Federal Reserve to Look at Speeding Up Cuts to Asset Purchases; Richard Cordray a Candidate for Fed's Top Banking Regulator

12/01/2021 | 10:01am

Good day. The Federal Reserve is heading into a difficult environment as the inflationary surge threatens to become more unpredictable due to the emergence of the new Omicron coronavirus variant, prompting the central bank to discuss accelerating cuts to its asset-purchase program at its mid-December meeting, Chairman Jerome Powell said Tuesday. In other Fed developments, President Biden is considering Richard Cordray, the first director of the Consumer Financial Protection Bureau, to serve as the central bank's top banking regulator, according to people familiar with the matter. His nomination for the post could hearten progressive Democrats who have called for the Fed to take a tougher approach to regulating big banks and addressing financial risks posed by climate change.

Now on to today's news and analysis.

Top News

Powell Warns Elevated Inflation Justifies Faster Cuts for Bond Buying

Federal Reserve Chairman Jerome Powell discussed in a Senate hearing the factors driving continued inflation and the risk the Omicron variant poses for the economy.

Photo: Al Drago/Bloomberg News

Federal Reserve Chairman Jerome Powell signaled the central bank would consider quickening the wind down of its easy-money policies as it grapples with elevated inflation, which would open the door to raising interest rates in the first half of next year.

He said Tuesday the Fed would discuss accelerating the reduction of its asset purchases at its meeting in mid-December. "The risk of higher inflation has increased," Mr. Powell said at a hearing Tuesday morning before the Senate Banking Committee.

Global Inflation Set to Be Higher for Longer, Says OECD

The pickup in inflation rates around the world will be longer-lasting and sharper than previously anticipated, with a growing risk that households and businesses grow accustomed to faster price rises, the Organization for Economic Cooperation and Development said.

Derby's Take: Powell Reiterates Importance of Diversity in Boston, Dallas Fed Searches

By Michael S. Derby

Federal Reserve Chairman Jerome Powell reiterated Tuesday that two regional leadership openings at the central bank could be a chance to broaden the diversity of those who help set monetary policy. The Fed is looking for new leaders for the two banks as a consensus forms that drawing officials from diverse backgrounds, be it racial, gender or occupational, helps the central bank make monetary policy better. Read more.

U.S. Economy

Covid-19 Variant Omicron Threatens U.S., Global Economies

Compared with the initial wave of Covid-19 and the Delta variant this summer, Omicron's threat to economies will likely be less severe, economists say, in part because each new virus strain has had a diminished economic impact.

Gas Prices Pressure Drivers' Finances

U.S. gasoline prices have climbed about 50% in a year with drivers paying an average of $3.40 a gallon for regular, up from $2.27. This year's rise is on pace to be the largest percentage increase in at least a decade.

U.S. Home-Price Growth Slowed in September

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major U.S. metro areas, rose 19.5% in the year that ended in September, down from a 19.8% annual rate the prior month.

Credit-Card Applications Hit Pandemic High

Americans are applying for credit cards at a rate not seen since before the pandemic. Close to 27% of U.S. consumers said in October that they had applied for a credit card in the past 12 months, according to the Federal Reserve Bank of New York, the highest level since 2019.

Key Developments Around the World

As Omicron, Supply Problems Loom, Eurozone Inflation Hits Record

The European Union's statistics agency Tuesday said consumer prices in the currency area were 4.9% higher than in November 2020, by far the fastest annual rise since records began in 1997 and more than double the ECB's 2% target.

India's Economy Hampered by Weak Consumer Spending

India's GDP grew 8.4% in the three months ended September, compared with a year earlier, reflecting the aftermath of a devastating spring Covid-19 surge, which set global records for daily cases and deaths in a single country.

Turkish Lira Plumbs Record Low on Erdogan's Calls for Rate Cuts

Turkey's currency crisis deepened after President Recep Tayyip Erdogan defended his policy of demanding lower interest rates despite rising inflation, sparking another selloff of the lira, which hit 13.74 to the dollar around midnight local time before rebounding slightly.

