Evelyn Reynolds

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    Late-Night Negotiating Frenzy Left First Republic in JPMorgan’s Control

    The resolution of First Republic Bank came after a frantic night of deal making by government officials and executives at the country’s biggest bank.Lawmakers and regulators have spent years erecting laws and rules meant to limit the power and size of the largest U.S. banks. But those efforts were cast aside in a frantic late-night effort by government officials to contain a banking crisis by seizing and selling First Republic Bank to the country’s biggest bank, JPMorgan Chase.At about 1 a.m. Monday, hours after the Federal Deposit Insurance Corporation had been expected to announce a buyer for the troubled regional lender, government officials informed JPMorgan executives that they had won the right to take over First Republic and the accounts of its well-heeled customers, most of them in wealthy coastal cities and suburbs.The F.D.I.C.’s decision appears, for now, to have quelled nearly two months of simmering turmoil in the banking sector that followed the sudden collapse of Silicon Valley Bank and Signature Bank in early March. “This part of the crisis is over,” Jamie Dimon, JPMorgan’s chief executive, told analysts on Monday in a conference call to discuss the acquisition.For Mr. Dimon, it was a reprise of his role in the 2008 financial crisis when JPMorgan acquired Bear Stearns and Washington Mutual at the behest of federal regulators.But the resolution of First Republic has also brought to the fore long-running debates about whether some banks have become too big too fail partly because regulators have allowed or even encouraged them to acquire smaller financial institutions, especially during crises.“Regulators view them as adults and business partners,” said Tyler Gellasch, president of Healthy Markets Association, a Washington-based group that advocates greater transparency in the financial system, referring to big banks like JPMorgan. “They are too big to fail and they are afforded the privilege of being so.”He added that JPMorgan was likely to make a lot of money from the acquisition. JPMorgan said on Monday that it expected the deal to raise its profits this year by $500 million.JPMorgan will pay the F.D.I.C. $10.6 billion to acquire First Republic. The government agency expects to cover a loss of about $13 billion on First Republic’s assets.`Normally a bank cannot acquire another bank if doing so would allow it to control more than 10 percent of the nation’s bank deposits — a threshold JPMorgan had already reached before buying First Republic. But the law includes an exception for the acquisition of a failing bank.The F.D.I.C. sounded out banks to see if they would be willing to take First Republic’s uninsured deposits and if their primary regulator would allow them to do so, according to two people familiar with the process. On Friday afternoon, the regulator invited the banks into a virtual data room to look at First Republic’s financials, the two people said. The government agency, which was working with the investment bank Guggenheim Securities, had plenty of time to prepare for the auction. First Republic had been struggling since the failure of Silicon Valley Bank, despite receiving a $30 billion lifeline in March from 11 of the country’s largest banks, an effort led by Mr. Dimon of JPMorgan.By the afternoon of April 24, it had became increasingly clear that First Republic couldn’t stand on its own. That day, the bank revealed in its quarterly earnings report that it had lost $102 billion in customer deposits in the last weeks of March, or more than half what it had at the end of December.Ahead of the earnings release, First Republic’s lawyers and other advisers told the bank’s senior executives not to answer any questions on the company’s conference call, according to a person briefed on the matter, because of the bank’s dire situation.The revelations in the report and the executives’ silence spooked investors, who dumped its already beaten-down stock.When the F.D.I.C. began the process to sell First Republic, several bidders including PNC Financial Services, Fifth Third Bancorp, Citizens Financial Group and JPMorgan expressed an interest. Analysts and executives at those banks began going through First Republic’s data to figure out how much they would be willing to bid and submitted bids by early afternoon Sunday.Regulators and Guggenheim then returned to the four bidders, asking them for their best and final offers by 7 p.m. E.T. Each bank, including JPMorgan Chase, improved its offer, two of the people said.Regulators had indicated that they planned to announce a winner by 8 p.m., before markets in Asia opened. PNC executives had spent much of the weekend at the bank’s Pittsburgh headquarters putting together its bid. Executives at Citizens, which is based in Providence, R.I., gathered