Author: Reuters

By Jonathan Stempel

(Reuters) – Wells Fargo, which has spent years trying to extricate itself from its fake accounts scandal, was sued on Thursday for allegedly not doing enough to help customers who were harmed.

The lawsuit was filed in federal court in San Francisco, after Wells Fargo began notifying customers to contact the fourth-largest U.S. bank if they had been enrolled in unwanted products.

Amanda Gonzales, a New Mexico schoolteacher leading the proposed class action, said Wells Fargo hopes many customers will throw out its opaque-sounding letters.

She also said several phone representatives and her local branch gave her the runaround when she tried to learn her rights after being enrolled in an insurance product covering accidental deaths.

“Wells Fargo relies on the inconspicuous and suspicious nature of the letter to depress claims rates, shifting the burden on the customer to take action to dispute an ‘enrollment’ that Wells Fargo knows to have been,” the complaint said.

By shifting that burden, Wells Fargo tries “to avoid, reduce, and delay its ultimate liability and sweep under the rug its long-standing, intentional misconduct,” it added.

Wells Fargo had no immediate comment.

The complaint accuses Wells Fargo of violating the federal Fair Credit Reporting Act, and California and New Mexico consumer protection laws.

It seeks at least $5 million for customers who received letters from Wells Fargo about the unwanted products.

Wells Fargo’s fake accounts scandal surfaced in September 2016, revealing that employees at the San Francisco-based bank had opened millions of fraudulent accounts, often to meet sales goals.

The scandal has led to billions of dollars of fines, the toppling of two chief executives, a guilty plea by a former retail banking chief to an obstruction charge, and a Federal Reserve cap on assets that remains in place.

Marc Dann, a lawyer for Gonzales, said Wells Fargo had offered his client $200 to resolve her claim.

“It’s a high priority to get out from these enforcement orders,” Dann said in an interview. “In typical Wells Fargo fashion, they’re doing the minimum.”

The case is Gonzales v Wells Fargo & Co et al, U.S. District Court, Northern District of California, No. 24-01223.

(Reporting by Jonathan Stempel in New York; editing by Jonathan Oatis)

By Marisa Taylor

WASHINGTON (Reuters) – U.S. Food and Drug Administration inspectors found problems with record keeping and quality controls for animal experiments at Elon Musk’s Neuralink, less than a month after the startup said it was cleared to test its brain implants in humans, according to an agency report reviewed by Reuters.

The inspectors identified quality control lapses at the company’s California animal research facility. A similar inspection at Neuralink’s Texas facility did not find problems, according to agency records.

Those visits took place last year from June 12-22, and represent the FDA’s sole inspections of Neuralink facilities on record. The inspector reports were shared with Reuters by Redica Systems, a data analytics company that obtains FDA compliance reports through open records requests.

“These issues show a lack of attention to detail,” said Jerry L. Chapman, a senior quality expert with Redica Systems.

The laboratory problems identified by FDA inspectors included missing calibration records for instruments such as a pH meter used in one of the studies. For another study, seven instruments including a “vital signs monitor” had no record of having been calibrated. Neuralink conducted experiments on hundreds of animals, including monkeys.

Other issues included quality assurance officials not signing off on the final study report or documenting any deviations from approved protocols or standard operating procedures.

“This certainly is a signal that the company needs to be vigilant about certain practices,” said Chapman, adding that the company would be required to follow similar practices for its human trials.

The brain implant is being tested to help patients paralyzed by spinal cord injury or amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s disease, communicate using thoughts to move a computer device.

Reuters reported in December 2022 that U.S. Department of Agriculture (USDA) investigators were probing potential animal-welfare violations at Neuralink following internal staff complaints that its animal testing was being rushed, causing needless suffering and deaths. An animal welfare advocacy group, Physicians Committee for Responsible Medicine, submitted a formal complaint to both USDA and FDA over the alleged breaches.

In July, the USDA said it did not find any violations of its animal research rules beyond a 2019 incident that Neuralink had already reported.

‘VIOLATIONS OF FUNDAMENTAL REQUIREMENTS’

The FDA has its own requirements for animal research, known as Good Laboratory Practice, to demonstrate that any scientific data being collected in the development of a drug or medical device is reliable, three regulatory experts told Reuters.

