Evelyn Reynolds

Three of President Biden’s nominees to the Federal Reserve committed to lawmakers that, if confirmed to their posts, they would not work in financial services for four years after leaving the Fed.The pledge comes amid growing concern about the revolving door between Washington and Wall Street.The three potential Fed governors in question — the economists Lisa D. Cook and Philip N. Jefferson and a longtime government official and lawyer, Sarah Bloom Raskin — said they would “commit not to seek employment or compensation” from any financial services company after leaving the board, which oversees the largest banks.Their promises came at the urging of Senator Elizabeth Warren, the Massachusetts Democrat who has criticized the so-called revolving door between government and finance. Fed officials regularly go to work for Wall Street after leaving the institution, making the commitment notable.“These are the strongest ethics standards ever agreed to by Federal Reserve Board nominees,” Ms. Warren said in a statement on Wednesday. “U.S. Senators and the American people can be confident that these public servants will make sound economic policy decisions in the public’s best interest.”Republicans have been questioning Ms. Raskin’s nomination by highlighting her stint on the board of directors for a financial technology company, Reserve Trust.The company got a critical account with the Fed — known as a master account — while Ms. Raskin was on the company’s board. The account provided the firm with advertisable benefits, like access to the Fed’s payments system.During her confirmation hearing before the Senate Committee on Banking, Housing and Urban Affairs last week, senators questioned whether she had used her previous positions at the Fed and Treasury to help secure the account. Ms. Raskin did not confirm or deny whether she had been in touch with the company’s local Fed bank while she sat on its board.The Federal Reserve Bank of Kansas City, which approved the master account, has said that it “did not deviate from its review process in evaluating this request.”Senator Patrick J. Toomey, Republican of Pennsylvania, asked Ms. Raskin to respond in writing by Wednesday about the Reserve Trust situation.Ms. Raskin, in her response, said she did “not recall any communications I made to help Reserve Trust obtain a master account. Had I done so, I would have abided by all applicable ethics rules in such communications.”Amanda Thompson, the communications director for Republicans on the Banking Committee, called those responses a “case of selective amnesia.”The White House has continued to stand behind its nominees. Christopher Meagher, a spokesman for the White House, called the Republican questioning “smears” and said that they “continue to fall flat in the face of scrutiny and facts.”Dr. Cook, Dr. Jefferson and Ms. Raskin are up for confirmation alongside Jerome H. Powell — who Mr. Biden renominated to be Fed chair — and Lael Brainard, a Fed governor who is the Biden administration’s pick for vice chair.Senator Sherrod Brown, Democrat of Ohio and the chairman of the Banking Committee, said last week that all five candidates would face a key committee vote on Feb. 15. More

