Deflationary pressure in China is worsening as consumer prices increased at the slowest pace in two years, suggesting weakness in domestic demand and a long road ahead to full economic recovery.
The consumer price index rose by just 0.1% in April from a year ago, the lowest rate since February 2021, according to the National Bureau of Statistics on Thursday. In March and February, it increased 0.7% and 1% respectively.
The producer price index, which measures factory-gate prices, declined by 3.6%, marking the biggest contraction in three years. It’s the seventh straight month the figure has fallen.
Prices are stagnating or falling in the country despite the fact that the People’s Bank of China, the central bank, has been cutting interest rates and pumping cash into the financial system to bolster the economy.
President Joe Biden and top congressional leadership will meet again on Friday after they emerged from their hour-long meeting in the Oval Office on Tuesday with little to show that they’re moving toward a deal to raise the debt ceiling and avoid a default that would have catastrophic economic consequences.
House Republicans want to attach spending reductions to a debt ceiling increase and have passed a debt limit plan that does just that. But Biden and congressional Democrats have insisted on passing a clean increase on the debt limit before addressing a framework for spending.
Although expectations for the meeting were low, House Speaker Kevin McCarthy told reporters that he didn’t see any new movement since his last meeting with the president to discuss the matter in February.
“I would hope that he’d be willing to negotiate for the next two weeks so we could actually solve this problem and not take America on the brink,” McCarthy said outside the West Wing following the meeting.
The California Republican said he asked the president for areas where he’d engage on spending reductions, but “he wouldn’t give me any.”
Speaking alongside McCarthy, Senate Minority Leader Mitch McConnell attempted to assuage fears of a default, stating that “the United States is not going to default. It never has and it never will. However, elections have consequences. We now have divided government. We didn’t have a divided government last year.”
However, McCarthy would not offer concrete assurances about preventing default.
“I’m speaker of the House,” he said. “I’m not the leader of the Senate. I’m not the president … I’ve done everything in my power to make sure it will not default. We have passed a bill that raised the debt limit. Now, I haven’t seen that in the Senate.”
“So,” the speaker continued, “I don’t know.”
House Minority Leader Hakeem Jeffries and Senate Majority Leader Chuck Schumer also told reporters outside the White House that McCarthy was the only leader in the meeting who would not take default off the table.
“Instead of (McCarthy) giving us a plan to remove default, he gave us a plan to take default hostage and that is a shame, because that makes things more complicated,” Schumer said.
Jeffries said that the meeting attendees are organizing their respective teams “to have a discussion about a path forward around the budget and the appropriations process, and everyone agreed.”
“That’s progress,” he added.
Officials had indicated Biden’s goal for the meeting was to move spending negotiations onto a separate track, removing the threat of default while giving Republicans assurances he will engage in good-faith negotiations about federal spending.
Tuesday’s meeting – comprised of the four congressional leaders as well as a handful of congressional and White House aides – marked the first in-person, top-level discussions on the matter at the White House in months.
McCarthy has signaled opposition to a short-term debt limit lift. He also said that Congress will need deal in principle to lift debt limit by next week.
Heading into Tuesday’s meeting, McCarthy had more leverage than many expected him to have and House Republicans remain largely behind him.
“There isn’t a single bright line or ‘must have’ that I am married to,” South Dakota GOP Rep. Dusty Johnson, a key McCarthy ally, told CNN. “The totality of the deal has to make real and substantial change to how our country spends and borrows. There are lots of different ways to get there.”
Many House Republicans believe the speaker has built trust within their ranks over the last several months – a testament, they say, to a leader who barely clinched the speakership after a historic 15 rounds of voting.
A source close to McCarthy said the speaker – after months of listening sessions and meetings – feels comfortable with where his conference’s hard lines and negotiable provisions lie. He’s spent the last several days touching base with Republican members across the ideological spectrum and speaking with Louisiana GOP Rep. Garret Graves, who he selected to take lead as a policy adviser on this issue.
Asked what would be a victory in negotiations with the White House, North Dakota Republican Rep. Kelly Armstrong said, “Kevin getting us the best deal he can after the White House engages in good faith negotiations.”
“I recognize what I want and what can get 60 votes in the Senate may not be the same,” he added.
“The solution to this problem lies with two people, the president United States, who can sign a bill and deliver the members of his party to vote for it, and the Speaker of the House,” McConnell told reporters after Tuesday’s meeting. “There is no sentiment in the Senate – certainly not 60 votes – for a clean debt ceiling. So there must be an agreement and the sooner the president and the speaker can reach an agreement, the sooner we can solve the problem.”
In the Senate, all but six Senate Republicans have vowed to oppose raising the debt ceiling “without substantive spending and budget reforms,” backing McCarthy’s position.
The US hit the debt ceiling set by Congress in January. That forced the Treasury Department to begin taking extraordinary measures to keep the government paying its bills. And Treasury Secretary Janet Yellen recently warned that the US could default on its obligations as soon as June 1 if Congress doesn’t address the debt limit.
A breach of the US debt ceiling risks sparking a 2008-style economic catastrophe that wipes out millions of jobs and sets America back for generations, Moody’s Analytics has warned. The impact could include delayed Social Security payments, late paychecks for federal employees and veterans and a direct hit to Americans’ investments.
Stocks fell Tuesday morning as investors awaited updates on the debt ceiling and inflation.
Along with news about the White House, investors are also bracing for the April Consumer Price Index data due on Wednesday, which could give more clues into the Federal Reserve’s planned trajectory in its fight against inflation.
This story and headline have been updated with additional developments.
The US could default on its obligations as soon as June 1 if Congress doesn’t address the debt limit before then, Treasury Secretary Janet Yellen said Monday.
“After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time,” Yellen wrote in a letter to House Speaker Kevin McCarthy.
The accelerated timetable increases pressure on President Joe Biden and House Republican lawmakers to ramp up their debt ceiling discussions. After months of talks being at a standstill, the president called all four congressional leaders on Monday afternoon and invited them to a May 9 meeting.
Yellen warned that the actual date that Treasury exhausts its ability to pay the government’s bills on time and in full could be “a number of weeks later than these estimates.” She noted that it’s impossible to pinpoint an exact date since the amount of revenue the federal government collects and the amount it spends is variable.
She will continue to update Congress as more information becomes available, but she reiterated that it’s “imperative” that lawmakers act as soon as possible.
“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen wrote.
“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests,” she continued.
The Congressional Budget Office also updated its forecast on Monday, saying that there is a “significantly greater risk that the Treasury will run out of funds in early June” because of weaker-than-expected tax collections. It had originally projected that the default could happen between July and September.
When the US hit its $31.4 trillion debt ceiling in January, Yellen informed Congress that cash on hand and “extraordinary measures” should last at least until early June. But she warned the projection was subject to considerable uncertainty.
A variety of forecasters have estimated that the so-called X-date, when the US would default, would arrive over the summer or in the early fall.
The likelihood of an early June default grew in recent weeks when April tax receipts were coming in weaker than expected. A trio of analysts issued reports warning that the default date could hit soon.
However, a surge of tax revenue last week prompted two analysts to revise their forecasts to the second half of July.
If tax collections wind up being enough to keep Treasury’s coffers flush through early June, then it’s likely the government won’t default until much later in the summer. The agency will get another injection of funds from second quarter estimated tax payments, which are due June 15, and from an extraordinary measure that becomes available at the end of that month.
Biden told the congressional leaders – Senate Majority Leader Chuck Schumer, Senate Minority Leader Mitch McConnell, House Minority Leader Hakeem Jeffries and McCarthy – that he wants to discuss the need to pass a clean bill to raise the debt ceiling.
The White House is maintaining its position that it will not negotiate over the debt ceiling.
The invitation comes after McCarthy noted earlier Monday that he had yet to hear from the president, nearly a week after the House passed its package to raise the debt ceiling by $1.5 trillion. However, the bill also includes spending cuts, beefed-up work requirements in safety net programs and other measures that Democrats would not accept.
Schumer sent a letter to colleagues on Monday voicing Senate Democrats’ opposition to the House package.
This story has been updated with additional information.
Turkish President Recep Tayyip Erdogan claimed on Sunday that the country’s intelligence forces had killed the leader of ISIS in Syria as he vowed to continue the country’s fight against terrorism.
In a broadcast, Erdogan said Turkey’s National Intelligence Organization had been tracking a man known as Abu al-Hussein al-Husseini Al-Qurshi “for a long time.”
“This person was neutralized in the operation carried out by MIT (Turkish National Intelligence Organization) yesterday in Syria,” he said. “From now on, we will continue our fight without discrimination against terrorist organizations.”
He added that Turkey’s fight against terrorism contributes to Europe’s security, claiming that Europe “is not aware of this or does not want to be aware of it.”
Al-Qurshiwas named ISIS leader after the death of his predecessor, Abu al-Hasan al-Hashmi al-Qurayshi, who was killed last October by the Free Syrian Army in Syria.
Little was known about Al-Qurshi, but at the time of his appointment, ISIS described him as an “old fighter.”
Erdogan’s announcement came after a recent absence from the public eye due to illness.
Media reports had speculated that his health was deteriorating just two weeks before a crucial election.
The speculation followed a televised interview on Tuesday, which was interrupted after Erdogan left his chair in the middle of a question, before returning to explain he had a “serious stomach flu.”
Following Tuesday’s incident, Erdogan was advised by his doctors to rest at home and canceled a number of public events.
On Thursday, the Turkish government rejected news reports about his health as “baseless claims.” He appeared on video link the same day for the inauguration of the Akkuya nuclear power plant.
Erdogan made his return to public stage for the first time in three days on Saturday, at an aviation festival in Istanbul, where he rallied his supporters as he seeks to extend his 20-year stint in power.
Turkey goes to the polls on May 14, just three months after a devastating earthquake and amid soaring inflation and a currency crisis that last year slashed nearly 30% off the lira’s value against the dollar.
As he took his short walk from the speaker’s suite to the House floor on Wednesday evening, the California Republican wasn’t entirely sure he would have the votes on the most important bill of his young speakership: To raise the $31.4 trillion national debt limit on Republican support alone.
McCarthy knew he was close but couldn’t guarantee it, according to a person familiar with the matter.
After months of internal discussions, the speaker had been engaged in round-the-clock talks with pockets of dissident members, cutting deals and horse-trading to pick off one GOP vote after another in his high-stakes fight – all an attempt to show the White House and the country that his party speaks with one voice on the consequential economic battle.
But one Republican member was absent on Wednesday – and some hard-right members would not explicitly say how they’d vote, forcing the speaker to make a risky bet. In the end, it was two Democratic absences that helped McCarthy: Allowing him to pass the bill on the narrowest of margins, 217-215, and now shifting the focus to the White House and Senate Democrats.
