Fed Keeps Rate Options Open; Evans Leaves Chicago Fed, Sees Path for Slowing Rate Campaign; Live Q&A Today With SF Fed's Daly By James Christie

Good day. The December U.S. employment report released on Friday showed strong job growth continued to tighten the labor market, an important consideration for Federal Reserve officials concerned that inflation could settle at uncomfortably elevated levels, particularly if workers bid up wages. For example, Fed governor Lisa Cook in prepared remarks for delivery on Friday said inflation "remains far too high despite some encouraging signs lately, and is therefore of great concern." Also on Friday, the presidents of the Richmond and Kansas City Fed banks said inflation readings have been encouraging recently, but that the central bank's fight against rising prices isn't over. Meanwhile, Charles Evans has stepped down as president of the Chicago Fed. The longest tenured of the 12 regional Fed bank presidents, he is being succeeded by University of Chicago economist Austan Goolsbee. In a parting interview with The Wall Street Journal's Nick Timiraos, Mr. Evans said he was hopeful that milder inflation data would allow the Fed to return to raising interest rates in more traditional quarter-percentage-point increments at its next meeting. Finally, please join our WSJ Live Q&A with San Francisco Fed President Mary Daly at 12:30 p.m. ET today .

Now on to today's news and analysis.

Top News Strong Jobs Report Doesn't Resolve Fed Debate on Next Rate Rise

Friday's employment report does little to clarify how much the Federal Reserve will raise interest rates at its next policy meeting.

The Fed increased its benchmark short-term rate aggressively last year, including by unanimously approving a 0.5-percentage-point increase last month. The rise followed four larger increases of 0.75 point and lifted the rate to a range between 4.25% and 4.5%-a 15-year high.

Fed officials have kept their options open for their Jan. 31-Feb. 1 meeting by declining so far to spell out what might lead them to approve another half-point rate rise or to step down to a more traditional 0.25-point increase. "I am very open to both," said Atlanta Fed President Raphael Bostic during a panel discussion Friday at an economics conference in New Orleans.

Fed Official Lisa Cook Says Inflation Remains Too High Fed's Barkin and George Say Inflation Fight Isn't Over Retiring Chicago Fed President Sees Path for Slower Pace of Rate Rises

The Fed raised interest rates last year more than at any time since the early 1980s to combat high inflation. San Francisco Fed President Mary Daly joins Nick Timiraos, The Wall Street Journal's chief economics correspondent, to discuss her outlook for the economy, inflation and interest rates in 2023.

U.S. Economy Higher Rates, Tech Selloff Fuel Options Boom

Investors trying to capitalize on higher interest rates and the deep selloff in big technology stocks, such as Amazon.com Inc. and Nvidia Corp., are stoking a flurry of activity in the options market.

As White-Collar Layoffs Rise, Blue-Collar Resilience Faces Test

Many blue-collar workers in the U.S. might fare better than they did in previous downturns because demand for goods and services , while softening, is still too high for many employers to consider layoffs.

Hiring, Wage Gains Eased in December, Point to a Cooling Job Market

The U.S. labor market cooled in December, showing the effects of slower growth and the Federal Reserve's interest-rate increases, and suggesting 2023 could bring slower hiring or outright job declines.

Labor Market Boom Cooled Some in 2022

Employers added 4.5 million jobs in 2022 -the second best year for job creation in records back to 1940-highlighting a source of U.S. economic strength amid high inflation, climbing interest rates and uneven growth.

Key Developments Around the World China Reopens to the World as International Travel Restrictions End

Thousands of travelers began to fly in and out of mainland China on Sunday as Beijing removed almost all of its border restrictions, ending pandemic measures that effectively sealed off the world's most populous nation for three years.

Foreign Investors Are Leery of China Bets, Despite Rebound Forecasts North American Leaders' Summit to Focus on Migration, Supply Chain

President Biden is expected to focus on immigration, security and supply-chain problems when he meets with his Mexican counterpart on Monday for the North American Leaders' Summit.

A Billion Lost Eggs Show Challenges Facing Ukraine's Economy

Across Ukraine, farm land and machinery have been destroyed, the country's energy and transport infrastructure bombarded and massive industrial assets, like the Azovstal steel works in Mariupol, laid to waste .

Bolsonaro Supporters Storm Brazil's Congress, High Court

Thousands of protesters supporting Brazil's former President Jair Bolsonaro stormed the presidential palace, Congress and the Supreme Court on Sunday, many calling for military intervention to remove Luiz Inácio Lula da Silva.

