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Waiting to Hear From the Fed on Its Rate Strategy; GOP Senator Says Shelton's Confirmation to Fed Board Lacks Votes
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Good day. The Fed releases its policy statement at 2 p.m. ET, along with new economic projections, to be followed by Jerome Powell's press conference at 2:30 p.m. The statement could include tweaks to reflect the Fed's new inflation-targeting framework, but it isn’t clear if officials will agree this week on how or when to make their guidance more specific. Today may also shed light on the Fed's bond-buying plans and officials' view of the economic outlook. Meantime, Judy Shelton’s path to a seat on Fed’s board of governors appears to have hit a roadblock, with a top Senate Republican saying there aren't enough votes to confirm her.
Now on to today’s news and analysis.
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Fed Meeting to Focus on Laying Out Interest-Rate Strategy
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Fed Chairman Jerome Powell is set to give a press conference at 2:30 p.m. Eastern time Wednesday. PHOTO: ANDREW HARRER/BLOOMBERG NEWS
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Federal Reserve officials resume deliberations today about how to detail plans to support the economy now that they have formally adopted a strategy to keep interest rates lower for longer. Officials’ public remarks before entering their traditional pre-meeting quiet period two weeks ago suggested they hadn’t yet decided how to reconfigure their policy statement to reflect the new framework. This raises the prospect they could make a few changes now and more extensive ones later this year. Here's what to look out for.
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Fed Nominee Shelton Lacks Senate Backing, Key Republican Says
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President Trump’s nomination of economist Judy Shelton to the Federal Reserve’s board of governors lacks enough votes for confirmation, said Sen. John Thune (R., S.D.), the No. 2 GOP leader in the Senate.
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Mortgage Securities Are Flooding the Market. Thank the Fed.
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People are taking out lots of mortgages. The Fed is gobbling them up. Low mortgage rates have spurred a boom in home refinancing, which in turn has spurred a boom in the issuance of mortgage-backed securities. The value of single-family mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac totaled almost $322 billion in August, a new monthly record, according to an analysis by industry-research firm Inside Mortgage Finance.
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U.S. Industrial Production Points to Slowing Manufacturing Recovery
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The Federal Reserve on Tuesday said industrial production—a measure of output at factories, mines and utilities—rose a seasonally adjusted 0.4% in August from July, following a revised 3.5% rise in July.
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U.S. Incomes Up, Poverty Rate Down in 2019
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Incomes rose sharply and poverty fell in the final year of the country’s decadelong economic expansion, with median household income at $68,700 in 2019, up 6.8% from the prior year, and the poverty rate at 10.5%, a drop of 1.3 percentage points from the year before.
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Key Developments Around the World
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Bank of Canada To Reduce Treasury Bill Purchases
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The Bank of Canada said it would reduce its purchases of Government of Canada treasury bills and provincial money market securities in response to improved short-term funding conditions. The central bank said in a market notice it would lower the amount it buys at auction to 10% from 20% of the tendered amount for treasury bills beginning Sept. 21. In addition, purchases of provincial money market securities will drop to up to 10% from up to 20% of each accepted offering with terms of 12 months or less, the central bank said. (Dow Jones Newswires)
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In Mexico, Some Ask About Corruption: ‘What Is Different Now?’
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President Andrés Manuel López Obrador’s key electoral promise in 2018 was to clean up the country’s deep-rooted corruption from top to bottom “as stairs are cleaned.” But critics cast doubt on his intention or ability to tackle the problem.
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Virus Legal Fight Between Insurers and Businesses Goes Global
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A debate over whether business-interruption insurance policies held by millions of companies cover a pandemic is increasingly being tested in global courts, drawing in regulators, insurers, industry groups and company owners.
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Financial Regulation Roundup
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Ernst & Young Says Auditors Should Focus More on Fraud Prevention
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Ernst & Young, under fire for missing a suspected fraud that blew up fintech company Wirecard AG, said auditors should play a bigger role in detecting such wrongdoing, challenging the accounting industry’s longstanding assertion that its job isn’t to seek out malpractice.
