“JPMorgan Chase bought most of the assets of First Republic Bank in a deal announced early Monday, just after the federal government seized control of the troubled regional bank.
First Republic is the second-largest bank failure in US history, following Washington Mutual which collapsed in 2008 and was also acquired by JPMorgan. It comes after the failure of Silicon Valley Bank (SVB) and Signature Bank in March, which were the third and fourth largest US banks to fail, respectively.
Like Signature Bank and Silicon Valley Bank before it, First Republic saw a mass exodus of depositors to larger institutions, who feared that the bank would not have the capital to cover huge unrealized losses on its books due to rising interest rates. If it’s a signal of a larger banking crisis, it seems to be one that’s unfolding slowly, but it’s certainly possible that more banks could fail.”
“On Wednesday, the Federal Reserve raised interest rates another quarter point in regulators’ ongoing bid to reduce inflation. It’s a move that marks the Fed’s 10th straight rate hike and it’s one that’s proven contentious given fears that it could slow the economy too much.
The rate hike — which puts the Fed’s benchmark rate between 5 to 5.25 percent — comes as another mid-size bank, First Republic Bank, failed and was later acquired by JPMorgan Chase, becoming the second-largest bank failure in US history. The Fed favors the hike because it’s continuing to fight inflation, which has dipped substantially in the last year. At 5 percent, inflation is still higher than the Fed’s target rate of 2 percent.
Economists and experts who oppose raising rates, however, say inflation is already showing signs of slowing, and that additional rate increases could add even more challenges for small businesses and lead to a harmful uptick in unemployment.”
“The Fed has penciled in three rate hikes this year, and the first could come as soon as March.”
“Adam Ozimek, chief economist at freelancing platform Upwork, said the Fed misjudged how large the inflation spike would be, though he still thinks — as the Fed previously argued — that price increases will eventually start to cool on their own. He said the danger instead is that the Fed will overreact to levels of inflation that ultimately prove temporary, hurting the millions who still haven’t returned to the labor force.
“Inflation is by any measure extremely high, yet labor slack remains significant as well and we are far from full employment,” he said. “The policy challenge is far more complicated than in 2018, when Powell faced uncertainty about labor slack but without the added pressure of high inflation.”
Still, others have praised the Fed’s restraint amid the price spikes, keeping rates low and allowing the job market to heal more quickly. They argue that inflation is significantly being fed by supply chain issues that the central bank isn’t equipped to solve.
Former Fed Chair William McChesney Martin once said the central bank’s job was “to take away the punch bowl just as the party gets going.” But Sahm argued that a few rate increases don’t have to ruin anything.
“Things are getting better,” she said. “We need to pour a little less punch in the punch bowl.””
“The reason for the plunging lira is no secret. In contrast to virtually every economist on the planet, Turkish President Recep Tayyip Erdogan insists that low interest rates and cheap money fuel a thriving economy that fights inflation. His claims—dubbed “insane” in some quarters—don’t seem to have done much for the value of the currency. Nevertheless, he sticks to his policy and fires officials who disagree.
Instead, what Erdogan has actually accomplished is a surging money supply that dilutes the value of the lira and has driven Turks to despair.”
“Powell’s innovation as Fed chair was to really care much more about employment, relative to inflation, than his recent predecessors had.
In 2019, he began lowering interest rates during an economic expansion, a genuinely unprecedented action that conceded the rate hikes he introduced the previous year were a mistake.
He repeatedly invoked homelessness and high Black unemployment as reasons to keep pushing rates lower, saying the job wasn’t done until it was done for everyone.
In 2020, he issued a new formal framework explicitly pushing the Fed away from its traditional fixation with inflation and toward worrying about employment.
He made these changes in the context of a world where inflation was consistently low and employment and wages were short of where they should’ve been. But in 2020, and especially 2021, the tasks before Powell changed. First he had to prevent a pandemic-driven collapse of the global financial system akin to what occurred in 2008.
Then he was — is — faced with the question of what to do now that inflation is high for the first time in decades. That challenge, and the question of whether Powell can be as effective at controlling inflation as he has been at promoting employment, will frame his next term.”