Finance

Before the pandemic it was a cause for excitement among economists that the real interest rate governments paid on their debts had fallen below the rate of economic growth in most rich countries, allowing governments to spend more freely and worry less about running up debts. But central banks’ battle with inflation today threatens to turn that relationship on its head, making the fiscal position of indebted governments more perilous.When interest rates are below growth rates, governments can run primary budget deficits (that is, deficits before interest payments are taken into account) without the debt-to-gdp ratio necessarily rising. But when rates exceed economic growth, primary surpluses are the only way to keep indebtedness stable. The higher the starting debt, the more belt-tightening needed.Fortunately, inflation reduces the real interest rate, and so most countries will gain a fiscal windfall this year. Some of their debt, in other words, will be inflated away. But if central banks successfully bring inflation down, and if high interest rates endure, things could get more painful. The picture looks especially worrying in Italy. The euro zone’s third-largest economy had net public debt worth nearly 140% of gdp last year. Its government currently pays about 3.5% to borrow for ten years.Precisely where Italy’s indebtedness and borrowing costs will settle after the energy crisis is uncertain. Our table shows a range of combinations for debt and financing costs, and what they would imply for the country’s budget were growth to match the average imf forecast during 2022-27, and were inflation to fall to the European Central Bank’s target of 2%. In reality, the average tenor of outstanding Italian debt is nearly eight years, so it would take time for its average financing cost to rise to the levels shown on the right-hand side of the table.At financing costs of 3% or below, Italy can run small primary deficits and still outgrow its debt. (The table also shows one weird effect of growth exceeding interest rates: that debt stability is easier to achieve when starting debts are higher.) As interest rates rise, however, stability requires primary surpluses of 2% or more. The only time Italy has run so tight a budget since the global financial crisis was in 2012, at the height of European austerity.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

