Interbank Market News Scan: Federal Reserve Board chairman appears before the U.S. Senate banking committee …

15 July 2021

Federal Reserve Board chairman continues testimony before Congress.

Federal Reserve Board chairman Jerome Powell is expected today to share with the U.S. Senate Committee on Banking, Housing and Urban Affairs the same testimony shared yesterday with the U.S. House Committee on Financial Services.

Mr Powell, while acknowledging growth in the economy and the threat of increasing prices, did not indicate any changes in the Federal Reserve’s current asset purchase program.  The Federal Reserve will maintain its purchase of Treasury securities and agency mortgage-backed securities totaling $120 billion a month.  

For a consultation on any regulatory or legislative discussions or announcements during today’s hearing, please reach out to us at altondrew@altondrew.com to reserve an appointment.

Exchange rates of interest as of 10:30 am AST

Currency pairExchange rate
AUD/USD*0.7448
EUR/USD*1.1812
GBP/USD*1.3854
USD/CAD*1.2520
USD/CHF*0.9143
USD/JPY*109.9600
USD/XCD+2.7000
USD/NGN+410.5130
USD/MXN*19.9260

Sources: *Reuters +OANDA

Rates reported by the Federal Reserve (Release Date 14 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

4-week Treasury bill: 0.05%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.06%

1-year Treasury bill: 0.08%

Interbank Market News Scan: Powell to deliver testimony before Congress on monetary policy …

14 July 2021

Federal Reserve chairman today speaks on state of monetary policy.

Federal Reserve Board chairman Jerome Powell today will share with Congress his outlook on monetary policy as the United States economy continues to pull itself out of the economic doldrums imposed on it by the Covid-19 pandemic.  Mr Powell will share his observation that as the American economy continues to move toward levels of pre-pandemic economic performance, it will climb through transitory periods of inflation.  Increases in consumer prices may primarily be due to restraints on supply due in part to stressed supply chains.

Mr Powell will testify that the Federal Reserve is still focused on its long-term inflation goal of two percent.  Mr Powell will also note that asset valuations are increasing which in turn is feeding risk appetite amongst investors.  Mr Powell will also advise Congress that the Federal Reserve will continue to maintain its current policy of purchasing Treasury securities and agency mortgage-backed securities currently amounting to $120 billion per month until labor market and other economic factors such as stable prices improve.

Mr Powell’s semi-annual monetary policy report to Congress is submitted pursuant to Section 2B of the Federal Reserve Act. The monetary policy report did not go into any detail regarding international trade or exchange rates.

For a consultation on any regulatory or legislative discussions or announcements during today’s hearing, please reach out to us at altondrew@altondrew.com to reserve an appointment.

Exchange rates of interest as of 12:15 pm AST

Currency pairExchange rate
AUD/USD*0.7478
EUR/USD*1.1819
GBP/USD*1.3879
USD/CAD*1.2454
USD/CHF*0.9163
USD/JPY*110.1200
USD/XCD+2.7000
USD/NGN+410.3770
USD/MXN*19.9560
Sources: *Reuters +OANDA

Rates reported by the Federal Reserve (Release Date 13 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.06%

1-year Treasury bill: 0.07%

Interbank Market News Scan: Federal Reserve releases minutes; New York Fed unwinds corporate bonds.

Interbank. At the end of 2021, most term loans, lines of credit or other debt instruments with variable interest provisions tied to the London Interbank Offered Rate (LIBOR) will need to switch to an alternative benchmark. https://www.telegraphherald.com/magazine-websites/biztimes/finance/article_eb0ab61c-9dfb-5dab-a4d8-30d4713f1c39.html

Interbank. China’s government bonds rallied, sending the benchmark 10-year yield to the lowest level since August, after the government indicated that the central bank could loosen its policy to support the economy. https://www.bloomberg.com/news/articles/2021-07-08/china-s-traders-race-to-buy-bonds-on-policy-easing-signals?sref=oriheOus

Interbank.  Here’s what went wrong with LIBOR. https://www.bloomberg.com/news/videos/2021-06-29/here-s-what-went-wrong-with-libor-video?sref=oriheOus

Interbank. Only half of loan investors believe their instruments have robust fallback language designed to ensure a smooth transition from the London interbank offered rate, according to a recent survey from Barclays Plc. https://www.bloomberg.com/news/articles/2021-06-25/libor-fears-persist-for-loan-market-with-six-months-to-deadline?sref=oriheOus

Interbank. A key gauge of funding conditions in Europe suggests money markets are pricing in an eventual end to the region’s unprecedented liquidity glut. https://www.bloomberg.com/news/articles/2021-07-02/europe-s-money-markets-prepare-for-world-without-unlimited-cash?sref=oriheOus

