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Biden’s Looming Fed Decision Prompts Reviews of Powell's Record on Regulation; Another 'Taper Tantrum' Seems Unlikely
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Good day. During Chairman Jerome Powell’s nearly four years as head of the Fed, the central bank has revamped big-bank stress tests, tailored its rules for U.S. lenders based on their size and simplified key postcrisis regulations such as the Volcker rule prohibition on proprietary trading. But some progressive Democrats say the Fed hasn’t been tough enough on large financial firms under Mr. Powell, a Republican. He isn’t a lock to be re-selected by President Biden, even though he is widely viewed as the front-runner. Meanwhile, investors barely reacted last week when Fed officials signaled they could announce plans to start reducing their $120 billion a month in bond purchases later this year, suggesting there won’t be a 2013-style taper tantrum when the cuts come.
Now on to today’s news and analysis.
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Some Democrats Criticize Powell’s Approach to Regulation
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Fed Chairman Jerome Powell, who testified a couple of weeks ago before the Senate Banking Committee, is approaching the final months of a four-year term.
PHOTO: ROD LAMKEY/CNP/ZUMA PRESS
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President Biden’s looming decision about who should be the next Federal Reserve chairman is prompting reviews of the current chief’s record on bank regulation and how strict the postcrisis rulebook should be for Wall Street.
Some progressive Democrats say Mr. Powell’s Fed hasn’t been tough enough on large financial firms, arguing that the central bank’s tweaks to rules adopted after the 2008-09 financial crisis significantly softened the impact of the 2010 Dodd-Frank law, designed to ward off another financial crisis. Were it not for trillions in fiscal relief from Congress and an array of Fed backstops to credit markets, the banks might have got into trouble during the pandemic last year, the argument goes.
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Cuts to Fed’s Asset Purchases Might Not Spark ‘Taper Tantrum’
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Investors barely reacted when Fed officials signaled they could announce plans to start reducing bond buying later this year, a relief for policy makers eager to avoid a repeat of the turmoil in 2013 after a similar announcement.
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Brainard: Job Market Hasn’t Satisfied Goals for Cuts to Bond Buying
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The U.S. labor market hasn’t achieved enough progress to justify a pullback in the Federal Reserve’s stimulus program but is on track to reach a key threshold around the end of the year, according to Fed governor Lael Brainard.
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Fed’s Bullard Ready to Taper to Mitigate Risks Around High Inflation
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Federal Reserve Bank of St. Louis President James Bullard said unexpectedly robust levels of inflation mean the central bank needs to pull back on its bond buying soon to make sure it has space to quash rising price pressures if needed.
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Inflation Is Hot Now, but Investors Are Betting That Won’t Last
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Markets are starting to signal that investors may be growing less fearful, as traders, knowing inflation is hot now, are betting that price pressures will ease up significantly, not just in the next few years but over the next decade.
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Higher Pay for New Workers Ripples Through the Ranks
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Companies across the U.S. economy are raising pay to recruit workers in a tight labor market, increases that are rippling through firms and prompting employers to rethink pay for existing staffers.
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Household Spending Rose in June, Before Delta Variant Upswing
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U.S. household spending bounced back in June as consumers shelled out more on services at the start of the summer, but an upswing in Covid-19 cases related to the Delta variant is injecting uncertainty into the economic outlook. Personal-consumption expenditures—a measure of household spending on goods and services—rose a seasonally adjusted 1% last month. That followed a downwardly revised 0.1% drop in May, when consumers pulled back on purchases of goods but boosted spending on services.
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The University of Michigan's final consumer-sentiment reading for July increased to 81.2 from the preliminary reading of 80.8 reading two weeks earlier. July’s reading was lower than June’s 85.5 but slightly beat the 80.8 reading forecast by economists polled by WSJ. (Dow Jones Newswires)
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The Chicago Business Barometer, also known as the Chicago PMI, rose to 73.4 in July from 66.1 in the prior month, putting the index of business conditions in the Chicago region a touch short of its 47-year high. Readings over 50 signal expansion. (DJN)
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Key Developments Around the World
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European Bonds Rally on Bets on Weak Growth, Inflation
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Government bonds in the eurozone have rallied in recent weeks as investors bet on a growing divergence in economic fortunes between slowgrowing Europe and the rest of the world—especially the U.S.
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World Economy Caps Extraordinary Return From Covid-19 Collapse
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The world economy likely returned to its pre-pandemic size in the spring, marking an extraordinary comeback from the deepest global downturn in decades. But new variants of Covid-19 are casting a cloud over the global expansion.
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Two U.S. Companies Seek Continued Tariffs on Imported Solar Panels
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Two small U.S. solar companies plan to petition the government to extend tariffs on solar cell and panel imports, reigniting a fight that has split the industry—and one that could force the White House to choose sides.
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A Popular Bet on Chinese Growth Is Falling Out of Favor
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Souring diplomatic and trade relations between Beijing and Canberra have recently made the Australian dollar less attractive as a proxy for Chinese growth and a favorite bet of currency traders and sovereign-wealth funds.
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Cash-Strapped Corner of China Finds a Financial Tonic—Hard Liquor
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China’s biggest liquor company, Kweichow Moutai Co., provides a financial buffer for Guizhou, a region struggling with high debts and low income and heavily reliant on transfers from the central government.
