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

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

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    A Timeline of How the Banking Crisis Has Unfolded

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

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    White House Considers Two Key Nominations at the Fed

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

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

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

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    Inflation Cooled in March, but Stubborn Price Increases Remain

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    The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures index, slowed in March. But signs point to staying power.Inflation is slowing, a fresh reading of the Federal Reserve’s preferred index showed, but costs continue to climb rapidly after stripping out volatile food and fuel — which shows that price pressures retain staying power and it could be a long road back to normal.The Personal Consumption Expenditures index climbed by 4.2 percent in the year through March, down notably from 5.1 percent in the year through February.But after stripping out food and fuel prices, a closely watched “core” index held nearly steady last month. That measure rose by 4.6 percent over the year, compared with 4.7 percent in the previous reading — a figure that was revised up slightly.The data provide further evidence that inflation is moderating, but that the process remains bumpy and could take a long time to fully play out. Fed officials have raised interest rates sharply over the past year to make money more expensive to borrow and slow demand, and those moves are only slowly trickling through the economy and weighing down price increases.The central bank meets on May 3 to make its next policy decision, and officials are widely expected to raise rates by a quarter percentage point to just above 5 percent. Markets will be just as focused on what they signal for the future: Central bankers forecast in March that they might stop lifting interest rates after their next adjustment. Both incoming price and wage data and financial news could inform whether they feel comfortable hitting pause.The Fed will also need to weigh turmoil in the banking sector as it considers its next move. A series of prominent bank failures in March sent tremors through the system, and those persist. First Republic has continued to struggle, and its stock plummeted this week. Problems in the industry can slow lending to consumers and businesses, weighing on the economy.With growth slowing and the bank issues further weighing consumers down, companies may find in the coming months that they are less able to charge more for their goods and services without scaring away customers. So far, though, many have retained an ability to raise prices.“If we see inflation that warrants us needing to take additional pricing, we’ll take it,” Brian Niccol, chief executive at the burrito chain Chipotle, said during an earnings call this week. “I think we’ve now demonstrated we do have pricing power.” More

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    What to Watch as the Fed Releases Its Look Into Silicon Valley Bank

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    The Federal Reserve is set to release an examination of why its oversight of the bank failed to stem disaster at 11 a.m. on Friday.WASHINGTON — The Federal Reserve is set to release a highly anticipated report on Friday examining what went wrong with its oversight of Silicon Valley Bank, which collapsed in mid-March, in the largest bank failure since the 2008 financial crisis.The post-mortem comes as the aftershocks of Silicon Valley Bank’s collapse continue to shake the American financial system: First Republic, which required a cash infusion from other large banks as nervous customers pulled their deposits and fled, remains imperiled.The Fed’s investigation into what went wrong at Silicon Valley Bank has been overseen by Michael S. Barr, the central bank’s head of supervision and one of the architects of the 2010 Dodd-Frank law, which aimed to prevent a repeat of the 2008 crisis. The review was announced on March 13, just after S.V.B.’s failure and the government’s sweeping announcement on March 12 that it would protect the bank’s large depositors, among other measures to shore up the banking system.That same weekend, the federal government also shuttered a second institution, Signature Bank. The Federal Deposit Insurance Corporation, which was the primary supervisor for Signature, will release its own report Friday.Still, most of the attention has focused on S.V.B., in part because significant weaknesses at the bank appear to have started and grown progressively worse in plain sight in the years leading up to its demise. The bank had a large share of deposits above the government’s $250,000 insurance limit. That is a potential risk, given that uninsured depositors are more likely to pull their money at the first sign of trouble to prevent losing their savings.The bank’s leaders also made a big bet on interest rates staying low. That became a problem as the Fed, trying to control rapid inflation, carried out its most aggressive rate increase campaign since the 1980s. The bank held longer-term bonds that dropped in value as interest rates rose, because newer debt issued at the higher rates became more attractive for investors.Supervisors at the Fed were aware of many of the bank’s problems and had flagged and tried to follow up on some of them. Yet the issues were not resolved quickly enough to save the bank.The questions that the review could answer center on what went wrong. Was it a problem at the Federal Reserve Bank of San Francisco, which supervised the bank, or did the fault rest with the Federal Reserve Board, which has ultimate responsibility for bank oversight? It is also unclear whether there was an issue with the Fed’s culture around — and approach to — supervision, or whether the existing rules were lacking.“It’s a little bit of a mystery” what the report will hold, said Steven Kelly, a researcher at the Yale Program on Financial Stability, explaining that he had little expectation that the release would point fingers. “In some sense, they really need a head on a pike — and they’re not going to do that in this report.”Jeff Hauser, director of the Revolving Door Project, said he was interested to see how the report would deal with the tone around bank supervision at the Fed, and the reality that Gregory Becker, S.V.B.’s chief executive, sat on the board of the Federal Reserve Bank of San Francisco. That role gave Mr. Becker no official influence over bank oversight, but Mr. Hauser thinks that such positions might offer banks the advantage of more prestige.Mr. Hauser said he also thinks an independent review is needed in addition to the Fed’s internal probe and whatever its inspector general — who is also looking into the matter — eventually releases. Mr. Barr will still have to work with his colleagues in the future, Mr. Hauser pointed out, and the central bank’s inspector general is appointed by the Fed chair.“We need someone with some independence to dig in,” Mr. Hauser said. More

