Fed to Weigh Shrinking Its Balance Sheet at a Slower Pace; Weak Growth Forecast for U.S. This Year By James Christie
Good day. By shrinking its holdings of bonds and other assets, the Federal Reserve is in effect tightening policy. Now, Fed officials are looking at slowing their pace on that front, Nick Timiraos of The Wall Street Journal writes. He notes that by tapping the brakes, the central bank would by trying to prevent a messy disruption to the financial system. Meanwhile, business and academic economists surveyed by the Journal have lowered the probability of a recession in the U.S. within the next year, to 39% from a previously forecast 48%. Economists on average expect the U.S. economy to grow just 1% this year, about half its normal long-run rate, and a significant slowing from an estimated 2.6% in 2023.
Now on to today's news and analysis.
Top News Fed Tiptoes Toward Dialing Back Key Channel of Monetary Tightening
Though the Federal Reserve stopped raising interest rates last summer, it is quietly tightening monetary policy through another channel : shrinking its $7.7 trillion holdings of bonds and other assets by around $80 billion a month.
Now that, too, may change. Fed officials are to start deliberations on slowing, though not ending, that so-called quantitative tightening as soon as their policy meeting this month. It could have important implications for financial markets.
U.S. Economy It Won't Be a Recession-It Will Just Feel Like One
The good news is the probability of a recession in the U.S. is down sharply, according to The Wall Street Journal's latest survey of economists . The bad news is that, for a lot of people, it is still going to feel like a recession.
The Businesses That Rescued U.S. From Inflation, Recession, Lost Jobs These Four Questions Are Top of Mind for Investors in 2024
Inside a Plan to Save Homeowners Hundreds on Closing Mortgages
A government-controlled mortgage giant has a plan that could help more Americans save around $1,000 on closing a mortgage, the latest attempt to chip away at high costs that officials say discourage home buying.
Shoppers Prefer Staying Outdoors. That's More Trouble for Malls.
National chains are accelerating their exit from malls for other types of retail locations, signaling more trouble for malls as consumers show a growing preference for shorter, more convenient shopping experiences.
New York Plans to Spend Billions More on Migrant Crisis
New York state officials said they would direct another roughly $2 billion to fund the cost of caring for migrants in New York City, adding to the fiscal toll of a crisis that has overwhelmed the city's normal network of homeless shelters.
The M.B.A.s Who Can't Find Jobs
An M.B.A. can cost more than $200,000 at a top school but typically pays off as a launchpad for a new, more lucrative career or the corporate leadership fast track. Many in the spring class of 2023 say they are still awaiting that payoff .
Key Developments Around the World China Central Bank Keeps Key Policy Rates Unchanged
China's central bank on Monday kept its key policy rates unchanged in an unexpected hold. The country's major commercial banks had lowered their deposit rates, a move seen as leaving room for more rate cuts. The People's Bank of China injected 995 billion yuan ($138.93 billion) of liquidity into the banking system via the one-year medium-term lending facility at an interest rate of 2.5%, the same rate at its previous operation.
Taiwan Election Piles Pressure on Delicate U.S.-China Ties
Taiwan's election of the presidential candidate China most distrusts puts at risk a fragile detente between Washington and Beijing, threatening another flare-up between the world's biggest economic and military powers.
Europe's Growth Engine Is Broken
Germany's economy, the largest in Europe and the world's fourth biggest, shrank last year , extending a six-year slump that is raising fears of deindustrialization and sapping support for governments across the region.
Global Battery Race Heats Up With Billions for Europe's Northvolt Three-Quarters of Chief Economists Expect 'Weak' or 'Very Weak' Growth in Europe This Year, Davos Poll Finds ( MarketWatch ) Houthis Turn Sights on U.S. Ships, Vow to Keep Attacking in Red Sea
Fresh attacks targeted American ships in the Middle East, days after the U.S. led a round of strikes meant to blunt the capability of Iran-backed Houthi rebels to hit ships transiting the Red Sea.
Financial Regulation Roundup Got $60 Million? Goldman Sachs Wants to Lend You More
Goldman Sachs is increasing lending to its private-wealth clients, individuals and families, and in its trading department loans to institutional clients are on track to produce the highest revenue in at least three years .
The Last Man Standing in Crypto
Brian Armstrong has become the new face of crypto . Coinbase Global, the crypto exchange he co-founded, is one of the last big digital-asset companies standing after a string of high-profile collapses and government crackdowns.
