The Week in Business: The Fed Goes Big
What’s Up? (June 12-18)
Largest Rate Increase Since 1994
In its moststriking move yet to rein in inflation, the Federal Reserve raised its benchmark rate three-quarters of a percentage point Wednesday, the central bank’s biggest increase since 1994. While taking questions from reporters after the announcement, Jerome H. Powell, the Fed chair, said officials were “not trying to induce a recession right now.” Nonetheless, that’s what many fear: If the Fed’s efforts to tame rising prices and tamp down demand go too far, the bank could touch off a serious economic slowdown, forcing businesses to close and sending unemployment numbers back up. And the Fed has shown no signs of changing its path. The increase on Wednesday could be followed by a similarly large one next month. Mr. Powell is likely to face tough questions about this and other Fed actions when he appears before lawmakers in the House and Senate this week.
Rocky Week for the Markets
The S&P 500 was up slightly on Friday, but that was small comfort to investors as the S&P had its worst weekly performance since March 2020. Stocks fell into a bear market on Monday, as investors anxiously anticipated the Fed’s rate increases and dragged the S&P more than 20 percent below its most recent peak in January. When the Fed finally did announce its decision, investors appeared largely unsurprised, and the markets stayed fairly steady that day. But stocks fell sharply on Thursday and remain on shaky ground. And it was perhaps an even worse week for cryptocurrency markets, as prices continued to collapse and crypto companies cut staff. The price of Bitcoin fell below $20,000 for the first time since late 2020. Coinbase said it was laying off 18 percent of its employees on the heels of cuts at other crypto companies, including Gemini and BlockFi. Celsius, an experimental crypto bank, announced it was halting withdrawals “due to extreme market conditions.”
A Cosmetics Giant in the Red
Revlon, a staple in bathroom cabinets since the Great Depression, filed for bankruptcy protection last week, a sign of the shifting landscape for cosmetic brands and potential trouble ahead for retailers. But the company has been in dire straits for some time: At the beginning of the pandemic, Revlon said it would cut 1,000 positions in hopes of making itself more profitable. Months later, though, it narrowly avoided bankruptcy by striking a deal with its debt holders. But with $3.8 billion in debt, supply chain troubles and plenty of competition from new makeup brands, Revlon finally buckled under the pressure.
What’s Next? (June 19-25)
Headwinds for the Housing Market
Real estate brokerages see trouble on the horizon. Last week, Redfin and Compass announced major cuts to staff, with the heads of both companies hinting at anxieties about the economic outlook. Glenn Kelman, Redfin’s chief executive, told employees in an email that demand was 17 percent lower and that job cuts would hit about 8 percent of the company’s work force. And Compass said it was laying off 10 percent of its employees “due to the clear signals of slowing economic growth.” In another harbinger of a potential downturn for the housing market, mortgage rates jumped to 5.78 percent, climbing at their fastest pace last week since 1987.
Elon Musk’s Vision for Twitter
Last week, Elon Musk did something remarkably standard for someone who is acquiring a company: He met with Twitter’s staff. Of course, the meeting had been a long time coming.Mr. Musk was supposed to take questions from employees after he joined Twitter’s board in April, but those plans changed when he decided to buy the company instead. During the hourlong Q. and A. session, Mr. Musk laid out his vision for the company, saying he wanted to grow the platform to “at least a billion” Twitter users and that he expected to be fairly hands-on. He reiterated criticisms about the amount of bot accounts on Twitter, the crux of his recent hand-wringing over the deal, though his acquisition of Twitter continues to move ahead. Experts said his meeting with employees could help reassure potential investors if the deal goes through.
Biden Considers Easing Tariffs
As stubbornly high inflation threatens to lead to losses for the Democrats in midterm elections in November, President Biden is weighing the possibility of rolling back some tariffs that former President Donald J. Trump imposed on Chinese goods. Mr. Biden had said that he intended to rely primarily on the Fed to tame rising prices, but as the president comes under pressure from business groups and outside economists — as well as a frustrated public — he is considering taking action himself. Some private estimates within the White House say lifting the tariffs could reduce the overall inflation rate by a quarter of a percentage point. But the move could harm other aspects of the administration’s economic agenda and spur criticism that Mr. Biden is being too easy on Beijing.
Inflation F.A.Q.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
What Else?
Hundreds of car crashes in the United States over 10 months involved vehicles using advanced driver-assistance technology, a federal agency found. McDonald’s will pay $1.3 billion in fines and back taxes to settle a longtime tax dispute in France. German officials are urging residents to conserve energy as Russia reduces its flow of natural gas to Europe.
