Yellen Says Inflation Is Here to Stay While Target Is Cutting Prices. They’re Not at Odds.
Targett #Targett
At the same time, Target said on Tuesday it will have to cut prices to shift inventory, further hurting profitability this year.
That seems like a contradiction. But it makes sense if we accept that faster inflation works much like rising interest rates in holding back consumers.
Most inflation is coming from energy prices, as the consumer price inflation numbers will show on Friday. Retailers are struggling to pass on their own higher costs. U.S. gasoline costs $4.91 a gallon at the pump, about $2 more than last year. That gives households less money to spend on other things. Economists call it demand destruction.
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Second, spikes in oil and commodity prices such as we have seen since Russia invaded Ukraine always contain the seeds of their own demise. Prices can’t keep rising forever because eventually economic growth slows enough to stop them.
When that happens, it will most likely be an overreaction. That is why the word recession is still on the tips of everyone’s tongues, even though unemployment is currently low. The Federal Reserve might be able to engineer a soft landing, but if it does it will probably be down to luck as much as any careful application of its powers.
For now, most of the talk is about the darkening outlook. The World Bank slashed its forecasts for global growth and the U.S. this year. Billionaire hedge fund manager Ray Dalio says that pain caused by rising interest rates this year will force central banks to ease again in 2024.
Yet despite the bad omens piling up, stocks have stopped falling as hard as they were. The S&P 500 has avoided a bear market so far when it seemed inevitable just a few weeks ago. Maybe investors think enough bad news is priced in already.
—Brian Swint
*** Join MarketWatch retirement reporter Alessandra Malito and economist Laurence Kotlikoff today at noon as they discuss how to make sense of claiming Social Security and ways to make benefits last in the midst of inflation and market volatility. Sign up here.
*** Target to Slash Inventory as Consumers Shift Shopping Habits
Target is taking steps to cut its inventory for the remainder of the year, forcing the retailer to cut its profit outlook for the second time in almost three weeks. Two years of the Covid-19 pandemic and rising prices are testing companies’ pricing power as consumers shift their shopping habits.
What’s Next: The Census Bureau releases the report on wholesale inventories for May at 10 a.m. today. Economists expect those inventories to have risen 2.1% from April, the same as the rate of increase in the prior month.
—Luisa Beltran and Lisa Beilfuss
*** New Bill Would Give CFTC Oversight for Cryptocurrency Market
Senators Cynthia Lummis (R., Wyo.) and Kirsten Gillibrand (D., N.Y.) have introduced a bill that treats cryptocurrencies largely as commodities and gives the Commodity Futures Trading Commission oversight for what regulators have described as a “Wild West” market for digital assets.
What’s Next: The bill sets up an advisory committee to make recommendations on future regulation to the White House and Congress. It isn’t likely to make headway this year but is considered an important table setter for a regulatory push in 2023.
—Luisa Beltran and Joe Light
*** Yellen Says Inflation ‘Unacceptable’ but Expects It to Stay High
Treasury Secretary Janet Yellen said inflation will remain elevated as the Biden administration continues to battle high prices that are denting American pocketbooks. Current “unacceptable” levels of inflation are linked to supply-chain problems and Russia’s war in Ukraine, she said.
What’s Next: The World Bank cut its growth forecast for the global economy for this year to 2.9% from 5.7% last year as it warned of several years of high inflation and tepid growth reminiscent of the stagflation of the 1970s.
—Liz Moyer
*** FDA Advisors Back Novavax’s Covid-19 Vaccine
The Food and Drug Administration’s vaccines advisory panel backed Novavax ’s long-delayed Covid-19 vaccine, saying the benefits outweighed the risks. It is now up to the FDA to decide whether to authorize the vaccine on an emergency basis.
What’s Next: All signs point to the FDA giving the vaccine the nod. In comments made early in Tuesday’s meeting, the director of the FDA’s Center for Biologics Evaluation and Leadership, Dr. Peter Marks, said that there is a significant need for a Covid-19 vaccine in the U.S. not based on a messenger RNA approach.
—Josh Nathan-Kazis
*** Crude Seen Rising to $135 a Barrel in Next Year: Goldman
Crude prices will need to rise to an average $135 a barrel in the year starting in July to balance supply and demand in the global market as China’s demand increases and Russia’s supply falls, Goldman Sachs analysts said.
What’s Next: GasBuddy’s Patrick De Haan now expects the national average price of gasoline at the pump to top $5 a gallon by June 10, about a week earlier than a previous forecast.
—Liz Moyer
***
Dear Quentin,
My father-in-law has health issues. While he is not quite ready for a nursing home, that may be a necessity in the near future. He has state retirement benefits and a very small Social Security check.
My mother-in-law operated an at-home daycare service, caring for a couple of children. Therefore, she has no Social Security in her old age. They sold their home a year ago and live full-time in an RV.
The majority of their assets are in cash. They have a couple hundred thousand dollars at best, held in joint accounts. They still have Colorado driver’s licenses, but receive mail at our house in South Dakota.
If my father-in-law has to go into a nursing home and his assets are surrendered for his care, his wife has no income. How can their assets be protected so that she has a means of support?
—Concerned Son-in-Law
Read The Moneyist’s response here.
—Quentin Fottrell
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—Newsletter edited by Liz Moyer, Camilla Imperiali, Steve Goldstein, Rupert Steiner