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Business

JetBlue announces a deal to buy Spirit Airlines. Fares could surge

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JetBlue had been pursuing a hostile bid for Spirit even while Spirit sought shareholder approval for a lower-priced deal with Frontier. Spirit had continually expressed concern whether regulators would approve a deal with JetBlue. But shareholders had balked at accepting Frontier’s less-valuable cash-and-stock offer when they had JetBlue’s all-cash offer on the table.

JetBlue CEO Robin Hayes said the deal will be fruitful for investors and passengers.

“We are excited to deliver this compelling combination that turbocharges our strategic growth, enabling JetBlue to bring our unique blend of low fares and exceptional service to more customers, on more routes,” he said in a statement.

Higher fares

But industry experts have said the deal could lead to higher fares across the industry. A Frontier-Spirit deal, by contrast, would have brought together two airlines that have very low base fares. Neither airline has first class or business class seats.

The presence of Spirit or Frontier on a route typically forces larger airlines, such as American (AAL), United (UAL) and Delta (DAL), to offer more seats at their similar bare-bones basic economy fare. JetBlue may argue that it charges less than the larger network carriers, but its airfares are higher than Spirit and Frontier’s. And JetBlue plans to reconfigure the Spirit planes if it acquires the airline to add first class seating.

“Spirit and Frontier play a big role in the fare you pay, even if you never fly either one,” said Scott Keyes, founder of Scott’s Cheap Flights, a web site that helps passengers find cheaper fares. “When Delta announced the basic economy fare in 2012, they described it to investors as a ‘Spirit-matching fare,’ because their lunch was getting eaten by the budget carriers of the world. I’m not a fan of either merger, but I like the JetBlue option even less.”

For that reason, it’s possible that the JetBlue deal for Spirit will face strong antitrust scrutiny from the US Department of Justice, particularly if the Justice Department views the acquisition as harmful to consumers.

The proposed JetBlue Spirit deal is smaller than many airline mergers of recent decades, which turned the 10 largest US airlines into four mega-carriers that control 80% of US air traffic. But the Biden administration has taken a much more aggressive stance on questions of antitrust law and vowed to promote greater competition within the airline industry.
Biden’s Justice Department sued to block an alliance between American and JetBlue that allows each airline to book passengers onto the other’s flights. Spirit pointed to that legal action when arguing a JetBlue deal wouldn’t get the necessary approval.

More competition?

But those doubts about a deal with JetBlue were nowhere to be found in Spirit’s comments Thursday.

“We are thrilled to unite with JetBlue through our improved agreement to create the most compelling national low-fare challenger to the dominant U.S. carriers,” said CEO Ted Christie.

In an interview on CNBC Thursday, Christie was pressed about the criticism he had about JetBlue’s offer in the past, and his doubts about regulators approving the deal.

“We’ve learned a lot over the last few months,” he said. “They’ve got an aggressive strategy to get this deal done. We’re going to be right by their side making sure it happens, because it’s good for our group. Some of the narrative is this is going to create a big national competitor to the Big Four.”

JetBlue’s Hayes said the best argument for regulators is that this deal will provide another major national carrier and create more competition, not less.

“We’re focused on getting this deal done,” he said on CNBC. “We’re focused on bringing more airplanes in, offering more low fares and great product to customers in more geographies than JetBlue or Spirit could do alone.”

While passengers might like the low fares offered on Spirit and Frontier, they typically did not like the service. Spirit had by far the highest number of passenger complaints in 2021, with 11.45 complaints per 100,000 passengers, according to the US Department of Transportation. JetBlue had the second most complaints on that basis with 6.38, while Frontier came in third with 5.78. Frontier had by far the worst rate of complaints in 2020, when it recorded 49.31 complaints per 100,000 customers.

The deal

The deal announced Thursday would pay Spirit shareholders $33.50 per share in cash, including a prepayment of $2.50 per share in cash payable upon Spirit stockholders’ approval of the transaction — even before the deal closes.

JetBlue will pay Spirit shareholders an additional 10 cents a month for any delay in closing after December of this year, which could raise the price to $34.15 a share. And if regulators block the deal, JetBlue will pay Spirit $70 million, and its shareholders would get an additional $400 million.

