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VIDEO1:1401:14Are we in a recession or what?Consumer & Retail Digital Original Video

There's a lot of speculation lately about whether the U.S. is officially in a recession.

Both President Joe Biden and Federal Reserve Chair Jerome Powell said we're not there just yet, pointing to the strong labor market and rising wages.

The official declaration typically comes from the National Bureau of Economic Research, and it has yet to call it.

But regardless of the country's economic standing, consumers are struggling in the face of sky-high prices, and nearly half of Americans say they are falling deeper in debt.

"What really matters is paychecks aren't reaching as far," said Tomas Philipson, a professor of public policy studies at the University of Chicago and former acting chair of the White House Council of Economic Advisers. "What you call it is less relevant."

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Nearly half of all Americans are falling deeper in debt

Amid fears of a recession and rising interest rates, most people said they are already seeing their standard of living declining, according to recent reports.

'We should have an objective definition'

Officially, the NBER defines a recession as "a significant decline in economic activity that is spread across the economy and lasts more than a few months." In fact, the latest quarterly gross domestic product report, which tracks the overall health of the economy, showed a second consecutive contraction this year.

Still, if the NBER ultimately declares a recession, it could be months from now, and it will factor in other considerations, as well, such as employment and personal income.

What really matters is their paychecks aren't reaching as far.Tomas Philipsonformer acting chair of the White House Council of Economic Advisers

That puts the country in a gray area, Philipson said.

"Why do we let an academic group decide?" he said. "We should have an objective definition, not the opinion of an academic committee."

Consumers are behaving like we're in a recession

For now, consumers should be focusing on energy price shocks and overall inflation, Philipson added. "That's impacting everyday Americans."

To that end, the Federal Reserve is making aggressive moves to temper surging inflation, but "it will take a while for it to work its way through," he said.

VIDEO1:0401:04Here's how to get ahead of a rise in interest ratesConsumer & Retail Digital Original Video

"Powell is raising the federal funds rate, and he's leaving himself open to raise it again in September," said Diana Furchtgott-Roth, an economics professor at George Washington University and former chief economist at the Labor Department. "He's saying all the right things."

However, consumers "are paying more for gas and food so they have to cut back on other spending," Furchtgott-Roth said.

"Negative news continues to mount up," she added. "We are definitely in a recession."

What comes next: 'The path to a soft landing'

The direction of the labor market will be key in determining the future state of the economy, both experts said.

Decreases in consumption come first, Philipson noted. "If businesses can't sell as much as they used to because consumers aren't buying as much, then they lay off workers."

VIDEO4:4104:41How to prepare for a recessionInvest in You: Ready. Set. Grow.

On the upside, "we have twice the number of job openings as unemployed people so employers are not going to be so quick to lay people off," according to Furchtgott-Roth.

"That's the path to a soft landing," she said.

3 ways to prepare your finances for a recession

While the impact of record inflation is being felt across the board, every household will experience a pullback to a different degree, depending on their income, savings and job security.  

Still, there are a few ways to prepare for a recession that are universal, according to Larry Harris, the Fred V. Keenan Chair in Finance at the University of Southern California Marshall School of Business and a former chief economist of the Securities and Exchange Commission.

Here's his advice:

  • Streamline your spending. "If they expect they will be forced to cut back, the sooner they do it, the better off they'll be," Harris said. That may mean cutting a few expenses now that you just want and really don't need, such as the subscription services that you signed up for during the Covid pandemic. If you don't use it, lose it.
  • Avoid variable-rate debts. Most credit cards have a variable annual percentage rate, which means there's a direct connection to the Fed's benchmark, so anyone who carries a balance will see their interest charges jump with each move by the Fed. Homeowners with adjustable-rate mortgages or home equity lines of credit, which are pegged to the prime rate, will also be affected.

    That makes this a particularly good time to identify the loans you have outstanding and see if refinancing makes sense. "If there's an opportunity to refinance into a fixed rate, do it now before rates rise further," Harris said.
  • Consider stashing extra cash in Series I bonds. These inflation-protected assets, backed by the federal government, are nearly risk-free and pay a 9.62% annual rate through October, the highest yield on record.

    Although there are purchase limits and you can't tap the money for at least one year, you'll score a much better return than a savings account or a one-year certificate of deposit, which pays less than 2%. (Rates on online savings accounts, money market accounts and certificates of deposit are all poised to go up but it will be a while before those returns compete with inflation.)
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    Tags: ’t reaching the fed’s there’s at the university rate hike means federal reserve ways to prepare the economy in a recession interest rates consumers interest rate according labor market an academic harris said the federal the federal nearly half the country to cut back

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    Biden administration scales back student debt relief for MILLIONS of Americans in stunning reversal after being faced with first lawsuits and following criticism of the huge cost to taxpayers

    After being hit by criticism for ballooning cost estimates of its student loan and facing two lawsuits, the Biden administration announced a change that could leave out an estimated four million borrowers from the relief program.

    The Education Department announced the change in a release Thursday specifically about Federal Family Education Loans, which are bank loans backed up by federal guarantees.

    They used to major component of federal student loans, but stopped after a major Obama administration student loan overhaul in 2010 that shifted to direct loans from the government.

    Nevertheless, about 4 million people still have FFEL loans on the books, according to government data identified by Politico, which flagged the change. 

    President Joe Biden's student loan debt forgiveness program provides relief of up to $20,000 to individuals. 

    In the weeks since President Joe Biden announced his program to provide relief of $10,000 to help individuals wipe away student debt, and $20,000 for Pell grant recipients, borrowers have been allowed to reorganize their FEEL loans to qualify.

    The initial policy stated that FFEL and Perkins loans qualified.

    But on Thursday, updated guidance stated that 'As of Sept. 29, 2022, borrowers with federal student loans not held by ED cannot  obtain one-time debt relief by consolidating those loans into Direct Loans.'

    It stated that those who applied by that date are eligible for one-time relief through the Direct Loan program.

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    Education Secretary Miguel Cardona's department announced the change Thursday

    The plan allows tens of millions of borrowers to wipe away $10,000 in student loan debt. Pell grant recipients can get $20,000 in relief

    The Department is 'assessing' whether 'there are alternative pathways to provide relief' to these borrowers, and is 'discussing this with private lenders,' it said.  

    An Education Department spokesperson said: 'Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible, and this will allow us to achieve that goal while we continue to explore additional legally-available options to provide relief to borrowers with privately owned FFEL loans and Perkins loans, including whether FFEL borrowers could receive one-time debt relief without needing to consolidate .'

    Experts told NPR private banks who were subject to losing business could potentially sue to stop the loan forgiveness program by claiming they suffered harm.

    The first lawsuit against the program, filed this week, relied on a plaintiff who demonstrated harm by residing in one of six states where loan forgiveness is taxed like income – a move that will leave people on the hook for a tax bill even while saving thousands in debt.

    The government has already countered that the program is voluntary, and the plaintiff can forego the $20,000 in relief.

    A second suit, filed Thursday by six GOP-led states, challenges the program by citing President Joe Biden's comment to '60 MInutes' that the pandemic is 'over.' 

    The moves in the courthouse comes as the price tag of the plan is still coming into focus, with a new Congressional Budget Office estimate this week saying the plan to cancel student loan debt will cost $400 billion over a decade. 

    Read more:
    • The Biden administration just changed the rules for student loan forgiveness : NPR
    • Biden administration scales back student debt relief for millions amid legal concerns - POLITICO

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