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Federal Reserve Set for Another Big Rate Hike; Housing Costs Make Fed's Task More Challenging
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Good day. The Federal Reserve's monetary tightening campaign looks set to keep marching forward today, with another 0.75-percentage-point rate hike announcement expected at the conclusion of the central bank's policy meeting. The Fed also will release projections of where officials think interest rates are headed. As the central bank continues to battle inflation, housing price pressures aren't helping. Not only are shelter costs rising, they are climbing at an accelerating pace, accounting for a growing share of the overall inflation rate.
Now on to today’s news and analysis.
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Climbing Housing Costs Could Prop Up Inflation for a While
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Rents and other shelter costs are emerging as a major driver of overall consumer inflation, keeping it high at a time when many other sources are starting to ease. Economists expect housing inflation to strengthen further before cooling off in the coming months, but are unsure of when relief will appear. This creates another challenge for the Federal Reserve as it raises interest rates to reduce price pressures.
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JPMorgan Sees Bigger Fed Interest-Rate Increases Ahead
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JPMorgan’s chief economist expects the Fed will have to raise interest rates more than expected by year-end. Michael Feroli and his team now estimate a half percentage-point increase in November to follow on the heels of a three-quarter percentage point rise this week. Mr. Feroli and his team earlier called for a quarter percentage-point increase in November. JPMorgan sees the U.S. central bank delivering rate increases in 2023, reaching a target rate of 4.25% by February.
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Rising Interest Rates Squeeze Stocks on Both Sides
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The stock market is facing dual stresses as investors and policy makers grapple with stubbornly high inflation. The higher interest rates put in place by the Fed to curb pricing pressures will eventually slow the economy and likely ding corporate earnings. At the same time, they will constrain the prices that investors are willing to pay for a slice of company profit.
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Disappointing U.S. Harvest Adds to Global Challenges
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A lackluster U.S. harvest this year is setting back efforts to relieve a global food supply that has been constrained by Russia’s war in Ukraine, agriculture-industry executives said.
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How Goldman Sachs Found a Friend in America’s Small Businesses
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Goldman Sachs has used its 10,000 Small Businesses program to build soft power on Main Street and in Washington. The Wall Street titan earns billions of dollars a year advising moguls and giant corporations. Behind the scenes, small-business owners are getting its gold-plated services free.
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August Home-Sales Report Comes as Mortgage Rates Rise
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The National Association of Realtors August report on existing-homes sales will offer a broad look on how the housing market weathered higher mortgage rates at the end of the summer. NAR will release the August home-sales data at 10 a.m. ET Wednesday.
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Key Developments Around the World
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Bank of Canada Official: Inflation Is High, but Going in Right Direction
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A senior official at the Bank of Canada said inflation in the country, while slowing, remains too high but is headed in the right direction. Deputy Governor Paul Beaudry reiterated the central bank would take whatever actions are necessary to restore price stability.
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"While we're headed in the right direction, that's still too high," Mr. Beaudry said, according to prepared remarks. "Consumers and businesses are rightfully wondering when we'll stop feeling the pinch of high prices." (Dow Jones Newswires)
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Investors Are Backing Away From South Korea
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The dominant dollar is causing trouble in yet another locale: South Korea. The relentless rise of the greenback, fueled by rapid Fed tightening, has helped weaken the South Korean won to levels last hit during the global financial crisis.
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Norway's Giant Sovereign-Wealth Fund Makes Net-Zero Push
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Norway's sovereign-wealth fund said it wants its more than 9,000 portfolio companies to reach net-zero greenhouse gas emissions by 2050. Norges Bank Investment Management outlined a plan to engage with companies it invests in to nudge them closer to the net-zero goal. Companies that don't comply could be dropped.
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RBA Suffers Huge Accounting Losses From Bond-Buying Program
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The Reserve Bank of Australia has suffered huge accounting losses as a result of the government bond-buying program it undertook through the pandemic, leaving it temporarily in a position of negative equity.
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Putin Dials Up Nuclear Threat, Orders Draft of Reservists to Ukraine
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Financial Regulation Roundup
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Morgan Stanley Paying $35 Million Fine
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Morgan Stanley will pay $35 million to settle allegations it scrapped computer servers and hard drives without ensuring they no longer held sensitive customer information, regulators said.
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EY Faces Knotty Split of Its Lucrative Tax Business
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Ernst & Young’s tax experts bring in lots of cash and are highly valued by the firm’s clients. Many members of the 70,000 strong group don’t know where they will be working next year, or if they will be competing against each other. The proposed breakup of EY into a steady firm focused on auditing companies and a faster-growing consulting business has reached the nitty-gritty phase after its top executives approved the split.
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Card Companies Face Calls From AGs to Abandon Gun-Shop Code
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Republican attorneys general of 24 states are warning Visa, Mastercard and American Express not to move forward with their plan to add a new code to identify when purchases are made at firearms retailers.
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U.S. Charges 47 in Connection With $250 Million Covid-Aid Fraud
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The Justice Department charged 47 people in connection with an alleged scheme that stole more than $250 million from a federal program that fed low-income children, in what officials called the largest theft yet uncovered from a coronavirus pandemic aid program.
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NYSE to Delist ‘SPAC King’ Warrants After Price Crashes
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The New York Stock Exchange said it would delist warrants for two SPACs led by venture capitalist Chamath Palihapitiya after they fell more than 99% following his announcement that he was shutting down the investment vehicles.
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Crypto Market Maker Wintermute Hacked for $160 Million
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Crypto market maker Wintermute was hacked for about $160 million in its decentralized-finance operations, Chief Executive Evgeny Gaevoy said in a Tuesday tweet. Wintermute’s centralized finance and over-the-counter operations are not affected, Mr. Gaevoy said, adding that the firm is “solvent with twice over that amount in equity left.”
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10 a.m.: U.S. existing-home sales for August
2 p.m.: Federal Reserve interest-rate decision and economic projections
2:30 p.m.: Fed’s Powell holds post-FOMC press conference
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7 a.m.: Bank of England interest-rate decision
8:30 a.m.: U.S. weekly jobless claims
12:30 p.m.: ECB's Schnabel speaks in Luxemburg
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Fed Could Lift Reverse Repo Counterparty Size at FOMC
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Bank of America said in a research note the Federal Reserve could lift the reverse repo counterparty cap from $160 billion per eligible firm at the conclusion of the Federal Open Market Committee meeting today. "We would not rule out an increase in the cap to $200 billion ahead of September quarter end" which could see some churn in the money-market fund sector, the bank says. Money-market funds are one of the big users of the Fed's reverse repo tool, which continues to see high usage, with inflows of over $2 trillion a day.
—Michael S. Derby
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New residential construction in the U.S. increased sharply in August but building permits fell further, adding to evidence of a housing downturn amid high inflation and rising interest rates. Housing starts, a measure of U.S. homebuilding, rose 12.2% in August on month, to a seasonally adjusted annual rate of 1.575 million. (Dow Jones Newswires)
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Australia's wage growth may be decelerating despite the unemployment rate being at its lowest in close to 50 years, giving the Reserve Bank of Australia added scope to slow the speed of interest-rate increases over the coming months. Jobs portal SEEK said Wednesday that advertised salaries rose 3.8% over the year to August, down from 4.1% over the year to July. (DJN)
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Surging prices for lithium are intensifying a race between auto makers to lock up supplies and raising concerns that a shortage of the battery metal could slow the adoption of electric vehicles.
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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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