Finance

Cleveland Federal Reserve President Loretta Mester said Wednesday she sees benchmark interest rates rising above 4% by early next year.
Mester anticipates the rate increases to slow economic growth, which she sees as running “well below 2%.”

Loretta Mester at Jackson Hole, Wyoming
David A. Grogan | CNBC

Cleveland Federal Reserve President Loretta Mester said Wednesday she sees interest rates rising considerably higher before the central bank can ease off in its fight against inflation.
Mester, a voting member this year of the rate-setting Federal Open Market Committee, said she sees benchmark rates rising above 4% in the coming months. That’s well above the current target range of 2.25%-2.5% for the federal funds rate, which sets what banks charge each other for overnight borrowing but is tied to many consumer debt instruments.

“My current view is that it will be necessary to move the fed funds rate up to somewhat above 4 percent by early next year and hold it there,” she said in prepared remarks for a speech in Dayton. “I do not anticipate the Fed cutting the fed funds rate target next year.”
In line with that, Mester said rates will remain elevated “for some time,” a phrase used in recent days by both Fed Chairman Jerome Powell and New York Fed President John Williams. She said real rates, or the difference between the fed funds rate and inflation, will need to “move into positive territory.”
The Fed this year has raised rates four times for a total of 2.25 percentage points. Markets are pricing in a third consecutive 0.75 percentage point increase at the September meeting and looking for rate cuts to start in the fall of 2023.
Mester said she anticipates the rate increases to slow economic growth, which she sees as running “well below 2%” while the unemployment rate rises and financial markets remain volatile. She expects inflation to fall to a range of 5%-6% this year and then get closer to the Fed’s target in subsequent years.
In one concession to those looking for lower rates, she said she does not think the Fed necessarily will have to keep raising rates until inflation hits the central bank’s 2% goal. But she said policymakers must remain vigilant.
“It would be a mistake to declare victory over the inflation beast too soon. Doing so would put us back in the stop-and-go monetary policy world of the 1970s, which was very costly to households and businesses,” she said.

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Check out the companies making headlines before the bell:
Designer Brands (DBI) – The footwear and accessories retailer reported better-than-expected profit and revenue for its latest quarter and raised its full-year outlook. Designer Brands added 1.8% in the premarket.

Express (EXPR) – The apparel retailer’s shares slid 4.7% in premarket trading after its quarterly revenue missed estimates and it cut its full-year guidance. Express noted challenging economic conditions that worsened as the quarter progressed.
Chewy (CHWY) – Chewy slumped 10.8% in the premarket after cutting its full-year outlook. The pet products retailer reported a surprise profit for its latest quarter, but sales are lagging as prices rise and consumers focus pet spending on food and medications.
HP Inc. (HPQ) – HP Inc. shares tumbled 7.1% in premarket trading after quarterly earnings matched estimates and revenue missed forecasts. HP is the latest computer maker to report a slowdown in spending on electronics.
CrowdStrike (CRWD) – CrowdStrike reported better-than-expected quarterly profit and revenue, and the cybersecurity company also issued an upbeat forecast. CrowdStrike is seeing strong demand for cybersecurity software even in the face of a weakening economy.
Snap (SNAP) – Snap tumbled 7.2% in the premarket after losing two key executives to Netflix (NFLX). Chief business officer Jeremi Gorman will become the streaming service’s president of worldwide advertising, while Snap’s vice president of sales for the Americas, Peter Naylor, will become Netflix’s VP of ad sales. The news follows a report in The Verge Tuesday that the social media company would lay off 20% of its workforce amid a slide in digital advertising.

Bed Bath & Beyond (BBBY) – Bed Bath & Beyond slumped 13.9% in premarket action after the housewares retailer filed to sell additional common shares in the future. Bed Bath & Beyond also provided an update on moves to shore up its finances, including commitments for more than $500 million in new financing.
PVH (PVH) – PVH cut its full-year outlook and also announced it would cut “people costs” by about 10% by the end of 2023. The maker of the Tommy Hilfiger and Calvin Klein apparel brands said it is facing a challenging economic environment and hopes to save more than $100 million annually through the job cuts. PVH lost 3.7% in the premarket.
Hewlett Packard Enterprise (HPE) – Hewlett Packard Enterprise posted results in line with Wall Street forecasts, even as IT business spending declines. CEO Antonio Neri told Barron’s that the provider of networking equipment and services is seeing “enduring demand.” HPE shares rose 1.8% in premarket trading.

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The Communist Party of China’s top leaders are expected to propose that the party hold its 20th National Congress on Oct. 16 in Beijing, state media announced Tuesday.
This year, the gathering takes on additional significance as it’s become a widely watched marker for when China may begin to ease its stringent zero-Covid policy.
President Xi Jinping will likely increase his share of political associates at the top two levels of the Chinese leadership, according to Eurasia Group.

