Marketplace - Is it cheaper to borrow now?

Episode Date: September 19, 2024

Interest rates fell in the wake of yesterday’s cut by the Federal Reserve — kinda. Truth is, most lenders had anticipated this move for a while and already lowered their rates before the Fed’s announcement. But we’ll have to wait for some of the other ripple effects. Also in this episode: Educators cautiously consider artificial intelligence products, consumers aren’t too interested in the new iPhone and we visit a remote edge of Alaska where national security and climate change clash.

Hi, I'm Kyle Rizdal, the host of How We Survive. It's a podcast from Marketplace. In 1986, before I was a journalist, I was flying for the Navy. Mr. Gorbachev, tear down this wall. It was the Cold War and my first deployments were intercepting Russian bombers. Today though, there's another threat out there, climate change. This could be the warmest year on record. Climate change is here.

Temperatures here are warming faster than anywhere on earth. And while the threat seems new, the Pentagon's been funding studies on climate change since the 1950s. I think we will put our troops and our forces at higher risk if we don't recognize the impact of climate change. This season, we go to the front lines of the climate crisis to see how the military is preparing for the threat. Listen to How We Survive, wherever you get your podcasts.

On the program today, what is going to happen now that money is cheaper? We'll do the finances of football and we'll take a quick trip to Alaska. From American Public Media, this is Marketplace. In Los Angeles, I'm Tom Rizdal. It is Thursday today, the 19th of September, or as we like to call it around here, Fed plus one. Good to have you along, everybody. It is going to take a little bit for the Federal Reserve's half a percentage point rate cut yesterday to trickle down through the economy, but lenders of all kinds are going to start

cutting their rates, too, and borrowing is going to become less expensive for consumers and for businesses. How much less expensive will depend on what kind of business you're running and what kind of borrowing you're doing. Marketplace's Kristen Schwab walks us through it. Most companies didn't wake up to a brand new world today. They woke up to one that kind of felt like yesterday or last week or last month. Carlin Mitchell, a former

economist at the Kansas City Fed, says that's because lenders had been expecting a cut. And so that was already priced into loans. Bonds had adjusted, banks had adjusted, and it's not like companies that have already borrowed had been waiting in the same way homeowners might wait to refinance their mortgages. Mitchell says many businesses have floating loans that adjust on a regular basis, monthly, quarterly, yearly. Commercial banks less and less lend for, I mean, seven years would be an incredibly long loan. I don't think those even happen anymore.

Smaller businesses aren't getting immediate gratification either. They may rely on credit cards and those rates take a while to change. But the Fed's cut did represent a pivot in business mentality. Fred Hoffman is a finance professor at Rutgers. Investing doesn't take overnight, right? There's planning stages, there's R&D, there's all that stuff that takes time. I think the Fed is giving you the green light to get to work. The company's best position to get to work

are big corporations that can take on risk. Because bigger picture, borrowing money is not just about the cost of borrowing. It's also about business conditions. We'll have another president, we'll have another Congress. Which could come with changes to corporate taxes and tariffs. It's why Joe Brusuelis, chief economist at RSM, says businesses that are more risk-averse will act slowly. Small firms will always lag by 12 to 24 months. Mid-market firms, usually about 6 to 12 months.

It could be a bit before companies borrow and invest and hire. The hiring numbers, we're going to see for the remainder of the year will not be impacted by what the Fed did yesterday. Bruce Wehle says we'll have to wait until next year to see the Fed's cuts play out in the job market. I'm Kristin Schwab for Marketplace. Wall Street on this Fed Plus One. You remember yesterday traders were kind of happy and then kind of not happy about the

rate cut? Well, having slept on it, they were very happy about it today. We'll have the details when we do the numbers. I took a little road trip a couple of months ago. Alright, so here we are at 7 something in Utqiadvik. We're out for the day. Also out for the day without cell phone coverage, which is going to be interesting because none of us know our way around here. Utqiagvik, Alaska used to be called Barrow.

My producer, Hilly Hirschman, and I are driving on the one road that goes along the coast. The Arctic Ocean, frozen solid, is just to our left. The sky and the snow are basically the same color. It's a little bit disorienting, actually, because you can't see the horizon. Honestly, we're a little lost. Also, the road is about to get less and less.

