Good day. Joining several other Federal Reserve officials, Fed Vice Chair Lael Brainard in remarks on Thursday suggested the U.S. central bank should consider slowing the pace of its interest rate increases at its next policy meeting to a quarter percentage point. The Fed shifted down the pace of rate rises last month, recognizing it takes time for the full effect of those increases to slow economic activity, Ms. Brainard she said during a talk at the University of Chicago. "And that logic is very applicable today,” she said. New York Fed President John Williams, another senior adviser to Fed Chair Jerome Powell, also spoke on Thursday, but he declined to say what size of increase he would favor at the Fed’s Jan. 31-Feb. 1 meeting. He noted, however, that “We are seeing the shifting gears of tighter monetary policy having the desired effects.” Also on Thursday, Boston Fed President Susan Collins said the central bank likely will need to raise rates to just above 5% and hold them at that level for some time. “While it is promising to see the effects of higher rates starting to spread from the most interest-sensitive sectors to the broader economy, more is required to ensure a steady path toward our inflation target,” she said.

Now on to today’s news and analysis.

Two senior Federal Reserve officials said the central bank was making progress in its inflation fight, but it would take time to bring inflation back to the Fed’s 2% target.

Fed Vice Chair Lael Brainard indicated in remarks Thursday she was supportive of slowing the pace of rate rises to a more traditional quarter percentage point at the central bank’s next policy meeting, which is Jan. 31 to Feb. 1, joining a number of colleagues.

New York Fed President John Williams said at a separate event Thursday evening he was encouraged by signs interest-rate increases were having their desired effect in slowing growth and keeping consumers’ and businesses’ expectations of future inflation in check.

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10 a.m.: U.S. existing home sales for December
1 p.m.: Fed’s Waller speaks on economic outlook to Council on Foreign Relations in New York

10 a.m.: EU flash consumer confidence indicator for January

Several categories in Wednesday’s U.S. producer-price index point to strength in December core personal-consumption expenditures, Deutsche Bank economists say in a report. The PCE index is considered the Federal Reserve’s preferred inflation gauge, and its December report is scheduled for release on Jan. 27. The economists say that while consumer-price index airfares fell by 3.1% last month, the analogous PPI series increased by 3.1%, implying December’s core PCE month-over-month print should be about 6 basis points higher than the December core CPI increase. “Indeed, factoring in the other core PCE categories that come from the PPI, this would point towards a 0.4% monthly gain in the core PCE price index in December,” the economists say. While that isn’t likely to complicate the Fed’s decision to downshift its interest rate campaign again in February, “it does strengthen the Fed’s case for a terminal rate north of 5%,” they add.

—Patrick Sheridan

It comes as no surprise that one shouldn’t necessarily trust dictatorships to put out accurate information—especially about their reportedly glorious economies—but it has traditionally been hard to say exactly how bad the problem might be, Josh Zumbrun writes. A recent paper, published in October, by the University of Chicago’s Luis Martinez shines a light on the extent to which autocratic governments might be juicing their estimates of gross domestic product, the commonly used measure of an economy’s size and might. Light really is the key. Satellite images can capture the amount of nighttime light a country produces, and it turns out to be a pretty reliable guide to economic growth. “As an economy expands, there are more houses, more factories, more streetlights. All of that produces light,” said Dr. Martinez, a professor at the university's Harris School of Public Policy.

• Interest rates in the U.S. will likely top 5%, JPMorgan CEO Jamie Dimon told CNBC at the World Economic Forum in Davos. “I think there is a lot of underlying inflation, which won't be going away so quick,” he said. (Dow Jones Newswires)
• Manufacturing activity in the Philadelphia area weakened in January for a fifth month in a row, highlighting the sector’s increasing woes as demand wanes. The Federal Reserve Bank of Philadelphia said its index for current general activity of its Business Outlook Survey rose to minus 8.9 from minus 13.7 in December. Readings below zero signal contraction. (DJN)
• U.S. housing starts declined in December for a fourth consecutive month, hitting their lowest level since last July, driven by lower multi-family units. Starts fell 1.4% on month to a seasonally adjusted annual rate of 1.382 million and were 21.8% below the same month a year earlier. (DJN)
• Brazil's unemployment rate fell in the three months through November for the ninth consecutive month. The jobless rate slid to 8.1% in the period, the lowest level since April 2015, from 8.3% in the three months through October, and compared with 11.6% in the year-earlier period, the Brazilian Institute of Geography and Statistics said. (DJN)
• China’s central bank on Friday kept its benchmark interest rates unchanged as the Chinese economy recovered from the country’s Covid reopening quicker than expected. The People’s Bank of China kept the one-year loan prime rate at 3.65% and five-year LPR at 4.3%, both unchanged from last month, as was widely expected after the bank kept the medium-term lending facility steady earlier this week. (DJN)
• Malaysia's consumer prices continued to rise in December, but at a slower pace than in November. The country's consumer-price index rose 3.8% in December from a year earlier, data from the Department of Statistics showed. The result was slightly higher than the median 3.7% increase forecast by eight economists in a Wall Street Journal poll. (DJN)
• Retail sales in the U.K. fell again in December, adding to evidence of weakening consumer spending at year-end. Retail sales volumes fell 1% in December on month after dropping by a revised 0.5% in November, data from the Office for National Statistics showed. Economists polled by The Wall Street Journal expected a 0.3% increase for December. (DJN)
• U.K. consumer confidence unexpectedly took a dip in January after improving at year-end, highlighting persisting woes as high inflation and rising interest rates erode Britons’ purchasing power. Research firm GfK said its consumer-confidence barometer declined to minus 45 in January from minus 42 in December, missing economists' expectations of a rise to minus 40. (DJN)

This newsletter is compiled by James Christie in San Francisco.

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