Money Pickle | May 16th, 2024

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GOOD MORNING

Here's everything you need to know today: Federal student loan interest rates are set to soar to their highest levels in 12 years for the 2024-25 academic year, impacting millions of borrowers. Undergraduate loans will see rates rise to 6.53%, while graduate students and parents will face rates of 8.08% and 9.08%, respectively. This increase follows the Federal Reserve's strategy to maintain high benchmark interest rates to combat inflation, adding financial strain on students and families.

In economic news, the Consumer Price Index (CPI) report revealed a slight easing in inflation, with core inflation dropping to 3.6%, its lowest since April 2021. However, persistent price increases in categories like shelter and energy remain a concern, leaving the Federal Reserve in a delicate balancing act to curb inflation without stifling economic growth.

Meanwhile, U.S. household debt has surged by $184 billion in the first quarter of 2024, reaching a record $17.69 trillion. Rising delinquencies, especially in credit card and auto loans, highlight the financial pressures on American households. This trend underscores the need for careful monitoring by policymakers as they navigate economic stability and consumer debt challenges.

Let’s dive into more detail below.

ECONOMICS

Federal Student Loan Rates Soar to 12-Year High Potentially Affecting Millions in 24’ & 25’

With the federal reserve's inflation strategy in place, student loan interest rates have reached record peaks, impacting borrowers

BREAKING NEWS
As if students didn't have it hard enough with record-high college tuition and a shaky job market, Federal student loan interest rates are set to rise to their highest levels in 12 years for the 2024-25 academic year, significantly impacting the cost of borrowing for college.

Undergraduate students will face a rate of 6.53%, up from 5.5% this year, while graduate students and parents taking PLUS loans will see rates of 8.08% and 9.08%, respectively.

This increase comes as the Federal Reserve maintains high benchmark interest rates to combat inflation, adding financial strain to students and potentially influencing voter sentiment ahead of the upcoming election.

WHAT HAPPENED
The Department of Education announced that federal student loan interest rates for the 2024-25 academic year will be the highest over a decade, with significant increases across all loan types. Undergraduate loans will carry a 6.53% interest rate, a substantial jump from the current 5.5%. Graduate students will see their rates rise from 7.05% to 8.08%, and loans for parents and graduate students will increase from 8.05% to 9.08%. These rates are based on the recent 10-year Treasury note auction in May, reflecting the Federal Reserve's strategy to maintain high interest rates to curb inflation. The new rates are the highest since undergraduates' 2012-13 school year and the pre-2006 era for graduates and loans.

The rate hike will increase the cost of borrowing for millions of students and families, making it more challenging to repay student debt. President Joe Biden, who has already canceled nearly $160 billion in student loan debt, is facing political pressure to address these rising costs as he seeks to secure young voters' support for the upcoming election.

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ECONOMICS

Unexpected Dip to 3.6% Core Inflation Signals Potential Turning Point for US Economy

The US economy could be seeing the beginning of a recovery, marked by a drop in core inflation to 3.6%

BREAKING NEWS
The Consumer Price Index (CPI) report Wednesday revealed a modest deceleration in inflation, with prices rising 3.4% from a year ago.

Monthly inflation increased by 0.3%, falling slightly below expectations, relieving the markets.

Core inflation, excluding food and energy, reached its lowest annual rate since April 2021, suggesting a potential easing of economic pressures.

WHAT HAPPENED
Inflation in the U.S. showed signs of easing in April, with the CPI rising 0.3% from March, falling slightly below the anticipated 0.4%. Consumer prices increased by 3.4% annually, aligning with market expectations. Core inflation, which excludes volatile food and energy prices, rose by 0.3% month-over-month and 3.6% year-over-year. This marked the lowest core annual inflation rate since April 2021 and the smallest monthly increase since December.

Specific categories continued to see significant price increases despite the overall deceleration. Shelter costs rose by 0.4% for the month and 5.5% annually, remaining a concern for Federal Reserve officials. Energy prices increased by 1.1% monthly and 2.6% annually, while food prices remained flat month-over-month but increased 2.2% year-over-year. Used and new vehicle prices declined by 1.4% and 0.4%, respectively. Other sectors, such as apparel, transportation, and medical care services, saw monthly increases of 1.2%, 0.9%, and 0.4%, respectively. The markets responded positively, with futures tied to significant stock indexes rallying and Treasury yields falling as traders speculated on potential rate cuts by the Federal Reserve.

