The possible default on the US debt is in the review mirror until January 2025. So we can now move on to other topics of interest like a potential recession, the direction of interest rates, and how the debates for the presidential election for the next 18 months; thank goodness Football is right around the corner!
Interest rates are noticeably higher partly because of taking the debt crisis down to the wire. It seems like this is what always happens every time this issue comes up. It has come up 75 times since March of 1962; you would think they could figure out a better process by now. I expect rates to move a bit lower over the next few weeks now that the full faith and backing of our debt by the US government has been restored. What was passed was frankly not much, a little progress with less spending; however, we will continue spending more than we are bringing in and will still go further into debt over the next few years.
Where does the expected 4.8 trillion of revenue the Federal government has for 2023 go? According to USAspending.gov, 70% of the federal budget is spent on the following: Social Security – 15%, National Defense – 18%, health, which is mostly Medicare and Medicaid – 28%, and then interest on our current debt – 9%. That only leaves 30% of the budget for everything else needed to run the country. This is not that hard, and the reality of how to do this will not make anyone happy. Bring more revenue in, which I hate to say will mean higher taxes for individuals and corporations, and reduce the spending, which will also not make folks happy to see cuts in all areas of spending.
The folks we elected to do the job in Washington representing us will have a lot of tough decisions looking ahead. One decision made during the Pandemic was to freeze all student loan repayments. Another decision was made as part of the debt ceiling deal to restart the payments for that student loan debt. I think this will bring in 5 billion a month, which is good. But, unfortunately, that also means it takes out of the consumer’s hands 5 billion a month they would otherwise spend on stuff. This action will not be helpful for the economy, and these decisions being made from now on will have consequences. If Washington wants to get the job done to reduce our debt and put our country in a better position for tomorrow, they must make some tough decisions.
The Federal Reserve is going to get inflation under control. It is coming down, as it should, with the most significant increase in interest in the shortest period of time ever, but we are not there yet. The talk seems to change weekly, and the new talk is a skip or a pause. A skip in a rate increase at the next meeting will allow more inflation data to come in and give the Fed the option to continue to raise later or pause, which is to say they are stopping the increases for now. The Fed needs to be in a better position as we have already had the 2nd largest bank failure in US history occurred. The bank’s management helped lead to the failure, and the Fed increasing rates also played a big part. They are on a slippery slope to bring down inflation and not send us into an economic crisis. I expect the Fed to skip a rate increase this month, and hopefully, the data will allow them to pause soon.
The economy is doing very well, and the stock market is resilient. Regarding the stock market, we may have a few dips along the way; we may have a recession later this year or early next year; however, the overall economy’s health should make any recession a mild one. In the short term, we should see mortgage interest rates come down over the next few months as the banking environment settles down, and now the debt ceiling and US failure are in the past. In addition, rates will come down some later this year as inflation cools, not soon enough for me, but they will get there.
The Florida Hometown Hero’s down payment assistance program is changing for the better on July 1st! With the changes, any borrower working for a Florida corporation is eligible for up to 5% of the loan amount or $35,000, whichever is less. There is an income limit that is not yet out, but we will keep you in the loop as we learn more from FL HTH. A buyer of $500,000 can get a $25,000 down payment assistance bond loan, 0% interest, no monthly payments for 30 years, and it is paid back when the home sells or is refinanced. A great deal! Call me if I can help you or someone you know.