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Fed's Quarles Warns of Extended High Inflation; Paycheck Protection Program May Have Made Inequality Worse, Minneapolis Fed Chief Says

10/21/2021 | 08:58am EST

Good day. Federal Reserve governor Randal Quarles said he expects higher prices to ease next year as supply-chain disruptions fade, but added that logistics bottlenecks risk leading consumers and businesses to expect higher inflation in the future, which could force the Fed to respond by raising interest rates. "If we are still seeing 4% inflation...next spring, then I think we might have to reassess the speed with which we would be thinking about raising interest rates," he said. Meanwhile, Minneapolis Fed President Neel Kashkari said the Paycheck Protection Program, supported in part by a special Fed program that helped private banks make loans to small businesses, may have unintentionally made wealth inequality between white and Black Americans worse.

Now on to today's news and analysis.

Top News

Fed Official Says Lingering Inflation Could Change Rate Outlook

A top Federal Reserve official warned that extended high inflation through next spring could force the central bank to consider raising interest rates sooner than anticipated.

Fed governor Randal Quarles said he still expects higher prices to ease next year as bottlenecks and supply-chain disruptions fade. If the Fed raised rates in response to recent price surges driven by the economic reopening, the central bank could constrict demand at the same moment that supply bottlenecks abate, Mr. Quarles said during a conference in Los Angeles. That could lead to undesirably low levels of inflation and employment.

Kashkari: Paycheck Protection Program Disadvantaged Blacks

Minneapolis Fed President Neel Kashkari took aim at the government's Paycheck Protection Program, which extended forgivable loans to firms that used the money to stay in business and keep workers on the clock when the economy was under strain during the pandemic.

Fed's Mester Says Rate Increases Aren't Imminent

Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview that she believes it is too soon to start talking about raising short-term interest rates.

U.S. Economy

U.S. Growth Slowed in Recent Months, Fed's Beige Book Says

U.S. economic growth slowed to a modest to moderate rate this fall as companies grappled with supply-chain problems, a labor shortage and continued fears around the Delta variant of Covid-19, the Federal Reserve said in its beige book, which collects anecdotes from businesses.

Democrats' Planned Tax-Rate Increases in Jeopardy

Senate Democrats are considering abandoning central tax elements of their social policy and climate package, as a key senator continues to oppose any rise in marginal rates for businesses, high-income individuals or capital gains.

Plan for Free Community College Likely Out From Budget Package

A plan President Biden and then-President Barack Obama first pitched in 2015 as a way to increase U.S. economic competitiveness and decrease income inequality is being sidelined amid negotiations to bring down his overall social-policy package's $3.5 trillion price tag.

Key Developments Around the World

Chinese Cities Move to Support Housing Market as Prices Drop

Local governments across China are moving to stabilize housing prices as the market starts to wobble amid Beijing's forceful clampdown on the real-estate sector, extending subsidies to younger buyers and banning developers from offering "malicious price cuts" on new homes.

China Evergrande Calls Off Plans to Sell Key Unit for $2.6 Billion

China Evergrande Group called off plans to sell a majority stake in its property-management unit, Evergrande Property Services Group, for the equivalent of $2.6 billion, a major setback in the real-estate giant's attempts to ease its liquidity crunch.

Chinese Developer Defaults Pile Up as Evergrande Contagion Spreads

Your Cheat Sheet to the U.N. Climate Conference in Glasgow

Negotiators from nearly every country, financiers and environmentalists are descending on Glasgow for the most important climate meeting since the Paris agreement in 2015. Here's a guide to the people, organizations and facts that will drive the talks.

Financial Regulation Roundup

Republican SEC Commissioner Criticizes Its Approach to Crypto

Hester Peirce, one of two Republicans on the SEC's five-member commission, said that the agency should be making more of an effort to work with cryptocurrency firms to establish rules that they can comply with.

Crypto Industry Gets Tailored Guidance on Sanctions Compliance

Crypto Miners Struggle to Cut Carbon Emissions

Critics Blast Private Equity at Senate Hearing

At a Senate hearing, private-equity critics denounced what they characterized as buyout managers' abusive practices, as some Democratic lawmakers seek to rein in the rapidly growing industry.

Facebook Fined $70 Million in U.K. Over Giphy Merger Breach

The U.K.'s competition regulator fined Facebook Inc. 50.5 million British pounds, equivalent to $69.6 million, alleging it breached reporting requirements during a continuing review of its proposed takeover of Giphy, a provider of animated images for use in social media.

Bitcoin Price Surges Past $66,000, Reaching New High

Bitcoin traded as high as $66,974.77 on Wednesday, passing the previous high of $64,889 set in April, powered by a wave of buying after the first U.S. exchange-traded fund linked to the cryptocurrency started trading.

Forward Guidance

Thursday (all times ET)

Time N/A: Central Bank of the Republic of Turkey releases policy statement

8:30 a.m.: Richmond Fed's Barkin speaks at Engage Summit in Washington

9 a.m.: Fed's Waller speaks on economy at Official Monetary and Financial Institutions Forum discussion

10 a.m.: National Association of Realtors releases September U.S. existing-home sales

9 p.m.: New York Fed's Williams speaks at China Finance 40 Forum


6:30 a.m.: Bank of Russia releases interest-rate decision and medium-term forecast

10 a.m.: San Francisco Fed's Daly speaks on climate change risk at American Enterprise Institute event

11 a.m.: Fed's Powell speaks on panel at virtual Bank for International Settlements-South African Reserve Bank conference


Supply-Chain Crisis Fuels Latest Retreat From Globalization

Just as the financial crisis drove banks and regulators to prioritize resilience over efficiency, the supply-chain crisis will likely result in production networks more resilient to surprises but less able to delight consumers with ever more choice at ever lower cost, Greg Ip writes.

Inflation Approaching a Tipping Point at the Grocery Store

Inflation is now so hot that staples companies feel they have no option but to pass it on. Nestlé, Danone and Procter & Gamble all said this week that consumers can expect higher bills at the grocery store. The question is how far they can push, Carol Ryan writes.

Basis Points

China is pulling out the stops to ease its worst power crunch in two decades, reversing course on earlier ambitions to curb coal use as it sets new policies to revive production and loosen imports of the electricity-generating fuel.

Eurozone headline inflation reached a 13-year high in September as surging energy prices and a more rapid upturn in the cost of services lifted the annual inflation rate to 3.4%. (Dow Jones Newswires)

Annual inflation in Canada advanced 4.4% in September, the fastest increase in prices in nearly two decades and a slight beat on expectations of a 4.3% jump. (DJN)

South African consumer prices rose 5% in September due to sharp increases in the cost of transport, food and housing. The increase marks the fifth consecutive month where annual inflation in Africa's most developed economy is above the midpoint of its central bank's target range of between 3% and 6%, setting the stage for potential interest-rate increases in the coming months. (DJN)

Norway's trillion-dollar sovereign-wealth fund, the world's largest, returned 0.1% in the third quarter, equivalent to a gain of 31 billion kroner ($3.7 billion). Norges Bank Investment Management, the arm of the central bank that manages the fund, said that the fund's return was 0.25 percentage point higher than the return on the benchmark index. (DJN)

(END) Dow Jones Newswires

10-21-21 0857ET

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