Inflation Data Suggest Fed Will Consider Smaller Rate Increase; Bullard Warns Against Too Much Optimism Over Inflation Easing

Inflation Data Suggest Fed Will Consider Smaller Rate Increase; Bullard Warns Against Too Much Optimism Over Inflation Easing By James Christie

Good day. With U.S. consumer price increases easing again in December, it is looking as if the Federal Reserve will slow the pace of its interest-rate rises, with a step down to a more traditional quarter-percentage-point increase at its next meeting. "In my view, hikes of 25 basis points will be appropriate going forward," Philadelphia Fed President Patrick Harker said in remarks Thursday. Other Fed officials have recently commented they are leaning in the same direction, and Fed Chairman Jerome Powell said last month it was "broadly right" that the best way to manage the risk of over-tightening would be to slow rate increases to smaller 0.25-point increments. While the December consumer-price index held good news for Americans, St. Louis Fed President James Bullard advised caution. Speaking at an economic forecast event on Thursday, he said that, "The risk here is that while inflation is moderating, it does not moderate as quickly as markets are currently expecting." Finally, please note the Central Banking newsletter won't publish on Monday in observance of Martin Luther King Jr. Day.

Now on to today's news and analysis.

Top News Inflation Report Tees Up Likely Quarter-Point Fed Rate Rise

Fresh data showing inflation eased in December are likely to keep the Federal Reserve on track to reduce the size of interest-rate increases to a quarter-percentage-point at its meeting that concludes on Feb. 1.

Fed officials have kept their options open on whether to raise rates by either a quarter percentage point or a half percentage point at their next meeting, saying that the decision would be strongly guided by the latest data about the state of the economy. But the improving inflation data suggest officials will strongly consider the smaller increase of a more traditional quarter point, or 25 basis points. It takes time for them to see the full effects of their policy actions, and they are trying to avoid causing unnecessary declines in employment and growth.

Philadelphia Fed's Harker Sees Pause in Rate Rises This Year

The Federal Reserve is a long way from its 2% inflation target, but it shouldn't need to go much further this year in its rate-rise campaign and can slow the pace of increases , Philadelphia Fed President Patrick Harker said.

Fed Must Remain on Guard on Inflation, James Bullard Says

Inflation is easing in response to the Federal Reserve's rate hikes, but the central bank must continue to guard against the risk price increases stay high or reaccelerate, Federal Reserve Bank of St. Louis President James Bullard said.

Fed Talks: A Conversation With St. Louis Fed President James Bullard

Federal Reserve Bank of St. Louis President James Bullard was an outspoken advocate last year for rapidly raising interest rates to combat high inflation. He joins Nick Timiraos, The Wall Street Journal's chief economics correspondent, to discuss his outlook for the economy, inflation and interest rates in 2023. Join this WSJ Live Q&A at 9:30 a.m. ET on Jan. 18 .

U.S. Economy U.S. Inflation Slowed for Sixth Straight Month in December

U.S. inflation eased in December for the sixth straight month following a mid-2022 peak as the Federal Reserve aggressively raised interest rates and the economy showed signs of cooling. The consumer-price index, a measure of what consumers pay for goods and services, rose 6.5% last month from a year earlier, down from 7.1% in November and well below a 9.1% peak in June. Core CPI, which excludes volatile energy and food prices, climbed 5.7% in December from a year earlier, easing from a 6% gain in November.

Thursday's Supercore Inflation Reading: It's Complicated Some Relief for Inflation Weary Americans as Prices Fall for Many Items The Markets Are Locked in a Game of Chicken With the Fed Inflation Tracker: When Will Prices Stop Going Up? Oil Prices Are Likely to Stay Steady This Year-With a Couple of Big Ifs

CEOs Expect a U.S. Recession, but Most Think It Will Be Short

Top executives in much of the world are preparing for an economic downturn that is shorter and milder than usual , so they are focused on weathering the slowdown without widespread job cuts, a new survey found.

U.S. Manufacturing Push Could Transform Global Trade

How three huge budget measures approved in just over a year in Washington and focused on strengthening the U.S. economy are implemented in the months ahead could reshape global trade relations for years to come.

