Cracks Emerging at Fed Over Inflation; November CPI Forecast to Rise 7.3% From Year Earlier

Cracks Emerging at Fed Over Inflation; November CPI Forecast to Rise 7.3% From Year Earlier By James Christie

Good day. Disagreements between Federal Reserve officials about how best to combat inflation are starting to show, as some expect inflation to cool steadily next year and want to stop raising interest rates soon. But others worry inflation won't ease enough next year, a scenario calling for raising rates higher or holding them at that level for longer, boosting the chance of a sharp downturn. The Fed's preferred inflation gauge, the personal-consumption expenditures price index, rose 6% in October from a year earlier. Core prices, which exclude volatile food and energy categories, rose 5%. Today, we get the Labor Department's November consumer price index report. Economists surveyed by The Wall Street Journal estimated the CPI rose 7.3% last month from a year earlier. The CPI rose 7.7% in October from a year earlier, down from 8.2% the prior month-a trend marking a moderation of price increases since June's 9.1% peak.

Now on to today's news and analysis.

Top News How Long Should Powell Raise Interest Rates? Officials Are Divided

In the past nine months, Jerome Powell has raised interest rates at the fastest pace of any Federal Reserve chairman since the 1980s, triggering a market rout, bringing the housing market to a standstill and prompting fears of an imminent recession. That was the easy part.

When inflation was hitting 40-year highs, Fed officials were unanimous that rates needed to rise aggressively. Now cracks are beginning to emerge among them over how stubborn inflation has become and what they should do about it.

Bank of Canada Gov. Macklem: Higher Rates Working to Slow Demand

Bank of Canada Gov. Tiff Macklem said higher interest rates are slowing demand and he expects clear evidence of markedly slower inflation next spring, after the bank signaled last week it might be at or near the end of its rate-rising campaign.

U.S. Economy Report to Show Pace of U.S. Inflation in November

The year with the highest inflation in four decades is drawing to a close, with November figures set to show the latest trajectory of price increases that have challenged the Fed's ability to keep the U.S. economy on track.

The 4% Rule for Retirement Spending Makes a Comeback

For new retirees with a 30-year outlook, market conditions now allow for a 3.8% spending rate . The reason: Today's lower stock and bond valuations support expectations for higher future investment returns than last year.

How Did the Housing Market Get So Unaffordable for So Many?

For years, housing affordability was largely an issue that plagued the working class in urban areas. But in recent years, the problem has spread well beyond the working class and is now firmly entrenched in the middle class .

Key Developments Around the World China Says It Has Taken U.S. Semiconductor Rules to WTO

China's Ministry of Commerce said it has filed a complaint against the U.S. at the World Trade Organization in response to new export controls from Washington on semiconductor trade with the country.

Germany Is Short of Workers, but Migrants Struggle to Find Jobs

Germany is failing to find work for newcomers despite a worsening labor shortage stifling economic growth, and Europe's largest economy will in addition need to fill about seven million jobs by 2035 as older workers retire.

Zelensky, Biden Discuss Ukraine's Grid in Scramble to Restore Power

As many as 1.5 million people were without power in Ukraine's southern Odessa region after Russian strikes late Saturday, and officials have warned it will take longer to restore power after the most recent attacks.

Europe Strikes Deal to Tax Imports Based on Carbon Emissions

The European Union reached an agreement to impose a tax on imports based on the greenhouse gases emitted to make them, inserting climate-change regulation for the first time into the rules of global trade.

Europe's Energy Ministers to Spar Over Plan for Natural-Gas Price Curb Financial Regulation Roundup FTX Founder Sam Bankman-Fried Arrested in Bahamas

Crypto exchange FTX founder Sam Bankman-Fried was arrested in the Bahamas after the U.S. filed criminal charges it expects to unseal Tuesday morning, authorities in the two countries said Monday evening.

