speech on banking system

President Biden Remarks on Banking and the Economy

President Biden addressed government steps over the weekend to prevent a banking crisis following the collapse of Silicon Valley Bank . The p… read more

President Biden addressed government steps over the weekend to prevent a banking crisis following the collapse of Silicon Valley Bank . The president argued the “quick action” by the Federal Reserve , Treasury and Federal Deposit Insurance Corporation (FDIC) means “Americans can have confidence that the banking system is safe.” He also said any losses would “not be borne by the taxpayers.” Instead, fees paid by banks into a government insurance fund would cover any losses. close

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Statement from President Joe   Biden on Actions to Strengthen Confidence in the Banking   System

Over the weekend, and at my direction, the Treasury Secretary and my National Economic Council Director worked diligently with the banking regulators to address problems at Silicon Valley Bank and Signature Bank. I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe. The solution also ensures that taxpayer dollars are not put at risk.   The American people and American businesses can have confidence that their bank deposits will be there when they need them.   I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.   Tomorrow morning, I will deliver remarks on how we will maintain a resilient banking system to protect our historic economic recovery.

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Watch CBS News

Biden says Americans can "rest assured" banking system is secure after SVB collapse

By Melissa Quinn

Updated on: March 13, 2023 / 7:25 PM EDT / CBS News

Washington — President Biden on Monday sought to reassure Americans that they can have confidence in the U.S. banking system following the  collapse of Silicon Valley Bank  and quell any concerns about the fallout from its abrupt failure.

"Americans can have confidence that the banking system is safe," Mr. Biden said in brief remarks from the White House. "Your deposits will be there when you need them. Small businesses across the country that deposit accounts at these banks can breathe easier knowing they'll be able to pay their workers and pay their bills, and their hard-working employees can breathe easier as well."

The president's comments came after U.S. bank regulators spent the weekend  working on a plan  to shore up the public's confidence in the soundness of the financial system and limit spillover effects following the closing of Silicon Valley Bank last week.

• Fallout from Silicon Valley Bank collapse ripples across the industry

Biden administration  officials announced Sunday  that depositors with accounts at Silicon Valley Bank will have access to all of their money beginning Monday, and "no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer." 

The emergency action "fully protects" all depositors, Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg said.

Mr. Biden reiterated during his remarks that "no losses will be borne by the taxpayers," and said the money will instead come from fees that banks pay into the Deposit Insurance Fund.

"Every American should feel confident that their deposits will be there if and when they need them," he said. 

Investors in the banks, however, will not be protected, the president said, and management will be fired.

"They knowingly took a risk, and when the risk didn't pay off, investors lose their money. That's how capitalism works," Mr. Biden said.

The president also called for a "full accounting" of what led to the collapse of Silicon Valley Bank and a second institution, Signature Bank of New York, which was taken over by state regulators Sunday, and how to hold those responsible accountable.

"No one is above the law," Mr. Biden said.

The president said he intends to ask Congress and banking regulators to strengthen the rules for banks to stave off future failures.

"Americans can rest assured that our banking system is safe. Your deposits are safe," he said. "Let me also assure you we will not stop at this. We will do whatever is needed."

Mr. Biden spoke at the White House before traveling to San Diego, California, for meetings with Australian Prime Minister Anthony Albanese and British Prime Minister Rishi Sunak.

California regulators shut down Silicon Valley Bank on Friday after depositors rushed to withdraw money last week due to concerns about its balance sheet, and the FDIC was appointed receiver. 

Silicon Valley Bank, which was 40 years old and ranked as the 16th largest bank in the U.S., catered largely to the tech industry and was used by many start-ups and venture capital firms. It is the largest financial institution to collapse since Washington Mutual at the height of the financial crisis in 2008.

In addition to federal government shoring up deposits at Silicon Valley Bank and Signature Bank, the Fed announced it is standing up a new emergency lending program , called the Bank Term Funding Program, "to help assure banks have the ability to meet the needs of all their depositors."

The FDIC is running day-to-day operations of Signature Bank, New York Gov. Kathy Hochul said Monday, and all deposits, including those above the agency's $250,000 insurance cap, will be protected.

"Our view was to make sure that the entire banking community here in New York was stable, that we can project calm, that this is a time that we could manage a certain narrow situation and to make sure that that did not get any worse," she said.

Hochul said the closure of Signature Bank "didn't happen in a vacuum," but rather was the effect of depositors watching what occurred at Silicon Valley Bank.

Yellen ruled out a federal bailout for Silicon Valley Bank's investors, telling "Face the Nation" in an interview that "we're not going to do that again." 

The president said in a statement Sunday that the steps agreed to by his administration and banking regulators protect American workers and small businesses and keep our financial system safe.

"The solution also ensures that taxpayer dollars are not put at risk," he said. "The American people and American businesses can have confidence that their bank deposits will be there when they need them."

Melissa Quinn is a politics reporter for CBSNews.com. She has written for outlets including the Washington Examiner, Daily Signal and Alexandria Times. Melissa covers U.S. politics, with a focus on the Supreme Court and federal courts.

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A Supervisory Perspective on the U.S. Banking System

Thank you, Laura, and hello to those of you attending in-person and virtually. It is a pleasure to be speaking at the Global Banking Summit.

The New York Fed is responsible for supervising a wide range of financial institutions, from some of the nation's largest banks, to the U.S. operations of foreign banking organizations, to regional and community banks. We also have oversight responsibilities for financial market utilities and significant service providers. I'm looking forward to sharing some perspectives from this unique vantage point.

I'll begin my remarks today with an overview of the current state of the U.S. banking system. Then, I will highlight a few risks in the present environment. I want to note that my remarks today are my own and do not necessarily reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System.

Current State of the Banking System

The U.S. banking system entered the year in sound condition, but market conditions are changing and, as Vice Chair for Supervision Michael Barr recently said, we must ensure we are keeping pace as supervisors. 1 Let me discuss in more detail.

The vast majority of banks remain above regulatory capital minimums. 2 For large banks, we conduct annual tests to assess their capital positions under a stressed economic scenario. The Fed's most recent stress test showed that large banks would maintain capital above minimum requirements in a simulated severe downturn. 3

Banks' liquidity profiles also remain ample. 4 As described in the Fed's semiannual Supervision and Regulation Report, large banks maintain sufficient liquidity to meet modeled stressed outflows. 5

Financial performance has also been stable. Banks continue to provide their core financial services of lending, deposit taking, payments, and market intermediation. Year to date, total loans have grown at an annualized rate of over 10%, with robust growth across household and corporate borrowers. 6 Return on equity remains in line with historical levels. 7

While the current picture is one of resilience, we remain attuned to risks faced by banks. I'll highlight three risks we are focused on from a supervisory perspective.

An Unfamiliar Economic Environment

The first risk relates to the unfamiliar, uncertain, and fast-changing economic environment. Interest rates are one example. Higher interest rates have benefited net interest margins, but they have also led to significant unrealized losses in banks' securities portfolios. For the broader banking system, declines in the value of securities have led to reductions in liquidity. Interest rate risk remains a watchpoint.

Higher interest rates could also challenge some borrowers' ability to service or repay debt, particularly for borrowers with interest payments tied to floating rates. For example, commercial real estate loans are often linked to floating rates, and the outlook for commercial properties is also affected by the shift to remote work. 8 This sector is particularly relevant to the New York Fed—one of the largest commercial real estate markets in the world is in our district. 9

Improving our Understanding of Climate-Related Financial Risks

The second risk I'll highlight relates to climate change, which poses financial risks to individual banks and the financial system. Here, the Federal Reserve Board is leading workstreams that will enhance supervisors' and banks' ability to understand and manage these risks. Early next year, the Board will conduct a pilot study with six of the largest U.S. banks to analyze the impact of different climate scenarios. 10 Four of those banks are headquartered in New York.

This exercise will provide supervisors and banks with insight into how climate-related financial risks may manifest. It will also help with the management of those potential risks.

The pilot exercise is distinct from the annual stress tests the Federal Reserve conducts. It will not result in supervisory or capital implications—rather, it will be a way for both banks and supervisors to learn.

Banks' Engagement in Crypto-Asset Activities

The third and final risk I'll highlight is related to banks' engagement with crypto-assets and crypto-asset-related businesses. Financial innovation presents opportunities, but it can also present risks—to banks, customers, and the financial system. The growing size of the crypto-asset industry, the volatility of underlying crypto-assets, and the recent failures of crypto-asset-related businesses make clear the need to evaluate banks' engagement in this space.

At present, U.S. banks' direct involvement in crypto activity is small and largely in the planning stages. Banks' provision of traditional financial services to crypto-asset-related businesses also remains limited. However, the risks associated with future activity can be hard to quantify.

In August, the Federal Reserve outlined key steps that banks should take before engaging in crypto-asset-related activities. These include notifying the Federal Reserve before engaging in crypto-asset-related activities and having effective controls and systems in place to manage associated risks. 11 Key risk management considerations will vary with the type of activity. For example, if a bank accepts crypto-related deposits, it must consider the funding implications in the event those deposits were to exit the bank quickly.

Importance of Strong Risk Management Practices

Through our supervision work at the New York Fed, we will continue to monitor, examine, and evaluate these and other risks to promote the safety and soundness of the banking system. While the banking system is currently resilient, it is essential that banks have strong risk management practices to identify challenges and maintain resiliency in this evolving environment.

Thank you, and I look forward to our discussion.

1 See Vice Chair for Supervision Barr’s November 15, 2022, testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, at https://www.federalreserve.gov/newsevents/testimony/barr20221115a.htm .

2 See page 1 of November 2022 Supervision and Regulation Report, at https://www.federalreserve.gov/publications/files/202211-supervision-and-regulation-report.pdf

3 See June 23, 2022, press release, "Federal Reserve Board releases results of annual bank stress test, which show that banks continue to have strong capital levels, allowing them to continue lending to households and businesses during a severe recession," at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220623a.htm

4 See pages 6, 7, and 11 of November 2022 Supervision and Regulation Report, at https://www.federalreserve.gov/publications/files/202211-supervision-and-regulation-report.pdf

5 Ibid., page 24.

6 See H.8 Assets and Liabilities of Commercial Banks in the United States, released on November 18, at https://www.federalreserve.gov/releases/h8/20221118 .

7 See page 4 of November 2022 Supervision and Regulation Report, at https://www.federalreserve.gov/publications/files/202211-supervision-and-regulation-report.pdf

8 Ibid., page 29.

9 See "16 U.S. Metros are in Top 30 Largest Commercial Markets Globally in 2020: NYC is the Number One CRE Market," at https://www.nar.realtor/blogs/economists-outlook/16-u-s-metros-are-in-top-30-largest-commercial-markets-globally-in-2020-nyc-is-the-number-one-cre

10 See September 29, 2022, press release, "Federal Reserve Board announces that six of the nation’s largest banks will participate in a pilot climate scenario analysis exercise designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks" at https://www.federalreserve.gov/newsevents/pressreleases/other20220929a.htm

11 See SR Letter 22-6, "Engagement in Crypto-Asset-Related Activities by Federal Reserve-Supervised Banking Organizations," at https://www.federalreserve.gov/supervisionreg/srletters/SR2206.htm .

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Biden to deliver remarks on u.s. banking sector monday morning after svb fallout.

March 12 (Reuters) - President Joe Biden will deliver remarks on the country's banking system early on Monday, the White House said in a statement.

The in-town pool call time for Biden's remarks was 8 am ET (1200 GMT), according to the White House. (Reporting by Shubham Kalia in Bengaluru; Kim Coghill)

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U.S. Department of the Treasury

Remarks by secretary of the treasury janet l. yellen at the american bankers association’s washington dc summit.

As Prepared for Delivery

Good morning, everyone. Thank you, Rob, for your leadership of the American Bankers Association. I greatly appreciate the invitation to be with all of you at an important moment.

As everyone in this room knows, the American economy relies on a healthy banking system that can provide for the credit needs of families and businesses. American households depend on banks to finance their homes, invest in an education, and otherwise improve their standards of living. Businesses borrow from these institutions to start new companies and expand existing ones.

I. Recent Developments in the Banking System

Almost two weeks ago, we learned of problems at two banks that could have had significant impacts on the broader banking system and the economy. The situation demanded a swift response. In the days that followed, the federal government delivered just that: decisive and forceful actions to strengthen public confidence in the U.S. banking system and protect the American economy.

Let me be clear: the government’s recent actions have demonstrated our resolute commitment to take the necessary steps to ensure that depositors’ savings and the banking system remain safe.

Our approach had two main pillars.

First, we worked with the Federal Reserve and FDIC to protect all depositors in the resolutions of Silicon Valley Bank and Signature Bank. The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion. I believe that our actions reduced the risk of further bank failures that would have imposed losses on the Deposit Insurance Fund, which is paid for through fees on insured banks.

Second, we announced a new facility to provide additional liquidity to the banking system. The Fed’s new lending facility – the Bank Term Funding Program – is designed to help banks meet the needs of all of their depositors.

The situation is stabilizing. And the U.S. banking system remains sound. 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.

As you know, 11 banks – including the very largest and some regional banks – announced $30 billion in deposits into First Republic Bank last week. This support represents a vote of confidence in our banking system.

We are continuing to monitor conditions closely. My team and I have been in close communication with many of you, in addition to federal and state regulators, other market participants, and international counterparts.

While we don’t yet have all the details about the collapse of the two banks, we do know that the recent developments are very different than those of the Global Financial Crisis. Back then, many financial institutions came under stress due to their holdings of subprime assets. We do not see that situation in the banking system today. Our financial system is also significantly stronger than it was 15 years ago. This is in large part due to post-crisis reforms that provided stronger capital standards, among other important improvements.

In the coming weeks, it will be vital for us to get a full accounting of exactly what happened in these bank failures. Regulators have already announced a review into Silicon Valley Bank. We are currently focused on the situation at hand. But we will need to reexamine our current regulatory and supervisory regimes and consider whether they are appropriate for the risks that banks face today. We all share an interest in ensuring that the United States remains the strongest and safest financial system in the world.

II. Importance of a Broad and Diverse Banking System

Given recent developments, I think it is important to reaffirm a broader point: our dynamic and diverse banking system is critical to the American economy. Large banks play an important role in our economy, but so do small- and mid-sized banks. These banks are heavily engaged in traditional banking services that provide vital credit and financial support to families and small businesses. They also increase competition in the banking sector, and often have specialized knowledge and expertise in the communities they invest in.

Indeed, many of these banks have played an important role in supporting our economic recovery. In the depths of the pandemic, Treasury was tasked with getting money quickly and responsibly to those who needed it. So, we worked closely with many of you to send economic impact payments to millions of families. You’ve also worked with us to deliver advance payments from the enhanced Child Tax Credit – which helped cut child poverty nearly in half in 2021. And we’ve collaborated to rapidly deploy assistance to hundreds of thousands of homeowners facing foreclosure. 

