Hopes High for Easing Core PCE; RBA Board Member Says No Signs of Wage-Price Spiral in Australia

Hopes High for Easing Core PCE; RBA Board Member Says No Signs of Wage-Price Spiral in Australia By James Christie

Good day. The Federal Reserve's favorite inflation measure that comes out on Friday is expected to show a modest 0.2% increase for August, with the 12-month core inflation rate slipping to 3.9%, the lowest level since September 2021, Investor's Business Daily reports. That would be good news for the Fed and for investors, as stocks have mostly fallen since last week's Fed meeting, when central bankers raised their interest-rate forecasts for next year. Rising yields have also fueled the downswing, and high energy prices and a potential government shutdown are also hanging over the market. Meanwhile, Ian Harper, a member of the Reserve Bank of Australia's interest-rate setting board, told The Wall Street Journal in an interview late Wednesday that despite well over a year of high inflation in Australia, a wage-price spiral that might bolster arguments in favor of higher interest rates wasn't visible in the economy.

Now on to today's news and analysis.

Top News The Fed's Key Inflation Rate Is Sinking as Interest Rates Climb

The Federal Reserve's most important inflation rate, due for an August update on Friday morning, is forecast to undercut 4% and may fall as low as 2.5% on a 3-month annualized basis. That could help arrest the S&P 500 slide and defuse the creeping sense of doom on Wall Street as the 10-year Treasury yield and other market interest rates have surged since the Fed took a hawkish turn in policy last Wednesday, Investor's Business Daily reports.

Economists expect the personal consumption expenditures, or PCE, price index to rise 0.5% from July amid a jump in gas prices. That would lift the 12-month PCE inflation rate to 3.5% from 3.3% the prior month. Yet the Fed's favorite inflation gauge, the core PCE price index, is expected to show a modest 0.2% increase for August. The 12-month core inflation rate should slip to 3.9%, the lowest level since September 2021, from 4.2% in July.

No Evidence of a Wage-Price Spiral, RBA Board Member Says

There's no evidence in Australia of a developing wage-price spiral and long-term inflation expectations remain well-anchored, said Ian Harper, a member of the Reserve Bank of Australia's interest-rate setting board.

"I don't see any evidence at all that inflation is taking off...if wages aren't taking off independently, there's no reason to expect that prices will take off," he told The Wall Street Journal in an interview late Wednesday.

The comments come days ahead of the RBA's Oct. 3 policy meeting, with the central bank expected to hold the official cash rate at 4.10% for a fourth successive month.

U.S. Economy Standoff in Congress Brings Government to Brink of Shutdown

The Republican-controlled House and the Democratic-led Senate remained at loggerheads over how to fund the U.S. government, with dim prospects for a deal raising the likelihood of a partial shutdown starting this weekend.

Higher Rates Catch Up With Home-Builder Stocks

The home-building industry had been one of the stock market's best performers for 2023 because higher mortgage rates forced many homeowners to stay put, leading to a dearth of houses for sale and fueling the need for newly built homes.

Hollywood's Writers Emerge From Strike as Winners-for Now

Hollywood writers are able to return to work after a five-month strike, having secured major wins. Now comes the test of whether those victories actually translate into fatter paychecks and more job opportunities.

Logistics Companies Grow Cautious on Holiday Hiring

Logistics companies and fulfillment specialists generally are keeping their hiring flat this year compared with last year, moving cautiously with their traditional seasonal staffing in an uncertain retail economy.

These Employers Took On Healthcare Costs, and the Fight Got Nasty

A bruising battle over hospital costs in Indiana previews a growing trend : Employers are sick of the ever-rising price of healthcare, and they are ready to do something about it. The cost now tops $22,000 a year for a family on average.

Key Developments Around the World Saudi Arabia and Russia Win Big in Gamble on Oil Cuts

Saudi Arabia and Russia, two most important members of the OPEC+ cartel, have raked in billions of dollars in extra oil revenues in recent months, despite pumping fewer barrels, after their production cuts sent crude prices soaring.

The War in Ukraine Is Also a Giant Arms Fair

The U.S. and European nations have sent billions of dollars worth of equipment to Ukraine from existing military stockpiles, and countries are starting to replace some of that inventory amid a broader rise in military spending .

Binance to Exit Russia With Sale to New Crypto Exchange CommEX

Binance, the world's largest cryptocurrency exchange, is exiting Russia by selling its operations there to new crypto exchange CommEX, after last month introducing curbs in the country on peer-to-peer trading.

