Waller Is Skeptical of More Big Fed Rate Cuts; Xi Jinping’s Pivot on Broad China Stimulus By Hardika Singh
A key voter on the Federal Reserve said the surprising strength of the economy suggests the central bank should “proceed with more caution” in cutting U.S. interest rates to make sure inflation doesn’t reignite.
Fed Gov. Chris Waller said the economy is “much stronger than previously thought” and the “labor market remains quite healthy.” He made his remarks at an event at Stanford University in California.
Waller noted that the Fed and Wall Street had been fooled by reports over the summer that indicated the economy was slowing.
“To remind you of how bad the markets viewed the July data, some Fed watchers were calling for an emergency [Fed] meeting to discuss a rate cut,” Waller said. The Fed stood pat in July and didn’t cut rates until September.
New and revised economic information instead is “signaling that the economy may not be slowing as much as desired,” Waller said.
The economy could even put more upward pressure on inflation if growth accelerates too quickly because of lowered borrowing costs, he said.
In light of these developments, Waller signaled he would prefer smaller rate cuts than the larger half-point reduction the Fed made in September. It was the first rate cut in four years.
What could cloud the Fed’s view of the economy in the short run, however, is the impact of hurricanes Helene and Milton.
Waller said the storms would likely result in a weak October employment report shortly before the Fed’s next meeting on Nov. 6-7 to decide whether to cut interest rates again.
Top News Behind Xi Jinping’s Pivot on Broad China Stimulus
With China’s economy sinking deeper into a funk last month, Xi Jinping finally decided something had to be done.
After resisting calls to take forceful steps to prop up the economy for two years, Xi relented in late September and ordered a barrage of interest-rate cuts and other measures to put a floor under growth.
But Xi didn’t give his economic mandarins a blank check. According to officials and government advisers close to decision-making, he wanted to bail out indebted Chinese municipalities on the brink of collapse and revive the stock market, without veering too far from his focus on letting the state drive China’s transformation into an industrial and technological powerhouse.
For Xi, the officials and advisers say, the near-term goal isn’t to massively stimulate demand but to fend off a brewing financial crisis-or “derisking,” in official lingo, thereby helping to stabilize the overall economy and achieve the 5%-or-so growth target for this year.
The resulting mixed message on what exact stimulus was coming has sent investors on a roller-coaster ride. Markets were initially energized by interest-rate cuts and other easing measures by the central bank only to be deflated by lackluster news conferences from other economic agencies short on details. Read more .
U.S. Economy Hint of ‘Very High’ CPI Expectations Raises Risks for Treasury Market
Buried inside last Friday’s data from the University of Michigan was a shocking inflation outlook from a small segment of consumers-one that is causing some nervousness about whether Treasury-market traders are underestimating the upside risks to prices. The mean expected increase in prices in the next five to 10 years was 7.1%, based on a preliminary reading for October. That’s more than twice the median increase of 3% expected over the same time frame. Mean refers to the average of a set of numbers, while median refers to the middle value in that set. (MarketWatch)
America’s New Millionaire Class: Plumbers and HVAC Entrepreneurs
A wave of private-equity investment is minting a new class of millionaires across the country, one that small-business owners say is helping add more shine to working with a tool belt.
Econ Nobel Awarded to Authors of ‘Why Nations Fail,’ Ex-IMF Figure
The Nobel Prize in Economic Sciences was awarded to Daron Acemoglu, Simon Johnson and James Robinson for work that advanced the understanding of differences in prosperity between countries.
To Lure Home Buyers, Builders Have to Help With Mortgage Costs
Daniel Garcia Parra is the kind of home buyer that builders are aggressively courting. With mortgage rates at the highest level in decades last year, the 35-year-old found little he could afford when touring for-sale houses in Dallas, Ga., outside Atlanta.
Financial Regulation Credit Cards Don’t Require Signatures. So Why Do We Still Sign?
