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Fed Chairman Powell says economic reopening could cause inflation to pick up temporarily

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Federal Reserve Chairman Jerome Powell said Thursday that he expects some inflationary pressures in the time ahead but they likely won’t be enough to spur the central bank to hike interest rates.

“We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects,” Powell said during a Wall Street Journal conference. “That could create some upward pressure on prices.”

Markets reacted negatively to Powell’s comments, with stocks sliding and Treasury yields jumping. Some investors and economists had been looking for him to address the recent surge in rates, with a possible nod toward adjusting the Fed’s asset purchase program.

The Fed currently is buying $120 billion a month in Treasurys and mortgage-backed securities. Recent market chatter has revolved around the central bank potentially implementing a new version of “Operation Twist,” in which it sells short-term notes and buys longer-dated bonds.

According to Fed officials, the central bank is far from any action to try to influence the long end of yields, despite expectations from economists and Wall Street strategists, CNBC’s Steve Liesman reported.

Powell instead reiterated past statements he has made on inflation in saying that he doesn’t expect the move up in prices to be long lasting or enough to change the Fed from its accommodative monetary policy. He did note that the rise in yields did catch his attention, as have improving economic conditions.

“There’s good reason to think that the outlook is becoming more positive at the margins,” he said.

The Fed likes inflation to run around 2%, a rate it believes signals a healthy economy and provides some room to cut interest rates during times of crisis. However, the rate has run below that for most of the past decade and inflation has been particularly weak during the coronavirus pandemic.

With the economy increasingly back on its feet, some price pressures are likely to emerge, said Powell, but he added they likely will be transitory and look higher because of “base effects,” or the difference against last year’s deeply depressed levels just as the Covid-19 crisis began.

Raising interest rates, he added, would require the economy to get back to full employment and inflation to hit a sustainable level above 2%. He doesn’t expect either to happen this year.

“There’s just a lot of ground to cover before we get to that,” he said. Even if the economy sees “transitory increases in inflation … I expect that we will be patient.”

The Fed has repeatedly said that it will keep short-term rates anchored near zero and continue its monthly bond-buying program until it sees not only a low unemployment rate but also a jobs recovery that is “inclusive” across income, gender and racial lines.

However, some economists have worried that the Fed’s commitment to low rates will foster inflation. Powell said he’s “very mindful” of the lessons from runaway inflation in the 1960s and ’70s, but believes this situation is different.

“We’re very mindful and I think it’s a constructive thing for people to point out potential risks. I always want to hear that,” he said. “But I do think it’s more likely that what happens in the next year or so is going to amount to prices moving up but not staying up and certainly not staying up to the point where they would move inflation expectations materially above 2%.”

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U.S. tech companies and their reliance on Taiwan

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Taiwanese chipmakers are ahead of their international rivals and it will be tough for U.S. tech companies to reduce their reliance on Taiwan, said Sebastian Hou from CLSA.

Tech firms like Apple, Amazon, Google as well as Qualcomm, NVIDIA and AMD rely heavily on Taiwanese contract manufacturers to produce up to 90% of their chips, according to Hou, who is managing director and head of tech research at the brokerage firm.

“It’s going to be a challenging and long journey for them to diversify away, and thinking about how long it takes for the chip development and cooperation — it’s going to take a while,” he said Monday on CNBC’s “Street Signs Asia.

Semiconductors are used in everything, from smartphones and computers to cars as well as home appliances.

While the United States dominates the global semiconductor market share by revenue, Asia is the manufacturing powerhouse, according to a recent report from Bank of America. Asian countries produce more than 70% of global semiconductors — Taiwan and South Korea, in particular, have established unrivaled positions in high-end chip manufacturing capacity, the report said.

A man walks past TSMC’s logo at the company’s headquarters in Hsinchu, Taiwan. TSMC is the world’s largest semiconductor foundry.

Sam Yeh | AFP | Getty Images

Upside for Taiwan chipmakers

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip foundry, is up more than 13% year-to-date. Its rival United Microelectronics Corp — seen as a distant second to TSMC in Taiwan’s contract chip manufacturing space — is up about 16% in the same period.

CLSA has a “buy” rating on TSMC and a price target of 825 New Taiwan dollars ($28.97) — that’s a 35% upside from Friday’s close.

The brokerage has an “outperform” rating on UMC and a price target of 62 New Taiwan ($2.18), a 16.76% upside from last week’s close.

