What Would Fed Face If CPI and PCE Diverge?; Bostic Essay Points to 5%-5.25% Target Range for Fed; Eurozone Core CPI Hits Record High By James Christie

Good day. In the U.S, the consumer-price index and the personal-consumption expenditures price index preferred by the Federal Reserve as an inflation gauge are for the moment telling a similar story. But that could change later this year. If so, the Fed might have difficulty communicating why it feels it needs to remain hawkish and keep interest rates up. Atlanta Fed Chief Raphael Bostic in an essay said the central bank needs to continue raising rates to a target range between 5% and 5.25% and hold them there well into next year. Meanwhile, eurozone inflation edged down in February but the bloc's core measure of inflation, which excludes volatile items such as food and energy and is seen as a better guide to future price rises, rose to a fresh record of 5.6% from 5.3% in January. This suggests inflation may remain above the European Central Bank target for longer than the bank has anticipated, and is expected to keep the ECB in a hawkish mood.

Now on to today's news and analysis.

Top News Fed Might Be Winning Inflation Fight, Depending on Index Used

Two measures of U.S. inflation are now telling a similar story. But those measures are likely to diverge this year , with one signaling the Federal Reserve's work is nearly done and the other suggesting the opposite.

That could make it hard for the Federal Reserve to explain to the public why it is holding interest rates high.

Fed's Bostic Sees Need to Raise Rates to 5%-5.25% Range

The Federal Reserve needs to keep raising interest rates until it reaches a target range between 5% and 5.25% , Federal Reserve Bank of Atlanta President Raphael Bostic said in an essay published on his bank's website on Wednesday. The central bank's target rate range is now between 4.5% and 4.75%. Mr. Bostic didn't specify whether he wanted to see two quarter-percentage-point rate moves or one half-point increase at the Fed's next meeting. The Fed will need to leave interest rates at the 5%-5.25% range "until well into 2024," Mr. Bostic added. He noted, "History teaches that if we ease up on inflation before it is thoroughly subdued, it can flare anew." (MarketWatch)

Fed's Kashkari 'Open-Minded' on Size of March Rate Increase

Federal Reserve Bank of Minneapolis President Neel Kashkari said on Wednesday he hasn't decided on the size of the interest rate increase he will advocate for at the central bank's rate-setting committee meeting later this month. "I'm open-minded at this point about whether it's 25 basis points or 50 basis points," Mr. Kashkari told business leaders in Sioux Falls, S.D. (MarketWatch)

Eurozone Inflation Eases, but Core Measure Hits Record High

Eurozone inflation eased in February for the fourth straight month, but a strong pickup in services prices makes it likely that the European Central Bank will continue to raise interest rates in coming months.

U.S. Economy 10-Year Treasury Yield Tops 4% for First Time Since November

Lingering inflation and fears of a prolonged period of higher interest rates lifted the 10-year Treasury yield above 4% on Wednesday, a rise back toward levels reached last year for the first time in more than a decade.

Bank Profits Fell 6% Last Year Amid War, Inflation and Higher Rates

Profit across the banking industry fell 6% on the year in 2022, according to Federal Deposit Insurance Corp. data. While the $263 billion in total profit ranks as second-best on record, yet recession fears led to a rise in loan-loss reserves .

A Proposed 4% Stock-Buyback Tax Might Slow Repurchases

U.S. companies have spent hundreds of billions of dollars on share repurchases, largely shrugging off a new 1% tax on buybacks. But a recently proposed 4% tax might move them to reshape their buyback strategies , some said.

U.S. Treasury Official Travels to Beijing Despite China Tensions

Robert Kaproth, a deputy assistant secretary focused on Asia, met last week with Chinese counterparts for technical, staff-level discussions on macroeconomic and financial issues, in a sign of continued diplomacy despite recent tensions.

Key Developments Around the World Bank of Mexico Cuts Growth Forecasts for 2023 and 2024

In its quarterly report, the central bank said on Wednesday it expects Mexico's gross domestic product to expand 1.6% this year , down from 1.8% previously. The bank reduced its forecast for 2024 to 1.8% from 2.1%.

Ocean Shipping Faces Its Biggest Slump in Years

Global shipping executives are wrestling with plunging exports , falling freight rates and mounting suspense over whether the industry is headed for a price war as rising inflation saps demand for many products.

Chinese Weapons Could Sustain Russia's War Effort in Ukraine

Military supplies from China would provide Russia with a lifeline in its Ukraine war effort , thanks to the compatibility of Chinese and Russian weapon systems and Beijing's large military manufacturing base.

