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Brainard: Fed Sticking With Playbook; Inflation Expectations Rise in Europe; Biden Stimulus Details, Powell Speech on the Agenda
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Good day. The Fed's aggressive policy action is here to stay for some time, Lael Brainard said yesterday, adding that the central bank isn't about to ease its asset purchases intended to help spur the U.S. economy's rebound. The Fed's Beige Book report showed the economy grew modestly as 2020 came to a close. In Europe, hopes around the rollout of Covid-19 vaccines and accommodative central-bank policy are boosting inflation forecasts. Looking to the day ahead, President-elect Joe Biden is expected to unveil the next administration’s plans for coronavirus relief, and a speech from Fed Chair Jerome Powell is scheduled for 12:30 p.m. ET.
Now on to today’s news and analysis.
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Brainard: Fed Committed to Actions That Will Achieve Mandates
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Lael Brainard, governor of the U.S. Federal Reserve, said the economy is “far away” from the central bank’s employment and inflation goals. PHOTO: ZACH GIBSON/BLOOMBERG NEWS
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Federal Reserve governor Lael Brainard said the U.S. central bank will continue to support the economy’s recovery with aggressive policy actions for some time to come, and that it has no imminent plans to pare back the pace of its bond buying stimulus effort. “We are strongly committed to achieving our maximum-employment and average inflation goals” and “it is too early to say how long it will take” to do that, Ms. Brainard said in a virtual appearance.
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Inflation Expectations in Europe Rise to Highest in Over a Year
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European inflation expectations are rising as investors anticipate ongoing easy monetary policy and a global economic rebound boosted by U.S. fiscal spending. The closely watched 5-year 5-year forward inflation swap rate for the euro area rose above 1.35% Tuesday, the highest in over a year.
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“This is quite a remarkable move, it has surprised us”
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—Jorge Garayo, rates and inflation strategist at Société Générale
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Beige Book: U.S. Economy Saw Modest Growth in Late 2020
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The Federal Reserve’s characterization of economic conditions represented a downgrade from its previous Beige Book report, released Dec. 2, when policy makers had described economic growth as “modest or moderate.”
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Gasoline Cost Drives Increase in Consumer Prices at End of 2020
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The consumer-price index—which measures what consumers pay for everyday items—increased a seasonally adjusted 0.4% in December compared with November, with gasoline prices up 8.4% over the month.
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Democrats Plan Policy Path on Next Round of Stimulus Checks
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Democrats take control of the White House and Senate with a large economic-relief package and $2,000 stimulus checks atop their agenda. But their slim majorities will challenge their ability to design and pass measures quickly.
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Key Developments Around the World
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China’s Economy Powers Ahead While the Rest of the World Reels
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While the U.S. and Europe wait for vaccine rollouts to get fully back on track, China is the only major economy expected to report growth for 2020, and it has shored up its position as the world’s factory floor.
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Japan’s Regional Economies Show Signs of Recovery, BOJ Says
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The Bank of Japan said Thursday that the country’s regional economies have shown signs of recovery, although they remain in “a severe situation” due to the impact of the coronavirus pandemic.
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Financial Regulation Roundup
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LSE’s $15 Billion Refinitiv Deal Is Cleared by Key European Regulator
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Europe’s antitrust watchdog approved London Stock Exchange Group PLC’s $15 billion deal to acquire Refinitiv Holdings Ltd. with conditions, removing a key hurdle in the company’s bid to challenge other industry heavyweights.
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Americans Won’t Be Banned From Investing in Chinese Tech Giants
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The U.S is expected to let Americans continue to invest in Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc. after weighing the firms’ alleged ties to China’s military against the potential economic impact of banning them.
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Supreme Court Case Tests FTC’s Powers to Recoup Ill-Gotten Gains
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Supreme Court justices voiced mixed views Wednesday about whether the Federal Trade Commission has broad authority to demand that defendants who cheat or deceive the public must return the money they gain from that activity.
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Defense Act Expands Scope of Foreign Bank Records U.S. Authorities Can Obtain
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U.S. authorities have more power to obtain documents from foreign banks with U.S. correspondent accounts under recently passed defense-policy legislation.
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7:30 a.m.: European Central Bank releases Dec. 9-10 meeting minutes
9 a.m.: Boston Fed’s Rosengren speaks at virtual Recover Boston event on economic issues
11 a.m.: Atlanta Fed’s Bostic speaks on small businesses at virtual event on an inclusive recovery
12:30 p.m.: Fed’s Powell speaks at Princeton University virtual event
1 p.m.: Dallas Fed’s Kaplan speaks at virtual event hosted by University of Texas at Austin
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4:10 a.m.: European Central Bank’s Enria gives speech at virtual Bank of Italy workshop on crisis management framework for EU banks
8:30 a.m.: U.S. Labor Department releases December PPI; U.S. Commerce Department releases December retail sales
9:15 a.m.: Federal Reserve releases December U.S. industrial production
10 a.m.: University of Michigan releases preliminary January U.S. consumer sentiment
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New Paper Says Upside Risks for Economy Are Growing
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Uncertainty remains the defining feature of the U.S. economic landscape, but things may be looking up. “Covid-related uncertainty remains a dominant feature of the decision-making environment for businesses, but the nature of the uncertainty perceived by businesses has shifted since the early phases of the pandemic: Downside tail risks have diminished considerably, and upside tail risks have grown,” says a new report from the Becker Friedman Institute. Its finding is based on several surveys of the business sector, as well as market data. Fed officials have pointed to uncertainty when declining to offer firm guidance about the monetary policy outlook. But in a speech Wednesday, Fed governor Lael Brainard
noted upside risks to the economy could come from a faster-than-expected rollout of coronavirus vaccines.
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Prices, and Confusion, Set To Rise as Pandemic Fades
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Things that kept inflation low during the pandemic are different than those that used to keep it low, making whipsawing prices when the crisis passes something to look out for, Justin Lahart writes.
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The U.S. budget gap from October through December totaled a record $573 billion, a 61% increase from the same period a year earlier, the Treasury Department said.
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Chinese exports rose 3.6% from a year earlier in 2020 to a record $2.6 trillion, according to data from China’s General Administration of Customs. (Dow Jones Newswires)
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Germany's gross domestic product fell by an adjusted 5% in 2020, according to a preliminary estimate by the German statistics office, slightly less than the 5.1% contraction forecast by economists polled by WSJ. (DJN)
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Eurozone industrial production rose for the seventh straight month in November, aided by a surge in Irish output, with the output of factories, mines and utilities across the currency area 2.5% higher than in October and 0.6% lower than a year earlier, the European Union’s statistics agency said. (DJN)
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Dwindling stockpiles of U.S. grains have sent prices for corn, soybeans and wheat skyrocketing.
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Investors wary of lofty stock valuations and falling bond prices are turning to an unexpected haven: corporate loans with junk credit ratings.
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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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