RBA Hasn't Ruled Out Rate Hikes; the High Cost of U.S. Auto Loans; Roubini on Inflation's New Normal By James Christie
Good day. The Reserve Bank of Australia continues to warn that further interest-rate increases might be required if inflation proves more persistent than expected. Minutes of its September board meeting published Tuesday show the Australian central bank considered tightening policy settings further. The RBA also highlighted China's economic slowdown as a potential risk factor. The U.S. economy might feel a one-two combination from consumers writing checks for student-loan payments in addition to debt bills for cars and trucks bought at prices pushed higher by inflation, our Bob Fernandez writes. He notes that auto loans are now the second-largest debt burden for consumers, and cracks are appearing in the auto-loan market. Auto-loan delinquencies in August climbed to their highest level since April 2010. If unemployment rises as a result of the Federal Reserve's interest-rate increases, debt-strapped consumers could come under more financial stress, and delinquencies may climb further. Meanwhile, sister publication MarketWatch reports that economist Nouriel Roubini, or "Dr. Doom" as some call him, expects that advanced economies are primed for a new normal for inflation running between 3% and 4%.
Now on to today's news and analysis.
Top News RBA Considered Further Interest-Rate Hike at September Meeting
The Reserve Bank of Australia continues to warn that further interest-rate increases might be needed [https://urldefense.com/v3/__http://**Bmembers__;4oCc!!F0Stn7g!A0lmhi1ClSVjhlkj_D81p4fInA4psmYx4q-XIvCUOiD-KywEd288g_tje7mg9U4qsWy0CbAtLkTQ5EhG8PTLb0aKV6n0s1OcJSLwwZkK$ noted that some further tightening in policy may be required should inflation prove more persistent than expected," the minutes said. "In assessing the need for such a move, members affirmed that they will be guided by the incoming data."] if inflation remains stickier than expected, adding that it considered tightening policy settings further at a meeting earlier this month.
Still, in minutes of its Sept. 5 board meeting published Tuesday, the RBA said it is confident that the Australian economy remains on a "narrow path" by which inflation returns to the desired 2% to 3% inflation target over time, while employment growth continues.
The RBA left the official cash rate on hold at 4.10% for a third consecutive month at the policy meeting, amid growing expectations by economists that the RBA is done tightening the policy reins after 400 basis points of increase in the last year.
Pro Take: Auto Loans Pass Student Loans in Consumer Debt Load, Fed Data Shows By Bob Fernandez
American consumers face the headwinds of inflation, a softening job market and the resumption of federal student loan interest and payments. On top of all that, they have a lot of auto loans to pay off.
Auto loans have squeaked past student loans this year as the second-largest debt burden for consumers, at $1.582 trillion compared with $1.569 trillion for student loans, according to Federal Reserve Bank of New York data. At $12 trillion, mortgages are the largest debt for consumers. Read more .
Nouriel Roubini Says Return to 2% Inflation Is 'Mission Impossible'
Nouriel Roubini, a high-profile economist known to many as "Dr. Doom" for his often bearish pronouncements, said on Monday that advanced economies such as the U.S., the U.K. and France won't return to 2% inflation in the near term. "Structural changes" to the global economy imply inflation will be much higher for the longer term, Roubini, chief executive of Roubini Macro Associates, said during an interview on Bloomberg Television. Some supply-side factors such as geopolitical conflict, aging populations, immigration restrictions and the pandemic will weigh on economic growth and increase the cost of production, while on the demand side, spending will be higher as people "will have to spend more against inequality, against climate change, to deal with the pandemic, to deal with inequality coming from globalization and artificial intelligence," he said. "The era of the great moderation of low inflation below 2% and stable growth is gone," Roubini added. "The new normal may be somewhere between 3% and 4% for advanced economies over time-of course not overnight." (MarketWatch)
U.S. Economy Talks Resume in Detroit Amid Threat of Expanding Strike
Detroit's carmakers and the United Auto Workers union resumed contract talks Monday, as lost production from some sites amounts to around 10% of the Detroit companies' overall North American production.
UAW Strike Collides With Biden's Manufacturing Agenda The Big Employer Still Adding Jobs, Boosting Pay: The Government
Public-sector jobs at the federal, state and local level have risen by 327,000 positions so far in 2023, approaching one-fifth of all new American jobs created this year, as government lays out the welcome mat.
