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    Biden Signs Executive Order That Aims to Make Child Care Cheaper

    As President Biden prepares to announce his re-election campaign, he is seeking to make progress on a promise that has stalled in his first two years in office.President Biden said the executive order will make child and elder care more accessible for families.Doug Mills/The New York TimesWASHINGTON — President Biden signed an executive order on Tuesday directing federal agencies to find ways to make child care cheaper and more accessible, seeking to make progress on a promise he made that stalled in his first two years in office.In a ceremony in the White House Rose Garden, Mr. Biden described the order as one of the most sweeping efforts by any president to streamline the delivery of child care.“Almost every federal agency will collectively take over 50 actions to provide more peace of mind for families and dignity for care workers,” the president said to applause from an audience of families, administration officials, members of Congress and others.“The cost of care is too high for seniors in nursing homes, for working families with young children,” Mr. Biden added, wearing his aviator sunglasses on the brisk Washington afternoon. At the same time, he said, “pay for care workers is too low.”White House officials said the executive order was designed to address both sides of that problem by enacting new regulations and tweaking policies without needing vast new amounts of public funding.“The child care and long-term care systems in this country just don’t work well,” said Susan E. Rice, the director of the White House’s Domestic Policy Council. “The order includes more than 50 directives to nearly every agency to take action on fixing our child care and long-term care system.”Ms. Rice said the order would direct some agencies to lower co-pays for services. Other provisions will seek to make Medicare and Medicaid dollars go further. Still others will examine new ways to improve care for veterans and Native American tribes.She said the order “marshals the full resources of the federal government” to improve access to high-quality, affordable care.But the order does not deliver on the goal Mr. Biden himself identified at the beginning of his presidency, when he proposed $225 billion to fully cover child care for low-income Americans and an additional $200 billion for universal preschool.Those proposals failed to win support in Congress, and Mr. Biden abandoned them in favor of plans to bolster infrastructure and environmental spending.Now, as the president prepares to announce his re-election campaign, he is seeking to make progress on some big promises that have so far gone unfulfilled.In his remarks on Tuesday, Mr. Biden stressed that the executive order will help make it easier for families to afford to care for their children and their elderly parents, even without the kind of large investment he once envisioned.“If you live in a major American city, you can pay more than $17,000 a year, as all of you know, per child for child care in order to be able to go to work,” he said. “For a lot of families, that’s more than you pay for your rent.”He also used his remarks as an opportunity to contrast his policies with those of Republicans in Congress. He noted that on Monday, Speaker Kevin McCarthy proposed severe cuts in spending on domestic programs, excluding defense.Mr. Biden accused Mr. McCarthy and “MAGA Republicans” of supporting the wealthy by advocating cuts that will affect lower-income Americans, while they continue to support tax cuts for wealthy people put in place under President Donald J. Trump several years ago.“Critical programs for hardworking Americans that they count on will be slashed starting next year if he has his way,” Mr. Biden said of Mr. McCarthy.On Monday, Ms. Rice said Mr. Biden had not given up on winning approval for far greater government spending on child care.“We need to make serious investments,” she said, noting that Mr. Biden’s current budget would add billions of dollars of child care spending. “But in the meantime, we’re going to do everything we can to increase access to care and support care workers and family caregivers.”Some of the directives in Mr. Biden’s new order will not immediately produce results. One, for example, directs the Department of Health and Human Services “to consider issuing several regulations and guidance documents to improve the quality of home care jobs.” Officials said it would take time for those regulations to be developed, drafted and enacted.Other provisions might come more quickly. The Department of Veterans Affairs is “directed to consider expanding its veteran directed care program” to all of its medical centers. That program helps veterans hire personal care assistance. More

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    Fed Governor Bowman casts doubt on the need for a U.S. digital dollar

    Federal Reserve Governor Michelle Bowman expressed skepticism over the possibility of a digital U.S. dollar in a speech Tuesday.
    Bowman noted “the risk that a [central bank digital currency] would provide not only a window into, but potentially an impediment to, the freedom Americans enjoy in choosing how money and resources are used and invested.”
    A study released in 2022 on a Federal Reserve digital currency detailed the various pros and cons but didn’t take a stance.

    Federal Reserve Bank Governor Michelle Bowman gives her first public remarks as a Federal policymaker at an American Bankers Association conference In San Diego, California, February 11 2019.
    Ann Saphir | Reuters

    Federal Reserve Governor Michelle Bowman expressed skepticism over the possibility of a digital U.S. dollar, noting Tuesday the multiple risks such a system could impose.
    A central bank digital currency (CBDC) could intrude on the privacy of users and harm the banking system while providing few benefits that aren’t otherwise available for banked and unbanked consumers alike, Bowman said in a speech.

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    “We must ensure that consumer data privacy protections embedded in today’s payment systems continue and are extended into future systems,” she said in prepared remarks at Georgetown University.
    Bowman further noted “the risk that a CBDC would provide not only a window into, but potentially an impediment to, the freedom Americans enjoy in choosing how money and resources are used and invested.”
    For the past few years, Fed officials have been studying whether to join a handful of other central banks to implement its own type of cryptocurrency. A study released in 2022 detailed the various pros and cons but didn’t take a stance.
    In her remarks, Bowman addressed most of the common arguments — in particular, the opportunities a CBDC could present for those without access to traditional banking activities, and the importance of catching up to the Fed’s global counterparts that have already implemented digital currencies. The People’s Bank of China, for instance, has its own product in place.
    However, the speech mostly noted counterarguments. For instance, she said fewer than 5% of U.S. households are without a checking or savings account, and most of that group is voluntarily unbanked.