Spirit will have to pay Frontier $25 million to cover costs Frontier incurred during merger discussions. If JetBlue is able to close its deal for Spirit within the next 12 months, Spirit will owe Frontier an additional $69 million.

Wednesday evening when its deal with Spirit was terminated, Frontier expressed regret but vowed it will be able grow even without a merger.

“With JetBlue seeking to convert Spirit Airlines into a high-cost airline, Frontier will be unmatched as the ultra-low cost leader,” it said.

If JetBlue closes the deal this year at $33.50, it’ll be a 38% premium over Spirit’s closing price Wednesday and about $1 billion more than Frontier’s offer had been worth. Shares of Spirit (SAVE) were up 4% in premarket trading on the news, while JetBlue (JBLU) shares gained 1%. Frontier shares were little changed.

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Business

JetBlue agrees to buy Spirit in $3.8 billion deal to create 5th-largest U.S. airline

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LaGuardia International Airport Terminal A for JetBlue and Spirit Airlines in New York.

Leslie Josephs | CNBC

JetBlue Airways reached a deal to buy Spirit Airlines, hours after the discount carrier scrapped plans to merge with Frontier Airlines.

JetBlue said it will pay $33.50 a share in cash for Spirit in a $3.8 billion deal.

A JetBlue acquisition of Spirit would create the country’s fifth-largest carrier, and if approved by regulators, would leave Frontier as the largest discount carrier in the U.S.

JetBlue’s surprise, all-cash bid for Spirit in April had thrown Spirit’s plan to combine with fellow discounter Frontier into question. For months, Frontier and JetBlue competed for Spirit, each sweetening their offers, until the original merger plan fell apart earlier Wednesday, clearing the way for JetBlue.

Spirit said it planned to continue talks to sell itself to JetBlue after ending the Frontier agreement.

JetBlue executives have argued for months that buying Miramar, Florida-based Spirit would help it compete with large carriers like American, Delta, United and Southwest, which control most of the U.S. market, and fast-track its growth by giving it access to more Airbus jetliners and pilots, both of which are in short supply.

New York-based JetBlue wants to refurbish Spirit’s planes in JetBlue style, featuring seatback screens and more legroom.

Spirit previously rebuffed JetBlue’s bids and said such a deal wasn’t likely to be approved by regulators, in part because JetBlue’s alliance with American, which the Justice Department sued to block last year.

The deal faces a high hurdle for regulatory approval.

Spirit shares were up more than 4% in premarket trading after the deal was announced, while JetBlue was up 0.5%.

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Business

Shell smashes record again with $11.5 billion profit

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General view of a Shell petrol station sign in Milton Keynes, Britain, January 5, 2022. REUTERS/Andrew Boyers/File Photo GLOBAL BUSINESS WEEK AHEAD

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  • Shell announced $6 bln buyback programme
  • Refining margins triple in second quarter
  • Strong gas and power trading lift profits

LONDON, July 28 (Reuters) – Shell (SHEL.L) on Thursday reported a second quarter profit of $11.5 billion, smashing its previous record just three months earlier, lifted by a tripling of refining profits and strong gas trading.

The company also announced a share buyback programme of $6 billion for the current quarter, but did not raise its dividend of 25 cents per share. It said shareholder returns would remain “in excess of 30% of cash flow from operating activities”.

A rapid recovery in demand following the end of pandemic lockdowns and a surge in energy prices, driven by Russia’s invasion of Ukraine, have boosted profits for energy companies after a two-year slump. read more

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Shell bought back $8.5 billion of shares in the first half of 2022, and the new repurchase programme is significantly higher than forecasts.

“The strong oil price backdrop has helped Shell deliver a blockbuster set of results. The dividend may have remained the same, but the share buyback programme is positive news for shareholders,” said Stuart Lamont, investment manager at Brewin Dolphin.

Shell shares were up 0.9% at the opening of trading in London.

French rival TotalEnergies (TTEF.PA) also reported on Thursday a record profit of $9.8 billion in the quarter and accelerated its buyback programme. read more

Norway’s Equinor (EQNR.OL) raised its special dividend and boosted share buybacks on Wednesday. read more

U.S. rivals Exxon Mobil and Chevron report results on Friday.

