Fed's Rate Bias Shifts; Trade Slowdown Favors U.S.

Fed's Rate Bias Shifts; Trade Slowdown Favors U.S. By James Christie

Good day. It appears the Federal Reserve is likely to pause its interest rate increases this month, with officials taking a harder look at whether more rate rises are needed as a shift toward a more balanced bias on rates takes hold. Behind the change are signs of easing inflation and a less overheated labor market. Additionally, the rapid rate increases over the past 1 1/2 years are expected to continue cooling demand in coming months. So if officials keep rates on hold this month, Fed watchers will turn their attention to matters that might prompt a rate increase in November or December. Meanwhile, waning global trade flows are consolidating a growth gap among members of the Group of 20 largest world economies, with large, export-dependent economies from China to Germany the main losers. By contrast, the U.S. and India stand to benefit from their vast markets that have historically relied more on domestic demand for growth relative to their peers.

Now on to today's news and analysis.

Top News An Important Shift in Fed Officials' Rate Stance Is Under Way

For more than a year, Federal Reserve policy makers were unanimous that they would rather raise interest rates too much than too little-that is how serious they considered the threat of persistently high inflation .

That is changing.

Some officials still prefer to err on the side of raising rates too much, reasoning that they can cut them later. Now, though, other officials see risks as more balanced. They worry about raising rates and causing a downturn that turns out to be unnecessary or triggering a new bout of financial turmoil.

U.S. Economy Voters Feel Better About the Economy, but Few Credit Biden

Voters have a slightly rosier view of the economy now that inflation is easing, but few are giving President Biden credit for the improvement, according to the latest Wall Street Journal poll and other surveys.

Unions Flex Power When Workers Are in Short Supply

Airlines, package shippers and ports all struggled to hire desperately needed workers as the economy emerged from the pandemic, and then agreed to double-digit raises with their unions this summer.

The Job-Market Boom Is Over. Here's Why and What It Means. Trade Slump Reshuffles World's Economic Cards in Favor of U.S.

The U.S. economy is chugging along while the rest of the world falls behind. Driving the division among the world's most powerful economies: a slowdown in trade that is hurting some much more than others.

Credit-Card Users Got Bigger Limits. Then They Racked Up $1 Trillion.

Credit-line increases are becoming more common as companies dole them out to entice customers to spend more, which boosts their revenue, and higher limits tend to be followed by more spending .

Key Developments Around the World Xi's Tight Control Hampers Stronger Response to China's Slowdown

Chinese officials have been unable to roll out major stimulus or make significant policy changes because they don't have sufficient authority to do so, with economic decision-making increasingly controlled by Xi Jinping .

Chinese Consumer Inflation Returns in Reprieve for Economy

U.S.-Backed Corridor Looks to Connect Europe, Middle East, Asia

The U.S. and its partners in Europe, the Middle East and Asia are completing plans to build a transit corridor linking the three regions, an initiative that could eventually undercut China's inroads in a key global trade route .

India Spends Big on What It Needs Most to Catch Up to China U.S., Saudi Arabia in Talks to Secure Metals for EVs

The U.S. and Saudi Arabia are in talks to secure metals in Africa for their energy transitions , as the White House tries to curb China's electric-vehicle supply chain dominance and the kingdom seeks $15 billion in mining stakes.

The $100 Billion Luxury Complex That's Sitting Empty and Unfinished

On the southern tip of peninsular Malaysia, high rises of luxury condominiums overlook the sea. Nearly a decade after troubled Chinese real-estate giant Country Garden began building the enclave, it is almost completely vacant .

U.S. Military Exercises in Russia's Backyard Cause Alarm at Kremlin

As Washington seeks to exploit cracks in Russia's traditional sphere of influence, U.S. forces began military exercises with troops from Armenia , the small South Caucasus country that has been a Russian ally for nearly 200 years.

