Finance

‘The time has come for policy to adjust’

Published

2 months ago

August 23, 2024

Fed Chair Powell indicates interest rate cuts ahead: 'The time has come for policy to adjust'

Federal Reserve Chair Jerome Powell laid the groundwork Friday for interest rate cuts ahead, though he declined to provide exact indications on timing or extent.

“The time has come for policy to adjust,” the central bank leader said in his much-awaited keynote address at the Fed’s annual retreat in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Watch live: Fed Chair Jerome Powell speaks from Jackson Hole conference

With markets awaiting direction on where monetary policy is headed, Powell focused as much on a look back at what caused the inflation that led to an aggressive series of 13 rate hikes from March 2022 through July 2023.

However, he did note the progress on inflation and said the Fed can now turn its focus equally to other side of its dual mandate, namely to make sure the economy stays around full employment.

“Inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic,” Powell said. “Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”

He vowed that “we will do everything we can” to make sure the labor market says strong and progress on inflation continues.

Stocks added to gains as Powell began to speak while Treasury yields dropped sharply . Traders maintained a 100% chance of at least a quarter percentage point rate cut in September and raised the odds of a potential half-point reduction to about 1-in-3, according to the CME Group’s FedWatch.

“This was a valedictory of essentially Chair Powell turning the page, saying the mission, which has been focused on inflation for the last two years, has been successful,” economist Paul McCulley, the former Pimco managing director, said on CNBC’s “Squawk on the Street.”

Sees progress towards goals

The speech comes with the inflation rate consistently drifting back to the Fed’s 2% target though still not there yet. A gauge the Fed prefers to measure inflation most recently showed the rate at 2.5%, down from 3.2% a year ago and well off its peak above 7% in June 2022.

At the same time, the unemployment rate has slowly but consistently climbed higher, most recently at 4.3% and in an area that otherwise would trigger a time-tested indicator of a recession. However, Powell attributed the rise in unemployment to more individuals entering the workforce and a slower pace of hiring, rather than a rise in layoffs or a general deterioration in the labor market.

“Our objective has been to restore price stability while maintaining a strong labor market, avoiding the sharp increases in unemployment that characterized earlier disinflationary episodes when inflation expectations were less well anchored,” he said. “While the task is not complete, we have made a good deal of progress toward that outcome.”

Markets are expecting the Fed to start cutting in September, though Powell made no mention of when he thinks policy easing will begin. Minutes from the July open market committee meeting, released Wednesday, noted that a “vast majority” of officials believe a September cut will be appropriate so long as there are no data surprises.

“He’s pretty dovish. He bought the option to do whatever he needs to do next month, which is clearly an ease,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities. “I don’t think the bar for 50 [basis points] is particularly high.”

In addition to assessing the current state of play, Powell took considerable time in the speech to evaluate what led to the surge in inflation — hitting its highest level in more than 40 years — as well as the Fed’s policy response and why price pressures have eased without a recession.

‘Good ship Transitory’

When inflation first began to rise in early 2021, he and his colleagues — as well as many Wall Street economists — dismissed it as “transitory” and caused by Covid-related factors that would abate.

“The good ship Transitory was a crowded one,” Powell quipped to laughter form attendees, “with most mainstream analysts and advanced-economy central bankers on board. I think I see some former shipmates out there today.”

When it became clear that inflation was spreading from goods to services, the Fed pivoted and began hiking, ultimately adding 5.25 percentage points to its benchmark overnight rate that had been around zero following emergency cuts in the early pandemic days.

The rise in inflation, Powell said, was “a global phenomenon,” the result of “rapid increases in the demand for goods, strained supply chains, tight labor markets, and sharp hikes in commodity prices.”

He attributed confidence in the Fed and well-anchored expectations that inflation ultimately would ease to the economy avoiding a sharp downturn during the hiking cycle.

“The FOMC did not flinch from carrying out our responsibilities, and our actions forcefully demonstrated our commitment to restoring price stability,” he said. “An important takeaway from recent experience is that anchored inflation expectations, reinforced by vigorous central bank actions, can facilitate disinflation without the need for slack.”

Powell added that there is still “much to be learned” from the experience.