The Federal Reserve Bank of Boston has selected Susan M. Collins, a University of Michigan economist and administrator, as its new president — making her the first Black woman to lead a regional reserve bank in the Fed system’s 108-year history.Ms. Collins, who is a provost and executive vice president for academic affairs at the university, will be one of 12 regional reserve bank presidents within the Fed system and will vote on monetary policy in 2022.Ms. Collins identifies as Jamaican-American, and she will add to the diversity of the Fed at a moment when it is moving away from its heavily white and male makeup in the past.Lisa Cook, a Michigan State University economist who is also a Black woman, has been nominated as a Fed governor but has yet to be confirmed. Raphael Bostic, the Federal Reserve Bank of Atlanta president, was the first Black person ever to lead a reserve bank. Ms. Collins will start July 1, the Boston Fed said in its release, which will plunge her into the policy discussion at a challenging moment. Officials are trying to combat rapid price increases without choking off a robust economic rebound from the pandemic. Joblessness has fallen swiftly and wages are rising, though not quite enough to overcome the burst of inflation as supply chain issues spur shortages.“I look forward to helping the Bank and System pursue the Fed’s dual mandate from Congress — achieving price stability and maximum employment,” Ms. Collins said in the Boston Fed’s prepared release.Four regional central banks rotate in and out of rotating voting positions each year, while the Federal Reserve Bank of New York and members of the seven-seat Board of Governors in Washington hold a constant vote on monetary policy.The Fed is expected to raise interest rates, its main policy tool, several times this year to slow borrowing and spending, cooling off demand.Ms. Collins has had a wide-ranging economic career, including as a visiting scholar at the International Monetary Fund and as a staff member at the Council of Economic Advisers during the George H.W. Bush administration. Much of her research has focused on international economics.But she has at times spoken about monetary policy. In a 2015 article in The Detroit Free Press, she noted that it was difficult to be both reactive to incoming economic data and completely predictable. Locking in a preset pace of rate increases, she said, could set the market up for tumult if conditions changed.“The Fed wants to avoid surprising the market,” she said in the article.In a 2019 interview with Yahoo News, Ms. Collins said that the Fed should reassess how it was approaching the economy at a time when the link between unemployment and inflation was not as clear as expected. “The Fed is not in the business of making dramatic changes” to how it operates outside of crises, Ms. Collins said, but she noted that the Fed could in the future think about raising its inflation target above 2 percent. “Some of us think that being a little bit bolder there would be helpful,” she said. That could be relevant now, at a time when the Fed is trying to set policy against a virus-stricken and uncertain backdrop. Jerome H. Powell, the Fed chair, has emphasized that the central bank will be “humble” and “nimble.”Ms. Collins was selected by directors on the Boston Fed’s board and approved by the Fed’s Board of Governors in Washington. Ms. Collins will replace Eric S. Rosengren, who retired as the Boston Fed’s president last year following a trading scandal, citing health concerns.Ms. Collins has an undergraduate degree from Harvard University and a doctorate from the Massachusetts Institute of Technology. More

Atlanta Fed President Raphael Bostic said Wednesday he anticipates hiking interest rates three or four times this year.
However, he noted that “every option is on the table” when it comes to the central bank’s battle against inflation.
Markets expect the Fed to hike rates at least five times this year.

Atlanta Federal Reserve President Raphael Bostic said Wednesday he anticipates hiking interest rates three or four times this year, but he stressed that the central bank isn’t locked into a specific plan.
Speaking on CNBC’s “Squawk Box,” the policymaker signaled a view that is less aggressive than the market’s on rates.

“In terms of hikes for the interest rates, right now I have three forecast for this year,” he said. “I’m leaning a little towards four, but we’re going to have to see how the economy responds as we take our first steps through the first part of this year.”
Market pricing currently is anticipating at least five and possibly six hikes of 0.25 percentage points each. Bank of America recently forecast seven moves as the central bank fights inflation running at its highest level in nearly 40 years.
In a recent interview with the Financial Times, Bostic garnered some attention when he said the first move might have to be 0.5 percentage points, or 50 basis points. The Fed has signaled that it likely will enact its first rate hike in more than three years at its March meeting.
Bostic did not commit in his CNBC interview to moving that quickly.
“For me, I’m thinking very much of a 25-basis-point perspective,” he said. “But I want everyone to understand that every option is on the table, and I don’t want people to have the view that we’re locked into a particular trajectory in terms of how our rates have to move over time. We’re really going to let the data show us to what extent a 50 basis point or 25 basis point move is appropriate.”

In a separate appearance Wednesday, Cleveland Fed President Loretta Mester said she’s expecting a rate hike in March though she did not commit to the pace at which she’d be comfortable.
“While the Omicron variant may weigh on activity in the near term, the high levels of inflation and the tightness in labor markets make a compelling case to begin recalibrating the stance of monetary policy.,” she said in a speech for the European Economics and Financial Center. “Barring an unexpected turn in the economy, I support beginning to remove accommodation by moving the funds rate up in March.”

