Higher Bond Yields Could End Rate Rises; Fed Debates Whether Old Growth-Inflation Model Still Applies

Higher Bond Yields Could End Rate Rises; Fed Debates Whether Old Growth-Inflation Model Still Applies By Michael Maloney

Good day. Borrowing costs for U.S. businesses and households are rising in ways that could allow the Federal Reserve to suspend its historic run of interest-rate increases. Meanwhile, since the Fed last raised rates in July, the economy is doing two things that central bankers don't think it can sustain much longer: revving up activity and at the same time slowing inflation. It has set off a debate within the central bank about how closely it should follow its traditional models of the economy.

Now on to today's news and analysis.

Top News Higher Bond Yields Could End the Fed's Historic Rate Rises

Federal Reserve officials have said for more than a year that beating inflation could require them to hold interest rates higher for longer than investors expected. The swift run-up in long-term Treasury yields-to around 5% from 4% in early August-suggests Wall Street now agrees .

Fed Debates Whether Strong Growth Fuels Inflation

Fed officials are likely to keep the door open to another rate hike in December or beyond. Whether they walk through that door depends on incoming data on inflation and growth-and the outcome of an internal debate over how to interpret that data .

Pro Take: Fed Rate Uncertainty Is Pushing Up Mortgage Rates, Housing Officials Say By Bob Fernandez

Prolonged higher interest rates are making a bad situation worse in the housing market. To ease conditions and avoid a hard-landing recession, the Fed should contemplate ending its rate increases and freeze sales of the more than $2 trillion mortgage-backed securities on its balance sheet, housing and mortgage banking officials have told Fed Chair Jerome Powell. Read More.

U.S. Economy Inflation Trends Keep Fed Rate Hikes on Pause

The personal-consumption expenditures price index, the Fed's preferred inflation gauge, rose 0.4% in September from the prior month, the same pace as in August, the Commerce Department said Friday. So-called core prices, which exclude volatile food and energy categories, increased 0.3% in September, compared with a 0.1% rise in August.

Halloween Candy Is Getting Scary Expensive Americans Can't Stop Spending. Five Reasons Why.

A strong labor market, resilient savings stockpiles and rising values of their homes have consumers feeling good and willing to spend . Despite complaints about high prices, they are taking their children to concerts, packing movie theaters, booking luxury vacations, buying cars and covering the costs of rent and dinners out.

Workers Are Doing Less Work for the Same Pay

Americans are increasingly getting paid for not doing work . Growth in paid-time off-including family leave, sick leave and vacation-is widening the gap between the number of hours for which workers get paid and the number of hours they are actually on the job.

Mortgage Lenders Want Ex-Employees to Give Back Their Bonuses

David Siegel went to work for an affiliate of Guaranteed Rate in 2021 and got a signing bonus of more than $100,000. Interest rates were super low, and mortgage bankers were raking in cash. Now that business has dried up, the mortgage company wants its money back .

Republic First Bancorp Agrees to Rescue Deal After Stock Plummets

A Philadelphia bank struggling to stay afloat agreed to a deal with an investor group aimed at shoring up its finances, a sign that smaller lenders are still under stress after a wave of failures shook the industry earlier this year.

Financial Regulation Roundup Sam Bankman-Fried Tells Jurors He Didn't Commit Fraud

Sam Bankman-Fried made a direct appeal to jurors who will decide his fate, testifying Friday that he made mistakes large and small while running crypto exchange FTX but didn't defraud customers out of billions of dollars.

The Hunt for Crypto's Most Famous Fugitive

Fallen crypto tycoon Do Kwon now sits in a Montenegrin prison, where he is kept in isolation. Here is an account of his life on the lam before his arrest.

From Hamas to North Korean Nukes, Tether Keeps Showing Up

Tether, the $84 billion so-called stablecoin bridging the worlds of cryptocurrencies and the dollar, is increasingly showing up in investigations tied to money laundering, terror financing and sanctions evasion.

Hedge Fund Two Sigma Is Hit by Trading Scandal

A researcher at Two Sigma Investments adjusted the hedge fund's investing models without authorization, the firm has told clients, leading to losses in some funds, big gains in others and fresh regulatory scrutiny.

Forward Guidance Monday (all times ET)

3:30 p.m.: Bank of Canada's Macklem, Rogers at House of Commons Standing Committee on Finance

Tuesday

Time N/A: Federal Reserve begins two-day policy meeting; Bank of Japan releases policy statement

6 a.m.: Euro area inflation flash estimate for October; Eurozone third-quarter gross domestic product, first estimate

8:30 a.m.: U.S. employment cost index for third quarter; Canada gross domestic product for August

9 a.m.: ECB's de Guindos speaks in Madrid; S&P CoreLogic Case-Shiller Home Price Index for August

9:45 a.m.: Chicago Business Barometer for October

10 a.m.: The Conference Board Consumer Confidence Index for October

12:30 p.m.: ECB's de Guindos speaks with students at ICADE University event

2:30 p.m.: ECB's Enria speaks at London School of Economics' Financial Markets Group event

4:15 p.m.: Bank of Canada's Macklem, Rogers at Standing Senate Committee on Banking, Commerce and the Economy

Research Bar for Bank of Canada to Lift Rates Again 'Extremely High'

The Bank of Canada would need to see either a surprise upside shock in inflation, a rebound in growth or material weakness in the Canadian dollar to raise its benchmark interest rate again, economists at BMO Capital Markets told clients. Bank of Canada Gov. Tiff Macklem says raising rates is an option should core inflation not materially slow. BMO says Macklem's message is necessary to keep CPI expectations in check. "The bar to hike is extremely high," firm says.

-Paul Vieira

Basis Points The autumn pullback in the stock market worsened Friday, pushing the S&P 500 into a correction and to its worst two-week decline of the year. The corporate earnings downturn is poised to end , but you wouldn't know it looking at the stock market carnage. One of the hottest investments on Wall Street is something of a surprise-it's a battered long-dated Treasury bond fund . U.S. consumer sentiment improved slightly at the end of October, but higher gas prices left people more worried about inflation, MarketWatch reports . The final reading of the sentiment survey edged up to 63.8 from 63 earlier in the month, the University of Michigan said Friday. Wall Street is betting on a messy and divided recovery for U.S. city mass transit systems. More than three million borrowers have had $127 billion of their federal student loans flagged for cancellation, despite a Supreme Court ruling in June that blocked relief for millions more student-loan holders. Growth in services activity in the middle of the U.S. edged lower in October, while expectations for future activity picked up, according to a monthly survey by the Kansas City Fed. The Tenth District Services Survey's composite index came in at minus 1 in October, down from a reading of 2 in September and level with minus 1 in August. (Dow Jones Newswires) Singapore's gross-domestic-product growth is expected to be in the lower half of the 0.5% to 1.5% forecast range this year, and closer to its potential rate next year, the Monetary Authority of Singapore said Monday. (DJN) Feedback Loop

This newsletter was compiled by Michael Maloney in New York.

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

(END) Dow Jones Newswires

10-30-23 0720ET