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Fed Is Expected to Cut Rates by a Quarter Point This Week
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The Federal Reserve’s interest-rate decision will take center stage this week, with markets anticipating a third consecutive quarter-percentage-point cut after recent weak U.S. jobs data. American households are nearing the end of the year feeling a lot more dour about the economy than they did at the beginning, even as they keep spending. Investors will also pay close attention to the Fed’s new rate forecasts as they look to gauge how fast and how far interest rates will fall next year. U.S. money markets currently price in two to three rate cuts in 2026, LSEG data show. Central bank decisions in Canada, Australia, Switzerland and Brazil will also be watched, as well as remarks from the Bank of Japan as bond markets assess when it will next hike interest rates.
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Fed’s Favored Inflation Gauge Shows Moderate September Trend
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Photo: Frederic J. Brown/Agence France-Presse/Getty
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The Federal Reserve’s preferred measure of inflation held below 3% in September, and indicated a moderate month-over-month increase in prices unlikely to block consideration of an interest-rate cut at the central bank’s meeting next week.
Consumer prices as measured by the personal-consumption expenditures price index rose by 0.3% in September, the Commerce Department said Friday, in a report that was delayed by more than a month by the recent government shutdown. That yielded a slight rise in the 12-month PCE inflation rate to 2.8%, from 2.7% in August. The core rate, which excludes volatile food and energy prices, declined to 2.8%, from 2.9% in August.
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Why the Fed’s Balance Sheet Matters as Much as Its Rate Decision
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In this week’s episode of WSJ’s Take On the Week, co-host Telis Demos is joined by Nate Wuerffel, head of market structure and product head for the global collateral platform at BNY, to discuss the Fed’s other big decision: How large a balance sheet should it maintain? Wuerffel, a former New York Fed official, explains the mechanics of quantitative tightening and the risks of "scarce” reserves. They explore how liquidity in the "plumbing" of the financial system affects everyday consumers through higher mortgage costs and discuss the importance of a liquid Treasury market in preventing crises like 2023’s Silicon Valley Bank failure.
🎧 Listen to the podcast or 📹 watch the video clip.
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The Year of America’s Cranky Consumer
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High prices, a fragile job market and anxiety about President Trump’s tariffs have helped drag consumer sentiment, as measured by the University of Michigan, down near historic lows this year. The latest numbers were slightly improved from a previous reading freighted by government shutdown disruptions, but barely.
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China’s Growth Is Coming at the Rest of the World’s Expense
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Pop quiz. Who has contributed more to the rest of the world’s growth this year: China or the United States? The answer is the U.S., and it isn’t even close. Even as the U.S. rolls out tariffs, its imports are up 10% so far this year from a year earlier. And as China moralizes against protectionism, its imports are down 3%, in dollar terms.The U.S. figures might be an anomaly, reflecting front-running of tariffs. China’s are not, writes Greg Ip for WSJ.
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Japan GDP Data Confirms Contraction, But Rate-Hike View Is Intact
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Canada Unemployment Rate Drops to 6.5% in November
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Canada’s jobless rate fell sharply in November as hiring for a third month running blew past expectations, defying worries there would be widespread layoffs in response to the U.S. tariffs that have dented the economy.
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German Industrial Output Accelerates Again
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Regulators Relax Rules on High-Risk Lending for Banks
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Photo: Ting Shen for WSJ
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Regulators in Washington have rolled back rules put in place after the 2008 financial crisis that limited how much risk banks can take in corporate lending and fueled the boom in the multitrillion-dollar private credit industry.
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7:15 p.m.: Manpower U.K. Employment Outlook Survey
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6 a.m.: NFIB Index of Small Business Optimism
9 a.m.: Johnson Redbook Retail Sales Index
10 a.m.: Job Openings & Labor Turnover Survey
6 p.m.: U.S. Federal Open Market Committee meeting
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Investors Price In Possible BOC Rate Hike Following Hot Jobs Report
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Financial markets may be coming around to Scotiabank economist Derek Holt's thinking: that the next move from the Bank of Canada could be a rate hike. Canada's labor market is on fire, Holt notes, with another about 54,000 jobs added last month to take the rise in three months to 181,000 and sending the unemployment rate down to 6.5%. Short-term bond yields jumped following the data, indicating investors are pricing in a possible interest-rate rise in September or October, which Holt says is in keeping with his forecast a half-percentage point will be added to rates in the second half of 2016. Most economists at the other big domestic banks pencil in an extended hold for the central bank through 2026. — Robb Stewart
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WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ’s global team of reporters and editors. This newsletter was compiled by markets reporter Vicky Ge Huang in New York. Send your tips, suggestions and feedback to vicky.huang@wsj.com.
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