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    U.S. Employers Added 253,000 Jobs Despite Economic Worries

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    Employers added 253,000 jobs in April and unemployment fell to 3.4 percent, but the labor market’s strength complicates the Fed’s inflation fight.The labor market is still defying gravity — for now.Employers added 253,000 jobs in April on a seasonally adjusted basis, the Labor Department reported Friday, in a departure from the cooling trend that had marked the first quarter and was expected to continue.The unemployment rate was 3.4 percent, down from 3.5 percent in March, and matched the level in January, which was the lowest since 1969. Wages also popped slightly, growing 4.4 percent over the past year.The higher-than-forecast job gain complicates the Federal Reserve’s potential shift toward a pause in interest rate increases. Jerome H. Powell, the Fed chair, said on Wednesday that the central bank might continue to raise rates if new data showed the economy wasn’t slowing enough to keep prices down.It’s also an indication that the failure of three banks and the resulting pullback on lending, which is expected to hit smaller businesses particularly hard, hasn’t yet hamstrung job creation.“All these things are telling us it’s not a hard stop; it’s creating a headwind, but not a debilitating headwind,” said Carl Riccadonna, the chief U.S. economist at BNP Paribas. “A gradual downturn is happening, but it sure is stubborn and persistent in the trend.” Despite the strong showing in April, the labor market continues to gently descend from blistering highs.Downward revisions to the previous two months’ data meaningfully altered the spring employment picture, subtracting a total of 149,000 jobs. That brings the three-month average to 222,000 jobs, a clear slowdown from the 400,000 added on average in 2022. Most economists expect a more marked downshift later in the year.Jobs increased across industriesChange in jobs in April 2023, by sector More

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    Wages Grow Steadily, Defying Fed’s Hopes as it Fights Inflation

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    Wage growth ticked up in April, good news for American workers but bad news for officials at the Federal Reserve, who have been hoping to see a steady moderation in pay gains as they try to wrestle inflation back under control.Average hourly earnings climbed by 4.4 percent in the year through April. That compared with 4.3 percent in the previous month, and was more than the 4.2 percent that economists had expected.The increase in wages compared with the previous month — at 0.5 percent — was the fastest since March 2022.The hourly earnings measure can bounce around from month to month, so it is possible that the April increase is a blip rather than a reversal in the trend toward cooler wage gains. Even so, the data underscored that the Fed faces a bumpy road as it tries to slow the economy and bring inflation under control.Fed officials are closely watching the pace of wage growth as they try to assess how quickly inflation is likely to fade. While officials regularly acknowledge that wage gains did not initially cause rapid price increases, they worry that it will prove difficult to return inflation to normal with pay gains rising so rapidly.Companies may charge more in order to cover their climbing labor costs. And when households are earning more, they are more capable of keeping up with higher expenses without pulling back their spending — enabling businesses to charge more for hotel rooms, child care and restaurant meals without scaring away consumers.The Fed has raised interest rates at the fastest pace since the 1980s starting from March 2022. Officials this week lifted borrowing costs to just about 5 percent and signaled that they might pause their rate moves as soon as their June meeting, depending on incoming economic data.Jerome H. Powell, the Fed chair, noted during his news conference this week that wage growth has remained strong. He suggested the solid job market was one reason the Fed would likely keep rates high to continue slowing the economy “for a while” as it tried to wrestle inflation, which remains above 4 percent, back to the central bank’s 2 percent goal.“Right now, you have a labor market that is still extraordinarily tight,” he said, noting that a more dated wage figure released last week was “a couple percentage points above what would be consistent with 2 percent inflation over time.”That measure, the Employment Cost Index, showed that wages and salaries for private-sector U.S. workers were up 5.1 percent in March from a year earlier. While that is somewhat faster than the gain reported by the overall average hourly earnings figures for April that were released Friday, it is roughly in line with a closely-watched measure within the monthly jobs report that tracks pay gains for rank and file workers.Pay for production and nonsupervisory workers — essentially, people who are not managers — climbed by 5 percent in the year through April, Friday’s report showed. That number has continued to gradually moderate, even as the slowdown in the overall index has stalled.Fed policymakers will have another month of job and wage data in hand before they make their next interest-rate decision on June 14, making Friday’s figures just one of many factors that are likely to inform whether they pause rate increases or press ahead with more policy adjustments. Officials will also have further evidence of how much the recent turmoil in the banking sector is slowing the economy before they next meet.A series of high-profile bank failures have spooked investors and could generate caution at lenders across the country, which could make it harder to access loans for construction projects and mortgages and help to cool growth — but it is unclear so far how large that effect will be.Perhaps most importantly, officials will receive fresh inflation data before their next decision.“They’ll need to see the inflation data and digest this holistically,” said Kathy Bostjancic, chief economist at Nationwide. She said that the strong jobs numbers were just one month of data, but that they were “jarring” to see at a moment when economists had been looking for a slowdown.“Assuming that the inflation numbers continue to trend lower gradually, I think they can go on hold in June,” she said of the Fed. “But it will depend in the inflation readings.” More

