Power Lunch - The Fed Dilemma 6/14/22

Episode Date: June 14, 2022

24 hours away from the Fed decision. A growing number of economists are calling for a 75-basis point hike, including JP Morgan’s Mike Feroli. Kelly & Tyler ask him to make the case. Plus, financial stocks should do well when rates rise. So why aren’t they rallying? And, mortgage rates hit 6.28%. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch. Kelly, we'll see in just a sec. I'm Tyler Matheson. Welcome. Once again, here's what's ahead. The Hawks are circling. J.P. Morgan now calling for the Fed to hike by 75 basis points, three quarters of a percent tomorrow, adding that the real surprise would be a 100 basis point. I got full point. The economist behind that report is here. But Bank of America's Ethan Harris, who called for a more aggressive Fed earlier this year, says that three. quarter point hike won't happen tomorrow. He's also with us as we get set for tomorrow's big Fed decision. Kelly? Looking very much forward to both of those discussions. Tyler, thanks. Hi, everybody. Stock's a little bit all over the place, mostly in a holding pattern ahead of tomorrow's Fed decision at 2 p.m. Eastern. The Dow was down 250. We're down 194. We had been up as much as 170. The S&P's down 16 to 3733. The NASDAQ hanging on to some green today, but it's back to 10,820 as the out from the deep sell-offs the past week continues. Now, a lot of the action today is in the

Treasury market. The 10-year yield has reversed higher, really climbing this afternoon, kind of to what Tyler said, the speculation about maybe even a full-point rate hike. 345. We even hit 3.46 a moment ago. So you can see here again the firmness that I mentioned. The two-year yield, it's highest since November 2007, 3.408. Now, Redfin and Compass are also laying off workers. We got wind of those reports today. 8 to 10% of staff. Redfin down 4.5% compass down 7.5%. Redfin around an $8 stock compass around $4.40.

And this comes as the rate on the 30-year mortgage is now 6.28%. Just a week ago, Tyler, it was 5.5%. And if that doesn't slow the housing market, I do not know what will. But the Fed decision, that's the big question that we're watching for tomorrow. It's now just 24 hours away. We will know what the Fed did by this minute tomorrow. Growing number of economists say that a 75 basis point rate hike is in play, which would be the biggest rate hike since 1994.

That was one of the worst bear markets for bonds in recent memory. The forecast change has been very swift. J.P. Morgan, one of the banks, now calling for such a hike, three quarters of a full point. also telling investors that one might wonder whether the true surprise, the true surprise, would actually be hiking a full percentage point, 100 basis points, something we think is a, quote, non-trivial risk. The economist behind that report, Mike Faroly is here.

Mike, welcome. It's good to have you with us. Why the change of mind to the 75 basis point hike? What has changed? Sure. Even after Fed Chief Powell said at his last meeting, responding to our mic, to Steve Leesman, it's off the table. Yeah, so I think the proximate reason is that yesterday several well-placed media sources, including your very own Steve Leesman, indicated that the Fed had sent out the smoke signals, that 75 was very likely. And again, in contrast to the earlier guidance that we heard from Chairman Powell, which you just mentioned.

So, as I said, the approximate reason was what we heard from, again, these well-placed media sources, I think the more fundamental reason may have been, I believe, that upside. It's surprised on inflation expectations that we saw last Friday morning in the University of Michigan's survey of consumer sentiment. I think that probably is something that really spooked a lot of senior Fed officials and probably led to this rethink over the weekend. The Fed, as it is wont to say, has a dual mandate. One is full employment that is consistent with price stability. The other is price stability. Right now, it's not worried about employment particularly,

even though we're hearing about some layoffs. It is worried solely and fully, wouldn't you say, Mike, on crushing inflation and doing whatever it takes to do that. Yes, entirely. And if anything, Chair Powell recently said that the labor market is tight to an unhealthy degree. I don't think they want to see mass layoffs, but I do think they want to see a little more balance in the labor market in terms of vacancies and unemployment.

So right now, at least for the foreseeable next couple of months, let's say, there's really no conflict between their full employment and their price stability goals. Both, I think, lean in favor of more aggressive policies. So let's just spin the clock forward to the next several meetings and months. Let's assume that they raise by three quarters of a point tomorrow. What happens then in July? What happens in September? What happens in November? Yeah. So what I'd say, first of all, is that I think tomorrow, a lot of tomorrow is about catching up, right? So I think almost everyone I've talked to understands that the Fed is well behind where they need to be.

