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Fed Mulls Higher Rates While Slowing Hikes; RBNZ Aims for Deliberate Economic Slowdown

12/05/2022 | 07:15am EST

Fed Mulls Higher Rates While Slowing Hikes; RBNZ Aims for Deliberate Economic Slowdown By James Christie

Good day. A smaller 0.5-point rate increase at the Federal Reserve's meeting next week would mark a new phase of policy tightening as officials calibrate how much higher to lift rates. Policy makers expect price pressures to ease meaningfully next year, but a continuation in brisk wage growth, indicated by the U.S. Labor Department's November jobs report released Friday, or higher inflation in labor-intensive service sectors of the economy could lead more of them to support raising their benchmark rate next year above the 5% currently anticipated by investors. By contrast, the Reserve Bank of New Zealand is trying to bring about a recession to bring prices under control, a hard-line approach showing how hard it can be for policy makers to tame inflation once it is entrenched. The RBNZ recently raised rates by 0.75 percentage point to 4.25% and forecast rates will peak next year at 5.50%, surprising economists who expected a less hawkish outlook.

Now on to today's news and analysis.

Top News Fed Could Pencil in Higher Interest Rates Next Year While Slowing Hikes in December

Federal Reserve officials have signaled plans to raise their benchmark interest rate by 0.5 percentage point at their meeting next week, but elevated wage pressures could lead them to continue lifting it to higher levels than investors currently expect.

They have raised rates this year at the fastest pace since the early 1980s, including by 0.75 point at each of their past four meetings to combat inflation. Fed Chair Jerome Powell indicated last week that the central bank was prepared to downshift the size of rate increases at its coming meeting on Dec. 13-14.

Jobs Report Keeps Federal Reserve on Track for 0.5-Point Rate Rise

The strong November jobs report keeps the Federal Reserve on track to raise interest rates by a half percentage point at its meeting in two weeks and underscores the risk that officials will raise rates above 5% in the first half of next year.

Transcript: WSJ Interview With Kansas City Fed's Esther George

Federal Reserve Bank of Kansas City President Esther George spoke with Wall Street Journal reporter Nick Timiraos in Kansas City, Mo., on Nov. 15. Here is a partial transcript of the interview, lightly edited for clarity and length.

U.S. Economy Employers Try to Hold Line on Wages, With Mixed Success

Workers continue to win significant pay bumps, in part because help remains hard to find : Unemployment in November remained near a half-century low, and the labor force also shrank and is smaller than before the pandemic.

November Employment Report Shows U.S. Added 263,000 Jobs

U.S. employment growth in November continued to exceed the 2019 monthly average gain of 164,000 jobs, though gains have slowed from the first half of the year and some large corporations have recently announced layoffs.

Threat of Rail Strike Reveals Persistent Supply-Chain Risks to U.S.

The strike threat highlighted a distribution network in which businesses have sought to reduce delivery costs by becoming as lean as possible, making it more difficult to respond to shocks such as a global pandemic.

Key Developments Around the World A Central Bank That Raised Rates Early Now Talks Up Recession

New Zealand's central bank was among the first in the developed world to raise interest rates to restrain a surge in inflation. Fourteen months on and the bank says it is trying to cause a recession to bring prices under control.

OPEC+ Keeps Oil Curbs Despite Russia Price Cap

OPEC+ agreed to stick to its oil-output targets two days after the G7 nations agreed to a price cap on Russian oil, amid mounting concerns over new lockdowns in China and uncertainty over Russia's ability to export crude.

Oil Price Rises After Russia Cap Kicks In Russia Will Rely on 'Shadow' Tanker Fleet to Keep Oil Flowing Ukraine Says Oil-Price Cap Won't Dent Russia's Ability to Fund War Japan Looks to Build Buffer of Natural Gas in Case of Supply Crunch Lack of Wind Pushes Europe's Power Prices Higher, Just as Cold Sets In

Food Commodities Are Getting Cheaper-Unlike Grocery Bills

Global prices for commodities such as wheat and sugar have fallen back to where they were a year ago, but consumers are still likely to feel the pinch because of extraordinary uncertainty about future production of key foodstuffs.

Poor Countries Feel Sting of Local-Currency Debt

The fate of local-currency debt has become a key stumbling block in debt-restructuring negotiations in Ghana, Sri Lanka and Zambia. And it is forcing a reconsideration of what an emerging-market debt crisis looks like.

Europeans Cut Back on Spending, Pointing to Recession Ahead

Europeans cut back sharply on their spending on goods during October, a sign that high prices at the start of a period of increasing energy usage are pushing the region's economies toward recession.

Financial Regulation Roundup Clashes Over FTX Bankruptcy Go Global

No crypto company's bankruptcy to date has been more global in scope than FTX's. The crypto exchange's initial bankruptcy petition listed more than 130 affiliates in countries ranging from Canada to Ghana to Japan.

FTX Founder Says He Can't Account for Billions Sent to Alameda Video: FTX Founder Distances Himself From Alameda

Three Arrows Founders Ordered to Hand Over Records to Liquidators

A U.S. bankruptcy judge ordered the founders of Three Arrows Capital Ltd. to produce records related to the failed cryptocurrency hedge fund's assets to its liquidators. Three Arrows collapsed this summer following a rout in crypto prices.

