Some Fed Officials Supported Raising Rates in June
Most Federal Reserve officials expected they would need to lift interest rates further this year after pausing increases last month, though some wanted to raise rates in June because the economy hasn't slowed enough, Nick Timiraos reports.
Minutes of the June policy meeting, released Wednesday, offered nothing to dispel recent market expectations of a rate increase this month to combat inflation.
The Fed last month held its benchmark federal-funds rate steady in a range between 5% and 5.25%, its first pause after 10 consecutive increases since March 2022, when officials raised it from near zero.
All 11 voting members of the policy-setting Federal Open Market Committee agreed to last month's decision. "Almost all participants judged it appropriate or acceptable" to hold rates steady given how quickly the Fed has raised rates and because those moves take time to influence economic conditions, the minutes said.
But the minutes suggest several of the 18 voting and nonvoting officials at the June meeting would have agreed to raise rates then. What to Watch Today
The Labor Department will release Job Openings and Labor Turnover data for May at 10:00 a.m. ET. Our coverage will be updated here .
The Commerce Department will release its report on the U.S. International Trade in Goods and Services for May (8:30 a.m. ET)
Initial jobless claims, a proxy for layoffs, are expected to come in at 245,000, up slightly from the prior week. (8:30 a.m. ET)
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The Latest on the Economy Americans Have Quit Quitting Their Jobs
The surge in Americans quitting their jobs has abated since peaking during the pandemic, another sign that the labor market is cooling from ultra-hot levels as the Federal Reserve raises interest rates.
Americans voluntarily left 3.8 million jobs in April. That marked a drop of 700,000 from 4.5 million in November 2021, the highest level on Labor Department records back to 2000. May quits data will be released at 10 a.m. ET Thursday.
The so-called quits rate-the number of resignations as a share of total employment-fell this spring to 2.4%, nearly matching the prepandemic reading and down from 3% as recently as April 2022.
Quitting rose as the economy recovered from deep job losses early in the pandemic. Many industries struggled with labor shortages as millions of people exited the labor market. Some workers re-evaluated their lives and the kinds of jobs they wanted, others jumped ship for more money, and others switched into fully remote roles. Those trends have since eased.
The Fed's New Financial Conditions Index
Are financial conditions tight? It's an important question for the Federal Reserve because officials combat inflation by slowing growth, which they achieve by raising borrowing costs, weakening asset prices, or strengthening the dollar.
Several measures of financial conditions have suggested that they aren't particularly tight and have eased in recent months. But a new measure of financial conditions from economists at the Fed suggest financial conditions are historically tight, at levels last seen during the 2008 financial crisis, even though they've become a little easier since December.
The authors measure the financial conditions impulse in terms of the contribution to (or drag on) growth in gross domestic product, and they find that financial conditions are at levels that could reduce GDP growth by around 0.75 percentage point over the coming year.
Higher mortgage rates, corporate borrowing costs and a stronger dollar are being partially offset by elevated values of stocks and housing, according to their index.
- Nick Timiraos
Jobs Report Could Be Overestimating Growth
On its face, the economy looks strong. Output grew 2% annualized in the first quarter, and employers have boosted payrolls by 1.6 million so far this year, about 2.5% annualized-nearly twice the average increase in 2019.
But some economists say the job market might actually be weaker, and the economy closer to recession, than those figures imply. The reason: quirks in how the payroll data are calculated .
They note that the payroll data are out of step with other data showing a much weaker economy.
The unemployment rate leapt 0.3 percentage point to 3.7% in May, the sharpest one-month increase since 2010, outside of the pandemic recession in 2020. The weakening of employment measures in business surveys and a decline in hours worked could also be signs that the payroll report is behind the curve.
U.S. Is Top Investment Destination
The U.S. was the top destination for businesses looking to expand internationally last year but the inflow of capital fell as companies around the world cut down on foreign investment amid rising uncertainty and borrowing costs.
Foreign investment in the U.S. fell to $285 billion in 2022 from $388 billion in 2021, mainly due to a sharp fall in foreign purchases of American companies, according to United Nations data released Wednesday.
Wageflation Creeps In
Inflation driven by corporations flexing their power to jack up prices more than costs-greedflation, as some called it-is on its way out, Greg Ip reports.
Pretax margins, which widened sharply in 2021 and 2022, were roughly back to prepandemic levels in the first quarter of 2023, according to revised government data released last week. Margins in six of the S&P 500's 11 sectors were lower in the second quarter than four years earlier, according to FactSet.
Narrowing profit margins, though, doesn't necessarily mean an end to inflation. Wages are now growing faster than prices. While that doesn't provoke the same outrage as soaring profits, it's just as problematic for getting inflation down.
The circumstances of 2021 and 2022 made for a seller's paradise. As the economy reopened, newly vaccinated consumers rushed to spend pent-up savings and stimulus cash. That demand collided with supply held down by pandemic disruptions and the inability of meeting so much demand with existing capacity.
The result: pretax margins shot from 15.6% in the fourth quarter of 2019 to 17.9% in the second quarter of 2021.
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About Us
Real Time Economics comes to you from WSJ reporters and editors around the world. Today's issue was curated and edited by Austen Hufford and Greg Ip ( @greg_ip [https://urldefense.com/v3/__https://twitter.com/greg_ip__;!!F0Stn7g!Ch6C16AHSZ103emuJl_S0ZUFhD9Mm2-DewDW4CTil9rBlpHSNqFbljDFvZNdn1EuvDTSoxK63a45vCdp7JmJAIVOkGyjYCtvFeFvZiCs$ ]) in Washington, D.C., and Michael Wright in London.
This article is a text version of a Wall Street Journal newsletter published earlier today.
(END) Dow Jones Newswires
July 06, 2023 06:55 ET (10:55 GMT)
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