Interbank. Look for dollar strength into 2022. https://www.bloomberg.com/news/videos/2021-07-08/look-for-dollar-strength-into-2022-ubs-global-wm-s-schnider-video?sref=oriheOus

Board of Governors of the Federal Reserve.  Minutes of the Federal Reserve Open Market Committee. https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20210616.pdf

Federal Reserve Bank of New York. The Federal Reserve Bank of New York today announced that the Secondary Market Corporate Credit Facility (SMCCF) will begin gradual sales of its corporate bond holdings on July 12, 2021. https://www.newyorkfed.org/newsevents/news/markets/2021/20210708

8 July 2021

Interbank Market News Scan: Federal Reserve, foreign exchange, central banks …

28 June 2021

Links to follow ….

Interbank. China is taking another step to loosen its capital controls and in the process is giving onshore investors greater access to a previously hard-to-reach bond market.  https://www.bloomberg.com/news/articles/2021-06-27/how-china-is-cracking-a-window-for-its-bond-investors-quicktake?sref=oriheOus

Interbank. Only half of loan investors believe their instruments have robust fallback language designed to ensure a smooth transition from the London interbank offered rate, according to a recent survey from Barclays Plc. https://www.bloomberg.com/news/articles/2021-06-25/libor-fears-persist-for-loan-market-with-six-months-to-deadline?sref=oriheOus

Foreign exchange. Deutsche Bank AG compensated a Spanish company for losses the firm made after purchasing foreign-exchange derivatives from the German lender, people familiar with the matter said. https://www.bloomberg.com/news/articles/2021-06-28/deutsche-bank-compensates-firm-over-fx-derivatives-mis-sales?sref=oriheOus

Central banks. They spent 2020 uniting to fend off a historic recession, but central banks are slowly starting to take different paths in 2021. https://www.bloomberg.com/news/newsletters/2021-06-28/what-s-happening-in-the-world-economy-peak-central-bank-stimulus?sref=oriheOus

Central banks. Inflation is now an “influencer” of the Fed and the other central banks, but no more than that. The real question is how the central banks will respond to it, if at all, past their public comments. https://seekingalpha.com/article/4436858-central-banks-claim-check

Central banks, Federal Reserve. The Federal Reserve Board on Friday announced it will extend for a final time its Paycheck Protection Program Liquidity Facility, or PPPLF, by an additional month to July 30, 2021. The extension is being made as an operational accommodation to allow additional processing time for banks, community development financial institutions, and other financial institutions to pledge to the facility any Paycheck Protection Program, or PPP, loans approved by the Small Business Administration through the June 30 expiration of the PPP program. https://www.federalreserve.gov/newsevents/pressreleases/monetary20210625a.htm

U.S. Senate Committee on Banking, Housing, and Urban Affairs. Today, U.S. Senator Chris Van Hollen (D-Md.), a member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and Committee Chairman Sherrod Brown (D-Ohio) applauded the bipartisan House passage of their resolution to repeal the Trump Administration’s so-called True Lender Rule through the use of the Congressional Review Act. This regulation, finalized in the last months of the prior Administration, allows predatory lenders to skirt state laws meant to curb interest rates on loans and opens the doors for these lenders to prey on vulnerable consumers. The legislation now heads to the President’s desk for signature.  https://www.banking.senate.gov/newsroom/majority/house-passes-van-hollen-brown-legislation-to-strike-down-trump-era-rent-a-bank-rule-sending-it-to-the-presidents-desk

U.S. House Committee on Financial Services.  This week, Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, gave the following statement on the House floor urging the passage of Senate Joint Resolution 15, a resolution that invalidates the Trump Administration’s “True Lender” rule. https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=408055

Interbank Market News Scan: The Caribbean, foreign exchange …

25 June 2021

Eastern Caribbean Central Bank-interest rates

ECCB Fixed Deposit Rate-1 month0%
ECCB Fixed Deposit Rate-2 months0%
ECCB Fixed Deposit Rate-3 months0%
*ECCU Minimum Savings Deposit Rate2%
ECCB Discount Rate2%
Source: Eastern Caribbean Central Bank

*Eastern Caribbean Currency Union

Foreign exchange rates of interest

Where base currency is XCDRates as of 1:03 am AST 25 June 2021Where term currency is XCDRates as of 1:03 am AST 25 June 2021
XCD/EUR0.3104EUR/XCD3.2216
XCD/GBP0.2657GBP/XCD3.7634
XCD/USD0.3704USD/XCD2.7000
XCD/CAD0.4559CAD/XCD2.1932
XCD/NGN152.1620NGN/XCD0.0066
XCD/CNY2.3963CNY/XCD0.4169
XCD/PLN1.4038PLN/XCD0.7118
XCD/PEN1.4613PEN/XCD0.6723
Source: OANDA

