Fed Pivot Comes Into View; BOE Mirrors Fed in Holding Rates Steady; ECB Is Expected to Follow Suit

Fed Pivot Comes Into View; Bank of England Mirrors Fed in Holding Rates Steady; European Central Bank Is Expected to Follow Suit By James Christie

Good day. The Federal Reserve held interest rates steady on Wednesday and Fed Chair Jerome Powell signaled a pivot away from raising rates. The Fed's policy statement indicated policy makers left the door open to raising rates again, but Powell's comments made the policy communiqué feel stale less than an hour after it was released by suggesting officials had turned their attention to rate cuts. The Bank of England this morning followed the same course as the Fed in keeping interest rates unchanged, and the European Central Bank is expected to hold steady as well later today. Meanwhile, Norway's central bank surprised markets by raising its key policy rate on Thursday, saying that a final hike in the current cycle was needed to ensure that inflation doesn't remain too high for an extended period. Elsewhere, the Central Bank of Brazil on Wednesday cut the Selic for a fourth consecutive time and pointed out more rate cuts are in the works.

Now on to today's news and analysis.

Top News Fed Holds Rates Steady and Sees Cuts Next Year

Slowing inflation prompted Federal Reserve Chair Jerome Powell to pivot away from raising interest rates and toward considering when to cut them , igniting a rally on Wall Street.

The Fed held its benchmark federal-funds rate steady at a 22-year high on Wednesday and offered every reason to think that its most recent increase this past July probably marked the end of the most aggressive cycle of hikes in four decades.

At a press conference, Powell focused instead on the risk of causing unnecessary harm to the economy by leaving rates too high as inflation falls. "We're aware of the risk that we would hang on too long," he said. "We're very focused on not making that mistake."

Parsing the Fed: How the December Statement Changed Transcript: Fed Chief Powell's Postmeeting Press Conference Stocks Jump After the Fed Gives Wall Street What It Hoped For Fed-Fueled Rally Set to Keep Going Conditions Look Right for a Soft Landing. Here's Why It Will Be Difficult Analysis: The Fed Underwrites the Recovery

The Federal Reserve has two mandates: inflation and unemployment. For two years, though, it behaved as if only the first mattered, raising interest rates so steeply that it knew it was courting recession. This week, it pivoted. This pivot means the Fed is ready to backstop the economic recovery. It doesn't rule out a recession, but makes one much less likely , The Wall Street Journal's Greg Ip writes.

World Central Banks Signal Victory Over Inflation Is In Sight

The Bank of England kept rates steady on Thursday just before the European Central Bank was expected to do the same as the rich world's central banks begin to reposition themselves for a world in which inflation is under control.

U.S. Economy What to Watch in Retail Report: A Slow Start to the Holiday Season

Economists surveyed by The Wall Street Journal estimate sales fell 0.1% in November, on a seasonally adjusted basis. That would be the same decline as in October and the second straight fall following monthly gains since April.

What Cardboard Prices Tell Us About the State of the Economy

Cardboard prices are pointing to better times ahead, as producers are lifting prices for the thick paper used to make delivery boxes for the first time since the Federal Reserve began raising interest rates early last year.

So Much Empty Office Space, So Few Easy Options

Despite return-to-office mandates, office-utilization rates have failed to pick up meaningfully this year and are still 30% to 40% below 2019 levels for most office markets across the country.

Key Developments Around the World Brazil's Central Bank Maintains Pace of Rate Cuts

The Central Bank of Brazil cut its benchmark lending rate by half a percentage point as expected, to 11.75%, its lowest level since March 2022. The bank said it anticipates more cuts of the same size at coming meetings.

