Investors Cling to Hope for Fed Rate Cuts While Officials Urge Patience By James Christie
Good day. Investors keep betting the Federal Reserve will lower interest rates this year but strong data on the U.S. economy continues to roll in, suggesting they may be getting ahead of themselves. Today, The Wall Street Journal looks at what investors are watching and how things have played out during similar periods historically. Meanwhile on Wednesday, the presidents of the Boston and Richmond Fed banks urged patience in expecting rate cuts, and Fed Governor Adriana Kugler said in her first speech as a senior central bank official that more evidence is needed to be certain inflation is coming down to pre-pandemic levels.
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Now on to today's news and analysis.
Top News Investors Are Almost Always Wrong About the Fed
Investors are more convinced than ever that interest rates are coming down later this year. Their record on these things, however, isn't great .
Wall Street has been caught offside in both directions while betting on the path of interest rates over the past few years. Few thought the Federal Reserve would get anywhere near 5% in the first place. Now traders keep ramping up bets that rate cuts are just months away, only to see that day recede with each batch of strong economic data.
Fed's Kugler Wants to See Further Slowdown in Inflation
Federal Reserve Gov. Adriana Kugler said it would be "appropriate" to lower interest rates if inflation continues to slow, but she stressed "it is critical" that inflation return to the central bank's target of 2%, MarketWatch reported . In her first speech as a senior Fed official, Kugler on Wednesday didn't tip her hand on when a rate cut might be suitable, indicating it would depend on how fast inflation slows. "We have made great progress," Kugler said in a speech to the Brookings Institution, noting the slowdown in inflation "that we have seen over the past year or so is the most dramatic since the early 1980s." Still, Kugler said she wants to see a further cooling in the U.S. labor market as well as in rent and housing costs to be sure inflation is falling back to pre-pandemic norms. (MarketWatch)
Fed Needs More Proof Inflation Can Stay at 2%, Collins Says
Federal Reserve Bank of Boston President Susan Collins said inflation has slowed faster than expected and a reduction in interest rates would be suitable "later in the year," but added the Fed wants more certainty before it cuts interest rates, MarketWatch reported . "We are on a path to price stability with inflation durably at 2%," Collins said in a speech on Wednesday to the Boston Economic Club. If the progress continues, Collins indicated, the Fed could begin "later in the year" to unwind the series of interest-rate increases made in 2022 and 2023 to tame inflation. Still, she cautioned the Fed needs more evidence that a 2% rate of inflation can be sustained. (MarketWatch)
Barkin Says Recent Progress on Inflation Might Be a 'Head Fake'
It's a good idea for the Federal Reserve to take its time with interest-rate cuts given the uncertainty about where the U.S. economy is headed, Federal Reserve Bank of Richmond President Tom Barkin said Wednesday, in an interview with MarketWatch . "In all honesty, my forecast is uncertain. That's why I think it's a reasonable idea to be patient," Barkin said. He also said economic data can be used to tell credible but very divergent stories about where the economy is going. "I could tell you a story of a healthy economy and softening inflation, but I could tell you a bunch of other stories," Barkin said. (MarketWatch)
U.S. Economy The Confusingly Strong Economy Told in Three Stories
Explanations for the U.S. economy's apparent immunity to high interest rates lead to different outcomes, James Macintosh writes, but no one, including the Fed, seems to be able to settle on a single story about what's going on.
Deficit Could Shrink This Year. Serious Budget Problem Persists.
Last year's bipartisan budget deal, a surprisingly strong economy and a bumper crop of delayed tax revenue are all helping improve the budget outlook for the fiscal year ending Sept. 30, but overall, the fiscal situation is deteriorating .
U.S. Oil Inventories Rose, Products Fell in Week Ended Feb. 2
Commercial crude-oil stocks excluding the Strategic Petroleum Reserve rose by 5.5 million barrels to 427.4 million barrels in the week ended Feb. 2, while storage in the SPR rose by 615,000 barrels to 358 million barrels.
Fidelity's Abigail Johnson Shakes Up Executive Ranks, Again
Fidelity Investments appointed a new slate of executives to senior roles, including finance chief, in one of the biggest management reshuffles in Abigail Johnson's near-decadelong run as chief executive officer.
Key Developments Around the World BOC Officials Unsure When Rate Cuts Could Begin, Minutes Say
Bank of Canada officials were unsure when they could begin cutting interest rates to help a weakened economy, as they worried about shelter costs and strong wage gains , according to a summary of deliberations.
