Stimulus Tools Rethink Urged as ECB Policy Forum Kicks Off; Lagarde 'Cannot Declare Inflation Victory Yet'

Stimulus Tools Rethink Urged as ECB Policy Forum Kicks Off; Lagarde 'Cannot Declare Inflation Victory Yet' By Michael Maloney

Good day. The world's central banks should rethink the stimulus tools they use as the global economy enters a new era, according to a senior International Monetary Fund official. In a speech at the European Central Bank's annual policy conference in Sintra, Portugal, Gita Gopinath said such aggressive policies might need some refinement. A number of top central-bank officials will speak as the conference continues today and tomorrow, including the leaders of the U.S. Federal Reserve, Bank of Japan and Bank of England. The theme this year is "macroeconomic stabilization in a volatile inflation environment." In opening remarks earlier today, European Central Bank President Christine Lagarde said the ECB has only one goal: to return inflation in the eurozone to 2% in the medium term, and that it is committed to reaching it "come what may." She said the central bank had made significant progress, but couldn't declare victory yet.

Now on to today's news and analysis.

Top News Central Banks Need to Rethink Stimulus Tools, Says IMF Official

The IMF's Gita Gopinath said central banks should be more wary about using quanitative easing and giving forward guidance that promises low interest rates "when employment has largely recovered and inflation remains only modestly below target." Central banks' recent use of forward guidance to steer investors' expectations of future policy rates "may have been too much of a straitjacket and prevented a faster reaction to inflation surprises," said Gopinath, first deputy managing director at the IMF.

ECB Likely to Hike Rates in July, Says Central Bank President Lagarde

European Central Bank President Christine Lagarde said the bank would likely raise interest rates in July and keep them high for some time, signaling that the ECB still has a way to go to tame high inflation.

Speaking at the ECB's annual policy conference in Portugal, Lagarde warned that recent economic shocks were still working their way through Europe's economy, "making the decline in inflation slower and the inflation process more persistent."

U.S. Economy Texas, Rural States Reap Big Grants From Broadband Fund

The White House on Monday kicked off a flood of new funding for state governments to spend on internet projects from the $1 trillion infrastructure law passed in 2021.

Green-Card Backlog Fuels Shortage of Nurses

Foreign nurses can't get green cards to work in the U.S., alarming hospitals, nursing homes and other medical providers who have relied on them to help alleviate staffing shortages.

Key Developments Around the World Central Banks Risk Secondary Tightening Cycle if Inflation Stays High

Developed economies' central banks risk being forced into secondary monetary-tightening cycles if inflation stays high, Societe Generale Global Chief Economist Klaus Baader told WSJ.

Central banks could keep interest rates on hold in the coming months while inflation remains high and economic growth stays resilient, only to eventually be pushed into a secondary cycle of rate increases, he said. "We've seen secondary tightening from the Bank of Canada and the Reserve Bank of Australia," he said. (Dow Jones Newswires)

Central Banks Should Look to Emerging Markets for Lessons

The current inflation crisis will be remembered as one where emerging market policy-making came of age, according to Neil Shearing, group chief economist at Capital Economics. Having led central banks in developed markets in the tightening cycle, they are leading in easing too, he said in a note.

In their initial response to inflation, emerging economies didn't wait to find out whether it would be transitory, they just got on with raising interest rates, he said. Hungary's central bank lowered rates last week, and Brazil and Chile signaled similar moves, whereas the Bank of England was forced to hike rates aggressively. An optimistic view may be that once policy makers in advanced economies get current inflation lower, they may have learned from EMs how to avoid allowing something similar to develop again. (DJN)

Greek Election Could Pave Way to Investment-Grade Status

A resounding victory in Greece's elections for incumbent Prime Minister Kyriakos Mitsotakis and his conservative New Democracy party could prove a milestone for the country's credit rating to be upgraded to investment-grade status later this year, analysts say. This should be a further boon for Greek bonds, allowing their yields to continue recent sharp falls.

Russia Tries to Restore Control; Prigozhin Denies Trying to Oust Putin

The leader of an abortive military mutiny, Yevgeny Prigozhin, defended the short-lived insurrection and claimed he wasn't trying to oust President Vladimir Putin of Russia, as the Kremlin took steps to reassert control .

Russian Media Appear as Perplexed as Everyone Else Over Mutiny After Russia Turmoil, EU and NATO Boost Support to Ukraine Financial Regulation Roundup Senior Attorney Helped FTX Founder Misuse Customer Funds: Report

FTX Chief Executive John J. Ray III released a report which alleged that an unnamed senior lawyer assisted the crypto exchange's founder, Sam Bankman-Fried, in misusing customer deposits.

Supreme Court to Hear Case That Could Block Tax-the-Rich Plans

The Supreme Court said Monday that it will hear arguments in a tax-law case that could yield billions of dollars for large corporations, block Democrats' proposals to tax wealthy Americans and upend longstanding chunks of the tax code .

Forward Guidance Tuesday (all times ET)

7 a.m.: ECB's Schnabel chairs session on structural change in energy markets and implications for inflation at ECB Forum on Central Banking

8:30 a.m.: U.S. durable goods for May; Canada consumer-price index for May

9 a.m.: S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index for April

10 a.m.: Richmond Fed manufacturing activity survey; U.S. new-home sales for May; Conference Board Consumer Confidence Index for June

Wednesday

4 a.m.: ECB's de Guindos chairs session on monetary policy normalization at ECB Forum on Central Banking; Euro-area money supply for May

5 a.m.: ECB's de Guindos chairs session on fiscal and monetary policy at ECB Forum on Central Banking

6:30 a.m.: ECB's Lane, BOE's Pill speak on panel on macroeconomic forecasting at ECB Forum on Central Banking

8:30 a.m.: ECB's Enria speaks to Committee on Economic and Monetary Affairs of the European Parliament; U.S. international trade in goods for May

9:30 a.m.: Fed's Powell, ECB's Lagarde, BOJ's Ueda and BOE's Bailey speak at ECB Forum on Central Banking

11 a.m.: ECB's Lagarde speaks at ECB Forum on Central Banking

Basis Points Manufacturing activity in Texas continued to slow in June as production pulled back and employment weakened, MarketWatch reports . The index for general business activity of the Texas Manufacturing Outlook Survey increased to minus 23.2 from minus 29.1 in May, which was the lowest reading in three years, according to data released Monday by the Dallas Fed. Brazil recorded a current-account surplus of $649 million in May, from a deficit of $1.7 billion in April, the country's central bank said. The 12-month current-account deficit reached $48.5 billion in May, from a revised $53.8 billion the month before, the central bank said. The 12-month current-account deficit was equal to 2.45% of gross domestic product, versus a revised 2.73% of GDP reported for the previous month. (Dow Jones Newswires) Kenya's central bank on Monday raised its key interest rate to 10.50% from 9.50% in order to tame inflation pressures. (DJN) Feedback Loop

This newsletter was compiled by Michael Maloney in New York and Perry Cleveland-Peck in Barcelona.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

06-27-23 0719ET