The U.S. economy is facing many challenges. Some of these challenges are unexpected events that could shake the economy and make it harder to grow. These events are called economic shocks, and they can have a big impact on people’s lives.
Worse yet is that it seems these 5 economic shocks are going to be hitting the U.S. economy all at the same time. How can this impact you?
Government Shutdown
Although a short-term deal has recently been announced, we aren’t out of the woods yet. The government needs money to run its programs and services, such as national defense, health care, education, and more. Every year, Congress has to agree on a budget that decides how much money the government can spend and where it comes from. If Congress does not agree on a budget by Oct. 1, the government will run out of money and have to shut down.
A government shutdown means that many federal workers will not get paid and many government services will stop or slow down. This can affect millions of people who depend on the government for their income, health care, education, and other needs. A government shutdown can also hurt the economy by reducing consumer spending, business confidence, and economic activity.
This is not the first time that the U.S. government faces a shutdown threat. In 2018 and 2019, the government partially shut down for 35 days, the longest in history, over a dispute about funding for a border wall with Mexico. The shutdown cost the economy an estimated $11 billion.
Oil Prices
Recently, oil prices have been rising due to several factors, such as lower production from OPEC+ countries, higher demand from China and India, and supply disruptions from Hurricane Ida in the Gulf of Mexico.The average price of regular gasoline in the U.S. has reached $3.19 per gallon, up from $2.18 a year ago.
Oil is a very important resource for the economy. It is used to make gasoline, diesel, jet fuel, and other products that power cars, trucks, planes, and factories. The price of oil affects how much people pay for these products and how much they have left to spend on other things.
The price of oil depends on many factors, such as supply and demand, geopolitics, weather, and more. Sometimes, these factors can cause the price of oil to change suddenly and sharply. This can create an economic shock for the economy.
For example, if there is a war or a natural disaster that disrupts the supply of oil from a major producer, such as Saudi Arabia or Iran, the price of oil will go up. This will make gasoline and other products more expensive for consumers and businesses. This will reduce their spending power and hurt their profits.
On the other hand, if there is a new technology or a policy change that increases the supply of oil or reduces the demand for it, such as electric vehicles or renewable energy sources, the price of oil will go down. This will make gasoline and other products cheaper for consumers and businesses. This will increase their spending power and boost their profits.
Student Loan Payments
Many student loan borrowers are worried about how they will afford their payments when they resume next year. Some are hoping that President Biden will cancel some or all of their debt, as he promised during his campaign. However, Biden has not taken any action on this issue yet, and it is unclear if he has the legal authority to do so without Congress.
Student loans are money that people borrow to pay for college or other higher education. Student loans have to be paid back with interest over time. The amount of student loan debt in the U.S. is very high: about $1.7 trillion.
Because of the pandemic, the government gave student loan borrowers a break: they did not have to make any payments or pay any interest on their loans until January 2024. This helped millions of people who lost their jobs or income because of the pandemic.
However, this break will end soon and student loan payments will resume in January 2024. This means that millions of people will have to start paying back their loans again. This will reduce their disposable income and their ability to spend on other things. This could slow down the economy by lowering consumer demand.
Mortgage Rates
The U.S. housing market has been booming during the pandemic, as low mortgage rates and high demand have pushed home prices to record highs. The average 30-year fixed mortgage rate is currently 2.88 percent, down from 3.01 percent a year ago. However, some analysts expect that mortgage rates will rise in the coming months, as the Fed plans to reduce its bond-buying program that has kept interest rates low. This could cool down the housing market and make it harder for buyers to afford homes.
A mortgage is a loan that people use to buy a house or other property. A mortgage has to be paid back with interest over time. The interest rate on a mortgage affects how much people pay for their monthly payments and how much they can afford to borrow.
The interest rate on a mortgage depends on many factors, such as inflation, economic growth, monetary policy, and more. Sometimes, these factors can cause the interest rate on a mortgage to change suddenly and sharply. This can create an economic shock for the economy.
For example, if inflation goes up, which means that prices rise faster than wages, the Fed (the central bank of the U.S.) may raise interest rates to slow down inflation. This will make mortgages more expensive for borrowers and lenders. This will reduce the demand for housing and lower its prices.
On the other hand, if economic growth slows down or goes into recession, which means that output and income fall, the Fed may lower interest rates to stimulate growth. This will make mortgages cheaper for borrowers and lenders. This will increase the demand for housing and raise its prices.
Strikes
A strike is when workers stop working to protest against their employers over issues such as wages, benefits, working conditions, and more. A strike can affect the production and delivery of goods and services that people need or want.
Sometimes, workers in a large or important industry or sector may go on strike together. This can create an economic shock for the economy.
For example, if auto workers go on strike, they will stop making cars and trucks. This will reduce the supply of vehicles and make them more scarce and expensive. This will hurt consumers who want to buy or lease vehicles and businesses who use vehicles for their operations.
On the other hand, if health care workers go on strike, they will stop providing medical care and services. This will reduce the quality and availability of health care and make it more risky and costly. This will hurt patients who need or want health care and employers who provide health insurance for their workers.
The U.S. labor market is experiencing a wave of strikes and labor unrest, as workers demand higher pay, better benefits, and more respect from their employers. Some of the recent or ongoing strikes include:
- More than 60,000 film and TV workers who are threatening to walk off their jobs on Monday over issues such as long hours, low wages, and streaming residuals.
- More than 10,000 John Deere workers who went on strike on Thursday after rejecting a tentative contract that offered a 5 to 6 percent wage increase.
- More than 1,400 Kellogg’s workers who have been on strike since Tuesday over issues such as two-tier wages, reduced benefits, and forced overtime.
Conclusion
The U.S. economy is facing a “soft landing” scenario, where inflation is tamed without a recession, but this outcome is not guaranteed and depends on how the government and the Fed respond to the challenges ahead.
The five economic shocks discussed above could make this scenario harder to achieve by creating uncertainty, reducing consumer spending, increasing borrowing costs, and slowing down economic activity.
The U.S. economy is resilient and adaptable, but it is not immune to shocks. The best way to prepare for them is to be aware of them and plan ahead.
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