By Krystal Hur, CNN

 5 minute read 

Updated 4:03 PM EDT, Fri July 26, 2024

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Economic data has also remained remarkably resilient, even as rates stay at a 23-year high. Spencer Platt/Getty ImagesNew YorkCNN — 

Wall Street is undergoing a palpable vibe shift.

Strong corporate earnings have helped stocks notch repeated record highs in 2024, despite stubborn inflation forcing investors to dial down their expectations for how many times the Fed will cut rates this year.

But cooling inflation data in recent weeks has led Wall Street to bet that the Federal Reserve will finally cut interest rates in September — and that there are now more options for gains beyond just the Big Tech stocks that have dominated the market this year.

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Data released Friday morning showed the Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, slowed to 2.5% for the 12 months ended in June — another sign for hopeful investors that inflation is continuing to ease from its four-decade high.

The Dow jumped 654 points, or 1.6%, on Friday after soaring more than 800 points earlier in the day. The S&P 500 gained 1.1% and the Nasdaq Composite added 1%.

For the week, the S&P 500 and Nasdaq fell while the Dow notched a gain.

Economic data has also remained remarkably resilient even as rates stay at a 23-year high. That, coupled with the slowdown in inflation, has raised hopes that the central bank could tame prices without triggering a recession, a feat it has achieved just once since the 1990s, according to some economists. Data Thursday showed the economy expanded at a robust 2.8% annualized rate during the second quarter, blowing past economists’ expectations.

Wall Street will get more clues about the Fed’s next moves at its policy meeting next week, where the central bank is expected to hold rates steady. While the Fed has penciled in just one rate cut for this year, traders are betting on up to three, according to the CME FedWatch Tool.

Big Tech gets pummeled

Brightening prospects for rate cuts typically signal good news for stocks, since the market tends to do better when higher borrowing rates don’t weigh down companies’ balance sheets. But you wouldn’t know that from the carnage in stocks this week.

RELATED ARTICLENasdaq and S&P 500 log worst day since 2022 after Alphabet and Tesla fail to impress Wall Street

While the market was broadly higher on Friday, the S&P 500 and Nasdaq on Wednesday logged their worst daily performances since 2022.

The reason behind the selloff: Investors are shedding shares of the Magnificent Seven tech stalwarts that have dominated the market for the past two years, and their large weighting has dragged down the major indexes. Tech companies make up 32% of the total market capitalization, the highest level since the late 1990s, according to MRB Partners data as of June 28.

An underwhelming start to the earnings season for the cohort has only intensified its declines: Tesla shares tumbled 12.3% on Wednesday after the electric vehicle-maker reported a more than 40% plunge in profits the prior evening. Alphabet shares slipped 5% after beating earnings expectations but missing analysts’ expectations for YouTube advertising revenue.

Smaller stocks prevail

One area that has benefited recently from the prospect of lower rates is small-cap stocks.

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Shares of smaller companies tend to perform poorly when rates are high, since they have more floating rate debt than their larger counterparts. But they have historically tended to perform well when the Fed begins easing its high borrowing rates.

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The Russell 2000 index, which tracks the performance of small-cap stocks, has gained 10.4% so far this month, outperforming the S&P 500’s 0.03% loss.

Investors are also picking at other areas of the market poised to gain when rates come down. Stephen Lee, founding principal at Logan Capital, said his firm added to its position in homebuilder stocks earlier this quarter, betting that cooling inflation would allow the Fed to cut rates and ease the ultra-tight housing market.

Sky-high interest rates have led homeowners to hold off on selling their homes to keep their pandemic-era low mortgage rates even as demand surged, driving up home prices to record levels.

More pain for Big Tech?

Investors have fretted over the past year that the market’s gains are beholden to just a handful of tech stocks, making the rally more vulnerable to pullbacks a few stocks stumble. The Magnificent Seven drove about 60% of the S&P 500’s total return during the first half of the year, according to Adam Turnquist, chief technical strategist at LPL Financial.

The recent gain in small-caps is making some investors hopeful that the market rally will continue to broaden.

