Raphael Stevens

Jamie Dimon, President & CEO,Chairman & CEO JPMorgan Chase, speaking on CNBC’s Squawk Box at the World Economic Forum Annual Meeting in Davos, Switzerland on Jan. 17th, 2024.
Adam Galici | CNBC

JPMorgan Chase CEO Jamie Dimon on Friday issued another warning about inflation despite recent signs of easing in price pressures.
“There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world,” Dimon said in a statement along with the bank’s second-quarter results. “Therefore, inflation and interest rates may stay higher than the market expects.”

His comments came after this week’s data showed the monthly inflation rate dipped in June for the first time in more than four years, which fueled bets that the Federal Reserve could cut rates soon.
The consumer price index, a broad measure of costs for goods and services across the U.S. economy, declined 0.1% in June from May, putting the 12-month rate at 3%, around its lowest level in more than three years.
Fed Chairman Jerome Powell earlier this week expressed concern that holding interest rates too high for too long could jeopardize economic growth, teasing that rate reductions could be on the horizon as long as inflation continues to show progress.
Dimon joined many economists in sounding the alarm on the U.S.’ burgeoning debt and deficits. The federal government has so far spent $855 billion more than it has collected in the 2024 fiscal year. For fiscal 2023, the government’s deficit spending came in at $1.7 trillion.

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The much-anticipated policy meeting, scheduled for Monday to Thursday, is a major gathering of the top members of the ruling Communist Party of China that typically happens only once every five years.
This plenum was widely expected to be held last fall but has been delayed.
“The key challenge faced by Beijing is to find an alternative fiscal system, as the current one, which relies heavily on land sales, is under severe pressure due to the plunging land market,” Larry Hu, chief China economist at Macquarie, said in an email to CNBC.

High-rise buildings are being seen in the West Coast New Area of Qingdao, Shandong province, China, on July 6, 2024.
Nurphoto | Nurphoto | Getty Images

BEIJING — China’s real estate problems may be massive, but analysts expect the upcoming Third Plenum to focus on other areas — such as high local government debt levels and a push for advanced manufacturing.
The much-anticipated policy meeting, scheduled for Monday to Thursday, is a major gathering of the top members of the ruling Communist Party of China that typically happens only once every five years. This plenum was widely expected to be held last fall but has been delayed.

“The key challenge faced by Beijing is to find an alternative fiscal system, as the current one, which relies heavily on land sales, is under severe pressure due to the plunging land market,” Larry Hu, chief China economist at Macquarie, said in an email to CNBC.

He expects next week’s meeting to focus on fiscal reform and other structural policies. Hu pointed out that cyclical policies — which can include property — are usually discussed at more regular meetings such as that of China’s Politburo, expected in late July.
“Other than that, policymakers are also likely to reiterate [their] commitment to innovation, i.e. the so-called new productive forces,” Hu said, referring to Beijing’s push to support advanced manufacturing and high-tech.
The Central Committee of the ruling Chinese Communist Party, made up of more than 300 people including full and alternate members, typically holds seven plenary meetings during each five-year term.
The Politburo is a group of about 24 people within that committee. 

The Standing Committee of the Politburo, made up of seven key members, is the highest circle of power in China which is headed by Xi Jinping, General Secretary of the Party and President of China.

The Third Plenum, set for July 15-18, is one of the most important political meetings of the Chinese Communist Party.
Bloomberg | Bloomberg | Getty Images

The Third Plenum has traditionally focused on economic policy. Under Deng Xiaoping’s leadership in 1978,  the meeting officially heralded significant changes for the communist state, such as China’s “reform and opening.”
At next week’s plenary meeting, “the number one thing I’m looking out for is the so-called financial reform,” Dan Wang, chief economist at Hang Seng Bank (China), told CNBC.
She’ll also be watching for details around consolidation in the banking sector, as well as signals on policy around local government finances and taxes.
“For real estate markets, I don’t think it should be a focus of the plenum, because it’s already [in a] state that everyone has a consensus [on],” Wang said. “It’s in a downturn. It hasn’t reached the bottom yet.”

Links to local government finances

While pertinent to the wealth of most households in China, the property sector’s troubles are also intertwined with local government finances and their piles of hidden debt.
Local governments once relied heavily on land sales for revenue.
“In the medium and longer term, the importance of cultivating sustainable revenue sources for local governments will increase,” HSBC analysts said in a June 28 report previewing the Third Plenum.
“Broadening the imposition of direct taxes on, for example, consumption, personal income, property, etc., is often considered as a solution. Among these possibilities, a consumption tax might be the most effective,” the analysts said, noting it could incentivize local authorities to boost consumption.

