St. Louis Fed Pushes Back on Hidden Slack Argument; ECB Seen Maintaining View High Inflation Is Temporary

Good day. It appears the Federal Reserve is growing more focused on the inflation element of its dual mandate than jobs, according to sister publication Barron's, which takes a look at St. Louis Fed research that puts a dent in the argument that there is hidden slack in the jobs market. Barron's notes that Chairman Jerome Powell on Friday said it was "very possible" that the Fed would meet its full employment goal next year, which woud put interest-rate increases on the table, a possibility the market is already pricing in. Elsewhere, the chief market strategist at Santander Asset Management Germany told Dow Jones Newswires to expect the European Central Bank to reiterate at its monetary policy meeting Thursday that current high inflation is temporary.

Now on to today's news and analysis.

Top News

More Than 3 Million Retired Early. What That Means for Interest Rates.

One of the big questions for policy makers and traders alike is whether people who have left the workforce will, at some later point, jump back in.

It's hugely important because, if these workers are taking a temporary break while waiting for health conditions to improve, then the job market has more slack than the official unemployment rate would suggest. For the Federal Reserve, so-called hidden slack would be a reason to keep policy easier than it otherwise would, given the inflation battle it is simultaneously facing. But new research from the St. Louis Fed puts a dent in the hidden slack argument. (Barron's)

Santander AM: ECB to Reiterate Inflation Pressures Are Temporary

The European Central Bank is likely to reiterate at Thursday's monetary policy meeting that the current trend of high inflation is temporary, says Klaus Schruefer, chief market strategist at Santander Asset Management Germany. Although the ECB will reiterate its current policy, there will be "fairly intensive discussions about how to continue the asset purchase program next year," he says. Once the Pandemic Emergency Purchase Programme ends in March, Santander expects the ECB's regular Asset Purchase Program to be the main tool for quantitative easing. Mr. Schruefer expects the ECB will increase the APP's current monthly purchase volume of 20 billion euros and afford the scheme some of the additional flexibility contained in the PEPP program. (Dow Jones Newswires)

U.S. Economy

Democrats Negotiate Tax, Healthcare Provisions as Biden Seeks Deal

Democrats are sprinting to wrap up negotiations over their wide-ranging social-policy-and-climate bill, facing a weekend deadline to resolve disagreements on tax policy and healthcare, among other issues.

What's In and What's Out of $2 Trillion Budget Reconciliation Plan

Democrats are working to complete a framework on a roughly $2 trillion education, healthcare and climate plan they hope to approve this fall without Republican support. Here are details on where the proposal stands.

Republicans Call for Tougher Controls to Keep U.S. Tech From China

Republican China hawks in a letter to Commerce Secretary Gina Raimondo urged action to address 10 issues of " immediate concern," including strengthening export controls on semiconductors and jet engines.

Covid-19 Battle Turns a Corner as Borders Open to Foreign Travelers

When its borders open to foreign travelers on Nov. 8, the U.S. will have lifted one of the longest restrictions imposed 19 months ago at the start of the pandemic, signaling a new phase of guarded optimism in its battle with Covid- 19.

Key Developments Around the World

Rich Nations Lag Behind in Meeting Climate-Funding Pledge

Wealthy governments won't fulfill a pledge to provide $100 billion a year to help developing countries fight climate change until at least 2023, according to a new report just days before a closely watched UN climate summit starts.

China Evergrande Says Work on Some Residential Projects Resumes

China Evergrande Group said construction is progressing at some of its residential projects in southern China, as the highly indebted developer tries to stave off collapse and deliver the homes it has promised to more than a million people.

Chinese Developer Modern Land Fails to Repay U.S. Dollar Bond

Financial Regulation Roundup

Cryptocurrency Company Snared in SEC Dragnet Sues Regulator

Do Kwon, a South Korean citizen and resident, says the SEC violated it rules and sought either to embarrass him or to stir up media interest in its crackdown on the cryptocurrency market when it handed him two subpoenas.

