Fed Officials Aren't Convinced Inflation Fight Is Near End; Bank of Mexico Holds Key Rate Steady; RBA Raises Near-Term Inflation Outlook

Fed Officials Aren't Convinced Inflation Fight Is Near End; Bank of Mexico Holds Key Rate Steady; RBA Raises Near-Term Inflation Outlook By James Christie

Good day. Federal Reserve Chair Jerome Powell made it clear in a speech on Thursday the Fed needs more evidence that inflation is coming down before the central bank calls an end to lifting interest rates. Powell left the door wide open to leaving rates on hold again next month and to raising them again next year if the economy and inflation don't slow. Elsewhere on Thursday, the Bank of Mexico's five-member board of governors voted unanimously to keep the overnight interest-rate target at 11.25%, as expected. Meanwhile, on Friday, the Reserve Bank of Australia sharply revised up its forecasts for core inflation in the near term and warned that inflation pressures are cooling at a slower pace than anticipated.

Now on to today's news and analysis.

Top News Even If Fed Stays on Hold, Powell Is Keeping His Options Open

Federal Reserve Chair Jerome Powell indicated the central bank wouldn't declare an end to its historic interest-rate increases until it had more evidence that inflation was cooling.

Price and wage pressures have eased recently, leading more investors to think the Fed is done raising rates. Powell disappointed those investors in a speech Thursday by explaining why he thinks the Fed is more likely to tighten policy than ease it if any change is warranted.

Treasury Yields Rise Further After Powell Comments Fed's Paese Says Inflation Is Moving 'Sideways'

The interim president of the St. Louis Federal Reserve Bank said the U.S. central bank "can afford to wait for further data" on the economy and inflation before deciding whether to raise interest rates again. Kathleen O'Neill Paese on Thursday said she supported the Fed's decision last week to leave a key short-term interest rate unchanged. She said she was persuaded in part by talks with business leaders that indicated inflation pressures and labor shortages were easing. (MarketWatch)

Fed's Barkin Says Swings in Long-Term Yields Not a Useful Variable

The movement in long-term bond yields may be capturing headlines, but it isn't a great guide for deciding what to do with interest rates, Tom Barkin, president of the Federal Reserve Bank of Richmond, said on Thursday. "I don't think long rates are quite useful as a policy variable," Barkin said during a conversation webcast by MNI. "They can move, you know, pretty significantly over a relatively short time period." (MarketWatch)

Pro Take: Dark Mood Besets Housing as Fed Looks at Higher-for-Longer Rates By Bob Fernandez

Eighty-five percent of home buyers think it is a bad time to purchase a home, a record high for a 13-year-old Fannie Mae survey. That may be good news for the interest rate-setters at the Federal Reserve.

Housing and other shelter costs have been running more than triple the Fed's 2% inflation target. Those costs-which comprise about one-third of the government's consumer-price index-need to come down. Pessimism could help. Read more .

U.S. Economy Inflation Causes IRS to Lift Tax Brackets, Standard Deduction by 5.4%

Here's an upside to persistent inflation: More of your income will be taxed at lower rates next year. The Internal Revenue Service announced its annual inflation adjustments to federal income-tax brackets for 2024 on Thursday.

IRS Warns Employers About a Tactic to Claim Pandemic Tax Credit Don't Miss Out on Your 2023 Tax Breaks People No Longer Know How Much to Tip

Attitudes about tipping have been reshaped by screens prompting us for gratuities at cafes and other businesses, and a new survey found nearly three-quarters of respondents now get hit up for tips much more often than five years ago .

Key Developments Around the World Bank of Mexico Keeps Interest Rate Unchanged for Fifth Straight Time

The Bank of Mexico held its benchmark interest rate steady for a fifth consecutive time Thursday, while hinting it could be moving closer to eventual rate cuts as progress is made in lowering inflation.

