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Senate Confirms Powell for Second Term as Fed Chief; Bank of Mexico Raises Interest Rates Again
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Good day. The Senate confirmed Federal Reserve Chairman Jerome Powell to a second four-year term that is shaping up to be every bit as trying as his first term as the central bank faces the highest inflation in 40 years. Mr. Powell’s nomination, approved Thursday on an 80-19 vote, has been on track for months to win bipartisan approval despite unease over inflation and aggressive interest-rate increases that the Fed has urgently commenced to cool price pressures. Separately, Mr. Powell said the Fed was prepared to act aggressively to bring down inflation to its 2% goal even if it created a short-term hit to the economy, his most explicit acknowledgment of the risks posed by a sequence of rapid rate rises. Elsewhere, the Bank of Mexico’s five-member board voted 4-1 to lift the overnight interest-rate target by half a percentage point to 7.0%, as expected, an
eighth consecutive increase since June of last year and the fourth straight half-point move.
Now on to today’s news and analysis.
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Senate Confirms Powell to Second Term Leading Federal Reserve
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Federal Reserve Chairman Jerome Powell’s nomination has been on track for months to win bipartisan approval. PHOTO: JIM LO SCALZO/SHUTTERSTOCK
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President Biden said last fall that he would reappoint Federal Reserve Chairman Jerome Powell, opting for continuity as the scale of the central bank’s challenges in controlling inflation was becoming more evident. Mr. Powell, 69 years old, was tapped by President Donald Trump in 2018 to lead the central bank, six years after he won an appointment from President Barack Obama to its board of governors.
Mr. Powell, a former private-equity executive, was supported Thursday by lawmakers in both parties in an unusual show of broad political support for the central bank leader, who navigated the Fed’s rapid response to a pandemic-driven economic emergency in 2020. “Chair Powell is respected on both sides of the aisle for his steady leadership during the pandemic,” Sen. Mark Warner (D., Va.) said.
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Bank of Mexico Raises Interest Rates for Eighth Straight Time
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The Bank of Mexico raised interest rates again in the face of rising inflation and tighter global monetary conditions, and hinted at the possibility of bigger increases in the future if inflation continues unabated.
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Derby’s Take: Fed Governor Explains Why Volcker Strategy Isn’t Needed
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As aggressive as the path for U.S. monetary policy tightening appears right now, one Federal Reserve governor doesn’t believe the central bank faces a world as ugly as when it last confronted inflation this high.
Because of that, the Fed doesn’t need to take the same steps as it did under former leader Paul Volcker, when he took extremely aggressive action to kill inflation, which in turn caused an extremely deep recession, Fed governor Christopher Waller said in a public appearance this week. Read more.
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Producer Price Gains Slowed in April but Remain Elevated
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U.S. suppliers’ price increases eased in April as energy and food costs dropped, but producer-level inflation remained close to historical highs. The producer-price index, which generally reflects supply conditions, rose 11% on a 12-month basis in April, its fifth consecutive double-digit gain and a decline from an upwardly revised 11.5% increase the prior month. The March gain was the highest since records began in 2010, pushed up by surging energy prices after Russia invaded Ukraine.
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U.S. Jobless Claims Rose to 203,000 Last Week
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New applications for unemployment benefits, a proxy for layoffs, rose by 1,000 to 203,000 last week from the previous week’s revised level of 202,000, remaining near historic lows in a sign of a tight U.S. labor market.
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Rising Diesel Costs are Straining Truckers and Shipping Operations
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The price of the fuel that powers heavy-duty trucks has increased by more than $1.50 a gallon in roughly two months, straining operations of trucking companies and wrecking transportation budgets of businesses that need to ship goods.
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Key Developments Around the World
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Currencies Hit Multiyear Lows Across Asia, Investors Rush to Dollar
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Currencies across Asia sank to their weakest levels in years on Thursday, as surprisingly robust U.S. inflation data and increased wariness among investors about riskier assets gave fresh impetus to a monthslong rally in the dollar.
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Russian Oil Output Shrinks Under Western Pressure
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Western pressure on Russia over the invasion of Ukraine lowered the country’s crude-oil output by 9% in April and reshaped the global oil market as Russia sought new buyers for its production outside the West.
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Financial Regulation Roundup
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Crash of TerraUSD Shakes Crypto. ‘There Was a Run on the Bank.’
