Good day. The Federal Reserve is likely to cut its benchmark interest rate by a quarter percentage point as it wraps up its policy meeting today. The central bank also will release new economic projections at 2 p.m. EDT, and Chairman Jerome Powell will address the media at 2:30 p.m. And that's not the only Fed action going on. The central bank yesterday injected funds into money markets and plans to do more of the same today after a sudden shortage of cash caused borrowing costs to spike.

Now on to today's news and analysis.

Top News

Fed Steps Into Repo Market to Control Soaring Rates

The New York Fed Tuesday injected $53 billion into the banking system through transactions known as repurchase agreements, or repos, to pull down interest rates after technical factors led to a sudden shortfall of cash. It said it would do so again Wednesday. It was the first time the Fed had taken such action in money markets in more than a decade. The pressures were related to shortages of funds banks are facing resulting from an increase in federal borrowing and the central bank's decision to shrink the size of its securities holdings in recent years. Its reduced holdings have soaked up funds in the financial system.

Repo Rescue Leaves Many Searching for Answers

A jolt in the repo market like the one on Tuesday raises concerns among bankers, who count on repo to keep the lights on overnight, and regulators who rely on it to grease the skids of the financial system. Market participants were mostly at a loss to explain the scale of the spike.

* The Repo Market Expained, and Why Everyone's Talking About It Again

* Some Expect Tweak to Interest on Excess Reserves Rate After Spike

Fed Prepares Second Rate Cut to Cushion Against Global Risks

The Federal Reserve is likely to cut its short-term benchmark rate by one quarter percentage point to a range between 1.75% and 2% at the conclusion of its two-day meeting on Wednesday. The big question is what kind of clues the central bank offers about any more rate reductions. Hints could be provided in the Fed's new policy statement and economic projections, to be released at 2 p.m. EDT, and at Chairman Jerome Powell 's press conference at 2:30 p.m. Here's what to watch.

Other Developments Around the World

Mortgage Rates Decline Ahead of Fed Meeting

Consumers' borrowing costs have drifted lower since the Federal Reserve cut interest rates in July, fueling a wave of mortgage refinancing and helping to support household spending despite deepening economic uncertainty.

Stock History Makes Case for Limited Rate Cuts

Investors and politicians jockeying for a long cycle of interest-rate cuts from the Fed should be careful what they wish for. President Trump has criticized the central bank's monetary policy, calling for the Fed to reduce short-term rates to "ZERO, or less" to help bolster the U.S. economy. But history has shown that the stock market tends to fare well when the central bank takes a more measured approach.

EU Lawmakers Back Lagarde to Head ECB in Advisory Vote

Former International Monetary Fund chief Christine Lagarde won the European Parliament's backing to take over from Mario Draghi as European Central Bank president, effective Nov. 1.

European Union lawmakers voted 394 to 206 in favor of Lagarde's appointment. The vote was an advisory one, not binding. If confirmed by EU leaders next month, the former French finance minister will serve an eight-year nonrenewable term at the ECB, becoming the first woman to head the institution. (Dow Jones Newswires)

Trump Says China Is Buying U.S. Farm Products

President Trump said China has started to buy U.S. agricultural products, and signaled optimism that his administration will be able to sign a trade deal with China before the 2020 presidential election.

* U.S. Seeks to Heighten Scrutiny of Foreign Investment

Financial Regulation Roundup

Banks Set to Win $40 Billion in Relief From Postcrisis Rule

Banking agencies moved to ease a postcrisis rule that could free up nearly $40 billion for big global banks, the latest regulatory victory for Wall Street. The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency approved a proposal that would reduce the amount of cash large lenders, including JPMorgan Chase and Goldman Sachs Group, must post to cover the risk of trades going bad in the swaps market.

Trump Administration Seeks to Rein In Consumer Finance Agency

The Trump administration told the Supreme Court Tuesday that the Consumer Financial Protection Bureau is unconstitutional because Congress limited the president's power to remove the agency's director before his or her five-year term expires.

Need a Loan? Equifax Plans to Sell More Utility, Phone Records

Equifax Inc. will soon give consumers the option to let lenders review their electric, phone and cable payment information, the latest move aimed at providing lenders more data to determine whether to approve loan applicants. Equifax, one of the largest U.S. credit-reporting firms, is partnering with Urjanet Inc., a data aggregator that receives payment information from roughly 6,500 utility, phone and other companies.