The big financial moments in life used to be marked with a flourish of a pen . Buying a house. A car. Breakfast. Not anymore. Visa, Mastercard, Discover and American Express dropped the requirement to sign for charges like restaurant checks in 2018.
Want a Crypto-Friendly Congress? Run Ads That Don’t Mention Crypto
Bernie Moreno will support manufacturing jobs in Ohio , protect social security and be tough on immigration when he is elected to the U.S. Senate. At least that is according to a campaign ad that has been viewed more than 160 million times. What the video doesn’t address is his stance on crypto-the industry that funded the 30-second clip and emerged as one of the biggest advertising spenders of this election cycle.
He Was a Monk, Then a Billionaire and Now an Alleged Tax Cheat
Bhargava has said he follows a “zero-profit” business model of making money from the rich to give to the poor. Not so fast, say U.S. tax authorities. They have another take on Bhargava’s Robin Hood moves: tax abuse.
Forward Guidance Tuesday (all times ET)
8:30 a.m.: Empire State Manufacturing Survey
9 a.m.: Johnson Redbook Retail Sales Index
1 p.m.: Fed governor Adriana Kugler speaks at Exploring Careers in Economics – fall event
Wednesday
8:30 a.m.: Import price index
Research ECB’s Fight Against Inflation Is Progressing, but Risks Remain
Things are looking good for the European Central Bank’s fight against inflation, but inflation risks haven’t gone away, Volker Schmidt, portfolio manager at Ethenea, says in a note. “In the U.S., which is racing ahead in this inflation cycle, inflation had already fallen significantly to a-still high-3% in the summer of 2023,” he says in a note. It then took more than a year to fall further below this temporary low point, he says. Headline inflation in the eurozone fell below the ECB’s 2% target in September. In line with the market, Ethenea expects a 25-basis-point rate cut at the ECB’s meeting on Thursday. – Emese Bartha
Basis Points Refinancing needs for U.S. junk-rated companies are at a record high above $2 trillion for the period stretching from 2025 to 2029, and pose higher default risk if the economy slows more than expected, Moody’s Ratings said Monday. The bond vigilantes are fighting to be heard and starting to be noticed. As their name implies, bond vigilantes are on the lookout for trouble. They worry that loose monetary policies and soaring fiscal deficits will push up bond yields and depress prices. China said it concluded a day of “around-the-clock” drills around Taiwan , sending a record number of military aircraft and saying for the first time that it had deployed its coast guard to encircle the self-ruled democracy’s main island. Electric cars have gone from pricey purchases to some of the biggest bargains on the used-car lot, as resale values for the vehicles have tumbled. Eurozone industry rebounded in August, offering a ray of optimism for the beleaguered factory sector as European Central Bank policymakers prime to cut interest rates again. German economic sentiment recovered this month , despite being relatively subdued by historical comparisons, as inflation expectations cool and European Central Bank rate cuts come into view. British workers booked smaller pay rises over the summer, according to figures released Tuesday, underpinning expectations that the Bank of England will lower its key interest rate for a second time next month. Australia’s rental crisis continues to deepen with vacancies falling further in September, as a surge in population growth shows no signs of cooling, while new housing supply remains highly constrained. (Dow Jones Newswires) The Bank of Thailand is likely to hold its policy rate at 2.50% on Wednesday, but a few economists see a small chance for a cut. Eight of the 11 economists surveyed by the WSJ expect the central bank to stand pat, while three project a cut to 2.25%. (DJN) The International Energy Agency trimmed its forecast for this year’s oil-demand growth for the third month in a row, as a rapid slowdown in Chinese consumption weighs on the global outlook. Government debts are set to match the annual output of the global economy by the end of this decade, and could cross that threshold much sooner if economic growth is weaker or interest payments are higher than expected, the International Monetary Fund said Tuesday. 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 Hardika Singh in New York. Send your tips, suggestions and feedback to [hardika.singh@wsj.com].
This article is a text version of a Wall Street Journal newsletter published earlier today.
(END) Dow Jones Newswires
10-15-24 0724ET