“We are the only ones to lift the debt limit to make sure this economy is not in jeopardy,” McCarthy beamed in the Capitol’s ornate Statuary Hall moments after the gavel came down, calling on President Joe Biden to negotiate a spending-cut deal he has resisted for months. He added: “You’ve underestimated us.”
It was an effort that was months in the making. Immediately after securing the speakership in a messy, 15-ballot race, McCarthy made the concerted decision to avoid the pitfalls of a predecessor, John Boehner, and allow rank-and-file members to feel like they could shape the ultimate package rather than being steamrolled by leadership. A dozen listening sessions were held by two members of his whip team, Reps. Tom Emmer of Minnesota and Guy Reschenthaler of Pennsylvania, starting in February and continuing with them calling every member through this past weekend. Then there were regular meetings of the so-called “five families” – nicknamed after the mob families in “The Godfather” – that represent various ideological factions of the conference and were led by Rep. Garret Graves of Louisiana.
But even after they had agreed to an outline of their deal last week, McCarthy continued to run into pitfalls. In a meeting last week in the basement of the Capitol, he and his team moved to appease conservatives who wanted to target tax breaks for biofuels in the Democrats’ Inflation Reduction Act. McCarthy agreed, prompting a furious pushback by Iowa Republicans, including a tense phone call between Gov. Kim Reynolds and McCarthy.
It was an issue that could have derailed the bill and one that put McCarthy in familiar crosshairs between competing factions of his conference. But he ultimately cut a deal past 2 a.m. on Wednesday and helped move closer to securing the votes more than 15 hours later.
“They realized that you were not going to be able to steamroll four people from Iowa,” said Rep. Zach Nunn, an Iowa freshman, referring to the four GOP members of the delegation.
Yet more problems emerged, and McCarthy moved to head them off. Rep. Nancy Mace told reporters Wednesday morning she was ready to vote against the plan over her concerns it didn’t go far enough to balance the budget. But after an afternoon meeting in his office, the South Carolina Republican said she would back the plan. The promise, according to a source familiar with the matter: Votes on bills dealing with women’s access to reproductive health care and a vote on a bill dealing with active shooter alerts.
“I haven’t gotten rolled yet by the leadership on anything,” Mace said, defending her deal-cutting.
The ultimate plan would raise the debt limit by $1.5 trillion and propose to implement a slew of spending cuts to domestic programs, in addition to new work requirements on Medicaid beneficiaries and provisions targeting Biden’s domestic and regulatory agenda. It would save $4.8 trillion over the next 10 years, according to the Congressional Budget Office. But the $1.5 trillion increase would only last through March 2024 at the latest.
In a private meeting in the Capitol, GOP leaders debated how high of a debt limit increase they should seek. Some had floated odd numbers because it sounded more intentional than an even number. One member suggested $1.69 trillion, but that was rejected because of the innuendos associated with such a figure, according to three GOP sources. Ultimately, a $1. 5 trillion increase was the number they settled on.
Republicans say the deal-cutting that has since transpired was the result of new relationships forged from McCarthy’s drawn-out fight for the speaker’s gavel in January.
“Absolutely, it has reaped benefits to everyone in the conference,” Rep. French Hill, a Republican of Arkansas, said of the relationships that were formed.
But passing the bill was never a sure bet – something McCarthy sensed last week as he moved to appease conservatives and push for a repeal of energy tax breaks.
“This is going to come back to bite us,” McCarthy warned conservatives last week, according to a person in the room, as they demanded the bill repeal green energy tax credits and other provisions in the Inflation Reduction Act. McCarthy feared taking that step would unlock a process allowing the Senate to later jam the House on thorny tax-related provisions.
But he had a more immediate problem: The governor of Iowa.
A fired-up Reynolds, the two-term Republican governor, was on the phone with McCarthy on Tuesday, relaying concerns over the provision in his debt ceiling plan to repeal tax breaks for ethanol use, according to people familiar with the call, warning it would be detrimental to farmers in her state.
All four GOP members of the Iowa delegation, who were also in constant communication with the governor, informed leadership in a Tuesday night meeting that clawing back the tax credits was a “red line” for them, according to sources in the room.
McCarthy now had a math problem. His allies had believed that the Iowa Republicans, some of the closest allies of leadership, would swallow the provisions and ultimately side with their party in their high-stakes fight with the White House. But they had miscalculated, forcing the speaker to cut a last-ditch deal after repeatedly insisting they would not open the bill to changes.
Nunn, the Iowa Republican, told CNN he learned about the deal at around 2:30 a.m. on Wednesday, when Graves came to his office along with Rep. Michelle Fischbach, a Minnesota Republican who had similar issues with the ethanol provisions.
“We had been in conversation throughout the entire day, but by Tuesday, we had really ratcheted up,” Nunn told CNN. “Iowa nice also means Iowa stubborn.”
It was an issue that GOP leaders had sought to avoid. They had worried that if they cut a deal with the Iowa delegation, they would have to make similar deals with members from fossil-fuel heavy districts in order to make them happy.
And the leadership knew if they were going to make 11th-hour changes to appease Midwestern Republicans, they’d have to offer some concessions to conservatives as well, and ultimately agreed to a faster implementation of the Medicaid work requirements. Yet even that wasn’t enough to satisfy some conservatives who had been pushing for that change – namely GOP Rep. Matt Gaetz of Florida, who was upset that the deal was cut at the last minute after the leaders said they wouldn’t change the bill, according to people familiar with the matter. He was one of four who later voted against the plan.
Rep. Ken Buck, a member of the whip team, said in the end, he voted “no” because the GOP bill didn’t do enough to reduce the deficit. The Colorado Republican told CNN, “$58 trillion with Biden’s numbers and $53 trillion, it’s just too much debt.”
But one member that McCarthy had been lobbying came through: freshman Rep. Eli Crane. The Arizona Republican had been wavering on the bill and was being heavily whipped by leadership, but said he ultimately backed the legislation because of his constituents.
“We conducted a poll at a teletown hall last night and the people that responded overwhelmingly supported this bill,” he told CNN. “It kind of surprised me, honestly.”
With this victory secured, McCarthy could later have an even bigger test on his hands: If he is forced to ask his conference to get behind any deal with Biden to raise the debt limit – something that almost certainly wouldn’t go as far as the House plan for spending cuts.
His members are watching him closely.
“What Kevin has assured us is he’s not coming back and presenting a watered-down version,” said Rep. Ralph Norman of South Carolina, a member of the House Freedom Caucus.
Ohio’s govenor said Friday evening that he wants Norfolk Southern to pay East Palestine residents for the long-term impacts the February 3 toxic train derailment may have caused on the community.
The rail operator should pay residents selling their house the difference of what their home value used to be in comparison to what it’s worth now, nearly three months since the accident, Gov. Mike DeWine told CNN’s Jake Tapper. Norfolk Southern should also set up a fund specifically for impacts on residents that may arise in the future, including medical issues, that could be connected to the derailment, he added.
Since the accident, officials have said tests showed the air and municipal water were safe and allowed residents to return to their homes after a brief evacuation order. But those living in East Palestine have for months expressed concerns and frustration about both the economic impacts the crash had on their community and health problems, including rashes and nausea, they worry are linked to the derailment.
Norfolk Southern has vowed to help East Palestine fully recover and has said it will remain in the community for “as long as it takes.”
DeWine said Friday he has met with Norfolk Southern CEO Alan Shaw and discussed those issues recently.
“One of the things that I said to him is, if people sell their house and they do not get what that house was worth before the train wreck, I think you owe them the difference,” DeWine said. “I fully expect them to pay for that.”
CNN reported on Friday about East Palestine residents who were concerned with their home values, including one woman whose home is just about a mile away from the derailment site and proved to be a “nightmare” to sell in the past few weeks.
When asked for comment on that report, Norfolk Southern directed CNN to a statement from mid-March: “We are committed to working with the community to provide tailored protection for home sellers if their property loses value due to the impact of the derailment.”
While the company has said it will work with the community to address concerns about losses in home values, details on the issue have been slow to materialize.
“Everything we’ve asked (Norfolk Southern) to pay for so far, they’ve paid for,” DeWine said Friday. “And we expect them to continue to do that.”
The governor said he also told Shaw he expects to see a fund set up “fairly quickly” for residents affected by the derailment, including those who may have health problems connected to the accident in the future.
“(Residents) need to be reassured,” DeWine said. “I think that’s another thing that we can do to help assure the people in the community that we’re going to do everything and that we’re not going away.”
Officials are continuing to conduct air, water and soil testing and have worked to set up a full-time clinic in the community in the aftermath to the derailment to address health concerns and to improve “the quality of life in the community,” the governor said.
High speed trains have proved their worth across the world over the past 50 years.
It’s not just in reducing journey times, but more importantly, it’s in driving economic growth, creating jobs and bringing communities closer together. China, Japan and Europe lead the way.
So why doesn’t the United States have a high-speed rail network like those?
For the richest and most economically successful nation on the planet, with an increasingly urbanized population of more than 300 million, it’s a position that is becoming more difficult to justify.
Although Japan started the trend with its Shinkansen “Bullet Trains” in 1964, it was the advent of France’s TGV in the early 1980s that really kick-started a global high-speed train revolution that continues to gather pace.
But it’s a revolution that has so far bypassed the United States. Americans are still almost entirely reliant on congested highways or the headache-inducing stress of an airport and airline network prone to meltdowns.
China has built around 26,000 miles (42,000 kilometers) of dedicated high-speed railways since 2008 and plans to top 43,000 miles (70,000 kilometers) by 2035.
“Many Americans have no concept of high-speed rail and fail to see its value. They are hopelessly stuck with a highway and airline mindset,” says William C. Vantuono, editor-in-chief of Railway Age, North America’s oldest railroad industry publication.
Cars and airliners have dominated long-distance travel in the United States since the 1950s, rapidly usurping a network of luxurious passenger trains with evocative names such as “The Empire Builder,” “Super Chief” and “Silver Comet.”
Deserted by Hollywood movie stars and business travelers, famous railroads such as the New York Central were largely bankrupt by the early 1970s, handing over their loss-making trains to Amtrak, the national passenger train operator founded in 1971.
In the decades since that traumatic retrenchment, US freight railroads have largely flourished. Passenger rail seems to have been a very low priority for US lawmakers.
Powerful airline, oil and auto industry lobbies in Washington have spent millions maintaining that superiority, but their position is weakening in the face of environmental concerns and worsening congestion.
Some of this will be invested in repairing Amtrak’s crumbling Northeast Corridor (NEC) linking Boston, New York and Washington.
There are also big plans to bring passenger trains back to many more cities across the nation – providing fast, sustainable travel to cities and regions that have not seen a passenger train for decades.
