%1

U.S. consumers' projection of inflation over the short run fell to the lowest level in nearly three years in December, the New York Federal Reserve said in a report on Monday, Reuters reported. Inflation one year from now is expected to be at 3%, the lowest reading since January 2021, versus a projection of 3.4% in November, the regional Fed bank said in its latest Survey of Consumer Expectations. Poll respondents saw inflation three years from now at 2.6%, compared to 3% in November, while price pressures five years ahead were at 2.5% versus 2.7% in November. The survey also found that respondents projected bigger increases for college costs in December relative to November, while expectations for food and rent increases fell. The expected year-ahead rise in gasoline prices held steady at 4.5% in December, with expectations for home price rises unchanged at 3%. Ebbing inflation expectation readings bolster the broad consensus in financial markets and among U.S. central bank policymakers that inflation pressures will continue to retreat back toward the Fed's 2% target. Fed officials generally believe that inflation expectations strongly influence what actual price pressures do, so the pullback in the December poll buttresses the view that real-world inflation will continue to moderate.

Education Secretary Miguel Cardona urged patience as the administration tackles its next steps on student-loan debt relief, a signature initiative of President Joe Biden’s, saying officials were dealing with a system that is broken, Bloomberg News reported. “We are cleaning up a big mess,” Cardona said in an interview on Bloomberg Television with David Westin on Friday. “We’re improving the system so that we’re not in the situation where students are left with a lot of debt and low income.” Biden has taken unprecedented steps to help relieve student debt, but polls show some young voters believe his efforts have fallen short. “Let’s keep in mind this debt forgiveness work that that we’re doing is a result of not only the pandemic but we had over a million people going into default every year,” Cardona said. “We’re working on fixing a broken system." Cardona said about 60% of borrowers have resumed making payments — a figure that is down from pre-COVID levels of about 70%. A new survey shows signs loan servicers are being overwhelmed as borrowers begin to again make payments after a three-year pause due to the COVID-19 pandemic. After payments restarted in October, the average wait to speak to a representative went from 12 minutes in August to over 70 minutes in October, according to a survey released Friday by the Consumer Financial Protection Bureau.
Read more.

In related news, the Consumer Financial Protection Bureau (CFPB) published an issue spotlight on Friday on the CFPB’s oversight of student loan servicing practices in the early months of the resumption of federal student loan repayments after over three years of a payment pause due to the COVID-19 emergency. Borrowers are encountering long hold times when trying to reach their student loan servicer, experiencing significant delays in application processing times for income-driven repayment plans, and receiving inaccurate billing statements and disclosures. “The resumption of student loan payments means that borrowers are making billions of dollars of payments each month,” said CFPB Director Rohit Chopra. “If student loan companies are cutting corners or sidestepping the law, this can pose serious risks to individuals and the economy.” The CFPB has been closely monitoring student borrowers’ experiences during the return to repayment, using consumer complaints to identify emerging problems and using its supervisory authority to examine loan servicer conduct and performance.
Read more.

Strains on U.S. consumer spending such as rising delinquency rates on credit cards largely indicate that Americans’ debt is returning to pre-pandemic levels, the head of President Joe Biden’s council of economic advisers said, Bloomberg News reported. Jared Bernstein, a key advocate for Biden’s economic agenda as the president seeks a second term in 2024, cited wealth gains, job market strength and rising real wages in 2023 as evidence that the U.S. is moving forward from an inflation surge that has depressed Biden’s approval ratings. At the same time, consumer debt has risen as pandemic-era stimulus programs fade. Credit card balances in the U.S. increased by about 4.7% to $48 billion in the third quarter, pushing the total to $1.08 trillion, according to New York Federal Reserve data — the highest total in data going back to 2003. “Some of what you’re calling ballooning is really a return to kind of normal levels of credit card delinquencies or debt levels,” Bernstein said on Fox News Sunday. “But if you actually look at how much it costs people to service their debt, even as interest rates have gone up, they’re in quite good shape.” A 3.7% rise in disposable income over the past year is “one of the tailwinds that’s helping to support consumer spending,” he said.

A closely watched measure of inflation cooled notably in November, good news for the Federal Reserve as officials move toward the next phase in their fight against rapid price increases and a positive for the White House as voters see relief from rising costs, the New York Times reported. The Personal Consumption Expenditures inflation measure, which the Fed cites when it says it aims for 2 percent inflation on average over time, climbed 2.6 percent in the year through November. That was down from 2.9 percent the previous month, and was less than what economists had forecast. Compared with the previous month, prices overall even fell slightly for the first time in years. That decline — a 0.1 percent drop, and the first negative reading since April 2020 — came as gas prices dropped. After volatile food and fuel prices were stripped out for a clearer look at underlying price pressures, inflation climbed modestly on a monthly basis and 3.2 percent over the year. That was down from 3.4 percent previously.