Credit Sesame’s personal finance weekly news roundup May 6, 2023. Stories, news, politics and events impacting the personal finance sector during the last week.
- U.S. debt default may come sooner than expected
- Fed keeps focus on inflation by raising rates
- FDIC assigns blame for Signature Bank’s failure
- Feds probe antitrust concerns about Mastercard
- Regulators take control of First Republic Bank
- Oil prices slide despite production cuts
- Job openings starting to dry up
- Job growth remains resilient
1. U.S. debt default may come sooner than expected
Treasury Secretary Janet Yellen said that the U.S. could be forced to start defaulting on its financial obligations as early as June 1 if the debt ceiling is not raised. This date would be earlier than previously thought, and Yellen added to the uncertainty by saying it was impossible to predict the exact date when the government would run out of money. The Congressional Budget Office also stated that it saw an increased risk of defaults occurring by early June. See article at APNews.com.
2. Fed keeps focus on inflation by raising rates
Despite recent bank failures and growing concern about the slowing economy, the Federal Reserve went ahead with a rate hike at the conclusion of its May 2-3 meeting. The Fed raised rates by 0.25%, to a target range of 5.0% to 5.25%. This brought the Fed funds rate to its highest level since 2006. The rate hike was the Fed’s third of 2023, though the magnitude of those hikes has been smaller this year than last year. In its formal statement following the meeting, the Fed’s only acknowledgement of trouble in the banking sector was to state that it felt the “U.S. banking system is strong and resilient.” The Fed did acknowledge that tightening credit conditions could slow the economy. However, it reiterated that it remained strongly committed to bringing down inflation, which is why it went ahead with the rate hike. See FOMC statement at FederalReserve.gov.
3. FDIC assigns blame for Signature Bank’s failure
An FDIC report on the failure of Signature Bank earlier this year cited poor management as the primary cause. The FDIC said that the bank pursued irresponsible growth strategies and had inadequate risk control measures in place. The FDIC acknowledged its own role in the failure by saying that it could have acted earlier and more forcefully to head off the problem, but blamed “resource challenges” for not doing so. See release at FDIC.gov.
4. Feds probe antitrust concerns about Mastercard
Mastercard disclosed that the U.S. Justice Department was investigating whether the company used unfair practices to discourage competition in debit card processing. Mastercard’s extensive processing network with retailers is a competitive advantage in the business of processing debit card transactions. The question is whether they went too far to shut competitors out of that network. See article at Reuters.com.
5. Regulators take control of First Republic Bank
Following massive withdrawals of customer deposits, state and federal regulators have seized control of First Republic Bank. They have arranged a sale of remaining deposits and assets to JP Morgan Bank, though the FDIC insurance fund will have to chip in an estimated $13 billion. See article at Reuters.com.
6. Oil prices slide despite production cuts
Despite an agreement by oil producers to reduce output that goes into effect this month, oil prices dropped sharply on the first day of May. Banking concerns plus disappointing economic news from China were cited as reasons for the oil price weakness. The deal to cut production was an attempt to support prices, but with the latest drop oil prices are now below where they were at the start of the year. See article at Reuters.com.
7. Job openings starting to dry up
The Bureau of Labor Statistics reported that the number of job openings declined 384,000 in March. This brings the number of jobs available down to 9.6 million, which is about 2.4 million below where it was a year ago. Layoffs and discharges rose during March. These developments signal some weakening of the job market. Excessive demand for labor relative to the number of workers available has been a factor fueling inflation, so these numbers are good news on the inflation-fighting front. However, because they indicate a weaker economy, they could also indicate that a recession is coming closer. See economic release at BLS.gov.
8. Job growth remains resilient
Despite fewer job openings, hirings remained strong in April. The Bureau of Labor Statistics (BLS) reported that 253,000 new jobs were added during the month. That exceeded the consensus economist prediction of 180,000. It’s also an increase over March’s job growth of 165,000. The unemployment rate edged down to 3.4%, which equals the lowest unemployment rate since the 1950s. Despite the largely positive employment news, one question was raised by unusually large downward revisions of the original employment estimates for February and March. While revisions to initial estimates are routine, they are usually relatively minor. In this case, the BLS reported that combined job growth for February and March was 149,000 less than originally estimated. That’s a reduction of 26.5% from previous reports. See the Employment Situation Summary at BLS.gov.