Finance

The Fed is pushing ahead with its study into whether to implement its own digital currency and will be releasing a paper on the issue shortly, Chairman Jerome Powell said Wednesday.
No decision has been made on the matter yet, he added, and said the Fed does not feel pressured to do something quickly as other nations move forward with their own projects

The Federal Reserve is pushing ahead with its study into whether to implement its own digital currency and will be releasing a paper on the issue shortly, Chairman Jerome Powell said Wednesday.
No decision has been made on the matter yet, he added, and said the Fed does not feel pressured to do something quickly as other nations move forward with their own projects.

“I think it’s important that we get to a place where we can make an informed decision about this and do so expeditiously,” Powell said at his post-meeting news conference. “I don’t think we’re behind. I think it’s more important to do this right than to do it fast.”
Powell added the Fed is “working proactively to evaluate whether to issue a CBDC, and if so in what form.”
Establishing a digital dollar has been on the Fed’s radar for more than a year, and it announced in May it would launch a deeper examination into the issue with a paper to follow.
The Boston Fed has taken point on the project, joining with MIT in an initiative on whether the central bank should establish its own digital coin targeted at making the payments system more effective. Fed Governor Lael Brainard has been a strong advocate of the effort, though several other officials, including Vice Chair for Supervision Randal Quarles, have cast doubts.
Advocates such as Brainard say a central bank digital currency’s benefits include getting payments quickly to people in times of crisis and also providing services to the unbanked.

“We think it’s really important that the central bank maintain a stable currency and payments system for the public’s benefit. That’s one of our jobs,” Powell said. He noted the “transformational innovation” in the area of digital payments and said the Fed is continuing to do work on the matter, including its own FedNow system expected to go online in 2023.
The test for a CBDC, he said, is “are there clear and tangible benefits that outweigh any costs and risks.”
However, a larger drumbeat has been building as central banks, most notably China, have moved forth with their own plans and begun the first stages of implementation.
Some concerns even have been raised that if the Fed does not act more aggressively, the dollar’s position as the global reserve currency could be challenged.
Powell noted the dollar’s position in the world and said the Fed is “in a good place” to make a decision on whether to implement its own digital currency. He expressed some concern about the regulatory landscape and said the Fed likely will need congressional permission should it decide to proceed.
“Where the public’s money is concerned, we need to make sure that appropriate regulatory protections are in place, and today there really are not in some cases,” Powell said.

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The Fed kept benchmark interest rates anchored near zero.
Officials indicated they expect to begin reducing monthly asset purchases “soon,” but did not say when.
Economic projections pointed to slower overall growth this year but higher inflation than previously projected.

The Federal Reserve on Wednesday held benchmark interest rates near zero but indicated that rate hikes could be coming sooner than expected, and it significantly cut its economic outlook for this year.
Along with those largely expected moves, officials on the policymaking Federal Open Market Committee indicated they will start pulling back on some of the stimulus the central bank has been providing during the financial crisis. There was no specific indication, though, as to when that might happen.

“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the FOMC’s post-meeting statement said. Respondents to a recent CNBC survey said they expect tapering of bond purchases to be announced in November and begin in December.
Fed Chairman Jerome Powell, at his post-meeting news conference, said the committee is ready to move.
“While no decisions were made, participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate,” he said.
For now, the committee voted unanimously to keep short-term rates anchored near zero.

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However, more members now see the first rate hike happening in 2022. In June, when members last released their economic projections, a slight majority put that increase into 2023.

Powell said the Fed is getting closer to achieving its goals on “substantial further progress” on inflation and employment.
“For inflation, we appear to have achieved more than significant progress, substantial further progress. That part of the test is achieved in my view and the view of many others,” he said.
“My own view is the test for substantial further progress on employment is all but met,” Powell added.

