Evelyn Reynolds

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    Inflation Slowed in April, Marking 10th Month of Moderation

    Price increases cooled, capping months of declines. The details held hints of hope.Inflation slowed for a 10th straight month in April, a closely watched report on Wednesday showed, good news for American families struggling under the burden of higher costs and for policymakers in Washington as they try to wrangle rapid price increases.The Consumer Price Index climbed 4.9 percent in April from a year earlier, less than the 5 percent that economists in a Bloomberg survey had expected. Inflation has come down notably from a peak just above 9 percent last summer, though it has remained far higher than the 2 percent annual gains that were normal before the pandemic.Cheaper prices for airline tickets, new cars and groceries including eggs and produce helped to pull inflation lower last month even as gas prices and rents climbed briskly. In an important shift, prices for some services slowed — a positive for the Federal Reserve, which has been raising interest rates to slow the economy and wrestle inflation lower. Central bankers have been watching services costs carefully in part because they have been proving stubborn.The report also provided welcome news for President Biden. Inflation has plagued voters for more than two years now, weighing on the president’s approval ratings. As prices climb less dramatically with each passing month, they may become a less pressing concern.Yet economists warned against overstating the progress: While inflation is showing positive signs of cooling, a chunk of the decline since last summer has come as supply chains have healed. With that low-hanging fruit gone, it could be a long and bumpy path back to a normal inflation rate.“Inflation is still sticky; I don’t think that the Fed is going to look at this and cut rates, or heave an especially big sigh of relief,” said Priya Misra, head of global rates research at TD Securities. “Not so fast. We can’t draw the conclusion that the inflation problem is over.”Even so, stock prices jumped in response to the data as investors — who tend to prefer lower interest rates — greeted it as good news for the Fed.After stripping out food and fuel to get a sense of the underlying trend in price increases — what economists call a core measure — consumer prices climbed 5.5 percent from a year earlier, a slight deceleration from 5.6 percent in the previous reading.And a closely watched measure of services prices outside of housing costs pulled back even more meaningfully. That was an encouraging sign that a stubborn component of inflation is finally on the verge of cracking, but it was also driven partly by a moderation in travel expenses that might not last, said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives.That slowdown offered “a little bit of good news, but also probably a little bit of a head fake,” she said.While inflation has been gradually cooling for months, it has remained too elevated for policymakers.Higher Prices for Services Are Now Driving InflationBreakdown of the inflation rate, by category

    Note: The services category excludes energy services, and the goods category excludes food and energy goods.Sources: Bureau of Labor Statistics; New York Times analysisBy The New York TimesMuch of the slowing in price increases has come as supply chain bottlenecks that emerged during the depths of the pandemic have cleared up, allowing goods shortages to ease. Energy prices have also moderated after a surge in summer 2022 that was tied to Russia’s invasion of Ukraine.But underlying trends that could keep inflation persistently high over time have remained intact, including unusually strong wage growth, which could prod companies to try to charge more.That is one reason Fed officials have been paying such close attention to service prices: They tend to be more responsive to strength in the economy, and they can be difficult to slow down once they pick up.There are reasons to hope for more measured services inflation in coming months. Rents have begun to climb more slowly in market-based trackers, which should begin to show up in the official inflation data.But the question is whether the Fed has slowed the economy enough for other service prices — for things like travel, manicures, child care and health care — to follow suit.Central bankers have raised interest rates over the past year at the fastest pace since the 1980s to slow lending and weigh down growth, lifting borrowing costs above 5 percent as of this month.Those increases have made it more expensive to borrow money to buy a house or expand a business. As growth cools and companies compete less aggressively for workers, wage growth has already begun to slow. That chain reaction is expected to sap demand, which could make it harder for firms to increase prices without scaring away customers.But the full effect of the Fed’s moves is still playing out. The fallout could be intensified by a series of recent high-profile bank failures, which might make other lenders nervous and prompt them to pull back on extending credit.And Congress is approaching a showdown over raising the nation’s debt limit, which could also shape the outlook: If markets panic as Democrats and Republicans struggle to reach a deal and investors worry that the American government will fail to pay its bills, that could trickle out to hurt the economy.Democrats have warned that the brinkmanship could undermine progress in a strong economy with slowing inflation, while Republicans argued on Wednesday that rapid inflation is evidence that they are correct to demand spending cuts.With so many factors poised to weaken the economy, Fed officials are now assessing whether they need to raise borrowing costs further, or whether their moves so far will suffice to guide inflation back to normal. John C. Williams, the president of the Federal Reserve Bank of New York, told reporters in New York on Tuesday that the Fed’s next decision — to lift rates or to pause — would hinge on incoming data.“We’ll adjust policy going forward based on what we see out there,” he said.Policymakers will receive the consumer price report for May on June 13, the day before their decision, but officials typically give markets at least a hint of what they might do with rates ahead of time. Given that, central bankers are likely to pay close attention to the April inflation report.Fed officials will also receive May jobs data and a reading of the personal consumption expenditures price index — the measure they officially target in their 2 percent inflation goal, but one that comes out with more of a delay — before their next meeting. The personal consumption measure builds partly on the data from the consumer price report.For now, the fresh inflation figures probably aren’t enough to convince policymakers that they should change course and reduce interest rates soon, economists said.“It probably keeps them on track to pause at the next meeting,” Ms. Rosner-Warburton said. More

