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Fed Faces Challenge on Setting Pace for Rate Increases; Raskin's Fed Nomination Likely Dashed
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Good day. Federal Reserve Chairman Jerome Powell effectively ended the debate over how much the central bank should raise interest rates at this week’s policy meeting by proposing to lift them by a quarter-percentage-point from near zero. Now, the harder part of deliberations by Fed officials may be about how they should signal the likely path of rate increases in coming months. Meanwhile, Sen. Joe Manchin (D., W.Va.) said on Monday he couldn’t support Sarah Bloom Raskin’s nomination to become the Fed’s top banking regulator because of her views on addressing climate change. Democrats now would need the support of at least one Senate Republican to confirm her. No Senate Republican has signaled so far they would back her.
Now on to today’s news and analysis.
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Fed Wrestles With Challenge of How Quickly to Raise Interest Rates
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Jerome Powell, chairman of the Federal Reserve, has laid the groundwork for a half-percentage-point rate increase later this year. PHOTO: TOM WILLIAMS/AGENCE FRANCE-PRESSE/GETTY IMAGES
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Federal Reserve Chairman Jerome Powell took much of the suspense out of this week’s policy meeting when he said recently he would propose raising interest rates by a quarter percentage point from near zero, which would be the first increase since 2018.
The harder part of Fed officials’ deliberations might be agreeing on how to signal the likely path of rate increases in the months to follow. Worsening inflation, already at a 40-year high, could force them to accelerate the process, but they have signaled they are trying to move carefully to avoid triggering a sharp correction in financial markets.
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The Inflation Hits Just Keep Coming, Raising Stakes for the Fed
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Escalating sanctions to punish Russia for its war against Ukraine are driving fears that an episode of increased inflation, already at its highest levels in 40 years, will become harder to wring out of the U.S. economy without a recession.
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Sen. Manchin Signals Opposition to Sarah Bloom Raskin for Fed Post
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Sarah Bloom Raskin, President Biden’s pick to become the Fed’s top banking regulator, suffered a major blow Monday when a key Democrat expressed opposition to her nomination, citing her views on addressing climate change.
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Public’s Near-Term Inflation Expectations Again Hit Record In February
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Households’ expectations of the near-term future path of inflation surged back to record levels in February, amid growing worries it will become harder to borrow money, a Federal Reserve Bank of New York report said.
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Inflation Is Taking Biggest Toll on Nonwhite Voters, WSJ Poll Shows
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Eight months before the midterm election, 35% of Black, Hispanic, Asian-American and other voters who said they were something other than white expressed a high level of inflationary pain, compared with 28% for white voters.
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Key Developments Around the World
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China’s Covid-19 Surge Shuts Plants, Hitting Apple Supplier Foxconn
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A surge in Covid-19 cases led Chinese manufacturing hubs Shenzhen and Changchun to lock down in recent days, halting production at many electronics and auto factories in the latest threat to the world’s battered supply chain.
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EU Approves New Russia Sanctions Package as Divisions Emerge
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The European Union approved a fourth set of sanctions against Russia, including a broad ban on investment in Russia's energy sector, a ban on selling some luxury goods to the country and sanctions against Russian busniess executives.
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China’s Factories, Consumers Make High-Speed Start to Year
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While China's industrial output and retail spending in the first two months blew past analysts’ expectations, a rapidly spreading Covid-19 outbreak and the impact of war in Ukraine threaten an early end to the party.
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Financial Regulation Roundup
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Banks to Keep Talking on Nickel Trading Losses, Tsingshan Says
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Tsingshan Holding Group said large banks will continue discussing a potential settlement with the Chinese metals producer, whose wrong-way bets led to a dayslong suspension of nickel trading on the London Metal Exchange.
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Wirecard Ex-CEO Markus Braun Is Charged in Germany
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German prosecutors said they charged Wirecard AG’s former chief executive, Markus Braun, and two other former senior executives with suspected market manipulation and false representation of company financial accounts.
