Let Them Eat Interest Rate Hikes
“Raise your hand if you’re having a hard time hiring staff right now,” asked an executive of the banking industry’s top lobbying group, pantomiming a count of the audience.
“A good number of hands in the crowd — almost a majority if I’m not blind,” he concluded.
That not-so-scientific poll, meant to illustrate workers’ pesky lack of desperation amid still-low unemployment, took place at the American Bankers Association’s annual Washington summit last week.
Attendees at the bank lobbying group’s event were awaiting news of whether the Federal Reserve would go forward with its ninth-straight interest rate hike, while listening to friendly keynote addresses by congressional leadership from both parties — even as public anger mounts at yet another government bank bailout.
The central bank’s aggressive rate hikes are a key factor behind the latest round of shocks to banks, whose investment securities collectively lost $600 billion worth of market value due to rising rates. Yet the assembled bankers and economists appeared unbothered about whether the Fed’s actions might make the crisis worse, and focused instead on the imperative of suppressing wages and worker bargaining power.
There's a good reason for that. After Fed Chairman Jerome Powell, a former private equity executive, declared war on workers in order to drive down wages and fight inflation last year, it looked briefly like the banks might become collateral damage. But the Fed moved quickly to shield the banks — and only the banks — from the impact of its actions before announcing Wednesday that it would raise rates by another quarter-point.
That means that while ordinary consumer borrowers struggle, banks will have access to what one financial analyst recently called “the biggest bailout to the banking sector since the great financial crises.” A new Fed lending facility, launched the same day the central bank voted to bail out Silicon Valley Bank, has already injected more than $53 billion into financial institutions at highly favorable terms.
The double-standard was on full display at the ABA summit, where former Fed Vice Chair and Brookings Institution senior fellow Donald Kohn bemoaned that wages are “still too high” and predicted that rate hikes will continue — while telling the bankers in the audience that the Fed’s latest actions should provide “foam on the runway” to banks, in order to “make the landing as safe as possible.”
The Fed will even avoid releasing the names of banks that use the facility until a year after its end, to protect their reputations and avoid tipping off the public to any signs of trouble with their balance sheets.
That means banks shouldn’t be too proud to ask the government for help, Peter Cook, the ABA’s chief communications officer, told the audience. “There’s still the stigma concern — that if you do this, it’s a sign of weakness,” he said of using the Fed’s emergency lending facility. “That’s not how folks should look at this.”
It’s the latest in a long line of rescues extended to financial elites during crises — from the COVID-19 pandemic to the housing market crash — while politicians stigmatize and demonize workers and families receiving government aid, and reduce and eliminate those aid programs altogether.
Indeed, most of the modest help extended to Americans during the pandemic — from enhanced unemployment assistance, to increased food stamp payments, to universal free-school lunches, to expanded Medicaid coverage — has either already ended, or soon will. COVID-relief checks are a thing of the past, too.
The latest interest-rate hike is likely to strike yet another blow to workers, but the banks won’t feel the pain. Instead, they’ll get another handout — if they want it — and face little stigma from the Washington political class.