Yeah, the road is getting less road-y. I think you go straight. Yeah, I'm pretty sure I just keep going straight, but I'm just playing. There's a truck. There's something up there, right? Brian, you say that. This is pathetic.

It's like literally a straight road down the coast. We're headed to the National Oceanic and Atmospheric Administration's Barrow Observatory. Brian Thomas runs the place. Good morning. Morning. Morning. Hi. Holy cow. We're just going to turn right there. And when you follow me, you know, follow me like you're on the

California Highway 101, not like on the Long Island Expressway, OK? All right, so. I don't know what that means. And I'm from California, Niagara, and New York. Give me a couple of car lengths between us. So I'll lead you in. I'm regretting not bringing you my sunglasses, which

sounds ridiculous. But if the sun comes out, it's going to be brutal. Oh yeah, we're off-roading now. Don't say that on tape. I'm legally not allowed to do that. Sorry. We were, I need to tell you, actually on the road. Oh man.

This is something. Yeah, so we're out here on the edge on purpose. You really do feel like you're on the edge up here. Utqiagvik is the northernmost town in the United States, 320 miles north of the Arctic Circle. It's seven degrees out, 15 knots of wind, very, very cold. Is it just you here or is it? No, there are two of us here.

I have myself, the station lead, and our technician. We live in town, we stay in town, and we have people who come up to do instrument servicing, maintenance installs, but it's just two of us here full time. The observatory is a one-story gray building tucked away from town surrounded by snowy tundra. It feels, and it is, very remote. They've got a new building though, with some modern touches, heated door frames

to keep ice from forming, and for the first time in 40 years, a flush toilet. The truck comes and brings fresh water, and a different truck comes and pumps out the gray water. Like I said, remote. All right, lead on. All right, so we can go on the roof Yeah, it's totally gonna be windier up there, which would be amazing upstairs. Yes. Yeah, all right. Oh, yeah

No, this was a dumb idea. This was a terrible idea So up here on our roof deck we have our solar instruments. Okay, wait roof deck does not connote what you think it connotes It's a big platform solar instruments. OK, wait. Roof deck does not connote what you think it connotes. It's a big platform grating, and the reason it's a grating is so the snow falls through. This observatory has been sampling the atmosphere since the 1970s and measuring the concentration of carbon dioxide for 50 years. Spoiler alert, it's been going up. A lot. In atmospheric and economic terms,

it's a leading indicator of how much more heat the atmosphere can hold. Step outside your scientist hat for a minute and your observer hat and get subjective for me. What does your work mean? It's really important that we know what's happening. If we weren't here to look, we wouldn't know. Observing is one of those things that you do whether you know there's something interesting to

watch or not because what you were looking for is change and if we don't know what's happening now we won't know we won't understand what's happening when we see a change later. Back inside where thankfully it's warm, Brian shows me around. There are flasks and containers galore. Some of the air samples taken here are sent to other monitoring stations around the world, basically to compare notes. Do you know whether the Russians and the Norwegians and the other Arctic nations are doing the same kind of measurements? I can tell you that we have a scientific network of observatories and people who send us flasks. I can tell you that, you mentioned the Norwegians, we have a really good relationship,

a scientific relationship with the Global Monitoring Laboratory with a lot of other countries in the Arctic and all around the world who send us flasks of air for analyze. Literally flasks of air? Flasks of air. They're a couple liters of air in a glass flask, so they're low pressure, they can go through the mail

very easily, and they come back to Boulder, Colorado. That just amuses me, flasks of air being sent in the mail. What we want to do- Do you send air? Yes, we do. Once a week, we collect air and send it. And that way we can compare our continuous measurement to the measurements that are made all around the world. So what we're doing is we're trying to make sure

that our measurements are in context, and the global context is very important That global context is why I'm here the new season of our climate podcast how we survive is all about how the Institution that shaped me the American military is going to shape our climate future a Warming planet means less sea ice up here less sea ice means shorter shipping times from Asia to Europe. Shorter shipping times means more maritime traffic. More traffic means more economic competition, which means more strategic conflict.

