Fed Minutes Reveal Uncertainty on Rates; Barkin Cautious About Soft Landing

Fed Minutes Reveal Uncertainty on Rates; Barkin Cautious About Soft Landing By James Christie

Good day. Minutes of the Federal Reserve's Dec. 12-13 meeting released Wednesday revealed some uncertainty among policymakers regarding how to proceed with interest rates. Some indicated unease about leaving rates too high for too long. They flagged the risk that the jobs market could "transition quickly from a gradual easing to a more abrupt downshift in conditions," the minutes said. But others thought "circumstances might warrant keeping the target rate at its current value for longer than they currently anticipated." Also on Wednesday, Richmond Fed President Tom Barkin said in a speech that "a soft landing is increasingly conceivable but in no way inevitable." Barkin this month will rotate onto the Federal Open Market Committee with a vote on interest rates.

Now on to today's news and analysis.

Top News Minutes Suggest Rate Hikes Are Over, but Offer No Timetable on Cuts

Federal Reserve officials thought they were done raising interest rates when they decided last month to hold them steady, but minutes of the meeting didn't reveal a meaningful debate about when to start lowering rates.

While nearly all officials anticipated policy rates would eventually be lowered before the end of this year, the written account of the Dec. 12-13 meeting, released Wednesday, underscored heightened uncertainty over how to navigate the next interval of monetary policy after the most rapid increase in interest rates in four decades.

Analysts Expect Fed Cuts. When and How Many Is Up for Debate Markets May Have Misjudged Speed, Depth of Rate Cuts Is the Fed Pivot a Done Deal? Watch These Data Points Fed's Tom Barkin Says a Soft Landing Is 'in No Way Inevitable'

The latent effects of Federal Reserve rate hikes and companies boosting prices as inflation broadly cools could threaten a soft landing for the economy in 2024, Federal Reserve Bank of Richmond President Tom Barkin said.

U.S. Economy The Hidden Force Pushing Mortgage Rates Down

A key factor that pushed up mortgage rates over the past two years is now starting to pull them down: the differential between 30-year mortgage rates and benchmark Treasury yields. That has been shrinking for eight straight weeks .

Stocks' Bad Start to 2024 Has Forecasters on Edge

Stocks are off to a bumpy start in the early days of 2024. Proponents of the January Barometer are hoping for a turnaround because they believe the market's performance in the first month of the year sets the tone for the rest.

How the Push for Diversity at Colleges and Firms Came Under Siege

The management philosophy known as DEI, which had gathered momentum since 2020, has been under siege over the past year because of a collision of legal, economic and geopolitical forces.

What the 2024 Tax Brackets Mean for Your Money

Your tax bill is largely determined by tax brackets . These are really just ranges of taxable income. As your taxable income moves up this ladder, each layer gets taxed at progressively higher rates.

Key Developments Around the World U.S.-Led Coalition Warns Houthis to Stop Ship Attacks

The U.S., Britain and key allies issued what officials described as a final warning to the Houthi Yemeni rebel group Wednesday to cease its attacks on international shipping in the Red Sea or bear the consequences.

China Removes Videogame Official After Market Rout

Beijing removed a key official overseeing China's videogame industry, days after authorities proposed curbs that wiped tens of billions of dollars off the market value of Chinese game companies.

Big Fashion Still Hasn't Figured Out How to Pay a Living Wage

Western fashion companies, which generally don't own the factories where their products are made and don't determine pay for workers, say they want wages to rise but don't want to impose specific wage levels on supplier factories.

Behind Cheap Stuff From Shein and Temu

E-commerce sellers Shein and Temu are offering a lifeline for small suppliers in China's manufacturing hubs-but it isn't always a straightforward win, as some suppliers grapple with intense pressure to cut prices .

Forward Guidance Thursday (all times ET)

8:15 a.m.: ADP National Employment Report for U.S. for December

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

Friday

5 a.m.: EU producer-price index for November

8:30 a.m.: U.S. employment report for December; Canada labor force survey for December

10 a.m.: U.S. factory orders for November; ISM Non-Manufacturing PMI for U.S. for December

Research Bank of Canada Wary to Talk Rate Cuts After Reversal on Pause

The Bank of Canada's aborted pause on interest rate increases in early 2023, after inflation moved higher, could explain why the central bank is retaining language about another possible rise should inflation fail to slow, according to economists at BMO Capital Markets. "The phrase 'once burned, twice shy' comes to mind," BMO says in a note to clients. The firm says reversing course prematurely for a second time risks a loss of credibility for the BOC, which sets rate policy to achieve and maintain 2% inflation. BMO anticipates inflation slowing to 2.5% by the end of 2024, from its current 3.1% level, and a full-percentage-point reduction in the BOC's policy rate, starting with a cut in June.

