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Real Time Economics
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Good morning. This is Jeff Sparshott with the latest on the economy. You can send questions, comments and suggestions by replying to this email.
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After the 2008 financial crisis, the U.S. relied heavily on the Federal Reserve to stimulate growth, leading to a frequent quip that monetary policy had become the “only game in town.” Now, high inflation is fanning fears this is true again but in the opposite direction: Washington risks relying excessively on the Fed to lower inflation by reducing demand rather than have other policy makers work to increase the economy’s capacity to supply more goods and services or workers. The danger is the Fed will raise interest rates higher for longer than otherwise, creating a deeper downturn, Nick Timiraos reports.
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Fed officials are expected to raise interest rates Wednesday by 0.75 percentage point, which would bring their benchmark rate to a range between 2.25% and 2.5%. Rate increases slow the economy and cool inflation by reducing asset prices and raising borrowing costs, which damps investment, hiring and spending. Higher rates can’t fix supply-chain bottlenecks or increase oil production or refining capacity, and more expensive borrowing threatens to worsen some of those constraints by deterring new investment.
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The Dallas Fed's manufacturing survey is expected to fall to minus 10 in July from minus 17.7 one month earlier. (10:30 a.m. ET)
South Korea's gross domestic product for the second quarter is expected to increase by 2.6% from one year earlier. (7 p.m. ET)
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Growing signs that price pressures are easing suggest that June’s distressingly high 9.1% increase in consumer prices will probably be the peak. But even if inflation indeed comes down, economists see a slow pace of decline. Signs that 9.1% might have been the top: Gasoline prices have fallen around 10% from their mid-June high point, wheat futures prices have fallen by 37% since mid-May and corn futures prices are down 27% from mid-June. The cost of shipping goods from East Asia to the U.S. West Coast is 11.4% lower than a month ago. Easing price pressures and improvements in backlogs and supplier delivery times in business surveys suggest that supply-chain snarls are unraveling, Gwynn Guilford reports.
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“It’s a step in the right direction, but ultimately, even if June is the peak, we’re still looking at an environment where inflation is too hot,” said Sarah House, senior economist at Wells Fargo, who expects fourth-quarter inflation between 7.5% and 7.8%. “So peak or not, inflation is going to remain painful through the end of the year.”
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Cost-conscious consumers are buying more store brands at the supermarket, raising pressure on big food companies that are dealing with their own rising costs. Lower-cost oatmeal, pickles, granola bars and coffee, made by companies such as TreeHouse Foods and sold by retailers like Walmart and Kroger, are gaining traction with consumers for the first time since the pandemic began, Annie Gasparro reports.
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Shoppers are also trading down to cheap beer brands and discount cigarettes as they feel more pressure on their pocketbooks. In a survey released this month by the National Retail Federation, nearly half of consumers said that because of rising prices on everyday necessities, they were switching to cheaper alternatives, Jennifer Maloney and Alex Harring report.
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Wealthy people ramped up borrowing in the first half of the year despite rising rates and a stock-market rout that hit the value of their portfolios. The wealth-management units at Morgan Stanley and Bank of America posted double-digit loan growth in the second quarter. The increase came from well-heeled clients taking out mortgages and loans backed by assets like stock-and-bond portfolios. The leaders of the biggest U.S. banks said their customers are spending at a healthy clip and keeping up with their debt payments, all without draining their bank accounts, Rachel Louise Ensign reports.
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Upper-middle-class Americans are getting squeezed. The first two years of the pandemic were good for the group’s savings and investments, but 2022 isn’t. WSJ's Dion Rabouin explains.
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About 80% of young adults at age 26 have moved less than 100 miles of where they grew up, and just 10% moved more than 500 miles away. WSJ's Rina Torchinsky looks at who's moving and who's staying put.
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This summer is proving to be a season of staffing headaches. A rise in Covid-19 absences in recent weeks amid the spread of the BA.5 subvariant, combined with planned time off, has left restaurants, hotel chains, manufacturers and other workplaces struggling to keep operations running this summer. At some companies, bosses say, staffing is harder now than at any previous stage in the pandemic, Lauren Weber and Chip Cutter report.
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Intense heat and dry conditions are stressing U.S. agriculture, threatening corn, soybeans and other crops, as well as cattle herds. Scorching temperatures this past week have put swaths of the U.S., especially in the South and West, under excessive-heat warnings and advisories. The hot weather is hitting during an important period of the Midwest crop-growing season, analysts said, and just as some commodity prices ease amid concerns about global food supplies, Patrick Thomas reports.
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Spending the summer in a dacha in the lush countryside is a ritual for Russian families. This year, more people are gardening to offset the soaring cost of food and potential supply disruptions related to sanctions imposed after the country’s invasion of Ukraine. Food prices were up 19.1% in June compared with the same month in 2021, while prices for some products, such as sugar and pasta, have risen far more, Yuliya Chernova reports.
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China is leading the world in building new chip factories, a step toward achieving more self-sufficiency in semiconductors that could eventually make some buyers reliant on China for many of the basic chips now in short supply. As chip makers race worldwide to boost production and ease supply shortages, no country is expanding faster than China, which is slated to build 31 major semiconductor factories, known as fabs, during the four years through 2024, according to the chip-industry group SEMI. That exceeds the 19 coming online in Taiwan, the next-biggest builder of chip fabs during the same period, and the 12 expected in the U.S., Dan Strumpf and Liza Lin report.
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“Nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate.”
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— Justice Brett Kavanaugh, in a 2021 concurrence rejecting the NCAA's tight limits on athlete compensation
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Real Time Economics offers a downloadable calendar with concise previews, forecasts and analysis of major U.S. data releases. To add to your calendar, please click here.
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