Member Briefing March 23, 2023

Posted By: Harold King Daily Briefing,

Fed Raises Interest Rates by Quarter-Point, Nods to Greater Uncertainty After Banking Stress

The Federal Reserve approved another quarter-percentage-point interest rate increase but signaled that banking-system turmoil might end its rate-rise campaign sooner than seemed likely two weeks ago. The decision Wednesday marked the Fed’s ninth consecutive rate increase aimed at battling inflation over the past year. It will bring its benchmark federal-funds rate to a range between 4.75% and 5%, the highest level since September 2007.

Officials sent a hint that they might be done raising interest rates soon in their post meeting policy statement. The policy statement said it was too soon to tell how much recent banking stress would slow the economy. “The U.S. banking system is sound and resilient,” the statement said. “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain.”

Read more at the WSJ

War in Ukraine Headlines

Bill Gates Says AI Is the Most Revolutionary Technology in Decades

Bill Gates said he believes artificial intelligence is the most revolutionary technology he has seen in decades, on par with computers, cellphones and the internet. Mr. Gates, a 67-year-old pioneer of personal computers, said he was excited about how AI could improve lives. He and other technologists have theorized about AI’s different applications for years, a debate that has intensified since the startup OpenAI launched ChatGPT in November. Essentially, artificial intelligence refers to a computer’s ability to learn from large amounts of data and subsequently mimic human responses.

“The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the Internet, and the mobile phone,” he wrote in a blog post on Tuesday. “The rise of AI will free people up to do things that software never will—teaching, caring for patients, and supporting the elderly, for example,” he wrote. He said he believed AI could also help scientists develop vaccines, teach students math and replace jobs in task-oriented fields like sales and accounting.

Read more at the WSJ

New Proposed Rules for the CHIPS Incentives Program Define National Security Standards

Recipients of funding through the CHIPS and Science Act to encourage domestic semiconductor manufacturing have standards in place to prohibit using the funds for specific activities with foreign countries of concern. The People’s Republic of China, Russia, Iran and North Korea are identified as foreign countries of concern in the statute. Additional information about these security efforts were detailed in the notice of proposed rulemaking, including:

1. Recipients are prohibited from making significant transactions 10 years from the date of the award for advanced facility expansion in foreign countries of concern. 2. Limiting the ability for recipients to expand capacity in foreign countries of concern. 3. A chip critical to national security will not be considered a legacy chip. 4. Applying “a more restrictive threshold for logic chips than is used for export controls.” 5. Restricting recipients’ ability to participate in technology licensing or joint research with foreign entities of concern.

Read more at IndustryWeek

COVID News – SARS-CoV-2 Infection Weakens Immune-Cell Response to Vaccination

The magnitude and quality of a key immune cell’s response to vaccination with two doses of the Pfizer-BioNTech COVID-19 vaccine were considerably lower in people with prior SARS-CoV-2 infection compared to people without prior infection, a study has found. In addition, the level of this key immune cell that targets the SARS-CoV-2 spike protein was substantially lower in unvaccinated people with COVID-19 than in vaccinated people who had never been infected.

Importantly, people who recover from SARS-CoV-2 infection and then get vaccinated are more protected than people who are unvaccinated. These findings, which suggest that the virus damages an important immune-cell response, were published Tuesday in the journal Immunity. The study was co-funded by the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health.

Read more at The NIH

Thousands Descend on Albany for a Final Push for Their Causes

Tens of thousands of advocates seeking to influence state lawmakers in the final days of budget negotiations poured into Albany on Tuesday in hopes their messages would resonate with Gov. Kathy Hochul and the Legislature. Special interest groups that flood the Capitol each spring on "lobby days" are part of an annual rite of passage during the legislative session, and an effort that often leaves many of the groups competing for attention from reporters and lawmakers as they scramble to make their pitches in an unoccupied stairwell, lobby or patch of grass outside.

