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Fed Minutes Suggest Rate Increases in March, May and June; Bank of England Under Pressure
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Good day. When the Federal Reserve raised interest rates between 2015 and 2018, it did so gradually, and never more than once every quarter. Now amid high inflation, minutes of the Fed’s Jan. 25-26 meeting released on Wednesday point to potential increases in March, May and June. “Most participants suggested that a faster pace of increases in the target range for the federal-funds rate than in the post-2015 period would likely be warranted,” the minutes said. Meanwhile in the U.K., high inflation is pressuring the Bank of England to raise its benchmark interest rate again. The BOE has already raised its policy rate twice in recent months, moving faster than any other major central bank to curb prices that have surged due to global supply shortages and higher energy costs.
Now on to today’s news and analysis.
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Fed Eyeing Potential for Faster Rate Increases to Ease Inflation
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Fed Chairman Jerome Powell has said 2022 would be a year in which the Fed shifts from a very highly accommodative monetary policy. PHOTO: POOL/REUTERS
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Federal Reserve officials at their meeting last month discussed an accelerated timetable for raising their benchmark interest rate beginning with an anticipated increase in March, amid greater discomfort with high inflation.
They agreed that “if inflation does not move down as they expect, it would be appropriate for the committee to remove policy accommodation at a faster pace than they currently anticipate,” said the minutes of the Jan. 25-26 meeting, which were released Wednesday.
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Fed Minutes Suggest New Ethics Rules Could Be in Place Soon
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Minutes of the Federal Reserve’s late January meeting shed some light on the central bank’s new ethics rules to limit the kind of market trading that led to the departure of several of its senior officials. “Regarding the tough and comprehensive ethics rules for senior officials that were announced in October, the Chair indicated that staff were working through comments received from policymakers and were aiming to circulate a new draft soon,” the minutes said. The minutes also said that “noting the urgency in bringing the new policy to completion, the Chair proposed that the Committee vote on a final draft as soon in the intermeeting period as possible.” That suggests the new rules could be in place by the Fed's mid-March policy meeting.
—Michael S. Derby
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Transcript: Rosengren Urges Faster Wind-Down of Fed Asset Holdings
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Eric Rosengren, a former president of the Boston Fed, said in an interview he is concerned the central bank waited too long to start withdrawing stimulus and suggested the Fed shrink its $9 trillion asset portfolio more aggressively. Here is a partial transcript.
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Why Republicans Stalled Raskin’s Bid for Top Fed Post
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Sarah Bloom Raskin, the Biden administration’s nominee for a top regulatory post at the Federal Reserve, is struggling to overcome resistance from Republicans on a Senate committee for which she once served as a lawyer.
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Derby’s Take: Fed Adds Crypto-Assets to Financial Risk Calculus
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Private digital money and related technologies are now on the Federal Reserve’s list of financial stability concerns.
Minutes from the Fed’s late January policy meeting, released Wednesday, noted that policy makers were taking account of developments in the digital money space and included that in their regular back and forth regarding risks in the financial system, and how Fed policy actions influence those risks. Read more.
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U.S. Retail Sales Jump 3.8% as Shoppers Shrug Off High Inflation
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U.S. shoppers spent strongly at the start of the year with a surge in big-ticket and online purchases as inflation reached a 40-year high and the Omicron wave of Covid-19 started to recede. Retail sales, a measure of spending at stores, online and restaurants, rose by a seasonally adjusted 3.8% in January from the prior month, the Commerce Department said. That marked the strongest monthly gain since last March when pandemic-related stimulus was being distributed to households.
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As Omicron Recedes, People Head Back to Work, Census Data Show
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New Census Bureau data released Wednesday show that the number of people who were out of work because they were sick or caring for someone who was sick fell to 7.8 million in late January and early February, down from almost 8.8 million in early January.
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U.S. Faults China for Failing to Meet Purchase Targets
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The Biden administration in a report to Congress faulted China for failing to meet its commitments to purchase U.S. goods under the 2020 trade deal, and said it was prepared to take further action to level the competitive playing field with Beijing.
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Some Lawmakers Want to Halt Gas Tax Amid High Inflation
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A push by some Senate Democrats to suspend the federal gasoline tax is running into opposition from both Republicans and other Democrats, presenting a challenge to the nascent attempt to reduce rising pump prices that have worried the White House.
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Key Developments Around the World
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U.K.'s Central Bank Caught Between Growth and Rising Prices
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Consumer prices in the U.K. rose 5.5% in January compared with a year earlier, the Office for National Statistics said, an increase likely strengthening the case for a third consecutive rate increase when the Bank of England meets next month.
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As Oil Nears $100, Saudis Snub U.S., Stick to Russian Pact
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President Biden has repeatedly called on Persian Gulf producers to pump more oil to reduce gasoline prices, but the Saudis have said they won’t pump more than they agreed to last year as part of a deal between the Organization of the Petroleum Exporting Countries and Russia.
