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Fed Research Forays Come Under Fire; Nominee Barr Faces Senate Questioning; China Cuts Key Rate
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Good day. Are the Federal Reserve’s policy and research interests going beyond what Congress intended for the central bank? Sen. Pat Toomey (R., Pa.) thinks so, claiming in letters to several regional Fed banks that their expanded research interests and activities represent “mission creep,” Michael S. Derby reports. Fed officials have countered that research into topics such as climate change informs their understanding of the economy and monetary policy. Meanwhile, Michael Barr, President Biden’s pick for Fed vice chairman for bank supervision, told Senators he supports a plan to overhaul how banks lend to lower-income communities, and that he would want to get a broad view of various bank capital and liquidity requirements before pushing for adjustments to specific rules piece by piece. And in China earlier today, in an unexpected policy
shift that economists say would likely help the country’s moribund housing market but bring only limited relief to its struggling economy, the central bank cut a key interest rate while keeping another unchanged.
Now on to today’s news and analysis.
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Some Fed Officials Face Heat for Wading Into Hot-Button Issues
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Minneapolis Fed President Neel Kashkari has stressed the importance of education for individuals as well as the broader economy. PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS
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A regional Federal Reserve leader’s foray into a Minnesota education campaign has reinvigorated a debate over whether the central bank’s increasingly expansive policy and research interests are going beyond what Congress intended for the central bank.
Sen. Pat Toomey (R., Pa.) last month criticized Minneapolis Fed President Neel Kashkari for his bank’s support of a proposed change in the Minnesota constitution that aims to ensure all state students get the best possible education. That followed critiques the senator sent to some of the regional Fed banks last year over their activities on other issues, including climate change and racial inequality.
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Fed Nominee Michael Barr Supports Rewriting Lending Rules
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Michael Barr, President Biden’s pick to become the government’s most influential bank regulator, told senators he supports a plan to overhaul how banks lend to lower-income communities.
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Former New York Fed President Gerald Corrigan Dies
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Gerald Corrigan, who served as president of the Federal Reserve Bank of New York during episodes of Wall Street turmoil in the late 1980s and early 1990s, died Tuesday. He was 80 years old and had Alzheimer’s disease.
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Derby's Take: Chicago Fed Chief Says Dot Plot Is Doing Big Work for Policy Outlook
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The Federal Reserve’s frequently maligned interest rate projections, compiled in the so-called dot plot, have been doing particularly vital work for the central bank over recent months, a veteran Fed official said.
Speaking with reporters Tuesday, Federal Reserve Bank of Chicago President Charles Evans explained that the quarterly forecasts have been instrumental in conditioning markets on what the central bank is likely to do with its federal funds target rate, sparing the Fed from having to show its commitment to lower inflation via unpredictable and potentially very aggressive rate actions, as it did in 1994. Read more.
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Number of People Receiving Jobless Benefits Reaches 52-Year Low
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So-called continuing jobless claims, a proxy for the number of people receiving payments from state unemployment programs, fell to 1.3 million for the week ended May 7, the lowest level since December 1969.
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Gas Prices Hit New Highs Again With All 50 States Above $4 a Gallon
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The average price for a gallon of regular unleaded gasoline in the U.S. hit a record of $4.59 on Thursday, according to AAA. It is the highest national average recorded by AAA since it began tracking fuel costs in 2000.
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U.S. Home Sales Cool Amid Higher Rates, Record Prices
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The median U.S. home price climbed in April to a record of $391,200, while existing-home sales fell 2.4% from March to a seasonally adjusted annual rate of 5.61 million, the weakest rate since June 2020.
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Key Developments Around the World
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Senate Passes $40 Billion Aid Package for Ukraine
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China’s Central Bank Makes Unexpected Rate Cut as Growth Crumbles
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China Insists Party Elites Shed Overseas Assets
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China’s Communist Party will block promotions for senior cadres whose spouses or children hold significant assets abroad, as Beijing seeks to insulate its top officials from the types of sanctions now being directed at Russia.
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Chinese Developers Get State Help to Tap Bond Market
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China is helping some stronger developers tap the domestic bond market to support the ailing property sector, following other measures, including a cut by the central bank in mortgage rates for first-time home buyers.
