U.S. Inflation Pressures Linger; Cleveland Fed's Mester Throws Cold Water on March Rate Cut By James Christie

Good day. The December consumer-price index rose 3.4% from a year earlier, an acceleration from November's 3.1% advance that showed inflation in the U.S. hasn't been entirely defeated. Released Thursday, the price figures suggest the Federal Reserve is likely to stand pat on interest rates at its policy meeting later this month. Cleveland Fed President Loretta Mester said the CPI report showed the central bank still has work to do to bring inflation down to its 2% target. She added that March is probably too soon for the Fed to cut rates. Meanwhile, China is sinking deeper into its worst deflation in years, a problem not just for China but also the rest of the world as demand falters in the second-largest economy.

Note to readers: The Central Banking newsletter won't be published Monday in observance of Martin Luther King Jr. Day. We'll be back Tuesday.

Now on to today's news and analysis.

Top News Inflation Edged Up in December After Rapid Cooling Most of 2023

Americans caught a big break last year as inflation fell by nearly half and paychecks grew, delivering real wage gains in 2023 for the first time in three years.

Inflation's cool-down from historic highs keeps the Federal Reserve on track to hold rates steady later this month and contemplate cutting them later this year. But consumers aren't in the clear yet; December's data showed stubborn lingering pressures that suggest inflation isn't fully beaten.

Fed's Mester Says March Probably Too Soon for Rate Cut

Cleveland Fed President Loretta Mester threw cold water on market expectations of an interest-rate cut as soon as March, MarketWatch reported . Asked in an interview on Bloomberg Television about expectations for a move in March, Mester replied: "I mean it's hard to predict the future, as you know, and it's really going to be dependent on how the economy evolves. I think March is probably too early in my estimation."

U.S. Economy Companies Aren't Done Cutting White-Collar Jobs

After a year of right sizing, employers are looking in the mirror and concluding there is still fat to lose . Companies including Amazon, Xerox, Google and BlackRock this month have announced plans to trim their workforces.

$6 Trillion in Taxes Are at Stake in This Year's Elections

There isn't a dime's worth of a difference between the political parties. The chasm is more like $6 trillion . The winners of November's presidential and congressional elections will quickly face decisions on extending tax cuts scheduled to expire after 2025. President Biden and Republicans support starkly different tax plans.

America's Gas Bonanza Brings Biden New Political Dilemmas

The U.S. has become the world's top exporter of liquefied natural gas. President Biden is finding that this superpower status comes with its own set of headaches .

Key Developments Around the World Deflation Worries Deepen in China

With many Chinese worried about the economic outlook and unwilling to spend, consumer prices fell for a third straight month in December, official data showed on Friday. Prices charged by manufacturers dropped for the 15th month in a row.

Argentina's Inflation Surges After New President Cuts Subsidies

Argentines long battered by galloping inflation were hit even harder in December as food, fuel and drug prices skyrocketed during President Javier Milei's first month in office as he embarked on pro-market shock therapy.

Nikkei's Hot Run Continues;, Hits Fresh 34-Year High

The Nikkei Stock Average rose to a fresh 34-year high , underpinned by expectations for the Bank of Japan to maintain its super-loose accommodative monetary policy stance and a weaker yen.

U.K. Economy Grew More Than Expected; Recession Risks Remain

The U.K. economy expanded by more than expected in November, driven by services-sector growth, though the question of whether or not the economy fell into a recession in the second half of 2023 remains on a knife edge.

U.S.-Led Coalition Launches Strikes on Houthi Rebel Targets in Yemen

Yemen's Houthi rebels responded defiantly to U.S.-led strikes against them Friday, saying the attacks had failed to cause significant damage and that they remained undeterred from launching more attacks in the region.

Oil Jumps Following Airstrikes on Houthi Rebels in Yemen Iran Seizes Oil Tanker Linked to U.S. Sanctions Dispute Financial Regulation Roundup U.S. Attorney Launches Program to Encourage More Self-Disclosure

The U.S. Attorney's Office in Manhattan has launched a pilot program that seeks to offer an incentive to individuals to report to and cooperate with authorities in the prosecution of criminal conduct. The program, announced Wednesday by the U.S. Attorney's Office for the Southern District of New York, known for shepherding high-profile white-collar criminal cases, aims to help prosecutors bring more misconduct to light.

