The Effects of Federal Funds Rate Changes on Household Debt

Museum & Visits Regional Economy Data & Statistics Careers Blogs News & Events

About the New York Fed
- About the New York Fed
- What We Do
- Who We Are
  - Bank Leadership
- Communities We Serve
- Governance
- More About Us
- At the New York Fed, our mission is to make the U.S. economy stronger and the financial system more stable for all segments of society. We do this by executing monetary policy, providing financial services, supervising banks and conducting research and providing expertise on issues that impact the nation and communities we serve.
  
  The Teller Window is a publication featuring expert knowledge and insight from the New York Fed, including thoughts and perspectives from senior leaders.
  
  Do you have a request for information and records? Learn how to submit it.
  
  Learn about the history of the New York Fed and central banking in the United States through articles, speeches, photos and video.
Markets & Policy Implementation

Economic Research
- Economic Research
- U.S. Economy
  - Consumer Expectations & Behavior
  - Growth & Inflation
  - Labor Market
  - Financial Stability
  - Banking
- REGIONAL ECONOMY
- RESEARCHERS
  - PUBLICATIONS
  - RESEARCH CENTERS
  - CALENDAR

Financial Institution Supervision
- Financial Institution Supervision
- Supervision & Regulation
  - Circulars
  - Regulations
- Reporting Forms & Instructions
  - Reporting Forms
  - Correspondence
- Bank Applications
- Consumer Protection
  - Community Reinvestment Act
  - Frauds and Scams
- As part of our core mission, we supervise and regulate financial institutions in the Second District. Our primary objective is to maintain a safe and competitive U.S. and global banking system.
  
  The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
  
  Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
  
  The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
Financial Services & Infrastructure
- Financial Services & Infrastructure
- Financial Services & Operations
- Financial Market Infrastructure & Reform
- The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
  
  The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
  
  The growing role of nonbank financial institutions, or NBFIs, in U.S. financial markets is a transformational trend with implications for monetary policy and financial stability.
  
  The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
Community Development
& Education

Staff Reports

The Effects of Federal Funds Rate Changes on Household Debt

Number 1212
November 2026

JEL classification: D12, D14, E43, E52, R31

Authors: Rajashri Chakrabarti, Kasey Chatterji-Len, Daniel Garcia, and Maxim L. Pinkovskiy

We study how monetary policy affects household debt in areas that are more and less exposed to changes in the Federal Funds Rate. Comparing more- and less-exposed counties, we find that monetary tightening increases the growth of adverse household debt outcomes, including delinquencies, foreclosures, and bankruptcies, and reduces credit score growth and borrowing for homes and cars in more-exposed counties relative to less-exposed counties. These declines in auto and mortgage borrowing are even larger in more-exposed counties that are low-income or have higher shares of subprime borrowers or Black residents. Furthermore, we find that the effects of monetary policy are asymmetric; monetary contraction has larger effects than monetary expansion. We find that the effects of monetary policy are largely mediated by borrowing cost changes in the short term and by changes in employment in the medium to long term following a rate change. Moreover, we find that the transmission of monetary policy is considerably more effective in areas and time periods that have higher shares of adjustable-rate mortgages.

Full Article

Author Disclosure Statement(s)

Rajashri Chakrabarti
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.

Kasey Chatterji-Len
The author, Kasey Chatterji-Len, declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.

Dan Garcia
The author, Daniel Garcia, declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.

Maxim Pinkovskiy
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Suggested Citation:
Chakrabarti, Rajashri, Kasey Chatterji-Len, Dan Garcia, and Maxim Pinkovskiy. 2026. “The Effects of Federal Funds Rate Changes on Household Debt.” Federal Reserve Bank of New York Staff Reports, no. 1212, November. https://doi.org/10.59576/sr.1212

By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement.