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George Sees No Need for Rate Move; Williams Warns on Bank Behavior; U.S. Inflation Moderates
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Good day. Kansas City Fed President Esther George gave an upbeat assessment of the economy and echoed other recent Federal Reserve leaders in saying interest rates should be held steady. New York Fed chief John Williams said risky and unethical behavior in banking persists a decade after the financial crisis. And U.S. consumer inflation was muted as 2019 came to an end.
Now on to today’s news and analysis.
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George: It's ‘Appropriate' to Hold Rates Steady for Now
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Kansas City Fed President Esther George spoke in Denver in October. PHOTO: ANN SAPHIR/REUTERS
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Kansas City Fed President Esther George said that while she opposed all three of last year’s rate cuts, she is OK with holding monetary policy steady for now. “Keeping rates on hold for now is appropriate in my view as we assess the economy’s response to last year’s rate cuts and monitor incoming data,” Ms. George said.
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Williams Says Wall Street Culture Still Needs Improvement
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New York Fed leader John Williams said cultural issues that lead to bad behavior on Wall Street are still an issue. “When we talk about company culture in the context of financial services, the first thing that comes to mind is the risky, unethical, and sometimes criminal behavior in the banking industry, particularly during the financial crisis,” he said.
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Derby's Take: A Twitter Battle Over Fed’s Political Profile Flares Up
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Whether a regional Federal Reserve Bank president should ever get involved in electoral politics got a public debate Tuesday on Twitter.
It kicked off when Minneapolis Fed leader Neel Kashkari offered his support for an amendment to the Minnesota constitution that he said would “make quality education a civil right for all children.”
Mr. Kashkari’s public support for a constitutional amendment drew the attention of some observers who are worried about any appearance of a political Fed. Read More.
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Other Developments Around the World
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U.S. Consumer Inflation Moderates in 2019
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U.S. consumer inflation wrapped up 2019 on a soft note, complicating the outlook for Fed officials who are watching for a meaningful pickup in prices. The consumer-price index—which measures the costs of everyday goods and services from food to dental care—increased 2.3% in December from a year earlier, up from the 2018 increase of 1.9%.
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Fed Adds $82 Billion to Financial Markets
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Big banks’ demand for longer-term Federal Reserve liquidity flared up again Tuesday, on a day where the central bank extended its plans to intervene in markets into mid-February.
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U.K. Inflation Hits Three-Year Low
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U.K. inflation fell to 1.3%, its lowest rate in three years, at the end of 2019, raising the prospect that the Bank of England will lower interest rates to boost price growth.
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Turkey's Central Bank Broadly Expected to Cut Rates
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Ten of 12 analysts surveyed by WSJ expect Turkey's central bank to cut its policy rate at its monetary policy meeting Thursday. The analysts expect the central bank to cut its benchmark interest rate by between 25 and 150 basis points from 12%, while two analysts expect no change. (Dow Jones Newswires)
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Bank of Korea Expected to Stand Pat
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All 22 economists surveyed by WSJ expect the Bank of Korea to keep its policy rate unchanged at 1.25% at its meeting Friday, following two rate cuts in 2019. Half the polled economists expect the bank could cut rates later in the year, while the other half forecast no action in 2020. (Dow Jones Newswires)
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Financial Regulation Roundup
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Morningstar Nears Settlement With SEC Over Bond Ratings
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Morningstar is nearing a deal with federal regulators over allegations it violated rules in its bond-rating business that prohibit analysts who hand out credit ratings from being involved in sales and marketing for their companies, according to people familiar with the matter.
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Delaware Attorney General Settles Probe of 403(b) Provider
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Delaware Attorney General Kathy Jennings has settled an investigation of Horace Mann Educators and a former representative of the financial services company over practices in retirement plans for teachers.
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Court Vacates $91 Million Payout to Former Hedge-Fund Employees
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A New York state appeals court ordered a retrial in a 2019 jury case that would have seen hedge-fund firm Touradji Capital Management pay roughly $91 million to two former employees.
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Wells Fargo CEO: A Wonderful Bank That Made Terrible Mistakes
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Wells Fargo’s fourth-quarter profit plunged, hurt by costs related to its long-running fake-account scandal and flagging business lines. “We came out of the financial crisis as the most valuable and most respected bank in the U.S.,” CEO Charles Scharf said on a call with analysts. “But as you know we made some terrible mistakes and haven't effectively addressed our shortcomings.”
