Axios Macro

A white telescope

August 16, 2022

Welcome back. America's manufacturers had a better-than-expected month: Factory output rebounded 0.7% in July after declining 0.4% in June, according to Federal Reserve data — boosted by auto production.

  • 🏦 In today's issue, we'll talk about news out of the Fed that surely caught the attention of the crypto community (and maybe others).
  • 🏠 Plus, a look at one interesting housing nugget from this morning.

This newsletter, edited by Javier E. David, is 648 words, a 2½-minute read.

1 big thing: The Fed's new account rules

The Marriner S. Eccles Federal Reserve Board Building. Photo: Kent Nishimura/Los Angeles Times via Getty Images

There's a huge question swirling around the Fed that isn't about inflation or the labor market. Rather, it concerns how — and which — institutions can notch a coveted account with the central bank.

  • The Fed just finalized its attempt to clarify how regional banks should evaluate access to these accounts, a process some critics have chided as inconsistent and nontransparent.

Why it matters: New firms, including in the crypto sector, are pushing for these accounts long reserved for traditional banks. There's a debate over whether granting more access will prove perilous to the financial system.

  • This "master account" is a hot thing to have. Having one allows firms to store funds with the Fed, the safest place in the world.
  • It also unlocks direct access to FedWire, payment rails that let banks transfer money to each other. Without access, fintechs have to go through banks that do have access, which can be costly.

What's new: The Fed yesterday announced final guidelines for how its 12 regional branches should decide which firms get this access.

  • They are similar to a version first floated last year. Before that, the Fed didn't publish guidelines at all.

The crux: There will be a three-tiered review system that reserves the toughest scrutiny for firms that aren't overseen by federal bank regulators.

  • Missing are specific guideposts about what the Fed ultimately deems too risky.

What they're saying: "The guidelines very much triples down on the idea that the Fed has broad discretion to deny master accounts to anyone that they view as too risky," Julie Hill, a law professor at the University of Alabama, tells Axios.

  • Hill says the guidelines don't make it clear when a firm "crosses the line from sort of risky to so risky you can't have a master account."

The intrigue: Which of these firms get master accounts, and why they do, is notoriously opaque. But gripes over the process are spilling into public view.

  • Custodia sued the Fed in June, alleging an unlawful delay on the Wyoming-based crypto bank's application. (Of note: Fed governor Michelle Bowman warned the final guidelines are not a sign that "reviews will now be completed on an accelerated timeline.")
  • Meanwhile, some GOP senators have not forgotten about a controversy that played a role in sinking a Fed nominee. Republicans claimed Sarah Bloom Raskin — who had previously served in senior roles at the Fed — used her position to help an unconventional financial firm where she served as a board member secure a master account (which Republicans say has since been revoked).

The bottom line: Don't expect the Fed to say anything more about which institutions have master accounts and which don't.

  • This, according to Fed guidelines, is "considered confidential business information," and it wouldn't be appropriate for them — or regional banks — to disclose account status.

2. Multi-family homebuilding thrives

Data: Census Bureau; Chart: Axios Visuals
Data: Census Bureau; Chart: Axios Visuals

A key indicator of future housing activity is the number of applications approved for new construction, known as building permits. New data this morning points to a continued drop-off in single-family home construction, but it's a different story for bigger housing projects.

  • "Multi family continues to be the area of strength in response to high rental rates and even more demand as less people can afford to buy a home," Bleakley Advisory Group's Peter Boockvar wrote in a note.

By the numbers: Overall, building permits last month fell to the lowest level in 10 months, thanks to a decline in single-family construction applications, which fell 4.3% to an annualized rate of 928,000 units.

  • Permits for multi-family homes — with five or more units — actually rose 2.5% to an annualized rate of 693,000 units.

Details: Homebuilders last month broke ground on homes at the slowest pace in over a year, the latest part of a story that's become very clear: A once-booming housing market is cooling down as the Fed hikes rates to tame inflation.