Financial Regulation Roundup

White House Considering Cordray as Top Fed Banking Regulator

President Biden is considering Richard Cordray, the first director of the Consumer Financial Protection Bureau, to succeed Randal Quarles as the Federal Reserve's vice chairman of banking supervision, people familiar with the matter say.

Fannie Mae, Freddie Mac to Back Home Loans of Nearly $1 Million

Starting next year, home buyers in high-cost areas of the country will be able to borrow nearly $1 million for a mortgage loan backed by the government, a reflection of the rapid appreciation in home prices nationally.

Forward Guidance

Wednesday (all times ET)

9 a.m.: Bank of England's Bailey gives speech at Institute and Faculty of Actuaries

10 a.m.: Fed's Powell testifies on Covid-19 and the Cares Act before House Financial Services Committee

2 p.m.: Federal Reserve releases beige book report on U.S. economic conditions


9 a.m.: European Central Bank's Panetta chairs panel at ECB conference on fiscal policy and Economic and Monetary Union governance

11 a.m.: Fed's Quarles gives speech on his departing thoughts at American Enterprise Institute event

11:30 a.m.: Richmond Fed's Barkin, San Francisco Fed's Daly speak on the labor market at Peterson Institute for International Economics event; Atlanta Fed's Bostic speaks in live interview at Reuters Next event


China's Frozen Factories Warm Up, a Little

China may see a weak recovery at best in early 2022 if exports hold up and further significant policy support for the economy is forthcoming, but if not, expect a further slowdown next quarter, Nathaniel Taplin writes.

Basis Points

U.S. businesses along the Canadian border say they are anticipating a boost in cross-border shopping and tourism after nearly 20 months of suffering from Washington's decision to ban tourists from entering the U.S. via northern land-border crossings.

U.S. consumer confidence fell in November to the lowest level in nine months because of worries about high inflation, as the index of consumer confidence dropped to 109.5 from 111.6 in October, the privately run Conference Board said. (MarketWatch)

Business activity growth in the Chicago area cooled in November as new orders slowed, according to data released Tuesday by MNI Indicators, whose Chicago Business Barometer slipped to 61.8 for the month, its lowest reading since February, from 68.4 in October. (Dow Jones Newswires)

Canada's gross domestic product increased at a 5.4% annualized rate in the third quarter, Statistics Canada said. Market expectations were for a 3.3% annualized advance in the July-to-September period, according to economists at TD Securities. (DJN)

Australia's economy shrank in the July-September quarter as efforts to combat the Delta variant of the Covid-19 virus forced more than half the country into strict and lengthy lockdowns. The economy contracted by 1.9% in the third quarter from the previous quarter and grew 3.9% over the year, the Australian Bureau of Statistics said Wednesday. Economists had expected a 2.5% contraction in the third quarter. (DJN)

Australia's manufacturing sector shrugged off three months of Covid-related lockdowns in November, lifting the Australian Industry Group Performance of Manufacturing Index by 4.4 points to 54.8. (DJN)

Brazil's unemployment rate fell to 12.6% in the third quarter from a revised 13.1% in the three months through August and from 14.9% in the year-earlier period, as households hired back many domestic workers laid off during the height of the coronavirus pandemic, the Brazilian Institute of Geography and Statistics said Tuesday. (DJN)

South Africa's unemployment rate jumped to a record high of 34.9% in the third quarter of 2021, as the country struggles to recover from the economic impact of the coronavirus pandemic, Statistics South Africa said. (DJN)

Bank of Japan policy board member Seiji Adachi said he sees a greater chance that the nation's inflation rate will increase after years of flat prices. Mr. Adachi pointed to changes in the price-setting behavior of Japanese companies and improvements in their growth expectations. (DJN)

(END) Dow Jones Newswires

12-01-21 1000ET

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