Morning Report

The Hill’s Morning Report — Yellen says banking system ‘sound.’ What will Fed do next?

by Alexis Simendinger and Kristina Karisch

Treasury Secretary Janet Yellen arrives to testify to the Senate Finance committee about the President's proposed budget request for the fiscal year 2024, Thursday, March 16, 2023, on Capitol Hill in Washington. (AP Photo/Jacquelyn Martin)

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In the global banking world, a week that began with high anxiety is ending in both relief and trepidation.

Treasury Secretary Janet Yellen assured lawmakers during testimony on Thursday that the U.S. banking system “remains sound,” even as tough questions remain about banking supervision and problems that may yet be undetected, perhaps on the credit side of banking ledgers, some analysts have suggested.

A group of 11 major banks agreed on Thursday to deposit a combined $30 billion in San Francisco’s First Republic Bank to rescue it from liquidity problems. The bank has the third-highest rate of uninsured U.S. deposits (The Hill). Some experts do not think the groups’ plan will completely put to rest emerging questions about the banking system (The Wall Street Journal), but the goal was to demonstrate private sector confidence in the smaller, struggling bank and allow depositors to withdraw funds seamlessly, if they chose, as The New York Times describes in a dissection of how the plan came together in 48 hours.

Credit Suisse based in Zurich received a $54 billion lifeline on Wednesday from Switzerland’s Central Bank to forestall possible panic that analysts worried might cause a run on banks in Europe and elsewhere. And depositors in collapsed Silicon Valley Bank and Signature Bank on Monday were able to access 100 percent of their funds no matter how much they’d insured, thanks to the intervention of the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Treasury Department.

The upshot: Bank stocks began to recover on Thursday, a sign of stabilizing confidence (NBC News).

Although Yellen sought to reassure the Senate Finance Committee, she acknowledged that authorities stepped in to backstop even uninsured deposits at insolvent Silicon Valley Bank (SVB) and Signature Bank due to the threat of “systemic risk” — the possibility of unstoppable contagion and panic — that merited exceptions to the FDIC’s $250,000 cap on federally insured deposits. A reported 94 percent of SVB’s deposit accounts were above the FDIC limit.

Is that exception now the norm for everyone? Should it be? A bank “only gets that treatment” if regulators determine it meets certain criteria, Yellen told Sen. James Lankford (R-Okla.). As a result, depositors at other banks may not be guaranteed similar protections (CNBC). To merit that exception requires a two-thirds majority vote of the boards of the Federal Reserve, the FDIC and the Treasury secretary in consultation with the president (NBC News).    

Yellen said inflation remains the administration’s top economic concern even as prices have fallen slightly. February’s 6 percent level is still well above the central bank’s 2 percent target. The Fed had been expected, before the emergence of stressed and failing banks, to continue its assertive strategy of higher interest rates in order to slow the economy and bring down prices.

Fed watchers and market analysts are of mixed minds about whether the Federal Open Market Committee, which meets next week, should continue raising rates in March or pause for a time to assess economic and financial data.

“They should definitely pause,” Joe LaVorgna, chief economist with SMBC Nikko Securities America Inc., told CNBC when asked Tuesday what the Fed should do next. “Right now, what’s happening is these small- and medium-sized banks are scrambling for deposits. Wait. See if things evolve. … Go five weeks. See what happens. You can reevaluate in May.”

Related Articles

▪ CNBC: One year after the first rate hike, the Fed stands at a policy crossroads. 

▪ MarketPlace: “Financial conditions” are closely watched by the Fed — and at the moment, very complicated.

▪ The Wall Street Journal: Why top Washington officials chose to rescue SVB and Signature Bank depositors. 

▪ CNBC: Credit Suisse this morning London time shed another 5 percent as traders digest emergency liquidity.

▪ The New York Times: The European Central Bank on Thursday raised interest rates half a point, becoming the first major central bank to set monetary policy amid banking worries that gripped markets this week.

