Business

Wall Street’s Fed Watchers Brace for ‘Higher-for-Longer’

Will the Fed confirm a higher-for-longer policy on interest rates tomorrow?Credit…Kevin Lamarque/Reuters

Looking beyond the Fed’s rate decision

The markets on Tuesday are betting that the Fed will stand pat on interest rates on Wednesday. But with oil prices surging, inflation running high, and the economy showing surprising strength, Wall Street is increasingly convinced that the central bank will leave rates at or near a two-decade high well into next year — and may even raise rates again.

The higher-for-longer policy would probably deal a blow to prospective home buyers and businesses, and could undermine President Biden’s message of economic growth heading into an election year.

Investors will focus on the Fed’s quarterly economic projections. In June, the last time the Fed released a forecast, the central bank held open the possibility of an autumn increase amid a lot of uncertainty about inflation, which is still above the Fed’s 2 percent target though it has begun to cool recently.

With Brent crude hitting a 10-month high of more than $95 a barrel on Tuesday morning, however, fears on inflation still loom large. Investors on both sides of the Atlantic dumped bonds on Monday, with yields on a 10-year inflation-adjusted Treasury note hitting a 14-year high on fears that the Fed would stay hawkish on interest rates.

The Fed will probably forecast a later rate increase, Michael Feroli, chief U.S. economist at J.P. Morgan, told The Times. Economists at Bank of America made a similar prediction. “November is a close call, but we retain our expectation for one last 25bp hike,” Michael Gapen, the bank’s chief U.S. economist, wrote in a note to clients on Monday.

The good news: Wall Street sees the Fed cutting rates next year as inflation gradually recedes. But economists believe the prime lending rate will remain close to 5 percent at the end of next year. The Fed should offer some clarity on this, too: Its projections will include a year-end forecast on rates through 2026.

The uncertain economic outlook will complicate Biden’s messaging. The White House has been talking up the job-creating effects of “Bidenomics” as it tries to convince voters that the president has managed the economy well amid sagging poll ratings. The jobs market remains strong, but a summer of strikes threatens to hit growth. And consumers and small businesses are likely to acutely feel the effects of the Fed’s sticking with its policy of elevated rates.

HERE’S WHAT’S HAPPENING

California’s governor will sign a landmark climate disclosure bill. Gavin Newsom said he would approve a proposal to force big companies to detail their carbon emissions. The law, a first by a U.S. state, would apply to about 5,000 businesses and comes as the S.E.C. is crafting its own climate disclosure rules for companies.

FTX sues Sam Bankman-Fried’s parents. Lawyers for the bankrupt cryptocurrency exchange accused Joe Bankman and Barbara Fried, two longtime Stanford University law professors, of enriching themselves with money their son stole from customers. A spokesman for Bankman and Fried did not immediately respond to a request for comment.

Western business confidence in China plummets. U.S. and European companies say geopolitical tensions and the deteriorating environment for international commerce in the country have severely dampened the outlook for businesses operating there. A deepening economic slump, increasing data-security demands and a crackdown on foreign-linked due-diligence firms have added to the difficulties of doing business in China.

YouTube blocks Russell Brand’s channel from making money. The video platform said that it had ”suspended monetization” on the comedian’s channel after he was accused of rape and sexual assault. Brand has recast himself as an anti-establishment activist in recent years and amassed more than six million YouTube subscribers. He has denied the allegations.

Instacart delivers confidence to the I.P.O. market

Investors’ hopes for initial public offerings got a boost on Monday after Instacart, the grocery delivery app, priced its stock sale at $30 a share, the top end of an already elevated range. Its stock is set to begin trading on Tuesday morning on the Nasdaq under the ticker symbol CART.

It’s a positive sign for the I.P.O. business, which — after the buoyant debut of the chip designer Arm — now has two prominent successes that point to a comeback for that market. But there’s still reason for investors and would-be market debutantes to be cautious.

Instacart is following a more conservative playbook for new I.P.O.s:

  • Like Arm, the company secured so-called cornerstone investors who agreed to buy stock before it offered its shares to other potential buyers, establishing a floor for demand.

  • Instacart also set out a relatively conservative valuation, a change from 2021 when investors were willing to pay nearly any price for it. Earlier this month, the company initially sought a valuation just under $9.3 billion, a huge drop from the $39 billion valuation two years ago; at the I.P.O. price, the company now has a potential valuation of $9.9 billion.

  • And it has emphasized its profitability, another change from the boom times when investors clamored for a piece of companies that were deeply in the red.

The other closely watched I.P.O. of the week, that of the advertising software maker Klaviyo, has taken similar steps. The strategy appears to be paying off: Klaviyo raised its price range on Monday, giving it a potential valuation of about $9 billion.

But don’t expect a return to the heyday for I.P.O.s anytime soon. Arm’s heady debut stoked investor interest in new offerings. But its shares have dropped 8.8 percent since its first day of trading, as the bloom came off its rose. (Among the potential culprits: a new analyst report that questioned whether its chip designs would play a big role in artificial intelligence software, as the company has asserted.)