Neuralink cited its animal research data in its FDA request to test the implants in humans. Musk, the company’s billionaire founder, announced in May that his device was cleared for human trials, and said last month the first patient had received an implant and was recovering well.

Neuralink did not respond to questions about the FDA visit.

The FDA has not issued its designation indicating the severity of problems found in the inspection, according to the agency’s database. While the problems identified are serious, they do not appear to be significant enough to justify the FDA’s worst inspection designation, which would prompt action, the experts said.

Carly Pflaum, an FDA spokesperson, said Neuralink “provided sufficient information to support the approval” of its human trial application. The agency routinely conducts such inspections, Pflaum said, after human trial approval and before commercial approval to “assure data integrity and reliability” and compliance with other FDA regulations.

“The FDA will continue to monitor the safety of those enrolled in the study for Neuralink’s implant device through required, regular reports,” Pflaum said.

Ryan Merkley, director of research advocacy at the animal welfare group PCRM, said the FDA should have inspected Neuralink before human trial approval given concerns raised by his organization months earlier.

Victor Krauthamer, a former long-time FDA official, said the agency had jurisdiction to conduct the inspection before permitting the company to go ahead with its clinical trial, and has done so in other cases.

“It would have made sense for the FDA to have conducted the inspection before human trial approval,” said Krauthamer, who once reviewed human-trial requests for brain implants at the agency. “These are violations of fundamental requirements that you don’t want to worry about happening again in the human trial.”

(Reporting by Marisa Taylor; Editing by Michele Gershberg and Bill Berkrot)

By David Shepardson and Valerie Insinna

WASHINGTON (Reuters) – Boeing must develop a comprehensive plan to address “systemic quality-control issues” within 90 days, the head of the U.S. Federal Aviation Administration said Wednesday, after a mid-air emergency last month sparked renewed safety concerns.

The head of the FAA demanded the plan in a statement critical of the planemaker following an all-day meeting with CEO Dave Calhoun on Tuesday.

“Boeing must commit to real and profound improvements,” FAA Administrator Mike Whitaker said. “Making foundational change will require a sustained effort from Boeing’s leadership, and we are going to hold them accountable every step of the way, with mutually understood milestones and expectations.” 

Calhoun said in a statement Boeing’s leadership team was “totally committed” to addressing FAA concerns and developing the plan.

“We have a clear picture of what needs to be done,” Calhoun said. “Boeing will develop the comprehensive action plan with measurable criteria that demonstrates the profound change that Administrator Whitaker and the FAA demand.”

Boeing has scrambled to explain and strengthen safety procedures after a door panel detached during a Jan. 5 flight on a brand new Alaska Airlines 737 MAX 9, forcing pilots to make an emergency landing while passengers were exposed to a gaping hole 16,000 feet above the ground.

Bloomberg News reported on Wednesday the Justice Department is scrutinizing the Alaska Airlines MAX 9 blowout to determine if it falls under a 2021 deferred-prosecution agreement over two fatal 737 MAX 8 crashes in 2018 and 2019 that killed 346 people.

If prosecutors determine the MAX 9 blowout is a breach of that agreement, Boeing could face criminal liability, the report said, citing an unidentified source.

Boeing said last month the DOJ was currently considering whether the company fulfilled its obligations under the agreement. The Justice Department declined to comment on Wednesday.

Boeing shares fell 1% in after-hours trading.

PRODUCTION CAP

Boeing’s production rate has been capped by the FAA and its operations closely scrutinized by lawmakers and customers following the Jan. 5 incident. The new FAA statement raises fresh questions about how long the production rate freeze will last.

Whitaker said Boeing’s plan must incorporate forthcoming results of the FAA production-line audit and findings from an expert review panel report released on Monday.

That report, which had been commissioned in early 2023, was highly critical of the company’s safety management processes, saying Boeing suffered from “inadequate and confusing implementation of the components of a positive safety culture.”

Boeing last week abruptly removed Ed Clark, the head of its troubled 737 MAX program, as part of a management shakeup.

The FAA said on Wednesday that Boeing must take steps to improve its Safety Management System (SMS) program, which it committed to in 2019 and combine it with a Quality Management System to “create a measurable, systemic shift in manufacturing quality control.”

Whitaker visited Boeing’s Renton, Washington, factory, where the 737 MAX line is produced, on Feb. 12. He expressed concerns about some things he saw on the tour, two people briefed on the matter told Reuters.

The FAA meetings with Calhoun lasted more than seven hours, sources said, and much of it focused on a series of quality issues at the planemaker.

The participants included Boeing Commercial Airplanes CEO Stan Deal, the planemaker’s new head of quality Elizabeth Lund and Mike Fleming, Boeing senior vice president and general manager, airplane programs.

“Boeing must take a fresh look at every aspect of their quality-control process and ensure that safety is the company’s guiding principle,” Whitaker said. 

The Alaska Airlines mishap is Boeing’s second major crisis in recent years, after the crashes in 2018 and 2019 prompted a grounding of the 737 MAX for 20 months that damaged Boeing’s reputation.

The door panel that flew off the MAX 9 appeared to be missing four key bolts, according to a preliminary report this month from the U.S. National Safety Transportation Board. The panel is a plug in place on some MAX 9s instead of an additional emergency exit.

The FAA panel report referenced the recent issues, saying it amplified concerns that “safety-related messages or behaviors are not being implemented across the entire Boeing population.”

Airline industry executives have expressed frustration with Boeing’s quality control. France’s Airbus, the only other major manufacturer of commercial jets, in January reported record annual jet orders and confirmed an 11% rise in 2023 deliveries, maintaining the top manufacturing spot against Boeing for a fifth year.

The door plug blowout led to a weeks-long grounding of the MAX 9 in January and angered Boeing’s airline customers. Some, including Alaska Airlines, announced they would conduct enhanced quality oversight of planes before they leave the Boeing factory.

(Reporting by David Shepardson and Valerie Insinna; Editing by Nick Zieminski, Aurora Ellis and Jamie Freed)

By Stephen Nellis

(Reuters) -Apple plans to disclose more about its plans to put generative artificial intelligence to use later this year, Chief Executive Officer Tim Cook said during the company’s annual shareholder meeting on Wednesday.

Cook said that the iPhone maker sees “incredible breakthrough potential for generative AI, which is why we’re currently investing significantly in this area. We believe that will unlock transformative opportunities for users when it comes to productivity, problem solving and more.”

Apple has been slower in rolling out generative AI, which can generate human-like responses to written prompts, than rivals such as Microsoft and Alphabet’s Google, which are weaving them into products.

On Wednesday, Cook argued that AI is already at work behind the scenes in Apple’s products but said there would be more news on explicit AI features later this year. Bloomberg previously reported Apple plans to use AI to improve the ability to search through data stored on Apple devices.

“Every Mac that is powered by Apple silicon is an extraordinarily capable AI machine. In fact, there’s no better computer for AI on the market today,” Cook said.

Apple shareholders on Wednesday rejected a measure asking the company to disclose more information about how it uses artificial intelligence in its business and its ethical guidelines for the technology.

The proposal, which did not pass but won 37.5% of votes cast, was put forth by the pension trust of the AFL-CIO, the largest American labor union federation, which has also proposed AI measures at other technology companies.

Compared to other leading technology companies, Apple has been behind the curve on disclosing ethical guidelines regarding the use of artificial intelligence,” Brandon Rees, deputy director for corporations and capital markets with the AFL-CIO, said in statement. “We hope that Apple will enhance its disclosure practices on this important issue to investors and other stakeholders.”

A similar proposal will be heard at Walt Disney’s annual meeting in April.

At Apple, the AFL-CIO asked for a report on the company’s use of AI “in its business operations and disclose any ethical guidelines that the company has adopted regarding the company’s use of AI technology.”

In its supporting statement in Apple’s proxy materials, the AFL-CIO wrote that “AI systems should not be trained on copyrighted works, or the voices, likenesses and performances of professional performers, without transparency, consent and compensation to creators and rights holders.”

Apple opposed the measure, saying that disclosures could tip its hand on strategy as it competes against rivals in the fast-moving AI field.

(Reporting by Stephen Nellis in San Francisco; Editing by Jonathan Oatis and Lisa Shumaker)

(Reuters) -Coinbase Global said on Wednesday that all services on its website have been restored after an issue earlier in the day caused some users to see zero balance across their accounts.

“Very few customers may still see an inaccurate balance on their account. Our team is working on resolving this display issue for these users,” the crypto exchange added in a post on social media platform X.