There are signs that the pain in tech shares might not be over yet. Tech stocks’ steep losses following tepid quarterly results from Alphabet and Tesla suggest that investors are growing impatient with companies investing hefty sums into artificial intelligence with little to show for it in terms of revenue gains.

Many big tech firms have released AI chatbots and other flashy consumer tools since OpenAI’s ChatGPT kicked off the AI arms race two years ago, but the path to monetizing the technology remains unclear.

On Alphabet’s Tuesday earnings call, UBS analyst Stephen Ju noted that the initial use cases of the AI models that Big Tech firms have invested in building “are more on the cost savings or efficiency side.”

“When do you think we’ll start thinking about products that can help revenue generation for the Fortune 500, Fortune 1000 companies, which is probably something that can, hopefully, create greater value over time, versus just cutting costs?” Ju said.

As the AI arms race continues to heat up, companies are unlikely to slow their spending on AI. But it’s unclear when those investments will provide a boost to their balance sheets.

“The risk of underinvesting is dramatically greater than the risk of overinvesting for us here,” Alphabet CEO Sundar Pichai said on the call.

As stocks settle after the trading day, levels might change slightly.

CNN’s Clare Duffy contributed to this report.

Robert Plummer

BBC News

Venezuela’s battered economy is one of the key battlegrounds in Sunday’s presidential election, with President Nicolás Maduro hoping to convince voters that the country has turned the corner after years of strife.

Thanks to his recent efforts to push down the cost of living, the outlook is slightly rosier. In February, Venezuela finally said goodbye to the rampant hyperinflation that had seen price rises peak at more than 400,000% a year in 2019.

Now annual inflation is more manageable, but still high at about 50%.

Mr Maduro has been keen to take credit for the fall, saying it shows that he has “the correct policies”.

Unfortunately, however, those policies have done little or nothing to tackle the economy’s underlying structural problems – chiefly, its historic dependence on oil, to the detriment of other sectors.

“Since it was discovered in the country in the 1920s, oil has taken Venezuela on an exhilarating but dangerous boom-and-bust ride,” as the US Council on Foreign Relations think tank puts it.

Now opponents of President Maduro are pinning their hopes of economic revival on a change of leader, and a new beginning under his electoral rival, Edmundo González.

“An opposition victory would lead to a renewed opening of Venezuela’s trade and financial ties with the rest of the world,” says Jason Tuvey, deputy chief emerging markets economist at Capital Economics.

That would also mean the end of US economic sanctions imposed after Mr Maduro’s victory in the 2018 presidential election, which was widely dismissed as neither free nor fair.

These have made it difficult for state-run oil company PDVSA to sell its crude oil internationally, forcing it to resort to black market deals at big discounts.

But Mr Tuvey cautions that reversing the economic collapse of the past decade will be a tall order, given the enormous investment needed to raise oil production and with peak oil demand approaching.

“Venezuela’s economy can never get back to where it was 15 to 20 years ago,” he tells the BBC. “It will be starting by and large from square one.”

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Venezuela’s 25-year-old Bolivarian Revolution – the name that the late President Hugo Chávez gave to his political movement – promised many things, but has failed to deliver what the country arguably most needed: a broad-based economy.

Instead of diversifying away from the oil industry, the governments of Chávez and Mr Maduro doubled down on Venezuela’s mineral wealth.

Paying little heed to the future, they treated PDVSA as a cash cow, milking its funds to finance social spending on housing, healthcare and transport.

But at the same time, they neglected to invest in maintaining the level of oil production, which has plummeted in recent years – partly, but not solely, as a result of US sanctions.

These problems were already evident when President Chávez died in 2013, but have grown worse on his successor’s watch.

“Under Chávez, Venezuela was able to ride on the coat-tails of an oil boom, up until the global financial crisis,” Mr Tuvey says.

“Fifteen to 20 years ago, Venezuela was a major oil producer. It used to produce three-and-a-half million barrels a day, along the lines of some of the smaller Gulf states.

“Now the oil sector has been completely hollowed out, and it produces less than a million barrels a day.”