We believe transitions need to be carefully designed and carried out at this juncture, considering the low confidence level in the private sector…

It’s not necessarily that straightforward to boost sentiment, however. In the weeks ahead of the plenum, Chinese stocks slipped closer to correction territory — or more than 10% from a recent high.
“We believe transitions need to be carefully designed and carried out at this juncture, considering the low confidence level in the private sector, or it may work in the opposite direction to a supportive fiscal stance,” the HSBC analysts said.
Attempts to tackle broad financial risk have prompted more restrictions on the broader banking and finance industry. Since the latest Central Committee was installed in October 2022, the Chinese Communist Party has increased its oversight of finance and tech with new commissions.
“The scale of real estate has become so large, it’s absorbed all of China’s resources,” Yao Yang, professor and director of the China Center for Economic Research at Peking University, said last month, according to a CNBC translation of his speech in Mandarin.

In his view, excessive growth of the financial sector was behind the hollowing out of the U.S. industrial sector.
“For China to compete with the U.S., we need to develop manufacturing and tech,” Yao said. “Consequently we must constrain the financial industry, including real estate. That’s the underlying reason for tightened regulations on both real estate and finance.”
Goldman Sachs analysts said in a report last month that average wages at brokerages, affecting about 0.1% of China’s urban population, fell by almost 20% in 2022 and ticked lower last year.
Together with the far larger impact of constrained local government finances, the analysts found that finance and public sector pay cuts dragged down urban wage growth by about 0.5 percentage points each year in 2022 and 2023.
Separately, China reportedly plans to limit the financial industry to an annual salary of around 3 million yuan (about $413,350) — a cap that would apply retroactively and require workers to return excess earnings to their companies, the South China Morning Post said last week, citing people familiar with the matter.
China’s National Financial Regulatory Administration did not immediately respond to CNBC’s request for comment.

Long-term goals, existing challenges

Beijing’s official announcement of the Third Plenum said leaders will discuss “comprehensively deepening reform and advancing Chinese modernization.” The readout noted China’s goals to build a “high-standard socialist market economy by 2035.”
Beijing said in 2020 such “socialist modernization” would include per capita GDP of “moderately developed countries,” an expanded middle-income group and reduced disparities in living standards.
It won’t be an easy task, especially following the shock of the Covid-19 pandemic and rising geopolitical tensions. China’s per capita GDP last year in constant U.S. dollars was $12,174 — less than one-fifth of the United States at $65,020, according to the World Bank.

It may be that a slowing economy means fewer opportunities and raises more concerns about inequality and fairness than before.

Big Data China

While income inequality is a global issue, new research indicates that people in China have become significantly discouraged by perceived “unequal opportunity.” That’s according to surveys since 2004 by teams led by Martin King Whyte of Harvard University and Scott Rozelle of Stanford University.
The latest survey found that regardless of income bracket, more respondents thought their families’ economic situation had declined in 2023 compared to prior years.
“It may be that a slowing economy means fewer opportunities and raises more concerns about inequality and fairness than before,” a summary of the survey by Big Data China said. “In other words, inequality may be more acceptable when the pie is growing very quickly, but it becomes less so when the economy falters.” More

China’s imports fell in June, missing expectations for slight growth, while exports grew more than expected, customs data released Friday showed.
China’s trade with the U.S. was down slightly in dollar terms during the first half of the year, as imports from the U.S. fell 4.9%, though exports rose 1.5%.
Trade with Brazil grew rapidly in the first half of the year, with Chinese exports to the Latin American country surging by 24.4%.

PIctured here is the Qianwen container terminal in the port city of Qingdao, Shangdong, China on July 11, 2024. 
Cfoto | Future Publishing | Getty Images

BEIJING — China’s imports fell in June, missing expectations for slight growth, while exports rose more than expected, customs data released Friday showed.
China’s imports fell by 2.3% in June from a year ago in U.S. dollar terms. That contrasts with a forecast of 2.8% growth, according to a Reuters poll.

