Fed's Bowman Says Hawkish Stance Has Evolved; For U.S. Consumers, Inflation Outlook Improves

Fed's Bowman Says Hawkish Stance Has Evolved; For U.S. Consumers, Inflation Outlook Improves By James Christie

Good day. Inflation in the U.S. could ease without the Federal Reserve resorting to more interest-rate increases, Fed governor Michelle Bowman said Monday in remarks to a bankers group. In speeches until late November, she had seen a need for more rate increases. Meanwhile, the New York Fed said its latest survey of consumer expectations found that, looking ahead one year, consumers see inflation falling to 3%.

Now on to today's news and analysis.

Top News Fed's Bowman: Inflation Could Drop Without Further Rate Increases

Fed governor Michelle Bowman said if inflation continues to decline, it will eventually become appropriate to cut interest rates to keep policy from putting too much downward pressure on growth, MarketWatch reported . In remarks to the South Carolina Bankers Association, Bowman said that "in my view, we are not yet at that point." She said there were still some "important upside inflation risks" in the outlook.

Americans say inflation will keep cooling in the year ahead, according to New York Fed data. Looking ahead one year, consumers expect the inflation rate to fall to 3% , the lowest anticipated one-year ahead inflation rate since January 2021 in the New York Fed's survey of consumer expectations. The expectation of a 3% rate was down from 3.4% in November's survey and down from 5% a year ago. (MarketWatch) Investors hyper-focused on expectations for interest-rate cuts in 2024 can expect the Fed to buttress financial markets in another vital way, according to Bank of America Global's rates team. It now expects the Fed to start cutting rates from a 22-year high in March, but also to unveil plans to stop shrinking its roughly $7.7 trillion balance sheet at midyear. (MarketWatch) U.S. Economy Offices Around America Hit a New Vacancy Record

A staggering 19.6% of office space in major U.S. cities wasn't leased as of the fourth quarter, according to Moody's Analytics, up from 18.8% a year earlier. That is slightly above the previous records of 19.3% set in 1986 and 1991.

U.S. Has Plenty of Natural Gas. Why Is New England Out in the Cold?

America is the world's largest natural-gas producer, but New Englanders' capacity to stay warm in winter may hinge on the fate of an expensive, 53-year-old import plant that its owner has threatened to shut down.

The Latest Dirty Word in Corporate America: ESG

Many companies no longer utter these three letters: E-S-G. Following years of simmering investor backlash, political pressure and legal threats over environmental, social and governance efforts, a number of business leaders are now making a conscious effort to avoid the once widely used acronym for such initiatives.

Key Developments Around the World Swiss National Bank Rules Out Payouts After Losing $3.5 Billion

The Swiss central bank won't pay out any dividend for 2023 after a second straight year of losses, having twice hiked interest rates to combat inflation.

Bank of Korea Likely to Stand Pat for Eighth Time, Poll Shows

The Bank of Korea is likely to stand pat for an eighth consecutive time Thursday, amid growing market bets on policy easing later this year. All 19 economists surveyed by WSJ expect the central bank to keep its base rate unchanged at 3.5% at the year's first rate-decision meeting, but they pencil in rate cuts as early as the second quarter. (Dow Jones Newswires)

U.K. Festive-Season Retail Sales Fail to Revive Sluggish 2023

Retail sales growth in the U.K. weakened in the key trading period of December as consumers continued to hold back spending due to high living costs, according to British Retail Consortium data published Tuesday.

How France Fumbled Its Africa Ties and Set Off a Geopolitical Crisis

President Emmanuel Macron now faces a wave of anger on a continent that generations of French leaders considered their pré carré, or backyard, and one of the final vestiges of their country's once globe-spanning empire.

China Becomes Biggest Auto Exporter-With Help From Russia

China's overseas auto sales surged to a record last year, on track to surpass Japan as the world's biggest exporter of cars and marking a tectonic shift for the global auto industry. While China has become acknowledged as a world leader in electric vehicles, traditional gas-powered autos were the main driver of the increase, with demand surging especially in Russia.

