The United States has a stubborn inflation problem. Food, rent and transportation costs remain high, and many parts of the service economy aren’t cooling off. It’s worrisome. But there’s a larger concern right now: the stability of the financial system. The rapid downfalls of Silicon Valley Bank and Signature Bank have zapped confidence in critical parts of the banking sector and triggered concerns about what is next to rupture. The Federal Reserve should temporarily pause interest rate hikes on Wednesday to give the financial system time to adjust to the new reality.
Bank failures are scary. This is not a repeat of the 2008-2009 financial crisis. But people are shaken. Many are moving money out of small and midsize banks and into larger ones. It’s getting harder to get a loan as banks have little appetite for additional risk. Regional banks remain under pressure. First Republic Bank needed a $30 billion cash infusion. Overall, banks have borrowed $308 billion from the Fed, up from $5 billion a week ago. A crisis abroad at Credit Suisse only adds more jitters. As the Wall Street saying goes, “When the Fed tightens, something breaks.” The nation needs certainty that nothing else is at a breaking point.
This doesn’t mean rate hikes are over. In fact, the Fed should signal in its forecasts and in Chair Jerome H. Powell’s Wednesday news conference that more rate increases are coming, including at the next meeting on May 3. Investors still expect more hikes. But the Fed’s ultimate job is risk management, and right now the bigger risk is further harming financial stability.
Almost 190 banks are at risk of a similar Silicon Valley Bank-style crisis if customers attempt to withdraw deposits, several academics warn in new research. These institutions are sitting on too many government bonds that are worth less after the rapid rise in interest rates. In other words, many banks don’t have enough money to cover a small-scale bank run.
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End of carouselAlso on the Editorial Board’s agenda
- The misery of Belarus’s political prisoners should not be ignored.
- Biden has a new border plan.
- The United States should keep the pressure on Nicaragua.
- America’s fight against inflation isn’t over.
- The Taliban has doubled down on the repression of women.
- The world’s ice is melting quickly.
Ihar Losik, one of hundreds of young people unjustly jailed in Belarus for opposing Alexander Lukashenko’s dictatorship, attempted suicide but was saved and sent to a prison medical unit, according to the human rights group Viasna. Losik, 30, a blogger who led a popular Telegram channel, was arrested in 2020 and is serving a 15-year prison term on charges of “organizing riots” and “incitement to hatred.” His wife is also a political prisoner. Read more about their struggle — and those of other political prisoners — in a recent editorial.
The Department of Homeland Security has provided details of a plan to prevent a migrant surge along the southern border. The administration would presumptively deny asylum to migrants who failed to seek it in a third country en route — unless they face “an extreme and imminent threat” of rape, kidnapping, torture or murder. Critics allege that this is akin to an illegal Trump-era policy. In fact, President Biden is acting lawfully in response to what was fast becoming an unmanageable flow at the border. Read our most recent editorial on the U.S. asylum system.
Some 222 Nicaraguan political prisoners left that Central American country for the United States in February. President Daniel Ortega released and sent them into exile in a single motion. Nevertheless, it appears that Mr. Ortega let them go under pressure from economic sanctions the United States imposed on his regime when he launched a wave of repression in 2018. The Biden administration should keep the pressure on. Read recent editorials about the situation in Nicaragua.
Inflation remains stubbornly high at 6.4 percent in January. The Federal Reserve’s job is not done in this fight. More interest rate hikes are needed. Read a recent editorial about inflation and the Fed.
Afghanistan’s rulers had promised that barring women from universities was only temporary. But private universities got a letter on Jan. 28 warning them that women are prohibited from taking university entrance examinations. Afghanistan has 140 private universities across 24 provinces, with around 200,000 students. Out of those, some 60,000 to 70,000 are women, the AP reports. Read a recent editorial on women’s rights in Afghanistan.
A new study finds that half the world’s mountain glaciers and ice caps will melt even if global warming is restrained to 1.5 degrees Celsius — which it won’t be. This would feed sea-level rise and imperil water sources for hundreds of millions. Read a recent editorial on how to cope with rising seas, and another on the policies needed to fight climate change.
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While inflation remains well above the Fed’s 2 percent goal and the job market is still strong, that data is a snapshot of reality as of February. There has been a dramatic shift in just over a week. The banking stress is likely to cause the tech sector to pull back even more. Regional banks are a big driver of commercial real estate. Construction job openings were already falling fast in January, and this crisis could accelerate the retreat. The full extent of the fallout in numerous industries isn’t yet clear.
The Fed has developed a reputation for being “data dependent." Now is the moment for Mr. Powell to wait for clearer data and to use his microphone to assure an anxious nation that banks are safe and the Fed has fixed any troubling supervisory lapses.