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    Majority of Americans wrongly believe US is in recession – and most blame Biden

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    Nearly three in five Americans wrongly believe the US is in an economic recession, and the majority blame the Biden administration, according to a Harris poll conducted exclusively for the Guardian. The survey found persistent pessimism about the economy as election day draws closer.The poll highlighted many misconceptions people have about the economy, including:
    55% believe the economy is shrinking, and 56% think the US is experiencing a recession, though the broadest measure of the economy, gross domestic product (GDP), has been growing.
    49% believe the S&P 500 stock market index is down for the year, though the index went up about 24% in 2023 and is up more than 12% this year.
    49% believe that unemployment is at a 50-year high, though the unemployment rate has been under 4%, a near 50-year low.
    Many Americans put the blame on Biden for the state of the economy, with 58% of those polled saying the economy is worsening due to mismanagement from the presidential administration.The poll underscored people’s complicated emotions around inflation. The vast majority of respondents, 72%, indicated they think inflation is increasing. In reality, the rate of inflation has fallen sharply from its post-Covid peak of 9.1% and has been fluctuating between 3% and 4% a year.In April, the inflation rate went down from 3.5% to 3.4% – far from inflation’s 40-year peak of 9.1% in June 2022 – triggering a stock market rally that pushed the Dow Jones index to a record high.A recession is generally defined by a decrease in economic activity, typically measured as gross domestic product (GDP), over two successive quarters, although in the US the National Bureau of Economic Research (NEBR) has the final say. US GDP has been rising over the last few years, barring a brief contraction in 2022, which the NEBR did not deem a recession.The only recent recession was in 2020, early in the Covid-19 pandemic. Since then, the US economy has grown considerably. Unemployment has also hit historic lows, wages have been going up and consumer spending has been strong.But the road to recovery has been bumpy, largely because of inflation and the Federal Reserve raising interest rates to tamp down high prices.Despite previously suggesting the Fed could start lowering rates this year, Fed officials have recently indicated interest rates will remain elevated in the near future. While inflation has eased considerably since its peak in 2022, officials continue to say inflation remains high because it remains above the Fed’s target of 2% a year.After a tumultuous ride of inflation and high interest rates, voters are uncertain about what’s next. Consumer confidence fell to a six-month low in May.So even though economic data, like GDP, implies strength in the economy, there’s a stubborn gap between the reality represented in that data – what economists use to gauge the economy’s health – and the emotional reality that underlies how Americans feel about the economy. In the poll, 55% think the economy is only getting worse.Some have called the phenomenon a “vibecession”, a term first coined by the economics writer Kyla Scanlon to describe the widespread pessimism about the economy that defies statistics that show the economy is actually doing OK.While inflation has been down, prices are at a higher level compared with just a few years ago. And prices are still going up, just at a slower pace than at inflation’s peak.Americans are clearly still reeling from price increases. In the poll, 70% of Americans said their biggest economic concern was the cost of living. About the same percentage of people, 68%, said that inflation was top of mind.The poll showed little change in Americans’ economic outlook from a Harris poll conducted for the Guardian on the economy in September 2023.A similar percentage of respondents agreed “it’s difficult to be happy about positive economic news when I feel financially squeezed each month” and that the economy was worse than the media made it out to be.Another thing that hasn’t changed: views on the economy largely depend on which political party people belong to. Republicans were much more likely to report feeling down about the economy than Democrats. The vast majority of Republicans believe that the economy is shrinking, inflation is increasing and the economy is getting worse overall. A significant but smaller percentage of Democrats, less than 40%, believed the same.Unsurprisingly, more Republicans than Democrats believe the economy is worsening due to the mismanagement of the Biden administration.Something both Republicans and Democrats agree on: they don’t know who to trust when it comes to learning about the economy. In both September and May, a majority of respondents – more than 60% – indicated skepticism over economic news.The economy continues to present a major challenge to Joe Biden in his re-election bid. Though he has tried to tout “Bidenomics”, or his domestic economy record, including his $1.2tn bipartisan infrastructure bill from 2022, 70% of Republicans and 39% of Democrats seem to think he’s making the economy worse.But it’s not all bad news for Biden. Republican voters were slightly more optimistic about the lasting impacts of “Bidenomics” than they were in the September Harris poll. Four in 10 Republicans, an 11 percentage-point increase from September, indicated they believe Bidenomics will have a positive lasting impact, while 81% of Democrats said the same. And three-quarters of everyone polled said they support at least one of the key pillars of Bidenomics, which include investments in infrastructure, hi-tech electronics manufacturing, clean-energy facilities and more union jobs.Yet even with these small strands of approval, pessimism about the overall economy is pervasive. It will be an uphill battle for Biden to convince voters to be more hopeful.“What Americans are saying in this data is: ‘Economists may say things are getting better, but we’re not feeling it where I live,’” said John Gerzema, CEO of the Harris Poll. “Unwinding four years of uncertainty takes time. Leaders have to understand this and bring the public along.” More

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      Jailed Trump adviser predicts mass deportations as second term priority

