Evelyn Reynolds

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    Student Loan Pause Is Ending, With Consequences for Economy

    Three years of relief from payments on $1.6 trillion in student debt allowed for other borrowing and spending — and will shift into reverse.A bedrock component of pandemic-era relief for households is coming to an end: The debt-limit deal struck by the White House and congressional Republicans requires that the pause on student loan payments be lifted no later than Aug. 30.By then, after more than three years in force, the forbearance on student debt will amount to about $185 billion that otherwise would have been paid, according to calculations by Goldman Sachs. The effects on borrowers’ lives have been profound. More subtle is how the pause affected the broader economy.Emerging research has found that in addition to freeing up cash, the repayment pause coincided with a marked improvement in borrowers’ credit scores, most likely because of cash infusions from other pandemic relief programs and the removal of student loan delinquencies from credit reports. That let people take on more debt to buy cars, homes and daily needs using credit cards — raising concerns that student debtors will now be hit by another monthly bill just when their budgets are already maxed out.“It’s going to quickly reverse all the progress that was made during the repayment pause,” said Laura Beamer, who researches higher education finance at the Jain Family Institute, “especially for those who took out new debt in mortgages or auto loans where they had the financial room because they weren’t paying their student loans.”The pause on payments, which under the CARES Act in March 2020 covered all borrowers with federally owned loans, is separate from the Biden administration’s proposal to forgive up to $20,000 in student debt. The Supreme Court is expected to rule on a challenge to that plan, which is subject to certain income limits, by the end of the month.The moratorium began as a way to relieve financial pressure on families when unemployment was soaring. To varying degrees, forbearance extended to housing, auto and consumer debt, with some private lenders taking part voluntarily.By May 2021, according to a paper from the Brookings Institution, 72 million borrowers had postponed $86.4 billion in loan payments, primarily on mortgages. The pause, whose users generally had greater financial distress than others, vastly diminished delinquencies and defaults of the sort that wreaked havoc during the recession a decade earlier.But while borrowers mostly started paying again on other debt, for about 42.3 million people the student debt hiatus — which took effect automatically for everyone with a federally owned loan, and stopped all interest from accruing — continued. The Biden administration issued nine extensions as it weighed options for permanent forgiveness, even as aid programs like expanded unemployment insurance, the beefed-up child tax credit and extra nutrition assistance expired.Student Loan Repayment Dropped PrecipitouslyMonthly payments received by the Treasury, annualized