I also know that many of you are working with state governments to inject new financing into small businesses as part of our State Small Business Credit Initiative. In the prior iteration of this program, lenders with less than $10 billion in assets accounted for 95 percent of all program-supported loans. Our Administration has also been focused on working with mission-oriented banks to put us on a path toward inclusive economic growth. For example, Treasury’s Emergency Capital Investment Program has invested almost $8.4 billion in depository institutions that are CDFIs and MDIs.

Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions.

III. Conclusion

To end, let me return to where I started. A safe and sound banking system is integral to the health of the American economy. We are squarely focused on doing our job. And you should rest assured that we will remain vigilant.

I look forward to continuing to work together to strengthen our banking system and our nation’s economy.

Yellen says bank 'situation is stabilizing,' smaller banks play important role

Yellen said in a speech that "the U.S. banking system remains sound."

Treasury Secretary Janet Yellen said Tuesday that "the situation is stabilizing and the U.S. banking system remains sound," after regional bank failures have shaken the U.S. banking system.

"The Fed's facility and discount window lending are working as intended to provide liquidity to the banking system," she said during a speech at a meeting of the American Bankers Association in Washington. "Aggregate deposit outflows from regional banks have stabilized."

She said the government's intervention in the failures of Silicon Valley Bank and Signature Bank were "necessary" -- and said "similar actions could be warranted" to protect smaller banks.

"The steps we took were not focused on aiding specific banks or classes of banks," she said. "Our intervention was necessary to protect the broader U.S. banking system, and similar actions could be warranted if smaller institutions suffered deposit runs that pose the risk of contagion."

She argued that the existence of smaller banks was important.

MORE: The banking crisis threatens the Fed's inflation fight. Here's how.

"Large banks play an important role in our economy, but so do small- and mid-sized banks," she said. "These banks are heavily engaged in traditional banking services that provide vital credit and financial support to families and small businesses. They also increase competition in the banking sector, and often have specialized knowledge and expertise in the communities they invest in.

"Large banks play an important role in our economy, but so does small and mid-sized banks," she said. "These banks are heavily engaged in traditional banking services that provide vital credit and financial support to families and small businesses. They also increase competition in the banking sector and often have specialized knowledge and expertise in the communities they invest in. Indeed, many of these banks have played an important role in supporting our economic recovery in the depths of the pandemic."

"The Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institution," she said.

ABC News' William Kim contributed to this report.

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1791: Madison, Speech on the Bank Bill

• Collections: The American Revolution and Constitution
• James Madison

Source: Liberty and Order: The First American Party Struggle, ed. and with a Preface by Lance Banning (Indianapolis: Liberty Fund, 2004).

James Madison’s Speech on the Bank Bill 2 February 1791

Mr. Madison began with a general review of the advantages and disadvantages of banks. The former he stated to consist in, first, the aids they afford to merchants who can thereby push their mercantile operations farther with the same capital. 2d. The aids to merchants in paying punctually the customs. 3d. Aids to the government in complying punctually with its engagements, when deficiencies or delays happen in the revenue. 4th. In diminishing usury. 5th. In saving the wear of the gold and silver kept in the vaults and represented by notes. 6th. In facilitating occasional remittances from different places where notes happen to circulate. The effect of the proposed bank, in raising the value of stock, he thought, had been greatly overrated. It would no doubt raise that of the stock subscribed into the bank; but could have little effect on stock in general, as the interest on it would remain the same, and the quantity taken out of the market would be replaced by bank stock.

The principal disadvantages consisted in, 1st. banishing the precious metals, by substituting another medium to perform their office: This effect was inevitable. It was admitted by the most enlightened patrons of banks, particularly by Smith on The Wealth of Nations. The common answer to the objection was, that the money banished was only an exchange for something equally valuable that would be imported in return. He admitted the weight of this observation in general, but doubted whether, in the present habits of this country, the returns would not be in articles of no permanent use to it. 2d. Exposing the public and individuals to all the evils of a run on the bank, which would be particularly calamitous in so great a country as this, and might happen from various causes, as false rumours, bad management of the institution, an unfavorable balance of trade from short crops, etc.

It was proper to be considered also that the most important of the advantages would be better obtained by several banks properly distributed than by a single one. The aids to commerce could only be afforded at or very near the seat of the bank. The same was true of aids to merchants in the payment of customs. Anticipations of the government would also be most convenient at the different places where the interest of the debt was to be paid. The case in America was different from that in England: the interest there was all due at one place, and the genius of the monarchy favored the concentration of wealth and influence at the metropolis.

He thought the plan liable to other objections: It did not make so good a bargain for the public as was due to its interests. The charter to the bank of England had been granted for 11 years only, and was paid for by a loan to the government on terms better than could be elsewhere got. Every renewal of the charter had in like manner been purchased; in some instances at a very high price. The same had been done by the banks of Genoa, Naples, and other like banks of circulation. The plan was unequal to the public creditors—it gave an undue preference to the holders of a particular denomination of the public debt and to those at and within reach of the seat of government. If the subscriptions should be rapid, the distant holders of paper would be excluded altogether.

In making these remarks on the merits of the bill, he had reserved to himself, he said, the right to deny the authority of Congress to pass it. He had entertained this opinion from the date of the Constitution. His impression might perhaps be the stronger because he well recollected that a power to grant charters of incorporation had been proposed in the general convention and rejected.

Is the power of establishing an incorporated bank among the powers vested by the Constitution in the legislature of the United States? This is the question to be examined.

After some general remarks on the limitations of all political power, he took notice of the peculiar manner in which the federal government is limited. It is not a general grant, out of which particular powers are excepted—it is a grant of particular powers only, leaving the general mass in other hands. So it had been understood by its friends and its foes, and so it was to be interpreted.

As preliminaries to a right interpretation, he laid down the following rules:

An interpretation that destroys the very characteristic of the government cannot be just.

Where a meaning is clear, the consequences, whatever they may be, are to be admitted—where doubtful, it is fairly triable by its consequences.

In controverted cases, the meaning of the parties to the instrument, if to be collected by reasonable evidence, is a proper guide.

Cotemporary and concurrent expositions are reasonable evidence of the meaning of the parties.

In admitting or rejecting a constructive authority, not only the degree of its incidentality to an express authority is to be regarded, but the degree of its importance also, since on this will depend the probability or improbability of its being left to construction.

Reviewing the Constitution with an eye to these positions, it was not possible to discover in it the power to incorporate a Bank. The only clauses under which such a power could be pretended, are either—

1. The power to lay and collect taxes to pay the debts and provide for the common defence and general welfare; Or,

2. The power to borrow money on the credit of the United States; Or,

3. The power to pass all laws necessary and proper to carry into execution those powers.

The bill did not come within the first power. It laid no tax to pay the debts, or provide for the general welfare. It laid no tax whatever. It was altogether foreign to the subject.

No argument could be drawn from the terms “common defence and general welfare.” The power as to these general purposes was limited to acts laying taxes for them; and the general purposes themselves were limited and explained by the particular enumeration subjoined. To understand these terms in any sense that would justify the power in question would give to Congress an unlimited power; would render nugatory the enumeration of particular powers; would supercede all the powers reserved to the state governments. These terms are copied from the Articles of Confederation; had it ever been pretended that they were to be understood otherwise than as here explained?

It had been said that “general welfare” meant cases in which a general power might be exercised by Congress without interfering with the powers of the States; and that the establishment of a National Bank was of this sort. There were, he said, several answers to this novel doctrine.

1. The proposed Bank would interfere so as indirectly to defeat a State Bank at the same place. 2. It would directly interfere with the rights of the states to prohibit as well as to establish banks and the circulation of bank notes. He mentioned a law of Virginia, actually prohibiting the circulation of notes payable to bearer. 3. Interference with the power of the states was no constitutional criterion of the power of Congress. If the power was not given, Congress could not exercise it; if given, they might exercise it, altho it should interfere with the laws or even the constitution of the states. 4. If Congress could incorporate a Bank, merely because the act would leave the states free to establish banks also, any other incorporations might be made by Congress. They could incorporate companies of manufacturers, or companies for cutting canals, or even religious societies, leaving similar incorporations by the states, like state banks, to themselves. Congress might even establish religious teachers in every parish and pay them out of the Treasury of the United States, leaving other teachers unmolested in their functions. These inadmissible consequences condemned the controverted principle.

The case of the Bank established by the former Congress had been cited as a precedent. This was known, he said, to have been the child of necessity. It never could be justified by the regular powers of the Articles of Confederation. Congress betrayed a consciousness of this in recommending to the states to incorporate the Bank also. They did not attempt to protect the Bank Notes by penalties against counterfeiters. These were reserved wholly to the authority of the states.

The second clause to be examined is that which empowers Congress to borrow money.

Is this a bill to borrow money? It does not borrow a shilling. Is there any fair construction by which the bill can be deemed an exercise of the power to borrow money? The obvious meaning of the power to borrow money is that of accepting it from and stipulating payments to those who are able and willing to lend.

To say that the power to borrow involves a power of creating the ability, where there may be the will, to lend is not only establishing a dangerous principle, as will be immediately shewn, but is as forced a construction as to say that it involves the power of compelling the will, where there may be the ability, to lend.

The third clause is that which gives the power to pass all laws necessary and proper to execute the specified powers.

Whatever meaning this clause may have, none can be admitted that would give an unlimited discretion to Congress.

Its meaning must, according to the natural and obvious force of the terms and the context, be limited to means necessary to the end and incident to the nature of the specified powers.

The clause is in fact merely declaratory of what would have resulted by unavoidable implication, as the appropriate, and as it were, technical means of executing those powers. In this sense it had been explained by the friends of the Constitution and ratified by the state conventions.

The essential characteristic of the government, as composed of limited and enumerated powers, would be destroyed: If instead of direct and incidental means, any means could be used which, in the language of the preamble to the bill, “might be conceived to be conducive to the successful conducting of the finances; or might be conceived to tend to give facility to the obtaining of loans.” He urged an attention to the diffuse and ductile terms which had been found requisite to cover the stretch of power contained in the bill. He compared them with the terms necessary and proper, used in the Constitution, and asked whether it was possible to view the two descriptions as synonimous, or the one as a fair and safe commentary on the other.

If, proceeded he, Congress, by virtue of the power to borrow, can create the means of lending, and in pursuance of these means, can incorporate a Bank, they may do any thing whatever creative of like means.

The East-India Company has been a lender to the British government, as well as the Bank, and the South-Sea Company is a greater creditor than either. Congress then may incorporate similar companies in the United States, and that too not under the idea of regulating trade, but under that of borrowing money.

Private capitals are the chief resources for loans to the British government. Whatever then may be conceived to favor the accumulation of capitals may be done by Congress. They may incorporate manufactures. They may give monopolies in every branch of domestic industry.

If, again, Congress by virtue of the power to borrow money can create the ability to lend, they may by virtue of the power to levy money create the ability to pay it. The ability to pay taxes depends on the general wealth of the society, and this on the general prosperity of agriculture, manufactures and commerce. Congress then may give bounties and make regulations on all of these objects.

The states have, it is allowed on all hands, a concurrent right to lay and collect taxes. This power is secured to them not by its being expressly reserved, but by its not being ceded by the Constitution. The reasons for the bill cannot be admitted because they would invalidate that right; why may it not be conceived by Congress that a uniform and exclusive imposition of taxes would, not less than the proposed Banks, be conducive to the successful conducting of the national finances, and tend to give facility to the obtaining of revenue, for the use of the government?

The doctrine of implication is always a tender one. The danger of it has been felt in other governments. The delicacy was felt in the adoption of our own; the danger may also be felt, if we do not keep close to our chartered authorities.

Mark the reasoning on which the validity of the bill depends. To borrow money is made the end and the accumulation of capitals implied as the means. The accumulation of capitals is then the end and a bank implied as the means. The bank is then the end and a charter of incorporation, a monopoly, capital punishments, etc. implied as the means .

If implications thus remote and thus multiplied can be linked together, a chain may be formed that will reach every object of legislation, every object within the whole compass of political economy.

The latitude of interpretation required by the bill is condemned by the rule furnished by the constitution itself.

Congress have power “to regulate the value of money”; yet it is expressly added, not left to be implied, that counterfeitors may be punished.

They have the power “to declare war,” to which armies are more incident than incorporated Banks to borrowing; yet is expressly added, the power “to raise and support armies”; and to this again, the express power “to make rules and regulations for the government of armies”; a like remark is applicable to the powers as to a navy.

The regulation and calling out of the militia are more appurtenant to war than the proposed bank to borrowing; yet the former is not left to construction.

The very power to borrow money is a less remote implication from the power of war than an incorporated monopoly bank from the power of borrowing—yet the power to borrow is not left to implication.

It is not pretended that every insertion or omission in the constitution is the effect of systematic attention. This is not the character of any human work, particularly the work of a body of men. The examples cited, with others that might be added, sufficiently inculcate nevertheless a rule of interpretation very different from that on which the bill rests. They condemn the exercise of any power, particularly a great and important power, which is not evidently and necessarily involved in an express power.

It cannot be denied that the power proposed to be exercised is an important power.

As a charter of incorporation the bill creates an artificial person previously not existing in law. It confers important civil rights and attributes which could not otherwise be claimed. It is, though not precisely similar, at least equivalent to the naturalization of an alien, by which certain new civil characters are acquired by him. Would Congress have had the power to naturalize if it had not been expressly given?

In the power to make bylaws, the bill delegated a sort of legislative power, which is unquestionably an act of a high and important nature. He took notice of the only restraint on the bylaws, that they were not to be contrary to the law and the constitution of the bank; and asked what law was intended; if the law of the United States, the scantiness of their code would give a power never before given to a corporation—and obnoxious to the states, whose laws would then be superceded not only by the laws of Congress, but by the bylaws of a corporation within their own jurisdiction. If the law intended was the law of the state, then the state might make laws that would destroy an institution of the United States.

The bill gives a power to purchase and hold lands; Congress themselves could not purchase lands within a state “without the consent of its legislature.” How could they delegate a power to others which they did not possess themselves?

It takes from our successors, who have equal rights with ourselves, and with the aid of experience will be more capable of deciding on the subject, an opportunity of exercising that right for an immoderate term.

It takes from our constituents the opportunity of deliberating on the untried measure, although their hands are also to be tied by it for the same term.

It involves a monopoly, which affects the equal rights of every citizen.

It leads to a penal regulation, perhaps capital punishments, one of the most solemn acts of sovereign authority.

From this view of the power of incorporation exercised in the bill, it could never be deemed an accessary or subaltern power, to be deduced by implication, as a means of executing another power; it was in its nature a distinct, an independent and substantive prerogative, which not being enumerated in the Constitution could never have been meant to be included in it, and not being included could never be rightfully exercised.

He here adverted to a distinction which he said had not been sufficiently kept in view, between a power necessary and proper for the government or union and a power necessary and proper for executing the enumerated powers. In the latter case, the powers included in each of the enumerated powers were not expressed, but to be drawn from the nature of each. In the former, the powers composing the government were expressly enumerated. This constituted the peculiar nature of the government; no power therefore not enumerated could be inferred from the general nature of government. Had the power of making treaties, for example, been omitted, however necessary it might have been, the defect could only have been lamented or supplied by an amendment of the Constitution.

