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Tag: the fed

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

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

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    New York
    CNN
     — 

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

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

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

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

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

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

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

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

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

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

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

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

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

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


    New York
    CNN
     — 

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

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

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

    Tech companies fared poorly this season: Apple

    (AAPL)     recorded a rare earnings miss while Intel

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

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

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

    (TGT)     and Walmart

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

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

    Corporate profits could drop for the first time since 2020

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

    Gloomy forecasts abound

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

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

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

    Home Depot

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

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

    Investors feel like celebrating

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

    Inflation is (still) a big deal

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

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

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

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

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

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

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

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

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

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

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

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

    So what does it all mean?

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

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

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

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

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  • The US dollar is at a crossroads | CNN Business

    The US dollar is at a crossroads | CNN Business

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


    New York
    CNN
     — 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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    Minneapolis
    CNN
     — 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


    New York
    CNN
     — 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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  • Inflation pushes up mortgage rates for second week in a row | CNN Business

    Inflation pushes up mortgage rates for second week in a row | CNN Business

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    Washington, DC
    CNN
     — 

    Mortgage rates climbed higher for the second consecutive week, following four weeks of declines. Inflation is running hotter, making rates more volatile, with the expectation that they will move in the 6% to 7% range over the next few weeks.

    The 30-year fixed-rate mortgage averaged 6.32% in the week ending February 16, up from 6.12% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 3.92%.

    After climbing for most of 2022, mortgage rates had been trending downward since November, as various economic indicators indicated inflation may have peaked. But a stronger-than-expected jobs report and a Consumer Price Index report that showed inflation is only moderately easing suggest the Federal Reserve could continue hiking its benchmark lending rate in its battle against inflation.

    Inflation is keeping mortgage rates volatile, said Sam Khater, Freddie Mac’s chief economist.

    “The economy is showing signs of resilience, mainly due to consumer spending, and rates are increasing,” said Khater. “Overall housing costs are also increasing and therefore impacting inflation, which continues to persist.”

    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. Many buyers who put down less money upfront or have less than ideal credit will pay more than the average rate.

    Investors are digesting the latest economic data, said George Ratiu, Realtor.com manager of economic research.

    The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, 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.

    “While the Fed signaled that it will continue to raise rates this year, the moves are expected to come in 25 basis point increments, a less aggressive tightening than what we saw in 2022,” said Ratiu. “The central bank is acknowledging that it sees its monetary actions having a tangible effect on inflation. The CPI data out this week seems to confirm the bank’s views.”

    At the same time, he said, many companies expect the economy will enter a recession as a result of the Fed’s rate hikes, even in the face of data pointing to continued resilience.

    “This expectation is becoming more visible in the growing number of companies resorting to layoffs as a hedge against a potential economic slowdown,” he said. “People who are laid off pull back on spending, and even those who are still employed may begin to do the same due to worries about losing their job, thus potentially sending consumer spending into a downward spiral.”

    For home buyers, the cost of financing a home is expected to go up.

    Already, rates have been climbing in recent weeks, leading to a drop in mortgage applications. Last week, applications fell 7.7% from one week earlier, according to the Mortgage Bankers Association.

    Buyers are proving to be interest rate sensitive, according to MBA.

    “Purchase applications dropped to their lowest level since the beginning of this year and were more than 40% lower than a year ago,” said Joel Kan, MBA’s vice president and deputy chief economist. “Potential buyers remain quite sensitive to the current level of mortgage rates, which are more than two percentage points above last year’s levels and have significantly reduced buyers’ purchasing power.”

    Mortgage rates are expected to move in the 6% to 7% range over the next few weeks, said Ratiu.

    For housing markets, he said, “the rebound in rates translates into higher mortgage payments, adding pressure on homebuyers.”

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  • Federal Reserve vice chair to become top Biden economist | CNN Politics

    Federal Reserve vice chair to become top Biden economist | CNN Politics

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    CNN
     — 

    President Joe Biden will name Federal Reserve Vice Chair Lael Brainard as his top economic adviser, according to two sources familiar with the matter, with an announcement expected as soon as Tuesday.

    The White House had been considering a number of senior officials in the federal government to replace National Economic Council Director Brian Deese, including Brainard and deputy Treasury Secretary Wally Adeyemo, a person familiar with the matter told CNN last month.

    Brainard, a former Treasury official in the Obama administration and a Fed governor since 2014, was seen as a leading contender, two people familiar with the matter previously told CNN.

    She was also viewed as a leading contender to become Fed chair before Biden ultimately decided to renominate Jerome Powell. Brainard was instead elevated to vice chair, the central bank’s No. 2 official.

    Bloomberg first reported on Brainard’s pending selection.

    The White House declined to comment to CNN on the matter.

    Deese, whose departure Biden announced at the start of the month, has long planned to depart in the first few months of the year and, as CNN previously reported, played a role in selecting his replacement.

    As head of Biden’s economic council, he has been the driving force behind the administration’s economic policy and legislative agenda for two years and has been one of the most powerful NEC directors in recent memory.

    Biden, when confirming Deese would step down, touted his “critical” role in the passage of key legislation including the bipartisan infrastructure law, the Covid-19 relief bill, the CHIPS and Science Act and the health care and climate package.

    The personnel shakeups are among a pattern of shifts across the White House and the administration, as staff and Cabinet officials mull a potential change midway through Biden’s first term.

    The announcement of Deese’s impending exit came a day after the White House held an emotional event to mark the departure of Biden’s first chief of staff, Ron Klain. Biden’s former Covid-19 coordinator Jeff Zients was tapped to fill that vacancy. The president will also be looking to fill the February exit of Labor Secretary Marty Walsh. Earlier this month, the White House also announced that communications director Kate Bedingfield would be leaving the administration and would be replaced by Democratic communications professional Ben LaBolt.

    This story has been updated with additional details.

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  • In a market that’s gone mad, investors can embrace these dependable stocks | CNN Business

    In a market that’s gone mad, investors can embrace these dependable stocks | 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.


    New York
    CNN
     — 

    Many people don’t have the time or inclination to do deep research on stocks.

    It’s often easier to buy an exchange-traded fund that owns a basket of the top blue chips, like Apple

    (AAPL)    , Microsoft

    (MSFT)     and Amazon

    (AMZN)    . Other investors like to bet on themes and memes instead of poring over a company’s financial statements and regulatory filings. Hence the recent craze for momentum stocks like GameStop

    (GME)     and AMC

    (AMC)    .

    But for old-fashioned investors with a little gray in their hair (and veteran business journalists like yours truly) there are other ways to find winning stocks for the long haul.

    I’ve been running stock screens using market data software, first from FactSet and now from Refinitiv, on and off during the more than 20 years I’ve worked at CNN Business. (It was CNNMoney when I first started.)

    I’ve typically done this stock picking feature in early to mid February as a Stocks We Love type of story, pegging it to Valentine’s Day. (Here’s the first one I did in 2002!) So they’ve often been littered with cheesy references to how romantic it is to find a reliable company you can count on for a long-term relationship.

    Well, investing trends have changed a bit in the past two decades. Some would argue that active investing (actually choosing individual companies) is no longer in vogue thanks to the rise of passively run index funds.

    And to be fair, the experts are right, mostly. Investors usually are better off owning an index ETF. If the goal is saving for retirement in particular, a diversified mix of companies is safer than trying the riskier strategy of identifying individual winners and losers.

    But you know what they say about not being able to teach an old dog new tricks? I still believe there’s value in looking for quality stocks at bargain prices. Legendary investors like Warren Buffett and Peter Lynch of Fidelity fame would likely agree.

    With that in mind, I ran one final stock screen for this Valentine’s Day. Like my past screens, I tried to find companies with strong fundamentals (solid sales and earnings growth), low levels of debt and high returns on equity. And perhaps most importantly, I screened for companies trading at a reasonable price based on their estimated earnings.

    This screen wound up identifying 33 companies that could make sense as a buy-and-hold investment. All of them generated double-digit sales growth annually over the past five years and they are all expected to report profit growth of at least 10% a year for the next few years.

    Some of the more prominent companies on the list? IT services/consulting giant Accenture

    (ACN)     made the cut. So did software leader Adobe

    (ADBE)    , semiconductor manufacturer Analog Devices

    (ADI)    , chip equipment juggernaut Applied Materials

    (AMAT)     and Venmo owner PayPal

    (PYPL)    .

