Fed rate cut diverges from global central bank strategy

0:02Spare a thought, all you monetary policy types for Jay Powell and the gang. You've got one tool. You can't do two things at once. From American public media, this is Marketplace.

0:23In Los Angeles, I'm Kyle Rizdahl. It is Wednesday today, the 10th of December. Good as always to have you along, everybody. That tool that the Federal Reserve has? Monetary policy, interest rates, the two jobs, maximum employment and stable prices. The challenge in late 2025? As I mentioned, as I mentioned here before, the situation is that our two goals are a bit in tension. Yes, yes, you have mentioned that. Interestingly, everyone around the table at the FOMC agrees that inflation is too high and we want it to come down and agrees that the labor market has softened and that there's further risk.

1:04All right. So what's the problem? Where the difference is, is how do you weight those risks and what does your forecast look like? And where do you ultimately, where do you think the bigger risk is? You tell us. We made a decision today. We had nine out of 12 supported it. So fairly broad support. But it's not like the normal situation where everyone agrees on the direction and what and what to do. It's more it's more spread out. And I think that's only inherent in the situation. So here's the way it shook out a quarter percentage point cut, as you've heard. Nine votes for that. Two wanted no cut.

1:40One wanted a deeper cut. More dissent than usual, but about what everybody had been expecting, honestly. Three questions on artificial intelligence, which is a lot for a Federal Reserve press conference. Inflation and tariffs, of course, made an appearance, too. It's really tariffs that's causing most of the inflation overshoot. And we do think of those as likely to, in the current situation, as likely to be a one-time price increase. Our job is to make sure that it is, and we will do that job. But right now, you've got this difficult balance, and there are risks to both sides. There's no risk-free path.

2:18Words to live by, there is no risk-free path. Wall Street today, traders, well, they do love them some rate cut talk. We will have the details when we do the numbers.

2:54So, a cut today, another cut in 2026, maybe two. But we are starting to see the Fed's policy diverge from other central banks around the world. Over the past couple of days, there have been suggestions from the central banks of Canada, Australia, and the Eurozone that they might be done cutting rates for now, might even raise soon-ish. Marketplace's Justin Ho spent some time today trying to figure out why other central banks are feeling that upward pressure on rates and what that might mean here. It's a little unusual when central banks move in opposite directions. Because normally the business cycle in different regions moves together and everybody's doing the same thing at the same time.

3:38Harvard economics professor Ken Rogoff says the moment we're in right now is really no different. Central banks around the world are feeling pressure to either hold rates steady or even raise them, and not just because of persistent inflation. The fracturing of the global trading system puts upward pressure on interest rates. Weak immigration puts pressure on interest rates. Spending on the military puts pressure on interest rates. And if the Fed keeps cutting rates while other central banks don't, Rogoff says investment will flow to the highest bidder. Capital markets are global, so the money is going to move to where the rate of return looks good.

4:17The European Central Bank is likely to hold rates steady going forward, says Ben Shoesmith, senior economist at KPMG. They've done a fairly good job bringing inflation back down to their target levels. And they've also just recently upgraded their forecast for GDP growth. Shoesmith says the Bank of Canada is likely to hold off on rate cuts, too, also thanks to better-than-expected growth. Meanwhile, Australia's central bank has been concerned about inflation. For the time being, as they expect there to be this short bump up of inflation early in 2026, they're likely to sit on it for a bit. But while this divergence between the Fed and other central banks could cause capital to flow out of the U.S., that situation probably won't last very long, says George Perks, macro strategist with Bespoke Investment Group.

5:01So if we do see the ECB, for instance, start to hike, or the Bank of Canada or the Reserve Bank of Australia start to hike. They may do that for a period, but we would expect the U.S. to not be able to cut too much before moving into a similar spot. Perk says that's because global economies are just too interlinked. It's hard for those sort of elastic bands that tie economies together to stretch too far apart. Which means the Fed's rate-cutting cycle could soon be coming to an end. I'm Justin Ho for Marketplace.

5:48Tis the season is a phrase bandied about quite a bit this time of year. For those of us in business and economic journalism, however, the season can mean something a little bit different. Earnings season. It comes but four times a year. Public companies open their books once a quarter to show everybody how much they made or lost the past three months. Quarterly earnings reports have been required in the United States since the 1970s. Transparency, right? Informed investors. But they can also distort the way companies do business. And there is news the system could be changing soon and that come 2026, earnings season could come less frequently.

