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Business

5 signs the world is headed for a recession

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New York
CNN Business
 — 

Around the world, markets are flashing warning signs that the global economy is teetering on a cliff’s edge.

The question of a recession is no longer if, but when.

Over the past week, the pulse of those flashing red lights quickened as markets grappled with the reality — once speculative, now certain — that the Federal Reserve will press on with its most aggressive monetary tightening campaign in decades to wring inflation from the US economy. Even if that means triggering a recession. And even if it comes at the expense of consumers and businesses far beyond US borders.

There’s now a 98% chance of a global recession, according to research firm Ned Davis, which brings some sobering historical credibility to the table. The firm’s recession probability reading has only been this high twice before — in 2008 and 2020.

When economists warn of a downturn, they’re typically basing their assessment on a variety of indicators.

Let’s unpack five key trends:

The US dollar plays an outsized role in the global economy and international finance. And right now, it is stronger than it’s been in two decades.

The simplest explanation comes back to the Fed.

When the US central bank raises interest rates, as it has been doing since March, it makes the dollar more appealing to investors around the world.

In any economic climate, the dollar is seen as a safe place to park your money. In a tumultuous climate — a global pandemic, say, or a war in Eastern Europe — investors have even more incentive to purchase dollars, usually in the form of US government bonds.

While a strong dollar is a nice perk for Americans traveling abroad, it creates headaches for just about everyone else.

The value of the UK pound, the euro, China’s yuan and Japan’s yen, among many others, has tumbled. That makes it more expensive for those nations to import essential items like food and fuel.

In response, central banks that are already fighting pandemic-induced inflation wind up raising rates higher and faster to shore up the value of their own currencies.

The dollar’s strength also creates destabilizing effects for Wall Street, as many of the S&P 500 companies do business around the world. By one estimate from Morgan Stanley, each 1% rise in the dollar index has a negative 0.5% impact on S&P 500 earnings.

The No. 1 driver of the world’s largest economy is shopping. And America’s shoppers are tired.

After more than a year of rising prices on just about everything, with wages not keeping up, consumers have pulled back.

“The hardship caused by inflation means that consumers are dipping into their savings,” EY Parthenon Chief Economist Gregory Daco said in a note Friday. The personal saving rate in August remained unchanged at only 3.5%, Daco said — near its lowest rate since 2008, and well below its pre-Covid level of around 9%.

Once again, the reason behind the pullback has a lot to do with the Fed.

Interest rates have risen at a historic pace, pushing mortgage rates to their highest level in more than a decade and making it harder for businesses to grow. Eventually, the Fed’s rate hikes should broadly bring costs down. But in the meantime, consumers are getting a one-two punch of high borrowing rates and high prices, especially when it comes to necessities like food and housing.

Americans opened their wallets during the 2020 lockdowns, which powered the economy out of its brief-but-severe pandemic recession. Since then, government aid has evaporated and inflation has taken root, pushing prices up at their fastest rate in 40 years and sapping consumers’ spending power.

Business has been booming across industries for the bulk of the pandemic era, even with historically high inflation eating into profits. That is thanks (once again) to the tenacity of American shoppers, as businesses were largely able to pass on their higher costs to consumers to cushion profit margins.

But the earnings bonanza may not last.

In mid-September, one company whose fortunes serve as a kind of economic bellwether gave investors a shock.

FedEx, which operates in more than 200 countries, unexpectedly revised its outlook, warning that demand was softening, and earnings were likely to plunge more than 40%.

In an interview, its CEO was asked whether he believes the slowdown was a sign of a looming global recession.

“I think so,” he responded. “These numbers, they don’t portend very well.”

FedEx isn’t alone. On Tuesday, Apple’s stock fell after Bloomberg reported the company was scrapping plans to increase iPhone 14 production after demand came in below expectations.

And just ahead of the holiday season, when employers would normally ramp up hiring, the mood is now more cautious.

“We’ve not seen the normal September uptick in companies posting for temporary help,” said Julia Pollak, chief economist at ZipRecruiter. “Companies are hanging back and waiting to see what conditions hold.”

Wall Street has been hit with whiplash, and stocks are now on track for their worst year since 2008 — in case anyone needs yet another scary historical comparison.

But last year was a very different story. Equity markets thrived in 2021, with the S&P 500 soaring 27%, thanks to a torrent of cash pumped in by the Federal Reserve, which unleashed a double-barreled monetary-easing policy in the spring of 2020 to keep financial markets from crumbling.

The party lasted until early 2022. But as inflation set in, the Fed began to take away the proverbial punch bowl, raising interest rates and unwinding its bond-buying mechanism that had propped up the market.

