Fed hikes rates, but next steps are uncertain

This is an audio transcript of the FT News Briefing podcast episode: Fed hikes rates, but next steps are uncertain

Jess Smith
Good morning from the Financial Times. Today is Thursday, July 28th, and this is your FT News Briefing.

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The Fed delivered another historic rate rise, and Wall Street stock prices jumped higher. Soaring gas prices in Europe are adding to fears of recession. And the Twitter takeover saga is wearing down employees. I’m Jess Smith, in for Marc Filippino, and here’s the news you need to start your day.

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The Federal Reserve yesterday doubled down on efforts to fight inflation. It raised its benchmark policy rate by three quarters of a percentage point for the second month in a row. But Fed chair Jay Powell also signalled that the tightening could ease, and US stock markets rallied. Here’s the FT’s Colby Smith on the markets reaction.

Colby Smith
Well, it was a bit confusing because in very few parts of Powell’s press conference did we hear any real capitulation about the Fed’s commitment to raising interest rates and to stamping out inflation. But there were a few moments of dovish signalling in the press conference that I think markets really seized upon, in particular when chair Powell said that forthcoming interest rate increases may begin to slow. But that being said, he was quite explicit that if larger than usual rate hikes are necessary and warranted by the data, that the Fed would not hesitate to do so.

Jess Smith
Colby, why did the Fed still raise rates so aggressively yesterday when we’re already seeing signs the economy is cooling?

Colby Smith
Well, the cooling of the economy is almost exactly what the Fed wants to see as it steps up its fight against inflation. So the Fed is not expected to kind of take into consideration any of the activity data, you know, well into the second half of 2022 when we start to see some of those inflation figures rolling over because right now they’re kind of firmly focused on ensuring that inflation comes down from here. And chair Powell admitted yesterday that they probably need to see an economic slowdown and they probably need to see a cooling off of the labour market in order to achieve their goal.

Jess Smith
What else struck you as notable about Jay Powell’s comments?

Colby Smith
One thing that was noteworthy was the way in which chair Powell talked about the September meeting. Now, in previous policy meetings the Fed has been really clear about what it will do at its next gathering in order to ensure there’s no volatility around that outcome. And Powell, you know, stopped short of giving that same guidance. He said that we could see yet another 75 basis point hike. We could potentially see something even larger. And he was not very specific about where policy is going, at least over that time period. Economists have seen this as an important departure, at least the beginnings of one from forward guidance. And it’ll be interesting to see if the Fed sticks to that approach through the second half of the year.

Jess Smith
Colby Smith is the FT’s US economics editor.

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The drama of Elon Musk’s fraught plan to buy Twitter is taking a toll on employees at the social media company. Twitter is now suing Musk to try and force him to follow through with the deal after Musk said he wanted to back out. Now the two sides are bickering over the start date for the trial. Meanwhile, the FT’s technology reporter Cristina Criddle has been talking to frustrated employees at Twitter.

Cristina Criddle
There’s been quite a lot of exits. They’ve also cut a lot of jobs at Twitter. So it’s kind of like internal employees have given up on leadership, and they’ve taken to messaging in sort of private message groups, one person said, rather than on the internal systems because they’re just so fed up, and they’re saying they get asked about their end-of-year goals, but they have no idea what the company is going to be like at the end of the year.

Jess Smith
How is this affecting the company’s business, especially the advertising business?

Cristina Criddle
The advertising is a huge part of Twitter’s business. It’s what makes them money. But some people that we spoke to said advertisers are pulling back as well from Twitter. So doing less ads, I mean, that’s against a general backdrop of advertising spend going down because of the macroeconomic climate. But one person I spoke to said that he’d seen a 14 per cent drop in the number of creator ads on Twitter since Musk said the deal was on hold.

Jess Smith
Cristina, is the frustration among employees at Twitter across the board from what you can tell?

Cristina Criddle
I think it depends which employees you are. Some employees are big fans of Elon Musk and hope it goes through. But I think it’s the instability and the uncertainty that’s really affecting morale. Some people like Musk, some people don’t. But not knowing what’s going on either way is what’s causing this kind of unsettled feeling amongst employees.

Jess Smith
That’s FT technology reporter Cristina Criddle.

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Russia keeps cutting back on its gas supplies to Europe. And European gas prices are soaring. Yesterday, they jumped as much as 13 per cent higher, and that’s now adding to the risk of recession in Europe. Here’s the FT’s Martin Arnold on how European governments are responding.

Martin Arnold
Well, they’re doing as much as they can, and they’re doing many different things. So each government is trying to source as much alternative sources of supplies of gas as they can. And they’re also working on reducing gas consumption as much as they can. And there’s now, this week a European Union proposal, which is going to be implemented for countries to reduce their gas consumption by 15 per cent, which will free up some of the gas supplies to be used to fill the storage capacity before the winter heating season, which is absolutely crucial because that’s when gas usage really increases as everybody needs to heat their homes in the cold winter.

Jess Smith
Martin, is there a sense that these measures will be enough?

Martin Arnold
All of that will not be sufficient if Russia completely cuts off the supply of gas because Europe has made itself so dependent on Russia in recent years that there just isn’t enough alternative supplies readily available because most gas has to come through pipelines, and you can’t just build pipelines quickly overnight. So really the fear is that Russia will weaponise the supply of gas, cutting it off completely before the winter hits. And that will force Europe to start rationing gas supplies to, particularly to heavy industrial uses.

Jess Smith
What do these rising energy prices mean for the risk of recession in Europe?

Martin Arnold
Well, we will find out a bit more about that on Friday when we will get both the latest GDP figures for the eurozone and also we’ll get inflation figures. The Eurozone GDP figures are expected to show that growth is at best stagnated, perhaps slightly positive. But the problem is that economists expect things to get even worse in the second half of this year as inflation takes its toll on consumer spending and on demand. And also fears about Russian gas supply cut off really start to bite in industry and in terms of just in general confidence terms.

Jess Smith
Martin Arnold is the FT’s Frankfurt bureau chief.

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Inflation is in the news a lot for obvious reasons. But before we go, we have a story about falling prices for avocados in Australia. Turns out so many Australian farmers planted avocado trees. There’s now a glut of the fruit. They used to be seen as fancy, but avocado prices have dropped to about a dollar each. The Australian avocado trade group is now looking for new overseas markets that can take the surplus from this “avo-lanche”, as it’s being called. One grower told the FT he doesn’t regret adding to the glut. He says everything tastes better with guacamole.

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You can read more on all these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.