Xi and Putin’s Burgeoning Bromance

Happy Thursday! Dream job alert: The New Mexico Department of Game and Fish is seeking “professional bear huggers” (conservation officers) who are brave/stupid enough to crawl into bear dens and trust their colleagues to keep them safe.

We can only imagine the workplace insurance bills.

Quick Hits: Today’s Top Stories

• The Oklahoma Supreme Court ruled 5-4 this week that the state Constitution guarantees a woman may receive an abortion if her doctor concludes there’s a reasonable chance continuing the pregnancy would endanger her life. Previously, the state only allowed abortions in medical emergencies. “Requiring one to wait until there is a medical emergency would further endanger the life of the pregnant woman and does not serve a compelling state interest,” the ruling states, adding doctors don’t need “absolute certainty” of endangerment but the “mere possibility or speculation” of a life-threatening condition developing is insufficient.
• Treasury Secretary Janet Yellen said Wednesday the Biden administration isn’t trying to increase the $250,000 cap on federal deposit insurance, though such a move could be considered alongside long-term systemic reforms. Bank stocks have stabilized since falls amid the collapse of Silicon Valley Bank and Signature Bank earlier this month but dipped on the news. Shares of troubled First Republic Bank—which last week received a $30 billion cash infusion intended to reassure depositors—dropped 15.5 percent Wednesday after plummeting a whopping 47 percent Monday.
• The mortality rate for children ages 1 to 19 in the United States rose 10.7 percent from 2019 to 2020 and 8.3 percent from 2020 to 2021, according to an analysis published in the Journal of the American Medical Association. Pediatric death rates have been broadly falling for decades thanks to improved disease treatment and interventions like seatbelts. The analysis found deaths from car accidents, alcohol, and drugs all increased in recent years, and gun-related homicides and suicides accounted for nearly half the increase in 2020.
• The Department of Homeland Security announced this week a multi-agency effort dubbed “Operation Blue Lotus” to combat fentanyl trafficking across the southwestern border with measures including new vehicle scanners, intelligence collection on drug traffickers, and canine units. DHS claimed the efforts captured more than 900 pounds of fentanyl and led to 18 arrests in the first week.
• The Centers for Disease Control and Prevention is investigating the United States’ first recorded outbreak of a drug-resistant strain of Pseudomonas aeruginosa, which has been linked to artificial tear eye drops manufactured by EzriCare and Delsam Pharma. Of at least 68 people so far sickened, at least one person has died and four have had their eyes surgically removed. The Food and Drug Administration has issued a recall on the identified eye drops.
• The Manhattan grand jury hearing evidence in the investigation of former president Donald Trump over an alleged hush-money payment to an adult film star didn’t meet on Wednesday amid reports Trump faces an imminent indictment. It’s not immediately clear why the grand jury didn’t convene, but NBC News reported it is expected to do so today. 
• A panel of the D.C. Circuit Court of Appeals ruled Wednesday Trump attorney Evan Corcoran must turn over documents and answer questions related to the former president’s handling of classified documents after leaving office. The panel upheld a lower court’s ruling that attorney-client privilege didn’t apply because evidence suggested the attorney had been used to advance a crime—though the decision leaves room for an appeal. The office of special counsel Jack Smith—assigned to investigate Trump’s alleged mishandling of sensitive documents—reportedly presented evidence that Trump lied to his attorneys about his retention of classified materials.
• In an interview with British broadcaster Piers Morgan, Florida Gov. Ron DeSantis seemed to backtrack on some of his recent statements downplaying the severity of the Ukraine war and labeling it a “territorial dispute” between the neighboring countries. DeSantis told Morgan: “Russia did not have the right to go into Crimea or to go in February of 2022 and that should be clear,” adding that he believes Putin is a war criminal. “I think [Putin’s] hostile to the United States.” DeSantis reiterated, however, his belief that the U.S. “escalating with more weapons—and certainly ground troops—I think would be a mistake.”
• Ethiopian lawmakers Wednesday agreed to remove the Tigray People’s Liberation Front’s terrorist group designation—another step strengthening a November ceasefire ending the country’s two-year civil war, which led to the deaths of as many as 400,000 civilians. Secretary of State Antony Blinken last week visited Ethiopia to unveil $331 million in humanitarian aid to help in the country’s recovery, and on Monday the State Department announced it had determined all parties in the conflict had committed war crimes and crimes against humanity.