    That’s a fair amount of exposure to the tech sector. But several other non-techs made my list too.

    Auto insurer Progressive

    (PGR)     (hi Flo!), health insurer Humana

    (HUM)    , cosmetics retailer Ulta Beauty

    (ULTA)    , UGG boots and Hoka sneakers maker Deckers Outdoor

    (DECK)     and trucker JB Hunt

    (JBHT)     met my criteria.

    As did financial services firm Raymond James

    (RJF)    , perhaps most famous for having its name on the Tampa Bay Buccaneers stadium Tom Brady briefly called home.

    None of these stocks are likely to be moonshots that will surge because of comments that someone makes on Reddit. But they might offer a little more in the way of security and dependability. And after all, isn’t that what we all want from a long-term partner on Valentine’s Day?

    The broader market has continued to rally, in large part due to hopes that inflation pressures (and more Federal Reserve rate hikes) will soon be things of the past. But consumers are still skittish when it comes to buying more costly items.

    Meat processing giant Tyson Foods

    (TSN)     reported disappointing results last week, largely due to a pullback in consumer demand for pricier beef. Luxury apparel retailer Capri Holdings

    (CPRI)    , which owns the Versace, Jimmy Choo and Michael Kors brands, also posted lousy numbers.

    But shoppers still seem to be spending on more affordable goods. Pepsi

    (PEP)     reported sales and earnings last week that topped Wall Street’s targets. Fast food giant Yum! Brands

    (YUM)    , the owner of Taco Bell, KFC and Pizza Hut, issued solid results too.

    That could bode well for several leading consumer companies that are on tap to report earnings this week, including Pepsi competitor Coca-Cola

    (KO)     as well as Restaurant Brands

    (QSR)    , the parent company of Burger King, Popeyes, Tim Horton and Firehouse Subs.

    Kraft Heinz

    (KHC)    , restaurant owner Bloomin’ Brands

    (BLMN)    , Sam Adams brewer Boston Beer

    (SAM)     and food delivery service DoorDash are also scheduled to release their latest results this week.

    The restaurant stocks in particular could do well.

    “Consumers continue to trade goods for services,” said Jharonne Martis, director of consumer research for Refinitiv, in a report. Martis noted that the restaurant and broader leisure sector has continued to outperform other consumer-related industries this year.

    Inflation is obviously still a concern for big consumer brands. Companies have to deal with the challenge of trying to pass on higher costs to customers without driving them away.

    That could become less of a problem though.

    The US government will report both its Consumer Price Index and Producer Price Index for January this week and economists are hoping for a further slowdown in year-over-year prices. Consumer prices rose 6.5% over the past 12 months through December, down from a 7.1% pace in November.

    “There are positive signs. Inflation has passed the peak so there is a little bit of a respite,” said Kathryn Kaminski. chief research strategist with AlphaSimplex.

    Higher prices were a problem for retailers during the holidays. Retail sales fell 1.1% in December from November, according to figures from the US government, following a 0.6% drop in November.

    But retail sales are expected to bounce back as inflation becomes less of an issue. Economists are forecasting a 0.9% increase in retail sales for January when those numbers come out later this week.

    Monday: Earnings from TreeHouse Foods

    (THS)    , Avis Budget

    (CAR)    , FirstEnergy

    (FE)    , IAC

    (IAC)     and Palantir

    Tuesday: US CPI; Japan GDP; UK employment report; earnings from Coca-Cola, Asahi Group, Marriott

    (MAR)    . Cleveland-Cliffs

    (CLF)    , Restaurant Brands, Suncor Energy

    (SU)    , Airbnb, Herbalife

    (HLF)    , GoDaddy

    (GDDY)     and TripAdvisor

    (TRIP)

    Wednesday: US retail sales; UK inflation; weekly crude oil inventories; annual meeting of Charlie Munger’s Daily Journal Co

    (DJCO)    ; earnings from Kraft Heinz, Lithia Motors

    (LAD)    , Sunoco

    (SUN)    , Sonic Automotive

    (SAH)    , Ryder

    (R)    , Barrick Gold

    (GOLD)    , Biogen

    (BIIB)    , Owens Corning

    (OC)    , Krispy Kreme, Cisco

    (CSCO)    , AIG

    (AIG)    , Shopify

    (SHOP)     and Boston Beer

    Thursday: US PPI; US weekly jobless claims: US housing starts and building permits; China housing prices; earnings from US Foods

    (USFD)    , Lenovo

    (LNVGF)    , Nestle

    (NSRGF)    , Paramount Global, Southern

    (SO)    , Hasbro

    (HAS)    , Hyatt

    (H)    , Bloomin’ Brands, WeWork, Applied Materials

    (AMAT)    , DoorDash, DraftKings and Redfin

    (RDFN)

    Friday: Earnings from Deere

    (DE)    , AutoNation

    (AN)    , Sands China

    (SCHYF)     and AMC Networks

    (AMCX)

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  • Here’s what keeps Jerome Powell up at night and interest rates high | CNN Business

    Here’s what keeps Jerome Powell up at night and interest rates high | 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
     — 

    Federal Reserve Chairman Jerome Powell threw markets into a tizzy on Tuesday as he spoke about the economy alongside his former boss, Carlyle Group co-founder David Rubenstein, at the Economic Club of Washington.

    Stocks struggled for direction as investors tried to get a read on Powell’s economic outlook, attitude towards inflation and on future interest rate hikes. Wall Street cheered as the Fed chair said the disinflationary process has begun, then soured when he said the road to reaching 2% inflation will be “bumpy” and “long” with more rate hikes ahead.

    Markets soared to new highs, before quickly falling to session lows and then recovering to close the day in the green.

    “Powell doesn’t want to play games with financial markets,” said EY Parthenon chief economist Gregory Daco after the conversation. But at the same time, he said Powell wanted to communicate that the Fed’s “base case was not for inflation to come down as quickly and painlessly as some market participants appear to expect.”

    Here’s why Powell thinks bringing down prices will be more difficult than investors anticipate.

    Structural changes in the labor market: The US economy added an astonishing 517,000 jobs in January, blowing economists’ expectations out of the water. The unemployment rate fell to 3.4% from 3.5%, hitting a level not seen since May 1969.

    The current labor market imbalance is a reflection of the pandemic’s lasting effect on the US economy and on labor supply, said Powell on Tuesday in answer to a question about the report. “The labor market is extraordinarily strong,” he said. Demand exceeds supply by 5 million people, and the labor force participation rate has declined. “It feels almost more structural than cyclical.”

    “If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more,” he said.

    Core services inflation: Powell noted that he’s seeing disinflation in the goods sector and expects to soon see declining inflation in housing. But prices remain stubborn for services. Service-sector inflation, which is more sensitive to a strong labor market, is up 7.5% from the year prior through the end of 2022, and has not abated, he said.

    “That sector is not showing any disinflation yet,” Powell said. “There has been an expectation that [higher prices] will go away quickly and painlessly and I don’t think that’s at all guaranteed.”

    Geopolitical uncertainties: Powell also cited concerns that the reopening of China’s economy after the sudden end of Covid-Zero restrictions, plus uncertainty about Russia’s war on Ukraine could also affect the inflation path in ways that remain unclear.

    ▸ The labor market is strong, but tech layoffs keep coming. There were around  50,000 tech jobs cut in January, and the trend has continued into February.

    Video conferencing service Zoom is one of the latest to announce layoffs. The company said Tuesday that it’s cutting 1,300 jobs or 15% of its workforce. 

    Zoom CEO Eric Yuan said in a blog post on Tuesday that Zoom ramped up employment  quickly due to increased demand during the pandemic. The company grew three times in size within 24 months, he said and now it must  adapt to changing demand for its services.

    “The uncertainty of the global economy, and its effect on our customers, means we need to take a hard — yet important — look inward to reset ourselves so we can weather the economic environment, deliver for our customers and achieve Zoom’s long-term vision,” he wrote.

    Yuan added that he plans to lower his own salary by 98% and forgo his 2023 bonus. Shares of Zoom closed nearly 10% higher on Tuesday. 

    The announcement comes just one day after Dell said it would lay off more than 6,500 employees.

    Amazon

    (AMZN)    , Microsoft

    (MSFT)    , Google and other tech giants have also recently announced plans to cut thousands of workers as the companies adapt to shifting pandemic demand and fears of a looming recession.