Key Developments Around the World Why Governments Are Pushing Deeper Into Energy Markets

Governments are stepping into the energy markets in a way the world hasn't seen in decades, propelled by a tug of war over oil and natural gas and a heightened sense of urgency on energy security.

China's Precarious Moment: Covid Everywhere and Few Restrictions

China is experiencing all at once what many other nations have been navigating for three years, as no other country instituted zero-tolerance measures as widely for as long-and few shed controls as abruptly.

China's Export Decline Deepens, Threatening Growth Japan's 10-Year Government Bond Yield Breaches New Cap

The yield on benchmark 10-year Japanese government bonds breached the 0.5% cap set by the Bank of Japan less than a month ago, as pressure grows on the central bank to tighten policy following strong inflation data this week.

Europe's Mild Winter Cushions Economic Blow of Ukraine War

Russia's economic war with the West looks set to claim a much smaller toll on Europe than the brutal recession many economists warned about just months ago, due to falling energy prices and government intervention.

Saudi Arabia Seeks to Lure Global Miners in Bid to Overhaul Economy

Saudi officials are wooing top mining companies to help exploit untapped mineral deposits in the kingdom that could be worth hundreds of billions of dollars, as the world's biggest exporter of oil accelerates plans to build new industries.

Financial Regulation Roundup SEC Sues Crypto Firms Genesis and Gemini Over Lending Product

The Securities and Exchange Commission on Thursday sued Genesis Global Capital LLC and Gemini Trust Company LLC over a $900 million crypto-lending program that allegedly violated investor-protection laws .

Trump Organization to Be Sentenced Friday in Tax-Fraud Case

Donald Trump's family business is set to be sentenced Friday following its criminal tax-fraud conviction for using an off-the-books compensation scheme to pay some employees in perks, such as cars and rent-free apartments.

Wells Fargo Is Shrinking Its Mortgage Business-Except Where It Isn't

Wells Fargo & Co. said Tuesday it was dramatically narrowing its mortgage business to focus on existing customers. On Wednesday, the bank, once the largest U.S. mortgage lender, told others it is open for new business .

Companies, Lenders Clash Over Loan Spreads in Switch From Libor

Some companies are clashing with their lenders over the amount of interest they'll be paying as they switch leveraged-loan agreements away from the London interbank offered rate ahead of its phaseout at the end of June.

Forward Guidance Friday (all times ET)

10 a.m.: University of Michigan preliminary U.S. consumer survey for January; Minneapolis Fed's Kashkari speaks at 2023 Regional Economic Conditions Conference in Minneapolis

10:20 a.m.: Philadelphia Fed's Harker speaks at Chamber of Commerce for Greater Philadelphia Economic Outlook

Monday

U.S. markets are closed for Martin Luther King Jr. Day

Research Canada's Economy Seen Cooling, Job Market Outlook More Uncertain

The slowdown in Canada's economy is expected to continue this quarter but no recession is forecast for now, according to an analysis by the Canadian Federation of Independent Business. It estimates economic growth slowed to 1.2% annualized in the final quarter of 2022 and will soften further, to 0.6% annualized this quarter, without contracting. The association of small and medium-size businesses forecasts consumer-price index inflation will recede further to 5.7% year over year, and to 5.0% excluding food and energy, in the first quarter. The CFIB said it is too early to tell if the labor market is at a turning point, as the association continues to hear from employers about how tough it is to hire and retain workers.

-Robb Stewart

Commentary Inflation Is Turning the Corner

The Federal Reserve can't signal an end to interest rate increases yet, but compared with a few months ago, the case for Fed stringency is a little less compelling and the odds of a soft landing are somewhat better, Greg Ip writes.

On Inflation, Investors Fight the Fed

Inflation is cooling and Treasury market investors are betting it is going to get a lot colder, but Federal Reserve policy makers aren't so sure , a disparity creating tension between markets and the central bank, Justin Lahart writes.

China's Housing Market Will Revive but Might Not Thrive

China's sudden shift to pro-growth policies will finally lift its struggling housing market in the Year of the Rabbit. A much stronger 2023 seems assured-but the longer term outlook remains muddy at best , Jacky Wong writes.

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01-13-23 0715ET