Financial Regulation Roundup Love and Deceit: When Work-From-Home Spawns Insider Trading

There is a rich history in securities fraud of "pillow talk" cases, in which insider traders glean confidential information from romantic partners. The Covid era offered a twist: Secrets weren't spilled in the bedroom or over a bottle of wine, but during the humdrum routine of two adults working from home .

Buying Home and Auto Insurance Is Becoming Impossible

Homeowners and drivers are facing sharply rising premiums, less coverage and fewer, if any, choices of insurer . In some locations, the only options they have are bare bones coverage or none at all.

Forward Guidance Tuesday (all times ET)

8:30 a.m.: U.S. trade report for November; Canada trade report for November

Wednesday

10 a.m.: U.S. wholesale trade for November

3:15 p.m.: New York Fed's Willliams gives 2024 economic outlook

Research BOE Could Start Rate Cuts in August

The Bank of England could start cutting interest rates around August, supported by easing inflationary pressures, KPMG U.K. chief economist Yael Selfin said during a webinar hosted by the Resolution Foundation think tank. U.K. money markets currently price in a high chance of a rate cut in May, Refinitiv data show, but Selfin said that looks optimistic. "We are slightly more cautious, we think the BOE will start rate cuts around August rather than in May," she said. The central bank could continue cutting rates at each consecutive meeting by 25 basis points until August 2025 "when rates could reach 3% by then," Selfin said.

-Miriam Mukuru

Bank of Canada Policy Rate to Fall to 3.5% This Year

CIBC Capital Markets anticipates Bank of Canada interest-rate cuts to start in June and the BOC policy rate to be 1.50 percentage points lower by the end of 2024. Canadian output declined in the third quarter and is expected to remain weak through the first half of 2024. Recent jobs data, which showed strong wage increases, suggest the BOC may be reluctant to start rate cutting too soon. CIBC expects a quarter-point cut in June, or the fourth of eight scheduled rate-policy announcements this year. By September, after the release of the fifth and sixth decisions, CIBC expects the BOC policy rate at 4%. By December, following the last two announcements of the year, CIBC predicts the BOC policy rate at 3.5%.

-Paul Vieira

Commentary Javier Milei and Argentina's Lessons for America

Under the long shadow of Juan Perón, populist economics, weak institutions, political polarization and contempt for the rule of law have defined Argentine politics for decades, and it isn't hard to spot signs of similar social dysfunction in the U.S. today, Walter Russell Mead writes.

Walter Russell Mead is the Ravenel B. Curry III Distinguished Fellow in Strategy and Statesmanship at Hudson Institute, the Global View Columnist at The Wall Street Journal and the James Clarke Chace Professor of Foreign Affairs and Humanities at Bard College in New York.

Basis Points U.S. consumers are more enthusiastic about the housing market, with a rising share saying they think mortgage rates will fall over the next 12 months, according to Fannie Mae. Its monthly Home Purchase Sentiment Index rose 2.9 points in December to 67.2, driven primarily by expectations that rates will fall. Last month, 31% of consumers said they expected rates to fall in the coming year, compared with 22% in November. (MarketWatch) The U.S. jobs market stopped cooling in December, inching slightly higher according to the Conference Board's Employment Trends Index. It rose to 113.15 from a downwardly revised 112.48 in November, the private-research group said, ending the previous two months' decline, though the index remains low compared with the peaks reached in spring of 2022. (Dow Jones Newswires) The median U.S. asking rent fell 0.8% year over year in December to $1,964, Redfin said, marking a third consecutive decline following a 2.1% annual drop in November and a 0.3% fall in October. (DJN) Germany's industrial production fell in November for a sixth straight month, weaker than expectations that it would stagnate on month, continuing a sluggish period for the key manufacturing base of Europe's largest economy. Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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

(END) Dow Jones Newswires

01-09-24 0715ET