Chinese President Xi Jinping is widely expected to further consolidate his power at a twice-a-decade congress this fall. He is pictured here on July 1, 2022, at a swearing-in ceremony for Hong Kong’s chief executive John Lee.
Bloomberg | Bloomberg | Getty Images

BEIJING — China’s leaders are set to convene in Beijing on Oct. 16 for a major political meeting that’s expected to consolidate President Xi Jinping’s power and signal forthcoming economic policy.
This year’s gathering takes on additional significance as it’s become a widely watched marker for when China may begin to ease its stringent zero-Covid policy.

The Communist Party of China’s top leaders are expected to propose that the party hold its 20th National Congress on Oct. 16 in Beijing, state media announced Tuesday.
It’s “the most important political event of the decade in China,” Citi analysts wrote in a note last week.
“The Congress is set to launch a new political economy cycle,” the Citi report said. “In the near term, it may help reduce policy uncertainty and allow Beijing to refocus on economic development.”
The national congress is held every five years and is primarily a political event to determine the next group of leaders for the ruling party.

Xi will likely increase his share of political associates at the top two levels of the Chinese leadership, according to Eurasia Group, which predicted the majority of his political associates holding seats on the Politburo will increase to 80% from 60%, and rise to 57% from 43% in the Politburo Standing Committee.

“Larger majorities of Xi associates on these bodies would support Eurasia Group’s view that mounting economic difficulties and rising cross-strait tensions have not weakened his power, which flows mainly from command of core institutions of authoritarian rule such as the military, security services, law enforcement, propaganda outlets, and personnel selection,” according to the report on Aug. 18.
“Reduced representation of Xi associates would suggest rising internal resistance to his rule,” they pointed out.
Xi rose through China’s political ranks to officially become president in 2013. He abolished term limits in 2018, and the latest political shuffle is widely expected to grant him an unprecedented third term.
Premier Li Keqiang, the second-in-command, said he would end his term as premier in 2022. Other likely changes include leaders on foreign policy.
“The congress will thoroughly examine the current international and domestic situation,” an official English-language release said.
The meeting will “formulate action plans and fundamental policies,” the release said.
However, details on decisions made at the party congress likely won’t be formalized until the so-called “two sessions” annual parliamentary meeting that typically takes place in early March.

End in sight for zero-Covid?

The expected mid-October congress puts a tentative date on when China might ease its so-called dynamic zero-Covid policy.
“We expect the zero Covid policy to be revised after the meeting in Oct, which will help the economy to normalize,” Zhiwei Zhang, president and chief economist, Pinpoint Asset Management, said in a note.
While much of the world has relaxed most Covid curbs, Beijing’s attempt to maintain a policy of few to no Covid infections has restricted business activity domestically and kept national borders largely shut for more than two years.
Citi analysts said the ruling party may even “push China’s reconnect[ion] with the world hard as soon as it decides to exit from [dynamic zero-Covid] to earn back the lost political capital.”

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But growth is expected to remain sluggish in the meantime.
“We expect the path to China’s economic recovery to be a slog as local governments are likely [to] be cautious about relaxing business restrictions ahead of the 20th Party Congress due to fears of COVID resurgence,” said Wei Li, senior China economist at Standard Chartered, and a team in an Aug. 15 note.
The firm cut its full-year GDP forecast for China to 3.3% from 4.1%. Other banks have repeatedly cut their expectations to similar levels — well below the country’s official target of around 5.5%.
A slump in China’s massive real estate industry and slowing global demand — a hit to exports — pose additional drags to growth.
China’s third-quarter GDP is due to be released on Oct. 18.
— CNBC’s Jihye Lee contributed to this report.

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Chinese tech giant Baidu said its robotaxis have grabbed about 10% of the ride-hailing market in a suburb of Beijing city.
Baidu began offering free robotaxi rides in the suburban region in October 2020, and received approval to collect fares in November 2021.
However, CNBC checks of the Baidu robotaxi app have showed rides remain heavily subsidized, even as of Wednesday.

Chinese tech giant Baidu’s robotaxis have grabbed about 10% of the ride-hailing market in a Beijing suburb, the company said Tuesday
Vcg | Visual China Group | Getty Images

BEIJING — In less than two years, Chinese tech giant Baidu’s robotaxis have grabbed about 10% of the ride-hailing market in a suburb of Beijing city, the company said during an earnings call Tuesday.
Baidu’s U.S.-traded shares fell 6.5% overnight to $137.69 each. Shares are down by more than 7% for the year so far.

