Wall Street doesn’t want the Fed to relax – KTVZ | Hot Mobile Press

By Julia Horowitz, CNN Business

Investors are worried as the Federal Reserve prepares for its latest policy announcement on Wednesday. But they hope the Fed and Chair Jerome Powell continue to talk tough and guide the way forward at an uncertain moment.

What’s happening: The Fed is expected to hike interest rates by three-quarters of a percentage point as it continues its ambitious campaign to cut inflation, which hit a 40-year high in June. There has been some speculation that the Fed could hike rates by a full percentage point for the first time in its modern history, but that now looks less likely.

Even the more conservative option would have major knock-on effects.

“It would be unprecedented for us to make such a big move in two consecutive sessions,” St. Louis Federal Reserve Chairman Jim Bullard said in an interview earlier this month.

And for Wall Street, that’s a good thing. Investors concede that the Fed faces a difficult task as it tries to control inflation without raising borrowing costs so aggressively that it plunges the US economy into recession.

But for now, they would prefer the Fed to announce that it plans to stand by its resolve rather than take a more accommodative stance. In unstable times, the argument goes, consistency is key.

“The last thing the Fed wants to do right now is allow the market to think it’s about to start a dovish turn, despite mounting signs the economy is slowing,” said Michael Hewson, chief market Analyst at CMC Markets, to clients on Wednesday.

That’s because the Fed has been hard at work strengthening its anti-inflation credentials after they were called into question earlier this year. When the central bank started raising interest rates in March, core inflation – as measured by the personal consumption price index – was already at 5.2%, well above its target of almost 2%.

“The Fed has an obligation to really tighten rates because many observers think they started this cycle too late,” Marco Pirondini, head of US equities at Amundi Asset Management, told me.

What does that mean in practice? Investors will expect Powell to reiterate a line that has become his maxim: Fighting inflation is the Fed’s top priority, even if it means unemployment, which is near historic lows, will start to rise could.

They will also be on the lookout for what the Fed will do at its next September meeting. There is little market consensus at the moment.

Powell has previously said the central bank will remain “data dependent,” so it’s unlikely he’ll commit to a specific course. Between now and the September meeting, the Fed will receive two jobs reports and another barrage of inflation information.

The slowdown in advertising is hitting the biggest players

Even Microsoft and Google’s Alphabet aren’t immune to the drop in ad spending as companies brace for a potential recession.

The Latest: Revenue from Google’s core advertising business reached $56 billion between April and June, the company announced after the market close on Tuesday.

That’s up nearly 12% year over year, but represents a significant slowdown year over year. In the same quarter of 2021, Google’s ad revenue grew nearly 69%.

Microsoft also reported on Tuesday that a cut in ad spend cost $100 million in revenue last quarter.

Remember: Investors panicked last week when Snap posted a brutal loss as advertisers pressed pause. But Wall Street doesn’t give Alphabet and Microsoft the same treatment. Alphabet shares are up 3.6% in premarket trading on Wednesday, while Microsoft shares are up 3.8%.

That’s because there were other bright spots—namely, the cloud.

Microsoft’s cloud business brought in $25 billion in revenue last quarter, up 28%, while Google reported nearly 36% year-over-year revenue growth from its cloud computing segment.

“While ad spending will rise and fall depending on the economic cycle, the broader shift to cloud computing as the backbone for all digital business – advertising, marketing and sales – is long-term,” said Tom Johnson, global chief digital officer at media agency Mindshare Worldwide.

Instagram is dealing with a Kardashian issue

To ward off the TikTok threat, Instagram has unveiled a series of updates to its platform. But the social media app doesn’t get any positive feedback.

Posts urging the company to “make Instagram Instagram again” have gone viral after it began prioritizing algorithmically recommended posts and videos from its Reels product over photos from friends.

Even Kim Kardashian and Kylie Jenner have joined the chorus of dissenters. The famous half-sisters are among the most followed accounts on Instagram, with 326 million and 360 million followers, respectively, according to my CNN Business colleagues Clare Duffy and Jennifer Korn.

Instagram boss Adam Mosseri addressed the criticism in a video post on the platform on Tuesday. He acknowledged that Instagram is “experimenting with a number of different changes to the app,” but emphasized that those decisions are based on what the company sees in its data.

“We will continue to support photos. They are part of our heritage,” he said. “Nevertheless, I have to be honest: I believe that more and more of Instagram will become videos as time goes on.”

Investor Inside: Meta Platforms, Instagram’s parent company, reports results after US markets closed on Wednesday. Its shares are down 48% year-to-date.

Last quarter, Meta said investing in algorithm-recommended content is essential to staying competitive, and that reels already account for more than 20% of the time people spend on Instagram. What’s new? And will CEO Mark Zuckerberg intervene?

Next

Boeing, Hilton, Kraft Heinz and Spotify report results before US markets open. After the close of trading, Etsy, Ford, Meta and Qualcomm will follow.

Also today, the Federal Reserve’s latest interest rate decision goes live at 2:00 p.m. ET, followed by a press conference with Chairman Jerome Powell.

Coming Tomorrow: Did America’s GDP Shrink for Two Consecutive Quarters? Economists polled by Reuters expect growth of 0.5% between April and June, but risks of a surprise are high.

The CNN Wire
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