Norway Central Bank Surprises With Quarter-Point Rate Hike

Norges Bank increased its key policy rate by 25 basis points to 4.50%, versus a Dow Jones poll before the decision that had pointed to an unchanged rate of 4.25%. "We see that the economy is cooling down, but inflation is still too high," Governor Ida Wolden Bache said. "The policy rate will likely be kept at 4.5% for some time ahead." The bank noted that inflation has been somewhat lower than expected, but it is still markedly above its 2% target. At the same time there are prospects for continued high wage growth and the krone has depreciated further, which will keep inflation elevated, it said. Its forecast indicates that the policy rate will remain at around 4.50% until autumn 2024 before gradually moving down. (Dow Jones Newswires)

Switzerland's Central Bank Holds Policy Rate at 1.75%

Switzerland's central bank on Thursday held its key policy rate steady as expected at 1.75% and lowered its inflation forecast for next year, but warned that uncertainty was clouding the decision-making path ahead. "Inflationary pressure has decreased slightly over the past quarter. However, uncertainty remains high," the Swiss National Bank said. The decision comes after annual inflation stood at 1.4% in November, down from 1.7% in October, driven by lower inflation on goods and tourism services, it said. But inflation is likely to tick up again in the coming months on higher electricity prices, rents and on a rise in sales tax, the SNB added. (DJN)

New Zealand's Contraction Stokes Recession Fears

New Zealand's agriculture-rich economy contracted unexpectedly in the third quarter, raising questions about whether interest rates have risen too far with the economy on track for a return to recession.

How a Plan to End Poor Countries' Debt Crises Created a New One

Economists urged developing nations to borrow in their own currencies to erase the "original sin" of dollar debt. Now the blowback is beginning to mount . Local-currency debt is now the biggest drain on many of these countries' balance sheets.

Climate Deal Puts Pressure on Renewables

More than 190 governments at the U.N. summit reached an agreement that called for a transition away from fossil fuels and a massive expansion of renewable energy , specifically, a tripling of wind, solar and the like by 2030.

Glynn's Take: Squeeze on Australian Households Worse Than Thought By James Glynn

The squeeze on Australian household budgets appears much worse than thought, with a sharp surge in tax payments adding to the pain already being felt from soaring interest rates.

For the Reserve Bank of Australia, which outwardly at least still appears hawkish, the pain being felt across suburbia looks set to quash any remaining thoughts of a further rise in interest rates next year. Read more .

Financial Regulation Roundup Credit Suisse to Pay $10 Million to Settle SEC Charges

Credit Suisse Securities and two affiliated entities will pay more than $10 million to settle charges from the U.S. Securities and Exchange Commission that it allegedly provided certain prohibited services .

SEC Pushes Treasury Trading Into Clearinghouses

The Securities and Exchange Commission adopted rules aimed at pushing more Treasury trading into central clearinghouses as U.S. financial regulators have been concerned about illiquidity in the Treasury market

Coinbase to Offer Spot Crypto Trading On International Exchange

Coinbase Global, the largest cryptocurrency exchange in the U.S., announced Wednesday that it will launch spot crypto trading for non-U.S. institutional clients on its international exchange. Starting on Thursday, non-U.S. institutional clients will be able to trade spot bitcoin and ether against the stablecoin USD Coin on the Coinbase International Exchange. The company said it plans to expand the product to include retail users, additional assets, and features in the coming months.

Forward Guidance Thursday (all times ET)

8:15 a.m.: ECB interest-rate decision

8:30 a.m.: U.S. retail sales for November; U.S. weekly jobless claims

8:45 a.m.: ECB press conference on interest-rate decision

Friday

4 a.m.: Eurozone flash PMI for December

8:15 a.m.: Canada housing starts for November

8:30 a.m.: New York Fed's Empire State Manufacturing Survey

9:15 a.m.: U.S. industrial production and capacity utilization

12:40 p.m.: Bank of Canada's Macklem speaks at Canadian Club Toronto, remarks published at 12:25 p.m.

Commentary The Fed's Yield-Curve Problem

For some forecasters, the inversion of the yield curve has been a sure sign a recession in the U.S. is coming, while for the Federal Reserve it could turn into a different kind of problem , Justin Lahart writes.

Milei Swaps 'Burning Down' the Central Bank for Shock Therapy 101

President Javier Milei's outsider appeal may not survive a rerun of the stagflation drama Argentines have experienced many times before, as a long-run growth strategy is still missing, Jon Sindreu writes.

The Other I-Word Angering Voters Across Western World

Surging immigration is a global phenomenon as tight labor markets attract migrants, but it is also a political albatross for incumbents in countries that, like the U.S., have long been major recipients of immigrants, Greg Ip writes.

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12-14-23 0730ET