Add to this the success of the privately funded Brightline operation in Florida, which has been given the green light to build a $10 billion high-speed rail link between Los Angeles and Las Vegas by 2027, plus schemes in California, Texas and the proposed Cascadia route linking Portland, Oregon, with Seattle and Vancouver, and the United States at last appears to be on the cusp of a passenger rail revolution.
“Every president since Ronald Reagan has talked about the pressing need to improve infrastructure across the USA, but they’ve always had other, bigger priorities to deal with,” says Scott Sherin, chief commercial officer of train builder Alstom’s US division.
“But now there’s a huge impetus to get things moving – it’s a time of optimism. If we build it, they will come. As an industry, we’re maturing, and we’re ready to take the next step. It’s time to focus on passenger rail.”
Sherin points out that other public services such as highways and airports are “massively subsidized,” so there shouldn’t be an issue with doing the same for rail.
“We need to do a better job of articulating the benefits of high-speed rail – high-quality jobs, economic stimulus, better connectivity than airlines – and that will help us to build bipartisan support,” he adds. “High-speed rail is not the solution for everything, but it has its place.”
Only Amtrak’s Northeast Corridor has trains that can travel at speeds approaching those of the 300 kilometers per hour (186 mph) TGV and Shinkansen.
Even here, Amtrak Acela trains currently max out at 150 mph – and only in short bursts. Maximum speeds elsewhere are closer to 100 mph on congested tracks shared with commuter and freight trains.
This year, Amtrak plans to introduce its new generation Avelia Liberty trains to replace the life-expired Acelas on the NEC.
Capable of reaching 220 mph (although they’ll be limited to 160 mph on the NEC), the trains will bring Alstom’s latest high-speed rail technology to North America.
The locomotives at each end – known as power cars – are close relatives of the next generation TGV-M trains, scheduled to debut in France in 2024.
Sitting between the power cars are the passenger vehicles, which use Alstom’s Tiltronix technology to run faster through curves by tilting their bodies, much like a MotoGP rider does. And it’s not just travelers who will benefit.
“When Amtrak awarded the contract to Alstom in 2015 to 2016, the company had around 200 employees in Hornell,” says Shawn D. Hogan, former mayor of the city of Hornell in New York state.
“That figure is now nearer 900, with hiring continuing at a fast pace. I calculate that there has been a total public/private investment of more than $269 million in our city since 2016, including a new hotel, a state-of-the-art hospital and housing developments.
“It is a transformative economic development project that is basically unheard of in rural America and if it can happen here, it can happen throughout the United States.”
Alstom has spent almost $600 million on building a US supply chain for its high-speed trains – more than 80% of the train is made in the United States, with 170 suppliers across 27 states.
“High-speed rail is already here. Avelia Liberty was designed jointly with our European colleagues, so we have what we need for ‘TGV-USA’,” adds Sherin.
“It’s all proven tech from existing trains. We’re ready to go when the infrastructure arrives.”
And those new lines could arrive sooner than you might think.
In March, Brightline confirmed plans to begin construction on a 218-mile (351-kilometer) high-speed line between Rancho Cucamonga, near Los Angeles, and Las Vegas, carving a path through the San Bernardino Mountains and across the desert, following the Interstate 15 corridor.
The 200 mph line will slash times to little more than one hour – a massive advantage over the four-hour average by car or five to seven hours by bus – when it opens in 2027.
Mike Reininger, CEO of Brightline Holdings, says: “As the most shovel-ready high-speed rail project in the United States, we are one step closer to leveling the playing field against transit and infrastructure projects around the world, and we are proud to be using America’s most skilled workers to get there.”
Brightline West expects to inject around $10 billion worth of benefits into the region’s economy, creating about 35,000 construction jobs, as well as 1,000 permanent jobs in maintenance, operations and customer service in Southern California and Nevada.
It will also mark the return of passenger trains to Las Vegas after a 30-year hiatus – Amtrak canceled its “Desert Wind” route in 1997.
Meanwhile, construction is progressing on another high-speed line through the San Joaquin Valley.
Set to open around 2030, California High Speed Rail (CHSR) will run from Merced to Bakersfield (171 miles) at speeds of up to 220 mph.
Coupled with proposed upgrades to commuter rail lines at either end, this project could eventually allow high-speed trains to run the 350 miles (560 kilometers) between Los Angeles to San Francisco metropolitan areas in just two hours and 40 minutes.
CHSR has been on the table as far back as 1996, but its implementation has been controversial.
Disagreements over the route, management issues, delays in land acquisition and construction, cost over-runs and inadequate funding for completing the entire system have plagued the project – despite the economic benefits it will deliver as well as reducing pollution and congestion. Around 10,000 people are already employed on the project.
Costing $63 billion to $98 billion, depending on the final extent of the scheme, CHSR is to connect six of the 10 largest cities in the state and provide the same capacity as 4,200 miles of new highway lanes, 91 additional airport gates and two new airport runways costing between $122 billion and $199 billion.
With California’s population expected to grow to more than 45 million by 2050, high-speed rail offers the best value solution to keep the state from grinding to a smoggy halt.
Brightline West and CHSR offer templates for the future expansion of high-speed rail in North America.
By focusing on pairs of cities or regions that are too close for air travel and too far apart for car drivers, transportation planners can predict which corridors offer the greatest potential.
“It’s logical that the US hasn’t yet developed a nationwide high-speed network,” says Sherin. “For decades, traveling by car wasn’t a hardship, but as highway congestion gets worse, we’ve reached a stage where we should start looking more seriously at the alternatives.
“The magic numbers are centers of population with around three million people that are 200 to 500 miles apart, giving a trip time of less than three hours – preferably two hours.
“Where those conditions apply in Europe and Asia, high-speed rail reduces air’s share of the market from 100% to near zero. The model would work just as well in the USA as it does globally.”
Sherin points to the success of the original generation of Acela trains as evidence of this.
“When the first generation Acela trains started running between New York City and Washington in 2000, Amtrak attracted so many travelers that the airlines stopped running their frequent ‘shuttles’ between the two cities,” he adds.
However, industry observer Vantuono is more pessimistic.
“A US high-speed rail network is a pipe dream,” he says. “A lack of political support and federal financial support combined with the kind of fierce landowner opposition that CHSR has faced in California means that the challenges for new high-speed projects are enormous.”
According to the International Energy Agency (IEA), urban and high-speed rail hold “major promise to unlock substantial benefits” in reducing global transport emissions.
Dr. Fatih Birol, the IEA’s executive director, argues that rail transport is “often neglected” in public debates about future transport systems – and this is especially true in North America.
“Despite the advent of cars and airplanes, rail of all types has continued to evolve and thrive,” adds Birol.
Globally, around three-quarters of rail passenger movements are made on electric-powered vehicles, putting the mode in a unique position to take advantage of the rise in renewable energy over the coming decades.
Here, too, the United States lags far behind the rest of the world, with electrification almost unheard of away from the NEC.
Rail networks in SouthKorea, Japan, Europe, China and Russia are more than 60% electrified, according to IEA figures, the highest share of track electrification being South Korea at around 85%.
In North America, on the other hand, less than 5% of rail routes are electrified.
The enormous size of the United States and its widely dispersed population mitigates against the creation of a single, unified network of the type being built in China and proposed for Europe.
Air travel is likely to remain the preferred option for transcontinental journeys that can be more than 3,000 miles (around 4,828 kilometers).
But there are many shorter inter-city travel corridors where high-speed rail, or a combination of new infrastructure and upgraded railroad tracks or tilting trains, could eventually provide an unbeatable alternative to air travel and highways.
‘What changed, Mr. President?’: McCarthy slams Biden in handling of US debt
House Speaker Kevin McCarthy traveled to Wall Street on Monday to deliver a fresh warning that the House GOP majority will refuse to lift a cap on government borrowing unless Biden agrees to spending cuts that would effectively neutralize his domestic agenda.
Millions of Americans could face massive consequences unless Speaker Kevin McCarthy can navigate out of a debt trap he has set for President Joe Biden that is instead threatening to capture his House Republicans.
The California Republican traveled to Wall Street on Monday to deliver a fresh warning that the House GOP majority will refuse to lift a cap on government borrowing unless Biden agrees to spending cuts that would effectively neutralize his domestic agenda and neuter his White House legacy.
McCarthy also assured traders, however, that he would never let the US government default on its obligations – a potential disaster that could halt Social Security payments, trigger a recession and unleash job cuts by the fall in the event that the debt ceiling is not raised.
This is where the risk to Americans comes in. It’s hard to see how a rookie speaker, with a tiny majority and a conference containing plenty of extremists, can engineer either of these outcomes.
Most countries don’t require the legislature to raise the government’s borrowing threshold. But the quirky situation in the US has made a once routine duty an opportunity for political mischief in a polarized age. Since the government spends more than it makes in revenue, it must borrow money to service its debt and pay for spending that Congress has already authorized. It has no problem getting more credit since the US pays its bills and has always had a stellar credit rating, despite one previous downgrade from the threat of default.
At least, that’s the way it has worked until now.
McCarthy beseeched his conference in a closed-door meeting on Tuesday to line up behind a bill that would raise the debt limit for a year but require a flurry of spending concessions from Biden. He styled the measure as an initial way of forcing the president to the negotiating table. But the bill is purely tactical since it’s got no chance of passing the Democratic-led Senate.
But in a sign of how difficult it will be for the speaker to even pull this gambit off, there were signs of internal disagreement on what should be in the package among GOP members.
Rep. Scott Perry, the chairman of the hardline House Freedom Caucus, was frustrated about a lack of specificity in the plan and wanted steeper cuts.
“I don’t know what’s in the package completely. That’s the issue,” Perry told reporters. Some members seem reluctant to commit so far. Conservative Rep. Tim Burchett told CNN’s Manu Raju, “I’m open to it but I’m still a ‘no’ vote.”
It is not unusual for various factions in a congressional majority to haggle over details before a final package is agreed. And House Financial Services Chair Patrick McHenry, a McCarthy ally, was confident the plan would pass the House. “The question is, what does the White House then do once we pass this package? We’ve clearly stated there is no clean debt ceiling that will pass the House,” he added. “So we’ll have the first opening offer here. And we’ll see if the president’s willing to come to the table and negotiate like previous presidents have.”
McHenry’s comment, however, reflected a big flaw in the GOP strategy since it relies on McCarthy’s belief that Biden will have no choice but to come to the table. The White House has insisted the House should do its job and pass a simple bill that only raises the borrowing limit
In effect, McCarthy has already set up a severe test of his leadership since there’s no guarantee that he can pass the measure in a House where he can only lose four votes and in which there are few signs the fractious GOP can agree on what programs to cut and by how much. And even if the measure does squeeze through the House in the coming weeks, it will likely be an idealized Republican product on which Biden and the Democratic Senate will never bite. Any subsequent package that emerged would almost certainly feature concessions that could splinter its GOP support.
Still, the speaker was typically bullish when he predicted Monday he’d have the votes to pass his initial bill.
