Powell Says Rate Path Is Hard to Predict; Bostic Doesn’t See Need for Rate Raises; Economy Looks Strong; May Spending Figures Out Today By Michael Maloney
Good day. Federal Reserve Chair Jerome Powell said it made sense to continue slowing the pace of interest-rate increases as officials try to find the level that will restrain economic activity and inflation without causing unnecessary weakness. After his comments at an event in Madrid, a new round of data suggested the economy has broad-based momentum despite higher interest rates. Meanwhile, Atlanta Fed President Raphael Bostic said he doesn’t fully share the view that the central bank needs to do more to get inflation back to target. And the Commerce Department is set to release May figures on household spending at 8:30 a.m. today, including core PCE, the Fed’s preferred inflation gauge.
Now on to today’s news and analysis.
Top News Powell Says Next Phase of Rate Rises Will Be Harder to Predict
Fed chief Jerome Powell said holding rates steady at this month’s policy meeting offered a way to further moderate the pace of increases even though most officials penciled in at least two more hikes this year. “We’re just going to have to find our way,” Powell said. When interest rates and inflation were very low in the decade between the 2007-09 financial crisis and the Covid-19 pandemic, the idea of a 5% short-term interest rate would have been improbable, he said. “And now the question is, ‘Is that tight enough policy?” Powell said. The Fed chair and his colleagues “almost overwhelmingly…think that we need to do more to get to a level of tight policy.”
Bostic Says More Rate Hikes May Not Be Needed
The Fed doesn’t need to raise its benchmark interest rate again this cycle unless economic conditions change in an unexpected way, Atlanta Fed President Raphael Bostic said Thursday, MarketWatch reports.
Fed Plans Late-July Launch of FedNow Payments System
The Federal Reserve is set to launch a long-awaited payments system , aimed at modernizing an outmoded infrastructure and ensuring that near-instant payments become more widely available, in late July.
U.S. Economy U.S. Economy Shows Surprising Vigor in First Half of 2023
Layoffs retreated last week and economic growth was stronger than initially reported in the first quarter, the government reported. Other recent data showed rising new home sales, orders for long-lasting goods and consumer confidence. Thursday’s data releases followed Fed leader Jerome Powell’s comment Wednesday that “if you look at the data over the last quarter, what you see is stronger than expected growth, tighter than expected labor markets and higher than expected inflation.”
Pending Home Sales Fall, but Housing Market Is in Recovery Mode
U.S. pending-home sales fell 2.7% from the previous month in May, the National Association of Realtors said, but the housing market is still showing signs of being in recovery mode. Demand for homes is still strong, despite mortgage rates hovering near 7%, but buyers are finding few properties to choose from as homeowners hold out on selling. The shortage in housing inventory has become so dire that it’s pushed pending home sales down in the spring, which is generally the peak season for home-buying. (Dow Jones Newswires)
Consumer Spending Streak Seen Extending Into May
New figures on consumer spending and inflation last month will add to the picture of an economy that is showing surprising strength despite a Federal Reserve campaign to slow growth and cool inflation. The Commerce Department at 8:30 a.m. ET on Friday is set to release May figures on household spending, including on services such as travel, healthcare and entertainment, and the Fed’s preferred inflation gauge. Consumer spending is the primary driver of U.S. economic growth.
Economists surveyed by The Wall Street Journal estimate that household spending rose 0.2% in May from the prior month, compared with a 0.8% jump in April that marked the fourth straight month of increases.
Key Developments Around the World Yen May Weaken Further as Interest Rates Diverge
The yen may weaken more on expectations that the interest-rate gap between Japan and most other countries could widen further and hurt the Japanese currency, analysts said.
Brazil to Change Inflation Target Timing in 2025
Brazil’s monetary authorities said the central bank’s inflation target regime will change starting in 2025 to help the bank control price increases. The country’s National Monetary Council decided the central bank will switch in 2025 to a rolling target for hitting the inflation goal, instead of the current goal of trying to achieve each year’s target by the end of that calendar year. The change came after Brazilian President Luiz Inácio Lula da Silva complained repeatedly that the 3% target for 2024 was too low and interest rates too high as a result.
