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    Cómo sale el dinero de China

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    Las personas chinas acaudaladas han sacado cientos de miles de millones de dólares del país este año, aprovechando el fin de las precauciones por covid que habían sellado casi por completo las fronteras de China durante casi tres años.Están utilizando sus ahorros para comprar apartamentos en el extranjero, acciones y pólizas de seguros. Ahora que pueden volar de nuevo a Tokio, Londres y Nueva York, los viajeros chinos han comprado apartamentos en Japón y han invertido dinero en cuentas en Estados Unidos o Europa que pagan intereses más altos que en China, donde las tasas son bajas y sigue cayendo.La salida de dinero indica, en parte, el malestar existente en China por su vacilante recuperación tras la pandemia, así como por problemas más profundos, como la alarmante desaceleración del sector inmobiliario, principal depósito de riqueza de las familias. Para algunas personas, también es una reacción a los temores sobre la dirección de la economía bajo el liderazgo de Xi Jinping, que ha tomado medidas enérgicas contra las empresas y ha reforzado la influencia del gobierno en muchos aspectos de la sociedad.En algunos casos, los residentes chinos están improvisando maneras de eludir los estrictos controles gubernamentales de su país sobre las transferencias de dinero al extranjero. Han comprado lingotes de oro lo suficientemente pequeños como para esparcirlos discretamente por el equipaje de mano, así como grandes cantidades de divisas extranjeras.Los bienes inmuebles también son una opción. Los chinos se han convertido en los principales compradores de apartamentos en Tokio que cuestan 3 millones de dólares o más, y a menudo pagan con maletas llenas de dinero en efectivo, dijo Zhao Jie, director ejecutivo de Shenjumiaosuan, un servicio en línea de venta de inmuebles en Tokio. “Es un trabajo muy duro contar esta cantidad de dinero en efectivo”.Antes de la pandemia, dijo, los compradores chinos solían comprar estudios en Tokio por 330.000 dólares o menos para alquilarlos. Ahora compran unidades mucho más grandes y obtienen visas de inversión para trasladar a sus familias.El Park Tower Harumi, un complejo de apartamentos de lujo en Tokio que ha atraído a compradores de China continental.Hiroko Masuike/The New York TimesLos jardines del Branz Tower Toyosu, otro proyecto de apartamentos de lujo en Tokio que también ha atraído a compradores de China continental.Hiroko Masuike/The New York TimesEn total, se calcula que este año han salido de China unos 50.000 millones de dólares al mes, principalmente de hogares chinos y empresas del sector privado.Los expertos dijeron que el ritmo de salida de dinero de China probablemente no representaba un riesgo inminente para la economía del país, de 17 billones de dólares, en gran parte porque las exportaciones de muchos de los principales productos manufacturados del país son fuertes, lo que devuelve un flujo constante de efectivo.Una amplia operación para enviar los ahorros familiares a otra parte podría ser motivo de alarma. Las salidas de dinero a gran escala han desencadenado crisis financieras en las últimas décadas en América Latina, el sudeste asiático e incluso la propia China, a finales de 2015 y principios de 2016.Hasta ahora, todo indica que el gobierno chino cree tener la situación bajo control. La salida de dinero de China ha debilitado la moneda, el renminbi, frente al dólar y otras divisas. Y esa debilidad del renminbi ha ayudado a mantener las exportaciones del país, que sostienen decenas de millones de empleos chinos.El flujo de dinero que sale de China “es muy manejable”, dijo Wang Dan, economista jefe para China en la oficina de Shanghái del Hang Seng Bank.Personas comprando joyas en LukFook.Billy H.C. Kwok para The New York TimesLos legisladores chinos siguen recurriendo a algunos de los límites a la salida de dinero del país que impusieron para frenar la crisis monetaria hace ocho años. Otras restricciones que se hicieron entonces, como el escrutinio de las exportaciones e importaciones para detectar estrategias encubiertas de transferencias internacionales de dinero, se dejaron sin efecto y no se han vuelto a imponer este año, a pesar de que se han reanudado las salidas de dinero.La salida de dinero de China ha igualado aproximadamente la entrada de dinero por los grandes superávits comerciales del país. Para consternación de muchos países, sobre todo europeos, China está exportando cada vez más paneles solares, autos eléctricos y otros productos avanzados, incluso cuando ha reemplazado más importaciones por producción nacional.El valor del renminbi cayó a principios de año a su nivel más bajo en 16 años. Durante gran parte de los dos últimos meses, se mantuvo en torno a los 7,3 por dólar, antes de subir un poco en la última semana.En 2015, los inversores que operan a tiempo real observaron fuertes ventas masivas de acciones chinas, cuando la salida de dinero del país provocó turbulencias en los mercados de todo el mundo.Ng Han Guan/Associated PressLa oleada de dinero que salió de China hace ocho años fue provocada por una caída en la bolsa de valores y un intento fallido de devaluar la moneda de forma controlada. El banco central de China tuvo que gastar hasta 100.000 millones de dólares al mes de sus reservas de divisas extranjeras para apuntalar el renminbi.En cambio, China parece haber gastado unos 15.000 millones de dólares al mes desde mediados de verano para estabilizar su moneda, según datos del banco central. “No hay nada que sugiera que sea desordenada”, dijo Brad Setser, especialista en finanzas internacionales del Consejo de Relaciones Exteriores. “La escala de la presión sigue siendo mucho