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Powell Leaves No Doubt Inflation Is Fed's Focus; Bullard Says Markets Accepting Fed Rate Increases
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Good day. Jerome Powell said yesterday that the Federal Reserve's resolve in combating the highest inflation in 40 years shouldn’t be questioned, even if it requires pushing up unemployment. “Restoring price stability is an unconditional need. It is something we have to do,” the Fed chairman said during an interview at The Wall Street Journal’s Future of Everything Festival. “There could be some pain involved,” he added. Mr. Powell went on to signal that the Fed likely would follow the half-percentage-point interest rate increase earlier this month with similar moves in June and July. Also at the Journal event, Wells Fargo & Co. CEO Charlie Scharf said there was “no question” the U.S. economy is in store for a downturn. Separately, St. Louis Fed President James Bullard reiterated Tuesday that the Fed is on track for half-percentage-point rate
rises at coming policy meetings, adding that markets expect the increases. And Federal Reserve Bank of Chicago President Charles Evans said he was expecting "that before December, we will have completed in any 50s and have put in place at least a few 25s."
Now on to today’s news and analysis.
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Powell Says Fed Has Resolve to Bring U.S. Inflation Down
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Jerome Powell told the WSJ Future of Everything Festival he expects some economic pain as the Fed's measures to curb inflation affect the labor market.
Photo: Andy Davis for The Wall Street Journal
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Speaking at The Wall Street Journal’s Future of Everything Festival yesterday, Federal Reserve Chairman Jerome Powell said he hoped the central bank could bring down inflation while preserving a strong labor market, which he said might lead the unemployment rate—near half-century lows of 3.6% in April—to rise slightly. “It may not be a perfect labor market,” he said.
The Fed chairman repeated his hope that the central bank can curtail high inflation without spurring a large rise in unemployment. However, Mr. Powell said, there is little from modern economic experience to suggest that outcome can be achieved. “If you look in the history book and find it—no, you can’t,” he said. “I think we are in a world of firsts.”
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Fed’s Bullard Says Markets Have Priced in Central Bank Tightening
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Federal Reserve Bank of St. Louis President James Bullard reiterated the U.S. central bank is on track for half-percentage-point rate rises at the next couple of policy meetings, noting “We have a good plan for now.”
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Fed’s Evans Says Inflation Is Much Too High and Fed Must Act
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Federal Reserve Bank of Chicago President Charles Evans said aggressive rate rises are needed to get inflation under control. “Inflation is clearly much too high and monetary policy must be repositioned to address this,” he said.
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U.S. Economy Is Headed for a Downturn, Wells Fargo CEO Says
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“The fact that everyone is so strong going into this should hopefully provide a cushion such that whatever recession there is, if there is one, is short and not all that deep,” Wells Fargo & Co. CEO Charlie Scharf said Tuesday.
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U.S. Retail Sales Grew 0.9% in April
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Americans continued to pump money into the U.S. economy in April, with increased retail spending offering the latest sign consumers are driving demand at stores and manufacturers despite the pinch from high inflation.
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Key Developments Around the World
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U.S. Floats Tariff on Russian Oil as EU Oil-Sanction Talks Drag On
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The U.S. is talking with the European Union about ways to limit global energy price increases that could be caused by an EU-proposed embargo on Russian oil, looking at additional options like a tariff on imports of Russian oil.
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U.K. Inflation Hits 40-Year High, Putting Government on Defensive
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The U.K.’s annual rate of inflation jumped to a forty-year-high in April, the highest level recorded by an industrialized nation since the start of the global price surge last year. Consumer prices in April were 9% higher than a year earlier, a jump from 7% in March and the highest inflation rate since March 1982, the Office for National Statistics said.
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How Germany Is Racing to Sever Dependence on Russian Energy
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Since the Feb. 24 invasion of Ukraine, Berlin has spent billions in taxpayer money to curtail its Russian energy dependence, taking control of Moscow-owned energy assets in Germany and securing new international supplies.
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Japan’s Economy Shrank Slightly in First Quarter
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Japan’s economy contracted in the first three months of this year, when restrictions related to a resurgence of Covid-19 infections held back consumer spending. While economists expect a rebound in the current April-June quarter, the outlook for this year is cloudy because of factors including Russia’s invasion of Ukraine, the rise in energy prices and the weakness of the yen, which is near a 20-year low against the dollar.
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China’s New Home Prices Fall for the First Time in Over Six Years
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A monthly measure of new home prices in China fell for the first time in more than six years, offering further evidence of the pain that Beijing’s regulatory campaign is inflicting on a sector that has long served as a growth engine.
