Less Gloom Among U.S. Consumers; Atlanta Fed's Bostic Prefers Third-Quarter Rate Cut By James Christie

Good day. Concerns about the U.S. economy sliding into a recession are fading. The share of consumers in December who expected to be financially better off a year later reached the highest level since June 2021, a Federal Reserve Bank of New York survey found. Additionally, consumer confidence last month posted its biggest one-month gain since March 2021, according to The Conference Board. Today, the University of Michigan releases its consumer sentiment measure. It rose nearly 14% last month. Meanwhile, Atlanta Fed President Raphael Bostic on Thursday moved up his timetable for interest-rate cuts from the fourth quarter to the third quarter. He also warned that "premature rate cuts" could increase price pressures.

Now on to today's news and analysis.

Top News Americans Are Finally Feeling Better About the Economy

Americans' gloomy mood about the economy is showing signs of lifting .

Persistently high inflation, the lingering shock from the pandemic's destruction and fears that a recession was around the corner put a damper on feelings about the economy in recent years, despite solid growth and consistent hiring.

Americans are now bucking up as inflation cools and the Federal Reserve signals that interest-rate hikes are likely behind us. And with the solid labor market putting money in bank accounts of freely spending consumers, recession fears for 2024 are fading.

Fed's Bostic Makes Case for First Rate Cut in Third Quarter

Federal Reserve Bank of Atlanta President Raphael Bostic on Thursday laid out the case for the central bank holding off from any interest-rate cut until the July-September quarter. Bostic said he has recently moved up his projected time to begin reducing the Fed's benchmark rate from the fourth quarter to the third quarter because of unexpected progress on inflation and economic activity. One reason to hold off earlier cuts is that the current economic environment is "unpredictable," and it would be unwise to lock in "an emphatic approach" to interest-rate policy, Bostic said. "Premature rate cuts could unleash a surge in demand that could initiate upward pressure on prices," he said. ( MarketWatch )

U.S. Economy Home Sales Likely Fell to 15-Year Low in 2023

Friday's existing-home sales report will likely show that sales of previously owned homes declined last year to the lowest level in at least 15 years as affordability worsened and the supply of homes for sale remained low.

Government Funding Bill Passes, Border and Spending Fights Rage

Congress cleared legislation extending government funding into March, but it does nothing to alleviate political pressures stemming from high U.S. debt levels, record crossings at the southern border and the war in Ukraine.

A Hot Debt Market Is Slashing Borrowing Costs for Riskier Companies

Companies with low credit ratings are rushing to slash their borrowing costs even before the Federal Reserve makes a single interest-rate cut, by asking investors to cut the interest rates on their sub-investment-grade debt.

Companies Are Snapping Up New Clean-Energy Tax Credits

About 100 companies pursuing more than 1,000 clean-energy projects have indicated they plan to sell tax credits in the new market, according to Treasury Department figures reviewed by The Wall Street Journal ahead of their release.

One of Biden's Favorite Chip Projects Is Facing New Delays

Taiwanese chip maker TSMC said it expected to delay production at the second of two semiconductor plants it is building in Arizona, the latest setback for a $40 billion project touted by the Biden administration.

Key Developments Around the World The U.S. Plan for a Postwar Middle East Isn't Gaining Much Traction

Biden administration officials say the path toward a more stable Middle East goes through the ruins of Gaza. But that goal keeps running into the harsh realities of a region plunged into conflict.

Red Sea Conflict Is Scrambling Shipping. Europe Is Bearing the Brunt.

For the second time in three years, a conflict in Europe's unruly neighborhood is threatening to weaken an already struggling economy while a more robust U.S. is watching from a safer distance.

China's New Youth Jobless Rate is Lower. Economists Are Skeptical.

Chinese officials said they adjusted the way they calculate the country's youth unemployment rate to arrive at a more accurate figure, but economists are skeptical it will do much to dispel the gloom hanging over the economy.

Putin's Warped Wartime Economy, as Seen Through a Carton of Eggs

For a microcosm of how the war in Ukraine has warped Russia's economy, consider a carton of eggs. The grocery staple has been in short supply in recent months and prices have skyrocketed , prompting lines reminiscent of Soviet times.

How the Ukraine War Is Aiding North Korea's Illicit-Arms Business Russia Rejects U.S. Proposal to Reopen Arms-Control Dialogue Financial Regulation Roundup An Unlikely Alliance Pushes Back on Fed's Bank Capital Plan

Large banks have led the charge against the Federal Reserve's plan to make big banks hold more capital. But they have been joined by unlikely allies including a broad cross-section of Democratic lawmakers.

