Economy

WASHINGTON (Reuters) – The U.S. Federal Reserve announced on Monday it would publish the results of its annual stress test of the nation’s largest banks on June 23.The results of the test, which examines how big bank portfolios would perform under a hypothetical downturn, are closely watched by investors, as they inform how much capital banks will have to hold as a protective cushion against losses. More

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen faces a gauntlet of tough questions about how the Biden administration has handled the economy in Congress this week, after admitting she was “wrong” about the path inflation would take.Yellen testifies to the Senate Finance Committee Tuesday and the House of Representatives Ways and Means Committee on Wednesday, thrusting one of the most experienced, yet least political of Joe Biden’s advisers into the hot seat as Republicans hammer the president over inflation that has reached 40-year highs. As Treasury secretary, Yellen, 75, was a key voice predicting price rises would be “transitory” through 2021 even as some analysts and investors warned the U.S. economy could overheat. As Fed chair, she was criticized in 2017 for the opposite – cooling the economy to fight inflation that never came. Congressional Republicans plan to grill Yellen on her faulty forecast, and the role the $1.9 trillion Biden-backed American Rescue Plan had in driving up prices, aides tell Reuters. They would also like to hear her abandon Biden’s bedrock plan to raise taxes on U.S. companies and seek more federal funding that would fuel further inflation, Representative Kevin Brady, the top Republican on the Ways and Means Committee, told reporters.Unanticipated, large shocks including Russia’s invasion of Ukraine and recent COVID-19 lockdowns in China have exacerbated the tightness in supply that has pushed up energy and goods prices in unexpected ways, Yellen and the White House argue. The “unprecedented” injection of financial assistance also contributed about 3 percentage points to inflation by the fourth quarter of 2021, the San Francisco Federal Reserve Bank. While Yellen publicly retired the term “transitory” in December, she continued to reassure White House officials privately early this year that price pressures would likely ease in 2022, said one person involved in the talks. Frustration is high in the White House over a gulf between the strength of the U.S. economy’s recovery from coronavirus shutdowns, with a strong labor market and record company profits, and Biden’s low poll numbers.While Yellen has no plans and is under no pressure to retire, conversations about who may replace her have percolated through the administration in recent months, with Commerce Secretary Gina Raimondo and former White House COVID-19 coordinator Jeff Zients topping the list of possible successors.STAYING ON MESSAGEOn the Hill, Yellen plans to repeat the White House’s mantra that inflation is “the administration’s highest priority,” a Treasury official said and that the “the unparalleled strength of America’s recovery enables our country to address global challenges like inflation and Russia’s attack on Ukraine from a position of strength.” But a forthcoming biography indicates she also harbored concerns that Biden’s signature $1.9 trillion American Rescue Plan, passed by Congress a month after he took office, would drive up prices.Ultimately, Yellen “got comfortable” with the size of the relief program, mindful of the Obama administration’s failure to enact a stimulus package large enough to move beyond the Great Recession, and confident that the Federal Reserve would respond if inflation surged, according to excerpts from Owen Ullmann’s book “Empathy Economics,” due out in September.Yellen said Saturday that she never pushed for a smaller stimulus package, as suggested in the book, and that the overall package helped fuel the strong U.S. recovery.With limited options to substantially impact gas and food prices, the White House has embarked on a national roadshow to convince voters the Biden administration’s handling of the U.S. economy has been positive. Biden’s approval ratings have been below 50% since August, raising alarms that his Democratic Party could lose control of at least one chamber of Congress in the Nov. 8 midterm election.Yellen was joined by central bankers and independent economists who shared her relatively upbeat inflation views, ignoring warnings from strident voices including former Treasury Secretary Larry Summers about a possibly overheating economy. Administration officials concede Yellen’s frank admission during a May 31 television interview that she failed to anticipate inflation’s path was politically unwise, but say the Treasury secretary remains one of the most revered economic voices close to Biden.Yellen created a smaller stir during a Group of Seven finance ministers meeting in Germany last month, when she invoked the word “stagflation,” a term associated with 1970s inflation spikes and sluggish growth.She should choose her words more carefully on the Hill this week, some analysts say. “She was the Fed chair and in that position you watch every single word you say,” said Harry Broadman, a former chief of staff of the White House Council of Economic Advisers and managing director at Berkeley Research Group. More

