Silicon Valley Bank Fallout Might Supplant Inflation as Fed’s Priority; U.S. CPI Report Due Out Today By James Christie
Good day. Federal Reserve officials may need to choose between staying focused on fighting inflation with their interest-rate raising campaign or turning their attention to any turmoil that might ripple through the financial system following the collapse of Silicon Valley Bank. As Diane Swonk, chief economist at KPMG, puts it, “We’ve always said the one thing that could derail the Fed’s tightening would be a financial crisis. It’s not clear whether a crisis has been averted yet.” Today, the Labor Department releases its consumer-price index report for February, giving the Fed critical data for a rate decision at its meeting next week. Recent signs of a strong labor market and improving consumer spending raised the possibility that the Fed could raise its benchmark interest rate by a half-percentage-point at its March 21-22 meeting. But with the collapse of Silicon Valley Bank, the Fed may move more cautiously to assess the state of the financial system.
Now on to today’s news and analysis.
Top News Banking Crisis Calls Fed Interest-Rate Path Into Question
There is a saying that the Federal Reserve raises interest rates until something breaks. A big surprise over the past year had been that nothing broke.
No more. A sharp selloff in regional bank stocks Monday following the collapse of Silicon Valley Bank and Signature Bank risks pushing the Fed uncomfortably close to the one place it wanted to avoid over the past year: resolving a financial-stability trauma at the same time it fights high inflation.
The situation could force Fed Chair Jerome Powell and his colleagues into choosing what problem demands the central bank’s top focus .
U.S. Bank Collapses Add to Pressure on Global Central Banks
International policy makers shifted into firefighting mode as investors fretted about possible contagion from bank failures in the U.S.-and bet central banks could slow or reverse interest-rate increases to avert wider instability.
Biden Says Banking System Is Safe After Silicon Valley Bank Collapse
President Biden on Monday stressed steps taken to limit the fallout from the collapse of Silicon Valley Bank and bolster confidence in the financial system, while some lawmakers called for re-examining rules for midsize banks.
FDIC Planning Another Silicon Valley Bank Auction Silicon Valley Firms Gird for Change After U.S. Backing of SVB Companies Whose Deposits in Silicon Valley Bank Were Just Freed Investor Anxiety Hits a Fever Pitch After Silicon Valley Bank Collapse Banking Crisis Powers Historic Bond Rally SVB’s Collapse Shows the Yield Curve Is Always Right Asian Startups’ Confidence in U.S. Banking Wanes After SVB Panic How To Protect Your Money From a Bank Collapse Pro Take: Banking Crisis Could Lend Fed a Hand in Inflation Fight By Bob Fernandez
The Federal Reserve’s forceful tightening of interest rates for a year has battered housing markets and other sectors sensitive to higher rates, like recreational vehicles. But for the most part, the U.S. economy steamed on.
Now, Silicon Valley Bank’s collapse and the threat of other troubled banks are “a wake-up call” to financial markets and companies that the Fed’s rate hikes have consequences, said Ryan Sweet, chief U.S. economist at Oxford Economics. It may be a blessing in the disguise of a bank run. Read more .
U.S. Economy Inflation Report Arrives as Fed Confronts Bank Failures
The Labor Department’s inflation reading will inform the Fed on price pressures in the economy as the central bank confronts bank failures. Inflation has cooled from a recent peak last June, but has remained stubbornly high.
Inflation Means Businesses Face Insurance Woes When Rebuilding
Persistent inflation has had spillover effects on the insurance that companies use to guard against disaster at their facilities, with higher construction costs making it harder to get coverage and harder to get paid on claims.
Sunbelt Traffic Jams Are Frustrating Drivers and Threatening Growth
Sunbelt cities are vulnerable to congestion because of poor public transit . Driving in New York City’s rush hour can be bumper-to-bumper, but many people take the subway. Most southern cities offer no such alternative.
Key Developments Around the World Japan Has a Low Risk of a Wage-Price Spiral-That’s a Mixed Blessing
At hundreds of thousands of Japanese small businesses, there is little risk of wage increases spiraling out of control. That is the good news. It is also the bad news. After 30 years of stagnation, wages still aren’t going up much.
War in Ukraine Hurting Russian Arms Industry
The war in Ukraine is set to further erode Russia’s share of the global arms trade, as growing Western sanctions, Russia’s need to conserve arms for itself and a reputational hit on the battlefield reduce its exports .
