The Fed’s Big Hikes Won’t Fight Inflation From Soaring Oil Prices

 The Fed’s Big Hikes Won’t Fight Inflation From Soaring Oil Prices


As the Federal Reserve gears up for a half-point interest-rate increase Wednesday, the European Union is nailing down plans to ban imports of Russian oil.

That pushed the price of crude up by more than 3% ahead of the decision. EU Commission President Ursula von der Leyen will propose that the 27-member bloc phase out the supply of crude within six months and refined products by the end of the year.

The two events lay bare the dilemma for policy makers as they continue with the steepest rise in borrowing costs in decades.

Whatever the Fed does, it can only affect demand with its policy, slowing growth to reduce the need to use energy for economic activity. It is powerless to reverse the expectations of supply shortages that are keeping oil prices well above $100 a barrel.

That is where most of the world’s inflation is currently coming from. The Fed can only aim to prevent that inflation from spreading too much into wages and other goods.

For now, concerns about energy supply are very real. The International Energy Agency said last month that global demand for crude will grow this year, even after downgrading its forecast in the wake of new Covid-19 outbreaks in China. At the same time, oil inventories are falling, with Organization for Economic Cooperation and Development countries accounting for most of the drop. The IEA updates that outlook next week.

The outlook at present could be as good as it gets for the Fed, because there is a difficult task ahead. Preserving prosperity and growth following years of pandemic lockdowns may prove even harder than getting a camel to pass through the eye of a needle.

Brian Swint

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***

Latest Abortion Fight Could Add Drama to Midterm Elections


Amazon.com

joined


Citigroup
,


Yelp
,
and other employers in helping workers bypass increasingly strict state abortion restrictions. It will reimburse up to $4,000 in travel expenses for workers and their dependents to travel for non-life-threatening medical treatments, including abortion.

  • Six states, including California, Illinois, and New York, require insurers to cover abortion care. Medicaid prohibits using federal funds for abortion except in cases of rape, incest, or where the mother’s life is endangered. Eleven states restrict insurance coverage through private plans.

  • The focus on abortion access followed a Politico report that Supreme Court justices were drafting an opinion to overturn Roe v. Wade, the landmark 1973 ruling legalizing abortion in the U.S. The conservative-majority court could rule in June on a Mississippi case and overturn Roe.

  • Chief Justice John Roberts confirmed on Tuesday that the draft opinion Politico cited is authentic, calling its leak “egregious,” but said it doesn’t represent a final decision. He ordered an investigation into the source of the leak.

  • Senate Majority Leader Chuck Schumer said the chamber would vote on legislation to codify the right to an abortion into law. President Joe Biden said if the Supreme Court decides to overturn Roe, that would jeopardize Americans’ rights to make countless other private decisions.

What’s Next: The leak could add drama to the midterm elections. Democrats have received millions of dollars in donations since the leak, CNBC reported, and the Democratic National Committee sent a text calling on contributors. Republican National Committee Chair Ronna McDaniel tweeted that the leak is alarming and should be investigated.

Janet H. Cho

***

Musk Suggests ‘Slight Cost’ for Commercial Twitter Users

Elon Musk has floated the idea of introducing a fee for some users of


Twitter

once he completes his $44 billion buyout of the social-media platform. The


Tesla

CEO has been dropping hints about how he might boost revenue at Twitter ever since his takeover offer of $54.20-a-share was approved by Twitter’s board last month.

  • “Twitter will always be free for casual users, but maybe a slight cost for commercial/government users,” Musk said in a tweet on Tuesday. “Some revenue is better than none!” he added in another tweet.

  • Earlier on Tuesday, Musk told potential investors that he could take Twitter public again in as little as three years, The Wall Street Journal reported, citing people familiar with the matter.

  • Musk has been talking to investors, including private-equity firms, to help reduce the $21 billion cash contribution he has committed to help finance the deal, the Journal reported.

What’s Next: Musk’s acquisition of Twitter is expected to close later this year, subject to conditions including the approval of Twitter shareholders and regulators. What he does with it is uncertain, however other options he has floated include cutting the price of the company’s new premium subscription service, Twitter Blue.

—Lina Saigol

***

Starbucks’ Sales Climb Amid U.S. Unionization Drive


Starbucks

’ same-store sales rose by a higher-than-expected 7% globally, including a 12% gain in its North American stores. The company is facing a small but measurable push among U.S. employees to unionize. Shares climbed 5.3% in after-hours trading, reversing an earlier slide.

  • Starbucks is boosting pay for U.S. baristas with at least two years on the job by at least 5% starting Aug. 1, but only at cafes that haven’t unionized. Newer baristas will get at least 3%, while store managers will get one-time bonuses.

  • Since the first Starbucks store unionized in December, the Workers United baristas union has filed complaints saying the company fired workers trying to organize. Starbucks has accused organizers of bullying workers and intimidating customers. About 240 of Starbucks’ 9,000 corporate stores have filed to unionize.

  • Second-quarter results fell slightly short of analysts’ expectations, at 59 cents adjusted earnings per share on a record $7.6 billion revenue, compared with the 60 cents EPS on $7.62 billion expected. Same-store sales plunged 23% in China because of Covid-related lockdowns.

