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The Federal Reserve raised its benchmark interest rate by 0.25% on Wednesday. The move at once continued the central bank’s campaign to fight inflation by using its monetary policy tools, and at the same time marked a slowdown in rate hikes.
“Shifting to a slower pace will better allow the committee to assess the economy’s progress toward our goals as we determine the extent of future increases that will be required to attain a sufficiently restrictive stance,” Fed Chair Jerome Powell said.
For the consumer economy, rising interest rates carry with them the specter of a slowdown in demand. The casualty of falling prices is tougher decisions on spending for households. But in the long run, falling inflation will mean consumers are more willing to spend on discretionary purchases as they spend less on gas and food. The question is how long and deep the short-term period of pain will stretch.
For takeaways on what's next, here’s a look at what Powell said about the state of the economy, inflation, the Fed’s plans and more:
The economy: Signs of a slowdown, but job growth remains
After retailers reported consumer pullback and challenges to profitability in the recently-completed holiday season, there’s keen interest in how the Fed’s actions are affecting the economy. Powell indicated that the Fed’s actions are beginning to have an impact. He offered the following assessment:
The U.S. economy slowed significantly last year, with real GDP rising at a below-trend pace of 1 percent. Recent indicators point to modest growth of spending and production this quarter. Consumer spending appears to be expanding at a subdued pace, in part reflecting tighter financial conditions over the past year. Activity in the housing sector continues to weaken, largely reflecting higher mortgage rates. Higher interest rates and slower output growth also appear to be weighing on business fixed investment.
Despite the slowdown in growth, the labor market remains extremely tight, with the unemployment rate at a 50-year low, job vacancies still very high, and wage growth elevated…Although the pace of job gains has slowed over the course of the past year, and nominal wage growth has shown some signs of easing, the labor market continues to be out of balance.
As for this year, Powell said his assessment is that growth will continue in the economy in 2023, but at a “subdued level.”
Soft landing: Still possible
Can the Fed bring down inflation without seeing a significant economic slowdown that leads unemployment to rise?
That’s the question facing the central bank's key committee, and it is one that the central bank continues to wrestle with as it hikes rates. The labor market has continued to show strength even with the aggressive tightening over the last year, and that’s a key indicator of demand for goods. Powell still sees a possibility that there won’t be a significant recession.
“I think most forecasters would say that unemployment will probably rise a bit from here, but I still think…that there’s a path to getting inflation back down to 2% without a really significant economic decline or a significant increase in unemployment,” Powell said. “And that’s because…the setting we’re in is quite different.”
By different, he means that the pandemic-era supply and demand imbalance that was a major driver of inflation is unprecedented. In turn, there is little to repair the fallout from that rebalancing, as well.
Inflation: A start to price relief
The Fed sees signs of the disinflationary process starting, Powell said. In particular, goods inflation is coming down as supply chains move back into balance. But Powell said that the process of 40-year-high prices coming down is at an “early stage,” especially as inflation in services and housing continues to be elevated.
“The inflation data received over the past three months show a welcome reduction in the monthly pace of increases,” he said. “And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.”
Rate increases: How high and how long?
Now that the Fed has slowed down, a key question is how much higher the interest rates will go, and when it will stop hiking rates altogether.
There was little hard evidence offered Wednesday. The Fed’s statement left existing language in place that it believed further increases were necessary. Powell fielded a variety of questions on the duration and size, but didn’t commit to any specific plan.
He reiterated what he has throughout this period: “The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”
Trending in Economy
On the Move has the latest from Amazon, Lovesac and more.
This week, leadership is changing at GameStop, Sorel and Beautycounter. Meanwhile, key executives are departing at Amazon, Wayfair and Lovesac.
Here’s a look at the latest shuffles:
GameStop CEO fired
GameStop announced the termination of Matthew Furlong as CEO on Wednesday. A brief statement did not provide a reason for the firing.
With the move, Chewy founder and activist investor Ryan Cohen was named executive chairman of the video game retailer. Cohen will be responsible for capital allocation and overseeing management.
It came as the company reported a 10% year-over-year decline in net sales for the first quarter. Meanwhile, the company’s net loss improved by 62%.
