Jerome Powell sends Wall Street a wake-up call – WWD

Federal Reserve Chairman Jerome Powell splashed some cold water on this year’s outlook, signaling that the US economic rollercoaster would continue.

The Fed has raised interest rates eight times in the past year, trying to prevent inflation from settling into the economy by making it more expensive to borrow money, stifling consumers and employers.

While the market hoped the hard work was over when the pace of rate hikes slowed to 25 basis points at the Fed’s February meeting, Powell clearly felt he needed to flex some muscle to get Wall Street to listen.

“We will continue to make our decisions on a meeting-by-session basis,” Powell told the Senate Banking, Housing and Urban Affairs Committee on Tuesday.

“While inflation has been moderating in recent months, the process of bringing inflation back to 2 percent has a long way to go and is likely to be bumpy,” he said. “The latest economic data is stronger than expected, suggesting that eventual interest rate levels are likely to be higher than previously expected.”

Investors took a step back and pushed the Dow Jones Industrial Average by 1.7 percent, or 574.98 points, to 32,856.46. Fashion industry senders included Mytheresa, down 4.2 percent to $7.26; Simon Property Group Inc., 2.6 percent to $120.61; Macy’s Inc., 2.5 percent to $21.12; Estee Lauder Cos. Inc., 2.5 percent to $245.46; Farfetch, 2.5 percent to $5.14, and VF Corp., 2.4 percent to $24.26.

Stephen Stanley, chief US economist at the business and investment bank Santander, described Powell’s speech as “short and concise” and “significantly more aggressive than I expected”.

“There is no doubt that in March Powell opened the door for a 50 basis point increase,” said Stanley.

None of this bodes well for retailers, who face higher costs and sales to consumers paying more for food and rent as the Fed tries to cool the economy for the public good.

While Powell spoke in the Senate, John David Rainey, the chief financial officer of Walmart Inc., spoke at the Raymond James Institutional Investors Conference, putting a face to the retail industry on broader economic trends.

“Obviously, consumers are demanding,” Rainey said. “Given some of the inflationary pressures, we’re seeing a shift from general merchandise to grocery.”

That has caused problems in some categories, including apparel, where consumers have had to make tough choices and restock their pantries rather than their closets.

Rainey expects prices in the economy to remain generally high this year, but said Walmart was positioned to win either way.

“If consumer pressure continues with lower disposable income, we believe our value proposition will resonate,” said the CFO. “On the other hand, as we get into a better economy with more growth behind us, a lot of what we’re doing plays a really important role in convenience and some of the things we’re doing in that area.”

But not all retailers are big enough to win in both good times and bad.

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