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Powell to Brief Congress on Recovery's Progress; Regional Fed Chiefs Split on Tapering Prospects
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Good day. In testimony prepared for delivery on Capitol Hill today, Jerome Powell said job growth should pick up in coming months and inflation pressures should ease as the U.S. economy continues recovering from the Covid-19 pandemic. Meanwhile, New York Fed President John Williams said he isn’t ready for the U.S. central bank to dial back its support for the economy, while the leaders of the Dallas and St. Louis Fed banks said the day for paring the Fed’s bond-buying stimulus is growing closer. Investors have rushed into longer-dated Treasurys in a bet that the Fed will act more quickly against inflation.
Now on to today’s news and analysis.
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Economy Is Showing Sustained Progress, Powell Says
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Jerome Powell, at top, is set to testify on Capitol Hill on Tuesday.
PHOTO: STEFANI REYNOLDS/BLOOMBERG NEWS
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“The economy has shown sustained improvement,” Federal Reserve Chairman Jerome Powell said in testimony prepared for delivery Tuesday on Capitol Hill, noting progress on vaccinations and vast stimulus efforts by Congress and the Fed.
Mr. Powell is set to appear before the House Subcommittee on the Coronavirus Crisis to discuss the Fed’s efforts to shore up the economy since the start of the pandemic.
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Fed’s Williams Not Ready to Reduce Aid, Despite Strong Recovery
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Federal Reserve Bank of New York leader John Williams said he isn’t ready for the U.S. central bank to dial back the support it is giving the economy amid uncertainty about the recovery from the pandemic.
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Long-Dated Treasurys Win Favor on Receding Inflation Bets
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Yields on shorter-dated bonds have risen and their prices fallen in recent days, reflecting higher rate expectations after the Fed’s policy meeting last week. Meanwhile, longer-dated yields dropped because higher interest rates in the near term would likely mean slower growth and lower interest rates further into the future. These shifts, which reversed course slightly during Monday’s trading, produce what is known as the flattening of the yield curve.
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Rising Inflation Looks Less Severe Using Pre-Pandemic Comparisons
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Annual inflation hit a 13-year high in May, but annualized price growth from 2019 was more modest. A much-discussed consideration is the base effect, which is the outsize impact when comparing change from one year that was unusual to the next. This can be caused by an economic anomaly—like last year’s pandemic lockdown, when prices dropped.
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Key Developments Around the World
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Fed's Reverse Repos See Record $765 Billion Inflow
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The Federal Reserve Bank of New York said Monday it saw another record inflow of cash onto its books via the reverse repo facility. It took in $765 billion at a return of 0.05%, a rate raised from zero last week by the Federal Reserve. Central bank officials have not expressed about this wall of cash heading their way, coming largely from money market funds that are struggling to find suitable private-sector money market investments.
—Michael S. Derby
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Chip Shortages Start to Hit Consumers. Higher Prices Are Likely.
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The global chip shortage is pushing up prices of items such as laptops and printers, and threatens to do the same to other top-selling devices including smartphones, as price increases snowball their way through suppliers.
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Small Businesses on One Chicago Street Struggle to Meet Demand
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The owners of Roscoe Village Bikes say the shop should be thriving as Covid-19 restrictions fade, but sales this month are down about 10% from a year ago because the shop can’t get enough new bikes and key parts to meet demand.
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Lagarde: Eurozone and U.S. Economies in 'Different Situation'
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The euro zone and the U.S. are “clearly in a different situation” when it comes to the outlook for inflation, European Central Bank President Christine Lagarde said, playing down any impact from across the Atlantic, Reuters reported.
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Financial Regulation Roundup
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SEC Wants More Climate Disclosures. Businesses Prepare for a Fight
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The Securities and Exchange Commission is preparing to require public companies to disclose more information about how they respond to threats linked to climate change—and businesses are gearing up for a fight.
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Bitcoin Price Extends Drop After China Intensifies Crypto Crackdown
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The price of bitcoin and other cryptocurrencies slid Monday after China’s central bank ordered the country’s largest banks and payment processors to take a more active role in curbing cryptocurrency trading and related activities.
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JPMorgan Invests In Mortgage Clearinghouse
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Convicted Ex-Deutsche Bank Trader Sentenced to Prison
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James Vorley, a U.K. citizen who started working at Deutsche Bank shortly after graduating from high school, was among the dozens of traders caught in a criminal and civil campaign to stamp out spoofing, a type of market manipulation.
