Fed Closing In on Confidence for Rate Cuts; ECB Wants to See June Data Before Looking to Cut Rates

Fed Closing In on Confidence for Rate Cuts; ECB Wants to See June Data Before Looking to Cut Rates By James Christie

Good day. Federal Reserve officials are close to the point where they will have enough confidence that inflation is ebbing to cut interest rates, Chair Jerome Powell said in a second day of testimony on Capitol Hill. Rates, he said on Thursday, are "now are well into restrictive territory." Previously, he had signaled the Fed wasn't considering a rate cut at its March 19-20 meeting, shifting Fed watchers' attention to whether the central bank might be in a position to cut rates around the middle of the year. Elsewhere, European Central Bank President Christine Lagarde on Thursday hinted that ECB officials expect to gather data through June before deciding on any rate cuts, pushing back on expectations of an April move. "We will know a little more in April, but we will know a lot more in June," she said.

Now on to today's news and analysis.

Top News Powell: Fed 'Not Far' From Gaining Confidence Needed to Cut Rates

Federal Reserve Chair Jerome Powell told lawmakers the central bank was "not far" from being able to cut interest rates and that rates were far above levels that might be anticipated during periods of mild inflation and moderate growth.

Powell repeated his view Thursday that the central bank was looking for greater confidence that inflation was returning to its 2% target, but he went one step further during his second day of testimony on Capitol Hill by qualifying how soon the Fed might get there.

"When we do get that confidence, and we're not far from it, it will be appropriate to dial back" rates to avoid tipping the economy into recession, he said.

The Fed Is Trying Not to Be Late Again

ECB Holds Rates as Central Bankers Weigh Timing of Cuts

The European Central Bank held its key interest rate at a record high and signaled it won't begin cutting rates before June , as policymakers take time to assess whether a historic run of increases has tamed inflation.

U.S. Economy Coming Data Will Challenge This Market Rally

Jobs and consumer-price index data are always important for markets. But they are especially fraught this month after the previous round startled investors with unexpectedly robust demand for workers and firming inflation.

Jobs Report Today: What to Watch For Lower-Income Workers, Recent Economic Gains Endure

Low-income workers' fortunes aren't as likely to outperform as much as in recent years, but they aren't about to backslide , thanks to a solid economy, retirements, a premium for in-person work and less exposure to artificial intelligence.

The number of applications for U.S. unemployment benefits last week was unchanged at a low 217,000, suggesting little deterioration in a strong U.S. labor market. (MarketWatch) Unit-labor costs in the U.S. climbed by a 0.4% annual pace in the fourth quarter, compared to a preliminary reading of 0.5%, the Labor Department said Thursday. The productivity of American workers rose at a 3.2% annual rate in the fourth quarter, unrevised from the preliminary report last month. (MarketWatch) Key Developments Around the World China's Vehicle Sales Dropped Amid Price War, Long Holiday

China's vehicle sales fell sharply in February , dragged by weaker demand during the Lunar New Year holiday and an intensifying price war in the world's biggest auto market. Retail sales of passenger cars were down 21% from a year ago.

German Manufacturing Orders Fell More Than Expected in January

German manufacturing orders in January were 11.3% lower than the prior month , statistics office Destatis said, considerably more than the 6.0% fall expected by a consensus of economists polled by The Wall Street Journal.

German Industrial Production Ticked Up More Than Expected Financial Regulation Roundup Justice Department to Pay Corporate Crime Whistleblowers

The Justice Department will begin a pilot program aimed at cases where whistleblowers aren't already eligible for payments from other government programs, Deputy Attorney General Lisa Monaco told a legal conference Thursday.

U.S. Seeks to Collect on Up to $20 Billion in Covid Loans

The Small Business Administration this week began referring as much as $20 billion in delinquent Covid disaster loans with balances of $100,000 or less to the Treasury Department for collection.

The Next Red-Blue State Divide: EV Taxes

A number of Republican-led states are charging higher fees and taxes for electric-vehicle owners to make up for lost gasoline-tax revenue that helps fund roads and highways, prompting pushback from EV industry groups and drivers.

Forward Guidance Friday (all times ET)

8:30 a.m.: U.S. employment report for February; Canada labor force report for February

Monday

11 a.m.: New York Fed Survey of Consumer Expectations

Research Small Business Job Openings in U.S. Decrease

There were fewer job openings among U.S. small businesses last month, the National Federation of Independent Business said in its February jobs report. Bill Dunkelberg, NFIB's chief economist, said, "Job openings among small businesses decreased in February to pre-pandemic levels." He added, "Employment activity has lessened somewhat as it becomes easier for owners to find qualified workers. Even with this slowdown, labor demand remains strong." On a seasonally-adjusted basis, 37% of small-business owners reported job openings they couldn't fill, two points lower than in January, and the lowest reading since January 2021, NFIB says. Owners have also slowed plans to fill open positions, "with a seasonally adjusted net 12% planning to create new jobs in the next three months, down two points from January and the lowest level since May 2020," NFIB says.

-Stephen Nakrosis

Commentary Shift That Explains Lofty Markets: The Economy Got More Productive

Many think the resilience of stocks to rising bond yields is due to a bubble inflating, especially in stocks linked to AI, but there is an alternative that can be summed up in one word: productivity , James Mackintosh writes.

Markets Are Lulling Themselves Into a False Sense of Security

If you bought so-called structured products recently, you have plenty of company, but it is precisely their popularity that could make them-and perhaps the entire stock market- riskier than they seem , Jon Sindreu writes.

Executive Insights

Here is our weekly roundup of stories from across WSJ Pro that we think you'll find useful. They are unlocked for WSJ subscribers.

The SEC approved scaled-back climate disclosure rules, but requirements in Europe and California mean many companies may still have to report so-called Scope 3 emissions . Venture capitalists are financing drugmakers seeking to improve upon today's blockbuster weight-loss medications or combat their side effects. Miami Beach is telling spring break travelers to party somewhere else this year. Customers of defunct wine marketplace Underground Cellar fought for months to recover their wine . They won, if they are willing to pay up. Basis Points The U.S. international trade deficit widened 5.1% in January to $67.4 billion, the Commerce Department said Thursday, marking the largest trade gap since April 2023. With exports almost flat, the deficit moved higher with a strong 1.1% rise in imports. (MarketWatch) Homebuyers in the U.S. may have seen a slight glimmer of hope in February as new listings rose 13% from a year earlier nationwide, the biggest increase in nearly three years, according to Redfin. The boost in listings helped bring the total number of homes for sale up 1.7%. Following eight months of declines, February is the first month the number of homes for sale has increased on an annual basis. (Dow Jones Newswires) Global fixed-income gross supply is set to rise 12% this year versus last year, driven by $3.96 trillion in U.S. Treasurys and $1.59 trillion in U.S. investment-grade and high-yield credit issuance, according to Morgan Stanley Research analysts. (DJN) The short-term profitability of global shipping companies will benefit from increased freight rates, which exceed the costs of re-routing cargo due to attacks on commercial vessels in the Red Sea, Fitch Ratings says. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

Send us your tips, suggestions and feedback. Write to:

James Christie , Perry Cleveland-Peck [mailto:[e-mail]], Nihad Ahmed , Michael Maloney

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

03-08-24 0716ET