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Stocks surge after Fed rate hike

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Here's how the Fed's interest rate hike will affect your wallet
01:02 - Source: CNN Business

What we covered here

  • After briefly dropping when the Fed statement came out, US stocks bounced back as Federal Reserve chair Jerome Powell said the “economy is very strong and well positioned to handle tighter monetary policy.”
  • The Fed raised rates by a quarter percentage point today, beginning its gradual campaign to ease sky-high inflation without disrupting America’s robust economic growth.
  • China’s government sought to soothe crumbling Asian markets during a massive Covid outbreak by saying it would seek to stabilize stocks at home and abroad in foreign exchanges, it would work to keep its economy growing and temper its regulatory efforts.
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Stocks rise again after Fed hikes rates

US stocks rallied for a second straight day Wednesday in a volatile day of trading. The Federal Reserve, as expected, raised interest rates for the first time since December 2018. Fed chair Jerome Powell reiterated that the central bank will remain aggressive in its fight against inflation and stressed that the economy is “very strong.”

As stocks settle after the trading day, levels might still change slightly.

When will inflation chill out?

The surging prices that defined much of 2021 aren’t going away as fast as many would hope.

In announcing a quarter-percentage-point interest rate hike, Federal Reserve chair Jerome Powell said the central bank expects inflation to remain high until the end of this year.

That’s partly because of the disruption caused by the Russia-Ukraine war.

“Before the invasion of Ukraine by Russia…I would have said the expectation was that inflation would peak sometime in the first quarter, maybe the end of the first quarter of this year” and start to come down in the “back half” of the year, Powell said.

That expectation remains largely the same, but “we’re already seeing a bit of short-term upward pressure in inflation due to higher oil prices,” as well as supply chain snarls caused by the war. “That could actually push out the relief we were expecting on supply chains generally.” 

In other words, we can’t put an exact date on when inflation will come down. “We don’t have a perfect crystal ball,” Powell emphasized in a news conference.

Bottom line: “We still expect inflation to be high this year,” albeit lower than last year, Powell said. But sharper relief may not be felt until 2023.

Powell says odds of recession are not 'elevated'

Jerome Powell speaking during a video conference at the Federal Reserve today.

The surging price of oil and other commodities has some worried that the United States could wind up in a recession. But Federal Reserve chair Jerome Powell is not concerned.

Powell said at a press conference after the Fed hiked interest rates that the likelihood of a recession this year is “not particularly elevated.” He noted the continued strength in the job market, where the unemployment rate is low and wages are rising. With that in mind, Powell said that he thinks the economy “can withstand tighter monetary policy.”

Stocks pull back after Fed raises inflation forecast, cuts growth target

The Dow gave up most of its gains and was flat following the Federal Reserve’s decision to raise interest rates Wednesday. The S&P 500 and Nasdaq pulled back from earlier highs too. The rate hike was expected. But investors may be worried about new economic projections from the central bank.

The Fed slashed its economic growth forecast and boosted its inflation outlook. The Fed said that it now expects gross domestic product (GDP) growth of 2.8%, down from its forecast of 4% in December. The Fed also is forecasting PCE inflation of 4.3%, up from 2.6% only three months ago.

That sounds an awful lot like stagflation, the combination of slowing growth and high prices.

And if investors were hoping that the Fed would show some restraint because of global geopolitical jitters, this forecast seems to debunk that.

“People were a little delusional to think events in Ukraine would derail the Fed,” said Julian Brigden, co-founder of Macro Intelligence 2 Partners, a research firm. “The Fed has acknowledged reality.”

Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, added that investors may also be nervous about the Fed’s so-called dot plot, which shows where individual Fed members expect rates to be at the end of the year. The dot plot suggests there could be seven rate increases in 2022.

“The Fed is predicting a short series of sharp rate hikes,” Jones said. “The Fed is reacting to inflation very strongly and they want to signal that they don’t want to tolerate it and have it become embedded.”

Federal Reserve hikes interest rates for the first time since 2018

The Federal Reserve is raising interest rates for the first time since 2018, the central bank announced Wednesday at the conclusion of its highly anticipated two-day monetary policy meeting.

The move marks the end of the Fed’s pandemic-era easy money policy and comes amid soaring inflation across America.

The quarter-percentage-point increase had been well telegraphed by the central bank, with Chair Pro Tempore Jerome Powell hinting at it repeatedly over the past few months. Earlier this month, Powell told lawmakers that he favored a quarter-point raise.

This is the first rate increase since December 2018 and the first time rates have moved from their level of near zero since the bank slashed them almost exactly two years ago in March 2020 in the wake of the pandemic.

Read the full story here.

Wendy's is trying to balance higher costs without price hikes that'll scare customers off

Restaurant chains are trying to keep costs down, but commodity prices are rising and workers are demanding higher wages. That’s why prices have already gone up at fast food chain Wendy’s.

