Former UN Economist Urges Fed to Rethink Monetary Policies Amid Rising Loan Delinquencies

In a letter published by the Financial Times on July 9, 2025, Michael G. Mimicopoulos, a former Senior Economist at the United Nations, urged the U.S. Federal Reserve to reconsider its restrictive monetary policies in light of escalating loan delinquencies and potential economic repercussions.

Mimicopoulos highlighted a concerning rise in delinquency rates across various loan categories, including corporate loans, credit cards, mortgages, and small business loans. He noted that overall delinquency rates reached 4.3% in the first quarter of 2025, with corporate loan defaults nearing an eight-year high. He argued that the Fed's current strategy of paying interest on commercial banks' reserve deposits is less effective than traditional open market operations. He suggested redirecting bank reserves into Treasury securities to lower interest rates, stimulate lending, and boost economic activity. Mimicopoulos also advocated for a more flexible approach to interest rates, proposing immediate rate cuts to support growth, with the option to raise them later if inflation rises.

Recent data supports Mimicopoulos's concerns. The Federal Reserve Bank of New York reported that 4.3% of outstanding debt was in some stage of delinquency in Q1 2025. The Mortgage Bankers Association noted that the delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 4.04% at the end of the first quarter of 2025. Additionally, the 90-day delinquency rate for credit card debt increased to 12.3% in Q1 2025, up from 4.1% in Q4 2022. Student loan delinquencies also surged, with 7.74% of aggregate student debt reported 90+ days delinquent in Q1 2025, compared to less than 1% in Q4 2024.

The Federal Reserve has maintained a restrictive monetary policy with benchmark rates between 4.25% and 4.50%, aiming to control inflation. However, this approach has led to higher borrowing costs, contributing to increased delinquency rates across various loan categories. Deutsche Bank forecasts that U.S. corporate defaults among speculative-grade companies could rise to 4.8% by the second half of 2026 due to persistent tight monetary conditions.

Mimicopoulos critiques the Fed's current strategy of paying interest on commercial banks' reserve deposits, suggesting it is less effective than traditional open market operations. He proposes redirecting bank reserves into Treasury securities to lower interest rates, stimulate lending, and boost economic activity. This approach aligns with former President Donald Trump's proposal to lower interest rates to support growth, with the flexibility to raise them later if inflation rises.

The rising delinquency rates have significant social and economic implications. Increased delinquencies can lead to deteriorating credit scores, limiting access to future credit and financial opportunities for consumers. Higher default rates can strain financial institutions, potentially leading to tighter lending standards and reduced economic activity. The data suggests a need for the Federal Reserve to reassess its monetary policy to balance inflation control with economic growth and financial stability.

Mimicopoulos's letter underscores the pressing need for the Federal Reserve to reevaluate its restrictive monetary policies in light of rising loan delinquencies and their potential impact on the broader economy.