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    Powell Bets the Fed Can Slow Inflation Despite Recession Fears

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    Jerome H. Powell, the Federal Reserve chair, thinks his central bank can defy history to clinch slower inflation and a soft economic landing.The Federal Reserve’s push to slow the economy and bring inflation under control is often compared to an airplane descent, one that could end in a soft landing, a bumpy one or an outright crash.Jerome H. Powell, the Fed chair, is betting on something more akin to the Miracle on the Hudson: a touchdown that is gentle, all things considered, and unlike anything the nation has seen before.The Fed has raised rates sharply over the past year, pushing them just above 5 percent on Wednesday, in a bid to cool the economy to bring inflation under control. Staff economists at the central bank have begun to forecast that America is likely to tip into a recession later this year as the Fed’s substantial policy moves combine with turmoil in the banking sector to snuff out growth.But Mr. Powell made it clear during a news conference on Wednesday that he does not agree.“That’s not my own most likely case,” he said, explaining that he expects modest growth this year. That sunnier forecast has hinged, in part, on trends in the labor market.America’s job market is still very strong — with rapid job growth and unemployment hovering near a 50-year low — but it has shown signs of cooling. Job openings have dropped sharply in recent months, falling to 9.6 million in March from a peak of more than 12 million a year earlier. Historically, such a massive decline in the number of available positions would have come alongside layoffs and rising joblessness, and prominent economists had predicted a painful economic landing for exactly that reason.But so far, unemployment has not budged.Relationship Status: It’s ComplicatedJoblessness usually increases when job openings fall. But that relationship is in question now as job openings drop while unemployment remains low.

