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☆ Fed seen on track for rate hike with latest retail sales data
▼ + stars: | 2023-04-14 | by ( ) www.reuters.com time to read: 1 min

April 14 (Reuters) - Traders of futures tied to the Federal Reserve's policy rate on Friday kept bets the U.S. central bank will increase its benchmark rate in May by another quarter-of-a-percentage point, even after a report showed overall retail sales dropped more than expected last month. U.S. short-term interest rate futures reflect the view that a rate hike in May is about four times as likely as no move, slightly firmer than the chance seen before the Commerce Department report. The current target range is 4.75%-5.00%. Reporting by Ann Saphir; Editing by Toby ChopraOur Standards: The Thomson Reuters Trust Principles.

☆ Fed seen set to raise rates in May, traders bet
▼ + stars: | 2023-04-14 | by ( ) www.reuters.com time to read: +1 min

U.S. short-term interest rate futures now reflect the view that a rate hike in May is more than four times as likely as no move, firmer than the chance seen before Fed Governor Christopher Waller's remarks. The current target range is 4.75%-5.00%, up from near zero last March. "If you had told me that we would raise the fed funds rate 500 basis points in one year and nothing appears to be happening that would just be shocking," Waller said in San Antonio, Texas. Traders also trimmed bets the Fed will reduce interest rates later in the year, though they still expect the Fed's policy rate to end the year lower than it is now. Reporting by Ann Saphir; Editing by Toby ChopraOur Standards: The Thomson Reuters Trust Principles.

The retail sales data provided at least a hint that a pandemic-era spending boom may be nearing an end, though some economists argued that the historically low unemployment rate and rising wages make a sharp drop in consumption unlikely. In separate comments, Fed Governor Christopher Waller said he'd seen little evidence yet that the economy was under stress, little progress on inflation, and no reason to call off further rate increases. The current inflation rate is more than twice that target, and progress on getting it to move in that direction has been slow. The data showed households expected inflation to accelerate significantly in the year ahead, reversing months of progress towards them viewing inflation as a receding phenomenon. There won't be much more topline economic data before the Fed's May 2-3 meeting.

☆ US bank deposits rose, loans ticked down in latest week, Fed data show
▼ + stars: | 2023-04-14 | by ( ) www.reuters.com time to read: +1 min

Federal Reserve data released on Friday showed deposits at all commercial banks rose to $17.43 trillion in the week ended April 5, on a non-seasonally adjusted basis, from $17.35 trillion a week earlier. The increase was about evenly shared between the largest 25 banks and the small and mid-sized banks. That left deposits at the largest banks above the levels prior to the collapse of Silicon Valley Bank and Signature Bank, but at small banks still short of their previous levels. A drop in deposits can leave banks with diminished capacity for loans, though as yet the Fed's data did not show much impact. Loans and leases at all banks ticked down to $12.06 trillion from $12.07 trillion a week earlier, the data showed.

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.

☆ Traders less sure on Fed rate hike as inflation cools
▼ + stars: | 2023-04-12 | by ( ) www.reuters.com time to read: 1 min

April 12 (Reuters) - Traders of futures tied to the Federal Reserve's policy rate on Friday were less sure the U.S. central bank will raise its benchmark rate any further after the government reported March consumer prices rose less than expected. U.S. short-term interest rate futures rose after the report, and now reflect about a 60% chance of a quarter-of-a-percentage-point rate hike in May, versus about a 73% chance seen before the data. The current target range is 4.75%-5.00%. Reporting by Ann Saphir; editing by Jason NeelyOur Standards: The Thomson Reuters Trust Principles.

☆ Fed's Kashkari: Recession possible, but high inflation would be worse
▼ + stars: | 2023-04-12 | by ( ) www.reuters.com time to read: +1 min

April 11 (Reuters) - Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said the Fed's interest-rate hikes and a possible pullback in lending after two bank failures last month could trigger a recession, but allowing inflation to stay high would be even worse for the labor market. That might even lead to a recession," Kashkari said in a town hall at Montana State University, in answer to a student question about job prospects. Yields on long-term bonds are lower than those on shorter-term bonds, known as the "yield-curve inversion" and which is often a harbinger of a recession. Kashkari said he reads the pricing in bond markets as reflecting an expectation that inflation will fall quickly, allowing the Fed to cut rates. Most Fed policymakers see inflation falling to somewhere in the 3%-3.8% range by year-end, projections show, with the median projection at 3.3%.

