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close video Fed is going to keep raising rates, Jim Rickards warns

Strategic Intelligence editor Jim Rickards discusses the Fed’s decision to raise rates by 25 basis points, arguing that policymakers are “determined” to get inflation under control.

The worst banking crisis since the Great Recession could severely tighten credit for U.S. households and businesses, taking a toll on economic growth.

The turmoil that has engulfed the financial system following the stunning collapse of Silicon Valley Bank and Signature Bank has raised the prospect among economists that lending standards will become drastically more restrictive in coming months. 

"Tighter conditions can happen and occur outside the official tightening of the Fed funds rate. There are so many other variables," Jeffrey Roach, chief economist at LPL Financial, told FOX Business. "A banking crisis, in essence, can tighten conditions… I think it’s fair to say that the current banking crisis could also be an equivalent to say, a 50-basis-point rate hike."

During a credit crunch, banks significantly raise their lending standards, making it difficult to acquire a loan. Borrowers may have to agree to more stringent terms like high interest rates as banks try to reduce the financial risk on their end. Fewer loans, in turn, would lead to less big-ticket spending by consumers and businesses. 

FUND MANAGERS WORRY SYSTEMIC CREDIT CRUNCH COULD CRASH US MARKETS

Employees walk outside the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023, in Santa Clara, California. (Justin Sullivan/Getty Images / Getty Images)

Gregory Daco, chief economist at the consulting firm EY-Parthenon, said he thinks tighter credit will constrain "business investment, employment growth and consumer spending in the coming months." 

While that could help the Federal Reserve in its fight to tamp down stubbornly high inflation, it also raises the risk of a recession this year. 

"The odds of a recession have risen due to heightened financial market volatility, tightening credit conditions and economic uncertainty," Daco said. "While labor market conditions still look relatively resilient, an abrupt shift in sentiment along with a rapid tightening of financial conditions could push the economy into a recession with businesses and consumers retrenching."

JEROME POWELL'S FAVORITE BOND MARKET GAUGE FLASHES RECESSION WARNING SIGN

Chairman Jerome Powell acknowledged during the Fed's two-day meeting last week that upheaval within the financial sector could tighten credit for American households. He suggested that stricter lending standards could have a similar effect on inflation that a rate increase can.

"Such a tightening in financial conditions would work in the same direction as rate tightening," Powell said. "You can think of it as being the equivalent of a rate hike or perhaps more than that."

Jerome Powell, chairman of the U.S. Federal Reserve, speaks during at a news conference in Washington, D.C., Wednesday, March 22, 2023. (Al Drago/Bloomberg via Getty Images / Getty Images)

His comments came shortly after policymakers delivered another quarter-percentage point rate hike, lifting the benchmark funds rate to a range of 4.75% to 5%, the highest since 2007. It marked the ninth consecutive rate increase aimed at combating high inflation.

Fed officials are in the midst of the most aggressive tightening campaign since the 1980s as they try to crush inflation still running about three times higher than the pre-pandemic average. Before the spate of bank collapses earlier in March, the Fed had considered raising rates by a half-percentage point in the face of strong economic data, Powell said Wednesday.

But fears over a broader financial crisis complicated the Fed's efforts, because the rapid rise in interest rates played a direct role in the failure of Silicon Valley Bank. Increasing interest rates threatens to exacerbate instability within the financial system. Powell said it is too soon to say how banking sector stress will affect the broader economy.

YELLEN SAYS US WILL TAKE MORE ACTION TO PROTECT SMALLER BANKS IF NEEDED

"Financial conditions seem to have tightened and probably by more than the traditional indexes say," he said. "The question for us, though, is how significant will that be – what will be the extent of it, and what will be the duration of it?

 "We’ll be looking to see how serious is this and does it look like it’s going to be sustained. And, if it is, it could easily have a significant macroeconomic effect, and we would factor that into our policy decisions."

Pedestrians near the U.S. Treasury building in Washington, D.C., Dec. 30, 2022. (Ting Shen/Bloomberg via Getty Images / Getty Images)

SVB largely catered to tech companies, venture capital firms and high net worth individuals who were pulling cash at a rapid pace as the once red-hot tech sector cooled. When the bank announced it was trying to raise capital from investors and that it would take a $1.3 billion loss on long-term securities that had tumbled in value amid higher interest rates, depositors panicked and a bank run ensued.

Within days, U.S. regulators took extraordinary steps to contain the fallout from the bank's collapse and shore up wavering confidence in the financial system, including protecting all deposits at the two institutions – even those holding funds that exceeded the FDIC's $250,000 insurance limit. 

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The Fed also launched a new emergency backstop for lenders to help them meet deposit withdrawals under favorable terms. 