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Japan Inflation Tops 2% for First Time in 13 Years
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Consumer prices in Japan rose at a pace above 2% for the first time in more than 13 years, a sign of how higher costs of energy and raw materials are hitting even the world’s most inflation-resistant regions.
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Glynn’s Take: RBA Likely to Consider Big Rate Hike in June
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The Reserve Bank of Australia's upcoming board meeting on June 7 will again be dominated by the uneasy reality that policy settings remain a long, long way from where they should be given the huge jump in inflation over the past six months.
For that reason alone, a 40-basis-point rise in the official cash rate next month to 0.75% can't be ruled out. The RBA faces more than the usual amount of uncertainty around the economic outlook and won't go overboard. But there is scope to act early and with urgency. Read more.
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Financial Regulation Roundup
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Financial Crimes Efforts Get Boost as Part of Ukraine Aid Package
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The U.S. Senate approved nearly $100 million in funds to boost efforts to crack down on financial crimes, including through the enforcement of sanctions on Russia and the seizing of assets tied to its invasion of Ukraine.
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Crypto Funds Keep Raising Money, Despite Market Meltdown
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Money keeps flowing into crypto, running against the steady stream of bad news and market meltdowns, with Toronto-based Round 13 Capital saying on Thursday it raised $70 million to invest in blockchain companies.
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Time N/A: ECB’s Lagarde and Panetta at G7 finance ministers and Central bank governors meeting
8 a.m.: ECB’s Lane in session on ‘Macro-bridging policies – effectiveness and costs’ at Nobel Symposium
8:30 a.m.: ECB’s Fernandez-Bollo speaks at ‘Building the Financial System of the 21st Century’
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2 a.m.: World Economic Forum annual meetings
12 p.m.: Atlanta Fed’s Bostic speaks on economic outlook at Loudermilk Conference Center in Atlanta
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In This Economy, Getting Fired Takes Hard Work
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Some jobs have always required little more than the ability to stay awake, but in the tightest labor market in a half-century, people in higher functions may get by just going through the motions, too, Callum Borchers writes.
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American Stores Have Too Much of the Wrong Stuff
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Retailers reporting earnings have seen a surge of inventory as they found themselves carrying too much stuff consumers no longer want so much of, including basic apparel, home appliances and furniture, Jinjoo Lee writes.
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The Leading Economic Index compiled by the Conference Board fell 0.3% to 119.2 in April, compared with a revised 0.1% increase in March, the private research group said. The decline in the gauge of U.S. business cycles was the second this year, pointing to moderating economic growth in the short-term. Economists polled by The Wall Street Journal expected the index to be unchanged. (Dow Jones Newswires)
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Manufacturing activity in the Philadelphia area expanded marginally in May, posting its weakest growth in two years, according to a survey by the Federal Reserve Bank of Philadelphia. Its index for current general activity of the Business Outlook Survey fell from 17.6 in April to 2.6 this month, the lowest reading since May 2020 and missing the consensus 15.0 forecast of economists polled by The Wall Street Journal. (DJN)
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Canada new-home prices cooled in April, another sign of a pullback in the country’s real-estate market stemming from higher interest rates. Statistics Canada said its new-house price index rose by 0.3% from March and by 9.4% from a year earlier, the slowest growth in over a year, while in the first quarter prices rose on average 1.1%. (DJN)
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Brazil's inflation outlook has grown worse as more fuel-price hikes loom, economists at XP Investimentos said in a research note raising their forecast for inflation this year from 7.4% to 9.2%. Brazil’s statistics agency said last week consumer prices rose 12% in April from a year earlier. (DJN)
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African central banks will likely diverge from the trend in developed countries of hiking interest rates to focus on supporting their strained economies, amid spiraling food prices, says financial services firm AZA Finance. India's recent ban on wheat exports has pushed grain prices higher, piling more pressure on African importers already strained by global supply disruptions and Russia's invasion of Ukraine. (DJN)
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The South African Reserve Bank raised its main repo rate by 50 basis points from 4.25% to 4.75%, the highest increase since 2016, amid rising inflation. Governor Lesetja Kganyago said the bank’s monetary policy committee took the decision against the backdrop of the ongoing recovery of the South African economy from the pandemic, and global implications of the war in Ukraine. (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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