The Federal Reserve meets in Washington on Wednesday, and while it is widely expected to leave interest rates near zero while continuing to buy about $120 billion in government-backed bonds each month, Chair Jerome H. Powell could stage an interesting news conference afterward.
Mr. Powell answered many of the urgent monetary policy questions of the day at an appearance on Jan. 14, making it clear that interest rates will rise “no time soon” and that the Fed will “let the world know” when it is starting to think about slowing down its mass Treasury and mortgage-debt bond buying.
“His goal will be to preserve the status quo — it’s too soon for the message to change,” Roberto Perli and Benson Durham at Cornerstone Macro wrote in a note previewing the meeting.
That could leave the door open for a suite of more thematic questions. The Fed’s policy statement comes out at 2 p.m., and the webcast question-and-answer session starts at 2:30.
Mr. Powell could be asked to give his assessment on whether a bubble is building in stocks, digital currency, house prices — everything, basically — and, if so, what the Fed can do about it. Low interest rates and bond-buying have the effect of pushing investors into riskier assets, and the Fed underlined in its revised policy framework last year that it keeps a wary eye on financial risks.
The Fed chair might also need to take on the question of inequality. As asset prices boom, the wealthy people who disproportionately own stocks are becoming paper millionaires, billionaires, multibillionaires and so on even as the working class struggles with high pandemic-era unemployment and cars continue to line up at food banks. Mr. Powell has typically pushed back on the idea that monetary policy — which also lowers unemployment and sets the stage for higher wages in the longer run — can be boiled down to having one simple effect on income and wealth distribution.
Finally, Mr. Powell might face queries about his own future. He was appointed chair by President Donald J. Trump, and his four-year term expires in early 2022. It is unclear whether President Biden will reappoint him or whether Mr. Powell will seek another term.
Why is Wall Street obsessed with GameStop, the video game chain that until recently was known for middling performance? The company’s stock has soared to scarcely believable levels — its market capitalization is now more than $20 billion — thanks to an army of small traders spurred on by a Reddit message board, the DealBook newsletter explains.
Traders on the Reddit message board, WallStreetBets, a community known for irreverent market discussions, made GameStock their cause du jour and rushed to buy out-of-the-money GameStop options, a bet on the company’s share price rising in the future. (A sample comment on the board: “PUT YOUR LIFTOFF DIAPERS ON ITS ABOUT TO START.”) Both Tesla’s Elon Musk and the billionaire tech investor Chamath Palihapitiya also egged on the crowd via Twitter.
The frenzy has forced market makers who sold the options to buy the underlying shares to hedge their risk. As more traders snap up options, the brokers have to buy up more shares. That squeeze is driving the astounding rise in the company’s stock price, which began the year at $19 and opened for trading on Wednesday at around $350, double the previous day’s close.
Gabe Plotkin, the hedge fund trader whose Melvin Capital was shorting GameStop — and who recently raised a $2.75 billion bailout from Citadel and his former boss, Steve Cohen, amid the short squeeze — confirmed to CNBC on Wednesday that he had exited his position. Though Mr. Plotkin’s other short bets appear to be suffering, possibly because they are being targeted by traders (Melvin and Mr. Plotkin are often pilloried on the message boards), he said that his firm had plenty of capital.
Officials at the Securities and Exchange Commission and elsewhere are closely watching internet chat rooms for signs of potential market manipulation, though they can do only so much without clear signs of fraud. If a big group of traders simply decides to buy options on a stock at the same time, out in the open, for the heck of it, proving malfeasance may be difficult.
The S&P 500 fell more than 1.5 percent in early trading on Wednesday, ahead of the latest policy decision from the Federal Reserve and several earnings reports from large technology companies.
The central bank is widely expected to keep interest rates at low levels and continue its large bond-buying program. But investors will be eager to hear what the Fed chair, Jerome H. Powell, might say about concerns asset bubbles are building in markets.
Microsoft rose 0.7 percent after the company said profits were up 33 percent in the past quarter because of the increase in demand for its cloud services while so many people are working from home. Apple, Facebook and Tesla are among companies scheduled to report their results later Wednesday.
