SACHA PFEIFFER, HOST:
New inflation numbers come out this morning, and they're expected to show what most Americans already know, that prices are still climbing at an uncomfortably rapid rate.
LEILA FADEL, HOST:
The Federal Reserve has been trying to curb inflation by raising interest rates, but that effort just got more complicated after the high-profile collapse of two regional banks.
PFEIFFER: NPR's Scott Horsley joins us now. Hi, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Sacha.
PFEIFFER: The Fed has been trying pretty aggressively for a while to bring inflation down, doesn't seem that successful. What - give us the overview of what's happening to prices.
HORSLEY: They're still going up, although not as fast as they were. Fed Chairman Jerome Powell told lawmakers last week the price of some goods has leveled off, and there are signs that rents aren't climbing as fast as they were. But the cost of a lot of services, like restaurant meals or dental checkups, are still going up. And because people spend a lot of money on services, that's keeping overall inflation about three times as high as the Fed's long-range target.
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JEROME POWELL: Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.
HORSLEY: And now there's this new bump in the road, the collapse of those two big regional banks in recent days. Some analysts think that's going to force the Fed to be more cautious about raising interest rates when policymakers meet next week.
PFEIFFER: Right, and tell us more about that. Why would two bank failures affect the Fed's strategy and how it tries to fight inflation?
HORSLEY: Well, the Fed's mission is not only promoting price stability and maximum employment, but also safeguarding the stability of the financial system. It's pretty hard to have a working economy if the banking system's falling apart. Over the last year, the Fed has raised interest rates very aggressively, and that was one of the factors in the collapse of Silicon Valley Bank. While both the Fed and the FDIC acted quickly to prevent a more widespread run on banks, the fallout from that Silicon Valley failure is being felt throughout the industry. Stocks and a lot of other regional banks have taken a beating in recent days. Just yesterday, Moody's bond rating service placed half a dozen banks under review. Senior economist Michael Pugliese of Wells Fargo says if that uncertainty continues, then the Fed's going to have bigger concerns next week than just what we see in today's Consumer Price Index or CPI.
MICHAEL PUGLIESE: I don't think the CPI is going to be the determinant of whether or not the Fed hikes. I think that's going to be determined far more how the financial markets and just the financial system more broadly does or does not stabilize between now and a week from Wednesday.
HORSLEY: Just a week ago, the Fed was expected to raise interest rates by at least a quarter percentage point next week and maybe half a point. But since these bank failures, betting markets now think a half-point rate hike is off the table next week, and the Fed may skip raising interest rates altogether.
PFEIFFER: So let's say, Scott, that happens, that there's a smaller rate hike than expected or no rate hike. What's the risk that causes inflation to spike?
HORSLEY: It's always a balancing act. The Fed said many times it doesn't want to repeat the mistakes of the 1970s by letting up on inflation prematurely only to then see costs climb out of control again. But it's possible the Fed has a little bit more maneuvering room here. Just yesterday, the Federal Reserve Bank of New York released a survey showing that people's expectations of inflation a year from now have gone down in the last month. The Fed keeps a close eye on those expectations because where people think inflation is going to go can become a self-fulfilling prophecy. So the fact that expectations have eased in the last month could give the central bank a little time here.
PFEIFFER: NPR's Scott Horsley, thank you.
HORSLEY: You're welcome.
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PFEIFFER: Two hundred and fifty thousand dollars - that number has become the subject of a heated debate.
FADEL: Yeah, the federal government is guaranteeing deposits of customers with more than $250,000 at two failed banks, amounts that aren't normally insured. Is this bad precedent or necessary to keep the financial system stable?
PFEIFFER: Here to walk us through that is NPR's Arezou Rezvani. Hi, Arezou.
AREZOU REZVANI, BYLINE: Hi, Sacha.
PFEIFFER: So tell us how FDIC insurance would normally work.
REZVANI: So for years, $250,000 has been the limit. Anything under that has long been fully protected by the government's FDIC. Anything over is considered uninsured. Banks pay fees that go toward an insurance fund, and that's what's used to pay people back should a bank go belly up - again, up to $250,000. Now, there was an exception made over the weekend to go well beyond that limit. The FDIC tapped into that fund, that insurance fund, to pay the customers of the two collapsed banks back in full, which basically means that those previously uninsured portions suddenly became guaranteed.
PFEIFFER: And what is the point of the FDIC saying that there are limits to what it will insure when, as we're seeing in this case, it's actually willing to go beyond that?
REZVANI: Well, these limits were designed to keep people from thinking they would always be saved. I talked to Sheila Bair, who ran the FDIC during the 2008 recession. Here's how she put it.
SHEILA BAIR: It's a question of moral hazard. For wealthier people or companies, large organizations that will have bigger deposits, you want them to look at the bank carefully, kick the tires, make sure it's a safe place.
REZVANI: So the government wants customers to scrutinize their banking institutions and not get too comfortable with the idea that the government is simply going to intervene every time things go sideways. But regulators argue that they had to make an exception this time because there were signs that panic was spreading, and this was the only way to keep the financial system stable.
PFEIFFER: But Arezou, now many people are likely to think that they're always going to be saved if their bank fails. So has the FDIC created a precedent here?
