Fed Minutes Reveal Split Over June Rate Increase; Bank Executives Say Crisis Over, But Challenges Remain

Fed Minutes Reveal Split Over June Rate Increase; Bank Executives Say Crisis Over, But Challenges Remain By James Christie

Good day. Federal Reserve officials next meeting is June 13-14, and their decision over whether to raise rates or hold them steady is shaping up to be a close call. Some have expressed anxiety that the economy and inflation haven't shown more visible signs of slowing, according to minutes of their May 2-3 meeting released Wednesday. But they have also grown uncertain about continuing to lift rates over scenarios stemming from three bank failures since March. One risk is a credit crunch as banks face higher funding costs. Meanwhile, banking executives at The Wall Street Journal CEO Council Summit said their industry might be forced to curtail lending, but they expressed optimism that a feared acute crisis for banks has passed.

Now on to today's news and analysis.

Top News Fed Officials Were Divided Over June Rate Pause

Federal Reserve officials agreed unanimously to lift rates at their meeting this month but split on whether they would need to raise them in June, with some ready to pause .

"Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary," said the minutes of their May 2-3 meeting released Wednesday.

Banking Crisis Is Over, Top Executives Say

Threats to the global banking system have ebbed, but the industry might be forced to curtail lending and revamp business models in an era of higher interest rates , industry executives said at The Wall Street Journal CEO Council Summit.

U.S. Economy Yellen Says Early June Payments at Risk Unless Debt Limit Is Raised

The White House isn't working with investors on how to respond to a potential default on the U.S. debt, Treasury Secretary Janet Yellen said, adding the focus remains on raising the debt ceiling so the U.S. can pay its bills on time.

Fitch Considers U.S. Rating Downgrade as Debt Talks Drag Inside Wall Street's Playbook to Prevent Debt-Ceiling Chaos Debt-Ceiling Fight Comes Down to Spending: Freeze or Cut?

Reining in spending has become the focus of negotiations over raising the debt ceiling, with House Speaker Kevin McCarthy under pressure from conservatives to secure deep cuts , while the White House has offered a spending freeze.

Key Developments Around the World Germany Enters Recession in Blow to Europe's Economy

Germany slipped into recession during the first three months of the year, as households cut spending in response to sharply higher prices for energy and food. The eurozone as a whole may also have also contracted in the first quarter.

U.K. Chancellor Warns Taxes Will Stay High as Inflation Bites

U.K. Chancellor of the Exchequer Jeremy Hunt ruled out tax cuts in the near term as Britain grapples with decades-high rates of inflation, rising interest rates and slow growth set to crimp government finances for years to come.

Sudden Energy-Price Collapse Brings Economic Boon

This time last year, natural-gas prices were skyrocketing after Russia's invasion of Ukraine kicked off the worst energy crisis since the 1970s. To the surprise of many, that shock has subsided, with gas prices retreating worldwide .

China's Risky Strategy to Control One-Third of World's Lithium Supply

Chinese companies have long dominated lithium refining, but their hunt for a greater share of the world's supplies of the metal is leading them to buy up stakes in mines throughout the developing world.

China Draws Russia Closer While Pushing Ukraine Peace Plan

China and Russia moved to solidify their partnership with high-level meetings this week, in a departure from recent efforts by Beijing to play down its alignment with Moscow as it seeks to play the role of peacemaker in Ukraine.

Wagner Chief's Feud With Military Cracks Putin's Image of Control Wagner Says 20,000 of Its Troops Have Died Taking Ukraine's Bakhmut Financial Regulation Roundup Chinese Province Hits Back at Claims About Its Debt

A Chinese local government has fired back at claims it is facing severe debt problems, after comments by an anonymous expert on a call with investors were widely circulated on social media.

Citigroup Ends Sale Talks for Banamex and Pivots to IPO

Citigroup said it will spin off its Mexican consumer bank, ending an attempt to sell the storied Banamex unit after a yearlong process under the watchful eye of Mexico's president failed to find a deal .

Forward Guidance Thursday (all times ET)

8:30 a.m.: Chicago Fed National Activity Index; U.S. weekly jobless claims; U.S. gross domestic product for first quarter, second estimate

10 a.m.: U.S. Pending Home Sales Index for April

10:30 a.m.: Fed's Collins in fireside chat and Q&A, Community College of Rhode Island

12:30 p.m.: Speech by Bank of England's Haskel to Peterson Institute for International Economics

Friday

3:15 a.m.: European Central Bank's Enria speaks at economics conference in Trento, Italy

3:40 a.m.: European Central Bank's Lane speaks on inflation at economics conference in Dubrovnik, Croatia

8:30 a.m.: U.S. durable goods for April, advance; U.S. advance economic indicators for April; U.S. personal income and outlays and Personal Consumption Expenditures Price Index (PCE) for April

10 a.m.: University of Michigan consumer survey for May, final

Research Bank of England Could Raise Rates to 5.25%, BofA Says

The Bank of England could raise interest rates by 25 basis points in June, August and September after the latest inflation data reinforced evidence of the U.K.'s persistent inflation problem, Bank of America analysts write in a note. "We think inflation will continue to exceed BOE forecasts modestly," they write. They add that the BOE is likely to keep raising interest rates "until core inflation shows convincing signs of slowing," which is likely in September. Data on Wednesday showed the U.K.'s annual consumer-price index inflation fell from 10.1% in March to 8.7% in April, still well above expectations, while core inflation unexpectedly rose to 6.8%.