But the proposed bank could not even be called necessary to the government; at most it could be but convenient. Its uses to the government could be supplied by keeping the taxes a little in advance—by loans from individuals—by the other banks over which the government would have equal command, nay greater, as it may grant or refuse to these the privilege, made a free and irrevocable gift to the proposed bank, of using their notes in the federal revenue.

He proceeded next to the cotemporary expositions given to the Constitution.

The defence against the charge founded on the want of a bill of rights presupposed, he said, that the powers not given were retained and that those given were not to be extended by remote implications. On any other supposition, the power of Congress to abridge the freedom of the press, or the rights of conscience, etc. could not have been disproved.

The explanations in the state conventions all turned on the same fundamental principle, and on the principle that the terms necessary and proper gave no additional powers to those enumerated. (Here he read sundry passages from the debates of the Pennsylvania, Virginia and North-Carolina conventions, shewing the grounds on which the Constitution had been vindicated by its principal advocates against a dangerous latitude of its powers, charged on it by its opponents.) He did not undertake to vouch for the accuracy or authenticity of the publications which he quoted—he thought it probable that the sentiments delivered might in many instances have been mistaken or imperfectly noted; but the complexion of the whole, with what he himself and many others must recollect, fully justified the use he had made of them.

The explanatory declarations and amendments accompanying the ratifications of the several states formed a striking evidence wearing the same complexion. He referred those who might doubt on the subject to the several acts of ratification.

The explanatory amendments proposed by Congress themselves, at least, would be good authority with them; all these renunciations of power proceeded on a rule of construction excluding the latitude now contended for. These explanations were the more to be respected, as they had not only been proposed by Congress, but ratified by nearly three-fourths of the states. He read several of the articles proposed, remarking particularly on the 11th and 12th: the former, as guarding against a latitude of interpretation—the latter, as excluding every source of power not within the constitution itself.

With all this evidence of the sense in which the Constitution was understood and adopted, will it not be said, if the bill should pass, that its adoption was brought about by one set of arguments and that it is now administered under the influence of another set; and this reproach will have the keener sting, because it is applicable to so many individuals concerned in both the adoption and administration.

In fine, if the power were in the Constitution, the immediate exercise of it cannot be essential—if not there, the exercise of it involves the guilt of usurpation, and establishes a precedent of interpretation leveling all the barriers which limit the powers of the general government and protect those of the state governments. If the point be doubtful only, respect for ourselves, who ought to shun the appearance of precipitancy and ambition; respect for our successors, who ought not lightly to be deprived of the opportunity of exercising the rights of legislation; respect for our constituents who have had no opportunity of making known their sentiments and who are themselves to be bound down to the measure for so long a period: all these considerations require that the irrevocable decision should at least be suspended until another session.

It appeared on the whole, he concluded, that the power exercised by the bill was condemned by the silence of the Constitution; was condemned by the rule of interpretation arising out of the Constitution; was condemned by its tendency to destroy the main characteristic of the Constitution; was condemned by the expositions of the friends of the Constitution whilst depending before the public; was condemned by the apparent intention of the parties which ratified the Constitution; was condemned by the explanatory amendments proposed by Congress themselves to the Constitution; and he hoped it would receive its final condemnation, by the vote of this house.

Roong Mallikamas: Keynote speech - Central Banking Asia Summit

Keynote speech by Ms Roong Mallikamas, Deputy Governor of the Bank of Thailand, at the Central Banking Asia Summit, Bangkok, 24 July 2024. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Distinguished guests, ladies and gentlemen,

A very good morning to you all. First, let me thank Central Banking for inviting me to deliver the keynote address at this year's Asia Summit. This event offers a good opportunity for us central bankers to share our views on the trends and innovations that shape our economies. But beyond this two-day seminar, I hope the networks we build here will help foster ongoing dialogues on regional collaboration, especially in addressing the challenges facing emerging market economies, and in exploring digital currency developments, cross-border payments and future trends. Today, I will share with you my thoughts about the changing global context we are navigating through, from more fragile global economies to geopolitics and the advancement in digital technologies. I will then touch on how this has created challenges for us small open economy central banks – both in delivering on traditional mandate and in meeting expectation in emerging areas. And finally end on a positive note – how we can overcome these challenges by leveraging on innovation and collaboration at many levels.

Part I – Global context 

On the context, the global economy is in a fragile condition – having gone through the pandemic and crisis after crisis. Most legacies of the pandemic are still with us til this day – more debts, less policy buffers, lower potential growth, and high inflation.

Let me start with inflation.

• After a long-dormant phase during the Great Moderation of the 1990s and low inflation post-GFC, inflation has risen and gained the attention of central bankers worldwide. Inflation in advanced economics (AEs) had average around 1.5% for the past decade but shot up to around 7% in 2022. Then came the synchronized tightening monetary policy around the world that gradually brought inflation down.
• While emerging market economies (EMEs) faced similar inflation developments as AEs, with inflation nearly doubled from 5% in 2010s to nearly 10% in 2022, there are vast differences in inflation dynamics and disinflation process across region. In ASEAN-5, inflation averaged around 5% in 2022 and is expected to come down to around 2.5% this year, while in emerging market Europe, Latin America and Africa, inflation averaged more than 15% in 2022 and will remain elevated this year before slowly coming down in 2025.

On the fiscal front, the buffer is increasingly eroded.

• Governments were called upon to provide assistance during COVID-19, resulting in fiscal deficits nearly tripled from 3.6% in 2019 to 9.5% in 2020. Although some countries started the consolidation process during 2021 and 2022, more crises unfortunately erupted – starting with the war in Ukraine and the accompanied cost of living crisis, then conflicts in Gaza – and both AEs and EMEs once again dipped into the government's purse. With one crisis after another, fiscal support cannot be withdrawn even with the pandemic being five years behind us. As a result, we only see a slow pace of fiscal consolidation – with deficit globally remaining above pre-pandemic level at 5.5% in 2023 and is expected to be more than 4% each year until the end of this decade 1 .
• Consequently, total government debts worldwide are on an ever-increasing trend, from 84% of GDP pre-COVID to 94% in 2024 and almost 100% of GDP by 2029. On a longer horizon of 30 years, the IMF expects the gross debt to GDP of the US and China – the two biggest economies in the world – to double to 240% and 163% of GDP, respectively.

Pandemic and war-induced shocks further complicate existing structural challenges that have not been addressed – but we are now left with even less policy space to deal with them. Potential growth worldwide has been revised downward due to lower productivity, with one of the underlying causes being "aging society". Major economies face a demographic transition, with declining fertility rates and a shrinking share of working-age population. These demographic shifts have a direct bearing on global labor supply. By 2030, the IMF projects global labor supply growth to be only 0.3% – a fraction of its pre-pandemic average. While these trends were evident before 2019, the pandemic exacerbated the drop in labor participation, especially in emerging markets. Some countries, such as Thailand, also emerged from the pandemic with a deteriorated household balance sheet. This can have strong implications when interest rates are raised to temper inflation but income growth is harder to come by because of lower productivity and cannot act as a tailwind. Overall, there is less room to maneuver, but in hard times, there is often higher expectation from the public for governments and central banks to shore up the economy, not to mention to deal with other structural issues and climate change.

The second context is the return of politics and geopolitics to the forefront of policymaking. Risks of further geoeconomic fragmentation and domestic political tensions make it even harder to collaborate both at home and abroad.

• In the short term, we already see trade restrictions around the globe tripled from around 1,000 measures pre-COVID to around 3,000 in 2023, according to the IMF. One of the consequences is that the two biggest economies slow down trade with each other [4.2% growth in 2016–2018 to 1.9% growth in 2019–2023] and shift to trade more with the rest of the world. This trend is also likely to continue into the future as foreign direct investment into ASEAN grew by 40% since 2017, leading by the US and China.
• In the medium term, increasing tariff and reshoring could further challenge the objective of low and sustainable inflation, while ongoing reconfiguration of investment and supply chain could make economies more prone to disruption.

The third is rapid advancement in digital technologies that support payment innovation, new business model for financial services, and advances in AI that could be incorporated in many dimensions of banking. Such advancement leads to opportunities and unprecedented level of cross-country collaborations, as reflected in digital currency projects and cross 98 border digital payments linkages, but they have also exposed us to risks such as faster and more sophisticated fraud, as well as digital divide.

Part 2: Challenges of Small Open Economies/EMEs' central banks and what we do to overcome the challenges and be 'future ready'

All of these backdrops amplify old challenges and create new ones. I think there are primarily 3 challenges which this context presents to us. The first is that our task in ensuring macro-stability is much harder given limited policy space but higher expectation. The second challenge is to ensure the financial sector serves its purpose in allocating resources efficiently – with a pursuit to build a financial landscape that embraces innovation to help address legacy problems rather than worsening them. The last challenge is to reap benefits of technologies and innovations in building resiliency of the economy and addressing the risk of geopolitical fragmentation.

[Challenge 1: Macro stability] First, the changing context makes the job of ensuring both macroeconomic and financial stability harder.

• Lower growth and limited policy space leave smaller room for maneuver. Nature of inflation dynamic itself is also changing with inflation increasingly driven by supply-side factors outside of the central bank's control, such as geopolitical tension and supply chain reconfiguration. For example, in Thailand, oil and food price movements account for approximately 65% of overall price changes during the past 2-3 years. And we will continue to face persistent supply-side price pressures going forward as countries form stimulus strategies around concerns regarding geopolitical tension and supply chain reconfiguration. Secular trends such as digitalization and technological advancements and green transition will likely lead to large-scale adjustments in relative prices as well. This comes at the time when the public has higher expectation, not just to deliver on traditional issues but also new emerging ones, while the tools that central banks can use are quite limited and constrained.

[Solution 1] To deal with this challenge, we need to first ensure robust policy framework and to ramp up our efforts in policy coordination at many levels. Both missions are of first order importance if we are to maintain credibility and public trust that allows us to work on other very challenging emerging areas.

Let me lay this out in a three-step approach: 

Step 1: Monetary policy needs to prioritize domestic conditions while policy mix needs to be tailored to country-specific contexts. Moreover, policy decisions should be made with a risk management mindset, to preserve policy optionality. Monetary policy must look through the noise and, as suggested in this year BIS Annual Economic Review, the focus should be on robustness to broad range of scenarios, awareness of any longer-term costs or side effects, and sufficient safety margins or room for maneuver.

Step 2: Macro-financial policy coordination is a critical step in ensuring that we use our limited policy space in an effective manner. In the case of Thailand, higher legacy household debt post-pandemic requires good coordination of monetary policy with other complementary tools such as targeted financial policies to address heavy debt burden in specific segments and other macroprudential measures to ensure better new lending practice. We should be mindful that trust in the central bank applies to all domain of central banking. Any gaps or pain points on the banking side, such as a rise in fraud cases or even IT outage that disrupts financial services, will have repercussions on central bank credibility and trust and ultimately on the effectiveness of monetary tools necessary in fulfilling our core mandate.

Step 3: Since public policy requires public trust, it is important to ensure coordination across public policymakers, particularly the government and the central bank, and to ensure transparency and accountability.

At a fundamental level, this starts with the central bank having established transparent communication with the government to ensure accountability. For the Bank of Thailand, our accountability mechanism involves issuing the Open Letter addressing the rationale to the Ministry of Finance in case inflation falls outside the target range 2 .

In the era of rapid information dissemination and easy access to social media, misinformation or misinterpretation could spread easily and wider than before. Effective communication therefore does not just mean publishing press releases or doing surveys of business sentiment. It also involves preemptive steps, such as the use of social listening to identify issues that are top-of-mind concerns of the public and could evolve and undermine the trust of the central bank. Then plan out scenarios and appropriate engagement strategy before the problem morphs into something more damaging. In a broader sense, effective communication does not just aim to correct the misinformation, but also to set healthy expectation for the public regarding the work and the mandate of the central bank. 

[Challenges 2: Financial landscape] Second challenge is how to adapt financial landscape to address underlying problems in our financial system as well as capture opportunities from innovation to support new business model and financial services.

The real challenge lies in improving financial inclusion for the underserved groups, while at the same time not fueling further indebtedness for the structurally weak ones. In the case of Thailand, SMEs usually face much higher cost of financing, part of the reasons being that financial institutions lack data to appropriately assess their underlying risks. We believe more efficient financial solutions have the potential to bring their cost of financing down.

[Solution 2 3O's, AI/Fraud] Resolving this will require new thinking on regulations, allowing new players with different business models to come into market and better utilize data – while ensuring a level playing field.

So what can central bank do to reap benefits of new technologies and both address legacy issues and future ready our financial landscape? – again to maintain trust in the central bank and the financial system. 

While we understand that each country is different and what is suitable for Thailand may not be suitable for others, let me share with you our thinking at the Bank of Thailand on how we as a policymaker and regulator can shape financial landscape of the future. BOT has issued the Financial Landscape Consultation Paper outlining crucial steps to reposition the financial sector, supporting a sustainable digital economy. The cornerstone of this strategy revolves around the "3-Open" principles - Open Data, Open Infrastructure, and Open Competition - to foster innovation and enhance financial services.

(1) Open Data facilitates easier data exchange such as promoting mechanisms in which consumers can transfer their own data from one service provider to another more conveniently. This will enable new financial services and address the problem of SMEs' access to finance due to data scarcity. By leveraging micro-level data, including behavioral insights from transactions, Open Data promotes analytical advancements and innovative service development. 

(2) Open Infrastructure aims to allow service providers to access financial infrastructure at reasonable costs. In Thailand where the financial sector has been predominantly bank-based and incumbent banks already made significant resource contributions in the early stage of key infrastructure development, opening up access to nonbanks requires some public intervention, for example in fee negotiation and the governance structure of the infrastructure. Nonetheless, this is necessary to foster competition that benefits both the public and diverse business sectors.

(3) Open Competition promotes a level playing field, encouraging incumbents and new entrants to innovate and meet consumer demands effectively. This principle aims to cultivate a balanced ecosystem where competition among players with similar as well as different risk appetites drives continuous improvement in financial services.

• One of the key policies is the introduction of Virtual Banks as new players into the financial landscape. The objective is to allow applicants who possess the expertise in technology, digital services, and data analytics to offer financial services efficiently through the digital channel and better serve the needs of each customer segment, particularly the unserved and underserved segments of retail and SMEs customers. Working toward this objective is a challenge as we want to see Virtual Banks truly bringing new value proposition with lower operating costs, optimized processes, and enhanced user experiences.
• Looking ahead, optimizing data flows is critical. Finding ways for banks, Virtual Banks, and nonbanks to better utilize data is essential for improving financial services extensively and intensively. However, navigating the regulatory landscape, which currently lacks robust legal frameworks, demands creative execution to achieve these goals effectively.

Another group of issues, namely AI and fraud, are new developments that could pose risks to our financial system. While fraud maybe as old as time, the emergence of social media, fast payment and AI has super-charged them to the new prevalence and speed with scam easier to commit. Fraud is also increasingly borderless; it could be committed by someone in one jurisdiction while money moves through accounts in others including through crypto.