in offices in Connecticut and Massachusetts. But 8 p.m. rolled by with no word from the F.D.I.C. Several hours of silence followed.For the three smaller banks, the deal would have been transformative, giving them a much bigger presence in wealthy places like the San Francisco Bay Area and New York City. PNC, which is the sixth-largest U.S. bank, would have bolstered its position to challenge the nation’s four large commercial lenders — JPMorgan, Bank of America, Citigroup and Wells Fargo.Ultimately, JPMorgan not only offered more money than others and agreed to buy the vast majority of the bank, two people familiar with the process said. Regulators also were more inclined to accept the bank’s offer because JPMorgan was likely to have an easier time integrating First Republic’s branches into its business and managing the smaller bank’s loans and mortgages either by holding onto them or selling them, the two people said.As the executives at the smaller banks waited for their phones to ring, the F.D.I.C. and its advisers continued to negotiate with Mr. Dimon and his team, who were seeking assurances that the government would safeguard JPMorgan against losses, according to one of the people.At around 3 a.m., the F.D.I.C. announced that JPMorgan would acquire First Republic.An F.D.I.C. spokesman declined to comment on other bidders. In its statement, the agency said, “The resolution of First Republic Bank involved a highly competitive bidding process and resulted in a transaction consistent with the least-cost requirements of the Federal Deposit Insurance Act.” The announcement was widely praised in the financial industry. Robin Vince, the president and chief executive of Bank of New York Mellon, said in an interview that it felt “like a cloud has been lifted.”Some financial analysts cautioned that the celebrations might be overdone.Many banks still have hundreds of billions of dollars in unrealized losses on Treasury bonds and mortgage-backed securities purchased when interest rates were very low. Some of those bond investments are now worth much less because the Federal Reserve has sharply raised rates to bring down inflation.Christopher Whalen of Whalen Global Advisors said the Fed fueled some of the problems at banks like First Republic with an easy money policy that led them to load up on bonds that are now performing poorly. “This problem will not go away until the Fed drops interest rates,” he said. “Otherwise, we’ll see more banks fail.”But Mr. Whalen’s view is a minority opinion. The growing consensus is that the failures of Silicon Valley, Signature and now First Republic will not lead to a repeat of the 2008 financial crisis that brought down Bear Stearns, Lehman Brothers and Washington Mutual.The assets of the three banks that failed this year are greater than of the 25 banks that failed in 2008 after adjusting for inflation. But 465 banks failed in total from 2008 to 2012.One unresolved issue is how to deal with banks that still have a high percentage of uninsured deposits — money from customers well in excess of the $250,000 federally insured cap on deposits. The F.D.I.C. on Monday recommended that Congress consider expanding its ability to protect deposits.Many investors and depositors are already assuming that the government will step in to protect all deposits at any failing institution by invoking a systemic risk exception — something they did with Silicon Valley Bank and Signature Bank. But that’s easy to do when it is just a few banks that run into trouble and more difficult if many banks have problems.Another looming concern is that midsize banks will pull back on lending to preserve capital if they are subject to the kind of bank runs that took place at Silicon Valley Bank and First Republic. Depositors might also move their savings to money market funds, which tend to offer higher returns than savings or checking accounts.Midsize banks also need to brace for more exacting oversight from the Fed and the F.D.I.C., which criticized themselves in reports released last week about the bank failures in March.Regional and community banks are the main source of financing for the commercial real estate industry, which encompasses office buildings, apartment complexes and shopping centers. An unwillingness by banks to lend to developers could stymie plans for new construction.Any pullback in lending could lead to a slowdown in economic growth or a recession.Some experts said that despite those challenges and concerns about big banks getting bigger, regulators have done an admirable job in restoring stability to the financial system.“It was an extremely difficult situation, and given how difficult it was, I think it was well done,” said Sheila Bair, who was chair of the F.D.I.C. during the 2008 financial crisis. “It means that big banks becoming bigger when smaller banks begin to fail is inevitable,” she added.Reporting was contributed by More

