With interest rates on credit card hitting record highs, consumers are beginning to reduce credit card usage.
However, this has not stopped consumers from spending, as the savings rate among Americans is at its lowest point in half a century.
The Israeli-Hamas conflict has not had much effect on global oil prices, but there is a growing anxiety among Americans at the possibility of another rate hike when the Fed meets at the end of the month following a string September jobs report.
Here’s a rundown of some of the headlines that made waves in the financial world.
Demand for office space in the US slumps to 20-year low
Despite businesses’ efforts to get employees back in the office following the Covid-19 outbreak, the demand for office space has further declined, with vacancies in the US reaching at least 20-year highs. This is because more individuals are choosing to work from home.
In New York and San Francisco, the third quarter of this year saw a dramatic decline in commercial real estate investment. The percentage of vacant properties has reached new highs.
The office market is continuing to slow down as a result of rising borrowing costs, poor occupancy, and shrinking building prices. Additionally, corporations like Amazon, BlackRock, and JPMorgan have recently implemented employee attendance rules on specific days.
Interest rate forces US consumers to reduce credit card spending
With record-high interest rates facing credit cardholders, a decline in credit card usage is creating questions about the financial health of US consumers and the prospects for holiday sales.
The decline in card spending coincides with customers’ financial distress due to mounting debt, especially from credit card borrowing.
Interest rates are also rising. The national debt has been steadily increasing over the last year, and it recently crossed $1 trillion for the first time.
According to data from the Federal Reserve, the average annual interest rate that credit card users pay reached a new high of 22.8% at the end of August, up from 16.3% the previous year.
Due to this, American consumers may have to pay up to $40 billion more in interest on their credit card debts in the upcoming year than they did the previous one.
US economy adds 336,000 jobs in September
Bond yields rose to a record 16-year high in September as the US economy added 336,000 new jobs, significantly more than anticipated. This increased market anxiety that interest rates would remain high for an extended period of time.
The data from the Bureau of Labor Statistics, which is easily above projections of 170,000 new jobs, sparked a sell-off in bonds that has engulfed international markets for the last two weeks.
The report gives the Fed a crucial piece of information to consider when determining whether to continue raising rates, which are currently at a 22-year high, or whether its goal of controlling inflation is being met.
The report has whipped up anxiety that the Fed could increase interest rates further when it convenes for its policy meeting at the end of the month.
FTX founder dipped into customer funds months after crypto exchange was founded
Gary Wang, FTX cofounder testified in a Manhattan federal court against former college roommate of Sam Bankman-Fried.
Wang stated that Bankman-Fried’s trading firm Alameda Research began secretly dipping into FTX customer funds just months after the crypto exchange was founded.
The cofounder and chief technology officer of the defunct crypto exchange stated that he personally signed between $200 million to $300 million dollars out of FTX accounts for investments he couldn’t recall.
Wang further disclosed to the Manhattan federal court that he received instructions in 2019 to permit Alameda to maintain an unfavorable balance on FTX. Wang stated that this, coupled with a “substantial line of credit” from the cryptocurrency exchange, quickly resulted in Alameda “taking customers’ money.”
The most compelling testimony thus far against Bankman-Fried, 31, is the one provided by Wang.
Wang pleaded guilty to fraud shortly after FTX’s collapse and agreed to cooperate with prosecutors. Bankman-Fried is on trial this week, defending against charges that include money laundering and wire fraud.
Biden cancels $9bn in student debt
President Joe Biden has authorized the forgiveness of $9 billion in student loans for 125,000 Americans.
53,000 borrowers who have worked in public service for a decade or more will receive more than $5 billion in aid; 51,000 borrowers enrolled in income-driven repayment plans will receive $2.8 billion in forgiveness; and 22,000 borrowers with disabilities will receive an additional $1.2 billion in cancellation.
Months after the Supreme Court halted Biden’s proposal to forgive up to $20,000 in student debt for tens of millions of Americans, the most recent pardon was granted. After that setback, Biden stated that he would seek alternative means to provide relief to borrowers.
Oil prices remain ‘muted’ in face of Israeli-Hamas conflict
In its first full trading day since the Israeli-Hamas conflict began, prices for Brent crude, the global benchmark, rose 4% on Monday. However, on Tuesday, prices marginally declined to $87.56. The price per barrel has not increased from the late September high of $97.
The increase in pricing on Monday was not due to supply issues, but rather to the market reevaluating the dangers in the area.
If Tehran takes an active role in the issue or if evidence of direct Iranian involvement in the attacks is found, the Middle East’s oil supply could be negatively impacted.
Savings rate of Americans at lowest point in 50 years
Recent data from the U.S. Bureau of Economic Analysis shows that the personal savings rate, or the amount saved by individuals relative to their disposable income, was 3.9% in August. This is much less than the average of 8.9% during the previous five decades.
Despite over a year of dire predictions, consumers nevertheless keep spending, which has boosted the economy and may eventually be the reason the nation avoids a recession after all.
After the pandemic, skyrocketing inflation made it more difficult to get by. The Federal Reserve’s most aggressive round of interest rate hikes in forty years also increased borrowing costs at the same time.
Customers gradually spent down their excess savings from the Covid years, which led to the depletion of cash reserves.