The Fed's Role in U.S. Downgrade; Kansas City Has New Chief; Brazil Cuts Selic; BOE Raises Key Rate By James Christie
Good day. A wave of selling washed over U.S. stocks and bonds on Wednesday in response to the downgrade of the U.S.'s previously formidable credit rating by Fitch Ratings, which voiced concern over projections of rising federal deficits. One factor propelling the growth in deficits is higher net interest costs, a product of the Federal Reserve's campaign to increase interest rates to bring inflation down: So far this fiscal year, the U.S. has spent $131 billion more on interest payments, a 25% increase from the prior year. In other developments, the Kansas City Fed has a new president, tapping Jeff Schmid for the job. He has served as chief executive of the Southwestern Graduate School of Banking Foundation at Southern Methodist University's Cox School of Business in Dallas for the past two years. He also was CEO and chairman of Mutual of Omaha Bank from 2007 until 2019. Elsewhere, Brazil's central bank cut its Selic rate to 13.25%, reversing a rate-increase cycle launched in March 2021 when the benchmark rate was at a record low 2%. And the Bank of England earlier today raised its key interest rate for the 14th time in a row.
Now on to today's news and analysis.
Top News Fitch Downgrade Won't Change Washington's Tax, Spending Habits
Fitch Ratings chastised Washington policy makers this week for fighting too much, spending too much and cutting taxes too much.
Republicans and Democrats are likely to keep doing all three .
Fitch's downgrade of its U.S. government debt rating Tuesday only fueled more of the partisan bickering that the firm said was raising concerns about America's ability to tackle its swelling budget deficits. And as Congress prepares to hash out spending for next fiscal year, the two parties aren't considering the policies that could meaningfully address the problem: raising taxes or cutting spending on major programs such as Medicare or Social Security.
Kansas City Fed Names Jeff Schmid as Next President
Jeff Schmid , a former banking regulator and CEO and chairman of Mutual of Omaha Bank, will become the next president and chief executive of the Federal Reserve Bank of Kansas City, succeeding Esther George.
U.S. Economy Crypto Rules Delay Puts Billions in Tax Revenue at Risk
Implementation of a law to catch crypto tax cheats is delayed inside the Treasury Department, putting billions of dollars in federal revenue at risk and frustrating members of the president's own party.
The New Hires of 2023 Are Unprepared for Work
The knock-on effect of years of remote learning during the pandemic is gumming up workplaces around the country and helping to explain why national productivity has fallen for the past five quarters.
Dam Failures Show Harsh Reality of Aging Infrastructure
The average age of the 91,815 dams in the U.S. is 61 years and the number of dams that could lead to a loss of life if they failed has grown by about 20% to 16,000 over the last 10 years , according to officials.
Key Developments Around the World Bank of England Raises Key Interest Rate by Quarter Percentage Point
The Bank of England on Thursday raised its key interest rate by a quarter of a percentage point , and said it may raise rates again as it tries to cool the fastest rise in consumer prices in the Group of Seven advanced democracies.
Brazil's Central Bank Cuts Selic to 13.25%
Brazil's central bank cut its benchmark interest rate by half a percentage point , the first change to the rate in a year, and said it could be the first of a series of cuts meant to substantially reduce one of the world's highest interest rates.
The West Attacked Russia's Economy, Resulting in Another Stalemate.
Economists expect sanctions to cause Russia to stagnate in the years ahead and fault lines are emerging, but the West's failure to quickly bring the Russian economy to its knees mirrors the larger stalemate on the battlefield in Ukraine.
A Drawn-Out Ukraine War Opens New Risks for China Russian Drone Strikes Target Ukraine Grain Export Ports, Infrastructure Behind Ukraine's Deadly Drones: Putin's Invasion and Biden's Limits
Iraq Cracks Down on Dollar Smuggling Under Pressure From U.S.
Iraq is trying again to crack down on money laundering and smuggling as the U.S. steps up pressure to stop dollars flowing to Iran and better isolate it from the rest of the world economy.
China's Latest Problem: People Don't Want to Go There
Half a year after China lifted Covid-19 restrictions and reopened its borders, few international travelers are coming -another sign of the decoupling between China and the West that could have negative repercussions.
