Fed Minutes Note Some Caution on Rates; Highest Close Since 2008 for 10-Year Treasury Yield

Fed Minutes Note Some Caution on Rates; Highest Close Since 2008 for 10-Year Treasury Yield By James Christie

Good day. Minutes of the Federal Reserve's policy meeting last month revealed a view among some officials that the central bank risks raising interest rates too much. At the same time, officials continued to see significant risks that inflation might not fall as much as they expect, which could require them to raise rates again this year, the minutes released Wednesday showed. Ahead of the release of the minutes, investors in interest-rate futures markets saw a roughly one in three chance the Fed would raise rates again this year, but just a 10% chance of an increase next month, according to CME Group. Meanwhile, the 10-year U.S. Treasury yield notched a 15-year high, a move making investors nervous, because past surges have at times proved destabilizing for markets, and threatening to lift borrowing costs.

Now on to today's news and analysis.

Top News Some Fed Officials Turning Cautious About Raising Rates Too High

Most Federal Reserve officials backed an increase in interest rates last month but some saw rising risks that they might raise rates too high, underscoring growing caution about further increases .

Minutes of the July policy meeting, released Wednesday, said some officials thought the risks of raising rates too much versus too little "had become more two-sided, and it was important that the committee's decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening."

Bond Yield Highest Since 2008, Adds Pressure to Borrowing Costs

The yield on the 10-year U.S. Treasury note hit a 15-year high , threatening steeper costs for many borrowers and raising concern on Wall Street about the potential fallout in the stock, bond and housing markets. A key benchmark for interest rates across the economy, the 10-year yield settled at 4.258%, according to Tradeweb. That was up from 4.220% Tuesday and marked its highest close since June 2008, months before the collapse of Lehman Brothers.

U.S. Economy What 7% Mortgage Rates Mean for Home Buyers

The math on buying a home grew even more depressing in recent weeks as mortgage rates approached 7% . Further frustrating buyers is the expectation that mortgage rates could remain high for some time.

U.S. Importers Are Absorbing Higher Shipping Costs This Summer

Costs to ship goods from Asia to the U.S. are turning sharply upward , but American importers appear to be absorbing the higher prices after watching freight rates plummet this year from record highs.

U.S. Plans Tariffs on Food-Can Metal From China, Germany, Canada Too Many Vacant Lots, Not Enough Housing

Despite a national housing shortage, tens of thousands of empty residential lots are beyond the reach of developers or kept vacant by owners because of legal and government obstacles that cities are now trying to knock down.

Key Developments Around the World China's Economic Woes Pushing Its Currency Toward a Record Low

The People's Bank of China cut several interest rates on Tuesday, the same day data painted a grim picture of China's economy, to give the economy a boost. But it is also putting pressure on the currency .

Russia's War-Torn Economy Hits Its Speed Limit

Economists see Russia's currency gyrations this week-the ruble fell to its lowest level since the early days of the war-not as the beginning of a financial crisis but rather as a symptom of the Kremlin's sclerotic economic prospects .

Vital Natural Gas Stashed in Caverns Beneath War-Torn Ukraine

A daredevil trade is in vogue among commodity merchants: stashing natural gas in caverns beneath the surface of war-torn Ukraine, a wager that could reap hundreds of millions of dollars collectively for some traders.

Financial Regulation Roundup New Tax-Credit Market Aims to Funnel Billions to Clean Energy

A government plan to let companies cut their taxes by financing clean-energy projects kicked off with a deal to help fund a $1.5 billion wind-energy transaction that officials hope will spur tens of billions of dollars in climate financing.

So, You Want to Be a Tax Whistleblower

The IRS offers rewards for information on tax evasion and other noncompliance, but getting a reward generally requires enormous patience and persistence as well as deep understanding of tax-law intricacies, agency rules and procedures.

Forward Guidance Thursday (all times ET)

8:30 a.m.: U.S. weekly initial jobless claims; Philadelphia Fed manufacturing survey

10 a.m.: The Conference Board Leading Economic Index for U.S. for July

Friday

5 a.m.: EU harmonized consumer-price index for July

4:15 p.m.: Fed reports on assets and liabilities of commercial banks in U.S.

Research BOE Could Raise Interest Rates 50 Basis Points in September

The Bank of England could raise the bank rate by 50 basis points at its September meeting, depending on U.K. inflation and jobs reports due to be released next month, the strategy team at Saxo writes in a note. Strong U.K. wage growth and inflation data released on Tuesday and Wednesday "showed more tightening is needed from the BOE," the note says. "The data cement a rate hike for September with the only question being if it will be 25bps or 50bps," the note adds. Markets currently place a 91% chance of a 25 basis point rate increase by the Bank of England and a 9% chance of a 50 basis point increase, Refinitiv data show.

-Miriam Mukuru

Commentary Economics Tamed the Weather. Now the Weather Strikes Back.

After centuries in which economies became less susceptible to the vicissitudes of nature, weather is re-emerging as an important and unpredictable influence on inflation and growth, Greg Ip writes.

Basis Points U.S. housing starts rose in July, driven by increased single-family housing construction, while building permits were close to flat, according to Commerce Department data. Starts increased 3.9% from June and 5.9% from a year earlier to a seasonally adjusted annual rate of 1.45 million. (Dow Jones Newswires) U.S. industrial production rose 1% in July from June on the back of strong utility use from hot weather and a rebound in auto production, according to the Federal Reserve. Output in June was revised to a decline of 0.8% from the initial estimate of a 0.5% drop. Capacity utilization increased from 78.6% in June to 79.3% last month. (DJN) China's central bank increased its relending quota for financial institutions in six regions that were hit hard by typhoons this summer, in a bid to help local farmers and small businesses. (DJN) Japan's exports fell in July for the first time in 29 months, data from the Ministry of Finance showed on Thursday. Exports fell 0.3% from a year earlier as shipments of items such as mineral fuels and semiconductor manufacturing equipment declined. Economists surveyed by data provider FactSet had expected exports to fall by 1.0%. (DJN) The Philippine central bank maintained its benchmark interest rate , as domestic inflation has moderated lately. The Bangko Sentral ng Pilipinas said Thursday that it would keep its benchmark overnight reverse repurchase rate unchanged at 6.25% and its corresponding lending rate at 6.75%. Singapore's non-oil domestic exports fell for a 10th straight month in July, with shipments of both electronics and non-electronics declining in most of its top 10 markets. (DJN) The eurozone's industrial output increased unexpectedly in June, despite sluggish production in the bloc's largest economies. Total production rose 0.5% compared with May, Eurostat data showed, and a 0.6% decline expected by economists polled by The Wall Street Journal. Compared with the same month a year earlier, production fell 1.2% in June, better than an expected 4.2% slump. (DJN) The eurozone swung to a considerable trade surplus in June as energy imports normalized from last year's turbulence. (DJN) Norway's central bank raised its key policy rate on Thursday and said that another increase is likely next month as inflation remains above target. Norges Bank increased its key policy rate by 25 basis points to 4.0%, in line with a Dow Jones poll before the decision. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco and Perry Cleveland-Peck in Barcelona.

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08-17-23 0715ET