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Tom Michaud, KBW, a Stifel Company, CEO, joins 'Fast Money' to talk bank stocks, interest rates, the economy and more.
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Tag: Breaking News: Economy
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More confidence to return to UK housing market in next six months: Skipton Group CEO
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Stuart Haire, Skipton Group CEO, discusses the company’s half-year results and the outlook for the U.K. housing market.
03:27
Fri, Aug 2 20245:03 AM EDT
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Expect ‘healthy consolidation’ among regional & community banks in the next 2-4 years: Bob Diamond
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Bob Diamond, Atlas Merchant Capital CEO and former Barclays CEO, joins ‘Squawk Box’ to discuss the state of big banks, what to make of bank earnings this quarter, future of regional and community banks, and more.
06:26
Wed, Jul 17 20248:29 AM EDT
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The housing market, explained in 6 charts
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Prospective home buyers leave a property for sale during an Open House in a neighborhood in Clarksburg, Maryland on September 3, 2023.
Roberto Schmidt | AFP | Getty Images
It’s no secret that the housing market looks far different than it did a few years ago.
While surging mortgage rates and housing prices have taken away consumers’ purchasing power, low supply has kept the market competitive. As a result, affordability has tumbled dramatically from the early days of the pandemic.
These six charts help explain what this unique moment looks like — and what it means for you:
The 30-year mortgage rate, a popular option for home buyers utilizing financing, is key to understanding the market. This rate is essentially the borrowing costs tied to purchasing a home with financing. A higher rate, in reality, results in more interest due on a home loan.
For the past several months, this rate has hovered around the 7% level. While it has cooled after touching 8% late last year, it’s still far higher the sub-3% rates consumers could lock in during the first years of the pandemic.
Housing prices are also central to the equation for everyday Americans decision how much, or if, they can afford to spend. The Case-Shiller national home price index, which is calculated by S&P Dow Jones Indices, has notched record highs this year.
High prices can elicit different feelings by group. For hopeful homeowners, it can raise red flags that they are planning to buy at the wrong time. But current owners can see reason to celebrate, as it likely means their own property’s value has risen.
With both mortgages and prices up, it’s not surprising that affordability is down compared with the early innings of the pandemic.
There’s a few different readings of affordability painting a similar picture. One from the National Association of Realtors found affordability tumbled more than 33% between 2021 and 2023 alone.
The Atlanta Federal Reserve’s gauge showed the economic feasibility of home ownership plummeted more than 36% when comparing April to the pandemic high seen in summer 2020.
Another way the Atlanta Fed tracks this is through the share of income needed by the typical American to afford the median home. Nationally, it last required 43% of their pay, well above the 30% marker considered the threshold for affordability. It has been considered unaffordable, or above 30%, since mid 2021.
The Atlanta Fed also breaks out what’s driving the current lack of affordability. While significant pay increases in recent years have helped line wallets, the bank found that the negative impact of higher rates and list prices have more than outweighed the benefits of a bigger paycheck.
While the current mortgage rates are high, a team at the Federal Housing Finance Agency found a very small proportion of borrowers are actually locked in at these lofty levels.
Just shy of 98% of mortgages were below the average rate seen in the fourth quarter of last year, the FHFA found. Nearly 69% had a rate that was a whopping 3 percentage points below that average.
There’s two major reasons for why such a small share are paying current rates. The most obvious is that the housing market got hot when rates were low, but cooled significantly in the current period of higher borrowing costs.
The other answer is the race to refinance when rates were below or near 3% early in the pandemic. That allowed people who were already homeowners to take advantage of these relatively low levels.
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With high prices and mortgage rates, aspiring and current homeowners feel ‘stuck’
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A home available for sale is shown on May 22, 2024 in Austin, Texas.
Brandon Bell | Getty Images
When Rachel Burress moved into her mother’s house around a decade ago, it seemed like a short-term stop on the path to homeownership.
The 35-year-old hairdresser spent those years improving her credit score and saving for a down payment. But with mortgage rates hovering near 7% and home prices skyrocketing, it doesn’t feel like the mother of three will be signing on the dotted line for a place of her own anytime soon.
“I don’t even know if I’ll ever get out and own my own home,” said Burress, who lives about 20 miles outside of Fort Worth, Texas, in a town called Aledo. “It feels like we are just stuck, and it is so hard to handle.”
Burress’ experience is reflective of the millions of Americans who’ve seen their financial and personal lives hindered by elevated price tags and high borrowing costs for homes. This can help to explain the sour sentiment about the state of the national economy.
It also sheds light on an existential anxiety for many: The American dream seems to be even more out of reach these days.
A double whammy
For aspiring homebuyers such as Burress, the combination of high mortgage rates and rising list prices has left them feeling boxed out.
The 30-year mortgage rate, a popular option for home financing in the U.S., has bounced around 7% for the past several months. It pulled back after hitting 8% for the first time since 2000 late last year. But that’s still a big jump from the sub-3% levels seen in the early years of the pandemic — which prompted a flurry of sales and refinancing in the housing market.
On the other side of the equation, rising sticker prices are also adding pressure. The Case-Shiller national home price index has hit all-time highs this year. Zillow’s home value index topped $360,000 in May, a nearly 50% increase from the same month five years ago.
In turn, affordability is down sharply compared with a few years ago. An April reading on the economic feasibility of homeownership from the Atlanta Federal Reserve was more than 36% off the pandemic high registered in the summer of 2020.
