Further to Go With Rate Increases, Powell Tells Senators; Bank of Mexico Stays on Hold Again

Further to Go With Rate Increases, Powell Tells Senators; Bank of Mexico Stays on Hold Again By James Christie

Good day. U.S. inflation and economic activity haven't slowed as much as many Federal Reserve officials had anticipated. That is casting more uncertainty about how high they might need to lift interest rates. As Fed Chair Jerome Powell told the Senate Banking Committee on Thursday, "We're close but there's a little further to go with rate hikes." Fed governor Michelle Bowman echoed that view at an event in Cleveland on Thursday, saying the central bank has more work to do to bring inflation down. Elsewhere, the Bank of Mexico's five-member board of governors voted unanimously to hold the overnight interest-rate target at 11.25%, following almost two years of increases that lifted the overnight rate to its highest level on record. The board "considers that it will be necessary to maintain the reference rate at its current level for an extended period," the bank said.

Now on to today's news and analysis.

Top News Jerome Powell Says Interest Rates Likely to Rise Further

Federal Reserve Chair Jerome Powell said the central bank didn't raise interest rates last week as it wanted to slow down its historically rapid pace of increases but stressed it would likely lift rates again in coming months .

"We moved very quickly at the beginning, and we've gradually slowed down. This is just a continuation of that," Powell said Thursday at a Senate Banking Committee hearing. The decision to hold rates steady after 10 consecutive increases was designed "to give ourselves more time-to stretch out the time for making these decisions."

Fed's Bowman Says Central Bank Must Raise Rates More

Federal Reserve governor Michelle Bowman said "there is still more work to do to bring inflation down" at an event in Cleveland. The policy maker said inflation remains unacceptably high and that additional interest-rate hikes would be necessary to bring inflation down to the Fed's 2% target. The U.S. consumer-price index in May was up 4% from a year ago, with so-called core CPI, which excludes volatile food and energy categories, up 5.3%. Bowman said core inflation plateaued and she is looking for it to "meaningfully and durably" come down. As a Fed governor, Bowman casts a vote at FOMC meetings where interest-rate policy is set. (Dow Jones Newswires)

Bank Borrowing From the Fed Rises for Seventh Straight Week

The amount of money that banks are borrowing from the Federal Reserve rose slightly last week to mark the seventh increase in a row, indicating some financial institutions are still struggling after several bank failures in the spring. Total bank borrowing inched up by $356 million to $105.9 billion in the seven days ending June 21. It was the smallest increase in more than a month, however. The Fed has been lending money to some banks that suffered a sharp decline in investor deposits after several regional institutions failed in the spring. (MarketWatch)

U.S. Economy Where's the Recession We Were Promised?

The 2023 recession is missing in action. At the end of last year, economists were more convinced than they've ever been that recession was on the way, but it refused to arrive. Now investors, economists and Federal Reserve policy makers are giving up on the idea, expecting the economy to be (a bit) stronger and stock prices and bond yields to be higher. Why aren't we in recession? Is it still on the way? And could it be that the recession forecasts perversely helped us avoid recession?

Higher Interest Rates Hit Home Prices Again

U.S. existing-home prices posted their biggest year-over-year decline in more than 11 years last month, with the national median price down 3.1% to $396,100 as rising interest rates continued to weigh on the housing market.

Black Americans Are Leaving Cities in the North and West

The waves of migration that brought Black Americans to many northern cities are reversing , as departing residents head everywhere from nearby suburbs to high-growth areas in the southern U.S., such as metro Atlanta.

Forget the Cost of Living. What's the Cost of Thriving in America?

Nearly every statistic says Americans are richer than they were a generation ago. Yet this seems wrong to many. Two conservative thinkers are at odds over this question: Are Americans better off today than they were in the 1980s?

Key Developments Around the World Central-Bank Action Finally Cooling Global Economy, Data Indicate

Business activity in Europe slowed sharply in June as previously strong demand for services started to weaken, an indication that rising borrowing costs may finally be cooling the global economy .

Bank of Mexico Keeps Interest Rates Unchanged

The Bank of Mexico held its benchmark interest rate steady for a second consecutive meeting as inflation eased further and said it plans to keep the rate at its current level for a prolonged period.

