We break down whether President Biden’s plan to ease financial pressure on American households could make the problem worse. We’ll also look at a better-than-expected economic growth report for the second quarter and a looming ban on buying gas-powered cars.
But first, Biden’s approval rating just hit the best level in more than a year.
Welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. For The Hill, we’re Sylvan Lane, Aris Folley and Karl Evers-Hillstrom. Someone forward you this newsletter? Subscribe here.
How will Biden’s student loan plan affect inflation?
President Biden announced on Wednesday an executive order to cancel at least $10,000 in federal student debt per borrower and extend a payment freeze through the end of the year.
The plan has come under fire from some high-profile economists, including former Obama economic advisers Jason Furman and Larry Summers, who said that it will fan the flames of the nation’s 40-year high inflation.
Experts are divided over the inflationary effects of Biden’s plan. Most agree, however, that even if student loan relief does lead to higher prices, the change will be marginal.
- Experts don’t believe it will ignite a surge of consumer spending akin to previous rounds of stimulus checks doled out during the height of the pandemic.
- They note that the total forgiveness will only make up a small fraction of total spending, and many borrowers may use the additional economic freedom to pay down other debts.
- Economists added that the resumption of loan payments next year will likely cause a pullback in spending that would sap momentum from rising prices.
Still, some prominent economists are concerned that the plan might spell bad news for future borrowers, arguing that it could prompt colleges to hike prices in anticipation of future debt cancellations.
Karl and Sylvan have more here.
Check out more excellent coverage on the student debt situation from The Hill:
- Biden’s student loan plan is leaving Black borrowers wanting more
- Student loan forgiveness could ease women’s debt burdens
- Vulnerable Democrats are gearing up to fend off attacks over student debt
LOAN EXPECTATIONS
White House won’t give price tag for student loan plan
The White House is declining to give a price tag for President Biden’s decision to forgive student loan debts for millions of Americans amid attacks by Republicans that the plan will add to the deficit and increase inflation.
White House officials have spent the 24 hours since the forgiveness plan was announced skirting questions about its costs.
- “Well, that remains to be determined, and it will be a function of what percentage of eligible borrowers actually take up this opportunity,” domestic policy adviser Susan Rice, who helped lead the student loan forgiveness initiative, told reporters on Wednesday.
- “I think it depends on the numbers. Like, you know, unfortunately — and we’re here to encourage as many people to take it up as possible — if 43 million borrowers take it up, that’ll be different than if 50 percent of those 43 million take it up,” she added.
White House press secretary Karine Jean-Pierre on Thursday also declined to offer a specific estimate.
“All of this when it comes to cost will also depend on how many of the loans canceled were actually expected to be repaid. It will depend on how many borrowers actually take up this opportunity before we have a real sense,” she said.
The Hill’s Brett Samuels has more here.
GIVE ME A SECOND
US economy shrunk at slower pace in second quarter, new estimate shows
The U.S. economy shrunk at a slower pace between April and June than the federal government initially calculated, according to revised data released Thursday by the Bureau of Economic Analysis (BEA).
The BEA said U.S. gross domestic product (GDP) fell at an annualized rate of 0.6 percent during the second quarter of 2022. That’s down 0.3 percentage points from the 0.9 percent decline the agency estimated in July.
- The BEA issues three estimates of each quarter’s change in GDP to incorporate new and revised data.
- The agency said the second quarter dip in economic activity was less severe than first believed after looking at broader, more complete data on consumer spending and private inventory investments.
Sylvan explains what this means for recession fears here.
SURPASSING GAS
California approves 2035 sales ban for gas cars
The California Air Resources Board voted on Thursday to ban the sale of gas-powered cars starting in 2035.
The state’s Advanced Clean Cars II rule would ratchet up the proportion of electric or non-emitting cars required to be sold in the state annually, until they must be 100 percent electric starting in 2035.
The rule is expected to have impacts beyond California’s borders, as other states can also adopt the standards. Officials from New York, Oregon, Washington state and Rhode Island told CNN that they plan to adopt California’s rule.
The Hill’s Rachel Frazin has more here.
Good to Know
Texas’s leading oil and gas regulator on Thursday cheered the state government’s push against environmental, social and governance investing (ESG) “extremists” like BlackRock and UBS.
“I’m thrilled to see my conservative colleagues join the defense against ‘woke’ Wall Street bankers,” Texas Railroad Commission Chairman Wayne Christian said in the statement.
Here’s what else we have our eye on:
- D.C. Attorney General Karl Racine (D) filed a notice of appeal Thursday to revive the antitrust case against Amazon that a judge dismissed earlier this year.
- Ransomware attacks rose 47 percent from June to July, with the majority of attacks targeting the industrials sector, according to a report released on Thursday by cybersecurity firm NCC Group.
That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you tomorrow.