“I think we got 218 to raise the debt ceiling,” McCarthy told CNN. “We’ve got a lot of consensus within the conference. We’ll get together and work through it.”
His assurances may not be very reassuring, however, because his similarly blithe predictions that he had the votes to win the speakership in January degenerated into a farcical process that saw him make huge concessions to his party’s most radical members and required 15 ballots before he finally won the job of his dreams.
But with the debt ceiling, it will be Americans’ livelihoods and the global economy, rather than McCarthy’s immediate political ambitions, that are on the line.
So far, Republicans seem to be having trouble negotiating with themselves, let alone Biden. Republican Rep. Dusty Johnson of South Dakota, who is helping to fashion the GOP’s position, said that while the party hopes to pass the initial bill next week, challenges remain.
“I think the hardest part is just that there are an unlimited number of conservative policy victories that, of course, we all want to see worked in,” Johnson told CNN’s Manu Raju. “The reality is that in a negotiation, you never get everything you want. And so I think our biggest issue right now is how do we squeeze these thousands of desires down to a manageable and credible number of asks?”
Another complication is that some members of the Republican conference have said they will never vote to raise the debt ceiling on principle – no matter what. In a powerful Republican majority such holdouts could be ignored. In McCarthy’s narrow majority – secured after a 2022 midterm election that fell short of GOP expectations – they have real leverage. And Democrats have little incentive to help McCarthy out in the event of GOP defections since they’d presumably have to vote for huge cuts that Biden has opposed in any final GOP bill. And the speaker probably couldn’t risk using Democratic votes anyway after agreeing to a rule, as he battled to win his job, that lets any single member call a vote on his ouster.
The coming showdown over the debt ceiling is potentially the defining moment in the two-year period of uneasy cohabitation between the Democratic president and Republican speaker. Neither Biden nor McCarthy can afford to lose, and the outcome will shape both their legacies.
There is nothing wrong with Republicans seeking to use the leverage they won in a democratic election to try to further their political goals of cutting public spending. There are some GOP lawmakers who sincerely worry about debt and deficits – even when their party runs government. Plenty of economists worry about the always ballooning national debt, which has crashed through $31 trillion. And Biden’s big spending on Covid relief packages, infrastructure, climate mitigation measures and health care programs triggered a debate on whether he worsened the inflation crisis.
But are Republicans choosing the right hill for this battle when jobs, market-linked pension plans and the economic well-being of millions are at risk? The absolutist nature of McCarthy’s position pays little heed to a delicate balance of power. Democrats control the White House and the Senate, so in handing Republicans the House, albeit barely, voters might have been seeking compromise rather than confrontation.
Republicans are also facing claims of hypocrisy, since they had little problem raising the debt limit when Donald Trump, who rarely worried about making a big spending splash, was president. The 45th commander in chief is also on videotape dating to his White House days saying he couldn’t believe anyone would use the debt ceiling as a “negotiating wedge.” Republicans notoriously turn into fiscal hawks when Democrats are in office but often look the other way when there is one of their own in the Oval Office.
In order to prevail in this fight, McCarthy has to somehow change the political dynamic by saddling Biden with the blame for any default and the economic tensions that could begin to unfold even before the country plunges over a fiscal cliff.
He tried to do so on Monday by insisting that the biggest threat to the US economy wasn’t a default but rising national debt.
“Without exaggeration American debt is a ticking time bomb that will detonate unless we take serious responsible action. Yet, how has President Biden reacted to this issue? He has done nothing. So in my view, and I think the rest of America, it’s irresponsible,” he said.
Previous fiscal showdowns between GOP-controlled Congresses and Democratic presidents have often rebounded poorly on Republicans. Presidents Bill Clinton and Barack Obama, for example, branded their foes in the House as economic arsonists and thereby gained political traction.
McCarthy needs to reverse the equation, which is why he’s trying to portray Biden as stubborn in refusing to negotiate concessions for raising the debt ceiling. The two men haven’t met for the last 75 days and the White House is sticking to its position that the place for talks is over a budget – which House Republicans are yet to produce – and not with the full faith and credit of the US government on the line and with America’s reputation as a financial haven at stake.
McCarthy is, therefore, in a bind. Congress, not the president, has the power to raise the government’s borrowing limit. Yet the speaker is demanding Biden give away his store over a duty that only McCarthy and his lawmakers can fulfill. No one would benefit from a default – especially not a president likely heading into a reelection race. But it’s hard to see how McCarthy can emerge from this conundrum as the winner if he triggers an economic meltdown.
The White House twisted that particular knife on Monday.
“There is one responsible solution to the debt limit: addressing it promptly, without brinksmanship or hostage taking – as Republicans did three times in the last administration and as Presidents Trump and Reagan argued for in office,” spokesman Andrew Bates said.
Republicans in the Senate have so far tried to avoid the mess. But Senate Republican leader Mitch McConnell did at least give his colleague in the House some moral support on Monday when he returned to the Capitol after convalescing after a fall.
“President Biden does not get to stick his fingers in his ears and refuse to listen, talk or negotiate. And the American people know that. The White House needs to stop wasting time and start negotiating with the Speaker of the House,” McConnell said, though notably didn’t volunteer to get involved.
McCarthy’s speech on Monday only furthered the impression that a damaging political crisis over the debt ceiling is, after months of simmering, moving toward a boil.
As Senate Democratic Majority Leader Chuck Schumer of New York put it on Monday: “He went all the way to Wall Street and gave us no more details, no more facts, no new information, and I’ll be blunt: If Speaker McCarthy continues in this direction we are headed to default.”
Speaker Kevin McCarthy made a plea to House Republicans during a closed-door meeting Tuesday morning to back his debt ceiling plan, telling them that although it doesn’t have to include everything they want, it will help get him to the negotiating table with President Joe Biden.
McCarthy also told members that once he is at the table, he can push for other policy provisions down the road, according to multiple sources in the room, underscoring the idea that leadership sees the GOP-only plan as purely a way to strengthen their hand at the negotiating table.
Top House Republicans are projecting confidence that they will be able to unite the conference behind a plan and move quickly to pass it. But that is far from certain. Key details of the plan are still yet to be finalized and some members are expressing frustration over the proposal as it stands – and elements that have not been included.
House Rules Chairman Tom Cole told CNN the GOP debt limit bill will be on the House floor next week, but other House Republicans have signaled skepticism over whether specifics of the proposal can be ironed out in time for a vote to happen that soon and the timeframe may slip.
House Republicans are insisting that any increase in the debt limit must be paired with spending cuts, while the White House argues that the limit should be raised without any conditions. McCarthy wants to move a debt limit bill through the House as a way to put pressure on the White House to come to the table for negotiation, even if the bill won’t pass the Democratic-controlled Senate.
The closed-door meeting kicks off a difficult push by GOP leaders to wrangle 218 votes for a proposal to raise the debt ceiling and reduce federal spending. McCarthy walked members through his proposal, which includes clawing back unspent Covid-19 funds, 10-year caps on spending, prohibiting Biden’s student loan forgiveness and enacting a GOP energy bill.
Conservatives are pushing for more to be included while some have said they won’t back a debt ceiling hike under any circumstances, illustrating how challenging it is going to be for GOP leaders to unite the conference behind a proposal.
GOP Rep. Scott Perry, the chairman of the hardline House Freedom Caucus, expressed frustration over the lack of specificity from House GOP leaders on their debt ceiling and spending cut plan.
“I don’t know what’s in the package completely, that’s the issue,” Perry told reporters. “I know what was on the screen, but I don’t think that’s the entire package.”
Perry also said he disagreed with GOP leadership’s approach of trying to pass something now in order to get to the negotiating table with Democrats and then demanding more later. Perry was one of several members who stood up during the closed-door conference meeting and advocated for additional cuts.
Rep. Kevin Hern, the leader of the Republican Study Committee, told CNN that Republicans have to come together on one debt ceiling plan or face a much weaker hand in any future negotiations with the White House.
“It’s about leadership. If we can’t lead then we have a problem,” Hern said.
Hern said he had no problem with voting as soon as next week, arguing it’s time for Republicans to coalesce.
GOP Rep. Don Bacon said one of the things they are still debating is how – and how long – to raise the debt ceiling, and whether they should raise it by a dollar amount or to a date. Some members are pushing for a shorter increase, but Bacon said it will likely go into next year.
He also confirmed some members are still pushing to include more spending cuts and repeals, and some lawmakers advocated for that during the meeting, but Bacon predicted the 18 Republicans in Biden districts, like himself, will be for it.
Florida Rep. Matt Gaetz said that conference talks on the debt ceiling were “getting closer,” but that there are still details that need to be addressed. He said he’s not sure a vote on the budget deal can come as early as next week.
“I think a lot of that depends on how these discussions go today, tomorrow, the following day,” he said. “I think there are a number of really critical details that we’ve still got to work out before making a final decision on a vote, but it’s been a very productive discussion, a lot of good ideas” though he said he would be “very surprised” if bill text was released today.
A source inside the room tells CNN that inside the House GOP conference, members of the House Freedom Caucus including Reps. Perry, Chip Roy and Andrew Clyde called for more cuts to be included and pushed leadership on why some provisions weren’t included.
It goes to show how hard this is going to be for leaders even though leadership has pitched this as an opportunity to strengthen leverage with the White House.
One of the topics discussed during the GOP conference meeting was why a few items were not included in the debt ceiling framework.
For example, conservatives have been frustrated a measure that would claw back Internal Revenue Service enforcement funds wasn’t included. But a source in the room tells CNN that the reason it isn’t included is because it would be scored by the Congressional Budget Office as expensive and without enforcement money, the CBO would argue less tax revenue would be collected.
Republicans are trying to raise as much revenue as they can and cut spending in this bill.
China’s economy got off to a solid start in 2023, as consumers went on a spending spree after three years of strict pandemic restrictions ended.
Gross domestic product grew by 4.5% in the first quarter from a year ago, according to the National Bureau of Statistics on Tuesday. That beat the estimate of 4% growth from a Reuters poll of economists.
But private investment barely budged and youth unemployment surged to the second highest level on record, indicating the country’s private sector employers are still wary aboutlonger term prospects.
Consumption posted the strongest rebound. Retail sales jumped 10.6% in March from a year earlier, the highest level of growth since June 2021. In the January to March months, retail sales grew 5.8%, mainly lifted by a surge in revenue from the catering service industry.
“The combination of a steady uptick in consumer confidence as well as the still-incomplete release of pent-up demand suggest to us that the consumer-led recovery still has room to run,” said Louise Loo, China lead economist for Oxford Economics.
Industrial production also showed a steady increase.It was up 3.9% in March, compared with 2.4% in the January-to-February period. (China usually combines its economic data for January and February to account for the impact of the Lunar New Year holiday.)
