Fed skips an interest rate increase

This is an audio transcript of the FT News Briefing podcast episode: ‘Fed skips an interest rate increase’

Sonja Hutson
Good morning from the Financial Times. Today is Thursday, June 15th, and this is your FT News Briefing.

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The Federal Reserve hit the pause button yesterday, and Boris Johnson was found to have committed multiple contempts of parliament. Plus, Vladimir Putin doesn’t want to conscript more people to fight in Ukraine. So Russian companies are recruiting workers.

Polina Ivanova
There were bonuses offered. You were allowed to keep your job and retain a salary, but actually earn more money and at the same time get a holiday when you come back.

Sonja Hutson
I’m Sonja Hutson, in for Marc Filippino. And here’s the news you need to start your day.

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The Federal Reserve is taking a timeout. After 10 consecutive interest rate rises, the Federal Reserve yesterday decided to hold its benchmark interest rate steady. So, no rise. But Fed chair Jay Powell said there could be more rate rises later this year. That would likely come in the form of two quarter-point increases. Here’s our US economics editor Colby Smith.

Colby Smith
So Powell is quite clear that things are kind of moving in the right direction. But progress has been quite disappointing, at least on the inflation front. And that’s why, you know, he was so explicit that the Fed isn’t done here. I think if they were leaning very heavily in the direction of they’ve done enough, and this pause is actually the end of the hiking cycle, there would’ve been a much more positive assessment about where things are in terms of inflation and growth. But instead in the economic projections that were also released yesterday, we saw most officials revising higher their expectations for core inflation for this year, revising lower their unemployment rate and revising higher as well their growth forecasts. So it just speaks to a stronger economy, which is why I think officials are, you know, signalling the possibility of further tightening to come.

Sonja Hutson
And Powell talked about why the Fed is pausing rate hikes now, even if they might start them again later this year.

Colby Smith
So essentially, the Fed has done a lot in a short amount of time in terms of tightening monetary policy. In March of last year, interest rates were around zero and now they’re well above 5 per cent. So that’s a hefty dose of tightening. And secondly, there’s a lot of uncertainty about how long those changes take effect and start to really show up in the economic data. And the third variable is the banking sector stress. So we saw several lenders fail in March. We’ve seen lending conditions tighten to a certain extent as banks have pulled back. We know that’s gonna have some kind of negative drag on growth. We just don’t know, you know, how severe that’s really gonna be. And it’s gonna take time again for that to become obvious. So that’s really where the Fed is coming from in terms of justifying this pause. You know, it’s worth noting that in past tightening cycles, you know, they’ve taken in every other meeting approach or, you know, not hiked at every single gathering, which is what they’ve done for the last 10.

Sonja Hutson
Colby Smith is the FT’s US economics editor.

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A report out today is expected to find that former UK prime minister Boris Johnson committed multiple contempts of parliament. A House of Commons committee will issue the report after a 14-month investigation. It focused on Johnson’s conduct as prime minister during the partygate scandal. The report says Johnson misled lawmakers about parties held at Downing Street during coronavirus lockdowns. Johnson said in a statement that he’s not guilty of any contempt of parliament and last week he announced he is resigning from parliament immediately because of the investigation, calling it a political hit job.

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Russia’s energy giant Gazprom is recruiting and equipping employees to fight in Ukraine. Our Russia correspondent Polina Ivanova uncovered this story. She joins me now to talk more about these corporate militias. Hi, Polina.

Polina Ivanova
Hi.

Sonja Hutson
So, Polina, how did you hear about what Gazprom was doing?

Polina Ivanova
The first time that any of this was mentioned was in a more than 20-minute-long rant by Yevgeny Prigozhin, the head of the Wagner mercenary group that’s fighting in Ukraine. And in one of his video rants a couple of months ago, he mentioned in passing that there was this plethora of new small battalions on the front line, and he mentioned three as belonging to Gazprom and said they were called Torch, Stream and Flame. So we thought we would check it out.

Sonja Hutson
So these battalions — Torch, Stream and Flame — you did some digging and found out some fascinating details about one Gazprom recruit in particular who belonged to one of these battalions. Can you talk about him a little bit?

Polina Ivanova
So the way we went about reporting the story, the way I went about reporting this story was initially to look at whether anyone had been reported killed in action and tied to one of these battalions. And a name came up. And this was a memorial post for a man called Erast Yakovenko from southern Russia, from Kabardino-Balkaria. And it said that he had died in battle as a member of the Potok or Stream battalion fighting for Gazprom. So Erast Yakovenko signed up in January to fight. He was then killed as a member of this battalion near Bakhmut in eastern Ukraine in April. And we know from conversations with his relatives and also from an election filing, a document that exists online, that he was a Gazprom security guard. And relatives said that he signed up at work because this let him both go and do his duty on the front line, but at the same time, not lose his place of work, so remain a Gazprom security guard to retain his pay cheque and so on.

Sonja Hutson
What did you find out about how Gazprom recruits workers?

Polina Ivanova
From what current and former security guards said, there was a campaign specifically to get people to sign up. There were bonuses offered, you were allowed to keep your job and retain a salary, but actually earn more money and at the same time get a holiday when you come back. The thing that these battalions offer is you get to choose where you go, who is equipping you. Do you want to be equipped by Gazprom if you’re going to serve in the front line? Or do you want to end up in the armed forces and receive kind of the equipment that the armed forces is going to provide to you, which is notoriously bad?

Sonja Hutson
Do you know if the Kremlin asked Gazprom to do this or did Gazprom do this on its own?

Polina Ivanova
We spoke to a former senior official and a few others on this topic. And what we understand is that there was an instruction coming from up top, telling big companies to participate in the recruitment. What we know is that Russia doesn’t want to launch another mass conscription drive for the front line. The last time it did this, it was really destabilising internally and it caused lots of people, hundreds of thousands of people, to flee across the border. You remember those pictures of people queueing for days to cross into Kazakhstan or Georgia. So the Kremlin has no desire to repeat this. Instead, what it’s trying to do is recruit men for the front line in other means, using other means.

Sonja Hutson
Is Gazprom the only Russian company that’s doing this, or are there other ones doing it as well?

Polina Ivanova
There have been reports of similar practices elsewhere. What we do know is that there is this proliferation of battalions on the front line, small voluntary groups tied to different entities, tied to big, small companies or oligarchs, different individuals. Their interest at the moment appears to be both to show their loyalty to the Kremlin, but at the same time, to also kind of be able to control who of their employees are ending up on the front line. It’s also a political moment. We’re seeing this fracturing into these different battalions. There are people jockeying for influence as the war effort stutters. These different groups are also aware of their need to potentially maintain influence going forward. Maybe having a armed unit fighting on the front line is something that gives them leverage or influence or stability of their position going forward into an unstable era.

Sonja Hutson
Polina Ivanova covers Russia for the FT. Thanks, Polina.

Polina Ivanova
Thank you.

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Sonja Hutson
Before we go, Sweden is struggling with inflation like everyone else, but economists there say it got worse because of one musician. OK, not just any musician. It got worse because of Beyoncé. The international megastar kicked off her world tour in Stockholm last month. Tens of thousands of fans flocked there, so local hotel prices jumped and that drove up the inflation rate. Basically, people are crazy in love with Beyoncé and will spend lots of bills, bills, bills to see her perform. But to Swedes, we say: don’t let that break your soul. Economists expect the Beyoncé effect to fade.

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Sonja Hutson
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.

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