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Tag: finance and investments

  • What’s changed since Powell last headed to Capitol Hill | CNN Business

    What’s changed since Powell last headed to Capitol Hill | CNN Business

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    Minneapolis
    CNN
     — 

    Federal Reserve Chair Jerome Powell is set to appear before the Senate Banking Committee Tuesday to deliver the first part of his two-day semiannual monetary policy testimony before Congress.

    It’s his first appearance before the committee since June last year, when inflation was on its way to 9%.

    Powell is expected to speak to the progress the US central bank has made in its yearlong campaign to rein in high inflation by ratcheting up its benchmark interest rate from near zero to between 4.5% to 4.75%.

    Inflation has slowed in recent months, measuring 6.4% in January after hitting a 40-year high of 9.1% in June. However, the battle is not yet won, and Powell and other Fed officials have cautioned that disinflation will be bumpy and there’s a long “ways to go.”

    Fed policymakers have warned in recent weeks that interest rates will likely have to remain higher for longer in order for inflation to settle down to the central bank’s 2% target.

    This time last year, Powell’s congressional address came on the heels of Russia’s invasion of Ukraine, surging gas prices and a significant escalation in US inflation. The economy continuing to rebound and repair itself from the lingering effects of the pandemic — including the disruptions of the Omicron variant.

    Faced with a strong labor market, uncertain geopolitical developments and surging inflation, Powell told members of Congress then that he’d likely propose a quarter-point rate hike at the central bank’s forthcoming meeting.

    It’s now March 2023, and the central bank is faced with an “extraordinarily strong” labor market, ongoing geopolitical uncertainty and stubborn inflation. However, there are signals that some inflationary pressures have eased: China’s economic growth was recently downgraded; and supply chain disruptions are easing, the Federal Reserve Bank of New York reported Monday.

    The markets are currently expecting the Fed to make another quarter-point rate hike during its next meeting two weeks from now: The CME FedWatch Tool is showing a 69.4% probability of such a hike. However, the perceived chances of a half-point increase (at 30.6%) have grown considerably during the past few weeks. One month ago, the probability for a half-point increase was 3.3%, according to the CME FedWatch Tool.

    Still, several major pieces of economic data — including the latest labor turnover report, monthly jobs report, Consumer Price Index, Producer Price Index, and retail sales — are all due ahead of the Fed’s next policymaking meeting on March 21-22.

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  • JPMorgan Chase CEO Jamie Dimon says Ukraine invasion is a top economic concern | CNN Business

    JPMorgan Chase CEO Jamie Dimon says Ukraine invasion is a top economic concern | CNN Business

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    New York
    CNN
     — 

    The war in Ukraine and US-China relations are two of JPMorgan Chase CEO Jamie Dimon’s largest economic concerns, he said Monday.

    “The thing I worry the most about is Ukraine,” he told Bloomberg Television in an interview Monday morning. “It’s oil, gas, the leadership of the world, and our relationship with China — that is much more serious than the economic vibrations that we all have to deal with on a day-to-day basis.”

    Russia’s invasion of Ukraine began more than a year ago and has roiled the global economy, leading to energy and food price shocks, along with global supply chain disruptions that fueled surging inflation across the world and led to painful interest rate hikes from the world’s central banks.

    “This is the most serious geopolitical thing we’ve had to deal with since World War II,” Dimon said Monday, also highlighting the war’s impact on relations with China.

    Beijing enjoys a close relationship with Moscow, and the Chinese government has been purchasing Russian energy and supplying machinery, electronics, base metals, vehicles, ships and aircraft, throwing the Kremlin an economic lifeline.

    In recent months, tensions between the United States and China have increased as the countries compete for dominance of the microchip industry and argue over tariffs, US support for Taiwan and potential spy balloons.

    Dimon said JPMorgan Chase is taking an active role in improving the relationship between the United States and China by advising and engaging with both governments on keeping cordial relations. He’s hoping that “cooler heads prevail” but he doesn’t believe a business solution exists to ease growing disputes. While JPMorgan Chase does a fair share of business with Beijing, it’s the government, not private enterprise, that has to smooth tensions, he said.

    “We probably should have started resetting this 10 years ago,” he said. The US government has to sit down and have a “very serious conversation with the Chinese government,” he said.

    Dimon added that he believes the war in Ukraine could continue for years to come.

    On the home front, Dimon is still holding out hope for the possibility that the Federal Reserve can execute a soft landing — lowering interest rates while avoiding recession. But overall, his outlook remains cloudy.

    “A mild recession is possible, a harder recession is possible,” he said Monday. “I think there’s a good chance that inflation will come down, but not enough by the fourth quarter — the Fed may actually have to do more,” he said.

    Dimon did note that the US consumer is still very healthy: Home prices and wages are high, households still have more money in their bank accounts than they did before the pandemic and they’re still spending it.

    Consumers are in great shape, he said. “But that’s going to end at some point.”

    Still, even if America does enter a recession, he said, consumers are much stronger and will be able to better withstand a downturn than they were in 2008.

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  • Investor Mark Mobius says he cannot get his money out of China | CNN Business

    Investor Mark Mobius says he cannot get his money out of China | CNN Business

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    Mark Mobius has said he cannot take his money out of China due to the country’s capital controls, cautioning investors to be “very, very careful” about investing in an economy under a tight government grip.

    “I have an account with HSBC in Shanghai. I can’t take my money out. The government is restricting flow of money out of the country,” Mobius, founder of Mobius Capital Partners, told FOX Business in an interview published on March 2.

    “I can’t get an explanation of why they’re doing this … They’re putting all kinds of barriers. They don’t say: No, you can’t get your money out. But they say: give us all the records from 20 years of how you made this money … This is crazy.”

    Mobius’ comments were circulated on Chinese social media site WeChat at the weekend.

    Mobius led emerging market investment at Franklin Templeton Investments for three decades and is known for his bullish view on China. Now, though, he said, he “would be very, very careful” investing in the country.

    “The bottom line is that China is moving in a completely different direction than what Deng Xiaoping instituted when they started the big reform program,” he said, referring to the former Chinese leader.

    “Now you have a government which is taking golden shares in companies all over China. That means they’re going to try to control all of these companies … So I don’t think it’s a very good picture when you see the government becoming more and more control-oriented in the economy.”

    Mobius, who calls himself “the Indiana Jones of Emerging Market investing,” told FOX Business he’s increasing exposure to alternative markets such as India and Brazil.

    Mobius and HSBC could not be reached at the weekend.

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  • More rate hikes are needed, says Fed’s Mary Daly | CNN Business

    More rate hikes are needed, says Fed’s Mary Daly | CNN Business

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    New York
    CNN
     — 

    Federal Reserve policymakers will need to raise interest rates higher and keep them there longer to tackle the higher prices caused by sticky inflation, San Francisco Fed President Mary Daly said Saturday.

    “It’s clear there is more work to do,” Daly said in a speech at Princeton University. “In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary.”

    Daly acknowledged that high inflation and the aggressive policy action taken by the Fed to bring it down have caused panic on Main Street and Wall Street. “The responses range from fearing these actions will tip the economy into a recession to fearing they won’t be enough to get the job done,” she said.

    That fear has led volatile market swings upon each release of new economic data as uncertainty leads investors to “look for answers in the immediate,” said Daly, “but achieving our mandated goals takes time and a broader view.” The Fed’s current tightening regimen, she said, “was and remains appropriate given the magnitude and persistence of elevated inflation readings.”

    High inflation levels in goods, housing and other sectors along and strong economic data, she said, has led her to question the momentum of disinflation.

    Daly does not currently vote on Fed policy decisions but is a member of the Federal Open Market Committee and participates in policy meetings.

    Her speech followed a week of similar warnings from the Federal Reserve.

    Minneapolis Federal Reserve President Neel Kashkari said last Wednesday that he’s “open to the possibility” of a larger interest rate increase in the Fed’s March policy meeting, “whether it’s 25 or 50 basis points.” (That’s a quarter or half of a percent. A basis point is one hundredth of one percent).

    Atlanta Fed President Raphael Bostic also said Wednesday that he believes the Fed needs to raise its policy rate by half a percentage point at the next meeting.

    On Thursday, Fed Governor Christopher Waller warned that painful interest rates could go higher than expected, citing a slew of recent stronger-than-expected economic data.

    The Federal Reserve has lifted its target range for interest rates from near zero to between 4.5% to 4.75% over the past year in their fight against inflation. In February, they slowed the pace of their hikes to a quarter of a percentage point, down from half a percent in December. Inflation reached a 40-year high in 2022 but began to fall in the final quarter of the year. January’s inflation data showed that the rate of prices increases had inched up once again.

