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Highlights
HILSENRATH'S TAKE: FIREWORKS WATCH IN EARLY JULY FOR THE FEDERAL RESERVE
Fed watchers can mark their calendars with the following dates: July 2, July 8 and July 15. During that span of 13 days next month, the Labor Department will release its next jobs report, minutes of the Fed's last policy meeting will be released and Fed Chairwoman Janet Yellen will begin two days of testimony presenting the central bank's semiannual report to Congress. The sequence of events could provide the makings for important disclosures on the central banking beat.
The jobs report will be released on a Thursday rather than the traditional Friday because of the July 4 holiday. As the Fed gets closer to raising short-term interest rates, these jobs reports take on more significance. Confirmation of continued progress and reduced slack in the labor market is central to the Fed's decision on raising interest rates. Another batch of monthly payroll gains of 200,000 or more and a reduction in the jobless rate will move the Fed closer to a September interest rate increase.
Minutes of the Fed meeting -- the next batch released July 8 -- are an increasingly important signaling device for the central bank as liftoff approaches, as they are likely to reveal the contours of the Fed's discussion about rates. The April minutes provided the key clue for the June meeting: "Many participants ... thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied." Minutes from the June meeting, likewise, are likely to set the tone for the July and September meetings.
On July 15 Ms. Yellen begins two days of testimony before Congress. She will start out before the House Financial Services Committee. By then she will be armed with more information on the economy's performance -- including that earlier jobs report -- and could provide the next big clues on where the Fed is heading. Much of her first day before combative House Republicans will likely be consumed in questions from lawmakers on ongoing investigations into leaks from the Fed. It will be a test of her composure. Because Ms. Yellen is not attending the Fed's annual retreat in Jackson Hole, Wyo. in August, it will also be one of her key moments in the spotlight this summer.
-By Jon Hilsenrath
MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD
Fed's Yellen Headed Back to Capitol Hill in Mid-July. Federal Reserve Chairwoman Janet Yellen is headed back to Capitol Hill, where she could face some heat from House Republicans over an ongoing leak probe.Ms. Yellen will appear before the House Financial Services Committee on July 15 to present the Fed's semi-annual Monetary Policy Report, and she will appear before the Senate Banking Committee the next day, July 16.
Fischer: Fed Wants Industry to Weigh In On Street Tests. The Fed is seeking input from the financial industry and others with the goal of improving its stress tests of big banks, Fed Vice Chairman Stanley Fischer said Wednesday. The Fed's annual stress tests of large banks are intended to evaluate how they would withstand economic and financial turmoil.
Fed Still Won't Reveal Stress Test Model. Fed officials aren't changing their minds about revealing the models that lie at the heart of their stress tests of the nation's biggest banks. The Fed's decision to keep under wraps the details of the models it uses to crunch the stress-test results is a source of longstanding frustration for the banks that must go through the test each year.
NY Fed: Last Pieces of Repo Reform Will Take Longer. The Federal Reserve Bank of New York said the two large Fed clearing banks, Bank of New York Mellon Corp. and J.P. Morgan Chase & Co., and other market participants would likely need more time to complete remaining overhauls in a corner of financial markets that contributed to the 2007-2009 crisis. The New York Fed said in a statement that the two clearing banks have made progress in reducing the amount of intraday credit they are extending to dealer banks to below a self-imposed target, a sign of approval from the central bank about work completed in the reforms.
Powell Transcript. Wall Street Journal chief economics correspondent Jon Hilsenrath interviewed Fed governor Jerome Powell in a live event in Washington, D.C., on Tuesday to explore how the Fed is navigating the tough decisions that loom. Here is a full transcript from the conversation.
China Agrees to Limit Currency Interventions, Jacob Lew Says. China has committed to limiting its currency interventions to moves countering damaging swings in exchange rates, U.S. Treasury Secretary Jacob Lew said Wednesday after high-level talks with top officials visiting from Beijing.
PBOC Cash Injection May Dim Hopes for Stronger Easing. China's central bank injected cash into the financial system for the first time in 10 weeks, signaling its intention to reduce borrowing costs in a struggling economy after a recent spike. The central bank's move is meant to quench banks' seasonal thirst for funds. But resorting to liquidity adjustments in the money market likely diminishes the chances of imminent, more-forceful monetary policy easing such as cutting banks' reserve requirements, analysts say.
Weidmann Says ECB's Emergency Funding Calls Into Question Greek Banks' Solidity. The continued provision of emergency funding to Greek banks calls their solidity into question, German Bundesbank head Jens Weidmann said Thursday, as the European Central Bank takes daily decisions on providing Greek banks with emergency liquidity--Dow Jones Newswires.
Fragile Greek Banks Leave Little Room for Tsipras. Greece's increasingly fragile banking system is limiting Prime Minister Alexis Tsipras's room to bargain for better bailout terms and, more than anything, has shoved him toward compromise, Greek officials say. As nervous Greek savers continue to pull their money from banks, the country's four major lenders are being sustained by a life-support drip of emergency liquidity reviewed daily by the European Central Bank. If the ECB chooses to end that assistance, Greece would be forced overnight into a perilous regime of capital controls.
No Easy Fix For Sky High Swiss Franc, Says SNB. The head of the Swiss National Bank reiterated the franc remains "significantly overvalued," even as he cautioned the central bank had no easy fix for the problems the strong currency was causing Switzerland.
