"Rates Reach the Finish Line"

MONETARY

• Pursuant to the Federal Reserve’s May FOMC meeting, the Fed elected to raise its Target Federal Funds Rate by 25bps to a level of 500-525bps. Moving forward, the Fed is likely to hold rates steady at the current level while taking a data dependent approach to future Monetary Policy actions¹
  • Additionally, Federal Reserve Chairman Jerome Powell offered some updates on the recent developments in the banking sector, stating that the situation has materially improved, and that the banking sector remains stable¹
    • (Powell) “Conditions in that sector have broadly improved since early March, and the U.S banking system is sound and resilient. We will continue to monitor conditions in this sector. We are committed to learning the right lessons from this episode and will work to prevent events like these from happening again.”¹
  • Chairman Powell also commented on the ongoing inflationary pressures throughout the economy and how those pressures have abated in recent months¹
    • (Powell) “Inflation has moderated somewhat since the middle of last year. Nonetheless, inflation pressures continue to run high and the process of getting inflation back down to 2 percent has a long way to go. Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.”¹
  • Referencing the current strength of the Labor Market, Chairman Powell noted that, from an overall perspective, the Labor Market remains tight and that previous signs of labor supply and demand imbalances have shown signs of improving¹
    • (Powell) “The labor market remains very tight. Over the first three months of the year, job gains averaged 345 thousand jobs per month. The unemployment rate remained very low in March, at 3.5 percent. Even so, there are some signs that supply and demand in the labor market are coming back into better balance. The labor force participation rate has moved up in recent months, particularly for individuals aged 25 to 54 years. Nominal wage growth has shown some signs of easing, and job vacancies have declined so far this year. But overall, labor demand still substantially exceeds the supply of available workers.”¹

FISCAL

• As negotiations remain ongoing regarding the nation’s Debt Ceiling, Treasury Secretary Janet Yellen has indicated that the deadline for which a resolution must be completed is June 1, although there is debate that the true deadline could be later than indicated²
  • (Yellen) “It is impossible to predict with certainty the exact date when Treasury will be unable to pay the government’s bills, and I will continue to update Congress in the coming weeks as more information becomes available”²
  • Republican lawmakers have pushed back against the idea of coming to a short-term deal that would allow for more negotiation time around establishing a longer-term deal, instead preferring to handle the issue in its entirety sooner-than-later²
  • President Biden is scheduled to meet with four Senate and House of Representatives leaders (2 Democrats & 2 Republicans) on May 9 to discuss a separate budget negotiation process about prioritizing spending. The White House has stated that President Biden, however, will not negotiate on issue of raising the Debt Ceiling²

MISCELLANEOUS

• J.P. Morgan Chase, the nation’s largest bank, steps-in and acquires First Republic Bank after large-scale bank runs left First Republic on the brink of total collapse³
  • As part of the deal, J.P Morgan Chase will acquire the substantial majority of First Republic Bank’s assets, including approximately $173 billion of loans and approximately $30 billion of securities³
  • P. Morgan Chase will also assume approximately $92 billion of deposits, including $30 billion of large bank deposits³
  • The FDIC will also provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans³
    • Additionally, the FDIC will provide $50 billion of five-year, fixed-rate term financing³
  • Regarding the transaction, J.P. Morgan Chase CEO Jaime Dimon stated:³
    • (Dimon) “Our government invited us and others to step up, and we did”³
    • (Dimon) “Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund.”³

 

[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. Federal Reserve. “Transcript of Chair Powell’s Press Conference”. May 3, 2023
2. NBC. “Treasury says U.S. will hit the debt limit ‘as early as June 1,’ sooner than expected”. May 1, 2023
3. J.P. Morgan Chase. “JPMorgan Chase acquires substantial majority of assets and assumes certain liabilities of First Republic Bank” May 1, 2023