Marketplace - Bring on the drama, Jay Powell

Episode Date: March 22, 2024

At first, Federal Reserve Chair Jay Powell’s speeches may seem yawn-inspiring. But economists, stock brokers and business folks around the globe pick over his every word, hoping for hints about the economy to come. In this episode, Fed chair speech theatrics: You just have to know what to listen for. Plus, Walmart starts selling luxury goods, affordable electric vehicles may be on their way and an economic indicator that’s been signaling “recession to come” for two years has finally turned around.

Once again, Jay Powell has spoken, and we, once again, shall read between the lines. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizdahl. In Los Angeles, I'm Kyle Rizdahl. It is the 22nd of March, my calendar says. It is always good to have you along, everybody. We do have some things to talk about on this Friday. The economy, a little bit of politics, too.

The politics of this economy, more accurately. Kate Davidson's at Bloomberg. Courtney Brown is at Axios. Hey, you two. Hey, Kai. Hey, Kai. Kate, let me start with you. is at Axios. Hey, you two. Hey, Kai. Hey, Kai. Kate, let me start with you. The Fed chair gave his regular press conference after the two-day meeting on interest rates. Obviously, no change on interest rates. We all know that. Here's what I want to ask you. You watched, right? Of course,

you watched. Yes. Okay. It seems to me that Jay Powell has been saying the same thing for a year. Bumpy, more data, more data, going to be bumpy. Thoughts? It's so true. It's hard to get excited, right? That's what I'm saying. This is exactly, and we live for Fed Day, right? I know. People like us. There's a lot of hope, you know, and excitement heading into it. And then it ends and we look at each other and think, what did he, did he say anything new? Not really. But I mean, that is exactly what he's going for, right? I think that the Fed chair wants to come in and generally they don't really want to make much news. They don't want stocks to really respond too much, markets to just be calm. So, I mean think that on that on that score, the Fed chief did pretty

well. But right, he just reiterated kind of what we've heard him say many times before. And he said it just a few weeks ago when he was before Congress for two days of testimony. And that is that Fed officials are not ready yet. They're still looking for more evidence. They want to be extra, extra, extra certain that inflation is on track to their 2% goal before they start cutting rates. Extra, extra, extra certain. Courtney Brown, he was asked a couple of times at FedShare in various permutations what kind of data he needs to see, what he needs to see to become more confident because he keeps

saying we just need more good data. We need more of this stuff. confident because he keeps saying we just need more good data we need more of this stuff um in in the fever dream that is you know fed speculation what do you think he wants to see i think he wants to see something a little bit different than we saw in january and february i mean it was interesting he didn't seem to uh freaked out by what we the inflation reports we saw over the past two months. So I mean, I think that was a surprise to some people. You know, he was not as maybe hawkish as folks were expecting. But, you know, I think in the sense of keeping his credibility, he did say at the press conference, he said, Hey, we told you it was going to be bumpy. Here are the bumps.

The question, of course, which he raised at the press conference is, are these just bumps or are these something else? And so that is, I think, where what they're going to be looking for in the months ahead when they're looking at the inflation reports. Are these bumps or is this a sign that, you know, the last mile of inflation is really going to be hard? It was pretty interesting, Kate, that he did actually go to great lengths to say they are not discounting data they don't like. Those January and February numbers that Courtney was talking about, those were not great for their scenario. And yet Powell said, look, we're considering all this stuff. Right. I mean, he certainly had to acknowledge it, that these are not the numbers they're looking for. And he said something like, you know, we would like to see more of the kind of data we saw

in the second half of last year, right? They want to get back to some of those lower numbers, but he's not going to say that, as Courtney said, they're not freaked out about this yet. Right. I did think it was really interesting, though, that he added a little bit of a line in his opening statement about the idea that if the labor market were to unexpectedly weaken, they'd be ready to respond to that. So, yes, they're waiting to cut until they have more evidence that inflation is coming down sustainably. But he sort of, he sort of, you know, threw a bone to the people who are worried. I'm a little bit more worried about what's happening with the labor market. Unemployment has ticked up a little bit. And so,

so there was some of that too. That was a bit different. Yeah. And we should say he's getting some political pressure. Yeah. Go ahead, Courtney. Go ahead. I was going to say on the flip side, on the labor market, one other thing he said that I thought was really interesting was, you know, if there were to be ongoing strength in hiring, the labor market strength is not in and of itself enough to prevent the Fed from cutting rates. And I think that's important to remember because we're in a very different place than we were, I don't know, you know, this time last year when we would see really good jobs numbers. And of course, you want to root for really good jobs numbers. But you don't that meant that the Fed might say, hmm, inflation is still a problem. But it seems like they're not making that type of connection anymore, which is interesting.