Watching the pace of inflation

Bostic’s comments come the day before the Labor Department will release its latest inflation reading as gauged by January’s consumer price index. Economists surveyed by Dow Jones expect the 12-month pace to run at 7.2%, which would be the fastest since early 1982.
However, Bostic said he’s more concerned with the monthly acceleration, which is projected at 0.4%, or slightly slower than December.
If the monthly rate can continue to moderate, that would be a signal that inflation is coming under control and the Fed won’t have to be as hawkish.
He does, though, think the Fed can start pulling back on its easy policy. Along with cutting its benchmark short-term borrowing rate to near-zero, the central has been buying billions of bonds each month, an operation that has ballooned its total asset holdings to just shy of $9 trillion.
Markets widely expect the Fed to allow proceeds from those holdings to start running off soon, with the only question being how much the balance sheet will shrink. Bostic said he thinks the early stages can be aggressive.
Bostic added that he remains positive on growth through the year and doesn’t think the Fed will have to deploy measures to slow the economy.
“The first part of the reduction I think we can do pretty significantly,” he said. “I think that we should really be looking into ways to remove that excess liquidity that the market has shown us exists so that we can then get into decisions about what the use of the balance sheet should look like in terms of a menu of tightening our policy.”
Mester said she also thinks the Fed can be aggressive in cutting the balance sheet.
She supports an approach in which the central bank would engage in outright sales of its $2.7 trillion in mortgage-backed securities to the point where the Fed’s holdings would consist exclusively of Treasurys, of which it currently holds $5.7 trillion.

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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 3.83% from 3.78%
Mortgage applications to purchase a home dropped 10% last week compared with the previous week and were 12% lower year over year.
Applications to refinance a home loan fell 7% for the week and were 52% lower than the same week one year ago.

A sign advertising an open house in Corona Del Mar, California.
Scott Mlyn | CNBC

Mortgage rates have been rising since the start of the year, but buyers at first seemed unfazed, some even rushing to get in before rates moved higher. Now buyers are pulling back.
Mortgage applications to purchase a home dropped 10% last week compared with the previous week, seasonally adjusted, and were 12% lower year over year, according to the Mortgage Bankers Association. The average loan size hit another record high at $446,000, indicating that most of the buying activity is on the higher end of the market, where there is comparatively more supply.

And supply is a key factor in mortgage demand. The total inventory of homes for sale was down 28% nationally in January from January of last year, according to Realtor.com. New listings were also down 9%, the second straight month of declines. That is likely playing into February as well, since sellers are not exactly rushing into the market.
“We’re forecasting a whirlwind year ahead for buyers, and, if January housing trends are any indication, 2022 competition is already heating up. Homes sold at a record-fast January pace, suggesting that buyers are more active than usual for this time of year,” said Danielle Hale, Realtor.com’s chief economist.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 3.83% from 3.78%, with points decreasing to 0.40 from 0.41 (including the origination fee) for loans with a 20% down payment. The rate was 87 basis points lower one year ago.
“Mortgage rates followed the U.S. 10-year yield and other sovereign bonds as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
As a result, applications to refinance a home loan fell 7% for the week and were 52% lower than the same week one year ago. The refinance share of mortgage activity decreased to 56.2% of total applications from 57.3% the previous week. There is a shrinking population of borrowers who can benefit from a refinance now, about half as many as there were one year ago.

