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A Delicate Decision for the Fed; Bank Turmoil Could Test U.S. Consumers
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Good day. Former Federal Reserve economist William English says the central bank will face a challenge Wednesday in announcing its latest interest-rate decision. “It’s going to be a tough decision with very tricky communications,” he says. That’s because raising rates would underscore the Fed’s commitment to fighting inflation in an economy that has defied predictions of an imminent slowdown, and because it would risk exacerbating market upheaval and any weakening in the economy, and possibly set off more interventions if officials miscalculate. Of course, the U.S. consumer might just keep chugging along. Economists note much of the near-term economic impact of consumer spending might depend on psychology—specifically whether the public has confidence the economy will weather the banking storm.
Now on to today’s news and analysis.
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Federal Reserve Faces Tough Decision on Rate Increase
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The Fed’s decision this week on interest rates depends in part on how markets respond to the forced union of UBS and Credit Suisse. PHOTO: AL DRAGO/BLOOMBERG NEWS
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Federal Reserve Chair Jerome Powell and his colleagues this week face one of their toughest calls in years: whether to raise interest rates again to fight stubbornly high inflation or take a timeout amid the most intense banking crisis since 2008.
The decision over whether to raise interest rates by a quarter-percentage point is likely to hinge in part on how markets digest the forced marriage Sunday of two Swiss banking giants, UBS and Credit Suisse, and other steps to calm fears of contagion in the banking system. Fed officials’ two-day meeting concludes Wednesday.
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What’s Next for UBS After Buying Credit Suisse in Whirlwind Rescue
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Frantic deal making changed everything for UBS Group AG, with a cut-price, $3.2 billion takeover of its top domestic rival, Credit Suisse Group AG, reinforcing its position as one of the biggest managers of money for the world’s wealthy.
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Dimon Leading Efforts to Craft New First Republic Bank Rescue Plan
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JPMorgan Chase Chief Executive Jamie Dimon is leading talks with leaders of other big banks about how to stabilize troubled First Republic Bank. Talks have focused on how to arrange an investment to boost the bank’s capital.
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Pro Take: Fed Faces Balancing Act Between Bank Rescues, Inflation Fight
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The Federal Reserve’s new bank-rescue plan injects cash into troubled financial firms through loans while Fed officials also seek to tighten credit in the banking system and slow the economy—a contradictory set of aims.
On the one hand, the Fed is making money available for banks so they can continue to lend. On the other, it is making it more expensive for consumers and businesses to borrow. Read more.
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Bank Turmoil Stress-Tests the American Consumer
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Consumers face a test from banking-sector turmoil and tighter financial conditions as households grappling with elevated inflation and rising interest rates threaten to trim spending, a hallmark of the resilient U.S. economy.
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That Plum Job Listing May Just Be a Ghost
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Given the uncertain economic outlook, some job ads may be more wishful thinking than anything else, says a Nashville-based recruiter. Such a strategy, he adds, risks turning off applicants who may view the ads as misleading.
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Key Developments Around the World
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How Ukraine Survived Russia’s Mission to Turn Off the Lights
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U.S. and European governments outraged by attacks on civilian infrastructure are sending Ukraine sophisticated anti-missile systems denied before, along with generators and spare parts for its energy grid.
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Xi and Putin Set to Deepen Economic Ties
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Xi Jinping and Vladimir Putin are set to meet for a second day in Moscow, strengthening economic and political ties between the two neighbors as the war in Ukraine loomed over the two leaders’ 40th in-person meeting.
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Protests, Turning Violent, Aim to Override Macron’s Pension Overhaul
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President Emmanuel Macron might have circumvented Parliament in passing his pension overhaul, but there remains a large constituency in France—millions of street protesters—contending they have final say in the matter.
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Turkey Seeks EU Aid to Rebuild After Earthquakes
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Turkey is scrambling to find reconstruction funding as the economic toll from recent earthquakes tops $100 billion, challenging a country struggling with a depressed currency and one of the world’s highest rates of inflation.
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RBA Prepares Ground for a Pause in Rate Hikes in April
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The Reserve Bank of Australia said Tuesday that it will discuss a pause in interest rate increases at its forthcoming policy meeting on April 4. It also said that monetary policy was now restrictive and that the “economic outlook was uncertain.”
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SVB Collapse Shows Smaller Banks Can Pose Risk
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The failures of Silicon Valley Bank and Signature Bank and the bank-led rescue of a third lender, First Republic Bank, suggests focus on size may have blinded officials to the threat posed by smaller lenders, regulators say.
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Small Businesses Stress-Test Their Banks After SVB Collapse
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There are early signs of how the banking industry’s troubles are rippling through the economy and leading some entrepreneurs and small businesses to scrutinize relationships with banks and habits they took for granted.