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    Traders raise the chances for a Fed rate cut following April inflation report

    Traders on Wednesday raised the chances of a September interest rate cut to close to 80%.
    That came even with inflation still running well above the Fed’s 2% target and “sticky” prices stubbornly high.
    Policymakers likely will continue to douse those expectations in future months, even if they choose not to raise rates.

    Shoppers during the grand opening of a Costco Wholesale store in Kyle, Texas, on Thursday, March 30, 2023.
    Jordan Vonderhaar | Bloomberg | Getty Images

    Even with inflation running well above the Federal Reserve’s goal, markets became more convinced Wednesday that the central bank will be cutting interest rates by as soon as September.
    The annual inflation rate as measured by the consumer price index fell to 4.9% in April, its lowest level in two years but still more than double the Fed’s 2% target.

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    Still, it was enough for traders to raise the chances of a September rate cut to near 80%, according to the CME Group’s Fed Watch tracker of prices in the fed funds futures market. In fact, the October fed funds contract implied a policy rate of 4.84%, or nearly a full quarter point below the current effective rate of 5.08%.
    Among Wall Street analysts and economists, though, the case for a rate cut remains shaky.
    “The timing of a first rate cut will depend both on how quickly inflation slows and how quickly the job market becomes less tight,” said Bill Adams, chief economist for Comerica Bank. A softer employment picture and further declines in the inflation rate “would allow the Fed to begin reducing interest rates as early as this fall.”
    However, the bar seems high for a rate cut, even if central bankers decide they can halt increases for now.
    New York Fed President John Williams, an influential policymaker and voter on the rate-setting Federal Open Market Committee, said Tuesday he doesn’t expect that policy will ease at all this year, though he left open the possibility beyond that.

    “In my forecast, we need to keep a restrictive stance of policy in place for quite some time to make sure we really bring inflation down,” he said during an appearance before the Economic Club of New York. “I do not see in my baseline forecast any reason to cut interest rates this year.”
    Still, markets are pricing in multiple cuts for 2023, totaling 0.75 percentage point, that would take the Fed’s benchmark rate down to a target range of 4.25%-4.5%. The central bank raised its fed funds rate last week by a quarter point, to 5.0%-5.25%, its 10th increase since March 2022.
    Policymakers likely will continue to douse those expectations for easier policy in future months, even if they choose not to raise rates.