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Government ‘doesn’t think’ Donald Trump will impose trade tariffs on UK – but is ‘prepared for all scenarios’

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Government 'doesn't think' Donald Trump will impose trade tariffs on UK - but is 'prepared for all scenarios'

The government doesn’t think Donald Trump will impose trade tariffs on the UK, but is “prepared for all scenarios”, a cabinet minister has said. 

Darren Jones, the chief secretary to the Treasury, told Sky News’ Sunday Morning with Trevor Phillips that the former president’s return to the White House “could be an enormously positive thing with lots of opportunities”.

Mr Trump has threatened to impose tariffs on all imports into the United States, singling out Canada, Mexico, and China as countries that could face steeper measures within hours of his inauguration on Monday.

Asked what the government will do if that happens to the UK, Mr Jones said that was a “hypothetical” question and to wait and see “what actually happens”.

Politics Hub: Trump ‘within his right’ to make statement on tariffs

“If that were to happen, I will come back and lay out the details for you. But the point is, is that I don’t think we’re going to be in that scenario,” Mr Jones said.

Darren Jones is asked the same quesion eight times by Kay Burley
Image:
Darren Jones

He said there is a narrative in the UK that Mr Trump’s presidency poses “a big risk for Britain”, when this isn’t the case.

More on Donald Trump Jr

“Britain is a brilliant country with huge capabilities and assets which are valued not just to the British people, but to the American economy and other parts of the world,” he said.

“I have no doubt whatsoever that under the Trump administration there are going to be plenty of opportunities that we can seize, and we should be positive about that and be strong about securing this deal.”

Mr Jones confirmed there is ultimately a plan if tariffs are imposed, but said it isn’t for him “to lay out the details in advance of something actually happening on TV”.

“It’s not breaking news that the government prepares for all scenarios,” he added.

“My broader point is that we shouldn’t be looking at president-elect Trump’s inauguration as a risk, or a bad thing for the UK. It could be an enormously positive thing with lots of opportunities.”

President-elect Trump will be sworn in to a second term in office on Monday, following his election victory in November, and there have been concerns over what his pledged tariffs could mean for economies around the globe.

The former businessman has been clear he plans to pick up where he left off in 2021 by taxing goods coming into the country, making them more expensive, in a bid to protect US industry and jobs.

Read more:
Trump tariff threat prompts IMF warning
What Trump’s tariffs could mean for UK, EU, China and the world

UK ‘should pursue free trade deal’ with US

Shadow foreign secretary Dame Priti Patel, who is in Washington DC for the inauguration, said Mr Trump is “within his rights to make the statements that he wants around tariffs… but as ever this is a discussion and a negotiation”.

Priti Patel in Washington DC
Image:
Priti Patel in Washington DC

She said the Labour government should resume her party’s talks over a post-Brexit free trade deal with the US and “not even enter into these discussions around tariffs”.

A trade deal with the US had been set as a priority in the Conservative’s 2019 manifesto but was not achieved by the time of the general election in July last year, which they lost.

Ms Patel went on to call Reform UK leader Nigel Farage a “pop-up act” and “not relevant” when asked if her party should make peace with him to get on well with Mr Trump, given the close relationship of the pair.

She said the Conservatives and Republicans are “sister parties” with “enduring, long-standing ties”.

“We’re not a pop-up act in the way in which they [Reform UK] are… so I don’t think that’s particularly relevant,” she said.

However, the Lib Dems accused the former home secretary of “competing with Reform to be most submissive toward Trump”.

Confidence in Mandelson’s appointment

Mr Trump’s inauguration has also caused a stir after reports in the Sunday papers suggested he could reject Lord Peter Mandelson as Sir Keir Starmer’s nomination for the UK’s ambassador to the US.

The Labour grandee has been critical of Mr Trump in the past, and was last month branded an “absolute moron” by a Trump campaigner.

Lord Mandelson. Pic: PA
Image:
Lord Mandelson. Pic: PA

However Mr Jones signalled he was confident that the Blair-era minister would take up his position, telling Sky News he “doubts very much” the media reports are true.

“It’s probably being propagated by some politicians that would like to cause a bit of a nuisance. I doubt that will be the case.”

Govt ‘doesn’t agree’ with Khan’s Trump comments

Mr Jones was also forced to distance himself from comments made by Labour’s Mayor of London Sadiq Khan.

Mr Khan has warned of a century-defining battle against “resurgent fascism”, writing in The Observer that “these are deeply worrying times, especially if you’re a member of a minority community”.

Mr Jones said he does not associate with that language and questions about it “are for Sadiq to answer.”

He later told the BBC: “I speak on behalf of the government and we don’t agree with it.”

