Boost in Supply Helps the Fed; Prices for Holiday Gifts in Decline; The Specter of Deflation By Michael Maloney
Good day. Federal Reserve Chair Jerome Powell signaled an important shift this month when he said the central bank didn't necessarily have to worry about stronger growth feeding through to higher prices. The reason: The U.S. economy's speed limit, known as potential growth, appears to have temporarily moved up thanks to easing bottlenecks and a boost in the number of people available to work and, possibly, in productivity, or the output that each worker produces, writes The Wall Street Journal's Nick Timiraos. Meanwhile, amid the Fed's ongoing fight to lower inflation, holiday shoppers scouring Black Friday deals are in for a pleasant surprise: Many gifts are cheaper now than they were a year ago, when inflation was still near its 40-year peak. And as inflation has broadly fallen, some executives have talked about the potential for deflation.
Now on to today's news and analysis.
Top News The Hidden Hero Fueling Soft-Landing Hopes: A Boost in Supply
Until this month, Fed chief Jerome Powell has consistently said that a period of "below-trend growth" would be needed to bring inflation down. And yet growth has exceeded 2% this year, the unemployment rate has risen and underlying inflation fell to an annualized 2.8% in the six months through September, down from 4.5% in the previous six-month period.
At a Nov. 1 news conference, Powell recast his rhetoric , saying that the economy now needed to grow "below potential." Powell was making a subtle but significant distinction between the economy's long-run trend growth rate and short-run potential growth. Potential might be higher or lower than the long-run trend depending on the supply of labor and productivity, WSJ's Nick Timiraos writes.
Pro Take: Deflation Talk in the Air as CPI Heads Toward Fed Target By Bob Fernandez
The Federal Reserve's fight against inflation has dominated headlines for months, but last week a pair of executives sounded warnings about the potential for deflation, while a deep dive into the latest consumer-price data by a Fed economist shows a broad weakening in price pressures. Read more .
U.S. Economy This Year's Black Friday Bonus: Falling Prices
Prices for TVs, smartphones, toys, sofas and other items that often get wrapped up in bows have all dropped since last year's holiday season. There are several reasons. Consumers are spending more on experiences such as travel and concerts, reducing demand for goods. Store shelves also are amply stocked-thanks to a lessening of the pandemic-era supply disruptions that triggered shortages last year. More broadly, overall inflation has declined significantly as the economy shows signs of cooling.
CFOs Review Holiday Promotions as Consumer Spending Cools Fed's November Meeting Minutes on Economic Radar This Week
The highlight for markets and economists this coming week will be the summary of the discussion at the Federal Reserve's last policy meeting on Oct. 31-Nov. 1. Markets will be alert for any comments that might give credence to new hopes that the Fed might cut interest rates as soon as the May meeting and reduce the benchmark rate by 100 basis points over 2024. ( MarketWatch )
Some Experts Balk at Talk That Fed Must Cut Rates Soon if Inflation Keeps Coming Down ( MarketWatch ) Collins Won't Take Additional Rate Hikes Off the Table
Boston Fed President Susan Collins said the softer consumer-price inflation data released this week was promising news but that she didn't want to overreact to the numbers and draw the conclusion that the central bank was done raising interest rates. "I wouldn't take additional firming off the table," Collin said, in an interview on CNBC. ( MarketWatch )
Daly Says Waiting on Rate Policy Makes Sense Given Uncertainty
The Fed should wait and see how the economy develops given the high uncertainty over the outlook, San Francisco Fed chief Mary Daly said. "When we know where we're going and it's important to get there, moving aggressively makes sense," Daly said. But she noted that sometimes a "different type of boldness is required: the boldness to wait." ( MarketWatch [https://www.marketwatch.com/story/feds-daly-says-it-makes-sense-to-wait-on-interest-rate-policy-given-all-the-uncertainty-02de336d#::text=Waiting%20is%20boldness%2C%20San%20Francisco%20Fed%20president%20says&text=The%20Federal%20Reserve%20should%20wait, President%20Mary%20Daly%20said%20Friday.])
Wall Street Has a Plan for a Soft Landing: Buy More Stocks
Wall Street believes its soft-landing dream is on the verge of coming true. That is prompting a fresh wave of demand for stocks . But some are questioning whether the soft-landing talk is premature.
Office Landlords Can't Get a Loan Anymore
The office sector's credit crunch is intensifying . By one measure, it's now worse than during the 2008-09 global financial crisis. Many office owners can't pay back their old loans because they can't get new mortgages.