Earlier in the day, Coinbase assured customers that it was seeing an improvement in trading and their funds were safe.

The outage comes after bitcoin hit $60,000 on Wednesday for the first time in more than two years, as a flurry of capital into new U.S. spot bitcoin exchange-traded products fuelled a price rally in February.

Traders have poured into bitcoin ahead of April’s halving event – a process designed to slow the release of the cryptocurrency.

Coinbase CEO Brian Armstrong said in a separate post on X that the crypto exchange was dealing with a large surge in traffic.

At their peak on Wednesday afternoon, user reports of issues had crossed more than 9,000, according to Downdetector. As of 1213 GMT on Thursday, the reports of issues dropped to nearly 28.

(Reporting by Manya Saini and Arasu Kannagi Basil in Bengaluru; Additional reporting by Akanksha Khushi; Editing by Maju Samuel and Sherry Jacob-Phillips)

By Dan Levine and Kristina Cooke

(Reuters) -The chairwoman of the Federal Communications Commission on Wednesday proposed a potential new rule that would subject automakers that sell internet-connected cars to a telecommunications law intended to protect domestic violence survivors.

Cases of technology-enabled stalking involving cars are emerging as automakers add ever more sophisticated features, such as location tracking and remote control of functions like locking doors or honking the horn.

FCC Chairwoman Jessica Rosenworcel last month wrote to nine large automakers and three telecom providers seeking more information about their policies involving internet-connected car technology and domestic abuse. The federal Safe Connections Act gives the FCC authority to help domestic abuse survivors securely access communications, the letter said.

The FCC has required telecom providers under the law to separate phone lines linked to family plans where the abuser is on the account.

In an interview with Reuters this week, Rosenworcel said issues involving connected cars and domestic abuse “seemed extraordinarily similar” to the work the FCC had already done implementing the Safe Connections Act. Rosenworcel will circulate a “notice of proposed rulemaking” to other FCC commissioners, which will say some types of connectivity arrangements in cars are also covered by the law.

If the full FCC adopts it, a formal public comment period would commence. That could ultimately lead to new rules for the sector.

“It’s really important to remember that we want to make sure survivors of domestic violence are safe, and that their connections are secure,” Rosenworcel said.

The notice will seek comment on what proactive steps car service providers can take to protect survivors from being stalked, harassed or intimidated through their cars, Rosenworcel said. “We are open to creative ideas,” she said.

The Alliance for Automotive Innovation, a car industry group, referred on Wednesday to a previous letter it wrote to Rosenworcel, which said in-vehicle connected services “fall outside the purview” of the Safe Connections Act. “Because the connectivity functionality is associated with the vehicle, rather than a particular person, it cannot be separated among users of the vehicle,” the letter said.

Separately, California state Senator Dave Min on Wednesday announced a bill that would require carmakers to disable an abuser’s access to remove vehicle technology within two business days of a survivor’s request. The carmaker would have to act if the survivor presents a restraining order, or a court ruling awarding sole possession of the vehicle.

Reuters in December reported on a woman who unsuccessfully sued Tesla, alleging the company negligently failed to help her after she repeatedly complained that her husband was stalking and harassing her with the automaker’s technology after she had obtained a restraining order. She would return to the Model X to find the doors open, the suspension settings changed, and the vehicle’s ability to charge turned off. Tesla argued she had no proof that her husband used the car’s technology to stalk her.

When the woman and her husband bought the car, he configured the settings to make himself the administrator on the account and listed her as an additional driver, her lawsuit said. That meant she could not remove his access without his password. When she complained, Tesla told the woman it could not remove him because his name remained on the vehicle’s title as a co-owner, along with hers, according to records she filed in her lawsuit.

Rosenworcel asked auto companies last month if they had processes in place to act on requests from domestic violence survivors to remove access to connected apps from individuals on the title. “Some automakers replied in more detail than others,” she said.

Tesla did not specifically address the issue of domestic abuse in its response, saying customers can grant temporary or permanent access to other drivers and restrict visibility to those people if they wish. The automaker also did not address the question of removing access from people who are on the title.

“Customer data privacy is important to Tesla and embedded in each product, service, and feature by design,” the company wrote.

Meanwhile, Toyota said if a domestic abuse survivor on the title requests that connected services be disabled for another person, the company may ask for verification from law enforcement that the customer was a victim.