Regulator to Call for Stricter Rules on Flighty Deposits

The head of the Office of the Comptroller of the Currency called for new rules that would require large and midsize lenders to show they can withstand the type of rapid deposit runs that took down three banks in early 2023.

How China's Crypto Traders Are Evading the Rules

Crypto trading remains widespread in mainland China, as traders get around rules using a mix of location-masking technology, lax exchange controls and secretive meetings in cafes and other public places.

Forward Guidance Friday (all times ET)

10 a.m.: University of Michigan consumer survey, preliminary for January; U.S. existing home sales for December


10 a.m.: FCCI Flash Consumer Confidence Indicator for January; Richmond Fed Survey of Manufacturing Activity

Research U.S. Shelter Inflation to Fall to Prepandemic Levels

Shelter inflation in the U.S. is on course to return to prepandemic levels later this year, Goldman Sachs economists write in a note. They expect annual shelter inflation of 3.9% in 2024 and forecast a monthly reading of 0.26% in December, down from 0.44% in December 2023 and "a touch below the 2016-2019 average of 0.28%." The economists write that they expect shelter inflation "to remain slightly below the prepandemic pace in 2025, though the outlook at that horizon is particularly uncertain."

-Paulo Trevisani

Bank of Canada Seen Cutting Rates Six Times This Year

Desjardins Securities is sticking with its call for six quarter-point interest rate cuts from the Bank of Canada in 2024, even though data indicate consumer-price index expectations remain elevated and core inflation has accelerated. The firm expects Canada to record a modest gross domestic product gain for the fourth quarter of 2023, to be followed by a shallow yet broad-based recession in the first half of this year. Household consumption and residential activity are expected to decline, as consumers feel the "sustained squeeze" of higher rates, Desjardins says. The firm anticipates the unemployment rate to peak at 7% in the third quarter, as hiring lags behind population growth. Canada's GDP is forecast to grow 0.2% in 2024, Desjardins says, adding that any recovery will be limited because of a wave of mortgage renewals in the pipeline at higher rates.

-Paul Vieira

Commentary Inflation Is Down, but It Wasn't 'Transitory'

William L. Silber writes that, "Going forward, the credibility of the Fed's commitment to raise rates as high as necessary may crumble under political pressure from Congress to cap government interest costs. Lawmakers should use the opportunity provided by the Fed's recent success to restore budgetary balance. If they don't, the decline in inflation will be transitory."

Mr. Silber is the author of "Volcker: The Triumph of Persistence" and "The Power of Nothing to Lose: The Hail Mary Effect in Politics, War and Business."

AI Is the Talk of Davos. Is It Time to Sell?

This year at Davos, Switzerland, it was impossible to move in the snow-blanketed resort without having AI pushed at you. The truly crazy bubble phase is over, but the investment case remains complex , James Mackintosh writes.

Why India Isn't the New China

India's population surpassed China's last year, but the country's path forward is likely to look very different -and more challenging- than China's, Megha Mandavia and Nathaniel Taplin write.

Executive Insights

Here is our weekly roundup of stories from across WSJ Pro that we think you'll find useful. They are unlocked for WSJ subscribers.

Tech CEOs are on the prowl, seeing an opportunity to make deals on increasingly good terms . Spirit Airlines is exploring options to restructure , following the collapse of the JetBlue deal. Companies worldwide are retreating from publicizing green goals , a new report showed. The venture fundraising market is in the doldrums, except for one aspect of it- fund sizes . Basis Points Applications in the U.S. for unemployment benefits in mid-January fell to a 16-month low of 187,000. Initial jobless claims slid by 16,000 in the seven days ended Jan. 13 from 203,000 in the prior week, based on seasonally adjusted figures. The fall was exaggerated by a slide in filings in New York state related to school holidays. (MarketWatch) Construction of new homes in the U.S. fell 4.3% in December , as home builders scaled back new projects. Housing starts fell to a 1.46 million annual pace from 1.53 million in November, the government said Thursday. Starts are down for the first time in four months. New construction recently peaked at 1.8 million in April 2022. (MarketWatch) Mortgage rates in the U.S. have dropped to their lowest level since May 2023 , offering a glimmer of hope for aspiring homeowners. The 30-year fixed-rate mortgage

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