Canadian and U.S. Central Bankers Confident on Policy; Adriana Kugler Wins Seat on Fed Board By James Christie
Good day. Interest rates in Canada may be at levels high enough for its central bank to reach its 2% inflation target, Bank of Canada governor Tiff Macklem said on Thursday. "Excess demand in the economy has diminished substantially" due to higher interest rates, Macklem said, adding that "monetary policy may be sufficiently restrictive to restore price stability." His comments came a day after the Bank of Canada left its benchmark interest rate unchanged at 5%, following back-to-back quarter-point increases in June and July. In the U.S. on Thursday, Federal Reserve Bank of New York President John Williams said the Fed has its monetary policy "in a very good place," though he didn't rule out further rate increases, while the Senate confirmed World Bank official Adriana Kugler to a seat on the Fed's board of governors.
Now on to today's news and analysis.
Top News Canada Rate Policy Might Be 'Sufficiently Restrictive,' Macklem Says
Bank of Canada Gov. Tiff Macklem said higher interest rates are suppressing consumption and dampening price increases, and might be at "sufficiently restrictive" levels for the central bank to achieve its 2% inflation target .
Macklem's remarks on Thursday suggest the Bank of Canada might be content to hold rates at current levels, analysts said, until officials are confident inflation, currently at 3.3%, will reach the 2% target. The central bank sets rate-policy to achieve and maintain 2% inflation.
New York Fed's John Williams Says Monetary Policy in 'Good Place'
Federal Reserve Bank of New York President John Williams on Thursday sounded content with the current level of interest rates, but said he will watch data closely to make sure it is high enough to keep inflation trending lower. "We've done a lot," Williams said during a discussion at a conference sponsored by Bloomberg News. "Right now, we've gotten monetary policy in a very good place. It is having the desired effects. Going forward, we will have to keep watching the data...and asking ourselves the question, 'Is this sufficiently restrictive, do we need to maybe raise rates again?'" (MarketWatch)
Senate Confirms Adriana Kugler to Fed board seat
The Senate on Thursday confirmed Adriana Kugler to a seat on the Federal Reserve's board of governors. She is the first Latino to serve as a Fed governor or regional Fed bank president. A Columbian-American economist, she received her Ph.D from the University of California, Berkeley, and studied with Treasury Secretary Janet Yellen's husband, George Akerlof. Kugler served as chief economist at the Labor Department during the Obama administration and now serves as the U.S. executive director at the World Bank. On Wednesday, the Senate confirmed Philip Jefferson as vice chair of the Fed and Fed governor Lisa Cook to a full 14-year term. (MarketWatch)
U.S. Economy The Fall in Home Prices May Already Be Over
Blink and you missed it: Home prices aren't falling anymore . After dipping on a year-over-year basis for five consecutive months-the longest run of declines in 11 years-U.S. home prices rose in July.
Help Wanted: Women to Fix America's Infrastructure
The $550 billion infrastructure law passed in 2021 has funded nearly 37,000 projects to date and is projected to create millions of jobs. But that boom in investment comes amid a nationwide shortage of infrastructure workers.
Walmart, the largest private U.S. employer, is paying some new store workers less than it would have three months ago, a sign that employers are seeking to cut labor costs as the market for hourly staff cools.
Health-Insurance Costs Are Taking Biggest Jumps in Years
Health-insurance costs are climbing at the steepest rate in years, walloping businesses and workers, with costs for employer coverage seen surging around 6.5% for 2024 , say consulting firms Mercer and Willis Towers Watson.
Companies Pay More to Borrow in Record Bond Rush
Borrowing money is more expensive than it has been in a decade. Companies are paying the price. Large companies with top credit ratings issued bonds at a record clip this week despite a rise in Treasury yields that sent borrowing costs to a roughly 15-year high.
Key Developments Around the World China Exports Fall for a Fourth Month as Growth Engine Sputters
China's exports to the rest of the world dropped for a fourth straight month in August, bringing little relief to the country from a deepening economic malaise and weighing on the global trade outlook.
India Hosts G-20 Summit in Shadow of Geopolitical Rivalries
Deepening global rivalries will overshadow this week's gathering of the world's largest economies in India, as the leaders of China and Russia stay home and the U.S. seeks to strengthen ties to India as a counter to Beijing.
