By CNN Business
Updated 5:39 PM EST, Wed December 15, 2021
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The Federal Reserve signals rate hikes in 2022
03:32 - Source: CNNBusiness
What we covered here
- US stocks closed higher after the Federal Reserve said it will speed up the tapering of its bond purchases and potentially raise interest rates three times in 2022 to fight inflation.
- It appears investors are happy that Fed Chair Jerome Powell is no longer using “transitory” to describe higher prices, another signal that the central bank is taking inflation seriously.
- Policymakers have to walk a tightrope: Inflation is lasting longer than expected, but rising Covid infections mean ripping the Band-Aid too quickly could sting, sending the economy south.
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Stocks pop following the Fed announcement
From CNN Business' Paul R. La MonicaUS stocks posted solid gains Wednesday after the Federal Reserve announced plans to speed up the tapering of its bond purchases and potentially raise interest rates three times next year to fight inflation.
- The Dow added 1.1%, or more than 380 points.
- The S&P 500 gained 1.6%.
- The Nasdaq Composite rose 2.2%.
As stocks settle after the trading day, levels might still change slightly.
Investors really liked what Jerome Powell had to say
From CNN Business' Paul R, La MonicaSo much for Jerome Powell tanking the stock market. Investors seemed pleased (to put it mildly) with the Federal Reserve chair’s performance during a press conference after the Fed indicated that it is getting ready to eventually raise interest rates.
The Dow was up more than 350 points, or 1%, in the last half hour of trading. The S&P 500 and Nasdaq were up 1.3% and 1.7% respectively.
There had been some concerns on Wall Street that traders would panic if Powell suggested the Fed was speeding up plans to slow its bond purchases and hike interest rates.
Instead, it appears that the market is happy that Powell is no longer using “transitory” to describe higher prices. It is a sign that the Fed is taking inflation seriously.
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said in a report that “rising inflation pressures are now seen as a greater priority than the Fed’s employment goals.”
Mike Loewengart, managing director of investment strategy for E-Trade, added that “we’re actually seeing a market cheering the Fed’s vote of confidence in the economy, as opposed to running higher on stimulus, which it’s been doing for the past year and a half.”
Powell: The Fed's decision to wind down stimulus had nothing to do with my renomination
From CNN Business' David GoldmanConspiracy theorists believe Fed Chair Jerome Powell shifted his stance on inflation to persuade President Joe Biden to renominate him for the top central bank job.
Not so, says Powell.
He made up his mind when the got a super-high inflation report, 10 days before Biden announced his nomination, he said.
“Honestly, it had nothing to do with that at all,” Powell said. “I just thought this is something we’ve got to do. My colleagues were out talking about a faster taper and that doesn’t happen by accident. They were out talking about a faster taper before the President made his decision. … We’re always just going to do what we think is the right thing and I certainly will always just do what I think the right thing is for the economy and for the people that we serve.”
Powell: The Fed isn't behind the inflation 8-ball
From CNN Business' David GoldmanThe Fed isn’t behind the curve in its attempt to get inflation under control, Fed Chair Jerome Powell said.
He thinks the Fed is reacting at the right time – even as Wall Street has been sounding the inflation alarm bell all year.
“I actually think we are well-positioned to deal with what’s coming, with the range of plausible outcomes that can come,” Powell said. “I think that the data that we got toward the end of the fall was a really strong signal that inflation is more persistent and higher, and that the risk of it remaining higher for longer has grown, and I think we’re reacting to that now and will continue to adapt our policy. So I wouldn’t look at it that we’re behind the curve. I would look at it that we’re actually in position now to take the steps that we’ll need to take, in a thoughtful manner, to address all of the issues including that of too-high inflation.”
Powell: Inflation isn't out of control ... yet
From CNN Business' David GoldmanFed Chair Jerome Powell doesn’t think inflation is beyond the Fed’s control. But the central bank is keeping its eye on a couple key indicators: paychecks and rent.
When paychecks rise faster than workers’ productivity, businesses can start to raise prices, creating a vicious cycle. Rents can go up, too, as landlords try to keep pace with rising costs. That’s not happening … at least not yet.