    Note: Data is seasonally adjustedSource: Bureau of Labor StatisticsBy The New York Times“It wasn’t supposed to be possible for job openings to decline by as much as they have declined without unemployment going up,” Mr. Powell said this week. While America will get the latest update on unemployment when a job market report is released Friday, unemployment has yet to rise meaningfully. Mr. Powell added that “there are no promises in this, but it just seems to me that it is possible that we can continue to have a cooling in the labor market without having the big increases in unemployment that have gone with many prior episodes.”America’s economic fate rests on whether Mr. Powell’s optimism is correct. If the Fed can pull it off — defying history to wrangle rapid inflation by sharply cooling the labor market without causing a big and painful jump in joblessness — the legacy of the post-pandemic economy could be a tumultuous but ultimately positive one. If it can’t, taming price increases could come at a painful cost to America’s employees.The Fed has raised rates sharply over the past year, pushing them just above 5 percent as of their meeting this week, in a bid to cool the economy in order to wrestle inflation under control.Hiroko Masuike/The New York TimesSome economists are skeptical that the good times can last.“We haven’t seen this trade-off, which is fantastic,” said Aysegul Sahin, an economist at the University of Texas at Austin. But she noted that productivity data appeared glum, which suggests that companies got burned by years of pandemic labor shortages and are now hanging onto workers even when they do not necessarily need them to produce goods and services.“This time was different, but now we are getting back to the state where it is a more normal labor market,” she said. “This is going to start playing out the way it always plays out.”The Fed is in charge of fostering both maximum employment and stable inflation. But those goals can come into conflict, as is the case now.Inflation has been running above the Fed’s 2 percent goal for two full years. While the strong labor market did not initially cause the price spikes, it could help to perpetuate them. Employers are paying higher wages to try to hang onto workers. As they do that, they are raising prices to cover their costs. Workers who are earning a bit more are able to afford rising rents, child care costs and restaurant checks without pulling back.In situations like this, the Fed raises interest rates to cool the economy and job market. Higher borrowing costs slow down the housing market, discourage big consumer purchases like cars and home improvement projects, and deter businesses from expanding. As people spend less, companies cannot keep raising prices without losing customers.But setting policy correctly is an economic tightrope act.Policymakers think that it is paramount to act decisively enough to quickly bring inflation under control — if it is allowed to persist too long, families and businesses could come to expect steadily rising prices. They might then adjust their behavior, asking for bigger raises and normalizing regular price increases. That would make inflation even harder to stamp out.On the other hand, officials do not want to cool the economy too much, causing a painful recession that proves more punishing than was necessary to return inflation to normal.Striking that balance is a dicey proposition. It is not clear exactly how much the economy needs to slow to fully control inflation. And the Fed’s interest rate policy is blunt, imprecise and takes time to work: It is hard to guess how much the increases so far will ultimately weigh on growth.That is why the Fed has slowed its policy changes in recent months — and why it appears poised to pause them altogether. After a string of three-quarter point rate moves last year, the Fed has recently adjusted borrowing costs a quarter point at a time. Officials signaled this week that they could stop raising rates altogether as soon as their mid-June meeting, depending on incoming economic data.Hitting pause would give central bankers a chance to see whether their rate adjustments so far might be sufficient.It would also give them time to assess the fallout from turmoil in the banking industry — upheaval that could make a soft economic landing even more difficult.Three large banks have collapsed and required government intervention since mid-March, and jitters continue to course through midsize lenders, with several regional bank stocks plummeting on Wednesday and Thursday. Banking troubles can quickly translate into economic problems as lenders pull back, leaving businesses less able to grow and families less able to finance their consumption.The labor market could be in for a more dramatic slowdown, given the bank tumult and the Fed’s rate moves so far, said Nick Bunker, the director of North American economic research at the job site Indeed.He said that while job openings have been coming down swiftly, some of that might reflect a shift back to normal conditions after a bout of pandemic-inspired weirdness, not necessarily as a result of Fed policy.For instance, job openings in leisure and hospitality industries had spiked as restaurants and hotels reopened from lockdowns. Those were now disappearing, but that might be more about a return to business as usual.“A soft landing is happening, but how much of that is gravity and how much of it is what the pilot is doing with the plane?” Mr. Bunker said. Going forward, it could be that the normal historical relationship between declining job openings and rising joblessness will kick in as policy begins to bite.Or this time truly could be unique — as Mr. Powell is hoping. But whether the Fed and the American economy get to test his thesis could depend on whether the banking system issues clear up, Mr. Bunker said.“We might not get the answer if the financial sector comes and tips the table over,” he said. More

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    Fed Expected to Raise Interest Rates: What to Know