The hangover has been brutal. The S&P 500, the broadest measure of Wall Street — and the index responsible for the bulk of Americans’ 401(k)s — is down nearly 24% for the year. And it’s not alone. All three major US indexes are in bear markets — down at least 20% from their most recent highs.

In an unfortunate twist, bond markets, typically a safe haven for investors when stocks and other assets decline, are also in a tailspin.

Once again, blame the Fed.

Inflation, along with the steep rise in interest rates by the central bank, has pushed bond prices down, which causes bond yields (aka the return an investor gets for their loan to the government) to go up.

On Wednesday, the yield on the 10-year US Treasury briefly surpassed 4%, hitting its highest level in 14 years. That surge was followed by a steep drop in response to the Bank of England’s intervention in its own spiraling bond market — amounting to tectonic moves in a corner of the financial world that is designed to be steady, if not downright boring.

European bond yields are also spiking as central banks follow the Fed’s lead in raising rates to shore up their own currencies.

Bottom line: There are few safe places for investors to put their money right now, and that’s unlikely to change until global inflation gets under control and central banks loosen their grips.

Nowhere is the collision of economic, financial, and political calamities more painfully visible than in the United Kingdom.

Like the rest of the world, the UK has struggled with surging prices that are largely attributable to the colossal shock of Covid-19, followed by the trade disruptions created by Russia’s invasion of Ukraine. As the West cut off imports of Russian natural gas, energy prices have soared and supplies have dwindled.

Those events were bad enough on their own.

But then, just over a week ago, the freshly installed government of Prime Minister Liz Truss announced a sweeping tax-cut plan that economists from both ends of the political spectrum have decried as unorthodox at best, diabolical at worst.

In short, the Truss administration said it would slash taxes for all Britons to encourage spending and investment and, in theory, soften the blow of a recession. But the tax cuts aren’t funded, which means the government must take on debt to finance them.

That decision set off a panic in financial markets and put Downing Street in a standoff with its independent central bank, the Bank of England. Investors around the world sold off UK bonds in droves, plunging the pound to its lowest level against the dollar in nearly 230 years. As in, since 1792, when Congress made the US dollar legal tender.

The BOE staged an emergency intervention to buy up UK bonds on Wednesday and restore order in financial markets. It stemmed the bleeding, for now. But the ripple effects of the Trussonomics turmoil is spreading far beyond the offices of bond traders.

Britons, who are already in a cost-of-living crisis, with inflation at 10% — the highest of any G7 economy — are now panicking over higher borrowing costs that could force millions of homeowners’ monthly mortgage payments to go up by hundreds or even thousands of pounds.

While the consensus is that a global recession is likely sometime in 2023, it’s impossible to predict how severe it will be or how long it will last. Not every recession is as painful as the 2007-09 Great Recession, but every recession is, of course, painful.

Some economies, particularly the United States, with its strong labor market and resilient consumers, will be able to withstand the blow better than others.

“We are in uncharted waters in the months ahead,” wrote economists at the World Economic Forum in a report this week.

“The immediate outlook for the global economy and for much of the world’s population is dark,” they continued, adding that the challenges “will test the resilience of economies and societies and exact a punishing human toll.”

But there are some silver linings, they said. Crises force transformations that can ultimately improve standards of living and make economies stronger.

“Businesses have to change. This has been the story since the pandemic started,” said Rima Bhatia, an economic adviser for Gulf International Bank. “Businesses no longer can continue on the path that they were at. That’s the opportunity and that’s the silver lining.”

— CNN Business’ Julia Horowitz, Anna Cooban, Mark Thompson, Matt Egan and Chris Isidore contributed reporting.

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Business

How to protect your 401(k) in a bear market

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Editor’s Note: This is an updated version of a story that originally ran on August 29, 2022.

Stocks and bonds are trading in bear territory. And given current circumstances, it’s fair to assume the markets will remain volatile for awhile.

Interest rates are rising quickly in the US and Europe amid government efforts to tamp down rampant inflation. Recession fears remain. And a steep drop in the British pound coupled with rising UK debt costs is causing concern.

After getting clobbered in the first half of 2022, then regaining some lost ground, stocks are once again deep in the red for the year, with the S&P 500 down more than 20% year to date. The S&P US aggregate bond index, meanwhile, is down about 14%.

And investors may see a lot more churn over the next year.

“Markets are likely to be volatile – both up and down – over the next six to 12 months as the Federal Reserve continues to raise interest rates in their fight against inflation,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “If you are planning to buy stocks at this point, you are going to need to be patient and hold those positions for a much longer timeframe than many people are used to – potentially two to three years, in some cases.”

