Uncertainty over trade policy is likely to reduce U.S. economic output by more than 1 percent through early 2020, new research from Federal Reserve economists suggests, the Wall Street Journal reported. The study is among the first by central-bank researchers to attempt to quantify the effects of the recent escalation of trade-policy uncertainty during the Trump administration. President Trump has imposed several rounds of tariffs on China, prompting retaliatory measures by Beijing, as part of broader trade negotiations. He imposed tariffs on steel and aluminum imports last year. In May, months after concluding a new trade agreement with Canada and Mexico, Trump threatened to hit Mexico with new tariffs to curb migration at the U.S.-Mexico border. He has also threatened to impose tariffs on Europe. “The rise in [trade policy uncertainty] in 2018 and 2019 has gone hand in hand with a slowdown in world industrial production and global trade,” said the research, which was posted online on Wednesday by the Fed’s board of governors. American Bankruptcy Institute
The Trump administration laid out its vision for releasing Fannie Mae and Freddie Mac from more than a decade of federal control, issuing a long-awaited plan that marks the government’s boldest step yet toward closing one of the final chapters of the 2008 financial crisis, Bloomberg News reported. The proposal released yesterday by the Treasury Department suggests dozens of reforms to protect Fannie and Freddie from another housing crash, shrinking their dominant market shares and creating new competitors to the companies that backstop about $5 trillion of home loans. Yet, it is only an initial step in what still would be a long and arduous road to freeing the companies from the government’s grip. While Treasury has outlined broad goals, some of the trickiest questions about how to fix Fannie and Freddie remain unanswered. In a sign of the long process ahead, Treasury acknowledged that specific details involved in releasing the companies, such as determining how they will raise capital to weather an economic calamity, still need to be negotiated across multiple government agencies. American Bankruptcy Institute
As Gen Z starts entering adulthood, financial institutions are beginning to ask what the new generation wants in terms of lending, and how will they choose to access it? For the executives who’ve been busy serving up financial products to millennials, there is an additional question on everyone’s mind — will this new generation be as slow to adopt credit cards and personal loans as millennials, or is it going to be different? PaymentsSource
Federal Reserve officials are gearing up to reduce interest rates at their next policy meeting in two weeks, most likely by a quarter-percentage point, as the trade war between the U.S. and China darkens the global economic outlook, the Wall Street Journal reported. The idea of an aggressive half-point cut to battle the slowdown hasn’t gained much support inside the central bank, according to interviews with officials and their public speeches. While market-determined interest rates have tumbled, signaling a dimmer outlook for growth and inflation, many Fed officials believe that the 10-year U.S. expansion can continue at a modest pace and inflation will gradually rise to their 2 percent target. An important update on the labor market Friday, plus new readings on retail sales and inflation next week, could reshape officials’ outlook. American Bankruptcy Institute
Students who say they were defrauded by colleges and want their education loans erased will have a tougher time seeking forgiveness under newly issued regulations from the Trump administration, the Washington Post reported. A 1995 law known as “borrower defense to repayment” gives the Education Department authority to cancel the federal debt of students whose colleges misled them about graduation or job placement rates to get them to enroll. The Obama administration updated the regulation to shift more of the cost of forgiveness onto schools, after the closure of for-profit giant Corinthian Colleges ushered in a flood of claims. The Trump administration on Friday finalized its rewrite of the Obama-era rules, after two years of trying to delay and then scuttle the regulations. Those efforts have spawned lawsuits, with the courts forcing the Trump administration to implement the 2016 rules and process a backlog of applications for debt relief. Still, more than 180,000 borrowers await answers. The Trump administration estimates the rules will save the federal government $11 billion over 10 years — loan payments that would have gone uncollected under existing rules. The regulations also hand a victory to for-profit colleges that derided the Obama rules as harmful to their programs. Most borrowers who seek relief from debt attended for-profit campuses. American Bankruptcy Institute