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      The first 100 days of a second Donald Trump presidency would see the sacking of the Federal Reserve head, Jerome Powell, mass deportations of undocumented immigrants and higher tariffs on Chinese imports, the ex-president’s former trade adviser Peter Navarro has said.Navarro, the maverick former head of the Office of Trade and Manufacturing Policy in Trump’s first administration and a key loyalist, made the forecasts in an interview conducted from prison – where he is serving a four-month sentence for contempt of Congress.Speaking to the website Semafor, Navarro predicted that axing Powell – an establishment figure who was initially appointed as Federal Reserve chair by Trump in 2018 before being reappointed by Joe Biden – would be among the first acts of a newly re-elected President Trump.“Powell raised rates too fast under Trump and choked off growth,” Navarro told Semafor in responses emailed from a prison library in Miami, where he has been putting the finishing touches to a new book, The New Maga Deal, whose title references the former president’s Make America Great Again slogan.“To keep his job, Powell then raised too slowly to contain inflation under Biden,” Navarro said to Semafor. “My guess is that this punctilious non-economist will be gone in the first 100 days one way or another.”He predicted that Powell – who served in the presidential administration of the late George HW Bush – could be replaced by either Kevin Hassett or Tyler Goodspeed, both former chairs of the council of economic advisers.The first order of business in a second Trump presidency, however, would be intensifying a rumbling trade war with China, said Navarro, a noted hawk on Chinese trade policy.“At the top of the trade list is Trump’s Reciprocal Trade Act, first introduced by congressman Sean Duffy in 2019,” he wrote. “If countries refuse to lower their tariffs to ours, the president would have the authority to raise our tariffs to theirs.”Asked about unfinished business likely to be revisited, Navarro identified mass deportation and reinforcing a “buy American” policy.“Trump will quickly close down the border and begin mass deportations,” he said, accusing Biden of “importing a wave of crime and terrorism along with an uneducated mass that drives down the wages of Black, brown and blue-collar Americans”.skip past newsletter promotionafter newsletter promotionDespite – or perhaps partly because of – his incarceration for refusing to cooperate with the congressional investigation into Trump supporters’ 6 January 2021 attack on the US Capitol, Navarro remains an authoritative source on insider thinking in the former president’s camp.Several members of Trump’s inner circle have visited Navarro during his confinement in a minimum security facility, according to Semafor, fuelling speculation that he could play a key role in a future administration.Reinforcing that impression, Navarro said his book identified 100 actions that Trump would take in the first 100 days of a second presidency. He said he planned to attend the Republican national convention in mid-July – where Trump is expected to be anointed as the GOP presidential candidate – if he is released from prison in time.While he was close to the former president throughout his first administration, Navarro’s views on trade are considered fringe by many mainstream economists. He is a vocal critic of Germany, as well as China, and has accused both countries of currency manipulation. More

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      US adds 216,000 jobs in December as stronger than expected rise caps robust year

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      The US workforce added 216,000 jobs last month, more than expected by economists, capping another robust year of growth in the face of higher interest rates.Policymakers, weighing when to start cutting borrowing costs, are closely monitoring the strength of the labor market as they try to guide the world’s largest economy to a so-called “soft landing”, where price growth normalizes and recession is avoided.American employers had been expected by economists to add about 164,000 jobs in December, down from 173,000 the previous month. Recruitment across the public, healthcare, social assistance and construction sectors helped drive growth as 2023 drew to a close.Overall, Friday’s official data showed that 2.7m jobs were added in the US economy over the course of last year – down from 4.8m in 2022.While its growth has slowed, the labor force has defied fears of a downturn after the Federal Reserve launched an aggressive campaign to pull back inflation from its highest levels in a generation. It remained resilient last year in the midst of layoffs and strikes.The headline unemployment rate stood at 3.7% in December, according to data released by the Bureau of Labor Statistics, in line with November.While last month’s jobs growth reading was significantly higher than forecast by economists, the agency revised its estimates for October and November lower. As a result, the US workforce in these two months was some 71,000 jobs smaller than previously reported.As price growth continues to decline, officials at the Fed – which last hiked interest rates in July – are now mulling the future of its battle. Jerome Powell, the central bank’s chairman, said last month that the historic tightening of monetary policy was probably over, and that discussions on cuts in borrowing costs were coming “into view”.The official jobs report is closely scrutinized by Wall Street each month for signs of how the US economy is faring. The S&P 500 started the day slightly higher in New York.Nancy Vanden Houten, lead US economist at Oxford Economics, said: “There is a lot of noise in the data, but we continue to expect that there will be enough evidence of a further loosening in labor market conditions and a decline in inflation more broadly to allow the Fed to begin cutting rates in May.”Growth in private sector employment “continues to slow relentlessly, even after the upside surprise” in December, said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Behind the headline, the trend in job growth is slowing, with more softening to come.” More

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      Climate activists block Federal Reserve bank, calling for end to fossil fuel funding

