Fed Policy Shift and Recession Expected in 2023; Esther George Looks Back on Her Career

Federal Reserve Policy Shift and Recession Expected in 2023; Esther George Looks Back on Fed Career By Michael Maloney

Good day. Big banks are predicting that an economic downturn is fast approaching. The main culprit is the Federal Reserve, bank economists said, as the U.S. central bank has been raising rates for months to try to slow the economy and curb inflation. The predictions come as the resilient job market showed signs of cooling off late last year. Meanwhile, the Fed is set to lose one of its more diligent skeptics when Esther George, president of the Kansas City Fed, retires this month.

Now on to today’s news and analysis.

Top News Big Banks Predict Recession, Fed Pivot in 2023

More than two-thirds of the economists at 23 large financial institutions that do business directly with the Federal Reserve are betting the U.S. will have a recession in 2023. Two others are predicting a recession in 2024. The firms, known as primary dealers, cite a number of red flags: Americans are spending down their pandemic savings. The housing market is in decline, and banks are tightening their lending standards.

Wall Street and Fed Flopped in Trying to Predict 2022 Esther George Challenged the Consensus Inside Fed During Tenure

Esther George, who will retire in January, dissented on 16 policy decisions in her 11 years as Kansas City Fed leader, or at half of the meetings of the rate-setting Federal Open Market Committee where she had a vote. Dissents are infrequent inside the collegial, consensus-driven central bank.

U.S. Economy Robust Job and Wage Growth Showed Signs of Cooling in Late 2022

The labor market proved to be a resilient stabilizer in 2022 for a U.S. economy facing the highest inflation in four decades. With the Federal Reserve having raised interest rates at the fastest pace since the early 1980s to fight inflation, however, the economy has slowed, and effects of that are filtering into hiring and wages .

Inflation Takes Biggest Bite From Middle-Income Households

Inflation is often called a tax on the poor, but this time it’s hit middle-income households the hardest. Many low-income households, benefiting from low unemployment rates, have found jobs and experienced wage increases that lifted income more than the cost of living. At the high end, many households have seen losses in stock and bond markets, but their income and savings were large enough that they were able to keep spending. Meanwhile, the middle has been in a vise.

Pay Gains Outpace State Minimum-Wage Boosts for Many Workers

More than half the states in the U.S. are set to lift their minimum wages in the months ahead, but the effects could be muted because many low-income workers already earn more than mandated due to strong labor demand. Wages have surged, particularly for low-wage workers, since the pandemic for several reasons, including widespread labor shortages.

Stay for Pay? Companies Offer Big Raises to Retain Workers Small Businesses Find Some Relief From Hiring Woes Wage Inequality May Be Starting to Reverse U.S. Jobless Claims Edge Higher Mortgage Rates Record Biggest Calendar-Year Increase in 2022

Mortgage rates rose in the last week of 2022, capping off a year of increases that brought 2021’s pandemic-fueled housing boom to a halt. The average rate on the standard 30-year fixed mortgage rose to 6.42%, according to a survey of lenders released Thursday by the mortgage-finance giant Freddie Mac. It was 3.11% at the same time the previous year.

Rising Interest Rates Imperil Remodeling Mania Housing Slump Set to Give Fed an Inflation-Fighting Assist Home Prices Fell in October for Fourth Straight Month The Dollar Rally Reverses-and Investors Expect Further Declines

The U.S. dollar’s rally in 2022 gave the world a reminder of the currency’s ability to inflict pain on the global economy. Investors are optimistic that the dollar’s strength has now run its course .

For Battered Bonds, Threats of Further Losses Linger Gold Outlook Is Buoyed by Hopes for a Less-Hawkish Fed in 2023 After Muni-Bond ‘Bloodbath,’ Expectations for 2023 Are Muted Key Developments Around the World Negative-Yielding Bonds Could Be Approaching Their Final Days

The worldwide sum of negative-yielding debt has almost completely evaporated , another effect of central bankers’ efforts to fight inflation around the world. It now stands at about $254 billion, down from more than $18.4 trillion two years ago, according to Bloomberg index data accessed via FactSet. This unusual debt piled up in recent years as central banks in Europe and Japan held their target interest rates below zero to try to stimulate economic growth.

Chinese Health Official Raises Covid Alarm Ahead of Lunar New Year

A top Chinese public-health official warned of widespread Covid-19 outbreaks across the country’s more vulnerable rural areas as millions of citizens prepare to travel home for the coming Lunar New Year holiday.

