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Tag: iab-interest rates

  • Dow surges to new record as Fed signals three rate cuts in 2024 | CNN Business

    Dow surges to new record as Fed signals three rate cuts in 2024 | CNN Business

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    Titans of finance have been warning for months that looming geopolitical dangers are the biggest threat by and large to the US economy. But even as wars rage on in the Middle East and Eastern Europe, markets have been enjoying an end-of-year rally.

    The S&P 500 reached its highest level since January 2022 on Tuesday, following new data that showed cooling inflation. The surge came even as the Israel-Gaza war intensified and the Russia-Ukraine war approached the end of its second year.

    It appears that, for now, Wall Street is skeptical of the impact of war on the US economy and is instead more focused on the Federal Reserve and inflation rates than conflict abroad.

    JPMorgan Chase CEO Jamie Dimon has repeatedly said that geopolitical uncertainty is currently the biggest risk in the world.

    He stressed, at last month’s New York Times DealBook Summit, that this may be the most dangerous time the world has seen in decades, and that the wars in Ukraine, Israel and Gaza could have far-reaching impacts on global energy, food supply, trade and geopolitics. It could even, he said, lead to nuclear blackmail (using the threat of nuclear warfare as leverage to coerce another country into meeting certain demands).

    He’s not alone. EY’s latest CEO Outlook Pulse survey found that 99% of CEOs said they were shifting their investments in response to geopolitical challenges.

    Violent conflicts abroad pose the largest threat to markets next year, according to a Natixis survey of 500 institutional investors from around the world.

    “The biggest macroeconomic risk for 2024 is geopolitical bad actors who with one action can upset economic and market assumptions globally,” the group wrote. That risk ranked above policy errors by central banks, a slowing Chinese economy and dwindling consumer spending.

    But the S&P 500 is up by 9% since Hamas’ October 7 attack and up 10% since Russia’s full-scale invasion of Ukraine in February 2022.

    “Many armchair forecasters bid up hysteria regarding the ongoing war in Ukraine and the October 7 terrorist attack in Israel,” wrote Marko Papic, chief strategist at the Clocktower Group, in a note this week. “In the end, neither event had any impact on markets.”

    Instead, investors appear locked in on the Fed — and investors aren’t going to let geopolitics get in the way of their holiday cheer.

    “With geopolitical tensions elevated in the world, I think it’s very important that we don’t conflate the very muted response that we’ve seen, say over the last four to five weeks, with markets being very sanguine, because they’re not,” said Sinead Colton Grant, incoming chief investment officer at BNY Mellon, at last month’s Reuters NEXT conference in New York.

    “They’re watching the evolution very, very closely and there’s an assumption that all these events remain fairly contained. Should that turn out not to be the case, you will see markets react quite sharply, and that would reverberate beyond the equity markets,” she said.

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  • Interest rates are high. These are the best places to park your cash | CNN Business

    Interest rates are high. These are the best places to park your cash | CNN Business

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    Editor’s Note: This is an update of an article that originally ran on September 20, 2023.


    New York
    CNN
     — 

    The Federal Reserve on Wednesday chose not to raise its key interest rate, the same decision it took following its September meeting, leaving its benchmark lending rate at its highest level in 22 years.

    Given that the Fed influences — directly or indirectly — interest rates on financial accounts and products throughout the US economy, savers and people with surplus cash still have many opportunities to get a far better return on their money than they’ve had in years — and even more importantly, a return that outpaces the latest readings on inflation.

    Here are low-risk options to get the best yield on funds you plan to use within two years, and also on cash you expect to need within the next two to five years.

    The average annual percentage yield on bank savings accounts was just 0.59%, according to an October 31 survey from Bankrate. That average is kept low by a nearly zero APY at the biggest brick-and-mortar banks like JPMorgan Chase and Bank of America, which were each offering rates of just 0.01%.

    But many online, FDIC-insured banks are offering well north of 5% on their high-yield savings accounts.

    Those accounts are a great place to deposit money that you will likely deploy within the next two years — to cover anything from a planned vacation or big purchase to an emergency expense or an unexpected change of circumstance like a job loss.

    While bank deposit account yields can change overnight, they have remained high for months and are likely to continue to do so. “In the last few months, the Fed has signaled that it intends to keep rates higher for longer. … Some banks have responded to this new ‘higher for longer’ expectation by offering promotional rate guarantees on their savings or money market accounts. In the guarantee, a competitive rate is guaranteed to last for several months on the savings or money market account,” said Ken Tumin, founder of DepositAccounts.com.

    An online savings account is what certified financial planner Lazetta Rainey Braxton, co-CEO at 2050 Wealth Partners, calls your “cushion” account. She likes the word “cushion” because it describes the flexibility and options such an account gives you to handle both what you want to do in the near term and what you might need to do.

    Another way high-yield accounts can be useful, Braxton said, is to house money you’ll need to pay off a purchase for which you’ve secured a 0% financing deal for a limited period of time. In that case, you won’t owe interest on your purchase so long as you pay it off in full before the end of the promotion period, which can be anywhere from six to 24 months. In the meantime, the money can grow by 4% to 5% a year in your high-yield account.

    For your regular household bills, Braxton recommends keeping just enough cash to cover a month or two in a regular checking account for fastest access. “Not too much, because [those accounts] won’t yield much,” she said.

    You can always link your high-yield account to your checking account to transfer funds when needed — just know it may take up to 24 hours for the transferred money to show up in your checking account, Braxton noted.

    Money market accounts and funds

    If you don’t want to set up an online savings account at another bank, your own bank may offer you a money market deposit account that pays a higher yield than your regular checking or savings accounts.

    Money market accounts may have higher minimum deposit requirements than a regular savings account, but they are more liquid than a fixed-term certificate of deposit or Treasury bill, meaning they give you access to your money more quickly while still potentially giving you some of the highest yields available, said Doug Ornstein, senior manager for integrated solutions at TIAA Wealth Management.

    But don’t confuse money market accounts with money market mutual funds, which invest in short-term, low- risk debt instruments. As of Oct 31, they had an average 7-day yield of 5.19%, according to the Crane Money Fund Index, which tracks the top 100 taxable money market funds.

    Unlike money market deposit accounts, money market mutual funds are not insured by the FDIC. But if you invest in a money market fund through a brokerage, your overall account is likely to be insured through the Securities Investor Protection Corp (SIPC), which offers protection in the event your brokerage ever goes under.

    Another high-return, low-risk investment that is great for money you likely won’t need to tap for a few months or even a couple of years are certificates of deposit.

    You can get the best returns on CDs through a brokerage such as Schwab, E*Trade or Fidelity. That’s because you can comparison shop for CDs from any number of FDIC-insured banks and will not have to set up individual accounts with each institution.

    To get the greatest benefit from a CD, you have to leave the money invested for a fixed period. You can always access your principal sooner if you need to, but if you do you will forfeit at least some interest.

    As of November 1, CDs listed on Schwab.com with durations of three months, six months, nine months, one year and 18 months were all yielding at least 5.5% .

    Say you invest $10,000 in a six-month CD with a 5.5% APY. At the end of that period, you’ll get your principal back plus nearly $274 in interest when the CD matures, according to Bankrate’s CD calculator. If you put it in a one-year CD you’d earn $555 in interest, while an 18-month term will generate $844.

    If you don’t go through a brokerage you may get a reasonable deal from your primary bank. Tumin said. For example, he noted, Citi came out with an 11-month CD Special with a rate of up to 5.65% APY. But he cautions that with any big bank CD you should take your money out at the end of the term, otherwise your bank may automatically renew it and lock you in to a much lower-yielding CD.

    Another option for money you can leave untouched anywhere from several months to a few years are short-term Treasury bills, which are backed by the full faith and credit of the United States.

    Three- and six-month bills had yields of 5.46% and 5.54% respectively on November 1, while nine-month and one-year bills were offering 5.46% and 5.43%, according to rates posted on Schwab.com for a $25,000 investment.

    If you’re someone who manages your portfolio like a hawk, you may feel comfortable buying T-bills on your own from TreasuryDirect.gov. But if you don’t, it might be easier just to buy new issues through your brokerage account or invest in a short-term bond index fund or ETF, said Andy Smith, executive director of financial planning at Edelman Financial Engines.

    And if you’re looking at money that will be needed in three to five years, you might consider a diversified fund of highly rated government and corporate bonds, Ornstein said. Yields on four-year, AAA rated corporate bonds, for instance, were yielding 4.97% this week, and three-year AAA-rated municipal bonds (which are issued by local governments) had rates of 4.59%, according to Schwab.com.

    When deciding on the best accounts and investments for your specific goals and peace of mind, it may pay to consult a fee-only fiduciary adviser — meaning someone who doesn’t get paid a commission to sell you a particular investment.

    What you’ll always want to do is build in flexibility for yourself so you can easily access cash, regardless of your timeline for key goals. “What happens if something changes and you need that down payment a lot sooner — or your parents need medical care fast?” Smith said.

    That means balancing your desire for great yield with a need and desire for ease of access without penalty. Translation: Don’t chase yield for yield’s sake.

    Think of it this way, Ornstein said: Unless you have huge sums to invest or are an institutional investor, the difference between getting a 5.1% yield versus 5% is negligible, and in fact it could even cost you more if there are penalties for taking your money out early. “Most of the time convenience is really important. Give up the 0.1%,” he advised.

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  • US new home sales surged in September | CNN Business

    US new home sales surged in September | CNN Business

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    Washington, DC
    CNN
     — 

    New home sales in the United States surged higher in September from the month before, even as mortgage rates remained over 7%, making financing a home costlier and pushing people out of the market.

    Sales of newly constructed homes jumped 12.3% in September to a seasonally adjusted annual rate of 759,000, from a revised rate of 676,000 in August, according to a joint report from the US Department of Housing and Urban Development and the Census Bureau. Sales were up 33.9% from a year ago.

    This represents the fastest pace of sales since February 2022 and easily exceeds analysts’ expectations of a sales pace of 680,000.

    Sales of existing homes have been trending down since February and are down 20% year to date in September from a year ago. There is an ongoing inventory and affordability crunch that has homeowners with mortgage rates of 3% or 4% reluctant to sell and buy another home at a much higher rate. In August, rates topped 7% and have lingered there as the Federal Reserve continues to address inflation.

    The average rate for a 30-year, fixed-rate mortgage was 7.63% last week, according to Freddie Mac, and there are indications it could continue to climb.

