Fed’s Wall of Worry: Government shutdown, UAW strike, student loan repayments and $90 oil
Oil topped $90-plus per barrel last week before retreating slightly
Things will continue to deteriorate: Nancy Lazar
Piper Sandler Chief Global Economist Nancy Lazar explains why the economy will get worse before it gets better on ‘Maria Bartiromo’s Wall Street.’
Just when Federal Reserve Chairman Jay Powell thought he was making strides in managing inflation, he’s now facing a five-point threat to the economy at the very least.
"It's the strike, it's the government shutdown, resumption of student loan payments, higher long-term rates, oil price shock. You know, there are a lot of things that you can look at … so what we try to do is assess all of them and handicap all of them," Powell said during his press conference last week.
"And, ultimately, though, there's so much uncertainty around these things."
WHY A UNITED AUTO WORKERS STRIKE COULD MEAN HIGHER CAR AND INSURANCE COSTS
Jerome Powell, chairman of the U.S. Federal Reserve (Al Drago/Bloomberg via Getty Images / Getty Images)
He made the remarks after policymakers left interest rates unchanged at a September meeting but hinted rates may stay higher for longer.
UAW Strike
The United Auto Workers strike, which began Sept. 15, drags on. The work stoppage has already cost the U.S. economy over $1.6 billion in its first week through Friday, according to Anderson Economic Group LLC.
"Losses have been concentrated in Michigan, Ohio, Missouri, Kansas, Indiana and Alabama, where shuttered plants and laid-off workers are located," the firm said in a statement.
"They anticipate that a longer strike will spread losses to more assembly and supplier plants, and to dealers and customers across the entire United States."
United Auto Workers rally at the Stellantis North America headquarters Sept. 20, 2023, in Auburn Hills, Mich. (Bill Pugliano/Getty Images / Getty Images)
On Friday, UAW President Shawn Fain said the union would double-down with GM and Stellantis, and he credited Ford for making progress in the negotiations.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| F | FORD MOTOR CO. | 11.99 | -0.14 | -1.14% |
| GM | GENERAL MOTORS CO. | 45.21 | -0.15 | -0.33% |
| STLA | STELLANTIS NV | 21.91 | +0.14 | +0.67% |
Oil
One of the newer obstacles for the Fed: Crude prices that topped $90-plus per barrel last week and have risen 15% year to date. Prices at the pump are also creeping up, now $3.86 per gallon versus $3.68 a year ago, according to AAA.
As OPEC and Russia cut production, the U.S. is dealing with less supply, driving prices higher. The consumer price index in August, reported this month, saw gasoline rise 10.6% and overall energy 10.5% month over month from July.
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"Energy prices are very important for the consumer. This can affect consumer spending. It certainly can affect consumer sentiment. I mean, gas prices are one of the big things that affects consumer sentiment. It really comes down to how persistent, how sustained these energy prices are" Powell explained during his Q&A last week.
U.S. Oil Fund
Student Loans
Student loan payments will resume in October after a multiyear hiatus granted during the COVID-19 pandemic. For millions of Americans, this means coming up with an average monthly payment of between $200-$300 per person.
But the number could be higher, according to the Federal Reserve, which also student loan borrowers owe an average of less than $25,000, with the median balance between $20,000-$24,999.
Roughly 44 million Americans hold about $1.7 trillion in student loan debt. (iStock / iStock)
Retailers, including Target, Nike and Under Armour could take a hit, according to UBS analyst Jay Sole, as a bigger percentage of customers are student loan borrowers. The result could result in an overall dip in retail sales and consumer spending in general.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| TGT | TARGET CORP. | 163.08 | -1.26 | -0.77% |
| NKE | NIKE INC. | 90.91 | -2.48 | -2.65% |
| UA | UNDER ARMOUR INC. | 6.55 | -0.09 | -1.36% |
Long-Term Rates
The benchmark 10-year Treasury hit 4.479% last week, a new 52-week high and the highest since October 2007, as tracked by Dow Jones Market Data Group. The 30-year yield rose 4.550%, the highest since April 2011.
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Rising yields are pressuring U.S. stocks, which fell for the week but remain higher on the year.
Weekly Returns
- DJIA: -1.9%
- S&P 500: -2.9%
- Nasdaq Composite: -3.6%
S&P 500
Government Shutdown
U.S. Speaker of the House Kevin McCarthy, R-Calif. (Kevin Dietsch/Getty Images / Getty Images)
A looming government shutdown, roughly a week away, is on the table again. House Speaker Kevin McCarthy, R-Calif., is facing dissent within the Republican Party as he tries to pass appropriation bills. Most recently, support for a defense funding bill failed, a sign of how divided the party is.
"I think this is another challenge," McCarthy told Fox News’ Chad Pergram on Capitol Hill.
SPEAKER MCCARTHY ON GOVERNMENT SHUTDOWN
Government funding will run out by Sept. 30, meaning federal workers may not get paid.