Fed Policymakers Keep Watch on First Republic Bank Sale Ahead of Rate-Setting Meeting This Week; Preparations for Debt-Ceiling Crisis By James Christie

Good day. Fed officials will be keeping an eye on how investors react to the sale of First Republic Bank to JPMorgan Chase & Co., announced earlier today, ahead of their rate-setting meeting this week, just as they did before their rate increase six weeks ago when Swiss authorities merged investment banks UBS Group AG and Credit Suisse Group AG. While analysts believe today's deal may further resolve potential banking strains, officials could have to rethink a planned increase if severe and unanticipated financial stresses emerge before their meeting. Meanwhile, a potential crisis looms in the U.S. if Congress doesn't raise the federal debt ceiling. Inaction could force the Treasury to start missing federal payments, which could throw into doubt the integrity of Treasury debt that underpins financial markets. Fortunately, planning for a crisis is taking place behind the scenes at the Treasury and the Fed, and clues to how the White House could act can be gleaned from documents that have dribbled out over the years, transcripts of Fed meetings, and other government reports.

Now on to today's news and analysis.

Top News Fed Set to Raise Interest Rates to 16-Year High and Debate a Pause

Federal Reserve officials are on track to increase interest rates again at their meeting this week while deliberating whether that will be enough to then pause the fastest rate-raising cycle in 40 years.

"We are much closer to the end of the tightening journey than the beginning," Cleveland Fed President Loretta Mester said on April 20.

Just how much closer the Fed is to that endgame will be a focus of internal debate because officials think their communications around future policy actions can be as significant as individual rate changes.

First Republic Bank Seized in Second-Largest U.S. Bank Failure

Regulators seized First Republic Bank and struck a deal to sell the bulk of its operations to JPMorgan Chase & Co., heading off a chaotic collapse that threatened to reignite the recent banking crisis.

Here's What Treasury, Fed Might Do in a Debt-Ceiling Crisis

While the White House has undermined contingency planning for a debt ceiling crisis by refusing to say how it would respond, planning for one is happening behind the scenes at the Treasury and the Fed, as was the case in 2011.

Stock Market Calm Rekindles Debate Over Fed Tightening

The Fed's balance sheet, loaded with bonds bought to support the economy during crises and about the size of one-third of U.S. gross domestic product, could force the central bank to lift rates even higher , prolonging the pain in markets.

U.S. Economy Brainard's Challenge: Shielding Fallout From High Inflation, Rates

President Biden's pick of Lael Brainard-a Harvard-trained economist-represents an acknowledgment by the White House that, despite the sunny economic data it emphasizes, serious risks lie ahead .

The Air Has Come Out of the Dollar

The U.S. economy no longer looks exceptional. That is bad news for the dollar, which has fallen about 8.6% from a peak in September, as tracked by the WSJ Dollar Index, and is experiencing its worst start to the year since 2018.

Kevin McCarthy Shores Up GOP Lines as Debt-Ceiling Battle Looms

House Speaker Kevin McCarthy now must balance demands of different wings of often-chaotic House Republicans, while keeping the government functioning in his role as their top negotiator in Congress.

The Building Boom Is Prolonging Market Pain

The building boom in the U.S. has helped push unemployment to around its lowest level in more than 50 years, perplexing investors who want to see the Federal Reserve switch course on interest rates.

Tech Companies Are Colluding to Cheat H1-B Visa Lottery

The White House says it has found evidence that several dozen small technology companies have colluded to increase chances their prospective foreign hires will win a coveted H-1B visa for skilled foreign workers in this year's lottery.

Key Developments Around the World China Locks Information on the Country Inside a Black Box

Prodded by President Xi Jinping's emphasis on national security, China's party-state, long steeped in secrecy, is creating a black box around information on the world's second-largest economy, alarming businesses and investors .

China's Consumers Lead Recovery in April China Celebrates Economic Recovery, Pledges More Help on Jobs China Balks at U.S. Push for Better Communications During Crises

The Metropolis Where Rents Rise 60%, 75%, Even 100%

Rent for prime residential properties rose faster in the Asian metropolis of Singapore than in any other city last year, surpassing the annual increases in New York and London, according to the consulting firm Knight Frank.

Islamic State Leader Killed in Intelligence Operation, Turkey Says

President Recep Tayyip Erdogan said Islamic State's top leader died during a Turkish intelligence operation in what would be the extremist group's third chief to be killed in less than a year and a half.

