Fed Signals Plan to Slow Rate Cuts; BOE and BOJ Keep Rates Steady By Vicky Ge Huang
The Federal Reserve signaled greater doubt over how much it would continue to cut interest rates after agreeing to a reduction on Wednesday that Chair Jerome Powell conceded had been a close call, Nick Timiraos writes for The Wall Street Journal.
Stocks went into a nosedive, with the major indexes all logging their worst day in months. The declines accelerated throughout the afternoon as investors digested central-bank forecasts and comments from Powell that spurred concerns that rates might not go down again soon.
That was a notable shift after the Fed initiated rate reductions with a larger than usual half-point cut in September in the midst of expectations that a steady sequence of cuts could follow.
"Today was a closer call, but we decided it was the right call," Powell said at a news conference after the meeting. He later added, "From here, it's a new phase, and we're going to be cautious about further cuts."
New projections released Wednesday show Fed officials expect inflation to be stickier next year than previously anticipated, possibly because of policy changes by President-elect Donald Trump.
The projections show officials expect to make fewer rate reductions, with most penciling in two cuts for 2025, down from four at their meeting in September. Read more .
Top News The Next Big Fed Debate: Has the Era of Very Low Rates Ended?
Investors shuddered on Wednesday after Chair Jerome Powell suggested the Federal Reserve was ready to take a break from cutting rates-and that the total quantity of reductions might be shallower than previously thought.
Powell has described recent rate reductions as an effort to recalibrate borrowing costs to a more "neutral" setting. His framing raises a question that hasn't been relevant until now: What, exactly, is "neutral" in the post-pandemic economy? Read more .
Bank of England Keeps Rates Steady After Fed Move
The Bank of England, confronted with a difficult mix of rapidly rising wages and a sluggish economy, kept rates elevated at 4.75% , holding off for the second meeting out of three and moving more slowly than its peers.
Bank of Japan Holds Rates as Uncertainties Complicate Outlook
The Bank of Japan held its policy rate steady at 0.25% as it waits for uncertainties in the U.S. to clear and for more evidence of wage growth at home, but expectations of rate hikes on the horizon remain intact.
Unable to Criticize Putin, Russian Oligarchs Turn Ire on Central Banker
Instead of blaming the war in Ukraine for the hostile business environment, Russia's business elites are pinning their discontent on the governor of the country's central bank, Elvira Nabiullina.
U.S. Economy The Hidden Threat to National Security Is Not Enough Workers
Labor shortages are now a national-security problem . They are a key reason numerous navy programs are behind schedule and over budget, writes The Wall Street Journal's Greg Ip.
Why Are Americans Paying So Much More for Healthcare Now?
The killing of a health insurance executive in New York City prompted a furious outpouring of anger over the industry and healthcare prices. So just how much have healthcare costs and spending been going up? The short answer: a lot . National healthcare spending increased 7.5% year over year in 2023 to $4.867 trillion, or $14,570 per person, according to data released Wednesday by the Centers for Medicare and Medicaid Services.
Trump Sinks Bipartisan Spending Deal, Demands Streamlined Bill
President-elect Donald Trump torpedoed a bipartisan deal struck by congressional leaders to avoid a partial government shutdown this weekend, insisting that Republican lawmakers tear up the sprawling agreement and pass a narrower bill that also includes an increase in the nation's borrowing limit.
Musk Draws First Blood With Spending Bill Bombshell Financial Regulation Trump-Backed Crypto Project Partners with Stablecoin Provider
World Liberty Financial, the crypto project backed by Donald Trump and his sons, said it has entered into a strategic partnership with Ethena Labs . Ethena Labs offers the USDe token, a stablecoin that uses financial engineering to peg its value to the U.S. dollar.
El Salvador Made Bitcoin an Official Currency. Now It's Backtracking.
The government of El Salvador's President Nayib Bukele agreed to scale back his ambitious plan to adopt bitcoin as a national currency in exchange for a much-needed $1.4 billion loan by the International Monetary Fund.
8:30 a.m.: Unemployment Insurance Weekly Claims Report - Initial Claims
10 a.m.: University of Michigan Survey of Consumers - final
10 a.m.: GDP by State
6 p.m.: Latest deadline for new funding deal to avert U.S. Government shutdown
Commentary Trump Isn't President Yet. He's Already Spooking the Fed.
The Federal Reserve can no longer deny that it is beginning to think about what Donald Trump will do as president. That in turn likely means fewer rate cuts on the horizon, writes Aaron Back for The Wall Street Journal.
The Fed's economic projections, and Chair Jerome Powell's press conference, spooked the stock market into a sharp selloff. One undeniable takeaway was concern over the president-elect's policy proposals. This sets up what could become a contentious and destabilizing relationship between the chief executive and the central bank.
Previously, Powell has publicly insisted that there is too much uncertainty in what presidential policies will be pursued, and what their impacts will be, for the Fed to start factoring them into its decision-making on rates. But there were multiple clues on Wednesday that this is changing. Read more .
Research Fed Projections May Have Included Potential Trump Effect
The central bank cut interest rates by 25 basis points, as expected, but it is now projecting two more cuts in 2025. Officials' inflation forecast is also raised. Jake Schurmeier, from Harbor Capital, says policies likely to curb growth could hit the economy before more stimulative ones, in a headwind to output expansion in the short term. - Paulo Trevisani
Basis Points European indexes fell after the U.S. Federal Reserve signaled it would slow the speed of interest rate cuts. Norway's central bank held its key policy rate at 4.5% as it pushes on with efforts to bring inflation down, but said it will likely begin monetary policy easing in March. Sweden's central bank lowered its key interest rate by a quarter of a percentage point to 2.50% and signaled that borrowing costs could be cut again next year to support the stuttering economy. German consumers feel a little less gloomy about the turn of the new year, with prospects of a fresh government and further cuts to borrowing costs. The mood at French factories was stable this month as manufacturers shrugged off the country's fractured politics and trade uncertainty, and looked forward to higher demand for their goods. Taiwan's central bank kept interest rates unchanged again, delivering a third consecutive hold as it keeps a watchful eye on inflation and signs of overheating in the housing market. The Philippine central bank cut its policy rate for the third time this year, as widely expected given low inflation and slowing economic growth, and signaled that the door to further easing remains open. New Zealand's economy contracted sharply in the third quarter, extending a bleak period of sustained recession for the South-Pacific nation, but most economists agree that the wheels of change are in motion and the outlook for 2025 will be substantially brighter. Bangladesh's reckoning poses a stiff challenge for Nobel Prize winner Muhammad Yunus, a soft-spoken development economist, who answered the call of student protesters to lead the country. 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 Vicky Ge Huang in New York. Send your tips, suggestions and feedback to [[email protected]].
This article is a text version of a Wall Street Journal newsletter published earlier today.