This year’s Juneteenth holiday in America gave crypto buffs little time to reflect or rejoice. On June 18th bitcoin reached a low of $17,600—its first tumble below $20,000 since 2020—before recovering a little the next day. The sell-off sparked over $1bn in liquidations, as traders who had borrowed money to make big bets failed to post more collateral. Overall, bitcoin is about 70% below its peak in November; ether, another cryptocurrency, is down by around 80%. As prices have fallen, cracks have appeared in the crypto infrastructure. Babel Finance and Celsius, two crypto lenders, have paused withdrawals after struggling to meet redemptions; their rivals have trimmed their balance-sheets, causing a credit crunch. Third Arrow, a crypto hedge fund, has failed to meet margin calls, and Hoo, an exchange, has halted transactions. The risk of a fresh downward spiral remains. Traders that were not wiped out have managed to post more collateral with decentralised-finance (DeFi) lenders; the level at which margin calls are triggered briefly dipped. But data from Parsec Finance, an app, suggest that the threshold has risen again to nearly $900 a coin for ether, from $700 on June 20th (at the time of writing, the price of ether was $1,100). Recent events have also shown how three weaknesses in crypto can amplify trouble: fuzzy valuations, incestuous relationships and the lack of a liquidity backstop. Start with valuations. Some of the most commonly traded crypto tokens are complex products such as derivatives and “tokens” issued by DeFi platforms, for which there are no established valuation models. The lack of an anchor means trust in pricing can vanish in a jiffy; the effect is magnified on weekends, when trading volumes are thinner. Problems in parts of the crypto market can end up rippling outwards, not least to bitcoin, the benchmark for the entire universe. A second channel of contagion comes from the high degree of interconnectedness between DeFi platforms. This is partly the result of intensifying competition. The amount of money invested in DeFi, after a period of explosive growth, has fallen over the past year. As crypto lenders have vied to attract a shrinking pile of dollars, they have promised ever-higher yields to depositors, which, in turn, has led them to invest users’ funds in riskier projects—typically other lending and yield-generating platforms. When the price of one asset falls, the effects cascade through the system. Celsius is a case in point. In December it claimed to have $24bn in crypto assets under management, which it had lured by offering yields to depositors of as much as 18%. To achieve those returns, it made loans to marketmakers, hedge funds and DeFi projects. When prices sank, however, so did the value of those assets. Some, such as the $400m Celsius held in “staked ether”, a derivative, proved illiquid. That left the firm unable to meet growing demand for withdrawals. When Celsius eventually froze funds on June 14th, bitcoin sank by 25%, partly on fears of contagion.These goings-on revealed a third weakness: the lack of a liquidity backstop to prevent a free-fall in asset prices. In mainstream finance, regulators provide a safety-net. But no institution exists to mop up stressed crypto assets of systemic importance (at least to the crypto system), such as stablecoins, or to bail out important firms. Deposits with crypto lenders are not insured. In conventional finance, such fail-safes reduce the risk of panic-selling when prices tumble. Were bitcoin to drop below $15,000, liquidations could accelerate so much that posting enough collateral or raising funds to stop the fall may become hard, say Monsur Hussain and Alastair Sewell of Fitch, a rating agency. But it would probably take a trigger for that to happen: a huge hack at an exchange, say, or a big economic surprise. And time seems to be on crypto’s side. Crypto platforms, and the risks they take with their assets, may soon come under regulatory scrutiny. Some stablecoins are trying to build sounder reserves: Tether, the issuer of the world’s largest such coin, has said it plans to replace its holdings of commercial paper with safer Treasuries. Some of the makings of a frosty crypto winter, though, are still in place. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Those old enough to remember the euro zone’s economic crisis of a decade ago may have felt a shiver of déjà vu on June 15th, when the European Central Bank (ecb) called an emergency meeting to discuss the widening spreads between member countries’ government-bond yields. It is nearly exactly a decade ago that, as yields soared, Mario Draghi, then the president of the ecb, promised to do whatever it took to preserve the single currency. In both instances, bond spreads began to narrow after the central bank intervened. Today the ecb is considering an “anti-fragmentation” tool to lower spreads, say by buying the bonds of weaker countries (provided they meet certain conditions). Nonetheless, worries that the currency union might start to look shaky remain in the air. The fiscal position of Italy in particular, which last year had net public debt in the region of 140% of gdp, is preoccupying investors. Should interest rates rise much more, financial markets might start to doubt its ability to pay its debts. One dangerous feature of the previous crisis was the infamous “doom loop” that connected banks and sovereigns. Crudely put, euro-area banks were loaded up with home sovereign debt. When fears of sovereign default