Potential shocks to the US economy are increasing given the prospect of longer interest rates; BOJ Governor Says It’s Important to Promote Sustainable Inflation – September 25, 2023, 7:20am EDT

Potential shocks to the US economy are increasing given the prospect of longer interest rates; BOJ governor says it’s important to promote sustainable inflation By James Christie

Good day. The U.S. economy faces some dangerous difficulties in the near future, including labor tensions exacerbated by strikes against Detroit automakers and a possible federal government shutdown. Add to that rising oil prices, the resumption of student loan payments and high interest rates imposed by the Federal Reserve to combat inflation, and you’re at risk of disruption to business, writes David Harrison of the Wall Street Journal. As for interest rates, Fed Governor Michelle Bowman said Friday that they will likely need to be raised further, citing concerns about inflation. Meanwhile, Bank of Japan Governor Kazuo Ueda said on Monday he had seen some positive signs of sustained inflation but was not yet ready to lift monetary easing. “Japan’s economy has entered a critical period in terms of realizing a virtuous circle between wages and prices, and at this stage it is important to carefully nurture the seeds of change in the economy,” Ueda told business leaders in Osaka. The BOJ’s base case assumes the virtuous circle would deepen as the main factor driving up prices is expected to shift to higher wages due to higher import costs, he said.

Now on to today’s news and analysis.

Top News: The US economy could withstand one shock, but four at once?

The U.S. economy has endured some difficult currents this year, but now faces a convergence of dangers that threaten to create further turmoil.

Potential challenges this fall include a broader autoworker strike, a prolonged government shutdown, the resumption of student loan payments and rising oil prices. Each one alone wouldn’t cause too much damage. Together, they could be more damaging, especially when the economy is already slowing due to high interest rates.

Fed officials say further rate hikes are still on the table

Several senior Federal Reserve officials said Friday that the U.S. central bank may not be done raising interest rates and that rates are likely to stay longer and higher than previous forecasts suggested. Although there are promising signs that inflation continues to slow, Boston Fed President Susan Collins said, “I continue to hear about the challenges that households and businesses face when inflation is too high.” At the same time, Collins said , the Fed needs to show patience before raising interest rates again so that it can sift through the economic data and separate “the signal from the noise.” San Francisco Fed President Mary Daly reiterated Collins’ call for patience at an event in Arizona, but added: “I’m not at a point yet where I can declare victory,” another Fed official said Gov. Michelle Bowman was more hawkish, pointing to a possible split in the Fed’s inner circle. She said interest rates would likely need to rise further to curb inflation. (market observation)

Wall Street is hoping $100 oil isn’t what it once was

The rise in oil prices has raised new fears in Washington and on Wall Street that energy, which the Fed largely excludes in its policy calculations, could derail central bankers’ attempt to soft-land the fuel-hungry American economy.

Longer higher interest rates threaten fintech

The Federal Reserve’s message that higher interest rates are here to stay isn’t sitting well with fintech companies. Interest rate hikes intended to slow the economy are putting pressure on consumers – particularly those on the margins, who are often more likely to go to a fintech lender rather than a bank. Additionally, companies’ own borrowing costs are rising as general interest rates rise, squeezing their margins and threatening to drive smaller companies out of business. Read more .

BOJ Governor Ueda says it is important to promote sustainable inflation

Speculation is growing about the Bank of Japan changing its monetary policy amid rising inflation. Governor Kazuo Ueda said he had seen some positive signs of sustained inflation but was not ready to let up [https://www.wsj.com/articles/boj-gov-ueda-says-important-to-nurture-sustainable-inflation-b4df63ca#::text=“Japan’s%20economy%20has%20entered%20a, told%20business%20leaders%20in%20Osaka.] no monetary policy easing yet.

US Economy Why America has a long-term jobs crisis, in six charts

The U.S. economy has been running improbably for nearly two years with an unemployment rate below 4%. That’s not just a holdover from the pandemic shortages, when employers laid off millions of people and then struggled to find workers when demand rebounded, economists and business leaders say. It is a storm that has been brewing for decades and has recently flared up in the form of worker strikes. The labor shortage is becoming a long-term labor crisis that could drive up wages and sales.

Why are tech stocks in the red? Bond yields have risen

The summer decline in U.S. Treasury prices has intensified since Labor Day, rattling some of the hottest parts of the stock market. 10-year bond yields have reached a 16-year high of around 4.5%.