U.S. dollar-denominated exports for June climbed by 8.6% year on year, beating expectations for 8% growth forecast by a Reuters poll.
Those figures lifted year-to-date imports by 2%, and exports by 3.6% in the first six months compared with the same period a year earlier.
China’s trade with the Association of Southeast Asian Nations surged by 7.1% in the first half of the year, cementing the bloc’s position as the country’s largest trading partner by region, followed by the European Union.

EU’s trade with China fell in the first six months of 2024, with imports and exports both declining.
China’s trade with the U.S. was down slightly in dollar terms during the first half of the year, as imports from the U.S. fell 4.9%, though exports rose 1.5%.

Trade with Brazil grew rapidly in the first six months, with Chinese exports to the Latin American country surging by 24.4% and imports climbing by 8.3% year on year.

Rare earths’ imports drop

China’s imports of rare earths, meat, cosmetics products and machine tools fell sharply in the first half of the year, customs data showed. However, imports of iron ore and oil grew during that time.
Amid slower domestic growth, Beijing has sought to shore up its own supplies of food and critical minerals in an effort to bolster national security.
In the first half of the year, China’s exports of furniture, home appliances, ships and cars grew. Exports of rare earths fell in terms of value, but rose in volume, the data showed.
China’s exports of cars rose by 18% in volume last month from the year-ago period, customs data showed.
Other reported major retail goods categories showed that the volume of suitcases China exported in June rose by 9% from a year ago. The number of shoes exported climbed by 3.7% in June to 840 million pairs.
China’s exports rose by 7.6% in May from last year in U.S. dollar terms, but imports had increased by just 1.8% during that time.
Domestic demand has remained lackluster. China’s consumer prices rose by 0.2% in June, year on year, missing expectations, while producer prices met expectations, data from the National Bureau of Statistics showed on Wednesday.
Core CPI, which strips out more volatile food and energy prices, rose by 0.6% year on year in June, slightly slower than the 0.7% increase in the first six months of the year.
China’s National Bureau of Statistics is scheduled to release second-quarter gross domestic product figures and economic indicators for June on Monday. More

The consumer price index moderated again in June 2024, the Bureau of Labor Statistics said Thursday.
The CPI annual inflation rate has declined to 3% from a 9.1% pandemic-era peak in 2022.
Neither President Joe Biden nor former President Donald Trump shoulder much of the blame for high inflation, economists said.

President Joe Biden and former President Donald Trump participate in the CNN Presidential Debate on June 27, 2024 in Atlanta.
Justin Sullivan | Getty Images News | Getty Images

Inflation decelerated again in June, bringing further relief to consumers’ wallets.
The consumer price index rose 3% in June 2024 from June 2023, down from a 3.3% annual inflation rate in May, the Bureau of Labor Statistics reported Thursday.

While inflation isn’t quite yet back to policymakers’ long-term target around 2%, it has cooled significantly from about 9% two years ago, the highest level since 1981.
But why did inflation initially take off?
The first U.S. presidential debate last month saw both candidates — President Joe Biden and former President Donald Trump — blame each other for inflation-related grievances during the pandemic era.
More from Personal Finance:Here’s the inflation breakdown for June 2024 — in one chartWhy housing inflation is still stubbornly highMore Americans are struggling even as inflation cools
“He caused the inflation,” Trump said of Biden during the June 27 debate. “I gave him a country with no, essentially no inflation,” he added.

Biden countered by saying inflation was low during Trump’s term because the economy “was flat on its back.”
“He decimated the economy, absolutely decimated the economy,” Biden said.
But the cause of inflation isn’t so black and white, economists say.
In fact, Biden and Trump are not responsible for much of the inflation consumers have experienced in recent years, they said.

‘Neither Trump nor Biden is to blame’

Global events beyond Trump’s or Biden’s control wreaked havoc on supply and demand dynamics in the U.S. economy, fueling higher prices, economists said.
There were other factors, too.

The Federal Reserve, which acts independently from the Oval Office, was slow to act to contain hot inflation, for example. Some Biden and Trump policies such as pandemic relief packages also likely played a role, as might have so-called greedflation.
“I don’t think it’s a simple yes/no kind of answer,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, a left-leaning think tank.
“In general, presidents get more credit and blame for the economy than they deserve,” he said.

That Biden is seen as stoking high inflation is due somewhat to optics: he took office in early 2021, around the time inflation spiked notably, economists said.
Likewise, the Covid-19 pandemic plunged the U.S. into a severe recession during Trump’s tenure, pulling the consumer price index to near zero in spring 2020 as unemployment ballooned and consumers cut spending.
“In my view, neither Trump nor Biden is to blame for the high inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “The blame goes to the pandemic and the Russian war in Ukraine.”

