An economic warning light is flashing red

By CNN Business

Updated 4:47 p.m. ET, July 14, 2021
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12:59 p.m. ET, July 14, 2021

Powell: Home prices are rising at 'high rate.' But no 'reckless' lending (yet) that led to housing bubble

From CNN Business' Matt Egan

Federal Reserve Chairman Jerome Powell acknowledged Wednesday that home prices are skyrocketing in the United States but downplayed concerns about another housing bubble.

"Housing prices are moving up across the country at a high rate," Powell told lawmakers. "I suppose the good news is this is not being driven by the kind of reckless, irresponsible lending that led to the housing bubble and that led to the last financial crisis."

The Fed chief added that this kind of risky lending is not happening, "at least so far."

Still, Powell conceded that surging home prices --- existing home prices spiked by 24% in May from a year earlier -- is hurting for first-time homebuyers.

"Housing prices are moving up and of course that makes it more difficult for entry level buyers to move into the housing market," Powell said. "That is a concern."

Some economists have warned that the Fed's massive bond-buying program is making the situation worse, effectively pouring gasoline on a housing market that is already on fire.

3:42 p.m. ET, July 14, 2021

Don't fight the Fed. Market expert agrees with Powell on inflation

From CNN Business' Paul R. La Monica

Fed chair Jerome Powell told a House panel Wednesday to not worry about inflation, even as housing prices soar.

Darius Dale, founder and CEO of investment research firm 42 Macro, agrees with Powell.

"Inflation is more than likely to be transitory," Dale said on the CNN Business "Markets Now" show, using the word that Powell often cites to describe the (hopefully) temporary spike in prices of items ranging from houses and used cars to chicken wings and diapers.

Dale conceded that the Fed is in a bit of a bind though.

Because it has the dual mandate of monitoring inflation and the labor market, Dale said that it probably is "not warranted" for the Fed to cut back on — or taper — its massive bond purchases. There are "still headwinds in the labor market," which has not fully recovered from the hit it took during the pandemic, he added.

Dale noted that the job market seems to be operating in two speeds right now. It's a good time for anyone looking for a white collar job. But the Fed is also now looking to promote inclusion and diversity in the labor market, and low wage workers have not recovered to the same extent as those in higher paying professions.

Despite this, Dale is still optimistic that a Goldilocks type scenario exists for the markets and the economy. Earnings have been coming in better than expected, but investors are clearly nervous about the impact inflation will have on future profits.

11:52 a.m. ET, July 14, 2021

Global consumer confidence continues to rise

From CNN Business' Paul R. La Monica

Cue the Nina Simone. Consumers around the world are feeling good. The Conference Board said Wednesday that global consumer confidence hit a new all-time high during the second quarter, up slightly from the first quarter.

The reasons are pretty obvious. More Covid-19 vaccine distributions have helped boost the economy and stock market. People are going back to work. They're traveling. And coronavirus cases, despite an alarming uptick in some parts of the world due to the Delta variant, are still declining.

The Conference Board said that confidence was up in 42 of 65 markets surveyed, with the biggest jumps in North America and Europe — where vaccination rates are higher. But confidence fell in Asia (particularly in India) as well as Latin America.

The global economic recovery "remains highly uneven“, according to Dana Peterson, chief economist of The Conference Board.

She added that many economies are still struggling to contain Covid-19 because of a shortage of vaccines, new variants, and supply-chain bottlenecks that are raising prices.

Still, Peterson noted that "the elevated level of global consumer confidence bodes well for spending and, consequently, the global economic revival in the second half of this year and into 2022.”

Of course, consumers aren't always the most reliable judges of what's next for the economy. Sentiment is a tricky thing that often follows news headlines and the state of the stock market.

Consumers have notoriously been overly bullish just before economic or market meltdowns. That was the case in January 2000. Consumer confidence hit a then record high just as tech stocks were about to implode. Sentiment was also at a high level in 2007 before the housing market crashed.

11:45 a.m. ET, July 14, 2021

Steven Mnuchin says Fed Chair Jerome Powell is wrong on inflation

From CNN Business' Matt Egan

Former Treasury Secretary Steven Mnuchin suggested Wednesday that Federal Reserve Chairman Jerome Powell is not worried enough about inflation.

"I respectfully disagree with him on his not being concerned," Mnuchin told CNBC, referring to Powell's stance on inflation.

Mnuchin, who pushed former President Trump to nominate Powell, praised the Fed chairman's performance and described him as a "close friend who I have a lot of admiration for."

But Mnuchin said he agrees with BlackRock CEO Larry Fink, who said Wednesday he doesn't think inflation will be transitory.

"It's important for the Fed to make sure they get ahead of the curve so they don't end up with 4% or 5% interest rates, which would really slow down this recovery," Mnuchin said, adding that Treasury and Fed models "can't really predict" what will happen to inflation after massive stimulus by the central bank and federal government.

The former Treasury Secretary also called for the Fed to scale back its asset purchases.

During prepared remarks on Wednesday, Powell reiterated his view that inflation will remain "elevated in coming months before moderating."

Meanwhile in the CNBC interview, though Mnuchin confidently expressed his take on inflation, he repeatedly declined to say whether Trump is lying when he says the 2020 election was stolen.

