The U.S. Spending Boom Is Cooling; SF Fed's Daly Says It Isn't Clear Rates Are High Enough

The U.S. Spending Boom Is Cooling; SF Fed's Daly Says It Isn't Clear Rates Are High Enough By James Christie

Good day. The Federal Reserve's campaign to bring inflation down has helped slow wage growth and the effects of that are being felt notably at the lower end of the pay scale. Workers in the bottom quarter of the wage distribution received a 5.9% raise in October compared with a 7.2% increase in January, Atlanta Fed data shows. Now, retailers are noticing low-income consumers pulling back, and economists expect that to cool an exceptionally strong streak of consumer spending. Meanwhile, San Francisco Fed President Mary Daly said on Friday that it isn't clear the central bank has raised interest rates enough to bring inflation back down to its 2% target.

Now on to today's news and analysis.

Top News The Low-Wage Pay Surge Is Over, Threatening the Consumer Boom

Low-wage workers were the labor market's surprise winners of the past few years. As employers clamored to hire from a limited pool of workers, Americans in lower-paying industries gained leverage to obtain some of the largest pay raises and perks. Government relief during the pandemic padded those workers' finances.

Now, that leverage is weakening . More workers are seeking jobs, and the economy is feeling the impact of the Federal Reserve's campaign to combat inflation. That has resulted in slower wage growth overall, but particularly at the lower end of the pay scale. Pandemic-era savings cushions are growing smaller.

Fed's Daly Says Not Sure Rates High Enough to Finish Job on Inflation

Federal Reserve Bank of San Francisco President Mary Daly said Friday she wasn't sure the Fed has raised interest rates high enough to bring inflation back down to its 2% target. In an interview on CNBC, Daly was asked if rates were "sufficiently restrictive" to bring inflation down. "I don't know yet. And I think that's ok," Daly replied. At the moment, Fed policy was "in a very good place," Daly said, able to react however the economy evolves. The Fed needs to stand in a "ready position," on its toes to raise interest rates again or stop monetary tightening depending on the economic data, she added. (MarketWatch)

What Elon Musk's 'Age of Abundance' Means for Capitalism

The world's richest man, who for years has warned about the dangers of artificial intelligence, lately has been painting a more utopian vision for what could occur when robots are able to replace everyday workers.

U.S. Economy This Week's October Inflation Data Looms Large on Economic Radar

No economic reports matter more for the Federal Reserve's interest-rate policy outlook than consumer inflation data. Inflation has been trending down since the summer, but many economists are wary that most of the progress was low-hanging fruit, and that it will take a lot to get back to the Fed's 2% target. Fed Chairman Jerome Powell raised this concern in remarks on Thursday, saying the central bank was concerned about inflation "head fakes." Economists polled by the Wall Street Journal expect headline CPI to moderate to a 0.1% rise in October, down from a 0.4% gain in the prior month, and the smallest increase since May. (MarketWatch)

A House Isn't Happening, So They're Spending and Saving Differently

Those thwarted by one of the worst-ever times to buy instead of rent are deferring their first house hunts not just for a few months, but for years. Others locked into low mortgages are realizing they're stuck in their starter homes indefinitely.

The Clearest Sign Yet That Commercial Real Estate Is in Trouble

Foreclosures are surging in an opaque and risky corner of commercial real-estate finance, a stark sign that the property-market turmoil is worsening. A record number of foreclosure notices for risky property loans have been issued.

Honda Boosts U.S. Factory Workers' Pay After UAW Wins in Detroit

Honda Motor is giving many U.S. factory workers an 11% pay bump and making other improvements for these employees, a move that follows major gains secured by the United Auto Workers union in Detroit last month.

Las Vegas Strip Workers Forge Tentative New Labor Deals

Las Vegas Strip casino workers and three gambling companies struck labor contract deals after months of negotiations, narrowly avoiding a strike ahead of a high-stakes Formula One race weekend in the city.

Texas-Size Electricity Demand Is the Grid's Big Future

Electricity use in Texas is increasing at historic rates in a sign of what is to come for much of the U.S. Power demand is climbing as industrial users connect to the grid, populations grow and weather gets more extreme.

Key Developments Around the World Australia's Inflation to Ebb More Slowly Than Expected

Inflation pressures across Australia's economy are now expected to ease more gradually than thought just three months ago, said Marion Kohler, acting chief economist at the Reserve Bank of Australia.

