NerdWallet's Smart Money Podcast - Money News: Financial Insights from 2023's Biggest Headlines

Episode Date: December 20, 2023

We recap the financial rollercoaster that was 2023, including interest rates, market movements, travel mishaps and more. Before reviewing this year’s biggest financial news headlines, hosts Sean Pyles and Anna Helhoski discuss federal interest rates, dropping mortgage rates, strong holiday spending numbers, and two new record highs — one for the stock market, and the other for a Southwest Airlines fine. Then, Sean and Anna turn their attention to an analysis of the economy's bizarre yet resilient nature in 2023. They discuss the strength of the job market, inflation fluctuations, surprising deflation in certain sectors, Congress's tussles over the debt ceiling, banks collapsing, and the trials of student loan borrowers. They also discuss the news that came at the conclusion of 2023, including looming government shutdown concerns and ongoing Congressional debates, setting the stage for what could unfold in the financial landscape of the coming year.  In their conversation, the Nerds discuss: personal finance news, Federal Reserve, interest rates, mortgage rates, housing market, stock market, inflation, the US economy, holiday spending, Southwest Airlines, travel, unemployment, debt ceiling, Congress, banks, student loans, job market, inflation, government shutdown, strikes, gas prices, financial events, economic analysis, and the Dow Jones Industrial Average hitting a record high. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is our weekly personal finance news roundup, where we take a look at recent developments in the world of money, and then go in-depth on an issue that's important to your life and your bottom line. So Sean, happy almost new year. Bye bye 2023. Almost! It has been a year. We can certainly say that. It has indeed. Shall we review? Let's shall. We're going to run down some of the biggest

personal finance news items from 2023, from interest rates to student loans to housing and more. But first, a few money headlines from the last few days. Federal Reserve policymakers met last week to figure out what to do with interest rates, and as somewhat expected, they left things as is. The federal funds rate remains 5.25 to 5.5%, as it has been since July. Right, but the bigger piece of news, one that sent the stock markets jumping, was a forecast from the Fed that it will make three rate cuts over the span of next year. If that happens, it would be the first time the Fed cuts rates instead of raising them or keeping them flat since March 2022. And of course, the main key to all of this is inflation. The Fed's

target inflation rate is 2%. The most recent Consumer Price Index, or CPI, showed the inflation rate at 3.1% in November. That's up from a year earlier, but down significantly from its 9% peak in the summer of 2022. So we'll be keeping an eye out for those possible rate cuts sometime next year. In the meantime, mortgage rates are dropping in tandem with inflation and the Fed's moves. Yeah, one of the big stories this year was the frustrating housing market. Homeowners who got mortgages when they were low, like 3% low, have been hesitant to move because they'd be giving up that mortgage for rates that hit almost 8% this year. So that locked up a lot of housing inventory,

and plenty of potential buyers didn't want to pay those rates either. But as of last week, average rates for a 30-year fixed mortgage dropped below 7% again for the first time in four months. Maybe, just maybe, that will start to loosen things up. It seems that stock market investors are loosening up a bit as fears of another Fed rate hike recede and the economy continues to hum along. The Santa Claus rally is in full swing. Yes, in fact, the Dow Jones Industrial Average hit a record high and the S&P 500 continues to rise as well, at least as of this recording. And Anna, an interesting

tidbit here, the Wall Street Journal has been scouring the Fed's extensive survey of consumer finances and found another record. 58% of U.S. households own stocks. That's the highest rate ever recorded. Yeah, a lot of those are new investors who got bored during the pandemic and decided to check out what that whole stock market thing was all about. Ana, are you finished with your holiday shopping? I am. My goal was to check off everyone on my list before December. Well, a lot of folks got it done early too, if retail numbers are any indication,

and if you consider November early. The Commerce Department reported that retail sales for November rose a seasonally adjusted 0.3% from October. Shop till you drop. Seems like it. And the numbers for October had been revised downward to a 0.2% decline. So the November figure looks like a jumpstart to the holiday season. And the National Retail Federation reported that a record 200 million shoppers spent their dollars over the holiday weekend from Thanksgiving through Cyber Monday. That included 121 million people visiting brick and mortar stores and 134 million shopping online. Everybody's sitting on the couch with a cup of hot chocolate searching for deals. Indeed. In fact, the NRF says 44 million of us used our home desktop or laptop to shop online on Cyber Monday, myself included.

Ho, ho, ho. Tap, tap, tap. So, Ana, remember last year when millions of travelers had their holiday plans go up the chimney because of problems at Southwest Airlines? Almost 17,000 flights canceled and people stranded all over the place? Oh, that was so awful. All those folks trying to get to family and vacations and just stuck. Yeah, well, the government took notice. And this week, a year later, the Transportation Department announced it's issuing a civil penalty of $140 million against the airline,

a record fine for this kind of violation. Any of that go to the travelers whose holiday plans were ruined? Well, $35 million for this kind of violation. And you've got to go to the travelers whose holiday plans were ruined. Well, 35 million will go to the government. The rest will go toward compensation for future travelers who run into cancellations or major delays caused by Southwest. They'll be eligible for a voucher of at least $75 if they arrive at least three hours late because of something that's the airline's fault. That's in addition to providing those travelers with compensation for food and lodging. And that's on top of the $600 million Southwest already had to pay in refunds and reimbursements. So about $750 million in total.

