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How Durable-Goods Prices Fit Into the Fed’s Inflation Outlook
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Good day. Federal Reserve Chairman Jerome Powell has argued for a while that the rise in inflation is largely driven by temporary factors unique to the pandemic, and he has noted the sudden rise in durable goods prices as evidence that inflation is bound to fall back to the Fed’s 2% goal. Whether those prices retreat is going to be a key part of how the Fed takes on the unexpectedly strong burst of inflation. In July, overall consumer prices rose 4.2% from a year earlier, according to the Commerce Department. Prices for durable goods rose 7%, or twice as fast as the 3.5% increase in prices for services.
Now on to today’s news and analysis.
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Short-Lasting Inflation Depends on Long-Lasting Goods
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Federal Reserve Chairman Jerome Powell has argued for a while that higher U.S. inflation is largely driven by temporary factors unique to the Covid-19 pandemic. PHOTO: POOL NEW/REUTERS
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For decades, Americans have enjoyed falling prices for cars, electronics and furniture. Until the Covid-19 pandemic, that is. For the past year, prices for durable goods have been rising—and not just by a little. Whether those prices come back down is a key part of the puzzle facing the Federal Reserve as it plots how to handle an unexpectedly strong burst of inflation.
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Fed’s Mester Open to Tapering Bond Buying This Year
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Federal Reserve Bank of Cleveland leader Loretta Mester said Friday the economy has improved enough to allow the central bank to slow the pace of its bond-buying stimulus campaign this year.
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Key Developments Around the World
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Economic Costs Accumulate as Countries Extend Border Closures
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The economic damage from Covid-19 travel restrictions is piling up, with more companies holding back on large investments or postponing decisions as border closures and visa delays stymie operations for longer than expected.
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Treasury Could Hit Debt Ceiling Deadline by Mid-October, Analysts Say
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The U.S. government will likely run out of cash and could begin to miss payments on its obligations some time between mid-October and mid-November, according to the Bipartisan Policy Center, a Washington think tank.
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Democrats Grapple With Limits of Antipoverty and Climate Bill
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Democrats are grappling with the fiscal and political limits of pursuing a broad antipoverty and climate bill, with some senior lawmakers preparing to slim it down as moderates push to shrink the $3.5 trillion package.
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Hard-Hit Industries Renew Calls for Covid-19 Aid Amid Slowdown
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Restaurants, live-events businesses and gyms are among industries renewing calls for Congress to provide additional financial assistance amid signs the rise in Covid-19 cases is slowing U.S. economic activity.
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Financial Regulation Roundup
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Libor Transition Stokes Sales of Risky Corporate Debt
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Wall Street’s shift away from Libor is fueling sales in the red-hot market for bundles of risky corporate loans, with managers of collateralized loan obligations rushing to close deals ahead of the year-end move away from the rate.
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Switzerland Gives Green Light to Crypto Trading Exchange
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Stock exchange SIX said its new SIX Digital Exchange, or SDX, will let investors trade, settle and store digital tokens through one venue, underpinned by “the highest Swiss standards of oversight and regulation.”
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Cryptocurrency Use in Afghanistan Poses Security Concerns
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The Taliban takeover of Afghanistan has fueled a surge in the use of cryptocurrency as Afghans try to cope with a deepening financial crisis, a trend that may offer hope for an ailing economy but that concerns Western security officials.
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Hong Kong’s Financial Ties to Mainland China Deepen
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Hong Kong and mainland China have taken a step toward even greater financial integration, with the start of a cross-border investment program for individuals known as “Wealth Management Connect.”
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9:30 a.m.: European Central Bank’s Lagarde speaks at conference on why Covid-19 recovery needs women
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8:30 a.m.: U.S. Labor Department releases August CPI
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German consumer prices rose 3.9% on year in August measured by national standards, in line with the forecast of economists polled by The Wall Street Journal, and increased 3.4% on year by European Union-harmonized standards, also in line with forecasts, Destatis said. (Dow Jones Newswires)
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Britain’s trade with the EU fell sharply in July following the country’s exit from the bloc earlier this year, as total exports of goods, excluding precious metals, declined by £300 million, or 1%, versus June because of a £900 million, or 6.5%, fall in exports to the EU, figures from the Office for National Statistics showed. (DJN)
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French industrial output increased 0.3% in July compared with June. Economists polled by The Wall Street Journal had forecast a 0.4% rise. (DJN)
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Italian factory output increased 0.8% in July compared with the previous month following an upwardly revised 1.1% rise in June, data from the country’s statistics office Istat showed Friday. (DJN)
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Spain’s industrial production fell 1.1% in calendar and seasonally adjusted terms in July from June, its second monthly decline, signaling that supply constraints are holding back factory output. (DJN)
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Canada added a net 90,200 jobs in August, following a 94,000 gain in the previous month, Statistics Canada said, adding the unemployment rate in August fell to 7.1% from the previous month’s 7.5%. That marks the lowest rate since the onset of the pandemic. Prior to the pandemic, unemployment stood at 5.7%. (DJN)
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Retail sales in Brazil rose 5.7% in July from a year earlier as shoppers bought more clothes and restrictions on movement continued to be eased, increasing by a seasonally adjusted 1.2% in the month to reach the highest level for the series since it began in 2000, the Brazilian Institute of Geography and Statistics said. (DJN)
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Mexican industrial production rose 1.1% in July from June in seasonally adjusted terms, including a 1.4% rise in factory output, its first advance in three months, led by a rebound in manufacturing and an increase in construction activity, the National Statistics Institute said. (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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