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    Federal Reserve officials will release a rate decision at 2 p.m. The key question is what will come next.Federal Reserve officials are set to release an interest rate decision on Wednesday afternoon, and while investors widely expect policymakers to lift borrowing costs by a quarter-point, they will be watching carefully for any hint at what might come next.This would be the central bank’s 10th consecutive interest rate increase — capping the fastest series of rate increases in four decades. But it could also be the central bank’s last one, for now.Fed officials signaled in their last set of economic projections that they might stop raising interest rates once they reached a range of 5 percent to 5.25 percent, the level they are expected to hit on Wednesday. Officials will not release fresh economic projections after this meeting, which will leave economists carefully parsing both the central bank’s 2 p.m. policy decision statement and a 2:30 p.m. news conference with Jerome H. Powell, the Fed chair, for hints at what comes next.Central bankers will be balancing conflicting signals. They have already done a lot to slow growth and wrestle rapid inflation under control, recent tumult in the banking industry could curb demand even more, and a looming fight over the debt ceiling poses a fresh source of risk to the economy. All of those are reasons for caution. But the economy has been fairly resilient and inflation is showing staying power, which could make some Fed officials feel that they still have work to do.Here’s what to know going into Fed day.Inflation has prompted the Fed to get aggressiveFed policymakers are raising interest rates for a simple reason: Inflation has been painfully high for two years, and making money more expensive to borrow is the main tool government officials have to get it down.When the Fed raises interest rates, it makes it more expensive and often more difficult for families to take out loans to buy houses or cars or for businesses to raise money for expansions. That slows both consumer spending and hiring. As wage growth sags and unemployment rises, people become more cautious and the economy slows further.If that chain reaction sounds unpleasant, it’s because it can be: When Paul Volcker’s Fed raised interest rates to nearly 20 percent in the early 1980s, it helped to push joblessness above 10 percent.But by cooling demand across the economy, a widespread slowdown can help to wrestle inflation under control. Companies find it harder to charge more without losing customers in a world where families are spending cautiously.And getting inflation under wraps is a big priority for the Fed: Price increases have been unusually rapid since early 2021, and while they have cooled off notably from a peak of about 9 percent last summer, they are increasingly driven by service industries like travel and child care. Such price increases could prove stubborn and difficult to fully stamp out.Higher Prices for Services Are Now Driving InflationBreakdown of the inflation rate, by category

    Note: The services category excludes energy services, and the goods category excludes food and energy goods.Sources: Bureau of Labor Statistics; New York Times analysisBy The New York TimesRates haven’t been this high in more than 15 yearsTo get price increases back in line, the Fed has raised rates to nearly 5 percent — and they are expected to cross that threshold on Wednesday. The last time rates eclipsed 5 percent was the summer of 2007, before the global financial crisis.What does it mean to have interest rates this high? More expensive mortgages have translated into a meaningful slowdown in the housing market, for one thing. There are also some signs that the labor market, while still very strong, is beginning to weaken — hiring is gradually slowing, and fewer jobs are going unfilled. But perhaps most visibly, the higher interest rates are starting to cause financial stress.Three big U.S. banks have failed — and required responses from the government — since early March, culminating in a government-enabled shotgun wedding between First Republic and JPMorgan Chase early Monday morning.Many of the banks under stress in recent weeks have suffered because they did not adequately protect themselves against rising interest rates, which have reduced the market value of their older mortgages and securities holdings.Fed officials will need to consider two issues related to the recent turmoil: Will there be further drama as other banks and financial companies struggle with higher rates, and will the bank trouble so far significantly slow the economy?Mr. Powell could give the world a sense of their thinking at his news conference.Economists are on pause patrolBetween the banking upheaval and how much the Fed has lifted interest rates already, investors expect policymakers to pause after this move. But don’t assume that means the slowdown is over.Higher Fed rates are like delayed reaction medicine: They start to kick in quickly, but their full effects take a while to play out. Last year’s moves are still trickling through the economy, and by leaving rates on hold at a high level, officials could continue to weigh down the economy for months to come.And it could be that central bankers will not actually pause: Some have suggested that if inflation remains rapid and growth keeps its momentum, they could raise interest rates more. But it seems possible — even likely — that the bar for future rate moves will be higher.America is on recession watchAs high rates and bank problems bite, many economists think the country could be in for an economic downturn. Economists on the Fed’s staff even said at the central bank’s March meeting that they thought a mild recession was likely later this year in the aftermath of the banking crisis, based on minutes from the Fed’s last meeting.Mr. Powell is sure to get asked about that at this news conference — and he may have to explain how the Fed hopes to keep a slight recession from turning into a big one.A gentle slowdown would probably feel a lot different for people on the ground than a major recession. One would involve slightly fewer job opportunities, milder wage growth and less boisterous business. The other could involve job loss and insecurity, slashed hours and earnings, and a pervading sense of glumness among American consumers.That’s why Wednesday’s Fed meeting matters: It’s not just technical policy tweaks Mr. Powell will be talking about, but decisions that will shape America’s economic future. More