9:57 a.m. ET, July 14, 2021

Wells Fargo made nearly $4 billion last quarter, despite tumbling loans

From CNN Business' Matt Egan

Wells Fargo swung back into the black during the second quarter as the US economy rebounded from the pandemic.

The troubled bank earned $6 billion, recovering from a loss of $3.8 billion a year ago. Wells Fargo's per-share profit blew away expectations.

Wells Fargo (WFC) also slashed its allowance for credit losses by $1.6 billion, with CEO Charlie Scharf saying credit quality remained "exceptionally strong."

Booming markets also sparked big gains for Wells Fargo's venture capital and private equity investments.

Kyle Sanders, analyst at Edward Jones, said his team was "encouraged" Wells Fargo did not report new costs linked to the bank's various scandals.

"Wells' revamped leadership team is very talented and has brought a heightened sense of urgency to address past miscues," Sanders said in an email.

However, like other banks, Wells Fargo is dealing with shrinking demand for its key money maker: loans. The bank reported a 10% drop in average consumer loans and a 22% tumble in commercial loans.

Scharf acknowledged the "headwinds of low interest rates and tepid loan demand remained."

Wells Fargo's share price, which for years badly trailed rivals, climbed 3% Wednesday morning.

9:35 a.m. ET, July 14, 2021

US stocks climb ahead of Fed testimony

From CNN Business' Matt Egan

US markets kicked off trading solidly higher on Wednesday.

  • The Dow jumped 175 points, or 0.5%.
  • The S&P 500 also gained 0.5%.
  • The Nasdaq climbed 0.8.%.

The rally comes despite another hotter-than-expected inflation report that showed producer prices jumped by 7.3% in June.

Federal Reserve Chairman Jerome Powell is likely to get grilled on inflation by lawmakers during a hearing later on Wednesday. In his prepared remarks, Powell reiterated that inflation will remain elevated for several months before cooling off.

US stocks retreated modestly on Tuesday on renewed inflation worries.

9:08 a.m. ET, July 14, 2021

Jerome Powell: Inflation will stay hot before cooling off

From CNN Business' Matt Egan

Federal Reserve Chairman Jerome Powell expects inflation to stay hot in the coming months before cooling off, according to prepared remarks Wednesday.

“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell said in testimony to the House Financial Services Committee.

Powell noted that inflation metrics are being exaggerated by the fact that prices completely crashed last spring when the pandemic erupted. As the year-over-year comparisons become more typical, this temporary phenomenon will go away in the coming months.

But the Fed chief expects these “rapid” price hikes to “partially reverse” as bottlenecks ease.

Powell reiterated that the Fed “would be prepared” to act if officials saw signs that inflation expectations were persistently above the central bank’s goals.

Given the rapid recovery and surging inflation, the Fed discussed removing some of its emergency stimulus during its June meeting. Powell said the Fed will continue to discuss in upcoming meetings whether it should scale back its asset purchases.

“We will provide advance notice before announcing any decision to make changes to our purchases,” Powell said. 

8:35 a.m. ET, July 14, 2021

Strong start to the Jane Fraser era at Citigroup

From CNN Business' Paul R. La Monica

Citigroup CEO Jane Fraser took over the bank earlier this year, making her the most powerful woman on Wall Street. The bank is off to a roaring start during her brief tenure at the top.

Citigroup announced Wednesday that its earnings and revenue easily topped analysts' forecasts. Fraser credited the rebounding economy for the bank's solid results. Shares of Citigroup (C) were up slightly following the report.

“The pace of the global recovery is exceeding earlier expectations and with it, consumer and corporate confidence is rising. We saw this across our businesses," Fraser said in the release, noting that Citi's investment banking unit posted a strong quarter and that the bank also benefited from "markedly increased spending" from its credit card customers.

Citi, like rivals JPMorgan Chase (JPM), Bank of America (BAC) and other banks, also released some of its reserves for bad loans, a sign that the bank feels consumer credit quality is increasing following last year's Covid-related economic downturn.

"While we have to be mindful of the unevenness in the recovery globally, we are optimistic about the momentum ahead," Fraser added.

Still, Citi is lagging its big bank brethren in one regard. The company held its dividend steady following the most recent Federal Reserve stress tests. Most other top banks boosted their payouts to shareholders.

8:11 a.m. ET, July 14, 2021

Despite another loss Delta sees a return to "solid" profitability

From CNN Business' Chris Isidore

Delta reported another quarterly loss Wednesday but said that it returned to profitability in June and expects to be profitable going forward.

���Domestic leisure travel is fully recovered to 2019 levels and there are encouraging signs of improvement in business and international travel," said CEO Ed Bastian, who added that this week it bought additional used aircraft to restore some of the capacity it shed during the pandemic.

"The recovery picking up steam, we are making investments to support our industry-leading operation," he said.

The company lost $678 million when adjusted for special items such as another round of financial support from US government. But that's far better than the loss of nearly $900 million expected by Wall Street, let alone the $2.8 billion loss it reported a year ago.

Revenue has not fully recovered to pre-pandemic level due mostly to the lucrative business and international travel still being only a fraction of pre-pandemic levels. Overall revenue from airline operations was down 49% compared to the same quarter of 2019, ahead of the pandemic.

Shares of Delta climbed in pre-market trading as did shares of the other three major US airlines - American, United and Southwest.