Federal Reserve Warms to Half-Point Rate Rise; No Rate Move Expected Today by Bank of Canada

Federal Reserve Warms to Half-Point Rate Rise; No Rate Move Expected Today by Bank of Canada By James Christie

Good day. It seems from remarks by Federal Reserve Chair Jerome Powell that the central bank could opt for a half-point rate increase instead of a quarter-point move at its meeting later this month. "The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," Mr. Powell told the Senate Banking Committee on Tuesday. He will return to Capitol Hill today for a second day of hearings before a House committee, his last scheduled public remarks on monetary policy before the Fed's next meeting. Fed officials begin their premeeting quiet period on Saturday. Also today, the Bank of Canada will announce its latest directive on interest rates. All 12 economists surveyed by The Wall Street Journal said they expect the BOC to leave the target for the overnight rate at 4.50%, its highest point in 15 years, as data suggest inflation in Canada has continued to slow.

Now on to today's news and analysis.

Top News Jerome Powell Says Fed Is Prepared to Speed Up Interest-Rate Rises

Federal Reserve Chair Jerome Powell said the central bank would consider raising interest rates by a larger half percentage point this month and was likely to lift rates higher than previously expected this year to cool an economy that has shown surprising strength.

Mr. Powell's comments to lawmakers Tuesday laid the groundwork for a notable shift in tactics to reduce price pressures. He said hotter inflation and hiring could lead central bank officials to alter their recently adopted strategy of raising rates in smaller quarter-point increments.

Powell Testimony Drives Up Shorter-Term Bond Yields Dow Falls More Than 550 Points as Powell Warns of Faster Rate Rises Fed Chair Returns to Congress for Second Day of Hearings

Bank of Canada Expected to Hold Rates Steady

The Bank of Canada is widely expected on Wednesday to leave its main interest rate at its current 4.50% level, upholding a pledge from January to take time out to assess the economic impact of sharply higher borrowing costs.

RBA Governor Says Pause in Rate Hikes Is Closer

The Reserve Bank of Australia is closer to announcing a pause in official interest rate increases, having raised its official cash rate ten consecutive times, RBA Governor Philip Lowe told the AFR Business Summit on Wednesday.

U.S. Economy Women's Return to the Workforce Piles Momentum on a Hot Economy

American women are staging a return to the workforce, gaining more jobs than men for four straight months, which is helping propel the economy in the face of high inflation and rising interest rates.

Senate Plan Aims to Revitalize Beaten-Down Communities

A bipartisan group of U.S. lawmakers is reviving efforts to spur the renovation of single-family homes in blighted neighborhoods , the latest effort to put a dent in a long-term national housing shortage.

This Affordable Senior Housing Project Is Aimed at the Middle Class

U.S. Shale Boom Shows Signs of Peaking as Big Oil Wells Disappear

The boom in oil production that over the last decade made the U.S. the world's largest producer is waning, as shale companies' biggest and best wells produce less oil, suggesting the era of shale growth is nearing its peak .

Key Developments Around the World China Shakes Up Government as Xi Asserts More Control Over Policy

China is preparing sweeping changes to its vast government bureaucracy, as leader Xi Jinping further strengthens Communist Party control and seeks to boost his country's technological and financial prowess.

U.S., China Plunge Further Into a Spiral of Hostility China's Auto Sales Fall Sharply After Lifting of Pandemic Curbs

South Korea Says U.S. Chips Act Subsidies Have Too Many Conditions

The U.S. Chips Act is dangling billions of dollars in subsidies in front of the world's biggest semiconductor manufacturers, but South Korea says there are too many strings attached , calling the requirements vast and unconventional.

Ukraine Seeks to Reassure U.S. Lawmakers Over Graft

Ukraine's finance minister is steadily gathering enough financial aid from the U.S. and other allies to ensure the Ukrainian state can keep functioning. His new challenge is to assuage doubts about the country's history of corruption.

French Strikes Escalate Campaign Against Macron's Pension Overhaul

Workers across France walked off the job and took to the streets Tuesday, kicking off what unions are touting as an open-ended standoff with President Emmanuel Macron over his plans to raise the retirement age.

Financial Regulation Roundup Firms Seeing Tax Benefits From Law Change Some of Them Fought

Some large tech and pharmaceutical companies are telling investors that a new tax-law change is reducing their tax rates . It is the same tax-law change corporate executives at many companies have been urging Congress to reverse.

