Inflation a Threat to Global Stability, World Economic Forum Survey Finds; Boston Fed's Collins Favors Slowing Rate Increases

Inflation a Threat to Global Stability, World Economic Forum Survey Finds; Boston Fed's Collins Favors Slowing Rate Increases By James Christie

Good day. High inflation and pressure on energy and food prices will persist and be the most serious of risks to global stability in 2025, according to findings of a survey of more than 1,200 experts and leaders by the World Economic Forum. The most serious immediate risks were identified as the energy-supply crisis following the sharp decrease in Russian energy supplies to Europe, a cost-of-living crisis followed by rising inflation and food supply shortages. Covid-19 is now seen as a relatively minor risk. Meanwhile, Federal Reserve officials are increasingly speaking out on potentially slowing the central bank's interest-rate raising campaign with a downshift to a more traditional 0.25-point increase at their next meeting. San Francisco President Mary Daly on Monday during a Wall Street Journal Live event suggested that easing the campaign's pace might be a good idea, and Boston Fed President Susan Collins on Wednesday told The New York Times she favors a quarter-point increase.

Now on to today's news and analysis.

Top News Persistent Price Pressures Seen as Top Global Risk in 2025

An annual survey carried out by the World Economic Forum shows policy makers, industry leaders and experts on risk expect high inflation and pressure on energy and food prices to persist and pose the most serious of a growing list of risks to global stability in 2025.

The survey of more than 1,200 experts and leaders, released on Wednesday ahead of the WEF annual meeting in Davos next week, presents a picture of new risks combined with the re-emergence of older threats that many current policy makers and business leaders are unfamiliar with. These older risks include inflation, cost-of-living crises, trade wars, social unrest, outflows of capital from emerging markets, geopolitical confrontation and the specter of nuclear war.

China Inflation Picks Up as Covid-19 Restrictions Fall

Inflation in China picked up in December and is expected to accelerate further in the months ahead as the economy revs up following Beijing's abrupt dismantling of its zero-tolerance measures to contain Covid-19.

December CPI Report to Show Whether Price Rises Continued to Slow

Following a fifth straight month of decline in November, the Labor Department's inflation report for December will show whether price increases continued to moderate after reaching their fastest pace in 40 years in mid-2022.

Boston Fed President Supports Rate Slowdown

Federal Reserve Bank of Boston President Susan Collins said she was leaning toward a quarter-point, or 25 basis-point, move at the central bank's next meeting, which would slow the pace of interest rate increases by the Fed. In an interview with The New York Times on Wednesday, Ms. Collins said that "I think 25 or 50 would be reasonable; I'd lean at this stage to 25, but it's very data-dependent." Ms. Collins also said she favored raising rates to just above 5 percent this year.

U.S. Economy The Latest Money Moves on Cardi B's Mind: Rising Lettuce Prices

Cardi B says lettuce is expensive. She's right. Bad weather and a crop-destroying virus have caused the price of the leafy green to soar more than any other vegetable . Lettuce prices rose 19.8% in November from a year ago, official figures show.

U.S., Taiwan Signal Eagerness to Reach Deals on Trade

The U.S. and Taiwan intend to focus on five areas this weekend during their first round of negotiations toward a trade agreement and indicated readiness to break out subset deals as the sides make progress.

USMCA Panel Rules Against U.S. in Auto Dispute With Mexico, Canada

A trade panel ruled in favor of Mexico and Canada in a dispute with the U.S. over rules to calculate regional content required for tariff-free imports of vehicles under the U.S., Mexico, Canada Agreement, officials said Wednesday.

Key Developments Around the World China Likely to Name U.S. Specialist as Ambassador to Washington

China is likely to nominate Xie Feng, a vice foreign minister, as its new ambassador to Washington, continuing a gradual tempering of the abrasive "Wolf Warrior" style defining Chinese diplomacy in recent years.

China Moves to Repair Ties With Australia by Lifting Coal Ban Indonesia Risks Confrontation With China Over Gas Project

Around a remote cluster of islands in the South China Sea, Indonesia is pushing back against Beijing's expansive claims over the strategic waterway by approving plans to develop a large natural-gas field near the Natuna Islands.

