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Federal Reserve Review of Digital Dollar Under Way; Fed Commentary Ahead of FOMC Meeting
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Good day. The Federal Reserve is looking at whether it should issue a digital currency, the first step in a debate on if and how a U.S. digital dollar could improve the safe and effective domestic payments system. Fed Chairman Jerome Powell has said it is more important to get a digital dollar right than to be first to market, in part because of the dollar’s critical global role. In theory, a Fed digital dollar could be used alongside paper money, but many details of how exactly people would access digital dollars, and how they would fit into the financial system, are unclear. Meanwhile, in advance of the Federal Open Market Committee meeting set for Tuesday and Wednesday we have a roundup below of recent comments by Fed officials.
Now on to today’s news and analysis.
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Fed Launches Review of Possible Central Bank Digital Currency
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The Fed says it is beginning the debate over whether and how a U.S. digital dollar could improve a safe and effective domestic payments system. PHOTO: TING SHEN/BLOOMBERG NEWS
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The Federal Reserve on Thursday launched a review of the potential benefits and risks of issuing a U.S. digital currency, as central banks around the world experiment with the potential new form of money to keep pace with private-sector payments innovations.
Fed officials have been divided on the matter, making it unlikely they will decide soon on whether to create a digital dollar. Unlike private cryptocurrencies like bitcoin, a Fed version would be issued by and backed by the U.S. central bank, a government entity, as are U.S. paper dollar bills and coins.
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Fedspeak Cheat Sheet: What Officials Said Before January Meeting
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Federal Reserve officials who have spoken since their December policy meeting have been almost universally hawkish. Here is a roundup of recent comments from central bankers ahead of the FOMC meeting next week.
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New York Fed Taps Bond-Trading Executive as Markets Group Chief
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Michelle Neal will lead the New York Fed’s markets group and will join its executive committee. Ms. Neal is now chief executive of U.S. operations at LedgerEdge, a distributed ledger platform.
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Derby’s Take: Fed Officials Showing Little Concern About Bond Market Developments
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Federal Reserve officials don’t appear to be worried about rising bond market yields, as they move closer toward the day when they will almost certainly begin a notable withdrawal of the stimulus the central bank has provided the U.S. economy since the spring of 2020. Read more.
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U.S. Existing-Home Sales Hit 15-Year High of 6.1 Million Last Year
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U.S. home sales surged to a 15-year high in 2021, as ultralow interest rates and remote work fueled an extremely competitive housing market, and many economists still anticipate a busy first half of the year, as demand remains robust.
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U.S. Jobless Claims Rose to 286,000 Last Week
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Initial claims for unemployment benefits, a proxy for layoffs, rose by 55,000 to 286,000 during the week that ended Jan. 15, while the four-week average was 231,000, an increase of 20,000 from the previous week’s average.
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States Are Swimming in Cash Thanks to Booming Tax Revenue
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Numerous states are proposing tax rebates and bonuses for public workers as the fiscal doldrums of early 2021 give way to fat times fueled by booming markets, growing incomes and federal aid.
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Key Developments Around the World
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Biden Seeks to Reassure Ukraine, Vowing Strong Response to Russia
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President Biden said Thursday that any Russian troop movement into Ukraine would be considered an invasion, seeking to clear up confusion over his position on a potential incursion as the administration gave approval for U.S.-made weapons to be transferred to Kyiv.
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U.K. Leads Europe in Easing Omicron Restrictions
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Case rates in a number of Western countries are flattening or turning down and the U.K.—the Northern Hemisphere country in the forefront of the latest wave of the virus—is ending restrictions imposed to deal with Omicron.
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Bondholders Threaten Legal Action Against China Evergrande
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A group of China Evergrande Group’s international bondholders threatened to move forward with a legal enforcement plan that could potentially include liquidation of the troubled developer’s assets.
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China’s Yield Advantage Over U.S. Bonds Narrows
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The extra yield that Chinese government bonds offer over U.S. Treasurys has dropped below a percentage point for the first time in nearly three years, as the central banks of the world’s two largest economies move in opposite directions.