BOC Says Demand for Bonds Pushing Up Overnight Borrowing Costs
Ukraine Rations Munitions as Cut to U.S. Aid Looms
With manpower and equipment severely depleted by last year's failed counteroffensive, Ukraine finds itself fighting a defensive effort aimed at delaying Russian advances and preventing a breakthrough.
Financial Regulation Roundup Sports Gambling a Growing Money Laundering Risk, U.S. Says
Online sports gambling poses an increasing risk of money laundering, the U.S. Treasury Department said in a warning that comes as a record number of Americans are expected to place bets on the coming Super Bowl.
U.S. to Tackle Anonymity in All-Cash Home Purchases
The Treasury Department proposed a new rule to require real-estate professionals to disclose the names of people behind the anonymous limited liability companies and trusts involved in all-cash residential property sales and transfers.
China Replaces Its Top Securities Regulator
Yi Huiman, chairman of the China Securities Regulatory Commission, is being replaced by Wu Qing, deputy party secretary of Shanghai, following a yearslong stock-market decline that is becoming a sensitive subject for Beijing.
Many Small Businesses Don't Know About New Reporting Rule
A new federal rule requires more than 32 million small businesses to file ownership information to a little known agency in the U.S. Treasury Department or face potential penalties, but many businesses don't know about it.
Forward Guidance Thursday (all times ET)
8:30 a.m.: U.S. weekly jobless claims; Richmond Fed's Barkin appears on Bloomberg TV
10 a.m.: Bank of England's Mann speaks at Official Monetary and Financial Institutions Forum
10:30 a.m.: ECB's Lane in fireside chat at Brookings Institution in Washington
12:05 p.m.: Richmond Fed's Barkin speaks to the Economic Club of New York
Friday
8:30 a.m.: Canada labor force survey for January
9:15 a.m.: ECB's Cipollone speaks 30th Assiom Forex Annual Congress in Genoa
10:30 a.m.: Bank of Canada Senior Loan Officer Survey
1:30 p.m.: Dallas Fed's Logan speaks at 14th Annual Tarrant County Transportation Summit
Research Turkey Central Bank Likely to Hold Rates Steady
Turkey's central bank looks likely to maintain interest rates at their current level after confirming its expectations for easing inflation, emerging-markets economist Liam Peach at Capital Economics writes. The bank's inflation report comes days after governor Hafize Gaye Erkan unexpectedly quit and was replaced by deputy governor Fatih Karahan. It maintains forecasts for annual price inflation to fall to 36% by the end of this year and to 14% by the end of 2025, from 65% at the end of 2023, and notes that tight monetary policy-with a key interest rate currently at 45.00%-should remain as long as needed to ensure price rises ease. This "will have helped to reassure investors that the change at the helm of the central bank won't lead to premature monetary easing," Peach says.
-Joshua Kirby
Commentary The Confusingly Strong Economy Told in Three Stories
Explanations for the U.S. economy's apparent immunity to high interest rates lead to different outcomes, James Mackintosh writes, but no one, including the Fed, seems to be able to settle on a single story about what's going on .
A Stock Bailout Won't Solve China's Troubles
Beijing's largess might help put a floor beneath China's ailing stock market, but a better foundation for a rally-and China's future-would be rebuilding the nation's crumbling housing market , Jacky Wong writes.
Basis Points Total U.S. consumer credit rose by $1.5 billion in December, down from a $23.4 billion gain in the previous month, the Federal Reserve said Wednesday. That translates to a 0.4% annual growth rate in December, down from a 5.7% increase in November and the slowest pace of credit growth since an outright drop in August. (MarketWatch) U.S. consumer sentiment about housing rose in January to the highest level in nearly two years, as people felt more confident about their jobs and expected mortgage rates to fall, according to a monthly survey by Fannie Mae. Its Home Purchase Sentiment Index rose 3.5 points last month to 70.7 - the highest level since March 2022. (MarketWatch) Mexican production of cars and light trucks rose 9.6% in January from the year-earlier month to 307,069 units, the National Statistics Institute said Wednesday. (Dow Jones Newswires) China's central bank said on Thursday that it aims to better use its monetary instruments to support affordable housing and other infrastructure investment, as the world's second-largest economy struggled to recover from weakening demand and a prolonged property downturn. (DJN) Bank of Japan Deputy Gov. Shinichi Uchida said Thursday that the bank is getting closer to sustainably achieving its 2% inflation goal and reviewing its ultra-easy
(MORE TO FOLLOW) Dow Jones Newswires
02-08-24 0715ET