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    A Timeline of How the Banking Crisis Has Unfolded

    First Republic’s downfall was just the latest in a series of problems affecting midsize banks.First Republic Bank was seized by regulators and sold to JPMorgan Chase on Monday, the latest casualty of a banking crisis that has seen other troubled lenders collapse in March.Silicon Valley Bank, one of the most prominent lenders to technology start-ups and venture capital firms, was the first to implode on March 10. Regulators seized Silicon Valley Bank, and later, Signature Bank, a New York financial institution with a large real estate lending business. The panic also led to Wall Street’s biggest banks stepping in to give $30 billion to First Republic and UBS’s takeover of its rival, the Swiss bank Credit Suisse.As investors and bank customers have fretted over the stability of the financial system, federal officials have tried to ease concerns, taking steps to protect depositors and reassuring them they could access all their money.Here is a timeline of events related to the global financial turmoil.March 8In a letter to stakeholders, Silicon Valley Bank said it needed to shore up its finances, announcing a roughly $1.8 billion loss and a plan to raise $2.25 billion in capital to handle increasing withdrawal requests amid a dim economic environment for tech companies.Moody’s, a credit ratings firm, downgraded the bank’s bonds rating.Silvergate, a California-based bank that made loans to cryptocurrency companies, separately announced that it would cease operations and liquidate its assets after suffering heavy losses.March 9Gregory Becker, the chief executive of Silicon Valley Bank, urged venture capital firms to remain calm on a conference call. But panic spread on social media and some investors advised companies to move their money away from the bank.A Silicon Valley Bank executive wrote in a note to clients that it had “been a tough day” but the bank was “actually quite sound, and it’s disappointing to see so many smart investors tweet otherwise.”The bank’s stock plummeted 60 percent and clients pulled out about $40 billion of their money.March 10In the biggest bank failure since the 2008 financial crisis, Silicon Valley Bank collapsed after a run on deposits. The Federal Deposit Insurance Corporation announced that it would take over the 40-year-old institution.Investors began to dump stocks of the bank’s peers, including First Republic, Signature Bank and Western Alliance, which had similar investment portfolios. The nation’s largest banks were more insulated from the fallout, with shares of JPMorgan, Wells Fargo and Citigroup generally flat.Treasury Secretary Janet L. Yellen reassured investors that the banking system was resilient, expressing “full confidence in banking regulators.”Signature Bank, a 24-year-old institution that provided lending services for real estate companies and law firms, saw a torrent of deposits leaving its coffers after customers began panicking.March 12New York regulators shut down Signature Bank, just two days after Silicon Valley Bank failed, over concerns that keeping the bank open could threaten the stability of the financial system. Signature was one of the few banks that had recently opened its doors to cryptocurrency deposits.The Federal Reserve, the Treasury Department and the F.D.I.C. announced that “depositors will have access to all of their money” and that no losses from either bank’s failure would be “borne by the taxpayer.”The Fed said it would set up an emergency lending program, with approval from the Treasury, to provide additional funding to eligible banks and help ensure they could “meet the needs of all their depositors.”March 13President Biden said in a speech that the U.S. banking system was safe and insisted that taxpayers would not pay for any bailouts in an attempt to ward off a crisis of confidence in the financial system.Regional bank stocks plunged after the unexpected seizure of Silicon Valley Bank and Signature Bank, with shares of First Republic tumbling 60 percent.The Bank of England announced that banking giant HSBC would buy Silicon Valley Bank’s British subsidiary.March 14Bank stocks recouped some of their losses as investor fears began to ease.The Justice Department and the Securities and Exchange Commission reportedly opened investigations into Silicon Valley Bank’s collapse.March 15Credit Suisse shares tumbled after investors started to fear that the bank would run out of money. Officials at Switzerland’s central bank said it would step in and provide support to Credit Suisse if necessary.March 16Eleven of the largest U.S. banks came together to inject $30 billion into First Republic, which was teetering on the brink of collapse. The plan was hatched by Ms. Yellen and Jamie Dimon, the chief executive of JPMorgan Chase. The Treasury secretary believed the actions by the private sector would help underscore confidence in the stability of the banking system. Shares of the bank rallied on the announcement.Credit Suisse said it planned to borrow as much as $54 billion from the Swiss National Bank to stave off concerns about its financial health.Ms. Yellen testified before the Senate Finance Committee and sought to reassure the public that U.S. banks were “sound” and deposits were safe.March 17The shares of many banks continued to slide, wiping out the previous day’s gains as investors continued to worry about the financial turmoil.One day after the $30 billion lifeline was announced, First Republic’s stock plummeted again and it was in talks to sell a piece of itself to other banks or private equity firms.March 19UBS, Switzerland’s largest bank, agreed to buy its smaller rival, Credit Suisse, for about $3.2 billion. The Swiss National Bank agreed to lend up to 100 billion Swiss francs to UBS to help close the deal. The Swiss financial regulatory agency also wiped out $17 billion worth of Credit Suisse’s bonds and eliminated the need for UBS shareholders to vote on the deal.The Fed and five other global central banks took steps to ensure that dollars would remain readily available in a move intended to ease pressure on the global financial system.The F.D.I.C. said it had entered into an agreement to sell the 40 former branches of Signature Bank to New York Community Bancorp.March 26First Citizens BancShares agreed to acquire Silicon Valley Bank in a government-backed deal that included the purchase of about $72 billion in loans at a discount of $16.5 billion. It also included the transfer of all the bank’s deposits, which were worth $56 billion. About $90 billion in the bank’s securities and other assets were not included in the sale and remained in the F.D.I.C.’s control.March 30Mr. Biden called on financial regulators to strengthen oversight of midsize banks that faced reduced scrutiny after the Trump administration weakened some regulations. The president proposed requiring banks to protect themselves against potential losses and maintain enough access to cash so they could better endure a crisis, among other things.March 28While testifying before Congress, officials at the Fed, the F.D.I.C. and the Treasury Department faced tough questions from lawmakers about the factors that led to the failures of Silicon Valley Bank and Signature Bank.Michael S. Barr, the Fed’s vice chair for supervision, blamed bank executives and said the Fed was examining what went wrong, but provided little explanation as to why supervisors did not prevent the collapse.April 14The country’s largest banks — including JPMorgan Chase, Citigroup and Wells Fargo — reported robust first-quarter earnings, signaling that many customers had developed a strong preference for larger institutions they viewed as safer.April 24First Republic’s latest earnings report showed that the bank lost $102 billion in customer deposits during the first quarter — well over half the $176 billion it held at the end of last year — not including the temporary $30 billion lifeline. The bank said it would cut up to a quarter of its work force and reduce executive compensation by an unspecified amount.In a conference call with Wall Street analysts, the bank’s executives said little and declined to take questions.The bank’s stock dropped about 20 percent in extended trading after rising more than 10 percent before the report’s release.April 25First Republic’s stock closed down 50 percent after the troubling earnings report.April 26First Republic’s stock continued its tumble, dropping about 30 percent and closing the day at just $5.69, a decline from about $150 a year earlier.April 28The Fed released a report faulting itself for failing to “take forceful enough action” ahead of Silicon Valley Bank’s collapse. The F.D.I.C. released a separate report that criticized Signature Bank’s “poor management” and insufficient risk policing practices.May 1First Republic was taken over by the F.D.I.C. and immediately sold to JPMorgan Chase, making it the second biggest U.S. bank by assets to collapse after Washington Mutual in 2008. More

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    White House Considers Two Key Nominations at the Fed