GDP declined rapidly, down by 70% since 2013. But Mr Maduro resorted to compensating for lower oil prices by printing money to fund spending, resulting in the runaway inflation which the country has only recently curbed.

Economic hardship has taken its toll on the Venezuelan population, with more than 7.7 million people fleeing in search of a better life – about a quarter of the population.

But for those left behind, there have been signs of improvement. While the bolívar is still the official currency, an informal dollarisation has taken place, with US greenbacks increasingly the payment method of choice in retail transactions – at least, for those who have access to them.

That has stabilised the economy – but it has brought with it a social cost.

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Residents in the capital, Caracas, now find themselves subject to a two-tier economy. While US dollars are fuelling a consumption boom in high-end shops and restaurants, those paid in bolívars feel increasingly excluded.

One symbolic event that highlighted these changes was Colombian reggaeton superstar Karol G’s recent appearance in Caracas as part of her current world tour.

Few major artists perform in Venezuela these days, but she had no trouble selling out two nights in March at the 50,000-capacity Estadio Monumental, despite ticket prices ranging from $30 to $500 (£23 to £390).

At the same time, according to Caracas-based consultancy Ecoanalítica, about 65% of Venezuelans earn less than $100 a month, while only eight or nine million of the country’s 28 million people can be seen as consumers with actual purchasing power.

“Those with a very close connection to the regime or to PDVSA have been barely affected by all this,” says Mr Tuvey.

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As well as the need to raise living standards and reduce inequality, another big economic challenge for Venezuela is what to do about its massive foreign debt.

The country owes an estimated $150bn to bondholders and other foreign creditors. It has been in partial default since 2017, and although Mr Maduro has repeatedly promised talks on a restructuring, none have yet taken place.

The issue has been complicated by the fact that some of the bonds were issued by PDVSA using the company’s US refiner, Citgo, as collateral. As a result, bondholders have been able to pursue the issue through the New York courts.

Bruno Gennari, emerging markets strategist at investment bank KNG Securities, tells the BBC that because the US does not recognise Mr Maduro as president after the 2018 election, this leaves Venezuela with a “legitimacy crisis”.

This means that whoever wins Sunday’s election would have to be acceptable to Washington if a US-approved debt restructuring is to take place.

Mr Gennari does not rule out that the US “could turn a blind eye” if Mr Maduro wins the election under dubious conditions, but he believes that is rather unlikely.

“This election will have a sizeable impact on Venezuela’s future. If restructuring can go ahead, we could see the beginning of a very complex recovery process,” says Mr Gennari.

Once the richest country in South America, Venezuela now has a possible path back to stability – but whatever happens, its economic glory days are firmly behind it.

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July 27, 20243:00 AM PDTUpdated 2 days ago

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Brendan Mcdermid | Reuters

Stocks jumped Friday, and Wall Street capped off a turbulent week on a positive note as investors weighed fresh U.S. inflation data.

The Dow Jones Industrial Average rallied 654.27 points, or 1.64%, to finish at 40,589.34. The S&P 500 climbed 1.11% to end at 5,459.10, while the Nasdaq Composite gained 1.03% to close at 17,357.88.

Friday’s moves stem from a combination of oversold sentiment, a stronger-than-expected GDP report Thursday and the view that the Federal Reserve will begin cutting rates due to economic resilience, said CFRA Research’s Sam Stovall.

“Today’s benign PCE report helped talk the market off the ledge,” he added. “With this pullback, the great rotation lives on and breadth continues to be on our side.”

Investors continued their pivot into cyclical areas of the market and small caps, with the Russell 2000 rising 1.67%. Industrials and materials stocks rose, lifting their respective S&P sectors about 1.7%. 3M skyrocketed 23%, leading the industrials sector to the upside. The stock notched its best day since at least 1972.

Some technology names that have struggled amid this week’s sell-off gained, with Microsoft and Amazon adding more than 1% each. Meta Platforms climbed nearly 3%. The S&P’s information technology sector surged about 1%.

Wall Street also assessed June’s personal consumption expenditures price index, an inflation reading that is preferred by central bank policymakers. On a monthly basis, headline PCE rose 0.1% and 2.5% from a year ago. That was in line with estimates from economists polled by Dow Jones.