Financial Regulation Roundup Former FTX Executive Pleads Guilty in Crypto Exchange's Collapse
Former FTX executive Ryan Salame on Thursday became the fourth associate of company founder Sam Bankman-Fried to plead guilty to criminal charges tied to the collapse of the crypto exchange.
Justice Department's Oligarch Hunters Take Aim at Facilitators
Prosecutors tasked with investigating Russia's oligarchs and their assets have a new target : lawyers, accountants and other facilitators that make it possible for the Kremlin and its allies to evade U.S. sanctions.
Forward Guidance Friday (all times ET)
8:30 a.m.: Canada labor force survey for August
9 a.m.: Fed's Barr speaks on payments innovation at Philadelphia Fed fintech conference
3 p.m.: U.S. consumer credit
4:15 p.m.: Assets and liabilities of commercial banks in U.S.
Monday
11 a.m.: New York Fed's consumer expectations survey
Research Prospects for BOE Rate Pause Improve as Inflation Expectations Ease
The latest Bank of England decision-makers panel survey, which polls chief financial officers of small, medium and large U.K. corporates, shows business inflation expectations declined in August, supporting the growing sense that the central bank's interest-rate rise cycle is near its peak, ING economist James Smith writes in a note. The survey shows that one-year ahead consumer-price index inflation expectations fell from 5.4% in July to 4.8% in August, while three-year ahead CPI inflation expectations declined from 3.3% in July to 3.2% in August.
-Miriam Mukuru
Pushing Inflation to Fed Target Will Run Into Tight Labor Market
A tight labor market is behind about half of the rise in inflation and the other half can be attached to pandemic-related supply factors, according to new research.
And bringing inflation down further "will increasingly come up against tightness in the labor market," said Allan Timmermann, a finance professor at the University of California San Diego's Rady School of Management and co-author of a new research paper that looks at unemployment and inflation over decades in the U.S. and Europe.
"If the Fed wants to go the last mile and bring inflation to its 2% target, this is likely to come at the cost of increased unemployment and runs the risk of triggering a recession," said Timmermann, who co-wrote the paper with Jonathan H. Wright of Johns Hopkins University and Simon Smith, senior economist with the Federal Reserve's board of governors.
Economists are looking at the impact of higher wages on inflation. Fed officials have repeatedly raised interest rates since March 2022 to cool the economy and push inflation down. They have made progress toward their 2% inflation target, partly because of a decline in fuel and food prices. But headline inflation still runs around 3% and could climb with higher gas prices.
Researchers at the Cleveland Fed recently concluded that inflation was mostly brought on by supply-chain shocks and other factors that then fueled higher wages as employees sought to maintain their standard of living.
The "elevated inflation rate over the past two years accounts for much (four-fifths) of the increase in wage growth," Martin DeLuca and Willem Van Zandweghe, both of the Cleveland Fed, wrote in a recent paper. They believe that higher wages could moderate on their own by 2025 with softening inflation.
Timmermann and his research partners see the inflation picture differently.
They looked at data on metro regions, industries, unemployment and wages in the U.S. and Europe, applying the data to the Phillips curve that represents the relationship between unemployment and wage behavior.
"In 'normal times' there is essentially no trade-off between unemployment and inflation," Timmermann said. "However, we also find a strikingly strong trade-off between unemployment and inflation when the labor market-as it is now-is running really hot with lower-than-normal unemployment."
U.S. government reports have signaled a recent softening in the labor market, with fewer job openings and a slightly higher jobless rate in August of 3.8%, compared with 3.5% in July.
-Bob Fernandez
Commentary America's Wind-Farm Revolution Is Broken
Of all renewable energy projects, offshore wind farms may be the most vulnerable to rising interest rates as they take longer to build and have higher upfront costs, Carol Ryan writes, noting that average costs to build an offshore wind farm have shot up 36% since 2019 , compared with 5% for land-based ones, in part because of pricier debt.
Economic Data Lead Markets and Governments Astray
Revisions to economic data are widespread and normal. But occasionally the revisions are so big that they upend our shared understanding of what's going on , writes the WSJ's James Mackintosh in his Streetwise column.
Tiny Bank Called Republic First Faces Test of Depositors' Faith
First Republic Bank's collapse this spring was a watershed moment. Now a much smaller lender called Republic First Bank is in financial purgatory, a case that may test regulators and turn the idea of too-big-to-fail upside down .
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09-08-23 0715ET