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    Stress Builds as Office Building Owners and Lenders Haggle Over Debt

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    A real estate investment fund recently defaulted on $750 million of mortgages for two Los Angeles skyscrapers. A private equity firm slashed the value of its investment in the Willis Tower in Chicago by nearly a third. And a big New York landlord is trying to extend the deadline for paying down a loan for a Park Avenue office tower.Office districts in nearly every U.S. city have been under great stress since the pandemic emptied workplaces and made working from home common. But in recent months, the crisis has entered a tense phase that could damage local economies and cause financial hits to real estate investors and scores of banks.Lenders are increasingly reluctant to make new loans to owners of office buildings, especially after the collapse of two banks last month.“They don’t want to make new office building loans because they don’t want more exposure,” said Scott Rechler, a New York landlord who is a big player in the city’s office market and sits on the board of the Federal Reserve Bank of New York.The timing of the pullback in lending couldn’t be worse. Landlords need to refinance about $137 billion of office mortgages this year and nearly half a trillion dollars in the following four years, according to Trepp, a commercial real estate data firm. The Federal Reserve’s campaign to fight inflation by raising interest rates has also substantially raised the cost of loans still on offer.Banks’ unwillingness to lend and building owners’ desperation for credit have created a standoff. Lenders want to extend loans and make new ones only if they can get better terms. Many landlords are pushing back, and some are threatening to default, effectively betting that banks and investors stand to lose more in a foreclosure. Blackstone slashed the value of the Willis Tower in Chicago by 29 percent. Lyndon French for The New York TimesThe Willis Tower, formerly the Sears Tower, is the third tallest in the country.Lyndon French for The New York TimesHow private negotiations between lenders and building owners are resolved could have major ramifications. Defaults could heap pressure on regional banks and help push the economy into recession. Local property tax revenue, already under pressure, could plummet, forcing governments to cut services or lay off workers.“What we are seeing is this dance between lenders and owners,” said Joshua Zegen of Madison Realty Capital in New York, a firm that specializes in financing for commercial real estate projects. “No one knows what the right value is. No one wants to take a building back,” he said, adding that building owners don’t want to put in new capital, either.He added that the office sector was feeling far more stress than other kinds of commercial real estate like hotels and apartment buildings.Some industry experts are optimistic that given enough time, building owners and their lenders will hammer out compromises, avoiding foreclosures or a big loss in property tax revenue because everybody wants to minimize losses.“I don’t see it as something that is going to result in systematic risk,” said Manus Clancy, a senior managing director at Trepp. “It’s not going to bring down banks, but you could see some banks that have problems. Nothing gets resolved quickly in this market.”Loans on commercial buildings are typically easier than home mortgages to extend or modify. Negotiations are handled by bank executives or specialized finance firms called servicers, which act on behalf of investors that own securities backed by one or more commercial mortgages.But striking a deal can still be hard.Mr. Rechler’s company, RXR, recently stopped making payments on a loan it used to finance the purchase of 61 Broadway in downtown Manhattan. His company got its original investment in the building back after selling nearly half its stake to another investor several years ago, he said. He added that the lender, Aareal Bank, a German institution, was considering selling the loan and the building.“In this illiquid market, can they sell that loan? Can they sell the building?” Mr. Rechler said. Aareal Bank declined to comment.Blackstone bought Willis Tower for about $1.3 billion in 2015.Lyndon French for The New York TimesAnd it committed to spending $500 million on renovating the 50-year-old building.Lyndon French for The New York TimesEric Gural is a co-chief executive of GFP Real Estate, a family-owned firm that has stakes in several Manhattan office buildings, mostly older ones. He has been embroiled in nearly seven months of negotiations with a bank to extend a $30 million loan on a building in Union Square, and just two months are left on the mortgage.