But Wendy’s (WEN) president and CEO Todd Penegor told Alison Kosik on the CNN Business “Markets Now” show that he hopes the company doesn’t have to raise prices much more.

“We have to balance passing on prices and still being a relative value for consumers,” Penegor said, adding that the chain also has to make sure it remains competitive on price with other fast-food and fast-casual restaurants.

Supply chain issues have been a challenge for Wendy’s, he added, and the company is continuing to work on ways to hold on to workers.

The company is finally starting to see traffic at its restaurants return to pre-pandemic levels at breakfast time, but many consumers are coming in later for breakfast than they were before 2020, Penegor said, adding that Wendy’s has had to adapt to provide people with their “late-morning Zoom snack.”

Meanwhile, Wendy’s is watching what’s going on in Russia and Ukraine closely. Although Wendy’s does not have restaurants in Russia, there are locations in the former Soviet republics of Uzbekistan and Georgia. Penegor said those restaurants are no longer buying products from Russia.

The great inflation debate

Consumer prices have surged. Everybody knows that. But the big question for investors, not to mention the Federal Reserve, is whether or not inflation is peaking.

Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence. told Alison Kosik on the CNN Business “Markets Now” show Wednesday that she believes that stagflation worries — the combination of slower growth and higher prices — are still top of mind.

“Inflation is not poised to decline dramatically,” DiMartino Booth said.

But Jeffrey Kleintop, chief global investment strategist at Charles Schwab, told Kosik holds the opposite view, and that he thinks inflation pressures should soon abate. He noted that energy prices have cooled and that the United States is not as exposed to the pinch from higher natural gas costs as Europe is.

“We expect inflation to fall to the 3% to 4% range later this year, which is something the Fed would be more comfortable with,” Kleintop said. That’s a key reason why he doesn’t believe the Fed will hike rates as often as the market is currently expecting, which is currently about six or seven times in 2022.

Tech stocks soar as investors wait for Powell

The Nasdaq shot up about 2.5% in midday trading Wednesday, leading the broader market higher. The Dow gained about 400 points, or 1.2%, while the S&P 500 was up 1.7%.

Tech giants Intel (INTC), Salesforce (CRM) and Apple (AAPL) were among the better performing Dow stocks.

Investors clearly aren’t worried about the fact that the Fed is expected to raise interest rates later Wednesday. The move has been widely expected for months. Federal Reserve chair Jerome Powell even told Congress recently that he was in favor of a quarter-point hike. Gradual rate increases shouldn’t hurt profits for big growth companies too much.

Higher rates should also boost earnings for big financial firms. JPMorgan Chase (JPM), Goldman Sachs (GS), American Express (AXP) and Visa (V) were among the Dow’s lunchtime leaders as well.

Starbucks shares surge on Howard Schultz's return

Starbucks investors should be forgiven if they’re singing the following lyric from The Who’s “Won’t Get Fooled Again” today.

Meet the new boss. Same as the old boss.

Shares of Starbucks (SBUX) soared more than 7% Wednesday after the coffee giant announced that Howard Schultz was coming back to the company as interim CEO.

Schultz will replace Kevin Johnson, the former tech executive who took over as Starbucks CEO (from Schultz) in 2017. This will be Schultz’s third stint leading Starbucks. He was CEO from 1987 to 2000. He took over again in 2008, at the height of the Great Recession and at a time when many investors felt that the company had lost its way due to overexpansion.

Schultz will face some different challenges now, most notably an increased push by some Starbucks workers to unionize. There are also concerns that consumers may be tapped out as interest rates are set to rise and surging oil prices put a dent into peoples’ wallets. Despite Wednesday’s rally, Starbucks stock is down nearly 25% this year.

Stocks rally ahead of expected rate hike

US stocks rose Wednesday morning, following strong gains Tuesday. Investors are waiting to see what Federal Reserve chair Jerome Powell says later today about inflation and the broader economy after the central bank is likely to raise interest rates for the first time since December 2018. 

Shares of Starbucks (SBUX) rose on the surprise news that CEO Kevin Johnson is retiring and that Howard Schultz will return as interim CEO.

Biden demands faster drop in gas prices as oil tumbles

President Joe Biden is using his bully pulpit to call out the tendency for gasoline prices to go up like a rocket when oil spikes, but only drop like a feather when crude crashes.

Biden fired off a tweet Wednesday morning highlighting the painfully slow decline in gasoline prices in a bid to draw scrutiny to a decades-long trend that critics say hurts consumers by failing to pass savings along to drivers.

“Oil prices are decreasing, gas prices should too,” Biden said on Twitter. “Last time oil was $96 a barrel, gas was $3.62 a gallon. Now it’s $4.31. Oil and gas companies shouldn’t pad their profits at the expense of hardworking Americans.”