    Source: Goldman Sachs analysis of Treasury Department dataBy The New York TimesTens of millions of borrowers, who, according to the Federal Reserve, paid $200 to $299 on average each month in 2019, will soon face the resumption of a bill that is often one of the largest line items in their household budgets.Jessica Musselwhite took on about $65,000 in loans to finance a master’s degree in arts administration and nonprofit management, which she finished in 2006. When she found a job related to her field, it paid $26,500 annually. Her $650 monthly student loan installments consumed half her take-home pay.She enrolled in an income-driven repayment program that made the payments more manageable. But with interest mounting, she struggled to make progress on the principal. By the time the pandemic started, even with a stable job at the University of Chicago, she owed more than she did when she graduated, along with credit card debt that she accumulated to buy groceries and other basics.Not having those payments allowed a new set of choices. It helped Ms. Musselwhite and her partner buy a little house on the South Side, and they got to work making improvements like better air conditioning. But that led to its own expenses — and even more debt.“The thing about having a lot of student loans, and working in a job that underpays, and then also being a person who is getting older, is that you want the things that your neighbors have and colleagues have,” said Ms. Musselwhite, 45. “I know financially that’s not always been the best decision.”Now the end of the repayment hiatus is looming. Ms. Musselwhite doesn’t know how much her monthly payments will be, but she’s thinking about where she might need to cut back — and her partner’s student loan payments will start coming due, too.As student debt loads have risen and incomes have stagnated in recent decades, Ms. Musselwhite’s experience of seeing her balance rise instead of sink has become common — 52.1 percent of borrowers were in that situation in 2020, according to an analysis by Ms. Beamer, the higher education researcher, and her co-authors at the Jain Family Institute, largely because interest has accumulated while debtors can afford only minimum payments, or even less.The share of borrowers with balances larger than when they started had been steadily growing until the pandemic and was far higher in census tracts where Black people are a plurality. Then it began to shrink, as those who continued loan payments were able to make progress while interest rates were set at zero.A few other outcomes of this extended breather have become clear.It disproportionately helped families with children, according to economists at the Federal Reserve. A greater share of Black families with children were eligible than white and Hispanic families, although their prepandemic monthly payments were smaller. (That reflects Black families’ lower incomes, not loan balances, which were higher; 53 percent of Black families were also not making payments before the pandemic.)What did borrowers do with the extra space in their budgets? Economists at the University of Chicago found that rather than paying down other debts, those eligible for the pause increased their leverage by 3 percent on average, or $1,200, compared with ineligible borrowers. Extra income can be magnified into greater spending by making minimum payments on lines of credit, which many found attractive, especially earlier in the pandemic when interest rates were low.Put another way, the Consumer Financial Protection Bureau found that half of all borrowers whose student loan payments are scheduled to restart have other debts worth at least 10 percent more than they were before the pandemic.The effect may be most problematic for borrowers who were already delinquent on student loans before the pandemic. That population took on 12.3 percent more credit card debt and 4.6 percent more auto loan debt than distressed borrowers who were not eligible for the pause, according to a paper by finance professors at Yale University and Georgia Tech.In recent months, the paper found, those borrowers have started to become delinquent on their loans at higher rates — raising the concern that the resumption of student loan payments could drive more of them into default.“One of the things we’re prepping for is, once those student loan payments are going to come due, folks are going to have to make a choice between what do I pay and what do I not pay,” said David Flores, the director of client services with GreenPath Financial Wellness, a nonprofit counseling service. “And oftentimes, the credit cards are the ones that don’t get paid.”For now, Mr. Flores urges clients to enroll in income-driven repayment plans if they can. The Biden administration has proposed rules that would make such plans more generous.Further, the administration’s proposal for debt forgiveness, if upheld by the Supreme Court, would cut in half what would otherwise be a 0.2-percentage-point hit to growth in personal spending in 2023, according to researchers at Goldman Sachs.Whether or not debt forgiveness wins in court, the transition back to loan repayment might be rocky. Several large student loan servicers have ended their contracts with the Department of Education and transferred their portfolios to others, and the department is running short on funding for student loan processing.Some experts think the extended hiatus wasn’t necessarily a good thing, especially when it was costing the federal government about $5 billion a month by some estimates.“I think it made sense to do it. The real question is, at what point should it have been turned back on?” said Adam Looney, a professor at the University of Utah who testified before Congress on student loan policy in March.Ideally, the administration should have decided on reforms and ended the payment pause earlier in a coordinated way, Dr. Looney said. Regardless, ending the pause is going to constrain spending for millions of families. For Dan and Beth McConnell of Houston, who have $143,000 left to pay in loans for their two daughters’ undergraduate educations, the implications are stark.The pause in their monthly payments was especially helpful when Mr. McConnell, 61, was laid off as a marine geologist in late 2021. He’s doing some consulting work but doubts he’ll replace his prior income. That could mean dropping long-term care insurance, or digging into retirement accounts, when $1,700 monthly payments start up in the fall.“This is the brick through the window that’s breaking the retirement plans,” Mr. McConnell said. More

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    Fed Chair Sees ‘Long Way to Go’ on Inflation Fight

    Jerome H. Powell, the chair of the Federal Reserve, is set to tell House lawmakers that most central bank officials expect rates to rise further.Jerome H. Powell, the chair of the Federal Reserve, is set to tell House lawmakers that the United States remains a “long way” away from low and stable inflation even 15 months into the central bank’s campaign to cool the economy and wrestle down rapid price increases.Mr. Powell is scheduled to testify before the House Financial Services Committee at 10 a.m. He will explain to lawmakers that the labor market remains very tight and that inflation — while it has come down notably from its peak last summer — is still too fast. In light of that, the Fed could raise interest rates even higher than their current level of just above 5 percent.“Inflation has moderated somewhat since the middle of last year,” Mr. Powell will say, according to the text of his prepared remarks. “Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go.”Fed officials left interest rates unchanged last week following 10 straight increases. But central bankers have been adamant that the decision to hit pause did not amount to a declaration of victory over inflation. Instead, moving more gradually will give policymakers time to assess how well higher rates are working to slow the economy as they try to strike a delicate balance of doing enough to cool growth without doing too much.“Considering how far and how fast we have moved, we judged it prudent to hold the target range steady,” Mr. Powell will tell lawmakers on Wednesday. Still, he will also add that “nearly all” voting Fed officials “expect that it will be appropriate to raise interest rates somewhat further by the end of the year.”Central bankers forecast in their fresh economic projections last week that they will probably raise interest rates to around 5.6 percent this year, which would amount to two more quarter-point rate increases. Mr. Powell said during his news conference following the decision last week that the Fed’s July 25-26 meeting will be “live,” meaning that a rate increase is possible at that gathering.Investors only expect the Fed to make one more rate increase before holding them steady through the rest of the year, based on market pricing, though significant uncertainty remains around that forecast — markets place some odds on higher rates, and some odds on a rate cut before the end of 2023.The Fed will need to assess how much the economy is slowing, and whether that is likely to be enough to return inflation to their 2 percent goal over time. Overall growth and the housing market have cooled since 2021, but consumption and even home prices have shown recent signs of strength and hiring has remained rapid.“We have been seeing the effects of our policy tightening on demand in the most interest rate–sensitive sectors of the economy,” Mr. Powell will tell lawmakers. “It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation.” More

