Blog: WSJ Pro Central Banking Newsletter: Kansas City Fed’s George Sees Potential for Pain From Tightening; Crypto a Concern for Fed’s Top Banking Regulator — WSJ – Marketscreener.com

By James Christie

Good day. Federal Reserve Bank of Kansas City President Esther George says the U.S. economy might be in store for a recession as the Fed tries to bring inflation down amid a tight labor market. Some of her central bank colleagues have recently said they still see a way for the Fed to cool inflation without a serious downturn, but she was more circumspect in an interview with The Wall Street Journal yesterday. Meanwhile, Michael Barr, the Fed’s vice chairman for supervision, told lawmakers on Tuesday that crypto-related activities need to be regulated in a manner similar to more traditional financial-services providers. His remarks followed crypto exchange FTX filing for chapter 11 bankruptcy protection on Friday. Its founder and a few remaining employees spent the weekend searching for commitments from investors to plug a shortfall of up to $8 billion in the hopes of repaying FTX’s customers, the Journal reports. And in the U.K. today, consumer prices have risen 11.1% in the year to October, up from 10.1% the previous month, the Office for National Statistics said, the highest rate of inflation since October 1981.

Now on to today’s news and analysis.

TOP NEWS

Reducing Inflation Without a Recession ‘Might Not Be Feasible’

KANSAS CITY, Mo. — Inflation is at risk of growing entrenched in the economy due to an overheated job market, and that will make it increasingly difficult for the Federal Reserve to bring inflation down without a recession, a central bank official said in an interview.

“I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there, ” said Kansas City Fed President Esther George, who is set to retire in January.

Fed’s Bostic Says More Rate Increases Needed

The Federal Reserve must keep raising interest rates until there are signs of a broad-based easing of inflation, Atlanta Fed President Raphael Bostic said on Tuesday. The Fed’s job is to bring supply and demand into better balance, and that will happen with its benchmark interest rate high enough to return inflation to the central bank’s 2% target, Mr. Bostic said in an essay posted on his regional Fed bank’s website. “We are not there now, and so I anticipate that more rate hikes will be needed,” he said. (MarketWatch)

U.K. Inflation Hits 41-Year High as Recession Looms

The U.K.’s annual rate of inflation rose to a 41-year high in October on surging energy prices, , underscoring the stubbornness of inflation even with a new government price cap on energy and a looming recession.

U.S. ECONOMY

Retail Sales Report to Show Consumer Spending Ahead of Holidays

A report on October retail spending will show how American shoppers responded to continued high inflation ahead of the holiday season. Retail sales — which include spending on cars, wine and ottomans as well as meals at restaurants — have generally risen in recent months amid higher prices and rising interest rates that can make purchases, particularly big ones, more expensive. Retail sales were unchanged on a seasonally adjusted basis in September compared with August. The Commerce Department is scheduled to release October retail sales figures at 8:30 a.m. Eastern time.

U.S. Supplier Price Increases Ease, Taking Pressure Off Inflation

The producer-price index, which generally reflects supply conditions in the economy, climbed 8% on a 12-month basis in October, a slight easing from September’s revised 8.4% increase.

Housing Agency Reports Record Cushion as It Braces for Downturn

The Federal Housing Administration said its financial reserves have reached record levels and that it was well positioned to weather a mortgage-market downturn, likely giving officials room to trim mortgage costs.

KEY DEVELOPMENTS AROUND THE WORLD

Yellen Meets China’s Central Bank Governor

Treasury Secretary Janet Yellen held her first meeting with a top Chinese economic official since House Speaker Nancy Pelosi ‘s visit to Taiwan, as the Biden administration works to restore communication lines and prevent a spiraling economic conflict with the world’s second-largest economy.

U.S. Panel Calls for Review of China Trade Relations

A congressionally convened commission is calling on the U.S. to review Chinese trade practices and to suspend normal trade ties if the review determines Beijing hasn’t lived up to its promises under a 1999 pact.

U.S., Allies Announce $20 Billion Package to Wean Indonesia Off Coal

The funding, announced at a meeting of G-20 leaders, is aimed at helping developing countries such as Indonesia, India and South Africa, which say they can’t afford to quickly transition to renewable energy.

FINANCIAL REGULATION ROUNDUP

Fed’s Barr: Crypto Turmoil Shows Potential Risks to Financial System

Tumult in the cryptocurrency market represents a red flag for the broader financial system, the Federal Reserve’s top banking regulator told lawmakers, while pressing for tougher guardrails after the rapid collapse of crypto exchange FTX.

