The lesson the Federal Reserve drew from the pre-pandemic economy was that unemployment could run at historic lows without fueling inflation. It's why the central bank last year promised to never again raise interest rates just because the job market was strong.
That assumption is turning out to be wrong and the Fed thus finds itself in a situation it hoped to never face: preparing to raise interest rates to slow the economy though the labor market remains far from where it was two years ago.
Derby's Take: Powell Says Markets in Good Shape Ahead of Busy 2022
As the Federal Reserve moves toward seismic monetary policy changes next year, Chairman Jerome Powell appears to believe financial markets are in a good place to navigate what is very likely coming their way.
Mr. Powell, speaking to reporters after this year's final gathering of the Federal Open Market Committee, said the financial sector appears to be in solid shape.
For the Fed, 2021 Was a Year for 'Recalibrating'
It is a common refrain that the Federal Reserve's numerous tone and policy shifts in 2021 was equivocation-leading to frustration among market participants and business leaders.
But there is another way of looking at how the Fed's policy makers navigated the year's turbulent and uncharted waters, as economic and financial-market developments gyrated and morphed daily. In fact, if I had to pick one word to describe the Fed's strategy over the past year, it would be this: recalibration.
Jobless Claims Likely Remained Near Decades Low, Economists Say
New applications for unemployment benefits likely edged higher last week but stayed very low, reflecting an unusually tight labor market as the economy continued to recover.
Economists surveyed by The Wall Street Journal estimated that initial jobless claims, a proxy for layoffs, inched up to 195,000 for the week that ended Dec. 11 from 184,000-the lowest level in 52 years-the week before. Some economists attributed that half-century low to seasonal adjustments being thrown off because of the Covid-19 pandemic. Still, new jobless claims have been steadily declining throughout the year.
How Banks Win When Interest Rates Rise
Banks yearning for interest rates to rise appear on the verge of getting their wish.
Federal Reserve officials on Wednesday signaled they were prepared to raise interest rates at least three times next year in response to rising inflation, a faster timeline than was expected a few months ago.
Turkey's Currency Crisis Escalates Ahead of Possible Rate Cut
Turkey's currency crisis deepened in the lead-up to a central bank meeting Thursday, when officials might bow to pressure to resume interest-rate cuts despite soaring inflation.
Previous rate cuts demanded by Turkish President Recep Tayyip Erdogan have triggered a collapse in the Turkish lira in recent months. The currency has lost 40% of its value against the dollar since September, making it one of the worst performing investments in the world.
Norges Bank Lifts Key Rate to 0.50%, Still Sees March Hike
Norway's central bank on Thursday lifted its key policy rate to 0.50% from 0.25%, as expected, and said a further hike is likely in March.
In September, Norges Bank became the first major western central bank to raise interest rates since the onset of the Covid-19 pandemic, when it lifted its key rate to 0.25% from zero while suggesting a further raise would come in December.
Eurozone Economic Growth Slows in December Due to Covid-19 Surge in Cases, PMIs Show
The pace of eurozone economic growth slowed in December as rising COVID-19 infection rates hit the service sector activity, offsetting improved manufacturing growth, the latest flash purchasing managers indexes showed.
IHS Markit's eurozone composite PMI dropped to 53.4 in December from 55.4 in November, according to the flash reading. This indicates an easing in the rate of output growth to the lowest level since March.
White House Revs Up Trucker Recruitment Drive
The Biden administration unveiled a plan aimed at boosting the number of commercial truck drivers as part of a broader push to unclog supply-chain bottlenecks.
Administration officials on Thursday said the plan aims to get more drivers on the road in the coming months by making it easier and faster for them to get certified and by jump-starting or expanding apprenticeship programs through carriers and other employers with trucking fleets. Overland Park, Kan.-based trucker Yellow Corp. and grocery chain Albertsons Cos. are among the companies that have committed to such programs.
U.S. Seeks to Replace Every Lead Water Pipe in the Country Within a Decade
WASHINGTON-The Biden administration intends to announce a plan to replace every lead water pipeline in the country within a decade, leaning on $15 billion recently approved by Congress and forthcoming new rules from the Environmental Protection Agency.
White House officials said they are rolling out a new plan aimed at helping about 10 million U.S. households replace lead water pipes. Both President Biden and Democratic lawmakers in Congress have promised swift action on the issue, as lead pipes are considered a health hazard by the EPA.