“Through these steps, Toyota works to respond promptly to requests from domestic abuse survivors while also focusing on appropriate authentication in order to screen out fraudulent or abusive requests that could further harm the abuse survivor,” the company said in its response.

The chairwoman expects the FCC will likely take up the issue in the next month.

(Reporting by Dan Levine and Kristina Cooke in San FranciscoEditing by Peter Henderson and Matthew Lewis)

(Reuters) -Coinbase Global said on Wednesday it was beginning to see improvement in customer trading after an issue caused some users to see zero balance across their accounts and may have led to errors in buying or selling.

“We’re beginning to see improvement in customer trading. Due to increased traffic, some customers may still see errors in login, sends, receives and with some payment methods,” the crypto exchange added in a post on social media platform X, adding that all customer funds were safe.

The outage comes after bitcoin hit $60,000 on Wednesday for the first time in more than two years, as a flurry of capital into new U.S. spot bitcoin exchange-traded products fuelled a price rally in February.

Traders have poured into bitcoin ahead of April’s halving event – a process designed to slow the release of the cryptocurrency.

Coinbase CEO Brian Armstrong said in a separate post on X that the crypto exchange was dealing with a large surge in traffic.

At their peak earlier in the afternoon, user reports of issues had crossed over 9,000, according to Downdetector. As of 2:33 p.m. ET they were close to 140.

(Reporting by Manya Saini and Arasu Kannagi Basil in Bengaluru; Editing by Maju Samuel)

By David Shepardson

WASHINGTON (Reuters) -Republican U.S. Senator Josh Hawley introduced legislation Wednesday to hike tariffs on Chinese vehicle imports as concerns mounted about the potential competitive impact on U.S. car companies.

Hawley said President Joe Biden should take steps to protect U.S. auto workers “from the existential threat posed by China.”

A bipartisan group of lawmakers in November urged U.S. Trade Representative Katherine Tai to boost tariffs on Chinese vehicles, saying she should plan “to address the coming wave of (Chinese) vehicles that will be exported from our other trading partners, such as Mexico, as (Chinese) automakers look to strategically establish operations outside of (China).”

Hawley’s bill would hike the base tariff rate to 100% from 2.5% currently. This would mean a total tariff of 125% on all imported Chinese autos from 27.5% currently. It also seeks to apply the 100% tariff hike to vehicles assembled in Mexico by Chinese-based automakers.

Auto industry officials told Reuters Biden is considering hiking tariffs on Chinese EVs. “China is determined to dominate the electric-vehicle market by using unfair trade practices, but I will not let them,” Biden told autoworkers in November.

Tai said last month the Biden administration is closely reviewing “China’s non-market policies and practices in its automotive industry” and reviewing current tariff levels.

On Friday, a U.S. manufacturing advocacy group urged Biden to block low-cost Chinese autos and parts from Mexico.

“The introduction of cheap Chinese autos – which are so inexpensive because they are backed with the power and funding of the Chinese government – to the American market could end up being an extinction-level event for the U.S. auto sector,” the Alliance for American Manufacturing said in a report.

While many Chinese automakers are state backed, they have worked to improve vehicles and are moving faster than other regions” in high-tech areas like dashboard displays and tests for autonomous driving, said S&P Global Mobility analyst Stephanie Brinley.

Republican Donald Trump, who is seeking a second term as president in November, has threatened to impose hefty new tariffs on Chinese vehicle imports after hiking tariffs by 25% when he was president.

The Chinese embassy in Washington said China’s automobile exports “reflect the high-quality development and strong innovation of China’s manufacturing industry.”

The issue has received new interest after reports China’s BYD plans to set up an EV factory in Mexico. BYD, known for cheaper models, recently overtook its biggest rival, Tesla, to become the world’s top EV maker by sales.

(Reporting by David Shepardson; editing by Miral Fahmy and David Gregorio)

By Sinéad Carew

NEW YORK (Reuters) -A global equities index fell slightly on Wednesday while Treasury yields edged down and the dollar rose against a basket of currencies on caution the day before U.S. inflation data that could influence Federal Reserve policy.

January’s U.S. personal consumption expenditures price index (PCE), the Fed’s preferred inflation measure, is due on Thursday. Economists polled by Reuters poll expect the index to have risen 0.3% on a monthly basis after a 0.2% increase in December.