    “That’s what they’re really pushing back on is our expectations in the market that they’re going to ease. But they’re not pushing the notion that the peak rate is going to be higher,” Paul McCulley, former Pimco managing director and currently senior fellow in financial macroeconomics at Cornell, said Wednesday on CNBC’s “Squawk on the Street.”
    “They’re going to sound quite hawkish until they get a lot of clean readings that we really have reached where we want to be,” said McCulley, using a market term for preferring higher rates and tighter monetary policy.
    The April CPI report provided mixed signals on where inflation is headed, with the core reading, excluding food and energy costs, holding fairly steady at 5.5% annually.
    Moreover, an Atlanta Fed gauge of “sticky CPI,” measuring prices that don’t tend to move a lot, was only slightly lower at 6.5% in April. Flexible-price CPI, which measures more volatile items such as food and energy costs, rose to 1.9%, an increase of 0.3 percentage point.
    “The fact that Core inflation’s annualized pace remains well above the Federal Reserve’s target of 2% and shows no signs of trending downward is critical,” PNC senior economist Kurt Rankin wrote in response to the CPI data. “Decreases on this front will be necessary before the Fed’s monetary policy rhetoric can be expected to change.”
    Before the CPI release, markets had been pricing in about a 20% chance of a rate hike at the June 13-14 FOMC meeting. Following the meeting, that probability fell to just 8.5%.
    That came even though “the previous downward trend has temporarily stalled” for inflation, wrote Andrew Hunter, deputy chief economist at Capital Economics.
    “We don’t think that will persuade the Fed to hike again at the June FOMC meeting, but it does suggest a risk that rates will need to remain high for a little longer than we have assumed,” Hunter said. More

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    Inflation rose 4.9% in April from a year ago, less than expectations

    The consumer price index rose 0.4% last month, pushed higher by rising shelter, used vehicle and gas prices. The increase was in line with Wall Street expectations.
    On an annual basis, the inflation rate was 4.9%, slightly less than the estimate and providing some hope that the trend is lower.
    For workers, real average hourly earnings, adjusted for inflation, rose 0.1% for the month but were still down 0.5% from a year ago.

    A widely followed measure of inflation rose in April, though the pace of the increase provided some hope that the cost of living will head lower later this year.
    The consumer price index, which measures the cost of a broad swath of goods and services, increased 0.4% for the month, in line with the Dow Jones estimate, according to a Labor Department report Wednesday.

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    However, that equated to an annual increase of 4.9%, slightly less than the 5% estimate.
    Excluding volatile food and energy categories, core CPI rose 0.4% monthly and 5.5% from a year ago, both in line with expectations.

    Increases in shelter, gasoline and used vehicles pushed the index higher, and were offset somewhat by declines in prices for fuel oil, new vehicles and food at home.
    Markets reacted positively to the news, with futures turning positive as Treasury yields were lower.
    “Today’s reports suggests that the Fed’s campaign to quell inflation is working, albeit more slowly than they would like,” said Quincy Krosby, chief global strategist at LPL Financial. “But for financial markets … today’s inflation print is a net positive.”

    Inflation has been persistent despite the Federal Reserve’s efforts to bring down prices. Starting in March 2022, the central bank has enacted 10 consecutive interest rate increases totaling 5 percentage points, taking benchmark borrowing rates to their highest level in nearly 16 years.
    The CPI reading has cooled considerably since peaking out around 9% in June 2022. However, inflation still has held well above the Fed’s 2% annual target.
    The report provides both good and bad news on the inflation front as Fed officials weigh their next move on rates.
    Shelter costs, which make up about one-third of the CPI weighting, increased another 0.4% on the month and are now up 8.1% from a year ago. The monthly gain represented a step down from previous months’ increases but was still indicative that a key inflation driver is rising.
    At the same time, the 4.4% jump in prices for used cars and trucks reverses recent declines. Food prices, though, were flat while the energy index rose 0.6%, boosted by a 3% gain in gasoline.
    Of the six grocery store indexes the Bureau of Labor Statistics uses to compute food prices, four showed declines. Milk, for instance, fell 2%, the biggest monthly drop since February 2015. Egg prices, one of the biggest gainers in the food index over the past year, fell 1.5%, taking the annual gain down to 21.4%.
    For workers, real average hourly earnings, adjusted for inflation, rose 0.1% for the month but were still down 0.5% from a year ago, the BLS said in a separate report.
    Following the reports, traders lowered odds that the Fed would raise interest rates at the June meeting to 20%, according to the CME Group’s FedWatch tracker of pricing in the fed funds futures market.
    The CPI reading comes just days after the BLS reported that nonfarm payrolls increased by 253,000 in April, above expectations and indicative that the labor market is still hot despite Fed efforts to cool demand.
    In approving its latest rate hike last week, the Fed removed an indication that future hikes are warranted and instead shifted to language saying that decisions will be based on incoming data.
    The Labor Department on Thursday will release the April producer price index, a gauge of wholesale prices on final demand goods and services. That report is expected to show a 0.3% headline increase and a 0.2% core gain. More

