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Waller and Williams Confident Fed Can Fight Inflation Without Triggering Recession; Senate Confirms Cook for Fed Board
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Good day. Two Federal Reserve officials said yesterday that inflation in the U.S. is running too hot but that they are optimistic the central bank can cool it without triggering a recession. Fed governor Christopher Waller said “We have to cool off demand and try to get inflation pressures down,” while New York Fed President John Williams said “The challenge for monetary policy today is clear: to bring inflation down while maintaining a strong economy.” Mr. Waller added that there is no “magical formula in a textbook” that will guide central bank officials. “You kind of have to take your chances and see where it goes,” he said. Also on Tuesday, the Senate voted to confirm Lisa Cook to the Fed, making her the first Black woman to sit on the central bank’s board. The economist and professor of international relations at Michigan State University is also
the second of President Biden's Fed nominees to win Senate confirmation. With midterm elections looming, Mr. Biden yesterday called inflation his “top domestic priority,” noting steps his administration was taking to combat it and citing outside factors, such as the gnarled global supply chain and Russia’s invasion of Ukraine. His comments come ahead of today’s release of the latest consumer-price index data and a few hours after AAA reported average U.S. gasoline prices had reached $4.37 a gallon, eclipsing a record set in March.
Now on to today’s news and analysis.
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Fed Governor Says Central Bank Must Contain Inflation
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Christopher Waller says there is no ‘magical formula in a textbook’ to guide central bank officials on how to reduce inflation without triggering unemployment.
PHOTO: BESS ADLER/BLOOMBERG NEWS
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A Federal Reserve official said that the central bank is committed to bringing inflation down by reducing demand for goods and services and that it is possible to slow price growth without pushing the economy into a recession.
“Inflation is too high, and my job is to get it down,” said Fed governor Christopher Waller during a moderated discussion in Minneapolis on Tuesday. Mr. Waller said the central bank had to balance two goals of promoting a strong labor market with returning prices closer to the Fed’s 2% inflation target.
“Inflation is a tax that everybody pays. Unemployment is a tax a fraction of the population pays,” he said. “We’re trying to do something—by reducing inflation—that benefits everybody. But in the process, we have to be aware there might be a subsection of the population that has to bear that burden.”
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Fed’s Williams Says Lowering Inflation Is Central Bank’s Main Mission
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Federal Reserve Bank of New York President John Williams said that lowering inflation is the U.S. central bank’s main mission now and he doesn’t think that making monetary policy more restrictive would necessarily cause a recession.
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Lisa Cook Wins Senate Confirmation to Federal Reserve
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The Senate voted to confirm Lisa Cook to the Federal Reserve, making her the first Black woman to sit on its board. Ms. Cook was approved on a party-line vote, 51-50, with Vice President Kamala Harris breaking a tie.
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Economists Estimate Rapid Pace of U.S. Inflation Eased in April
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Price increases that have put U.S. inflation at a four-decade high likely slowed in April as gasoline prices and supply-chain bottlenecks eased, economists say.
The Labor Department on Wednesday is estimated to report that the consumer-price index rose 8.1% in April from the same month a year ago, decelerating from an 8.5% annual rate in March, according to economists surveyed by The Wall Street Journal.
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Biden Looks to Sharpen Contrast With GOP Economic Agenda
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President Biden argued Tuesday congressional Republicans would worsen inflation and raise taxes on families, part of a growing effort to cast the GOP as obstructing his agenda and fixated on culture wars instead of governing.
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Gas Prices Surge to Another All-Time High
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The pain at the pump for Americans just got worse with the average price for a gallon of regular unleaded gas in the U.S. reaching $4.37 on Tuesday, a 47% increase from a year ago that marks a record high.
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If You’re Paying for College, Watch This Week’s Treasury Auction
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College students and their families should keep an eye on the Treasury Department’s government-bond auction scheduled for Wednesday, as it could influence their finances for years to come.
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Key Developments Around the World
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Western Economies Are Creaking Under High Energy Prices
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As the war in Ukraine drags on and sanctions against Russia tighten, the prospect of a normalization in energy prices is receding, raising the conflict’s toll on global growth, with Europe looking particularly vulnerable.
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In Australian Election Battleground, Rising Prices Concern Voters
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Rising costs—from food to housing to healthcare—have emerged as the dominant issue in a campaign pitting Prime Minister Scott Morrison and his center-right coalition against the center-left Labor Party led by Anthony Albanese.
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Hungary’s Orban Threatens EU Unity on Russia
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Hungarian Prime Minister Viktor Orban is holding up an EU agreement on a phased-in embargo on Russian oil, demanding more EU money and time to help his country find other energy suppliers, say officials.
