JPMorgan Forecasts Higher Credit Card Charge-Offs by 2026 Amid Economic Pressures

New York, NY — May 20, 2024

JPMorgan Warns of Rising Credit Card Charge-Offs Through 2026

JPMorgan Chase & Co., the largest U.S. bank by assets, has issued a caution that charge-off rates in its credit card business could rise above historical averages by 2026. The projection, disclosed on May 19, comes as consumer debt burdens grow and macroeconomic uncertainties persist, signaling potential headwinds for lenders across the financial sector.

Charge-Offs Poised to Exceed Historical Averages

At JPMorgan’s investor day on Monday, executives revealed that they expect credit card charge-off rates could reach as high as 3.5% to 3.6% between late 2025 and late 2026. This would surpass the bank's long-term average range of 2.5% to 3%, reflecting mounting pressures on U.S. credit card holders.

A charge-off occurs when banks write off unpaid credit card balances as uncollectible, a closely watched metric of consumer financial health.

“We want to be clear-eyed in our assumptions,” said Marianne Lake, JPMorgan co-CEO of Consumer & Community Banking, according to comments reported by Reuters. “We're not ringing alarm bells, but we are recognizing the realities of the macro environment and consumer behavior we're seeing.”

The bank stressed that these projections are not a sign of an immediate crisis, but rather a response to “normalization” following several years of ultra-low delinquencies during the pandemic era when government stimulus and loan forbearance programs supported household finances.

Consumer Debt and Delinquencies on the Rise

Recent Federal Reserve data indicates that U.S. credit card balances surpassed $1.3 trillion in the first quarter of 2024, up roughly 13% year-over-year and near all-time highs. Delinquency rates—defined as payments late by 90 days or more—have also ticked upward in recent quarters, approaching pre-pandemic norms.

JPMorgan’s outlook reflects broader industry trends. Bank of America, Citigroup, and Capital One have all reported increases in delinquencies and net charge-offs in their recent quarterly earnings, driven by rising living costs and higher interest rates.

“Our charge-off rates are likely to exceed the long-term average during this period of normalization,” said Jamie Dimon, CEO of JPMorgan Chase, in an investor Q&A. “That said, consumer fundamentals remain relatively healthy, and the economy, while slowing, is not in recession.”

Key Drivers: Economic Slowdown, Inflation, and Interest Rates

Bank executives attributed the expected uptick in losses to several interrelated factors:

• Cooling Labor Market: Slower job growth could make it harder for some consumers to stay current on bills.
  
• Persistent Inflation: Elevated costs for essentials are squeezing household budgets, especially among less affluent borrowers.
  
• Rising Borrowing Costs: The average credit card interest rate is now over 20%, the highest on record, making it more difficult for cardholders to reduce balances.
  

“These dynamics are consistent with what we see in prior cycles,” said Jennifer Piepszak, JPMorgan’s co-CEO of Consumer & Community Banking. “Normalization does not mean a crisis—it reflects more typical consumer lending risks after an extraordinary period.”

JPMorgan’s Strategy: Cautious Growth, Enhanced Reserves

Despite these headwinds, JPMorgan remains committed to growing its lending portfolio. The bank is investing in risk monitoring and expanding its loan loss reserves to buffer against potential shocks.

“Our underwriting standards remain prudent, and we’re proactively managing credit,” said Lake. “We’re also continuing to invest in technology and data analytics to improve our ability to spot risks early.”

Some analysts view JPMorgan’s “above average” charge-off guidance as a prudent move, safeguarding the bank’s reputation for risk management. “They’re signaling caution, not alarm,” said David Konrad, a banking analyst at Keefe, Bruyette & Woods. “By getting ahead of potential challenges, JPMorgan is showing leadership in the sector.”

Broader Industry Impact and Consumer Implications

JPMorgan’s announcement is closely watched on Wall Street, given the bank’s status as a bellwether for U.S. consumer finance. If charge-offs rise as forecasted, other major credit card issuers could face similar pressures, especially those with riskier customer bases.

For consumers, higher charge-off rates may eventually prompt banks to tighten lending standards, reduce credit limits, or raise interest rates further, exacerbating financial stress for vulnerable households.

According to a recent Bankrate survey, nearly 46% of credit card users are carrying month-to-month balances, up from 39% pre-pandemic—a trend experts attribute to persistent cost-of-living increases.

Outlook: Headwinds, Not Crisis

While JPMorgan’s guidance raises important concerns about consumer debt sustainability, the bank—and most analysts—remain cautiously optimistic. Robust employment, steady wage gains, and household savings accumulated during the pandemic continue to provide buffers for many families.

“Credit losses are rising, but from unusually low levels,” said Mark Zandi, chief economist at Moody’s Analytics. “We’re seeing a normalization, not a collapse, in consumer credit quality.”

JPMorgan plans to update its outlook regularly as economic conditions evolve and will adjust its risk posture as needed.

JPMorgan’s warning of higher credit card charge-off rates through 2026 underscores the persistent challenges facing U.S. consumers amid inflation, high interest rates, and a cooling economy. While not signifying imminent trouble, the bank’s projections point toward a period of greater caution and tighter credit standards across the industry.