LEADING THE DAY

➤ ADMINISTRATION

The Monday approval of a massive oil-drilling project in Alaska has put Interior Secretary Deb Haaland in a difficult position, The Hill’s Zack Budryk writes, pitting her against many of the environmental groups that saw her as a top ally and underlining the White House’s ultimate authority. 

Haaland has also been in the news this week after signaling her support for a road through the Izembek National Wildlife Refuge in Alaska. The road has been at the center of a decades-long battle between the largely Indigenous people of King Cove — who say it will provide lifesaving access to a Cold Bay runway — and environmental groups who say a road will harm the refuge. At the same time, the administration said it is withdrawing a land-swap deal that would have allowed the road, after the 9th U.S. Circuit Court of Appeals sided in November with environmental groups. Haaland said that rather than continue the legal battle, she would launch a review process to examine different options for a land swap that would be needed to construct a road between the two communities. 

“This decision does not foreclose further consideration of a land exchange to address the community’s concerns, although such an exchange would likely be with different terms and conditions,” a brief by the Interior Department states, adding that the Trump-era deal was made with procedural flaws and did not assess how a road could damage locals’ subsistence lifestyle and the region’s natural habitat (The Anchorage Daily News and The Washington Post). 

CNN: Biden is expected to designate Avi Kwa Ame in Nevada as the largest national monument of his presidency next week. The president previously announced his commitment to protecting the area, which is a sacred site for Fort Mojave and other Native American tribal nations.

The Biden administration is ramping up pressure against the popular video sharing app TikTok, threatening to ban the app if the Chinese-based ByteDance doesn’t sell its stakes. As The Hill’s Rebecca Klar and Ines Kagubare report, the demand, confirmed by TikTok late Wednesday, marks the latest escalation in U.S. governmental pressure over the app over potential security risks critics on both sides have raised based on the app’s ties to China. TikTok CEO Shou Zi Chew, who is scheduled to testify before a House panel next week, said divesting wouldn’t solve any security concerns, and the company has doubled down on its ongoing plans to monitor and separately store U.S. user data instead.  

▪ The Washington Post: Governments around the world have moved to ban or restrict TikTok amid security fears.

▪ The Wall Street Journal: TikTok CEO’s message to Washington: A sale won’t solve security concerns.

▪ The New York Times: TikTok could be a hard sell to potential buyers.

🏀 Biden unveiled his March Madness bracket on Thursday as Vice President Harris rooted for Howard University, her alma mater, against the University of Kansas during a first-round NCAA men’s basketball game while she and her husband, Doug Emhoff, were in Des Moines, Iowa (ESPN and The Hill). The president’s bracket was promptly busted when the University of Arizona went down to an underdog Princeton team (The Hill).

➤ POLITICS 

Democrats in Republican-leaning Louisiana are trying to buck expectations for a third consecutive cycle in this year’s open gubernatorial race as term-limited Gov. John Bel Edwards (D) prepares to leave office, writes The Hill’s Amee LaTour. A divided Republican field is raising Democrats’ hopes of clearing the all-party primary on Oct. 14 and making it to the November general election, but they acknowledge they face several challenges to maintaining the governorship. 

“I don’t think anyone thinks that it’s going to be an easy task,” said Richard Carbo, Edwards’s former deputy chief of staff and 2019 campaign manager. “[Y]ou just have the headwinds of national politics and the Republican leaning of the state that are working against you. But … the governor showed how to defy those odds[.]” 

Meanwhile, congressional Republicans are dialing up the pressure on Biden on Social Security, writes The Hill’s Aris Folley, as the White House keeps up attacks on the party over proposed reforms to the program. 