    ▸ Neel Kashkari, president of the Federal Reserve Bank of Minneapolis told CNN that he is starting to think that the US economy could avoid a recession and achieve a so-called soft landing.

    It’s hard to have a recession when the job market is still so robust, he told CNN’s Poppy Harlow on Tuesday on CNN This Morning.

    Still, “we have more work to do,” Kashkari told Harlow, adding that the labor market is “too hot” and that is a key reason why it is “harder to bring inflation back down.”

    Although many investors are starting to think the Fed may pause after just two more similarly small hikes, to a level of around 5%, Kashkari said he believes the Fed may have to raise rates further. Kashkari has a vote this year on the Federal Open Market Committee, the Fed’s interest-rate setting group.

    ▸ It’s a good time to be in the oil business. BP’s annual profit more than doubled last year to an all-time high of nearly $28 billion.

    The British energy company said in a statement that underlying replacement cost profit rose to $27.7 billion in 2022 from $12.8 billion the previous year. The metric is a key indicator of oil companies’ profitability.

    BP

    (BP)     also unveiled a further $2.75 billion in share buybacks and hiked its dividend for the fourth quarter by around 10% to 6.61 cents per share.

    BP’s shares rose 6% in Tuesday trading following the news. Over the past 12 months, its shares have soared 24%.

    The earnings are the latest in a string of record-setting results by the world’s biggest energy companies, which have enjoyed bumper profits off the back of skyrocketing oil and gas prices.

    Last week, another energy major Shell reported a record profit of almost $40 billion for 2022, more than double what it raked in the previous year after oil and gas prices jumped following Russia’s invasion of Ukraine.

    On Wednesday it was TotalEnergie

    (TTFNF)    s turn. The French company posted annual profit of $36.2 billion for 2022, double the previous year’s earnings.

    Disney has found itself in the middle of a culture war battle that could end up transferring Disney World’s governance to a board appointed by Florida Gov. Ron DeSantis. And that may be the least of Disney’s problems, writes my colleague Chris Isidore.

    The company faces a media industry in turmoil, plunging cable subscriptions, a still-recovering box office, massive streaming losses, activist shareholders, possible reorganization and layoffs and growing labor disputes with employees. That’s a lot for CEO Bob Iger to handle.

    Iger, who retired as CEO in 2020 only to be brought back in November, has been mostly quiet about his plans for the company since his return. That ends at 4:30 p.m. ET Wednesday when he is set to begin an earnings call with Wall Street investors.

    Click here to read more about what to look for on what is certain to be a closely-followed call.

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  • Larry Summers: More likely the Fed can pull off a soft landing, but don’t get hopes up | CNN Business

    Larry Summers: More likely the Fed can pull off a soft landing, but don’t get hopes up | CNN Business

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    New York
    CNN
     — 

    After a shocking jobs report, Larry Summers, treasury secretary under Bill Clinton, said he is more encouraged the Fed can pull off a soft landing, but cautioned it is a “big mistake” to think the economy is “out of the woods” on Fareed Zakaria GPS Sunday.

    Friday’s job’s report saw an astonishing 517,000 jobs added in January and unemployment tick down to 3.4%, the lowest since 1969. Economists had predicted 185,000 jobs, expecting a slower jobs market after almost a year of aggressive rate hikes from the Federal Reserve.

    The Fed once hiked interest rates less aggressively this week, reflecting a sense inflation is cooling. It brings up the question: Can the United States pull off a soft landing, bringing down inflation without triggering a recession?

    Summers said it “looks more possible that we’ll have a soft landing than it did a few months ago,” but he has continued fears about inflation indicators that have come back to earth, but are still too high for his liking.

    “They’re still unimaginably high from the perspective of two or three years ago, and that getting the rest of the way back to target inflation may still prove to be quite difficult,” Summers said.

    Zakaria asked if triggering a recession was worth it to bring down inflation, if 3 to 3.5% inflation rates could become the norm.

    Summers said it’s a trade-off between short run reductions in unemployment, and permanent changes in inflation.

    “The benefit we can get from pushing unemployment low is on almost all economic theories and likely not to be a permanent one,” Summers said. “But if we push inflation up and those issues become entrenched, we’re going to live with that inflation for a long time.”

    The US has about 3 million people who have just stopped looking for work. Summers attributed it to older people who decided to retire earlier than normal patterns would suggest during COVID.

    He said there is a “grand reassessment” of the workplace post-COVID.

    “You don’t get to be a CEO if you don’t love being in the office,” Summers said. “And so CEOs want all their people to come back and be working, but lots of people like their dens better than they like their cubicles.”

    Summers also had advice for President Joe Biden as a debt ceiling crisis brews in Washington.

    “I would advise him that it’s not a viable strategy for the country to default on obligations,” Summers said. “That’s the stuff of banana republics, and that he’s not going to engage in any of that stuff.”

    The United States has an “utterly bizarre system” where Congress votes on budgets and then separately has to authorize paying the bills incurred by those budgets, Zakaria pointed out, adding a crisis could be on the horizon because House Republicans don’t want to pay the bills until President Biden agrees to spending cuts, even though budgets were set by both parties.

    Biden should insist “Congress do its job and approve the borrowing to finance the spending.”

    Summers noted it only takes a few responsible Republicans to raise the debt limit.

    “That some in the Republican Party may bow to the demands of the extremists does not mean that the President of the United States should do that.”

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  • Why did we get a monster jobs report if the economy is slowing? | CNN Business

    Why did we get a monster jobs report if the economy is slowing? | CNN Business

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    Minneapolis
    CNN
     — 

    The economy wasn’t supposed to add half a million jobs in January.

    In fact, a consensus poll of 81 economists expected job gains to land at around 185,000, according to Refinitiv. After 11 months of aggressive rate hikes from the Federal Reserve, the experts were naturally expecting the economy’s job gains to slow as higher borrowing costs percolated through the economy, slowing investment and growth and pushing companies to pull back on spending and hiring.

    And yet, even though it seemed impossible, the labor market is somehow getting tighter, said Rucha Vankudre, senior economist at business analytics firm Lightcast.

    “I think pretty much all the labor economists in the country this morning are shocked,” Vankudre said Friday during a webinar after the jobs report was released. I think the question on everyone’s mind is, ‘How can the labor market keep getting stronger and stronger, and how can this keep happening while at the same time we are seeing prices come down?’”

    Instead of lending credence to what was a bubbling belief in a soft landing, Friday’s jobs report only seems to beg more questions about not only the state of the economy, but also of the Federal Reserve’s attempts to hammer down high inflation.

    On Wednesday, the Fed concluded its first policymaking meeting of 2023 by green-lighting a quarter-point interest rate hike — the smallest since March — as a reflection of progress in its fight to lower inflation.

    The more moderate increase had been long telegraphed and came despite a hotter-than-expected December Job Openings and Labor Turnover Survey (JOLTS) report, which showed job openings grew to more than 11 million, or 1.9 available jobs for every job seeker.

    Fed officials remain laser focused on wages and inflation, and are seeing some progress there, said Elizabeth Crofoot, Lightcast senior economist. Fluctuations are to be expected in any economic data, and it’s (always) important to remember that “one month does not make a trend,” especially for January data, she said.

    “I think [Fed officials] are going to say, ‘Let’s continue to keep our eye on the data,’ and they’re going to hold steady until they see that inflation rate come down,” Crofoot said.

    The January jobs report shouldn’t trigger a wholesale change of what Fed members are thinking or what they were planning on doing before this report, Sarah House, senior economist at Wells Fargo, told CNN.

    “I think it suggests that the labor market remains still very strong, and there’s still a lot of wage pressures coming from that strong labor market that the Fed needs to contend with if it’s going to get inflation back to 2% on a sustained basis,” House said, noting the Fed’s target inflation rate.

    The Covid pandemic was a tremendous shock to global economies, and the US labor force is still showing the effects of historic employment losses, sudden shifts in consumer behavior, discombobulated supply chains, and efforts to return to a state of normality.

    The employment recovery since 2021 has been historically robust, with the monthly job gains larger than anything seen on record.

    January’s jobs report came with added complexity, because it included annual updates to populations estimates and revisions to employer survey data.

