Good day. Boston Fed Chief Susan Collins said yesterday that she sees the Federal Reserve tightening policy a little further, then keeping interest rates steady until the end of the year. She also said that recent financial-sector upheavals could help push inflation lower. Meanwhile, the White House called for tougher rules for midsize banks, and Treasury Secretary Janet Yellen questioned whether the regulatory system she helped build after the 2008 financial crisis was adequate to protect financial stability. Elsewhere, the Bank of Mexico raised interest rates for a 15th consecutive time, while slowing the pace of monetary tightening as inflation in the country shows signs of easing. Today, the Commerce Department will release February figures on U.S. household spending, income and saving, alongside the Fed’s preferred inflation gauge, the personal-consumption expenditures price index. Economists polled by The Wall Street Journal estimate the PCE price index, excluding volatile food and energy costs, rose 4.7% in February from a year earlier, the same rate as in January.

Now on to today’s news and analysis.

Federal Reserve Bank of Boston President Susan Collins said she expects the U.S. central bank to tighten policy a bit more to bring down inflation before holding interest rates steady through the end of the year.

Recent stress in the financial sector has increased uncertainty about the direction of monetary policy, but the Fed must still address persistently high inflation, Ms. Collins added Thursday at a National Association for Business Economics conference in Washington.

• Janet Yellen Says Bank Rules Might Have Become Too Loose
• Wild Quarter for Markets Might Foretell Further Turbulence
• Bond Rally at Risk as Bank Stress Diminishes

When banks run into distress, they have a go-to source for emergency funds other than the Federal Reserve’s discount window: the little-known Federal Home Loan Bank system.

Silicon Valley Bank and First Republic Bank both turned to the federally chartered banking system in the months before concerns about their falling deposit levels burst into the headlines in March. The two California-based banks, one seized by regulators and the other partly rescued by large banks, were the biggest borrowers at the Federal Home Loan Bank of San Francisco at the end of 2022, according to a San Francisco FHLB regulatory filing.

And this month, FHLB funding to banks nationwide surged following Silicon Valley Bank’s collapse. All this comes as the FHLB is facing a federal review that is examining the system’s 91-year-old mission. Read more.

• Spending Report to Show Whether Strength Continued in February
• The Class of 2023 Faces a Jittery Job Market
• What Retirement Looks Like in America in Six Charts
   

The Reserve Bank of Australia looks set to keep interest rates on hold at its policy meeting on Tuesday, but any pause in its nearly yearlong campaign of aggressive hikes will be laced with a hawkish reminder that the central bank isn’t finished tapping the policy brakes just yet.

With 350 basis points of hikes delivered since May, the central bank appears set to step to the sidelines to assess the fallout of those increases, in the knowledge that lags in the transmission of tighter policy settings can be significant. Read more.

• FTX Founder Pleads Not Guilty to Latest Federal Charges
• U.S., South Korea Vie Over Extradition of Crypto Fugitive Do Kwon

8:30 a.m.: U.S. personal income and spending for February; U.S. Personal Consumption Expenditures (PCE) Price Index for February; Canada gross domestic product for January
10 a.m.: University of Michigan consumer surveys for March
3:05 p.m.: New York Fed’s Willliams speaks at Housatonic Community College
5:45 p.m.: Fed’s Cook speaks at Midwest Economics Association 87th Annual Meeting
10 p.m.: Fed’s Waller speaks at Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference

4 a.m.: Eurozone manufacturing PMI for March
4:30 a.m.: S&P Global / CIPS U.K. manufacturing PMI for March
10 a.m.: ISM Report on Business Manufacturing PMI for March
10:30 a.m.: Bank of Canada releases Business Outlook Survey and Canadian Survey of Consumer Expectations

Concerns in Washington about bank failures don’t appear to have improved the chances of a timely debt ceiling resolution, according to a Morgan Stanley report. Strategists at Morgan Stanley write that some Republicans have linked government spending to banking-sector challenges, “drawing a line from spending to the increase in interest rates that drove mark-to-market losses in bank portfolios.” Morgan Stanley believes some lawmakers also perceive “telegraphed reassurances” by the Federal Reserve and Treasury Department as a signal the federal government might be inclined to step in and prevent a full-blown default in the event of a missed payment. Taken together, the strategists write, this suggests enough lawmakers may see value in a drawn-out debate linking the debt ceiling to government spending.

—Patrick Sheridan

Every cyberbug has a backstory, and Walmart is turning to actuaries, insurance experts, accountants and lawyers to help gauge security threats.

McDonald’s is examining the pros and cons of reusable packaging in its restaurants worldwide as the fast-food chain looks to address European laws and serve its fare in more durable containers.

Retailers including American Eagle Outfitters and Nordstrom are using chips to track inventory on the sales floor, gaining insights into customer habits and helping them use stores for online fulfillment. 

The salaries offered to U.S. accountants and auditors last year climbed at their quickest pace in recent years, but it may not be enough to remedy a national shortage of accountants. 

• The 25 biggest U.S. banks gained $120 billion in deposits in the days after Silicon Valley Bank collapsed, according to Federal Reserve data. All banks below that level lost $108 billion over the same period, the largest weekly decline in smaller banks’ deposits in dollar terms on record. Meanwhile, more than $220 billion has flowed into money-market funds over the past two weeks, according to data from Refinitiv Lipper. (Dow Jones Newswires)
• U.S. mortgage rates fell for the third consecutive week, according to government-backed housing-finance agency Freddie Mac. In the week ending Thursday, the average rate on a 30-year fixed-rate mortgage slid to 6.32% from 6.42% the prior week. A year ago, the average rate was 4.67%. (DJN)
• China's factory activity expanded at a slower pace in March while activity in the nation's service and construction sectors rebounded more strongly in the wake of the Covid-19 pandemic, according to official gauges released Friday. (DJN)
• The eurozone's unemployment rate held steady at a record low in February, indicating the labor market remains tight despite signs of a weakening economy. (DJN)
• German inflation fell in March after energy prices slowed substantially on year, though food prices continued to accelerate. The country’s consumer price index rose 7.4% on year measured by national standards compared with 8.7% in February, preliminary data from the German statistics office showed. (DJN)
• The U.K. economy expanded slightly in the fourth quarter, a stronger performance than previously anticipated, though it remains smaller than its size before the pandemic as elevated inflation and high interest rates hit economic activity. (DJN)
• The South African Reserve Bank on Thursday raised its main repo rate to 7.75% from 7.25% in an effort to keep inflation in check amid a persistent electricity crisis, a weak currency and high food prices. (DJN)

This newsletter is compiled by James Christie in San Francisco.

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