Fed officials remain committed to wrestling America’s rapid inflation lower, and they have raised interest rates at the quickest pace since the 1980s to try to slow the economy and bring supply and demand into balance — making supersize rate moves of three-quarters of a percentage point at each of their past two meetings. Another big adjustment will be up for debate at their next meeting in September, policymakers have said.

But investors interpreted July’s unexpectedly pronounced inflation slowdown as a sign that policymakers could take a gentler route, raising rates a half-point next month. Stocks soared more than 2 percent on Wednesday, as Wall Street bet that the Fed might become less aggressive, which would decrease the chances that it would plunge the economy into a recession.

“It was as good as the markets and the Fed could have hoped for from this report,” said Aneta Markowska, chief financial economist at Jefferies. “I do think it removes the urgency for the Fed.”

Still, officials who spoke on Wednesday remained cautious about inflation. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, called the report the “first hint” of a move in the right direction, while Charles Evans, president of the Federal Reserve Bank of Chicago, said that it was “positive” but that price increases remained “unacceptably high.”

Policymakers have been hoping for more than a year that price increases will begin to cool, only to have those expectations repeatedly dashed. Supply chain issues have made goods more expensive, Russia’s invasion of Ukraine sent commodity prices soaring, a shortage of workers pushed wages and service prices higher and a dearth of housing has fueled rising rents.

toward $4 in July after peaking at $5 in June, based on data from AAA. That decline helped overall inflation to cool last month. The trend has continued into August, which should help inflation to continue to moderate.

But it is unclear what will happen next. The U.S. Energy Information Administration expects that fuel costs will continue to come down, but geopolitical instability and the speed of U.S. oil and gas production during hurricane season, which can take refineries offline, are wild cards in that outlook.

declined in July, perhaps in part because borrowing costs rose. Mortgage rates have increased this year and appear to be weighing on the housing market, which could be helping to drive down prices for appliances.

slow hiring. Wages are still rising rapidly, and, as that happens, so are prices on many services. Rents, which make up a chunk of overall inflation and are closely linked to wage growth, continue to climb rapidly — which is concerning, because they tend to change course only slowly.

Rents of primary residences climbed 0.7 percent in July from the prior month, and are up 6.3 percent over the past year. Before the pandemic, that measure typically climbed about 3.5 percent annually.

Those forces could keep inflation undesirably rapid even if supply chains unsnarl and fuel prices continue to fall. The Fed aims for 2 percent inflation over time, based on a different but related inflation measure.

“The Covid reopening and revenge travel pressures have eased — and are probably going to continue easing,” said Laura Rosner-Warburton, senior U.S. economist at MacroPolicy Perspectives. But she also struck a note of caution, adding: “Under the hood, we’re still seeing pressures in rent. There’s still sticky inflation here.”

And given how high inflation has been for more than a year now, Fed policymakers will avoid reading too much into a single report. Inflation slowed last summer only to speed up again in fall.

“We might see goods inflation and commodity inflation come down, but at the same time see the services side of the economy stay up — and that’s what we’ve got to keep watching for,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said during a recent appearance. “It can’t just be a one month. Oil prices went down in July; that’ll feed through to the July inflation report, but there’s a lot of risk that oil prices will go up in the fall.”

Ms. Mester said that she “welcomes” a slowdown in some types of prices, but that it would be a mistake to “cry victory too early” and allow inflation to continue without taking necessary action.

For many Americans who are struggling to adjust their lifestyles to rapidly climbing costs at the grocery store and dry cleaners, an annual inflation rate that is still more than four times its normal speed is unlikely to feel like a big improvement, even as lower gas prices and rising pay rates do offer some relief.

Stephanie Bailey, 54, has a solid family income in Waco, Texas. Even so, she has been cutting back on meals at local Tex-Mex restaurants and new clothes because of the climbing prices, which she sees “everywhere.” At Starbucks, she opts for cold, noncoffee drinks, which in some cases are cheaper.

Her son, who is in his 20s, has moved back in with his parents. Rent had become out of reach on his salary working at a vitamin manufacturer. He is now teaching at a local high school.

