A flawed model, bad judgment, insufficient diversity of thinking and a lapse in risk management. This time the result was inflation. Every time the Federal Reserve has maintained easy monetary policy too long and then raised rates abruptly, the consequences have been jarring. This time is no different. Even when the economy managed to ...

It was a narrow bill justified by national-security concerns, we were told of the CHIPS Act. Government was going to do what the markets couldn't, or wouldn't, and bring semiconductor manufacturing back home. After passage, the newly empowered Democratic commerce secretary Gina Raimondo began using her authority under the law to talk about ...

As a consequence of its COVID crisis asset purchase program and the subsequent increases in interest rates needed to fight inflation, the Fed is now losing billions of dollars a week. The Fed's most recent H.4.1 statement shows that the Fed has borrowed $41 billion to pay its cash losses, but these borrowings do not count as U.S. Treasury ...

NEW YORK – If the US Federal Reserve raises its policy interest rate by as much as is necessary to rein in inflation, it will most likely further depress the market value of the long-duration securities parked on many banks' balance sheets. So be it. When a market liquidity and/or funding liquidity crisis occurs at a moment when inflation ...

CAMBRIDGE – The half-century since the official demise of the Bretton Woods system of fixed exchange rates has shown the benefits of what replaced it. While some may feel nostalgic for the postwar monetary system, its collapse was inevitable, and what looked like failure has given rise to a remarkably resilient regime. Fifty years ago this ...

Russia's assault on Ukraine has become a brutal war of attrition – militarily but also economically and socially. Russian President Vladimir Putin recognizes the nature of this struggle. Ukraine, having lost one-third of its GDP, with one-third of its population already displaced and the lights flickering on and off, could win battles and ...

The United States has a lot to give — and a lot to gain. Russia's growing friendship with China is bad news for the U.S. and its allies. The West must secure its critical supply chains to combat this potentially dangerous relationship. Dissatisfied with the U.S.-led world order, Russia and China are teaming up to challenge Western hegemony ...

The Federal Reserve will decide whether and by how much to raise interest rates this week at a moment when its path ahead is newly fraught. The Federal Reserve entered 2023 focused on a central goal: wrestling down the rapid inflation that has plagued American consumers since 2021. But over the past two weeks, that job has become a lot ...

A firmer anchor is required to deal with the policy trilemma over the US economy. Many commentators have rushed to embrace the view that Federal Reserve policy is now in a new world following the sudden failure of three US banks and the deployment of “bazooka measures” to safeguard the financial system. But in reality, the developments ...

The cost of stopping inflation would have been lower if the Fed had faced the problem earlier. History will give a full accounting of the grave errors committed in recent years in economic policy. A central lesson is already clear: Nothing is as expensive as free money. The costs of the Federal Reserve’s zero-interest policy are multiplying: ...

WASHINGTON – The bank was using an incorrect model as it assessed its own risks amid rising interest rates, and spent much of 2022 under a supervisory review. Silicon Valley Bank's risky practices were on the Federal Reserve's radar for more than a year – an awareness that proved insufficient to stop the bank's demise. The Fed repeatedly ...

For businesses and business sectors to succeed, they need "cheap, easy access to capital." Those are the words of Manhattan Institute senior fellow Allison Schrager in a City Journal piece written about Silicon Valley's ascent. Schrager asserts that the "easy money" flowing into the Valley ceased with the Federal Reserve's rate hikes, at ...

Responding to bank failures in 1972 and 1984, the Federal Reserve pursued two very different paths, with very different consequences for inflation. To brake? Or to break? For central banks throughout history, there has been a recurrent tension between price stability and financial stability. Raising short-term interest rates acts as a brake ...

Not 2008, But More Pernicious in Some Ways. As the United States experienced the second and third largest bank failures in history during the same week, Treasury Secretary Janet Yellen assured the Senate Banking Committee on Thursday that "our banking system is sound". After lines formed in front of Silicon Valley Bank and First Republic Bank ...

The high price of years of low interest rates. To recap: On March 8, Silicon Valley Bank of Santa Clara, Calif., announced that its balance sheet was weak. The bank held around $175 billion in deposits. They needed to raise capital, but its management had parked too much money in long-term government bonds. At the time of purchase, in ...

We should be thankful that the past two weeks of banking stress did not happen sooner. The Fed’s expansive actions to prevent the Silicon Valley Bank collapse from becoming systemic, followed by the Suisse National Bank’s massive lifeline to troubled Credit Suisse, left little doubt this week that financial leaders are determined to act ...

It was caused by spending on social programs and diverting infrastructure outlays to schemes to control climate. So the weekend is coming up, and my best advice to anyone interested in a potential banking crisis is to keep an eye on the news. We learned today from one of the Federal Reserve statistical sheets, called H.4.1, that the Fed ...