Among them were thousands of health care workers affiliated with 1199SEIU, a large and influential labor union representing hospital workers and other medical providers. They ramped up the most forceful presence as they arrived in a fleet of buses on Tuesday morning and walked around the Capitol before descending State Street and filing into the MVP Arena for a more formal rally.

Read more at the Times Union

Big Bucks from Bloomberg Roil Budget Battle

Gov. Kathy Hochul’s budget negotiations might have needed a lifeline after the Senate and Assembly rejected much of her top agenda items. She found an unlikely source with deep pockets: former New York City Mayor Mike Bloomberg. A New York Times report Tuesday that Bloomberg is quietly putting $5 million into an ad campaign and targeted mailers in lawmakers’ districts to bolster her budget proposals roiled the state Capitol. It raised alarms among some legislators about her linking up with the billionaire to push an agenda that is at odds with some of their own initiatives, such as raising taxes on the wealthy.

The three-term mayor has not commented on his support of Hochul, and his advisers declined to comment Tuesday. The group he is funding, American Opportunity, has also been mum about its funding sources, despite its apparent ties to the Democratic Governors Association. “American Opportunity is a 501(c)(4) established to promote social welfare and policies, and it has registered in New York state as a grassroots lobbying entity,” it said in a statement. “Our report in July will disclose contributions, as required by state law.”

Read more at the Times Union

Consumer Confidence is Up Despite Current Bank Troubles — Will it Last?

This week, the polling firm Ipsos released its Global Consumer Confidence Index for March which revealed that consumers’ expectations for where the economy is headed have been shaken up a bit. So what happens if they’re shaken up more, and consumers lose a lot of confidence? In terms of routine spending, people seem pretty unbothered by the current turmoil in the banking sector, according to Chris Jackson with Ipsos.

Consumers haven’t yet seen a reason to rein in their day-to-day spending, said Ravi Dhar, who directs Yale’s Center for Consumer Insights. “As long as you have a job, as long as you’re getting some benefits … I think your own condition is not affected, and that often does not impact your short-term spending,” he said. But as for big ticket purchases, Dhar expects consumers to hold on to their wallets and take a wait-and-see attitude.

Read more at Marketplace

Fed, Congress Thought Smaller Banks, Deposits and Bonds Were Boring and Safe; Instead, They Are the Source of New Fragility

The turmoil touched off by the collapse of Silicon Valley Bank has demolished much of what the Federal Reserve, political leaders and investors thought they had learned from the global financial crisis of 2007-09. They assumed complex securities, too-big-to-fail banks and shadowy, lightly regulated lenders were the weak links in the system. Instead, the weak links were its mundane, ostensibly safe parts—government bonds, smaller banks and deposits.

The global financial crisis originated with “shadow banks”—lightly regulated finance companies, securities dealers and off-balance-sheet vehicles. They invested in subprime mortgages and related derivatives, financed with skittish wholesale funding—asset-backed commercial paper, prime brokerage customer accounts and repos. By contrast, SVB was pursuing the epitome of safe, boring banking: taking in deposits, which are usually stickier than wholesale funding, and investing them in Treasurys and federally backed mortgage securities.

Read more at The WSJ

UK Inflation Surprise Pressures BoE to Raise Rates Again

British inflation unexpectedly rose to 10.4% in February, pushed up by higher food and drink prices in pubs and restaurants, according to official data which is likely to prompt the Bank of England to raise interest rates on Thursday. The figures - including increases in underlying inflation measures that the BoE closely monitors - are likely to bolster the concerns of those BoE policymakers who worry that inflation will be slow to fall, even after 10 straight rate hikes.

The ONS said that an end to January drinks promotions in pubs and restaurants was the biggest factor behind last month's rise, but shortages of salad items also played a role. Overall inflation for food and non-alcoholic drinks rose to 18.0%, the highest since 1977, reflecting cold weather in southern Europe and north Africa, as well as reduced production from greenhouses in northern Europe that face high energy bills.