So after they've caught up, which I don't think that happens necessarily tomorrow, but maybe after the July meeting, then I think they can be a little more data dependent and start seeing whether, the job market is loosening up a little bit, whether inflation is coming down. I'm not sure they want to give as specific a signal as they did in the May meeting. As you mentioned, after that meeting, Chair Powell was pretty specific in the next two meetings ahead. And that didn't work out so well. So I think there may be a little more mindful of the uncertainties here in terms of the type of guidance they give us tomorrow. But I do think they're definitely going to point to the need to expeditious,

as they would say get back to neutral, call it two and a half percent on the short-term interest rate, and then most likely have to go into restrictive territory. So I do think they signal something like that. I'm not sure they give a specific basis point moves for the next few meetings. Mike, has the Fed lost control of the bond market? I mean, there's two ways to look at this. One is the people who will blame them for the market turmoil that we're seeing the spike in mortgage rates and everything else. T-bill auction yesterday didn't go very well. It could be more to come. We'll see. So are they causing all of this, or did they lose control, and this is now happening to them,

and they're trying to get control back? I think they're causing it. Look, and inflation doesn't come down magically. It comes down through people spending less, and that's going to happen with tighter financial conditions. And one of those is higher mortgage rates, stronger dollar, weaker equities. So all these things aren't great, but that's going to happen. No one said this was going to be an easy path to get inflation down from these pretty elevated levels. So that's, I think, part and parcel of what they're doing.

Let's talk to people who are exposed to the bond market, as many Americans are, both in their 401ks and in mutual funds. The last time there was a three-quarter point hike in interest rates was in the mid-90s, and I remember it, and it was a period where the bond market, as I recall, had its worst response in a generation. Do you expect that that's what we're in the middle of now? Well, it's already been pretty bad, right? Yes, yes. And we can all say how bad that bloodbath was in the bond market in 94. But that did set up, I think, another half decade of prosperity in the real economy.

So some pain in financial markets may be what we need to see, that ensure that the expansion, you know, it doesn't end after just a few short years. So I think by the Fed's reckoning that mid-90s episode was a success, definitely. Yeah. Mike, thank you so much. We appreciate your time today. We'll be talking to you again, I think. Sounds good. Mike Faroley. And as more economists call for a 75 basis point hike, investors are bracing for more increased market volatility. Billionaire investor Leon Cooperman told CNBC this morning, the bottom is in yet? And I would just say that in bear markets, you never know how low is. I'm assuming by the time this is over, if we fall into a recession, that the market could have declined 40% from its peak.

That's my basic motor stoperandi. So where does that leave investors? Joining us now is Jack Ablin. He's Crescent Capital's founding partner in CIO. Good to see you again, Jack. Do you agree with Lee? I have to agree with Lee. Lee is such a great investor. and actually he's a friend of mine. You know what? I've looked at a lot of the bear markets related to recessions. And in many respects, he's right. Although I will say I point to really to the 19, I'm sorry, the 2000s and then the 2008.

And both I would argue, and that's, I think, what he's looking at, I would say both, I would argue, was more than a recession. it was really a systemic problem. Obviously, we know what happened with the great financial crisis and the banking system and Lehman and all that. But even in 2000, if you remember, yes, the Fed started raised. They were behind the curve because Greenspan didn't know if we were going to be able to turn the lights on after Y2K. He kept rates artificially low. Remember, he was flapping his arms in 1996 with a rational exuberance, and he didn't raise rates until 2000. Same sort of started to raise rates. We saw the tech crash. But then what happened was, remember, in 2001, we had 9-11, and then we had World Common Enron. And I think those two pieces together caused

investors to really wonder how real and how sustainable the equity market was. So I don't think we're in that kind of position. I don't think we're in a 2008 position. And that's really where Lee is drawing his 40% down draft conclusions. If you look at all of the recessions, all of the down drafts related to recessions, we're pretty much right in the middle of it right now. We're kind of median level. And even the 1980 with Volker, Marker was down 16.5%. So I think we're, you know, pretty well into where we need to be. So if we are, and we're down about, what is it, 23, 24% in the S&P from the recent high back in early January, if we're at the middle point, that puts us at 40% off the high, right?