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Starbucks on Tuesday fired seven employees in Memphis who were seeking to unionize their store, one of several dozen nationwide where workers have filed for union elections since December.A Starbucks spokesman said the employees had violated company safety and security policies. The union seeking to organize the store accused Starbucks of retaliating against the workers for their labor activities.The firings relate at least in part to an interview that workers conducted at the store with a local media outlet.Reggie Borges, a company spokesman, said in an email that Starbucks fired the workers after an investigation revealed violations. He cited a photograph on Twitter showing that store employees had allowed media representatives inside the store to conduct interviews, in which some of the employees were unmasked and which he said had taken place after hours. “That is a clear policy violation, not to mention the lack of masks,” Mr. Borges wrote.Among the violations, Mr. Borges said, were opening a locked door at their store; remaining inside the store without authorization after it had closed; allowing other unauthorized individuals inside the store after it had closed; and allowing unauthorized individuals in parts of the store where access is typically restricted.He also wrote that one employee had opened a store safe when the employee was not authorized to do so and that another employee had failed to step in to prevent this violation.Two of the terminated employees said that some of the supposed violations were common practices at the store and that employees were not previously disciplined over them. They said, for example, that off-duty employees frequently went to the back of the store to check their schedules, which are posted there. Mr. Borges said that this was uncommon when a store is closed.One of the former workers, Beto Sanchez, said he was the employee accused of opening a store safe without authorization. He said that as a shift supervisor, he was normally authorized to open the safe and that he had done so to help a colleague on the evening of the media interview, when he was not on duty. He wondered why he had been fired over the violation rather than disciplined some other way.In a statement, Starbucks Workers United, the union that represents workers at two stores in Buffalo and that is helping to unionize Starbucks workers across the country, said, “Starbucks chose to selectively enforce policies that have not previously been consistently enforced as a pretext to fire union leaders.”The union said on Twitter that the company was “repeating history by retaliating against unionizing workers.”A judge for the National Labor Relations Board found last year that Starbucks in 2019 and 2020 had unlawfully disciplined and fired two employees seeking to unionize a store in Philadelphia. Starbucks has appealed the ruling.A petition filed with the labor board seeking a union vote at the store says 20 employees there would be eligible for membership.Wilma Liebman, who headed the labor board under President Barack Obama, said that to prove that the firings constituted unjust retaliation, the board’s general counsel would have to show that the workers were engaged in union activity and that the union activity played a “substantial or motivating” role in the decision to fire them.One question in resolving the latter issue is whether Starbucks typically fires employees, whom it refers to as partners, over similar infractions.Mr. Borges, the spokesman, wrote: “We absolutely fire partners who let unauthorized people or partners in the store after hours and/or violate policies like letting others handle cash in the safe when not authorized to do so. This is a common, understood policy by partners as it brings an element of safety and security risk that crosses a number of lines.”He did not immediately provide data on the number of employees fired for such violations in a typical year. More

Consumers ended 2021 with record levels of debt, which stood at $15.6 trillion, according to data released Tuesday from the Federal Reserve’s New York district.
A large chunk of the debt-load increase came from mortgages, which saw balances rise by $890 billion for the year.
The news comes ahead of a period in which the Fed is expected to start jacking up interest rates as it looks to tamp down surging inflation.

Consumers ended 2021 with record levels of debt, leading into a year in which interest rates are expected to rise substantially.
Total U.S. consumer debt at the end of the year came to $15.6 trillion, a year-over-year jump of $333 billion during the fourth quarter and just over $1 trillion for the full year, according to data released Tuesday from the Federal Reserve’s New York district.

The quarterly rise was the biggest since 2007, and the annual gain was the largest ever in records going back to 2003.

The news comes ahead of a period in which the Fed is expected to start jacking up interest rates as it looks to tamp down inflation, which is running at its fastest pace in nearly 40 years. Markets expect the central bank to start increasing rates in March, the first of at least five bump-ups this year, totaling 1.25 percentage points.
Fed interest moves are directly tied to the prime rate that consumers pay for many forms of debt, including credit cards and adjustable-rate mortgages.
A large chunk of the debt-load increase came from mortgages, which saw balances rise by $890 billion for the year and $258 billion in the fourth quarter, to nearly $11 trillion. Mortgage originations for the year totaled more than $4.5 trillion, a new record.
Credit card balances increased by $52 billion in the final three months of the year, a new quarterly record that brought total debt in that category to $860 billion.

Owing to the rapid gain in prices, auto-loan balances rose by $90 billion, or 6.6%, to $1.46 trillion. New auto prices rose 11.8% for the year while prices for used vehicles soared by 37.3%, according to Labor Department data.
One area that saw little increase was student loans, which edged higher by just $20 billion for the year and actually declined marginally in the fourth quarter. Forbearance programs, though mostly expired, are still keeping balances and delinquencies in check.
New York Fed researchers said the rising-rate environment could affect household cash flows as borrowers adjust. Those who locked in at low mortgage rates, for instance, are likely to be reluctant to go out and buy new homes with rates moving higher, while those who ran up credit card balances could be constrained as financing costs increase.

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The U.S. Commission on Combating Synthetic Opioid Trafficking published its final report on Tuesday.
It revealed that more than 100,000 people died of drug overdoses in the 12 months to June 2021, an increase of 30% from a year earlier.
The Commission estimated that drug overdoses are now costing the U.S. around $1 trillion every year.