intensified, banks’ balance-sheets crumbled, which then required them to be propped up by an already wobbly state. As banks cut lending, the real economy weakened, further worsening the public finances. How much of a worry is this doom loop today? A consideration of the various links in the chain suggests it is less fearsome—but that the monster has not been slain. Start with banks’ exposure to their home sovereigns. After the global financial crisis in 2007-09, banks in southern European countries started to buy large amounts of bonds issued by their home government (which banking regulators consider to be risk-free, meaning that banks do not need to fund their holdings of them with capital). Spanish lenders increased their holdings of national government bonds from around 2% of total assets in 2009 to more than 9% by 2015; Italian banks increased their holdings of home sovereign debt from 4% to nearly 11% over the same period. Banks in most big euro-area countries have since reduced their exposures to their home sovereign. Strikingly, the boss of one of the bloc’s big lenders says that it no longer has any exposure to any euro-area sovereign debt. But Italian banks are the big exception. They remain just as exposed to their government’s debt as they were a decade ago. In Italy, at least, this part of the doom loop is alive and kicking. What about governments’ exposure to collapsing banks? Severing this bit of the feedback loop has certainly been an important aim of policymakers. The eu’s banking union—which sought to set up a system of common supervision, resolution and deposit insurance—was born nearly a decade ago. The idea was to make banks more European, and rescuing them less of a national affair. The problem, however, is that the task is only half done. The ecb has been in charge of supervising banks since 2014. That, together with regulatory changes that have forced banks to fund lending with more capital, have made it more likely that troubled lenders can be restructured, meaning that sovereigns are less exposed to the risks stemming from collapsing banks than they used to be. But the European resolution of banks remains incomplete, and common deposit insurance has not been set up at all. All told, “the safety-net for banks and deposits remains predominantly national, and the exposure of banks to sovereigns has not been solved,” concludes Nicolas Veron of Bruegel, a think-tank in Brussels. If governments’ sensitivity to failing banks is somewhat lower than it used to be, what about the economy’s exposure to zombie lenders? Europe remains largely bank-based, with capital markets playing a minor role in financing firms. It helps at least that banks are less stuffed with non-performing loans than they used to be, and are in better shape overall. But a hit to a national banking system could still impair its ability to lend to firms and households, unless they find other sources of finance. In 2015 the European Commission launched a plan to bolster Europe’s capital markets. But little progress has been made. Most indicators that measure the size of capital markets, and the degree to which they are integrated, have moved sideways. The main problem, say observers, is that national politicians have not fully committed themselves to the difficult work of harmonising rules across countries. Regulation aside, there have been two big improvements within the euro zone that will help weaken the doom loop. The first is on fiscal policy. Without transfers between member states, a national economy will always suffer when its government is forced to cut spending. A sovereign under financial stress may have to cut benefits or raise taxes precisely when the economy is weak. That in turn lowers tax revenues, worsening the fiscal position. From the start of the euro area’s crisis in 2010 until about 2014, countries painfully shrank their deficits, hurting economic growth. It was only when interest rates came down and austerity was eased that the economy began to recover. The covid-19 pandemic has led to more fiscal integration. The eu’s recovery fund, financed by commonly issued debt, will spend about €750bn ($790bn) over the next five years, with more money going to support investment in the weakest economies. Such a mechanism of fiscal transfers, if repeated, could make the sovereign-to-economy loop less severe in the future. The second big improvement is political. Few politicians are agitating for their countries to leave the euro, which in turn means investors are not getting jittery about euro exit and debt default.About a decade ago, policymakers in the euro zone started off with bold plans to eliminate the doom loop. Some of those have come to fruition. But the overall picture is mixed. With a recession looming and interest rates rising, that might not be good enough. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Estate agents are known for their sunny disposition. Lindsay Garcia, a realtor in Miami, is no exception. She talks about the city’s warm climate and low taxes, both of which have lured a wave of footloose outsiders. For much of the past two years agents enjoyed a bonanza. Buyers fought to outbid each other, waived property inspections and bought units sight unseen; many paid well over the asking price. Then mortgage rates began to climb this year, cooling the frenzy a little. Only houses that were newly renovated or ready to be moved into straight away received multiple offers, Ms Garcia says. Now a fresh spike in mortgage rates seems to have slammed the brakes on altogether.On June 15th the Federal Reserve raised interest rates by 0.75 percentage points. Figures released a day later revealed that the benchmark 30-year fixed mortgage rate had hit 5.78%, an increase of more than half a percentage point over the week before. By June 17th, two of Ms Garcia’s colleagues had been rung up by buyers abruptly calling off deals because they could no longer afford them.The plight of the would-be buyers illustrates just how swift and brutal the rise in interest rates has been, and how immediate its impact is on interest-sensitive sectors such as housing. In January mortgage rates were around 3%, only a little above their all-time low of 2.67%, reached during the pandemic. They have nearly doubled since (see chart); only in the 1980s was there a comparably rapid rise in interest rates. The increase has made houses even more unaffordable. In January a buyer with a deposit of $100,000 looking to spend $3,000 a month on housing could afford a home worth $815,000. Now they can afford one worth just $600,000. The prospect of a turn in the property market’s fortunes naturally calls to mind America’s housing crisis of 2007-09. But there are important differences between the two situations. Rising interest rates in the late 2000s revealed just how imprudent mortgage lending had been. By contrast, the median fico score—a measure of creditworthiness—for mortgages today is about 48 points higher than the pre-financial-crisis level of around 700. Household balance-sheets are robust, bolstered by pandemic stimulus, and in aggregate there has been far less borrowing for house purchases than in the early 2000s. The total value of mortgage debt is around 65% of household income, compared with nearly 100% in 2007.Though it is possible that pockets of dodgy debt lurk in the shadows today, it seems less probable that rising rates will uncover systemic weaknesses in lending standards that could set off a vicious cycle of falling prices and foreclosures. Instead the problem of 2022 is house-price growth itself. “The type of acceleration in house prices that we’ve seen over the past two years is unprecedented,” says Enrique Martínez-García of the Dallas Fed. By the first quarter of the year the increase in American house prices over the previous two years, at 37%, was the fastest on record. That rapid growth is a problem for the Fed, argues Mr Martínez-García, because it feeds into rents, which in turn contribute to headline inflation. According to Redfin, a property platform, asking rents in May were 15% higher than in the same month last year. As new leases are signed, these will eventually add to consumer-price inflation. Indeed, rising housing costs already accounted for 40% of the monthly increase in the consumer-price index in May. “Cooling the housing market is almost a precondition to being able to tame inflation,” says Mr Martínez-García. A housing slowdown, then, will this time be engineered, rather than uncovered. The best possible outcome is that the Fed manages to slow the property market by enough to bring inflation under control, without overdoing it. The events of the early 1980s, when interest rates last climbed so quickly, illustrate what such a controlled slowdown might look like. Inflation soared to well above 10%, Paul Volcker had just been appointed chairman of the Fed, and the federal funds rate was briefly raised to an all-time high of about 20%. Property prices did fall sharply—but only in real terms. From 1979 to 1982 real house prices fell by nearly a fifth, even as prices in nominal terms rose by a tenth. More notably, housing transactions fell off a cliff. Existing-home sales peaked at 4m in 1978; four years later, only 2m homes were sold. Higher interest rates this time are indeed likely to hit transaction volumes first. That the initial consequence will be a fall in property sales, rather than a rise in financial distress among homeowners, can be partly explained by a quirk in the America’s mortgage market. In most countries borrowers are offered fixed interest rates for only two to five years; when that period ends, the rate floats in line with the central bank’s policy rate. But the existence of America’s government-sponsored housing agencies, most notably Fannie Mae and Freddie Mac, which were set up to incentivise home ownership, means that the vast majority of American mortgages are on a 30-year fixed rate. That makes would-be sellers increasingly reluctant to move and give up their cheap mortgages when rates go up. Buyers, meanwhile, can no longer afford the kind of house they want. Daryl Fairweather of Redfin therefore expects the market to go into a “cold period” of scant activity for the rest of the year. Things could easily get more complicated than they did in the 1980s, though, if the Fed is unable to act with enough precision to stabilise the market without causing prices to crash. The fact that housing has been so frothy makes the task harder. What has been remarkable about the past couple of years of price growth is that it has been so difficult to square with any of the “usual explanations”, such as millennial household formation or supply constraints, says Mr Martínez-García. Once those explanations have been ruled out, all that is left is “expectations”, such as the fear of missing out on ever being able to buy a house. Cooling a hot property market by just enough to quell inflation is one thing. Deflating a bubble without popping it is another. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

