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Powell Seeks Middle Ground on Inflation Risk as Fed Starts Policy Meeting

Good day. Data leading up to the Federal Reserve's policy meeting that starts today point to some broadening in price pressures, a pickup in wage growth and a continued run of higher prices for certain goods that have already seen acute inflation this year, casting doubt on parts of Chairman Jerome Powell's view that rising inflation would prove temporary. Now, with attention turning away from the Fed's plans for paring its bond-buying program to when the central bank might raise interest rates from near zero, Mr. Powell has been seeking a middle ground to assure markets he is closely monitoring inflation risks while not appearing so worried that he leads investors to anticipate a quick pivot toward tighter money.

Now on to today's news and analysis.

Top News

Jerome Powell's Dashboard Casts Doubt on Inflation Easing Quickly

Federal Reserve Chairman Jerome Powell used the bulk of a widely anticipated speech in late August to explain why he was still confident that this year's inflation surge would prove temporary. His remarks haven't aged well.

Economic data released over the past two months have cast doubt on parts of Mr. Powell's thesis, which helps to explain why he has acknowledged less conviction that inflation will quickly return to the Fed's 2% goal as supply-chain kinks work themselves out.

U.S. Economy

Deere's Labor Dispute Resurrects Talk of Inflation Adjustments

Striking Deere & Co. employees this week are expected to vote on a contract with more protections against rising inflation that resurfaced as an issue in negotiations for the first time in years.

Farewell Offshoring, Outsourcing. Pandemic Rewrites CEO Playbook.

With the pandemic slowing the machinery of international trade, business leaders are ditching, at least temporarily, overseas partners and the conventional wisdom of the global economy in favor of reliability.

Mortgage Bond Sales Surged in October

Overall mortgage-bond issuance in the U.S. hit $163 billion this year through October, the heaviest pace since the financial crisis, and is likely to reach $190 billion by year-end, according to Bank of America Corp.

Key Developments Around the World

Reserve Bank of Australia Abandons Key Stimulus Tool

The Reserve Bank of Australia said it would stop using yield caps and abandoned a view that its benchmark interest rate won't rise until 2024, joining other central banks that are tightening policy as inflation risks mount.

New Zealand House Prices Could Ease, RBNZ Governor Says

New Zealand's high house prices should ease in the medium term as a construction boom increases the supply of new homes, the central bank governor said.

Malaysia's Central Bank Likely Keep Policy Rate at 1.75%

Malaysia's central bank is expected to keep its overnight policy rate at 1.75% at its coming monetary policy committee meeting, according to all nine economists polled by The Wall Street Journal. Although the Covid-19 situation has improved significantly in the country, the economic recovery is still nascent and it is too early for Bank Negara Malaysia to withdraw monetary accommodation, says ANZ Research. It adds that Malaysia's inflation isn't obstructing the accommodative stance. The central bank is due to announce its policy decision Wednesday. (Dow Jones Newswires)

Some of the World's Last Covid-19 Travel Holdouts Are Reopening

Australia dropped one of the world's strictest coronavirus travel bans that had been in place for nearly 600 days, allowing citizens and permanent residents to travel freely into and out of the country if they are vaccinated.

Global Covid-19 Death Toll Tops Five Million

Lebanon Faces Deepening Economic Crisis as Saudis Cut Ties

Saudi Arabia banned imports from Lebanon and expelled its ambassador following remarks by an official about the war in Yemen, as tensions over Iran's influence in Lebanon spill over and threaten to damage its disastrous economy.

Financial Regulation Roundup

Biden Administration Targets Stablecoin for Banklike Oversight

The Biden administration on Monday took the first significant step to impose banklike oversight on the cryptocurrency companies involved in the issuance of stablecoins, outlining a process that could shape the future of that digital money.

Digital Currency Group Wants to Be Crypto's Standard Oil

Digital Currency Group Inc., a cryptocurrency conglomerate that counts the asset-manager Grayscale and media company CoinDesk among its holdings, raised $700 million in the second-largest investment round in the crypto sector.