Mastercard and Bakkt to Bring Cryptocurrency Services to the Masses

Mastercard and crypto firm Bakkt Holdings said they have partnered to enable cryptocurrency card payments to make it easier for banks, financial-technology firms and merchants to offer and accept crypto payments.

Casino Operator Crown Resorts Engaged in Illegal Behavior: Report

A report commissioned by the government in Australia's Victoria state concluded that Crown Resorts engaged in illegal and dishonest behavior and in theory isn't suitable to hold a casino license. But it stopped short of recommending that Crown be immediately stripped of its license.

Forward Guidance

Tuesday (all times ET)

8:45 a.m.: European Central Bank's Enria speaks on panel at European Banking Authority conference

10 a.m.: U.S. Commerce Department releases September new-home sales


Time N/A: Central Bank of Brazil releases policy statement

8:30 a.m.: U.S. Commerce Department releases September advance economic indicators report; U.S. Commerce Department releases September durable-goods data

10 a.m.: Bank of Canada releases interest-rate announcement and monetary policy report

11 a.m.: Bank of Canada's Macklem holds press conference


Paper Says Easy Monetary Policy Reduces Wealth Inequality

New research is pushing back on the idea that easy monetary policy exacerbates wealth inequality. As some analysts see it, low interest rates push up asset prices and thus benefit the wealthy more than they help lower unemployment for the disadvantaged. But a paper by Edward N. Wolff of New York University says that when it comes to wealth inequality and the low inflation that allows easy monetary policy, "these two monetary effects have reduced wealth inequality rather than increasing it." The paper says "asset price changes and debt devaluation accounted for 72.6 percent of the advance of mean wealth over 1983-2019," which in turn has helped lower the racial wealth gap rather than enlarging it.

-- Michael S. Derby


Inflation Pinches Restaurants; Customers Seem Willing to Split Check

Pricing power is limited for restaurants, but there is reason to believe strong customer demand will absorb higher costs, and if they can pay for more employees in a tight labor market, that alone could pay off, Charley Grant writes.

Xi's 'Common Prosperity' in Theory and Practice

President Xi Jinping's bid for a third term at China's helm would presumably be strengthened by showing he has solutions to festering problems such as inequality and unaffordable housing, Nathaniel Taplin writes.

Basis Points

U.S. banks are overrun with cash. So they are loading up on debt. The six largest U.S. lenders have issued some $ 314 billion of bonds so far this year, already the most for any year since 2008, according to Dealogic.

U.S. propane prices haven't been so high heading into winter in a decade, which is bad news for millions of rural Americans who rely on the fuel to stay warm.

The U.S. economy grew in September at a slower pace than in the previous few months, according to the Federal Reserve Bank of Chicago, whose Chicago Fed National Activity Index fell to minus 0.13 last month from 0.05 in August, below the 0.35 consensus forecast of economists polled by FactSet. (Dow Jones Newswires)

Growth in Texas factory output slowed in October compared from the previous month amid severe supply-chain bottlenecks, according to the Federal Reserve Bank of Dallas, whose production index of the Texas Manufacturing Outlook Survey fell from 24.2 in September to 18.3 this month. The reading still signals solid output growth, the Dallas Fed said. (DJN)

Business sentiment in Belgium remained unchanged in October, beating expectations for a decline, as the National Bank of Belgium business confidence gauge stayed at 4.0, unchanged from the previous month. Economists polled by The Wall Street Journal had expected a decline to 2.0. (DJN)

Chile's right-wing presidential candidate Jose Antonio Kast is leading in a new poll, overtaking leftist candidate Gabriel Boric a few weeks before the first round of voting. Pollster Cadem said Kast has 23% support versus 20% for Boric as the far-left and far-right edge out more moderate candidates. The poll still shows that more Chileans believe Boric would win in a runoff against Kast. (DJN)

  (END) Dow Jones Newswires
  10-26-21 0842ET
  Copyright (c) 2021 Dow Jones & Company, Inc.

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