Uncertainty Over Where U.S. Inflation Will Settle; Ireland's Outsize Role for Eurozone

Uncertainty Over Where U.S. Inflation Will Settle; Ireland's Outsize Role for Eurozone; Spain Votes By James Christie

Good day. As Federal Reserve officials meet this week, there is concern among some policy makers and economists about whether wages and price growth can slow enough without an economic downturn in the U.S. Fed officials are likely to approve a quarter-percentage point increase in interest rates this week. The outlook for a follow-on rate rise later in the year, however, is cloudy. Many economists worry wage growth is too strong and the tight labor market risks pushing up inflation next year. But a second camp of economists believe there is ample evidence the jobs market is cooling, in turn taking pressure off inflation. It came in last month at its slowest pace in two years. Elsewhere, tiny Ireland could play a big role in whether recession visits the eurozone. That is because swings in Ireland's pharmaceutical industry, often rooted in tax moves by U.S.-based firms, have an outsize impact on European output. And in Spain, a national election yesterday failed to produce a clear majority, with no political force commanding enough seats in parliament to form a government, a result likely to usher in prolonged negotiations between large and smaller parties.

Now on to today's news and analysis.

Top News Why the Fed Isn't Ready to Declare Victory on Inflation

Uncertainty over where inflation will settle after anticipated declines this summer will cloud the Federal Reserve's next steps following a likely quarter-percentage point increase in interest rates this week.

Some Fed policy makers and economists are concerned that the easing in inflation will be temporary. They see inflation's slowdown as long overdue after the fading of pandemic-related shocks that pushed up rents and the prices of transportation and cars. And they worry underlying price pressures could persist, requiring the Fed to lift rates higher and hold them there for longer.

Other economists say that thinking ignores signs of current economic slowing that will gradually subdue price pressures. They also argue inflation will slow enough to push "real" or inflation-adjusted interest rates higher in the coming months. That would provide additional monetary restraint even if this week's rate increase is the last of the current tightening cycle.

How U.S. Drug Companies Could Tip Europe Into Recession

Whether Europe avoids recession depends inordinately on Ireland . It owes its outsize role in the eurozone's fortunes to the rapid growth of its economy since 2014 and the contribution of U.S. pharmaceutical companies' profits.

Big Pharma Bets Big on China U.S. Economy Americans in Their Prime Are Flooding Into the Job Market

The core of the U.S. labor force is back. Americans between 25 and 54 years of age are employed or looking for jobs at rates not seen in two decades, helping to counter the exodus of older baby boomers from the workforce.

Why Businesses Can't Stop Asking for Tips It's Taylor Swift's Economy, and We're All Living in It

America's Rise as an Energy Export Powerhouse Hinges on One Town

Corpus Christi, the closest deep-draft port to the Permian Basin, has become the dominant U.S.crude-oil exporting hub, siphoning crude from elsewhere thanks to unique terminals that make it cheaper than competitors.

America's Only Cobalt Mine Can't Get Off the Ground From Moby Dick to Wind Farms: East Coast Tries to Pivot Ports Key Developments Around the World Chinese Money Flees the Western World

Chinese investment is retreating from the West. Increasingly, Chinese companies are instead spending money on factories elsewhere, as Beijing seeks to cement alliances in those places and secure access to critical resources.

Beijing Rushes to Shore Up Battered Private Economy Chinese Consumers Pinch Pennies on Staples as Pandemic Habits Linger

Russia's Threats to Shipping Bring Risk of War to Black Sea

Moscow's withdrawal from an international grain export agreement has pushed Russia and Ukraine to the brink of a new phase in their war, threatening Black Sea shipping lanes that supply much of the world's food.

Grain Prices Climb After Russia Strikes Danube Terminal Russia Defies Sanctions by Selling Oil Above Price Cap Ukraine to Seize Bank in Bid to Curb Moscow's Influence Who Will Control Wagner's Empire of War and Gold?

Spain Election Points to Lengthy Coalition Talks, And Maybe a Revote

Spanish voters flocked to the main center-right and center-left parties, but not enough to give either a clear mandate . The results are so close that both the ruling Socialists and the opposition Popular Party could form a government.

Financial Regulation Roundup Some https://urldefense.com/v3/__http://Binance.US__;!!F0Stn7g!De4lr_KsIqmvViQPJgk0IljPsi7-fJjvOpHSByckz77aOBEl5QEC73xR00nFn15AXF547dAtt6UQ4lzWweG0iKuZShX37GEIrLt46Rs3$ Crypto Trading Was a Mirage, the SEC Alleges

Just how much crypto trading volume is due to actual trades versus exchanges and coin promoters shuffling assets among themselves is an issue for regulators and investors trying to gauge the depth of these markets.

He Went to Prison for Crypto Crime. Now He's a Compliance Advocate. Hedge Funds Brawl Over Battered Commercial Real Estate

Fund managers that specialize in distressed investing have watched the yearlong selloff in commercial real estate. Now, they are snapping up shares of real-estate investment trusts , historically the province of individual investors.

Forward Guidance Monday (all times ET)

8:30 a.m.: Chicago Fed National Activity Index

Tuesday

Time N/A: FOMC meeting, July 25 - 26

9 a.m.: S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index for May

10 a.m.: The Conference Board Consumer Confidence Survey for July

Research ECB Interest Rates Fast Approaching Peak

It is becoming increasingly clear the European Central Bank's interest rates are fast nearing their peak, Felix Feather, European economic analyst at abrdn, says in a note ahead of the ECB's July 27 meeting. The communication surrounding the ECB's policy decision will provide "more information as to how near the end of the hiking cycle is," he says. For the ECB's upcoming policy meeting, a 25 basis point interest-rate rise is "almost locked in," he says, adding that such a rate increase "could well prove to be the last." Feather doesn't expect the ECB to commit either way regarding its decision at its September meeting at this stage.

-Emese Bartha

Commentary Where Heat Waves Lead, Food Inflation Will Follow

For more clues about how extreme weather might fuel food inflation , watch the price of goods made with olives and other commodities following this month's heat waves, Carol Ryan writes.

Basis Points Retail-sales volumes in the U.K. ticked up 0.7% on month in June, compared with a downwardly revised increase of 0.1% in May, data from the Office for National Statistics showed Friday. Economists polled by The Wall Street Journal expected a 0.2% increase in June. (Dow Jones Newswires) Canadian retail sales increased 0.2% in May from the previous month to a seasonally adjusted 66.03 billion Canadian dollars, the equivalent of about $50.13 billion, Statistics Canada said Friday. That was weaker than the data agency's preliminary estimate for a rise of 0.5% on-month, and weaker than April's 1.0% advance, which was revised down 0.1 percentage point. (DJN) New-house prices in Canada edged higher for a second month running in June as the housing market continued to rebound. Statistics Canada's new-house price index ticked up 0.1% from the month before, after a similar increase in May, the first advance in prices since last August. From a year earlier, prices in June were 0.7% lower, the data agency said. (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

07-24-23 0715ET