Eastern Caribbean Central Bank.  The Eastern Caribbean Partial Credit Guarantee Corporation (ECPCGC) announces two new products aimed at helping regional Micro, Small and Medium Enterprises (MSMEs) rebound and grow their businesses. https://www.eccb-centralbank.org/news/view/ecpcgc-offers-additional-products-to-help-small-businesses

Federal Reserve. The Federal Reserve Board on Thursday released the results of its annual bank stress tests, which showed that large banks continue to have strong capital levels and could continue lending to households and businesses during a severe recession. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210624a.htm

Foreign exchange. Chinese banks’ stockpile of foreign-currency deposits has surpassed $1 trillion for the first time, creating an opportunity for Beijing to allow greater freedom for capital to flow out of the country. https://www.bloomberg.com/news/articles/2021-06-24/chinese-banks-stockpile-record-1-trillion-of-foreign-currencies?sref=oriheOus

Foreign exchange. The EU is unlikely to grant U.K.-based financial firms automatic market access in all areas post-Brexit, according to a top British minister. https://www.bloomberg.com/news/articles/2021-06-24/u-k-says-equivalence-with-eu-unlikely-in-all-areas-of-finance?sref=oriheOus

Interbank. China’s interbank treasury bond index in net price opened at 985.08 points Friday, higher than the previous close of 984.84 points, according to the China Foreign Exchange Trade System. http://www.china.org.cn/china/Off_the_Wire/2021-06/25/content_77586945.htm

Interbank Market News Scan: Eastern Caribbean, foreign exchange …

24 June 2021

Eastern Caribbean Central Bank-interest rates

ECCB Fixed Deposit Rate-1 month0%
ECCB Fixed Deposit Rate-2 months0%
ECCB Fixed Deposit Rate-3 months0%
ECCU (1) Minimum Savings Deposit Rate2%
ECCB Discount Rate2%
Source: Eastern Caribbean Central Bank
  • (1) Eastern Caribbean Currency Union

Foreign exchange rates of interest

Where base currency is XCDRates as of 1:15 am AST 24 June 2021Where term currency is XCDRates as of 1:30 am AST 24 June 2021
XCD/EUR0.3103EUR/XCD3.2222
XCD/GBP0.2653GBP/XCD3.7689
XCD/USD0.3704USD/XCD2.7000
XCD/CAD0.4556CAD/XCD2.1946
XCD/NGN151.8860NGN/XCD0.0066
XCD/CNY2.3986CNY/XCD0.4168
XCD/PLN1.4026PLN/XCD0.7122
XCD/PEN1.4509PEN/XCD0.6771
Source: OANDA

Foreign exchange. On 26 May 2021, the Cabinet of Ministers of Ukraine adopted the Resolution adopted a Resolution setting out the procedure the tax authority should use to fine legal entities for violating currency legislation. https://www.lexology.com/library/detail.aspx?g=b6a6e9df-ddaa-49c7-821a-355d5b0cf097

Foreign exchange. The U.S. dollar vacillated below an 11-week high versus major peers on Thursday as traders attempted to navigate conflicting signals from Federal Reserve officials on the timing of a withdrawal of monetary stimulus. https://www.cnbc.com/2021/06/24/forex-markets-dollar-us-federal-reserve.html

Interbank. Flour millers in Nigeria are turning to the street market for dollars to buy wheat after the central bank restricted the use of the U.S. currency to buy grain imports, according to the country’s third-largest operator. https://www.bloomberg.com/news/articles/2021-06-23/nigeria-flour-millers-squeezed-by-central-bank-ban-on-imports?sref=oriheOus

Interbank. The overnight Shanghai Interbank Offered Rate (Shibor), which measures the borrowing cost of China‘s interbank market, decreased 9.3 basis points to 2.208 percent Wednesday. http://www.china.org.cn/china/Off_the_Wire/2021-06/23/content_77581796.htm Interbank. China’s central bank boosted its short-term cash injection for the first time since March as it sought to cater to a growing demand for liquidity while keeping leverage in check. https://www.bloomberg.com/news/articles/2021-06-24/china-lifts-short-term-cash-injection-for-first-time-since-march?sref=oriheOus

Interbank Market News Scan: American bank CEOs squaring off with Senate banking committee at 10:00 am EST

Links you should follow …

Banks.  Chief executives of the six largest U.S. banks will testify in Congress Wednesday on oversight topics that include their response to the COVID-19 pandemic, diversity efforts and cryptocurrencies. CEOs of 6 biggest U.S. banks to testify in Senate about COVID-19 moves, culture – UPI.com

