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Waiting for signs of another Federal Reserve pivot? We hope you weren’t holding your breath.
Fed officials still saw a need for further rate increases this year to help cool inflation, though they expect at some point to slow down the pace of rate hikes, according to minutes from their July policy meeting released Wednesday. But it’s not clear how high they’ll need to lift rates, and when they get there, they aren’t likely to dial back soon, per our Victoria Guida.
A few other takeaways —
A broader view: The minutes also suggested that Fed officials have started to look beyond scorching inflation as they assess the path of future rates, said Oxford Economics’ Kathy Bostjancic.
They emphasized the noticeable slowdown in economic activity during the second quarter, and also reflected a more balanced view among Fed officials about the risks surrounding monetary policy — that is, that inflation could become entrenched, or that officials could tighten too much.
Of the former, the minutes said: “If this risk materialized, it would complicate the task of returning inflation to 2 percent and could raise substantially the economic costs of doing so.”
On the other hand, “many participants” noted that “there was also a risk that the Committee could tighten the stance of policy by more than necessary to restore price stability.’
Oil skepticism: Fed officials aren’t sleeping on oil prices. The minutes noted that while recent declines in gasoline prices would help lower headline inflation in the short term, “declines in the prices of oil and some other commodities could not be relied on as providing a basis for sustained lower inflation, as these prices could quickly rebound.”
Worth remembering — Fed Chair Jay Powell has breakfast nearly every Thursday with someone who is extremely worried about the possibility of a year-end oil-price spike: Treasury Secretary Janet Yellen. Yellen has been trying to win global support for a price cap on Russian oil that she says would help avert a disastrous supply shock when new European sanctions take effect in December.
The Fed minutes didn’t mention the new sanctions or the uncertainty around a cap. But it has surely come up in those weekly chats.
Staff forecasts: Over the past year, the Fed staff has been using the minutes to publicize their inflation forecasts, something they hadn’t done before, said LH Meyer economist Derek Tang.
After repeatedly revising those forecasts up since September, the staff revised down their inflation forecast for the first time at the July meeting. They saw inflation, as measured by the personal consumption expenditures index, reaching 4.8 percent by the end of 2022, and 2.2 percent in 2023 — down from 5 percent and 2.4 percent, respectively, in June.
One important caveat: It’s not clear what federal funds rate underlies that forecast, Tang noted. Nevertheless, “the staff forecast is what people like Powell and [Vice Chair Lael] Brainard depend on.”
IT’S THURSDAY — You see that on the horizon? It’s the weekend. You’re almost there. And send us a tip (or story idea, or feedback) at [email protected], [email protected] or [email protected].
Philadelphia Fed manufacturing data released at 8:30 a.m. … Existing home sales data released at 10 a.m. … SEC holds a closed session meeting at 2 p.m. … Kansas City Fed President Esther George speaks at 1:20 p.m. … Minneapolis Fed President Neel Kashkari speaks at 1:45 p.m.
BATTLE OVER PROXY ADVISERS ESCALATES — Our Declan Harty: “A fight over the powerful firms that advise shareholders on corporate governance issues is escalating in Washington. Some of the country’s largest business groups are challenging the Securities and Exchange Commission’s decision last month to undo Trump-era restrictions on the proxy advisory firms that make recommendations to investors on how to vote on often contentious proposals put up at annual corporate meetings.
YELLEN FIRES STARTING GUN FOR IRS OVERHAUL — NYT’s Alan Rappeport: “A day after President Biden signed into law a sweeping climate, health and tax bill that included $80 billion in funding for the Internal Revenue Service, Treasury Secretary Janet L. Yellen directed her agency to develop an operational plan for deploying the funds, kick-starting an overhaul of the beleaguered tax collector. In a memo to the I.R.S. commissioner, Charles P. Rettig, Ms. Yellen mapped out her top priorities, including clearing a backlog of unprocessed tax returns, improving taxpayer services, revamping antiquated technology and hiring thousands of new employees.”