menor que en 2015 o 2016”.Las salidas de 2015 y 2016 reflejaron los esfuerzos de las grandes empresas estatales por trasladar fuertes sumas de dinero al extranjero. En la actualidad, el gobierno ejerce un control político más estricto sobre esas empresas, y no ha habido indicios de una urgencia por movilizar dinero de su parte.En cambio, las empresas privadas y los hogares chinos han estado trasladando dinero al extranjero. Pero gran parte de la riqueza de la gente está anclada a bienes inmuebles, que no pueden venderse fácilmente.Al mismo tiempo, las empresas ilegales de cambio de moneda de Shanghái, Shenzhen y otras ciudades que solían convertir el renminbi en dólares y otras divisas extranjeras fueron cerradas por redadas policiales hace ocho años.Turistas chinos frente al Casino Londoner de Macao en octubrePeter Parks/Agence France-Presse — Getty ImagesTuristas chinos en un ferry durante una excursión a Hong KongBilly H.C. Kwok para The New York TimesY los reguladores han cerrado casi todos los viajes de apuestas a Macao, una región china de administración especial. Estos viajes permitían a los chinos adinerados comprar fichas de casino con renminbi, apostar una parte en el bacará o la ruleta y convertir el resto en dólares.Pekín también ha prohibido la mayoría de las inversiones extranjeras en hoteles, torres de oficinas y otros activos de escaso valor geopolítico. El arquitecto de las restricciones a la inversión extranjera en China, Pan Gongsheng, fue ascendido en julio a gobernador del banco central, el Banco Popular de China.Pero los hogares y las empresas siguen arreglándoselas para enviar dinero al extranjero.Una tarde reciente, las sucursales del Banco de China y del China Merchants Bank en China continental vendían lingotes de oro un 7 por ciento más caros que sus bancos afiliados en la adyacente Hong Kong. Esa diferencia de precios indica que, dentro de China, existe una gran demanda de oro, que puede trasladarse fácilmente fuera del país.Otro truco que están utilizando los residentes de China continental para sacar su dinero es abrir cuentas bancarias en Hong Kong y luego transferir dinero para comprar productos de seguros que se asemejan a certificados de depósito bancario. Según la Autoridad de Seguros de Hong Kong, las primas de las nuevas pólizas de seguro vendidas a los habitantes de China continental que visitan Hong Kong fueron un 21,3 por ciento más altas en el primer semestre de este año que en el primer semestre de 2019, tras casi desaparecer durante la pandemia.Una larga fila frente al Banco de China en Hong Kong el lunesBilly H.C. Kwok para The New York TimesEn una sucursal del Banco de China en la península de Kowloon, en Hong Kong, los habitantes de China continental esperaban a las 7:30 de una mañana reciente para abrir cuentas, 90 minutos antes de la apertura del banco. La fila era tan larga a las 8 a. m. que quien llegaba más tarde tenía suerte de llegar al principio de la fila antes de que terminara la jornada laboral, dijo Valerius Luo, agente de seguros de Hong Kong.Las familias suelen invertir entre 30.000 y 50.000 dólares estadounidenses en productos de seguros, varias veces más que antes, mientras buscan lugares seguros donde colocar sus ahorros, dijo Luo. “Sigue habiendo personas con un capital poderoso”, dijo, “y quieren un paquete de inversión que conserve el valor”.Li You More

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    Corporate America Has Dodged the Damage of High Rates. For Now.

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    Small businesses and risky borrowers face rising costs from the Federal Reserve’s moves, but the biggest companies have avoided taking a hit.The prediction was straightforward: A rapid rise in interest rates orchestrated by the Federal Reserve would confine consumer spending and corporate profits, sharply reducing hiring and cooling a red-hot economy.But it hasn’t worked out quite the way forecasters expected. Inflation has eased, but the biggest companies in the country have avoided the damage of higher interest rates. With earnings picking up again, companies continue to hire, giving the economy and the stock market a boost that few predicted when the Fed began raising interest rates nearly two years ago.There are two key reasons that big business has avoided the hammer of higher rates. In the same way that the average rate on existing household mortgages is still only 3.6 percent — reflecting the millions of owners who bought or refinanced homes at the low-cost terms that prevailed until early last year — leaders in corporate America locked in cheap funding in the bond market before rates began to rise.Also, as the Fed pushed rates above 5 percent, from near zero at the start of 2022, chief financial officers at those businesses began to shuffle surplus cash into investments that generated a higher level of interest income.The combination meant that net interest payments — the money owed on debt, less the income from interest-bearing investments — for American companies plunged to $136.8 billion by the end of September. It was a low not seen since the 1980s, data from the Bureau of Economic Analysis showed.That could soon change.While many small businesses and some risky corporate borrowers have already seen interest costs rise, the biggest companies will face a sharp rise in borrowing costs in the years ahead if interest rates don’t start to decline. That’s because a wave of debt is coming due in the corporate bond and loan markets over the next two years, and firms are likely to have to refinance that borrowing at higher rates.Overall Corporate Debt Interest Payments Have PlummetedAlthough the Fed has rapidly raised interest rates, net interest payments paid by corporations are reaching 40-year lows.

