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Fed Watching Coronavirus Carefully; Powell Reiterates Fed's Wait-and-See Stance on Capitol Hill
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Good day. Federal Reserve Chairman Jerome Powell told lawmakers that the central bank isn't looking to change interest rates now, but stressed it is monitoring the impact of the coronavirus outbreak on the global economy. Mr. Powell also discussed the transition away from Libor, climate change, digital currencies and the importance of fiscal policy in a downturn at a House Financial Services Committee hearing. The Fed chief returns for another day of testimony today, this time before the Senate Banking Committee.
Now on to today’s news and analysis.
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Fed Watching Risks of Broader Coronavirus Disruptions
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Fed Chairman Jerome Powell on Capitol Hill yesterday. PHOTO: MANDEL NGAN/AGENCE FRANCE-PRESSE/GETTY IMAGES
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Fed leader Jerome Powell said the central bank is monitoring the extent of global economic disruptions from the coronavirus in China, singling out a risk that has made officials more likely to lower interest rates than to raise them. He told lawmakers it was too soon to say whether the outbreak would change the central bank’s view that the current level of short-term rates remains appropriate to support solid economic growth and hiring. “There’s no way to be confident about anyone’s assessment, and there are a range of assessments,” he said. (Here's a
roundup of some of the other issues Mr. Powell discussed on Capitol Hill. He is scheduled to appear before the Senate today.)
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Meanwhile, two regional Fed officials speaking elsewhere said the novel coronavirus was casting uncertainty over the U.S. outlook, but neither suggested it was time to change interest rates.
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“I would say it’s steady as she goes right now, and we can just take the data as it comes in” before changing anything, St. Louis Fed leader James Bullard said. Minneapolis Fed chief Neel Kashkari said the current setting of monetary policy is either neutral or slightly stimulative but that any significant worsening of the coronavirus outbreak could affect Fed policy.
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Other Developments Around the World
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New York Fed Keeps Temporary Liquidity Steady
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The Fed executed a $37.92 billion overnight repurchase agreement operation and a 14-day, $30 billion repo. With $67.15 billion in outstanding repos expiring, overall temporary operations rose $800 million to $161.7 billion.
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Credit-Card Debt in U.S. Rises to Record $930 Billion
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U.S. credit-card debt rose to a record in the final quarter of 2019 as Americans spent aggressively amid a strong economy and job market, with total card balances increasing by $46 billion to $930 billion, well above the previous peak seen before the 2008 financial crisis, according to the Federal Reserve Bank of New York. The proportion of credit-card debt in serious delinquency, meaning payments were late by 90 days or more, rose from 5.16% in the third quarter to 5.32% in the fourth, the highest level in almost eight years.
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Sweden’s Riksbank Leaves Key Rate Unchanged
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Sweden’s central bank on Wednesday kept its key interest rate at zero and said it expects it to remain there for an extended period to allow for good economic development and close-to-target inflation.
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RBNZ Leaves Key Rate Unchanged, Sees Short-Lived Virus Impact
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The Reserve Bank of New Zealand on Wednesday left its cash rate at a record low 1.0% and said it expects the coronavirus epidemic to have a short-lived impact on the local economy. “We assume the overall economic impact of the coronavirus outbreak in New Zealand will be of a short duration, with most of the impacts in the first half of 2020,” the bank said.
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Work Stoppages Reach Highest Level in Nearly Two Decades
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There were 25 labor-related work stoppages—including strikes and lockouts—involving 1,000 or more workers in 2019, the Labor Department. That was the most since 2001 and a signal that a solid U.S. economy motivated unions to take a harder line with employers.
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S&P Sees U.S. Growth Around 1% in First Quarter
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S&P Global Ratings now sees U.S. seasonally adjusted annualized first-quarter economic growth likely closer to 1% versus the 2.2% it previously forecast. S&P says its economists currently expect the effect of coronavirus on the U.S. economy to be modest given its limited exposure so far, and says the revised forecast wasn't entirely due to issues related to the virus. The ratings firm attributes 50 basis points the revision to the suspension of Boeing 737 MAX production and exports. (Dow Jones Newswires)
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Financial Regulation Roundup
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New Credit-Loss Standard Could Benefit Lenders
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The new accounting standard could prompt federal banking regulators to loosen capital requirements for financial institutions—a potential benefit for lenders that have largely criticized the rule, new academic research suggests.
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Companies Shifted Deductions, Income to Maximize U.S. Tax-Rate Cut
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U.S. corporations accelerated deductions and deferred income to maximize the benefits of the 2017 tax-rate cut, contributing to a large temporary drop in federal corporate-tax revenue in 2018, according to newly released data.
