Premarket Stocks: The Fed is fighting inflation. Could deflation be its next battle?

A version of this story first appeared in CNN Business’s Before the Bell newsletter. Don’t have a customer? you can sign up right here, You can listen to the audio version of the newsletter by clicking on the same link.


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Federal Reserve Chairman Jerome Powell has a big problem, and there’s nothing he can do about it.

Petrol prices in the United States, which have been falling for 91 days in a row, are expected a slight drop Prices in August compared with July, according to analyst estimates for inflation data released on Tuesday.

This is good news for cash-strapped consumers. But not everyone on Wall Street is happy with the price drop. Some are starting to use the “D” word: deflation, another form of price volatility that is bad for the economy.

What is happening: The headline number for the Consumer Price Index, a closely watched inflation gauge, shows that prices actually declined 0.1% between July and August. (The forecast still shows growth of 8.1% over the past 12 months.)

This might sound like a good thing. But for some it is a cause for concern.

Falling prices can indicate weak demand, and consumer spending is a big part of the economy. Markets are unfazed that the Fed’s actions – which take some time to feed through the system – could send the US economy into a longer and deeper recession.

Deflation could signal the opposite of what we’ve seen recently – a downward spiral in jobs and wages as companies cut production and lay off employees.

Two big names on Wall Street have sounded the alarm. Tesla

(TSLA)
CEO Elon Musk, seemingly weary of his atrocities against Twitter, turned to the subject of the central bank, tweeting that “A Key Fed Rate Hike Risks Deflation.”

Musk’s tweet comes after Arch Invest CEO Kathy Wood also warned About deflation on Wednesday. “The Fed is basing monetary policy decisions on backward indicators: employment and core inflation,” she said.

What the market should remember: “Headline inflation” is so called simply because it is the most commonly reported measurement in the media and most familiar to Americans.

But the Fed doesn’t look at that number when setting monetary policy — it uses core inflation, which does not include food or energy. According to Refinitiv, this metric is expected to grow 0.3% between July and August. In fact, Powell has repeatedly said that energy prices are not something the Fed can control.

“I think a lot of investors react to the headlines or the first paragraph of the story without really getting into the details, and there is a very strong movement around the Fed. My strong suspicion is that most investors have never seen the full [Federal Reserve] press conference,” Luke Tilly, chief economist at the Wilmington Trust, told me.

And what about Musk and Wood’s announcements on Twitter?

“They are speaking their books,” Vincent Reinhart, chief economist at Dreyfus-Mellon, told me. If you’re a mega equity investor like Elon Musk, you’ll wish the Fed stopped hiking.

Reinhart says he worries about the narrative for another reason. If market participants are mistakenly convinced that the Fed will not tighten that much, the hike is going to be very disruptive.

“The problem with Musk and Wood speaking like this is that they have a wider reach in society than people who focus on central banks,” he said. “There is concern that other thoughts will pervade, and those are thoughts that are not helpful.”

Bottom line: Inflation is still near historic highs, and nearly a dozen Fed officials were united in their message last week that rates will continue to rise in the near future. Core and headline inflation is still very high year-over-year, and monthly trends are often just noise.

The US credit card industry has long been cracking down on illegal gun sales.

American Express

(AXP)
Mastercard and Visa have announced that they will be adopting a new merchant category code for the country’s gun retailers, My colleague Ramisha Maruf reports.

The system will separately classify sales at gun and ammunition stores, which can help track suspicious transactions of firearms and ammunition. Gun control activists say the change will help identify potential mass shooters and gun smugglers.

The Geneva-based International Organization for Standardization approved the code on Friday. Almost every retail item has a merchant category code – but prior to Friday’s decision by ISO, gun store sales were classified as a general merchandise or sporting goods category.

The proposal was first suggested by DealBook’s Andrew Ross Sorkin in 2018 after the Parkland shooting.

Visa

(V)
and mastercard

(M.A)
Initially opposed the creation of the code, even though some of his own officials spoke in favor of it. Visa

(V)
said at the time that he did not see himself as a “moral authority”.

Visa reversed last week. In a statement on Sunday, the world’s largest payments network said it would “proceed with the next steps while ensuring the protection of all legal commerce on the Visa network in accordance with our long-standing regulations.”

So far in 2022, there have been 479 mass shootings in the US, according to the Gun Violence Archive, a non-profit research group.

Burger King had a tough few years, Reports my colleague Danielle Wiener-Bronner,

The company is playing a game of catchup against its rivals due to missteps made during the pandemic, leaving it behind other fast food states.

At the height of the Covid-related shutdown, restaurants slashed menus and simplified their online ordering systems to meet more demand. Burger King didn’t do that.

Burger King, owned by Restaurant Brands International

(QSR)
, believes the same. “We, really, complicate things,” RBI CEO Jose Sil told CNN Business, “we added menu items …

In the second quarter of this year, sales at Burger King US restaurants that were open at least 13 months increased just 0.4%. Sales at McDonald’s U.S. restaurants open at least 13 months, a 3.7% increase over that period.

But there is a turnaround plan: Burger King plans to remodel about 800 restaurants over the next two years. The fast food chain says it will invest $400 million to improve the brand — $250 million to update restaurant technology, kitchens and remodeling, and $150 million for advertising and digital products. Franchisees will also invest in improving the brand.

The August US Consumer Price Index was released at 8:30 a.m. ET.

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(Subject)
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(TWTR)
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Correction: An earlier version of this story misstated the number of days gas prices fell in the United States. Tuesday was the 91st day in a row when prices registered a fall.

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