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US Fed’s Powell opens door to higher, faster interest rate hikes

Published

3 weeks ago

March 7, 2023

Megan Johnson

The United States Federal Reserve will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the “totality” of incoming information suggests tougher measures are needed to control inflation, Fed Chair Jerome Powell told US lawmakers on Tuesday.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” the US central bank chief said in opening remarks at a hearing before the Senate Banking Committee.

While some of that unexpected economic strength may have been due to warm weather and other seasonal effects, Powell said the Fed was cognizant it may also be a sign it needs to do more to temper inflation, perhaps even returning to larger rate increases than the quarter-percentage-point steps officials had been planning to stick with.

“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said.

Senators responded with a broad set of questions and pointed criticism around whether the Fed was diagnosing the inflation problem correctly and whether price pressures could be tamed without significant damage to economic growth and the job market.

Democrats on the committee focused on the role high corporate profits may be playing in persistent inflation, with Senator Elizabeth Warren of Massachusetts charging that the Fed was “gambling with people’s lives” through rate hikes that, by the central bank’s most recent projections, would lead the unemployment rate to increase by more than a percentage point – a loss associated in the past with economic recessions.

“You claim there is only one solution: Lay off millions of workers,” Warren said.

“Raising interest rates certainly won’t stop business from exploiting all these crises to jack up prices,” said Senator Sherrod Brown, a Democrat from Ohio who chairs the committee.

Republicans focused on whether energy policy was restricting supply and keeping prices higher than needed, and whether restrained federal spending could help the Fed’s cause.

“The only way to get this sticky inflation down is to attack it at the monetary side and the fiscal side. The more we help on the fiscal side, the fewer people you will have to throw out of work,” said Senator John Kennedy, a Republican from Louisiana.

“It could work out that way,” said Powell, who at a separate point in the hearing agreed with Democratic lawmakers’ assertions that lower corporate profits could help lower inflation, and with Republicans’ arguments that more energy production could help lower prices.

“It’s not for us to point fingers,” the Fed chief said.

‘Surprisingly hawkish’

Powell’s comments, his first since inflation unexpectedly jumped in January and the US government reported an unusually large increase in payroll jobs for that month, sparked a quick repricing in bond markets as investors boosted bets to more than 70 percent that the Fed would approve a half-percentage-point rate increase at its upcoming March 21-22 meeting, and lift the anticipated endpoint for rate increases. Equity markets fell and the US dollar was trading higher.

Powell’s statement was “surprisingly hawkish,” said Michael Brown, a market analyst with TraderX in London. With a 50-basis-point rate hike now in play, Brown said a strong monthly jobs report on Friday would likely lead to “calls for a 6 percent terminal rate,” nearly a percentage point higher than Fed officials had projected as of December.

The Fed’s benchmark overnight interest rate is currently in the 4.5 percent to 4.75 percent range.

With the next policy meeting two weeks away, the March 10 release of the US Department of Labor’s jobs report for February and an inflation report next week will be critical in shaping policymakers’ judgement about whether they are again slipping behind the inflation curve, or can stick with the more tempered policy planned at their last meeting.

In either case, Powell’s comments to the Senate committee members mark a stark acknowledgement that a “disinflationary process” he spoke of repeatedly in a February 1 news conference may not be so smooth.

Although inflation “has been moderating” since its peak last year, Powell said, “the process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy”.

Powell will testify again on Wednesday before the House of Representatives Financial Services Committee.

Possible labour market softening

Powell’s testimony weighed in on an issue now at the centre of Fed discussion as officials decide whether recent data will prove to be a “blip”, as one of his colleagues suggested, or be seen as evidence the central bank needs to lean on the economy even harder than currently expected.

In his testimony, Powell noted that much of the impact of the central bank’s monetary policy may still be in the pipeline, with the labour market still sustaining a 3.4 percent unemployment rate not seen since 1969, and strong wage gains.

In a comment that may well be seized on by some Senate Democrats, Powell suggested that the labour market might have to weaken for inflation to fall across the broad services sector, a labour-intensive part of the economy where prices continue to rise.