Markets shaved some of their gains following the Fed news initially, with major stock averages still showing strong gains and government bond yields mixed.
There were some substantial changes in the Fed’s economic forecasts, with a decrease in the growth outlook and higher inflation expectations.
The committee now sees GDP rising just 5.9% this year, compared with a 7% forecast in June. However, 2023 growth is now set at 3.8%, compared with 3.3% previously, and 2.5% in 2023, up one-tenth of a percentage point.
Projections also signaled that FOMC members see inflation stronger than projections in June. Core inflation is projected to increase 3.7% this year, compared with the 3% forecast the last time members gave their expectations. Officials then see inflation at 2.3% in 2022, compared with the previous projection of 2.1%, and 2.2% in 2023, one-tenth of a percentage point higher than the June forecast.
Including food and energy, officials expect inflation to run at 4.2% this year, up from 3.4% in June. The subsequent two years are expected to fall back to 2.2%, little changed from the June outlook.
In another move, the Fed said it would double the level of repurchase of its daily market operations to $160 billion from $80 billion.
Markets had been expecting little in the way of major decisions from the meeting but have been on edge in part over when the Fed will begin reducing the pace of its monthly bond purchases.
Powell said during the Fed’s annual August symposium in Jackson Hole, Wyoming, that he and others were of the position that the central bank had met its inflation target and could start reducing the minimum $120 billion a month in buying of Treasurys and mortgage-backed securities.
Investors also were looking to the meeting to see where Fed officials stand on the inflation outlook.
The Fed’s preferred inflation measure — the personal consumption expenditures index less food and energy prices — accelerated by 3.6% in July, the highest level in 30 years. However, Powell has said repeatedly that he expects price pressures to subside as supply chain factors, goods shortages and unusually high levels of demand return to pre-pandemic levels.
Projections for unemployment were a bit more pessimistic, with the end-year unemployment rate now at 4.8%, from the current 5.2% and the June estimate of 4.5%. That comes on the heels of a disappointing August payrolls report that showed job growth of just 235,000.
However, Powell said it would not require blockbuster jobs numbers to get the Fed to begin removing policy accommodation.
“For me it wouldn’t take a knockout, great, super strong employment report. It would take a reasonably good employment report for me to feel like that test is met. Others on the committee, many on the committee, feel the test is already met. Others want to see more progress,” he said.

Correction: An equal number of FOMC members see a rate hike in 2022 as those who don’t, though the central tendency is listed as an increase next year in the Fed’s summary of economic projections. An earlier version mischaracterized the committee members’ individual expectations.

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U.S. stock index futures were little changed during overnight trading on Wednesday after the Federal Reserve kept benchmark interest rates unchanged, while indicating no immediate intention of removing stimulus policies.
Futures contracts tied to the Dow Jones Industrial Average gained 62 points. S&P 500 futures were up 0.14%, while Nasdaq 100 futures advanced 0.17%.

Stocks finished higher across the board during regular trading following the central bank’s commentary. The Dow gained roughly 340 points, or 1%, for its first positive session in five and best day since July 20. The 30-stock benchmark did close below its highest levels of the day, however, after advancing more than 500 points at one point.
The S&P advanced 0.95%, also snapping a four-day losing streak and registering its best day since July 23. The Nasdaq Composite finished the session 1.02% higher, while the Russell 2000 outperformed on the session, rising 1.48%.
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” a statement from the Fed following the meeting read. No timeline was given, however.
The central bank implemented a $120 billion per month bond-buying program last year as the pandemic shuttered the economy. As economic conditions improve more members of the Federal Open Market Committee now see the first rate hike happening in 2022.

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“The Fed struck a positive tone, acknowledging that the economy is strong enough to stand on its own two feet and the central bank can begin removing the monetary stimulus that they’ve been providing since the beginning of the Covid crisis,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

“Although there may be some additional turbulence this fall, we are constructive on the US economy in general and believe that any dips would be worth buying as the fundamentals are still sound and recession appears to be more than a year away at this point,” he added.
Wednesday’s move was not enough to push stocks into the green for the week, however. The Nasdaq Composite is down 0.98% over the last three sessions, while the S&P and Dow have dipped 0.84% and 0.94%, respectively.
Some of this week’s weakness is thanks to concerns over heavily indebted Chinese property developer Evergrande. The company did announce on Wednesday that its real estate group would make interest payments on time, which assuaged some fears.
September is also living up to its reputation as a tough period for stocks, and the three major averages are all down at least 2% for the month.
“We believe the S&P 500 has further room to run, but one of the biggest downside risks stems from valuations amid the prospect of higher yields/ERPs, less liquidity and slower growth,” UBS said in a recent note to clients.
On Thursday the Department of Labor will release initial jobless claims number, while several companies are on deck for quarterly updates including Darden Restaurants which reports before the market opens, while Nike and Costco Wholesale will provide quarterly updates once the market closes. Flash estimates for September Manufacturing PMI and Services PMI will also be released.

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Federal Reserve Chairman Jerome Powell on Wednesday said the central bank’s current trading rules are insufficient and promised it would “make changes.”
Powell added he was not aware of the now-controversial trades made by Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren in 2020.
“We understand very well that the trust of the American people is essential for us to effectively carry out our mission,” Powell said.
The Fed’s current rules are “now clearly seen as not adequate to the task of really sustaining the public’s trust in us,” he added. “We need to make changes.”

Federal Reserve Chairman Jerome Powell on Wednesday said the central bank’s current trading rules are insufficient and promised it would “make changes” after filings showed that officials traded stocks and bonds that could be influenced by its policy actions.
Powell added he was not aware of the now-controversial trades made by Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren in 2020 prior to media reports over the past month.

“We understand very well that the trust of the American people is essential for us to effectively carry out our mission. And that’s why I directed the Fed to begin a comprehensive review of the ethics rules around permissible financial holdings and activity by Fed officials,” he said.
The central bank’s current rules are “now clearly seen as not adequate to the task of really sustaining the public’s trust in us,” he added. “We need to make changes and we’re going to do that as a consequence of this. This will be a thorough-going and comprehensive review. We’re going to gather all the facts and look at ways to further tighten our rules and standards.”
Powell said that Fed officials should as a general rule be barred from owning assets that the central bank buys as part of its regular asset purchases and emergency liquidity measures. Asked by CNBC’s Steve Liesman if the Fed knows when its review will be complete, Powell said there is no set timeline.
“I want to be able to look back on this years from now and know that we rose to meet this challenge,” he said.
Two weeks ago, financial disclosures filed by the Fed’s 12 regional bank presidents revealed some had traded frequently throughout 2020, while others held million-dollar positions without material changes to their portfolios.

The Fed on Thursday said Chairman Jerome Powell had ordered a “fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials.”
Annual portfolio disclosures released over the past month showed that Kaplan made multiple trades worth $1 million or more in 2020 in individual stocks including Apple, Amazon and Delta Air Lines.

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Rosengren also came under scrutiny after it was revealed he held financial interests in four real estate investment trusts and made several purchases and sales of similar property-owning vehicles.
He also held stock in Pfizer, Chevron and AT&T with most of his investments worth tens to hundreds of thousands of dollars.
Filings from Richmond Fed President Thomas Barkin, disclosed little to no trading activity but several financial holdings in excess of $1 million.
Regional Fed banks are part of the broad Federal Reserve System, but are fairly autonomous.
Each operates within a specific geographic area, is separately incorporated and has its own board of directors. As such, each regional bank has its own code of conduct.
The Dallas Federal Reserve Bank’s code of conduct notes that: “An employee is prohibited from using non-public information for any purpose other than Bank business. In addition, an employee may not engage, directly or indirectly, in any financial transaction as a result of, or in reliance on, non-public information, whether such information relates to the Bank or any other person or institution.”
Further, “An employee with knowledge of Class I FOMC information should avoid engaging in any financial transaction the timing of which could create the appearance of acting on inside information concerning Federal Reserve deliberations and actions.”

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This is a comparison of Wednesday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting on July 28.
Text removed from the July statement is in red with a horizontal line through the middle.

Text appearing for the first time in the new statement is in red and underlined.
Black text appears in both statements.

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Wednesday’s forecast showed nine of the 18 FOMC members expect a rate hike in 2022.
That’s up from seven in June’s Fed projections.
The Fed also dialed down its GDP projects for this year and increased its inflation forecast for 2021.

The Federal Reserve building is pictured in Washington on Monday, March 8, 2021.
Caroline Brehman | CQ-Roll Call, Inc. | Getty Images

Half of the Federal Reserve members now see the first interest rate hike in 2022, according to the central bank’s so-called dot plot of projections.
Wednesday’s forecast showed nine of the 18 FOMC members expect a rate hike in 2022. That’s up from seven in June’s Fed projections.

Additionally, all but one member is expecting at least one rate hike by the end of 2023. Thirteen members are forecasting two rate hikes through 2023.
Every quarter, members of the committee forecast where interest rates will go in the short, medium and long term. These projections are represented visually in charts below called a dot plot.  

Here are the Fed’s latest targets, released in Wednesday’s statement:

Arrows pointing outwards

This is what the Fed’s forecast looked like in June 2021:

Arrows pointing outwards

The “longer run” dots remained unchanged from the FOMC’s March meeting.
The Fed also dialed down its GDP projects for this year, according to its Summary of Economic Projections released Wednesday.
The central bank now expects real gross domestic product to grow 5.9% in 2021, down from its estimate of 7.0% growth from the June meeting. The Fed raised its GDP projections for 2022 and 2023 to growth of 3.8% and 2.5%, respectively.

Arrows pointing outwards

Source: Federal Reserve
The Fed also increased its inflation forecast for the year. It now sees inflation running to 4.2% this year, above its previous estimate of 3.4%.  The central bank also slightly hiked its PCE inflation estimate for 2022.
Core PCE inflation expectations ramped up to 3.7% in 2021, up from June’s forecast of 3%. Core PCE for 2022 is now expected at 2.3% and for 2023 is forecast to be 2.2%.
The central bank now sees the unemployment rate dropping to 4.8% this year, higher that its previous estimate of 4.5%.
The Fed held benchmark interest rates near zero on Wednesday.

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People wait in line for t-shirts at a pop-up kiosk for the online brokerage Robinhood along Wall Street after the company went public with an IPO earlier in the day on July 29, 2021 in New York City.
Spencer Platt | Getty Images News | Getty Images

Check out the companies making headlines in midday trading.
Facebook — Shares of Facebook fell 4% after the social media giant said it underreported ad performance on iPhones. Facebook said Apple’s privacy measures in its iOS operating system caused the underreporting.

Robinhood — Robinhood shares surged 10.9% after the trading app announced it is testing “crypto wallets” with select clients next month. The move is the latest expansion for Robinhood in the cryptocurrency space.
APA, Devon Energy, Occidental Petroleum — Energy stocks were among the S&P 500’s top gainers as crude oil prices rose. APA gained 7.2%, Devon Energy rose 6.8% and Occidental Petroleum added 5.2%.
General Mills — Shares of General Mills added 3.3% after the food company’s quarterly earnings beat the Street. General Mills reported adjusted earnings of 99 cents per share compared with the analysts’ consensus of 89 cents per share, according to StreetAccount. Quarterly revenue also topped projections.
Adobe — Adobe shares fell 3.1% despite the software company’s quarterly financial results beating Wall Street expectations. The company reported earnings of $3.11 per share on revenue of $3.94 billion. Analysts expected earnings of $3.01 per share on revenue of $3.89 billion, according to Refinitv.
FedEx — Shares of the delivery company plunged 9.1% after the firm posted cut its full-year forecast on Tuesday. FedEx said its quarterly results were affected by labor shortages, which slowed packages and drove up costs ahead of the holiday peak season.

Stitch Fix — Shares of the online fashion styling company soared 15.7% following its stellar quarterly earnings. Stitch Fix reported earnings per share of 19 cents, compared to the loss of 13 cents expected, according to Refinitiv. Revenue came in at $571 million, topping estimates of $548 million.
SoFi — Shares of the financial services startup SoFi jumped 11% after Jefferies initiated coverage of the stock with a price target of $25, which is more than 64% above where it closed Tuesday. Analyst John Hecht said it has multiple avenues for growth, citing its “synergistic business model” and recently acquired tech platform Galileo.
Disney — Disney shares rose 1.5% after Credit Suisse called Tuesday’s sell-off of the stock overblown and said it’s maintaining its outperform rating on it. The bank has a price target of $218 per share, 27% higher than its Tuesday closing price.
SunPower — Shares of SunPower jumped 5.5% after Evercore ISI initiated coverage of the stock with an outperform rating. The firm said the solar installer has been overlooked by investors in recent years and is now trading at a discount relative to peers.
Incyte — Incyte shares fell 8.5% after the Food and Drug Administration approved the pharmaceutical company’s eczema cream, but with boxed warnings.
Simon Property Group — Shares of the mall operator rose 2.6% after Argus Research upgraded Simon Property to buy from hold. The firm said in a note to clients that Simon was rebounding more quickly than expected from the pandemic shutdowns in 2020.
— CNBC’s Maggie Fitzgerald, Yun Li, Tanaya Macheel and Jesse Pound contributed reporting