• Solving this complex issue will surely require work on financial literacy and domestic regulation and supervision at a fundamental level. We need to also work on addressing the entire life cycle of fraud in a holistic manner, so there is no leakage or bottleneck that would erode effectiveness. Moreover, given its complexity and potential to attract public criticism, we must focus on efficiency, tackling the spot with bigger return to effort, for example, how to prevent money from getting into a mule account in the first place for that would be more effective and easier to unwind than to stop money from being drawn out of a mule account once already in. Given most of the fraud cases are now committed online, working with relevant authorities and social media/e-commerce platform to make it harder for fraudsters to advertise and scam people will be an extra critical step as well.
• But working on domestic fronts is not enough given its borderless nature; this is the challenge we cannot walk alone. To cope with digital crime, we would need greater collaboration among countries at regional and global levels to identify risks, find solutions, and come up with a rulebook or international guidelines that facilitate data sharing or collaboration. Without this cooperation, differing standards of domestic fraud will create the weakest link and make dealing with cross-border fraud much harder.

[Challenge 3: Geopolitics and how to create resiliency] The last challenge concerns how to make economy more resilient and robust to risk scenarios as geopolitical tension increases and technology advances.

Apart from addressing gaps in our current financial system above, what most central banks have learned from global economic uncertainty is to explore alternative infrastructure as a volatility mitigation or risk mitigation option. Like many EME central banks, the Bank of Thailand has been exploring and using technology to enhance both the efficiency and resiliency of our financial system. There are two main areas that our region already has partnerships, namely cross-border payments and local currency usage.

1. Cross-border payment linkages

Given our regional economic linkages, it makes sense for the central banks to develop cross-border payment linkages that facilitate real economic activities and welfare. Central banks play a role in ensuring that such infrastructure is open and inclusive enough – to help address rather than worsen financial inclusion at a national level, and to avoid creating further fragmentation at an international level. In the case of Thailand, we started linking our payment system with Japan in 2018 and currently has bilateral linkages with 8 countries. Apart from bilateral linkages, Bank of Thailand, along with 4 ASEAN peers, initiated Project Nexus to showcase the potential of fast payment system (FPS) technology, in delivering faster, cheaper, and more transparent services. Our goal is to create a standardized payment platform that potentially serves as a global infrastructure, not just a closed-loop regional platform. This year we also have India joining and look forward to others participating in this initiative as well.

Likewise, we participate in Project mBridge to explore the potential of distributed ledger technology (DLT) in enabling instant cross-border payments and settlement, with an aim to solve some of the key inefficiencies in cross-border payments, including high costs, low speed and operational complexities.

2. Local Currency

On the rationale of local currency initiatives, it simply aims to provide the flexibility in terms of trade settlement. 60% of Thailand's cross-border trading activities occur within our region, with 8 out of 10 top trading partners being Asian countries. Therefore, it is our job to facilitate those activities both in normal times and in uncertain times.

We are aware that the volatility of major currencies can have significant impact on local players. Therefore, the Bank of Thailand promotes the use of local currency as one of the foreign exchange hedging mechanisms, acting as an alternative settlement or payment option for local businesses under circumstances of USD volatility. I am pleased that today my colleague, Mr. Sakkapop will share our local currency journey in the afternoon session.

This brings me to the end of my remark. As we draw this session to a close, I want to share with you one final thought. As a regulator of the financial sector and a guardian of financial stability, we have the duty to continuously learn and adapt ourselves to embrace the emerging trends and innovations. While each of us may spend most of the time coping with challenges at home, we must not lose sight of the potential collaboration we could build, to help us navigate through the complexity of these contexts. I hope the insights and connections we have forged here will plant the seed for future collaboration as well.

Thank you for your attention, and I wish you all a thought-provoking and fruitful seminar

1 Figures from IMF Fiscal Monitor and World Economic Outlook April 2024. 

2 Among the central banks in the world, Bank of England and the Bank of Thailand are the only two central banks that issue the Open Letter, while other central banks use press release or input such information in Monetary Policy Report.

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What Kamala Harris has said so far on key issues in her campaign

As she ramps up her nascent presidential campaign, Vice President Kamala Harris is revealing how she will address the key issues facing the nation.

In speeches and rallies, she has voiced support for continuing many of President Joe Biden’s measures, such as lowering drug costs , forgiving student loan debt and eliminating so-called junk fees. But Harris has made it clear that she has her own views on some key matters, particularly Israel’s treatment of Gazans in its war with Hamas.

In a departure from her presidential run in 2020, the Harris campaign has confirmed that she’s moved away from many of her more progressive stances, such as her interest in a single-payer health insurance system and a ban on fracking.

Harris is also expected to put her own stamp and style on matters ranging from abortion to the economy to immigration, as she aims to walk a fine line of taking credit for the administration’s accomplishments while not being jointly blamed by voters for its shortcomings.

Her early presidential campaign speeches have offered insights into her priorities, though she’s mainly voiced general talking points and has yet to release more nuanced plans. Like Biden, she intends to contrast her vision for America with that of former President Donald Trump. ( See Trump’s campaign promises here .)

“In this moment, I believe we face a choice between two different visions for our nation: one focused on the future, the other focused on the past,” she told members of the historically Black sorority Zeta Phi Beta at an event in Indianapolis in late July. “And with your support, I am fighting for our nation’s future.”

Here’s what we know about Harris’ views:

Harris took on the lead role of championing abortion rights for the administration after Roe v. Wade was overturned in June 2022. This past January, she started a “ reproductive freedoms tour ” to multiple states, including a stop in Minnesota thought to be the first by a sitting US president or vice president at an abortion clinic .

On abortion access, Harris embraced more progressive policies than Biden in the 2020 campaign, as a candidate criticizing his previous support for the Hyde Amendment , a measure that blocks federal funds from being used for most abortions.

Policy experts suggested that although Harris’ current policies on abortion and reproductive rights may not differ significantly from Biden’s, as a result of her national tour and her own focus on maternal health , she may be a stronger messenger.

High prices are a top concern for many Americans who are struggling to afford the cost of living after a spell of steep inflation. Many voters give Biden poor marks for his handling of the economy, and Harris may also face their wrath.

In her early campaign speeches, Harris has echoed many of the same themes as Biden, saying she wants to give Americans more opportunities to get ahead. She’s particularly concerned about making care – health care, child care, elder care and family leave – more affordable and available.

Harris promised at a late July rally to continue the Biden administration’s drive to eliminate so-called “junk fees” and to fully disclose all charges, such as for events, lodging and car rentals. In early August, the administration proposed a rule that would ban airlines from charging parents extra fees to have their kids sit next to them.

On day one, I will take on price gouging and bring down costs. We will ban more of those hidden fees and surprise late charges that banks and other companies use to pad their profits.”

Since becoming vice president, Harris has taken more moderate positions, but a look at her 2020 campaign promises reveals a more progressive bent than Biden.

As a senator and 2020 presidential candidate, Harris proposed providing middle-class and working families with a refundable tax credit of up to $6,000 a year (per couple) to help keep up with living expenses. Titled the LIFT the Middle Class Act, or Livable Incomes for Families Today, the measure would have cost at the time an estimated $3 trillion over 10 years.

Unlike a typical tax credit, the bill would allow taxpayers to receive the benefit – up to $500 – on a monthly basis so families don’t have to turn to payday loans with very high interest rates.

As a presidential candidate, Harris also advocated for raising the corporate income tax rate to 35%, where it was before the 2017 Tax Cuts and Jobs Act that Trump and congressional Republicans pushed through Congress reduced the rate to 21%. That’s higher than the 28% Biden has proposed.

Affordable housing was also on Harris’ radar. As a senator, she introduced the Rent Relief Act, which would establish a refundable tax credit for renters who annually spend more than 30% of their gross income on rent and utilities. The amount of the credit would range from 25% to 100% of the excess rent, depending on the renter’s income.

Harris called housing a human right and said in a 2019 news release on the bill that every American deserves to have basic security and dignity in their own home.

Consumer debt

Hefty debt loads, which weigh on people’s finances and hurt their ability to buy homes, get car loans or start small businesses, are also an area of interest to Harris.

As vice president, she has promoted the Biden administration’s initiatives on student debt, which have so far forgiven more than $168 billion for nearly 4.8 million borrowers . In mid-July, Harris said in a post on X that “nearly 950,000 public servants have benefitted” from student debt forgiveness, compared with only 7,000 when Biden was inaugurated.

A potential Harris administration could keep that momentum going – though some of Biden’s efforts have gotten tangled up in litigation, such as a program aimed at cutting monthly student loan payments for roughly 3 million borrowers enrolled in a repayment plan the administration implemented last year.

The vice president has also been a leader in the White House efforts to ban medical debt from credit reports, noting that those with medical debt are no less likely to repay a loan than those who don’t have unpaid medical bills.

In a late July statement praising North Carolina’s move to relieve the medical debt of about 2 million residents, Harris said that she is “committed to continuing to relieve the burden of medical debt and creating a future where every person has the opportunity to build wealth and thrive.”

Health care

Harris, who has had shifting stances on health care in the past, confirmed in late July through her campaign that she no longer supports a single-payer health care system .

During her 2020 campaign, Harris advocated for shifting the US to a government-backed health insurance system but stopped short of wanting to completely eliminate private insurance.

The measure called for transitioning to a Medicare-for-All-type system over 10 years but continuing to allow private insurance companies to offer Medicare plans.

The proposal would not have raised taxes on the middle class to pay for the coverage expansion. Instead, it would raise the needed funds by taxing Wall Street trades and transactions and changing the taxation of offshore corporate income.

When it comes to reducing drug costs, Harris previously proposed allowing the federal government to set “a fair price” for any drug sold at a cheaper price in any economically comparable country, including Canada, the United Kingdom, France, Japan or Australia. If manufacturers were found to be price gouging, the government could import their drugs from abroad or, in egregious cases, use its existing but never-used “march-in” authority to license a drug company’s patent to a rival that would produce the medication at a lower cost.

Harris has been a champion on climate and environmental justice for decades. As California’s attorney general, Harris sued big oil companies like BP and ConocoPhillips, and investigated Exxon Mobil for its role in climate change disinformation. While in the Senate, she sponsored the Green New Deal resolution.

During her 2020 campaign, she enthusiastically supported a ban on fracking — but a Harris campaign official said in late July that she no longer supports such a ban.

Fracking is the process of using liquid to free natural gas from rock formations – and the primary mode for extracting gas for energy in battleground Pennsylvania. During a September 2019 climate crisis town hall hosted by CNN, she said she would start “with what we can do on Day 1 around public lands.” She walked that back later when she became Biden’s running mate.

Biden has been the most pro-climate president in history, and climate advocates find Harris to be an exciting candidate in her own right. Democrats and climate activists are planning to campaign on the stark contrasts between Harris and Trump , who vowed to push America decisively back to fossil fuels, promising to unwind Biden’s climate and clean energy legacy and pull America out of its global climate commitments.

If elected, one of the biggest climate goals Harris would have to craft early in her administration is how much the US would reduce its climate pollution by 2035 – a requirement of the Paris climate agreement .

Immigration

Harris has quickly started trying to counter Trump’s attacks on her immigration record.

Her campaign released a video in late July citing Harris’ support for increasing the number of Border Patrol agents and Trump’s successful push to scuttle a bipartisan immigration deal that included some of the toughest border security measures in recent memory.

The vice president has changed her position on border control since her 2020 campaign, when she suggested that Democrats needed to “critically examine” the role of Immigration and Customs Enforcement, or ICE, after being asked whether she sided with those in the party arguing to abolish the department.

In June of this year, the White House announced a crackdown on asylum claims meant to continue reducing crossings at the US-Mexico border – a policy that Harris’ campaign manager, Julie Chavez Rodriguez, indicated in late July to CBS News would continue under a Harris administration.

Trump’s attacks stem from Biden having tasked Harris with overseeing diplomatic efforts in Central America in March 2021. While Harris focused on long-term fixes, the Department of Homeland Security remained responsible for overseeing border security.

She has only occasionally talked about her efforts as the situation along the US-Mexico border became a political vulnerability for Biden. But she put her own stamp on the administration’s efforts, engaging the private sector.

Harris pulled together the Partnership for Central America, which has acted as a liaison between companies and the US government. Her team and the partnership are closely coordinating on initiatives that have led to job creation in the region. Harris has also engaged directly with foreign leaders in the region.

Experts credit Harris’ ability to secure private-sector investments as her most visible action in the region to date but have cautioned about the long-term durability of those investments.

Israel-Hamas

The Israel-Hamas war is the most fraught foreign policy issue facing the country and has spurred a multitude of protests around the US since it began in October.

After meeting with Israeli Prime Minister Benjamin Netanyahu in late July, Harris gave a forceful and notable speech about the situation in Gaza.

We cannot look away in the face of these tragedies. We cannot allow ourselves to become numb to the suffering. And I will not be silent.”

Harris echoed Biden’s repeated comments about the “ironclad support” and “unwavering commitment” to Israel. The country has a right to defend itself, she said, while noting, “how it does so, matters.”

However, the empathy she expressed regarding the Palestinian plight and suffering was far more forceful than what Biden has said on the matter in recent months. Harris mentioned twice the “serious concern” she expressed to Netanyahu about the civilian deaths in Gaza, the humanitarian situation and destruction she called “catastrophic” and “devastating.”

She went on to describe “the images of dead children and desperate hungry people fleeing for safety, sometimes displaced for the second, third or fourth time.”

Harris emphasized the need to get the Israeli hostages back from Hamas captivity, naming the eight Israeli-American hostages – three of whom have been killed.

But when describing the ceasefire deal in the works, she didn’t highlight the hostage for prisoner exchange or aid to be let into Gaza. Instead, she singled out the fact that the deal stipulates the withdrawal by the Israeli military from populated areas in the first phase before withdrawing “entirely” from Gaza before “a permanent end to the hostilities.”

Harris didn’t preside over Netanyahu’s speech to Congress in late July, instead choosing to stick with a prescheduled trip to a sorority event in Indiana.

Harris is committed to supporting Ukraine in its fight against Russian aggression, having met with Ukrainian President Volodymyr Zelensky at least six times and announcing last month $1.5 billion for energy assistance, humanitarian needs and other aid for the war-torn country.

At the Munich Security Conference earlier this year, Harris said: “I will make clear President Joe Biden and I stand with Ukraine. In partnership with supportive, bipartisan majorities in both houses of the United States Congress, we will work to secure critical weapons and resources that Ukraine so badly needs. And let me be clear: The failure to do so would be a gift to Vladimir Putin.”

More broadly, NATO is central to our approach to global security. For President Biden and me, our sacred commitment to NATO remains ironclad. And I do believe, as I have said before, NATO is the greatest military alliance the world has ever known.”