    Note: Data consists of interest paid by private enterprises (minus interest income received) as well as rents and royalties paid by private enterprises.Source: Bureau of Economic AnalysisBy The New York TimesThe junk bond market faces a ‘refinancing wall.’Roughly a third of the $1.3 trillion of debt issued by companies in the so-called junk bond market, where the riskiest borrowers finance their operations, comes due in the next three years, according to research from Bank of America.The average “coupon,” or interest rate, on bonds sold by these borrowers is around 6 percent. But it would cost companies closer to 9 percent to borrow today, according to an index run by ICE Data Services.Credit analysts and investors acknowledge that they are uncertain whether the eventual damage will be containable or enough to exacerbate a downturn in the economy. The severity of the impact will largely depend on how long interest rates remain elevated.“I think the question that people who are really worrying about it are asking is: Will this be the straw that breaks the camel’s back?” said Jim Caron, a portfolio manager at Morgan Stanley. “Does this create the collapse?”The good news is that debts coming due by the end of 2024 in the junk bond market constitute only about 8 percent of the outstanding market, according to data compiled by Bloomberg. In essence, less than one-tenth of the collective debt pile needs to be refinanced imminently. But borrowers might feel higher borrowing costs sooner than that: Junk-rated companies typically try to refinance early so they aren’t reliant on investors for financing at the last minute. Either way, the longer rates remain elevated, the more companies will have to absorb higher interest costs.Among the firms most exposed to higher rates are “zombies” — those already unable to generate enough earnings to cover their interest payments. These companies were able to limp along when rates were low, but higher rates could push them into insolvency.Even if the challenge is managed, it can have tangible effects on growth and employment, said Atsi Sheth, managing director of credit strategy at Moody’s.“If we say that the cost of their borrowing to do those things is now a little bit higher than it was two years ago,” Ms. Sheth said, more corporate leaders could decide: “Maybe I’ll hire less people. Maybe I won’t set up that factory. Maybe I’ll cut production by 10 percent. I might close down a factory. I might fire people.”Small businesses have a different set of problems.Some of this potential effect is already evident elsewhere, among the vast majority of companies that do not fund themselves through the machinations of selling bonds or loans to investors in corporate credit markets. These companies — the small, private enterprises that are responsible for roughly half the private-sector employment in the country — are already having to pay much more for debt.They fund their operations using cash from sales, business credit cards and private loans — all of which are generally more expensive options for financing payrolls and operations. Small and medium-size companies with good credit ratings were paying 4 percent for a line of credit from their bankers a couple of years ago, according to the National Federation of Independent Business, a trade group. Now, they’re paying 10 percent interest on short-term loans.Hiring within these firms has slowed, and their credit card balances are higher than they were before the pandemic, even as spending has slowed.“This suggests to us that more small businesses are not paying the full balance and are using credit cards as a source of financing,” analysts at Bank of America said, adding that it points to “financial stress for certain firms,” though it is not yet a widespread problem.Corporate buyouts are also being tested.Carvana renegotiated its debt this year to defer mounting interest costs.Caroline Brehman/EPA, via ShutterstockIn addition to small businesses, some vulnerable privately held companies that do have access to corporate credit markets are already grappling with higher interest costs. Backed by private-equity investors, who typically buy out businesses and load them with debt to extract financial profits, these companies borrow in the leveraged loan market, where borrowing typically comes with a floating interest rate that rises and falls broadly in line with the Fed’s adjustments.Moody’s maintains a list of companies rated B3 negative and below, a very low credit rating reserved for companies in financial distress. Almost 80 percent of the companies on this list are private-equity-backed leveraged buyouts.Some of these borrowers have sought creative ways to extend the terms of their debt, or to avoid paying interest until the economic climate brightens.The used-car seller Carvana — backed by the private-equity giant Apollo Global Management — renegotiated its debt this year to do just that, allowing its management to cut losses in the third quarter, not including the mounting interest costs that it is deferring.Leaders of at-risk companies will be hoping that a serene mix of economic news is on the horizon — with inflation fading substantially as overall economic growth holds steady, allowing Fed officials to end the rate-increase cycle or even cut rates slightly.Some recent research provides a bit of that hope.In September, staff economists at the Federal Reserve Bank of Chicago published a model forecast indicating that “inflation will return to near the Fed’s target by mid-2024” without a major economic contraction. If that comes to pass, lower interest rates for companies in need of fresh funds could be coming to the rescue much sooner than previously expected.Few, at this point, see that as a guarantee, including Ms. Sheth at Moody’s.“Companies had a lot of things going for them that may be running out next year,” she said.Emily Flitter More

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    In Biden’s Climate Law, a Boon for Green Energy, and Wall Street