This positive inflation news has also lifted investor hopes for more rate cuts this year, with the fed funds futures market pricing in cuts in September, November and December.

“The numbers have been coming in tamer,” said Ken Mahoney, president of Mahoney Asset Management. “In housing and real estate, you’re starting to see some cracks. They’re going to stop messing around, start cutting rates.”

That data comes at the end of a volatile week on Wall Street. The S&P 500 declined 0.8%, while the Nasdaq lost 2.1%. Both indexes posted back-to-back weekly losses for the first time since April. The Dow outperformed, adding 0.8%, and notching its fourth consecutive positive week for the first time since May. The action came as investors seemed to participate in a rotation into small caps and cyclicals.

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In other news, medical device maker Dexcom plunged 41% after releasing disappointing fiscal full-year guidance. Footwear company Deckers reported fiscal first-quarter earnings and revenue that exceeded analysts’ expectations, boosting shares 6%.

FRI, JUL 26 20244:13 PM EDT

The central bank has kept borrowing costs at a more than two-decade high for a full year. The results have been somewhat surprising.

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By Jonnelle Marte

July 27, 2024 at 7:00 AM PDT

In the year since the Federal Reserve brought interest rates to a more than two-decade high, the central bank has succeeded in taking the steam off of an overheated US economy. But higher borrowing costs have also had some unexpected effects.

Higher-income households are reaping the benefits of a booming stock market and rising home values. Corporations are borrowing at a fast clip, and consumers continue to spend.

But in other ways, a year of high interest rates is finally beginning to take a toll. Americans are searching longer for jobs, and the unemployment rate has inched higher. Small businesses are feeling the pain from costlier loans. And lower-income households are falling behind on payments for their car loans and credit cards.

Inflation Progress Resumes

The Fed’s preferred inflation gauges have eased significantly since 2022https://www.bloomberg.com/toaster/v2/charts/6a3d75208d3fdc3e634f029c55417184.html?brand=economics&webTheme=economics&web=true&hideTitles=true

Source: Bureau of Economic Analysis

“Things have softened in the last couple months, and Fed officials are going to be pretty concerned if they start softening more rapidly,” said Veronica Clark, an economist at Citigroup Inc, adding that would lead officials to cut rates more rapidly.

Policymakers are widely expected to keep interest rates steady when they meet next week, but investors anticipate the Fed will begin lowering borrowing costs in September. Until then, evaluating how Fed policy is — and isn’t — impacting the economy will help guide officials seeking to tame inflation without wrecking the jobs market.

Housing Market

Rate hikes had the clearest impact on the US housing market, where Fed policy not only spurred a surge in borrowing costs but also a run-up in home prices. A measure of home affordability is near its lowest level in more than three decades of data.

With mortgage rates hovering around 7%, the monthly mortgage payment for someone buying a median priced home climbed to $2,291 in May, up from $1,205 three years earlier, according to the National Association of Realtors.

Higher Mortgage Rates, Higher Prices

The monthly payment for a median price home has doubled since 2020https://www.bloomberg.com/toaster/v2/charts/7hewq7u96w1sxyan2d2vziekjoos5zav.html?brand=economics&webTheme=economics&web=true&hideTitles=true

Source: National Association of Realtors

Note: Calculations based on a median price existing single-family home

Economists expected sales to decline in response to the higher borrowing costs — and they did. “What was unexpected is how powerful the lock-in effect can be if the economy is not in a recession,” said Ralph McLaughlin, senior economist for Realtor.com.

Existing homeowners, who secured ultra-low mortgage rates during the pandemic, are still reluctant to put their properties on the market. That made a limited supply of homes even more limited and pushed housing prices to new heights.

Read More: Real Estate Market Is Broken for Everyone Except the Ultra Rich

Stock Boom

Higher interest rates typically serve as an anchor on stocks by slowing business investment and growth. But investors have largely shrugged off those concerns, allowing equity prices — and Americans’ retirement accounts — to surge to new levels.