    “Approximately one-third cited a lack of trust in banks as the reason for not having a bank account,” Bowman said. “I think it is unlikely that this group would find the government somehow more trustworthy than highly regulated banks.”
    She noted the possibility that a CBDC that would serve as a foundation that banks could use to build their own products. Also, she cited the possible use for “certain financial market transactions and processing international payments.”
    However, she said an interest-bearing Fed digital dollar could provide harmful competition for banks, limiting their ability to lend.
    She also rejected the notion that a digital currency is needed to support the dollar, which she said is valued because of “the size of the U.S. economy, its deep and liquid financial markets, the strength of U.S. institutions, and its commitment to the rule of law,” none of which would be buttressed by a central bank digital currency.
    “When it comes to some of the broader design and policy issues, particularly those around consumer privacy and impacts on the banking system, it is difficult to imagine a world where the tradeoffs between benefits and unintended consequences could justify a direct access CBDC for uses beyond interbank and wholesale transactions,” she said.
    Like other Fed officials, Bowman said the looming implementation of the FedNow payments system also will address many of the needs cited by central bank digital currency promoters. The system will launch in July.
    Perhaps the CBDC’s biggest Fed advocate has since left the central bank: Former Governor Lael Brainard is now director of the National Economic Council. More

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    Republican Economists Line Up Behind Biden Nominee

    Jared Bernstein, the president’s choice for chair of the Council of Economic Advisers, won praise for his work that led to a provision in the Trump tax cuts in 2017.WASHINGTON — Nearly every living economist who led the White House Council of Economic Advisers in a Republican administration — including the three chairs under President Donald J. Trump — signed a letter urging Congress to confirm President Biden’s new nominee to lead the council, Jared Bernstein.The letter, obtained by The New York Times, praises Mr. Bernstein for engaging with economists across ideological lines and for his work drafting the original proposal for the opportunity zones program that was included in the 2017 tax package that Mr. Trump signed into law.The Senate Banking Committee is scheduled to hold a hearing on Mr. Bernstein’s nomination on Tuesday. Democrats had worried about his chances of clearing a committee vote after Senator John Fetterman, Democrat of Pennsylvania, was hospitalized in February for treatment of depression. They had stepped up efforts to court Republican senators to support Mr. Bernstein. Mr. Fetterman has since returned to work in the Senate.Mr. Bernstein has been a member of the council since the start of Mr. Biden’s administration. The president tapped him to succeed Cecilia Rouse, who stepped down at the end of last month to return to her post at Princeton University. Before then, Mr. Bernstein was an adviser to Mr. Biden when he was the vice president, a longtime fixture at liberal think tanks in Washington and a frequent sparring partner with conservative economists on cable news.He also worked with Kevin Hassett, a conservative economist who went on to head the council under Mr. Trump, to draft a white paper for the Economic Innovation Group think tank about a novel effort meant to steer investment to impoverished parts of the United States. Those were the so-called opportunity zones, which were included in the 2017 tax law.The program designates areas in every state where investors in real estate, operating businesses or other projects are eligible for significant tax advantages, including potentially not having to pay capital gains taxes on profits from their investments in those areas.Republicans have championed the zones since the law was passed. Some critics, including in Washington think tanks, have criticized them for delivering investments to some areas that were already gentrifying rapidly. Recent research has shown a widening share of zones attracting investment in the years since they were established.Mr. Hassett, who spearheaded the letter to members of the Banking Committee on Mr. Bernstein’s behalf, and his fellow former heads of the council cited the idea for the zones as one example of Mr. Bernstein’s outside-the-box thinking on economics.Mr. Bernstein has “established a reputation for producing informative, data-driven analysis and developing creative policy ideas,” the former heads of the council wrote.Along with Mr. Hassett, two other acting heads of the council under Mr. Trump signed the letter: Tomas Phillipson and Tyler Goodspeed. Other signatories included Michael J. Boskin, who led the council under President George H.W. Bush, and three chairs under President George W. Bush: Ben S. Bernanke, N. Gregory Mankiw and R. Glenn Hubbard.Mr. Hassett said he had been unable to reach the only other living past chair of the council under a Republican, Alan Greenspan, to ask him to sign the letter.In an interview, Mr. Hassett praised Mr. Bernstein’s collegiality and suggested that he would continue a bipartisan tradition of council chairs seeking advice from their predecessors from both political parties.“I disagree with Jared about a lot, and Jared and I have been disagreeing about things for 20 years,” Mr. Hassett said. “But he really is a fundamentally good person who tries to figure things out with an open mind, and who changes his mind.” More

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    Pressure Mounts on China to Offer Debt Relief to Poor Countries Facing Default

