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Traders had been betting that process would be relatively quick, allowing the Fed to reverse course and start easing the policy rate, now in the 5.00%-5.25%, as early as September. Friday's Labor Department report showing employers added 253,000 jobs last month and the unemployment rate fell to 3.4% put those expectations in doubt. "The Fed still has some work to do and the job market’s hot," said Ameriprise FInancial's chief market strategist Anthony Saglimbene. But by far the bigger bet is for the Fed to stand pat next month, and overall traders left bets on a September start to rate cuts intact. By December the Fed will have dropped its benchmark rate to about 4.2%, interest-rate futures prices suggest.

The market swoon from what would be an unprecedented U.S. default would bludgeon away billions more in wealth. The cost to insure U.S. government debt against default has shot to the highest since the 2007-2009 financial crisis. All of that takes air out the economy's tires and could start to push up the unemployment rate, now at a historically low 3.5%. Some top economic policymakers like those at the Fed had predicted as early as last December that the unemployment rate would be roughly 1 percentage point higher by the end of 2023. A debt crisis and a default, even if only on some of the interest payments due each day, would move it forward, Bostjancic said.

Depositors had pulled $100 billion from accounts at the bank in the panic triggered by the SVB and Signature failures, imperiling its survival. Both SVB and Signature failed last month. Both SVB and Signature grew quickly in recent years, outpacing the ability of regulators to keep up, especially with shrinking resources. Regulators closed Signature two days after SVB was shuttered. Signature lost 20% of its total deposits in a matter of hours on the day that SVB failed, FDIC Chair Martin Gruenberg has said.

Both SVB and Signature failed last month. Regulators shut SVB on March 10, a day after customers withdrew $42 billion and queued requests for another $100 billion the following morning. Both SVB and Signature grew quickly in recent years, outpacing the ability of regulators to keep up, especially with shrinking resources. Regulators closed Signature two days after SVB was shuttered. Signature lost 20% of its total deposits in a matter of hours on the day that SVB failed, FDIC Chair Martin Gruenberg has said.

In what Fed Vice Chair for Supervision Michael Barr called an "unflinching" review of the U.S. central bank's supervision of SVB, the Fed said its oversight of the Santa Clara, California-based bank proved inadequate and that regulatory standards were too low. At the time of its failure, SVB had 31 unaddressed citations on its safety and soundness, triple what its peers in the banking sector had, the report said. Barr said as a consequence of the failure, the central bank will reexamine how it supervises and regulates liquidity risk, beginning with the risks of uninsured deposits. "Contagion from the failure of SVB threatened the ability of a broader range of banks to provide financial services and access to credit for individuals, families, and businesses," Barr said. The Fed is looking at linking executive compensation to fixing problems at banks designated as deficient on management so as to focus executives' attention on those problems, a senior Fed official said in a briefing.

[1/4] A view of the Park Avenue location of the First Republic Bank, in New York City, U.S., March 10, 2023. FDIC regulators had raised the specter of systemic risk from the failure of large regional banks months before the SVB and Signature Bank collapses, records reviewed by Reuters show. SECRETS REVEALEDThe Fed will release its report on SVB at 11 a.m. EDT (1500 GMT) on Friday. FDIC Chair Martin Gruenberg has not provided much detail about the supervision of Signature, which like SVB had grown rapidly in recent years. The Fed's inspector general will have a report on each bank in the third quarter.

April 19 (Reuters) - U.S. economic activity was little changed in recent weeks as employment growth moderated somewhat and price increases appeared to slow, according to a Federal Reserve report published on Wednesday. Several Fed districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity, the report showed. In the San Francisco Fed district, where failed Silicon Valley Bank was located, "lending activity fell significantly in recent weeks amid higher interest rates and elevated uncertainty in the banking sector," the report said. "Banking contacts reported some movement in deposits but little change in credit availability following the collapse of Silicon Valley Bank," the Chicago Fed said. The Fed report noted that inflation pressures had moderated but remained widespread.

