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Fed Officials Say Covid Response Is Hobbling Rebound; U.S. Consumer Prices Rise
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Good day. Boston Fed President Eric Rosengren said a recent slowdown in U.S. economic activity is likely to persist because of difficulties states have encountered in suppressing the coronavirus pandemic. His colleague, San Francisco Fed leader Mary Daly, said the economy needs more help from Congress “now that we’re in this for a longer period of time than we hoped.” Yesterday's U.S. consumer-price data suggested that inflation firmed somewhat in July. Elsewhere, the Bank of Mexico announces its latest policy decision today. It has cut rates five times this year.
Now on to today’s news and analysis.
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Fed Officials Warn Pandemic Response Is Hobbling Rebound
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Boston Fed President Eric Rosengren says easing restrictions prematurely hurt both the economy and public health down the road. PHOTO: STEVEN SENNE/ASSOCIATED PRESS
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Boston Fed President Eric Rosengren said that he expected the unemployment rate, slightly above 10% in July, would be slow to decline given worsening public-health situations in more states that were quick to lift lockdown orders in May. Easing restrictions prematurely “hurt both the economy and public health down the road,” he said. Meantime, San Francisco Fed President Mary Daly told reporters that additional relief for state and local governments would be important to prevent deeper cutbacks in services and layoffs of public workers. “There is not a situation where states misspent or misallocated," she said.
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July Consumer Prices Rise Amid Increased Demand
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U.S. consumer prices rose in July on higher costs for a range of products and services, a sign of firming inflation as demand for goods rebounded following steep declines earlier in the coronavirus pandemic.
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Inflation Reading No Match for Fed’s Dovish Turn
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"What is more important for investors right now is not the hard-to-interpret readings that price measures are showing, but how the Fed is changing its views about inflation," Justin Lahart writes for Heard on the Street. The Fed is reviewing its policy-making strategy and may start letting inflation exceed its target, aiming for an average rate of 2%. "Whether the Fed can actually accomplish that is an open question, but investors appear to be responding to the idea of an easier Fed."
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Fed's Main Street Lending Up to $253 Million
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The government's program to help midsize businesses hit by the coronavirus pandemic is gathering momentum. The Main Street Lending Program had settled 32 loans worth $253 million as of Monday, according to the Federal Reserve Bank of Boston, up from $109 million on Aug. 4. Critics say the program, which was set up by the Fed and Treasury, took too long to get off the ground and has only disbursed a tiny fraction of its $600 billion of lending potential. But Boston Fed President Eric Rosengren expects activity to pick up. "Some seem eager to suggest that the Main Street program's modest initial activity is evidence of failure," Rosengren said in a speech. "I completely disagree." (Dow Jones Newswires)
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Most U.S. Cities Expect Next Fiscal Year to Get Worse, Survey Finds
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Most U.S. cities say continuing economic damage from the coronavirus pandemic will leave them in worse financial shape in the coming year than they were earlier in the crisis, raising the odds of deeper municipal layoffs and service reductions, according to a new survey.
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Funding for $300-a-Week Jobless Benefits May Run Out in Six Weeks
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Based on the current number of unemployment benefit recipients, a Labor Department official said the $44 billion in funds allocated for the enhanced benefits could be spent in five or six weeks, if all states participate.
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Coronavirus Negotiators Remain ‘Miles Apart,’ Pelosi Says
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The standoff between Democrats and Republicans over another coronavirus-relief bill showed no signs of abating Wednesday, as negotiations threatened to stall until next month, when lawmakers must reach an agreement to keep the government funded.
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Key Developments Around the World
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Coronavirus Projected to Sap More Oil Demand Than Expected
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In its monthly oil market report, the International Energy Agency forecast a sharper contraction in global demand for 2020 for the first time in several months. The Organization of the Petroleum Exporting Countries also cut its demand forecast.
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Taiwan Seeks to Start Free-Trade Talks With U.S.
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Taiwanese President Tsai Ing-wen said she wants to start talks on a free-trade pact with the U.S., part of a broad effort to deepen her island democracy’s partnership with Washington and resist pressure from Beijing.
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Financial Regulation Roundup
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Borrowers Face New Fee to Cover Heightened Risks
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Fannie Mae and Freddie Mac said they would impose a new fee to insulate themselves from losses on refinanced mortgages they guarantee, a sign of potential turbulence in the housing market and a move likely to generate pushback from lenders.
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As Kamala Harris Joins Biden Ticket, Wall Street Sighs in Relief
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In choosing Ms. Harris as his vice presidential pick, Joe Biden has for now at least fended off the more progressive wing of the Democratic Party that has called for tougher financial regulation.
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U.S. Prepares Sanctions Against Hezbollah’s Allies in Lebanon
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The Trump administration is preparing to impose anticorruption sanctions against prominent Lebanese politicians and businessmen in an effort to weaken Hezbollah’s influence in the aftermath of last week’s explosion in Beirut’s port.
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The European Digital Bank That Is Prospering in the Pandemic
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Shares of Milan-headquartered FinecoBank have soared 24% this year, making it one of the best performers in the Stoxx Europe 600 Banks Index, and it is one of just four constituents that has risen in value this year as the broad index slumped 32%.
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Time N/A: Central Bank of Egypt releases policy statement
11 a.m.: Atlanta Fed’s Bostic speaks at National League of Cities virtual summit
2 p.m.: Bank of Mexico releases policy statement
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8:30 a.m.: U.S. Commerce Department releases July retail sales
9:15 a.m.: Federal Reserve releases July U.S. industrial production
10 a.m.: University of Michigan releases preliminary August U.S. consumer sentiment
10 a.m.: Dallas Fed's Kaplan speaks on economy in online event
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The U.S. budget gap totaled $2.8 trillion from October through July, 224% bigger than the $867 billion gap during the same period a year earlier, as government spending to combat the coronavirus continued to outpace federal tax collection.
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Investors' corporate-bond holdings hit a record high, Bank of America's August credit survey shows, with a net 62% overweight. (Dow Jones Newswires)
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U.S. rail traffic fell 6.7% last week as a 15.6% decline in carloads more than offset a 1.9% rise in the volume of intermodal containers and trailers, and traffic is now down 12.4% for the year to date, according to the Association of American Railroads. (DJN)
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The Mexican peso strengthened on Wednesday to 22.36 against the U.S. dollar from 22.40 in the previous session and ahead of today's Bank of Mexico policy meeting, at which the bank is widely expected to cut the overnight interest-rate target from 5% to 4.5%. (DJN)
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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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