The U.S. economy expanded at a modest pace from June through August, despite looming concerns about the U.S.-China trade war, according to the Federal Reserve's Beige Book. Almost all of the Fed’s 12 districts reported modest growth over the past few months, the Fed said in its region-by-region roundup of anecdotal information known as the Beige Book. The report, prepared by the Federal Reserve Bank of St. Louis, was based on information collected through Aug. 23. Fox Business
Lenders thought it was time to shrink their mortgage businesses. Now they’re finding they were wrong. With rates for home loans sinking to their lowest levels since late 2016, Wells Fargo, the biggest mortgage lender in the U.S., has boosted staffing for the business by about 10% this year and plans to keep hiring. Bank of America is hiring in areas including sales, processing and underwriting. The mortgage industry has added almost 5,000 employees since March, a 1.5% gain, according to the Bureau of Labor Statistics. It’s a stark reversal from a year ago, when the Federal Reserve was hiking interest rates and banks were cutting thousands of jobs. Pittsburgh Post-Gazette
Bankruptcies are rising in the U.S. oil patch as Wall Street’s disaffection with shale companies reverberates through the industry, the Wall Street Journal reported. Twenty-six U.S. oil-and-gas producers including Sanchez Energy Corp. and Halcón Resources Corp. have filed for bankruptcy this year, according to an August report by the law firm Haynes & Boone LLP. That nearly matches the 28 producer bankruptcies in all of 2018, and the number is expected to rise as companies face mounting debt maturities. Energy companies with junk-rated bonds were defaulting at a rate of 5.7 percent as of August, according to Fitch Ratings, the highest level since 2017. The metric is considered a key indicator of the industry’s financial stress. The pressures are due to companies struggling to service debt and secure new funding, as investors question the shale business model. Many drillers financed production growth by becoming deeply indebted, betting that higher oil prices would sustain them. But investor interest has faded after years of meager returns, and some companies are struggling to meet their obligations as oil prices hover below $60 a barrel. Private companies and smaller public drillers have been hit hardest so far. Those producers collectively generate a large portion of U.S. oil, according to consulting firm RS Energy Group, and their distress reflects issues affecting all U.S. shale.
Debit cards often lack the rewards and spending power of credit cards, and thus do not figure prominently in TV ads or direct mail flyers. Yet despite these limitations debit cards are beloved by millennials and anyone else who wants to avoid credit card debit. They are the power behind Venmo transactions and are now the preferred method for paying at the gas pump. When debit cards rose to popularity in the 1990s and 2000s, banks were able to profitably benefit from rising interchange rates, and at one point commonly offered rewards on them — especially when consumers opted to sign for their transactions instead of using a PIN. PaymentsSource
Student debt is soaring — it is now nearly $1.5 trillion — and defaults are at a record. That has been fertile ground for companies that promise to help stretched borrowers navigate the maze of federal programs that can reduce or forgive debts for those who qualify, such as public-service workers or people on low incomes, the Wall Street Journal reported. Some companies operate legally, although there is nothing they offer that borrowers can’t get themselves for free, regulators say. Other firms are outright scams, or make promises to borrowers that are illegal, regulators and consumer advocates warn. Financial Preparation Services of Irvine, Calif. boasts on its website three glowing testimonials for its debt-relief services for student loans. It quotes Anthony Zwichirowski of California, Dawn Robinson of New Hampshire and a smiling Dean Edelman of Virginia, who says using the company “was the smartest move I have made since graduating.” One or more of the three ostensibly happy borrowers also appears, with slight variations, on at least 25 other websites of purportedly different companies offering student-loan debt-relief in the last four years. Financial Preparation Services has submitted claims for federal relief based on fictitious information, according to a former employee. Sales teams within the company also switched regularly to using new corporate names and websites, the former employee said. The company is one of several about which federal regulators are demanding information, according to a bankruptcy court filing.