When Can We Get to 2% Inflation?

When Can We Get to 2% Inflation? By Hardika Singh

Intrinsic characteristics of inflation mean it is unlikely to get to 2% in a timely way, a Cleveland Federal Reserve economist says. His model shows inflation will still be above target, at 2.7%, by the second quarter of 2025. Meanwhile, sales of newly built homes in the U.S. plunged in May, as home buyers scaled back in the face of high mortgage rates. And the latest stress tests find big banks would remain above minimum capital requirements in the Fed's imaginary worst-case recession. Read on for this news and more.

Top News Inflation Could Take Several Years to Get Back to 2%, Cleveland Fed Researcher Says

Officials at the Fed are expecting inflation to keep easing over the next two years and have penciled in a return to their 2% target in 2026.

But a senior research economist at the central bank's Cleveland branch, Randal Verbrugge, is warning that it could actually take several years to reach that target - a level designated by the interest-rate-setting Federal Open Market Committee as consistent with maximum employment and price stability. ( MarketWatch )

U.S. Economy New-Home Sales Plunge to The Lowest Level Since November

New-home sales were at their lowest level since November. Sales of newly built homes fell 11.3% to an annual rate of 619,000 in May, from a revised rate of 698,000 in the previous month, the Commerce Department said Wednesday.

The number, which is seasonally adjusted, refers to how many homes would be built over an entire year if builders continue at the same pace every month. The pace fell short of expectations on Wall Street. ( MarketWatch )

You Might Be Buying Your House at the Top of the Market Financial Regulation Biggest Banks Can Withstand Severe Downturn, $685 Billion in Losses, Fed Says

Big U.S. banks passed their latest annual stress test , with the Federal Reserve finding they would be able to continue lending to households and businesses in a severe recession, even while suffering steeper losses than last year's tests.

This year's exercise measured the 31 biggest banks' ability to maintain strong capital levels in a hypothetical recession marked by double-digit unemployment and a severe stock-market decline.

The banks would collectively lose nearly $685 billion in the Fed's imaginary worst-case recession, the Fed said. That would be more than last year, but all the banks would still remain above their minimum capital requirements.

Forward Guidance Thursday (all times ET)

8:30 a.m.: Initial jobless claims

8:30 a.m.: 3rd estimate GDP

8:30 a.m.: Durable-goods orders

10 a.m.: Pending home sales

11 a.m.: Fed Bank of Kansas City Survey of Tenth District Manufacturing

3 p.m.: IMF annual check-up of the U.S. economy concluding discussions and press conference with Managing Director Kristalina Georgieva

Friday

8:30 a.m.: PCE index

9:45 a.m.: Chicago Business Barometer

10 a.m.: Consumer sentiment

12 p.m.: Fed governor Michelle Bowman speaks at the Ronald Reagan Presidential Foundation and Institute Leadership Council Conference

Research Senator, Cleveland-Cliffs Want Limits On Mexico Steel

U.S. Senator Sherrod Brown and leaders from the United Steelworkers union and Cleveland-Cliffs are turning up the pressure on the Biden administration to take a tougher approach to curbing steel imports from Mexico. Brown wants tariffs on Mexican steel reinstated in response to what he says is Mexico's repeated violation of a 2019 deal requiring Mexico to hold steel exports to the U.S. steady in exchange for the U.S. lifting a 25% duty on Mexican steel. "Its steel imports are at an unsustainable level and they show no signs of slowing down," the Ohio Democrat says. Cleveland-Cliffs CEO Lourenco Goncalves says the U.S. should not renew its free trade agreement with Mexico when the trade pact between the U.S., Mexico and Canada comes up for review in 2026. - Robert Tita

Basis Points Sweden's central bank held its key policy rate at 3.75% and said it could cut the policy rate two or three times during the second half as long as the outlook for inflation holds. The decision was in line with a poll of economists by The Wall Street Journal. A worrisome macroeconomic backdrop argues for three cuts in the second half, said Bartosz Sawicki, market analyst at Conotoxia. - Dominic Chopping The yield on 30-year Japanese government bonds hit a 13-year intraday high, on speculation the yen's historic fall would prompt monetary tightening in Tokyo. The Bank of Japan this year ended an eight-year experiment with negative rates but has so far moved cautiously. Investors are now querying if it could take more forceful action since Tokyo's other attempts to shore up the currency have had little effect. - Megumi Fujikawa The Philippine central bank kept its policy rate unchanged as it continues efforts to tame inflation and support the country's currency. Bangko Sentral ng Pilipinas Gov. Eli Remolona said the central bank maintained its benchmark overnight reverse repurchase rate at 6.50%. It also held its benchmark lending rate steady at 7.00%. - Kosaku Narioka China's industrial profit rose for the second straight month in May but at a much slower pace, pointing to persisting economic headwinds amid a protracted property slump. Profits at China's industrial firms rose 0.7% in May from a year earlier, compared with 4.0% growth in April, according to data from the National Bureau of Statistics on Thursday. Beijing became the last major Chinese city to trim mortgage rates and down-payment requirements for home buyers, part of growing efforts across the country to resolve a long-running property crisis. - Jiahui Huang Monaco tops the list of the world's most expensive residential rental markets , according to a May analysis provided to The Wall Street Journal by Knight Frank, a real-estate company that analyzes international trends. - J.S. Marcus Anyone who has called the Internal Revenue Service knows it can be frustrating to get help . Taxpayers successfully reached a human about 31% of the time this tax season, according to the agency's own taxpayer advocate. - Ashlea Ebeling 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.

(END) Dow Jones Newswires

06-27-24 0716ET