Stock futures tumble as recession fears fuel calls for interest rate cut
(NEW YORK) — Stock futures plummeted on Monday as markets reckoned with a disappointing jobs report last week that fueled concern of a possible recession.
Each of the major stock indexes fell more than 2% in pre-market trading on Monday. The tech-heavy Nasdaq dropped nearly 6%.
The market downturn triggered calls for a large interest rate cut at the Federal Reserve’s next meeting in September. Some investors voiced an even more urgent request for a rare emergency rate cut as soon as this week.
(NEW YORK) — Fresh inflation data on Wednesday will show whether the U.S. has extended a monthslong stretch of progress in the fight to slow price increases.
The latest price reading is set to arrive within days of a dramatic bout of market turmoil triggered in part by heightened pessimism about the chances of a “soft landing,” in which the U.S. averts a recession while inflation returns to normal levels.
The unrest on Wall Street followed a weaker-than-expected jobs report that indicated the economy may be slowing down more quickly than previously known.
Economists expect prices to have risen 3% in July compared to a year ago. That figure would leave the inflation rate unchanged from June but still well below the 3.5% year-over-year rate recorded in March.
Inflation has cooled for four consecutive months, reversing a surge in prices that took hold at the outset of 2024. Price increases have slowed significantly from a peak of more than 9%, but inflation remains a percentage point higher than the Fed’s target rate of 2%.
Since last year, the Federal Reserve has held interest rates at their highest level in more than two decades. High borrowing costs for everything from mortgages to credit card loans have helped slow the economy and lower inflation, but the policy risks tipping the U.S. into a recession.
The chances of an interest rate cut at the Fed’s next meeting in September are all but certain, according to the CME FedWatch Tool, a measure of market sentiment. Market observers are split roughly down the middle about whether the Fed will impose its typical cut of a quarter of a percentage point or opt for a larger half-point cut.
The Fed is guided by a dual mandate to keep inflation under control and maximize employment. In theory, low interest rates help stimulate economic activity and boost employment; high interest rates slow economic performance and ease inflation.
A monthslong stretch of good news for inflation alongside bad news for unemployment has prompted the Fed to give additional consideration to its goal of keeping Americans on the job, Fed Chair Jerome Powell said last month.
“For a long time, since inflation arrived, it’s been right to mainly focus on inflation. But now that inflation has come down and the labor market has indeed cooled off, we’re going to be looking at both mandates. They’re in much better balance,” Powell said at a meeting of The Economic Club of Washington, D.C.
“That means that if we were to see an unexpected weakening in the labor market, then that might also be a reason for reaction by us,” Powell added.
The weak jobs report released earlier this month appeared to align with that hypothetical situation described by Powell.
Speaking at a press conference in Washington, D.C., in late July, before the jobs report, Powell said the central bank may reduce interest rate cuts in September, depending on economic performance.
“We’ve made no decisions about future meetings and that includes the September meeting,” Powell said. “We’re getting closer to the point at which we’ll reduce our policy rate, but we’re not quite at that point yet.”
(WASHINGTON) — In an effort to beef up protections for consumers against corporations, the Biden administration on Monday announced a handful of policies to crack down on “headaches and hassles that waste Americans’ time and money.”
Through the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC), the administration will ask companies to make it as easy to cancel subscriptions and memberships as it is to sign up for them, and through the Consumer Financial Protection Bureau, a new rule will require companies to let customers cut through automated customer service “doom loops” by pressing a single button to reach a real person.
“For a lot of services, it takes one or two clicks on your phone to sign up. It should take one or two clicks on your phone to end the service,” White House Domestic Policy Advisor Neera Tanden said on a call with reporters to discuss the new policies.
Consumers could see the new rule applied to gym memberships or subscriptions with phone and internet companies.
The administration will also call on health insurance companies to allow claims to be submitted online, rather than requiring insured customers to print out and mail forms in for coverage.
“Essentially in all of these practices, the companies are delaying services to you or, really, trying to make it so difficult for you to cancel the service that they get to hold on to your money longer and longer,” Tanden said. “And what that means is, ultimately, consumers, the American public, is losing out.”
The new regulations were rolled out Monday but will be on varying timelines, with some taking weeks and others taking months to be implemented, administration officials said.
They target a range of industries and companies at a time when Americans feel strapped by high prices and stubborn inflation — an issue that has weighed on President Joe Biden and now Vice President Kamala Harris’ presidential campaign as voters continue to rank the economy among their top issues.