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    U.K. Inflation Remains Stuck at 8.7 Percent

    The rate, which had been expected to edge lower in May, shows that Britain’s cost-of-living crisis persists, and is likely to prompt the Bank of England to raise interest rates again.Britain’s inflation rate held steady in May, frustrating expectations that price increases would slow down, according to data released Wednesday, the day before the country’s central bank is widely expected to raise interest rates again.Consumer prices rose 8.7 percent from a year earlier, the same as in April, the Office for National Statistics said. Economists had forecast it would dip slightly. The data is likely to compound concerns that Britain’s cost-of-living crisis may intensify in the coming months as mortgage holders confront the burden of higher interest rates pushed through to tackle stubbornly strong inflation.The Bank of England on Thursday is expected to lift interest rates for a 13th consecutive time, by a quarter-point to 4.75 percent, the highest since early 2008.Last week, wage data showed pay growing faster than expected. On Wednesday, the statistics agency said core inflation, which excludes energy and food prices and is used to assess how deeply inflation is embedding in an economy, rose to 7.1 percent in the year through May, the fastest pace since 1992. Services inflation, an indicator that is closely watched by policymakers, climbed to 7.4 percent, from 6.9 percent in April.“The overwhelming impression is that this is a disappointing set of numbers that shows broad-based strength” in prices, Sandra Horsfield, an economist at Investec, wrote in an analyst note. “This is simply not good enough.”The rise in core inflation is “something that may cause some concern,” Grant Fitzner, the chief economist at the statistics agency, told the BBC.That’s because it has been pushed higher by price increases in services, such as at restaurants and hotels, much of it reflecting higher wage costs for companies, Mr. Fitzner said. “Services prices are quite sticky,” he said. “It can take longer for them to pick up but likewise longer for them to unwind as well.”This is leading to worries that overall inflation will be much slower to fall that it was to rise, he added.And that is what Britain is experiencing, as inflation data over the past few months has repeatedly defied expectations and stayed higher than predicted.Britain’s headline inflation rate has slowed from a peak of 11.1 percent in October, but it’s still uncomfortably high, especially compared with its international peers. In the United States, the Consumer Price Index rose 4 percent in May from the year before, and in the eurozone, inflation averaged 6.1 percent last month for the 20 countries that use the euro. The Federal Reserve has paused its interest rate increases, and traders are betting that the European Central Bank will raise rates just once or twice more; in Britain, though, investors are predicting the central bank will be forced to raise rates for longer to stamp out inflation.“We are in a situation now where markets are saying they’ve lost faith and that requires a big reaction from the bank,” said Andrew Goodwin, an economist at Oxford Economics. The central bank “needs to acknowledge that the game has changed,” he said, adding that he wouldn’t be surprised if the central bank raised rates by half a point on Thursday.Andrew Bailey, the governor of the Bank of England, said last week that policymakers still expected the inflation rate to come down, but “it’s taking a lot longer than expected.”Mr. Bailey’s predecessor, Mark Carney, said recently that Britain’s departure from the European Union was part of the reason Britain was suffering from stubbornly high inflation. There were other economic shocks at the same time, such as rising energy prices following Russia’s invasion of Ukraine, but Brexit is a “unique” part of the adjustment that will take years to resolve, he said.“We laid out in advance of Brexit that this will be a negative supply shock for a period of time and the consequence of that will be a weaker pound, higher inflation and weaker growth,” he told The Daily Telegraph last week.Traders are betting that the Bank of England’s interest rate could reach 6 percent by early next year. These expectations are shown through rising yields on government bonds, which now exceed the levels reached during Liz Truss’s brief but turbulent stint as prime minister last fall.In response, mortgage rates are rising too. Last weekend, the average rate for a two-year fixed-rate mortgage hit 6 percent for the first time this year.Last month, the central bank warned that many mortgage holders had not experienced the cost of higher interest rates yet. About 1.3 million households are expected to reach the end of their fixed-rate term by the end of the year, prompting a reset in the rate that applies to their loan. And the average mortgage holder in that group will see their monthly interest payments increase about 200 pounds ($255) a month, or £2,400 over the course of a year, if their mortgage rate rises 3 percentage points, which is what mortgage quotes suggested last month, the bank said.The additional financial strain follows months of higher prices, from energy bills to groceries. Food and nonalcoholic drink prices rose 18.3 percent in May from a year earlier, data showed on Wednesday, a slight slowdown from previous months when food inflation hit a 45-year high. The moderation in food and fuel prices was offset by rising prices at restaurants and hotels and for secondhand cars and live music events.“We know how much high inflation hurts families and businesses across the country,” Jeremy Hunt, the chancellor of the Exchequer, said in a statement on Wednesday, adding that the government’s plan to halve the rate of inflation would be the best way to keep costs and interest rates down.“We will not hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy,” he said.In January the government, led by Prime Minister Rishi Sunak, vowed to halve inflation by the end of the year, which would mean a rate of about 5 percent, amid waves of public and private sector strikes from workers frustrated by declining living standards.When that promise was made, it seemed almost guaranteed to succeed based on economic forecasts. But as the months have worn on, inflation has been harder to slow down than expected and that pledge is now at risk of being missed.Adding to the government’s challenges, separate data published on Wednesday estimated that Britain’s public sector debt exceeded 100 percent of gross domestic product for the first time since 1961, as the government paid out more money for energy support programs and social benefits to mitigate the cost-of-living crisis. More