Central banks. New Zealand followed in the footsteps of Canada to flag a potential interest-rate increase next year as central banks begin to tip toe away from their emergency monetary settings. Slowly But Surely, Central Banks Are Signaling Policy Shifts – Bloomberg

Banks. Wells Fargo & Co. has invested in The Harbor Bank of Maryland and a Washington, D.C., institution as part of a 2020 plan to commit $50 million to Black-owned banks around the country. Wells Fargo & Co. invests in The Harbor Bank of Maryland in commitment to Black-owned banks – Baltimore Sun

Central banks. Regional Federal Reserve Banks are taking an increasingly “alarming” stance on politically charged issues like racial justice, according to Sen. Pat Toomey, a Republican from Pennsylvania who is the ranking member of the Senate Banking Committee. Wokeness at Fed’s regional banks puts central bank independence at risk | Fox Business 

Banks. Bitcoin’s price has continued to fluctuate, falling by $3,000 in a matter of hours, with big banks divided on how to approach the cryptocurrency. Bitcoin Price Rollercoaster Continues as Banks Unsure How to Approach the Crypto (msn.com)

Central banks. Eric Robertsen of Standard Chartered Bank sees some upside for commodity currencies with inflation rising. He doesn’t expect the Fed to have any “concrete announcement” on tapering before September. A few G10 central banks will ‘dial back’ bond purchasing programs later this year: Standard Chartered (msn.com) Payment systems. Commercial and central banks across the world are now using blockchain technology for payment processing and issuing of their digital currencies. The technology enables cross-border payments that are less expensive and faster as compared to traditional systems. Rapid Demand for Digital Payment Systems Being Fueled by Increasing Market Growth In Blockchain – MarketWatch

Foreign exchange rates of interest …

Currency PairsRates as of 10:45 am AST 26 May 2021
EUR/XCD3.3055
USD/XCD2.7000
CAD/XCD2.2402
EUR/JMD181.2040
USD/JMD148.0130
CAD/JMD122.8050
USD/DOP56.4454
USD/HTG88.6591
Source: OANDA

Interbank Market News Scan: Federal Reserve signals closer eye on hedge fund and prime brokerage ebullience…

FedSpeak: Fed governor Lael Brainard issues statement about resiliency in the financial system …

Statement by Governor Lael Brainard, 6 May 2021

“The latest Financial Stability Report provides valuable analysis to track increases in financial system vulnerabilities. I would highlight a few areas. Vulnerabilities associated with elevated risk appetite are rising. Valuations across a range of asset classes have continued to rise from levels that were already elevated late last year. Equity indices are setting new highs, equity prices relative to forecasts of earnings are near the top of their historical distribution, and the appetite for risk has increased broadly, as the “meme stock” episode demonstrated. Corporate bond markets are also seeing elevated risk appetite, and the spreads of lower quality speculative-grade bonds relative to Treasury yields are among the tightest we have seen historically. The combination of stretched valuations with very high levels of corporate indebtedness bear watching because of the potential to amplify the effects of a re-pricing event.

The FSR describes the failure of Archegos Capital Management and the associated losses at a number of large banks. It highlights the potential for nonbank financial institutions such as hedge funds and other leveraged investors to generate large losses in the financial system. The Archegos event illustrates the limited visibility into hedge fund exposures and serves as a reminder that available measures of hedge fund leverage may not be capturing important risks. The potential for material distress at hedge funds to affect broader financial conditions underscores the importance of more granular, higher-frequency disclosures.

With investors ebullient on expectations for a strong rebound, it is important to closely monitor risks to the system and ensure the financial system is resilient. With valuations and risk appetite at elevated levels, strong microprudential safeguards and macroprudential tools such as the Countercyclical Capital Buffer will be important to address risks to financial stability and enable monetary policy to focus on its maximum employment and average inflation goals.”

Links to follow …

Banks. A choppy day of trading on Wall Street ended Thursday with stocks broadly higher and another all-time high for the Dow Jones Industrial Average. US Stocks Close Higher as Banks, Technology Lead Broad Rally | Business News | US News

Banks, Archegos. The dust hadn’t yet settled on Archegos Capital Management’s implosion, when hedge funds started shifting their bets toward banks that avoided getting hurt, hoping to keep leveraging up just like before. Good luck with that. Archegos Blowup Crimps Hedge Fund Leverage as Banks Cut Risk – Bloomberg