The big reasons inflation spiked

A terminal at the Qingdao Port on June 20, 2022 in Qingdao, Shandong Province of China. 
Wu Shaoyang/VCG via Getty Images

Inflation has many tentacles. At a high level, hot inflation is largely an issue of mismatched supply and demand.
The pandemic upended the typical dynamics. For one, it disrupted global supply chains.
There were labor shortages: Illness sidelined workers. Child-care centers closed, making it hard for parents to work. Others were worried about getting sick on the job. A decline in immigration also reduced worker supply, economists said.
China shut down factories and cargo ships couldn’t be unloaded at ports, for example, reducing the supply of goods.
Meanwhile, consumers changed their buying patterns.
They bought more physical stuff such as living room furniture and desks for their home offices as they spent more time indoors — a departure from pre-pandemic norms, when Americans tended to spend more money on services such as dining out, travel, and going to movies and concerts.
High demand, which boomed when the U.S. economy reopened broadly, coupled with goods shortages fueled higher prices.

There were other related factors, too.
For example, automakers didn’t have enough semiconductor chips necessary to build cars, while rental car companies sold off their fleets because they didn’t think the recession would be short-lived, making it pricier to rent when the economy rebounded quickly, Wessel said.
As Covid cases were hitting record highs heading into 2022, further disrupting supply chains, Russia’s war in Ukraine “supercharged” inflation by stoking higher prices for commodities such as oil and food around the world, Zandi said.
As a result, global inflation hit a level “higher than seen in several decades,” the International Monetary Fund wrote in October 2022.
“We only have to look at the still high inflation rates in most other advanced economies to see that most of this inflation period was really about global trends … rather than about the specific policy actions of any given government (though they did of course play some role),” Stephen Brown, deputy chief North America economist at Capital Economics, wrote in an email.

Big spending bills’ impact ‘only clear in hindsight’

US President Joe Biden speaks during remarks on the implementation of the American Rescue Plan in Washington on March 15, 2021.
Eric Baradat | Afp | Getty Images

However, Biden and Trump aren’t entirely without fault: They greenlit additional government spending in the pandemic era that contributed to inflation, for example, economists said.
For example, the American Rescue Plan — the $1.9 trillion stimulus package Biden signed in March 2021— offered $1,400 stimulus checks, enhanced unemployment benefits and a larger child tax credit to households, in addition to other relief.
The policy led to “some good things,” such as a strong job market and low unemployment, said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank.
But its magnitude was greater than the U.S. economy needed at the time, serving to raise prices by putting more money in consumers’ pockets, which fueled demand, he said.
“I do think President Biden bears some responsibility for the inflation that we’ve been living through for the past few years,” Strain said.

He estimated the American Rescue Plan added about 2 percentage points to underlying inflation. The consumer price index peaked at 9.1% in June 2022, the highest since 1981. It’s since declined to 3%.
The Federal Reserve — the U.S. central bank — aims for a long-term inflation rate near 2%.
“I think if it weren’t for the American Rescue Plan, the U.S. still would have had inflation,” Strain added. “So I think it’s important not to overstate the situation.”
However, Zandi viewed the ARP’s inflationary impact as “good” and “desirable,” bringing the economy back to the Fed’s long-term target inflation rate after a prolonged period of below-average inflation.
Trump had also authorized two stimulus packages, in March and December 2020, worth about $3 trillion.

These so-called fiscal policy responses were insurance against a lousy economic recovery, perhaps overshooting after the lackluster U.S. response to the Great Recession that mired the nation in high unemployment for years, Wessel said.
That the U.S. issued perhaps too much stimulus was the presidents’ fault but “only clear in hindsight,” he said.
Biden and Trump also enacted other policies that may contribute to higher prices, economists said.
For example, Trump imposed tariffs on imported steel, aluminum and several goods from China, which Biden largely kept intact. Biden also set new import taxes on Chinese goods such as electric vehicles and solar panels.

