What rising oil prices mean for the Fed
Crude oil has slipped below the 10-month high it hit on Tuesday. But analysts say the monthslong rally that has sent prices close to $100 a barrel isn’t over, posing a big risk for global growth and complicating central bankers’ efforts to tame inflation.
Expect Jay Powell to field plenty of questions about oil prices at his news conference on Wednesday. The crude rally has become a wild card for the Fed chair and other policymakers grappling with high inflation. The Fed is widely expected to leave borrowing costs unchanged this afternoon, but hold open the possibility of further increases later in the year.
Investors will look for that, and for any change in the central bank’s guidance on whether higher energy prices could sap growth and influence interest rate policy well into next year.
Oil bulls see further gains. Goldman Sachs on Wednesday raised its price target for Brent crude to $100, joining a growing club that predicts triple-digit oil heading into the winter. Brent crude, the global benchmark, surged above $95 a barrel on Tuesday, but has dipped to around $93. It has gained roughly 30 percent since June. Two reasons: Saudi Arabia and Russia extended production cuts to the end of the year, removing more than a million barrels a day from the market; and global demand, particularly from China, remains robust.
West Texas Intermediate, the U.S. benchmark, is on pace for its fourth consecutive weekly gain, and is up about 27 percent this quarter, pushing gasoline prices to an 11-month high. That has put the pinch on motorists and given Republicans plenty of ammunition against President Biden, whose poll ratings are languishing.
Meanwhile, the price of diesel, which often fuels trucks and factories, has soared even faster, especially in Europe. Data from Britain on Wednesday showed inflation fell faster than expected last month, but rising fuel prices were an outlier to that trend.
Pricey oil is also hitting the financial markets. The S&P 500 is down about 3 percent since hitting a high in July, as investors fear energy prices could re-accelerate inflation and stifle growth. The sell-off has been more acute in the bond market, with the yield on the 10-year Treasury bill (yields go up as prices fall) hitting a nearly 17-year high on Tuesday.
HERE’S WHAT’S HAPPENING
House Republicans revolt against a federal spending measure. Five far-right conservatives broke from their party to block a Pentagon funding bill from consideration on the floor. Such bills usually muster bipartisan support. The rebellion leaves Speaker Kevin McCarthy with few palatable options for passing spending legislation to avert a government shutdown on Oct. 1.
Instacart jumps in its trading debut. Shares in the grocery delivery service rose 12 percent on Tuesday, in a sign of resurgent investor interest in initial public offerings. Another was the advertising software maker Klaviyo, which priced its stock sale at $30, above its expected price range. But the valuations of both companies are modest compared to those in the heyday for I.P.O.s.
Goldman Sachs is reportedly near a deal to sell a consumer lending unit. The Wall Street bank is in advanced talks to offload GreenSky to a group including Sixth Street, Pimco and KKR for much less than what it paid, according to The Wall Street Journal. If completed, the deal would be the latest step by Goldman to retreat from its failed move into consumer finance.
Disney plans to invest $60 billion more in theme parks and cruises. The plan, which would double what the entertainment giant has already spent on the business over the past decade, represents a focus on a highly profitable division as other operations, like streaming, face challenges. Still, shares in Disney fell 3 percent on the news, reflecting investor concern about its spending.
Yellen pushes climate principles for banks
Climate is very much on the agenda for world leaders gathered in New York City for the U.N. General Assembly this week, following a summer of devastating wildfires, lingering heat domes and hurricanes (along with a flood of environmental demonstrators).
Among the highest-profile proponents for doing more on climate change has been Treasury Secretary Janet Yellen, who on Tuesday promoted guidelines for lenders making pledges to achieve net-zero emissions. It’s the latest initiative in her yearslong effort to get the financial industry more involved in combating the damaging effects of climate change.
Economic losses from natural disasters have reached nearly $200 billion this year, Yellen said, emphasizing the need for immediate action. She outlined nine principles meant to promote best practices for lenders seeking to achieve net-zero aims, including the use of clear metrics, transparency around progress made and offering financing to help clients transition to clean energy.
She also announced that several nonprofits, including the Bezos Earth Fund and Bloomberg Philanthropies, had pledged a total of $340 million to support the implementation of the guidelines. And she met with top financial executives, including Larry Fink of BlackRock, to discuss them.
This continues work that Yellen has been doing since the 1990s, when she began studying the economic costs of climate change as the chair of Bill Clinton’s Council of Economic Advisers. “She was on the forefront of this,” Joe Aldy, a public policy professor at the Harvard Kennedy School and a former colleague of Yellen’s, told Bloomberg.