It puts us at 40 or even more. So would you be surprised, I guess, is what I'm asking, if we go down another 20 percentage points from here? I would. And, you know, I'm looking at the S&P, you know, peaking in January. So I'm looking at, you know, pretty much like you said, you know, 20, you know, 2% somewhere in there. But it's really, you know, it's funny. We put a model together that just looks at changes in interest rates, changes in earnings growth expectations. And we're right on target.

We started the year at 1.5. We're now at around nearly 3.5. we have a 9% earnings growth expectation, and our model suggests the S&P should be off about 25%. So we're very close to what the textbooks would say. I guess that's good news perhaps because things are behaving themselves, but maybe we need to go farther to just kind of wash out, if you will, because it really hasn't been much selling. That's the interesting part of what I'm seeing going on right now. We don't like to hear that if that shoot was still to drop.

Jack, four stocks do you like? They've been kind of stalwartes, relatively speaking, Chevrona is up big, obviously, in the energy space. But McDonald's, one of the only stocks that was in the green yesterday, Johnson and Johnson, Coca-Cola. Would you just kind of clip your wings and stick to these quality names? That's it. I mean, if you look at quality as a factor relative to the rest of the market, it's trading at the biggest discount that I've ever seen on a relative valuation basis. But these stocks have one other feature going for them. Not only are they high quality companies, but they're dividend achievers.

These are companies that continually maintain and grow their dividends over time. So they're part of the dividend aristocrats, so to speak. And when you see a company like FedEx raising the dividend and they're up pretty dramatically today, clearly investors are gravitating to quality. and they're gravitating dividends. And that's what we're going to stick with for the time being. All right. Jack, thanks for your time today. Thank you. Jack Ablin.

All right, we've got a news alert out of Washington. And Elon Moy has the details. Hey, Elon. Well, Tyler, the head of the Senate Finance Committee is proposing a massive new tax on big oil and gas companies. This comes from Senator Ron Wyden of Oregon. He's proposing an additional 21% tax on the profits of oil and gas companies with at least a billion dollars in annual revenue. Now, this tax on so-called excess profits would be applied to anything above 10% of return on expenses, and it would come in additional to the regular corporate

income tax that these companies would have to pay. In addition, Wyden is also proposing a 25% excise tax on any stock buybacks that are completed by the company. His office specifically calling out Exxon and Chevron for announcing $40 billion worth of buybacks over the next two years. The bill would also close accounting loopholes that his office says are letting them these companies lower their tax liabilities. In a statement, his office says that the tax code is working for big oil, but not American families. So again, Senator Ron Wyden, the head of the Senate Finance Committee, proposing a 21% tax on big oil and gas companies. Tyler, back to you. All right, Elon, thank you very much, and we'll see what happens on that one.

All right, coming up, tech stocks vulnerable to higher rates. The tech ETF down 28% since the start of the year, why a few mega caps might be your best bet for the next two to five years. Plus rising diesel prices rippling through the critical transportation sector. But for large players like UPS, FedEx and Knightswift, well, are elevated prices actually beneficial? And as diesel prices surge, net gas prices plunge, a look at what's behind today. day's sell-off in natural gas when power lunch continue. Welcome back, everybody. The NASDAQ 100, losing about $6 trillion in market value so far this year.

That according to FACSET, as inflation concerns ripple through that sector. The big players like Apple, Google, Microsoft, well down 25 percent or so. But our next guest says these names could be the single best investments you'll make over the next two to five years. joining us now, Boris Schlossberg, BK Asset Management, Managing Director of FX Strategy, and a CNBC contributor. And I dare you to try and say all of that, Boris. That's a lot of stuff right there. That's a mouth that you survived. Yeah. You know, I guess I think I take comfort at a time like this, rightly focusing one's target down the road two to five years. Why do you think these blue chip tech stocks will be the winners?

So Warren Buffett once said that I would rather own a wonderful company at a fair price than a fair company at a wonderful price. And that's really my thesis here. Basically, the idea here is if you own these three bluest of the blue chips, Microsoft, Apple, and Google, for the next two to five years, there's a little that I can think of that could go really wrong in this position. These are companies that have massive, massive market dominance over their spaces. Their products essentially have a perpetual demand, and they're huge cash caps. And effectively, for all intents and purposes, they're averaging right now at around