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    The law has effectively created a new marketplace that helps smaller companies gain access to funding, with banks taking a cut.The 2022 climate law has accelerated investments in clean-energy projects across the United States. It has also delivered financial windfalls for big banks, lawyers, insurance companies and start-up financial firms by creating an expansive new market in green tax credits.The law, signed by President Biden, effectively created a financial trading marketplace that helps smaller companies gain access to funding, with Wall Street taking a cut. Analysts said it could soon facilitate as much as $80 billion a year in transactions that drive investments in technologies meant to reduce fossil fuel emissions and fight climate change.The law created a wide range of tax incentives to encourage companies to produce and install solar, wind and other low-emission energy technologies. But the Democrats who drafted it knew those incentives, including tax credits, wouldn’t help companies that were too small — or not profitable enough — to owe enough in taxes to benefit.So lawmakers have invented a workaround that has rarely been employed in federal tax policy: They have allowed the companies making clean-energy investments to sell their tax credits to companies that do have a big tax liability.That market is already supporting large and small transactions. Clean-energy companies are receiving cash to invest in their projects, but they’re getting less than the value of the tax credits for which they qualify, after various financial partners take a slice of the deal.Clean-energy and financial analysts and major players in the marketplace say big corporations with significant tax liability are currently paying between 75 and 95 cents on the dollar to reduce their federal tax bills. For example, a buyer in the middle of that range might spend $850,000 to purchase a credit that would knock $1 million off its federal taxes.The cost of those tax credits depends on several factors, including risk and size. Larger projects command a higher percentage. The seller of a tax credit will see its value diluted further by fees for lawyers, banks and other financial intermediaries that help broker the sale. Buyers are also increasingly insisting that sellers buy insurance in case the project does not work out and fails to deliver its promised tax benefits to the buyer.The prospect of a booming market and the chance to snag a piece of those transaction costs have raised excitement for the Inflation Reduction Act, or I.R.A., in finance circles. A new cottage industry of online start-up platforms that seeks to link buyers and sellers of the tax credits has quickly blossomed. An annual renewable energy tax credit conference hosted by Novogradac, a financial firm, drew a record number of attendees to a hotel ballroom in Washington this month, with multiple panels devoted to the intricacies of the new marketplace. The entrepreneurs behind the online buyer-seller exchanges include a former Biden Treasury official and some people in the tech industry with no clean-energy or tax credit experience.After President Biden signed the climate law last year, it effectively created a new financial marketplace.Doug Mills/The New York TimesTax professionals and clean-energy groups say the marketplace has widely expanded financing abilities for companies working on emissions-reducing technologies and added private-sector scrutiny to climate investments.But those transactions are also enriching players in an industry that Mr. Biden has at times criticized, while allowing big companies to reduce their tax bills in a way that runs counter to his promise to make corporate America pay more.“I wouldn’t call it irony. I would call it, sort of, this unexpected brilliance,” said Jessie Robbins, a principal of structured finance at the financial firm Generate Capital. “While it may be full of friction and transaction costs, it does bring sophisticated financial interests, investors” and corporations into the world of funding green energy, she said.Biden administration officials say many clean-tech companies will save money by selling their tax credits to raise capital, instead of borrowing at high interest rates. “The alternative for many of these companies was to take a loan, and taking that loan was going to be far more costly” than using the credit marketplace, Wally Adeyemo, the deputy Treasury secretary, said in an interview.Some backers of the climate law wanted an even more direct alternative for those companies: government checks equivalent to the tax benefits their projects would have qualified for if they had enough tax liability to make the credits usable. It was rejected by Senator Joe Manchin III of West Virginia, a moderate Democrat who was the swing vote on the law. A modest federal marketplace of certain tax credits, like those for affordable housing, existed before the climate law passed. But acquiring those credits was complicated and indirect, so annual transactions were less than $20 billion — and large banks dominated the space. The climate law expanded the market and attracted new players by making it much easier for a company with tax liability to buy another company’s tax credit.“There weren’t brokers in this space, you know, a year ago or 14 months ago before the I.R.A. came out,” said Amish Shah, a tax lawyer at Holland & Knight. “There are lots of brokers in this space now.” Mr. Shah said he expected his firm to be involved in $1 billion worth of tax credits this year.Mr. Biden’s signature climate law has spawned a growth industry on Wall Street and across corporate America.Gabby Jones for The New York Times“The discussion goes like this,” said Courtney Sandifer, a senior executive in the renewable energy tax credit monetization practice at the investment bank BDO. “‘Are you aware that you can buy tax credits at a discount, as a central feature of the I.R.A.? And how would that work for you? Like, is this something that you’d be interested in doing?’”Financial advisers say they have had interest from corporate buyers as varied as retailers, oil and gas companies, and others that see an opportunity to reduce their tax bills while making good on public promises to help the environment.Experts say large banks are still dominating the biggest transactions, where projects are larger and tax credits are more expensive to buy. For the rest of the market, entrepreneurs are working to create online exchanges, which effectively work as a Match.com for tax credits. Companies lay out the specification of their projects and tax credits, including whether they are likely to qualify for bonus tax breaks based on location, what wages they will pay and how much of their content is made in America. Buyers bid for credits.In order to sell tax benefits under the law, companies have to register their credits with the Treasury Department, which created a pilot registry website for those projects this month. The online platforms to connect buyers and sellers of the credits are not regulated by the government.Alfred Johnson, who previously worked as deputy chief of staff under Treasury Secretary Janet L. Yellen, co-founded Crux, one of the online exchanges, in January. The company has raised $8.85 million through two rounds of funding.Mr. Johnson said his business helped replace the “low-margin” administrative work that happens to facilitate deals. Lawyers and advisers will still be brought in for the more complicated parts of the deal.“It just requires more companies coming into the market and participating,” he said. “And if that doesn’t happen, the law will not work.”Seth Feuerstein created Atheva, a transferable credit exchange, last year. He has no clean-tech experience, but he has brought in green-energy experts to help get the exchange started.Atheva already has tens of millions of dollars in projects available for tax-credit buyers to peruse on the site, with hundreds of millions more in the pipeline, he said. On the site, buyers can browse credits by their estimated value and download documentation to help assess whether the projects will actually pay off. Mr. Feuerstein said that transparency helped to assure taxpayers that they were supporting valid clean-energy investments.“It’s a new market,” Mr. Feuerstein said. “And it’s growing every day.” More

