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Fed Issues New Main Street Loan Guidance; Bullard Sees Inflation Rising; Kashkari Says New Forward Guidance Could Have Been Stronger
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Good day. The Fed issued new guidance to banks Friday in an effort to improve access to new business loans through the $600 billion Main Street Lending Program. Meanwhile, St. Louis Fed leader James Bullard said inflation pressures are building. His Fed colleagues Neel Kashkari and Raphael Bostic also spoke Friday. Mr. Kashkari said the central bank's new guidance regarding the path of interest rates fell short of what was needed, while Mr. Bostic said he’s optimistic that the economics profession can do better in addressing racial inequality. And the People's Bank of China kept rates on hold.
Now on to today’s news and analysis.
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Fed Issues New Bank Guidance to Improve Main Street Loan Access
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The Fed is trying to encourage banks to make loans that they might not otherwise make.
PHOTO: SHAWN THEW/EPA/SHUTTERSTOCK
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The Federal Reserve is relying on banks to underwrite loans to qualified small and midsize businesses under the Main Street Lending Program. The program has faced limited uptake since the Fed began purchasing loans in July, with some banks saying they are selling 95% of eligible loans to the Fed because of concerns over how regulators might treat loans to firms whose revenues have been significantly harmed by the pandemic. In response, the central bank said Friday it had agreed with bank regulators to clarify that federal examiners will provide more flexibility in evaluating loans originated under the Main Street program.
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Bullard Says Inflation Could Start to Pick Up Soon
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Federal Reserve Bank of St. Louis leader James Bullard said higher inflation is coming to the U.S. economy, but didn’t indicate that would be a worrisome development, and also said the economy is likely to grow 30% in the third quarter from its second-quarter depths.
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Kashkari Says New Forward Guidance Could Have Been Stronger
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Minneapolis Fed leader Neel Kashkari said he strongly supports new Fed guidance over the future path of interest rates, but that he would have preferred “a stronger commitment to not raising rates until we were certain to have achieved our dual mandate objectives.”
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Bostic Hopeful Economics Can Make Progress on Racial Issues
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With persistent and large wealth gaps between white and black households, Atlanta Fed leader Raphael Bostic said the economics profession must change to better understand why disparities exist and how they can be remedied.
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Key Developments Around the World
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Global Trade Returns Faster Than Expected
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Global trade is rebounding much more quickly this year than it did after the 2008 financial crisis, lifting parts of the world economy and defying predictions the pandemic could send globalization into permanent retreat. Trade had recovered about half of this year’s historic loss by June, according to calculations by the Kiel Institute for the World Economy, a German think tank. New export orders were growing in 14 of 38 economies measured by research firm IHS Markit in August, compared with just four in June.
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China Central Bank Keeps Key Rate Unchanged
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The People's Bank of China kept its benchmark interest rate, the Loan Prime Rate, unchanged. It lowered its LPR twice this year but has held off from cutting since May as Chinese economy rebounded strongly. The one-year LPR stood at 3.85% and the five-year rate was 4.65%, according to the official statement. Wen Bin, an analyst with China Minsheng Bank, says the avoid further cuts is a reflection of policy makers' intentions to crack down on financial arbitrage and property speculation that has emerged since May. (Dow Jones Newswires)
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Banks Pile Into Treasurys, Help Fund Government Borrowing Spree
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Holdings at U.S. commercial banks of Treasury and agency securities other than mortgage bonds have grown by more than $250 billion since the end of February as their total deposits have jumped by more than $2 trillion.
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Jobless Rates in Northeast, West Are Highest in U.S.
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Unemployment rates in regions across the U.S. moved down this summer after peaking in April, when the coronavirus first triggered widespread lockdowns across the nation. Still, jobless rates remained particularly high, on average, in the Northeast and West, and clocked in above 10% in 10 states. Last month, New York had an unemployment rate of 12.5%, Pennsylvania recorded an unemployment rate of 10.3% and New Jersey’s unemployment rate was 10.9%.
