Finance

Federal Reserve Chairman Jerome Powell indicated Friday that the central bank is likely to begin tapering before the end of the year.
But he said rate hikes aren’t imminent as there is still “much ground to cover” before the economy hits full employment.
The speech was part of the Fed’s annual Jackson Hole, Wyoming, symposium.

Federal Reserve Chairman Jerome Powell indicated Friday that the central bank is likely to begin withdrawing some of its easy-money policies before the end of the year, though he still sees interest rate hikes off in the distance.
In a much-anticipated speech as part of the Fed’s annual Jackson Hole, Wyoming, symposium, Powell said the economy has reached a point where it no longer needs as much policy support.

That means the Fed likely will begin cutting the amount of bonds it buys each month before the end of the year, so long as economic progress continues. Based on statements from other central bank officials, a tapering announcement could come as soon as the Fed’s Sept. 21-22 meeting.
However, it does not mean that rate increases are looming.
“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test,” Powell said in prepared remarks for the virtual summit.
He added that while inflation is solidly around the Fed’s 2% target rate, “we have much ground to cover to reach maximum employment,” which is the second prong of the central bank’s dual mandate and necessary before rate hikes happen.

Markets reacted positively to Powell’s comments, sending major stock indexes to record highs while government bond yields moved lower.

Later in the day, Fed Vice Chairman Richard Clarida said he agrees with Powell’s remarks and expects tapering to being this year so long as the pace of labor gains continues, though neither official set a specific date for when the process will begin.
“I think that if that materializes, then I would support commencing a reduction in the pace of our purchases later this year,” Clarida told CNBC.
Powell also devoted an extensive passage in the speech to explaining why he continues to think the current inflation rise is transitory and will drop eventually to the target level.
The Fed has used the term “substantial further progress” as a benchmark for when it will start tightening policy. Powell said that “test has been met” for inflation while there “has also been clear progress toward maximum employment.” He said he and his fellow officials agreed at the July Federal Open Market Committee meeting that “it could be appropriate to start reducing the pace of asset purchases this year.”
That question over “tapering” of the minimum $120 billion of monthly bond purchases has had the market’s attention as much for what it means on a mechanical level as for what it signifies when the Fed will start hiking rates.
In an effort to resuscitate the economy during the early days of the Covid-19 pandemic, the Fed took its benchmark rate down to near zero and accelerated its bond buying, or quantitative easing, program to where its balance sheet is now at nearly $8.4 trillion, about double where it was in March 2020.
At last year’s Jackson Hole summit, also held virtually, Powell outlined a bold new policy initiative in which the Fed committed to full and inclusive employment even if it meant allowing inflation to run hot for a while. Critics have charged that the policy is partially to blame for current price pressures at their highest levels in about 30 years.
However, Powell defended the policy Friday and stressed the importance of the Fed not making an “ill-timed policy move” in response to temporary economic gyrations like the action this year in inflation.
“Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful,” he said. “We know that extended periods of unemployment can mean lasting harm to workers and to the productive capacity of the economy.”

The unemployment rate for July stood at 5.4%, down from the April 2020 high of 14.8% but still reflective of a jobs market that remains well off where it stood before the pandemic. In February 2020, unemployment was 3.5% and there were 6 million more Americans working and 3 million more considered in the labor force.
Powell noted that the delta variant of Covid “presents a near-term risk” to getting back to full employment, but he insisted that “the prospects are good for continued progress toward maximum employment.”
He added that some of the factors that pushed inflation higher are starting to abate, though several regional Fed presidents have told CNBC in recent days that they see lasting pressures in their districts.
“Inflation at these levels is, of course, a cause for concern. But that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove temporary,” he said.

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Check out the companies making headlines before the bell:
Big Lots (BIG) – The discount retailer’s shares tumbled 9.5% in premarket trading after it missed top and bottom-line estimates for its latest quarter. Big Lots earned $1.09 per share, 3 cents shy of analyst forecasts, and its comparable store sales slid a greater-than-expected 13.2%. The company also said it was hit by supply chain issues and inflation pressures.