China’s Xi Plans to Speak With Ukraine’s Zelensky
Chinese leader Xi Jinping plans to speak with Ukrainian President Volodymyr Zelensky for the first time since the start of the Ukraine war , likely after he visits Moscow next week to meet with Russian President Vladimir Putin.
Soccer Union Calls for Equal Conditions at Women’s World Cup
Players from 25 national women’s soccer teams, backed by a global professional players’ union, are calling for equal conditions and prize money at the 2023 Women’s World Cup. A letter on the proposals was sent by Fifpro to FIFA in October.
Financial Regulation Roundup Frank Pushed Easing Financial Rules on Signature Bank Board
Former Rep. Barney Frank co-sponsored the law that tightened banking regulations after the financial crisis, but since leaving office he has been working the other side of the street -as a board member of Signature Bank.
Justice Department Probes Collapse of TerraUSD Stablecoin
The Justice Department is investigating the collapse of the TerraUSD stablecoin, adding the risk of U.S. criminal charges to the pressure on its creator, South Korean crypto entrepreneur Do Kwon, people familiar with the matter said.
Forward Guidance Tuesday (all times ET)
8:30 a.m.: U.S. consumer-price index for February
5:20 p.m.: Fed’s Bowman speaks at Independent Community Bankers Association’s ICBA Live 2023
6 a.m.: European Union industrial production for January
8:15 a.m.: Canada housing starts for February
8:30 a.m.: U.S. producer-price index for February; U.S. retail sales for February
10 a.m.: U.S. business inventories for January; NAHB/Wells Fargo Housing Market Index for March
Research ECB to Remain Most Hawkish G-10 Central Bank
The European Central Bank is expected to raise interest rates by 50 basis points this week, and with a likely similar step in May it is seen leading monetary policy tightening among the major developed market central banks, according to BNP Paribas Markets 360 analysts. They write in a note that they expect the ECB at its meeting on Thursday to emphasize its determination to vanquish inflation, adding that, “Consequently, our base case at present is for the ECB to deliver another 50bp in May [as] well.”
SVB Might Be a Sign of Trouble for Private Markets
The collapse of Silicon Valley Bank “is yet another example that we can expect market disruptions as central banks raise rates and shrink their balance sheets,” and that includes private markets, Megan Greene, global chief economist at corporate-advisory firm Kroll, writes in a note to clients. “Private markets may have a rocky road ahead, as they have taken much smaller paper losses than public markets over the past year,” she writes. “Some might argue this is because private companies were priced at a discount to comparable public companies to begin with. But it could also reflect losses that have yet to be crystallized in private markets.”
UK Labor-Market Data Cools Chances of BOE Rate Rise Next Week
The Bank of England can breathe a sigh of relief after U.K. labor-market data shows wage growth is easing, Ashley Webb, U.K. economist at Capital Economics says in a note. The monthly rate of overall earnings growth eased in the first month of 2023, meaning the growth in average total pay including bonuses in the three months to January eased to 5.7% from 6.0%, Webb says. With the collapse of U.S. lenders including Silicon Valley Bank over the weekend amid tightened financial conditions, the risks to Capital Economics’ forecast that the BOE will raise interest rates next Thursday to 4.25% from 4% are now shifting to the downside, he adds.
Commentary Fed’s Magical Accounting Might Save Banks But Doom Rate Increases
Just days before the 15th anniversary of the Fed-backed rescue of Bear Stearns, the central bank is offering easy money to banks to stop an incipient run on the sector, and it may mark the end of rate rises, James Mackintosh writes.
Were SVB and Signature Bank Just Bailed Out by the Government?
Two large banks failed within days. The government’s top financial regulators stepped in on Sunday. Is this the end of the story? Telis Demos looks at some questions and answers to explain the action that was taken .
SVB Bust Won’t Go Big in Japan-Probably
The Silicon Valley Bank debacle has highlighted the risks posed by rising interest rates -but Japan’s financial institutions will likely avoid similar fallout despite mountainous Treasury holdings, Jacky Wong writes.
Investors Are Searching for Safe Spaces in Banking
The Federal Reserve can do its best to shore up confidence at banks large and small. Yet investors are still probing at the industry’s weak points , Telis Demos writes. Investors seem to be zooming in on specific bank characteristics.
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