The Fed changes course

0:01Good morning from the Financial Times. Today is Thursday, September 18th, and this is your FT News briefing. The Federal Reserve is changing course, and China doesn't want NVIDIA chips anymore. Plus, one of the world's biggest tech investors is Switzerland. I'm Sonia Hudson, and here's the news you need to start your day.

0:33The Federal Reserve lowered interest rates by a quarter point yesterday. This is the first cut all year. Fed Chair Jay Powell said recent economic data showed a cooling labor market, and that means it's time to shift the central bank's approach. Our policy had been really skewed toward inflation for a long time, really. Now we see that there's downside risk clearly in the labor market, and so we're moving in the direction of a more neutral policy. The backdrop of this meeting is a little chaotic. U.S. President Donald Trump has been trying to fire one of the Fed governors, and his pick for a different seat on the board, Stephen Myron, made a bit of a splash during his first meeting.

1:14Here to unpack all this is the FT's U.S. economics editor, Claire Jones. Hi, Claire. Hi, Sonia. So why did the Fed decide to cut rates? It's all about the U.S. labor market. What we've seen in recent months is that after years of incredibly strong jobs growth, the U.S. economy just wasn't adding any jobs at all. Now, we've had in the background coming into this meeting a lot of focus on the tariffs and what they were going to do to inflation. Yeah, there was this fear that they would cause inflation to increase even further. But now Powell is saying that the Fed is shifting focus to the labor market.

2:00Absolutely. So the Fed's got a dual mandate. It looks at promoting U.S. jobs and it also looks at keeping inflation under control because of the tariffs. They've kept rates on hold this year. they've been concerned that inflation is not going to return to its 2 % goal. However, the data in recent months on inflation has been not as bad as a lot of people expected, whereas the data that we've seen on the jobs market has been really quite a bit worse. So that's led to this tilt in the balance of risks that Powell described in favour of prioritising that mandate to maximise employment over the risks to price stability.

2:46Okay, so, you know, like you mentioned, there was definitely a lot of bad economic data ahead of this meeting. But what do we know about what the Fed wants to do for the rest of the year? So the projections told us two things. One was that it now looks as though we're likely to get three quarter point rate cuts by the end of 2025. That's what the average member of the FOMC thinks. The second thing we saw in these projections was the sheer scale of this disparity in views about the direction in which the US economy is heading. Here's an example of this. One member of the FOMC even thought interest rates will end up at the end of 2025 higher than they are now.

3:32And then we got another member who thinks before the end of the year, we ought to see five quarter point cuts. And the divergences on that scale are just something that's been very rarely seen. I want to talk about the vote breakdown. Trump's newly confirmed pick for the board, Stephen Myron, voted for an even bigger rate cut of a half point. What does that tell you, if anything, about the inner workings of the Fed right now? I think it's very interesting that Myron was the only one who dissented yesterday at this very uncertain time. I think it's very important that there was this big show of unity bar Myron.

4:14And I think that insulates the Fed well against this concern that people had that there were going to be these political pressures and they begin to influence monetary policy. And again, that suggests that, bar him, there is a kind of strong consensus around what the Fed chair wants to do. Claire Jones is the FT's U.S. economics editor. Thanks, Claire. Thanks, Sonia.

4:52U.S. chipmaker NVIDIA is on the outs in China. The country's internet regulator has banned the biggest tech companies from buying NVIDIA's artificial intelligence chips. This is after years of pleading by Chinese companies for the U.S. to sell them more AI chips. Former U.S. President Joe Biden banned NVIDIA from exporting its most powerful products to China. So the company started producing less powerful chips specifically for the country. And now Beijing has banned two of those tailor-made semiconductors. The move is another example of Beijing stepping up its efforts to boost its own domestic industry.

5:35It wants companies to break their reliance on NVIDIA so that China can compete with the U.S. in the artificial intelligence race. NVIDIA's shares fell more than 2.5 % yesterday.

