Competing Effects of Central Banks and Healing Supply Chains Affect Recession Odds By James Christie
Good day. Central banks might be able to lower interest rates to avoid setting off economic downturns-provided their rate increases to date aren't responsible for how inflation has been easing. Consider that inflation fell to 3% in the U.S. in June, according to the Federal Reserve's preferred gauge, the personal-consumption expenditures price index, from 7% a year earlier. Yet the jobless rate, at 3.6% in June, has held steady for the past year. In the eurozone, inflation declined to 5.5% in June, the lowest level in nearly 18 months, and unemployment has drifted to its lowest level in more than 25 years. Some argue inflation has been mostly driven by supply shocks and that the ebbing of price pressures reflects the easing of these one-time disruptions, not rate increases, which are supposed to work through the labor market. On the other hand, most economists say monetary policy kept demand for goods, services and labor lower than otherwise, taking pressure off strained supply chains and allowing price pressures to ease.
Now on to today's news and analysis.
Top News Why the Drivers of Lower Inflation Matter
Recent good news on inflation has ignited a debate over how much central banks' interest-rate increases are responsible.
The answer matters for where inflation and interest rates are headed. The Federal Reserve and the European Central Bank in the past week lifted their benchmark interest rates to 22-year highs and left the door open to additional increases.
If higher rates weren't responsible for the progress on inflation to date, that suggests central banks may be able to lower them before a painful recession sets in.
Inflation and Wage Growth Ease as Fed Considers Next Move
Wage growth and inflation remain elevated and faster than the Federal Reserve would prefer. But data released Friday offered the clearest signs yet of a long-anticipated slowdown in price pressures that, if they are sustained in the coming months, would allow the central bank to hold rates steady at its next meeting in September and possibly through the end of the year.
How the U.S. Economy Is Sticking the Soft Landing
Parts of the economy are cooling, just as the Federal Reserve would like to see to combat inflation. Freight railroads, for instance, are seeing shipping volumes decline. Construction firms are cutting back on equipment purchases. A vending-machine company's customers are negotiating prices downward. Yet the key to a measured, inflation-busting slowdown that doesn't sink the economy lies in whether companies hold on to workers or lay them off.
Pieces Come Together in Fed's Inflation Fight, but Big Ifs Remain By Bob Fernandez
The U.S. economy has two months to show that inflation has cooled enough for the central bank to be able to avoid raising interest rates in September after 11 increases since early last year. On Friday, Federal Reserve policy makers got a bit of good news.
The government's personal-consumption expenditures price index, the Fed's preferred inflation measure, rose 3% in June from a year earlier, down from 3.8% the prior month. The Fed's inflation target is 2%.
This is the sort of headline report that Fed Chair Jerome Powell is looking for. Read more .
U.S. Economy Everyday Investors Are Thriving in a World Awash in Yield
Interest rates are hovering at their highest level in more than two decades. For individual investors, that has been an unexpected blessing , providing them with more options to put their cash to work.
5 Ways That Buying a Car Has Drastically Changed
The U.S. auto industry has been through a lot these last three years, forcing car executives, car dealers and car buyers to adjust on the fly and find new ways of doing business. Now it looks like many of those changes are here to stay .
How Americans Learned to Stop Worrying and Take Vacation
There's a big reason airports and resorts are booked up this summer: Americans are taking off work and vacationing more than they have in over a decade. In some cases, their employers are forcing them to.
Key Developments Around the World Europe Returns to Timid Growth, but Bigger Headwinds Loom
Rising borrowing costs and stagnating Chinese demand for European goods could pave the way for another miserable economic winter for the eurozone this year. The region is likely to keep underperforming the U.S. for now
Saudi Arabia to Host Ukraine Peace Talks as West Woos Global South
Saudi Arabia is set to host peace talks among Western countries, Ukraine and key developing countries next month, as Europe and Washington intensify efforts to consolidate support for Ukraine's peace demands.
Russia Uses Little-Known Traders to Sell Oil to the World Putin Pledges Free Grain Shipments for African Allies While Everyone Else Fights Inflation, China's Deflation Fears Deepen
While the rest of the world tussles with inflation, China is at risk of experiencing a prolonged spell of falling prices that-if it takes root-could eat into corporate profits, sap consumer spending and push more people out of work.