NEW YORK (Reuters) – Amazon (NASDAQ:AMZN)’s stock split may provide some solace to shareholders who have seen the e-commerce giant’s shares battered this year.Amazon shares were up 3.1% to $126.17 in afternoon trading after the 20-for-1 split, announced earlier this year but which took effect Monday. They have fallen 24% year-to-date, roughly comparable to the loss in the Nasdaq Composite, as rising interest rates slam risk appetite and pressure shares of high-growth companies.While a split has no bearing on a company’s fundamentals, it could help buoy its share price by making it easier for a wider range of investors to own the stock, market participants said. “Stock splits are certainly associated with successful stocks,” said Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:IBKR). “The psychology remains that stock splits are good. We can debate whether they are or aren’t, but if the market perceives them to be a positive, then they act like a positive.”Analysts at MKM Partners believe the rally in Amazon shares since May, during which they have cut their year-to-date loss by a third, has been aided by anticipation of the split. “While we view this event as a largely non-fundamental one, we believe a stock split and potential retail trading activity could provide an incremental catalyst to turn sentiment on AMZN shares,” MKM’s Rohit Kulkarni said in a note on Monday.Stock splits may drive additional participation from retail investors, who, on average, tend to trade in smaller sizes due to their limited capital, relative to institutional investors, according to a Cboe report published in May. The effect was most pronounced for stocks with larger market capitalization, according to the report, which analyzed 61 stocks across all market capitalization categories that have split since 2020.Peng Cheng, head of big data and AI strategies at JPMorgan (NYSE:JPM), said retail investors’ ownership in Amazon’s shares had been comparatively low, compared to robust retail activity in the company’s options – a sign that a four-digit share price may have been turning off individual traders.”Psychologically, it doesn’t feel good to spend $1,000 and own a third of a share,” he said.BofA Global Research has found that splits “historically are bullish” for companies that enact them, with their shares marking an average return of 25% one year later versus 9% for the market overall. Stock splits historically bullish https://graphics.reuters.com/AMAZON-STOCKS/SPLIT/xmpjoexdjvr/chart.png Stock splits may increase the pool of investors able to dabble in options, especially for stocks with high dollar value, analysts said.For instance, on Friday, a trader looking to bet on Amazon shares rising by 12% by July 1 would have had to pay roughly $2,900. On Monday, a bet on the same percentage gain in the shares by July 1 cost about $135, according to Reuters calculations.Still, options are not quite as big a force in the market as they were last year at the height of the so-called meme-stock mania.”Had this happened a year ago, when individual traders were enamored with call speculation in a way none of us had seen before, this would have been much more explosive,” Sosnick said. Amazon shares versus other megacap stocks https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwezwjvo/Pasted%20image%201654528950737.png Of course, a stock split alone is unlikely to overcome the host of other factors that have driven shares lower this year, including worries over tighter monetary policy and decades-high inflation.At the same time, the rise of commission-free trading and the advent of fractional shares have taken away some of the immediate appeal of stock splits for investors, said Randy Frederick, vice president of trading and derivatives for the Schwab Center for Financial Research.”It’s not nearly as big a deal as it used to be in the old days,” Frederick said. Amazon is the latest megacap company to split its stock. Other companies that have split their shares since 2020 include Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA) and Nvidia (NASDAQ:NVDA).Alphabet (NASDAQ:GOOGL) Inc also announced a 20-for-1 stock split in February, with its split expected to take effect next month. Megacap companies’ influence on the U.S. stock market https://graphics.reuters.com/USA-STOCKS/ALPHABET/znpnejkyrvl/chart.png More

The strong job market may be about to take a turn for the worse. That could come to haunt those who made choices based on today’s conditions.Shanna Jackson, the president of Nashville State Community College, is struggling with a dilemma that reads like good news: Her students are taking jobs from employers who are eager to hire, and paying them good wages.The problem is that students often drop their plans to earn a degree in order to take the attractive positions offered by these desperate employers. Ms. Jackson is worried that when the labor market cools — a near certainty as the Federal Reserve Board raises interest rates, slowing the economy in an attempt to control rapid inflation — an incomplete education will come back to haunt these students.