US ECONOMY & POLITICS

Inflation Fears Drove Larger Fed Rate Increase in June – Wall Street Journal, 7/7/2022

• Federal Reserve officials agreed at their meeting last month they would have to raise interest rates faster and to levels high enough to slow economic growth because of the worsening inflation picture.
• Officials voted to raise their benchmark rate by 0.75 percentage point in June, the largest increase since 1994, and several officials have indicated since then that they are prepared to support another such increase at their meeting later this month.
• “Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the minutes said.
• The minutes showed an unusual level of agreement among the 18 officials who participate in the policy-setting meetings: All but one supported the 0.75-point increase.
• More broadly, officials last month saw risks that inflation would stay higher for longer than they had previously anticipated.
• The minutes revealed growing unease among policy makers that the recent period of high inflation could change consumer psychology in ways that sustain high inflation.
• Economists believe expectations of future inflation can be self-fulfilling, which means the Fed could be required to lift rates to levels that push even harder on the monetary brakes if those expectations rise.
• Officials last month saw signs that consumers’ and businesses’ longer-term expectations “could be beginning to drift up to levels inconsistent with” the Fed’s 2% inflation goal, the minutes said.

U.S. Jobless Claims Rose Sightly Last Week, Staying Near Prepandemic Levels – Wall Street Journal, 7/7/2022

• New applications for unemployment benefits edged higher last week, but still hovered near recent lows, indicating the labor market remains solid as the economy shows signs of slowing.
• Initial jobless claims, a proxy for layoffs, rose to a seasonally adjusted 235,000 last week from 231,000 the week before, the Labor Department said Thursday. The figure stands just above the 2019 prepandemic weekly average of 218,000, when the labor market was also strong.
• The four-week moving average for claims, which smooths weekly volatility, inched up to 232,500 last week, an increase of 750 from the previous week’s average.
• Continuing claims, a proxy for the total number of people receiving payments from state unemployment programs, rose to 1.4 million in the week ended June 25 from a revised 1.3 million in the previous week.
• Continuing claims are reported with a one-week lag.

U.S. Trade Gap Narrowed in May as Imports of Goods Slowed – Wall Street Journal, 7/7/2022

• The U.S. trade deficit narrowed for the second straight month in May, as a decrease in goods spending by American households held down import growth while exports of energy products increased.
• The trade gap in goods and services shrank 1.3% in May from the previous month to $85.5 billion, the Commerce Department said Thursday, down from April’s revised $86.7 billion.
• Imports rose 0.6% to $341.4 billion, driven by a rise in crude oil imports. Exports rose 1.2% to $255.9 billion due to increased exports of crude oil and natural gas.
• Imports of consumer goods fell $1.5 billion as a result of Americans’ cooling appetite for goods purchases.

Mortgage Rates Fall to 5.30%, Reflecting Recession Fears – Wall Street Journal, 7/7/2022

• Mortgage rates recorded their largest decline this year as investors raise their bets that the economy is headed for a downturn.
• The average rate on a 30-year fixed-rate mortgage fell to 5.30%, mortgage-finance giant Freddie Mac said Thursday. That is down from 5.70% last week but far above 3.22% at the beginning of the year.
• Monthly mortgage payments remain at the least affordable level in years. The typical U.S. household will spend an additional $400 on its mortgage payment each month than it would have in January, according to the Federal Reserve Bank of Atlanta.
• In April, the typical American household would have needed 41.2% of its income to cover monthly mortgage payments, according to the Atlanta Fed.

US, Allies Discuss Capping Russian Oil at $40-$60 a Barrel to Cut War Financing – Bloomberg, 7/7/2022

• The US and its allies have discussed trying to cap the price on Russian oil between $40 and about $60 a barrel, according to people familiar with the matter.
• Allies have been exploring several ways to limit Russia’s oil revenues while minimizing the impact on their own economies in discussions that began in the run-up to the Group of Seven summit.
• At the summit in Germany on June 28 leaders agreed to explore options to cap prices by banning insurance and transportation services needed to ship Russian crude and petroleum products unless the oil is purchased below an agreed price.
• The range spans from what is believed to be Russia’s marginal cost of production and the price of its oil before the Feb. 24 invasion of Ukraine, the people said. The Biden administration considers a cap of $40 to be too low, two of the people said.
• The latest data shows that China has doubled in the three months ending in May what it spends on Russian oil, gas and coal. India shelled out $5.1 billion in the same period, more than five times the value of a year ago.