China's Economic Recovery Weakens as Growth Concerns Linger China's Tech Distress Grows as U.S. Chip Sanctions Bite Bernanke Tapped to Find Out Why BOE Misjudged Inflation
The Bank of England has named former Fed chair Ben Bernanke to review its forecasting , a first step by a leading central bank to understand why they underestimated a surge in prices that began more than two years ago.
Financial Regulation Roundup An Exodus of Talent Is Imperiling Goldman's Overhaul
Julian Salisbury, chief investment officer of asset and wealth management, and Takashi Murata, co-head of private investments in Asia-Pacific, are expected to depart, and others might follow , according to people familiar with the matter.
Troubles at Barclays Prompt a Shake-Up-and Banker Exits
A drastic overhaul at the Wall Street arm of Barclays early this year has done little to lift its stock and led to an exodus of senior bankers -more than 30 of the investment bank's roughly 200 managing directors have left.
$2 Billion Default Followed Warnings to Everyone but Investors
Warnings about GWG Holdings and Beneficient began in summer 2019 and spread among executives and board directors into 2020, long before GWG's collapse. Nearly 28,000 mom-and-pop investors didn't have a clue .
Binance's Founder Drew Scrutiny From German Regulator
Germany's financial regulator advised Binance to withdraw its license application over concerns about its founder and the crypto company's complicated structure, according to an internal Binance document.
Forward Guidance Monday (all times ET)
9:45 a.m.: Chicago Business Barometer for July
10:30 a.m.: Dallas Fed Manufacturing Survey
2 p.m.: Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices
Tuesday
4 a.m.: Eurozone Manufacturing PMI for July
4:30 a.m.: S&P Global / CIPS UK Manufacturing PMI for July
Research Forecast Suggests Accelerating U.S. Growth in Third Quarter
An early sign of how much the U.S. economy will grow in the third quarter is pointing to accelerating growth. The latest GDPNow forecast from the Federal Reserve Bank of Atlanta, which uses available data to predict U.S. gross domestic product growth in the current quarter, came in at 3.5%. That would represent an acceleration from the 2.4% growth in the second quarter and complicate the Federal Reserve's goal of slowing the economy to bring inflation down by raising interest rates. Second-quarter growth was faster than economists expected and above the 2% growth in the first three months of the year.
-Ben Glickman
Commentary The Pay Increases Keep Coming
A big question facing the Federal Reserve is to what extent it will accept labor-market strength , and continued strong wage gains, if inflation does in fact continue to cool, Justin Lahart writes.
Basis Points Sentiment among U.S. consumers rose in July to its highest level in nearly two years, with easing inflation and a stable jobs market boosting the mood. The final reading for July of the University of Michigan's consumer sentiment index rose to 71.6 from 64.4 in June, the highest level for a full month since October 2021. Economists polled by The Wall Street Journal expected the indicator to be at 72.6. Readings for both current economic conditions and consumer expectations rose at rapid rates, the data showed. (Dow Jones Newswires) Growth in services activity in the central U.S. edged down in July, while expectations for future activity moved higher, according to Federal Reserve Bank of Kansas City data. Its Tenth District Services Survey's composite index came in at minus 1 in July, down from readings of 14 in June and 3 in May. Readings above zero indicate expansion. Those below zero indicate contraction. (DJN) Economic growth in Canada picked up in May following the end of one of the country's largest-ever strikes, though early estimates suggest weakness in wholesale trade and manufacturing will drive a slight contraction in June. Gross domestic product increased 0.3% from April to 2.091 trillion Canadian dollars, the equivalent of $1.581 trillion, Statistics Canada said Friday. Compared with a year earlier, GDP grew 1.9%. (DJN) Brazil's unemployment rate decreased in the three months through June as employment increased and the number of people looking for work declined. The jobless rate reached 8% in the three months through June, down from 8.3% in the three months through May and 9.3% in the year-earlier period, the Brazilian Institute of Geography and Statistics said Friday. (DJN) The Bank of Japan stepped into the bond market, sending a message that it isn't done with monetary easing, despite its decision Friday to let government bond yields rise. (DJN) China's manufacturing activity improved slightly in July, according to an official gauge, but remained in contraction for the fourth straight month, pointing to continued weakness in the world's second-largest economy.
(MORE TO FOLLOW) Dow Jones Newswires
07-31-23 0715ET
