That dynamic may have exacerbated inflation, said economists. Put another way, if consumers had more wealth — as much as $20,000 — to spend on goods and services, that may have served to prop up prices.
Overturning student loan forgiveness is therefore somewhat deflationary, and means the Federal Reserve may not have to raise borrowing costs as much as it otherwise would if forgiveness succeeded, economists said.from its 9.1% pandemic-era peak — but remains elevated above the central bank's 2% long-term target.
"This will work in the direction of further slowing consumer spending," said Shai Akabas, executive director of economic policy at the Bipartisan Policy Center. "And that will directionally contribute toward the Fed's goal of getting inflation back to its target level."Consumer spending is the lifeblood of the U.S. economy, accounting for about 70% of U.S. gross domestic product, a measure of the nation's total economic output., in an aggregate sense, economists said.
"I'm sure the 22 million who applied for forgiveness are disappointed, but I don't think it'll have any bearing on their financial situation, because nothing has changed," he said.in October — after a three-year pause — will likely have a bigger impact. Moody's estimates those payments to be about $275 a month for the average borrower.
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