Fed Gets Breathing Room in Cutting Rates; Investors Weigh Impact of French Government Collapse

Fed Gets Breathing Room in Cutting Rates; Investors Weigh Impact of French Government Collapse By Vicky Ge Huang

Federal Reserve Chair Jerome Powell discussed the central bank's independence, the economy, inflation, and more in his final public comments before the Fed's last rate-setting meeting this year.

He was interviewed by Andrew Ross Sorkin at the New York Times DealBook Summit on Wednesday. The conversation offered investors another look at his views before a quiet period ahead of the Federal Open Market Committee's Dec. 17-18 meeting begins on Saturday.

Powell again emphasized that there's little urgency for the Fed to lower interest rates quickly, given the uncertainty in the inflation outlook and a solid current economic backdrop.

The Fed's so-called beige book survey published Wednesday found small improvements in the economy came along with moderately improved growth expectations in most areas of the country and in most industries.

Meanwhile, bitcoin prices are in six-figure territory, after President-elect Trump picked Paul Atkins to run the Securities and Exchange Commission. The conservative lawyer has questioned the SEC's crackdown on crypto firms and is seen as likely to take a friendlier approach to the market.

Across the pond, France's CAC 40 stock index edged higher and the euro strengthened slightly following the collapse of the French government. The National Assembly voted to oust the prime minister.

Top News Powell: Economic Strength Gives Fed Ability to Take Time on Cuts

Federal Reserve Chair Jerome Powell said the economy looks better now than it did when the central bank began cutting interest rates in September, which means the Fed can move more slowly in reducing borrowing costs.

"We wanted to send a strong signal that we were going to support the labor market if it continued to weaken," Powell said during a moderated question-and-answer session hosted by the New York Times on Wednesday. "The economy is strong, and it's stronger than we thought it was going to be in September." Read more .

ECB's Lagarde: Eurozone Outlook Uncertain Amid Threats to Trade

The outlook for the eurozone economy is increasingly uncertain amid growing threats to international trade, while inflation will ease next year after a brief rise, European Central Bank President Christine Lagarde said Wednesday.

ECB Shouldn't Cut Rates Too Hastily as Uncertainties Weigh, Bundesbank's Nagel Says French National Assembly Approves No-Confidence Vote

The government of President Emmanuel Macron collapsed Wednesday after the National Assembly voted for the first time in more than a half-century to oust a prime minister from office, a sign of the political gridlock that has paralyzed France and left the country's public finances in limbo.

Dovish BOJ Member Strikes Cautious Tone on Inflation, Wages

Bank of Japan policy board member Toyoaki Nakamura has voiced caution over the outlook for inflation and wage growth in the country, cooling down market expectations for an imminent interest-rate increase.

U.S. Economy Fed's Regional Survey Reflects Slight Economic Growth

Economic activity was up slightly in most parts of the country in recent weeks, the Federal Reserve said in its final regional economic commentary of the year.

U.S. Factory Orders Rose in October

Orders totaled $586.7 billion, up from $585.6 billion in September, the Commerce Department said. The 0.2% month-over-month improvement was in line with the consensus forecast from economists surveyed by The Wall Street Journal.

U.S. Services Sector Slows as Firms Gauge Trump Policies

U.S. services activity cooled last month , as demand slowed and firms registered concerns about the consequences of President-elect Donald Trump's policies, including promised tariffs.

Financial Regulation Trump Picks Paul Atkins to Run SEC

President-elect Donald Trump on Wednesday picked conservative lawyer Paul Atkins to run the Securities and Exchange Commission, choosing a regulatory skeptic who will be expected to curb the agency's enforcement division.

Bitcoin Hits $100,000, Lifted by Hopes of a Crypto-Friendly Washington SEC, States Investigate Firm Holding Couple's $763,094 Retirement

Federal and state authorities are investigating Next Level Holdings and Yield Wealth , firms that offered investors financial products touting outsize yields that are now in limbo. The firms, along with investors who are no longer sure they can access their funds, were the subjects of three recent articles in The Wall Street Journal.

