2 months ago • 4 mins
Student debt in the US has more than doubled over the past two decades and now stands at a massive $1.8 trillion, bigger than auto loans or credit card debt. The monthly repayments on student loans were suspended more than three years ago at the height of the Covid crisis, but that relief’s just about to end. And that’ll saddle Americans again with the weight of those payments, typically $200 to $300 a month. That, combined with a near-30% surge in oil prices since June, could knock more discretionary spending power out of consumers’ hands.
The Fed left its target range for its key interest rate unchanged at a 22-year high of 5.25% to 5.5%. However, the Fed’s latest “dot plot” projections showed that 12 out of 19 officials want to hike rates one more time in 2023 to rein in inflation once and for all. The plot also revealed that most officials now see a much slower path of rate cuts in 2024 and 2025. They anticipate a drop to about 5.1% by the end of 2024, well higher than the 4.6% they expected in June. They predict further declines to 3.9% and 2.9% by the end of 2025 and 2026, respectively.
Britain’s stubborn inflation rate made a small but surprising drop in August, falling to its lowest level in 18 months. Consumer prices in the UK rose by “just” 6.7% on a yearly basis in August, defying economists' expectations that they would actually heat up from the 6.8% they notched in July. Adding to the good news, core inflation, which excludes food, energy, alcohol, and tobacco prices, fell even more sharply, to 6.2% in August from 6.9% the month before. Economists had expected the rate to hold steady.
The bigger-than-expected drop in inflation gave the BoE the confidence to hold interest rates steady last week. It maintained its key rate at 5.25%, marking the first pause after 14 consecutive rate hikes that date back to December 2021, when rates stood at just 0.1%. The decision, however, wasn't unanimous: five officials voted to leave rates unchanged, while four voted for an increase to 5.5%. Regardless, the BoE emphasized that this was merely a pause and that rate hikes would be back if inflation doesn’t fall further as expected.
The OECD upped its 2023 global growth outlook to (a still-sluggish) 3% after a stronger-than-expected start to the year, buoyed by lower energy prices, China’s reopening, and a resilient US economy. But the organization lowered its outlook for 2024 to 2.7%, from the previously forecast 2.9%, as high interest rates weigh on economic activity and China’s once-vaunted rebound disappoints. Not counting Covid-plagued 2020, that would be the weakest annual expansion since the global financial crisis.
Fed officials released a new set of economic projections alongside their interest rate decision last week, forecasting stronger growth and a milder inflation outlook this year compared to the estimates released in June. They reduced their core inflation forecast for 2023 to 3.7%, down from the previously predicted 3.9%. For 2024, they maintained their forecasts at 2.6%, while projecting that inflation wouldn’t return to the central bank’s 2% target until 2026.
Officials' economic growth estimate for this year rose sharply to 2.1% from 1%, and 2024's forecast was adjusted up by 0.4 percentage points to 1.5%. That’s not too far off the OECD’s estimates, which also revised up its US economic growth forecasts this year and next to 2.2% and 1.3% respectively. All in all, a US "soft landing" – that dream scenario where the economy slows just enough to bring inflation lower but not so much that it enters recession – is looking more and more likely, after seeming like a total long shot just a few months ago. That’ll surely be a cause for celebration for investors.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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