#FOMC – Federal Financial Analytics

25 07, 2023

DAILY072523

Eliza Allen2023-07-25T17:18:26-04:00July 25th, 2023|2- Daily Briefing|

Key Democrat Takes On Fed Rate Hikes

Ahead of today’s FOMC meeting, Joint Economic Committee Chair Heinrich (D-NV) yesterday sent a letter to Fed Chair Powell cautioning against additional policy tightening.

Second HFSC Markup Targets Stablecoins, Regulatory Restrictions, ESG

Thursday’s HFSC has now added another day to its mark-up calendar this week, moving the stablecoin and ESG bills to Thursday doubtless in order to avoid an endurance contest before the August recess and still meet Chairman McHenry’s (R-NC) commitments.

Senate GOP Tries to Block Capital Rewrite

Just days before the banking agencies take up new capital rules, Senate Banking Ranking Member Scott (R-SC) and ten other committee Republicans sent a letter to Chairman Powell demanding greater transparency and prior consultation.

Waters Presses FHFA for FHLB Reform

Following FHFA listening sessions and in anticipation of a final report this September on the FHLB system, HFSC Ranking Member Waters (D-CA) late yesterday sent a letter to FHFA Director Thompson laying out a series of recommendations to significantly reform the system.

Ag Committees Slam SEC Custody Proposal

In a letter to SEC Chairman Gensler released today, Senate Agriculture Committee Ranking Member Boozman (R-AR) and Chairwoman Stabenow (D-MI) along with House Ag. Committee Chairman Thompson (R-PA) and Ranking Member Scott (D-GA) raised strong objections to what they called serious flaws in the SEC’s proposed custody rule (see FSM Report CUSTODY5).

Warren, Scott Renew Fed-Ethics Campaign

Continuing their bipartisan campaign against the Fed, Sens. Warren (D-MA) and Scott (R-FL) yesterday sent a letter…

20 06, 2023

M062023

Eliza Allen2023-06-20T14:47:44-04:00June 20th, 2023|6- Client Memo|

Our Baffled, Befuddled Central Bank

After SVB failed, Jay Powell told his monthly press conference that he found this “baffling” even though the Fed was the lead bank supervisor and the only one charged with its BHC’s oversight. At Wednesday’s presser, Mr. Powell took a different, but still-indefensible tack avoiding responsibility for a looming threat by stoutly denying his ability to do anything about nonbank financial-stability risk. However, the Board has an express mandate under the Dodd-Frank Act to address it. To be sure, the Fed does not have direct regulatory authority over nonbanks as it now remembers it did over SVB. But to say that the Fed’s only power is over banks as he Wednesday did is at best befuddled. A baffled, befuddled central bank is a national – indeed global – hazard.

M062023.pdf…

20 06, 2023

Karen Petrou: Our Baffled, Befuddled Central Bank

Eliza Allen2023-06-20T14:47:39-04:00June 20th, 2023|The Vault|

After SVB failed, Jay Powell told his monthly press conference that he found this “baffling” even though the Fed was the lead bank supervisor and the only one charged with its BHC’s oversight. At Wednesday’s presser, Mr. Powell took a different, but still-indefensible tack avoiding responsibility for a looming threat by stoutly denying his ability to do anything about nonbank financial-stability risk. However, the Board has an express mandate under the Dodd-Frank Act to address it. To be sure, the Fed does not have direct regulatory authority over nonbanks as it now remembers it did over SVB. But to say that the Fed’s only power is over banks as he Wednesday did is at best befuddled. A baffled, befuddled central bank is a national – indeed global – hazard.

Of course, perhaps Mr. Powell isn’t befuddled and instead wants to ensure that a crisis he claims the Fed can’t avert isn’t one that damages its already-scant credibility. This wouldn’t be the first time the Fed defended itself at the expense of sound policy, but that makes it no less inexcusable. I’ll have more to say about this in a talk on the 28^th, but last week’s memo looks at just one threat to financial stability and what the Fed could readily do to combat it.