Boeing fell more than 3 percent after it reported a record loss of $11.9 billion for the year. The company recorded a $6.5 billion charge related to the development of the 777X, a wide-body plane that had been slated for delivery, next year but the company now expects to arrive in 2023.
‘Wall Street Bets’
GameStop’s shares continued to rocket higher, doubling in early trading after Elon Musk tweeted “Gamestonk!!” and linked to Reddit’s “Wall Street Bets” forum, which has hyped up buying the stock. Shares in the video game retailer, had risen from $19 at the start of the year to $148 on Tuesday.
Small-scale traders are now looking for other companies to promote, especially those that might have a large short position against them (a bet that the stock’s price will fall). Movie-theater chain AMC’s shares rose more than 200 percent. BlackBerry has also appeared on the forum and its shares are up more than 20 percent after gaining 185 percent already this year.
The Stoxx Europe 600 index dropped more than 1.5 percent Wednesday, with indexes falling in most countries. Europe’s vaccine rollout is struggling to ramp up amid supply issues, raising concerns about when an economic recovery will return. Recent surveys has shown business confidence dropping in Germany and France, the eurozone’s two largest economies.
On Tuesday, the International Monetary Fund upgraded its outlook for the global economy this year but the recovery is expected to be uneven. The Washington-based institution downgraded its forecast for the eurozone because of the increase in coronavirus infections and lengthy lockdowns. It said the economy would grow 4.2 percent in 2021; three months ago it had predicted a 5.2 percent increase.
Shares in LVMH rose almost 2 percent in early trading after the luxury goods company’s earnings beat analysts’ expectations, particularly in the sales of its fashion and leather goods unit.
Boeing lost more than $11.9 billion last year, its worst year ever, as it struggled to overcome the crisis surrounding its 737 Max jet as it also endured the disastrous slowdown in global aviation caused by the coronavirus pandemic.
The company’s bottom line suffered especially during the final three months of the year, during which Boeing reported a loss of more than $8.4 billion. In that quarter, the company recorded a $6.5 billion charge related to the development of the 777X, a wide-body plane that had been slated for delivery next year but the company now expects to arrive in 2023.
Over the course of the year, Boeing brought in more than $58 billion in revenue, which was down 24 percent from 2019.
In a letter to staff, Boeing’s president and chief executive, Dave Calhoun, described 2020 as “a year of profound societal and global disruption, which significantly impacted our industry.”
The financial results were announced on Wednesday morning, shortly after aviation regulators in Europe approved the 737 Max to fly again, joining counterparts in Brazil, Canada and the United States. The Federal Aviation Administration became the first regulator to allow the Max to return to service in November, ending a global ban that had been in place since March 2019, after 346 people were killed in two crashes involving the plane.
Five airlines have resumed Max service, racking up more than 2,700 flights, according to Boeing. In the United States, only American Airlines is flying the Max, though United Airlines is expected to start using the jet next month, followed in the second quarter by Southwest Airlines.
Boeing has started making deliveries and collecting payments on the Max again, a huge relief for its commercial airplane business, which rests heavily on the 737 line. Still, the steep decline in travel caused by the pandemic has hurt Boeing’s airline customers, muting hopes for a recovery this year.
Top Federal Reserve officials downplayed the chance that they would use their power as bank overseers to actively discourage investment in carbon-heavy companies, setting out a boundary line in an evolving conversation about what role the central bank should play in dealing with the fallout from global warming.
“We would note that it has long been the policy of the Federal Reserve to not dictate to banks what lawful industries they can and cannot serve, as those business decisions should be made solely by each institution,” Jerome H. Powell, the Fed’s chair, and Randal K. Quarles, the vice chairman for supervision, wrote in a letter this month.
Their comments came in response to a letter sent by Representative Andy Barr, Republican of Kentucky, and several of his colleagues that raised concerns about the central bank’s recent attention to climate change.
Mr. Powell and Mr. Quarles said the Fed makes sure the institutions it oversees are well-prepared to handle risks they face, including climate-related risks. But they indicated that they were not rolling out climate stress tests or using their supervisory powers to pressure banks to meet climate-related goals — big concerns among Republicans.