Commentary How Trump Is Rethinking Economic Power

In September, Donald Trump made an impassioned defense of the dollar's status as the world's reserve currency: "If we lost the dollar as the world currency, I think that would be the equivalent of losing a war."

That status is so important to Trump that this past weekend he threatened to impose tariffs of 100% on the Brics-a group of emerging economies led by Brazil, Russia, India, China and South Africa-if they created an alternative to the dollar.

The warning might be a bit premature; a Brics currency has yet to go beyond the discussion stage, Greg Ip writes for The Wall Street Journal.

Yet Trump's defense of the dollar is a window into how he thinks the U.S. should exercise its economic power. That power, he argues, has been undercut by its excessive use of financial sanctions that encourage other countries to avoid using the dollar. He thinks tariffs are a more flexible, less harmful way of achieving American foreign policy goals. Read more .

Forward Guidance Thursday (all times ET)

8:30 a.m.: U.S. International Trade in Goods & Services

8:30 a.m.: Unemployment Insurance Weekly Claims Report - Initial Claims

Friday

8:30 a.m.: U.S. Employment Report

10 a.m.: University of Michigan Survey of Consumers - preliminary

12 p.m.: Federal Reserve Bank of Cleveland President Beth Hammack speaks at The City Club of Cleveland Friday Forum

1 p.m.: Hoover Institution event with FRB San Francisco President Mary Daly

3 p.m.: Consumer Credit

Research Broader Economic Factors Expected to Impact Housing Market

Broader economic factors are expected to have a larger impact on the housing market than potential new federal policies in 2025, Realtor.com says. The 2025 housing forecast sees home sale prices rising by 3.7%, mortgage rates staying above 6%, and rents will remain virtually unchanged. Growth in inventory with single-family home starts is expected to grow 13.8% and existing for-sale home inventory is expected to grow by 11.7%, which will help bring the first balanced market in nine years. Home sales will grow 1.5% year over year to 4.07 million. Months' supply is expected to improve from a 3.7 month average in 2024 to 4.1 months in 2025. Anything under four is typically considered a seller's market, while four to six months of supply is typically considered a balanced market. - Chris Wack

French Crisis Hurts Confidence

The French government crisis weakens market confidence in the country and the political uncertainty is likely to hamper investment and consumer spending, Societe Generale says in a note. The situation reinforces the bank's call to go long on Germany's DAX index and short on France's CAC, it says. Germany also faces political and economic uncertainties but the situation appears less chaotic than France's, and Germany has more fiscal power, according to SocGen. "Given the relative valuation and sales exposure (the DAX is weighted more to the U.S. and less to China than the CAC is) we continue to favour German equities over French equities," the bank says. - Sarah Sloat

Basis Points Retail trade in the eurozone fell in October for the first time since June, a sign of jitters among consumers despite accelerating wages and the economy expanding more than expected. German manufacturing orders fell in October on lower automotive orders, continuing the trend of weak signals for the country's troubled industrial sector. French industrial production declined marginally in October, as woes in the automotive sector persisted, with both domestic and global political issues likely to add to concerns for manufacturing in the months ahead. (Dow Jones Newswires) Canadian Prime Minister Justin Trudeau said Wednesday the government's fall economic update will contain new spending aimed at boosting economic growth. (DJN) Inflation in the Philippines sped up in November, but stayed in line with the central bank's expectations, keeping the case for continued monetary easing intact. Headline inflation came in at 2.5%, up from 2.3% in October and above the 2.4% median estimate in a WSJ survey. (DJN) India's central bank is tipped to keep its policy repo rate at 6.50% on Friday according to the median projection of economist polled by WSJ. Of those polled, four expect RBI to stand pat, and two expect a 25bp cut. (DJN) About Us

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ's global team of reporters and editors. This newsletter was compiled by markets reporter Vicky Ge Huang in New York. Send your tips, suggestions and feedback to [[e-mail]].

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

(END) Dow Jones Newswires

12-05-24 0716ET