RBA Hold Rates but Remains Open to Further Tightening; Fed's Barr and Mester Expect High Rates to Persist; ECB's Lane Says Wage Growth Isn't Consistent With Inflation Target By James Christie
Good day. The Reserve Bank of Australia held interest rates steady at its first board meeting under new Gov. Michele Bullock, but it kept the door open to potentially tighten policy again amid a tough battle to tame inflation. Meanwhile, Federal Reserve Vice Chair for Supervision Michael Barr on Monday said he is looking beyond the matter of whether the central bank should approve another interest rate increase this year. Instead, he said, the issue before the Fed should be how long it will need to keep rates elevated. Barr added that he expects it "will take some time." Federal Reserve Bank of Cleveland President Loretta Mester on Monday said she suspects the central bank "may well need to raise" interest rates once more this year and then keep rates high "for some time" to get inflation fully under control. Across the pond, the European Central Bank hasn't yet won its battle against inflation, with wage growth a particular obstacle to reaching its 2% target, according to ECB Chief Economist Philip Lane.
Now on to today's news and analysis.
Top News RBA Keeps Interest Rates Unchanged for Fourth Meeting in a Row
The RBA maintained the cash rate at 4.10% , representing its fourth consecutive meeting on hold. The decision was widely expected by economists despite an uptick in inflation to 5.2% in the 12 months to August, from 4.9% in July.
In a commentary accompanying the rates decision, the RBA said inflation remained too high but recent data are consistent with it returning to the central bank's 2%-3% target range, with output and employment continuing to grow.
"Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will continue to depend upon the data and the evolving assessment of risks," said Bullock, who replaced Philip Lowe as governor when his seven-year term ended in mid-September.
Barr Says Biggest Question for Fed Is How Long to Keep Rates High
Federal Reserve Vice Chair for Supervision Michael Barr on Monday said the biggest challenge facing the central bank is to decide how long to keep interest rates high to make sure inflation is tamed. "In my view, the most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level to achieve our goals," Barr said in a speech in New York [https://urldefense.com/v3/__https://www.federalreserve.gov/newsevents/speech/barr20231002a.htm__;!!F0Stn7g!E_vLdofssp8yGL2gzM5MAACLNqMHpR5zX2ffrdwP7z4FIZbSKBXXUNzULbpVt24natwnba-h33OfTjrKXGDLUpqWwVmGjEIBR3H_zFUk$ ]. "I expect it will take some time." (MarketWatch)
Mester Says Fed May Have to Raise Rates Once More This Year
The president of the Cleveland Federal Reserve on Monday said "inflation remains too high" despite a sharp slowdown in price increases since last year. Loretta Mester, in a speech in Cleveland, said, "rising gasoline prices could begin to make consumers think inflation will be rising again. "If so, higher inflation could become embedded in people's view of the economy and affect their behavior in ways inconsistent with price stability," she said. Twelve of the Fed's governors and regional bank presidents predict one more rate hike in 2023, but seven see no need for further action. Mester has favored a somewhat more aggressive approach . (MarketWatch)
ECB's Lane Says Wage Growth Needs to Cool to Reach Inflation Target
ECB Chief Economist Philip Lane told a conference at Lithuania's central bank that wages are currently rising by 5.5% on average in the eurozone, after having jumped 4% last year. " That isn't consistent with 2% inflation , " he said.
U.S. Economy The Trillion-Dollar Question for Bond Investors
Asset managers are betting on flood of money into fixed-income funds that has yet to materialize. Investors appear content to wait out the bond rout while earning more than 5% in cash-like instruments.
Dollar's Resurgence Is a Headache for the Rest of the World
The dollar bounced back with a vengeance in the third quarter, driven by surging Treasury yields and threatening global central bankers' tricky task of bringing down inflation while protecting fragile economic growth.
U.S. Car Sales Expected to Increase Again in the Third Quarter
The U.S. automobile industry is set to report rising sales in the third-quarter with automakers and buyers largely unfazed by higher interest rates and the impact of a continuing United Auto Workers strike.
Ford, GM Lay Off About 500 Factory Workers Dockworkers Union's Sway at West Coast Ports Tested in Bankruptcy
The West Coast dockworkers union's bankruptcy filing puts a dent in the armor of one of the most powerful labor groups in the U.S. It includes 22,000 members who handle virtually all U.S. seaborne trade from Seattle to San Diego.