Well, speaking of holiday travel, are you going anywhere, Sean? Yeah, I'm gearing up for a road trip to see family in California. How about you, Anna? Nowhere far, just a hop, skip, and a car ride upstate. Well, AAA says this is going to be the busiest air travel season on record, with 7.5 million of us hitting the skies for the holidays. Overall, 115 million Americans are expected to trundle off more than 50 miles from home over the 10-day period from December 23rd through January 1st. That would be the second busiest holiday travel period on the books. Yeah, and over 100 million people are expected to hit the roads, so be

careful out there. If you want to save yourself a bit of headache, AAA has the usual advice to travel on Christmas Eve, Christmas, New Year's Eve, or New Year's Day. Oh, but then you miss some of the fun. Yeah, choices, Anna. Well, that's what we saw and heard over the past week in Money News. Let us know what we missed and send us the headlines that you've seen and want to hear more about. And now, on to our in-depth, or maybe not so in--depth look at the year in personal finance. I'm trying to think of the best word to describe the economy over the last year, Sean. Booming? Bizarre?

Both, I think. 2023 was decidedly weird, but also incredibly resilient. I don't want to downplay that a lot of people are still struggling with higher prices for goods and services, as well as high interest rates for mortgages and other loans. But in spite of that, there is a lot of good news out there for people, namely jobs. This year, unemployment hit its lowest point in 50 years. Inflation is also slowing down, and prices even deflated for things like eggs and appliances. And the latest gross domestic product data showed economic growth well above predictions. So there are some reasons to be optimistic about the economy in the new year. But Sean, this is a look back episode.

So let's talk about some of the biggest events in personal finance this year. Let's start with last January when the U.S. hit its $31 trillion debt ceiling and put itself at risk of default. The debt ceiling is the total amount the government is approved to borrow in order to meet its legal obligations like funding social security and military salaries. Now, usually when the federal government hits the debt ceiling, Congress just increases it or suspends it. But this time, House Republicans wanted to negotiate. That's right, Sean. For most of the late winter and spring, a deeply divided Congress struggled to reach a deal as the government inched closer to default with economically

catastrophic implications. Fortunately, then House Speaker Kevin McCarthy and President Joe Biden reached an agreement called the Fiscal Responsibility Act that suspends the debt ceiling until January 1st, 2025. Another big story last spring was the collapse of two banks in one whirlwind weekend. Yep. In March, depositors at both Silicon Valley Bank and Signature Bank withdrew their money simultaneously, which triggered a bank run. But shortly thereafter, the FDIC scrambled to intervene in order to prevent a contagion of bank collapses, which luckily it did. Meanwhile, student loan borrowers saw two very unwelcome events this year. The first was in June when the Supreme Court blocked Biden's debt cancellation plan. The White House says it's pursuing a plan B for borrowers, but there's no guarantee it'll work.

Then in October, a more than three year payment pause ended and federal student loan bills arrived once again. The only bright spot is a new income driven repayment plan called SAVE, which is fully rolling out over the next year and is expected to slash payments. The summer saw a big comeback in travel, Sean. That's right. Once the last major COVID border restrictions were lifted, travelers took to the skies and sold out hotels in the U.S. and abroad. Data from the Transportation Security Administration, better known as the TSA, showed record high days for a number of travelers. And Eurostat, the statistical office of the European Union, saw the highest level of tourist accommodations in the past decade. But all that travel meant airlines

were stretched to their limits. Delta made it more difficult to qualify for elite status in its Sky Miles program, but had to scale back the change to appease angry customers. Meanwhile, American airlines cracked down on skip lagging. That's when you try to avoid paying higher prices for a nonstop ticket and instead book a cheaper flight with a layover and then skip the rest of the ticket. And across multiple airlines, flight attendants have picketed in demand of a new contract. Speaking of picketing, the summer of 2023 was also known as Hot Strike Summer, where workers across industries went on strike to demand negotiations from screenwriters and actors to auto workers and hotel workers. And many of them won historic contracts for better pay and working conditions. You know what else was hot this summer, Ana? Gas prices.

There was a lot of volatility all year long as prices fell to as low as $3.22 on average and reaching as high as $4. But prices have begun to ease after peaking in September and are now at an 11-month low. As we move into 2024, we'll be keeping an eye out for another potential government shutdown, or at least a partial one. The government was headed for a shutdown as of October 1st, as the House failed to pass budget appropriations. But Congress passed a continuing resolution to keep the government running through November 17th. Before the new deadline, the newly elected House Speaker Mike Johnson presented a two-step continuing resolution to fund different parts

of the government through two dates, January 19th and February 2nd. That measure passed swiftly to avoid a government shutdown once again. Just so listeners know, a shutdown, even a partial one, would send federal workers home without pay and suspend some services. So make like a Boy Scout and always be prepared. And expect to watch Congress duke it out in the new year. And that's it for this year's money news. We always welcome your money questions and comments. Turn to the nerds and call or text us with your questions at 901-730-6373. That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com.

And remember to follow, rate, and review us wherever you're getting this podcast. Today's episode was produced by Tess Biglin and edited by Rick Vanderknight. Kevin Tidmarsh mixed our audio. Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next year, turn to the nerds.