“It’s just so expensive, with housing,” Ms. Bailey said. “He was having a hard time making ends meet.”

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Inflation Reduction Act: How It Could Impact Your Wallet

By Maura Sirianni
August 7, 2022

The Congressional Budget Office says the bill is likely to reduce the deficit by up to $102 billion over 10 years.

As its name suggests, the Democrats’ new budget reconciliation bill claims it will help bring down inflation. But for the most part, that can’t happen overnight.

Instead, experts say those are the impacts you’d likely see next year and into the future, as people across the country grapple with the highest inflation in more than 40 years.

“It really hits the pockets. I spend about $250 a week on just gas,” said Charles Anderson of Phoenix.

Senate Democrats say the landmark Inflation Reduction Act would not only make massive investments in climate, tax, and health care policy, but it also contains several provisions that would help tackle inflation.

“This is going to make our economy better while at the same time contributing—albeit in a small way—to a reduction in inflation,” said Larry Summers, former U.S. Treasury Secretary.

The Congressional Budget Office says the bill is likely to reduce the deficit by up to $102 billion over 10 years. Experts say deficit reduction – along with other policies –could curb demand in the economy.

Before the bill passed Sunday on party lines, Senator Lindsey Graham gave a warning.

“This thing is going to make everything worse and not one Republican will vote for it,” said Sen. Graham.

And while instant relief isn’t promised, some economists say the bill could have a modest, downward effect on inflation as a whole.

In the meantime, as backlogs in supply catch up, the expectation is that inflation will settle back down to near the fed’s 2% annual target. Economist Paul Traub predicts lower wage earners will feel this the most.

“Now they’re going to be struggling, they may have gotten that you may have gotten a 10% raise if you were working at a Starbucks, but now you you’re just barely keeping up,” said Traub.

On health reforms, GOP Senators moved to strip a $35 a month price cap on insulin under private insurance from the Inflation Reduction Act. Earlier this week, Sen. Bernie Sanders said drug pricing provisions in the package don’t go far enough to help the American people.

“This is legislation which, at a time of massive profits for the pharmaceutical industry, and when we pay by far the highest prices in the world for prescription drugs, takes some very modest steps to control the price of medicine.”

Other provisions in the bill would increase the supply of resources, like energy.

“They’re going to see energy costs cut because they’re going to be receiving credits and rebates for energy saving and cost-cutting measures,” said Sen. Richard Blumenthal.

With nearly $370 billion in energy and climate change initiatives, including tax credits for people driving electric cars.

Other direct impacts include home energy rebates, funds for constructing factories, building clean energy technology, and money toward the reduction of pollution in minority communities.

Democrats overwhelmingly voted against Sen. Bernie Sanders’ attempt to revive the child tax credit – he was the only one to vote in favor of an amendment to include the tax credit – the rest of his party feared that adding it would derail the entire bill.

Source: newsy.com

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U.S. Stocks Rise As More Big Companies Report Solid Earnings

By Associated Press
August 3, 2022

Oil prices are steady after the OPEC oil cartel and its allies decided to boost production in September by a much slower pace than in previous months.

Stocks rose in afternoon trading on Wall Street Wednesday as investors reviewed another, mostly encouraging, batch of earnings from several big companies.

The S&P 500 rose 1.3% as of 12:01 p.m. Eastern. The Dow Jones Industrial Average rose 330 points, or 1%, to 32,732 and the Nasdaq rose 2.1%. The gains helped indexes recover most of this week’s losses. Technology companies, retailers and communications companies were some of the biggest winners. Sectors considered less risky, such as utilities and consumer goods makers, lagged the broader market.

Wall Street also received a surprisingly good report on a key part of the economy. The services sector, which makes up the bulk of the U.S. economy, unexpectedly grew in July, according to the Institute for Supply Management.

The yield on the 10-year Treasury rose to 2.78% from 2.73% late Tuesday.

Earnings remain in focus this week as investors parse the latest results and statements from companies to better understand how inflation is affecting businesses and consumers.