Banks. The European Central Bank will take a closer look at bank loans to lightly regulated investment funds and specialised lenders after the spectacular collapses of Archegos Capital Management and Greensill, top ECB supervisor Andrea Enria told Reuters. ECB to inspect loans to shadow banks after Greensill, Archegos fiascos (msn.com)

Foreign exchange rates of interest

Currency PairsRates as of 10:27 pm EST 6 May 2021Rates as of 8:27 pm EST 5 May 2021 Change in pips
EUR/USD1.20601.2007 +53
GBP/USD1.39041.3904 No change
AUD/USD0.77800.7746 +34
USD/CAD1.21541.2269 -115
USD/JPY109.1100109.2500 -1400
USD/NOK8.30288.3504 -476
USD/CHF0.90770.9127 -50
USD/SEK8.42238.4830 -607
USD/MEX20.086020.2560 -1700
Source: Reuters
Selected Rates 
Fed Funds.05
Bank prime rate3.25
Fed Funds target rate.25
2-yr Treasury.15
10-yr Treasury1.57
30-yr2.24
Source: Bloomberg

Interbank Market News Scan: On the horizon is the opportunity for bank customers to buy and sell crypto through their accounts …

Links to follow ….

Banks. For the first time, customers of some U.S. banks will soon be able to buy, hold and sell bitcoin through their existing accounts, according to crypto custody firm NYDIG. Bitcoin is coming to hundreds of US banks, says crypto firm NYDIG (cnbc.com)

Banks. Archegos Capital Management, the family office run by former Tiger Asia manager Bill Hwang, is preparing for insolvency as banks involved in financing its trades seek to recoup some of their losses, the Financial Times reported on Wednesday. Archegos Prepares for Insolvency as Banks Seek Compensation: Financial Times | Investing News | US News

Cryptocurrency, Dogecoin. Dallas Mavericks owner Mark Cuban tweeted about Dogecoin again over the weekend, saying the form of cryptocurrency could become a useful currency if things fall the right way. Can Dogecoin become a useful currency? (msn.com)

Federal Reserve System. The Federal Reserve Board on Wednesday invited public comment on proposed guidelines to evaluate requests for accounts and payment services at Federal Reserve Banks (“Account Access Guidelines”). Federal Reserve Board – Federal Reserve Board invites public comment on proposed guidelines to evaluate requests for accounts and payment services at Federal Reserve Banks

Foreign exchange rates of interest ….

Currency PairsRates as of 8:27 pm EST 5 May 2021Rates as of 9:29 pm EST 4 May 2021Change in pips
EUR/USD1.20071.2017-10
GBP/USD1.39041.3891+13
AUD/USD0.77460.7711+35
USD/CAD1.22691.2290-21
USD/JPY109.2500109.3000-500
USD/NOK8.35048.3276+228
USD/CHF0.91270.9133-6
USD/SEK8.48308.4837-7
USD/MEX20.256020.1837+723
Source: Reuters

From the lips of the Federal Reserve …

Federal Reserve Board Governor Michelle Bowman shares her 2021 economic outlook

“I believe that the economy has gained momentum in the past several months and is well positioned to grow strongly in 2021. Nevertheless, we have further to go to recover from the economic damage inflicted by the COVID-19 pandemic, and risks remain.” — Michelle W. Bowman

“Thank you for this opportunity to address the members of the Colorado Forum, which has been an arena for thoughtful discussion and debate for more than 40 years. Today I would like to discuss a subject that I expect is of great interest to Coloradans and others: the outlook for the U.S. economy in 2021. I believe that the economy has gained momentum in the past several months and is well positioned to grow strongly in 2021. Nevertheless, we have further to go to recover from the economic damage inflicted by the COVID-19 pandemic, and risks remain.

As we all know, starting in late February or March of last year, widespread economic and social lockdowns and other effects of the pandemic caused the swiftest and deepest contraction in employment and economic activity since the Great Depression. Money markets, the Treasury market, and other parts of the financial system seized up, and there were fears of another severe financial crisis. The Federal Reserve stepped in quickly to assist, reviving several lending facilities used in the previous crisis and creating several new facilities. We also cut short-term interest rates to near zero and began purchasing large quantities of Treasury and agency securities to help sustain the flow of credit to households and businesses. Congress and the Administration also worked together to provide effective and timely support. Calm was restored in financial markets, and employment and output began growing in May, but it was a very deep hole to fill. Since that time, progress in controlling the pandemic has been a dominant force driving the economic recovery. Rapid progress last summer gave way to slower economic growth over the turn of the year, as infection rates once again surged. But after a substantial pickup in vaccinations and steep declines in virus-related hospitalizations and deaths, the economic outlook has brightened. Job creation had stalled over the winter months but improved again starting in February. Over the past year, we’ve seen a return of nearly 14 million jobs.

