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The Independent
a day ago
- Business
- The Independent
Big banks all pass the Federal Reserve's stress tests, but the tests were less vigorous this year
All the major banks passed the Federal Reserve 's annual 'stress tests" of the financial system, the central bank said Friday, but the test conducted by the central bank was notably less vigorous than it had been in previous years. All 22 banks tested this year would have remained solvent and above the minimum thresholds to continue to operate, the Fed said, despite absorbing roughly $550 billion in theoretical losses. In the Fed's scenario, there would be less of a rise in unemployment, less of a severe economic contraction, less of a drop in commercial real estate prices, less of a drop in housing prices, among other metrics compared to what they tested in 2024. All of these less harmful, but simulated, drops mean there would be less damage to these banks' balance sheets and less risk of these banks of potentially failing. Since the banks passed the 2024 tests, it was expected that the banks would pass the 2025 tests. 'Large banks remain well capitalized and resilient to a range of severe outcomes,' said Michelle Bowman, the bank's vice chair for supervision, in a statement. An appointee of President Trump, Bowman became the Fed's vice chair of supervision earlier this month. It's not clear why the Fed chose to go with a less vigorous test this year. In a statement, the bank said previous tests had shown 'unintended volatility' in the results and it plans to seek public and industry comment to adjust stress tests in future years. The Fed also chose to not test the banks as heavily on their exposure to private equity assets, arguing that private equity assets are typically held for the long term and are not typically sold at times of distress. The Fed also didn't test for any bank exposure to private credit, a $2 trillion asset class that even Fed researchers themselves have observed to be growing alarmingly quickly. The Federal Reserve Bank of Boston recently pointed out that private credit could be a systemic risk to the financial system under a severe adverse scenario, which is exactly what the stress tests are supposed to test for. There was no wording or phrasing in the Fed's press release, reports or methodology about testing or measuring private credit or private debt in this year's test. The Fed's 'stress tests' were created after the 2008 financial crisis as a way to gauge whether the nation's 'too big to fail' banks could withstand another financial crisis like the once that happened nearly 20 years ago. The tests are effectively an academic exercise, where the Fed simulates a scenario in the global economy and measures what that scenario would do to bank balance sheets. The 22 banks that are tested are the biggest names in the business, such as JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs, which hold hundreds of billions of dollars in assets and have wide-ranging businesses that touch every part of the U.S. and global economy. Under this year's hypothetical scenario, a major global recession would have caused a 30% decline in commercial real estate prices and a 33% decline in housing prices. The unemployment rate would rise to 10% and stock prices would fall 50%. In 2024, the hypothetical scenario was a 40% decline in commercial real estate prices, a 55% decline in stock prices and a 36% decline in housing prices. With their passing grades, the major banks will be allowed to issue dividends to shareholders and buy back shares of stock to return proceeds to investors. Those dividend plans will be announced next week.
Al Arabiya
a day ago
- Business
- Al Arabiya
Big banks all pass the Federal Reserve's stress tests, but the tests were less vigorous this year
All the major banks passed the Federal Reserve's annual stress tests of the financial system, the central bank said Friday, but the test conducted by the central bank was notably less vigorous than it had been in previous years. All 22 banks tested this year would have remained solvent and above the minimum thresholds to continue to operate, the Fed said, despite absorbing roughly $550 billion in theoretical losses. In the Fed's scenario, there would be less of a rise in unemployment, less of a severe economic contraction, less of a drop in commercial real estate prices, less of a drop in housing prices, among other metrics, compared to what they tested in 2024. All of these less harmful but simulated drops mean there would be less damage to these banks' balance sheets and less risk of these banks potentially failing. Since the banks passed the 2024 tests, it was expected that the banks would pass the 2025 tests. 'Large banks remain well capitalized and resilient to a range of severe outcomes,' said Michelle Bowman, the bank's vice chair for supervision, in a statement. An appointee of President Trump, Bowman became the Fed's vice chair of supervision earlier this month. It's not clear why the Fed chose to go with a less vigorous test this year. In a statement, the bank said previous tests had shown unintended volatility in the results, and it plans to seek public and industry comment to adjust stress tests in future years. The Fed also chose not to test the banks as heavily on their exposure to private equity assets, arguing that private equity assets are typically held for the long term and are not typically sold at times of distress. The Fed also didn't test for any bank exposure to private credit, a $2 trillion asset class that even Fed researchers themselves have observed to be growing alarmingly quickly. The Federal Reserve Bank of Boston recently pointed out that private credit could be a systemic risk to the financial system under a severe adverse scenario, which is exactly what the stress tests are supposed to test for. There was no wording or phrasing in the Fed's press release, reports, or methodology about testing or measuring private credit or private debt in this year's test. The Fed's stress tests were created after the 2008 financial crisis as a way to gauge whether the nation's 'too big to fail' banks could withstand another financial crisis like the one that happened nearly 20 years ago. The tests are effectively an academic exercise where the Fed simulates a scenario in the global economy and measures what that scenario would do to bank balance sheets. The 22 banks that are tested are the biggest names in the business, such as JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley, and Goldman Sachs, which hold hundreds of billions of dollars in assets and have wide-ranging businesses that touch every part of the US and global economy. Under this year's hypothetical scenario, a major global recession would have caused a 30 percent decline in commercial real estate prices and a 33 percent decline in housing prices. The unemployment rate would rise to 10 percent, and stock prices would fall 50 percent. In 2024, the hypothetical scenario was a 40 percent decline in commercial real estate prices, a 55 percent decline in stock prices, and a 36 percent decline in housing prices. With their passing grades, the major banks will be allowed to issue dividends to shareholders and buy back shares of stock to return proceeds to investors. Those dividend plans will be announced next week.
