Fed Policy Is Poetry. It’s OK If Powell Seems to Contradict Himself.

His thinking is this: how high interest rates go matters. How quickly they get there is less important than it used to be.

Higher rates work with a lag. The worry is that the rate increases so far are like the rumble of an earthquake on a tropical island. Unsettling, but the real damage comes from the tsunami that follows some time later.

The Fed’s own projections see about two more quarter-point moves this year. But Powell is unlikely to make too much of that thought. He may not be sure himself how high rates need to go, but he’ll know it when he sees it.

What’s clear now is that inflation is still too fast, unemployment is still very low, and financial conditions are still loose. The VIX index of volatility, sometimes known as the fear index, closed at the lowest level since January 2020, and stock valuations are elevated even though the market has dropped for three consecutive days.

When Powell says the Fed is data-dependent, he means that figuratively–the data would suggest rates need to go higher right away.

His remark that getting inflation back to target is a process with “a long way to go” harks back to Robert Frost, another great American poet: “I have promises to keep, and miles to go before I sleep.”

—Brian Swint

*** Join Barron’s deputy editor Alex Eule and senior writer Al Root today at noon for a discussion about the current state of autonomous driving—how far we’ve come and where we’re headed next. Autonomous vehicles have arguably been talked about longer than any other application of artificial intelligence. Yet, self-driving continues to take longer than expected. Sign up here.

Try your hand at this morning’s Barron’s crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.

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Powell Tells Congress Fed Likely to Raise Rates Again

The Federal Reserve remains narrowly focused on reining in inflation and will likely raise rates further in the coming months, Chairman Jerome Powell told lawmakers in the House Financial Services Committee. He argued that the long-term payoff will be worth the necessary trade-offs.

• Powell explained why the Fed held rates steady in June, calling it a combination of the five percentage points of rate hikes so far, the uncertain lag effect on the economy from monetary policy, and the potential for tighter credit conditions to slow economic activity.

• More tightening is on the way. “We never used the word ‘pause,’ and I wouldn’t use it here today,” Powell said. Atlanta Fed President Raphael Bostic said the Fed’s benchmark should remain at current levels. Chicago Fed President Austan Goolsbee said the decision to pause was a “close call.”

• The Fed chair’s semiannual report to Capitol Hill comes as inflation remains more than double the bank’s 2% target even after 10 straight interest-rate increases. Core PCE, the Fed’s preferred inflation gauge, was up 4.7% year-over-year in April.

• Asked specifically about the impact of the Fed’s policy moves on low- and moderate-income communities, Powell emphasized that getting inflation under control benefits those families the most, because they “suffer most immediately and worse from high inflation.”

What’s Next: Updated forecasts showed that 16 of the Fed’s 18 policy committee members expect another interest-rate hike, and a majority expect two more this year. Powell said the Fed will decide “meeting by meeting,” based on incoming data and implications for economic activity, inflation, and risks.

—Megan Leonhardt, Megan Cassella, and Janet H. Cho

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FTC Says Amazon ‘Tricked’ People Into Joining Prime

The Federal Trade Commission sued
Amazon.com,
saying the e-commerce company spent years tricking customers into signing up for automatically-renewing Prime memberships and then made it difficult for them to cancel their unwanted subscriptions.

• Prime memberships cost $139 a year. FTC Chair Lina Kahn said Amazon’s practices cost users “significant money.” The lawsuit, in Seattle federal court, follows an investigation that began in March 2021. Amazon told Barron’s the FTC’s claims were wrong on the facts and the law.

• “The truth is that customers love Prime, and by design we make it clear and simple for customers to both sign up for or cancel their Prime membership,” Amazon said. It added it was looking forward to proving its case in court.

• The FTC said Amazon used “dark patterns” in its website to steer online shoppers. It made it possible to join Prime with one or two clicks, but quitting Prime often required multiple steps designed to make it confusing and cumbersome.

• Amazon complained about the FTC’s investigation, The Wall Street Journal reported. It asked the FTC to quash civil subpoenas issued to founder Jeff Bezos and CEO Andy Jassy, but the agency mostly rejected those requests. The FTC is reviewing Amazon’s pending acquisition of iRobot and could try to block it.

What’s Next: The FTC is seeking public comment through Friday on its proposed “click to cancel” rule that would require companies to make canceling a subscription as easy as it is to sign up for one.

—Eric J. Savtiz and Janet H. Cho

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Lab-Grown ‘Cultivated Chicken’ Products Head to Restaurants

Eat Just and Upside Foods, two food industry start-ups, received approval from the Agriculture Department for commercial sales of cultivated chicken meat, which is protein created in a laboratory from harvested cells. The product will be on menus at restaurants in Washington, D.C., and San Francisco.

• Cultivated meat, also called cell-based or lab-grown protein, is produced by taking animal stem cells from a live animal or a fertilized egg, and putting them into a medium that lets them grow, ultimately creating a product that looks and tastes like traditional meat.

• The cells grow inside vessels that keep them at the right temperature, with a mixture of amino acids, sugars, and other nutrients to help them grow. The cells are harvested and formed into shapes like chicken breasts or meatballs.

• The Food and Drug Administration had given both companies a green light months before, saying their lab-grown chicken is safe for human consumption. Good Meat, which is owned by Eat Just, has been selling products in Singapore since December 2020.

• Celebrity chef and anti-hunger activist José Andrés plans to serve Good Meat’s cultured chicken at an undisclosed Washington, D.C., restaurant, the company said. Chef Dominique Crenn will serve limited quantities of Upside Foods’ cultivated chicken filet at Bar Crenn in San Francisco.

What’s Next: Challenges include high production costs, its expense relative to traditional meat, and overcoming consumer misgivings. McKinsey projects that by 2030, cultured meat could provide as much as half of 1% of the world’s meat supply, an estimated $25 billion in sales.

—Janet H. Cho

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Home Sale Inventory Dwindles as Higher Rates Discourage Sellers

The number of houses for sale in the U.S. dropped to 1.4 million in May, according to
Redfin,
the lowest since the firm started tracking the data in 2012. Homeowners are reluctant to sell with mortgage interest rates elevated, sending new listings down 25% from last year.

• High mortgage rates have also cut buyer demand, but the low inventory levels are making home buying more competitive. The typical home that sold in May went for its listing price, but 37.5% of homes sold for over asking price, higher than prepandemic levels.

• The median home sale price was $419,103 in May, down 3.1% from last year’s record high. Though prices fell, the decline was smaller than it was in April, when prices dropped a notable 4.2%, according to Redfin.

• Home builders are benefiting from current conditions. Housing starts, an indicator of the beginning of construction on a new home, surged in May. The
  SPDR S&P Homebuilders
  exchange-traded fund, which tracks home builder stocks, is up roughly 28% so far this year.

• KB Home
  beat expectations for earnings and revenue in the second quarter. Homes delivered in the quarter rose 6%, to 3,666, and net new orders rose 1%, to 3,936. That compares with a sharp drop of 49% in the first quarter compared with last year.

What’s Next: KB Home said it sees housing revenue of $5.8 billion to $6.2 billion in fiscal year 2024, higher than its previous forecast. Demand for new homes is rising, helped by the continuing shortage of existing homes for sale.

—Liz Moyer

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—Newsletter edited by Liz Moyer, Matt Bemer, and Rupert Steiner