    Administration officials are considering Adriana Kugler, an official at the World Bank, for a Fed governor job, while elevating a sitting governor to the role of vice chair.WASHINGTON — President Biden is closing in on two nominations for the Federal Reserve’s Board of Governors that would give the Fed its first Latina board member and its second ever Black vice chair, according to several people familiar with the process.Mr. Biden is close to nominating Adriana Kugler, an economist with Colombian heritage who is the U.S. executive director of the World Bank, to the Fed’s only remaining open governor position. In a corresponding move, he is likely to elevate Philip Jefferson, an economist who was confirmed overwhelmingly to the board when Mr. Biden nominated him to an open governor position, to be the board’s vice chair.The decisions are not yet final.A White House spokesman declined to comment on Monday. The Federal Reserve did not comment.If she is both nominated and confirmed by the Senate, Ms. Kugler would fill a governor position recently vacated by Lael Brainard, who became director of the White House National Economic Council in February.The Fed board is made up of seven members, with one serving as chair, another as vice chair and another as vice chair for bank supervision. Ms. Brainard was both a governor and the Fed’s vice chair.The leadership shuffle at the Fed — the world’s most powerful central bank and a key economic policy setter in America — would reflect the complicated set of priorities that the Biden administration is trying to balance. The administration is under pressure, especially from Senator Bob Menendez of New Jersey, to appoint a Latino or Latina to the Fed Board.Ms. Kugler, who was formerly both an economist and administrator at Georgetown University, was not on the list of potential candidates that Mr. Menendez, a Democrat, put forth. But a spokesperson for Mr. Menendez said, without commenting on specific candidates, that the senator’s priority was elevating a qualified Latino or Latina to the Fed Board — whomever that person might be.A Latino person has never served on the Fed Board of Governors in the central bank’s more than 109-year history, so Ms. Kugler’s nomination would be a historical first if it ended in a successful confirmation.The Fed is also approaching a challenging policy juncture as it slows the economy to contain inflation. The vice chair at the central bank traditionally plays a key role both in communicating what the Fed is doing and in helping the chair, in this case Jerome H. Powell, to rally a policy consensus. That could call for someone with experience at the central bank. The job is likely to be a difficult one as the Fed slows the economy, weakens the job market and draws ire from both progressive Democrats and — if history is any guide — potentially the broader public.Mr. Jefferson, who took office at the Fed last May, is an economist who most recently served as an administrator at Davidson College and who has a doctorate in economics from the University of Virginia. During his tenure at the Fed, he has built up a reputation for being an inquisitive listener with an interest in staff economic research, according to a person familiar with his time there.Ms. Kugler would bring with her extensive knowledge of the labor market. She was formerly chief economist of the Labor Department during the Obama administration, serving in that job from 2011 to 2013. She has worked in the economics departments at the University of Houston and at University Pompeu Fabra in Barcelona, and she has a doctorate from the University of California, Berkeley.Another open job within the Fed’s leadership ranks could also be filled soon: The president of the Federal Reserve Bank of Kansas City.While the White House nominates leaders to the Fed’s public Board of Governors, the central bank’s 12 regional reserve banks across the country are semiprivate, and their leaders are selected by community members and business leaders on their boards.Phillip Swagel, the director of the Congressional Budget Office, is on the list of potential candidates for that position, according to a person familiar with the matter. The Congressional Budget Office did not comment on Mr. Swagel’s candidacy, nor did the Kansas City Fed.If he is picked and approved by the Fed’s Board of Governors, Mr. Swagel would vote on monetary policy in 2025. While governors at the Fed and the head of the New York branch hold constant votes on monetary policy, other regional bank presidents rotate in and out of voting seats.The Fed meets this week to decide on whether to raise interest rates at a moment when the banking system is experiencing tumult — the government announced that First Republic was being acquired by J.P. Morgan in the early hours of Monday — but inflation is also proving stubborn.Central bankers are expected to raise rates by a quarter point, but then to leave them unchanged at just above 5 percent in the coming months as the economy slows and unemployment rises.The economic moment makes the Fed nominations unusually high stakes: Whoever fills the open positions at the Fed could provide an important voice at the table as officials debate how to strike the delicate balance between controlling inflation and harming the labor market.While economists broadly agree that some economic pain may be necessary to get price increases back under control, how much — and how rapidly inflation must be wrestled back — will require difficult choices.“The challenges that this Fed faces are so different than at any point in the last 40 years,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “How do they safety land this economy into an equilibrium where inflation is not sticky, and where we’re not creating too much unemployment?” More

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    The First Republic deal has come at a crucial point for the markets and economy

    JPMorgan Chase’s takeover of First Republic Bank started off an important week on Wall Street.
    Ahead is a key decision on interest rates along with earnings from Apple and a jobs report expected to show a further deceleration in hiring.
    “Crises don’t sort of end this easily. There will be other issues out there in the banking world,” said former Goldman Sachs executive Gary Cohn.
    Most experts see tighter credit conditions ahead that could weigh on spending, particularly as inflation and interest rates both remain elevated.

    Traders work on the floor of the New York Stock Exchange on April 26, 2023 in New York City. 
    Michael M. Santiago | Getty Images

    JPMorgan Chase’s takeover of First Republic likely ends the panic phase of the banking crisis, with the fallout left to come in a pivotal week for markets and the economy.
    Following an unsuccessful effort to keep First Republic open, the largest U.S. bank by deposits reached a deal to take over the 14th-largest financial institution. In doing so, JPMorgan helped avert a destabilizing broad collapse in the sector, but by no means solved all the banking problems likely to come.

