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How Fed Entered Uncharted Waters; Fed Data Starts to Tally Economic Pain
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Good day. In today's Journal, Nick Timiraos takes a look at how Jerome Powell mobilized the Fed to do more in the last few weeks than it did during the 2008 financial crisis. Meanwhile, the first wave of data capturing the front end of the coronavirus crisis is dribbling in, and regional Fed banks are tallying up the ugly picture. A report from the San Francisco Fed warned that uncertainty generated by the crisis could wash away already modest inflation impulses in the economy.
Now on to today’s news and analysis.
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The Fed Transformed: Powell Leads the Fed Into Uncharted Waters
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Jerome Powell, chairman of the U.S. Federal Reserve, waited to begin a Senate Banking Committee hearing on Feb. 12. ANDREW HARRER/BLOOMBERG NEWS
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In the weeks since financial markets seized up, Jerome Powell has placed the Fed on wartime footing. He took up the central bank’s playbook from the 2008 financial crisis and then some—cutting rates to near zero, purchasing huge quantities of government debt and, breaking a taboo, lending to American businesses. The pace left no time for the deliberative policy process the Fed prefers. When officials met on Sunday March 15, with infections rising along the East Coast, Mr. Powell and his colleagues made decisions in four hours that would usually take two days.
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“We learned our lesson. Moving early and aggressively is really important...We needed to get the markets functioning.”
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— Philadelphia Fed President Patrick Harker
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New Fed Data Point to Economic Pain, Worrisome Ebbing in Inflation
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The New York Fed launched a weekly economic index aimed at capturing where the economy is in near real time, and extrapolated historical levels based on past data. In its first outing, the index showed “developments in the past week saw the index fall to a level unseen since 2008."
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Derby's Take: Adding to Risk Factors, Fed Will Likely Face Deflationary Threat
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As if the Federal Reserve doesn’t have enough to worry about, there’s now evidence that inflation may be set to dangerously weaken over coming months and at a time when the central bank will struggle to find ways to address it. Read More.
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How to Avoid Another Great Recession
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The Journal's Greg Ip says the U.S. economy finds itself in a situation resembling a region hard hit by a natural disaster such as a hurricane, and that “The priority now is to avoid New Orleans’ post-Katrina fate. That requires enabling businesses, as best as possible, to hang on until the pandemic emergency is over.”
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Key Developments Around the World
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Energy Crisis Intensifies as Oil Tumbles to 18-Year Low
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The oil crash deepened on Monday, with U.S. crude-oil futures slumping 6.6% to $20.09 a barrel and ending the day at their lowest level since February 2002. The drop brought their slide for the year to 67%, or $41.
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Yellen: Too Much Corporate Borrowing Will Hinder Recovery
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Janet Yellen, the former Federal Reserve chairwoman, said Monday bad choices by broad swaths of the financial industry and companies, abetted in part by low rates and regulatory shortcomings, are likely to make it harder for the economy to recover from the coronavirus crisis.
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China’s Economy Shows Tentative Signs of Renewed Life
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An official gauge of China’s manufacturing activity rebounded strongly in March as work resumption picked up, though economists warned that activity remains far below normal levels after a devastating coronavirus outbreak.
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A Global Conundrum: Pausing the Economy While Avoiding Ruin
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The coronavirus has produced something new in economic history. Never before have governments attempted to put swaths of economies in an induced coma and awaken them gradually.
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Financial Regulation Roundup
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U.S. Investigating Lawmakers for Possible Insider Trading
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The Justice Department is examining whether lawmakers traded ahead of the market turmoil caused by the coronavirus pandemic based on confidential briefings they received, according to a person familiar with the matter.
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SEC Chairman: Don’t Ban Short Selling in Current Market
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Wall Street’s top regulator said he doesn’t believe the U.S. should try to prevent investors from betting against the stock market, as more countries look to short selling bans amid extreme volatility.
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Pressure Mounts on Insurance Companies to Pay Out for Coronavirus
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Lawmakers and regulators are pressuring insurers to go beyond the legal language of policies to get cash to Americans amid the mounting cost of shutdowns from the coronavirus pandemic.
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7:50 p.m.: Bank of Japan releases March tankan survey of business sentiment
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Time N/A: Central Bank of Egypt releases policy statement
8:30 a.m.: U.S. Commerce Department releases February international trade data
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Can Businesses Survive Until It Is Business as Usual?
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Parts of the U.S. economy most hurt by the sudden stifling of sales as a result of shutdowns and other social-distancing measures—the restaurants, bars, barber shops and nail salons—made sense before the coronavirus crisis and will make sense after it, Justin Lahart writes at The Wall Street Journal. "That assumes those businesses are still standing when the pandemic has passed, though," he says, noting that revenue measures are starting to give a sense of how bad things are.
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The production index of the Dallas Fed’s Texas manufacturing survey plummeted to -35.3 from 16.4 in February. The survey’s new orders index fell to -41.3, its lowest reading since March 2009. The company outlook index fell to a record low of -65.6. (DJN)
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The Bank of Mexico will offer dollar credits using the $60 billion currency swap line recently set up with the Federal Reserve. A first auction for up to $5 billion in 84-day credits is set for Wednesday. (Dow Jones Newswires)
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An index of U.K. consumer sentiment gathered by market-research firm GfK fell two points to minus nine in March, interrupting three consecutive months of improving consumer confidence after Brexit faded from headlines. (DJN)
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Australian consumer confidence declined by 9.8% over the past week and is now at its lowest level on record, according to the weekly ANZ-Roy Morgan survey. (DJN)
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The European Commission's Economic Sentiment Indicator fell to 94.5 from 103.4 in February, the largest drop since the series began in 1985, leaving it at its lowest level since 2013. (DJN)
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German jobless claims rose less by 1,000 in March, less than the 35,000 spike predicted by economists polled by WSJ, without showing the impact of the spread of the coronavirus. (DJN)
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Around a quarter of German companies expect to ask staff to work shorter hours over the next three months, the highest level since 2010, according to a survey by German think tank Ifo. (DJN)
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Japanese car makers slashed output in February at home and in other major production centers. Toyota's global production fell 14%, Honda's by more than a quarter and Nissan's by nearly 30%. (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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