⬆️ The Fed’s big decision

Wednesday, June 15, 2022 by Robinhood Snacks |
Jerome gets ready for his closeup (Mark Wilson/Getty Images)

Jerome gets ready for his closeup (Mark Wilson/Getty Images)

Jerome gets ready for his closeup (Mark Wilson/Getty Images)

Jerome gets ready for his closeup (Mark Wilson/Getty Images)

Yesterday’s Market Moves
Dow Jones
30,365 (-0.50%)
S&P 500
3,735 (-0.38%)
Nasdaq
10,828 (+0.18%)
Bitcoin
$21,460 (-4.15%)

Hey Snackers,

The “Her” sequel we didn’t ask for: a Google engineer was put on leave after claiming one of the company’s AI bots had developed feelings — like love, depression, and even a fear of death.

Stocks dipped again yesterday, dragging the S&P 500 deeper into a bear market. Meanwhile, the 10-year Treasury yield hit its highest level in more than 11 years as investors awaited the Fed’s big rate-hike announcement. About that…

Feddy

1. All eyes are on the Fed’s rate-hike decision, which could be more aggressive than anticipated to tame sticky #flation

Everyone's tuning in at 2 p.m. ET today... but not for the NBA Finals or “The Bachelor” finale — it's for Fed Chair Jerome Powell. All eyes are on the Fed's interest-rate hike decision, which could be #spicy. After May's concerning inflation numbers, many on Wall Street are forecasting that the central bank will raise rates by three-quarters of a percentage point — something it hasn't done since 1994. Based on Monday's stock plunge and surging bond yields, it seems as if investors are also awaiting aggressive price-taming action.

  • A month ago: Powell said his Fed was not "actively considering" raising rates by three-quarters of a percentage point. Fed officials signaled they’d bump rates by a half percentage point this week (same as last month) and again in July.
  • But that was before May's sky-high consumer-price numbers revealed that inflation had not peaked. The Fed has said that its decisions depend on the economy progressing as expected — and #flation rose faster-than-anticipated.
  • Now: Expectations for a 0.75-point hike have soared from 3% a week ago to 40%. But Wall Street's divided: traders are still pricing in a 60% chance of a status-quo half-point hike.

Cloudy with a chance of flation… Consumers’ expectations of long-term inflation have spiked, with a key survey hitting its highest level since ’08. That’s concerning to the Fed, since inflation expectations can make inflation worse (aka: a self-flating prophecy).

THE TAKEAWAY

No one wants an inflation spiral… If people expect higher prices, they're more likely to demand higher wages and accept inflated costs. Powell has said that this “wage-price spiral” is “a risk we simply can’t run,” since it can be hard to break. The Fed’ll likely respond aggressively to signs that inflation’s spiraling, and investors might even welcome a price-taming power move.

Squeeze

Delivering dividends… and some packages. FedEx sales soared last year as the online shopping boom stuck post-lockdown. But since then shipping volumes have slipped as you buy that bathing suit IRL. Now FedEx faces a double whammy of rising gas and labor costs — plus stiff competition from UPS and Amazon. Yesterday, some good news landed on investors’ doorsteps:

  • FedEx boosted quarterly dividend payouts to investors by 50% and added two board members. Shares surged 14% yesterday, their biggest one-day jump in 29 years.
  • New direction: The surge is a sign investors believe FedEx’s new CEO (who started this month) can trim spending and prioritize returns.
  • Case in box: FedEx has accelerated plans to buy back $5B of shares, and decelerated plans to upgrade its fleet.

Squeeze-onomics… FedEx started cost-slashing early this year to boost margins. It cut spending on customer perks (think: fewer package-tracking options) and trimmed labor costs (think: slower hiring) — months before companies started doing involuntary layoffs. But cost-cutting wasn’t the end of the profit push: FedEx also boosted earnings by charging customers extra during busy times and bumped its fuel surcharge for all services.

THE TAKEAWAY

Cost-cutting is a double-edged sword… Done cleverly, it can make investors happy, but done too aggressively, it can frustrate customers and burden workers. FedEx’s slow-and-steady approach could help it satisfy investors during the market downturn while protecting its biz. But if companies cut too much too fast, they could have a hard time switching from “squeeze mode” back to “growth mode” when prices normalize.

What else we’re Snackin’

  • Brake: Ford recalled 48K of its Mustang Mach-Es and halted sales, citing an overheating concern. The auto OG has faced several rollout issues as it ramps up EVs to compete in the non-gassy market.
  • Winter: Coinbase is cutting 18% of employees to slash costs as the crypto market tumbles. America’s largest crypto exchange is worried that a potential recession could lead to a “crypto winter.”
  • Chirp: Elon Musk is expected to take questions tomorrow from Twitter employees — some of whom have raised concerns over his tumultuous takeover bid. A shareholder vote on the Elon-quisition is set for August.
  • Cramped: As the US’s tampon shortage continues, tampon makers like P&G and Playtex parent Edgewell are ramping up production. Tampon prices have jumped 10% this year as supply issues strain manufacturers.
  • Rocky: Despite booming travel demand, US airline bookings slipped for the second month as ticket prices spiked 30% from 2019. Sky-high fuel costs and labor shortages are making that summer vacay break the bank.

Snack Fact of the Day

Americans owe $22B in late utility bills as soaring energy prices make electricity and A/C harder to afford

Wednesday

  • Latest interest-rate decision from the Fed.
  • Earnings expected from Lennar and John Wiley & Sons

Authors of this Snacks own: shares of Ford, Twitter, Amazon, and Google

ID: 2246463

Correction: In the Snacks newsletter published on June 14, 2022, in the story about Celsius we linked to the wrong company. This is the correct company. We’ve updated the online version of the newsletter, and we regret the error.