USDD, a so-called “algorithmic” stablecoin that’s meant to always be worth $1, plunged as low as 93 cents on Sunday.
The situation has led to fears that USDD may suffer the same fate as terraUSD, a similar token that collapsed in May.
But despite concerns over a repeat of the Terra saga, experts say this is unlikely to be the case.

Cryptocurrencies have been under immense pressure after the collapse of a so-called stablecoin called terraUSD.
Umit Turhan Coskun | Nurphoto via Getty Images

A controversial stablecoin launched just before the collapse of a similar token called terraUSD is struggling to maintain its peg to the U.S. dollar.
USDD, a so-called “algorithmic” stablecoin that’s meant to always be worth $1, plunged to as low as 93 cents on Sunday. The coin’s creator has amassed a reserve of bitcoin and other digital tokens worth close to $2 billion to provide a buffer in case investors flee en masse.

The situation has led to fears that USDD may suffer the same fate as terraUSD, or UST, the wrecked so-called stablecoin that formed part of an experiment called Terra. UST’s meltdown triggered a wider sell-off in cryptocurrencies, which has been exacerbated in recent weeks by a growing liquidity crisis in the market.
The Tron DAO Reserve, which oversees and manages the stablecoin, said a certain degree of volatility in USDD’s price was to be expected given its “decentralized” nature.
“Certain % of volatility is unavoidable,” the organization tweeted last week. “Currently, the market volatility rate is within +- 3%, an acceptable range. We will watch the market very closely and act accordingly.”
USDD was trading at around 97 cents on Wednesday.
Despite concerns over a repeat of the Terra saga, experts say this is unlikely to be the case, since USDD is much smaller in size and has seen little uptake from crypto investors.

What is USDD?

USDD was launched in early May, days before UST began tumbling below $1. For the past week, it has consistently traded below its intended dollar peg amid increased selling.
Instead of sitting on piles of cash and other cash-like assets, USDD runs a complex algorithm — combined with a related token called tron — to maintain a one-to-one peg to the greenback.

If that sounds familiar, it’s because Terra’s UST operated in much the same way, creating and destroying units of UST and a sister coin called luna to get around the need to have reserves to back the stablecoin.
Another similarity USDD shares with UST is that it has accumulated a sizable cache of other digital tokens to help boost its price in case investors withdraw in droves. Terra bought billions of dollars worth of crypto in an effort to keep its stablecoin afloat, a move that ultimately proved futile.
USDD’s use of crypto as reserves expose it to “similar risks as UST,” said Monsur Hussain, senior director of financial institutions at Fitch Ratings.
“Cryptos are generally price-correlated during times of upheaval,” he added.

USDD also offers investors unusually high interest rates — up to 39% — on their USDD deposits. Anchor, a crypto lending platform, similarly touted yields of as much as 20% on UST holdings, a rate many investors now say was unsustainable.
The coin was created by Justin Sun, the outspoken crypto entrepreneur behind Tron, a blockchain that’s trying to compete with Ethereum. Like Do Kwon, the founder of Terra, Sun has often used Twitter to promote his projects — and challenge critics.
The Chinese-born businessman has been involved in numerous controversies and publicity stunts in the past. In 2019, he paid $4.6 million to have lunch with Berkshire Hathaway CEO Warren Buffett, only to then cancel abruptly. The lunch eventually took place in 2020.

Not another Terra

Upon closer inspection, though, it’s clear there are some notable differences between USDD and UST.
For one, USDD is nowhere near the scale of Terra, whose UST and luna tokens reached a combined value of $60 billion at their height. It would therefore be unlikely to have the same effect if it collapsed, according to analysts.
“USDD doesn’t have the weight to cause the same wake of destruction UST did,” said Dustin Teander, a research analyst at crypto data firm Messari.

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He added the use of USDD isn’t anywhere near as widespread as UST was before its demise.
According to public blockchain records, about 10,000 accounts hold the token on the Tron network, while just over 100 accounts hold it on Ethereum.
Were USDD to collapse, “it would not result in the same degree of contagion, or fear, as when UST/LUNA crashed,” Hussain said.
And unlike UST, which was only partially collateralized by crypto, USDD aims to be overcollateralized, meaning its assets always exceed the number of tokens in circulation.
The Tron DAO Reserve says its reserve contains more than $1.9 billion in bitcoin and other tokens, including the stablecoins USDC and tether. USDD has a supply of roughly $700 million. That reduces the chance of a Terra-style collapse, according to Teander.

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FTX, Bankman-Fried’s crypto exchange, agreed to provide crypto lender BlockFi with a $250 million revolving credit facility.
Alameda, Bankman-Fried’s quantitative trading firm, committed $500 million in financing to Voyager Digital, a crypto brokerage.
Bankman-Fried has emerged as something of a savior for the $900 billion crypto market as it faces a deepening liquidity crunch.