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The cryptocurrency TerraUSD had one job: Maintain its value at $1 per coin. Since its 2020 launch, it had mostly done that. But it tumbled as low as 23 cents on Wednesday, saddling investors with billions of dollars in losses.
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Chinese Dollar-Bond Defaults Mount as Large Developer Fails to Pay
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Sunac China failed to make an overdue interest payment on a U.S. dollar bond, marking a comedown for its founder, who had tried for months to prevent his property giant from spiraling into default.
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8:30 a.m.: U.S. import and export price indexes for April
10 a.m.: University of Michigan consumer sentiment, preliminary for May
11 a.m.: Minneapolis Fed’s Kashkari speech on ‘Energy and Inflation: Drivers and Solutions’
12 p.m.: ECB’s Schnabel chairs panel at International Research Forum on Monetary Policy
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8:30 a.m.: U.S. retail sales for April
9:15 a.m.: U.S. industrial production for April; Philadelphia Fed’s Harker speaks to Stern Future Healthcare Workforce Summit
10 a.m.: NAHB/Wells Fargo Housing Market Index for May
2:30 p.m.: Cleveland Fed’s Mester speaks at Cleveland Fed Conversations on Central Banking
6:45 p.m.: Chicago Fed’s Evans speaks to Money Marketeers
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The Fed Is Driving the Economy Without Knowing Its Speed Limit
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Until inflation comes under control and the job market stops getting tighter, any optimism the Federal Reserve might feel that the economy can grow more quickly will remain on hold, Justin Lahart writes.
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U.S. domestic freight demand slowed in April, raising fears of a downturn in the sector as spending shifted from goods to services. The Cass Freight Index’s measure of shipments fell by 0.5% from last year and by 2.6% from March, below the usual seasonal pattern, compared with a 0.6% annual rise and 2.7% monthly increase in the shipments component of the index in March. (Dow Jones Newswires)
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Canadian economic growth will slow sharply in 2023, predicts Oxford Economics, as Bank of Canada interest-rate increases start to bite --especially in the housing market. The forecasting firm anticipates 4.1% growth this year, which is in line with the BOC's call. In 2023, though, Oxford sees 2.2% expansion, well below the 3.2% BOC forecast. (DJN)
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Mexico’s industrial production rose 0.4% in seasonally adjusted terms in March from February, with gains in construction and utilities partially offset by lower mining and manufacturing output, the National Statistics Institute said. (DJN)
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India’s consumer prices increased on year at a faster pace in April than in March, beating economists’ forecasts, according to preliminary government data. The consumer price index increased 7.79% on year, after a 6.95% rise in March. Economists polled by FactSet expected consumer prices to rise 7.4%. The inflation rate is above the Reserve Bank of India’s target of 2% to 6%. (DJN)
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Singapore's central bank will likely tighten its currency policy further in October, Morgan Stanley economists say in a research report. Higher commodity prices, a relatively more advanced recovery path and a planned goods and services tax increase in 2023 mean Singapore's inflation is expected to stay elevated versus prior recovery cycles, the economists say. (DJN)
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Hong Kong's de facto central bank sold another US$365 million to buy Hong Kong dollars during New York hours Thursday, the third time it has acted this week to defend the city's dollar peg. The Hong Kong Monetary Authority had sold about US$1.09 billion this week to stop the local currency trading beyond the weak end of its permitted range of 7.75 to 7.85 Hong Kong dollars per U.S. dollar. (DJN)
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U.K. GDP grew 0.8% from January to March from the prior quarter, the Office for National Statistics said, easing from the 1.3% expansion in 2021’s fourth quarter. Economists polled by The Wall Street Journal expected the economy to expand by 1%. (DJN)
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The National Bank of Rwanda kept its key lending rate at 5% on Thursday amid rising inflationary pressures and a continued increase in global commodity prices, it said.
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This newsletter is compiled by James Christie in San Francisco.
Send us your tips, suggestions and feedback. Write to:
James Christie, Jon Hilsenrath, Michael S. Derby, Nell Henderson, Nick Timiraos, Paul Hannon, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Perry Cleveland-Peck, Michael Maloney, Paul Kiernan, James Glynn
Follow us on Twitter:
@WSJCentralBanks, @NHendersonWSJ, @michaelsderby, @NickTimiraos, @PaulHannon29, @kimmackrael, @TomFairless, @megumifujikawa, @pkwsj, @JamesGlynnWSJ, @cleveland_peck
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