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Federal Reserve officials see another interest-rate increase soon, but held back on any indication of accelerating the pace of hikes. And Trump looks to be giving in to China hawks within the Republican party. Here are some of the things people in markets are talking about.

Fed Signals Another Hike ‘Soon’

Federal Reserve officials said the economic outlook warranted another interest-rate hike “soon” and signaled they would welcome a modest overshoot of their 2 percent inflation target, indicating they're in no rush to tighten more aggressively, according to minutes released Wednesday of their May 1-2 meeting.  A temporary period of inflation “modestly above 2 percent would be consistent with the committee's symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations,” according to the minutes. While the report all but confirms the central bank is on track to raise interest rates at their next meeting in June, Fed officials were reluctant to declare victory on achieving their inflation goal on a sustainable basis.

Stocks Rebound, 10-Year Treasuries Slip Below 3%

U.S. stocks erased losses following the release of the Fed minutes, while yields on 10-year Treasuries slid below 3 percent. Markets in Europe tumbled as weak manufacturing data added to concern that growth is slowing in the region and U.K. inflation figures trailed expectations, denting prospects for a rate increase. The Stoxx Europe 600 Index sank the most in two months, the euro fell to a six-month low and the pound weakened. The yen jumped as traders sought havens. Oil retreated from the highest in more than three years after a surprise increase in U.S. supplies.

Trump Bows to China Hawks

U.S. President Donald Trump is backing away from the trade agreement the U.S. just announced with Beijing, under pressure from China hawks among his supporters and in Congress who have assailed the accord as a capitulation. “Our Trade Deal with China is moving along nicely, but in the end we will probably have to use a different structure in that this will be too hard to get done and to verify results after completion,” Trump said on Twitter on Wednesday. After boasting of the deal’s benefits for farmers in tweets on Monday, Trump first indicated on Tuesday he was having second thoughts as some of his loyalists publicly criticized the agreement. U.S. Commerce Secretary Wilbur Ross will head back to Beijing next month to continue talks. 

Turkey Raises Rates to Halt Lira’s Plunge

Turkey’s central bank raised interest rates at an emergency meeting on Wednesday, bowing to pressure from financial markets after the government’s rejection of higher borrowing costs plunged the nation into a currency crisis. The central bank raised its late liquidity window rate by 300 basis points to 16.5 percent. It kept other rates unchanged, describing the move as a “powerful monetary tightening” and saying it’s ready to continue using all instruments. The lira rebounded after earlier slumping. The central bank acted after three weeks of turmoil in Turkey’s currency markets. Need to catch up? Here’s what the lira’s plunge says about Turkey’s economy.

U.S. Softens North Korea Expectations

Secretary of State Mike Pompeo said the U.S. wants North Korea to take “credible steps” toward giving up its nuclear weapons program, as the Trump administration backs away from demands that Kim Jong Un complete denuclearization before economic sanctions are eased. “Our posture will not change until we see credible steps taken toward the complete, verifiable and irreversible denuclearization of the Korean peninsula,” Pompeo said Wednesday in testimony to the House Foreign Affairs Committee. “It’s time to solve this once and for all.” Trump said it will be clear by next week whether the June 12 summit will proceed.

What we’ve been reading

This is what’s caught our eye over the last 24 hours.

• Deutsche Bank may cut 10,000 jobs as it plans a retreat from equities markets globally.
• The directors of 1MBD confirmed the company is insolvent and unable to repay debts that could amount to almost $7 billion.
• Paul Krugman joins the chorus of doomsayers on emerging markets.
• Goldman Sachs warns against the rise of the machines.
• Bitcoin enters a bear market, falling below $7,500 for the first time since April.
• Here’s how much money you need for bankers to think you’re rich.
• A U.S. employee in China suffered a brain injury in a case recalling the Cuba sound “attack.”

--With assistance from Garfield Clinton Reynolds.

To contact the editor responsible for this story: Boris Korby at bkorby1@bloomberg.net

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