Fed's Williams and Waller Settle In for a Long Fight Against Inflation By James Christie

Good day. Federal Reserve Bank of New York President John Williams said on Wednesday restrictive monetary policy may be around for a few years, given the Fed's goal of bringing inflation down to 2%. His comment at The Wall Street Journal's CFO Network Summit in New York came a day after Fed Chair Jerome Powell said the U.S. labor market's surprising strength underscores why bringing inflation down will take longer and require higher interest rates than many investors have been anticipating. Meanwhile, Fed governor Christopher Waller on Wednesday said he isn't seeing signals in economic data pointing to a quick decline in inflation and that he is "prepared for a longer fight to get inflation down to our target."

Now on to today's news and analysis.

Top News Fed's Williams Says Restrictive Policy Needed for a Few Years

A senior Federal Reserve official said the economy will need higher borrowing costs for a few years to bring down inflation and prevent price pressures from strengthening.

"We still have some work to do to get interest rates in the right place, " said New York Fed President John Williams at The Wall Street Journal's CFO Network Summit in New York on Wednesday. "We need a sufficiently restrictive stance" of rates, and "we're going to need to maintain that for a few years to make sure we get inflation to 2%."

Q&A With New York Fed's John Williams at WSJ CFO Network Summit

Federal Reserve Bank of New York President John Williams discussed the outlook for the labor market, inflation and interest rates during a live interview at The Wall Street Journal's CFO Network Summit in New York.

He was interviewed by Nick Timiraos, chief economics correspondent at the Journal. Here is a transcript , lightly edited for clarity.

Fed's Waller Says He Is Prepared for Longer Inflation Fight

Federal Reserve governor Christopher Waller said inflation doesn't look poised to rapidly fall to the central bank's 2% target, leaving policy makers with more work to do as they try to bring rising prices under control.

U.S. Economy New Data Show Slowing Pressure on 'Supercore' Inflation

New White House wage figures tracking only wages that go into "supercore" prices suggest labor-cost pressures are easing in the parts of the economy where the Federal Reserve is most concerned about inflation.

What Biden's Crackdown on 'Junk Fees' Could Mean

Getting rid of some "junk fees," the White House argues, would save consumers money, allow them to comparison-shop more easily, and increase competition among companies to offer the best price or service.

Corporate Bonds Bounce Back After Horrible 2022

Corporate bonds have leapt out of the starting gate to begin 2023, a salve to investors who suffered double-digit losses last year, reflecting traders' conviction that businesses will withstand any economic downturn with limited stress.

Key Developments Around the World Biggest Shipping Companies Signal Global Trade Slowdown

A Danish shipping giant is the latest company to showcase how global trade has slowed through the pandemic: A.P. Moller-Maersk A/S said its earnings could plunge nearly 80% this year amid weakening demand to ship containers.

U.S.-China Tensions Are High. So Is Commerce Between the Nations.

U.S. commerce with China is on the rise despite escalating national-security tensions and efforts by Biden and Trump to reduce reliance on China. The total commerce between the two countries reached a record $690.6 billion last year.

Turkey's Financial Markets Shudder as Earthquake Costs Mount

Twin earthquakes in Turkey this week have rocked local financial markets and raised concerns about the nation's fragile economy , which is already struggling with high inflation and a reliance on foreign capital.

Riksbank Lifts Policy Rate by Half Point; Sees Further Hike in Spring

Sweden's central bank on Thursday lifted its key policy rate to 3.00% from 2.50%, as expected, and signalled a further hike in the spring as it continues to fight stubbornly high inflation. The Riksbank's new rate path now implies the policy rate will peak at around 3.3% in 2024, from around 2.8% in 2023 previously, remaining at that level throughout 2024, 2025 and into 2026. The central bank said it will also sell government bonds at a faster pace from April to reduce asset holdings. (Dow Jones Newswires)

Financial Regulation Roundup Treasury Says Cloud Computing Poses Risks to Financial Sector

The Treasury Department is warning about potential vulnerabilities caused by financial institutions relying on a few providers for cloud-computing services, convening a group of U.S. officials to study the issue.

Binance.US CFO Says Customer Funds Are Safe

The U.S.-based arm of crypto exchange Binance doesn't lend out customer assets and doesn't commingle deposits with the larger platform, its financial chief, Jasmine Lee said at The Wall Street Journal's CFO Network Summit.