Right, right. Courtney, the other thing that you wrote about, actually, in the Axios newsletter this week, we'll get the plug in here. It's called Axios Macro. Everybody should sign up for it. You wrote about actually in the Axios newsletter this week. We'll get the plug in here. It's called Axios Macro. Everybody should sign up for it. You pointed out that Powell basically said in almost this many words, yeah, interest rates are not going to be transitory. That is, they're not going back to where they were really in the before times.

Yeah. And this is a very nerdy, but please go on. There are questions about whether pandemic era phenomenon has moved what interest rates should be the level where it's not restricting the economy and not goosing the economy either. Is that is that level higher? And what we saw this week was kind of incredible. That number ticked up by all of one tenth of a percentage point. And I went wild. That number hasn't moved in a while. So maybe slowly, but surely the Fed central banks. Of course, Japan this week got out of the negative interest rate regime, which was totally fascinating. Also, the Swiss National Bank went ahead and cut. How much do you think central banks are looking to the Fed or are they just

doing their own thing now? Oh, that's a good way of thinking about it. I mean, it seems certainly like, you know, inflation is not keeping all of them up at night anymore. I think that they're, you know, whether that's about the Fed or just their, you know, each country's individual situation, the Fed obviously is important. But yeah, the Swiss National Bank, they're doing their own thing. They went ahead and had that surprise rate cut. And the hawks in the Bank of England, they sort of dropped their push for another rate hike, which was really interesting. Christine Lagarde, the ECB president, has been signaling that a potential cut in June remains on track. So that sort of lines up with

what the Fed is doing. So I think that we're definitely seeing the great central bank pivot. We're definitely seeing the great central bank pivot. It's on track for the middle of the year, unless we see something change. You heard it here first, folks, the great central bank pivot of 2024. Kate Davidson of Bloomberg and Courtney Brown at Axios. Thanks, you two. Thanks, Guy. Thanks, Guy.

Have a nice weekend. Wall Street to end this week. I mean, you win some, you lose some. We'll have the details high end and the low. Dollar General, a month after opening its 20,000th store, said a week or two ago that it's shooting to open another 800 of them this year. Luxury brands are expanding as well, which leaves the retailers that live somewhere in the middle, well, trying to keep up. Macy's says it's going to focus on its higher-priced store brands,

Bloomingdale's and Blue Mercury. Kohl's is expanding its partnership with Sephora. You want a Michael Kors handbag? Head on over to Walmart. Marketplace's Kristen Schwab looks at why value-conscious retailers have decided to bring in more premium brands. Usually when people want to go out and splurge, they're not just buying a high-end product. They're buying a high-end experience. Joseph Nunez is a marketing professor at USC

Marshall. And so if you go into a lot of luxury stores, they tend to look like museums. They have objects under lights that are on display, single versions of those products. The fluorescent-lit aisles of big box stores don't scream luxury, but for certain items, consumers just don't care. Call it the Costco effect. You buy Kirkland Socks and Estee Lauder Face Serum at the same store. And experience matters even less online. Why not get a nearly $4,000 tin of caviar at Walmart.com if it's cheaper? And yes, Walmart.com really does sell caviar. These value big box stores, they really want to expand their product portfolio. And that means covering more segments of consumers. With inflation, even higher earners have become price conscious.

Walmart says it now has more customers from households making over $100,000. Jessica Ramirez, a senior analyst at Jane Hollian Associates, doesn't think appealing to these shoppers will alienate lower-income ones, if it's done right. When it comes to Target's collaboration with Ulta, for instance. You don't have the Dior's and the Chanel's, but you do have some of Fenty. Fenty Beauty has a slightly lower price point and appeals to younger customers. But being sold at a big box store can affect brands. Dyson vacuums and Kerrygold butter tend to do fine next to their less expensive competitors. But David Swartz, a senior equity analyst at Morningstar, says apparel and accessories? A handbag is sold alongside very cheap handbags is perceived by consumers as a cheap handbag. is a cheap handbag.

Perception is everything. And Swartz says, as big box stores grow to take the place of dwindling department stores, a wider range of products is possible. I'm Kristen Schwab for Marketplace. We've talked before, I think, on this program about economic indicators and how they come, broadly speaking, in two varieties. Lagging indicators telling us what has happened and leading, trying to give us a sense of what is going to happen.

There is, in fact, a very specific data set called the Leading Economic Indicators Index. It comes from the conference board. And this week's update is that the index rose in February as a sign that the economy is headed in the right direction, which we mentioned because it was the economy is headed in the right direction, which we mentioned because it was the first up indicator in that series in two years. Marketplace's Justin Ho has been looking into what changed. There are a lot of factors that go into the leading economic indicators index.

