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The Fed’s decision to lift short-term rates is reverberating through markets, a sign investors are uneasy with the central bank’s plans for 2019.
Good morning. Jeff Sparshott here to take you through key developments in the global economy. We’ll also look at a sagging housing market, emerging risks to the economy, preparations for a no-deal Brexit, workers ‘ghosting’ on recruiters, and why the ECB doesn’t have to follow the Fed. Let us know what you think by replying to this email.
RIGHT SAID FED
The data says the economy is doing great; the markets say it could be headed for a recession. The Federal Reserve’s decision to raise interest rates and signal more coming shows Chairman Jerome Powell cares much more about the data, Greg Ip writes. That’s the same playbook his predecessors followed—one where the markets are just another input.
Bottom line: Yes, the economy is going to slow in 2019. But the Fed expects and needs that. Otherwise, unemployment will drop close to 3% or lower—well into overheating territory. Of course, there are still plenty of risks for both the economy and Mr. Powell personally. Expect President Trump to blame the chairman if there is a recession.
MARKETS DISAPPOINTED
Markets certainly didn’t like Mr. Powell’s performance. The Dow Jones Industrial Average, S&P 500, Asian and European stocks fell even though the Fed did essentially what everyone expected: raise rates by a quarter point, temper its policy statement to acknowledge risks and lower its median projection to two rate increases next year, rather than three.
The WSJ’s Justin Lahart writes: Investors are essentially asking the Fed to focus on market turmoil and overseas growth worries and ignore the two things it is mandated to follow, U.S. inflation and employment. Christmas might be coming, but that is a pony that investors aren’t going to get.
Bonus: Oil prices hit a 15-month low Thursday.
WHAT TO WATCH TODAY
The Bank of England releases a policy statement. (7 a.m. ET)
U.S. jobless claims are expected to increase to 215,000 from 206,000 a week earlier. (8:30 a.m. ET)
The Philadelphia Fed manufacturing survey for December is expected to rise to 15.0 from 12.9 a month earlier. (8:30 a.m. ET)
The Conference Board’s leading economic index for November is expected be unchanged from the prior month. (10 a.m. ET)
Japan releases its consumer-price index for November. (6:30 p.m. ET)
TOP STORIES
GOOD TIME TO BUY A HOUSE?
The U.S. housing market is sputtering. Existing-home sales posted their largest annual decline in more than seven years. The latest data suggest some buyers might be testing the waters but overall conditions are far from robust, Sarah Chaney and Laura Kusisto report. This year’s slowdown has stemmed from a shortage of homes for sale, climbing prices and rising mortgage rates.
RISKY BUSINESS
So what are the big risks next year? Financial regulators are worried about cybersecurity, a “no deal” British exit from the European Union and loose underwriting standards for nonfinancial corporate borrowing. Companies might not be able to avoid a “wave of defaults in the event of a recession or a similarly large shock to business earnings,” the Financial Stability Oversight Council said in an annual report.
SPEAKING OF BREXIT
Britain and the European Union are stepping up planning for hard Brexit. The European Commission said it would put in place temporary arrangements in economic sectors where a no-deal Brexit would cause a serious impact in the EU. The U.K. government is putting 3,500 military personnel on standby to assist government agencies in the event of any no-deal disruption. A hard exit could jam ports, threatening manufacturing supply chains and food and medicine supplies, Laurence Norman and Jason Douglas report.
British Health Secretary Matt Hancock said Tuesday he had become the “largest buyer of fridges in the world” as the government set plans for emergency medicine storage.
GHOST IN THE MACHINE
Head hunters are having a hard time. Once overrun with qualified job applications, recruiters find their standing has shifted in the booming economy. Instead of vying for their attention, would-be workers blow off recruiters’ calls, ignore their emails and ghost on interviews and employers, Chip Cutter reports.
The headaches can have financial consequences. Chris Dove Jr., a recruiter in San Antonio, lost $9,000 in commissions after three candidates failed to show up for their first days of work as diesel technicians. All three completed multiple interviews, got hired, filled out HR paperwork and then disappeared.
DOVES STILL FLY IN EUROPE
Europe shows no sign of moving aggressively toward tighter monetary policy, suggesting further divergence between the Fed and European Central Bank in 2019. An ECB study said the eurozone’s so-called neutral interest rate, which neither spurs nor slows economic growth, is probably below zero in the eurozone and could fall further. That suggests the ECB will only need to modestly raise short-term interest rates, currently set at minus 0.4%, to keep inflation in check, writes Tom Fairless.
CORRECTIONS & AMPLIFICATIONS
A chart in Wednesday afternoon’s RTE newsletter showed inaccurate Fed rate projections. Here’s a corrected version.
QUOTE OF THE DAY
Most of the issues that we are dealing with today are induced by bad political choices. I mean, making a bad decision about a new tax, creating tremendously difficult situation with Brexit, the immigration crisis in Germany, the mercantilism and state owned enterprise initiatives in China, the tariffs that the United States put in unilaterally. So you just go down the list, and they’re all things that have created macroeconomic slowdown.—Federal Express CEO Frederick Smith, on an earnings call
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
It’s not just markets skeptical of the Fed’s latest move. “Sometime in the first half of the next decade, it intends to slow the economy enough to increase unemployment by about 1.4 million people—all in the name of reducing inflation by around a tenth of one percent. I can’t help but wonder whether the costs will outweigh the benefits,” former Minneapolis Fed President Narayana Kocherlakota writes at Bloomberg Opinion.
Big infrastructure projects often look brilliant on paper but are botched on the ground. “Crossrail was supposed to be a state of the art scheme, transforming travel in London by adding more than 10 per cent to the capacity of the network. Delivered by a commercially savvy team insulated from politicians’ meddling, it would show that private-sector discipline could deliver public-sector projects on time and to cost. Instead it has ended in humiliation for its leaders, and embarrassment for its political sponsors,” Jonathan Ford and Gill Plimmer write in The Financial Times.
UP NEXT: FRIDAY
U.S. durable goods orders for November are expected to rise 1.3% from the prior month. (8:30 a.m. ET)
U.S. gross domestic product for the third quarter is expected to be unrevised at a 3.5% growth rate. (8:30 a.m. ET)
U.S. personal income for November is expected to rise 0.3% from the prior month. Consumer spending is expected to rise 0.4% (10 a.m. ET)
The personal consumption expenditure price index for November is expected to rise 0.6% from the prior month. Core prices, which exclude food and energy, are forecast at a 0.2% gain. That would leave core prices up 1.9% from a year earlier. (10 a.m. ET)
The University of Michigan consumer sentiment index for December is expected to tick down to 97.0 from 97.5 earlier in the month. (10 a.m. ET)
The Kansas City Fed manufacturing survey for December is expected to drop to 12 from 15 a month earlier. (11 a.m. ET)
from Real Time Economics https://ift.tt/2CqglIM
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