Drone Deal Will Help India Track Chinese Troops on Disputed Border

India plans to purchase upgraded MQ-9B drones in a deal valued at about $3 billion. Washington sees New Delhi as part of a web of partnerships in the Indo-Pacific designed to push back against Chinese actions.

To Beat Back New York, London Seeks to Tap Pension Pot

U.K. leaders desperately want to reclaim London's status as the world's hottest financial hub. To do that, they say, they need to change the investment behavior of asset managers for British pension funds.

Zambia Reaches Watershed Deal on China Debt

Zambia has reached a deal with China and Western creditors to extend repayment of $6.3 billion in loans, a test case for developing nations contending with massive debts accumulated under China's Belt and Road initiative.

Glynn's Take: Ousting of Lowe Will Raise Questions About RBA Independence By James Glynn

Reserve Bank of Australia Gov. Philip Lowe looks likely to be unceremoniously removed from his job next month amid a new and worrying era of political pressure being exerted on the setting of interest rates, and growing doubts about the cherished independence of the central bank in the future.

Treasurer Jim Chalmers said this week he will appoint the next governor in July, with the announcement coming just ahead of a list of potential candidates for the RBA's top job leaked to national newspapers.

Those listed include Canberra-based boffins such as Treasury Secretary Steven Kennedy, the Secretary of the Department of Finance Jenny Wilkinson and Chief Statistician David Gruen. Read more .

Financial Regulation Roundup SEC Seeks More Disclosure From Smaller Banks in Wake of Failures

The Securities and Exchange Commission has started questioning some regional and community banks about risks tied to recent bank failures, a move designed to ensure investors have details on any spillover effects .

Widening Wealth Gap Drives Talks for Green Finance Pact at Summit

The leaders of wealthy nations want private investors to send a flood of capital to poorer countries to lift them out of poverty and bankroll the response to climate change. Instead, those investor funds are drying up .

The 'You-Make-A-Lot-of-Money Tax' Hits More Americans

Many Americans don't know Uncle Sam has an extra tax on investment income for higher earners-at least until they owe it. Now more people are owing it , thanks to inflation and higher yields on bank accounts and bonds.

A Crypto Side Door: Buying a 'Digital Residency' in Palau for $248

Crypto traders searching for side doors to access platforms banned in their countries of residence are eyeing the tiny Pacific island nation of Palau , which for $248 offers a one-year "digital residency" without the need for visiting.

Forward Guidance Friday (all times ET)

8 a.m.: Atlanta Fed's Bostic in armchair discussion at University of Georgia Terry College of Business CFO Roundtable

1:40 p.m.: Cleveland Fed's Mester speaks at Cleveland Fed Policy Summit

Sunday

9:15 a.m.: New York Fed's Williams speaks to Bank for International Settlements

Research Norges Bank Shows Commitment to Fighting Inflation

The Norges Bank's 50 basis-point interest rate increase signals the central bank's commitment to the inflation target while anchoring inflation expectations, DNB Markets senior economist Kyrre Aamdal writes in a note. Norway's central bank has also guided for another increase in August and its new rate path indicates a peak of 4.21% in the fourth quarter. Higher-than-expected inflation, an increased forecast for wage growth and a weaker exchange rate have contributed to the higher rate path, as have higher rate expectations abroad, reflecting heightened inflationary pressure for major trading partners, DNB says. It adds that "We maintain our forecast for the policy rate to be raised to 4.00% in August, in line with Norges Bank's renewed guidance."

-Dominic Chopping

Turkey's Rates Are Heading In Right Direction, If Not Fast Enough

Turkey's central bank reverted to raising interest rates aggressively to halt inflation and steady the lira after it had fallen another 15% in recent weeks, Craig Erlam, senior market analyst at Oanda, writes in a note. But while a rate rise Thursday was widely expected, the range of forecasts was vast, and the 6.5% increase to 15% was at the lower end of the range, he writes. For now, investors might be mildly relieved that rates are heading in the right direction, if not fast enough, he writes. The risk is that re-elected President Erdogan hasn't really hesitated to fire central bank governors who raised rates in the past, so investors will never feel at ease as long as he is in charge, Erlam adds.

-Edward Frankl

Commentary Biden's Trade Challenge: Kicking the China Dependency Habit

Trade agreements that increase the world's dependence on one, potentially hostile, country undermine U.S. security, so avoiding that should be a goal of future trade agreements, Greg Ip writes.

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06-23-23 0715ET