Fed hints at less aggressive rate increase

This is an audio transcript of the FT News Briefing podcast episode: Fed hints at less aggressive rate increase

Marc Filippino
Good morning for the Financial Times. Today is Thursday, December 1st and this is your FT News Briefing.

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The Federal Reserve chair hinted at an easing up on interest rate rises. French President Emmanuel Macron is talking energy with Joe Biden, and another cryptocurrency company bit the dust this week. I’m Marc Filippino, and here’s the news you need to start your day.

Federal Reserve Chair Jay Powell gave a hawkish speech at a Washington think-tank yesterday, and he said the US central bank has a long way to go in its fight against inflation. But he also said this . . . 

Jay Powell
The time for moderating the pace of rate increases may come as soon as the December meeting.

Marc Filippino
Translation? The Fed may not raise rates as aggressively. The last four meetings have resulted in rate increases of three quarters of a percentage point. Yesterday’s remarks from the Fed chair suggest the next rate increase may just be half a percentage point. Stock markets rallied after Powell speech with the S&P 500 ending up more than 3 per cent higher.

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The latest inflation data for the eurozone was a bit brighter. It showed that the breakneck pace of price increases finally slowed for the first time in nearly a year and a half. Here’s the FT’s Martin Arnold.

Martin Arnold
We’re still in double digit territory, and that’s pretty painful for a lot of people, especially people who are on low incomes and when wages in the eurozone are rising at only about 4 per cent a year. So there’s still a lot of pain coming from inflation, but it’s just not as painful as it was the previous month.

Marc Filippino
Martin says the big reason inflation is slowing is falling energy prices.

Martin Arnold
Which reflects what’s happening in wholesale energy markets in gas markets and power markets in Europe, where prices have come down pretty dramatically since August, September, when they peaked on fears that there could be rationing of gas and rationing of electricity and potential power, power cuts enforced because of the shortages of gas that people were predicting. Those, those fears have receded and therefore the prices have come down. And that’s, it does show some good news. But obviously there’s still a long way to go before inflation comes down to the European Central Bank’s target, which is 2 per cent.

Marc Filippino
But the other thing to consider is that if you take out energy, core inflation in the eurozone remains unchanged.

Martin Arnold
Well, core inflation that’s the measure that a lot of economists and central bankers look very closely at because it excludes energy, it excludes food, some of these volatile elements. So it tends to move more slowly. And that was, stayed stable at 5 per cent in the euro area in November. So that’s not great news. But equally, people think that it should start to come down next year because within that there’s a lot of services and goods prices that, that have gone up because there’s an element of energy in their production or in the costs that those companies have in providing those services and goods. So core inflation is really key. It hasn’t started to fall yet, but people do expect it to slowly fall through the course of next year. And that should take some of the pressure off the central banks in terms of their tightening of monetary policy.

Marc Filippino
That’s the FT’s Frankfurt bureau chief Martin Arnold.

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French President Emmanuel Macron is in Washington, DC today meeting with Joe Biden. He’s expected to tell the US president just how much the war in Ukraine is affecting Europe’s economy. Here’s our Paris bureau chief Leila Abboud.

Leila Abboud
You know, the energy crisis is hitting hard in Europe, and the US is a big energy, natural gas exporter to Europe right now as Europe tries to compensate for the loss of Russian gas. And Macron oftentimes says, criticises the US sort of for supposedly profiting over that and selling the gas at too high of a price. The Americans don’t agree with that. Obviously, they don’t. They think that it’s a free market and, you know, they don’t, they reject that criticism. There’s another issue brewing, which is the Inflation Reduction Act that the Biden administration has passed. It’s this huge climate package, has lots of subsidies in there to kind of encourage the green transition, and European countries are really worried about the impact that that’s going to have on them because they, they criticise it as a protectionist sort of set of subsidies and tax cuts that could turn into a full blown trade war.

Marc Filippino
Leila Abboud is the FT’s Paris bureau chief.

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This week, cryptocurrency lender BlockFi filed for bankruptcy. The group had at least 100,000 creditors and liabilities of up to $10bn. BlockFi’s death was a slow one, sped up by the big collapse last month of cryptocurrency exchange FTX. The FT’s Joshua Oliver joins me now to talk more about the latest crypto development. Hi, Josh.

Joshua Oliver
Hi.

Marc Filippino
So it sounds like BlockFi’s bankruptcy is part of the FTX fallout. What do you make of it?

Joshua Oliver
This was expected and has been kind of a slow death for the company. I’m actually going back all the way to June. But the kind of final thing that clinched the demise of BlockFi is that they had secured a kind of bailout loan from FTX back in the spring and then when FTX themselves went bankrupt earlier this month it became clear that BlockFi was going to be in serious trouble, and it took a little while for that all to play out. But what you’re seeing there is the dominoes falling, as many people predicted. You know, FTX was such a big and interconnected player in the crypto market that it’s not just the case of that one company going bankrupt. There were bound to be knock on effects, and now you’ve seen a really significant one with a company that was, you know, at a one point worth $4bn, you know, backed by the venture firm run by Peter Thiel and now no more.

Marc Filippino
So speaking of FTX, what’s happening with that bankruptcy process?

Joshua Oliver
Yes, so after considerable delay, they had the first set of hearings in the Chapter 11 bankruptcy in the United States. It took a very unusually long time for even the kind of basic preliminaries of the bankruptcy to take place in this case because the team that’s now running FTX in bankruptcy said the state inside the company was just so chaotic, and they were running a very complicated business with more than 100 different corporate entities. You know, there are very few records of who owned what assets, where different assets resided. And so what the new bankruptcy team is saying is, you know, this is just massively confusing. You know, that when they were even looking for bank accounts, they’re locating hundreds of bank accounts in countries around the world. And they initially came out with an estimate of how much, you know, cash there was, which was around 400mn. That in a few days later, they came back and said, oh, no, actually, it’s you know, it’s 1.2bn. And that gives you an indication of the kind of challenge they’re facing.

Marc Filippino
And what are you looking out for now, Josh, in terms of the cryptocurrency world?

Joshua Oliver
I think two big things. You know, we are watching for distress at other crypto companies. Another name that’s in the frame is Genesis who have said, you know, they’re working with their creditors to try to avoid a bankruptcy. And then all of the other crypto exchanges are also under quite a lot of scrutiny and pressure. And then the other thing obviously to be watching is regulators and lawmakers really are ramping this up now. You know, you’ve got two Senate committees who are actively looking at FTX at least. You’ve got hearings in the European parliament. You had, you know, a scorching statement from the European Central Bank about, you know, their very scathing views of crypto. So, you know, I think for regulators and lawmakers who were sceptical all along, they’ve now seen FTX as the definitive proof that their scepticism was right and that it’s time to jump in and, you know, clamp down on this market.

Marc Filippino
Josh Oliver is the FT’s asset management reporter. Thanks, Josh.

Joshua Oliver
Thank you.

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Marc Filippino
Before we go, economic and cryptocurrency blues have not dampened the mood amongst international art investors. At Art Basel Miami Beach, which highlights contemporary art, there were plenty of seven-figure sales at Tuesday’s opening. One gallery owner reported $18mn in sales by midday.

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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 next week for the latest business news.