Xi & Vlad: A Match Made in Moscow

Chinese President Xi Jinping traveled to Moscow on Monday for a three-day summit with Vladimir Putin, marking the first meeting between the two leaders since September and since the International Criminal Court issued a warrant for the Russian president’s arrest over alleged war crimes in Ukraine. The West has spent the better part of a year warning China against cozying up with Putin; this week’s talks are the surest sign yet those warnings have not been heeded.

In a bizarro pen-pal situation, the leaders previewed their summit by publishing op-eds in each other’s government-controlled newspapers over the weekend—Xi’s in the Rossiyskaya Gazeta, and Putin’s in the People’s Daily. On the docket: agreements to boost economic cooperation and discussions of China’s peace plan for the war in Ukraine. Details on what was decided over the course of the meetings are scarce, but the joint statements signed by Putin and Xi appear to reaffirm the already substantial economic and geopolitical ties between the two countries. 

One of the main goals of the talks appears to have been showcasing Xi and Putin’s burgeoning bromance—and we’re only kind of kidding. The two autocrats expressed effusive affection for one another over the three days, with Xi referring to Putin as his “dear friend” and Putin calling Xi his “good old friend.” Pointing to photos of his first visit to Moscow as president back in 2013, Xi told Putin, “You reminded me of that, and to this day these pictures are well preserved in my heart.”

Xi and Putin’s personal relationship aside, the meeting indicated their countries’ strengthened ties since Russia invaded Ukraine 13 months ago. China has officially maintained neutrality in the conflict, but it’s boosted trade with Russia in recent months to help it deal with the effects of Western economic sanctions. 

Given that the meeting came “right on the back of the ICC ruling, and it comes right on the back of the Putin trip to Mariupol, I think that sends a very significant message that Xi Jinping is quite comfortable displaying that level of friendship publicly with the Russian president despite everything he’s done,” Ian Bremmer, president of the Eurasia Group, told The Dispatch. “It also shows that Xi Jingping is not particularly concerned about the implications that has for his relationship with the United States.”

As expected, American diplomats and lawmakers had harsh words for Xi’s visit. “That President Xi is traveling to Russia days after the International Criminal Court issued an arrest warrant for President Putin suggests that China feels no responsibility to hold the Kremlin accountable for the atrocities committed in Ukraine,” said Secretary of State Antony Blinken. GOP Rep. Mike Gallagher, chair of the House Select Committee on the Chinese Communist Party, offered an even stronger rebuke: “Xi and Putin just doubled down on their no limits partnership and while they claimed to oppose a ‘cold war mentality,’ their actions make clear they are already engaged in New Cold War against the United States, our allies, and our values.” 

Indeed, Russia and China seem to have framed their relationship around being united in common cause against American hegemony. “They share some really crucial interest in weakening the United States and revising the international order so it is more favorable to their own interests,” Bonnie Glaser, the managing director of the German Marshall Fund’s Indo-Pacific program, told The Dispatch. 

As Charlotte notes for a piece in the site today, the two leaders have found common ground in their efforts to oppose American influence worldwide. While Putin suffers the U.S.-led economic consequences of his war in Ukraine, Xi is warily watching Washington’s alliance-building in the Indo-Pacific and support for Taiwan. The Chinese leader, in a rare public broadside against the U.S. this month, accused the West of pursuing a policy of “all-around containment, encirclement, and suppression” in Asia. 

To act as a counterweight to the U.S., China is increasingly asserting itself as a global political power that can act independent of Western power and influence. “The role that China is playing outside of its region is going to be increasingly outsized,” said Bremmer. “They are absolutely displacing, or attempting to displace, a role that the United States and its allies have been dominant in for decades.” Earlier this month, for example, Beijing successfully brokered an agreement normalizing diplomatic relations between Saudi Arabia and Iran after they were severed in 2016.

For Russia, the summit is a welcome affirmation from an ascendant strategic partner they are increasingly reliant on. “We have understood for a long time that the balance of power in this relationship is really shifting towards Beijing,” Sam Greene, a professor of Russian politics at King’s College London, said in an interview. From Russian energy exports to China, to international transactions with non-Western countries using Chinese currency, to cooperation in the Arctic Sea routes, the future of Sino-Russian relations will likely feature China playing the dominant role. 

“[Putin] really does have to communicate clearly to Beijing that he understands how this relationship is going to be structured, that he understands the degree to which he needs their support,” Greene said. “They talk about this as being a relationship with no limits, it almost looks like a relationship with no limits in terms of what Russia is going to have to give China.”

But there are certainly limits on how far China is willing to go in its support for Russia’s war effort in Ukraine: There was no public mention of military aid at the summit, and it appears China will hold off on transferring any weapons to Russia after the U.S. released intelligence last month alleging that Beijing was considering doing so. Returning home, Xi also reportedly plans to call Ukrainian President Volodymyr Zelensky this week for what would be their first conversation since the war began.