Another significant factor contributing to the recovery is the resilience of private-sector businesses. Our economic recovery has been more rapid and stronger than many forecasters expected, partly due to the ability of businesses to adapt to conditions that none of them had planned for, and few even imagined could be possible. Initially, government assistance was important, but millions of businesses were at risk of closure. Instead, many are open and growing today due to the resourcefulness and determination of entrepreneurs and workers and their ability to adjust business plans and operations to deal with the effects of social-distancing and operating restrictions. Of course, technology helped a great deal, but businesses were able to find many other ways to maintain operations and sustain their connections to customers. In writing the history of these eventful times, I hope that the efforts of these businesses and the strength of America’s market-based economy get the considerable credit they deserve.

Recently, the incoming data indicate that economic activity is on an upswing, and the risks of more negative outcomes—especially those from COVID-19—appear to be easing. Vaccinations and the easing of operating and social-distancing restrictions are boosting consumer and business confidence, with the results clear to see in the data on spending. Retail sales surged nearly 10 percent in March and are actually above the trendline that was interrupted by the pandemic a year ago. One particularly encouraging signal in that report was a sharp expansion in spending on food services. I hope this is an indication that consumers are finally returning to in-person dining as spring arrives and local authorities allow restaurants to accommodate more diners. If so, and my fingers are crossed, it is a very good sign of further progress in one of the sectors hardest hit by the pandemic.

In the job market, job gains rebounded to 916,000 in March. At our March meeting, my view was broadly in line with the median of projections of other members of the Federal Open Market Committee (FOMC), which anticipated the economy would grow between 5.8 percent and 6.6 percent in 2021. But the outlook has improved since then, and it now appears that real gross domestic product may increase close to or even above the higher end of that range. This annual increase would be the largest in 36 years.

Likewise, the FOMC median in March was for unemployment to fall to 4.5 percent at the end of 2021, and now it seems possible that it may fall even further. With the economy continuing to reopen, I expect the pace of job creation to remain unusually strong over the spring and summer. Over the past few months many schools have resumed some form of in-person learning, which should translate into a rebound in labor force participation as more parents overseeing virtual education and child care are able to increase hours or return to the workforce.

The biggest risk to the outlook continues to be the course of the pandemic. I see good reasons to be optimistic. Vaccinations are proceeding at a rapid pace, and this progress is supporting decisions by state and local leaders to relax economic restrictions. Most importantly, deaths related to the virus have continued to fall steadily and are at roughly the rate as in early October of last year. I remain hopeful that progress in the economic recovery can stay ahead of new challenges that might emerge, like the spread of new virus variants. That would allow states and localities to continue easing economic and social distancing restrictions and encourage consumers and businesses to return to normal activities. I understand that in Colorado, for example, officials are considering lifting social-distancing restrictions on individuals and businesses. I would be interested to hear from this group about how businesses in Colorado have been faring and whether they have seen an improvement in demand as the pandemic conditions are easing.

While I am optimistic about the ongoing recovery, one lesson of the past year is the significant degree of uncertainty about the course of the virus and its effect on the economy. We experienced periods of considerable progress last year, but we saw some of that progress overtaken by waves of the infection late in the year. Likewise, economic growth rebounded much more quickly than many had expected, but then slowed late in 2020 before regaining speed following the availability of the vaccine. Even with recent encouraging reports on food services, activity in the travel, leisure, and hospitality sectors is still severely compromised, but is showing glimmers of activity. It may be some time before we know whether old habits will resume or new habits have developed that may define a post-pandemic new normal. As I noted in a recent speech, I am particularly concerned about the longer-term effect on small businesses, many of which have held on with government aid and loan forbearance programs that will soon expire.1 It will be several months before we know the final count of permanent small business closures from 2020, but it could be more than we expect.

I will now turn to how the Federal Reserve is proceeding in light of the strong signals of momentum building in the economy. The economic recovery is not yet complete, and the uncertain course of the pandemic still presents risks in the near term, which is why my colleagues and I on the FOMC decided last week to maintain our highly accommodative stance of monetary policy. Despite the progress to date and the signs of acceleration in the recovery, employment is still considerably short of where it was when the pandemic disrupted the economy and it is well below where it should be, considering the pre-pandemic trend. In particular, our maximum employment mandate is intended as a broad and inclusive goal increasing employment and opportunity, but I remain concerned that employment gains for some minority groups have lagged behind those of others. While job creation has been and is expected to remain strong, the pace will eventually slow as the share of those who have been unemployed for the longer-term increases among those who are looking for work. We are making good progress toward our full employment goal, but we still have a long way to go, and risks remain.