Yahoo
2 days ago
- Business
- Yahoo
Majority of Fed officials leaning against July interest-rate cut
(Bloomberg) — A flurry of Federal Reserve officials this week made clear they'll need a few more months to gain confidence that tariff-driven price hikes won't raise inflation in a persistent way. Fed Governors Christopher Waller and Michelle Bowman captured attention in the past week when they signaled they'd be open to lowering rates as soon as the Fed's July 29-30 meeting if inflation remains contained. Since then, however, nearly a dozen policymakers — including Chair Jerome Powell, New York Fed President John Williams and San Francisco Fed chief Mary Daly — have dumped cold water on that idea. In an interview Thursday on Bloomberg Surveillance, Daly acknowledged she's seeing increasing evidence that tariffs may not lead to a large or sustained inflation surge. But that merely made her open to a rate cut 'in the fall.' 'My modal outlook has been for some time that we would begin to be able to adjust the rates in the fall, and I haven't really changed that view,' Daly said. Prices have cooled more than forecast this year, with the Fed's preferred gauge rising 2.1% in April, just above the central bank's 2% target. Data released earlier Thursday also showed continuing claims for unemployment benefits jumped to their highest level since November 2021, extending a sharp increase over the past six weeks and signaling more people are staying out of work for longer. At the same time, initial jobless claims fell in the week ended June 21. Daly said that while the labor market is slowing, she's not seeing warnings signs that its weakening. She repeated her view that monetary policy is currently in a 'good place.' Speaking separately Thursday, two other Fed officials signaled they aren't ready to support a cut at the Fed's next meeting. Richmond Fed President Tom Barkin, in remarks to the New York Association for Business Economics, said he expects tariffs will put upward pressure on prices. With so much remaining uncertain, he added, the central bank should wait for more clarity before adjusting rates. 'There is little upside in heading too quickly in any one direction,' Barkin said. 'Given the strength in today's economy, we have time to track developments patiently and allow the visibility to improve.' Chicago Fed President Austan Goolsbee said the central bank could resume rate cuts if inflation is clearly trending toward policymakers' 2% goal and uncertainty over the economic outlook recedes. 'I'm optimistic that we've been getting good readings and maybe the impact of tariffs will be held just in their lane, but we want to be sure,' he said. In testimony before a congressional panel on Tuesday, Powell said the Fed would probably be cutting rates by now, based on declining inflation, if not for the uncertain outlook for future prices because of tariffs. In the meantime, there was no need to rush into any rate changes. 'The effects of tariffs will depend, among other things, on their ultimate level,' Powell said. 'For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.' —With assistance from María Paula Mijares Torres, Amara Omeokwe, Maria Eloisa Capurro, Lisa Abramowicz and Jonathan Ferro. ©2025 Bloomberg L.P.
Yahoo
19-06-2025
- Business
- Yahoo
Top economist warns America is heading toward economic disaster the Fed can't fix
Euro Pacific Asset Management Chief Economist Peter Schiff voiced some criticism of the Federal Reserve and sounded the alarm about the economy during an appearance Wednesday on "The Claman Countdown." Schiff's comments on the show came not long after the Federal Open Markets Committee (FOMC) wrapped up its latest meeting in the afternoon, electing to keep the central bank's benchmark interest rate at its current level. Federal Reserve Chain Jerome Powell subsequently gave remarks to the media about the decision. Schiff told host Liz Claman the "biggest takeaway is that Powell basically admitted that they have no idea what's going to happen." Federal Reserve Leaves Key Interest Rate Unchanges For Fourth Straight Meeting "They don't really know what's going to happen to consumer prices. They don't know what's going to happen to employment," Schiff argued. "I don't even think their forecasts are educated guesses so much as wishful thinking." Read On The Fox Business App The benchmark federal funds rate will stay at a current range of 4.25% to 4.5% after the Fed's latest decision. FOMC policymakers also released a summary of economic projections, known as the so-called "dot plot," which showed members anticipate two interest rate cuts in 2025, followed by one cut each in 2026 and 2027. They also project PCE inflation will rise to 3% this year before declining to 2.4% in 2026 and 2.1% the following year. Real gross domestic product (GDP) is seen as slowing to 1.4% in 2025 before growth picks up to 1.6% next year and 1.8% in 2027. Unemployment is seen as rising to 4.5% in 2025 and 2026, before dipping to 4.4% in 2027. Schiff said he thought inflation will be "a lot higher" than the Fed expects and that the U.S. economy will be "a lot weaker." He acknowledged the Fed "brought their inflation forecast up a bit" for the near-term and "their growth forecast down" but added that such changes weren't "big enough." According to Schiff, the "big problem" for inflation is "all of the inflation chickens that the Fed has been releasing for more than a decade are coming home to roost" rather than the Trump administration's recent spate of tariffs on imports from foreign countries. "We have a lot of dollars sloshing around the world thanks to years and years of artificially low interest rates and quantitative easing, and more of those dollars