Nationally, the share of income needed to own the median-priced home last came in above 43%, per the Atlanta Fed. Any percentage over 30% is considered unaffordable.
The Atlanta Fed also found that the negative effects of high rates and prices more than outweighed the benefits from growing incomes for the typical American. That underscores the strength of these detractors, given that the average hourly wage on a private payroll has climbed more than 25% between June of 2019 and 2024.
‘A tough spot’
This tough environment has chilled activity for potential buyers and sellers alike.
Theoretically, current homeowners should be excited to see their property values rising quickly. But the prospective sellers are deterred by concerns about what rate they’d get on their next home, creating what a team at the Federal Housing Finance Agency called the “lock-in effect.”
There’s already evidence of this stalling in the market: Rates at these levels resulted in more than 875,000 fewer home sales in 2023, according to the team behind a FHFA working paper released earlier this year. That’s a sizable chunk, as the National Association of Realtors reported around 4 million existing houses were sold in the year.
On top of that, the FHFA found that a homeowner is 18.1% less likely to sell for every 1 percentage point their mortgage rate is under the current level. The typical borrower had a mortgage rate that was more than 3 percentage points below what they would have gotten in the final quarter of 2023.
If a homeowner had instead bought at the end of last year, the FHFA team found that their monthly principal and interest payments would cost around $500 more.
Given this, co-author Jonah Coste said current owners touting these low mortgage rates are undoubtedly better off than those looking to buy a first home today. But he said there’s a big catch for this cohort: Moving for a job opportunity or to accommodate a growing family becomes much more complicated.
“They’re not able to optimize their housing for their new life situation,” Coste said of this group. “Or, in some extreme circumstances, they’re not doing the big life changes that would necessitate having to move.”
That’s the predicament Luke Nunley finds himself in. In late 2020, the 33-year-old health administrator bought a three-bed, two-bath house with his wife in Kentucky at an interest rate under 3%. This home has more than doubled in value in almost four years.
After welcoming three kids, they’re holding off on a fourth until mortgage rates or home prices come down enough to upsize. Nunley knows the days of getting a rate below 3% are long gone, but can’t justify anything above 5.5%.
“It’s just a tough spot to be in,” Nunley said. “We’d be losing so much money at current rates that it’s basically impossible for us to move.”
Most Americans skirt 7%
Nunley is part of the overwhelming majority of Americans not paying these lofty mortgages.
The FHFA found that nearly 98% of mortgages were fixed at a level below the average rate of around 7.2% in the final quarter of last year. Like Nunley’s, close to 69% had rates more than 3 percentage points lower.
The buying boom early in the pandemic is one answer for why so many people aren’t paying the going rate. This eye-popping figure can also be explained by the rush to refinance during that period of low borrowing costs in 2020 and 2021.
While these low mortgage rates can help to fatten the pocketbooks of those holding them, Jeffrey Roach, LPL Financial’s chief economist, warned that it can be bad news for monetary policymakers. That’s because it doesn’t offer signs of interest rate hikes from the Federal Reserve successfully cooling the economy.
To be clear, mortgage rates tend to follow the path of Fed-set interest levels, but they aren’t the same thing. Still, Roach said that so many people being locked into low borrowing rates on their homes helps explain why tighter monetary policy hasn’t felt as restrictive as it has historically.
“Our economy is a lot less interest-rate sensitive,” Roach said. “That means the high rates aren’t really doing what it should be doing. It’s not putting the brakes on, like you would normally expect.”
Low housing supply has kept prices up, even as elevated borrowing fees bite into purchasing power. That flies in the face of conventional wisdom, which suggests that prices should slide as rates rise.
Looking longer term, experts said an increase in the volume of new housing can help expand access and cool high prices. In particular, Daryl Fairweather, chief economist at housing market database Redfin, said the national market could benefit from more townhomes and condos that are usually less expensive than typical homes.
Townhouse for sale sign, Corcoran Realty, in driveway of row houses, Forest Hills, Queens, New York.
Lindsey Nicholson | UCG | Universal Images Group | Getty Images
‘The ultimate goal’
For now, this new reality has created generational differences in homeownership and what the road to it looks like.
Zillow found that 34% of all mortgage holders received a financial gift or loan from family or friends for a down payment in 2019. In 2023, that number jumped to 43% as affordability plummeted.
It’s also much harder for young people to get on track for purchasing a home than it was for their parents, Zillow data shows. Today, it takes almost nine years to save 20% for a down payment using 10% of the median household income every month. In 2000, it required less than six years.
“It’s not the avocado toast,” said Skylar Olsen, Zillow’s chief economist, referencing a joke that millennials spend too much on luxuries like brunch or coffee.
Olsen said younger generations should adjust their expectations around ownership given the tougher environment. She said these Americans should expect to rent for longer into adulthood, or plan to attain their first home in part through extra income from renting out a room.
For everyday people like Burress, the housing market remains top of mind, as the Texan considers her financial standing and evaluates candidates in the November election. The hairdresser has continued helping her mom with payments on home insurance, utility bills and taxes in lieu of a formal rent.
Burress is still hoping to one day put that money toward an equity-building property of her own. But time and time again, unexpected expenses like a totaled car or macroeconomic variables such as rising mortgage rates have left her feeling like the dream is out of reach.
“It is the ultimate goal for me and my family to get out of my mom’s house,” she said. But, “it feels like I’m on a hamster wheel.”
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A normalized yield curve eventually is very good for banks, says Gabelli Funds’ Macrae Sykes
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Macrae Sykes, Gabelli Funds portfolio manager, joins ‘Squawk Box’ to break down the quarterly earnings results from JPMorgan Chase and Wells Fargo, the Fed’s rate path outlook, and more.
