Member Briefing December 15, 2022
Fed Raises Rate by 0.5 Percentage Point. Takes a Tough Stance on Rates. Expects Economic Pain.
There is no monetary-policy pivot in sight. That is the message sent by the Federal Reserve’s policy committee on Wednesday: Officials increased their target interest rate by 0.50 percentage point and flagged a higher peak rate in 2023. Collectively, they expect a less robust economy than had been expected for next year and for a longer path down from decades-high inflation.
Fed officials project inflation to fall to around 2% in the long run. However, their estimates for inflation in 2023 and 2024 have ticked higher since September. The median projection for core inflation in 2023 rose to 3.5%, up from 3.1%. Officials also expect unemployment next year to rise more than they did in September. The Fed's median projection for the unemployment rate is 4.6% for 2023 now, up from 4.4% in September.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- The War Has Worsened Ukraine’s Demographic Woes – The Economist
- US Plans To Send Patriot Missiles To Ukraine: Media – Barron’s
- What the U.S. Sending a Patriot Missile Defense System to Ukraine Could Mean – NBC News
- Russia Sets Up Oil-Transfer Site in Baltic Sea to Ease Tanker Chaos - Bloomberg
- American freed from Russian-controlled territory by Ukrainian forces – ABCNews
- State Department Cable Warns of Major Barriers to Tracking Ukraine Aid - Politico
- Ukraine Fends Off Fresh Wave of Drone Attacks on Kyiv - WSJ
- Nestle to Launch New Ukraine Facility in Rare War-Time Investment – Reuters
- Nearly 7 Million Ukrainian Children at Risk Due to Russian Attacks on Energy Infrastructure: UNICEF – The Hill
- Ukraine’s Secret Weapon Is Ordinary People Spying on Russian Forces - WSJ
- In a Small Russian Town, a Pensioner's Street Art Denounces Ukraine Conflict - Reuters
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Top Appropriators Clinch Deal on Government Funding Framework
Just days before a deadline that would have triggered a government shutdown, lawmakers have struck a much-anticipated deal on a framework for a so-called omnibus spending bill to fund the government for fiscal 2023. Negotiators didn’t release government funding totals when they announced the deal, but appropriators have largely settled on an $858 billion defense budget in recent weeks, a 10 percent boost over current funding levels. Domestic funding levels proved the major hangup between both parties in recent weeks as talks stalled, eventually boiling down to a $26 billion difference in nondefense spending.
Democrats had signaled a willingness to move toward the Senate GOP position earlier on Tuesday in order to secure a deal before Republicans take control of the House in January. With a bipartisan framework and legislative text largely written, lawmakers could be on track to clear the omnibus just before the holidays.
Container Import Volumes Dropped in November
According to a report released on Dec. 12 by Descartes Systems Group November 2022 U.S. container import volumes declined 12.0% from October to 1,954,179 TEUs. Versus November 2021, TEU volume was down 19.4%, and only 2.8% higher than pre-pandemic November 2019. Note that November is a shorter month (30 days) and contains the U.S. Thanksgiving holiday, both of which can negatively impact container import volumes.
Port delays continue to decrease, but major East and Gulf Coast ports still have extended wait times versus major West Coast ports. Key economic indicators during this period paint a conflicting picture about their impact on future import volumes and, combined with COVID, the Russia/Ukraine conflict and the West Coast labor situation, continue to point to further disruptions and challenging global supply chain performance going into 2023. “The November U.S. container import data reaffirms that the pressure on supply chains and logistics operations has begun to lift, but there are still a number of issues that may cause further disruptions in 2023,” said Chris Jones, EVP Industry& Services at Descartes.
U.S. COVID - Two Years After Covid Vaccines Rolled Out, Researchers Are Calling for Newer, Better Options
Two years after the first Covid shots went into arms, a growing chorus of researchers is calling for a new generation of vaccines that provide broader and more long-term protection against the disease. Because Covid seems to infect most people through the nasal passages first, administering a vaccine in the nose could vanquish the virus before it has a chance to spread, the thinking goes.
Globally, 117 intranasal Covid vaccines are in development or have been rolled out, according to an analysis provided to NBC News by Airfinity, a health analytics company. Five have been approved in at least one country — two in China and one each in India, Iran and Russia — and 20 more have entered clinical trials. The majority rely on traditional vaccine platforms, not mRNA. Other researchers are betting on inhaled vaccines, which come in the form of aerosolized mists administered through a nebulizer into the lungs, where the virus tends to wreak the most havoc.