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    A 30-Year Trap: The Problem With America’s Weird Mortgages

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    Buying a home was hard before the pandemic. Somehow, it keeps getting harder.Prices, already sky-high, have gotten even higher, up nearly 40 percent over the past three years. Available homes have gotten scarcer: Listings are down nearly 20 percent over the same period. And now interest rates have soared to a 20-year high, eroding buying power without — in defiance of normal economic logic — doing much to dent prices.None of which, of course, is a problem for people who already own homes. They have been insulated from rising interest rates and, to a degree, from rising consumer prices. Their homes are worth more than ever. Their monthly housing costs are, for the most part, locked in place.The reason for that divide — a big part of it, anyway — is a unique, ubiquitous feature of the U.S. housing market: the 30-year fixed-rate mortgage.That mortgage has been so common for so long that it can be easy to forget how strange it is. Because the interest rate is fixed, homeowners get to freeze their monthly loan payments for as much as three decades, even if inflation picks up or interest rates rise. But because most U.S. mortgages can be paid off early with no penalty, homeowners can simply refinance if rates go down. Buyers get all of the benefits of a fixed rate, with none of the risks.“It’s a one-sided bet,” said John Y. Campbell, a Harvard economist who has argued that the 30-year mortgage contributes to inequality. “If inflation goes way up, the lenders lose and the borrowers win. Whereas if inflation goes down, the borrower just refinances.”This isn’t how things work elsewhere in the world. In Britain and Canada, among other places, interest rates are generally fixed for only a few years. That means the pain of higher rates is spread more evenly between buyers and existing owners.In other countries, such as Germany, fixed-rate mortgages are common but borrowers can’t easily refinance. That means new buyers are dealing with higher borrowing costs, but so are longtime owners who bought when rates were higher. (Denmark has a system comparable to the United States’, but down payments are generally larger and lending standards stricter.)Only the United States has such an extreme system of winners and losers, in which new buyers face borrowing costs of 7.5 percent or more while two-thirds of existing mortgage holders pay less than 4 percent. On a $400,000 home, that’s a difference of $1,000 in monthly housing costs.“It’s a bifurcated market,” said Selma Hepp, chief economist at the real estate site CoreLogic. “It’s a market of haves and have-nots.”It isn’t just that new buyers face higher interest rates than existing owners. It’s that the U.S. mortgage system is discouraging existing owners from putting their homes on the market — because if they move to another house, they’ll have to give up their low interest rates and get a much costlier mortgage. Many are choosing to stay put, deciding they can live without the extra bedroom or put up with the long commute a little while longer.The result is a housing market that is frozen in place. With few homes on the market — and fewer still at prices that buyers can afford — sales of existing homes have fallen more than 15 percent in the past year, to their lowest level in over a decade. Many in the millennial generation, who were already struggling to break into the housing market, are finding they have to wait yet longer to buy their first homes.“Affordability, no matter how you define it, is basically at its worst point since mortgage rates were in the teens” in the 1980s, said Richard K. Green, director of the Lusk Center for Real Estate at the University of Southern California. “We sort of implicitly give preference to incumbents over new people, and I don’t see any particular reason that should be the case.”A ‘Historical Accident’The story of the 30-year mortgage begins in the Great Depression. Many mortgages at the time had terms of 10 years or less and, unlike mortgages today, were not “self-amortizing” — meaning that rather than gradually paying down the loan’s principal along with the interest each month, borrowers owed the principal in full at the end of the term. In practice, that meant that borrowers would have to take out a new mortgage to pay off the old one.That system worked until it didn’t: When the financial system seized up and home values collapsed, borrowers couldn’t roll over their loans. At one point in the early 1930s, nearly 10 percent of U.S. homes were in foreclosure, according to research by Mr. Green and a co-author, Susan M. Wachter of the University of Pennsylvania.In response, the federal government created the Home Owners’ Loan Corporation, which used government-backed bonds to buy up defaulted mortgages and reissue them as fixed-rate, long-term loans. (The corporation was also instrumental in creating the system of redlining that prevented many Black Americans from buying homes.) The government then sold off those mortgages to private investors, with the newly created Federal Housing Administration providing mortgage insurance so those investors knew the loans they were buying would be paid off.The mortgage system evolved over the decades: The Home Owners’ Loan Corporation gave way to Fannie Mae and, later, Freddie Mac — nominally private companies whose implicit backing by the federal government became explicit after the housing bubble burst in the mid-2000s. The G.I. Bill led to a huge expansion and liberalization of the mortgage insurance system. The savings-and-loan crisis of the 1980s contributed to the rise of mortgage-backed securities as the primary funding source for home loans.By the 1960s, the 30-year mortgage had emerged as the dominant way to buy a house in the United States — and apart from a brief period in the 1980s, it has remained so ever since. Even during the height of the mid-2000s housing bubble, when millions of Americans were lured by adjustable-rate mortgages with low “teaser” rates, a large share of borrowers opted for mortgages with long terms and fixed rates.After the bubble burst, the adjustable-rate mortgage all but disappeared. Today, nearly 95 percent of existing U.S. mortgages have fixed interest rates; of those, more than three-quarters are for 30-year terms.No one set out to make the 30-year mortgage the standard. It is “a bit of a historical accident,” said Andra Ghent, an economist at the University of Utah who has studied the U.S. mortgage market. But intentionally or otherwise, the government played a central role: There is no way that most middle-class Americans could get a bank to lend them a multiple of their annual income at a fixed rate without some form of government guarantee.