The reprieve is over. Just as the American economy is struggling with high inflation and interest rates, the coming resumption of student loan payments poses yet another potential challenge.
The suspension of federal
Even if all that won't be enough to weaken overall economic growth, the shift in spending by many young adults could inject further uncertainty into an economy already beset by uncertainties, from whether the Fed will manage to tame inflation and halt its interest rate hikes to whether a recession is destined to strike by next year, as many economists still fear.
The continued willingness of consumers to spend has kept the economy humming despite more than a year of dramatically rising interest rates. Consumers have had the financial wherewithal to load up Amazon shopping carts, go out for dinner and buy everything from lawn furniture to new refrigerators, in part because the government spent around $5 trillion since 2020 to cushion the economic damage from COVID-19.
Deutsche Bank analysts who follow the retail industry estimate that the resumption of the loan payments could shrink consumer spending by $14 billion a month, or an average of $305 per borrower. The biggest blow, they say, will likely be absorbed by online commerce and mail-order companies and by restaurants and bars.
Jan Hatzius, chief economist at Goldman Sachs, and his colleagues say they expect the end of the student loan moratorium to impose a “modest drag’’ on the economy, shaving 0.2% off growth in consumer spending this year. The dent to spending would have been half as much, they say, if the Supreme Court had allowed the Biden debt forgiveness program to proceed.A deep recession engulfed the economy
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