Blog: Bullard Says Fed’s Inflation-Fighting Credibility at Risk, New Scrutiny of Fed Vice Chairman’s Trading – Morningstar.com

Good day. Federal Reserve Bank of St. Louis President James Bullard said Thursday that the Fed’s inflation-fighting credibility “is more at risk today than it’s been at any point since I’ve been at the Fed over the last three decades,” adding that “It’s incumbent upon us to make it clear that we do intend to keep inflation under control.” That might require the Fed to raise interest rates three times this year, up from his prior expectation of two increases, Mr. Bullard said. In other Fed developments, Vice Chairman Richard Clarida disclosed additional sales of shares in stock funds, raising fresh questions about his explanation of the moves. His financial transactions were disclosed last May and drew attention after two other Fed officials resigned in September following news reports of their financial trading. Fed Chairman Jerome Powell in October approved a revamp of the central bank’s personal-investment practices for senior officials.

Now on to today’s news and analysis.

Top News

Bullard Eyes Three Rate Rises This Year

Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank may need to raise its short-term interest rate target as soon as its March meeting, and follow that action in fairly short order by allowing its massive balance sheet to shrink.

Mr. Bullard said such actions are likely needed to help restrain the surge in inflation. With price pressures at current levels, he said the Federal Reserve’s credibility as an institution that keeps inflation under control “is more at risk today than it’s been at any point since I’ve been at the Fed over the last three decades.”

New Disclosures Revive Questions About Fed Policy Maker’s Trades

Federal Reserve Vice Chairman Richard Clarida disclosed additional sales of shares in broad-based stock funds, drawing fresh scrutiny of financial transactions he conducted at the onset of the coronavirus pandemic.

U.S. Economy

Jobs Report Expected to Show Record Annual Gain

U.S. job growth for 2021 is poised to hit an annual record, and the economy is positioned to churn out jobs this year despite temporary disruptions from the Omicron variant’s surge, economists say.

Consumer Demand for Goods Drove U.S. Import Surge

Demand for imports outstripped U.S. exports by a large amount, leading the U.S. trade deficit in goods and services in November to widen to $80.2 billion. The U.S. recorded a 0.2% increase in exports for the month overall.

Investors Brace for Slowing Corporate Bond Sales

Analysts are forecasting U.S. companies will issue around $1.3 trillion or $1.4 trillion worth of investment-grade-rated bonds this year, including debt sold by financial institutions. Behind the projected stability: expectations that the Federal Reserve will begin raising interest rates as soon as March.

Home Sales Over $100 Million Exploded in 2021

By all measures, 2021 was a banner year for the luxury residential market in the U.S., despite the economic uncertainty caused by the continuing global pandemic. Read on for a closer look at some of the year’s biggest deals.

Mortgage Rates Hit Highest Levels Since Spring 2020

Unable to Get Covid-19 Tests, AmericansGo to Work, Get on Flights

As soaring demand makes lab-based and at-home tests hard to come by, many people are forsaking tests, leaving them unable to determine whether they are infected and potentially exposing others.

What Inflation Will Do to Your 2022 Taxes

Inflation is back, at least for now, and that matters for your taxes. In November, inflation rose 6.8% from a year earlier, nearly a four-decade high as measured by the Labor Department’s consumer price index. For new cars (up 11%) and fast-food restaurants (up 7.9%), the jump was the largest on record.

Key Developments Around the World

Russia’s Border Tensions Translate Into Market Pain

Russian markets have come under unexpected pressure, with investors increasingly concerned about a possible invasion of Ukraine and the sudden unleashing of unrest in neighboring Kazakhstan.

Eurozone Inflation Hits New Record, Further Pressuring ECB

Consumer prices in the eurozone increased at a record pace in the year through December as food prices jumped, presenting a fresh challenge for the European Central Bank as it strives to persuade households and businesses that inflation will return to its target toward the end of this year without a rise in borrowing costs.

Kazakhstan Unrest Pushes Up Uranium and Oil Prices

Instability in the world’s biggest uranium producer threatens to curb output at the same time supplies of the nuclear fuel are tightening, while protests pushed crude prices up, as Kazakhstan is a member of the OPEC+ alliance.

