The Price Point Vol. 116, Issu. 6

As Stuyvesant students prepare to enter the world, understanding the economy is an essential skill. In today’s society, knowledge of economics provides us with a foundation for navigating financial issues, understanding the effects of public policy on the market, and making informed decisions about our own personal finances.

U.S. Tariffs Under Scrutiny by Supreme Court

Regarding the Supreme Court hearing on the constitutionality of his tariffs, President Donald Trump has stated that he intends to develop a “Game 2 plan” in order to carry out the tariffs in case the Supreme Court rules against them, after a majority of the justices demonstrated suspicion about his use of emergency powers to impose the tariffs. After his declaration of national emergency on the United States’s trade deficit under the 1977 International Emergency Economic Powers Act, initial debates in the Supreme Court show tariffs in jeopardy of being overturned.

U.K. Unemployment Rises to Five Percent

The rate of unemployment in the United Kingdom has risen to five percent, showing signs of a weakened job market with the lowest unemployment rate since December 2020. Such a rate has fueled speculation that the Bank of England’s Monetary Policy Committee will announce a rate cut at their meeting on December 18. However, the central bank does foresee the unemployment rate remaining at around five percent for the coming years.

Federal Reserve Expected to Cut Rates in December

According to economists, the Federal Reserve plans to cut interest rates again when they meet in December in response to the weakened U.S. job market. However, the Fed remains divided over this issue, especially with the lack of important data in the midst of the government shutdown. Fed Chair Jerome Powell has stated that such a rate cut has not been decided yet.

Economics Concept of the Issue

Heuristics and Biases - Anchoring and Adjustment (The 2008 Housing Crisis)

The anchoring and adjustment heuristic occurs when individuals give too much merit to a piece of initial information (the anchor) when making decisions and fail to sufficiently adjust from that anchor when new data becomes available. Such a bias often causes investors, analysts, or consumers to base their expectations on obsolete past reference points instead of current market behavior. For example, if a house was valued at five million dollars in the past and is worth much less now, people continue to view it at that price. In the years leading up to the 2008 Housing Crisis, which triggered the 2008 recession, U.S. home prices were on the rise, leading homeowners and lenders to anchor their expectations of future home prices based on this past trend. As a result, despite warning signs like rising mortgage defaults (homeowners failing to make mortgage payments), many held onto the belief that home values would always go up and banks continued to issue risky loans under this assumption. When housing prices started to fall in 2007, the lack of adjustment caused huge losses since homeowners found themselves with properties worth much less than their mortgages, and institutions carried the burden of mispriced mortgage-backed securities—investments tied to these falling home values.