Even If the Fed Cuts, the Days of Ultralow Rates Are Over

Even If the Fed Cuts, the Days of Ultralow Rates Are Over By Hardika Singh

Amid the debate over whether and when the Federal Reserve cuts interest rates, another important argument is unfolding: where do rates settle in the long run? Meanwhile, stocks rose last week despite another round of firm inflation data. And the $95.3 billion foreign aid package has some regulatory surprises for businesses. Read on for this news and more.

Top News Even If the Fed Cuts, the Days of Ultralow Rates Are Over

The neutral rate of interest keeps the demand and supply of savings in equilibrium, leading to stable economic growth and inflation.

For the last 40 years, and especially following the 2008 financial crisis, economists and Fed policymakers steadily revised down their estimates of neutral. This view became embedded in bond yields, mortgage rates, equity prices and countless other assets.

But now, some see reasons for neutral rising, with the potential to change a wide range of asset prices .

U.S. Economy PCE Inflation Gauge Rises to 2.7% in March

The Federal Reserve's preferred inflation gauge rose 2.7% in March from a year earlier, the latest sign that price growth remains stubbornly above the central bank's target of 2%. The closely watched core index, which strips out volatile food and energy prices, rose 2.8% last month compared to a year earlier.

Financial Regulation Foreign Aid Package Comes With New Sanctions Risks for Companies

The sprawling foreign aid bill signed into law by President Biden Wednesday has some regulatory surprises for businesses trying to navigate the U.S.'s far-reaching sanctions on Russia and other foreign adversaries.

Forward Guidance Monday (all times ET)

5 a.m.: EU business and consumer surveys for April

10:30 a.m.: Dallas Fed manufacturing survey

Tuesday

5 a.m.: Euro area inflation flash estimate for April

5 a.m.: Eurozone GDP for first quarter, first estimate

8:30 a.m.: U.S. employment cost index for first quarter

8:30 a.m.: Canada GDP for February

9 a.m.: S&P CoreLogic Case-Shiller Home Price Index for February

9:45 a.m.: Chicago Business Barometer for April

10 a.m.: The Conference Board Consumer Confidence Index for April

10:30 a.m.: Dallas Fed Texas retail outlook survey

Research Fed Expected to Keep 'Easing Bias,' Delay QT Reduction

The Fed is likely to "maintain an easing bias" this week, Deutsche Bank economists say in a note, but "we also anticipate the statement and press conference will echo Chair Powell's view that firmer inflation prints suggest it will take longer to gain confidence about disinflation." They expect data dependence to stay in place, limiting forward guidance. They also expect an awaited reduction of quantitative-tightening caps to be delayed until the June meeting, "to avoid any dovish misinterpretation from slowing QT that could inadvertently ease financial conditions," Deutsche Bank says. The economists expect cuts to start in December. - Paulo Trevisani

Basis Points The latest U.S. inflation gauge "was strong, but not as bad as feared," Bank of America economists say in a note about March PCE indicator. "The data flow is indicative of strong demand rather than 'stagflation,'" BofA says. "That should keep the Fed on hold in the near term." The central bank meets this week, but markets now mostly expect it to start cutting interest rates only in September. - Paulo Trevisani The number of rigs drilling for oil in the U.S. fell by five to 506, reversing the gains made the previous week, oil services company Baker Hughes reports. That was 85 rigs fewer than a year ago. Rigs directed at natural gas continued to decrease with natural gas prices at multiyear lows, which has prompted producers to rein in output and drilling plans. - Anthony Harrup The fog blanketing Australia's economic outlook has thickened, leaving the country's central bank in a quandary about which direction to next take interest rates. - James Glynn The Japanese yen strengthened sharply in afternoon trading in Asia, bouncing after it briefly hit a new 34-year low of 160 against the dollar on waning expectations for near-term rate increases from the Bank of Japan. - Kosaku Narioka 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 Hardika Singh 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.

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04-29-24 0716ET