Inflation Is Still High. What’s Driving It Has Changed​​​

America is now two years into high inflation — and while the nation appears to be past the worst phase of the biggest spike in price increases in half a century, the road back to normal is a long and uncertain one, the New York Times reported. The pop in prices over the 24 months that ended in March eroded wage gains, burdened consumers and spurred a Federal Reserve response that has the potential to cause a recession. What generated the painful inflation, and what comes next? A look through the data reveals a situation that arose from pandemic disruptions and the government’s response, was worsened by the war in Ukraine and is now cooling as supply problems clear up and the economy slows. But it also illustrates that U.S. inflation today is drastically different from the price increases that first appeared in 2021, driven by stubborn price increases for services like airfare and child care instead of by the cost of goods. Fresh wage and price data set for release on Friday are expected to show continued evidence of slow and steady moderation in March. Now Fed officials must judge whether the cool-down is happening fast enough to assure them that inflation will promptly return to normal — a focus of the central bank when it releases its next interest rate decision on Wednesday. ​​​Read more.
 

Analysis: Regional U.S. Banks Claimed Easier Capital Rules Would Turbocharge Loans​​​

Back in 2019, three of the largest U.S. regional banks successfully lobbied regulators to ease their capital requirements by excluding paper losses on their investment portfolios. Doing so, they claimed, would allow them to increase lending — thus supporting the American economy — and better manage interest rate risk, the Financial Times reported. As regulators consider rolling back those changes following the collapse of Silicon Valley Bank, a Financial Times analysis shows that lending at the three banks — PNC, US Bank and Capital One, as well as lenders they have since acquired — in fact rose more slowly than at rival banks. Loans made by the trio of banks collectively rose just 6 percent in the three years from 2019 to 2022, less than half the 15 percent jump industry-wide. JPMorgan Chase, which was not exempted from the rules, increased lending by 18 percent over the same period. Yet unrealized losses over the same period soared nearly 1,400 percent to $40 billion at the three banks after the Federal Reserve rapidly increased interest rates. The Fed is considering whether to reverse the 2019 change that allowed large regional lenders to fully exclude any market losses in their bond portfolios from their capital calculations. Critics argue that the regulatory relief enabled them to artificially bolster an important gauge of financial health, pointing to the fact that SVB failed in part because of such losses. Lenders are pushing back, saying that reversing the rule could intensify the current bout of banking turmoil. In an echo of their 2019 entreaties, they also argue that doing so could limit their ability to make loans. ​​​Read more.
 

Commentary: The Surprising Risk that Spurred a $142 Billion Bank Run*​​​

Tony Cookson didn’t know much about Silicon Valley Bank before Silicon Valley Bank collapsed. When the economist became curious about the bank, he already knew what happened. He wanted to know how it happened and whether it’s going to happen again, according to a commentary in the Wall Street Journal. So he set out to answer what might be the most intriguing question about the bank run: Was it fueled by social media? Dr. Cookson and a team of collaborators from around the world collected millions of tweets to understand the swift movement of billions of dollars. Their buzzy new working paper presents compelling evidence that social media sites like Twitter didn’t simply expose the risks of a bank run; it exacerbated them. Ironically, the technology of Silicon Valley really did contribute to the demise of a bank in Silicon Valley. The forces of social media have spilled into every part of society, but it seemed improbable that a prominent institution could be toppled in two days by a barrage of tweets, if only because the human mind struggles to picture anything that has never happened before. “SVB faced a novel channel of bank-run risk that is unique to the social media era,” wrote Dr. Cookson, an associate professor of finance at the University of Colorado’s business school, and his colleagues. “We do not expect this risk to go away.” Of course, not every bank’s depositors include startup founders and venture capitalists with sizable online followings, and social media wasn’t the only risk that Silicon Valley Bank mismanaged before its downfall. But the hardest risks for organizations to hedge are the ones they can’t envision. Even financial institutions in the very business of pricing risk are vulnerable to what they don’t see coming. There’s a difference between ignoring risks and getting blindsided by them, but SVB fell victim to both. The second-largest bank failure in U.S. history was as much a failure of imagination as it was a failure of executives, supervisors and regulators, according to the commentary. (Subscription required.) ​​​Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
 

Number of Americans Filing for Unemployment Dropped Last Week​​​

Despite Amazon, Disney and several other companies continuing to lay off thousands of workers, the number of Americans filing jobless claims last week declined, according to the Department of Labor, USA Today reported. A total of 230,000 Americans filed for unemployment insurance for the first time during the week ending April 22, down 16,000 from the previous week. Unemployment insurance claims are seen as a barometer for layoffs, which ballooned during the pandemic as companies shuttered and supply chains snarled but have since slowed as the economy stabilized and many businesses struggled to find employees. More Americans filed claims the previous week than had been initially reported, with the number revised to 246,000: an uptick of 1,000. But the moving average of jobless claims over four weeks, which gives a broader, more accurate view of the unemployment picture, was 236,000, 4,000 fewer than the revised average from the previous week. ​​​Read more.

Survey: Homeowners Feel Trapped by Their Lower Mortgage Rate​​​

Many homeowners who want to sell their homes are opting to forgo those plans this spring because of mortgage rate concerns, YahooFinance.com reported. Approximately 82% of potential move-up buyers said they feel trapped by their current low mortgage rate on their home, a Realtor.com poll of over 1,200 potential sellers in February found. More than half planned to wait until rates fell further before selling, while a quarter planned to sell soon for personal reasons, despite feeling locked in. While the lock-in effect spanned generations, younger generations felt the most stuck in their homes and current mortgages, with 97% of Gen Zers, 87% of millennials and 87% of Gen Xers citing this feeling. However, a third of Gen X owners planned to move regardless of feeling rate-trapped due to personal reasons, the largest share of any generation. The report noted that Gen Xers likely have lower outstanding balances on their mortgages, which provided some peace of mind about moving. Baby boomers were the most likely to not feel rate-trapped, likely because they had far less debt on their mortgage than the other generations. Despite concerns over mortgage rates, most sellers felt they were in a good position to purchase. At least 85% of sellers said they were content with the amount of equity they had in their home, Realtor.com showed. Three-quarters of sellers said they had $100,000 of equity, while 42% estimated they had more than $200,0000 of equity. ​​​Read more.
 

Mastercard Faces DOJ Antitrust Probe over Debit Practices​​​

Mastercard Inc. said the U.S. Department of Justice is investigating whether the company has acted in an anticompetitive manner in its debit card business, a signal that the agency has widened a probe that previously centered on rival Visa Inc., Bloomberg News reported. Mastercard said it received a civil investigative demand from the department last month seeking documents regarding a potential violation of certain sections of the Sherman Act, a sweeping law meant to protect competition. The company is cooperating with the probe, which focuses on the firm’s U.S. debit program and competition with other networks and technologies, according to a quarterly regulatory filing. The move comes nearly two years after the Justice Department began a similar inquiry into Visa’s practices. In January, the agency’s antitrust division issued additional civil investigative demands to Visa seeking more documents and information for the probe, which Visa has said it’s cooperating with. “It’s not surprising that the DOJ would request information from other players in the debit space,” Mastercard Chief Financial Officer Sachin Mehra said in an interview. “It’s hard to speculate about the potential outcome, but these types of investigations do take a number of years.” ​​​Read more.
 

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