U.S., Japan Expand Security Cooperation With Steps to Counter China

The U.S. and Japan marked a new phase in their security cooperation, announcing initiatives to protect Japanese satellites, equip Tokyo with long-range missiles and upgrade U.S. Marine forces to counter China's military buildup.

Egypt Plans Spending Cuts as It Faces Economic Crisis

Egypt plans to cut spending after the IMF extended hundreds of millions of dollars in an economic bailout package, as the country struggles to pay off debts accumulated from a decadeslong building boom.

Financial Regulation Roundup FTX Says It Has Located More Than $5 Billion in Cash, Liquid Assets

Bankrupt cryptocurrency exchange FTX said it has located more than $5 billion in cash and other liquid assets and is hoping to sell hundreds of additional holdings with a book value of more than $4.6 billion.

Inside Sam Bankman-Fried's $1 Billion Bet on a Bitcoin Miner Lawyers Expect More Anti-Money-Laundering Whistleblowers

The Treasury Department's anti-money-laundering whistleblower program, which has been viewed as lacking teeth, got a shakeup in the recent omnibus spending bill that lawyers predict will result in more whistleblower cases.

IRS Shrinks Tax-Return Backlogs as Next Filing Season Nears

The Internal Revenue Service significantly shrank its backlogged pile of tax returns during 2022 but still faces a challenging tax-filing season ahead, according to a report released Wednesday.

El Salvador Legislators Pass Law Allowing Bitcoin Bond Sales

El Salvador's lawmakers approved legislation to regulate bond sales backed by crypto assets , a measure that aims to raise funds tied to the value of bitcoin and other digital assets, President Nayib Bukele said Wednesday.

Forward Guidance Thursday (all times ET)

8:30 a.m.: U.S. consumer price index for December; U.S. weekly jobless claims

8:45 a.m.: Philadelphia Fed's Harker speaks on economic outlook to Main Line Chamber of Commerce Economic Forecast 2023 and Annual Meeting

11:30 a.m.: St. Louis Fed's Bullard speaks on economic and monetary policy to Wisconsin Bankers Association Midwest Economic Forecast Forum

12:40 p.m.: Richmond Fed's Barkin speaks on economic and monetary policy at 2023 Financial Forecast of Virginia Bankers Association and Virginia Chamber

Friday

2 a.m.: U.K. industrial production for November; U.K. gross domestic product estimate for November

5 a.m.: EU industrial production for November

10 a.m.: University of Michigan preliminary U.S. consumer survey for January; Minneapolis Fed's Kashkari speaks at 2023 Regional Economic Conditions Conference in Minneapolis

10:20 a.m.: Philadelphia Fed's Harker speaks at Chamber of Commerce for Greater Philadelphia Economic Outlook

Research Inflation Eases, But Not Enough for Fed

Markets are interpreting the Federal Reserve's rate-hike downshift as dovish because there now is more clarity about what the peak fed-funds rate will be, Apollo Chief Economist Torsten Slok says in a note, and the focus on that rather than the level of inflation is a problem for the central bank. "The market takes its cue from the change in the inflation rate, and concludes that 'inflation is coming down, so everything is fine and we can trade stocks higher and credit spreads tighter,'" Mr. Slok says. But that is a problem for the Fed because it is worried easier financial conditions will further delay a move to 2% inflation. Then the Fed has no options other than staying hawkish, "and this continued hawkishness is limiting how much equity and credit markets can rally over the coming months."

-Jonathan Vuocolo

European Housing Prices Expected to Decline This Year

Housing prices in most European countries are expected to decline, though not crash, in 2023, S&P Global Ratings says. Housing prices as well as investment are likely to suffer from rapidly rising mortgage rates, S&P says, adding that it will take time for the housing market to adjust fully to higher interest rates, with some countries taking longer than others. Sylvain Broyer, EMEA chief economist at S&P Global Ratings, says that "we have found that an adjustment to higher interest rates could last up to 10 quarters and is typically twice as pronounced as after a low-rate regime." He also says "we see few if any prospects of a strong rebound through 2025."

-Stephen Nakrosis

Commentary Why Investors May Be Too Optimistic About Inflation

The basic assumption of mainstream thinking is that inflation is a temporary phenomenon, but there are plenty of grounds for thinking that the inflationary pressures on today's capitalism will last, James Mackintosh writes.

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01-12-23 0715ET