Parade of Fed Officials Discuss Outlook for Interest-Rate Cuts By James Christie

Good day. Federal Reserve Vice Chair Philip Jefferson said on Thursday he expects the central bank will be able to start cutting interest rates later this year, noting he anticipates spending and output growth will slow. Meanwhile, Fed governor Lisa Cook on Thursday discussed rate cuts more cautiously, noting she wants greater confidence inflation is trending to the central bank's 2% target. Philly Fed President Patrick Harker likewise expressed caution, pointing to the risk of reigniting inflation by cutting rates too soon.

Now on to today's news and analysis.

Top News Fed's Jefferson Expects Rate Cuts Later This Year

The Federal Reserve's No. 2 official said Thursday he thinks the central bank can begin cutting interest rates this year, MarketWatch reported . "If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back our policy restraint later this year," said Fed Vice Chair Philip Jefferson, in a speech to the Peterson Institute for International Economics. The Fed penciled in three rate cuts in the latest forecast released in December. An updated forecast will come next month. After the surprising strong economy last year, Jefferson said he expects slower growth in spending and output in 2024 as household balance sheets have started to weaken. If consumer spending doesn't weaken, that could cause progress on inflation to stall, Jefferson said. (MarketWatch)

Cook Wants 'Greater Confidence' Inflation Slowing Before Rate Cuts

Federal Reserve governor Lisa Cook said inflation has slowed faster than expected, but central bank officials need "greater confidence" price pressures are returning to low prepandemic norms before cutting interest rates, MarketWatch reported . Cook and other Fed officials in the past few weeks have stressed the battle against inflation is not over. Rates cut will have to wait a bit longer, she said, until victory is all but assured. "I would like to have greater confidence that inflation is converging to 2% before beginning to cut the policy rate," she said in a speech. (MarketWatch)

Harker Says Don't Look for Rate Cuts 'Right Now and Right Away'

The Federal Reserve is getting close to cutting interest rates, but a move in the near-term is unlikely, Philadelphia Fed President Patrick Harker said on Thursday, MarketWatch reported . "I would caution anyone from looking for [a rate cut] right now and right away," Harker said in a speech at the University of Delaware. Harker, who isn't a voting member on the Fed's interest-rate committee this year, said the central bank's "greatest economic risk" comes from acting too early to lower interest rates. Going too soon might "reignite inflation and see the work of the past two years unwind before our eyes, " he said. (MarketWatch)

Pro Take: Companies Find Pricing Power in Times of Crisis, Complicating Inflation Fight By Bob Fernandez

Companies have learned how to not only survive times of economic crises, but often to thrive, as evidenced by a march higher in corporate profits the past two and a half decades.

Overall profits took an initial hit during the dot-com bust and the financial crisis. But they boomed to an extraordinary scale and came with persistent inflation after the Covid-19 pandemic as corporations learned a new playbook on how to respond to shocks, one they could dust off in the next one, said Isabella Weber, associate professor of economics at the University of Massachusetts Amherst. Read more .

Key Developments Home Sales Rebounded in January After Last Year's Sharp Decline

Home sales increased 3.1% in January from the prior month to a seasonally adjusted annual rate of 4 million, the highest level since August, the National Association of Realtors said, as buyers took advantage of lower mortgage rates.

Bank of Mexico Leans Cautiously Toward Rate Cuts, Minutes Suggest

The Bank of Mexico appeared to be moving closer to a monetary easing cycle at its meeting earlier this month, one that would be gradual and cautious given continuing inflation risks, minutes of the meeting showed Thursday.

The Biggest Ever Sanctions Have Failed to Halt Russia's War Machine

Western officials and experts say financial, economic, military and energy sanctions imposed on Russia have damaged its economy and arms-production capacity, but acknowledge they have hit more slowly than hoped .

Financial Regulation Roundup The Hedge Funds That Changed the Game

Billions of dollars have poured into multimanager firms in the past few years, but few have managed to match the success of Citadel, Millennium and Point72. Their imitators are having trouble keeping up .

China's Stock-Sale Ban Eases Path to Propping Up Reeling Markets

China's reported ban on the net sales of equities during market opens and closes theoretically makes it easier to prop up reeling stocks, in part by hamstringing quantitative traders at critical parts of the trading day, analysts say.

Forward Guidance Friday (all times ET)

Time N/A: ECB's Lagarde and Cipollone at Eurogroup meeting in Ghent, Belgium; ECB's Lagarde in Eurogroup press conference in Ghent

8 a.m.: ECB's Schnabel at Forum Analysis in Milan


Time N/A: Bank of England conference on Prudential Framework theme of the Bank of England Agenda for Research

10 a.m.: U.S. new-home sales for January

10:30 a.m.: Dallas Fed Manufacturing Survey

7:40 p.m.: Kansas City Fed's Schmid speaks to Economic Club of Oklahoma City

Research ECB Accounts Point to Rate Cuts Starting in June

The European Central Bank's accounts of its January meeting back up the view at Nordea that a first interest-rate cut is most likely in June, Nordea's chief analyst Jan von Gerich writes in a note. The accounts said that while much progress was being made toward achieving the inflation target in a durable manner, risk-management considerations favor waiting before starting to cut rates, he writes. Still, they also suggested more Governing Council members are moving toward supporting cuts, he writes, adding that Nordea expects a rate cut in June, albeit with a risk of an earlier move in April, followed by quarterly 25 basis-point reductions.

-Emese Bartha

Commentary Oil Market Gets a Russian Lesson: Sell on the Sound of Cannons

Based on the historical record, betting against oil when geopolitical threats send its price soaring would seem to be a proven way to make money, but energy traders are conditioned to do the opposite , Jinjoo Lee and Carol Ryan write.

Executive Highlights

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

Small businesses turned to alternative funding options like merchant cash advances in recent years. Such borrowing has now led to the deaths of some of these operations. After more than 20 years of debate, private-equity firms are about to be drafted into the fight against dirty money . With the potential for more business technology consolidation in 2024, CIOs say they're worried about being sold bigger product suites at higher costs. Listen to Ken Calwell, CEO of the organization behind the "He Gets Us" Jesus-focused ad campaign , discuss how he applied his corporate marketing experience to the nonprofit. Basis Points The U.S. economy expanded at an above-average speed in February, a pair of S&P surveys found, and gave little indication of trouble ahead. The flash U.S. manufacturing purchasing managers index (PMI) rose to a 17-month high of 51.5 this month, aided by the strongest increase in new orders in more than a year and a half. The S&P flash U.S. services PMI dipped to a three-month low of 51.3, but numbers above 50 signal growth in the economy. (MarketWatch) Applications for U.S. unemployment benefits in mid-February fell to a five-week low of 201,000 and signaled the U.S. labor market is still going strong. Initial jobless claims fell by 12,000 from 213,000 in the prior week, the government said Thursday. (MarketWatch) The eurozone continued to climb out of its economic downturn in February despite a bleak outlook for the key industrial sector in Germany, as the HCOB Flash Eurozone Composite PMI Output Index-a gauge of activity in the manufacturing and services sectors-rose to 48.9 from 47.9 in January, marking the slowest rate of downturn in eight months. Economists polled by The Wall Street Journal expected a 48.5 reading. (Dow Jones Newswires) An advance estimate of retail sales in Canada indicates sales fell 0.4% in January, marking the biggest decline in nine months, Statistics Canada said Thursday. That comes after sales in December climbed 0.9%, the data agency said. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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

(END) Dow Jones Newswires

02-23-24 0715ET