Forward Guidance Monday (all times ET)

Time N/A: ECB's Panetta at Eurogroup meeting in Brussels

10 a.m.: ISM Report on Business Services PMI for November; The Conference Board Employment Trends Index for November; U.S. factory and durable goods orders for October

10:30 p.m: Reserve Bank of Australia interest rate decision

Tuesday

Time N/A: ECB's de Guindos at ECOFIN meeting in Brussels

8:30 a.m.: U.S. trade report for October; Canada trade report for October

Research Fed Has More Work to Do, Bank of America Says

The Federal Reserve will need to entertain higher terminal policy rates than markets expected heading into Friday's stronger than expected November jobs report, according to Bank of America economists. "We continue to expect a 5.0-5.25% terminal target federal funds rate by next March, with risks to our view tilted to the upside given ongoing labor market momentum," the economists said. They added that a slower pace of interest rate increases "seems appropriate from a risk management perspective, but strength in labor markets, in our view, likely means the Fed will have to lean in the direction of doing more, not less, to put inflation on a sustainable downward trajectory."

-Patrick Sheridan

Jobs Report Unlikely to Sway Bank of Canada

There was nothing obvious in Canada's November jobs report to sway the Bank of Canada's rate decision this week either way, though it is clear the labor market remains tight and in solid shape overall, says BMO chief economist Douglas Porter. He notes the central bank has expressed concern about a possible acceleration in wage growth, so November's still-firm result may keep the bank uneasy, but he remains comfortable with a call for a 0.5 percentage point lift to the policy rate after a surprisingly healthy third-quarter gross domestic product report and the steady jobs report.

-Robb Stewart

Commentary Must Inflation Be Brought Down All the Way to 2%?

Inflation of 4% is perfectly compatible with a healthy economy that isn't overheating , perhaps because of the fragmentation of global supply chains, which research suggests previously suppressed prices, Jon Sindreu writes.

How to Start Regulating the Crypto Markets-Immediately

In our experience, immediate action is best pursued incrementally, taking complementary steps that are free from challenge , both on authority and principle, Jay Clayton and Timothy Massad write.

Mr. Clayton was chairman of the Securities and Exchange Commission from 2017 to 2020, and Mr. Massad was chairman of the Commodity Futures Trading Commission from 2014 to 2017.

Basis Points Job gains in Canada were muted in November even as the unemployment rate eased slightly toward the record low level of the summer. The number of employed working-aged people rose by 10,100 from October, while the jobless rate slipped to 5.1%, edging toward the 4.9% low in June and July, according to Statistics Canada. (Dow Jones Newswires) Brazil's industrial production increased in October after two consecutive months of declines as output of food and metallurgical products grew. Output rose by a seasonally adjusted 0.3% in the month and by 1.7% from a year earlier, the Brazilian Institute of Geography and Statistics said. In September, production fell 0.7% in the month and grew 0.4% from a year earlier. (DJN) A private gauge of China's services sector slipped further into contraction in November, the lowest reading since May, reflecting continued downward pressures brought by the government's efforts to stamp out Covid-19 outbreaks. The Caixin China services purchasing managers index dropped to 46.7 in November, down from 48.4 in October, Caixin Media Co. and S&P Global said Monday. A reading below 50 suggests a contraction in activity. (DJN) S&P Global Ratings revised its outlook on France from stable to negative, citing "our view of rising risks to France's public finances and the resulting reduction in fiscal space," and lowered its 2023 GDP growth forecast for the country to 0.2% from an earlier 1.7% estimate. S&P also said it was affirming France's AA/A-1+ sovereign credit ratings. (DJN) Germans are more confident about the expectations for their own income compared last month, according to the German Retail Association's monthly survey. The HDE's income-expectations barometer rose for the third month in a row, to 88.5 in December from 83.45 in November, albeit still below the

(MORE TO FOLLOW) Dow Jones Newswires

12-05-22 0715ET

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.02% 0.6485 Delayed Quote.1.97%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -1.00% 0.70773 Delayed Quote.3.48%
BANK OF AMERICA CORPORATION 0.64% 36.145 Delayed Quote.8.45%
BRENT OIL 0.10% 83.07 Delayed Quote.-0.55%
BRITISH POUND / EURO (GBP/EUR) -0.25% 1.12194 Delayed Quote.0.32%
BRITISH POUND / US DOLLAR (GBP/USD) -1.17% 1.22428 Delayed Quote.1.76%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.56% 0.688061 Delayed Quote.0.33%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.34% 0.75067 Delayed Quote.1.80%
EURO / BRAZILIAN REAL (EUR/BRL) -1.69% 5.4608 Delayed Quote.-2.69%
EURO / US DOLLAR (EUR/USD) -0.91% 1.0911 Delayed Quote.1.48%
INDIAN RUPEE / EURO (INR/EUR) 0.32% 0.011173 Delayed Quote.-0.36%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.36% 0.012194 Delayed Quote.1.10%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.54% 0.64826 Delayed Quote.1.40%
S&P GSCI NATURAL GAS INDEX 1.22% 116.8181 Real-time Quote.-40.02%
US DOLLAR / CANADIAN DOLLAR (USD/CAD) 0.36% 1.33198 Delayed Quote.-1.72%
US DOLLAR / EURO (USD/EUR) 0.92% 0.916464 Delayed Quote.-1.46%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) 0.56% 70.1464 Delayed Quote.-2.01%
WHEAT FUTURES (ZW) - CBE (ELECTRONIC)/C1 -0.43% 758 End-of-day quote.-3.88%
WTI 0.20% 76.911 Delayed Quote.-1.72%
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