Covering COVID-19 is a daily Poynter briefing of story ideas about the coronavirus and other timely topics for journalists, written by senior faculty Al Tompkins. Sign up here to have it delivered to your inbox every weekday morning.
The Centers for Disease Control and Prevention notes three levels of COVID-19 risk. Most of the world is now at “high risk.”
The newest map added Mexico to the high-risk category, making a North American trifecta. (There is a fourth level, but it is reserved for special circumstances of danger.)
(CDC)
(CDC)
To qualify as “high risk,” a country must record 100 cases per 100,000 residents in the past 28 days. The CDC monitors 235 locations around the globe and, today, 135 of them are high risk.
Honduras, which was at Level 3, moved down to a Level 2 alert. Cuba is at Level 1. To be in “Level 1: Covid-19 Low,” the CDC says a destination must have had 49 or fewer new cases per 100,000 residents over the past 28 days. The other country that moved to Level 1 this week is Iraq.
When the Federal Reserve’s Federal Open Market Committee meets today it will raise interest rates by a half of a percent to three-quarters of a percent. (The Fed will announce its decision at 2 p.m. Eastern time.) The Fed has not increased interest rates by .75% since 1994.
Keep in mind that the Fed is the government’s central bank and, by managing the nation’s money supply, it influences the economy. Its decisions affect inflation, unemployment, manufacturing and other business productivity.
Whatever the choice, the goal is to tamp down inflation in a way that might seem counterintuitive. Fed rate increases eventually make borrowing more expensive, from credit card interest to home mortgages. Because of that, people tend to spend less. That forces producers to cut prices to empty inventory. Airlines have to cut prices to fill seats, hotels have to cut prices to fill empty rooms and shoe stores have to cut prices to get rid of storerooms of shoes. So, they put stuff on sale. Companies need fewer employees and don’t have to pay as much for the ones they hire.
Your credit card interest rates usually will rise one or two billing cycles after a Fed rate increase. Look for a rate increase in July and/or August. This won’t be the last increase in the Fed rate. In fact, there may be a couple or even a few more before the end of the year. It is more important than ever to pay down credit card balances. Customers with good credit can always try to negotiate a lower rate or transfer balances to a lower rate card. Lending Tree says the average interest rate on a new credit card right now is close to 20%, so that is a really expensive loan.
Higher mortgage rates would chill a hot housing market and the inventory of homes for sale would grow. That means buyers would not be under such frantic pressure to pay unrealistic prices. If you know you are about to be a homebuyer, it could be worthwhile to ask your lender to lock in a rate now, even if you are not going to close the deal for a couple of months. In some cases, property values are already falling.
The net effect (in theory) is that prices fall and inflation cools down. It takes several months of discomfort to work out, but it is the general theory.
Of course, all of this deceleration could cause a recession, where gross domestic product falls. In a recession, the Fed usually lowers interest rates to encourage spending.
One of the reasons this is all tricky right now is because one of the key fuels of inflation is, well, fuel. Gasoline and diesel prices are high because global oil prices are high, thanks largely to the Russian invasion of Ukraine. Fed rate hikes may not drive down gasoline use and, without an increase in global oil production, we could end up with a slowing economy with rising oil and gas prices. That would be ugly.
The Fed was created in 1913 to try to tame a wild economy in which there were thousands of currencies in the U.S., often printed by companies themselves for use at company stores. Banks were failing and people didn’t trust the monetary system. The Fed began overseeing banks to be sure they could back up people’s deposits. The Fed usually likes to act long term, not by reacting to news events as it is doing right now.
(Federal Reserve)
The stock market gets jittery around Fed decisions because a higher interest rate predicts a slower economy and slower sales for all of the companies that you invest in for your 401k plans. Remember that daily market moves are caused by people who have short-term goals while your retirement savings are keyed to long-term plans.
When the Fed meets, you often hear terms like Fed Discount Rate and Federal Funds Rate. These terms refer to the interest rate that banks pay the Fed for, essentially, overnight borrowing. Banks are required to keep a certain amount of cash on reserve to back up deposits and if they need some dough to hit that mark overnight, they can borrow from the Fed fund. That interest rate is the “discount rate,” and when the cost of even those short-term loans goes up, the banks pass along the higher costs in the ways banks make money, including loans.
(Federal Reserve)
The Federal Reserve Board Open Market Committee is made up of 19 people, including 7 board members and the heads of 12 regional reserve banks. All are appointed by the president of the U.S. and must be confirmed by the Senate. The seven governors serve 14-year terms and, because their terms are staggered, no president can stack the board. The presidentially appointed Fed chairman serves a four-year term. Each of the regional Federal Reserve banks also has a board.
(Federal Reserve)
One of the most interesting publications that the regional banks contribute to is the monthly Beige Book, which explores economic conditions in each region of the country.
The Star reports that CATSA, the Canadian version of the TSA, is offering security workers a $200 a week bonus if they do not take time off, including sick time. Unions representing the workers say it is an attempt to prevent long waits at airports during the travel season.
The problem with these incentives is that they could encourage people who have COVID-19 symptoms to come to work. The Star story points out:
University of Toronto epidemiologist Colin Furness said the cash incentive could actually have the opposite effect intended.
“If they’ve got … an incentive budget, they could be spending it in far smarter ways,” said Furness. “If you want to minimize absences due to illness, what you need to do is minimize illness, not maximize opportunities for spreading.”
Georgia Health News covered a story that is likely playing out in your county jail now. The story reports:
People in jail with serious mental illness — and who cannot stand trial because of their condition — are waiting months, or even more than a year, to start receiving the care needed to “restore” their competency to stand trial. The legal standard is that an individual charged with a crime must be able to participate in their defense.
In Georgia, 368 people who have been deemed incompetent sit in local jails waiting to get treatment to stand trial, according to the state. More than 900 are waiting for just the first step in the process, a “forensic evaluation.”
The story explores similar situations in North Carolina, Indiana and Alabama.
Seattle-based real estate broker Redfin says it is cutting 8% of its staff. CEO Glenn Kelman wrote in his weekly blog, “With May demand 17% below expectations, we don’t have enough work for our agents and support staff, and fewer sales leaves us with less money for headquarters projects.” He added, “We could be facing years, not months, of fewer home sales, and Redfin still plans to thrive. If falling from $97 per share to $8 doesn’t put a company through heck, I don’t know what does.”
From New York to Los Angeles to Austin, real estate agents say that the super-luxury housing market is beginning to cool. Prices are steady despite the end of the feeding frenzy that has become the norm for homes over a million dollars. The Wall Street Journal gives us some data:
The number of luxury homes—defined as the top 5% of the market—that sold during a three-month period from Feb. 1 to April 30, 2022, dropped 18% compared with the number of sales during the same period in 2021, according to a new report from the real-estate brokerage Redfin. That is the biggest decline since the pandemic started, when the number of luxury sales plunged 23.6% during the three-month period between April 1 and June 30, 2020, compared with the same period in 2019. Prices are still holding, but they are unlikely to keep reaching new heights as buyers retreat, according to Sheharyar Bokhari, a Redfin senior economist. Further, he said, deal volume is finding a new equilibrium after the number of sales surged 79.6% during a three-month period between March 1 and May 31, 2021, compared with the same period a year earlier.
With sales slowing, inventory is growing, and that will almost certainly drive down prices.
We’ll be back tomorrow with a new edition of Covering COVID-19. Are you subscribed? Sign up here to get it delivered right to your inbox.