05:24
Fri, Jul 12 20248:39 AM EDT
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Switzerland makes second interest rate cut as major economies diverge on monetary policy easing
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A view of the headquarters of the Swiss National Bank (SNB), before a press conference in Zurich, Switzerland, March 21, 2024.
Denis Balibouse | Reuters
The Swiss National Bank on Thursday trimmed its key interest rate by 25 basis points to 1.25%, continuing cuts at a time when sentiment over monetary policy easing remains mixed among major economies.
Two thirds of economists polled by Reuters had anticipated the SNB would decide in favor of a 25-basis-point-cut to 1.25%.
The Swiss franc weakened in the wake of the announcement, with the Euro gaining 0.3% and the U.S. dollar up 0.5% against the Swiss currency at 8:55 a.m. London time.
Following the Thursday decision, the Swiss central bank pegged its conditional forecast for inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026. The figures assumes a SNB interest rate of 1.25% over the prediction period.
The country’s inflation flatlined at 1.4% in May after a bump up in April and is expected to average the same level across full-year 2024, according to the SNB’s latest projections.
The Swiss bank said it now anticipates economic growth of around 1% this year and around 1.5% in 2025, anticipating slight increases in unemployment and small declines in the utilization of production capacity.
“Over the medium term, economic activity should improve gradually, supported by somewhat stronger demand from abroad,” the SNB said.
In a June 14 note, analysts at Nomura had characterized a likely cut as a “finely balanced decision” and signaled that “underlying inflation momentum has remained weak which is likely to increase the SNB’s confidence that inflation will converge to the mid-point of its inflation target.”
Switzerland already has the second-lowest interest rate of the Group of Ten democracies by a wide margin, following Japan. It became the first major economy to cut interest rates back in late March and was earlier this month followed by the European Central Bank.
But the U.S. Federal Reserve has yet to blink, and market participants will be following later in the Thursday session to see if the Bank of England takes the leap to trim, after U.K. inflation eased to the 2% target for the first time in nearly three years.
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Former FDIC chair Sheila Bair on promoting regional bank mergers: They need scale to compete
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Sheila Bair, former FDIC chair and a Systemic Risk senior advisor, joins 'Squawk Box' to discuss why she's in favor of promoting regional bank mergers, concerns over concentration in the banking industry, how banking regulation and mergers will be regulated under different administrations, state of the FDIC, and more.
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Barry Sternlicht on why rents are ‘guaranteed’ to go up in 2026 barring a recession
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Barry Sternlicht, Starwood Capital chairman and CEO, joins ‘Squawk Box’ to discuss the state of the economy, real estate trends, limiting redemptions on property fund, the Fed’s inflation fight, impact of interest rate hikes, and more.
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The Fed’s preferred inflation measure rose 0.2% in April, as expected
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Inflation rose about as expected in April, with markets on edge over when interest rates might start coming down, according to a measure released Friday that is followed closely by the Federal Reserve.
The personal consumption expenditures price index excluding food and energy costs increased just 0.2% for the period, in line with the Dow Jones estimate, the Commerce Department reported.
On annual basis, core PCE was up 2.8%, or 0.1 percentage point higher than the estimate.
Including the volatile food and energy category, PCE inflation was at 2.7% on an annual basis and 0.3% from a month ago. Those numbers were in line with forecasts.
Fed officials prefer the PCE reading over the more closely followed consumer price index, which the Labor Department compiles. The Commerce Department measure accounts for changes in consumer behavior such as substituting less expensive items for costlier alternatives, and has a wider scope than CPI.
“The core index came in at 2.8%. That’s fine, but it’s been trading in a range for five months now, and that’s pretty sticky to me,” said Dan North, senior economist for North America at Allianz Trade. “If I’m [Fed Chair Jerome] Powell, I’d like to see that start moving down, and it’s barely creeping. … I’m not reaching for the Pepto yet, but I’m not feeling great. This is not what you want to see.”
A 1.2% increase in energy prices helped push up the headline increase. Food prices posted a 0.2% decline on the month.
Goods prices rose 0.2% while services saw a 0.3% increase, continuing a normalization trend for an economy in which services and consumption provide much of the fuel.
Along with the inflation reading, Friday’s release included data about income and spending.
Personal income increased 0.3% on the month, matching the estimate, while spending rose just 0.2%, below the 0.4% estimate and off March’s downwardly revised 0.7%. Adjusted for inflation, the spending numbers showed a 0.1% decline, due in large part to a 0.4% decrease in spending on goods and just a 0.1% rise in services expenditures.
Market reaction following the release saw futures tied to major stock averages rising while Treasury yields moved lower.
“The PCE Price Index didn’t show much progress on inflation, but it didn’t show any backsliding, either. Based on the initial reaction in stock index futures, the market will see it mostly as a positive,” said Chris Larkin, managing director of trading and investing for E-Trade from Morgan Stanley.
“Investors will have to remain patient, though,” he added. “The Fed has suggested it will take more than one month of favorable data to confirm inflation is reliably moving lower again, so there’s still no reason to think a first rate cut will come any earlier than September.”
As inflation data has come in hotter than expected, central bank officials have encouraged a cautious approach. That means less likelihood that they will be cutting rates anytime soon.
Most recently, New York Fed President John Williams said Thursday that while he is confident inflation will continue to recede, prices are still too high and he has not seen sufficient progress on moving to the Fed’s 2% annual goal.