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President Joe Biden and House Democrats have each unveiled tax plans to raise levies on Americans with more than $400,000 of annual income.
That equates to roughly the top 1% to 2% wealthiest households, according to tax data and policy experts.
It isn’t unusual for presidential hopefuls to peg their tax plans to a certain income threshold.

President Joe Biden addresses the 76th Session of the U.N. General Assembly on Sept. 21, 2021 in New York.
Eduardo Munoz-Pool/Getty Images

President Joe Biden and House Democrats have unveiled plans to raise taxes on households with more than $400,000 of annual income, and cut or maintain taxes for those below the line.
But what’s the significance of this tax-policy North Star?

At its core, the policy aims to collect more tax revenue from the wealthiest Americans. Income of at least $400,000 represents roughly the top 1% to 2% of households, according to tax data and policy experts.
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But the reasons for choosing $400,000 as a line demarcating the rich from lower and middle earners aren’t entirely clear, since the number doesn’t precisely match household tax statistics, experts said.
“It is an arbitrary threshold,” according to Leonard Burman, who co-founded the Tax Policy Center, a joint project of the Brookings Institute and the Urban Institute. “There’s no analytical justification for it.”
Spokespeople for the White House and House Ways and Means Committee didn’t return requests for comment.

Top 1% or 2%?

IRS data is somewhat fuzzy on the matter. The agency reports tax data using a $500,000 breakpoint, not $400,000.
Americans with $500,000 or more of income were in the top 1.1% of tax filers in 2018, according to most recent IRS data. (This data doesn’t distinguish between tax status like single, married or head of household.)

If extrapolating, those with at least $400,000 of income would be closer to the top 2%, according to Garrett Watson, a senior policy analyst at the Tax Foundation.
However, these figures don’t represent all American households; they only include people who filed a tax return.
The data therefore omits millions of non-filers, who are largely low earners, and skew the percentage. (Nearly 27 million people didn’t file a return in 2021, for example, the Tax Policy Center estimates.)
Including this large swath of lower earners in estimates means a $400,000 income most likely falls closer to the top 1% of total U.S. households, Watson said.

A $400,000 pledge

Tax pledges pegged to income levels aren’t new. For example, Democratic presidential contenders like John Kerry and Barack Obama used incomes of $200,000 and $250,000, respectively, for key elements of their tax plans during their campaigns, Watson said.
Biden’s higher $400,000 baseline may reflect growing income and wealth inequality in the U.S., Watson added.
There may also be a geographical justification — the recognition that a $400,000 income, while high according to national standards, may not go as far in some major cities with high costs of living.
“It’s less high in Washington, New York, Los Angeles and San Francisco than it is in all the rest of the country,” Burman said.

Earlier this year, the White House issued a tax plan with the $400,000 guiding principle, aiming to use new tax revenues from the wealthy to fund an expansion of the U.S. safety net and investments to mitigate climate change.
House Democrats unveiled legislation last week adhering to that policy goal. For example, single taxpayers with $400,000 or more of income (and married couples with $450,000 or more) would see their top marginal income-tax rate increase to 39.6% from 37%; their top tax rate on sales of appreciated stock and other assets would rise to 25% from 20%.
The House bill would raise taxes by 1.6% in 2023 for those with $500,000 to $1 million of income, and by 10.6% for higher earners, according to estimates from the Joint Committee on Taxation, which is Congress’ non-partisan tax scorekeeper. Lower and middle earners would get a net tax cut or see their taxes stay flat, according to the estimate.
Senate Democrats haven’t yet unveiled a tax proposal.

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