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Malaysia’s Central Bank Makes Surprise Rate Change
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Malaysia’s central bank raised its benchmark interest rate by 25 basis points to 2.00%. on Wednesday amid signs that economic growth is on a firmer footing, driven by strengthening domestic demand and exports.
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Financial Regulation Roundup
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Yellen Renews Call for Stablecoin Regulation After TerraUSD Stumble
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A decline this week in the price of a major cryptocurrency that was purportedly pegged to the dollar prompted Treasury Secretary Janet Yellen on Tuesday to reiterate calls for Congress to authorize regulation of so-called stablecoins.
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The Mortgage Refi Boom Is Running Out
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Lenders issued about $859 billion in mortgages in the first quarter, down 25% from the previous year, the New York Fed said. The main cause was a sizable drop in refinancings, which fell about 40% from a year ago.
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8:30 a.m.: U.S. consumer price index for April
10 a.m.: Speech by ECB’s Lagarde at ‘30th anniversary of Banka Slovenije’ conference
7:50 p.m.: Bank of Japan releases summary of opinions at April 27-28 meeting
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8:30 a.m.: U.S. producer price index for April
11:50 a.m.: Bank of Canada’s Gravelle speech on commodity price shocks and the impact on growth and inflation
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Markets Have Priced In Fed Winding Down Its Balance Sheet
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Brian Sack, of investment firm D.E. Shaw and Co. and a former manager of the Federal Reserve Bank of New York’s monetary policy implementation operation, said that markets have already largely priced in the Fed’s winding down of its $9 trillion balance sheet. The effort, which is set to start on June 1, has had a modest impact on markets compared with expectations for interest-rate increases, worries about inflation and general economic concerns, Mr. Sack said Tuesday at a conference held by the Atlanta Fed. He also said the balance sheet winddown is equivalent in impact to around a quarter percentage point change in the federal-funds rate.
—Michael S. Derby
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China Currency Crisis May Get a Sequel
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China’s equity market has plummeted and capital outflows have accelerated, calling to mind the most turbulent time in Chinese financial markets over the past decade, Nathaniel Taplin writes.
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Xi Jinping Scrambles as China’s Economy Stumbles
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The economic problem in China rests with Xi Jinping and his pivot to the state, as moving economic policy well to the ideological left has begun strangling the goose that for 35 years has lain the golden egg, Kevin Rudd writes.
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Mr. Rudd is global president of the Asia Society and author of “The Avoidable War: The Dangers of a Catastrophic Conflict between the U.S. and Xi Jinping’s China.” He served as Australia’s prime minister, 2007-10 and 2013.
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Confidence among U.S. small-business owners leveled off in April after three consecutive months of drops, but inflation and labor shortages continued to weigh heavily on short-term economic expectations. The NFIB Small Business Optimism Index was unchanged at 93.2 compared with March, the lowest level since April 2020. Economists polled by the Wall Street Journal expected the index to fall to 92.9. (Dow Jones Newswires)
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Brazil’s central bank is ready to raise rates more if needed, but policy makers are also watching carefully to gauge the impact of their string of hikes that increased the key lending rate to 12.75% at the bank’s meeting last week, Alberto Ramos, an economist at Goldman Sachs, wrote in a research note. The central bank has raised the benchmark Selic rate from 2% about a year ago as the 12-month inflation rate has soared to above 11%. (DJN)
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Economic expectations in Germany rose slightly this month, as experts are a bit less pessimistic about the outlook for the German economy, the ZEW economic research institute said. Its index of economic expectations increased to minus 34.3 from minus 41.0 in April, above the minus 44.5 forecast by economists in a poll by the Wall Street Journal. (DJN)
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Global trade flows are suffering from the effects of war in Ukraine and lockdowns in China, according to UniCredit’s proprietary leading indicator. The index, which leads global trade by about two months, is consistent with global trade contracting by more than 3% in early summer. (DJN)
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This newsletter is compiled by James Christie in San Francisco.
Send us your tips, suggestions and feedback. Write to:
James Christie, Jon Hilsenrath, Michael S. Derby, Nell Henderson, Nick Timiraos, Paul Hannon, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Perry Cleveland-Peck, Michael Maloney, Paul Kiernan, James Glynn
Follow us on Twitter:
@WSJCentralBanks, @NHendersonWSJ, @michaelsderby, @NickTimiraos, @PaulHannon29, @kimmackrael, @TomFairless, @megumifujikawa, @pkwsj, @JamesGlynnWSJ, @cleveland_peck
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