Markets have reined in their expectations for rate reductions this year. Pricing Friday morning indicated a probability that the first move likely won’t come until November, at the Fed’s meeting that concludes two days after the presidential election.
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Oil alliance OPEC+ could extend production cuts this weekend as focus shifts away from Middle East tensions, sources say
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The OPEC logo on the building of the Organization of the Petroleum Exporting Countries.
Thomas Coex | Afp | Getty Images
The oil-producing Organization of the Petroleum Exporting Countries and its allies could extend existing output cuts this week, delegates and analysts told CNBC, even as focus shifts from Middle East tensions to summer demand.
The group, collectively known as OPEC+, was set to convene in person in Vienna on June 1, but last week moved the encounter virtually to June 2.
OPEC+ producers are currently implementing a combined 5.86 million barrels per day of supply cuts. Just 2 million barrels per day of these cuts represent unanimous commitments under OPEC group policy, and expire at the end of this year.
The remainder are reduced voluntarily by a subset of the alliance. A cut of 1.66 million per barrel is in place until the end of 2024, and 2.2 million barrels per day of supplies have been trimmed until the end of the second quarter. Market participants are watching whether this latter cut will be extended for another quarter, amid projected demand hikes.
“Come June, China would be largely out of refinery maintenance, U.S. consumption is improving as summer moves closer, so June should already see negative crude balances. And then August is the peak month for tightness,” Viktor Katona, lead crude analyst at Kpler, told CNBC.
The OPEC+ coalition is also eyeing individual members’ quota compliance, asking overproducers to implement additional cuts. Iraq and Kazakhstan have detailed compensation plans.
Extension
Three OPEC+ delegates, who spoke anonymously because of the sensitivity of talks, told CNBC the 2.2 million-barrels-per-day supply reductions will likely be prolonged, with a fourth saying this is the scenario anticipated by the market. One delegate acknowledged the probable market tightness in the second half of the year, but noted that demand concerns persisted until only recently.
OPEC’s latest Monthly Oil Market Report of May projects a 2.25 million barrel-per-day increase in demand this year, while Paris-based International Energy Agency’s Oil Market Report of the same month points to just a 1.06 million-barrel-per-day demand hike.
“I think that the clever thing for OPEC+ would be to gradually unwind the voluntary cuts to limit the upside price pressure, to prevent refilling inflation,” Jorge Leon, senior vice president of Rystad Energy’s Oil Market Research, told CNBC. “However, I think that the market right now has priced in a full extension of the voluntary cuts. So I think that is what, probably, they will do.”
He added, “If they decide to fully extend the voluntary cuts, and there is perfect compliance, and they do the full compensation, and then, if, I think prices could reach closer to $100 per barrel this summer.”
Energy security concerns fueled global inflation in the wake of Russia’s invasion of Ukraine and were further stoked after the conflict in Gaza threatened a broader spillover in the oil-rich Middle East, while frequent maritime attacks by Yemen’s Houthi militants disrupted trade transit in the Red Sea.
A high-inflation environment and tight monetary policy in turn reined in oil demand, but central banks have signaled readiness to lower interest rates in the second half of the year.
Tamas Varga, analyst at PVM Oil Associates, told CNBC that the OPEC+ supply restrictions will likely remain in place for the third quarter, adding, “I also believe that the producer group will emphasize that anyone who did not comply with the quota will have to make amends. And I believe that OPEC+ will only ease the supply constraints when they see obvious signs of global oil inventories depleting.”
Kpler’s Katona aligned with the views, but noted that heavyweights Saudi Arabia, Russia and the United Arab Emirates, who participate in the voluntary reductions, could seek to scrap the latter curbs toward the end of the year.
“Further down the line into 2025, unwinding cuts might be challenging for prices as incremental production from Guyana, Brazil, Canada will saturate the markets,” he said, flagging new Floating Production Storage and Offloading facilities due to come online. “This year there’s no new FPSO in Guyana, whilst next year it starts up a new one in [third-quarter] 2025. Brazil, likewise, has one FPSO starting up this year whilst next year it will be a bonanza of new capacity.”
Rising competing supplies have reduced the market prominence of OPEC+, one OPEC+ delegate acknowledged, while analysts signaled that the group’s ongoing output cuts allows unfettered producers to capture their market share.
Priced in
Oil prices have largely languished range-bound in the first half of the year, under ongoing threat of spikes from developments in the Middle East. Regional escalations could top prices with a risk premium of up to $10 per barrel, Rystad’s Jorge Leon noted – while OPEC+ delegates told CNBC that the situation in the Gaza Strip is still adding a little pressure, but that the market has already absorbed the majority of its effect.
Katona likewise noted that the Gaza crisis “will seemingly persist for longer than everyone expected but it doesn’t really have an imprint on OPEC+ coherence and policy.”
One OPEC+ delegate meanwhile said that the unexpected death of Iranian President Ebrahim Raisi represented a tragic accident that could not be interpreted as a risk to the market, especially given that his successor will likely pursue similar politics.
“I think the geopolitical risk premium has subsided and I think that the tension between Israel and Hamas will only support prices if it will have an obvious impact on oil production or oil flows, which might come in the form of the closure of the Strait of Hormuz, or attacks on oil infrastructure in the region, something which does not look plausible at the moment,” Varga said.