    “Now we know both [2021 and 2022] had faster job growth than we previously realized,” said University of Michigan economists Betsey Stevenson and Benny Doctor in a statement Friday. “The patterns remain the same: Job growth accelerated in the second half of 2021 before slowing in the first half of 2022 and slowing further in the second half of 2022.”

    The January reports also bring with them “seasonal noise,” said Joe Brusuelas, principal and chief economist for RSM US.

    “I’m advising policymakers and clients to ignore the topline number [of 517,000],” he said, noting it’s likely a function of seasonal adjustments and a reflection of swings in hiring activity and traditional cutbacks that take place from mid-December to mid-January.

    “That being said, even if a downward revision takes away 200,000 or so off the top, you still are sitting at around 300,000,” he added.

    “The job market is clearly too robust at this time to re-establish price stability; therefore, the Federal Reserve is going to have to not only hike by 25 basis points at its March meeting, it’s going to have to do so at the May meeting,” he predicted.

    Federal Reserve Board Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting on February 01, 2023, in Washington, DC. The Fed announced a 0.25 percentage point interest rate increase to a range of 4.50% to 4.75%.

    Last summer, Fed Chair Jerome Powell warned that “some pain” (aka rising unemployment) would likely be felt as a result of the Fed’s sweeping efforts to tackle inflation.

    Yet Powell did not once utter the word “pain” during his press conference on Wednesday, said Mark Hamrick, senior economic analyst with Bankrate.

    “If they were to put money on it, I think Las Vegas oddsmakers would be doubling down right now on the soft landing scenario — not to say that’s the base case, per se, but the chances seem to be growing,” Hamrick said.

    “If anything, the global economic scenario has brightened in recent days and weeks — and we got a significant ray of sunshine with this January employment report, including all the revisions — but that’s not to say that consumers or businesses should be complacent with respect to an eventual risk of a recession,” he said.

    So for now, the chances of a soft landing remain unknown.

    “This is sort of a bumpy, turbulent ride to who knows where,” Crofoot said.

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  • The US economy added a whopping 517,000 jobs in January | CNN Business

    The US economy added a whopping 517,000 jobs in January | CNN Business

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    Minneapolis
    CNN
     — 

    The US economy added an astonishing 517,000 jobs in January, showing that the labor market isn’t ready to cool down just yet.

    The unemployment rate fell to 3.4% from 3.5%, hitting a level not seen since May 1969 — two months before Neil Armstrong stepped on the moon — according to new data released Friday by the Bureau of Labor Statistics.

    Economists were expecting 185,000 jobs would be added last month, based on consensus estimates on Refinitiv.

    “With 517,000 new jobs added in January 2023 and the unemployment rate at 3.4%, this is a blockbuster report demonstrating that the labor market is more like a bullet train,” Becky Frankiewicz, president and chief commercial officer of ManpowerGroup, said Friday.

    The shockingly strong monthly jobs gain — a number that several economists cautioned was influenced by seasonal factors and is subject to future revisions — bucks a trend of five consecutive months of moderating job growth during the latter half of 2022.

    “The blowout 517,000 increase in total employment was almost certainly a function of seasonal noise and traditional churn in early-year job and wage environment and exaggerates what is already a robust trend in hiring,” Joe Brusuelas, principal and chief economist with RSM US, said in a statement.

    Nonetheless the juggernaut of a report may cause complications for the Federal Reserve, which has been trying to tame high inflation with higher interest rates, said Seema Shah, chief global strategist of Principal Asset Management.

    “Is [Fed Chair Jerome] Powell now wondering why he didn’t push back on the loosening in financial conditions?” Shah said in a statement. “It’s difficult to see how wage pressures can possibly soften sufficiently when jobs growth is as strong as this, and it’s even more difficult to see the Fed stop raising rates and entertain ideas of rate cuts when there is such explosive economic news coming in.”

    “The market is going to go through a roller coaster ride as it tries to decide if this is good or bad news. For now, though, looks like the US economy is doing absolutely fine,” she said.

    Still, the report also showed that wage growth moderated on an annual basis: Average hourly earnings fell 0.4 percentage points to 4.4% year over year. Monthly wage gains held steady at 0.3%.

    “It’s quite remarkable to see such a realignment of the employment picture coinciding with an easing of wage pressure,” Mark Hamrick, senior economic analyst for Bankrate, said in an interview. “I think that might be part of this report that could help keep blood pressures down among Federal Reserve officials in the near term.”

    Additionally, average weekly hours jumped to 34.7 hours from 34.3, and employment in temporary help services rebounded after two months of declines, indicating further demand for labor, noted Julia Pollak, chief economist at ZipRecruiter.

    The report also showed an increase in the closely watched labor force participation rate to 62.4% from 62.3%. However, the increase in the share of people working or looking to work was a function of the BLS’ annual benchmark revisions to its household survey, one of two surveys that factor in to the monthly jobs report, noted PNC chief economist Gus Faucher.

    Had it not been for the revisions, that number would have been unchanged at 62.3%, he added.

    “The labor market is structurally tighter post-pandemic,” he said.

    Every January, the BLS makes revisions on its employment data to reflect updated population estimates and other factors.

    “On net, you saw stronger hiring in 2022 than what was initially reported,” said Sarah House, chief economist with Wells Fargo, told CNN.

    Average monthly job growth in 2022 was revised up from an average of 375,000 per month to 401,000, she said.

    Seasonality questions aside, other trends do align to support a strong January 2023 jobs report, Bankrate’s Hamrick said.

    “When you have a number of things lining up, almost like a crime scene investigation, it tends to lend some credibility to that question of believability,” he said of the surprising half-a-million-plus job gains. “What are the things that are lining up? The continued remarkably low level of jobless claims, the rise in job openings, the increase in labor force participation.”

    The gains were also widespread across industries, with job growth led by leisure and hospitality, professional and business services, and health care, according to the BLS report.

    Industries that shed jobs last month included motor vehicles and parts (down 6,500 jobs), utilities (down 700 jobs) and information (down 5,000 jobs).

    In recent months, mass layoff announcements — especially from Big Tech — had spurred concern that the cutbacks were a harbinger of broader cutbacks to come.

    That doesn’t appear to be the case, considering jobless claims have remained historically low, job openings haven’t slipped and job gains remain strong, said Giacomo Santangelo, economist at Monster.

    “The news is talking about big names laying off, but we don’t really hear what happens at small firms with less than 200 employees,” he said. “What we’re seeing at Monster is a lot of firms, a majority of firms, are looking to hire.”

    The glut of available jobs — there are 1.9 open positions for every one job seeker — coupled with skills that are in high demand mean that workers are likely finding jobs quickly, he said. Additionally, those laid off by large technology firms likely received generous severance packages, so not all are filing for unemployment benefits.

    Friday’s report showed that the median duration of unemployment was 9.1 weeks, just a smidge above the pre-pandemic level of 8.9 weeks in February 2020.

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  • New year, new voters in Fed policymaking | CNN Business

    New year, new voters in Fed policymaking | CNN Business

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    Minneapolis
    CNN
     — 

    Every year the Federal Reserve’s policymaking committee — aka the officials who decide interest rate moves — gets a slight refresh, with four of the district presidents rotating out as official voting members and four rotating in.

    The 2023 rotation brings a more dovish-leaning flock, and it comes during a critical year for the US central bank and the American economy.

    This year the Federal Open Market Committee’s new voting members include the newest district president Austan Goolsbee, head of the Chicago Fed; Patrick Harker, of the Philadelphia Fed; Lorie Logan, the Dallas Fed president who started in August 2022; and Neel Kashkari, president of the Minneapolis Fed.

    Rotating out as voting members are James Bullard of the St. Louis Fed; Susan Collins of the Boston Fed; Esther George, the Kansas City Fed chief who’s also retiring this month; and Loretta Mester of the Cleveland Fed.

    On the whole the FOMC contingent remains largely similar, with eight of the 12 voting members continuing from 2022. The non-voting members still lend their voices and perspectives to the proceedings.

    Following a stretch of seven consecutive heavy-handed interest rate hikes last year to battle rising prices, the Fed this year is expected to take a more delicate approach to its blunt monetary policy tools by downshifting on rate increases to an eventual idle.

    For new Fed members, be they governors or district presidents, it can take a while to stake out their territory and potentially differ from consensus, said Ellen Meade, a Duke University economics professor who had a 25-year career at the Fed.