The threat comes from the $1.4 trillion private-credit market’s ambition to use its regulatory-arbitrage advantage to morph into a $40 trillion fixed-income sector. Mr. Powell says all he can do …

16 06, 2023

Daily061623

Eliza Allen2023-06-16T16:49:58-04:00June 16th, 2023|2- Daily Briefing|

Waller Separates Monetary, Stability Policy

FRB Gov. Waller today defended recent rate hikes against criticism that they undermine financial stability, noting that monetary and stability policy are inter-related but must generally be addressed with different tools.

Brown-Scott Clawback Bill Adds Enforcement Teeth

In his first legislative mark-up since assuming the chairmanship in 2021, Banking Committee Chairman Brown (D-OH) will convene voting next Wednesday on compromise compensation-reform legislation on which he and Ranking Member Scott (R-SC) have agreed.

Hsu Warns of Tokenized-Settlement, AI Risk

Acting Comptroller Hsu’s speech today highlights both the benefits and risks of tokenization and AI, urging parallel development of new technologies and essential controls.

Democrats Try Again To Mandate TILA, CFPB Small-Business Authority

Banking Committee member Sen. Menendez (D-NJ) yesterday introduced legislation (S. 2021) along with Small Business Committee Ranking Member Velazquez (D-NY) (H.R. 4192) to extend TILA protections to small business lending, also giving the CFPB authority in this sector.

Fed Fears Little Systemic Risk

The financial-stability discussion in today’s report from the Federal Reserve ahead of next week’s hearings generally reiterates conclusions from the most recent Fed financial-stability report (see Client Report SYSTEMIC96): banks are generally sound and resilient and, despite MMF worries, most other vulnerabilities are of only moderate systemic concern.

Fed’s Long-Awaited Master-Account Database Goes Live

Conceding to a long-resisted and now statutory demand (see FSM Report PAYMENT25), the Federal Reserve today published the first database detailing who has or seeks access to Reserve Bank master accounts and services.…

24 05, 2023

DAILY052423

Eliza Allen2023-05-24T17:16:58-04:00May 24th, 2023|2- Daily Briefing|

New Fed Paper Shows Link Between Twitter, Market Sentiment, Run Risk

A new FRB staff paper uses natural-language models and social-media data to craft a “twitter sentiment index” (TSI) that is then compared to actual market conditions.

Democrats Press Clawback, Regulatory Fixes as HFSC Considers Transparency Measures

Today’s HFSC mark-up so far has focused on one of Rep. Barr’s (R-KY) three regulatory transparency bills, with Democrats proposing a series of amendments without any deciding votes.

House Oversight Panel Focuses On Supervisory Accountability, Reform

At today’s hearing of the Financial Services Subcommittee of House Oversight on bank failures and supervision at the San Francisco Fed, Subcommittee Chairwoman McClain (R-MI) opened with a series of sharply-worded questions on who oversaw the bank, what factors might have distracted them from traditional supervision, why glaring risk factors were not more forcefully addressed, whether regulators were unduly complacent, whether the Fed and FDIC used all of their regulatory tools, and if the agencies have been objective and transparent in their bank failure post-mortems as well as their accounts of the systemic risk exception.

Markup Votes Postponed for Transparency, LLPA Bills

Since our last alert, Democrats continued to submit amendments for Rep Barr’s (R-KY) transparency bill at today’s HFSC markup and party lines cemented over Rep. Davidson’s (R-OH) LLPA bill.

Daily052423.pdf…

14 02, 2023

DAILY021423

Eliza Allen2023-02-14T16:52:49-05:00February 14th, 2023|2- Daily Briefing|

What’s Next At The Post-Brainard Fed

Clients have asked us to advise on what may be next for the Fed if Vice Chair Brainard is indeed named as head of the White House NEC, which now seems certain. In our view, there will be no change to FOMC policy given unanimity on this question and the leadership not only of the vice chair, but also of the Fed chairman and FRB-NY president. However, there could be a significant shift in the likelihood of a U.S. CBDC. Ms. Brainard has been the most outspoken advocate of a CBDC (see Client Report CBDC13), but her successor as head of the Fed payment committee is likely to be either Gov. Waller or Bowman, each of whom is a strong CBDC skeptic.

