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Big Swings in Bond Market; Waller 'All In' on Restoring Price Stability; Bullard Sees Continued Expansion
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Good day. U.S. Treasury yields last week posted unusually big swings, potentially pointing to a rise in volatility for bond markets and an unclear outlook for other investments. The yields largely reflect expectations for short-term interest rates set by the Federal Reserve, and have staged one of their most rapid climbs in history this year as the Fed has dramatically increased its forecast for how high rates need to be raised to combat high and stubborn inflation. Meanwhile, over the weekend Fed governor Christopher Waller said the Fed is "all in" on re-establishing price stability, and that he would support another 0.75 percentage point rate increase next month. St. Louis Fed President James Bullard said the economy appears on track for more expansion this year, and that the central bank must meet market expectations for rate rises as part of its effort
to rein in inflation, but that “risks remain substantial and stem from uncertainty around the Russia-Ukraine war and the possibility of a sharp slowdown in China.”
Now on to today’s news and analysis.
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Inflation Collides and Growth Fears Trigger Big Bond Market Swings
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Chairman Jerome Powell last week discussed the Federal Reserve’s decision to raise interest rates by three-quarters of a percentage point as it aims to tame high inflation.
PHOTO: JIM LO SCALZO/SHUTTERSTOCK
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A battle has broken out in bond markets, pitting investors’ fears of inflation against their concerns about slowing growth. The result is heightened volatility and a cloudy outlook for other investments.
Recent data showing inflation broadening and accelerating drove up Treasury yields last week, but the climb obscured outsize swings. In just one 15-hour stretch on Thursday, the yield on the benchmark 10-year U.S. Treasury note started at around 3.2%, climbed to roughly 3.5% and then fell to 3.18%, charting a gain and a loss that in a different time could each have taken weeks. Yields rise when bond prices fall.
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Waller Supports 0.75-Percentage-Point Rate Increase in July
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Federal Reserve governor Christopher Waller said that if the economy performs in line with his expectations, he would support raising interest rates by another 0.75 percentage point at the central bank’s meeting next month.
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Bullard Says He Expects Economic Expansion to Continue This Year
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Federal Reserve Bank of St. Louis President James Bullard said the economy appears on track for more expansion this year, and that the central bank must meet market expectations for rate rises as part of its effort to rein in inflation.
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Recession Probability Soars as Inflation Worsens
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Economists surveyed by The Wall Street Journal have dramatically raised the probability of recession, now putting it at 44% in the next 12 months, a level usually seen only on the brink of or during actual recessions.
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Small Businesses Fall Behind on Hiring as Inflation Takes a Toll
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Owners of many small companies say inflation has added to the pressures of an already tight job market, making it increasingly difficult to keep pace with the wages and benefits offered by large employers.
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Labor Shortage Stymies Building as Infrastructure Spending Kicks In
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Construction projects across the U.S. are running short on labor just as $1 trillion in federal infrastructure money starts to kick in, leading companies to get creative in their quest to attract and retain workers.
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Hot Housing Market Keeps Home Foreclosures at Bay
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With robust home prices and tight inventory, homeowners often have the option to sell their homes before facing the prospect of foreclosure, even as rising mortgage rates are making homes less affordable.
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Key Developments Around the World
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China’s PBOC Holds Benchmark Lending Rates Steady
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China’s central bank kept benchmark lending rates steady at its monthly fixing as Beijing again held off from aggressively stimulating its floundering economy while other countries tighten monetary policy to combat inflation.
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Inflation Outpaces Forecasts in Australia and South Korea
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Less Russian Gas Puts Europe’s Winter Fuel Supply in Jeopardy
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Summer in Europe is known as the “filling season,” when the bloc replenishes its gas storage network. This year’s effort to top reservoirs has become a closely watched gauge of Europe’s energy security.
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Companies Find Leaving Russia Difficult, Though Many Are Trying
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Philip Morris International Inc. is embroiled in the most complicated transaction in the company’s history, but the headache isn’t the recent $16 billion deal to buy rival Swedish Match. It is trying to get out of Russia.
