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Powell Sees Economy at Inflection Point as Economists Forecast Best Growth Since 1983
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Good day. U.S. economic output and job growth are poised to accelerate in the months ahead as long as the Covid-19 pandemic retreats, Jerome Powell said in a TV interview. Economists surveyed by the Journal see the economy growing at its fastest pace since 1983 and expect the Fed to start raising rates in mid-2023, rather than 2024 or later, as officials at the central bank have indicated. On the agenda this week, U.S. inflation, consumer spending and industrial output data, as well as Chinese growth and exports figures.
Now on to today’s news and analysis.
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Powell Sees Pickup in Economic Growth Ahead
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Jerome Powell said a resurgence of Covid-19 remains the primary risk to the economic outlook. PHOTO: THE WALL STREET JOURNAL
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Federal Reserve Chairman Jerome Powell said the Fed’s forecast is that the economy could produce close to one million jobs a month for “a string of months," according to the transcript of an interview for CBS's 60 Minutes, which took place on Wednesday. Mr. Powell reiterated that the Fed plans to wait until the economy’s recovery is complete before it raises interest rates. “It’ll be a while until we get to that place,” Mr. Powell said. Asked whether a rate increase might happen this year, he said it is “highly unlikely.”
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“We feel like we’re at a place where the economy’s about to start growing much more quickly and job creation coming much more quickly”
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— Federal Reserve Chairman Jerome Powell
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With Economy Poised for Best Growth Since 1983, Inflation Lurks
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Economists surveyed by WSJ have boosted their average forecast for 2021 economic growth to 6.4%. If realized, that would be one of the few times in 70 years that the economy has grown so fast. They see inflation accelerating to 3% in June, which would be the highest since 2012, before slowing to 2.6% by December, and the Fed starting to raise rates in mid-2023.
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Key Developments Around the World
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Dollar Hits Rough Patch After Strong Start to 2021
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The greenback is down more than 1% against the currencies of its biggest trading partners so far in April as the Federal Reserve stuck to its message that it won’t raise interest rates soon despite forecasts the U.S. economy will recover faster than its peers.
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Fed’s Clarida: Reopening Could Bring Supply-Demand Imbalances
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Fed Vice-Chairman Richard Clarida said Friday that the expected path of the recovery this year could be volatile, in a television interview that gave few hints as to when the central bank might pare back its support for the economy.
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Biden Infrastructure Plan Tops Priorities as Congress Returns to Work
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A crucial period of negotiations expected to determine the size and scope of President Biden’s infrastructure package will kick off this week on Capitol Hill, when lawmakers return from a two-week recess.
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Troubled Vaccine Rollout in Europe Nears Possible Turning Point
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The European Union’s economy and vaccination effort have been mired for months while the U.S. and U.K. race toward recovery. But the EU’s fortunes could change by midyear—provided mishaps stop hampering its vaccine supply.
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Financial Regulation Roundup
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Alibaba Hit With Record $2.8 Billion Antitrust Fine in China
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China’s antitrust regulator imposed a fine equivalent to $2.8 billion against Alibaba Group Holding Ltd. for abusing its dominant position, a record penalty in the country amid scrutiny of company founder Jack Ma’s business empire.
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SEC Review Highlights Potentially Misleading ESG Practices
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The SEC has found some investment firms touting socially responsible investing were potentially misleading investors, part of its enhanced review of funds claiming to support environmentally friendly policies.
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Budget Request Includes Funds for Corporate Ownership Registry
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The White House request seeks an additional $64 million for the Financial Crimes Enforcement Network for a database to help authorities combat anonymous shell companies and track the flow of illicit money.
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Wall Street Finds New Way To Finance Unprofitable Tech Firms
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Nonbank lenders like Golub Capital, AllianceBernstein Holdings LP and Owl Rock Capital Partners LP have issued asset-backed bonds to help finance about $2 billion of loans to unprofitable software companies since November.
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9 a.m.: Bank of England’s Tenreyro speaks on economic shocks and trade at webinar
10:30 a.m.: Bank of Canada releases business outlook and consumer expectation surveys
12 p.m.: Boston Fed’s Rosengren speaks virtually on economic outlook to Newton-Needham, Mass., Regional Chamber
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8:30 a.m.: U.S. Labor Department releases March CPI
12 p.m.: Philadelphia Fed’s Harker speaks on economic outlook at virtual Delaware State Chamber of Commerce event; San Francisco Fed’s Daly speaks at Minneapolis Fed virtual event on racism and the economy
2:50 p.m.: Atlanta Fed’s Bostic, Cleveland Fed’s Mester speak at Minneapolis Fed virtual event on racism and the economy
10 p.m.: Reserve Bank of New Zealand releases rate decision
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Fed Digital Dollar Seen Having Big Impact on Financial System
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The launch of a Federal Reserve digital dollar—which some are calling Fedcoin—could have profound implications for the U.S. financial system, according to a new report from the Bank Policy Institute. The industry group says a Fedcoin could speed up and lower the cost of transferring money, but it could also pose risks for the financial system by drawing money out of private banks and onto the Fed’s books. “The impact on economic growth could be significant—unless the central bank also assumed responsibility for lending or became a regular source of funding for banks,” the report says. Fed officials have said they plan to go slow with a digital dollar effort and are mindful of balancing the central bank’s
goals and the needs of the private banking industry. Fed officials have also said there is nothing imminent on the Fedcoin front.
—Michael S. Derby
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The Improbable Dream of the Chinese Property Tax
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China’s Ministry of Finance is working on legislation for a direct property tax, an idea in the works for more than a decade—China’s equivalent of a New Year’s resolution that never quite materializes, Mike Bird writes.
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The U.S. producer price index rose 1% in March, compared with a 0.5% rise economists polled by the WSJ forecast, and the rate of wholesale inflation over the past 12 months climbed to 4.2%, the highest level since September 2011. (Dow Jones Newswires)
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Prices are surging for raw materials, leading to higher costs for companies from home builders to clothing makers. If history repeats, that will be a boon to corporate bottom lines and investors as well.
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Auto sales in China recovered to pre-pandemic levels in the first three months of 2021, as passenger-vehicle sales rose 69% year over year to 5.09 million, the China Passenger Car Association said. (DJN)
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Chinese banks likely extended 2.48 trillion yuan ($378.45 billion) new loans in March, due to the seasonality factor, according to 16 economists polled by WSJ. In February, lenders issued CNY1.36 trillion new loans, according to official data. (DJN)
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German exports continued their recovery in February despite lockdown restrictions aimed at containing the coronavirus pandemic, rising 0.9% from January in adjusted terms, statistics office Destatis said Friday. (DJN)
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Canadian employment came in well ahead of expectations in March, as the labor market added a net 303,100 jobs last month on a seasonally adjusted basis, Statistics Canada said. Market expectations were for a gain of 100,000 jobs, according to TD Securities economists. (DJN)
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The Bank of Canada’s former No. 2 official, Carolyn Wilkins, has taken an appointment as an external member of the Bank of England’s financial policy committee. Wilkins was the BOC’s senior deputy governor until late 2020, and helped craft the central bank’s policy response to the Covid-19 pandemic. (DJN)
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Turkey's current-account deficit for February was $2.61 billion, compared with a deficit of $1.82 billion for January, according to the data. (DJN)
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North Korean leader Kim Jong Un has called on officials to brace for a prolonged campaign to tackle worsening economic problems, comparing the crisis to the 1990s famine that claimed the lives of hundreds of thousands.
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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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