OPEC+ must also balance its relationship with the U.S., which has previously blasted the coalition’s supply cuts amid concerns over gasoline prices. The Biden administration last week said it will release 1 million barrels of gasoline from reserves in a bid to curb prices at the pump. The U.S. undertook similar crude releases from its Strategic Petroleum Reserve Stocks during the Covid-19 pandemic, but one OPEC+ delegate noted such measures are unlikely to have an impact beyond price relief during the summer. The U.S. typically seeks to replenish the emergency stockpile of its state reserves.
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Bank of America CEO says U.S. consumers and businesses have turned cautious on spending
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Bank of America Chairman and CEO Brian Thomas Moynihan speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, U.S., December 6, 2023.
Evelyn Hockstein | Reuters
U.S. consumers and businesses alike have turned cautious about spending this year because of elevated inflation and interest rates, according to Bank of America CEO Brian Moynihan.
Whether it’s households or small- to medium-sized businesses, Bank of America clients are slowing down the rate of purchases made for everything from hard goods to software, Moynihan said Thursday at a financial conference held in New York.
Consumer spending via card payments, checks and ATM withdrawals has grown about 3.5% this year to roughly $4 trillion, Moynihan said. That’s a sharp slowdown from the nearly 10% growth rate seen in May 2023, he said.
“Both of our customer bases that have a lot to do with how the American economy runs are saying, ‘You know what? I’m being careful, slowing things down,’” Moynihan said, referring to consumers and businesses.
The slowdown began last summer and is consistent with the “very low growth” environment of the period from 2016 through 2018, he said.
Nearly a year after the last Federal Reserve rate increase, consumers and businesses are wrestling with inflation and borrowing costs that remain higher than they are accustomed to. The Fed began efforts to tame inflation by hiking its benchmark rate starting in March 2022, hoping it could slow the economy without tipping it into recession.
Many economists believe the Fed is on track to pull off that feat, which has helped the stock market reach new highs this year. But consumers are still grappling with higher prices for goods and services, and that has impacted U.S. companies from McDonald’s to discount retailers as Americans adjust their behavior.
Food shoppers are hitting up more store locations in search of deals, according to Moynihan. “They’re going to three grocery stores instead of two, is one of the stats we see,” he said.
The now-tepid growth in overall spending is being propped up by travel and entertainment, while “other things have moderated, except for insurance payments,” Moynihan said. Growth in rent payments has slowed, he noted.
“We’ve got to keep the consumer in the game in the U.S. economy, because [they’re] such a big part of it,” Moynihan said. “They’re getting a little more tenuous, and that is due to everything going on around them.”
The same is true for small- and medium-sized businesses, the Bank of America CEO said. His company is the second-largest U.S. bank by assets, after JPMorgan Chase. Moynihan and other bank CEOs have a bird’s-eye view of the economy, given their coast-to-coast coverage of households and companies.
Business owners are saying, “‘I still feel good about my overall business, but I’m not hiring as much. I’m not buying equipment as fast. I’m not making software purchases as fast,’” Moynihan said.
The bank’s economists believe that inflation will take until the end of next year to get under control and that the Fed will begin cutting interest rates later this year, Moynihan said. The U.S. economy will probably grow at around a 2% level, avoiding recession, he added.
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UK Prime Minister Rishi Sunak calls July 4 general election
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Britain’s Prime Minister Rishi Sunak leaves Downing Street in London, Britain, May 22, 2024.
Hollie Adams | Reuters
LONDON – U.K. Prime Minister Rishi Sunak on Wednesday called for a general election to take place on July 4, after economic data showed a fall in inflation near the British central bank’s 2% target earlier in the day.
“Earlier today I spoke with his majesty the King to ask for the dissolution of Parliament. The King has granted this request, and we will have a general election on the 4th of July.” said Sunak, speaking during a news conference outside Downing Street.
Data from the Office for National Statistics showed that U.K. inflation dropped to 2.3% in April earlier on Wednesday morning.
Sunak’s ruling Conservative Party had been hoping for signs of an improving economic environment, as it lags in the polls ahead of the national election.
“Economic stability is the bedrock of any future success,” said Sunak. “And because of our collective sacrifice and your hard work, we have reached two major milestones in delivering that stability.”
He qualified that the U.K. economy is now growing faster than anyone expected.
“Uncertain times call for a clear plan and bold action,” said Sunak, referencing the ongoing war in Ukraine. “I’m guided by doing what is right for our country, not what is easy.”
Sunak, who has held the post of prime minister since October 2022, pledged to earn the the trust of the British people.
“People across the UK are crying out for change, and this election is finally our chance to make it happen,” Liberal Democrats Party leader Ed Davey said on X.
British economy in focus
“We’ve tackled inflation, controlled debt and cut workers’ taxes, increased the state pension by £900, we’ve reduced taxes on investment and seized the opportunities of Brexit to make this the best country in the world to grow a business, put record amounts of funding into our NHS and ensured it’s now training the doctors and nurses it needs for decades to come,” said Sunak.
Keir Starmer, leader of the rival Labour faction, circulated a campaign video on social media platform X urging poll goers to vote for his party, which pledges “to serve working people as you drive our country forward, with economic stability at the forefront of everything we do.”
The U.K. economy has been convalescing from a period of sky-high inflation in the wake of the Covid-19 pandemic, the commercial impacts of the country’s exit from the European Union and elevated energy prices, following Russia’s invasion of Ukraine.
The country entered a shallow recession in the second half of last year, with recent figures indicating a slight growth in early 2024.