CDC Says Long Covid Has Contributed to Thousands of U.S. Deaths
The new analysis, published early Wednesday by the CDC’s Center for National Health Statistics, found that 3,544 death certificates between January 2020 and June 2022 listed Covid-19 as a cause of death in addition to citing such terms as “chronic Covid” or “long haul Covid.” The window into long Covid mortality, while comprising less than 1 percent of Covid-19 deaths, is the latest evidence of the ongoing threat that the complex, hard-to-diagnose condition poses to Americans’ health and the stressed U.S. health care system even as officials say Covid-19 will continue to circulate for years to come.
Though a recent CDC National Center for Health Statistics survey found nearly one in five U.S. adults who say they’ve had Covid-19 also have long Covid symptoms, it remains prohibitively difficult for patients to get treatment for the condition, doctors say, due to low levels of awareness among doctors and patients, lack of funding for specialized clinics, and the time-consuming process of getting diagnosed and treated for a condition that has dozens of symptoms.
China Dominates the Rare Earths Market. This U.S. Mine Is Trying to Change That
The Mountain Pass mine, which resumed operations in 2012 after years of dormancy, today supplies around 15 percent of the world’s production of rare earths, a group of 17 minerals used to make the magnets in America’s most advanced commercial and military technology, from electric vehicles to Virginia-class attack submarines. That 15 percent figure is significant, especially given that just 11 years ago the mine was producing nothing, but still a small fraction of a global market that has for decades been dominated by China.
China could easily decide to restrict access to rare earths again with disastrous consequences. As of today, China accounts for 63 percent of the world’s rare earth mining, 85 percent of rare earth processing, and 92 percent of rare earth magnet production. Rare earth alloys and magnets that China controls are critical components in missiles, firearms, radars and stealth aircraft. The risk of relying on Beijing for these components was brought into stark relief in September, when the Pentagon suspended deliveries of the F-35 for about a month after discovering that a magnet in the jet’s turbomachine was made with cobalt and samarium alloy that came from China.
China Based Alibaba is Unable to Purchase Advanced Arm Chips
Chinese ecommerce giant Alibaba is unable to purchase Arm’s most advanced chip designs due to US and UK export controls. The Financial Times reports that Arm has concluded that its latest Neoverse V series chip designs can’t be sold to Alibaba because the US and UK wouldn’t approve the sale and provide licenses to export the chip designs to China. Arm, owned by Japanese investor SoftBank, is based in Britain, and is unable to sell its advanced chips due to the Wassenaar Arrangement, an export control arrangement that was first established in 1996 and involves 42 countries. Arm says it can’t sell the chip designs to China because they’re classified as “US origin” technology that falls under Wassenaar.
The US introduced sweeping restrictions on chip sales to China in October, meant to impair Beijing’s military and technological capabilities. Manufacturers like Intel and Micron have to obtain a license from the US Commerce Department to export chip-making equipment and semiconductors to Chinese companies, and the UK has followed with similar export restrictions.
Mortgage Demand Inches Higher as Interest Rates Move Lower
After a month of declines, mortgage application volume is rising, as current homeowners and potential buyers move on lower mortgage rates. Applications rose 3.2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) did increase ever so slightly last week to 6.42% from 6.41%, with points increasing to 0.64 from 0.63 (including the origination fee) for loans with a 20% down payment. But the trajectory for rates has been lower for the past month, as government reports showed inflation was cooling. Interest rates slid Tuesday after the release of the November consumer price index. Mortgage applications to refinance a home loan rose 3% last week from the previous week but were still 85% lower than the same week one year ago.
IRS' 2023 Contribution Limits for HSA, FSA, 401(k): What Plan Sponsors Need to Know
Following recent announcements by both the IRS and the Social Security Administration, we now know most of the dollar amounts that employers will need in order to administer their benefit plans for 2023. Below are some key numbers.
- Some of the new numbers are substantially higher than their 2022 counterparts. For instance, the Section 415 limit on annual additions to a participant’s account will increase from $61,000 to $66,000, and the annual compensation limit will increase from $305,000 to $330,000.
- The annual 401(k), 403(b), or 457(b) deferral limit will increase from $20,500 to $22,500.
- The annual retirement plan catch-up contribution limit will increase from $6,500 to $7,500.
- The annual compensation threshold used to identify highly compensated employees (HCEs) will increase from $135,000 to $150,000 for 2023. Because the 2023 limit will not become relevant until 2024 — when employers “look back” at their employees’ 2023 compensation — employers should consider their employees’ 2022 compensation when identifying HCEs for 2023 (as well as 5% owners during either 2022 or 2023).
- The annual limit on IRA contributions (whether traditional or Roth) will increase from $6,000 to $6,500, but the annual limit on IRA catch-up contributions will remain $1,000.
- The Social Security taxable wage base (important for retirement plans that are “integrated” with Social Security) will increase significantly, from $147,000 to $160,200.
