The United States Federal Reserve will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the “totality” of incoming information suggests tougher measures are needed to control inflation, Fed Chair Jerome Powell told US lawmakers on Tuesday.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” the US central bank chief said in opening remarks at a hearing before the Senate Banking Committee.
While some of that unexpected economic strength may have been due to warm weather and other seasonal effects, Powell said the Fed was cognizant it may also be a sign it needs to do more to temper inflation, perhaps even returning to larger rate increases than the quarter-percentage-point steps officials had been planning to stick with.
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said.
Senators responded with a broad set of questions and pointed criticism around whether the Fed was diagnosing the inflation problem correctly and whether price pressures could be tamed without significant damage to economic growth and the job market.
Democrats on the committee focused on the role high corporate profits may be playing in persistent inflation, with Senator Elizabeth Warren of Massachusetts charging that the Fed was “gambling with people’s lives” through rate hikes that, by the central bank’s most recent projections, would lead the unemployment rate to increase by more than a percentage point – a loss associated in the past with economic recessions.
“You claim there is only one solution: Lay off millions of workers,” Warren said.
“Raising interest rates certainly won’t stop business from exploiting all these crises to jack up prices,” said Senator Sherrod Brown, a Democrat from Ohio who chairs the committee.
Republicans focused on whether energy policy was restricting supply and keeping prices higher than needed, and whether restrained federal spending could help the Fed’s cause.
“The only way to get this sticky inflation down is to attack it at the monetary side and the fiscal side. The more we help on the fiscal side, the fewer people you will have to throw out of work,” said Senator John Kennedy, a Republican from Louisiana.
“It could work out that way,” said Powell, who at a separate point in the hearing agreed with Democratic lawmakers’ assertions that lower corporate profits could help lower inflation, and with Republicans’ arguments that more energy production could help lower prices.
“It’s not for us to point fingers,” the Fed chief said.
‘Surprisingly hawkish’
Powell’s comments, his first since inflation unexpectedly jumped in January and the US government reported an unusually large increase in payroll jobs for that month, sparked a quick repricing in bond markets as investors boosted bets to more than 70 percent that the Fed would approve a half-percentage-point rate increase at its upcoming March 21-22 meeting, and lift the anticipated endpoint for rate increases. Equity markets fell and the US dollar was trading higher.
Powell’s statement was “surprisingly hawkish,” said Michael Brown, a market analyst with TraderX in London. With a 50-basis-point rate hike now in play, Brown said a strong monthly jobs report on Friday would likely lead to “calls for a 6 percent terminal rate,” nearly a percentage point higher than Fed officials had projected as of December.
The Fed’s benchmark overnight interest rate is currently in the 4.5 percent to 4.75 percent range.
With the next policy meeting two weeks away, the March 10 release of the US Department of Labor’s jobs report for February and an inflation report next week will be critical in shaping policymakers’ judgement about whether they are again slipping behind the inflation curve, or can stick with the more tempered policy planned at their last meeting.
In either case, Powell’s comments to the Senate committee members mark a stark acknowledgement that a “disinflationary process” he spoke of repeatedly in a February 1 news conference may not be so smooth.
Although inflation “has been moderating” since its peak last year, Powell said, “the process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy”.
Powell will testify again on Wednesday before the House of Representatives Financial Services Committee.
Possible labour market softening
Powell’s testimony weighed in on an issue now at the centre of Fed discussion as officials decide whether recent data will prove to be a “blip”, as one of his colleagues suggested, or be seen as evidence the central bank needs to lean on the economy even harder than currently expected.
In his testimony, Powell noted that much of the impact of the central bank’s monetary policy may still be in the pipeline, with the labour market still sustaining a 3.4 percent unemployment rate not seen since 1969, and strong wage gains.
In a comment that may well be seized on by some Senate Democrats, Powell suggested that the labour market might have to weaken for inflation to fall across the broad services sector, a labour-intensive part of the economy where prices continue to rise.
“To restore price stability, we will need to see lower inflation in this sector, and there will very likely be some softening in labour market conditions,” Powell said.
Powell’s last monetary policy report to Congress was in June, which was early in what became the most aggressive cycle of Fed rate increases since the 1980s. That monetary tightening has driven up borrowing costs for home mortgages, a topic of particular sensitivity for elected officials; contributed to volatility in traditional equity markets as well as alternative assets like cryptocurrencies; and sparked some broader debates about the Fed’s efficacy.
Inflation has fallen since Powell’s last appearances in Congress. After topping out at an annual rate of 9.1 percent in June, the consumer price index dropped to 6.4 percent in January; the separate personal consumption expenditures price index, which the Fed uses as the basis for its 2 percent target, peaked at 7 percent in June and had fallen to 5.4 percent as of January.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
