On The Money – Rising Inflation Boosts Recession Fears

Hill illustration, Madeline Monroe/iStock

Some economists fear the Federal Reserve could trigger a recession in its fight against inflation, halting a historically strong economic rebound. We will also look at another big step for rising mortgage rates and more pressure to cancel student loans.

But first, find out why Elon Musk wants to buy Twitter.

welcome to money, your nightly guide to everything related to your bills, bank account, and bottom line. For The Hill, we are Sylvan Lane, Aris Folley and Karl Evers-Hillstrom. Did someone forward this newsletter to you? Subscribe here.

Recession fears rise as Fed battles inflation

As Americans feel the pressure of rising inflation, fears are growing that a recession is imminent.

The U.S. economy is booming as record job growth, steady consumer demand and intense demand for labor have helped fuel the highest rate of inflation in 40 years.

While the economy has recovered much faster than many economists expected, the speed of the rebound is putting pressure on the Federal Reserve to take bigger steps to help slow price growth.

  • The Fed’s main tool to maintain price stability and a strong labor market is to adjust the federal funds rate.
  • When the Fed raises or lowers its base interest rate range, borrowing costs for home loans, credit cards and other lending products generally move in the same direction.
  • When interest rates rise, consumer and business spending tends to decline as borrowing costs rise. Higher interest rates also encourage savings, which means less immediate spending in the economy.

The Fed hopes that rising borrowing costs will slow the economy enough to dampen price growth without halting the recovery. But there are many obstacles in the way. Aris and Sylvan explain here.

🌅 Breaking the mold of the morning show. Burst the Beltway bubble. TUNE RISINGnow available as a podcast.


Mortgage rates exceed 5% for the first time in 10 years

The interest rate on the 30-year fixed-rate mortgage hit a 10-year high of 5% on Thursday, continuing steep declines that began last December in a US housing market where values ​​are soaring.

The rate for America’s most popular mortgage has climbed almost 2 points from 3% a year ago, according to the latest figures from mortgage administrator Freddie Mac. The last time the 30-year fixed rate mortgage hit 5% was in February 2011.

Fifteen-year fixed-rate mortgages averaged 4.17% this week, down from 3.91% last week and 2.35% a year ago.

  • Sky-high rates will add about $400 to the monthly mortgage payment for a mid-priced home.
  • Due to soaring rates, the mortgage market is experiencing a drop in activity, with loan application volumes down 1.3% from the previous week.
  • The National Association of Realtors estimates that home sales will fall 10% this year as 16 million households are pushed out of the market due to inflation.

Sam Khater, Freddie Mac’s chief economist, said the combination of rising mortgage rates, high home prices and tight inventories “makes continuing home ownership the most expensive in a generation”.

Tobias Burns of The Hill has more here.


Democrats face pressure from left, focus on student loans

The question of what to do with student loan debt estimated at $1.6 trillion is a growing headache for Democrats at a time when families grapple with higher costs, but centrist Democrats led by Sen. Joe Manchin (W.Va.) doesn’t want to fuel inflation further.

President Biden is stuck in the middle.

  • Progressives to his left, like Senate Majority Leader Charles Schumer (DN.Y.) and Sen. Elizabeth Warren (D-Mass.), are calling on him to forgive up to $50,000 in student debt, while that more moderate Democrats argue that student debt cancellation is regressive and likely to fuel inflation.
  • But while the Senate Democratic caucus is very reluctant to cancel up to $50,000 in student debt, moderate Democrats are reluctant to publicly denigrate the idea because they don’t want to go against the party base. .
  • Proponents of student debt forgiveness argue that it is a matter of social justice, as many black and minority families have less wealth than white families and are burdened with student debt.

Even so, blanket student debt cancellation remains a controversial topic among Democrats in Congress.

Moderate Senate Democrats balked at the idea of ​​canceling all student debt when Sen. Bernie Sanders (I-Vt.) pushed it during the 2020 Democratic presidential primary.

Read more about The Hill’s Alex Bolton here.


Unemployment insurance claims rise after hitting lowest level since 1968

Weekly new jobless claims rose last week after hitting the lowest level since 1968, according to data released Thursday by the Labor Department.

  • In the week ending April 9, seasonally adjusted initial claims for unemployment insurance totaled 185,000, up 18,000 from the previous week’s revised total of 167,000.
  • Last week’s total was revised up by 1,000 claims, but remains the lowest weekly level of seasonally-adjusted jobless claims in more than 50 years.

Layoffs have remained near five-decade lows for most of 2022 as employers rush to fill a record number of job vacancies. The United States added nearly 1.7 million jobs this year, with job openings outnumbering unemployed job seekers by nearly 2 to 1. Sylvan has more here.

Good to know

President Biden on Thursday acknowledged the urgent need to cut costs for Americans, calling on Congress to pass a bipartisan innovation bill as a way to get there.

Biden, speaking at A&T University in North Carolina, noted that the Labor Department’s inflation report released earlier this week showed prices continued to rise over the past month as the he Russian invasion of Ukraine was driving up the cost of oil and other goods.

Here’s what else we’ve got our eyes on:

  • Republican lawmakers applauded Tesla CEO Elon Musk’s bid to buy Twitter on Thursday, arguing that a purchase by the billionaire would restore free speech to the platform following its harmful content moderation measures. .
  • A poll conducted on behalf of the Democratic Senate Campaign Committee found that a majority of voters in battleground states would be less likely to support Republicans if the GOP decides to end Medicare, Medicaid and Social Security.

That’s all for today. Thanks for reading and check out The Hill’s Finances page for the latest news and coverage. Well see you tomorrow.


Julio V. Miller