Binance.US Cleared to Buy Voyager Accounts Despite SEC Opposition

Binance's American affiliate won court approval to take over thousands of customer accounts from bankrupt crypto platform Voyager Digital Ltd. despite warnings that the Binance.US exchange faces possible regulatory action .

Forward Guidance Wednesday (all times ET)

8 a.m.: Richmond Fed's Barkin speaks at Transforming South Carolina conference

8:15 a.m.: ADP National Employment Report for U.S. for February

8:30 a.m.: U.S. trade report for January; Canada trade report for January

10 a.m.: Fed's Powell speaks to House Financial Services Committee; Bank of Canada rate decision

2 p.m.: Federal Reserve Beige Book

Wednesday

8:30 a.m.: U.S. weekly jobless claims

10 a.m.: Fed's Barr gives speech on crypto to Peterson Institute for International Economics

1:30 p.m.: Remarks of Bank of Canada's Rogers on economic progress report to Manitoba Chambers in Winnipeg

Research Analysts Align Bets on ECB Rate Increases With Market Pricing

Analysts, who are typically more cautious than market speculators, are starting to raise their expectations for how high the European Central Bank will raise interest rates and to catch up with increasingly aggressive market pricing. Last week's high inflation data from Spain, France, Germany and the eurozone as a whole have prompted many analysts to upgrade their forecasts. This brings them more into line with pricing in eurozone money markets, which suggests the ECB's deposit rate will peak at or just below 4%, according to Refinitiv data, compared with 2.50% currently. Late last week, analysts at BNP Paribas Markets 360 raised their forecast for the peak in the ECB's deposit rate to 4% from 3.25% previously, while analysts at Landesbank Baden-Wuerttemberg lifted their forecast to 3.75% from 3.25%. Barclays' new rates forecast now stands at 4%.

-Emese Bartha

BOE's Dhingra Warns on Risks of Overtightening

Excessive monetary policy tightening would risk denting economic output at a time when growth is weak and household budgets are already squeezed, Bank of England external member Swati Dhingra says. In a speech at the Resolution Foundation in London on Wednesday, Dhingra says recent research indicates the harmful economic consequences of overtightening and such an approach increases the "downside risks" of missing the inflation target in the medium-term. "A prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution," she says. "This would avoid overtightening and return the economy sustainably to our 2% inflation target in the medium-term."

-Renae Dyer

Commentary Time to Get Used to Higher Rates

With inflation high, the job market tight and the economy chugging along, investors are coming to terms with the Fed setting rates higher for longer, but "longer" might mean even longer than the Fed expects, Justin Lahart writes.

Basis Points EU suppliers are more cautious about supplying Britain after Brexit, according to some 48% of 137 companies surveyed by manufacturing trade body Make U.K. and software firm Infor. More than a third, or 35%, of surveyed companies said non-EU suppliers were also less keen to supply U.K. customers. (Dow Jones Newswires) Brazil's economy is likely to grow more slowly this year, after expanding 2.9% in 2022, but agriculture should be a high point, posting 8% growth, according to economists at XP Investimentos. (DJN) The eurozone economy held steady in the fourth quarter, a lower level than previously estimated, signaling a slowing economy as high inflation and rising interest rates weigh on economic output. Gross domestic product in the bloc was slightly down on the 0.1% expansion previously estimated for October to December, and a slowdown from the revised 0.4% on-quarter increase registered in the third quarter, the EU's statistics agency Eurostat said. The eurozone economy grew 1.8% in the fourth quarter compared with the last quarter of 2021, according to the data. For the whole of 2022, GDP rose 3.5%, the data showed. (DJN) Germany's industrial production rose in January by the biggest monthly increase since June 2020, suggesting resilience in the country's factory sector at the start of the new year despite continued economic uncertainty. Industrial output was up 3.5% in January after falling by a revised 2.4% in December, according to data from the German statistics office Destatis. Economists polled by The Wall Street Journal expected production to increase 1.5%. (DJN) Malaysia's central bank is likely to maintain its benchmark overnight policy rate at 2.75% at this month's policy meeting. Five of the eight economists polled by The Wall Street Journal expect Bank Negara to pause on the rate, while the remaining three economists expect a quarter-point increase. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

Send us your tips, suggestions and feedback. Write to:

(MORE TO FOLLOW) Dow Jones Newswires

03-08-23 0715ET