Member Briefing April 7, 2022

April 7, 2022

Posted By: Harold King in Daily Briefing,

Fed Minutes: Officials Plan to Shrink Fed Balance Sheet by $95 Billion a Month

Officials “generally agreed” that a maximum of $60 billion in Treasuries and $35 billion in mortgage-backed securities would be allowed to roll off, phased in over three months and likely starting in May. In addition to the balance sheet talk, officials also discussed the pace of interest rate hikes ahead, with members leaning toward more aggressive moves. “Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings,” the minutes said.

The FOMC remains quite bullish on growth – “participants judged that economic fundamentals remained solid and that they expected above-trend growth to continue, sustaining a strong labor market.” Fear of a wage-price spiral is clear – “Consistent with a tight labor market, nominal wages were rising at the fastest pace in many years… Many participants commented that they expected the labor market to remain strong and wage pressures to remain elevated.” Only “a few” members saw signs of hope of easing wage pressures, in the rising participation rate; we think the next ECI readings, a few days before the FOMC meeting, will come as a pleasant surprise, but won’t prevent a 50 bp hike.

Invasion of Ukraine Headlines

Kendra’s Law Expansion Final Hurdle in New York State Budget

An expansion of law that requires people in a mental health crisis receive treatment remains one of the final stumbling blocks for lawmakers and Gov. Kathy Hochul as they seek to forge a final state budget agreement. The effort to expand and extend the law was part of a broader package of proposals by Gov. Kathy Hochul to combat concerns over rising violent crime in New York.

Advocates, including Harvey Rosenthal of the New York Association of Psychiatric Rehabilitation Services, have opposed the law being extended to include provisions for court-ordered treatment. Some lawmakers, including Democratic state Assemblyman Tom Abinanti, are worried the expansion of the law will have unintended consequences for vulnerable people. Abinanti is worried people on the autism spectrum could be mistaken for someone facing a mental health crisis and be swept up in the process.

Economic Development Reform Part of State Budget Negotiations

Proposals advanced by the state Legislature creating greater oversight of New York’s billions in economic development subsidies are being considered as part of budget negotiations. In several instances, key points of contention have also emerged between lawmakers and Gov. Kathy Hochul’s administration concerning the depth of oversight or who will conduct it.

One of the matters under negotiation would create a so-called “Database of Deals. ” The proposal would require the state’s economic development arm, Empire State Development, to create a searchable database of initiatives receiving subsidies and economic development benefits. It would require reporting how many jobs were being created and what type: Full-time, part-time or contract. ESD would also have to provide information about the number of jobs being filled by women and minorities. The proposal was part of both the Assembly and state Senate’s one-house budget resolutions.

US COVID – FDA Advisory Panel is Discussing Ways to Evolve the US Vaccine Strategy

An FDA Advisory Panel is Discussing Ways to Evolve the US Vaccine Strategy (New York Times) A federal advisory committee of outside experts is meeting Wednesday to help fashion the U.S. coronavirus vaccine strategy for the rest of the year. The meeting, which can be watched live on YouTube, represents a kind of transition point for the federal government, one troubled with many uncertainties.

Many scientists have concluded that the existing vaccines need to be retooled to meet the evolving virus. Federal officials are anxious to figure out how to do that as soon as possible, lest the nation confront a scenario when the virus resurges in the fall and the vaccines’ defenses are depleted. The committee is hearing from a cast of luminaries, including experts from the Centers for Disease Control and Prevention, the National Institutes of Health, the World Health Organization and the FDA’s office of vaccine research.

Title 42 Expiration Snags COVID Funding Deal

Congress appears poised to punt a $10 billion deal on coronavirus relief until after a looming two-week break, as multiple stumbling blocks are complicating quick passage of the agreement. A bipartisan group of senators announced this week that they had clinched an agreement for long-sought coronavirus aid, with Democrats and the White House hoping to quickly deliver it to President Biden’s desk after weeks of negotiations.

Republicans are demanding votes to include reinstating a policy from the Trump administration known as Title 42, which allows for the rapid expulsion of migrants at the border and blocks them from seeking asylum due to the risk of the virus. If the fight is resolved, the coronavirus deal could fairly quickly pass through the Senate. But there were little signs of that Tuesday, as Democratic senators said they had been told there would not be amendment votes and Republicans blocked the deal from advancing.

U.S. Trade Gap Stays Close to Record

The U.S. trade deficit held close to a record in February as the merchandise shortfall shrank and the surplus in services declined, partly reflecting the impact of broadcast rights for the Olympics. The February gap in goods and services trade was little changed at $89.2 billion after a record shortfall in January.

The value of imports rose 1.3% in February to a record $317.8 billion and exports climbed 1.8% to $228.6 billion. Services imports increased by $2.4 billion to a record $51.6 billion, with about half of the rise coming from the biggest monthly increase in charges for use of intellectual property since 2016. That probably reflects a temporary boost from rights fees to broadcast the winter Olympics, consistent with such spikes in previous years.

Deutsche Bank is First to Forecast US Recession for 2023 With Unemployment Rate Rising to 5.1

Deutsche Bank predicted the U.S. will fall into a recession in 2023 that will cause unemployment to go up to 5.1 percent due to the Federal Reserve raising interest rates to bring down inflation. Deutsche said the recession will be ‘moderate,’ but it would serve as yet another blow to already struggling Americans, CNBC reported.

‘The US economy is expected to take a major hit from the extra Fed tightening by late next year and early 2024,’ the bank’s economists said in a note to clients Tuesday. Deutsche added that while it expects the US economy to take a hit, the outlook past that is relatively positive.

