Growth Likely Too Strong for Federal Reserve; Timing of End to Fed's Rate Campaign Critical for Jobs Market

Growth Likely Too Strong for the Fed; Timing of End to Fed's Rate Campaign Critical for Jobs Market By James Christie

Good day. The Federal Reserve is widely expected to continue its tightening campaign today with a notch-up in its benchmark interest rate as it wraps up its two-day meeting. An increase is expected, as the economy has been stronger than anticipated and because the central bank wants to make sure the recent slowdown in inflation isn't a fluke. But what Fed watchers will be most interested in are any signs from the central bank that its September meeting is "live," meaning a rate increase will be strongly considered then. In today's Pro Take, Bob Fernandez notes that at this point each Fed decision on rate increases is likely to influence whether or not the economy manages a soft landing. That makes the timing of when the Fed calls off its rate campaign critical to hundreds of thousands of workers, maybe millions, who could lose jobs in a recession, he writes.

Now on to today's news and analysis.

Top News Fed Set to Raise Rates to 22-Year High. Here's What to Focus On.

The Federal Reserve is set to raise interest rates by a quarter-percentage point on Wednesday to a 22-year high, with most investors focused on what it would take for the central bank to lift rates again later this year.

Economic growth has likely been too firm in recent months for Fed Chair Jerome Powell to signal that Wednesday's increase in the Fed's benchmark short-term rate will be the last of the current tightening cycle, as investors anticipate. The recent slowdown in inflation also makes it hard for central bank officials to firm up plans for any additional rate increase.

Pro Take: Should Fed Stick to Script With Rate Hike as Inflation Wanes? By Bob Fernandez

Federal Reserve leaders believe that the central bank shouldn't surprise markets and Wednesday's decision on interest rates seems unlikely to veer off a script that strongly calls for a rate hike.

The federal-funds futures market, which bets on the direction of Fed rate moves, is pricing in a nearly 99% chance of a quarter-percentage-point rate hike, according to options trading firm CME Group.

But has the Fed gotten locked into a rate hike while fresh economic data show solid gains in bringing inflation to its 2% target and a softening U.S. labor market? Read more .

U.S. Economy UPS, Teamsters Reach Agreement on New Contract

United Parcel Service and the International Brotherhood of Teamsters reached an agreement over a five-year labor contract , preventing a potential strike by roughly 330,000 package delivery drivers and package sorters.

Home Prices Fell Year-Over-Year in May

The S&P CoreLogic Case-Shiller National Home Price Index, which measures home prices across the nation, fell 0.5% in May from a year earlier, compared with a 0.1% decrease the prior month. The annual decline was the largest since 2012.

Indiana and Midwest Take Top Slots in WSJ/http://Realtor.com Housing Index U.S. Allies in Asia Snub Natural Gas From Alaska Project

Japan and South Korea have rebuffed overtures by the U.S. about joining a proposed $44 billion natural-gas project in Alaska that would be one of the biggest energy investments in American history.

Key Developments Around the World Mystery Deepens Around China's Former Foreign Minister

China's former foreign minister, who was replaced on Tuesday after he went missing from public view for more than a month, is now disappearing from parts of the Foreign Ministry's website.

Paris Olympics Countdown Greeted by Riots and Ukraine War Distress

One year out from the 2024 games, there is social unrest in the Paris suburbs where much of the Olympic activity is set to take place, and local residents say they see little to appreciate about the coming mega-event.

Israel in Political and Economic Tumult

Israelis girded for political and economic tumult after Prime Minister Benjamin Netanyahu began overhauling the judicial system, as doctors went on strike, the stock market and currency sank, and protesters vowed mass demonstrations .

Financial Regulation Roundup NatWest CEO Steps Down After Discussing Nigel Farage's Account

Natwest Group Chief Executive Alison Rose has stepped down after her conversation with a BBC journalist about outspoken Brexit campaigner Nigel Farage engulfed the British bank in a political drama.

Stock Exchange Regulators Back Global Climate-Reporting Rules

Regulators of the world's top stock exchanges gave their backing to the international climate-reporting standards framework Tuesday, adding momentum to efforts to establish the rules as the global baseline.