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.

☆ US bank deposit outflows decelerated in second week after SVB collapse
▼ + stars: | 2023-04-01 | by ( ) www.reuters.com time to read: +3 min

Data released on Friday by the Federal Reserve showed the $125.7 billion drop in deposits at all U.S. banks in the week ended March 22 was roughly $50 billion less than the record $174.5 billion outflows in the first week after the collapses of Silicon Valley Bank and Signature Bank (SBNY.O). Revisions to the prior week's data showed deposit outflows in that first week of bank sector turmoil was almost double the $98.4 billion initially estimated. Deposits at small U.S. banks edged up to $5.386 trillion in the week ending March 22 from $5.381 trillion the prior week. Deposits at the largest 25 banks by assets, meanwhile, fell to $10.65 trillion from $10.74 trillion. Deposit outflows from foreign banks with U.S. operations accounted for the remainder of the week's decline.

☆ Fed's Waller: US inflation can drop without much harm to job market
▼ + stars: | 2023-04-01 | by ( ) www.reuters.com time to read: +1 min

SAN FRANCISCO, March 31 (Reuters) - U.S. Federal Reserve Governor Christopher Waller on Friday said recent data is consistent with the notion that the U.S. central bank may be able to drive down inflation without serious harm to the labor market. If people really have begun to believe that prices are going to just keep on rising, then defeating high inflation could require dramatic actions by the Fed to puncture those expectations, Waller said in remarks prepared for an academic conference at the San Francisco Fed. Dramatic Fed rate hikes could slow the economy suddenly and lead to large job losses. "Recent data are consistent with this story." Reporting by Ann Saphir; Editing by Sandra MalerOur Standards: The Thomson Reuters Trust Principles.

☆ Fed's Cook: watching credit conditions in calibrating interest rates
▼ + stars: | 2023-03-31 | by ( ) www.reuters.com time to read: +1 min

March 31 (Reuters) - U.S. Federal Reserve Board Governor Lisa Cook on Friday said she is watching credit conditions closely and will factor in potential economic headwinds from recent banking sector turmoil as she weighs the right level of interest rates to deal with high and persistent inflation. "On the one hand, if tighter financing conditions restrain the economy, the appropriate path of the federal funds rate may be lower than it would be in their absence," Cook said in remarks prepared for delivery. "On the other hand, if data show continued strength in the economy and slower disinflation, we may have more work to do." The Fed last week lifted the policy rate by a quarter of a percentage point to a 4.75%-5.00% range, and said "some additional policy firming may be appropriate." "I am closely watching developments in the banking sector, which have the potential to tighten credit conditions and counteract some of that momentum," Cook said.

☆ San Francisco Fed leader Daly likely not a major player in SVB saga, officials say
▼ + stars: | 2023-03-31 | by ( Steve Liesman | ) www.cnbc.com time to read: +5 min

"She was not in the chain of command," one former Fed bank president told CNBC. "Supervisory action taken by the San Francisco Fed staff would have been cleared by Washington." Daly and Fed board officials declined to comment for this report. San Francisco Federal Reserve President Mary Daly reacts at the Los Angeles World Affairs Council Town Hall, Los Angeles, California, U.S., October 15, 2019. A review of what went wrong will likely point more heavily to Washington, its supervisory bureaucracy and the board leadership than to San Francisco.

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.

WASHINGTON, March 30 (Reuters) - The secretive world of Federal Reserve bank supervision has been laid bare by the collapse of Silicon Valley Bank and critics say it needs an overhaul to make it more nimble, transparent and decisive. Typically, bank supervisors do most of their work behind closed doors. Bank supervision is typically conducted behind closed-doors because of concerns that publicizing bank missteps could spur bank runs and undermine confidence in the overall system. SVB's rapid growth also was a factor for Fed supervisors. Barr said part of his review would look at whether Fed supervision was appropriate for the bank's "rapid growth and vulnerabilities."

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.