    There was optimism at the spring meetings of the I.M.F. and World Bank that China will make concessions over restructuring its loans.WASHINGTON — China, under growing pressure from top international policymakers, appeared to indicate this week that it is ready to make concessions that would unlock a global effort to restructure hundreds of billions of dollars of debt owed by poor countries.China has lent more than $500 billion to developing countries through its lending program, making it one of the world’s largest creditors. Many of those countries, including several in Africa, have struggled economically in the wake of the pandemic and face the possibility of defaulting on their debt payments. Their problems have been compounded by rising interest rates and disruptions to supplies of food and energy as a result of Russia’s war in Ukraine.The United States, along with other Western nations, has been pressing China to allow some of those countries to restructure their debt and reduce the amount that they owe. But for more than two years, China has insisted that other creditors and multilateral lenders absorb financial losses as part of any restructuring, bogging down a critical loan relief process and threatening to push millions of people in developing countries deeper into poverty.A breakthrough would offer an economic lifeline to vulnerable nations at a time of sluggish growth and uncertain financial stability, and it would signal a renewed interest from China in economic diplomacy.Economists and development experts are watching carefully to determine if China is serious about easing the loan forgiveness logjam and if its talk will be followed by action. By some calculations, the world’s poor countries owe around $200 billion to wealthy nations, multilateral development banks and private creditors. Leaders of the world’s advanced economies have been grappling in recent months with how to avert financial crises in teetering markets such as Zambia, Sri Lanka and Ghana.Africa’s private and public external debt has increased more than fivefold over the last two decades to about $700 billion and Chinese lenders account for 12 percent of that total, according to Chatham House, the London policy institute. Researchers for the Debt Relief for Green and Inclusive Recovery Project estimated in a recent report that 61 emerging market and developing economies were facing debt distress, and that more than $800 billion in debt must be restructured.Leaders of the world’s advanced economies have been grappling in recent months with how to avert financial crises in teetering markets such as Sri Lanka.Dinuka Liyanawatte/Reuters“China is facing increasing pressure from every quarter, including from other emerging market economies, to play a more constructive role in the negotiations over debt restructuring,” said Eswar Prasad, a former head of the International Monetary Fund’s China division, who said China’s intransigence had left it “increasingly isolated.”There were indications this week that China was prepared to end that isolation as top economic officials from around the world convened at the spring meetings of the I.M.F. and World Bank. Participants expressed optimism that representatives from Beijing appeared to be ready to back off its insistence that multilateral lenders such as the World Bank, which provides low-interest loans and grants to poor countries, accept losses in the debt restructuring.“My sense from the current context is we’re moving on to new steps,” David Malpass, the departing World Bank president, said at a news conference on Thursday, pointing to “progress on equal burden sharing.”Kristalina Georgieva, the I.M.F.’s managing director, said she was “very encouraged” that a “common understanding” had been reached that could accelerate relief for countries such as Zambia, Ghana, Ethiopia and Sri Lanka.“I always say the proof of the pudding is in the eating,” Ms. Georgieva said.To restructure a country’s debt, creditors generally must agree to a combination of lowering the interest rate on the loan, extending the duration of the loan or writing off some of what is owed. China, which has faced an array of domestic economic challenges over the last three years, has been reluctant to take losses on debt and has pushed for other lenders, such as the World Bank, to incur losses.The urgency for a resolution was palpable among countries that are most in need of relief. Zambia defaulted in 2020 and has been trying to restructure $8.4 billion that it owes through a program established by the Group of 20 nations. It owes about $6 billion to Chinese lenders, and its total debt to foreign lenders is approaching $20 billion.On Friday, Ghana’s finance minister, Ken Ofori-Atta, lamented that 33 African nations were saddled with interest payments that approached or exceeded what their governments spent on health and education.Yuri Gripas for The New York Times“Zambia urgently needs debt relief,” Situmbeko Musokotwane, Zambia’s finance minister, told The New York Times. “Delay on debt restructuring puts our currency under pressure, excludes Zambia from capital markets and makes it difficult to attract much-needed foreign direct investment.”Ghana appealed to the Group of 20 nations this year for debt relief through a fledgling program known as the Common Framework after securing preliminary approval for a $3 billion loan from the I.M.F. That money is contingent on Ghana’s receiving assurances that it can restructure the approximately $30 billion that it owes to foreign lenders. Officials from Ghana have been meeting with their Chinese counterparts about restructuring the $2 billion that it owes China.On Friday, Ghana’s finance minister, Ken Ofori-Atta, lamented that 33 African nations were saddled with interest payments that approached or exceeded what their governments spent on health and education and expressed disappointment that advanced economies had been slow to act.“Honestly, it is disheartening to watch Africa struggle in this way, especially considering the potential loss of productivity over the next decade should African economies buckle under the weight of suffocating debts,” Mr. Ofori-Atta said at an Atlantic Council event on Friday.But it remains uncertain how far China is willing to go.Brad Setser, a senior fellow at the Council on Foreign Relations, said that it was not clear what financial terms Beijing would accept when restructuring debt but that it appeared to be taking a “positive step” that would remove “a financially unwarranted roadblock to any progress.”Treasury Secretary Janet Yellen at a farm in Zambia in January. She said this week that she would continue to press her Chinese counterparts to make the restructuring process work better.Fatima Hussein/Associated PressBut given the grinding pace of the talks, big investors in emerging markets are not counting on quick resolutions.“We are starting to see tokens of flexibility from China on their stance in sovereign debt restructuring, but complexities abound,” said Yacov Arnopolin, emerging markets portfolio manager at PIMCO. “Near term, we don’t expect a clear-cut solution on China’s willingness to take losses.”China’s reluctance has been another source of tension with the United States, which has expressed concern that Beijing’s onerous lending terms and refusal to renegotiate have amplified the financial problems that developing countries are facing. Treasury Secretary Janet L. Yellen said this week that she would continue to press her Chinese counterparts to improve the restructuring process but that she was encouraged that China had recently expressed a willingness to help Sri Lanka restructure its debt.People familiar with Chinese economic policymaking said domestic politics had made it hard for China to make difficult decisions last autumn and over the winter about accepting possible losses on its loans.In October, the Communist Party held its once-in-five-years national congress and chose a new team of senior party officials to work with Xi Jinping, the country’s top leader. Maneuvering then began to reshuffle the government’s senior ranks, which had been expected during the annual session of the National People’s Congress in early March, although some changes of financial policymakers were unexpectedly delayed.China is now ready to focus on addressing a wide range of economic issues, including international debt, the people said. However, Beijing still faces other challenges that may limit its willingness to bargain, including a commercial banking system that faces very heavy losses on loans to real estate developers and does not want to accept large losses on loans to developing countries at the same time.Chinese officials offered support for the debt relief initiatives in broad terms this week.Wang Wenbin, a spokesman for the Chinese Foreign Ministry, said on Friday that China had put forward a three-point proposal that included calling for the I.M.F. to more quickly share its debt sustainability assessments for countries that need relief, and for creditors to detail how they will carry out the restructurings on “comparable terms.”After a meeting in Washington between Yi Gang, China’s central bank governor, and Mr. Musokotwane of Zambia, the Chinese central bank released a brief statement.“They exchanged views on issues of common concern including bilateral financial cooperation,” it said.Keith Bradsher More