    “This is not the end,” said Gary Cohn, former chief operating officer at Goldman Sachs, in an interview Monday on CNBC’s “Squawk Box.” “I don’t think we’re going to get three and done. Crises don’t sort of end this easily. There will be other issues out there in the banking world.”
    With financial services covering such a wide swath of activities in the $26.5 trillion U.S. economy, the failures of Silicon Valley Bank, Signature Bank and now First Republic Bank will reverberate.

    Critical week ahead

    The takeover kicks off an important week on Wall Street, with a key decision on interest rates looming along with earnings from Apple and a jobs report that is expected to show a further deceleration in hiring.
    Stocks nudged higher Monday morning on hopes that the worst of a banking crisis that began in early March has drifted into the rear view.
    “The wall of worry may ease,” said Wells Fargo banking analyst Mike Mayo in a note to clients. “Resolving FRC should end the 7-week post SVB bank crisis phase.”

    One of the first places markets can turn to gauge the larger impact is this week’s Federal Reserve meeting. Traders on Monday morning intensified their bets that the central bank would enact another quarter percentage point interest rate hike as the First Republic resolution provided some clarity to the question of regional bank health.
    But Cohn, who was the National Economic Council director under former President Donald Trump, said the broader impact of the Fed’s rate-hiking cycle will continue to be felt. If the Fed follows through on the increase, it will mark 5 percentage points worth of hikes in a 14-month period, the fastest tightening cycle since the early 1980s.
    “The unintended consequences of that on banks and balance sheets is fairly substantial. We will see something in the commercial real estate market,” he said. “But that’s what we’re talking about. What you learn in the banking industry is it’s usually the problem you’re not talking about.”
    Cohn said one area he is watching is what happens with consumer spending, which makes up 68% of all economic activity.
    As it relates to the banking situation, most experts see tighter credit conditions ahead that could weigh on spending, particularly as inflation and interest rates both remain elevated.
    “The seizure and subsidized on-sale of First Republic completes the obvious unfinished business from the initial acute phase of the bank stress,” Krishna Guha, head of global policy and central bank strategy for Evercore ISI, said in a client note.
    “But we think this is only the very early stages of the chronic phase and that for every First Republic or Silicon Valley Bank there will be hundreds of smaller and mid-sized US banks that will act more conservatively in the months ahead in order to minimize any risk that they end up in the same situation,” he added.

    Pressure to ‘tone it down’

    With stresses still present in the banking system, that will put pressure on the Fed at least to hold the line on monetary policy despite inflation that policymakers see as still too high.
    Gross domestic product increased just 1.1% annualized in the first quarter, well below expectations and another signal that a slowdown or outright recession is ahead. Markets expect the central bank will be forced to cut by at least half a percentage point before the end of the year to combat the possible contraction, according to the CME Group’s FedWatch tracker of futures pricing.
    “The Fed is going to basically have to really tone it down a lot and maybe project that this is the last hike,” said Larry McDonald, founder of “The Bear Traps Report,” also speaking on “Squawk Box.” “Anything they do on the hawkish side will really cause much more financial instability.”
    An indication Wednesday of more hikes is not something investors want to see, particularly in the midst of a jumbled earnings season and ahead of a looming jobs report.
    S&P 500 profits are tracking at a loss of 3.7% for the first quarter, even with 79% of companies beating Wall Street estimates, according to FactSet. Apple earnings are on tap this week, with the Silicon Valley bellwether on Thursday expected to post profit of $1.43 a share, down from $1.88 the previous quarter.
    “Apple is going to be crucial,” said Quincy Krosby, chief global strategist at LPL Financial. “The reason is it gives you perspective on global demand. Apple is in so many portfolios in so many different sectors. Obviously, it’s extremely important, probably the most important of all the big-tech earnings.”
    A day later, the Labor Department’s nonfarm payroll report for April is projected to show job growth of 180,000, down from 236,000 in March and what would be the smallest monthly gain since December 2020.
    Policymakers, though, could be more keyed on wage numbers and the impact on inflation. So a soft payrolls report with softening wages might be greeted positively by a market looking for a less aggressive Fed.
    “This is a market trying to discern which direction the economy is going to go and are we headed for recession, and if so what kind of recession,” Krosby said. “I think we’re still going to have a split market. I don’t think we’re going to have insight as direct as the market would like.” More

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    Trickling Tax Revenue Complicates Debt Limit Talks

