Live updates: Stocks rise as Fed announces historic rate hike | CNN Business (2024)

Federal Reserve Board ChairmanJeromePowellarriving at the news conference earlier today in Washington, DC.

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 hadWall 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 circ*mstances 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.

Traders work on the floor of the New York Stock Exchange on Wednesday, July 27.

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.

Jerome Powell during a news conference in Washington, DC, on July 27.

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.

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.”

See Also

Live updates: Stocks rise after the Fed takes historic action on inflation | CNN BusinessLive updates: Stocks surge after Fed rate hike | CNN BusinessLive updates: How the markets are reacting on the news of the latest coronavirus variant | CNN BusinessToday’s market moves and business news | CNN Business

A recruiter helps people looking for work during the Mega Job Fair held at the FLA Live Arena on June 23 in Sunrise, Florida.

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.”

Federal Reserve Board Chairman Jerome Powell speaks during a news conference in Washington, DC, on July 27.

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.

Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve Board building in Washington, Wednesday, July 27.

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.

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.”

A view of the Marriner S. Eccles Federal Reserve building on July 26 in Washington, DC.

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 strategistwith 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.

People attend the Mega Job Fair held at the FLA Live Arena on June 23 in Sunrise, Florida.

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.”

See Also

Live updates: Stocks roar back after plunging at the opening bell | CNN Business

Customers wait in line at a Chipotle Mexican Grill in June 2021 in Houston, Texas.

The cost of just about everything in your favorite burritos from Chipotle is going up. Avocados. Protein. Cheese. Tortillas. Not to mention packaging. And wages for employees. Inflation is not going away…and Chipotle is planning to raise its menu prices once more as a result.

Chipotle (CMG) said during its earnings conference call with analysts Tuesday that prices will go up about 4%. Chief financial officer John Hartung said the increases are being done “to help offset incremental inflation pressures.” And these hikes are on top of earlier price increases to deal with higher commodity and labor costs.

Higher prices for menu items and inflation worries aren’t hurting Chipotle so far though. The company reported that overall revenue for the second quarter was up 17% and that same-store sales, which measure the performance of locations open at least a year, rose more than 10%.

Earnings topped forecasts too, helping to push Chipotle’s stock up nearly 15% Wednesday.

“We are pleased with our second quarter performance during a period of inflation and consumer uncertainty,” said Chipotle CEO Brian Niccol during the conference call, adding that “our pricing power is strong and the brand is resilient.”

Subscription music streaming and podcasting giant Spotify posted a quarterly loss Wednesday. And CEO Daniel Ek said during a conference call with analysts that he sees a “very dire macro environment.”

But shares of Spotify (SPOT) soared nearly 15% in early trading as the company also posted better-than-expected revenue, solid subscriber growth and a healthy outlook for monthly active users.

Ek also said during the call that despite worries about the economy, advertisers are continuing to flock to Spotify. Ad sales rose 31% in the quarter. Ek expects that strength to continue.

“Recession or not, my confidence in our business and the unique Spotify machine that we’re building is really unwavering,” he said.

US stocks were higher on Wednesday morning ahead of the Federal Reserve’s latest interest rate decision, scheduled for 2 pm ET today. Investors widely expect the central bank to raise interest rates by three-quarters of a percentage point to curb rampant inflation.

Alphabet and Microsoft shares both rose in early morning trading despite their quarterly reports falling below expectations.

The Dow gained 182 points, or 0.6%, on Wednesday.

The S&P 500 grew 0.9%.

The Nasdaq Composite gained 1.4%.

Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System, testifies before the House Committee on Financial Services on June 23 in Washington, DC.

1) The first is whether these aggressive rate hikes will work to tame inflation. At some point they should but the question is when and how much higher rates will have to go. Fed Chairman Jerome Powell, who has been criticized for being late to the inflation fight, will face questions at the 2:30 pm ET press conference about whether to slow the pace of hikes in coming meetings.

2) The other mystery is whether the Fed will accidentally slow the economy into recession. No one, not even Powell, knows the answer to that.

Homes in a Los Angeles, California neighborhood on July 5.

If the Fed hikes by three-quarters of a point, the high end of the Fed’s target range would be 2.5%. That would match the peak of the last rate hiking cycle, which ended in December 2018.

But that’s less than half as high as the peak during the rate hiking cycle that ended in 2006.

Still, what’s different this time is how rapidly rates have gone up and how this is happening after years of dirt-cheap borrowing costs.

What does this mean for real people? Aggressive rate hikes mean borrowing costs are going up, swiftly. Credit cards, car loans, appliance financing and of course mortgages. Mortgage rates have basically doubled over the past year. Families are not only dealing with sticker shock on their purchases, but they are being squeezed by higher financing costs too. But that’s what the Fed wants: Cool off red-hot demand to give supply a chance to catch up and ease prices.

Yes.

As of this morning, the markets are pricing in a 26% chance the Fed raises interest rates by a full percentage point for the first time in the modern era, according to the CME FedWatch Tool.

Although this was viewed as a real possibility in the hours after the brutal June inflation report, the odds have been slipping because inflation expectations have showed signs of easing. The markets are pricing in a 74% chance of a three-quarters point rate hike and zero chance of something smaller or no hike at all.

A traders works on the floor of the New York Stock Exchange on July 25 in New York City.

It’s a slam dunk that the Federal Reserve will jack up interest rates today to try to get inflation under control. The only question is by how much and whether it will hint at less aggressive moves at the next meeting in September.

For the second meeting in a row, the Fed is widely expected to hike interest rates by three-quarters of a percentage point. The Fed hasn’t done anything like that in back-to-back meetings in the modern Fed era (at least not since the central bank introduced explicit targets for rates in the late 1980s under Alan Greenspan).

