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Federal Reserve bows to bank-crisis fears with quarter-point rate hike, letting up a little in its fight against inflation
The Fed raised rates by a quarter-point – less aggressive than had been expected before the current banking crisis, but signaling inflation is still…
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The Federal Reserve raised interest rates by a quarter-point on March 22, 2023, bowing to market expectations that it would temper its aggressive program of rate hikes amid a still-brewing banking crisis.
The U.S. central bank lifted rates to a range of 4.75% to 5%, its ninth-straight increase since March 2022. As late as early March 2023, it appeared that the Fed was planning to resume last year’s full-throttle rate-hiking campaign after slowing down in February. But the collapse of Silicon Valley Bank on March 10 forced the central bank to take a step back.
So what does the Fed’s announcement tell us about where monetary policymakers think the economy – and inflation – are heading? A team of economists and finance scholars have weighed in to help make sense of it all.
Rate hike shows Fed confident in banking sector
Jeffery S. Bredthauer, University of Nebraska Omaha
This muted rate hike signals that the Fed is being cautious in order to steady the financial sector, which has been struggling since the collapse of Silicon Valley Bank on March 10, 2023. But the fact that the Fed raised rates at all acknowledges that the fight against inflation will need to continue.
While still an increase, it’s more of a pause, in my view, because until the recent banking turmoil, the central bank was expected to lift rates by a half-point. Inflation has remained stubbornly elevated even though the Fed had jacked up rates 4.5 percentage points before the latest hike, and Chair Jerome Powell made it clear in congressional testimony that he was intent on subduing the rise in prices.
But the aggressive rate rises left some regional banks like Silicon Valley Bank vulnerable because they drove down the value of tens of billions in assets they held. Silicon Valley failed because it didn’t have enough assets to meet withdrawals.
While the Fed and other regulators have acted to shore up the system by backstopping depositors and smaller financial institutions, the concern now is that there may be more banks in a similar predicament. The smaller rate hike should help ease some of these concerns.
Yet, the inflation battle must go on, and the Fed recognizes that strong demand continues to prop up consumer prices, particularly in the service sector. As such, I believe the Fed news shows that it has confidence in the banking system by continuing its interest rate hikes, albeit at a slower pace than had previously been expected.
And this is important. The greatest fear would be that spooked customers might irrationally start withdrawing money from banks because they fear a financial collapse – the classic bank run. That will not happen as long as there is faith in the banking system.
Drop in inflation gave Fed breathing room to ‘pause’
Joerg Bibow and Marketa Wolfe, Skidmore College
The Fed had two courses of action available when it came to setting rates. The first would have seen it continue aggressively raising rates, ignoring financial stability concerns – perhaps even seeing the hiking campaign as a sort of bloodletting that would squeeze inflation out of the economy. The second way forward would be to take a beat and see how the ongoing fragility in the banking sector plays out first.
Fortunately – in our view – the Fed did not choose the former.
While falling short of a total pause in raising interest rates – an option some market watchers had been calling for – the latest hike represents a substantial slowdown from the Fed’s previous plans, and therefore demonstrates the Fed’s caution in the face of a nascent banking situation.
It was able to do this in large part because there are clear signs inflation has come down.
As measured by the Personal Consumption Expenditure Price Index – the Fed’s preferred measure – inflation has declined from a 40-year high of 7% in June 2022 to 5.4% in January 2023.
And the main cause of the recent surge in inflation - COVID-19 supply chain disruptions – has eased. In addition, an upward wage-price spiral has not developed.
Furthermore, the banking turmoil might have already delivered an equivalent of another interest rate hike in terms of its impact on the economy.
Although inflation remains high by historical standards, the risk it will reaccelerate seems low. Altogether, this allowed the Fed to take a breath and deal with what’s going on in the banking sector.
Put another way, the Fed decided, with so much uncertainty about the impact the recent turmoil will have on the economy, the risk of causing more damage was greater than the risk of inflation.
Interest rates may peak soon
Arabinda Basistha, West Virginia University
A big question on Fed watchers’ minds has been when will the central bank stop raising rates or when will it settle on a “terminal” rate – that is, the level that monetary policymakers believe will ensure prices are stable.
That point may be just around the corner.
