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Powell Points to More Fed Rate Increases After Jobs Report; BOC's Macklem Sees Inflation Easing
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Good day. Federal Reserve Chairman Jerome Powell offered a warning Tuesday for those who are hopeful the interest-rate raising campaign of the central bank will make significant strides in bringing inflation down in the near future. Reaching the Fed’s goal of 2% inflation “is likely to take quite a bit of time. It’s not going to be, we don’t think, smooth. It’s probably going to be bumpy,” Mr. Powell said at the Economic Club of Washington, D.C. “So we think we’re going to have to do further [rate] increases, and we think we’ll have to hold policy at a restrictive level for some time.” Elsewhere on Tuesday, Bank of Canada Gov. Tiff Macklem said that, “Recent developments have reinforced our confidence that inflation is coming down.” The BOC last month raised its main interest rate by a quarter-point, to 4.50%, and said it would
refrain from further increases to assess the effects of higher borrowing costs, becoming one of the first central banks to call a timeout on rate increases.
Now on to today’s news and analysis.
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Powell Says Hiring Surge Shows Why Inflation Fight Could Be Difficult
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The process of bringing inflation down to the Fed’s goal of 2% over time ‘is likely to take quite a bit of time,’ Fed Chair Jerome Powell said Tuesday. PHOTO: VALERIE PLESCH/BLOOMBERG NEWS
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Federal Reserve Chair Jerome Powell said the labor market’s surprising strength underscores why the central bank thinks it will face a longer battle to bring inflation down than many investors have been anticipating.
A Labor Department report Friday that showed hiring accelerated in January was “certainly strong—stronger than anyone I know expected,” Mr. Powell said Tuesday during a moderated discussion before the Economic Club of Washington, D.C. “It kind of shows you why we think this will be a process that takes a significant period of time.”
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Kashkari Says Rate Increases Have Had Muted Effect on Job Market
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Federal Reserve Bank of Minneapolis President Neel Kashkari said Tuesday that January’s robust gain of 517,000 jobs in the U.S. showed that the central bank must persevere with its interest-rate increases.
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Bank of Canada Gov. Macklem Defends Pause on Rates
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Recent data have persuaded the Bank of Canada that inflation is coming down toward its preferred 2% target, Gov. Tiff Macklem said Tuesday in defense of the central bank’s decision to pause further rate rises.
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U.S. Trade Deficit Hit Record in 2022
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The U.S. posted its largest trade deficit on record last year, as global demand weakened amid high inflation, climbing interest rates, the Ukraine war and the pandemic’s continued effects, with imports exceeding exports by $948.1 billion.
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Strong Dollar Still Rattles U.S. Multinational Corporate Earnings
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A reversal in the U.S. dollar rally hasn’t yet provided much respite to U.S. multinational firms, with those in the S&P 500 that derive more than half of their revenue outside the U.S. on pace to post an 8.7% slide in 4Q earnings.
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U.S. Officials to Detail Chips Act Application Process This Month
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The U.S. plans to release details on how companies can apply for subsidies to help expand domestic semiconductor production, setting off a race among manufacturers vying for a piece of $52.7 billion in federal funds.
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U.S. Business Owners Pay Premium to Hire Migrant Workers
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Migrants coming to the U.S. to find work are being hired more quickly, at higher pay and under better working conditions than at any time in recent memory, and in many cases they are being paid as well as American counterparts.
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Key Developments Around the World
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India’s Central Bank Raises Rate to Tame Inflation
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India’s central bank increased its policy repo rate by 25 basis points to 6.50%, as expected, and decided to remain focused on the withdrawal of accommodation to ensure inflation remains within the target going forward.
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Chinese Consumers Hoard Cash After Confidence Takes a Hit
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Beijing is trying to kick-start economic growth after lifting its stringent Covid-19 restrictions. One challenge: Chinese citizens borrowed less and saved more last year and it isn’t clear how long it will take to return to freer-spending ways.
