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St. Louis Fed Chief Sees Rate Increase Next Year, Says Inflation More Intense Than Expected
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Good day. St. Louis Fed President James Bullard said he expects the Fed to pull the trigger on a rate increase next year, in part because inflation is stronger than he and his colleagues anticipated a few months ago. The economic recovery is creating a seller’s market for low-wage workers, offering them bonuses, bigger raises and competing offers. Meanwhile, many businesses, particularly in the manufacturing sector, are under pressure from supply-chain disruptions as well as labor shortages, adding to pressure on inflation.
Now on to today’s news and analysis.
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Fed’s Bullard Pencils In Rate Increase in 2022
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Federal Reserve Bank of St. Louis President James Bullard said that when he submitted forecasts at this week’s Federal Open Market Committee meeting, “I put us starting in late 2022.”
PHOTO: ALASTAIR PIKE/AGENCE FRANCE-PRESSE/GETTY IMAGES
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Federal Reserve Bank of St. Louis President James Bullard said the economy is seeing more inflation than he and his Federal Reserve colleagues anticipated only a few months ago, and that he now expects to see a central bank rate increase next year.
Speaking Friday on CNBC, Mr. Bullard said that when he submitted forecasts at last week’s Federal Open Market Committee meeting, “I put us starting in late 2022” with the first move up from near-zero short-term interest rates currently. Mr. Bullard also said “the inflationary impulse, I think, is more intense than we were expecting.”
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Key Developments Around the World
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Tight Labor Market Returns the Upper Hand to American Workers
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Low-wage workers found something unexpected in the economy’s recovery from the pandemic: leverage. Ballooning job openings in fields requiring minimal education—including in restaurants, transportation, warehousing and manufacturing—combined with a shrinking labor force are giving low-wage workers perks previously reserved for white-collar employees. That often means bonuses, bigger raises and competing offers.
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Supply Crunch Risks Extending Into 2022, Stoking Inflation
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Supply constraints that have caused shortages of everything from semiconductors to sweatpants are deepening, adding to pressure on inflation and testing the Federal Reserve’s resolve to keep juicing the economy.
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China Tweaks Deposit Rate Rules to Guide Funding Costs Down
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China has tweaked the mechanism to determine the upper limits on banks’ deposit rates, leading to a reduction of longer-term funding rates, as competition for stable sources of deposits has intensified.
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For Many Home Buyers, a 5% Down Payment Isn’t Enough
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In the turbocharged housing market, prices are surging and homes on the market are routinely selling for far more than the listing price. Those who can’t afford big down payments are often the ones losing out.
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Financial Regulation Roundup
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European Union Lifts Bond-Sale Ban for Some Banks
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The European Union lifted a ban against some banks that had been excluded from working on its bond sale, including some of the world’s largest because of their participation in cartels in bond and currency markets.
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HSBC to Take $3 Billion in Losses on Sale of Troubled French Bank
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HSBC Holdings PLC, one of the world’s largest lenders, expects to take $3 billion in losses as part of an agreement to sell its unprofitable French retail bank, in a sign of the souring fortunes of European banking.
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Deutsche Bank Jumps Back Into Payments With Fiserv Deal
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Nearly a decade after getting out of the digital payments business, Germany’s largest lender is setting up a joint venture with U.S. payments giant Fiserv Inc. to offer customers payments-processing services.
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8:30 a.m.: European Central Bank’s Lagarde gives prerecorded video message to Women Political Leaders Summit 2021
9:45 a.m.: Dallas Fed’s Kaplan, St. Louis Fed’s Bullard speak at virtual Official Monetary and Financial Institutions Forum Fed Week event
10:15 a.m.: European Central Bank’s Lagarde gives introductory statement at Committee on Economic and Monetary Affairs of the European Parliament hearing
3 p.m.: New York Fed’s Williams speaks at Midsize Bank Coalition of America webinar
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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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The Skies Are Darkening for Emerging-Market Stocks
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Emerging-market stocks have mostly traded sideways in recent months, and there are plenty of reasons to expect their struggles to linger, like pressure on central banks to roll back accommodative policies, Mike Bird writes.
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New Test for Central Bankers’ Cool: Booming House Prices
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With consumer prices rising sharply, central bankers are having to work hard to resist the temptation to lift interest rates, and a real-estate boom could make the job even tougher, Jon Sindreu writes. He notes that on Thursday, Norway’s central bank all but guaranteed it will increase borrowing costs in September, placing it far ahead of the Federal Reserve, saying in a statement that it “placed weight on the marked rise in house prices.”
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The U.S. is likely to be the top destination for overseas investment this year and next, according to new U.N., with foreign businesses drawn by the prospect of a rapid and sustained rebound in consumer spending and the Biden administration’s infrastructure plans.
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Yields on Chinese junk bonds have jumped to levels last hit during the tail end of last year’s market turbulence, signaling growing investor concern about defaults.
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Japan's Nikkei Stock Average fell 3.3% to 28010.93, its biggest percentage point drop since Feb. 26, hit by growing concerns about a potential U.S. policy rate increase. (Dow Jones Newswires)
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Retail sales in the U.K. fell 1.4% on month in May after a 9.2% monthly gain in April amid the reopening of non-essential retail shops, the Office for National Statistics said. Economists polled by The Wall Street Journal expected sales to rise 1.6%. (DJN)
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Canadian new house prices rose 1.4% in May from April amid rising construction costs linked to some building material shortages, and advanced 11.3% from a year earlier, the largest increase in more than 14 years, Statistics Canada said. (DJN)
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As the U.S. and its allies chase China in procuring critical minerals essential for modern technologies, they face a major hurdle: a lack of companies and projects with an established record.
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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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