Fed Might Need to Dust Off Its Debt-Ceiling Playbook; Dallas Fed's Logan Hints at Backing Another Rate Rise By James Christie
Good day. The Federal Reserve has an emergency playbook for the debt-ceiling impasse courtesy of previous political struggles over the borrowing cap. Moves the Fed might take include purchasing Treasurys if investors do not because of the risk of delayed payments, according to the transcript of an October 2013 conference call. Fed Chair Jerome Powell, then a central bank governor, said some moves would be "loathsome" because they risked violating the Fed's preference to stay out of fiscal policy. Meanwhile, Dallas Fed President Lorie Logan, a key centrist on the Fed's policy-setting committee, suggested on Thursday that barring further weakness in the economic outlook, she would be prepared to lift the benchmark federal-funds rate by a quarter percentage point at the central bank's June 13-14 meeting.
Now on to today's news and analysis.
Top News Fed Officials Face 'Loathsome' Playbook for Debt-Ceiling Standoff
Washington's debt-limit impasse could soon force officials at the Federal Reserve to revisit a crisis-management playbook they put together during similar fights a decade ago.
The conflict risks leaving the Treasury Department unable to pay all its bills on time, including its obligations to holders of U.S. government securities-the lifeblood of global markets. Severe financial turmoil from the threat of a missed payment could compel the Fed to run to the rescue.
The Fed's options include buying Treasurys shunned by investors because of the risk of a delayed payment or allowing banks to pledge defaulted securities as collateral for loans from the central bank, according to the transcript of an October 2013 conference call.
The House of Representatives could vote on a debt-ceiling deal as soon as next week, according to Speaker Kevin McCarthy. The California Republican told reporters he thinks an eventual bill to raise the borrowing limit needs to be on the House floor next week and that he can "see the path." McCarthy and President Joe Biden have designated representatives to negotiate a deal while Biden is attending a G-7 meeting in Japan. (MarketWatch)
How Close Could the U.S. Get to a Default in June?
Fed Officials Suggest June Rate Rise Will Be Close Call
Federal Reserve officials indicated the decision to raise interest rates at their meeting next month was shaping up as a close call, with another policy maker Thursday hinting she would support another increase .
Bank Borrowing From the Fed Rises for Second Straight Week
The amount of money U.S. banks borrowed from the Federal Reserve rose for the second week in a row, a sign that stress on the financial system hasn't totally gone away. Total borrowing rose to $96.1 billion in the seven days ending May 17, from $92.4 billion in the prior week. Bank loans from the emergency Bank Term Funding Program totaled $87 billion in the seven days ending May 17, up from $83.1 billion in the prior week. Bank borrowing from the Fed's traditional discount window fell slightly to $9.1 billion from $9.3 billion in the prior week. (MarketWatch)
U.S. Economy Home Prices Posted Largest Annual Drop in More Than 11 Years
U.S. existing home sales declined 3.4% in April from the prior month to a seasonally adjusted annual rate of 4.28 million, the National Association of Realtors said, and sales fell 23.2% from a year earlier .
Rebound in Treasury Yields Fueled by Resilient Growth, Inflation
Yields on U.S. Treasurys have climbed to their highest levels since the week that Silicon Valley Bank collapsed, highlighting a rebound in investors' expectations for economic growth and inflation.
Workers Testing Positive for Marijuana Reaches 25-Year Record
Of the more than six million general workforce tests that Quest screened for marijuana in 2022, 4.3% came back positive , up from 3.9% the prior year. That is the largest marijuana positivity rate since 1997.
'Fast-Tracked' Power Project Gets Approval 17 Years Later
When plans for the SunZia power line and wind farm in the Western U.S. were first laid in 2006 , Taylor Swift had just released a debut album and George W. Bush was president. The project finally received a crucial permit this week.
Key Developments Around the World Mexico's Central Bank Stands Pat on Rates
Mexico's central bank kept rates unchanged at a record high of 11.25% , in line with expectations, taking a pause after a prolonged tightening cycle as inflation decelerates. The decision was taken unanimously by the bank's five-member board.
U.S. Plans to Expand Sanctions, Export Controls on Russia
President Biden plans to unveil a new round of U.S. restrictions on trade with Russia at the Group of Seven summit, a move designed to further squeeze the Kremlin and demonstrate allies' continued resolve to support Ukraine .
