortgage rates. He added that student loan repayments won't cause delinquency rates on other debt to rise much.

"That's because student loan borrowers will prioritize payments on their other debts as they won't be reported to the bureaus for not making payments on their student loans," Zandi said.

"Debt is a big problem for some, particularly lower-income, households. Many ran out of their pandemic savings long ago and have borrowed lots more to help manage with the high inflation. Fortunately, most Americans have avoided this. Another reason for the resilient economy," he added.