For the Fed, Today Is One of the Most Important Days in Years; Yellen Says U.S. May Protect More Depositors

For the Fed, Today Is One of the Most Important Days in Years; Yellen Says U.S. May Protect More Depositors By James Christie

Good day. Today's decision on interest rates from the Federal Reserve will be one of its most closely watched in years, as the central bank must balance concerns over turmoil in the banking industry with its rate-raising campaign to cool inflation. Two weeks ago, Fed Chair Jerome Powell suggested policy makers would debate whether to raise rates by a quarter or a half point after recent economic reports showed stronger-than-expected hiring, spending and inflation. Then Silicon Valley Bank collapsed. Yesterday, Treasury Secretary Janet Yellen, speaking at a gathering of the American Bankers Association, sought to shore up confidence in the banking sector, saying the government could step in to protect depositors at more banks if regulators see a risk of a run on the system. "The situation is stabilizing," the former Fed chair said. She added, "The Fed facility and discount window lending are working as intended to provide liquidity to the banking system. Aggregate deposit outflows from regional banks have stabilized."

Now on to today's news and analysis.

Top News Markets Await Federal Reserve Interest-Rate Decision

The Federal Reserve has tried over the past year to telegraph its rate moves to avoid surprises but hasn't confronted an abrupt and fluid crisis on the eve of a policy meeting . On Tuesday, investors thought a rate rise was likely, with interest-rate futures markets indicating a roughly 5 in 6 chance of a quarter-point increase, according to CME Group.

The central bank will announce its decision at 2 p.m. Eastern time in a statement. Officials are also scheduled to release new interest-rate and economic projections. Fed Chair Jerome Powell is set to answer questions from reporters at 2:30 p.m. Here's a look at what to watch.

SVB-Fueled Turmoil Junks Lessons of the Global Financial Crisis

The turmoil touched off by the collapse of Silicon Valley Bank has demolished much of what the Federal Reserve, political leaders and investors thought they had learned from the global financial crisis of 2007-09.

Yellen Says U.S. Could Move to Protect Deposits at Other Banks

Treasury Secretary Janet Yellen said the federal government could step in to protect depositors at additional banks if regulators see a risk of a run on the system. Her remarks were the clearest sign yet that regulators could intervene again .

Credit Suisse Write-Off Upends European Bank Capital Bonds How the Last-Ditch Effort to Save Silicon Valley Bank Failed SVB's Former Parent Says FDIC Has Seized About $2 Billion of Its Cash First Republic Taps Lazard For Help With Review of Strategic Options Commercial Property Debt Creates More Bank Worries Bitcoin Booms on Back of Bank Crisis U.S. Economy Home Prices Fell in February for First Time in 11 Years

The national median existing-home price fell 0.2% in February from a year earlier to $363,000, the first year-over-year decline since February 2012, and median prices are down 12.3% from their record $413,800 in June.

What the Fed's Next Interest-Rate Move Means for Your Money

The Federal Reserve is expected to raise rates again Wednesday and recent troubles across the banking industry, caused in part by higher rates, will lead banks to toughen lending standards , financial analysts and advisers say.

Key Developments Around the World Russia-China Summit Showcases Challenge to the West

China's Xi Jinping and Russia's Vladimir Putin reaffirmed deepening political and economic ties at a summit that telegraphed a shared interest in challenging a world order led by the U.S. and its democratic allies.

Xi and Putin Rekindle 'Strategic Bromance' in Russia

Chinese Pressure Tactics Against Other Countries Largely Ineffective

Chinese trade restrictions and other measures against countries seen as offending its interests have a poor record of getting Beijing outcomes it wants, and sometimes have produced the opposite of what China has sought, a study finds.

U.K. Inflation Resumes Its Rise, Defying Expectations

Britain's inflation is proving stubbornly high. Price increases in February picked up to 10.4% from 10.1% in January as the cost of food rose at the fastest pace since records began in 1989.

Financial Regulation Roundup SVB Former Parent Says FDIC Seized About $2 Billion of Its Cash

Silicon Valley Bank's former parent company can't access about $2 billion that it had deposited at the failed bank, after regulators froze the company's accounts and are exploring whether it should help shoulder costs.

Credit Suisse Write-Off Upends European Bank Capital Bonds

Switzerland's move to wipe out $17 billion of Credit Suisse Group AG bonds as part of its takeover has prompted investors to reassess a market integral to the safety and resilience of Europe's banking system.

