Fed's Jefferson and Harker Warm Up to Pause in Rate Campaign; Some Signs Economy Is Cooling, But Not Enough-Beige Book By James Christie
Good day. Federal Reserve governor Philip Jefferson and Philadelphia Fed President Patrick Harker, a voting member of the Federal Open Market Committee, endorsed holding interest rates steady in June. In a speech in Washington Wednesday, Jefferson said that, "Indeed, skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming." At a conference in Philadelphia, Harker said, "I think we can take a bit of a skip for a meeting and, frankly, if we're going to go into a period where we need to do more tightening, we can do that every other meeting." The strategy would give Fed officials more time to review the effects of their rate-raising campaign. However, some officials, including two committee voters and two nonvoters, had recently signaled support for continuing to raise rates because inflation and economic activity haven't slowed sufficiently. The mixed messages suggest difficult talks ahead for a policy-making committee that has shown little public disagreement over the past year. Meanwhile, the Fed's Beige Book noted signs the U.S. economy is slowing, but not enough to blunt high inflation, which appears stuck in the 4% to 5% range.
Now on to today's news and analysis.
Top News Fed Prepares to Skip June Rate Rise but Hike Later
Federal Reserve officials signaled they are increasingly likely to hold interest rates stead y at their June meeting before preparing to raise them again later this summer.
Investors in recent days had expected the Fed would lift rates at its June 13-14 meeting, prompting two policy makers Wednesday to publicly underscore their preference to forego a hike, barring a sizzling jobs report on Friday.
Beige Book: Economy May Not Be Cooling Enough to Tame Inflation
Hiring tapered off a bit in May and inflation slowed, a Federal Reserve survey found, but the U.S. economy expanded again and suggested growth is unlikely to slow enough to ease stubbornly high price pressures. The Fed's regular survey of the economy, known as the Beige Book, indicates it is still in decent shape, noting growth in the 1% to 2% range. According to the survey, four of the Fed's 12 regional banks covering the U.S. posted small increases in economic growth, six reported no change and two said activity declined slightly. Meanwhile, inflation has eased to a yearly rate of 4.9% as of April from a 40-year high of 9.1% last year, but progress has slowed to a crawl. Inflation appears to have gotten stuck in the 4% to 5% range. (MarketWatch)
House Approves Debt-Ceiling Deal Struck by Biden and McCarthy
The House passed a sweeping bill that suspends the federal government's $31.4 trillion debt ceiling in exchange for spending cuts, as Republican Speaker Kevin McCarthy muscled through a deal struck with President Biden to avert a default. The 314-117 vote relied on support from both Republicans and Democrats.
Debt-Ceiling Deal Raises Age of Americans Who Must Work for Food Aid Debt-Ceiling Deal Reinstates Student-Loan Payments What's in the Debt-Ceiling Deal U.S. Economy U.S. Job Openings Rose in April, Reversing Three Months of Decline
Employers reported a seasonally adjusted 10.1 million job openings in April, the Labor Department said, up from a revised 9.7 million in March. Layoffs fell to 1.6 million in April , from 1.8 million in March.
U.S. Oil Enters World's Most Important Benchmark
The energy world has for decades looked to oil rigs 100 miles off the coast of Scotland's northernmost islands to help set the price of global crude. All eyes are now turning to Texas instead.
Key Developments Around the World Looser Inflation Target in Brazil Could Favor Equities
Brazil's monetary authorities are considering changes to the central bank's inflation target- including a possible increase , which analysts say could help the country's equities market while causing a drop in some fixed-income securities.
Bank of Mexico Raises Growth Estimate for 2023
The Bank of Mexico projects the country's economic output to grow 2.3% in 2023 , more than the 1.6% the central bank previously estimated, after a stronger-than-expected start to the year.
India's GDP Grows 6.1% Amid Strong Domestic Demand
India's economy grew 6.1% in the fourth quarter from a year earlier, as domestic demand for goods and services picked up and consumer confidence, while still lower than before the pandemic, continued to strengthen .
Cooling Eurozone Inflation Opens Path for ECB Rate Pause
Inflation in the eurozone declined to a 15-month low in May . The data is unlikely to deter the European Central Bank from increasing rates by a quarter point at its June 15 policy meeting, but it could tee up a pause over the summer.
Financial Regulation Roundup Banks Saw Record Deposit Outflows in First Quarter
Banks saw record deposit outflows in the first quarter as customers chased higher interest rates elsewhere, according to data from the Federal Deposit Insurance Corp. Total deposits at FDIC-insured banks fell by $472.1 billion , or nearly 3%, in the first quarter. That was the largest quarterly decline in the data going back to 1984.