Last year, GDP expanded byjust3%, badly missing the official growth target of “around 5.5%,” as Beijing’s approach to stamping out the coronavirus wreaked havoc on supply chains and hammered consumer spending.
After mass street protests gripped the country and local governments ran out of cash to pay huge Covid bills, authorities finally scrapped the zero-Covid policy in December. Following a brief period of disruption due to a Covid surge, the economy has started showing signs of recovery.
Last month, an official gauge of non-manufacturing activity jumped to its highest level in more than a decade, suggesting the country’s crucial services sector was benefiting from a resurgence in consumer spending after the end of pandemic restrictions.
As the economic recovery gains traction, investment banks and international organizations have upgraded China’s growth forecasts for this year. In its World Economic Outlook released last week, the International Monetary Fund said China is “rebounding strongly” following the reopening of its economy. The country’s GDP will grow 5.2% this year and 5.1% in 2024, it predicted.
However, some analysts believe the strong growth reported in the first quarter was the product of “backloading” of economic activity from the fourth quarter of 2022, which was weighed down by pandemic restrictions and then a chaotic reopening.
“Our core view is that China’s economy is deflationary,” said Raymond Yeung, chief economist for Greater China at ANZ Research, in a Tuesday research report.
If adjustments are made to account for the impact of delayed economic activity, GDP growth in the first quarter could have been just 2.6%, he said.
Some key data released on Tuesday support this idea. For example, private investment was extremely weak.
Fixed asset investment by the private sector increased a mere 0.6% from January to March, indicating a lack of confidence among entrepreneurs. (State-led investment, meanwhile, advanced 10%.) That’s even worse than the 0.8% growth recorded in the January-to-February period.
The Chinese government has resorted to surprising measures to restore confidence among private entrepreneurs, but the campaign has inspired more nervousness than optimism.
The all-important property industry is also mired in a deep downturn. Investment in property declined 5.8% in the first quarter. Property sales by floor area decreased by 1.8%.
“The domestic economy is recovering well, but the constraints of insufficient demand are still obvious,” said Fu Linghui, a spokesman for the NBS, at a news conference in Beijing on Tuesday. “Prices of industrial products are still falling, and enterprises are facing many difficulties in their profitability.”
Unemployment continued to surgeamong the youth.
The jobless rate for 16- to 24-year-olds hit 19.6% in March, up for a third straight month. It was the second highest on record, only behind the 19.9% level reached in July 2022.
The high jobless rate among the youth suggests “slack in the economy,” Yeung said.
“By June, there will be a new batch of graduates looking for jobs. The jobless condition could worsen further if China’s economic momentum falters,” he added.
China’s education ministry has previously estimated that a record 11.6 million college graduates will be looking for jobs this year.
At last month’s meeting of the National People’s Congress, the country’s rubber-stamp parliament, the government set a cautious growth plan for this year, with a GDP target of around 5% and a job creation target of 12 million.
House Republican leaders are moving behind the scenes to get their conference behind a plan that would raise the debt ceiling for one year with a slew of cuts and revenue raisers, a move intended to strengthen their negotiating position with the White House in the high-stakes standoff.
The goal is to put a bill on the House floor as soon as May that could pass the narrowly divided chamber and send a clear signal to President Joe Biden that any legislation raising the debt ceiling must have strings attached, according to GOP sources involved in the talks.
There is no official estimate yet for the amount of cuts and revenue raisers Republicans are seeking, but one source said the goal is to find $3 trillion to $4 trillion worth of budget savings over 10 years.
Over the two-week recess, top House Republicans have been speaking with their rank-and-file members to find consensus on a plan that has been under development from the GOP’s so-called five families, representing the various ideological wings of the conference
Republicans are not yet unified on the emerging plan, with one source familiar with the talks saying some of the more conservative members have pushed for more measures – such as tougher border security provisions and a repeal of green energy tax credits – and some of the more moderate members have raised concerns over proposed changes to Medicaid.
But GOP lawmakers have called the talks productive and expect internal discussions over a Republican-led plan, which are continuing Sunday, will also intensify when lawmakers return to Washington this week after recess.
House Speaker Kevin McCarthy plans to set the tone over the GOP demands with a speech Monday in New York. The California Republican previewed his message during a Sunday call with his conference, a source familiar with the matter told CNN.
It is not yet clear when the country could potentially face its first-ever default if the debt ceiling isn’t raised, but it could happen as soon as this summer or as late as the fall – something that could have drastic economic ramifications. The White House and Senate Democrats have said that the debt ceiling should be approved without any conditions and have challenged Republicans to produce a plan if they won’t move on a clean increase.
Even if House Republicans can pass their own plan, it has no chance of passing the Democratic-led Senate. But House GOP leaders believe passing their own bill would force the White House to negotiate a package of spending cuts in exchange for raising the debt ceiling.
Among the provisions under consideration in the GOP plan are rolling back domestic discretionary spending to fiscal 2022 levels, something that would spare the Pentagon’s budget. Republicans are also looking to rescind funding for certain programs enacted to provide Covid-19 relief, and they want to impose new work requirements for Medicaid beneficiaries under the age of 60 and with no dependents.
Republicans are also considering an overhaul to the federal regulatory process by giving Congress new power to reject rules imposed by the administration. Plus, the GOP believes it can raise new revenue through provisions that would make it quicker to greenlight major energy projects. And they are weighing a 2% cut to federal spending when Congress passes a stop-gap resolution to keep the government funded.
One senior GOP source said the reception has been mostly positive so far.
“I think we can get there,” the source said.
This story has been updated with additional information.
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
New York CNN
—
Wall Street has been hit with a barrage of complex signals about the economy’s health over the past month. From banking turmoil to weakening jobs data to slowing inflation, and now the start of earnings season, investors have remained largely resilient.
But the Federal Reserve’s March meeting minutes revealed last week that officials believe the economy will enter a recession later this year. While that’s not new news to investors who have worried that a recession is on the horizon for the past year, it does mean that markets could take a turn for the worse.
So, how should investors protect their portfolios? Investors say there isn’t one asset that Wall Street should pile all their bets on, but there are fundamentals that should underlie their investment strategies.
Jimmy Chang, chief investment officer at Rockefeller Global Family Office, says he advises clients to be patient, defensive and selective when navigating the market.
In other words, investors should make decisions based on logic, not a fear of missing out.
“You chase these rallies and then it fizzles out — you’re left holding the bag,” he said.
Chang also recommends that investors stay defensive by investing in high-quality blue chip stocks with solid balance sheets and keep dry powder.
Doug Fincher, portfolio manager at Ionic Capital Management, says investors should brace their portfolios against inflation.
The Personal Consumption Expenditures price index rose 5% for the 12 months ended in February, showing that inflation remains much higher than the Fed’s 2% target.
Coupled with the fact that the central bank has signaled that it plans to pause interest rate hikes sometime this year, it’s possible inflation could prove stickier than Wall Street expects.
“It is the boogeyman of traditional investments,” Fincher said.
He manages the Ionic Inflation Protection exchange-traded fund, which seeks to specifically perform well during periods of high inflation. The portfolio’s core exposure is inflation swaps, which are transactions in which one investor agrees to swap fixed payments for floating payments tied to the inflation rate. The fund also invests in short-duration Treasury Inflation Protected Securities.
Megan Horneman, chief investment officer at Verdence Capital Advisors, says that her firm has hedged its portfolio in cash. A well-known haven, cash is a better alternative to other perceived safe spots like gold, which tends to be volatile and run up too fast, she said.
Investors have rushed into money market funds in recent weeks after the banking turmoil both shook their confidence in the banking system and sent ripples through the market.
“Cash is actually earning you something at this point,” Horneman said. “You have to look long term.”
Earnings season kicked off Friday with a bonanza of earnings from the nation’s largest banks.
Perhaps most noteworthy out of the bunch was JPMorgan Chase, which reported record revenue and an earnings beat for its latest quarter.
The bank has $3.67 trillion in assets, making it the largest bank in the country and a bellwether for the economy. Strong earnings reports from the New York-based bank and its peers including Wells Fargo, Citigroup and PNC Financial Services have shown a promising start to the earnings season.
Charles Schwab, Goldman Sachs, Bank of America and Morgan Stanley report next week.
Here are some key takeaways from JPMorgan Chase’s first-quarter earnings:
The company guided net interest income to be about $81 billion in 2023, up $7 billion from its previous estimate. That’s especially important because this earnings season is all about guidance, as investors try to gauge whether the economy is headed for a recession and which companies will be able to weather a potential downturn.
CEO Jamie Dimon said in the post-earnings conference call that while financial conditions are a bit tighter after the collapse of Silicon Valley Bank and Signature Bank, he doesn’t see a credit crunch. But chances of a recession are now higher, he said.
The company said that its portfolio’s exposure to the office sector is less than 10%, addressing concerns that the $20 trillion commercial real estate industry could be the next space to see turmoil.
Monday: Empire State manufacturing index and homebuilder confidence index. Earnings report from Charles Schwab (SCHW).
Tuesday: Earnings reports from Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ), Netflix (NFLX), United Airlines (UAL) and Western Alliance Bancorp (WAL).
Wednesday: Earnings reports from Citizens Financial Group (CFG), Morgan Stanley (MS), Tesla (TSLA) and International Business Machines (IBM). Speech from NY Federal Reserve President John Williams.
Thursday: Philadelphia Fed manufacturing index, jobless claims, mortgage rates, US leading economic indicators and existing home sales. Earnings reports from AutoNation (AN) and American Express (AXP).
Friday: Manufacturing PMI and services PMI. Earnings report from Procter & Gamble (PG).
The world record for the farthest flight by paper airplane has been broken by three aerospace engineers with a paper aircraft that flew a grand total of 289 feet, 9 inches (88 meters), nearly the length of an American football field.
They beat the previous record of 252 feet, 7 inches (77 meters) achieved on April 2022 by a trio in South Korea. Prior to that, the record had not been broken in over a decade.
“It really put things on the map and it’s a really proud moment for family and friends,” said Dillon Ruble, a systems engineer at Boeing and now paper airplane record holder, in a release. “It’s a good tie in to aerospace and thinking along the lines of designing and creating prototypes.”
Ruble worked alongside Garrett Jensen, a strength engineer also with Boeing, and aerospace engineer Nathaniel Erickson. The trio are recent graduates who studied aerospace engineering and mechanical engineering at Missouri University of Science and Technology.
The feat required months of effort, as the team put in nearly 500 hours of studying origami and aerodynamics to create and test multiple prototypes. The engineers put their final design to the test on December 2, 2022, in Crown Point, Indiana, where the record was achieved on Ruble’s third throw.
“We hope this record stands for quite a while — 290 feet (88 meters) is unreal,” Jensen said in the release. “That’s 14 to 15 feet (4.2 to 4.6 meters) over the farthest throw we ever did. It took a lot of planning and a lot of skill to beat the previous record.”