In September 2022, Powell said the Fed was trying to get to “a place where real rates are positive across the yield curve.”
Real interest rates are a measure of the real, inflation-adjusted cost of borrowing, which is calculated by subtracting expected inflation rates from nominal interest rates. A yield curve shows yields for bonds of different maturities.
Back in September, part of the yield curve was negative, meaning annual inflation was higher than the interest rates. Today, more of the curve has turned positive, which means the Fed is closer to Powell’s goal.
Moreover, Powell switched from declaring that “ongoing” rate rate hikes “will” be needed to the softer “some additional” increases “may be appropriate,” which suggests it sees the light at the end of the interest rate tunnel. Powell also acknowledged that the banking sector stress can work in a way similar to an interest rate hike by reducing inflationary pressures via lower business activity.
Overall, it seems that the Fed is much closer to its policy destination with one or two moderate interest rates increases left in this year, if inflation risks evolve according to expectations. I see a pause in interest rates as early as fall when they settle at a terminal rate of around 5.5%.
The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
bonds yield curve covid-19 fed federal reserve interest rates
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“What’s More Tragic Is Capitalism”: BLM Faces Bankruptcy As Founder Cullors Is Cut By Warner Bros
"What’s More Tragic Is Capitalism": BLM Faces Bankruptcy As Founder Cullors Is Cut By Warner Bros
Authored by Jonathan Turley,
Two years…
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Two years ago, I wrote columns about companies pouring money into Black Lives Matter to establish their bona fides as “antiracist” corporations. The money continued to flow despite serious questions raised about BLM’s management and accounting. Democratic prosecutors like New York Attorney General Letitia James showed little interest in these allegations even as James sought to disband the National Rifle Association (NRA) over similar allegations. At the same time, Black Lives Matter co-founder Patrisse Cullors cashed in with companies like Warner Bros. eager to give her massive contracts to signal their own reformed status. It now appears that BLM is facing bankruptcy after burning through tens of millions and Warner Bros. cut ties with Cullors after the contract produced no — zero — new programming.
Some states belatedly investigated BLM as founders like Cullors seemed to scatter to the winds.
Gone are tens of millions of dollars, including millions spent on luxury mansions and windfalls for close associates of BLM leaders.
The usual suspects gathered around the activists like former Clinton campaign general counsel Marc Elias, who later removed himself from his “key role” as the scandals grew.
When questions were raised about the lack of accounting and questionable spending, BLM attacked critics as “white supremacists.”
Warner Bros. was one of the companies eager to grab its own piece of Cullors to signal its own anti-racist virtues. It gave Cullors a lucrative contract to guide the company in the creation of both scripted and non-scripted content, focusing on reparations and other forms of social justice. It launched a publicity campaign for everyone to know that it established a “wide-ranging content partnership” with Cullors who would now help guide the massive corporation’s new programming. Calling Cullors “one of the most influential thought leaders in American public life,” Warner Bros. announced that she was going to create a wide array of new programming, including “but not limited to live-action scripted drama and comedy series; longform/event series; unscripted docuseries; animated programming for co-viewing among kids, young adults and families; and original digital content.”
Some are now wondering if Warner Bros. ever intended for this contract to produce anything other than a public relations pitch or whether Cullors took the money and ran without producing even a trailer for an actual product. Indeed, both explanations may be true.
Paying money to Cullors was likely viewed as a type of insurance to protect the company from accusations of racial insensitive. After all, the company was giving creative powers to a person who had no prior experience or demonstrated talent in the area. Yet, Cullors would be developing programming for one of the largest media and entertainment companies in the world.
One can hardly blame Cullors despite criticizism by some on the left for going on a buying spree of luxury properties.
After all, Cullors was previously open about her lack of interest in working with “capitalist” elements. Nevertheless, BLM was run like a Trotskyite study group as the media and corporations poured in support and revenue.
It was glaringly ironic to see companies like Warner Bros. falling over each other to grab their own front person as the group continued boycotts of white-owned businesses. Indeed, if you did not want to be on the wrong end of one of those boycotts, you needed to get Cullors on your payroll.
Much has now changed as companies like Bud Light have been rocked by boycotts over what some view as heavy handed virtue signaling campaigns.