Read more at Reuters

Oil Prices are Plummeting as the Banking Crisis Unfolds

The collapse of Silicon Valley Bank and Signature Bank — as well as troubles at Credit Suisse — are being blamed for much of the market turmoil we’ve seen lately. And the oil markets are no exception. Oil is experiencing one of its biggest slumps of the last few years, with prices last week plunging as much as 10% from recent highs. The bank crisis has scrambled expectations about how much oil the global economy needs right now.

Energy expert Amy Myers Jaffe of NYU says going into this year, the thinking was there’d be plenty of demand. But now, there are doubts “about whether the economy is going to be strong enough to support everybody’s ideas about how much higher oil demand was going to be this year than last year,” Myers Jaffe said.

Read more at Marketplace

How To Brace Your Company For Rising Bankruptcies

Billions of dollars in government support, paired with low interest rates that held through March, helped many companies succeed in restructuring debt over the past 12 to 18 months. Only 20 U.S. companies with at least $100 million in assets had filed for Chapter 11 protection by midyear, the lowest count since 2014—and less than half the number filed during the same period in 2021, according to Cornerstone Research.

But recent developments suggest the tides might be turning, and bankruptcy numbers are up for the first two months of the year. Here’s a look at the trends causing bankruptcy filings to rise in 2023. Companies with strong balance sheets may not face much direct risk as these trends force more organizations toward insolvency. But it’s wise to think about the financial health of customers who determine your own health.

Read more at Forbes

Recession Chances Have Jumped, JPMorgan Strategists Say

JPMorgan Chase strategists warned clients on Monday that recession chances have increased amid the recent banking crises. “Even if central bankers successfully contain contagion, credit conditions look set to tighten more rapidly because of pressure from both markets and regulators,” the strategists said.

However, the JPMorgan Chase analysts suggested that the current situation could represent a potential “Minsky moment,” referring to the theory that extended bull markets result in major collapses. The U.S. saw an extended bull market from 2009 through 2020 that was revived in 2021, according to Fortune.

Read more at The Hill

Who Cares? Many Employees Don't Think Employers Care About Them

Nearly half of employees (42%) don't feel cared for by their employers, according to a new report from a survey among 2,884 employees by MetLife for its 21st annual US Employee Benefit Trends Study. It revealed that while 72% of men and 70% of white-collar employees feel their employers care about them at work, this is not the case for other staff members belonging in other sectors. Only 60% of female respondents and 58% of blue-collar workers said their employers care about them. In terms of age groups, only 53% of Gen Zs think their employers care, making them least likely across generations to feel cared for at work.

There is also a disconnect between the perceptions of care between employers and employees, according to the report. "Consider that 87% of employers believe that their organisation currently demonstrates care, while only 65% of employees agree," the report said.

Read more at Human Resources Director

New Online Tool to Help New Yorkers Access Child Care In NYS

Governor Kathy Hochul last week announced efforts to help working families access child care throughout New York State, including launching a new online screening tool for them to check eligibility. The new online screening tool will help parents determine their eligibility for financial support from the state’s Child Care Assistance Program for low or no-cost child care.

Developed by the state Office of Children and Family Services, the tool is aimed at accelerating and streamlining the application process for families, so that they can quickly determine the services they may be eligible to receive.

·      Read the press release

·      Visit the Tool

Think the Bosses Are Back in Charge? Think Again: Recruiters Predict Talent Will Keep Leverage for Another 5 years

On the heels of a second round of mass layoffs, Meta’s founder Mark Zuckerberg called on staff to “find more opportunities to work with your colleagues in person.” Likewise, Amazon told employees to return to offices three days a week from May in the aftermath of letting 18,000 workers go. It’s a clear sign that workers no longer have the same bargaining power they possessed during the pandemic and the Great Resignation era. With financial security now at stake, employers are hoping that workers will ask “How high?” when told to jump, instead of conscious quitting, career cushioning, or rage-applying.

LinkedIn interviewed thousands of recruiting professionals to find out what the future of recruiting holds. And although a slowdown in hiring and a contracting economy typically translate to less power for workers, 64% of those surveyed predicted that the leverage will be more favorable to candidates and employees (as opposed to employers) over the next five years.

Read more at Yahoo