Police funding

The Harris campaign has also walked back the “defund the police” sentiment that Harris voiced in 2020. What she meant is she supports being “tough and smart on crime,” Mitch Landrieu, national co-chair for the Harris campaign and former mayor of New Orleans, told CNN’s Pamela Brown in late July.

In the midst of nationwide 2020 protests sparked by George Floyd’s murder by a Minneapolis police officer, Harris voiced support for the “defund the police” movement, which argues for redirecting funds from law enforcement to social services. Throughout that summer, Harris supported the movement and called for demilitarizing police departments.

Democrats largely backed away from calls to defund the police after Republicans attempted to tie the movement to increases in crime during the 2022 midterm elections.

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Supporting Veterans in the Workplace

Bank of America’s Military Talent Acquisition team proudly supports veterans in our communities through education, career opportunities and volunteer events. Among these opportunities is our Veterans program providing development programs for military veterans transitioning to civilian careers.

Global Operations Military Development Program

This U.S.-based rotational program is designed to provide veteran leaders the opportunity to successfully leverage their military experience and unique skills in our corporate environment. Participants experience two one- year assignments across the bank’s Global Operations (GO) lines of business, engaging in critical business initiatives.

Candidate profile

• Candidates must have a bachelor’s degree from an accredited college or university.
• Candidates must have served as a Junior Military Officer, Warrant Officer or Senior Non-Commissioned Officer in the U.S. Military.
• They must have an honorable discharge from any branch of the U.S. Armed Forces and must have separated from active duty within the last year or currently are serving in the National Guard or Reserves.
• Candidates should also have an operations background with great critical thinking and decision- making ability in ambiguity.

Additional program details

• Program locations include Charlotte, North Carolina, and Jacksonville, Florida
• Competitive salary
• Full-time placements have included roles in the following GO roles:
• Operations Manager/Consultant
• Process Design Consultant
• Operational Risk Specialist
• Service Delivery Consultant
• Business Control/Support Manager
• Project Management

Strategy & Management Military Development Program

Our Strategy & Management Military Development Program is an elite, two-year development program that prepares military talent to become a general manager in our Consumer & Small Business organization.

• Candidates must have served as a Junior Military Officer, Warrant Officer or Senior Non- Commissioned Officer in the U.S. military.
• They must have an honorable discharge from any branch of the U.S. Armed Forces and must have separated from active duty within the last year or be currently serving in the National Guard or Reserves.
• Candidates should also have a strategic background with great critical thinking and decision-making ability in ambiguity.
• Program located in Charlotte, North Carolina
• Competitive industry salary
• Program consists of several structured rotations within the Consumer Banking organization in any of the following functions:
• Process Design
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Veterans Associates Program (VAP)

This elite 12-week rotational program in New York City is for recently transitioned veterans, between one and three years post-service. The VAP allows participants to explore new career opportunities through placements across our Global Banking & Global Markets (GB & GM) business. Through these placements, veterans are expected to bring their highly sought-after military skills to the table, while they are receiving on-the-job training and are immersed in day-to-day industry experiences.

VAP targets Junior Military Officers/Academy graduates and strong enlisted service members. The program aims for a diverse class composition. Ideal candidates will have a bachelor’s degree with concentrations in finance and STEM and have been honorably discharged from the U.S. military within the past five years, have an active military commitment and/or are currently serving in the military reserves or National Guard.

• Investment Banking, Capital Markets, Commercial Banking, and the Global Transaction Service Program take place in Greater New York City.
• Full-time placements have included roles in the following GB & GM areas:
• Investment Banking
• Capital Markets
• Corporate Banking
• Global Commercial Banking
• Global Transaction Services (GTS)
• Sales and Trading
• Global Research
• Public Finance and additional areas across Municipal Banking and Markets
• Global Wealth Investment Management (GWIM)
• Global Risk

Global Banking & Global Markets Operations Military Development Program

This elite 12-week rotational program is for recently transitioned veterans between one and five years post-service. The GB & GM Ops program allows participants to explore new career opportunities through placements across our Global Banking & Global Markets (GB & GM). Through these placements, veterans are expected to bring their highly sought-after military skills to the table while they’re receiving on-the-job training and are immersed in day-to-day industry experiences.

GB & GM Ops targets Junior Military Officers/Academy graduates and strong enlisted service members. The program aims for a diverse class composition. Candidates must have a bachelor’s degree with concentrations in finance and STEM and have been honorably discharged from the U.S. military within the past five years, have an active military commitment and/or are currently serving in the reserves or National Guard.

• Program locations include New York City; Charlotte, North Carolina; and Jacksonville, Florida
• Securities Core Trading Operations
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JONATHAN TURLEY

The garms race: the house moves forward with its investigation of blacklisting company.

The demand to preserve evidence went to various companies, including Adidas, American Express, Bayer, BP, Carhartt, Chanel, CVS and General Motors.

In my new book, I discuss the rating systems as a new and insidious form of blacklisting. Notably, Elon Musk has now filed a lawsuit against GARM and may be able to get more evidence out in discovery on the operations of this outfit.

It is an effort to strangle the financial life out of sites by targeting their donors and advertisers.  This is where the left has excelled beyond anything that has come before in speech crackdowns.

Years ago, I wrote about the Biden administration supporting efforts like the  Global Disinformation Index (GDI) to discourage advertisers from supporting certain sites. All of the 10 riskiest sites targeted by the index were popular with conservatives, libertarians and independents. That included Reason.org and a group of libertarian and conservative law professors who simply write about cases and legal controversies. GDI warned advertisers against “ financially supporting disinformation online .” At the same time, HuffPost, a far-left media outlet, was included among the 10 sites at  lowest risk of spreading disinformation .

Once GDI’s work and bias was disclosed, government officials quickly disavowed the funding. It was a familiar pattern. Within a few years, we found that the work had been shifted instead to groups like the GARM, which is the same thing on steroids. It is the creation of a powerful and largely unknown group called the World Federation of Advertisers (WFA), which has huge sway over the advertising industry and was quickly used by liberal activists to silence opposing views and sites by cutting off their revenue streams.

Notably, Rob Rakowitz, head of GARM, pushed GDI and embraced its work. In an email to GARM members obtained by the committee last month, Rakowitz wrote that he wanted to “ensure you’re working with an inclusion and exclusion list that is informed by trusted partners such as NewsGuard and GDI — both partners to GARM and many of our members.”

GARM is being used by WFA to achieve what GDI failed to accomplish. The WFA site refers to Rakowitz  as “a career change agent” who will “remove harmful content from ad-supported digital media.”

Rakowitz’s views on free speech are chilling and his work shows how these systems can be used to conceal bias in targeting the revenue of sites with opposing views.

Rakowitz has denounced the “extreme global interpretation of the US Constitution” and how civil libertarians cite “‘principles for governance’ and applying them as literal law from 230 years ago (made by white men exclusively).”

He appears to be referring to free speech. If so, it is deeply troubling. Some of us believe that free speech is a human right, not just an American right. Those “white men” include philosophers from the Enlightenment whose ideas were incorporated in the Framer’s view of inalienable rights like free speech.

The threat against free speech today is being led by private groups seeking to exercise an unprecedented level of control over what people can read and discuss.

Pundits and politicians, including President Joe Biden and former President Barack Obama, have justified their calls for censorship (or “content moderation” for polite company) by stressing that the First Amendment only applies to the government, not private companies. That distinction allows Obama to  declare himself to be “pretty close to a First Amendment absolutist.” He did not call himself a “free speech absolutist” because he favors censorship for views that he considers to be “lies,” “disinformation,” or “quackery.”

The distinction has always been a disingenuous evasion. The First Amendment is not the sole or exclusive definition of free speech. Censorship on social media is equally, if not more, damaging for free speech. Those who value free speech should oppose blacklisting systems, as was the case during the McCarthy period. Now that conservatives and libertarians are being blacklisted, it is suddenly less troubling for many on the left.

Rakowitz now wields massive influence over public discourse in this collaboration with corporations and groups like GDI. As was done to the left during the McCarthy period, blacklisting systems are now being used to control public access to information by choking off the revenue of sites.

The current anti-free speech movement is the most dangerous in history due precisely to this sophistication and the unprecedented alliance of corporate, media, academic, and government interests.

GARM and other media rating systems have been embraced by many who would prefer to silence opposing voices than respond to them. Rakowitz was wildly popular at Davos in calling for a “safer” Internet that would target dangerous sites much like GDI: “GARM has been officially recognized as a key project for 2020 within the WEF’s platform on  Shaping the Future of Media Entertainment and Culture .”

The House committees are pushing forward with a sense of urgency. It is clear that the investigations in government-supported censorship and these blacklisting operations will end if the Democrats retake the house. It is expected that these companies will seek to delay any disclosures in the hope that the House will change hands and this system will again be allowed to recede back into the darkness.

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178 thoughts on “the garms race: the house moves forward with its investigation of blacklisting company”.

If advertisers are receiving this messaging from GARM itself then they are onboard and potentially complicit. At some point someone at PuffHo has surely accused Reason, LRC, Gateway Pundit etc of spreading misinformation. That alone is detestable enough. But to know that they did this with a clear understanding that this label would dishonestly, directly and negatively impact the bottom line of these sites changes it from detestable to potentially criminal. And assuming these organizations are separate entities, not in the same state, anything deemed criminal would be potentially subject to conspiracy and RICO. Free speech AND the right to petition government for a redress of grievances (the real thing they hate about the 1A) is our FIRST amendment for a reason. Open discourse and two way governance are fundamental principles. That the ‘sanctioned’ media companies should help diminish and financially harm competitors for the ‘crime’ of First Amendment fidelity is opposite to everything we hold dear here. It’s unamerican and criminally sleazy. PLEASE make a point to share the names of every company and outlet who was party to this agenda as soon as it’s available so that we can rightly boycott them. And I’d encourage everyone here as a rule to vote with your dollars as vigorously as you vote with your measly worthless vote. It will do a lot more for you than either deep state anointed candidate will. And you can get that rewarding feeling you get from voting as many times as you want. And if you vote with the dollars your dead grandfather left you, he gets a vote too. It’s just like being a Democrat!

People need to start using these sites to find the ones they recommend against, and accept seek out/ accept advertising from them exclusively.

See below as Dennis the Draft Dodger claims there is such a thing as a “Don’t Say Gay” law.

I reject your reality and substitute my own —-Dennis McInlyre

Why is the truth never good enough for you, dennis?

Jonathan: Elon Musk sues GARM. Then Jim Jordan announces an investigation of advertisers who have boycotted X. Then you write your column. No coincidence.

It’s rich that Jordan would be demanding documents from major advertisers, threatening them with anti-trust action if they don’t comply. This is coming from the guy who refused to comply with a lawful subpoena form the J.6 House Committee. He is least qualified to demand documents from anybody!

For Musk “free speech” means forcing advertisers to give him money. And you endorse such a preposterous proposition. What you ignore is NAACP v Claiborne Co, 458 US 886 (1982) in which the SC ruled that group boycotts are protected speech. So when private companies voluntarily join a trade group that developed professional standards for its members that’s a “business decision”. And they are entitled not to advertise on platforms whose views they do not endorse.

But you, Musk and Jordan think the First Amendment requires advertisers to place ads on X–right next to hate speech and Nazi propaganda. No serious legal scholar thinks that’s how free speech works. Advertisers should not be compelled to place ads on a platform whose views they don’t agree with.

So here’s a Q for you. What would you say if a company, like Disney who speaks out against Gov. DeSantis’s “Don’t Say Gay” law, were compelled to take ads from Hobby Lobby or Chick-fil-A? Would you say Disney should be compelled to do that? That’s the logical fallacy of you argument!

Tortious Intetference is a crime. As is libel. You can’t just brand a site ‘misinformation’ then use that as cover for dishonest practices that directly harm them. You harm your own customers in the process. Your precedent doesn’t cover the thing happening here. This is far beyond a ‘free association’ case. There is clearly a paper trail and clear intent to do harm, not just ‘freely associate’. And sorry, I think Jim Jordan is a shitbag too, but he nonetheless does have congressional subpoena power.

I ignore the Nony Mice.

“Understand this or you will understand nothing:

Democrats will steal, kill, and destroy anyone and anything before they will acknowledge a Trump Presidency.

They’ve bet everything on November.”

“Tim Walz owes the American people an explanation about his unusual, 35-year relationship with Communist China.”

No you don’t. You have replied to me numerous times.

And since you have nothing to say, who cares anyway?

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April 03, 2024

Bank Liquidity, Regulation, and the Fed's Role as Lender of Last Resort

Governor Michelle W. Bowman

At The Roundtable on the Lender of Last Resort: The 2023 Banking Crisis and COVID, sponsored by the Committee on Capital Markets Regulation, Washington, D.C.

Today's roundtable comes at an opportune time, as we recently passed the one-year anniversary of the failures of Silicon Valley Bank (SVB) and Signature Bank. 1 The long shadow of these bank failures, and the subsequent failure of First Republic, have prompted a great deal of discussion about the bank regulatory framework, including capital regulation, the approach to supervision, and the role of tailoring, among other topics. It is my hope that our discussion today reviews and considers the appropriate role of the Federal Reserve in providing liquidity to the U.S. banking system and, of course, its role as the "lender of last resort" through the discount window and authority under section 13(3) of the Federal Reserve Act.

I look forward to today's panels and a deeper examination of important policy questions, including the lessons that should be learned from the banking system stress experienced last spring, the broader stress in financial markets during the COVID-19 crisis, potential approaches to operationally enhance and optimize tools like the discount window to more effectively meet industry liquidity needs, and the importance of effective resolution mechanisms in the banking system.

Before the panels get into a "deep dive" on these policy issues, I would like to briefly touch on three main themes: (1) the broader framework in which the Federal Reserve supports liquidity in the banking system, particularly how this function complements other regulatory requirements and sources of liquidity; (2) how this function can be optimized to work within the evolving liquidity framework; and (3) the challenges we face in making the Federal Reserve's liquidity tools, particularly the discount window, effective.

The Federal Reserve's Role in Banking System Liquidity The complexity of the U.S. financial system makes it difficult to predict where the next stress (or in the worst case, the next crisis) will arise. While today's event will focus on recent episodes that required the Federal Reserve to employ its liquidity tools—the COVID crisis and the early 2023 banking stress—it is helpful to consider how the Federal Reserve's authority has evolved in the aftermath of the 2008 financial crisis.