While it may be a bumpy road ahead, here are some ways to mitigate the potential damage to your long-term nest egg.

Bearish markets can be a bear on your psyche. There may be times when you are tempted to sell your equity investments and move the proceeds into cash or a money market fund.

You’ll tell yourself you will move the money back into stocks when things improve. But doing so will just lock in your losses.

If you’re a long-term investor – which includes those in their 60s and early 70s who may be in retirement for 20 or more years – don’t expect to outwit the current downward trends.

When it comes to success in investing, “It’s not about timing the market. It’s about time in the market,” said Taylor Wilson, a certified financial planner and president of Greenstone Wealth Management in Forest City, Iowa. “During bull markets people tend to think the good times will never end and during bear markets they think that things will never be good again. Concentrating on things you can control and implementing proven strategies will pay off over time.”

Say you’d invested $10,000 at the start of 1981 in the S&P 500. That money would have grown to nearly $1.1 million by March 31, 2021, according to Fidelity Management & Research. But had you missed just the five best trading days during those 40 years, it would only have grown to roughly $676,000. And if you’d sat out the best 30 days, your $10,000 would only have grown to $177,000.

If you can convince yourself not to sell at a loss, you still may be tempted to stop making your regular contributions to your retirement savings plan for awhile, thinking you’re just throwing good money after bad.

“This is a hard one for many people, because the knee-jerk reaction is to stop contributing until the market recovers,” said CFP Sefa Mawuli of Pavlov Financial Planning in Arlington, Virginia.

“But the key to 401(k) success is consistent and ongoing contributions. Continuing to contribute during down markets allows investors to buy assets at cheaper prices, which may help your account recover faster after a market downturn.”

If you can swing it financially, Wilson even recommends boosting your contributions if you haven’t already maxed out. Besides the value of buying more at a discount, he said, taking a positive step can offset the anxiety that can come from watching your nest egg (temporarily) shrink.

Life happens. Plans change. And so may your time horizon to retirement. So check to see that your current allocation to stocks and bonds matches your risk tolerance and your ideal retirement date.

Do this even if you’re in a target date fund, Wilson said. Target date funds are geared toward people retiring around a given year – e.g., 2035 or 2040. The fund’s allocation will grow more conservative as that target date nears. But if you’re someone who started saving late and who may need to take on more risk to meet your retirement goals, he noted, your current target date fund may not be offering you that.

Mark Struthers, a CFP at Sona Wealth Advisors in Minneapolis, works with 401(k) participants at organizations that hire his firm to provide financial wellness advice.

So he’s heard from people across the spectrum who express concerns that they “can’t afford to lose” what they have. Even many educated investors wanted out during the downturn early in the pandemic, he said.

Struthers will counsel them not to panic and to remember that downturns are the price investors pay for the big returns they get during bull markets. But he knows fear can get the better of people. “You can’t just say ‘don’t sell’ because you’ll lose some people and they’ll be worse off.”

And it’s been especially discouraging to investors to see that bonds, which are supposed to reduce their portfolio’s overall risk, are down too. “People lose faith,” Struthers said.

So instead of trying to contradict their fears, he will try to get them to do something to assuage their short-term concerns, but do the least long-term damage to their nest egg.

For instance, someone may be afraid to take enough risk in their 401(k) investments, especially in a falling market, because they’re afraid of losing more and having less of a financial resource if they ever get laid off.

So he reminds them of their existing rainy-day assets, like their emergency fund and disability insurance. He then may suggest they continue to take enough risk to generate the growth they need in their 401(k) for retirement, but redirect a portion of their new contributions into a cash-equivalent or low-risk investment. Or he may suggest they redirect the money to a Roth IRA, since those contributions can be accessed without tax or penalty if need be. But it’s also keeping the money in a retirement account in the event the person doesn’t need it for emergencies.

“Just knowing they have that comfort cash there helps them from panicking,” Struthers said.

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Business

Dow on track for its worst month since March 2020

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New York
CNN Business
 — 

September has been a horrible month for stocks. The Dow is on track to fall more than 8%, its worst monthly drop since March 2020, when pandemic lockdowns started in the United States. The index was in the red Friday too.

The Dow, a widely watched barometer of America’s stock market that includes corporate giants such as Apple

(AAPL), Coca-Cola

(KO), Disney

(DIS), Microsoft

(MSFT) and Walmart

(WMT), was down about 325 points, or 1.1%, in afternoon trading.