Forward Guidance Wednesday (all times ET)

9:45 a.m.: ECB's Panetta in debate on 'Global Shocks, Policy Spillovers and Geo-Strategic Risk: How to Coordinate Policies' at 'ECB and its Watchers XXIII Conference'

1:30 p.m.: Bank of Canada publishes summary of monetary policy deliberations

2 p.m.: Federal Reserve interest-rate decision and economic projections

2:30 p.m.: Federal Reserve's Powell post-FOMC meeting press conference

Thursday

8 a.m.: Bank of England interest-rate decision

8:30 a.m.: U.S. weekly jobless claims

10 a.m.: U.S. new home sales for February

11 a.m.: ECB's Lane on panel on 'Post-1973 Currency Regime and Inflation Experiences' at 'Floating Exchange Rates at Fifty' conference at Peterson Institute for International Economics

Research Inflation to Remain Above Fed's Target This Year

U.S. inflation is now likely to be higher than previously expected, even as it sticks to a downward trend, UBS economists write in a research note. UBS increased its forecast for 2023 annual core PCE inflation by 0.25 percentage point, to 2.75%, compared with the Federal Reserve's 2% target. Factors pushing down price increases range "from a weakening economy and slowing wage growth to slowing market rents and flat import prices," the economists write. They note prices will be compared with high levels recorded a year earlier, and base effects will also be a big driver of falling headline 12-month inflation in three of the next four months.

-Paulo Trevisani

Inflation Decline Another Reason for BOC to Maintain Pause

Although core price pressures in Canada remain too strong for comfort, the decline in headline inflation in February suggests it will average 5.2% this year, below the Bank of Canada's forecast of 5.4%, Stephen Brown, deputy chief North America economist at Capital Economics, writes in a note. And with recent turmoil in the global banking sector plus a drop in oil prices, he suggests the central bank will be content to hold at its next meeting, though it will probably push back against the new market-implied view it could be cutting interest rates before summer, Mr. Brown writes.

-Robb Stewart

Yellen Trying to Avoid Congress Voting on Banking Backstop

Treasury Secretary Janet Yellen saying bank deposit outflows have stabilized and the Federal Reserve's liquidity programs are working, aren't what you would expect to hear if she was about to unveil emergency unlimited deposit insurance, TD Cowen analyst Jaret Seiberg writes in a note. Mr. Seiberg writes that it doesn't mean unlimited deposit insurance is off the table, but he believes unlimited coverage is the "break-the-glass option" if conditions worsen. "It is why we believe the FDIC, Treasury and the Federal Reserve are studying how to create unlimited coverage using emergency powers rather than via legislation," he writes. Mr. Seiberg adds that he thinks Ms. Yellen doesn't want to risk an up-or-down vote in Congress: "There are too many at the agencies who vividly recall the consequences of the failed TARP vote, which nearly crashed the already cratering banking system."

-Patrick Sheridan

Commentary The Fed Flies in the Dark

Worries about the banking system have upended the Federal Reserve's plans , and heading into their meeting on Tuesday policy makers themselves might not have known what they would do next, Justin Lahart writes.

What Bankers Thought They Knew About Deposits Might Be Wrong

How could Silicon Valley Bank and other lenders have been so blind to interest-rate risk? Habits formed over many years of low interest rates may have had a lot to do with it, Telis Demos writes.

Credit Suisse's 'Bail-In' Bonds Made an Easy Target for Politicians

Switzerland's giving priority to shareholders over some bondholders in its rescue of Credit Suisse is counterintuitive for finance folk, but it has a political logic , and politics matters in bank failures, Stephen Wilmot writes.

Life's Certainties: Death, Taxes and Bailouts

We have an emergency escape hatch in the central bank's balance sheet, yet we still haven't figured out how to prevent the moral-hazard problem from getting bigger each time, forcing the central bank to run ever faster only to stand still, Niall Ferguson and Moritz Schularick write.

Mr. Ferguson is a senior fellow at the Hoover Institution at Stanford University, a Bloomberg Opinion columnist, and founder of Greenmantle LLC, a consulting firm. Mr. Schularick is a professor of economics at Sciences Po Paris and incoming president of the Kiel Institute for the World Economy.

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03-22-23 0717ET