20 to 25 PE with a 20% growth. Some of them are growing faster than that. Some of them have a little bit lower P, but that's essentially the buy. And to me, that's an incredible value at this point. Having said this, though, I will say one thing. Nobody knows whether we're at the bottom or not. So to me, the way I would trade all of these companies is in a scale and basis, either dollar cost average into the position for the next six or 12 months or sell at the money puts same way and just build a position in both of these stocks. Because there's obviously no way to know we're at the bottom of the move here or not. But my point is that we're at a fair valuation. And if you look two to three years forward, the growth in these companies is almost certain to surpass what we're at

at this point. And they should be a very interesting compounding effect. And I think it's not exactly coincidental that even though these companies are down from their peaks, they are down a little bit less than the NASDAQ as a whole. Absolutely. They have a huge cash cushion. They are massive profit generators. I mean, you know, people are talking about high interest rates, higher cost of capital. None of this matters to these companies. These companies have internal rate of returns. They're not, they have they have no need to borrow funds. In fact, you know, the funds that they borrowed have been basically essentially to buy back stock. And I think that's the other interesting thing from from a national point of view is that because they're so cash rich, they can afford down the

road to issue buybacks. And that should only should also serve as a good support for for them going forward. I believe I saw. I beg your pardon. I'm sorry to interrupt you. I believe I saw on your list a stock that some people might be surprised to see, and that is Zoom. Yes. So Zoom to me sort of was an outlier. It's obviously a much more speculative bet. But my view on Zoom is that work from home is here to stay. We've seen a thousand stories where employees, employers have been begging employees to come back to work. And we see that almost everybody is resisting it. If everybody, most of the kind of information technology, you know, white collar work here can be done, 90% of it can be done from home. And I think the pandemic just completely radically changed behaviors. So to me, Zoom becomes just stock and parcel of our life going forward in a business environment. And I think that's why it's come down so much off its, you know, parabolic highs.

I think on a long-term basis, it becomes a very interesting trade. Does it have enough of a mode around it? I think it does because, you know, it's kind of like first to market dominates the market. Right. We really, we don't think about any other tool than Zoom. We want to try to share our, you know, conversations. Yeah. Right.

I'll Zoom you. I mean, when you get verbed, you know you've made it, right? Yeah. Once you've got a verb, you've got it. That's exactly. All right. Thanks, Boris. Good to see you.

Boris Schlossberg. And ahead on the show, the $5 dilemma. While consumers are shocked by these high gas prices, transport, firms are somewhat used to pricey diesel. For now, they can pass those costs along to consumers, but how high is too high. Plus Bitcoin dropping back towards 20,000. But full like Novografts says Fed weakness could be good for crypto. We have that. And before we had to break throughout the month, CNBC is celebrating Pride Month. Here is Ryan Rogero, CNBC, Senior Director of Diversity, equity, and Inclusion.

The most important thing that I want people to know about the LGBTQ community is that we are everywhere. We are CEOs, CFOs, actors, doctors, lawyers, football players, and we are journalists. We are also so appreciative of the many LGBTQ trailblazers and allies that continue to help create change in our community. We are not going anywhere, and we will continue to stand united in the face of injustice until we are all treated equally under the law. The great crypto crush continuing today. Bitcoin down 3% falling to just over 20. 1,000 earlier in the day. Now, that's a potential problem for companies like micro strategy. But there you see it, led by Michael Saylor. It's been stockpiling Bitcoin on its balance sheet,

then borrowing money to buy even more. Now, it warned that it could face a margin call if Bitcoin did fall to around 21,000. Coinbase, having a wild day, after saying it would cut 18% of its workforce. About 1,100 jobs, it cites the possibility of a crypto winter. But, Michael, Michael Novagrats, founder of Galaxy Digital, seems to dismiss that possibility, saying on Squawkbox today that he thinks crypto is close to a bottom at these levels. And when the Fed stops raising interest rates, that, he says, is when Bitcoin will explode north. Let's go to Frank Holland now for the CNBC News Update. Hey there, Tyler. I'm Frank Holland. Here is your CNBC News updated this hour. the House Committee investigating the January 6th Capitol attack has been postponed.

The hearing was postponed due to scheduling conflicts and production challenges. The committee will meet on Thursday for a previously scheduled hearing. Canada announcing it's suspending the COVID-19 vaccine requirement for domestic travel. However, that mandate may be reinstated later, especially in the case of a new surge. And authorities in Tennessee are warning locals not to pick up folded money after two people found dollar bills that were laced with fentanyl. The Sheriff's office in Giles County, they share the warning saying that the small amount of fentanyl lace powder is more than enough to kill anyone that it comes in contact with. Also in some sports news, the U.S. Open allowing tennis players from Russia and Belarus to compete this year, despite Russia's ongoing war in Ukraine. Wibble then has banned those athletes, the U.S. Tennis Association CEO, saying he did not want to hold those individuals accountable for the decisions of their governments.

That's the very latest. Kelly and Tyler, back over to you. All right, Frank. Thank you very much. Ahead on Power Lunch, the Fed Day forecast. Tomorrow is the day. Some experts are demanding steeper rate hikes. Others say it could wreak havoc on the economy. Will the Fed bring brighter days or a hurricane?

We'll take a look at what tomorrow's decision means for the financials in particular. And we will get a final take from B of A's Ethan Harris. Welcome back, everybody. It's that time. 90 minutes left in the trading day. So let's get caught up across the markets on stocks, bonds, commodities, and the bank trade as we await the Fed tomorrow. Let's start with Bob Bassani, who's got the latest on our markets and a little bit of a holding pattern, but some green out there, Bob. Yes, it's sort of indeterminate trading,

but some interesting sectors are a bit on the weak side today. Let's take a look at consumer staples. Coca-Cola was a big stalwart for a while. Procter & Gamble, Clorox. Interesting that they've been, they're down notably today. There's some debate about how expensive they are. Most of these are trading in the mid-20s. Maybe for some, there are alternative. brands that might be available for people who are more inflation conscious, but that's weaker today. Another sector that's weak, the defensive sector, is health care. Look at United Health here. Now, this is a real stalwart. It's a high-price stock, so it really influences the Dow Jones Industrial average. So that's almost 75 points of the Dow because of United Health. But it's been down

three or four days in a row as well. These are defensive sectors. I want to show you how interest rate-sensitive stocks are getting affected by these dramatic rise in Treasury yields. You utilities have been getting clobbered. Most of these big utilities, this is Con Ed Southern. These are the biggest utilities out there. They're down 12, 13, 14, 15 percent in five or six trading days. Remember, they compete against treasuries. So when treasury yields go up, these go under some kind of pressure. Finally, you do not want to be a mortgage company. You don't want to be a mortgage rate right now. You heard about mortgages towards the 6% range. Invest goes out there. They invest in mortgage-backed securities. MFA invests in mortgage-back securities as well. These have been dramatically to the downside, Kelly. in the last few days. And of course, you've heard Diana talking about mortgage rates in the 6% range. And there were 4% just a couple of months ago. Kelly, back to you. Now we're seeing some layoffs as well. Bob, thank you very much. Let's turn now to the culprit behind all of this, the bond market, the 10-year yield reversing higher this afternoon. And Rick, what, 3.46? I mean, we're nearing 3.5% these days.

Yeah, yeah, but you know what? Let's not point the finger at the Treasury market. Treasury market's not the culprit. They're the messenger. The culprits, the Federal Reserve, and overspending and over stimulating. Now, look at these charts of two-year note and ten-year note yields since Thursday's pre-CPI closed. Wow, we're up 60 basis points in a two-year at 341. We're up 40 basis points in a 10-year hovering right under 345. And it just doesn't end there.

These numbers are unbelievable. As were CPI on Friday, as our PPI today, even though every number virtually is not at the cycle high with regard to inflation, the issue is it's coming down snail-type slow. And if we look at what's going on in foreign exchange, wow is all I could say. Here's the pound versus the dollar. Okay, granted, right now it's at the lowest level versus the dollar since about March of 2020. But we're just not far away from taking that chart all the way back to 1980. And when it comes to the yen, we're talking about one of the largest economies in the world, and its currency now is at a 24-year low back to 1998 against the dollar.

Okay, and their stock market peaked in 1989 at 39K currently at 26,600. Ponder that. And every Fed Fund futures contract, Kelly, for all of the rest of this year, they have one every month, through all the way through September of 23 is at lowest prices ever, which means 75 in my book for tomorrow. Back to you. Wow, just incredible, incredible moves to talk about there. Rick, thank you for all of those headlines are Rick Santelli. Speaking of headlines and culprits, let's get to oil.

Pippa Stevens at the commodity desk. Pippa? Hey, Kelly, oil dropping here into the close, but still holding right around 120. And today, UBS raised its forecast. saying it expects Brent to train at 1.30 this fall and then average $125 for the next three quarters. So basically high prices for a long time. And this comes down to demand rising all over the place. In China, as mobility restrictions are lifted, in the northern hemisphere with summer travel, and in the Middle East with temperatures spiking. Let's check on prices, WTI 11867, down about 2%.