Worries about rising inventory levels at Dow component Nike

(NKE) pushed the blue chips lower Friday. Shares of Nike

(NKE) plunged 12% as investors worried about how it will need to heavily discount sneakers and other athletic apparel.

The Dow has fallen more than 5% in the third quarter and is now down about 20% this year, putting it in a bear market. The Dow is trading near its lowest levels since November 2020.

The S&P 500, which fell 0.8% Friday, is down nearly 9% in September and has fallen nearly 24% in 2022. That puts the index on track for its worst annual drop since 2008. The tech-heavy Nasdaq Composite dropped 0.6% Friday and it has plunged almost 10% this month. It is down more than 30% this year.

Some market experts are hopeful that the worst could soon be over for stocks, given how sharp the sell-off has been. But investors remain nervous about the economy and earnings.

Inflation has led the Federal Reserve to drastically raise interest rates. That could eventually slow consumer and business spending. Worries about a recession are growing.

The CNN Business Fear & Greed Index, which measures seven indicators of Wall Street sentiment, is showing levels of Extreme Fear. And there have been no safe havens for investors to ride out the market storm. Bonds, gold and bitcoin have all plunged in 2022 as well.

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US

6 GOP-led states sue Biden over student loan forgiveness plan

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Washington
CNN
 — 

Six Republican-led states sued President Joe Biden on Thursday in an effort to block his student loan forgiveness plan from taking effect.

The lawsuit was filed in a federal court in Missouri by state attorneys general from Missouri, Arkansas, Kansas, Nebraska and South Carolina, as well as legal representatives from Iowa.

“In addition to being economically unwise and inherently unfair, the Biden Administration’s Mass Debt Cancellation is another example in a long line of unlawful regulatory actions. No statute permits President Biden to unilaterally relieve millions of individuals from their obligation to pay loans they voluntarily assumed,” Nebraska Attorney General Doug Peterson’s office said in a news release.

Earlier this week, a public interest lawyer who is also a student loan borrower, sued the Biden administration over the student loan forgiveness plan, arguing that the policy is an abuse of executive power and that it would stick him with a bigger state tax bill.

The White House did not immediately respond to a request for comment.

Under Biden’s plan, individual borrowers who earned less than $125,000 in either 2020 or 2021 and married couples or heads of households who made less than $250,000 annually in those years will see up to $10,000 of their federal student loan debt forgiven.

If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness. Pell grants are awarded to millions of low-income students each year, based on factors that include their family’s size and income and the cost charged by their college. These borrowers are also more likely to struggle to repay their student debt and end up in default.

The administration is expected to roll out the first wave of student loan forgiveness in October.

The Congressional Budget Office estimated this week that Biden’s plan could cost the government $400 billion but warned that the estimate relies on several assumptions and is “highly uncertain.”

Estimating the cost of student debt forgiveness is complicated because loans are generally paid back over several years. The White House argues that the CBO’s estimate should be looked at over a 30-year time frame.

Biden announced the forgiveness plan in August, after facing mounting pressure from Democrats to forgive some student loan debt. Senate Majority Leader Chuck Schumer and Massachusetts Sen. Elizabeth Warren repeatedly called on the President to cancel up to $50,000 in student loan debt per borrower.

But canceling federal student loan debt so broadly is unprecedented and, until now, has yet to be tested in court. Biden initially urged Congress to take action to cancel some student debt, rather than wade into a murky legal area himself, but Democrats don’t have the votes to pass such legislation.

In a Department of Education memo released in August, the Biden administration argued that the Higher Education Relief Opportunities for Students Act of 2003 – or Heroes Act – grants the Education Secretary the power to cancel student debt to help address the financial harm suffered due to the Covid-19 pandemic.

The Heroes Act, which was enacted in the wake of the September 11 terrorist attacks, “provides the Secretary broad authority to grant relief from student loan requirements during specific periods,” including a war, other military operation or national emergency, according to the memo.

The lawsuit filed Thursday argues that the Heroes Act does not grant the President such broad authority.

Additional lawsuits challenging Biden’s student loan forgiveness plan could be forthcoming. Arizona Attorney General Mark Brnovich, a Republican, has said he is working on developing the best legal theory to sue the administration over the action.

A conservative advocacy group called the Job Creators Network is also weighing its legal options, planning to file a lawsuit once the Department of Education formalizes the student loan forgiveness plan next month.

But some legal experts are skeptical that a legal challenge to Biden’s student loan forgiveness plan could be successful.