-Miriam Mukuru

Commentary For Citigroup, Breaking Up Is Hard to Do-But Still Worth It

A cleaner, faster break would have been a better exclamation point on Citigroup's transformation under Jane Fraser, but she has committed to changing course in Mexico regardless of how it takes place, Telis Demos writes.

Basis Points Inflation in Mexico eased further in the first half of May amid declines in energy costs and lower fresh produce prices, the National Statistics Institute said. The consumer price index fell 0.32% in the first two weeks of the month, with energy prices down 4.4% from the end of April as seasonal residential electricity subsidies took effect in a number of cities. Gasoline and propane gas prices were also lower. The 12-month CPI rate eased to 6.0% from 6.25% at the end of April. (Dow Jones Newswires) Saudi Arabia and Canada agreed to restore full diplomatic relations and appoint new ambassadors five years after ties broke down over the Canadian foreign ministry's criticism of the kingdom's arrest of human-rights activists. Indonesia's central bank maintained its benchmark seven-day reverse repo rate , as expected, as inflation remained under control. South Korea's central bank stood pat on interest rates for a third straight policy decision and lowered its economic growth forecast. Malaysia's consumer-price index likely rose 3.2% on year in April, easing slightly from 3.4% in March, according to the median estimate of five economists polled by the Wall Street Journal. (DJN) Confidence among manufacturers in France in May fell below its long-term average for the first time since March 2021, on struggling expectations of orders and as high inflation continues to squeeze spending. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

Send us your tips, suggestions and feedback. Write to:

James Christie , Jon Hilsenrath , Nell Henderson , Nick Timiraos , Tom Fairless , Megumi Fujikawa , Perry Cleveland-Peck [mailto:perry.cleveland-peck@wsj.com], Nihad Ahmed , Michael Maloney , Paul Kiernan

Follow us on Twitter:

@WSJCentralBanks [https://urldefense.com/v3/__https://twitter.com/WSJCentralBanks__;!!F0Stn7g!EcOdstTRFKvHUHL8iVfv1CHqLLikHMayOkhh-KRFGPUHFUZhSxraZhtrq2z2ggmK5WVsN35u8toYF98W0dJSQD3dpQAzXqJML4XfvduW$ ], @NHendersonWSJ [https://urldefense.com/v3/__https://twitter.com/NHendersonWSJ__;!!F0Stn7g!EcOdstTRFKvHUHL8iVfv1CHqLLikHMayOkhh-KRFGPUHFUZhSxraZhtrq2z2ggmK5WVsN35u8toYF98W0dJSQD3dpQAzXqJML9-lkg-9$ ], @NickTimiraos [https://urldefense.com/v3/__https://twitter.com/NickTimiraos__;!!F0Stn7g!EcOdstTRFKvHUHL8iVfv1CHqLLikHMayOkhh-KRFGPUHFUZhSxraZhtrq2z2ggmK5WVsN35u8toYF98W0dJSQD3dpQAzXqJML6SPhj73$ ], @PaulHannon29 [https://urldefense.com/v3/__https://twitter.com/PaulHannon29__;!!F0Stn7g!EcOdstTRFKvHUHL8iVfv1CHqLLikHMayOkhh-KRFGPUHFUZhSxraZhtrq2z2ggmK5WVsN35u8toYF98W0dJSQD3dpQAzXqJMLw6vJDVU$ ], @TomFairless [https://urldefense.com/v3/__https://twitter.com/TomFairless__;!!F0Stn7g!EcOdstTRFKvHUHL8iVfv1CHqLLikHMayOkhh-KRFGPUHFUZhSxraZhtrq2z2ggmK5WVsN35u8toYF98W0dJSQD3dpQAzXqJML3swzfTy$ ], @megumifujikawa [https://urldefense.com/v3/__https://twitter.com/megumifujikawa__;!!F0Stn7g!EcOdstTRFKvHUHL8iVfv1CHqLLikHMayOkhh-KRFGPUHFUZhSxraZhtrq2z2ggmK5WVsN35u8toYF98W0dJSQD3dpQAzXqJML8rfGwLv$ ], @pkwsj [https://urldefense.com/v3/__https://twitter.com/pkwsj__;!!F0Stn7g!EcOdstTRFKvHUHL8iVfv1CHqLLikHMayOkhh-KRFGPUHFUZhSxraZhtrq2z2ggmK5WVsN35u8toYF98W0dJSQD3dpQAzXqJMLwZsrvQv$ ], @JamesGlynnWSJ [https://urldefense.com/v3/__https://twitter.com/JamesGlynnWSJ__;!!F0Stn7g!EcOdstTRFKvHUHL8iVfv1CHqLLikHMayOkhh-KRFGPUHFUZhSxraZhtrq2z2ggmK5WVsN35u8toYF98W0dJSQD3dpQAzXqJMLxICIMZY$ ], @cleveland_peck [https://urldefense.com/v3/__https://twitter.com/cleveland_peck__;!!F0Stn7g!EcOdstTRFKvHUHL8iVfv1CHqLLikHMayOkhh-KRFGPUHFUZhSxraZhtrq2z2ggmK5WVsN35u8toYF98W0dJSQD3dpQAzXqJML7DQYwVV$ ]

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

May 25, 2023 07:15 ET (11:15 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.