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Biden and Powell to Discuss Economy; Waller Sees Federal Reserve Lifting Rates at Fast Pace
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Good day. President Biden, ahead of a meeting today with Federal Reserve Chairman Jerome Powell, outlined a broad three-part plan for addressing inflation, which is running at 40-year highs, in an opinion piece published last night in The Wall Street Journal. Mr. Biden said it was likely that the pace of job growth could slow from a monthly pace of 500,000 jobs to around 150,000 as a necessary result of the Fed’s efforts to combat high inflation. “The most important thing we can do now to transition from rapid recovery to stable, steady growth is to bring inflation down,” he said. In other developments, Federal Reserve governor Christopher Waller said yesterday that he wants to see the central bank raising interest rates by 50 basis points over several more policy meetings, noting that he wouldn’t take such increases “off the table until I see inflation coming
down closer to our 2% target.” Mr. Waller added that he favors raising rates by the end of this year above a neutral setting, or to a level high enough to deliberately slow the economy and reduce demand. Elsewhere, Bank of Japan Gov. Haruhiko Kuroda and Prime Minister Fumio Kishida said Japan is likely to continue its ultra-easy monetary policy despite recent price rises.
Now on to today’s news and analysis.
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Biden Pledges to Back Fed in Effort to Combat High Inflation
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President Biden has broadly supported the Federal Reserve’s plans to withdraw economic stimulus. PHOTO: ANDREW HARNIK/ASSOCIATED PRESS
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President Biden said he would support the Federal Reserve in its effort to combat high inflation by reducing economic demand, as the central bank lifts interest rates at its fastest pace in more than three decades.
He is set to meet with Fed Chairman Jerome Powell today at the White House, the first such meeting since Mr. Powell was tapped by Mr. Biden and confirmed to a second four-year term by the Senate on May 12.
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Waller Supports Raising Rates at Fast Clip ‘for Several Meetings’
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Federal Reserve governor Christopher Waller said on Monday that he would support raising interest rates in half-percentage-point increments for several more meetings, adding to the growing debate over how far and fast the central bank should push up borrowing costs to combat high inflation.
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Inflation Eased Slightly in April, According to Fed’s Preferred Measure
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The core PCE index—which excludes food and energy prices—rose 4.9% in April from a year ago, down from 5.2% in the year through March. On a monthly basis, core prices rose a seasonally adjusted 0.3%, similar to February and March.
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Households Boosted Spending in April but Drew Heavily on Savings
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U.S. households boosted spending for a fourth straight month in April, but the savings rate fell to the lowest in 14 years, suggesting many Americans are tapping savings to offset cost increases from inflation. Consumer spending rose by a seasonally adjusted 0.9% last month, the Commerce Department said Friday, with households spending more on services and autos. The savings rate fell to 4.4%, from a downwardly revised 5% the prior month.
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Key Developments Around the World
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Japan Is Likely to Continue Ultra-Easy Monetary Policy
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“The Bank of Japan will support the economy, which is still on the way to recover from the pandemic, by patiently continuing powerful monetary easing,” Bank of Japan Gov. Haruhiko Kuroda said on Monday.
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Chile’s Proposed Constitution Could Upend Its Free-Market Model
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Chile is on the verge of overhauling the economic and political structure of its free-market system with a new constitution that would scrap the Senate, scale back mining and give extensive power to indigenous groups.
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China’s Slowdown Poses Credibility Test for Economic Data
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Figures this month illustrated an economy in free fall in April as lockdowns shut stores and factories and kept millions of people at home, a picture in line with nonofficial data sources that previously pointed to a dramatic slowdown.
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Europe’s Bid to Kick Russian Natural Gas Faces Opposition
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European Union leaders said for the first time that they would impose an oil embargo on Russia over its invasion of Ukraine, taking a big step forward in an economic fight against Moscow that is already reverberating in global markets.
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Bombed Bridges, Closed Ports Keep Ukrainian Grain From World
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Ukraine’s strained infrastructure has little hope of being able to handle the 30 million metric tons of corn, wheat and sunflower oil that is expected after harvesting starts in June, farmers and government officials said.
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Financial Regulation Roundup
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Review of RBA Should be Independent, Economists Say
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Australian economists have called for the government’s proposed review of the Reserve Bank of Australia, supported by the country’s two major parties, to be fully independent and led by a foreign monetary policy expert.