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  • ‘We are in limbo:’ Student loan borrowers still face months of uncertainty about Biden’s forgiveness program | CNN Politics

    ‘We are in limbo:’ Student loan borrowers still face months of uncertainty about Biden’s forgiveness program | CNN Politics

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    Washington
    CNN
     — 

    More than 40 million federal student loan borrowers could be eligible for up to $20,000 in debt forgiveness, but they will likely have to wait several more months before the Supreme Court rules on whether President Joe Biden can implement his proposed relief program.

    The Supreme Court heard oral arguments last week in two cases challenging Biden’s student loan forgiveness program, but justices aren’t expected to issue their decision until late June or early July.

    When the ruling comes will also determine when federal student loan payments, which have been paused due to the pandemic since March 2020, will restart.

    Some borrowers have been anxiously waiting for years to see if Biden would fulfill his campaign pledge to cancel some federal student loan debt. The president finally announced a forgiveness plan last August.

    But after 26 million people applied, the program was blocked by lower courts in November – before any debt could be canceled.

    “In some ways, it feels like we are one step closer now that they’ve heard the oral arguments, but until a decision is made, it still feels like we are in limbo,” said Lindsay Clausen, who has about $68,000 in student loan debt and works as an instructional designer at a university.

    Clausen, 33, filed for relief from Biden’s forgiveness program last fall as soon as the application was open, hoping the forgiveness would help her and her husband save for a new home and expand their family.

    “I felt relief, and then it was like a rug was pulled from underneath me,” Clausen said.

    “Whichever way SCOTUS (Supreme Court of the US) decides to rule, it will at least be nice to have an answer,” she added.

    The Biden administration has estimated that more than 40 million federal student loan borrowers would qualify for some level of debt cancellation, with roughly 20 million who would have their balance forgiven entirely, if the forgiveness program is allowed to move forward.

    But not everyone with a federally held student loan would qualify.

    Individual borrowers who earned less than $125,000 in either 2020 or 2021 and married couples or heads of households who made less than $250,000 annually in those years could see up to $10,000 of their federal student loan debt forgiven. Those with higher incomes would be excluded.

    If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness. Pell grants are a key federal aid program that help students from the lowest-income families pay for college, but these borrowers are still more likely to struggle paying off their student loans.

    Student debt cancellation would deliver financial relief to millions of Americans, potentially helping them buy their first homes, start businesses or save for retirement.

    But those who have already paid off their student loans, or chose not to borrow money to go to college to begin with, would get nothing. And the estimated $400 billion cost of canceling some debt would shift to all taxpayers.

    At last week’s hearing, several of the conservative justices questioned whether that tradeoff is fair, while liberal Justice Sonia Sotomayor pushed back, arguing how many borrowers “don’t have friends or families or others who can help them make these payments.”

    The back-and-forth on fairness touches on one of the biggest complaints about the nation’s higher education system: many people feel they need to go to college, and as a result borrow money, to get ahead.

    Angel Enriquez, a 30-year-old meteorologist with about $61,000 in student loan debt, is one of those people.

    Angel Enriquez poses for a portrait at Bizzell Memorial Library at the University of Oklahoma on June 3, 2022.

    His parents, immigrants from Mexico, couldn’t afford to help him pay for college. Enriquez was wait-listed at a state school that had a meteorology program, so he instead enrolled at a more expensive school out of state. He is now pursuing a master’s degree, which he felt he needed to stand out in a competitive industry.

    “When you talk about fairness, it’s a complicated argument,” Enriquez said.

    “But if you talk to someone who comes from poverty, or someone who’s a person of color, they are going to benefit from the forgiveness program the most because they’re the ones that have to jump through extra financial hoops in order to get where everyone else in the educated country is,” he said.

    For some students, college degrees do not deliver the step up in the world they hoped for.

    Even though Blake Goddard worked part-time jobs while in college, he still had to borrow nearly $90,000 for his bachelor’s degree in network communications management from DeVry University. In an effort to land a higher-paying job in the information technology industry, he then earned his master’s degree, borrowing another $44,000.

    Despite those degrees, most of his jobs have been temporary contract positions, and many of his co-workers opted for getting lower-cost IT industry certifications rather than a four-year degree.

    Blake Goddard poses for a portrait in his home on June 10, 2022.

    Meanwhile, the Department of Education has found that DeVry University, a for-profit college, misled at least 1,800 borrowers with false advertising about job placement rates.

    While Goddard, 45, considers himself “one of the lucky ones” who would qualify for $20,000 of debt relief, the cancellation wouldn’t make too much of a dent in his more than $150,000 balance.

    His debt, Goddard said, is “so detrimental” to his American dream, which was to buy a house and have a family.

    “I was stupid enough to fall for it,” Goddard said about taking out student loans.

    “I wish we could make it so nobody else in this country falls into the same trap,” he added.

    Now, he’s committed to helping others avoid borrowing so much money for college and volunteers with an organization that helps students pursue careers in STEM fields.

    One criticism of Biden’s one-time forgiveness program is that it would do nothing to address the cost of college for future students.

    A more permanent solution to the college affordability problem would have to be created by Congress, but lawmakers have failed to pass any sweeping measure. A provision to make community college free was dropped from Biden’s Build Back Better agenda before it came to a vote in the House in 2021.

    The Biden administration is also working on changes to existing federal student loan repayment plans, which don’t need congressional approval, and that aim to make it easier for borrowers to pay for college.

    The Department of Education is currently finalizing a new income-driven repayment plan to lower monthly payments as well as the total amount borrowers pay back over time. In contrast to the one-time student loan cancellation program, the new repayment plan could help both current and future borrowers.

    Additionally, in July, changes will be made to the Public Service Loan Forgiveness program, which allows certain government and nonprofit employees to seek federal student loan forgiveness after making 10 years of qualifying payments. The changes will make it easier for some borrowers to receive debt forgiveness.

    If the Supreme Court ultimately gives the student loan forgiveness program the green light, it’s possible the government will begin issuing some debt cancellations fairly quickly. The administration has said it already approved 16 million applications for relief.

    But several of the conservative justices expressed skepticism last week about whether Biden has the power to implement his student loan forgiveness program.

    Lawyers for the government have remained confident that their plan is legal. They point to a 2003 law passed after the September 11, 2001, terrorist attacks that grants the secretary of education power to make sure people are not worse off in respect to their student loans in the event of a national emergency.

    “I’m confident we’re on the right side of the law,” Biden told CNN a day after the oral arguments when asked if he was confident the administration would prevail in the case. “I’m not confident of the outcome of the decision yet.”

    If the Supreme Court strikes down Biden’s student loan forgiveness program, it could be possible for the administration to make some modifications to the policy and try again – though that process could take months.

    The pandemic pause on payments will remain in effect until either 60 days after the Supreme Court’s decision, or late August – whichever comes first.

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  • CFPB: What it does and why its future is in question | CNN Business

    CFPB: What it does and why its future is in question | CNN Business

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    New York
    CNN
     — 

    The US Supreme Court decided this week to hear a case that will consider the constitutionality of funding for the Consumer Financial Protection Bureau and, in doing so, test the constraints of US regulators’ power. The case would be heard in the fall, with a decision likely by summer 2024.

    But what is the CFPB? How does its work affect your wallet? And why is its future potentially at risk?

    The agency was created after the 2008 financial meltdown, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That law was passed in the wake of the 2007 subprime mortgage crisis and the Great Recession that followed.

    The broad purpose of the CFPB is to protect consumers from financial abuses and to serve as the central agency for consumer financial protection authorities.

    Prior to its creation, as the agency notes on its site, “[c]onsumer financial protection had not been the primary focus of any federal agency, and no agency had effective tools to set the rules for and oversee the whole market.”

    The CFPB has regulatory authority over providers of many types of financial products and services, including credit cards, banking accounts, loan servicing, credit reporting and consumer debt collection.

    It is charged with implementing and enforcing consumer protection laws, making rules and issuing guidance for consumer financial institutions. And it is the place consumers can go to lodge complaints about financial products and services.

    Importantly, Dodd-Frank also gave the agency new authority to determine whether any given consumer financial product or service is unfair, deceptive or abusive and therefore unlawful.

    While there are critics of the agency’s current structure and funding, it has saved consumers money, made it easier for them to seek redress and to get better clarity and more tailored responses from companies when they have a problem with their accounts, loans or credit reports.

    “It has completely changed the consumer financial marketplace. Overall it has had a tremendous impact on making it more fair and transparent,” said Lauren Saunders, associate director of the National Consumer Law Center.