Sam Bankman-Fried, CEO of FTX US Derivatives, testifies during the House Agriculture Committee hearing titled Changing Market Roles: The FTX Proposal and Trends in New Clearinghouse Models, in Longworth Building on Thursday, May 12, 2022.
Tom Williams | CQ-Roll Call, Inc. | Getty Images

With no central bank willing to come to the rescue, beleaguered crypto companies are turning to their peers for help.
Billionaire crypto exchange boss Sam Bankman-Fried has signed deals to bail out two firms in as many weeks: BlockFi, a quasi-bank, and Voyager Digital, a digital asset brokerage.

FTX, Bankman-Fried’s crypto exchange, agreed Tuesday to provide BlockFi with a $250 million revolving credit facility. Bankman-Fried said the financing would help BlockFi “navigate the market from a position of strength.”
“We take our duty seriously to protect the digital asset ecosystem and its customers,” he tweeted.
It comes after BlockFi said earlier this month that it would lay off 20% of its staff. Meanwhile, a report from The Block said earlier this month that BlockFi was in talks to raise funds in a deal valuing the firm at $1 billion, down from $3 billion last year.
Zac Prince, BlockFi co-founder and CEO, said the deal with FTX was more than just a round of debt, adding it “also unlocks future collaboration and innovation” between the two firms.
Last week, Voyager Digital said Alameda Research, Bankman-Fried’s quantitative research firm, would provide it with $500 million in financing.

The deal consists of a $200 million credit line of cash and USDC stablecoins, as well as a separate 15,000-bitcoin revolving facility worth approximately $300 million at current prices.
A plunge in the value of digital currencies in recent weeks has resulted in numerous key players in the space facing financial difficulty.
Bitcoin and other cryptocurrencies are falling hard as the market grapples with the Federal Reserve’s interest rate hikes and the $60 billion collapse of terraUSD, a so-called stablecoin, and its sister token luna.

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Last week, crypto lender Celsius halted all account withdrawals, blaming “extreme market conditions.” The firm, which takes users’ crypto and lends it out to make higher returns, is thought to have hundreds of millions of dollars tied up in an illiquid token derivative called stETH.
Elsewhere, crypto hedge fund Three Arrows Capital has been forced to liquidate leveraged bets on various tokens, according to the Financial Times.
On Wednesday, Voyager revealed the extent of the damage inflicted by 3AC’s troubles.
The company said it was set to take a loss of $650 million on loans issued to 3AC if the company fails to pay. 3AC had borrowed 15,250 bitcoins — worth more than $300 million as of Wednesday — and $350 million in USDC stablecoins.
3AC requested an initial repayment of $25 million in USDC by June 24 and full repayment of the entire balance of USDC and bitcoin by June 27, Voyager said, adding that neither amount has yet been repaid.
The firm said it intends to recover the funds from 3AC and is in talks with its advisors “regarding the legal remedies available.”
“The Company is unable to assess at this point the amount it will be able to recover from 3AC,” Voyager said.
Voyager shares cratered on the news, falling as much as 60% on Wednesday.
Zhu Su, 3AC’s co-founder, previously said his company is considering asset sales and a rescue by another firm to avoid collapse. 3AC did not respond to multiple requests for comment.
Bankman-Fried is one of the wealthiest people in crypto, with an estimated net worth of $20.5 billion, according to Forbes. His crypto exchange FTX notched a $32 billion valuation at the start of 2022.
The 30-year-old has emerged as something of a savior for the $900 billion crypto market as it faces a deepening liquidity crunch. In an interview with NPR, Bankman-Fried said he feels his exchange has a “responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion.”
His actions highlight how a lack of regulation for the crypto industry means that firms can’t turn to the federal government for a bailout when things turn south — a sharp contrast with the banking industry in 2008.

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S&P 500 futures rose Wednesday night after the major indexes slipped into the red at the end of regular trading and investors weighed the likelihood of a recession after Federal Reserve chair Jerome Powell acknowledged it’s a possibility.
Futures tied to the S&P 500 advanced 0.27%, while the Dow Jones Industrial Average futures gained 0.23% or 71 points. Nasdaq 100 futures added 0.33%.

