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Fed Minutes Point to Potential for Restrictive Policy; ECB Likely Keeping Sovereign Debt Portfolio
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Good day. Minutes from the Federal Reserve’s May 3-4 meeting released Wednesday showed central bank officials “noted that a restrictive stance of policy may well become appropriate” to combat high inflation. The minutes also hinted at a discussion over accepting some pain in the job market as the Fed raises interest rates. Also Wednesday, the Kansas City Fed said President Esther George would step down in January, retiring as required by age limits. Elsewhere, European Central Bank officials said the ECB likely will hold on to its sovereign bonds, offering some relief for the eurozone’s most indebted governments. By contrast, the Fed plans to start shrinking its bondholdings next week.
Now on to today’s news and analysis.
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Fed Minutes Show Urgency for Raising Rates to Tame High Inflation
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Federal Reserve Chairman Jerome Powell has said the jobless rate might need to rise as the central bank slows demand. PHOTO: AL DRAGO/BLOOMBERG NEWS
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Federal Reserve officials thought they would need to raise interest rates by a half percentage point at each of their next two meetings when they approved an increase at their gathering earlier this month. Minutes from the meeting show that officials discussed the possibility that they would raise interest rates to levels high enough to slow economic growth deliberately as the central bank races to combat high inflation.
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Kansas City Fed Announces President Esther George Will Retire
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The Federal Reserve Bank of Kansas City said its leader, Esther George, will retire in January due to age limits. A voting member of the rate-setting Federal Open Market Committee this year, she has led the Kansas City Fed since October 2011.
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Derby's Take: Former Fed Staffer Not Shrugging Off Central Bank’s Bond Losses
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The prospect of losses on the Federal Reserve’s holdings of securities is a real issue for U.S. taxpayers, a former top central bank staffer wrote in a research note Wednesday.
Bill Nelson, who now works as chief economist for the Bank Policy Institute industry group, was responding to a report released by the New York Fed on Tuesday. In that report, the bank said the Fed likely suffered paper losses on bonds it owned this year and that those paper losses could be substantial over time depending on how monetary policy plays out. Read more.
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CBO Projects Inflation, Economic Growth to Cool This Year and Next
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The Congressional Budget Office forecasts slowing growth, with inflation-adjusted gross domestic product estimated to expand 3.1% in the fourth quarter from the previous year, compared with 5.5% in 2021.
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Orders for Long-Lasting Goods Rose Modestly in April
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New orders for products meant to last at least three years increased by 0.4% to a seasonally adjusted $265.3 billion in April following a revised 0.6% rise in March. April marked the sixth increase in seven months.
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Big U.S. Cities Lost More Residents as Pandemic Stretched On
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Big-city population declines deepened across the U.S. last year as the pandemic continued sending Americans in search of more space, according to census figures released Thursday. The largest cities lost a greater share of residents than small and midsize cities during the year that ended July 1, 2021, new estimates show. Collectively, in the nine cities with more than one million people, the population fell 1.7%, a loss of 419,000 residents. Only two cities in that group grew: Phoenix and San Antonio.
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Key Developments Around the World
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ECB Signals Delayed Bond Runoff, Diverging From Fed
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The ECB is likely to hold on to its mammoth portfolio of sovereign debt as it starts to raise interest rates, bank officials said, underlining the fine line the bank is walking as it tightens monetary policy to battle inflation.
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Russia Central Bank Cuts Key Rate for Third Time on Stronger Ruble
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Russia’s central bank cut its key interest rate for a third time since early April as it sought to steady a strengthening ruble and support a faltering economy. The Bank of Russia lowered its key interest rate to 11% from 14%. Following two rate cuts in April, that largely reverses a doubling of the key rate in the immediate aftermath of Russia’s invasion of Ukraine and the Western sanctions that it provoked.
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Bank of Korea Raises Benchmark Rate, Signals More Tightening
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The Bank of Korea raised its benchmark seven-day repurchase rate by a quarter percentage point to 1.75% after an increase of the same size at the previous meeting in April.
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China’s Top Two Leaders Diverge in Messaging on Covid Impact
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When China’s top two leaders sought to reassure foreign executives increasingly frustrated over the country’s stringent Covid-control measures last week, Chinese leadership seemed to be speaking with two voices.
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Russia Says It May Ease Ukraine Grain Blockade for Sanctions Relief
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Russia is open to easing its blockade of Ukraine’s ports along the Black Sea if sanctions on Moscow are lifted, a Russian official said, a move that, if it went ahead, could increase grain exports and help relieve rising food inflation and shortages.
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Financial Regulation Roundup
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The Crypto Security Debate Goes to Court
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Investors are asking the courts to decide an existential question for the cryptocurrency industry: whether digital tokens are, for legal purposes, more similar to stocks or to gold.
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SEC Proposes More Disclosure Requirements for ESG Funds
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Regulators proposed new disclosure and naming rules for investment funds tapping into angst regarding climate change or social justice, in an effort to address concerns about “greenwashing” by asset managers seeking higher fees.
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Credit-Reporting Companies’ Handling of Complaints Under Scrutiny
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Democrats on the House Select Subcommittee on the Coronavirus Crisis are probing how Equifax Inc., Experian PLC and TransUnion handled consumer complaints about errors on their credit reports during the pandemic.
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8:30 a.m.: U.S. gross domestic product second estimate for first quarter
10 a.m.: U.S. pending home sales for April
12 p.m.: Fed’s Brainard speaks on ‘Digital Assets and the Future of Finance’ before House Committee on Financial Services
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7:35 a.m.: ECB’s Lane in policy panel discussion at 2022 BOJ-IMES Conference
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Bernanke: Why the Fed Didn’t Act Faster to Rein In Inflation
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The unusual recovery from the pandemic recession, including a sharp increase in inflation, raises the question of whether the Fed’s new monetary policy framework is right for the times, Ben Bernanke writes for Barron’s.
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Ben S. Bernanke was chairman of the Board of Governors of the Federal Reserve System from February 2006 through January 2014.
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Companies Might Be Getting Weak in the Knees on Capital Spending
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Even if the current business environment is giving them a reason to keep expanding capital spending, a troubled stock market could make some companies reluctant to play along, Justin Lahart writes.
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Foreign Business Is Falling Out of Love With China
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A survey by the European Union Chamber of Commerce in China found 23% of respondents considering shifting current or planned investments in China elsewhere, the highest total in the past decade, Nathaniel Taplin writes.
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The U.K.’s exit from the European Union is mainly to blame for the country’s inflation running higher than that of its major European peers, according to a study by the Peterson Institute for International Economics. It said that like-for-like core inflation rates show U.K. inflation 1.6 percentage points higher than in Germany, nearly three points higher than in France and more than three points higher than in Italy. (Dow Jones Newswires)
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The EU will push against food export bans at a World Trade Organization ministerial conference next month, European Commission Executive Vice-President Valdis Dombrovskis said, noting that discussions won’t be easy. (DJN)
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Mexico’s economy expanded in the first quarter with gains in industrial output and services partly offset by lower agricultural production, lifting gross domestic product by 1.0% from the previous quarter in seasonally adjusted terms, the National Statistics Institute said. Growth was revised up from a preliminary 0.9% reported at the end of April. (DJN)
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Mexico’s current account deficit came to $6.5 billion in the first quarter, the equivalent to 1.9% of GDP versus a deficit of 3% of GDP a year earlier, the Bank of Mexico said. (DJN)
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Australian business investment in the first quarter was weaker than expected, casting doubt over the pace of economic growth at the start of the year. Business investment fell 0.3% in the first quarter from the fourth quarter, the Australian Bureau of Statistics 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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