Financial Regulation Roundup Fed Says It Failed to Act on Problems That Led to SVB Collapse

The Fed's banking supervisors failed to take forceful action to address growing problems at Silicon Valley Bank before it collapsed last month, the central bank's top regulator said, signaling a push to toughen industry rules .

Republicans Effectively Voted to Raise Taxes. They're Fine With That.

Republicans, united for decades around the view that net tax increases are unacceptable, advanced debt-ceiling legislation that would raise taxes by more than $300 billion over a decade, according to congressional estimates.

Forward Guidance Monday (all times ET)

10 a.m.: ISM Report On Business Manufacturing PMI for April; U.S. construction spending for March

Tuesday

Time N/A: FOMC meeting

12:30 a.m.: Reserve Bank of Australia interest rate decision

4 a.m.: Money supply in euro area for March; Eurozone manufacturing PMI for April

4:30 a.m.: S&P Global / CIPS U.K. manufacturing PMI for April

5 a.m.: Flash estimate euro area inflation

10 a.m.: U.S. factory and durable goods orders for March; U.S. Job Openings and Labor Turnover Survey (JOLTs) for March

Research Bank of Canada Seen on Sidelines for Balance of Year

Desjardins economist Randall Bartlett sees plenty in Canada's gross domestic product report for February to support a prolonged pause in the Bank of Canada's interest-rate campaign. The 0.1% rise in GDP for February was lower than expectations and below Statistics Canada's flash reading, and the advance estimate for March suggests a modest contraction, teeing up a weaker start to the second quarter, Mr. Bartlett says. So while first-quarter annualized economic growth could be stronger than the central bank is forecasting, it would be from a tailwind early in the quarter, and a sharp slowdown is now expected for the second quarter, given that April is likely to be disrupted by a public sector strike and power outages in the province of Quebec, he adds.

-Robb Stewart

Lack of New Listings Supports U.S. Home Prices

New listings of homes for sale in the U.S. fell 22.4% nationwide during the four weeks ending April 23 from a year earlier, one of the biggest declines since the start of the pandemic, Redfin says. Homeowners are staying put because they want to hang on to their low mortgage rates, and because it is hard to find another home to buy. A shortage of new listings is driving an unseasonal decline in the total number of homes for sale, and the dearth of inventory is also speeding many sales. Nearly half of homes on the market are selling within two weeks, the highest portion in nearly a year. At the same time, elevated mortgage rates are keeping some buyers on the sidelines, with pending home sales down 17% year-over-year.

-Chris Wack

Commentary Too Hot for the Fed to Stop

Investors have been hoping the Fed's message following this week's policy-setting meeting will be "hike in May and go away," but recent economic data suggests the central bank won't be able to do that, Justin Lahart writes.

America Pays a High Price for Low Wages

The low-wage/high-welfare system Democrats and Republicans have supported since the late 20th century is not sustainable, so an alternative is to try to achieve the long-standing aspiration of workers and reformers: a living wage for all , Michael Lind writes.

This essay is adapted from Mr. Lind's new book, "Hell to Pay: How the Suppression of Wages Is Destroying America," which will be published on May 2 by Portfolio. He is a contributing editor of Tablet and a fellow at New America.

Basis Points U.S. consumer sentiment rebounded in April, as inflation continued to ease, despite a weakening economic outlook. The University of Michigan said Friday its consumer sentiment index climbed from 62.0 in March to 63.5 in April. The measure matched both its mid-month reading and expectations by economists polled by The Wall Street Journal. (Dow Jones Newswires) Services activity in the central U.S. returned to growth in April and expectations for future activity edged higher, according to a monthly survey by the Federal Reserve Bank of Kansas City. Its Tenth District Services Survey's composite index came in at 7 in April, up from a reading of minus 4 in March and 1 in February. Readings above zero indicate expansion, while those below zero indicate contraction. (DJN) Canada's economy eked out growth in February but looks to have contracted in March with a decline in wholesale and retail trade that suggests higher interest rates are biting. Gross domestic product edged up 0.1% in February from the month before, to 2.082 trillion Canadian dollars, the equivalent of US$1.532 trillion, Statistics Canada said Friday. Compared with a year earlier, GDP was 2.5% higher. (DJN) Mexican economic growth picked up speed in the first quarter of the year, with solid gains in services and higher industrial production. Gross

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05-01-23 0715ET