by tyler | Apr 13, 2023 | CNN, economy
US inflation at the wholesale level continued its downward slide in March with annualized price increases sinking dramatically to 2.7% from an upwardly revised 4.9%, according to the Producer Price Index released Thursday by the Bureau of Labor Statistics.
It’s the lowest annual level for the key inflation gauge since January 2021.
On a monthly basis, producer prices slumped by 0.5%, driven by falling goods prices, specifically lower energy prices. Prices for fresh and dry vegetables also fell, while the price indexes for categories such as light motor trucks, chicken eggs and meats moved higher.
Economists were expecting annual inflation, as measured by the PPI, to land at 3% for the 12 months ended in March and for no change from the month before.
“It’s good news that it looks like inflation is coming off the boil here,” Chris Rupkey, chief economist at FwdBonds, told CNN. “There is a pronounced slowing in producer goods, and if I had to bet, I would say that this is going to lead to lower prices for the goods sitting on the store shelves in the coming months.”
Core PPI, which excludes the more volatile components of food and energy, declined 0.1% for the month and, for the 12 months ended in March was up 3.4%, down from the upwardly revised level of 4.8%.
PPI is one of several closely watched inflation gauges. Because the producer-centric index captures price shifts upstream of the consumer, it’s sometimes looked to as a potential leading indicator of how prices may eventually land at the store level.
Since notching a 11.2% gain in June 2022, the PPI has seen a stark cooldown in the months since, as supply chains have got back into sync since being discombobulated by the pandemic and the sharp economic recovery that followed.
Consumer prices have come down as well, but at a more moderate pace.
The March Consumer Price Index, released Wednesday, was 5%, the lowest annualized rate since May of 2021, according to the BLS.
Much like CPI, the annual PPI also appears to have benefited from base effects, when year-over-year comparisons are volatile. In March 2022, a time when Russia had just invaded Ukraine and food and energy prices skyocketed, the PPI shot up to a record 11.7%.
Month-to-month comparisons can be volatile, but the the PPI’s 0.5% drop seen in March did follow an unchanged reading in February.
This story is developing and will be updated.
by tyler | Apr 12, 2023 | CNN, economy
The broader US banking system remains sound and stable, but the two regional banks that failed were “poorly managed” and “took unacceptable risks,” White House economic adviser Lael Brainard told CNN’s Poppy Harlow in an interview Wednesday at Semafor’s World Economy Summit in Washington, DC.
Last month, the collapse of Silicon Valley Bank and Signature Bank triggered a crisis in the US banking sector, roiled financial markets and fueled uncertainty about the potential for negative ripple effects to spread throughout the broader economy.
The US Treasury, in conjunction with the Federal Reserve and the Federal Deposit Insurance Corporation, intervened after the regional bank failures to ensure bank customers could access all their money and to attempt to stave off future bank runs.
“The banking system, it’s very sound, it’s stable; the core of the banking system has a great deal of capital that was put in place in the wake of the 2008-2009 global financial crisis,” said Brainard, director of the White House National Economic Council. “There were some banks who were not managing their risks effectively. They failed, and the president took strong actions along with the Secretary of the Treasury and the banking regulators,” she said.
“Those actions reassured Americans their deposits are safe, the banking system is sound; but it was also important to the president that the executives of those failed banks were held accountable and, very important, that taxpayer money not be at risk,” she continued.
The failures, however, fueled uncertainty about the potential for additional bank collapses as well as possible negative ripple effects that could spread to the broader US economy, especially as the Federal Reserve is in the throes of a dramatic rate-hiking campaign to bring down inflation.
Brainard, who recently served as Fed Vice Chair before joining the White House in February, said she believes that the efforts of regulators and those undertaken by banks have created an additional layer of stability.
“Bank executives have seen some of the stresses that the two failed banks were under, and they’re shoring up their balance sheets, and they are convincing depositors and investors alike that they have a good strategy for risk management,” she said.
Still, the failures also expose potential consequences of the 2018 rollback of some post-Great Recession financial regulations, said Brainard, who at the time opposed watering down the regulations.
“When those strong safeguards were put in place [through Dodd-Frank], it materially strengthened the banking banking system,” she said. “Weakening those safeguards — liquidity, management, capital, strong capital buffers to absorb losses, strong living wills for when a bank fails — all of those things were removed or weakened in the size class of $250 billion, where those two banks failed.”
With the benefit of hindsight, she added, there’s a lesson in answering, ‘What was the benefit as opposed to the cost?’
“The cost is now apparent that we did see two failures that led to ripples throughout the system,” she said.
This story is developing and will be updated.
by tyler | Apr 12, 2023 | CNN, economy
The fallout from the recent banking crisis is likely to push the US economy into a mild recession later this year, according to notes from the Federal Reserve’s March policy meeting, released on Wednesday.
Since November 2022, staff economists at the Federal Reserve have predicted subdued growth and a weakening economy during policy decision meetings. in March, they said the banking crisis heightened that forecast to a recession.
