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The Federal Reserve has warned that the recent turmoil in the banking sector could lead to a credit crunch that risks slowing the US economy.
In two separate publications released yesterday, the US central bank highlighted mounting concerns that the March collapses of Silicon Valley Bank and Signature Bank, as well as last week’s failure of First Republic, will lead to a pullback in lending by banks and a fall in asset prices.
“A sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity,” the Fed said in its semi-annual financial stability report.
The Fed also released the results of its quarterly Senior Loan Officer Opinion Survey yesterday, which found that banks expect to tighten lending standards in the rest of 2023.
Fears that banks will reduce lending comes as the risk of a US default looms large over the economy. President Joe Biden will today host his political opponents in the White House in a push to settle the dispute over the US debt ceiling.
The meeting follows a warning from Treasury Secretary Janet Yellen that the US could breach the debt ceiling as soon as June 1, triggering an economic and financial catastrophe.
Biden administration officials have considered invoking the 14th amendment of the US Constitution to allow the government to continue issuing new debt to pay social security recipients, bondholders, government employees and others without legislative approval.
But economists and constitutional experts are split over whether circumventing Congress in this way would be legal.
The public is sharply divided over who to blame if the government defaults on its debt. A Washington Post/ABC poll published last week found that 39 per cent of respondents said they would mainly blame Republicans in Congress and 36 per cent said they would pin the blame on Biden. Sixteen per cent said they would blame both sides equally.
Who do you blame for the current debt stand-off? Vote in our latest poll and email [email protected] with your ideas on how you think the impasse can be broken.
Here’s what else I’m keeping tabs on today:
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Monetary policy: John Williams, president of the Federal Reserve’s New York branch, and Fed board governor Philip Jefferson will speak at public events today.
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Results: Warner Music Group, Endeavor Group, Apollo Global, Coty, Airbnb, Electronic Arts and Rivian report results.
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Trump court case: A jury in New York will begin deliberations today in the case brought by former advice columnist E Jean Carroll against ex-president Donald Trump. Read more on the two-week trial.
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Future of the Car: The two-day live event begins today and brings together executives from across the auto industry. FT newsletter subscribers can register here.
Five more top stories
1. Fund managers warned of growing problems in the $5.6tn US commercial real estate industry, in a series of interviews. Scott Kleinman, Apollo Global Management co-president, said commercial real estate would be the “next shoe to drop” in the US following the crisis in the regional banking sector. Read more of the interviews.
2. Swiss bank UBS has today unveiled a series of boardroom changes following its acquisition of local rival Credit Suisse, in one of the most significant banking deals since the 2007-08 financial crisis. Read more on the changes here.
3. Canada has expelled a Chinese diplomat for allegedly targeting a Canadian politician, in the latest example of Ottawa’s harsher tone towards Beijing over everything from electoral interference to Taiwan. Read more on Canada’s first expulsion of a Chinese diplomat in decades.
4. An ally of president Luiz Inácio Lula da Silva has been appointed to a post on the board of Brazil’s central bank. The appointment comes as relations between the 77-year-old president and the central bank are growing increasingly tense, unnerving investors.
5. FTX founder Sam Bankman-Fried yesterday asked a New York judge to dismiss criminal charges brought against him, following the collapse of the cryptocurrency exchange last year. Read more on the Bankman-Fried’s legal filings.
The Big Read
After 21 years in power, Recep Tayyip Erdoğan, Turkey’s strongman president, faces his greatest challenge yet: a united opposition determined to change the course of the nation. Can his opponent, the soft-spoken retired bureaucrat Kemal Kılıçdaroğlu, defeat Erdoğan?
We’re also reading and listening to . . .
Chart of the day
Is hybrid work here to stay? Sarah O’Connor certainly hopes so, as it seems to have improved the work-life balance for many people since the pandemic began. Data shows the share of job postings that offer fully remote or hybrid work has risen to at least 10 per cent in countries including the US and UK in 2023 from less than 5 per cent pre-pandemic.
Take a break from the news
Zurich is a fantastic city for two-wheeled adventures. It is compact enough to escape in a few minutes, with excellent roads across hundreds of kilometres of varied surrounding terrain. FT Globetrotter takes us on five stunning cycling routes in the Swiss heartland.
Additional contributions by Grace Ramos and Emily Goldberg
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