    “With one more Fed interest rate hike expected for the year, interest rates are not anticipated to drop any time soon,” said Kelly Mangold of RCLCO Real Estate Consulting.

    New construction has been an appealing alternative, attracting determined buyers frustrated by the historically low supply of existing homes. Still, affordability concerns remain.

    “The constraints in the housing market have created a significant amount of pent-up demand, as more and more households are living in homes they may have outgrown and are deciding to buy despite current market conditions,” said Mangold.

    According to the report, new home sales activity increased the most in the south, “a region that continues to outperform due to availability of land, population and job growth, and a relatively lower cost of living,” said Mangold.

    While new home sales are a much smaller share of the overall sales market than existing home sales, the inventory picture is rosier for new construction homes.

    The seasonally adjusted estimate of new homes for sale at the end of September was 435,000. This represents a supply of 6.9 months at the current sales pace.

    By comparison, there were 1.13 million existing homes for sale at the end of September, or the equivalent of 3.4 months’ supply at the current monthly sales pace.

    Typically, the ratio of existing homes to new homes has been closer to 5 to 1, but lately it has been closer to 2 to 1, according to the National Association of Realtors.

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  • Why you should care about the global rout in government bonds | CNN Business

    Why you should care about the global rout in government bonds | CNN Business

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    London
    CNN
     — 

    A slump in government bonds around the world has pushed up the cost of some nations’ debt to levels not seen in more than a decade. That’s bad news for governments in the red but also for the wallets of millions of mortgage borrowers, stock investors and businesses.

    The sell-off has been fueled by expectations among investors that the world’s major central banks will keep interest rates “higher for longer” to bring inflation down to their targets.

    It works like this: Governments looking to raise cash for public services and investments issue bonds. A bond provides a way to borrow money from investors for a set length of time, with the obligation to make regular interest payments.

    When official interest rates rise, so do investors’ expectations for returns on bonds, known as yields. This creates an incentive for investors to sell the bonds they currently hold and buy newly issued ones that offer higher interest payments. Selling bonds reduces prices. So, in short, when yields rise, bond prices fall.

    And yields have most definitely been rising: The yield on 30-year US government bonds, also known as Treasuries, hit 5% on Tuesday for the first time since 2007. In the United Kingdom, the yield on 30-year bonds also reached 5% this week, the highest level in more than two decades.

    Yields on German long-dated bonds are back to levels last seen on the eve of the eurozone debt crisis in 2011. Yields on Italy’s 10-year bonds hit 5% on Wednesday, the highest level since 2012, when that crisis was in full swing.

    Here’s why you should care.

    The yields on local government bonds are usually used by banks to price mortgages.

    The disastrous “mini” budget unveiled by former UK Prime Minister Liz Truss in September last year provided a stark illustration of that relationship. Her plan to borrow tens of billions of pounds to fund tax cuts spooked bond investors who feared that the country’s finances were on an unsustainable path.

    The resulting sell-off in UK government bonds — called “gilts” — caused yields to shoot up, taking mortgage costs higher with them.

    The average interest on a two-year fixed-rate mortgage soared to 6.47% at the start of November 2022, according to data from product comparison website Moneyfacts, the highest level since the depths of the global financial crisis in August 2008.

    Early morning sun illuminates streets of residential terraced houses, on September 17, 2023 in Bath, England. Soaring interest rates and falling prices has meant the end of the UK's 13-year housing market boom potentially leading to a wider house price crash.

    That meant hundreds of pounds more a month in mortgage payments. Before higher mortgage rates kicked in, some panicked homeowners rushed to refinance their fixed-rate loans earlier than planned, accepting a financial penalty for doing so.

    Mortgage rates had been falling back since the drama last fall but are now back to 6.47%, this month’s data from Moneyfacts shows.

    In the United States, mortgage rates tend to track the yield on 10-year Treasuries, and that yield has risen 0.27 percentage points since late September.

    On Thursday, government-backed mortgage provider Freddie Mac announced that the average interest on a 30-year fixed-rate mortgage had hit 7.31% in the week ending September 28 — its highest level since 2000.

    “Higher mortgage rates create a standoff between potential buyers, who face some of the highest borrowing rates since 2000, and sellers, who may already enjoy a low fixed-rate mortgage and thus are less incentivized to sell,” Andrew Sheets, global head of corporate credit research at Morgan Stanley, told CNN.

    Surging government bond yields are probably coming for your stock portfolios too.

    Shares typically lose value when the yields on government debt rise, as investors can now get high returns — and a steady income — from less risky assets.

    Take the yield on 10-year Treasuries: at 4.78%, it is more than twice as high as the average yearly dividend paid out by the companies making up the S&P 500 index (SPX).

    “The higher the gilt yield goes, the less inclined, or obliged, investors will feel to take risk and pay up for other asset classes, such as shares,” Russ Mould, investment director at AJ Bell, told CNN.

    Stock indexes have tumbled on both sides of the Atlantic in recent weeks. The S&P 500 and the tech-heavy Nasdaq Composite (NDX) have shed 4% and 2.3% respectively since the Federal Reserve said late last month that it could hike rates once more this year and expected to make fewer rate cuts in 2024.

    The STOXX Europe 600 has sunk 4.5% and London’s FTSE 100 4.3% in that time.

    “Income is back,” analysts at BlackRock, the world’s biggest asset manager, wrote in a note Monday, recommending investments in short-dates US Treasuries.

    Stocks have also taken a hit in recent weeks as rising oil prices, an ailing Chinese economy and the prospect of another government shutdown in the United Stated have unnerved investors.

    High official interest rates in America and Europe have also raised the cost of borrowing for businesses.

    “Higher interest rates make borrowing less attractive, and we’ve already seen a sharp slowing of bank lending that we think is consistent with this idea,” said Sheets at Morgan Stanley.

    “It’s important to note that slower credit growth, which generally means a cooler economy, is precisely what the Federal Reserve is trying to achieve through its large recent rate hikes,” he added.

    Higher yields also mean that the government must pay more to service its debt — with less money available to spend elsewhere.

    The US government is currently sitting on a $33 trillion debt pile and is expected to incur more than $1 trillion in average annual interest costs over the next decade.

    In March, when gilt yields were much lower than now, the UK’s public spending watchdog said it expected the annual interest paid on the government’s pile of debt to peak at £115 billion ($140 billion) this year. That’s almost three times as much as the UK government plans to spend in 2023 on a key benefit for children and people with disabilities.

    Rising bond yields mean that “for any given level of borrowing, more must be spent on debt interest, leaving less scope to finance other priorities,” the Office for Budget Responsibility said in its March forecast.

    Higher gilt yields give politicians “less wiggle room to ease [the] cost-of-living pain through tax cuts or public sector pay offers,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, wrote in a note Wednesday.

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  • US mortgage rates climb to 7.31%, hitting their highest level in nearly 23 years | CNN Business

    US mortgage rates climb to 7.31%, hitting their highest level in nearly 23 years | CNN Business

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    Washington, DC
    CNN
     — 

    US mortgage rates surged to their highest level in nearly 23 years this week as inflation pressures persisted.

    The 30-year fixed-rate mortgage averaged 7.31% in the week ending September 28, up from 7.19% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 6.70%.

    “The 30-year fixed-rate mortgage has hit the highest level since the year 2000,” said Sam Khater, Freddie Mac’s chief economist, in a statement. “However, unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory. These headwinds are causing both buyers and sellers to hold out for better circumstances.”

    The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.

    Mortgage rates have spiked during the Federal Reserve’s historic inflation-curbing campaign — and while a good deal of progress has been made since June 2022, when inflation hit 9.1%, Fed officials say there is still a ways to go.

    The Fed’s preferred inflation measure, the core Personal Consumption Expenditures index, is currently 4.2%, which is more than double the Fed’s target of 2%. Economists expect it to drop to 3.9% when the latest reading is released on Friday.

    This week’s mortgage rate surge followed last week’s small move higher, as investors settled in for “higher-for-longer” interest rates after last week’s Fed policy meeting, said Danielle Hale, chief economist at Realtor.com.

    Hale said the takeaway from the meeting was that the upward adjustments from the Fed haven’t ended.

    “Revised economic projections show that another rate hike this year is definitely on the table, and the expected policy rate in 2024 and 2025 was also higher than previously forecast,” she said. “Market participants are still playing catchup.”

    While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.

    Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

    The yield on 10-year Treasuries rose from 4.3% on September 20 to 4.6% as of September 27.

    Mortgage applications continued to drop last week, according to the Mortgage Bankers Association, as mortgage rates went higher.

    “Rates over 7% and low for-sale inventory continue to create affordability challenges for prospective buyers,” said Bob Broeksmit, MBA president and CEO. “Until rates start to come back down, we anticipate housing market activity will remain slow.”

    Markets are experiencing an extraordinarily low number of homes for sale as homeowners stay put with ultra-low mortgage rates that are several percentage points lower than the current rate.

    There has been a small uptick in newly listed homes coming to market over the past few weeks, according to Realtor.com, which is seasonally atypical, said Hale.

    The first week in October tends to be an ideal week to buy a home, she said, since home prices tend to fall relative to summer highs, and fewer buyers contend for homes. Yet housing inventory remains higher than a typical week, Hale said.

    But, she added, mortgage rates will continue to be a wild card, which could make it impossible for some buyers to get in the market now.

    Even as demand is dropping, with so few homeowners selling, the market is pushing up prices as those few buyers who remain tussle over the handful of available houses, Hale said.

    This combination of higher prices and higher mortgage rates contrasts with easing rents over the past few months. This may cause would-be first-time buyers to wait for home prices and mortgage rates to stabilize and rent instead.

    “Buying a starter home is more expensive than renting in all but three major US markets [Realtor.com] studied,” said Hale, “which explains why buyer demand is likely to remain relatively low.”

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  • Dow tumbles by more than 400 points, on pace for biggest one-day decline since March | CNN Business

    Dow tumbles by more than 400 points, on pace for biggest one-day decline since March | CNN Business

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    New York
    CNN
     — 

    Stocks tumbled Tuesday after a slew of economic data stoked fears about the US economy’s cloudy outlook and further interest rate hikes from the Federal Reserve.

    The benchmark S&P 500 index slid 1.2%, on track for its lowest close since June. The Dow Jones Industrial Average fell 416 points, or 1.2%, on pace for its biggest one-day drop since March; and the Nasdaq Composite lost 1.5%.