“[China’s] interest is, basically, to make sure their Russian ally is not severely embarrassed or defeated,” Joseph Nye Jr., a former assistant secretary of defense during the Clinton administration, told The Dispatch. “But within that framework, they would just as soon see the war end, because the war makes their diplomacy in Europe more difficult.” 

Threading the Needle on Interest Rates

Federal Reserve Chair Jerome Powell wore an icy blue tie yesterday instead of his usual purple. This is the kind of thing you notice only if you are among the legion of bankers, stock traders, and economists who tune in to Powell’s regular press briefings to parse his words for clues on which way the macroeconomic winds will blow—or if you’re just an unabashed monetary policy junkie like we are.

What inspired Powell’s sartorial daring? Perhaps he hoped a lucky tie would help him navigate a trickier-than-usual financial tightrope. A few weeks ago, stubbornly sticky inflation and a still-hot jobs market had the central bank firmly on track for a projected interest rate hike of 50 basis points, or 0.5 percentage points. But that was before the Silicon Valley Bank meltdown and the risk of further hikes endangering other shaky banks. Ultimately, Powell and his panel of bankers boosted rates for a ninth consecutive meeting, opting for a 25-basis-point hike and bringing the rate’s target range between 4.75 and 5 percent. It could hold steady for a while.

As we reported last week, inflation isn’t going away as fast as it looked like it might a few months ago. The Consumer Price Index fell to 6 percent year-over-year inflation in February from a 6.5 percent yearly increase in January, but the more relevant month-over-month data came in moving the opposite direction. The hot jobs market has been just as uncooperative. While the unemployment rate did tick up slightly from 3.4 percent in January to 3.6 in February as more people sought work, employers also added a hearty 311,000 jobs last month. The tight labor market and potential for a wage-price spiral served as another point in the “continue raising rates” column.

But, as we also reported last week, the banking sector is trying to find its sea legs after the sinking of Silicon Valley Bank and Signature Bank earlier this month—and the Fed is at least partially to blame. SVB floundered largely because a hefty chunk of its capital was stored away in long-maturity U.S. Treasury bonds and mortgage-backed securities. Those kinds of assets are particularly vulnerable to interest-rate hikes, and we’re in the midst of one of the fastest tightening cycles in recent memory. Rates increased faster than SVB could compensate, leading to a cash-flow problem and ultimately a bank run. 

The panic has spread, highlighting existing struggles at other banks. Credit Suisse’s longtime risk-taking and governance issues forced it to accept a sudden, regulator-brokered takeover this weekend, and First Republic Bank’s stock is still plummeting despite a $30 billion injection of liquidity last week intended to shore up depositor confidence.

With the financial sector already under stress, you can see why central bankers might be nervous about breaking more banks with another interest-rate hike. Then again, holding off on an expected hike due to instability in the financial sector might have only lent credence to investors’ and depositors’ worst fears, creating a self-fulfilling prophecy. It’s enough to make anyone reach for a lucky tie.

“They obviously had a very difficult balance,” John Fagan, co-founder of financial analysis firm Markets Policy Partners, told The Dispatch. “If you were trying to pick a middle path, a 25-basis-point rate hike was that right down the fairway—not too demonstrative in either way.”

There is a potential silver lining for the Fed in the SVB meltdown and resulting uncertainty. If banks leery of cash outflows slow their lending to businesses and individuals, the resulting tightening of financial conditions could help bring down inflation—a point Powell himself made in yesterday’s press conference. “Our banking system is sound and resilient, with strong capital and liquidity,” he said. “We’re looking at what’s happening among the banks and asking, ‘Is there going to be some tightening in credit conditions?’ And then we’re thinking about that as effectively doing the same thing that rate hikes do.”

Powell stressed that he’s keeping an open mind on future rate hikes, but the central bank tweaked some key language in the prepared release that goes out after every meeting. Out with “ongoing increases in the target [interest rate] range will be appropriate,” in with the much squishier “additional policy firming may be appropriate.” In projections published alongside the policy decision, a majority of board members penciled in one more 25-basis-point hike the rest of the year.

“Our expectation,” Fagan said, “is that we’re going to have a nice round number of 5 percent here at the top, and then the Fed goes on hold and stays on hold.”