Abby Shafroth, staff attorney at the nonprofit National Consumer Law Center, previously told CNN that she believes the merits of the Biden administration’s legal statutory authority are strong and that it’s unclear who would have legal standing to bring a case and want to do so. Standing to bring a case is a procedural threshold requiring that an injury be inflicted on a plaintiff to justify a lawsuit.

If the standing hurdle is cleared, a case would be heard by a district court first – which may or may not issue a preliminary injunction to prevent the cancellation from occurring before a final ruling is issued on the merits of the hypothetical case.

Several recent US Supreme Court decisions have touched on executive power, limiting the federal government’s authority to implement new rules. While the Supreme Court takes up a small number of cases each year, lower courts may look at what the justices have said in those cases when assessing the Department of Education’s authority.

This story has been updated with additional information.

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Business

Latest GDP reading confirms the US economy shrank for two straight quarters, supporting one definition of a recession

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Minneapolis
CNN Business
 — 

The US economy shrank by 0.6% during the second quarter of the year, according to the latest gross domestic product estimate from the Bureau of Economic Analysis released Thursday.

That matches the most recent GDP estimate and shows the economy was in contraction for the entire first half of the year as businesses readjusted to pandemic-era supply chain disruptions.

The latest scorecard on the economy may reignite the debate as to whether the United States has been in a recession, commonly defined as two consecutive quarters of negative growth. Some economists and policymakers have rebuffed claims of an early 2022 recession, citing robust job growth, consumer spending and manufacturing.

However, the official arbiter is a panel of National Bureau of Economic Research economists, who take an array of economic indicators into consideration and can revise the data many years later.

Thursday’s third estimate of second-quarter GDP is based on more complete data than what was available last month and reflects upwardly revised levels of consumer spending, federal government spending and business fixed investment. Those were offset by a downward revision to exports and investment in housing, the BEA said.

Gross domestic income, an alternative economic measure of the earnings and costs incurred in production, were revised downward by $47.4 billion to $305.7 billion.

“The annual revisions to GDP and gross domestic income indicate a weaker US economy in the first half of 2022 than initially reported,” Gus Faucher, chief economist for The PNC Financial Services Group, wrote in a note issued Thursday.

The US economy is in transition during 2022, and the data is contradictory, he said, noting strength in areas such as the labor market, production and spending.

However, recession risks remain elevated, Abbey Omodunbi, PNC’s assistant vice president and senior economist, told CNN Business, citing the Federal Reserve’s aggressive interest rate hikes to combat historically high inflation.

“And with that, we’re going to see significant slowing of the US economy, particularly in interest-rate-sensitive sectors” such as housing and business investments, he said.

The worldwide outlook is even more dour: There’s a 98.1% chance of a global recession, according to a probability model run by Ned Davis Research, which highlights Russia’s war in Ukraine and central banks’ drastic rate hikes to tamp down inflation.

The only other times that recession model was this high has been during severe economic downturns, most recently in 2020 and during the 2008 global financial crisis.

The first estimate for third-quarter GDP is set to be released on October 27.

CNN Business’s Matt Egan contributed to this report.

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World

British pound plummets to record low against the dollar

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CNN Business
 — 

The British pound fell to a new record low against the US dollar of $1.035 on Monday, plummeting more than 4%.

The slide came as trading opened in Asia and Australia on Monday, extending a 2.6% dive from Friday — and spurring predictions the pound could plunge to parity with the US dollar in the coming months.

The unprecedented currency slump follows British Chancellor of the Exchequer Kwasi Kwarteng’s announcement on Friday that the United Kingdom would impose the biggest tax cuts in 50 years at the same time as boosting spending.

The new tax-slashing fiscal measures, which include scrapping plans for rising corporation tax and slashing the cap on bankers’ bonuses, have been criticized as “trickle-down economics” by the opposition Labour party and even lambasted by members of the Chancellor’s own Conservative party.

Former Tory chancellor Lord Ken Clarke criticized the tax cuts on Sunday, saying it could lead to the collapse of the pound.

“I’m afraid that’s the kind of thing that’s usually tried in Latin American countries without success,” Clarke said in an interview with BBC radio.

The pound has been hammered by a string of weak economic data, but also the steep ascent of the US dollar, a safe haven investment that sees inflows in times of uncertainty.

The euro also hit a 20-year low of 0.964 per dollar.

But the economic outlook in the UK means the pound is suffering more than most, in the face of a disastrous energy crunch and the highest inflation among G7 nations.

The previous record low for the British pound against the US dollar was 37 years ago on February 25, 1985, when 1 pound was worth $1.054.