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8:30 a.m.: Canada consumer price index for February; Comments by ECB’s Lagarde in pre-recorded panel ‘CBDCs: Keeping momentum in uncertain times’ at BIS Innovation Summit 2023
9:30 a.m.: ECB’s Enria presents the central bank's annual report on supervisory activities for 2022 to Committee on Economic and Monetary Affairs of European Parliament
10 a.m.: U.S. existing home sales for February
11:30 a.m.: ECB’s Enria discusses implications of Silicon Valley Bank failure for financial stability in Europe, at Committee on Economic and Monetary Affairs of European Parliament
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3 a.m.: U.K. consumer-price and producer-price indexes for February
4:45 a.m.: ECB’s Largarde speaks at ‘ECB and its Watchers XXIII Conference’ of Institute for Monetary and Financial Stability at Goethe Universität
5:30 a.m.: ECB’s Lane in debate on ‘Monetary Policy: How to Get Inflation Back to Target?’ at ‘ECB and its Watchers XXIII Conference’
9:45 a.m.: ECB’s Panetta in debate on ‘Global Shocks, Policy Spillovers and Geo-Strategic Risk: How to Coordinate Policies’ at ‘ECB and its Watchers XXIII Conference’
1:30 p.m.: Bank of Canada publishes summary of monetary policy deliberations
2 p.m.: Federal Reserve interest-rate decision and economic projections
2:30 p.m.: Federal Reserve’s Powell post-FOMC meeting press conference
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BOE to Opt for One Last Quarter-Point Hike, Barring More Turmoil
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The Bank of England will likely opt for one final 25 basis-point interest rate increase on Thursday, though it is still contingent on what happens in financial markets, ING analysts write in a note. By and large, data has shown inflation in the U.K. is easing and wage growth is slowing, and the central bank’s Decision Maker survey shows firms expect to make less-aggressive price hikes in coming months, the analysts write. Improved supply chains and lower consumer demand is keeping a lid on goods-price inflation and lower gas prices should help take the pressure off the services sector, they add. With the latest installment in recent market turmoil, policy makers should be comfortable with pausing rate increases by their May meeting, they write.
—Edward Frankl
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Credit Suisse’s Death Gives Birth to New Type of Bank Crisis
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Credit Suisse’s story is different from Silicon Valley Bank’s, but digital technology played a role in the fall of both, a point for regulators to factor into thinking about instability, Stephen Wilmot and Telis Demos write.
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Mistakes the Fed Keeps Making
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The Federal Reserve’s excessively accommodative policy and forecasts that inflation would fall without the need to raise interest rates by much encouraged banks to buy bonds and maintain significant asset-liability mismatches, risking a banking crisis while a lapse in bank supervision has compounded the problem, Mickey D. Levy writes.
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Mr. Levy is senior economist at Berenberg Capital Markets and a visiting scholar at the Hoover Institution of Stanford University.
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Brazil’s central bank is expected to leave its benchmark lending rate, the Selic, at the current six-year high of 13.75% after its policy meeting on Wednesday, according to economists at Itau Unibanco Holding SA. They add that policymakers are likely to point to the new government’s evolving fiscal stance as a possible cause of inflationary pressure, and will probably mention recent bank troubles in the U.S. and Europe as another concern. (Dow Jones Newswires)
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The International Monetary Fund approved a $3 billion financial bailout for Sri Lanka, a key milestone in the cash-strapped country’s efforts to recover from its worst economic crisis in decades.
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Australian consumer confidence continues to plumb lows consistent with a recession, falling for a third consecutive week last week amid concerns about the stability of the global banking sector. (DJN)
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The eurozone's trade deficit in goods narrowed in January as both imports and exports declined, according to data from the European Union's statistics agency released Monday. (DJN)
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The outlook for the German economy worsened in March, swinging from five months of improvements, as turbulent financial markets, alongside economic headwinds such as high inflation and rising interest rates, take a greater toll on the economy. (DJN)
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The average house price in the U.K. rose 0.8% in March, largely driven by a 1.2% jump in prices of higher-end homes, according to data from Rightmove PLC. On an annual basis, house price growth has eased back to 3%, with new seller prices now GBP5,800 below October’s high, a sign the market is cautiously moving towards prepandemic activity levels. (DJN)
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This newsletter is compiled by James Christie in San Francisco.
Send us your tips, suggestions and feedback. Write to:
James Christie, Jon Hilsenrath, Nell Henderson, Nick Timiraos, Paul Hannon, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Perry Cleveland-Peck, Nihad Ahmed, Michael Maloney, Paul Kiernan, James Glynn
Follow us on Twitter:
@WSJCentralBanks, @NHendersonWSJ, @NickTimiraos, @PaulHannon29, @kimmackrael, @TomFairless, @megumifujikawa, @pkwsj, @JamesGlynnWSJ, @cleveland_peck
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