“In order to do 30-year lending, you need to have a government guarantee,” said Edward J. Pinto, a senior fellow at the American Enterprise Institute and a longtime conservative critic of the 30-year mortgage. “The private sector couldn’t have done that on their own.”For home buyers, the 30-year mortgage is an incredible deal. They get to borrow at what amounts to a subsidized rate — often while putting down relatively little of their own money.But Mr. Pinto and other critics on both the right and the left argue that while the 30-year mortgage may have been good for home buyers individually, it has not been nearly so good for American homeownership overall. By making it easier to buy, the government-subsidized mortgage system has stimulated demand, but without nearly as much attention on ensuring more supply. The result is an affordability crisis that long predates the recent spike in interest rates, and a homeownership rate that is unremarkable by international standards.“Over time, the 30-year fixed rate probably just erodes affordability,” said Skylar Olsen, chief economist for the real estate site Zillow.Research suggests that the U.S. mortgage system has also heightened racial and economic inequality. Wealthier borrowers tend to be more financially sophisticated and, therefore, likelier to refinance when doing so saves them money — meaning that even if borrowers start out with the same interest rate, gaps emerge over time.“Black and Hispanic borrowers in particular are less likely to refinance their loans,” said Vanessa Perry, a George Washington University professor who studies consumers in housing markets. “There’s an equity loss over time. They’re overpaying.”‘Who Feels the Pain?’Hillary Valdetero and Dan Frese are on opposite sides of the great mortgage divide.Ms. Valdetero, 37, bought her home in Boise, Idaho, in April 2022, just in time to lock in a 4.25 percent interest rate on her mortgage. By June, rates approached 6 percent.“If I had waited three weeks, because of the interest rate I would’ve been priced out,” she said. “I couldn’t touch a house with what it’s at now.”Mr. Frese, 28, moved back to Chicago, his hometown, in July 2022, as rates were continuing their upward march. A year and a half later, Mr. Frese is living with his parents, saving as much as he can in the hopes of buying his first home — and watching rising rates push that dream further away.“My timeline, I need to stretch at least another year,” Mr. Frese said. “I do think about it: Could I have done anything differently?”The diverging fortunes of Ms. Valdetero and Mr. Frese have implications beyond the housing market. Interest rates are the Federal Reserve’s primary tool for corralling inflation: When borrowing becomes more expensive, households are supposed to pull back their spending. But fixed-rate mortgages dampen the effect of those policies — meaning the Fed has to get even more aggressive.“When the Fed raises rates to control inflation, who feels the pain?” asked Mr. Campbell, the Harvard economist. “In a fixed-rate mortgage system, there’s this whole group of existing homeowners who don’t feel the pain and don’t take the hit, so it falls on new home buyers,” as well as renters and construction firms.Mr. Campbell argues that there are ways the system could be reformed, starting with encouraging more buyers to choose adjustable-rate mortgages. Higher interest rates are doing that, but very slowly: The share of buyers taking the adjustable option has edged up to about 10 percent, from 2.5 percent in late 2021.Other critics have suggested more extensive changes. Mr. Pinto has proposed a new type of mortgage with shorter durations, variable interest rates and minimal down payments — a structure that he argues would improve both affordability and financial stability.But in practice, hardly anyone expects the 30-year mortgage to disappear soon. Americans hold $12.5 trillion in mortgage debt, mostly in fixed-rate loans. The existing system has an enormous — and enormously wealthy — built-in constituency whose members are certain to fight any change that threatens the value of their biggest asset.What is more likely is that the frozen housing market will gradually thaw. Homeowners will decide they can’t put off selling any longer, even if it means a lower price. Buyers, too, will adjust. Many forecasters predict that even a small drop in rates could bring a big increase in activity — a 6 percent mortgage suddenly might not sound that bad.But that process could take years.“I feel very fortunate that I slid in at the right time,” Ms. Valdetero said. “I feel really bad for people that didn’t get in and now they can’t.” More

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    Fed Chair Recalls Inflation ‘Head Fakes’ and Pledges to Do More if Needed

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    Jerome H. Powell, the Federal Reserve chair, said officials would proceed carefully. But if more policy action is needed, he pledged to take it.Jerome H. Powell, the chair of the Federal Reserve, on Thursday expressed little urgency to make another interest rate increase imminently — but he reiterated that officials would adjust policy further if doing so proved necessary to cool the economy and fully restrain inflation.Mr. Powell and his Fed colleagues left interest rates unchanged in a range of 5.25 to 5.5 percent this month, up from near zero as recently as March 2022. The Fed has raised borrowing costs over the past year and a half to wrangle rapid inflation by slowing demand across the economy.Because inflation has faded notably from its peak in the summer of 2022, and because the Fed has already adjusted policy so much, officials are debating whether they might be done. Once they think rates are at a sufficiently elevated level, they plan to leave them there for a time, essentially putting steady pressure on the economy.Mr. Powell, speaking at a research conference in Washington hosted by the International Monetary Fund, reiterated on Thursday that policymakers wanted to make sure that rates were sufficiently restrictive. He said Fed officials were “not confident that we have achieved such a stance” yet.