"Vive la Pension"

MONETARY

• Pursuant to the Federal Reserve’s most recent FOMC meeting, Fed Chair Jerome Powell commented on a number of relevant topics ranging from the recent isolated stresses in the banking sector, to inflation, economic growth, and employment¹
  • On the recent stresses affecting various mid-size banks, Fed Chair Powell reiterated that the U.S. banking system remains resilient:¹
    • (Powell) “So I, I guess our view is that the banking system is sound and it’s resilient—it’s got strong capital [and] liquidity. We took powerful actions with [the] Treasury and the FDIC, which demonstrate that all depositors’ savings are safe and that the banking system is safe. Deposit flows in the banking system have stabilized over the last week. And the last thing I’ll say is that we’ve undertaken—we’re undertaking a thorough internal review that will identify where we can strengthen supervision and regulation.”¹
  • Chairman Powell also offered a summarized explanation as to the nature of how the Silicon Valley Bank situation unfolded, and what may have caused the collapse:¹
    • (Powell) “So, at a basic level, Silicon Valley Bank management failed badly—they grew the bank very quickly, they exposed the bank to significant liquidity risk and interest rate risk, didn’t hedge that risk. We now know that supervisors saw these risks and intervened. We know that the public saw all this. We know that SVB experienced an unprecedentedly rapid and massive bank run. So, this is a very large group of connected depositors—concentrated group of connected depositors in a very, very fast run, faster than historical record would suggest.”¹
  • A revised set estimates was also released with the Fed’s Summary of Economic Projections piece, with updates to estimates for economic growth, inflation, and unemployment¹
    • Projections for 2023 GDP growth were largely unchanged from the December estimate. New estimates for GDP growth in 2023 came in at a level of 0.4%. 2024 estimates of GDP growth were revised downward slightly from a level of 1.6% to 1.2%¹
      • Downward revisions in GDP projections for 2024 primarily reflect the anticipated, cumulative effect of past rate hikes playing a restrictive role in growth¹
    • Amongst Fed participants, the expectation is for Unemployment to rise from its current level of 3.5% to roughly 4.5% at the end of 2023. 2024 estimates show no further change from that level¹
      • Projections for higher Unemployment reflect the Fed’s expectation that the current, abnormally tight labor market will cool off as effects from restrictive monetary policy begin to affect the labor market¹
    • Regarding Inflation, the Federal Reserve now sees 2023 Inflation coming down to a level of 3.6%, with 2024 Inflation now expected to be even lower at a level of 2.6%. Both estimates of future Inflation were largely unchanged from prior estimates¹

 

FISCAL

• Treasury Secretary Janet Yellen pushes back against the idea of creating ‘unlimited bank deposit insurance’ as a way to augment public confidence in the mid-size banking sector²
  • (Yellen) “This is not something that we have looked at. It’s not something that we’re considering,”²
  • (Yellen) “I have not considered or discussed anything having to do with blanket insurance or guarantees of all deposits”²
  • Pursuant to the Dodd-Frank legislation of 2010, any change in deposit insurance would need to be Congressionally approved, and may not be done in insolation by the current Administration²
  • Yellen stated that while unlimited deposit insurance is not something that the current Administration is considering, raising the limit of deposit insurance above $250,000 is currently being discussed²
    • (Yellen) “Right now, we need to focus on improving the confidence of the public that we do have a sound banking system, and we can debate in the days ahead whether or not $250,000 is the right level for deposit insurance”²

 

GEOPOLITICS

• French citizens take to the streets in mass to protest the country’s newly adopted pension reforms put in place by French President Macron³
  • The new pension reform would require an additional 2 years of work for French citizens to be able to receive a full government pension. The new age would be 64, up from the prior level of 62³
  • Additionally, the reforms would require French citizens to work for a cumulative 43 years to be able to receive a full pension, which is one year higher than previously³
  • Current estimates of the average full pension benefit received by French citizens who have retired is €1,400 per month ($1,530 USD)³
  • Despite the recently adopted reforms, France’s pension is still projected to run at a deficit for the next decade. Prior to the reforms, France had one of the lowest full retirement ages in the world, as well as some of the highest spending on pensions in the world³

 

[See Below for Disclosures & Annotations]

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

 

ANNOTATIONS

1. The Federal Reserve. “Transcript of Chair Powell’s Press Conference”. March 22, 2023
2. The Wall Street Journal. “Yellen Says Treasury Isn’t Considering Guaranteeing All Bank Deposits”. March 22, 2023
3. Forbes. “Here’s What To Know About France’s Controversial Pension Reforms As Macron Survives No-Confidence Vote”. March 20, 2023