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    Unemployment Is Low. Inflation Is Falling. But What Comes Next?

    Despite hopeful signs, economists worry that a recession is on the way or that the Federal Reserve will cause one in trying to rein in inflation.There are two starkly different ways of looking at the U.S. economy right now: what the data says has happened in the past few months, and what history warns could happen next.Most of the recent data suggests that the economy is strong. The job market is, incredibly, better today than it was in February 2020, before the coronavirus pandemic ripped a hole in the global economy. More people are working. They are paid more. The gaps between them — by race, gender, education or income — are smaller.Even inflation, long the black cloud in the economy’s sunny sky, is showing signs of dissipating. Government data released on Wednesday showed that consumer prices were up 5 percent in March from a year earlier, the slowest pace in nearly two years. Over the past three months, prices have risen at the equivalent of a 3.8 percent annual rate — faster than policymakers would like, but no longer the five-alarm fire it was at its peak last year.Yet for all the good news, economists remain worried that a recession is on the way or that the Federal Reserve will cause one in trying to rein in inflation.“The data has been reassuring,” said Karen Dynan, a Harvard economist and former Treasury official. “The things that we’re nervous about are all the things that we don’t have a lot of hard data about.”Beginning with the banks: Most of the recent data predates the collapse of Silicon Valley Bank and the upheaval in the banking system that followed. Already, there are signs that small and midsize lenders have begun to tighten their credit standards in response to the crisis, which, in turn, could push the businesses that are their clients to cut back on hiring and investment. The extent of the economic effects won’t be clear for months, but many forecasters — including economists at the Fed — have said that the turmoil has made a recession more likely.The Fed began raising interest rates more than a year ago, but the effect of those increases is just beginning to show up in many parts of the economy. Only in March did the construction industry begin to shed jobs, even though the housing market has been in a slump since the middle of last year. Manufacturers, too, were adding jobs until recently. And consumers are still in the early stages of grappling with what higher rates mean for their ability to buy cars, pay credit card balances and take on other forms of debt.The economic data that paints such a rosy picture of the economy is “a look back into an old world that doesn’t exist anymore,” said Ian Shepherdson, chief economist of Pantheon Macroeconomics.The Federal Reserve began raising interest rates more than a year ago, but the effect of those increases is just beginning to show up in many parts of the economy.Stefani Reynolds for The New York TimesMr. Shepherdson expects overall job growth to turn negative as soon as this summer, as the combined impact of the Fed’s policies and the bank-lending crunch hit the economy, leading to job cuts. Fed policymakers “have done more than enough” to tame inflation, he said, but appear likely to raise rates again anyway.Other economists, however, argue that the Fed has little choice but to keep raising rates until inflation is definitively in retreat. The recent slowdown in consumer price growth is welcome, they argue, but it is partly a result of the declines in the price of energy and used cars, both of which appear poised to resume climbing. Measures of underlying inflation, which strip away such short-term swings, have fallen only gradually.“Inflation is coming down, but I’m not sure that the momentum will continue if they don’t do more,” said Raghuram Rajan, an economist at the University of Chicago Booth School of Business and a former governor of India’s central bank.The Fed’s goal is to do just enough to bring down inflation without causing such a severe pullback in borrowing and spending that it leads to widespread job cuts and a recession. Striking that balance perfectly, however, is difficult — especially because policymakers must make their decisions based on data that is preliminary and incomplete.“It is going to be extremely hard for them to fine-tune the exact point,” Mr. Rajan said. “They would love to have more time to see what’s happening.”A miss in either direction could have serious consequences.The recovery of the U.S. job market over the past three years has been nothing short of remarkable. The unemployment rate, which neared 15 percent in April 2020, is down to the half-century low it achieved before the pandemic. Employers have added back all 22 million jobs lost during the early weeks of the pandemic, and three million more besides. The intense demand for labor has given workers a rare moment of leverage, in which they could demand better pay from their bosses, or go elsewhere to find it.The strong rebound has especially helped groups that are frequently left behind in less dynamic economic environments. Employment has been rising among people with disabilities, workers with criminal records and those without high school diplomas. The unemployment rate among Black Americans hit a record low in March, and pay gains have in recent years been fastest among the lowest-paid workers.All of that progress, critics say, could be lost if the Fed goes too far in its effort to fight inflation.Consumers are still in the early stages of grappling with what higher rates mean for their ability to buy cars, make credit card payments and take on other forms of debt.Gabby Jones for The New York Times“For this tiny moment, we finally see what a labor market is supposed to do,” said William Spriggs, a Howard University professor and chief economist for the A.F.L.-C.I.O. And the workers benefiting most from the labor market’s current strength, he said, will be the ones who suffer most from a recession.“You should see from this moment what you are truly risking,” Mr. Spriggs said. With inflation already falling, he said, there is no reason for policymakers to take that risk.“The labor market is finally hitting its stride,” he said. “And instead of celebrating and saying, ‘This is fantastic,’ we have the Fed hanging over everybody and casting shade on this unbelievable set of circumstances and saying, ‘Actually this is bad.’”But other economists caution that there are also risks in the Fed’s doing too little. So far, businesses and consumers have treated inflation mostly as a serious but temporary challenge. If they instead begin to expect high rates of inflation to continue, it could become a self-fulfilling prophecy, as companies set prices and workers demand raises in anticipation of higher costs.If that happens, the Fed may need to take much more aggressive action to bring inflation to heel, potentially causing a deeper, more painful recession. That, at least according to many economists, is what happened in the 1970s and 1980s, when the Fed, under Paul Volcker, brought inflation under control at the cost of what was, outside of the Great Depression and the pandemic, the highest unemployment rate on record.The real debate isn’t between the relative evils of inflation or unemployment, argued Jason Furman, a Harvard economist and former top adviser to President Barack Obama. It is between some unemployment now and potentially much more unemployment later.“You’re risking losing millions of jobs if you wait too long,” Mr. Furman said.There have been some encouraging — though still tentative — signs in recent weeks that the Fed may be succeeding at the delicate task of slowing the economy just enough but not too much.Data from the Labor Department this month showed that employers were posting fewer open positions and that workers were changing jobs less frequently, both signs that the job market was beginning to cool. At the same time, the pool of available workers has grown as more people have rejoined the labor force and immigration has rebounded.The combination of increased supply and reduced demand should, in theory, allow the labor market to come back into balance without leading to widespread job cuts. So far, that appears to be happening: Wage growth, which the Fed fears is contributing to inflation, has slowed, but layoffs and unemployment remain low.Jan Hatzius, chief economist for Goldman Sachs, said the recent job market data made him more optimistic about avoiding a recession. And while that outcome is far from certain, he said, it is worth keeping the current debate in perspective.“Given the incredible downturn in the economy that we saw in 2020 — with obvious fears of a much, much, much worse outcome — if you actually manage to get back to a reasonable inflation rate and high employment levels in, say, a three- to four-year period, it would be a very good outcome,” Mr. Hatzius said. 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    How Silicon Valley Bank’s Failure Could Have Spread Far and Wide