Bitcoin ETFs Off to Monster Start, Despite Resistance on Wall Street

More than $4.6 billion of shares across 10 spot bitcoin ETFs changed hands Thursday, according to Dow Jones Market Data. BlackRock's fund had one of the highest-volume days on record for a brand-new ETF.

Bitcoin ETFs Are Live. Cue the Fee War. Grayscale Faces Risk-Management Challenge With Bitcoin ETF Approval Bank Earnings Season Is About to Start. Here's What to Expect.

Big banks held up well in 2023, even though the Fed continued to raise rates at a fast clip. Reports on fourth-quarter bank earnings should show how bank customers fared in the harsher rate environment.

Forward Guidance Friday (all times ET)

8:30 a.m.: U.S. producer-price index for December


5 a.m.: EU industrial production for November

10:30 a.m.: Bank of Canada business outlook and consumer expectations surveys


2 a.m.: U.K. unemployment for December

8:15 a.m.: Canada housing starts for December

8:30 a.m.: Canada consumer-price index for December; New York Fed's Empire State Manufacturing Survey

Research U.K. Outlook Brighter on Prospect of Lower Interest Rates

Market expectations of lower interest rates will have a more tangible impact on U.K. growth than elsewhere, ING developed market economist James Smith writes in a note. Firstly, mortgage lenders-particularly sensitive to rates in the U.K.-are slashing rates rapidly, and it is likely the average mortgage rate on outstanding lending doesn't have much further to climb, alleviating the squeeze on household spending, he writes. Second, lower market rates will help the government, with chancellor Jeremy Hunt hoping to use his budget in March to unveil tax cuts, Smith adds. The fall in market rates and its effect on bond yields could unlock GBP12 billion of fiscal room, according to ING estimates. This could offer modest but positive quarterly gross domestic product growth through the year, he notes.

-Ed Frankl

Commentary Americans Begin to Believe Inflation Is Cooling

The Fed's comfort level with rate cuts is clearly rising, in part because the past few years' bout of inflation never got strongly ingrained in people's behavior, and lately inflation expectations have begun to fall, Justin Lahart writes.

Will Ukraine's Refugees Want to Go Back Home?

Surveys suggest people who left Ukraine are better educated than the population at large, so their absence would be a devastating economic blow for a country struggling to rebuild, Tamar Jacoby writes.

Tamar Jacoby is the director of the New Ukraine Project at the Progressive Policy Institute.

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.

Retailers say more goods are coming back as fraudulent returns , including items that have been outright stolen.

Retail executives say they are fighting a growing wave of theft, cutting into profits that were already under pressure. But theft is just one contributor to so-called shrink in the industry.

Sustainability and ethics are boosting the appeal of lab-grown diamonds . And they cost less.

Biotechnology venture capitalists and entrepreneurs aim for a turnaround after two years of declining venture investment and few IPOs.

Listen to Morgan Stanley's Jeremy Beal discuss how private fund managers are courting individual investors in search of new streams of capital.

Basis Points Initial jobless benefit claims in the U.S. inched lower by 1,000 to 202,000 in the week ended Jan. 6, the Labor Department said Thursday, marking the lowest level since mid-October. Economists polled by The Wall Street Journal expected claims would rise to 210,000. The prior week's new claims fell by a revised 17,000 to 203,000, compared with the initial estimate of a drop of 18,000 to 202,000. (MarketWatch) The U.S. federal budget deficit widened to $129 billion in December, up from $85 billion a year earlier, the Treasury Department said Thursday. For the first three months of the fiscal year, the deficit widened to $510 billion, up from $421 billion in the same period in the prior year. (MarketWatch) China's new yuan loans dropped in December and came in below expectations. Chinese banks issued 1.17 trillion yuan ($163.36 billion) of new loans in the month, down from a year earlier, according to data released by the central bank on Friday. Mexican industrial production fell in November for the first time in nine months, the National Statistics Institute said Thursday. Output declined 1% in seasonally adjusted terms from October, with construction off 2.9%, mining down 1.4%, and manufacturing 0.5% lower. Oil and gas production was unchanged from the previous month and utilities were down 0.4%. (Dow Jones Newswires) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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01-12-24 0716ET