    For instance, the CFPB has taken action against bank overdraft policies. “Arguably, the focus on overdraft practices has led some banks to eliminate or reduce their overdraft fees,” said Christine Hines, legislative director of the National Association of Consumer Advocates.

    And it has gone after institutions for saddling consumers with pointless products, excessive fees and punitive terms.

    Both Hines and Saunders made a special note of CFPB’s actions against Wells Fargo, after the agency found the bank had been engaging in multiple abusive and unlawful consumer practices across several financial products between 2011 and 2022 — from auto loans to mortgage loans to bank accounts.

    Last month, the agency required the bank to pay more than $2 billion to customers who were harmed by such practices, plus a $1.7 billion fine that will go into a relief fund for victims.

    “More than 16 million accounts at Wells Fargo were subject to their illegal practices, including misapplied payments, wrongful foreclosures, and incorrect fees and interest charges,” the agency said in a blog post.

    In the area of mortgages, “CFPB has written rules to implement new protections so that mortgage lenders don’t make loans with tricks and traps that lead people to lose their homes,” Saunders said.

    It also has created other safeguards, including rules on how service providers should communicate with borrowers who want to find alternatives to foreclosure, Hines noted.

    Currently, the agency is in the midst of an effort to curb excessive or “junk” fees on a range of consumer financial products, such as credit card late fees.

    Critics of the CFPB have been trying for years to limit its power and independence, attacking the way the agency is structured and funded. Like federal banking regulators, its funding is not determined by lawmakers in Congress as part of the annual appropriations process. Rather, it gets its money from the Federal Reserve System’s earnings.

    “This nontraditional funding source limits congressional oversight of the agency and is the subject of legal challenges,” according to the Congressional Research Service.

    The latest challenge — arising from a federal appeals court ruling that CFPB’s funding violates the Constitution’s Appropriations Clause and separation of powers — is what the Supreme Court will take up in its October term.

    While it’s impossible to predict how the justices will rule, should they decide to uphold the appeals court ruling, that will put in doubt how the agency will be funded going forward, and whether it can continue to function effectively.

    It’s also unclear whether the agency’s actions and rule-making over the past 11 years would be invalidated, nor what impact it would have on banks and other financial institutions that have set up systems to be in compliance with CFPB rules and safe harbors.

    “The agency would be unable to do anything if the funding is invalidated. And prior rules could be challenged as the agency did not have a legal funding source that it could use to write those rules,” Cowen Washington Research Group analyst Jaret Seiberg said in a note to clients.

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  • What you need to know about this earnings season | CNN Business

    What you need to know about this earnings season | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    About 99% of all S&P 500 companies have reported fourth quarter earnings and the results aren’t great.

    Companies listed in the S&P 500 index beat analysts’ earnings estimates by an average of just 1.3% last quarter. For context, that’s way down on the index’s 5-year average of 8.6%, according to FactSet data.

    What’s happening: There have been some steep and disappointing profit misses as corporate America feels the sting of sticky inflation and the Federal Reserve’s interest rate hikes.

    Tech companies fared poorly this season: Apple

    (AAPL)     recorded a rare earnings miss while Intel

    (INTC)     and Google-parent company Alphabet also fell short of expectations.

    But it wasn’t all doom-and-gloom. Energy companies brought in yet another quarter of record profits, with Big Oil companies — such as Chevron, ConocoPhillips, Exxon and Shell — notching their most profitable years in history. Elsewhere, Tesla

    (TSLA)     reported record revenue gains and beat earnings expectations. Big box retailers Target

    (TGT)     and Walmart

    (WMT)     also surpassed estimates as US consumers kept on spending.

    Here’s what else traders need to know about the final few months of last year and beyond.

    Corporate profits could drop for the first time since 2020

    S&P 500 companies are on track to report a 4.6% drop in earnings year-over-year, according to FactSet data. That would mark their first earnings decline since the third quarter of 2020, when Covid shut down large swaths of the economy.

    Gloomy forecasts abound

    About 81 S&P 500 companies have issued negative earnings-per-share guidance for the first quarter of 2023, according to FactSet. That’s a lot higher than the 23 companies reporting positive guidance.

    There was no shortage of foreboding forecasts from top execs on earnings calls this season.

    Walmart beat estimates last quarter, but they also lowered expectations for future earnings.

    Home Depot

    (HD)     CEO Ted Decker said he was concerned that consumers were becoming less resilient to the economy. “We noted some deceleration in certain products and categories, which was more pronounced in the fourth quarter,” he said on an analyst call.

    Lowe’s executives, meanwhile, warned that they were preparing for a “more cautious consumer” this year.

    Investors feel like celebrating

    Wall Street traders appear to be taking this dour earnings season in their stride. The market is “rewarding positive earnings surprises more than average and punishing negative earnings surprises much less than average for the fourth quarter,” reports FactSet.

    Inflation is (still) a big deal

    More than 325 S&P 500 companies have cited the term “inflation” during their earnings calls for the fourth quarter. That’s well above the 10-year average of 157, according to FactSet document searches.

    But the worries over price hikes appear to be waning, at least a little bit. This marks the lowest number of S&P 500 companies using the “I”-word on their calls since the third quarter of 2021. Since last quarter, the number of inflation mentions has fallen by about 20%.

    ▸ ISM Services PMI — a report that measures the strength of the US service sector — is due out at 10 a.m. ET. The data is expected to show a slight slowdown in growth between January and February (54.5 in February vs. 56.5 in January. For context, a reading above 50 means the services economy is expanding).

    That deceleration would be a big deal. It would signal that the economy is beginning to cool and that the Fed’s efforts to fight inflation by raising interest rates are working. If services sector growth accelerates, however, it could signal that more aggressive rate hikes are ahead and send markets lower.

    ▸ Wall Street is anticipating (or dreading, depending on who you ask) next Friday’s unemployment report. The February data is expected to shed some light on a shockingly resilient labor market.

    Another unexpected surge in non-farm payrolls, like the 517,000 new jobs added in January, could indicate more Fed rate hikes are ahead. That could roil markets in this “good news is bad news” environment.

    Analysts expect that the economy added 200,000 new jobs last month, according to Refinitiv data.

    ▸ The Chinese economy surprised investors this week by quickly bouncing back from its zero-Covid shutdowns. China’s first consumer price index, producer price index and trade figures of 2023 are set to be released next week, which will show the full extent of the country’s rebound.

    “These numbers will offer the first official indications of mainland China’s reopening effect following the rebound seen in PMI numbers,” wrote analysts at S&P Global.

    Global manufacturing rose in February for the first time in seven months, according to the latest PMI surveys compiled by S&P Global. That growth was largely spurred on by China’s reopening.

    Shares of Silvergate Capital, a large lender to cryptocurrency firms, plunged nearly 60% — a record drop — on Thursday after the company told the Securities and Exchange Commission that it won’t be able to file its annual report on time and cited concerns about its ability to remain in business.

    The majority of Silvergate’s crypto clients, including Coinbase, Paxos, Galaxy Digital and Crypto.com, quickly cut ties with the bank amid the chaos.

    So what does it all mean?

    My colleague Allison Morrow explains: The California-based lender reported a $1 billion loss for the fourth quarter as investors panicked over the collapse of FTX, the exchange founded by Sam Bankman-Fried that is now at the center of a massive federal fraud investigation.

    FTX’s collapse in November rippled through the digital asset sector, forcing several firms to halt operations and even declare bankruptcy as liquidity dried up and investors fled.

    But unlike FTX, BlockFi, Celsius, Voyager and other crypto companies that folded last year, Silvergate is a traditional, federally insured lender that has positioned itself as a gateway to the crypto sector.

    It’s among the first major instances of crypto’s volatility spilling into the mainstream banking system — a scenario regulators and crypto skeptics have long feared.

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  • Tesla, Musk sued by shareholders over self-driving safety claims | CNN Business

    Tesla, Musk sued by shareholders over self-driving safety claims | CNN Business

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    Reuters
     — 

    Tesla

    (TSLA)     and its Chief Executive Elon Musk were sued on Monday by shareholders who accused them of overstating the effectiveness and safety of their electric vehicles’ Autopilot and Full Self-Driving technologies.

    In a proposed class action filed in San Francisco federal court, shareholders said Tesla defrauded them over four years with false and misleading statements that concealed how its technologies, suspected as a possible cause of multiple fatal crashes, “created a serious risk of accident and injury.”

    They said Tesla’s share price fell several times as the truth became known, including after the National Highway Traffic Safety Administration began investigating the technologies, and reports that the Securities and Exchange Commission was investigating Musk’s Autopilot claims.

    The share price also fell 5.7% on Feb. 16 after NHTSA forced a recall of more than 362,000 Tesla vehicles equipped with Full Self-Driving beta software because they could be unsafe around intersections.