It was quite a change for Cullors and her BLM co-founder, who previously proclaimed “[we] are trained Marxists. We are super versed on, sort of, ideological theories.” She denounced capitalism as worse than COVID-19. Yet, companies like Lululemon rushed to find their own “social justice warrior” while selling leggings for $120 apiece.
When some began to raise questions about Cullors buying luxury homes, Facebook and Twitter censored them.
With increasing concerns over the loss of millions, Cullors eventually stepped down as executive director of the Black Lives Matter Global Network Foundation, as others resigned. At the same time, the New York Post was revealing that BLM Global Network transferred $6.3 million to Cullors’ spouse, Janaya Khan, and other Canadian activists to purchase a mansion in Toronto in 2021.
According to The Washington Examiner, BLM PAC and a Los Angeles-based jail reform group paid Cullors $20,000 a month. It also spent nearly $26,000 on meetings at a luxury Malibu beach resort in 2019. Reform LA Jails, chaired by Cullors, received $1.4 million, of which $205,000 went to the consulting firm owned by Cullors and her spouse, according to New York magazine.
Once again, while figures like James have spent huge amounts of money and effort to disband the NRA over such accounting and spending controversies, there has been only limited efforts directed against BLM in New York and most states.
Cullors once declared that “while the COVID-19 illness is tragic, what’s more tragic is capitalism.” These companies seem to be trying to prove her point. Yet, at least for Cullors, Warner Bros. fulfilled its slogan that this is all “The stuff that dreams are made of.”
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Biden reaches ‘tentative’ US debt ceiling deal: Report
United States President Joe Biden has urged the United States Congress to “pass the agreement right away.“
Amid growing concerns…
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United States President Joe Biden has urged the United States Congress to “pass the agreement right away.“
Amid growing concerns of a potential default by early June, United States President Joe Biden and House majority leader Representative Kevin McCarthy have reportedly reached an “agreement in principle” to raise the federal government’s multitrillion-dollar debt ceiling.
According to a May 28 report from Reuters citing two sources familiar with the negotiations, the “tentative” agreement to raise the $31.4 trillion debt ceiling was reached after a 90-minute phone call between Biden and McCarthy on May 27.
Since publication time, Biden has confirmed via Twitter the existence of an “agreement in principle," explaining that it will prevent the U.S. from facing a “catastrophic default.“
Biden noted that “over the next day,” the agreement would go to the U.S. House of Representatives and Senate. He urged both chambers to “pass the agreement right away.“
Earlier this evening, Speaker McCarthy and I reached a budget agreement in principle.
— President Biden (@POTUS) May 28, 2023
It is an important step forward that reduces spending while protecting critical programs for working people and growing the economy for everyone. And, the agreement protects my and…
Meanwhile, McCarthy also took to Twitter to confirm the agreement in principle, alleging that Biden “wasted time and refused to negotiate for months.“
Reuters reported that while “the exact details of the deal were not immediately available,” an agreement has been made to limit the U.S. government’s spending for the next two years, excluding expenses related to national security.
“Negotiators have agreed to cap non-defense discretionary spending at 2023 levels for one year and increase it by 1% in 2025,” a source familiar with the deal said.
Related: Debt ceiling crisis: Best practices to navigate this market
This comes only weeks after U.S. Treasury Secretary Janet Yellen warned of a default risk as soon as June 1 if the debt limit isn’t suspended or raised, urging Congress to “act as soon as possible.“
Additionally, The U.S. Congressional Budget Office published a report on May 12, emphasizing that if the debt limit remains unchanged, there is a significant risk “that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations.“
In recent times, several analysts have shared a similar view that raising the debt ceiling could see more capital inflow into Bitcoin (BTC).
On May 17, MacroJack, a former Wall Street trader, warned his followers in a tweet that the U.S. debt ceiling talks are “all show.“
He emphasized how important it is to own hard assets as the dollar will be “printed into oblivion,” while stating that Bitcoin is the “fastest horse in the race.“
Meanwhile, Jesse Myers, chief operating officer of investment firm Onramp, reminded his 50,100 Twitter followers of what happened during the COVID-19 pandemic, stating that “Bitcoin was the winner during the last round of stimulus.“
He proposed the idea that history might repeat itself if the debt ceiling were to be raised, as it would prompt the Federal Reserve to print more money.
