Credit Sesame’s personal finance weekly news roundup September 2, 2023. Stories, news, politics and events impacting the personal finance sector during the last week.
- Fed Chair signals further rate hikes may be coming
- Government clamps down on major credit repair operation
- Key changes to federal student aid on the way
- Economy grew less than originally thought in 2023 Q2
- Regulators toughen rules for regional banks
- Personal finance worries carry over to the workplace
- Visa and Mastercard planning fee hike
- Key inflation measure steady in July 2023
- Employment keeps growing
1. Fed Chair signals further rate hikes may be coming
In a recent speech, Fed Chair Jerome Powell acknowledged that the fight against inflation made progress over the past year or so but may still have a ways to go. Further rate hikes may be part of that battle. Powell noted that while the inflation rate has come down quite a bit from its peak, core inflation remains well above the Fed’s target of 2%. He stated that the Fed is “prepared to raise rates further” until it sees more progress in lowering the inflation rate toward the Fed’s goal. See article at Yahoo.com.
2. Government clamps down on major credit repair operation
The Consumer Financial Protection Bureau has reached a proposed settlement with some of the largest credit repair brands in the country. The settlement involved a string of corporate entities including Lexington Law and CreditRepair.com. If approved, the settlement would fine the entities $2.7 billion and ban them from telemarketing credit repair services for 10 years. The action was taken in response to violations of laws governing the telemarketing of credit repair services. These rules don’t allow credit repair companies to bill customers until six months after providing documentation of credit improvement. See announcement at ConsumerFinance.gov.
3. Key changes to federal student aid on the way
The US government is changing the application process for federal student aid. This process also affects many forms of state aid and institution-specific financial assistance. Students must still complete the Free Federal Student Aid (FAFSA) application. However, in the future, that process will be made easier by having FAFSA draw financial information directly from the tax records of applicants. There are also substantive changes to approval criteria. The government is raising the income threshold for need-based aid to make more students eligible. However, the government is eliminating an adjustment that previously favored families with multiple students in school simultaneously. These changes will affect applications for the 2024-2025 school year. The period for filing those applications begins in December. See article at CNBC.com.
4. Economy grew less than originally thought in 2023 Q2
The Bureau of Economic Analysis downgraded its original estimate of GDP growth for the second quarter of this year. It now estimates that real GDP grew at an annual rate of 2.1%, down from the original estimate of 2.4%. The 2.1% rate represents virtually no change from the first quarter’s 2.0% real growth rate. Slower growth could mean less inflation pressure. However, it also makes interest rate decisions for the Fed more difficult, as it attempts to walk a line between fighting inflation and slamming the brakes on the economy too hard. See news release at BEA.gov.
5. Regulators toughen rules for regional banks
Federal regulators issued new rules for banks with over $100 billion in assets. These rules impose similar liquidity requirements to those followed by the largest banks in the nation. The need to raise additional reserve capital is at the center of the new rules. It’s estimated this will require the affected banks to issue 25% more new debt overall. This would help diversify the banks’ sources of reserves against bank runs. The head of the FDIC also argued that besides providing a more substantial cushion against losses, issuing new debt would invite more robust investor scrutiny of the banks’ risk practices. The change is a response to bank failures earlier this year, which showed the vulnerability of some large, mid-sized banks. See article at Reuters.com.
6. Personal finance worries carry over to the workplace
A new survey by PNC Bank found that workers bring their worries about personal finances to their jobs. The survey found that the average employee spends three hours of the typical work week worrying about finances. 7 in 10 workers feel they are under financial pressure that negatively affects their work. 45% of employees feel unprepared for the future. Employers have noticed the impact. 75% of employers say that financial stress on the part of their workforce hurts productivity and morale. See study at PNC.com.
7. Visa and Mastercard planning fee hike
Visa and Mastercard reportedly plan to raise the fees they charge merchants when customers use one of their credit cards. The increase would broadly apply to online purchases. The simultaneous rate hikes by the two major credit card companies are likely to add fuel to an already fierce debate over the interchange fees Visa and Mastercard charge merchants. Regulators and politicians have threatened to impose rules limiting those fees. See article at Reuters.com.
8. Key inflation measure steady in July 2023
The Personal Consumption Expenditures (PCE) Price Index rose 0.2% in July. That was the same rate of increase as in June. Over the past year, the PCE Price Index is up by 3.3%. The core PCE Price Index, which excludes the volatile food and energy sectors, was also up by 0.2% in July, though its one-year increase of 4.2% was higher than that of the overall index. The PCE Price Index measures inflation that the Fed focuses on in making its interest rate decisions. The report also showed that the personal saving rate declined to 3.5% in July from 4.3% in June. See news release at BEA.gov.
9. Employment keeps growing
The job market continued its recent pace of slow but steady growth in August. The 187,000 jobs added during the month was the most since May but lower than the average for the past 12 months of 271,000. Job growth estimates for June and July were reduced considerably, showing that employment in those months was weaker than originally thought. Despite the net employment growth, the unemployment rate rose by 0.3 percentage points to 3.8%. This was mainly due to an increase in the labor force participation rate. Labor force participation increased by 0.2 percentage points to 62.8%. That’s the highest it’s been since February of 2020. A larger labor force would help ease inflation pressures. See employment report at BLS.gov.