REZVANI: Yes, that is the concern. Because of the FDIC's intervention, if other banks run into trouble in the days or weeks to come, the fear is that there will be greater pressure on the FDIC to step in and save those uninsured deposits as well. This has sparked a huge debate about when to go above and beyond the standard guarantees of $250,000 and for whom. You know, is it the ultrawealthy? Is it the institutions that cater to a lucrative industry? Or could it be that it's the opposite? Is our financial system such that any bank nowadays is really too big to fail?
PFEIFFER: And what do we know about whether there are other banks out there also at risk of failing?
REZVANI: Well, Silicon Valley Bank and Signature Bank were unique in many ways. They were the banks of choice for tech startups and those in the cryptocurrency space, whereas other banks have a much more diverse clientele. As we know, tech companies have been hurting a lot lately and downsizing. Crypto has, of course, run into major problems in recent months. These tech and crypto companies started pulling their deposits out of these banks at a time when the banks were seeing losses in their investments in government bonds. Those bonds, which are normally safe, lost value to climbing interest rates, and that is what put the banks in a squeeze. Former Fed officials and regulators I've spoken to - you know, they do wonder if other banks have not properly accounted for interest rate hikes in their investments. Those moves may have been OK a year or two ago. These days, maybe not so much.
PFEIFFER: That's NPR's Arezou Rezvani. Thank you.
REZVANI: You're welcome.
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PFEIFFER: Now to Alaska's North Slope, where workers will soon start the controversial Willow oil drilling project.
FADEL: An oil company is laying a new gravel road to the area after the Biden administration approved the project this week. That brought quick condemnation from people concerned about climate change.
PFEIFFER: Jeff Brady joins us from NPR's climate desk. Hi, Jeff.
JEFF BRADY, BYLINE: Hi there.
PFEIFFER: How significant is this decision?
BRADY: You know, it's a big deal all the way around. And let's talk about the economics first - for the company, ConocoPhillips, also the unions involved and the communities that will collect tax revenue, this is a financial boon. Oil production from the North Slope has been declining since the late 1980s. This is going to boost production there. At the same time, there's concern that heavy industrial drilling in the pristine environment will hurt wildlife and the Alaska Natives who depend on animals like caribou for food. Some communities oppose this drilling, but a lot of North Slope residents are celebrating this decision. Nagruk Harcharek heads the group Voice of the Arctic Inupiat.
NAGRUK HARCHAREK: If projects like this were going to threaten that subsistence lifestyle in a way that we felt was going to be detrimental to the culture, to the people, we wouldn't be in support of it.
BRADY: And it really comes down to money. Harcharek says the local government, the North Slope Borough, will collect about $1.2 billion over 30 years. That's nearly enough to cover its budget.
PFEIFFER: All right, so some support by Indigenous communities. But there's the climate change issue, that burning all that oil will warm the climate more. So I imagine environmental groups are not thrilled.
BRADY: They're pretty angry. The Biden administration tried to soften the blow by announcing new protections for 16 million acres of land and offshore areas. But oil companies weren't expressing much interest in those places anyway. Sierra Club executive director Ben Jealous called the announcement window dressing and said his group and others may file a legal challenge.
BEN JEALOUS: We are hopeful that there is a way to block this through the courts, but honestly, the best shot we had was President Biden doing the right thing. You know, instead he blinked. You know, he stared down big oil, big gas, and he blinked.
BRADY: Approving this project does go against one of President Biden's campaign promises. He vowed to stop new oil and gas drilling on public land.
PFEIFFER: So he's broken that promise, but he has taken action on other climate change issues. So why didn't he block this big project?
BRADY: You know, it's a little complicated. And climate scientists - they keep telling us that the world needs to get off fossil fuels faster, and we need to leave most of the oil and gas in the ground. But there are some complications here. ConocoPhillips leased the right to drill this area back in 1999. The company has been pushing to do that. And some legal experts think that if this ended up in court, there's a good chance a judge might force the federal government to allow drilling. So a deal has been struck here with the company. In exchange for drilling on three sites, ConocoPhillips will give up rights to drill elsewhere on about 68,000 acres of other federal leases it holds. Then there's the reality that while climate change is a big focus, the U.S. still is using nearly 20 million barrels of oil a day. That should decline as people switch to electric vehicles and also stop burning gas in buildings. But for now, companies are still out there searching for new places to drill for crude oil and meet that demand.
PFEIFFER: That's Jeff Brady from NPR's Climate Desk. Jeff, thanks for the details on this.
BRADY: All right. Thank you for having me.
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PFEIFFER: Before we go, a little reflection on the life of former Congresswoman Pat Schroeder. She died last night. The Colorado Democrat was a pioneer for the rights of women and families.
FADEL: In 1972, Schroeder was 32 years old and a mother of two young children when she took office, becoming one of just 14 women in what she called an overaged frat house. She went on to serve for 24 years in the U.S. House.
PFEIFFER: She was famous for her wit and her one-liners. Sometimes she used them to counter sexism or trounce the opposition. She gave President Ronald Reagan the nickname the Teflon president. Among her achievements - a groundbreaking family leave bill and job protections for people who needed to take time to care for a newborn or a sick family member. Here she is on NPR in 1998.
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PAT SCHROEDER: I always wanted to be cremated and made into a doorstop so I could hold a door open because basically what I want to do is hold doors open for people. And I figured that's what I was trying to do in my political career, so why not try and do it in the afterlife, too?
FADEL: Pat Schroeder was 82. Transcript provided by NPR, Copyright NPR.