The Senate on Thursday advanced a bill to repeal the authorizations for use of military force (AUMFs) for the Iraq and Gulf wars, from 2002 and 1991, respectively. The bill advanced in a 68-27 procedural vote, surpassing the 60 votes needed to proceed. A final vote could happen as soon as next week “to coincide with the 20th anniversary of the Iraq war. The bill was co-sponsored by Sens. Todd Young (R-Ind.) and Tim Kaine (D-Va.). Young said the repeal would “arrest the trend of giving away our war powers to an unchecked executive” (The Hill). 

Heading into 2024, former President Trump and his allies believe they have found a weak spot on which to attack Florida Gov. Ron DeSantis (R): opportunism. Trump has hit the Florida governor, who is widely expected to run for president, on his past stances on Ukraine, Social Security and ethanol. DeSantis has become more isolationist on Ukraine than he was when Russia annexed Crimea during the Obama presidency, and while in Congress, he voted for a nonbinding measure that would have raised the retirement age to 70. 

As The Hill’s Niall Stanage writes in The Memo, the question remains whether these attacks will undercut DeSantis’s image as a fiercely conservative figure, or whether GOP primary voters will be willing to overlook past inconsistencies so long as the Florida governor is now aligned with their views. 

The Hill: DeSantis says he prevented “Faucian dystopia” with Florida’s handling of the COVID-19 pandemic.

Decision Watch Calendar (🌸 spring officially begins on Monday): 

In Oklahoma, the Catholic Archdiocese of Oklahoma City has created a schism in the charter school movement with its application for the nation’s first openly religious charter school. The Hill’s Lexi Lonas reports that activists and policy experts supportive of charter schools, in general, are divided over the virtual religious charter application currently under consideration by the Oklahoma charter school board, with a meeting on the subject set for Tuesday. Charter school advocates have struggled for years to convince skeptics that the privately run, publicly paid-for institutions are equivalent to government-run schools. 

“We don’t think that you can have a religious charter school in place because charter schools are public schools and public schools cannot teach religion,” Nina Rees, president of the National Alliance of Public Charter Schools, told The Hill this week. “So right now, as public schools, this is not a door that can be opened.”

IN FOCUS/SHARP TAKES

➤ INTERNATIONAL 

French President Emmanuel Macron, who has long sought to raise his country’s retirement age from 62 to 64 despite intense public opposition and recent strikes, raised the pension age on Thursday with an executive decision that did not go to a parliamentary vote. Macron triggered Article 49.3 of the French Constitution, which grants the government executive privilege to push through controversial pension reforms without a parliamentary vote. However, the move gives the opposition the right to immediately call a confidence vote and risks further inflaming the protest movement after months of demonstrations across the country, where the issue is seen as especially controversial (France 24).

“This reform has all the ingredients to boost votes for parties on the radical right,” Bruno Palier, a political scientist at French university Sciences-Po, told Reuters.

CNN: Protests erupt as French government forces through higher retirement age.

Chinese President Xi Jinping will travel to Russia next week to hold talks with President Vladimir Putin, the two countries said on Friday, as Beijing touts a plan to end the Ukraine war that has received a lukewarm welcome on both sides. Xi’s Monday to Wednesday trip comes after China in February published a 12-point plan for “a political resolution of the Ukraine crisis” (Reuters).

Breaking with other NATO members, Polish President Andrzej Duda on Thursday announced his country will transfer four of its MiG-29 fighter jets to Ukraine in the coming days and plans to send others as well. This makes Poland the first country to offer jets to Kyiv, to help further prevent Russia from securing air superiority over Ukraine. National Security Council spokesperson John Kirby said Poland’s decision did not change the Biden administration’s position on supplying Ukraine with aircraft (Axios and The New York Times).

“It doesn’t change our calculus with regard to the F-16,” Kirby told reporters Thursday. “It’s not on the table right now.”

Secretary of State Antony Blinken, meanwhile alluded to the heavy costs of U.S. fighter jets speaking to reporters on a visit to Niger (Al Jazeera).

“I think it’s a mistake to get focused on any particular weapons system at any given time,” Blinken. “Individual partner countries will, again, make their own decisions about what they can provide, when they can provide it, and how they provide it.”