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TerraUSD Crash Led to Vanished Savings, Shattered Dreams
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TerraUSD was touted as a blue-chip cryptocurrency. Now its investors are reeling from painful losses and asking if it was all a get-rich-quick scheme, including a surgeon in Massachusetts who lost his family’s nest egg.
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4:15 a.m.: ECB’s McCaul on panel at High-Level Securitization Forum
8:30 a.m.: Canada first-quarter gross domestic product
9 a.m.: S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index for March
10 a.m.: Conference Board Consumer Confidence Index for May
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7 a.m.: ECB’s Lagarde at Green Swan 2022 conference of Bank for International Settlements
10 a.m.: Bank of Canada interest rate announcement; U.S. construction spending for April; Job Openings and Labor Turnover (JOLTS) Survey for April
11:15 a.m.: ECB’s Panetta speaks at meeting of Euro Accession Countries Working Group of European Parliament
11:30 a.m.: New York Fed’s Williams speaks on ‘Monetary Policy Implementation and Digital Innovation’; ECB’s Lane speaks at CEPR Paris Symposium hosted by Sciences Po in Paris
2:10 p.m.: St. Louis Fed’s Bullard speaks on the economy and monetary policy to Economic Club of Memphis
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Deutsche Bank Says Needed Tightening Brings Downturn Risk
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The Federal Reserve’s campaign to raise interest rates to bring down inflation carries risks for the U.S. economy, Deutsche Bank economists wrote in a note to clients Thursday. “We find that tighter financial conditions will help to move inflation closer to the Fed’s objectives over horizons of two to three years,” they wrote. However, they added that “the magnitude of [financial conditions] tightening required to center the distribution around [inflation] values much closer to 2% is extremely tight, consistent with elevated recession risks over the next three years.” Fed officials have welcomed tighter financial conditions and have argued that part of what they need to do now with rate rises is ratify the market’s expectations of tighter monetary policy.
—Michael S. Derby
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As Long as Paychecks Keep Coming, Spending Can Hold up
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Americans might be in a funk, but unless they start getting concerned about the job market, which is still looking good, don’t worry too much about them cutting back on their spending, Justin Lahart writes.
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Spanish, German Inflation Data Cast Doubt on ECB Rate-Hike Plans
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High Spanish and German inflation figures could pressure the European Central Bank to accelerate its monetary tightening, with an inflationary spiral looking increasingly likely. German consumer prices rose 7.9% on year, against the 7.5% forecast in a Wall Street Journal poll, according to figures released Monday. Spanish consumer prices rose even faster, at 8.7% on an annualized basis.
—Adam Clark, Dow Jones Newswires
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U.S. consumer sentiment fell to a final May reading of 58.4 from the initial reading of 59.1 earlier in the month, its lowest level in more than 10 years, according to the University of Michigan’s sentiment gauge. Economists were expecting a reading of 59.1, according to a Wall Street Journal survey. (Dow Jones Newswires)
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Services activity in the central U.S. remained strong in May, while expectations for future activity eased a bit while remaining positive, according to a monthly survey by the Federal Reserve Bank of Kansas City. Its Tenth District Services Survey’s composite index came in at 20 for May, matching April’s reading but down from 30 in March. Readings above zero indicate expansion, while those below zero indicate contraction. (DJN)
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South Korea's headline consumer inflation likely topped 5% in May for the first time since September 2008, cementing the case for the central bank to tighten policy further to tame price growth. The median forecast from a WSJ poll of nine economists is for a 5.1% on-year jump in the benchmark consumer-price index, versus the 4.8% increase recorded in April, as prices of oil and other commodities surge. (DJN)
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Turkey's economy grew 7.3% on year in the first quarter, statistics office Turkstat said, though inflation reached a two-decade high in April and the value of its currency is declining. Growth was supported by private consumption, up 19.5% on year, data showed, propelled by the lifting of Covid-19 restrictions. Government consumption rose 0.9% and gross fixed capital formation rose 1.1%. (DJN)
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Sweden’s economy will grow 2.5% this year, Fitch Ratings said, revising its 3.9% forecast in December. At the same time, Fitch said it is affirming Sweden’s AAA rating with a stable outlook and that it expects real GDP growth of 2.1% in 2023, down from its 2.2% forecast in December. (DJN)
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Kenya's central bank raised its key lending rate to 7.50% from 7.0% to curb rising inflation, Gov. Patrick Njoroge said. The rate was cut by 25 basis points in March 2020 in order to mitigate the adverse effects of the Covid-19 pandemic. (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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