Fed Leans Toward More Rate Hikes, Kohl’s Adding Small-Format Stores, Mortgage Applications Decline
Fed Leans Toward More Rate Hikes
Minutes released Wednesday by the Federal Reserve Board indicate the agency has more rate hikes planned in its bid to rein in inflation, following on the half-percent increase approved earlier this month that was also the biggest in more than 20 years.
Records of the May 3-4 meeting indicate the Fed is leaning toward approving similar half-point hikes in the benchmark rate at its June and July meetings, though what happens to rates after those gatherings was not settled.
The notes show officials generally agree that “a restrictive stance of policy may well become appropriate” over the next two or more meetings of the rate-setting Federal Open Market Committee, “depending on the evolving economic outlook and the risks to the outlook.”
Minutes show the Fed is looking to combat inflation, now at levels not seen in 40 years, through a combination of hikes in the federal funds rate “and reductions in the size of the Federal Reserve’s balance sheet,” which might include the sale of some commercial mortgage backed securities among other options.
Fed Chairman Jerome Powell has said the agency is not likely to stop interest rate hikes until it has brought inflation down to 2%, from its current 8.3%.
Kohl’s Adding Small-Format Stores
Kohl’s plans to open 100 new, small-format stores over the next four years, in a bid to reach new customers in untapped markets. It joins other retailers around the country in turning to smaller store sizes.
“The average Kohl’s store of around 80,000 square feet is too large for many small markets,” according to a statement Wednesday from the Menomonee Falls, Wisconsin-based operator of more than 1,100 stores. “By introducing these smaller format stores, most at approximately 35,000 square feet, Kohl’s gains the flexibility to enter new neighborhoods while also providing a hyper-localized experience to cater to the community’s needs.”
Kohl’s plans a June opening for a small-format store in Bonney Lake, Washington, with four more in that format to open in the fall in San Angelo, Texas; Morgantown, West Virginia; Tacoma, Washington; and Lenox, Massachusetts.
Kohl’s projects these smaller stores, which will also contain a Sephora cosmetics store-in-store like other Kohl’s, could generate more than $500 million in annual sales at full ramp-up.
The news comes as Kohl’s is awaiting final bids from potential buyers for the company. On Wednesday, Reuters reported that some suitors are preparing to submit bids lower than were indicated earlier this year, a potential sign that investors are concerned by the overall decline in the retail climate this year, with inflation cutting into profits.
Mortgage Applications Decline
Mortgage applications declined from the prior week in the latest report by the Mortgage Bankers Association, another signal that rising interest rates may be curbing consumer appetites for big-ticket purchases.
The trade group’s weekly survey gauging loan activity for the week ended May 20 showed residential loan activity for new purchases and refinancings dropped 1.2% from the prior week. The group’s weekly index measures changes in loan volume but does not disclose dollar figures.
Refinancing activity was down 4% from the prior week, suggesting borrowers may be looking for interest rates to come back down on a steady basis after the past few weeks’ reversal of historically low interest rates. There have been some signs of a tick-down in rates, though borrowers may still be leery.
“The 30-year fixed rate declined for the second straight week to 5.46% but remains well above what borrowers were used to over the past two years,” said Joel Kan, the trade group’s associate vice president of economic and industry forecasting, in a statement Wednesday. “Most refinance borrowers continue to remain on the sidelines as a result, and refinance applications have fallen in nine of the past 10 weeks.”
The volume for new-purchase mortgage applications was unchanged from the prior week, with the trade group’s index remaining close to lows last seen in spring 2020 at the onset of the pandemic, Kan said.