Brent crude down 1% at 1.2093. Energy stocks, though, are in the green, although down from earlier highs. Occidental is today's winner with Phillips 66 Marathon Oil and Valero also registering gains. And take a look at shares of continental resources, up 13.7% after founder Harold Hamm launched a bid to take the company private. The Ham family collectively owns roughly 83% of outstanding shares, and their bid is for 70 bucks per share. That's about 9% above where the stock closed yesterday. Continental Sport Kelly said it will establish a committee to consider the proposal. And Pippa, meantime, let's talk about NatGas, where we are seeing huge swings in prices today. What's going on?

Yeah, NatGas is down sharply and on track here for the worst day since November 2018, down 16 and a half, This after Freeport LNG said that its facility that caught fire last Wednesday will be offline for longer than initially thought. The company said it's aiming for a partial restart in 90 days, but that a complete return of operations is not expected until late this year. And Freeport represents roughly 17% of the U.S.'s LNG processing capacity. So why are prices plummeting? Well, the U.S. market will now be temporarily oversupplied. A whole bunch of gas that was slated to be exported is now available here. And Tortus Managing Director Rob Thummel noting that inventories will increase, which will push down prices.

But even with today's drop, prices are still up about 100% for the year. Kelly. Yeah, just incredible information there. Pippa, thank you very much, our PIPA Stevens. One of the sectors that could be most impacted by rate hikes tomorrow, for instance, are the financials. In the past, the group is traded in tandem with yields. usually yields go up, stocks go up too. Not happening this year, especially if rates are rising and a potential recession looms. The narrative for banks could be changing.

Joining us now with Cheryl Pate, she's a portfolio manager at Angel Oak Capital Advisors. Cheryl, we have some picks here that you're saying for the financials people can look to ahead of the Fed meeting, but I'm not sure many people really want to get in front of this thing. Why should they? I think the way that we're really positioning and where we see the best relative value in banks is really in the regional and community bank space. And the rationale there is these are really your pure play spread-based lenders. So they're making their money off the difference between loans and deposit costs.

And with rates moving up, that's the purest play way to play that relative to some of the big banks that have more diversified models, have exposure to capital markets, which have clearly seen some volatility, and frankly have more exposure to the consumer, which is one area where we're, We do expect there could be some pressure on the lower income consumer. Right. I mean, some of the picks here that you like Pinnacle, for instance, down 24% this year, signature in SVB down 40 to 45%, a little different story there. South state's only down 5%.

I mean, how do people find a South state versus a Pinnacle? And in general, they might just say, you know what, I don't really need to get in now. I can just wait a few weeks or months maybe. You really think prices are going to get away from them if they do that? I think we're seeing valuations kind of move towards trough levels for the banks. What we've seen in sort of the types of names that we recommend are ones that have been higher growth, whether it's the geographical area they're in or by business strategy. A lot of these are serial acquirers, for example, and have a demonstrated track record.

So I think there's a lot of upside to the fundamentals, but also I think what we've been hearing recently at industry, conferences is that banks are really focusing on protecting book value in this type of environment, too. So, for example, you're seeing a lot of the securities portfolio moving to held to maturity, so you don't have that mark-to-market volatility, and you sort of take that off the table, which I think was an unexpected surprise in first quarter that were largely through looking ahead to second quarter earnings. So, Cheryl, you described these companies as classic spread-based companies, meaning they acquire money at a cheap price and they lend it out at a higher price. A lot of people are depositors who depend on return off their savings.

Is there any sign that banks like these will increase what they pay on deposits or for CDs? I think we're... Yeah, I do think we are starting to see the quickest move will be on the online account. So names like Ally, Capital One, that have an online presence, and that's where they really draw their deposit base. We've seen those rates move up quite significantly, somewhere around close to 1%. Now, so that's been a pretty big move. CD's is also the other place where you'll see that move up more quickly. And again, it depends on the mix, but the types of names that we're looking at have more of a checking deposit base.

versus some of these higher cost products. Right. Interesting, though. So if you're looking for a higher savings rate, you suggest looking at some of the online banks. So I have that right? That's correct. All right. Cheryl, thanks very much. Cheryl, Pate, we appreciate your time today.