Read the full story here.

Wall Street eyes Fed interest rate hike

The Federal Reserve will likely hike interest rates on Wednesday, marking the end of the ultra-low rate environment the pandemic ushered in two years ago.

The market expects a quarter-percentage point to be added to the benchmark rate, lifting it above zero. It would be the first rate hike since late 2018.

The Fed hopes that higher rates will curb demand and help bring America’s soaring inflation back to a more palatable level and towards the central bank’s long-term goal of 2%.

But it’s coming at a tricky time.

Even though the US economy has been on a strong recovery path from the pandemic recession, higher energy prices as a result of Russia’s war in Ukraine are a new dark cloud on the horizon.

Read the full story here.

US retail sales slow more than expected in February

Investors’ attention is squarely on the Fed today but the day started with some dour economic data for Wall Street to mull over.

US retail sales came in weaker than expected, rising only 0.3% in February. The modest increase follows a whopping revised 4.9% jump in January, the Census Bureau reported.

Stripping out gas stations – which registered a sales jump of 5.3% – overall sales actually declined by 0.2% last month.

Rising gasoline prices at the end of February when Russia invaded Ukraine made Americans nervous.

Other areas in which sales rose last month included restaurants and bars, as well as sporting goods, hobby stores, and musical, instrument and book stores.

E-commerce, sales in health and personal care stores as well as furniture stores declined.

Dow surges ahead of expected Fed rate hike

US stock futures were sharply higher, continuing the good mood from Tuesday, when the Dow closed about 600 points higher.

Investors have been in a lousy mood this year, grappling with all kinds of uncertainty: Russia has invaded Ukraine. Covid is raging in China and in parts of Europe. Inflation is spiraling out of control. And economists are increasingly fearful of a global recession.

Yet two events Wednesday helped soothe investors’ fears, at least temporarily: China’s government swooped in to calm plunging Asian markets by saying it would ease its regulatory crackdown and support markets and the economy. Also, the Fed is widely expected to raise rates by a quarter-percentage point Wednesday afternoon, threading the needle between putting a ceiling on inflation and keeping the strong US economy humming.

Oil prices continued to fall slightly, sinking below $96 a barrel, helping nip some inflation fears in the bud.

  • Dow futures were up 370 points or 1.1%
  • S&P 500 futures rose 1.3%
  • Nasdaq futures were 1.9% higher.

Chinese stocks soar the most since 2008 on soothing words from Beijing

Chinese stocks soared on Wednesday as Beijing vowed to keep capital markets stable in an attempt to calm fears about China’s economic slowdown.

Hong Kong’s benchmark Hang Seng Index (HSI) ended up 9.1%, the biggest surge since October 2008. China’s Shanghai Composite (SHCOMP) also rallied 3.5%, the biggest gain since July 2020.

Chinese stocks have had a historic sell-off in recent days, as investors worry about the country’s Covid lockdownsregulatory actions against Chinese firms in the US, and a potential backlash from Washington over Beijing’s close ties with Russian president Vladimir Putin.

Following this battering, in a rare direct move to soothe investors’ nerves, Beijing has vowed to maintain financial stability and bolster economic growth.

Government departments should “actively roll out policies that benefit the markets,” according to a Wednesday meeting of China’s financial stability committee led by Vice Premier Liu He, Xi Jinping’s top economic advisor.

US to detain goods from Chinese sportswear giant Li-Ning over North Korean labor concerns

Li-Ning goods will be detained by US authorities after US Customs and Border Protection said an investigation indicated that the Chinese sportswear giant uses North Korean labor in its supply chain.

Starting this week, the company’s merchandise will be detained at all US ports, the CBP announced Tuesday.

“Such merchandise will not be entitled to entry unless the importer provides clear and convincing evidence that their merchandise was not produced with convict labor, forced labor, or indentured labor,” the agency said in a statement.

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Sarah Bloom Raskin withdraws herself from consideration to the Federal Reserve Board

Sarah Bloom Raskin has withdrawn from consideration to be a nominee for the Federal Reserve Board of Governors.

Raskin submitted her withdrawal in a letter to President Joe Biden.

Biden nominated Raskin in January for the position of vice chair of supervision at the Fed, a role that would have made her a powerful regulator in the banking world.

But Raskin, a former Fed governor who was deputy Treasury secretary during the Obama administration, faced stiff opposition in the Senate based on her stance on climate change and fear that she could discourage banks from lending to fossil fuel companies.

In her letter to Biden withdrawing her nomination, which was shared with CNN, she wrote that many “in and outside the Senate are unwilling to acknowledge the economic complications of climate change and the toll it has placed, and will continue to place, on Americans. “