The Chinese company said it has more than 100 robotaxis operating in the suburb, with each vehicle running more than 20 trips a day on average. Local rules require human staff to sit in the vehicle with passengers.
In Beijing, Baidu cannot yet operate its robotaxi business on public roads in the central part of the city. According to information from the company, the only part of Beijing where Baidu can charge fares for rides on public roads is in a suburb called Yizhuang.
The region is roughly a 30-minute drive south from the center of China’s capital city. The area is home to many corporations including e-commerce giant JD.com’s headquarters.
Baidu began offering free robotaxi rides in Yizhuang in October 2020, and received approval to collect fares in November 2021.

However, CNBC checks of the Baidu robotaxi app have showed rides remain heavily subsidized, even as of Wednesday.

A half-hour trip from JD.com’s headquarters to a residential area within Yizhuang displayed a fare of 5.36 yuan (79 cents) — and a 48.24 yuan discount.
A check of start-up Pony.ai’s robotaxi app showed the fare for the same route was completely subsidized. Pony.ai received approval to charge fares for its robotaxis in Yizhuang around the same time that Baidu did.

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Baidu’s robotaxi business, branded Apollo Go, operates in more than ten cities in China. Apollo Go can charge fares in seven of those cities, the company said.
In Tuesday’s earnings release, Baidu said it ran 287,000 public robotaxi rides in the second quarter, up 46% from the first quarter.
Of that second quarter total, robotaxi rides in Yizhuang accounted for more than 60%, according to CNBC’s calculations.

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New York Fed President John Williams said he expects interest rates to continue higher and to remain at those levels until inflation is subdued.
Williams didn’t specifically say where he’d like to see rates go, but he did note that he believes reducing inflation will require real interest rates to be positive.
Williams, Fed Chair Jerome Powell and Vice Chair Lael Brainard make up the central bank’s policy brain trust.

John Williams, chief executive officer of the Federal Reserve Bank of New York, speaks at an event in New York, November 6, 2019.
Carlo Allegri | Reuters

New York Federal Reserve President John Williams said Tuesday he expects interest rates to continue higher and to remain at those levels until inflation is subdued.
Echoing recent comments from Fed Chair Jerome Powell, Williams told The Wall Street Journal that he also is in the higher-for-longer camp when it comes to monetary policy.

“We’re going to need to have restrictive policy for some time,” he said in a live interview. “This is not something we’re going to do for a very short period and then change course.”
That outlook comes just a few days after Powell also used the “for some time” language to describe his expectations for benchmark interest rates. In his annual policy speech at Jackson Hole, Wyoming, the Fed chief noted that “the historical record cautions strongly against prematurely loosening policy.”
Along with Vice Chair Lael Brainard, Powell and Williams make up the Fed’s policy brain trust. They are seeking to reduce inflation that is running near its highest level in more than 40 years and well above the central bank’s target of 2%.
Williams didn’t specifically say where he’d like to see rates go. But he did note that he believes reducing inflation will require real interest rates — nominal levels minus inflation — to be positive. The fed funds rate is currently targeted in a range between 2.25%-2.5%, which is well below the central bank’s preferred core personal consumption expenditures price index inflation gauge, which was at 4.6% in July.
“I do think with demand far exceeding supply, we do need to get real interest rates … above zero,” Williams said. “We need to have somewhat restrictive policy to slow demand, and we’re not there yet.”

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He added that he thinks the Fed is “still quite a ways from that.”
Current marking pricing is for the rate-setting Federal Open Market Committee to approve a third consecutive three-quarter point rate increase in September, followed by a half-point move in November and a quarter-point hike in December, according to CME Group data. Markets then expect the Fed to start cutting in the fall of 2023.
Williams said he’s been encouraged by some tightening in financial conditions following the hikes but added he needs to see more before considering a change in policy.

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Goldman Sachs said Tuesday it will lift all its Covid-19 requirements in most offices beginning Sept. 6, in response to new guidance from federal health officials.
According to a memo obtained by CNBC, the bank will no longer require its workers to be vaccinated to enter its offices or to test and wear face coverings, except those in Lima and New York City.
Unvaccinated employees in New York City will still need an approved religious or medical exemption to enter the bank’s office spaces, according to the memo.

Pavlo Gonchar | LightRocket | Getty Images

Goldman Sachs said Tuesday it will lift all its Covid-19 requirements in most offices beginning Sept. 6, in response to new guidance from federal health officials.
According to a memo sent Tuesday and obtained by CNBC, the bank said will no longer require its workers to be vaccinated to enter its offices or to test and wear face coverings. The policy applies to most offices with the exception of those in Lima and New York City.