Traders have already dialed back expectations for Fed interest rate cuts after a slew of strong data, including hot consumer price index (CPI) and producer price index (PPI) readings. They expect an easing cycle to kick off in June, compared with the start of 2024 when bets were on March.

“We’re on hold until we get the PCE print. The market’s going to chop around,” said Jack Janasiewicz, portfolio manager and lead porfolio strategist at Natixis Investment Managers Solutions. “Between CPI and PPI there’s a narrative that inflation is going to be stickier than expected or even potentially having a modest re-acceleration.”

He noted that U.S. stock indexes remained not far from records reached last week, partly thanks to a better-than-expected fourth-quarter earnings season including a boost from Nvidia on optimism about artificial intelligence.

“The market’s had every chance to sell off but it’s holding up pretty well,” he said. “It’s actually been looking past inflation to an extent because earnings has been better than expected.”

Other data this week that may shape expectations on Fed policy include a second estimate of gross domestic product, jobless claims and manufacturing activity.

MSCI’s gauge of stocks across the globe shed 0.42% while on Wall Street at 02:43 p.m. the Dow Jones Industrial Average fell 142.41 points, or 0.37%, to 38,829.53.

The S&P 500 dropped 15.39 points, or 0.30%, to 5,062.79 and the Nasdaq Composite was down 106.17 points, or 0.66%, at 15,929.12.

European stocks had dipped as lackluster corporate earnings weighed on sentiment with the pan-European STOXX 600 index closing down 0.35%.

The U.S. dollar rose as investors positioned for U.S. and European inflation data, while the Australian and New Zealand dollars tumbled after New Zealand’s central bank cut its forecast peak for interest rates and Australian consumer price inflation held at a two-year low.

The dollar index gained 0.13% at 103.97, with the euro down 0.11% at 1.0832.

Against the Japanese yen, the dollar strengthened 0.12% at 150.68.

U.S. Treasuries yields slid, with the benchmark U.S. 10-year notes yield down 3.7 basis points to 4.278% from 4.315% late on Tuesday. The 30-year bond yield fell 2.6 basis points to 4.4144% from 4.44%. The 2-year note yield, which typically moves in step with rate expectations, fell 6 basis points to 4.6519%, from 4.712% late on Tuesday.

In crypto currencies, bitcoin surged for a fifth day buoyed by flows into new U.S. spot bitcoin exchange traded products that have driven it up nearly 40% in February, which would mark its largest monthly rally since December 2020.

It was last up more than 7% at $60,939, after hitting its highest level since November 2021.

Gold prices ticked up as traders strapped in for economic data and comments from U.S. central bank officials.

Spot gold added 0.08% to $2,031.22 an ounce.

In commodities, U.S. crude oil settled down while Brent barely gained as traders worried the Fed would be slow to cut rates. Growing U.S. crude stockpiles added pressure.

U.S. crude settled down 0.42% at $78.54 per barrel while Brent finished at $83.68, up 0.04% on the day.

(Reporting by Tom Wilson in London and Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman, Jamie Freed, Tomasz Janowski, Nick Macfie, Aurora Ellis and David Gregorio)

By Howard Schneider

WASHINGTON (Reuters) – U.S. Federal Reserve officials say they are confident housing inflation will finally cool in coming months, a key and long-awaited component of their effort to control overall price increases and secure their turn to interest rate cuts.

The real challenge on that front, however, may be just over the horizon when a pipeline of new apartments starts to run dry while the stock of single-family homes remains short, a recipe for future price pressure in a category accounting for about a third of the Consumer Price Index.

Though their 2% inflation target uses an index that is less sensitive to shelter costs, Fed officials still see housing and rent dynamics as an important, unresolved part of their inflation battle, one that could highlight one of the inherent tensions in today’s tight-credit policy stance.

Fed officials acknowledge the difficulty of finding a rate setting that keeps overall demand in check without choking off the supply of new homes and apartments, but some argue that policymakers already have leaned against the economy too hard.

“You think you can snap your fingers and housing can be created…The reality is that is not the case,” said Jay Lybik, national director of multifamily analytics for real estate data firm CoStar. After a surge of building boosted apartment supply, CoStar’s data signals new unit volumes in sharp decline by early next year, falling to perhaps 50,000 or 60,000 per month versus the estimated 100,000 needed to keep pace with demand.