Kazakh Leader Gives Security Forces Order to Shoot Without Warning

Financial Regulation Roundup

Mexico Requests USMCA Panel to Resolve Dispute Over Auto Rules

The Mexican government has requested a panel under the U.S.-Mexico-Canada Agreement to resolve a dispute with the U.S. over the interpretation of rules of origin for the auto industry, the Economy Ministry said Thursday.

Cryptocurrency-Based Crime Hit a Record $14 Billion in 2021

The dollar amount collected through cryptocurrency-based crime hit a record high in 2021, as the volume of transactions overall grew into tens of trillions of dollars, according to blockchain data platform Chainalysis Inc.

The ESG Regulation Picture for 2022: Five Key Questions for Business

Coming rule changes with far-reaching implications include the U.S. Securities and Exchange Commission’s climate-change disclosure mandate and the potential expansion of China’s carbon-trading system.

Forward Guidance

Friday (all times ET)

8:30 a.m.: U.S. Labor Department releases December jobs report

10 a.m.: San Francisco Fed’s Daly speaks at American Economic Association virtual conference

12:15 p.m.: Atlanta Fed’s Bostic speaks at American Economic Association virtual conference

12:30 p.m.: Richmond Fed’s Barkin speaks to Maryland Bankers Association in Baltimore

3 p.m.: Federal Reserve releases November consumer credit

Saturday

9 a.m.: European Central Bank’s Schnabel speaks on panel at American Economic Association virtual conference

12:15 p.m.: Atlanta Fed’s Bostic speaks at American Economic Association virtual conference

Research

J.P. Morgan: Likely September Start for Shrinking Fed’s Balance Sheet

The Federal Reserve will likely allow its nearly $8.8 trillion balance sheet to begin shrinking in September, according to J.P. Morgan economists. In the wake of the release of hawkish minutes for the December Federal Open Market Committee meeting, the Fed will probably let $100 billion of Treasurys and mortgage-backed securities run off each month, the economists also wrote in a note to clients on Wednesday. That would be a rate more than double the Fed’s last balance sheet contraction, but it would be notably slower than the $120 billion-a-month pace of asset purchases that dominated most of the balance sheet expansion.

— Michael S. Derby

Commentary

Inflation and the ‘Experience Economy’

The U.S. needs to recognize experiences as the distinct economic offering they are and accurately take them into account in its statistics, including how the standard market basket has shifted toward them, B. Joseph Pine II writes.

Mr. Pine is a co-founder of Strategic Horizons LLP and co-author of “The Experience Economy: Competing for Customer Time, Attention, and Money.”

Basis Points

New orders for manufactured goods in the U.S. increased by 1.6% on month in November after rising by a revised 1.2% in October, the Commerce Department said. Economists polled by The Wall Street Journal expected a 1.7% increase in November. (Dow Jones Newswires)

Brazil’s industrial output fell 0.2% in November from the prior month, the sixth consecutive decline, and dropped 4.4% from a year earlier, the country’s statistics agency said. (DJN)

Eurozone consumer and business confidence fell in December to the lowest level since May as the increase in Covid-19 infections weighed on the services sector. The European Commission said that its economic sentiment indicator, an aggregate measure of business and consumer confidence, fell to 115.3 in December from 117.6 in November. (DJN)

German industrial production fell slightly in November missing forecasts for an increase, as supply-chain bottlenecks and rising producer prices continue to take their toll on production. Total industrial output–comprising production in manufacturing, energy and construction–declined 0.2% on month in November in calendar-adjusted terms, statistics office Destatis said. (DJN)

German exports increased in November but at a slower pace than imports, narrowing the trade surplus, Germany’s statistics office Destatis said. Exports rose 1.7% on month in adjusted terms. Imports increased 3.3% on month, Destatis said. The figures account for seasonal swings and calendar effects. (DJN)

U.K. retail stores footfall in December remained below pre-coronavirus pandemic levels as increased Omicron variant cases and new work-from-home advice deterred in-store shoppers, according to the latest report by the British Retail Consortium. (DJN)

 

(END) Dow Jones Newswires

January 07, 2022 13:25 ET (18:25 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.

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