    New research suggests large parts of the country remain vulnerable to widespread bank failure in the event of a run on deposits.WASHINGTON — The federal government’s rescue of two failed banks last month has drawn criticism from some lawmakers and investors, who accuse the Biden administration and the Federal Reserve of bailing out wealthy customers in California and New York and sticking bank customers in Middle America with the bill.But new data help explain why government officials declared the failures of Silicon Valley Bank and Signature Bank to be a risk to not just their customers, but also the entire financial system. The numbers suggest that a run on deposits at those two banks could have set off a cascading series of bank failures, crippling small businesses and economic activity across wide parts of the country.The analysis of geographic risks from a banking crisis, prepared at the request of The New York Times, was done by economists at Stanford University, the University of Southern California, Columbia University and Northwestern University.The results show the continuing potential for widespread damage to the entire banking system, which has seen many banks’ financial positions deteriorate as the Fed has raised interest rates to tame inflation. Those rate increases have reduced the value of some government bonds that many banks hold in their portfolios.Although the damage has so far been contained, the research shows that larger runs on banks vulnerable to rate increases could result in a significant drop in credit available to store owners, home borrowers and more. Because so many counties rely on a relatively small number of financial institutions for deposits and loans, and because so many small businesses keep their money close to home, even a modest run on vulnerable banks could effectively stifle access to credit for entire communities.That sort of credit paralysis, the researchers estimate, could afflict nearly half the counties in Missouri, Tennessee and Mississippi — and every county in Vermont, Maine and Hawaii.The analysis helps buttress the case that government officials were making based on anecdotes and preliminary data they had when they orchestrated the bank rescues during that weekend in March. As fears of a wider financial crisis mounted, the Fed, the Treasury Department and the Federal Deposit Insurance Corporation acted together to ensure depositors could have access to all their money after the banks collapsed — even if their accounts exceeded the $250,000 limit on federally insured deposits. Fed officials also announced they would offer attractive loans to banks that needed help covering depositors’ demands.The moves allowed big companies — like Roku — that kept all their money with Silicon Valley Bank to be fully protected despite the bank’s collapse. That has prompted criticism from lawmakers and analysts who said the government was effectively encouraging risky behavior by bank managers and depositors alike.Even with those moves, the analysts warn, regulators have not permanently addressed the vulnerabilities in the banking system. Those risks leave some of the most economically disadvantaged areas of the country susceptible to banking shocks ranging from a pullback in small-business lending, which may already be underway, to a new depositor run that could effectively cut off easy access to credit for people and companies in counties across the nation.Federal Reserve staff hinted at the risks of a broader banking-related hit to the American economy in minutes from the Fed’s March meeting, which was released on Wednesday. “If banking and financial conditions and their effects on macroeconomic conditions were to deteriorate more than assumed in the baseline,” staff members were reported as saying, “then the risks around the baseline would be skewed to the downside for both economic activity and inflation.”Administration and Fed officials say the actions they took to rescue depositors have stabilized the financial system — including banks that could have been threatened by a depositor run.Lael Brainard, director of President Biden’s National Economic Council, said on Wednesday that banks could learn from the “stresses that the failed banks were under” and were “shoring up their balance sheets.”Drew Angerer/Getty Images“The banking system is very sound — it’s stable,” Lael Brainard, director of President Biden’s National Economic Council, said on Wednesday at an event in Washington hosted by the media outlet Semafor. “The core of the banking system has a great deal of capital.”“What is important is that banks have now seen, bank executives have now seen, some of the stresses that the failed banks were under, and they’re shoring up their balance sheets,” she said.But the researchers behind the new study caution that it is historically difficult for banks to quickly make large changes to their financial holdings. Their data does not account for efforts smaller banks have taken in recent weeks to reduce their exposure to higher interest rates. But the researchers note smaller and regional banks face new risks in the current economic climate, including a downturn in the commercial real estate market, that could set off another run on deposits.“We have to be very careful,” said Amit Seru, an economist at Stanford Graduate School of Business and an author of the study. “These communities are still pretty vulnerable.”Biden administration officials were monitoring a long list of regional banks in the hours after Silicon Valley Bank failed on March 10. They became alarmed when data and anecdotes suggested depositors were lining up to pull money out of many of them.The costs of the rescue they engineered will ultimately be paid by other banks, through a special fee levied by the government.The moves drew criticism, particularly from conservatives. “These losses are borne by the deposit insurance fund,” Senator Bill Hagerty, Republican of Tennessee, said in a recent Banking Committee hearing on the rescues. “That fund is going to be replenished by banks across the nation that had nothing to do with the mismanagement of Silicon Valley Bank or the failure of supervision here.”Senator Josh Hawley, Republican of Missouri, wrote on Twitter that he would try to block banks from passing on the special fee to consumers. “No way MO customers are paying for a woke bailout,” he said.The researchers found Silicon Valley Bank was more exposed than most banks to the risks of a rapid increase in interest rates, which reduced the value of securities like Treasury bills that it held in its portfolios and set the stage for insolvency when depositors rushed to pull their money from the bank.But using federal regulator data from 2022, the team also found hundreds of U.S. banks had dangerous amounts of deterioration in their balance sheets over the past year as the Fed rapidly raised rates.To map the vulnerabilities of smaller banks across the country, the researchers calculated how much the Fed’s interest rate increases have reduced the value of the asset holdings for individual banks, compared with the value of its deposits. They used that data to effectively estimate the risk of a bank failing in the event of a run on its deposits, which would force bank officials to sell undervalued assets to raise money. Then they calculated the share of banks at risk of failure for every county in the country.Those banks are disproportionately located in low-income communities, areas with high shares of Black and Hispanic populations and places where few residents hold a college degree.They are also the economic backbone of some of the nation’s most conservative states: Two-thirds of the counties in Texas and four-fifths of the counties in West Virginia could have a paralyzing number of their banks go under in the event of even a medium-sized run on deposits, the researchers calculate.In counties across the country, smaller banks are crucial engines of economic activity. In 95 percent of counties, Goldman Sachs researchers recently estimated, at least 70 percent of small business lending comes from smaller and regional banks. Those banks, the Goldman researchers warned, are pulling back on lending “disproportionately” in the wake of the Silicon Valley Bank collapse.Analysts will get new indications of the degree to which banks are moving quickly to pull back on lending and building up capital when three large financial institutions report quarterly earnings on Friday: Citigroup, JPMorgan Chase and Wells Fargo.Mr. Seru of Stanford said the communities that were particularly vulnerable to both a lending slowdown and a potential regional bank run were also the ones that suffered most in the pandemic recession. He said larger financial institutions were unlikely to quickly fill any lending vacuum in those communities if smaller banks failed.Mr. Seru and his colleagues have urged the government to help address those communities’ vulnerabilities by requiring banks to raise more capital to shore up their balance sheets.“The recovery in these neighborhoods is still not there yet,” he said. “And the last thing we want is disruption there.” More