RBA Revises Up Near-Term Inflation Forecasts

Trimmed mean inflation, which is central to policy decisions at the Reserve Bank of Australia, is now expected to be running at 4.0% on-year by mid-2024, up from a forecast of 3.25% on-year in August.

U.S., China to Meet as Shifting Economic Fortunes Alter Relationship

As Treasury Secretary Janet Yellen meets Chinese Vice Premier He Lifeng this week, the two sides find themselves in an economic role reversal . Buoyant U.S. growth and the struggling Chinese economy are likely to shape talks.

China Is Making Too Much Stuff-and Other Countries Are Worried Surge and Swarm: How China's Ships Control the South China Sea Hackers Hit U.S. Arm of Chinese Bank The Country Helping Tens of Thousands of Migrants Head to the U.S.

President Daniel Ortega has opened Nicaragua to flights carrying thousands of migrants from Haiti, Cuba and Africa, swelling the ranks of people using the Central American country as a landing point on their journey north to the U.S.

Financial Regulation Roundup OneCoin's Compliance Head Pleads Guilty in $4 Billion Fraud Case

An executive who held the title of compliance head at purported cryptocurrency issuer OneCoin pleaded guilty Thursday to wire fraud and money-laundering charges , the U.S. Justice Department said.

Celsius Network Ends Bankruptcy Case

Celsius Network, the crypto platform that touted itself as safer than a bank, won court approval to end its bankruptcy case and release most of its remaining cryptocurrency to customers whose funds have been trapped since last year.

How Risky Is Private Credit? Analysts Are Piecing Together Clues

A boom in private credit has been moving a huge portion of corporate borrowing away from public view, taking it from the world of banks and the bond market and into the more opaque realm of private funds .

Are Banks, Hedge Funds Ready for Big Shock? BOE Is Stress Testing

The Bank of England has asked over 50 firms, including BlackRock, HSBC, Goldman Sachs and Deutsche Bank, to consider a hypothetical scenario to determine how they would respond and the possible risks to U.K. financial stability.

Forward Guidance Friday (all times ET)

7:30 a.m.: ECB's Lagarde in fireside chat at Financial Times' Global Boardroom 2023 in London

10 a.m.: University of Michigan consumer survey for November

Monday

11:05 a.m.: Bank of England's Mann speaks at University of Oxford Environmental Economics Seminar

Commentary How Work From Home Has Reshaped What Americans Buy

What people who work from home buy often substitutes for services they used to purchase, like buying a bicycle instead of spending on a spin class near work, Justin Lahart and Jinjoo Lee write.

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Basis Points Mortgage rates in the U.S. registered their sharpest drop in a year on the back of concerns over the financial health of consumers, with the 30-year fixed-rate mortgage averaging 7.5% as of Thursday, or down 26 basis points from the previous week, according to Freddie Mac. (MarketWatch) Applications for unemployment benefits in the U.S. last week fell slightly to 217,000 and stayed at very low levels typical of a strong labor market, as new jobless claims declined from a revised 220,000 in the prior week, the government said. (MarketWatch) Inflation in Mexico slowed for a ninth straight month in October with lower produce prices partly offsetting a rise in energy costs. The country's consumer-price index rose 0.38% from the end of September, pushing the 12-month inflation rate down to 4.26% from 4.45% in September, according to the National Statistics Institute. Core CPI, which excludes energy and agricultural prices, rose 0.39% on month and 5.50% from a year earlier, compared with a 12-month rate of 5.76% in September. (Dow Jones Newswires) The U.K. economy stagnated in the third quarter for the first time this year, avoiding an expected decline. Gross domestic product was flat between July and September compared with the previous three-month period, when the economy grew slightly, as it had in the first quarter, figures from the Office for National Statistics showed Friday. Hong Kong's economic growth accelerated in the third quarter , mainly due to inbound tourism and personal consumption. Gross domestic product expanded 4.1% in real terms in the third quarter from a year earlier, revised data from the government showed Friday. That compares with 1.5% growth in the second quarter. Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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11-10-23 0715ET