Are Rates Really Restrictive Enough to Slow the Economy?

Are Rates Really Restrictive Enough to Slow the Economy? By Hardika Singh

Fed officials are trying to figure out what the neutral interest rate is. Meanwhile,UBS continues to pay up to integrate Credit Suisse. And Congress faces tough decisions about Social Security's finances, but there may be an easier political path. Read on for this news and more.

Top News What if Fed Policy Isn't as Tight as Believed?

The Fed has long relied on the housing sector as a key transmission mechanism for monetary policy. But what if that channel isn't as sensitive to higher rates? That's the question Minneapolis Fed President Neel Kashkari posed in an essay published Tuesday.

U.S. Economy Social Security Funds Are Running Dry. Don't Panic.

Social Security's finances are in dire straits . An aging population is pushing up the cost of the program as a smaller share of Americans directly pay into it. That imbalance means that Social Security could become unable to provide full retirement and disability benefits to Americans in 2035, the program's trustees warned on Monday.

Hannon's Take: The Risk of Waiting for the Fed By Paul Hannon

The challenges of moving ahead of the Fed are fairly well known. To do so risks a depreciation of the national currency, whether it be the franc, krona or euro. That in turn raises the price of imported goods and services that are denominated in U.S. dollars, including energy. And that lifts the inflation rate.

While European central banks seem determined to signal a turning point by making a first cut, many economists doubt they can move as quickly as had once been expected if the Fed stands pat and their currencies weaken.

But there is a counter argument.

Financial Regulation UBS Swings Back to Net Profit With Credit Suisse Integration on Track

UBS Group beat expectations with a return to net profit for the first quarter after posting losses for the prior two quarters, and said its integration of Credit Suisse is on track.

Nearly a year after the Swiss banking giant completed its rescue takeover of Credit Suisse under the auspices of Swiss authorities, UBS is contending with a toughening regulatory environment in its home market and with the challenges of absorbing its former rival.

Forward Guidance Wednesday (all times ET)

10 a.m.: U.S. wholesale trade for March

Thursday

7 a.m.: Bank of England interest-rate decision

8:30 a.m.: U.S. weekly jobless claims

10 a.m.: Bank of Canada publishes Financial System Review

4:30 p.m.: Federal Reserve balance sheet

Research Emerging Markets Growth Faces Currency, Inflation Headwinds

The growth outlook for emerging markets is gathering momentum but still faces headwinds due to a strong dollar, high oil prices and rising inflation, TS Lombard's Jon Harrison says in a report. "Previous expectations of rapid EM monetary easing are unlikely to be realized," he says. Harrison adds that a global recovery supports exporters in emerging Asia ex-China and in Mexico. - Paulo Trevisani

Basis Points Markets aren't buying the Fed's notion that interest rates are high enough to beat inflation, according to TS Lombard's Steven Blitz in a report. He says the Fed isn't so restrictive and it "became less restrictive last week by lopping off the risk of a hike and easing financial conditions by slashing the pace of [quantitative tightening] - just when it was about to begin to bite." Blitz says that markets are pricing higher interest rates for longer and bracing for sticky inflation. - Paulo Trevisani Additional tier 1 (AT1) bond valuations are likely to rise as net new supply of the bonds declines due to reduced need for the risky form of bank debt, Jakub Lichwa, portfolio manager at asset management firm TwentyFour, says in a note. AT1 bonds are risky debt that act as safety buffers if a bank's capital levels fall below a certain point. - Miriam Mukuru Sweden's central bank lowered its key interest rate for the first time in more than eight years on Wednesday, underlining the readiness of European policy makers to move ahead of the Federal Reserve as inflation cools. - Dominic Chopping Germany's industrial production in March declined on month for the first time this year , a signal that a rebound in the sector could be fragile amid the country's gradual economic recovery. - Ed Frankl Bank of Japan Gov. Kazuo Ueda said Wednesday that he is open to the idea of early interest-rate increases if inflation rises at a faster pace than the bank's projections. - Megumi Fujikawa West Virginia shares a demographic dilemma afflicting many parts of the country: an aging population and unfilled jobs . Decades of migration out of Appalachia have left West Virginia older, less educated and less able to work than other parts of the U.S. - Paul Kiernan About Us

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ's global team of reporters and editors. This newsletter was compiled by markets reporter Hardika Singh in New York. Send your tips, suggestions and feedback to [[e-mail]].

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

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05-08-24 0716ET