The S&P 500 has climbed about 25% since the Fed started raising rates in March 2022, adding about $3 trillion to household wealth.

Wealth Boost

US households have seen a surge in the value of their stock holdingshttps://www.bloomberg.com/toaster/v2/charts/2jf1lnx6l1joar20afibklajx1k8e563.html?brand=economics&webTheme=economics&web=true&hideTitles=true

Source: Federal Reserve

If the Fed doesn’t start lowering rates soon, however, “the market’s going to be vulnerable,” said Mark Zandi, chief economist for Moody’s Analytics. It’s “embedded in current stock prices that investors expect rate cuts.”

Job Market

The US jobs market, which bucked expectations of a slowdown time and again despite high rates, is finally showing signs of cooling.

Hiring has slowed from the overheated levels seen two years ago, and companies are posting fewer job openings. Employed Americans are quitting less, and those out of work are finding it harder to land a job.

Labor Market Finds Balance

The job market has finally cooled, but further softening presents riskshttps://www.bloomberg.com/toaster/v2/charts/o936563qvpkwt9x1mq2jxv4rsh8mmu95.html?brand=economics&webTheme=economics&web=true&hideTitles=true

Source: Bureau of Labor Statistics

The number of people who have been out of work for 27 weeks or more, known as long-term unemployed, rose to 1.5 million in June, the most since 2017 with the exception of a temporary spike during the pandemic, said Aaron Terrazas, chief economist for Glassdoor.

Hiring has become more concentrated to just a few sectors — like healthcare, social assistance and government — a sign that other industries more vulnerable to economic slowdowns are starting to pull back, he said.

Taken together, the figures raise concerns that the job market could weaken unexpectedly, a turn that would put the overall economy at risk. Fresh data on the state of the labor market will be published Friday.

Read more: Fed Is on Alert Amid Signs the US Job Market Is Losing Steam

Consumer Resilience

Consumers have continued to spend and make major purchases such as cars despite high loan rates, fueling solid economic growth. The resilience of spending is one of the key reasons economists are hopeful the Fed can tame inflation without sparking a recession.

Some have even argued high rates themselves are helping to support that spending, with wealthier households and retirees seeing a stream of income from their bond investments and savings accounts. But many households, particularly those with lower incomes who turned to credit to keep up with rising living expenses, are feeling the squeeze of elevated borrowing costs.

Delinquencies Rising

The share of balances newly delinquent by 90 days or more is steadily climbinghttps://www.bloomberg.com/toaster/v2/charts/qaatxj14zjc1lio6ms0l99hvwhc6x2ua.html?brand=economics&webTheme=economics&web=true&hideTitles=true

Source: New York Fed Consumer Credit Panel/Equifax

Interest rates for credit cards rose to 22.76% in May, just shy of a record in data back to 1994, Fed data show. Some 2.6% of credit card balances were 60 days past due in the first quarter, reaching a series high in data from the Philadelphia Fed that goes back to 2012.

Spending from low-income households only accounts for 15% of overall consumer spending, but the economy cannot thrive if that group is struggling, said Zandi.

Read More: Fed’s Favored Price Gauge Rises at Mild Pace, Spending Holds Up

Business Borrowing

High interest rates haven’t stopped large corporations from borrowing as much as they ever have. Firms are taking advantage of robust demand from long-term investors, such as pension funds and insurance companies, that are seeking to lock-in some higher payouts before the Fed cuts.

Borrowing Spree

Highly-rated companies are issuing bonds at a fast clip despite higher rateshttps://www.bloomberg.com/toaster/v2/charts/jhx5ooxk6eqdra3e68i3qz106yp9nfrz.html?brand=economics&webTheme=economics&web=true&hideTitles=true

Source: Bloomberg Intelligence

Plus, the longer term bonds they issue have fixed rates and about 10 years of maturity, meaning they are not as directly affected by what the Fed does, said Hans Mikkelsen, managing director of credit strategy at TD Securities.

The picture is much different for smaller businesses. The default rate on leveraged loans, which typically have variable rates, is projected to rise to a range of 5% to 5.5% this year, according to forecasts from Fitch Ratings. If realized, that would be the highest level since 2009.

“There’s a tremendous amount of pain and many, many companies that are going bust because of the Fed’s monetary policy,” Mikkelsen said.

Read More: US High-Grade Bond Sales Post Biggest July Since 2017

— With assistance from Matthew Boesler and Olivia Raimonde

Follow all new stories by Jonnelle Marte

Rachel Reeves is expected to start preparing the nation for tax rises by claiming she inherited a £20 billion funding gap from the Tories

By Will Hazell, POLITICAL CORRESPONDENT27 July 2024 • 10:30pm

Related Topics

• Tax rises, 
• Income tax, 
• Capital gains tax, 
• Labour Party, 
• Rachel Reeves, 
• UK economy

The Treasury has drawn up plans to equalise capital gains tax with income tax, The Telegraph can reveal.

Civil servants will present the proposals to the Chancellor Rachel Reeves, who in a speech on Monday is expected to prepare the nation for tax rises by claiming she inherited a £20 billion funding gap from the Conservatives.

Cutting pension tax relief for middle-class workers is another option set to be presented to Ms Reeves, who will announce timings for the next Budget, when any tax rises will be announced.

Downing Street said that the Treasury assessment of the nation’s finances will “show that Britain is broke and broken”.

Ms Reeves will accuse Jeremy Hunt of presiding over a “cover-up” of the “dire state” of public finances.

She added: “If we cannot afford it, we cannot do it.

“People up and down our country will understand that. When household budgets are stretched, families have to make difficult choices. And government needs to do the same.”

An inflation-busting pay rise for public sector workers of 5.5 per cent, expected to be announced by Ms Reeves on Monday, accounts for as much as £8 billion of the funding gap.

Mr Hunt, the shadow chancellor, disputed the Government’s claims about the dire state of the economy, warning that raising taxes would amount to “the biggest betrayal” ever by a Chancellor in their first Budget.

He told The Telegraph: “If having deliberately not told the country what they were planning before the election they then put up taxes, it will be the biggest betrayal by a Chancellor in her first budget that we have ever seen.”

Mr Hunt added that Labour would “not have the legitimacy or the mandate to increase taxes, because they weren’t honest with us before the election that that was what they wanted to do”.

He branded the Treasury’s audit a “purely political exercise” designed to provide a pretext for tax rises in the autumn, which can be blamed on the Conservatives.

The Telegraph understands that the Treasury will present Ms Reeves with options to equalise CGT and income tax rates and to cut pension tax relief for middle-class workers.

The highest rate of CGT is 28 per cent – far lower than the top rate of income tax of 45 per cent – and Ms Reeves was careful not to rule out increasing CGT during the election. One study suggested that equalising the rates would raise £16.7 billion a year, although it did not account for how such an increase to CGT would affect tax planning.

Pension contributions are currently tax deductible, meaning basic rate payers get a relief equal to 20 per cent of their payments to cancel out the income tax that would be otherwise due, while higher rate and additional rate payers get reliefs of 40 per cent and 45 per cent, respectively.

Civil servants previously made the case for introducing a flat rate of 30 per cent, which would leave higher and additional rate payers facing an effective 10 per cent or 15 per cent charge.

The Institute for Fiscal Studies had said that such a flat rate would bring in the equivalent of £2.7 billion.

Mr Hunt said that he thought Labour would “look at equalising CGT with income tax rates, and removing the higher rate relief on pensions contributions”, revealing that Treasury officials had presented these options when he was preparing for the 2022 Autumn statement as chancellor.

Ms Reeves is also expected to delay a series of road and new hospital projects.

Downing Street last night blamed “populist politics” for a litany of problems.

Writing in The Telegraph, Pat McFadden, the Chancellor of the Duchy of Lancaster, said the “shocking” findings of the Government’s audit  included “public services crumbling, announcements without proper funding and long-term spending pressures piling up”.