The Fed and ‘greedflation’

U.S. Federal Reserve Chair Jerome Powell speaks at a news conference on interest rates, the economy and monetary policy actions on June 15, 2022.
Olivier Douliery- | Afp | Getty Images

Fed officials also have some responsibility for inflation, economists said.
The central bank uses interest rates to control inflation. Increasing rates raises borrowing costs for businesses and consumers, cooling the economy and therefore inflation.
The Fed has raised rates to their highest in about two decades, but was initially slow to act, economists said. It first increased them in March 2022, about a year after inflation started to spike.
It also waited too long to throttle back on “quantitative easing,” Strain said, a bond-buying program meant to stimulate economic activity.
“That was a mistake,” Zandi said of Fed policy. “I don’t think anyone would have gotten it right given the circumstance, but in hindsight it was an error.”
Some observers have also pointed to so-called greedflation — the notion of corporations taking advantage of the high-inflation narrative to raise prices more than needed, thereby boosting profits — as a contributing factor.
It’s unlikely this was a cause of inflation, though it may have contributed slightly, economists said.
“To the extent anything like that happened — which I’m not sure it did — this would be a very minor factor in the inflation we had,” said Strain. He estimates the dynamic would have added well less than 1 percentage point to the inflation rate.
“Companies always look for an opportunity to raise prices when they can,” Wessel said. “I think they took advantage of the inflationary climate, but I don’t think they caused it.”

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Banks involved in the mess caused by the collapse of fintech middleman Synapse have made progress piecing together account information for customers that could result in a release of funds in a matter of weeks, according to a person briefed on the matter.
More than 100,000 customers of fintech apps like Yotta, Juno and Copper have been locked out of their accounts since May.
Evolve Bank initially planned to release $46 million it held from payment processing accounts to give customers partial payments, according to the person familiar. But it now seems something approximating a full reconciliation of customer accounts is possible.

Oscar Wong | Moment | Getty Images

There may be relief for the thousands of Americans whose savings have been locked in frozen fintech accounts for the past two months.
Banks involved in the mess caused by the collapse of fintech intermediary Synapse have made progress piecing together account information for stranded customers that could result in a release of funds in a matter of weeks, according to a person briefed on the matter.

Staff of Evolve Bank & Trust and Lineage Bank in particular have made headway after hiring a former Synapse engineer late last month to unlock data from the failed fintech middleman, said the person, who asked for anonymity to speak candidly about the process.
The development comes as regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., pressure the banks involved to release funds after media and lawmakers have heightened awareness of the debacle.
Beginning in May, more than 100,000 customers of fintech apps like Yotta, Juno and Copper have been locked out of their accounts.
“We’re strongly encouraging Evolve to do whatever it can to help make money available to those depositors,” Federal Reserve Chair Jerome Powell told the Senate Banking Committee on Tuesday.  
The sudden optimism of key players involved in the negotiations, including Evolve founder and Chairman Scot Lenoir, comes after weeks of apparent gridlock in a California bankruptcy court. Shoddy record-keeping and a dearth of funds to pay for a forensic analysis have made it difficult to piece together who is owed what, bankruptcy trustee Jelena McWilliams has said.

The episode revealed how small banks involved in the “banking-as-a-service” sector didn’t properly manage unregulated partners like Synapse, founded in 2014 by a first-time entrepreneur named Sankaet Pathak. Evolve and a string of peers have been reprimanded by bank regulators for shortcomings tied to their programs.

Missing customer funds

Evolve Bank initially planned to release $46 million it held from payment processing accounts to give fintech customers partial payments, according to the person with knowledge of the matter.
That plan changed in recent days when it became clear that something approximating a full reconciliation of customer accounts was possible, the person said.
But it remains unknown how the four main banks involved — Evolve, Lineage, AMG National Trust and American Bank — and what remains of Synapse will deal with a likely shortfall of funds, and that could hinder repayment efforts.
Up to $96 million owed to customers is missing, McWilliams has said.
The Synapse trustee didn’t respond to a request for comment. Neither did representatives for AMG, American Bank and Lineage. The FDIC declined to comment for this article.
On Wednesday Evolve filed a response to questioning from one of its regulators, FINRA, seeking to make it clear that while it holds some payment processing funds, deposits from the app Yotta migrated out of Evolve and to a network of banks in late October 2023.
“We believe there is still some confusion regarding who is in possession and control of customer funds,” Evolve told FINRA, according to documents obtained by CNBC.
The bank included an Oct. 27, 2023, email from Yotta CEO Adam Moelis to Lenoir where Moelis confirmed that funds had left Evolve as of that date.
“Synapse and Evolve are now saying contradictory things,” Moelis said this week in response to an inquiry from CNBC. “We don’t know who’s telling the truth.”

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