Art Loans Forgiven

MONETARY

• Pursuant to the close of the May FOMC meeting, the Federal Reserve opted to leave its Target Federal Funds Rate unchanged at a level of 5.25-5.50%, a sign that the Fed is not quite satisfied with the cumulative progress made on reducing inflationary pressures¹
  • Chairman Powell went on the reiterate the underlying strength of the economy by noting that growth remains solid¹
    • (Powell) “Recent indicators suggest that economic activity has continued to expand at a solid pace. Although GDP growth moderated from 3.4 percent in the fourth quarter of last year to 1.6 percent in the first quarter, Private Domestic Final Purchases, which excludes inventory investment, government spending and net exports, and usually sends a clearer signal on underlying demand, was 3.1 percent in the first quarter, as strong as the second half of 2023.”¹
  • Powell also went on to note that Consumer Spending, the heart of the economy, remains on solid footing, a welcome sign for the health of the economy¹
    • (Powell) “Consumer spending has been robust over the past several quarters, even as high interest rates have weighed on housing and equipment investment. Improving supply conditions have supported resilient demand and the strong performance of the U.S. economy over the past year.”¹
  • Previous supply/demand imbalances in the labor market appear to continue to ease, with the supply of workers coming back into better balance. Wage growth remains high but has moderated from historically high levels previously experienced while labor supply issues previously persisted¹
    • (Powell) “Strong job creation over the past year has been accompanied by an increase in the supply of workers, reflecting increases in participation among individuals aged 25 to 54 years and a continued strong pace of immigration. Nominal wage growth has eased over the past year and the jobs-to-workers gap has narrowed, but labor demand still exceeds the supply of available workers.”¹
  • Chairman Powell also noted that recent inflationary metrics have come in higher than expected, even though progress has been made in reducing the overall rate of inflationary pressures. The Fed continues to maintain its more restrictive monetary policy stance until participants gain more confidence that inflation can sustainably move more downward to normalized levels¹
    • (Powell) “Inflation has eased notably over the past year but remains above our longer-run goal of 2 percent. Total PCE prices rose 2.7 percent over the 12 months ending in March; excluding the volatile food and energy categories, core PCE prices rose 2.8 percent. The inflation data received so far this year have been higher than expected. Although some measures of short-term inflation expectations have increased in recent months, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.”¹
    • (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. So far this year, the data have not given us that greater confidence.”¹

FISCAL

• In the latest chapter for the Biden Administration’s student loan forgiveness plans, a fresh tranche of more than 300,000 borrowers are having their student loans forgiven, as well as receiving a full refund of past payments made²
  • The total amount of student loans forgiven in this tranche amounts to roughly $6.1B²
  • To qualify for this round of forgiveness, borrowers must have enrolled at an Art Institute campus between January 1, 2004 and October 16, 2017²
  • Rationale for this round of loan forgiveness pertains to the notion that the Art Institute and its parent company engaged in misrepresentations of various key metrics to prospective students in an effort to persuade individuals to attend their programs²
    • (Department of Education) “Based on the evidence, the Department found that The Art Institutes engaged in widespread and pervasive substantial misrepresentations that deceived students about the value they would be receiving from their education,”²
    • Some of the key metrics that students were mislead about include false advertising about employment prospects, the school’s relationships with potential employers, as well as an over-stated career services department²

GEOPOLITICS

• In response to Iranian missile attacks guided towards Israel, Biden Administration imposes new sanction on various Iran-linked entities³
  • (Biden Administration) “The sanctions target leaders and entities connected to the Islamic Revolutionary Guard Corps, Iran’s Defense Ministry, and the Iranian government’s missile and drone program that enabled this brazen assault.”³
  • (Biden Administration) “As I discussed with my fellow G7 leaders the morning after the attack, we are committed to acting collectively to increase economic pressure on Iran. And our allies and partners have or will issue additional sanctions and measures to restrict Iran’s destabilizing military programs”³
  • There remains questions as to how effective additional sanctions on Iran will be, given the backdrop of existing sanctions not being enforced⁴
    • (Brenda Shaffer -US Naval Postgraduate School) “Since the Biden administration has not enforced existing US sanctions on Iran, expanding sanctions isn’t likely to matter,”⁴
  • New sanctions aim to further restrict Iran’s ability to export oil, however given that China currently buys roughly 90% of Iran’s crude oil exports at steep discounts it is unclear as to whether or not this new round of sanctions will be of any consequence⁴
    • It is said that Chinese buyers currently buy Iranian crude oil for discounts of roughly $5-$5.50 per barrel and usually pay in Chinese Yuan as opposed to U.S. Dollars⁴

 

[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. Federal Reserve. “Transcript of Chair Powell’s Opening Statement”. May 1, 2024
2. Forbes. “Biden Grants 317,000 Borrowers Student Loan Forgiveness And Refunds Of Payments”. May 1, 2024
3. The White House. “Statement from President Joe Biden on Iran Sanctions”. April 18, 2024
4. S&P Global. “Newly passed US law on Iran sanctions may have limited impact in near term: experts”. April 24, 2024