are going to be coming home as foreigners get out of U.S. financial asset," Schiff told Claman. "You're seeing a global exodus out of U.S. stocks, out of U.S. bonds, and all that cash is going to come back home, bidding up prices." Schiff predicted the U.S. will experience stagflation "with a recession and much higher inflation happening at the same time, really complicating the defense ability to try to do something about either problem." Lower interest rates will not help the U.S. economy, he also argued, labeling them as the "cause." "The solution involves much higher interest rates," he said. "Now, I understand that's going to be very painful, given the economy that we've created, built on a foundation of cheap money." Trump Slams 'Stupid' Fed Chair Powell Ahead Of Interest Rate Decision "It means stock prices come down, real estate prices go down, companies fail," he added. "There's going to be bankruptcies. There's going to be defaults. There's going to be a protracted recession, probably a much worse financial crisis than 2008, but all that has to happen because the alternative to that is even worse." The U.S. is on the path to "runaway inflation" that could become "hyperinflation," Schiff predicted. The latest meeting of the FOMC was the fourth time it has gotten together this year. The FOMC also chose not to change the rate at the three previous meetings in January, March and May. In late May, the personal consumption expenditures Index showed a 0.1% month-over-month and a 2.1% year-over-year increase in inflation for April. Eric Revell contributed to this article source: Top economist warns America is heading toward economic disaster the Fed can't fix
Yahoo
18-06-2025
- Business
- Yahoo
Fed Foresees Stagflation, Higher Interest Rates Ahead
The Federal Reserve officials stuck to their interest rate expectations this week, but shifted their economic outlook in their latest economic projections. The Federal Reserve Open Markets Committee's economic projections showed that the central bank is likely to cut interest rates two more times, or half a percentage point, throughout the rest of the year. The projections line up with similar forecasts in March and late last year. However, not everything is the same as in prior projections. The Fed forecast shows unemployment and inflation rising higher than officials previously thought. The projection underscores the Fed's reasoning behind its wait-and-see approach. Despite the inflation rate coming closer to its annual target of 2%, the Federal Reserve held rates at their current level of 4.25% to 4.50% on Wednesday. 'The summary forecasts that were published today imply that the FOMC sees a bit more stagflation than it did in March,' said Wells Fargo Chief Economist Jay Bryson. What it says: More officials forecast unemployment moving higher in 2025, with most now projecting an unemployment rate of between 4.4% and 4.5% this year, sending the median projection up to 4.5%. The unemployment rate stayed at 4.2% in May, recent data showed. Officials see unemployment staying around 4.5% in 2026 and 2027. Both projections are higher than the March forecast. What it means: Officials don't see a breakdown in the labor market ahead, though joblessness may tick higher than previously expected. With a solid labor market helping keep the economy strong, Fed officials see more time available to them to keep interest rates high in order to get the Personal Consumption Expenditures (PCE) inflation rate back to its 2% target. 'From the Fed's perspective, substantial ongoing uncertainty paired with a good-enough-for-now labor market is ample justification to continue its wait-and-see approach,' said Indeed Senior Economist Cory Stahle. What it says: Inflation will get worse before it gets better. Fed officials now see the median PCE inflation rate moving to 3% in 2025, higher than the median rate of 2.7% forecasted in March. Projections for 2026 and 2027 were also higher than the March forecast and showed that officials expected inflation to remain above the Fed's goal of 2%. What it means: Officials are likely factoring in expected price increases from tariffs, resulting in higher inflation over the next few years. While the Fed's projections indicate that price pressure may persist, it wasn't enough for them to significantly reduce their interest rate projections. 'Their revised quarterly forecasts indicate they remain dovish and inclined to 'look-through' a temporary spike in inflation and cut interest rates by 50 [basis points] this year to support an anticipated weakening in economic activity," wrote Nationwide Chief Economist Kathy Bostjancic. What it says: The dot plot shows that FOMC members are divided on where interest rates are going. The top row shows that seven of the 19 members see interest rates remaining unchanged at 4.25% to 4.5% throughout the rest of the year. Another row of eight votes shows that the Fed will cut interest rates two more times to bring them down to 3.75% to 4%. Only four members foresee a different result for the Fed. When taken together, the average projects a half-percent interest rate cut this year. What it means: The results generally indicate that despite a declining inflation rate and continued strong job growth, more members are cautious about whether interest rates need to be cut at all. The dot plot shows that the number of members who don't believe the Fed will cut at all this year increased by three, while fewer projected that the Fed would cut by 50 basis points than in March. 'They don't seem to be in a hurry to cut rates, but appear open to doing so under the right conditions,' said eToro U.S. Investment Analyst Bret Kenwell. Read the original article on Investopedia