    The Treasury Department’s ability to delay a default, the so-called X-date, hinges on how fast the money is coming in.WASHINGTON — A vote by House Republicans last week to lift the nation’s debt limit in exchange for deep spending cuts was the first step in what is likely to be a protracted battle over raising or suspending the borrowing cap to avoid defaulting on United States debt.But while Republicans and President Biden and his fellow Democrats are gearing up for a fight, a key question is beginning to sow unease in Washington and on Wall Street: How much time is there to strike a deal?The United States technically hit its $31.4 trillion debt limit in January, forcing the Treasury Department to employ accounting maneuvers known as extraordinary measures to allow the government to keep paying its bills, including payments to bondholders who own government debt. Treasury Secretary Janet L. Yellen said at the time that her powers to delay a default — in which the United States fails to make its payments on time — could be exhausted by early June. She cautioned, however, that the estimate came with considerable uncertainty.With June now just a few weeks away, uncertainty around the timing of when the United States will run out of cash — what’s known as the X-date — remains, and determining the true deadline could have huge consequences for the country.Tax receipts will be key to the X-date.Determining the X-date depends on a complex set of factors, but ultimately what matters most is how much money the government spends and how much it takes in through taxes and other revenue.The Bipartisan Policy Center, which tracks federal revenues, projected in February that lawmakers would need to raise or suspend the debt limit sometime between summer and early fall to avoid a default. The specific date would largely depend on how quickly tax revenues are coming into the government’s coffers.There are signs that 2022 tax receipts are trickling in too slowly for comfort. Economists at Wells Fargo wrote in a note to clients last week that because tax collections appear to be weaker than expected, there is a chance the X-date could be as soon as early June. However, they continue to believe early August is the most likely default deadline.“A low but not insignificant probability of a U.S. default is still very concerning, and we would think the last thing Treasury officials want is an X-date that sneaks up on Congress,” they wrote.Tax day payments are still arriving. Goldman Sachs economists projected last week that by the second week of June, the Treasury Department could have around $60 billion of cash remaining, which would allow the government to keep making its payments until late July.Natural disasters could fuel a debt disaster.There is a surprising factor that could cause the X-date to arrive sooner: the weather. Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push the April 18 filing deadlines in dozens of counties to October.The I.R.S. said this year that, because of the storms, individuals and businesses in the affected areas could file their returns late. They were also given more time to make contributions to retirement and health savings accounts.Farmers, who often file their tax returns by March 1, also have received a reprieve until Oct. 16, and estimated payments that normally would have been made in January were allowed to be pushed back to that date.It is not clear how much tax revenue has been delayed by the storms, but the extensions have given the Treasury Department less wiggle room to keep paying the bills.An update could come this week.The Treasury Department is expected to send a letter to Congress in the coming days with a more precise estimate of when it could start running out of cash. It could also lay out new measures intended to stave off a default. This year, Ms. Yellen announced that she would redeem some existing investments and suspend new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.In a speech last week, Ms. Yellen warned that a default would have real consequences for the economy.“Household payments on mortgages, auto loans and credit cards would rise,” Ms. Yellen said in remarks to the Sacramento Metropolitan Chamber of Commerce. “And American businesses would see credit markets deteriorate.”She added, “On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”Here’s what the X-date means for negotiations.As the X-date approaches, it will put more pressure on lawmakers to take action.Analysts at Beacon Policy Advisors predicted that if a default could really happen as soon as June, that would increase the likelihood that Congress will pass a short-term suspension of the debt limit through October. If the X-date is expected to hit in July, that might compel lawmakers to file legislation by early May so they have sufficient time to deal with procedural obstacles in Congress.Although markets have broadly remained calm about the prospect of a default, there are some signs that investors are becoming nervous.They have sold government bonds that mature in three months — around the time policymakers have said the United States could run out of cash — and snapped up bonds with just one month until they are repaid.The cost of insuring existing bond holdings against the possibility that the United States will default on its debts has also risen sharply. Still, analysts say the market reaction would need to be much more pronounced to force a fast deal.“This has caused some heartburn among policymakers but not enough to move the negotiating needle in a meaningful way,” the Beacon analysts wrote. “There needs to be a bigger market response and a more definitive X-date to get negotiations going in full.”That has yet to happen, however. While Mr. Biden has indicated he is open to talking with Speaker Kevin McCarthy about ways to get the nation’s fiscal situation on a better track, the two have yet to schedule a meeting after the House passage last week. More

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    Housing Market Gridlock: Buyers Are Eager, but Sellers Are Scarce