    History has shown that the Reserve bank presidents typically tend to dissent more than board members; however, even that is a small percentage — about 7% — of votes cast, she added.

    “I’m not expecting that we will see a lot of dissent in terms of votes,” she said. “I think where we might see it is how they color the data that they’re seeing.”

    “Hawks” and “doves” are 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. Hawks, however, favor robust rate hikes and keeping inflation low above all else.

    “If I had to qualify them as the hawkish- or dovish-leaning, I would say that last year’s constellation was a reasonably hawkish one, and this year’s constellation is almost certainly not quite as hawkish,” Meade said.

    That could change, however, if Federal Reserve Vice Chair Lael Brainard leaves to head President Joe Biden’s economic council. Brainard has been considered as leaning more dovish than Powell and others, so her departure could result in a more hawkish shift in ideology at the top of the Fed.

    U.S. Federal Reserve Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting on December 14, 2022, in Washington, DC.

    This particular Fed is obviously not quite as well known, Meade noted, adding that “because we have some new policymakers voting in 2023, we don’t have as much information on their policy inclinations as we did for last year’s voters.”

    For any potential split to occur would take some large moves in labor market outcomes – something not seen to this point, Meade said.

    “If [moderating inflation] holds up and the labor market softens but doesn’t take a very negative turn, then I think consensus is with us,” she said. “I think the question is what happens if the labor market starts to turn quickly?”

    The Fed has indicated, through its economic projections, that it would tolerate unemployment rising to the 4.5% to 4.75% range. But if that grows closer or past 5% and inflation hasn’t moderated as much as desired, “then I think we’re in a place where we’re going to see more signs of disagreement.”

    As it stands now, Fed officials have largely been singing from the same songbook, said Claudia Sahm, a former Fed economist and founder of Sahm Consulting.

    “Whether it was voting members or non-voting members, you didn’t see a lot of pushback in public,” she said. “There was really a unified force of ‘we’re going to go big, and we’re going to go fast.’”

    That unified messaging continued during recent speeches on how the Fed would slow it down, be patient and stay the course, Sahm added.

    “The Fed is being very clear across the board, even people you would think of as more ‘dovish,’ that they do not want to let up too soon and get us into a situation where then they have to come back and do even more,” she said. “I don’t think that switching up who’s voting will matter much.”

    “They’re all hawks now,” Sahm added.

    The Fed also does not want to be in a position where it is lulled into a false sense of security by positive inflation data, she added. Fed Governor Christopher Waller put it bluntly in a speech last week: “We do not want to be head-faked.”

    “It’s going to take months and months of good news, and frankly, we’re in store for a bumpy ride this year,” Sahm said. “It’s not like every month is going to be good news on inflation.”

    Patrick Harker, Philadelphia Fed president and CEO, new 2023 FOMC voting member

    Austan Goolsbee, Chicago Fed president and CEO, new FOMC voting member for 2023

    Lorie Logan, Federal Reserve Bank of Dallas president and CEO, and new voting member for 2023.

    Neel Kashkari, Minneapolis Fed president and CEO, and new FOMC voting member for 2023

    2023 Federal Open Market Committee

    Permanent voting members (Board of Governors):

    Jerome Powell, chair

    Lael Brainard, vice chair

    Michael Barr, vice chair for supervision

    Michelle Bowman, governor

    Lisa Cook, governor

    Philip Jefferson, governor

    Christopher Waller, governor

    Voting Districts:

    John Williams, New York (permanent voting district)

    *Austan Goolsbee, Chicago

    *Patrick Harker, Philadelphia

    *Lorie Logan, Dallas

    *Neel Kashkari, Minneapolis

    Non-voting districts:

    Helen Mucciolo, interim first vice president, New York

    Loretta Mester, Cleveland

    Thomas Barkin, Richmond

    Raphael Bostic, Atlanta

    Mary Daly, San Francisco

    James Bullard, St. Louis

    Esther George, Kansas City (plans to retire this month)

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  • Jobs report to give further clues about where economy is headed | CNN Business

    Jobs report to give further clues about where economy is headed | 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.


    New York
    CNN
     — 

    The Federal Reserve is going to raise interest rates again on Wednesday. But will it be another half-point hike or just a quarter-point increase? And what about the rest of the year?

    The Fed’s actions beyond this week’s meeting will depend primarily on whether inflation is truly slowing. Investors will get another clue when the January jobs report is released on Friday.

    Economists predict that 185,000 jobs were added last month, a slowdown from the gain of 223,000 jobs in December and 263,000 in November. A further deceleration in the labor market would likely please the Fed, as it would show that last year’s rate hikes are successfully taking some air out of the economy.

    The Fed knows it’s in a tough situation. Inflation pressures are partly fueled by wage gains for workers. In an environment where the unemployment rate is at a half-century low of 3.5%, employees have been able to command big increases in pay to keep up with rising prices of consumer goods and services.

    Along those lines, average hourly earnings, a measure of wages that is also part of the monthly jobs report, are expected to increase 4.3% year-over year. That’s down from 4.6% in December and 5.1% in November.

    As wage growth cools, so do price increases. The Fed’s favorite measure of inflation – the Personal Consumption Price Index or PCE – rose “just” 5% over the past 12 months through last December, compared to a 5.5% annual increase in November.

    That is still uncomfortably high, but the trend is moving in the right direction.

    The problem for the Fed, though, is that it may need to keep raising interest rates until there is further evidence that the labor market is cooling off enough to push the rate of inflation even lower.

    Several other job market indicators continue to show that the US economy is in no serious danger of a recession just yet. The number of people filing for weekly jobless claims dipped last week to 186,000, a nine-month low. Investors will get the latest weekly initial claims numbers on Thursday.

    The market will also be closely watching reports about private-sector job growth from payroll processor ADP and the Job Openings and Labor Turnover Survey (JOLTS) from the Department of Labor this week. The last JOLTS report showed that more jobs were available than expected in November.

    Still, some expect that wage growth should continue to fall, which should take pressure off the Fed somewhat.

    “Wage growth has been on a slowing trajectory, and we suspect that softer wage growth will be a trend in 2023 as jobs available contract,” said Tony Welch, chief investment officer at SignatureFD, a wealth management firm, in a report.

    Not everyone agrees with that assessment. Organized labor has been winning bigger pay increases lately in the transportation industry. And more workers at tech and retail giants have been unionizing as of late.

    “Workers will be loath to relinquish the bargaining power they perceive to have gained over the past year,” said Jason Vaillancourt, global macro strategist at Putnam, in a report.

    Vaillancourt also pointed out that many consumers are still flush with cash that they saved up during the early stages of the pandemic. That could mean that inflation isn’t going away anytime soon.

    And even though the pace of jobs gains may be slowing, it’s not as if economists are starting to predict monthly job losses like the US has had in previous recessions.

    “Combine a strong labor market with a still substantial reserve of excess savings, and you have all the components in place to keep the Fed up at night,” Vaillancourt said.

    So as long as hopes for an economic “soft landing” persist, the Fed will have to keep worrying that inflation is too high. That increases the chances the Fed could go too far with rate hikes and ultimately lead to a recession.

    Wall Street is clearly buying into the “soft landing” argument. Just look at how well tech stocks have done so far this year, despite a series of high-profile layoff announcements from top Silicon Valley companies in the past few months.

    The Nasdaq is up 11% so far in January, putting it on track for its best monthly performance since July.

    Some argue that more tech layoffs won’t be a problem. Investors seem to be (somewhat perversely) taking the view that companies cutting costs is a good thing for profits and that revenue likely won’t be impacted in a negative way because consumers are still spending.

    “A theme that can’t go unnoticed this month is how traders are rewarding firms for cutting jobs. With corporate layoffs making headlines each evening, you might think the consumer is strained. Maybe not so much. It turns out that demand is decent,” said Frank Newman, portfolio manager at Ally Invest, in a report.

    But a continuation of the Nasdaq’s surge may depend a lot on how well a quartet of tech leaders do when they report fourth quarter earnings next week: Facebook and Instagram owner Meta Platforms, Apple

    (AAPL)    , Google owner Alphabet

    (GOOGL)     and Amazon

    (AMZN)    .

    “A set of much weaker-than-expected reports from these firms could dent the market’s strong start to 2023,” said Daniel Berkowitz, senior investment officer for investment manager Prudent Management Associates, in a report.

