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Fed to Review Creating a Digital Dollar; Broader Inflation Pressures Begin to Show; Kashkari Transcript

10/04/2021 | 10:04am EST

Good day. The Federal Reserve plans to kick off a review of a possible central bank digital currency by releasing a paper analyzing the issue and seeking public comment. But with Fed officials divided on the matter, it is unlikely they will decide any time soon on whether to create a digital dollar. Meanwhile, a lack of job seekers is worrying for some economists. And on the inflation front, while many pandemic-driven price pressures are easing, broader sources of higher inflation are replacing them.

Now on to today's news and analysis.

Top News

Fed Prepares to Launch Review of Possible U.S. Digital Currency

The Fed plans as early as this week to launch a review of the potential benefits and risks of issuing a U.S. digital currency, as central banks around the world experiment with the potential new form of money. Advocates say a Fed digital dollar could make it faster and cheaper to move money around the financial system, bring into it people who lack bank accounts and provide an efficient way for the government to distribute financial aid.

Bitcoin Price Jumps After Powell Says U.S. Has No Plans to Ban Crypto

Transcript: Kashkari Weighs In on Inflation, QE and Governance

The policy maker said he expects high inflation to be transitory and the Fed's short-term interest-rate target to remain at near zero until 2024, in an interview with The Wall Street Journal.

U.S. Economy

Falling Unemployment Could Add to Worries About Labor Market

Many economists would welcome a small rise in the unemployment rate. They are troubled by the rate's swift decline from its pandemic peak because it partly reflects a lack of job seekers -- effectively limiting the amount of fuel in the economy's engine.

Broader Inflation Pressures Begin to Show

Price indexes that exclude extreme changes point to inflation running ahead of the Fed's 2% target. These alternative indexes are signaling "inflation is not as extreme as what the headline or traditional core shows right now, but it is picking up," said Sarah House, director and senior economist at Wells Fargo.

Consumers Ramped Up Spending in August With Inflation Elevated

Consumer spending picked up in August, a sign the U.S. economic recovery is gaining steam heading into the fall. Personal outlays on goods and services rose 0.8% in August from the month before, after a 0.1% decrease in July, the Commerce Department reported Friday.

Senate OKs Short-Term Extension of Transportation Programs

The Senate approved a short-term extension of transportation programs Saturday, sending to President Biden stopgap legislation after the House again delayed a vote on a roughly $1 trillion infrastructure bill.

Democrats Weigh Cutting Programs or Reducing Scope to Trim $3.5 Trillion Bill

Democrats' Tax Plans Worry High-Income Business Owners

Key Developments Around the World

Eurozone Prices Rise at Fastest Rate in 13 Years

Consumer prices in the eurozone rose at the fastest pace in 13 years during September, increasing the risk that a period of high inflation will prove more durable than the European Central Bank had anticipated.

Financial Regulation Roundup

Biden Administration Seeks to Regulate Stablecoin Issuers as Banks

The Biden administration is considering ways to impose bank-like regulation on the cryptocurrency companies that issue stablecoins, according to people familiar with the matter, including prodding them to register as banks.

Countdown Starts on Chinese Company Delistings After Audit Fight

U.S. securities regulators have started a countdown that will force many Chinese companies to leave American stock exchanges, after a long impasse between Washington and Beijing over access to company audit records.

Google Is Scrapping Its Plan to Offer Bank Accounts to Users

Google is abandoning plans to pitch bank accounts to its users, marking a retreat from an effort to make the tech giant a bigger name in finance.

Justice Department Firms Up Criminal Division Leadership Ranks

The U.S. Justice Department on Friday took steps to solidify the leadership ranks of its criminal division and fraud section under an assistant attorney general selected by President Biden, promoting several career prosecutors to serve in key positions overseeing the agency's investigation of complex white-collar crimes.

Swiss Police Raid Credit Suisse as Part of Greensill Investigation

Swiss police raided Credit Suisse Group offices, the bank said, as part of an investigation into collapsed finance firm Greensill Capital. "In the course of an official procedure that is not directed against Credit Suisse, data were collected," a bank spokesman said in an emailed statement. He said the bank is fully cooperating with authorities.

Swedbank Implements New Baltic Holding Company

Swedbank said that it has now implemented the previously announced change of governance at the bank's Baltic operations. Wholly owned holding company Swedbank Baltics has now become owner of Swedbank's subsidiary banks in Estonia, Latvia and Lithuania.

Forward Guidance

Monday (all times ET)

9 a.m.: St. Louis Fed's Bullard speaks on panel on the economy at International Economic Forum of the Americas

11:30 p.m.: Reserve Bank of Australia releases policy statement

Tuesday

Time N/A: Bank of Japan's Kuroda gives speech via webcast at Task Force on Climate-Related Financial Disclosures summit

8:30 a.m.: U.S. Commerce Department releases August international trade data

11 a.m.: European Central Bank's Lagarde gives speech to Frankfurt business group

1:15 p.m.: Fed's Quarles speaks on Libor transition at Structured Finance Association conference in Las Vegas

9 p.m.: Reserve Bank of New Zealand makes monetary policy review announcement

Commentary

When Interest Rates Turn the Corner

WSJ's Jason Zweig takes a look at Sept. 30, 1981, the day long-term U.S. interest rates peaked, in his Intelligent Investor column. On that date, you could have bought investment-grade mortgage bonds priced to yield 17.85% over the next 10 years or 18.75% over the next 20 years. What followed was a multidecade bull market in bonds. He writes: "The inescapable lesson of Sept. 30, 1981, is that markets can keep moving in the same direction longer than anyone can imagine -- and then shoot explosively in the opposite direction when no one expects it, impelled by forces no one may ever fully understand. On a long-term chart of bond yields today, Sept. 30, 1981, looks like one of the most glaringly obvious turning points in financial history. On that day, however, it was just another dark data point in a miserable, seemingly endless slog. Because we can see the past as clear as day, it's all too easy to forget that the future is always enshrouded in fog."

Basis Points

House prices in the U.S. are rising at a record pace but incomes aren't keeping up, which is making home ownership less and less affordable.

U.S. companies have sold a record amount of junk-rated loans to raise money for dividends this year, powered by a recovering economy and investors' demand for higher-yielding assets.

Brazil's trade surplus narrowed in September as exports declined and imports rose. The country recorded a surplus of $4.3 billion in September, after a surplus of $7.7 billion in August. Brazilian exports fell to $24.3 billion last month, from $27.2 billion in August, while imports increased to $20 billion from $19.5 billion a month earlier. (Dow Jones Newswires)

Chile's Imacec economic indicator expanded 19% in August compared with a year earlier and 1.1% from July as the country's economy continues to bounce back from the pandemic, according to the central bank. (DJN)

(END) Dow Jones Newswires

10-04-21 1003ET

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