Fed Minutes Hint at November Start for Tapering; Bowman, Summers Give Inflation Warnings as Price Increases Accelerate

10/14/2021 | 06:49am

Good day. Minutes of the Federal Reserve's Sept. 21-22 meeting showed a stronger consensus over reducing the central bank's bond buying amid signs that higher inflation and strong demand could call for tighter monetary policy next year. Under plans discussed last month, the Fed would reduce its purchases by $15 billion a month, potentially starting the taper in mid-November. If the Fed follows that schedule, purchases would conclude in July. Meanwhile, U.S. inflation last month remained at its highest rate in over a decade, and Fed governor Michelle Bowman warned that price pressures could be persistent while former Treasury Secretary Larry Summers said the central bank isn't moving fast enough to counter inflation risks.

Now on to today's news and analysis.

Top News

Fed Worried About Inflation Risk as It Firmed Up Tapering Plan

Fed Chairman Jerome Powell has said the Fed's statement after its monetary-policy meeting last month "put notice out" that a reduction in bond buying "could come as soon as the next meeting."

Federal Reserve officials last month worried that disrupted supply chains were raising the risks of more persistent inflation as they firmed up plans to reduce their bond-buying stimulus program next month and conclude it by the middle of next year.

Minutes of their Sept. 21-22 Fed meeting, released Wednesday, revealed a stronger consensus over scaling back the $120 billion in monthly purchases of Treasury and mortgage securities amid signs that higher inflation and strong demand could call for tighter monetary policy next year. The bond purchases have been a key piece of the Fed's effort to stimulate growth since the coronavirus pandemic disrupted the U.S. economy last year.

Accelerating Inflation Spreads Through the Economy

U.S. inflation accelerated last month and remained at its highest rate in over a decade, with price increases from pandemic-related labor and materials shortages rippling through the economy.

Bowman Sees Risks of More Persistent Inflation

Fed governor Michelle Bowman warned in a speech of growing risks that supply-chain disruptions could keep inflation elevated for longer than forecasters have anticipated.

Summers: Fed Behind Curve on Countering Runaway Inflation Risks

Former U.S. Treasury Secretary Larry Summers has sounded alarm bells over risks of runaway inflation in the U.S., saying the Federal Reserve is moving glacially in its efforts to counter the threat.

Key Developments Around the World

Singapore Central Bank Surprises With Policy Tightening

Singapore's central bank unexpectedly tightened its currency policy to cushion against inflationary pressures arising from strengthening global demand amid a global supply-chain crunch.

Australia Faces Divestment Risk Without Action on Climate: RBA

Failure by Australia to fully recognize shifting appetite in global markets for government and corporate action on climate increasingly risks divestment by foreign firms and rising costs of capital in the future, the Reserve Bank of Australia said.

Turkish Lira Hits Low After Erdogan Fires Central Bank Officials

The Turkish lira fell to a record low versus the dollar after President Recep Tayyip Erdogan fired three central bank officials. Mr. Erdogan removed deputy governors Ugur Namik Kucuk and Semih Tumen along with monetary policy committee member Adullah Yavas. "Erdogan believes that cutting interest rates causes inflation to fall, and he tends to fire central bank employees, including governors, who disagree with him in this respect," Oanda analyst Jeffrey Halley said. (Dow Jones Newswires)

Global Economy Falters Due to Inflation and Supply-Chain Woes

The outlook for the global economy darkened as data from Europe and Asia suggested growth faltered in the third quarter, hobbled by supply-chain snarls, sharply accelerating inflation and the impact of the Delta variant.

China's Factory-Gate Prices Rise at Record Pace

Cost pressures on Chinese factories continued to accumulate last month as energy prices soared, dimming hope that global inflation would ease in the near term.

Gas Crisis Prompts Fresh Proposals From EU

The European Commission, the EU's executive arm, laid out various actions that could be taken at the EU or national level to prevent energy price shocks, as political pressure builds on member governments to stem the higher costs.

Russia Shows Its Growing Sway Over Global Energy Markets

Financial Regulation Roundup

BOE's Cunliffe Says Crypto Regulation a Matter of Urgency

Cryptocurrency regulation needs to be treated as a matter of urgency as the sector continues to expand at a rapid pace, Bank of England Deputy Governor Jon Cunliffe said. "Financial stability risks currently are relatively limited but they could grow very rapidly if, as I expect, this area continues to develop and expand at pace," he said in a speech to the SIBOS conference. "How large those risks could grow will depend in no small part on the nature and on the speed of the response by regulatory and supervisory authorities." (Dow Jones Newswires)

Bitcoin Fans Flock to the Futures Market

Investors are betting the first U.S.-listed bitcoin exchange-traded fund is about to get the go-ahead. Securities regulators could rule as early as next week on as many as four applications for ETFs that will buy bitcoin futures contracts rather than the cryptocurrency itself.