Let's review the historical context, which could be helpful for framing the discussion. In 1913, Congress established the Federal Reserve at least in part to help address the pattern of cyclical financial panics and the ensuing economic turmoil that followed by allowing the Fed to create a more elastic money supply to meet demand for liquidity during times of stress. This authority included tools like open market operations, later used as a tool for monetary policy. 2 Since its establishment, the Federal Reserve was granted the authority to engage in discount window lending. 3 In addition, during the Great Depression, the Fed was given a broader set of tools to engage in emergency lending under section 13(3) of the Federal Reserve Act. 4

More recently, in 2003, the Federal Reserve restructured its previous discount window lending programs and established the Primary Credit Facility (PCF) and Secondary Credit Facility. 5 Primary credit enabled financially strong banks to obtain secured loans from the discount window at a penalty rate. The secondary credit provided discount window loans at a higher rate, and with higher collateral haircuts and other more stringent terms than apply for primary credit, to solvent institutions that did not qualify to borrow from the PCF. 6 This evolution of the discount window function more closely aligned operations with a theory, often attributed to Walter Bagehot, that central banks should lend freely to solvent institutions against good collateral, at a penalty rate of interest. 7

The Fed used its lending tools extensively during the 2008 financial crisis. Relying heavily on discount window lending authority and emergency lending facilities under section 13(3) of the Federal Reserve Act, the Fed provided emergency liquidity to support individual firms that were under severe stress, and to facilitate the flow of credit more broadly. Of course, the financial crisis left a lasting imprint on many Americans who suffered significant economic harm, many of whom have not yet fully recovered. It also prompted Congress to review and amend the Fed's authorities through the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

The banking system today is stronger and more resilient than it was before the 2008 financial crisis with significantly more capital and substantially more liquidity. U.S. banks are also subject to a host of supervisory tools that did not exist prior to the Dodd-Frank Act, like new stress testing requirements. 8 Many of the regulatory changes implemented at that time were designed to reduce the probability of large bank failures, but the statute also mandated other changes designed to improve the likelihood that failing large banks could be resolved without broad systemic disruptions. 9 Of course, these changes were additive to existing authorities that are meant to promote banking system resilience, particularly the other core element of the federal safety net, deposit insurance. 10

Congress also made significant changes to the Fed's emergency lending authority. For example, section 13(3) facilities must now be broad-based, rather than designed only for individual firms, and must be approved by the U.S. Treasury Secretary. In addition, loans can only be made to solvent institutions, and there are new collateral and disclosure requirements. 11 Further, while the Dodd-Frank Act preserved the Fed's ability to make discount window loans to eligible borrowers, including depository institutions and U.S. branches of foreign banks, it made some modifications. Notably, one change that I will return to later is the new requirement that discount window lending is no longer confidential. These loans, including the names of borrowing institutions, are now required to be disclosed with a two-year lag. 12

Changes made by the new law and other subsequent changes have attempted to strike a balance between making firms more resilient to stress and adding additional parameters to the Fed's liquidity tools. The complementary tools we have—the prudential bank regulatory framework, tools to promote banking system liquidity and stability, discount window lending and "lender of last resort" authority, and resolution tools—all contribute to the safety and soundness of individual banks, and more broadly, to financial stability.

Broadly defined, the challenge we face is that banking crises and banking stress can arise from unpredictable events. They can be the product of external events (like a global pandemic) or can arise from cascading failures of bank management and regulators to identify and effectively address and mitigate the buildup of risk. This risk can occur at a single institution, like we saw in the lead-up to the failure of SVB, or more broadly throughout the financial system, as we saw during the last financial crisis. When we consider banking system stress and potential crises in the broader context, our primary goal should always be prevention, particularly so that we can avoid contagion risks that lead to financial instability and more significant government intervention. We should be reluctant to intervene in private markets, including using emergency government lending facilities to support private enterprises.

The federal safety net that covers the banking system—including discount window lending and deposit insurance—is meant to make the U.S. banking system and broader economy more resilient. Where market disruptions affect liquidity, it is important that these tools—particularly discount window lending—function effectively. So, we must ask whether there are steps we can take to optimize the functioning of these tools and identify some of the key challenges we face in making these tools effective, including preserving industry standard access to liquidity outside of the Fed's tools for day-to-day liquidity management, like advances from the Federal Home Loan Banks.

Optimizing the Lender of Last Resort Function When we think about the Fed's lender of last resort function, we must think about the broader framework that supports bank liquidity, including liquidity regulation, bank supervision, deposit insurance, and day-to-day liquidity resources. While my discussion today focuses primarily on discount window lending, I will also briefly address design issues that we experienced with the recently expired Bank Term Funding Program.

I think we can all agree that the discount window remains a critical tool, but it does not operate in isolation. It operates to support bank liquidity, but it is an additional resource in the federal safety net that allows eligible institutions to weather disruptions in liquidity markets and access other resources.

First, there are questions about the utility of the discount window in light of its scope and the evolution of the banking system. There are a limited set of entities that have access to discount window loans, including depository institutions and, in unusual or exigent circumstances, designated financial market utilities. 13 As activities continue to migrate out of the regulated banking system, what are the implications of more activity occurring outside the banking system as it relates to the effectiveness of the discount window as a tool?

Second, are there ways in which the Fed can enhance the technology, the operational readiness, and the services underpinning discount window loans to make sure that they are available when needed? Here, the events in the lead-up to the failure of SVB are illuminating—SVB experienced difficulty in accessing the discount window before its failure. We must understand and evaluate these difficulties and determine whether there are improvements the Federal Reserve System can make to ensure the discount window is an effective tool to provide liquidity support. Are there operational issues that can be improved, whether by improving the technology or extending business hours for the discount window and other Reserve Bank payment services like FedWire ® and ACH (automated clearinghouse), particularly during times of stress? The Federal Reserve System must also take a close look at our operational readiness and capacity. Banking stress can manifest quickly and outside of regular business hours in different time zones, and we must make sure that the tools we have are available and prepared with trained and experienced staff ready to deal with the evolving risks of liquidity stress and pressure.

Finally, are there changes that need to be made to support contingency liquidity on the borrower side? One prominent issue that has come to light recently is whether there should be some form of pre-positioning requirement—whether banking institutions should be required to hold collateral at the discount window, in anticipation of the need for accessing discount window loans in the future. 14

Arguably, requiring pre-positioning at the discount window may serve a variety of purposes. One use case is ensuring the system is efficient enough to allow borrowers to access discount window loans in a timely manner, including by getting collateral to the discount window to support loans. We have much work to do on this front. To fulfill its function, the discount window must be able to provide liquidity quickly. The failure of SVB demonstrated how rapidly a run can occur and revealed that the discount window must be able to operate in a world in which new technologies, rapid communications, and the growth of real-time payments may exacerbate the speed of a bank run. Identifying and mitigating the technology and operational issues that affect the discount window should go a long way to addressing this concern. Understanding that these problems exist and requiring pre-positioning of collateral at the discount window may not fully address any technological and operational shortcomings of the discount window.

But as a secondary matter, the notion of required collateral pre-positioning has also been proposed as a complementary liquidity requirement for banks, in part to ensure greater liquidity certainty to balance perceived "runnable" funding sources, as with SVB's significant proportion of uninsured deposits. While this could be an effective approach, we do not fully understand the consequences of a new pre-positioning requirement or whether, given the unique nature of SVB's business model and lax supervision, other institutions would have similarly runnable uninsured deposits or if this was an idiosyncratic event.

Further, would required pre-positioning of collateral impede a bank's ability to manage its day-to-day liquidity needs (including from private sources at lower cost)? Would pre-positioning collateral increase operational risk, or otherwise change bank activities? Would there be any unintended consequences from requiring banks to encumber more assets on their balance sheets? More fundamentally—is a change of this magnitude, requiring a new daily management of discount window lending capacity, necessary and appropriate for all institutions, or are there particular bank characteristics that may warrant this additional layer of liquidity support? These are all important but as yet unanswered questions that need to be explored and understood before imposing such a radical shift.

Currently, banks are not mandated to use the discount window to access liquidity. In fact, one of the core functions of bank management is to make the day-to-day decisions about how the institution will manage liquidity and other responsibilities. While it may be appropriate for supervisors to encourage banks to test contingency funding plans and to evaluate whether those plans are adequate in the context of examination, we must be cautious to not cross the line from supervisor to member of the management team and to avoid interfering with the decisionmaking of bank management by mandating across-the-board changes in response to the failure of a single unique institution.

We need to ask whether having one standardized set of rules for institutions with different activities, risk profiles, and funding structures is the most efficient and effective way to support bank liquidity, particularly as we think about not only stressed conditions and liquidity disruptions in the market, but also day-to-day management and activities.

Challenges Today's panels will delve into the challenges and design problems that we confront in thinking about liquidity support of the banking system, and the special role of the Federal Reserve as lender of last resort. As a foundation for this discussion, I will briefly touch on a number of these challenges and issues.

Stigma A long-standing challenge to the utility of discount window borrowing is the perception of stigma. During times of stress, signs of banking sector weakness are often magnified through small and independent actions of institutions, which may add to the reluctance to borrow from the central bank when other sources may be available. The perception of stigma existed long before the new Dodd-Frank disclosure requirements, and it is possible that public disclosure of the borrowing—even with a two-year delay—may create a greater deterrent. Regardless of the timing of the disclosure, the reality is that market participants have a strong interest in identifying any public signals of bank financial health, including discount window lending. Even where the market is just making educated guesses about discount window lending (for example, by looking at public-facing liquidity management activities of banking institutions), the stigma risk can be an important consideration for banks trying to manage public perceptions of their financial condition.

The Federal Reserve cannot entirely eliminate discount window borrowing stigma through regulatory fiat. One of the key sources of stigma seems to be the spectrum of reasons that a bank may choose to borrow from the discount window: the need for borrowing could be due to market disruptions in the provision of liquidity or a scarcity in the total amount of reserves in the banking system but could also indicate a specific borrower's growing financial stress. Of course, it is possible that a combination of factors may lead a bank to access the discount window—as stress on banking institutions builds, there may be a "pullback" on the ordinary liquidity tools banks use, accompanied by increased demands for liquidity.

In this context, discount window lending becomes one additional data point for the market to interpret—while the signal it may send is unclear, one can easily imagine that the market may be skittish and fixate on any sign of financial weakness. The broader issue, however, is the health of the banking system and particular financial institutions, which can be affected by a number of other factors. For example, as we saw with SVB, the public messaging around the sale of securities and the prospective capital raised were both public announcements that altered the perception of the institution's financial health and risk profile. In short, while discount window "stigma" is an important issue, it is a subset of a broader concern—the perception of the institution's financial health—that each bank must confront as it manages its funding resources, risk profile, and liquidity.

At the same time, we should explore ways that the Federal Reserve can work to mitigate stigma concerns. In some ways, the design of primary discount window credit, where a borrower must meet financial standards for borrowing, suggest that the "market signal" of discount window borrowing should perhaps speak more toward market liquidity disruption than an individual institution's financial condition. We should explore ways to validate the use of discount window lending in our regulatory framework. While the federal banking agencies have encouraged institutions to be prepared to access discount window loans, we should also seriously consider whether we should finally recognize discount window borrowing capacity in our assessment of a firm's liquidity resources, including in meeting a firm's obligations under the Liquidity Coverage Ratio. 15

One of the emerging arguments about how the Federal Reserve can mitigate stigma concerns is simply by mandating that banks pre-position collateral and periodically borrow from the discount window. The notion is that the "signaling" effect of discount window borrowing becomes more muted when more participants are essentially forced to use it to meet a regulatory requirement or a supervisory expectation. I question whether this approach will truly address the underlying stigma concern.

The discount window has not historically functioned as a source of ordinary day-to-day liquidity for the banking system, but rather as a backup liquidity resource and it is priced as such. Our expectation should not be that the Federal Reserve replaces existing sources of market liquidity for banks in normal times. As a source of backup liquidity, the question becomes whether requiring pre-positioned collateral would mitigate the stigma of drawing on the discount window. To be effective, banks must be willing to obtain discount window loans when needed, and it is not clear that required pre-positioning or even testing requirements will address the perceived stigma associated with a bank's need to access the discount window for emergency liquidity purposes. The market will continue to take signal from a bank's external activities in liquidity markets—and try to extrapolate whether a bank is using the discount window—and draw a negative inference from this borrowing.

Broad-based Approach to Bank Liquidity The discount window is a small but important element of bank liquidity, but banks manage liquidity in many ways for day-to-day business needs and during times of market stress. Considering discount window reform narrowly ignores the interrelationships among various liquidity resources, liquidity requirements and regulations, and liquidity planning. Building resiliency in the financial system requires policymakers to think about these variables together, ensuring that reforms are rational and contribute to a complementary liquidity framework.

The complexity of liquidity issues warrants a broad-based review before we embark on piecemeal changes. That review should endeavor to understand not only the need for reform, but also the tradeoffs of different approaches, including the economic cost. However, the proposed change raises many questions about not only cost and effectiveness, but also unintended consequences.

Another example is the use of Federal Home Loan Bank (FHLB) advances by some banks as a supplemental source of liquidity, and how this resource functions along the continuum of day-to-day liquidity management to instances of widespread stress in the banking system and among individual firms. The FHLBs are an important source of liquidity for many banks. At the same time, the operational design of FHLB advances make these advances poorly suited to function as emergency liquidity support for the banking system. By contrast, the Fed's discount window lending authority, and the flexible authority to lend under section 13(3) of the Federal Reserve Act, place the Fed well to function as the lender of last resort in support of banking system liquidity during times of stress.

A Note on the Design of Emergency Lending Facilities: The Bank Term Funding Program Before closing, I would like to briefly reflect on events we saw this winter, when design flaws with the Bank Term Funding Program (BTFP) were first identified. On March 12, 2023, the Federal Reserve, with the approval of the Treasury Secretary, announced the creation of the BTFP, which was designed to make additional funding available to institutions to "help assure banks have the ability to meet the needs of all their depositors." 16 This program was initially authorized to make new loans for a full year, even though at the time, it was not clear that "unusual and exigent" circumstances would continue to exist for a full year that would warrant the ongoing availability of loans under the program. 17

Under the BTFP, eligible depository institutions were able to pledge Treasury securities, agency debt, and agency mortgage-backed securities— valued at par —to obtain one-year loans. This program allowed institutions to avoid selling those assets to generate additional liquidity. By valuing the collateral at par—when the market value had declined due to the rising interest rate environment—the program allowed eligible borrowers to obtain a greater amount of liquidity than they would have been able to by simply pledging collateral to the discount window.

These generous collateral terms were accompanied by generous rate terms and prepayment flexibility. As originally designed, the interest rate for loans under the program was set at the one-year overnight index swap rate, plus 10 basis points. 18 Borrowers were also entitled to prepay loans at any time without penalty. 19 As has been well documented, the combination of these terms over time created a significant arbitrage opportunity, which the Fed sensibly cut off as the program was approaching the end of its term for originating new loans. 20

We must learn from this experience. When we identify flaws in program design or ways to improve our tools in the future, we should avail ourselves of the knowledge we have learned through experience, including by shutting down an authorized section 13(3) facility when it is no longer needed, and lending at a true penalty rate so the usage of the facility naturally declines as market conditions normalize.

Closing Thoughts As regulatory attention turns toward the liquidity framework and liquidity regulation, I expect we will see a growing momentum to "do something" that would help address the banking stress from 2023. While some reforms may be necessary, we should think about the response to banking stress more broadly.

We should continue to focus on improving the targeted approach of supervision, to enhance the "prevention" of banking system stress. We should think about the liquidity framework in a broad-based manner to ensure that the available tools, resources, and requirements are working in a complementary way. And we should understand what changes we need to make discount window lending and other emergency lending programs more efficient and effective.

