Little Economic Effect Expected From Debt-Ceiling Deal; Richmond Fed's Barkin Sees High Inflation Persisting By James Christie
Good day. A debt-ceiling deal, if approved by Congress, would remove some uncertainty for a U.S. economy that has faced headwinds from high inflation and the Federal Reserve's campaign to tamp down rising prices with a run of interest-rate increases. But the deal on the table now, according to economists, would have only a small effect on the economy and inflation. As Michael Feroli, chief U.S. economist at JPMorgan Chase, wrote in a research note, "If the legislation released [Sunday] is signed into law, the implied spending reduction doesn't look like a game-changer for the macro outlook." As for inflation in the U.S., Richmond Fed President Thomas Barkin on Monday said it is unlikely to fade quickly, adding "There is a lot of uncertainty of where rates need to go."
Now on to today's news and analysis.
Top News Debt-Ceiling Deal Does Little to Change Course of Spending, Economy
A proposed deal to lift the federal debt limit would have only a small effect on the cooling U.S. economy or still-high inflation, according to economists, because it does little to reduce government spending that grew rapidly during the Covid-19 pandemic and its aftermath.
Economists at JPMorgan Chase estimate that the deal will reduce federal spending by about 0.2% of gross domestic product per year over the two years of the deal compared with previous projections.
Richmond Fed's Barkin: Inflation Is More Stubborn Than Many Hope
The chief of the Federal Reserve Bank of Richmond said Tuesday that high inflation probably won't dissipate quickly barring a sharper slowdown in the U.S. economy. Thomas Barkin said businesses are inclined to keep raising prices so long as there is strong demand among customers. Demand would have to slow markedly to get businesses to back off, Barkin said. "[Inflation] is going to be more stubborn than many people would hope," he said in a virtual interview sponsored by the National Association for Business Economists. (MarketWatch)
Pro Take: Crypto Runs Raise Urgent Policy Questions, Says Chicago Fed By Bob Fernandez
Customers pulled $12.9 billion from five crypto platforms in digital runs last year that drained about one-third of the firms' assets, leading to their bankruptcies, says new research from the Federal Reserve Bank of Chicago.
Even after the hurried money flight, Celsius Network, Voyager Digital, BlockFi, Genesis and FTX owed customers a total of $37.3 billion when they filed for bankruptcy protection between last July and this January, the Chicago Fed paper says. Big holders spearheaded the crypto runs, it says. Web portals and mobile apps greased them. Read more .
U.S. Economy Where Is the U.S. Economy Headed? Follow the Money
The stock market is near a one-year high, giving many investors comfort. But down below, debt markets are creaking under the strain of rising interest rates.
Lending conditions for companies, consumers and real-estate developers tightened this spring to levels not seen since the height of the Covid pandemic, an analysis of public and private lending data by The Wall Street Journal shows .
The slowdown is a consequence of the Federal Reserve's interest-rate-hiking campaign against inflation, and it means there is now less money available for U.S. businesses and households to hire new workers, build plants and pay the bills.
Home Prices Rose in March for Second Straight Month
Home prices rose in March as a shortage of homes for sale spurred competition among home buyers and lifted the S&P CoreLogic Case-Shiller National Home Price Index by 0.4% compared with February on a seasonally adjusted basis.
Rising Rates Make It Harder to Help Distressed Homeowners American Cities Start to Thrive Again. Just Not Near Office Buildings.
Residential neighborhoods in America's biggest cities are bustling again as the pandemic shifted the urban center of gravity , moving away from often sterile office districts to neighborhoods with apartments, bars and restaurants.
Office Owners Dump Lesser Buildings for Whatever They Can Get
Some of New York's best known real-estate developers are unloading their least viable office buildings at deep discounts , cracking open a sales market that had all but closed in the first quarter.
Key Developments Around the World China's Recovery Slows as Factory, Services Activity Pulls Back
China's factory activity contracted for a second straight month while growth in the services sector slowed, the latest signs that the country's reopening growth momentum is struggling to take hold.
How Bad Is China's Economy? Its Stocks Are Now in a Bear Market China Tensions Rattle American Manufacturers Turkey's Lira Hits New Low After Erdogan's Re-Election
Turkey's local currency fell to a record low on Tuesday amid concerns that President Recep Tayyip Erdogan would stick to his unusual approach to managing the country's strained finances following his re-election.
Russians Relearn Black-Market Tricks to Get Their Money Out
Russians plowed money into black-market dollars and filled bank accounts abroad in recent months, responding to economic anxiety over the war in Ukraine and worries it might only worsen in the months and years ahead.