SEC to Seek Admissions of Wrongdoing in Some Enforcement Actions

Wall Street regulators said they plan to require companies in some cases to admit wrongdoing when they settle civil enforcement actions, a return to a policy started during the Obama administration.

U.S. SPAC Frenzy Inspires a Reboot in Asia

SPACs have lost some luster in America, but stock exchanges in Singapore and Hong Kong are betting the vehicles will boost their allure to global investors and startups in the region.

Los Angeles Councilman, Former USC Dean Indicted

A Los Angeles city councilman and a former University of Southern California dean have been indicted on federal corruption charges stemming from an alleged scheme to trade county contracts for graduate-school admission for the politician's son.

Forward Guidance

Thursday (all times ET)

8:30 a.m.: U.S. Labor Department releases September PPI

8:35 a.m.: St. Louis Fed's Bullard speaks at Euro 50 Group webinar on coping with the legacy of Covid-19

9 a.m.: Atlanta Fed's Bostic speaks to National Black MBA Association

10 a.m.: Atlanta Fed's Bostic speaks at Global Inclusive Growth Summit

1 p.m.: New York Fed's Williams moderates panel on women in the workforce at Economic Club of New York event

1 p.m.: Richmond Fed's Barkin speaks at Forecasters Club of New York event

6 p.m.: Philadelphia Fed's Harker speaks on economy at Prosperity Caucus event

Friday

8:30 a.m.: U.S. Commerce Department releases September retail sales

10 a.m.: University of Michigan releases preliminary October U.S. consumer sentiment

11:45 a.m.: St. Louis Fed's Bullard speaks on monetary policy at Minneapolis Fed event

12:20 p.m.: New York Fed's Williams speaks on panel on monetary policy and macroeconomic stars at Bank of France event

Commentary

Is the Fed's Inflation View Built on Sand?

The most encouraging aspect of Federal Reserve policy staff economist Jeremy Rudd's paper focusing on a purported flaw in the Fed's sanguine outlook for inflation is that the central bank was willing to publish it, Greg Ip writes.

Think You Can Predict Inflation? Think Again

Predicting when the world will be free of the pandemic is a bit of a mug's game, and figuring out what the post-pandemic economy will look like and how that will affect prices entails a lot of guesswork, Justin Lahart writes.

How the Fed Finances U.S. Debt

With the Fed owning roughly one-quarter of the federal debt held by the public -- and with the central bank sending weekly remittances to Treasury -- it's clear monetary and fiscal policy are conflated, Judy Shelton writes.

Ms. Shelton, an economist, is a senior fellow at the Independent Institute and author of "Money Meltdown."

Basis Points

Soaring natural-gas and coal prices are forcing power-generation companies and manufacturers to switch to using oil, a trend that could add half a million barrels a day to global demand, the International Energy Agency said.

When the federal moratorium on evictions ended in August, many feared that hundreds of thousands of tenants would soon be out on the streets. More than six weeks later, that hasn't happened.

German consumer prices rose 4.1% year-on-year measured both by national standards and European Union-harmonized standards, statistics office Destatis said, noting the increase in the inflation rate was mainly due to a base effect stemming from lower prices in 2020. (Dow Jones Newswires)

Chinese banks extended 1.66 trillion yuan ($257.41 billion) in new yuan loans in September, up from CNY1.22 trillion in August, according to data released by the People's Bank of China. Economists polled by The Wall Street Journal had forecast new loans of CNY1.90 trillion. (DJN)

Total social financing in China, a credit measure that includes financing offered by non-bank institutions, dropped to CNY2.90 trillion last month from CNY2.96 trillion in August. (DJN)

House price increases in New Zealand moderated in September and sales fell due to a pandemic lockdown in Auckland. The median sale price of 795,000 New Zealand dollars ($554,000) rose 15.4% from a year earlier, compared with August's 25% jump, according to Real Estate Institute figures. The number of houses sold was down nearly 38% from September 2020. (DJN)

(END) Dow Jones Newswires

10-14-21 0849ET

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