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Kaplan, Clarida: Fed in No Rush to Cut Rates; JPMorgan May Tap Discount Window; Fed’s Definition of Symmetry Is Changing
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Good day. While talk of interest-rates cuts by the Federal Reserve to help ease the economic blow from the coronavirus may be spreading in financial markets, two Fed officials said Tuesday the central bank needs time to gauge whether the effects of the outbreak warrant resuming cuts. Meanwhile, JPMorgan plans to start occasionally tapping the Fed’s discount window. And the Journal's Nick Timiraos examines a change that has crept into the Fed's definition of its inflation target.
Now on to today’s news and analysis.
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Fed’s Kaplan: Unclear Whether Coronavirus Calls for Rate Change
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Dallas Fed President Robert Kaplan said it may be a 'number of weeks' before the Fed decides whether a rate change is required. PHOTO: David Paul Morris/Bloomberg News
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Federal Reserve Bank of Dallas President Robert Kaplan told The Wall Street Journal on Tuesday that events are still too fluid around the coronavirus outbreak to say the U.S. central bank needs to lower short-term rates, as many in financial markets now think is likely.
Mr. Kaplan said when it comes to interest-rate policy and the coronavirus that “it’s too soon to make a judgment about how it might relate to monetary policy. I still think we are a number of weeks away from being able to make the judgment.”
Fed Vice Chairman Richard Clarida likewise said in remarks prepared for delivery at an economics conference that it is too early to tell whether the coronavirus outbreak could prompt a change in the outlook that leads the Fed to lower interest rates.
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Timiraos's Take: The Fed’s Definition of Symmetry Is Changing. Here’s Why That Matters.
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Federal Reserve Vice Chairman Richard Clarida made a subtle but important shift Tuesday when he defined the central bank’s 2% inflation target in a way suggesting the bank is abandoning its policy of ignoring past misses. At issue is the shifting definition of the “symmetric” nature of the Fed’s target. Read more.
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Other Developments Around the World
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JPMorgan Won’t Shun the Fed’s Discount Window Anymore
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JPMorgan Chase & Co. Chief Executive Jamie Dimon said the biggest U.S. bank is open to tapping the Federal Reserve’s rainy-day fund, a move likely to lessen the stigma associated with borrowing directly from the central bank.
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Pace of Home Price Growth Picked up in December
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Average home prices in major U.S. metropolitan areas rose 3.8% in 2019, marking a full eight years of price increases in American homes for sale, according to the S&P CoreLogic Case-Shiller National Home Price Index.
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Hong Kong, Hit by Coronavirus and Protests, Steps Up Stimulus
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Hong Kong’s government said it would dole out $15.4 billion in cash payouts and other stimulus in its annual budget to resuscitate an economy reeling from the coronavirus epidemic and months of antigovernment protests.
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China Lifts Import Restrictions on U.S. Farm Goods
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U.S. officials said Tuesday that Chinese leaders took the first steps toward implementing the first phase of a trade deal between the world’s two largest economies by lifting import restrictions on U.S. poultry and poultry products and pet food, along with other actions.
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Mexican Economic Output Shrank in 2019, Data Confirm
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Mexico’s economy contracted in 2019 for the first time in a decade, with drops in industrial production and investment marring the first year in office of President Andrés Manuel López Obrador. GDP declined 0.1% for all of 2019 after growing 2.1% in 2018.
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Financial Regulation Roundup
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Barclays Probe Signals ‘Governance Weakness,’ Activist Investor Says
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A probe by U.K. regulators of the professional relationship between Barclays PLC Chief Executive Jes Staley and Jeffrey Epstein, the late financier and sex offender, shows there is “governance weakness” at the British bank, says Edward Bramson of Sherborne Investors.
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Mallinckrodt Nets Government Support for $1.6 Billion Opioid Deal
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Drugmaker Mallinckrodt PLC said it reached a settlement with 47 U.S. states and territories and lawyers representing thousands of local governments to settle liabilities stemming from the opioid addiction crisis.
