Good day. U.S. consumer spending was strong during the fall but it was held back by low inventories, the Federal Reserve said Wednesday in its Beige Book report. That left the U.S. economy growing at a "modest to moderate" pace, according to the periodic collection of business anecdotes from around the country. It also noted that businesses throughout the U.S. reported rising input costs and said they were passing them on to customers, and that most firms expect supply-chain disruptions to persist into next year, causing prices to continue to rise. Elsewhere, Turkey's central bank moved Wednesday to prop up the free-falling lira, selling foreign reserves after protests erupted in recent days. Economic pressures have been mounting for ordinary Turkish people, who are struggling with rising prices of food, fuel, medicine and other essential goods.

Now on to today's news and analysis.

Top News

Supply Imbalances Continued Holding Back Growth, Beige Book Says

The U.S. economy grew at a "modest to moderate" pace this fall, with supply-chain issues and labor shortages holding back growth despite strong demand, the Federal Reserve said Wednesday.

The Fed report, a periodic collection of business anecdotes from around the country known as the Beige Book, found that consumer spending throughout the U.S. was strong but held back by low inventories. Strong demand allowed firms to raise prices with "little pushback" from consumers, and increases were widespread throughout the economy.

Bond Investors Bet on Low Peak Interest Rates

U.S. government-bond yields have climbed a lot this year, writes The Wall Street Journal's Sam Goldfarb. Some analysts are concerned that they haven't risen even further. The reason is that the world has moved closer with each passing month to the day when investors think that the Federal Reserve will raise its benchmark federal-funds rate above its current level near zero.

Derby's Take:

By Michael S. Derby

The performance of the Treasury bond market over recent weeks is again suggesting that the idea of a clear link between the central bank's asset buying and the movement of yields remains tenuous. In the time the Fed has employed bond purchases to bolster the economy, an unorthodox strategy during the financial crisis and its aftermath now elevated to a normal part of the monetary-policy toolkit, economists have struggled to measure what the central bank gets for its buying.

U.S. Economy

Yellen Defends Spending Plans Amid Angst Over Higher Inflation

Treasury Secretary Janet Yellen on Wednesday defended Democrats' efforts to pass a roughly $2 trillion social-spending package, amid Republicans' criticisms that fiscal policy implemented earlier this year overstimulated the economy and fueled higher inflation.

Is Inflation Sticking Around? Bicycle Makers Offer Some Clues

Government Shutdown Deadline Nears as Deal Eludes Lawmakers

Lawmakers worked Wednesday to reach an agreement on a short-term spending patch to avoid a potential partial government shutdown this weekend, with Democrats and Republicans still haggling over the details of the funding extension.

Low Initial Jobless Claims Reflect Tight Labor Market

The number of people filing new claims for unemployment benefits is expected to have remained near pandemic lows last week as employers continued to hold on to their workers in a tight labor market.

Key Developments Around the World

Turkish Central Bank Props Up Collapsing Lira

Turkey's central bank moved Wednesday to prop up the country's collapsing currency, selling foreign reserves after the lira reached new lows following comments by President Recep Tayyip Erdogan in defense of his economic policies.

The Turkish lira fell again this morning after President Erdogan replaced finance minister Lutfi Elvan following reported clashes over Mr. Erdogan's unorthodox view that high interest rates stoke inflation.

Bank of Mexico Cuts Economic Growth Forecast for 2021

The Bank of Mexico lowered its forecast for economic growth in 2021 to 5.4% from 6.2% previously, citing an unexpected contraction of 0.4% in the third quarter from the second quarter that interrupted the country's recovery after four consecutive periods of growth.

China's Digital Currency Challenge: Winning Hearts and Minds

China has convinced financial policy makers everywhere of its resolve to create a digital version of its currency, even helping to spur the Federal Reserve to study developing an electronic version of the dollar.

Financial Regulation Roundup

Capital One Is Latest Bank to Ditch Overdraft Fees

Capital One Financial Corp. said it will stop charging customers overdraft fees, making it one of the largest banks to do so. For years, politicians and consumer advocates have said the fees disproportionately affect Black families and those with low and moderate incomes.

Big Tech's Liability Shield Is Under Siege

House lawmakers are moving ahead with legislation that would make internet platforms more accountable to online users by scaling back sweeping legal protections technology companies have enjoyed since the 1990s, posing a major challenge to Big Tech in the coming year.