— Also, former Biden Treasury official Kimberly Clausing writes of the global minimum tax deal in Foreign Affairs: “Unfortunately, although U.S. leadership was pivotal in forging this agreement, U.S. lawmakers have come up short.” But she says there’s still life yet for the deal.
SPAC ACTIVITY DEFLATES — WSJ’s Aziz Sunderji and Amrith Ramkumar: “SPACs were one of the hottest investments on Wall Street early last year, booming alongside cryptocurrencies, meme stocks and other speculative trades as an easy way for buzzy startups to raise money and go public. Fast forward 18 months and much of the air is out of the bubble. Shares of companies that went public this way have tanked.”
A PENNY SAVED IS A PENNY SPENT ELSEWHERE — WSJ’s Harriet Torry and Austen Hufford: “U.S. consumers continued opening their wallets last month, shifting savings from falling gasoline prices to purchases of everyday goods as they weathered high inflation and a slowing economy. Overall retail sales—a measure of spending at stores, online and in restaurants—were flat in July compared with the prior month’s revised 0.8% increase, the Commerce Department said Wednesday.”
UNCERTAIN LABOR SUPPLY — Bloomberg’s Catarina Saraiva: “Federal Reserve Governor Michelle Bowman said demand for workers remains strong but there may be constraints in the supply of available people — particularly women — for a variety of reasons. ‘Although we still have about 4 million people out of the prepandemic workforce, we continue to see strong employment gains and low unemployment rates — the kind of labor market that historically has pulled in more workers,’ Bowman said Wednesday.”
THE INFLATION BONUS — WaPo’s Lauren Kaori Gurley: “Home improvement retailer Lowe’s is offering hourly employees $55 million in bonuses to help offset the sting of inflation, which has remained near 40-year highs all summer, the company announced on an earnings call on Wednesday.”
FDIC — Citing whistleblower reports, Sen. Pat Toomey said he’s investigating claims that the FDIC has blocked banks from doing business with crypto businesses. “Personnel in the FDIC’s Washington, D.C., headquarters are urging FDIC regional offices to send letters to multiple banks requesting that they refrain from expanding relationships with crypto-related companies, without providing any legal basis for sending such letters,” the Pennsylvania Republican wrote in an Aug. 16 letter to the FDIC’s Director and Acting Chairman Martin Gruenberg.
INDUSTRY TOWN — From Variety’s Cynthia Littleton: “Yet — simply put — what is Web3? And perhaps just as important, why did seemingly everyone in entertainment, finance, media and law start talking about it at cocktail parties and mixers as those trappings of pre-pandemic life came back into play? The answer is the only thing that is clear about the world of Web3: Money.”
DON’T NEED NO BILL — Legal scholars Howell Jackson, Timothy Massad (the former CFTC chairman) and Dan Awrey are out with a new regulatory framework for stablecoins this morning that they say could be pursued without new legislation. The framework, which would require buy-in from banking and market regulators, would involve the Comptroller of the Currency authorizing a national trust bank charter – operating under a bank – to issue stablecoins through a dedicated trust vehicle.
“Under our proposal, the Comptroller would adopt standards limiting the investment of stablecoin reserves to high quality liquid assets and address redemptions and operational resilience, among other matters,” they wrote in a post published by The Brookings Institution. “While our framework would not be mandatory, our approach would provide substantial benefits to stablecoin sponsors, thus increasing the likelihood that they would opt into the framework.”
David Brown is now director of policy at the Small Business Administration. He most recently was deputy associate administrator of the SBA.
The number of people with at least $1 million in their Fidelity 401(k) accounts plunged 29 percent in the second quarter to 294,000, data from the company shows. — Bloomberg’s Suzanne Woolley
Anxiety is simmering in Wall Street’s kinder era for incomers, amid lackluster work, plummeting global dealmaking and the prospect of shrinking bonuses and layoffs. — Bloomberg’s Diana Li, Shubham Saharan and Max Abelson
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