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    Fed’s John Williams says rates could be increased if inflation doesn’t come down

    New York Fed President John Williams cautioned that “it will take time for the FOMC’s actions to restore balance to the economy and return inflation to our 2% target.”
    The current problems in the banking industry and their impact will factor into Williams’ policy outlook, he said.
    “We haven’t said we’re done raising rates,” he told the Economic Club of New York.

    John Williams, Chief Executive Officer of the Federal Reserve Bank of New York, speaks at an event in New York, November 6, 2019.
    Carlo Allegri | Reuters

    NEW YORK — New York Federal Reserve President John Williams on Tuesday cautioned that interest rate increases will take a while to work their way through the economy before inflation returns to an acceptable level.
    The central bank official gave no forecast for where he sees policy headed but said he doesn’t expect inflation to return to the Fed’s 2% goal until the next two years. Should inflation not come down, he said the Fed always has the option to raise rates.

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    He added that unemployment is likely to rise to a 4%-4.5% range, from its current 54-year low of 3.4%.
    “Because of the lag between policy actions and their effects, it will take time for the [Federal Open Market Committee’s] actions to restore balance to the economy and return inflation to our 2% target,” Williams said in prepared remarks at the Economic Club of New York.
    Williams spoke six days after the FOMC voted to raise its benchmark rate another quarter percentage point to a target range of 5%-5.25%. In its post-meeting statement, the committee hinted it could pause rate hikes, though it said officials will be taking a variety of factors into account when determining how to proceed.
    The committee removed a key phrase from the statement that had indicated additional rate hikes would be appropriate. Williams, an FOMC voter, said that decision is now a matter of what the incoming data says.
    “First of all, we haven’t said we’re done raising rates,” Williams told CNBC’s Sara Eisen during a Q&A session after his speech. “We’re going to make sure we’re going to achieve our goals and we’re going to assess what’s happening in our economy and make the decision based on that data.”

    “I do not see in my baseline forecast, any reason to cut interest rates this year,” he said, adding that additional rate hikes would be possible if the data doesn’t cooperate.
    The current problems in the banking industry and their impact will factor into Williams’ policy outlook, he said.
    “I will be particularly focused on assessing the evolution of credit conditions and their effects on the outlook for growth, employment and inflation,” Williams said.
    Some positive signs Williams cited include moderation in longer-term inflation expectations and a cooling in demand for labor that has heated the jobs market and put upward pressure on wages, which nonetheless have failed to keep up with cost-of-living increases.
    He also said clogged labor chains, which have been a major inflation contributor, have “improved considerably” over time. More

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    The Debt Limit Workarounds: The Coin, the Constitution, Premium Bonds

