Bond Yields Argue for Fed Pause; Bostic Says Economy Slowing, Fed Policy in Right Place By James Christie
Good day. Federal Reserve officials are signaling a run-up in long-term interest rates might substitute for another interest-rate increase. The Fed held rates steady at its meeting last month and indicated it was on track to lift rates at one of its last two meetings this year. Then the rise in long-term Treasury yields that started after July's Fed rate increase gained steam. The rise increasingly appears to be driven by factors that can't be easily explained by the economic or Fed policy outlook, with rising government deficits a prime suspect. Holding rates steady at their Oct. 31-Nov. 1 meeting would give Fed officials space to see how economic and financial developments unfold next month before deciding whether to raise rates in December. Atlanta Fed President Raphael Bostic on Tuesday said he doesn't see the need for further rate increases, saying the economy is slowing and Fed policy is positioned to tame inflation.
Clarification: Randal Stephenson is the head of investment banking at FE International. Yesterday's newsletter omitted Stephenson's first name.
Now on to today's news and analysis.
Top News Higher Bond Yields Likely to Extend Fed Rate Pause
A sustained rise in long-term Treasury yields could be bringing the Federal Reserve's historic rate hiking cycle to an anticlimactic end.
Top central bank officials have signaled in recent days that they could be done raising short-term interest rates if long-term rates remain near their recent highs and inflation continues to cool.
Atlanta Fed's Bostic Says No More Rate Hikes Needed
Federal Reserve Bank of Atlanta President Raphael Bostic said Tuesday he believes the Fed doesn't need to raise interest rates further. Speaking at the annual convention for the American Bankers Association, Bostic said he thinks monetary policy is in the right place to bring inflation down to the Fed's goal of 2%. "We have clearly moved into a restrictive place-the economy is clearly slowing down-and a lot of our policy impact has yet to come," Bostic said. He added that even though he sees the economy slowing, he doesn't predict it is heading into a recession. (Barron's)
Fed Officials Double Down on Bank's 2% Inflation Target
Fed officials in recent days have been reaffirming their commitment to getting inflation all the way back to 2%. While some economists and Fed watchers have suggested that raising the target could make conquering inflation less painful, avoiding job losses that reaching the 2% target might bring, central bank officials say the possibility shouldn't even be under consideration until the current bout of inflation is under control. (Barron's)
U.S. Economy Muni Funds That Use Borrowed Money Take a Big Hit
Some municipal-bond funds-particularly closed-end ones-are suffering their worst stretch since the 2008-09 financial crisis, an acute example of how two years of rising interest rates have slammed investors' portfolios.
Americans Are Feeling Less Confident About Paying Back Their Debts
More Americans think they're in danger of falling behind on their debts. People's expectation of missing a minimum payment on a debt-anything from credit cards, to auto loans to student loans and mortgages- increased in September to the highest level since May 2020 , according to the Federal Reserve Bank of New York's Survey of Consumer Expectations, released Tuesday. Survey respondents said there was a 12.5% chance on average that they would not be able to make the minimum required payment on a debt, up 1.4 percentage points from August. (MarketWatch)
The Californization of the Texas Housing Market
Texas has long had a reputation as an affordable place to live but now the state is being walloped by the same forces that have made homes a lot less affordable in many cities previously known for reasonable prices.
Downsizing Your Home Isn't the Money Move It Used to Be
Downsizing from a big house to a smaller dwelling is a rite of passage for retirees hoping to simplify their lives and shore up their nest eggs. But it might no longer result in savings in today's housing market.
Key Developments Around the World Militants Behind Israel Attack Raised Millions in Crypto
In the year leading up to the attacks, Hamas, Palestinian Islamic Jihad and their Lebanese ally Hezbollah received large amounts of funds through crypto , according to a review of Israeli seizure orders and blockchain analytics reports.
Israel Faces a Potentially Costly Fight to Eliminate Hamas
Finland Sees Likely Sabotage in Damage to Pipeline and Cable
Finland said damage to a natural-gas pipeline and communications cable linking it with fellow NATO member Estonia likely resulted from sabotage, rekindling concerns about the safety of Europe's critical infrastructure.
Canadian Auto Workers Reach Tentative Deal With GM
General Motors Canada reached a tentative agreement with Canadian auto workers on Tuesday, ending a strike that lasted 13 hours. The three-year agreement includes hourly wage increases ranging from 20% to 25% .
