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Fed's Bostic Discusses Economic Toll of Systemic Racism; The Case for Putting Stimulus on Autopilot
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Good day. Raphael Bostic, the first Black president of one of the 12 regional reserve banks, is shining a light on how economic and social upheaval have changed how the Fed talks and thinks about racial and economic inequality. Meanwhile, as Congress gears up to debate another round of stimulus, some economists are saying enhanced unemployment benefits should be authorized to continue until the unemployment rate falls below a preset threshold, avoiding the political fights that can slow relief efforts.
Now on to today’s news and analysis.
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First Black Fed President Warns of Systemic Racism’s Economic Toll
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PHOTO: ELIJAH NOUVELAGE/BLOOMBERG NEWS
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In an essay published after two intense weeks of national unrest following the killing of George Floyd while in police custody, Atlanta Fed leader Raphael Bostic framed injustice in moral and economic terms. “Systemic racism is a yoke that drags on the American economy,” he wrote. In an interview, Mr. Bostic said many of these themes getting attention now have been the subject of long-running but mostly private discussions inside the Fed. “What changed is that a lot of the issues underlying those conversations have been laid starkly before us in a way that really makes it difficult to not talk about them,” he said. “We are a different Fed in a lot of ways.”
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Don’t Know How Much Stimulus Is Needed? Put it on Autopilot, Some Say
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One of the trickiest questions facing Congress when it takes up the debate on new stimulus later this month is just how much help the economy needs to recover from the Covid-19 pandemic. Some economists and lawmakers say they have the solution: put stimulus on autopilot, so that aid to households automatically becomes more or less generous as economic triggers are hit.
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Derby's Take: Fed Officials Eye Changed Economy Post Pandemic
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Even as some recent data points to the U.S. economy starting to emerge from the worst effects of the coronavirus pandemic, there are hints that Federal Reserve officials are beginning to brace for a changed world even if the pandemic is brought under control. Read more.
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U.S. Unemployment Rate Fell to 11.1% in June
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Unemployment fell and the U.S. economy regained 4.8 million jobs in June as the economy was healing faster than anticipated. Still, the labor market is operating with about 15 million fewer jobs than in February, the month before the coronavirus pandemic struck the U.S.
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Mortgage Rates Hit a Record Low—Again
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The average rate on a 30-year fixed-rate mortgage fell to 3.07% on Thursday from 3.13% in the previous week, mortgage-finance giant Freddie Mac said. It was the fifth time this year rates on America’s most popular home loan hit a new low.
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Businesses Hit Hard by Coronavirus Claw Back Jobs
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The two industries that suffered the most job loss because of the coronavirus pandemic and related shutdowns—hospitality and retail—saw the strongest gains in the past two months as the U.S. economic engine restarted.
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Behind Oil’s Rise Is a Historic Drop in U.S. Crude Output
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U.S. crude supply is falling at its quickest pace ever, easing a global oil glut and spurring a swift recovery in fuel prices. Yet oil’s push back above $40 a barrel as drivers return to roads isn’t enough for beleaguered shale producers, which until recently were the driving force behind a transformation of the global energy industry.
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Key Developments Around the World
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Developing World Loses Billions in Money From Migrant Workers
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Migrant workers—from Polish farmhands working the fields of southern France to Filipino cruise-ship workers in the Caribbean—who lost their jobs because of the pandemic’s economic impact are running out of cash to send home.
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China’s Economy Regains Strength After Strict Coronavirus Measures
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Economic activity is gathering momentum in China, a raft of survey data showed, the latest sign that Beijing’s uncompromising approach to tackling the coronavirus pandemic is starting to pay dividends even as the U.S. shuts down swaths of its economy to contain the virus.
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Europe Avoids Jobless Surge With Furlough Schemes
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Unemployment in Europe rose only slightly in May, a testament to the success of government programs that pay the wages of workers put on furlough by their employers when governments imposed lockdowns designed to contain the spread of the new coronavirus.
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Financial Regulation Roundup
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How Wirecard Went From Tech Star to Bankrupt
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Wirecard claimed to process $140 billion of transactions a year for a quarter million businesses and was briefly valued at more than any German bank. Then it came apart in an unraveling reminiscent of Enron’s collapse nearly two decades ago.
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American Express Gets Nod to Start Operating Card Network in China
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China’s central bank gave American Express the green light to start operating a card-clearing network that will process transactions in yuan, giving the U.S. card company greater access to the country’s spenders.
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Luckin Probe: Chairman Knew or Should Have Known of Fabrications
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An investigation into the accounting misdeeds at Luckin Coffee Inc. has concluded that the company’s chairman knew—or should have known—about the fabricated transactions that inflated the Chinese coffee chain’s sales last year, according to a person familiar with the matter.
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Banks Are Still Expected to Monitor Hemp Growers’ Transactions
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Financial institutions still need to conduct due diligence and monitor transactions for hemp-related businesses, the U.S. Treasury Department’s financial crime unit said, expanding on previous guidance about the industry.
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9 a.m.: Bank of Israel releases policy statement
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12:30 a.m.: Reserve Bank of Australia releases policy statement
10 a.m.: U.S. Labor Department releases May Job Openings and Labor Turnover Survey
11 a.m.: Fed’s Barkin speaks during a virtual event
1 p.m.: Fed’s Quarles speaks on financial stability at a virtual event
2 p.m.: San Francisco Fed’s Daly and Richmond Fed’s Barkin speak during the National Association for Business Economics webcast
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Cleveland Fed Says Pandemic Will Drive Disinflationary Forces
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The deep U.S. recession and uncertain economic outlook created by the coronavirus pandemic will soften already modest inflationary pressures, according to a new research report from the Cleveland Fed. Over the medium term the recession "could induce substantial disinflationary pressure that may prove to be persistent," the report said. It also said what drives inflation has changed: "While the role of economic slack has diminished, economic growth has become a significant driver of inflation dynamics, indicating that the link between inflation and economic activity remains but the relevant gauge of activity has changed." On Thursday, the Congressional Budget Office said the
U.S. economy is likely to shrink by about 6% this year, with the jobless rate ending the year at 10.5%. The CBO sees inflation at 0.4% for 2020 and rising to the Fed's target of 2% in 2024. Some in markets have worried about an inflation surge due to aggressive Fed support actions, a notion policymakers believe is wrong.
—By Michael S. Derby
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U.S. Jobs Rebound Comes with a Cost
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Jobs kept coming back last month, but with new Covid-19 cases on the upswing as well the danger is that recovery is about to get cut short, and, worse, recent job gains and the epidemic’s resurgence may not be unrelated, Justin Lahart writes at The Wall Street Journal.
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Services sectors in France and Spain returned to growth in June, while those of Germany and Italy saw much smaller declines in activity than in recent months, according to surveys suggesting the eurozone economy is in recovery. (DJN)
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GfK's U.K. consumer confidence barometer climbed to minus 27 at the end of June from minus 30 two weeks earlier and up nine points since the end of May, which marked the low point of the coronavirus crisis so far. (DJN)
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U.S. exports in May fell 4.4% to $144.5 billion and imports slipped 0.9% to $199.1 billion, leaving a seasonally adjusted trade deficit of $54.6 billion, an increase of 9.7% and the widest since December 2018, according to Commerce Department data.
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China's jobs market remains dismal and uncertain, according to 42.4% of urban depositors who responded to a quarterly survey by the People's Bank of China. (DJN)
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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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