“To restore price stability, we will need to see lower inflation in this sector, and there will very likely be some softening in labour market conditions,” Powell said.

Powell’s last monetary policy report to Congress was in June, which was early in what became the most aggressive cycle of Fed rate increases since the 1980s. That monetary tightening has driven up borrowing costs for home mortgages, a topic of particular sensitivity for elected officials; contributed to volatility in traditional equity markets as well as alternative assets like cryptocurrencies; and sparked some broader debates about the Fed’s efficacy.

Inflation has fallen since Powell’s last appearances in Congress. After topping out at an annual rate of 9.1 percent in June, the consumer price index dropped to 6.4 percent in January; the separate personal consumption expenditures price index, which the Fed uses as the basis for its 2 percent target, peaked at 7 percent in June and had fallen to 5.4 percent as of January.

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First Citizens acquires troubled Silicon Valley Bank – CP24

Published

52 mins ago

March 28, 2023

Megan Johnson

North Carolina-based First Citizens will buy Silicon Valley Bank, the tech industry-focused financial institution that collapsed earlier this month, rattling the banking industry and sending shockwaves around the world.

The deal could reassure investors at a time of shaken confidence in banks, though the Federal Deposit Insurance Corp. and other regulators had already taken extraordinary steps to head off a wider banking crisis by guaranteeing that depositors in SVB and another failed U.S. bank would be able to access all of their money.

Customers of SVB will automatically become customers of First Citizens, which is headquartered in Raleigh. The 17 former branches of SVB will open as First Citizens branches Monday, the FDIC said.

European shares opened higher Monday, with German lender Commerzbank AG up 2.4% and BNP Paribas up 1.2%.

Investors worry that other banks also may crumble under the pressure of higher interest rates. On Friday, much of the focus was on Deutsche Bank, whose stock tumbled 8.5% in Germany, though it was back up about 3.6% in early trading Monday. Earlier this month, shares of and faith in Swiss bank Credit Suisse fell so much that regulators brokered a takeover of by rival UBS.

In the U.S., SVB, based in Santa Clara, California, collapsed March 10 after depositors rushed to withdraw money amid fears about the bank’s health. It was the second-largest bank collapse in U.S. history after the 2008 failure of Washington Mutual. Two days later, New York-based Signature Bank was seized by regulators in the third-largest bank failure in the U.S.

In both cases, the government agreed to cover deposits, even those that exceeded the federally insured limit of $250,000, so depositors were able to access their money.

New York Community Bank agreed to buy a significant chunk of Signature Bank in a $2.7 billion deal a week ago, but the search for a buyer for SVB took longer.

The sale announced late Sunday involves the sale of all deposits and loans of SVB to First-Citizens Bank and Trust Co., the FDIC said.

The acquisition gives the FDIC shares in First Citizens worth $500 million. Both the FDIC and First Citizens will share in losses and the potential recovery on loans included in a loss-share agreement, the FDIC said.

First Citizens Bank was founded in 1898 and says it has more than $100 billion in total assets, with more than 500 branches in 21 states as well as a nationwide bank. It reported net profit of $243 million in the last quarter. It is one of the top 20 U.S. banks and says it is the largest family-controlled bank in the country.

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Shoppers Drug Mart moves away from medical cannabis, will send patients to Avicanna – CTV News

Published

2 hours ago

March 28, 2023

Megan Johnson

TORONTO –

Shoppers Drug Mart Inc. is moving away from its medical cannabis distribution business and preparing to transfer patients to a platform run by biopharmaceutical company Avicanna Inc.

The pharmacy chain owned by Loblaw Companies Ltd. announced the shift Tuesday, but did not say what prompted the change or how much money Toronto-based Avicanna is paying for Shoppers to refer patients to its MyMedi.ca platform.

“We are grateful for the trust placed in us by our medical cannabis patients over the past few years, and are confident we’ve found the right partner in Avicanna to continue to support them,” said Jeff Leger, Shoppers’ president, in a statement.