Stock prices, manufacturing orders, credit availability, and other indicators that give us hints about future economic activity. So looking at them as a group gives you a much clearer picture of what's going to happen next in economy, if we're going to tip into recession or we are on the upward trend. That's the conference board's Justyna Zbinska-Lemonica, who puts together the index. She says a big reason why the index turned around last month was that the manufacturing work week got longer. In other words, employees worked more hours.

That means new orders coming in and there is a production going on. It means this production will have to leave the factories and will be sold. Plus, building permits increased, a sign that housing activity could pick up. Credit was more available, a sign that borrowers might take out more loans. Menzi Chen, an economics professor at the University of Wisconsin, says even if the economy slows down this year, a recession is unlikely. At least there's strength in the economy, probably enough so that you're not going to go into actual negative growth. Chen says that's a pretty common view among economists right now. Late last year, Kathy Bostjancic, chief economist at Nationwide,

says she was expecting a recession. But in the time since, economic data has come in stronger than she thought. You know, most notably, it was the employment figures. If more people are working, that just provides a lot of total income for consumers, and then they could continue to spend. Thing is, Bostjansic says she still thinks a recession is possible. That's because there are parts of the economy that are looking more vulnerable right now, like consumer debt, for instance. Credit card and auto loan delinquencies are at rates that are typically

consistent with the early signs of a recession or recessionary in themselves. But Bostjanczyk says that's unlikely to drag down the economy as long as the labor market stays strong. I'm Justin Ho for Marketplace. Coming up, Americans want inexpensive but roomy vehicles. I mean, show me the lie, right? First, though, let's do the numbers. Dow Industrials off 305 today. That's points three quarters. That's a percent.

Ended things at 39,475. The Nasdaq up 26 points, about two-tenths percent there. Closed at 16,428. The S&P 500 down seven points, about a tenth percent, 52 and 34. For the five days gone by, the Dow improved almost two percent. The Nasdaq added 2.9 percent. S&P 500 up two and three tenths of one percent. Kristen Schwab is just telling us how higher priced goods are having a moment. French luxury goods company LVMH gave back rather two and a quarter percent today. That's a parent company of things like Fendi and Christian Dior, a whole bunch of other stuff as well.

Athletic wear maker Lululemon tumbled almost 16%. Late yesterday, posted earnings and revenue that beat expectations, but issued weaker than expected guidance. Coffee chain Dutch Brothers flattened five and three quarters percent today. Rival Starbucks off about 1%. Bond prices went up. The yield on the 10-year T-note fell to 4.22%. You're listening to Marketplace.

This is Marketplace. I'm Kai Risdahl. The news of the week in automotive was that new EPA rule that could require the majority of new cars in this country be electric or hybrid by 2032. That is the regulatory side of the industry. One ignores market forces, though, at one's peril, about which these two items. One, the Chinese automaker BYD has rolled out a small electric hatchback that sells for less than $10,000 U.S. It's not available here yet, but it does get us to the second and not unrelated bit of news. Ford signaled this week that it's developing smaller and cheaper EVs too, shooting to have one on the market for less than $25,000 by 2026. So we put Marketplace's Henry Epp on the

what would cheap EVs do for the car market anyway beat today. Since electric vehicles are still pretty expensive to make, the new EVs that automakers focused on the last couple of years have been on the high end, says Jessica Caldwell, head of insights at Edmunds. Everything from, you know, a Hummer truck to a Lucid Air. So a lot of things, if you have a lot of money to spend, are available in the EV market. But a lot of car buyers don't have a lot of money to spend. And that's the car industry's next challenge in the EV game, Caldwell says.

The next frontier for the EV market is really the mass market and the mass market consumer. And that consumer doesn't have a lot of options right now in electric or combustion engine vehicles, says Sam Fiorani, vice president at Auto Forecast Solutions. vice president at Auto Forecast Solutions. The problem with the market at the moment is that there's a void of vehicles priced below $35,000, and there are plenty of buyers who want them. That gives an opening to BYD, the Chinese company whose small, sub-$10,000 EV is turning heads, and which is reportedly planning to open a plant in Mexico. That could help it enter the U.S. market. But Fiorani says... Americans want inexpensive but roomy vehicles. They do not like tiny little cars.

Lucky for BYD, they've figured out how to make a lot of different sizes of EVs at low costs, too, and still turn a profit, says K. Venkatesh Prasad, senior vice president at the Center for Automotive Research. What worries the legacy carmakers is the fact that this is the tip of the iceberg. Domestic carmakers have been here before, when first Japanese and then Korean companies disrupted the U.S. car market decades ago. Competition can spur innovation, and the innovation here could mean more electric cars that more of us can afford. I'm Henry Yatt for Marketplace.

