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Fed's Clarida, Bostic Anticipate Taper; Clarida Defends Himself Amid Trading Controversy; Quarles's Term as Supervision Vice Chair Expiring

Good day. The Federal Reserve is likely to announce plans to gradually shrink its $120 billion a month in Treasury and mortgage bond purchases after its two-day meeting starting Nov. 2, according to comments by its second in command. Fed Vice Chairman Richard Clarida said the central bank was on track to start tapering the purchases amid stronger-than-anticipated inflation and robust economic growth and hiring. Mr. Clarida also sought to defend himself amid scrutiny of his investment activity. Separately, Atlanta Fed President Raphael Bostic said he was on board with an imminent pullback in some of the aid the central bank has been offering the economy. Meanwhile, Randal Quarles's term as the Fed's vice chairman for bank supervision expires Wednesday, and President Biden has yet to nominate a successor.

Now on to today's news and analysis.

Top News

Clarida Affirms Fed Plans to End Bond Purchases by Mid-2022

Federal Reserve Vice Chairman Richard Clarida said the central bank was on track to begin reducing, or tapering, its asset-purchase program amid stronger-than-anticipated inflation and robust economic growth and hiring this year.

"A gradual tapering of our asset purchases that concludes around the middle of next year may soon be warranted," he said in remarks delivered virtually at a conference on Tuesday.

Bostic: Inflation Surge Will Likely Last Longer Than Expected

Atlanta Fed President Raphael Bostic said that while inflation has surged more than he and others had expected and runs the risk of being more persistent than desired, he still believes price pressures will ease over time.

Bank Supervision Committee to Be Without Designated Chairman

The Fed's banking regulation committee won't have a designated chairman after the four-year term of Randal Quarles, the Fed's vice chairman for bank supervision, expires on Wednesday, the beginning of a potential leadership reshuffle atop the central bank.

Derby's Take: Clarida Defends Himself Amid Federal Reserve Trading Controversy

By Michael S. Derby

The Federal Reserve's second in command on Tuesday defended trading he undertook early last year just ahead of a key shift in monetary policy, as the coronavirus pandemic was beginning to take hold in the U.S.

"I've had the opportunity to serve in the Council of Economic Advisers, the Treasury and the Federal Reserve across four administrations, as part of a career in economic policy, academia and the private sector that has spanned nearly 40 years, and I've always acquitted myself honorably and with integrity with respect to the obligations of public service," Fed Vice-Chairman Richard Clarida said during a virtual appearance. Read more.

U.S. Economy

House Approves Extension of Debt Ceiling Into December

The House voted along party lines to raise the U.S. borrowing limit into December, as Democratic lawmakers wrestled with how to set a new ceiling for U.S. debt later this year over Republican resistance.

Social Security Payments Could Increase the Most in 40 Years

Seniors and other Americans receiving Social Security benefits in 2022 are likely to see the largest increase in their payments in decades, reflecting surging inflation during the pandemic.

Return of Office Workers Reaches Pandemic High

A widely anticipated surge in employees returning to the office after Labor Day never materialized. But as Covid-19 infection rates fall again, workers are trickling back to the office at the highest rate since the pandemic began.

Key Developments Around the World

IMF Cuts Global Growth Forecast Amid Supply-Chain Disruptions

The IMF cut its global growth forecast for 2021 to 5.9% from 6% in its July report, a result of a reduction in its projection for advanced economies to 5.2% from 5.6%. The cut mostly reflected problems with global supply chains.

China Home Sales Are Falling Sharply

Numerous big developers have reported lower sales figures for September, with many showing year-over-year declines of more than 20% or 30%, a stark drop-off for a month that leads up to one of the strongest selling periods of the year.

Financial Regulation Roundup

SEC's Lee Calls for More Transparency in Private Markets

A member of the Securities and Exchange Commission is calling for greater transparency in private markets, saying that nonpublic businesses can play an outsize role in the U.S. economy without disclosing key information about their operations.

White House on Aggressive Tack for Cryptocurrency, Official Says

Peter Harrell, senior director for international economics and competitiveness with the National Security Council, said the Biden administration would address risks around cyrptocurrencies while seeking to position the U.S. as a leader in digital asset innovation.

DOJ Sees Crypto Seizures as a Priority in Anti-Ransomware Push

The Justice Department is increasingly trying to claw back ransomware payments made by hacked companies and is training cryptocurrency experts who can track funds across sometimes sprawling overseas criminal networks.

