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Pre-market actions: The Fed is getting more and more aggressive

CNN Business

What does it mean when even the Federal Reserve doves are starting to look like hawks?

Investors are weighing this question after a key member of the central bank who has always favored a softer approach to raising interest rates spoke strongly about the need for the central bank to fight rising prices.

“It’s critically important to get inflation down,” Federal Reserve Governor Lael Brainard said in a speech on Tuesday.

She said the central bank would act to “rapidly” shrink its balance sheet by nearly $9 trillion this year, unraveling the huge bond-buying program launched at the start of the pandemic, while raising rates.

Brainard’s comment “set the stage” for a large interest rate hike at the Fed’s next meeting in May, according to Bespoke Investment Group.

This triggered a strong reaction in the financial markets. After Brainard’s speech, the yield on the benchmark 10-year U.S. Treasury rose to its highest level in nearly three years, hitting 2.56%. Bond yields move opposite to prices, indicating a sell-off.

Stocks also fell. The S&P 500 ended down 1.3%, while the Nasdaq Composite lost 2.3%. Investment-grade corporate bonds posted their biggest one-day decline since March 2020.

David Madden, an analyst at Equiti Capital, said the moves were triggered by the “realization” that central banks are being delayed in withdrawing support from the economy even faster than expected, even as the war in Ukraine has clouded growth prospects.

“Not only do they continue on the path, but they seem to speed up their language,” Madden told me.

Market sentiment is holding up for now. The CNN Business Fear & Greed Index remains in “neutral” territory, after producing an “extreme fear” reading a month ago.

But concerns are clearly growing that the Fed could be so aggressive in tackling the highest inflation in 40 years that it would trigger a recession. Deutsche Bank on Tuesday became the first major bank to predict that would happen.

“We no longer see the Fed achieving a soft landing,” Deutsche Bank economists led by Matthew Luzzetti wrote in the report. “Instead, we expect more aggressive monetary policy tightening to push the economy into a recession.”

The bank, while citing “considerable uncertainty” around its forecast, predicted that the US economy would contract in the last quarter of next year and the first quarter of 2024, although the contraction is expected to be much longer. sweeter than the last two downturns.

The turbulence could continue on Wednesday as Wall Street looks to the Federal Reserve’s minutes from its March meeting for clues about its next steps.

Low-cost carrier Spirit Airlines (SAVE) is a hot commodity right now.

On Tuesday, JetBlue (JBLU) made an unsolicited $3.6 billion bid to buy the company. The twist? The offer could derail a proposed deal between Spirit and Frontier Airlines announced earlier this year.

JetBlue’s cash offer is about 33% higher than the value of Frontier’s stock and cash offer, my CNN Business colleague Chris Isidore reports.

He has good reason to want to emerge victorious. If Frontier and Spirit combine, they will overtake JetBlue to become the nation’s fifth-largest airline, directly competing with American, United, Delta and Southwest, which together control more than 80% of the market.

“The combination of the two airlines would position JetBlue as the most compelling domestic low-cost challenger to the big four dominant US carriers,” JetBlue said in a statement.

CEO Robin Hayes highlighted JetBlue’s relative popularity. Frontier and Spirit had the worst customer satisfaction ratings in the industry for 2021, according to the US Customer Satisfaction Index. JetBlue tied for third.

“Customers shouldn’t have to choose between a low fare and a great experience, and JetBlue has shown it’s possible to have both,” Hayes said.

What happens next: Spirit said it is working with its financial and legal advisors to assess the proposal. Shares of the airline soared 22% on Tuesday after The New York Times disclosed the offer. JetBlue fell 7%.

It didn’t take long. Just a day after Tesla (TSLA) CEO Elon Musk revealed he had acquired a 9% stake in Twitter, making him its largest shareholder, the company announced he would join its board of directors. administration.

With a seat on the board, Musk is poised to have more influence over the company and its management.

“Excited to share that we are appointing @elonmusk to our Board of Directors!” Twitter (TWTR) CEO Parag Agrawal said on Tuesday. “Through conversations with Elon over the past few weeks, it became clear to us that he would bring great value.”

Musk responded that he “looks forward to working with the Parag & Twitter board to deliver meaningful improvements to Twitter in the months ahead!”

Sign of an upheaval: Musk tweeted a poll to his followers on Monday asking if they want Twitter to have an edit button, a long-standing topic of debate on the platform.

Late Tuesday, Twitter said it has been developing a feature for a year that will allow users to edit their tweets, and that trials will be available “in the coming months.”

Tune in to CNN Business’ “Markets Now” digital show, now live at 12 p.m. ET. Charles Schwab’s Liz Ann Sonders offers her tips for navigating volatile markets. Additionally, Voyager CEO Steve Ehrlich is joining Bitcoin 2022 in Miami.

Also today :

  • Executives from Shell, BP, Chevron and ExxonMobil testify before House members about soaring gasoline prices beginning at 10:30 a.m. ET.
  • Minutes from the Fed’s latest meeting arrive at 2 p.m. ET.

Coming tomorrow: Earnings from Conagra (CAG) and Constellation Brands (STZ).

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.