'We Still Have an Inflation Problem,' Says Cleveland Fed's Hammack By Vicky Ge Huang

Federal Reserve officials offered differing views on the outlook for monetary policy. Cleveland Fed President Beth Hammack insisted that "we still have an inflation problem" and Chicago Fed chief Austan Goolsbee said he has grown less concerned about a labor-market slowdown, a view that could support a patient approach to further interest-rate cuts. Meanwhile, Fed governor Chris Waller said rate cuts could happen sooner than markets expect.

Please note: The Central Banking newsletter won't be published Monday in observance of Martin Luther King Jr. Day. We'll be back Tuesday.

Top News A Fed Newcomer Wants to Go Slow on Rate Cuts

Arguments that the Fed needed to follow through with a rate cut because markets expected it in December fell flat with Cleveland Fed leader Beth Hammack. "Just because something's priced into the market, to me, is an insufficient reason to do it," she told WSJ in an interview this week . Hammack was the only dissenting vote on the Fed's rate-setting committee as the group decided to reduce its target rate to a range of 4.25% to 4.5% last month.

Why a Dovish Fed Official Could Be Patient on More Cuts

A Fed official who joins the central bank's policy committee this year said he has grown less concerned about a labor-market slowdown . Fed watchers often rank Austan Goolsbee, president of the Fed's Chicago branch, as one of the central bank's most consistent advocates for an easier monetary stance. Goolsbee's view that the Fed needn't be overly worried about rising unemployment could help forge a consensus for slower rate cuts in 2025.

Fed Governor Chris Waller Aims Explicitly to Steer Toward Earlier Cuts

Fed governor Chris Waller could hardly have been more direct in asserting that traders are underestimating the schedule of upcoming Fed rate cuts. "As long as the data comes in good on inflation, or continues on that path, I could see rate cuts happening sooner than the markets are pricing in," Waller says in an interview with CNBC.

Even after some good news on inflation yesterday, futures markets reflected less than 50-50 odds that the Fed would cut by another quarter point before June. Waller seemed keen to push back on that expectation in the interview, reiterating several times that cuts in the first half of 2025 are highly plausible. (Dow Jones Newswires)

Bank of Canada Expects Quantitative-Tightening Program to End by Midyear

The Bank of Canada said it is on pace to become one of the first major central banks to finish reducing excess reserves on its balance sheet accumulated on an emergency basis during the Covid-19 pandemic. The central bank expects to announce an end to its quantitative-tightening program in the first half of this year, Deputy Gov. Toni Gravelle said.

Bank of Canada Official Warns of Hit From Possible Hefty U.S. Tariffs Barrage of Stimulus Powers Robust Chinese Growth-and Skepticism

China said its economy expanded by 5% last year , formally hitting its official growth target in a difficult year that saw officials respond to a sharp summertime deterioration in key indicators with its most aggressive stimulus in years. Still, some outside economists say the robust headline numbers contrast with a variety of other data points that paint a weaker picture of economic health, including anemic consumer inflation, tax revenue and online spending. The economy remains mired in a real-estate slump and has been struggling with deflation.

China Sees a Fresh Decline in Population, Despite a Rise in Births U.S. Economy Retail Sales Rose 0.4% in December

Sales at U.S. stores and restaurants rose at a solid clip in December as consumer spending remained resilient despite relatively elevated interest rates. Retail sales rose a seasonally adjusted 0.4% last month from November to $729.2 billion, the Commerce Department said Thursday. While that was just shy of economists' expectation for a 0.5% gain, the department revised the increase in November retail sales to 0.8%, from an initial estimate of 0.7%.

Mortgage Rates Top 7% for First Time Since Mid-2024

Mortgage rates rose above 7% for the first time since mid-2024, an early setback for a housing market that is coming off two consecutive years of poor sales.

Bessent Says Trump Could Bring 'New Economic Golden Age'

Scott Bessent defended tariffs and argued for tax-cut extensions during his confirmation hearing as President-elect Donald Trump's pick for Treasury secretary in the Senate Finance Committee.

