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In today’s issue, Wall Street economists think the Fed could respond to the latest budget deal with more rate increases, higher oil prices are no longer a big drag on the U.S. economy, the Trump administration may ease the way for student-debt bankruptcies, eurozone business activity cools, free money didn’t stop Alaskans from working, and low wage gains in Australia weigh on the economy.
FISCAL POLICY AND MONETARY POLICY WALK INTO A BAR
Wall Street economists expect the Fed to start hiding the punch bowl a little sooner.
More forecasters say they now expect four Fed rate increases this year, up from three, because of the deal to raise federal government spending by $300 billion over the next two years, Nick Timiraos writes. They predict it could boost U.S. economic growth in 2018 and ’19 by roughly the same amount as the $1.5 trillion tax cut signed into law by President Donald Trump in December.
The Fed’s rate-setting decisions impact on the values of bonds, stocks, currencies, real estate and other assets. The policies often, though not always, influence borrowing costs for households and businesses.
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WHAT TO WATCH TODAY
U.S. existing-home sales for January are due out at 10 a.m. E.T. In 2017, they posted their best full year in more than a decade despite tight inventories and rising prices. Now, add to that rising mortgage rates: a 30-year fixed-rate loan last week rose to its highest level since spring 2014. Economists expect an annual rate of 5.61 million sales for January, a slight pickup from December’s pace.
The Federal Reserve releases minutes for its Jan. 30-31 meeting at 2 p.m. E.T. The gathering took place before the recent bout of market volatility but should offer some insight on the central bank’s view of inflation and possibly the recently passed tax overhaul.
The Minneapolis Fed’s Neel Kashkari speaks today at 8:15 a.m. E.T. and the Philadelphia Fed’s Patrick Harker at 9 a.m. E.T.
Bank of England Governor Mark Carney and other officials are scheduled to testify on inflation and the economic outlook at 9:15 am E.T.
Their appearance follows today’s U.K. employment data, which showed a rather mixed picture for the fourth quarter: the biggest increase in the number of unemployed since early 2013, continued job creation, and rising nominal but falling real wages. “If nothing else, today’s jobs report shows just how finely balanced the tight labour market has become,” said Indeed economist Tara Sinclair.
TOP STORIES
OIL AND THE U.S.: IT’S COMPLICATED
The effect of oil prices on the U.S. economy used to be straightforward: Higher was bad.
That was before the U.S. emerged as a leading oil producer and soon-to-be net energy exporter. More expensive oil is still a tax on consumers. But that tax is increasingly offset by the boost to energy investment, production and jobs. The U.S. business cycle is thus now tied in complex and surprising ways to the global oil market, Greg Ip writes.
Oil’s share of U.S. gross domestic product is only marginally above its three-decade average. But it plays an outsize role in year-to-year growth fluctuations because shale drillers respond so quickly to market conditions. Each new well drilled triggers related demand, from pumps and fabricated metal to truckers. The reverse is also true.
STUDY IN DEBT
Policy makers and economists have long warned that onerous student debt burdens can hold back the economy—graduates often feel they have to pay down massive loans before they can become prodigal American consumers, start families and buy houses.
Now, the Trump administration is considering allowing more Americans to erase student debt in bankruptcy, Josh Mitchell and Katy Stech Ferek report.
A decades-old federal law prevents Americans from discharging student debt in bankruptcy court unless they meet standards so stringent that few borrowers even try. But the Education Department said it would seek public input on whether the government should clarify when borrowers can cancel loans, a sign the government might ease its stance.
EUROZONE COOLS
Business activity in the eurozone cooled in February, a sign that economic growth may be starting to level off after a sharp acceleration in 2017, Paul Hannon reports. IHS Markit today said its composite Purchasing Managers Index for the eurozone hit a three-month low.
However, manufacturers and service providers across the currency area said they had raised their prices at a pace rarely seen since 2011, encouraging news for the European Central Bank as it scales back one of its stimulus programs.
MONEY FOR NOTHING
Giving Alaskans free money didn’t stop them from working.
The new research findings may help alleviate one concern about the idea of guaranteeing every citizen a government-paid basic income. Indeed, people having more money to spend appeared to stimulate the state’s economy, and offset the fact that some people may have been inclined not to work due to the payments, Ben Leubsdorf reports.
NOT SO WONDERFUL WAGES OF OZ
Everyone watches their pay closely, but Australians are becoming obsessed.
As household debt soars, consumers are increasingly reluctant to spend and inflation is showing scant sign of heating up—potentially leaving Australia outside the party of stronger global growth, James Glynn reports.
Right now, GDP growth is well below the pace flagged by bank governor Philip Lowe as a level consistent with driving inflation. That will likely leave Australia’s central bankers twiddling their thumbs well into 2019.
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
The decline in the U.S. labor-force participation rate is one of the economy’s great puzzles. “Our review of the evidence leads us to conclude that labor demand factors, in particular trade and the penetration of robots into the labor market, are the most important drivers,” the University of Maryland’s Katharine Abraham and Melissa Kearney write. Rising participation in disability programs, increases in minimum wage and the rising share of individuals with prison records also contribute. Video games? The jury is still out.
As the labor market tightens, employers are lowering educational requirements for new employees. “Workers with a high school diploma or less were pummeled during and after the Great Recession, but are now much more likely to have a job and to climb up the job-education ladder,” the Conference Board’s Gad Levanon and Frank Steemers say.
Don’t ever forget the supply side of supply and demand. KFC closed half of its 900 outlets in the U.K. due to a delivery snafu that has caused a chicken shortage, The New York Times reports. The shortage is a major logistical failure for KFC in one of its largest markets. The chain said its new delivery partner DHL was experiencing “a couple of teething problems.”
UP NEXT
U.S. jobless claims are out at 8:30 a.m. E.T. on Thursday. Economists expect 230,000, the same as the prior week.
The index of leading economic indicators for January, out at 10 a.m. E.T., is expected to rise 0.7%.
The Kansas City Fed’s manufacturing survey for February at 11 a.m. E.T. is expected to register at 15.0, a notch down from the prior month’s 16.
Fed governor Randal Quarles, the Dallas Fed’s Robert Kaplan, the New York Fed’s William Dudley, and the Atlanta Fed’s Raphael Bostic are scheduled to speak Thursday.
Japan’s core consumer-price index is expected to show a 0.8% rise in January from a year earlier, down from the 0.9% increase seen in December. Release time is 6:30 p.m. E.T.
from Real Time Economics http://ift.tt/2EGMLl0
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