Oil and gas prices remained elevated in the quarter, with benchmark Brent crude averaging about $114 a barrel. Benchmark European natural gas prices and global liquefied natural gas (LNG) prices averaged an all-time high in the quarter.

REFINING BOOST

Shell’s second-quarter adjusted earnings rose to $11.47 billion, above the $11 billion forecast by analysts in a poll provided by the company.

That was up from $5.5 billion a year earlier and from $9.1 billion in the first quarter of 2022.

Shell’s strong results reflected higher energy prices and refining margins, as well as strong gas and power trading, the company said, but were partly offset by lower LNG trading results.

Refining profit margins tripled in the quarter to $28 per barrel. They have weakened substantially in recent weeks amid signs of easing gasoline demand in the United States and Asia.

Shell said its refinery utilization would increase to 90-98% in the third quarter, compared with 84% in the second quarter.

Its oil and gas production in the second quarter was down 2% from the previous quarter to 2.9 million barrels of oil equivalent per day (boepd).

Shell’s LNG liquefaction volumes stood at 7.66 million tonnes in the second quarter, down from 8 million in the previous quarter. Volumes are expected to fall to between 6.9-7.5 million in the third quarter due to strikes at its Australian Prelude site and planned maintenance.

Shell used the surge in cash generation to further reduce its debt, which stood at $46.4 billion at the end of June, compared with $48.5 billion three months earlier. Its debt-to-capitalization ratio, or gearing, declined to 19.3%.

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Reporting by Ron Bousso and Shadia Nasralla
Editing by Jason Neely and Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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Business

Barclays posts profit slump after hit from costly trading error in the U.S.

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A branch of Barclays Bank is seen, in London, Britain, February 23, 2022.

Peter Nicholls | Reuters

Barclays on Thursday saw a slump in second-quarter profit after taking a substantial provision relating to a costly trading error in the U.S.

The British bank reported a £1.071 billion ($1.30 billion) net profit attributable to shareholders, meeting expectations of £1.085 billion expected by analysts, according to Refinitiv. However, it marked a 48% slump from the same period a year earlier.

Barclays took litigation and conduct charges of £1.9 billion for the first half of the year, including a £1.3 billion cost related to what the bank calls the “over-issuance of securities” in the U.S.

The British bank announced earlier this year that it had sold $15.2 billion more in U.S. investment products — known as structured notes — than it was permitted to.

The £1.3 billion in litigation and conduct charges booked in the second quarter were “substantially offset,” according to the bank, by a hedge which generated income of £758 million.

They include the cost of repurchasing the excess notes and an estimated £165 million monetary penalty from the SEC.

Barclays also put £165 million aside in order to settle with regulators over an investigation into the use of communication tools by staff across the finance industry.

The charges, along with the appreciation of the dollar against the British pound, led Barclays to increase its projected full-year operating expenses to £16.7 billion from the previous outlook of £15 billion.

Other highlights for the quarter included:

  • Group revenues up to £6.7 billion, from £5.4 billion a year ago.
  • CET 1 ratio, a measure of bank solvency, coming in a 13.6%, down from 13.8% in the first quarter.
  • Total operating expenses were £5 billion, up from £3.7 billion in the second quarter of 2021.

Barclays shares will begin Thursday’s trading down over 15% on the year amid wider concerns over interest rates, inflation and a slowdown in growth.

CEO C.S. Venkatakrishnan (known as Venkat) said the bank had achieved a “strong first half,” with group income up 17% and a return on tangible equity of 10.1%.

“The broad-based income growth that we achieved in the first quarter continued across all three operating businesses into the second quarter,” Venkat said.

“Our performance in the first half shows the resilience and advantage that diversification at all levels brings, both across the bank and within our businesses.”

Venkat took over the reins of the bank in November 2021 after long-time CEO Jes Staley resigned following an investigation by regulators into his relationship with Jeffrey Epstein.

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Business

Was Fed’s Powell dovish or not? 4 key takeaways from Wednesday’s press conference

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Investors reacted as if Fed Chairman Jerome Powell’s press conference Wednesday was dovish, but many economists think it was on the hawkish side of the street.

Here are some of the key takeaways from Powell’s hour-long discussion with reporters about the state of the economy and central bank policy:

Read: Fed jacks up rates to combat highest inflation in 41 years

You say ‘dovish’ and I say ‘hawkish’

After Powell spoke, stock prices
DJIA,
+1.37%

SPX,
+2.62%
rose sharply and bond yields
TMUBMUSD02Y,
2.984%
declined more at the short end than the long end, clear signs the market thought Powell was dovish.