“Wages are not a big part of the high inflation story that we’re seeing,” Powell said. “That can lead to persistent inflation. … If you had something where real wages were persistently above productivity growth that puts upward pressure on firms and they raise prices. It would take something that was persistent and material for that to happen and we don’t see that yet.”
Instead, Powell said consumer costs and supply chain issues are the primary drivers of inflation. That’s why the Fed continues to believe inflation will remain a short-term problem.
Powell: Here's the moment I got worried about inflation
From CNN Business' David GoldmanFed Chair Jerome Powell wasn’t always concerned about inflation. He had called it “transitory,” a word the Fed has since retired because it was getting conflated with “temporary.”
But Powell admitted today that he had, in fact, believed that inflation would be a temporary problem – and that hasn’t been borne out.
He detailed how he started to see surprisingly and stubbornly high inflation in the fall and began to consider that the Fed’s dovish inflation policy was misplaced.
“In September – I’d say after Labor Day – it started to become clear that this was both larger in its effect on inflation and more persistent,” Powell said. “We got the ECI [Employment Cost Index] reading on the eve of the November meeting. It was the Friday before the November meeting and it was very high. … Two days after the meeting we got a very strong employment report, and revisions to prior readings and no increase in labor supply and the Friday after that we got the CPI [Consumer Price Index] which was a very high reading. And I honestly at that point really decided I thought we needed to look at speeding up the taper.”
Powell: Omicron didn't factor into our thinking on winding down stimulus
From CNN Business' David GoldmanFed Chair Jerome Powell is worried about the Omicron variant. But not so much that he and the rest of the central bankers believe a course-correction was necessary in its decision to wind down emergency stimulus.
“I do think [with] wave upon wave people are learning to live with this,” Powell said. “More and more people are getting vaccinated so people who get the new variant, it affects them much less than it tends to effect in the aggregate people who are not vaccinated…So it can have an economic effect. I just think at this point we don’t know much. We’ll know a whole lot more in 3 weeks and we’ll know more than that in 6 weeks.”
Given the uncertainty around Omicron, the Fed believed it was appropriate to accelerate its pandemic-era stimulus wind down to fight inflation.
“if you look at the state of the economy and the strength of overall demand, the strength of demand for labor … I think moving forward at the end of our taper by a few months is really an appropriate thing to do and I think really omicron doesn’t really have much to do with that,” Powell said.
Powell: The labor shortage is real and stubbornly high
From CNN Business' David GoldmanFed Chair Jerome Powell was glowing today in his praise for the job market. Well, except for one part: the labor shortage.
Despite 4.2% unemployment – a rate that has plunged over the past several months – job openings remain stubbornly high, and America still has millions of out-of-work people sitting on the sidelines.
“We don’t have a strong labor force participation recovery yet, and we may not have it for some time,” Powell said.
Powell blamed a number of factors, including concerns about rising Covid infections and early retirements. Still, he defended the Fed’s decision to speed up its winddown of emergency stimulus to fight inflation – even though that might hinder job growth.
“We have to make policy now, and inflation is well above target,” he said.
Powell: The job market is getting better fast
From CNN Business' David Goldman“Jobs” was Fed Chair Jerome Powell’s defense of the central bank’s decision to wind down its purchases and (probably) start raising rates next year.
“We are making rapid progress toward maximum employment,” he said.
Powell said the economy is back on track, and inflation poses a much more serious threat than potentially slowing the economic progress America has made since the beginning of the pandemic.
“The economy is so much stronger now, so much closer to full employment,” Powell said. “Inflation is running well above target and growth is well above potential.”
So, Powell said, the Fed doesn’t expect a big delay between tapering its asset purchases and raising rates. But he noted the timing of rate hikes isn’t something the Fed has focused on yet.
Stocks pop after Fed signals rate hikes in 2022
From CNN Business' Paul R. La MonicaThe US Federal Reserve on December 12, 2021 in Washington DC.
It seems that investors don’t fear the taper…or eventual rate hikes for that matter. Stocks rose Wednesday afternoon after the Federal Reserve announced it was increasing the reduction of its bond purchases, or so-called tapering, to $30 billion a month and also suggested that there could be as many as three interest rate increases next year.
The Dow, which was down slightly just before the Fed’s 2 pm ET announcement, was up about 130 points, or 0.2%, to near its highest levels of the day in the first few minutes after the central bank’s statement and new economic projections were released.