The Arctic is warming two or three times faster than other places in the world, right? So we have a very short window of time to get the information that we need to be able to show the change in a compelling way. And then you have to inject that into a policy process that is messy at best. And that's not my job. And that's good that it's not my job because my job is to come here every day and make sure the data is right. I don't know if you saw this in the news the other day, but last week for the second time

in just a couple of months, Russian planes had to be repeatedly escorted out of the Alaskan air defense zone. The first time it happened back in July, it was the Russians operating with the Chinese, not something that's happened before. It was strategic bombers that time, just like it was in the picture that I've got in my office that I think I've talked about on this show before. A picture taken 35 years ago when I was flying for the Navy, escorting those exact same kinds of planes

coming around the North Cape and Norway on their way down to the East coast of the United States. Same planes, much more difficult threat environment thanks to climate change. Also last week, by the way, and not for nothing, the army moved 130 soldiers and a couple of mobile rocket launchers out into

the Aleutian Islands. Force projection, the Pentagon calls it. This week's episode of our podcast, How We Survive, takes us just down the road from Brian and the Barrow Observatory to a Cold War era radar still key to national security, but also under threat from our rapidly warming climate. You can listen to How We Survive. Wherever you get your podcasts, just follow us there. You got whiteboards in classrooms these days, laptops probably, right? Hello Chromebooks. And now maybe chat GPT? OpenAI wants generative artificial intelligence to become a staple of K through 12 and college classrooms.

The company announced this week's attire to an executive from the online learning platform Coursera to work with educators. When ChatGPT first came on the scene, which wasn't all that long ago, you might remember the misgivings teachers had. Districts across the country banned the technology. But schools are changing their tune,

which means a lucrative market is there for the taking, as Marketplace's Matt Levin reports. Rupak Gandhi's inbox is increasingly full of solicitations from AI companies. He's superintendent of Fargo Public Schools in Fargo, North Dakota. Gandhi is frequently getting asked whether the 11,000 students and 900 teachers in his

school district might be interested in an AI tutor or an AI teaching assistant. It pretty much parallels other educational products that we get from vendors periodically. So maybe three to four emails a week. Fargo Public Schools hasn't taken up any of those offers yet, but they're not prohibiting teachers from using AI products either. Gandhi says the conversations he's having with other superintendents and educators is changing. Gandhi I have seen and know individuals that were initially very resistant to any AI tool

or large language model, and then they've kind of come around. Josh Classroom AI products can do things like generate lesson plans or quizzes or provide individualized feedback on the first draft of a history essay. Adil Khan is the founder of the startup Magic School AI. This was a historically intractable problem of educators being burnt out. This technology is so practically useful for them. But the technology can also be expensive and sometimes ineffective. LA Unified spent nearly $3 million

on an AI chat bot called Ed. It ultimately shelved within three months. Lizette Partlow at the Center for American Progress says she's concerned about AI over-reliance. I am nervous that we'll sort of like ignore some of the fundamentals of learning. For example, that like the student-teacher relationship is really, really important. Partlow says humans learn how to learn primarily by interacting with other humans.

I'm Matt Levin for Marketplace. Coming up. I mean, in any given Sunday, even the Bills are playing, you could shoot a cannon down any thoroughfare in Buffalo because everybody is watching the Bills. Sports fans. Am I right? First, though, let's do the numbers. Dow Industrial is up 522 today, one and a quarter percent, 42,025. The Nasdaq jumped 440 points, that's two and a half percent, 18,013.

The S&P 500 picked up 95 points, one and seven tenths percent today, 57 and 13. Kristin Schwab was talking about how the Fed's interest rate cuts are going to play out for borrowers. So let us check in on the flip side of that coin. Some lenders, JP Morgan Chase, rang up 1.4%. Bank of America pocketed 3 and 1.10%. US Bancorp charged up 2 and 1.8%. Today, General Mills dipped just slightly 1.10%.

The company reported growth in quarterly earnings and expects the recent increase in at-home food consumption. We talk about that every now and then. They figure it's going to hold steady. Bond prices down, yield on the 10-year T-note up 3.72%. You're listening to Marketplace. Some of the toughest moments we'll experience in life often come with the hardest financial decisions. Like how much to spend when your pet is dying. Or what to do if you uncover a loved one's financial secrets after they've passed.

