How Soft Was This Landing, Really?

Fed Chair Jerome Powell and his crew seem to have accomplished the impossible: a soft landing for the U.S. economy after more than two years of high interest rates. On Wednesday, the Fed announced it was cutting its benchmark lending rate by half a percentage point to a range of 4.75%–5%, and the world of business popped champagne corks.

Most observers were expecting a quarter-point cut, and the Fed is likely to deliver two more cuts, most probably of a quarter point, by the end of the year, economists say. That pushed the major indexes slightly higher, with the Dow rising as much as 1.3% to a record 42,105, and the S&P 500 climbing 1.5% to a high of 5,723. Mortgage rates have been falling since May, down to a national average of 6.31% from 7.35%. That may help restart the housing market, or at least make it a little cheaper for first-time buyers.

Economic commentators love to use macho metaphors to explain what 19th-century historian Thomas Carlyle memorably called “the dismal science,” and they’re asking, now that Powell and the Fed have piloted the economy back to the runway, whether they “can stick the landing.” Here’s what you need to watch:

• Inflation: Just over a year ago, core inflation was around 4%, double the Fed’s 2% target. A 50-year-low unemployment rate of 3.5% had the Fed worried that pressure on wages would push prices up again. So they raised rates, and inflation slowly fell. Now the question is, will it stick?
• Unemployment: As long as unemployment stays in the 4%–6% range, the economy will be stable and most people will be able to find work.

The prospects are good. Job growth and unemployment are close to what the Congressional Budget Office says is an optimized economy, with stable long-term growth and relatively full employment. But the rate cut won’t bring economic perfection: Mortgage rates are double what they were three years ago, and the accumulated inflation of the pandemic era, which has seen food prices up more than 20 percent in four years, is still hurting many consumers. In fact, the poverty rate has held fairly steady for the past several years, with about 11% to 12% of U.S. households living below the federally defined poverty line, meaning about 36 million Americans are considered poor.

BREAKING: The Federal Reserve has cut interest rates by 50 basis points in their first rate cut since March 2020.

This officially marks the most surprising Fed decision since 2009.#RateCut pic.twitter.com/x69JPjfcbe

— Kosta - Hex.com investor ❤️ (@KostadinK) September 18, 2024

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The Usual Suspects

• Elon’s World: On Wednesday, X went live again in Brazil, just three weeks after Brazil’s Supreme Court ordered it blocked in a dispute over inflammatory and defamatory political content. To get around the block, X moved its service from its own internet infrastructure in Brazil to Cloudflare, a U.S.-based firm whose servers route traffic for millions of websites. But the X victory may be shortlived. Brazil’s telecoms regulator vowed to block the X route, and Cloudflare said it would cooperate with the Brazilian government.
• The Alphabet Strikes Back: Google has convinced a European court to roll back one of three judgments against it by anti-monopoly regulators. In this case, the court struck down a €1.5 billion fine for blocking rival online advertisers from 2006 to 2016. The ruling was on very narrow grounds but comes as European regulators are threatening to break up Google to end its near-monopoly in online ads and search, and as courts and regulators in the U.S. also consider how to level the playing field for Google’s clients and its competitors.
• A Steel of a Deal? Nippon Steel won permission from the Biden Administration to resubmit its bid to take over ailing Pittsburgh-based U.S. Steel and win approval from the Committee on Foreign Investment in the U.S. The companies now have three months to show the deal doesn’t threaten U.S. national security. U.S. Steel says that without the Japanese investment it will have to shutter plants and less steel will be produced domestically. Nippon has pledged billions of dollars of investment to modernize aging mills, but the United Steelworkers union fears the Japanese money will come with massive layoffs.
  

Boeing’s Wild Blue Yonder

Tens of thousands of Boeing employees are being temporarily furloughed after the aviation giant’s 33,000 members rejected management’s offer of a 25% pay hike over four years and walked off the job, halting all production at the company. The union says the wage hike doesn’t cover cost-of-living increases and earlier cuts to pension benefits. The furloughs are likely to be done in rolling waves, with some employees on unpaid leave every third or fourth week.

But the cuts come as Boeing expects to lose billions of dollars over the machinists’ walkout, and billions more amid continuing concern about its 737 jets, from the two planes whose autopilot flaws caused crashes in 2018 and 2019 to the door that blew out of an Alaskan Airlines jet in January. The FAA has limited Boeing’s plane production as the company overhauls its quality checks, and Beoing said earlier this year that it would buy back fuselage maker Spirit Aerospace, which it spun off years earlier.