    As Congress hurtles toward a debt limit showdown, ways to work around it are garnering attention.Move over, trillion-dollar coin, there is a new debt limit workaround in town — and this one sounds more sophisticated, which some of its proponents have suggested could make it more likely to work.For years, debt limit skeptics have argued that the United States can get around the cap on how much it can borrow by minting a large-denomination coin, depositing it in the government’s account at the Federal Reserve. Officials could then use the resulting money to pay the country’s bills. The maneuver would exploit a quirk in U.S. law, which gives the Treasury secretary wide discretion when it comes to minting platinum coins.But there have always been challenges with the idea: Treasury has expressed little appetite. It is unclear whether the Fed would take the coin. It just sounds unconventional to the point of absurdity. And now, some are arguing for a fancier-sounding alternative: premium bonds.The government typically funds itself by issuing debt in the form of financial securities called bonds and bills. They are worth a set amount after a fixed period of time — for example, $1,000 in 10 years — and they pay “coupons” twice a year in between. Typically, those coupon rates are set near market interest rates.But in the premium bond idea, the government would renew old, expiring bonds at higher coupon rates. Doing so would not technically add to the nation’s debt — if the government previously had a 10-year bond worth $1,000 outstanding, it would still have a 10-year bond worth $1,000 outstanding. But investors would pay more to hold a bond that pays $7 a year than one that pays $3.50, so promising a higher interest rate would allow Treasury to raise more money.Would those higher interest rates, which would cost the government more money, pose a problem? Not technically. The debt limit applies to the face value of outstanding federal government debt ($1,000 in our example), not future promises to pay interest.And the idea could also come in a slightly different flavor. The government could issue bonds that pay regular coupons, but which never pay back principal, or perpetual bonds. People would buy them for the long-term cash stream, and they would not add to the principal of debt outstanding.The premium bond idea has gained support from some big names. The economic commentator Matthew Yglesias brought it up in January, the Bloomberg columnist Matt Levine has written about it, and The New York Times columnist and Nobel-winning economist Paul Krugman made a case for it this week.But even some proponents of premium bonds acknowledge that it could face legal challenges or damage the United States’ reputation in the eyes of investors. Plus, their design and issuance would have to happen fast.“Normally, Treasury makes changes slowly, with lots of consulting of bond market participants and advance announcement of auctions,” said Joseph E. Gagnon, an economist at the Peterson Institute for International Economics, adding that the government might have to offer a discount.But, he added, it “sure beats defaulting” and he “would argue it is better than not paying workers or retirees.”While the premium bond idea might come in different packaging, it has a lot of similarities with the coin idea. Either plan would exploit a loophole to add to government coffers without actually lifting the debt limit. Because both are seen as gimmicky, it could be hard for either to become reality.Of all the options the government could use to unilaterally get around the debt ceiling, “they are the least likely in our opinion,” said Chris Krueger, a policy analyst at TD Cowen.But a workaround that hinges on the 14th Amendment could garner broader support, Mr. Krueger said. That would leverage a clause in the Constitution that says that the validity of public debt should not be questioned.Some legal scholars contend that language overrides the statutory borrowing limit, which currently caps federal debt at $31.4 trillion. The idea is that the government’s responsibility to pay what it owes would trump the debt limit rules — so the debt limit could be ignored.It would not be a perfect solution: The move would draw an immediate court challenge and could sow uncertainty in the bond market, even its proponents acknowledge. Still, some White House officials have looked into the option. More

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    ‘There Are No Good Options’: The U.S. Is Running Out of Money