It's like having this albatross, this monkey on your back that you don't want amongst everything else. I'm Rima Chavez, host of This Is Uncomfortable, a podcast from Marketplace. This season, we've got a wide range of stories about life and how money messes with it, including the unexpected ways money can shape our journeys through loss and grief.

Listen to This Is Uncomfortable wherever you get your podcasts. to This is Uncomfortable wherever you get your podcasts. This is Marketplace. I'm Kai Rizdal. Apple has been pretty lucky so far with its, if you build it, they will come theory of retail. Announce a new iPhone or what have you. It sells a zillion copies, right? So with the latest phones available in stores tomorrow, that would be the 16,

it's worth pointing out that pre-order and shipment data shows demand is not that strong. And in fact, smartphone sales in the United States overall have been down for the past couple of years. Marketplace's Samantha Fields has more now on what drives people to upgrade or not. Full disclosure, I am the kind of person who holds onto their smartphone until it

dies or at least until critical features like the phone part stop working. Julie Ask, a longtime industry analyst says that's becoming more common. Back in like 2009, 2010, when the iPhone would be announced, people would camp out outside of an Apple store. Because they had to be the first to have the newest device with the fancier camera. These days, Osc says new phones often don't have some big exciting leap in technology. When it's just 12 months or 24 months after I bought my last smartphone, I can't really tell the difference.

So why rush to spend $800? Jessica Ramirez at Jane Holly and Associates says inflation has also made people more inclined to hold onto their phones. They are shopped for cash. So if it's not a current need, they will not spend on it. And Nabila Popal at DataFirm IDC says today's phones last longer.

As people have better devices, they break less often, they need less upgrade. A decade ago, most people were buying a new phone every two years or so. Today, it's more like every four. And since a lot of people bought phones early in the pandemic? We're expecting a modest growth rate in the U.S. this year, but next year we expect it to grow more significantly. And eventually, Pohpal says, with AI, there will likely be big leaps in technology that will make people want to rush out for the newest phone again.

Just not quite yet. I'm Samantha Fields for Marketplace. Come Monday Night Football next week, Buffalo Bills fans are going to be thinking about the game against the Jacksonville Jaguars. But a few maybe will have marked their calendars for a different reason. Retail sales open on Monday for municipal bonds being issued by Erie County, New York to help finance the bill's new stadium set to open in 2026. That bond offering is one piece of an $850 million public funding package, which when it was announced in 2022 was the biggest subsidy ever for an NFL stadium.

Erie County has been marketing the Bills bonds as a way for fans to invest in the team's future. But as Marketplace's Henry Epp reports, the sale taps into a complicated mix of emotions and economics in the NFL's second smallest market. Considering all the heartbreak in the team's history for consecutive Super Bowl losses in the early 90s, this is a pretty good time to be a Buffalo Bills fan.

You've made the playoffs five years running, you've got a star quarterback in Josh Allen, and you're seeing plays like this. On the ground, breaking tackles, James Cook inside the 20, inside the five, somersaults to the touchdown. Yes, he really somersaulted into the end zone. But even in down years, Buffalo fans are dedicated. I mean, in any given Sunday when the Bills are playing, you could shoot a cannon down any third of her in Buffalo because everybody is watching the Bills. Nellie Drew is a professor of sports law at the University of Buffalo. Despite that rabid fan base, the Bills play in one of the NFL's oldest stadiums. The cracks literally are quite visible,

and it's time to move on to a new facility. And since they're in a metro area of just 1.1 million... The entire time I've been here, you always worry about the bills moving because we are a small market. Kevin Hardwick is the controller for Erie County. The 2022 stadium deal between the county, state and team put those worries to rest, but at a cost. For the county, $250 million, half of which it hopes to raise through a bond sale next

week. For a day before institutional investors can get in, Hardwick is giving fans the chance to own some of that debt. Minimum investment, $5,000. This is a once in a generational opportunity for Bill's fans to get involved. And some fans are jumping at it, like Cory Wichter, who works in economic development and lives a few miles from the stadium. In my mind, it's a great way to help finance it where you're not necessarily

putting this on the backs of Erie County taxpayers to that degree. Selling bonds cuts down on the amount of cash the county has to pull from its coffers right now. Enticing more individual investors to buy bonds is in Erie County's financial interest, says Abigail Ertz at FHN Financial. Inviting that local support and retail investor support is a tactic used by issuers to basically invite more orders, not just from retail investors, but from institutional investors. The more investors of all kinds, she says, the lower the county's cost of borrowing.

