Fed Gets Its Preferred Inflation Gauge Today; Debt-Ceiling Deal Will Have to Wait By James Christie

Good day. Today the Federal Reserve will get its preferred inflation gauge, the personal-consumption expenditures price index, giving the central bank insight into price dynamics in April. Economists surveyed by The Wall Street Journal estimate the index, excluding volatile food and energy prices, rose 4.6% last month from a year earlier. That would be the same as in March and well above the Fed's 2% inflation target. Friday's report will offer clues on the extent to which the Fed has more work to do to lower inflation, after having raised interest rates at 10 consecutive meetings since March 2022. The next Fed policy meeting is June 13 and 14. Meanwhile, House members have left Washington for the Memorial Day weekend without a debt-ceiling deal. Officials are hoping to pass a deal through both the Republican-controlled House and Democratic Senate next week ahead of a June 1 deadline, when the U.S. government could run short of funds to pay all of its bills on time.

Note to readers: The Central Banking newsletter won't be published Monday in observance of Memorial Day in the U.S. We will be back in your inbox on Tuesday.

Now on to today's news and analysis.

Top News April Spending, Inflation Figures Come as Fed Debates Rate Pause

A new government report will detail April consumer spending and inflation readings as the Federal Reserve debates whether to raise interest rates again or take a pause and as negotiators race to meet a debt-ceiling deadline.

The Commerce Department report, to be released Friday at 8:30 a.m. Eastern time, offers a broad measure of consumer spending, including on services such as travel, healthcare and entertainment. The report also includes the Fed's preferred inflation gauge and household income and saving figures.

Kansas City Fed Presidential Search Enters Second Year

The search for a new president of the Federal Reserve Bank of Kansas City is moving into its second year after the bank directors ran into difficulties recruiting candidates, forcing them to retool the search earlier this year.

Boston Fed's Collins Says Rate 'Pause' May Be Close at Hand

Federal Reserve Bank of Boston President Susan Collins said signs of waning inflation suggest the Fed may be "at, or near, the point" where it can stop raising interest rates. "While inflation is still way too high, there are some promising signs of moderation," Collins said at an event at the Community College of Rhode Island. Yet Collins also said she would base her judgment on upcoming reports on inflation, employment and economic growth before the Fed's next big meeting on June 13-14. (MarketWatch)

Bank Borrowing From the Fed Was Flat Last Week

The amount of money U.S. banks borrowed from the Federal Reserve barely changed last week, but it was still close to $100 billion and pointed to lingering stress in the financial system. Total bank borrowing was unchanged at $96 billion in the seven days ending May 24. After the demise of Silicon Valley Bank, the Fed created an emergency lending program to prevent more bank failures and stabilize the U.S. financial system. Bank loans from the emergency Bank Term Funding Program totaled $91.9 billion in the seven days ending May 24, up from $87 billion in the prior week. Borrowing from the Fed's traditional discount window fell by almost $4 billion to $4.2 billion in the prior week. (MarketWatch)

New Bank of Japan Governor Sees Signs of Sustainable Inflation

Rising prices of hotel rooms are an indication that Japan might be decisively pulling free of deflation , Bank of Japan Gov. Kazuo Ueda said, noting that "there appear to be moves leading towards sustainable inflation."

South African Reserve Bank Lifts Key Rate Turkey's Central Bank Holds Key Rate U.S. Economy Potential Debt-Ceiling Deal Starts to Take Shape as Deadline Looms

Negotiators are zeroing in on a deal to raise the debt limit , ahead of the June 1 deadline when the government could run short of money to pay its debts and fund government programs and salaries.

White House Dusts Off Contingency Plan Debt-Ceiling Fight Elevates Garret Graves to Starring Role in GOP Spending Cuts, in Charts: Where a Debt-Ceiling Deal Could End Up Key Developments Around the World A Barbecue Craze in China Shows Why Its Economy Is Undercooked

Until recently, few Chinese could place Zibo on a map. Now it is one of the country's top vacation hot spots. Its skyrocketing popularity captures a national mood that increasingly places fun and thriftiness over lavish spending .

China Hack Latest Challenge for West's Diplomatic Reset With Beijing

The U.S. and its closest allies said Chinese hackers are targeting critical infrastructure using a method that is difficult to detect, sounding an alarm that could be a hurdle to recent efforts to improve ties between Beijing and the West.