Fed bank directors don't vote on monetary policy, but they do express their views through non-binding votes on the discount rate, which is what the Fed charges to commercial banks for emergency loans. Fed bank presidents say their directors provide key information on the state of the economy. Despite their boards' preference for something different, Chicago Fed President Austan Goolsbee and Minneapolis Fed President Neel Kashkari joined other Fed policymakers in a unanimous vote last month to lift the benchmark overnight interest rate to the 4.75%-5.00% range. St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester do not cast policy votes this year. Fed meeting minutes never specify which policymakers made which comments.

☆ Fed minutes: Bank turmoil effects will likely lead to recession later in 2023
▼ + stars: | 2023-04-12 | by ( ) www.cnbc.com time to read: 1 min

Share Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via EmailFed minutes: Bank turmoil effects will likely lead to recession later in 2023CNBC's Steve Liesman reports on the Federal Reserve minutes from last meeting.

April 11 (Reuters) - Philadelphia Federal Reserve Bank President Patrick Harker on Tuesday said he feels the U.S. central bank may soon be done raising interest rates, a year into its most rapid monetary policy tightening since the 1980s. Harker joined his fellow U.S. central bankers last month in voting for a quarter of a percentage point increase in the benchmark overnight interest rate, taking it to a range of 4.75% to 5.00%. In a question-and-answer session following his speech, Harker said he was among that majority. Recent inflation readings "show that disinflation is proceeding slowly - which is disappointing, to say the least," Harker said. Chicago Fed President Austan Goolsbee earlier on Tuesday said he was focused on parsing the potential impact of tighter credit conditions on the economy in the run-up to the Fed's May 2-3 meeting.

They also now expect the Fed will start easing policy as early as July, cutting its benchmark rate to near 4% by the end of the year. Job openings, a measure of labor demand, also fell to its lowest level since May 2021 and data for January was revised lower to show 10.6 million job openings instead of the previously reported 10.8 million. "The U.S. labor market is definitively cooling off," said Indeed economist Nick Bunker, noting that job openings have now fallen by about 1.3 million in two months. Welcome relief on the job market front follows a key report last week that showed while inflation ebbed in February, it remained high enough to possibly compel the Fed to raise interest rates one more time this year. At their March policy meeting, most Fed policymakers signaled they expected to need to raise rates one more time, to 5.1%, and not to cut them until 2024.

But with the Fed targeting 2% annual inflation, central bankers will likely be wary about declaring victory too soon. Potentially worrisome to central bank policymakers may be continued pressure in services inflation, excluding housing, a measure that Fed Chair Jerome Powell has said he is watching carefully. That stickiness could prompt the Fed to do more and risk an "overshoot on rate hikes and a deeper, more scarring recession," she said. Traders also were betting more heavily that the Fed would start cutting rates as soon as July, with the policy rate seen reaching the 4.25%-4.50% range by the end of this year, based on interest-rate contract pricing. Fed policymakers earlier this month signaled that most of them expect one more quarter-of-a-percentage-point increase this year and, contrary to market expectations, they don't plan to deliver any interest rate cuts until 2024.

NOVEMBER 2021Examiners issue six citations -- "matters requiring attention" (MRA) and "matters requiring immediate attention" (MRIA) -- related to the bank's liquidity stress testing, contingency funding, and liquidity risk management. SVB's tests, supervisors find, are not "stressful enough; they were not realistic... it conducted those tests and the guidance back from the supervisors was that the tests were inadequate," Barr told Congress. "The supervisors told the board of directors and the bank that the board oversight with respect to risk management was deficient," Barr said this week. Fed supervisors begin a "horizontal review" of several banks, including SVB, for interest-rate risk. FEB 2023Fed staff give a presentation to Barr and other Board members about interest rate risk generally and at Silicon Valley Bank in particular.

