Delayed IRS Yields, Consumers Provide Inflation Expectations & More: 5 Things to Know About Tuesday

Here are five key things that could have an impact on trading on Tuesday.

THE IRS THAT PLAYS TO RECOVER: The Internal Revenue Service is sending refunds to more than a million Americans who filed late taxes in the early days of the COVID-19 pandemic, but time for taxpayers is running out to collect the money.

Nearly 1.6 million filers will automatically receive refunds or credits totaling $ 1.2 billion, an average of $ 750 per person.

There are only a few weeks left to qualify for the benefit. To receive the money, Americans must file their individual tax returns by September 30, 2022.

INFLATION NOW CAUSES FINANCIAL PAIN FOR MOST AMERICANS, POLL SHOWS

The headquarters of the Internal Revenue Service (IRS) in Washington, DC on Friday, February 25, 2022. (Al Drago / Bloomberg via Getty Images / Getty Images)

Typically, the IRS charges people who file late returns without extension a no-show penalty: an extra 5% per month on the unpaid amount, which can add up to 25% of the tax due. But the tax collection agency waives that fee for many individuals and companies who filed late 2019 and 2020 returns.

“The sanction issued today is another way the agency is supporting people in this unprecedented time,” IRS Commissioner Chuck Rettig said in a statement last month. “This relief will be automatic for the individuals or companies that qualify; you don’t need to call.”

Eligible tax returns include individuals, corporations, properties, and trusts, the IRS said. People who have been fined but have not yet paid the penalty will have it removed, while people who have already paid the late practice fee will receive a refund or credit.

Most refunds will be issued by the end of September, the agency said.

The announcement comes as the IRS continues to work its way through a backlog of unprocessed tax returns. As of August 12, the IRS still had 9.3 million unprocessed individual tax returns from 2022, including about 7.6 million paper returns.

The backlog of raw returns resulted from disruptions related to the pandemic, including a shortage of workers, the herculean task of administering millions of stimulus controls, and adapting to other tax changes in the different COVID-19 relief packages, such as the increase tax credit payments for children.

INFLATION EXPECTATIONS LAUGH AGAIN: Consumer expectations of where inflation will be in a year’s time dropped again in August, according to a major New York Federal Reserve Bank survey released Monday, a potentially reassuring signal for the U.S. central bank as it seeks to cool prices in increase.

The average expectation is that the inflation rate will rise by 5.7% in a year, a sharp drop from 6.2% in June, according to the New York Federal Reserve Consumer Expectations Survey. In three years, consumers will see a slight slowdown in inflation to 2.8%, down from 3.2% last month.

Consumers expect prices to drop further over the next five years, predicting the inflation rate to hover around 2% in 2027.

“Median inflation uncertainty – or expressed uncertainty about future inflation outcomes – declined over the short-term horizon and remained unchanged over the medium-term horizon,” the survey said.

INFLATION NOW CAUSES FINANCIAL PAIN FOR MOST AMERICANS, POLL SHOWS

Man in a grocery store

The price of food is skyrocketing amid inflation. (Fox News)

The report is based on a rotating panel of 1,300 families.

The survey plays a pivotal role in determining how Fed policymakers respond to the inflationary crisis. This is because actual inflation depends, at least in part, on what consumers think it will be. It’s a kind of self-fulfilling prophecy: if everyone expects prices to rise by 3% during the year, it signals companies that they can raise prices by at least 3%. Workers, in turn, will want a 3% pay rise to offset the cost increase.

A stronger-than-expected rise in inflation expectations in May actually prompted Fed officials to approve the first 75 basis point interest rate hike since 1994, fearing higher prices were consolidating.

Explaining the Fed’s decision at a post-meeting press conference, President Jerome Powell said policymakers were looking for evidence that monthly inflation was flattening out or starting to decline. With consumer prices repeatedly surprising to the upside and inflation expectations unexpectedly rising, officials determined that “strong action was needed,” he said.

“One of the factors in our decision to move forward with 75 basis points today was what we saw in inflation expectations,” Powell told reporters at a post-meeting press conference. “We are absolutely determined to keep them pegged at 2%. That was one reason, the other was just the CPI reading.”