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      One day after the largest climate march since the start of the Covid-19 pandemic, hundreds of climate activists blockaded the Federal Reserve Bank in New York to call for an end to funding for coal, oil and gas, with police making scores of arrests.“Fossil fuel companies … wouldn’t be able to operate without money, and that money is coming primarily from Wall Street,” Alicé Nascimento, environmental campaigns director at New York Communities for Change, said hours before she was arrested.The action came as world leaders began arriving in New York for the United National general assembly (UNGA) gathering and followed Sunday’s 75,000-person March to End Fossil Fuels, which focused on pushing Biden to urgently phase out fossil fuels. Monday’s civil disobedience had a different but compatible goal, said Renata Pumarol, an organizer with the campaign group Climate Defenders.“Today we want to make sure people know banks, big banks, are responsible for climate change, too,” she said. “And while marches are important, we think civil disobedience is, too, because it shows we’re willing to do whatever it takes to end fossil fuels, including putting ourselves on the line.”Monday’s action was organized by a coalition of local organizations including New York Communities for Change and Extinction Rebellion NYC, alongside national groups such as Climate Organizing Hub and 350.org. Demonstrators first gathered in New York’s Zuccotti Park, in the financial district in lower Manhattan, which is partially owned by fossil fuel investor Goldman Sachs.The small concrete urban space was the base for the original Occupy Wall Street protests 12 years ago.On Monday, demonstrators then marched in the rain to the nearby New York Federal Reserve building, the largest of the network of 12 federal banks dotted around the country that make up the central bank of the United States.Protesters blockaded multiple entrances into the bank while singing, beating drums and holding up signs. Over 100 people were arrested, according to the New York City Office of the Deputy Commissioner for Public Information, with organizers estimating that roughly 150 arrests were made.“If you arrest one of us, one hundred more will come,” activists chanted.The protesters called attention to both public and private fossil fuel financing. Globally, government subsidies for coal, oil and gas reached a record high of $13m per minute in 2022 last year – equivalent to 7% of global GDP and almost double what the world spends on education – according to the International Monetary Fund.Last year, the US also ranked 16th among the G20 countries on a scorecard by the independent economic research group Green Central Banking, which the researchers say indicates US financial regulators are falling behind their international peers on climate risk mitigation.Meanwhile, since the signing of the 2015 Paris Climate Agreement, major private banks have provided some $3.2tn to the fossil fuel industry to expand operations, far outstripping the amount that global north governments have collectively spent on international climate finance, an analysis from ActionAid, the Washington DC-based non-profit, found this month. Another recent analysis from the Sierra Club environmental group found that major global banks have announced climate pledges but nonetheless financed coal energy across the US.Monday’s action came after a slew of global protests last week, some of which targeted financial institutions. In New York, dozens rallied outside of the headquarters for asset manager BlackRock and Citibank on Wednesday and Thursday respectively, to call attention to both firms’ investments in fossil fuels. And on Friday, protesters targeted the Museum of Modern Art over its relationship to fossil fuel investor KKR.Another protest is planned for Tuesday at New York City’s Bank of America offices, with additional actions throughout the week as the United Nations hosts its Climate Ambition Summit as part of the UNGA. More

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      US inflation in August rose to 3.7% amid sharp increase in energy prices

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      US inflation in August rose for the first time since June 2022, rising to 3.7% as a sharp increase in energy prices pushed prices up toward the end of the summer.Growth in prices still remains far below the decades-high inflation rates that were seen last summer, when the rate peaked at 9.1% in June. Still, an increase in inflation means the US economy is further from the Federal Reserve’s target rate of 2% and will probably make officials consider pushing interest rates up later this year.The price of energy commodities, including gas and oil, jumped up 10.5% over the last month, according to the latest Consumer Price Index data, which measures the prices of a basket of goods and services. Gas prices ticked up in August as Russia and Saudi Arabia continued aggressive cuts in supply, bringing the price of crude oil to 10-month high at $91 a barrel. Higher gas prices accounted for more than half of the increase in the overall inflation rate.Meanwhile core inflation, which measures the price of goods and services minus the volatile energy and food industries, actually decreased in August to 4.3%, down from 4.7% in July, reflecting the impact higher energy prices are having on the overall inflation rate.Even with the decrease in core inflation, which has been higher and going down at a slower rate than the 12-month inflation rate, inflation still remains far above the Federal Reserve’s target rate of 2%.Though price decreases have been seen in used cars and medical care services over the last few months, home prices have hit a near-record high in June, keeping core inflation stubbornly high. The median home price hit $413,80, the second-highest price ever, according to the National Association of Realtors. Home prices cooled slightly to $406,700 in July, but home prices still remain 7.3% higher than a year earlier.Even with inflation slightly up, the Fed is on track to keep interest rates the same at their next board meeting on 20 September. Economists say the Fed has had a pause planned for the meeting for a while as many officials say the economy has yet to feel the full effects of interest rates, which are at a 22-year high at 5.25% to 5.5%.But as the health of the economy continues to be hard to pin down – job growth has remained relatively stable even amid high interest rates, but inflation is still far from 2% – the Fed could still raise interest rates at future meetings. Future interest rate increases could introduce more volatility to the US economy, and potentially trigger a recession, though the Fed’s mission to bring down inflation has yet to bear dramatic consequences.The Fed chair, Jerome Powell, said last month that officials were aware of the precarity, saying they will “proceed carefully” as they decide what to do with interest rates. Powell has said the overall decline in inflation has been a “welcome development”, but it still remains high.“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” he said. More

