Bank of Canada Rate Increase Expected; Key U.S. Inflation Data Due Out Today By James Christie
Good day. Economists polled by The Wall Street Journal overwhelmingly expect the Bank of Canada to raise its benchmark interest rate today, from 4.75% to 5.0%. After leaving rates unchanged in March and April, the central bank surprised markets last month with a quarter-point increase, as officials argued rates needed to head higher to cool stronger-than-expected consumer spending and job creation. In raising rates in June, the Bank of Canada said there was mounting concern "the disinflationary momentum needed to bring inflation back to the 2% target could be waning." In the U.S. today, the Labor Department will release its consumer-price index for June. It is expected to show inflation eased last month to its slowest pace in more than two years but remained too high for the Federal Reserve. Fed officials have signaled they are likely to raise interest rates to a 22-year high at their July 25-26 meeting, following recent signs of stronger-than-anticipated economic activity. Finally, measure it differently and inflation is already behind us, says the Journal's James Mackintosh in his Streetwise column, highlighted and linked to below.
Now on to today's news and analysis.
Top News Bank of Canada Expected to Deliver Another Rate Increase
The Bank of Canada is expected to lift its benchmark interest rate on Wednesday by a quarter point after an unexpected increase in June, as the economy continues to surprise to the upside.
Ten of 11 economists surveyed by the Journal last week predicted another rate increase, to 5.0% from 4.75%. Six of the economists who predicted a rise added that they believe this would be the last one for 2023.
Inflation Likely at Its Lowest Since Early 2021, But Still Too Hot for Fed
Economists surveyed by The Wall Street Journal estimated consumer prices rose 3.1% in June from a year earlier, down from 4% in May, but still above the Fed's 2% target. Inflation was last close to 3% in March 2021.
Fed's Williams: Economy Won't Hit Its Weakest Point Until 2024
The U.S. economy won't hit its weakest point of this cycle until next year, according to Federal Reserve Bank of New York President John Williams. "I have actually lowered my forecasts a little bit for next year," Williams said in an interview published by the Financial Times. "I think that some of the tightening of monetary policy and some effects of credit tightening will weigh on demand in 2024," he added. Williams, a key adviser and economist who has the ear of Fed Chair Jerome Powell, said that at the beginning of this year he was thinking 2023 would see the weakest growth. That changed after first-quarter growth came in above 2%, he said. (MarketWatch)
U.S. Economy Is Work From Home to Blame for Senior Housing's Muted Recovery?
Remote and hybrid work schedules may be keeping many older Americans from moving into senior-living communities, as people working remotely are able to more easily check in on their aging parents during typical work days.
The Accountant Shortage Is Showing Up in Financial Statements
The shortage of accountants has begun showing up in financial statements, with some companies in recent months disclosing efforts to address material weaknesses due at least in part to a lack of accounting staff .
Key Developments Around the World Global Deal on Taxing Big Tech Companies Within Reach
Negotiators trying to hammer out a global deal to change how and where large technology companies are taxed failed to reach an agreement this week, but participants said they are close enough for now to avert a damaging alternative : a new trade war between the U.S. and Europe.
Turkey's Economic Troubles Force Erdogan to Tilt Away From Putin
Turkey's President Recep Tayyip Erdogan is directing his foreign policy toward the West in a shift that could have far-reaching implications for the balance of power in Europe and the war in Ukraine.
U.S. Clears Path for F-16 Sales to Turkey Amid NATO Expansion
Ukraine Gets Defense Pledge From West After NATO Disappointment
World leaders will announce new long-term security commitments to Ukraine , seeking to deter future Russian attacks and advance Kyiv's aspirations to join NATO, the European Union and other Western alliances.
Japan Accuses Australia of Betrayal in Fight Over Natural-Gas Exports
A top Japanese energy official called on Australia to back away from new carbon-emissions rules that Tokyo says threaten its energy security, stepping up a rare fight between the two U.S. allies.
Financial Regulation Roundup Bank of America Ordered to Pay $250 Million Over Wrongful Fees
Federal regulators hit Bank of America with a $250 million penalty for opening credit-card accounts in customers' names without their consent, double-charging fees and improperly withholding credit-card rewards.
Former FTX Executive Linked to Campaign-Finance Probe
Federal prosecutors in Manhattan are investigating former FTX executive Ryan Salame and his girlfriend, ex-congressional candidate Michelle Bond, left, for possible violations of campaign-finance law.
