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What Fed Officials Have Said About Rates; Central Banks of Canada, India Stand Pat; Quarles Discusses Repo Market
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Good day. Federal Reserve officials' comments leading up to next week's policy meeting suggest they have little appetite for another rate move as 2019 draws to a close. The Fed's Randal Quarles said bank regulations may have played a role in September's money-market volatility. The central banks of Canada and India both held rates steady. And, in Japan, Prime Minister Shinzo Abe's cabinet approved a stimulus program to support growth and counteract the effect of a recent sales-tax increase.
Now on to today’s news and analysis.
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What Fed Officials Said Ahead of Their December Meeting
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PHOTO: Liu Jie/Zuma Press
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Many Fed officials, including those seen as hawks and those considered doves, in recent weeks said no further interest-rate changes are needed now, making a rate move at next week's policy meeting unlikely. Central bankers have said now is a time to take stock of how this year's three rate cuts are affecting the economy. Here is a sample of Fed officials' comments since their October meeting.
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Bank of Canada Leaves Key Interest Rate Unchanged at 1.75%
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The Bank of Canada left its key interest rate unchanged at 1.75% and gave no indication a near-term cut is in the offing, as it cited early evidence that the global economy is stabilizing. The central bank said its latest projection for economic growth appeared to be intact. While trade conflicts remain the biggest source of risk, the bank said, financial markets have been supported by a combination of lower interest rates and waning recession fears.
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Derby's Take: Fed's Quarles Suggests Regulations May Be Gumming Up Market Liquidity
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Understanding why money markets went haywire in mid-September is key to fixing the problem over the long term.
To that end, Fed Vice Chairman for Supervision Randal Quarles told a congressional panel that central bank rules and regulations may be part of why short-term rates spiked unexpectedly nearly three months ago.
“I do think that as we have considered what were the driving factors in the disruptions in the repo market in September, we have identified some areas where our existing supervision of the regulatory framework…may have created some incentives that were contributors,” Mr. Quarles told the Housing Financial Services Committee. Read More.
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Other Developments Around the World
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India’s Central Bank Stands Pat, Resisting Business, Policy Makers
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The Reserve Bank of India left its lending rate unchanged at 5.15%, saying it was concerned about inflation, even as executives and policy makers have been demanding easing to help trigger the lending needed for Asia’s third-largest economy to snap out of its growth slump.
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Japan’s Cabinet Approves $120 Billion Stimulus Package
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Prime Minister Shinzo Abe’s cabinet approved a $120 billion stimulus program, Japan’s largest in more than three years, citing the same global economic risks that have led central banks in the U.S. and Europe to cut interest rates.
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New Zealand Nearly Doubles Capital Requirements for Banks
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The Reserve Bank of New Zealand said the amount of high-quality capital that banks are required to hold will double over seven years, as it aims to limit the chance of a bank collapse to a one-in-200 year event.
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U.S. Regional Banks Face Bumpy Road Away From Libor
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Regional banks are struggling to move away from the troubled London interbank offered rate, saying alternatives to the key benchmark for variable-rate debt could hurt their ability to make new loans.
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Fed Pumps $70.1 Billion in One-Day Liquidity Into Financial Markets
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The New York Fed added $70.1 billion in temporary liquidity to financial markets on Wednesday via overnight repurchase agreements, or repos. Eligible banks offered the Fed $54.9 billion in Treasurys and $15.2 billion in mortgage securities, and the Fed accepted all of it. The Fed also bought $7.5 billion in Treasury bills. Dealers offered the Fed $22.31 billion.
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Trump’s Tax Cuts Push U.S. Burden Lower in World
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President Trump’s 2017 tax cuts reduced the U.S. tax burden to one of the lowest among major world economies, according to a Thursday report by an intergovernmental organization. U.S. tax burdens dropped by the largest amount among those countries in 2018, and the U.S. now has lower taxes than all but three countries in the Organization for Economic Cooperation and Development, the report said.