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      Federal Reserve increases interest rates by a quarter point to 16-year high – as it happened

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      From 6h agoThe Federal Reserve is set to raise interest rates this afternoon, with an announcement coming at 2pm ET from the central bank after its most recent board meeting. Analysts expect the Fed will raise rates by a quarter point, which will bring rates up to 5% to 5.25%. This would be the central bank’s 10th interest rate increase since March 2022, when rates were at zero.The interest rate increase will come at what in hindsight may seem like an inflection point for the economy. Inflation is down, consumer spending has flattened and growth in the job market is starting to slow down, but Fed officials, especially Fed chair Jerome Powell, have been stringent on getting inflation down to their target of 2%. Inflation in March was 5%, the lowest it’s been since 2021, but still quite far from 2%.Analysts and economists will be closely watching Powell’s press conference at 2.30pm, where he will discuss the direction Fed staff see the economy going, giving hints as to whether even more interest rate hikes are to come or whether the Fed will end its rate-hike campaign.Here’s a quick summary of everything that’s happened today:
      The Federal Reserve increased interest rates by a quarter point, bringing rates up to 5% to 5.25%. Fed chair Jerome Powell said that Fed officials no longer anticipate more hikes, but will monitor economic data to see if they are necessary in coming months. The stock market dipped slightly after the Fed’s announcement.
      The debate over the debt ceiling continued today, with news that Senate majority leader Mitch McConnell will keep himself out of the specific of negotiating talks and hints that senators Joe Manchin and Kyrsten Sinema are breaking from Dems and looking to take Senate negotiations seriously.
      2024 is already gearing up: Joe Biden released his second TV ad since launching his campaign last week, while US rep. Colin Allred of Texas announced his bid to unseat Texas senator Ted Cruz. In Nevada, Jim Marchant, an election denier and staunch supporter of Donald Trump, also announced a Senate big.
      We’ll be closing this blog for today. Thanks for reading.Democratic senator Raphael Warnock from Georgia said that his two young kids were on lockdown at school because of the shooting in midtown Atlanta.“They’re there. I’m here, hoping and praying they’re safe,” he said on the Senate floor. “Thoughts and prayers are not enough.”One person has been confirmed dead and at least four injured after a gunman opened fire in a building in midtown around 12.30pm ET. Police said they are still searching for a suspect.The Washington Post just published a cheery report that the White House and lawmakers on Capitol Hill technically have just six working days together before the US government potentially defaults on its debt on 1 June.With the House and Senate in session on different days, and Biden making international trips for the G7 summit in Japan and another “Quad” meeting with Australia, Japan and India in Australia, the legislative and executive branches are scheduled to have just six more days together to figure out the debt ceiling.Of course, negotiations can take place even when a chamber is not in session, but the precariousness of negotiations and the closeness of default makes the timing a tad inconvenient.Talking about the fallout of the collapse of Silicon Valley Bank in March, Federal Reserve chair Jerome Powell said that it seems the worst of the crisis is over.“The severe period of stress, those have now all been resolved and all the depositors have been protected,” he said, adding that JPMorgan’s acquisition of First Republic bank marked the end of the worst of it all.Asked about lessons that he learned from the crisis, he noted that there needs to be stronger regulation and supervision, but declined to offer any specifics as he has tasked Fed vice chair Michael Barr with drafting specific policy proposals.“I am not aware of anybody thinking [the collapse] could happen so quickly,” Powell said. “Now that we know that was possible… it will be up to vice chair Barr to design ways to address that.”Today’s Federal Reserve interest rate hike is its second quarter-point hike in a row, after a series of half- and three-quarter point hikes over the last year. Fed chair Jerome Powell said at his press conference this afternoon that “slowing down was the right move”.“I think it’s enabled us to see more data and it will continue to do so. We have to always balance the risk of not doing enough and not getting inflation under control against the risk of maybe slowing down economic activity too much,” he said. “We thought that this rate hike, along with the meaningful change in our policy statement, was the right way to balance that.Asked about the possibility of a recession, Powell seemed optimistic that the Fed could achieve a “soft landing” – keeping interest rates high without seeing huge impacts on unemployment. He noted that even as rates have hit 5% over the last 14 months, the unemployment rate stands at 3.5%.“It’s 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,” he said.Of course, Powell noted earlier in the press conference that the full impacts of the interest rate increases have yet to be seen, acknowledging uncertainty about the full economic impact of rate hikes.Federal Reserve chair Jerome Powell emphasized the importance of raising the debt ceiling, though noted that the debt limit is “fiscal policy matters”.