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Good morning. Today we look at how the Fed might react to President Trump’s criticism, the steep cost of unwinding globalization, more evidence the U.S. economy is firing on all cylinders, and the most competitive economy in the world.
TRUMP ATTACKS THE FED (AGAIN)
President Trump again said the Federal Reserve is raising short-term interest rates too fast, calling the U.S. central bank “my biggest threat.” The president acknowledged Jerome Powell was his pick to lead the Fed but demurred when asked directly if the chairman would be out of a job if his decisions prove misguided, Kate Davidson reports. “I put him there, and maybe it’s right, maybe it’s wrong,” he said in an interview with the Fox Business Network. “I put a couple of other people there that I’m not so happy with too.”
CLOSE CALL
Mr. Trump’s attacks on the Fed complicate a series of already challenging decisions facing the central bank. Fed officials say they are gradually raising interest rates to prevent the economy from overheating, and political pressure won’t influence their policy actions. But Mr. Trump’s rhetoric could cut two ways on any close policy calls, Nick Timiraos reports.
1.) Fed officials could swing in favor of raising rates to show they are not swayed by White House pressure and to bolster their credibility with markets.
2.) Fed officials could become more reluctant to raise rates if they believe sustained attacks from the White House will tarnish their credibility and effectiveness.
Do you think President Trump’s criticism of the Fed will damage the institution and perhaps ultimately the economy? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest news. (Responses may be quoted in this newsletter.)
WHAT TO WATCH TODAY
U.S. housing starts for September, out at 8:30 a.m. ET, are expected to slip to an annual pace of 1.22 million. Building permits are expected to rise to 1.27 million.
European Union leaders meet to review Brexit negotiations. European Council President Donald Tusk is scheduled to meet with U.K. Prime Minister Theresa May 11:45 a.m. ET, ahead of her address to European leaders.
Fed governor Lael Brainard speaks on fintech and financial inclusion at 12:10 p.m. ET.
Minutes from the Federal Reserve’s Sept. 25-26 meeting are out at 2 p.m. ET. Here’s what to watch.
The Bank of Japan’s Haruhiko Kuroda speaks at a quarterly meeting of regional branch managers 8:30 p.m. ET.
The U.S. Treasury’s semiannual currency report is due out this week.
TOP STORIES
COST OF UNDOING GLOBALIZATION
There’s a lot at stake during Wednesday’s Brexit summit and throughout Brexit negotiations. Never in the last 70 years has a major advanced economy left a free-trade area. And even without a single tariff going up, the U.K.’s divorce from the European Union has clearly extracted a price, Greg Ip writes. This can be seen by comparing Britain to a basket of peer economies whose performance closely tracked it until the vote to leave the EU in June 2016. Actual British output is now 2.1% below this counterfactual.
To be sure, there will be Brexit benefits: Some production will move to the U.K. to avoid British tariffs, and the British will have more control over immigration and their laws. But a 2%-plus hit to their standard of living is not a rounding error. It should remind everyone that turning back globalization comes with a price.
INDUSTRIAL EXPANSION
U.S. manufacturers increased their capacity for the 16th straight month in September, fresh evidence that a strengthening economy is helping to propel a U.S. industrial rebound. The latest data suggest investment in U.S. manufacturing has been increasing at a steady pace over the past three years. In June it passed its 2008 peak, Sarah Chaney reports.
The Federal Reserve’s manufacturing capacity gauge measures how much production plants could achieve if running at full steam. It acts as a proxy for how much they are expanding their plants and productivity.
IT’S A GOOD TIME TO LOOK FOR A JOB
American employers had more than seven million unfilled jobs for the first time on record this summer, reflecting a historically tight labor market that is causing some businesses to struggle to find workers. Available jobs in August outnumbered jobless Americans actively looking for work by 902,000, the largest such gap on record, Eric Morath reports.
The latest data underscores an increasing need for workers at a time when broader economic output is accelerating, beginning a shift in bargaining power to employees and appearing to support modestly rising wages, especially for lower-earning workers.
WHAT SELLOFF?
A raft of upbeat economic data helped U.S. stocks. The Dow Jones Industrial Average jumped more than 500 points, and the big technology stocks that had been bruised when the market tumbled last week fared even better. A solid U.S. economy and healthy corporate profits have been ballasts for a nine-year-old bull market, Akane Otani reports. When doubts have flared, both have been there to hold stocks up.
Global stocks advanced Wednesday, as the U.S. rally spread across Asia and continued in Europe.
USA! USA!
The U.S. is back on top as the most competitive country in the world, regaining the No. 1 spot for the first time since the financial crisis stalled output and triggered a global economic slowdown. Singapore, Germany, Switzerland and Japan rounded out the top five in the World Economic Forum’s global index, Joanna Sugden reports. “Economic recovery is well underway, with the global economy projected to grow almost 4% in 2018 and 2019,” said the report.
Room for improvement: “Although the [U.S.’s] institutional framework remains very conducive, there are indications of a weakening social fabric and worsening security situation—the United States has a homicide rate five times the average for advanced economies—as well as relatively low checks and balances, judicial independence, and transparency.”
QUOTE OF THE DAY
We are working toward stagflation as characterized by a weaker economy and inflation. During the 1980s, we had an obvious occurrence of that. The Federal Reserve can put a clamp on it as [then Federal Reserve Chairman Paul] Volcker did. It lasted for two to three years, and it brought it to a halt. I don’t think it will be terribly different [this time.] —Former Fed Chairman Alan Greenspan, speaking with Barron’s
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
The White House released a report saying regulatory reform efforts saved American families and businesses $23 billion during the 2018 fiscal year. Federal Agencies eliminated 176 outdated, unnecessary or duplicative rules while issuing only 14 significant actions, the report said. “We aim for common-sense regulatory policy that benefits all Americans,” said Office of Information and Regulatory Affairs Administrator Neomi Rao.
Of course, there are certainly benefits to some regulations as well. A National Bureau of Economic Research working paper shows that EPA air-pollution regulations led to a reduction in dementia. “We conclude that regulation of air pollution has greater benefits than previously known, in part because dementia impairs financial decision making. We estimate that the dementia-related benefits of the EPA’s county nonattainment designations exceeded $150 billion,” Kelly Bishop, Jonathan Ketcham and Nicolai Kuminoff write. (Bonus for the paper’s title: “Hazed and Confused.”)
UP NEXT: THURSDAY
U.S. jobless claims, out at 8:30 a.m. ET, are expected to drop to 210,000 from 214,000 the prior week.
The Philadelphia Fed manufacturing survey for October, out at 8:30 a.m. ET, is expected to slip to 20 from 22.9 the prior month.
The Conference Board’s leading economic index for September, out at 10 a.m. ET, is expected to advance 0.5%.
The St. Louis Fed’s James Bullard speaks on the U.S. economy and monetary policy at 9:05 a.m. ET, and Fed Vice Chairman for Supervision Randal Quarles speaks on the economic outlook at 12:15 p.m. ET.
Japan’s consumer-price index for September is out at 7:30 p.m. ET.
China’s gross domestic product for the third quarter is out at 10 p.m. ET.
from Real Time Economics https://ift.tt/2RVW97d
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