    The S&P 500 is hovering around the threshold that it passed to enter bull market territory earlier this summer, which represents a climb of more than 20% off its most recent low last October.

    Housing data released Tuesday morning showed that new home sales fell 8.7% in August from July, as mortgage rates edged above 7% to the highest levels in decades.

    At the same time, US home prices climbed to a record high in July, marking the sixth straight month of increases as a tight supply of homes continues to drive up prices, according to the latest Case-Shiller home prices index.

    “The Fed will see the reacceleration of house prices as a reason to keep interest rates higher for longer,” said Bill Adams, chief economist at Comerica Bank. “The Fed cannot afford to look past house prices’ influence on the cost of living.”

    Investors have been on edge since the Fed last week indicated it could hike interest rates once more this year and delay rate cuts for longer than expected. That sent yields soaring to their highest level in decades, as investors recalibrate their expectations for how long rates will stay higher.

    Oil prices gained on Tuesday after paring back their recent gains earlier. West Texas Intermediate crude futures, the US benchmark, rose to roughly $90 a barrel. Brent crude, the international benchmark, climbed to $94 a barrel.

    JPMorgan Chase CEO Jamie Dimon said Tuesday in an interview with the Times of India that he is preparing the bank’s clients for a 7% interest rate scenario, further spooking investors.

    The possibility of a government shutdown also looms over Wall Street as the fiscal year’s end on September 30 fast approaches without any spending deal.

    Moody’s warned Monday that such an event could be negative for America’s credit rating, which already saw a downgrade from Fitch earlier this year after the federal government narrowly avoided breaching the debt ceiling.

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  • The Fed has a perfect interest rate in mind. Here’s what it is | CNN Business

    The Fed has a perfect interest rate in mind. Here’s what it is | CNN Business

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    There’s a star the Federal Reserve is chasing.

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  • US retail spending picked up in August, mostly due to sales at gas stations | CNN Business

    US retail spending picked up in August, mostly due to sales at gas stations | CNN Business

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    Washington, DC
    CNN
     — 

    US retail sales picked in August, boosted by higher gas prices, as spending on other items grew modestly.

    Retail sales, which are adjusted for seasonal swings but not inflation, rose 0.6% in August, the Commerce Department reported Thursday. That’s a slightly faster pace than July’s revised 0.5% gain, and marks the fifth straight month of growth. It’s also well above economists’ expectation of a 0.2% increase.

    The increase was largely driven by spending at gas stations, which advanced 5.2% last month. Spiking oil prices due to OPEC+ production cuts, strong demand and disruption from a deadly flood in Libya have pushed up prices at the pump. The national average for regular gasoline stood at $3.86 a gallon on Thursday, according to AAA, the highest level in 10 months.

    Excluding sales at gasoline stations, retail spending advanced a more modest 0.2% in August from July.

    Retail spending increased across most categories, including at restaurants and grocery stores. Sales of furniture and at specialty stores, such as those that sell sporting goods, fell 1% and 1.6% respectively. Online retail sales in August were flat, after jumping in July due to Amazon’s Prime Day promotional event.

    Despite 11 interest rate hikes from the Federal Reserve intended to cool demand, the US economy remains on strong footing, with American shoppers still doling out cash thanks to a strong job market.

    But after a summer of robust spending, US consumers are facing a number of economic challenges for the rest of the year, including student loan payments restarting and tougher lending standards, which could curb spending.

    “Fitch continues to view the consumer as relatively healthy, supported by low unemployment and somewhat declining goods inflation,” wrote David Silverman, senior director at Fitch Ratings, in an analyst note.

    However, he noted that “headwinds are emerging,” citing lower consumer savings and the resumption of student loan payments this fall.

    The US economy is widely expected to cool in the coming months, and since consumer spending accounts for about two-thirds of economic output, a weaker economy typically means softer spending. But economists don’t expect a recession this year. While Goldman Sachs recently reduced its bet of a US recession, the Wall Street bank still thinks there’s a 15% chance of an economic downturn.

    The job market is also expected to slow, which would include softer wage growth. That could prompt US consumers to pump the brakes on their spending.

    “Slowing labor market gains and softer disposable income growth in the coming months will likely mean ongoing consumer cautiousness. And it appears that consumers are already taking note,” wrote Lydia Boussour, senior economist at EY-Parthenon, in a note.

    However, if inflation slows in the months ahead, that could actually maintain economic activity, since it means consumers have regained some spending power.

    “Encouragingly, falling inflation should continue to provide a tailwind to real wages and avoid a retrenchment in consumer activity,” Boussour added.

    The Consumer Price Index rose 3.7% in August from a year earlier, up from July’s 3.2% rise, largely due to higher gas prices. Economists still expect inflation to cool later in the year, despite volatile energy markets. But gasoline prices are highly visible indicators of inflation, so more pain at the pump could also dampen consumers’ attitudes.

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  • Federal Reserve Chair Jerome Powell hints at more bad news for borrowers | CNN Business

    Federal Reserve Chair Jerome Powell hints at more bad news for borrowers | CNN Business

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    Washington, DC
    CNN
     — 

    Additional interest rate hikes are still on the table and rates could remain elevated for longer than expected, Federal Reserve Chair Jerome Powell said Friday.

    Delivering a highly anticipated speech at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, Powell again stressed that the Fed will pay close attention to economic growth and the state of the labor market when making policy decisions.

    “Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

    The Fed chief’s annual presentation at the symposium, which has become a major event in the world of central banking, typically hints at what to expect from monetary policy in the coming months.

    Powell’s speech wasn’t a full-throated call for more rate hikes, but rather a balanced assessment of inflation’s evolution over the past year and the possible risks to the progress the Fed wants to see. He made it clear the central bank is retaining the option of more hikes, if necessary, and that what Fed officials ultimately decide will depend on data.

    US stocks opened higher before Powell’s speech, tumbled in late morning trading and then rose again.

    The Fed raised its benchmark lending rate by a quarter point in July to a range of 5.25-5.5%, the highest level in 22 years, following a pause in June. Minutes from the Fed’s July meeting showed that officials were concerned about the economy’s surprising strength keeping upward pressure on prices, suggesting more rate hikes if necessary. Some officials have said in recent speeches that the Fed can afford to keep rates steady, underscoring the intense debate among officials on what the Fed should do next.

    Financial markets still see an overwhelming chance the the Fed will decide to hold rates steady at its September meeting, according to the CME FedWatch tool, given that inflationary pressures have continued to wane.

    Here are some key takeaways from Powell’s speech.

    Chair Powell said there is still a risk that inflation won’t come down to the Fed’s 2% target as the central bank faces the proverbial last mile in its battle with higher prices.

    “Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Powell said.

    Concerns over the economy running too hot for the Fed’s comfort only recently emerged.

    Economic growth in the second quarter picked up from the prior three-month period and the Atlanta Fed is currently estimating growth will accelerate even more in the third quarter.

    That could be a problem for the Fed, since the central bank’s primary mechanism for fighting inflation is by cooling the economy through tweaking the benchmark lending rate.

    Generally, if demand is red hot, employers will want to hire to meet that demand. But many firms continue to have difficulty hiring, according to business surveys from groups such as the National Federation of Independent Business. In theory, that could prompt wage increases in order to secure talent — and those higher costs could then be passed on to consumers.

    “if you’re a policymaker, you’re looking at the level of output relative to your estimate of what’s sustainable for maximum employment and 2% inflation,” William English, finance professor at Yale University who worked at the Fed’s Board of Governors from 2010 to 2015, told CNN. “So what does that mean for monetary policy? That may mean that they need rates to be higher for longer than they thought to get the economy on to that desirable trajectory, but there are a lot of questions around that force, and a lot of uncertainty.”

    Cleveland Fed President Loretta Mester is one of the Fed officials backing a more aggressive stance on fighting inflation.

    “We’ve come come a long way, but we don’t want to be satisfied, because inflation remains too high — and we need to see more evidence to be assured that it’s coming down in a sustainable way and in a timely way,” Mester said in an interview with CNBC after Powell’s remarks.

    Meanwhile, some other officials think there will eventually be enough restraint on the economy and that more hikes could cause unnecessary economic damage. The lagged effects of rate hikes on the broader economy are a key uncertainty for officials, since it’s not clear when exactly those effects will fully take hold. Research suggests it takes at least a year.

    “We are in a restrictive stance in my view, and we’re putting pressure on the economy to slow inflation,” Philadelphia Fed President Patrick Harker told Bloomberg in an interview Friday after Powell’s speech. “What I’m hearing — and I’ve been around my district all summer talking to people — is ‘you’ve done a lot very quickly.’”

    Powell pointed to the steady progress on inflation in the past year: The Fed’s preferred inflation gauge — the Personal Consumption Expenditures price index — rose 3% in June from a year earlier, down from the 3.8% rise in May. The Commerce Department officially releases July PCE figures next week, though Powell already previewed that report in his speech. He said the Fed’s favorite inflation measure rose 3.3% in the 12 months ended in July.

    The Consumer Price Index, another closely watched inflation measure, rose 3.2% in July, a faster pace than the 3% in June, though underlying price pressures continued to decelerate that month.

    In his speech Friday, Powell stood firmly by the Fed’s current 2% inflation target, which was formalized in 2012 — at least for now. The Fed is set to review its policy framework around 2025, which could be an opportunity to establish a new inflation target.

    Harvard economist Jason Furman said in an op-ed published in The Wall Street Journal this week that the central bank should aim for a different inflation goal, which could be something slightly higher than 2% or even a range of between 2% and 3%.

    For now, Powell has made it clear he is sticking with the stated inflation target.

    Still, inflation’s progress has hyped up not only American consumers and businesses, but also some Fed officials.

    Chicago Fed President Austan Goolsbee reiterated to CNBC Friday that he still sees “a path to a soft landing,” a scenario in which inflation falls down to target without a spike in unemployment or a recession.

    Powell also weighed in on an ongoing debate among economists about whether the “neutral rate of interest,” also known as r*, is higher since the economy is still on strong footing despite the Fed’s aggressive pace of rate hikes.

    In theory, the neutral rate is when real interest rates neither restrict nor stimulate growth. The Fed chair said higher interest rates are likely pulling on the economy’s reins, implying that r* might not be structurally higher, though he said it’s an unobservable concept.

    “We see the current stance of policy as restrictive, putting downward pressure on economic activity, hiring, and inflation. But we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint,” Powell said.

    Either way, while the Fed chief hinted that more rate hikes might be coming down the pike, there’s no guarantee either way.

