Watchdog: Even Smaller Interest Rate Hikes Invite Economic Calamity for Main Street and Wall Street Alike
Today, the Federal Reserve made the counterproductive and ill-advised decision to raise interest rates by 25 basis points despite the Fed's own projections that higher rates will drive up the unemployment rate to 4.6 percent – costing at least 2 million Americans their jobs. Government watchdog Accountable.US released a new analysis showing that further rate hikes not only invites a recession but a disaster for the largest banks holding billions of dollars in unrealized Treasury securities losses amid a worsening banking crisis.
The recent failure of Silicon Valley Bank was due partly to a " plunge" in bond value and $1.8 billion in "paper losses" amid the Fed's rate hikes. The Federal Deposit Insurance Corporation (FDIC) has warned that U.S. banks were "sitting on $620 billion in unrealized losses" that may make their balance sheets appear healthier than they really are.
An Accountable.US review found that at the end of 2022, the five-biggest U.S.banks — JPMorgan Chase, Bank Of America, Citigroup, Wells Fargo, and U.S. Bank — reported a total of $233 billion in unrealized losses on held-to-maturity securities, including $54 billion in unrealized losses on Treasury securities. These same banks reported a combined $39.4 billion in unrealized losses on available-for-sale securities, including $12.7 billion in losses on available-for-sale U.S. Treasuries.
Liz Zelnick, Accountable.US' Director of Economic Security and Corporate Power, said:
Hiking interest rates, even if more slowly, will devastate Main Street and Wall Street alike by wiping out millions of jobs while sending Treasury securities into a downward spiral. A recession and broken financial system are not worth the price of higher interest rates that have failed miserably to curb the corporate greed epidemic helping to drive up costs.
To date, the Federal Reserve and Chairman Jerome Powell have been more than willing to let average American families bear the brunt of their job-killing strategy -- but are they also willing to let their banker friends on Wall Street go down with the ship?