Fed Appears Poised to Hold Rates Steady; Williams Says Rates Might Be at or Near Peak

Fed Appears Poised to Hold Rates Steady; Williams Says Rates Might Be at or Near Peak By James Christie

Good day. Subdued inflation readings have led investors to speculate the Federal Reserve will cut interest rates by May or even earlier. But as Nick Timiraos of The Wall Street Journal reports, Fed officials aren't ready to start talking about rate cuts just yet. Rather, they want to see more evidence their rate campaign to rein in price pressures is working, or the economy and hiring are slowing more than they anticipate. So expect them to focus at their Dec. 12-13 meeting on how much longer to signal that rate increases remain a possibility. On Thursday, New York Fed President John Williams dismissed questions about when officials might lower rates as a hypothetical that concerns "something well off into the future." But Williams also said the federal-funds target range may be at or near its peak. Today, Fed Chair Jerome Powell is scheduled to speak in Atlanta before Fed officials go into their quiet period leading up to the December policy meeting.

Now on to today's news and analysis.

Top News Fed's Hikes Are Probably Over, but Officials Are Reluctant to Say So

Federal Reserve officials are increasingly confident that they don't need to keep raising interest rates to defeat inflation. But they aren't satisfied enough to declare an end to hikes-let alone to start a discussion about lowering rates. This leaves them on track to hold rates steady at their December meeting while maintaining public guidance that their next rate change is more likely to be an increase than a cut.

Fed's Williams Says Interest Rates Are at or Near Peak

The Fed's benchmark interest rate may have already hit its peak level, as it is now putting more downward pressure on the economy than at any time in the last 25 years, New York Fed President John Williams said, MarketWatch reported . "My assessment is that we are at, or near, the peak level of the target range of the federal-funds rate," Williams said. The key adviser to Fed Chair Jerome Powell said his research suggested the stance of the central bank's interest-rate policy "is quite restrictive," meaning it is slowing the economy.

U.S. Economy Consumers Pulled Back on Spending, Inflation Eased in October

Ebbing income growth, high interest rates and prices, dwindling pandemic savings and the resumption of student-loan payments are eroding Americans' ability to boost spending as briskly as they did through the summer, economists say.

Video: The Journal's Dion Rabouin Breaks Down the Latest PCE Data Ford Lost $1.7 Billion in Profit From UAW Strike

Ford said the United Auto Workers strike drained about $1.7 billion from its bottom line and the new labor deal with the union is expected to add $8.8 billion in cost over the roughly four-year contract

Key Developments Around the World India Remains a Bright Spot in Global Economy

India continues to outperform other major economies, thanks to strength in services and industry even as weak rainfall hurts farm harvests. Many economists say India will remain one of the fastest-growing major economies.

The Big Risk Causing Investors to Shun China

Investing in China has never been this perilous . When global investors flocked to the country during its economic boom in the past decade, geopolitical risks were at the back of their minds. Such risks are now a top consideration for buyers of Chinese stocks, bonds and stakes in private companies-and are turning many people off investing in China.

OPEC+ Agrees to Significant Oil-Production Cut

OPEC+ agreed to a significant production cut of an additional million barrels a day , delegates said, in a move that will likely keep oil prices elevated amid the continuing conflict in the Middle East.

COP28 Talks Reach Deal on Much-Debated Climate-Damage Fund

Governments have reached an agreement on the architecture of a United Nations fund to pay for climate-related damage in poor countries, ending a year of talks over which countries should benefit and who should finance it.

Clash Over Climate Tipping Points and Fossil Fuels' Future at COP28 Why No One Wants to Pay for the Green Transition Financial Regulation Roundup IRS Court Win Paves Way for Higher Taxes on Hedge-Fund Managers

The U.S. Tax Court's ruling could require managers to pay self-employment taxes of more than 3% on much of their income, closing off a popular technique for excluding millions of dollars in income.

StraightPath Founders Face Criminal Fraud Charges

Three co-founders of defunct investment firm StraightPath Venture Partners face criminal fraud charges related to the way they pitched investments in "pre-IPO" shares.

PwC's China, Hong Kong Units Fined in Training Exam Cheating Probe

The Public Company Accounting Oversight Board fined PricewaterhouseCoopers's China and Hong Kong units over training exam misconduct from hundreds of employees as part of its first set of enforcement settlements with audit firms in the region since it gained full access to inspect them late last year.