Forward Guidance Thursday (all times ET)

8:30 a.m.: U.S. weekly jobless claims

1 p.m.: ECB de Guindos speaks at Foro Economia y Humanismo organized by Instituto Karol Wojtyla

Friday

2 a.m.: U.K. industrial production for December; U.K. gross domestic product estimate for December; U.K. gross domestic product estimate for fourth quarter

8:30 a.m.: Canada labor force survey for January

9 a.m.: Twitter Q&A with ECB's Schnabel

10 a.m.: University of Michigan consumer surveys, preliminary for February

10:30 a.m.: Bank of Canada survey of senior loan officers

Research Central Banks' Reliance on Data Makes Outlook Less Clear

Global central banks seem to be almost done with raising interest rates, but they are mostly data-dependent so the outlook for rates is uncertain, economists Jennifer McKeown and Leah Fahy of Capital Economics write in a note. With the exception of the Bank of Canada, they write that "there is a general sense that interest rates have further to rise," but by how much will depend on data. The two economists add that "data will allow for rate cuts sooner than many central banks now imply."

-Paulo Trevisani

Rosenberg Expects Fed to Follow BOC's Rate Pause

Economist and market strategist David Rosenberg of Rosenberg Research believes Bank of Canada Governor Tiff Macklem will remain firm in his commitment to hold rates at its current level, adding he expects inflation in Canada to slow faster than what BOC predicts. In a note to clients, Rosenberg says Macklem offered a slight but crucial update to the outlook--BOC now expects the first 3 quarters of 2023 to produce near-zero growth. "A clearly negative development," Rosenberg says. He adds that he expects the Federal Reserve to follow BOC's lead and also declare a pause on rate hikes due to weak economic activity. Rosenberg says he still believes the BOC outlook remains too optimistic, given the Canadian economy's exposure to rate-sensitive sectors such as housing. National home prices are down 13% from their peak last year.

-Paul Vieira

U.S. Economy to Slow While Interest Rates Remain High

The U.S. economy is downshifting, with first-quarter gross domestic product likely to shrink by 0.6%, Wells Fargo economists write in a report. Monetary tightening, however, is likely to last "until inflation pressures durably subside," they write, forecasting the Federal Open Market Committee will raise rates by 25 basis points in each of its next two meetings, "although we now have less conviction behind the exact amount of remaining hikes." They add that they hold firm "to the viewpoint that the FOMC will not immediately turn to rate cuts at the first sign of economic weakness," contrary to what markets seem to expect.

-Paulo Trevisani

Commentary Goldilocks Economy Is a Fairy Tale Too Good to Be True

What investors really liked in the 1990s was a Goldilocks economy-not too hot, not too cold-and to their delight, Goldilocks seems to be back, in spite of full employment that ought to push up wages fast, James Mackintosh writes.

The Fed Now Has a Good Chance at a Soft Economic Landing

Unanimity at the Federal Reserve should be fraying at this point, with hawks and doves arguing, Alan S. Blinder writes, adding that if they aren't, the hawks may fly the economy straight into a recession .

Mr. Blinder, a professor of economics and public affairs at Princeton, served as vice chairman of the Federal Reserve, 1994-96. He is the author, most recently, of "A Monetary and Fiscal History of the United States, 1961-2021" (Princeton University Press).

Basis Points U.S. commercial inventories of crude oil rose more than expected last week and domestic oil production surged to its highest level in 34 months, according to data released Wednesday by the Energy Information Administration. (Dow Jones Newswires) Inventories at U.S. merchant wholesalers rose 0.1% in December on month, down from a revised 0.9% increase in November, matching expectations from economists polled by The Wall Street Journal and marking the lowest advance since mid-2020. (DJN) The U.K.'s public finances remain vulnerable to interest-rate rises and further economic shocks, as the medium-term outlook for the country's public finances has deteriorated since November due to a worsening gross domestic product outlook and higher inflation persistence, the National Institute of Economic & Social Research said. (DJN) Canada's housing and mortgage market continues to weaken but it is unclear how severe, or not, things will get, RBC Capital Markets said, noting it expects mortgage loan growth to slow from 8% year-over-year growth in November to the low- to mid-single digits this year. (DJN) Germany's inflation rate increased less than expected in January, preliminary data from the country's statistics office Destatis showed. Consumer prices rose 8.7% in January compared with the same month last year, lower than the 9.4% consensus forecast from economists polled by The Wall Street Journal. Prices increased by 1.0% on the month, Destatis said, below the 1.2% monthly

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02-09-23 0716ET