“If you’ve got housing costs rising, gas prices going up, food prices going up, the short-term decision is: Let me make money now, and I’ll go back to school later,” Ms. Jackson said. Anecdotally, she said, the issue is most intense in hospitality-related training programs, where credentials are often valued but not technically required.Strong labor markets often encourage people to forgo training, but this economic moment poses unusually difficult trade-offs for students with families or other financial responsibilities. Cutting working hours to go to class right now means passing up the benefits of strong wage growth at a moment of soaring fuel, food and housing costs.Taking advantage of the plentiful job opportunities available now could come with upsides — employment can build résumés and provide people with valuable experience and skills. But labor economists say that deciding to skip school and training today could come at a cost down the road. Research consistently suggests that people with degrees and skills training earn more and have more job stability in the longer run.“It’s really great to have income, but you also want to keep your eye on the future,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said in an interview last week. “Workers with higher skills will have higher wages and more upside potential.”Ms. Daly speaks from personal experience. She herself dropped out of high school at age 15 to earn money. She eventually earned her graduation equivalency and enrolled in a semester of classes at a local college, but had to work three part-time jobs — at a Target, a doughnut shop and a deli — to support herself while she studied. She went on to pursue a degree full time and later earned a Ph.D. in economics.“That hard work was the best choice I have ever made,” she said. Drawing on her own experience and on the data she parses as a labor economist, she often urges young people to stay in training to improve their own future opportunities, even if they have to balance it with work.“The jobs that are hot right now — restaurants, warehousing — these are things that won’t last forever,” Ms. Daly said.Many sectors are, unquestionably, booming. Today’s labor market has 1.9 open jobs for every available worker and the fastest wage growth for rank-and-file workers since the early 1980s. That’s especially true for lower-wage occupations in fields such as leisure and hospitality.The State of Jobs in the United StatesJob gains continue to maintain their impressive run, even as government policymakers took steps to cool the economy and ease inflation.May Jobs Report: U.S. employers added 390,000 jobs and the unemployment rate remained steady at 3.6 percent ​​in the fifth month of 2022.Slowing Down: Economists and policymakers are beginning to argue that what the economy needs right now is less hiring and less wage growth. Here’s why.Opportunities for Teenagers: Jobs for high school and college students are expected to be plentiful this summer, and a large market means better pay.Higher Interest Rates: Spurred by red-hot inflation, the Federal Reserve has begun raising interest rates. What does that mean for the job market?Against that backdrop, fewer students are opting to continue their education. The latest enrollment figures, released in May by the National Student Clearinghouse Research Center, showed that 662,000 fewer students enrolled in undergraduate programs this spring than had a year earlier, a decline of 4.7 percent.Community college enrollment is also way down, having fallen by 827,000 students since the start of the pandemic. The decline is likely partly demographic, and partly a result of choices made during the pandemic.The shift to online learning was challenging for many students, and, just as schools were allowing students back into the classroom, the job market heated up and opportunities suddenly abounded. Inflation began to ratchet up at the same time, making earning money more critical as the cost of rent, gas and food climbed. That confluence of factors is likely keeping many students from continuing to pursue their education.Gabby Calvo, 18, left the business administration program at Nashville State this year. She said she did not know what she wanted to do with the degree, and had begun making good money, $21 an hour, as a front-end manager at a Kroger grocery store. The job was an unusual one for someone her age to land.“They didn’t really have anyone, so they took a chance on me,” she said, explaining that nobody else stood ready to fill the position and she had worked closely with the person who held it previously.Teenagers are often finding they can land positions they might not have otherwise as companies stretch to find talent, and teenage unemployment is now hovering near the lowest level since the 1950s.Ms. Calvo is hoping to work her way up to the assistant store-manager level, which would put her in a salaried position, and thinks she has made the prudent choice in leaving school, even if her parents disagree.“They think it’s a bad idea — they think I should have quit working, gone to college,” she said. But she has made enough money to put her name on a lease, which she recently signed along with her boyfriend, who is 19 and works at the restaurant in a local Nordstrom.“I feel like I have a lot of experience, and I have a lot more to gain,” Ms. Calvo said.The question, then, is how people like Ms. Calvo will fare in a weaker labor market, because today’s remarkable economic strength is unlikely to continue.The Fed is raising rates in a bid to slow down consumer demand, which would in turn cool down job and wage growth. Monetary policy is a blunt instrument: There is a risk that the central bank will end up pushing unemployment higher, and even touch off a recession, as it tries to bring today’s rapid inflation under control.That could be bad news for people without credentials or degrees. Historically, workers with less education and those who have been hired more recently are the ones to lose their jobs when unemployment rises and the economy weakens. At the onset of the pandemic, to consider an extreme example, unemployment for adults with a high school education jumped to 17.6 percent, while that for the college educated peaked at 8.4 percent.The same people benefiting from unusual opportunities and rapid pay gains today could be the ones to suffer in a downturn. That is one reason economists and educators like Ms. Jackson often urge people to continue their training.“We worry about their long-term futures, if this derails them from ever going to college, for a $17 to $19 Target job. That’s a loss,” said Alicia Sasser Modestino, an associate professor at Northeastern University who researches labor economics and youth development. Still, Ms. Sasser Modestino said that taking high-paying jobs today and pursuing training later did not have to be mutually exclusive. Some people are getting jobs at places that offer tuition assistance while others can work and study at the same time.Other students, like Ms. Calvo, might use the time to figure out what they want to do with their futures in ways that will leave them better off in the long run.Plus, the economy could be shifting in ways that continue to keep workers in high demand. Baby boomers continue to age, and immigration has declined sharply during the pandemic, which could leave employers scrambling for employees for years. If that happens, degrees and certificates — labor market currency for much of the past two decades — may prove less essential.Luemettrea Williams, who holds down three jobs in order to pay her tuition and other bills, at her job in a doctor’s office in Nashville in May.Laura Thompson for The New York Times“There comes a point at which there are so few high school graduates to play with that you have to give your pool cleaner a raise,” said Anthony Carnevale, the director of Georgetown University’s Center on Education and the Workforce. Plus, Mr. Carnevale said, economic policies coming out of Washington could add to the need for high-school-educated workers for a time. President Biden’s infrastructure bill, passed last year, is expected to create jobs in construction and other fields as it directs investment toward bridge rebuilding and airport and port upgrades.“We’re about to go through an era when you don’t need to go through college. That’s going to be a popular story,” he said.Even before the pandemic, people were increasingly questioning the value of a college education. Many people do not complete their degree or certificate programs, leaving them without improved job prospects and often crushing student loan burdens. And higher education alone is not a panacea: Some certificates and qualifications confer much greater labor market benefits, while others offer a smaller wage premium.But data and research continue to suggest that staying in school benefits workers over the long run. Unemployment is consistently lower for people with college degrees, and wages increase notably as education levels climb. The typical worker with only a high school diploma earned $809 a week in 2021, while one with a bachelor’s degree earned $1,334.“The high school job market has been declining since 1983,” Mr. Carnevale said. His research has shown that after the early 1980s, degree holders began to widen their lifetime earnings advantage.The economic resiliency that comes with education is what Luemettrea Williams is banking on. Ms. Williams, 34, has recently transferred to Nashville State as a nursing student.She had been working for years as a medical assistant in a doctor’s office, but got the job because she already knew the doctor; she did not have the relevant credential. Early in the pandemic, the doctor asked her what she would do if he retired, and she realized it was time to return to school. She is working three jobs to pay her tuition, along with her rising gas and grocery bills. She and her 9-year-old daughter have moved in with her aunt, but Ms. Williams is confident she’ll end up with a sturdy career at the end of her two-year program.“That is No. 1: being able to have a stable income where I don’t have to work three jobs to make ends meet,” Ms. Williams said. “I just have to get through these two years, and my life will change.” More

Megan Kingsbury, a fifth-generation rancher, is seeking to build a $1.1 billion slaughterhouse in South Dakota, that would eventually process 8,000 head a day of cattle and some bison. That would top Tyson Foods Inc (NYSE:TSN).’s  beef plant in Dakota City, Nebraska as the biggest such facility in the country.The moves comes as the Biden Administration has seized on the lack of competition in the meat sector as a key reason for record-high prices for beef and chicken.  Just four companies — Cargill Inc., JBS SA (OTC:JBSAY), National Beef and Tyson — control as much as 85% of US beef processing capacity, according to the White House.Still, the project is likely to face some of the same difficulties that the big players are facing: scarcity of cattle and workers. Drought and surging prices for animal feed have ranchers scaling back herds in a development that could keep livestock supplies relatively tight for years. Availability of other jobs, for example in Amazon (NASDAQ:AMZN) warehouses, has made it hard and expensive to hire. And some wonder if going big is even the right way to go. “The last thing the beef industry needs is a huge plant, as there is already significant over-capacity,’’ said Steve Kay,  editor of Cattle Buyers Weekly.Read more: Help for Ranchers as Beef Costs Rise Draws Backlash in IndustryKingsbury said her plant will leverage automation to cut the number of needed employees in half to about 2,500 workers, with wages starting around $28 an hour. She plans to purchase most of her supply in negotiated cash trades that help with price discovery rather than in alternative marketing agreements, or AMAs, the private deals between feedlots and meat plants that can keep sale prices private.“What this plant does is put the second buyer in the barn,” said Kingsbury, whose entrance into the cattle world came at 5 years old when her grandfather gifted her a pregnant heifer. “There’s plenty of profit in the industry; we simply have to create that competitive environment again.”©2022 Bloomberg L.P. More

As the European Central Bank drops ever-heavier hints of new policy tools to limit the disparity in borrowing costs between more and less creditworthy members of the eurozone, it demonstrates the unique difficulties of a multi-country currency union at a time when monetary policy is already challenging central banks everywhere.A series of global negative supply shocks — the uneven unwinding of pandemic lockdowns, last year’s rise in energy prices, and then Vladimir Putin’s assault on Ukraine — have put interest rate-setters in the place they would least like to be: facing high and rising inflation at the same time as rapidly slowing growth. Central banks globally are now having to choose between bad options — judging how much inflation they can tolerate and how much they must slow income and jobs growth activity for people already smarting from the rising cost of living. For the ECB, which faces largely imported inflation rather than the results of excess demand at home, this dilemma is particularly acute.The euro’s guardians in Frankfurt have the additional challenge of managing the risk that their balancing act of gradually tightening monetary conditions could cause financial fragmentation along the national seams of the single currency. In recent months, Rome’s borrowing costs have risen to two percentage points above Berlin’s, as creditors reappraised credit risks in a eurozone about to exit an era of ultra-loose monetary policy. That was the highest since the start of the pandemic, when financial markets were rattled by the uncertainty and by ECB president Christine Lagarde’s incautious remark that “we are not here to close spreads”, which she quickly rolled back.This time around, the messaging is altogether more careful. At its monetary policy meeting this Thursday, the ECB looks set to signal that it stands ready to adopt new tools if necessary to ensure that its desired monetary policy stance is effectively transmitted to all the euro’s member economies — a code for containing (if not outright “closing”) sovereign bond spreads. The bank has also pointed out that it has flexibility in reinvesting its pandemic bond holdings. This can be used to counteract any excessive widening of spreads.The form of the message may be discreet, but its substance is forceful. Such a statement on Thursday, if backed by a large majority of the ECB’s governing council, would signal that the institutional heir to the Bundesbank has fully embraced the leap it took under Mario Draghi, Lagarde’s predecessor, when he vowed to do “whatever it takes, within our mandate” to keep the euro together.Accepting that preventing financial fragmentation is not just within but required by its mandate would complete the ECB’s transformation since the global financial crisis. It will have gone from sui generis construction to a modern central bank of one of the world’s leading economies, shedding earlier self-imposed ideological limitations on what it could or should do.It will, of course, be tested. Some market participants will want to probe Frankfurt’s pain threshold, how much fragmentation it will tolerate and what it will do when the threshold is crossed. Its ideological enemies will challenge any new policies in court.But the ECB’s evolution should be welcomed. Like the EU’s common pandemic recovery fund, it is a sign economic policymakers will not repeat the mistakes that nearly tore the euro apart a decade ago. It will produce better economic outcomes for citizens of the eurozone. And, by making a tightening policy stance less dangerous, it will make it easier to satisfy even monetary hawks. More

