Major Central Banks Moving at Different Speeds to Confront Inflation; Bank of Mexico Lifts Rates Again

Good day. The Federal Reserve, Bank of England and European Central Bank set off on different policy paths this week, underscoring how the plans of central banks to phase out multitrillion-dollar stimulus policies and move toward higher interest rates are playing out at different speeds in the world's big economies, which are struggling with incomplete recoveries at the same time as inflationary pressures mount. Meanwhile, the Bank of Mexico on Thursday raised interest rates again, only this time it lifted its overnight interest-rate target by a half percentage point to 5.5% following quarter-point increases at its previous four meetings. Latin American peers Brazil and Chile have likewise been raising interest rates at a faster pace in response to rising inflation. And further afield, Japan's central bank kept its monetary policy ultraloose earlier today and expressed minimal concern about inflation.

Now on to today's news and analysis.

Top News

Europe's Top Central Banks on Divergent Tracks in Face of Inflation

Europe's foremost central banks took diverging policy paths a day after the Federal Reserve set the stage for rate rises in 2022, differing approaches that underscore the challenges for policy makers as they balance surging inflation and renewed risks to growth from the fast-spreading Omicron variant of the coronavirus.

The Bank of England became the first of the world's major central banks to raise its benchmark interest rate since the pandemic began, while the European Central Bank said it would phase out an emergency bond-buying program while ramping up other stimulus measures to keep the 19-nation eurozone's recovery on track.

Bank of Mexico Accelerates Interest-Rate Increases

The Bank of Mexico stepped up the pace of interest-rate increases Thursday after inflation reached a more than 20-year high, prompting the bank to raise its inflation forecasts. The bank board of governors voted 4-1 to lift the overnight interest-rate target to 5.5%.

The Economic Outlook for 2022 with SF Fed President Mary Daly

Mary Daly, president of the Federal Reserve Bank of San Francisco, answers your questions today at 1 p.m. ET about the U.S. economic outlook and steps the Fed has taken to contain the economic impact of the Covid-19 pandemic and to address inflation. Sign up here.

U.S. Economy

Jobless Claims Rose Last Week But Remained Near Decades-Low

Initial jobless claims, a proxy for layoffs, inched up by 18,000 to 206,000 for the week that ended Dec. 11 from a revised 188,000 -- the lowest level in 52 years -- the week before, the Labor Department said. New jobless claims have been steadily declining throughout the year.

White House Revs Up Trucker Recruitment Drive

The Biden administration unveiled a plan on Thursday aimed at boosting in the coming months the number of commercial truck drivers by making it easier and faster for them to get certified, as part of a broader push to unclog supply-chain bottlenecks.

Inflation Is Near a 40-Year High. Here's What It Looks Like

Upward pressure on prices is broadening beyond the goods and services that were directly affected by the Covid-19 pandemic. Price increases for fuel, cars, food, apparel and medical care vary widely. Take a look at the Journal's snapshot.

Key Developments Around the World

Japan's Central Bank Shuns Tightening Trend, Citing Lack of Inflation

The Bank of Japan maintained its target for short-term interest rates at minus 0.1% and said it would continue guiding the yield on 10-year Japanese government bonds to around zero, well below the U.S. where equivalent government bonds are yielding more than 1.4%.

Mexico Says Planned U.S. Tax Breaks Risk Fueling Migration

A proposal before the U.S. Senate to give tax credits to Americans who buy U.S.-built electric vehicles threatens to hurt Mexico's industry and spur illegal migration to the U.S., Mexican Economy Minister Tatiana Clouthier said.

Investors Bargain Hunt in Evergrande Bonds Amid Default

Some money managers purchased bonds of China Evergrande Group as the property developer toppled into default and prices hit record lows, betting creditors will recover far more than the debt's current prices suggest, despite the likelihood of a complex restructuring.

Financial Regulation Roundup

Biden Administration Probes 'Buy Now, Pay Later' Firms

Just in time for the holiday season: a first of its kind regulatory inquiry launched by the Consumer Financial Protection Bureau into "buy now, pay later" installment plans that are frequently offered to online shoppers.

HSBC Fined $85 Million for Lax Anti-Money-Laundering Controls

HSBC Holdings PLC was fined GBP63.9 million, the equivalent of $85 million, for inadequate anti-money-laundering controls that the London-based bank used to monitor hundreds of millions of dollars of transactions.