Hibbett Sports (HIBB) – The athletic apparel retailer jumped 6.1% in the premarket after reporting better-than-expected sales and profit for its latest quarter, and raising its full-year forecast. Hibbett earned $2.86 per share, almost double the $1.44 consensus estimate.
Peloton (PTON) – Peloton slid 8.1% in the premarket, after reporting a wider-than-expected loss. The fitness equipment maker lost $1.05 per share for its latest quarter, compared with estimates of a 45-cent loss. Paid digital subscriptions fell short of estimates as well. Additionally, Peloton said in an SEC filing that it has been subpoenaed by the government for documents on injuries related to its products.
Gap (GPS) – Gap reported adjusted quarterly earnings of 70 cents per share, beating the 46 cents consensus estimate, and the apparel retailer’s revenue was also above Wall Street forecasts. Gap also raised its full-year guidance, largely on the strength of its Old Navy and Athleta brands. The stock rallied 8.5% in premarket trading.
Apple (AAPL) – Apple struck a deal with smaller developers that extends a commission cut for three years and allows them to alert consumers about alternate payment systems to Apple’s app store.
HP Inc. (HPQ) – HP Inc. beat estimates by 16 cents with adjusted quarterly earnings of $1.00 per share, though revenue fell below analyst forecasts. The personal computer and printer maker saw the worldwide chip shortage hurt its ability to meet demand, with the company saying it is selling everything it can produce. HP lost 4.6% in premarket action.

Dell Technologies (DELL) – Dell reported adjusted quarterly earnings of $2.24 per share, 21 cents above estimates, with revenue also topping analyst projections. Dell benefited from the ongoing boom in demand for personal computers and said it is dealing successfully with supply chain challenges. However, the stock fell 1.8% in the premarket.
Workday (WDAY) – Workday earned an adjusted $1.23 per share for its latest quarter, with the provider of cloud-based human resources and financial software also reporting better-than-expected revenue. Subscription revenue jumped more than 23% from a year earlier. Workday shares surged 7.2% in premarket trading.
Marvell Technology (MRVL) – Marvell came in 3 cents above estimates with an adjusted quarterly profit of 34 cents per share. However, the chip maker’s revenue merely matched Street forecasts, and its cost of goods sold jumped from a year earlier. Shares slid 3.6% in the premarket.
Ollie’s Bargain Outlet (OLLI) – Ollie’s plunged 13.3% in premarket trading after it fell 3 cents short of Wall Street forecasts with adjusted quarterly earnings of 52 cents per share. The discount retailer’s revenue fell short as well, with comparable store sales falling 28% from a year earlier.
Johnson & Johnson (JNJ) – J&J will be allowed to separate its talc-related liabilities from the rest of its business after a judge declined to prohibit the company from doing so. Personal injury lawyers had sought to prevent the move, fearing that it could put thousands of claims into bankruptcy.
VMWare (VMW) – VMWare reported adjusted quarterly earnings of $1.75 per share, beating the $1.64 consensus estimate, while the enterprise software company’s revenue was slightly above Wall Street forecasts. However, cloud business revenue did fall short of some analyst forecasts, and shares slid 5.7% in the premarket.

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Investors watch an electric screen displaying stock price figures at a stock exchange hall on February 18, 2021 in Shanghai, China.
VCG | Visual China Group | Getty Images

Beijing is eyeing new rules that would restrict domestic internet companies to go public in the U.S., the Wall Street Journal reported on Friday.
Chinese regulators are specifically targeting tech firms with user-related data, and companies that are less data-heavy such as pharmaceuticals could be insulated from the IPO ban, the Journal reported, citing people familiar with the matter.