The team had decided their best chance at beating the world record would be with an airplane design that focused on speed and minimized drag, so that the plane could fly a far distance in a short amount of time.
Gathering inspiration from various hypersonic aircrafts, vehicles that can fly faster than five times the speed of sound (Mach 5), specifically the NASA X-43A, the team had come up with the winning paper aircraft design — later named “Mach 5.”
“Full-scale and paper airplanes have vast differences in their complexity, but both operate on the same fundamental principles,” said Ruble, via email. “Some of the same design methodologies can be applied to both. One of these methods was our trial-and-error design process. For instance, we would theorize about a fold we could change on our plane, fold it, throw it, and compare the distance to previous iterations to determine if the change was beneficial.”
To find the best technique when it came to throwing the paper airplane, the team ran various simulations and analyzed slow-motion videos of their previous throws.
“We found the optimal angle is about 40 degrees off the ground. Once you’re aiming that high, you throw as hard as possible. That gives us our best distance,” Jensen said in the statement. “It took simulations to figure that out. I didn’t think we could get useful data from a simulation on a paper airplane. Turns out, we could.”
Even down to the paper, which the team had decided that A4 (slightly longer than typical letter sized paper) was the best for manipulating and folding into the winning airplane. With these meticulously thought-out design choices, and careful attention to the numerous rules and guidelines set forth by the Guinness World Record Team, the three were set to break a record.
On its record-breaking distance flight the plane was in the air for roughly six seconds. The Guinness paper plane record for duration of flight is currently 29.2 seconds.
“The design objectives for an air-time record would be vastly different from the low-drag version we built for the longest-distance record,” Ruble said via email. “Increasing the wingspan and decreasing the aspect ratio would be the first steps in producing this type of plane.”
Paper airplane aside, Ruble added that this tedious method of back-and-forth trials served as a testament to the importance of rigorous prototyping in the real world.
Ruble and Jensen began their paper plane engineering careers while in middle school, participating in paper airplane events held at Boeing. Ruble said he enjoyed making the paper come to life and the hard work he had to put in to find ways to improve his designs. Both were also fans of origami as kids.
The record-breaking team hopes their accomplishment will inspire other young and aspiring aerospace engineers to chase their dreams.
For those looking to create their own record-breaking paper plane design, the feat is not impossible, but may take some time (and skill).
“Mach 5 flies best at high relative velocity, but to achieve this condition, the aircraft must be launched in a specific manner,” said Ruble via email. “This technique, in addition to the complexity of the plane, means that only the most experienced paper aircraft enthusiasts would have success with the design.
“However, by starting with publicly available designs, anyone can hone their skills to throw paper airplanes farther and higher than all of their friends,” he added.
Spending at US retailers fell in March as consumers pulled back after the banking crisis fueled recession fears.
Retail sales, which are adjusted for seasonality but not for inflation, fell by 1% in March from the prior month, the Commerce Department reported on Friday. That was steeper than an expected 0.4% decline, according to Refinitiv, and above the revised 0.2% decline in the prior month.
Investors chalk up some of the weakness to a lack of tax returns and concerns about a slowing labor market. The IRS issued $84 billion in tax refunds this March, about $25 billion less than they issued in March of 2022, according to BofA analysts.
That led consumers to pull back in spending at department stores and on durable goods, such as appliances and furniture. Spending at general merchandise stores fell 3% in March from the prior month and spending at gas stations declined 5.5% during the same period. Excluding gas station sales, retail spending retreated 0.6% in March from February.
However, retail spending rose 2.9% year-over-year.
Smaller tax returns likely played a role in last month’s decline in retail sales, along with the expiration of enhanced food assistance benefits, economists say.
“March is a really important month for refunds. Some folks might have been expecting something similar to last year,” Aditya Bhave, senior US economist at BofA Global Research, told CNN.
Credit and debit card spending per household tracked by Bank of America researchers moderated in March to its slowest pace in more than two years, which was likely the result of smaller returns and expired benefits, coupled with slowing wage growth.
Enhanced pandemic-era benefits provided through the Supplemental Nutrition Assistance Program expired in February, which might have also held back spending in March, according to a Bank of America Institute report.
Average hourly earnings grew 4.2% in March from a year earlier, down from the prior month’s annualized 4.6% increase and the smallest annual rise since June 2021, according to figures from the Bureau of Labor Statistics. The Employment Cost Index, a more comprehensive measure of wages, has also shown that worker pay gains have moderated this past year. ECI data for the first quarter of this year will be released later this month.
Still, the US labor market remains solid, even though it has lost momentum recently. That could hold up consumer spending in the coming months, said Michelle Meyer, North America chief economist at Mastercard Economics Institute.
“The big picture is still favorable for the consumer when you think about their income growth, their balance sheet and the health of the labor market,” Meyer said.
Employers added 236,000 jobs in March, a robust gain by historical standards but smaller than the average monthly pace of job growth in the prior six months, according to the Bureau of Labor Statistics. The latest monthly Job Openings and Labor Turnover Survey, or JOLTS report, showed that the number of available jobs remained elevated in February — but was down more than 17% from its peak of 12 million in March 2022, and revised data showed that weekly claims for US unemployment benefits were higher than previously reported.
The job market could cool further in the coming months. Economists at the Federal Reserve expect the US economy to head into a recession later in the year as the lagged effects of higher interest rates take a deeper hold. Fed economists had forecast subdued growth, with risks of a recession, prior to the collapses of Silicon Valley Bank and Signature Bank.
For consumers, the effects of last month’s turbulence in the banking industry have been limited so far. Consumer sentiment tracked by the University of Michigan worsened slightly in March during the bank failures, but it had already shown signs of deteriorating before then.
The latest consumer sentiment reading, released Friday morning, showed that sentiment held steady in April despite the banking crisis, but that higher gas prices helped push up year-ahead inflation expectations by a full percentage point, rising from 3.6% in March to 4.6% in April.
“On net, consumers did not perceive material changes in the economic environment in April,” Joanne Hsu, director of the surveys of consumers at the University of Michigan, said in a news release.
“Consumers are expecting a downturn, they’re not feeling as dismal as they were last summer, but they’re waiting for the other shoe to drop,” Hsu told Bloomberg TV in an interview Friday morning.
This story has been updated with context and more details.
At the start of the year, economists and corporate leaders expressed optimism that global economic growth might not slow down as much asthey had feared. Positive developments included China’s reopening, signs of resilience in Europe and falling energy prices.
But a crisis in the banking sector that emerged last monthhas changed the calculus. The International Monetary Fund downgraded its forecasts for the global economy Tuesday, noting “the recent increase in financial market volatility.”
The IMF now expects economic growth to slow from 3.4% in 2022 to 2.8% in 2023. Its estimate in January had been for 2.9% growth this year.
“Uncertainty is high, and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled,” the organization said in its latest report.
Fears about the economicoutlook have increased following the failures in March of Silicon Valley Bank and Signature Bank, two regional US lenders, and the loss of confidence in the much-larger Credit Suisse
(CS), which was sold to rival UBS in a government-backed rescuedeal.
Already, the global economy was grappling with the consequences of high and persistent inflation, the rapid rise in interest rates to fight it, elevated debt levels and Russia’s war in Ukraine.
Now, concerns about the health of the banking industry join the list.
“These forces are now overlaid by, and interacting with, new financial stability concerns,” the IMF said, noting that policymakers trying to tame inflation while averting a “hard landing,” or a painful recession, “may face difficult trade-offs.”
Global inflation, which the IMF said was proving “much stickier than anticipated,” is expected to fall from 8.7% in 2022 to 7% this year and to 4.9% in 2024.
Investors are looking for additional pockets of vulnerability in the financial sector. Meanwhile, lenders may turn more conservative to preserve cash they may need to deal with an unpredictable environment.
That would make it harder for businesses and households to access loans, weighing on economic output over time.
“Financial conditions have tightened, which is likely to entail lower lending and activity if they persist,” said the IMF, which hosts its spring meeting alongside the World Bank this week.
If another shock to the world’s financial system results in a “sharp” deterioration in financial conditions, global growth could slow to 1% this year, the IMF warned. That would mean “near-stagnant income per capita.” The groupput the probably of this happening at about 15%.
The IMF acknowledged forecasting was difficult in this climate. The “fog around the world economic outlook has thickened,” it said.
And it warned that weak growth would likely persist for years. Looking ahead to 2028, global growth is estimated at 3%, the lowest medium-term forecast since 1990.
The IMF said this sluggishness was attributable in part to scarring from the pandemic, aging workforces and geopolitical fragmentation, pointing to Britain’s decision to leave the European Union, economic tensions between the United States and China and Russia’s invasion of Ukraine.
Interest rates in advanced economies are likely to revert to their pre-pandemic levels once the current spell of high inflation has passed, the IMF also said.
The body’s forecast for global growth this year is now closer to that of the World Bank.David Malpass, the outgoing World Bank president, told reporters Monday that the group now saw a 2% expansion in output in 2023, up from 1.7% predicted in January, Reuters has reported.
In a separate report published Tuesday, the IMF said that while the rapid increase in interest rates was straining banks and other financial firms, there were fundamental differences from the 2008 global financial crisis.
Banks now have much more capital to be able to withstand shocks. They also have curbed risky lending due to stricter regulations.
Instead, the IMF pointed to similarities between the latest banking turmoil and the US savings and loan crisis in the 1980s, when trouble at smaller institutions hurt confidence in the broader financial system.
So far, investors are “pricing a fairly optimistic scenario,” the IMF noted in a blog based on the report, adding that access to credit was actually greater now than it had been in October.
“While market participants see recession probabilities as high, they also expect the depth of the recession to be modest,” the IMF said.
Yet those expectations could be quickly upended. If inflation rises further, for example, investors could judge that interest rates will stay higher for longer, the group wrote in the blog.
“Stresses could then reemerge in the financial system,” it noted.
That bolsters the need for decisive action by policymakers, the IMF said. It called for gaps in supervision and regulation to “be addressed at once,” citing the need in many countries for stronger plans to wind down failed banks and forimprovements to deposit insurance programs.
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
New York CNN
—
In an unusual coincidence, the US jobs report was released on a holiday Friday — meaning stock markets were closed when the closely-watched economic data came out.
It was the first monthly payroll report since Silicon Valley Bank and Signature Bank collapsed. It also marked a full year of jobs data since the Federal Reserve began hiking interest rates in March 2022.
While inflation has come down and other economic data point to a cooling economy, the labor market has remained remarkably resilient.
Investors have had a long weekend to chew over the details of the report and will likely skip the typical gut-reaction to headline numbers.
What happened: The US economy added 236,000 jobs in March, showing that hiring remained robust though the pace was slower than in previous months. The unemployment rate currently stands at 3.5%.