Hou explained that between the two stocks, TSMC has a higher risk — due to a wider spread between its target price and current share price — but it offers greater returns. He added that the price target is “highly achievable” since the company is expected to maintain technology leadership over the next five years and customers are set to rely heavily on it.

China’s SMIC lagging

A report from market research firm TrendForce ranked China’s Semiconductor Manufacturing International Corporation (SMIC) fifth by revenue among the world’s top 10 foundries in February, based on estimated first quarter numbers.

SMIC is China’s largest and most important chipmaker — it is seen as key to Beijing’s plans for self-sufficiency in the semiconductor space, following tensions with Washington. Last December, the U.S. blacklisted SMIC, and restricted American companies from exporting technology to the firm.

Hou explained that it is almost impossible for SMIC to catch up with TSMC and other chipmakers in light of the U.S. sanctions.

The technology gap between SMIC and TSMC is currently about six years, he said. If SMIC cannot acquire the technology it needs to bolster its high-end chip manufacturing capacity, it will fall behind even further, Hou said.

“Which means, it not only cannot catch up, but the gap will further be widened,” Hou said, adding the gap may extend to between seven to nine years.

A report last month from Reuters said the U.S. government has been slow to approve licenses for American firms to sell chipmaking equipment to SMIC.

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Experts see innovation and pop-up stores

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A shopper browsing through secondhand clothes at a pop-up swap event in Singapore.

CATHERINE LAI | AFP | Getty Images

LONDON — The future of physical stores has been called into question by the coronavirus pandemic, but experts believe the key to survival will be reinvention.

For some time now, retailers have tried to attract customers by creating experiences in store, but they now need to get creative as shopping habits change and customers become more demanding.

Online shopping has boomed since the start of the pandemic. In the U.K. alone, internet sales jumped from under 20% to more than 32% in just three months at the start of the first Covid-induced lockdown. And experts expect the convenience of buying online to mean consumers will continue this habit even after the pandemic.

Meanwhile, almost 50 stores closed every day in the U.K. in 2020, according to accountancy firm PwC.

Both trends show how important it is for retailers to get their physical presence right.

Kristina Rogers, consumer global leader at Ernest Young, told CNBC in March that there is a “real redefinition” in how retailers use their physical spaces.

“It’s not just an exchange of goods anymore,” she said, adding that retailers have to understand who their customers are and what these want.

Customers browse clothing in the pop-up shop Pangaia inside Selfridges department store in London on April 12, 2021 as coronavirus restrictions are eased.

GLYN KIRK | AFP | Getty Images

She highlighted how Target, one of the largest retailers in the U.S., has opted to have a bigger space in its stores for Apple products. This effectively allows customers who are interested in Apple devices to check them out while shopping for other things in Target. It is also convenient for current Apple users who can merge two trips into one.

“They’re recreating a ‘mini mall’ within their store,” she said.

But not every retailer has such a large area to work with. In fact, some experts believe that successful stores of the future might be ones that, irrespective of size, keep offering new things.

“Undoubtedly there will be less physical stores as we move forward,” Matt Clark, managing director at consulting firm AlixPartners told CNBC’s Street Signs Europe in March. “But the stores that remain will need to offer an even greater experience and an additional set of services, as well as just the ability to buy products.”

One way for retailers to stand out is by focusing more on pop-up stores. These are spaces that are open temporarily to show off a particular line or product, and have been gaining in popularity in recent years.

Stella McCartney store in Bond Street in November 2020.

SOPA Images | LightRocket | Getty Images

“One of the prime opportunities for pop-up shops are to create new opportunities for exploration. It’s not about a consumer going to a Ralph Lauren store that is the same today as it was 10 years ago or 20 years ago,” Alex Cohen, a commercial property expert at Compass told CNBC.

Some big-name brands have already looked to pop-ups as a way to attract more customers. Stella McCartney, the British fashion designer, is featuring different local businesses in her flagship store on Old Bond Street, London, to celebrate the lifting of restrictions for retailers in the U.K. Guess, meanwhile, is about to open its first pop up store in Germany for Activewear.

Pop-up spaces allow retailers to create something “really fresh” while saving on costs, Cohen said.

“The brands, they have the opportunity to spend much less, to not having to commit themselves to a long-term contract, to spend less with modular installations and to do it very quickly,” he added.

Exclusivity

In addition, this sort of store boosts the idea of exclusivity — a feeling increasingly popular for many customers.