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    Inflation Has Eased, but Economists Are Still Worried

    Inflation has come down from its 2022 heights, but economists are worried about its stubbornness.Inflation is beginning to abate meaningfully for American consumers. Gas is cheaper, eggs cost roughly half as much as they did in January and prices are no longer climbing as rapidly across a wide array of products.But at least one person has yet to express relief: Jerome H. Powell, the chair of the Federal Reserve.The Fed has spent the past 15 months locked in an aggressive war against inflation, raising interest rates above 5 percent in an attempt to get price increases back down to a more normal pace. Last week its officials announced that they were skipping a rate increase in June, giving themselves more time to see how the already enacted changes are playing out across the economy.But Mr. Powell emphasized that it was too early to declare victory in the battle against rapid price increases.The reason: While less expensive gas and slower grocery price adjustments have helped overall inflation to fall from its four-decade peak last summer, food and fuel costs tend to jump around a lot. That obscures underlying trends. And a measure of “core” inflation that strips out food and fuel is showing surprising staying power, as a range of purchases from dental care and hairstyling to education and car insurance continue to climb quickly in price.Last week, Fed officials sharply marked up their forecast of how high core inflation would be at the end of 2023. They now see it at 3.9 percent, higher than the 3.6 percent they predicted in March and nearly twice their 2 percent inflation target.The economic picture, in short, is playing out on something of a split screen. While the steepest price increases appear to be over for consumers — a relief for many, and a development that President Biden and his advisers have celebrated — Fed policymakers and many outside economists see continued reasons for concern. Between the subtle signs that inflation could stick around and the surprising resilience of the American economy, they believe that central bankers might need to do more to cool growth and rein in demand to prevent unusually elevated price increases from becoming permanent.“Big picture: We are making progress, but the progress is slower than expected,” said Kristin J. Forbes, a Massachusetts Institute of Technology economist and a former Bank of England policymaker. “Inflation is somewhat more stubborn than we had hoped.”A fresh Consumer Price Index inflation report last week showed that inflation continued to moderate sharply on an overall basis in May. That measure helps to feed into the Fed’s preferred measure, the Personal Consumption Expenditures index, which it uses to define its 2 percent target. The fresh P.C.E. figures will be released on June 30.White House officials, who have spent months on the defensive about the role that pandemic spending under Mr. Biden played in stoking demand and price increases, have greeted the recent cooling in inflation enthusiastically.“We have seen a very large reduction in inflation, by more than 50 percent,” Lael Brainard, the director of the White House National Economic Council, said in an interview. She added that the current trajectory on inflation offered reasons for optimism that it could return back to normal fairly quickly as the economy slowed, and expressed hope that crushing it would not necessarily require a big jump in unemployment — something that has historically accompanied the Fed’s campaigns to wrangle inflation.“The employment picture is very sustainable,” she said.But many economists are less sanguine. That’s partly because most of the factors that have helped inflation to fall so far have been widely anticipated, sort of the low-hanging fruit of disinflation.Supply chains were roiled by the pandemic and have since healed, allowing goods price increases to slow. A pop in oil prices tied to the war in Ukraine has faded.And there may be more to come: Rents jumped starting in 2021 as people moved out on their own or relocated amid the pandemic. They have since cooled as landlords found that renter demand was not strong enough to bear ever-higher prices, and the moderation is slowly feeding into official inflation data.

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    Year-over-year percentage change in the Personal Consumption Expenditures index
    Source: Bureau of Economic AnalysisBy The New York TimesWhat linger are relatively rapid price increases in services outside of housing. That’s a broad category, and it includes purchases that tend to be labor-intensive, like hospital care, school tuition and sports tickets. Those prices tend to rise when wages climb, both because employers try to cover their higher costs and because consumers who are earning more have the ability to pay more without pulling back.“The big action is behind us,” said Olivier Blanchard, a former International Monetary Fund chief economist who is now at the Peterson Institute. “What remains is the pressure on wages.”

