New Deal Brings Harsh Reality
What is it?
A deal was made to raise the debt ceiling. The United States Government will not default on its debt. However, that may put pressure on companies and individuals to stay out of debt.
Why does it matter?
The details of that deal brings back student loans in August.* That may hurt the consumer’s budget. This could lead people to take on more debt. Adding back student loans alone may lower the amount that people with student loans can contribute to their investments. While that may be rough, there are ways the government can make it less of a burden on people.
Student Loan Pressure
What is it?
With Student loans allegedly coming back, pressure is mounting on the economy to perform. Lately, the markets have been optimistic, but the Fed could raise interest rates more this week. Despite that, the stock market has continued to move slightly higher in recent weeks.
Why does it matter?
“Consumer spending is directly linked to personal finance. Economists agree that when consumers have less expendable income due to debt obligations, they decrease spending. Student debt is the 2nd largest type of household credit (after mortgages).”**
With Student loans coming back, that could negatively affect the economy. There are positive effects that come from new businesses starting and first-time home buyers which may be hard to find in a few months. While markets are performing well, they still have a lot to overcome if they are to maintain this price level or move higher.
Other articles we found interesting this week:
Why the Fed’s rate decision will likely be a last-minute call
Goldman pushes back against bearish Morgan Stanley
Big week for markets gets underway in a calm fashion
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Sources:
*Kamaron McNair. “What the debt ceiling deal means for student loan borrowers”. 6/1/2023. CNBC. https://www.cnbc.com/2023/06/01/student-loan-payment-pause-will-end-as-part-of-the-debt-ceiling-deal.html
**Melanie Hanson. ”Economic Effects of Student Loan Debt”. 1/1/2023. Education Data Initiative. https://educationdata.org/student-loan-debt-economic-impact
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