In Kashmir, Tourists Return but Tensions Simmer
Tourism is booming in Kashmir, the region long at the center of India-Pakistan tensions. But four years after India revoked the region's semiautonomous status, business owners say other parts of the economy are struggling .
Financial Regulation Roundup Goldman Sachs Prepares More Layoffs Amid Deal Drought
Goldman Sachs is readying job cuts that will impact a range of employees, including managing directors and other senior executives, marking a third round of cuts at the financial giant in less than a year.
Ex-Coinbase Manager Settling SEC's Crypto Insider-Trading Claims
A former Coinbase manager has reached a settlement with regulators over a novel cryptocurrency enforcement action without resolving a key question : which of the exchange's digital assets are securities.
Sam Bankman-Fried Could Have Some Charges Dropped
The Justice Department said in a filing it would drop some of the criminal charges against FTX founder Sam Bankman-Fried if the Bahamas says they violate the terms of his extradition to the U.S.
Debt-Ceiling Deal Will Cost the IRS Up to $21.4 Billion
The Internal Revenue Service will lose up to $21.4 billion from its $80 billion expansion fund as part of the bipartisan debt-limit deal, as Republicans got President Biden to pare back one of his top accomplishments .
Forward Guidance Wednesday (all times ET)
8:30 a.m.: Canada gross domestic product for March
8:50 a.m.: Fed's Bowman speaks at Boston Fed's FedListens 'Transitioning to the Post-pandemic Economy'
9:45 a.m.: Chicago Business Barometer for May
10 a.m.: Job Openings and Labor Turnover Survey for U.S. for April
12:20 p.m.: Boston Fed's Collins speaks at Boston Fed's FedListens 'Transitioning to the Post-pandemic Economy'
1:30 p.m.: Philadelphia Fed's Harker speaks at Official Monetary and Financial Institutions Forum; Fed's Jefferson gives virtual speech to 22nd Annual International Conference on Policy Challenges for the Financial Sector
2 p.m.: Federal Reserve Beige Book
Thursday
4 a.m.: Eurozone manufacturing PMI for May
4:30 a.m.: S&P Global / CIPS U.K. Manufacturing PMI for May
5 a.m.: Flash estimate for euro area inflation for May
6:30 a.m.: Speech by ECB's Lagarde at 27th German Savings Banks Conference 2023
8:15 a.m.: ADP National Employment Report for May
8:30 a.m.: U.S. weekly jobless claims; U.S. productivity and costs for first quarter, revised
9:45 a.m.: Speech by ECB's Enria at 22nd Annual International Conference on Policy Challenges for the Financial Sector
10 a.m.: ISM Report on Business Manufacturing PMI for May
1 p.m.: Philadelphia Fed's Harker speaks during National Association for Business Economics webinar
Research Switzerland's Central Bank Set for One More Rate Rise
Switzerland's economy looks to be cooling, offering the Swiss National Bank an opportunity to pivot to a smaller 25 basis-point rate increase at its meeting next month, Melanie Debono, senior European economist at Pantheon Macroeconomics, wrote in a note. The Swiss economy grew 0.3% in the first quarter, when not adjusted for sports events, avoiding a recession unlike its neighbor Germany, but the KOF barometer-a growth indicator published alongside gross domestic product statistics-slid for the second month in a row, after composite PMIs for April had fallen for a third consecutive month. Investment momentum will continue to fade, as lending standards tighten, with Pantheon now expecting unadjusted GDP growth of 0.2% in the second quarter and third quarter, before a small uptick to 0.4% in the fourth quarter. The SNB's policy rate will likely peak at 1.75%, Debono added.
-Edward Frankl
Basis Points U.S. consumer confidence softened in May as Americans became somewhat less upbeat about their economic prospects. Private research group The Conference Board said Tuesday its consumer-confidence index fell to 102.3 in May from an upwardly revised 103.7 in April. Economists polled by The Wall Street Journal expected a May confidence reading of 99.0. (Dow Jones Newswires) Manufacturing activity in Texas weakened in May to its lowest reading in three years despite expectations for some improvement. The index for general business activity of the Texas Manufacturing Outlook Survey decreased to minus 29.1 from minus 23.4 in April, according to data released Tuesday by the Federal Reserve Bank of Dallas. (DJN) Shop-price annual inflation in the U.K. rose slightly in May, according to the latest report by NielsenIQ and the British Retail Consortium. Prices at stores in the period May 1 to May 7 were 9.0% higher on year, slightly up from an 8.8% increase in April, and above the three-month average rate of 8.9%. (DJN) Thailand's central bank
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05-31-23 0715ET