Franklin Resources Acquiring Putnam Investments
Franklin Resources added to its acquisition spree Wednesday, agreeing to buy rival money manager Putnam Investments. Franklin said it would pay Putnam's owner, Great-West Lifeco, as much as $1.3 billion in stock and cash .
Forward Guidance Thursday (all times ET)
8:15 a.m.: ADP National Employment Report for May
8:30 a.m.: U.S. weekly jobless claims; U.S. productivity and costs for first quarter, revised
9:45 a.m.: Speech by ECB's Enria at 22nd Annual International Conference on Policy Challenges for the Financial Sector
10 a.m.: ISM Report on Business Manufacturing PMI for May
1 p.m.: Philadelphia Fed's Harker speaks during National Association for Business Economics webinar
Friday
8:30 a.m.: U.S. employment report for May
Research Canadian GDP Gain Adds to Case for Another Rate Rise
Canada's larger-than-expected 3.1% annualized rise in first-quarter gross domestic product and strong preliminary GDP estimate for April boost the case for another interest rate increase by the Bank of Canada, which could come as soon as next week provided the U.S. debt ceiling deal is approved by Congress, Capital Economics economist Stephen Brown says. The pace for the quarter topped the preliminary estimate for a 2.5% increase and the Bank of Canada's forecast from April for a 2.3% gain, though it follows a small downward revision to fourth-quarter GDP, which now looks to have contracted 0.1% annualized. The estimate of a 0.2% rise on-month in April GDP is stronger than expected given the negative effect of the government workers' strike, Brown adds.
-Robb Stewart
'Early Innings' of U.S. Job Market Weakness
Weekly jobless claims in the U.S. are expected to keep rising, leading employment to start declining in the fourth quarter, Piper Sandler economists write in a note. "We're in the early innings of labor weakness," they write, while pointing at initial claims as "the best leading indicator of labor health." They note the indicator stalled after bouncing off a September 2022 cycle low, but their models "suggest claims climb to 280k by year-end, and near 350k in mid-'24, consistent with jobless rates of 5% and 6%, respectively." Economists polled by The Wall Street Journal forecast weekly claims to be reported on Thursday at 235,000, up from 229,000 the prior week. They also see the unemployment rate rising slightly to 3.5% from 3.4% in Friday's payrolls data.
-Paulo Trevisani
Commentary A Debt-Ceiling Deal That Doesn't Deal With Debt
Future Congresses will face more of the budget eaten up by interest costs , and if this year is any indication, it will be without a majority willing to vote for either higher taxes or lower mandatory spending to offset it, Greg Ip writes.
Surprising Strength in Job Openings Isn't Good News for Stocks
If you were wondering if the banking-sector problems set off by the collapse of Silicon Valley Bank in March have had much effect on employers' desire to hire workers , the short answer is no, Justin Lahart writes.
China's Spring Stall Darkens Employment Picture
The first key read on the Chinese economy for the month of May confirms what April data had hinted: The nation's post-Covid recovery lost significant momentum this spring, Nathaniel Taplin writes.
Basis Points Canada's economy began the year more hot than expected as strength in household spending and a pick-up in exports drove a rebound in growth in the first three months. Gross domestic product rose 3.1% at an annualized rate in the first quarter to 2.203 trillion Canadian dollars, the equivalent of $1.62 trillion, Statistics Canada said Wednesday. (Dow Jones Newswires) Activity at manufacturers in the Chicago area contracted for a ninth consecutive month in May as demand cools and hiring remains challenging, data from a survey compiled by MNI Indicators showed. The Chicago Business Barometer fell to 40.4 in May from 48.6 in April, its lowest reading in six months and below the 47.0 consensus forecast from economists polled by The Wall Street Journal. The reading suggests activity contracted in May, as it came in below the 50 threshold that separates expansion from contraction. (DJN) Germany's annual inflation rate fell more than expected in May, as energy and food prices eased further, signaling that some pressures on households could be lifting despite signs of a sluggish economy. The country's consumer price index rose 6.1% on year in May measured by national standards compared with a 7.2% rise in April, preliminary data from the German statistics office showed. The reading was below expectations of 6.5% by economists polled by The Wall Street Journal, and the lowest since March 2022. (DJN) Feedback Loop
(MORE TO FOLLOW) Dow Jones Newswires
06-01-23 0715ET
