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Consumer Spending on Borrowed Time; Collins Says All Increments of Rate Hikes Should Be Considered
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Good day. Consumers built up unprecedented savings buffers during the Covid-19 pandemic, thanks to government stimulus and fewer opportunities to spend. But there are signs they are working their way through that buffer, and an end is in sight. Boston Fed leader Susan Collins said the Federal Reserve should be open to a rate hike of various sizes at its December policy meeting. And Fed Chairman Jerome Powell is set to speak about the economy next week before the central bank's quiet period begins ahead of the Dec. 13-14 meeting.
Now on to today’s news and analysis.
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As Savings Slowly Shrink, Consumer Spending Is on Borrowed Time
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It is the $1.7 trillion question for the U.S. economy: How long can the savings consumers built up during the pandemic keep their spending going? The answer: about nine to 12 more months. Economists estimate that headed into the third quarter of this year, households still had about $1.2 trillion to $1.8 trillion in “excess savings”—the amount above what they would have saved had there been no pandemic. But the saving rate has been falling, suggesting that consumers are spending more and saving less of their monthly income than normal because inflation forces them to spend more on higher-priced goods and services.
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Collins Says All Increments of Rate Hikes Should Be Considered
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Boston Fed President Susan Collins expects the central bank to raise its policy interest rate in December and said she was open to all different sizes of a move. “All of the possible increments should be on the table as we decide what is sufficiently tight,” she said on CNBC. While holding policy unchanged at 3.75%-4% range is “extremely unlikely,” a 75-basis-point move should be considered, she said. (MarketWatch)
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Powell to Speak on Economy Next Week
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Fed Chairman Jerome Powell will speak about the economy and the labor market on Nov. 30, two days before U.S. central bank officials stop talking publicly to prepare for their midmonth policy meeting. The Bookings Institution said Mr. Powell will give a talk at the think tank at 1:30 p.m. ET. His remarks could cement market expectations for the size of a likely increase in the central bank's benchmark interest rate to be announced after the Dec. 13-14 meeting. (MarketWatch)
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U.S. Home Sales Fell for Ninth Straight Month in October
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U.S. existing-home sales have posted the the longest streak of declines on record, as the steepest mortgage rates in two decades and high home prices are keeping many buyers on the sidelines.
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Biden Administration Makes Appeal on Student Loan Forgiveness
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The Biden administration on Friday asked the Supreme Court to allow it to move forward with its mass student-debt forgiveness program, which had been put on hold in lower-court litigation.
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Rising Interest Rates Put Small Business Owners’ Plans on Hold
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Add rising interest rates to the challenges that small businesses are already grappling with, including inflation, labor shortages and strained supply chains.
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U.S.-China Trade Talks Resume on Sidelines of Asian Summit
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U.S. Trade Representative Katherine Tai met with Chinese Commerce Minister Wang Wentao Friday to discuss trade issues, in Ms. Tai’s first face-to-face meeting with a senior Chinese official since taking office in 2020.
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Key Developments Around the World
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ECB's Lagarde Expects More Interest-Rate Increases to Tame Inflation
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Inflation in the eurozone is far too high and the European Central Bank is expected to keep increasing interest rates to levels that bring price growth back down to the medium-term target of 2%, President Christine Lagarde said Friday.
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"We expect to raise rates further—and withdrawing accommodation may not be enough," Ms. Lagarde said in a speech at the European Banking Congress in Frankfurt. "The ECB will ensure that a phase of high inflation does not feed into inflation expectations, allowing too-high inflation to become entrenched." (Dow Jones Newswires)
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COP27 Sets Up Climate-Damage Fund for Poorer Nations
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Poorer countries secured a deal at United Nations climate talks to create a fund for climate-related damage as part of a broader agreement that failed to yield faster cuts in emissions sought by wealthy nations to avert more severe global warming.
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German Trade Union Deal to Boost Wages
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Germany’s influential IG Metall union secured a hefty pay increase on Friday, closing long-running negotiations that have been closely watched by investors and the ECB. German metalworkers will receive a 5.2% wage hike next year and 3.3% in 2024, plus a 3,000 euro tax-free bonus, the IG Metall union said Friday.
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Other Countries to See Higher Taxes, Spending Cuts: U.K. Chancellor
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U.K. Chancellor of the Exchequer Jeremy Hunt defended his decision to implement steep tax increases and public spending cuts, saying that many other governments are going to have to follow suit after years of ramped-up spending from the pandemic and new energy subsidies.