This brings me to the other side of our policy mandate. Over the next several months, I expect that headline inflation measures will move above our long-run target of 2 percent. A main reason I expect this outcome is simply the fact that the very low inflation readings during last spring’s deep economic contraction will drop from the usual calculation of 12-month price changes. But in addition, the unusually rapid rebound in economic activity that we’ve seen, along with the pandemic-driven shift towards goods purchases, has led to supply-chain bottlenecks in a number of areas, which in turn have pushed up prices for many goods. One prominent example is with semiconductor producers and their need to dramatically alter the mix of production to meet demands of the high-tech and automotive industries. Although I expect these upward price pressures to ease after the temporary supply bottlenecks are resolved, the exact timing of that dynamic is uncertain. If the supply bottlenecks prove to be more long-lasting than currently expected, I will adjust my views on the inflation outlook accordingly. At this point, the risk that inflation remains persistently above our long-run target of 2 percent still appears small.

In summary, let me say that I am encouraged by the recent pace of the economic recovery, and I remain optimistic that this strength will continue in the coming months. One reason for my optimism is that businesses have been effective in responding to the challenges posed by the pandemic and by economic restrictions implemented in efforts to contain it. We really can’t know how the pandemic will proceed and how that will affect the U.S. economy, but I think we are currently on a good path, and our policy is in a good place. Thank you again for inviting me to speak to you today, and I would be happy to respond to your questions.” — Michelle W. Bowman, 5 May 2021

Source: Board of Governors of the Federal Reserve System

Interbank Market News Scan: A vote that can bring the question of Scottish independence a little closer…

Links you should be following today …

Trading desks. A week that could set in motion the eventual collapse of the 314-year union between England and Scotland is concentrating City trading desks on market disasters ahead. ‘Worse Than Brexit’: Scottish Independence Weighs on U.K. Assets – Bloomberg

Banks. Kate Kelly, The New York Times business reporter, joins ‘Squawk on the Street’ to discuss her story on Goldman Sachs’ plan to end remote work for most of its workers and bring them back to the office by mid-to-late June. Goldman Sachs to end remote work for most employees — What that could mean for other banks (msn.com)

Banks. Larger banks ask corporate clients to reduce their cash deposits. Cash-rich US banks move to reduce corporate deposits | Financial Times (ft.com)

Banks. Long ago central banks secured a monopoly over the issuance of paper money. Now physical cash in the form of bank notes and coins is in terminal decline. But the monetary authorities don’t intend to allow cryptocurrencies to fill the void without a fight. Instead, they’re responding with their own version of a so-called “stablecoin”. These central bank digital currencies, or CBDCs, could turn out to be the most revolutionary financial innovation since, well, the inception of paper money. Chancellor: Central bank coin will crush the banks | Nasdaq

Banks. Loan officers at U.S. banks reported easing standards on most business and household loans in the first three months of the year as more of the country reopened amid accelerating vaccination rates. Banks eased standards for business, household loans in first quarter, Fed survey shows (msn.com)

Foreign exchange rates of interest …

Currency PairsRates as of 9:29 pm EST 4 May 2021Rates as of 11:05 pm EST 3 May 2021Change in pips
EUR/USD1.20171.2047-30
GBP/USD1.38911.3879+12
AUD/USD0.77110.7742-31
USD/CAD1.22901.2293-3
USD/JPY109.3000109.1900+1,100
USD/NOK8.32768.2964+312
USD/CHF0.91330.9124+9
USD/SEK8.48378.4250+587
USD/MEX20.183720.2220-383
Source: Reuters

FedWatch: Fed chair Jerome Powell delivers remarks on the Community Reinvestment Act and the importance of community development …

“We see our robust supervisory approach as critical to addressing racial discrimination, which can limit consumers’ ability to improve their economic circumstances, including through access to homeownership and education.” — Jerome Powell

“Good afternoon. It is a pleasure to be with you today.

Together, over the past year, we have been making our way through a very difficult time. We are not out of the woods yet, but I am glad to say that we are now making real progress. While some countries are still suffering terribly in the grip of COVID-19, the economic outlook here in the United States has clearly brightened. Vaccination levels are rising. Fiscal and monetary policy are providing strong support. The economy is reopening, bringing stronger economic activity and job creation.

That is the high-level perspective—let’s call it the 30,000 foot view—and from that vantage point, we see improvement. But we should also take a look at what is happening at street level. Lives and livelihoods have been affected in ways that vary from person to person, family to family, and community to community. The economic downturn has not fallen evenly on all Americans, and those least able to bear the burden have been the hardest hit.

