Inflation Remains Priority for ECB; Biggest U.S. Banks Mount Rescue of First Republic; Fed's Lending Jumps

Inflation Remains Priority for ECB; Biggest U.S. Banks Mount Rescue of First Republic; Fed's Lending Jumps By James Christie

Good day. The European Central Bank on Thursday lifted interest rates by a half-percentage point instead of opting for a smaller increase amid a roil in markets over worries about the health of Swiss lender Credit Suisse Group AG and two U.S. bank collapses. While the move showed the ECB still sees tackling inflation as its priority, President Christine Lagarde signaled the central bank would approach further rate increases cautiously and stressed it is ready to provide fresh liquidity to banks. Additionally, she said policy makers will make future rate decisions based on coming economic data, rather than announce plans for rate increases months in advance. "It's not business as usual," she said. Also on Thursday, the Wall Street Journal reported the biggest U.S. banks rallied around a plan for a $30 billion infusion into First Republic Bank, to protect the entire banking system from panic by turning the bank into a firewall. After the failures of Silicon Valley Bank and Signature Bank, fears had grown that First Republic could be next. Meanwhile, emergency Fed lending jumped in the week ended Wednesday, to about $300 billion in the wake of the bank failures.

Now on to today's news and analysis.

Top News ECB Defies Banking Strains With Half-Point Rate Rise

The European Central Bank raised interest rates by a half-percentage point while promising emergency support for eurozone banks if needed, showing the policy makers' balancing act as they seek to combat high inflation without aggravating strains in the financial system.

The ECB said in a statement that it would increase its key rate to 3%, following consecutive half-point rate increases in February and December. The 50 basis-point rise surprised analysts who had expected a smaller uptick given the tense market following the collapse of Silicon Valley Bank.

Fed Emergency Lending Jumps to About $300 Billion

Emergency lending by the Federal Reserve jumped to about $300 billion in the past week after two bank failures triggered turmoil in financial markets and the central bank said it would make additional funding available to financial institutions.

Most of the borrowing came from the Fed's so-called discount window, an emergency lending facility, and from loans to "bridge banks," the federal entities that took over Silicon Valley Bank and Signature Bank after their failures.

Borrowing at the Fed's discount window rose by $148.3 billion, to $152.9 billion as of March 15. The emergency facility is designed to help banks meet short-term funding needs, and banks have shied away from using it in recent years.

The new emergency Bank Term Funding Program lent out an additional $11.9 billion. That program was created over the weekend to offer loans of up to one year to banks that pledge U.S. Treasury securities, mortgage-backed securities and other collateral.

-Gabriel T. Rubin

Bank Failures, Like Earlier Shocks, Raise Odds of Recession

Banking-sector turmoil raises the odds that the U.S. economy, already widely seen as prone to recession, might actually tip into one . The economic outlook now hangs on two factors: private- sector confidence and the Fed's policy.

Eleven Banks Deposit $30 Billion in First Republic Bank

The biggest banks in the U.S. swooped in to rescue First Republic Bank with a flood of cash totaling $30 billion, in an effort to stop a spreading panic following a pair of recent bank failures.

First Republic Execs Sold $12 Million in Stock in Months Before Crash Credit Suisse Stock Price Jumps as Bank Secures $50 Billion Lifeline Janet Yellen Says Banking System Is Healthy After SVB Collapse Silicon Valley Bank's Distress Wasn't Reflected in Credit Ratings SVB's Collapse Hits the Chinese Startups It Once Wooed What's Going on With First Republic Bank? Why Is Credit Suisse in Trouble? The Banking Turmoil Explained The Banking Crisis: A Timeline of SVB's Collapse and Other Key Events Pro Take: Can the Fed Hold the Line on Job Losses in Its Inflation Fight? By Bob Fernandez

The Federal Reserve believes it can hold the economy to 1.7 million job cuts as it cranks up interest rates to tame inflation. But can it? Some lawmakers had doubts even before the Silicon Valley Bank-triggered crisis.

And Johns Hopkins University economics professor Laurence Ball says he thinks the Fed's jobless estimate-published in December-is based on "the vision of optimists."

"I fear that if the Fed really wants to get inflation down to 2% it will have to throw more people out of work," Mr. Ball said. "Inflation either has to stay high or unemployment has to go up." Read more .

U.S. Economy Jobless Claims Fell Last Week, Showing Still Strong Labor Market

Initial jobless claims, a proxy for layoffs, fell by 20,000 to a seasonally adjusted 192,000 last week. Claims the prior week had increased by 22,000, revised data show, in part due to a jump in New York, where there was a school break.

