Fed's Powell Seems to Lean Toward Rate Pause; High Rates Squeezing U.S. Housing Market

Fed's Powell Seems to Lean Toward Rate Pause; High Rates Squeezing U.S. Housing Market By James Christie

Good day. Federal Reserve Chair Jerome Powell said on Thursday that the upswing in long-term rates could help slow the U.S. economy and take the place of the central bank lifting interest rates again. "We have to let this play out and watch it, but for now, it is clearly a tightening in financial conditions," he said. Also on Thursday, the National Association of Realtors said existing home sales, which make up most of the U.S. housing market, decreased 2% in September from the prior month to a seasonally adjusted annual rate of 3.96 million, the lowest rate since October 2010. The slowing housing market is one of the most direct results of the Fed's efforts to curb inflation and cool the economy by raising its policy rate to a 22-year high.

Now on to today's news and analysis.

Top News Jerome Powell Signals Fed Will Extend Interest-Rate Pause

Federal Reserve Chair Jerome Powell suggested the run-up in long-term Treasury yields could allow the central bank to suspend a historic run of interest-rate increases so long as recent progress on inflation continues.

Powell's remarks at a Thursday lunchtime address in New York closely tracked those of colleagues who indicated in recent days that they would hold short-term interest rates steady at their next meeting on Oct. 31-Nov. 1.

That is in part because the swift rise in long-term rates over the past month could slow the economy, effectively substituting for another Fed hike if higher borrowing costs are sustained.

Philadelphia Fed President Discusses the Economic Outlook

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, discussed the outlook for the economy, inflation and interest rates with Wall Street Journal reporter Nick Timiraos. Here is a partial transcript of the interview.

U.S. Economy Home Sales Slide to Lowest Pace Since 2010, Rates Squeeze Market

For all of 2023, sales of previously owned homes are on track to be the lowest since at least 2011 as increased rates weigh on demand and limit the inventory of homes on the market, because homeowners with low rates are unwilling to sell.

Heating Your Home Should Cost Less-Unless You're in These States

Spending on heating oil threatens to prop up inflation in the Northeast , home to four million of the five million U.S. homes that burn the fuel. That reliance exposes the region to volatile global diesel markets.

Five Investors on Investing in the 5% World

Rock-bottom interest rates and record money-printing from the Fed shifted the picture of what successful investing looked like since the 2008 financial crisis. Five investors share what they are buying and where they see potential pitfalls.

Inflation-Proof Your Retirement Savings Now

It's hard to find a more confusing "safe" investment than Treasury inflation-protected securities-and that includes the taxes on them. But people who avoid them now could be making a mistake , especially if they're facing retirement.

Key Developments Around the World China's Central Bank Holds Benchmark Lending Rates Steady

China's central bank kept its one-year loan prime rate at 3.45% and the five-year rate at 4.2%. The move was anticipated after it kept the interest rate on its medium-term lending facility steady and injected more liquidity into the market.

Venezuela's Economy Poised to Strengthen With Sanctions Relief

The Biden administration's removal of an array of U.S. sanctions against Venezuela's oil sector is designed to stabilize that country's calamitous economy and, in time, reduce the huge outflow of migrants toward the American border.

Self-Styled Libertarian Pledges to Remake Argentina if Made President

Javier Milei's main campaign proposal is to dollarize Argentina's economy , an appealing idea for many locals who stash their savings in greenbacks. He says this is the only way to ensure that Argentina finally stems inflation.

Financial Regulation Roundup SEC Retreats From High-Stakes Lawsuit Over XRP Cryptocurrency

The Securities and Exchange Commission said it would drop its lawsuit against two crypto executives who oversaw $1.5 billion in sales of the XRP digital coin , in a move that boosts the industry's battle against traditional regulation.

U.S. Targets Crypto Mixers Over Money Laundering Risks

The U.S. Treasury Department's unprecedented proposal-using laws usually deployed against foreign banks and foreign jurisdictions-will require special record-keeping and reporting for any transactions involving international mixers .

Regret Claiming That Pandemic Employer Tax Credit?

The Internal Revenue Service opened an escape hatch from a major tax-enforcement campaign, giving employers the ability to withdraw pending claims for a pandemic-era tax credit that has become a headache for the agency.