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Rising Inflation and Interest Rates Pressure Emerging Markets
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Slowing growth, scorching inflation and rising U.S. interest rates are intensifying a squeeze on emerging-market finances and stoking concern over a fully fledged debt crisis in low- and middle-income countries.
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Financial Regulation Roundup
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ETF That Bets Against Bitcoin to Launch
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Financial firm ProShares is ready to roll out the first U.S.-listed short bitcoin futures exchange-traded fund this week, allowing investors to effectively bet against the largest cryptocurrency after its price tumbled below $20,000.
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The crypto world is no stranger to booms and busts, which many in the industry refer to as “winters.” But many investors and workers are feeling this crypto crash more acutely than previous ones.
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The Unraveling of Robinhood’s Fairy Tale
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Good times for customers meant good times for Robinhood. The more customers traded, the more revenue Robinhood raked in. By last summer, it boasted more than 22 million funded customer accounts. Then the party ended.
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8:30 a.m.: Chicago Fed’s national activity index for May
10 a.m.: U.S. existing-home sales for May
11 a.m.: Richmond Fed’s Barkin speaks to National Association for Business Economics
12 p.m.: Cleveland Fed’s Mester speaks at Engage! Cleveland Women in Leadership Panel
7:50 p.m.: Bank of Japan releases April 27-28 meeting minutes
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3:35 a.m.: ECB’s Elderson gives keynote speech at 10th Annual Conference on Bank Steering & Bank Management
8:30 a.m.: Canada consumer price index for May
9 a.m.: Richmond Fed's Barkin speaks to West Virginia Chamber of Commerce
9:30 a.m.: Fed’s Powell presents Semiannual Monetary Policy Report to Congress to Senate Banking Committee
12 p.m.: Richmond Fed’s Barkin speaks to Federal City Council
12:50 p.m.: Chicago Fed’s Evans speaks on monetary policy at Corridor Business Journal Mid-Year Economic Review
1:30 p.m.: Richmond Fed’s Barkin, Philly Fed’s Harker at Official Monetary and Financial Institutions Forum
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The Myth of the Central Bank ‘Soft Landing’
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If monetary policy works, then something must give—be it weaker credit growth or a gloomier business climate. That this can happen without affecting “real” material conditions is wishful textbook thinking, Jon Sindreu writes.
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A temporary gasoline-tax holiday in the U.S. to ease the burden of soaring fuel prices should be considered, Treasury Secretary Janet Yellen said on Sunday, as several states, including Connecticut and Maryland, have completed plans to temporarily halt gasoline taxes at the state level.
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The U.S. economy will likely contract by 0.5% next year as the Federal Reserve is forced to move more aggressively than expected due to high inflation, triggering a recession in the second half of 2023, economists at Deutsche Bank said in a note. (Dow Jones Newswires)
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Hong Kong has sold more foreign-exchange reserves to maintain its longstanding peg to the U.S. dollar, bringing its total outlay this year to US$9.54 billion. The Hong Kong Monetary Authority, the city's de facto central bank, said it sold US$665 million of U.S. currency in New York hours Monday. That followed the US$6.63 billion it sold last week. (DJN)
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South Korea's 2022 inflation is poised to top the Bank of Korea's earlier forecast of 4.5%, the central bank said in a report released Tuesday. Price growth is likely to accelerate in the second half of 2022 amid higher prices for petroleum products, processed food and dining out, according to the report. (DJN)
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Real wages in the eurozone are expected to decline this year due to inflation, but they should grow in 2023, although probably only modestly, ING forecast. (DJN)
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U.K. house prices rose for the fifth consecutive month in June to a new high, though there are further signs the pace of growth is slowing, according to new data from property-portal Rightmove PLC. The average price of property coming to the market rose by 1,113 pounds ($1,360) in May, up by 0.3% to GBP368,614. (DJN)
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Ivory Coast's economic growth is forecast to slow to 6% this year from 7% the prior year, the International Monetary Fund said. The slower growth is attributed to subdued global demand, worsened terms of trade and increased uncertainty, while inflation is expected to increase further to about 5.5% from 4.2% in 2021, the IMF said. (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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