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Border-Town Warehouses Boom as Manufacturing Moves to Mexico
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Investors are betting changes in global supply chains as American and some foreign companies shift production to Mexico will boost demand for warehouses and distribution centers there and in U.S. border towns.
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Lawmakers’ Support for Macron’s Pension Overhaul in France Falters
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Continuing strikes are eroding parliamentary support for French President Emmanuel Macron’s proposed pension overhaul, with workers staging a new walkout that snarled traffic, canceled trains and shut some schools.
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European Officials Push for Efforts With U.S. on Green-Tech Minerals
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Representatives of of Europe’s two top economies, Germany and France, proposed new efforts with the U.S. to strengthen supply chains for critical minerals used in electric vehicles and other green-technology products.
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Financial Regulation Roundup
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Hold Off on Filing Your Return, IRS Tells Millions of Taxpayers
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The Internal Revenue Service told millions of taxpayers to hold off on filing their returns until it issues guidance on whether several state refund and rebate payments issued last year count as taxable income.
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Agencies Seek Tougher Rules on Stock Trading by Federal Officials
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Several federal agencies are looking to tighten ethics rules and some have directed internal watchdogs to investigate suspicious investing by officials, as lawmakers press for tougher trading restrictions across the federal government.
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Crypto Brands Reposition in Wake of FTX and Market Tumble
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Companies across the crypto sector are pushing marketing and public relations efforts to defend their brands, distance themselves from dubious players like FTX and, in many cases, present a friendlier face to investors and regulators alike.
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9:20 a.m.: New York Fed’s Williams speaks at WSJ CFO Network Summit
10 a.m.: U.S. wholesale trade report for December
1:30 p.m.: Bank of Canada publishes deliberations of policy decision by Governing Council
1:45 p.m.: Fed’s Waller speaks on economic outlook at 2023 Arkansas State University Agribusiness Conference
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8:30 a.m.: U.S. weekly jobless claims
1 p.m.: ECB de Guindos speaks at Foro Economia y Humanismo organized by Instituto Karol Wojtyla
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Fed's Powell May Have Bought Into 'Immaculate Disinflation' Scenario
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Following Fed Chairman Powell's interview at the Economic Club of Washington DC, Bank of America says the Powell is placing more weight on an "immaculate disinflation" scenario, where inflation pressures subside without some softening in labor-market conditions, including higher unemployment. The BofA team says this contrasts with Powell's stance in Jackson Hole, Wyo., last August, when he leaned strongly into doing whatever it takes to bring inflation down and emphasized that inflation was unlikely to subside without some "pain" in labor markets. While the economists say they can't rule out an "immaculate disinflation" outcome, they'd be surprised to see inflation fall all the way back to 2% without a reconciling of the imbalance between labor demand and labor supply.
—Patrick Sheridan
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Brazil’s Central Bank to Resist Pressure for Rate Cuts
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Brazil’s central bank is likely to push back on pressure for premature cuts to interest rates because of concerns regarding inflation and the new government’s fiscal stance, Goldman Sachs economist Alberto Ramos writes in a research note. The central bank on Tuesday published minutes from its monetary policy meeting last week, at which it left its benchmark lending rate, known as the Selic, unchanged at 13.75%. Inflation expectations for this year and next year have risen in recent weeks, and the central bank will probably wait until at least the third quarter to start cutting the Selic, Mr. Ramos writes. The near-term risk of the bank raising the rate is low, he adds.
—Jeffrey T. Lewis
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Zimbabwe’s Central Bank Signals Monetary Policy Easing
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A move by Zimbabwe’s central bank to slash the world’s highest interest rate by 50% to 150% this week signals the start of monetary policy easing amid receding inflation, Oxford Economics Africa says. It is the first rate cut since the Southern African nation more than doubled the key rate to 200% from 80% in June of last year to curb hyperinflation. Inflation peaked at 285% in August but eased to 229.8% in January. “We forecast the headline rate to dip below 200% in April 2023 and to continue to ease on the back of a moderation in global energy prices,” Oxford Economics says in a note. “The impact of base effects means that annual CPI inflation should fall below the 100%-level around mid-2023.”
