A Middle East War Could Force Fed to Change Tack; Fed's Barr Touts Higher Capital Requirements; Harvard Economist Wins Nobel Prize By James Christie
Good day. The unfolding conflict between Israel and Hamas has financial markets weighing how a war in the Middle East may impact the Federal Reserve's next policy steps. "If this conflict spreads to other regions, that could cause a rise in oil prices and that would be inflationary and would affect what the Fed is trying to do," said Stephenson of FE International. Meanwhile, Federal Reserve Vice Chair for Supervision Michael Barr on Monday told the American Bankers Association's annual convention that strengthening capital requirements for large U.S. banks would benefit the financial system, even as the bank industry fired back that the new rules would discourage growth. Also on Monday, Harvard University's Claudia Goldin was awarded the Nobel Prize in Economic Sciences. Goldin has spent decades illuminating the history of women's job-market experiences, including drivers of female labor-force participation.
Now on to today's news and analysis.
Top News An Israel-Hamas War Could Change What the Fed Does About Rates
For now, fed funds futures traders see a higher chance of no further action by the Federal Reserve this year. That would leave the Fed's main interest-rate target at a 22-year high of between 5.25%-5.5%, MarketWatch reports.
There's a pretty big caveat, however. Traders, investors and even the Fed have all been wrong before, particularly when they underestimated the strength and durability of price pressures in the run-up to the current inflation era. So it's equally possible that the Israel-Hamas war leads to a resurgence of inflation via higher oil prices . Macro strategist Henry Allen and research analyst Cassidy Ainsworth-Grace of Frankfurt-based Deutsche Bank are warning of the risk that 1970's-style stagflation-or an unwelcome mix of inflation and slower growth-may repeat itself.
"The Fed has had a period over the last year where it probably thought it was achieving what it needed to in order to reduce inflation and have a softer landing," said Stephenson of FE International. But an unexpected shock like the one over the weekend from the Middle East "risks undermining the efforts of central banks to bring inflation under control."
Fed's Barr Defends Higher Capital Requirements as Bankers Bristle
Federal Reserve Vice Chair for Supervision Michael Barr said Monday that a complex government plan to boost capital requirements [https://www.marketwatch.com/story/fed-cop-michael-barr-defends-higher-capital-requirements-as-bankers-bristle-b02e3228#::text=Federal%20Reserve%20Vice%20Chair%20for, new%20rules%20would%20discourage%20growth.] for large U.S. banks would help strengthen the financial system, MarketWatch reports.
Nobel Prize in Economics Awarded to Harvard's Claudia Goldin
Harvard University's Claudia Goldin was awarded the Nobel Prize in Economic Sciences for her groundbreaking research on women in the workforce , including why they earn less than men and are less likely to work.
U.S. Economy How Surging Yields Brought the Stock Rally to a Halt
A surge in bond yields has interrupted the 2023 stock rally, leaving investors sifting through market signals to predict what comes next. Stock investors are scrutinizing the bond market because yields affect everything in markets and the economy, from corporate borrowing costs to the present value of future earnings and the likely direction of stock indexes . Analysts say the size and speed of the changes in long-term rates make it less likely there will be a sustainable new rally in stocks.
U.S., China Both Try to Gain Upper Hand Ahead of Biden-Xi Summit
Even as the U.S. and China are trying to repair ties ahead of an expected summit between President Biden and Chinese leader Xi Jinping, Washington and Beijing are jockeying for the upper hand .
Can Lawmakers Boost Ukraine Aid by $50 Billion-or Even More?
Pro-Ukraine senators from both parties say they want to move quickly to pass a yearlong aid package for the war-torn country that far exceeds the aid requested by President Biden in August and would last through the 2024 election .
Ship Freight Rates Tumble as U.S. Consumers Buy Fewer Goods
It has been an anemic peak season for ocean freight haulers as container shipping rates have plunged from pandemic highs and Americans and Europeans continue to pull back on purchases of consumer goods.
Key Developments Around the World China's Economic Gloom Takes Shine Off Its Golden Week
Chinese consumers spent and traveled less over the Golden Week holiday period that ended Friday than the government had projected, figures showed, while home sales in key cities were weaker than last year.
The Rare Indicator Still Optimistic About China's Property Market Evergrande Investors Warn of 'Uncontrollable Collapse' China's Country Garden Succumbs to Debt Crisis After Sales Drop
Mexico's President Stumbles on His Sweeping Agenda
Less than a year from the end of President Andrés Manuel López Obrador's single, six-year term, his energy-sector ambitions and other elements of his nationalist agenda have largely been blocked by judges and Mexico's Congress.