Voters and lawmakers imposed price controls that leave residents more vulnerable to disasters. The words “California” and “crisis” seem to go together as the state bounds from one intractable problem to another. The recent spate of flood-level storms in Northern California brought attention to the Golden State’s ailing levees. As an ...

We have spent the past 15 years focused on whether some banks are too big to fail. Today we need to focus on the small and medium-size institutions that account for almost a third of all bank lending and are essential to many communities and industries. It is a perilous moment for them. What happens next could determine not only their survival ...

Confirm Elizabeth Allen, whose office produced a brilliant video called ‘To the People of Russia.’ When Xi Jinping visits Moscow next week, Vladimir Putin will doubtless ask for weapons to replenish his badly depleted arsenal. Whatever scheme they concoct will further endanger U.S. national security and that of our allies. A broader ...

Since the early days of Henry Ford, Michigan was the proud symbol of America's industrial might. But then, starting in the 1970s, things went south – in part because of the might of the unions that ran the state's political machine. That's when Michigan transitioned into the sad symbol of closed factories: the American "Rust Belt." ...

Are CEOs so busy doing good that they have taken their eye off the ball? When Silicon Valley Bank failed, it quickly emerged that management had messed up. Most importantly, the firm had not hedged against the rapid interest rate hikes initiated by Federal Reserve Chairman Jerome Powell to fight inflation. As a result, it sustained enormous ...

It’s time for Americans to get the bit between their teeth and, via a constitutional convention, rein in Washington’s addiction to fiscal deficits. President Biden's budget proposal for 2024 makes it clear that the U.S. needs a budget straitjacket sooner rather than later. A budget deficit can be reined in by either reducing expenditures ...

The Treasury Secretary’s claim that all is well are belied by the reality at First Republic Bank. Janet Yellen offered more assurances Thursday that U.S. banks are safe and sound—and we doubt even the Treasury Secretary believes it. Certainly no one else does. The biggest American banks had to commit $30 billion on Thursday to rescue ...

A Federal Reserve rate hike next week suddenly looks more likely, and odds even slightly favor another in May, after the banking crisis took a surprising turn on Thursday and the S&P 500 rallied strongly. The Fed and other regulators pulled out multiple bazookas last weekend to stem an incipient banking crisis, but came up short.
Worry ...

The U.S. municipal-bond market is going down a risky road. The debate over ESG investing has so far focused on publicly listed corporate equities, but participants in other capital markets have also expressed interest in socially responsible asset management. The U.S. municipal-bond market, for one, has seen a lot of ESG activity. ...

Silicon Valley Bank's failure, and the ongoing turmoil in the banking system, provide a deep lesson. Our current bank regulation system, vastly expanded under the Dodd-Frank Act after the 2008 financial crisis, is fundamentally broken. The cause of Silicon Valley Bank's failure was simple: The bank got its money almost entirely from large ...

Economists expected inflation and rates to stay low for years. With Silicon Valley Bank’s implosion, Wall Street is starting to reckon with how wrong that prediction has proved. If a number defined the 2010s, it was 2 percent. Inflation, annual economic growth, and interest rates at their highest all hovered around that level – so ...

Last weekend, U.S. policymakers went all in on bailing out two medium-size banks: Silicon Valley Bank and Signature Bank. And yes, they were bailouts. I wish the Biden administration weren't trying to claim otherwise. Yes, stockholders were cleaned out. But legally, deposits are insured only up to $250,000; by choosing to make all ...

Next week, Moderna CEO Stéphane Bancel will testify before the Senate Health, Education, Labor, and Pensions Committee on the price of his company's COVID-19 vaccine. He'll face an unfriendly audience. Committee Chairman Sen. Bernie Sanders, I-Vt., claims that companies like Moderna profited off COVID at Americans' expense. He's eager to "rein ...

Trust in public health has been shattered–half of America has lost faith in the scientific community altogether. Apparently blind to that loss of trust and the urgent need for transparency, our current government is doubling down on World Health Organization (WHO) decrees that directly circumvent public oversight. The WHO has drafted a new ...

When you’re feeling stuck, focusing on the things you hate can help. How are your New Year's resolutions going? Perhaps that's a sore subject. Resolutions usually fail, sometimes even in the first few months of the year (one study found that half dissolved after three months), so odds are good that yours have too. If so, don't feel too ...

All of a sudden, we are hearing more chatter about deflation. Yes, that's right: deflation. The story line is that the regional banks will respond to the SVB debacle by lending less to lots of middle market businesses, especially if depositors move their funds to the money center banks or to the money markets. The result will be a credit ...