“It’s essential that the debt ceiling be raised in a timely way so that the US government can pay all of its bills when they’re due. Failure to do that would be unprecedented,” he said. “We’d be in uncharted territory.Powell noted that the Fed doesn’t “give advice to either side” and also noted that “no one should assume that the Fed can protect the economy from the potential short- and long-term effects” upon default.He also noted that debt limit standoff did not play a role in the Fed’s decision today to increase interest rates.Federal Reserve chair Jerome Powell is holding a press conference after the central bank announced a quarter-point interest rate increase. Powell’s tone in the press conference has changed since he last addressed the press in March. The Fed is no longer anticipating needing more rate increases, but will monitor the economy in determining future interest rate changes.While Powell is still reiterating the Fed’s inflation target of 2%, he acknowledged that the economy is “seeing the effects of our policy tightening on demand and the most interest-rate-sensitive sectors of the economy, particularly housing and investment”. In other words, the Fed sees its interest rate hikes taking effect in the slowing of the economy.“There are some signs that supply and demand in the labor market are coming back into balance,” Powell said. He added that the “economy is likely to face further headwinds from tighter credit conditions”, meaning the full effects of the interest-rate hikes have yet to be seen.Taking a question from a reporter on whether the Fed’s statement today should be taken as a hint that officials will pause rate hikes, Powell said the officials did not make a decision on a pause, but noted that they intentionally updated their stance in today’s press statement that removed a line suggesting more increases would be appropriate.“Instead, we’re saying that in determining the extent to which [more hikes are needed], the Committee will take into account certain factors,” he said. “That’s a meaningful change that we are no longer saying we anticipate [changes] and we will be driven by incoming data meeting by meeting.”The press statement that came with the Federal Reserve’s announcement of another interest rate hike is nearly identical to the one that was released at its last meeting on 22 March, with one key exception.In its 22 March release, Fed officials in the Federal Open Market Committee (FOMC) hinted that more interest rates are to come, saying: “The Committee anticipates that some additional policy firming may be appropriate” in order to bring inflation down to the target of 2%.In today’s statement, that line was cut.The rest of the statement was in line with FOMC’s March meeting statement. They reiterated their stance that “inflation remains elevated” and the jobs market has been strong, with the unemployment rate low. They emphasized that “the US banking system is sound and resilient” and that they are “highly attentive to inflation risks”.Analysts have been wondering whether this interest rate increase will be the Fed’s last, with pauses to come after as the interest rate is held steady at future meetings.Any more hints about what is next for interest rates after this most recent hike will likely be made at Fed chair Jerome Powell’s press conference at 2.30pm ET.The Federal Reserve just announced a quarter-point interest rate increase. This brings the interest rate to a 16-year high at 5% to 5.25%. The central bank has been on a year-long campaign to temper inflation, though it has had to delicately balance the potential of shaking the economy too much with stringent rate increases.Fed chair Jerome Powell will lead a closely watched press conference, where he will discuss the Fed’s view on the state of the economy.The United Auto Workers (UAW) union said in an internal memo that it is holding off on a Joe Biden endorsement due to the president’s electric vehicle policies.UAW president Shawn Fain said in the memo that union leaders met with Biden last week and discussed “our concerns with the electric vehicle transition”, according to the New York Times. The union is concerned that auto workers will suffer during the transition to EV as less workers are needed to assemble EVs.“The EV transition is at serious risk of becoming a race to the bottom,” the memo reads, referring to electric vehicles. “We want to see national leadership have our back on this before we make any commitments.”The union has 400,000 members across the country, though members are primarily in auto-industry heavyweight Michigan, a key election battleground state.The FBI arrested a man in Florida on Tuesday for his involvement in the January 6th Capitol riots, specifically for setting off an “explosive device” in the US Capitol tunnel that leads into the building. Daniel Ball, 38, was first arrested last week by the Citrus County Sheriff’s Office for assaulting seven people, including law enforcement officers, in Florida. Ball’s probation officer, upon being shown photos and videos of the Capitol riot, identified Ball as the person throwing an explosive device in the tunnel, where law enforcement was blocking rioters.Ball faces multiple charges related to the riot, including assaulting police officers and entering a restricted area with a deadly weapon.The justice department said in March that at least 1,000 people have been arrested on charges related to the riots, with 518 pleading guilty to federal crimes so far.Election denier Jim Marchant announced that he will be running for US Senate, challenging Democrat incumbent senator Jacky Rosen for the seat she won last year.During his announcement speech on Tuesday, Marchant said that he is running to “protect Nevadans from the overbearing government, from Silicon Valley, from big media, from labor unions, from the radical gender-change advocates,” the Washington Post reported.His election campaign was acknowledged by Rosen on Twitter, who replied to Marchant’s announcement:
      Nevadans deserve a Senator who will fight for them, not a MAGA election denier who opposes abortion rights even in cases of rape and incest…
      While far-right politicians like Jim Marchant spread baseless conspiracy theories, I’ve always focused on solving problems for Nevadans.
      Marchant has described himself as a “MAGA conservative”, the Post reports, and is an avid supporter of Donald Trump. More

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      To prevent more bank runs, the Fed should pause rate hikes | Robert Reich