But Robert Perli, head of global policy at Piper Sandler, disagreed with this conclusion.

“The press conference was hawkish,” he said.

“All Powell could do at the press conference today was talk about how inflation was too high, how the Fed is determined to bring it down, and implicitly how he would be willing to tolerate a recession if that’s what’s needed to get the job done,” Perli said.

The market latched on to Powell’s statement that slowing down from the pace of 0.75-percentage-point rate hikes will likely be appropriate “at some point.” Perli said this is “obvious” as the Fed can’t continue on that pace forever.

The market also liked when Powell said the Fed was moving to a new “meeting-to-meeting” phase, perhaps believing that a peak in interest rates is near.

Perli said that’s a misreading and Powell doesn’t want to give guidance because there is so much uncertainty.

Scott Anderson, chief economist at Bank of the West, said the lack of forward guidance from the Fed could increase interest-rate and stock-market volatility around important U.S. data releases, especially on inflation “as investors try to determine what it might mean for the pace of additional rate hikes and the terminal peak for rates in the current tightening cycle.”

Powell ‘bobs and weaves’ on recession

Powell managed to “bob and weave” around the questions of recession, said Josh Shapiro, chief U.S. economist at MFR.

Powell said the Fed wasn’t trying to create a recession and did not expect one, and also that we are not currently in one. He refused to categorically state how it would affect the Fed’s policy path if one materialized, Shapiro said.

The Fed chairman said there was still a path to bring inflation down while sustaining a strong labor market.

“We continue to think that there is a path [to a soft landing]. We know the path has clearly narrowed…and may narrow further,” he said.

Powell said the Fed is determined to bring inflation down, and this likely means a period of “below-trend economic growth and some softening in the labor market conditions. “

What about September?

Powell kept the door open for another “unusually large” 0.75-percentage-point hike in September, but said it would depend on the data.

Carl Tannenbaum, chief economist at Northern Trust, noted that Powell suggested that the year-end fed funds rate would be in the range of 3.25%-3.5%. That is another 100 basis points higher, which the Fed might prefer to accomplish with a 50-basis-point increase followed by two 25-basis-point hikes, rather than going from 75 basis points in September, to 25, then to zero. Powell “sounded marginally less hawkish to me,” he said.

Balance-sheet plans

Powell said the Fed’s program to shrink its balance sheet is working and markets “should be able to absorb this.” He said the plan was on track and could take two to two-and-a-half years.

Some economists have starting to forecast the Fed will end the “quantitative tightening” program next year.

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Business

Self-driving tech company Pony.ai plans to deliver robotrucks in China

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Self-driving tech start-up Pony.ai announced Thursday it plans to mass produce autonomous driving trucks with equipment manufacturing giant Sany Heavy Industry.

Pony.ai

BEIJING — Self-driving tech start-up Pony.ai announced Thursday it plans to mass produce autonomous driving trucks in China with equipment manufacturing giant Sany Heavy Industry.

Annual production is set to reach about 10,000 trucks “within a few years,” according to a press release. Small-scale deliveries are set to begin this year and next, with mass production due to start in 2024.

The trucks are slated to come with “Level 4” autonomous driving technology, which would allow full self-driving on highways and urban roads, according to Pony.ai. “L4” is part of an industry classification system that designates full self-driving under specific conditions.

Under current rules in China, the robotrucks won’t be able to operate fully autonomously.

Pony.ai said it only has testing permits in Beijing and Guangzhou for autonomous trucks. But the company said it expects to operate L4 trucks in China as regulations develop.

Pony.ai’s autonomous driving system uses the Nvidia Drive Orin chip, similar to several Chinese electric car companies that offer drivers assisted-driving technology.

Some, but not all, of the planned trucks will be “new energy vehicles,” a category that includes electric vehicles.

Pony.ai declined Thursday to share additional information about cost per truck and whether the trucks would only be available in China.

Sany has offices globally, while Pony.ai also operates in the U.S. The robotruck mass production deal is part of a strategic joint venture between Pony.ai and Sany Heavy Truck, a Sany subsidiary.

