Look to 2006 for Clues on Fed's Rate Deliberations; Clarida Urges Pause on Fed's Rate Increases

Look to 2006 for Clues on Fed's Rate Deliberations; Clarida Urges Pause on Fed's Rate Increases By James Christie

Good day. The Federal Reserve appears poised to lift its benchmark federal-funds rate today by a quarter percentage point to a range between 5% and 5.25%, which would be its 10th consecutive increase. And the central bank will also be communicating its rate outlook, a subject of intense speculation as investors wonder whether policy makers are considering ending their rate-raising campaign. It may help to review the way Fed officials discussed the tailing off of rate increases back in 2006, as Nick Timiraos writes at The Wall Street Journal. Meanwhile, former Fed Vice Chair Richard Clarida said the central bank should suspend its interest-rate increases after one more rise this week. The collapses of First Republic Bank, Silicon Valley Bank and Signature Bank will reverberate through the financial system and make it more difficult for some businesses and consumers to get loans, which will have a cooling effect on the economy and inflation similar to additional rate increases, Mr. Clarida said Tuesday at the Journal's Future of Everything Festival.

Now on to today's news and analysis.

Top News What a Fed Debate 17 Years Ago Reveals About Rate Talks Now

After Federal Reserve officials likely agree to raise interest rates this week, their conversation will shift to a question weighing heavily on investors that they will find difficult to answer: Are they finished?

Officials are on track to focus their meeting Tuesday and Wednesday on how to communicate their rate outlook. They'll do this chiefly through their postmeeting policy statement, the product of extensive debate and a vote by their rate-setting committee. For clues on how this debate could play out , it helps to look at the way Fed officials discussed how to end a series of rate increases in 2006.

Fed Should Pause Rate Rises After This Week, Former Vice Chair Says

"I would be in the camp of signaling a pause," former Fed Vice Chair Richard Clarida told The Wall Street Journal's Future of Everything Festival, citing the effects of rate increases and tighter credit conditions.

U.S. Economy Job Openings Near Two-Year Low as Layoffs Jump

U.S. job openings dropped to their lowest level in nearly two years in March and layoffs rose sharply , in signs that demand for workers is cooling a year after the Federal Reserve began lifting interest rates to combat inflation.

Tight Supply Fuels Demand for Newly Built Homes

Home builders are enjoying stronger-than-expected business this spring, capitalizing on the recent fall in mortgage rates and a shortage of existing homes for sale, as many homeowners are reluctant to sell and give up their low rates.

House Democrats Try to Force Vote on Debt Ceiling

House Democrats took a step to force a vote on a debt-ceiling increase using a legislative maneuver that could allow them to go around Republican leaders if they can win a handful of GOP votes.

Biden Secured Trillions in Spending. Now Comes the Hard Part.

President Biden is reorienting swaths of the U.S. government to focus on implementing sweeping legislation he signed into law and directing senior advisers to guard against waste and fraud that bedeviled previous government programs.

Key Developments Around the World Ukraine Seeks to Bolster Air Defenses After Russian Missile Barrages

Ukrainian President Volodymyr Zelensky said further steps were being taken to shield the country's skies after Russia killed scores of people in two deadly missile barrages , seeking to weaken Ukraine ahead of its planned offensive.

European Economies Are Finding New Ways to Pay for War

Denmark, a founding member of NATO, has no artillery, submarines or air-defense system. The small Nordic nation didn't think it needed them because a ground war in Europe seemed far-fetched-until Russia's invasion of Ukraine.

Financial Regulation Roundup Regional Bank Stocks Close at Lowest Level Since 2020

Shares of a number of midsize lenders fell sharply Tuesday following the collapse of First Republic Bank, a sign investors are still worried about the industry's health in a world of higher interest rates.

Forward Guidance Wednesday (all times ET)

8 a.m.: ECB's McCaul speaks at Annual ECB Banking Supervision Research Conference

8:15 a.m.: ADP National Employment Report for U.S. for April

10 a.m.: ISM Report on Business Services PMI for U.S. for April

11:20 a.m.: ECB's af Jochnick speaks at Annual ECB Banking Supervision Research Conference

2 p.m.: Federal Reserve interest-rate decision

2:30 p.m.: Fed's Powell press conference following FOMC meeting

Thursday

4 a.m.: Eurozone Services PMI for April

4:30 a.m.: S&P Global / CIPS U.K. Services PMI for April

5 a.m.: EU producer-price index for March

8:15 a.m.: European Central Bank interest rate decision

8:30 a.m.: U.S. productivity and costs for first quarter, preliminary; U.S. weekly jobless claims; U.S. trade for March; Canada trade for March

8:45 a.m.: European Central Bank interest rate decision press conference

10:15 a.m.: ECB Podcast: President Lagarde presents the latest monetary policy decisions

1:05 p.m.: Bank of Canada's Macklem in fireside chat at Toronto Region Board of Trade

Research ECB's Bank Lending Survey Leaves Door Open for More Rate Rises

The European Central Bank's Bank Lending Survey shows financing conditions in Europe have tightened in an orderly fashion until recently, leaving the door open for further interest-rate increases, even up to around 4%, Johannes Mayr, chief economist at Eyb & Wallwitz writes in a note. "The interest-rate rises are being passed on to businesses and households more or less as expected," he writes. This suggests the potential for further ECB interest-rate increases and a peak deposit rate around 4% remains realistic, he writes, adding that another 50 basis point increase on Thursday can't be ruled out. The ECB's deposit rate is 3.00%.

-Emese Bartha

Commentary Help Still Wanted: Fewer Job Openings Won't Faze the Fed

Job openings are down, but they don't look anything close to what might be called normal , Justin Lahart writes, noting that in March, there were 1.6 jobs for each person counted as unemployed.

Property Owners May Soon Get a New Reason to Sell

Delinquency rates on commercial real-estate loans remain low, and the interest-rate caps shielding landlords may be one reason why, but once these hedges end borrowers and lenders will face a harsher reality , Carol Ryan writes.

Basis Points Orders for U.S. manufactured goods rose 0.9% in March, a gain following two straight declines, the Commerce Department said. Economists surveyed by the Wall Street Journal expected a 1.2% rise. March's increase was powered by strong orders for transportation, especially commercial aircraft. Excluding transportation, orders slipped 0.7% for the second straight month. (MarketWatch) Brazil's trade surplus narrowed in April after both exports and imports fell, the economy ministry said. The country recorded a surplus of $8.23 billion, down from a surplus of $10.96 billion in March. (Dow Jones Newswires) Purchasing managers indexes for Mexico rose in April from March, pointing to moderate expansion at the start of the second quarter. IMEF's manufacturing index rose 1.0 point to 50.6, S&P Global's index edged up 0.1 to 51.1, and the Inegi/Bank of Mexico PMI was up 0.8 at 52.8. (DJN) Malaysia's central bank raised its benchmark interest rate for the first time so far this year, saying that the economy's growth prospects look resilient. Economists polled by The Wall Street Journal had expected the central bank to stand pat. New Zealand's financial system is well placed to handle rising interest rates and uncertainty in the international financial system, the Reserve Bank of New Zealand said in its latest report card on financial stability . Australian retail sales were slightly stronger than expected in March, but the data was weak overall as consumers continue to adjust to sharply higher interest rates. (DJN) The eurozone's unemployment unexpectedly fell to a record low in March, a further sign of the bloc's persistently tight labor market, despite the European Central Bank's efforts to cool the economy in raising interest rates. (DJN) Inflation in Turkey fell for the sixth month in a row in April, helped by cooling clothing and housing prices, just ahead of national elections later in May. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

05-03-23 0715ET