His company will start to send customers to Avicanna’s platform in early May, with all of the patients set to be off-loaded from Shoppers’ medical pot service by the end of July. Customers will be able to place orders on Shoppers’ website through the transition period.

Avicanna said it will offer a similar range of products including various formats, brands and “competitive pricing.” Like Shoppers, its online medical portal will strive to educate customers around harm reduction and provide specialty services for distinct patient groups like veterans.

Shoppers first launched its medical cannabis business in Ontario in January 2019, months after recreational pot was legalized in Canada (medical pot was legalized in Canada in 2001) at a time when many predicted the weed sector would be booming in the coming years.

The sector has instead struggled with profitability and as high numbers of recreational cannabis shops cluster in several cities, many retailers and licensed producers have had to drop their prices to stay competitive.

However, Shoppers said it racked up tens of thousands of patients in its four years of existence, providing them with access to cannabis from more than 30 brands including Aphria Inc., Hexo Corp.’s Redecan and the Green Organic Dutchman.

Shoppers’ medical cannabis patients were required to obtain a prescription from a licensed health care provider such as a doctor to begin ordering pot from the company, which shipped orders to their homes.

But the company was unhappy with how medical pot regulations limited its model. Shoppers claimed Tuesday that medical cannabis remains the only medication that is not dispensed in pharmacies.

“As we move away from medical cannabis distribution, we remain firm in our belief that this medication should be dispensed in pharmacies like all others and will continue our advocacy to that end,” said Leger.

Avicanna’s statement did not outline its feelings on the matters, but its chief executive said it was “motivated” to “put our full efforts toward advancing medical cannabis and its incorporation into the standard of care.”

“We are thankful to be selected as the partner for this transition and look forward to introducing MyMedi.ca, supporting patients and providing them with continuity of care,” said Avicanna chief executive Aras Azadian in a statement.

This report by The Canadian Press was first published March 28, 2023

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US charges Sam Bankman-Fried with bribing Chinese officials – The Guardian

Published

3 hours ago

March 28, 2023

Megan Johnson

US prosecutors on Tuesday unveiled a new indictment against Sam Bankman-Fried, accusing the founder of now-bankrupt FTX cryptocurrency exchange of conspiring to bribe Chinese government officials with $40m worth of payments.

Federal prosecutors in Manhattan charged Bankman-Fried with directing the payment in order to unfreeze accounts belonging to his hedge fund, Alameda Research, that Chinese authorities had frozen. The accounts held more than $1bn of cryptocurrency, US prosecutors said.

The accounts were unfrozen after the bribe payment was transferred around November 2021 from Alameda’s main trading account to a private cryptocurrency wallet, according to the new indictment.

After the accounts were unfrozen, Bankman-Fried authorized a transfer of tens of millions of dollars of additional cryptocurrency to complete the bribe, prosecutors said.

The new charge increases the pressure on the 31-year-old former billionaire, who had previously pleaded not guilty to eight counts over the collapse of FTX. Prosecutors say Bankman-Fried stole billions of dollars in customer funds to plug Alameda losses.

Lawyers for Bankman-Fried did not immediately respond to a request for comment. Bankman-Fried has acknowledged inadequate risk management at FTX, but has denied stealing money.

China’s foreign ministry could not immediately be reached after normal business hours in Beijing.

District judge Lewis Kaplan scheduled a court hearing for Thursday after prosecutors asked for Bankman-Fried to be arraigned on the new 13-count indictment.

Prosecutors last month unveiled four new counts against Bankman-Fried, accusing him of orchestrating an illegal campaign donation scheme to buy influence in Washington DC. He has not yet been arraigned on the new charges.

The new count accuses Bankman-Fried of conspiring to violate the Foreign Corrupt Practices Act (FCPA), which makes it illegal for US citizens to bribe foreign government officials to win business.

Bankman-Fried is currently confined to his parents’ Palo Alto, California, home on $250m bond ahead of his 2 October trial.

On Monday, his lawyers and prosecutors reached a new agreement on revised bail conditions, after Kaplan raised the prospect of sending Bankman-Fried to jail pending trial. That came after prosecutors raised concerns he may have been tampering with witnesses.

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