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After last week’s surprise revelation that the consumer price index fell last month, a lot of us have had a question for Federal Reserve Chair Jerome Powell.
“So…rates. Gonna cut ’em now?”
Unfortunately for all of us, the top central banker declined to answer that in his first public remarks since last month’s inflation dip. Powell did, however, say that inflation data in the second quarter has increased his focus on the Fed’s other top goal.
“We’re a dual-mandate bank; for a long time, since inflation arrived, it’s been appropriate to focus mainly on inflation. But now that inflation has come down and the labor market has indeed cooled off, we’re gonna be looking at both mandates,” he told the Economic Club of Washington, DC, on Monday. “They’re in much better balance. And that means that if we were to see an unexpected weakening in the labor market, then that might also be a reason for reaction by us.”
We’ll just have to wait and see what comes out of the Fed’s next rate setting meeting, scheduled for the last two days of July.
ASAP, plz. The Fed can’t lower rates quickly enough for small- and mid-cap companies. There were more corporate bankruptcies in the first half of 2024 than in any six months since 2010, and June was the single worst month since the beginning of the pandemic, according to data from S&P Global Market Intelligence. Most of the filers were small and medium businesses, CNN reported, and most sell goods and services that are optional, like restaurants, or which consumers can hold off buying if they need to, like cars and clothes.
Rate cuts could rev up growth and help more consumers come off the sidelines for these optional purchases, and smaller-cap companies want the cuts even more than large businesses, CNN reported, because high borrowing costs have made it harder and harder for them to pay their workers and buy equipment and supplies, and they use loans more than fundraising to cover those expenses.
The most recent Small Business Lending Survey from the Kansas City Fed found that “credit standards tightened for the tenth consecutive quarter” in the first three months of the year. Companies are also using a greater share of their credit lines, the bank reported.
Going under, up. If bankruptcies in the second half of the 2024 keep pace with the 346 in the first half, it will be the second year in a row that filings have increased, S&P Global noted, following a sharp drop in 2021 and 2022. The consumer discretionary sector was hit hardest, with 55 bankruptcy filings, followed by the healthcare and industrials sectors, with 40 each.
In addition to interest rates and soft consumer demand, snags in the supply chain “continue to weigh on struggling companies,” according to the S&P data.