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Financial Regulation Roundup
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Fed Taps BlackRock to Help Calm Markets. Its ETF Business Wins Big.
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The Federal Reserve’s March commitment to deploy billions of dollars to prop up the economy was a boon for the company the central bank hired to help execute its plan: BlackRock Inc., the world’s largest asset manager.
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Swedbank Under Investigation By Swedish Regulator in New Probe
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Swedbank AB said Sweden’s financial supervisory authority is investigating the bank for suspected breaches of market-abuse regulations. The Swedish FSA confirmed it has opened an investigation and Swedbank said it is assisting in the probe.
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European Banks Consider Mergers for Survival
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The coronavirus pandemic has brought a sense of urgency to Europe’s ailing banks to scale up or risk dying, and around the region’s capitals banks are exploring mergers after a decade of weak returns.
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LSE Eyes Sale of Italian Unit to Help Secure Refinitiv Approval
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LSE said it is in talks to sell Borsa Italiana Group to a consortium comprising pan-European rival Euronext NV, an investment arm of the Italian government and Intesa Sanpaolo SpA for an undisclosed amount.
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Time N/A: Central Bank of Nigeria releases policy statement
8:45 a.m.: European Central Bank’s Lagarde gives speech at an online meeting of Franco-German Parliamentary Assembly
12 p.m.: Fed’s Brainard gives online speech on the Community Reinvestment Act
6 p.m.: New York Fed’s Williams speaks online on the financial burdens of inequality to Congressional Black Caucus Foundation
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Time N/A: National Bank of Hungary releases policy statement
3:30 a.m.: Bank of England’s Bailey speaks at British Chambers of Commerce webinar; Riksbank releases interest-rate decision and monetary policy report
8 a.m.: European Central Bank’s Panetta gives speech to Money Market Contact Group
10 a.m.: Chicago Fed’s Evans speaks online on economy and monetary policy to Official Monetary and Financial Institutions Forum; European Central Bank’s Lane chairs panel at ECB/CompNet online event on productivity, trade and financial flows during the pandemic; National Association of Realtors releases August U.S. existing-home sales
10:30 a.m.: Fed’s Powell testifies on Cares Act before House Financial Services Committee
10 p.m.: Reserve Bank of New Zealand releases rate decision
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The Pandemic Has Become One Big Extreme Home Makeover
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Boredom turns the wheels of history, Romanian philosopher and perma-pessimist Emil Cioran once argued, and there is no clearer proof than people using a pandemic to go crazy about DIY, Jon Sindreu writes at The Wall Street Journal.
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There were 1.3 million single-family existing homes for sale in the U.S. at the end of July, the lowest count for any July in data going back to 1982, according to the National Association of Realtors.
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The Conference Board’s Leading Economic Index measuring U.S. business cycles rose to 106.5 in August, up 1.2% from July, marking its fourth straight monthly increase. Economists polled by The Wall Street Journal expected a gain of 1.4%. (Dow Jones Newswires)
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U.K. retail sales logged a fourth straight monthly rise in August, increasing 0.8% from July and 4% from February’s pre-pandemic level, the Office for National Statistics reported Friday. (DJN)
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Canadian retail sales increased 0.6% in July from June to a seasonally adjusted 52.86 billion Canadian dollars, or the equivalent of $40.04 billion, with activity at automobile dealerships and gasoline stations powering results, Statistics Canada said Friday. Sales rose by a revised and record 22.7% in the June. (DJN)
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Canadian wholesale transactions advanced 4.3% on a seasonally adjusted basis in July from June to 64.54 billion Canadian dollars (US$48.89 billion), their third consecutive month increase, to surpass their pre-pandemic level, as sales in the automotive sector continued to recover, Statistics Canada said Friday. (DJN)
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Angola's government will save around $6 billion over the next three years thanks to a reprofiling of its debt with public creditors and two Chinese banks, the head of the country's debt unit said Friday. (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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