    The Fed paused its historic inflation fight for the first time in June, mostly based on uncertainty over how the spring’s bank stresses would affect lending. The central bank could decide to pause again in September over uncertainty as it waits for more data.

    “We think that the Fed is more likely to take a wait-and-see approach with the data and try to understand a little bit more about why the labor market is remaining so strong, even despite the inflationary experience that we’ve had and the higher interest rates in the economy,” Sinead Colton Grant, head of investor solutions at BNY Mellon Wealth Management, told CNN in an interview.

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  • Why China has few good options to boost its faltering economy | CNN Business

    Why China has few good options to boost its faltering economy | CNN Business

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    Hong Kong
    CNN
     — 

    Every few days for the past several weeks, a parade of Chinese leaders and policymakers have publicly vowed to do more to boost the sputtering economy, usually by promising to support the beleaguered private sector.

    Sometimes investors appear to have gained confidence from these pledges, sending shares higher.

    More often though, they’ve ignored the flurry of official messaging, hoping for more tangible stimulus measures that economists and analysts tell CNN are now unlikely to come because China has become too indebted to just pump up the economy like it did 15 years ago, during the global financial crisis.

    “We have had plenty of vague promises already, which don’t amount to a great deal so far,” said Robert Carnell, regional head of research for Asia-Pacific at ING Group.

    Except for some incremental steps to help the property market, currently mired in its worst slump in history, and tweaks to interest rates, there have been few signs of the government providing real money to struggling consumers or businesses.

    “Chinese policymakers appear unlikely to enact any major monetary or fiscal stimulus, likely fearing doing so could exacerbate China’s growing debt risks,” said Craig Singleton, senior China fellow at the Foundation for Defense of Democracies, a Washington-based non-partisan think tank.

    “At most, we can expect meager, mostly-supply side measures ostensibly aimed at, among other things, attracting more private capital and boosting electric vehicle ownership,” he added.

    After a strong start to the year after Covid restrictions were lifted, the world’s second largest economy has lost momentum.

    Since April, a slew of disappointing economic data and population statistics has sparked concern that China may be facing a period of much slower growth and possibly even heading for a future comparable to Japan’s.

    China’s economy barely grew in the April to June months compared with the previous quarter, as an initial burst in economic activity following the end of pandemic restrictions faded. Signs of deflation are becoming more prevalent, sparking concerns that China could enter a prolonged period of stagnation.

    Based on Japan’s experience in the 1990s, there is the risk that China is entering “a liquidity trap,” a scenario in which monetary policy becomes largely ineffective and consumers hold on to their cash rather than spend it, said Alicia Garcia-Herrero, chief economist for Asia Pacific for Natixis, a French investment bank.

    “In other words, there is a risk that Chinese corporates and households, pushed by their very negative sentiment about the economic outlook, prefer to disinvest and de-leverage in the light of falling revenue generation.”

    To get the economy back on track, Beijing needs to match its words with action, according to analysts.

    China “conspicuously” refrained from the giant Covid-era support seen in developed economies, according to analysts at the UBS Global Wealth Management. Fiscal stimulus, for instance, amounted to just a third of the aid offered in the United States, with no nationwide cash handouts.

    While this helped China avoid the rampant inflation shock seen elsewhere, disposable household income fell as wages and property asset values simultaneously stalled, they said in a recent research note.

    Interest rate cuts are not enough, unless they are accompanied by fiscal measures to boost demand.

    “A comprehensive policy mix — covering monetary and fiscal stimulus, including infrastructure, property, and consumption, alongside structural reforms,” would be helpful to rebuild confidence, they said.

    China’s economic trajectory is of great concern for global investors and policymakers who are counting on it to drive global expansion. But, Beijing appears to have run out of ammunition.

    Back in 2008, Chinese leaders rolled out a four trillion yuan ($586 billion) fiscal package to minimize the impact of the global financial crisis. It was seen as a success and helped boost Beijing’s domestic and international political standing as well as China’s economic growth, which soared to more than 9% in the second half of 2009.

    But the measures, which were focused on government-led infrastructure projects, also led to an unprecedented credit expansion and massive increase in local government debt, from which the economy is still struggling to recover. In 2012, Beijing said it wouldn’t be doing it again. The costs were just too high.

    China’s debt woes have only deepened during the Covid-19 pandemic, when three years of draconian restrictions and a real estate downturn drained the coffers of local government.

    Analysts estimate China’s outstanding government debts surpassed 123 trillion yuan ($18 trillion) last year. Nearly $10 trillion of that figure is so-called “hidden debt” owed by risky local government financing platforms.

    In June, Zhu Min, a former senior official at the International Monetary Fund who previously served at China’s central bank, was quoted by Bloomberg as telling the Summer Davos forum in Tianjin that he didn’t believe China would unveil massive stimulus, as the nation was already struggling with high debt levels.

    “No [fiscal stimulus] has been announced, which seems to indicate that Chinese policymakers are still wary about a too rapid increase in public debt,” said Garcia-Herrero.

    And even if Beijing were to take action, it would be less effective than in 2008, Garcia-Herrero said.

    “An infrastructure-led fiscal stimulus would need to be much bigger to have the same economic impact,” she said.

    It also implies that, if action is taken, public debt in China would jump well above the current 100% of GDP, which would place the economy “among the most indebted in the world,” she added.

    What’s worse, under President Xi Jinping, Beijing appears to have doubled down on its strategy to strengthen the party’s control over the economy, analysts said.

    A “correct response” to the economic slump would be for Beijing to return to a pro-market reform path and let the private sector play a bigger role, according to Derek Scissors, senior fellow at the American Enterprise Institute.

    But signs are “limited” that the government is considering that direction, he said.

    According to Singleton, “China’s new economic leadership team has few tools to meaningfully revive growth.”

    “Beijing’s steadfast, albeit unsurprising, refusal to acknowledge the role Xi’s economic mismanagement has played” in exacerbating China’s problems will gravely compound its broader systemic risks, he said.

    The property sector will likely be a drag on growth for years to come, Singleton said, adding that the country’s alarming debt levels and timid consumers domestically and abroad won’t help either.

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  • Key US inflation gauge cooled last month to the lowest level in nearly three years | CNN Business

    Key US inflation gauge cooled last month to the lowest level in nearly three years | CNN Business

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    Minneapolis
    CNN
     — 

    Wholesale inflation continued its yearlong slowdown last month, rising by just 0.1% for the 12 months ended in June, according to the Bureau of Labor Statistics’ Producer Price Index released Thursday.

    The PPI index, a key inflation gauge that tracks the average change in prices that businesses pay to suppliers, has cooled significantly since peaking at 11.2% in June 2022 and has now declined for 12 consecutive months. Annual producer price inflation is at its lowest level since August 2020, BLS data shows.

    Economists were expecting an annual increase of 0.4%, according to Refinitiv.

    On a monthly basis, prices increased by 0.1%.

    Goods prices held steady for the month, after tumbling 1.6% in May, according to the BLS report. As such, prices for services — which increased 0.2% from May — were the primary driver behind June’s slight increase.

    PPI is a closely watched inflation gauge since it captures average price shifts before they reach consumers and is a proxy for potential price changes in stores.

    While the PPI doesn’t directly correlate into exactly what will come from the following month’s Consumer Price Index — a major inflation gauge that tracks price shifts for a basket of goods and services — it provides a look at whole economy inflation, minus rents, said Alex Pelle, Mizuho Securities US economist.

    And that picture right now is looking pretty sharp.

    “It’s definitely a good month for inflation,” Pelle told CNN. “You saw that in CPI, and now you’re seeing it in PPI.”

    In June, inflation as measured by the CPI cooled to 3% annually, its lowest rate since March 2021, the BLS reported Wednesday.

    Both the CPI and PPI have declined monthly since their peaks in June 2022, when record-high energy and gas prices fueled the spikes to 9.1% and 11.2%, respectively.

    As such, the base effects of year-over-year comparisons are playing a part in the indexes’ sharp retreats.

    Still, underlying inflation is showing a cooling trend as well — albeit more muted.

    In the case of PPI, when stripping out the more volatile categories of food and energy, this “core” index rose 2.4% for the 12 months ended in June. That’s a step back from the 2.6% increase seen in May and economists’ expectations of 2.6%.

    Core PPI, which ticked up 0.1% on a monthly basis, is at its lowest annual level since February 2021.

    Inflation is looking a heck of a lot better than last year, when the Federal Reserve embarked on a campaign to combat price hikes with rate hikes, but economists don’t expect the latest CPI and PPI prints will dissuade central bankers from giving another crank to tighten monetary policy.

    Starting in March 2022, the central bank rolled out 10 consecutive interest rate hikes to tame inflation, finally hitting pause last month. The Fed is widely expected to raise rates by another quarter point when it meets later this month.

    “[The June data] means that the doves are going to have a little bit better of an argument to hold sooner rather than later, so that does reduce the probability of a second hike this year,” Pelle said, noting the commonly used terms to describe Fed members’ differing monetary policy approaches.

    Doves tend to favor looser monetary policy and issues like low unemployment over low inflation, while hawks favor robust rate hikes and keeping inflation low above all else.

    But just how long a hold could last is another matter, said Pelle.

    The job market is cooling from a scorching state, but it remains historically hot and tight. Considering ongoing demographic shifts (including the massive Baby Boomer generation aging out of the workforce), that tightness could continue, Pelle said.

    “Do we really need to be cutting rates if you have GDP running around trend and the labor market still very tight,” he said. “Inflation is coming down, but the economy is maybe growing a little bit into these higher rate levels. So the hold could be longer than people expect. But we might have some of the sting out on getting even higher.”

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  • Could the June CPI report change the Fed’s rate trajectory? | CNN Business

    Could the June CPI report change the Fed’s rate trajectory? | 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.



    CNN
     — 

    After the June jobs report showed a cooling but still-hot picture of the labor market, investors are looking to a key inflation report due Wednesday for more clues on the economy’s health. But some investors say the results will likely do little to sway the Federal Reserve’s interest rate trajectory.

    What happened: The labor market added just 209,000 jobs in June, below economists’ expectations for a net gain of 225,000 jobs. That’s the smallest monthly gain since a decline in December 2020.

    But beneath the surface, the jobs market remains hot. Average hourly earnings growth remained steady at 0.4% from May and also unchanged at 4.4% year-over-year, suggesting that wage inflation remains sticky. The unemployment rate also fell to 3.6% from 3.7%, though jobless rates for Black and Hispanic workers rose sharply.