Thank you for the opportunity to take part in this important and timely discussion, and for the participation of our esteemed panelists in this important event. I look forward to hearing the panelists' perspectives.

1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Reserve Board or the Federal Open Market Committee. Return to text

2. Federal Reserve Act, ch. 6, 38 Stat. 251 (1913). Return to text

3. Federal Reserve Discount Window, " General Information: The Primary & Secondary Lending Programs ." Return to text

4. Section 13(3) of the Federal Reserve Act was added by section 210 of the Emergency Relief and Construction Act of 1932 . Return to text

5. Mark Carlson and Jonathan D. Rose, " Stigma and the Discount Window ," FEDS Notes (Washington: Board of Governors of the Federal Reserve System, December 19, 2017). Return to text

6. Carlson and Rose, "Stigma and the Discount Window." Return to text

7. Walter Bagehot, Lombard Street: A Description of the Money Market (New York: Charles Scribner's Sons, [1873] 1897). Return to text

8. 12 U.S.C. § 5365(i) (2010). Return to text

9. 12 U.S.C. § 5365(d) (2010). Return to text

10. The Dodd-Frank Act also increased the deposit insurance limit from $100,000 to $250,000. See Pub. L. No. 111–203, 124 Stat. 1540 (2010), § 335; 12 U.S.C. § 1821(a)(1)(E). Return to text

11. Dodd-Frank Act, Pub. L. No. 111–203, 124 Stat. 2113, 2118 (2010), §§ 1101 and 1103. Return to text

12. Dodd-Frank Act, Pub. L. No. 111–203, 124 Stat. 2118 (2010), § 1103(b). Return to text

13. Federal Reserve Act, 12 U.S.C. 347b; and Dodd-Frank Act, 12 U.S.C. 5465(b). For designated financial market utilities, this would require an affirmative vote by a majority of the Board after consultation with the Secretary of the Treasury. Return to text

14. See Acting Comptroller of the Currency Michael J. Hsu, " Building Better Brakes for a Faster Financial World (PDF) " (speech at the Columbia Law School, January 18, 2024); and Working Group on the 2023 Banking Crisis, Bank Failures and Contagion: Lender of Last Resort, Liquidity, and Risk Management (PDF) (Washington: Group of Thirty, January 2024). Return to text

15. See Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, " Agencies Update Guidance on Liquidity Risks and Contingency Planning ," news release, July 28, 2023. "The updated guidance encourages depository institutions to incorporate the discount window as part of their contingency funding plans. Consistent with other contingency funding sources, the guidance reinforces the supervisory expectation that if the discount window is part of a depository institution's contingency funding plans, the depository institution should establish and maintain operational readiness to use the discount window, which includes conducting periodic transactions." Return to text

16. Board of Governors of the Federal Reserve System, " Federal Reserve Board Announces It Will Make Available Additional Funding to Eligible Depository Institutions to Help Assure Banks Have the Ability to Meet the Needs of All Their Depositors ," news release, March 12, 2023. Return to text

17. See section 13(3)(A) of the Federal Reserve Act, 12 U.S.C. § 343(3)(A). Return to text

18. " Bank Term Funding Program (PDF) ," Board of Governors of the Federal Reserve System, March 12, 2023. Return to text

19. "Bank Term Funding Program." Return to text

20. Board of Governors of the Federal Reserve System, " Federal Reserve Board Announces the Bank Term Funding Program (BTFP) Will Cease Making New Loans as Scheduled on March 11 ," news release, January 24, 2024. "As the program ends, the interest rate applicable to new BTFP loans has been adjusted such that the rate on new loans extended from now through program expiration will be no lower than the interest rate on reserve balances in effect on the day the loan is made. This rate adjustment ensures that the BTFP continues to support the goals of the program in the current interest rate environment. This change is effective immediately." See "How America Accidentally Made a Free-Money Machine for Banks," The Economist, January 18, 2024, https://www.economist.com/leaders/2024/01/18/how-america-accidentally-made-a-free-money-machine-for-banks. Return to text

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Fed leaves key interest rate unchanged, signals possible rate cut in September

WASHINGTON — The Fed’s long-awaited interest rate cut – a move that’s likely to juice the U.S. economy and stock market − may be just weeks away.

The Federal Reserve held its key interest rate steady again Wednesday but signaled it could start lowering it as soon as mid-September amid easing inflation and a cooling job market.

A report Wednesday morning provided the latest evidence that wage growth is slowing, bolstering the case for rate cuts.

"The economy is moving closer to the point where it will be appropriate to reduce our policy rate," Fed Chair Jerome Powell said at a news conference. "That time is drawing near. That time could be in September if the data support that."

Powell added that inflation has come down notably in recent months, adding, "It's just a question of seeing more good data."

What happens when interest rates are lowered?

Lower rates would reduce borrowing costs for mortgages, credit cards, and auto and other loans while fueling stocks. It also would trim bank saving account yields that finally have been generating healthy returns.

In a statement after a two-day meeting, the Fed provided several hints that it believes inflation is easing and officials are growing more concerned about a flagging job market.

Sahm rule: Are we in a recession? The Sahm rule explained

It said “inflation has eased over the past year but remains somewhat elevated” and there has been “some further progress” toward the Fed’s 2% inflation goal. Those are upgrades from the June statement, which simply said inflation was “elevated” and there was “modest” progress toward the 2% target.

Officials also noted the labor market has weakened, providing another reason to lower rates. “Job gains have moderated, and the unemployment rate has moved up but remains low,” the statement said.

Previously, it simply described job gains as “strong,” and didn’t mention the rising unemployment rate.

The Fed also said the “risks to achieving its employment and inflation goals continue to move into better balance. The economic outlook is uncertain, and the (Fed) is attentive to the risks to both sides of its dual mandate.” In other words, it’s just as worried about a rising unemployment rate as it is about high inflation.

In June, the central bank was more tentative, saying its employment and inflation goals “have moved toward better balance.” And it said it remained “highly attentive to inflation risks.”

At the same time, the Fed repeated that it doesn’t expect “it will be appropriate to reduce (rates) until it has gained greater confidence that inflation is moving sustainably toward” the Fed’s 2% goal. Some economists predicted the Fed would simply say it now required “somewhat” greater confidence that inflation was heading toward 2%.

Still. together, the changes reflect a Fed that seems more optimistic that a historic pandemic-induced inflation surge is softening and wants to at least open the door to an initial quarter point rate cut at a September 17-18 meeting.

Yet the government will release two more months of data on inflation and employment before that gathering. As a result, economist Ryan Sweet of Oxford Economics said in a research note that “those looking for a clear signal (of a rate cut in Wednesday’s statement) will be disappointed.”

Futures markets already were betting the Fed will trim rates three times this year, starting in September.

The Fed boosts rates to curtail borrowing and economic activity and corral inflation. It lowers rates to stimulate the economy, head off a downturn or dig the nation out of recession.

What's the Fed's interest rate today?

From March 2022 to July 2023, the Fed hiked its key rate from near zero to a 23-year high of 5.25% to 5.5% to tame the largest inflation spike in 40 years. It has stood pat the past year as consumer price increases have moderated.

But the Fed is wary of sounding overly confident following recent setbacks. Annual inflation slowed substantially last year only to flare again in the first quarter. Fed Chair Jerome Powell has repeatedly said officials are seeking a longer string of encouraging inflation data.

In May and June, inflation resumed its descent and some economists believe this pullback will be more enduring.

Prices for services such as car insurance and health care finally have risen enough to catch up to higher wholesale costs and should be moderating, Goldman Sachs says. And rents for existing tenants – which had been soaring - are starting to reflect a longstanding decline in rent for new leases, Goldman wrote in a note to clients.

Powell said the current inflation drop-off "Is a little better than what we saw last year." In 2023, he said, goods prices were falling or rising more slowly and now the cost of services is also advancing increasing less sharply.

What is the current inflation rate today?

In June, the Fed’s preferred inflation measure, which excludes volatile food and energy items, was at 2.6%, down from a peak of 5.6% in 2022 and not far above the 2% goal.

A flurry of other economic data also appears to be strengthening the argument for lower rates.

On Wednesday, the Labor Department said annual wage growth for private-sector workers fell to 4.1% in the second quarter from 4.3% in the prior three-month period, the smallest gain in three years. That’s good news for inflation because employers typically pass on their increased labor costs to consumers through higher prices.

Also this week, Labor said the number of people quitting jobs – typically a sign they feel confident about their chances of landing another one - tumbled to 3.3 million in June, the lowest level since 2020. That should mean pay increases will continue to soften, says economist Paul Ashworth of Capital Economics.

How is the US job market now?

Meanwhile, the labor market overall is still solid but cooling. Average monthly job growth has slowed to 177,000 the past three months from 267,000 early in the year. And during the first half of 2024, the unemployment rate jumped from 3.7% to 4.1%, historically low but the highest since November 2021. Hiring has fallen well below pre-COVID levels.

Although the Fed has welcomed the less frothy job market, forecasters are starting to worry that policymakers may be waiting too long before chopping rates, increasing the risk of recession.

"Our view remains that the Fed is recognizing too slowly that the labor market is cooling and that high inflation isyesterday’s problem," Ian Shepherdson, chief economist of Pantheon Macroeconomics, wrote in a note to clients. He expects the central bank to slash its key rate by a whopping 1.25 percentage points by year's end - the equivalent of five quarter point cuts - a more aggressive forecast than those published by most economists.

Powell said officials must weigh the hazards on both sides of its mandate to achieve stable prices and maximum employment,

"We are balancing the risk of (cutting rates) too soon (and reigniting inflation) and going too late," nudging the economy into a downturn," Powell said. "That is a very difficult judgement call."

Fed Live Conference: Hear Fed Chair Powell's remarks

Want to learn more? USA TODAY explains the news on interest rates. For more answers to your questions about today's report and other economic trends, keep reading:

Are rents falling in the US? 

Rent increased 0.3% in June, the smallest monthly rise since August 2021. That nudged down the annual rent increase from 5.3% to 5.1%, a more than two-year low. Economists have expected rent increases to moderate, based on new leases, and that’s finally starting to happen more rapidly. 

The cost of some other services also declined. Airfares fell 5% and hotel rates dipped 2%. The lower prices underscore “the post-COVID travel boom may be over," said economist Paul Ashworth of Capital Economics. 

Meanwhile, bills for medical care services and car repairs each rose a modest 0.2%. But car insurance resumed a long-standing post-pandemic surge after easing in May, leaping 0.9% and 19.5% annually. 

Goods prices also were generally benign. Used car prices fell 1.5%, while new cars dipped 0.2% and furniture slipped 0.9%, though appliance costs rose 0.5%. Apparel prices edged up just 0.1% following a 0.3% drop the previous month. 

- Paul Davidson 

Are food prices going down? 

Grocery prices inched up just 0.1% in June after flattening or dipping for several months. They’re up just 1.1% annually. The prices farmers received for items such as vegetables, dairy and poultry softened in April and May, leading to drops in retail prices in June, according to Barclays and the Agriculture Department.  

Prices fell for chicken by 0.2%; cereal, 1.3%; and rice, 0.4% in June. The cost of bacon was flat.  

Egg prices, though, rose 3.5%, resuming a bird-flu-related advance after dropping the prior two months. Fish costs increased 2.1%, uncooked ground beef rose 1.1% and bread edged up 0.7%. 

How will stocks react to the Fed meeting? 

Because few economists expect a rate cut this week, how the stock market reacts will be decided by Fed Chairman Jerome Powell’s comments after the meeting on Wednesday. 

If he suggests a rate cut may be forthcoming, the stock market will likely rally, analysts said.

“Equity investors want a rate cut so earnings can continue to grow at a high rate,” said Richard Ratner, investment adviser at Bel Air Investment Advisors, a money management firm. 

When interest rates are low, companies can borrow money more cheaply to invest in and grow their businesses. 

On the other hand, if Powell gives “a less-than-a-full-throated support of a 25-basis-point rate cut in September, equity markets could be in for a bit of disappointment” and sell-off, said BeiChen Lin, investment strategist at Russell Investments. 

- Medora Lee 

How will the bond market react to the Fed? 

Bond yields have already trended lower in anticipation of lower inflation and an imminent interest-rate cut.

If the Fed confirms those expectations on Wednesday, bond yields could reverse slightly. Ultimately, though, they could move even lower, especially if the Fed signals more than one rate cut might be coming, analysts said. 

Drew O’Neil, broker at Raymond James, said investors may want to move money into longer-term bonds to lock in the highest yields in at least 15 years, before they drop further. 

Are consumers still making purchases? 

U.S. consumers account for $7 of every $10 spent in the U.S. economy.

The median monthly increase in retail sales has been 0.3% for the past 10 years. That doesn't sound like much, until you consider a 0.1% increase in November amounted to an extra $730 million in spending. 

As the primary engine of the U.S. economy, consumers bought $704.3 billion worth of stuff on a seasonally adjusted basis in June. So, yes, consumers are still making purchases.

- Jim Sergent 

How confident are U.S. consumers now? 

The University of Michigan measures U.S. consumer sentiment on a monthly basis. The index ranged as high as 101 ahead of the pandemic in February 2020, and as low as 50 when inflation peaked at 9.1% in June 2022. 

Consumer sentiment had been rising haltingly since May 2023 but tumbled in May and remains low in July, at 66.4.

Joanne Hsu, director of the surveys of consumers at the University of Michigan, wrote in the July report that sentiment "remains guarded as high prices continue to drag down attitudes, particularly for those with lower incomes." 

- Jim Sergent and Daniel de Visé

Will credit card interest rates fall soon?  

Even if the Fed hints that a rate cut is coming soon, as many economists predict, don’t expect a noticeable decline in credit card interest rates , analysts said. 

Some banks might begin to trim their rates ahead of an official rate cut to attract new customers, but “I don’t think that is imminent,” said Matt Schulz, credit analyst at comparison site LendingTree. “And I wouldn’t expect issuers that lower their rates to do so in a big way. It’ll likely take multiple decreases over time to make meaningful change.” 

When does the Fed meet again? 

The remaining Fed meetings this year are: 

• September 17-18 
• November 6-7 
• December 17-18 

Many analysts anticipate a rate cut at the September meeting. In September and December, the Fed will provide updates to its economic projections . The projections are closely watched because they offer a glimpse into where Fed members see economic growth, the fed funds rate, unemployment and inflation are headed for the current year, for the subsequent three years, and for the longer run. 

How the job market has responded to higher interest rates 

Even though higher interest rates are making borrowing more expensive for businesses, they have continued to add jobs, but the growth might be slowing. We'll know more on Friday, when the Bureau of Labor Statistics releases the July jobs report. 

The last employment report showed an increase of 206,000 workers in June, but in the same report, the Bureau of Labor Statistics revised the April and May job gains down by 111,000. All three months fell well below the 10-year median job growth of 243,000. 

What is the U.S. unemployment rate? 