Financial Regulation American Express to Pay $230 Million in Fines for Aggressive Sales Practices

American Express has agreed to pay approximately $230 million in penalties over deceptive practices tied to how it sold credit cards and wire services to small-business customers.

BitMEX Fined $100 Million for Anti-Money-Laundering Failures

Cryptocurrency exchange BitMEX was fined $100 million for failing to maintain an adequate anti-money-laundering and know-your-customer program.

Cash App Owner to Pay $80 Million Over Alleged Anti-Money-Laundering Deficiencies

Cash App parent company Block has agreed to pay $80 million in a settlement with dozens of state regulators over alleged problems with its program to counter money laundering.

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. The Prudential Regulation Authority, a subsidiary of the Bank of England, said Friday that it is delaying the rollout of the final set of regulation to Jan. 1, 2027.

Forward Guidance Friday (all times ET)

8:30 a.m.: New Residential Construction - Housing Starts and Building Permits

9:15 a.m.: Industrial Production and Capacity Utilization

4 p.m.: Treasury International Capital Data

Monday

U.S.: Martin Luther King Day. Financial markets closed

Donald Trump sworn in as 47th U.S. president at Inaugural Ceremonies

Commentary Trump's Own Plans Stand in the Way of Repeating His Economic Success

Sometimes the order in which you do things makes all the difference. That could prove to be the case with President-elect Donald Trump's economic policies, writes WSJ's Aaron Back. In his first term, sweeping tax cuts preceded the imposition of selective tariffs. That meant the economy already had solid momentum when the negative impact from trade disruptions hit. This time around, the order is likely to be reversed. The tariffs could also be much wider while the amount of new tax relief is smaller. That seems like a recipe for an economic downturn.

Research Benchmark Yield Could Rise Above 5%, BofA Economists Say

Strong U.S. macro data and a hawkish Fed makes investors wonder how much higher Treasury yields could go, Bank of America economists write. The bank's forecast for the 10-year yield this year is 4.75%, higher than the current level of 4.67%. The BofA economists say the benchmark yield could rise above 5%, depending on Fed's reaction to inflation data, but it is unlikely to cross 5.25%. If the CPI goes against Fed expectations and rises, a hike could happen. "It is possible but is a high bar," they write. They say 10-year rates around 5% "would be an attractive buy assuming CPI remains sticky or a little lower." - Paulo Trevisani

Basis Points Mark Carney, the former Canadian and U.K. central banker, formally declared his interest in succeeding Justin Trudeau as leader of Canada's Liberal Party and the country's prime minister, promising an economic agenda focused on lifting it from a period of stagnant growth. Retailers in the U.K. recorded a dispiriting December , with not even the Christmas and Black Friday shopping periods saving them from declining sales. The U.K.'s residential sales market continued to strengthen as house prices increased and new buyer inquiries rose further in December, according to data from the Royal Institution of Chartered Surveyors. The latest residential market survey said that overall house sales continued to see an upward trend, with December being the sixth consecutive month in which respondents indicated an increase in houses being listed for sale. Global economic growth is set to steady this year and next, but remain weak and below rates that would enable poor countries to narrow the income gap with rich ones as quickly as they did earlier in the century, the World Bank said. U.S. initial jobless claims rose by 14,000 to 217,000 in the week ending Jan. 11, in part due to a spike in claims from wildfire-ravaged California. Economists polled by The Wall Street Journal had estimated new claims would rise by 9,000 to 210,000. Last week claims fell a revised 8,000 to 203,000. That compared with the initial estimate of a decrease of 10,000 to 211,000. (MarketWatch) Canadian housing starts dropped back to a four-month low of roughly 231,000 annualized at the end of last year, which is far from a surprise after a similar decline in building permits issued in November, says Capital Economics' Thomas Ryan. The economist expects that with pre-construction sales still weak in Canada and headwinds from falling rents and a recent change in the federal immigration policy, starts will fall to a little less than 200,000 on average by the second half of 2025. (Dow Jons Newswires) Executive Insights

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