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Senate Takes Up Brainard's Nomination for Fed Vice Chair; Mester and Bullard Point to Interest-Rate Increases
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Good day. Federal Reserve governor Lael Brainard appears before the Senate Banking Committee today as lawmakers consider her nomination by President Biden for vice chairwoman of the central bank. She will deliver her testimony on the heels of comments yesterday from Cleveland Fed President Loretta Mester, pointing to an increase in interest rates in March if inflation remains high, and from St. Louis Fed President James Bullard, who said a more hawkish path for monetary policy is needed relative to his recent expectations. The government yesterday said that the consumer-price index rose 7% in December from the same month a year earlier. The last time consumer prices clocked such an annual increase was in June 1982.
Now on to today’s news and analysis.
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Fed’s Brainard to Tell Congress That Reducing Inflation Is Top Priority
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Federal Reserve governor Lael Brainard’s prepared testimony is the latest sign of how the central bank has firmly pivoted toward fighting inflation. PHOTO: SUSAN WALSH/ASSOCIATED PRESS
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Federal Reserve governor Lael Brainard, the White House nominee to serve as the central bank’s No. 2 official, is set to tell Congress that efforts to reduce inflation are the central bank’s “most important task.”
Ms. Brainard, who joined the Fed in 2014, was a forceful advocate last year for ensuring that the central bank didn’t prematurely curtail stimulus as part of a focus on spurring a robust labor-market recovery.
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Bullard: Four Interest Rate Rises in 2022 Now Appear Likely
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Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank will need to move more aggressively on rate rises this year as it seeks to stem an inflation surge, amid a job market that could see the unemployment rate fall below 3% by the end of the year.
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Mester: Economy on Track for a March Rate Rise
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With inflation high, “the case is very compelling” for the Fed to move toward raising its short-term target rate, Cleveland Fed President Loretta Mester said in a virtual appearance at The Wall Street Journal’s CFO Network Summit.
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U.S. Inflation Hit 7% in December, Fastest Pace Since 1982
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The Labor Department said the consumer-price index rose 7% in December from the same month a year ago, up from 6.8% in November. That was the fastest pace since 1982 and marked the third straight month in which inflation exceeded 6%. The so-called core price index, which excludes the often-volatile categories of food and energy, climbed 5.5% in December from a year earlier. That was a bigger increase than November’s 4.9% rise, and the highest rate since 1991.
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Fed Beige Book: Economy Grew at Modest Pace to Close 2021
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The U.S. economy grew at a modest pace in the closing weeks of 2021 as supply-chain issues and a shortage of available workers held back production, the Federal Reserve said in its periodic collection of business anecdotes.
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Tight U.S. Labor Market Has Kept Lid on Layoffs
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A tight U.S. labor market has kept applications for unemployment benefits close to record lows for the past two months, while workers calling in sick because of the Omicron variant of Covid-19 have increased pressure on employers.
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Key Developments Around the World
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Energy Dependence Ties Europe’s Hands in U.S.-Russia Crisis
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Europe’s growing dependence on Russian gas and oil is limiting the continent’s room to maneuver in the mounting U.S.-Russia crisis over security in the region and making it highly vulnerable in the event of an escalation..
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Huge U.S. Investments at Risk in Kazakhstan Unrest
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Migrants Rush to Europe as Covid-19 Restrictions Ease
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Illegal border crossings into the European Union in 2021 were the highest since 2017, indicating the bloc hasn’t resolved an issue that has dogged it in recent years as authorities reported almost 200,000 migrants tried to cross into the EU.
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Omicron Puts China’s Zero-Covid Strategy to Its Toughest Test
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China has used some of the strictest measures anywhere to keep Covid-19 out and long succeeded in holding numbers down. But with Omicron the country is looking more boxed in by its own formula.
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Financial Regulation Roundup
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TransUnion Brings Credit Data Checks to Crypto Lending
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TransUnion, one of the three major U.S. consumer credit reporting firms, will let consumers give blockchain companies access to their personal credit data through the security firm Spring Labs’ ky0x Digital Passport.
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Germany Fights Soaring Home Prices With Curbs on Mortgages
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Germany’s financial regulator said it would clamp down on mortgage lending, signaling mounting concerns about the risks posed by house prices that have boomed in recent years, powered by ultralow borrowing costs.
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Crypto-Savings Lawsuit Puts Principles of DeFi to the Test
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The emerging world of decentralized finance offers the holders of cryptocurrency many of the amenities of a modern financial system. The model promises greater access at lower costs. But who is responsible when things go wrong?
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8:30 a.m.: U.S. Labor Department releases December producer price index
10 a.m.: U.S. Senate Banking Committee holds nomination hearing for Fed’s Brainard
12 p.m.: Chicago Fed’s Evans speaks at Milwaukee Business Journal Economic Forecast 2022; Richmond Fed’s Barkin speaks to Virginia Bankers Association and Virginia Chamber of Commerce
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8:30 a.m.: U.S. Commerce Department releases December retail sales; U.S. Labor Department releases December U.S. import and export price indexes
9:15 a.m.: Federal Reserve releases December industrial production and capacity utilization
10 a.m.: University of Michigan releases preliminary consumer sentiment survey for January
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Watching for a Wage-Price Spiral
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What the Fed doesn’t want to see is wage increases pushing prices significantly higher while a tight labor market and expectations of higher inflation are leading workers to command outsize wage increases, Justin Lahart writes.
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Biden’s Competition Push Bets Inflation a Microeconomic Problem
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Whether 7% inflation is mostly because of macroeconomics or microeconomics might be today’s most pressing economic question, and some Democrats have leaned hard into the microeconomic explanation, Greg Ip writes.
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The U.S. government ran a $21 billion deficit during December, the smallest monthly gap in two years, as the government took in more tax revenue while spending edged higher.
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U.S. crude-oil inventories declined more than expected last week even as refinery activity slowed down, according to data released by the Energy Information Administration. (Dow Jones Newswires)
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Factory Input shortages improved slightly in both the U.S. and the U.K. in December, before the surge in Covid-19 cases due to the Omicron variant, according to a Capital Economics analysis. (DJN)
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U.K. GDP will expand by 0.2% this quarter, up from zero previously expected, as Covid-19 cases in the country seem to be peaking and the government is unlikely to have to extend “Plan B” restrictions in England, Pantheon Macroeconomics predicted. (DJN)
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Germany’s wholesale prices rose 9.8% on average last year compared with 2020, posting its biggest year-on-year increase since the first oil crisis in 1973, statistics office Destatis said. (DJN)
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India’s consumer prices rose on year in December at a faster pace than in November due to higher food prices, according to preliminary government data showing the consumer price index up 5.59% last month after a 4.91% rise in November. The inflation rate is in line with the Reserve Bank of India’s target of 2% to 6%. (DJN)
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This newsletter is compiled by James Christie in San Francisco.
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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