    So far, tech earnings season is not off to an inspiring start, with Microsoft

    (MSFT)    , Intel

    (INTC)     and IBM

    (IBM)     all reporting weak results. But it’s important to note that that trio is part of the “old tech” guard while Apple, Amazon, Alphabet and Meta all have more rapidly growing businesses.

    Tesla

    (TSLA)     reported strong results last week, which could be a sign of good things to come from other more dynamic tech companies.

    Monday: IMF releases world outlook; earnings from Philips

    (PHG)    , GE Healthcare, Franklin Resources

    (BEN)    , SoFi, Ryanair

    (RYAAY)    , Whirlpool

    (WHR)     and Principal Financial

    (PFG)

    Tuesday: China official PMI; Europe GDP; US employment cost index; US consumer confidence; earnings from Exxon Mobil

    (XOM)    , Samsung

    (SSNLF)    , GM

    (GM)    , Phillips 66

    (PSX)    , Marathon Petroleum

    (MPC)    , UPS

    (UPS)    , Pfizer

    (PFE)    , Sysco

    (SYY)    , Caterpillar

    (CAT)    , UBS

    (UBS)    , McDonald’s

    (MCD)    , Spotify

    (SPOT)    , Mondelez

    (MDLZ)    , Amgen

    (AMGN)    , AMD

    (AMD)    , Electronic Arts

    (EA)    , Snap

    (SNAP)     and Match

    (MTCH)

    Wednesday: Fed meeting; US ADP private sector jobs; US JOLTS; China Caixin PMI; Europe inflation; earnings from AmerisourceBergen

    (ABC)    , Humana

    (HUM)    , T-Mobile

    (TMUS)    , Novartis

    (NVS)    , Altria

    (MO)    , Peloton

    (PTON)    , Meta Platforms, McKesson

    (MCK)    , MetLife

    (MET)     and AllState

    (ALL)

    Thursday: US weekly jobless claims; US productivity; BOE meeting; ECB meting; Germany trade data; earnings from Cardinal Health

    (CAH)    , ConocoPhillips

    (COP)    , Merck

    (MRK)    , Bristol-Myers

    (BMY)    , Honeywell

    (HON)    , Eli Lilly

    (LLY)    , Stanley Black & Decker

    (SWK)    , Hershey

    (HSY)    , Sirius XM

    (SIRI)    , Penn Entertainment

    (PENN)    , Ferrari

    (RACE)    , Harley-Davidso

    (HOG)    n, Apple, Amazon, Alphabet, Ford

    (F)    , Qualcomm

    (QCOM)    , Starbucks

    (SBUX)    , Gilead Sciences

    (GILD)    , Hartford Financial

    (HIG)    , Clorox

    (CLX)     and WWE

    (WWE)

    Friday: US jobs report; US ISM non-manufacturing (services) index; earnings from Cigna

    (CI)    , Sanofi

    (SNY)    , LyondellBasell

    (LYB)     and Regeneron

    (REGN)

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  • Prices rose at a slower pace last month, the Fed’s favored inflation gauge shows | CNN Business

    Prices rose at a slower pace last month, the Fed’s favored inflation gauge shows | CNN Business

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    Minneapolis
    CNN
     — 

    The Federal Reserve’s preferred inflation gauge showed prices rose at a slower pace last month, indicating further progress in the central bank’s battle with higher prices.

    The Personal Consumption Expenditures price index, or PCE, rose by 5% in December, compared to a year earlier, the Commerce Department reported Thursday.

    In December alone, prices rose 0.1% from November.

    On a month-to-month basis, prices for goods decreased 0.7% and prices for services increased 0.5%, according to the PCE price index for December. Within those categories, food prices increased 0.2% and energy prices decreased 5.1%.

    Core PCE, which doesn’t include the more volatile food and energy categories, increased by 4.4% annually, down from November’s annual rate of 4.7%. On a monthly basis, it was up 0.3%.

    Core PCE, which is now at its lowest level since October 2021, is the Fed’s favored inflation gauge as it provides a more complete picture of consumer costs and spending.

    “It’s clear, continued progress on the inflation front — which is something we expected, but good to see,” Joe Davis, Vanguard’s global chief economist, told CNN. “I think you’re seeing continued softening across the entire report.”

    The data showed that consumers pulled back in December, with spending falling by 0.2% from the month before. Personal income rose 0.2% last month, the smallest increase since April.

    Through much of 2022, consumer spending remained robust in spite of high inflation, rising interest rates, and simmering recession fears. However, as the months dragged on, economic data suggested that consumers were running out of dry powder: Reliance on credit grew and delinquencies started to tick up, while savings levels declined.

    Retail sales fell 1.1% in December, the Commerce Department reported earlier this month.

    In Friday’s report, the personal saving rate as a percentage of disposable income increased to 3.4% from 2.9% in November. The savings rate is now up 1 percentage point from its September low.

    The increase is “a sign that consumers are growing cautious after rapidly drawing down their savings last year,” Lydia Boussour, senior economist for EY Parthenon, said in a statement.

    Separately on Friday, a closely watched measurement of consumer attitudes toward the economy showed increased confidence in January for the second consecutive month. The University of Michigan’s consumer sentiment index landed at 64.9 for January, up nearly 9% from December.

    Despite the uptick, the director of the school’s Surveys of Consumers cautioned that there are “considerable downside risks” to sentiment and that two-thirds of consumers surveyed said they expect an economic downturn to occur in the next year.

    Massud Ghaussy, senior analyst of Nasdaq IR Intelligence, said consumer sentiment hinges heavily on the labor market.

    “The big question this year so far is, ‘is the jobs market the next shoe to fall?’” he told CNN. “The economic picture is still quite murky, and the reason why we’re seeing consumer confidence still relatively strong is because of a strong job market.”

    Friday’s PCE report is the last key inflation data before the Federal Reserve meets next week for its first policymaking meeting of 2023.

    Economists and investors are expecting the Fed to raise its benchmark rate by just quarter of a point, signaling another downshift following a spree of blockbuster rate hikes last year.

    The Fed is not expected to pivot simply because inflation is cooling, Davis said, noting that PCE isn’t yet at the Fed’s 2% target.

    The labor market, which has remained strong and tight despite inflation and interest rate hikes, remains a crucial area of focus in the Fed’s inflation fight. The latest data on employment turnover as well as job growth will be released next week.

    “The labor market is clearly Exhibit A in this debate between a soft landing or a mild recession,” Davis said. “The bigger wild card is, do the modest layoffs that we’re seeing in the technology sector in particular spread to other parts of the economy?”

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  • Here’s what will happen to the economy as the debt ceiling drama deepens | CNN Business

    Here’s what will happen to the economy as the debt ceiling drama deepens | CNN Business

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    Minneapolis
    CNN
     — 

    After the United States hit its debt ceiling on Thursday, the Treasury Department is now undertaking “extraordinary measures” to keep paying the government’s bills.

    A default could be catastrophic, causing “irreparable harm to the US economy, the livelihoods of all Americans and global financial stability,” Treasury Secretary Janet Yellen has warned.

    Yellen on Friday told CNN’s Christiane Amanpour that the impacts would be felt by every American.

    “If that happened, our borrowing costs would increase and every American would see that their borrowing costs would increase as well,” Yellen said. “On top of that, a failure to make payments that are due, whether it’s the bondholders or to Social Security recipients or to our military, would undoubtedly cause a recession in the US economy and could cause a global financial crisis.”

    She added: “It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world. And Americans — many people — would lose their jobs and certainly their borrowing costs would rise.”

    Dire warnings of debt ceiling trouble aren’t new. Federal lawmakers have reached agreements in the past, and this Congress has some time — until at least early June, according to Yellen’s public estimates — to reach an agreement on whether to raise or suspend the debt limit.

    Many economists say they expect an agreement will be reached. However, given the current “extremely fractious political environment,” it could be a long process that would contribute to “flare-ups” in financial market volatility, Moody’s Investors Service said in a note Thursday.

    Such volatility is coming at a time when the Federal Reserve is trying to bring down inflation while navigating a soft (or softish) landing with minimal harm to the economy.

    So what happens to the economy in a worst-case scenario of default?

    It’s an understandable question with an unsatisfying answer, said Michael Pugliese, vice president and economist with Wells Fargo’s corporate and investment bank.