Forward Guidance

Tuesday (all times ET)

Time N/A: U.S. Federal Reserve begins two-day policy meeting

Wednesday

Time N/A: National Bank of Poland releases policy statement

8:30 a.m.: U.S. Commerce Department releases September international trade data

9 a.m.: Bank of Canada's Gravelle speaks on panel on climate risk management via videoconference

2 p.m.: U.S. Federal Reserve releases policy statement

2:30 p.m.: Fed's Powell holds press conference

Research

Wrightson ICAP: Powell Will Caution on Timing of Rate Liftoff

Federal Reserve Chairman Jerome Powell at the Federal Open Market Committee meeting this week is likely to push back at mounting expectations of a U.S. central bank interest-rate increase, Wrightson ICAP analysts said in a note over the weekend. "At a minimum, Chair Powell will repeat his September warning about extrapolating from the Fed's taper decision," meaning he will caution observers that the Fed's anticipated slowing of its bond purchases has nothing much to do with boosting what are now near zero short-term rates, the research firm said. "Powell's discussion of the economic outlook is likely to suggest that he personally is in no hurry to get to the liftoff phase of this policy cycle," the firm said, adding "our guess is that Chair Powell was in the 2023 liftoff camp in the September dot plot."

-- Michael S. Derby

Commentary

An Economy Out of Season

Declining Covid-19 cases and easing supply-chain problems should, over time, return the economy to many of its old ways. But until then, much data could be difficult to interpret, Justin Lahart writes.

There's Less Than Meets the Eye to October Manufacturing

For now the key part of the ISM manufacturing report is its deliveries index: Until it begins falling, signaling that supply problems are easing, manufacturing will be held back, Justin Lahart writes.

One Upside to Economic Woes May Be China-U.S. Thaw

Few fundamental issues have been resolved and other factors are at play, such as looming climate negotiations, but for now at least, China needs external demand and the U.S. needs imported goods, Nathaniel Taplin writes.

Basis Points

U.S. Sen. Joe Manchin (D., W.Va.) again raised concerns about Democrats' $1.85 trillion social and climate spending effort, withholding his support for a legislative framework the White House cast as a consensus acceptable to all 50 members of the Senate Democratic caucus.

World leaders from more than 100 countries, including the U.S., China and Brazil, agreed to a deal aimed at ending and then reversing deforestation by 2030, committing nearly $20 billion of public and private funds to protect and restore forests.

U.S. manufacturing activity kept its strong momentum in October compared with the previous month, but factory production remained plagued by constraints, including supply-chain bottlenecks and labor shortages, according to a survey of purchasing managers in the sector. The ISM Manufacturing Report on Business PMI index decreased to 60.8 in October from 61.1 in September, according to the Institute for Supply Management. (Dow Jones Newswires)

Construction spending in the U.S. declined by 0.5% in September from August after six consecutive months of gains, according to Commerce Department data. Economists polled by The Wall Street Journal expected a 0.4% increase. Spending on residential construction fell 0.4%, dragging down the headline figure. (DJN)

Economists polled by the Bank of Mexico this month cut their median 2021 economic growth estimate to 6% from 6.2% in September, and the forecast for 2022 slipped to 2.9% from 3%. The year-end 2021 inflation estimate rose to 6.6% from 6.3% in the previous survey, and economists now see the central bank raising its overnight interest-rate target to 5.25% by the end of the year from the current 4.75%. The policy rate is expected to rise to 6% in 2022. (DJN)

Retail sales in Germany fell by 2.5% in September from August, data from Destatis showed, signaling that consumer spending on goods faltered at the end of the third quarter. Sales slipped 0.9% from a year earlier, but were up 3.7% compared to February 2020 pre-pandemic levels, the statistics agency said. Economists polled by The Wall Street Journal expected a 0.6% increase from August. (DJN)

Hong Kong's gross domestic product grew 5.4% in the third quarter in real terms from a year earlier, compared with 7.6% growth in the second quarter, according to advance estimates. (DJN)

 

(END) Dow Jones Newswires

November 02, 2021 08:55 ET (12:55 GMT)

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