Good morning. We dive into Jay Powell’s congressional testimony for clues about the Fed chair’s thinking on rate cuts. Also: Why efforts to push President Biden to withdraw are fading, the latest Big Tech investments in green energy and tougher efforts to force workers back to the office. (Was this newsletter forwarded to you? Sign up here.)
Powell’s balancing actThe S&P 500 is on a six-day winning streak and closed at another record yesterday, as investors grow more confident that the Fed could cut interest rates soon. The market rally came after Jay Powell, the Fed chair, made encouraging comments about inflation and the labor market in his first of two days of testimony on Capitol Hill. The Fed is in a delicate situation. Lowering rates prematurely could risk reigniting inflation, and doing so too slowly could undermine growth. “We’re very much balancing those two risks, and that’s really the essence of what we’re thinking about these days,” Powell told the Senate Banking Committee yesterday. Investors are focusing on the upside. In something of a rarity in recent months, financial services stocks led the way yesterday. That was after Powell said that regulators were “very close” to agreeing on a revamped proposal on how much capital big banks would be required to hold — a potentially big victory for Wall Street. Here are the key takeaways from yesterday’s hearing:
Powell will testify again today, this time before the House Financial Services Committee. Expect more questions about the proposed banking rules, the economy and the Fed’s timing on rate cuts. Yesterday, he deflected questions on market speculation that the first cut could come in September, saying that Fed policymakers were looking for “more good data” that inflation is edging closer to its 2 percent target before it begins lowering borrowing costs. That makes tomorrow’s Consumer Price Index report a key data point to watch.
Microsoft gives up its OpenAI board role. The tech giant will no longer be a nonvoting observer, saying that it was satisfied with the evolution of the artificial intelligence company’s corporate governance. (Apple, which was also offered an observer seat, won’t take one, according to The Financial Times.) The moves raise questions about whether those decisions were driven by antitrust scrutiny of Big Tech’s ties to A.I. start-ups. The F.T.C. sharply criticizes drug industry middlemen. The agency found that pharmaceutical benefit managers — companies like CVS’s Caremark and Cigna’s Express Scripts that negotiate drug prices on behalf of employers and government health plans — “may be profiting by inflating drug costs and squeezing Main Street pharmacies.” The industry fears the F.T.C.’s report could lead to a formal investigation into or greater limits on its practices. Unionized Samsung Electronics workers go on an indefinite strike. The union representing a quarter of the tech giant’s work force escalated its dispute with the company as it fights for higher wages and more vacation days. Samsung, a chips behemoth, said it was minimizing disruption to production. Tesla’s share of the U.S. electric vehicle market falls below 50 percent for the first time. New estimates by Cox Automotive showed that Elon Musk’s carmaker commanded 49.7 percent of the sector in the second quarter, down from 59.3 percent a year ago. The data reflects growing competition in E.V.s as well as Tesla’s struggles with an aging lineup. The Biden rebellion loses steamDays of panic among donors and Democratic officials increasingly seem for naught, as President Biden’s defiant refusal to bow out of the election appears to be largely silencing his critics. At least in public, lawmakers are falling in line, and Biden has turned his deep-pocketed backers into useful political foils. A few more Democrats have expressed their doubts about Biden. Representative Mikie Sherrill of New Jersey called on the president to withdraw, saying that “the stakes are too high — and the threat is too real — to stay silent.” And Michael Bennet of Colorado became the first Senate Democrat to publicly raise concerns that Biden staying in the race would all but guarantee a victory for Donald Trump. (Two other senators, Jon Tester of Montana and Sherrod Brown of Ohio, made similar comments at a private meeting with colleagues yesterday, The Times and others reported.) Biden is still fighting to shore up support, including by speaking with nearly 200 Democratic mayors and forcefully delivering a mostly error-free speech at the NATO summit. Helping him is Jen O’Malley Dillon, his campaign chair and a key link to donors and political allies, who has strongly supported Biden staying in the race. And Vice President Kamala Harris is presenting a unified front with Biden, despite growing calls for her to replace him on the ticket. (That hasn’t stopped people from speculating who could