US stocks finished higher on Wednesday, after the Federal Reserve left interest rates unchanged and said it didn’t expect to raise interest rates this year. Fed Chairman Jerome Powell said the central bank expects any increases in inflation over the summer months to be temporary — and not concerning for its monetary policy at the moment.
Meanwhile, the Fed also upgraded its consensus outlook with expectations for higher economic growth and lower unemployment.
Stocks jumped in response, and the Dow closed at a new all-time high and above 33,000 points for the first time ever. The index closed up 0.6%, or 189 points.
The S&P 500 also rose to a new record high, finishing up 0.3%.
The Nasdaq Composite closed up 0.4%.
Before the pandemic, the Federal Reserve was focused on whether interest rates were too low. Have its views changed?
“We’re committed to giving the economy the support it needs, as quickly as possible, until it returns to maximum employment and price stability,” said Fed chair Jerome Powell.
“To the extent that raises other questions, we think it’s absolutely essential to maintain the strength and stability of the financial system,” he added.
He pointed to the longest economic expansion in US history, which lasted 10 years and eight months until the pandemic cut it short. Rates remained at zero for 7 of those years, and they never went above 2.4% during the period of expansion.
“During that time the US didn’t see excess build-up of debt or a housing bubble,” he said. “That doesn’t mean we are ignoring these possibilities.”
One reason for the expansion was the low-rate environment, he said. While he acknowledged there is “a connection between low rates and financial instability,” he noted that “it’s not quite so clear.”
Asked whether the Fed is planning to extend restrictions on share repurchases into the second quarter, Fed Chairman Jerome Powell didn’t have much to share.
“We haven’t made a decision,” he said, adding that it will be several weeks before any plans are announced and “I won’t foreshadow that here today.”
Banks increased their level of capital and reserves throughout 2020, he noted, and the December stress test showed banks are in a strong position. The Fed is currently in the middle of its 2021 stress test, Powell added.
The Fed offered a rosy outlook about jobs: A return to an unemployment rate below 4% next year and 3.5% in 2023. That’s back to “full employment” and at the historic lows we saw before the pandemic. (We’re at 6.2% now.)
But…
The unemployment rate doesn’t tell the full story, and Federal Reserve Chairman Jerome Powell said the Fed isn’t going to declare victory just yet.
“No matter how well the economy performs, unemployment will take quite a time to go down, and so will participation,” Powell said.
In particular, Powell lamented the rapid rise in unemployment among minority populations, noting they need extra support from the government and policymakers to help return them to the historically low unemployment they enjoyed before the pandemic.
“Not yet,” said Federal Reserve Chairman Jerome Powell.
And boom goes the dynamite.
Stocks surged after Powell said at his press conference that it’s “not yet” time for the Fed to wind down its bond purchases that have been supporting the bond market, keeping yields lower, debt cheaper and corporate profits higher. That cycle, which has been in place for a year, has sent the stock market on its current record tear.
The Dow was up 200 points, or 0.6%. The S&P 500 rose 0.3% and the Nasdaq, which had been down moments earlier, zoomed into the green – up 0.4%.
Bond investors can breathe a sigh of relief … for now.
The Fed has been supporting the bond market by purchasing hundreds of billions of dollars of Treasuries. With the Fed anticipating much stronger-than-expected economic growth thanks to stimulus, vaccines and other factors, some on Wall Street wonder whether the Fed would start winding down those purchases.
“Is it time to start talking about talking about tapering?” Reuters’ Howard Schneider asked Federal Reserve Chairman Jerome Powell at his press conference.
“Not yet,” Powell said to a chuckle. “We’ve said that we would continue asset purchases at this pace until we see substantial further progress. And that’s actual progress, not forecast progress.”
Doing his best impression of a broken record, Federal Reserve Chairman Jerome Powell said inflation will tick up because of the $1.9 trillion stimulus bill … but don’t fret: This ain’t the 1970s, when runaway inflation led to an economic crisis.
Powell noted, “The economy is a long way from our employment and inflation goals.” So the Fed isn’t taking its foot off the gas just yet.
Here’s what $1.9 trillion of stimulus can do for you: The Fed now expects the US economy to grow 6.5% this year, up from its previous forecast of 4.2%.
Some of that growth is an organic return to form as hundreds of millions of Americans get vaccinated and people begin to return to normal life. But the sugar rush from stimulus will juice the economy way more than initially forecast – just what Fed Chair Jerome Powell had long been asking Congress for.
One key number from the Fed’s policy statement today that investors will be staring at for a while: 2.4%.
That’s the 2021 inflation expectation, up from the Fed’s previous forecast of 1.8%. To say investors have grown concerned about inflation is an understatement. It has become the top concern on Wall Street, according to a Bank of America survey. Yup, more than Covid.
But the Fed doesn’t seem too concerned about inflation today — and neither does Wall Street, for the moment. The price spike could be temporary, a one-off blip from the government handing out free money to 85% of Americans.