    Tesla has said it acquiesced to the recall, though it disagreed with NHTSA’s analysis.

    “As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s common stock, plaintiff and other class members have suffered significant losses and damages,” the complaint said.

    Tesla, which does not have a media relations department, did not immediately respond to requests for comment.

    Monday’s lawsuit led by shareholder Thomas Lamontagne seeks unspecified damages for Tesla shareholders from Feb. 19, 2019 to Feb. 17, 2023. Chief Financial Officer Zachary Kirkhorn and his predecessor Deepak Ahuja are also defendants.

    Tesla’s share price closed Monday up $10.75, or 5.5%, at $207.63, but the stock has lost about half its value since peaking in Nov. 2021.

    Musk is expected at Tesla’s March 1 investor day to promote the company’s artificial intelligence capability and plans to expand its vehicle lineup.

    The case is Lamontagne v Tesla Inc et al, U.S. District Court, Northern District of California, No. 23-00869.

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  • The US dollar is at a crossroads | CNN Business

    The US dollar is at a crossroads | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    Wall Street investors are reaching for their neck braces in preparation for yet another volatile swing in stock markets: A surging US dollar.

    The greenback — which is not just the dominant global currency but also “the key variable affecting global economic conditions,” according to the New York Federal Reserve — reached a 20-year high last year after the Fed turned hawkish with its aggressive rate hikes.

    Since then, inflation seemed to have softened, pushing the dollar down. But in recent weeks, as a slew of economic data has shown the Fed’s inflation battle is far from over, the currency soared by about 4% from its recent lows, and now sits near a seven-week high.

    Investors are stressing about this sudden rebound, since a stronger dollar means American-made products become more expensive for foreign buyers, overseas revenue decreases in value and global trade weakens.

    Multinational companies, naturally, aren’t thrilled about any of this. And around 30% of all S&P 500 companies’ revenue is earned in markets outside the US, said Quincy Krosby, chief global strategist for LPL Financial.

    What’s happening: The US dollar “finds itself at a significant crossroads yet again,” said Krosby. “While the Fed remains steadfastly data dependent, the dollar’s course as well remains focused on inflation and the Fed’s monetary response.”

    “The strong US dollar has been a headwind for international earnings and stock performance (for US investors),” wrote Wells Fargo analysts in a recent note.

    February was a rough month for markets: The Dow ended February down 4.19%, the S&P 500 fell 2.6% and the Nasdaq lost just over 1%.

    What’s next: Investors are clearly focused on the next Fed policy meeting, which is still three weeks away, for signals about the direction of rates. But until then, investors may gain some insight Tuesday when Fed Chairman Jerome Powell speaks before the Senate Banking Committee.

    They’ll also be watching next Friday’s jobs report for any softening in the labor market that could temper the Fed’s hawkish mood.

    Don’t forget the debt ceiling: Another significant threat to the dollar is looming in Congress — the ongoing debt ceiling fight. The United States could start to default on its financial obligations over the summer or in the early fall if lawmakers don’t agree to raise the debt limit — its self-imposed borrowing limit — before then, according to a new analysis by the Bipartisan Policy Center.

    That could potentially lead to a disastrous downgrade to America’s credit rating and could send the dollar spiraling as investors start to sell off their US assets and move their money to safer currencies.

    “It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world. And Americans — many people — would lose their jobs and certainly their borrowing costs would rise,” Treasury Secretary Janet Yellen told CNN in January.

    ▸ A lot has changed in the last twenty years. The gender pay gap hasn’t.

    In 2022, US women on average earned about 82 cents for every dollar a man earned, according to a new Pew Research Center analysis of median hourly earnings of both full- and part-time workers.

    That’s a big leap from the 65 cents that women were earning in 1982. But it has barely moved from the 80 cents they were earning in 2002.

    “Higher education, a shift to higher-paying occupations and more labor market experience have helped women narrow the gender pay gap since 1982,” the Pew analysis noted. “But even as women have continued to outpace men in educational attainment, the pay gap has been stuck in a holding pattern since 2002, ranging from 80 to 85 cents to the dollar.”

    ▸ Initial jobless claims, which measures the number of people who filed for unemployment insurance for the first time last week, are due out at 8:30 a.m. ET on Thursday.

    This will be the last official jobs data investors see before February’s heavily anticipated unemployment report next Friday.

    Economists are expecting 195,000 Americans to have filed for unemployment, which is higher than the seasonally adjusted 192,000 who applied two weeks ago.

    Initial claims have come in lower than expected in recent weeks and remain well below their pre-pandemic levels.

    The white-hot labor market in the US added more than 500,000 jobs in January, blowing analysts’ expectations out of the water and bringing the unemployment rate to its lowest level since May of 1969.

    That’s bad news for the Federal Reserve where policymakers have been attempting to tame inflation by cooling the economy through painful interest rate hikes.

    ▸ It’s a big day for groceries. Kroger (KR), Costco (COST) and Anheuser-Busch (BUD) all report earnings on Thursday.

    Investors will be watching closely for clues about consumer sentiment during an uncertain retail earnings season. On Tuesday, Kohl’s reported that it had a rough holiday season and executives at the company put the blame on inflation. The company said higher prices squeezed sales and forced it to mark down some products to entice shoppers — which hurt its profit margin.

    Those comments echoed those of other big box retailers like Walmart (WMT) and Target (TGT), who have said consumers are feeling the pinch of inflation.

    Still, Target and Walmart’s bottom lines were bolstered by food sales even as consumers pulled back on discretionary purchases.

    The US Senate voted on Wednesday to overturn a Biden administration retirement investment rule that allows managers of retirement funds to consider the impact of climate change and other ESG factors when picking investments.

    As my CNN colleagues Ali Zaslav, Clare Foran and Ted Barrett write: The rule is not mandated – it allows, but does not require, the consideration of environmental, social and governance factors in investment selection.

    Republicans complained that the rule is a “woke” policy that pushes a liberal agenda on Americans and will hurt retirees’ bottom lines.

    “This rule isn’t about saying the left or the right take on a given environmental, social, or governance issue is ‘correct,’” countered Senator Patty Murray (D-WA) on the Senate floor Wednesday. “It’s about acknowledging these factors are reasonable for asset managers to consider.”

    The measure will next go to President Joe Biden’s desk as it was passed by the House on Tuesday. The administration, however, has issued a veto threat. As a result, passage of the resolution could pave the way for Biden to issue the first veto of his presidency.

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  • Senate votes to overturn Biden administration retirement investment rule Republicans decry as ‘woke’ | CNN Politics

    Senate votes to overturn Biden administration retirement investment rule Republicans decry as ‘woke’ | CNN Politics

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    CNN
     — 

    The Senate passed a politically charged resolution on Wednesday to overturn a Biden administration retirement investment rule that allows managers of retirement funds to consider the impact of climate change and other environmental, social and governance factors when picking investments.

    Republicans complain the rule is “woke” policy that pushes a liberal agenda on Americans and will hurt retirees’ bottom lines, while Democrats say it’s not about ideology and will help investors.

    The measure, which would rescind a Department of Labor rule, will next go to President Joe Biden’s desk as it was passed by the House on Tuesday. The administration, however, has issued a veto threat. As a result, passage of the resolution could pave the way for Biden to issue the first veto of his presidency.

    Opponents of the rule could try to override a veto, but at this point it appears unlikely they could get the two-thirds majority needed in each chamber to do so.

    The resolution, authored by GOP Sen. Mike Braun of Indiana, only needed a simple majority to pass. It passed on a vote of 50 to 46 with Democratic Sens. Joe Manchin of West Virginia and Jon Tester of Montana voting with Republicans.

    Republican lawmakers advanced it under the Congressional Review Act, which allows Congress to roll back regulations from the executive branch without needing to clear the 60-vote threshold in the Senate that is necessary for most legislation.

    Opponents of the rule have argued that it politicizes retirement investments and that the Biden administration is using it as a way to push a liberal agenda on Americans.

    “The Biden Administration wants to let Wall Street use workers’ hard-earned savings to pursue left-wing political initiatives,” Senate GOP leader Mitch McConnell said in remarks on the Senate floor on Tuesday morning.

    Republican Sen. John Barrasso of Wyoming said at a news conference on Tuesday, “What’s happened here is the woke and weaponized bureaucracy at the Department of Labor has come out with new regulations on retirement funds, and they want retirement funds to be invested in things that are consistent with their very liberal, left-wing agenda.”

    Supporters of the rule argue that it is not a mandate – it allows, but does not require, the consideration of environmental, social and governance factors in investment selection.

