Economics News Release - Higher US interest rates: Why a little means a lot US overnight rates may be at historic low, but household vulnerability to rising rates is at historic high TORONTO, June 8 /PRNewswire-FirstCall/ -- Even a modest rise in US interest rates in the next 12 to 24 months by the US Federal Reserve could result in substantial vulnerability for US households, according to CIBC World Markets' Monthly Indicators Report for June. CIBC World Markets' senior economists Benjamin Tal and Avery Shenfeld, in their report, say that US consumers are "leveraged to the hilt" in ways not seen in the post war era. "As a result, despite extremely low interest rates, households are more stretched today than they were at the start of any tightening cycle in the past two decades," say Tal and Shenfeld. The CIBC World Markets economists note that not only are Americans carrying a lot of debt but much more of it will be exposed when rates rises. As of April a dazzling 50 percent of new mortgages outstanding were Adjustable Rate Mortgages. As a result almost one quarter of total household debt would be affected instantly by higher rates, more than 70 percent higher than the exposure rate seen in 1994. Furthermore, many Americans are living on the "edge of the debt precipice" and are therefore extremely vulnerable to falling in to default as a result of higher rates. "The decline in quality of debt, its higher variable rate share, and its heavy load relative to incomes, will mean that even a modest increase in interest rates will lead to a disproportionately large increase in defaults and write-offs and rates, conclude Tal and Shenfeld. "If history is a guide, banks will try to staunch the bleeding by limiting credit lines and tightening mortgage standards, a recipe for slower spending." The surprise will be how little it takes from the fed in that context to achieve any desire cooling in the US economy. A copy of CIBC World Markets' Monthly Indicators Report is available at http://www.cibcwm.com/research. CIBC World Markets is a full service corporate and investment bank throughout North America, with operations in Asia, Europe and Australia, and serving more than 8,000 corporate, government and institutional clients. CIBC World Markets' parent company is CIBC, one of North America's first and largest financial institutions with offices in 18 countries, including the world's major financial centers. A publicly traded financial services company, CIBC has assets of US$210.1 billion and a market capitalization of almost US$16.2 billion. DATASOURCE: CIBC World Markets CONTACT: Benjamin Tal, Senior Economist, CIBC World Markets at (416) 956-3698, ; Avery Shenfeld, Senior Economist at (416) 954-7356, , or Rod Cumming, Senior Manager, Marketing and Communications, CIBC World Markets at (416) 594-7774 or

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