6:25Stacey Vanek-Smith explains. So let's say you have just been hired as a CFO. Congratulations. You get a fancy corner office, a huge salary, and an assistant who knows your coffee order. Meanwhile, you have one very major responsibility. Every quarter, Wall Street will have some expectations about how much money your company should have earned over the last three months. Your job? Hit it or exceed it by just a little bit. Sarah Williamson is the CEO of FCLT Global. She explains that every quarter, a bunch of Wall Street analysts and industry experts look at a bunch of data about your company and your industry.

7:09Just like a meteorologist, they gather all sorts of trends, all sorts of data. They analyze it. They try to predict what's coming next. And a few weeks before you actually report your earnings, Wall Street will come up with one number, a tally of all these earnings guesstimates. And just like a weather forecaster, sometimes they're right and sometimes they're wrong. So if their estimates are not what the company delivers, the language used is that the company hit or missed. But you'd never say, you know, the sky hit or missed the forecast. Like, that's nonsensical. It may be nonsensical, but if you miss that forecast, things will get stormy pretty fast.

7:49So say instead of earning$100 million one quarter, like Wall Street guesstimates you will, your company earns$99 ,999 ,999.99. It is a disaster if they miss it by a penny. A crisis. This might sound dramatic, but it really can be a crisis. Take Target. Last year, the retailer's quarterly sales came in at$25.7 billion instead of the expected$25.9 billion. Investors panicked and Target's stock lost almost a quarter of its value in one day. So it's maybe not surprising that companies will scramble to make sure that they hit Wall Street's guesstimate. So you take some actions. You delay hiring. You slash advertising.

8:40You've got a project, you delay. Campbell Harvey is a professor of finance at Duke's Business School. He was part of a team that looked into how mandated quarterly earnings impact how companies are run. They surveyed hundreds of CFOs. Among the questions, have you ever delayed a project to meet quarterly earnings expectations, even though that meant sacrificing shareholder value? 78 % admitted to destroying shareholder value. What? Oh, every single one that we talked to had this is a deep problem. Harvey says companies do all kinds of costly acrobatics to hit these numbers. And that three-month merry-go-round?

9:23It's bad for companies. I remember asking a CFO. I said, well, why don't you just be honest about it? Right? Like, why couldn't you just get on an earnings call and explain? You know, like, we've launched this big new project, and that is why we missed earnings expectations by a nickel. Just say, I didn't want to delay it. This is really important for the company. So we just did the right thing for shareholders. And the answer was something like, this is the reason I'm the CFO and you're a professor. Logic does not run the show on Wall Street. And that is why Harvey is glad to see President Trump taking this up.

10:05And now the head of the Securities and Exchange Commission has announced plans to move to a system where public companies open their books just twice a year. Many countries actually do this. The U.K., much of Europe. But Salman Arif thinks that would be a mistake. He's an economist at the University of Minnesota's Carlson School of Management. He says if you require companies to report less often, it puts mom and pop investors at a big disadvantage. you are benefiting the most sophisticated investors who can afford to buy satellite images of parking lots and, you know, who can do all this fancy research.

10:42Big financial institutions and investment firms actually do this. They use satellite photos to track the number of cars in store parking lots and help estimate sales. Oil analysts have even been known to measure the shadows on oil storage tanks. The tanks have floating roofs, and the size of the shadows can help analysts figure out how much oil is in the storage tanks, and that can help reveal a country's oil reserves. Arif says the less official data a company puts out, the more valuable this kind of shadow measuring becomes. And the bigger a leg up, the shadow measurers have. And of course, he says, companies want privacy, but investors want transparency.

11:28As a parent, would you want to get a report card twice a year or four times a year for your child? I mean, four times a year. I want to know how my kid's doing. And if there's an issue, I want to be able to intervene. Perfect. Now, what do you think your child wants? Lots of transparency makes investors feel safe. RF says quarterly reporting is part of why U.S. markets are the biggest in the world. Lose it? And RF says investors might start jumping at shadows, and U.S. markets could lose their edge. In New York, I'm Stacey Vanek-Smith for Marketplace.

12:20Coming up. This stocking stuffer trend is just, it gets wilder and wilder every year. Tis the season for little trinkets. But first, sure, why not? Let's do the numbers. Dow Industrial is up 497 points today, just over 1%, closed at 48 ,057. The Nasdaq added 77 points, about a third of 1%, 23 ,654. The S &P 500 increased 46 points, two-thirds percent, 68 and 86. YouTube is unbundling its cable TV package. It turns out it's launching 10 smaller plans, focusing on sports and family, entertainment and news and other things. YouTube, of course, owned by Alphabet, which added 1%. Fox, owner of Fox Sports, rose 2%.