Financial Regulation Roundup FTX, Bahamas Liquidators Reach Agreement on Asset Recovery

FTX's new management and liquidators in the Bahamas have signed an agreement to cooperate and collect assets on behalf of creditors, capping a prolonged row over who controls the bankrupt exchange's remaining property.

FTX Seeks to Recoup Sam Bankman-Fried's Charitable Donations

Beijing Signals Two-Year Internet Crackdown May Be Winding Down

A top Chinese official said authorities have wrapped up investigations into the financial businesses of several internet companies, signaling that the crackdown on China's homegrown tech giants may be winding down .

Australia's Push to Invest More Responsibly Gets Reality Check

Australia's pension funds, bolstered by backing companies selling fossil fuels and iron ore, are confronting whether they can afford to tilt away from the dominant resources industry while pursuing zero-emissions goals.

Forward Guidance Monday (all times ET)

10 a.m.: The Conference Board Employment Trends Index for December

12:30 p.m.: Atlanta Fed's Bostic speaks on economic and monetary policy to Atlanta Rotary; San Francisco Fed's Daly discusses economic outlook in virtual WSJ Live Q&A event

3 p.m.: U.S. consumer credit for November

Tuesday

5:10 a.m.: Bank of Canada's Macklem speaks at Sveriges Riksbank's International Symposium on Central Bank Independence; ECB's Schnabel speaks at Sveriges Riksbank's International Symposium on Central Bank Independence

9 a.m.: Fed's Powell speaks at Sveriges Riksbank's International Symposium on Central Bank Independence

Research US Yield Curve Inversion Signals Recession Risks

Starting 2023, many investors have been reassured by the strength of the U.S. labor market, but the Treasury yield curve inversion is demonstrating the Federal Reserve is determined to tighten monetary policy until that strength is eradicated, says Seema Shah, chief global strategist at Principal Asset Management. The recession clock is ticking, she says, adding that yield curve inversion--when short-term Treasury yields are higher than longer-dated ones--has occurred ahead of every U.S. recession since the 1950s. "While not every instance of inversion has led to a recession, several features of the current yield curve are sending a very strong recession signal," Shah says. The 2y10y curve is the most inverted since the early 1980s and it has been inverted since early July, she says.

-Emese Bartha

One Last Interest Rate Increase for Canada Now Expected

CIBC now sides with those predicting still higher interest rates in Canada, forecasting one last increase where it previously expected the Bank of Canada to hold tight at this month's meeting. The shift comes after stronger-than-expected jobs data, suggesting a labor market so far resilient to rapidly rising rates. CIBC adds that while strong hiring for the month at least partly reflects companies needing to compensate for increased staff absenteeism, the tick down in the jobless rate to near a record low has it bracing for a final quarter percentage point increase by the central bank.

-Robb Stewart

Commentary The Fed's Fear of a Wage-Price Spiral Might Soon Abate

The labor market in the U.S. happens to be strong and inflation happens to be high, and now a big question for the Federal Reserve this year is how much those two things have to do with each other, Justin Lahart writes.

Basis Points Orders for U.S. manufactured goods decreased sharply in November from the prior month, reflecting cooler demand for products amid rising borrowing costs. New orders for manufactured goods fell a seasonally adjusted 1.8% in November, the Commerce Department said Friday, snapping a three-month growth streak. (Dow Jones Newswires) Job gains in Canada were stronger than expected in December, pushing the jobless rate down slightly for a third month in four and back near the record low seen over the summer. The number of employed working-aged people increased by 104,000 from November, while the unemployment rate ticked 0.1 percentage point lower to 5.0%, Statistics Canada said. (DJN) Australian home prices have experienced their largest recorded decline, with further falls expected in the coming months should the central bank lift interest rates more. Home values on Jan. 7 were 8.4% below their peak on May 7, according to property data company CoreLogic. (DJN) The eurozone jobless rate was stable in November at its record low, highlighting resilience in the labor market despite slowing economic growth. The eurozone unemployment rate stood at 6.5% in November, unchanged from October, data from the European Union's statistics agency Eurostat showed Monday. The reading was in line with economists' forecasts in a poll by The Wall Street Journal. (DJN) German industrial production rebounded in November, suggesting some resilience in the sector midway through the fourth quarter despite high energy prices and slowing global demand for goods. Industrial output rose 0.2% in November

(MORE TO FOLLOW) Dow Jones Newswires

01-09-23 0715ET