Stocks rise as Fed announces historic rate hike

By CNN Business

Updated 6:11 p.m. ET, July 27, 2022
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5:10 p.m. ET, July 27, 2022

Raising rates earlier might not have mattered, Powell said

By CNN Business' Alicia Wallace

Federal Reserve Board Chairman Jerome Powell arriving at the news conference earlier today in Washington, DC.
Federal Reserve Board Chairman Jerome Powell arriving at the news conference earlier today in Washington, DC. (Elizabeth Frantz/Reuters)

The Fed has caught plenty of heat as to whether its succession of rate hikes came too late.

But in hindsight, even if the Fed was late to the party, it might not have made a difference, according to Jerome Powell.

"Did it matter in the end? I really don't think it did," the Fed chair said. "I'm not sure it would have mattered if we'd been raising rates earlier. Lots of central banks were raising rates three months earlier and it didn't matter."

He added: "This is a global phenomenon happening now."

Late or not, the back-to-back 75-basis-point hikes were the appropriate moves given the current economic state, Powell said.

The unexpectedly hotter Consumer Price Index reading earlier this month had Wall Street buzzing that the Fed might raise rates by a full percentage point. Powell noted that the Fed "wouldn't hesitate" to go even bigger, if the circumstances warranted it. That wasn't the case, at least not this time around,

"We judged a 75 basis point increase was the right magnitude in context of the increases in policy rate [changes] we've been making," he said.

 

4:05 p.m. ET, July 27, 2022

Stocks soar after Fed hikes rates again

From CNN Business' Paul R. La Monica

Traders work on the floor of the New York Stock Exchange on Wednesday, July 27.
Traders work on the floor of the New York Stock Exchange on Wednesday, July 27. (Seth Wenig/AP)

US stocks ended the day higher after the Federal Reserve boosted interest rates by three-quarters of a percentage point for the second straight time in order to combat rampant inflation. But Fed chair Jerome Powell suggested that the central bank could slow the pace and size of future rate hikes if the economy cools.

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

3:58 p.m. ET, July 27, 2022

Jay Powell may be allergic to the word 'layoffs'

From CNN Business' Allison Morrow

Jerome Powell during a news conference in Washington, DC, on July 27.
Jerome Powell during a news conference in Washington, DC, on July 27. (Mandel Ngan/AFP/Getty Images)

For critics of the Fed who accuse the central bank of being out of touch, Chairman Jay Powell just gave them some fresh ammunition on Wednesday. (We're looking at you, Senator Elizabeth Warren.)

Throughout Powell's press conference, he referred repeatedly to what he predicts will be a "softening in labor market conditions” as a result of the bank's aggressive interest rate increases.

Allow us to translate: People will lose their jobs.

Powell seemed to take pains to avoid the words "layoff" or "unemployment" when discussing the potential impact of rate increases on the labor market, which is one of the brightest bright spots of the current US economy right now. Unemployment is around 3.6% — almost a 50-year low. And while the Fed is doing its best to avoid going too hard on rate increases, history shows that recession is a real risk, which would likely result in millions of people losing their jobs or facing wage cuts as employers scale back their businesses.

Powell deployed the euphemistic "softening in labor market conditions" at least four times this afternoon.

"We think there'll be softening in labor market conditions and ... they are probably necessary if we were to be able to get inflation on a path to 2%"

That's the kind of "bloodless" economist-speak that Senator Warren called out in a recent op-ed for The Wall Street Journal, in which she argued the Fed is pursuing a "painful and ineffective inflation cure."

3:41 p.m. ET, July 27, 2022

Powell: Some signs the labor market is 'moving back into balance'

By CNN Business' Alicia Wallace

A recruiter helps people looking for work during the Mega Job Fair held at the FLA Live Arena on June 23 in Sunrise, Florida.
A recruiter helps people looking for work during the Mega Job Fair held at the FLA Live Arena on June 23 in Sunrise, Florida. (Joe Raedle/Getty Images)

The US labor market is "still quite robust" — but there's some evidence that trend is changing, Fed Chairman Jerome Powell said.

"There's a feeling that the labor market is moving back into balance," he said. "If you look at openings or quits, you see them moving sideways or perhaps a little bit down."

That's only the beginning of the adjustment, he said, noting drop-offs in job creation and labor demand.

Labor supply, however, is another matter.

Powell said he's been "disappointed that labor force participation really hasn't moved up since January," adding that may be related to the recent Covid surge.

Still, he concluded, overall there is some progress on labor demand and supply getting "back in alignment."

3:21 p.m. ET, July 27, 2022

Powell: 'I do not think the US is currently in a recession'

By CNN Business' Alicia Wallace

Federal Reserve Board Chairman Jerome Powell speaks during a news conference in Washington, DC, on July 27.
Federal Reserve Board Chairman Jerome Powell speaks during a news conference in Washington, DC, on July 27. (Mandel Ngan/AFP/Getty Images)

Federal Reserve Chairman Jerome Powell said the path to avoid a recession may have narrowed, but he doesn't believe the US is currently in the throes of one.

"I don't think the US is currently in a recession, and the reason is there are too many areas of the economy that are performing too well and, of course, I'd point to the labor market in particular," he said.

The unemployment rate, at 3.6%, remains near a a 50-year low, and metrics such as hiring and wage growth remain strong, he added.

"It doesn't make sense that the economy would be in a recession with this kind of thing happening," he added.

The US economy is slowing, however — contracting by 1.6% during the first quarter of the year — and come tomorrow, the Bureau of Economic Analysis will give its first of three reads on the second-quarter GDP performance. Although a recession is commonly defined as two consecutive quarters of GDP declines, it's not a hard-and-fast rule (especially for the National Bureau of Economic Research, the official arbiter of recessions).

