The Fed’s on the Right Path. Look at the Rest of the World.

The euro zone is also on track to raise rates some more, though its economy is fragile. Growth in Japan is strong, but the central bank never really got around to raising interest rates. The Bank of Japan is still unsure if the country is escaping the deflation that has haunted it the past 30 years.

It could be even worse. China is in a world of hurt, and interest-rate cuts this week disappointed investors rather than boosted confidence. Then there’s Argentina, which boasts an inflation rate higher than 100%. One of the big ideas of Javier Milei, the presidential candidate who just won the most primary votes, is to abandon the peso and replace it with the dollar.

Back at home, Goldman Sachs sees the Fed holding rates steady for a while before finding room to cut next year, a view broadly in line with what markets are pricing. Bank of America sees another hike in November.

But inflation and growth could still be too hot for Powell’s liking, as strong retail sales figures suggested Tuesday. If push comes to shove, Powell will err on the side of higher rates to preserve his track record.

—Brian Swint

*** Join MarketWatch real-estate reporter Aarthi Swaminathan and Redfin CEO Glenn Kelman today at noon when they discuss what’s going on in the housing market, what emerging trends are under way, and what next for the real-estate world. Sign up here.

Try your hand at this morning’s Barron’s Daily crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.

***

Minutes Come as View Is Shifting on Next Rate Steps

As the Federal Reserve prepares to release the minutes of its July meeting later today, economic data since that meeting have shifted the debate from how high interest rates will ultimately climb to how long they have to stay high to reach the Fed’s inflation-taming goals.

• Recent data have shown a strong but cooling labor market while inflation is down sharply from last year. Fed officials, mindful that inflation remains above their 2% target, are still expected to pause on further increases above the 5.25% to 5.5% they set in July, the highest upper range in 22 years.

• In recent weeks, Fed officials have varied on their outlooks. Philadelphia Fed President Patrick Harker said rates can hold where they are, while Fed Gov. Michelle Bowman has suggested more increases will be needed.

• Minneapolis Fed President Neel Kashkari said Tuesday he’s not ready to say they’re done, but he sees positive signs that things are moving in the right direction. He suggested the Fed could take time to see more data before deciding.

• July’s stronger-than-expected retail sales numbers showed a resilient consumer even as manufacturing activity continues to struggle. A strong labor market, solid wage gains, slowing inflation, and strong household finances are helping drive consumer spending.

What’s Next: The next Fed policy meeting is Sept. 19-20. By then, there will be fresh data on the labor market, inflation, and other economic indicators. Yet, if the signals don’t dramatically shift in the coming weeks, economists and market participants are betting that Fed officials pause again.

—Megan Leonhardt and Liz Moyer

***

Intel Drops $5.4 Billion Tower Semiconductor Deal After China Delay

Intel has dropped its planned $5.4 billion acquisition of Israel’s Tower Semiconductor after failing to secure regulatory approval, the company said early Wednesday.

• The deal, originally agreed in 2022, was terminated after Tuesday’s deadline passed without approval from Chinese regulators. Intel will now have to pay a $353 million termination fee to Tower Semiconductor.

• Intel has prioritized its Foundry Services unit under CEO Pat Gelsinger, aiming to provide a domestic alternative to Taiwan Semiconductor Manufacturing. The Tower acquisition would have added people with long experience in the sector along with manufacturing facilities in Israel, the U.S. and Japan.

• “Our respect for Tower has only grown through this process, and we will continue to look for opportunities to work together in the future,” Gelsinger said in a statement.

What’s Next: Aside from the termination fee, the more painful consequence for Intel could be the blow to its plans to build up its business making chips on contract for others via its Foundry Services unit. In June, the company said it expects to be the second-largest global chip foundry next year, generating manufacturing revenue of more than $20 billion.

—Adam Clark

***

A Once-Bright Spot in the Housing Market Just Dimmed

In a bad omen for new-home construction, builder confidence faltered in August after rising for seven straight months. That casts a cloud over the housing recovery, as new-home building has been a bright spot in a sector otherwise hampered by rising mortgage rates, low supply, and higher prices.

• The National Association of Home Builders’ confidence index slumped six points in August to 50. Economists had expected confidence to hold steady around 56. Higher mortgage rates were part of the explanation.

• The average 30-year fixed-rate mortgage has been on the rise. Freddie Mac’s weekly gauge was just below 7% last week and could surpass 7% this week. Sales contracts for new homes have been rising, while signings for existing homes fell 15.6% from last year in the most recent reading.

• Housing affordability is also a challenge. Two in five homes sold in the second quarter were considered affordable for families with the median income, the second-lowest reading since the data started being tracked in 2012.

• Builders are equally split on market conditions. The confidence index’s components show builders overall were positive on conditions for present and future sales, but largely negative on traffic of prospective buyers.

What’s Next: Moody’s Investors Service is predicting that home buying costs will remain high through 2024. Sale incentives will cut into builder margins for new homes, while the lean inventory of existing homes for sale will only somewhat mitigate the strains.

—Shaina Mishkin