Federal Reserve and Bank of England Raise Rates Again; Brazil's Selic Held at 13.75%

Federal Reserve and Bank of England Raise Rates Again; Brazil's Selic Held at 13.75% By James Christie

Good day. Federal Reserve Chair Jerome Powell seemed to exhale a bit on Wednesday, saying, "We can now say, I think, for the first time, that the disinflationary process has started." Even so, the central bank remained firm that its fight against is inflation is hardly over, anticipating in its policy statement that more interest-rate increases will be needed to fully bring prices under control. Wednesday's quarter-percentage point increase was widely expected and extended the Fed's most rapid pace of rate increases since the early 1980s. Also on Wednesday, Brazil's central bank left its benchmark Selic rate unchanged at 13.75%, but said it wouldn't hesitate to resume tightening, noting expectations for longer-term inflation have deteriorated since its last policy meeting. Meanwhile, ahead of a rate decision by the European Central Bank later today, the Bank of England raised rates by a half percentage point but signaled it might pause its increases as the economy struggles and inflation slows.

Now on to today's news and analysis.

Top News Fed Slows Its Tightening With Quarter-Point Interest Rate Rise

The Federal Reserve approved an interest-rate increase of a quarter-percentage point and signaled plans to raise rates again next month to continue lowering inflation.

The decision Wednesday followed six consecutive rate rises that were larger, including an increase of a half-point in December and a 0.75-point increase in November. Fed officials nodded to recent improvement in inflation readings, but didn't significantly alter their guidance in a policy statement released after the meeting regarding coming rate moves.

Parsing the Fed: How the February Statement Changed Transcript: Fed Chief Powell's Postmeeting Press Conference Beneath the Surface, Fed Sees No Letup in Inflation Pressure Stock, Bond and Crypto Investors Call Fed's Bluff on Interest Rates What the Fed's Rate Increase Means for Your Mortgage, Loans, Savings

BOE Raises Key Rate by Half a Point, Signals It May Soon Pause

The Bank of England raised its key interest rate Thursday for a 10th straight policy meeting, to 4% from 3.5% , but signaled it may soon pause that series as the annual rate of inflation falls and the economy falters.

Brazil's Central Bank Leaves Key Lending Rate Unchanged at 13.75%

Brazil's central bank left its benchmark lending rate unchanged and reiterated it won't hesitate to resume tightening if inflation doesn't slow as expected. Policy makers are watching the new government for clues about its fiscal policy.

U.S. Economy U.S. Job Openings Jumped at End of Last Year

U.S. job openings rose sharply at the end of 2022 to their highest level since last summer, with a seasonally adjusted 11 million jobs available in December compared with a downwardly revised 10.4 million the prior month.

Short on Cash, More Americans Tap 401(k) Savings for Emergencies

A record 2.8% of the five million people in 401(k) plans run by Vanguard Group tapped their retirement savings in 2022 to cope with hardships such as medical bills, eviction or foreclosure, up from 2.1% in 2021.

Key Developments Around the World U.K. Hit by Biggest Strikes in a Decade

Britain was hit by the largest strikes in a decade on Wednesday, reflecting a growing challenge to the U.K. and some European countries of how to address falling real wages for many public-sector workers without further stoking inflation.

Mexico's Industrial Hubs Grow as Part of Nearshoring Shift

Companies from around the world are moving production and equipment to Mexico as they seek a manufacturing hub closer to the U.S. amid soaring shipping rates and geopolitical uncertainty caused by the war in Ukraine.

Ukraine Denounces Western Executives at Russian Companies

Ukraine is ratcheting up pressure on Western executives who have retained posts at Russian companies, running a campaign to name and shame those still working for them with the aim of pressuring more to leave.

Ukraine Braces for Major Russian Offensive Financial Regulation Roundup Standards Setter Floats New Rule on Crypto Accounting

The Financial Accounting Standards Board voted to propose a new rule on cryptocurrency accounting and disclosure, creating new guidance for companies holding these assets and providing more details to investors.

EU Sets Out Options to Compete With U.S. Green Subsidies

The European Union's executive body set out a road map for competing with American green subsidies with tools that could include coordinated tax rebates and the ability to match certain incentives on a dollar-for-dollar basis.