Wages increased by 0.3% on the month and 4.2% from a year ago. The three-month wage growth average has dropped to 3.8%. That’s moving closer to what Fed policymakers “believe to be in line with stable wage and inflation expectations,” wrote Joseph Brusuelas, chief economist at RSM in a note.
“That wage data tends to suggest that the risk of a wage price spiral is easing and that will create space in the near term for the Federal Reserve to engage in a strategic pause in its efforts to restore price stability,” he added.
The March jobs report was the last before the Fed’s next policy meeting and announcement in early May. The labor market is cooling but not rapidly or significantly, and further rate hikes can’t be ruled out.
At the same time Wall Street is beginning to see bad news as bad news. A slowing economy could mean a recession is forthcoming.
Markets are still largely expecting the Fed to raise rates by another quarter point. So how will they react to Friday’s report?
Before the Bell spoke with Michael Arone, State Street Global Advisors chief investment strategist, to find out.
This interview has been edited for length and clarity.
Before the Bell: How do you expect markets to react to this report on Monday?
Michael Arone: I think that this has been a nice counterbalance to the weaker labor data earlier last week and all the recession fears. This data suggests that the economy is still in pretty good shape, 10-year Treasury yields increased on Friday indicating there’s less fear about an imminent recession.
There’s this delicate balance between slower job growth and a weaker labor market without economic devastation. I think this report helps that.
As it relates to the stock market, I would expect the cyclical sectors to do well — your industrials, your materials, your energy companies. If interest rates are rising, that’s going to weigh on growth stocks — technology and communication services sectors, for example. Less recession fears will mean investors won’t be as defensively positioned in classic staples like healthcare and utilities.
Could this lead to a reverse in the current trend where tech companies are bolstering markets?
Yes, exactly. It’s difficult to make too much out of any singular data point, but I think this report will hopefully lead to broader participation in the stock market. If those recession fears begin to abate somewhat, and investors recognize that recession isn’t imminent, there will be more investment.
What else are investors looking at in this report?
We’ve seen weakness in the interest rate sensitive parts of the market — areas that are typically the first to weaken as the economy slows down. So things like manufacturing, things like construction. That’s where the weakness in this jobs report is. And the services areas continue to remain strong. That’s where the shortage of qualified skilled workers remains. I think that you’re seeing continued job strength in those areas.
What does this mean for this week’s inflation reports? It seems like the jobs report just pushed the tension forward.
it did. I expect that inflation figures will continue to decelerate — or grow at a slower rate. But I do think that the sticky part of inflation continues to be on the wage front. And so I think, if anything, this helps alleviate some of those inflation pressures, but we’ll see how it flows through into the CPI report next week. And also the PPI report.
Is the Federal Reserve addressing real structural changes to the labor market?
The Fed was confused in February 2020 when we were in full employment and there was no inflation. They’re equally confused today, after raising rates from zero to 5%, that we haven’t had more job losses.
I’m not sure why, but from my perspective, the Fed hasn’t taken into consideration the structural changes in the labor force, and they’re still confused by it. I think the risk here is that they’ll continue to focus on raising rates to stabilize prices, perhaps underestimating the kind of structural changes in the labor economy that haven’t resulted in the type of weakness that they’ve been anticipating. I think that’s a risk for the economy and markets.
A few weeks ago, Before the Bell wrote about big problems brewing in the $20 trillion commercial real estate industry.
After decades of thriving growth bolstered by low interest rates and easy credit, commercial real estate has hit a wall. Office and retail property valuations have been falling since the pandemic brought about lower occupancy rates and changes in where people work and how they shop. The Fed’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry.
Recent banking stress will likely add to those woes. Lending to commercial real estate developers and managers largely comes from small and mid-sized banks, where the pressure on liquidity has been most severe. About 80% of all bank loans for commercial properties come from regional banks, according to Goldman Sachs economists.
Since then, things have gotten worse, CNN’s Julia Horowitz reports.
In a worst-case scenario, anxiety about bank lending to commercial real estate could spiral, prompting customers to yank their deposits. A bank run is what toppled Silicon Valley Bank last month, roiling financial markets and raising fears of a recession.
“We’re watching it pretty closely,” said Michael Reynolds, vice president of investment strategy at Glenmede, a wealth manager. While he doesn’t expect office loans to become a problem for all banks, “one or two” institutions could find themselves “caught offside.”
Signs of strain are increasing. The proportion of commercial office mortgages where borrowers are behind with payments is rising, according to Trepp, which provides data on commercial real estate.
High-profile defaults are making headlines. Earlier this year, a landlord owned by asset manager PIMCO defaulted on nearly $2 billion in debt for seven office buildings in San Francisco, New York City, Boston and Jersey City.
Tech stocks led market losses in 2022, but seemed to rebound quickly at the start of this year. So as we enter earnings season, what should we expect from Big Tech?
Daniel Ives, an analyst at Wedbush Securities, says that he has high hopes.
“Tech stocks have held up very well so far in 2023 and comfortably outpaced the overall market as we believe the tech sector has become the new ‘safety trade’ in this overall uncertain market,” he wrote in a note on Sunday evening.
Even the recent spate of layoffs in Big Tech has upside, he wrote.
“Significant cost cutting underway in the Valley led by Meta, Microsoft, Amazon, Google and others, conservative guidance already given in the January earnings season ‘rip the band- aid off moment’, and tech fundamentals that are holding up in a shaky macro[environment] are setting up for a green light for tech stocks.”
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
New York CNN
—
There’s been a seismic shift in investor perspective: Bad news is no longer good news.
For the past year, Wall Street has hoped for cool monthly economic data that would encourage the Federal Reserve to haltits aggressive pace of interest rate hikes to tame inflation.
But at its March meeting — just days after a series of bank failures raised concerns about the economy’s stability — the central bank signaled that it plans to pause raising rates sometime this year. With an end to interest rate hikes in sight, investors have stopped attempting to guess the Fed’s next move and have turned instead to the health of the economy.
This means that,whereas softening economic data used to signal good news — that the Fed could potentially stop raising rates — now, cooling economic prints simply suggest the economy is weakening. That makes investors worried that the slowing economy could fall into a recession.
What happened last week? Markets teetered after a slew of economic reports signaled that the red-hot labor market is finally cooling (more on that later), flashing warning signals across Wall Street.
Investors accordingly shed high-growth, large-cap stocks that have surged recently to rush into defensive stocks in industries like health care and consumer staples.
While tech stocks recovered somewhat by the end of the short trading week — markets were closed in observance of Good Friday — the Nasdaq Composite still slid 1.1%. The broad-based S&P 500 fell 0.1% and the blue-chip Dow Jones Industrial Average gained 0.6%.
What does this mean for markets? Now that Wall Street is in “bad news is bad news and good news is good news” mode, it will be looking for signs that the economy remains resilient.
What hasn’t changed is that investors still want to see cooling inflation data. While the central bank has signaled that it will pause hiking rates this year, its actions so far haveonly somewhat stabilized prices. The Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, rose 5% for the 12 months ended in February — far above its 2% inflation target.
Moreover, Wall Street might be overly optimistic about how the Fed will act going forward: Some investors expect the central bank to cut rates several times this year, even though the central bank indicated last month that it does not intend tolower rates in 2023.
It’s unclear how markets will react if the Fed doesn’t cut rates this year. But there likely won’t be a notable rally unless the central bank pivots or at least indicates that it plans to soon, said George Cipolloni, portfolio manager at Penn Mutual Asset Management.
Commentary that’s hawkish or reveals inflation worries could hurt markets, he adds. “It keeps that boiling point and that temperature a little high.”
What comes next? The Fed holds its next meeting in early May. Before then, it will have to parse through several economic reports to get a sense of how the economy is doing, and what it will be able to handle. Markets currently expect the Fed to raise interest rates by a quarter point, accordingto the CME FedWatch tool.
The labor market appears to be cooling somewhat, at least according to the slew of data released last week. But it’s still far too early to assume that the job market has lost its strength.
President Joe Biden said in a statement Friday that the March data is “a good jobs report for hard-working Americans.”
The March jobs report revealed that US employers added a lower-than-expected 236,000 jobs last month. Economists expected a net gain of 239,000 jobs for the month, according to Refinitiv.
The unemployment rate dropped to 3.5%, according to the Bureau of Labor Statistics. That’s below expectations of holding steady at3.6%.
The jobs report was also the first one in 12 months that came in below expectations.
But that doesn’t mean that the job market isn’t strong anymore.
“The labor market is showing signs of cooling off, but it remains very tight,” Bank of America researchers wrote in a note Friday.
Still, other data released last week help make the case that cracks are finally starting to form in the labor market. The Job Openings and Labor Turnover Survey for February revealed last week that the number of available jobs in the United States tumbled to its lowest level since May 2021. ADP’s private-sector payroll report fell far short of expectations.
What this means for the Fed is that the cooldown in the latest jobs report likely won’t be enough for the central bank to pause rates at its next meeting.
“The Fed will more than likely raise rates in May as the labor market continues to defy the cumulative effects of the rate hikes that began over a year ago,” said Quincy Krosby, chief global strategist at LPL Financial.
Watch Alex Marquardt’s report on the sting operation on Erin Burnett OutFront on Monday, April 10, at 7 p.m. ET.
CNN
—
A team of South Korean spies and American private investigators quietly gathered at the South Korean intelligence service in January, just days after North Korea fired three ballistic missiles into the sea.
For months, they’d been tracking $100 million stolen from a California cryptocurrency firm named Harmony, waiting for North Korean hackers to move the stolen crypto into accounts that could eventually be converted to dollars or Chinese yuan, hard currency that could fund the country’s illegal missile program.
When the moment came, the spies and sleuths — working out of a government office in a city, Pangyo, known as South Korea’s Silicon Valley — would have only a few minutes to help seize the money before it could be laundered to safety through a series of accounts and rendered untouchable.
Finally, in late January, the hackers moved a fraction of their loot to a cryptocurrency account pegged to the dollar, temporarily relinquishing control of it. The spies and investigators pounced, flagging the transaction to US law enforcement officials standing by to freeze the money.
The team in Pangyo helped seize a little more than $1 million that day. Though analysts tell CNN that most of the stolen $100 million remains out of reach in cryptocurrency and other assets controlled by North Korea, it was the type of seizure that the US and its allies will need to prevent big paydays for Pyongyang.
The sting operation, described to CNN by private investigators at Chainalysis, a New York-based blockchain-tracking firm, and confirmed by the South Korean National Intelligence Service, offers a rare window into the murky world of cryptocurrency espionage — and the burgeoning effort to shut down what has become a multibillion-dollar business for North Korea’s authoritarian regime.
Over the last several years, North Korean hackers have stolen billions of dollars from banks and cryptocurrency firms, according to reports from the United Nations and private firms. As investigators and regulators have wised up, the North Korean regime has been trying increasingly elaborate ways to launder that stolen digital money into hard currency, US officials and private experts tell CNN.