“That is my assessment of events. Your mileage may differ,” he said.

Finance

Biden administration forgives $4.5 million in student debt for 60,000 borrowers

Published

4 hours ago

October 18, 2024

Business Finance News

Borrowers who serve in the public service sector and government are eligible for this forgiveness. (iStock )

Another 60,000 student loan borrowers will receive student loan relief in the coming weeks. The Biden Administration announced $4.5 billion in relief for public service workers such as nurses, teachers and social workers.

The relief comes as a fix to the original Public Service Loan Forgiveness (PSLF) program. The program was initially signed into law by George W. Bush in 2007 to give non-profit and government employees loan forgiveness after 10 years in the workforce.

“Before President Biden and Vice President Harris entered the White House, the Public Service Loan Forgiveness program was so riddled by dysfunction that just 7,000 Americans ever qualified,” U.S. Secretary of Education Miguel Cardona said in the Education Department’s press release.

The new relief intends to pay down the loans of borrowers who were originally denied acceptance or who have still not received relief after making the 120 required monthly payments.

“Today’s announcement comes on top of the significant progress we’ve made for students and borrowers over the past three years,” President Joe Biden said in a statement.

“That includes approving debt cancelation for nearly 5 million Americans across all our various debt relief actions; providing the largest increases to the maximum Pell Grant award in over a decade; fixing Income-Driven Repayment so borrowers get the relief they earned; and holding colleges accountable for taking advantage of students and families,” Biden said.

If you have private student loans, federal relief doesn’t apply to you, unfortunately. If you’re looking to lower monthly payments and ease the burden of student loan debt, consider refinancing. See what your interest rate could be via the online marketplace Credible.

IS COLLEGE DEBT WORTH IT?

Resources available for students affected by the recent hurricanes

Hurricanes Helene and Milton have wreaked havoc on many communities in the south, causing serious physical damage and severely disrupting educational services. In response, the U.S. Department of Education released resources to help students and institutions of higher education recover.

“I have directed our team at the Department of Education to leverage every possible resource available to meet the needs of impacted students, families and school communities,” Cardona said.

The new resources include support for recovery needs like mental health care for students and educators, technical assistance and flexible financial aid policies at affected universities. Many students are also automatically being enrolled in natural disaster forbearance, so they don’t have to worry about their loans while recovering from the hurricanes.

Most of these resources will be concentrated on Georgia, which has seen a substantial amount of damage. The Readiness and Emergency Management for Schools Technical Assistance Center is a specific program Georgians have access to. It helps education agencies manage their safety, security and emergency management programs.

The Early Childhood Technical Assistance Center is another option that offers resources and links from organizations that help families and children, including those with disabilities, cope with disasters.

If you don’t have federal student loans that qualify for assistance, refinancing could cut your monthly payment. You can use Credible to compare student loan refinancing rates from multiple private lenders all at once without affecting your credit score.

STUDENT LOAN DEBT HAS INCREASED BY 430% SINCE 2003 – HERE’S HOW TO LOWER YOUR DEBT

$70 million in federal funding going to schools for additional mental health services

Along with aid to student loan borrowers and students affected by natural disasters, the Biden administration is also directing federal funding towards mental health services in K-12 schools. The administration announced a $70 million investment that will expand students’ access to mental health support.

“We know that students are more likely to access mental health support if it’s offered in schools, and our educators and school communities are on the front lines when a student is struggling,” Cardona said in the announcement.

“The need for mental health support in our schools remains high,” Cardona said. “Today’s announcement of an additional $70 million will allow more institutions and schools to train and hire mental health professionals – especially in underserved communities – ensuring that every student has access to the care they need to thrive.”

The new funding, combined with the Bipartisan Safer Communities Act (BSCA) investments, will go to 333 grantees across 48 states. It will help communities train and hire 4,000 more mental health professionals across the country.

To see what you’d pay on a private student loan, you can visit Credible today to view a rates table that allows you to compare fixed and variable rates from multiple lenders.

LESS THAN A THIRD OF AMERICANS APPROVE OF HOW BIDEN HAS HANDLED STUDENT LOAN DEBT

Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.