The Credit Card Spending Channel of Monetary Policy: Micro Evidence from Account-level Data 
An important question for monetary policy involves the sensitivity of consumer spending to changes in interest rates. This paper uses a large data set of the majority of credit card accounts issued by US banks from 2016 to 2024 to assess the impact of monetary policy on consumer spending through the effect of interest rate changes on credit card borrowing.
Key Findings
- The authors estimate an aggregate interest-rate elasticity of credit card spending of about –8.7, meaning that in response to a 1 percentage point increase in the annual percentage rate (APR), credit card spending in the following month declines 8.7 percent.
- The effect of interest rate changes on outstanding credit card balances is also significant but smaller than the effect on spending.
- The aggregate declines in credit card spending are driven by revolving accounts and by low-credit- score accounts. The estimated interest-rate elasticity of spending is –15 for revolving accounts and –18 for low-credit-score accounts. By contrast, spending on transactor and high-credit-score accounts does not decline significantly when interest rates rise.
- The outstanding balances of high-credit-score accounts decline 7 percent after a 1 percentage point increase in APR, indicating that when interest rates rise, those consumers continue to spend at the same rate but pay down their balances.
Implications
The effect of interest rate changes on credit card borrowing has become particularly relevant for understanding the transmission of monetary policy to aggregate consumption as credit card borrowing has grown. On average, credit card borrowing increased in value by more than 10 percent per year during the past decade and now constitutes about 20 percent of total consumer spending. Importantly, about 30 percent of credit card expenditures are made by consumers who have revolving account balances, which carry interest expenses, as does any new spending on revolving accounts. Thus, the interest-rate elasticity of credit card spending is a key statistic for policy and model calibration.
Abstract
Monetary policy impacts consumer spending via the effect of interest rate changes on credit card borrowing. Using supervisory account-level spending and balance data, we estimate that a 1 percentage point increase in the interest rate reduces credit card spending by nearly 9 percent and revolving balances by close to 4 percent. Aggregate results are primarily driven by revolving accounts, while we estimate small and statistically insignificant interest-rate elasticity for transaction accounts. Consistent with financial constraints, low-credit-score accounts tend to adjust spending, while high-credit-score accounts adjust balances.