Democrats' $2 Trillion Package Stalls as Manchin Talks Make Little Headway
WASHINGTON-Democrats braced for weeks of delay and uncertainty on their roughly $2 trillion education, healthcare and climate package they had hoped to finish by year end, as efforts faltered to secure the pivotal support of Sen. Joe Manchin (D., W.Va.) for the bill.
President Biden spoke with Mr. Manchin at least twice this week to try bringing him on board with the bill, which will need the support of all 50 members of the Senate Democratic caucus to pass. But Mr. Manchin has so far stood by his central critique of the package: that it temporarily funds programs that Democrats intend to later make permanent, as a way to disguise the full price of its provisions.
Biden to Nominate Caroline Kennedy as Ambassador to Australia
WASHINGTON-President Biden will nominate Caroline Kennedy to be U.S. ambassador to Australia, the White House said Wednesday.
Ms. Kennedy, the daughter of the late President John F. Kennedy, served as U.S. ambassador to Japan in the Obama administration after being unanimously confirmed by the Senate. Ms. Kennedy said that she would work to "improve global health and increase vaccine access during this terrible pandemic and to address the urgent climate crisis."
U.S. Healthcare Spending Rose Nearly 10% in 2020, Report Finds
WASHINGTON-U.S. healthcare spending surged nearly 10% last year to more than $4 trillion as the federal government poured billions of dollars into assisting hospitals, states and medical providers with the pandemic, according to a new government report, setting a galloping pace compared with 2019 when the U.S. saw a 4.3% jump.
The report from actuaries at the Centers for Medicare and Medicaid Services shows the increased role the federal government played in providing financial support to the U.S. health system. In a year dominated by an unfolding crisis that led to almost 20 million infections and roughly 385,000 deaths, federal healthcare spending jumped 36% in 2020 compared with 5.9% in 2019.
Biden Promises Funding for Cleanup After Kentucky Tornadoes
President Biden said Wednesday the federal government will cover 100% of the costs associated with emergency disaster response for the first 30 days after this weekend's tornadoes, including shelter and debris removal, as he visited parts of Kentucky where clean up continues.
The death toll in Kentucky was lowered to 71 after officials realized three victims had been included in the tallies of two counties, a spokesman for Kentucky's emergency management agency said Wednesday. He said 59 people remained unaccounted for, down from more than 100 Tuesday.
CDC's Early Covid-19 Test Hampered by Design Flaw, Contamination
A design flaw and contamination caused the Centers for Disease Control and Prevention's initial batch of Covid-19 tests to fail, an investigation by the agency concluded, adding to the understanding of a major misstep in the early U.S. response to the pandemic.
In February of 2020, public-health laboratories reported errors with the PCR test that the CDC designed to identify the virus that causes Covid-19. That left the U.S. partly blind to Covid-19's early spread.
Write to sarka.halas@wsj.com
TODAY IN CANADA
Earnings:
Enghouse Syss Ltd (ENGH.T) 4Q
Economic Indicators (ET):
0830 Oct Wholesale trade
0830 Oct Employment Insurance
Stocks to Watch:
No items published
Other News:
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Market Talk:
Used-Car Omission Likely Understates Canada Inflation: Scotiabank
Bank of Nova Scotia says currency traders were badly served by Statistics Canada's November CPI report which it argues badly understates inflation in the country. It says unlike the US and UK, Canadian inflation data do not incorporate used-car prices. Some private-sector data suggest those costs in Canada rose 9.5% in November. Bank of Nova Scotia calculates that, based on how the US incorporates used-car prices in its CPI basket, Canadian inflation rose closer to 6% in November. "The issue is hugely important at a time of heightened sensitivity toward inflationary pressures," Bank of Nova Scotia says. "Markets and mainstreet businesses are not being served by this ongoing omission."
Expected Major Events for Thursday
00:30/JPN: Dec Japan Flash Manufacturing PMI
07:45/FRA: Dec Monthly business survey (goods-producing industries)
08:15/FRA: Dec France Flash PMI
08:30/GER: Dec Germany Flash PMI
09:00/ITA: Oct Foreign Trade EU
09:30/UK: Sep Card Spending statistics
09:30/UK: Dec Flash UK PMI
12:00/UK: Agents' Summary of Business Conditions
12:00/UK: UK interest rate decision
13:00/RUS: Weekly International Reserves
13:30/CAN: Oct Wholesale trade
(MORE TO FOLLOW) Dow Jones Newswires
12-16-21 0609ET
