Fed Cites Student Loan Debt as Risk Factor in U.S. Recovery

Fed Cites Student Loan Debt as Risk Factor in U.S. RecoveryMany observers of the policy-making body of the Federal Reserve are calling it a first.
The central bank has cited the national student loan debt as a risk to the vital spending power of American households.
Blowing past credit card balances, student loans have become the top source of non-mortgage loan debt for Americans at $1.1 trillion, according to the Consumer Financial Protection Bureau.
In newly released minutes from its meeting last month, the Federal Open Market Committee, which has kept benchmark interest rates at the lowest possible setting since 2008 — triggering historically low mortgage rates — made an acknowledgement it has not made in the past.
Outstanding student loans amount to a potential downside risk to the economic recovery, the meeting minutes said.
Here’s the reference by the Fed: “Both fiscal restraint and the high level of student debt were mentioned as risks to aggregate household spending over the forecast period.”
The student loan mention followed comments about January’s payroll tax increase and higher gasoline prices, and how both factors may be the combined reason for “depressed” spending by lower-income households.
There was also some thought that overall consumer spending was likely “still held back, at least in part, by ongoing concerns about future income and employment prospects.”
There is also this reality:: consumer credit has expanded in December, January and February, with non-revolving credit continuing to increase at a solid pace because of growth in student and auto loans.
Revolving balances (mostly credit credit cards) have been roughly flat.
The Fed policy makers also discussed potential risks to financial stability, including any that may be prompted by low interest rates.
Some suggested that a lengthy period of low long-term rates could encourage excessive risk-taking that could affect economic stability in the future.
“Low interest rates likely have supported gains in asset prices and encouraged the flow of credit to households and businesses, but these changes to date do not appear to have been accompanied by significant financial imbalances,” the Fed minutes said.

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