Forward Guidance Friday (all times ET)

12:15 p.m.: Cleveland Fed's Mester speaks at SOMC Fall Meeting, Manhattan Institute for Policy Research

Monday

10 a.m.: FCCI flash consumer confidence indicator for EU for October

Research Bank of England May Soon Look to Cut Rates as Retail Sales Falter

The U.K. economy is weakening more quickly than expected, suggesting the Bank of England may need to cut rates early next year, says Tomasz Wieladek, chief European economist at T. Rowe Price. Retail sales slipped 0.9% in September as the cost of living squeezed shoppers' wallets, according to data released on Friday, with consumer confidence continuing to deteriorate in October. "This has important implications for the BOE, as these are clear signs U.K. consumer demand is rapidly weakening and likely sliding into recession territory," Wieladek says. A tighter monetary policy is succeeding in taking demand out of the economy, but with activity and demand flagging, the bank may have to start bringing interest rates down again in the first half of 2024, he says.

-Joshua Kirby

Commentary There's a Reason This Bull Market Feels So Weird

The markets aren't behaving as they usually do at the start of long-lasting bull markets. In some respects, the past year looks more like the tail end of one than the beginning, James Mackintosh writes.

Executive Insights

Here is our weekly roundup of stories from across WSJ Pro that we think you'll find useful. They are unlocked for WSJ subscribers.

Judgment-preservation insurance will guarantee software firm Appian a $500 million award , despite a potentially lengthy appeal.

A Houston bankruptcy judge resigned under a misconduct investigation .

Ransomware attacks are increasing, and the insurance claims that companies are making after such attacks are rising too.

The U.S. is warning businesses to be on the lookout for Iranian attempts to acquire goods-including circuit boards, aluminum tubes and gyroscopes-that could support its ballistic missile program .

Basis Points

Applications for unemployment benefits in the U.S. last week fell to a nine-month low of 198,000, defying expectations that layoffs would rise as higher U.S. interest rates pinched the economy. New jobless claims declined from a revised 211,000 in the prior week, the government said. (MarketWatch)

U.S. economic activity is set to weaken, leading to a likely shallow recession next year, according to The Conference Board's Leading Economic Index. The measure of business cycles fell 0.7% to 104.6 in September after falling 0.5% in August, marking 18 months of consecutive decline. The index was expected to fall less steeply, by 0.4%, according to economists polled by The Wall Street Journal. (Dow Jones Newswires)

Manufacturing activity in the Philadelphia area contracted for the second consecutive month in October, though not as steeply as in September, with improving signals for new orders and shipments suggesting demand could be picking up again. The Federal Reserve Bank of Philadelphia said Thursday its index for current general activity in the area was minus 9 in October, compared with minus 13.5 in September. (DJN)

Global trade flows rose in August after four straight months of decline, a sign that the global downturn in manufacturing activity could be coming to an end. An indicator of goods trade flows developed by The Wall Street Journal and published Thursday points to a 0.5% increase from July, adjusted for the seasonal ups and downs of exports of goods between countries. (DJN)

New passenger-car registrations in the European Union rose in September, driven by higher sales of fully electric and hybrid-electric vehicles, the European Automobile Manufacturers' Association said Friday. Registrations, which reflect sales, increased 9.2% to 861,062 units last month compared with a year earlier, according to the industry group. This marks the EU car market's fourteenth consecutive month of growth, the association said, after part shortages hurt auto sales last year. (DJN)

U.K. retail sales declined more steeply than expected in September amid an increasingly gloomy landscape for consumer spending. Volumes fell 0.9% last month , data from the Office for National Statistics showed Friday, faster than the 0.4% expected by economists in a poll carried out by The Wall Street Journal. (DJN)

Consumer confidence in the U.K. dipped in October as the high cost of living meant respondents shied away from big purchases ahead of the key Christmas season, according to a survey published on Friday. Confidence among British consumers dropped nine points on month to minus 30, according to an index compiled by consumer-research firm GfK. (DJN)

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This newsletter is compiled by James Christie in San Francisco and Perry Cleveland-Peck in Barcelona.

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10-20-23 0715ET