Good evening. The Fed raised rates again on Wednesday and Moderna’s CEO was in the Senate hot seat. Here’s what we’ve been watching.
Moderna CEO Blasted by Lawmakers for Planned Covid Vaccine Price Hike
The CEO of drugmaker Moderna came under fire from lawmakers Wednesday at a Senate hearing focused on the company’s plans to more than quadruple the price of its Covid-19 vaccine.
Moderna’s Covid booster costs about $26 per dose under a 2022 deal with the government, but the company plans to raise the price to about $130 per dose once the public health emergency ends, which is expected to happen in May. Moderna has promised that its shots will continue to be free for most Americans, but lawmakers worry about how patient assistance programs might be structured. Also, the prices charged to insurers could still be passed along to patients and boost overall health care spending.
The Senate’s Health, Education, Labor, and Pensions committee, led by Sen. Bernie Sanders (I-VT), titled Wednesday’s session “Taxpayers Paid Billions For It: So Why Would Moderna Consider Quadrupling the Price of the Covid Vaccine?” And Sanders wasted no time in laying into the drug company.
“In the pharmaceutical industry today we are looking at an unprecedented level of corporate greed – and that is certainly true with Moderna,” he said.
Sanders ripped the industry, saying that it is generating huge profits — more than $100 billion in 2021 — while more than a third of Americans say they can’t afford the prescription drugs they have been prescribed. “In other words, all over this country, in Vermont and in every state represented here, people are getting sicker and in some cases dying because they cannot afford the outrageous cost of prescription drugs, while these companies make huge profits and their executives become billionaires.”
Sanders asked Moderna CEO Stéphane Bancel to reconsider the vaccine pricing and ensure that Americans can continue to get the shot for free without complicated paperwork or processes. He argued that the U.S. government spent $12 billion on the research, development and procurement of the Moderna vaccine. He said the company has made $21 billion in profits off the vaccine and that Bancel became a billionaire, now worth nearly $5 billion.
While some Republicans defended the company along with capitalism and free enterprise, a number joined with Democrats in questioning the planned vaccine pricing. “Why do you need this much money?” Sen. Mike Braun (R-IN) asked, calling for more transparency from the company. “A 400% price increase is preposterous, especially when you’ve been given all this government largesse.”
The company’s counterargument: Bancel defended his company and its pricing. He said the company had recognized the government’s investment and had thus provided a “discount” in pricing despite having “no obligation” to do so. “While the government provided $1.7 billion in grant funding, Moderna returned $2.9 billion,” he said.
He said the company’s Covid-19 booster is different than the original shots, and the vaccine will be more expensive as we transition to the virus being endemic because of the logistical and market challenges involved in making the shots available to 10,000 customers rather than just to the U.S. government. “We are losing economies of scale, we must deal with supply chain complexity and we must assume the wastage risk and cost that the U.S. government used to assume,” he said, noting that the company expects a 90% drop in demand.
Bancel also would not pledge that the U.S. would pay less than other countries for the vaccine. “The price will depend on the value in each country. The cost of health care is different in each country,” he said.
Moderna last month projected at least $5 billion in Covid vaccine revenue, down from $18.4 billion in 2022 and $17.7 billion in 2021.
One proposed fix: “Rather than focus solely on Moderna, the government should concentrate on making this episode the last time it invests in drug and vaccine development only to see pharmaceutical companies raise health-care costs with high prices,” writes science journalist Amy Maxmen at The Washington Post. “To make treatments more accessible to Americans who underwrite them in the first place, federal research funders need to add pricing or patenting conditions to their drug-development contracts.”
Fed Raises Rates Again, Signals Hikes Could End Soon
Faced with a choice between maintaining its effort to restore price stability and providing some breathing room for the struggling banking sector, the Federal Reserve opted Wednesday to press ahead in its war on inflation, raising its benchmark interest rate by a quarter point, to a range between 4.75% and 5.00%.
Fed Chairman Jerome Powell told reporters that the Federal Open Market Committee had considered pausing its rate increase campaign due to recent bank turmoil, but strong economic data, as well as confidence in the soundness of the banking sector, persuaded the committee to remain focused on the threat of inflation.
Assessing the economy, members of the FOMC said they see “modest growth in spending and production,” with job gains still “running at a robust pace.” Inflation, they said, “remains elevated,” with Fed officials remaining “highly attentive to inflation risks.”
Turning to the banking system, which has been rocked by a few recent failures, officials noted that the financial turbulence over the last 12 days has likely produced additional monetary tightening, which could help slow the economy and control inflation. “The U.S. banking system is sound and resilient,” the FOMC statement said. “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.” Just how powerful those tightening effects will be, however, remains “uncertain.”
Looking forward, Fed officials said they expect to raise rates again, though perhaps not as much as they had expected to before the recent bank problems. “The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” they wrote, notably removing the phrase “ongoing increases” from its post-meeting statement. The FOMC’s latest projections indicate one more rate increase, to an average level of 5.1% — significantly lower than the 5.5% level many analysts had expected to see as a potential peak rate.