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In Belgium, Workers Will Be Able to Ask for Four-Day Week
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Belgium is offering employees in the country the right to negotiate for a four-day workweek, part of a package of labor-law reforms proposed by the federal government that would allow employees to work more hours per day to forgo a fifth workday.
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Turkey Holds Rates as Ukraine Crisis Looms Over Its Economy
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Turkey’s central bank left its key interest rate unchanged for a second consecutive month on Thursday, pausing the government’s policy of interest rate cuts that triggered a chaotic devaluation of the lira last year.
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Financial Regulation Roundup
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Can Bitcoin Be a National Currency? El Salvador Is Trying to Find Out.
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In September, El Salvador became the first country to adopt bitcoin as legal tender. Now, the Central American country aims to borrow and use profits from bitcoin mining to back expansive economic policies under its president.
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U.S. Targets ‘Spoofing’ and ‘Scalping’ in Short-Seller Investigation
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Federal prosecutors are investigating whether short-sellers conspired to drive down stock prices by sharing damaging research reports ahead of time and engaging in illegal trading tactics, people familiar with the matter said.
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Time N/A: ECB’s Lagarde joins G20 finance ministers and central bank governors’ meeting
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Time N/A: ECB’s Lagarde joins G20 finance ministers and central bank governors’ meeting
1:30 a.m.: ECB’s Panetta in panel discussion on central bank digital currencies at U.S. Monetary Policy Forum
8 a.m.: ECB’s Elderson gives speech at event on climate-related and environmental risks
10 a.m.: U.S. existing home sales for January; U.S. leading economic indicators for January
10:15 a.m.: Chicago Fed’s Evans and Fed’s Waller speak at 2022 U.S. Monetary Policy Forum
11 a.m.: New York Fed’s Williams speaks at New Jersey City University
1:30 p.m.: Fed’s Brainard speaks at 2022 U.S. Monetary Policy Forum
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If Russia Hurts Wall Street, Don’t Expect Fed Help
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Usually when there is a crisis, investors can count on the Federal Reserve to come to the rescue, writes the WSJ's James Mackintosh in a Streetwise column. If Russian troops poised on the border of Ukraine start a European land war, the Fed may be less helpful than normal.
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Robust Sales Report Could Foretell Strength to Come
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Supply-chain challenges probably led many people to delay certain purchases until there is better availability, and people who moved to suburbs during the pandemic will likely continue to have more goods in their spending baskets than before, Justin Lahart writes.
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Global trade flows rose in December, a sign that logjams obstructing global supply chains may be easing, as an early indicator of trade flows developed by The Wall Street Journal pointed to a 1.3% increase for the month, adjusted for the seasonal ups and downs of exports of goods between countries. (Dow Jones Newswires)
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U.S. business inventories rose 2.1% on month in December, accelerating from a 1.5% rise in November, while the inventory-sales ratio increased to 1.29 from 1.25 the previous month, but remained below the 1.35 registered in December 2020, according to the Commerce Department. (DJN)
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U.S. home builder confidence fell in February for the second straight month as production bottlenecks increased construction costs and delayed projects, the National Association of Home Builders said. Its housing-market index declined to 82 in February from 83 in January. A reading above 50 indicates more builders view conditions as good than poor. (DJN)
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Canada’s annual inflation rate continued accelerating in January, hitting a 30-year-plus high, likely adding to pressure on the Bank of Canada to begin raising rates in two weeks. Statistics Canada said the consumer-price index increased 5.1% year-over-year last month. (DJN)
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Canadian wholesale transactions rose in December for a fifth consecutive month as sales in the automotive industry continued to advance, Statistics Canada said, noting sales increased 0.6% on a seasonally adjusted basis to 76.22 billion Canadian dollars, the equivalent of $59.93 billion. (DJN)
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Brazil's fiscal troubles are aggravated by a sharp rise in borrowing costs as the central bank fights double-digit inflation, Moody's says. The policy rate is at 10.75% after a 875 basis point rise in 12 months, and set to keep rising. That "will negatively impact Brazil's (Ba2 stable) interest burden in a short period of time," Moody's says. (DJN)
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Australia’s unemployment rate remained steady at 4.2% in January, with the outbreak of the Omicron variant of Covid-19 delivering a sharp hit to the number of hours worked in the month. On a seasonally adjusted basis, hours worked fell 8.8% in January from December, even as employment climbed 12,900 over the same period, according to figures from the Australian Bureau of Statistics. (DJN)
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Japan’s exports increased in January for the 11th consecutive month, driven by robust overseas demand for steel and mineral fuels, Ministry of Finance data showed. Exports rose 9.6% from a year earlier in January. That compared with December’s 17.5% increase and was weaker than the 16.5% increase expected by economists surveyed by data provider FactSet. (DJN)
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The Philippine central bank held its benchmark interest rate steady to support growth, as inflation has eased in recent months. Bangko Sentral ng Pilipinas decided to keep its benchmark overnight borrowing rate at 2.00% and its corresponding lending rate at 2.50%. (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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