    There is “nothing in the release that would change our expectation that the Fed has more work to do,” said Joseph Davis, global chief economist at Vanguard.

    Accordingly, traders continued to overwhelmingly expect a quarter-point rate hike at the Fed’s July meeting. Traders saw a roughly 92% chance of such a decision as of the market close on Friday, according to the CME FedWatch Tool.

    What’s next: The June Consumer Price Index report, a key inflation reading, is due on Wednesday.

    Economists expect a 3.1% increase in consumer prices for the year ended in June, which would be a cooldown from a 4% annual increase in May, according to Refinitiv.

    Recent data has suggested that inflation is coming down, though it remains above the Fed’s 2% target. The Personal Consumption Expenditures price index, the Fed’s favorite inflation gauge, rose 3.8% for the 12 months ended in May. That’s down from the revised 4.3% annual rise seen in April.

    But it’s unlikely that the June CPI report will change the Fed’s interest rate trajectory, barring a huge upside or downside surprise, especially considering that Fed officials in recent weeks have been vocal that more rate hikes are likely coming, said James Ragan, director of wealth management research at DA Davidson.

    Still, that doesn’t mean investors should expect infinite rate hikes from the Fed.

    “We continue to expect that [the] Fed will soon reach its terminal rate, bringing it closer toward the end of its most aggressive tightening campaign in generations,” said Candice Tse, global head of strategic advisory solutions at Goldman Sachs Asset Management.

    The Producer Price Index report for June is due on Thursday.

    UPS and the Teamsters union are in contract negotiations. Without a deal, 340,000 Teamsters could go on strike on August 1.

    Such an event could be damaging to the US economy, reports my colleague Chris Isidore.

    UPS carries 6% of the country’s gross domestic product in its trucks. The company carried an average of 20.8 million US packages a day through last year, and that number is down only slightly this year.

    In other words, the company’s services are critical to keeping the gears moving seamlessly in supply chains that saw massive snarls during the height of the Covid pandemic. A strike could potentially bring back the problems that were so prominent just a couple years ago, including shipping delays and higher prices.

    The Biden administration is keeping an eye on negotiations between both parties in “recognition of the role UPS plays in our economy and of the important work that UPS workers did through the pandemic and continue to do today,” acting labor secretary Julie Su told CNN on Friday.

    But the company and union broke off last week, with both sides claiming the other walked away from the bargaining table.

    Read more here.

    Monday: Consumer credit for May and NY Federal Reserve’s Survey of Consumer Expectations for June.

    Tuesday: NFIB small business optimism survey for June.

    Wednesday: Consumer Price Index report and housing starts for June.

    Thursday: Producer Price Index report for June.

    Friday: University of Michigan consumer sentiment and inflation expectations for July.

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  • Expect more rate hikes from the Fed after the latest jobs report | CNN Business

    Expect more rate hikes from the Fed after the latest jobs report | CNN Business

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    Washington, DC
    CNN
     — 

    An interest rate hike later this month was already in the cards for the Federal Reserve. But after the June jobs report, the timing of a second hike remains unclear.

    Job gains remain robust, wage growth is still going strong, and unemployment continues to hover near historic lows. That means the job market is still fueling demand in the economy, which the Fed has been trying to slow through rate hikes. And Fed officials have made it clear they think the central bank still has more work to do to bring down inflation, which is still running well above the 2% goal.

    Federal Reserve Bank of Chicago President Austan Goolsbee, a voting member of the Fed committee that decides interest rates, said in an interview Friday that he sees “a decent chance of further tightening down the pipeline” and that inflation “needs to come down more.”

    Other Fed officials have struck a similarly hawkish tone on inflation, hinting strongly at a hike in July.

    “I remain very concerned about whether inflation will return to target in a sustainable and timely way,” said Federal Reserve Bank of Dallas President Lorie Logan on Thursday during a meeting hosted by the Central Bank Research Association. “I think more restrictive monetary policy will be needed to achieve the Federal Open Market Committee’s goals of stable prices and maximum employment.”

    Fed officials voted last month to hold the key federal funds rate steady at a range of 5-5.25% to reassess the economy after a string of 10 consecutive rate hikes and to monitor the effects of bank stresses in the spring, according to minutes from that meeting released Wednesday.

    “We can take some time and assess and collect more information and then be able to act, knowing that we also communicated through our projections that we don’t think we’re done, based on what we know,” said New York Fed President John Williams Wednesday during a moderated discussion in New York. “And obviously we’re absolutely committed to achieving our 2% inflation goal.”

    And Fed Chair Jerome Powell himself has doubled down on the need for more rate increases in recent speeches, not ruling out back-to-back hikes, despite economic indicators showing slight progress on inflation.

    Financial markets are pricing in a more than a 90% chance of a rate hike later this month, according to the CME FedWatch Tool.

    The Fed wants to see the labor market slow down broadly, bringing it into “better balance,” as Powell has frequently described it. That means wage growth would need to cool consistently, monthly payroll growth would need to be close to a range of 70,000 and 100,000 — the smallest job gain needed to keep up with population growth — and unemployment would need to rise, according to economists. Job market conditions don’t resemble that just yet.

    “This is clearly a very tight labor market, so I expect the Fed to look at this data and say there is justification here for continued small rate increases because the labor market is not cooling enough,” Dave Gilbertson, labor economist at payroll software company UKG, told CNN.

    Labor costs are higher because of a persistent difficulty in hiring, weighing on labor-intensive service providers such as hospitals and restaurants, which has put upward pressure on consumer prices since businesses typically raise wages to address hiring challenges.

    Powell homed in on that dynamic in recent remarks, and research from top economists argues the Fed will have to slow the economy further to fully address the labor market’s stubborn impact on inflation. Whether that means a full-blown recession or a so-called soft landing remains to be seen, but some Fed officials are optimistic.

    “I feel like we are on a golden path of avoiding recession,” Goolsbee told CNBC Friday.

    And there has been some progress on bringing the job market back into better balance while inflation has come down. Job openings fell to 9.82 million in May, down from a peak of 12 million in March 2022, though they still greatly exceed the number of unemployed people seeking work. And June’s jobs total of 209,000 is still robust by historical standards.

    But Gilbertson said labor shortages have been largely driven by demographic shifts, which might keep the job market tight for the foreseeable future.

    Beyond the expected hike in July, the Fed is going to remain laser-focused on wage growth to inform its decision-making later in the year. Central bank officials will pay particular attention to the Employment Cost Index, which recently showed that pay gains picked up in the first three months of the year. The index for the second quarter will be released in late July — after the Fed meets.

    “The focus is on the path of wage inflation because of its pass-through to services inflation,” said Sonia Meskin, head of US Macro at BNY Mellon IM.

    The June jobs report showed that average hourly earnings growth was unchanged at 0.4% from the month before and also unchanged at 4.4% year-over-year — not a welcome development.

    Core inflation hasn’t decelerated as fast as the headline measure because of the tightness in the labor market. The Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, rose 3.8% in May from a year earlier, down from April’s 4.3% rise; while the core measure edged lower to 4.6% from 4.7% during the same period.

    Within the core measure, services inflation also remains sticky and Powell said in last month’s post-meeting news conference that “we see only the earliest signs of disinflation there” and that the services sector’s “largest cost would be wage cost.”

    The Fed’s strategy to address services inflation is simply by curbing demand through more rate hikes. So, in addition to the labor market, the Fed is highly attentive to consumer spending, which has cooled in the past several months, according to figures from the Commerce Department.

    Other headwinds are expected to weigh on consumers in the months ahead, such as the resumption of student loan payments and the Supreme Court blocking President Joe Biden’s student loan forgiveness program. Americans are also running down their savings accounts while racking up debt, so US consumers may need to start cutting back soon.

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  • Turkey hikes interest rates to 15% as Erdogan reverses policy on fighting inflation | CNN Business

    Turkey hikes interest rates to 15% as Erdogan reverses policy on fighting inflation | CNN Business

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    London
    CNN
     — 

    Turkey’s central bank almost doubled interest rates to 15% Thursday in a dramatic reversal of its unorthodox policy of cutting the cost of borrowing to tame painfully high inflation.

    Annual consumer price inflation has come down from a two-decade high of 85.5% in October but was still 39.6% in May.

    The central bank said that there were indications that underlying inflation in Turkey was increasing, even as inflation in many other countries trends downwards.

    “The strong course of domestic demand, cost pressures and the stickiness of services inflation have been the main drivers,” the central bank said in a statement.

    This is the first rate decision by Turkey’s central bank since last month’s reelection of President Recep Tayyip Erdogan.

    It is also the first rate increase in more than two years, and the central bank’s first decision since the appointment earlier this month of new governor Hafize Gaye Erkan, a former Goldman Sachs banker and the first woman to hold the position.

    In its statement, the central bank said it hiked rates to bring down inflation “as soon as possible,” and that it would continue to do so gradually “until a significant improvement in the inflation outlook is achieved.”

    Liam Peach, senior emerging markets economist at Capital Economics, wrote in a Thursday note that there were “encouraging signs” from the central bank that further rate hikes were ahead.

    The London-based research firm expects Turkish interest rates to rise as high as 30% later this year.

    Erdogan had ordered his central bank to cut rates nine times since late 2021, taking them to 8.5%, even as inflation around the world started to accelerate and most economies were doing the opposite. In that time, the value of the Turkish lira crashed 170% to a record low against the US dollar.

    A weaker lira has aggravated Turkey’s cost-of-living crisis by making foreign imports more expensive, and pushed the government to use up billions of its foreign currency reserves in an attempt to boost the currency’s value.

    Erdogan — who has fired four central bank governors in as many years — has since tried to reassure investors that he intends to normalize Turkish economic policy by filling key posts with more orthodox figures such as Erkan.

    This month, Erdogan also appointed Mehmet Simsek, Turkey’s former deputy prime minister and finance minister, and a former economist for US wealth management firm Merrill Lynch, as his finance minister.

    But the lira weakened further after Thursday’s rate hike news, dropping more than 2% to a new record low of 24 to the US dollar.

    Craig Erlam, senior market analyst at Oanda, noted that the rate hike had come in at the lower end of market forecasts, and investors couldn’t afford to relax too soon.

    “Erdogan hasn’t really hesitated to sack [central bank] governors that raise rates in the past, so investors will never feel fully at ease as long as he’s president,” he wrote in a note.