Hollywood authors reach agreement with studios and streamers

Hollywood writers, studios and streamers have reached a tentative agreement that would end a months-long strike. The deal includes higher licensing fees, mandatory staffing for TV “writers’ rooms” and protections around the use of AI.

The rebound in immigration benefits the economy

The U.S. economy’s prospects for a soft landing are being bolstered by an unexpected source: a historic surge in immigration after the flow of foreign-born workers fell to a minimum in the years leading up to and including the pandemic.

Even a booming economy can’t save Atlanta’s office market

Atlanta was one of the largest boomtowns in the Sunbelt. But you’d never know that given the turmoil in commercial real estate, which shows that even cities with thriving economies can’t escape the collapse of the office sector.

Important developments around the world Europeans love green politics – until the bill comes due

For years, Europe has been at the forefront of global efforts to curb CO2 emissions and slow climate change. An overwhelming majority of Europeans say they agree. But voters may like the idea more than the reality.

China’s Evergrande scraps $35 billion restructuring plan

The deepening downturn in China’s real estate markets has led to China Evergrande abandoning a $35 billion debt restructuring plan intended to ensure the real estate developer’s survival, a sign that China’s real estate crisis could get even worse.

Ford’s auto workers in Canada support labor deal with 15% wage increase

The union representing workers at the Ford Motor auto plant in Canada said Sunday that it had secured double-digit wage increases and improved pensions in its collective bargaining agreement with the automaker.

Financial Regulation Summary The hedge fund that made a deadly bet against Lina Khan

Federal Trade Commission Chairwoman Lina Khan’s efforts to protect Main Street are unintentionally delivering outsized profits to Pentwater Capital Management and other major hedge funds betting on merger deals.

CFTC rejects bid to launch political election betting market

Regulators on Friday banned a financial startup from launching a political betting market, fearing it would fundamentally distort elections by offering citizens a financial incentive to vote for certain candidates.

Courts could kill Plan B for student loan forgiveness

President Biden says he hasn’t given up on large-scale student loan forgiveness. But the government’s latest debt relief plan is likely to face legal challenges similar to those that scuttled the original effort.

Big shareholder in China? Don’t try to sell

Chinese regulators have taken a novel approach to shore up the country’s struggling stock market, hurt by a weak economy and an outflow of foreign money, by banning many companies’ biggest shareholders from selling.

Forward Guidance Monday (all times ET)

8:30 a.m.: Chicago Fed National Activity Index

9 a.m.: ECB’s Lagarde speaks at the hearing of the European Parliament’s Committee on Economic and Monetary Affairs; Schnabel from the ECB speaks at the Johann Heinrich von Thünen Lecture in Regensburg, Germany

10:30 a.m.: Dallas Fed Manufacturing Survey

6 p.m.: Kashkari of the Minneapolis Fed speaks at the Wharton Central Banking Club event

Tuesday

3 a.m.: ECB’s Lane speaks at the ECB, Banque de France and Center for Economic Policy Research conference in Paris

8:30 a.m.: Philadelphia Fed non-manufacturing survey

9 a.m.: S&P CoreLogic Case-Shiller property price index for July

10 a.m.: US new home sales for August; The Conference Board Consumer Confidence Index for September; Richmond Fed Manufacturing Activity Survey

1:30 p.m.: Fed Chairman Bowman speaks at FedCommunities event “Keys to Opportunity in the Housing Market”

The Canadian Retail Sales Rear View Awards will take place in October

Latest Canadian retail sales continue to suggest the Bank of Canada will keep its key interest rate at 5% at next month’s meeting, says Desjardins economist Maëlle Boulais Préseault. Weakness in auto sales helped retail sales rise 0.3% month-on-month in July, possibly related to the British Columbia port strike, but the flash estimate for August suggests sales fell sharply in volume terms. The economist says wildfires may have slowed sales somewhat but are unlikely to account for all of the weakness. Desjardins now forecasts that Canada’s real gross domestic product in the third quarter was almost unchanged on an annual basis compared to the previous quarter, well below the Bank of Canada’s forecast of 1.5% annualized.

-Robb Stewart

Comment The Hedge Fund Crisis That Saved Your Stock Portfolio

The collapse of Long-Term Capital Management 25 years ago led to a hard-to-break habit – the “Fed put,” writes Justin Lahart. Fed officials coordinated an unprecedented rescue of LTCM and cut interest rates to support a falling stock market.

25 years after LTCM, emerging markets are burning investors

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09/25/23 0719ET