Financial Regulation Roundup U.K. to Ease Bank 'Ringfencing' Rules, Helping Two Major Banks

The U.K. is moving move forward with a plan to ease post-financial crisis banking rules governing what lenders can do with depositors' money. Two big beneficiaries: JPMorgan Chase and Goldman Sachs.

China Evergrande Shares Suspended

Trading in the shares of China Evergrande Group and two of its publicly listed units was suspended after reports that the beleaguered property developer's founder and chairman had been placed under police surveillance.

Forward Guidance Thursday (all times ET)

8:30 a.m.: U.S. weekly jobless claims; U.S. gross domestic product for second quarter, third estimate

10 a.m.: U.S. pending home sales for August

1 p.m.: Fed's Cook speaks at Minorities in Banking Forum, Federal Reserve Bank of Dallas

3:30 p.m.: Richmond Fed's Barkin in interview on Bloomberg TV

Friday

3:40 a.m.: ECB's Lagarde speaks to IEA-ECB-EIB conference on "Ensuring an orderly energy transition" in Paris

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

8:30 a.m.: Canada gross domestic product for July; U.S. personal income and spending for August; U.S. PCE price index for August; U.S. advance international trade in goods for August

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

10 a.m.: University of Michigan consumer survey, final for September

12:45 p.m.: New York Fed's Williams speaks at LIA Regional Economic Briefing

Research High Inflation Expected to Delay Fed Rate Cuts

It takes, on average, eight months for the Federal Reserve to start cutting interest rates after its last increase, Apollo Chief Economist Torsten Slok writes in a note. Assuming the Fed is done raising rates, as markets are pricing despite officials forecasting at least one more increase, the first cut would happen in March. But Slok adds that this time around inflation remains "significantly above" the Federal Open Market Committee's 2% target. This, he writes, "may lead the Fed to keep rates high, even if the economic data starts to slow down more meaningfully." According to the CME FedWatch Tool, markets are pricing higher odds of rates holding steady at their current level through July.

-Paulo Trevisani

CFOs in U.S. Cut Spending in Response to Higher Rates

More company finance chiefs in the U.S. are cutting spending plans as higher interest rates squeeze bottom lines, according to a survey by Duke University's Fuqua School of Business, the Federal Reserve Bank of Atlanta and the Richmond Fed. Forty-one percent of chief financial officers said that current rates have forced them to pull back capital spending, while 42% said they have cut costs in other areas such as travel and advertising, according to the survey. It was conducted between Aug. 21 and Sept. 8 and included 320 CFOs. The last time the survey asked about spending plans, in the fourth quarter of 2022, 32% of finance chiefs said they had pulled back on capital expenditures, and 29% said they had reduced other costs.

-Kristin Broughton

Bank of Thailand's Hiking Cycle Is Likely Over, Nomura Says

The Bank of Thailand's hiking cycle is likely over after it raised its policy rate by 25bp to 2.50% on Wednesday against a consensus forecast for no change, Nomura analysts say in a note. The BOT's tone became less hawkish, as it said the policy rate is now at a neutral level, the analysts note. The BOT lowered its 2023 GDP growth and inflation forecasts, but raised its 2024 forecasts to reflect the new government's fiscal stimulus, they note. The analysts reiterate their forecast for an extended pause from here and are now neutral on Thai rates.

-Monica Gupta

Commentary Amazon's Own Track Record Undercuts the FTC's Case

Amazon as a monopolist doesn't square with the fact it still accounts for less than a third of total e-commerce sales in the U.S. over the last four quarters, according to the government's latest retail sales data, Dan Gallagher writes.

Basis Points The rate on a 30-year fixed mortgage in the U.S. increased to 7.41% for the week ending Sept. 22, the highest since December 2000, the Mortgage Bankers Association said. (Barron's) Orders in the U.S. for long-lasting or durable goods rose a stronger-than-expected 0.2% in August, stemming from higher defense spending as the U.S. sought to replenish military hardware sent to Ukraine. Economists polled by The Wall Street Journal had forecast a 0.5% decline. Durable-goods orders minus defense fell 0.7% last month, the government said. (MarketWatch) The Bank of England will delay implementing the Basel 3.1 global banking reforms in the U.K. to support companies in their planning processes. The BOE said Wednesday the implementation date will start on July 1, 2025, and the transitional period has been reduced to four and a half years to ensure full implementation by Jan. 1, 2030. (Dow Jones Newswires) The Dallas Fed's quarterly Energy Survey shows oil activity ramped up in the third quarter after cruising along at stall speed for the previous two quarters. "The business

(MORE TO FOLLOW) Dow Jones Newswires

09-28-23 0719ET