“We have seen banks make politically motivated and public relations-focused decisions to limit credit availability to these industries,” the lawmakers said in their letter, specifically referencing coal, oil and gas. “It is possible that the introduction of climate change stress tests could perpetuate this trend, allowing regulated banks to cite negative impacts on their supervisory tests as an excuse to defund or divest from these crucial industries.”
The Fed said its research into climate financial risks was in the “early stages,” and noted that directly addressing climate change was not one of its congressional mandates. America’s central bank is behind its peers when in coming up with a framework for dealing with climate risks.
The restarted Paycheck Protection Program allows hard-hit small businesses to get a second government-backed relief loan, but thousands of business owners who are trying to apply have been ensnared by what the Biden administration said are significant errors in the program’s loan records.
P.P.P. loans are guaranteed by the government but made by banks and other lenders. For months, lawmakers and government watchdogs — including the Small Business Administration’s inspector general — have raised alarms about signs of fraud and mistakes that allowed potentially ineligible borrowers to obtain billions of dollars from the aid program.
Those reviewing the program’s loan records, which were released in December after a court ordered they be made public, have also noted that they are rife with errors, like inaccurate loan amounts or loans that were canceled before being disbursed.
The S.B.A. said on Tuesday that it had found “anomalies,” which it described as “mostly data mismatches and eligibility concerns,” in 4.7 percent of the 5.2 million loans made through the program in its initial round of lending, which ended in August.
Those errors have complicated efforts by some borrowers to obtain second-round loans, which the agency began approving two weeks ago, using $284 billion in fresh funding provided by Congress last month to restart the relief program. The S.B.A. said it would provide lenders with additional guidance and resources for resolving troubled cases.
The problems came to light in part because of new fraud checks the agency imposed before it began approving applications for the new funding round.
The agency “is committed to making sure stringent steps are put in place on the front-end and compliance checks address issues more efficiently moving forward so we are ensuring fair and equitable access to small businesses in every community,” said Tami Perriello, the agency’s acting administrator. (President Biden’s nominee to lead the agency, Isabel Guzman, is awaiting her confirmation hearing.)
The S.B.A. said Tuesday that it had approved 400,000 loans, totaling $35 billion, in the new lending round.
Lenders said the new process has generally been working, with some glitches. Some banks have had high numbers of applications rejected because of formatting issues and other technical challenges in getting through the S.B.A.’s new automated vetting system, said Dan O’Malley, the chief executive of Numerated, a software company that is handling P.P.P. applications on behalf of more than 100 lenders.
Shelly Ross, the owner of Tales of The Kitty, a cat-sitting business in San Francisco, said she applied last week for a second loan, but was caught in a holding queue. She tried three other lenders, with results ranging from no response to cryptic replies telling her she did not qualify.
“I’m ready to bang my head against a wall,” she said. But others have had better luck: Ms. Ross said a friend of hers got a quick approval on her own loan application through PayPal.
The hotel industry, where occupancy rates are still down 30 percent from a year ago, is getting in on the ghost kitchen trend.
Ghost kitchens, also called digital kitchens, are cooking facilities that produce food only for delivery or takeout. Demand for the concept is booming, Debra Kamin reports in The New York Times.
The pandemic has opened the business model to more entrepreneurs. To turn his chicken cutlet sandwich concept into a business, Richard Zaro started renting space in July at the Four Points by Sheraton Midtown near Times Square, paying $6,000 a month for a fully outfitted catering kitchen. Average restaurant start-up costs for brick-and-mortar locations, in comparison, can run from $200,000 to more than $1 million.
Within four months, he had generated enough revenue — and created a large enough base of loyal customers — to move to a stand-alone location. His new business, Cutlets, opened in a former Tender Greens restaurant near Gramercy Park on Dec. 1, and has plans to expand.
Mr. Zaro found his rented kitchen space through Use Kitch, an online commercial kitchen marketplace that likens itself to an Airbnb for the restaurant industry.
Testing from a base at a Times Square hotel was the ultimate risk reduction, Mr. Zaro said, adding that the hotel benefited, too: “It was nice for them to have incoming revenue.”