Forward Guidance Wednesday (all times ET)

10 a.m.: U.S. new-home sales for June

2 p.m.: Federal Reserve interest rate decision

2:30 p.m.: FOMC press conference

Thursday

8:15 a.m.: ECB interest rate decision

8:30 a.m.: U.S. durable goods report for June; U.S. weekly jobless claims; U.S. gross domestic product, second-quarter advance estimate

8:45 a.m.: ECB press conference

10:15 a.m.: Podcast by ECB's Lagarde on monetary policy decision

Research Central Banks May Need 18-24 Months to Return Inflation to Target

Inflation is easing but it will likely take 18 to 24 months before central bank targets are met, according to a survey conducted by Natixis Investment Managers of its own strategists and fund managers at the end of June. Nearly three quarters (72%) of respondents-market strategists, portfolio managers, research analysts and economists-are concerned inflation may linger longer than expected, and 38% think interest rates could stay higher for longer than anticipated, the midyear survey finds. Only 22% of strategists surveyed say inflation is a "high risk" in the second half of the year, though 38% don't believe inflation targets will be met until 2025, and 9% say they may not be met until at least 2026.

-Emese Bartha

German Economy to Shrink More Than Previously Forecast, IMF Says

Germany's economy will contract this year more than previously expected, according to downgraded forecasts published by the International Monetary Fund. The eurozone's largest economy is expected to shrink 0.3% in the full year, compared with the 0.1% contraction seen under previous projections released in April and growth of 1.8% in 2022. The revision reflects weakness in German manufacturing output and economic contraction in the first quarter, the IMF says. However, the IMF upgraded its expectations for 2024 slightly, to 1.3% growth from 1.1% previously. The eurozone overall is expected to grow 0.9% this year and 1.5% in 2024, both 0.1 percentage point better than the IMF's April forecasts.

-Ed Frankl

Commentary Foreigners Will Benefit From U.S. Climate Subsidies

Foreign firms are shaping up to be some of the biggest beneficiaries of America's new climate-focused industrial policy law. Japan's Panasonic, for example, estimates it could reap $2 billion a year from tax credits associated with battery plants in Nevada and Kansas. Is that a problem, asks Nathaniel Taplin.

Basis Points U.S. consumer confidence improved in July and more than expected, as private research group The Conference Board said its consumer confidence index rose from an upwardly revised 110.1 in June to 117.0. Economists polled by The Wall Street Journal had expected the index to rise to 112.0. The rise marks a second month of improvement after a declining trend earlier in the year. (Dow Jones Newswires) Manufacturing activity in the U.S. central Atlantic region worsened marginally in July, remaining sluggish in the face of tight financing conditions caused by high interest rates, according to data from the Federal Reserve Bank of Richmond. Its Fifth District Survey of Manufacturing Activity's index slipped from minus 8 in June to minus 9. (DJN) Large companies in the U.S. have sought bankruptcy protection at a faster pace this year as they struggle to meet rising costs and shifts in consumer spending. Chapter 11 cases of businesses with at least $100 million in debt or assets, or those with national prominence, totaled at least 82 through June, up from 29 and 43 in the same periods of 2022 and 2021, respectively, according to the American Bankruptcy Institute. Inflation in Australia cooled by more than expected in the second quarter, easing pressure on the Reserve Bank of Australia to raise interest rates further at its next policy meeting, but there are hot spots in the price data that will likely keep the central bank anxious. (DJN) Eurozone banks saw record low demand for loans from their business clients in the second quarter of the year, according to the European Central Bank's quarterly bank lending survey. (DJN) The number of unemployed people in France fell again in the second quarter of the year, reflecting a still-tight labor market, according to data from state agency Pole Emploi. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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

James Christie , Nell Henderson , Nick Timiraos , Tom Fairless , Megumi Fujikawa , Perry Cleveland-Peck [mailto:[e-mail]], Nihad Ahmed , Michael Maloney , Paul Kiernan

Follow us on Twitter:

(MORE TO FOLLOW) Dow Jones Newswires

07-26-23 0715ET