Forward Guidance Thursday (all times ET)

8:15 a.m.: European Central Bank interest rate decision

8:30 a.m.: U.S. weekly jobless claims; U.S. productivity and costs, preliminary for fourth quarter

8:45 a.m.: European Central Bank press conference

Friday

4 a.m.: Eurozone Services PMI for January

4:30 a.m.: S&P Global / CIPS UK Services PMI for January

5 a.m.: EU producer price index for December

8:30 a.m.: U.S. employment report for January

10 a.m.: ISM Report on Business Services PMI for U.S. for January

Research Fed Might Raise Interest Rates Two More Times

Analysts at Danske Bank confirm their call for two more 25 basis point interest-rate rises by the Federal Reserve at its March and May meetings, even as Fed Chair Jerome Powell sounded more optimistic about the prospects of a soft landing, Jens Peter Sorensen, director at the bank, writes in a note. "Fed is still looking for 'ongoing rate increases' in the coming meetings and no cuts in 2023 in the baseline scenario, but Powell sounded more open to the idea of lowering the policy rate if inflation cools faster than anticipated," Sorensen says. Danske analysts, however, still think that the current combination of very tight labor markets and the turnaround in the global manufacturing cycle leave the Fed with little room to turn more dovish, he says.

-Emese Bartha

ISM Index Decline Supports U.S. Recession Forecast

Another decline in the ISM manufacturing index that serves as a gauge of U.S. factory activity "is consistent with our forecast that the economy will soon slip into recession," Capital Economics senior U.S. economist Andrew Hunter writes in a report. January's Manufacturing PMI came in at 47.4, down from 48.4 in December and below the consensus of 48. The index has been below 50 for three months, indicating a steady contraction. "The index has also now fallen below the low point reached during the manufacturing downturn of 2015-16 and, aside from the pandemic, is at its weakest since the global financial crisis," Mr. Hunter writes. "The silver lining is that weakening demand is continuing to exert downward pressure on inflation."

-Paulo Trevisani

A Half-a-Point ECB Interest Rate Rise Is Fully Priced In

A half-a-point interest rate increase by the European Central Bank on Thursday seems to be a done deal, while details about quantitative tightening shouldn't rock the market, Jens Peter Sorensen, director at Danske Bank, says in a note. Danske analysts expect the ECB to maintain a very hawkish sound and signal that further interest-rate rises are coming, in particular giving guidance for another 50-basis-point rise in March, Sorensen says. Money markets have fully priced in the anticipated 50bp interest rate rise on Thursday and price a 40bp increase in March, according to Refinitiv data.

-Emese Bartha

Commentary The Fed Fights the Fed

There is a danger that investors increasingly see any hawkish talk from the Federal Reserve as mere jawboning and think the central bank itself doesn't believe the things it is saying, Justin Lahart writes.

How to Play 'Debt-Ceiling Chicken'

In the current fight over the federal debt ceiling, Congressional Republicans and the Biden administration each want the other to blink first and avoid a convulsive default on U.S. government debt, Greg Ip writes.

Basis Points Job creation in the U.S. lost momentum in January, mainly because of a hit from extreme weather, data from the ADP National Employment Report showed Wednesday. Employment in the nonfarm private sector rose by 106,000, down from a 253,000 increase in December. (Dow Jones Newswires) The eurozone's unemployment rate was unchanged at 6.6% in December, the lowest level of the historical series, after October and November rates were revised to 6.6% from initially estimated 6.5%, according to the Eurostat statistics agency. (DJN) Canadian manufacturing activity picked up slightly in January thanks to gains in production and new orders, lifting the S&P Global Canada Manufacturing Purchasing Managers Index from 49.2 in December to 51.0. The rise marks the first time the indicator has been above 50, the threshold separating expansion from contraction, since last July. (DJN) Remittances to Mexico rose 13% in December from a year earlier to $5.4 billion, the most ever for a single month and bringing the total for 2022 to a record $58.5 billion, of which 95% was from the U.S., the Bank of Mexico said. (DJN) Mexico's economy will expand 1% in 2023, up from 0.9% in the December survey but below the 3% growth posted in 2022, economists polled in January by the Bank of Mexico forecast. Inflation is expected to end the year at 5.18%, according to the median estimate of 38 analysts. That was above the 5.1% forecast in the December survey, but down from 7.82% inflation registered last year. (DJN) Germany's trade surplus fell in December compared with the previous month as both exports and imports declined sharply. The country's adjusted trade surplus fell to EUR10.0 billion ($10.99 billion) in December from EUR10.9 billion in November, data from the country's statistics office Destatis showed. Economists polled by The Wall Street Journal had expected a trade surplus of EUR7.80 billion. (DJN) South Korea's headline inflation rose in January, remaining well above the Bank of Korea's 2.0% target, keeping up pressure on the central bank to tighten

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02-02-23 0721ET