Silicon Valley and Capitol Hill Build an Anti-China Alliance

Silicon Valley executives, including investor Peter Thiel, and Washington lawmakers are quietly mobilizing against China's involvement in the U.S. tech industry ahead of TikTok CEO Shou Zi Chew's Capitol Hill testimony next week.

U.S., Taiwan Move Closer to Trade, Investment Agreement

The U.S. and Taiwan moved a step closer toward a bilateral trade and investment initiative, with both sides signaling progress in discussions at a time of heightened tensions between Washington and Beijing.

At a Steam-Age Arsenal, U.S. Army Forges Cannons for a Digital Era

On a military base more than two centuries old, the Army is hammering out its cannon of the future . Watervliet Arsenal has made big guns for every U.S. conflict since the Spanish-American War, and Russia has made it relevant again.

Key Developments Around the World Russia's Central Bank Leaves Key Rate at 7.5%

The Bank of Russia left its key interest rate at 7.5% for the fourth straight policy meeting on Friday, and repeated its warning that it might tighten policy if the war in Ukraine threatens to drive inflation higher. The lengthening pause follows a series of rate cuts that more than reversed a doubling of the key rate in the immediate aftermath of Russia's invasion of Ukraine more than a year ago. (Dow Jones Newswires)

PBOC to Cut Banks' Reserve-Requirement Ratio by a Quarter Point

China's central bank said Friday that it will lower the amount of deposits banks have to set aside, underscoring Beijing's efforts to kick-start economic growth this year. The People's Bank of China said it would cut banks' reserve-requirement ratio by 0.25 percentage point, which will bring the weighted average RRR level for the whole banking system to 7.6%. The change will take effect March 27, it said. (DJN)

China's Communist Party Overhaul Deepens Control Over Finance, Technology China Cultivates Thousands of 'Little Giants' in Aerospace, Telecom Chinese Developer Evergrande Nears Landmark Restructuring Deal

Surging Chinese Oil Demand Pushes Shipping Costs Sharply Higher

China is on an oil-supertanker hiring spree, a sign energy demand has sped up after the economy limped out of its lockdowns. A burst of U.S. exports to China is driving up charter rates for world's biggest crude tankers.

Europe Unveils Clean-Tech Plans in Bid to Rival U.S., China

The European Union, fresh from targeting U.S. and Chinese green-tech subsidies, set out steps to make its industries more globally competitive in emerging environmental sectors and boost Europe's share of the global clean-tech market.

Macron Bypasses National Assembly With Pension Overhaul

The government of President Emmanuel Macron invoked a special provision and bypassed Parliament to raise France's retirement age, an act of defiance escalating a standoff with street protesters and opposition lawmakers.

Forward Guidance Friday (all times ET)

9:15 a.m.: U.S. industrial production for February

10 a.m.: The Conference Board Leading Economic Index for the U.S. for February; University of Michigan preliminary consumer survey for March

Tuesday

8:30 a.m.: Canada consumer price index for February

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

Research Fed Could Follow ECB's Lead With Rate Rise

The Federal Reserve could follow the European Central Bank's lead by raising interest rates at its meeting next week despite the turmoil in the banking sector, Evercore ISI analysts write in a note. The ECB on Thursday lifted rates by 50 basis points, as previously guided, even as pressures in the banking sector had sparked speculation of a 25 basis point move. That "makes us a bit more confident in our base case call that the Fed will go ahead with 25bp next week," the analysts write. "But events are highly dynamic, the Fed does not have to make that call now, and if banking instability intensifies into the Fed meeting it would still decide to take a one-meeting time-out."

-Renae Dyer

ECB's Half-Point Rise Could Be Last Hike for Some Time

The European Central Bank's 50 basis-point interest-rate rise on Thursday may be its last hike for the foreseeable future, Katharine Neiss, chief European economist at PGIM Fixed Income, writes in a note. The ECB made no mention of any acceleration of the pace of tightening beyond the second quarter of this year, and the bank's accompanying statement also contains a notable shift toward a more dovish tone by emphasizing data-dependence and stepping away from signaling successive rate increases to come, Ms. Neiss writes. "This is an important change that opens the door to the possibility this hike may well be the last," she writes. The ECB also provided reassurance on liquidity tools given the recent market turmoil, she adds.

-Edward Frankl

Commentary There Is a Cost to Moral Hazard

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03-17-23 0717ET