Zelensky Travels to Saudi Arabia to Address Arab Leaders China Touts Its Diplomatic Strength in Russia's Backyard Ukraine Races to Forge New Army Ahead of Offensive Job Cuts Ripple Across Corporate Europe, Despite Resilient Economy
BT Group, one of the biggest telecom companies in the U.K., said it was reducing its workforce by as much as 42%, or about 55,000 workers, by the end of the decade, capping several months of corporate job cutting across Europe.
Tokyo Meeting Highlights Democracies' Push to Secure Chip Supplies
Executives from the biggest chip makers in the U.S., Taiwan and South Korea met the Japanese prime minister as industrial democracies look to deepen cooperation in the production of components seen as central to national security.
Chinese Tech Giants' Results Reflect Lackluster Economic Recovery
Earnings of China's biggest tech companies in the first quarter offered a mixed picture of recovery in the world's second-largest economy, with activities geared to businesses accelerating while consumer spending remained weak.
Glynn's Take: RBNZ's Response to Government Budget Could Be Harsh By James Glynn
Having advertised its annual budget delivered Thursday as a "no frills" affair, the New Zealand government instead unveiled a generous increase in fiscal stimulus that could result in a harsh response by the country's inflation-weary central bank as early as next week.
Economists have moved to raise their GDP growth forecasts, with some now penciling in a 50-basis-point rise in the official cash rate at the Reserve Bank of New Zealand's policy meeting Wednesday. Read more .
Financial Regulation Roundup Crypto Company Celsius Could Get New Life From Wall Street
Apollo Global Management and senior executives at Fortress Investment Group are each backing competing groups that aim to restart bankrupt cryptocurrency lender Celsius Network under new management
China Puts Spymaster in Charge of U.S. Corporate Crackdown
China's crackdown on overseas firms has made clear that leader Xi Jinping values security over economic growth. To eradicate any doubt, according to people familiar with the matter, he has put state-security czar Chen Yixin in charge.
Forward Guidance Friday (all times ET)
8:45 a.m.: New York Fed's Williams speaks at Federal Reserve Research Conference
9 a.m.: Fed's Bowman speaks at Texas Bankers Association 138th Annual Convention
11 a.m.: Fed's Powell in panel discussion with Ben Bernanke at Federal Reserve Research Conference
Monday
8:30 a.m.: St. Louis Fed's Bullard speaks at American Gas Association's Financial Forum
10 a.m.: FCCI Flash Consumer Confidence Indicator for EU for May
10:50 a.m.: Richmond Fed's Barkin and Atlanta Fed's Bostic on panel at Technology-Enabled Disruption Conference
11:05 a.m.: San Francisco Fed's Daly speaks at National Association for Business Economics/Banque de France International Economic Symposium
Research Europe's Industrial Sector Puts Brakes on Economic Recovery
Headwinds in the manufacturing sector could put a lid on any economic rebound in Europe, HSBC economist Christian Fuertjes writes in a note. Germany's ZEW survey and the Banque de France's latest releases reflect the bleak outlook for the sector, after industrial production plunged in March, led by Italy and Germany, he writes. It appears the supportive effect from easing supply-chain disruptions has already faded, Fuertjes adds, and he forecasts industrial output to stagnate in Germany until the end of 2024. It is a dark spot as the European economy has otherwise shown resilience to headwinds, with the eurozone's top four countries plus the U.K. growing in the first quarter, albeit only marginally for the latter country and Germany, he writes.
-Edward Frankl
Commentary A Less-Bad Option for the Debt-Ceiling Crisis
Previous government shutdowns have caused only minor blips in economic growth and have not left the U.S. a deadbeat nation, so if the MAGA minority insists on throwing a temper tantrum, a shutdown is a far better option than a default, Alan S. Blinder writes.
Mr. Blinder, a professor of economics and public affairs at Princeton, served as vice chairman of the Federal Reserve, 1994-96. He is the author, most recently, of "A Monetary and Fiscal History of the United States, 1961-2021."
Executive Insights
Editor's Note: Each week, we will share selections from WSJ Pro that provide insight and analysis we hope are useful to you. The stories are unlocked for The Wall Street Journal's subscribers.
More consolidation lies ahead for private equity as firms look to amass fee-generating assets.
Renewable-energy companies are leasing warehouses at a faster pace, boosting the otherwise sagging demand for industrial real estate.
Companies outside of the tech sector are facing an uphill battle in recruiting Big Tech's laid-off software developers, engineers and data scientists.
Changes to how companies account for renewable energy may lift the veil on actual usage vs. credits bought to offset fossil-fuel use.
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05-19-23 0715ET