Related Topics

• Tax rises, 
• Income tax, 
• Capital gains tax, 
• Labour Party, 
• Rachel Reeves, 
• UK economy

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James Faris 

Jul 27, 2024, 3:43 AM PDTShareSave

• Few real-estate analysts are focused on a crucial trend that may reshape the market: climate change.
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The top shows are adding video, merchandise and live tours and signing megadeals with Spotify, Sirius and Amazon.

Clockwise from top left, Trevor Noah, Alex Cooper, Joe Rogan (center), Dax Shepard, Sarah Koenig, and Travis and Jason Kelce are signing huge deals with podcast distributors.. SEAN MCCABE; GETTY IMAGES (5), REUTERS, ISTOCK

by Anne SteeleFollow

Updated July 27, 2024 12:01 am ET

Alex Cooper is nearing a $100 million deal for her “Call Her Daddy” podcast with Sirius. Trevor Noah is in talks to reup for a second season with Spotify. Joe Rogan inked a deal with the audio giant worth up to $250 million. And it’s looking like football’s Kelce brothers’ show could be next in line, as the No. 4 podcast in the U.S. 

The podcast industry was initially a way for a crowd of voices from culture watchers to true-crime nerds to talk about everything from murders to science and sex. All you needed was a decent microphone.

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The move underscored the wartime risks for the Kremlin as the government pumps enormous sums of money into the Russian economy.

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By Anton Troianovski

Reporting from Berlin

July 26, 2024

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Russia’s central bank raised its key interest rate to 18 percent on Friday, the highest level in more than two years, in a sign of mounting concern in Moscow that the country’s wartime economy risked producing runaway inflation.

Elvira Nabiullina, the Russian central bank’s chairwoman, said the bank raised the rate by two full percentage points because “overheating in the economy has remained considerable.”

The increase, the first since December, lifts rates to more than double where they were a year ago and close to the high of 20 percent, which the central bank pushed through as an emergency measure just after Russia launched its invasion of Ukraine in early 2022.

Annual inflation in Russia stood at 9 percent this month, far higher than the 4 percent the country’s financial authorities had been targeting. Ms. Nabiullina said Friday that the scale of “overheating” in the first half of the year was the greatest the Russian economy had seen in 16 years. The central bank is now forecasting inflation of as much as 7 percent for the full year.

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Dmitri S. Peskov, the Kremlin spokesman, said in a call with journalists on Friday that President Vladimir V. Putin remained satisfied with the work of the central bank. He said that Russia’s overall economic development indicators were “very, very positive,” but that nonetheless problems can arise.

“No economy in the world is free from the current problems,” Mr. Peskov said. He said “certain regulatory measures” are taken to address those problems, and “the same is being done in our country.”

Russia’s economy has adapted to international sanctions and the demands of the war far better than Western officials had predicted. But Ms. Nabiullina’s move on Friday underscored the risks, as the government pumps enormous sums of money into the Russian economy to finance the military operation. Facing a tight labor market, made worse by the number of men drafted to fight at the front, Russian firms have been forced to raise wages, driving up inflation.

“Labor force and production-capacity reserves have been almost exhausted,” Ms. Nabiullina said.

A further cause for stubborn inflation, she added, were “risks related to external conditions,” saying that Russian companies were passing on the burden of sanctions to consumers in the form of price increases.

Russian military spending accounted for almost a third of all expenditures in the country’s 2024 budget. The level has more than tripled since the invasion of Ukraine in 2022. The Russian government has yet to propose a budget for next year, which would be an indicator of the economy’s future trajectory. Some economists are not ruling out a further hike in the key interest rate in September.

Paul Sonne contributed from Berlin and Ivan Nechepurenko from Tbilisi, Georgia.

: Russia-Ukraine War

The S&P 500 and Nasdaq also rose Friday.

Last Updated: 

July 26, 2024 at 7:31 PM EDT

What to Watch Today

The Dow was on a tear Friday, with the index managing to end a dreadful week on a good note. The S&P 500 and Nasdaq also climbed higher.

The Dow got a big boost from 3M, after the conglomerate posted better-than-expected quarterly results.

The latest reading of the Federal Reserve’s preferred inflation measure, released Friday morning, should leave a September interest-rate cut in play.

For live coverage and analysis of the PCE data, click here.