Financial Regulation Roundup Private Equity, Hedge Funds Brace for Coming SEC Overhaul
The Securities and Exchange Commission is preparing to adopt a rule package as soon as this month aiming to bring greater transparency and competition to the multitrillion- dollar private-funds industry.
SEC Tells Some Brokers to Clean Up Anti-Money-Laundering Controls
A Securities and Exchange Commission unit this week issued a risk alert saying it had observed broker-dealers that weren't putting enough resources or staffing into their anti-money-laundering programs.
Forward Guidance Thursday (all times ET)
8:30 a.m.: U.S. weekly jobless claims; U.S. productivity and costs, preliminary for second quarter; Richmond Fed's Barkin speaks to Montgomery County Chamber of Commerce in Blacksburg, Va.
10 a.m.: ISM Report on Business Services PMI
Friday
8:30 a.m.: Canada labor survey for July; U.S. employment report for July
Research ECB's Inflation Headache Could Prompt Further Rate Lift
It is premature to rule out a rise in European Central Bank interest rates to 4%, economist Peter Vanden Houte at ING writes in a note. Eurozone core inflation remained at 5.5% in July, and with base effects warping year-on-year figures, the important dynamic is inflationary evolution from month to month, Vanden Houte writes. While headline inflation has declined pretty rapidly, it remains above the ECB's target of 2%, and core inflation looks set to be kept high by services inflation, he adds. If the central bank's focus is on month-to-month development, then it may as such still opt to prolong its cycle of rate increases, Vanden Houte writes.
-Joshua Kirby
Commentary America's Fiscal Time Bomb Ticks Even Louder
The ability of the U.S. government to change the fiscal path without politically disastrous measures like cutting entitlements or by overtly printing money is becoming more limited, Spencer Jakab writes.
Basis Points Hiring among U.S. private-sector employers slowed in July. Employment in the nonfarm private sector rose by 324,000, compared with an increase of 455,000 in June, according to the ADP National Employment Report. (Dow Jones Newswires) U.S. oil inventories fell sharply last week as crude exports climbed to 5.3 million barrels a day, according to Energy Information Administration data. Commercial crude-oil stockpiles dropped by 17 million barrels last week to 439.8 million barrels, and are now about 1% below the five-year average, EIA said. (DJN) Wholesale prices for pork belly-the cut of meat used to make bacon- have surged this summer , nearly tripling since the start of June after hitting a multiyear low in May. China's services activity edged up in July, according to a private gauge, pointing to continued recovery in the nation's services sector. The Caixin services purchasing managers index climbed to 54.1 in July from June's five-month low of 53.9, Caixin Media Co. and S&P Global said Thursday. (DJN) Activity in Australia's services sector contracted in July, but there remains a problem with inflation that may add to existing concerns at the Reserve Bank of Australia that the sector could keep a fire burning under price pressures in the next year. (DJN) Australian retail sales volumes recorded a third consecutive quarterly fall in the second quarter, confirming that consumers are reining in spending in response to surging living costs and a big jump in interest rates. (DJN) Germany's trade surplus expanded beyond expectations June, with weaker imports hinting at increasingly squeezed demand. (DJN) Tourist arrivals in Spain continued to climb in June, though they still lagged the period before the global pandemic, figures from national statistics body INE showed. Arrivals to the world's second most visited country in June rose 11% from a year earlier, reaching 8.3 million, but remaining some 5.8% lower than in June 2019. Total spending by tourists rose in the first six months of the year to EUR46 billion, some 14% higher than in the first six months of 2019. (DJN) Inflation in Turkey shot back up again in July, complicating the central bank's battle to rein in prices. The consumer price index increased by 47.8% in July compared with the same month a year earlier, accelerating from 38.2% in June, data from the country's statistics office Turkstat showed Thursday. (DJN) Feedback Loop
This newsletter is compiled by James Christie in San Francisco.
Send us your tips, suggestions and feedback. Write to:
James Christie , Nell Henderson , Nick Timiraos , Tom Fairless , Megumi Fujikawa , Perry Cleveland-Peck [mailto:perry.cleveland-peck@wsj.com], Nihad Ahmed , Michael Maloney , Paul Kiernan
Follow us on X:
(MORE TO FOLLOW) Dow Jones Newswires
08-03-23 0721ET
