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Jun 20, 2022

The Weekly Scan June 20, 2022

By Claire Grant

Find out what’s happening in the world of business this week

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Welcome to the Weekly Scan. Here’s what we’re following for the week of June 20, 2022.

Be aggressive. Be, be aggressive. The Federal Reserve (the Fed) made its biggest interest rate increase since 1994. The country’s central bank raised the federal funds rate by three-quarters of a percentage point to counteract high inflation. As a result, the Fed indicated that it’s willing to take aggressive measures to lower high prices. The Fed last raised interest rates by half a percentage point in May, which was the biggest rate increase in 20 years. And in March, the Fed increased the federal funds rate a quarter of a percentage point, the first increase since 2018.

  • The takeaway:. The higher interest rate will make it more difficult for consumers to borrow money, and increase the interest rates for student loans, credit cards, and car loans. But the change could also benefit savers and bring down inflation, which has been ticking upwards since the beginning of the pandemic. Inflation can be  measured by the Consumer Price Index (CPI), which shows the percentage change in prices paid by urban consumers on goods and services. The CPI is produced by the Department of Labor’s Bureau of Labor Statistics (BLS). In May, the CPI rose 8.6% from the previous year, the highest level in 40 years. The CPI increased 1% between April and May, surpassing predictions. Markets responded to the rate hike with volatility. Remember to follow the Stash Way by investing regularly in a diversified portfolio. 

New York Times

No gas, all brakes. Tesla hiked prices for some of its cars by up to $6,000 in response to higher costs for the materials, transportation, and labor it needs to make its electric vehicles. The Model 3 long-range car will now cost $57,990, up from $55,990; while the price of other Model 3s won’t move. The rear-wheel drive Model S and all-wheel drive Model X cars will go up to $120,990. The Model Y long-range and performance cars will also see prices climb. Tesla CEO Elon Musk said he plans on a 10% layoff at Tesla, even after the company increased its headcount by 45% over the course of a year.

  • The takeaway: Musk said the electric carmaker is inflating prices because they expect supplies and logistics costs to increase over the next 12 months. He also said that the company might bring prices down if those increases don’t happen as predicted. After the new price tags were revealed, shares of Tesla fell 9% to $633.80. Broader markets also fell in response to the new interest rate and high inflation.

Wall Street Journal

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Makeup wiped. Revlon filed for Chapter 11 bankruptcy last week as a result of high debt and supply chain issues. The cosmetic company said it’s struggled to meet a third of its customer demand. The shipping of raw materials is reportedly taking eight to 12 weeks, and has quadrupled in cost since 2019.  From an existing lender base, Revlon intends to receive $575 million in debtor-in-possession financing for its day-to-day operations. Revlon’s long-term debt totals $123 million, and its liabilities fall between $1 billion and $10 billion. As of June 16, 2022, trading of Revlon’s shares had halted. The makeup company previously warned of bankruptcy filing in November 2020, when people spent less on cosmetics due to the pandemic. In 2020, Revlon’s sales fell 21% to $1.9 billion. 

  • The takeaway: While Revlon’s revenue has somewhat recovered from the pandemic, it’s still lower than it was before the pandemic. Revlon is the first major consumer-facing business to file for bankruptcy after a pause in retail industry turmoil. Over three dozen retail companies filed for bankruptcy in 2020. In 2022, there have been 143 bankruptcies throughout industries, making for the lowest bankruptcy rate since 2010. More retail bankruptcies are expected in the future as companies deal with inflation, lower consumer demand, and more.

CNBC

Stormy weather.  As the baby formula shortage continues,  an Abbott formula factory in Michigan suspended operations after a thunderstorm flooded the facility. This interruption happened two weeks after Abbott was able to resume formula production.The formula manufacturer plans to assess the damage and re-sanitize the plan. Abbott also expects this development will push the distribution of the new formula by a few weeks. 

  • The takeaway: Despite this disruption, Food and Drug Administration (FDA) Commissioner Robert Califf said there should be “more than enough product to meet the demand.” Operation Fly Formula is slated to bring the equivalent of 5 million 8-ounce bottles worth of formula to the U.S., while U.S.-based companies have ramped up production. Parents have been struggling in recent weeks. Abbott Nutrition recalled some of its baby formula products after several babies were infected with the bacteria Cronobacter sakazakii. The FDA deemed the Sturgis, Michigan plant responsible. 

Bloomberg

Other stories we’re following:

More than a mortgage. The average rate for a 30-year fixed mortgage reached 5.78%, the highest level since 2008. That rate also went up from 5.23% the previous week, the biggest jump since 1987. 

 Here’s what we covered last week in the Scan: 

  • Spirit Airlines postponed its shareholder meeting after JetBlue made another pitch to lure Spirit away from a potential merger with Frontier.
  • The average price for menstrual pads increased 8.3% year-over-year, while the average price for tampons rose 9.8%.
  • Target is slashing prices, and canceling orders from suppliers, especially for home goods and clothing. 
  • Microsoft announced that it will launch an Xbox TV app at the end of June.

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author

Written by

Claire Grant

Claire is a content writer for Stash.

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