Shares of Alibaba fell nearly 3% in premarket trading on Friday after losing 15% this month alone. The Invesco Golden Dragon China ETF (PGJ), which tracks U.S.-listed Chinese shares consisting of ADRs of companies that are headquartered and incorporated in mainland China, has lost 26% this quarter amid the increased regulatory pressure.
The new rules haven’t been finalized and Beijing plans to implement them around the fourth quarter, the Journal reported.
Earlier this week, China’s cybersecurity regulator laid out two aspects of regulation that companies wanting to go public must comply — one is the national laws and regulations, and the other is ensuring the security of the national network, “critical information infrastructure” and personal data.
These industries with critical data include public communication and information services, energy, transportation, waterworks, finance and public services, the regulators said previously.
Beijing is already cracking down on industries from tech to education and gaming, while tightening restrictions on cross-border data flows and security. The government has gone after some of China’s most powerful companies, including Didi, Alibaba and Tencent.

Meanwhile, the Securities and Exchange Commission has stepped up its oversight on Chinese companies seeking U.S. IPOs. The agency said it will require additional disclosures about the company structure and any risk from future actions from the Chinese government.
The so-called variable interest entities are a structure used by major Chinese companies from Alibaba to JD.com to go public in the U.S. while skirting oversight from Beijing as the country doesn’t allow direct foreign ownership in most cases.
These variable interest entities allow China-based operating companies to establish offshore shell companies in another jurisdiction and issue stocks to public shareholders.
— Click here to read the original Wall Street Journal story.

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Investor Peter Boockvar is sounding the alarm on a housing price bubble brought on by the Federal Reserve’s Covid pandemic policies.
He warns first-time homebuyers are most vulnerable to dramatic losses.

“I feel bad for the people who bought homes over the past year because they’re the ones that paid the very elevated prices,” the chief investment officer at Bleakley Advisory Group told CNBC’s “Trading Nation” on Thursday.
He singles out those who put down 5% amid historically low mortgage rates. If home prices correct by 10%, Boockvar sees a world of pain.

‘Their equity is basically wiped out’

“Their equity is basically wiped out,” he said. “For those who have owned for a while that have built up equity, they will be much more insulated.”
His warning comes as Fed policymakers convene virtually for the annual Jackson Hole symposium.
Boockvar, who went on inflation watch in mid-2020, has been critical of Fed policy through the pandemic. By maintaining unprecedented quantitative easing measures through the economic recovery, he notes the central bank created a spike in housing demand that has been overwhelming supply. The result is skyrocketing prices.

“The problem is it stimulated so much demand that the supply side couldn’t keep up — whether it was builders who couldn’t get materials or couldn’t find labor or couldn’t find enough lots,” said Boockvar, a CNBC contributor.
Since housing is the most interest rate-sensitive part of the U.S. economy, Boockvar is concerned the repercussions will be far-reaching.
“It’s very hurtful for the buyer — particularly the first-time buyer who wants to own a home who is now getting priced out and then in turn is renting,” said Boockvar. “But renting prices are going up dramatically, as well.”
He suggests there’s evidence the air is leaking out of the bubble.
“People are now seeing sticker shock in home prices and they’re backing off,” added Boockvar. “Buyers are calling a time out. They said ‘I can’t afford this’ or ‘I want to wait to see home prices cool down.'”
Wall Street may get more clarity on the housing market next week with the pending sales of existing homes, the FHFA house price index and S&P CoreLogic Case-Shiller results. He expects the data, which will reflect trends from earlier this summer, will be strong.
“We’re still going to see these double-digit home price increases,” Boockvar said. “There’s still a dearth of inventory.”
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Traders on the floor of the New York Stock Exchange.
Source: NYSE

Stock futures are flat in overnight trading Thursday ahead of the Federal Reserve’s annual Jackson Hole symposium with investors looking for more details into the central bank’s plans to taper monetary stimulus.
Futures on the Dow Jones Industrial Average gained 19 points, or 0.05%. S&P 500 futures ticked up 0.04% and Nasdaq 100 futures added 0.06%.

Shares of Gap gained in extended trading after the apparel retailer’s quarterly earnings report beat on top and bottom lines, while Peloton shares fell after the exercise equipment company’s fourth-quarter financial results missed Wall Street estimates.

