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Brainard, Waller and Evans Weigh In on Fed's Inflation Fight; White House Reveals Nominations for Fed Board — WSJ

Good day. Efforts to lower inflation are at the top of the Federal Reserve's to-do list, Fed governor Lael Brainard, the White House nominee to serve as the central bank's No. 2 official, told Congress on Thursday, underscoring how the Fed has pivoted toward fighting inflation. "Our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery that includes everyone," Ms. Brainard told lawmakers. Speaking separately, Fed governor Christopher Waller said the central bank would have to move interest rates up more aggressively if inflation stays high through the first half of the year, while Chicago Fed President Charles Evans said inflation now is the Fed's top challenge and its surge caught the central bank off guard. "This is going to be a year where we readjust monetary policy," Mr. Evans added. Also on Thursday, the White House said President Biden would nominate former Fed governor Sarah Bloom Raskin to serve as the central bank's vice chairwoman of supervision. He also plans to nominate two economists for other Fed board seats: Lisa Cook, a professor of economics and international relations at Michigan State University; and Philip Jefferson, a professor and administrator at Davidson College in North Carolina.

Please note the WSJ Pro Central Banking newsletter will not publish on Monday in observance of Martin Luther King Jr. Day.

Now on to today's news and analysis.

Top News

Fed's Brainard Says Reducing Inflation Is Top Priority

Federal Reserve governor Lael Brainard joined the central bank in 2014. PHOTO: SUSAN WALSH/ASSOCIATED PRESS

Federal Reserve governor Lael Brainard, the White House nominee to serve as the central bank's No. 2 official, told Congress that efforts to reduce inflation are the central bank's "most important task."

Her comments Thursday morning at a confirmation hearing before the Senate Banking Committee is the latest sign of how the central bank has firmly pivoted toward fighting inflation. Fed officials have signaled in recent days that they could raise interest rates at their meeting in mid-March.

Fed's Evans: Time to Move Toward Tighter Monetary Policy

Federal Reserve Bank of Chicago President Charles Evans said Thursday monetary policy isn't positioned to deal with surging inflation and that he supports the central bank's recent shift toward expecting to raise interest rates.

Waller Says High Inflation Caught Fed Off Guard

Federal Reserve governor Christopher Waller warned that the central bank would have to move interest rates up more aggressively this year if inflation stays high through the first half of the year.

Biden to Nominate Sarah Bloom Raskin as Top Fed Banking Regulator

President Biden will nominate former Fed governor Sarah Bloom Raskin to serve as the central bank's top banking regulator, and plans to tap Lisa Cook, a professor at Michigan State University, and Philip Jefferson, a professor at Davidson College, for other Fed board seats.

U.S. Economy

Economy's Fate Might Hinge on Question of 'Full Employment'

The Federal Reserve is hashing out whether the U.S. is at full employment as it determines how quickly to raise interest rates. Resolving the matter will help shape Americans' ability to get jobs, command higher wages and improve living standards in the years ahead.

Bond Market Forecasts Bad Economic News

Hedge Funds Keyed to Growth Stocks Stall Out

People Want to Start Spending Again and Inflation Is Ruining It

Americans are better off than they've been in some time, with rising 401(k) balances, record savings and ample job openings. Not that it's helping all of them feel more secure, and millions are feeling their lives and financial growth are on hold.

Producer-Price Increases Slowed From Record Pace in December

The Labor Department said its producer-price index rose 0.2% in December from November, the slowest pace since November 2020 and down sharply from a revised 1.0% the prior month -- a possible sign of easing inflationary pressures in the U.S. supply chain.

Mortgage Rates Jump to Highest Level Since March 2020

The average rate for a 30-year fixed-rate loan rose to 3.45% for the week ended Thursday, mortgage finance giant Freddie Mac said, from 3.22% a week ago as expectations the Federal Reserve will raise interest rates multiple times this year drive up mortgage rates.

Retail Sales Seen Leveling Off as Record Holiday Season Ended

Sales at U.S. retail stores, online vendors and restaurants are expected to have leveled off in December, ending a record holiday shopping season that included a resurgent pandemic, high inflation and supply-chain snags.