U.S. Faces Pressure to Sanction Myanmar's Lucrative Energy Industry

As Myanmar's military escalates its war on opponents, the U.S. and other countries are facing growing pressure from lawmakers and human-rights advocates to take action against an industry that is the country's largest single source of foreign cash.

U.K. Fines GAM, Fund Manager Who Invested in Greensill Loans

The U.K.'s Financial Conduct Authority fined Swiss asset manager GAM Holding AG and one of its former star bond-fund managers for conflicts of interests, resolving a longstanding case related to the company's investments in loans generated by Greensill Capital.

Forward Guidance

Friday (all times ET)

Time N/A: Bank of Japan releases policy statement

1 p.m.: Fed's Waller gives speech on economic outlook at Forecasters Club of New York event

Tuesday

6:50 p.m.: Bank of Japan releases Oct. 27-28 meeting minutes

Research

Think Tank Report Says Fed's New Rate Path Still Pretty Dovish

As hawkish as the Federal Reserve's outlook appears in the wake of this week's Federal Open Market Committee meeting, it isn't, historically speaking, according to Joseph Gagnon, a senior researcher at the Peterson Institute for International Economics. "The FOMC continues to project a path of interest rates that is low by historical standards," he wrote in a report on Wednesday. With the median projection of the federal-funds rate at 2.1% by the end of 2024, the Fed's expected path is only equal to where officials see inflation then, Mr. Gagnon wrote. He added "that would imply a very low real, or inflation-adjusted, interest rate of 0% for a year in which the FOMC projects continued solid growth and very low unemployment." Put another way, even with the rate increases the Fed expects, the central bank doesn't see its monetary policy stance holding back economic activity.

-- Michael S. Derby

Commentary

Risk for Markets Isn't Higher Interest Rates, but Lower Payroll Goals

After months of fretting about central banks turning hawkish, markets have decided they can deal with higher interest rates after all, but the real danger is that inflation reduces officials' recent ambitions for a tighter labor market, Jon Sindreu writes. Just one day after the Federal Reservesignaled it could raise rates three times next year, stock markets in both the U.K. and the eurozone notched new gains.

U.S. Economy Gets Some Out-of-Season Cheer

There may be signs that home builders and manufacturers, which have been struggling to meet demand as a result of supply-chain problems and hiring difficulties, didn't experience their typical November slowdowns, Justin Lahart writes.

Basis Points

U.S. industrial production rose at a seasonally adjusted 0.5% in November from the previous month, slowing from October's upwardly revised 1.7% increase, which followed weather-related disruptions in September, the Federal Reserve said. (Dow Jones Newswires)

The Federal Reserve Bank of Philadelphia said its gauge of regional business activity fell from 39.0 in November to 15.4 this month. Economists expected a 30.0 reading, according to a Wall Street Journal poll. Readings above zero indicate improving conditions. (DJN)

Factory activity growth in the central U.S. held its pace in December compared with the previous month, according to a survey by the Federal Reserve Bank of Kansas City. Its Tenth District manufacturing survey's composite index remained unchanged this month, signaling expansion. Economists polled by The Wall Street Journal expected the index to come in at 25. (DJN)

U.S. private sector economic growth maintained strong momentum this month as service sector activity expanded sharply on strong demand, while supply-chain delays in the manufacturing sector eased, data from IHS Markit's survey of purchasing managers showed. The flash U.S. composite output index fell to a three-month low of 56.9 from 57.2 in November. Readings above 50 indicate growth, so the index suggests a strong rise in private sector business activity, although slower than rates seen earlier in the year. (DJN)

U.S. new-home construction increased in November following two months of declines, according to the Commerce Department, as housing starts rose by 11.8% on month and by 8.3% from a year earlier to a seasonally adjusted annual rate of 1.68 million. (DJN)

Passenger-car registrations in the European Union fell in November, declining for the fifth consecutive month this year, the European Automobile Manufacturers Association said Friday. New car registrations declined 20.5% year-on-year to 713,346 vehicles for the month, said the association, also known as ACEA. (DJN)

The German producer price index for industrial products rose 19.2% in November compared with the prior year, the German statistics office Destatis, said Friday. This was the highest on-year increase since November 1951, Destatis said. (DJN)

(MORE TO FOLLOW) Dow Jones Newswires

12-17-21 0917ET