More Loan Forgiveness...Again?

MONETARY

• Pursuant to the conclusion of the July FOMC meeting, the Federal Reserve opted to leave its Target Federal Funds Rate unchanged at its current level of 525-550bps. Additionally, Fed Chairman Jerome Powell offered some noteworthy takeaways regarding the state of the economy and potential future monetary policy decisions¹
  • (Federal Reserve) “Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.”¹
  • Regarding the current state of the labor market¹
    • (Powell) “In the labor market, supply and demand conditions have come into better balance”¹
    • (Powell) “Strong job creation over the past couple of years has been accompanied by an increase in the supply of workers, reflecting increases in participation among individuals aged 25 to 54 years and a strong pace of immigration. Nominal wage growth has eased over the past year and the jobs-to-workers gap has narrowed. Overall, a broad set of indicators suggests that conditions in the labor market have returned to about where they stood on the eve of the pandemic—strong but not overheated”¹
  • Chairman Powell also offered some insight into potential future monetary policy decisions¹
    • (Powell) “We have stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent. The second-quarter’s inflation readings have added to our confidence, and more good data would further strengthen that confidence. We will continue to make our decisions meeting by meeting”¹
    • (Powell) “If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond. Policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”¹
  • Powell also went on to say that a rate cut could be on the table as soon as the September meeting (next FOMC meeting), with the caveat that the labor market remains in its current state and inflation continues to cool without meaningful upticks¹
    • A high degree of emphasis was placed on the concept that the Fed is remaining data-dependent and not data-point-dependent, further instilling the concept that the totality of the data is more important than any one specific metric¹
  • Material changes in the state of the labor market, by way of labor supply and demand coming back into better balance, has largely been one of the primary drivers of the recent paradigm shift for the Fed. Additionally, more cooperative inflation readings in the second quarter have also been vitally important¹

FISCAL

• The Department of Education is preparing to notify millions of student loan borrowers who may be eligible for student loan forgiveness³
  • Current timelines have that potential student loan forgiveness set to become effective sometime in the fall³
  • Emails being sent out to borrowers will outline various options those individuals have to be eligible for loan forgiveness, either partially or fully³
    • This round of relief could affect a potential 25 million borrowers, which would be in addition to the 4.8 million individuals who have already had their student loans forgiven during the past 4yrs³
  • The Education Department “is in the process of finalizing who will be eligible for student debt relief, but we want to make you aware of this potential relief,”³
  • Broadly speaking, there are two primary groups of individuals who are set to benefit from this latest round of loan forgiveness³
    • Individuals with runaway interest, who current owe more than what was originally taken out³
    • Individuals who have been repaying their loans for over 20yrs³
  • Biden Administrations previous SAVE Plan is currently on hold as lawsuits against the plan get resolved³

 

GEOPOLITICS

• Member countries of OPEC+ opted to leave production levels unchanged at its most recent meeting²
  • OPEC+ is currently in the process of making production cuts with the intent to phase those cuts out over time, but maintains the optionality to pause or reverse the phase out²
    • (Reuters) “OPEC+ is currently cutting output by a total of 5.86 million barrels per day, or about 5.7% of global demand, in a series of steps agreed since 2022 to bolster the market amid uncertainty over global demand and rising supply outside the group.”²
  • In June, OPEC+ agreed to extend the cuts of 3.66 million bpd by a year until the end of 2025 and prolong the cuts of 2.2 million bpd by three months until the end of September 2024²
  • Members of the group did mention conditions in the overall market were favorable in terms of prices, as production cuts have been effective.²
    • (Reuters) “Russian Deputy Prime Minister Alexander Novak said on Thursday the current level of oil prices was comfortable for Russia, its budget, and other participants in the market. Supply and demand remained in balance, he added.”
      • (Novak) “Starting from the fourth quarter, if the balance of supply and demand is positive, a partial increase in production is possible”²

 

[See Below for Disclosures & Annotations]

 

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

 

ANNOTATIONS

1. The Federal Reserve. “Federal Reserve Press Release”. July 31, 2024
2. Reuters. “OPEC+ sticks to oil policy, repeats could pause Oct hike”. August 1, 2024
3. ABC. “Biden administration to notify 25 million student loan borrowers of debt relief options”. July 31, 2024