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  • Employers are preparing for a recession, but that doesn’t always mean layoffs | CNN Business

    Employers are preparing for a recession, but that doesn’t always mean layoffs | CNN Business

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    Minneapolis
    CNN
     — 

    Areas of the US economy have started to crack under the weight of persistently high inflation and a string of 10 consecutive rate hikes from the Federal Reserve.

    But despite all that, the labor market has kept humming right along. And that’s largely expected to be the case, again, in Friday’s monthly jobs report from the Bureau of Labor Statistics.

    Economists are forecasting a net gain of 190,000 jobs for May, according to Refinitiv. While that would mark a significant retreat from April’s surprisingly strong 253,000 jobs added, it would land slightly above the average monthly gains seen during the strong labor market in the years leading up to the pandemic.

    Economists are also expecting the unemployment rate to tick back up to 3.5%. The US jobless rate has hovered at decade-lows for more than a year, with the current 3.4% rate matching a 53-year low hit in January.

    Private sector employment increased by 278,000 jobs in May, according to ADP’s monthly National Employment Report, frequently seen as a proxy for the government’s official number. That’s significantly higher than estimates of 170,000 jobs added but slightly below the previous month’s revised total of 291,000.

    Additional labor market data released Thursday showed that initial weekly jobless claims for the week ended May 27 totaled 232,000, almost no change from the previous week’s revised total of 230,000 applications.

    “In the last few months, the job market has continued to defy gravity, adding a steady clip of jobs and holding unemployment at historically low levels despite a backdrop of rising interest rates, banking turmoil, tech layoffs and debt ceiling negotiations,” Daniel Zhao, lead economist at employment review and search site Glassdoor, wrote in a note this week. “After a healthy April jobs report, May is likely to repeat with an equally strong performance.”

    Consumer spending and the labor market — two ares of strength in the economy — have, in a way, continued to feed on themselves.

    Last week, a Commerce Department report showed that not only did the Fed’s preferred inflation gauge heat up in April but so did consumer spending. Economists largely attributed consumers’ resilience to the healthy labor market as well as ample dry powder stockpiled from home refinances and from the temporary pause in student loan payments.

    In turn, that’s kept businesses busy.

    “With demand for goods and services holding up, employers who have been cautious and have been very nervous about over-hiring are — when push comes to shove — having to keep hiring just to keep pace with business activity,” Julia Pollak, chief economist for online employment marketplace ZipRecruiter, told CNN. “They’re very worried about a recession later this year, but they need to keep hiring today to provide the pizzas that people are demanding and to prevent flights being canceled.”

    She added: “Companies have also learned the hard way how costly staffing shortages can be.”

    But labor shortages are becoming far less acute: This past Memorial Day weekend, 1% of flights were canceled, Pollak said, noting that cancellations were fivefold higher a year before.

    “And while that’s a good news story — the end of shortages and disruptions during the pandemic is good for most consumers and good for businesses — it does come at some cost, which is a measurable decline in worker and job seeker leverage,” she said.

    Labor turnover data released Wednesday showed that the US employment market remained tight in April.

    Job openings bounced up to 10.1 million positions, bucking economists’ predictions for a fourth-consecutive monthly decline, according to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey report. The jump brought the ratio of vacancies to unemployed to almost 1.8, which is well above a range of 1.0 to 1.2 that is considered consistent with a balanced labor market, according to Michael Feroli, JPMorgan chief US economist.

    Although the April JOLTS data showed that fewer people were voluntarily quitting their jobs, the amount of layoffs and discharges dropped during the month, suggesting that employers are continuing to hoard workers, noted economist Matthew Martin of Oxford Economics.

    While monthly job gains haven’t tailed off as much as anticipated to this point, there is a notable slowdown that’s occurred from the blockbuster job gains of the past three years.

    But whether the softening is a sign of a return to pre-pandemic form or perhaps of a downswing into a downturn, remains to be seen.

    Some of the traditional recession indicators have been flashing red. Layoff announcements have quadrupled so far this year to 417,500, which — excluding 2020 — is the highest January to May total since 2009, according to a report from Challenger, Gray & Christmas released Thursday. Falling consumer confidence, monthly declines in the Conference Board’s Leading Economic Index, and drops in temporary help employment are also signaling that a downturn is just ahead. However, that long-predicted recession isn’t here just yet.

    “We were in such an unusual place during the pandemic with some of those indicators at completely extraordinary heights that they have experienced extraordinary declines,” Pollak said. “But those declines were just a return to normal, not a contraction, and it’s not a recession.”

    The government’s May jobs report is scheduled for Friday at 8:30 a.m. ET.

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  • Could the Fed raise rates again in June? | CNN Business

    Could the Fed raise rates again in June? | 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
     — 

    Will the Federal Reserve hike interest rates at its next meeting in June — for the 11th time in a row — or pause? Wall Street seems to be betting on the latter, but it was a topsy-turvy journey to that consensus last week.

    What happened: The Fed’s meeting earlier this month fueled hopes that it was done with rate hikes, at least for now. Then, a slate of economic data last week came in stronger than expected.

    Retail spending rebounded in April after two months of declines, suggesting that consumers are still spending despite tightening their purse strings. Jobless claims declined more than expected for the week ended May 13, staying below historical averages.

    Traders saw a roughly 36% chance last Thursday that the Fed will raise rates by another quarter point in June, up from around 15.5% on May 12, according to the CME FedWatch Tool.

    Then, Fed Chair Jerome Powell weighed in mid-morning Friday. In a panel with former Fed head Ben Bernanke, Powell said that uncertainty remains surrounding how much demand will decline from tighter credit conditions and the lagged effects of hiking rates. Traders pared down their expectations to about a 18.6% chance that the central bank will raise rates next month, as of Friday evening.

    Experts seem to agree that the Fed is unlikely to raise rates again in June. “The absence of any such preparation [for a raise] is the signal and gives us additional confidence that the Fed is not going to hike in June absent a very big surprise in the remaining data, though we should expect a hawkish pause,” Evercore ISI strategists said in a May 19 note.

    Jim Baird, chief investment officer at Plante Moran Financial Advisors, also expects the Fed to hold rates steady in June. But that decision isn’t set in stone, and the Fed will likely monitor three key factors in making its decision, he said. Those are:

    • The debt ceiling. President Joe Biden and congressional leaders have maintained that the US will likely not default on its debt. But if such a scenario were to happen, it could have catastrophic consequences for the economy and financial markets that would require the Fed wait for the crisis to be resolved before taking action.
    • Evolving financial conditions. The collapses of regional lenders Silicon Valley Bank, Signature Bank and First Republic have accelerated the tightening of credit conditions. While that has complicated the Fed’s plan to stabilize prices, it also could benefit the central bank by doing some of its work for it by slowing spending.
    • Delayed impact. The Fed’s interest rate hikes flow through the economy with a lag. So, it will take some months for the full effect of its aggressive tightening cycle to show up in the economy. That means the Fed could want to take a pause to monitor the continuing impact of what it has already done.

    The Fed has also maintained that its actions are data dependent, meaning it will keep close watch on economic data that comes in before it’s due to announce its next rate decision on June 14.

    Some key data points set for release before then include the April Personal Consumption Expenditures price index (that’s the Fed’s preferred inflation metric), May jobs report, the May Consumer Price Index and May Producer Price Index. (The latter two reports are due on the two days the Fed meets.)

    If these data points show considerable weakening in the labor market or continued declines in inflation, that helps make the case for a pause. But signs of a robust economy with little to no signs of slowing down could mean the Fed has more room to tighten — and that it could take that opportunity.

    Morgan Stanley chief executive James Gorman, 64, will step down from his role within the next 12 months, he said Friday at the bank’s annual meeting.

    “The specific timing of the CEO transition has not been determined, but it is the Board’s and my expectation that it will occur at some point in the next 12 months. That is the current expectation in the absence of a major change in the external environment,” Gorman said.

    Gorman, who is one of the longest-serving heads of a US bank and largely responsible for helping lead a sweeping transformation of the company after the 2008 financial crisis, became CEO in January 2010.

    He will assume the role of executive chairman for “a period of time,” Gorman said, adding that the board of directors has three senior internal candidates in the pipeline to potentially take over as the next chief executive.

    Read more here.

    The June 1 ‘X-date’ — the estimated point at which the US Treasury could run out of cash — is fast approaching. For JPMorgan Chase’s Jamie Dimon, another key date is already here.

    The chief executive told Bloomberg earlier this month that he has held a so-called “war room” weekly to prepare the bank for the possibility the United States defaults on its debt. He plans to meet more often as the X-date approaches, and then meet every day by May 21, he said, adding that the meetings will eventually ramp up to take place three times a day.

    “I don’t think [a default] is going to happen, because it gets catastrophic,” Dimon said. “The closer you get to it, you will have panic.”

    Debt ceiling negotiations appeared to be going in a positive direction for most of last week. Both President Joe Biden and House Speaker Kevin McCarthy said that the United States is unlikely to default on its debt and seemed optimistic about the path to a deal.

    But debt ceiling talks between the White House and McCarthy’s office have hit a snag, and negotiators put a pause on the talks, multiple sources told CNN Friday.

    While that doesn’t mean the negotiations are falling completely apart, or that the country is headed for a default, it does pose more challenges for the stock market, which has stayed relatively resilient despite debt ceiling worries starting to slowly creep in.

    Dimon said in the same Bloomberg interview that he’d “love to get rid of the debt ceiling thing” altogether.

    The debt ceiling situation “is very unfortunate,” he said. “It should never happen this way.”

    Monday: JPMorgan Chase investor day.

    Tuesday: April new home sales. Earnings from Lowe’s (LOW).

    Wednesday: May Fed meeting minutes.

    Thursday: GDP Q1 second read, April pending home sales, mortgage rates and weekly jobless claims. Earnings from Costco (COST), Dollar Tree (DLTR) and Best Buy (BBY).

    Friday: April Personal Consumption Expenditures and May University of Michigan final consumer sentiment reading.

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  • 5 things to know for May 3: Border, Texas shooting, Writers strike, Fed meeting, Sudan | CNN

    5 things to know for May 3: Border, Texas shooting, Writers strike, Fed meeting, Sudan | CNN

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    CNN
     — 

    Many airline employees have gone for years without pay raises, even after enduring difficult working conditions during the pandemic. Pilots for American Airlines voted to strike this week, and Southwest pilots plan to vote as well, but they won’t be walking off the job anytime soon — if at all — due to a labor law that places considerable hurdles in the way of any union that wants to strike.