    Homeowners with low-rate mortgages are delaying the decision to sell until market conditions change.The housing market typically comes to life in spring, when buyers emerge in the warmer weather. This year, the market appears stuck in a deep freeze, and the biggest culprit is a lack of sellers, housing experts say.There is interest among buyers — mortgage applications were up 10 percent in March from the month before — but the number of homes for sale is low. The mismatch is caused in part by homeowners who are inclined to sell but are sitting on the sidelines, scared off by the steep prices and mortgage rates that they would face as buyers.More than three-quarters of sellers in a recent survey by Realtor.com said they felt “locked in” to their home by their own low mortgage rate, according to a recent survey by Realtor.com. More than half said they planned to wait until rates fell before putting their homes on the market.Sandy Robinson, a 71-year-old retired teacher in Fairhaven, Mass., is daunted by the market. She would like to sell her two-bedroom townhouse but is worried about being able to afford a new home. “It’s a little scary now, and you have to be careful,” she said.A stalemate has mired the housing market, when it should be more robust. Sales of existing homes in March were down 22 percent from the year before, according to the National Association of Realtors. The inventory of unsold homes on the market at the end of March totaled 2.6 months’ supply, meaning it would take that long to sell them. Inventory is typically twice that amount to balance supply and demand.“We are in a real gridlock situation,” said Robert Frick, corporate economist at the Navy Federal Credit Union. “It’s going to be a tortuous process to unfreeze the market and take a long time to get back to a normal supply-and-demand situation.”Fewer homes for sale mean more competition among buyers, which leads to bidding wars and drives up prices. Although down from recent highs, the average price of a house remains about 40 percent higher than at the beginning of 2020, according to the S&P CoreLogic Case-Shiller index, which measures prices across the nation.“Everybody is a little surprised at the level of price resilience,” said Todd Teta, chief product and technology officer for Attom Data Solutions, a real estate analytics firm.Ellen Goldman and Sam Savage are looking to downsize from the Florida home they have lived in since 2004 but are in no rush to sell.Scott McIntyre for The New York TimesMatt Berger would like to sell his three-bedroom starter home in Lebanon, Ohio, where he lives with his wife and two young children, but is holding back. “It feels tight now, and will only get tighter as the kids grow,” he said.They are looking to move closer to Cincinnati, but homes they could afford a year ago are now out of their price range. Adding to the pressure is the low mortgage rate on their current home: “We are in the mid-threes” — roughly half the national average — “and I’d hate to have to say goodbye to that,” said Mr. Berger, 42.“It’s a doubly whammy of the higher interest rates and the home values being so high, and that is scaring us off,” he added. He and his wife are hoping that mortgage rates will fall and they find a cheaper home in a year or two, before their children are settled in school.The average rate on the most popular home loan, the 30-year fixed-rate mortgage, is 6.43 percent, Freddie Mac reported on Thursday, more than twice what it was two years ago. Mortgage rates peaked above 7 percent late last year, but the decline since then has been slow and uneven.To get sellers more motivated again, rates will have to fall to the “magic mortgage rate” of 5.5 percent, according to a survey by John Burns Research and Consulting. More than 70 percent of prospective home buyers told the researchers that they were not willing to accept a mortgage above that rate.“Homeowners seem to be pretty patient right now,” said Maegan Sherlock, a senior research analyst at John Burns. “Until things get a little better, those people are going to hold out,” she added.Most industry experts believe the tipping point is still a ways off. “This is going to be a transition year,” said Danielle Hale, the chief economist of Realtor.com. “As we move into 2024, we should see more people with an appetite to buy.”The market also may thaw as demand from frustrated buyers is met by home builders, which “historically created first-time home opportunities and move-up opportunities,” said Mr. Teta of Attom.A lack of inventory of existing homes appears to be pushing buyers to newly built homes, a smaller market where sales have held up better. Sales of new single-family homes jumped nearly 10 percent in March from the month before, according to the Census Bureau.The National Association of Realtors forecasts that sales of new homes will increase 4.5 percent this year and 12 percent in 2024. It expects existing-home sales to drop about 9 percent this year and then bounce back in 2024.And there are always reasons that reluctant homeowners could be compelled to sell, like job relocations, downsizing or divorce, said Iliana Abella, executive director of sales at the Abella Group, a real estate brokerage in Miami.“If you are planning to stay in your home for longer than five years, 6 percent is not going to kill you,” she said of current interest rates.Still, many homeowners are content to wait.Ellen Goldman, a 72-year-old retired lawyer in Naples, Fla., is looking to downsize. She and her husband, Sam Savage, have lived in their two-story home since 2004, but realize that the stairs will get more difficult as they age.“We both work out, and it’s not an issue,” Ms. Goldman said, adding that “we want to make the move now before it becomes too hard.”But they are in no rush. “We don’t have to do this,” she said, as they keep an eye on local prices. “We would be fine staying, too.” More