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Financial Regulation Roundup
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SEC to Set New Disclosure Requirements for Chinese Company IPOs
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U.S. regulators will require additional disclosures from Chinese companies before allowing them to sell shares in the U.S., following new restrictions from China on companies that raise capital offshore.
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Fintechs Need to Be Regulated More Like Banks, Says Report
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Stress Tests Show European Banks Would Survive Severe Recession
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Europe’s largest banks are overall strong enough to withstand another severe economic shock even after the challenges of the pandemic, results of a stress test show, paving the way for many to restart distributing dividends.
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Binance to Wind Down Derivatives Offerings in Parts of Europe
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Binance, the world’s largest cryptocurrency exchange, will cease offering futures and derivatives products to investors in some European countries amid a growing crackdown by regulators.
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12:30 a.m.: Reserve Bank of Australia releases policy statement
2 p.m.: Fed’s Bowman speaks at Fed seminar on inclusive economic recovery
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Time N/A: Central Bank of Brazil releases policy statement; Bank of Thailand releases policy statement
10 a.m.: Fed’s Clarida speaks on monetary policy at Peterson Institute for International Economics webcast
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Underlying Inflation Ticked Higher in June, Trend Remains Modest
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A surge in inflation that Federal Reserve Bank of St. Louis leader James Bullard said Friday outstripped central bank expectations doesn’t seem to be leaking much into underlying price pressures. The Federal Reserve Bank of Dallas said Friday its Trimmed Mean PCE edged up 2% in June from the same month a year earlier, from a 1.9% annualized rise in May. The Trimmed Mean was at 1.7% at the start of 2021. The index strips out the biggest price movers in a given month to better gauge inflation trends. June’s increase compares with a 4% rise in the personal-consumption expenditures price index over the same period. Federal Reserve officials expect inflation to ease over time and tie the jump to pressures caused by the economy’s reopening, although some worry high inflation could persist.
—Michael S. Derby
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China’s Tech Crackdown Could Backfire Badly
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Beijing is right to see anticompetitive practices in its internet tech sector as a major problem, but when a government believes it can create—or destroy—whole industries at will, things can easily go awry, Nathaniel Taplin writes.
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Canada’s gross domestic product fell 0.3% in May from the previous month to a seasonally adjusted 1.971 trillion Canadian dollars, or the equivalent of about $1.584 trillion, Statistics Canada said, while in April GDP fell by a revised 0.5%, compared with a previously reported 0.3% contraction.
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Eurozone gross domestic product grew 2.0% in the second quarter, statistics agency Eurostat said in a first estimate, compared with a 1.5% expansion expected by economists polled by The Wall Street Journal. Year-on-year, the economy grew 13.7%, compared with 13.2% growth expected by economists polled by the Journal.
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Germany’s gross domestic product rose by an adjusted 1.5% in the second quarter from the previous quarter on the back of higher household and government consumption expenditure, Destatis said, compared with 1.9% growth expected by economists surveyed by The Wall Street Journal. GDP expanded 9.2% on year in the second quarter on a calendar and price-adjusted basis, compared with 9.6% growth forecast by economists.
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France’s economy grew in the second quarter despite continued restrictions to limit the spread of the coronavirus pandemic, as the eurozone’s second-largest economy expanded by 0.9% after stagnating in the previous quarter, statistics agency Insee said. Economists polled by The Wall Street Journal had forecast 0.8% growth.
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Spain’s economy expanded at a faster-than-expected pace in the second quarter, thanks to a more rapid easing of coronavirus restrictions than elsewhere, with the eurozone’s fourth-biggest economy posting 2.8% growth over the previous, following a 0.4% contraction in the first quarter, according to a first estimate by statistics agency INE. Economists polled by The Wall Street Journal had forecast 2.1% growth for the quarter.
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South Korea’s July export growth moderated, rising 29.6% from a year earlier to a record $55.44 billion following June’s revised 39.8% surge, according to preliminary data from the trade ministry in Seoul early Sunday.
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Mexico’s economy grew by 1.5% in seasonally adjusted terms in the second quarter from the first quarter, led by a surge in services as travel picked up and consumers returned in greater numbers to stores and restaurants, the National Statistics Institute said.
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Brazil’s unemployment rate edged down to 14.6% in the three months through May from a peak of 14.7% in the three months through April but still higher than the 12.9% in the three months through May of 2020, the Brazilian Institute of Geography and Statistics said.
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Peru’s central bank sold $293 million on the spot market as the sol depreciated to a historic low against the U.S. dollar, closing Friday at 4.07 per dollar, versus 3.928 in the previous session. The sol fell amid investor concerns about President Pedro Castillo’s administration, which took power on Wednesday. He appointed far-left politicians to his cabinet, appearing to shun more moderate advisers.
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The union for workers at Chile’s La Escondida copper mine said its members voted to reject the most recent contract offer from the mine’s owner and go on strike, potentially risking disruptions to the supply of a key metal as the world’s economy continues to recover from the impact of the coronavirus pandemic.
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This newsletter is compiled by James Christie in San Francisco and Ed Ballard in London.
Send us your tips, suggestions and feedback. Write to:
Jon Hilsenrath, Michael Derby, Nell Henderson, Nick Timiraos, Jason Douglas, Paul Hannon, Harriet Torry, Kate Davidson, David Harrison, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Michael Maloney, Paul Kiernan, James Glynn
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