Archives for July 2022

In October, the Treasury Department warned that cryptocurrencies “potentially reduce the efficacy of American sanctions.” It released a 30-page compliance manual that recommended cryptocurrency companies use geolocation tools to weed out customers in restricted regions.

“The fact that crypto can move without a bank or intermediary means that exchanges are responsible for certain types of financial regulatory compliance,” said Hailey Lennon, a lawyer at Anderson Kill who handles regulatory issues in crypto.

Kraken and the issue of sanctions surfaced in a November 2019 lawsuit by a former employee from the finance department, Nathan Peter Runyon, who accused the start-up of generating revenue from accounts in countries that were under sanctions. He said he had taken the matter to Kraken’s chief financial officer and top compliance official in early 2019, according to legal filings. (The suit was settled last year.)

That same year, O.F.A.C. began investigating Kraken, focusing on the company’s accounts in Iran, the people familiar with the investigation said. Kraken’s customers have also opened accounts in Syria and Cuba, two other countries under U.S. sanctions, the people said.

In 2020, O.F.A.C. fined BitGo, a digital wallet service with an office in Palo Alto, Calif., more than $98,000 in 2020 for 183 apparent sanctions violations. Last year, it fined BitPay, an Atlanta-based crypto payment processor, more than $500,000 for 2,102 apparent violations. Coinbase also disclosed in a 2021 financial filing that it had sent notices to O.F.A.C. flagging transactions that may have violated sanctions, though the agency hasn’t taken any enforcement action.

Mr. Powell co-founded Kraken in 2011 and was an early proponent of Bitcoin, a digital currency that was marketed as being free of any government’s influence or regulation.

Article source: https://www.nytimes.com/2022/07/26/technology/kraken-crypto-iran.html

Operations that arose from the pandemic had advantages: no business practices to upend, or legacy costs like office leases to carry. Many businesses were built around remote operating environments and sanitary precautions. But they weren’t any more ready than existing businesses for soaring inflation and rising interest rates. And, unlike established enterprises, they didn’t have access to most relief programs offered by the federal government.

Irina Sirotkina sold her stake in a construction company early in the pandemic, when contracts for new hotels and office buildings dried up. She used that money to open a bakery in October in Battle Ground, Wash. Although orders for her cakes and pies have been pouring in, customers have resisted even the smallest price increases. The costs of her main ingredients — eggs, butter, milk and flour — have climbed 13 to 49 percent since she first fired up the ovens. So far, profits have been elusive, would-be customers are cutting down on car trips into town and there’s no new Paycheck Protection Program in sight.

“We’ve used all our resources to make it, because we didn’t qualify the first, second or third round” of that program, Ms. Sirotkina said. “But how far are we going to have to make it before we get help?”

New businesses and those run by people of color have particular difficulty obtaining bank loans, so they’re often driven to online lenders that charge steep interest rates for short-term financing. Last year, hoping to ease access to credit, Congress allocated $10 billion to be funneled through lenders with the express purpose of reaching underserved entrepreneurs; the money is still trickling out.

Nevertheless, signs of weakness are appearing. Gusto, a payroll and benefits provider that serves 200,000 small businesses, has seen an uptick in layoffs among its users. That’s significant, said the company’s economist, Luke Pardue, because smaller employers are typically loath to let people go.

“For a small business, 10 percent of its work force might be its H.R. department,” Dr. Pardue said. “Every employee really does have some specialized importance that might not be present in a larger company, so every swing you might see is more meaningful.”

Article source: https://www.nytimes.com/2022/07/26/business/economy/small-business-recession.html

Consumer spending, for example, grew at a solid 1.8 percent annual rate in the first quarter, adjusted for inflation, and most forecasters believe it grew in the second quarter, too, albeit more slowly. Job growth has remained robust. Other measures, such as industrial production and inflation-adjusted income, have stalled in recent months, but haven’t fallen significantly.

Those indicators are backward-looking, however. To assess conditions in real time, forecasters typically look at other measures that have historically been better at showing the economy’s direction. The pandemic has made that more difficult, however, by scrambling typical patterns in spending and investment.

“It’s harder than usual to read the economy because we’re still in such an odd period,” said Karen Dynan, a Harvard economist and former Treasury Department official under President Barack Obama. “We’re seeing this post-Covid reorganization of the economy in addition to the loss of momentum, so the signals aren’t clean.”