Unvaccinated employees in New York City will still need an approved religious or medical exemption to enter the bank’s office spaces, according to the memo.
Goldman said the policy reflects updated guidance from the Centers for Disease Control and Prevention, which no longer distinguishes between vaccinated and unvaccinated individuals. The company said it also reflects that treatments, testing and vaccinations have made the risk of severe illness for Covid-19 less likely.
The bank plans to continue contact tracing efforts but expects to end its program of distributing free antigen test kits at its offices by the end of 2022, according to the memo. Though employees purchasing tests can apply for reimbursement through their insurance coverage.
Companies have been adapting protocols to adjust to the latest developments in the pandemic. Many also are working to bring workers back in person more than two years after lockdowns began.
Goldman’s memo didn’t specifically mention its return to office policy. The bank first asked employees to come back to the office in June 2021. There was a brief pause of this policy amid an omicron surge during the winter. By May, the company told CNBC that between 50% and 60% of staff had returned to the office.

In the memo Tuesday, Goldman encouraged employees who have not come into the office regularly to speak with their managers to make sure they are conforming to “current return to office expectations.”
Like JPMorgan, Goldman was early in asking employees to return to the office, saying in-person attendance was needed for mentorship and building a company culture. CEO David Solomon has called the remote work era “an aberration.”
— Leslie Picker contributed reporting.

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Chewy CEO Sumit Singh (C) rings the opening bell to commence the day’s trading for the Chewy Inc. IPO at the New York Stock Exchange (NYSE), June 14, 2019.
Andrew Kelly | Reuters

Check out the companies making headlines after the bell: 
Chewy — Chewy shares slumped 8% after hours as the company missed Wall Street’s revenue estimates for the recent quarter and shared a disappointing forecast for the current period and full year. The online pet retailer also shared a surprise earnings beat of 5 cents a share.

PVH — Shares of the apparel company and owner of Calvin Klein slipped more than 3% in extended trading after revenue for the recent quarter fell short of Wall Street’s estimates. PVH also said it’s cutting 10% of its workforce in global offices and shared a weak outlook ahead.
HP — The laptop maker’s stock fell nearly 3% in extended trading after the company reported disappointing revenue. Analysts had expected it to earn $1.04 per share on $15.74 billion in revenue. While its adjusted earnings hit that target, revenue of $14.66 billion fell short.
CrowdStrike — Crowdstrike shares were slightly lower in extended trading despite the company’s sharing strong guidance for the third quarter and full year. The cloud-based cybersecurity company also beat expectations for the recent quarter on the top and bottom lines.

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A customer exits a Big Lots store in Clifton, New Jersey.
Emile Wamsteker | Bloomberg | Getty Images

Check out the companies making headlines in midday trading.
Big Lots – Shares jumped 11.74% after the discount retailer posted a smaller-than-expected loss for the recent quarter. Revenue also beat expectations, and comparable store sales fell 9.2% year-over-year, but beat analysts’ expectations of a wider decline.

Best Buy – Shares of Best Buy gained 1.61% after the retailer reported results before the bell Tuesday that beat Wall Street’s expectations on the top and bottom lines.
First Solar – First Solar hit a 52-week high on Tuesday, with shares up 0.51%. Earlier in the day, the solar technology company announced it will invest up to $1 billion in building a new solar panel manufacturing facility in the U.S. The key catalyst for the move, as well as an additional $185 million upgrade to existing facilities, was the tax incentives from the Inflation Reduction Act, its CEO said.
Lucid, Nikola – Shares of electric vehicle makers Lucid and Nikola slipped 6.31% and 9.38%, respectively, after both companies this week moved to raise additional cash. Lucid said in a Monday filing that it intends to issue $8 billion in new stock over the next three years. Nikola said in a filing Tuesday it plans to issue up to $400 million of new shares at market prices.
Oil companies – Oil company stocks tumbled Tuesday, alongside the price of the commodity. Marathon Oil, Halliburton and Diamondback Energy slipped 4.52%, 4.86% and 3.73%, respectively. Chevron fell 2.44%. The sector led declines on the S&P 500 and Dow.
Baidu – Shares of the Chinese technology company fell 6.54% despite Baidu beating estimates on the top and bottom lines in the second quarter. The company’s revenue was down year-over-year, even as it beat estimates. Baidu did also announce that iQiyi, a subsidiary, is selling $500 million of convertible debt to investment firm PAG Asia.

Jack in the Box – Shares of the fast-food chain dropped 9.66% after the California state legislature passed a bill that would form a statewide panel to regulate wages for workers in the industry. The panel would be allowed to raise the minimum wage up to $22 per hour in 2023. Shares of Chipotle also fell about 2% on the news.
Bed Bath & Beyond – Shares of the retailer slipped 9.29% as investors await its plan for a turnaround, which is set to be released Wednesday. What happens next for the stock depends on the update, according to Morgan Stanley.
— CNBC’s Yun Li, Jesse Pound, Samantha Subin and Michelle Fox contributed reporting.

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