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      The global financial system is facing a crisis of confidence. Which makes this week’s meeting of America’s central bankers critically important.None of the 12 members of the Federal Reserve Board’s Open Market Committee were elected to their posts. The vast majority of Americans don’t even know their names, except perhaps for the chairman, Jerome Powell.But as they try to decide whether to raise interest rates and, if so, by how much, America’s central bankers are deciding on the fate of the American – and much of the world’s – economy.And they’re sitting on the horns of a dilemma.On one horn is their fear that inflation will become entrenched in the economy, requiring more interest-rate hikes.On the other horn is their fear that if they continue to raise interest rates, smaller banks won’t have enough capital to meet their depositors’ needs.Higher rates could imperil more banks, especially those that used depositors’ money to purchase long-term bonds when interest rates were lower, as did Silicon Valley Bank.That means that raising interest rates could cause more runs on more banks. The financial system is already shaky.The two objectives – fighting inflation by raising rates, and avoiding a bank run – are in direct conflict. As the old song goes: “Something’s got to give.” What will it be?The sensible thing would be for the Fed to pause rate hikes long enough to let the financial system calm down. Besides, inflation is receding, albeit slowly. So there’s no reason to risk more financial tumult.But will the Fed see it that way?The Fed’s goal last week was to stabilize the banks enough so the Fed could raise interest rates this week without prompting more bank runs.The Fed bailed out uninsured depositors at two banks and signaled it would bail out others – in effect, expanding federal deposit insurance to cover every depositor at every bank.On top of this, 11 of America’s biggest banks agreed to contribute a total of $30bn to prop up First Republic, another smaller bank caught in the turmoil.This “show of support” (as it was billed, without irony) elicited a cheer from Jerome Powell and the treasury secretary, Janet Yellen, who called it “most welcome”. (Of course it was welcome. They probably organized it.)But investors and depositors are still worried.Other regional banks across the US have done just what Silicon Valley Bank did – buying long-dated bonds whose values have dropped as interest rates have risen. According to one study, as many as 190 more lenders could fail.On Monday, First Republic remained imperiled notwithstanding last week’s $30bn cash infusion. Trading in its shares on the New York Stock Exchange was automatically halted several times to prevent a freefall.Multiple recent downgrades of banks by ratings agencies like Moody’s haven’t helped.Reportedly, the Biden administration is even in talks with Warren Buffett, the chairman of Berkshire Hathaway, who invested billions to bolster Goldman Sachs during the 2008 financial crisis.Meanwhile, on the other side of the Atlantic, the European Central Bank last week raised interest rates by half a percentage point, asserting its commitment to fighting inflation.Yet the higher interest rates, combined with the failure of the two smaller American banks, have shaken banks in Europe.Just hours before the European Central Bank’s announcement, the banking giant Credit Suisse got a $54bn lifeline from Switzerland’s central bank.Yet not even this was enough to restore confidence. After a several days of negotiations involving regulators in Switzerland, the US and the UK, Switzerland’s biggest bank, UBS, agreed over the weekend to buy Credit Suisse in an emergency rescue deal.Finance ultimately depends on confidence – confidence that banks are sound and confidence that prices are under control.But ever since the near meltdown of Wall Street in 2008, followed by the milquetoast Dodd-Frank regulation of 2010 and the awful 2018 law exempting smaller banks, confidence in America’s banks has been shaky.November’s revelation that the crypto giant FTX was merely a house of cards has contributed to the fears. Where were the regulators?The revelation that Silicon Valley Bank didn’t have enough capital to pay its depositors added to the anxieties. Where were the regulators?Credit Suisse had been battered by years of mistakes and controversies. It is now on its third CEO in three years.Swiss banking regulations are notoriously lax, but American bankers have also pushed Europeans to relax their financial regulations, setting off a race to the bottom where the only winners are the bankers. As Lloyd Blankfein, then CEO of Goldman Sachs, warned Europeans: “Operations can be moved globally and capital can be accessed globally.”One advantage of being a bank (whether headquartered in the US or Switzerland) is that you get bailed out when you make dumb bets. Another is you can choose where around the world to make dumb bets.Which is why central banks and bank regulators around the world must not only pause interest rate hikes. They must also join together to set stricter bank regulations, to ensure that instead of a race to the bottom, it’s a race to protect the public.Banking is a confidence game. If the public loses confidence in banks, the financial system can’t function.In the panic of 1907, when major New York banks were heading toward bankruptcy, the secretary of the treasury, George B Cortelyou, deposited $35m of federal money in the banks. It was one of the earliest bank bailouts, designed to restore confidence.But it wasn’t enough. JP Morgan (the man who founded the bank) organized the nation’s leading financiers to devise a private bailout of the banks, analogous to last week’s $30bn deal.Confidence was restored, but the underlying weaknesses of the financial system remained. Those weaknesses finally became painfully and irrevocably apparent in the great crash of 1929.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California, Berkeley, and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com More

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      Elizabeth Warren says Fed chair ‘failed’ and calls for inquiry into bank collapse