We’ve gone too far with deregulation and ‘too big to fail,’ and the Fed can pause its rate hikes. Silicon Valley Bank certainly got everyone’s attention in a hurry. Outside Silicon Valley—which, broadly defined, extends beyond Northern California—few Americans had ever heard of SVB. Fewer still knew that it was running into trouble from ...

Shift in outlook comes ahead of next week’s central bank meeting; market bets on rate cuts as early as this summer. More investors anticipate that the Federal Reserve’s rate increase cycle could be over due to broader financial turmoil from the failure of two U.S. regional banks in the past week. Investors in interest-rate futures markets ...

Lawmakers have every right to defund ideologically captured disciplines in public universities. For decades, conservatives have lamented the rise of activist academic departments that push left-wing ideology in the guise of dispassionate scholarship. In 1989, Claremont McKenna scholar Harry Jaffa described the process of his university ...

The Fed has more reason not to hike its key interest rate next week, if the sudden banking crisis weren't enough. Retail sales slipped a bit more than forecast and the producer price index unexpectedly fell in February. The reports casts some doubt on the notion that the economy and inflation have a full head of steam early in 2023. After ...

Excerpt from Yardeni Research Morning Briefing (March 8, 2023) The persistently strong demand for labor has surprised everyone from soft landers to hard landers. Fed officials are flummoxed. They've raised the federal fund rate by almost 500bps since early last year to cool labor demand and wage inflation. Yet the labor market remains hot. ...

Even in a period of relative economic calm, a bank less than one-tenth the size of JPMorgan Chase was not allowed to fail without some special protection for one group of creditors — those large, uninsured depositors. The repercussions of the Silicon Valley Bank failure are still rippling through the financial system. While much remains to ...

The Fed's worst nightmare is coming true. It still needs to fight inflation, but higher rates are exposing vulnerabilities in the financial sector and threatening stability. How well the economy weathers any financial shock will depend on how resilient households are. And data from the NY Fed shows they are getting weaker after a few years ...

Federal budget hawks are in a pickle. Having predicted nine out of the last zero debt crises, those of us worried about the trajectory of US government spending have the inevitable task of convincing the public that this time is different. It's going to be a tough sell, but we have to try. Uncle Sam's spending binge is unsustainable. It ...

A week ago, traders were pricing in a Fed rate hike of 50 basis points at its March 22 meeting. Now, after all the bank failure fears, I have no idea what the Fed will do. But whatever the Fed does, I bet it spews more chaos than calm. Treasury Secretary Janet Yellen — government finance’s version of Anthony Fauci — loudly proclaimed ...

Whom the gods would destroy, the old saying goes, they first drive mad. Which means they must hate elite educational institutions a lot. Take what happened at Stanford Law School last week. Judge Kyle Duncan of the US Court of Appeals for the Fifth Circuit went to speak there at the invitation of its Federalist Society chapter.He was to ...

The new Republican House Financial Services Committee chairman needs to question regional Fed bank heads. The first step for the Biden administration, though, is to sell SVB to prevent contagion. The first thing I want to say is that the best action the Biden administration can take to calm markets and prevent contagion is to sell the ...

I've been doing an AMA on social media and getting a lot of great questions I've been sharing here. Here are some thoughts I had in response to a question about Silicon Valley Bank. I think that it is a very classic event in the very classic bubble-bursting part of the short-term debt cycle (which lasts about seven years, give or take ...

SVB isn’t that unusual. Most depositor money is at work someplace else, so the possibility of a run is ever present. Like many tech firms, my company and some of the startups we’ve created spent the weekend worrying as the fate of Silicon Valley Bank and its depositors hung in the balance. By Sunday the Federal Deposit Insurance Corp. ...

Consumer prices rise 6% from year earlier, smallest annual gain since September 2021. Inflation eased in February but remained stubbornly high, presenting a challenge for the Federal Reserve as it confronts how to slow the economy with higher interest rates at the same time it moves to stem banking problems. The consumer-price index, a ...

Rising interest rates and the end of easy money threaten the tech mecca’s current model. At economic development conferences over the last 20 years, the conversation frequently turned to the same question: How can we create our own Silicon Valley? And many countries and cities claimed that they had. One thinks of Silicon Glen (Scotland), ...

At least part of what went wrong at SVB is that the bank invested too much in long-term Treasury and mortgage bonds. These are normally super-safe investments, in the sense that they won't default. But when interest rates rise, they lose their value temporarily. At SVB, that situation scared depositors, who pulled their money out en masse, ...

The consumer price index showed firm price pressures in February, as the annual CPI inflation rate matched expectations of 6% and the core CPI came in hotter than expected. While persistently high inflation might support the case for a rate hike next week, Fed officials may still punt as they try to shore up confidence in the banking sector. ...