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Consumer Prices Jump, Casting Doubt on Fed's View That Inflationary Pressures Will Fade
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Good day. Federal Reserve Vice Chairman Richard Clarida said he believes most of the recent acceleration in prices, underscored by the 4.2% increase in consumer prices in April from a year earlier, will prove transitory as the U.S. economy works through supply and demand mismatches that emerged during the pandemic. But some observers said the latest inflation figures show the Fed may have to abandon its plans to keep easy-money policies in place until the labor market is fully healed. “I think they are going to have to raise rates, for sure,” or risk the economy overheating, Pershing Square Capital Management Chief Executive Bill Ackman said at The Wall Street Journal’s Future of Everything Festival.
Now on to today’s news and analysis.
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Inflation Data Test Fed’s Strategy and Outlook
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Federal Reserve Vice Chairman Richard Clarida, shown last year, says the central bank plans to keep its easy-money policies in place. PHOTO: SARAH SILBIGER/BLOOMBERG NEWS
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Federal Reserve officials have said increases in inflation this year will likely prove moderate and temporary, allowing them to hold interest rates near zero for years to come. The recent surge in consumer prices, if it continues, could upend those plans.
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Fed’s Clarida ‘Surprised’ by Inflation Data, Stresses Need for More Data
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“I was surprised,” Richard Clarida, the Federal Reserve’s vice chairman, said of the 4.2% increase in consumer prices in April from a year earlier. “This number was well above what I and outside forecasters expected.”
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Consumer Prices Jumped as Economic Recovery Picked Up
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Consumer prices surged in April by the most in any 12-month period since 2008 as the recovery picked up. The Labor Department reported Wednesday its consumer-price index jumped 4.2% in April from a year earlier, up from 2.6% for the year ended in March. Consumer prices increased a seasonally adjusted 0.8% in April from March. Higher prices for used autos surged 10% in April compared with the prior month—the largest monthly increase on record.
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Republicans Reject Tax Increases After Biden Infrastructure Talks
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Top Republicans on Capitol Hill told President Biden Wednesday they would oppose any effort to raise taxes to pay for an infrastructure proposal, leaving a central issue in the talks unresolved.
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Housing-Market Surge Is Making the Cheapest Homes the Hottest
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The red-hot U.S. housing market is giving an extra boost to the cheapest houses, pushing forward efforts to revive local economies where homes can sell for as little as a few thousand dollars but can’t be financed with a mortgage.
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Key Developments Around the World
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China Weighs New Economic Envoy to U.S.
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Beijing is considering whether to replace Vice Premier Liu He as its top economic envoy with Washington, a decision Biden administration officials say will indicate the depth of China’s interest in economic cooperation.
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Migrants Sent Billions of Dollars Home Amid Economic Hardship
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Foreign-born workers sent more than $500 billion to their home countries in the developing world last year, as the recovery and generous government programs in areas such as the U.S. helped sustain a critical lifeline for poor nations.
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Financial Regulation Roundup
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JPMorgan, Others Plan to Issue Credit Cards to People With No Credit Scores
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Some of the largest U.S. banks plan to start sharing data on customers’ deposit accounts as part of a government-backed initiative to extend credit to people who have traditionally lacked opportunities to borrow.
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Libor Replacement Race Heats Up
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Bank of America Corp. and JPMorgan Chase & Co. traded the first complex derivative using a Bloomberg index crafted to replace Libor, exchanging $250 million worth of an interest-rate swap earlier this month.
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Lawmakers Call for Tighter Money-Laundering Rules for Private Equity
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Members of Congress are urging the Treasury Department to strengthen anti-money-laundering rules for private-equity and hedge funds, arguing that such vehicles are a blind spot in government efforts to track dirty money.
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Judge Says Revlon Lenders Can Access Citi’s Mistaken Loan Payment
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Lenders to Revlon Inc. that received roughly $500 million from Citigroup Inc. last year due to a back-office blunder are allowed to use the money as they see fit, a federal judge ruled Wednesday, unfreezing the funds.
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Insurance Brokers Sell Assets to Win Approval for $35 Billion Merger
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Aon PLC and Willis Towers Watson PLC on Wednesday agreed to sell a package of assets to a smaller rival in an effort to win antitrust approval for their $35 billion tie-up to create the world’s largest insurance broker.
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Elon Musk Says Tesla Has Suspended Accepting Bitcoin for Vehicle Purchases
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Tesla Inc. Chief Executive Elon Musk said the company has suspended accepting bitcoin as payment for its vehicles. “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal,” Mr. Musk said Wednesday on Twitter.
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8 a.m.: Bank of England’s Cunliffe speaks virtually at OMFIF Digital Monetary Institute meeting on his bank’s approach to digital currencies and cross-border payments
8:30 a.m.: U.S. Labor Department releases April PPI
11 a.m.: Bank of Canada’s Macklem speaks via webcast to Atlantic Canadian universities
12 p.m.: Bank of England’s Bailey speaks at Citizens’ Panel webinar
1 p.m.: Fed’s Waller speaks on economy and monetary policy at Global Interdependence Center monetary and trade conference
4 p.m.: St. Louis Fed’s Bullard speaks on economy and monetary policy at Greater Memphis Chamber virtual event
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8:30 a.m.: U.S. Commerce Department releases April retail sales
9:15 a.m.: Federal Reserve releases April U.S. industrial production
10 a.m.: University of Michigan releases preliminary May U.S. consumer sentiment
10:30 a.m.: Bank of Canada releases senior loan officer survey
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Inflation Hits a High Note
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The Federal Reserve isn’t ready to start reducing its asset purchases yet, much less to think about raising rates, in part because higher inflation hasn’t embedded itself in consumer psyches as it did in the 1970s, Justin Lahart writes.
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Some, but Not All, of the Price Jump Is Transitory
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Whether inflation drops back to or somewhat above 2% in 2022 and 2023 will depend a lot on whether the behavior of restaurant wages and prices is isolated, or the shape of broader inflation to come, Greg Ip writes.
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The U.S. ran a $1.9 trillion deficit from October through April, a 30% increase from a year earlier, the Treasury Department said Wednesday, as outlays rose 22% to a record $4.1 trillion driven by higher safety-net spending.
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The average U.S. price of gasoline broke above $3 a gallon for the first time in 6½ years on Wednesday as stations along the East Coast ran low on fuel after the Colonial Pipeline was shut following a cyberattack.
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The oil supply glut that built up after the pandemic forced producing countries to slash output has almost returned to normal levels, the International Energy Agency said Wednesday.
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The eurozone economy is expected to grow by 4.3% this year, the European Union said, upgrading its 3.8% forecast from February. (DJN))
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India’s benchmark consumer-price index increased 4.29% in April compared with the same period a year earlier, after a 5.52% rise in March, government data showed Wednesday. (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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