[1/2] An employee holds the door open at the Silicon Valley Bank branch office in downtown San Francisco, California, U.S., March 13, 2023. Supervision of large banks like SVB, which was the 16th biggest U.S. bank at the time of its failure, is a shared responsibility of bank examiners employed by the regional Fed bank and Fed Board staff in Washington. Fed Chair Jerome Powell said this week he wants to identify "what went wrong here". Bank examiners at San Francisco Fed had flagged escalating problems at the Santa Clara-based bank suggesting issues with its ability to meet short-term cash needs like depositor withdrawals. As San Francisco Fed chair, Mehran headed the search committee that hired Daly for the top job at the bank in 2018.

March 22 (Reuters) - The management of Silicon Valley Bank "failed badly," Federal Reserve Chair Jerome Powell said on Wednesday, but its collapse also underscores the need for better controls despite what had been escalating oversight by the Fed's own examiners. "It does kind of suggest there's a need for ...regulatory and supervisory changes, just because supervision and regulation need to keep up with what's happening," Powell said. RED FLAGSFederal Reserve bank examiners had called out problems at Silicon Valley Bank <SIVB.O> as early as 2019. In all the bank received six citations, Powell said, including both matters "requiring attention" and their escalated cousin, matters "requiring immediate attention." A key part of the bank examiner's toolkit, MRAs and MRIAs are often included in reports following regular examinations of a bank's health, or in a separate supervisory letter.

Forecasts from the 18 policymakers were varied, however, with seven policymakers seeing a higher appropriate stopping point for rates. The benchmark rate is seen ending next year at 4.3%, based on the median projection. In December Fed policymakers thought 2023 would end with the Fed policy rate at 5.1%, before dropping to 4.1% in 2024. Policymakers expect their interest-rate hikes to push the unemployment rate, now at 3.6%, to 4.5% in the last quarter of 2023, and to 4.6% in 2024. Wednesday's projections show Fed policymakers have become slightly more pessimistic about the outlook for the economy, with a median projection for GDP growth this year of 0.4%, versus December's expectation for 0.5%.

By May the benchmark rate is seen rising further to a range of 5.00%-5.25%. Until late last week financial markets had been pricing in a bigger half-point rate hike to stem persistently high inflation. Meanwhile the Labor Department's inflation report showed a 6% rise in the consumer price index last month from a year earlier. "The recent string of regional bank failures likely closed the door on a 50 (basis point) rate hike, but today's data suggests that the Fed is going to remain on-track for a 25 (basis point) hike on March 22." Fed policymakers will publish their own rate path expectations next week.

The U.S. unemployment rate ticked up to 3.6% in February as more workers entered the labor force, and wage gains slowed to 0.2% from 0.3% in January, the Labor Department's report showed. "This report screams soft landing and looks to be a pretty good one for the Fed," said Omair Sharif of Inflation Insights. After the report, futures tied to the Fed policy rate pointed to a quarter-point rate hike as the most likely outcome of the central bank's meeting this month. Traders also slashed expectations for the Fed to ultimately raise rates any higher than 5.5%. "However, the February CPI report will also weigh heavily in the Fed’s deliberations of whether to raise rates 25bps or 50bps.

☆ Fed minutes show all participants favored rate hikes as inflation fears skew to upside
▼ + stars: | 2023-02-23 | by ( ) www.cnbc.com time to read: 1 min

Share Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via EmailFed minutes show all participants favored rate hikes as inflation fears skew to upsideCNBC's Steve Liesman reports on the Federal Reserve minutes from the January meeting.

☆ Here's what to expect from the Fed today
▼ + stars: | 2023-02-01 | by ( ) www.cnbc.com time to read: 1 min

Share Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via EmailHere's what to expect from the Fed todayCNBC's Steve Liesman reports on the Federal Reserve's rate decision at 2 p.m.

☆ Fed raises rates by 75 basis points to fight inflation
▼ + stars: | 2022-09-21 | by ( ) www.cnbc.com time to read: 1 min

Share Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via EmailFed raises rates by 75 basis points to fight inflationCNBC's Steve Liesman reports on the Federal Reserve's decision to raise interest rates.

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