US hits highest interest rates in 22 years

This is an audio transcript of the FT News Briefing podcast episode: ‘US hits highest interest rates in 22 years’

Marc Filippino
Good morning from the Financial Times. Today is Thursday, July 27th, and this is your FT News Briefing.

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The Federal Reserve raised interest rates again yesterday, and Meta released an optimistic earnings report. Plus, China’s foreign minister has gone missing. He’s not the first official in Beijing to disappear. I’m Marc Filippino, and here’s the news you need to start your day. 

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The Federal Reserve is back at it. It took a pause on interest rate rises last month but yesterday approved a quarter of a percentage point increase. Rates are now at their highest level in 22 years. Here to talk more about this is the FT’s US economics editor Colby Smith. Hi, Colby.

Colby Smith
Hi, Marc.

Marc Filippino
So Colby, the Fed raised interest rates even though the latest consumer price index report put inflation at just 3 per cent. Here’s what chair Jay Powell had to say about that at the Fed press conference yesterday.

Jay Powell
And the June CPI report actually came in a bit better than expectations for a change. In the June CPI report, of course, was welcome, but it’s only one report, one month’s data. We hope that inflation will follow a lower path as it will be consistent with the CPI reading. But we don’t know that, and we’re just going to need to see more data.

Marc Filippino
So, Colby, unpack that for us. What does he mean here?

Colby Smith
Sure. I mean, ultimately the message here from the Fed is that we’ve seen some progress in inflation, which of course, is encouraging, and that’s exactly what the central bank wants to see. But it’s not yet enough to declare victory here in the fight against inflation. And that means that the prospects of additional tightening beyond this point is very much a possibility.

Marc Filippino
So, Colby, did Powell give any indication about if there are going to be more interest rate increases coming?

Colby Smith
So in the June forecasts, what we heard from officials is that most thought that two more quarter-point interest rate increases would be necessary this year. Obviously, we got one yesterday and now the big question is: is one more on the horizon? Now, Powell made clear that that’s very much a possibility. He also was incredibly, almost frustratingly, so non-committal about the timing of a potential interest rate increase. Overall, he kept the door open but was really not kind of specific about which way the committee is leaning. And I think that just speaks to the fact that they have a data-dependent approach, which means that every meeting they’re taking stock of what they’ve seen in the preceding six weeks and deciding then and there.

Marc Filippino
So I think what’s interesting here is that the Fed was really a lot more detailed during the June meeting about its plans, and then it seemed a lot more vague yesterday. How come?

Colby Smith
So I think that just actually reflects more of the schedule of the remaining Fed meetings for the year. At the June meeting, it was easier to, you know, make a pronouncement about the July meeting because there was just less time between those two meetings. Now we get two more rounds of monthly data. So that’s two fresh reads on inflation, two fresh reads on jobs, consumer spending, housing and whatnot before the Fed has to decide. And so, you know, it kind of makes sense why Powell is being non-committal at this phase. There’s no reason to kind of tie the Fed’s hands in any way, shape or form to either taking action or deciding not to.

Marc Filippino
Right. Because there’s going to be no Fed meeting in August. The next one is in September. Colby, investors think the Fed might be done raising rates. Considering how non-committal Powell was yesterday, why would they think that?

Colby Smith
So it really has to do with the kind of trajectory of the coming inflation reports. They just don’t see an impetus for the data to provoke the Fed to be concerned that the data isn’t moving in the direction that they want to see. If you speak to economists, they say that, you know, the next couple of inflation reports are supposed to be pretty good and show a pretty significant slowdown in core inflation in particular. And that’s exactly what the Fed wants to see. And if the Fed is being data-dependent, then I think it begs the question: “Well, why do you need to do anything further if you’re seeing exactly the deceleration that you wanted to see?” So that’s going to be the framing, I think, of the next couple of months of data in the context of further interest rate increases.

Marc Filippino
Colby Smith is the FT’s US economics editor. Thanks, Colby.

Colby Smith
Thank you.

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Marc Filippino
Facebook parent company Meta reported second-quarter earnings yesterday, and they seemed to suggest that the slump in digital advertising is getting better. Meta’s revenue growth is now back in the double digits for the first time in a year and a half. And it forecast better than expected gains for the current quarter. That sent the company’s shares up as much as 8 per cent in after-hours trading yesterday.

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US prosecutors charged British billionaire Joe Lewis with 19 counts related to insider trading. Lewis is a real estate investor and his family owns the Premier League team Tottenham Hotspur. He’s also one of Britain’s richest men. Prosecutors said he tipped off employees, friends and romantic interests with information about companies he’d invested in. Lewis is also accused of lending some of them hundreds of thousands of dollars to make trades based on his tips. Lewis’s attorney called the charges ill-conceived and said Lewis is a, “man of impeccable integrity”. Lewis pleaded not guilty on Wednesday and was released on bail. 

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China’s foreign minister Qin Gang vanished a month ago and was only replaced this week.

Joe Leahy
This is, you know, the person who is China’s face to the world.

Marc Filippino
That’s the FT’s Beijing bureau chief Joe Leahy.

Joe Leahy
And for him to disappear without explanation for a month, most China watchers believe that’s almost unprecedented. We haven’t seen that, you know, probably since the Mao era.

Marc Filippino
Qin Gang became known as one of the hard-talking diplomats dubbed “wolf warriors”. But his approach had become more moderate recently. He spent more than five hours with Antony Blinken during the US secretary of state’s visit to China last month. Then he just vanished. No one knows why.

Joe Leahy
So the rumour mill in Beijing is always really wild, and it covers every possible aspect that you could imagine of what could have happened to him, from very severe health to some sort of moral issue to corruption investigations, which are very common in China. We really don’t know. The authorities said last month that he was out for health reasons, but since then, a lot of the different signs point to someone who’s in deep trouble. For instance, there wasn’t much censorship of the rumours about him on the internet. And someone who’s very powerful and has a lot of allies usually can control those kind of rumours. So that was unusual.

Marc Filippino
Chinese officials often disappear and then reappear later, maybe when they’re facing corruption charges or some kind of state sanction. But Qin Gang was a top diplomat, so this is a bad look for China while it tries to improve relations with western trading partners.

Joe Leahy
Qin Gang is basically the captain’s choice of Xi Jinping, if you like. So he’s nominated into the team. So for someone to sort of only be there for a few months and then just be suddenly removed like this, it does point to some kind of error and that’s going to reflect badly on someone. And at the moment, because we don’t know anything, it just seems like perhaps Xi Jinping made a mistake.

Marc Filippino
Joe Leahy is the FT’s Beijing bureau chief.

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Before we go, it looks like Gap wants a slice of this summer’s Barbie mania. The clothing company has poached Mattel’s chief operating officer Richard Dickson to be its new CEO. Mattel is the toy company behind both the doll and the blockbuster movie that hit theatres last week. Gap has been struggling with excess inventory and dwindling consumer demand. The retailer said that Dickson was the lead architect in turning around Mattel’s brand. And they’re hoping that some of that Barbie magic will rub off on them, too.

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You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news. 

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