Why Some Banks Are Ditching Their State Regulators

A national bank regulator is trumpeting his agency's oversight as a good business proposition. Banks are taking him up on it. Fifth Third Bancorp is the latest bank to seek supervision from Trump-picked regulators who have struck a friendlier tone with the industry.

Raymond James Entities Settle With SEC for $15 Million

Raymond James Financial has settled an orderwith the Securities and Exchange Commission over improperly charging fees and excess commissions and has agreed to pay the regulator $15 million.

Forward Guidance

Wednesday (all times EDT)

8:30 a.m.: U.S. Commerce Department releases August housing starts

2 p.m.: Fed releases policy statement and economic projections

2:30 p.m.: Fed's powell holds press conference in Washington

5 p.m.: Central bank of Brazil releases policy statement

Thursday

Time N/A: Central banks of Japan, Indonesia and South Africa release policy statements

3:30 a.m.: Swiss National Bank releases policy statement

4 a.m.: Norges Bank releases policy statement

6 a.m.: European Central Bank's Coeuré speaks on panel on safeguarding the euro in Frankfurt

7 a.m.: Bank of England releases policy statement and minutes

8 a.m.: European Central Bank's Lautenschläger speaks at Council on Foreign Relations in New York

10 a.m.: National Association of Realtors posts August existing-home sales

Research

Hybrid and Cybersecurity Threats and the EU's Financial System

In dealing with increasing and diversifying cybersecurity risks to the European Union's financial system, authors Maria Demertzis and Guntram Wolff encourage "regular preparedness exercises and greater consideration of systemwide regulatory issues," in a recent paper from Bruegel. They cite "risk assessments that are based on the lowest common denominator among member states" and a lack of information-sharing as factors that could cause underestimation of risks. "A more worrying aspect is the governance setup to manage cyber and hybrid threats at a more systemic level," they write. "In the EU, security questions are dealt with by and large by national authorities, while the single market is a true EU endeavor. This asymmetry of governance is problematic as the global security environment becomes less benign." They write that they "consider it necessary to advance a broader political discussion on the integration of the EU security architecture applicable to the financial system. This includes reopening the framework on foreign-investment screening in order to ensure screening of foreign investment in critical financial infrastructure at the EU level."

Commentary

A New Central Bank Approach: Pay Banks to Lend

"If you think negative interest rates are weird, brace yourself: The European Central Bank is about to start lending to some banks at less than it pays them for putting money on deposit," writes WSJ's James Mackintosh. "This perverse outcome is the result of the interaction of the ECB's multifarious efforts to boost inflation. But it could also be the first step toward creating a new weapon for monetary authorities rapidly running out of traditional firepower."

Basis Points

* U.S. industrial production rose in August, a welcome sign of resilience in the economy after recent weak readings.

* The New York Fed said firms in its district expressed "pessimism about the future business climate to the worst degree in a decade." The bank's monthly business-climate index fell 18 points to minus 15.6, showing that "on balance, firms regarded the business climate as worse than normal." (Michael S. Derby)

* Saudi Arabia will soon restore most of its oil output and fully recover within weeks, the country's oil ministry said, seeking to calm global markets reeling from twin attacks on its largest oil facilities.

* The swings in oil prices after the attack on Saudi Arabian production facilities have reminded investors that the cost is still largely driven by the world's largest exporter, despite the flow of U.S. shale output onto the market.

* Effects from the attack on Saudi oil infrastructure threatened to ripple across Asia, which has spent much of the past year increasing its reliance on crude exports from the kingdom.

* Neither Prime Minister Benjamin Netanyahu nor his main rival commanded a majority after Israelis voted Tuesday, exit polls suggested, possibly opening a period of uncertainty over Israel's next government as conflict flares between Iran and U.S. Mideast allies.

* The United Auto Workers strike against General Motors could detract further from the U.S. economy at a time of mounting global uncertainty, but it would take a lengthy stoppage to inflict widespread pain, economists say.

* Joe Biden wants to improve economic and social programs instead of creating sweeping new ones. Is that enough for today's Democratic Party?

* President Nicolás Maduro's authoritarian Venezuelan government has cautiously begun implementing free-market policies to tame hyperinflation and correct an economic contraction. So far, that approach is providing a sliver of light to the moribund economy.

(END) Dow Jones Newswires

September 18, 2019 08:38 ET (12:38 GMT)

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