Americans' Growing Reluctance to Quit Their Jobs
The surge in Americans quitting their jobs has fallen from record highs it hit during the pandemic. Quits trending down can be worrisome . The quits rate fell in each of the past three recessions.
Tougher Return-to-Office Policies No Remedy for Half-Empty Buildings
Office attendance in big cities is still barely half of what it was in 2019, and get-tough measures are proving largely ineffective at boosting that rate much higher- another blow to office owners struggling with vacancy rates near record highs.
Key Developments Around the World Japan Ready to Take Measures Against Sharp Yen Falls
The Japanese government stands ready to take action if the yen weakens too sharply, Finance Minister Shunichi Suzuki said Tuesday. Suzuki reiterated that the government wasn't targeting any specific yen level but focusing on volatility.
Turkish Inflation Keeps Rising, Leaves Central Bank With Few Options
Turkey's inflation rate continued to accelerate in September, rising to 61.5% from 58.9% the previous month, suggesting the country may need to further increase already high interest rates as it battles to rein in rampant price rises.
Oil Producers Push for Bigger Voice in Climate Talks
Less than two months before it hosts the UN climate summit, the UAE gathered the world's fossil-fuel producers for a top oil-and-gas conference, calling on the industry to be central to efforts to reduce emissions .
China Is Gaining Long-Coveted Role in Arctic, as Russia Yields
Faced with economic isolation over its invasion of Ukraine, Russia is turning to China for help developing the Arctic as Western energy companies are trying to pull out of Russian projects.
Russian Ruble Falls to Near 100 vs Dollar, Not Seen Since August
The Russian ruble has been steadily weakening since late September and was once again under pressure on Tuesday. Renewed pressure has sent it to levels not seen since mid August only stabilizing days later after the Bank of Russia hiked its key interest rate by 3.5 percentage points to 12% following an emergency meeting. Weakening exports amid sanctions and a recovery in imports have weighed on the currency. The next central bank meeting to discuss interest rates will be Oct. 27. (MarketWatch)
Financial Regulation Roundup Bankman-Fried and the FTX Collapse: What to Know as Trial Starts
The trial of Sam Bankman-Fried, founder of collapsed crypto exchange FTX, starts Tuesday. Prosecutors call the company's demise one of the biggest financial-fraud cases in U.S. history, while he has pleaded not guilty to all charges.
Crypto Could Be a Mystery to Jurors in Bankman-Fried Case SEC Charges Man With Making Bogus Claims in Investment Filings
The Securities and Exchange Commission charged a man and three of his companies with defrauding seniors and making false statements in at least 30 SEC filings. The regulator alleged that Stephone Patton made false statements that his companies ran offshore oil platforms, had annual revenue of over $16 billion, and employed more than 32,000 people, when in reality the companies had no business operations, assets, or revenue.
Forward Guidance Tuesday (all times ET)
8 a.m.: Atlanta Fed's Bostic speaks on economic outlook at Leadership Atlanta's alumni roundtable
8:40 a.m.: Bank of Canada's Vincent speaks on pricing practices and monetary policy to Chambre de commerce du Montréal métropolitain
Wednesday
4 a.m.: Eurozone services PMI for September
4:30 a.m.: S&P Global / CIPS UK Services PMI for September
5 a.m.: EU producer-price index for August
8:15 a.m.: ADP National Employment Report for September
10 a.m.: ISM Report on Business Services PMI for September
10:25 a.m.: Fed's Bowman speaks on research, data and analysis in banking reforms at the 2023 Community Banking Research Conference, at St. Louis Fed
Research Student Loans Expected To Be a 'Contained Headwind'
The resumption of student loan payments "should be a relatively contained headwind" for the U.S. economy, Wells Fargo analysts write in a report. They note that some repayments have already started and estimate the average payment will be between $200 and $300 a month, or around 5% of the U.S. median annual salary. "Relatively large outstanding student loan balances are concentrated in a small number of households," the analysts write. "We estimate student loan debt repayment to subtract just about 0.4-0.6% from total annual consumption."
-Paulo Trevisani
Commentary The Bond Regime Change That Is Whacking Stocks, in Six Charts
The government-bond market is the bedrock of financial markets, and over the past two decades it has been a key source of support for stocks. Now, higher inflation and hawkish central banks may have ended that benign regime, Jon Sindreu writes.
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10-03-23 0715ET