Arm isn’t alone: More than two-thirds of the companies that have gone public this year are now trading below their I.P.O. prices, CNBC notes.


Musk looks for a Bibi boost

Elon Musk has come under fire for many things since buying Twitter, now known as X, but the sharpest criticism has focused on the rise of hate speech and antisemitism on the social network.

A meeting with Benjamin Netanyahu, Israel’s prime minister, in California on Monday may have gone some way to temporarily deflect some of those denunciations. But whether that’s enough to lure advertisers back is far from clear — which may explain why Musk is considering a new monthly fee for X users.

Musk is trying to fend off his critics. Antisemitic posts more than doubled in the first nine months after he purchased Twitter in October 2022. The Anti-Defamation League, a Jewish civil rights group, has accused him of allowing antisemitism to proliferate. Musk has hit back, saying the A.D.L. was “trying to kill’‘ X by driving away advertisers. He threatened to sue the organization for defamation.

Netanyahu urged Musk to “find a balance” between free expression and fighting antisemitism. “I know your commitment to free speech,” he said in a conversation that was live-streamed on X. “I also know your opposition to antisemitism,” Netanyahu added.

“Obviously I’m against antisemitism — I’m against anti-anything,” Musk said. But “free speech at times means that someone you don’t like says something you don’t like,” he added, pointing out that there are millions of posts a day on X and “some of those are going to be bad.”

The A.D.L. was cautious in its response. “We appreciate P.M. Netanyahu for raising concerns about the proliferation of antisemitism on X/Twitter,” Jonathan Greenblatt, C.E.O. of the A.D.L., said in a statement, adding that he hoped Musk take those concerns seriously.

Others have pointed out that Musk himself has amplified attacks on individuals. Yoel Roth, the former head of trust and safety at Twitter, wrote for Times Opinion that he has had to go into hiding and shift location repeatedly after Musk claimed without evidence that Roth condoned pedophilia.

Netanyahu and Musk found some common ground in being high-profile targets. Israelis have protested for months against his contentious judicial reform plan. “It’s not an easy thing to be maligned — I know you’ve never seen that, right?” the prime minister said. “Me, maligned?” Musk said, laughing. “Never.”


The auto strike may grow even bigger

With no breakthrough in sight, the U.A.W. is threatening to expand its strike against the big three Detroit automakers to more plants. The impasse is also growing more political with Donald Trump joining President Biden in trying to win the support of the union’s 150,000 members.

The U.A.W. plans to name new strike targets this week, if talks with automakers don’t advance quickly enough. That could escalate an already historic strike that is targeting plants at Ford, General Motors and Stellantis simultaneously. “We’re not waiting around, and we’re not messing around,” Shawn Fain, the union’s president, said.

The automakers have said that they’re trying to adapt operations to produce more electric vehicles and cut costs to compete against fast-growing rivals like Tesla.

Meanwhile, Trump plans to address union members in Detroit on Wednesday, skipping the second Republican presidential primary debate. Trump is embroiled in a fight with the U.A.W.’s leaders — workers had been “sold down the river by their leadership,” he said of Fain, who later criticized Trump as an out-of-touch billionaire. But the former president is hoping to win over rank-and-file union members.

Among his arguments is that Biden’s push for more electric vehicles will hurt U.A.W. members because those cars and trucks are produced in factories that require less labor. Biden has defended EV jobs, saying they pay “good wages.” Calling himself the most pro-union president in history, Biden has pledged to dispatch top administration officials to Detroit in the hopes of breaking the impasse.

In other labor news: The comedian Bill Maher reversed his decision to restart his late-night talk show amid pressure from striking writers, following a similar move by Drew Barrymore. And here’s how the Hollywood strikes are hurting the British film and television industry 5,400 miles away.

THE SPEED READ

Deals

  • SoftBank is said to be heading up a $280 million funding round for Mapbox, a location-mapping start-up, as the Japanese tech giant invests more in A.I. (FT)

  • Disney has reportedly held preliminary discussions with potential buyers of its India streaming business, including the conglomerate Reliance Industries. (Bloomberg)

  • Lyft agreed to pay a $10 million fine to settle an S.E.C. investigation into disclosures tied to the sale of Carl Icahn’s shares in the ride-hailing company before its I.P.O. (FT)

Policy

  • China’s former foreign minister, Qin Gang, a longtime aide to President Xi Jinping who disappeared from public view in June, was reportedly ousted after an alleged affair. (WSJ)

  • Rudy Giuliani is being sued by his own lawyer, who’s looking to recover more than $1.3 million in unpaid legal fees. (NYT)

Best of the rest

  • “Could OpenAI Be the Next Tech Giant?” (The Economist)

  • How Britain’s antitrust regulator is becoming a bigger global player after Brexit. (FT)

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