Quote:While the debt-ceiling deal reached by President Biden and House Speaker Kevin McCarthy includes pretty mild spending curbs, one detail could pack a punch. News reports indicate that the deal will codify into law the Biden administration's planned end of the student loan payment freeze that has helped fuel spending over the past three years. That will likely deepen a spending slowdown at a time that growth already has slowed almost to a stall. Yet the Federal Reserve, after five percentage points of rate hikes, may step even harder on the brakes. After last Friday's hotter-than-expected PCE inflation report, Wall Street now thinks another rate hike is likely in June or July.
Meanwhile, any debt-ceiling relief for investors will be fleeting because the stock market is about to lose its own fiscal support. The Treasury's inability to issue debt in recent months has more than offset Fed efforts to tighten financial conditions by unloading assets purchased during the Covid-19 pandemic. But Treasury issuance is about to surge following a deal to raise the debt ceiling. That means we're about to get Fed quantitative tightening on steroids...
Yet that understates the extent to which the payment pause for $1.3 trillion in student loans with a median balance of $18,773 has helped consumer finances. The average student loan payment was $393 per month for borrowers before the pandemic, Jefferies economist Thomas Simons notes. "Consumer balance sheets are already kind of exhausted at this point," Simons told IBD. With the added pressure from an end to the student-loan holiday, "We're setting up for a pretty significant rollover" for consumer spending in the second half of the year, he said...
Two of the last remaining Covid-era supports for household finances have now hit their end date. Emergency SNAP (Supplemental Nutrition Assistance Program) benefits recently expired. That amounted to a hit of $95 per month for eligible households, or nearly $50 billion per year. Medicaid income limits, suspended at the start of the Covid pandemic, are now returning. That could knock up to 17 million people out of the program over the next year, leaving them to find more costly insurance coverage, a Kaiser Family Foundation analysis finds.
Debt-Ceiling Deal Is Done. Recession And Stock Slide May Follow.