Stocks Rise as White House Warns Oil Companies Over Suspected Price Gouging

The stock market is rebounding slightly ahead of the Federal Reserve's expected 75 basis-point rate hike later today. Meanwhile, the White House is taking Big Oil to task over unacceptably high prices.

Stocks rose slightly Wednesday morning as investors prepared for the looming Federal Reserve policy meeting later today. The US’s central bank will likely institute an interest rate hike of at least 50 basis points, though some analysts think the hike could be as high as 75 basis points. The Fed is scrambling to reduce demand and shrink the economy to bolster the flagging US dollar, which has been hammered by the worst inflation since the early 1980s. 

Inflation Concept
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Investors are worried about a new report that shows retail sales in May slowed more than expected. Retail and food service sales dropped 0.3% last month, far above the 0.1% decrease that analysts expected. This indicates that consumers have been slowing their spending to account for the unsustainable, unprecedented inflation rate that has been pressuring their income for the past several months. 

Read More: Check out the latest Mind Your Dollars stock and financial news.

Now, the situation has become dire enough that the White House has called out oil companies for their “unacceptable” high revenue margins that far exceed the inflation rate. “Since the beginning of the year, refiners’ margins for refining gasoline and diesel have tripled, and are currently at their highest levels ever recorded,” writes US President Joe Biden. Earlier this week, the average price for a gallon of gas in the US topped $5 for the first time on record. 

Stock Market Rises Slightly

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The stock market is up slightly this morning. The S&P 500 posted a 1% gain at the start of trading as it tries to pull itself out of a bear market. The Dow Jones rose just over 0.9% this morning, and the tech-heavy Nasdaq Composite posted a nearly 1.1% gain at the start of the day. This is great news for investors, many of whom have worried that the high inflation rate and slumping retail sales will coalesce into a full-blown recession.

Treasury bond rates have also fallen, indicating that investors are more comfortable investing in stocks now. The benchmark ten-year Treasury yield hit a ten-year high on Monday when the S&P 500 entered a formal bear market. Now, it’s hovering just under 3.4%. Meanwhile, the most popular cryptocurrency, Bitcoin, is trading for just over $20,000, its lowest price per coin since December 2020. 

The biggest thing weighing on investors now is just how aggressively the Fed plans to hike interest rates to address inflation. The central bank has been scrambling to get the US dollar under control, but so far it’s been unable to contain the runaway inflation rate. The dollar shrank again in May, despite the Fed’s repeated interest rate increases since March. 

Fed Could Move the Needle Again

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The Federal Reserve will hold its policy meeting later today, and some analysts think it could increase interest rates by a massive 75 basis-point margin. This fear persists despite Fed Chair Jerome Powell saying last month that the central bank wasn’t considering such a massive increase and would instead stick to 50 basis-point increases.

“Given the gravity of the situation with inflation as it is now, even though it’s kind of a surprise relative to what we’ve heard from the Fed in terms of what they said they were going to do, it looks like it’s the right move,” says Jefferies money market economist Tom Simons. “The markets are going to feel more confident about the Fed’s credibility in terms of their ability to limit inflation. And overall, it’s going to lead to a better positive outcome for the economy in the long run.”

Some analysts feel that Simons’ assertion is alarmist and that the forces that have propelled higher inflation are already receding as a result of the Fed’s earlier actions. Pantheon Macroeconomics chief economist, Ian Shepherdson, writes, “[s]lower wage gains, along with the rollover in the housing market, will depress rent growth, while airline fares are likely to fall over the summer in the wake of falling jet fuel prices, and vehicle prices will drop as inventories rise.”

White House Takes Umbrage with Oil Refinery Profits

Joe Biden
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US President Joe Biden is taking oil companies to task over their unprecedented profit margins. “At a time of war – historically high refinery profit margins being passed directly onto American families are not acceptable,” the president writes in an open letter addressed to oil companies like Exxon and Chevron. ″[C]ompanies must take immediate actions to increase the supply of gasoline, diesel, and other refined product,” the letter continues.

Oil companies claim that they can’t just ramp up production. Part of the issue, they claim, is that they reduced their production output through 2020 to account for lower demand. Now that demand is skyrocketing and the war in Ukraine is pressuring the global supply of crude oil, high prices are necessary to keep the refineries profitable.

Many US consumers feel this excuse is unacceptable, as oil companies are still raking in unprecedented profits. President Biden points out that the price of oil and the price of gasoline are out of synch. The last time the price of crude oil topped $120 per barrel, the national average for a gallon of gas was just $4.25. “The crunch that families are facing deserves immediate action. Your companies need to work with my Administration to bring forward concrete, near-term solutions that address the crisis,” Biden writes.

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