    “The honest truth is, no one knows,” he said. “A widespread default by the US government is not something we’ve ever experienced and not something we’ve ever even come close to experiencing.”

    While a default isn’t something that can be modeled in the way a more historically common economic event such as a recession can be, the events of 2011 could lend some perspective as to what would happen if the debt ceiling drama turns into a debacle, said Gregory Daco, chief economist at EY-Parthenon.

    “2011 was the first time in a long time that we came close to a debt ceiling breach,” he said. “And that was a time when there was a lot of political fragmentation and there was a strong desire to essentially attach spending cuts to any debt ceiling increase.”

    The current environment includes similar brinksmanship and desires to attach spending cuts, he said.

    But some fear this fight may be tougher than those in the past, a concern reinforced by the fact it took 15 ballots to elect the Speaker of the House in what is normally the easiest vote taken by a new Congress.

    The economy nearly 13 years ago was different, as well.

    At the time, the Fed was in an easy monetary policy mode and the economy in a weaker position, as it was still recovering from the Great Recession of 2008, Pugliese said. Unemployment was north of 9% in July 2011.

    That same year, Treasury projected the “X date” — the date on which it would be unable to pay its obligations on time — would fall on August 2, 2011. That ultimately was the date when Congress passed, and President Barack Obama enacted, a law increasing the ceiling.

    The actual economic impact of the debt ceiling run-up in 2011 is hard to isolate and quantify, Pugliese said, noting how the sluggish US economic recovery also experienced spillover effects from global events, notably Europe’s sovereign debt crisis.

    Still, there were some indications that the protracted congressional battle contributed to a shake-up in the economy then, he said. Real GDP growth was a weak -0.1% on a quarter-over-quarter annualized basis in the third quarter of 2011. Financial markets were roiled, consumer confidence weakened, the US economic policy uncertainty index set a new high and Standard & Poor’s credit rating agency downgraded the United States to AA+ from AAA.

    “I think you would be hard pressed to say [the debt ceiling debacle] was a positive thing,” he said. “I think of it more as one other hurdle among a lot of other hurdles for the economy as it emerged from 9% unemployment at the time.”

    This time, if the X date were to come without a resolution, there is speculation that the Treasury could prioritize principal and interest payments to prevent a technical default, Pugliese said. There are potentially other “break the glass” options from the Treasury and Federal Reserve, but those are untested and short-term solutions, he added.

    “Someone, somewhere is going to get shortchanged if the government doesn’t have all of its money, whether that’s Social Security beneficiaries, defense contractors, civil service employees, veterans, [etc.],” he said.

    Joggers run past the Treasury Department on January 18, 2023, in Washington, DC.

    Adding to the uncertainty is the current economic climate, Daco said.

    “We are going into this delicate period at a time when the US economy is clearly slowing down and at a time when the global economic backdrop is also weakening … so the economic environment against which this debt ceiling debacle is unfolding is one of increased economic softening.”

    While a self-inflicted recession would be likely after the point when an X date is hit, some upheaval could come sooner, Daco said.

    “Financial markets and private sector actors tend to react ahead of that date,” he said. “If there is the anticipation that we will get very close to that drop-dead date, then financial market volatility generally tends to increase, stock prices tend to react adversely.”

    A Treasury default would undermine the global financial system, said Louise Sheiner, policy director at the Hutchins Center on Fiscal and Monetary Policy and former senior economist with the Fed and the Council of Economic Advisers.

    “If Treasuries become something that people are worried about holding, then that has ripple effects throughout capital markets throughout the world, in ways that are really difficult to predict,” she said.

    Considering the potential consequences in the United States and abroad, Sheiner believes the debt ceiling will be lifted or suspended — eventually.

    “There’s no other way around it,” she said. “There’s no way that Congress is going to cut spending 20% in the middle of the year. It would plunge the economy into a recession. It would be a terrible policy.”

    She added: “If you care about the long-term debt, you have to actually change different laws, Social Security law, Medicare, or the tax law … you want to do that in the appropriate process, you want to do it well thought out. It’s not the kind of thing that should be done under duress.”

    CNN’s Maegan Vazquez, Matt Egan and Tami Luhby contributed to this report.

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  • The Federal Reserve is testing how climate change could hurt big banks | CNN Business

    The Federal Reserve is testing how climate change could hurt big banks | CNN Business

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


    New York
    CNN
     — 

    The largest six banks in the United States have been given until July to show the Federal Reserve what effects disastrous climate change scenarios could have on their bottom lines.

    Noting the risks could be “material,” the Fed said the banks will have to show how their finances fare under a number of climate stress tests, including heat waves, wildfires, floods and droughts, according to details of a new Fed pilot program released on Tuesday.

    “The pilot exercise includes physical risk scenarios with different levels of severity affecting residential and commercial real estate portfolios in the Northeastern United States and directs each bank to consider the impact of additional physical risk shocks for their real estate portfolios in another region of the country,” wrote the Fed.

    The Federal Reserve first announced the pilot program in September, noting that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo would participate.

    Climate activists said that the project was long overdue (Federal Reserve Chair Jerome Powell has been questioned about it multiple times over the last year), and that other central banks are far ahead of the Fed on climate risk assessments. The Bank of England ran a similar exercise in 2021.

    They also said the proposal lacked any real teeth. In its announcement the Federal Reserve stressed that the exercise “is exploratory in nature and does not have capital consequences.” It also said that it would not publish individual banks’ results.

    San Francisco Federal Reserve President Mary Daly told CNN in October Thursday that this was a learning and exploratory exercise for the Federal Reserve. It would be “incredibly premature to jump to the conclusion that any new policies or programs would come out of it,” she said.

    The other side: Critics of the pilot program have argued that the Federal Reserve was overstepping its boundaries and that they might soon begin to enforce financial penalties.

    “The Fed’s new ‘pilot’ program is the first step toward pressuring banks into limiting loans to and investments in traditional energy companies and other disfavored carbon-emitting sectors,” wrote former Republican Senator Pat Toomey, then a ranking member of the Senate Banking Committee. “The real purpose of this program is to ultimately produce new regulatory requirements.”

    Powell said last week that the central bank would not become a “climate policymaker.”

    “Today, some analysts ask whether incorporating into bank supervision the perceived risks associated with climate change is appropriate, wise, and consistent with our existing mandates,” Powell said last Tuesday. “In my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision. The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change.”

    The discovery, movement and use of oil has played an outsized role in shaping geopolitics over the past century and a half. But over the next 50 years, global interaction and wealth are more likely to be influenced by microchips, Intel CEO Pat Gelsinger told CNN Tuesday.

    “Where the technology supply chains are, and where semiconductors are built, is more important for the next five decades,” Gelsinger said in an interview with CNN’s Julia Chatterley at the World Economic Forum in Davos, Switzerland.

    Intel (INTC) is betting those predictions prove true. The company announced in 2021 it would invest $20 billion to build two new US chipmaking facilities, as well as up to $90 billion in new European factories, aimed at reasserting its position as the leader of the semiconductor industry, reports my colleague Clare Duffy.

    Gelsinger said the company’s investment in new manufacturing facilities in the United States, Europe and elsewhere is important not only for the company’s future, but for the “globalization of the most critical resource to the future of the world.”

    “We need this geographically balanced, resilient supply chain,” he said.

    The announcements also came amid concerns about the concentration of manufacturing for chips, in Asia, particularly China and Taiwan, during the Covid-19 pandemic and as geopolitical tensions grew. Issues in the chip supply chain in recent years have caused shortages and shipping delays of everything from desktop computers and iPhones to cars.

    “If we’ve learned one thing from the Covid crisis and this multi-year journey that we’ve been on it’s we need resilience in our supply chains,” Gelsinger said, adding that Intel’s manufacturing investments are aimed at “leveling that playing field so that good investment decisions can be made.”

    The years following the peak of the Covid pandemic have not been good for wealth equality.

    The world’s wealthiest residents have been getting far richer, far faster than everyone else over the past two years, reports my colleague Tami Luhby.

    The fortune of the 1% soared by $26 trillion during that period, while the bottom 99% only saw their net worth rise by $16 trillion, according to Oxfam’s annual inequality report released Sunday.

    And the wealth accumulation of the super-rich accelerated during the pandemic. Looking over the past decade, they netted just half of all the new wealth created, compared to two-thirds during the last few years.

