Will the Fed Keep Cutting in 2025?; Bank of Japan Rate Decision Looks Like a Close Call By Vicky Ge Huang
Federal Reserve officials began cutting rates in September with a big half-point cut. They cut again last month, by a quarter point. A cut this week would mark the third in a row.
Over the past year, officials have slowly raised their estimates of where rates will settle out, and they could continue to do so in projections this week.
Some have begun to signal that they would need to see more concrete evidence that inflation is improving or that the labor market is decaying before continuing to reduce borrowing costs.
Recent Fed communication has suggested officials will deliver a much more cautious tone about further cuts in quarterly rate projections and comments from Fed Chair Jerome Powell at a news conference on Wednesday.
Meanwhile, The Wall Street Journal's Nick Timiraos spoke with former Fed Vice Chairman Richard Clarida about how much influence Donald Trump will have over the Fed as president.
And in Asia, expectations that the Bank of Japan is close to raising its policy rate are swirling ahead of the conclusion of its closely watched meeting on Thursday.
Top News Will the Fed Keep Cutting in 2025?
Investors see an interest-rate cut by the Federal Reserve this week as all but certain. Inside the central bank, the case for continued reductions will be less clear-cut if the economy continues to chug along.
Fed officials have signaled recently that a rate cut this week could conclude the first of a two-step phase of lowering rates. In that first interval, officials had a relatively low bar for cutting rates because they had held borrowing costs at such a high level. They had also waited several extra months to gain confidence that inflation was closer to their goal-and heading lower.
What Trump's Second Presidency Means for the Federal Reserve
Donald Trump wants to have a greater say on interest rates. WSJ's Nick Timiraos and former Federal Reserve Vice Chairman Richard Clarida discuss how much influence he will have over the Fed as president.
BOJ Rate Decision Looks Like a Close Call as Uncertainties Rise
Recent inflation and wage data suggest conditions are conducive for a hike , backing the case for the BOJ to raise its policy rate to 0.50% from 0.25%. But the bank may hold fire if some policymakers opt to wait for more clarity about the outlook for the U.S. economy, the people said.
Bank of Canada Likely to Probe How it Measures CPI
The pending review of the Bank of Canada's inflation-targeting framework is likely to focus on whether officials are measuring inflation properly and whether the 2% target remains appropriate, the central bank's governor, Tiff Macklem, said Monday. (Dow Jones Newswires)
U.S. Economy Retail Sales Are a Litmus Test for Holiday Spending
November's retail sales report will be an early litmus test for the strength of consumer spending this holiday season-and will help the Federal Reserve decide whether to make a rate cut later this week. The retail sales report, out Tuesday morning, should do little to change that. Economists expect sales rose by 0.5% in November from the prior month, according to FactSet consensus estimates-a figure that would point to solid spending levels without spurring concerns the economy is overheating. (Barron's)
U.S. Activity Accelerates Again, Driven by Services Strength
U.S. economic activity picked up the pace again this month as services businesses prepare with greater confidence for a new government in the new year, according to surveys published Monday.
Financial Regulation Shadow Banks Are Catching Up With Actual Banks
A record 36% of lending last year was extended by shadow banks, according to a new report from the Financial Stability Board, as asset growth far outpaced that at traditional lenders. The annual breakdown by the FSB, an international body that monitors global finance, illustrates the rapid rise of nonbank lenders such as insurers, hedge funds and private credit funds.
Ripple Launches Dollar-Backed Stablecoin
Crypto firm Ripple Labs announced on Monday the launch of a U.S. dollar-pegged stablecoin after securing approval from the New York State Department of Financial Services last week.
8:30 a.m.: New Residential Construction - Housing Starts and Building Permits
Research U.S. Activity Data Indicate Fed May Have Room to Keep Cutting
Fresh U.S. activity data indicate that the Fed could find space to continue to cut interest rates, Pantheon's Oliver Allen writes. Composite and services PMIs rose while manufacturing fell. "December's PMI brought clearer signs of a post-election boost to business confidence, which likely will provide some support to growth in the coming months," Allen says. He notes that "the output prices index of the services survey dipped...indicating a further slowdown in underlying services inflation ahead." Although the trend looks benign, "the tariffs and other potentially inflationary policies favored by the incoming administration threaten to make the Fed's life much more difficult," Allen says. - Paulo Tevisani
Basis Points Canada's Finance Minister Chrystia Freeland quit the Liberal government cabinet Monday, a surprise departure that casts further doubts about how long Prime Minister Justin Trudeau can hold on to his job given the government's deep unpopularity. Canada's fall economic statement indicated the Liberal government recorded a budget deficit in the 2023-24 fiscal year of 61.9 billion Canadian dollars, or the equivalent of $43.5 billion. (Dow Jones Newswires) Economists surveyed this month by the Bank of Mexico raise their median GDP growth estimate for 2024 to 1.6% from 1.5% in November, while lowering the 2025 forecast to 1.1% from 1.2%. Inflation forecasts are little changed at 4.37% for this year and 3.8% in 2025. (DJN) The housing affordability crisis that has frustrated young Americans for a decade has now taken hold in many big cities in Europe and beyond. Wage growth picked up pace again in the U.K., likely underpinning the Bank of England's reluctance to cut its key interest rate as rapidly as its European peers. Ireland's economy is particularly vulnerable to changes in U.S. trade and tax policy, with the government at risk of running an unplanned budget deficit if U.S. businesses move some of their intellectual property back home, the Central Bank of Ireland said Tuesday. Embattled German Chancellor Olaf Scholz lost a confidence vote on Monday, the first step in a sequence of events that will lead to early elections next year-and the latest symptom of mounting political instability in Europe. Business confidence in Germany fell this month as the government of Chancellor Olaf Scholz broke apart, paving the way for fresh elections in the new year. The New Zealand government said it expects the economy to exit years of recession in early 2025 supported by significant reductions in interest rates. Fitch Ratings said Chinese authorities' announcement on a shift in monetary policy reinforces its expectation of additional policy support for the economy in 2025. (DJN) The Bank of Thailand is likely to hold its policy rate steady at 2.25% on Wednesday. Seven of nine economists polled by The Wall Street Journal forecast that the BOT will stand pat, while two project a cut to 2.00%. (DJN) Taiwan's central bank is expected to leave its benchmark policy rate unchanged on Thursday, according to a poll of six analysts by The Wall Street Journal. (DJN) About Us
WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ's global team of reporters and editors. This newsletter was compiled by markets reporter Vicky Ge Huang in New York. Send your tips, suggestions and feedback to [[email protected]].
This article is a text version of a Wall Street Journal newsletter published earlier today.