“I’m trying to get a one-year extension on an existing loan so I can see what interest rates look like next year, which is likely to be better than they are now,” Mr. Gural said. “Hybrid work has created fear in the banks.”Though many workers have returned to offices at least a few days a week, 18.6 percent of U.S. office space is available for rent, according to Cushman & Wakefield, a commercial real estate services firm, the most since it started measuring vacancies in 1995.Public pension funds, insurance companies and mutual fund firms that invest in bonds backed by commercial mortgages also have an interest in seeing problems resolved or put off. A wave of foreclosures would lower the value of their securities.Many of the mortgages that analysts are most worried about involve buildings in Chicago, Los Angeles, New York, San Francisco and Washington — cities where there is a glut of vacant space or where workers are reluctant to return to offices.One such property is the 108-story Willis Tower in Chicago — the third-tallest building in the country, after One World Trade Center and Central Park Tower, both in Manhattan. The giant private equity firm Blackstone bought it for about $1.3 billion in 2015 and committed to spending $500 million on renovating the 50-year-old building, formerly the Sears Tower, including adding retail space and a rooftop terrace.But in December, United Airlines, the building’s largest tenant, paid an early termination fee and vacated three floors; the company still occupies 16 floors. That month, about 83 percent of the building was occupied, according to KBRA Analytics, a credit data and research firm. Blackstone disputes those numbers; Jeffrey Kauth, a company spokesman, said that “approximately 90 percent of the office space is leased.”Blackstone recently notified some of its real estate fund investors that it had written down the value of its equity investment in Willis Tower by $119 million, or 29 percent, said a person briefed on the matter, who spoke on the condition of anonymity to discuss sensitive financial information. In March, Blackstone got a fourth extension on the $1.33 billion mortgage, pushing the due date to next year, according to Trepp. Under the terms of the loan, the firm can seek another one-year extension next year.The loan on the Gas Company Tower in downtown Los Angeles is in default.Tag Christof for The New York TimesA loan default sets up 777 Tower for potential foreclosure or sale.Tag Christof for The New York TimesBlackstone said only around 2 percent of the firm’s real estate funds were invested in office buildings — down a lot from a decade ago.Even streets with some of the priciest real estate in the country are not immune.In Manhattan, the owner of 300 Park Avenue, an office building across the street from the Waldorf Astoria, is seeking a two-year extension on a $485 million loan coming due in August, according to KBRA Analytics. The property is owned by a joint venture including Tishman Speyer and several unnamed investors.The 25-story building, built in 1955, is the headquarters for Colgate-Palmolive. But the consumer products conglomerate is shrinking its presence there.“We requested that our loan be transferred to the special servicer well in advance of its maturity so that we can work together on a mutually beneficial extension,” said Bud Perrone, a spokesman for Tishman Speyer.Portions of a bond deal that includes the 300 Park Avenue loan were downgraded last fall by Fitch Ratings because some tenants had left the building, and a lower-rated slice of the bond now trades at about 85 cents on the dollar.Across the country, an investment fund connected to the real estate giant Brookfield Properties defaulted on $750 million of loans for the Gas Company Tower and a nearby building, 777 Tower, in downtown Los Angeles, setting up a possible foreclosure or a sale of the properties, according to the fund.Andrew Brent, a spokesman for Brookfield, said in an emailed statement that office buildings suffering financial challenges were “a very small percentage of our portfolio.”Even as building owners struggle with vacancies and high interest rates, some have found a way to put their properties on a more solid footing.The owners of the Seagram Building in Manhattan have been working to refinance a portion of a loan that comes due in May.Haruka Sakaguchi for The New York TimesNew tenants are needed to fill several floors that Wells Fargo occupied in the Seagram Building.Haruka Sakaguchi for The New York TimesRFR Holding, an investment group that bought the Seagram Building in 2000, is trying to lure tenants back to the office.Haruka Sakaguchi for The New York TimesThe owners of the Seagram Building at 375 Park Avenue in Manhattan have been working to refinance a $200 million portion of a loan that comes due in May while finding new tenants to fill several floors previously occupied by Wells Fargo.RFR Holding, an investment group led by Aby J. Rosen and Michael Fuchs, bought the 38-story building in 2000 for $379 million. To entice employees back to the office, RFR last year built a $25 million “playground” in an underground garage that’s equipped with a climbing wall and pickleball and basketball courts. Four new tenants signed leases in the past few months, according to Trepp.Even with all the vacant space, some landlords like Mr. Rechler’s RXR still want to build new towers. RXR is moving ahead with plans to build what could be one of the tallest buildings in the country at 175 Park Avenue.“It’s one of a kind in what is and will always be one of the best office markets in the world,” he said, referring to the tower. More