Ms. Dynan said auto sales, for example, were usually a reliable signal of a slowing economy, because cars were a major purchase that consumers could put off if they were worried about losing their jobs. But supply-chain disruptions have depressed auto sales during the pandemic, making the data hard to interpret. If sales pick up in coming months, for example, does that suggest rising consumer confidence — or simply better availability of cars?

Still, forecasters say there are some numbers they will be watching closely — most important, the job market. Recessions, almost by definition, result in lost jobs and increased unemployment. And increases in unemployment, even fairly small ones, nearly always signal a recession.

The number of unfilled job openings has fallen a bit from record highs at the end of last year, according to data from the career site Indeed. Filings for unemployment insurance, an indicator of layoffs, have risen a bit in recent weeks. If those trends continue, a recession will seem more likely, said Aneta Markowska, chief financial economist for Jefferies, an investment bank.

Article source: https://www.nytimes.com/2022/07/26/business/economy/recession-economy.html

Consumer spending, for example, grew at a solid 1.8 percent annual rate in the first quarter, adjusted for inflation, and most forecasters believe it grew in the second quarter, too, albeit more slowly. Job growth has remained robust. Other measures, such as industrial production and inflation-adjusted income, have stalled in recent months, but haven’t fallen significantly.

Those indicators are backward-looking, however. To assess conditions in real time, forecasters typically look at other measures that have historically been better at showing the economy’s direction. The pandemic has made that more difficult, however, by scrambling typical patterns in spending and investment.

“It’s harder than usual to read the economy because we’re still in such an odd period,” said Karen Dynan, a Harvard economist and former Treasury Department official under President Barack Obama. “We’re seeing this post-Covid reorganization of the economy in addition to the loss of momentum, so the signals aren’t clean.”

Ms. Dynan said auto sales, for example, were usually a reliable signal of a slowing economy, because cars were a major purchase that consumers could put off if they were worried about losing their jobs. But supply-chain disruptions have depressed auto sales during the pandemic, making the data hard to interpret. If sales pick up in coming months, for example, does that suggest rising consumer confidence — or simply better availability of cars?

Still, forecasters say there are some numbers they will be watching closely — most important, the job market. Recessions, almost by definition, result in lost jobs and increased unemployment. And increases in unemployment, even fairly small ones, nearly always signal a recession.

The number of unfilled job openings has fallen a bit from record highs at the end of last year, according to data from the career site Indeed. Filings for unemployment insurance, an indicator of layoffs, have risen a bit in recent weeks. If those trends continue, a recession will seem more likely, said Aneta Markowska, chief financial economist for Jefferies, an investment bank.

Article source: https://www.nytimes.com/2022/07/26/business/economy/recession-economy.html

American employers added 372,000 jobs in June, and wages continue to climb strongly. Consumer spending has eased somewhat, but less than expected. While the housing market is slowing, rents continue to pick up in many markets.

Plus, the outlook for inflation is dicey. While gas prices may be slowing for now, risks of a resurgence lie ahead, because, for example, the administration’s efforts to impose a global price cap on Russian oil exports could fall through. Rising rents mean that housing costs could help to keep inflation elevated.

While Mr. Powell made clear at his June news conference that three-quarter-point rate increases were out of the ordinary and that he did “not expect” them to be common, Fed officials have also been clear that they would like to see a string of slowing inflation readings before feeling more confident that price increases are coming under control.

“We at the Fed have to be very deliberate and intentional about continuing on this path of raising our interest rate until we get and see convincing evidence that inflation has turned a corner,” Loretta Mester, the president of the Federal Reserve Bank of Cleveland, said in a Bloomberg interview this month.

The central bank will get a fresh reading on the Personal Consumption Expenditures index — its preferred inflation gauge — on Friday. That data will be for June, and it is expected to show continued rapid inflation both on a headline basis and after volatile food and fuel prices are stripped out. The Employment Cost Index, a wage and benefits measure that the Fed watches closely, will also be released that day and is expected to show compensation climbing quickly.

Given the recent decline in prices at the gas pump, at least two months of slower inflation readings by September are possible — but not guaranteed.

“They cannot prematurely hint that they think victory over inflation is coming,” Mr. Shepherdson of Pantheon wrote.

Article source: https://www.nytimes.com/2022/07/25/business/economy/fed-interest-rate-increase.html