    Meanwhile, many of the less fortunate are struggling. Some 1.7 billion workers live in countries where inflation is outpacing wages. And poverty reduction likely stalled last year after the number of global poor skyrocketed in 2020.

    “While ordinary people are making daily sacrifices on essentials like food, the super-rich have outdone even their wildest dreams,” said Gabriela Bucher, executive director of Oxfam International.

    “Just two years in, this decade is shaping up to be the best yet for billionaires — a roaring ’20s boom for the world’s richest,” she said.

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  • Bank earnings fail to impress investors as recession worries rise | CNN Business

    Bank earnings fail to impress investors as recession worries rise | CNN Business

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    New York
    CNN
     — 

    JPMorgan Chase, Bank of America, Citigroup and asset management giant BlackRock posted results that topped Wall Street’s forecasts Friday, but investors were nonetheless a little disappointed at first.

    Trading was choppy, with most bank stocks falling at the open before rebounding. Shares of JPMorgan Chase

    (JPM)     were up about 2.5% in late afternoon trading while BofA

    (BAC)     was up 2%. Wells Fargo

    (WFC)    , which reported earnings that missed Wall Street’s targets, reversed earlier losses and was up 3%. Citi

    (C)     was up 2% while BlackRock

    (BLK)     was flat.

    “The earnings were solid, but the market is concerned with recession fears,” said John Curran, managing director and head of North American bank coverage at MUFG.

    Investors might have been concerned by the downbeat tone of the big banks. Executives are clearly still worried about inflation and the threat of a recession this year following several big interest rate hikes by the Federal Reserve.

    JPMorgan Chase CEO Jamie Dimon said in the bank’s earnings statement that although the economy is still strong and that consumers and businesses are spending and healthy, “we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher.”

    The bank added in the earnings release that it now expects a “mild recession” as a base economic case. CFO Jeremy Barnum added during a conference call with reporters that in addition to the slowdown that has already started in its home lending unit, it is starting to see “headwinds” in auto lending.

    Meanwhile, BofA CEO Brian Moynihan noted that this is “an increasingly slowing economic environment” and Wells Fargo CEO Charlie Scharf said “we are carefully watching the impact of higher rates on our customers.” Wells Fargo recently announced plans to pull back on its massive mortgage business.

    Banks are clearly worried about a looming recession, and Wall Street has taken notice.

    Moody’s Investors Service analyst Peter Nerby noted in a report that “credit provisions are rising” at JPMorgan Chase and that Citi “built capital and reserves in anticipation of a slowdown in core markets.”

    The Fed’s rate hikes aren’t helping either.

    “Higher than expected interest rates pose a significant risk to the outlook for credit quality, loan growth and net interest margins,” said David Wagner, a portfolio manager at Aptus Capital Advisors, in an email.

    Concerns about the economy were one reason why stocks plunged in 2022, suffering their worst year since 2008. As a result of the Wall Street slump, there was a major slowdown in merger activity and initial public offerings.

    That hurt the investment banking businesses for the top banks. JPMorgan Chase and Citi each said that advisory fees plummeted nearly 60% in the quarter.

    Goldman Sachs

    (GS)     and Morgan Stanley

    (MS)     will give more color about the health of Wall Street next Tuesday when they both report their fourth quarter results.

    Goldman Sachs, which has aggressively built up a consumer banking unit over the past few years, has struggled to make money in that division. Goldman Sachs disclosed in a regulatory filing Friday that it has lost more than $3 billion in its consumer business since 2020.

    There were some signs of optimism though. BlackRock, which owns the massive iShares family of exchange-traded funds, reported a rebound in assets under management from the third quarter to the fourth quarter as stocks soared in October and November.

    “The current environment offers incredible opportunities for long-term investors,” said BlackRock CEO Larry Fink in the earnings release.

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  • Yellen will remain Treasury secretary heading into the Biden administration’s third year | CNN Politics

    Yellen will remain Treasury secretary heading into the Biden administration’s third year | CNN Politics

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    CNN
     — 

    Treasury Secretary Janet Yellen plans to stay in her Cabinet role heading into the third year of the administration, a decision she conveyed to President Joe Biden during a December conversation, according to two White House officials.

    Biden welcomed Yellen’s desire to stay, which comes as the administration enters the critical moment of implementing Biden’s sweeping legislative wins of his first two years.

    Yellen, in the final months of last year, repeatedly expressed her desire to oversee Treasury’s central role in that effort – a process that officials say Biden has repeatedly stressed to senior officials inside his administration must be carried out successfully in the months ahead.

    Still, as Biden’s top economic official, Yellen drew some of the criticism for the soaring inflation that plagued much of the administration’s second year in office, leading some to believe she would be among the officials to depart during a period that historically lends itself to turnover in the first term of an administration.

    Yet along with Biden’s legislative success has come the first clear signs that inflation’s grip is starting to ease – at the same moment the US economy’s strength has remained durable despite rapid Federal Reserve interest rate increases and signs of fragility in the global economy.

    Biden’s Cabinet and senior team has been defined in part by its stability over his first two years in office. Still, Biden’s top advisers have been planning for departures in the weeks ahead as the administration enters the period between the midterm elections and Biden’s State of the Union address when past administrations have seen notable departures.

    Asked about reports she had informed the White House she wanted to stay into next year, Yellen told CNN in October it was “an accurate read.”

    “I feel very excited by the program that we talked about,” Yellen said at the time. “And I see in it great strengthening of economic growth and addressing climate change and strengthening American households. And I want to be part of that.”

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  • Fed Chair Powell: Bringing down inflation requires ‘measures that are not popular’ | CNN Business

    Fed Chair Powell: Bringing down inflation requires ‘measures that are not popular’ | CNN Business

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    New York
    CNN
     — 

    Investors shifted their focus Tuesday from the stock market to Stockholm as Federal Reserve Chairman Jerome Powell made his first public appearance of the year.

    Powell participated in a panel discussion on central bank independence at an event hosted by Sweden’s central bank, the Sveriges Riksbank.

    The painful rate hikes the Fed is implementing to try to bring down inflation don’t make officials particularly popular, Powell admitted.

    “Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” he said, before adding that it’s important not to succumb to the need to liked.

    “We should ‘stick to our knitting’ and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities,” Powell said.

    He highlighted climate change as a prime example of this.

    “Today, some analysts ask whether incorporating into bank supervision the perceived risks associated with climate change is appropriate, wise, and consistent with our existing mandates,” he said. “in my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision. The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change.”

    US inflation rates (as measured by the Labor Department’s Consumer Price Index) have been steadily falling for the past five months. That has enabled the Fed to start easing back on the size of its historically high rate hikes meant to cool the economy and fight rising prices.

    Inflation in the Eurozone, meanwhile, remains at an eye-popping 9.2% — though it eased between November and December. ECB president Christine Lagarde said last month she expects interest rate hikes to rise “significantly further, because inflation remains far too high and is projected to stay above our target for too long.”

    “If you compare with the Fed, we have more ground to cover. We have longer to go,” she added.

    The Bank of England, meanwhile, has also warned that inflation, still at its highest level since the 1980s, isn’t going anywhere. The BoE’s chief economist Huw Pill said this week that inflation could persist for longer than expected despite recent falls in wholesale energy prices and an economy on the brink of recession.

    These three central banks are fighting in different conditions, but they share a similar battle strategy: Keep tightening.

    The central bankers defended the importance of independence and credibility for their institutions, which has come under fire as policymakers are accused of having let surging inflation go unchecked for too long.

    December meeting minutes from the Fed, released last week, noted that the policymaking committee would “continue to make decisions meeting by meeting,” leaving options open for the size of rate hikes at the next monetary policy decision on February 1. No policymakers have forecast that it would be appropriate to reduce the bank’s benchmark borrowing rate this year. And while officials welcomed the recent softening in inflation, they stressed that “substantially more evidence” was required for a Fed “pivot.”

    Last week’s jobs report further muddied the picture, showing that employment remained strong while wage growth eased.

    Thursday’s CPI for December — which will be the new year’s first check on inflation — will also provide helpful clues to investors about whether US price hikes are sufficiently cooling.

    Encouraging data could bolster consensus estimates that call for a quarter-percentage point interest rate hike in February, a shift lower from December’s half-point hike and the four prior three-quarter-point hikes.

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