Fed's Cook Talks Soft Landing; Cleveland Fed's Mester Says Focus on Rate Cuts Is Premature; Waning Foreign Appetite for U.S. Treasurys By James Christie

Good day. Federal Reserve governor Lisa Cook struck a somewhat optimistic tone in a speech regarding prospects for a soft-landing for the U.S. economy. But she quickly tempered that, adding it's not a sure thing: "Some parts of the economy are showing strain from tighter financial conditions." Also on Thursday, Cleveland Fed President Loretta Mester said markets are getting ahead of themselves by focusing on the prospect of interest-rate cuts. Instead, the focus should be on how long the Fed needs to stick to "a restrictive stance," she said. Meanwhile, foreigners no longer have an insatiable appetite for U.S. Treasurys: Overseas private investors and central banks now own about 30% of all outstanding U.S. government debt, down from roughly 43% a decade ago. That's bad news for Washington.

Now on to today's news and analysis.

Top News Fed's Cook Says a Soft Landing Is Possible, but Not Assured

Inflation can continue to decline without a sharp increase in unemployment-a so-called soft-landing-a top Federal Reserve official said Thursday. "I believe a soft landing is possible, with continued disinflation and a strong labor market, but it is not assured , " Fed governor Lisa Cook said in a speech at the San Francisco Fed.

Softer-than-expected consumer-inflation data released earlier this week has given rise to hopes the economy won't experience a recession to get inflation back to the Fed's 2% target, and Wall Street is pricing in 100 basis points of interest rate cuts next year.

In her remarks, Cook said she was worried the Fed hadn't tightened enough, but also that the economy was already faltering under the burden of higher interest rates. "Some parts of the economy are showing strain from tighter financial conditions," she said. Cook pointed out that households at the lower income levels "have largely exhausted their excess savings," while delinquencies on auto loans and credit cards have risen to pre-pandemic levels or even higher. (MarketWatch)

Fed's Mester Says Markets' Focus on Rate Cuts Is Premature

The focus in financial markets about interest-rate cuts is premature , Federal Reserve Bank of Cleveland President Loretta Mester said Thursday. Easing monetary policy "is just not part of the conversation right now," Mester said in an interview on CNBC. "It is really not about cutting rates," she said. "It is really now about how long do we stay in a restrictive stance, and perhaps have to go higher, given what happens in the economy." Mester said she still needed to be convinced inflation is coming down "in a timely way." She added, "I'd be concerned if we're in a situation where inflation stalls at 3%, for example." (MarketWatch)

Inflation Is Down. Unemployment Is Low. Is This a Soft Landing?

Inflation has been a big problem in the U.S. economy over the past couple of years. The Federal Reserve has been trying to tamp it down without crashing the economy. WSJ's Amara Omeokwe explains why a so-called soft landing is coming into view. Listen here .

Pro Take: U.S. Workers Entered Economy in Droves in 2023, but Dynamics Could Be Changing By Bob Fernandez

American workers may not be totally back at the office, but they're back at work. Will they keep coming back?

Job-search company Indeed is warning the gravitational pull of aging U.S. demographics and the availability of foreign-born workers are potential hindrances to the growth of the U.S. labor force. Read more.

U.S. Economy Where Have All the Foreign Buyers Gone for U.S. Treasury Debt?

The U.S. Treasury market is in the midst of major supply and demand changes . The Federal Reserve is shedding its portfolio at a rate of about $60 billion a month. Overseas buyers who were once important sources of demand-China and Japan in particular-have become less reliable lately. Meanwhile, supply has exploded. The U.S. Treasury has issued a net $2 trillion in new debt this year, a record when excluding the pandemic borrowing spree of 2020.

Stores Are Finally Giving Shoppers a Break on Prices

For over a year, shoppers pulled back on buying a range of discretionary items as prices for essentials such as food rose. Now, some retailers say inflation has cooled in many categories , which could further pressure sales growth.

What Recession? Consumers Still Have Plenty to Spend. GM Workers Approve New Labor Deal by Slim Margin

United Auto Workers employees at General Motors in a nail-biter count approved a new 4 1/2 year labor contract, ending a tumultuous monthslong bargaining process by a slim margin of votes.