“We risk a real acceleration in terms of rents that will make things worse come 2025 and 2026,” Lybik said.

‘LONGER-RUN PROBLEMS’

Housing affordability concerns intensified during the pandemic, with median home prices jumping 50% from its onset through the end of 2022 – though they have since eased – and apartment construction tilted towards higher-end units. Members of Congress have called on the Fed to cut rates both to bring down mortgage costs for consumers and encourage construction; states are toying with rent-control measures and programs to boost supply.

The issues are far bigger than the Fed.

“We have longer-run problems with the availability of housing,” Fed Chair Jerome Powell said at a press conference following the central bank’s January meeting. “There hasn’t been enough housing built,” Powell said, but “these are not things that we have any tools to address.”

Housing markets vary widely across the country, shaped by local zoning rules, politics and land prices. Still, financing costs heavily influenced by the Fed are key to the investment decisions being made today that will determine future housing supply.

For the Fed’s immediate purposes, a coming “disinflation” in overall shelter costs seems almost certain as the record pandemic-era jump in rents and home prices fades into the past, but nonetheless essential to gaining the necessary confidence in declining inflation to begin rate cuts. After rapid rate hikes beginning in March 2022, the policy rate has been held at 5.25%-to-5.50% since July.

‘BUILT-IN’ INFLATIONARY PRESSURE

While inflation has fallen from 40-year highs, recent progress has been “bumpy” Fed officials acknowledge, with shelter inflation in particular remaining higher for longer than anticipated.

A surprise jump in CPI last month was largely driven by shelter costs still rising by 6% year-over-year versus 4% typically seen before the pandemic when overall inflation was near or below the Fed’s target.

Rent measures assembled in closer to real time aiming to capture current market prices instead of the slow-moving averages in official data indicate price increases have been slowing. For example, an index from online real estate firm Zillow closely watched by Fed officials was rising at a 3.4% annual rate as of January.

“We know it’s coming,” Arben Skivjani, deputy chief economist for property management and analytics firm RealPage, said of housing inflation’s decline in a recent National Association for Business Economics presentation. After rising nearly 16% annually in early 2022, asking rents have shown virtually no increase since last summer, RealPage data shows.

Supply constraints, though, may risk secularly faster inflation.

“We have not built enough homes, we’ve not built enough shelter for at least a decade…You’re short supply of a good that everybody still wants,” Mark Fleming, chief economist at title and settlement company First American, said at an NABE discussion of housing inflation. “What’s going to happen to the price?…Long run, there’s definitely built-in inflationary pressure.”

MISSING ‘PUZZLE PIECE’

Shelter inflation peaked at an 8.32% annual rate in March 2023, the fastest since the early 1980s. The median home price surged nearly 50% from $322,000 in 2020’s second quarter as the pandemic began to a peak of $479,000 at the end of 2022, Census data shows, the fastest run-up since the early 1960s.

The median price has since edged back to $417,000, a side effect of Fed rate hikes that at one point pushed the average interest rate on a 30-year home mortgage to nearly 8%, the highest in a quarter century.

But some indexes of more recent home sales show prices rising again, leaving Fed officials hunting for data on home sales and construction to show evidence that demand and supply might move toward better balance.

New Cleveland Fed research on the stark supply-demand imbalance that has powered pandemic-era home price appreciation is one example of the focus on it.

Chicago Fed President Austan Goolsbee called housing a missing “puzzle piece” in the Fed’s hope for broadly lower inflation, while Richmond Fed President Thomas Barkin has made analysis of building patterns in his district, comparing communities able to keep pace in new home construction with those that are constrained, a staple of his recent speeches.

EY Chief Economist Gregory Daco said shelter inflation’s near-term path was clear. It is headed down, and could over the next couple of months make a substantial contribution to lower headline inflation, a fact he argues is so clear he feels “increasingly frustrated” by the Fed’s reluctance to act on it.

Next year, he said, is another story.

“Rent inflation has slowed quite tremendously. That has yet to appear fully” in the data the Fed watches most closely, he said. “Fast forward another six to 12 months…and it may actually move the other direction…That’s where the lack of supply comes in.”

(This story has been corrected to change the description of First American in paragraph 17)

(Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci)