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CNN Business
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Twelve days from now, the Federal Reserve will meet again and expectations for the central bank’s next moves are solidifying. Consensus among investors: Prolonged hot inflation means the Fed will need to continue with a string of aggressive rate hikes, unheard of in the modern era.
What’s happening: Markets think there’s a 99% chance that the rate will increase by 3/4 percentage point, reaching a range of 3.75% to 4%.
Quincy Krosby, chief global strategist at LPL Financial, told clients on Wednesday that an increase in that level is now “a given.” “Concerns now focus on December and whether the Fed is ready to move to smaller rate hikes.”
That’s 60% probability a month ago. So what has changed?
Inflation, mostly. US Consumer Price Index up 8.2% in the year to September after an 8.3% year-on-year increase in August. Although CPI peaked at 9.1% in June, the number was still uncomfortably up and higher than economists expected.
The 6.6% annual increase in the cost of shelters is of particular concern. It takes longer for housing costs to come down than some other categories, as renters tend to sign leases for a 12-month term. The monthly increase in core service costs (excluding energy) was the biggest increase in three decades.
The data underscores the need for the Federal Reserve to stay tough – while a strong jobs report for September should give confidence that the central bank can do so without causing damage. undue damage to the US economy.
Fed officials have said as much. In one Interview with Reuters on Friday, Fed President St. Louis James Bullard said inflation had become “dangerous”, meaning a rate hike larger than “upfront” was justified.
Impact on the market: The S&P 500 started the week with a 3.8% gain before falling 0.7% on Wednesday. It is still going on in a bear market, about 23% below the January peak. As long as the Fed signals its intention to continue applying pressure, increasing the likelihood of a US recession, volatility is expected to continue.
Even a company’s relatively solid earnings may not be enough to change course.
“So far, the results have been pretty good, but they are being compared with consensus estimates that have been consistently lowered since the beginning of the summer,” noted strategist at Charles Schwab.
Tesla
(TSLA) posted a solid earnings quarter and record sales, but now says it will likely fall short of its goal of 50% growth in auto sales this year.
Fast rewind: As recently as July, the company said it was still aiming for 50% growth from the 936,000 vehicles it delivered in 2021.
But with two-quarters of deliveries disappointing due to supply chain issues and Covid-related outages in China, that goal is increasingly out of reach, said Chris Isidore, CNN Business colleague of I report.
CEO Elon Musk says the electric carmaker is not experiencing demand difficulties.
“We expect to sell all the cars that we make, in the furthest possible future,” he said on a call with analysts Wednesday.
Instead, the company said it would “miss out” on the target due to complications with delivering vehicles from the factory to customers at the end of the year.
Shares fell 5% in pre-market trading on Thursday. They are down 37% year-to-date, compared with the S&P 500’s 22.5% drop.
“This quarter has not been a rose and a rainbow,” said Dan Ives, technology analyst at Wedbush Securities. “The competition is increasing. There are some logistical challenges.”
America’s business leaders are becoming more pessimistic. The Conference Board recently reported a decline in its CEO confidence index, which it said has reached levels not seen “since the depths of the Great Recession.”
Of the 136 CEOs surveyed, 98% said they were preparing for a recession in the US within the next 12 to 18 months – and 99% said they were preparing for a recession in Europe.
Notably, the business community has not been silent about its concerns.
Amazon founder Jeff Bezos tweeted Tuesday that “the possibilities in this economy tell you to cross the threshold”.
He responded to a clip of an interview with Goldman Sachs CEO David Solomon, who told CNBC that “it’s time to be cautious.”
“You have to expect that there is more volatility on the horizon now,” Solomon said. “That does not mean that we have a really tough economic scenario. But in terms of the distribution of results, we are likely to have a recession in the United States. ”
American Airlines
(AAL)AT&T
(T)Dow, Nucor
(NUE) and Task Diagnostics
(DGX) report results before the US market opens. CSX
(CSX)Snap
(SNAP) and Whirlpool
(WHR) Follow up after finishing.
Also today:
- First US jobless claims for last week’s post at 8:30 a.m. ET.
- Existing home sales for September follow at 10 a.m. ET.
Coming tomorrow: Earnings from American Express and Verizon.