After the break, FedEx raising its dividend, even as it faces higher gasoline and jet fuel costs, sending the stock higher and not by just a little bit. As we head to a break, this month, We have some financial planning tips to help protect your money during market turmoil. And here is senior personal finance correspondent, Sharon Everson. Here's a tip for your money, your future. Contributing to your 401K, even when the market is volatile, allows you to continue to take advantage of dollar cost averaging.

You're investing your money in equal portions at regular intervals, no matter how the market is doing. And that means when the market is going down, you're buying more shares with the same amount of money. And when the market recovers, you have more shares going up. So you're also not risking a lump sum all at once. For CNBC, I'm Sharon Epperson. Welcome back to Power Lunch, everybody. Rising fuel costs really hitting the economy hard. And they don't only show up at the gas pump, of course.

It trickle down to everything we buy virtually. Frank Holland here now with a look at how the transports are dealing with the jump in gas and diesel. Frank? Hey there, Kelly and Taller. You know, down transports. They're up today, but they're actually down over the past week. as investors have become more and more concerned about rising fuel prices. But $5 a gallon is nothing new for trucking and for logistics.

Prices for diesel, the fuel of the supply chain, crossing that mark weeks ago and rising even more than consumer prices have. But the biggest publicly traded players, they can actually benefit. They charge customers a fuel surcharge based on retail prices while they pay pretty close to wholesale. We talked about this a few weeks ago. Two of the largest truckers, Knight Swift and J.B. Hunt, they reported 10% of their revenue are more from those surcharges last quarter. FedEx and Saya, a trucker for big box

stores, also have a fuel surcharge in place. But the rising cost of gas can hit consumer spending and therefore inventory demand. I spoke with the CEO of supply chain tech company, Zebra Technologies. They say their customers are still acquiring inventory to meet changing trends. Having the right inventory is probably the challenge for most, right? If you look at retailers, I think that for what a lot of retailers have said in the last, month or so, was that the demand pattern changed quite a bit. So rising prices of fuel can also benefit public players as the increased cost can be a headwin for independent truckers and is just one of the factors, pushing orders of new big rigs down

39% lower year over year. That's also lowering competition for those publicly traded players. Frank, let's also talk a little bit about FedEx, the stock up double digits today. Tell us this story. Yeah, a really big historic day for FedEx. raising their dividend by more than 50% adding some new board members. One of the reasons that the market is so excited about this stock, you see it's up 14% right now, that dividend raised is a sign of confidence in the strength of their business. When you raise your dividend, especially by this mark,

it's a sign that you believe your revenues are going to be stable going forward. And then when you look at some of the other companies that they compete with, especially UPS. We all know UPS and FedEx, they're rivals. UPS has a dividend yield of 3.5%. One of the focuses of these new board members is to increase total shareholder return. Actually, management compensation has been tied to that shareholder return.

And now FedEx, after this dividend raise, is going to have a dividend yield of just about 2%, putting it on par with a C.H. Robinson, another big company in the supply chain space. And again, returning more of that money to shareholders, one of the big criticisms of FedEx during Fred Smith's tenure is that they were spending too much money on planes and facilities and not returning enough of that money to their shareholders.

All right, Frank, thank you very much. Frank Collin. Appreciate it. Coming up, the Fed's quarter pounder. The market getting a rate hike tomorrow. But how many? One quarter? Two quarter?

Three quarters or more? What should you expect with less than 24 hours to go? Power lunch, back after this. Welcome back to Power Lunch, everybody. We are less than 24 hours away from that big Fed decision on interest rates. And our next guest was just about the first to make an aggressive call on Fed tightening earlier this year. But he doesn't right now see that three-quarter point hike tomorrow. He's sticking with his call.

for 50 basis points or a half percentage point. Ethan Harris is head of global economics research at Bank of America's securities. Ethan, welcome. Your calls earlier this year were prescient. Why are you sticking with that half point and not running with an increasing crowd who say three quarters is likely tomorrow? Well, I don't think it's out of the question. I think that it makes sense for the Fed to think about doing 75,

not just at this meeting, but at the next meeting after that. They are behind the curve. The recent date has been quite ugly. I think the main argument for 50 is that if you think about it, the Fed has moved from being really very slow and behind the curve, to actually moving pretty quickly. The May, June, and July meetings are only three months. I mean, it's a very tight Fed calendar right now.