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    How Janelle Jones’s Story About Black Women and the Economy Caught On

    The first Black woman to serve as chief economist at the Labor Department advanced the idea that lifting up people on the margins helps everyone else, too.“Transforming Spaces” is a series about women driving change in sometimes unexpected places.It takes approximately 30 seconds of conversation with Janelle Jones, the chief economist and policy director of one of the largest labor unions in the United States, to learn where she’s from and why it matters.“I’m from Ohio! Is that not obvious?” she exclaimed, at a decibel level that reflects how core the state is to her identity. Lorain, Ohio, to be exact, where her mother and her mother’s mother (and aunts, uncles and cousins) worked in the local Ford plant.Those union jobs, and the upward mobility they provided to millions of Black people who migrated from the South in search of freedom and opportunity, taught Ms. Jones what it means to move from the margins to the middle class. She noticed the difference when her mother switched to making Econoline vans after years serving Happy Meals at McDonald’s — a business that her current employer, the Service Employees International Union, is in a long-running battle to unionize.Now she is fighting to make more jobs as good as the union jobs that supported her family — or, even better, jobs with new safeguards that protect workers’ physical health.“It is a town where one of the best jobs you can have is to work at Ford,” Ms. Jones, 39, said of Lorain. “And while I love that for a lot of the people I know, it’s not the only way a town of 70,000 should be able to have economic security.”Last year, Ms. Jones left the U.S. Labor Department, where she served as chief economist, for the Service Employees International Union, which represents nearly two million security guards, nurses, teachers, airport retail workers and janitors. About two-thirds of the members are women, and more than half are people of color. That’s why the position seemed tailor made for the philosophy she’d developed and advanced over her entire career — that targeting policies to assist some of the most disadvantaged members of society will lift everyone else up in the process.Ms. Jones with Aparna Kumar, assistant director of communications for the Service Employees International Union, at the organization’s headquarters in Washington, D.C.Lexey Swall for The New York TimesMs. Jones’s superpower, according to her colleagues, is her ability to translate the economy into a framework that helps workers.For the past several years, Ms. Jones has been developing one central philosophy: Because Black women have historically been concentrated in low-paid caregiving jobs, which are often excluded from labor laws and benefits like Social Security, they have accumulated less wealth and experienced worse health outcomes. Furthermore, Ms. Jones argues, helping Black women — through measures like raising wages in care professions and canceling more student debt — is the best way to construct an economy that functions better for everyone.In 2020, she gave her narrative a name, “Black Women Best.” She came up with it while working for a progressive nonprofit called Groundwork Collaborative, which conducted focus groups across the country to find a narrative about how the economy should work for working people.“They were like, ‘I would like to not be tired,’” Ms. Jones recalled of the participants. “‘I want to buy school supplies.’ ‘I want to know that if my car breaks down, because I think it might, I won’t lose my apartment.’” Solving those basic problems for people with the least resources, she thought, would buoy the labor market from the bottom up.Her premise, which she articulated in a working paper for the Roosevelt Institute, a left-leaning think tank, found an eager audience under President Biden, who owed his victory in large part to Black women. It was embraced by influential figures, including corporate economists and a Federal Reserve president, and formed the basis of a 133-page report commissioned by the Congressional Caucus on Black Women and Girls.It hasn’t escaped pushback: Some scholars, including Tommy J. Curry at the University of Edinburgh, counter that Black men are more disadvantaged than Black women. Dr. Curry, a professor specializing in Africana philosophy and Black male studies at the university, said that, while he understands the “political popularity” of Ms. Jones’s theory, the evidence did not back it up. Black women, he said, “have seen higher levels of labor participation, entrepreneurial endeavors supported by government grants, and higher rates of college degree attainment since the 2000s, while Black men have been shown to have greater unemployment, less earnings per dollar — at 51 cents by some measures — and an overall downward mobility.”Ms. Jones declined to respond to Dr. Curry’s critique, but emphasized that her policy recommendations are generally not a zero-sum game.Ms. Jones in her office, meeting remotely with government relations colleagues about their lobbying efforts to increase the federal minimum wage to $15.Lexey Swall for The New York TimesMs. Jones’s desk chronicles her history in photos, books and a letter from President Biden.Lexey Swall for The New York Times“I do think that, in a really short period of time, she’s been able to get traction because people do see it as an additive vision,” said Angela Hanks, who worked with Ms. Jones at Groundwork and is now the chief of programs at the think tank Demos. “In a world where there aren’t a ton of totally new ideas, it’s a new idea. And one that’s resonant because it’s explicit but not exclusionary.”While few concrete policy changes are the result of one person’s efforts, it’s possible to see Ms. Jones’s message in actions as small as a guaranteed income program for Black mothers in Mississippi (now in its fourth round of funding) and as large as the expanded child tax credit and unemployment insurance provisions in the American Rescue Plan Act of 2021. Both federal policies helped low-income people in service professions, where Black women are overrepresented.