This cycle of tightening may be nearing its end, but it’s not yet clear whether the result is a so-called “soft landing” for the economy—meaning inflation falls without a recession—or the painful economic side effects of a “hard landing.” Those same Fed projections now have the unemployment rate jumping from the current 3.6 percent to 4.5 percent by the end of the year, and remaining there through at least 2025.

But as ever, Powell remained somewhat optimistic the Fed can pull off this balancing act, even as bank failures here and across the pond have some casting their minds back to 2008. “I think that pathway [to a soft landing] still exists,” he said. “And, you know, we’re certainly trying to find it.”

The Fed chair usually has all eyes on him during these (mostly) monthly press conferences, but he had some competition yesterday for finance nerds’ attention. While he unpacked the latest monetary policy details, Treasury Secretary Janet Yellen was testifying before Congress—and both touched on regulators’ approach to insuring bank deposits. The Federal Deposit Insurance Corporation guarantees bank deposits up to $250,000, but regulators’ decision to make SVB depositors whole well above that cutoff has had some analysts speculating the official ceiling hides a softer reality of regulators committed to always making depositors whole.

Powell seemed to lean that way. “You’ve seen that we have the tools to protect depositors when there’s a threat of serious harm to the economy or to the financial system,” he said. “We’re prepared to use those tools, and I think depositors should assume that their deposits are safe.”

Yellen, conversely, made sure to point out regulators will still decide on a case-by-case basis whether to protect depositors above the $250,000 line. “I have not considered or discussed anything having to do with blanket insurance or guarantees of deposits,” she told lawmakers, adding that exceptions could again be made in the case of bank failures that threatened the system.

Their slightly different messages on deposit insurance didn’t help markets already jittery about the possibility of future rate hikes—the Dow Jones Industrial Average closed Wednesday down 1.63 percent, with the S&P 500 and the NASDAQ tumbling at similar rates. But Powell has signaled before that he’s willing to stomach upset markets and slightly higher unemployment to put inflation to bed, and he echoed that point again yesterday: “At the end of the day, we will do enough to bring inflation down to 2 percent—no one should doubt that.”

Worth Your Time 

• Ahead of the 2020 presidential election, several top scientific publications backed Joe Biden for president. In Politico, media writer Jack Shafer questions the value of such endorsements, which a recent study concluded not only failed to shape the election’s outcome but also undermined trust in the publications. “If Nature’s Biden endorsement had little or no effect on readers except to make some Trump supporters disdain Nature in specific and the scientific establishment in general, why did the publication endorse any candidate?” Shafer asks. “The question is there for the taking by all publications, not just Nature. In many cases, editorials—especially editorials of endorsement—exist not to persuade readers of a viewpoint or a candidate’s soundness, but to feather the nest of the editorialist (or his publisher) for a moment or two with the illusion that he has struck a blow for all that is right. Why bother editorializing? Doesn’t seem very scientific.”
• When worshippers travel to holy places, a few faithful become perpetual pilgrims who never leave the road. For Harper’s Magazine, Lisa Wells introduces one such woman and the draw of pilgrimage. “Ann Sieben went on her first pilgrimage over fifteen years ago, and has been walking ever since,” Wells writes. “She abandoned a lucrative engineering career in nuclear remediation and gave away all her belongings, devoting herself to the life of the pilgrim. … ‘I travel with no money,’ she said, ‘which means, every night when I get to my destination … I ask people for hospitality.’ Throughout fifteen years, fifty-six different countries, and more than forty-five thousand miles, she told us, ‘I have never not found hospitality.’ … Every encounter with the stranger is an opportunity to create rapport. Ann’s raison d’être is building trust, because trust is the foundation of peace.”

Presented Without Comment

Also Presented Without Comment

Toeing the Company Line

• In the newsletters: Scott cracks the big egg price conspiracy, Nick contemplates the possibility (🔒) of DeSantis’ support collapsing, Jonah takes on (🔒) who he calls the hallucinators and grifters still supporting Trump, and the Dispatch Politics team tackles DeSantis’ first shots on Trump and whether West Virginia Gov. Jim Justice will run for the Senate.
• On the podcasts: A guestless Jonah gets increasingly bizarre as he fields listener questions on The Remnant, and David joins Sarah face-to-face for an Advisory Opinions considering whether the Manhattan District Attorney will prosecute Trump based on a shaky legal theory.
• On the site today: Jason Blessing warns of Iran’s increasingly aggressive cyber capabilities and Charlotte takes a look at what did and didn’t come of Xi and Putin’s summit in Moscow. 

Let Us Know

Are you worried about the strengthening alliance between Russia and China? Do you think Xi’s embrace of Putin will end up damaging Beijing’s global ambitions?