Fed cuts rates amid growing division

0:01Good morning from the Financial Times. Today is Thursday, December 11th, and this is your FT News briefing. The Federal Reserve is at odds with itself, and Oracle's earnings report added to investor angst. Plus, a royal family-owned conglomerate is dominating Abu Dhabi's economy. I'm Sonia Hudson, and here's the news you need to start your day.

0:33The Federal Reserve cut U.S. interest rates by a quarter point yesterday. Inflation is still running above target, and the job market is softening. Fed Chair Jay Powell said during his press conference that puts the central bank in a tricky position. There is no risk-free path for policy as we navigate this tension. But with downside risks to employment having risen in recent months, the balance of risks has shifted. The meeting also highlighted a growing division among members of the Federal Open Market Committee. And that's pretty unusual. Here to talk more about this is the FT's U.S. economics editor, Claire Jones.

1:11Hi, Claire. Hello. So why did the Fed decide to cut rates and what was the argument against it? The Fed opted to make the third interest rate cut in a row yesterday because they think the US labour market is no longer once as strong as it was. However, it was a highly contested move because we've still got a situation where inflation is running above the central bank's 2 % goal. And there's a sense in which the inflationary impact of tariffs still hasn't fully fed through the US economy. So there were three members of the FOMC who dissented on this decision. That's the first time we've seen that level of disagreement since 2019.

1:56What is it about this current moment that you think is leading to such a large division? Powell has been an exceptional chair in terms of uniting the committee through some very tricky times. He was the head of the FOMC through the pandemic. And now we've got this era where the two sides of the Fed's mandate for both price stability and maximum employment are really quite in conflict. And in that situation, even someone like Powell, who's very, very well respected by other FOMC members, has been unable to stop dissent. One of those dissents came from Trump ally Stephen Myron, who voted again to back a bigger 50 basis point move.

2:46But possibly the more significant dissents came from regional Fed presidents. And what we saw there was that two members, Austin Goolsbee of the Chicago Fed and Jeff Schmidt of the Kansas City Fed, both wanted to keep interest rates on hold. This was also a special meeting because we got the dot plot, which is basically, you know, just interest rate projections from the members of the FOMC. Powell pointed out during his press conference that those haven't changed since September. What is the Fed expecting and why haven't those projections changed? Yeah, so we love a dot plot meeting here. Nothing gets us going like a dot plot meeting.

3:35Absolutely not. So, as you mentioned, not much has changed from September, but the dot plots do also illustrate that sense of divide among FOMC members. Three members are saying that by the end of 2026, interest rates are going to be higher than they are now. And then you've got other members who are saying that still need to be quite substantial cuts. What I would say, though, is that in terms of informing exactly what's going to happen to interest rates, they're probably a poorer guide than usual. And I think there's two reasons for that. One is that, you know, the economic outlook is, you know, very difficult to gauge in the sense that we haven't had a lot of data recently due to the government shutdown.

4:23I think the other aspect of it is that Powell's no longer going to be chair come May. and we get the sense from U.S. President Donald Trump that he's going to nominate someone in his place who's going to be a lot more aggressive when it comes to interest rate cuts. And I think what that means is the dot plots now won't fully reflect the dovish bias that the next chair of the Fed is likely to have. Claire Jones is the FT's U.S. economics editor. Thanks, Claire. Thanks a lot.

5:01Oracle shares took a hit late yesterday. The company reported disappointing revenues, as well as a sharp rise in spending on artificial intelligence. Last quarter's revenues were up 14 percent from a year ago, but came in slightly below forecasts. At the same time, Oracle said it would increase its planned spending on data centers by 15 billion dollars. Back in September, Oracle disclosed hundreds of billions of dollars in future business bookings. That was driven largely by a big contract to supply computing power to OpenAI. But since then, investors have become worried about just how much the company will need to borrow to fund that spending.

5:46And OpenAI's ability to pay for those contracts. Shares in the company nosedived more than 10 % in after-hours trading.

6:01In Abu Dhabi, there is one conglomerate that is dominating. International Holding Company, or IHC, has rocketed in size over the past few years. But its ownership is in the hands of Abu Dhabi's royal family, which is blurring the lines between state and royal assets. Here to tell us more is the FT's Gulf business correspondent, Chloe Cornish. Hi, Chloe. Hello. Can you give us a sense of just how fast IHC has grown? This company has absolutely mushroomed in size over the last seven years. Really, it was a very little-known company with just a handful of assets, including a fish farm. It now says it has$125 billion worth of assets.

6:47This company is chaired by Sheikh Tahnoun bin Zayed al-Nahyan, who is the full brother of the UAE president. He is also the national security advisor to the country, as well as chair of two of Abu Dhabi's sovereign wealth funds. So a very important and powerful figure here in the UAE. And he has overseen this meteoric rise of IHC. And how has it managed to achieve such a steep increase in assets? So it's been partially helped by the transfer of assets from its parent group, which is called Royal Group. So this is another royal-controlled company. And those assets were transferred at nil cost. So then they were subsequently revalued, which, of course, gives a big boost to that total assets line.

7:38But in addition to that, IHC has also been very acquisitive. It has bought companies all around the world, including in the UAE. And that has helped to expand its asset base considerably as well. Chloe, is there any skepticism about whether the company is actually as valuable as it says it is? I think IHC would say that they disclose all of the companies that they own in exchange filings, but that doesn't actually give a value to the companies. So there is a certain amount of skepticism amongst bankers and other observers here in the UAE about whether or not the assets that this company owns can truly be worth such a vast amount of money.

8:22And how much of a role is the royal family playing in Abu Dhabi's economy? Groups that are controlled by members of the royal family, such as IHC, or groups that are owned by Abu Dhabi's sovereign investors. These are also known as sovereign wealth funds like ADQ and Mubadila. They own many of the important strategic companies in Abu Dhabi. Because these sovereign wealth funds are often chaired by members of the royal family, and the royal family is indeed the ruling family of Abu Dhabi, between companies like IHC and the companies owned by sovereign investors, you have a very, very big presence of the royal family in Abu Dhabi's economy.

9:04What kind of impact do you think IHC's influence could eventually have on investment in Abu Dhabi? Some people say it does make the space for outside investment in the Emirate very small. Some private company executives who I've spoken with would tell you, your game is really rigged against us in Abu Dhabi. We're either competing with the royal family or a state-controlled enterprise. And it's very hard for us to have that kind of insider knowledge or understanding of the context. And having said that, Abu Dhabi does want to attract financial companies to come and work in the Emirate. So you've seen its offshore financial center, Abu Dhabi Global Market, be very successful in attracting hedge funds and other types of asset managers to set up offices.

9:53IOC argues that they are not crowding out private sector in Abu Dhabi. And they say this because a very large part of their own asset base is abroad now. And they also argue that there is no special treatment given to them or their companies just because of their royal connections. Chloe Cornish is the FT's Gulf business correspondent. Thanks, Chloe. Thank you. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.