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    Russian Pranksters Trick the Fed Chair, Based on Internet Videos

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    Videos circulating online show Jerome H. Powell, the Federal Reserve chair, answering basic questions about the American and global economy.WASHINGTON — Pranksters posing as Ukraine’s president tricked Jerome H. Powell, the Federal Reserve chair, into a conversation in January about the U.S. and global economy, based on video clips covered on Russian state television and posted online.The footage shows Mr. Powell answering an interviewer’s questions on a video call, apparently thinking that he is talking to Volodymyr Zelensky, Ukraine’s leader. The ruse appears to have been carried out by Vladimir Kuznetsov and Alexei Stolyarov, pranksters who are supporters of President Vladimir V. Putin of Russia.The clips — now circulating on the internet — were earlier reported on by Bloomberg News. They show Mr. Powell answering questions about central banking and inflation. His comments appear to be in line with what he regularly expresses in public.A Fed spokesperson said Mr. Powell participated in a conversation in January with someone who misrepresented himself as the Ukrainian president, noting that the discussion took place in the context of the central bank’s support for the Ukrainian people. The spokesperson said no sensitive or confidential information was discussed.The video appears to have been edited, and the Fed said it could not confirm its accuracy. The matter has been referred to law enforcement, the spokesperson said.The two men who carried out the prank have also tricked other global leaders, including Christine Lagarde, the president of the European Central Bank, and Angela Merkel, Germany’s former chancellor.An E.C.B. spokesperson said Ms. Lagarde had agreed to the conversation in good faith, and to show support for Ukraine and its people.The Fed-related video was posted on Rutube, a Russian video hosting platform, and covered by Russian state-run television and news agencies. Mr. Kuznetsov and Mr. Stolyarov posted excerpts from the call on their social media page, and dedicated a special episode of a show that they host to it.The clips show Mr. Powell discussing a number of challenges facing the American economy — including rapid inflation and the possibility of a recession. In the clips, he acknowledges that an economic downturn is possible or even likely, but that it is necessary to cool the economy and slow price increases. That is consistent with what the Fed chair has said in testimony and speeches.Fed officials are now in their pre-meeting quiet period, during which officials avoid speaking publicly in the run-up to an interest rate decision. They will meet next week and release a rate decision on Wednesday, after which Mr. Powell will hold a news conference.Oleg Matsnev More