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      Political fall-out in the US from the collapse of Silicon Valley Bank continued on Sunday when leftwing Senator Elizabeth Warren hit the morning talk shows and repeatedly called for an independent investigation into US bank failures and strongly criticised Federal Reserve finance officials.The progressive Democrat from Massachusetts, who has positioned herself as a consumer protection advocate and trenchant critic of the US banking system, told CBS’s Face the Nation that she did not have faith in San Francisco Federal Reserve president Mary Daly or Fed chairman Jerome Powell.“We need accountability for our regulators who clearly fell down on the job,” Warren said, adding that it “starts with” Federal Reserve Chairman Jerome Powell, who she said “was a dangerous man to have in this position”.“Remember the Federal Reserve Bank and Jerome Powell are ultimately responsible for the oversight and supervision of these banks. And they have made clear that they think their job is to lighten regulations on these banks. We’ve now seen the consequences,” Warren added.Asked if she had “faith” in Daly, under whose jurisdiction SVB fell, Warren said flatly: “No, I do not.”In the wake of the collapse of Silicon Valley and Signature banks, the one-time presidential candidate has in recent days launched a broad offensive on politicians on both the left and the right who supported Trump-era deregulation of smaller US banks.Warren sent a letter to the inspectors general of the US treasury department, the Federal Deposit Insurance Corp (FDIC) and the Federal Reserve, urging regulators to examine the recent management and oversight of the banks which collapsed earlier this month.Last week, Warren unveiled legislation that would repeal that law and raise “stress-tests” on “too big to fail” banks from $50bn to $250bn. On Sunday, Warren also argued for raising federal guarantees on consumers deposits above the current $250,000.“Is it $2m? Is it $5m? Is it $10m? Small businesses need to be able to count on getting their money to make payroll, to pay the utility bills,” Warren said. “These are not folks who can investigate the safety and soundness of their individual banks. That’s the job the regulators are supposed to do.”Warren broadened out her criticism on NBC’s Meet the Press, calling for a stop to interest rates rises when central bankers meet next week and claiming that Powell was pushed by Congress to support deregulation in 2018.“Look, my views on Jay Powell are well-known at this point. He has had two jobs. One is to deal with monetary policy. One is to deal with regulation. He has failed at both,”, she said.US prosecutors are investigating the SVB collapse, a source familiar with the matter told Reuters last week, after the $212bn bank collapsed when depositors rushed to withdraw their money.A blame-game erupted, with some arguing that the bank’s apparent lack of adequate risk management, combined with deregulation and a sharp interest rate rises, had created an accident waiting to happen.US banks have since lost around half a trillion dollars in value. On Friday, President Joe Biden promised that bank customers deposits are safe and the crisis had calmed down.In Warren’s letter published Sunday, the senator also called for executives of the failed banks to be held to account.“The bank’s executives, who took unnecessary risks or failed to hedge against entirely foreseeable threats, must be held accountable for these failures,” Warren said. “But this mismanagement was allowed to occur because of a series of failures by lawmakers and regulators.” More

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      Silicon Valley Bank said it was too small to need regulation. Now it’s ‘too big to fail’ | Rebecca Burns and Julia Rock