    Here’s what else you need to know to Get Up to Speed and On with Your Day.

    (You can get “CNN’s 5 Things” delivered to your inbox daily. Sign up here.)

    In preparation for an expected surge of crossings at the US-Mexico border next week, the Biden administration plans to send an additional 1,500 active-duty troops to the border to free up Department of Homeland Security agents. The troops will take on strictly administrative roles, officials said, and will join around 2,500 National Guard troops already in place. The surge of migrants is expected because Title 42, the Trump-era policy that allowed authorities to quickly turn away certain migrants at the border during the pandemic, expires on May 11. Encounters between border agents and undocumented immigrants are at around 7,000 per day at the moment and are expected to rise dramatically next week, despite a warning from the State Department and DHS about a new, more punitive policy related to border crossings.

    The man suspected of gunning down five people at a neighbor’s home in Texas last week — including a mother and her 9-year-old son — was captured Tuesday after a dayslong manhunt. The suspect was found under a pile of laundry in the closet of a home just miles from the Cleveland, Texas, residence where the shooting took place, San Jacinto County Sheriff Greg Capers said. “We just want to thank the person who had the courage and bravery to call in the suspect’s location,” an FBI spokesperson said, adding that authorities are now investigating whether the suspect had any help in hiding. The gunman will be held on five counts of murder and his bond is set at $5 million.

    Official describes suspect found hiding in laundry

    Popular late night shows are airing repeat episodes “until further notice” due to the film and TV writers’ strike, sources tell CNN. Several shows including “Saturday Night Live,” “Jimmy Kimmel Live!” and “The Late Show with Stephen Colbert” began airing repeat episodes as of Tuesday. Seth Meyers and Jimmy Fallon, who host NBC’s “Late Night with Seth Meyers” and “The Tonight Show,” respectively, previously said they would honor the strike and not air any new episodes as well. Late night shows are being especially impacted because they depend on their writers for bits, monologues and celebrity interview questions. Until an agreement is reached, analysts say the strike could shut down production on shows and cause a domino effect in the wider realm of the entertainment industry, pushing back the return of many programs set for the fall.

    exp TSR.Todd.writers.guild.strike.impacts.tv.movies_00003201.png

    Strike means TV shows and films in jeopardy

    Federal Reserve officials are expected to raise interest rates by a quarter point today. The Fed’s decision comes just two days after the collapse of First Republic Bank, the second-biggest bank failure in US history. When the Fed raises interest rates, banks need to raise the rates on their savings accounts in order to lure depositors from their competitors. That can put a disproportionate amount of pressure on mid-sized and regional banks — like the ones who saw depositors pull their money when the banking crisis began in March. Still, the Fed will move to raise interest rates today to lower inflation. To do that, it has to intentionally slow parts of the economy by making it more expensive for banks, and thereby consumers, to borrow money.

    Leaders of Sudan’s warring factions agreed to a seven-day ceasefire on Tuesday, the foreign ministry of South Sudan said in a statement. However, previous ceasefires have failed to quell the fighting between the rival factions in various parts of the country. Both sides — the Sudanese Armed Forces and the paramilitary Rapid Support Forces — have yet to comment on the report on their official channels. Tuesday’s announcement came after the UN’s refugee agency warned more than 800,000 people may flee to neighboring countries, as the ongoing violence blocks evacuation convoys from key ports in Sudan. More than 70,000 people have already fled Sudan to neighboring countries, a spokesperson for the agency said earlier this week.

    exp sudan ceasefire madowo FST 050312ASEG1 cnni world_00002001.png

    Seven-day ceasefire expected to begin Thursday in Sudan

    Teenage boy opens fire at Serbian school, killing eight children and a security guard, officials say

    Eight children and a security guard have have been killed after a 14-year-old boy allegedly opened fire in an elementary school in the Serbian capital of Belgrade, according to Serbia’s Interior Ministry. Several children and a teacher were also injured in the attack, officials said. The boy is in custody following the incident. 

    Cockroach at the Met Gala goes viral

    A bug on the red carpet received more buzz than some A-list celebrities. Watch the video here.

    Top 10 best cuisines in the world, according to CNN Travel

    Check out this list of appetizing cuisines. *Stomach rumbles — loudly* 

    NBA announces Most Valuable Player for 2022-2023

    Joel Embiid of the Philadelphia 76ers won the coveted award after the center topped the charts last year.

    Webb telescope detects mysterious water vapor in a nearby star system

    Astronomers detected water vapor around a rocky exoplanet located 26 light-years away from Earth. Here’s what it could mean.

    Kevin Costner and wife Christine Baumgartner are getting a divorce

    After more than 18 years, the two are going their separate ways.

    0

    That’s how many criminal charges, or lack thereof, will be filed against one of the former Memphis police officers involved in the fatal traffic stop that led to Tyre Nichols’ death. On January 7, 29-year-old Nichols, a Black man, was repeatedly punched and kicked by Memphis police officers following a traffic stop and brief foot chase. Former White Memphis police officer Preston Hemphill was part of the initial traffic stop in which bodycam footage revealed he used an “assaultive statement” after firing a stun gun at Nichols. Hemphill was not involved in the second encounter where Nichols was brutally beaten by police.

    “The public shouldn’t have their daily lives ruined by so-called ‘eco-warriors’ causing disruption.”

    — UK Home Secretary Suella Braverman, issuing a statement Tuesday on the government’s plan to take stronger action against peaceful protesters, days ahead of the coronation of King Charles III. The Home Office said parts of a controversial law will go into place today that will “give police the powers to prevent disruption at major sporting and cultural events.” For example, protestors who physically attach themselves to things like buildings could receive a six-month prison sentence or “unlimited fine,” the Home Office said in a statement.

    Check your local forecast here>>>

    Teen’s grand entrance steals the show at prom

    Most teenagers favor limousines and luxury cars for their prom transportation. These high school students, on the other hand, preferred a tank for their grand entrance. (Click here to view) 

    Tank To Prom 1

    Teen’s grand entrance steals the show at prom

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  • IMF: Banking crisis boosts risks and dims outlook for world economy | CNN Business

    IMF: Banking crisis boosts risks and dims outlook for world economy | CNN Business

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    London
    CNN
     — 

    At the start of the year, economists and corporate leaders expressed optimism that global economic growth might not slow down as much as they had feared. Positive developments included China’s reopening, signs of resilience in Europe and falling energy prices.

    But a crisis in the banking sector that emerged last month has changed the calculus. The International Monetary Fund downgraded its forecasts for the global economy Tuesday, noting “the recent increase in financial market volatility.”

    The IMF now expects economic growth to slow from 3.4% in 2022 to 2.8% in 2023. Its estimate in January had been for 2.9% growth this year.

    “Uncertainty is high, and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled,” the organization said in its latest report.

    Fears about the economic outlook have increased following the failures in March of Silicon Valley Bank and Signature Bank, two regional US lenders, and the loss of confidence in the much-larger Credit Suisse

    (CS)    , which was sold to rival UBS in a government-backed rescue deal.

    Already, the global economy was grappling with the consequences of high and persistent inflation, the rapid rise in interest rates to fight it, elevated debt levels and Russia’s war in Ukraine.

    Now, concerns about the health of the banking industry join the list.

    “These forces are now overlaid by, and interacting with, new financial stability concerns,” the IMF said, noting that policymakers trying to tame inflation while averting a “hard landing,” or a painful recession, “may face difficult trade-offs.”

    Global inflation, which the IMF said was proving “much stickier than anticipated,” is expected to fall from 8.7% in 2022 to 7% this year and to 4.9% in 2024.

    Investors are looking for additional pockets of vulnerability in the financial sector. Meanwhile, lenders may turn more conservative to preserve cash they may need to deal with an unpredictable environment.

    That would make it harder for businesses and households to access loans, weighing on economic output over time.

    “Financial conditions have tightened, which is likely to entail lower lending and activity if they persist,” said the IMF, which hosts its spring meeting alongside the World Bank this week.

    If another shock to the world’s financial system results in a “sharp” deterioration in financial conditions, global growth could slow to 1% this year, the IMF warned. That would mean “near-stagnant income per capita.” The group put the probably of this happening at about 15%.

    The IMF acknowledged forecasting was difficult in this climate. The “fog around the world economic outlook has thickened,” it said.

    And it warned that weak growth would likely persist for years. Looking ahead to 2028, global growth is estimated at 3%, the lowest medium-term forecast since 1990.

    The IMF said this sluggishness was attributable in part to scarring from the pandemic, aging workforces and geopolitical fragmentation, pointing to Britain’s decision to leave the European Union, economic tensions between the United States and China and Russia’s invasion of Ukraine.

    Interest rates in advanced economies are likely to revert to their pre-pandemic levels once the current spell of high inflation has passed, the IMF also said.

    The body’s forecast for global growth this year is now closer to that of the World Bank. David Malpass, the outgoing World Bank president, told reporters Monday that the group now saw a 2% expansion in output in 2023, up from 1.7% predicted in January, Reuters has reported.

    In a separate report published Tuesday, the IMF said that while the rapid increase in interest rates was straining banks and other financial firms, there were fundamental differences from the 2008 global financial crisis.

    Banks now have much more capital to be able to withstand shocks. They also have curbed risky lending due to stricter regulations.

    Instead, the IMF pointed to similarities between the latest banking turmoil and the US savings and loan crisis in the 1980s, when trouble at smaller institutions hurt confidence in the broader financial system.

    So far, investors are “pricing a fairly optimistic scenario,” the IMF noted in a blog based on the report, adding that access to credit was actually greater now than it had been in October.

    “While market participants see recession probabilities as high, they also expect the depth of the recession to be modest,” the IMF said.

    Yet those expectations could be quickly upended. If inflation rises further, for example, investors could judge that interest rates will stay higher for longer, the group wrote in the blog.

    “Stresses could then reemerge in the financial system,” it noted.

    That bolsters the need for decisive action by policymakers, the IMF said. It called for gaps in supervision and regulation to “be addressed at once,” citing the need in many countries for stronger plans to wind down failed banks and for improvements to deposit insurance programs.

    — Olesya Dmitracova contributed to this report.

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  • What markets are watching after digesting the US jobs data | CNN Business

    What markets are watching after digesting the US jobs data | 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
     — 

    In an unusual coincidence, the US jobs report was released on a holiday Friday — meaning stock markets were closed when the closely-watched economic data came out.