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Pause in Turk Rate-Cutting Cycle Not Enough to Restore Confidence
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The lira gained after Turkey's central bank held rates but the country's monetary policy continues to be questioned while President Erdogan is perceived to be pushing his unorthodox views on inflation and interest rates. Turkey's central bank on Thursday held its benchmark rate steady at 14% after cuts that reduced the policy rate by 500 basis points over the final months of 2021, in accordance with Erdogan's wish for low interest rates despite high inflation. The lira gained, with USD/TRY falling to 13.3455 after the decision from 13.4393 beforehand. (Dow Jones Newswires)
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Financial Regulation Roundup
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Senate Panel Approves Antitrust Bill Restricting Big Tech Platforms
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A Senate panel approved antitrust legislation forbidding the largest tech platforms from favoring their own products and services over competing ones, in an incremental victory for backers of stricter Big Tech regulation.
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Singapore Kicks Off New Era of SPACs in Asia With String of Listings
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Vertex Technology Acquisition Corp. started trading on Thursday after raising 200 million Singapore dollars, the first special-purpose acquisition company to list in the Southeast Asian city-state.
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The SPAC Ship is Sinking. Investors Want Their Money Back.
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Wall Street’s favorite pandemic bet is taking on water. SPACs, or special-purpose acquisition companies, burst onto the scene in 2020 as the hip way to take Silicon Valley’s hottest startups public. Now, the hype is giving way to reality.
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Glynn’s Take: Jump in Australian Interest Rates Could Be Brutal
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The harsh reality for the huge number of Australians living with mortgages is that the coming rise in interest rates, whenever it takes place, could be far more rapid and brutal than most anticipate.
That is because it is fanciful to expect that Australia will be an inflation outlier in the long term and avoid the massive surge in consumer prices now washing through the global economy. Read more.
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8 a.m.: Release of text of speech by Bank of England’s Catherine Mann on returning inflation back to target
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4:30 a.m.: Bank of England releases asset purchase facility report for fourth quarter of 2021
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The Philly Fed’s index of manufacturing conditions in its district rose by 8 points in January to 23.2, showing businesses are still growing despite the Omicron outbreak and persistent labor and supply shortages. (Dow Jones Newswires)
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U.S. home sales surged to a 15-year high in 2021, powered by low borrowing rates and an intense buyer demand that are expected to keep the market hot during the first months of 2022. But the recent rapid rise in interest rates has some housing economists forecasting that the market frenzy will subside in the second half of the year. Existing-home sales rose 8.5% from a year earlier to 6.12 million, the National Association of Realtors said. Home prices grew at a record pace across the country last year. (DJN)
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The central banks of Indonesia and Singapore signed a memorandum of understanding to strengthen bilateral cooperation and deepen ties.The MOU reflects Indonesia and Singapore's joint interest in promoting collaboration on projects related to payments innovation, and formalize cooperation across a wider range of central bank and regulatory functions, Bank Indonesia and Monetary Authority of Singapore said in a joint statement. (DJN)
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Malaysia's central bank appears to be hinting at an imminent start of policy normalization in its latest monetary policy statement, ANZ Research says. It notes that Bank Negara dropped from its statement language saying it was committed to utilizing "its policy levers as appropriate to foster enabling conditions for a sustainable economic recovery." (DJN)
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British consumers turned more pessimistic this month, sending research firm GfK’s consumer-confidence barometer down to minus 19 from minus 15 in December, the lowest level since February 2021. Economists polled by The Wall Street Journal expected the confidence index to retreat slightly to minus 16. (DJN)
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U.K. retail sales sank in December, sharply missing analysts’ forecasts, as the nation witnessed surging Covid-19 cases and tightened social-distancing guidance. Retail-sales volumes dropped 3.7% from a month earlier, the Office for National Statistics said Friday. Economists polled by The Wall Street Journal had been forecasting a more-modest decline of 0.6%. (DJN)
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France’s business-sentiment indicator fell further in January, to 107 from 109, although it was still comfortably above its long-term average of 100, Insee said. (DJN)
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Sentiment in the French manufacturing sector improved in January, according to Insee, citing a gauge that rose to 112 from a revised reading of 110 in December. Economists polled by The Wall Street Journal had forecast a reading of 111. (DJN)
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Spain’s economy is set to expand 5.5% this year as the uncertainty stemming from the Covid-19 pandemic eases, boosting private consumption and the tourism sector, BBVA said. (DJN)
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This newsletter is compiled by James Christie in San Francisco.
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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@WSJCentralBanks, @NHendersonWSJ, @michaelsderby, @NickTimiraos, @PaulHannon29, @wsj_douglasj, @HarrietTorry, @KateDavidson, @d_harrison, @kimmackrael, @TomFairless, @megumifujikawa, @mikemaloneyny, @pkwsj, @JamesGlynnWSJ
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