In regular trading, the Dow retreated 47.12 points, or 0.15%, in the final hour of the session, after rallying to start the day. The S&P 500 fell 0.13% and the Nasdaq Composite lost 0.15%.
The moves came after Federal Reserve chair Jerome Powell told Congress the central bank is “strongly committed” to bringing down inflation. He also noted that a recession is a “possibility,” a fear that has continued to weigh on Wall Street.
“The odds are more likely in favor of a recession than not,” Dan Greenhaus, Solus Alternative Asset Management chief strategist, said on CNBC’s “Closing Bell: Overtime.” “That speaks to the degree of tightening that the Federal Reserve is going to have to do now, having not done so in prior periods when perhaps they would have avoided some of the problems that are going to happen as a result.”
“Unfortunately, it’s going to be more economic pain than people at least six months ago anticipated, but are increasingly coming around to the reality that that’s probably what’s going to happen,” he added.
Elsewhere, energy stocks, which have been outperformers in 2022, took a hit as oil prices fell on concerns that a slower economy could hurt fuel demand. The sector was the worst performing in the S&P 500.

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On Thursday, investors will be looking forward to fresh jobless claims data. Powell will also give remarks to the House, after having addressed the Senate Wednesday. The remarks are part of a congressionally mandated semiannual report on monetary policy.
It’s a quiet earnings week but Darden Restaurants will report its financial results for the most recent quarter before the opening bell Thursday. Rite Aid announces its latest results the same morning.

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US President Biden delivers remarks on efforts to lower high gas prices in the South Court Auditorium at Eisenhower Executive Office Building June 22, 2022 in Washington, DC.
Jim Watson | AFP | Getty Images

President Joe Biden called on Congress Wednesday to suspend the federal gas tax for 90 days as prices at the pump surge to record highs.
The federal tax currently stands at 18 cents for a gallon of regular gasoline, and 24 cents per gallon for diesel.

“I call on the companies to pass this along — every penny of this 18 cents reduction — to the consumer,” Biden said Wednesday. “There’s no time now for profiteering.”
The president said such a move will have no impact on the Highway Trust Fund, saying other revenues can be used to fund the roughly $10 billion cost.
Biden also called on states to suspend their gas taxes, or find other ways to bring some relief.
Still, some were quick to note that suspending the gas tax will keep demand steady and not address the structural issues in the market.

Demand for petroleum products has bounced back as global economies reopen, while supply has remained constrained. A lack of refining capacity also has sent prices higher.

“I fully understand that the gas tax holiday alone is not going to fix the problem. But it will provide families some immediate relief. Just a little bit of breathing room as we continue working to bring down prices for the long haul,” Biden said.
Prices are rising across the board with inflation at a 40-year high, but the surge in gasoline prices is especially notable. The national average for a gallon of tax topped $5 for the first time on record earlier this month.
Biden has called the surge in prices “Putin’s price hike.” He has also blamed oil and gas companies for what he calls prioritizing profits at the expense of consumers.
Last week, he sent a letter to the CEOs of the largest refining companies urging them to increase output. Industry executives say even if they wanted to boost operations, they are constrained from doing so because of labor shortages and other issues.
“[M]y message is simple: to the companies running gas stations and setting those prices at the pump, this is a time of war … these are not normal times. Bring down the price you are charging at the pump to reflect the cost you are paying for the product,” the president said.
Biden said these actions could lead to prices at the pump dropping by $1 per gallon or more. “It doesn’t reduce all the pain, but it will be a big help,” he said.
It remains to be seen whether the White House’s call will gain support on Capitol Hill.
“Although well intentioned, this policy would at best achieve only minuscule relief while blowing a $10 billion hole in the Highway Trust Fund that would need to be filled if we want to continue to fix crumbling bridges, address the spike in traffic deaths and build a modern infrastructure system,” said Rep. Peter DeFazio, a Democrat from Oregon and chair of the House Committee on Transportation and Infrastructure.

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