Starbucks Workers Strike on 'Red Cup Day'

Thousands of unionized Starbucks workers walked out on the company's annual 'Red Cup Day' promotion for the second straight year, in a bid to bring the coffee chain back to the negotiating table.

Almost No One Pays a 6% Real-Estate Commission, Except Americans

The way we buy and sell homes in the U.S. isn't normal : The commission on a home sale here is typically around 5% to 6%, usually split between the seller's and buyer's agents. In most countries, the commissions are much smaller.

Key Developments Around the World Avoiding China Has Been Paying Off for Investors. But It Isn't Easy.

Investors in emerging-market stocks have profited this year by staying away from China. But many analysts and portfolio managers are skeptical about the strategy , in part due to the enormous gravity the economy pulls worldwide.

U.S. Executives Get No Reassurance From Xi on Tougher China Business Environment Alibaba's Woes Illustrate Broader China Concerns (Barron's) Spain's Sánchez Wins New Term After Catalan Amnesty Deal

Spain's parliament re-elected Pedro Sánchez as prime minister, following months of political uncertainty and widespread protests after the center-left politician promised an amnesty for Catalan separatists in return for their support.

Russia Arrests Two Executives at Seized Carlsberg Unit

Russian authorities have arrested two senior employees at brewing giant Carlsberg's seized local subsidiary on fraud charges , the latest sign of tension between the Kremlin and Western businesses amid the war in Ukraine.

Financial Regulation Roundup Regulators: Wells Fargo Not Doing Enough to Police Customer Crimes

Regulators have issued formal orders to Wells Fargo to be better at catching criminals who may be using its accounts or products, the latest challenge in the bank's yearslong effort to recover from a series of scandals.

Morgan Stanley to Pay $6.5 Million Fine in Agreement With AGs

Morgan Stanley agreed to pay a fine of $6.5 million following an agreement with a coalition of attorneys general over the financial-services provider compromising millions of customers' personal information .

Republicans Heap Pressure on FDIC's Gruenberg

Three Republican senators called for FDIC Chairman Martin Gruenberg to resign , while the GOP members of its board called for him to recuse himself from a probe into allegations of a toxic workplace at the bank regulator.

Forward Guidance Friday (all times ET)

8:30 a.m.: U.S. housing starts for October

9:45 a.m.: Chicago Fed's Goolsbee speaks on economy at community bankers event

Monday

10 a.m.: The Conference Board Leading Economic Index for October

1:45 p.m.: Bank of England's Bailey gives 2023 Henry Plumb Memorial Lecture

Research BOC Seen Cutting Rates Deeply Due to Drag From Mortgage Renewals

The Bank of Canada will need to cut its policy rate at a faster and deeper rate than financial markets realize, due to a "persistent drag" on spending from pending mortgage renewals, Desjardins Securities predicts. Royce Mendes, an economist at the firm, says it forecasts the BOC will cut interest rates by 1.5 percentage points in 2024 to 3.5%, and to 2.25% in 2025. "I still don't believe the economist community has fully accounted for the drag on household consumption in 2025 and 2026 from these renewals," Mendes says. The BOC acknowledges that nearly C$700 billion ($511 million) in mortgage renewals over the next few years could trigger "significantly" higher monthly consumer-debt payments. As a result, Mendes says, Canada will be hard-pressed to record above-trend growth until 2027.

-Paul Vieira

Commentary What's Behind the Market's Wild Overreactions

The Wall Street cliché is that investors hate uncertainty. Their response recently has been to swing from being entirely certain about one thing to being quite sure that the opposite is true, leading to violent moves in financial markets based on thin evidence, James Mackintosh writes.

Is the Stage Set for a Year-End Rally?

The outlook for stocks has improved: strong corporate earnings, inflation falling. But with all the good news already priced in and bond yields offering stiff competition, there is less room for the usual seasonal rally , Jon Sindreu writes.

Congrats, Your House Made You Rich. Now Sell It.

Forget the old slogan about there never being a better time to buy a home. For baby boomers, there might never be a better time to sell . The key for baby boomers looking to sell their homes is beating the crowd, Justin Lahart writes.

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11-17-23 0715ET