    Senate Majority Leader Chuck Schumer said on Wednesday that Republicans are “using the same tired attacks we’ve heard for a while now that this is more wokeness. … But Republicans are missing or ignoring an important point: Nothing in the (Labor Department) rule imposes a mandate.”

    “This isn’t about ideological preference, it’s about looking at the biggest picture possible for investments to minimize risk and maximize returns,” he said, noting it’s a narrow rule that is “literally allowing the free market to do its work.”

    The statement of administration policy saying that Biden would veto the measure similarly states, “the 2022 rule is not a mandate – it does not require any fiduciary to make investment decisions based solely on ESG factors. The rule simply makes sure that retirement plan fiduciaries must engage in a risk and return analysis of their investment decisions and recognizes that these factors can be relevant to that analysis.”

    Republicans are also working to advance a measure to rescind a controversial Washington, DC, crime law – which critics argue is soft on violent criminals – with a simple majority vote in the Senate.

    Many Democrats oppose overriding the DC law. They argue local officials should make their own laws free of congressional interference and decry Republicans as hypocrites since they typically promote state and local rights.

    A Senate vote on the DC measure is expected next week.

    This story and headline have been updated with additional developments.

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  • UK house prices post sharpest fall since 2012 as high mortgage rates hurt | CNN Business

    UK house prices post sharpest fall since 2012 as high mortgage rates hurt | CNN Business

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    London
    CNN
     — 

    UK house prices last month saw their biggest annual decline since November 2012, in the latest indication of the lasting pain that former Prime Minister Liz Truss’s ill-fated “mini” budget inflicted on Britain’s property market.

    The average price of a house fell 1.1% to £257,406 ($310,000) in February compared with a year earlier, taking UK house price growth into negative territory for the first time since June 2020, lender Nationwide said Wednesday.

    House prices have now declined for six months in a row and are 3.7% below their August 2022 peak, according to Nationwide’s index based on purchases involving a mortgage.

    “The recent run of weak house price data began with the financial market turbulence in response to the mini budget at the end of September last year,” Nationwide’s chief economist Robert Gardner said in a statement.

    “While financial market conditions normalized some time ago, housing market activity has remained subdued,” reflecting “the lingering impact on confidence, as well as the cumulative impact of the financial pressures that have been weighing on households for some time,” he added.

    The “mini” budget unveiled in September by Truss and then-finance minister Kwasi Kwarteng collapsed UK bond prices, sent borrowing costs soaring and sparked chaos in the mortgage market, as lenders withdrew hundreds of products, and deals fell through.

    “The economy has largely moved on from the mini budget, but the hangover for the UK housing market is more prolonged. We’re still seeing the effects of higher mortgage rates in the last three months of last year,” said Tom Bill, head of UK residential research at broker Knight Frank.

    Surging food and energy costs alongside feeble pay growth have also taken a bite out of household budgets, weighing on consumer confidence and housing market activity.

    “Inflation has continued to outpace wage growth, and mortgage rates remain significantly higher than the lows recorded in 2021,” said Gardner at Nationwide. “Even though consumer sentiment has improved in recent months, it is still languishing at levels prevailing during the depths of the financial crisis.”

    According to Bill, activity since Christmas has been “solid” but prices still have further to fall. He expects a decline of 5% this year.

    “House prices are 20% higher than they were before the pandemic and we expect around half of this to unwind over the next two years as buyers revise down their budgets,” Bill said.

    Mortgage rates have started to fall but recent stronger-than-expected UK economic data could lead the Bank of England to keep interest rates higher for longer, causing the downward drift in mortgage rates to “stall,” he told CNN. “That’s something we’re keeping an eye on.”

    — This is a developing story and will be updated.

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  • Biden administration tells student loan forgiveness applicants it is ‘confident’ in face of Supreme Court skepticism | CNN Politics

    Biden administration tells student loan forgiveness applicants it is ‘confident’ in face of Supreme Court skepticism | CNN Politics

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    CNN
     — 

    The Biden administration is projecting confidence about the fate of President Joe Biden’s student loan cancellation program in a message to applicants, even in the face of skepticism from conservative Supreme Court justices in Tuesday’s high-stakes oral arguments.

    Education Secretary Miguel Cardona said in an email sent to millions of borrowers who applied for debt cancellation that the administration “mounted a powerful case” in support of Biden’s executive action.

    “Our Administration is confident in our legal authority to adopt this plan, and today made clear that opponents of the program lack standing to even bring their case to court,” Cardona wrote in the email update obtained by CNN.

    The email update to applicants reflects a position administration officials have maintained in the wake of the oral arguments. But it also implicitly lays out the administration’s view of the political dynamics of a move that has became an immediate partisan flashpoint. As applicants and administration officials alike settle in for what will likely be months of waiting for a final decision, the update sent to roughly 7 million people also provides a window into the reach the administration would have to frame the debate – and consequences – should the program be struck down.

    Cardona’s message comes as millions of borrowers remain in limbo as they await a Supreme Court decision on whether Biden’s action to cancel up to $20,000 in student loan debt will stand.

    White House officials, who closely monitored the oral arguments in two challenges, have maintained the position that they will ultimately prevail in the cases that challenge Biden’s authority to discharge millions of dollars in federally held loans. While they remain confident on the merits, sources continue to highlight the view inside the administration that the plaintiffs lack standing to bring the challenges – which would render the arguments over the authority itself moot.

    One source familiar told CNN that the White House remains confident that things will go their way, simply saying: “We’ll win.”

    A particular flashpoint in the hearing was the states’ arguments that the loan forgiveness program’s potential harms to MOHELA – the Missouri-created entity that services loans in the state – gives Missouri standing.

    Justice Amy Coney Barrett stood out among the conservatives for asking particularly pointed questions of the GOP states about their standing arguments, setting her apart as a potential pickup vote for the court’s three liberal members.

    “If MOHELA is an arm of the state, why didn’t you just strong-arm MOHELA and say you’ve got to pursue this suit,” Barrett asked Nebraska Solicitor General James Campbell.

    The question was one of several directed at Campbell, who represented the group of Republican-led states that argue the administration exceeded its authority, about the states’ standing claims.

    Another source familiar said that Barrett’s comments only raised optimism within the administration.

    But as several conservative justices leveled sharp questions related the government’s authority on the matter, Cardona’s update appeared intended to assuage overarching concerns.

    It also previewed a political contrast officials will likely elevate should Supreme Court strike down Biden’s actions – one White House officials have repeatedly pressed as the challenges have made their way through the courts.

    “While opponents of this program would deny relief to tens of millions of working- and middle-class Americans, we are fighting to deliver relief to borrowers who need support as they get back on their feet after the economic crisis caused by the pandemic,” Cardona wrote.

    Biden’s plan would cancel as much as $10,000 in federal student loan debt for people earning less than $125,000 a year, or less than $250,000 for married couples. Individuals on Pell Grants could see up to $20,000 forgiven. In all, more than 40 million federal borrowers would qualify for some level of debt cancelation, with roughly 20 million who would have their balance forgiven entirely.

    The Biden administration received 26 million applications for the program, which has been frozen as the court battles have played out, and more than 16 million applications had already been approved.

    Cardona reiterated that a pause on federal loan payments, which was implemented during the Trump administration in response to the pandemic and was set to restart at the same time cancellation was implemented, remain on hold as the Supreme Court deliberations play out.

    “While we await the Supreme Court’s decision, the pause on student loan payments remains in effect,” Cardona wrote. “Payments will resume 60 days after the Supreme Court announces its decision.”

    If the litigation is not resolved by June 30, payments are scheduled to resume 60 days after that date. If it has not made a decision or resolved the litigation by June 30, payments will resume 60 days after that.

    The Supreme Court’s decision is expected to come this summer.

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  • Pending home sales blew past expectations last month as buyers pounced on lower rates | CNN Business

    Pending home sales blew past expectations last month as buyers pounced on lower rates | CNN Business

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    Washington, DC
    CNN
     — 

    Pending home sales crushed expectations in January, when mortgage rates dropped from recent highs of more than 7% and home buyers jumped at the opportunity.

    According to data released Monday from the National Association of Realtors, it was the largest monthly sales increase since June 2020.

    The pending sales index, based on signed contracts to buy a home rather than the final sales that are accounted for in existing home sales, rose by 8.1% from December to January, beating economists’ predictions for a rise of 1%. January’s jump followed a downwardly revised 1.1% rise in December.

    “Buyers responded to better affordability from falling mortgage rates in December and January,” said Lawrence Yun, chief economist at NAR.

    But since then, mortgage rates have risen again, climbing almost half a percentage point since the beginning of February, according to Freddie Mac.

