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Lawmakers Debate Fed’s Muni-Market Role; Fed Details Stress Tests; BOE, BOJ Stand Pat; New York Fed No. 2 to Step Down
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Good day. Lawmakers clashed at a congressional hearing over whether the Federal Reserve has done enough to backstop municipal finances as state and local governments face historic budget shortfalls. Meanwhile, the Fed revealed details of a second round of stress tests for banks to be held later this year, while the New York Fed said its second-in-command, Michael Strine, will leave next year when his term ends. Elsewhere, the Bank of Japan and the Bank of England were among several institutions that held monetary policy steady yesterday.
Now on to today’s news and analysis.
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Lawmakers Tangle Over Fed’s Muni-Market Rescue
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The Fed set up the Municipal Liquidity Facility as a response to the pandemic shutting down the economy. PHOTO: SHAWN THEW/SHUTTERSTOCK
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Private funding markets for state and local governments froze in March, prompting the Fed to create the Municipal Liquidity Facility to show it stood ready to back the market as a lender of last resort. But governments have largely regained their ability to borrow, and only two borrowers have tapped the facility. That is a feature, not a bug, of the program, Kent Hiteshew, deputy associate director with the Fed’s financial stability division, said at a hearing before a congressional oversight committee. Some Democrats, though, say the Fed should be using the program more extensively.
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Fed Details New Round of Big-Bank Stress Tests
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The Federal Reserve will analyze large banks’ ability to withstand two coronavirus-related recession scenarios as part of a second round of stress tests later this year, the central bank said.
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New York Fed’s No. 2 to Leave Early Next Year
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The New York Fed said Michael Strine will retire on Feb. 28 at the end of his five-year term, capping a period of change in the bank’s leadership. He is the bank’s chief operating officer and first vice president and serves as an alternate member of the Federal Open Market Committee.
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Timiraos’s Take: New Forward Guidance Avoids Potential Communications Pitfall
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By delivering new forward guidance when Federal Reserve officials were also marking up their near-term growth outlook, the central bank avoided a potential communications mishap on Wednesday. Read more.
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Key Developments Around the World
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Bank of Japan Leaves Monetary Policy Unchanged
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The BOJ kept its monetary policy unchanged, confirming its ultra-easy stance backed by former Prime Minister Shinzo Abe remains intact under successor Yoshihide Suga, and upgraded its assessment of Japan’s economy.
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Bank of England Holds Rates Steady
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The Bank of England kept policy on hold and signaled that it is prepared to take further action to support the U.K. economy if rising coronavirus cases undermine recovery.
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Bank of Canada Senior Deputy Gov. Wilkins Won’t Seek Second Term
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Bank of Canada Senior Deputy Gov. Carolyn Wilkins will leave her position as the central bank’s second-in-command when her seven-year term expires next spring, the bank’s board of directors said Thursday.
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South African Reserve Bank Holds Rate, Expects GDP to Shrink 8.2%
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The South African Reserve Bank on Thursday kept its main repo rate at 3.5%, even as it projected Africa's most developed economy will shrink 8.2% this year, a forecast that is more pessimistic than the 7.3% contraction it predicted in July. South Africa's GDP shrank at an annualized 51% in between April and June, marking the worst quarter on record and one of the deepest contractions among major economies. (Dow Jones Newswires)
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Taiwan Central Bank Leaves Key Interest Rates Unchanged
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Taiwan’s central bank on Thursday left its benchmark rate unchanged at 1.125%, citing recovering exports and stabilizing domestic demand as the coronavirus pandemic remains under control on the island.
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China, Once Germany’s Partner in Growth, Turns Into a Rival
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An informal partnership that kept Germany’s economy tethered to China’s for decades is unraveling, threatening Berlin’s—and Europe’s—post-pandemic recovery as the Asian giant stages a powerful comeback.
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U.S. Unemployment Claims Held Steady at 860,000 Last Week
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Weekly initial claims for jobless benefits fell by 33,000 to a seasonally adjusted 860,000 in the week ended Sept. 12, while the number of people collecting unemployment benefits through regular state programs decreased by 916,000 to about 12.6 million for the week ended Sept. 5.
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America’s Offices Sit Half-Empty Six Months Into the Pandemic
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Six months after coronavirus lockdown orders closed workplaces across the country, most offices in the U.S. are still quiet. Data from Brivo, a company that provides access-control systems for workplaces, shows that “unlocks” at offices—when someone uses their credentials to enter an office—in late August were down 51% from the end of February. By comparison, visits to manufacturing and warehouse locations, where fewer jobs can be done remotely, remained down by a third.
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Financial Regulation Roundup
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Calpers Moves to Enhance Control of Investment Oversight
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The overseers of the largest U.S. public pension system have agreed to take a direct role in managing its chief investment officer, walking back a previous decision to place the responsibility entirely in the hands of its chief executive.
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U.K. Watchdog Fines Deloitte, Former Partners Over Autonomy Audits
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Giuliani Associates Face New Federal Criminal Charges
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Federal prosecutors in Manhattan have filed new criminal charges against associates of Rudy Giuliani who were arrested in a campaign-finance case last fall, including fraud allegations related to a Florida fraud-insurance company founded by two of the men.
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10 a.m.: University of Michigan releases preliminary September U.S. consumer sentiment
10 a.m.: European Central Bank’s Schnabel speaks during online panel discussion
10 a.m.: St. Louis Fed’s Bullard speaks online on industrial innovation and economic recovery from Covid-19
12 p.m.: Atlanta Fed’s Bostic speaks at virtual conference on racial justice and finance with Princeton University’s Bendheim Center for Finance
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Time N/A: Central Bank of Nigeria releases policy statement
12 p.m.: Fed's Brainard speaks to the Urban Institute on the Community Reinvestment Act
6 p.m.: New York Fed's Williams in a moderated discussion on the financial burdens of inequality and striving for an equitable Covid-19 recovery with the Congressional Black Caucus Foundation
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The Other Chinese Currency Manipulation Question
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Accusations of currency manipulation against the People’s Republic of China are well-known, but risks surrounding the other Chinese currency—the New Taiwan dollar—are building up, too, Mike Bird writes at The Wall Street Journal.
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U.S. manufacturing activity in the Third Federal Reserve District continued to expand in September, but at a slower pace, according to the Federal Reserve Bank of Philadelphia's Manufacturing Business Outlook survey. Its diffusion index for current general activity slipped to 15.0 from August's 17.2, in line with economists' forecasts in a The Wall Street Journal poll. (Dow Jones Newswires)
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Americans with mortgages have accumulated nearly $10 trillion in home equity thanks to a decade of rising home prices. Yet millions of them have fallen behind on mortgage payments and risk losing their houses. It is a potential bonanza for rental-home investors.
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ADP's Canadian unit said a massive revision for its July employment report, a swing from a 1.1 million gain to a roughly 523,000 loss, reflects the challenges of economic modeling "in uncharted and unsettled economic times." (DJN)
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EU passenger-car registrations, which reflect sales, fell 19% on year in August to 769,525 vehicles, the European Automobile Manufacturers Association said. (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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