Forward Guidance Wednesday (all times ET)
8:30 a.m.: U.S. consumer-price index for June; Richmond Fed's Barkin speaks to Anne Arundel County Chamber of Commerce
9:45 a.m.: Minneapolis Fed's Kashkari speaks at National Bureau of Economic Research Summer Institute 2023; ECB's Lane on panel at National Bureau of Economic Research Summer Institute 2023
10 a.m.: Bank of Canada interest rate decision
11 a.m.: Bank of Canada monetary policy report press conference
1 p.m.: Atlanta Fed's Bostic in armchair conversation at Atlanta Fed's 2023 Payments Inclusion Forum: Breaking Barriers
2 p.m.: Federal Reserve Beige Book
2:30 p.m.: New York Fed Underlying Inflation Gauge
4 p.m.: Cleveland Fed's Mester speaks to National Bureau of Economic Research Summer Institute 2023
Thursday
Time N/A: ECB's Lagarde and Panetta in Eurogroup meeting in Brussels
2 a.m.: U.K. gross domestic product and industrial production for May
4:30 a.m.: Bank of England credit conditions and bank liabilities surveys
5 a.m.: European Union industrial production for May
8:30 a.m.: U.S. producer-price index for June; U.S. weekly jobless claims; ECB account of monetary policy meeting
11:10 a.m.: San Francisco Fed's Daly in live interview on CNBC
6:45 p.m.: Fed's Waller speaks on the economic outlook to Money Marketeers
Research Inflation Expectations Return to Fed's 2% Target, Cleveland Fed Finds
Expectations of where U.S. inflation will be over the next five years have moved back down to around 2% after surging last year, according to a new measurement tool from the Federal Reserve Bank of Cleveland.
Last year, inflation expectations for the five-year horizon jumped to levels well above the central bank's 2% target, as actual inflation climbed amid supply-chain upheavals, a labor shortage and the effect of Russia's invasion of Ukraine on energy and food prices. But this year those expectations have fallen back to where the Fed wants them, according to Cleveland Fed research released Tuesday that is based on the Philadelphia Fed's Survey of Professional Forecasters.
Actual inflation has also fallen from 2022's highs, but it remains above target after 10 interest-rate increases by the Fed since early last year. The central bank's preferred inflation measure, the personal-consumption expenditures price index, rose 3.8% in May from a year earlier, its lowest reading in two years.
Professional forecasters now believe that the Fed will get the job done and bring inflation down to 2% over the next five years, said Robert Rich, the director of the Cleveland Fed's Center for Inflation Research. "They are clearly seeing a downward trajectory for inflation," he added.
Policy makers say inflation expectations must be anchored around the Fed target or inflation can spiral. If forecasters believe inflation will run hotter than 2%, they make decisions on wages and pricing that can fuel inflation. "What you expect inflation to do and be will influence how you behave," Rich said.
-Bob Fernandez
Inflation Data Key to BOE Rate Decision Amid Rapid Wage Growth
Next week's services-inflation data for the U.K. will be crucial to the Bank of England's interest rate decision in August, ING developed-markets economist James Smith writes in a note. Wage growth hit record levels in April and May, according to new and revised data, and marked a setback for the central bank's struggle to bring down elevated inflation, Smith writes. This bolsters the chances of a further 50-basis-point hike to interest rates, though that will "depend heavily on whether next week's services inflation comes in higher than expected too," he writes.
-Joshua Kirby
Germany's ZEW Survey Shows Little Hope for Economic Rebound
The ZEW indicator shows financial analysts remain extremely skeptical on the short-term prospects of the German economy, Christian Fuertjes, an economist at HSBC, writes in a note. Despite some recent bright spots, such as industrial orders beating expectations and decent PMI readings in the services sector, the underlying challenges from rising interest rates and low demand are clearly weighing. "It is hard to find optimism when external and domestic economic headwinds are unlikely to disappear soon and there is no obvious fix to the many mostly fundamental challenges for the German economy," Fuertjes writes. While the ZEW print suggests Germany is set to remain in the recession it entered in the fourth quarter of last year, the services sector gives hope that the second and third quarters might have positive, if anemic, growth, he adds.
-Edward Frankl
Brazil's June Inflation Reinforces Rate Cut View
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07-12-23 0719ET