The EU is Preparing a Ban on Russian Coal Imports

Since the Ukraine invasion began in late February, European leaders have hesitated to ban Russian energy imports, as the region still heavily depends on the country for coal, oil and gas. In 2020, Russia accounted for over 40% of Europe’s natural gas imports, 35.5% of its oil imports, and almost 20% of its coal imports, according to EU data.

However, after evidence emerged last week suggesting that Russian troops massacre civilians in Bucha while retreating from Kyiv, some European leaders have grown convinced that stronger measures against Russia may be necessary. European Commission President Ursula von der Leyen—the head of the EU’s governing body – proposed the ban on Russian coal imports and other sanctions Tuesday.

U.S. Wants More Oil From Canada but Not a New Pipeline to Bring It

Biden administration officials are seeking ways to boost oil imports from Canada, people familiar with the situation say, but with one big caveat—they don’t want to resurrect the Keystone XL pipeline that President Biden effectively killed on his first day in office. Canada could export some more oil via rail, according to analysts and others familiar with the situation, and it could also pump more oil by increasing pressure on existing lines or by installing larger pipelines along permitted routes.

Those options, however, offer limited potential because rail transport is expensive and existing pipelines are at or near capacity. Longer term, Canadian officials and oil-industry analysts say expanding the existing Keystone pipeline network would offer a bigger, more efficient solution. The XL expansion was to carry 830,000 barrels a day of Canadian crude from Alberta to Nebraska, where the pipeline would meet up with the existing Keystone pipeline, and then on to refineries on the U.S. Gulf Coast.

U.S. Allies to Release Close to 60 Million Barrels of Oil From Reserves

U.S. allies are planning to release close to 60 million additional barrels of oil from their reserves. The 31-member nations of the International Energy Agency—which include the U.S., most of Europe, Australia, Japan, Mexico and others—are planning to announce a new reserve release totaling 120 million barrels, officials said, the largest release in the IEA’s 47-year history. Around half of that amount will come from U.S. reserves, which were included in Washington’s previously announced decision to release 180 million barrels of oil over six months.

That leaves around 60 million barrels of additional oil that will hit the market because of the IEA decision, which is expected to be announced by the end of the week. Those barrels are expected to be released over six months to track the U.S. schedule, an official said. IEA nations on March 1 announced the release of 60 million barrels—including 30 million barrels from the U.S.—in what was then the agency’s biggest-ever release of reserves.

GM and Honda to Produce ‘Attainable EVs’ in Bid to Surpass Tesla Sales

General Motors (GM.N) and Honda Motor Co (7267.T) said on Tuesday they will develop a series of lower-priced electric vehicles based on a new joint platform, producing potentially millions of cars from 2027 in a bid to beat Tesla (TSLA.O) in sales. The announcement expands on plans for GM to begin building two electric SUVs for Honda starting in 2024 – the Honda Prologue and an Acura model.

The automakers said the new deal is for “affordable” EVs. GM Chief Executive Mary Barra said Tuesday at an Axios event the pricing will come in below the $30,000 price tag planned for the electric Chevrolet Equinox SUV. She said the new lower-priced vehicles would be “attainable EVs.”

IKEA CEO on Russian Business – The Right Way to Respond “Was Not Obvious”

Jesper Brodin, the CEO Ikea—is one of many CEOs who has wrestled over the last six weeks with how to respond to the Russian invasion of Ukraine. The company built up a sizable business in Russia, with nearly $2 billion in annual sales last year. And the right way to respond to Putin’s invasion, Brodin said n in a podcast last week, “was not obvious.”

The company had to consider the effects of a decision not just on its business, but on its employees, and on innocent people in Russia. In the end, it closed its Ikea stores, and discontinued furniture exports to Russia, but kept open Ingka’s shopping malls to make sure Russians continued to have access to food and pharmaceuticals. “I myself have been part of the generations at Ikea that for more than 20 years have been building up our business in Russia… It’s a little bit like the pandemic—there is no manual or guidebook for us here. It’s about weighing all aspects of the situation, trying to get a 360-degree perspective of the situation, and using our moral and ethical compass to do the right thing.”

Listen to the Leadership Next Podcast at Spotify

Shanghai COVID Lockdown – GM Keeps Plants Running in China by Asking Workers to Live in Factory, Sleep on Floors

As the biggest city in China goes on lockdown, General Motors is taking extreme measures to keep new car production going, including asking workers to sleep on factory floors. That lockdown is forcing automakers and suppliers to scramble and make tough decisions. Leaders in Shanghai, China’s financial epicenter that’s located on the southeastern coast, started a two-stage lockdown Monday to try to control a massive COVID-19 outbreak.

A source familiar with GM’s joint venture with Chinese state-owned automaker SAIC Motor Corp. told the Detroit Free Press Tuesday that it has kept production going in Shanghai by keeping employees living in the plant. The person asked to not be named because there was no authorization given to share that with the media.

Who to Blame if Your Company Gets Hacked?

Have a mirror ready.

IndustryWeek recently dipped into the cybersecurity well for some very good reasons related to current affairs. In nearly all the stories there is a common theme: If a company is not paying attention to cybersecurity and has the bandwidth and budget to establish proper cybersecurity, it’s kind of asking to get hacked.

Boeing’s New Air Force One Hit by Production Mishaps

Factory problems disrupted production of one of Boeing’s new Air Force One planes earlier this year, adding to the manufacturer’s stumbles developing the U.S. presidential jets, people familiar with the matter said. The production mishaps, which involved a pair of attempts to place one of the two jets under development onto jacks, risked damaging the aircraft whose development is already behind schedule, these people said.

The U.S. Air Force said the two jacking mishaps didn’t result in any damage to the jet involved. An examination of the mishaps later, however, found that a Boeing employee involved wasn’t properly credentialed for overseeing the work, crews didn’t follow established procedures and another employee involved in the operations failed a routine post-incident drug test, people familiar with the matter said