The Federal Reserve Raised the Overnight Rate 0.25% to a Range of 4.75% to 5%… The Federal Open Market Committee (FOMC) removed the language about additional rate hikes from the monetary policy statement and added in language about “additional policy firming” and raised rates for the 9th time.
What it means— Was it disco? Break dancing? Whatever sort of dance Chair Powell was doing, he kept it up for the entire press conference after the Fed’s monetary policy meeting. And who can blame him? Powell had to acknowledge the banking crisis and slower economic data in recent weeks, while assuring depositors that the Fed has “got this,” even as it keeps up the inflation fight.
Powell did give a (negative) shout-out to the management at Silicon Valley Bank, probably as a way to make that situation appear unique and not systemic. He also acknowledged that tightening lending conditions, particularly at smaller banks, which have outsized exposure in community lending like commercial real estate, likely will weigh on the economy. Powell finished up by reiterating that the central bank will continue to shrink its balance sheet and that people forecasting a rate cut this year are wrong.
The central bankers seeing new economic data will likely change their plans. Falling inflation numbers due to lower shelter costs will help. But that doesn’t mean they have to cut rates. Instead, they could ease up on quantitative tightening instead of ending it or cut their interest payments to banks, either of which would put more cash in the system. There’s always another way to skin the financial cat.
Chair Powell made a de facto nod to a coming policy change. The monetary policy statement was changed from the committee “anticipating additional rate increases” in February to “anticipating additional policy firming” last week. Less lending at regional banks will do the Fed’s work.
Treasury Secretary Yellen Tells Senate She is not Contemplating an Unlimited Deposit Guarantee… Appearing before a Senate committee to discuss Biden’s budget, a few senators took the opportunity to press Yellen about the Treasury Department response to the banking issues.
What it means— Think of it as a political lie, or at least a misdirection. To say she’s not considering an unlimited deposit guarantee is not the same as saying it will or won’t happen when the next bank goes under, but it’s also idiotic. Of course, she’s considering it, as is everyone else in finance and in the government, along with everyday consumers and business owners looking at their bank statements. We would be willfully blind and irresponsible not to consider it. But her words, which came after Powell’s press conference, sent the markets down by more than 1.5% at the end of the day.
As we’ve discussed before, it would be a heavy lift to explain that the government won’t bailout more Main Street banks and depositors after rescuing startups, venture capital funds, and wealthy people in Silicon Valley Bank. Especially when the problem banks are suffering from self-inflicted problems.
A Consortium of Banks Led by JPMorgan Chase Deposited $30 Billion at First Republic Bank (NYSE: FRC)… A virtual who’s who among big banks gave First Republic Bank a vote of confidence by sending billions in uninsured deposits to the fragile financial institution.
What it means— Think of it as a poker game. If you can’t identify the mark at the table, then it’s you. This show of confidence was put together at the behest of Treasury Secretary Yellen, Fed Chair Powell, FDIC Chair Gruenberg, and JPMorgan Chase CEO Jamie Dimon. There is no way that any of these people would agree to put bank capital at risk to save FRC, which is why instead of investing in FRC through stock or bonds, they moved customer deposits to FRC.
If things go bad, the “good guy” banks will be backstopped by the Fed and Treasury and will lose nothing. But that doesn’t mean there won’t be losses. When we guarantee uninsured deposits and allow banks to take loans from the Fed at cost even when they are underwater, we’re spreading the pain to consumers through higher insurance fees down the road and more manipulated interest rates. Consumers and taxpayers always pay.
Existing Home Sales Jump 14.5% in February but Were Down 22.6% Over Last Year… The increase was driven by single-family home sales, which expanded by 15.3% last month.
What it means— There was a brief time in early February when mortgage rates dropped near 6%, and home buyers pounced. The rush of activity has since subsided as rates walked higher, but it shows that plenty of would-be home buyers are out there, just waiting for rates to fall.
The median sale price eased to $363,000 last month, down 0.2% from the same time last year, marking the first annual decline in more than 10 years (131 months). Inventory remained at just under one million units. With the faster sales pace in February and steady inventory, the supply dipped to 2.6 months’ worth. Even in this easing market, the average home stayed on the market just 34 days.
February New Home Sales Climb 1.1% Over January, Are off 19% From Last Year… The annualized sales rate of 640,000 units was slightly below the estimate of 650,000 but still represented the third consecutive monthly gain.
What it means— Keep going back to price. The median sale price of a new home rose last month, up from $427,500 in January to $438,200 in February. This shows that builders aren’t backing off their prices to move inventory, which is sitting at 8.2 months’ supply at the current sales rate. Just as with existing home sales, new home sales likely got a boost from lower mortgage rates early in February. With tight supply and stable prices, we’ll have to see if buyers capitulate and come back to the market this spring.
Greenville, South Carolina, Sheriff’s Deputies Suspended for Shooting Each Other… After finishing a training exercise that included firing blank rounds, one deputy fired at another in jest. The intended target responded by firing back, forgetting that he’d already switched back to his service weapon with live rounds. The live shot hit the first deputy in the foot. He was taken to hospital, treated, and released. Both deputies were suspended for ten days and are required to complete remedial training. The sheriff’s department also charged a supervisor with failure to monitor the handling of firearms. The supervisor was suspended for three days and also required to complete remedial training. Let’s hope none of them bring their weapons to remedial training.
Data supplied by HS Dent Research
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