Still, taxpayers will have to cover that borrowing cost, likely several million dollars a year. Erie County is far from alone in using public dollars to pay for pro sports facilities. Public contributions have generally fallen since the Great Recession, but they're still significant, says Victor Matheson, a sports economist at the College of the Holy Cross. This is not unusual. It's not good public policy, but it's not unusual. Not good policy, he says, because there's not much evidence that having a pro sports team in town actually makes a positive economic impact, in part

because... Every dollar that a Buffalo resident spends on the bills is a dollar not available to spend on other things in the economy. In Buffalo, fan Drew Ludwig, who's a hospice chaplain and says he watches every Bills game, is choosing not to pay for a stadium bond or for anything Bills related, because he's already paying his taxes, which ultimately pay for the stadium. They're taking enough of my money against my will, right, so I don't want to give them voluntary money on top of that.

Ludwig admits he might be in the minority among Bills fans, but he sees a lot of other things public dollars could be spent on. Education, parks, benefits for people in poverty. I mean, there's hunger in Erie County. But the deal is done. The stadium is under construction. Ludwig feels like the region got burned in the negotiations. The people of Buffalo love the bills, right?

And you can't really make business decisions when it's love. It's a power imbalance, he says, and as a fan, that's frustrating. I'm Henriette from Marketplace. We don't usually do obituaries on this program, not more than a handful the whole time I've been here, but we're going to do one today because Neil King died this week. He was a longtime reporter and editor at the Wall Street Journal, but we're talking about him today because in early 2021, not long after January 6th, Neil took a walk 330 miles from Washington, D.C. up to Manhattan. It took him 26 days and he wrote about it in a book called American Rumble, a walk of memory and renewal. We had him on the program in March of last year. You said at the

beginning of this book you wanted to see if America was still possible or had seen its best days and and I won't spoil the ending of the book for anybody because this it truly it's a journey you should read a cover to cover but but where'd you come down? Is America still possible? It is you know I yeah and I don't want to sort of, there isn't really particularly a spoil alert to alert for really necessarily, but I, my real message, you know, is that we're at a time right now where I think we're being devoured by abstractions and sort of bogeymen and figments, not entirely of our

imagination, but that are being promulgated by a lot of forces. And it's troubling to see it play out. And I know for a fact having done it is if you walk out your door with the desire to go to a particular place over a length of time and really just put all that stuff aside and just pay attention, it is a profoundly different America out there. I'm not saying these divisions don't have their reasons and that there aren't a lot of things to be troubled about. There are. But I do think just the idea of a common ground and actually dealing with people who might not be like you or that you might not share everything common with, but being in their barn, in their driveway and dealing with the whole of them,

including the things that are charming despite their politics, just it's a different place. And I think we are losing track of that a little in our desire to be aggravated by things far away. If you look at the up close and in an attentive almost sort of devotional way, the country just tells a different story. is his book. I cannot recommend that book highly enough. American Ramblet, check it out. John Buckley, John Gordon, Noya Carr, Diantha Parker, Amanda Peacher, and Stephanie Seek are the Marketplace editing staff. Amir Bibawe is the managing editor.

I'm Kyle Rizdal. We will see you tomorrow, everybody. This is APM. Understanding personal finance can feel like an impossible task, but it doesn't have to be that way. I'm Janelia Esquinal, and on Financially Inclined, I'll guide you through simple money lessons that will change your financial future. Learn about credit scores, how to avoid scams, and why you need a savings account. Plus, we explore the brain science behind FOMO and what you can do to make smarter money decisions.

Listen to Financially Inclined wherever you get your podcasts.