Although the Fed anticipated the US economy would make “substantial further progress” by the end of the year, it said nothing about tapering its government bond purchases, which have been propping up the Treasury market. If the economy gets substantially better by the end of the year, though, the Fed may wind down its bond-buying, potentially sending yields higher and making Wall Street worriers even more concerned.
The Federal Reserve is taking care of investors on Wall Street today, leaving rates unchanged and signaling that a rate hike isn’t coming until at least next year – and very likely not until 2023.
Investors are growing nervous about an overheating economy and the prospect that the Fed will be forced to raise rates sooner than expected to counteract $2 trillion of stimulus. But the Fed said in its policy statement that it will leave rates unchanged, noting the economy still faces many challenges with the ongoing pandemic.
Four Fed officials predicted rates would start to go up next year – seven thought the Fed would wait until 2023.
One reason for concern: The Fed anticipates all that stimulus President Joe Biden just put into action will send prices higher than expected. They forecast inflation of 2.4% this year, up from their previous estimate of 1.8%. That’s slightly above the Fed’s target of 2%, but Fed Chairman Jerome Powell signaled earlier this month that any rise in prices should be temporary.
The market cheered the Fed’s policy decision: The Dow and S&P 500 reversed course and started trading higher – the Dow is up about 200 points, or 0.5% and the S&P 500 rose 0.2%. The Nasdaq was flat.
While Wall Street is worrying about inflation and the Fed, millions of Americans are still out of work due to the pandemic.
Another 700,000 first-time claims for unemployment benefits are expected in tomorrow’s Labor Department report. That would be the lowest number of claims since the pandemic started and a good sign that things are finally, albeit slowly, improving a year after the economy shuttered because of the coronavirus outbreak.
So far, the low point was 711,000 weekly claims in early November.
Continued jobless claims, which count people who have filed for benefits for at least two weeks in a row, are expected at 4.1 million, little changed from the week before.
The Federal Reserve’s monetary policy update is about an hour away. So what is Wall Street looking for from the central bank?
For one, the Fed will put out an updated forecast, known as the dot plot. A lot could be revealed there, including its expectations for more growth and lower unemployment given the recent rounds of fiscal stimulus.
But the real question is how many members of the Fed will predict higher interest rates down the line, said David Kelly, chief global strategist at JPMorgan Asset Management.
“That’s what the market will focus on,” he told Alison Kosik on the CNN Business digital live show Markets Now.
Wall Street is worried about higher inflation over the summer months, which has pushed bond yields higher. The 10-year Treasury bond yield rose to 1.67% – a 13-month high –today.
“We think of these as high bond yields relative to history,” Kelly cautioned.
JPMorgan Chase CEO Jamie Dimon condemned the recent wave of violence against Asians.
In a message to all JPMorgan employees titled “Enough is enough,” Dimon on Wednesday called out the violent and verbal attacks against the Asian and Pacific Islander (API) community since the pandemic began more than a year ago.
“On streets, online and in many Asian-owned small businesses, we are seeing physical assault, verbal harassment and refusal of service,” the JPMorgan boss wrote.
Dimon cited yesterday’s killings of eight people in the metro Atlanta area. Six of the victims were Asian, but authorities have not yet determined a motive.
“These racist acts cannot — and will not — be tolerated,” Dimon wrote. “These events are impacting our colleagues, families, friends and partners in the API community.”
The JPMorgan CEO said the company is reviewing additional steps it can take to support the Asian community, and he urged victims and witnesses to report their concerns.
“Our fight for fair treatment and equity is not for any one group — it’s for all,” Dimon wrote. “We condemn racism in any form and, with fierce determination, stand united to defend equity, diversity and inclusion for all communities.”
With the vaccine rollout underway and hopes high that some degree of normalcy will return over the summer, people are looking to travel again.
Travel business Booking.com (BKNG) is seeing a definite upswing in some parts of the United States, according to the company’s president and CEO Glenn Fogel.
“We’re a very global company and in some parts of the world, Europe particularly, things are not looking as good,” Fogel told Alison Kosik on the CNN Business’ digital live show Markets Now.
While Fogel said travelers should look for vacations for this summer, he also urged people to get vaccinated as quickly as possible.
“I think business travel will remain a smaller share forever,” he added.
Federal Reserve Chairman Jerome Powell is facing a balancing act at this afternoon’s monetary policy update.
The central bank maintains that it isn’t worried about inflation, but Wall Street is driven by the expectations of higher consumer prices and, eventually, higher interest rates.
So what gives?
“I think Powell will look at stocks being near all time highs,” and reiterate that spikes in inflation are expected to be transitory , said Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence, on the CNN Business digital live show Markets Now.
Powell might instead say that higher bond yields are merely reflection of expectations for a recovering economy.
“I think he’s going to nod to the fact that there are natural price pressures,” DiMartino Booth said.
But the last thing Fed officials want to see is a rapid move up in bond yields, she added. And given that the 10-year Treasury bond yield is at a 13-month high, the central bank might be feeling some pressure.
Still, the massive number of Americans still out of work due to the pandemic remains an offsetting force to inflation pressures that the nation might face over the summer, DiMartino Booth said.