REUTERS/Kevin LamarqueMarch 29 (Reuters) - The scope of blame for Silicon Valley Bank's failure stretches across bank executives, Federal Reserve supervisors and other regulators, the banking system's top cop on Wednesday told U.S. lawmakers demanding answers for the lender's swift collapse. "I think that any time you have a bank failure like this, bank management clearly failed, supervisors failed and our regulatory system failed," Michael Barr, Fed Vice Chair for Supervision, told Congress. 'SOME REAL FLAWS'Barr told the House Financial Services Committee that he first became aware of stress at Silicon Valley Bank on the afternoon of March 9, but that the bank reported to supervisors that morning that deposits were stable. The Fed was in discussions with Silicon Valley Bank the day before its collapse to move pledgable collateral to the discount window, a key facility long associated with providing emergency loans to banks, Barr said on Wednesday. "(Fed) staff were working with Silicon Valley Bank basically all afternoon and evening and through the morning the next day to pledge as much collateral as humanly possible to the discount (window) on Friday," Barr said.

"I think that any time you have a bank failure like this, bank management clearly failed, supervisors failed and our regulatory system failed," Michael Barr, Fed Vice Chair for Supervision, told Congress. REPORTS DUE MAY 1Both the Fed and FDIC are is expected to produce reports on the failure of Silicon Valley Bank by May 1. Barr told the House Financial Services Committee that he first became aware of stress at Silicon Valley Bank on the afternoon of March 9, but that the bank reported to supervisors that morning that deposits were stable. Gruenberg of the FDIC told lawmakers he also became aware of SVB's stress that Thursday evening. "(Fed) staff were working with Silicon Valley Bank basically all afternoon and evening and through the morning the next day to pledge as much collateral as humanly possible to the discount (window) on Friday," Barr said.

☆ Small U.S. banks see record drop in deposits after SVB collapse
▼ + stars: | 2023-03-24 | by ( ) www.reuters.com time to read: +2 min

March 24 (Reuters) - Deposits at small U.S. banks dropped by a record amount following the collapse of Silicon Valley Bank on March 10, data released on Friday by the Federal Reserve showed. Deposits at small banks fell $119 billion to $5.46 trillion in the week ended March 15. Borrowings at small banks, defined as all but the biggest 25 commercial U.S. banks, increased by $253 billion to a record $669.6 billion, the Fed's weekly data showed. The rise equates to about half as much as the deposit decline at small banks, suggesting that some of the cash may have gone into money market funds or other instruments. It was unclear if the shift in deposits out of small banks will persist.

[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.

☆ The Fed sees a looming credit crunch. What's that?
▼ + stars: | 2023-03-24 | by ( ) www.reuters.com time to read: +4 min

March 24 (Reuters) - It's an old saw: A credit crunch is when your bank won't lend to you. In other words: a credit crunch is coming. But the credit growth rate has recently fallen below its historic average to a level that has often been associated with a recession. That was indicative of the lasting restraint that episode had on the recovery in credit and economic growth overall. That was the case 8-10 years ago when low oil prices triggered a credit crunch among U.S. oil fracking companies, weighing heavily for a period on overall commercial loan growth while consumer loan growth kept improving.

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.

Fed Chairman Jerome Powell sought to reassure investors about the soundness of the banking system, saying that the management of Silicon Valley Bank "failed badly," but that the bank's collapse did not indicate wider weaknesses in the banking system. "These are not weaknesses that are running broadly through the banking system," he said, adding that the takeover of Credit Suisse seemed to have been a positive outcome. The Federal Open Market Committee policy statement also said the U.S. banking system is "sound and resilient." The much-anticipated rate cut by the Fed, which had delivered eight previous rate hikes in the past year, sought to balance the risk of rampant inflation with the threat of instability in the banking system. The banking sector has been in turmoil after California regulators on March 10 closed Silicon Valley Bank in the largest U.S. bank failure since the 2008 financial crisis.

The Fed's policy-setting committee raised interest rates by another quarter of a percentage point in a unanimous decision on Wednesday, lifting its benchmark overnight interest rate to the 4.75%-5.00% range. Fed officials still feel that "some additional policy firming" may be needed, and they penciled in one more quarter-of-a-percentage-point rate increase by the end of the year. The yield on the 2-year Treasury note , which is highly sensitive to Fed rate expectations, was down more than 21 basis points in the session. Financial markets went a step further, betting that the Fed won't raise rates any further from here and will be reducing them by this summer. "The Fed has been spooked by Silicon Valley Bank and other banking turmoil.

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%.

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