ECB Expected to Lift Interest Rates Today on Heels of Fed Increase By James Christie
Good day. Federal Reserve officials were in full agreement at their policy meeting this week that an interest-rate increase was in order, and lifted the benchmark federal-funds rate to a range between 5.25% and 5.5% to press on their fight against inflation. At a news conference after the meeting, Fed Chair Jerome Powell didn't rule out another rate rise at the central bank's September gathering, noting that, "We think we're going to need to hold, certainly, policy at restrictive levels for some time, and we'd be prepared to raise further if we think that's appropriate." Today, it's the European Central Bank's turn to announce a rate decision. Markets expect a 25 basis-point rate rise despite recent indicators showing sluggish economic performance in the eurozone. Also today, the Commerce Department will release its GDP report for April through June.
Now on to today's news and analysis.
Top News Fed Raises Interest Rates to 22-Year High
The Federal Reserve resumed lifting interest rates Wednesday with a quarter-percentage-point increase that will bring them to a 22-year high.
Fed Chair Jerome Powell said it was too soon to tell whether the hike would conclude a series of increases aimed at cooling the economy and bringing down inflation. The central bank would decide whether to keep lifting rates based on how the economy fares in the months ahead, "with a particular focus on making progress on inflation," he said at a news conference.
Read the Federal Reserve [https://urldefense.com/v3/__https://s.wsj.net/public/resources/documents/fed-statement-072623.pdf__;!!F0Stn7g!B1lp2g-0J5cPUL4D2ssQb6PSzHJ4IE9uIsHRvBZcdomu8PlmSP9hv9eK55wUyVfHgICp35ebpk7GN0g39_KQlKWvRDiURaSfQCxKRYn1$ ] 's Full Statement Here [https://urldefense.com/v3/__https://s.wsj.net/public/resources/documents/fed-statement-072623.pdf__;!!F0Stn7g!B1lp2g-0J5cPUL4D2ssQb6PSzHJ4IE9uIsHRvBZcdomu8PlmSP9hv9eK55wUyVfHgICp35ebpk7GN0g39_KQlKWvRDiURaSfQCxKRYn1$ ] Parsing the Fed: How the July Statement Changed Transcript: Fed Chief Powell's Postmeeting Press Conference What Fed Hikes? Consumer Debt Still Riding Ultralow Rates Bank of Canada Believed Holding Off on Rate Rise Carried Risks
Senior Bank of Canada officials agreed a second straight interest-rate increase was required in July, adding there was too much risk in holding off and reviewing more economic data, according to the minutes of their deliberations this month. "The consensus among members was that the cost of delaying action was larger than the benefit of waiting," according to a summary of the deliberations among members of the Bank of Canada's governing council. Those deliberations started July 5, and led to a July 12 decision to raise the benchmark interest rate by a quarter point to 5%, a 22-year high. In that decision, Canada's central bank said growth had exceeded expectations, and there was worry the path toward its 2% inflation target would take longer than anticipated. The minutes reiterated this point, noting inflation is forecast to remain around 3% for the next year. (Dow Jones Newswires)
U.S. Economy What to Focus On in the GDP Data Out Today
The economy likely grew at a solid pace in the second quarter, suggesting the U.S. is steering clear of a recession many forecasters had expected to take hold this year. Economists surveyed by the Journal estimate gross domestic product grew at an annual rate of 2% in the second quarter . That growth, adjusted for seasonality and inflation, would match the first quarter and largely be in line with the expansion in the decade before the pandemic took hold.
The Commerce Department will release the GDP report for April through June at 8:30 a.m. Eastern time.
Four-Day Workweek Experiment Finds Work Gets Done in Less Time
Findings from one of the largest experiments with a four-day workweek offer new ballast for people hoping to adopt the same schedule: The longer people worked in new, more efficient ways , the shorter their workweeks became.
Biden's 'Made in America' Pledge Collides With His Climate Goals
Large U.S. steelmakers and the United Steelworkers union criticized the Treasury Department's proposed approach to a bonus tax credit for clean-energy projects that rely largely on U.S.-made metal and components.
Key Developments Around the World China's Soaring Youth Unemployment Threatens Xi's Economic Vision
With the urban youth unemployment rate hitting a record of 21.3% in June, the employment frustrations of China's youth are posing a new challenge to Xi Jinping and his vision for a more powerful country.
Russian Attack on U.S. Drone Spurs Fears of Escalation Over Syria
While the world's attention has been focused on Russia's invasion of Ukraine, new Russian attacks against U.S. drones have made Syria a fraught arena for military competition between Moscow and Washington.
