Fed signals more economic pain to come

This is an audio transcript of the FT News Briefing podcast episode: Fed signals more economic pain to come

Marc Filippino
Good morning from the Financial Times. Today is Thursday, September 22nd. And this is your FT News Briefing.

[MUSIC PLAYING]

The Federal Reserve raised rates again and chair Powell made it clear the Fed won’t ease up. The FT’s got a scoop on a potential big shake-up at Credit Suisse. Plus, we’ll find out what companies do these days when they’re hit by a ransomware attack. I’m Marc Filippino, and here’s the news you need to start your day.

[MUSIC PLAYING]

Marc Filippino
The Federal Reserve raised interest rates by 75 basis points on Wednesday, and chair Powell made it clear the Fed will remain tough on inflation, even if it means economic pain. He did not rule out a recession.

Jay Powell
The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive, or restrictive for longer.

Marc Filippino
This means keeping rates higher for longer. New projections show the benchmark federal funds rate rising to 4.4 per cent by the end of this year. Here’s the FT’s Colby Smith.

Colby Smith
The Fed’s message is clear cut. They’re not backing away from the fight against inflation any time soon. And they’re not pausing the tightening cycle any time soon. And they’re definitely not cutting interest rates anytime soon.

Marc Filippino
OK. So, Colby, I’m very interested about what happened in the markets yesterday because as soon as the announcement came out that the Fed was going to raise interest rates again, markets fell off a cliff. But then, as Jay Powell was talking, they slowly ticked up and they kept ticking up until the end of his press conference when they again fell off a cliff. What was going on?

Colby Smith
It’s hard to know, you know, what drives any of these market gyrations. But there was a lot to take in in this meeting. On the, on the one hand, you had this extremely hawkish message from the Fed.

Jay Powell
We will keep at it until we’re confident the job is done.

Colby Smith
But on the flip side, you also had chair Powell talking about the fact that at some point it’s gonna be necessary to slow the pace of interest rate increases. So markets could have picked up on any of those themes, but I think it’s notable that they ended the day far lower, as that’s the kind of reaction, I think, that Fed officials were hoping to see.

Marc Filippino
So Powell also mentioned the housing market may have to go through a correction. What did he mean by that?

Colby Smith
So, I think over the recent years, we’ve seen this pretty remarkable run-up in home prices. And what we’ve seen, as the Fed has raised interest rates, which in turn has influenced the cost of mortgages and other instruments to borrow against housing, we’ve seen some of that demand come off its peaks. And what Powell was alluding to was the fact that this is just one of the sectors that’s going to have to cool down further in order for the Fed to see the necessary moderation in inflation that it’s looking to achieve.

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

[MUSIC PLAYING]

The FT has learned that Credit Suisse is considering a plan to break up its investment bank into three parts, among other structural changes. The Swiss lender is trying to get past years of scandals, and this plan would be a shift away from risky investment banking to focus more on wealth management. Here’s the FT’s European banking correspondent, Owen Walker.

Owen Walker
Credit Suisse has been a huge player in investment banking on the world stage for at least 40 years. So to really pull back from that on such a huge scale — when you’re selling parts of the business off, you’re laying workers off, you’re closing down bits of the business — you know, that’s a very dramatic step. To really focus the business on wealth management and to say that’s your strong suit. You’re changing the characteristics and the way that the bank is viewed internationally. So, you know, it’s probably the biggest shake-up of the bank in four decades.

Marc Filippino
And there are a couple of reasons for that?

Owen Walker
You know, it’s a combination of new chairman who’s only been in the post six months, new CEO who’s been in the post two months, the share price being below 5 Swiss francs, which is a record low of at least three decades. So shareholders are desperate for answers. They would find it very expensive to raise money from the debt markets. This is just a combination of everything coming on top of them. It’s what UBS did a decade ago, and they’re kind of reaping the rewards from that. And this is, you know, probably something that Credit Suisse should have been doing in much, you know, sunnier times.

Marc Filippino
That’s the FT’s European banking correspondent, Owen Walker.

[MUSIC PLAYING]

So the other day I got to be the CEO of a technology company, and suddenly this message popped up on my laptop.