▪ The Hill: What to know about the United Nations report outlining Russian war crimes.

▪ The New York Times: Ukraine burns through ammunition in Bakhmut, risking future fights.

▪ CNN: Chinese-made drone, retrofitted and weaponized, downed in eastern Ukraine.

Japan and South Korea on Thursday took cautious steps to repair their years-long rocky relationship when the leaders of the two countries met in Tokyo for their first summit in 12 years. Japanese Prime Minister Fumio Kishida welcomed South Korean President Yoon Suk Yeol at the prime minister’s official residence, kicking off a trip aimed at demonstrating that the countries want to work more closely together and with the U.S. to counter the looming geopolitical, economic and military threats posed by China and North Korea. Still, questions remain about whether the countries can move past thorny issues stemming from Japanese colonial rule of the Korean Peninsula in the 20th century (The Washington Post).

“It was a big step toward normalizing Japan-Korea relations,” Kishida said after the meeting, adding that he wanted to open a “new chapter.”

▪ South China Morning Post: How better South Korea-Japan ties could weaken a China-centric supply chain.

▪ Nikkei Asia: Japan lifts chipmaking export controls on South Korea.

▪ CBS News: North Korea launches intercontinental ballistic missile ahead of South Korea-Japan summit. 

▪ Deutsche Welle: German chancellor visits Japan to ramp up security ties.

OPINION

■ Social Security needs fixing. Fortunately, it doesn’t have to be painful, by The Washington Post editorial board. https://wapo.st/3Fxf8j7 

■ Fifty years after the Endangered Species Act, our fight against extinctions is only beginning, by Robin Ganzert and Jon Paul Rodríguez, opinion contributors, The Hill. https://bit.ly/3TmpxDS

WHERE AND WHEN

📲 Ask The Hill: Share a news query tied to an expert journalist’s insights: The Hill launched something new and (we hope) engaging via text with Editor-in-Chief Bob Cusack. Learn more and sign up HERE.

The House will convene at 11 a.m. for a pro forma session.

The Senate meets at 8:45 a.m. for a pro forma session.

The president will receive the President’s Daily Brief at 9 a.m. Biden will welcome Leo Varadkar, Taoiseach of Ireland, to the White House at 10:30 a.m. for a bilateral meeting. Biden will head to the Capitol for the Friends of Ireland Caucus St. Patrick’s Day luncheon at noon. The president will host Varadkar for a White House reception at 5 p.m. Biden will depart the White House for Delaware at 7:35 p.m.

Vice President Harris at 8:30 a.m. will host Taoiseach Varadkar for breakfast at the Naval Observatory along with second gentleman Doug Emhoff and visiting guest and Varadkar’s partner, Matthew Barrett. Harris and Emhoff will attend the 5 p.m. shamrock presentation and reception in honor of Varadkar in the East Room. 

The secretary of State concludes travel to Niger and returns to Washington.

Health and Human Services Secretary Xavier Becerra will travel to Chicago to tour Tablets Pharmacy at 9:30 a.m. local time to speak about administration efforts to lower prescription drug prices, including insulin. He’ll be accompanied by Rep. Jonathan Jackson (D-Ill.) and local leaders. Becerra and Jackson at 11 a.m. will visit Kennedy-King College to participate in a roundtable discussion about mental health and the national crisis of substance abuse.  

Economic indicator: The University of Michigan will report at 10 a.m. on U.S. consumer sentiment, drawing on preliminary data for March.

ELSEWHERE

➤ HEALTH & PANDEMIC 

Pregnancy deaths surged to the highest rate in nearly 60 years, new data shows, exacerbating a years-long trend that has made the U.S. the most high-risk place among wealthy countries to give birth. The National Center for Health Statistics said Thursday that the number of people who died during pregnancy or shortly after rose 40 percent to 1,205 in 2021. The increase pushed the maternal mortality rate to 33 deaths per 100,000 live births, the highest since 1965. The racial disparities in the data are stark; the maternal mortality rate among Black women rose to 2.6 times the rate among white women in 2021. 