Canadian Auto Workers Go on Strike Against General Motors
Canadian auto workers went on strike against General Motors after the carmaker failed to reach a temporary agreement. The walkout by about 4,300 members of Canada's Unifor union ratchets up pressure on GM.
Financial Regulation Roundup BOE Wants Tougher Rules for Money-Market Funds
In its latest update on financial stability, the Bank of England called for new global standards and rules for institutions involved in market-based finance, and recommended money-market funds hold more short-maturity assets.
The Stunning Boom and Bust of a Tax-Refund King
Last month, after warnings about Employee Retention Credit promoters and abuse, the IRS said it was halting the processing of new ERC claims and would apply more scrutiny to 600,000 pending requests for the credit.
U.S. Prepares Crackdown on Russian Oil Sanctions Evasion
Treasury Secretary Janet Yellen said in an interview that the U.S. would "very likely" take steps to enforce a marquee sanction on the Russian oil industry to shore up a novel price-cap regime that has seen its effectiveness wane.
U.S. Probe of Russia-Sanctions Busting Focuses on Major Oil Trader Forward Guidance Tuesday (all times ET)
9:30 a.m.: Atlanta Fed's Bosic in moderated discussion at American Bankers Association annual convention
10 a.m.: U.S. wholesale trade for August
11 a.m.: New York Fed consumer expectations survey
1:30 p.m.: Fed's Waller speaks at Mercatus Center at George Mason University Conference
Wednesday
Time N/A: ECB's Lagarde and Panetta at IMF/World Bank annual meetings
4:15 a.m.: Fed's Bowman speaks at Reinventing Bretton Woods Committee and Policy Center for the New South Marrakesh Economic Festival
8:30 a.m.: U.S. producer-price index for September
10:15 a.m.: Fed's Waller in fireside chat at E2 Summit, Park City, Utah
12:15 p.m.: Atlanta Fed's Bostic speaks at Metro Atlanta Chamber's ATLeaders
2 p.m.: FOMC minutes of Sept. 19-20 meeting
Research Lasting Middle East Tensions Could Stoke Inflation
The conflict in Israel and Gaza could affect U.S. monetary policy if it lasts long enough to spur inflation via energy prices, Gregory Faranello, head of U.S. rates at AmeriVet, says. In the short term, the war "lends to a flight to quality sentiment," lifting the dollar while lowering bond yields, he says, adding the geopolitical ripple effects "lend to issues around resources, supply chains, and deglobalizing dynamics." For now, U.S. real rates "are high enough to offer protection against pockets like this," but that could change if the conflict expands.
-Paulo Trevisani
Commentary China's Golden Week Doesn't Glitter
Chinese tourism noticeably rebounded during the nation's eight-day Golden Week holiday, typically a tourism and spending bacchanal, but consumption and, more importantly, housing sales remained sluggish, Jacky Wong writes.
Oil Prices Don't Need War in the Middle East to Keep Rising
The world will be short by more than 1 million barrels a day for the rest of the year because of restrictive OPEC+ production policies and additional voluntary cuts by Saudi Arabia and Russia, Carol Ryan writes.
The Crypto Economy's Big Hope Is Already in Crisis
"What is it for?" is the essential question facing the cryptocurrency industry, including from regulators. Videogames have emerged as an answer-if only they could get rid of the speculators , Jon Sindreu writes.
Basis Points U.S. employment rose in September and should continue to do so for the rest of the year, according to The Conference Board Employment Trends Index. The gauge of U.S. workforce trends rose from an upwardly revised 114.16 in August to 114.66 in September, the private-research group said Monday. The reading reverses previous months' falls and suggests hiring is picking up pace in the U.S. (Dow Jones Newswires) Confidence among small businesses in the U.S. fell back again in September as inflation continued to weigh on sentiment. The National Federation of Independent Business said Tuesday that its small-business optimism index fell to 90.8 in September from 91.3 in August. The reading is a little worse than the 91.0 expected by economists, according to a poll conducted by The Wall Street Journal. (DJN) Mexico's inflation eased further in September, reaching its lowest level since February 2021. The country's consumer-price index rose 0.44% from August and 4.45% from a year earlier, the national statistics agency said Monday. The 12-month inflation rate was 4.64% at the end of August. (DJN) Australian business activity moderated in September but remained broadly resilient amid signs that some inflationary forces could be easing. National Australia Bank's business conditions index edged down to +11 points in September from +13 in August. This is
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