Prior to the June meeting, the Fed hadn’t raised rates by three-quarters of a point in a single meeting since 1994.

Credit Suisse has named asset management boss Ulrich Koerner as its new CEO, who is tasked with scaling back investment banking and cutting more than $1 billion in costs to help the bank recover from a string of scandals and losses.

The Swiss bank has dubbed 2022 a “transition” year with a change of guard, restructuring aimed at curtailing risk-taking in investment banking, and bulking up of wealth management, while batting away speculation that it could be acquired or broken up.

A new strategic review announced on Wednesday, the bank’s second in less than a year, will evaluate options for its securitized products business to attract third-party capital, while reaffirming its commitment to asset management.

Koerner, 59, is considered a restructuring expert in Switzerland and will succeed CEO Thomas Gottstein on Aug. 1.

Read more

Cathie Wood, chief executive officer and chief investment officer, Ark Invest, speaks during the Milken Institute Global Conference on May 2, 2022 in Beverly Hills, California.

Cryptocurrency brokerage firm Coinbase (COIN) has had a miserable year. Now one of its biggest fans appears to be losing faith.

Tech/momentum stock guru Cathie Wood’s Ark Invest disclosed in its daily holdings data that three Ark ETFs — including its flagship Ark Innovation ETF (ARKK) — collectively sold more than 1.4 million Coinbase shares on Tuesday.

Ark didn’t share its reasoning, but Coinbase stock has plunged nearly 80% in 2022 as the prices of bitcoin, ethereum and other digital assets have plummeted. (Tesla (TSLA) even recently sold some of its bitcoin holdings!)

Coinbase shares fell more than 20% alone Tuesday. That was after a Bloomberg report said the Securities and Exchange Commission is investigating crypto listings at the company.

The SEC claims Coinbase is illegally letting customers trade securities. Coinbase’s chief legal officer has denied this, writing in a recent blog post that the company “does not list securities on its platform. Period.”

Coinbase shares appeared set to rebound slightly Wednesday as bitcoin prices stabilized. But if all the regulatory hot water and crashing cryptos weren’t enough to deal with, the SEC also recently charged a former Coinbase product manager with insider trading.

It makes you wonder if Coinbase would’ve been better off using the money it spent on that bizarre (albeit buzzy) 60-second bouncing QR code Super Bowl ad for its legal bills instead.

Wall Street has a serious case of recession dread.

Inflation is at a 40-year highand the Federal Reserve is aggressively hiking interest rates. Economic growth is slowing and, andso is the job market. Cracks are forming in thehome-building and home-buying marketsas mortgage rates have surged. Consumer sentiment has plunged. No wonder stocks are in bear territory.

Alongside the slow, steady drip of sour economic data, investors have fallen into a foul mood. CNN Business’Fear & Greed indexhas been stuck in “Fear” territory for months. But theanticipationof pain is often worse than reality, and the stock market is hoping someone will just rip the Band-Aid off, and declare a recession already.

The longer we talk about a recession,the more likely it is that the economy will continue to ache, said Ritholtz Wealth CEO Josh Brown. Recession fears themselves lead to more pullback. Consumer and investor psychology impacts the economy and we can “talk ourselves into a recession,” he wrote in a note.

Read more

US stock futures rose ahead of a consequential decision by the Federal Reserve.

Investors expect the Fed to raise rate by three quarters of a percentage point in its effort to tame inflation. Markets have cleaved to every word Fed Chair Jerome Powell has said in previous statements and press conferences, and there’s a strong chance markets could rise or fall sharply this afternoon.

Dow futures were up 170 points, or 0.5%.

S&P 500 futures rose 1%.

Nasdaq futures were 1.6% higher.

US oil rose 0.8% to $96 a barrel. Average US gas prices fell to $4.30 a gallon.

Investors are uneasy as the Federal Reserve gears up for its latest policy announcement on Wednesday. But their hope is that the central bank and Chair Jerome Powell will keep talking tough, providing a dose of clarity on the path forward at an uncertain moment.

What’s happening: The Fed is expected to hike interest rates by three-quarters of a percentage point as it continues with its ambitious campaign to bring down inflation, which hit a 40-year high in June. There had been some speculation that the Fed could raise rates by a full percentage point for the first time in its modern history, but that now looks less likely.

Even the more conservative option would have major ripple effects.

“That would be unprecedented that we’ve gone with that large a move in two consecutive meetings,” St. Louis Federal Reserve President Jim Bullard said in an interview earlier this month.

And to Wall Street, that’s a good thing. Investors concede that the Fed has a difficult task at hand as it tries to control inflation without raising borrowing costs so aggressively that it tips the US economy into a recession.

But for now, they’d rather the Fed indicate that it plans to stay tough than see it adopt a more accommodating stance. In unstable times, the argument goes, consistency is key.

What seemed unfathomable just six months ago – a 75-basis-point rate hike by the Federal Reserve – could now happen twice in a row as the central bank moves to strike down broad and persistent inflation across the US economy.

Over the last three decades, the Fed has nudged its benchmark interest rate up or down by an average of 25 basis points, preferring to steer the economy at low speed. But surging inflation compelled the central bank last month to implement a rate hike of three times that size, marking the first time since 1994 that the Fed has rolled out a 75-basis point increase.

Wednesday’s rate hike of 75 bps would represent the first time in modern Fed history that the central bank has raised interest rates by this level twice in a row.

The FOMC policy announcement, aka Fed rate hike, will be announced at 2 p.m. ET.