Critics say Yellen hasn’t done enough, despite declaring climate change an “existential threat” in her confirmation hearing two years ago. “It would be good to see the actions match the rhetoric,” Joe Thwaites of the Natural Resources Defense Council told Bloomberg.
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In other climate news: On Wednesday, the U.N. will host the Climate Ambition Summit, featuring speakers only from nations that have made efforts to rein in fossil-fuel production — as opposed to just cutting greenhouse-gas emissions. The European Commission’s president, Ursula von der Leyen, is speaking; John Kerry, the U.S. climate envoy, isn’t.
Bill Gates, Mike Bloomberg, Ajay Banga of the World Bank and other global leaders will speak at The Times’s Climate Forward conference on Thursday. Register to watch a livestream of the event.
Checking up on the CHIPS Act
Since the CHIPS Act, which aims to boost U.S. semiconductor manufacturing, was passed about a year ago, hundreds of companies have expressed interest in receiving the federal funding, according to Gina Raimondo, the commerce secretary.
But she told a Congressional hearing on Tuesday that the program had not been fully implemented because a key aspect was incomplete — and she warned Republicans that a government shutdown would only cause further delays in Washington’s efforts to contain China.
Raimondo sent a not-so-subtle message to Republicans. The CHIPS Act was passed to protect national security and help the U.S. compete economically with China, Raimondo said. “We’re behind,” she told lawmakers. Some Republicans pressed Raimondo on a time frame for full implementation, but she responded that sending employees home would only disrupt any plans. “A shutdown sets us back in a huge way,” she said.
Huawei’s new phone has raised alarm bells. Washington has imposed sanctions on Huawei, the Chinese telecom giant, to prevent it from accessing advanced chips and software from the U.S. But a new Huawei phone released last month while Raimondo was in China for talks with senior officials prompted speculation that the country’s manufacturers had turned a corner in homegrown chip manufacturing.
Some lawmakers warned last week that the new device proved that U.S. sanctions weren’t working and that tougher restrictions were needed to cut off Chinese access to American suppliers. Raimondo said U.S. investigations had not found any evidence that China was able to produce advanced chips at scale.
U.S. chipmakers are under growing scrutiny over China ties. Representative Mike Gallagher, the Wisconsin Republican who chairs the House committee on competition with China, wrote to Advanced Micro Devices asking about its Chinese government customers and how they were using its products, DealBook is first to report. Committee staff have described AMD as “largely uncooperative.” Gallagher told the company that its reticence “raises more questions than answers,” and he demanded responses by next month. AMD did not respond to DealBook’s request for comment.
“I think Ronald Reagan gave us a great example when federal employees decided they were going to strike. … He said, ‘You strike, you’re fired.’”
— Senator Tim Scott, the South Carolina Republican running for president, on the U.A.W.’s talks with major Detroit automakers. The comments are a break from the stance of other G.O.P. candidates, including Donald Trump, who are courting support from union members. Meanwhile, Ford struck a deal with a Canadian union to avoid a strike there.
The American financier looking out for TikTok
Use of the video app TikTok is steadily growing in the United States, despite threats by Congress and state governments to ban it over security fears.
That’s good news for its owner, the Chinese tech company ByteDance — and for Jeff Yass, the American financier and Republican donor whose firm’s fortuitous 2012 investment in ByteDance is worth billions. (His personal stake: roughly $21 billion.)
Yass is now using his money and political clout to help TikTok stay online in the U.S., according to The Wall Street Journal, donating to influential Republican lawmakers including Senator Rand Paul of Kentucky. G.O.P. opposition to measures to block the app have helped kill several such bans. More from The Journal:
The lobbying effort by Yass is notable in part because of the extent of his political spending — he and his wife were the third-largest conservative donors nationally in the 2022 election cycle, chipping in about $49 million to support conservative candidates and causes, according to OpenSecrets. …
“I’ve supported libertarian and free market principles my entire adult life,” Yass said. “TikTok is about free speech and innovation, the epitome of libertarian and free market ideals. The idea of banning TikTok is an anathema to everything I believe.”
THE SPEED READ
Deals
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CVC Capital Partners, one of the world’s biggest private equity firms, is reportedly weighing a public listing on the Amsterdam stock exchange in November. (Bloomberg)
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Philip Morris International is said to be weighing the sale of a stake in its Vectura inhaled-medication unit as the tobacco company rethinks its bet on medicine. (WSJ)
Policy
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