The S&P 500 and Nasdaq also spiked following the Fed news. The pivot to a more hawkish stance was widely expected, as Fed chair Jerome Powell has indicated that it will do what is necessary to fight inflation. Stocks likely will remain volatile for the rest of the day though, as investors get set to look for more from Powell when he holds a press conference.
The Federal Reserve signals multiple rate hikes are coming in 2022 as it moves to fight inflation
From CNN Business' Anneken TappeThe Federal Reserve will wrap up its pandemic-era stimulus program faster and expects to raise interest rates more in 2022 than projected in September.
The central bank, which first announced in November that it was ‘tapering’ its monthly asset purchases, said Wednesday that it will do so at a faster pace.
Starting in January, the Fed will buy $20 billion worth of Treasury securities less and $10 billion worth of mortgage-backed securities less. That leaves the monthly shopping list at $40 billion for Treasury securities and $20 billion for mortgage-backed securities.
This is consistent with what Federal Reserve Chairman Jerome Powell told Congress in late November.
The December policy meeting also included a summary of economic projections, the so-called “dot plot.”
Fed officials now predict the central bank’s benchmark interest rate to rise to 0.9% in 2022, up from the 0.3% expectation from September, signaling additional interest hikes.
Market expectations for an interest rate increase are picking up in May next year, according to theCME FedWatch tool.
Everything but tech is sitting on the edge waiting for Powell
From CNN Business' David GoldmanFederal Reserve Chairman Jerome Powell speaks during a Senate Banking Committee hearing on Capitol Hill in Washington, Tuesday, Nov. 30, 2021.
Tech investors aren’t waiting around for Powell to tell us what we already know: The Fed is about to get serious about inflation.
Yet the rest of the market is waiting with bated breath.
The Dow is flat. The S&P 500 is down just 0.2%. The Nasdaq is down a little less than 1%.
Investors pretty much know what Fed Chair Jerome Powell is about to say: The Fed is walking a tightrope, trying to balance an economic recovery in peril with surging prices. Rising Covid cases aren’t helping. Neither is the supply chain crisis or a labor shortage.
Yet the Fed believes the economy still has plenty of juice left to squeeze, and it’s hinted very strongly that it will speed up its wind-down of pandemic-era emergency stimulus.
That’s not such great news for tech companies, which have relied on surging earnings growth to justify sky-high valuations. Higher rates could eat into profit, making value stocks more attractive.
'It's a crazy, crazy, momentous Fed day'
From CNN Business' Anneken TappeWe’re just about an hour away from the Federal Reserve’s monetary policy update, and investors are anxiously awaiting the announcement.
“It’s a crazy, crazy, momentous Fed day,” said Quill Intelligence’s Danielle DiMartino Booth on the CNN Business digital live show Markets Now.
“I’m certain we will get an accelerated taper,” she told CNN’s Alison Kosik on the show.
But today will be about more than just how much the Fed will accelerate ending its pandemic-era stimulus program.
“I would pay very close attention to that dot plot,” DiMartino Booth said, referring to the Fed’s consensus forecast that sheds light on details like interest rate expectations. “We’ll see how many [Fed officials] will say that there will be three rate hikes in 2022.”
Stocks knocked lower
From CNN Business' Anneken TappeLess than half an hour into the trading day, US stocks have taken a bit of a dive.
- The Dow is down 0.4%, or 137 points.
- The S&P 500 dipped 0.3%.
- The Nasdaq Composite traded 0.6% lower.
Investors are looking ahead to this afternoon’s Federal Reserve meeting, where Chairman Jerome Powell is expected to announce that the central bank will step up the pace to wrap up its pandemic stimulus program.
Stocks open flat
From CNN Business' Anneken TappeIt’s a quiet morning on Wall Street ahead of the afternoon’s Federal Reserve policy update. The central bank is expected to announce that it will roll back its pandemic stimulus at a faster pace.
The Dow, the S&P 500 and the Nasdaq Composite all opened flat.
New York Fed manufacturing index soars in December
From CNN Business' Anneken TappeEven though retail sales missed expectations, some data this morning was better than expected: The New York Federal Reserve’s manufacturing index came in a lot stronger than economists had predicted.
At 31.9, the index beat the expected 25 – as well as the prior month’s level of 30.9.