“The whole idea of exclusivity is really important. The fact that a pop-up will expire … creates in the consumers kind of an excitement. ‘Wow, if I don’t check out this pop-up retail offering … in the next 3 months, it is going to go away, I will never be able to see it,'” he said. This adds the sort of excitement missing from many traditional stores.

So it is not just about the feeling of having an exclusive product, but also an exclusive experience. And this means there are other ways for retailers to capitalize on this exclusivity trend.

“In terms of exclusivity, a lot of the high street retailers are now requiring, either by appointment or actually when you arrive at a store, that you must be linked up to a sales person. You can’t browse and that — for better or worse — creates a feeling of exclusivity,” Cohen added.

Sustainability

Brands are also recognizing the increasing importance of sustainability, both from a business perspective and because of growing customer awareness.

And it’s not just coming through in more “ethical” product lines, but also in what services are available at physical stores.

At its flagship space in Stockholm, for instance, H&M is offering services to fix old clothes and is hiring out some of its outfits for special occasions.

“The sustainability movement really highlights one of the core dichotomies that the fashion industry particularly is facing but broader retail is also facing,” Clark from AlixPartners said.

“The value versus values debate: the need to be really, really clear on your sustainability credentials, ethical sourcing, etc but at the same time offering great value for money that doesn’t just mean cheapness but value for money to the consumers.”

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How to ace a job interview with a robot recruiter

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The use of artificial intelligence in job interviews is on the rise, which may sound like a daunting prospect, but experts say there are some ways to ace your first encounter with a robot recruiter. 

Some 70% of the more than 1,500 human resource and recruitment professionals surveyed by LinkedIn in July believed virtual recruiting would become the new standard in the wake of the coronavirus pandemic. 

And while for many firms this could simply mean employers continue conducting interviews via Zoom, the emergence of more AI tools offering to make the process more efficient suggests the demand for robot recruiters may be here to stay.  

So, if you are faced by a robot recruiter in your next interview, experts recommend keeping these tips in mind. 

Body language

For AI hiring tools that analyze body language, Andres Lares, managing partner at Shapiro Negotiations Institute, said that it can initially seem “scary” to interviewees as it’s hard to predict exactly what an algorithm picks up on. However, he added that there are common positive body language tips that candidates can use to make a good impression.

He recommended “simple things” like smiling, leaning forward slightly and “lots of eye contact,” as well as generally showing more “open mannerisms.” 

How interviewees phrase their answers is also key, Lares said, when language is being analyzed. “The ‘how you say it’ is particularly important, perhaps actually more important than when you’re with a real person,” he said.

For instance, Lares said AI could interpret the use of phrases like “I think” as more tentative.

“Generally what we have found is a lot of the algorithms are looking for confidence,” he explained.

Lares suggested candidates script out what they might want to say for certain answers and roleplay reading it out, so they feel more confident when saying it again in the actual interview, which can help get rid of that tentative phrasing. He recommended weaving in key phrases used in the job description, just as applicants would on their resume.

Taking notes

Kevin Parker, CEO of video interviewing software platform HireVue, told CNBC that job applicants would be well advised to consider taking notes in between answers if, like HireVue, the software allows interviewees to take pauses.

And just like in a face-to-face interview, Parker suggested interviewees use the “STAR” (situation, task, action and result) technique to structure answers for situational questions.

HireVue provides on-demand video interviewing, where an employer can pre-record questions and then send them to job applicants, who record their responses. It also has an algorithm that transcribes and analyzes the answers of candidates to help filter applicants prior to being seen by a recruiter, though Parker stressed that this is only used in one-fifth of its interviews, for those with high volumes of applications.

‘Honesty, values and personality’

Lares acknowledged that speaking to a screen in an interview, rather than a real person, could feel “awkward” as candidates can’t see how their interviewer is reacting to their answers and there’s no opportunity for small talk to get the conversation flowing.

To get rid of some of that initial discomfort, he suggested thinking of story from a past job and to practice re-telling it in front of a camera to get comfortable.

“Getting some of those kinks out early in an unrelated environment can be really helpful,” Lares said.

Aida Fazylova is CEO of HR tech startup XOR, which uses AI to automate the earliest stages of hiring like applying, screening and getting scheduled for in-person meetings. 

“If you want to ace your screening interview with AI, I’d recommend a heavy dose of … honesty, values and personality,” she said. 

If recording a video, she suggested adding a background that “gives a glimpse into who you are.”

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