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UK

Government ‘doesn’t think’ Donald Trump will impose trade tariffs on UK – but is ‘prepared for all scenarios’

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Government 'doesn't think' Donald Trump will impose trade tariffs on UK - but is 'prepared for all scenarios'

The government doesn’t think Donald Trump will impose trade tariffs on the UK, but is “prepared for all scenarios”, a cabinet minister has said. 

Darren Jones, the chief secretary to the Treasury, told Sky News’ Sunday Morning with Trevor Phillips that the former president’s return to the White House “could be an enormously positive thing with lots of opportunities”.

Mr Trump has threatened to impose tariffs on all imports into the United States, singling out Canada, Mexico, and China as countries that could face steeper measures within hours of his inauguration on Monday.

Asked what the government will do if that happens to the UK, Mr Jones said that was a “hypothetical” question and to wait and see “what actually happens”.

Politics Hub: Trump ‘within his right’ to make statement on tariffs

“If that were to happen, I will come back and lay out the details for you. But the point is, is that I don’t think we’re going to be in that scenario,” Mr Jones said.

Darren Jones is asked the same quesion eight times by Kay Burley
Image:
Darren Jones

He said there is a narrative in the UK that Mr Trump’s presidency poses “a big risk for Britain”, when this isn’t the case.

More on Donald Trump Jr

“Britain is a brilliant country with huge capabilities and assets which are valued not just to the British people, but to the American economy and other parts of the world,” he said.

“I have no doubt whatsoever that under the Trump administration there are going to be plenty of opportunities that we can seize, and we should be positive about that and be strong about securing this deal.”

Mr Jones confirmed there is ultimately a plan if tariffs are imposed, but said it isn’t for him “to lay out the details in advance of something actually happening on TV”.

“It’s not breaking news that the government prepares for all scenarios,” he added.

“My broader point is that we shouldn’t be looking at president-elect Trump’s inauguration as a risk, or a bad thing for the UK. It could be an enormously positive thing with lots of opportunities.”

President-elect Trump will be sworn in to a second term in office on Monday, following his election victory in November, and there have been concerns over what his pledged tariffs could mean for economies around the globe.

The former businessman has been clear he plans to pick up where he left off in 2021 by taxing goods coming into the country, making them more expensive, in a bid to protect US industry and jobs.

Read more:
Trump tariff threat prompts IMF warning
What Trump’s tariffs could mean for UK, EU, China and the world

UK ‘should pursue free trade deal’ with US

Shadow foreign secretary Dame Priti Patel, who is in Washington DC for the inauguration, said Mr Trump is “within his rights to make the statements that he wants around tariffs… but as ever this is a discussion and a negotiation”.

Priti Patel in Washington DC
Image:
Priti Patel in Washington DC

She said the Labour government should resume her party’s talks over a post-Brexit free trade deal with the US and “not even enter into these discussions around tariffs”.

A trade deal with the US had been set as a priority in the Conservative’s 2019 manifesto but was not achieved by the time of the general election in July last year, which they lost.

Ms Patel went on to call Reform UK leader Nigel Farage a “pop-up act” and “not relevant” when asked if her party should make peace with him to get on well with Mr Trump, given the close relationship of the pair.

She said the Conservatives and Republicans are “sister parties” with “enduring, long-standing ties”.

“We’re not a pop-up act in the way in which they [Reform UK] are… so I don’t think that’s particularly relevant,” she said.

However, the Lib Dems accused the former home secretary of “competing with Reform to be most submissive toward Trump”.

Confidence in Mandelson’s appointment

Mr Trump’s inauguration has also caused a stir after reports in the Sunday papers suggested he could reject Lord Peter Mandelson as Sir Keir Starmer’s nomination for the UK’s ambassador to the US.

The Labour grandee has been critical of Mr Trump in the past, and was last month branded an “absolute moron” by a Trump campaigner.

Lord Mandelson. Pic: PA
Image:
Lord Mandelson. Pic: PA

However Mr Jones signalled he was confident that the Blair-era minister would take up his position, telling Sky News he “doubts very much” the media reports are true.

“It’s probably being propagated by some politicians that would like to cause a bit of a nuisance. I doubt that will be the case.”

Govt ‘doesn’t agree’ with Khan’s Trump comments

Mr Jones was also forced to distance himself from comments made by Labour’s Mayor of London Sadiq Khan.

Mr Khan has warned of a century-defining battle against “resurgent fascism”, writing in The Observer that “these are deeply worrying times, especially if you’re a member of a minority community”.

Mr Jones said he does not associate with that language and questions about it “are for Sadiq to answer.”

He later told the BBC: “I speak on behalf of the government and we don’t agree with it.”

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Politics

Can Trump’s pro-crypto policies survive beyond his administration?

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Can Trump’s pro-crypto policies survive beyond his administration?

The president-elect can only serve a four-year term before the Oval Office is contested between two new presidential candidates in 2028.

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