    “Mortgage rates took a breath in December and January before resuming their climb in February, reaching 6.5%, the highest level of the new year,” said Hannah Jones, an economic data analyst at Realtor.com.

    At the current mortgage rate, the monthly payment on a median-priced home is about 45% higher — or $630 more — than it was at the same time last year, she said. “Many buyers are still holding off, waiting to see if prices or rates give a bit before getting into the market.”

    Last year’s persistent increase in both mortgage rates and home prices pushed many would-be home purchasers out of the market, said Jones. This resulted in a slowing of new homes in the building pipeline and fewer sellers listing their homes, which limited options for buyers still in the market.

    “New listings were at the lowest level in the last six years in January as sellers stayed on the sidelines, waiting to see buyers return, before placing their homes for sale,” said Jones. “However, the first month of the year brought glimmers of hope as year-over-year declines in both existing and new home sales slowed, and buyer sentiment improved slightly.”

    While home sales were down by 24.1% from the still-hot market of a year ago, activity appears to be bottoming out in the first quarter of this year, before incremental improvements will occur, Yun said.

    “An annual gain in home sales will not occur until 2024,” said Yun. “Meanwhile, home prices will be steady in most parts of the country with a minor change in the national median home price.”

    All regions saw a month-to-month increase in pending home sales, with the Northeast up 6%, the Midwest up 7.9%, the South up 8.3% and the West up 10.1%.

    “An extra bump occurred in the West region because of lower home prices, while gains in the South were due to stronger job growth in that region,” Yun said.

    Home prices are dropping fastest in areas where prices ran up the most in the frenzied market of the past few years.

    But overall, the number of home sales are expected to drop this year, according to NAR’s forecast.

    NAR anticipates the economy will continue to add jobs throughout this year and next, with the 30-year fixed mortgage rate steadily dropping to an average of 6.1% in 2023 and 5.4% in 2024.

    Even with an improving interest rate environment and job gains, Yun still expects annual existing-home sales to drop about 11% this year from last year, before jumping up about 18% in 2024. NAR projects new-home sales will fall about 4% this year compared with last year before surging nearly 20% in 2024.

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  • Union Pacific CEO to leave after push from activist shareholder | CNN Business

    Union Pacific CEO to leave after push from activist shareholder | CNN Business

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    New York
    CNN
     — 

    Union Pacific shares jumped 10% in premarket trading Monday after the railroad company announced CEO Lance Fritz will leave the company by year-end, following a call by an activist hedge fund for his ouster.

    Union Pacific just reported a record profit for the second straight year. But the hedge fund, Soroban Capital Partners, put out a statement saying that Fritz had lost the confidence of “shareholders, employees, customers, and regulators.”

    “UNP’s total shareholder return has been the worst in the industry,” said Soroban’s letter to the board. “Among all S&P 500 companies, UNP is rated by employees as the worst place to work and has the lowest employee CEO approval rating (ranked 500th out of 500 in both),” said the letter. And it said that the Surface Transportation Board, one of the regulators of freight railroads, ranked Union Pacific as providing the worst service among the major railroads.

    Soroban only owns about 1% of Union Pacific’s shares.

    “It is my honor and privilege to serve this great company. I am proud of our team and all we have built together,” said Fritz in a statement. “Union Pacific has been my home for 22 years and I am confident that now is the right time for Union Pacific’s next leader to take the helm.”

    Union Pacific said its process of looking for a new CEO had been ongoing for a year and that it decided to make a public statement in light of Soroban’s public call for a change.

    “The Board is grateful to Lance for his unwavering leadership, dedication and oversight in driving our company forward over the last eight years as CEO. Lance created an environment that has allowed Union Pacific to make a measurable impact with our customers, communities and employees alike,” said Michael McCarthy, lead independent director of the Board. “He has capably led our company during a time of significant challenge and change.”

    But, overall, the level of service and on-time performance in the freight railroad industry has been declining for years, as the railroads attempted to trim costs and staffing.

    Despite the industry’s record profits, stocks in major freight railroads have lagged other sectors. Shares of Union Pacific

    (UNP)     are down about 20% over the last 12 month through Friday’s close, even with a rebound in share price so far in 2023. That’s worse than the drop in share price at other major railroads like Norfolk Southern

    (NSC)     and CSX

    (CSX)    .

    As far as employee relations, Union Pacific was seen as a leader among freight railroads in contentious labor negotiations last year that would have resulted in an economy-crippling strike had Congress not stepped in and imposed an unpopular contract. The contract granted employees an immediate 14% raise, including back pay, but denied them the paid sick days they had sought.

    Union Pacific and other railroads argued during the negotiations that it couldn’t afford to meet union demands for paid sick days, even though the unions estimated it would cost the entire industry $321 million a year at a time when the railroads are each making billions of dollars in profits.

    Union Pacific last year earned a net income of $7 billion, up about $500 million, or 7%, from the previous record profit it posted for 2021. Total employee compensation for the year came to $4.6 billion, far less than the $6.3 billion that Union Pacific spent repurchasing shares of stock in the period.

    Last week, Union Pacific reached an agreement with two of its smaller unions granting their members up to four sick days a year, as well as greater flexibility to use three personal days as sick days without prior notice and approval.

    “We will continue to work with other unions to address paid sick time solutions,” according to the company’s statement on sick pay last week. The move came after another major railroad, CSX, reached deals granting sick days with six of its unions. UP did act before a third railroad, Norfolk Southern, reached a deal with one of its unions on sick days in the wake of a major train derailment in East Palestine, Ohio, which released toxic materials into the area.

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  • Economists’ crystal balls are growing cloudier. But they still expect a recession | CNN Business

    Economists’ crystal balls are growing cloudier. But they still expect a recession | CNN Business

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    Minneapolis
    CNN
     — 

    The US economy is confusing: Jobs are surging. Inflation has been cooling but still running relatively hot. Gas prices are on the rebound. Consumers keep spending, and their confidence is growing. But holiday sales were tepid. Corporate layoffs are mounting. Company earnings aren’t stellar. And mortgage rates are ticking higher.

    In a time when the economic data has delivered mixed messages or flat out busted expectations, economists’ predictions for the year ahead are growing increasingly opaque.

    The National Association for Business Economics’ latest survey, released Monday, shows a “significant divergence” among respondents about where they think the US economy is heading in 2023, the organization’s president said.

    “Estimates of inflation-adjusted gross domestic product or real GDP, inflation, labor market indicators, and interest rates are all widely diffused, likely reflecting a variety of opinions on the fate of the economy — ranging from recession to soft landing to robust growth,” Julia Coronado, NABE’s president, said in a statement.

    Nearly 60% of survey respondents said they believe the US had a more than 50% shot of entering a recession in the next 12 months.

    When such a recession would start was another matter: 28% said first quarter, 33% said second quarter, and 21% said third quarter.

    As the Federal Reserve’s battle against high inflation continues to loom large, economists anticipate that key inflation gauges will slow this year, landing around 2.7% to 3% in 2023 and inching closer to the 2% target by 2024.

    Creating some uncertainty among economists, however, is what the Fed might do during that time as well as the potential effect from external factors.

    “Panelists’ views are split regarding how high the Federal Reserve may raise interest rates, how long rates might stay at the peak, when cuts would begin, and what would signal the central bank’s actions on each of these fronts,” Dana M. Peterson, NABE Outlook Survey chair, and chief economist at the Conference Board, said in the report. “Respondents are also highly concerned but divided in their opinions regarding the consequences of other matters that might affect the US economy, including the impact of China’s reopening on global inflation and the looming debt ceiling.”

    In terms of the labor market, which remains strong and tight, panelists’ median projections for monthly payroll growth this year was 102,000, a significant upward revision from projections in December for 76,000 jobs per month.

    NABE economists said they expect unemployment to increase, but the majority doubt it’ll exceed 5%.

    On the housing front, they expect home prices and new home construction to continue to fall this year, projecting that housing starts could see their largest decline since 2009.

    But they don’t anticipate the downturn to swing into “bust” territory. A mere 2% of respondents said that a “housing market bust” was the greatest downside risk to the US economy in 2023.

    Instead 51% of respondents said the biggest downside risk was too much monetary tightening. Trailing far behind in second was the broadening of war in Ukraine, with 12%.

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  • Missing Chinese CEO is being investigated by authorities, company says | CNN Business

    Missing Chinese CEO is being investigated by authorities, company says | CNN Business

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    New York
    CNN
     — 

    Missing Chinese CEO Bao Fan is cooperating in an investigation by “certain authorities in the People’s Republic of China,” his company said in a statement Sunday.

