Upside Risks to Inflation 'Remain Prominent,' Fed's Bowman Says; China Delivers Another Rate Cut

Upside Risks to Inflation 'Remain Prominent,' Fed's Bowman Says; China Delivers Another Rate Cut By Hardika Singh

Inflation remains more of a concern than potential weakness in the labor market, Federal Reserve Gov. Michelle Bowman said Tuesday.

"In my view, the upside risks to inflation remain prominent," Bowman said in a speech at a meeting of the Kentucky Bankers Association.

Bowman dissented from the Fed's aggressive half-percentage-point interest rate cut last week. She preferred a smaller quarter-point reduction. She was the first Fed governor to dissent from a FOMC decision since 2005.

In her speech, Bowman noted that the 12-month measure of core personal consumption expenditure inflation index came in at a 2.6% rate in July, well above the Fed's 2% target, Greg Robb reports for MarketWatch.

She also noted that the August consumer and producer price index reports suggest that 12-month core PCE inflation was likely "a touch above" the July reading. Economists polled by The Wall Street Journal expect 12-month core PCE inflation to rise to a 2.7% annual rate in August. The data will be released on Friday.

Worries about inflation included a concern that global supply chains could be susceptible to labor strikes and geopolitical tensions, Bowman said. In addition, she said that expansionary fiscal policy in Washington could lead to higher inflation, as could increased demand for housing, especially given the limited supply of affordable housing.

"While it has not been my baseline outlook, I cannot rule out the risks that progress on inflation could continue to stall," she said.

Bowman said she was in favor of slowly "recalibrating the Fed's policy rate and beginning the process of moving back to a more neutral stance of policy.

Top News China's Central Bank Adds to Easing Blitz With Another Rate Cut

China's central bank has delivered another policy rate cut, a day after announcing a slew of monetary easing measures to aid the economy amid concerns that Beijing's annual growth target is increasingly out of reach.

The People's Bank of China cut the interest rate on its one-year medium-term lending facility to 2.0% from 2.3% in a widely anticipated move, while lending 300 billion yuan to financial institutions, equivalent to $43 billion.

Wednesday's move was telegraphed well in advance by the central bank's governor, Pan Gongsheng. In a press briefing on Tuesday, Pan said that the seven-day reverse repurchase rate-China's main policy rate-would be trimmed to 1.5% from 1.7% to guide down the borrowing costs of PBOC's medium-term lending facility by 30 basis points.

Besides the rate cuts, Pan also announced on Tuesday a reduction to the amount of cash that banks need to hold in reserve, a move aimed at freeing up one trillion yuan for lending. Analysts expect that further easing is in the pipeline, tipping another cut to banks' reserve requirement ratios later in the year as hinted by Pan. Read more .

Sweden Central Bank Cuts Key Rate, Sees Two More Cuts This Year

Sweden's central bank cut its key interest rate for the third time this year, to 3.25% from 3.5%, and said borrowing costs will likely be lowered again soon as a faltering economy threatens to push inflation further below its target.

BOC Gov. Says Growth Needs to Accelerate to Maintain 2% Inflation

Bank of Canada officials want growth to accelerate and absorb spare economic capacity, which is a requisite to keep inflation at or near its current 2% level, Gov. Tiff Macklem said Tuesday.

U.S. Economy Consumer Confidence Plunged in September

Consumer confidence fell in September to a three-month low ahead of a pivotal U.S. election whose outcome could hinge on which presidential candidate voters think will do a better job on the economy. Americans were more worried about the job market in light of a steady rise in unemployment and greater difficulty in finding work. A high cost of living after several years of severe inflation was another source of distress. The index of consumer confidence sank to 98.7 this month from a revised 105.6 in August, the Conference Board said Tuesday. It was the biggest one-month decline since mid-2021. Economists polled by The Wall Street Journal had forecast the index to rise to 104.0. (MarketWatch)

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Trump Plans to Personally Recruit Manufacturers to Move to U.S.

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Harris to Outline Economic Vision to Counter Trump's

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Financial Regulation Star FTX Witness Caroline Ellison Sentenced to Two Years in Prison

Caroline Ellison, the star witness in FTX founder Sam Bankman-Fried's criminal trial, was sentenced to two years in prison for her role in what prosecutors called one of the largest financial frauds in history.

SEC Issues $88 Mln Fine Against 12 Firms for Recordkeeping Failures

The Securities and Exchange Commission said it charged 12 firms for widespread and longstanding failures for failing to maintain and preserve electronic communications that violated recordkeeping provisions as required by federal securities laws.

Forward Guidance Wednesday (all times ET)

10 a.m.: New home sales

4 p.m.: Fed governor Adriana Kugler speaks

Thursday

8:30 a.m.: Initial jobless claims; durable-goods orders; GDP (third estimate)

9:15 a.m.: Fed Bank of Boston President Susan Collins fireside chat with Fed Governor Adriana Kugler; Fed Governor Michelle Bowman speaks at the Mid-size Bank Coalition of America Board of Directors Workshop

10:00 a.m.: Pending home sales

10:30 a.m.: Fed Governor Lisa Cook speaks at the roundtable discussion with community stakeholder in Columbus, Ohio

1:00 p.m.: Fed Bank of Minneapolis President Neel Kashkari hosts fireside chat with Fed Vice Chair Michael Barr

Research China Stimulus Likely to Squeeze Banks' Margins

Chinese banks face strain from the latest round of stimulus, S&P Global Ratings analysts say. The PBOC said it will cut rates on existing mortgages, part of a set of steps to boost the economy. "The steps will test banks' management of funding costs and their underwriting ability, with some institutions likely to show lower profitability and diminished asset quality," credit analyst Ming Tan says. Some banks in lower-tier cities could be more affected due to their exposure to property markets, he adds. On a static basis, the measures could cut banks' NIM by about 20 bps, hitting returns on assets by about 14 bps. S&P expects banks to lower deposit rates in response, which may be tough for those with a weaker deposit base, or lower funding and liquidity buffers. - Fabiana Negrinochoa

Basis Points Falling interest rates and recovering real wages will help drive a slight pickup in global economic growth this year and next, while recent falls in oil prices could aid the final push to tame inflation, the Organization for Economic Cooperation and Development said Wednesday. Global demand for oil is set to climb over the next two decades, with the fossil fuel expected to hold a nearly 30% share of the energy mix even as the world ramps up efforts to reduce emissions, the Organization of the Petroleum Exporting Countries said. Home prices in the 20 biggest U.S. metro areas set yet another record high in July, but the pace of price rises has decelerated significantly as prices and mortgage rates weigh on home buyers. (MarketWatch) President Biden, in likely his final address to the United Nations, acknowledged his administration was nearing its end amid worsening international tensions and unresolved wars in the Middle East and Europe, but expressed optimism that "things can get better." Grain terminal workers on Canada's west coast walked off the job, threatening exports of canola and other crops during the busy harvest season. Governments across Europe are raising new barriers to immigrants , aiming to curb near-record inflows of people from poor countries that are triggering a surge in support for nationalist populist parties. Australia's headline inflation rate fell to within the Reserve Bank of Australia's target band for the first time since 2021 in August, but economists warn that this won't trigger an immediate interest-rate cut . Asia economies remain on track for solid growth and cooling inflation, backed by domestic demand and a continued exports recovery, the Asian Development Bank said. (Dow Jones Newswires) 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 [hardika.singh@wsj.com].

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

(END) Dow Jones Newswires

September 25, 2024 07:16 ET (11:16 GMT)

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