How Biden Blew It on Inflation; Trump Tariffs Could Have Significant Impact On Inflation, Bundesbank's Nagel Says

How Biden Blew It on Inflation; Trump Tariffs Could Have Significant Impact On Inflation, Bundesbank's Nagel Says By Vicky Ge Huang

U.S. President-elect Donald Trump's proposed tariffs on goods could upend international trade and threaten higher inflationary pressures, the president of Germany's central bank said Monday.

Also, the Bank of Japan's governor affirmed that the door remains open to more rate hikes, saying they could come before clarity emerges on U.S. economic policy, even as he carefully avoided giving any clear hints on the timing of the central bank's next move.

The eurozone's trade surplus climbed in September on year, with exports to the U.S. growing as the threat of tariffs proposed by U.S. President-elect Donald Trump looms large.

American shoppers have spent more than expected so far this fall at retail establishments and restaurants.

Top News How Democrats Blew It on Inflation

President Biden hadn't even been inaugurated when he and his senior advisers made a monumental gamble in January 2021 that would reverberate through his presidency. Fresh on the heels of a $900 billion Covid-relief bill that Congress had approved weeks earlier, Biden proposed a $1.9 trillion stimulus bill.

Biden and many of those advisers had been part of the Obama administration. Barack Obama took office under similarly gloomy circumstances in January 2009, during the low point of the global financial crisis. Years of high unemployment followed, with much of the world mired in a trap of low growth and very low-even negative-interest rates.

One lesson Democrats took from that episode: Spend aggressively when interest rates are low. It is better to overfill the cup than underfill it.

Trump Tariffs Could Have Significant Impact On Inflation, Bundesbank's Nagel Says

U.S. President-elect Donald Trump's proposed tariffs on goods could upend international trade and threaten higher inflationary pressures, the president of Germany's central bank said Monday.

While a moderate reduction of globally integrated trade would have only a minor effect on inflation, a sudden and drastic increase in trade restrictions, like tariffs, might change the picture, Bundesbank president Joachim Nagel said in a speech in Tokyo.

"If one country raised tariffs strongly and the countries affected were to retaliate, we could see a significant rise in inflationary pressures, " he added..

BOJ Governor Sticks to Stance on More Rate Hikes Despite U.S. Uncertainty

The Bank of Japan's governor affirmed that the door remains open to more rate hikes, saying they could come before clarity emerges on U.S. economic policy, even as he carefully avoided giving any clear hints on the timing of the central bank's next move.

"There are countless uncertain and changing factors, including the U.S. economy. Rather than waiting for clarity on all of them, we will make appropriate policy decisions, looking at data and other information available by each policy meeting," Kazuo Ueda said at a news conference Monday after speaking to business leaders in Nagoya, central Japan.

Glynn's Take Glynn's Take: Money Markets Are Giving Up on RBA Rate Cuts

Australian money markets are rapidly giving up on the idea that the Reserve Bank of Australia will soon deliver deep interest-rate cuts.

While most economists are optimistic that the RBA will start taking its boot off the neck of home buyers by February, money-market traders, the people who manage retirement funds and huge pools of investment capital, now don't expect the central bank to deliver a cut until August next year.

U.S. Economy U.S. Retail Sales Rose 0.4% in October

American shoppers have spent more than expected so far this fall at retail establishments and restaurants.

U.S. retail and food-service sales rose 0.4% in October from September in seasonally adjusted terms to $718.9 billion, the Commerce Department said Friday. Officials also revised their figures for September sales growth sharply upward to 0.8% from an initial estimate of 0.4% growth.

Financial Regulation Heard On The Street: Is Anyone Crazy Enough to Audit Super Micro Computer?

Super Micro Computer's stock has been in a tailspin since Ernst & Young dumped the company as an audit client about a year after it replaced Deloitte & Touche. If EY found something that Deloitte missed then the situation could get even trickier for the server maker that once seemed unstoppable.

There are enough red flags that Deloitte should be trying to find out what happened. EY in its Oct. 24 resignation letter said it no longer could rely on representations by Super Micro's management or audit committee, citing "information that has recently come to our attention." EY told Super Micro that the information it received raised questions about the company's commitment to integrity and ethical values.