The pain is all the greater in light of the gains we had seen in the years prior to the pandemic. COVID swept in as the United States was experiencing the longest expansion on record. Unemployment was at 50-year lows, and inflation remained under control. Wages were moving up, particularly for the lowest-paid workers. Long-standing racial disparities in unemployment were narrowing, and many who had struggled for years were finding jobs. It was not until the later years of that expansion that its benefits had started to reach those on the margins. During our Fed Listens events, we met with people around the country and heard repeatedly about the life-changing gains of the strong labor market, particularly at the lower end of the income spectrum. Just a few months later, those stories changed to ones of job losses, overextended support services, and businesses built over generations closing their doors for good.

While the recovery is gathering strength, it has been slower for those in lower-paid jobs: Almost 20 percent of workers who were in the lowest earnings quartile in February of 2020 were not employed a year later, compared to 6 percent for workers in the highest quartile.1

The Fed’s latest Survey of Household Economics and Decisionmaking—or SHED report—which will be published later this month, will show that, for prime-age adults without a bachelor’s degree, 20 percent saw layoffs in 2020 versus 12 percent for college-educated workers. And more than 20 percent of Black and Hispanic prime-age workers were laid off compared to 14 percent of white workers over the same period.

Small businesses have also faced immense difficulties. Fed research found that 80 percent of those surveyed reported a decline in revenue, with two-thirds of those businesses experiencing losses of at least 25 percent.2 A recent Federal Reserve special report looked specifically at the impact on businesses owned by people of color, who reported greater challenges. For example, 67 percent of both Asian- and Black-owned firms and 63 percent of Hispanic-owned firms had to reduce their operations compared to 54 percent for their white counterparts.3

Our upcoming SHED report notes that 22 percent of parents were either not working or working less because of disruptions to childcare or in-person schooling. Black and Hispanic mothers—36 percent and 30 percent, respectively—were disproportionately affected. In a similar vein, labor force participation declined around 4 percentage points for Black and Hispanic women compared to 1.6 percentage points for white women and about 2 percentage points for men overall.4 The Fed is focused on these long-standing disparities because they weigh on the productive capacity of our economy. We will only reach our full potential when everyone can contribute to, and share in, the benefits of prosperity.

Achieving broadly shared prosperity will take action from across society, from fiscal and other government policy to private-sector initiatives to the work everyone here does. The Fed can contribute as well. Using our monetary policy tools, the Fed promotes maximum employment and price stability—two foundations of a strong, stable economy that can improve economic outcomes for all Americans. We view maximum employment as a broad and inclusive goal. Those who have historically been left behind stand the best chance of prospering in a strong economy with plentiful job opportunities. Our recent history highlights both the benefits of a strong economy and the severe costs of a weak one.

Supervisory tools also have a role to play. As part of our policy responsibilities, the Board of Governors enforces both the Fair Housing Act and the Equal Credit Opportunity Act, the federal fair lending laws that prohibit discrimination in lending. Violations of the fair lending laws, along with other illegal credit practices, are taken into account during bank evaluations under the Community Reinvestment Act (CRA). We see our robust supervisory approach as critical to addressing racial discrimination, which can limit consumers’ ability to improve their economic circumstances, including through access to homeownership and education.

The Fed’s community development function plays a role as well, studying what works, convening stakeholders on both the national and District level, and helping financial institutions find opportunities to invest and expand credit opportunities in low- and moderate-income communities.

The economic landscape has changed, and efforts to provide access and credit to communities must change with it. Last year, the Fed issued a proposal for a strengthened, modernized CRA framework, with the objective of building broad support among both external stakeholders and participating agencies. Our goal is to strengthen the core purpose of meeting the credit needs of low- and moderate-income communities. We especially appreciated NCRC’s feedback on the proposal.

We will continue to do our part, and we appreciate the ways our work and that of NCRC members have intersected. Last April, for instance, the Fed expanded the Paycheck Protection Program Liquidity Facility in order to broaden its reach to include some nondepository lenders. That included CDFI (community development financial institution) loan funds, which many of the people here represent. Your work provided small businesses with invaluable technical assistance to help them weather the downturn, and you have helped them get the funds they need to support their businesses.

NCRC member groups have contributed in so many ways. You helped workers who lost their jobs get retrained. You supported working parents. You helped homeowners struggling with payments and connected renters to federal assistance programs. You brought more people into the banking system, helped strengthen financial literacy and capabilities, and worked to address digital divides in areas of need—particularly in rural communities—at a time when connectivity is essential.

I would like to close by saying thank you. You have been working hard through this crisis, and an enormous amount of work still lies ahead. But what you do is essential. You provide an invaluable service: You make people’s lives better. There is no higher calling.

Thank you.” — Jerome Powell, 3 May 2021