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Clarida Says Fed's Inflation, Employment Goals Under Threat; BOJ Steps Up Support; India Cuts Rates; China Scraps GDP Target
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Good day. Fed Vice Chairman Richard Clarida said the coronavirus pandemic poses the most serious threat “in our lifetimes” to the central bank's goals of maintaining strong employment and stable prices. The Bank of Japan increased its support for business financing to about $700 billion, paralleling the Fed in expanding its tool kit to deal with the pandemic. India's central bank cut interest rates in an unscheduled move. And, for the first time since 1994, China's government decided not to publish a target for annual GDP growth.
Note to readers: We won't publish a newsletter Monday in observance of Memorial Day.
Now on to today’s news and analysis.
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Pandemic Poses Most Serious Threat to Fed’s Goals, Clarida Says
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PHOTO: SARAH SILBIGER/BLOOMBERG NEWS
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Fed Vice Chairman Richard Clarida said he expected the coronavirusi-nduced shock to demand for goods and services to be more severe than the hit to the economy’s capacity to supply them, putting downward pressure on inflation. He added that it will take some time to get a sense of how the economy will recovery, saying the Fed would have a better handle on the economy’s path by September.
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Fed’s Williams Optimistic for a Rebound, but Uncertain on Pace
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New York Fed leader John Williams said it is unclear when the U.S. economy will fully recover from the pandemic, adding the central bank will do all it can to help the country.
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Bank of Japan Unveils New Funding for Banks
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In April, Japan's government approved a credit guarantee program for no-interest, no-collateral loans to small and midsize businesses hit by the pandemic. The Bank of Japan said Friday it would also lend banks the money needed to make such loans at zero interest.
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Derby's Take: Fed Mulls Replay of Financial Crisis Guidance Playbook
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Central bankers once again are weighing how they can get policy power out of expressing firm guidance about the direction of interest rates, minutes from the April Federal Reserve meeting revealed. Read More.
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Key Developments Around the World
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China Scraps GDP Target, a Bad Sign for World Reliant on Its Growth
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China broke with more than a quarter-century of tradition by not issuing an economic growth target for 2020, a stark acknowledgment of the challenges facing the world’s second-largest economy as it grapples with uncertainties around the coronavirus pandemic.
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Europe’s Recovery Imperiled by Banks Too Scared to Lend
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The European Central Bank is offering banks trillions of euros in ultracheap money to keep European businesses afloat with loans to fight the effects of coronavirus. Governments are further sweetening the deal. But evidence is mounting that the effort is stuttering.
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Reserve Bank of India Cuts Rates to Help Economy Hit by Pandemic
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India's central bank cut its repurchase agreement rate from 4.4% to 4% and its reverse repo rate from 3.75% to 3.35% in an unscheduled move. Gov. Shaktikanta Das said officials met earlier than the scheduled June 3-5 meeting in light of recent economic damage.
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South Africa Central Bank Cuts Rate to Record Low
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The South African Reserve Bank cut the main repo rate to a record low of 3.75% from 4.25%, as Africa's most developed economy continues to strain under a worsening coronavirus outbreak and strict lockdown. SARB Gov. Lesetja Kganyago said the bank now expects South Africa's economy to shrink 7%, the country's deepest recession on record and worse than the 6.1% contraction it forecast in April. (Dow Jones Newswires)
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Bank of Canada Governor Is Relatively Optimistic About Recovery
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Bank of Canada Gov. Stephen Poloz said the economy is still on track for the central bank’s best-case scenario for a recovery, though it may take a year or longer for growth to return to the trend it was on before the pandemic began.
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Workers File 2.4 Million Unemployment Claims
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Workers filed 2.4 million unemployment claims last week, a slight drop-off in the wave of historically high weekly filings since the economic fallout from the coronavirus pandemic began. Weekly claims continued to log in at high levels, though they are down since an initial surge in layoffs drove claims to a peak of nearly 7 million at the end of March, according to Thursday’s Labor Department report.
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Mnuchin: Strong Likelihood We’ll Need Another Stimulus Package
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Treasury Secretary Steven Mnuchin reiterated the preference of the Trump administration and Senate Republicans to hold off on approving more support for the economy, but said there is a “strong likelihood” more will be needed.
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Financial Regulation Roundup
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S&P Fired Employee Who Discussed Ratings With Senate Staff
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In November, an S&P Global employee briefed Senate Banking Committee staff members on the growing risks in the $1.2 trillion market for loans that finance private-equity buyouts. On Jan. 6, the firm fired Mr. Park for failing to clear his presentation with compliance staff.
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Judge Tosses Visium’s Lawsuit Against Portfolio Manager’s Widow
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Visium Asset Management was seeking more than $100 million it paid to one of the hedge fund’s money managers. The judge dismissed the lawsuit on statute of limitation grounds.
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Markets Get a Shot of Fed Adrenaline
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Equities broke out this week, driven by promising news and a renewed promise from the Federal Reserve. Who were the real winners and losers? Let's take a look.
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Time N/A: Bank of Japan holds policy meeting
7:30 a.m.: ECB releases April 29-30 meeting minutes
10:30 a.m.: ECB's Lane speaks during virtual conference on inflation organized by Cleveland Fed and ECB
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U.S. markets closed for Memorial Day
Time N/A: Central Bank of Nigeria releases policy statement
9 a.m.: Bank of Israel releases policy statement
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Global business activity and labor markets suffered a little less in May, offering signs that damage to the global economy from the pandemic is easing but will require an extended time to overcome.
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U.S. sales of previously owned homes plunged in April, as the coronavirus pandemic shut down much of the country’s economic activity and sellers and buyers stayed on the sidelines.
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Prices for the revamped 20-year Treasury bond climbed Thursday in its debut session.
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Oil prices rose for the sixth consecutive session Thursday with producers curtailing output in response to ultralow crude prices and the coronavirus crisis.
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The future of a $700 billion market for risky corporate debt rests on companies like Portillo’s Hog Dogs, Chicago’s famous fast-food chain.
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Chinese local government financing vehicles raised 1.46 trillion yuan ($206 billion) from January to April, according to S&P, the busiest start to the year on record, as regional bosses fall back on infrastructure spending to boost economic activity. (Dow Jones Newswires)
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White House National Economic Council Director Larry Kudlow said the phase-one trade deal that the U.S. and China negotiated last year was intact and there were no plans to renegotiate.
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This newsletter is compiled by James Christie in San Francisco and Ed Ballard in London.
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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