Crypto News: Why some prices never seem to go down

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The next time you're browsing for car insurance or plane tickets, spare a thought for the economic concept known as "sticky inflation."

The basic premise is this: Even as prices in the US come down for everyday items such as food and energy, they remain elevated for services like airfares and education. Why those prices remain high, or sticky, is at the center of the economic debate over how much the Federal Reserve should push up borrowing costs when its officials meet this week.

Prices of services excluding housing and energy (a key gauge watched by Fed Chair Jerome Powell) increased 0.2% in March, according to Bloomberg calculations, a slowing from the previous read. But on a year-over-year basis, the metric remains high at 4.5%.

Some economists pin the sticky cause on a worker shortage that pushes up wages, which in turn feeds the inflation cycle. One services sector suffering a chronic need for more labor is health care. The US is down about 260,000 nurses and residential care workers from pre-pandemic levels, a deficit that's given rise to the term "Nursemageddon." Burnout and retirements mean the shortage is expected to worsen in coming years.

The latest data suggest wage demands are real. The Labor Department's measure of employment costs—closely watched by the Fed—increased 1.2% in the first quarter from the previous period, exceeding forecasts. If you're looking for a builder, for example, you will need to pony up. Construction workers saw a record increase in compensation costs.

Anna Wong from Bloomberg Economics reckons the data sets up the Fed for a "hawkish pause," where it raises rates on Wednesday and signals it don't plan to hike again. Or it might not.

"The faster first-quarter growth in the Employment Cost Index—the Fed's preferred wage gauge—dispels the notion that wage growth is moderating quickly," she wrote in a note for clients. One reason she cites for the wage pressure: the 31 states that raised their minimum wage early this year, with many lifting it by 5% to 6%.

As always in the policy world, not everyone is convinced wage pressures can be solved by higher interest rates. Some economists, including Omair Sharif, founder of Inflation Insights LLC, caution against the Fed deliberately trying to engineer a cooler labor market in an effort to slow inflation. The economy is already slowing, and there are hints of a softening in the labor market and for consumer demand. Yet even he thinks the latest wages data means the Fed will probably hike this week.

"If any Fed officials were wavering on a May rate hike, I suspect the underlying strength in [the] ECI will likely push them to support at least one more hike," he says.

As a recent arrival in the US (after many years covering the Asia Pacific) your correspondent is in the midst of experiencing some of this stickiness as I look to purchase a car.

A used-car lot in Glendale, California. Photographer: Mario Tama/Getty Images North America

Although the supply of autos appears to have improved and prices for used vehicles are off their highs from last year, it clearly remains a seller's market. (JPMorgan Chase & Co. has estimated that average prices for a new vehicle in the US have risen to about $50,000, up 30% since 2019.) Then there's car insurance. Those of us without a credit history in the US inevitably face a higher premium. (Let's just say the cost I am being quoted runs into the thousands, which a scientific survey of my American colleagues who sit around me tells me is … high.) The surge in the value of secondhand cars, high repair costs and broader losses taken by insurers are among reasons that insurance inflation has soared.

All of which adds to a sense that, even if inflation is well off the highs it hit in 2022, there's no easy way out of the web of tacked-on costs. —Enda Curran, economy reporter

Illustration: Patrik Mollwing for Bloomberg Businessweek

The US banking panic that unfolded in March could've been a lot worse if it weren't for the Federal Home Loan Bank system. These government-sponsored but privately funded institutions provided hundreds of billions of dollars to banks when depositors were pulling their cash.

The FHLBs played a role a little like that of the Federal Reserve, which also opened the taps for banks. The Fed is a lender of last resort: Its "discount window" is a place where banks go when they can't get cash anywhere else. The less well-known FHLB system is more like a next-to-last stop. Borrowing from it can cost banks more than using the Fed, but it doesn't come with the stigma of signaling an emergency.

A legacy of the Great Depression, the network of 11 regional FHLBs was set up by Congress to support homeownership. While it still supports a big chunk of the nation's property lending, it's evolved into a linchpin of the broader funding market for banks. Almost 6,500 institutions, from small savings banks to giants such as JPMorgan Chase & Co. and Citigroup Inc., are members of the co-ops that own and use each FHLB.

Even before Silicon Valley Bank and New York's Signature Bank failed, there were already signs that banks were tapping FHLBs to replace deposit outflows or shore up liquidity. At the end of 2022, SVB had $15 billion of outstanding loans from the San Francisco FHLB, of which it was a member. Signature Bank had $11 billion on loan from the New York branch. FHLBs' total advances to members—short-term debt secured by mortgages or other assets—more than doubled in 2022, to $819 billion.

Check out Alex Harris's story for a full view on this often-ignored (but, as we know now, crucial) part of the financial regulatory system.

Believe it or not, there are still jobs in tech—as well as highly paid tech internships. Of the 25 highest-paid intern gigs, Stripe comes in at the top. It pays some interns more than $9,000 a month (!). Meta, TikTok and Adobe are also great places for interns to go. Click here for more and, potentially, to weep at the fact that your salary is less than some of the most junior employees around.

$1,950

That's the price of a Prada women's backpack, one of 8 chic designs chosen by the Pursuits team as worthy of your attention. Should you pay that much for a backpack? Well, considering how many people are replacing handbags with statement backpacks—why not?

"The biggest thing for crypto is that it's a lightning rod for liquidity. And as liquidity returns to the market, and it is and we're seeing that, I think crypto will continue to trade well."

Christopher Forbes

Head of CMC Invest Singapore

What's behind the boom in crypto assets? It's more than one thing, but it seems that banking woes have helped make it relevant again. Read the whole story here.

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