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Financial Regulation Roundup
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Regulators See Nonbank Mortgage Firms as Potential Risk
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Financial regulators identified fast-growing mortgage lending companies as a potential source of instability in the U.S. financial system, while finding that overall risks are moderate.
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Banking Regulator Rebukes Wells Fargo’s HR Operations
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Wells Fargo’s principal regulator has said the bank has a massive backlog of employee human-resources complaints and poor controls around pay, a rebuke that adds to the long list of problems facing the lender’s new chief executive.
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Shh! Companies Are Fixing Accounting Errors Quietly
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Companies are increasingly likely to correct accounting problems by quietly updating past numbers, rather than alerting investors and reissuing financial statements. The number of Big R restatements—when a company has to alert investors and reissue its financial statements after finding a serious accounting error—has fallen from a peak of 973 in 2005, just after the requirement to alert investors began, to 119 last year.
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Brexit-Triggered Bank Relocations Increases ECB's Supervision
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After a wave of bank relocations from the U.K. into the eurozone in 2019 due to Brexit, banks directly supervised by the ECB are now generally becoming larger and more complex, the ECB said in a press release on Wednesday. The central bank started directly supervising subsidiaries of UBS, J.P. Morgan, Morgan Stanley and Goldman Sachs in 2019 following Brexit relocations. (Dow Jones Newswires)
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Money Manager GAM Accused of Accounting Misstatements
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The Swiss stock exchange accused beleaguered money manager GAM Holding of accounting misstatements connected to its 2016 acquisition of a U.K. hedge fund.
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Ex-UAW Executive Pleads Guilty to Fraud, Money Laundering
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A former United Auto Workers vice president and ex-General Motors director has pleaded guilty to conspiracy to commit wire fraud and money laundering, the latest in an unfolding corruption probe into the union’s leadership.
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Mueller Witness Charged With Illegally Funneling Campaign Money
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Federal prosecutors charged a witness in former special counsel Robert Mueller’s investigation who cultivated ties with President Trump’s inner circle with masterminding a conspiracy to funnel more than $3.5 million in illegal campaign contributions to political entities supporting Hillary Clinton during the 2016 election.
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8 a.m.: Bank of Canada’s Lane speaks on economic progress report in Ottawa
8:30 a.m.: U.S. Commerce Department releases October international trade data
10 a.m.: Fed’s Quarles testifies on bank supervision and regulation before Senate Banking Committee in Washington
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8:30 a.m.: U.S. Labor Department releases November jobs report
10 a.m.: University of Michigan releases preliminary December U.S. consumer sentiment
10:15 a.m.: Philadelphia Fed’s Harker gives opening remarks at forum on the evolving credit economy at his bank
3 p.m.: Federal Reserve releases October U.S. consumer-credit data
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On Trade, France and U.S. Go It Alone—to World’s Detriment
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"The rise of technology giants such as Amazon.com Inc. and Facebook Inc., like the rise of Chinese state capitalism, is disrupting national economies in ways that international tax and trade rules were never designed to handle," The Wall Street Journal's Greg Ip writes. "Ideally, like-minded nations would join and rewrite the rules to handle these new forces. Events this week, however, suggest that individual nations are choosing to go it alone, further undermining the world-trading system."
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Service-sector activity across the U.S. expanded in November, a reassuring sign the U.S. economy remained on solid footing as 2019 comes to a close.
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The U.S. nonfarm private sector added 67,000 jobs in November, missing economists’ expectations by a wide margin.
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The Trump administration is set to tighten work requirements for recipients of federal food aid, potentially rendering hundreds of thousands of people ineligible for the program by mid-2020.
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House Speaker Nancy Pelosi is pushing to strip out sweeping legal protections for online content in the new trade pact with Mexico and Canada, in what would be a blow for big technology companies.
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Consumer preferences and tariffs have led companies to expand their American furniture production. They are finding a dearth of skilled workers to support the renaissance.
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China’s leaders are spurring the country to create a more productive and professional workforce for an economy shifting from export manufacturing toward services and domestic demand.
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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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