So they'll have to over a three-month period, if they follow what they're saying they're going to do, they'll hike 150 basis points. That's a pretty aggressive movement. And the other thing I think to keep in mind here is that, of course, you could argue that the Fed needs to do more rate hikes. But they're not going to go all the way to their terminal rate in a quick set of steps. They need to give themselves at least a little bit of breathing space to see how the economy's handling the shock.

And you have to admit, the financial markets have taken a pretty big hit in recent months. I think appropriately the Fed is really trying to cool off the markets. So I'm not a, you know, pounding the table. They're not going to go 75. Certainly they could. But I'm kind of leaning towards 50. One of the things that occurs to me is that I think Chair Powell and the Fed in recent years has become much more focused on transparent messaging.

And the messaging, certainly at the last meeting and at the press conference afterward, was that we're looking at a half-point rise and that that seemed appropriate for the next meeting and maybe the one after that. And he said in response to Leasman, 75 base was sort of off the table. So maybe the argument for the 50 basis points is we want to follow through with what our prior messaging was and not diverged from that. And at tomorrow's meeting, say, listen, we may go three quarters of a point at subsequent meetings. I just wonder how much messaging consistency plays into their thinking as well. I think it plays some role. If you think about the recent news flow, so the New York, the Wall Street Journal reporter who reported the Fed was considering a 75 basis point hike.

I think that one of the reasons he said that was to correct what Powell had said a month ago to Steve Leasman, which was it's not on the table. Right. And so put it on the table through the press, the Fed has put it on the table. Does that mean that there's a hidden message here that putting on the table means they're definitely going to do it? That's where the real debate is here. And, you know, I think that it's slightly more likely that they go 50 basis points. I've got a long way to go here. You know, this is a war now to, not a, you know, not a skirmish.

This is going to take a while here. And Ethan, it's Kelly again. Tell us why you don't think they should, this should be more front-loaded. So when Bill Dudley today says, or Mike Faroly was saying the same thing, you can make the case for doing a full point hike. Jim Kramer's been calling for that, for instance. Why not, if you're going there, why not just go there? And maybe this doesn't have to be a multi-year fight.

Well, I actually agree that if I was made king here, if they made the mistake of making me the head of the Fed, I would have gone quicker than they went. I mean, I think there was a strong case for hiking rates back in October and November of last year when we first started to see sustained high inflation, when we saw how red hot the labor market was becoming. And I thought in the spring there was a good case to start the hiking cycle with a 50 basis point hike. But they've chosen repeatedly to take a more cautious approach. So my job as Wall Street of Commerce is not to forecast what I think they should do, but what they will do. I think it's a close call in 50 versus 75. I think it would be extremely unlikely that they would hike 100 basis points. That would look like panic.

The markets are already taking a pretty good hit here. But, yeah, I mean, the Fed's behind the curve. And it's been a frustrating to watch in reality. Yeah. Ethan, excellent points. And we thank you for your time today. We'll know a day from now, won't we? Thank you very much. We will.

Ethan Harris, Bank of American Security. And for more on tomorrow's Fed meeting, stay tuned. We'll have some charts for you before we close out here on Power Lunch. All right, let's make graphic for you. I have a toy today. Let's make graphic for you what's been happening in the bond market this year. It's the kind of thing we haven't seen in decades. Look at where the tenure began the year here at a little less, about 1.6%. And when you get all the way up here to 3.4, it is a gain of 129%. It looks like this isn't working, doesn't it? Draw. Let me see if I can hit draw again. But when you come over here up to the peak, it's more than 130% higher. But look at the span there. There it is in. January when you come across to March, there you see it. Let's go to the two 10-year spread, which is one of the predictors of whether the economy is going to go into a recession. The fact that the difference between the yield on the 10-year and the two-year is 0.04 percent. That is what tells you right there. This doesn't work. Can't get this out of here. Take it away. I don't need

this. I'm just going to keep the stylist. But that's the number you've got to pay attention to. Five and 10-year spreads? Let's look at that one, Kells, shall we? Sure. Even more negative. And there you see it is actually negative, which means that the five year is yielding more. Mortgage rates? Well, yeah, let's do a quick source of comfort. Three month, 10 years still sharply positive. That tells you there's still strong nominal demand impulse here that the Fed is trying to catch up with.

And there's a 30-year fixed mortgage rate. This is your headline, folks, 6.28% today. And I'm going to see. Maybe it works on there. No, it doesn't. Sorry. Thanks for watching Power Lunch. Closing bell right now.

Thank you.