#7 - When the debt ceiling is lifted & credit-contraction leads to economic crisis...
— Jesse Myers (Croesus ) (@Croesus_BTC) April 25, 2023
They will have to print money on a massive scale.#Bitcoin was the winner during the last round of stimulus pic.twitter.com/DqhuLikQXr
Update on May 28, 2023, at 03:15: This article has been updated to include United States President Joe Biden's tweet.
Magazine: Visa stablecoin plan, debt ceiling’s effect on Bitcoin price: Hodler’s Digest, April 23-29
bitcoin btc pandemic covid-19Uncategorized
Biden reaches ‘tentative’ US debt ceiling deal: Report
United States President Joe Biden has urged both the United States House and Senate to "pass the agreement right away."
Amid growing…
Share this:
United States President Joe Biden has urged both the United States House and Senate to "pass the agreement right away."
Amid growing concerns of a potential default by early June, the United States President Joe Biden and Republican Kevin McCarthy have reportedly reached an "agreement in principle" to raise the federal government's multi-trillion dollar debt ceiling.
According to a May 28 report from Reuters, citing two sources familiar with the negotiations, the "tentative" agreement to raise the $31.4 trillion debt ceiling was reached after a 90-minute phone call between Biden and McCarthy on May 27.
Following the publication of this article, Biden has since confirmed via Twitter the existence of an "agreement in principle," explaining that it will prevent the U.S. facing a "catostrophic default."
Biden noted that "over the next day," the agreement will go the U.S. House and Senate. He urged both chambers to "pass the agreement right away."
Earlier this evening, Speaker McCarthy and I reached a budget agreement in principle.
— President Biden (@POTUS) May 28, 2023
It is an important step forward that reduces spending while protecting critical programs for working people and growing the economy for everyone. And, the agreement protects my and…
Meanwhile, McCarthy also took to Twitter to confirm the agreement in principle, alleging that Biden "wasted time and refused to negiotate for months."
Reuters reported that while "the exact details of the deal were not immediately available," an agreement has been made to limit the U.S. government's spending for the next two years, excluding expenses related to national security.
"Negotiators have agreed to cap non-defense discretionary spending at 2023 levels for one year and increase it by 1% in 2025" a source familiar with the deal said.
Related: Debt ceiling crisis: Best practices to navigate this market
This comes only weeks after U.S. Treasury Secretary Janet Yellen warned of a default risk as soon as June 1 if the debt limit isn't suspended or raised, urging Congress to "act as soon as possible."
Additionally, The U.S. Congressional Budget Office (CBO) published a report on May 12, emphasizing that if the debt limit remains unchanged, there is a significant risk "that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations."
In recent times, several analysts have shared a similiar view that raising the debt ceiling could see more capital inflow into Bitcoin (BTC)
MacroJack, a former Wall Street trader, warned his followers in a tweet on May 17 that the U.S. debt ceiling talks are "all show."
He emphasized how important it is to own hard assets as the dollar will be "printed into oblivion," while stating that Bitcoin is the "fastest horse in the race."
Meanwhile, Jesse Myers, chief operating officer of investment firm Onramp reminded his 50,100 Twitter followers of what happened during the Covid-19 Pandemic, stating that "Bitcoin was the winner during the last round of stimulus."
He proposed the idea that history might repeat itself if the debt ceiling were to be raised, as it would prompt the Federal Reserve to print more money.
#7 - When the debt ceiling is lifted & credit-contraction leads to economic crisis...
— Jesse Myers (Croesus ) (@Croesus_BTC) April 25, 2023
They will have to print money on a massive scale.#Bitcoin was the winner during the last round of stimulus pic.twitter.com/DqhuLikQXr
Update on May 28, 2023, at 03:15: This article has been updated to include United States President Joe Biden's tweet.
Magazine: Visa stablecoin plan, debt ceiling’s effect on Bitcoin price: Hodler’s Digest, April 23-29
bitcoin btc pandemic covid-19
“Glut Of Inventory” Hits Hamptons As Rental Demand Cools
Biden reaches ‘tentative’ US debt ceiling deal: Report
Biden reaches ‘tentative’ US debt ceiling deal: Report
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