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Mester Points to More Fed Rate Increases; Bank of England's Move Highlights Need for Inflation Fight
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Good day. Federal Reserve Bank of Cleveland President Loretta Mester said Thursday that she would need to see several months of easing price pressures before she could be sure the Fed was making progress against inflation. She echoed other senior Fed officials who have said the central bank will keep raising interest rates until inflation starts to subside, even if that risks triggering a recession. As for a downturn, “We’re not in a recession right now. Are the risks of recession going up? Yes,” Ms. Mester said. Her comments followed the Bank of England raising rates by 0.5 percentage point to 1.75%—the most stringent tightening of monetary policy in the U.K. since 1995. That shows that not even a floundering economy will stop central bankers from prioritizing their inflation mandates, Jon Sindreu of The Wall Street Journal writes. Meanwhile, India’s
central bank raised its policy rate earlier today in a bid to tame elevated inflation, and the Reserve Bank of Australia lowered its 2022 unemployment forecast, highlighting continued momentum in the economy despite rapidly rising interest rates and a jump in costs for households and businesses.
Now on to today’s news and analysis.
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Fed’s Mester Backs Higher Interest Rates Until Inflation Begins to Fade
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Cleveland Fed President Loretta Mester.
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The president of the Federal Reserve Bank of Cleveland said Thursday the Fed needs to keep raising interest rates until high U.S. inflation has begun to subside, joining a coterie of senior Fed officials who’ve backed more aggressive measures.
“We’re committed to getting inflation down,” Loretta Mester said at an event at the Economic Club of Pittsburgh, adding that she needs to see several months of easing price pressures before she could be sure the Fed was making progress. Read more at MarketWatch.
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U.S. to Report on Employment as Inflation and Fed Hikes Hit Economy
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Optional caption / credit
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The U.S. labor market likely cooled again in July, economists estimate, as the economy faltered under the weight of high inflation and Federal Reserve interest-rate increases to cool demand. Employers are estimated to have created 258,000 jobs in July, with the unemployment rate staying steady at 3.6%, according to economists surveyed by The Wall Street Journal. That would mark a significant slowing of payroll growth The Labor Department will release its July employment report today at 8:30 EDT.
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U.S. Jobless Claims Rose Last Week to Near High for Year
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Initial jobless claims, a proxy for layoffs, increased slightly to a seasonally adjusted 260,000 last week from a downwardly revised 254,000 the prior week, holding close to the highest level of the year.
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Mortgage Rates Drop Below 5% for First Time Since April
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The average rate on a 30-year fixed-rate mortgage is 4.99% this week, down from 5.30% a week earlier. Rates remain well above levels from a year ago, but have fallen swiftly in recent weeks from their 13-year high of 5.81% in June.
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Key Developments Around the World
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India’s Central Bank Raises Rate to Rein in Inflation
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India’s central bank raised its policy rate in a bid to tame elevated inflation. Reserve Bank of India Gov. Shaktikanta Das said Friday that the monetary-policy committee decided to increase its policy repo rate by 50 basis points to 5.40%.
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France’s Macron Wins Passage of Measures to Fight Inflation
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French President Emmanuel Macron secured passage for measures to help bolster household finances, a boost for the French leader as the country copes with rampant inflation stemming in part from Russia’s war of attrition in Ukraine.
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China’s Military Exercises Around Taiwan Disrupt Shipping
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China’s launch of military exercises around Taiwan is disrupting supply chains as shipping companies look to avoid the area, but the important waterway for cargo remains accessible to vessels, executives said.
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For Stricken Lebanon, Ukrainian Grain Might Not Be Enough
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The first shipment of grain to leave Ukraine’s key Black Sea ports since the Russian invasion is expected to dock soon in Lebanon, where food inflation is the highest in the world, in a test of a deal aimed at alleviating the global food crisis.
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Reserve Bank of Australia Cuts Jobs Forecasts
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The Reserve Bank of Australia has lowered its 2022 unemployment forecast, as economists raise their forecasts for second-quarter GDP growth, stoked by resilient consumer spending and a record terms of trade boom.
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Glynn’s Take: Australia to Start its Next Upswing at Full Employment
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The Reserve Bank of Australia updated its economic forecasts on Friday, and while the extent of uncertainty that surrounds them is higher than usual, there’s good reason to shake off the gloom that has depressed confidence recently.
The RBA is forecasting that the unemployment rate will be at 4.0% by the end of 2024, up from a low this year of 3.25%. It’s a scenario that suggests Australia will enter the next economic upswing with an unemployment rate at or below the RBA’s current estimate of full employment. That would be truly transforming for the economy. Read more.
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Financial Regulation Roundup
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CFPB Is Investigating Goldman Sachs’s Credit-Card Practices
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Goldman Sachs Group Inc. said regulators are investigating business practices at its credit card unit, including how the bank handles customer refunds, resolves billing disputes and reports consumer information to credit bureaus.
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Proposed Tax Break for EVs Too Hard to Get, Auto Makers Say
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Major auto makers are pressing lawmakers to ease a proposed battery-sourcing requirement for electric-vehicle tax breaks in the Senate climate package, saying that few, if any, plug-in models on sale today would qualify.
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8:30 a.m.: U.S. employment report for July
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10 a.m.: Conference Board Employment Trends Index for U.S. for July
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Gauge of U.S. Labor Market Shows Declining Momentum
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The U.S. jobs market may be weakening, Bank of America economists say in a report about two new gauges used to monitor employment. One tracking market conditions moved up in June by 0.07 for the month and 0.95 from a year earlier, but the other one measuring momentum declined, by 0.3 from May and by 0.64 from a year earlier. “While indicators of the level of labor market activity remain near three-decade highs [the] BofA Indicator of U.S. Labor Market Momentum turned negative in April 2022 after posting positive readings in 17 of 18 prior months,” the economists write. “Should labor market momentum remain negative in coming months, we would interpret the developments as a negative signal for the longevity of the current expansion.”
—Paulo Trevisani
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Forget the Economy: Central Bankers Will Only Care About Inflation
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Not even a floundering economy will stop central banks from prioritizing their inflation mandates, as shown by the Bank of England approving the most stringent tightening of monetary policy since 1995, Jon Sindreu writes.
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The U.S. trade gap in goods and services shrank 6.2% in June to $79.6 billion after seasonal adjustment, the Commerce Department said, from May’s revised deficit of $84.9 billion. That marked the first time the deficit has been below $80 billion since December 2021. A rise in shipments of energy products pushed up exports, while cooling consumer appetite weighed on imports.
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Europe is on the brink of recession, Moody’s Analytics economists said in a note, pointing to energy and food prices at unprecedented levels, supply chains that remain clogged, and the threat of further disruptions to Russian gas supply. (Dow Jones Newswires)
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Canadian building permits fell in June, mainly due to a drop in the non-residential sector, Statistics Canada said, noting the value of building permits in June slid 1.5% from May to a seasonally adjusted 11.9 billion Canadian dollars, or the equivalent of $9.27 billion. (DJN)
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Canada’s reserves of foreign currencies and other monetary assets totaled $106.64 billion in July, up from $106.28 billion a month earlier, the federal finance department said. Reserve figures are reported in U.S. dollars. The government reported no official intervention in the foreign-currency market in July, and there were no gold holdings at the end of the month. (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
Follow us on Twitter:
@WSJCentralBanks, @NHendersonWSJ, @michaelsderby, @NickTimiraos, @PaulHannon29, @kimmackrael, @TomFairless, @megumifujikawa, @pkwsj, @JamesGlynnWSJ, @cleveland_peck
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