FirstFT: Fed signals just one rate cut by the end of the year

Good morning.

US Federal Reserve officials have signalled that they expect to cut interest rates just once this year, taking a hawkish stance on inflation as they held borrowing costs at a 23-year high.

The news, revealed yesterday in the Federal Open Market Committee’s so-called dot plot, a visual display of officials’ expectations for interest rates, was bad news for Joe Biden and would-be homeowners.

Hours earlier, a fall in the consumer price index inflation report for May had sparked a stock market rally, as investors priced in two quarter-point cuts by year-end and put the odds on the first coming in mid-September — before the US election — at more than 80 per cent.

But Fed officials said rising prices remained a problem and raised their inflation forecasts while holding interest rates at 5.25-5.5 per cent. Here’s more on what the meeting outcome means for Joe Biden’s re-election campaign.

For more monetary policy analysis, sign up for our Central Banks newsletter by Chris Giles if you’re a premium subscriber, or upgrade your subscription here.

Here’s what I’m watching today:

• G7 summit: Leaders of the leading western economies gather in Apulia, Italy, where they are expected to agree a deal to use profits from frozen Russian assets to aid Ukraine.

• Tesla: Elon Musk has claimed that Tesla shareholders are set to vote in favour of his $56bn pay award and a proposal to reincorporate the electric-car maker in Texas at its annual meeting later today.

• Economic data: The US producer price index, which tracks prices businesses receive for their goods, is updated later as well as the number of new applications for unemployment aid for last week.

• Earnings: Zales parent Signet Jewelers will report results before the bell, and software company Adobe will report after the markets close. 

Five more top stories

1. Argentina’s senate has narrowly approved a wide-ranging reform bill that gives President Javier Milei a badly needed first legislative victory amid rising economic and political pressures six months into his term. And in another boost for Milei, Argentina’s central bank announced yesterday that it had reached an agreement with Chinese authorities to roll over about $5bn in debt repayments due in the next month. Here’s more on what the bill, which faces a final vote in the lower house, includes.

2. Exclusive: Segantii Capital Management bet against Canada Goose after speaking to a Morgan Stanley banker whose desk knew of an impending share sale that threatened to hit the clothing brand’s stock price. US prosecutors had published details of the 2018 conversation as part of a probe that led to the Wall Street bank paying a $249mn penalty earlier this year, but Segantii and its portfolio manager Robert Gagliardi, who made the call, were not named. Read the full story.

3. OpenAI is building an international team of lobbyists as it seeks to influence politicians and regulators who are increasing their scrutiny over powerful artificial intelligence. The San Francisco-based start-up told the Financial Times it had expanded the number of staff on its global affairs team from three at the start of 2023 to 35 and aimed to build that to 50 by the end of the year. Here’s more on how OpenAI is helping to shape global AI regulation.

4. The world’s largest private capital firms have avoided income taxes on more than $1tn in incentive fees since 2000 by structuring the payments in a way that subjected them to a much lower levy, according to new research. The findings come amid increased scrutiny of carried interest pay in recent years. Here’s more from the Oxford university study.

5. Investment vehicles that scoop up risky loans are being launched at a record rate in Europe this year. More than €22.7bn of so-called collateralised loan obligations have been issued in the first five months of this year, according to Bank of America data, excluding deals that refinance existing CLOs at lower costs. Here’s why these previously shunned vehicles are being snapped up.

The Big Read

During their long tenure, the Conservatives have been buffeted by external shocks such as the aftermath of the financial crash, Covid-19 and the war in Ukraine. To that, they have added the self-inflicted upheavals of Brexit and chaotic premierships of Boris Johnson and Liz Truss. Today, Britain’s tax burden is at its highest level for 70 years and rising, debt is 90 per cent of GDP and rising — and so are the pressures on public services. With polls putting Labour 20 points ahead of Rishi Sunak’s party, what sort of country will Sir Keir Starmer be inheriting if his party gains power? What exactly have the Tories achieved during their 14 years in power?

We’re also reading . . . 

• Dollar doomsters: Those still claiming the US currency is headed for disaster are as wrong as they were two decades ago, writes Katie Martin.

• EV tariffs: The EU’s increased duties on China’s electric vehicles will heighten trade tensions but are unlikely to stop the advance of the country’s carmakers.

• EU migrants: The rise of the right makes it harder for Europe to deal with its real migration crisis: the need for foreign workers, writes Alan Beattie.

Chart of the day

Apple yesterday briefly regained its status as the world’s most valuable company. Its shares jumped 4 per cent in intraday trading to a record $215.04, giving it a market value of $3.29tn after unveiling its new artificial intelligence strategy, including a tie-up with ChatGPT creator Open AI, at the beginning of the week. But Apple shares closed at $213.07, giving it a market capitalisation of $3.27tn while Microsoft’s value by the end of yesterday was $3.28tn.

Take a break from the news

Move over, Margarita. This summer’s tequila cocktail is the Paloma: a cool glass of tequila, grapefruit soda, lime, salt and ice (no shaker required), traditionally served in a tall highball. Pile the ice high and garnish the drink with a fresh slice of pink grapefruit or lime.

Additional contributions from Tee Zhuo, Sophie Spiegelberger and Benjamin Wilhelm