Eyes on the Fed

This week, the Federal Reserve will decide its next interest rate decision. The decision, which is expected to be announced on Wednesday, will almost certainly be to raise its benchmark rate. The US economy is facing its worst bout of inflation in four decades, and higher interest rates are expected to slow the economy and dampen price increases. But how much remains a question.

Many on Wall Street think the Fed is likely to raise interest rates by up to a full percentage point. If that happens, it would be the first time the Fed has hiked rates that much in a single meeting since at least the 1980s. The central bank has pledged to do whatever it takes to bring inflation down, a much like it did in the 1980s under Paul Volcker.

The explicit objective of the Fed, however, is to cool the economy without crushing it. In an op-ed published yesterday in the Wall Street Journal, Senator Elizabeth Warren of Massachusetts writes that the Fed’s interest rate hikes “will not address many of the causes of current inflation,” including soaring oil prices. energy. Other signs of economic stress that could prevent the Fed from opting for a full one percentage point hike:

• Slowing earnings: Many large companies have in recent weeks reported second quarter earnings that have slowed significantly. Earnings for S&P 500 companies are on track to grow just 4.6% on average from the same period a year ago, the lowest in a year and a half. Still, the gains have been mixed and not as bleak as previously expected – but the season is still in its early innings.

• Yield curve: The yield curve is the difference between short-term interest rates, such as what it costs to take out a loan over two years, and long-term interest rates, such as what it costs to take out a loan for 10 years. Long-term rates are almost always higher than short-term rates. But recently, this relationship has changed. Inverted yield curves are problematic. Banks don’t want to lend when they would earn more by sitting on their money. That’s why more Fed rate hikes, which typically raise short-term interest rates more than longer-term ones, can be a problem.

• Layoffs: The Silicon Valley easy money world of the past decade is fading, leading companies to lay off thousands of employees. So far this year, some 394 start-ups have laid off employees amid deteriorating prospects for start-ups, according to Layoffs.fyi, a crowdsourced site that tracks layoffs at tech start-ups.

Yet some argue that it is possible for interest rates to rise without causing an economic crash. Peter Berezin, global strategist at BCA Research, says job openings, along with strong reserves at most major banks, should protect the economy from a recession even if the Fed raises interest rates. Additionally, the expiration of pandemic-related aid should slow the excess money injected into the US economy.

“The chances of a recession in the United States are lower than commonly believed,” Berezin wrote in a note to clients on Friday. In Europe, by contrast, the likelihood is higher, he said.

HERE’S WHAT HAPPENS

Congo will allow oil and gas block auctions, a major step backwards for efforts to curb global warming. The Democratic Republic of Congo, home to one of the world’s largest ancient rainforests, is auctioning vast amounts of land in a bid to become “the new destination for oil investment”, part of a global shift as the world is retreating on the fight against climate change in a rush to fossil fuels. The oil and gas blocks, which will be auctioned by the end of the month, extend to Virunga National Park, the world’s largest gorilla sanctuary, as well as tropical peatlands that store large amounts of carbon, keeping it out of the atmosphere and contributing to global warming.

Former New York Mayor Mike Bloomberg is proposing an overhaul of the Democratic primaries. Under his plan, the battleground states would have more prominence in the primaries. “The party’s best hope for success lies in creating a primary calendar that reflects the importance of cities, diversity, open voting and swing states,” he said in an op-ed yesterday in The Hill.

China Evergrande CEO resigns after loans come under scrutiny Once China’s biggest property developer, the company has struggled to repay more than $300 billion in debt to creditors after the government forced indebted property companies to cut borrowing. The resignation of the company’s CEO, Xia Haijun, was the latest setback for the embattled developer, which is expected to announce a debt restructuring plan.

The Senate will vote today to advance a package of grants and research funding to increase chip production and US competitiveness. The sweeping bipartisan bill has gained traction as part of efforts to counter China’s technological and manufacturing dominance. Final adoption of the $280 billion package is expected tomorrow or Wednesday.