OK, Jay Powell and the Fed. Kate and Courtney and I were talking about them, as we do on Fridays up at the top of the program some weeks. Interest rates are staying where they are, as we all know. The thing is, we here at Marketplace and elsewhere, as Kate was saying, get perhaps overexcited in a Fed week. was saying, get perhaps overexcited in a Fed week. But for those who don't cover the economy for a living, Fed meetings can seem a bit, well, dry. Not the fun stuff of a Friday evening, shall we say. Make no mistake, though, the drama is real. You just got to stay awake for it. A special correspondent, Stacey Vanek-Smith, reports. In the world of economics, Jerome Powell's speeches are as dramatic as it gets.

The Federal Reserve chair is the U.S. economy's iron throne. When Powell speaks, markets all over the world surge and plunge. For days, weeks afterwards, people pour over every phrase. Is there a reason to hope? Is an economic winter coming? What will Powell say? Good afternoon. This is as dramatic a moment as you get for the U.S. economy. Behold, the father of interest rates is speaking.

My colleagues and I remain squarely focused on our dual mandate to promote maximum employment and stable prices for the American people. Okay, so it is that special kind of drama, the kind where maybe you start thinking about your grocery list in the middle of it. Ernie Tedeschi was chief economist under President Biden, now works at Yale. And at the White House, it was part of his job and the job of his team to obsess over every word that came out of the Federal Reserve. We would take a lot of notes about the language that he used to talk about where he thought things were going. Tedeschi still remembers this moment back in March of 2020. It was just after COVID hit and nobody knew yet how many jobs had been lost or

how long the shutdown would last. And in the midst of all that chaos, the Federal Reserve issued a statement. They just said straight out, we are bringing interest rates down to zero, one year zero. We are beginning to purchase treasuries and mortgage-backed securities. We are beginning to purchase treasuries and mortgage-backed securities. And you step back and you're just like, this is a game changer. This very simple, unadorned statement just had massive implications. That's the Fed. No sound, no fury, signifying everything. And the drama is pretty high right now. This week, everyone, like the whole world, was waiting to hear what this powerful institution was going to do.

Today, the FOMC decided to leave interest rates, which sounds very undramatic. But with an institution as powerful as the Fed, there's no such thing as undramatic, says Tedeschi. There are all of these reverberations throughout the economy. Case in point, the housing market. It was going gangbusters during the pandemic. Millions of people all across the country started snapping up homes with more space, more nature. They were doing crazy things. Like people would say, like, whatever your highest offer is, I'm going to offer $10,000 more. Helen Jong is a real estate broker in Lake Elsinore, a little town near the mountains in California. Lots of camping, boating.

We're the dream extreme city. Jong says that super hot housing market went ice cold. It's rough. You listen to the builders talk, you listen to the realtors that are trying to sell the houses. Everyone's having a little rough time. A rough time mostly brought on by rising interest rates. Over two years, Jerome Powell raised interest rates 11 times in a series of very unexciting sounding speeches. But the content of those speeches hit the housing market like a thousand angry dragons. Home sales plummeted. In Lake Elsinore, Helen Zhang says, it went from all cash offers and bidding wars to crickets.

Because as soon as would-be homebuyers did the math, they realized just how high their mortgage payments were going to be. With the higher interest rate, they're surprised. And then they're like, okay, when I can afford it, I'll come back in the market. So like all of my buyers were sitting on the fence. People are kind of stuck. And as would-be homebuyers sit on the fence, business slows down for movers, contractors, landscapers, decorators. So all of those businesses, they cut their prices. And that is inflation coming down. It is also the economy slowing down. In the last few months, retailers like Best Buy and Lowe's have said high interest rates are crushing their sales, forcing store closures and thousands of layoffs. And all

because of the words of Jerome Powell. We said it would be bumpy. And until his next announcement in May, all we can do is wait to see what the Federal Reserve will decide to do about interest rates. Wait, along with on-the-fence homebuyers, business owners, CEOs, world leaders, global markets. We wait for Jerome Powell to give the word. We will continue to make our decisions meeting by meeting. It's pretty dramatic. In New York, I'm Stacey Vanek-Smith for Marketplace. As it happens, Jay Powell himself on this program next week, we will make it not boring, I promise.

This final note on the way out today, credit to CNBC for spotting this. I don't know how many cups of hot chocolate or chocolate cakes you can make from a metric ton of cocoa, but it's going to cost you more whatever you choose to make. Cocoa prices hit an all-time high today, almost $9,000 a metric ton. If that doesn't mean anything to you, not being a Cocoa by the Ton buyer, I get it. Think of it this way. At the beginning of the year, you could have had that same ton for $4,200. Our theme music was composed by BJ Lederman. Marketplace's executive producer is Nancy Fargali. Donna Tam is the executive editor. Neil Scarborough is the vice president and general manager. I'm Kyle Rizdahl. Have a great weekend, everybody. We will see you back here on Monday, all right?

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