Financial markets are moving into a new era

By Julia Horowitz, CNN Business

What Federal Reserve Chair Jerome Powell said in staid tones on Wednesday may not have sounded momentous. It was.

What’s happening: The US central bank now expects to raise interest rates in 2023 as the post-pandemic economy booms and inflation rises. That’s sooner than it indicated in March, when the Fed predicted rates would stay near zero for at least the next two years.

And officials are starting to discuss when to roll back the Fed’s huge asset purchase program, which has been gobbling up $120 billion in securities a month to keep borrowing costs low.

“You can think of this meeting that we had as the ‘talking about talking about’ meeting, if you’d like,” Powell said, indicating that a policy change is at least on the central bank’s radar.

The shift was immediately felt across markets, which have been drunk on crisis-era stimulus measures for more than a year.

Following the announcement, the Dow fell more than 380 points, or 1.1%, and the S&P 500 and Nasdaq Composite both dropped as much as 1% and 1.2%, respectively. The bond market also experienced a sell-off, with the yield on five-year US Treasuries, which move opposite prices, jumping around 0.1%. Real yields, which refer to what borrowers pay when inflation is factored in, notched an even larger increase.

The US dollar was last trading at its strongest level in more than two months against a basket of other major currencies. In Europe, the STOXX 600 index fell for the first time in 10 trading sessions on Thursday, while government bond yields rose.

Oliver Blackbourn, a multi-asset portfolio manager at Janus Henderson, told me that he thinks the Fed’s “hawkish surprise” could feed through markets for some time, especially if real yields stay elevated and the dollar holds its ground. That could hit emerging markets and commodities like oil.

“We’ve been through quite a long period now where we’ve had very helpful fiscal policy at the same time as easy monetary policy,” Blackbourn said. “One of those supports for markets is now changing, and being taken away slowly.”

He believes the Fed’s pivot could “take some of the edge off the [stock] market rally,” even though strong corporate earnings will continue to act as a support.

The key statistic: The conversation, at its core, is all about inflation. The Fed increased its 2021 inflation forecast to 3.4%, a whole percentage point higher than its previous estimate.

Powell made clear on Wednesday that the Fed still believes price pressures will be transitory — and if it’s wrong, it has the tools it would need to address the problem.

“The Fed welcomes some inflation at the moment,” Blackbourn said. “We’ve been through a long period where [it’s] struggled with disinflationary forces.”

But there’s a lot of uncertainty as the Fed eyes the beginning of the end, forcing investors to stay on high alert. If rising inflation does stick around, the central bank could be forced to hike rates sharply.

“We don’t in any way dismiss the chance that it can work out that [inflation] goes on longer than expected,” Powell said.

Airline and bank websites go down in another internet failure

Airlines, banks, stock exchanges and trading platforms suffered brief website outages early Thursday after a key piece of internet infrastructure failed, sparking the second major interruption of the past 10 days.

Virgin Australia said in a statement on Thursday that it had resolved an IT outage caused by a failure at Akamai Technologies, a global content delivery network.

“Virgin Australia was one of many organizations to experience an outage with the Akamai content delivery system today and we are working with them to ensure that necessary measures are taken to prevent these outages from reoccurring,” the airline said in a statement.

The outages on Thursday ensnared companies including Southwest Airlines, United Airlines, Commonwealth Bank of Australia, Westpac Bank and Australia and New Zealand Banking Group. The Hong Kong Stock Exchange website was also briefly offline.

Remember: The outages come just over a week after countless websites and apps around the world went down for about an hour when Fastly, another major content delivery network, suffered a widespread failure.

Content delivery systems improve load times for websites by storing content, and other aspects of websites and apps, on servers that are physically closer to users.

Investor insight: The outage also affected the sites of Vanguard and E*TRADE, according to monitor Downdetector — an important reminder that global markets remain vulnerable to tech turbulence.

Teens who want to work are in high demand

Teenage workers are in high demand this summer, especially at Main Street businesses, my CNN Business colleague Jeanne Sahadi reports.

Working teens were hard hit by pandemic-related layoffs. In May of 2020, their national unemployment rate was just shy of 30%, according to federal jobs data.

But by this May, it had plummeted to 9.6% — a level not seen since the early 1950s, according to the Bureau of Labor Statistics and data from the St. Louis Federal Reserve.

One reason: Teens are now benefiting from the difficult time many small businesses are having trying to adequately staff their operations as pandemic restrictions are lifted. Many adults are unable to return to work just yet because of childcare or health concerns. Some may have decided to leave their industry or simply opted to work at a bigger chain that pays better. Others may be waiting until the $300 a week federal supplement to unemployment benefits expires.

See here: Before the pandemic, Jeff Rogoff would typically only hire teens as delivery drivers for his sit-down pizza restaurant Sazza, located in a suburb south of Denver. But this summer, he has changed his tune.

“If a teenager came in and said ‘I can work for three months,’ I would hire them,” said Rogoff, who noted his 15-year-old restaurant has never been busier.

Up next

Kroger reports results before US markets open. Adobe and Smith & Wesson follow after the close.

Also today: Initial US jobless claims for last week post at 8:30 a.m. ET.

Coming tomorrow: The Bank of Japan’s latest interest rate decision.