“With growth recovering faster than expected, the UK economy is approaching a soft landing, following a mild technical recession in 2023,” the International Monetary Fund said Tuesday, as it upgraded its forecast for the British economy to expand by 0.7% this year, from a previous outlook of 0.5% GDP growth in 2024.
Nevertheless, the Organization for Economic Cooperation and Development earlier this month noted Britain’s “sluggish” growth has put it on track to be the worst-performing economy of all advanced nations next year.
– Jenni Reid contributed to this report.
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Reducing banks’ capital requirements would lead us into the next financial crisis, German regulator warns
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Mark Branson, president of the German financial regulatory authority BaFin, discusses changing financial regulation.
03:06
2 hours ago
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Renters’ hopes of being able to buy a home have fallen to a record low, New York Fed survey shows
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A sign advertising a home for sale is displayed outside of a Manhattan building on April 11, 2024 in New York City.
Spencer Platt | Getty Images
The dream of home ownership has gotten even further away for renters, with higher housing costs and elevated interest rates standing in the way of the American housing dream, according to a New York Federal Reserve survey released Monday.
The share of renters as of February who possess hopes of “residential mobility,” or the belief from renters that they one day will be able to afford a home, fell to a record low 13.4% in the central bank’s annual housing survey for 2024.
That’s down from 15% in 2023 and well off the 20.8% series high back in 2014.
Pessimism about future prospects comes amid a confluence of factors conspiring against the likelihood of renters being able to transition to home ownership.
For one, some 74.2% of renters viewed obtaining a mortgage as somewhat or very difficult, which the New York Fed said has “deteriorated substantially” from the 66.5% level in 2023 and 63.1% in 2022.
Moreover, mortgage rates have remained high by historical standards. A 30-year fixed-rate mortgage now carries an average 7.22% borrowing rate, the highest since late November 2023, according to Freddie Mac.
Housing affordability has improved little, with the median price in February at $388,700, the highest since November, according to the National Association of Realtors. The NAR’s housing affordability index was at 103 in February, down slightly from January but still at elevated levels with average monthly housing payments at $2,040.
Survey respondents expect housing prices to increase 5.1% over the next year, nearly double the 2.6% expected rate in February 2023 and above the pre-pandemic mean of 4.2%.
Despite prospects for the Fed to cut interest rates before the end of 2024, respondents think mortgage rates are only going to go higher. The outlook for a year from now is that borrowing costs will be 8.7%, and 9.7% in three years, both survey records.
There’s not a lot of good news on the renting front, either. Respondents expect rental costs to increase by 9.7% over the next year, up 1.5 percentage points from last year’s survey and the second highest in series history.
The results come a week after the Federal Open Market Committee voted to hold benchmark interest rates steady while indicating that there has been “a lack of further progress” in its efforts to bring the annual inflation rate back down to 2%.
Futures market pricing is indicating that the Fed will begin lowering rates in September, with a another cut likely to come in December.
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The next airport terminal lounge or club you pass may also be a bank branch
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Nicolette Nelson was running late for her return flight to Fairbanks as she sprinted towards her gate at Cincinnati/Northern Kentucky International Airport (CVG). Overcome by a medical issue, she didn’t make it to her gate and wound up spending the night in a Cincinnati hospital. By the next day, she had recovered and awaited her flight home, but it was repeatedly delayed.
So Nelson spent hours of her delay in a quiet cubicle in an unlikely place — a bank — waiting for her flight and wiling away the time on electronic devices.
“It’s been really, it’s quiet and that is what I need,” Nelson said.
Fifth Third Bank was trying to appeal to this type of traveler when it rechristened its 40-year-old CVG branch last month as a combination lounge and lending center. Weary travelers and constantly working entrepreneurs stake out prime spots in the bank away from the airport hubbub, while corporate travelers use the center to squeeze out more business.
“One woman wanted to rent my office to work,” remembers Lisa Slocum, the airport Fifth Third Bank branch manager. Slocum directed the woman to other options in the branch.
Other customers use the bank on a purely transactional basis. On a recent day, Hannah Thelen and her mother, Ashley Thelen, were passing through on their way to Spain and stopped in to convert currency.
“I love the central location,” Ashley Thelen said as she converted dollars to euros.
It’s a central location for a flyer, but a maze of trams, moving sidewalks, and concourses need to be navigated to get to it in Terminal B, and it is past the TSA checkpoint, so the branch doesn’t get customers off the street.
Fifth-Third Bank isn’t the first financial institution to create an airport lounge vibe. Capital One closed its branch at Washington, D.C.’s Dulles International Airport in 2020, instead creating “airport lounges” for cardholders in Dulles, along with similar spots at airports in Denver and Dallas. The lounges offer amenities on par with an airline rewards club but are only for Capital One card holders, and banking services are not a part of the experience like they are at Fifth-Third’s CVG branch.
Capital One Lounge inside Dulles International Airport in Washington, D.C.
Capital One
If CVG were a city, it’d be the fourth or fifth largest in Kentucky on most days, with 16,000 workers employed on the airport campus daily, according to Mindy Kershner, CVG’s senior manager of communications, plus the nine million passengers going through the gates yearly. That’s a lot of potential banking customers. Yet full-service airport bank branches are a relative rarity, surprising in a retail landscape that often resembles an upscale mall more than a terminal.
Wings Credit Union has a small full-service branch at the Minneapolis-St. Paul International Airport, and Wings Vice President of Marketing Brent Andersen said the branch is also more about serving the large number of airport employees who are members than the traveling public. He adds, however, that in terms of visibility and advertising, even with the higher airport rent, the branch is a no-brainer.
