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Fed's Reverse Repo Facility Running Hot; U.S. Recovery Spurs Other Central Banks to Raise Rates; BOJ's Climate Lending Facility
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Good day. Another day, another record for the Federal Reserve’s reverse repo facility. It pulled in $756 billion on Thursday, a day after the Fed boosted its return from zero percent to 0.05%. The world’s central banks are hanging on how the Fed will respond to a rise in inflation, wary of being caught in the crosscurrents of an extraordinary U.S. economic expansion. And the Bank of Japan said it would introduce a lending facility to help banks finance projects connected to climate change.
Now on to today’s news and analysis.
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Fed Reverse Repos Surge to Record of $756 Billion After Rate Tweak
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Federal Reserve Chair Jerome Powell speaking during the Federal Open Market Committee press conference on June 16, 2021. PHOTO: FEDERAL RESERVE
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A day after the Federal Reserve boosted the return on a key part of its interest rate control tool kit, a record $756 billion flowed into the central bank’s reverse repo facility on Thursday. The reverse repo facility takes in cash primarily from money-market funds, as well as government-sponsored companies and banks. Until Wednesday, this facility offered a return of zero percent to eligible users, which the Fed moved up to 0.05%, while at the same time lifting another rate, called the interest on excess reserves rate, to 0.15% from 0.10%.
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U.S. Economy Drives Global Inflation, Forcing Foreign Banks to Act
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A booming U.S. economy driving inflation higher around the world and pushing up the U.S. dollar is pressing some central banks to increase interest rates, despite still-high levels of Covid-19 infections and incomplete economic recoveries.
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BOJ Introduces Lending Facility for Climate Change
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The program, to be inaugurated this year, will build on a previous program to help banks extend loans to growth sectors. The Bank of Japan said climate change would have an “extremely large impact” over the long term on the economy, prices and financial conditions.
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Glynn’s Take: RBA Gov. Increasingly Likely to Raise Rates Before Stepping Out the Door
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The Reserve Bank of Australia's current mantra holds that official interest rates won’t be raised until 2024. Gov. Philip Lowe's term ends in September 2023. But Mr. Lowe might yet get his chance to raise interest rates.
Read More.
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Former Philadelphia Fed Leader Says Dot Plot Does Matter
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Charles Plosser, the former leader of the Federal Reserve Bank of Philadelphia and a long-time monetary policy hawk, is pushing back at central bank leader Jerome Powell’s efforts to downplay the central-bank dot plot released Wednesday. That chart showed an uptick in rate expectations that Powell cautioned wasn’t an institutional forecast. Plosser, in an email, contends the rate forecasts do matter because they are key to officials’ overarching view that upward inflation pressures this year will ease next year. “If those participants had been asked what their inflation forecast would be without those rates increases, it most likely would have been higher, thus less transitory than the [Summary of Economic Projections] reported,” Plosser says.
—Michael S. Derby
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Jobless Claims Rose Last Week, Pausing Downward Trend
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Initial jobless claims rose by 37,000 to 412,000 in the week ended June 12. Despite the increase, the four-week moving average, which smooths out week-to-week volatility, reached a new pandemic low of 395,000.
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Bipartisan $1 Trillion Infrastructure Package Gains Steam
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Lawmakers and the White House haggled over how to finance a roughly $1 trillion infrastructure plan, awaiting feedback from President Biden as Democrats began talks on another package that could cost up to $6 trillion.
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U.S. Agency Named to Rescue Small Business Leaves Many Hanging
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In the pandemic shutdown last year, three-quarters of the nation’s small employers turned to the Small Business Administration for help, extraordinary demand that overwhelmed the agency.
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Financial Regulation Roundup
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Yellen Declines to Offer Position on State-Tax Deduction Cap
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Treasury Secretary Janet Yellen repeatedly declined to offer a clear administration position on the deduction for state and local taxes during a House hearing, leaving vagueness on an issue that will be the subject of tense negotiations.
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SEC Investigating Former Chair of Auditing Industry Regulator
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The Securities and Exchange Commission is investigating whether the recently dismissed chairman of the auditing industry’s oversight board violated any rules in his handling of internal complaints at the regulator.
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Time N/A: Bank of Japan releases policy statement
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Time N/A: National Bank of Hungary releases policy statement
10 a.m.: National Association of Realtors releases May U.S. existing-home sales
7:50 p.m.: Bank of Japan releases April 26-27 meeting minutes
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Why Crime Could Kill Crypto
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The strongest argument against cryptocurrencies used to be that they had yet to show they were much good for anything. Now the strongest argument against them may be that they have become far too good at one thing: enabling crime.
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A Homegrown Opportunity for Europe’s Beleaguered Banks
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Europe’s big lenders already make decent returns in their home markets, and building on their domestic strengths might be a more straightforward approach than fixing their global weaknesses, Rochelle Toplensky writes.
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Investors preparing for the Federal Reserve to boost rates are loading up on bonds with yields that track broader interest rates.
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The Philadelphia Fed’s business activity index edged lower to a still robust 30.7 in June from 31.5 the prior month, the regional Fed bank said Thursday. Any reading above zero indicates expansion in the manufacturing sector. (Dow Jones Newswires)
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Data shows amateur investors have been upending everything from stock trading volume to large investors’ bets.
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States across the West are at risk of electricity shortages this summer as a crippling drought reduces the amount of water needed to generate hydroelectric power.
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Chinese officials are drawing up plans to further loosen birth restrictions and transition toward encouraging childbirth, reflecting urgency in Beijing as economic growth slows and China’s population mix skews older.
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The EU this week raised €20 billion, nearly $24 billion, in its debut 10-year NextGenerationEU bond, with demand exceeding €142 billion, marking one of the largest single-tranche bond sales ever conducted. (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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