“Should there be any escalation to the war in Ukraine…we would see further sharp downside in the Pound as well as the Euro,” said Clifford Bennett, chief economist at ACY Securities, an Australian brokerage firm.

“One should not underestimate the crisis that is all of Europe at the moment and the Pound is more vulnerable than most,” he said.

The soaring US dollar also sent major Asian currencies tumbling on Monday.

China’s yuan slid 0.5% on the onshore market to the lowest level in more than 28 months. The offshore yuan fell 0.4%.

The rapid declines prompted the People’s Bank of China to impose a risk reserve requirement of 20% on banks’ foreign exchange forward sales to clients, starting Wednesday. The move would make it more costly for traders to buy foreign currencies via derivatives, which might slow the pace of the yuan’s declines.

Elsewhere in the region, the Japanese yen dropped 0.6% against the dollar to 144. Last Thursday, the Japanese central bank intervened in the currency market for the first time since 1998 to prop up the yen. The yen rebounded slightly following the intervention, but soon resumed the slide.

The Korean won also plunged 1.6% on Monday versus the greenback, falling below the 1,420 level for the first time since 2009.

Stock markets in the region were in a turmoil on Monday, after US stocks sold off on Friday as recession fears grow.

South Korea’s Kospi declined 2.7%, Japan’s Nikkei 225

(N225) dropped 2.4%, and Australia’s S&P/ASX 200 was down 1.4%. China’s Shanghai Composite Index dipped 0.1%.

“Risk sentiments have been dealt a major blow by the Fed’s latest policy action and guidance,” said DBS analysts in a research report on Monday.

The Federal Reserve on Wednesday approved a third consecutive 75-basis-point hike in an aggressive move to tackle white-hot inflation that has been plaguing the US economy.

Even without the Fed action, Europe is looking at a recession due to the war in Ukraine, and China is looking at “a substantially weak growth dynamic” because of a variety of domestic factors, the DBS analysts said.

“Add on top of that a sharp decline in US dollar liquidity and sharply higher US interest rates, the world economic outlook looks particularly precarious,” they added.

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Business

America’s gas prices rise for the first time in 99 days

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New York
CNN Business
 — 

The historic streak of falling gasoline prices is over.

After sinking every day for more than three months, US gas prices edged higher – by a penny – to $3.68 a gallon, on average Wednesday, according to AAA.

That ends 98 consecutive days of falling pump prices, the second-longest such streak on record going back to 2005.

The last time the national average price for gasoline rose was June 14, when it hit a record of $5.02. Prices fell every day since then and Thursday would have marked the 100th straight day of declines.

The plunge in gas prices was driven by a series of factors, including stronger supply and weaker demand as drivers balked at high prices and unprecedented releases of emergency oil by the White House.

Another major factor that had been driving gas prices lower: Growing concerns of a global recession that could hurt demand for gas. People who lose jobs don’t have to drive to work, and even those with jobs pull back on their spending during recessions.

The strong dollar also helped to bring down the price of gas, because crude oil is priced in dollars. That means each dollar can buy more oil than it would if the value of the currency was stable or falling. The dollar index, which compares the value of the greenback to major foreign currencies, is up 15% this year. That also means oil prices are rising faster for countries that don’t use the dollar, which dampens global demand.

At the same time, Russia’s oil flows have held up better than feared despite sanctions and the war in Ukraine. Russia’s invasion of Ukraine, and the sanctions that followed, that helped to spark the steep rise in oil and gas prices. The average price the day of the invasion stood at $3.54 a gallon, just a bit lower than it is today. Russia’s announcement Wednesday that it would increase its mobilization of troops helped lift crude oil futures 2% in global markets.

Gas prices will probably remain relatively close to the current levels in the near term, said Tom Kloza, global head of energy analysis for OPIS, which tracks gas prices nationally for AAA.

“I don’t think you’ll see a major move higher or lower,” he said recently, ahead of Wednesday’s modest price rise. He said competing forces will affect prices in the near term.

US refining capacity remains limited. And OPEC along with other oil-producing nations recently agreed to cut production. Both put upward pressure on prices.

Meanwhile, seasonal factors, such as the end of the summer driving season and the annual end of the US environmental regulations requiring a cleaner, more expensive blend of gasoline during summer months, could help ease prices. Also pushing prices lower: Oil traders remain nervous about the state of the global economy.

“Crude has no speculative investment money behind it right now,” he said.

Wholesale gasoline futures point to sharply lower gas prices by the end of the year, with the possibility that gas under $3 a gallon could be common in much of the country by then, Kloza said. But he cautioned “futures prices are a notorious poor predictor of what the future will bring.”