Audio clip
[Notification sound] We’ve been expecting you. We know your annual revenue is $100mn, and we demand a ransom of $1.7mn. To protect your company, you must pay. Do you understand?

Marc Filippino
This was a ransomware attack. That’s when cyber criminals hack into your organisation, freeze or steal your data, and then demand money to get it back or else they release it to the public. Ransomware attacks have tripled in the past three years. Fortunately I was just a victim in a game on FT.com. The goal is to negotiate your way out of this kind of attack. The game is based on reporting by the FT’s Hannah Murphy. She joins me now to talk more about it. Hi, Hannah.

Hannah Murphy
Hi there. Hi.

Marc Filippino
Hannah, break it down for me. What is the first thing that happens when a CEO or the head of an organisation experiences a ransomware attack? Where do they go?

Hannah Murphy
CEOs have a number of options. They can take things into their own hands, but many will go to what’s known as an incident response cyber security firm that helps in these critical moments. And also, there are what’s known as ransomware negotiators, these sort of middlemen that will help guide you through taking a ransom payment demand and trying to haggle that down to the least possible amount that it can be.

Marc Filippino
OK. So what do negotiators do in this kind of situation? What kind of strategies do they have?

Hannah Murphy
Speaking to negotiators themselves, many say that sort of a delay, delay, delay tactic is the best. Firstly, because that allows you time to work out who your opponent is, learn exactly what they want, learn exactly what data they have, how deep into your systems they are. That also will buy you time to get your systems potentially back up and running again and assess the damage on your own side. I’ve even heard negotiators talk about delaying and delaying and delaying to the point that the criminal just sort of gives up. The suggestion being that ransomware criminals themselves are part of very highly organised gangs that are sort of sophisticated in a way that a business corporation is. And these criminals may have targets that they’re supposed to hit. And it’s quite embarrassing for them to go up to their boss and say, sorry, I only managed to negotiate a huge discount with this target. And it might be easier for them to say, Oh, the target just wouldn’t pay up. And so let’s leave it be.

Marc Filippino
That’s kind of amazing that criminal hackers have quotas just like the rest of us. It’s also pretty amazing how sophisticated these ransomware groups have become.

Hannah Murphy
Yes, there’s been some leaks from inside of these organisations that show exactly how, you know, they have a sort of corporate org chart and different people playing different roles. So someone will handle the money laundering once the ransom payment has come in in crypto, who’ll try to sort of clean that. Another person will be responsible for sort of deploying the hack and getting into the systems and finding vulnerabilities in company’s systems. And another may be the person who sits on the other side speaking to the ransomware negotiator and trying to use as much leverage and pressure to get them to pay as possible.

Marc Filippino
So, Hannah, as you report, there are just so many more ransomware attacks. They’ve tripled in the past three years. And a big reason for that is the shift to remote work that left a lot of computer systems vulnerable. But does it mean that there are more of these criminals out there with the super sophisticated technological knowhow?

Hannah Murphy
It used to be that if you were a ransomware attacker, you would have to have incredible technical knowledge, you’d have to maintain that very sophisticated code and be able to go out and find vulnerabilities in companies and deploy that. Today, there’s almost been a bit of a democratisation of this criminal enterprise on the dark web, whereby it developed what’s known as ransomware as a service. So I may have no technical knowledge, but I can go buy a stream of ransomware and pay for a list of potential targets and then pay someone else to go and sort of put it all together and try to manufacture a hack for me.

Marc Filippino
Hannah Murphy is a tech correspondent for the FT. Thanks, Hannah.

Hannah Murphy
Thank you so much for having me.

Marc Filippino
And if you wanna play the ransomware game I mentioned earlier, we’ve got a link to that in the show notes. Just so you know, I was able to negotiate my ransom down to 1.2mn from 1.7mn. Not to brag, but let me know if you can beat that.

[MUSIC PLAYING]

Before we go, a quick reminder that News Briefing listeners can get half off an annual subscription to FT.com. For $187 a year or 40 bucks a month, you can read all about the Fed or try to beat my high score on the ransomware game or enjoy Alphaville. Do whatever you want. Just go to FT.com/briefingsale. That’s FT.com/briefingsale. And as always, we’ll have a link to that in the show notes.

[MUSIC PLAYING]

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

[MUSIC PLAYING]

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.