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.
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.
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.
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.
Setting Stage for US Action, UK Regulators Target Bigtech Consumer-Finance Market Power
Focusing principally on competition, the UK’s Financial Conduct Authority (FCA) today released a discussion paper investigating bigtech’s entry into payments, deposit, consumer-credit, and insurance.
With Yellen Backing, SEC Central-Clearing NPR Advances
The Federal Register today includes the SEC’s proposal requiring that market clearinghouses submit certain secondary-market transactions for clearing along with the small percentage now already centrally-cleared.
FDIC Reports Significant Financial Inclusion Progress
Showing significant improvements in financial inclusion, the FDIC today released its biennial under- and unbanked household survey.
CFPB to Require Almost-Open Banking
At long last and as recently promised, the CFPB later this week will start a rulemaking process that would ultimately require financial institutions to share personal data with a consumer upon his or her request.
Democrats Get Ready To Blame The Fed
Continuing progressive critiques of the FOMC’s anti-inflation fight, Senate Banking Chairman Brown (D-OH) has written to FRB Chairman Powell sharply protesting current Fed policy.
August doldrums always seem to power up spirals of will-he or won’t-he speculation about the Fed’s Jackson Hole meeting because there usually isn’t all that much else to talk about economically-speaking. This year is different because this year has revealed the Fed as a central bank without a compass at a time of extraordinarily strong winds towards the rocks. Still, in all the punditry over whether the Fed can somehow maneuver to Jay Powell’s “softish landing,” there’s one missing, critical factor: inequality and what the Fed must do about it or, if it won’t, what we must do about the Fed.
The Fed is fond of blaming fiscal policy for economic inequality, but U.S. fiscal policy has been awesomely stimulative since the pandemic struck and the U.S. has still grown ever more unequal in terms of both income and wealth. This is because ultra-accommodative monetary policy stokes inequality and, at the scale practiced by the Federal Reserve, towers over even trillions of fiscal stimulus. As a result, the U.S. didn’t get the Fed’s promise of “robust growth” accompanied by only a bit of “transitory” inflation. Of course, we instead got a crushing combination of high-flying inflation that will leave long-lasting scars on vulnerable households even if it meaningfully abates as some now hope.
The Fed thinks itself aloof from any inequality accountability because it cloaks itself in the mantle of “maximum employment” as armor against any inequality-effect assertions. It was in fact this focus solely on employment …
Why Failing to Focus on Economic Equality Flummoxes Fed Policy
August doldrums always seem to power up spirals of will-he or won’t-he speculation about the Fed’s Jackson Hole meeting because there usually isn’t all that much else to talk about economically-speaking. This year is different because this year has revealed the Fed as a central bank without a compass at a time of extraordinarily strong winds towards the rocks. Still, in all the punditry over whether the Fed can somehow maneuver to Jay Powell’s “softish landing,” there’s one missing, critical factor: inequality and what the Fed must do about it or, if it won’t, what we must do about the Fed.
Progressives Press Price Controls
Last week, a group of progressive Democrats and CBC members introduced H.R. 8658, legislation designed to press the President to institute price controls and give him greater authority to do so. The bill is supported by major labor unions and consumer/public-advocacy groups which argue that price controls are essential to prevent profiteering in goods such as energy and food and services such as rental housing. The measure includes no express provisions affecting financial services, but additional discussion of it is likely to provoke calls also for lower and fewer bank fees, higher consumer deposit rates, and reduced mortgage rates.
FRB-Dallas: Fed Policy Hiked Current Inflation
A new Federal Reserve Bank of Dallas study reaches a conclusion likely to exacerbate criticism of current monetary policy: the 2020 flexible-average inflation targeting (FAIT) construct increased inflation over what would otherwise have been predicted by 1.8 percentage points on average. Models-based and thus an assessment FAIT on a preferred construct, the paper also finds that FAIT may have large effects over short time periods due to delayed intervention. These delays can, the study notes, have the FOMC’s intended effect of preventing the Fed from over-reacting to transitory shocks; the study does not provide insights into whether delays and the 1.8 pp increase was appropriate given that inflation did not prove transitory and may now have become more difficult to combat.
Fed Encounters Tough New Complaints re Governance, Security
Sen. Rob Portman (R-OH) today released a report from the Republican Members of the Senate Homeland Security Committee not only alleging repeated Chinese attempts to infiltrate the Federal Reserve, but also Fed laxity ahead of and in response to this threat.
SEC Official Seems to Doubt Swing Pricing
In remarks today, the head of the SEC’s investment management division, William Birdthistle, seems to cast doubt on the agency’s MMF swing-pricing proposal (see FSM Report MMF19). As we noted in our assessment of the FSB’s MMF report (see FSM Report MMF18), one alternative to MMFs would be bank deposits, but Mr. Birdthistle indicates that this is both unlikely and undesirable due to the lower rates paid on bank deposits.
Brown, Sanders, Dems Introduce Bill to Extend Full Range of Civil Rights Protections to Financial Services
Today, Sen. Brown (D-OH) and seventeen Senators introduced legislation that explicitly prohibits financial institutions from discriminating against customers based on race, color, religion, national origin, sex, gender identity, or sexual orientation. No text of the bill is available, but the release today suggests it is similar to or identical to legislation Sen. Brown introduced late in the last Congress (see FSM Report FAIRLEND9) revising the Civil Rights Act to expressly cover financial services.
FRB-NY Staff: Mandatory Flood Insurance Harms LMI Households
A New York Fed blog post today points to another important, unintended consequence of well-meaning regulation: the adverse impact of mandatory flood-insurance coverage on LMI households.
FRB Atlanta Staff Bolsters Proposed Cash Acceptance Mandate
A blog post today from the Federal Reserve Bank of Atlanta strengthens the case for the mandate for retailer cash acceptance recently approved by the House Financial Services Committee.
Kansas City Fed Finds Persistent Commodity-Market Price Hikes, Volatility
Reflecting concerns in a recent Petrou op-ed, the Federal Reserve Bank of Kansas City today released a report differing from the FOMC’s optimistic inflation forecasts at least as far as they relate to commodities.
HFSC Tackles Disability Rights
Tomorrow’s HFSC Subcommittee on Diversity and Inclusion hearing on disability rights will focus not only on housing access, but also on the extent to which a broad range financial services are easily accessible to persons with disabilities.
Fed Survey Shows Significant LMI Investment in Payment, Investment Crypto
The Fed today released a report on household well-being in 2021, detailing an array of survey findings that generally show Americans feeling remarkably prosperous and satisfied. The Fed cautions that this may no longer pertain, but the data do suggest what may be more than a passing rebound in economic resilience for at least some families.