November 30, 2021: OnPoint NYC has opened two supervised drug injection sites in the Harlem and Washington Heights neighborhoods in an effort to address the increase in overdose deaths. (Photo by Yuki IWAMURA / AFP) (Photo by YUKI IWAMURA/AFP via Getty Images)
Yuki Iwamura | AFP | Getty Images

Fatal opioid overdoses are thought to be costing the U.S. economy $1 trillion each year, government officials have said.
In a report published Tuesday by the bipartisan U.S. Commission on Combating Synthetic Opioid Trafficking, it was revealed that synthetic opioids — primarily fentanyl — were responsible for almost two in three reported drug overdose deaths in the U.S. in the year to June 2021.

More than 100,000 people died of drug overdoses during that period, an increase of 30% from a year earlier, it said. And overdoses have been responsible for more than 1 million deaths in the U.S. since 1999, according to the report — that’s more than double the number caused by firearms or car accidents.
The U.S. Commission on Combating Synthetic Opioid Trafficking includes representatives from several federal departments and agencies, including the Department of Homeland Security and the U.S. Drug Enforcement Administration. Four members were appointed from the Senate and the House of Representatives.
“In 2018, according to the White House Council of Economic Advisers, the cost of overdose fatalities was $696 billion, despite being roughly two-thirds of annual overdose deaths today,” the commission said in its report.
“It is therefore reasonable to estimate that drug overdoses are now costing the United States approximately $1 trillion annually.”
According to the report, this “staggering amount” predominantly arose from the lost productivity caused by early deaths, as well as health care and criminal justice costs.

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President Joe Biden declared the illicit drug trade a national emergency in a December Executive Order.
In 2017, former President Donald Trump declared America’s opioid epidemic a public health emergency, calling it a source of “national shame.”
The report said on Tuesday that the trafficking of synthetic drugs into the U.S. was not just a public health emergency, but “a national emergency that threatens both the national security and economic wellbeing of the country.”
“In terms of loss of life and damage to the economy, illicit synthetic opioids have the effect of a slow-motion weapon of mass destruction in pill form,” the report’s authors said.
The Commission proposed several ways the government could take a “nationwide and coordinated approach” to the opioid crisis, including the development of a central body to implement all U.S. drug control policies. The Commission also recommended increasing access to treatment for addiction, and collaborating with other countries involved in the production and distribution of synthetic opioids.
The Council on Foreign Relations has called the epidemic one of the United States’ worst-ever drug crises. According to the CFR, more than 1,300 people per week die from opioid-related overdoses, while millions more Americans suffer from opioid addiction.

Pandemic surge

Before the Covid-19 pandemic, rising rates of fatal opioid overdoses were responsible for reducing life expectancies in the United States. Life expectancies for Americans declined again in 2020, which was largely attributed to the pandemic, but opioid-related deaths also played a part.
According to Tuesday’s report, substance abuse and opioid-related fatalities surged as the pandemic set in.
“Shockingly, the number of overdose deaths in the United States has risen exponentially since 1979 and does not appear to be dropping any time soon,” it said.
“Since 1999, we’ve lost more than one million Americans to drug overdoses. That’s one million moms, dads, sons, and daughters lost because our country’s response to the opioid epidemic has failed,” said Rep. David Trone, co-chair of the Commission, in a press release on Tuesday.
Co-chair Sen. Tom Cotton added that 274 Americans die every day from drug overdoses — that’s one person every five minutes, “and every day it gets worse.”
Congressman Fred Upton, also a member of the Commission, called for authorities to crack down on Mexican drug cartels, and said the U.S. must “force China’s hand to crackdown on their pharmaceutical industry supplying cartels with the base compounds used to manufacture synthetic opioids.”

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Rapidly rising wages are expected to push Federal Reserve interest rate hikes at an even faster pace.
Average hourly earnings are running at a 5.7% pace over the past 12 months, near the highest levels in 15 years.
Bank of America is sticking to its call for seven rate hikes this year as the Fed looks to control the higher cost of living.