Noting that GDP reports come with revisions — two of them per quarter — Powell said he will keep an eye on the data, but that it might not shift his assessment.

  

2:55 p.m. ET, July 27, 2022

Fed hikes rates 0.75 percentage points

From CNN Business' Alicia Wallace

Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve Board building in Washington, Wednesday, July 27.
Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve Board building in Washington, Wednesday, July 27. (Manuel Balce Ceneta/AP)

The Federal Reserve hiked interest rates for the fourth time in a row on Wednesday, and it made some history in the process: a second consecutive increase of 75 basis points.

In its policy statement issued immediately following the meeting, the Fed noted some parts of the economy are starting to slow — and that "recent indicators of spending and production have softened."

That's a considerable shift from the top line of the policy statement released after the June meeting that read, "Overall economic activity appears to have picked up after edging down in the first quarter."

That being said, much else remains the same: Job gains continue to be "robust," the unemployment rate remains low, inflation is persisting at elevated levels, and the Russia-Ukraine war is still causing "tremendous human and economic hardship" as well as economic upheaval.

12:58 p.m. ET, July 27, 2022

This market expert is bearish on Meta/Facebook

From CNN Business' Paul R. La Monica

(Adobe Stock)
(Adobe Stock)

Tech earnings so far have been decent, if not spectacular. The big rallies for Google owner Alphabet (GOOGL) and Microsoft (MSFT) Wednesday following their latest results are a sign that Wall Street is breathing a sigh of relief.

"The market was fearing even worse earnings than what we're actually seeing," said Danielle Shay, vice president of options for Simpler Trading, to CNN's Alison Kosik on the Markets Now show Wednesday.

Will the same thing happen when Facebook parent Meta Platforms (META) reports after the closing bell later today? Shay isn't betting on a big bounce.

"There's more pain to come. The longer-term trend is down," Shay said

Shay thinks that even though Meta shares are down 50% this year, it could still be worth shorting, i.e. making a bet that the stock will fall further.

Why? She's not impressed by CEO Mark Zuckerberg's pivot to the metaverse. The Instagram and WhatsApp owner is increasingly focusing on virtual worlds over its core social networking business, which has struggled to generate strong user growth lately.

"They spent way too much money on the metaverse. It's a giant cash burn," Shay said, adding that Meta's biggest problem now is that "younger people are dropping off of Facebook left and right."

12:36 p.m. ET, July 27, 2022

Another big rate hike is coming, but what will the Fed do next?

From CNN Business' Paul R. La Monica

 A view of the Marriner S. Eccles Federal Reserve building on July 26 in Washington, DC. 
 A view of the Marriner S. Eccles Federal Reserve building on July 26 in Washington, DC.  (Anna Moneymaker/Getty Images)

The Federal Reserve is almost certain to raise interest rates again when it meets Wednesday afternoon — probably by three-quarters of a percentage point for the second straight meeting.

But all bets are off after that. One Wall Street strategist thinks that smaller rate hikes are likely later this year, and that the Fed may even be ready to hit pause soon.

"I think we've seen the brunt of big moves in interest rates," Rick Rieder, chief investment officer of global fixed income for BlackRock (BLK), told Alison Kosik on CNN's "Markets Now" Wednesday. "The economy is starting to slow significantly."

That may be true. But inflation is still a major problem, and as long as that remains the case, the Fed may need to keep aggressively raising rates.

Danielle DiMartino Booth, CEO and chief strategist with Quill Intelligence, told Kosik that she thinks any expectation that the Fed will pull back on its pace of rate hikes is "misguided."

"Powell will channel his inner Paul Volcker," DiMartino Booth said, referring to how the former Fed chair, who led the central bank in the late 1970s, needed to raise rates sharply to fight rampant inflation. She said Powell still needs to be "resolute" about bringing down prices. 

DiMartino Booth noted that the economy is clearly softening and that investors shouldn't get caught up in the semantics debate about whether we're in a recession — no matter what the second-quarter gross domestic product numbers show Thursday. She added that recent weakness in housing data is a sign of a slowdown.

11:43 a.m. ET, July 27, 2022

'Not a recession' when US is creating this many jobs, says former IMF Chief Economist 

From CNN's Kate Trafecante

People attend the Mega Job Fair held at the FLA Live Arena on June 23 in Sunrise, Florida.
People attend the Mega Job Fair held at the FLA Live Arena on June 23 in Sunrise, Florida. (Joe Raedle/Getty Images)

Former IMF Chief Economist Ken Rogoff said on Wednesday that while two quarters of negative economic growth is a technical recession, it’s not what economists would call a real recession. 

Calling this week’s second quarter GDP report a “big political number,” Rogoff told CNN’s Christine Romans on Early Start that the current downturn "is not a recession when the economy is creating almost 400,000 jobs a month, it is not anything that looks like a normal recession” adding that while "we may get there," this moment is not what economists will adjudicate later as a recession." 

Rogoff also said it was unusual for the Federal Reserve to raise interest rates “this much, this fast,” noting it proves the central bank believes “they got behind the curve, and they are trying to catch up to bring down inflation.” 

Rogoff also said the Fed would likely raise rates enough to cause a “mild recession,” but would pull back quickly after. 

“I don't think that they will be willing after the pandemic and when the financial crisis still has people suffering from that, I don't think that they will be prepared to throw the economy into a steep recession,” Rogoff said. “I think that they will really try to avoid that even if they say their priority is inflation.”