Powell said it is not yet known whether the uncertainty in the banking system will produce enough credit tightening to help reduce the inflation rate. If it does, the Fed may end up raising rates less than expected. If, however, significant credit tightening does not occur, then the Fed may have to raise rates more than expected.
“Financial conditions seem to have tightened,” Powell said. “We’ll be looking to see how serious is this and does it look like it’s going to be sustained. And if it is, it could easily have a significant macroeconomic effect, and we would factor that into our policy decisions,” he added.
What the experts are saying: The 25-basis-point rate was widely expected, and the Fed’s short-term outlook jibes with that of many analysts. “The Fed’s actions today are consistent with our long-held view that the Fed will raise rates to 5.125% and pause for an extended period,” Jefferies economist Thomas Simons said in a note. “Barring an increase in contagion risk within the banking sector, we expect that the Fed will be faced with a very similar policy decision in May, and they will be compelled to deliver another hike.”
David Russell of TradeStation told CNBC that recent bank failures probably mean that the Fed will ease up sooner than previously expected. “Bank runs have done the Fed’s job for it,” he said. “The Fed acknowledged off the bat how credit conditions have tightened, which could reduce inflation. They also toned back the commitment to aggressive rate hikes. This is a net positive for sentiment because it puts the Fed back in wait-and-see mode instead of an all-out tightening campaign.”
RSM chief economist Joseph Brusuelas said the FOMC’s projection of a peak benchmark rate of 5.1% implies that “we are at or close to peak policy.” The credit tightening rippling through the market due to bank stress is roughly equivalent to another 50 basis points in rate hikes, indicating to Brusuelas that the Fed’s “policy is now restrictive.”
That restrictive stance, combined with the ongoing risk of further troubles in the banking sector, seems to be pushing some analysts toward a more pessimistic outlook on the economy and the markets, with investors sending stocks tumbling late Wednesday as they processed the Fed’s latest moves. “The probability of the Fed sticking the landing on this without causing a recession, increasing unemployment, and preventing further consolidation in the domestic banking sector would appear to be quite low,” Brusuelas said.
Quote of the Day
“I think any state will tell you there’s going to be chaos. It’s going to be unfortunately like a learning experience, but it’s going to be a very, very painful experience for people that lose coverage.”
— Katherine Hempstead, senior policy adviser at the Robert Wood Johnson Foundation, talking to The Hill about the millions of people who are expected to lose health care coverage in the coming months as Medicaid eligibility rules return to pre-pandemic standards. The Biden administration estimates that as many as 15 million people could be removed from the Medicaid rolls, which soared past 90 million during the Covid-19 pandemic as the federal government restricted states from removing beneficiaries.
- Fed Hikes Rates by a Quarter Percentage Point, Indicates Increases Are Near an End – CNBC
- Democrats Say Fed Risks Economic Harm, Showing Unease With Hikes – Bloomberg
- Democrats Blast Moderna CEO Over Plans to Quadruple Price of COVID-19 Vaccine – The Hill
- Stéphane Bancel, Bernie Sanders Spar Over What Moderna Owes the Federal Government – STAT
- Moderna Stands Its Ground – Axios
- Why Millions of People Could Lose Medicaid Next Month – The Hill
- National Republicans Are Looking for Senate Candidates Who Are Filthy Rich – Politico
- Ex-Florida Lawmaker Behind the ‘Don’t Say Gay’ Law Pleads Guilty to COVID Relief Fraud – NPR
- Vance: Rail Safety Legislation Is Not ‘Big Government’ – Roll Call
- Troubled U.S. Organ Transplant System Targeted for Overhaul – Washington Post
- Settlement Will Wipe $6B in Student Loan Debt — but Not for These Borrowers – Washington Post
Views and Analysis
- Catch-25: Fed Hikes Rates Amid Financial Stability Risk – Joseph Brusuelas, RSM Real Economy Blog
- Powell’s Inflation War Faces Unforeseen Obstacle: Collapsing Banks – Victoria Guida and Eleanor Mueller, Politico
- A New Chapter of Capitalism Emerges From the Banking Crisis – John Micklethwait and Adrian Wooldridge, Bloomberg
- No, Taxpayers Should Not Underwrite the Banking System – Chris Hughes, Bloomberg
- What’s a Minsky Moment, and Why the Worries About One – Enda Curran, Bloomberg
- Moderna Hearing Shows Government Should Drive Harder Bargain – Amy Maxmen, Washington Post
- A Big Miss on Drug Prices – David Dayen, American Prospect
- Red Tape Threatens U.S. Efforts to Revive Chip-Making – Steven Rattner, Washington Post
- Only One Thing Will Solve the Fentanyl Crisis – Sam Quinones, Washington Post