The week in business: The 10th straight rate hike
What works? (April 30 – May 6)
The Fed is keeping the pressure up
After another bank collapse and signs of a slowdown in the economy, the Federal Reserve hiked interest rates by a quarter point. It was the third straight hike of this magnitude and the 10th straight rate hike since last March. The central bank’s move last week raised interest rates to a range between 5 and 5.25 percent, a level not seen since the summer of 2007. Announcing the decision, Fed officials left the door open to a possible pause in the series of aggressive rate hikes at their next meeting. But later at a press conference, Fed Chair Jerome H. Powell made it clear that the door was only ajar: Additional steps, he said, “may” be warranted. Even this somewhat mild rhetoric represents a clear shift in the Fed’s stance. For months, the question has been how much, rather than whether, the central bank would hike rates.
A collapse of the third bank
JPMorgan Chase, the country’s largest bank, acquired First Republic Bank last week after the Federal Deposit Insurance Corporation seized First Republic to save it from a free fall and stem a broader banking crisis. First Republic, a mid-tier San Francisco-based bank, received a $30 billion lifeline from 11 of the largest U.S. banks in March, shortly after the collapse of Silicon Valley Bank and Signature Bank sparked panic across the banking sector . But that cash injection only prevented the inevitable: First Republic announced late last month that it had lost a staggering $102 billion in customer deposits. With the acquisition of First Republic, JPMorgan chief executive Jamie Dimon is reprising a role he played during the 2008 financial crisis when he acquired Bear Stearns and Washington Mutual at the behest of federal regulators. JPMorgan said Monday it expects its latest acquisition to add $500 million to earnings this year.
pick up jobs
After decelerating sharply in the first quarter of the year, job creation unexpectedly surged in April, significantly beating analysts’ forecasts. Employers added 235,000 jobs last month, according to the latest Labor Department report on Friday; Analysts had forecast 170,000. The resilience of the job market has confused Fed officials, whose campaign to raise interest rates to tame inflation and cool the economy should now have more of an impact on jobs. Another piece of bad news for the Fed is wage growth – used by central bankers as an indicator of inflation staying power – up 4.4 percent year to April.
What’s next? (May 7-13)
Hitting the debt ceiling
President Biden is expected to meet with congressional leaders on Tuesday to discuss raising the debt ceiling, which the United States technically achieved in January despite the Treasury Department employing accounting maneuvers to keep the government paying its bills. Last week Treasury Secretary Janet Yellen said the country could run out of money as early as June 1st. This intervening deadline presents Mr. Biden with a tricky political problem. Republicans are trying to extort from Mr. Biden concessions that would severely undermine his agenda. Mr. Biden has a few options. He might refuse to negotiate. He could negotiate spending cuts but separate those discussions from the debt ceiling. Or he could try to persuade a handful of moderate Republicans to raise the limit. There is another possible option: a constitutional challenge to the debt ceiling, a long-term plan that would rely on a 14th Amendment clause.