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    Year-over-year percent change in the Personal Consumption Expenditures index by category
    Source: Bureau of Economic AnalysisBy The New York TimesDuring a news conference last week, Mr. Powell said that in the measure of inflation that excluded food and energy “you just aren’t seeing a lot of progress,” emphasizing that “getting wage inflation back to a level that is sustainable” could be an important part of lowering the remaining price increases.There are early signs that a labor market slowdown is underway. The Employment Cost Index measure of wages, which the Fed watches closely, is climbing much more rapidly than before the pandemic but has slowed from its mid-2022 peak. A measure of average hourly earnings has come down even more notably. And jobless claims have climbed in recent weeks.But hiring has remained robust, and the unemployment rate low — which is why economists are trying to figure out if the economy is cooling enough to guarantee that inflation will return fully to normal.Cylus Scarbrough, 42, has witnessed both features of today’s economy: fast wage growth and rapid inflation. Mr. Scarbrough works as an analyst for a homebuilder in Sacramento, and he said his skills were in such high demand that he could rapidly get a new job if he wanted. He got a 33 percent raise when he joined the company two years ago, and his pay has climbed more since.Cylus Scarbrough of Sacramento said he felt inflation was not eating into his budget the way it had before. “I don’t think about it every day,” he said.Rozette Halvorson for The New York TimesEven so, he’s racking up credit card debt because of higher inflation and because he and his family spend more than they used to before the pandemic. They have gone to Disneyland twice in the past six months and eat out more regularly.“It’s something about: You only live once,” he explained.He said he felt OK about spending beyond his budget, because he bought a house just at the start of the pandemic and now has about $100,000 in equity. In fact, he is not even worrying about inflation as much these days — it was much more salient to him when gas prices were rising quickly.“That was the time when I really felt like inflation was eating into our budget,” Mr. Scarbrough said. “I feel more comfortable with it now. I don’t think about it every day.”Fed officials are not yet comfortable, and they may do more to tame price increases. Officials predicted last week that they would raise interest rates to 5.6 percent this year, making two more quarter-point rate moves that would push rates to their highest level since 2000.Investors doubt that will happen. Given the recent cooling in inflation and signs that the job market is beginning to crack, they expect one more rate increase in July — and then outright rate cuts by early next year. But if that bet is wrong, the next phase of the fight against inflation could be the more painful one.As higher borrowing costs prod consumers and firms to pull back, they are expected to translate into less hiring and fewer job opportunities for people like Mr. Scarbrough. The slowdown might leave some people out of work altogether.Fed policymakers estimated that joblessness will jump to 4.5 percent by the end of next year — up somewhat from 3.7 percent now, but historically pretty low. But Mr. Blanchard thinks that the jobless rate might need to rise by one percentage point “and probably more.”Jason Furman, a Harvard economist, said he thought the unemployment rate could go even higher. While it is not his forecast, he said that in a bad scenario it was “possible” that it would take something like 10 percent unemployment for inflation to return totally to normal. That’s how high joblessness jumped at the worst point in the 2009 recession, and inflation came down by about two percentage points, he noted.In any case, Mr. Furman cautioned against jumping to early conclusions about the path ahead for inflation based on progress so far.“People have been so crazily premature to keep declaring victory on inflation,” he said. More

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    U.K. Moves to Use Frozen Russian Assets to Help Ukraine Rebuild

    As Russia’s ruinous attacks on Ukraine mount, Britain’s government is proposing legislation that would enable it to divert frozen Russian assets to the rebuilding of Ukraine and keep sanctions in place until Moscow pays compensation to its war-torn neighbor.The British announcement is in line with a decision last month at the annual Group of 7 meeting in Hiroshima, Japan, to freeze the estimated $300 billion worth of Russian assets held by banks and financial institutions in those countries — including Britain — “until Russia pays for the damage it has caused to Ukraine.”The issue of seized assets is highly contentious. While governments have the power to freeze assets, the European Central Bank has privately warned Brussels that confiscating Russian funds or giving the earned interest on those accounts to Ukraine could undermine confidence in the euro and shake financial stability, according to a report in The Financial Times. Investors might be reluctant to use euros as a reserve currency if they fear their funds could be grabbed.Ukraine’s reconstruction costs are estimated to top $411 billion, according to the most recent numbers from the World Bank, the European Commission and the United Nations. The ravaged landscape of the eastern city of Bakhmut, which President Volodymyr Zelensky of Ukraine laid out at the G7 meeting, is just one sign of the damage. “You have to understand that there is nothing,” Mr. Zelensky told reporters. “They’ve destroyed everything. There are no buildings.”The bank’s estimate was calculated before the vast devastation unleashed by the destruction of the Kakhovka dam in southern Ukraine this month.Calls to seize Russian assets and use them for Ukraine’s reconstruction have increased as the war has stretched well into its second year. Last week, the United States Senate introduced a bipartisan bill to confiscate Russian assets and use them for Ukraine’s reconstruction. And the issue is also expected to come up at a Ukraine Recovery Conference being held in London on Wednesday and Thursday.Since Russia began its full-scale invasion of Ukraine early last year, Britain has frozen roughly $23 billion in assets and imposed sanctions on 1,550 individuals. The government’s latest proposal will require people under sanctions to disclose their holdings in Britain.“Through our new measures today, we’re strengthening the U.K.’s sanctions approach,” James Cleverly, Britain’s foreign secretary, said in a statement on Monday accompanying the announcement, “affirming that the U.K. is prepared to use sanctions to ensure Russia pays to repair the country it has so recklessly attacked.” More