13:06ESPN's parent Walt Disney skipped up 1.7 % today. The high-end electric car maker Rivian is expected to share details about its new AI assistant in a live-streamed event tomorrow. The technology will be fully integrated into the car's computer and controls what could possibly go wrong. Rivian Automotive down 1.2 % on the day. I mean, come on. Bonds Up Yield down 10 years at 4.15%. You're listening to Marketplace.

13:38This is Marketplace. I'm Kai Rizdahl. Let's talk about your paycheck. I mean, not your paycheck, but everybody's paycheck. By the official count, which comes from the Bureau of Labor Statistics, Wages and benefits together were up three and a half percent in September. That is year over year. The Employment Cost Index is the official nomenclature for that little data point. Shows it's a bit higher than inflation's running. So, you know, good for workers, but nothing to write home about either. Marketplace of Subri Beneshore is on that one. A three and a half percent annual increase in wages and benefits is actually the lowest since 2021.

14:15There was a big run-up in the growth of wages and benefits right after the pandemic, and that's been coming down fairly steadily. Erica Groshen is with Cornell School of Industrial and Labor Relations. The jobs that are getting the biggest raises now are actually the ones that did not get those big raises during the pandemic. What you've seen is catch-up from the workers who were essentially left behind. So, for example, unionized workers who did not get big raises back then because they were locked into multi-year contracts are finally getting them. Government workers also doing better. Leisure and hospitality workers, though, who saw huge wage gains during the pandemic, they are now not seeing that.

14:59Now what's catching up are wages more for the white collar workers, the managerial workers, etc. Overall and for most people, wage growth has been faster than inflation, but not by much. Wages are winning by about a half a percent, the smallest margin in two years. There isn't much momentum in terms of real wage growth. Gregory Dacco is chief economist at EY Parthenon. He says inflation is nipping at the heels of lower and median income families the most. That's a key driver of the ongoing affordability crisis that many families are facing. There is paradoxically, though, a bright side to slowing wage growth.

15:35It means the labor market isn't driving inflation. This was the fear that many had when tariffs started being implemented. That didn't happen. But there is one cost in this employer cost index that is exploding like a bomb. What employers pay for health insurance is hitting a level that we haven't seen in 20 years. Linda Barrington runs the Institute of Compensation Studies at Cornell. Employers' cost of health insurance has risen 6.1 percent in a year. When employers are seeing that level of increase, I would expect employees will be asked to pay some of that increase. So some of this barely OK wage growth we're seeing is going to get drained right on the way to pay for that.

16:20In New York, I'm Sabree Beneshaw for Marketplace.

16:42About a year and a half ago, we went to Phoenix, Arizona, which, as my companion on that trip, also Friday regular on this program, Heather Long said at the time, was ground zero for a new economy. Semiconductors, which at the time the Biden administration was investing in heavily through the CHIPS Act. Now it's data centers and battery plants as well as semiconductor factories. But the point is, all that building needs a whole lot of labor. One person training that workforce who we talked to while we were out there is Travis Laird. He's of the Arizona Pipe Trades Apprenticeship Program. Travis, welcome back to the show.

17:18Yeah, thank you for having me, Kai. When we were out there a year and a half-ish ago, spring of 24, and we went by your shop, your offices, this is not an exaggeration. You were busting at the seams. Every classroom was full. Every facility was full. You walked me around and there were literally people everywhere. What's it like now? You know, it's a lot of the same. We're still busting at the seams. Since then, we have bought another facility. So we have another 60 ,000 square feet under roof for a second training center here in the valley. You have to be built out yet, though. Are all your trainees, I mean, do they get out the gate and they've got jobs?

17:55Or what's the deal with that? You know, we were at, I mean, 100 % of our apprentices were working last time we were here. We're about 10 % out of work right now, which isn't too crazy for this time of year and, you know, coming down off such a large ramp like that. But things are starting to pick up again. Yeah, we should say that the ramp was TSMC and Intel building huge plants out there. It was a year and a half ago. I imagine there's still probably some work because those things are the biggest buildings I've ever seen. But that demand is drawing down, I guess. Yeah, you know, it actually already kind of came down, but we're actually – it's starting to pick up a little bit.

18:29A lot of our members have been out for other jobs. We got a lot of data center work, some high rises, hospitals. We were out in the TSMC parking lot until security chased us away. And one of the things we noticed was license plates. Yeah, that's a whole different story. License plates on the cars from all over the country. Are you still having people come to the Phoenix area and look you guys up and say, listen, get me into these trades because it's a good deal? You know what we do? We still have a lot of people. That's something I'm doing every day is fielding phone calls and emails from people looking to get into the trade.