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    in Economy

    A ‘Rocky and Bumpy’ Economy Where Wages Are Up and Inflation Persists

    Key pay and inflation gauges have stayed stubbornly high as Federal Reserve officials consider when to stop raising interest rates.Inflation isn’t as high as it was last year. The job market isn’t as hot. The economy is slowing down. But none of this is happening as quickly or as smoothly as Federal Reserve officials would like.The latest evidence came on Friday, when a set of government reports painted a picture of an economy that is generally headed in the direction that policymakers want, but is taking its time to get there.“We knew that inflation was going to be rocky and bumpy,” said Megan Greene, chief economist for the Kroll Institute. “We found peak inflation, but it’s not going to be a smooth path down.”Consumer prices were up 4.2 percent in March from a year earlier, according to the Fed’s preferred measure of inflation, the Personal Consumption Expenditures index, the Commerce Department said Friday. That was the slowest pace of inflation in nearly two years, down from a peak of 7 percent last summer.But after stripping out food and fuel prices, a closely watched “core” index held nearly steady last month. That measure rose by 4.6 percent over the year, compared with 4.7 percent in the previous reading — a figure that was revised up slightly.Wages, meanwhile, continue to rise rapidly — good news for workers trying to keep up with the rising cost of living, but a likely source of concern for the Fed.Data from the Labor Department on Friday showed that wages and salaries for private-sector workers were up 5.1 percent in March from a year earlier. That was the same growth rate as in December, and defied forecasters’ expectations of a modest slowdown. A broader measure of compensation growth, which includes the value of benefits as well as pay, actually accelerated slightly in the first quarter.Labor Department on Friday showed that wages and salaries for private-sector workers were up 5.1 percent in March from a year earlier.Hailey Sadler for The New York TimesThe Fed has been raising interest rates for more than a year in an effort to cool off the economy and bring inflation down to the central bank’s target of 2 percent per year. The data on Friday is likely to add to policymakers’ conviction that their work is not done — officials are widely expected to raise rates a quarter percentage point, to just above 5 percent, when they meet next week. That would be the central bank’s 10th consecutive rate increase.Wage data is a particular focus for Fed officials, who believe that the labor market, in which there are far more available jobs than workers to fill them, is pushing up pay at an unsustainable rate, contributing to inflation. Other measures had suggested a more significant slowdown in wage growth than showed up in the data on Friday, which is less timely but generally considered more reliable“If any Fed officials were wavering on a May rate hike,” Omair Sharif, founder of Inflation Insights, wrote in a note to clients on Friday, the wage data “will likely push them to support at least one more hike.”But a crucial question is what comes after that. Central bankers forecast in March that they might stop raising interest rates after their next move. Jerome H. Powell, the Fed chair, could explain after the central bank’s rate announcement next week if that is still the case. The decision will hinge on incoming economic and financial data.Investors largely shrugged off the data on Friday morning, focusing instead on a week of robust profit reports that suggest corporate America has yet to fully feel the pinch of higher interest rates. The S&P 500 index rose 0.5 percent in midday trading. The yields on Treasury bonds, which track the government’s cost to borrow more money and are sensitive to changes in interest-rate expectations, fell slightly.The Fed faces a delicate task as it seeks to raise borrowing costs just enough to discourage hiring and ease pressure on pay, but not so much that companies begin laying off workers en masse.Higher interest rates have already taken a toll on housing, manufacturing and business investment. And data from the Commerce Department on Friday suggested that consumers — the engine of the economic recovery to date — are beginning to buckle. After rising strongly in January, consumer spending barely grew in February and was flat in March. Americans saved their income in March at the highest rate since December 2021, a sign that consumers may be becoming more cautious.“You’re seeing some of that robustness to start the year really start to reverse a little bit,” said Stephen Juneau, an economist at Bank of America.Many forecasters believe the recovery will continue to slow in the months ahead — or may already have done so. The data from March does not capture the full impact of the collapse of Silicon Valley Bank and the financial turmoil that followed.“If you take a picture of the data as it was in the first quarter, you’re left with this impression of still robust economic activity and inflation that’s still too high and too persistent,” said Gregory Daco, chief economist at EY, the consulting firm previously known as Ernst & Young. If there was real-time data on spending, credit standards and business investment, he said, “that would tell a very different picture from what the first-quarter data would indicate.”The challenge or Fed officials is that they cannot wait for more complete data to make their decisions. Some evidence points to a more substantial slowdown, but other signs suggest that consumers continue to spend, and companies continue to raise prices.“If we see inflation that warrants us needing to take additional pricing, we’ll take it,” Brian Niccol, chief executive at the burrito chain Chipotle, said during an earnings call this week. “I think we’ve now demonstrated we do have pricing power.” The company raised its menu prices by 10 percent in the first quarter versus the same period last year.Wage growth is a particularly thorny issue for the Fed. Faster pay gains have helped workers, particularly those at the bottom of the earnings ladder, keep up with rapidly rising prices. And most economists, inside and outside the Fed, say wage growth has not been a dominant cause of the recent bout of high inflation.But Fed officials worry that if companies need to keep raising pay, they will also need to keep raising prices. That could make it hard to rein in inflation, even as the pandemic-era disruptions that caused the initial pop in prices recede.“It always feels good as a worker to see more money in your paycheck,” said Cory Stahle, an economist for the employment site Indeed. “But it also feels bad to walk into the store and pay $5 for a dozen eggs.”Joe Rennison More

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    in Economy

    Key inflation gauge for the Fed rose 0.3% in March as expected

    Despite a year’s worth of interest rate increases, inflation rose again in March, according to economic data released Friday that the Federal Reserve watches closely.
    The personal consumption expenditures price index excluding food and energy increased 0.3% for the month, in line with the Dow Jones estimate. On an annual basis, so-called core PCE increased 4.6%, slightly higher than the expectation for 4.5% and down 0.1 percentage point from February.

    Including the volatile food and energy components, headline PCE also rose just 0.1% for the month, equating to a 4.2% annual increase, down sharply from 5.1% in February. That measure peaked out around 7% in June 2022, the highest level since December 1981.
    The headline number was softer as energy prices slid 3.7% for the month while food costs declined 0.2%. Goods prices fell 0.2% while services increased 0.2%.
    In another key inflation measure for the Fed, the employment cost index increased 1.2% for the first quarter, higher than the 1% estimate.
    The inflationary pressures were reflected in the willingness of consumers to keep spending. Personal income rose 0.3% for the month but consumer spending was flat, as expected.
    While the annual rates are below the peaks hit in 2022, they are still well above the central bank’s 2% target and further evidence that price increases are proving stickier than policymakers had anticipated.
    Since March 2022, the Fed has raised its benchmark interest rate nine times for a total of 4.75 percentage points. Markets widely expect the rate-setting Federal Open Market Committee to approve another quarter percentage point increase at next week’s meeting, before it pivots to see the impact the policy tightening is having on the $26.5 trillion U.S. economy. More