Analysts generally expect robotrucks to take off more quickly than robotaxis due to the more uniform nature of truck routes along highways. Daily truck drives typically last for hours versus far shorter taxi rides.

Read more about electric vehicles from CNBC Pro

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Business

Opinion: Is Mark Zuckerberg taking the first step toward turning Facebook into Yahoo 2.0?

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Yahoo was once the most popular website on the planet, the only place that everyone on the internet seemed to touch at least once an online session. After an ignominious slide, however, Yahoo is just another site that has some fans in certain parts of Asia and offers some niche products.

Has Mark Zuckerberg launched Facebook on a similar path?

That is the big question investors need to start asking as the Meta Platforms Inc.
META,
+6.55%
chief executive scrambles to shift his strategy amid obvious signs of distress. After its first-ever decline in users three months ago, Facebook reported its first quarterly revenue decline in history Wednesday, and Zuckerberg’s answer is to mimic a rival and send the company into dangerous waters that already almost killed the platform and took U.S. democracy with it.

Zuckerberg is changing the company’s core apps to become far more reliant on artificial intelligence to drive the content its users see, seeking to mimic growing Chinese rival TikTok — a major shift to give the algorithm more power over what people see on Facebook and Instagram. Zuckerberg told analysts on the company’s second-quarter earnings call that Meta’s apps will rely more on its discovery engine, instead of people or things you follow, for content. That means users will see (and are already seeing) content from complete strangers in their feeds and videos, just like TikTok.

“Right now, about 15% of content in a person’s Facebook feed, and a little more than that of their Instagram feed, is recommended by our AI from people, groups or accounts that you don’t follow,” Zuckerberg said. “And we expect these numbers to more than double by the end of next year.”

Facebook was lucky to survive a series of scandals in recent years, from allowing election misinformation to run amok to selling private user data to helping spread the incitement of violence that led to the storming of the U.S. Capitol. Yet apparently nothing was learned, as the company, or at least its algorithm, will now decide what stranger’s content you will see.

Facebook, and the world, have already learned that bad actors will learn how to game that algorithm, leading to dominance of incendiary posts or videos, divisive content that will pit strangers against strangers, on an even scarier scale than exists today. If we’re lucky, the result will be that the users Facebook still has will decide it’s time to leave for other online destinations, as Yahoo’s fans once did.

While the algorithm takes even more charge of Facebook and Instagram — the content-moderation aspect of both social-media sites is already mostly handled by AI, Zuckerberg said in answer to a question on the call, showing just how incapable Facebook’s technology is at succeeding in its aims — Zuckerberg will expend his human capital on his pipe dream of the “metaverse.” Zuckerberg’s grand vision is to create a digital universe populated by those who want to escape the real world of grass, flowers, air, sky, animals and humans by wearing a clunky headset so you can hang out with your friends in a digital nightclub or boardroom or wherever else you want.

Virtual reality has only proven to be popular among a small segment of the population, and it is still too kludgy to be adopted by the mainstream consumer, something Yahoo co-founder Jerry Yang has already learned. So instead, all those parents and grandparents on Facebook, the olds Zuckerberg no longer cares about, will be tended by bots, while his minions focus on a new world: The uncomfortable, potentially dystopian future.

Facebook and Instagram have had huge growth because they appealed to the masses, not just advanced users or the techies who develop these products. If Meta loses these users, its apps will continue their current downward spiral — digital ad declines, recession or not — much in the same way that Yahoo failed to transition to mobile, with a complex site and services that could not easily adapt even as they tried to copy younger rivals, just as Facebook is doing now.

Zuckerberg is the king of Meta, with total founder control, so what he says is the law of the land — power that Yang and the parade of CEOs who took over Yahoo when he was not in charge never had. Nobody is going to stop Zuckerberg from this bet on an algorithm-driven future, so investors need to decide if they want to take the chance that there is nothing ahead of him but a downward spiral to the same fate Silicon Valley has already seen from a once-popular portal to the web.

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Business

Market jump after Fed hike is ‘trap,’ Morgan Stanley warns investors

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Morgan Stanley is urging investors to resist putting their money to work in stocks despite the market’s post-Fed-decision jump.

