Reverse Repo Balances in Decline; Williams Says Inflation Subsiding

Reverse Repo Balances in Decline; Williams Says Inflation Subsiding By James Christie

Good day. Many analysts expect use of the Federal Reserve's overnight reverse repurchase facility, also known as the reverse repo program, to continue to decline. That, they say, is likely to constrain the functioning of a key shock absorber in the market for U.S. Treasury securities. They note that lower balances in the program could mean higher volatility and a rise in interest rates in the market that underpins the global financial system. Meanwhile, New York Fed President John Williams expressed optimism inflation in the U.S. will continue to ease. In remarks in an interview with Axios published on Friday, Williams said inflation is trending lower despite readings in January suggesting stubborn price pressures.

Now on to today's news and analysis.

Top News Treasury Markets Are Losing Their Shock Absorber

Participation is dwindling in a Federal Reserve program that has helped the U.S. government limit its borrowing costs, a development that many investors say presages higher interest rates and larger swings in the $26 trillion Treasury market.

The overnight reverse repurchase facility, known on Wall Street as reverse repo, enables large financial firms such as money-market funds to briefly swap extra cash for high-quality securities on the central bank's balance sheet and pocket some interest. The Fed program has been heavily used in recent years, at one point hitting $2.5 trillion of daily balances, but that number has shrunk steadily and recently fell below $500 billion.

Inflation Should Slow Enough for Rate Cuts This Year, Williams Says

Inflation is likely to slow toward 2% and pave the way for reductions in U.S. interest rates "later this year," Federal Reserve Bank of New York President John Williams said, MarketWatch reported . He also said hot inflation readings in January are likely just a "bump" - a word being used by most Fed officials - and that price pressures are subsiding. "Inflation's still above 2%, but definitely now below 3%," Williams said in an interview with Axios published Friday. "And I think the signs are consistent with it continuing to come down, trend down going forward." (MarketWatch)

U.S. Economy When High-Yield Savings Accounts Come With an Asterisk

Some customers say lenders deceived them by advertising competitive rates while paying longtime customers lower ones. In some cases, only customers who monitored their bank's every move could notice the changes.

$100 Bill Is America's Most Common Currency, and Its Most Annoying

For all its prevalence, the $100 bill is more effective for storing money than spending it. Even when cashiers do accept the bills, they hold up checkout lines to verify they aren't counterfeits.

Key Developments Around the World New U.S. Sanctions Against Russia May Prove Mostly Symbolic

The Biden administration released a raft of sanctions on Friday to punish Moscow that U.S. officials privately concede are likely to land a limited blow . The move adds nearly 600 targets to U.S. sanction rosters.

How Russia Dodged Sanctions, in Seven Charts

China Home Prices Slide, Increasing Pressure on Beijing

The prolonged fall in home prices in China shows the huge task facing Beijing policymakers, who have taken several steps to revive the housing market but have so far proved unable to turn the market around.

Financial Regulation Roundup Wall Street's Latest Pitch Is a Contradiction: Private IPOs

Private IPOs don't come with the splashy bell-ringing ceremony of a traditional debut or result in publicly traded stock. They do allow companies to avoid the potential embarrassment of a new listing falling flat.

U.A.E. Off Watch List for Money Laundering, Terrorism Financing

The United Arab Emirates has strengthened its anti-money-laundering and counterterrorist financing regime sufficiently to be removed from a list of countries requiring increased monitoring, a global financial watchdog says.

Husband Who Eavesdropped on Wife Pleads Guilty to Insider Trading

Interruptions from young children and the neighbor's noisy yard work are just some of the perils of remote work. For Houston resident Tyler Loudon, it led to federal regulators charging him with securities fraud .

As Trading Frenzies Grip Penny Stocks, Criticism of Nasdaq Grows

It has become increasingly common for stocks with a low share price to experience huge bursts of trading volume, frenzies fueled by individual investors using zero-commission trading tools to pile into stocks buzzy on social media.

Forward Guidance Monday (all times ET)

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

Tuesday

8:30 a.m.: U.S. durable goods report, advance for January

9 a.m.: S&P CoreLogic Case-Shiller Home Price Indices

10 a.m.: The Conference Board Consumer Confidence Index; Richmond Fed Survey of Manufacturing Activity

10:30 a.m.: Texas Fed Texas Retail Outlook Survey

Research ECB's March Forecasts Key for April Versus June Rate Cut Debate

The European Central Bank's new staff forecasts, which will be released alongside its next policy decision on March 7, could be a key clue as to whether a first interest rate cut in April is a realistic prospect or whether June is more likely, UBS Global Research economist Reinhard Cluse writes in a report. UBS's base case scenario is the ECB's first interest rate cut will be in April, but there is a "clear risk" it will come later, he notes. Cluse writes that, "According to our base case scenario, the new macro projection will leave the door open for both April and June and could hence put even more focus on the upcoming data on inflation, wages, hard and soft data."

-Emese Bartha

Commentary You Say Bitcoin Is Digital Gold? Maybe It's Digital Pearls

History shows what happened to natural pearls happens to technologies, too : They fall victim to what the economist Joseph Schumpeter called "the perennial gale of creative destruction," Jason Zweig writes.

Basis Points Business sentiment in Germany improved a little in February, as expectations for the near-future of the economy recovered somewhat, signaling some of the weaknesses plaguing the economy could be fading. The Ifo business-climate index rose to 85.5 from 85.2 in January, data from the Ifo Institute showed Friday, matching a consensus forecast of economists polled by The Wall Street Journal. U.K. consumers were a little less upbeat in February, with concerns over the state of the economy growing ahead of a likely election this year, a monthly survey published Friday said. Research group GfK's Consumer Confidence Barometer dipped two points on month to minus 21, flipping expectations the index would improve a little, to minus 18, according to a consensus of economists polled by The Wall Street Journal. (Dow Jones Newswires) Canada's budget deficit widened in December, as growth in spending on government initiatives and public-debt charges surpassed gains in revenue by a wide margin. According to the Department of Finance's monthly fiscal monitor publication, the budget shortfall in December totaled 4.47 billion Canadian dollars, or the equivalent of $3.32 billion, versus a C$1.93 billion deficit in the same month a year earlier. (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

02-26-24 0716ET