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    China’s Economic Rebound Hits a Wall, With ‘No Quick Fix’ to Revive It

    Policymakers and investors expected China’s economy to rev up again after Beijing abruptly dropped Covid precautions, but recent data shows alarming signs of a slowdown.When China suddenly dismantled its lockdowns and other Covid precautions last December, officials in Beijing and many investors expected the economy to spring back to life.It has not worked out that way.Investment in China has stagnated this spring after a flurry of activity in late winter. Exports are shrinking. Fewer and fewer new housing projects are being started. Prices are falling. More than one in five young people is unemployed.China has tried many fixes over the last few years when its economy had flagged, like heavy borrowing to pay for roads and rail lines. And it spent huge sums on testing and quarantines during the pandemic. Extra stimulus spending now with borrowed money would spur a burst of activity but pose a difficult choice for policymakers already worried about the accumulated debt.“Authorities risk being behind the curve in stimulating the economy, but there’s no quick fix,” said Louise Loo, an economist specializing in China in the Singapore office of Oxford Economics.China needs to right its economy after closing itself off to the world for almost three years to battle Covid, a decision that prompted many companies to begin shifting their supply chains elsewhere. Xi Jinping, China’s leader, met on Monday with the secretary of state of the United States, Antony J. Blinken, in an attempt by the two nations to lower diplomatic tensions and clear the way for high-level economic talks in the weeks ahead. Such discussions could slow the recent proliferation of sanctions and counter measures.China’s halting economic recovery has seen only a few categories of spending grow robustly, like travel and restaurant meals. And those have increased in comparison with extremely low levels in spring 2022, when a two-month lockdown in Shanghai disrupted economic activity across large areas of central China.Fewer and fewer new housing projects are being started in China.Qilai Shen for The New York TimesThe economy has been particularly weak in recent weeks.“From April to May to now, the economy has experienced significant unexpected changes, to the point where some people believe that the initial judgments may have been overly optimistic,” Yin Yanlin, a former deputy director of the Chinese Communist Party’s top economic policymaking commission, said in a speech at an academic conference on Saturday.Chinese government officials have been dropping hints that an economic stimulus plan may be imminent.“In response to the changes in the economic situation, more forceful measures must be taken to enhance the momentum of development, optimize the economic structure, and promote the continuous recovery of the economy,” the country’s State Council, or cabinet, said after a meeting on Friday led by Li Qiang, the country’s new premier.China’s economic weakness holds benefits and dangers for the global economy. Consumer and producer prices have fallen for the past four months in China, putting a brake on inflation in the West by pushing down the cost of imports from China.Travel is one of only a few categories of spending that are growing this year.Qilai Shen for The New York TimesBut weak demand in China may exacerbate a global slowdown. Europe already dipped into a mild recession early this year. Rapid interest rate increases in the United States have prompted some investors to bet on a recession late this year there as well.Beijing has already taken some steps to revitalize economic growth. Tax breaks are being introduced for small businesses. Interest rates on bank deposits have been reduced to encourage households to spend more of their money instead of saving it. The latest government measure is expected on Tuesday, when the state-controlled banking system is likely to reduce slightly its benchmark interest rates for corporate loans and home mortgages.But many economists, inside and outside China, worry about the effectiveness of the new measures. Consumers are hoarding cash and investors are wary of putting money into China’s companies. Private investment has actually declined so far this year compared with 2022. Housing remains in crisis, with developers borrowing more to pay existing debts and to complete existing projects, even as China already suffers from an oversupply of homes.Consumers have remained wary in part because the housing market, a source of wealth, is in a precarious state.Qilai Shen for The New York TimesChina’s housing market stands at the heart of its troubles. Construction has accounted for as much as a quarter of China’s economic output. But would-be homeowners have been put off as developers have defaulted on their debts and failed to finish apartments buyers had paid for in advance.Housing construction has fallen nearly 23 percent in the first five months of the year, compared with the same months last year. That suggests the real estate sector has further to fall in the coming months.Chen Leiqian, a 27-year-old marketer in Beijing, started looking for an apartment with her boyfriend in 2021 after five years of dating. But they then decided to stay put in a rental apartment when they married.“Housing prices across the country are falling, and the economy is very bad — there are just too many unstable elements,” Ms. Chen said.Two-thirds of Ms. Chen’s co-workers in her department at an online tutoring company were laid off after China cracked down on the for-profit, private education industry in 2021. She also had a friend who could no longer pay a mortgage after losing a job in the tech sector, and lost the home in foreclosure.The caution of middle-class families like Ms. Chen’s may pose the biggest dilemma for policymakers as they search for an effective formula for another round of economic stimulus.“You can throw money on people but if they are not confident, they will not spend,” said Alicia Garcia-Herrero, the chief economist for Asia-Pacific at Natixis, a French bank.As households struggle to pay their debts and refrain from big-ticket purchases, spending on restaurant meals is growing.Qilai Shen for The New York TimesHouseholds are not alone in struggling to pay their debts — so are local governments, which has limited their ability to step up infrastructure spending.The government is wary of starting another credit binge of the sort seen in 2009, during the global financial collapse, and in 2016, after China’s stock market plunged the preceding year.Although the sagging real estate sector has hurt demand inside China, exports have been flat this year and actually declined in May. The weakness of China’s normally powerful exports is particularly noteworthy because Beijing has allowed its currency, the renminbi, to lose about 7 percent of its value against the dollar since mid-January. A weaker renminbi makes Chinese exports more competitive in foreign markets.More exports help create jobs and could compensate for the otherwise slack domestic economy. But it’s not clear how much China will be able to count on exports to help as some of China’s biggest trading partners have moved some purchases to other countries in Asia.In the United States, the Trump administration imposed tariffs on a wide range of Chinese industrial goods, making it more expensive for American companies to buy from China. Then President Biden persuaded Congress last year to authorize broad subsidies for American production in categories like electric cars and solar panels. China’s exports to the United States were down 18.2 percent last month compared with May last year.The United States has enacted subsidies for American production of electric cars, trying to counter China’s exports. Qilai Shen for The New York TimesNow as China considers how to reinforce the economy, it must contend with a loss of confidence among consumers.Charles Wang runs a small travel company with eight employees in Zhangjiakou, in northern China. His business has almost fully rebounded after the pandemic but he has no plans to invest in expansion.“Our economy is actually going down, and everyone doesn’t have so much time and willingness to spend,” Mr. Wang said. “It’s because people just don’t want to spend money — everyone is afraid again, even the rich.”Li You More