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WTO Finds Some U.S. Tariffs on China Violate Trade Rules
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The World Trade Organization sided with a complaint filed by China in 2018, which argued that the Trump administration broke WTO rules because of the way it singled out China for separate tariffs than other countries.
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Justice Department Probes Electric-Truck Startup Nikola Over Claims
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The Justice Department has joined securities regulators in examining allegations that electric-truck startup Nikola Corp. misled investors by making exaggerated claims about its technology, according to people familiar with the matter.
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Time N/A: Central Bank of Brazil releases policy statement
8:30 a.m.: U.S. Commerce Department releases August retail sales
2 p.m.: U.S. Federal Reserve releases policy statement and economic projections
2:30 p.m.: Fed’s Powell holds virtual press conference
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Time N/A: Bank of Japan releases policy statement
Time N/A: South African Reserve Bank releases policy statement
Time N/A: Bank Indonesia releases policy statement
4 a.m.: European Central Bank’s de Guindos speaks online
7 a.m.: Bank of England releases monetary policy summary and minutes
8 a.m.: Bank of England’s Bailey gives opening remarks at online Sovereign Bond Markets Conference
8:30 a.m.: Bank of England’s Bailey gives opening remarks at online Sovereign Bond Markets Conference
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The Chinese Are Spending Again
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China’s recovery, which was initially almost entirely led by infrastructure, property and exports, is starting to broaden into a more sustainable phase including domestic expansion, offering some vindication of China’s coronavirus-fighting strategy, Nathaniel Taplin writes at Heard on the Street. He adds that "Whoever is sitting in the White House come January will need to deal with the reality of a China even more convinced that its ascendancy is only a matter of time."
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Markets Debate Whether Fed IOER Tweak Will Arrive at FOMC Meeting
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There is a possibility the Federal Reserve will raise rates at this week’s Federal Open Market Committee meeting, according to some in the markets. An increase, however, would be technical and similar to tweaks in years past, as the Fed has sought to better manage the market-set fed-funds rate. Scott Skyrm, of short-term trading firm Curvature Securities, says there is a good chance the Fed will raise its interest on excess reserves rate (IOER) by five basis points this week “in an effort to get the daily fed-funds rate closer to the middle of the fed funds target range.” He notes that central bank officials “had the opportunity to adjust IOER at the past few meetings but probably wanted to avoid any appearance they were draining liquidity during a crisis.” Wrightson ICAP countered an IOER increase
probably won’t happen because the fed-funds rate hasn’t traded high enough relative to the range. But Wrightson ICAP said the Fed could increase the minimum bid rate for repo operations to help manage short-term rate levels, among other considerations.
— Michael S. Derby
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German economic expectations are up this month after a strong rise in August, the ZEW institute said, noting its measure of expectations increased to 77.4 from 71.5 in August. (Dow Jones Newswires)
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Global oil demand will fall by 8.4 million barrels this year, the International Energy Agency forecast in its monthly oil market report, a contraction of 300,000 barrels more from the prior report. (DJN)
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Indonesia's central bank will hold its seven-day reverse repo rate at 4% this month, according to all nine economists polled by WSJ. (DJN)
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Japanese investors bought a record level of Italian government bonds in July, coinciding with the agreement on the European Recovery Fund, according to Societe Generale analysts. German Bunds, meanwhile, saw the largest Japanese outflows since August 2018, they added. (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
Follow us on Twitter:
@WSJCentralBanks, @NHendersonWSJ, @michaelsderby, @NickTimiraos, @PaulHannon29, @wsj_douglasj, @HarrietTorry, @KateDavidson, @d_harrison, @kimmackrael, @TomFairless, @megumifujikawa, @mikemaloneyny, @pkwsj, @JamesGlynnWSJ
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