    It was the first monthly payroll report since Silicon Valley Bank and Signature Bank collapsed. It also marked a full year of jobs data since the Federal Reserve began hiking interest rates in March 2022.

    While inflation has come down and other economic data point to a cooling economy, the labor market has remained remarkably resilient.

    Investors have had a long weekend to chew over the details of the report and will likely skip the typical gut-reaction to headline numbers.

    What happened: The US economy added 236,000 jobs in March, showing that hiring remained robust though the pace was slower than in previous months. The unemployment rate currently stands at 3.5%.

    Wages increased by 0.3% on the month and 4.2% from a year ago. The three-month wage growth average has dropped to 3.8%. That’s moving closer to what Fed policymakers “believe to be in line with stable wage and inflation expectations,” wrote Joseph Brusuelas, chief economist at RSM in a note.

    “That wage data tends to suggest that the risk of a wage price spiral is easing and that will create space in the near term for the Federal Reserve to engage in a strategic pause in its efforts to restore price stability,” he added.

    The March jobs report was the last before the Fed’s next policy meeting and announcement in early May. The labor market is cooling but not rapidly or significantly, and further rate hikes can’t be ruled out.

    At the same time Wall Street is beginning to see bad news as bad news. A slowing economy could mean a recession is forthcoming.

    Markets are still largely expecting the Fed to raise rates by another quarter point. So how will they react to Friday’s report?

    Before the Bell spoke with Michael Arone, State Street Global Advisors chief investment strategist, to find out.

    This interview has been edited for length and clarity.

    Before the Bell: How do you expect markets to react to this report on Monday?

    Michael Arone: I think that this has been a nice counterbalance to the weaker labor data earlier last week and all the recession fears. This data suggests that the economy is still in pretty good shape, 10-year Treasury yields increased on Friday indicating there’s less fear about an imminent recession.

    There’s this delicate balance between slower job growth and a weaker labor market without economic devastation. I think this report helps that.

    As it relates to the stock market, I would expect the cyclical sectors to do well — your industrials, your materials, your energy companies. If interest rates are rising, that’s going to weigh on growth stocks — technology and communication services sectors, for example. Less recession fears will mean investors won’t be as defensively positioned in classic staples like healthcare and utilities.

    Could this lead to a reverse in the current trend where tech companies are bolstering markets?

    Yes, exactly. It’s difficult to make too much out of any singular data point, but I think this report will hopefully lead to broader participation in the stock market. If those recession fears begin to abate somewhat, and investors recognize that recession isn’t imminent, there will be more investment.

    What else are investors looking at in this report?

    We’ve seen weakness in the interest rate sensitive parts of the market — areas that are typically the first to weaken as the economy slows down. So things like manufacturing, things like construction. That’s where the weakness in this jobs report is. And the services areas continue to remain strong. That’s where the shortage of qualified skilled workers remains. I think that you’re seeing continued job strength in those areas.

    What does this mean for this week’s inflation reports? It seems like the jobs report just pushed the tension forward.

    it did. I expect that inflation figures will continue to decelerate — or grow at a slower rate. But I do think that the sticky part of inflation continues to be on the wage front. And so I think, if anything, this helps alleviate some of those inflation pressures, but we’ll see how it flows through into the CPI report next week. And also the PPI report.

    Is the Federal Reserve addressing real structural changes to the labor market?

    The Fed was confused in February 2020 when we were in full employment and there was no inflation. They’re equally confused today, after raising rates from zero to 5%, that we haven’t had more job losses.

    I’m not sure why, but from my perspective, the Fed hasn’t taken into consideration the structural changes in the labor force, and they’re still confused by it. I think the risk here is that they’ll continue to focus on raising rates to stabilize prices, perhaps underestimating the kind of structural changes in the labor economy that haven’t resulted in the type of weakness that they’ve been anticipating. I think that’s a risk for the economy and markets.

    A few weeks ago, Before the Bell wrote about big problems brewing in the $20 trillion commercial real estate industry.

    After decades of thriving growth bolstered by low interest rates and easy credit, commercial real estate has hit a wall. Office and retail property valuations have been falling since the pandemic brought about lower occupancy rates and changes in where people work and how they shop. The Fed’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry.

    Recent banking stress will likely add to those woes. Lending to commercial real estate developers and managers largely comes from small and mid-sized banks, where the pressure on liquidity has been most severe. About 80% of all bank loans for commercial properties come from regional banks, according to Goldman Sachs economists.

    Since then, things have gotten worse, CNN’s Julia Horowitz reports.

    In a worst-case scenario, anxiety about bank lending to commercial real estate could spiral, prompting customers to yank their deposits. A bank run is what toppled Silicon Valley Bank last month, roiling financial markets and raising fears of a recession.

    “We’re watching it pretty closely,” said Michael Reynolds, vice president of investment strategy at Glenmede, a wealth manager. While he doesn’t expect office loans to become a problem for all banks, “one or two” institutions could find themselves “caught offside.”

    Signs of strain are increasing. The proportion of commercial office mortgages where borrowers are behind with payments is rising, according to Trepp, which provides data on commercial real estate.

    High-profile defaults are making headlines. Earlier this year, a landlord owned by asset manager PIMCO defaulted on nearly $2 billion in debt for seven office buildings in San Francisco, New York City, Boston and Jersey City.

    Dig into Julia’s story here.

    Tech stocks led market losses in 2022, but seemed to rebound quickly at the start of this year. So as we enter earnings season, what should we expect from Big Tech?

    Daniel Ives, an analyst at Wedbush Securities, says that he has high hopes.

    “Tech stocks have held up very well so far in 2023 and comfortably outpaced the overall market as we believe the tech sector has become the new ‘safety trade’ in this overall uncertain market,” he wrote in a note on Sunday evening.

    Even the recent spate of layoffs in Big Tech has upside, he wrote.

    “Significant cost cutting underway in the Valley led by Meta, Microsoft, Amazon, Google and others, conservative guidance already given in the January earnings season ‘rip the band- aid off moment’, and tech fundamentals that are holding up in a shaky macro [environment] are setting up for a green light for tech stocks.”

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  • Wall Street says bad news is no longer good news. Here’s why | CNN Business

    Wall Street says bad news is no longer good news. Here’s why | 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
     — 

    There’s been a seismic shift in investor perspective: Bad news is no longer good news.

    For the past year, Wall Street has hoped for cool monthly economic data that would encourage the Federal Reserve to halt its aggressive pace of interest rate hikes to tame inflation.

    But at its March meeting — just days after a series of bank failures raised concerns about the economy’s stability — the central bank signaled that it plans to pause raising rates sometime this year. With an end to interest rate hikes in sight, investors have stopped attempting to guess the Fed’s next move and have turned instead to the health of the economy.

    This means that, whereas softening economic data used to signal good news — that the Fed could potentially stop raising rates — now, cooling economic prints simply suggest the economy is weakening. That makes investors worried that the slowing economy could fall into a recession.

    What happened last week? Markets teetered after a slew of economic reports signaled that the red-hot labor market is finally cooling (more on that later), flashing warning signals across Wall Street.

    Investors accordingly shed high-growth, large-cap stocks that have surged recently to rush into defensive stocks in industries like health care and consumer staples.

    While tech stocks recovered somewhat by the end of the short trading week — markets were closed in observance of Good Friday — the Nasdaq Composite still slid 1.1%. The broad-based S&P 500 fell 0.1% and the blue-chip Dow Jones Industrial Average gained 0.6%.

    What does this mean for markets? Now that Wall Street is in “bad news is bad news and good news is good news” mode, it will be looking for signs that the economy remains resilient.

    What hasn’t changed is that investors still want to see cooling inflation data. While the central bank has signaled that it will pause hiking rates this year, its actions so far have only somewhat stabilized prices. The Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, rose 5% for the 12 months ended in February — far above its 2% inflation target.

    Moreover, Wall Street might be overly optimistic about how the Fed will act going forward: Some investors expect the central bank to cut rates several times this year, even though the central bank indicated last month that it does not intend to lower rates in 2023.

    It’s unclear how markets will react if the Fed doesn’t cut rates this year. But there likely won’t be a notable rally unless the central bank pivots or at least indicates that it plans to soon, said George Cipolloni, portfolio manager at Penn Mutual Asset Management.

    Commentary that’s hawkish or reveals inflation worries could hurt markets, he adds. “It keeps that boiling point and that temperature a little high.”

    What comes next? The Fed holds its next meeting in early May. Before then, it will have to parse through several economic reports to get a sense of how the economy is doing, and what it will be able to handle. Markets currently expect the Fed to raise interest rates by a quarter point, according to the CME FedWatch tool.

    The labor market appears to be cooling somewhat, at least according to the slew of data released last week. But it’s still far too early to assume that the job market has lost its strength.

    President Joe Biden said in a statement Friday that the March data is “a good jobs report for hard-working Americans.”

    The March jobs report revealed that US employers added a lower-than-expected 236,000 jobs last month. Economists expected a net gain of 239,000 jobs for the month, according to Refinitiv.

    The unemployment rate dropped to 3.5%, according to the Bureau of Labor Statistics. That’s below expectations of holding steady at 3.6%.

    The jobs report was also the first one in 12 months that came in below expectations.

    But that doesn’t mean that the job market isn’t strong anymore.

    “The labor market is showing signs of cooling off, but it remains very tight,” Bank of America researchers wrote in a note Friday.

    Still, other data released last week help make the case that cracks are finally starting to form in the labor market. The Job Openings and Labor Turnover Survey for February revealed last week that the number of available jobs in the United States tumbled to its lowest level since May 2021. ADP’s private-sector payroll report fell far short of expectations.

    What this means for the Fed is that the cooldown in the latest jobs report likely won’t be enough for the central bank to pause rates at its next meeting.

    “The Fed will more than likely raise rates in May as the labor market continues to defy the cumulative effects of the rate hikes that began over a year ago,” said Quincy Krosby, chief global strategist at LPL Financial.

    Monday: Wholesale inventories.

    Tuesday: NFIB Small Business Optimism Index. Earnings from CarMax (KMX), Albertsons (ACI) and First Republic Bank (FRC).

    Wednesday: Consumer Price Index and FOMC meeting minutes.

    Thursday: OPEC monthly report and Producer Price Index. Earnings from Delta Air Lines (DAL).

    Friday: Retail sales and University of Michigan consumer sentiment survey. Earnings from JPMorgan Chase (JPM), Wells Fargo (WFC), BlackRock (BLK), Citigroup (C) and PNC Financial Services (PNC).

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