FirstFT: Fed considers ‘restrictive’ policy to fight inflation
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Federal Reserve officials discussed the possibility of moving the US central bank to a “restrictive” policy stance that would better fight inflation through more aggressive interest rate increases.
According to minutes of the most recent Federal Open Market Committee meeting held in early May, most US monetary policymakers agreed on the need to keep increasing the Fed’s main interest rate — set at a range of between 0.75 per cent and 1 per cent — by 50 basis points “at the next couple of meetings”.
After the financial crisis the Fed pursued a highly accommodative monetary policy, reducing interest rates to record low levels and pumping hundreds of billions of dollars into the US economy through a bond buyback programme to support business and households.
It has been forced to adopt an aggressive approach towards tightening monetary policy this year to control inflation that is at a 40-year high. But there are concerns among economists and investors that this could undermine the strong recovery in the jobs market and lead to a recession.
Investors, however, welcomed the absence of a more hawkish monetary policy from the central bank in yesterday’s minutes. The S&P 500 finished 0.9 per cent higher, rising shortly after the minutes were released, having been up 0.2 per cent beforehand. The technology-heavy Nasdaq Composite rose 1.5 per cent.
Fed officials, including chair Jay Powell, are trying to engineer what they have described as a “soft” or “softish” landing for the US economy but have acknowledged it is a difficult balancing act.
In public remarks, Powell has vowed to keep tightening monetary policy until the central bank sees “clear and convincing” signs that inflation is slowing and moving back to its 2 per cent target.
Thanks for reading FirstFT Americas and here’s the rest of the day’s news — Gordon
Five more stories in the news
1. Beto O’Rourke interrupts press conference on Texas school massacre The Democratic candidate for Texas governor accused the incumbent Republican Greg Abbott of “doing nothing” to curb gun violence in the state at a press conference to give further information on the shooting of 19 young children and two teachers at an elementary school.
Go deeper: The shooting at Robb Elementary School has reignited the gun control debate in America just as the National Rifle Association prepares to hold its annual meeting in Houston. Justin Jacobs is in the city and spoke to gun owners.
2. Elon Musk must find more cash for Twitter deal The billionaire is seeking to raise additional cash to fund his $44bn bid for Twitter after allowing a $6.25bn margin loan commitment backed by his shares of electric car maker Tesla to lapse. Tesla’s shares have fallen by 25 per cent since Musk announced his intention to buy the social media platform in April. The news came after the company’s annual meeting at which Silver Lake co-chief executive Egon Durban tendered his resignation from the board.
3. Russia cuts interest rates as rouble rises Russia’s central bank cut its main policy rate to 11 per cent from 14 per cent as a strengthening rouble eased inflationary pressures. Yesterday President Vladimir Putin unveiled double-digit increases to Russia’s minimum wage and pensions. Putin admitted Russia faced “difficulties” but denied these were linked to what he referred to as the country’s “special military operation” in Ukraine.
4. China turns a blind eye to labour violations to spur economy Local governments across China are turning a blind eye to labour violations in an attempt to boost the economy by helping struggling businesses. Yesterday, China’s premier Li Keqiang said the world’s second-largest economy could struggle to record positive growth in the current quarter.
5. Andreessen Horowitz bets on crypto ‘golden era’ with new $4.5bn fund Despite the market crash, the Silicon Valley venture capital group has made its biggest bet yet on the future of blockchain technology. It plans to allocate about $1.5bn to seed investments while the remaining $3bn would be earmarked for venture investments.
The day ahead
Economic data The US commerce department releases the second reading of first-quarter gross domestic product. The first reading, released last month, showed that the US economy unexpectedly contracted in the first three months of the year. The Labor department is expected to report initial claims for state unemployment benefits that showed a decline for the week ended May 21. Pending home sales figures for April are also due from the National Association of Realtors.
Corporate earnings Chinese technology giants Alibaba and Baidu release earnings today. Discount stores Dollar General and Dollar Tree also report earnings as well as big box retailer Costco Wholesale and department store Macy’s.
Annual meetings Carl Icahn is hoping to get the backing of fellow shareholders for his plan to replace two directors on the board of McDonald’s. The activist investor has clashed with the fast-food chain’s management over its treatment of pigs.
Monetary policy Federal Reserve vice chair Lael Brainard is to testify on “Digital Assets and the Future of Finance: Examining the Benefits and Risks of a US Central Bank Digital Currency” before a virtual House Committee on Financial Services hearing.
Outlook for markets Futures contracts that track the S&P 500 and Nasdaq were little changed ahead of the open of trading on Wall Street as investors awaited the trio of data releases. Shares in Europe rose following yesterday’s positive session in the US. The Shanghai Composite Index and Hang Seng in Hong Kong fell after a broadly positive session elsewhere in Asia.
Emergency aid for UK households Chancellor Rishi Sunak will announce an emergency multibillion-pound package of support for British households facing spiralling domestic energy bills, partly funded by a windfall tax on energy companies.
What else we’re reading
On the waterfront: organised crime at the Port of New York Tech and global trade have transformed New York — the busiest port on the US eastern seaboard — from a place of burlap sacks and baling hooks to one of computer-tracked containers borne on ships of once-unimaginable dimensions. Yet organised crime’s barnacle-like presence persists.
Disney’s approach to Pride snags on culture wars Companies have long used Pride month — a June celebration for queer people — as a branding exercise. But Disney has come under fire this year from both the left and the right over its stance on a new Florida law restricting discussion of sexuality and gender identity in primary schools, nicknamed the “Don’t Say Gay” law.
‘We will fight to keep the metaverse open’ The chief executive of Fortnite’s owner Epic tells our San Francisco correspondent Patrick McGee about his worries that Apple and Google could extend their control over smartphone platforms to “dominate all physical commerce taking place in virtual and augmented reality”.
How hubris and Covid transformed Sri Lanka Until recently, Sri Lankans enjoyed some of the highest living standards in South Asia. But now the country has opened talks with the IMF over a $4bn bailout, and observers are waiting to see how China, one of the main creditors, will react.
Africa’s fastest-growing companies Technology, fintech and agricultural commodities are where some of the fastest-growing companies in Africa operate and investors are taking note. In its first ranking of African companies, the FT has worked with data company Statista.
US investors play for Premier League with Chelsea sale Todd Boehly’s acquisition of Chelsea is the latest sign of US investors’ interest in owning the Premier League’s top teams. Boehly is leading a £4.25bn takeover backed by Clearlake Capital, Swiss billionaire Hansjörg Wyss and Guggenheim Partners chief executive Mark Walter. For regular updates on the business of sport sign-up to our Scoreboard newsletter.
Tom Cruise is back in the cockpit as Pete Mitchell, thirty-six years after Top Gun burst on to cinema screens. “The storytelling . . . reminds you of the best version of old Hollywood, broad strokes rendered with watchmaker care,” writes the FT’s film critic Danny Leigh.
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