California Companies Defer Billions in Taxes, Interest-Free
Some of the largest and most profitable U.S. companies are postponing billions of dollars in tax payments-interest-free, at a time when borrowing costs are rising-because of disaster-related deferrals .
The Market-Beating Investment That's Defying Wall Street Skeptics
It is one of the biggest surprises on Wall Street: the outsize performance of risky corporate loans . A resilient economy has helped issuers withstand rising interest costs and keep cash flowing to investors.
Key Developments Around the World American Business Confidence in China Slumps to Lowest in Decades
U.S. companies are painting the bleakest picture in decades over doing business in China as tensions between Beijing and the West are compounded by a deteriorating environment for their operations.
Major Chinese Cities Rush to Scrap Home-Buying Curbs
China's eastern export hub, Wuxi, on Tuesday joined other major cities in dropping home-purchase restrictions to attract buyers, as a persistent housing slump continues to pressure the world's second-largest economy.
The Unexpected New Winners in the Global Energy War
Once-obscure corners of the energy world, from offshore Congo to Azerbaijan, are booming as Europe finds new sources of natural gas to replace Russian supplies. The shift is redrawing the world's energy map at a rapid clip.
Companies Stall Climate Action Despite Earlier Promises
The world's largest companies have committed to slashing their emissions to address climate change. Many of them have overpromised and underdelivered because of higher costs, slow advances in technology and political pressure.
Ukraine Hunts for Cash as Fighting Drains Coffers
Faced with another year of fighting against Russian troops-and a more than $40 billion budget deficit in 2024-finance officials in Kyiv are grasping for cash to keep the wartime economy running.
Forward Guidance Tuesday (all times ET)
Time N/A: FOMC meeting
8:30 a.m.: Canada consumer-price index for August; U.S. housing starts for August
2 p.m.: Bank of Canada's Kozicki speaks at University of Regina
2 a.m.: U.K. consumer- and producer-price indexes for August
1:30 p.m.: Bank of Canada publishes monetary policy deliberations
2 p.m.: Federal Reserve interest rate decision and FOMC statement and economic projections
2:30 p.m.: Federal Reserve's Powell post-FOMC meeting press conference
Research Brazil Central Bank Seen Unanimous on Rate Cut
The members of the Central Bank of Brazil's monetary policy committee, or Copom, are expected to vote unanimously for another half-percentage-point cut to the bank's benchmark interest rate, currently at 13.25%, economists at Itau BBA write in a research note. The Copom cut its key Selic rate by half a percentage point at its August meeting and said it expects to continue with cuts of the same size at following meetings. The bank is scheduled to announce its next rate decision on Sept. 20. The outlook for improved services inflation could permit bigger rate cuts starting in December, the economists write.
-Jeffrey T. Lewis
Interview Weak Growth in China's Economy Likely to Hurt Europe
China is experiencing weak growth largely due to the crisis in its property sector, which will hurt growth in Europe too, particularly in Germany and Italy, said Mabrouk Chetouane, head of global market strategy at Natixis Corporate and Investment Banking.
"Germany and Italy are significantly exposed to China and are experiencing the negative effects especially in their manufacturing sectors," he told Dow Jones Newswires in an interview on the sidelines of the TradeTech FX Conference in Paris.
China's growth problems stem from deflationary pressures emerging from excess supply in the property market combined with weaker demand. This follows years of huge investments in the real-estate sector, and the crisis could take some time to repair. "It could take several years before China gets things in order," Chetouane said.
With troubles in China looming over an already weak eurozone economy, the European Central Bank faces a complex task because inflation remains high even as growth softens.
"Despite the fact that we have very weak growth in these countries [Germany and Italy, as well as France], the time has not yet come to completely reverse the stance of monetary policy, and the ECB should maintain a firm stance," Chetouane said.
The ECB raised interest rates by 25 basis points on Thursday but signaled rates are unlikely to rise from here. Chetouane expects eurozone rates have now peaked, although inflation will remain a worry for ECB policymakers. "Hiking rates further will for sure deteriorate the situation in Germany and Italy," he said.
Commentary The Fed Isn't Getting the Economy It Expected
The Federal Reserve's rate-setting committee must grapple with how underlying inflation is looking cooler than it thought just a few months ago, and how the economy is looking much stronger , Justin Lahart writes.
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September 19, 2023 07:19 ET (11:19 GMT)Copyright (c) 2023 Dow Jones & Company, Inc.