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Bracing for ECB to Lift Rates; Pump Prices Fuel U.S. Inflation Rise

Bracing for ECB to Lift Rates; Pump Prices Fuel U.S. Inflation Rise By James Christie

Good day. There appears to be a good chance the European Central Bank will announce an interest-rate increase today. Markets this week started to price in an increase over concerns about inflation remaining too high for ECB staff. If the central bank lifts rates, it will do so on the heels of the U.S. government reporting yesterday that consumer prices rose last month at the fastest pace in more than a year. However, the monthly core reading was likely sufficiently tame to keep Federal Reserve officials on course to hold interest rates steady at their meeting next week without resolving whether they will need to raise rates again this year to cool the economy and maintain recent progress on lowering inflation.

Now on to today's news and analysis.

Top News ECB May Hike Again Today. But It's a Close Call.

The European Central Bank may raise interest rates for a 10th consecutive meeting on Thursday. But it's a close call. Like the Federal Reserve, the ECB has rapidly increased borrowing costs to squeeze inflation out of the economy. But unlike in the U.S., where the economy has remained resilient, the outlook for growth is darker in Europe-and the inflation rate is considerably higher. The central bank for the 20 nations that share the euro has raised interest rates by 4.25 percentage points over roughly the past year with nine consecutive hikes. Economists surveyed by FactSet predicted earlier this week that policy makers will now step back and assess what to do next as they leave rates unchanged this month. However, a report by Reuters on Wednesday saying that ECB staff see inflation staying above target next year prompted a last-minute re-assessment of the odds, and markets started to price in a quarter-point hike. (Dow Jones Newswires)

U.S. Inflation Accelerated in August as Gasoline Prices Jumped

Consumer prices rose in August at the fastest pace in more than a year due to a jump in energy costs, illustrating the potential obstacles to wringing inflation out of the economy without a sharper slowdown.

The consumer-price index, a closely watched inflation gauge, rose 0.6% in August from the prior month, the Labor Department reported Wednesday. More than half of the increase was due to higher gasoline prices.

So-called core prices, which exclude volatile food and energy items, rose by a relatively mild 0.3% last month after even lower readings in June and July. The August increase reflected higher costs for items such as airfares and vehicle insurance.

U.S. Economy Facing Fire, McCarthy Lays Out Plan to Avoid Government Shutdown

House Speaker Kevin McCarthy laid out a road map for passing legislation to keep the government funded past Oct. 1, sparking complaints from spending hawks and grumbling that he should be ousted from his post.

It's 5:01 and I'm Done: No One Wants to Schmooze After Work

After an initial burst of postpandemic happy hours, more U.S. workers say they're trying to draw thicker lines between work and the rest of life, and that often means clocking out and eschewing invites to socialize with co-workers.

A 3% Mortgage Rate in a 7% World? This Startup Says It Can Do That

Mortgage rates are now above 7%, leaps and bounds above the 3% they grazed two years ago, and home buyers and sellers alike are giving up, Roam, a real-estate company, is betting it can popularize an obscure workaround .

Key Developments Around the World U.S. to Shift Millions in Military Aid From Egypt to Taiwan

The U.S. plans to redirect some of its foreign military financing allocated for Egypt to Taiwan and other overseas partners, over what it says is Egypt's failure to make progress on human rights and other issues, U.S. officials say.

Russia's Offensive to Reverse Ukraine's Gains Is Stalling

In the past several weeks, as Ukrainian forces launched a push in the south of the country, Russia unleashed an offensive toward Kupyansk, deploying more than 50,000 troops to attempt to retake the city, but with little success

Russian Navy Shipyard Targeted by Missile Strikes in Sevastopol Financial Regulation Roundup China's Electric-Vehicle Makers Face EU Antisubsidy Probe

The European Union is launching an antisubsidy investigation into China's electric-vehicle makers, opening a new front in the battle for leadership of the global clean-technology industry.

Citigroup CEO Jane Fraser Is Shaking Up Executive Ranks

Citigroup CEO Jane Fraser is shaking up the bank's upper management levels and getting rid of its longstanding split into two divisions and eliminating the international layer overseeing global regions.

Forward Guidance Thursday (all times ET)

8:15 a.m.: ECB interest-rate decision

8:30 a.m.: U.S. producer-price index for August; U.S. retail sales for August; U.S. weekly jobless claims

10 a.m.: U.S. manufacturing and trade inventories and sales for July


8:30 a.m.: New York Fed's Empire State manufacturing survey; U.S. import and export indexes for August

9:15 a.m.: U.S. industrial production and capacity utilization for August

10 a.m.: University of Michigan consumer survey, preliminary for September

4:15 p.m.: Assets and liabilities of commercial banks in U.S.

Research What Wall Street Is Saying About the U.S. CPI Report and the Fed

The latest U.S. consumer-price index report released on Wednesday showed inflation rose in August from a year earlier, marking a reversal from the cooling in recent months. Here is a selection of reactions from investors and strategists ahead of the Federal Reserve's meeting next week.

Seema Shah, chief global strategist at Principal Asset Management: "The inflation print likely is not enough to tilt next week's Fed call towards a hike, yet it also hasn't entirely cleared up the question of a November pause vs hike...The upside surprise probably leaves the Fed with a bad taste in its mouth and keeps it wondering if it still has more work to do."

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance: "This isn't the goldilocks number that investors were hoping for, but markets can still trade in a range-as inflation is high enough to keep the Fed still in play, but not hot enough for a shift away from the 'Fed is almost done' narrative."

Phillip Neuhart, director of market and economic research at First Citizens Bank: "The Fed is likely to keep the federal-funds rate unchanged at this month's meeting, but today's report keeps alive the potential for another interest rate hike in coming months."

Jason Pride, chief of investment strategy and research at Glenmede: "The pickup in inflation may increase the chance of additional tightening before year-end, as getting the inflation genie back in the bottle does not appear as straightforward as some would have hoped."

Jon Maier, chief investment officer at Global X ETFs: "In the wake of these figures, one could reasonably anticipate the Fed leaning towards a rate hike, especially if the next report shows a similar or higher trend."

-Hardika Singh

Commentary Betting Inflation Will Keep Falling Is Still a Risky Business

The ease in inflation will probably keep Federal Reserve policymakers from raising rates next week, but more cooling will be needed for it to stay on hold, Justin Lahart writes. There is plenty that could go wrong.

'Almost All Loans Are Bad'-Why Banks Aren't Lending

U.S. banks could offset pressure from rising deposit costs with more loans. Even if they earn less individually, they could still lead to overall revenue growth. But right now, lending is expanding very slowly , Telis Demos writes.

Basis Points Eurozone industrial output fell more sharply than expected in July, a further sign of slowing in the bloc ahead of Thursday's key European Central Bank policy meeting. Production declined 1.1% compared with June, according to figures published by Eurostat, marking a sharper decline than the 0.8% fall forecast by economists in a poll by The Wall Street Journal. July production was 2.2% lower compared with a year earlier. (Dow Jones Newswires) The U.K. economy contracted more than expected in July, including in the services sector, adding to indications the Bank of England's efforts to take some heat out of demand is working as it mulls whether to continue its cycle of interest-rate rises. Gross domestic product fell 0.5% compared with the previous month, data from the Office for National Statistics showed. Economists polled by The Wall Street Journal had forecast a 0.2% fall. (DJN) Household net worth in Canada rose in the second quarter, with the value of all assets minus liabilities climbing C$256.4 billion to C$15.97 trillion, Statistics Canada said. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco and Perry Cleveland-Peck in Barcelona.

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September 14, 2023 07:16 ET (11:16 GMT)

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