The Fed Meets This Week After Positive News About Inflation

The Fed Meets This Week After Positive News About Inflation By James Christie

Good day. The Federal Reserve won't cut interest rates at its meeting this week because the U.S. economy has been growing solidly and officials want to be sure of sustained progress in their fight against inflation. Instead, Fed officials are likely to take a symbolic step by no longer signaling rates are more likely to rise than fall, writes Nick Timiraos of The Wall Street Journal. Doing so would affirm they are entertaining lower rates in coming months. Officials head into their meeting with good news on the inflation front. Their preferred inflation measure, the personal-consumption expenditures price index, rose 2.6% in December from a year earlier, the Commerce Department said Friday. That compares with a 5.4% rise at the end of 2022.

Now on to today's news and analysis.

Top News Plummeting Inflation Raises New Risk: Rising Real Interest Rates

Federal Reserve officials start the year with a problem they would ordinarily love to have: Inflation has fallen much faster than expected.

It does, nonetheless, pose a conundrum. The reason: If inflation has sustainably returned to the Fed's 2% target, then real rates-nominal rates adjusted for inflation-have risen and might be restricting economic activity too much. This means the Fed needs to cut interest rates . The question is, when and by how much?

Cooler Inflation Keeps Door Open for Rate Cuts This Year

The U.S. economy notched another month of mild inflation in December, keeping the Federal Reserve on track to deliberate when and how quickly to reduce interest rates later this year. Investors expect it will cut rates this spring.

U.S. Economy Eager for Economic Wins, Biden to Announce Billions for Chips

The Biden administration is expected to award billions of dollars in subsidies to Intel, Taiwan Semiconductor Manufacturing Co. and other top semiconductor companies in coming weeks to help build new factories.

Businesses and Consumers Are Borrowing Again, in 8 Charts

U.S. Treasury yields, which set a floor on the cost of debt such as mortgages and corporate bonds, have retreated from their multiyear highs. Businesses and individuals are finding it easier to borrow, and many are forging ahead .

Brutal Winter Across America Is Keeping the Housing Market on Ice

While the average 30-year fixed-rate mortgage continues to inch away from last year's peak, storms and dangerous cold weather this winter season seem to be keeping some would-be buyers and sellers sidelined, according to Redfin.

High Rates Crushed Startup Investment. Here Is What Could Revive It.

Improving market conditions are kindling hope that startup investment could improve somewhat this year after a dismal 2023. But a look at how deal volumes collapsed suggests it could be a while before any meaningful rebound.

Retail Property Landlords Say No More Rent Discounts

Retail property owners are shedding the discounts and other concessions they offered struggling tenants during the depths of the pandemic, the latest sign that competition for retail real estate is intensifying.

Key Developments Around the World Milei Promised a Free-Market Revolution, and Says He's Delivering

In an interview with The Wall Street Journal, Argentina's new president Javier Milei said he wouldn't waver from his promise to shake up the state-controlled economy, despite the acute short-term economic pain it will bring.

Trump's Momentum Has World Leaders Bracing for Round Two

Donald Trump's stump speeches bounce around the globe, ticking off problemswith foreign governments. Until recently, world leaders tuned him out. Now they are making plans for the possibility he will return to the White House.

Houthi Attacks Disrupt Shipping, Draw U.S. Into Direct Conflict

Yemen's Houthi rebels are carrying out attacks to disrupt global commerce and draw the U.S. military into direct conflict, using Israel's war in Gaza to transform themselves into one of the Middle East's most formidable militant groups.

Oil Prices Pare Gains After Drone Attack Kills U.S. Troops, Escalating Mideast Crisis ( MarketWatch ) Singapore Central Bank Keeps Monetary Policy Unchanged

The Monetary Authority of Singapore on Monday left its monetary policy unchanged for a third straight review and said it expects Singapore's economic prospects to continue improving this year.

Why More Chinese Workers Are Settling for Less Pay

With the economy in a funk and deflation settling in, many in China are having to settle for jobs beneath their skill levels , often with reduced pay, making it harder to make ends meet and depressing consumer spending.

Financial Regulation Roundup China Evergrande Is Told to Liquidate

Property developer China Evergrande Group has been ordered to liquidate by a Hong Kong court, bringing an end to the yearslong saga of a company whose default rippled through the world's second-largest economy.