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ECONOMY

Alarm Bells Ring as U.S. Households Add $184 Billion to Debt Mountain, Total Now at $17.69 Trillion

Financial turmoil escalates as Americans face unprecedented debt levels, sparking concerns over economic stability in 2024

BREAKING NEWS
U.S. household debt rose by $184 billion in the first quarter of 2024, reaching a staggering $17.69 trillion. This increase highlights growing financial pressures on American households, particularly as credit card and auto loan delinquencies continue to rise. The Federal Reserve Bank of New York's latest report underscores significant challenges for borrowers, with nearly a fifth of credit card users maxed out and struggling to make payments.

WHAT HAPPENED
Let's break down the total debt in the U.S. from highest to lowest.

Mortgage debt saw the most significant rise, increasing by $190 billion to $12.442 trillion. Home equity lines of credit (HELOC) also grew by $16 billion, marking the eighth consecutive quarterly increase, and now stand at $376 billion. Auto loan balances continued their upward trajectory, rising by $9 billion to $1.616 trillion. However, credit card balances decreased by $14 billion, bringing the total to $1.115 trillion. Student debt saw a slight decrease of $6 billion, totaling $1.595 trillion, while other debts, including retail cards and consumer loans, decreased by $11 billion to $543 billion.

Delinquency rates also rose during this period, with 3.2% of outstanding debt in some stage of delinquency by the end of March. They were annualized; approximately 8.9% of credit card balances and 7.9% of auto loans transitioned into delinquency. Mortgage delinquency rates increased slightly by 0.3 percentage points but remained low by historical standards.

The report also highlighted a worrying trend: nearly 18% + of borrowers were maxed out on their credit cards, significantly increasing their risk of delinquency.

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1. Federal Student Loan Interest Rates Reach 12-Year High

The interest rate on new federal student loans for undergraduates for the 2024-25 academic year is set to be the highest in 12 years, marking an increase in the cost of borrowing for college education.

2. Alibaba Reports 86% Drop in Quarterly Profit

Alibaba Group Holding saw an 86% decline in fourth-quarter profit, significantly impacted by valuation changes in equity investments. Despite this, the company's revenue exceeded expectations.

3. U.S. CPI Rise Below Expectations, Bitcoin Surges

April's U.S. Consumer Price Index (CPI) increase was lower than anticipated, reinforcing hopes for a potential Federal Reserve rate cut in September, as Bitcoin's value climbs to $63.7K.

4. Nio Introduces New Budget-Friendly Brand, Undercuts Tesla

Chinese electric vehicle maker Nio launches a new brand called Onvo, debuting a car priced $4,000 less than Tesla's Model Y, intensifying competition in the EV market.

5. Trump Media Stock Soars, Enhances Former President's Wealth

The stock of Trump Media, parent company of Truth Social, has experienced significant volatility, recently surging and significantly increasing the value of former President Donald Trump's stake to approximately $6 billion.

6. Cisco Forecasts Higher Revenue, Aims to Diversify Business

Cisco Systems anticipates higher revenue for the fourth quarter, driven by increased corporate spending on artificial intelligence and cloud computing. Efforts to lessen dependence on its networking equipment segment, which has faced supply chain and demand challenges, are underscored by its acquisition of cybersecurity firm Splunk.

7. Palo Alto Networks Expands Through IBM Security Asset Purchase

Palo Alto Networks is set to acquire IBM's QRadar security assets, expanding its customer base and cementing a larger partnership with IBM.

8. Vanguard's New CEO Upholds Stance Against Bitcoin ETF

Vanguard's incoming CEO, a former BlackRock executive, confirms the company will not pursue a Bitcoin ETF, maintaining a cautious approach towards direct cryptocurrency investments.

9. Berkshire Hathaway Buys $6.7 Billion Stake in Chubb

Warren Buffett's Berkshire Hathaway has revealed it bought nearly 26 million shares of insurer Chubb, valued at approximately $6.7 billion, marking it as a significant confidential investment.

10. Netflix's Advertising Tier Hits 40 Million Monthly Users

Netflix has seen rapid growth in its advertising-supported tier, doubling its user base to 40 million monthly active users worldwide since the beginning of 2024, as it moves ad technology operations in-house.

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