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WASHINGTON — The grace period has ended. Just as the American economy is struggling, high inflation and interest ratesthe upcoming resumption of student loan payments poses yet another potential challenge.
federal suspension student loan paymentcame into force at the height of the 2020 pandemic, but expires at the end of this summer. Interest starts accruing again in September. Payments will resume in October.
While many had hoped the loans would at least be lightened, the Supreme Court last week ruled that Destroyed the plans of the Biden administration That would have saved millions of people some from paying off their loans. Biden’s plan would end up to $20,000 in federal student loans for 43 million borrowers. 20 million would have been completely wiped out of debt. A court ruled that the plan was beyond the authority of the government.
resuming those payments This means many people will have to start paying off hundreds of dollars in loans each month, but that money has been spent somewhere else over the past three years. Declining spending on their goods and services is unlikely to seriously hurt the $26 trillion US economy, the world’s largest. Rather, the pain is likely to be concentrated in several industries, notably e-commerce companies, bars and restaurants, and some large retailers.
Even if it’s not enough to dampen overall economic growth, the change in spending among many young people is already plagued by uncertainty, such as whether the Fed can keep inflation in check and halt rate hikes. Whether there will be a recession by next year is still a concern for many economists, which could bring more uncertainty to the economy as it stands.
Josh Bibuns, chief economist at the Economic Policy Institute think tank, said the economic impact could possibly reach a third of gross domestic product (the country’s total output of goods and services), or about $85 billion. suggested that it was possible. Or $90 billion a year.
“It’s not trivial, but it’s not huge,” Vivens said.
Despite a dramatic rise in interest rates for more than a year, consumer confidence continues and the economy remains strong. Consumers can afford to load up their Amazon shopping carts, go out to dinner, and buy everything from lawn furniture to new refrigerators. Part of the reason is that governments have spent nearly $5 trillion since 2020 to mitigate the economic damage caused by COVID-19.
But pandemic relief programs, including student loan suspensions, are coming to an end, adding to the hurdles facing the economy.
The suspension of loan payments “had a little bit more money in people’s pockets, but people went out and spent that money,” said Neil Saunders, managing director of consultancy GlobalData Retail. rice field.
Analysts at Deutsche Bank, which monitors the retail industry, estimate that resuming loan payments could reduce consumer spending by $14 billion a month, an average of $305 per borrower. The biggest hit will likely be absorbed by online commerce, mail-order companies, restaurants and bars, they said.
Individual companies that could be hit include Macy’s, Target and Kohl’s, according to an analysis by Deutsche Bank. Walmart, the world’s largest retailer, is believed to be spared much of the damage because it is in the grocery business. (Walmart is also the largest grocery store in the country.)
100-yen shops and other discounters could benefit as more economically-strapped consumers turn to bargain hunting.
Goldman Sachs chief economist Jan Hadzius and his colleagues expect the end of the student loan moratorium to put a “moderate drag” on the economy, cutting consumer spending growth by 0.2% this year. said that If the Supreme Court had allowed Biden’s debt forgiveness program to proceed, that amount would have been halved, they say.
Since the outbreak of COVID-19 in early 2020, the economy has endured rough seas. A deep recession engulfed the economy in March and April of that year. Massive government aid has facilitated an astonishing recovery of speed, strength and resilience.
But it came at a price. The surge in demand from consumers has overwhelmed factories, ports and freight yards around the world, resulting in delays, shortages and massive price increases. Inflation last year surged to levels not seen since the early 1980s.
In response, the Fed will begin raising short-term benchmark rates in March 2022. Since then, it has raised key interest rates ten times. Rising borrowing costs had the intended effect of slowing the economy and accelerating prices.from Up 9.1% year-on-year In June 2022, consumer price inflation eased to 4% in May. That’s still double the Fed’s 2% target. As a result, the central bank has signaled that further interest rate hikes are likely later this year.
At the same time, the government is phasing out pandemic relief. Extended unemployment assistance ends in September 2021. food stamp program This year is over.
The savings Americans have saved since the peak of the pandemic, when they received government bailout checks and stuck at home saving money, are evaporating. Fed researchers report that pandemic-induced “excess” savings will likely dry up in the first three months of 2023.
Despite everything, the economy proved surprisingly durable. The government last week significantly raised its economic growth forecast for January to March. 2% per annum Consumer spending is at its fastest pace in nearly two years, he said. Considering a still strong job market — Employers are actively hiringAnd the unemployment rate is 3.7%, barely above its half-century low. And the economy has repeatedly outperformed predictions first made more than a year ago that a recession was inevitable.
“The economy has come through really strong,” Bivens said. My guess is that this is not the case. I don’t think it’s big enough. ”
Still, Mr. Vivens said he fears federal rate cuts, including Fed rate hikes and the end of the student loan moratorium, will, at least for now, “provide further contraction shocks” to the U.S. economy, which has been ignoring doubts. rice field.