China Curbs Stock Lending, in Fresh Move to Bolster Markets

Chinese authorities have stopped some shareholders lending out their stock- making it harder to bet on falling prices and marking the latest bid to shore up China's ailing stock market.

The Most Important Man in Finance You've Never Heard Of

Josh Frost's low-profile job is suddenly a Wall Street obsession. As the Treasury Department's assistant secretary for financial markets, he sets the mix of U.S. government bonds sold to investors.

Texas Bans Barclays From Participating in Bond Market Due to ESG

The Texas Attorney General's Public Finance Division banned Barclays from participating in the state's municipal bond market over concerns about its environmental, social and governance policies.

Forward Guidance Monday (all times ET)

8:10 a.m.: ECB's de Guindos speaks at Investment Outlook conference of Citi Private Bank in Madrid

10:30 a.m.: Dallas Fed Manufacturing Survey

Tuesday

Time N/A: Federal Open Market Committee meeting

5 a.m.: EU business and consumer surveys for January; EU gross domestic product, first estimate for fourth quarter

9 a.m.: S&P CoreLogic Case-Shiller Home Price Index for November

10 a.m.: The Conference Board Consumer Confidence for January; U.S. Job Openings and Labor Turnover Survey (JOLTS) for December

10:30 a.m.: Dallas Fed Texas Retail Survey

Research Probability of U.S. Recession Still Elevated

While the probability of a recession in the U.S. has moderated from the middle of 2023, the risk remains elevated, S&P Global Ratings says in an article. While current data shows favorable trends in the consumer sector, the manufacturing sector remains soft. "We expect below-trend growth in the coming quarters, given a mixed bag of leading indicators," S&P Global Ratings U.S. chief economist Satyam Panday says. "Key risks include conflicts in the Middle East and a potential resurgence in inflation that would threaten the Federal Reserve's expected monetary easing."

-Stephen Nakrosis

Germany's Chilly Sentiment Offers Little Hope of Rebound

Germany's gloomy shoppers bode ill for any consumer-led recovery in the eurozone powerhouse at the start of 2024, economist Melanie Debono at Pantheon Macroeconomics writes in a note. The GfK consumer-confidence survey for February points to plunging sentiment, dashing hopes for a slight uptick. A bump in inflation in December is partly to blame for bleaker feelings around incomes, Debono writes, and as such it comes as no surprise that consumers are increasingly looking to save their pay rather than spend it. With shoppers clearly still reluctant to splash out on big purchases, retail sales are likely to slump ahead, she writes.

-Joshua Kirby

Commentary For Fed Rate Cuts, It All Comes Down to the Job Market

Federal Reserve policymakers might view a March interest-rate cut as justifiable even if jobs growth is decent, so long as they are convinced that labor cost pressures aren't picking up, Justin Lahart writes.

Basis Points Services activity in the central U.S. in January improved from December but stayed in negative territory, while expectations for future activity rose modestly, according to a monthly survey by the Federal Reserve Bank of Kansas City. Its Tenth District Services Survey's composite index came in at minus 2 this month, up from minus 7 in December but down from zero in November. Readings above zero indicate expansion. Those below zero indicate contraction. (Dow Jones Newswires) The number of houses under contract in the U.S. rose more than expected in December as the housing market limbers up for a strong start to the year. The National Association of Realtors said Friday its pending home sales index rose 8.3% from November to 77.3. November's indicator was revised from 71.6 to 71.4. A reading of 100 is equal to the level of contract activity in 2001. (DJN) Mexico posted a $4.24 billion trade surplus in December on a sharp decline in petroleum imports, while exports were modestly lower than in the year-earlier month. Exports last month slipped 0.2% from December 2022 to $49.25 billion and imports fell 6.9% to $45.01 billion, the National Statistics Institute said Friday. (DJN) Profits earned by big industrial companies in China continued to improve in December, official data showed Saturday, thanks partly to a low comparison base from the year earlier and Beijing's recent efforts to juice economic growth. Industrial profits rose 16.8% from a year earlier , slowing from November's 29.5% expansion, marking the fifth month of year-over-year rise, said the National Bureau of Statistics. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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01-29-24 0715ET