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SEC Investigating Mattel’s Accounting
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The toy maker said the Securities and Exchange Commission and attorneys from the Southern District of New York have begun looking into its internal probe that resulted in plans to change its chief financial officer and restated earnings.
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Wednesday (all times EST)
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9:35 a.m.: Dallas Fed’s Kaplan speaks in Austin, Texas
10 a.m.: U.S. Commerce Department releases January new-home sales
1 p.m.: Minneapolis Fed’s Kashkari speaks about his bank in Minneapolis
3 p.m.: Bank of Mexico releases policy statement
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Time N/A: Bank of Korea releases policy statement
4:30 a.m.: European Central Bank’s Panetta speaks at Euro Cyber Resilience Board meeting in Frankfurt
5:05 a.m.: European Central Bank’s Schnabel speaks at Barclays International Monetary Policy event in London
7:15 a.m.: European Central Bank’s Lane speaks in roundtable discussion on euro area’s growth in weakened economic outlook in Paris
8:30 a.m.: U.S. Commerce Department releases second estimate of fourth-quarter and 2019 GDP; U.S. Commerce Department releases January durable-goods data
11 a.m.: European Central Bank’s de Guindos speaks in Seville, Spain
11:30 a.m.: Chicago Fed’s Evans speaks on economy and monetary policy in Mexico City
2:30 p.m.: European Central Bank’s Lane speaks in London
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Globalization: What’s at Stake for Central Banks
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Globalization’s benefits—increased productivity and global integration—can come with unwanted side effects, researchers write for VoxEU. “First and foremost, globalization may have an impact on inflation,” according to Simone Arrigoni, Roland Beck, Michele Ca’Zorzi and Livio Stracca. “Second, it may complicate central banks’ role in supporting financial stability. Finally, globalization may influence central banks in subtler and more indirect ways.” Following the global financial crisis, central banks have taken a greater role in ensuring financial stability, but some economists think a “financial trilemma” still exists, with only two of
the three objectives—financial stability, independent national financial policies and cross-border financial integration—being attainable simultaneously, the researchers write. “The corollary of the financial trilemma is that, unless policymakers are prepared to tame globalization, the transfer of greater regulatory and supervision policies away from national institutions becomes a necessity to preserve financial stability.”
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The Coronavirus Scare: This Time Is Different
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There realistically are now two broad coronavirus scenarios, Spencer Jakab, Stephen Wilmot and Justin Lahart write at The Wall Street Journal: "One is that the virus is contained through herculean efforts by health workers in China, South Korea, Japan, Italy, Iran and wherever else it crops up. That will mean rolling disruptions for months. The scarier scenario is that all that occurs and the virus spreads globally anyway."
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The New York Fed intervened with a $49.46 billion overnight repo and a $25 billion 14-day repo. With $70.75 billion in outstanding repos expiring, the outstanding level of Fed repos rose by $3.7 billion to $154.5 billion.
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Average home prices in major U.S. metropolitan areas rose 3.8% in 2019, marking a full eight years of price increases in American homes for sale.
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Municipal-bond yields are hitting 38-year lows due to investors’ coronavirus concerns driving up demand in the $4 trillion market.
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China's cabinet has rolled out a string of measures ordering state banks to issue more loans and cutting taxes for small businesses hit hard by the coronavirus epidemic. (DJN)
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Chinese auto sales fell by 19% in January, worse than the 18% drop predicted two weeks ago, an industry group said, as the world's biggest car market grapples with the coronavirus epidemic. (DJN)
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U.S. consumer confidence increased this month, with the Conference Board's index of consumer confidence rising to 130.7 from a revised 130.4 in January. (DJN)
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President Trump and Indian Prime Minister Narendra Modi unveiled agreements aimed at boosting U.S. exports of liquefied natural gas and military helicopters while expressing hope the countries India could reach a far-reaching trade deal that has proven elusive.
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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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