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    This investment manager is looking to bridge the racial wealth gap

    Veteran portfolio manager Jim Casselberry is trying to bridge the racial wealth gap.
    Bridging that chasm is part of the mission for Known, an organization that Casselberry co-founded in 2021 with a team of Black, Indigenous, Hispanic and Asian-American co-founders.
    “Why we even use the term ‘Known,’ particularly within the Black and Brown and Indigenous population, is we want them to feel like they’re known, that they’re seeing we have the abilities to be able to do this,” Casselberry says.

    Jim Casselberry, Known
    Source: Known

    Black people in America won their personal freedom 158 years ago. Economic freedom, though, has been far more elusive.
    Veteran portfolio manager Jim Casselberry is trying to do something about that, using his four decades of investing experience to help bridge the gap for people of color and the Indigenous population.

    “We have to do better and we have to do better by getting the capital in the right people’s hands,” Casselberry said in a recent interview. “What we want to do is be able to help them stand up and use the talent and the opportunity and the skills that they have.”
    Celebrated Monday in the U.S., Juneteenth has been considered a national holiday for two years. It marks the day that Major General Gordon Granger proclaimed freedom for slaves in Texas.
    While the holiday marks a terrible wrong that finally was put right, it does not signal the end of racial inequality in the U.S. Nowhere is that clearer than in the distribution of wealth.

    Houston resident Prescylia Mae sings during a re-enactment march of the emancipation proclamation celebrations outside of Reedy Chapel in Galveston, Texas, June 19, 2021.
    Adrees Latif | Reuters

    By now the numbers are painfully familiar: Black people constitute 13% of the population but hold just 4% of the wealth. The richest 400 Americans have wealth equal to that of the entire Black populace. The racial gap between whites and Black people is 6 to 1 — better than the 23 to 1 in 1870 after emancipation, but still a massive divide. These statistics are from the Minneapolis Federal Reserve as of 2019.
    Bridging that chasm is part of the mission for Known, an organization that Casselberry co-founded in 2021 with a team of Black, Indigenous, Hispanic and Asian-American co-founders. Its premise is listed as “a finance and asset management firm that works with founders, family offices, and large asset owners who value competitive returns as well as powerful long-term racial, social, and climate impact.”