“We’d have to spend a lot more in other advertising to get that kind of visibility,” Andersen said, crediting the branch with also landing new members.
For Fifth Third Bank, and a handful of other retail banking players, the airport branches are more than just expensive advertising for the brand (though that’s certainly part of the appeal). They are also functional financial centers, and in a digital era when bank branches are under existential scrutiny, some financial companies are betting on airports as a viable and visible place to keep their shingle hung.
Big banks are adding hundreds of branches
The banks and credit unions adding airport branches are just another indicator that the long-predicted demise of in-person banking at the hands of digital isn’t happening exactly as expected. The long-term trend is still less retail footprint, but branches have been staging a bit of a comeback. In fact, FDIC data shows that 2023 saw the first annual gain in branch count nationwide, to nearly 70,000, in a decade. This rebound comes as banking giants JPMorgan Chase and PNC have announced plans to open more branches — Chase up to 500, plus 1,700 renovations, while PNC is adding 100 new branches and renovating another 1,000 at a cost of $1 billion over the next three to five years.
When Fifth Third Bank, the nation’s tenth-largest bank by deposits, rechristened its 40-year-old CVG location last month, it did so with plenty of local media coverage, cementing its commitment to airport banking.
“There are very few full-service branches in airports, and this is one of a kind,” said John Sieg, regional retail executive for Fifth Third Bank. The bank is trying to create something like Delta’s Sky Club, except with on-site banking — cashing checks, checking balances, and converting currency — and open to all. And you won’t get dinged with an overdraft fee for lounging on their sofas.
“Our objective is for travelers to have a place to do their full-service banking and hang out with us. They could hang out with us all day if they have a delayed flight. We have had customers that have done it,” Sieg said.
Wells Fargo operates a full-service branch in Las Vegas’s Harry Reid International Airport, and according to a bank spokeswomen, has a multi-year relationship with the airport that involves both the branch and multiple ATMs throughout terminals. Although Wells Fargo had little to say about the branch, it’s not difficult to imagine why it might be popular in Vegas, where slots are as much a part of the landscape as espresso machines.
Truist Bank, formerly SunTrust, operates a full-service bank branch at Hartsfield-Jackson Atlanta International Airport, where serving customers remains a top priority, but Brian Davis, director of consumer and small business banking communications, also noted that being at the airport provides the bank with “a high level of brand visibility for the millions of passengers who pass through.”
Still, not everyone in the industry is sold on mixing anxiety about getting through security and to the gate on time with personal finance.
“I think it’s a bad idea,” says Paul McAdam, senior director of banking and payments intelligence at analytics firm J.D. Power. McAdam says ATMs and advanced-function kiosks are one thing, but a full-service branch, except maybe in the largest markets, is overkill. JFK Airport in New York City has three credit unions in its terminals.
“I sense that bank branches in airports would handle a lot of transaction volume but very little value-added volume of customers looking to open accounts or receive advice. Who wants to open a new account in an airport?” McAdam said.
Financial giants are testing the concept of bank-branded destinations more widely. Capital One has opened some cafes in New York that cater to the remote worker, offering a financial vibe without vaults of money and tellers watching your every move.
With most travelers focused on traveling, Fifth Third conceded that banking isn’t top of mind for many airport customers. Sieg says the CVG branch does about 1,700 transactions a month.
“That is probably on the smaller side of what a transaction count would be at a traditional bank mart or office,” he said, but the visibility of the branch makes up for lower volume.
The branch offers an array of spaces, including a service bar where travelers can tap away at their tablets while watching coffee-clutching, harried travelers racing for their gates. The bank also includes a fully private office with phones, a hydration station, sofas, and overstuffed chairs, an enticement for remote workers.
“Regardless of whether you are a customer or a non-customer, we wanted to put out the best welcome sign we could have. Everybody is invited and can use this space,” Sieg said.
However, if someone feels a need to apply for a mortgage during their layover or open a savings account, the branch has that functionality.
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KBW CEO Tom Michaud reacts to Fed decision’s impact on banks and the inflation battle
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Tom Michaud, KBW CEO, joins ‘Fast Money’ to talk the impact of today’s FOMC decision to leave rates unchanged and how that will impact banks, inflation, the economy, and more.
05:17
Wed, May 1 20245:55 PM EDT
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Saudi Arabia says all NEOM megaprojects will go ahead as planned despite reports of scaling back
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Saudi Arabia’s economy minister rejected recent reports that the kingdom’s $1.5 trillion NEOM megaproject, a futuristic desert development on the Red Sea coast, is scaling back some of its plans.
“All projects are moving full steam ahead,” Faisal Al Ibrahim told CNBC’s Dan Murphy on Monday at the World Economic Forum’s special meeting in Riyadh.
“We set out to do something unprecedented and we’re doing something unprecedented, and we will deliver something that’s unprecedented.”
In early April, reports emerged in Western media outlets that The Line project, a planned glass-walled city meant to stretch for 105 miles across the desert by 2030, would be a length of just 1.5 miles by that time — a reduction of 98.6%. Citing anonymous sources with knowledge of the matter, the initial report by Bloomberg said that the Saudi government’s original plan to have 1.5 million people living in The Line by 2030 was slashed to 300,000.
The purported scaling back of plans, at least in the medium-term, comes amid reported concerns over finances for NEOM, which is part of the kingdom’s broader Vision 2030 initiative to diversify its economy away from oil. Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, has not yet approved NEOM’s budget for 2024, according to Bloomberg’s report.