Forward Guidance

Thursday (all times ET)

9 a.m.: European Central Bank's Panetta chairs panel at ECB conference on fiscal policy and Economic and Monetary Union governance

11 a.m.: Fed's Quarles gives speech on his departing thoughts at American Enterprise Institute event

11:30 a.m.: Richmond Fed's Barkin, San Francisco Fed's Daly speak on the labor market at Peterson Institute for International Economics event; Atlanta Fed's Bostic speaks in live interview at Reuters Next event

Friday

3:30 a.m.: European Central Bank's Lagarde speaks in online Q&A at Reuters Next event

6 a.m.: Bank of England's Saunders gives speech at BOE event on the outlook for inflation and monetary policy

8 a.m.: European Central Bank's Lane chairs lecture by Ricardo Reis, London School of Economics, at ECB conference on fiscal policy and Economic and Monetary Union governance

8:30 a.m.: U.S. Labor Department releases November jobs report

9:15 a.m.: St. Louis Fed's Bullard speaks on economy and monetary policy at Missouri Bankers Association conference

Research

Barclays Games Out Impact of Fed Rate Rise on Money Market

Barclays now believes the Federal Reserve will raise interest rates three times in 2022 and slow the pace of its asset buying faster than the central bank currently plans. Barclays also expects that even as the Fed raises rates, money markets will remain flooded with cash, which could blunt the impact of a policy shift by the central bank. "With reserves balances over $4 trillion and nearly $1.5 trillion in the [Fed's reverse repo facility,] we expect it will be difficult for short-term interest rates to trade much above the interest rate floor," Barclays Managing Director Joseph Abate wrote in a note to clients.

-- Michael S. Derby

Commentary

Omicron Could Widen Blue-Red Economic Divide

The conventional wisdom at the start of the pandemic was that there was no trade-off between lives and livelihoods, and while that might have been true in some countries, in the U.S. infections and economic activity appear to be inversely related, Greg Ip writes.

Manufacturers' Reprieve Could Be Ruined by Omicron -- or Not

American manufacturers' supply-chain problems began to ease last month, but now manufacturers face the risk that the Omicron variant of Covid-19 could quickly turn that into old news, Justin Lahart writes.

Omicron Potentially a Stabilizing Force for OPEC+

With member states' balance sheets and geopolitical interests often pulling it in different directions, OPEC+ can be one unwieldy ship for Saudi Arabia to maneuver. Ironically, the Omicron variant could prove to be a stabilizing force, Jinjoo Lee writes.

Basis Points

U.S. factory activity grew robustly in November, albeit at the slowest pace in 11 months as labor and supply bottlenecks continued to hit production, according to a survey of purchasing managers. The IHS Markit final U.S. Manufacturing Business Activity PMI stood at 58.3 in November, marginally down from 58.4 in October, and below the preliminary estimate of 59.1. (Dow Jones Newswires)

Hiring by U.S. private-sector employers kept a robust pace in November, with nonfarm private employment up by 534,000, data from ADP National Employment Report showed Wednesday, beating the 506,000 rise forecast by economists polled by The Wall Street Journal. The number of jobs added in October was slightly revised to 570,000. (DJN)

Construction spending in the U.S. increased 0.2% in October compared with September, data from the Commerce Department showed, broadly in line with economists' expectations. Residential construction fell 0.5% on month, with outlays on construction of new single-family homes down 0.8% from September. (DJN)

Canadian building permits climbed in October, on the strength of intentions to build hospitals, renovate office space and expand airport facilities. The total value of building permits rose 1.3% on a month-over-month basis to a seasonally adjusted 10.29 billion Canadian dollars, or the equivalent of $8.05 billion, Statistics Canada said. (DJN)

The Caixin China purchasing managers index dropped to 49.9 from 50.6 in October, indicating that overall business conditions faced by Chinese manufacturers were broadly unchanged, according to data released Wednesday by Caixin Media Co. and researcher Markit. A reading below 50 indicates contraction of activity, while a result above 50 means an expansion. (DJN)

U.K. retail prices rose year-on-year in November for the first time in two and a half years, with prices set to continue rising over the Christmas period, according to the latest report by Nielsen and the British Retail Consortium. Overall, prices in British stores rose 0.3% in the month compared with a decline of 0.4% in October, the report said. (DJN)

U.K. national average house prices are set to climb by 5% on average in 2022 amid strong buyer demand and a historically low available amount of property, according to new data from property portal Rightmove PLC. (DJN)

Mexican business, labor and government representatives agreed to raise the daily minimum wage by 22% in 2022 to 260 pesos ($12) on the northern border and 173 pesos ($8) in the rest of the country, the private-sector organization CCE said. The increase includes 9% to cover inflation, which is currently around 7%, and an additional amount aimed at recouping the purchasing power of the minimum wage. (DJN)

South Korea's headline inflation accelerated in November to a decade high, remaining above the central bank's annual 2% target for an eighth consecutive month. The benchmark consumer-price index gained 3.7% from a year earlier following October's 3.2% rise, the statistical office said. (DJN)

(END) Dow Jones Newswires

December 02, 2021 09:12 ET (14:12 GMT)

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