Member Briefing June 15, 2023
Fed Holds Rates Steady But Expects More Increases This Year
Federal Reserve officials agreed to hold interest rates steady after 10 consecutive increases, but signaled they are leaning toward raising them next month if the economy and inflation don’t cool more. In a statement, the Fed said the decision to maintain the benchmark federal-funds rate in a range between 5% and 5.25%, a 16-year high, might be short-lived.
The surprising aspect of the decision came with the “dot plot” in which the individual members of the FOMC indicate their expectations for rates further out. The dots moved decidedly upward, pushing the median expectation to a funds rate of 5.6% by the end of 2023. Assuming the committee moves in quarter-point increments, that would imply two more hikes over the remaining four meetings this year. FOMC members approved Wednesday’s move unanimously, though there remained considerable disagreement among members. Two members indicated they don’t see hikes this year while four saw one increase and nine, or half the committee, expect two. Two more members added a third hike while one saw four more, again assuming quarter-point moves.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Borrowing Tactics From The U.S. Army, The Ukrainian Marine Corps Is Thundering Through Russian Lines In Fast-Moving Columns - Forbes
- U.S. Warned Ukraine Not to Attack Nord Stream - WSJ
- Belarus Starts Taking Delivery of Russian Nuclear Weapons - Reuters
- Ukraine Facing ‘Extremely Fierce’ Battles and ‘Partial Success’ in Counteroffensive; Putin Says it’s Failing - CNBC
- The Russian Soldier Who Surrendered to a Ukrainian Drone - WSJ
- Ukraine Says Russian Missile Attacks Kill Three in Odesa, Three in Donetsk – Reuters
- Vladimir Putin Sides with Russia’s Military in Clash with Wagner – Financial Times
- Allies Pressure Biden to Hasten NATO Membership for Ukraine - NYT
- Turkey Won't Back Swedish NATO Bid Unless it Stops Anti-Turkish Protests -Erdogan – Reuters
- As Ukraine Fights Back, Hundreds of NATO Warplanes are Flying Over Germany in Alliance’s Largest-Ever Aerial Drills - CNN
- Interactive Map: Assessed Control of Terrain in Ukraine - Institute for the Study of War
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
PPI = 1.1% Producer Prices Fell More Than Expected in May
U.S. producer prices fell more than expected in May and the annual increase in producer inflation was the smallest in nearly 2-1/2 years, strengthening the case for the Federal Reserve to skip raising interest rates on Wednesday. The producer price index for final demand dropped 0.3% last month on lower energy costs after rising by an unrevised 0.2% in April, the Labor Department said on Wednesday.
The agency said 60% of that drop was due to the decline in gasoline costs. Services prices inched higher, reflecting higher margins at auto dealers. Excluding the volatile food and energy components, the so-called core PPI rose 0.2% from April and was up 2.8% from a year ago. Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, decreased 1.5%, the most this year. Over 40% of the decline was due to a plunge in diesel fuel. Excluding food and energy, these costs were unchanged.
McKinsey: Generative A.I. Could Add the Equivalent of $2.6 to $4.4 Trillion Annually
The folks at the McKinsey Global Institute have a new report out today that looks at potential use cases. And they see plenty. “Generative A.I. could add the equivalent of $2.6 trillion to $4.4 trillion annually across the 63 use cases we analyzed”—an amount they note is around the size of the United Kingdom’s GDP. Interestingly, 75% of the value they found comes from four use cases, which are already starting to take hold:
Customer operations, marketing and sales, software engineering, product R&D. Life sciences and chemical industries have begun using generative A.I. foundation models for what is known as “generative design”—generating candidate molecules and accelerating the development of new drugs and materials. “The scale and the scope of the workforce transitions described in this report are considerable…About a quarter to a third of work activities could change in the coming decade. The task before us is to manage the potential positives and negatives of the technology simultaneously.”
COVID Update - FDA Advisers to Ddiscuss Next Round of Covid Boosters for the Fall
Food and Drug Administration advisers will meet Thursday to discuss how the next round of Covid boosters should be updated to target strains that may be circulating this fall. Time is of the essence: The FDA needs to soon pick the strain, or strains, that it thinks will be prevalent later this year, so drugmakers have enough time to manufacture the new shots. It’s an approach that is similar to how the strains are selected for the yearly flu shot. Scientists assess what strains of the virus are in circulation, and make estimated guesses about which will be the most prevalent, and therefore will be included in the vaccine.