EUROPE & WORLD

China Considers $220 Billion Stimulus With Unprecedented Bond Sales – Bloomberg, 7/7/2022

• China’s Ministry of Finance is considering allowing local governments to sell 1.5 trillion yuan ($220 billion) of special bonds in the second half of this year, an unprecedented acceleration of infrastructure funding aimed at shoring up the country’s beleaguered economy.
• The bond sales would be brought forward from next year’s quota, according to people familiar with the discussions, who asked not to be identified because they aren’t authorized to speak publicly.
• It would mark the first time the issuance has been fast-tracked in this way, underscoring growing concerns in Beijing over the dire state of the world’s second-largest economy.
• The debt would mostly be used to pay for infrastructure spending, an old playbook that policy makers are using to boost an economy hit by Covid lockdowns and a housing slump.
• The funding would add to 1.1 trillion yuan in new support for infrastructure announced over the past few weeks, as President Xi Jinping’s government tries to get the economy back on track toward achieving its annual growth target of around 5.5%.

European Gas Extends Scorching Rally With Supply Fears Mounting – Bloomberg, 7/7/2022

• Natural gas in Europe headed for the longest stretch of daily gains in more than nine months as persistent fears of deeper supply cuts by Russia spread through the market.
• Benchmark futures, which have more than doubled their value over the past month, surged as much as 9% for a seventh day of increases. The crisis has also sent power prices to record highs as Moscow’s tightening hold on energy supplies brings the risk that Europe may struggle to keep the heat and lights on this winter.
• A key pipeline from Russia to Germany is supplying at just 40% of its capacity and is scheduled to close for seasonal maintenance starting next week.
• Russia slashed flows through the link last month, citing technical issues with turbines that need to be serviced in Canada — with one already stuck there following Ottawa’s sanctions against Moscow.
• German Economy Minister Robert Habeck urged Canada to release the turbine before the Nord Stream maintenance begins, which would remove an excuse for Moscow to continue capping supplies.

Boris Johnson Resigns Amid Scandals but Says He Will Remain U.K.’s Prime Minister Until Successor Is Found – Wall Street Journal, 7/7/2022

• Boris Johnson said Thursday that he would step down as British prime minister, following a wide-scale rebellion in his party, capping an astonishing fall from grace for a politician who once looked poised to dominate U.K. politics for years.
• The step bookends an extraordinary 36 hours in British politics in which more than 50 ministers and senior government aides resigned, leaving the British government in a state of paralysis.
• Flanked by remaining members of his cabinet, his wife and senior officials while standing outside Downing Street, Mr. Johnson was unapologetic and didn’t refer to the scandals that brought him down. “I want you to know how sad I am at giving up the best job in the world. But them’s the breaks,” he said.
• Mr. Johnson ultimately was felled because his lawmakers could no longer trust him to tell them the truth. Earlier this year, Mr. Johnson was fined by British police for breaking Covid-19 lockdown rules by attending a party in Downing Street. He had spent weeks assuring Parliament no such parties took place.
• Most recently, Mr. Johnson had to apologize for appointing a deputy chief whip despite knowing he had a history of allegedly making unwanted advances toward men, a debacle that proved a final straw for many in his party.

Shell Says Fuel-Refining Margins Could Add $1 Billion to Quarterly Earnings – Wall Street Journal, 7/7/2022

• Shell said it expects strong second-quarter profit from higher fuel-refining margins that could add more than $1 billion to earnings, while forecasts for sustained high energy prices boosted the value of its oil and gas holdings.
• The London-based oil major said Thursday that it expects the outlook for energy prices will allow the company to reverse between $3.5 billion to $4.5 billion in impairments it took early in the pandemic, when sagging demand had a big impact on energy-price forecasts.
• Shell provided the guidance Thursday ahead of second-quarter earnings scheduled for July 28. The company said that overall marketing and sales profits in the second quarter will be higher than the previous quarter but in line with the second quarter of 2021.
• The company said it projects higher overall refining margins in the second quarter despite an expected loss from chemicals refining in the period, reflecting price inflation that is eating into profit margins from refining those products.
• The increased fuel-refining margins in the quarter could add $800 million to $1.2 billion to earnings for the period, the company said.

China unveils plans to spur car demand, may extend EV tax break – Reuters, 7/7/2022

• China on Thursday announced a raft of new steps to spur consumer demand for cars, saying it would consider extending a tax break for electric vehicles and outlining plans to build more charging stations and encourage lower charging fees.
• The plans, announced by the Ministry of Commerce as part of a joint statement with 16 other departments, boosted shares of Chinese automakers, with Geely surging 6% and Great Wall Motor rising 4%.
• The commerce ministry statement did not make a mention of any extension of subsidies for what China calls new energy vehicles – a program that has been credited with supercharging the sector’s growth.

Factmonster – TODAY in HISTORY

• Twenty-five years after her execution, Pope Calixtus III annulled the heresy charges brought against Joan of Arc. (1456)
• William Blount of Tennessee became the first U.S. senator to be impeached. (1797)
• Commodore John D. Sloat occupied Monterey and declared California annexed to the United States. (1846)
• The United States annexed Hawaii. (1898)
• An Elvis Presley recording was played on the radio for the first time. (1954)
• President Ronald Reagan nominated Sandra Day O’Connor for the Supreme Court. (1981)