Member Briefing March 23, 2023
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.”
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Big EU Powers Still Short of NATO Spending Targets – Politico
- Russian Drones Swarm Kyiv in Display of Force as Xi Leaves Moscow - Reuters
- Russia-Ukraine War Threatens to Trigger New Nuclear Arms Race - WSJ
- Xi and Putin Pledge to Shape a New World Order - NBC
- Ukrainians Master Patriot System Faster Than Expected - Politico
- Watch Ukraine's 'Rattlesnake' Battery—a Gift From France—Blow Up a Russian Missile – Popular Mechanics
- NATO Chief: West Must Brace to Support Ukraine in a Long War – The Guardian
- Russian Oil Finds ‘Wide Open’ Back Door to Europe, Critics Say - Politico
- Prince William Makes Surprise Visit to Troops Near Ukraine Border in Poland - BBC
- Interactive Map: Assessed Control of Terrain in Ukraine - Institute for the Study of War
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
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.
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.”
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.
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.
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.
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.
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.
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.
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.
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.