Financial Regulation Roundup IRS, With AI Help, Readies Audits of Hedge Funds, Real Estate Firms

The Internal Revenue Service this month will begin auditing 75 large partnerships , including hedge funds and real-estate firms, as the tax agency tries to build its case for keeping what is left of a pot of money Congress gave it last year.

Argentina Owes $16 Billion in Expropriation Suit, U.S. Court Rules

A federal judge in New York on Friday ordered cash-strapped Argentina to pay about $16 billion over the government's decision to seize majority control of the energy company YPF in 2012 under then president Cristina Kirchner.

Forward Guidance Monday (all times ET)

11 a.m.: New York Fed's consumer expectations survey

Tuesday

2 a.m.: U.K. unemployment for August

Research U.S. August Inflation Expected to Remain Hot

The headline U.S. consumer-price index is forecast to accelerate to 0.6% in August from July's 0.2%, Bank of America analysts write in a report about Wednesday's data. The strong headline inflation would be "due in large part to a surge in energy prices," they write. Core CPI is forecast to be steady at 0.2%. The annual core reading is forecast to slow to 4.3% from July's 4.7%, still well above the Federal Reserve's 2% target. The BofA analysts note, however, that the three-month annualized rate would fall to 2.2%, the lowest since early 2021 "and a sign of the recent positive developments on inflation."

-Paulo Trevisani

ECB Could Swing in Favor of Final Rate Rise

The pendulum at the European Central Bank's Sept. 14 meeting could well swing in favor of a final interest-rate increase of 25 basis points, Fritzi Koehler-Geib, chief economist at KfW, writes in a note. "The multiple voices of the ECB representatives show that the decision is still open," she writes, attributing this primarily to the ambiguous data picture, in which good arguments can be found both against and in favor of an interest rate pause. "My money is on a tenth rate hike, but it will be a tight race," Koehler-Geib writes.

-Emese Bartha

Commentary Apple Becomes the Biggest U.S.-China Pawn Yet

Apple might be the king of tech, but in the growing cold economic war between the world's two biggest economies, it is becoming just another game piece-albeit a big one, Dan Gallagher writes.

Basis Points Total U.S. household net worth rose $5.5 trillion to a record $154.28 trillion in the second quarter, marking a third straight quarterly increase, the Federal Reserve said on Friday. (MarketWatch) The U.S. economy could expand at about a 2.2% annual rate in the current quarter, according to the revamped Staff Nowcast real-time estimate from the Federal Reserve Bank of New York released Friday. (MarketWatch) U.S. wholesale inventories fell a little more than expected in July, suggesting demand is staying above water despite a weakening global economic outlook. Inventories of U.S. merchant wholesalers declined 0.2% compared with June, according to data from the Commerce Department published Friday. The stock of unsold goods also fell in June by 0.7% from May's level, according to the department's revised figures. Economists polled by The Wall Street Journal expected wholesale inventories to fall by 0.1% in July. The data aren't adjusted for inflation. (Dow Jones Newswires) A rebound in hiring in Canada last month helped hold the jobless rate steady, though there continue to be signs the labor market faces headwinds as the economy cools. The number of employed working-aged people in Canada rose by 39,900 in August from July, while the unemployment rate was unchanged at 5.5%, Statistics Canada reported. (DJN) China's vehicle sales rose in August as Beijing's measures to boost auto consumption took effect and transportation demand rose during the summer holiday. Retail sales of passenger cars in the world's biggest auto market increased 2.5% to 1.92 million vehicles last month, the China Passenger Car Association said. Sales in August rose 8.6% from the previous month. Exports in August rose 43% on year, widening year-to-date growth to 69%. (DJN) The eurozone is likely to grow at a slower pace than previously expected this year and next amid weak domestic consumption and flagging global demand, with the powerhouse German economy notably set to shrink, according to fresh figures published by the European Union executive Monday. (DJN) Turkey's current account swung back to deficit in July after it posted its first surplus in almost two years in June, as its trade deficit on goods jumped, data from the country's central bank showed Monday. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco and Perry Cleveland-Peck in Barcelona.

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09-11-23 0715ET