Brexit Was Expected to Slash Immigration. Instead It Hit a Record.

When the U.K. voted to leave the European Union in 2016, many backers of Brexit hoped the move would cut immigration. Instead, immigration has risen to a record high , driven by migrants from non-European countries.

Financial Regulation Roundup U.S. Regulator Vows Tough Line on Problem Banks

Large U.S. banks found to have consistently poor risk management and other failings will face more heavy-handed government intervention, including demands to shore up capital or exit lines of business.

Celsius Names Fahrenheit as Winning Chapter 11 Bidder

Cryptocurrency lender Celsius Network selected Fahrenheit, a group of investors led by TechCrunch founder Michael Arrington, to run the reorganized company as it moves toward emerging from bankruptcy.

SEC Penalizes Private-Fund Manager Sciens for Compliance Failure

The Securities and Exchange Commission penalized Sciens Diversified Managers for not having a proper policy for valuing fund assets , a failure the regulator said can lead firms to overcharge investors for fund management fees.

Forward Guidance Friday (all times ET)

8:30 a.m.: U.S. durable goods for April, advance; U.S. advance economic indicators for April; U.S. personal income and outlays and Personal Consumption Expenditures Price Index (PCE) for April

10 a.m.: University of Michigan consumer survey for May, final

Monday

Memorial Day holiday in the U.S.

Research Germany's GDP Prospects Lack Catalysts of Recent Quarters

Germany's first-quarter gross domestic product downgrade is especially disappointing given that some growth-curbing factors such as supply-chain disruptions in the manufacturing sector and negative terms-of-trade effects have eased considerably, HSBC economist Christian Fuertjes writes in a note. A 4.9% on-quarter drop in government spending, by far the strongest decline since reunification, led the 0.3% GDP contraction, he writes. While government consumption could rebound somewhat in the second quarter, the prospects for Germany's economy are otherwise less favorable; manufacturing and construction contributed positively in the first quarter, but March's industrial-output drop suggests it is unlikely to be sustained, Fuertjes writes. Plus, any supply-chain easing is over, so both investment and net trade probably won't contribute positively again, he adds.

-Edward Frankl

Commentary 'Greedflation' Is Real-and Probably Good for the Economy

Yes, inflation may be higher as a result of corporations flexing their pricing muscle, but it is probably also the reason why the recession everyone expects always seems to be six months away, Jon Sindreu writes.

Executive Insights

Editor's Note: Each week, we will share selections from WSJ Pro that provide insight and analysis we hope are useful to you. The stories are unlocked for The Wall Street Journal's subscribers.

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Companies are facing more shareholder proposals from both sides of the political spectrum, dragging them into the increasingly fractious conversations over environmental, social and governance issues.

Basis Points The U.S. economy grew at a somewhat faster but still tepid 1.3% annual pace in the first quarter, updated figures show, as high inflation and rising interest rates weighed. Initially the government said gross domestic product had expanded at a 1.1% rate. (MarketWatch) U.S. economic growth kicked up in April after a couple of sluggish months, led by production and employment, lifting the Chicago Fed National Activity Index from minus 0.37 in March to 0.07, suggesting economic activity grew above its average historical trend as the index came in above zero. (Dow Jones Newswires) Manufacturing activity in the central U.S. remained mostly steady in May and expectations for future activity stayed flat. The Federal Reserve Bank of Kansas City said Thursday its Tenth District manufacturing survey's composite index rose from minus 10 in April to minus 1 this month. Readings below zero suggest activity contracted compared with the previous month. (DJN) The number of houses going under contract in the U.S. recorded no change in April as inventory remained constrained and affordability challenges weighed, with the Pending Home Sales Index, a leading indicator of home sales based on contract signings, holding steady at 78.9. (DJN) U.K. car manufacturing rose 9.9% in April, marking the third month of growth, as the global shortage of chips and other components continued to ease, an industry body said. The Society of Motor Manufacturers and Traders said 66,527 cars drove off the production lines in April compared with 60,554 in April 2022, taking the total for the first four months of this year to 286,414 compared with 267,901 for the

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05-26-23 0724ET