Al Ibrahim stressed that the projects would be delivered according to plan, but with the qualification that decisions were being made for “optimal economic impact.”
“We see feedback from the market, we see more interest from the investors and we’ll always prioritize to where we can optimize for optimal economic impact,” he said.
“Today the economy in the kingdom is growing faster, but we don’t want to overheat it. We don’t want to deliver these projects at the cost of importing too much against our own interest. We will continue delivering these projects in a manner that meets these priorities, delivers these projects and has the optimal healthy impact for our economy and the … healthy non-oil growth within it.”
NEOM political map of the 500 billion dollar megacity project in Saudi Arabia along the Red Sea coast. Location of the smart and tourist city with autonomous judicial system. English labeling. Vector.
Peterhermesfurian | Istock | Getty Images
Still, the minister emphasized that “for NEOM, the projects, the intended scale is continuing as planned. There is no change in scale.”
“It is a long-term project that’s modular in design,” he said. “The rest of the mega projects are there to be delivered for specific impact in specific sectors.”
Asked what kind of a message the reported timeline and scale changes would send to private investors, Al Ibrahim said that decisions would be made to suit the needs and returns of the projects, and that all the developments within NEOM are seeing growing investor interest.
“Keep in mind that these sectors didn’t exist in the past. They’re being built from scratch. They require some investment and going all in from the government and the sovereign wealth fund,” he said.
“And we’re seeing increased investor interest on all of these projects. These projects will be delivered to their scale and in a manner that in terms of priorities suits the needs of the projects, the returns of these projects, and the economic impact. It’s like minimizing any leakage, minimizing any overheating risks as well.”
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GDP growth slowed to a 1.6% rate in the first quarter, well below expectations
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U.S. economic growth was much weaker than expected to start the year, and prices rose at a faster pace, the Commerce Department reported Thursday.
Gross domestic product, a broad measure of goods and services produced in the January-through-March period, increased at a 1.6% annualized pace when adjusted for seasonality and inflation, according to the department’s Bureau of Economic Analysis.
Economists surveyed by Dow Jones had been looking for an increase of 2.4% following a 3.4% gain in the fourth quarter of 2023 and 4.9% in the previous period.
Consumer spending increased 2.5% in the period, down from a 3.3% gain in the fourth quarter and below the 3% Wall Street estimate. Fixed investment and government spending at the state and local level helped keep GDP positive on the quarter, while a decline in private inventory investment and an increase in imports subtracted. Net exports subtracted 0.86 percentage points from the growth rate while consumer spending contributed 1.68 percentage points.
There was some bad news on the inflation front as well.
The personal consumption expenditures price index, a key inflation variable for the Federal Reserve, rose at a 3.4% annualized pace for the quarter, its biggest gain in a year and up from 1.8% in the fourth quarter. Excluding food and energy, core PCE prices rose at a 3.7% rate, both well above the Fed’s 2% target. Central bank officials tend to focus on core inflation as a stronger indicator of long-term trends.
The price index for GDP, sometimes called the “chain-weighted” level, increased at a 3.1% rate, compared to the Dow Jones estimate for a 3% increase.
Markets slumped following the news, with futures tied to the Dow Jones Industrial Average off more than 400 points. Treasury yields moved higher, with the benchmark 10-year note most recently at 4.69%.
“This was a worst of both worlds report – slower than expected growth, higher than expected inflation,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “We are not far from all rate cuts being backed out of investor expectations. It forces [Fed Chair Jerome] Powell into a hawkish tone for next week’s [Federal Open Market Committee] meeting.”
The report comes with markets on edge about the state of monetary policy and when the Federal Reserve will start cutting its benchmark interest rate. The federal funds rate, which sets what banks charge each other for overnight lending, is in a targeted range between 5.25% to 5.5%, the highest in some 23 years though the central bank has not hiked since July 2023.
Investors have had to adjust their view of when the Fed will start easing as inflation has remained elevated. The view as expressed through futures trading is that rate reductions will begin in September, with the Fed likely to cut just one or two times this year. Futures pricing also shifted after the GDP release, with traders now pointing to just one cut in 2024, according to CME Group calculations.
“The economy will likely decelerate further in the following quarters as consumers are likely near the end of their spending splurge,” said Jeffrey Roach, chief economist at LPL Financial. “Savings rates are falling as sticky inflation puts greater pressure on the consumer. We should expect inflation will ease throughout this year as aggregate demand slows, although the path to the Fed’s 2% target still looks a long ways off.”
Consumers generally have kept up with inflation since it began spiking, though rising inflation has eaten into pay increases. The personal savings rate decelerated in the first quarter to 3.6% from 4% in the fourth quarter. Income adjusted for taxes and inflation rose 1.1% for the period, down from 2%.
Spending patterns also shifted in the quarter. Spending on goods declined 0.4%, in large part to a 1.2% slide in bigger-ticket purchases for long-lasting items classified as durable goods. Services spending increased 4%, its highest quarterly level since the third quarter of 2021.
A buoyant labor market has helped underpin the economy. The Labor Department reported Thursday that initial jobless claims totaled 207,000 for the week of April 20, down 5,000 and below the 215,000 estimate.
In a possible positive sign for the housing market, residential investment surged 13.9%, its largest increase since the fourth quarter of 2020.
Thursday’s release was the first of three tabulations the BEA does for GDP. First-quarter readings can be subject to substantial revisions — in 2023, the initial Q1 reading was an increase of just 1.1%, which ultimately was taken up to 2.2%.
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