—Nicholas Bariyo
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Giving Labor Less of the American Pie
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The Federal Reserve worries wages are growing far too fast for it to be able to get inflation back down to where it wants, but U.S. workers want to regain decades of lost ground on wages, Justin Lahart writes.
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Can Developing Economies Have High Growth Without Using Coal?
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Many developing nations face a hard question: To sustain or increase economic growth, do we rely on coal or do we replace it with renewable and alternative energy sources? Two experts square off on that question.
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Banks’ Golden Deposits Could Turn Back to Lead
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Aside from the pace of loan growth in a tough-to-read economy and the Fed’s decisions, a shift in the deposit mix from non-interest- to interest-bearing is just one more thing that might jumble up bank shares, Telis Demos writes.
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Bankers in the U.S. are pulling their purse strings tight, with about 45% of senior loan officers reporting having raised their corporate lending standards in January, the highest percentage since April of 2020, according to Federal Reserve data. (Dow Jones Newswires)
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Holdings of a possible U.K. central bank digital currency would likely be capped at up to GBP20,000 per individual, according to Bank of England Deputy Governor Jon Cunliffe. “We propose a limit of between GBP10,000 and GBP20,000 per individual as the appropriate balance between managing risks and supporting wide usability of the digital pound,” he said in a speech at banking industry body U.K. Finance on Tuesday. (DJN)
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Investors turned bullish on the outlook for the U.S. economy over the past month, mirroring the S&P 500’s current rally, even as noninvestors remained in a deep funk, the new IBD/TIPP Poll found. The overall IBD/TIPP U.S. Economic Optimism Index rose 1.8 points to 45.1 in February, a 10-month high, but still is in pessimistic territory, below the 50 neutral level, for an 18th-straight month. (DJN)
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Canada’s merchandise-trade deficit with the rest of the world narrowed in December as both exports and imports declined. The country posted a goods-trade deficit of 160 million Canadian dollars, the equivalent of about US$119 million, Statistics Canada said Tuesday. (DJN)
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China's passenger car retail sales fell 37.9% last month as businesses shut down for an early Lunar New Year holiday and nationwide vehicle purchase tax cuts and electric-car subsidies ended. China's car makers and dealers sold 1.3 million passenger cars in January, down 40% from December, the China Passenger Car Association. (DJN)
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China's consumer-price index is tipped to have increased 2.2% from a year earlier in January, up from the 1.8% rise in January, according to a poll by The Wall Street Journal. The producer-price index is expected to have declined 0.5% from a year earlier in January, compared with a 0.7% decline in December, according to the poll. The National Bureau of Statistics is due to release the data on Friday. (DJN)
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China's new bank loans likely rose to CNY4.2 trillion in January from CNY1.4 trillion in December, according to a WSJ poll of economists. China's M2, the broadest measure of money supply, may have increased 11.5% from a year earlier in January, slowing from the 11.8% increase in December, according to the poll. (DJN)
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South Korea's current account surplus narrowed sharply in 2022 amid weaker exports to $29.83 billion, down 65% from the prior year's $85.23 billion surplus, Bank of Korea data showed. But the country's balance of payment in December swung to a $2.68 billion surplus from a $222.8 million deficit in November, the data showed. (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, Nell Henderson, Nick Timiraos, Paul Hannon, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Perry Cleveland-Peck, Michael Maloney, Paul Kiernan, James Glynn
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@WSJCentralBanks, @NHendersonWSJ, @NickTimiraos, @PaulHannon29, @kimmackrael, @TomFairless, @megumifujikawa, @pkwsj, @JamesGlynnWSJ, @cleveland_peck
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