As Evidence From Jan. 6 Panel Mounts, Conservative Media Redoubles Efforts. Many prominent conservative media figures continued to spread a more sanitized account of the Jan. 6 attack on the Capitol, portraying Capitol police as bad guys and alleging a government plot to criminalize dissent. Politics.

Streamers start battle for sports rights

Apple, Amazon and Google (via YouTube) compete to pay billions for streaming rights the NFL Sunday Night Game live on their streaming services. The weekly game’s current broadcaster, DirectTV, would lose around $500 million a year broadcasting the game and decided not to try to renew its contract with the league. Yet tech giants, eager to force their streaming businesses into the live sports market, can pay up to $2.5 billion a year for broadcast rights.

Tech giants see live sports as ripe for disruption, report Tripp Mickle, Kevin Draper and Benjamin Mullin of The Times. Their interest is a thrill to sports leagues, but it’s also terror to media companies that have traditionally broadcast live events. “It’s tough when you’re competing against entities that don’t follow the same financial rules,” said Bob Iger, the former chief executive and chairman of the Walt Disney Company, which controls ESPN, referring to the funds. technology companies.

Apple is considered the favorite. The iPhone maker has made winning the package a priority, although Amazon, ESPN+ and YouTube also appear to still be in contention. Apple chief executive Tim Cook has met with influential league officials and team owners like Jerry Jones of the Dallas Cowboys and the Kraft family of the New England Patriots, according to three people familiar with the process. Apple declined to comment.

Apple and Amazon are trying to position themselves for a cable-free future. Since 2015, traditional pay-TV has lost a quarter of its subscribers — about 25 million households — as people swapped cable packages for apps like Netflix and Hulu, according to MoffettNathanson, an investment firm that tracks the industry.

But the price of live sports rights is only expected to rise. The biggest media companies, including Disney, Comcast, Paramount and Fox, are expected to spend a total of $24.2 billion on rights in 2024, according to MoffettNathanson data, nearly double what they spent a year. decade earlier.

And the interest in live sports is a departure for the streaming industry. For years, many executives agreed with Reed Hastings, Netflix’s chief executive, who said his company wasn’t interested in sports or current affairs because it was only watched once. once – live – and was never watched again. But many streaming companies are reconsidering as competition for subscribers intensifies, stock prices have fallen and profitability for many remains out of reach. “It comes down to an ego thing in Silicon Valley,” Daniel Cohen, who leads global media rights counsel for sports agency Octagon, told The Times of the big-ticket NFL deal. . “I don’t see a path to profitability. I see a path to victory.

“It’s total bs. Sergey and I are friends and were at a party together last night! I’ve only seen Nicole twice in three years, both times with lots of other people around. Nothing romantic.

— Elon Musk, in a tweet responding to a Wall Street Journal report that he had an affair with the wife of his longtime friend and Google co-founder Sergey Brin. The allegation comes as Musk faces a number of business challenges, including a legal battle with Twitter.

Selling shares of your future self

Two entrepreneurs, brothers Daniil and David Liberman, are testing a new concept: Selling stakes in their financial future, writes Nathan Heller of The New Yorker. Their entity, Libermans Co., owns all the income from their businesses, as well as any debts, assets and profits they might earn, and any investments they might make or start over the next three decades.

Heller writes that the Libermans have so far traded around 3% of their futures contracts, which investors have valued at $400 million. The brothers are in talks with the SEC about going public and think they can use the idea as a way to tackle economic inequality. The first investor to buy shares was Sam Lessin, a venture capitalist at Slow Ventures, who had previously tried to interest investors in the idea of ​​”venture capital for people”, according to the article in the New Yorker.

“Young people are now creating personal brands online and trading cryptocurrencies, NFTs and other unregulated direct market products to try to make money,” Heller writes. “The Libermans and their idea of ​​helping others get ahead by selling futures in the market are the avatars of the desperate reach of this era.”