New orders and shipments increased, but companies also had more unfilled orders.
As the supply chain crisis drags on, delivery times continues to lengthen though at a slower pace than in November.
Employment also increased and the workweek lengthened.
Price indexes, meanwhile, declined a bit but remained their record highs, according to the New York Fed’s survey.
Bad sign for housing? Lowe's outlook underwhelms
From CNN Business' Paul R. La MonicaA robust housing market has continued to prop up America’s economy. But are consumers finally tapped out? Home improvement retailer Lowe’s (LOW) issued revenue and earnings per share guidance for 2022 that was below analysts’ forecasts.
Lowe’s said that same-store sales, which measure the performance of locations open at least a year, are expected to be flat to down 3% next year. Wall Street had been expecting an increase of 2.1% according to Refinitiv.
Shares of Lowe’s tumbled 2% in early trading Wednesday. Rival Home Depot (HD) fell more than 1%. Both stocks have surged in 2021 thanks to the housing boom and strong retail spending. Lowe’s shares have soared nearly 60% this year while Home Depot’s are up more than 50%. That makes Home Depot the best performing stock in the Dow.
Still, there are growing concerns that consumers may be tapped out. The US government also reported Wednesday that retail sales for November grew at a much slower rate than economists had predicted. That is doubly bad for Lowe’s and Home Depot since their success is highly dependent on healthy overall demand for retail and a vibrant housing market.
Retail sales: Holiday shopping gets off to a sluggish start
From CNN Business' Anneken Tappe and Nathaniel MeyersohnPeople shop in The Galleria mall during Black Friday on November 26, 2021 in Houston, Texas.
US retail sales grew by 0.3% in November, a sharp decline from the previous month and less than economists had predicted.
Even so, sales were 16.1% higher than in the same period last year.
Americans have been struggling with rising prices this year, but economists and retail sector experts still believe that the holiday shopping season will be strong.
The Fed's huge challenge: Taming inflation, without starting a recession
From CNN Business' Matt EganPresident Joe Biden is taking the political punches for high inflation. But price stability is the responsibility of the Federal Reserve, not the White House. And prices are anything but stable right now.
Consumer pricesspiked in November at thefastest pace since 1982.Producer pricessoared by nearly 10%, suggesting inflationary pressures are not subsiding anytime soon.
The good news is that theFederal Reserve knows how to fight inflation: By tapping the brakes on the economy. The bad news is the harder it hits the brakes, the greater the risk of an accident that ends the economic recovery, freaks out financial markets – or both.
Stocks steady ahead of the Fed's big day
From CNN Business' David GoldmanUS stock futures were mostly unchanged Wednesday morning as investors await the results of the Fed’s final meeting of 2021.
Wall Street expects the Fed to leave rates near zero – but believes the Fed will say it is prepared to speed up the winddown of its asset purchases that it had built up during its emergency stimulus program. But rising Covid cases make the Fed’s tightrope walk even more precarious.
Today's Fed meeting will be crucial as inflation soars
From CNN Business' Matt EganAt 2 pm ET today, the Fed is scheduled to release its new policy statement.
The central bank is expected to:
1) acknowledge worsening inflationary pressures
2) speed up the demise of its bond-buying stimulus program
3) ramp up its inflation projections for at least 2022
4) acknowledge recent strength in the jobs market.
During the 2:30 pm ET press conference, Powell will need to reassure the public that the Fed is serious about taming inflation. But Powell will also need to reassure investors that the Fed won’t overdo it and sink the US economy. Not an easy task ahead for Powell.
Retiring Boomers, not lazy Millennials, are driving the labor shortage
From CNN Business' Allison Morrow and Anneken TappeOne of the more insidious myths this year was that young people didn’t want to work because they were getting by just fine on government aid. People hadtoomuch money,went the narrative.
Only trouble is, the numbers don’t back it up.
Instead, early retirement — whether forced by the pandemic or made possible otherwise — is playing a big role in America’s evolving labor market.
People have left the workforce for myriad reasons in the past two years — layoffs, health insecurity, child care needs, and any number of personal issues that arose from the disruption caused by the pandemic. But among those who have left and are not able to – or don’t want – to return,the vast majority are older Americans who accelerated their retirement.
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