Mike Wilson, the firm’s chief U.S. equity strategist and chief investment officer, said he believes Wall Street’s excitement over the idea that interest rate hikes may slow sooner than expected is premature and problematic.

“The market always rallies once the Fed stops hiking until the recession begins. … [But] it’s unlikely there’s going to be much of a gap this time between the end of the Fed hiking campaign and the recession,” he told CNBC’s “Fast Money” on Wednesday. “Ultimately, this will be a trap.”

According to Wilson, the most pressing issues are the effect the economic slowdown will have on corporate earnings and the risk of Fed over-tightening.

“The market has been a bit stronger than you would have thought given the growth signals have been consistently negative,” he said. “Even the bond market is now starting to buy into the fact that the Fed is probably going to go too far and drive us into recession.”

‘Close to the end’

Wilson has a 3,900 year-end price target on the S&P 500, one of the lowest on Wall Street. That implies a 3% dip from Wednesday’s close and a 19% drop from the index’s closing high hit in January.

His forecast also includes a call for the market to take another leg lower before getting to the year-end target. Wilson is bracing for the S&P to fall below 3,636, the 52-week low hit last month.

“We’re getting close to the end. I mean this bear market has been going on for a while,” Wilson said. “But the problem is it won’t quit, and we need to have that final move, and I don’t think the June low is the final move.”

Wilson believes the S&P 500 could fall as low as 3,000 in a 2022 recession scenario.

“It’s really important to frame every investment in terms of ‘What is your upside versus your downside,'” he said. “You’re taking a lot of risk here to achieve whatever is left on the table. And, to me, that’s not investing.”

Wilson considers himself conservatively positioned — noting he’s underweight stocks and likes defensive plays including health care, REITs, consumer staples and utilities. He also sees merits of holding extra cash and bonds at the moment.

And, he’s not in a rush to put money to work and has been “hanging out” until there are signs of a trough in stocks.

“We’re trying to give them [clients] a good risk-reward. Right now, the risk-reward, I would say, is about 10 to one negative,” Wilson said. “It’s just not great.”

Disclaimer

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Business

Conservatives slam Associated Press for tweet saying ‘common definition’ of recession doesn’t count

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NEWYou can now listen to Fox News articles!

Conservatives, politicians and more were quick to slam the Associated Press on Wednesday for a tweet which claimed the “common definition” of a recession was not “the one that counts.” 

“By one common definition — the economy shrinking for consecutive quarters — the U.S. economy is on the cusp of a recession. Yet that definition isn’t the one that counts,” the Associated Press tweeted. 

Critics blasted the notion, which has also been pushed by several Biden administration officials. Multiple media outlets, including the Associated Press, appear to be repeating the White House talking points on a possible recession as well. 

BIDEN WHITE HOUSE TALKING POINTS REDEFINING RECESSION QUICKLY EMBRACED BY MEDIA OUTLETS

President Joe Biden holds a press conference.
(Fox News )

“By one common definition — the team scoring more points than its opponent wins the game — Super Bowl LVI resulted in the Los Angeles Rams beating the Cincinnati Bengals. Yet that definition isn’t the one that counts,” former FCC chairman Ajit Pai joked. 

Fox News contributor Mollie Hemingway described the tweet as “soviet style journalism.” 

People shop in a supermarket as rising inflation affects consumer prices in Los Angeles, California, U.S., June 13, 2022.
(REUTERS/Lucy Nicholson)

The White House has insisted in recent days that even if the GDP report, which is set to be released on Thursday, does show a second quarter of negative GDP growth, it does not mean the U.S. is in a recession. 

Brian Deese, Biden’s National Economic Council Director, said Sunday on CNN that the report was “inherently backward looking” and that “in terms of the technical definition, it’s not a recession.”

FORMER OBAMA ECONOMIC ADVISER LARRY SUMMERS WARNS A ‘VERY HIGH LIKELIHOOD’ FOR A RECESSION

Texas Attorney General Ken Paxton said that Texans “see right through this spin when they pay dearly at the pump & grocery store.”

Some Republican lawmakers joined in the mockery like Rep. Warren Davidson, Ohio, who quipped, “Just say 2+2=5.”

Rep. Darrell Issa, R-CA., contended that the Associate Press “dutifully reprinted” White House talking points.

