The Playbook Changes, Again By Hardika Singh

Federal Reserve officials have been focused squarely on inflation. Now they need to worry about the labor market, too. Job growth slowed sharply in July and the unemployment rate rose to its highest level since 2021, the Labor Department reported on Friday. The data adds to evidence that a labor market whose strength was already fading could actually be on its way to weakness. That has led some investors to wonder if the Fed should cut rates by a half point instead of a quarter point at the September meeting. Meanwhle, many executives are warning that shoppers in the two biggest economies are spending less, but for different reasons. And Fannie Mae and Freddie Mac are poised to tighten real-estate lending rules as federal regulators and prosecutors step up efforts to root out commercial mortgage fraud. Read on for this news and more.

Top News Lousy Jobs Report Forces Fed to Reckon With Hard Landing

The script is being flipped for the U.S. economy.

For 2 1/2 years, high inflation has drawn a nearly single-minded focus from the Federal Reserve and the White House as the nation's foremost economic challenge.

But in the span of a week, punctuated by a surprisingly lackluster July hiring report on Friday that sent markets reeling, the labor market has become the locus of concern for economic policymakers in Washington.

The Fed Is Behind the Curve. There's Still No Need to Panic. U.S. Economy

Midway through the year, leaders of some of the biggest companies are seeing signs of troubles in the world's two biggest economies. From McDonald's to Mercedes-Benz, executives are saying that many consumers in China and the U.S. are pulling back on spending. The reasons are different.

In China, demand is being drained by a broken housing market, wage pressures and worries about a darkening economic storm. In the U.S., some households, especially those with lower incomes, are feeling pinched after a run of high inflation.

Financial Regulation Fannie, Freddie Are Poised to Tighten Real-Estate Lending Rules

Fannie Mae and Freddie Mac are preparing to impose stricter rules for commercial-property lenders and brokers, following a budding regulatory crackdown on fraud in the multitrillion-dollar market.

Forward Guidance Monday (all times ET)

9:45 a.m.: S&P final U.S. services PMI

10 a.m.: ISM Services

Tuesday

8:30 a.m.: U.S. trade deficit

Research Eurozone Second-Quarter GDP Data Shows Growing Germany-Spain Divergence

Economic growth figures for the second quarter revealed a continued divergence between major eurozone economies, Capital Economics economist Franziska Palmas highlights in a note. Germany's economy contracted by 0.1% in the second quarter and is 1% smaller than in the third quarter of 2022, reflecting weakness in manufacturing and construction. Italy's gross domestic product has grown by just 1% since the same point as the post-pandemic construction boom fizzled out, Palmas says. However, Spain's economy grew 0.8% in the second quarter and is 4% larger than the third quarter of 2022, helped as immigration boosted employment and demand. These trends are likely to broadly continue for the rest of the year, Palmas says. - Ed Frankl

Basis Points A global stock-market selloff intensified Monday , spurring a more than 12% decline in Japan's Nikkei 225. Tech-focused Nasdaq-100 futures were down around 3%, paring some earlier losses, while Dow and S&P 500 futures fell at least 1.5%. - Caitlin McCabe Japanese Finance Minister Shunichi Suzuki said investors should keep a long-term perspective and remain calm, in response to a question about the plunge in Japanese stocks on Monday. - Peter Landers On Wall Street, every bad idea starts out as a good idea. And, given enough time, Wall Street will turn every bad idea into a terrible idea . Even one of the world's most celebrated investors wasn't able to buck that cold, hard truth. - Jason Zweig The Internal Revenue Service's first big batch of rejected claims of a controversial pandemic-era tax credit contains obvious mistakes by the government, tax advisers say, as the IRS struggles to separate legitimate refund requests from bogus ones. - Richard Rubin Countries around the world are throwing tens of billions of dollars at manufacturing in a race to dominate clean energy, computer chips and other technologies of tomorrow. But when it comes to lavishing support on its favored industries, China is in a league of its own . - Jason Douglas and Clarence Leong A private gauge of China's services sector signaled that activity expanded at a faster pace in July compared with a month ago, in contrast with the trend seen in official data. The Caixin services purchasing managers index rose to 52.1 in July from 51.2 in June, Caixin Media Co. and S&P Global said Monday. 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 Hardika Singh in New York. Send your tips, suggestions and feedback to [hardika.singh@wsj.com].

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


(END) Dow Jones Newswires

08-05-24 0715ET