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Graham Backs a Bill Friendly to Real-Estate Industry
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In an effort to tamp down new restrictions on a foreign-investor program used to help fund property deals, the real-estate industry has found a powerful supporter: U.S. Sen. Lindsey Graham.
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Germany Files Further Charges in Volkswagen Diesel Case
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Prosecutors said the charges against six Volkswagen employees include ones for tax evasion and fraud, and said in a statement they are “convinced that the defendants are largely responsible for the fact that authorities and customers in Europe and the U.S. were deliberately misled into thinking diesel emission standards would be met” through the use of unauthorized software.
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Wednesday (all times EST)
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8:30 a.m.: U.S. Labor Department releases December PPI
10:45 a.m.: Philadelphia Fed’s Harker speaks on low interest rates and the new normal in New York
11:30 a.m.: Dallas Fed’s Kaplan speaks to Economic Club of New York
2 p.m.: U.S. Federal Reserve releases beige book report on U.S. economic conditions
6:50 p.m.: Bank of Japan releases December corporate goods price index
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Time N/A: South African Reserve Bank releases policy statement; Central Bank of the Republic of Turkey releases policy statement
7:30 a.m.: European Central Bank releases Dec. 11-12 meeting minutes
8:30 a.m.: U.S. Commerce Department releases December retail sales
9 a.m.: Philadelphia Fed’s Harker speaks on economic outlook to New Jersey Bankers Association in Somerset
10 a.m.: Fed’s Bowman speaks on outlook for housing in Kansas City, Mo.
1 p.m.: European Central Bank’s Lagarde gives speech in Frankfurt
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The Evolution of Monetary Policy Frameworks
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An evaluation of 14 central banks shows a trend of narrowing inflation targets, increased transparency and an expansion of monetary policy tool kits, according to research published by De Nederlandsche Bank. Authors Anna Samarina and Nikos Apokoritis examined public data from 2007 to 2018 and discovered that “central banks in advanced economies faced a number of challenges in designing monetary policy frameworks suitable for the postcrisis environment.” The research from the Dutch central bank also says that “although some economists proposed increasing flexibility as a way to adapt monetary policy frameworks to the postcrisis environment, it is in contrast with the
recent tendency of central banks to move toward tighter inflation targets and stronger commitments.”
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The Fed (Mostly) Didn’t Cause the Latest Stock Market Melt-Up
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"Should Tesla Chief Executive Elon Musk be sending a thank-you letter to the Federal Reserve? Put another way: Is it more than coincidence that Tesla’s stock—and the rest of the market—has soared since the Fed starting buying Treasurys again in October?" asks WSJ's James Mackintosh. "The answer is that the Fed probably isn’t the cause of the stunning rally in Tesla or stocks more broadly, at least in the usual way of thinking about causes. On the other hand, if the Fed hadn’t acted, the market would almost certainly be lower, possibly disastrously so."
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The U.S. and China are about to declare a pause in their trade war by signing an initial pact at the White House this week, but a continuing battle over technology is bound to keep relations between the two superpowers on edge.
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Chinese customs data showed the country had a trade surplus with the U.S. of $295.8 billion last year, compared with a record $323.3 billion in 2018, and now that China has promised in an imminent trade pact to buy more from the U.S. its trade surplus with the U.S. should narrow further, economists say.
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Economic growth in Germany slumped to a six-year low in 2019, underscoring the vulnerability of Europe’s export powerhouse to tensions in the global economy.
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The Bank of Japan downgraded its economic assessment of three out of nine regions, reflecting weakness in exports and production. (Dow Jones Newswires)
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China’s central bank injected 400 billion yuan ($58.1 billion) of liquidity into the banking system, aiming to keep ample funds in the system before the Chinese Lunar New Year.
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Senate Minority Leader Chuck Schumer (D., N.Y.) told President Trump his preliminary trade agreement with China doesn’t go far enough, warning that the deal could produce little benefit for American companies and workers, while also emboldening Beijing.
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A healthy U.S. economy pushed up profits at America’s biggest banks, allowing them to grow even though falling interest rates made lending less profitable.
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The Trump administration plans to restrict the news media’s ability to prepare advance stories on market-moving economic data, Bloomberg reported, citing people familiar with the matter.
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Almost half of corporate bond traders say they spent less of their workday on the telephone last year, as computers supplant the main way the debt has traded for decades.
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