“What Black Women Best is pushing us to do is to center those who have always been described as ‘deserving’ of their economic hardship,” said Azza Altiraifi, a senior policy manager at the racial justice advocacy group Liberation in a Generation. “Those sorts of stories were not common before. And it’s not because there weren’t people doing that research — it just didn’t seem to be a worthwhile exploration.”Ms. Jones’s path to influencing policy wasn’t a straight line. After majoring in math at Spelman, a historically Black college for women, she started two different Ph.D. programs and dropped out each time, after finding them to be only glancingly useful for the real work she wanted to do.“I felt like economics was the way I could do something for my grandmother, who was on a fixed income, or do something for my cousin, who’s a home health aide,” Ms. Jones said, explaining why she called off her pursuit of a doctorate. “I thought it was going to be labor economics, the things that I love, and it wasn’t. It was like advanced real analysis. It was honestly awful.”Fortunately for Ms. Jones, Washington is littered with Ph.D. dropouts who found policymaking more motivating than academic credentials. She spent years training with economists at the city’s labor-oriented think tanks. When Mr. Biden’s transition team went looking for a chief economist at the Department of Labor, in the wake of nationwide protests for racial equity in early 2020, she was an obvious choice — and became the first Black woman to hold the position.Ms. Jones with Alesia Lucas, assistant director of communications for the Service Employees International Union.Lexey Swall for The New York TimesWorking for Labor Secretary Martin J. Walsh, Ms. Jones found, was a unique opportunity to put her ideas into practice. She was charged with carrying out the president’s executive order on advancing racial equity, which instructed each agency to determine how it could eliminate barriers for minorities. Ms. Jones dug in, finding ways to make sure people of color got their share of procurement dollars, unemployment insurance, apprenticeships, jobs at the department, fair performance reviews and everything else that the Labor Department had to offer.Through it all, she argued that the economy hadn’t recovered until everyone was doing well. At times she even had to make that case inside the 17,000-person department, where some of her colleagues didn’t realize that the Black unemployment rate is almost always about twice as high as the white unemployment rate. Other times she had to make that case publicly, in regular videos breaking down the latest jobs report, for the better part of the year she worked at the Labor Department.While the average unemployment rate sank back to its prepandemic level in 2022, the racial gap remained wide. “It took forever — forever — for Black women to recover to even 2018 levels,” Ms. Jones said. She took this message to Twitter, sometimes using memes. In 2021, she didn’t hide her disappointment when the Senate backed off of legislation that came right out of the Black Women Best playbook — including beefed-up subsidies for child and elder care — in the face of opposition from Senator Joe Manchin III, the West Virginia Democrat.Mr. Walsh, who recently stepped down as labor secretary, said that Ms. Jones kept him focused on the idea that the prepandemic status quo wasn’t good enough.Ms. Jones is seven months into her new role at the Service Employees International Union.Lexey Swall for The New York Times“Janelle brought her brilliant economic mind, passion for building an accessible, equitable economy for all, and leadership to the Department of Labor at a critical time of transformation in the American economy,” Mr. Walsh said in an email, “insisting that this country’s workers — especially those usually left behind — remain at the forefront of the national policy response to tremendous upheaval.”Ultimately, Black men and women made strong gains as the pandemic waned, in part because in 2021 the Federal Reserve held off on raising interest rates for months in an attempt to cool off the economy, even as prices started to escalate. Raising interest rates makes businesses less willing to expand and often results in layoffs, which tend to hit people of color first. Ms. Jones, who now speaks for millions of union workers, had argued that a tight labor market would reduce racial inequality.“I care about all workers, obviously, but I really, really care about Black and brown women,” Ms. Jones said. “And to be in a place where those workers are centered, where it’s most of our members — it feels like the perfect place to do the things that make me excited.” More