Taking into account “the potential economic effects of the recent banking-sector developments,” Fed economists’ “projection at the time of the March meeting included a mild recession starting later this year,” noted minutes from the Fed’s most recent two-day monetary policy meeting on March 21-22.
This is the first time in the current hiking cycle that staff economists have forecast such a recession.
“The main takeaway from Wednesday’s Federal Reserve minutes is that the central bank anticipates a mild recession in late 2023 and that the soft landing window seems to be closing quickly,” said Nancy Davis, founder of Quadratic Capital Management, in a note Wednesday.
Policymakers at the Fed voted unanimously last month for a smaller interest rate increase after turbulence in the banking industry set off fears of bank runs, according to the minutes.
The notes, released on Wednesday afternoon, highlighted the uncertainty behind the decision, which came just days after the failures of Silicon Valley Bank and Signature Bank. Fed officials raised the benchmark lending rate by a quarter point, the ninth-rate hike in a row.
“Some participants noted that given persistently high inflation and the strength of the recent economic data, they would have considered a [half percentage point] increase in the target range to have been appropriate at this meeting in the absence of the recent developments in the banking sector,” according to the minutes.
Given those projections and their own economic uncertainty, policymakers judged it “prudent to increase the target range by a smaller increment at this meeting.”
Policymakers also noted that actions taken by the Fed and other government agencies to mitigate possible contagion and secure the US financial system had successfully quelled immediate fears and and calmed conditions in the banking sector. Because of that, they said, they thought it was appropriate to address strong economic data and sticky inflation rates by raising rates by a quarter point instead of pausing all together.
The Fed’s latest interest rate increase brought the federal funds rate to a range of 4.75% to 5%, the highest level since September 2007. But the banking stress, coupled with slowing inflation and a cooling labor market, could signal the imminent end of the Fed’s rate-hiking campaign.
The Consumer Price Index, the most closely watched inflation gauge, rose 5% in March from a year earlier, according to data released Wednesday by the Bureau of Labor Statistics. That marks the ninth-straight month that headline inflation has slowed.
While bank failures can erode confidence in the banking industry, they can make borrowing harder, which can also curb spending and ease some pressure on prices and the labor market, Fed Chair Jerome Powell said at a news conference following the conclusion of the March policymaking meeting.
“Such a tightening in financial conditions would work in the same direction as rate tightening,” Powell said, stressing that the banking industry remained sound.
The meeting minutes echoed that sentiment. Recent developments in the banking sector, they said, “were likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation,” though policymakers were unsure of the extent of the economic fallout. “Participants agreed that the extent of these effects was uncertain,” said the notes.
SVB’s collapse was the second-largest bank failure in US history and underpins the worst banking crisis since the Great Recession.
The bank, which had over $200 billion in total assets at the end of last year, primarily provided banking services to venture-backed technology companies. The turbulence in the technology industry meant many customers were burning through cash and taking out their money at a faster pace.
In early March, SVB sought to raise capital from investors and announced that it had sold some securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances. Customers panicked, attempted to withdraw close to $100 billion from the bank, and regulators took over a few days later.
Signature Bank was the other casualty of the US banking industry’s turmoil last month and, later, Swiss banking giant Credit Suisse, which was forced to merge with its longtime rival UBS as a remedy.
The Fed now has to balance taming still-high inflation, ensuring financial stability and factoring in other economic shocks, like the recent surprise decision from OPEC+ to cut global oil production.
Meanwhile, congressional lawmakers such as Democratic Senator Elizabeth Warren have called for investigations into the bank failures and legislating additional rules such as raising the FDIC insurance limit for deposits.
by tyler | Apr 11, 2023 | CNN, economy
The banking crisis could help the Federal Reserve’s fight to bring down inflation, but the central bank needs to be “cautious” in its actions moving forward, Chicago Fed President Austan Goolsbee said Tuesday.
Goolsbee, the newest Fed appointee, spoke before the Economic Club of Chicago and addressed the “new, big, hairy elephant in the room” that was the recent failure of two regional banks, Silicon Valley Bank and Signature Bank, and subsequent market turmoil.
“At moments of financial stress like this, the right monetary policy is really caution and watchfulness and prudence,” he said. “And I don’t say that because I think we should stop prioritizing the fight against inflation just because markets got upset.”
But instead of financial issues trumping monetary policy concerns, financial conditions should certainly be included in monetary policy discussions, Goolsbee said.
“History has taught us that in moments of financial stress, even if they don’t escalate into a crisis, they often mean tighter credit conditions and have a material impact on the real economy in a way that the Fed absolutely needs to take into account when setting monetary policy,” he said.
Currently, he added, there’s not conflict between monetary policy and potentially tightening credit conditions. They would work in tandem to cool inflation, he said.
Still, Goolsbee added, the Fed needs to be “on watch” for the possibility of tighter credit conditions.
“If the response to these banking problems leads the financial industry to tighten on its own, that monetary policy has to do less,” he said. “It’s not clear yet, exactly how much less.”
He referenced private sector analyst estimates that the recent turmoil equates to the Fed enacting rate hikes anywhere from a quarter point to three quarters of a point.