  • In the U.S., the number of active rewards members rose 17% to 2.67 million, and customers spent an average of 7% more. Starbucks blamed thinner margins on inflation and higher wages and benefits, offset in part by higher prices.

What’s Next: In total the company plans to spend $1 billion on raised wages, improved training and store innovation in fiscal 2022. Credit and debit card tipping is coming later this year, and Starbucks will speed up the installation of new ovens and espresso machines.

Teresa Rivas and Janet H. Cho

***

Lyft Shares Fall on Costs to Coax Back Drivers


Lyft

mostly met expectations for first-quarter earnings, but it was the outlook for the current quarter that sent investors fleeing and the stock falling 26% after-hours. Lyft plans to spend money on driver incentives, and that could eat into second-quarter results.

  • Management expects second-quarter revenue between $950 million and $1 billion, which is less than the $1.02 billion forecast on FactSet. Adjusted earnings of between $10 million and $20 million is far short of the expected $83.1 million.

  • Lyft had 17.8 million active riders in the first quarter, slightly below estimates but down from the 18.7 million in the fourth quarter. First-quarter EPS of seven cents met the consensus and revenue of $876 million beat expectations of $849 million.

  • Ride-hailing companies have had to offer drivers extra pay and perks to bring them back behind the wheel as the economy emerges from the Covid-19 pandemic. Lyft said some of the costs for incentives would be passed on through higher prices.

  • Higher gas prices and rider demand is outpacing new drivers. John Zimmer, Lyft’s co-founder and president, told The Wall Street Journal the company saw a 70% increase in driver sign-ups in the first quarter compared with last year.

What’s Next:


Uber

shares were down almost 5% in the premarket Wednesday, having lost 4% late Tuesday. The rival ride-hailing company has moved its earnings report to 7 a.m. Eastern time today instead of waiting until after the closing bell as planned. It said it wants to get the update out before the market open.

—Liz Moyer

***

Biden Urges Congress to Approve More Ukraine Aid, Chip Spending

Biden visited a


Lockheed Martin

factory in Alabama that makes Javelin antitank missiles, which the U.S. is supplying to Ukraine in its war with Russia. Biden urged Congress to approve $33 billion to send more weapons there and more to boost U.S. production of computer chips.

  • The U.S. has already sent 5,000 Javelins to Ukraine. Lockheed’s Troy, Ala., plant produces 2,100 of the weapons annually, each containing more than 200 semiconductors. Biden wants Congress to approve $52 billion to expand chip manufacturing.

  • U.K. Prime Minister Boris Johnson announced he is sending a $375 million package of aid to Ukraine, including antiship missiles, drones, and other military equipment.

  • Ukrainian President Volodymyr Zelensky told The Wall Street Journal’s CEO Council Summit in London that global companies are critical to isolating Russia economically, and said Russia should pay for damages, estimating the cost to rebuild Ukraine’s economy and infrastructure at roughly $600 billion.

  • Zelensky promised attractive conditions for global companies to invest in Ukraine after the war ends, including lower taxes, a population of more than 40 million, and substantial energy resources.

What’s Next: Finland will decide to apply for North Atlantic Treaty Organization membership on May 12, Reuters reported, citing Finnish government sources in the newspaper Iltalehti. Sweden’s parliament is also considering joining NATO, with results due May 13. Both nations are seeking security protections during the application process.

Janet H. Cho

***

Dear Quentin,

I am doing OK financially as a single 29-year-old who unfortunately is still roommates with my mom. We split everything down the middle and I mainly stay with her since it is very expensive to live on your own in my city, and it also helps relieve a lot of financial stress on my mom and I.

Honestly, we live in a mobile home—washer and dryer included—and rent is significantly cheaper and we have more space and actual parking spots compared to the typical apartments in my area. I have no car loan, no credit card, and no student debt.

I have an emergency fund of $25,000 in a high-yield savings account. I have $26,000 in a Roth IRA (my employer doesn’t offer any retirement benefits), $6,000 in my robo-advisor investment account, $4,000 in a savings account, and $1,300 in my checkings.

I made it a priority to pay off my car in two years, and to save a hefty emergency fund because you honestly never know what could happen, and I don’t plan to learn the hard way. But now that those goals are met I really don’t know what to save up for next.

My main aim is to have a net worth of at least $100,000 as I always read how that’s a good number to meet, and I am concerned since I am behind in retirement funds, so I opened a robo-advisor account specifically for retirement purposes.

As I have no boyfriend, fiancé, husband, or kids, I know I have a little bit more freedom but honestly, Quentin, what should I save up for? The $4,000 in my savings account is fun money, but whatever I take out, I replace it so nothing it’s never drained.

Once I hit that goal of having a net worth of $100,000, I just don’t know what to save for next? A house? I’ll probably be saving for eternity to come up with a decent down payment for a home in California. But rents also keep rising.

I am planning to seek a new job working for the County that offers higher pay, a possible pension, and benefits, specifically a retirement plan, so I am expected to still live below my means with even more cash left over. But I’m just clueless what to do with it.

—Mobile Home Girl

Read The Moneyist’s response here.

Quentin Fottrell

***

—Newsletter edited by Liz Moyer, Camilla Imperiali, Steve Goldstein, Rupert Steiner



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