The Federal Reserve needs to begin plotting its exit from the Covid era, BlackRock’s Rick Rieder told CNN Business.
In light of projections for blockbuster US growth, Fed officials are expected to release upgraded economic forecasts and accelerated timelines to raise interest rates on Wednesday.
Rieder, BlackRock’s chief investment officer of global fixed income, thinks the Fed could also announce plans to reduce the size of its asset purchases as soon as Wednesday.
“I think they should start tapering the programs soon,” Rieder said in the interview, adding that tapering could begin in September.
The BlackRock exec also expects the Fed to start lifting rock-bottom rates next year, well ahead of the central bank’s most recent guidance for near-zero rates through at least 2023.
Rieder said raising rates “will not hurt the economy” and will actually help savers by helping them earn money that’s sitting in the bank. And unwinding the its emergency programs will also help the Fed keep inflation in check.
“As a central bank, you don’t want to be fighting from behind to try to rein in inflation,” Reider said. “It’s so much more effective to be out in front and lay out the plan.”
Watch:
Bitcoin (XBT) prices have nearly doubled this year to around $55,000. They even briefly topped $60,000 earlier this month.
There has been a lot of breathless coverage about how companies like Tesla (TSLA) and MicroStrategy (MSTR) are buying bitcoin for their balance sheets and Wall Street firms such as BlackRock (BLK) and Bank of New York (BK) starting to embrace cryptos. But commodity strategists at Bank of America are telling investors to not believe the hype.
“Just like in other commodities, supply and demand drive Bitcoin prices,” the BofA strategists noted in a report called “Bitcoin’s dirty little secrets.” They pointed out that this dynamic is even more important in the case of bitcoin because there are a finite number – 21 million to be exact – of coins that can be put into circulation, or mined.
“It is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism,” the BofA strategists wrote. “The main portfolio argument for holding Bitcoin is not diversification, stable returns, or inflation protection, but rather sheer price appreciation, a factor that depends on Bitcoin demand outpacing supply.”
BofA also noted that bitcoin may not be good for the environment. (Others have pointed that out too, particularly with regards to Elon Musk and Tesla’s investment in it.)
That’s because the process of bitcoin mining requires a lot of energy, and many mines are in China, where coal power still is prevalent. BofA said that the bitcoin network currently emits about 60 million tons of carbon dioxide annually – the same as Greece.
Senator Bernie Sanders is taking aim at what he views as corporate greed by taxing companies that pay CEOs dramatically more than workers.
Sanders, the chairman of the Senate Budget Committee, introduced legislation Wednesday that would impose a tax on companies with CEO to median worker ratios above 50 to 1.
The penalty would rise based on the size of the gap.
“At a time of massive income and wealth inequality, the American people are demanding that large, profitable corporations pay their fair share of taxes and treat their employees with the dignity and respect they deserve,” Sanders said in a statement. “That is what this legislation will begin to do.”
The legislation is being co-sponsored by Democratic Senators Elizabeth Warren, Ed Markey and Chris Van Hollen, as well as Congresswomen Barbara Lee and Rashida Tlaib.
The penalties would raise about $150 billion over 10 years, according to the lawmakers.
If the tax had been in effect last year, its backers say major companies including Home Depot (HD), JPMorgan Chase (JPM) and Nike (NKE) would have paid more than $100 million in additional taxes apiece.
Walmart (WMT) alone would have paid an extra $855 million more in taxes, the lawmakers say.
Ford has had about 30,000 previously office-based employees working remotely due to the pandemic — and they’ll be able to continue working from home after the pandemic ends, the company said Wednesday.
Factory workers will continue to come to work in person. But “Ford has decided to transition to a flexible hybrid work model globally for non-place dependent workers,” the company announced in a memo to staff. “Ford employees and their supervisors will be given greater freedom to choose where, when and how work gets done.”
An employee survey that Ford conducted in June found 95% globally said they would prefer to maintain a mix of remote and in-office work when the pandemic ends.
“For most employees this will mean they will continue to do their focused, heads-down work remotely and when they return to a Ford building it will be for a purpose, such as a meeting, workshop, brainstorm or team building activity,” it said.
Ford told CNN Business Wednesday that it will move ahead with plans announced in September 2019 for a new office campus in Dearborn, Michigan. The original plans called for space for up to 20,000 workers.
The company would not comment on whether the new remote work policy will affect the size or cost of that project: “We will always be thoughtful about how we deploy resources from a timing standpoint in order to be fiscally responsible,” Ford said.
Stocks opened mostly lower on Tuesday
The focus Tuesday is on the Federal Reserve, which will release its monetary policy update at 2pm ET, followed by Chairman Jerome Powell’s press conference at 2:30pm.
Analysts will be listening for indications about future asset purchases — and whether the central bank’s view on inflation and interest rates has changed. Bond yields have been rising recently as investors worry the reopening of the economy will lead to a spike in consumer prices and force the Fed to raise rates. The 10-year Treasury yield rose to a 13-month high of 1.67% Tuesday morning.