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Time N/A: ECB’s de Guindos at ECOFIN meeting
Time N/A: U.S. Federal Reserve begins two-day policy meeting
7:30 a.m.: U.S. producer price index for February
11:15 a.m.: ECB’s Lagarde at 31st WELT Economic Summit
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Time N/A: Central Bank of Brazil releases policy statement
7:30 a.m.: U.S. import and export prices indexes for February; U.S. advance retail sales report for February
9 a.m.: National Association of Home Builders U.S. housing market index for March
2 p.m: U.S. Federal Reserve releases policy statement and economic projections
2:30 p.m.: Fed’s Powell press conference
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Amid Churning Markets, Fed Liquidity Tools Show No Signs of Stress
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Just ahead of the Federal Reserve’s pivotal policy meeting this week, the central bank’s liquidity facilities continued to show no signs of market stress. The Fed’s reverse repo facility hit $1.608 trillion in inflows on Monday, about where it has been for some time. Meanwhile, nobody sought cash from the Fed’s Standing Repo Facility, which offers fast overnight loans to eligible firms collateralized with Treasury securities. Market participants have been watching for signs of any shifts with these tools amid highly unsettled markets, while some analysts have noted that liquidity abounds following past interventions by the central bank. Fed officials are set to meet on Tuesday and Wednesday in a gathering that will almost certainly result in an interest rate rise of a quarter percentage point as the central bank starts taking action to bring surging inflation down.
—Michael S. Derby
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The High Cost of Europe’s Energy Security
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Europe’s ambitious plan to cut its reliance on Russian gas by two-thirds this year just might work, but most likely the pain will be broadly shared by governments, consumers and companies, Rochelle Toplensky writes.
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Yields on U.S. government bonds have surged back to their highest levels since 2019, reflecting investors’ growing bets that Russia’s invasion of Ukraine won’t slow the momentum toward higher interest rates.
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The Cass Freight Index for U.S. domestic shipping demand bounced back strongly in February following a January slide, rising by 8.6% month-to-month, the strongest sequential gain during the pandemic, and by 3.6% from a year earlier. (Dow Jones Newswires)
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Argentine President Alberto Fernandez should have enough votes in the Senate to approve a deal with the International Monetary Fund to refinance about $45 billion in debt, consultancy Teneo said. (DJN)
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Indonesia's central bank is expected to keep its seven-day reverse repo rate unchanged at 3.50%, according to a Wall Street Journal poll of seven analysts. Bank Indonesia has signaled that its decision to gradually raise interest rates will likely hinge on inflation and currency developments, Morgan Stanley says. (DJN)
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India’s merchandise trade deficit increased to $20.88 billion in February from $13.12 billion a year earlier, as exports rose 25.10% to $34.57 billion and imports rose 36.07% to $55.45 billion, government data showed. (DJN)
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Wholesale prices in Germany rose 16.6% in February from a year earlier, following a 16.2% year-on-year increase in January and a 16.1% rise in December, statistics office Destatis said. (DJN)
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The Polish zloty may struggle to recover even if the conflict between Russia and the Ukraine eases, Commerzbank says. While the National Bank of Poland is raising interest rates, the rate rises are likely to lag compared with the very high inflation rates being observed, Commerzbank says in a research note. (DJN)
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U.K. economic performance in 2Q and through the early part of 3Q is likely to be hit by the war in Ukraine, before healthy consumer and business fundamentals reassert themselves and lift momentum through 2H, according to Berenberg. In such a scenario, Berenberg forecasts two more interest rate increases this year, in May and August. (DJN)
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Sterling could fall versus the dollar as the Bank of England is likely to sound more cautious than the Federal Reserve at their upcoming policy meetings, Rabobank says. The Fed and the BOE are both expected to raise interest rates by 25 basis points at their meetings on Wednesday and Thursday. (DJN)
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Kenya's current-account deficit widened to 5.6% of gross domestic product in the 12 months to January from 4.3% of GDP a year earlier, the country's central bank said. (DJN)
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This newsletter is compiled by James Christie in San Francisco.
Send us your tips, suggestions and feedback. Write to:
James Christie, Jon Hilsenrath, Michael S. Derby, Nell Henderson, Nick Timiraos, Paul Hannon, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Perry Cleveland-Peck, Michael Maloney, Paul Kiernan, James Glynn
Follow us on Twitter:
@WSJCentralBanks, @NHendersonWSJ, @michaelsderby, @NickTimiraos, @PaulHannon29, @kimmackrael, @TomFairless, @megumifujikawa, @pkwsj, @JamesGlynnWSJ, @cleveland_peck
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