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    Job Openings Slipped in March as Labor Market Continued Cooling

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    The NewsJob openings in March fell to 9.6 million, the Labor Department reported on Tuesday, the lowest level in two years and a further indication that the slowdown in the labor market is becoming more entrenched. It was the third straight month that job openings have declined, a notable development after last year, when job openings bounced around month to month.“The labor market has been, through Q1, a resilient anchor for the economy,” said Aaron Terrazas, chief economist at the career site Glassdoor. “But we’re getting more and more signals that those foundations are really starting to tremble.”Transportation, warehousing and utilities, professional and businesses services and construction were among the sectors that posted large drops in open positions, as higher interest rates and fears of a pullback in consumer spending continued to discourage employers from hiring.Other readings in Tuesday’s report underscored the labor market’s restraint. The total number of open jobs per available unemployed worker, a ratio that the Federal Reserve has been watching as it tries to tame rapid inflation, decreased slightly to 1.6, the lowest level since October 2021. Layoffs, which have remained historically low outside of some big-name companies in the tech sector, rose to 1.8 million in March. The number of workers voluntarily leaving their jobs — a sign that workers are finding opportunities to switch to better-paid positions, or are confident they can do so — was relatively unchanged but has been inching down.Policymakers are interested in the number of open jobs per available unemployed worker, which has remained stubbornly high for months.Hiroko Masuike/The New York TimesWhy It Matters: The last major data release before the Fed’s rate decision.The report released on Tuesday, called the Job Openings and Labor Turnover Survey, or JOLTS, is one of many that the Federal Reserve watches closely each month to gauge its efforts to slow the economy and ease inflation without spurring widespread layoffs.The Fed has been raising interest rates for more than a year as it tries to bring down rapid inflation to its target of 2 percent. It will announce its next decision on Wednesday; officials are widely expected to raise rates by a quarter percentage point, to just above 5 percent. The JOLTS report is the last major piece of data that Fed policymakers will see before their decision.In particular, they are interested in the number of open jobs per available unemployed worker, which has remained stubbornly high for months. That mismatch has helped to drive up pay and contributed to inflation. More recently, however, the ratio has been declining, a welcome sign for the Fed that underscores the labor market’s gradual slowdown.Officials also track other details in the report, including the number of layoffs and workers who quit their jobs. The Background: Labor market resilience complicates the Fed’s plan.Month after month, the labor market has remained robust, defying expectations and complicating the Fed’s efforts to cool the economy. The latest evidence came on Friday, when government data showed that wages and salaries for private-sector workers were up 5.1 percent in March from a year earlier, the same growth rate as in December.Still, higher interest rates are taking a toll on the job market, albeit gradually. Employers added 236,000 jobs in March, a healthy number but down from an average of 334,000 jobs added over the prior six months. The year-over-year growth in average hourly earnings also fell to its slowest pace since July 2021.What’s Next: A big week for economic news.The report on Tuesday kicked off a big few days for economic news.In addition to the Fed decision on Wednesday, there will be the Labor Department’s monthly snapshot of the employment situation on Friday. The report, based on April data, will provide a clearer and more up-to-date picture of the labor market, including the change in the number of jobs — a figure that has been positive for 27 straight months — and the unemployment rate. More

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    Fed Will Decide Next Rate Move After Bank Jitters