In an SEC filing, GameStop further added this “We believe the combination of these efforts to stabilize and optimize our core business and achieve sustained profitability while also focusing on capital allocation under Mr. Cohen’s leadership will further unlock long-term value creation for our stockholders.”
Cohen was revealed as GameStop's largest shareholder when he disclosed a 10% stake in the retailer in 2020. GameStop went on to become a leading name in the meme stock rise of 2021.
Sorel president steps down
Mark Nenow is stepping down as president of the Sorel brand in order to focus on his health.
After rising to the role in 2015, Nenow spearheaded a transformation of Columbia Sportswear-owned Sorel from a men’s workwear brand to a fashion-focused brand that led with a women’s offering of boots, sandals and sneakers.
“Mark led the brand to sales of $347 million in net sales in 2022,” said Columbia Sportswear CEO Tim Boyle, in a statement. “His leadership has been invaluable to this company, and we wish him the very best.”
Columbia will conduct a search for Nenow’s replacement. Craig Zanon, the company’s SVP of emerging brands, will lead Sorel in the interim.
Beautycounter appoints interim CEO
Beautycounter appointed board member Mindy Mackenzie as interim CEO, succeeding Marc Rey. According to the brand, Rey and the board “mutually decided to transition to a new phase of leadership for Beautycounter.”
McKenzie, a former executive at Carlyle, McKinsey and Jim Beam, will lead the company as it conducts a search for a permanent CEO. Additionally, former Natura & Co CEO Roberto Marques will join Beautycounter’s board as chair.
As part of the transition, Nicole Malozi is also joining the company as chief financial officer. She brings experience from Tatcha, Nike, and DFS Group Limited.
Amazon’s North America fulfillment chief departs
Melissa Nick, a VP of customer fulfillment for North America at Amazon, will leave the company, effective June 16, CNBC reported. Nick joined the company in 2014, and oversaw a region that included nearly 300 fulfillment centers. After doubling its supply chain footprint during the pandemic, Amazon recently reorganized its fulfillment operations to take a regional approach, as opposed to a national model that often resulted in items shipping across the country.
Wayfair’s chief commercial officer to retire
Jon Blotner (Courtesy photo)
Steve Oblak will retire from the role of chief commercial officer at home goods marketplace Wayfair. With the move, Jon Blotner will be promoted to chief commercial officer.
"Steve has served as a critical part of our leadership team and played a pivotal role in Wayfair's growth, helping us grow from a $250 million business when he joined to $12 billion in net revenue today,” said Wayfair CEO Niraj Shah, in a statement. “He oversaw countless milestones, from helping to launch the Wayfair brand as we brought together hundreds of sites into a single platform, to launching new categories, business lines, and geographies while overseeing our North American and European businesses, to leading our debut into physical retail.”
Blotner previously oversaw exclusive and specialty retail brands, as well as digital media at Wayfair. Before joining the company, he served as president of Gemvara.com prior to its 2016 acquisition by Berkshire Hathaway.
Lovesac announces CFO transition
Furniture retailer Lovesac said Donna Dellomo will retire as EVP and CFO, and move to an advisory role, effective June 30. Dellomo was with Lovesac for six years.
Keith Siegner was appointed as the next EVP and CFO. He brings experience as CFO of esports company Vindex, as well as executive roles at Yum! Brands, UBS Securities and Credit Suisse.
Additionally, Jack Krause will retire from the role of chief strategy officer, effective June 30. His responsibilities will be divided between CEO Shawn Nelson and president Mary Fox.
“Since joining Lovesac, Jack has played an instrumental role in transforming the Company into a true omni channel retailer by helping expand our physical touchpoints and digital platform as we continue to disrupt the industry,” said Nelson, in a statement.
NRF adds board members
The National Retail Federation announced the addition of five new board members. They include:
- Marguerite Adzick, founder and CEO, Addison Bay
- Harley Finkelstein, president, Shopify
- Ian Kahn, partner, PwC
- Sharon Leite, CEO, Ideal Image
- Carrie Tharp, VP, strategic industries, Google Cloud