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U.N. Warns of Fallout From Rate Increases; New York Fed's Williams Says U.S. Price Pressures to Persist
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Good day. The Federal Reserve risks causing significant harm to developing countries if it persists with rapid interest rate rises, the United Nations Conference on Trade and Development said in its annual report on the global economic outlook. According to UNCTAD, the Fed’s rate increases so far this year would reduce the economic output of poor countries by $360 billion over three years, and further policy tightening would do additional harm. The message is similar to one issued by the Reserve Bank of India last week, that the global economy was facing a major shock in the form of aggressive rate increases by central banks in rich countries. Even so, Fed tightening appears set to continue. New York Fed President John Williams, a top policy adviser to Fed Chairman Jerome Powell, warned that reducing inflation to the Federal Reserve’s 2% target would take
more time because of how price pressures have spread across the U.S. economy.
Now on to today’s news and analysis.
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U.N. Calls On Fed, Other Central Banks to Halt Interest-Rate Increases
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The Fed has increased rates five times this year, but the rapid rises are coming amid growing unease about the haste with which borrowing costs are being raised.
PHOTO: KEVIN DIETSCH/GETTY IMAGES
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The Federal Reserve and other central banks risk pushing the global economy into recession followed by prolonged stagnation if they keep raising interest rates, a United Nations agency said Monday.
The warning comes amid growing unease about the haste with which the Fed and its counterparts are raising borrowing costs to contain surging inflation. India’s central bank Friday said that the global economy was facing a third major shock after the Covid-19 pandemic and Russia’s invasion of Ukraine, in the form of aggressive rate increases by central banks in rich countries.
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Top Fed Official Warns of More Persistent Price Pressures
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Despite some signs of easing inflation, underlying price pressures have too much momentum and will likely require a period of higher interest rates, New York Fed President John Williams said in remarks Monday.
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Job-Openings Report to Offer Look at Labor Market
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An August report on layoffs and job openings will offer more details on the state of the U.S. workforce. The Labor Department is to release its job-openings and -turnover survey for August at 10 a.m. ET Tuesday.
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Home Builders Offer to Sell Homes in Bulk at Discount to Investors
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Big builders had a booming business during the pandemic selling to traditional buyers. But with mortgage interest rates pushing 7%, these buyers are disappearing from model home showrooms across the country.
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As More Cars Hit Dealerships, Buyers Feel Pinch of Rising Rates
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More new cars and trucks are trickling into dealerships as supply-chain troubles ease and auto makers increase output. Now, rising interest rates and other economic pressures are starting to put a damper on car-buying.
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Key Developments Around the World
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RBA Slows Pace of Rate Increases as Household Budgets Tighten
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Ukraine Pushes South Into Strategic Kherson Region
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Ukrainian forces broke through Russian lines and made new advances in the southern Kherson region, while expanding their rapid offensive in the eastern part of the country, retaking areas that Moscow now claims to be part of Russia.
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Israel, Lebanon Near Border Deal, Opening Up Gas Source for Europe
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Israel and Lebanon are close to striking a U.S.-brokered deal on maritime borders that would allow Israel to export gas to Europe and mark a rare instance of economic cooperation between the neighboring countries.
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Financial Regulation Roundup
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Crypto Could Threaten Financial System, Federal Risk Panel Warns
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Risks tied to cryptocurrencies could grow rapidly and eventually threaten the broader financial system, a panel of senior U.S. officials warned Monday, calling for tougher oversight of digital assets.
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Concerns About Credit Suisse Mount After Debt Slide
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Investors and analysts called on the Swiss banking giant, which combines a Wall Street presence with a global specialty in managing rich people’s money, to move faster with cost savings and fresh investor capital to reassure markets.
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Fund Managers, Regulators Wrestle Over Plans to Tighten ESG Rules
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Regulators in the U.S. and Europe are trying to tighten rules on popular environmental, social and governance investment products, triggering a backlash from investors and businesses.
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Justice Department to Crack Down as Corporate Crime Cases Decline
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The Justice Department is seeking to counter data showing a decline in corporate crime cases by doubling down on a familiar strategy: Getting companies to police employees and hand over any evidence of wrongdoing to prosecutors.
