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Trump Picked Warsh to Cut Rates. Markets Are Bracing for the Opposite.
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- President Trump chose Kevin Warsh to lead the Federal Reserve, but rising inflation and bond yields challenge the idea of interest-rate cuts.
- The war in Iran and the AI boom are fueling inflation, making rate cuts unlikely.
- Kevin Warsh stated he will decide policy on the merits, and President Trump said he would “let him do what he wants to do.”
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Fed’s Barkin Says Raising Rates Doesn’t Address Supply Shock-Driven Inflation
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- Richmond Fed President Thomas Barkin stated raising interest rates doesn't address supply-shock inflation, but the Fed may respond if shocks persist.
- Barkin noted the Middle East conflict’s supply shock increased near-term inflation expectations and gasoline prices.
- Barkin expressed concern that inflation above the 2% goal for over five years risks loosening long-term inflation expectations.
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Kevin Warsh Wants to Remake the Fed. Here’s What He Is Up Against.
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- Kevin Warsh is to be sworn in as Fed chair on Friday, facing stubborn inflation and needing support from the Federal Open Market Committee.
- Warsh advocates for new inflation measurement methods, a smaller Fed market footprint, and a quieter central bank.
- His agenda faces skepticism from some committee members, who question his views on balance-sheet reduction and interest-rate policy.
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Extended Hold Might Be Enough to Contain Inflation, BOE’s Taylor Says
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- A Bank of England Monetary Policy Committee member said the central bank might contain inflation without raising its key interest rate.
- Alan Taylor said the current 3.75% key interest rate is restrictive enough to prevent second-round effects from inflation.
- A rate rise might be necessary if oil prices reach $130 a barrel for months, leading to stronger second-round effects.
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Japan Inflation Slows But Mideast Risks Keep Rate Hike on Table
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- Japan’s consumer inflation, excluding fresh food, climbed 1.4% in April, but policymakers remain concerned about Middle East conflict-driven price pressures.
- Underlying inflation, excluding fresh food and energy, was 1.9% in April, marking its first drop below the 2% target since July 2024.
- Markets price in over 80% probability of a Bank of Japan rate hike in June, amid concerns a prolonged Middle East conflict could deepen inflation.
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U.S Jobless Claims Fell Last Week
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- U.S. jobless claims fell to 209,000 in the week through May 16, signaling a stable labor market.
- The Labor Department reported initial claims were lower than the 212,000 reported a week earlier.
- Most Federal Open Market Committee participants judged recent jobs data as stabilizing.
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German Business Confidence Edges Higher Though War Concerns Still Weigh
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- German business sentiment marginally rebounded to 84.9 in May, remaining near multiyear lows due to an energy shock.
- The Ifo Institute’s business-climate index rose from April’s 84.5, the lowest reading since May 2020.
- German private-sector activity sank for a second straight month in May, pointing to a potential second-quarter contraction.
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U.K. Government Borrowing Rose in April as Interest Payments Jump
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- The U.K. government borrowed 24.3 billion pounds in April, 4.9 billion pounds more than a year earlier, signaling a potential slowdown in deficit reduction.
- Higher interest payments, rising to 10.3 billion pounds, and increased gilt yields after Middle East attacks contribute to borrowing challenges.
- The U.K. is more exposed to inflation due to index-linked bonds and faces costs from Bank of England quantitative easing losses.
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Insurers’ $1 Trillion Buildup in Private Credit Is Leaving Regulators in the Dust
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- Of the about $6 trillion in invested assets held by life and annuity companies, nearly $1 trillion is now in private-credit investments, according to A.M. Best.
- The Treasury Department plans meetings with state insurance regulators about the private loans piling up in insurers’ portfolios.
- Last year the National Association of Insurance Commissioners pulled a report revealing that the ratings on insurers’ private-credit investments were routinely inflated.
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WSJ Pro Central Banking brings you news and analysis from a global team of reporters and editors at The Wall Street Journal and Dow Jones Newswires. Send your tips, suggestions and feedback to service@dowjones.com. An artificial-intelligence tool created these summaries, which are based on the text of the article and checked by an editor. Read more about how we use artificial intelligence in our journalism.
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