Brazil Central Bank Raises Inflation Forecast, Signals Rate Increases. The bank raised its forecast for inflation in 2015 to 9.0% in its quarterly inflation report, published on Wednesday, from 7.9% in its previous report. It also cut its forecast for gross domestic product this year to a contraction of 1.1% from a contraction of 0.5%. The bank has been raising its benchmark interest rate, known as the Selic, since 2013 as consumer prices have climbed. The bank's goal is to keep 12-month inflation at 4.5%, with a tolerance range of two percentage points in either direction.
Taiwan Stands Pat on Interest Rates But Warns of Uncertain Outlook. Taiwan's central bank on Thursday left its benchmark interest rates unchanged, as expected, as low fuel prices kept inflation well below the official target. Still, the bank warned of an uncertain global outlook, brought about by diverging monetary policies in the world's major economies. While the U.S. is embarking on interest-rate normalization, Europe, Japan and China are freeing up more funds to spur growth, it said, adding that more volatile fund flows could disrupt a recovering global economy.
MERS Outbreak Prompts South Korean Stimulus Package. South Korea on Thursday slashed its growth forecast for the year and announced a fiscal stimulus package to support an anemic economy hit by a viral-disease outbreak. The stimulus, aimed at offsetting the economic impact of Middle East respiratory syndrome, comes two weeks after the Bank of Korea lowered its base rate to a record-low 1.5%, citing the virus's impact.
Hungary May Make Small Rate Cuts as It Nears End of Easing Cycle. After reducing its main policy rate to a record low earlier this week, Hungary's central bank confirmed Thursday that further, small rate cuts are possible as it nears the end of its easing cycle. "Barring any shocks, further small-size rate cutting may come and the bottom of the cutting cycle may be near," Daniel Palotai, central bank executive director, said at a briefing before the bank released its latest report on inflation--Dow Jones Newswires.
GRAPHIC CONTENT
Slipping Foreign Reserves in Emerging Markets. Central banks in emerging markets are running down their foreign-currency reserves at the fastest pace since the financial crisis, reducing some countries' capacity to weather potential shocks, such as a rate increase in the U.S. Total foreign-exchange reserves in emerging countries are estimated to have dropped $222 billion to $7.5 trillion during the first quarter, according to a Wall Street Journal analysis of International Monetary Fund data.
FORWARD GUIDANCE
-8 a.m. EDT: Fed's Tarullo speaks on the economy and financial regulation in New York
-1300 GMT (9 a.m. EDT): ECB's Praet speaks in Frankfurt
-9:45 a.m. EDT: Fed's Powell speaks on "Building a Safer Payment System" in Kansas City, Mo.
-12:10 p.m. EDT: BOC's Schembri speaks in Windsor, Ontario
-Czech National Bank releases a policy statement
RESEARCH
(MORE TO FOLLOW) Dow Jones Newswires
June 25, 2015 07:04 ET (11:04 GMT)
Falling Oil Prices and Global Saving. The New York Fed's Thomas Klitgaard and Patrick Russo study how changes in oil prices affect savings. "One can argue that the drop in oil prices will lower global saving in 2015 because it shifts income away from oil-exporting countries that have had a relatively high propensity to save. There are many factors affecting global saving and investment spending, such as monetary and fiscal policies, demographics, and productivity. Considered by itself, though, the drop in oil prices will put downward pressure on global saving and lead to higher interest rates than would otherwise be needed to get global saving to equal investment spending."
COMMENTARY
The Euro's Paradox. The Journal's Greg Ip argues that the euro is suffering from problems of its own design. "The euro itself fueled the imbalances that produced the crisis, and robbed members of the ability to absorb the shock. The fixes the bloc has undertaken since 2010 and the ones Mr. Juncker has now put forward don't fully resolve that paradox," he writes.
Cut the Military, Not Pensions. Benn Steil and Dinah Walker write in a blog post for the Council on Foreign Relations that Greece and its creditors should target defense spending rather than pensions. "What depresses us is how little attention has been paid to one major area of Greek government spending that seems ripe for the ax: defense spending. Greece spends a whopping 2.2% of GDP on defense, more than any NATO member-state save the United States and France. Greece has long argued that its defense posture is grounded in a supposed threat from Turkey -- also a big spender on things military. But surely the United States and the major western European powers can keep a cold peace between NATO allies at much lower cost," they write.
BASIS POINTS
The Philippine central bank left overnight rates unchanged Thursday, with inflation expected to stay within the lower end of the target 2.0%-4.0% target for this year. Overnight rates had been at 4.0% for borrowing and 6.0% for lending since the last quarter-point increase in September last year--Dow Jones Newswires.
First-Quarter GDP Slowdown Less Severe Than Estimated. Gross domestic product, the broadest sum of goods and services produced across the economy, contracted at a 0.2% seasonally adjusted annual rate in the first quarter, the Commerce Department said Wednesday.
Americans Working More Than At Any Point Since 2008. Work and work-related activities averaged three hours, 35 minutes per day last year, an increase of seven minutes from 2013, the Labor Department said Wednesday in its latest American Time Use Survey report. That was the most time spent on work since the recession year of 2008.
Nationwide, about 15% of homes worth less than $200,000 were underwater as of the end of March, according to CoreLogic, a real-estate information firm. Meanwhile, just 6% of homes worth more than $200,000 were underwater during the same period.
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(END) Dow Jones Newswires
June 25, 2015 07:04 ET (11:04 GMT)
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