Employee Engagement Crucial in Weeding Out Corporate Misdeeds

Issues around cryptocurrency, cybersecurity and efforts to encourage whistleblowers dominated the discussion at Tuesday's WSJ Risk & Compliance Forum. Employee engagement is seen by compliance professionals as instrumental in uncovering potential crimes within companies, said Glenn Leon, senior vice president and chief ethics and compliance officer at Hewlett Packard Enterprise Co.

Binance to End Crypto Trading in China's Yuan

The world's largest cryptocurrency exchange said it would stop allowing trading involving the Chinese currency on its consumer-to-consumer platform, weeks after China made its strongest move yet against the use of digital assets.

Columbia Banking, Umpqua Bank to Merge in $5 Billion Deal

Columbia Banking System Inc. and Umpqua Holdings Corp. said Tuesday they would merge in a roughly $5 billion all-stock deal that creates one of the largest banks headquartered on the West Coast.

Forward Guidance

Wednesday (all times ET)

8:30 a.m.: U.S. Labor Department releases September CPI

10:30 a.m.: Bank of England's Cunliffe gives prerecorded speech at SWIFT's Sibos conference

2 p.m.: U.S. Federal Reserve releases Sept. 21-22 meeting minutes

4:30 p.m.: Fed's Brainard speaks to Oklahoma tribal leaders on financial inclusion and economic challenges of the pandemic

8 p.m.: Fed's Bowman speaks on economy and monetary policy at South Dakota State University event

Thursday

Time N/A: Bank of Mexico releases September meeting minutes

3 a.m.: European Central Bank's Enria speaks at Committee on Economic and Monetary Affairs of the European Parliament hearing

5:15 a.m.: European Central Bank's Enria speaks on impact of Covid-19 on the banking sector at Single Resolution Board conference

8:30 a.m.: U.S. Labor Department releases September PPI

8:35 a.m.: St. Louis Fed's Bullard speaks at Euro 50 Group webinar on coping with the legacy of Covid-19

9 a.m.: Atlanta Fed's Bostic speaks to National Black MBA Association

10 a.m.: Atlanta Fed's Bostic speaks at Global Inclusive Growth Summit

1 p.m.: New York Fed's Williams moderates panel on women in the workforce at Economic Club of New York event

1 p.m.: Richmond Fed's Barkin speaks at Forecasters Club of New York event

6 p.m.: Philadelphia Fed's Harker speaks on economy at Prosperity Caucus event

Research

Federal Reserve Support Helped Bolster Muni Debt

Aid from the Federal Reserve provided a vital lifeline to local U.S. governments during the pandemic, according to Federal Reserve Bank of New York research released Tuesday. When the central bank moved to support local government borrowing via pandemic emergency lending efforts, lower credit quality governments were able to command higher prices for their debt and sold more of it, the research said. The lending efforts also helped these governments bring back employees, though that mainly happened at employers with higher credit ratings. Researchers Andrew Haughwout, Ben Hyman and Or Shachar wrote that their findings "suggest that municipalities would likely have been more distressed absent the emergency liquidity."

-- Michael S. Derby

Commentary

For China's Banks, Corruption Is Only Half the Problem

With China's property sector reeling and "common prosperity" the new watchword of Chinese capitalism, it was only a matter of time until the regulatory brouhaha reached finance, Nathaniel Taplin writes.

Basis Points

The U.K. economy grew modestly in August, fueled by services and North Sea oil-and-gas production. Gross domestic product expanded 0.4% compared with July, the Office for National Statistics said, short of the 0.7% expansion economists were expecting. (Dow Jones Newswires)

Confidence among small-business owners in the U.S. declined slightly in September as both labor shortages and supply-chain disruptions had a significant impact on business, according to the National Federation of Independent Business. It said its NFIB Small Business Optimism Index fell to 99.1 from 100.1 in August, missing the 100.5 reading expected by economists polled by The Wall Street Journal. (DJN)

Eurozone industrial production fell in August due to supply-chain bottlenecks and slowing global trade. Output from factories, mines and utilities across the single-currency area in August fell 1.6% from the previous month, the European Union statistics agency said. (DJN)

China's exports grew at a faster-than-expected pace last month, shrugging off logistics bottlenecks, power shortages and other negative effects that risk denting demand. Chinese exports rose 28.1% in September from a year earlier, accelerating from a 25.6% increase in August. (DJN)

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October 13, 2021 08:48 ET (12:48 GMT)

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