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China’s Central Bank Keeps Benchmark Lending Rates Unchanged
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China’s central bank kept benchmark loan rates unchanged this month, amid continued downward pressure on the yuan and slowing economic growth. The one-year loan prime rate stood at 3.65% while the five-year rate was 4.3%, both unchanged from last month, the People’s Bank of China said in the statement Monday.
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Financial Regulation Roundup
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Celsius Failed to Set Up Controls to Track Customer Funds in Some Accounts, Examiner Says
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Bankrupt cryptocurrency firm Celsius Network LLC failed to set up proper accounting and operational controls to ensure that customer funds in certain deposit accounts were set aside from the rest of its crypto holdings, according to an independent examiner appointed in the company’s chapter 11 case.
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Elizabeth Holmes Is Sentenced to More Than 11 Years in Prison
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Elizabeth Holmes, the founder of Theranos who was convicted of defrauding investors, was sentenced to more than 11 years in prison, capping the extraordinary downfall of a onetime Silicon Valley wunderkind who promised to revolutionize blood testing.
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Sam Bankman-Fried Cashed Out $300 Million During Funding Spree
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When FTX raised $420 million from an array of big-name investors in October last year, the cryptocurrency exchange said the money would help grow the business, improve user experience and allow it to engage more with regulators. Left unmentioned was that nearly three-quarters of the money, $300 million, went instead to FTX founder Sam Bankman-Fried, who sold some of his personal stake in the company, according to FTX financial records reviewed by The Wall Street Journal and people familiar with the transaction.
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FTX Disclosed Related-Party Transactions but Didn’t Name Names
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The saga of Sam Bankman-Fried's bankrupt crypto empire isn’t just about collapsing tokens, missing billions and sunny offshore tax havens. There were also red flags in its books. At the core of FTX’s financial statements was a series of related-party transactions. But the company didn’t say who those parties were.
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8:30 a.m.: Chicago Fed National Activity Index for October
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10 a.m.: EU Flash Consumer Confidence Indicator for November
11 a.m.: Cleveland Fed’s Mester speaks at Cleveland Fed Conversations on Central Banking: Wages and Inflation
12 p.m.: Bank of Canada’s Rogers in fireside chat on risks to stability of Canadian financial system
2:45 p.m.: St. Louis Fed’s Bullard and George speak at Central Bank of Chile's annual conference
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Why the Investing Pros Were Such Suckers for FTX
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In the spectacular collapse of FTX, millions of fingers already seem to be pointing at Sam Bankman-Fried, the frizzy-haired boy wonder who founded the firm, drove it to a valuation of $32 billion and then took it into bankruptcy. SBF may be at the center of what went wrong, but he didn’t act alone. Behind him lies a vast ecosystem of fantasy and fakery. It’s called the investing business. If we’re going to point fingers, let’s be sure we aim at all the right targets, Jason Zweig writes for WSJ. Hedge funds, venture-capital firms and other professional investors earn billions of dollars of fees for their purported skill in judging the potential of businesses and the integrity of their
managers. Yet dozens of the world’s leading investment firms showered SBF with money. Despite their vaunted investing expertise, these firms all missed the many red flags fluttering high above FTX. And seldom in financial history have red flags been redder than this.
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Growth in services activity in the middle of the U.S. rose moderately in November, and expectations for future activity edged higher, according to a monthly survey by the Kansas City Fed. The Tenth District Services Survey's composite index, a weighted average of indexes covering revenue/sales, employment and inventory, came in at 10 for November, up from a reading of 6 for October but down from 20 in September. (Dow Jones Newswires)
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A dark outlook for the global economy dragged U.S. oil prices below $80 a barrel last week to their lowest levels since September.
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Chinese consumer spending is buckling under the country’s dual campaigns against rising property prices and Covid-19 outbreaks, flashing a warning for global companies that have pinned their hopes on a more free-spending Chinese customer.
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China reported more than 24,000 new locally transmitted Covid-19 cases, according to data from the National Health Commission on Friday, edging closer to the high point seen during Shanghai’s monthslong lockdown earlier this year. Infections were recorded all over the country, with numbers rising in two-thirds of the provincial-level regions.
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Former Bundesbank president Jens Weidmann will replace Helmut Gottschalk as head of the supervisory board at Commerzbank next year, the bank said, providing a leading figure in German banking as it faces the challenges of a likely recession. (DJN)
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This newsletter was compiled by Michael Maloney in New York and Perry Cleveland-Peck in Barcelona.
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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