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Powell Doesn't See Digital Yuan as Threat to Dollar; U.S. GDP Nears Pre-Pandemic Peak; China's Recovery Shows Signs of Slowing
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Good day. Fed Chairman Jerome Powell said this week he doesn’t think the dollar's role as the global reserve currency is threatened by China beating the Fed to market with a digital currency, echoing comments made by some of his colleagues. A burst of growth put the U.S. economy just a shave below its pre-pandemic size in the first quarter, extending what is shaping up to be a rapid, consumer-driven recovery. And in China, official economic data fell short of expectations in April, in part due to semiconductor shortages.
Now on to today’s news and analysis.
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U.S. Economy Grew Robustly in First Quarter
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Pedestrians stroll a San Diego street closed to traffic for outdoor dining. The recovery accelerated in the first quarter as states and cities lifted business restrictions.
PHOTO: BING GUAN/BLOOMBERG NEWS
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Gross domestic product, the broadest measure of goods and services made in the U.S., grew at a 6.4% seasonally adjusted annual rate in January through March, the Commerce Department said Thursday. That left the world’s largest economy within 1% of its peak, reached in late 2019, just before the coronavirus pandemic reached the U.S.
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Derby's Take: Powell Is Unworried by China’s Digital Currency
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“I am less concerned that someone, that another country might have a digital currency first,” Jerome Powell said in a press conference Wednesday after the latest gathering of the monetary-policy-setting Federal Open Market Committee. Read more.
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Key Developments Around the World
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China’s Economic Recovery From Covid-19 Shows Signs of Slowing
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China’s official purchasing manager’s indexes showed manufacturing activity falling more sharply than expected, dropping to 51.1 in April, according to the National Bureau of Statistics—lower than March’s 51.9 reading and the 51.6 median forecast of economists polled by WSJ.
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Turkey's Central Bank Raises 2021, 2022 Inflation Forecasts
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Turkey's central bank on Thursday upwardly revised its year-end inflation forecasts for 2021 and 2022 in its first quarterly inflation report under new governor Sahap Kavcioglu. The bank raised the year-end inflation forecast for 2021 to 12.2% and the forecast for 2022 to 7.5%, from 9.4% and 7%, respectively. Inflation should then stabilize at around 5% in 2023, according to the bank's medium-term target. Monetary policy may be tightened earlier than currently projected as a result of global inflationary pressures, the bank added. (Dow Jones Newswires)
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Behind Biden’s Spending Plans, Waning Sway of Economic Caution
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The new economic guard on the left doesn’t worry much about inflation or, with interest rates low, budget deficits, opening the floodgates to expansive new government spending programs.
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Financial Regulation Roundup
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Biden Tax Plan Leans on Banks to Help Find Unreported Income
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The proposal would require banks to report annual account inflows and outflows to the Internal Revenue Service, and the requirement would also extend to peer-to-peer payment services such as Venmo.
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Is the U.S. Student Loan Program Facing a $500 Billion Hole?
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U.S. taxpayers could ultimately be on the hook for roughly a third of the $1.6 trillion federal student loan portfolio, which could amount to more than $500 billion, exceeding what they lost on the saving-and-loan crisis 30 years ago.
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China Warns Large Tech Firms as Industry Faces Rising Oversight
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Chinese financial regulators on Thursday ordered some of the nation’s largest technology companies to change financial business practices seen as risky and violating antitrust rules, the latest sign of heightened scrutiny of the sector.
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8:30 a.m.: U.S. Commerce Department releases March personal income and outlays
9:45 a.m.: Dallas Fed’s Kaplan speaks to Montgomery, Texas, Area Chamber of Commerce
10 a.m.: University of Michigan releases final April U.S. consumer sentiment
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8:30 a.m.: U.S. Commerce Department releases March international trade data
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Growth Trackers Pointing to Robust U.S. Expansion
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Data that aims to get a real-time handle on U.S. economic growth is spitting out some hot numbers. On Thursday, the Federal Reserve Bank of New York’s Weekly Economic Index pointed to a 12.3% gain in gross domestic product for the year, although the bank cautioned comparisons to big weakness last year were at play. “The increase in the WEI for the week of April 24 reflects increases in tax withholding and electricity output, which more than offset an increase in initial unemployment insurance claims and decreases in fuel sales and rail traffic,” the bank said, adding that the large positive reading also reflects a sharp deterioration in economic conditions a year earlier. Meanwhile, the government said Thursday first-quarter GDP grew at a 6.4% seasonally adjusted annual rate. The Federal Reserve Bank of Atlanta’s GDPNow report updated on Thursday pointed
to 7.9% first-quarter growth when all revisions are in, and IHS Markit said its real-time GDP tracker points to second-quarter growth of 8.9%.
—Michael S. Derby
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The Economy Isn’t Too Hot for the Fed
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Within the next month or two, the U.S. economy will be back to the size it was before the Covid-19 crisis struck, but the recovery of the sort the Federal Reserve is aiming for is still far away, Justin Lahart writes.
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Government bond yields climbed world-wide after signs of accelerating U.S. economic growth prompted worries that inflation will rise more rapidly than expected.
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Eurozone consumer prices were 1.6% higher in April than in April 2020, following a 1.3% on-year rise in March, and above the forecast of 1.5% of economists polled by WSJ. (Dow Jones Newswires)
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Sweden's economy expanded by 1.1% in the first quarter, beating the 0.5% consensus forecast, according to Capital Economics. (DJN)
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The Czech economy contracted by 0.3% in the first quarter compared with the previous quarter as the extension of coronavirus restrictions weighed on activity. (DJN)
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New York City businesses will fully reopen starting July 1, marking an end to many Covid-19 lockdown measures that have restricted their operations for more than a year, Mayor Bill de Blasio said Thursday.
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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
Follow us on Twitter:
@WSJCentralBanks, @NHendersonWSJ, @michaelsderby, @NickTimiraos, @PaulHannon29, @wsj_douglasj, @HarrietTorry, @KateDavidson, @d_harrison, @kimmackrael, @TomFairless, @megumifujikawa, @mikemaloneyny, @pkwsj, @JamesGlynnWSJ
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