Forward Guidance Monday (all times ET)

10 a.m.: NAHB survey

11:30 a.m.: Federal Reserve Board of Governors closed meeting

4 p.m.: Treasury International Capital Data

Tuesday

8:30 a.m.: New Residential Construction - Housing Starts and Building Permits

9 a.m.: Johnson Redbook Retail Sales Index

10 a.m.: Quarterly Retail E-Commerce Sales

10: 30 a.m.: U.S.-China Economic and Security Review Commission releases 2024 Annual Report to Congress

Research Japan's Initial 3Q GDP Underwhelming, Final Data Likely to Offer Clarity

Japan's 3Q GDP print missed expectations as the economy struggles to get out of first gear, Moody's Analytics economists say, noting that even 2Q growth was downwardly revised. Private consumption was a bright spot in 3Q, but the economists note a cumulative 2% drop over the past four quarters. Still, they caution against reading too much into initial GDP estimates as sizeable revisions are common. The second estimate due December should bring more clarity, they say. - Fabiana Negrinochoa

Euro Might Fall if Eurozone PMI Data Are Weak

The euro might fall if eurozone purchasing managers' index surveys on Friday are weak, ING says. Soft PMI data could see markets price in a higher chance of a larger 50 basis-point interest-rate cut by the European Central Bank in December, ING analyst Francesco Pesole says in a note. The market is currently pricing in a 27% chance of such a move, according to LSEG. ING expects the euro to fall to $1.04 by year-end, from $1.0550 currently, if the ECB delivers a 50 basis-point rate cut. In 2025 the ECB might need to do "heavy lifting" to support the economy given the likely headwinds from U.S. president-elect Donald Trump's proposed trade tariffs, Pesole says. - Renae Dyer

Sterling Could Benefit if U.K. Services Inflation Rises

U.K. inflation data later this week could help sterling to recover some of its recent falls against the euro if services inflation accelerates, ING says. Markets might focus "almost solely" on services inflation which could rise to 5.0% in October from 4.9% in September, ING analyst Francesco Pesole says in a note. That could prompt markets to stick to cautious pricing for Bank of England interest-rate cuts, he says. ING continues to expect EUR/GBP to fall modestly in the near term as the European Central Bank might deliver an "outsized" rate cut in December. EUR/GBP rises 0.1% to 0.8357. The inflation data are due on Wednesday. - Renae Dyer

China Loan Prime Rates Likely to Be Held Steady

Chinese panel banks are likely to hold fire on Wednesday when loan prime rates are announced, Moody's Analytics economists say. They expect the benchmark lending rates to be held steady as other cuts implemented since late September work through the system. "That means the one-year and five-year loan prime rates will stay at 3.1% and 3.6%, respectively, through December," they say. Although China has scope to ease monetary settings since the Fed lowered the policy rate by 25 bps this month, a weaker yuan since Trump's victory in the U.S. election is a countering factor, they say. They expect the People's Bank of China will likely stand pat until the Trump administration takes the reins in January and there's a clearer picture on China trade policy. - Fabiana Negrinochoa

Spreads on U.S. Dollar, Euro Corporate Bonds Expected To Tighten

Spreads on U.S. dollar and euro corporate bonds are likely to continue tightening gradually, maintaining good performances in early 2025, Societe Generale's Juan Valencia says in a note. The narrowing should be minimal as credit spreads are close to the tightest levels in decades. "At such levels, credit looks very expensive on a spread to benchmark basis, but we don't expect a sell-off any time soon." Spreads are likely to trade in narrow ranges for two to three quarters before another widening cycle begins, Valencia says. - Miriam Mukuru

Basis Points The eurozone's trade surplus climbed in September on year, with exports to the U.S. growing as the threat of tariffs proposed by U.S. President-elect Donald Trump looms large. Although Canadian manufacturing sales volumes slipped 0.4% on month in September, that looks consistent with Statistics Canada's earlier flash estimate for a 0.3% rise in GDP that month, Capital Economics Thomas Ryan says. The economist notes manufacturing has been struggling for some time in Canada, but a rebound in new orders in September paired with recent improvement in purchasing managers' surveys suggest the sector could be turning a corner. (Dow Jones Newswires) The eurozone would largely shrug off higher U.S. import tariffs, Capital Economics' Jack Allen-Reynolds writes in a note. While the shape of a threatened hike in duties under President-elect Donald Trump has yet to be determined, a 10% blanket tariff looks likely, Allen-Reynolds says. (DJN) About Us

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ's global team of reporters and editors. This newsletter was compiled by markets reporter V icky Ge Huang in New York. Send your tips, suggestions and feedback to [[e-mail]].

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

11-18-24 0750ET