Price Pressures in U.S. Remain Modest; August Jobs Report Due Today; Mortgage Rates Edge Lower

Price Pressures in U.S. Remain Modest; August Jobs Report Due Today; Mortgage Rates Edge Lower By Michael Maloney

Good day. New readings on U.S. consumer spending and inflation should leave the Federal Reserve on course to hold interest rates steady at its September policy meeting as officials seek to bring down inflation without triggering a needlessly severe downturn. Today's U.S. jobs report for August, set for release at 8:30 a.m. ET, will provide more insight on the strength of the economy and where Fed policy may be headed. Economists polled by The Wall Street Journal expect employers added 170,000 workers for the month, down from July's 187,000. They see unemployment remaining steady at 3.5%.

Note to readers: We will not publish a newsletter on Monday in observance of the U.S. Labor Day holiday. We will be back on Tuesday.

Now on to today's news and analysis.

Top News Summer Spending Surge Shows Consumers Driving Growth

Consumers boosted their spending rapidly in July and price pressures remained modest, signs of continued U.S. economic strength amid rising interest rates. The Fed's preferred gauge of consumer prices, the personal-consumption expenditures price index, rose 0.2% in July from a month earlier, the same pace as in June. Inflation ran at a 2.1% annualized rate over the three months through July, close to the Fed's 2% target. Core prices rose at a 2.9% annualized rate over the previous three months, the lowest such reading since January 2021.

What to Focus On in August's Jobs Report

Friday's jobs report is expected to show a slowing pace of employment growth alongside historically low joblessness. Adding fewer jobs would take pressure off the Federal Reserve to raise interest rates further.

U.S. Economy Mortgage Rates Edge Down to 7.18%

Mortgage rates edged down from a 22-year high, but remained above 7%. The average rate on the standard 30-year fixed mortgage eased to 7.18%, according to a survey of lenders released Thursday by mortgage-finance giant Freddie Mac. A week ago, it was 7.23%, the highest level since 2001.

Real Yields Climb, Helping to Explain Stocks' Summer Slump

Investors looking for a safe way to beat inflation don't have to look very far anymore. Real yields-a measure of the stated return on Treasury bonds, minus inflation- climbed to heights not seen since 2009. Based on 10-year Treasury inflation-protected security yields, real rates (as they are also known) hit 2% in the U.S. before finishing August around 1.86%. Higher real yields are good news for savers, but the picture gets more complicated as they ripple through the markets and the economy.

Rates Are Up. We're Just Starting to Feel the Heat.

Homeowners. Car buyers. Landlords. Big businesses. Here's who stands to lose -and in some surprising cases, win-as interest rates stay high in the years ahead.

Key Developments Around the World China's Slowing Economy Spells Trouble for Dry-Bulk Shipping

Cargo ships are losing hope that China will bail them out. Shrinking trade activity is punishing the bulk carriers that feed the world's second-largest economy with the raw materials it uses for manufacturing, with the rates those vessel owners charge sinking this week to the lowest level in months.

Chinese Banks Plan Some Deposit Rate Cuts

Large commercial banks in China are planning to lower some deposit rates starting Friday, softening the blow of mortgage-rate cuts that will further squeeze their profit margins at a crucial economic juncture.

Why Singapore Banks Are Worried About Foreign Customers

Financial institutions in Singapore are scouring client records after police raided a sprawling criminal organization with stockpiles of cash-and dozens of bank accounts.

Bank of Mexico to Wind Down Dollar Hedging Program

The Bank of Mexico will reduce a currency hedging program introduced amid high peso volatility in 2017, citing improved market conditions, a solid economy and decreased international market turmoil. The foreign exchange commission, formed by officials of the Finance Ministry and the central bank, set up the program in February 2017 when the peso came under pressure at the start of the Trump administration, and expanded it in 2020 during the pandemic. Under current conditions, banks and others are able to cover their dollar needs in the market, the exchange commission said Thursday.

-Anthony Harrup

Research Higher Wages Weren't the Driving Force for Inflation

Two researchers at the Cleveland Fed pin inflation on supply-chain shocks and related factors , concluding that elevated wage growth was in response to rising prices for goods and services. Employees were looking at not losing economic ground to inflation.

Inflation Could Reach Fed's Target In 2024

Inflation returning to the Fed's 2% target by next year "is now well within reach," Capital Economics' Paul Ashworth said in a note about Thursday's PCE data. The core annual reading was 4.2%, compared with June's 4.1%, but Ashworth notes that the three-month annualized rate slowed fell below 3%. He added that a slowdown in housing inflation is likely coming, which could drive the data to where the Fed wants it to be. (Dow Jones Newswires)

Financial Regulation U.K. Dings Firm's Russia Sanctions Compliance After GBP250 Withdrawal

The U.K.'s sanctions office dinged a money transfer company for letting an employee of a sanctioned person's company withdraw GBP250 cash from a business account. It was the first U.K. enforcement action related to the fresh round of sanctions imposed on Russia last year.

Commentary The Generational Paradigm Shift Taking Over Markets

You know the drill: Bad news for the economy turns out to be good for stocks, and good news becomes bad. It's happening again, and it's all thanks to inflation -or more to the point, worries about inflation, writes James Mackintosh.

Special Report: Navigating AI

Generative AI is playing an increasingly important role in the workplace, bringing with it promises of economic advances as well as painful disruption. Here's how you can leverage this transformative technology while managing its risks and rewards:

Generative AI Promises an Economic Revolution. Managing the Disruption Will Be Crucial. AI Fuels New Brand-Safety Worries, and Would-Be Solutions, for Marketers Chatbots Are Trying to Figure Out Where Your Shipments Are Artificial Intelligence Steps In to Lower Carbon Footprint of Buildings Forward Guidance Friday (all times ET)

8:30 a.m.: U.S. employment report for August; Canada gross domestic product for June

9:45 a.m.: Cleveland Fed's Mester speaks at ECB and Kansas City Fed's Center for Inflation Research conference

10 a.m.: ISM Report on Business Manufacturing PMI; U.S. construction spending for July

4:15 p.m.: Assets and liabilities of commercial banks in U.S.

Monday

U.S. markets closed for Labor Day

Basis Points U.S. worker filings for unemployment benefits fell slightly last week, signaling that the labor market remains solid. Initial claims, a proxy for layoffs, declined by 4,000 in the week ended Aug. 26 to a seasonally adjusted 228,000, the Labor Department said Thursday. (Dow Jones Newswires) A late-August rally lost some sizzle Thursday, sapping major stock indexes of momentum as they enter a month that is traditionally their weakest of the year. Australia's manufacturing sector appears more resilient after a weak start to the year, but price pressures are building in the sector which could alarm the Reserve Bank of Australia, according to Judo Bank. The Judo Bank Australian manufacturing purchasing managers' index was unchanged at 49.6 in August from July, remaining at the strongest levels since February. (DJN) Feedback Loop

This newsletter was compiled by Michael Maloney in New York and Perry Cleveland-Peck in Barcelona.

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James Christie , Nell Henderson , Nick Timiraos , Tom Fairless , Megumi Fujikawa , Perry Cleveland-Peck [mailto:[e-mail]], Nihad Ahmed , Michael Maloney , Paul Kiernan

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

(END) Dow Jones Newswires

09-01-23 0716ET