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      Silicon Valley Bank was supposedly the type of institution that would never need a government bailout – right until its backers spent three days on social media demanding one, and then promptly receiving it, after the bank’s spectacular collapse last week.Eight years ago, when the bank’s CEO, Greg Becker, personally pressed Congress to exempt SVB from post-2008 financial reform rules, he cited its “low risk profile” and role supporting “job-creating companies in the innovation economy”. Those companies include crypto outfits and venture capital firms typically opposed to the kind of government intervention they benefited from on Sunday, when regulators moved to guarantee SVB customers immediate access to their largely uninsured deposits.Fifteen years after the global financial crisis, the logic of “too big to fail” still prevails. The financial hardship of student debtors and underwater homeowners is a private problem – but losses sustained by titans of tech and finance are a matter of urgent public interest. Moral hazard for thee, but not for me.What’s more, SVB’s meteoric rise and fall serves as a reminder that many of the guardrails erected after the last crisis have since been dismantled – at the behest of banks like SVB, and with the help of lawmakers from both parties beholden to entrenched finance and tech lobbies.Before becoming the second-largest bank to fail in US history, SVB had transformed itself into a formidable influence machine – both in northern California, where it became the go-to lender for startups, and on Capitol Hill, where it spent close to a million dollars in a five-year period lobbying for the deregulatory policies that ultimately created the conditions for its downfall.“There are many ways to describe us,” SVB boasts on its website. “‘Bank’ is just one.”Indeed, SVB’s management appears to have neglected the basics of actual banking – the bank had no chief risk officer for most of last year, and failed to hedge its bets on interest rates, which ultimately played a key role in the bank’s downfall. In the meantime, the bank’s deposits ballooned from less than $50bn in 2019 to nearly $200bn in 2021.From the moment that Congress passed banking reforms through the 2010 Dodd-Frank law, SVB lobbied to defang the same rules that would probably have allowed regulators to spot trouble sooner. On many occasions, lawmakers and regulators from both parties bowed to the bank’s demands.One of SVB’s first targets was a key Dodd-Frank reform aimed at preventing federally insured banks from using deposits for risky investments. In 2012, SVB petitioned the Obama administration to exempt venture capital from the so-called Volcker Rule, which prevented banks from investing in or sponsoring private equity or hedge funds.​​“Venture investments are not the type of high-risk, ‘casino-like’ activities Congress designed the Volcker Rule to eliminate,” the bank argued to regulators. “Venture capital investments fund the high-growth startup companies that will drive innovation, create jobs, promote our economic growth, and help the United States compete in the global marketplace.”After the Obama administration finalized the Volcker Rule in 2014 without a venture capital carveout, SVB sought its own exemption that would allow it to maintain direct investments in venture capital funds, in addition to providing traditional banking services for roughly half of all venture-backed companies.One such firm was Ribbit Capital, a key investor in the collapsed cryptocurrency exchange FTX, which lauded SVB’s tech-friendly ethos in a 2015 New York Times profile. “You can go to a big bank, but you have to teach them how you are doing your investment,” Ribbit’s founder told the Times. At SBV, “these guys breathe, eat and drink this Kool-Aid every day.”In the transition between the Obama and Trump administrations, SVB got what it wanted: a string of deregulation, based on the idea that the bank posed no threat to the financial system.In 2015, Becker, the CEO, submitted testimony to Congress arguing that SVB, “like our mid-size peers, does not present systemic risks” – and therefore should not be subject to the more stringent regulations, stress tests and capital requirements required at the time for banks with $50bn or more in assets.Two years later, SVB was one of just a handful of banks to receive a five-year exemption from the Volcker Rule, allowing it to maintain its investments in high-risk venture capital funds.The deregulatory drumbeat grew louder in Congress, and in 2018 lawmakers passed legislation increasing to $250bn the threshold at which banks receive enhanced supervision – again, based on the argument that smaller banks would never prove “too big to fail”.The Federal Reserve chairman, Jerome Powell, supported the deregulatory push. Under Powell, a former private equity executive, the Fed in 2019 implemented a so-called “tailoring rule”, further exempting mid-size banks from liquidity requirements and stress tests.Even then, the banks’ lobbying groups continued to push a blanket exemption to the Volcker Rule for venture capital funds, which Powell advocated for and banking regulators granted in 2020.Then, in 2021, SVB won the Federal Reserve’s signoff on its $900m acquisition of Boston Private Bank and Trust, on the grounds that the post-merger bank would not “pose significant risk to the financial system in the event of financial distress”.“SVB Group’s management has the experience and resources to ensure that the combined organization would operate in a safe and sound manner,” Federal Reserve officials wrote.Since the financial crisis, SVB has reported spending more than $2m on federal lobbying efforts, while the bank’s political action committee and executives have made nearly $650,000 in campaign contributions, the bulk to Democrats.Among the highlights of this influence campaign was a 2016 fundraiser for the Democratic senator Mark Warner of Virginia, hosted by Greg Becker in his Menlo Park home. A few months later, Warner and three other Democratic senators wrote to regulators arguing for weaker capital rules on regional banks.Warner went on to become one of 50 congressional Democrats who joined with Republicans to pass the 2018 Dodd-Frank rollback. When asked this week about his vote, Warner said: “I think it put in place an appropriate level of regulation on mid-sized banks … these mid-sized banks needed some regulatory relief.”In the wake of SVB’s collapse, Republicans have not renounced their votes for deregulation – nor have most of the Democrats who joined them, even as Biden is promising a crackdown.Warner took to ABC’s This Week on Sunday to defend his vote; Senator Jeanne Shaheen, the Democrat from New Hampshire, told NBC on Tuesday that “all the regulation in the world isn’t going to fix bad management practices”. Senator Jon Tester, the Democrat from Montana and a co-sponsor of the 2018 deregulatory law, even held a fundraiser in Silicon Valley the day after the SVB bailout was announced.Unless they reverse course, the Silicon Valley Bank bailout could prove politically disastrous for Democrats, who just oversaw the rescue of coastal elites in a moment of ongoing economic pain for everyone else.The good news is that there are straightforward steps that Democrats can take to start fixing things.For example: Senator Elizabeth Warren’s legislation to repeal Trump-era financial deregulation.Democrats can also revisit the areas where Dodd-Frank fell short, including stronger minimum capital requirements, and consider longstanding proposals to disincentivize risky behavior by banks by reforming bankers’ pay. And they should demand that Powell recuse himself from the Federal Reserve investigation of recent bank failures and take a hard look at whether his disastrous record merits outright dismissal under the Federal Reserve Act, which allows the president to fire a central bank chair “for cause”.And yet even now – amid the wreckage of deregulation – these and other measures to better regulate the banks may still be nonstarters among both the Republicans and corporate Democrats who voted for the regulatory rollbacks and have so far shown little sign of repentance.The words of the Illinois Democratic senator Dick Durbin still ring true, 14 years after the financial crisis.“The banks – hard to believe in a time when we’re facing a banking crisis that many of the banks created – are still the most powerful lobby on Capitol Hill,” he said back in 2009. “And they frankly own the place.”If that remains true today, the possibility of change looks grim.
      Rebecca Burns and Julia Rock are reporters for the Lever, an independent investigative news outlet, where a version of this article also appeared More