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    The Federal Reserve will release a policy decision on Wednesday on the heels of another bank collapse.WASHINGTON — Federal Reserve officials are widely expected to lift borrowing costs by a quarter of a percentage point on Wednesday, the 10th consecutive rate increase since March 2022. But investors and economists think that this could be the central bank’s last move before it pauses.Fed officials face a complicated backdrop going into this week’s meeting: Risks to the financial system loom large, but inflation also remains stubborn.The banking system has been in turmoil since the collapse of Silicon Valley Bank on March 10. Government officials spent this past weekend racing to find a buyer for First Republic, which had been struggling for weeks and was sold to JPMorgan Chase in a deal announced early Monday morning.Some of the banking sector tumult stems from the Fed’s rapid interest rate increases over the past year. Central bankers are expected to lift rates to just above 5 percent this week, up from near-zero as recently as March 2022. After that quick series of adjustments, many lenders are facing losses on older securities and loans, which pay relatively low interest rates compared with newer securities issued in a higher-rate world.Despite the Fed’s moves — which were meant to rein in quick inflation by slowing the economy — the job market has maintained some momentum and price increases have shown concerning staying power. Companies continue to hire at a solid clip, and data released last week showed that wages continued to climb quickly at the start of the year. While inflation has been slowing, it is increasingly driven by service price increases that have shown little sign of cooling off — which could make it difficult to wrestle price increases the whole way back to the Fed’s slow and steady goal.Policymakers will give the public a sense of how they are thinking about the fraught economic moment on Wednesday in their post-meeting statement at 2 p.m. Because the Fed will not release fresh economic projections at this meeting — those come out just once a quarter — investors will look to a news conference with the Fed chair, Jerome H. Powell, at 2:30 p.m. for clues about what comes next.The Fed could hint at a pauseWhen Fed policymakers released their economic estimates in March, they expected to raise interest rates to a range of 5 to 5.25 percent in 2023.If officials adjust policy as expected this week, they will have lifted rates to that level. The question now is whether they deem that sufficient, or whether policymakers think that the economy and inflation are resilient enough that they will need to adjust borrowing costs more to cool things down and lower inflation fully.Mr. Powell could offer some signal during his news conference, or he could opt to leave the Fed’s options open — which is what some economists expect.“They don’t need to rule anything out,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “The worst scenario for them would be to signal that they’re done, then have the data force them to do a U-turn.”Investors expect Fed officials to stop after this week, hold rates steady for a few months and then begin to lower them — perhaps substantially, to a range of 4.5 to 4.75 percent by the end of the year.Fed policymakers, however, have been adamant that they do not expect to lower rates imminently. And some have hinted that more increases might be warranted if inflation and economic strength show staying power.“Monetary policy needs to be tightened further,” Christopher Waller, a Fed governor and one of the central bank’s more inflation-focused members, said in an April 14 speech. “How much further will depend on incoming data on inflation, the real economy and the extent of tightening credit conditions.”Bank turmoil will influence policyFed officials have been clear that the upheaval in the banking system could slow the economy — but policymakers do not know by how much.Banking trouble is different from other types of business distress, because banks are like the yeast in the sourdough starter of the economy: If they aren’t working, nothing else grows. They lend out money to would-be home buyers, people who want to buy new cars or garage additions, and businesses that want to expand and hire.It is pretty clear that banks are going to pull back their lending at least somewhat in response to the recent turmoil. Anecdotal signs are already surfacing around the country. The question is how acute that shift will be.“If the response to recent banking problems leads to financial tightening, monetary policy has to do less,” Austan Goolsbee, the president of the Federal Reserve Bank of Chicago, said in an April 11 speech. “It’s not clear by how much less.”He noted that private-sector estimates suggested that the hit to growth from the banking turmoil could be equivalent to one to three quarter-point rate increases. That estimate came well before First Republic’s demise, but after its troubles started.The economy’s resilience will be criticalOne big question for the Fed — and which will matter for everyone — is whether the U.S. economy will squeak through this episode without plunging into a painful recession.Fed staff members said at the central bank’s March meeting that they expected the economy to experience a “mild recession” in the wake of the recent banking turmoil. And Fed officials — including Mr. Powell — have suggested that a recession is possible as officials try to slow the economy enough to bring inflation under control.But if a recession hits, it is not obvious how painful it will be. Some economists warn that downturns usually build on themselves, as people respond to a little bit of economic weakness by pulling back on spending a lot: It may be hard to push the unemployment rate up just a little bit without pushing it significantly.Others point out that the post-pandemic economy is a weird one, characterized by unusually strong corporate profits and lots of job openings. Because there may be room to squeeze margins and cut unfilled positions, the economy may be able to cool down more gently than in the past — a so-called “soft landing.”Mr. Powell will get a chance to weigh in on which outcome he thinks is most likely on Wednesday. More

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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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    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