What It Took to Get Biden and Xi to the Table

With only weeks to go to prepare for a possible summit with President Biden, Chinese officials floated a plan : If Xi Jinping agrees to meet, he first wants to sit down for a banquet with American business leaders.

China's Spending on Green Energy Is Causing a Global Glut

China's massive funding of renewables has drawn odd newcomers and led to a glut of solar components that is rippling through the industry and stymying attempts to build such manufacturing elsewhere, particularly in Europe.

The Path to Green Energy Is Getting Messier Spanish Political Turmoil Clouds a Sunny Outlook

Spain remains in a period of deep political uncertainty that could threaten the eurozone's fourth-largest economy and put the country's finances at risk, despite negotiations for a new government nearing a conclusion.

Germany, Like U.S., Tries to Curb Surge in Asylum Seekers

Germany is working on a plan to send some asylum seekers to Africa while their cases are decided, marking a U-turn for a country that has long been open to migrants but is straining under a surge in arrivals.

Financial Regulation Roundup Hamas Turned to Crypto to Get Money From Iran

A pivot to crypto helped Hamas and affiliates receive large sums from Iran during the two years before the attacks on Israel, in an attempt to use a new financial technology to lessen the risks of moving physical money and goods.

Key Witness at Sam Bankman-Fried Trial to Launch Crypto Exchange

Former FTX executives, including one who served as a key witness against Sam Bankman-Fried, are teaming up to build a new cryptocurrency exchange that aims to solve the problems that doomed their previous employer.

The Toxic Atmosphere at Bank Regulator FDIC

A toxic work environment at the FDIC, one of the nation's top banking regulators, has for years caused employees to flee from an agency they say enabled and failed to punish bad behavior, according to a Wall Street Journal investigation.

Forward Guidance Monday (all times ET)

11:05 a.m.: Bank of England's Mann speaks at University of Oxford Environmental Economics Seminar

Tuesday

2 a.m.: U.K. unemployment for October

3 a.m.: New York Fed's Williams in panel discussion at High-Level Conference on Global Risk, Uncertainty, and Volatility in Zurich

5 a.m.: Eurozone third-quarter GDP, second estimate

8:30 a.m.: U.S. consumer-price index for October

Research Market Might Be Overpricing ECB Interest Rate Cuts

Money markets are pricing European Central Bank interest rate cuts excessively, Theophile Legrand, European rates strategist at Natixis, said in a webinar. Markets are pricing almost four rate cuts of 25 basis points each for 2024, starting in the spring, he said. "Expectations of rate cuts are now too aggressive in our view," he said, noting Natixis believes the market is underestimating the risk of a longer process of disinflation, or inflation slowing down. Markets are pricing around 20 basis points of rate cuts in April, and a cumulative 33 basis points by June, according to Refinitiv.

-Emese Bartha

Norway Rate Increase in December Looks Likely After Inflation Data

Norwegian October inflation data mean a December interest rate increase by the Norges Bank is in store, Dane Cekov and Kjetil Olsen of Nordea write in a note. Norwegian core inflation came in at 6.0% year-over-year in October, compared with 5.7% in September. That was in line with Norges Bank estimates while consensus was at 5.6%. Nordea had expected 5.3% as it believed food prices would continue to fall. Given the latest consumer-price index print, the Norges Bank will likely disregard the inflation fall seen in September, according to Cekov and Olsen. "This mean[s] that a December hike is fully on," they write.

-Dominic Chopping

Commentary Private Debt Was Meant to Collapse When Rates Rose. Not the Case.

Wall Street's doom-mongers spent years warning that private lenders would be the next bubble to burst when central banks tightened policy. Instead, the funds are becoming even more ubiquitous , Jon Sindreu writes.

China's Middle East Clout Has Limits

China's role as an endless font of investment capital for Middle Eastern economies looks more uncertain than it did a couple of years ago and the country's oil imports have lurched decisively toward Russia, Nathaniel Taplin writes.

Your Money Needs to Go on a Vacation

It has been a great decade plus for American investors who ignored standard advice and kept all of their portfolio at home, but now it's time to spread some of that windfall abroad , Spencer Jakab writes.

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11-13-23 0716ET