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    Fed Officials Fretted Bank Turmoil Could Have Serious Economic Consequences

    Minutes from the Federal Reserve’s March 21-22 meeting showed that officials were grappling with how much more to lift borrowing costs.WASHINGTON — Federal Reserve officials wanted to remain flexible about the path ahead for interest rates, minutes from their March meeting showed, as they weighed a strong labor market and stubbornly high inflation against the risks that recent bank turmoil posed to the economy.Central bankers have spent more than a year waging a battle against the most painful burst of price increases in decades, raising interest rates to slow the economy and to wrestle price increases under control. After lifting their main rate to nearly 5 percent over the past 12 months, policymakers are contemplating when to stop those moves. But that choice has been complicated by recent high-profile bank blowups.Before Silicon Valley Bank failed on March 10 and Signature Bank failed on March 12, sending jitters across the global banking system, Fed officials had been contemplating making several more rate moves in 2023 to bring stubbornly inflation back under control. “Some” had even thought a large half-point rate move might be appropriate at the March 21-22 gathering, the minutes from the meeting showed.But officials adjusted their views after the shock to the banking system, the minutes released on Wednesday made clear. The Fed lifted rates at the March meeting, but only by a quarter point, and officials forecast just one more rate increase this year. Jerome H. Powell, the Fed chair, made it clear during his news conference after the meeting that whether and how much officials adjusted policy going forward would hinge on what happened both to credit conditions and to incoming economic data.At the meeting, “several participants emphasized the need to retain flexibility and optionality in determining the appropriate stance of monetary policy given the highly uncertain economic outlook,” the minutes showed.Officials on the policy-setting Federal Open Market Committee thought that “inflation remained much too high and that the labor market remained tight,” on one hand, but that they would also need to watch for signs that the bank issues had curbed bank lending and business and consumer confidence enough to meaningfully slow the economy.They said it would be “particularly important” to watch data on credit and financial conditions, which signal how difficult and expensive it is to borrow or raise money, the minutes showed.In the weeks since the meeting, early signs that lenders are becoming more cautious have begun to surface, but it is still too soon to tell exactly how much credit rates and availability will adjust in response to the turmoil.Fed staff projected that the bank tumult would even spur a “mild” recession later this year. “Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year with a recovery over the subsequent two years,” the minutes showed.At the same time, the latest data have suggested that inflation is slowing — though it remains abnormally rapid. A closely watched measure of consumer prices climbed 5 percent in March, down from 6 percent the previous month, as cheaper gas and flat food prices brought relief to consumers. But after stripping out food and fuel costs to get a sense of underlying trends, the “core” inflation index ticked up slightly on an annual basis to 5.6 percent.The current inflation rate is slower than the roughly 9 percent peak reached last summer, but it remains far faster than the rate that was normal before the pandemic and is still notably too quick for comfort. The Fed aims for 2 percent inflation on average over time, defining that goal using a separate inflation measure that is released at more of a delay.Financial markets barely budged in the immediate aftermath of the minutes’ release. From stocks to bonds to the U.S. dollar, the earlier inflation data had proved more consequential, suggesting that the minutes presented few surprises that notably moved the needle for investors.Fed officials — including Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, and Thomas Barkin, president of the Federal Reserve Bank of Richmond — suggested on Wednesday that the latest consumer price figures were encouraging but not decisive.“It was pretty much as expected,” Mr. Barkin said on CNBC. Ms. Daly said during an event in Salt Lake City that the report was “good news,” but noted that inflation was still elevated.The Fed’s next rate decision is set for release on May 3.Joe Rennison More