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U.S. Sanctions Belarus Officials Allegedly Tied to Political Crackdown
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The U.S. and its trans-Atlantic allies on Monday imposed financial sanctions against senior Belarus officials and police units the Biden administration said are responsible for escalating political repression.
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Time N/A: National Bank of Hungary releases policy statement
10 a.m.: National Association of Realtors releases May U.S. existing-home sales; European Central Bank’s Lane speaks virtually on the resilience of the euro at Athens University of Economics and Business event
10:30 a.m.: Cleveland Fed’s Mester speaks virtually on monetary policy and financial stability at Norges Bank workshop
1:30 p.m.: European Central Bank’s Schnabel gives online presentation to Rotary Club Bonn-Museumsmeile in Germany
2 p.m.: Fed’s Powell testifies via livestream on the Fed’s pandemic response before House Select Subcommittee on the Coronavirus Crisis
7:50 p.m.: Bank of Japan releases April 26-27 meeting minutes
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Time N/A: Bank of Thailand releases policy statement
3:30 a.m.: European Central Bank’s de Guindos speaks in online Q&A
8:30 a.m.: Czech National Bank releases monetary policy decision
9:10 a.m.: Fed’s Bowman speaks via prerecorded video on community development and economic resilience at Cleveland Fed policy summit
10 a.m.: U.S. Commerce Department releases May new-home sales
11 a.m.: Atlanta Fed’s Bostic speaks virtually on impact of systemic racism on entrepreneurship at Russell Innovation Center for Entrepreneurs event
12 p.m.: European Central Bank’s Lagarde gives prerecorded video message at Hertie/Delors Institute event
4:30 p.m.: Boston Fed’s Rosengren speaks virtually to New England chapter of National Association of Corporate Directors
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NY Fed Paper Pushes Back at Idea of Market Power for U.S. Firms
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Research from the Federal Reserve Bank of New York disputes the idea of greater monopoly-like power among American companies. “Our findings suggest that the market power of large U.S. firms has actually fallen in many industries since their share in the overall market has declined,” bank analysts Mary Amiti and Sebastian Heise wrote. “Our analysis suggests that the increasing concentration among U.S. firms themselves is entirely consistent with lower markups of these firms because of tougher import competition,” they added. The authors noted they view increased market power as the ability to raise prices, which can weigh on consumers.
—Michael S. Derby
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SF Fed: Expected Future Climate Policies Can Affect Decisions Now
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When it comes to government actions that will meaningfully alter the activities of companies contributing to climate change, expectations of new legislation can influence decisions before laws are approved, according to a research paper released Monday by the Federal Reserve Bank of San Francisco. The paper by Stephie Fried, Kevin Novan and William B. Peterman zeroed in on the impact of carbon taxes, which impose costs to help reduce the output of emissions contributing to global warming. “If firms expect future policy to raise the cost of carbon emissions, then they could react to this by both shifting investment towards cleaner capital and reducing overall investment,” the paper said, adding that
“these two responses lead to lower emissions, even if no actual climate policy is in place.”
—Michael S. Derby
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Erratic Data Is an Economic Symptom of the Pandemic
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Quirky events from the uneven recovery and the impossibility of getting seasonal adjustment right during the pandemic are creating a data fog that won’t lift for a few more months, so try to look through it, Alan S. Blinder writes for the WSJ opinion page. Mr. Blinder, a professor of economics and public affairs at Princeton, previously served as Fed vice chairman.
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What Investors Can Learn From the History of Inflation
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If today’s post-pandemic inflation proves sticky, will it be like the years before Paul Volcker or more like growth after World War II? These periods hold lessons about how financial markets might perform, Paul J. Davies writes.
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U.S. online retail sales will reach $865 billion in 2021, or a 13.5% increase over 2020 that would follow last year’s pandemic-fueled 32% increase, according to a forecast by FTI Consulting. (Dow Jones Newswires)
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The European Central Bank bought a net €2.7 billion in corporate bonds last week under its corporate sector purchase program, while it added a total of 21 new bonds when combining that scheme and the pandemic emergency program, ING said, citing official data. (DJN)
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Singapore's consumer price index likely rose 2.2% on year in May, according to the median estimate of 12 economists polled by the WSJ. Such a CPI reading would be the highest since May 2014. (DJN)
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The Bank of Thailand is expected to maintain its benchmark one-day repurchase rate at 0.50% on Wednesday, according to six economists polled by WSJ. (DJN)
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Consumer confidence in New Zealand rose to near its long-term average in June in a continuing recovery from last year's pandemic shocks and alongside a broader improvement in the economy, according to the quarterly Westpac McDermott Miller survey. (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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