“Over the course of the next couple of weeks, what we will be doing is doing deeper dives, answering questions, putting out more details to our vision,” US Trade Representative Katherine Tai said. “A very, very important part of this listening to our partners. I am hopeful that by the summer, we will have a more formalized convening” of countries participating in the US’s Indo-Pacific Economic Framework. Tai spoke on Monday at an event hosted by the Washington International Trade Association.The Biden administration unveiled the IPEF — designed to counter China’s influence in the region — in May. Fourteen nations so far having signed up to join the US in an effort to advance resilience, fairness, and competitiveness, but the initiative doesn’t include any tariff reductions.“For the moment, we have taken the tariff cuts off the table so that we can look at what other tools we have,” Tai said. “no one is that focused on tariff cuts as it is and that kind of next-generation conversation is one that is tremendously important and one that also needs to be promoting resilience and sustainability.”  Biden’s team is weighing what to do with former President Donald Trump’s tariffs on about $300 billion of goods imported from the China, the US economy’s biggest rival. While some businesses have benefited from the tariffs protecting them from Chinese import competition, companies that use the goods as inputs in areas including manufacturing have been hurt. “What is really important for the Biden administration is to bring a thoughtful, strategic and deliberate approach to how we manage this relationship overall,” Tai said. “That is reflective of one of the most important responsibilities we have right now, which is to figure out how to get this relationship right, and nothing about this relationship is easy.”©2022 Bloomberg L.P. More

Rishi Sunak backed Boris Johnson on Monday, while denying that he had timed the announcement of his £15bn cost of living package in order to help the prime minister stay in office.Pressed by MPs on the Commons Treasury select committee, the chancellor said he did not believe Johnson should resign. He also rejected the views of senior Conservatives such as former Treasury minister Jesse Norman and John Penrose, the government’s anti-corruption tsar, who had both withdrawn their support for the PM earlier in the day. “I disagree and support the prime minister,” Sunak said. The chancellor, viewed until recently as one of the most plausible contenders to replace Johnson in Number 10, was repeatedly asked why he had announced measures to help households with soaring energy bills just a day after the publication of the Sue Gray report into Downing Street lockdown parties — rather than include them in his Spring Statement, or wait until the next formal update on fiscal policy in the autumn.Rushanara Ali, a Labour MP, said the timing was “clearly an attempt to divert attention from law breaking by the prime minister” and that while the measures were welcome, it “spoke to a wider problem” of a government “playing fast and loose” with decisions that required proper scrutiny.Sunak said that by waiting it had been possible to obtain a better idea of how much energy prices would rise in the autumn, and so gauge the level of support needed — while still making sure that support reached vulnerable households swiftly.Some economists have warned that the fiscal package could further fuel inflation, forcing the Bank of England to raise interest rates more abruptly. But the chancellor maintained that the injection of cash into the economy would have a “minimal” impact on consumer prices, because it was targeted primarily at vulnerable households and would not fuel additional discretionary expenditure.While he would not rule out further fiscal support if the strains on households worsened, he said the measures now in place were “significant” and would “provide the support people will need”.

Sunak said it was not yet clear how much government borrowing would need to increase in order to fund the package. The new energy profit levy on oil and gas companies is expected to raise around £5bn over the next year but Sunak said he was also “working urgently” with electricity generation companies to understand the scale of their “exceptional profits” and extend the levy to the sector — a decision more likely to come within weeks than in “months and months”.Asked when the windfall tax on oil and gas companies would be phased out, Sunak said that in normal times, benchmark oil prices were usually in a range of around $60-$70 a barrel. The levy would end automatically in three years but “if prices come back to the range I’ve discussed, I would expect this to fall away sooner,” he said.Treasury analysis suggests the levy will not hit investment in the North Sea — and could have a positive impact, Sunak argued, because companies would be able to claim upfront relief on projects that would only generate profits later. However, this was subject to scrutiny by the Office for Budget Responsibility, the independent fiscal watchdog, he added. More