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Inflation Surge May Pressure Fed to Raise Rates Next Summer; Investors Finally Take Note of Inflation

11/11/2021 | 09:38am EST

Good day. Federal Reserve officials have recently been backing away from characterizing price pressures as "transitory." The Labor Department's report Thursday that inflation hit a three-decade high in October, delivering widespread and sizable price increases to households for everything from groceries to cars, may have officials distance themselves even more from that description. Additionally, with evidence that the labor market is rapidly recovering -- job openings continue to rise and worker filings for unemployment insurance continue to edge down -- it looks as if the Fed is more likely to raise interest rates next year, possibly as soon as summer.

Now on to today's news and analysis.

Top News

Inflation Pickup Makes Fed More Likely to Raise Rates Next Year

The latest rise in inflation helps to explain why investors are increasingly asking not whether the Federal Reserve will raise interest rates next year but rather how much and how quickly it may do so.

The Labor Department reported Wednesday that consumer prices rose strongly in October, up 0.9% on a seasonally adjusted basis from the prior month. Over the last 12 months, inflation is at 6.2%. So-called core prices, which exclude food and energy items, rose 4.6% over the past year. Both are the largest annual increases in more than 30 years.

Even though senior central bank leaders still believe inflation could slow as supply-chain kinks abate, they now see that process taking longer than they expected earlier this year, extending into 2022.

U.S. Inflation Hit 31-Year High in October

Where Inflation Is Highest in U.S.

Tax Brackets Will Be Higher in 2022 Due to Faster Inflation, IRS Says

Broad Selloff Signals Inflation Fears Are Warming

For months, there has been relatively little investor angst about rising prices. On Wednesday, there were signs that might be changing as stocks sold off and longer-term Treasury securities fell in price.

U.S. Economy

Jobless Claims Fall to Pandemic Low, Continuing Downward Trend

Worker filings for unemployment insurance declined to 267,000 last week from a revised 271,000 the prior week, continuing their long glide path toward pre-pandemic levels as the labor market improves.

Home Prices Rose Across U.S. in Third Quarter

The median sales price for single-family existing homes was higher in the third quarter compared with a year before in 182 of the 183 metro areas tracked by the National Association of Realtors, the association said Wednesday.

U.S., China Jointly Pledge to Step Up Efforts to Fight Climate Change

The U.S. and China jointly pledged at the United Nations climate summit to step up actions to fight climate change in the coming decade, injecting talks here with a surprise show of cooperation between the two rivals and the world's two biggest greenhouse-gas emitters.

Key Developments Around the World

China Weighs Moderating Property Curbs to Help Troubled Developers

Chinese regulators, wary of financial risks spreading as a result of their crackdown on property lending, are considering easing rules to let struggling developers sell off assets to avoid defaults and hits to the broader economy.

China's Plan to Manage Evergrande: Take It Apart, Slowly

Some investors feared China Evergrande Group, the world's most indebted real-estate firm, would collapse spectacularly. Instead, the Chinese state is dismantling the giant developer slowly and behind the scenes.

Chinese Developers Rally on Policy Hopes as Evergrande Averts Default

U.K. Economic Growth Slowed in Third Quarter

The U.K. economy lost momentum through the summer as the reopening rebound from the Covid-19 lockdown faded, while persisting supply-chain bottlenecks and weaker consumer spending are expected to continue to hold back growth for the remainder of the year.

Financial Regulation Roundup

Credit Suisse Legal Woes Weigh on Revamp Plan

While Credit Suisse Group vows to end reckless risk taking, the cost of earlier misdeeds are likely to keep biting back for years, weighing on efforts by the scandal-prone Swiss lender to put the past behind it.

McKinsey Partner Charged With Securities Fraud Over Goldman Deal

Federal prosecutors in New York charged a former McKinsey & Co. partner with securities fraud for allegedly trading insider information related to Goldman Sachs Group's acquisition of specialty lender GreenSky.

SEC Considering New Rules on Private-Fund Fees, Gensler Says

Wall Street's top regulator is considering new rules to bring sunshine to the private-funds market, including more disclosure about fees and conflicts of interest.

SEC Halts Registration of Two Digital Tokens

The Securities and Exchange Commission is halting the registration as securities of two digital tokens issued by American CryptoFed DAO LLC over allegedly insufficient and misleading information on their registration form, the agency said on Wednesday.

Google Loses Appeal of $2.8 Billion EU Shopping-Ads Fine

The European Union General Court on Wednesday largely upheld a $2.8 billion antitrust decision against Google by EU competition regulators, adding new momentum to the bloc's assault on big tech companies.

Forward Guidance

Thursday (all times ET)

7:45 a.m.: European Central Bank's Lane gives introductory remarks at New York Fed-ECB conference on expectations surveys

11 a.m.: European Central Bank's Schnabel speaks at women in economics series

2 p.m.: Bank of Mexico releases policy statement

Friday

8:50 a.m.: European Central Bank's Lane speaks on panel on the future of the EU fiscal governance framework

10 a.m.: U.S. Labor Department releases September Job Openings and Labor Turnover Survey; University of Michigan releases preliminary November U.S. consumer sentiment

10:30 a.m.: Bank of Canada releases senior loan officer survey

12:10 p.m.: New York Fed's Williams speaks at his bank on heterogeneity in macroeconomics

Commentary

Brace for Even More Inflation

The big question on the pickup in inflation is whether it will persist, and the big problem is that the answer won't be clear until the beginning of next year at the earliest, Justin Lahart writes.

Biden Economic Agenda Wasn't Designed for Shortages and Inflation

President Biden's bipartisan infrastructure framework and what the White House calls the "Build Back Better" social and climate plan weren't intended to address inflation, but he is now framing them that way, Greg Ip writes.

Basis Points

The U.S. government ran a $165 billion deficit in October, a smaller gap compared with a year earlier, as the government took in higher revenue from taxes and other receipts and pulled back on spending. (Dow Jones Newswires)

Australia's unemployment rate jumped in October as the number of people seeking work rose with the easing of Covid-19 lockdowns in the country's most populous state.

China sold about $4.6 billion of bonds denominated in euros, taking advantage of superlow yields in the eurozone to raise shorter-term funds at negative rates for the second year running.

Chinese banks issued more new loans in October than expected, according to the People's Bank of China, as the world's second-largest economy showed more signs of weakness. New yuan loans stood at 826.2 billion yuan ($129.24 billion) last month, lower than September's CNY1.66 trillion but higher than CNY700 billion expected by economists polled by The Wall Street Journal. (DJN)

Brazil's inflation accelerated in October from September and from a year earlier, as fuel prices rose and a weaker real lifted prices for imported goods. Consumer prices increased by 1.25% in October, the fastest pace for the month since 2002, and by 10.67% from a year earlier, the Brazilian Institute of Geography and Statistics said. In September, prices rose by 1.16% on the month and by 10.25% from a year earlier. (DJN)

German consumer prices rose strongly in October, confirming preliminary data, statistics office Destatis said. Prices increased by 4.5% on year measured by national standards and by 4.6% on year by European Union-harmonized standards, both in line with the forecasts of economists polled by The Wall Street Journal. (DJN)

Industrial production in Italy rose slightly in September after falling the previous month despite mounting supply bottlenecks. Output increased by 0.1% in September from the previous month, in line with expectations of economists polled by FactSet, after falling by 0.3% in August. (DJN)

(END) Dow Jones Newswires

11-11-21 0938ET

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