Riksbank Stresses Hedging Plan Isn’t Currency Intervention
In a surprise move, Sweden’s Riksbank said it is considering hedging part of its FX reserves to reduce financial risks, but Gov. Erik Thedeen repeatedly stated in a Thursday press conference that the measure shouldn’t be seen as FX intervention, SEB’s Sweden Chief Strategist Olle Holmgren said in a note. “Considering that the measure was presented at the same time as the rate decision which states that a weaker SEK is the main upside risk for inflation…it seems probable that the Riksbank hopes that the currency hedging will support the krona.” (DJN)
To Fight Stickier Inflation, Governments Take Aim at Corporate Profits
The next phase in the war against inflation is taking shape in Europe, where governments are actively cajoling businesses to cut prices on everything from pasta to chicken. Their argument: Profits are too high.
Financial Regulation Roundup Wall Street Regulators’ New Target: Emojis
Emojis are used to make text messages more vivid and personal, but regulators say business-related messages with emojis may pose a problem for financial firms if the correspondence isn’t captured and monitored properly.
Investors Are Charged in Trump Social-Media SPAC Deal
Three Digital World Acquisition investors were charged in an insider-trading scheme that federal prosecutors say netted them $22 million off the special-acquisition company’s plan to take former President Donald Trump’s social-media company public.
Commentary How Scared Should You Be About Commercial Real Estate?
A crash in office values could start a doom loop with banks , with falling prices leading to less finance and thus lower prices. Gloomsters think that could spread across the multitrillion-dollar commercial real-estate sector, sucking money out of the economy, James Mackintosh writes in his Streetwise column.
Forward Guidance Friday (all times ET)
8:30 a.m.: U.S. personal-consumption expenditures (PCE) price index for May; U.S. personal income and outlays for May
9:45 a.m.: Chicago Business Barometer for June
10 a.m.: University of Michigan consumer survey for U.S., final for June
10:30 a.m.: Bank of Canada business outlook and consumer expectations surveys
Research Data Underscore Risk of ‘Much More’ Tightening
The economy is too strong and investors need to watch out, Oanda’s Edward Moya said in a note about Thursday’s first-quarter U.S. gross domestic product estimate showing 2% growth. The data “reminded traders that the economy is far from breaking and probably will need to be subject to much more Fed tightening.” He added that currency markets were “aggressively pricing an end to Fed tightening after July,” and are now revisiting that assumption. (DJN)
Executive Insights
Weekly highlights from across WSJ Pro that we hope are useful to you. They are unlocked for WSJ subscribers.
FTX is in discussions with investors about relaunching its flagship exchange , even as regulators ratchet up their oversight of the industry and the company works through bankruptcy. Front-line workers don’t always vibe with new AI tools that promise efficiency but can really mean disruption . Dockworkers, bus drivers and meatpackers are seeking, and winning, bonuses for risking their lives during the Covid-19 pandemic.
Listen to Dave Clark, CEO of digital-focused freight services provider Flexport, speak with WSJ Pro about the company’s acquisition of Shopify’s logistics operations and the role he thinks AI will play in the supply chain.
Listen Now [https://urldefense.com/v3/__https://open.spotify.com/episode/1OU7Ul5CyydIYzmH8Y8ZA3__;!!F0Stn7g!BO-0vgyDGF8bmWtrelSocgQM3Wp81dDOgjyhgu_7T8HYxz_DeXuJLCOsFmqD279PlDvPGHUCx9lCbiSP9A9AScGXiZV21z_EbzJIaxHz$ ] Basis Points Shares of banks, industrials and other companies sensitive to economic conditions propelled major stock indexes higher after fresh data indicated U.S. growth remains resilient. The biggest lenders led the charge on Thursday after passing the Federal Reserve’s annual stress tests. Bank stocks have steadied after a monthslong spiral set off by the failure of three banks. Second-quarter earnings will test whether that moment of relative calm can last . U.S. government-bond yields climbed in the second quarter of the year , with investors saying persistent signs of economic strength and the easing of stress in the banking sector could send them higher still in the months ahead. China’s central bank has expanded lending instruments by a combined 200 billion yuan ($27.58 billion) for the nation’s small businesses and the agricultural sector, as pledged by Beijing last week to step up support for the economy. (Dow Jones Newswires) The official gauge of China’s manufacturing activity improved in June but indicated a contraction for the third-straight month, suggesting continued weakness in the world’s second-largest economy. (DJN) Germany’s jobless rate ticked up unexpectedly in June, indicating the country’s labor market could be loosening in a sluggish economy, a potential relief for European Central Bank policymakers hoping for cooling economic activity to curb stubbornly high inflation. (DJN) France’s inflation rate fell more
(MORE TO FOLLOW) Dow Jones Newswires
06-30-23 0716ET