Drugstore chain CVS rose 5.5% after reporting solid financial results and raising its profit forecast for the year. Starbucks rose 3.2% after also reporting solid financial results. Nearly three-quarters of companies within the benchmark S&P 500 have reported earnings for the latest quarter and the results have mostly beaten analysts’ forecasts.

Several companies, though, have slipped amid disappointing results. Taco Bell owner Yum Brands fell 2.6% following a weak earnings report and online dating service company Match Group lost about a fifth of its value after giving investors a weak financial forecast.

PayPal jumped 9.6% on a report that activist investor Elliott Management has taken a large stake in the payment company.

Robinhood Markets, whose stock trading app helped bring a new generation of investors to the market, rose 14.2% following an announcement that it’s cutting nearly a quarter of its workforce. Crashing cryptocurrency prices and a turbulent stock market have kept more customers off its app.

Oil prices remained mostly steady following OPEC’s decision to boost production in September at a much slower pace than previous months.

Markets are also watching for potential economic fallout from China after U.S. House Speaker Nancy Pelosi’s visit to Taiwan. China claims self-ruled Taiwan as part of its territory, and banned imports of Taiwanese citrus fruits and frozen fish in retaliation for Pelosi’s visit. But it has avoided disrupting the flow of computer chips and other industrial goods, a step that could jolt the global economy.

Upcoming data on the jobs market could help investors determine how the Federal Reserve will move ahead with its interest rate policy, which has been aggressive in an effort to try and tame inflation. U.S. jobless claims numbers for last week will be released Thursday, and the government issues its July jobs report on Friday.

Additional reporting by The Associated Press.

Source: newsy.com

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Starbucks mulls selling its UK operations, The Times reports

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A general view as drinks are served in a Starbucks in Manchester following the outbreak of the coronavirus disease (COVID-19), Manchester, Britain, May 14, 2020. REUTERS/Phil Noble

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July 16 (Reuters) – Starbucks Corp is exploring a sale of its UK operations as it faces competition from newer operators, The Times reported on Saturday citing sources.

The coffee chain has asked Houlihan Lokey Inc (HLI.N) to canvass interest for its UK business, the report said adding that the company has been facing competition from rival coffee chains like Pret A Manger, Tim Hortons and Costa.

Starbucks’ UK business oversees more than 1000 coffee shops in UK and employs around 4000 people there, the report said.

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According to the Times report, the company has not initiated a “formal sales process” of its UK business and it continued to “evaluate strategic options” for its company-owned international operations.

The company did not immediately respond to Reuters’ request for comment outside business hours.

The company suspended its guidance for the fiscal year in its last quarter earnings report after missing Wall Street targets due to China’s tough COVID-19 curbs which impacted their sales in the country.

The company which has been dealing with recent unionization efforts of its U.S. workforce is looking for a permanent successor meanwhile Howard Schultz remains the interim CEO. read more

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Reporting by Akanksha Khushi in Bengaluru; editing by Diane Craft

Our Standards: The Thomson Reuters Trust Principles.

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Starbucks says it’s not in formal sale process for UK business

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July 16 (Reuters) – Starbucks Corp is not in a formal sale process for its UK business, a company spokesperson said in a statement after The Times reported earlier on Saturday that the coffee chain is exploring a sale of the UK operations. read more

According to the Times report, Starbucks has not initiated a “formal sales process” of its UK business and continues to “evaluate strategic options” for its company-owned international operations.

The company faces rising costs and competition from rivals like Pret A Manger, Tim Hortons and Costa, the newspaper said.

Starbucks suspended its guidance for the remainder of the fiscal year when it last reported quarterly earnings in May as sales growth missed Wall Street targets due to China’s tough COVID-19 curbs. read more

Starbucks, which has been dealing with recent unionization efforts of its U.S. workforce, is looking for a permanent CEO while Howard Schultz would remain interim CEO until the end of March. read more

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Reporting by Shivani Tanna in Bengaluru; Editing by Leslie Adler

Our Standards: The Thomson Reuters Trust Principles.

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