This will be only the second time the Covid vaccines have been updated. Last year, the FDA authorized new shots that targeted both the original coronavirus strain as well as the BA.4 and BA.5 omicron subvariants, two strains that are no longer in circulation in the U.S. The first iteration of the vaccines, authorized in December 2020, only targeted the original coronavirus.
April Machine Tool Orders Down Nearly 40%
U.S. machine shops and manufacturers’ new orders for machine tools fell -38.7% from March to April, totaling $336.7 million in the latest monthly U.S. Manufacturing Technology Orders report. That figure also represents a -34.4% drop from last April’s total, and brings year-to-date manufacturing technology orders to $1.72 billion, a -13.6% decrease from the January-April 2022 total.
Addressing the general decline in order activity from March to April, AMT president Douglas K. Woods offered: “Consistently high interest rates, ongoing inflation, and the looming threat of a recession have caused businesses to rethink their capital investment strategies. Job shops, which are the largest consumers of manufacturing technology, are mostly small and medium-sized businesses who are particularly affected by price and interest rate pressures.
Read more at American Machinist
Hochul Eyes Executive Action as Post-Session Housing Debate Continues
Assembly members will return to Albany next week to pass legislation left unfinished, but housing isn't expected to be on their to-do list after lawmakers and Gov. Kathy Hochul failed to reach an agreement to address the statewide housing crisis. Hochul on Tuesday said she'll declare executive action in the coming weeks related to housing. She refused to accept the Legislature's housing proposal posed to the Second Floor at the last-minute of scheduled session for the year, which included provisions of Good Cause eviction legislation for New York City to limit rent increases. It would also limit the permitted reasons a property owner could evict a tenant.
The governor would likely need to declare a related state of emergency and could take action to expedite the process to construct more affordable housing, or direct state funds to expand tax incentives to build or maintain existing units.
Read more at NY State of Politics
ESD Export Experts Provide Insights at SUNY New Paltz Event
Empire State Development continued its promotional tour across the state as representatives from its Global NY foreign offices in Canada, the Caribbean, Mexico, Europe, Africa, Israel, India and China highlighted how these continents and countries are valuable as export markets for the state. “It’s internationally well known, and consumers all around the world recognize New York and the value our products have,” said Neel Nayak, Empire State Development’s international trade manager, at SUNY New Paltz Tuesday.
Global NY helps New York businesses enter or expand their presence in the global marketplace. Global NY programs connect companies with sales agents and distributors abroad and offset the costs of exporting with grants and loans. By participating in our trade missions, New York businesses can create and reinforce global connections and partnerships. Global NY is committed to helping businesses sell their products and services in growing markets across the globe.
Cooling Off - White House Seeks to Ease Growing Strains in West Coast Port Labor Talks
Labor Secretary-designate Julie Su shuttled between meetings on Monday with the union and employers at the ports, where job actions over the past two weeks have stalled shipments ranging from inbound consumer goods to outbound agricultural commodities from Southern California to Seattle. Su is trying to cool off the two sides as employers grow increasingly frustrated with dockworkers disrupting operations, according to people familiar with the talks. “She is working towards keeping lines of communication open and working towards a final agreement,” one of the people said.
Similar disruptions during the port contract negotiations in 2002 prompted employers to lock workers out for 10 days. President George W. Bush invoked federal law to force employers to reopen cargo terminals and for dockworkers to resume normal operations.
We’re in the Stubborn Phase of Inflation Cooling
We’ve gotten to the part of the inflation journey where the Fed is trying to squeeze the last bits out of the toothpaste tube. But it’s slow going, according to David Wilcox, an economist at the Peterson Institute for International Economics and Bloomberg Economics. “The pathway ahead looks like it will take longer than anyone would prefer,” he said. Why? Well, it’s partly because when it comes to inflation, the most obvious and temporary problems tend to sort themselves out first: the pandemic and all the erratic consumer spending during its different phases, the initial shock to oil prices because of the war in Ukraine.
Now that those have mostly subsided, “the Federal Reserve is working with some very broad tools, and they’re aiming for a very small target,” she said.That’s tricky since a smaller target requires better aim. “What’s left is both the continued tight labor market and the underlying inertia of wages and prices,” said Jason Furman, an economist at Harvard University.
Aerospace Eyes Emergence from Depths of Supply Chain Crisis
In a series of interviews with AIN, aerospace companies shared their strategies to address the supply chain problem, from shifting sources of titanium to more often engaging in multi-source procurement of parts. Still, turnaround times continue to lag everywhere, as OEMs try to accelerate production rates beyond 2019 levels in reaction to the unexpectedly robust and speedy recovery from the pandemic.