Meta Sues FTC Over Its In-House Courts

Meta Platforms has challenged the constitutionality of the Federal Trade Commission's structure, the company's latest effort to block the regulator from imposing new restrictions on how it can monetize user data .

Forward Guidance Friday (all times ET)

8:30 a.m.: Canada labor force survey for November

10 a.m.: Chicago Fed's Goolsbee in fireside chat at bank's 37th Annual Economic Outlook Symposium; ISM Report on Business Manufacturing PMI; U.S. construction spending for October

11 a.m.: Fed's Powell in fireside chat at Spelman College in Atlanta

2 p.m.: Fed's Powell and Cook in roundtable discussion at Spelman College in Atlanta

Monday

10 a.m.: U.S. manufacturers' shipments, inventories and orders for October

10:30 p.m.: Reserve Bank of Australia interest-rate decision

Research Still Too Early to Price In ECB Rate Cuts

Despite inflation easing in the euro area, the high core rate means it remains far too early to consider cutting interest rates, according to KfW chief economist Fritzi Koehler-Geib. Eurozone core inflation ticked down from 4.2% in October to 3.6% in November, still well above the European Central Bank's 2% inflation target. Additionally, over the next few months the current inflation-dampening effects of lower energy prices will quickly disappear, she writes in a note. She adds that headline inflation could climb back above 3% as early as December, meaning the persistence of inflationary trends is likely to be in focus for the ECB. "I expect Christine Lagarde to communicate this clearly on the occasion of the upcoming interest rate decision," Koehler-Geib says.

-Ed Frankl

Bank of Canada Rate Cuts May Be on Horizon

The Bank of Canada will remain on the sidelines at its December meeting, though the latest gross domestic product data is likely to entice the central bank's policy makers to maintain a tightening bias while continuing to acknowledge growth is weak and will remain so going into 2024, Manulife Investment Management director of macro strategy Dominique Lapointe predicts. Lapointe expects Canada's economy to continue weakening more than the central bank anticipates, keeping the possibility of interest rate cuts for March in play.

-Robb Stewart

Commentary Inflation's Cooldown Gives the Fed Leeway

The Federal Reserve is aiming for 2% inflation, so October's price gains are still too high, but the inflation predictions the Fed offered up just over two months ago now look almost certainly wide of the mark , Justin Lahart writes.

China's Economy Is Stuck in a Vicious Cycle

China probably can't fix its housing market without fixing the labor market and consumer confidence, but more exuberant consumers and a stronger labor market depend on a healthier housing sector , too, Nathaniel Taplin writes.

Executive Insights

Here is our weekly roundup of stories from across WSJ Pro that we think you'll find useful. They are unlocked for WSJ subscribers.

Retailers have reined in inventory ahead of the holiday season as they try to get a better handle on volatile consumer demand. A law designed to protect patients from surprise medical bills is denting the finances of some healthcare providers, with a few major ones filing for bankruptcy. Okta's disclosure that a data breach was far larger than previously thought highlights the difficulties companies face with SEC cyber rules set to go live in December . Listen to Dave Stangis, Apollo Global Management's first chief sustainability officer, discuss how he builds teams focused on sustainability . Basis Points The number of houses going under contract in the U.S. declined in October, more than reversing a rise in September. The National Association of Realtors said its Pending Home Sales Index fell 1.5% to 71.4 in October and September's indicator was downwardly revised to an increase of 1.0%. (Dow Jones Newswires) Business activity in the Chicago area expanded unexpectedly in November, marking its first expansion in over a year, as the Chicago Business Barometer surged from 44.0 in October to 55.8, MNI Indicators said. November's reading was well above the 46.0 expected by economists polled by The Wall Street Journal, and was the first time since August 2022 the index came in above 50, the level marking expansion rather than contraction. (DJN) A private gauge of China's factory activity unexpectedly swung to expansion in November, contrasting with the official index that signaled a contraction. Canada's economy contracted sharply in the latest quarter, weighed down by a drop in exports and the slowest buildup of inventories by businesses in two years. Mexico's seasonally adjusted unemployment rate declined to a record-low 2.6% in October from 2.7% in September, helped by a lower participation rate, statistics institute Inegi said. (DJN) Activity in Australia's manufacturing sector continues to slow as a broad economic slowdown takes hold, bringing with a reduction in inflation risks. Feedback Loop

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12-01-23 0715ET