In Need of Allies, Putin Courts African Leaders in St. Petersburg Military Officers Say They Removed Niger's President
A group of military officers in the West African country of Niger claimed Wednesday that they had overthrown the elected president , shaking one of the most-reliable U.S. allies in the fight against al Qaeda, Islamic State and Boko Haram.
Financial Regulation Roundup Nigel Farage and the Scandal That Engulfed British Banking
The collision of Brexit cheerleader Nigel Farage, a regal private bank, the BBC and the Conservative Party has ignited a debate over how lenders protect their reputations without discriminating against outspoken clients.
Apps Make Trading Fun, But SEC Fears It's Costing Investors
Federal regulators want to impose new guardrails on how retail investment firms such as Robinhood Markets use advanced analytics to encourage trading, the latest in a series of policy efforts prompted by the 2021 meme-stock craze.
Forward Guidance Thursday (all times ET)
8:15 a.m.: ECB interest rate decision
8:30 a.m.: U.S. durable goods report for June; U.S. weekly jobless claims; U.S. gross domestic product, second-quarter advance estimate
8:45 a.m.: ECB press conference
10:15 a.m.: Podcast by ECB's Lagarde on monetary policy decision
Friday
5 a.m.: EU business and consumer surveys for July
8:30 a.m.: U.S. personal income and outlays for June; U.S. employment cost index for second quarter; Canada gross domestic product for May
10 a.m.: University of Michigan consumer survey, final for July
4:15 p.m.: Fed report on assets and liabilities of commercial banks in U.S.
Research Falling Eurozone Bank Lending Heightens Stakes for ECB Rates Path
Bank lending to households and businesses in the eurozone continued on a downward trend in June, indicating the transmission of higher interest rates isn't abating, ING senior economist Bert Colijn writes in a note. It makes the European Central Bank debate about interest rate increases beyond the July meeting more heated, especially amid an already weak economic environment, he writes. Annual growth in bank lending to corporates ticked down from 2.1% in May to 1.7% in June and for households down from 4% to 3%, while on-month growth for consumer borrowing in June was negative and corporate borrowing stagnated, Colijn writes. And the picture ahead is bleak, with further credit standards tightening likely translating into weaker investment in the second half of this year and early next, increasing the risk of recession, he adds.
-Ed Frankl
Bank of Canada Risks Hard Landing With Latest Rate Increases
The Bank of Canada's resumption of monetary tightening could help return inflation to target sooner, but it raises the risk of a hard landing, say Pimco's Vinayak Seshasayee and Graeme Westwood, who see few countries as at risk of overtightening as Canada. They view Canada as one of the most interest-rate-sensitive developed market economies as its householders are highly leveraged and the majority of the debt is in mortgages with a term of five years or less. They say households have yet to feel the full effects of the central bank's initial tightening, not to mention additional tightening from its last two meetings, and could see increasing debt payments just as jobs are less secure, the economy slows and employment growth begins to lag the rise in the working-age population.
-Robb Stewart
Commentary Investors Can Read the Fed's Poker Face
Federal Reserve policy makers might need to pretend to be more hawkish than they actually are, but investors will still suspect that the central bank's rate setters are turning into doves , Justin Lahart writes.
Deutsche Bank Still Has Too Many Plot Twists
German lender Deutsche Bank's recovery plan combines cost-cutting, opportunistic growth and income distribution, but it is a hard sell in a market that can find simpler stories elsewhere, Jon Sindreu writes.
Basis Points U.S. new-home sales fell 2.5% to an annual rate of 697,000 in June, from a revised 715,000 in the prior month, the Commerce Department reported Wednesday. Economists had forecast new-home sales to total 725,000 in June. (Dow Jones Newswires) The median sales price of a new U.S. home in June fell to $415,400 from $416,300 in May, while the supply of new homes for sale fell 2.8% month on month, equating to a 7.4-month supply. (DJN) The 30-year mortgage in the U.S. averaged 6.87% in mid-July, pushing overall mortgage applications down 1.8%, the Mortgage Bankers Association said. (DJN) U.S. crude-oil inventories saw another small decline last week, and U.S. crude-oil production retreated to its lowest level this year, according to the Energy Information Administration. Commercial crude-oil stockpiles fell by 600,000 barrels last week to 456.8 million barrels, and are now about 2% above the five-year average, EIA said. (DJN) The decline in China's industrial profit narrowed for the fourth straight month in June, thanks to improved profitability in the country's manufacturing sector, official data showed Thursday. (DJN) Singapore's employment expanded at a slower pace in the second quarter than in the previous
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07-27-23 0715ET