    Casselberry said the goal, though, is right in the name.
    “Why we even use the term ‘Known,’ particularly within the Black and Brown and Indigenous population, is we want them to feel like they’re known, that they’re seeing we have the abilities to be able to do this,” he said. “So many of the programs and so many of the opportunities … don’t work, but they haven’t necessarily been given the chance to work.”
    Programs like affirmative action have helped make progress, he said, but he believes wider reforms are necessary.

    “Given the polarized and dysfunctional government we have, it’s unlikely at best that we’ll see reparations at any meaningful scale. Philanthropy has tried many approaches, but those are also not on a scale where they can impact the problem,” he said.
    “The real solution lies in the capital markets, where the real money is found and managed, but where more than 98% of funds under management are controlled by old majority white firms,” Casselberry added.
    Treasury Department data indicates that the wealth disparity between white and Black families has changed little over the past 20 years.
    Casselberry is hoping efforts by organizations like this can help change that.
    “Known was formed to to be the to be the solution for asset holders that want to be able to invest for better outcomes,” he said. “And it’s formed to be the resource capital access for the [Black, Indigenous and People of Color] community to be able to access and be able to grow and to be able to create opportunities.” More

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    Rate cuts, hikes and pauses: The world’s central banks just made very different decisions

    The European Central Bank on Thursday increased interest rates, after the Federal Reserve opted to pause.
    Just days before that, China’s central bank lowered its key medium-term lending rates, and in Japan the central bank left its ultra-loose policy unchanged.
    “Given the different stages the jurisdictions are in the cycle, there will be more nuanced decisions to be made,” Konstantin Veit, portfolio manager at PIMCO, told CNBC’s Street Signs Europe Friday.

    Dollar, yuan, yen and euro notes.
    Ullstein Bild Dtl. | Ullstein Bild | Getty Images

    From hawkish pauses to rate hikes and dovish tones, the world’s biggest central banks last week struck very different tones on monetary policy.
    The European Central Bank on Thursday hiked rates and surprised markets with a worsening inflation outlook, which led investors to price in even more rate increases in the euro zone.

    This followed a Federal Reserve meeting where the central bank decided to pause rate hikes. Just days before that, China’s central bank lowered its key medium-term lending rates to stimulate the economy. In Japan, where inflation is above target, the central bank has left its ultra-loose policy unchanged.
    “Taking all these different approaches together shows that not only seems there to be a new divergence on the right approach for monetary policy but it also illustrates that the global economy is no longer synchronized but rather a collection of very different cycles,” Carsten Brzeski, global head of macro at ING Germany, told CNBC via email.
    In Europe, inflation has come down in the bloc which uses the euro but remains well above the ECB target. This is also the case in the U.K., where the Bank of England is expected to raise rates Thursday after very strong labor data.
    The Fed, which started its hiking cycle before the ECB, decided to take a break in June — but said there would be another two rate increases later this year, meaning its hiking cycle is not yet complete.
    The picture is different in Asia, however. China’s economic recovery is stalling, with falls in both domestic and external demand leading policymakers to step up support measures in an effort to revive activity.

    In Japan — which has battled a deflationary environment for many years — the central bank said it expects inflation to come down later this year and opted not to normalize policy yet.
    “Each central bank [tries] to solve for its own economy, which obviously includes considerations for changes in financial conditions imposed from abroad,” Erik Nielsen, group chief economics advisor at UniCredit said via email.

    Market impact

    The euro rose to a 15-year high against the Japanese yen on Friday, according to Reuters, off the back of the divergent monetary policy decisions. The euro also broke above the $1.09 threshold as investors digested the ECB’s hawkish tone last Thursday.
    In bond markets, the yield on the German 2-year bond hit a fresh 3-month higher Friday, given expectations that the ECB will continue with its approach in the short term.
    “Makes sense we start seeing this divergence. In the past, it was clear there was a lot of room to cover for pretty much all the major central banks, while now, given the different stages the jurisdictions are in the cycle, there will be more nuanced decisions to be made,” Konstantin Veit, portfolio manager at PIMCO, told CNBC’s Street Signs Europe on Friday.
    “This indeed will create opportunities for the investors.”

    ECB President Christine Lagarde was asked during a press conference to compare her team’s decision to increase rates, versus the Federal Reserve’s decision to pause.
    “We are not thinking about pausing,” she said. “Are we done? Have we finished the journey? No, we are not at [the] destination,” she said, pointing to at least another potential rate hike in July.
    For some economists, it is only a matter of time before the ECB finds itself in a similar position to that of the Fed.
    “The Fed is leading the ECB [as] the U.S. economy is leading the eurozone economy by a few quarters. This means that, at the latest after the September meeting, the ECB will also be confronted with the debate on whether or not to pause,” Brzeski said. More