EPC REPORT DUE: At 8:30 am ET, the Bureau of Labor Statistics is expected to say that the consumer price index fell 0.1% month-over-month in August, after having remained unchanged in July.

Year-on-year, prices are projected to rise 8.1% in August, backtracking from the cooler-than-expected 8.5% reading in July (the estimate was 8.7%) and the surge in 9.1% in June, the highest inflation rate in nearly 41 years (since November 1981).

A lady shopping at the supermarket

The Bureau of Labor Statistics is expected to release August Consumer Price Index data on Tuesday, September 13, 2022. The figures are expected to show that the Consumer Price Index fell 0.1% month-over-month in August, after being remained unchanged in July. (Joe Raedle / Getty Images / Getty Images)

A cooler pace of CPI growth, coupled with lower-than-expected increases in the July PCE indices released three weeks ago, would reinforce the idea that inflation has peaked.

Excluding the volatility of food and energy costs, the CPI is expected to rise by 0.3% in August, in line with the July rise.

Annually, core CPI is expected to rise 6.1% in August. This would trigger a 4-month streak of flat or slowing growth after the 6.5% peak in March, the highest in nearly 40 years (since August 1982).

US MARKETS MOVE HIGHER: US equities rose Monday, ahead of key inflation data which should show further cooling in consumer prices.

The S&P 500 gained 43.05 points, or 1.1%, to 4110.41 after closing higher for the week on Friday. The Dow Jones Industrial Average added 229.63, or 0.7%, to 32381.34. The high-tech Nasdaq Composite was up 154.10, or 1.3%, to 12,266.41.

All three indices recorded their fourth consecutive trading day of advances. The indices have been steadily rising in recent sessions as concerns about large interest rate hikes have been alleviated. The collapse in commodity prices has raised hopes that the worst of inflation is over.

Meanwhile, the labor market remained a key source of economic strength. Commercial activity indicators were stronger than expected.

Ticker Safety Last Change Change %
Me: DJI MEDIA DOW JONES 32381.34 +229.63 + 0.71%
SP500 S&P 500 4110.41 +43.05 + 1.06%
ME: COMP COMPOSITE INDEX NASDAQ 12266.410582 +154.10 + 1.27%

“The most important thing driving the markets now is investor optimism about declining inflation,” said Michael Arone, chief investment strategist for the US ETF business at State Street Global Advisors. “We’re in that period where the earnings season is over, and it becomes all about the biggest story of the year: the Fed and what the final target federal funds rate is.”

Consumer price inflation data in the US will help Federal Reserve officials assess how far their fight against the price surge has gone and how much they may need to raise interest rates. Fed officials have an interest rate meeting next week.

“If inflation moderates faster than expected, I think the Fed may feel more comfortable that its work may be closer to completion than it initially thought,” said Stephanie Lang, Homrich’s chief investment officer. Berg.

Inflation has likely peaked, he added, but markets are unlikely to push much higher until the Fed begins to moderate its tightening campaign.

“What the market is considering right now is a soft landing, which I think is pretty optimistic,” he said.

Despite some signs of decelerating inflation, investors are largely expecting Fed officials to continue tightening up for a few months to make sure price pressures have eased. Many investors expect the Fed to raise interest rates by another 0.75 percentage points next week.

ACTIONS IN THE NEWS: Bristol-Myers Squibb jumped $ 2.20, or 3.1%, to $ 72.36 after the U.S. Food and Drug Administration approved psoriasis treatment from drug manufacturer, Sotyktu.

Gilead Sciences earned $ 2.73, or 4.2%, to $ 68.01 after the company said it solved a patent case related to its HIV therapies.

Ticker Safety Last Change Change %
BMY BRISTOL MYERS SQUIBB CO. 72.36 +2.20 + 3.14%
GOLDEN GILEAD SCIENCES INC. 68.01 +2.73 + 4.18%
TWTR TWITTER INC. 41.41 -0.78 -1.85%

Meanwhile, Twitter fell 78 cents, or 1.8%, to $ 41.41 after the company’s lawyers said Twitter intends to enforce its purchase agreement with Elon Musk.

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On Friday, Musk’s legal team cited paying an informant as a new reason to abandon the acquisition.

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