Still Leery of Inflation, Fed Leaves Rates Unchanged; Bank of England Also Remains on Hold By James Christie
Good day. The Federal Reserve on Wednesday again held interest rates steady as anticipated, while it abandoned the formal guidance that had kept rate increases on the table since July. But Fed Chair Jerome Powell told reporters the central bank remains concerned about inflation: "It will likely be appropriate to begin dialing back policy restraint at some point this year, but the economy has surprised forecasters in many ways since the pandemic and ongoing progress toward our 2% inflation objective is not assured." And today, the Bank of England left its key interest rate unchanged but signaled it is likely to lower borrowing costs this year for the first time since 2020, though perhaps not as soon as investors expect.
Note to subscribers: Some readers might get this email on a delay because of technical difficulties that we are working to fix. This email was sent at 7 a.m. ET.
Now on to today's news and analysis.
Top News Fed Signals Cuts Possible, but Not Imminent, as It Holds Rates Steady
The Federal Reserve signaled it was thinking about when to lower interest rates but hinted a cut wasn't imminent when it held rates steady at its first policy meeting of the year on Wednesday.
The central bank held its benchmark federal-funds rate steady in a range between 5.25% and 5.5%, the highest level in more than two decades, as it awaits more convincing evidence that a sharp downturn in inflation at the end of last year will endure.
Powell Navigates 'Toxic' Politics of Rate Cuts as Election Nears Parsing the Fed: How the January Statement Changed Text of Fed's Monetary Policy Statement Transcript: Fed Chief Powell's Postmeeting Press Conference Bank of England Holds Rates, Signals Cut This Year
The BOE left its key interest rate at 5.25% and removed a warning that it might have to hike again, the clearest signal yet that it is preparing for cuts. It said it would keep the period over which the rate stays at 5.25% "under review."
U.S. Economy The U.S. Is Spoiled by Cheap Canadian Oil. That's About to Change.
For years, Canada's booming oil fields have had few choices but to funnel the country's thick, tar-like crude oil through pipelines snaking through the Midwest to the Gulf Coast. Those days are numbered.
How to Get a 6% Mortgage Even Before the Fed Cuts Rates
Home buyers don't need to wait for the Fed to cut interest rates to get a 6% mortgage. The average 30-year fixed-rate mortgage already dropped to 6.69% as of Jan. 25 , putting 6% in striking distance for some buyers.
House Passes Tax Cuts for Businesses, Low-Income Families
The House passed a bipartisan tax-cut bill that would deliver billions of dollars to companies and low-income families, overcoming election-year inertia and a series of objections from lawmakers in both parties.
One of America's Hottest Commodities is Probably in Your Trash
Paper mills at home and abroad are gobbling up America's recycled cardboard, driving up prices for old pizza boxes and other corrugated containers that they pulp and make into new packaging.
A New Global Tax Is About to Raise Billions. The U.S. Is Missing Out.
The 15% global minimum tax is here, and it is raising corporate tax payments- just not in the U.S. Congress hasn't changed U.S. tax law to conform to it so the U.S. isn't directly collecting any money from companies because of the deal.
Key Developments Around the World Riksbank Holds Rates, But Says Cuts Could Start in First-Half of Year
Sweden's central bank on Thursday held its key policy rate at 4.0% and said that rate cuts could start during the first half of this year. Economists polled by Dow Jones ahead of the decision had all expected the policy rate to be held at 4.0%. The central bank said that inflation has recently fallen in line with its forecasts and there is less risk of it becoming entrenched at levels that are too high. Activity in the Swedish economy has slowed, inflation expectations are close to target and wages are increasing moderately, it added. "The policy rate can therefore probably be cut sooner than was indicated in the November forecast. If the prospects for inflation remain favourable, the possibility of the policy rate being cut during the first half of the year cannot be ruled out," it said in a statement. This is in stark contrast to the central bank's November meeting where its rate path implied there would be no rate cuts before 2025. (Dow Jones Newswires)
Beijing Pledges More Fiscal Support as Economy Stumbles
China's finance ministry promised more proactive government spending this year, as Beijing doubles down on boosting the economy amid a deepening property slump, while wary economists say bolder moves are needed.
German Inflation Falls Again, Likely Pushing ECB Closer to Rate Cuts
German inflation fell in January to its lowest level since June 2021 , dragged down by falling energy prices, likely leading to further calls for the European Central Bank to start cutting interest rates sooner.
