Expectations for Bank of Canada Rate Cuts Starting in Spring; Goolsbee, Kashkari Urge Patience

Expectations for Bank of Canada Rate Cuts Starting in Spring; Goolsbee, Kashkari Urge Patience By James Christie

Good day. A survey by the Bank of Canada in late December found market participants expected the central bank to likely start cutting interest rates in the spring. But since the poll, data indicated inflation in Canada picked up in December, while the Canadian economy produced growth at a faster clip in the fourth quarter than the central bank had forecast. As a result, some economists have pushed back their timeline for projected rate cuts, to closer to midyear or the third quarter. In the U.S., Federal Reserve Bank of Chicago President Austan Goolsbee said in an interview that more positive data will be needed for a "path to normalization" for rate policy, while Minneapolis Fed President Neel Kashkari in an essay said the Fed can afford to wait to see more data before deciding whether to cut rates.

Now on to today's news and analysis.

Top News First Bank of Canada Rate Cut Seen in April, Survey Suggests

OTTAWA-Market participants believe the Bank of Canada will likely start cutting rates in the spring , with the policy rate ending 2024 a percentage point lower than its current 5% level, according to a central bank survey.

The quarterly survey, conducted in late December, is based on responses from about 30 financial-market participants on questions regarding the economy and monetary policy. Last week, the Bank of Canada kept its policy rate unchanged at 5%, and said senior officials are focused on how long it needs to stay at 5% to wrestle down stubbornly-high inflation.

Goolsbee: Nothing Needs to Change in Data to Justify Rate Cuts

The economic data doesn't have to change in order to justify interest-rate cuts - there just has to be more of it, Federal Reserve Bank of Chicago President Austan Goolsbee said on Monday, MarketWatch reported . "If we just keep getting more data like we've gotten ... we should be well on the path to normalization," Goolsbee said in an interview on Bloomberg Television. Goolsbee wouldn't get into the timing for a first rate cut, repeating he doesn't like "tying our hands" when there are seven weeks of data before the next policy meeting. (MarketWatch)

Kashkari: No Need to Quickly Cut Rates

There is no need to quickly lower interest rates because the level is not high enough to push down growth very much, Federal Reserve Bank of Minneapolis President Neel Kashkari said Monday, MarketWatch reported . "The current stance of monetary policy...may not be as tight as we would have assumed," Kashkari said in an essay published on his bank's website. "The implication of this is that, I believe, it gives the FOMC time to assess upcoming economic data before starting to lower the federal funds rate, with less risk that too-tight policy is going to derail the economic recovery," Kashkari concluded. (MarketWatch)

U.S. Economy Home Buyers Are Shopping Again and Finding More Options

Falling mortgage rates boosted home-shopping activity in January, luring the first wave of opportunistic buyers back to the market and lifting mortgage applications after last year's epic collapse in home sales.

U.S. Services Activity Expands More Than Expected, Says ISM

The Institute for Supply Management's services-activity index rose to 53.4 in January from 50.5 in December. A reading above 50 indicates expansion in the sector, which has grown for 43 of the past 44 months, the ISM said.

America's Biggest Bank Is Growing the Old-Fashioned Way: Branches

Hundreds of branches at rival banks are being closed each year, and customers are shunning the teller and choosing the mobile app. But at the JPMorgan Chase, old-fashioned bricks-and-mortar locations are part of the secret sauce .

Key Developments Around the World RBA Shifts to Neutral Stance on Interest Rates

The Reserve Bank of Australia moved to a more neutral stance on interest rates Tuesday but pointedly reminded markets not to rule out the prospect of a further interest rate increase if inflation remains sticky.

BOJ to Mull Ending Stock-Buying Program

Bank of Japan Gov. Kazuo Ueda said Tuesday that the bank would discuss the possibility of ending its stock-buying program when it becomes confident about achieving sustainable 2% inflation.

German Manufacturing Orders Soar on Aircraft Purchases

German manufacturing orders jumped unexpectedly in December , driven by bumper aircraft purchases, although excluding larger orders they still fell, reflecting a difficult environment for the sector.

UBS to Restart Buybacks After Progress on Credit Suisse Integration

UBS Group plans to restart share buybacks later this year as it continues to digest its acquisition of Credit Suisse, even as integration-related costs dragged the Swiss bank into its second quarterly net loss in a row.

U.K. Retail Sales Growth Slowed in January on Weak Demand

Retail sales growth in the U.K. slowed in January mainly due to easing inflation and weak consumer demand, with cost-of-living pressures entering their third year, according to British Retail Consortium data.

Why London's Wealthy Are Renting Instead of Buying Financial Regulation Roundup FinCEN Pressured to Implement Whistleblower Program

A group of U.S. senators is demanding the Financial Crimes Enforcement Network explain its delay in fully implementing a whistleblower award program for reporting possible money-laundering and sanctions violations.

China Hands a Suspended Death Sentence to a Former Bank CEO

During his career, Tian Huiyu took bribes worth over $29 million , abused his power and traded on undisclosed information from which he gained over $40 million and committed other crimes, a statement from a Chinese court said.

Forward Guidance Tuesday (all times ET)

12 p.m.: Cleveland Fed's Mester speaks on economic outlook at 2024 Ohio Bankers League Economic Summit

1 p.m.: Bank of Canada's Macklem speaks to Montreal Council on Foreign Relations

Wednesday

8:30 a.m.: U.S. trade report for December; Canada trade report for December

1:30 p.m.: Bank of Canada summary of deliberations for January interest rate decision

Research U.S. Consumer Spending Resilient While Debt Rises

U.S. consumer spending stayed resilient last year, "underpinned by robust job and income gains, strong household balance sheets and finances, moderating inflation, and improving consumer sentiment," Fitch Ratings says. The firm is raising its real consumer spending forecast for this year from 0.6% to 1.3%. Household debt rose during the four quarters ended in the third quarter of 2023, driven by mortgage debt and credit card borrowing. Home equity line of credit use is growing, as consumers tap increases in real-estate equity since 2020, Fitch says, adding household debt service is expected to increase from 9.9% in 2023 to 11.7% by 2025.

-Stephen Nakrosis

German Trade Data Shows Recessionary Slump

German trade data showed a collapse in overall trade volumes, according to Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, with exports down 4.6% and imports crashing by 6.7% on month in December. "These are recessionary numbers, consistent with overall difficult economic conditions in the German economy," Vistesen says, albeit cautioning that seasonal numbers at this time of the year can be volatile. However, as falling inflation supports a lift to real disposable income and higher spending, there should be some rebound in imports, although the global economic environment means there are risks to a drag on net exports, he adds.

-Ed Frankl

Basis Points The global growth outlook has improved slightly, mainly due to better prospects for the U.S. economy, according to fresh forecasts from the Organisation for Economic Co-operation and Development. It now expects global gross domestic product to rise by 2.9% this year, up from the 2.7% it predicted at prior forecasts in November, albeit a slowdown from the 3.1% recorded in 2023. Its 2025 growth forecast remains unchanged at 3.0%. (Dow Jones Newswires) The U.S. jobs market continued to heat up at the start of the year, according to The Conference Board's employment trends index. It rose to 113.71 in January from a downwardly revised 112.91 in December, the private-research group said Monday, marking a second straight month of improvement in the index. The index reached its highest point since May last year and remains high against prepandemic levels, though below a peak attained in March 2022. (DJN) S&P Global Canada's services purchasing managers index advanced to 45.8 in January from 44.6 in December, marking an eighth consecutive month the gauge has been below the 50 threshold separating improved business activity from contraction. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

02-06-24 0756ET