The three major U.S. indexes closed Thursday’s regular trading session lower. The Dow snapped a four-day win streak while the S&P 500 and the Nasdaq Composite both broke five-day win streaks.
The Dow lost 192.38 points, or 0.5%. The S&P 500 slid 0.6% and the Nasdaq Composite fell 0.6%.
Market participants monitored new developments in Afghanistan, which appeared to weigh on investor sentiment. The Pentagon on Thursday confirmed that explosions near Hamid Karzai International Airport in Afghanistan killed 12 U.S. service members and wounded 15.
“Markets don’t like uncertainty and the uncertainty in Afghanistan is high and feels like it’s rising,” said Bob Doll, chief investment officer of Crossmark Global Investments.

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The Fed’s annual Jackson Hole symposium will be held virtually this year, with Chair Jerome Powell’s speech taking center stage Friday morning. Market participants await insights into the central bank’s plan to slow its monthly bond purchases.
Investors also expect a consumer sentiment reading to be released Friday morning.
The three major stock averages are all set to close the week in the green. The Dow is up 0.3% week-to-date, while the S&P 500 is up 0.6% and the Nasdaq Composite is 1.6% higher.
The indexes are also on track to end the month higher. The Dow is up 0.8% in August. The S&P 500 is 1.7% higher and the Nasdaq Composite is up 1.9% this month.

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BUSINESS CYCLES are never perfectly symmetric across time and space. Yet they have rarely been as uneven as the rebound from covid-19. Some parts of the global economy are straining to meet roaring demand even as others are limping along, battered by the spread of the virus. It is enough to take the fun out of monetary policy. Indeed, the Delta variant kept attendees of an annual symposium for central bankers from meeting in Jackson Hole, Wyoming, in the shadow of the majestic Teton mountains. Instead, they peered at their computer screens as they discussed how to shepherd an unbalanced economy through uncertain times.A pressing question loomed over the proceedings: just how and when to tighten policy given high inflation and lingering unemployment. Tweaks to the Federal Reserve’s framework in recent years are meant to give it room to manage such difficult circumstances. It now aims to hit its 2% inflation target on average and will court high inflation to make up for past shortfalls. But surging prices are testing this approach. Data released as the conference began showed that the Fed’s preferred measure of inflation had risen to 4.2% in July, the highest in 30 years. Jerome Powell, the Fed’s chairman, made no suggestion to his fellow participants that he would drastically change course, and confirmed that he might begin to taper asset purchases later in the year. But policy, he cautioned, would have to change as new data come in.Research presented at the symposium offered guidance on how to cope with a lopsided recovery. Veronica Guerrieri of the University of Chicago and her co-authors, for instance, considered how policymakers should respond when demand surges in some sectors and lags in others. If there is little scope for workers to shift from unfavoured industries to the up-and-comers, they write, then the shift in demand acts like a “cost-push shock” (similar to a spike in oil prices). In such cases, central banks typically accept some pain in the form of above-normal inflation and some in above-normal unemployment. But if workers can move, then there are benefits to the central bank’s facilitating this shift.Easy money is not obviously the right answer. If loose monetary policy raises demand for both booming and busting sectors, then it might slow reallocation by acting to prop up businesses that ought really to close. But the authors argue that, in a world in which it is easy to adjust wages upward but tricky to cut them, inflation may in fact hasten the reallocation of workers. Because nominal wages in the lagging industries cannot easily fall, workers face little incentive to move to promising industries. Inflation, though, enables the real wage in lagging sectors to fall relative to that in booming ones, encouraging workers to move. Thus it might make sense, in the context of an uneven recovery, for monetary policy to have an inflationary bias.Clear advice for Mr Powell, then. But if American firms continue to hire at the recent pace, the unemployment rate may fall back to its pre-pandemic level of 3.5% by the end of 2022. That presents the Fed with a new dilemma. While the unemployment rate has recovered quickly, labour-force participation has not: of the drop experienced in early 2020, just under half has been clawed back; the unemployment rate, by contrast, is more than 80% of the way back. Part of Mr Powell’s justification for the change in framework was the beneficial effects of tight labour markets, which he reckoned would eventually draw disadvantaged workers back into the labour force. But the patience needed to allow such effects to unfold could vanish amid high inflation and low unemployment.Work presented by Bart Hobijn of Arizona State University and Ayesegul Sahin of the University of Texas at Austin on the “participation cycle” reaffirms the benefits of patience. It is not the case that workers from disadvantaged groups are especially likely to drop out of the labour force during downturns and are only enticed back after sufficiently long recoveries. Rather, the probability that a worker drops out is much higher for unemployed workers than employed ones, whatever their background. It is thus the higher unemployment rates that disadvantaged groups tend to face that are responsible for their leaving the labour force. And this effect begins reversing as soon as labour markets begin to recover. Greater job stability—that is, a higher probability of finding work and a lower probability of losing a job—reduces the flow of workers into unemployment and out of the labour force, raising the participation rate over time.The effect is powerful; the authors estimate that a one-percentage-point decline in the unemployment rate tends to raise the participation rate by 0.65 percentage points, other things equal. The beneficial effect continues even after unemployment reaches a trough, with the participation rate typically reaching a peak nine months later. The upshot for policy is therefore broadly similar to where Mr Powell has ended up: a low unemployment rate need not imply that labour-market slack has run out, or that patience on the part of the central bank will not be rewarded.When the odds are against youOther research reinforced the doveish conclusion. Emerging markets, participants learned, could be dealt a setback by premature monetary tightening in the rich world, which would act to push up their borrowing costs and tighten financial conditions.Outside the conference, however, Mr Powell is being bombarded by criticism of loose money. Inflation has now more than made up its shortfall since 2015, let alone the start of the pandemic. Some heads of regional Fed banks, such as Raphael Bostic of Atlanta, are eager to reverse quantitative easing soon. Prominent economists, such as Raghuram Rajan of the University of Chicago and Larry Summers of Harvard, have highlighted the dangers of prolonging asset purchases. Discussions at the conference suggest Mr Powell’s policies will defy this growing band of critics. They are likely to remain anxious for some time yet.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Roberto Machado Noa

Check out the companies making headlines after the bell: 
Peloton Interactive — Shares of Peloton sunk about 10% in extended trading after the exercise equipment company reported a wider-than-expected quarterly loss. The company posted a loss of $1.05 per share in the fiscal fourth quarter, compared with a loss of 45 cents per share expected by analysts, according to Refinitiv. The company also slashed the price of its Bike product by hundreds of dollars.

Gap — Gap shares jumped roughly 8% after hours following an earnings beat. The apparel retailer reported quarterly adjusted earnings of 70 cents per share on revenue of $4.21 billion. Analysts expected earnings of 46 cents per share on revenue of $4.13 billion, according to Refinitiv.
HP — HP shares dropped more than 3% in extended trading after the technology company’s quarterly revenue missed expectations. The company reported fiscal third-quarter revenue of $15.29 billion, missing Wall Street’s $15.92 billion estimate, according to Refinitiv.
Workday — Workday’s stock gained more than 3% after hours following a better-than-expected quarterly earnings report. The financial management and human resources software company posted adjusted earnings of $1.23 per share on revenue of $1.26 billion. Wall Street expected earnings of 78 cents per share on revenue of $1.24 billion, according to Refinitiv.
Marvell Technology — Shares of Marvell Technology fell about 5% in extended trading despite an earnings beat. The company reported adjusted earnings of 34 cents per share, while analysts projected earnings of 31 cents per share, according to Refinitiv. Marvell Technology’s second-quarter revenue was in line with Wall Street estimates.
Ollie’s Bargain Outlet — Ollie’s shares sunk more than 12% after hours following a wider-than-expected quarterly loss. Ollie’s reported a loss of 52 cents per share on revenue of $416 million. Analysts looked for a loss of 55 cents per share on $436 million, according to Refinitiv.

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