Hershey Boosts Chocolate Production
The Hershey Company in November announced a new 250,000-square-foot chocolate factory in Hershey, Pennsylvania. The new chocolate plant is part of the company's recent $1 billion investment in its supply chain. The money will also be used to create 13 new production lines and upgrade 11 existing lines in other North American facilities. The new facility will boost production capacity for brands like Reese's, Kit Kat and Hershey's.
Hershey is experiencing 15% compounded retail sales growth in snack size since 2019 and Reese’s has seen 10% retail sales growth during the same time. The new factory will be located on a 55-acre site near the company’s Reese's plant and is scheduled to be operational in early 2024. Earlier this year, Hershey opened its first digitally enabled fulfillment center in Annville, Pennsylvania.
Ford Adds Third Shift at Michigan Plant as it Boosts Output of EV Pickup
Ford Motor Co. on Tuesday said it added a third shift at an assembly plant near Detroit as it boosts production of its F-150 Lightning electric pickup truck. The U.S. automaker said it added 250 jobs in November at its Rouge plant in Dearborn, Mich., as a result of the additional crew. Ford previously said it was targeting annual production of 150,000 Lightning electric pickups by the fall of 2023.
Ford expects EV subsidies available under the U.S. Inflation Reduction Act could propel even more demand for the company's electric trucks and vans, Ted Cannis, head of Ford's commercial vehicle business, said. But many businesses and fleet management companies are still unsure if they qualify for those subsidies, he said.
Pandemic Loans Are Coming Due but Some Businesses Aren’t Ready to Repay
Many small businesses that received federal pandemic aid are now on the hook for repayments, and some say the timing couldn’t be worse. The SBA issued roughly $390 billion in Covid disaster loans to nearly four million small businesses and nonprofits. Unlike forgivable loans issued through the federal Paycheck Protection Program, the disaster loans were designed to be repaid.
Now after several deferrals, the bills are coming due. For 1.2 million Covid disaster loans, the first payments are due this month; another one million loans enter repayment in January. Borrowers began repaying 427,000 loans in October or November. The loans, which carry a 30-year term and a fixed interest rate of 3.75% for small businesses and 2.75% for nonprofits, were welcomed by entrepreneurs who often struggle to obtain low-cost financing even when the economy is booming.
Transitioning of U.S. Troops to Civilian Life Falls Short, Watchdog Says
In 2019, Congress mandated participation in transition-assistance classes for all troops in that year’s National Defense Authorization Act, hoping to streamline the process. The Government Accountability Office found that in recent years, some 90% of troops participated in the program, but the majority didn’t attend classes a year before they were slated to leave the service, and a quarter of troops didn’t take specialized two-day classes.
The program is held at Department of Defense installations, but officials from the Department of Veterans Affairs and from the Labor Department take part in it. Veteran-service organizations can also participate in the program to assist troops in processing VA disability claims or in learning about job opportunities after taking off the uniform. The VA has a data-gathering program to determine the effectiveness of TAP. Watchdogs from the GAO said transition-assistance employees told them too many service members waived the two-day classes.
Some Pandemic Practices Are Sticking Around, Like These
Dusting off old musical instruments, appreciating the outdoors more meaningfully, dumping the hair dye and letting the gray fly forever. The pandemic disrupted our traditions, practices and pursuits, how we mark milestones, what we do with our time, what’s important in routines. It replaced old with new, a kind of new that just might stick.
Nearly three years after the World Health Organization declared the deadly spread of COVID-19 a pandemic, there’s plenty of old life mixed with the new. And, yes, the latter includes a whole lot of Zooming still going on among families, colleagues and friends, near and far. Here’s a look at pandemic passions that for some are here to stay:
Fusion Industry Suddenly White-Hot After U.S. Lab Breakthrough
Michl Binderbauer is chief executive of a southern California firm that aims to create almost limitless energy through nuclear fusion, a starry goal that at times struck some prospective investors as futuristic. That all changed this week. “We call somebody and we get a meeting immediately. Before some would say this is crazy stuff, no, it’s not for me,” said Mr. Binderbauer, chief executive of fusion firm TAE Technologies, which has raised around $1.2 billion but received a flurry of new investor inquiries this week.
The game-changing event for Mr. Binderbauer’s company, and the rest of the fusion industry, was a long-awaited physics breakthrough announced this week by Lawrence Livermore National Laboratory. Through a controlled-fusion reaction, the lab for the first time on Dec. 5 achieved net gain, which means it produced more energy than was put in, the Energy Department said Tuesday. Researchers at the lab’s multibillion-dollar National Ignition Facility have been studying nuclear fusion for more than a decade, using lasers to create conditions that cause hydrogen atoms to fuse and release vast amounts of carbon-free energy.