Although sub-$3 gas remains rare – only 5% of America’s 130,000 gas stations are selling gas for under that price, according to OPIS – relatively cheap gas has become far more common with the months of decline. Nearly one station out of four nationwide is selling gas for less than $3.25 a gallon, and 56% are selling gas for less than $3.50 a gallon.

Cheaper gas has been a major boost to the US economy, easing inflationary pressure and giving Americans extra cash to spend. Since the typical US household uses about 90 gallons of gas a month, the drop in gas prices saves those households about $120 a month from what they had been paying since the peak in June.

A one-cent rise in gas prices is not a meaningful change for most drivers, and prices could slump again as global economic concerns grow along with fears that demand for fuel will keep sinking.

Yet if gas prices begin to rise that could undermine the Biden administration and the Federal Reserve’s efforts to keep inflation in check. Falling gas prices are the sole reason America’s consumer prices have remained steady overall during the past few months after rising sharply in 2021 and the beginning part of this year.

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World

US dollar hits new 20-year high as Russia calls up reservists

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London
CNN Business
 — 

The US dollar climbed to a new two-decade high on Wednesday after Russia said it was mobilizing 300,000 military reserves in an escalation of the war in Ukraine.

In a televised national address Wednesday, President Vladimir Putin announced an immediate partial mobilization of Russian citizens and threatened to use “all the means at our disposal” to defend Russia “and our people.” He also referenced the potential use of nuclear weapons.

The speech pushed the greenback up 0.4% against a basket of major currencies to its strongest level since 2002. Investors often seek safe haven in US dollar assets during times of geopolitical tension.

Oil prices also jumped. Brent crude futures, the global benchmark, gained 2.5%, rising to just below $93 per barrel.

Russian stocks slid 3.5% Wednesday after the announcement, adding to heavy losses incurred Tuesday after Putin threatened to hold referendums to annex parts of Ukraine still occupied by Russian forces. The ruble also dropped nearly 3% against the US dollar.

Asian stocks pulled back. While indexes in Europe initially dropped, they were last flat or slightly higher in morning trade ahead of the Federal Reserve’s latest policy announcement.

The euro initially slumped 0.7% to hit 98 cents ($0.97) against the US dollar, but has since ticked upwards. The currency, used by 19 European countries, sunk below the dollar in late August, shaken by soaring inflation and the energy crisis triggered by Russia’s invasion of Ukraine in February.

The war has added to stress for investors, since it makes it harder to predict when inflation will ease and could push central banks to maintain an aggressive tack for longer.

— Tara Subramaniam and Andrew Raine contributed reporting.

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Business

Stocks close higher ahead of Federal Reserve meeting

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New York
CNN Business
 — 

US stocks alternated between slight losses and modest gains Monday before eventually closing higher ahead of the Federal Reserve’s two-day policy meeting later this week.

The Dow closed up about 197 points, or 0.6%, while the S&P 500 and Nasdaq Composite rose 0.7% and 0.8% respectively.

The bond market reached its highest level in 10 years ahead of what is likely to be a decision by the central bank to raise interest rates by another three-quarters of a percentage point this week. The benchmark US 10-year Treasury note reached 3.5%, its highest level since 2011. The two-year Treasury note reached 3.9%, a 15-year high.

In addition to the Fed meeting, 16 other global central banks, including the Bank of England, are expected to further tighten monetary policy this week. Monetary policy meetings will also take place in Sweden, Norway, Switzerland, Japan, Brazil, Turkey, South Africa, Indonesia, Taiwan, Guatemala, Egypt, the Philippines and other countries.

Correction: An earlier version of this story misstated the number of years in which the bond market had reached its highest level. It was 10.

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It’s so hard to get a house right now, people are giving up on buying

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Buying a home of her own became a priority for Kelly Robinson during the pandemic, as she began to feel cramped in her Indianapolis apartment.

“Last fall having to stay home so much, that really made me decide that it is time to buy a house,” she said. Among the top amenities she was looking for: outdoor space and more privacy.

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Further motivated by record low interest rates, Robinson set her sights to buy in the spring when she expected more properties would be available. It would also give her time to get her finances in order.

“But by the time I got pre-approved and started seriously looking at homes, the market got crazy” she said.

Robinson set a budget for $250,000. But in her market – the suburb of Greenwood – homes began selling within days, with as many as 10 competing offers, and sometimes going for $100,000 over the asking price.

“‘Crazy’ to me is not getting an inspection because you want to be number one on the homeowner’s list,” she said. “That is a risk I’m not wiling to take. And having to make an immediate decision the day you see it? That is another thing that makes me really nervous.”