Others followed Issa in highlighting how the media appears to be repeating the messaging coming from the Biden adminstration. 

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White House Council of Economic Advisers’ Jared Bernstein was among the several officials to reject the usual definition of a recession when he said this weekend that Thursday’s GDP data would “come in with a bit of a lag.”

White House Council of Economic Advisers member Jared Bernstein speaks during a press briefing at the White House in Washington, U.S., April 1, 2022. 
(REUTERS/Kevin Lamarque)

Treasury Secretary Janet Yellen was also asked about a possible recession on Sunday. 

“Well, I look at all the data, and GDP will be closely watched,” Yellen said on NBC’s “Meet the Press.” “A common definition of recession is two negative quarters of GDP growth, or at least that’s something that’s been true in past recessions. When we have seen that, there has usually been a recession. And many economists expect second-quarter GDP to be negative. First-quarter GDP was negative, so we could see that happen, and that will be closely watched. But I do want to emphasize, what a recession really means is a broad-based contraction in the economy. And even if that number is negative, we are not in a recession now, and I would, you know, warn that we should be not characterizing that as a recession.”

Hanna Panreck is an associate editor at Fox News.

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Business

Federal Reserve hikes interest rates for the fourth time this year

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The Federal Reserve took an aggressive step on Wednesday to combat soaring inflation with the announcement of another larger than usual, three-quarters of a percentage point interest rate hike. The increase comes as central banking officials face a tough balancing act: bringing down rising prices amid growing concerns of an economic downturn.

The latest increase brings the federal funds rate to between 2.25% and 2.50%, which is where it was at its most recent high in summer 2019 before the coronavirus pandemic. 

This marks the fourth interest rate hike of the year as consumer prices have risen at the fastest pace in more than 40 years. Five months ago, the federal funds rate was near zero percent. At its June meeting, the Federal Open Market Committee raised the federal funds rate by a more aggressive 75 basis points for the first time in nearly 30 years following an increase of 25 basis points and 50 basis points at the March and May meetings, respectively. 

With consumer prices up more than 9% from a year ago, additional rate increases are expected through the end of the year. At their meeting last month, Fed officials projected the rate would increase to more than 3% by 2023. The committee will meet again in September, November and December. 

The Federal Reserve signaled it does anticipate additional rate hikes. Federal Reserve Chairman Jerome Powell said Wednesday that another “unusually large” rate increase at the next meeting could be “appropriate,” but the committee is making that decision meeting by meeting, and it would be likely then for increases to slow. Powell acknowledged the possibility of further hikes next year.

Federal Reserve Board Chairman Jerome Powell speaks during a news conference in Washington, DC, on July 27, 2022. 

MANDEL NGAN/AFP via Getty Images


Increases in the federal funds rate has led to higher borrowing costs for Americans. According to Greg McBride, chief financial analyst at Bankrate.com, debts with variable rates such as credit cards and home equity lines of credit will be affected the most. 

“Consumers should look to low-rate credit card balance transfer offers and doing so with urgency to insulate from further rate increases and make headway on paying down debt,” McBride said. “Ask your lender if fixing the interest rate on your outstanding home equity balance is an option.”

The federal funds rate hike comes as several other key pieces of economic data are scheduled to be released this week. On Thursday, the Commerce Department will release its report on GDP for the second quarter of 2022, which could further show signs that the U.S. is in a recession after the measure of economic activity declined in the first quarter of the year. 

On Monday, President Biden said during an event that the U.S. is not going to be in a recession, noting the unemployment rate is near its pre-pandemic level at 3.6%. Over the weekend, Treasury Secretary Janet Yellen, who also previously served as chair of the Federal Reserve, acknowledged in an interview that the economy is slowing down but said it is not an economy in recession. Whether the U.S. is in a recession is determined by the National Bureau of Economic Research. Yellen argues the economy is in a period of transition.

“I do not think that the U.S. is currently in a recession,” Powell said. He noted there are many areas of the economy performing “too well.” Powell specifically mentioned the labor market, saying that job growth is slowing but that is expected. “This is a very strong labor market.”

The Commerce Department will also release its latest report on the Personal Consumption Expenditures Price Index for June on Friday, the preferred inflation gauge used by the Federal Reserve.

Sarah Ewall-Wice

CBS News reporter covering economic policy.

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