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Financial Regulation Roundup
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Allianz Subsidiary Pleads Guilty to Defrauding Investors
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One of Allianz SE’s U.S. investing divisions pleaded guilty to securities fraud and agreed to pay about $6 billion in penalties and restitution to investors who suffered losses when some of the subsidiary’s hedge funds tanked in 2020.
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Coinbase to Slow Hiring Spree as Users Drop Off
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Coinbase Global Inc., the largest U.S.-based crypto company, will slow its pace of hiring amid a crash in crypto markets, its president said in a post on the company’s blog. Entering 2022, Coinbase had planned to triple its head count.
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8:30 a.m.: Canada consumer-price index for April; U.S. housing starts for April
10 a.m.: ECB’s Enria speaks at Associazione Bancaria Italiana - Comitato Esecutivo in Rome
4 p.m.: Philadelphia Fed’s Harker speaks at Mid-Size Bank Coalition of America CEO Talk
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Time N/A: ECB’s Lagarde and Panetta at G7 finance ministers and Central bank governors meeting
7:30 a.m.: ECB publishes account of Governing Council April 13-14 monetary policy meeting
8:30 a.m.: ECB’s de Guindos speaks at ‘Building the Financial System of the 21st Century’
10 a.m.: U.S. existing home sales for April; U.S. Leading Index for April
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New York Fed Finds Rising Concern About Business Climate
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A survey this month of service firms in New York, northern New Jersey and southwestern Connecticut by the Federal Reserve Bank of New York underscores concern about the business climate. The survey’s headline business activity index fell thirteen points to 11.5, while its business climate index fell thirteen points to minus 27.1, indicating firms “generally viewed the business climate as worse than normal for this time of year,” according to the survey report. “The prices paid index and the prices received index held at near record-high levels,” the report added, noting that “looking ahead, optimism continued to wane, with less than half of respondents expecting activity to increase over the next six
months.”
—Michael S. Derby
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U.S. Consumers Are Almost Too Healthy
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Retail sales data might be understating just how heady U.S. consumer demand is, and consumers might be propelling the economy way past the Federal Reserve’s goal posts, Justin Lahart writes.
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Why This Chinese Downturn Is Different
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While there has been plenty of talk regarding the need to shore up the economy at the top echelons of China’s government, the actual policy response so far has been extremely underwhelming, Nathaniel Taplin writes.
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Global trade flows fell slightly on month in March, indicating Russia’s invasion of Ukraine and lockdowns in China to contain outbreaks of Covid-19 were holding back economic activity. An early indicator of trade flows developed by The Wall Street Journal points to a 0.4% decline in March, adjusted for the seasonal ups and downs of exports of goods between countries. (Dow Jones Newswires)
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U.S. industrial production rose in April for a fourth consecutive month, led by a jump in auto output and higher utilities and mining output despite continued supply-chain snarls and high costs. Production increased 1.1% on month, compared with a 0.9% rise in March, data from the Federal Reserve showed. (DJN)
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U.S. business inventories increased 2% in March after rising by a revised 1.8% in February, U.S. Commerce Department data showed. Economists polled by The Wall Street Journal expected inventories to advance 1.9%. Inventories rose by 2.3% at both wholesalers and retailers, and by 1.3% at manufacturers. (DJN)
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Confidence among U.S. home builders fell a fifth straight month in May as rising mortgage rates, increasing material costs and high prices for homes took a toll on demand, according to a survey from the National Association of Home Builders. Its housing-market index fell from 77 in April to 69, its lowest level since June 2020, when activity started to recover from the pandemic trough. A number above 50 indicates more builders view conditions as good rather than poor. (DJN)
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The eurozone economy grew modestly in the first quarter, held back by the spread of the Omicron coronavirus variant and Russia’s invasion of Ukraine, according to a second estimate. Across the 19 countries using the euro as their currency, gross domestic product grew 0.3% on quarter, compared with a first estimate of 0.2% and compared with a 0.3% rise in the previous quarter, Eurostat said. Year-on-year, the eurozone economy grew 5.1%, Eurostat added. (DJN)
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South Africa's consumer-price inflation rate was 5.9% in April, unchanged from March, Statistics South Africa said Wednesday. The reading marks the third time in five months that the annual rate was 5.9%, nearly breaching the upper limit of the central bank's target range of between 3% and 6%. (DJN)
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Zambia's central bank held its key lending rate at 9% for the second time in a row this year, citing easing inflationary pressure in Africa's second-largest copper and cobalt producer. (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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