“Given how much uncertainty abounds when these financial headwinds are going, I think we need to be cautious,” he said. “We should gather further data and we should be extra careful about raising rates too aggressively until we see how much work the headwinds are going for us in getting inflation down.”
Goolsbee said the foremost pieces of data he’ll be looking for in advance of the Fed’s next meeting in early May will be about how much credit tightening is occurring.
by tyler | Apr 11, 2023 | CNN, economy
US Treasury Secretary Janet Yellen said she believes the American economy remains strong and its banking system is resilient despite some recent turmoil among regional financial institutions.
“I’ve not really seen evidence at this stage suggesting a contraction in credit, although that is a possibility,” Yellen said at a press conference Tuesday ahead of the spring World Bank meetings. “I believe our banking system remains strong and resilient; it has solid capital and liquidity.”
She added that the “US economy is obviously performing exceptionally well,” noting solid job creation, moderating inflation and robust consumer spending.
“So I’m not anticipating a downturn in the economy, although of course that remains a risk,” she said.
The global economy remains in a better place than many have expected, she said.
“[During the G20 meeting in February], I said that the global economy was in a better place than many predicted last fall,” Yellen said. “That basic picture has remained largely unchanged.”
Her assessment of the global outlook appears to be rosier than that of the International Monetary Fund, which downgraded its forecast on Tuesday, citing financial market volatility.
The IMF now expects economic growth to slow from 3.4% in 2022 to 2.8% in 2023. Its estimate in January had been for 2.9% growth this year.
Last month, jitters grew in the financial sector after the collapse of two US regional banks, Silicon Valley Bank and Signature Bank, and global banking giant Credit Suisse teetered on the brink of collapse before merging with rival UBS.
“Uncertainty is high, and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled,” the organization said in its latest report.
The US Treasury, in conjunction with the Federal Reserve and the Federal Deposit Insurance Corporation, intervened after the regional bank failures to ensure bank customers could access all their money and to attempt to stave off future bank runs.
Yellen at the time said the “decisive and forceful actions” taken helped stabilize the situation and added that the “US banking system remains sound.”
Still, the emergence of stress in financial markets comes at a precarious time for central banks, according to the IMF’s Global Financial Stability Report released Tuesday.
The turmoil “complicates the task of central banks at a time when inflationary pressures are proving to be more persistent than anticipated,” according to the report. “If financial strains intensify significantly and threaten the health of the financial system amid high inflation, trade-offs between inflation and financial stability objectives may emerge.”
In the United States, the Fed is in the throes of a yearlong effort to cool down the highest inflation seen in four decades.
Inflation has moderated in recent months; however, the banking turmoil, along with broader global and domestic macroeconomic factors — including Russia’s ongoing war in Ukraine and the lack of an agreement on the US debt limit — heighten uncertainty about future economic stability.
In January, Treasury undertook “extraordinary measures” that allow the US government to continue paying its bills. However, those efforts serve as a stopgap, and a default could come as early as this summer, economists and the government has estimated.
Yellen has repeatedly pressed for congressional action to address the borrowing cap.
In her comments Tuesday, Yellen also pledged continued economic and humanitarian support for Ukraine as it continues to defend itself against Russia’s invasion.
“If the war continues, we’ll have to continue to work with our partners to provide the support that Ukraine needs, and we’re committed to doing that,” she said.
—CNN’s Julia Horowitz contributed to this report.
by tyler | Apr 10, 2023 | CNN, economy
US consumers are starting to feel that credit is getting harder to come by, according to survey results released Monday by the Federal Reserve Bank of New York.
Consumer perceptions of credit access and availability declined in March, with the share of respondents reporting it’s harder to obtain credit than one year ago climbing to the highest since the New York Fed started conducting its Survey of Consumer Expectations in 2013.
In March, the collapse of Silicon Valley Bank roiled the banking sector, escalating fears of a credit crisis. While action taken by the Federal Reserve and the Treasury Department appears to have allayed concerns of further collapses, economists anticipate that a further tightening of credit standards may follow, further pressuring businesses and consumers in this environment of high interest rates and moderating inflation.
For the first time since October, US consumers’ year-ahead inflation expectations increased. Near-term inflation expectations increased 0.52 percentage points to 4.7%, according to the New York Fed’s March 2023 Survey of Consumer Expectations. It’s the largest jump in one-year inflation expectations since March of last year.
Consumers’ uncertainty about future inflation outcomes also increased for the one-year horizon.
However, longer-term inflation expectations decreased when looking three and five years out, according to the report.
The Fed closely watches measurements of inflation expectations. If those expectations are higher, the concern is that it could lead to more workers bargaining for higher wages to counteract losses in purchasing power and businesses passing along higher expenses in the form of price increases.
Looking beyond inflation, consumers’ expectations of higher unemployment increased by 1.3 percentage point to 40.7%, driven by consumers between the ages of 40 and 60 years old and those with household incomes between $50,000 and $100,000 a year.
Still, the mean perceived probability of losing a job declined, and fewer people anticipated they would leave their job.