Forward Guidance Tuesday (all times ET)
8:15 a.m.: Canada housing starts for December
8:30 a.m.: Canada consumer-price index for December; New York Fed's Empire State Manufacturing Survey
11 a.m.: Fed's Waller gives economic outlook at the Brookings Institution
Wednesday
2 a.m.: U.K. consumer-price and producer-price indexes for December
3:30 a.m.: ECB's Cipollone speaks at Euro Cyber Resilience Board for pan-European Financial Infrastructures in Frankfurt
5 a.m.: EU harmonized consumer-price index for December
8:30 a.m.: U.S. advance retail sales for December; U.S. import and export prices for December
9 a.m.: Fed's Barr speaks at 2nd Annual Massachusetts Institute of Technology/Federal Reserve System Conference on Measuring Cyber Risk in the Financial Services Sector
9:15 a.m.: U.S. industrial production and capacity utilization for December
10 a.m.: U.S. business inventories for November
10:15 a.m.: ECB's Lagarde at "Town Hall: How to Trust Economics," World Economic Forum in Davos
2 p.m.: Federal Reserve Beige Book
3 p.m.: New York Fed's Williams speaks at NY Fed's "An Economy That Works for All: Measurement Matters"
Research Data Expected to Bridge Divergence Between Markets and Fed
The divergence between markets pricing and Federal Reserve estimates for interest rates is likely to shrink as incoming data remove uncertainties about coming monetary-policy decisions, Deutsche Bank economists write in a note. Fed-funds futures are pricing 175 basis points in rate cuts this year, while the latest summary of economic projections points to a much lower 75 basis points. The economists note that, while the SEP reflects Fed officials' views on the likely path of interest rates, markets pricing includes "upside and downside risks to the funds rate as well as risk premia" for short-term interest rates. Divergent outlooks for inflation and unemployment account for the disagreement, the economists write.
-Paulo Trevisani
U.S. Rate Cuts Could Start in March; ECB, BOE to Follow Later
Goldman Sachs Economics Research expects the Federal Reserve to start cutting interest rates in March, with a total of five rate reductions to be carried out in 2024, chief economist Jan Hatzius says in a note. Goldman is more cautious about rate cuts than money markets, which price in 166 basis points of cuts for 2024, equal to more than six rate cuts of 25 basis points each, according to Refinitiv. "The European Central Bank should follow in April and the Bank of England in May, and our views on both central banks are somewhat dovish relative to market pricing," he says. While global core inflation picked up modestly in December on a one-month basis, the three-month annualized rate has slowed further to 2.0%, he says.
-Emese Bartha
Commentary Profits Comeback Paired With Rate Cuts Make a Powerful Mix
Profits are growing again, and the Federal Reserve looks as if it will start cutting rates sometime this year. It is an unusual combination and, for the stock market, possibly a potent one , Justin Lahart writes.
ETFs Make Bitcoin's Problems Even Worse
Bitcoin ETFs are likely to exacerbate the cryptocurrency's bad performance in crises by bringing in even more speculators to what's already mostly a speculative asset, James Mackintosh writes.
Peace and Prosperity in the Taiwan Strait Still Have a Chance
Saturday's victory by the Democratic Progressive Party could mean more scary headlines in the near-term, but it is also true Taiwan still has enormous economic leverage over China, Nathaniel Taplin writes.
Basis Points Congressional leaders in the U.S. reached an agreement on a new stopgap spending bill that would extend government funding into March, as House Speaker Mike Johnson (R., La.) stuck to his plan to defy the most brass-knuckled budget hawks in his party in a bid to avoid a government shutdown. A procedural vote on the bill is scheduled for Tuesday. Bernardo Arévalo took office as president of Guatemala in a turbulent session of Congress on Sunday. The 65-year-old center-left sociologist has pledged to tackle corruption and poverty fueling a wave of migration to the U.S., but an open confrontation with the country's establishment threatens to jeopardize his plans. Extreme consumer pessimism in Australia has continued into 2024 with the latest Westpac Melbourne Institute reading on sentiment falling in January despite a slide in concerns about rising interest rates. The confidence index declined 1.3% to 81.0 this month from 82.1 in December. (Dow Jones Newswires) Sales of existing homes in Canada jumped last month, capping an overall weak year for the housing market and possibly offering an early hint at a recovery in 2024. The Canadian Real Estate Association said Monday national home sales rose 8.7% in December from the previous month, in line with some of the stronger months in 2023 in the spring and summer. On a nonadjusted basis, transactions were 3.7% above year-earlier levels. (DJN) Inflation expectations in Canada
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01-16-24 0716ET