A separate report by the Government Accountability Office has cited COVID-19 as a contributing factor in at least 400 maternal deaths in 2021, accounting for much of the increase (The Wall Street Journal and The New York Times). Officials say the 2022 maternal death rate — there were 733 maternal deaths, according to preliminary data, though the final number is likely to be higher — is on track to get close to pre-pandemic levels. But those numbers aren’t great: The rate before COVID-19 was the highest it had been in decades (CBS News). 

“From the worst to the near worst? I wouldn’t exactly call that an accomplishment,” Omari Maynard, whose partner died after childbirth in 2019, told CBS News.

▪ CNN: The maternal death rate rose sharply in 2021, and experts worry the problem is getting worse.

▪ The Hill: Coverage gains for Black and Hispanic people during pandemic could be lost with end of public health emergency.

▪ The Atlantic: The rogue theory that gravity causes irritable bowel syndrome. 

▪ CNN: Just 39 minutes of lost sleep could impact your child’s health, study shows.

👉 A third insulin drug company, French drugmaker Sanofi, on Thursday said it will cap the out-of-pocket cost of its popular insulin drug called Lantus at $35 per month for people with private insurance. The change will take effect Jan. 1, 2024. Sanofi follows in the price-cutting footsteps of Eli Lilly and Novo Nordisk. The three companies make up about 90 percent of the insulin market in the United States (NBC News).

The Atlantic: This week, an international team of virologists, genomicists and evolutionary biologists may have found crucial data from genetic samples, which appear to link the COVID-19 pandemic’s origin to raccoon dogs that were illegally sold at the Huanan Seafood Wholesale Market in Wuhan, China.

The World Health Organization on Thursday released its 28-day COVID-19 update through March 12, finding nearly 4.1 million new cases of COVID-19 globally (a decrease of 40 percent since Feb. 13) and 28,000 reported deaths from the virus in the same period, a drop of 57 percent compared with the previous 28 days. In total since the outset of the pandemic through March 12, more than 6.8 million people around the world who contracted COVID-19 died as a result, according to WHO.

Information about the availability of COVID-19 vaccine and booster shots can be found at Vaccines.gov. 

Current U.S. COVID-19 deaths are 1,706 for the most recent week, according to the Centers for Disease Control and Prevention. (Data is reported on Fridays.)

THE CLOSER

And finally … 👏🍀👏 Applause, applause for this week’s Morning Report Quiz winners! Happy St. Patrick’s Day, which we’re celebrating with a puzzle. 

Here’s who aced some Irish-themed trivia: Catherine Hicks, Luther Berg, Tim Bazanec, Richard Fanning, William D. Moore, Bill Grieshober, Jaina Mehta, Randall S. Patrick, Pam Manges, Mary Anne McEnery, Paul Harris, Richard E. Baznik, Ki Harvey, Patrick Kavanagh, Terry Pflaumer, Robert Bradley and Steve James. 

They knew that during Biden’s upcoming visit to Northern Ireland, he will mark the anniversary of the April 10, 1998, signing of the Good Friday Agreement.

Delia Barry, an 83-year-old Irish widow, is a social media celebrity after she created 1920s-style hand-knit sweaters used to costume stars in this year’s Oscar-nominated film “The Banshees of Inisherin.” 

The New York Times on Wednesday published an Irish-themed recipe for colcannon, or mashed potatoes with kale or cabbage, a dish that likely started its historic life as cál ceannann in Gaelic.

St. Patrick’s Day blarney begins with St. Patrick, a priest who was not an officially canonized saint. He never rid Ireland of snakes (or pagans) and started life as Maewyn Succat. Thus, the answer we were looking for was “all of the above.”

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