Financial Regulation Roundup What's Changed for Crypto After FTX? Not Much.
The fall of crypto exchange FTX, which at its peak held more than $10 billion in customer deposits, hasn't fundamentally changed how crypto works or is regulated. The sector is still the Wild West of finance .
Crypto Sector Seeks Lawyers, Compliance Officers Meet the Main Players in the FTX Trial This Country Won the Global Tax Game, and Is Swimming in Money
Ireland on Tuesday created its own rainy-day fund thanks to outsize profits from an unusual and controversial source of income: U.S. technology and pharmaceutical giants seeking to lower their tax bills.
SEC Gives Shareholder Activists Less Time to Report Positions
The Securities and Exchange Commission voted Tuesday to give shareholder activists and other investors less time to alert the market when they are amassing a large position in a public company's stock.
Forward Guidance Wednesday (all times ET)
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
Thursday
Time N/A: ECB's Lagarde and Panetta at IMF/World Bank, G20 finance ministers and central bankers meetings
2 a.m.: U.K. gross domestic product and industrial production for August
7 a.m.: ECB's Panetta on "Future-proofing Central Bank Money: CBDC Lessons Learnt" panel at IMF's New Economy Forum
8:30 a.m.: U.S. consumer-price index for September; U.S. weekly jobless claims
10 a.m.: Dallas Fed's Logan speaks at Digital Inclusion Research Forum, hosted by the Dallas, Atlanta, Philadelphia and Kansas City Feds
1 p.m.: Atlanta Fed's Bostic speaks at National Agriculture Conference
2:30 p.m.: New York Fed underlying inflation gauge
Research U.S. Inflation Expected to Keep Slowing
U.S. inflation will moderate over the next few months, Goldman Sachs economists write in a report, forecasting September's annual core consumer-price index at 3.98%, down from August's 4.3% and compared with a consensus of 4.1% in a Wall Street Journal survey. September data comes out Thursday. "We expect continued moderation in shelter inflation and lower used car prices to be partially offset by a positive swing in the CPI's health insurance component," the economists write. They forecast annual core CPI inflation of 3.8% this December and 2.9% in December 2024.
-Paulo Trevisani
Commentary Healthcare Strikes Threaten to Prolong Wage Pressure on Hospitals
While the largest U.S. healthcare strike on record has ended without resolution for now, it is a reminder that pressure on healthcare bosses to boost workers' wages is far from easing, David Wainer writes.
High UAW Wages Shrink Detroit's Room to Maneuver
Even before the raise they are striking for, Detroit's unionized auto workers are probably the best paid in the world. Their employers can afford it for now, but high labor costs box them in strategically , Stephen Wilmot writes.
Profits Are Making a Comeback
Despite challenges including rising labor costs and high interest rates, U.S. corporate earnings are on an upswing , Justin Lahart writes. The third-quarter earnings season will likely be much better than the second quarter's.
Basis Points U.S. small business confidence fell again in September as inflation continued to weigh on sentiment. The National Federation of Independent Business said its small-business optimism index declined from 91.3 in August to 90.8. That marked the 21st straight month the index has come in below its long-term average, NFIB said. (Dow Jones Newswires) U.S. wholesale inventories dipped in August for the sixth consecutive month, driven by declining nondurable goods. Inventories of merchant wholesalers declined 0.1% compared with July, according to the Commerce Department, matching consensus expectations from economists polled by The Wall Street Journal. (DJN) Expectations in the U.S. of missing a minimum debt payment-on anything from credit cards and auto loans to student loans and mortgages-increased in September to the highest level since May 2020, according to the Federal Reserve Bank of New York's Survey of Consumer Expectations. Survey respondents said there was a 12.5% chance on average they wouldn't be able to make the minimum required payment on a debt, up 1.4 percentage points from the previous month. (MarketWatch) The International Monetary Fund on Tuesday kept its forecasts for limp economic growth this year and next largely unchanged. The IMF forecast global growth of 3% for 2023 and 2.9% growth next year, a downward cut for 2024 of one-tenth. Global gross domestic product growth was 3.5% in 2022. (MarketWatch) German inflation fell sharply in September, confirming prior estimates and hitting its lowest rate since the outbreak of the war in Ukraine, a level that the European Central
(MORE TO FOLLOW) Dow Jones Newswires
10-11-23 0716ET