Mexico's Top Court Overturns Flagship Energy Law
Mexico's top court struck down on Wednesday provisions of President Andrés Manuel López Obrador's electricity overhauls that sought to recover state control over the industry, a setback for his nationalist agenda .
On the High Seas, a Pillar of Global Trade Is Under Attack
The modern economy rests on a rule so old that hardly anybody alive can remember a time before it: Ships of any nation may sail the high seas. Suddenly, that pillar of the international order shows signs of buckling .
Glynn's Take: Australian Government Bond Rally Could Fizzle By James Glynn
Australian government bonds have rallied strongly since Wednesday's news that inflation undershot all expectations, but there's a looming risk that bond prices could pull back sharply next week when the central bank's board meets.
Five-year government bond prices have rallied around 14 basis points since the news that fourth-quarter inflation hit a two-year low, with big falls also seen in the underlying measures which help guide the central bank's decision making. Read more .
Financial Regulation Roundup New York Community Bancorp Stock Plunges 38%
Shares of New York Community Bancorp fell 38% Wednesday after it swung to a fourth-quarter loss and slashed its dividend to shore up capital following its purchase of the assets of the collapsed Signature Bank.
Deutsche Bank to Cut About 3,500 Jobs
Deutsche Bank plans to cut about 3,500 jobs in a bid to reduce costs after it reported a drop in profit due to higher expenses. The move marks the latest attempt by the German lender to boost its performance in a yearslong restructuring.
Losses on U.S. Office Lending Hammer Japanese Bank
The troubles in the U.S. office market have cascaded as far as Japan , prompting shares in one of the country's midsize lenders to tumble by the maximum daily limit on Thursday. Aozora Bank forecast its first annual loss in 15 years. It now expects a net loss equivalent to $191 million in the year ending in March, after previously forecasting a profit. It cited additional reserves needed for its U.S. office-loan portfolio and losses from its foreign bond holdings.
Forward Guidance Thursday (all times ET)
8:30 a.m.: U.S. productivity and costs, preliminary for fourth quarter; U.S. weekly jobless claims
10 a.m.: ISM Report on Business Manufacturing PMI for January
Friday
8:30 a.m.: U.S. employment report for January
10 a.m.: University of Michigan consumer report, final for January
Commentary Fed Shouldn't Take Too Long to Conclude Inflation Is Beaten
An "unexpected weakening in the labor market" would justify cutting rates sooner, Fed Chair Jerome Powell said, but such a scenario would suggest the Fed might have waited too long to cut , Greg Ip writes.
What's the Right Interest Rate for the Fed Anyway?
The Federal Reserve is likely to start lowering its target range on interest rates sometime in the next several months. Just how much lower rates should go is where things get tricky , Justin Lahart writes.
Basis Points Activity across Australia's manufacturing sector stabilized in January, but the data brought with it a warning about the threat of choked global supply chains and the risks that delays could pose to the inflation outlook. The Judo Bank Australia Manufacturing Purchasing Managers Index posted 50.1 in January, up from 47.6 in December. Hiring by U.S. private-sector employers slowed in January and wage growth continued to ease as inflation cools. Employment in the nonfarm private sector rose by 107,000 jobs, slowing from a revised 158,000, according to data from the ADP National Employment Report set out Wednesday. Economists polled by The Wall Street Journal expected a shallower slowdown to 150,000 new jobs. Wages increased by an average 5.2%, continuing an easing in recent months. (Dow Jones Newswires) Business activity in the Chicago area unexpectedly fell in January, reflecting deteriorating production, although other components showed improving conditions, according to the Chicago Business Barometer. It fell to 46.0 from an upwardly revised 47.2 in December, data from a survey compiled by MNI indicators showed. January's reading flipped expectations that the index would rise to 48.0 according to the consensus of economists polled by The Wall Street Journal. (DJN) Canada's gross domestic product increased 0.2% in November from the month before to 2.212 trillion Canadian dollars, the equivalent of $1.651 trillion, Statistics Canada said. Compared with a year earlier, GDP advanced 1.1%. (DJN) Inflation in the eurozone ticked down in January, albeit by less than expected, potentially dashing some hopes that the European Central Bank could soon start cutting interest rates. The bloc's consumer price index-a measure of the cost of goods and services-rose 2.8% on year, down from 2.9% in December, according to preliminary data published by the European Union's statistics agency Eurostat
(MORE TO FOLLOW) Dow Jones Newswires
02-01-24 0802ET