U.S. unemployment rate rose to 4.1% in June. The monthly number, which represents the percentage of people who are unemployed and looking for work, ticked up from 4% in May. A new unemployment number will be released on Friday. 

The unemployment rate is rising slowly, which could suggest employers are pulling back on hiring. Still, the rate remains well below the 10-year monthly median rate of 4.2%. The job market had been on a similar roll in 2020 before the pandemic put millions out of work. 

Is the economy growing? 

The economy picked up sharply in the second quarter, as a rise in consumer and business spending offset a drop in housing construction and a widening trade gap. 

The nation’s gross domestic product, the value of all goods and services produced in the U.S., expanded at a seasonally adjusted annual rate of 2.8% in the April-to-June period, the Commerce Department reported. That’s up from a tepid gain of 1.4% early this year and a 2.5% increase for all of 2023. 

The economy has been surprisingly resilient, despite high interest rates and inflation in the past two years, as a result of strong job and wage gains that have provided consumers the wherewithal to keep spending. 

But cracks are beginning to show, as high borrowing costs take a bigger toll on households and companies. 

Is US consumer spending increasing or decreasing? 

In the second quarter, consumer spending increased a solid 2.3% annualized, above the 1.5% pace of early this year but below the more-than-3% clip in the second half of 2023.

To fuel their purchases, Americans are spending more of their paychecks, saving about 3.8% of their monthly income, well below the average saving rate before the pandemic. As a result, they don’t have much cushion. Low and middle-income households have largely depleted their pandemic-era reserves. Credit card debt is near a record high, and delinquencies are historically elevated.  

More broadly, the economy is forecast to grow less than 2% annualized the second half of the year, according to a survey by Wolters Kluwer Blue Chip Economic Indicators. 

"We should receive cooler GDP reports from here on out, as consumers tighten their purse strings and businesses become more reticent to invest and hire," said Nationwide economist Oren Klachkin.  

When will mortgage rates fall? 

The Fed doesn't set mortgage rates, but its actions can influence them, along with the bond market and inflation and the broader U.S. economy. 

Even though the Fed hasn’t lowered interest rates in four years, inflation is easing, and bond investors anticipate a rate cut soon. That expectation has already helped push bond yields and mortgage rates lower.  The average rate on a 30-year fixed mortgage is 7.24%, as of Wednesday, down from a peak above 8% last fall. 

If inflation stays contained and the Fed actually begins a rate-cutting cycle, mortgages rates may head even lower, said Jacob Channel, LendingTree’s senior economist. “We might see rates trending back to their 2024 lows over the coming weeks and months,” he said. “If all goes really well, we could even end the year with the average rate on a 30-year, fixed mortgage closer to 6% than 6.5% or 7%.” 

- Medora Lee and Daniel de Visé 

Is inflation slowing yet? 

After reaching a 40-year high of 9.1% in mid-2022, inflation eased substantially last year before unexpectedly surging again in the first quarter of this year. 

In April, price gains gradually resumed a pullback. The price of goods such as used cars, furniture and appliances generally have drifted lower as pandemic-related supply-chain snarls have faded. 

But the costs of services such as rent, car insurance and health care have continued to advance. That’s partly because employee wage growth was propelled by COVID-19-induced labor shortages and is slowing only gradually. Many employers have passed their higher labor costs on to consumers. 

Barclays expects that, by December, yearly inflation will slow to 3% – still well above the Fed’s 2% inflationary goal. 

What will the Fed say today? 

Economic forecasters don't expect the Fed to cut interest rates today. Instead, they predict the panel will comment on positive economic news and hint at the timing of future cuts, perhaps as early as September.

The Fed is likely to express “’greater confidence' that inflation is sustainably moving toward 2%,” the Fed's target for inflation, wrote Parthenon EY's chief economist Gregory Daco in a note.

But inflation won’t be the only thing on the Fed’s mind, analysts said. 

“It is noteworthy that Powell has begun to emphasize the downside risks to the economy and the labor market if the Fed were to wait too long, or be too cautious, in reducing interest rates,” said Ryan Sweet, chief U.S. economist at research firm Oxford Economics. 

Although recent economic data show resiliency, “consumer fundamentals may not be quite as solid as they once appeared,” said Michael Feroli, JP Morgan’s chief U.S. economist, in a report. 

Coupled with easing inflation, the Fed’s two goals — maximum employment and stable prices — are coming back into balance, which economists expect the Fed to acknowledge.

But they predict the Fed will also say it needs to see more data to be sure.  

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When is the last time the Fed cut interest rates?

It seems a lifetime ago, but the last time the Federal Reserve cut interest rates was in March 2020, at the dawn of the pandemic.

The Fed unleashed much of its arsenal that month to combat the economic damage wrought by the coronavirus, cutting short-term interest rates to zero, pumping cash into the financial system and encouraging more bank loans to households and businesses.

The moves, cheered by then-President Donald Trump, were aimed at combating a recession, which forecasters considered likely.  

"The virus presents significant economic challenges," Powell told reporters on a teleconference at the time.

That month, central bank policymakers agreed to lower the Fed’s benchmark federal funds rate by a full percentage point, to a range of zero to 0.25%. And that would be the last pandemic-era rate cut.

- Paul Davidson and Daniel de Visé

Why can’t the Fed give a clear timeline for rate cuts? 

The Fed can't commit to cutting interest rates until several economic factors align, analysts say. Inflation is but one.

Easing inflation is a “requirement - but not sufficient on its own - for a September interest rate cut,” said James Knightley, chief international economist at Dutch bank ING. 

The Fed also must see more evidence the labor market and consumer spending are softening, he said. 

“We’ve seen many times this cycle that the pace of disinflation is non-linear,” said BeiChen Lin, investment strategist at Russell Investments. “Given that the labor market and economic activity in the U.S. are still relatively robust for now, I think Powell may give only muted hints about the policy action in September.” 

The unemployment rate in June inched up to 4.1%, the highest since November 2021, mostly because more people are looking for jobs, not losing jobs, Knightley said. 

Meanwhile, consumer spending remains resilient, growing a solid 2.3% annualized from April through June, above the 1.5% pace of earlier this year, but just below the more-than-3% clip in the second half of 2023. 

- Medora Lee  

What is the fed funds interest rate today? 

The benchmark short-term federal funds target rate stands at a 23-year high, expressed as a range from 5.25% to 5.5%. That means Americans have been paying higher interest rates on mortgages, credit cards and auto loans. But consumers have also benefitted from more generous bank savings yields, after years of meager returns. 

Since March 2022, the central bank has hiked the fed funds rate 11 times, from near zero, to corral a spike in pandemic-induced inflation. But the panel has left the rate unchanged since July 2023 . 

Forecasters don't expect the Fed to act on interest rates today.

S & P 500 jumps ahead of interest rate announcement

Stocks were up Wednesday morning, ahead of the Fed decision on interest rates, largely on the strength of renewed market enthusiasm over the tech industry.

The Dow Jones Industrial Average was up about 0.1% shortly after the start of trading. The S&P 500 was up 1.2%. The Nasdaq Composite was up 2.1%.

Advanced Micro Devices, the semiconductor company, was leading a tech stock rally, following a promising earnings report and high hopes for growth in the AI chip market. AI powerhouse Nvidia soared more than 10% on the same news.

- Daniel de Visé

Japan interest rates raised to unseen levels

Even as American markets brace for interest rate cuts this fall, the Bank of Japan raised interest rates Wednesday to levels unseen in 15 years.

Japan's shift to tighter monetary policy contrasts sharply with the broad swing to lower interest rates by other major economies, with the Fed expected to signal that it will cut rates in September as U.S. price pressures moderate.

The Japanese rate hike, which dashed dominant market expectations for no change, was the largest since 2007 and came just months after the BOJ ended eight years of negative interest rates as the bank's chief seeks to dismantle his predecessor's unorthodox policies.

BOJ Governor Kazuo Ueda did not rule out another hike this year and stressed the bank's readiness to keep raising borrowing costs to levels deemed neutral to the economy. The hawkish comments pushed the dollar below 151 yen for the first time since March, as markets awoke to the reality that Japan was finally eyeing a full-fledged rate hike cycle.

Current inflation rate 2024

Inflation eased more than expected in June, as falling gasoline prices offset another increase in rent, providing a third straight month of relief for Americans struggling with a pandemic-related spike in prices. 

The development, combined with a recently cooling job market, should bolster the case for the Federal Reserve to cut interest rates in the next couple of months − a move that likely would juice the economy and U.S. stocks. 

Overall prices rose 3% in June from a year earlier, a third-straight monthly pullback, according to the Labor Department’s consumer price index, a broad gauge of goods and services costs. That’s the smallest rise in a year. On a monthly basis, costs edged down 0.1% after flatlining in the previous month. 

The price of used cars and airfares dropped, while grocery and health care costs rose modestly. 

Are interest rates going down? 

This week’s Federal Reserve meeting probably won’t yield an interest rate cut, but it will likely lay the groundwork for one in September, most economists predict. 

The Fed’s benchmark, short-term rate has stood at a 23-year high of 5.25% to 5.5% since July 2023, as the Fed waits for inflation to cool further. Annual inflation dipped in June to 3.0%: far below the two-decade high of 9.1% in June 2022, but still above the Fed’s 2% goal.

Most economists expect only hints of future Fed actions from the panel today, when its two-day policy meeting ends. They believe that inflation is trending in the right direction, and that two more months of cooler inflation reports will give the Fed room to ease rates. 

Interest rate cuts on the horizon? Will the Fed cut rates this week? Key economic news guiding in their decision

But “the hint will be subtle,” wrote Ryan Sweet, chief U.S. economist at research firm Oxford Economics, in a note. “Those looking for a clear signal will be disappointed.” 

Interest rates are the main tool the Fed uses to lower inflation. High rates make borrowing more expensive, which slows spending and the economy, generally easing price hikes.  

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Britain’s Violent Riots: What We Know

Officials had braced for more unrest on Wednesday, but the night’s anti-immigration protests were smaller, with counterprotesters dominating the streets instead.

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By Lynsey Chutel

After days of violent rioting set off by disinformation around a deadly stabbing rampage, the authorities in Britain had been bracing for more unrest on Wednesday. But by nightfall, large-scale anti-immigration demonstrations had not materialized, and only a few arrests had been made nationwide.

Instead, streets in cities across the country were filled with thousands of antiracism protesters, including in Liverpool, where by late evening, the counterdemonstration had taken on an almost celebratory tone.

Over the weekend, the anti-immigration protests, organized by far-right groups, had devolved into violence in more than a dozen towns and cities. And with messages on social media calling for wider protests and counterprotests on Wednesday, the British authorities were on high alert.

With tensions running high, Prime Minister Keir Starmer’s cabinet held emergency meetings to discuss what has become the first crisis of his recently elected government. Some 6,000 specialist public-order police officers were mobilized nationwide to respond to any disorder, and the authorities in several cities and towns stepped up patrols.

Wednesday was not trouble-free, however.

In Bristol, the police said there was one arrest after a brick was thrown at a police vehicle and a bottle was thrown. In the southern city of Portsmouth, police officers dispersed a small group of anti-immigration protesters who had blocked a roadway. And in Belfast, Northern Ireland, where there have been at least four nights of unrest, disorder continued, and the police service said it would bring in additional officers.

But overall, many expressed relief that the fears of wide-scale violence had not been realized.

Here’s what we know about the turmoil in Britain.

Where arrests have been reported

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Fed holds interest rates but keeps door open to a cut in coming months

Federal Reserve officials said Wednesday that while there are signs the economy is slowing, the Fed was not yet ready to cut its key interest rate.

Yet even as it held rates at their current level of about 5.5%, the Federal Open Market Committee's latest statement included changes in language that acknowledged growing signs of economic weakness that suggest a greater willingness to consider lowering borrowing costs.

Notably, the FOMC observed some deterioration in labor-market conditions.

“Job gains have moderated, and the unemployment rate has moved up but remains low,” it said in the statement Wednesday.

At 4.1%, the unemployment rate is at its highest level since February 2018, though still below levels that would suggest a recession.

On Tuesday, the Bureau of Labor Statistics reported that while layoff activity remained subdued in June, the hiring rate in the economy has slowed to a level not seen since 2014. The percentage of unemployed workers who have gone without roles for 27 weeks or more has recently begun to surge , with about 1.5 million total workers now in that category .

Yet the FOMC said Wednesday it would not budge “until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” a line Fed officials have repeated previously. 

In a note to clients after the statement was released, Omair Sharif, founder and president of the Inflation Insights research group, said the Fed had taken a "baby step" toward a cut that traders have bet will come in September.

"I expect that further good news on the inflation front in July should set up the Chair to deliver a more meaningful signal that a rate cut in September is very likely," Sharif wrote.

Likewise, Seema Shah, chief global strategist at Principal Asset Management financial group, said the statement "cracks the door open to the September cut that everyone is expecting."

In remarks following the statement's release Fed Chair Jerome Powell acknowledged a rate cut "could be on the table for September" but said monetary policymakers "just need to see more good data."

In recent testimony to Congress, Powell a cknowledged that central bank officials had started the clock on lowering rates, saying acting “too late or too little could unduly weaken economic activity and employment.”

The Federal Reserve helps set the interest rates that determine how much it costs consumers and businesses to borrow money for products and services.

For the past two years, it has sought to fight inflation by keeping interest rates elevated, in essence fighting fire with fire : By making borrowing more expensive, it has cooled demand in the economy and thus slowed the rate at which prices have increased.

Now, the Fed is signaling that the higher rates have done their job on the inflation front — and that keeping them aflame could lead to unnecessary damage to the rest of the economy.

Wall Street traders have signaled for weeks that a September rate cut is a virtual certainty, according to data from the financial services company CME Group .

But influential former Fed officials have begun calling for a more rapid timeline. Bill Dudley, a former New York Federal Reserve president, wrote this month that a rate cut should occur before September. In a Bloomberg News op-ed , Dudley said he had "changed his mind," with unemployment creeping higher and with all but the wealthiest households having depleted their immediate post-pandemic financial cushions.

"Although it might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk," Dudley wrote.

This week, Alan Blinder, a Fed vice chair in the Clinton administration, said in a Wall Street Journal op-ed that the time to cut is now.

"Why wait?" Blinder asked, declaring the two-year fight against pandemic-induced inflation over as "the economy seems to be simmering down."

Cutting rates would only be a matter of heading off a negative economic outcome: Companies have signaled that there's upside, too.

Sectors whose success is especially sensitive to interest rates and consumer credit, like the housing and automotive markets, have shown particular weakness — including signals from companies in those industries that they expect sales to ramp up again once interest rates begin to fall.

“There is now a higher probability of interest rate relief beginning in September,” said Dave Foulkes, CEO of Brunswick Corp., a boat-making specialist. While new cuts would most likely have only a minor impact on 2024 results because peak season will have passed, they’d be “a potential tailwind for 2025.”

The Fed will announce the results of the Open Market Committee meeting at 2 p.m. Wednesday.

Rob Wile is a Pulitzer Prize-winning journalist covering breaking business stories for NBCNews.com.