Good day. Richmond Fed chief Thomas Barkin said yesterday that he isn’t opposed to the guidance Federal Reserve Chairman Jerome Powell gave last week pointing to a 50- or 75-basis-point rate rise at the Federal Open Market Committee’s meeting in July, adding, “I didn’t have a problem with what he said.” Mr. Barkin’s comments came on the heels of Fed governor Christopher Waller saying he would support another 0.75 percentage point rate increase next month, and St. Louis Fed President James Bullard saying the central bank must meet market expectations for rate rises as part of its effort to rein in inflation. The rate increases are rippling through U.S. markets, including the U.S. housing market. Demand continues to exceed unusually low levels of supply and propel home prices higher, but rising mortgage-interest rates are cooling off the frenetic sales pace that started two years ago when pandemic-related restrictions eased and buyers scrambled to find homes with more space. And American drivers are starting to buy less gasoline as they feel the economic burden of record prices that continue to hover near $5 a gallon.

Now on to today’s news and analysis.

Federal Reserve Bank of Richmond President Thomas Barkin said Tuesday he was on board with last week’s supersize rate rise by the Fed and expects more aggressive moves by the central bank as it seeks to lower high inflation levels.

“I was definitely supportive” of the 75-basis-point rate rise the Fed implemented last week, Mr. Barkin said in a virtual appearance. “We are in a situation where inflation is high, it’s broad based, it’s persistent, and rates are still well below normal…I think the spirit is you want to get back to where you want to go as fast as you can without breaking anything.”

• Companies Find Leaving Russia Difficult, Though Many Are Trying
• Turkish Defense Industry Cautious Over Selling Weapons to Ukraine
• Energy Investments Aren’t Enough to Bring Down Prices, IEA Says

The idea of a coming recession in Australia was calmly batted away this week by Reserve Bank of Australia Gov. Philip Lowe, but there are scenarios building that might plunge the resource-rich economy into a deep contraction, and the biggest influence on the outcome will be the central bank itself.

“I don’t see a recession on the horizon here,” Mr. Lowe said Tuesday. The lowest unemployment rate in nearly 50 years, labor market participation being at its highest ever, and the fact that more working-age Australians are in employment than ever before underpin his confidence. [Read more]

8:30 a.m.: Canada consumer price index for May
9 a.m.: Richmond Fed’s Barkin speaks to West Virginia Chamber of Commerce
9:30 a.m.: Fed’s Powell presents Semiannual Monetary Policy Report to Congress to Senate Banking Committee
12 p.m.: Richmond Fed’s Barkin speaks to Federal City Council
12:50 p.m.: Chicago Fed’s Evans speaks on monetary policy at Corridor Business Journal Mid-Year Economic Review
1:30 p.m.: Richmond Fed’s Barkin and Philly Fed’s Harker at Official Monetary and Financial Institutions Forum

Time N/A: ECB’s Lagarde at European Council meeting in Brussels; Bank Indonesia board of governors meeting; Central Bank of Egypt monetary policy committee meeting; Bangko Sentral ng Pilipinas monetary board meeting
3 a.m.: ECB General Council meeting in Frankfurt
4 a.m.: Norges Bank policy rate decision and monetary policy report
8:30 a.m.: ECB’s Enria speaks at SRB and ECB Joint Conference on ‘The test of time: Banking Union a decade on’
10 a.m.: Fed’s Powell speaks on monetary policy and the economy before House Committee on Financial Services
11 a.m.: Kansas City Fed manufacturing and composite indexes
2 p.m.: Bank of Mexico monetary policy statement
4:30 p.m.: Fed bank stress test results

The bulk of what has been fueling high inflation in the U.S. stems largely from the pandemic and geopolitics, a paper from the Federal Reserve Bank of San Francisco said Tuesday. “Supply factors are responsible for more than half of the current elevated level of 12-month [personal consumption expenditures] inflation. This in part reflects supply constraints from continued labor shortages and global supply disruptions related to the pandemic and the war in Ukraine,” the paper said. Demand issues explain a third of the remaining surge, and the authors noted that “while supply disruptions are widely expected to ease this year, this outcome is highly uncertain.”

—Michael S. Derby

• The Dallas Fed warned Tuesday that surging gasoline prices are poised to bring real pain to the economy. There are genuine questions as to whether, when it comes to fuel costs, Americans "can withstand higher prices for much longer. Without an adequate supply response arriving in the near term from either crude oil production or refining capacity, demand destruction is likely the only variable that can eventually cause the fuel price surge to slow and reverse," bank economist Garrett Golding says in a research note. "All told, fuel prices may be closer to consumers' pain threshold than inflation-adjusted prices might suggest," he added. (Dow Jones Newswires)
• Shopping at Canadian retail outlets accelerated in April from the previous month, and indicators point to strong sales performance in May, Statistics Canada said, noting sales advanced 0.9% in April to 60.72 billion Canadian dollars, or the equivalent of $46.78 billion. Market expectations were for a 0.8% increase in the month, according to economists at Bank of Nova Scotia. (DJN)
• Brazil’s central bank might continue to raise its benchmark lending rate after its next policy meeting in August, Alberto Ramos, an economist at Goldman Sachs, said in a research note. The bank raised the key rate, known as the Selic, by a half point to 13.25% at its meeting last week and signaled another increase in August of similar size. (DJN)
• Indonesia's central bank is expected to keep its benchmark reverse repo rate unchanged at 3.50% in June, according to six out of ten analysts polled by the Wall Street Journal. Bank Indonesia is likely to stand pat, as the country's inflation is expected to remain within the central bank's target of 2.0%-4.0% this month, and as economic recovery appears to be on track, Citi analyst Helmi Arman says. (DJN)
• The Bank of Korea may be getting closer to raising the policy rate by a bigger-than-usual 50 basis points, with inflation set to top its earlier forecast of 4.5% for this year, ING analysts Robert Carnell and Min Joo Kang say in a note. The BOK's "big step" 50bp increase at the July meeting will be "highly likely" if the consumer-price index rises to 6.0% in June from 5.4% in May, the analysts say. (DJN)
• Hong Kong has sold more foreign-exchange reserves to maintain its peg to the U.S. dollar, bringing its total outlay this year to US$9.54 billion. The Hong Kong Monetary Authority, the city's de facto central bank, said it sold US$665 million of U.S. currency in New York hours Monday. That followed the US$6.63 billion it sold last week. (DJN)
• Eurozone inflation should accelerate to 8.3% on year in June, Barclays said in a research note, pointing out that “Food and energy inflation—which currently accounts for two-thirds of total eurozone inflation—shows no sign of easing.” (DJN)
• U.K. inflation accelerated to a new four-decade high in May due to rising energy and food costs, with little prospect of the trend easing in coming months. The consumer-price index--which measures what consumers pay for goods and services--increased 9.1% in May, its fastest pace since June 1982, up from the 9% annual rate in April, data from the U.K.'s Office for National Statistics showed Wednesday. (DJN)
• Guinea-Bissau's economic growth is expected to slow to 3.8% this year from an estimated 5.5% in 2021, the International Monetary Fund said late Monday. (DJN)
   

This newsletter is compiled by James Christie in San Francisco.

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