    Treasury is running out of cash, leaving little time to resolve a debt ceiling standoff that could result in default.President Biden and Speaker Kevin McCarthy will meet on Tuesday afternoon to discuss budget priorities and raising the debt limit at a precarious moment: The United States is quickly running out of cash to pay its bills.Lawmakers have less than a month to pass legislation to increase or suspend the debt ceiling, which caps the amount of money the government can borrow. The United States reached its statutory $31.4 trillion debt limit on Jan. 19, and the Treasury Department estimates that the accounting maneuvers it has been employing to prop up its cash reserves could be exhausted as soon as June 1.If the debt ceiling is not raised before the government runs out of cash — what is known as the X-date — it could be unable to pay all its bills on time, including military salaries, payments to bondholders and Social Security checks. Barring a solution, millions of Americans could stop receiving government benefits, stock markets could plunge, and a constitutional crisis could ensue.The Bipartisan Policy Center, a think tank that tracks the nation’s cash reserves, warned on Tuesday that the X-date was likely to be between early June and early August. It said that economic risks would start to surge before the money ran out and that meeting the nation’s financial obligations would soon become increasingly difficult.“The coming weeks are critical for assessing the strength of government cash flows,” said Shai Akabas, the director of economic policy at the Bipartisan Policy Center. “If a solution is not reached before June, policymakers may be playing daily Russian roulette with the full faith and credit of the United States, risking financial disaster for their constituents and the country.”A default could come sooner than expected because tax revenues have been trickling into the government’s coffers this spring. The sluggish pace is due in part to a decision by the Internal Revenue Service to give taxpayers in states that were affected by severe weather more time to file their 2022 taxes.The brinkmanship has renewed questions about how the federal government might try to prioritize certain payments if it does run out of cash, whether Mr. Biden could ignore the debt limit entirely and order the Treasury Department to continue borrowing, and if far-fetched ideas such as minting a $1 trillion coin could in fact be viable.Treasury Secretary Janet L. Yellen said on Monday that if the debt limit was not raised, then Mr. Biden would have to decide how to proceed.“I would say that if Congress doesn’t raise the debt ceiling, the president will have to make some decisions about what to do with the resources that we do have,” Ms. Yellen said on CNBC. “And there are a variety of different options, but there are no good options.”She added that failing to raise or suspend the debt limit would be an “economic catastrophe” and assailed Republicans for holding the economy hostage.“It’s a gun to the head of the American people and the American economy,” Ms. Yellen said.Mr. Biden and Mr. McCarthy will be joined by Senator Chuck Schumer of New York, the majority leader, and Senator Mitch McConnell of Kentucky, the minority leader. Ms. Yellen is traveling to Japan on Tuesday for a gathering of finance ministers of the Group of 7 nations and will not be participating in the meeting at the White House.The Biden administration and lawmakers are under growing pressure from business groups to find a way to avoid a default.“A default would deliver a severe blow to the economy, leading to widespread job losses, decimated retirement savings and higher borrowing costs for families, businesses and the government,” said Joshua Bolten, the chief executive of the Business Roundtable. “Failing to raise the debt limit would also threaten the U.S. dollar’s central role in the global financial system to the benefit of China.”He added: “Securing a bipartisan path forward to raise the debt ceiling could not be more urgent.” More

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    Biden and McCarthy to Discuss Debt Limit as a Possible Default Looms

    The president will host the House speaker and other congressional leaders at the White House on Tuesday to discuss their impasse over the debt ceiling and spending cuts.WASHINGTON — President Biden will meet with Speaker Kevin McCarthy at the White House on Tuesday in a critical face-to-face confrontation that will frame their showdown over the federal debt and spending in the weeks before the nation is set to default on its obligations for the first time in history.With the American and perhaps the global economy hanging in the balance, the meeting will be the first sit-down session between the Democratic president and Republican speaker since February. But even the terms of the discussion are in dispute: Mr. McCarthy insists the president negotiate a debt ceiling deal with him, while Mr. Biden insists the meeting will just be an opportunity to tell the speaker that there will be no negotiations over the limit.The meeting in the Oval Office will feature Mr. Biden, Mr. McCarthy and three other congressional leaders: Representative Hakeem Jeffries of New York, the Democratic leader in the House, and Senators Chuck Schumer of New York and Mitch McConnell of Kentucky, the Democratic and Republican leaders in the Senate. But Mr. Biden and Mr. McCarthy are the key players, locked in a political game of chicken to see who will blink first on raising the debt ceiling.With the federal government expected to default on its debt as soon as June 1 without an agreement, Mr. McCarthy and his Republican caucus have refused to raise the debt ceiling without commitments to major spending cuts. Mr. Biden has said he would discuss ways to reduce the deficit but has refused to link any spending decisions to the debt ceiling increase, arguing that Congress should simply raise the ceiling as it has for generations to pay for spending already approved.Karine Jean-Pierre, the White House press secretary, repeatedly referred to Mr. Biden’s meeting with Mr. McCarthy on Tuesday as a “conversation” rather than negotiations.Pete Marovich for The New York Times“We should not have House Republicans manufacturing a crisis on something that has been done 78 times since 1960,” Karine Jean-Pierre, the White House press secretary, said on Monday. “This is their constitutional duty. Congress must act. That’s what the president is going to make very clear with the leaders tomorrow.”The meeting that Mr. Biden has called, she added, will not involve any haggling over the debt ceiling. “I wouldn’t call it ‘debt ceiling negotiations,’” she said in reply to a reporter who used that phrase. “I would call it a conversation.” In fact, she was so intent on calling it a “conversation” that she used the word to describe the meeting 15 times during her briefing.Neither side expects any breakthrough at the session, scheduled for 4 p.m., but instead the leaders plan to use it to emphasize their positions in the dispute, in effect setting the parameters for the debate that will play out over the next few weeks. In recent years, such standoffs have not been resolved until the final hours and days before a deadline — or the deadline is extended.Mr. Biden has indicated that he is willing to have a separate discussion with Mr. McCarthy and the Republicans over spending that is not directly linked to the debt ceiling legislation. White House officials said the president plans to push Republicans to consider the tax increases and prescription drug savings he laid out in his most recent budget, which would reduce deficits by an estimated $3 trillion over 10 years, as part of a larger package to reduce debt accumulation over time.He is likely to challenge Republicans in Tuesday’s meeting to be more specific in the spending they would cut. He has hammered them for more than a week over the potential consequences — like reduced funding for veterans’ health services — that could result from the discretionary spending caps they included in a debt ceiling bill that passed the House late last month.Republicans have bristled at the president’s attacks on their legislation, calling them misleading. But they noted that unlike the Democrats, they at least have passed a measure to raise the debt ceiling, albeit conditioned on spending cuts. They argued that Mr. Biden and his Democratic allies have to come to the table with a counterproposal. Otherwise, they maintain, it would be the Democrats, not the Republicans, who failed to raise the debt ceiling, leading to a possible default.“They have to now step up and act like responsible leaders,” Representative Jodey C. Arrington, a Republican from Texas and the chairman of the House Budget Committee, said on CNBC on Monday. “We’ve done that, and we have set that example, and we have placed in their hands a list of proposals that we have gotten consensus on. It’s their time to respond, and the American people expect them to.” More