Too much of a good thing, in the form of rapidly rising wages, is expected to push Federal Reserve interest rate hikes at an even faster pace.
Average hourly earnings jumped 0.7% in January and are now running at a 5.7% pace over the past 12 months, according to Labor Department data released Friday. Excepting a two-month period during the early days of the pandemic, that is by a wide margin the fastest-ever move in data going back to March 2007.

While that has come as welcome news to workers, it’s posed a further quandary for the Fed, which increasingly is being seen as falling behind in terms of policy and having to catch up to inflation that is running at its fastest pace in nearly 40 years.
“If I’m the Fed, I’m getting more nervous that it’s not just a few outliers” that are driving wage increases, Ethan Harris, Bank of America’s head of global economics research, said in a media call Monday. “If I were the Fed chair … I would have raised rates early in the fall. When we get this broad-based increase and it starts making its way to wages, you’re behind the curve and you need to start moving.”
BofA and Harris have issued the most aggressive Fed call on Wall Street for this year. The bank’s economists see seven quarter-percentage-point rate hikes in 2022, followed by four more next year.

The economy’s not just hitting the Fed’s goals, it’s blowing through the stop signs.

Ethan Harris
Head of global economics research, Bank of America

Harris said he’s not backing off the call, even though markets are currently only giving the scenario an 18% chance of happening, according to CME data.
He cites the Fed’s new approach to monetary policy that it approved in September 2020. Under what it deemed flexible average inflation targeting, the Fed said it would be willing to allow inflation to run hotter than its 2% target in the interest of achieving full employment.

But with inflation running around 7% year-over-year and the labor market getting ever tighter, the Fed now is in the position of playing catch-up.
“The problem with the whole approach, and what’s got us calling for seven hikes, is the economy’s not just hitting the Fed’s goals, it’s blowing through the stop signs,” Harris said.
Harris points out that wages are surging across virtually all income classes.

Leisure and hospitality, the hardest-hit sector from the pandemic, has seen a 13% earnings gain over the past year. Wages in finance jobs are up 4.8%, while retail trade pay has risen 7.1%.
Goldman Sachs sees the push higher as part of the “Great Resignation,” a term used to describe the fastest pace of people leaving their jobs in data that goes back to 2001. For all of 2021, workers changed or left jobs 47.4 million times, according to the Labor Department.
“The Great Resignation consists of two quite different but connected trends: millions of workers have left the labor force, and millions more have quit their jobs for better, higher-paying opportunities,” Goldman economists Joseph Briggs and David Mericle said in a note. “These trends have pushed wage growth to a rate that increasingly raises concern about the inflation outlook.”

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Goldman figures that wage growth will slow this year, but only by a little, to something around 5% through the year. The firm expects four rate increases in 2022.
“Faster growth of labor costs than is compatible with the 2% inflation goal is likely to keep the FOMC on a consecutive hiking path and raise the risk of a more aggressive response,” the economists said.
Markets have been raising the stakes slowly for the Fed, pricing in five hikes this year but leaving open the possibility for more and at a faster rate. While traders see a quarter-point move coming in March, the possibility of a more aggressive 50 basis point hike has risen to nearly 30%. A basis point is one one-hundredth of a percentage point.

A sign advertising for temporary workers at a Target store in Mount Kisco, New York.
Scott Mlyn | CNBC

“This is how out of date and behind Fed policy is,” Mohamed El-Erian, chief economic advisor at Allianz, told CNBC’s “Squawk Box” on Monday. “So hopefully they can regain the inflation narrative, hopefully they can control the wage narrative. My concern is the market is running away with rate hikes in excess of what the economy can absorb.”
BofA’s Harris said going 50 basis points would be “a reasonable thing to do” though he noted it wouldn’t be in keeping with the “humble” approach Chairman Jerome Powell espoused during his post-meeting news conference in January.
Harris said he actually doesn’t think the rate hikes will wreck the economy, so long as the Fed communicates that the moves will be methodical and aimed at controlling inflation, not halting growth. This cycle could resemble the Fed’s move in the mid-aughts when it instituted a series of 17 hikes aimed at slowing down the runaway housing market, he added.
“I actually think it’s not a radical call,” Harris said of the bank’s expectation for 11 hikes through 2023. “It’s just the path of least resistance for a central bank that’s starting at zero.”

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