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House Republicans Seek Probe of Foreign Ownership of Farmland
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The top Republicans on the House Agriculture and Oversight committees have asked the Government Accountability Office to investigate foreign investment in U.S. farmland, questioning Chinese acquisitions in particular.
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8 a.m.: ECB’s Enria speaks at FMA Supervisory Conference 2022
9 a.m.: New York Fed’s Williams speaks at New York Fed Web Series on Culture: Culture and the New Workplace; Dallas Fed’s Logan speaks at Technology-Enabled Disruption conference
10 a.m.: U.S. durable goods and factory orders for August; U.S. Job Openings and Labor Turnover Survey for August
11 a.m.: ECB’s Lagarde speaks with students at Central Bank of Cyprus event
1 p.m.: San Francisco Fed’s Daly in fireside chat at the Council on Foreign Relations in New York
9 p.m.: Reserve Bank of New Zealand interest rate decision and statement
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Time N/A: ECB Governing Council non-monetary policy meeting in Cyprus
4 a.m.: Eurozone Services PMI for September
4:30 a.m.: S&P Global / CIPS UK Services PMI for September
8:15 a.m.: ADP National Employment Report for September
8:30 a.m.: U.S. trade report for August; Canada trade report for August
10 a.m.: ISM Report on Business Services PMI for September
4 p.m.: Atlanta Fed’s Bostic speaks at Northwestern University’s Institute for Policy Research on ‘Staying Resolute in the Battle Against Inflation’
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Brazil Activity Supported by Firming Confidence
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Improving consumer and business confidence in Brazil suggest economic activity should remain supported in coming months, Goldman Sachs economist Alberto Ramos wrote in a research note. The Getulio Vargas Foundation said Monday the country’s business confidence index rose to 101.5 points in September, above the 100-point level indicating confidence. The consumer confidence index rose in the month to 89 points, and the forward-looking expectations index rose to 100.1 points. Recent tax cuts and larger government payments to low-income families should also spur activity and help mitigate the effects on the economy of higher interest rates and ebbing global demand, Mr. Ramos said. Last month, Brazil’s central bank left its benchmark lending rate, known as the Selic, at 13.75% unchanged for the first time since early 2021, but said it remained ready to resume rate increases
if inflation doesn’t slow as expected.
—Jeffrey T. Lewis
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Economic Turmoil Separates Manufacturing’s Haves and Have Nots
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U.S. manufacturers have been weathering the effects of rising interest rates, a strong dollar and a slowing global economy remarkably well, but for some of them, at least, that probably can’t continue, Justin Lahart writes.
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The Institute for Supply Management’s manufacturing survey, a key gauge of U.S. factories, fell from 52.8% in August to a 28-month low of 50.9% in September as high inflation and rapidly rising U.S. interest rates rattled the economy. (MarketWatch)
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U.S. construction spending fell in August for the third straight month, led by a decline in residential construction, reflecting the current headwinds of the housing market as mortgage rates increase. Total construction spending fell 0.7% compared with July, its third consecutive monthly drop, according to data from the Commerce Department. In July, spending fell by 0.6% compared with a 0.4% drop previously estimated. Economists polled by The Wall Street Journal expected spending to fall 0.2% in August. (Dow Jones Newswires)
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Economists tracking Brazil’s economy lowered their estimates for inflation this year for the 14th consecutive week, according to a weekly survey by the country’s central bank. The median estimate of 140 economists for consumer price increases this year fell to 5.74% from 5.88% last week and from 6.61% four weeks earlier. The inflation forecast for next year was unchanged from a week earlier at 5.0% and for 2024 it remained at 3.5%. (DJN)
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Australian consumer confidence fell 2.6% last week, erasing gains seen through September, as global market volatility and a sharp rise in domestic fuel costs hit sentiment hard. (DJN)
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A gauge of Singapore's manufacturing activity dropped into contractionary territory in September for the first time in more than two years, amid a continued decline in electronics-sector activity. (DJN)
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Sweden’s manufacturing PMI fell below the 50 mark in September and its sub-index for new orders fell to 43.4, the weakest reading since May 2020, indicating the sector is contracting, Nordea chief analyst Torbjorn Isaksson said. (DJN)
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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
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