Russia’s Oil Ban Accelerates Shift in Global Energy Flows

Western sanctions on Russian fossil fuels are accelerating the shift in global energy flows, with China and India increasingly taking advantage of Russian oil discounts and Middle Eastern suppliers redirecting their crude to Europe.

Financial Regulation Roundup Bahamas Regulator Says It Seized $3.5 Billion in FTX Crypto Assets

Bahamas securities regulators said they seized digital assets valued at $3.5 billion from FTX’s local operation in mid-November as the cryptocurrency exchange spiraled toward collapse and confirmed they relied on FTX’s co-founders to make the transfers happen.

Sam Bankman-Fried Likely to Enter Plea of Not Guilty FTX Creditors Committee Brings On Jefferies, FTI as Financial Advisers FTX Customers Want Identities Redacted From Bankruptcy Filings Biden Administration Delays Tax Rules for Crypto Brokers So You Worked for FTX. Now What? Troubles at Alameda Began Well Before Crypto Crash

Before he was charged In December by federal prosecutors with fraud and other crimes, then arrested, Sam Bankman-Fried said in interviews that Alameda had prospered until it was tripped up in November by a crash in crypto prices. At that point, he said, he was no longer running Alameda, and by the time he figured out what had gone wrong, it was too late. But a closer look at Alameda shows it never was particularly good at investing, and Mr. Bankman-Fried continued to be deeply involved in it even after he stepped down as chief executive in October 2021, according to former employees.

When Officials Help Companies-and Their Own Financial Interests

Some U.S. officials worked on matters that affected companies they were invested in. One got a White House meeting for her husband’s industry.

Read the Full WSJ Investigation China Regulator Says Futu, Up Fintech Violated Laws

China’s securities regulator said two Nasdaq-listed online brokers violated its domestic laws by allowing customers on the mainland to make cross-border trades, stoking concerns that Chinese authorities aren’t finished with their crackdowns on private-sector companies.

Forward Guidance Tuesday (all times ET)

9:45 a.m.: U.S. manufacturing PMI for December

11:00 a.m.: Global manufacturing PMI for December

Wednesday

Time N/A: National Bank of Poland releases policy statement

4 a.m.: Eurozone services PMI for December

4:30 a.m.: Bank of England consumer credit for November

10 a.m.: U.S. Job Openings and Labor Turnover Survey for November; ISM report on business manufacturing PMI for December

2 p.m.: U.S. Federal Reserve releases Dec. 13-14 meeting minutes

Commentary Japan’s Banks Get a Shot in the Arm

A 0.25 percentage point tweak to Japan’s “yield curve control” interest-rate policy has lit a fire under the country’s financial stocks. A sustained shift in monetary policy could add further fuel to the rally, writes WSJ’s Jacky Wong . Shares of Japanese banks and insurers have surged since the Bank of Japan unexpectedly raised its effective cap on 10-year government bond yields to 0.5% from 0.25%. The BOJ has long intervened in the bond market to keep yields of that tenor within a specific trading range around zero. Japanese banks may not have been the best investments in the negative interest-rate era, but that could change quickly if Japan’s rate policy really is at a turning point.

Get Ready for the Richcession

Economic downturns are usually horrible for poor people, bad for the middle class and an inconvenience for the rich. But if the economy enters a recession in 2023, or even if it manages to narrowly evade one, it might be the well-heeled who take a bigger hit than usual. Call it the richcession, writes WSJ’s Justin Lahart .

Basis Points U.S. stocks inched lower in the final trading session of 2022, closing out a punishing year with further losses. 2022 proved to be one of the worst years for markets in recent history. Stocks and bond prices both fell, exceptional volatility roiled currencies and commodities, and cryptocurrency prices cratered as a series of crises gripped the emerging industry. Big Wall Street banks are cutting bonus pools sharply-including by as much as 40% at Goldman Sachs Group-to contend with a dealmaking slump, according to people familiar with the matter. Brazil’s trade surplus narrowed last month as exports fell and imports increased, the economy ministry said Monday. The country recorded a surplus of $4.78 billion in December, after a surplus of $6.68 billion in November. Brazilian exports fell to $26.65 billion last month, from $28.16 billion in November, while imports increased to $21.87 billion from $21.49 billion. (DJN) China’s manufacturing sector was in contractionary territory for a fifth straight month in December, according to a private gauge of activity, as waves of infections following Beijing’s abrupt reversal of its zero-Covid strategy last month disrupted businesses and dented demand. The China Caixin manufacturing purchasing managers index dropped to 49.0 in December from 49.4 in November, according to data released Tuesday by Caixin Media Co. and S&P Global. The 50 mark

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01-03-23 0715ET

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