While opinions on when the industry will see a full recovery from the supply chain challenges vary, sentiments expressed by some companies appear to point to a measure of relief. Raytheon subsidiary Collins Aerospace, for one, told AIN that reduction in demand in certain industries and increased investment by others have begun to mitigate challenges associated with the supply of electronic components following stubborn shortages and delivery delays last year. However, it added that raw materials supply remains constrained, causing increasing shortages of machined parts.
Read more Aerospace Industry News
Oil Demand Will Peak By Decade End As Countries Move Away From Fossil Fuels, IEA Says
Global demand for oil is set to hit a peak by the end of this decade, the International Energy Agency said Wednesday, as volatile energy prices accelerate a shift to clean alternatives following the Covid-19 pandemic and Russia’s invasion of Ukraine. The IEA forecasts global oil demand will rise to 105.7 million barrels per day in 2028, an increase of around 6% compared with 2022.
The agency said global demand for oil used in transportation will begin declining in 2026, thanks to a shift to electric vehicles and policy measures pushing for more efficiency. Demand growth for gasoline is set to reverse at the end of this year, while the rise in demand for “combustible fossil fuels” will peak in 2028, the report adds. Meanwhile, demand growth for oil will slump to just 400,000 barrels per day in 2028—compared with 2.4 million barrels per day in 2023.
HHS Asks States to Slow Cuts After More than 1M Medicaid Enrollees Dropped Post COVID Emergency
More than a million Americans have lost coverage through the program for low-income and disabled Americans in the past several weeks, following the end of pandemic protections on April 1, according to the latest Medicaid renewal data from more than 20 states. After a three-year pause, most states have now resumed checking which Medicaid recipients remain eligible and dropping those who no longer qualify or don’t complete required paperwork. About 4 in 5 people dropped so far either never returned the paperwork or omitted required documents, federal and state data show.
The Biden administration outlined several optional steps states can take to ensure everyone who still qualifies for the safety-net health insurance program stays covered. For instance, states can pause the cancellations to allow more time to reach people who haven’t responded. Health insurance companies that manage Medicaid plans can help their enrollees fill out the paperwork.
China Millionaire Exodus to Continue this Year: Report
An exodus of Chinese millionaires is expected to continue this year, according to a new report by investment migration consultancy Henley & Partners, as the economy slows and the government tightens political controls. China is expected to see a net outflow of 13,500 high net worth individuals this year, extending the loss of millionaires in the past decade, according to the Henley Private Wealth Migration Report.
While the country is estimated to have 823,800 millionaires, the emigration trend could see millions of dollars brought with those leaving, which could worsen China's sharp economic slowdown. Henley defines high net worth individuals as people with more than $1 million in investable wealth. Globally, 122,000 rich individuals are forecast to migrate this year, topping the record high in 2019, according to Henley -- which derived its forecasts from inquiries and data for the first six months of the year.
EU Lawmakers Pass Landmark Artificial Intelligence Regulation
The European Parliament has approved the bloc’s landmark rules for artificial intelligence, known as the EU AI Act, clearing a key hurdle for the first formal regulation of AI in the West to become law. The rules are the first comprehensive regulations for AI, which has become a key battleground in the global tech industry, as companies compete for a leading role in developing the technology — particularly generative AI, which can generate new content from user prompts.
European Parliament members agreed to bring generative AI tools like ChatGPT under greater restrictions. Generative AI developers will be required to submit their systems for review before releasing them commercially. The Parliament also decided to hold firm with a ban on real-time biometric identification systems, as well as controversial “social scoring” systems.
A Moon of Saturn Has All the Ingredients Needed for Life
Scientists have spent years studying Enceladus and its watery plume, trying to understand the mysterious sea hidden beneath the ice. Wednesday they made a thrilling announcement: Researchers have analyzed data collected by a spacecraft as it coasted through particles of Enceladus’s frozen spray. And in those tiny, free-floating samples of the ocean, they have discovered, for the first time, evidence of phosphorus.
the detection of phosphorus in Enceladus’s plume—and, by extension, its subsurface ocean—is game-changing. Phosphorus is one of the six essential elements of life on Earth. It has given us the wonders of cellular membranes and DNA. The best part is that previous research had already found evidence of the other five essential elements in the vapor bursting from Enceladus. We can now say, quite definitively, that a little moon just a few planets away has a habitable ocean.