    China Renaissance Holdings Limited, of which Bao is the chairman and CEO, said the company has been trying to locate him and ascertain his status since the announcement he disappeared on February 16.

    “The Board would like to reiterate that the business and operations of the Group are continuing normally,” a statement from the company said. “The Company will duly cooperate and assist with any lawful request from the relevant PRC authorities, if and when made.”

    Bao is not the first business executive to go missing, in a country where they can suddenly and mysteriously disappear. Real estate tycoon Ren Zhiqiang disappeared for several months after he allegedly spoke out against Chinese leader Xi Jinping in 2020. He was then jailed for 18 years. Anbang chairman Wu Xiaohui was reportedly detained by authorities as part of a government investigation. He too was eventually jailed for 18 years.

    The company, an investment bank and private equity firm based in Beijing, added it is monitoring the situation and will release further statements “when appropriate.”

    Bao is known as a veteran deal maker in China’s tech industry. He helped broker the 2015 merger between two of the country’s leading food delivery services, Meituan and Dianping. Today, the combined company’s “super app” platform is ubiquitous in China.

    Bao started his investment banking career in the late 1990s at Morgan Stanley and Credit Suisse and later went on to serve as an adviser to the stock exchanges in Shanghai and Shenzhen.

    His team has also invested in US-listed Chinese electric vehicle makers Nio

    (NIO)     and Li Auto, and helped Chinese internet giants Baidu

    (BIDU)     and JD.com

    (JD)     complete their secondary listings in Hong Kong.

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  • Inflation is doing a crab walk and Fed officials fear its pinch | CNN Business

    Inflation is doing a crab walk and Fed officials fear its pinch | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    The possibility of a 2023 market rally ground to a halt last week amid an onslaught of unfortunate inflation and economic data that spooked investors and increased the likelihood that the Federal Reserve will continue its economically painful rate hikes campaign for longer than Wall Street hoped.

    All major indexes notched their largest weekly losses of 2023 on Friday. The S&P 500 fell by 2.7%. The Dow Jones Industrial Average sank 3%, and the tech-heavy Nasdaq fell 3.3%.

    What’s happening: It appears that after months of steady decline, the pace of inflation is going sideways. January’s Personal Consumption Expenditures price index – the Fed’s favored inflation gauge – came in hotter than expected on Friday.

    Prices rose a whopping 5.4% in January from a year earlier, the Commerce Department’s Bureau of Economic Analysis reported. In December, prices rose 5.3% annually.

    In January alone, prices were up 0.6% from the prior month, a higher monthly gain from December’s increase of 0.2%.

    This inflationary crab walk is almost certainly causing Fed officials to rethink their policy.

    A paper presented Friday at the Booth School of Business Monetary Policy Forum in New York argued that disinflation will likely be slower and more painful than markets anticipate.

    “Significant disinflations induced by monetary policy tightening are associated with recessions,” said the paper. “An ‘immaculate disinflation’ would be unprecedented.” (Immaculate, in this instance, refers to the possibility of inflation falling quickly to the Fed’s 2% goal without any serious economic damage).

    Several Fed presidents, governors and top economists were on hand at the Booth School forum to discuss the paper and monetary policy on Friday. The majority of those speaking expressed deep concern about the stubbornness of inflation and general market reaction.

    Inflation won’t quit: Cleveland Fed President Loretta Mester said that while price growth has moderated from its recent high, the overall pace of inflation remains too high and could be more persistent than her colleagues currently anticipate.

    “I anticipate further rate increases to reach a sufficiently restrictive level, then holding there for some, perhaps extended, time,” echoed Boston Fed President Susan Collins at the conference.

    Collins referred to inflation as “recalcitrant,” a loaded million-dollar word that means uncooperative, or defiant to authority.

    Fed Governor Philip Jefferson struck a more befuddled stance on Friday, observing that inflation continues to baffle economists. “The inflationary forces impinging on the US economy at present represent a complex mixture of temporary and more long-lasting elements that defy simple, parsimonious explanation,” he said. Parsimonious being another million-dollar word for frugal.

    Economists stressed that more pain lies ahead. “It’s important that markets understand that ‘no landing’ is not an option,” said Peter Hooper, vice chair of research at Deutsche Bank, an author of the report.

    While recent data has signaled that the US economy remains strong, “by the time we get to the middle of this year we expect to see some bad news coming and the sooner the markets get that message the more helpful it will be to the Fed,” he said.

    The final word: Former Bank of England Governor Lord Mervyn King summed up what many were thinking on Friday: Given the complexity of the current monetary situation, he said, “I wouldn’t want to give advice to any central banks about what we should do.”

    Researchers at the Federal Reserve Bank of New York have issued a dire warning: If President Joe Biden’s student loan forgiveness plan doesn’t come to fruition, the US could face another credit crisis.

    Some background: The Covid-19 crisis triggered a sudden shift in student loan policy and a new openness to forgiveness. In March 2020, Congress passed the CARES Act, which automatically paused required payments on all federally held student loans.

    That forbearance has since been extended eight times and is set to end as late as August, 40 months after it began.

    The Biden Administration had announced an unprecedented debt cancellation proposal which would provide relief to more than 40 million borrowers. An analysis by the New York Fed found that roughly $441 billion of federal student loans are eligible for forgiveness under the proposal, canceling about 30% of all outstanding federal student loan debt.

    That forgiveness proposal is now on hold after an injunction by the 8th US Circuit Court of Appeals. On Tuesday, The Supreme Court of the United States will hear the case with its decision expected by June 2023.

    What’s on the line: If the Biden Administration’s forgiveness plan survives the court challenge, it will mark the largest mass discharge of consumer debt in modern history, according to the New York Fed. About 40% of those with federal student loan debt would have a zero balance; even more would have a much smaller monthly payment.

    But, “if payments resume without debt relief, we expect both student loan default and delinquencies to rise and potentially surpass pre-pandemic levels,” warned Fed researchers.

    “We note a stark increase in new credit card and auto loan delinquency for borrowers with eligible student loans over the past few quarters, growing at a faster pace than those without student loans and those with ineligible loans,” they wrote.

    Those missed payments suggest that some federal student loan borrowers are having trouble meeting their monthly debt obligations. “We expect these delinquency patterns to worsen if federal student loan payments resume without relief,” said the report.

    The data “may be suggestive of problems to come, a sign of economic distress that may appear particularly concerning when the burden of student loan payments resumes.”

    Future concerns: If student loan borrowers expect future debt cancellation, they may borrow even more, said researchers, which would increase debt balances even more sharply. “Absent direct policies to address this growing burden, taxpayers may be again called to for relief in the future,” they concluded.

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  • 401(k) balances rise, despite economic and market challenges | CNN Business

    401(k) balances rise, despite economic and market challenges | CNN Business

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    New York
    CNN
     — 

    Despite higher prices, endless talk of a possible recession and falling markets, 401(k) participants managed to keep their savings rates relatively steady in the fourth quarter of last year, helping to stabilize their nest eggs and increase their overall average balances.

    That’s according to new data from Fidelity Investments, one of the largest providers of workplace retirement plans, which combined represent $2.8 trillion in assets on its platform.

    “Fortunately, the data show that retirement savers understand the importance of saving for the long-term, despite market shift. We are encouraged to see people look past the current volatility and continue to make smart choices for their future,” said Kevin Barry, president of Workplace Investing at Fidelity.

    By that Barry means the average 401(k) savings rate (including both employee contributions and employer matches) held roughly steady at 13.7%, down from the 13.8% in the third quarter and 13.9% in the second quarter.

    Among generations in the workforce, Baby Boomers had the highest savings rate as a percent of their income (16.5%). The youngest cohort – Gen Z workers – saved 10.2%.

    A third of participants actually increased their contribution rate over the last year, according to Fidelity. But the average rate among this group is still very low – at just 2.6%.

    The average 401(k) balance in Fidelity-administered plans, meanwhile, rose 7% from the third quarter, to $103,900. That said, thanks to poor performances in both stocks and bonds last year, the average is still 23% below the $135,600 recorded at the end of 2021.

    In terms of 401(k) loans, the percent of active plan participants with outstanding ones remained at 16.7%. That’s down from 17% a year earlier and 21% from five years ago, Fidelity said.

    The average outstanding loan amount was $10,200. Among different age groups, Gen Xers had the highest average, followed by Baby Boomers. And even though they are just getting started in their careers and haven’t had a lot of time to amass savings, 3.2% of Gen Z workers also had outstanding 401(k) loans, but their average amount ($3,000) was the lowest among all age groups.