Key Developments Around the World

Bank of Korea Raises Rate Back to Pre-Pandemic Level

The Bank of Korea increased its benchmark seven-day repurchase rate by 25 basis points to 1.25% on Friday, raising it a third time in less than half a year to fight inflation and bringing it back to a pre-pandemic level.

How Covid-19 Has Widened the Gap Between Rich and Poor Countries

The Covid-19 pandemic is widening the gap between rich and poor countries, a trend that threatens to reverse years of economic progress and set back efforts to alleviate global poverty.

China Securing Supplies as Strains With U.S. and Its Allies Grow

China is trying to fortify its economy against prolonged tension with the U.S. and other countries, stockpiling essentials and planning on more domestic production as it speeds efforts to make China less dependent on the world.

Chinese Economist Suggests China Spend More to Boost Its Birthrate -- and Is Blocked From Social Media

Financial Regulation Roundup

Crypto Platform BitMEX Taps New Risk Boss

BitMEX, which last year agreed to a $100 million settlement with U.S. enforcers over compliance issues, has hired Marcus Hughes, a former managing director at Coinbase Global Inc., to serve as the cryptocurrency platform's new chief risk officer.

Student-Loan Processor Navient to Cancel $1.7 Billion of Debts

Navient Corp., one of the largest U.S. student-loan processors, will cancel the debt of 66,000 borrowers, totaling $1.7 billion, in an agreement with 40 state attorneys general that resolve six outstanding state lawsuits.

China's 11th-Hour Tax Reprieve Cheers Foreign Workers -- For Now

When China reversed plans to raise taxes on expatriates hours before they were scheduled to take effect, the Western business community welcomed the move, but the last-minute decision underscored challenges for foreign businesses there.

Forward Guidance

Friday (all times ET)

8:30 a.m.: U.S. Commerce Department releases December retail sales; U.S. Labor Department releases December U.S. import and export price indexes

9:15 a.m.: Federal Reserve releases December industrial production and capacity utilization

10 a.m.: University of Michigan releases preliminary consumer sentiment survey for January

Monday

Time N/A: Bank of Japan monetary policy meeting

10:30 a.m.: Bank of Canada releases business outlook survey

Research

Paper by Fed's Clarida Says Underlying Inflation Rate Near 2%

Outgoing Federal Reserve second-in-command Richard Clarida in a paper released Thursday took a parting shot in his official capacity at weighing in on the economic outlook. Mr. Clarida in the paper touted the value of the Fed's new policy-making framework amid high inflation, noting that "I continue to believe that the underlying rate of inflation in the U.S. economy is hovering close to our 2% longer-run objective and, thus, that the unwelcome surge in inflation in 2021, once these relative price adjustments are complete and bottlenecks have unclogged, will in the end prove to be largely transitory under appropriate monetary policy."

-- Michael S. Derby

Commentary

Four Reasons to Keep Worrying About Inflation

If we focus only on reasons for why inflation in the U.S. should be lower in 2022, we risk ignoring four countervailing forces that will push toward higher inflation this year, according to Jason Furman.

Mr. Furman, a professor of the practice economic policy at Harvard University, was chairman of the White House Council of Economic Advisers, 2013--17.

How Too Many Boys Skew China's Economy

It is worth remembering how deep and powerful the cultural, demographic and financial forces are that China is confronting as it tries to wrestle its economy onto a more productive, less housing-centric path, Nathaniel Taplin writes.

Basis Points

U.S. median home sale prices hit an all-time high in the first full week of 2022, surging 16% year on year as the supply drought deepened while demand increased, according to Redfin. (Dow Jones Newswires)

The producer-price index rose 0.2% in December from November, the U.S. Labor Department said, marking the slowest pace since November 2020 and down from a revised 1.0% the prior month -- a possible sign of easing inflationary pressures in the supply chain. (DJN)

Canada is joining Mexico in calling for a USMCA panel to resolve a dispute with the U.S. over the interpretation of rules of origin regarding regional value content in the automotive industry, Canada's trade minister Mary Ng said, calling the U.S. interpretation of the rules inconsistent with what was negotiated in the pact. (DJN)

Services activity in Brazil grew 2.4% by volume and 1.9% by revenue in November from October, with volume up 10% from November 2020. The consensus was for activity to expand only 0.2% on month in November. (DJN)

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January 14, 2022 09:41 ET (14:41 GMT)

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