New FTX Chief to Testify Before Congress After Bankman-Fried Arrest Microsoft Buys Stake in London Stock Exchange

Microsoft Corp. will take a 4% stake in the London Stock Exchange's corporate parent and help shift the exchange's financial data and trading platforms to the cloud, reflecting the growing use of data and tech in global finance.

Small Banks Warn They Might Have to Drop Zelle

Community banks and credit unions might drop out of partnerships with instant-payment apps like Zelle if required to reimburse customers who fall victim to scams, according to two industry trade groups.

Forward Guidance Tuesday (all times ET)

8:30 a.m.: U.S. consumer price index for November

Wednesday

2 a.m.: U.K. consumer and producer price indexes for November

5 a.m.: EU industrial production for October

8:30 a.m.: U.S. import and export price indexes for November

2 p.m.: Federal Reserve rate decision and economic projections

2:30 p.m.: FOMC press conference

Research Central Banks Unlikely to Loosen Policy as Global Economy Slows

The global economy is expected to weaken in 2023 as the U.S. economy cools and the eurozone falls into recession, economists at Credit Suisse write in its 2023 Economic Outlook report. In contrast, China's economy is likely to bounce in response to an easing of its zero Covid-19 policy, creating the first meaningful counterbalance to global economic weakness since the end of 2021, the report says. It adds that inflation has peaked but is unlikely to decline fast enough to allow central banks to start cutting interest rates next year. The Federal Reserve should be able to pause interest rate increases by spring, followed in short order by the Bank of England and the European Central Bank, but the three central banks aren't likely to cut rates until 2024, the report says.

-Xavier Fontdegloria

Commentary The Dangerous Downward Spiral of U.S.-China Relations

There is no need to mince words , as China and the U.S. are caught in a competitive downward spiral that if not reversed could drastically damage the two countries and the rest of the world, Susan L. Shirk writes.

Dr. Shirk is research professor and chair of the 21st Century China Center at the University of California, San Diego, and the author of "Overreach: How China Derailed its Peaceful Rise." She can be reached at [e-mail].

Basis Points The monthly U.S. deficit was a record-setting $249 billion in November, $57 billion wider than the same month last year. The federal government spent $501 billion last month, a $28 billion increase to a record high, while tax revenue dropped by $29 billion compared with last November, with the government collecting $252 billion. The ratio of Canadian household debt-to-disposable income remained elevated in the third quarter, ticking down marginally to 183.67% from 183.91% the quarter before, Statistics Canada data showed. Household debt and house prices are two vulnerabilities the Bank of Canada is tracking as economic growth is expected to stall into the first half of next year. (Dow Jones Newswires) Mexican industrial production got off to a positive start in the fourth quarter, led by gains in mining and construction, as October output rose 0.4% from September in seasonally adjusted terms, the National Statistics Institute said. (DJN) India's annual inflation rate fell in November for a second consecutive month, reaching its lowest level in eleven months as food prices moderated, according to preliminary government data. The consumer price index rose 5.9% on year, easing from a 6.8% increase in October and the lowest reading since December 2021. (DJN) The U.K.'s unemployment rate increased in the three months to October, a sign the labor market could be cooling, but strong pay growth momentum continued. The unemployment rate edged up to 3.7% in the quarter to October, from 3.6% in the preceding three-month period, according to data from the Office for National Statistics. This was in line with economists' forecasts in a poll by The Wall Street Journal. (DJN) Germany's inflation decelerated in November, having come down from the highest reading in more than 70 years in October, the Federal Statistics Office, or Destatis, said Tuesday, confirming its first estimate published in late November. The consumer price index rose 10.0% on the year in November after increasing 10.4% in October, measured by national standards, it said. The consumer price index rose by 11.3% on the year measured by EU-harmonized standards, Destatis said. (DJN) Germany's economic expectations rose in December for third consecutive month, reaching their highest level in ten months as energy prices declined, easing inflation pressures. The index of economic expectations rose to minus 23.3 from minus 36.7 in November, according to the ZEW economic research institute. Economists polled by the Journal had forecast a reading of minus 27. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

12-13-22 0716ET