-Paul Vieira

Bank of England Expected to Cut Rates in June

Softer-than-expected U.K. data on both inflation and wage growth released in December suggest lingering restraints on domestic supply have eased more quickly than previously, Capital Economics chief U.K. economist Paul Dales says in a note. This means Capital Economics now predicts the Bank of England's first interest-rate cut will come in June this year rather than in November under previous its forecasts. Consumer prices in the U.K. now seem to be following similar trends to the U.S. and eurozone, albeit around six months later than across the Atlantic. "It seems that more of the U.K.'s bigger rise in inflation and wage growth was due to temporary influences, such as energy effects, that are now being reversed," he says.

-Edward Frankl

Turkey Can Eye End to Higher Interest Rates

The Turkish central bank has an end in sight for its cycle of interest-rate increases, despite a further uptick in inflation last month, Capital Economics economist Liam Peach writes in a note. The headline rate of consumer-price increases rose to 64.77% in December, a second consecutive month of higher inflation that on the face of it complicates the central bank's task. But core inflation-stripping out energy and food prices-increased less rapidly to 70.64%, signaling underlying easing in price pressures, Peach writes. Inflation may continue to climb this month on base effects and a rise in the minimum wage, but should fall steadily over the rest of the year, perhaps reaching as low as 30% by the end of 2024, he suggests. This would mean the central bank needed only one more rate increase, to 45.0% this month, before a pause in the tightening policy, Peach writes.

-Joshua Kirby

Commentary How Supply-Chain Snarls Made Everyone Wrong on Inflation

On inflation forecasting, everybody has a bit of egg on their faces. New research suggests that a misunderstanding of what was happening with global supply chains might be part of why, Justin Lahart writes.

Why Companies Still Aren't in a Firing Mood

Recession worries have moderated in the U.S., which could set the conditions for the labor market to not cool as much over the next year as many economists and Federal Reserve policymakers expect, Justin Lahart writes.

Basis Points Activity among U.S. manufacturers continued to contract in December, albeit at a slower pace, as the Institute for Supply Management's index of manufacturing activity rose from 46.7 in November to 47.4. Readings above 48.7 over a period of time in the ISM index generally indicate expansion in the U.S. economy. (Dow Jones Newswires) U.S. mortgage applications dropped as home buyers continued to struggle with low inventory, according to the overall market composite index of the Mortgage Bankers Association. The measure of mortgage application volume fell 9.4% to 173.5 [https://www.marketwatch.com/story/u-s-mortgage-demand-remains-tepid-as-rates-inch-upwards-ea419de3#::text=The%20numbers%3A%20U.S.%20mortgage%20applications, refinancing%20demand%20in%20recent%20weeks.] for the week ending Dec. 29 from two weeks earlier. A year ago, the index stood at 184.5. (MarketWatch) North American freight-railroad traffic rose 4.4% for the week ended Saturday, wrapping up the best quarter of 2023 for rail volumes on a year-over-year basis. Carloads rose 5% on 12 reporting U.S., Canadian and Mexican railroads, while the volume of intermodal units increased 3.8%, data from the Association of American Railroads showed. (DJN) A private gauge of activity in China's services sector rose to a five-month high in December, in contrast with an official index that remained in contraction. The Caixin services purchasing managers index climbed to 52.9 in December from 51.5 in November, Caixin Media Co. and S&P Global said Thursday. (DJN) China air travel is likely to rev up its recovery this year, with more direct flights to and from the U.S., the country's aviation regulator said. International flights to and from China are expected to reach 6,000 a week by the end of 2024, or 80% of prepandemic levels, the Civil Aviation Administration of China said after its annual work conference. South Korea's economic recovery is forecast to be slower than expected this year , with inflation likely to be sticky, the Ministry of Economy and Finance said in a semiannual report. The ministry on Thursday said it expects the country's gross domestic product to rise 2.2% in 2024, softer than its July forecast of 2.4% growth. Asia's fourth-largest economy is estimated to have expanded 1.4% in 2023. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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

(MORE TO FOLLOW) Dow Jones Newswires

01-04-24 0715ET