China's Xi Jinping Welcomes Belarus President, a Key Putin Ally China Trumps U.S. in Key Technology Research, Report Says

Iran's Currency Tumbles in New Challenge to Clerical Leadership

The Iranian rial has lost a fifth of its value since last week, hitting a low of 601,500 to the U.S. dollar on Sunday, making the import of vital goods far more expensive and sapping the purchasing power of ordinary Iranians.

Financial Regulation Roundup Senate Votes 50-46 to Reverse ESG Rule for Retirement Funds

The Senate voted to overturn a regulation that would allow retirement-plan managers to consider climate change and other factors in investment decisions, setting up what could be the President Biden's first veto.

How FTX's Nishad Singh, an Honors Student, Turned to Crypto Crime

Nishad Singh followed Sam Bankman-Fried into the high-stakes world of cryptocurrency trading. Now he could help put the former FTX chief executive in prison by cooperating with the government's probe of the company's collapse .

Missing Chinese Banker Fan Bao Detained as Part of Corruption Probe

Chinese financier Fan Bao, who went missing last month, has been detained by authorities in mainland China in connection with a corruption investigation targeting a former senior executive at the investment bank he founded.

Forward Guidance Thursday (all times ET)

8:30 a.m.: U.S. weekly jobless claims; U.S. nonfarm productivity and unit labor costs, revised for fourth-quarter 2022

10 a.m.: Bank of England Pill speech on 2023 economic outlook

1 p.m.: Atlanta Fed's Bostic in virtual media roundtable on economic policy

4 p.m.: Fed's Waller speaks on economic outlook to Mid-Size Bank Coalition of America

Friday

3:30 a.m.: ECB's de Guindos speaks at Colegio Universitario de Estudios Financieros in Madrid

4 a.m.: Eurozone Services PMI for February

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

5 a.m.: EU producer-price index for January

7:30 a.m.: ECB's Schnabel speaks at Money Market Contact Group meeting in Frankfurt

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

11 a.m.: Dallas Fed's Logan at Chicago Booth Workshop on Market Dysfunction

11:45 a.m.: Atlanta Fed's Bostic speaks at Racial Inequality Conference

3 p.m.: Fed's Bowman at Chicago Booth Workshop on Market Dysfunction

4:15 p.m.: Richmond Fed's Barkin speaks on inflation at Stanford Institute for Economic Policy Research

Research ECB to Keep Up Rate Rises as New Wave of Inflation Rears Head

Eurozone inflation figures mean it is almost certain the European Central Bank will raise its key rates by another 50 basis points at its March meeting, Christoph Weil, senior economist at Commerzbank says. Hopes for a strong decline in the inflation rate in February weren't fulfilled, he says, as headline inflation eased only slightly to 8.5% from 8.6%, with core inflation rising to an all-time high of 5.6% from 5.3%. The core inflation rate is expected to peak only in July and to decline only slowly thereafter, but for now, with wages rising strongly, a new wave of inflation is on the horizon, Weil says. The ECB rate rise at its next meet will probably be followed by further steps, he adds.

-Edward Frankl

Commentary Manufacturing's Death Has Been Greatly Exaggerated

American manufacturers have a tough year ahead of them, but for now, at least, they might be able to avoid falling into a deep funk that threatens to drag the rest of the economy behind it, Justin Lahart writes.

China's Post-Covid Bounce Has Arrived

China's economy has kicked off the year of the rabbit with a bounce worthy of its sprightly zodiac avatar, and that raises the probability of stronger global growth this year, and higher oil prices, too, Nathaniel Taplin writes.

Basis Points U.S. construction spending fell again in January. Total construction spending decreased 0.1% from the previous month after contracting by a revised 0.7% in December, according to Commerce Department data. (Dow Jones Newswires) A key barometer of U.S. factory activity was negative for the fourth month in a row at 47.7% in February, as manufacturers cut back on production to cope with a slower economy. The Institute for Supply Management's manufacturing survey edged up from 47.4% in January. Readings below 50% signal the manufacturing sector is contracting. (MarketWatch) Demand for mortgages in the U.S. fell in the latest week as mortgage rates hover at highs last seen in November. Demand for both purchases and refinancing declined, pushing the mortgage market composite index down 5.7% to 188.5 for the week ending Feb. 24, from a week earlier, the Mortgage Bankers Association said. The index stood at 463.1 a year earlier. (MarketWatch) A record-high number of people will join China's urban workforce in 2023, the country's human resources ministry said, even as the nation faces a shrinking and rapidly aging population. The workforce will be joined by 16.62 million people, it said. (DJN) Brazil's trade surplus widened slightly in February as

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03-02-23 0716ET