“We’re trying to make a judgment, at this point, about whether we need to do more,” Mr. Powell said in response to a question at the event. “We don’t want to go too far, but at the same time, we know that the biggest mistake we could make would be, really, to fail to get inflation under control.”He made clear that the Fed did not want to take a continued steady slowdown in inflation for granted. While the Fed’s preferred inflation measure has cooled to 3.4 percent from above 7 percent last year, squeezing price increases back to the central bank’s 2 percent goal could still prove to be a bumpy process. Much of the added inflation that remains is coming from stubborn service prices.“We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes,” Mr. Powell said. “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”But the Fed does not want to raise interest rates blindly. It takes time for monetary policy changes to have their full effect on the economy, so the Fed could crimp the economy more painfully than it wants to if it raises rates quickly and without trying to calibrate the moves.While central bankers want to cool the economy to bring down inflation, they would like to avoid causing a recession in the process.“We will continue to move carefully,” Mr. Powell said. He said that would allow officials “to address both the risk of being misled by a few good months of data and the risk of over-tightening.”The risk of overdoing it is why central bankers are contemplating whether they need to make another move, or whether inflation is on a steady path back to normal.As of their September economic projections, officials thought that one final rate increase might be necessary, investors doubt that they will raise rates again in the coming months. In fact, market pricing suggests that the Fed could start cutting interest rates as soon as the middle of next year.Markets are betting there is only a sliver of a chance that the Fed will adjust policy at its final meeting of 2023, which will conclude on Dec. 13, and Mr. Powell did little to signal that a rate increase is imminent.Still, his remarks pushed back on the growing conviction among investors that the central bank is decisively finished.“We still believe the Fed is done hiking for this cycle, but today’s speech should serve as notice that their rhetoric must stay hawkish until they’ve seen further improvement in inflation,” Michael Feroli, chief U.S. economist at J.P. Morgan, wrote in a research note.Some economists have been anticipating that a recent jump in longer-term interest rates might persuade the Fed to hold off on raising borrowing costs again. While the Fed sets shorter-term interest rates, longer-term ones are based on market movements and can take time to adjust — but when they do, mortgages, business loans and other types of borrowing become more expensive.Fed officials are watching market moves, including whether they last and what is causing them, Mr. Powell acknowledged. He said officials would watch how the moves shaped up.“We’re moving carefully now, we’ve moved very fast, and rates are now restrictive,” Mr. Powell said. “It’s not something we’re trying to make a decision on right now.”He also used his speech to discuss some longer-term issues in monetary policy, including whether interest rates, which had lingered near rock-bottom levels for much of the decade preceding the pandemic, will eventually return to a much lower setting.Some economists have speculated that borrowing costs might remain permanently higher than they were in the years after the deep 2007-9 recession. But Mr. Powell said that it was too early to know, and that Fed researchers would ponder the question as part of their next long-run policy review.“We will begin our next five-year review in the latter half of 2024 and announce the results about a year later,” Mr. Powell explained.The last review concluded in 2020 and was focused on how to set policy in a low-interest rate world, a backdrop that quickly changed with the advent of rapid inflation in 2021. More

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    What to Watch for as the Federal Reserve Meets This Week

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    Central bankers are expected to leave interest rates steady at a 22-year high of 5.25 to 5.5 percent. Investors are looking for hints at what’s next.Federal Reserve officials are widely expected to leave interest rates steady at the conclusion of their two-day meeting on Wednesday. But investors and economists will watch for any hint about whether rates are likely to stay that way — or whether central bankers still think they might need to increase them again in the coming months.Officials will release a statement announcing their policy decision at 2 p.m., followed by a news conference with Jerome H. Powell, the Fed chair, at 2:30 p.m. Both will offer policymakers a chance to signal what they think might come next for interest rates and the economy.Central bankers have already raised interest rates to a range of 5.25 to 5.5 percent in a push to tame inflation. That rate setting is up from near-zero as recently as early 2022, and is the highest level in 22 years.Higher borrowing costs are meant to make it more expensive to buy a home, purchase a car or expand a business using a loan. By tapping the brakes on demand and hiring, that slows the broader economy, which can help to put a lid on price increases.Fed officials have widely signaled that they are close to the point where they no longer need to raise interest rates — simply leaving them around this level will cool the economy and help drive inflation back down to their 2 percent goal over time. The question now is twofold: Will policymakers feel it necessary to make one more quarter-point interest-rate move later this year or early next? And once they decide that rates are high enough, how long will they leave them elevated?Here’s what to watch for on Wednesday.Jerome Powell, the Federal Reserve chair, said in that “at the margin” the recent tightening in financial conditions could reduce the need for further tightening, “though that remains to be seen.”Michelle V. Agins/The New York TimesThe Fed’s language will be in focus.Central bankers will first release their standard monetary policy statement, and markets will carefully watch to see if officials make any changes that suggest they are done raising interest rates.Last time, officials said that “in determining the extent of additional policy firming that may be appropriate,” they would contemplate incoming economic data. If they softened that language to make further policy moves sound less likely, it would be notable.But investors may not find much else to parse in this release. Fed officials will not release fresh quarterly economic projections again until December. Given that, traders will have to watch Mr. Powell’s news conference for more details about what comes next.Recent market moves could be critical.As of the Fed’s latest economic forecasts in September, officials still thought that one more rate increase in 2023 might be appropriate.But something critical has changed in the intervening weeks.Long-term interest rates have climbed notably in markets since the Fed gathered on Sept. 19-20. While central bankers directly set short-term interest rates, longer-term borrowing costs often adjust only at a delay — and the recent jump is making everything from mortgages to business loans much more expensive.That could help slow the economy, doing some of the Fed’s work for it. And some economists think in light of that, central bankers will no longer see a need for another rate increase.Mr. Powell, during a question-and-answer session on Oct. 19, said that “at the margin” the recent tightening in financial conditions could reduce the need for further tightening, “though that remains to be seen.”