Daily021423.pdf…

23 01, 2023

GSE-012323

Eliza Allen2023-01-23T14:41:47-05:00January 23rd, 2023|4- GSE Activity Report|

The Fed’s Heavy Hand on Equitable Housing

Under Director Thompson, FHFA’s top policy priority is equitable housing. However, a ground-breaking study from Fed staff shows that FHFA is swimming upstream when the Fed raises rates. Combined with our own research showing that ultra-low rates also accelerate inequitable housing, the best FHFA can do to help lenders reach LMI borrowers is tread water – better than sinking, but still hard work getting pretty much nowhere.

GSE-012323.pdf…

21 11, 2022

DAILY112122

Eliza Allen2022-11-21T17:37:05-05:00November 21st, 2022|2- Daily Briefing|

FRB-NY Considers Why Deposit Rates are Now So Sticky

As Karen Petrou’s talk last week noted, Democrats and the CFPB have charged that exploitation explains why bank deposit rates now lag Fed rate hikes. Today’s post from the Federal Reserve Bank of New York finds a steady decline in bank deposit-rate matches to Fed rate hikes since 1994, but also identifies market factors that largely explain rate sluggishness. The study estimates the “deposit beta” – i.e., the difference between FOMC hikes and all deposit rates (including non-interest paying funds) found in BHC data.

Senate Dems Demand Digital-Asset Crackdown

Following last week’s hearings with the banking agencies (see Client Report REFORM214), Chairman Brown (D-OH) and Senate Banking Democrats today sent letters urging Vice Chair Barr, Acting Chairman Gruenberg, and Acting Comptroller Hsu to review SoFi’s digital asset activities, accusing the firm of improperly expanding its crypto trading following commitments not to do so when it was granted licenses as a national bank and BHC. Following the playbook of pressing for rules and enforcement rather than new law, Senators point to a new SoFi service they believe is not only an “expanded” digital-asset activity despite a commitment to wind down these impermissible activities, but also is dangerous to investors and unsafe and unsound.

Daily112122.pdf…

1 11, 2022

DAILY110122

Eliza Allen2022-11-01T16:53:18-04:00November 1st, 2022|2- Daily Briefing|

Progressives Target Fed Attack Directly on Powell

With a new letter from progressive Democrats ahead of the FOMC release, it is clear that the campaign not just against Fed rate hikes, but now also Chairman Powell, is gaining strength on the left. Long-time Fed critic Elizabeth Warren (D-MA) is joined here by Sens. Sanders (D-VT) – who has spoken out before and Sens. Whitehouse (D-RI) and Merkley (D-OR). The letter is also signed by seven progressive House Democrats – a small minority of Democrats to be sure, but still significant in terms of the Democratic base. All of them urge the Fed to forbear on grounds that higher rates are already having adverse employment and global-growth consequences.

Daily110122.pdf…

28 10, 2022

Al103122

William Cross2022-11-08T15:43:59-05:00October 28th, 2022|3- This Week|

BLAMING THE PARTY-POOPER

Last week, we noted a significant uptick in Democrats turning on a central bank they have treated with the utmost courtesy ever since the Biden Administration tied its political fate to whatever economic outcomes the Fed was aiming to accomplish. We shall see what the midterms say about what Americans think about the combination of acute inflation and interest rates higher than many are able ever to remember, but the President’s stout defense of economic prosperity, Secretary Yellen’s disavowal of any recession, and the Administration’s increasing focus on corporate culprits make it clear that the Treasury Secretary stands by her Fed and the White House – at least for now – backs her up.

Al103122.pdf…