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    Worries linger about financial stability following bank rescue, Fed report shows

    The Federal Reserve issued its periodic report on the nation’s financial and economic health, a survey showing the biggest fears about current conditions.
    Respondents cited “persistent inflation and tighter monetary policy, banking-sector stress, commercial and residential real estate and geopolitical tensions.”
    Several sectors were identified as having elevated potential for trouble. They include money market funds, stablecoins and hedge funds, particularly larger firms.

    The Federal Reserve in Washington, D.C.
    Wysiati | E+ | Getty Images

    Banking system pressures, real estate stress and persistent inflation top worries about financial stability, though the system overall remains stable, the Federal Reserve said in a report Monday.
    The central bank issued its periodic report on the nation’s financial and economic health, a survey of market experts, economists, academics and others that showed the biggest fears about current conditions.

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    “Frequently cited topics in this survey included persistent inflation and tighter monetary policy, banking-sector stress, commercial and residential real estate and geopolitical tensions,” the report stated.
    The Fed last published its Financial Stability Report in November 2022 before the implosion about two months ago of several prominent midsize banks, including Silicon Valley Bank, an important funding source for technology companies.
    In response to the crisis, the Fed implemented several emergency funding measures it said have helped stabilize the system.
    “Overall, the banking sector remained resilient, with substantial loss-absorbing capacity,” the report stated. “Policy interventions by the Federal Reserve and other agencies helped mitigate these strains and limit the potential for further stress.”
    Several sectors were identified as having elevated potential for trouble.

    These sectors include money market funds, stablecoins and hedge funds, particularly larger firms. However, the report also notes leverage is generally low across household and business debt, including commercial real estate, a potential trouble spot for the economy.
    The report was released on the same day the Fed’s survey of senior loan officers at banks said they see tighter lending standards and lower demand ahead.
    Among the lending officers’ concerns were deposit outflows, a weakening economy and bank liquidity. Commercial and industrial loans were cited as particular point of stress, as was commercial real estate.
    However, the stability report noted bank capital ratios are around what would be considered normal while leverage was mostly lower. The bank did highlight leverage at nonbank financial institutions such as hedge funds.
    “Actions taken by the official sector reassured depositors, and the broad banking system remained sound and resilient. For the banking system as a whole, aggregate bank capital levels were ample,” the report said.
    The Fed added it is prepared to take whatever measures are necessary to keep the system stable. More