    Hardship withdrawals from 401(k)s – money taken when a participant is under financial stress of some kind (e.g., to prevent eviction, pay for funeral expenses or to cover a near-term tuition bill) – stood at 2.4% for the year, up from 1.9% in 2021. The average amount taken out was $2,200. Unlike a 401(k) loan, a hardship withdrawal does not need to be paid back, and will be taxed. Plus, in some instances it may be subject to a 10% penalty if you’re under 59-1/2.

    The new retirement law, Secure 2.0, includes a provision that will make it easier and less costly for 401(k) participants to take money out of their account for emergency needs up to $1,000 in a year.

    Apart from its workplace retirement plans, Fidelity reported a 10.2% annual increase in the number of IRAs on its platform, noting that 61% of the IRA contributions made in the fourth quarter of last year went into Roth IRAs.

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  • Biden nominates former MasterCard exec Ajay Banga to lead World Bank | CNN Business

    Biden nominates former MasterCard exec Ajay Banga to lead World Bank | CNN Business

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    New York
    CNN
     — 

    President Joe Biden has announced that he’s nominating Ajay Banga, a former MasterCard executive, to serve as president of the World Bank.

    In a statement, Biden said that Banga is “uniquely equipped to lead the World Bank at this critical moment in history” and that he has a “proven track record managing people and systems, and partnering with global leaders around the world to deliver results.”

    Banga has been the vice chairman at General Atlantic, a New York-based investment firm, since 2022. Prior to that, the 63-year-old was the CEO of MasterCard from 2010 to 2021.

    “Raised in India, Ajay has a unique perspective on the opportunities and challenges facing developing countries and how the World Bank can deliver on its ambitious agenda to reduce poverty and expand prosperity,’ Biden said in the statement. Notably, the White House highlighted Banga’s “extensive experience” in creating partnerships to address climate change and financial inclusion,” something Biden pledged would be an important qualification for the next World Bank President.

    Banga would replace previous president David Malpass, who announced last week that he’s stepping down a year early — serving four years of a five-year term.

    Although Malpass had been praised by the World Bank and administration officials for his handling of the global challenges posed by Russia’s invasion of Ukraine and the Covid-19 pandemic, his tenure faced controversy following comments he made last September about climate change. During a panel, herefused to confirm during a climate panel whether he accepted the scientific consensus that burning fossil fuels were dangerously warming the planet.

    After an outpouring of criticism, many opponents called for his resignation. However, he recently told CNN’s Julia Chatterley that he has “no regrets” over his four-year tenure.

    “We’ve achieved many of the things I wanted to…I think it’s really important that institutions have energy, new energy, and this is a good time for the World Bank to do that,” he said.

    US Treasury Secretary Janet Yellen praised the decision to name Banga in a statement.

    “He has the right leadership and management skills, experience living and working in emerging markets, and financial expertise to lead the World Bank at a critical moment in its history, deliver on its core development goals, and evolve the Bank to meet global challenges like climate change,” she said.

    US climate envoy John Kerry said Banga is the “right choice” because of his climate change credentials.

    Banga “has proven his ability as a manager of large institutions and understands investment and the mobilization of capital to power the green transition,” Kerry said in a statement.

    The World Bank, a group of 187 nations, lends money to developing countries to help reduce poverty. Former US President Donald Trump appointed Malpass as World Bank chief in 2019 for a five-year period. As the largest shareholder, the United States traditionally appoints its president.

    — CNN’s Sam Fossum contributed to this report.

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  • Norfolk Southern is paying $6.5 million to derailment victims. Meanwhile, it’s shelling out $7.5 billion for shareholders | CNN Business

    Norfolk Southern is paying $6.5 million to derailment victims. Meanwhile, it’s shelling out $7.5 billion for shareholders | CNN Business

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    New York
    CNN
     — 

    Norfolk Southern CEO Alan Shaw pledged Tuesday the freight railroad will spend $6.5 million to help those affected by the release of toxic chemicals from its derailment nearly three weeks ago in East Palestine, Ohio. But in a plan released earlier this year, the company said it’s planning to spend more than a thousand times that amount — $7.5 billion — to repurchase its own shares in order to benefit its shareholders.

    The company spent $3.4 billion on share repurchases last year, and $3.1 billion in 2021, bringing its recent share repurchases to $6.5 billion. That towers over what it said is its financial commitment to East Palestine, which it said exceeds $6.4 million in direct aid to families and government agencies, in addition to what will be required in cleanup costs.

    There is no estimate as to the total cost to Norfolk Southern from the derailment, including the cost of cleanup that the Environmental Protection Agency says will be the railroad’s responsibility.

    It’s not clear how much of the accident’s cost will fall on Norfolk Southern. The company revealed Wednesday during a conference call with investors that it has as much as $1.1 billion worth of liability insurance coverage that it can draw upon to compensate third parties for losses caused by the accident. It also has about $200 million worth of insurance coverage to cover damage to its own property, such as tracks or equipment.

    In March 2022, Norfolk Southern

    (NSC)     announced a new $10 billion share repurchase plan. Its latest annual financial report, filed just hours before the derailment this month, shows that it still had $7.5 billion available to buy additional shares under that repurchase plan as of December 31.

    Norfolk Southern did not respond to questions Wednesday on whether it expects to change its share repurchase plans in the wake of the derailment.

    The company also returned an additional $1.2 billion to shareholders in the form of dividend payments in 2022, and $1 billion in 2021, bringing total payments to shareholders to $4.6 billion last year and $4.1 billion in 2021.

    The shareholders did much better than the company’s 19,000 employees. Total employee compensation in 2022 came to $2.6 billion, up from $2.4 billion in 2021.

    The amount that Norfolk Southern and other major freight railroads are spending on shareholders got a lot of attention in December, when they successfully fought a move in Congress to require them to give hourly workers at least seven sick days a year as part of a labor contract imposed on the industry by Congress in order to avoid an economically crippling rail strike. And it’s getting new attention in the wake of the derailment, along with questions about whether the environmental disaster could have been avoided if the railroad had spent more on staffing and safety.

    “Corporations do stock buybacks, they do big dividend checks, they lay off workers,” said Democratic Sen. Sherrod Brown of Ohio, on CNN’s State of the Union on Sunday. “They don’t invest in safety rules and safety regulations, and this kind of thing happens.”

    The accident is under investigation by the National Transportation Safety Board. While the cause has yet to be determined, it is known that freight railroads have fought tougher safety rules in the past.

    One rule the industry successfully fought would have required a more modern braking system on trains carrying significant amounts of hazardous materials. The Federal Railroad Administration, which proposed the rule under the Obama administration, estimated a more modern braking system would reduce by nearly 20% the number of rail cars in a derailment that puncture and release their contents.

    The FRA estimated those better brakes would cost the entire industry $493 million, spread over a period of 20 years. The Association of American Railroads, the trade industry group that represents most US freight railroads, estimated a much greater cost — about $3 billion, but again, spread over 20 years. That would mean around $150 million a year for an entire industry that is earning billions of dollars of annual profits.

    Still, it was able to block the rule from ever taking effect, based partly on the argument it was too costly for the potential benefit.

    “The railroads are quick to point out their lack of funds to provide adequate staffing, paid sick leave and improved safety, yet they have billions of dollars to spend on stock repurchases,” said Eddie Hall, national president of the Brotherhood of Locomotive Engineers, the industry’s second-largest union behind the one that represents conductors.

    Share repurchases are designed to help increase the value of the stock by reducing the number of shares outstanding.

    In theory, each remaining share becomes more valuable since it represents a greater percentage of the company’s overall ownership. The earnings per share, a key measure used by investors to judge a company’s profitability, can rise even if the total dollars earned by the company goes down, as the pool of shares available to the public shrinks further.

    But Norfolk Southern’s profits aren’t going down. They’re going up — by quite a bit. It posted record profits from railway operations of $4.45 billion in 2021, and broke that record in 2022 when it earned $4.8 billion on that basis.

    Other freight railroads are also reporting improving profits, and have joined Norfolk Southern in massive share repurchases.

    Union Pacific

    (UNP)     purchased $6.3 billion worth of shares in 2022, and has plans to purchase an additional 84 million shares, worth more than $16 billion at its current value. CSX repurchased $4.7 billion worth of shares last year and has plans to buy an additional $3.3 billion going forward. Like Norfolk Southern, both UP and CSX spent more on share repurchases than they did on total employee compensation.

    Share repurchases are not limited to the rail industry. Chevron

    (CVX)     recently announced plans to repurchase $75 billion worth of its stock with windfall record profits that came from high oil prices. Across corporate America, share repurchases reached almost $1 trillion for the first time last year, coming in at $936 billion according to S&P Dow Jones Indices, up from $882 billion in 2021.

    Share repurchases are forecast to top $1 trillion this year.

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