Cutting off North Korea’s cryptocurrency pipeline has quickly become a national security imperative for the US and South Korea. The regime’s ability to use the stolen digital money — or remittances from North Korean IT workers abroad — to fund its weapons programs is part of the regular set of intelligence products presented to senior US officials, including, sometimes, President Joe Biden, a senior US official said.
The North Koreans “need money, so they’re going to keep being creative,” the official told CNN. “I don’t think [they] are ever going to stop looking for illicit ways to glean funds because it’s an authoritarian regime under heavy sanctions.”
North Korea’s cryptocurrency hacking was top of mind at an April 7 meeting in Seoul, where US, Japanese and South Korean diplomats released a joint statement lamenting that Kim Jong Un’s regime continues to “pour its scarce resources into its WMD [weapons of mass destruction] and ballistic missile programs.”
Here’s how to keep your passwords safe, according to a hacker
“We are also deeply concerned about how the DPRK supports these programs by stealing and laundering funds as well as gathering information through malicious cyber activities,” the trilateral statement said, using an acronym for the North Korean government.
North Korea has previously denied similar allegations. CNN has emailed and called the North Korean Embassy in London seeking comment.
Starting in the late 2000s, US officials and their allies scoured international waters for signs that North Korea was evading sanctions by trafficking in weapons, coal or other precious cargo, a practice that continues. Now, a very modern twist on that contest is unfolding between hackers and money launderers in Pyongyang, and intelligence agencies and law enforcement officials from Washington to Seoul.
The FBI and Secret Service have spearheaded that work in the US (both agencies declined to comment when CNN asked how they track North Korean money-laundering.) The FBI announced in January that it had frozen an unspecified portion of the $100 million stolen from Harmony.
The succession of Kim family members who have ruled North Korea for the last 70 years have all used state-owned companies to enrich the family and ensure the regime’s survival, according to experts.
It’s a family business that scholar John Park calls “North Korea Incorporated.”
Kim Jong Un, North Korea’s current dictator, has “doubled down on cyber capabilities and crypto theft as a revenue generator for his family regime,” said Park, who directs the Korea Project at the Harvard Kennedy School’s Belfer Center. “North Korea Incorporated has gone virtual.”
Compared to the coal trade North Korea has relied on for revenue in the past, stealing cryptocurrency is much less labor and capital-intensive, Park said. And the profits are astronomical.
Last year, a record $3.8 billion in cryptocurrency was stolen from around the world, according to Chainalysis. Nearly half of that, or $1.7 billion, was the work of North Korean-linked hackers, the firm said.
It’s unclear how much of its billions in stolen cryptocurrency North Korea has been able to convert to hard cash. In an interview, a US Treasury official focused on North Korea declined to give an estimate. The public record of blockchain transactions helps US officials track suspected North Korean operatives’ efforts to move cryptocurrency, the Treasury official said.
But when North Korea gets help from other countries in laundering that money it is “incredibly concerning,” the official said. (They declined to name a particular country, but the US in 2020 indicted two Chinese men for allegedly laundering over $100 million for North Korea.)
Pyongyang’s hackers have also combed the networks of various foreign governments and companies for key technical information that might be useful for its nuclear program, according to a private United Nations report in February reviewed by CNN.
A spokesperson for South Korea’s National Intelligence Service told CNN it has developed a “rapid intelligence sharing” scheme with allies and private companies to respond to the threat and is looking for new ways to stop stolen cryptocurrency from being smuggled into North Korea.
Recent efforts have focused on North Korea’s use of what are known as mixing services, publicly available tools used to obscure the source of cryptocurrency.
On March 15, the Justice Department and European law enforcement agencies announced the shutdown of a mixing service known as ChipMixer, which the North Koreans allegedly used to launder an unspecified amount of the roughly $700 million stolen by hackers in three different crypto heists — including the $100 million robbery of Harmony, the California cryptocurrency firm.
Private investigators use blockchain-tracking software — and their own eyes when the software alerts them — to pinpoint the moment when stolen funds leave the hands of the North Koreans and can be seized. But those investigators need trusted relationships with law enforcement and crypto firms to move quickly enough to snatch back the funds.
One of the biggest US counter moves to date came in August when the Treasury Department sanctioned a cryptocurrency “mixing” service known as Tornado Cash that allegedly laundered $455 million for North Korean hackers.
Tornado Cash was particularly valuable because it had more liquidity than other services, allowing North Korean money to hide more easily among other sources of funds. Tornado Cash is now processing fewer transactions after the Treasury sanctions forced the North Koreans to look to other mixing services.
Suspected North Korean operatives sent $24 million in December and January through a new mixing service, Sinbad, according to Chainalysis, but there are no signs yet that Sinbad will be as effective at moving money as Tornado Cash.
The people behind mixing services, like Tornado Cash developer Roman Semenov, often describe themselves as privacy advocates who argue that their cryptocurrency tools can be used for good or ill like any technology. But that hasn’t stopped law enforcement agencies from cracking down. Dutch police in August arrested another suspected developer of Tornado Cash, whom they did not name, for alleged money laundering.
Private crypto-tracking firms like Chainalysis are increasingly staffed with former US and European law enforcement agents who are applying what they learned in the classified world to track Pyongyang’s money laundering.
Elliptic, a London-based firm with ex-law enforcement agents on staff, claims it helped seize $1.4 million in North Korean money stolen in the Harmony hack. Elliptic analysts tell CNN they were able to follow the money in real-time in February as it briefly moved to two popular cryptocurrency exchanges, Huobi and Binance. The analysts say they quickly notified the exchanges, which froze the money.
“It’s a bit like large-scale drug importations,” Tom Robinson, Elliptic’s co-founder, told CNN. “[The North Koreans] are prepared to lose some of it, but a majority of it probably goes through just by virtue of volume and the speed at which they do it and they’re quite sophisticated at it.”
The North Koreans are not just trying to steal from cryptocurrency firms, but also directly from other crypto thieves.
Should you invest in crypto? One expert weighs in after FTX’s collapse
After an unknown hacker stole $200 million from British firm Euler Finance in March, suspected North Korean operatives tried to set a trap: They sent the hacker a message on the blockchain laced with a vulnerability that may have been an attempt to gain access to the funds, according to Elliptic. (The ruse didn’t work.)
Nick Carlsen, who was an FBI intelligence analyst focused on North Korea until 2021, estimates that North Korea may only have a couple hundred people focused on the task of exploiting cryptocurrency to evade sanctions.
With an international effort to sanction rogue cryptocurrency exchanges and seize stolen money, Carlsen worries that North Korea could turn to less conspicuous forms of fraud. Rather than steal half a billion dollars from a cryptocurrency exchange, he suggested, Pyongyang’s operatives could set up a Ponzi scheme that attracts much less attention.
Yet even at reduced profit margins, cryptocurrency theft is still “wildly profitable,” said Carlsen, who now works at fraud-investigating firm TRM Labs. “So, they have no reason to stop.”
While China and Russia have strengthened ties since the Kremlin’s brutal invasion of Ukraine, the US has not seen evidence that China has provided systemic material support to the Kremlin as Russian President Vladimir Putin and his government look for avenues to evade Western sanctions and backfill its military, according to senior US Treasury officials.
One senior Treasury official said that China is, as of now, unwilling to provide material support to Russia at scale and in a significant way, pointing instead to Russian efforts to source material from North Korea and Iran. The comments come almost one month after revelations of US intelligence that China has been open to providing Russian with requested military and financial assistance, and US national security adviser Jake Sullivan warned top Chinese diplomat Yang Jiechi about American concerns over such a move.
With relations between Washington and Beijing at historic lows, the senior officials attributed the decision by China to hold off so far on more systemic help to efforts across the sanctions coalition – from public US comments to active and direct messages that the Europeans have given to China.
With Russia’s brutal invasion of Ukraine into its second year, the Biden administration has continued to take steps to plug the gaps of the Western allies’ sanctions regime as they broaden intelligence sharing with US allies and jurisdictions where Russia has looked to sidestep sanctions and export controls.
The US and its allies have also taken more direct action, sanctioning a Chinese satellite company providing intelligence to Russian forces in January and putting some Chinese companies on the US export control list.
As part of that effort and as leaders of the global financial system descend on Washington D.C. next week for the Spring Meetings of the International Monetary Fund and World Bank, top US Treasury and intelligence officials will share information with relevant partners to help countries and businesses understand how the Kremlin continues to use its intelligence services to try and evade the unprecedented sanctions regime instituted by the US and its allies, these senior officials also said.
The meetings next week with countries the US is concerned about are part of a broader push by the Treasury over the next month as senior officials continue to fan out across the world to strategize with US allies and partners to deepen cooperation and ramp up the pressure on countries key to Russia’s sanctions evasion and backfilling efforts.
Two of Treasury’s top sanctions officials – Brian Nelson and Liz Rosenberg – will continue the US government’s ramped up efforts internationally to speak to specific countries and their businesses about the risks of providing support to Russia and share detailed information on sanctions evasion. Nelson will travel to Switzerland, Italy, Austria and Germany to compare notes with their counterparts and continue to share intelligence on the ways in which Russia is attempting to evade sanctions; and, Rosenberg will travel to Kazakhstan in Central Asia, a region with a long history of ties to Russia, and through which officials have raised concerns that Russia is sourcing materials.
Despite the impact sanctions have had on the Russian economy, some observers have pointed to concerns over Moscow’s ability to evade sanctions and re-orient trade routes to continue to acquire some of the technologies and financing needed to fund its war machine through countries it borders and more permissive jurisdictions, such as the United Arab Emirates and Turkey.
But in recent months officials have also begun to see some results from their public and private efforts. Turkish officials told the US last month that their government has been taking further action to block the transit of sanctioned goods directly to Russia, according to a source familiar with the discussion.
Since Russia launched its bloody war against Ukraine, the US has imposed thousands of sanctions against Russian politicians, oligarchs and companies, cut off the Russian central bank from its dollar-denominated reserves as well as the global financial messaging system, undermined Russia’s defense-industrial base and imposed a price cap on Russian oil and petroleum products.
One of the most successful efforts, the price cap, has already been having a demonstrable effect with the Russian Finance Ministry announcing Friday a $29 billion dollar deficit in the budget for the first quarter of 2023, according to Reuters.
In a speech earlier this year on the anniversary of Russia’s invasion, US Deputy Treasury Secretary Wally Adeyemo publicly warned Russian intelligence services that the US is monitoring their efforts and is cracking down.
“We know Russia is actively seeking ways to circumvent these sanctions… In fact, one of the ways we know our sanctions are working is that Russia has tasked its intelligence services – the FSB and GRU – to find ways to get around them,” Adeyemo said in his February speech.