5:54Switzerland's central bank has quietly become one of the world's biggest tech investors. It now holds nearly$170 billion in U.S. stocks, and about a quarter of that is invested in just five companies—Amazon, Apple, Meta, Microsoft, and NVIDIA. But the Swiss National Bank is not out to exercise control over these companies. Instead, it's using the stocks to calibrate Switzerland's own currency and economy. The FT's Mercedes Ruhl has been covering this. She's here to help shed some light on this. Hi, Mercedes. Hello. Mercedes, I feel like we have to start with just an explanation of what the S &B is and how it works, because it's unusual, right, for a central bank to invest so much in equities?

6:47Definitely. There are not many that do this. So the Swiss National Bank, S &B, has a very vast portfolio, as you pointed out. It's not just, obviously, in U.S. stocks. But overall, the balance sheet is more than$800 billion. What's interesting, though, is the SNB has turned to buying large amounts of U.S. tech stocks as basically part of its strategies to weaken the Swiss franc, which is persistently strong because Switzerland is a safe haven. So this is why the Swiss franc is the best performing currency over 50 years, 25 years, 10 years, 5 years. I mean, even this year, it's gone up something like 15 % against the U.S.

7:27dollar. Yeah, tell me more about that. Why does the S &B want to devalue the Swiss franc? And how do tech stocks fit in with that strategy? So first of all, the S &B doesn't want to hold on to francs because the currency is already very strong. And this has problems like inflation. It hurts its export competitiveness. And with the franc appreciating, it means the foreign currencies that the S &B is buying will lose value over time. So simply holding them would be like a guaranteed loss. So it instead decides how to invest that cash in those foreign currencies, euros, dollars, to have higher potential returns.

8:10Okay, I think I understand the theory here. The S &B wants to sell off some francs, but it doesn't want to hold currency that's less valuable, so it buys stocks. In practice, though, are there worries about so much of Switzerland's money being tied up in the U.S. stock market, especially since there are worries about an AI tech bubble right now? So first of all, probably good to explain that the S &B has no choice because Switzerland's bond market, for instance, is far too small to absorb the scale of its interventions. So U.S. stocks are among the largest, the most liquid, the best performing equities in global markets historically.

8:55And their huge size means that the S &B can invest billions without distorting prices or struggling to exit positions. But this heavy exposure to U.S. tech also creates a bit of concentration risk. So much of its equity portfolio depends on, frankly, just a handful of companies. And I think this is especially sensitive now with these growing warnings that valuations in the AI sector, which all of these companies touch on, may be inflated. And if a bubble were to burst, the SMB could face sharp losses. It could limit profit distributions, which would have a flow-on effect to the economy. So there are risks, but like, frankly, what else are they going to do?

9:36What do you think this trend of investing in U.S. equities tells us about Switzerland's economy more broadly? To me, it shows its economy and the country and its governance. They're so strong and stable that global investors are constantly and increasingly seeking safety in the frank. So you think like for everything they're putting into U.S. tech, investors are putting that into Switzerland. and the SNB is the one basically having to handle that. And that is where this unusual reserve strategy comes from. So this is almost like the Swiss National Bank having to... It's a victim of its own success.

10:16Yeah, absolutely. Absolutely. Mercedes Ruhle is the FT's Switzerland and Austria correspondent. Thanks, Mercedes. Thank you.

10:29U.S. President Donald Trump got the royal treatment in the U.K. yesterday. He's in the country for an unprecedented second state visit. Trump rolled through Windsor Castle in a horse-drawn carriage while the U.S. National Anthem played. And he walked with King Charles while inspecting the Guard of Honor. But the visit wasn't all pomp and circumstance. Thousands of protesters marched through central London yesterday. Say it loud! Say it clear! Donald Trump's a local man! The demonstrators were calling for UK Prime Minister Keir Starmer to stand up to the US president. The two leaders are set to meet today.

11:17You 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.

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