Chance of a Recession in the U.S. Keeps Growing
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What is the main topic discussed in this episode?
Your Money Briefing.
Money and market stories from The Wall Street Journal. I'm J.R. Whalen in New York. The economy has been running full steam ahead for several years now, so you wouldn't think the R-word, recession that is, would be on the table. But it is. We'll explain in a moment. First, these money headlines.
What early evidence suggests a recession risk despite strong GDP?
Wall Street Journal reporter Josh Mitchell points out that students seeking relief on their college and graduate school debt could be sitting on a tax surprise. Billions of dollars in one-time bills from the IRS for any debt that they get forgiven. The tax bills are a feature of the income-driven repayment plans that have been offered by the Education Department since 2007. One version of these plans allows borrowers to set their monthly student loan payments at 10% of their discretionary income. The balances often grow over time because the payments aren't big enough to cover accruing interest, and those delayed tax bills are piling up. There are now 7 million borrowers owing $389 billion in income-driven repayment.
That's the word from the education department. The Supreme Court on Monday ruled in favor of American Express's policy of preventing retailers from offering customers incentives to pay with other cheaper cards. The Wall Street Journal heard on the street team says the ruling benefits rivals Visa and MasterCard as well by supporting their relatively high fees in the U.S., which are typically over 2%. The high card fees, though, have not been terrible for consumers because much of that money ends up back in their pockets in the form of cash back or other rewards. This is your Money Briefing from The Wall Street Journal. Welcome back, everybody.
Which student loan tax surprises could affect household finances?
The economy is chugging along on all cylinders. So why is this edition of Your Money Briefing about a recession on the horizon? For that, we bring in Wall Street Journal markets reporter Ben Eisen. So Ben, GDP is expected to come in at a healthy 2.2% for the first three months of the year, and second quarter GDP could hit 4%. Yet there's a reliable model out there that can see trouble on the horizon.
Yeah, definitely. We look at this model by a Spanish bank called BBVA, and they track financial and economic indicators. And the model that they produce shows that the possibilities of a recession arriving in 12 months' time have climbed slightly. It's still very low, and it's not suggesting any imminent recession, but you have a A 16% probability of a recession now up from just about 5% in January. So it's this sort of slow creep higher in expectations of a recession.
As you pointed out, the indicators are saying that a recession is not imminent. But we've seen this movie before, and usually trouble starts with an aging economic cycle.
Yeah, I think that one of the things that this model shows is that the economic cycle is getting old. It's been going on for a number of years now, and now it's continuing to heat up. But it's worth remembering that years into an economic cycle, things can take a turn.
As you point out in your story in the Wall Street Journal, markets tend to drop sharply in periods of recession. But is it wise to not confuse sharp drops with the wild market swings we've seen lately?
Yeah, I don't think you can put the cart before the horse here. You've had a lot of markets volatility this year, and that's continued into June. But by all accounts, the economy is pretty strong in the U.S. If anything, the U.S. economy is accelerating relative to its peers, to other countries around the world. And even though we've had this volatility, it's hard to say that there's any kind of weakness that's shown by that.
And now earlier this month, we tackled the idea of the yield curve inversion. That's when short-term interest rates overtake long-term rates. Sounds like thick economic talk, but it's very significant.
Yeah, this is basically a look at the yield curve, kind of plots, maturities of different bonds against each other. And when short-term rates rise above long-term rates, the curve is said to invert.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:00–0:20
2
What early evidence suggests a recession risk despite strong GDP?
0:20–1:42
3
Which student loan tax surprises could affect household finances?
1:42–5:21
4
How did the Supreme Court ruling on card fees impact consumers and merchants?
5:21–5:25
Speakers
2 identifiedMore from WSJ Your Money Briefing
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