So she decided to put the home search on ice and continue renting.

Courtesy Kelly Robinson

Kelly Robinson wants to buy a home outside of Indianapolis, but said the market is too aggressive now and has decided to wait.

“There are so many aggressive shoppers out there and I’m not willing to compete with that,” she said. “I need to be happy today, but I also want to be happy a year from now. If I overpay or don’t get an inspection, that will cause bigger issues down the road.”

Up against all-cash offers they can’t match and a feeding frenzy on each house they visit, many buyers are dropping out of the market and opting to wait it out and reevaluate their options.

The housing market was on fire this spring, leaving many would-be buyers burned out. Low mortgage rates have been fueling demand, but there’s also been a record-low inventory of available properties. That has pushed home prices to record highs, with some homes attracting multiple all-cash offers, and others selling for $1 million over the list price.

But home sales have fallen for the fourth month in a row, on a monthly basis, partially because there aren’t enough homes to buy, but also because the competition and higher prices are turnoffs to those who can’t afford to compete, according to a recent report from the National Association of Realtors.

“Clearly sales are moving down partly due to inventory shortage, but the affordability is squeezing some of the buyers out of the market,” said Lawrence Yun, NAR’s chief economist. “Homebuyers qualify for a mortgage based on their income, but with prices rising 20% or higher, it is simply pricing them out of the market.”

Only 32% of consumers believe it’s a good time to buy a home, according to Fannie Mae’s Home Purchase Sentiment Index for June. That’s a record low. High home prices were cited as the main reason people were pessimistic toward home buying. That sentiment was particularly strong among renters looking to buy for the first time, said Doug Duncan, senior vice president and chief economist at Fannie Mae.

“While all surveyed segments have expressed greater negativity toward homebuying over the last few months, renters who say they are planning to buy a home in the next few years have demonstrated an even steeper decline in homebuying sentiment than homeowners,” he said. “It’s likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments who have already established homeownership.”

Still, even in the face of tough buying conditions, many would-be homeowners remain intent on purchasing now, Duncan said, especially with mortgage rates still relatively low and a down payment ready to go.

“I’m encouraging my buyers to stay the course,” said Corey Burr, a senior vice president at TTR Sotheby’s International Realty in Washington, DC. “They need to have a persistent confidence their dream home will become available and they can buy it. Just because it is difficult doesn’t mean it is impossible.”

It’s true, buying a home is not impossible. Plenty of people are doing it. But more people have tried and still aren’t able to buy. And there are limits to how much time and emotional energy buyers are willing to put toward being shut out of the market.

First-time homebuyers Steven and Laura Andranigian planned to move from their home near Monterey, California, to the Coachella Valley in southern California, where they have family and Laura got a job teaching elementary school.

Courtesy Steven Andranigian

Steven and Laura Andranigian were ready to be first-time homebuyers when they moved to California’s Coachella Valley. But after house hunting for months, they have decided to rent instead.

Looking for a home that costs less than $500,000 has them chasing properties as soon as they are listed. Many times, the houses are gone before they can even make an offer. Twice they’ve been laughed at for asking for time to get a pre-offer inspection. They’ve lost out on five bids so far.

“You get told, ‘Here are the 10 things you need to do to buy a house’” he said. “We did 20 of those. And it is still like, ‘Well, you’re not able to participate.’ Because there are people who are flush with cash who also want to buy here now.”

They had been saving to buy a home for years and have been looking for months. But now they realize that their purchase options are to buy something that needs work in an area they don’t want to live, to wait for a new construction home and pay a premium for it, or to buy something over their budget.

“The only way to buy [a home that costs] over $500,000 is for my in-laws to gift or loan us the difference,” said Steve Andranigian. “But that seems excessive for people who have stable, good jobs to get $200,000 from family. Even when you’ve done everything right you still need more?”

The Andranigians have decided to abandon their home search.

“We decided to rent while we wait for the housing market to settle or resolve itself,” Steven said.

But getting a rental isn’t going to be easy either. The most galling turn of events, he said, would be to have to rent a home they had put an offer on before.

They’ve already seen some homes that they bid on come back to market as rental homes right after closing. Even though a property like that would be the kind of home they would love to live in, it would pour salt in the wound to have to rent it after trying to buy it, he said.

“To have to talk to the landlord, and hear they were sitting on a ton of cash and they wanted to turn it into a rental while we are just trying to buy our first home would be really hard,” he said. “But to find out the landlord is a hedge fund and it is owned by some faceless company? That may be worse. We don’t want to rent the place. We want to buy.”

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