Tax Breaks for Retirement, Corporate Research on Lame-Duck Agenda

The House and Senate returned for a postelection session with tax breaks for retirement savings and corporate research on the agenda, hopeful tax measures with bipartisan support win approval before the end of the year.

FTX Founder Attempts to Raise Fresh Cash Despite Bankruptcy

FTX filed for bankruptcy last week, but the cryptocurrency exchange’s founder, Sam Bankman-Fried, still thinks that he can raise enough money to make users whole, according to people familiar with the matter.

FORWARD GUIDANCE

Wednesday (all times ET)

8:30 a.m.: Canada consumer-price index for October; U.S. retail sales for October; U.S. import and export price indexes for October

9:05 a.m.: New York Fed’s Williams gives keynote address at 2022 U.S. Treasury Market Conference

9:15 a.m.: U.S. industrial production and capacity utilization for October

10 a.m.: NAHB/Wells Fargo Housing Market Index for November; ECB’s Lagarde gives speech on occasion of 20th anniversary of European School Frankfurt; ECB’s Panetta at ABI’s Executive Committee meeting in Rome

Thursday

5 a.m.: Eurozone harmonized consumer-price index for October

7:30 a.m.: Atlanta Fed’s Bostic speaks at Metro Atlanta Chamber’s 2022 annual meeting

8 a.m.: St. Louis Fed’s Bullard speaks at Greater Louisville Inc.’s Regional Economic Development Update

8:30 a.m.: U.S. weekly jobless claims; U.S. housing starts for October; New York Fed hosts fifth biennial Global Research Forum on International Macroeconomics and Finance

RESEARCH

U.S. Household Debt Rises to $16.51 Trillion

Household debt in the U.S. in the third quarter increased by $351 billion, or 2.2%, from the second quarter to $16.51 trillion, according to the latest quarterly report on household debt and credit of the Federal Reserve Bank of New York. The report said mortgage balances — the largest component of household debt — on consumer credit reports increased by $282 billion during the third quarter, reaching $11.67 trillion at the end of September, up $1 trillion since the previous year. “The share of current debt transitioning into delinquency increased for nearly all debt types, following two years of historically low delinquency transitions,” the report added.

— James Christie

BASIS POINTS

The New York Fed’s Empire State business conditions index rose 13.6 points to 4.5 in November, the first positive reading for the gauge of manufacturing activity in the state since July. Economists expected a slight improvement to negative 6.0 from negative 9.1 in October, according to a survey by The Wall Street Journal. Any reading above zero indicates improving conditions. (MarketWatch)

The bulk of layoffs in the U.S. are happening in the technology sector, according to a report from Challenger, Gray & Christmas. Tech companies have announced plans to cut 31,200 jobs in November, the business and executive coaching firm said. (Dow Jones Newswires)

China’s new-home prices fell at the fastest pace in more than seven years last month, despite government measures to shore up the real-estate market. Average new-home prices in 70 major cities in October fell 0.37% compared with a 0.28% month-on-month fall recorded in September, according to Wall Street Journal calculations based on data released by China’s National Bureau of Statistics. (DJN)

Australian wages grew at their fastest pace since 2012 in the third quarter, against a backdrop of a drum-tight labor market where businesses are still reporting significant difficulty in sourcing workers. The wage price index rose by 1.0% over the quarter, and by 3.1% from a year earlier, the Australian Bureau of Statistics said Wednesday. (DJN)

India’s goods trade deficit widened in October on year as imports grew while exports declined. The trade deficit came in at $26.91 billion in October compared with $17.91 billion the same month a year earlier, according to government data released Tuesday. (DJN)

The eurozone posted a trade deficit in September as imports increased due to high energy costs, according to data released Tuesday by the European Union’s statistics agency. The eurozone’s trade deficit in goods–the difference between exports and imports–stood at 34.4 billion euros ($35.7 billion) in September compared with a EUR6.7 billion surplus a year earlier, Eurostat said. (DJN)

Expectations for economic growth in Germany have improved significantly in November, beating expectations, data from the ZEW economic research institute showed Tuesday. The index of economic expectations rose to minus 36.7 in November from minus 59.2 in October. Economists polled by The Wall Street Journal had projected the index rising to minus 50.0. (DJN)

(MORE TO FOLLOW) Dow Jones Newswires

11-16-22 1303ET

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