As part of an agenda centered around “lowering costs,” the administration has tried to improve voter confidence in the economy through consistent but piecemeal efforts to bring down daily costs, from lowering prescription drug prices to canceling student loan debt.
Volatility in the stock market last week after a lower-than-expected jobs report has increased the pressure for Democrats to prove their economic bonafides to voters. Experts urge caution before drawing any major conclusions from the week, remaining divided over whether the U.S. is headed for a downturn or still on a resilient path of growth.
Other efforts by the Biden administration to reduce daily bills and offset higher prices include targeting junk fees tacked onto tickets and hotel costs, requiring airlines to automatically refund passengers for delayed flights, and banning medical debts from credit reports.
The efforts have frequently pitted Biden and Harris against big companies, as they accuse them of “shrinkflation,” or delivering less product for the same price, and keeping their prices high even as inflation falls. The Biden administration has also been heralded by antitrust advocates for reviving enforcement on companies for the first time in a meaningful way in decades — including with lawsuits against companies like Google, Apple and LiveNation.
Tanden insisted that Monday’s efforts were about creating a better functioning market, not targeting any particular company or “shaming corporations writ large.”
“This is a broad initiative in which we are talking about a whole series of practices across multiple industries, and the real focus is ensuring that consumers and their choices are what is driving decision making in the market, not the practices of companies that make it hard for people to switch,” Tanden said.
“When they want to end one subscription, they can shop for another, but it’s their decision,” she said. “That’s what a free market is really about, empowering individuals to make the decisions they want to make without these practices that get in their way.”
(NEW YORK) — Stock market turmoil earlier this month prompted some investors to ditch stocks in favor of an alternative typically viewed as safer but less exciting: bonds.
The renewed popularity of bonds follows months of heightened interest, since investors have sought to lock in high yields in anticipation of interest rate cuts at the Federal Reserve, experts told ABC News.
Lower interest rates would push bond yields downward and raise the value of pre-existing bonds obtained at a higher rate of return.
A surge in bonds has also coincided with a perception among some investors that equities have become overpriced, experts said.
“Investors have been interested in locking in higher yields before interest rates go down,” Reena Aggarwal, A professor of finance and director of the Georgetown Psaros Center for Financial Markets and Policy, told ABC News.
Bonds are essentially loans made by investors to corporations or governments. The price of a bond moves in the opposite direction as its yield, or the amount of interest accrued by a bondholder. In other words, when bond yields go down, bond prices go up.
Yields are heavily influenced by interest rates set by central banks, since the cost of borrowing determines how much interest an investor can charge a government entity or corporation in exchange for his or her loan.
Starting in 2022, a series of interest rate hikes at the Fed sent bond yields surging. That meant investors could obtain relatively high rates of return at low prices, Adam Lampe, CEO of Mint Wealth Management, told ABC News.
“For the first nearly 20 years of my career, bonds were boring,” Lampe said. “In the last couple years we were able to buy a lot of bonds at discount.”
At the outset of this year, however, the Fed forecasted three interest rate cuts, citing progress in its fight to bring down inflation. But price increases accelerated over the early months of 2024, prompting the Fed to all but abandon those cuts.
In recent months, good news in the inflation fight has brought the Fed back to the brink of an interest rate cut. The expectation of a coming interest rate has added urgency to the bond market, Lampe said.
“The window is closing very quickly,” Lampe added. “We’re at the peak, so bond values have the potential to go down.”
The chances of an interest rate cut at the Fed’s next meeting in September are all but certain, according to the CME FedWatch Tool, a measure of market sentiment. Market observers are split roughly down the middle about whether the Fed will impose its typical cut of a quarter of a percentage point or opt for a larger half-point cut.
“The more that rates are cut, bond prices will go up higher but bond yields will go down lower,” said Aggarwal.
Bonds also offer investors a relatively safe option in the event of a possible recession, some experts said.
A disappointing jobs report earlier this month raised concern that the economy may be slowing down faster than previously known.
The unemployment rate has soared this year from 3.7% to 4.3%. That trend has triggered a recession indicator known as the “Sahm Rule,” which says that a rise of 0.5 percentage points in the unemployment rate within a 12-month period typically precedes a recession.
Bonds provide investors with fixed, predictable returns, sheltering them from a potential downturn in the stock market if economic performance cratered, Yiming Ma, a finance professor at Columbia University Business School, told ABC News.
“The economy is slowing down and the risk of a downturn is going up,” Ma said. “That is usually when investors want to seek something safer.”