Inflation Expectations Rise as Trump Takes Office By Vicky Ge Huang

Economists are starting to model the effects of President Trump's plans to raise tariffs, cut taxes and restrict immigration. The upshot: Inflation and interest rates are likely to be higher for at least the next two years than forecasters anticipated before the election. Meanwhile, the Federal Reserve said it is leaving the Network of Central Banks and Supervisors for Greening the Financial System because the group's work has broadened beyond the Fed's mandate from Congress.

Top News Trump's Return Nudges Economists' Inflation Outlook Higher

The consumer-price index is now expected to rise 2.7% in December 2025 from a year earlier, according to the average forecast of 73 economists who answered The Wall Street Journal's quarterly survey. In October, the panel saw consumer prices rising 2.3% in 2025. "Risks to inflation and interest rates are to the upside with a Trump administration," said Augustine Faucher, chief economist at PNC Financial Services Group.

Fed Withdraws From Central Bank Climate Group

The Federal Reserve is withdrawing from an environmental group for global central bankers. The Fed joined the group, the Network of Central Banks and Supervisors for Greening the Financial System, in December 2020 as calls grew for financial regulators to consider how climate change could pose financial risks.

Bank of Canada Needs Clearer Guidance When Deploying QE

The next time the Bank of Canada executes extraordinary bond purchases during an economic crisis, it needs to be explicit about the rationale behind the large-scale acquisitions and set out exit conditions more closely tied to inflation expectations, according to a review of the central bank's pandemic-era policies.

One Weapon China Is Reluctant to Deploy Against Tariffs: A Weaker Currency

In the fall of 2023, Xi Jinping made a rare visit to the nation's mint following a trip to the central bank, according to people close to China's decision-making. The visit laid bare Xi's desire to keep China's currency strong. Now, as a new trade fight with Washington approaches, Beijing is divided on whether it will be necessary to let the currency weaken in response to new tariffs from the incoming Trump administration-a medicine the leadership doesn't want but might have to swallow.

U.K. Jobs Market Weakens as BOE Prepares to Ease Rates

The U.K.'s unemployment rate rose in the three months through November, a fresh sign the economy is faltering that increases the likelihood the Bank of England will lower its key interest rate early next month.

Book Review 'The Young Fed' Review: The Birth of a Financial Titan

The Federal Reserve we know is the mature, dollar-spinning behemoth that holds short-term interest rates in the hollow of its hand. "The Young Fed" is the central bank's coming-of-age story , writes James Grant writes in his review of the book. Mark Carlson, a former principal economist at the Fed's Board of Governors, has set for himself the task of describing the untested institution's responses to the banking crises of the 1920s. The '20s did roar, all right, but they sometimes squealed in pain-there were too many small, undercapitalized and illiquid banks, and they perished by the score as farm prices and land prices retreated from the government-induced inflation of World War I. The crises, small as they were in dollar terms, challenged the judgment and technical proficiency of an institution that was intended to put an end to bank runs and money panics for all time.

James Grant, founder and editor of Grant's Interest Rate Observer, is the author of "The Forgotten Depression-1921, the Crash That Cured Itself," winner of the 2015 Hayek Prize.

U.S. Economy U.S. Growth Projections Revised Up by the IMF

The International Monetary Fund doubled down on its forecast that the U.S. economy will outpace other big Western countries this year. The agency raised its estimate for annual U.S. growth in 2025 to 2.7%, up from 2.2% in its October projections.

White House Adviser: U.S. Achieved a 'Very, Very Soft Landing'

The U.S. economy has successfully achieved a soft landing , with inflation returning to more normal levels while the labor market grows steadily, said Lael Brainard, the director of the White House National Economic Council, in an interview Thursday.

Financial Regulation Banks Scrimped on Customer Interest. Now They're Paying for It.

Wall Street is starting to pay the price for the stingy interest rates it gave some customers for their cash. Wells Fargo and Bank of America's Merrill Lynch unit agreed to pay a combined $60 million to settle Securities and Exchange Commission probes into the accounts that hold cash for some of their wealth-management clients, the agency said Friday.

U.K. Delays Basel Banking Reforms Again on U.S. Uncertainty

The U.K. is pushing back the implementation of the Basel 3.1 international banking reforms by one year to allow more time for the U.S. to clarify its approach under the Trump administration.

Hedge-Fund Fees Eat Up Half of Clients' Profits

Hedge-fund investors often gripe about high fees. A new report puts the problem in sharp relief. Just over half of the industry's total gross performance was eaten away by fees over the past two decades, according to LCH Investments. That compares to about 30% between 1969 and the early 2000s, said the company, which manages and advises on investments in hedge funds on behalf of investment firm Edmond de Rothschild and other investors.

DCG Pays $38 Million Fine to Settle SEC Investigation

Crypto company Digital Currency Group agreed to pay a $38 million fine to settle with the Securities and Exchange Commission over allegations of negligence in overseeing a program offered by its now-defunct lending subsidiary Genesis Global Capital.

Forward Guidance Tuesday (all times ET)

2 a.m.: UK monthly unemployment figures

8:30 a.m.: CPI (CA)

Wednesday

7 a.m.: MBA Weekly Mortgage Applications Survey

9 a.m.: Johnson Redbook Retail Sales Index

Research Pending Home Sales Fell 4.5% In December As Mortgage Rates Climb

A mortgage rate can make or break a deal. That much is clear after a report from Redfin shows pending home sales fell 4.5% month over month in December on a seasonally adjusted basis, the largest decline since October 2022. The decline came as mortgage rates began to climb in December and now sit above 7%. Home purchases fell through at the highest December rate on record, likely contributing to the declining in pending sales, says the real-estate brokerage company. Nearly 40,000 home-purchase agreements were canceled in December, equal to about 16% of homes that went under contract that month, it adds. - Denny Jacob

Basis Points The mood among German businesses darkened this month as the country braces for new administrations in both Washington and Berlin. The ZEW Indicator of Economic Sentiment, which tracks expectations for the next six months, dropped more than 5 points on month to 10.3 in January, much lower than expectations of a reading of 15.0, according to economists polled by The Wall Street Journal. (Dow Jones Newswires) Canadian business executives fear a pickup in inflation with President Trump coming to power and promising hefty tariffs on America's closest trading partners, according to a Bank of Canada survey of executives. An online survey conducted in December, involving over 900 business executives, also indicated that some firms revised lower their sales outlook, and scaled back investment and hiring plans, based on Trump's threat to impose a tariff of up to 25% on imports from Canada and Mexico. (DJN) Malaysia's central bank is expected to leave its benchmark overnight policy rate unchanged at 3% in January, according to nine economists polled by The Wall Street Journal. Bank Negara may maintain a cautious approach to monetary policy, monitoring economic growth and inflation uncertainties, DBS economists Taimur Baig and Chang Wei Liang say in a note. With headline inflation remaining benign, interest-rate adjustment is deemed unnecessary for now, they add. The rate decision is due Wednesday. (DJN) About Us

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ's global team of reporters and editors. This newsletter was compiled by markets reporter Vicky Ge Huang in New York. Send your tips, suggestions and feedback to [vicky.huang@wsj.com].

This article is a text version of a Wall Street Journal newsletter published earlier today.


(END) Dow Jones Newswires

01-21-25 0716ET