It all poses a major challenge for the firm’s new CEO, Kelly Ortberg, whom many clients, workers, and shareholders were looking to to turn the company around. That’s all on hold, as Ortberg told employees Wednesday. “Our business faces substantial challenges and it is important that we take difficult steps to preserve cash and ensure that Boeing is able to successfully recover,” he said. Shares in Boeing are down about 38% this year. Oh yeah, and Boeing’s two astronauts are still stuck on the International Space Station until next year, after their Boeing Starliner was sent back to Earth unmanned when engineers feared it might not survive re-entry.

Boeing has been corrupt and mismanaged by its execs yet its CEO gets $30 million/year in comp? These workers haven’t had a pay raise in over 10 years. I support their strike action. #BoeingStrike https://t.co/qjaPwiKklc

— Kish Galappatti (@Kgalappatti) September 13, 2024The Short Stack

• Germany’s Murdoch-Wannabe Takes Control: Mathias Dopfner, CEO of Axel Springer, the German publishing giant that owns Business Insider and Politico, has cut a deal with New York buyout firm KKR that splits the company and gives Dopfner and Friede Springer, the widow of the firm’s eponymous founder, full control of the media business, valued at $4 billion. KKR and other investors get the lucrative classified ad sales business, worth about $11 billion. Dopfner has ambitions to build a global media empire and has made his conservative leanings public, at one point asking his employees to pray for the re-election of Donald Trump.
• Memer Schemer: Gamestop CEO Ryan Cohen was fined nearly $1 million for playing games with his purchase of shares in a decidedly non-meme stock, Well Fargo. The Federal Trade Commission said Cohen amassed a stake in the bank in 2018 and began badgering Wells Fargo’s CEO for a board seat, offering ways to improve the company’s banking app. But he failed to file a required notice that he held a significant stake in the San Francisco–based bank.
• What’s 23andMe Minus 7? All seven independent board members of the DNA testing firm 23andMe resigned this week, putting the future of the company in doubt. While its share price has fallen from $10 when it went private, via a SPAC in 2020, to about 35 cents today, CEO Ann Wojcicki wants to take the company private, and is betting on plans to use its genetic database to develop new drugs. But the board said they’d lost confidence in her plans. “After months of work, we have yet to receive from you a fully financed, fully diligenced, actionable proposal that is in the best interests of the non-affiliated shareholders,” the board members wrote Wojcicki. DNA testing sales have flagged, a research contract with pharma giant GlaxoSmithKline has ended, and a data breach last year forced the company to pay $30 million to clients whose DNA information was leaked.
• Pineapples for Eskimos? Alaska Airlines has won the go-ahead to complete its purchase of Hawaiian Airlines but will have to keep some services separate for the next six years and promise to keep flying internal flights among Hawaii’s main islands. The combined airline will have about 8% of the U.S. market, behind United’s 16%. American, Southwest, and Delta each have more than 17%.
• Amazon’s 5-Day Delivery: Amazon has told corporate employees they have to be back in the office five days a week, starting in January, up from the current three-day-a-week requirement. “We continue to believe that the advantages of being together in the office are significant,” CEO Andy Jassy wrote in a memo to employees. No word yet if Prime members can get a day a week at home.
• The Party’s Over for Tupperware: The famed maker of plastic food containers has filed for bankruptcy, conceding it had failed to move into the internet age. Tupperware was conceived by chemist Earl Tupper in 1940, and its multi-level marketing Tupperware parties were a highlight of 1950s and ‘60s suburbia. But the company failed to develop an online sales strategy and only set up an Amazon storefront in 2022. The company is hoping for a sale and said it has assets of about $680 million and debts of $1.2 billion. Its last U.S. plant, in South Carolina, will close in January, laying off about 150 employees.

Will Autoworkers Be Next?

The newly militant United Autoworkers Union says it’s preparing for a strike against Stellantis, the Franco-Italian carmaking conglomerate that absorbed Chrysler and Jeep. The UAW says 28 of its locals have filed grievances against Stellantis, claiming the company has failed to make promised investments in a new battery plant and threatened to move Jeep Durango production out of the U.S. Stellantis’s U.S. business has not been doing well, with sales down, inventories up and a share price that’s fallen by half since late March.

Stellantis said union chief Shawn Fain “continues to willfully damage the reputation of the company with his public attacks, which is helpful to no one including his members.” Fain fired back that Stellantis is “quickly turning into a global case study in corporate mismanagement.”