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Consumers' Inflation Forecasts Hot Up as Market-Based Measures Start to Wilt
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Good day. Just ahead of the Fed's policy meeting, the New York Fed reported a jump in inflation expectations among the American public. Consumers expect food and rent prices to rise by 8% and 9.7%, respectively, a year from now. The survey came after the government's consumer price index jumped by 5% in May, the biggest gain in 14 years. Meanwhile, the Fed’s preferred inflation barometer, the personal consumption expenditures price index, is now well above the central bank’s 2% target at a year-over-year gain of 3.6% in April, up from 2.4% in March. But financial markets are sending a different signal, with 5- and 10-year break-even rates falling in recent days, pointing to reduced fear of rising inflation.
Now on to today’s news and analysis.
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NY Fed May Consumer Survey: Public Bracing for Big Inflation Gains
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Consumers expect 4% inflation in a year, according to the New York Fed Survey of Consumer Expectations. PHOTO: OLIVIER DOULIERY/AGENCE FRANCE-PRESSE/GETTY IMAGES
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Americans are bracing for a wave of higher inflation over the next year, amid projections of big increases in home prices, rent, food, gasoline and medical costs, the May New York Fed Survey of Consumer Expectations reported.
One year from now, the public expects inflation to hit 4%, a series high for the New York Fed report, from a projected 3.4% rise reported in April. Three years from now, survey respondents said they expected to see inflation at 3.6%, the second highest reading for the survey, up from April’s 3.1%.
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Derby's Take: Consumer and Market Views on Inflation Diverge as Fed Meeting Looms
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Federal Reserve officials are approaching this week’s monetary policy meeting at a moment when consumers and markets are diverging on what they think the future path of inflation will be. Read more.
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Key Developments Around the World
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NY Fed Reserve Repos Take In a Record $584 Billion
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Cash continued to pour into the Federal Reserve, as the New York Fed’s reverse repo facility operation took in a record $584 billion from eligible firms on Monday. The reverse repo tool takes in cash from money funds and other eligible firms and has been carving out nearly daily records, after seeing almost no use a few months ago. A complex mix of factors are driving the move, but a shortage of short-term investments is a key driver. Some analysts believe the Fed may tweak its rate control tool kit to help stem the flows, even as some central bank officials have signaled no concern about the issue. But others believe the reverse repo facility will stay in high demand for the foreseeable future as long as the Fed is buying bonds at a massive clip.
—Michael S. Derby
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Covid-19 Visa Backlogs, Travel Curbs Strain Firms Needing Workers
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Although officials have eased restriction guidelines, the U.S. still has kept travel bans on 33 countries, whose citizens for the most part aren’t being granted work visas even if they are vaccinated or test negative for Covid-19.
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Pandemic Hangover: $11 Trillion in Corporate Debt
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Stressed companies piled on debt as interest rates plummeted, but could face a reckoning in the next economic downturn. Total debt for nonfinancial companies has reached about half the size of the U.S. economy.
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RBA Lays Out Key Considerations for Potential Policy Shakeup at July Meeting
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Members of the Reserve Bank of Australia’s rate-setting board discussed key considerations that could drive significant changes to the central bank’s platform of stimulus measures at its next meeting on July 6.
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Covid-19 Punctures Narendra Modi’s Aura
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Prime Minister Narendra Modi and his Hindu nationalist politics have weathered plenty of upheaval in India, but as a devastating wave of Covid-19 recedes, simmering anger over the crisis may pose the greatest test for him yet.
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Financial Regulation Roundup
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SEC Hires Boston College Professor as Top Corporate Regulator
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The Securities and Exchange Commission has hired Renee Jones, a Boston College law professor, to oversee staff who draft rules for public companies raising capital and disclosing material news and events to shareholders.
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Bitcoin Rises Above $40,000 on Elon Musk Tweet, MicroStrategy Plans
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Bitcoin reached its highest level in more than two weeks, buoyed by MicroStrategy Inc. completing its $500 million offering of junk bonds to buy bitcoin and by fresh comments from Tesla Inc. Chief Executive Elon Musk.
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Time N/A: U.S. Federal Reserve begins two-day policy meeting
8:15 a.m.: Bank of England’s Bailey speaks virtually at CityUK conference
8:30 a.m.: U.S. Commerce Department releases May retail sales; U.S. Labor Department releases May PPI
9:15 a.m.: Federal Reserve releases May U.S. industrial production
9:50 a.m.: European Central Bank’s Panetta gives prerecorded speech at Deutsche Bundesbank's International Cash Conference
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Time N/A: Central Bank of Brazil releases policy statement
5 a.m.: European Central Bank’s de Guindos speaks in online Q&A during Fundación Civismo event
8:30 a.m.: U.S. Commerce Department releases May housing starts
2 p.m.: U.S. Federal Reserve releases policy statement and economic projections
2:30 p.m.: Fed’s Powell holds press conference
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China Clouds Biden’s Transatlantic Reunion
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On longstanding issues such as European military spending, digital taxes, steel tariffs and subsidies for Boeing and Airbus, diplomacy between the U.S. and its allies in Europe can probably bring progress, Rochelle Toplensky writes. But, she notes, where it will struggle to make meaningful headway is in reconciling different attitudes to China, because the European Union is a trading block concerned about market access, and it worries less about Beijing’s rising geopolitical clout.
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Eurozone industrial production growth in April was higher than expected despite supply bottlenecks hindering activity in many sectors, as output from factories, mines and utilities across the single-currency area rose by 0.8% from March, Eurostat data showed. Economists polled by The Wall Street Journal had expected a 0.3% increase. (Dow Jones Newswires)
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Lumber prices are falling back to earth. Futures for July delivery ended Monday at $996.20 per thousand board feet, down 42% from the record of $1,711.20 reached in early May.
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Canadian manufacturing sales fell 2.1% in April from March to a seasonally adjusted 57.10 billion Canadian dollars, or the equivalent of US$46.96 billion, as the effect of the global shortage of semiconductor chips continued to disrupt production at auto-sector factories, Statistics Canada said. Market expectations were for a 1.1% drop, according to economists at Desjardins Securities. (DJN)
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The Bank of Spain upwardly revised its 2021 forecast for the Spanish economy to 6.2% growth, from 6.0% previously, and for 2022 it expects 5.8% growth, up from 5.3% previously. The bank revised its forecasts in response to the improving health situation and the expected arrival of European Union funds, according to its quarterly report. (DJN)
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Brazil’s consumer prices and interest rates will be higher than previously expected by the end of this year, according to the Central Bank of Brazil’s weekly survey of economists. Their median forecast for the 12-month inflation rate at the end of 2021 rose to 5.82% in the survey released Monday, from 5.44% in last week’s poll, while the median forecast for the bank’s Selic benchmark lending rate rose to 6.25% from 5.75% a week earlier. (DJN)
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India’s benchmark consumer-price index increased 6.3% in May from a year earlier, accelerating from a 4.23% rise in April, while its urban consumer-price index for May rose 6.04% on year and the rural reading increased 6.48%, according to government data. (DJN)
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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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