“I took it to mean that perhaps there isn’t as much urgency to raise interest rates further,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. She said that she didn’t expect officials to rule out another move, but “they need to manage a broad range of risks right now.”If consumer spending remains so strong that companies feel they can raise prices without scaring away customers, it could make it tough to fully wrestle inflation back down to 2 percent.Amir Hamja/The New York TimesStrong consumer spending may keep officials alert.While the Fed is dealing with the possibility that higher market-based interest rates will weigh on the economy, they are also confronting another potential challenge: Economic data have remained surprisingly strong in recent months.On one level, this is good news. Consumers are shopping and companies are hiring at a rapid clip in spite of higher interest rates, and that resilience has come at a time when inflation has moderated substantially. The Fed’s favorite inflation gauge has slowed to 3.4 percent, down from 7.1 percent at its peak in summer 2022.But if consumer spending remains so strong that companies feel they can raise prices without scaring away customers, that could make it tough to fully wrestle inflation back down to 2 percent.That’s why policymakers at the Fed are watching the continued strength closely — and trying to decide whether it suggests that further interest rate increases are needed.Timing is a big question.Officials may decide that they simply need more time to watch economic trends play out.Holding off on further rate moves in November — and possibly beyond — could give officials a chance to see if growth and consumer spending slow in the way companies have been warning they could.Plus, keeping rates on pause will give officials more time to see how looming geopolitical risks shape up. The war between Israel and Hamas could affect the economy in hard-to-predict ways. If it escalates into a regional war, it could shake consumer confidence. But a wider conflict could also cause oil prices to pop, pushing up inflation.At the same time, officials won’t want to fully rule out a future move at a time when market rates could fall, risks could fade and growth could remain quick.“Maintaining optionality makes a lot of sense in the current context,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank.Wall Street is divided over what will come next. Investors see about a one-in-four chance of a rate move at the Fed’s final 2023 meeting, which takes place on Dec. 13. They see a slightly higher — but far from guaranteed — chance of a move in early 2024.“Nobody is feeling a high degree of confidence about the economic outlook right now,” Ms. Uruci said. More

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    Russia’s Central Bank Raises Rates to 15 Percent to Curb Inflation

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    The jump, from 13 percent, would bring a long period of “tight monetary conditions” in order to ease price pressures, the bank said. Russia’s Central Bank on Friday raised its key interest rate by two percentage points to 15 percent, a bigger increase than expected as the bank said it was trying to bring down stubbornly high inflation. The central bank, which said the annual inflation rate would range from 7 to 7.5 percent this year, predicted a long period of “tight monetary conditions” in order to bring the rate down close to its target of 4 percent.Driving the price pressures is “steadily rising domestic demand,” the bank said in its statement, spurred by the Kremlin’s decision to inject more money into the economy as it fights a war in Ukraine. The surge in spending “is increasingly exceeding the capabilities to expand the production of goods and the provision of services,” the bank said.At a news conference Friday, Elvira Nabiullina, the head of the Central Bank, said that increased government spending was one of the reasons for the interest rate increase. Russia’s defense budget has more than tripled since last year’s invasion of Ukraine, and it is scheduled to reach almost a third of the government’s spending next year.Russia was largely successful at weathering the immediate storm produced by sanctions aimed at punishing it for the invasion. The restrictions greatly curtailed its lucrative trade with Western countries and largely isolated it from the global financial system.But as Russia spends vast amounts on its war machine, its industrial production and labor markets are unable to keep up with the increased demand, translating into higher inflation and high levels of borrowing.GUM, a luxury shopping mall in Moscow, in August last year.Nanna Heitmann for The New York TimesYevgeny Nadorshin, the chief economist at the PF Capital consulting company in Moscow, said the central bank’s effort to slow the economy by raising interest rates could “suffocate the country’s growth.” “We are in the moment when growth is transforming into a recession,” Mr. Nadorshin said.He pointed to Russia’s mortgage and consumer borrowing markets, which have experienced rapid expansion. “People are still tense about the economy, but they feel that in the moment, things are much better than expected,” Mr. Nadorshin said in a phone interview. “People feel that this is a short period that they must take advantage of.”But Dmitri Polevoy, an economist in Moscow, said that despite high interest rates, he doesn’t see major risks with the Russian economy.“This story is exclusively about inflation,” Mr. Polevoy said in written comments to questions posed through a messaging service. “Under the current budgetary policy and with the same external conditions,” he said, “the risk of a recession is low.”After experiencing a nosedive following the invasion of Ukraine, the Russian economy has returned to growth. The International Monetary Fund recently estimated economic output would rise 2.2 percent this year, as oil exports have largely evaded Western sanctions and found new customers in India, China and other countries.The country has also been able to import Western goods from some former Soviet republics, as well as Turkey and Gulf States. Russian businesses, including banks, have adapted too, serving needs since the departure of many Western companies. More