5 Things You Need to Know to Start Your Day

Good morning. The Federal Reserve is expected to pause interest-rate hikes, the dollar rallies again and Pimco’s wealth business booms in As [View in browser]( [Bloomberg]( Good morning. The Federal Reserve is expected to pause interest-rate hikes, the dollar rallies again and Pimco’s wealth business booms in Asia. Here’s what’s moving markets. —[ Kristine Aquino]( Fed pause [The Fed will probably pause rate increases for a second time this year]( and keep borrowing costs in a range of 5.25% to 5.5%, in a policy decision due on Wednesday at 2 p.m. in Washington. Chair Jerome Powell, who will hold a press conference 30 minutes later, has signaled that Fed leaders would prefer to wait to evaluate the impact of past increases on the economy as they near the end of their rate-hiking campaign. Yet some investors, including Pimco money manager Geraldine Sundstrom, say [markets are underestimating the risk of another rate hike before year-end](. “Higher for longer” is likely the mantra for US rates as “inflation will remain a little bit stickier than expected,” Sundstrom said. Dollar comeback [The dollar is roaring back as the US economy defies pessimistic forecasts](, while growth falters in China and Europe. The US currency rapidly reversed declines in July, upending bets on a pullback that were predicated on the prospect that Fed rate hikes are nearing an end. Now, its revival is evoking memories of 2022, when the dollar delivered economic shocks by pushing up the price of commodities in global markets and increasing the burden of foreign debts. “The dollar is a beast again,” said Jupiter Asset Management Mark Nash, who abandoned his bearish dollar position in the middle of the year. Pimco in Asia [Pimco’s wealth-management business in Asia has grown this year at the fastest pace since 2018,]( with assets for the region excluding Japan climbing 20% in August from the previous year. Rising interest rates are driving more investors into fixed income for stable yield, a departure from the days when many Asia clients chased aggressive returns. The company is also seeing the wealthy allocate more money to private credit, according to Marcio Bogoricin, Pimco’s executive vice president. The firm has grown its wealth team in Singapore by about 30% in three years, and has been hiring for other offices including Hong Kong, Taiwan and mainland China. Lower yields S&P 500 and Nasdaq 100 futures drifted higher by 0.2% as of 5:53 a.m. in New York. Treasury yields fell across the board, taking their cue from sliding UK bond rates after inflation unexpectedly slowed. The Bloomberg Dollar Spot Index traded near the lows of the day, lifting most Group-of-10 currencies. Brent crude retreated from $95, falling more than 1%. Gold was little changed, while Bitcoin declined for the first time in three days. Coming up… At 7 a.m., we’ll get data on US mortgage applications, followed by EIA crude oil inventories at 10:30 a.m. The Fed will deliver its rate decision at 2 p.m., followed by Chair Powell’s press conference at 2:30 p.m. Earnings include KB Home, FedEx, General Mills. What we’ve been reading This is what’s caught our eye over the past 24 hours: - [Traders in the UK brace for the end of rate hikes]( after inflation cools - Why Dollar General might be [the worst retail job in America]( - [Goldman is nearing a deal to sell](installment-lending platform Greensky - [Canada’s allegations that India orchestrated a Sikh leader’s death](have been brewing for weeks - Former Singapore prime minister’s son was [charged with financial crime]( - [The best hotel in the world]( is a 24-room building in Italy’s Lake Como - [Rupert Murdoch has turned on Donald Trump](, according to Michael Wolff’s The Fall And finally, here's what Joe’s interested in this morning Good morning and Happy Fed Day. [Read this preview]( of today's event from Steve Matthews. The big Wall Street banks are unanimous in their view that there will be a pause in the rate hike cycle today. Then from there it's TBD. Lately there has been a whiff of anxiety about further upward inflationary pressure (The rise in oil prices probably has something to do with that) and so a lot of attention will be paid to the dots. As it stands right now, several FOMC members see some kind of rate cuts in 2024, and one question is whether these dots get moved up, with cut expectations pushed out further into the future. All that being said, while today is a day for monetary policy, what's clearly on a lot of people's minds is fiscal policy. This is a chart I like to post from time to time, showing how historically there was a fairly visible link between deficits (as a share of GDP) and the unemployment rate. And yet that has totally broken down, with deficits having jumped, despite rock bottom unemployment. Rising deficits along with rising rates is calling attention to the increased spending that's just on interest payments alone. Big names like Bill Gross, Jeff Gundlach, and Ray Dalio have all been talking about fiscal dynamics lately. But it's not just investing boldfaces on this beat. It was something that was clearly on the minds of attendees at Jackson Hole last month, [with Barry Eichengreen having delivered a paper on the subject while there](. Various pundits and commentators have been on this beat. [Noah Smith had a big thing]( earlier this week on why an age of austerity would inevitably arise. Citrini Research posted a big piece this week on the [era of US fiscal primacy](. Lots of others have been talking about it as well, in a way that feels somewhat new vs. the deficit and debt hawks of yore. There's a lot of different angles that one can go with to explore fiscal policy. But here's two related things I've been wondering about. One is that in the past, rates would somehow come lower as part of an implicit deal between the Fed and the fiscal authorities. Under Volcker and Greenspan, there were at times more or less explicit messages that if Congress and the President would do some kind of deficit reduction, then rate cuts were more likely. So it'll be interesting to see whether any version of that politics re-manifests itself. Also in the 2010s, the big story was slow employment growth, and an inability to hit the Fed's inflation target from the other side. Inflation kept coming in lower than 2%. And the 2010s were, of course, an era of relative fiscal modesty, with divided government helping to take any big spending bills off the table. So you gotta wonder whether we're back to that theme, where fiscal plays a big role in determining whether inflation gets fully back to the Fed's goals or not, except from the other side, and whether sustained, abnormally large deficits keep us in an era where the inflation "misses" continue to be to the upside. Follow Bloomberg's Joe Weisenthal on Twitter [@TheStalwart]( Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's Five Things to Start Your Day: Americas Edition newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. [Unsubscribe]( [Bloomberg.com]( [Contact Us]( Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022 [Ads Powered By Liveintent]( [Ad Choices](