Credit Sesame’s personal finance weekly news roundup April 29, 2023. Stories, news, politics and events impacting the personal finance sector during the last week.
- Economists are lowering inflation projections
- Bank failures no cause for most depositors to panic
- New mortgage rules causing credit controversy
- Home prices break losing streak
- First Republic Bank saw deposits sink by 40.8% in Q1 2023
- Treasury Secretary issues dire warning about debt ceiling
- U.S. economy slows but still grows
- Retirement confidence plunges
1. Economists are lowering inflation projections
A recent Bloomberg poll of economists found a lower consensus expectation for where inflation would head over the next year. Compared with previous surveys, the new poll found lower average inflation projections for each of the next four calendar quarters. Even so, the Personal Consumption Expenditures Price Index is still expected to be at 3.8% at the end of this year. That’s below the recent rate of inflation, but still well above the Fed’s long-term target of 2.0%. Another discouraging note is that inflation expectations are falling for a negative reason. Consumers and businesses report that it’s tougher to get a loan in the wake of recent bank failures. This could slow demand, increasing the risk of a recession. See article at BusinessTimes.com.
2. Bank failures no cause for most depositors to panic
The prospect of additional bank failures still carries relatively little risk to depositors. First of all, customers with under $250,000 in deposits at any federally-insured institution should be covered against loss due to bank failures. Beyond that, even people above the deposit limit have historically had only a small chance of losses due to bank failures. First, there is the fact that only a tinyl portion of banks have failed in the past. Second, a recent study found that only 7% of bank failures since 2007 had uninsured deposits that were not fully recovered. See details at Morningstar.com
3. New mortgage rules causing credit controversy
New mortgage rules that go into effect as of May 1 have drawn accusations that they discriminate against people with good credit. However, under the new rules people with higher credit scores should still get much better mortgage terms than people with lower scores. The confusion centers around new guidelines for loans backed by Fannie Mae and Freddie Mac. These guidelines raise loan fees for some borrowers with good credit, while cutting fees for some borrowers with weaker credit. However, even with the changes people with better credit still pay less. The new guidelines simply reduce the gap between what people with good credit and bad credit pay. However, they do not eliminate that gap, much less reverse it. See analysis at MortgageNewsDaily.com.
4. Home prices break losing streak
The average U.S. home price rose in February, following seven consecutive months of declines. With February’s increase of 0.2%, average home prices are now 2.0% above where they were a year ago, but 4.9% off the peak set in June of last year. Among major metropolitan areas, Miami’s home prices saw the biggest increase, with a 10.8% gain over the past year. Meanwhile, Las Vegas suffered the biggest year-over-year loss, with a 2.6% decline in the average home price. See article at Yahoo.com.
5. First Republic Bank saw deposits sink by 40.8% in Q1 2023
First Republic Bank saw its total deposit value drop by 40.8% amid consumer panic over the solvency of some banks. The drop in deposits would have exceeded 50% had 11 other banks not pitched in with deposits to First Republic in an effort to stabilize the banking system. The good news is that the flight of depositors has all but ceased so far in the second quarter. First Republic’s total deposits were down only 1.7% in the first three weeks of April. Even so, First Republic’s tanking stock price indicates investors are not convinced the bank’s problems are all behind it. See article at NBCNews.com.
6. Treasury Secretary issues dire warning about debt ceiling
Treasury Secretary Janet Yellen used severe language to describe the consequences if Congress fails to raise or suspend the debt ceiling. She said the resulting default on U.S. debt obligations would cause “an economic and financial catastrophe.” Failure of the federal government to make its debt payments would raise the cost of borrowing, not just now but “into perpetuity.” She said other consequences could include the inability to make payments to military families and seniors who depend on Social Security. See article at Reuters.com.
7. U.S. economy slows but still grows
Gross Domestic Product (GDP) grew at a real annual rate of 1.1% in the first quarter of 2023. Real GDP measures economic growth after adjustment for inflation. The first quarter’s growth rate was significantly slower than the 2.6% real growth rate in the last quarter of 2022. It also was below the consensus expectations of economists. Still, it was the third consecutive quarter of GDP growth. That counters widespread recession fears, at least for the time being. See full release at BEA.gov.
8. Retirement confidence plunges
A survey by the Employee Benefit Research Institute found that the percentage of American workers who are confident in being able to afford retirement has dropped sharply within the past year. Just 64% of workers are confident they’ll have enough money for a comfortable retirement, down from 73% last year. That’s the biggest drop in retirement confidence since the 2008-2009 Great Recession. Inflation, debt burdens and declining values of retirement investments were cited as reasons for the severe drop in retirement confidence. See article at Yahoo.com.