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Scharf Puts Stamp on Wells Fargo With Overhaul of Reporting Lines
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Wells Fargo is overhauling its reporting lines, Chief Executive Charles Scharf’s first move to stamp out the corporate structure implicated in its fake-account scandal, with a plan to split its three business units into five.
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FTC Broadens Antitrust Investigation Into Big Tech
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The Federal Trade Commission ordered Amazon, Apple, Facebook, Microsoft and Google owner Alphabet to turn over information on their takeovers of smaller companies between 2010 and 2019, expanding its probe into possible antitrust concerns in digital markets.
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Wednesday (all times EST)
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8:30 a.m.: Philadelphia Fed’s Harker speaks on economic outlook in Malvern, Pa.
9 a.m.: San Francisco Fed’s Daly speaks in Dublin
9:30 a.m.: Fed’s Powell testifies on monetary policy report to Senate Banking Committee in Washington
6:50 p.m.: Bank of Japan releases corporate goods price index
7:15 p.m.: Bank of Canada’s Poloz speaks at Australia-Canada Economic Leadership Forum in Melbourne, Australia
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7 a.m.: European Central Bank’s Lane speaks at Trinity College in Dublin
8:30 a.m.: U.S. Labor Department releases January CPI
12 p.m.: European Central Bank’s Panetta speaks on panel at Luiss University in Rome
12:45 p.m.: Dallas Fed’s Kaplan speaks in Grapevine, Texas
1 p.m.: European Central Bank’s Lane speaks in Dublin
2 p.m.: Bank of Mexico releases policy statement
5:30 p.m.: New York Fed’s Williams speaks in New York
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Inadequate Data Protection Threatens Economy, National Security
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Personal data collected from services and products lack protection on the national level, despite data-driven services being more prevalent than ever, according to a VoxEU post. Susan Ariel Aaronson, a research professor at George Washington University, argues that ineffective data protection by the U.S. is putting economic and national security at risk. She says some U.S. companies misuse data and present few restrictions on third-party use and the monetization of data. “Foreign firms linked to governments can also take advantage of inadequate governance of personal data,” she adds. “There are emerging concerns that the apps Grindr and TikTok, if under ownership by
Chinese parent companies, may be required to share their user data with the Chinese government, although such claims are allegations.” She concludes: “How data are effectively governed will determine if the U.S. can control both the data of its people and its government, as well as its own destiny. If loose lips can sink ships, inadequate data protection can move ships in the wrong direction.”
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Companies Need to Dust Off Their No-Deal Brexit Plans
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A deal with Brussels likely won’t happen until very late in the game as the Dec. 31 cliff edge approaches, leaving little time for businesses to adapt to new rules, so companies and investors must plan for a hard landing, Rochelle Toplensky writes at The Wall Street Journal.
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Beware of Wall Street’s Armchair Epidemiologists
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Some of Wall Street’s reassuring statements about the epidemic could be wildly off, and so, too, expectations of the economic disruption the virus could cause, Justin Lahart writes at The Wall Street Journal, noting many are making assumptions disease experts caution against.
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U.S. employer demand for new hires appears to be slowing. There were 6.4 million job openings at the end of December, down 14.9% from the same month in 2018. Still, the number of openings has exceeded the number of unemployed Americans, which stood at 5.75 million in December, for 22 consecutive months. (Dow Jones Newswires)
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China’s coronavirus outbreak has scrambled the global trade in commodities, hitting the country’s massive appetite and challenging global supply lines set up to feed it.
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Mexico’s industrial production slipped a seasonally adjusted 0.3% in December from November on weakness in mining output, fell 1% from a year earlier and was down 1.8% for all of 2019, the National Statistics Institute said. (Dow Jones Newswires)
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The Spanish government downgraded its GDP growth forecast for 2020 to 1.6% from 1.8%. According to the government's macroeconomic forecast, GDP growth will be 1.5% in 2021, 1.6% in 2022 and 1.7% in 2023. The forecasts are slightly below those the Spanish central bank presented in December, which expected 1.7% growth in 2020, 1.6% in 2021 and 1.5% in 2022. (Dow Jones Newswires)
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South Africa’s unemployment rate in the fourth quarter was unchanged at a historic high of 29.1% even as the labor force of Africa’s most developed economy increased by 38,000, the country’s statistics agency said. (Dow Jones Newswires)
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Malaysia’s economy slowed in the fourth quarter due to weaker trade and declines in mining and agricultural activities. Full-year gross domestic product in 2019 was 4.3%, the slowest in a decade, versus 4.7% in 2018.
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