serve as her running mate. Leading candidates include three white male governors, Roy Cooper of North Carolina, Andy Beshear of Kentucky and Josh Shapiro of Pennsylvania.) But Democrats appear increasingly resigned to Biden staying in the race. Despite several lawmakers arguing behind closed doors that the president was becoming a liability, they are mostly biting their tongue in public. Democratic leaders are also sticking with Biden — “As I’ve said before, I’m with Joe,” Senator Chuck Schumer, the majority leader, said yesterday — as are many Black lawmakers, a crucial political bloc that helped him win the nomination in 2020. Part of Democrats’ emerging calculus is that Biden won’t go anywhere, and further arguments to push him aside would only hurt his re-election chances. Time is running out to force a change. Donors and others will look for any serious stumbles at Biden’s solo NATO news conference tomorrow that could renew calls for him to step aside. Big Tech’s green energy pushClimate hawks have warned about the planetary effect of Big Tech’s embrace of artificial intelligence, a technology that consumes vast amounts of water and electricity. Despite that, tech giants like Amazon, Microsoft and Google are sticking with their net-zero goals even as the realities of A.I.’s energy-hogging needs become clearer: The International Energy Agency projects that, by 2026, data center power needs could be “equivalent to the electricity consumption of Japan.” Big Tech’s game plan is to invest heavily in A.I. and clean energy — and carbon credits. Amazon may have proved some of its naysayers wrong. The e-commerce behemoth announced this morning that it hit an important climate goal seven years early: that virtually all of the electricity used in its operations last year produced zero carbon emissions. Amazon says it’s done so by relying heavily on wind and solar, which produced enough energy to offset the amount consumed by its offices, fulfillment centers grocery stores and data centers. Some critics wonder if the calculations inflate the potential environmental benefits of Amazon’s efforts. Others are demanding more transparency. “A company needs to actually outline, what are the sources that you are accounting for in that calculation?” Simon Fischweicher, director of supply chain and reporter services at CDP, a nonprofit group that measures climate disclosures for investors and others, told The Times. Green investments have been on the rise. In March, Amazon paid $650 million for a Pennsylvania data center located next to one of the biggest U.S. nuclear power plants. And Google agreed last month for a Berkshire Hathaway-controlled utility in Nevada to power its data centers with geothermal power. “There are huge parts of the city that have been left in the dark.”— Kevin de León, a Los Angeles City Council member, on a rise in the theft of copper and other metals from city infrastructure like streetlights for profit. Increasing commodity prices, economic problems and social malaise have driven such crimes to new levels. Managers get tougher on return to officeFour years since the start of the coronavirus pandemic, some offices are sitting empty or sparsely populated, despite many companies introducing return-to-office policies for at least part of the week. Now, new research suggests that managers are becoming tougher on enforcing in-person working mandates. More employees are working from home. The proportion of employees working remotely is about four times as high today than before the pandemic, according to the latest monthly survey from researchers at Stanford University, the Hoover Institution and Instituto Tecnológico Autónomo de México. Companies are trying to shift that ratio. JPMorgan Chase and Goldman Sachs were among the first major employers to call for staff members to return to the office full time. In May, Barclays, Citigroup and HSBC cited new financial regulations in ordering more workers to do so. “I’m a big believer in the power of one,” Carol Tomé, UPS’s chief executive, told analysts this year to explain her push to have employees in five days a week. Managers are increasingly enforcing R.T.O. policies. About 17 percent of survey respondents said that employers did nothing when employees didn’t comply with office attendance requirements. That’s down about half from 2022. Almost a quarter of respondents said that violators faced termination, up from 11 percent in 2022. (Other punishments include negative performance reviews and reduced pay.) That doesn’t mean remote work is about to die. Office vacancies hit a record 20.1 percent in the second quarter, according to Moody’s. Don’t expect those spaces to be reoccupied anytime soon: Almost 40 percent of survey respondents said they had a hybrid working arrangement or were entirely remote.
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