19:04You know, lucky for us, that is one of our strengths as a union organization is that when we had that monster ramp, we're able to man that work with a lot of people from around the country. So we don't, as much as work has come down since then, you know, our unemployment is much lower than it would be had we not man that work with people from around the country. We should say, you know, they do get jobs. But the thing that struck me when we were there and we talked, we pulled a couple of people out of class, actually, and I think you were there for these interviews. And we talked to them about what their days were like.

19:33And they worked full time sort of on the job and then came to you all for for more training and supplemental work in the evening. The folks who were doing this are I mean, these are like 16, 18 hour days. Yeah. I mean, it's, you know, getting through the apprenticeship. It's the benefits are amazing, but it's not easy. It's a five year apprenticeship. You're working a full-time job, and then you're coming to class in the evenings. Part of the benefit of that is, so it's an earn while you learn. So instead of just going to school and paying tuition, I mean, day one when we bring you on board, we're putting you to work.

20:03You're making money. You're out there working. And you finish this program doing really well with no debt. This is a little sideways, but roll with me on this one. Since you are sort of in the belly of the beast, what are your thoughts on organized labor in this economy right now? I think those are the people who are winning. Just this week, and I was listening to a podcast from Siren, Ladies of Bombshell, and they had an economist talking about, you know, all the manufacturing jobs. If we do bring them back, that only solves part of the problem that if, you know, our golden age of manufacturing jobs in this country is when those were unionized shops.

20:37Yeah. You know, and just bringing back those jobs without the organized labor, it's not likely to provide the jobs people are really looking for. Not for nothing. That economist, because I listen to that podcast because I'm a fan of Siren, was Catherine Ann Edwards, who we had on the program like three days ago. So I know her. Last thing, Travis, and then I'll let you go because I know you have all kinds of people clamoring for your attention. What is the economic boom vibe in Phoenix now? When we were there, it was construction and go, go, go. And, you know, there's some challenges with the Phoenix area, right?

21:07It's a desert. It's, you know, getting crowded, all of those things. What's the vibe? You know, it's still going. And we're about to get another round of semiconductor work. The data centers are going wild. For us, we're definitely hoping that a lot of this growth leads to more power plant production. That's all work that we do. So as those booms shift, the strength of our organization, our members will go out there and do that. A lot of more work on data centers now. Keep building them. We'll be there. You need more power. We'll build that. Travis Laird is at the Arizona Pipe Trades Apprenticeship, UA469 Plumbers and Pipe Fitters out in Phoenix.

21:42Travis, thanks a lot for your time. It's good to talk to you again. Thank you, Kai. Anytime.

22:04We started the show with macro. Thank you, Chair Powell and the gang. But as regular listeners know, micro is where the economic wisdom really lies. Annie Lang Hartman runs Wild Letty up in Lelanau County, Michigan, where she sells stationery and gifts and sundries. She sent us this dispatch. Business for Wild Letty right now is pretty fantastic. Year to date, we're up 59 percent compared to last year. Black Friday, Cyber Monday, we were up 71 percent compared to last year. Um, this stocking stuffer trend is just, it gets wilder and wilder every year. I somehow managed to jump on that train without really knowing.

22:50And we stocked a lot of smaller items that would fit in stockings or that were under, you know,$20,$10. So people come up to the counter with 20, $10 items and that's still a$200 sale for us. So that is definitely the trend that I'm seeing this holiday season. The biggest challenge right now is knowing that we are heading into our busy ordering season, which is our slow season and getting us into next year. So getting in that mindset. And of course, having to kind of guess what our customers want. I've been in business for 10 years and sometimes I'm still kind of flabbergasted about what I think does well versus what actually does well.

23:43So that's always another challenge when you're planning out an entire year of retail in just a few months.

23:54Ah, the ever-changing American consumer. Annie Lang Hartman, Wild Letty, Leelano County, Michigan.

24:12This final note on the way out today, which comes a couple of days after Secretary of Transportation Sean Duffy said he wants pull-up bars in airports so people can get their blood flowing. Those are his words before they get on their plane. Airline CEOs and the traveling public, let's just say, do not see it that way. Southwest Airlines, not one for lavish perks, as you might know, said today it is actively pursuing a network of airport lounges. And that comes the same day as a J.D. Power survey showing 82 percent of travelers choose their airlines not on proximity to workout equipment, but on their lounges.