Key Developments Around the World China Keeps Benchmark Lending Rates Steady
China kept its benchmark lending rates steady after the country's central bank kept its key policy rates unchanged earlier this month. The one-year loan prime rate was maintained at 3.45% while the five-year LPR was retained at 4.2%, the People's Bank of China said in a statement Monday.
China's Problem With Unfinished Homes Keeps Getting Bigger U.S. Subsidies Fuel Boom in Global Auto Trade
Auto exports from Europe and Asia are surging as the U.S. and other countries lavish subsidies on electric vehicles and dealers replenish inventories that even now aren't back to prepandemic levels.
Javier Milei Is Elected President of Argentina
Javier Milei, a libertarian political outsider who pledged to flatten Argentina's political establishment, won the presidency Sunday by an overwhelming margin in a major shift for a country buffeted by one of the world's highest rates of inflation and mounting poverty after years of populist rule.
Argentina's Economic Turmoil Is Getting Worse Financial Regulation Roundup FDIC Chief Takes Responsibility for Toxic Workplace Culture
Federal Deposit Insurance Corp. Chairman Martin Gruenberg took responsibility and apologized for the agency's workplace culture in a video to staff Friday, while indicating he doesn't plan to bow to pressure from Republican senators to resign.
How a Hack Shook Wall Street's Multitrillion-Dollar Foundations
The recent hack of a Chinese banking giant reignited Wall Street's long-running fears of disruptions to the short-term cash markets underpinning the global financial system.
A Ransomware Gang Wanted Its Victim to Pay Up. It Went to the SEC.
The call is coming from inside the hack . A ransomware gang claimed this past week that it broke into the systems of the fintech platform MeridianLink. The breach has been reported to regulators. The company didn't report it, as new rules will require them to do. The hackers did.
The Estate Taxes Catching Americans by Surprise
Seventeen states and the District of Columbia have estate or inheritance taxes or both. The rules can change from year to year, causing confusion for many taxpayers.
Forward Guidance Monday (all times ET)
10 a.m.: The Conference Board Leading Economic Index for October
1:45 p.m.: Bank of England's Bailey gives 2023 Henry Plumb Memorial Lecture
Tuesday
5:15 a.m.: Bank of England's Bailey, Ramsden, Haskel and Mann at Treasury Select monetary policy report hearing
8:30 a.m.: Canada consumer-price index for October; Chicago Fed National Activity Index; Philadelphia Fed Nonmanufacturing Business Outlook Survey
10 a.m.: U.S. existing homes sales for October
11 a.m.: European Central Bank's Lagarde speaks in Berlin
12:15 p.m.: European Central Bank's Schnabel speaks in Würzburg, Germany
2 p.m.: FOMC minutes of Oct.31-Nov. 1 meeting
Research Canada Government Spending Fueled Nearly Half of BOC Rate Rise
Economists at Bank of Nova Scotia calculate Canadian government spending since the start of the pandemic is responsible for a 2-percentage-point increase in the Bank of Canada's policy rate. The BOC has lifted its main rate by 4.75 percentage points since March, 2022, to cool inflation, with government outlays accounting for over 40% of that climb, Scotiabank economists say. "Our results suggest fiscal policy at all levels of government has been badly miscalibrated from an inflation-management perspective." BOC sets rates to achieve and maintain 2% inflation. Recent minutes of central-bank deliberations indicate officials believe planned government outlays in 2024 could thwart its inflation-cooling efforts.
-Paul Vieira
Basis Points U.S. investors' appetite for risk has returned. The S&P 500 rose 0.1% Friday, capping off a 2.2% gain for the week . The broad-based index, which booked a third straight weekly advance, has closed higher in 13 of the last 15 sessions. Prompting the demand for stocks is the belief that the soft-landing dream is on the verge of coming true . Wall Street rushed to embrace sustainable investing just a few years ago. Now it is quietly closing funds or scrubbing their names after disappointing returns that have investors cashing out billions. Growth in services activity in the middle of the U.S. edged up in November, and expectations for future activity rose modestly, according to a monthly survey by the Kansas City Fed. The Tenth District Services Survey's composite index came in at 1 in November, up from a reading of minus 1 in October but down from 2 in September. Readings above zero indicate expansion, while those below zero indicate contraction. (Dow Jones Newswires) Global trade flows rose for a second straight month in September, a sign that the long downturn in the movement of goods across international borders may be coming to an end. U.S. construction of new homes rose 1.9% in October, as builders amped up new projects. The pace of construction increased as builders saw a pressing need for more housing units, with the resale
(MORE TO FOLLOW) Dow Jones Newswires
11-20-23 0717ET
