Marketplace - The ECB could beat the Fed to rate cuts 

Episode Date: April 11, 2024

Like a choreographed dance, central banks usually move together in managing interest rates. But with a high U.S. inflation reading in March, other banks might cut rates before the Fed. The European Central Bank is closer to its target and has signaled a cut in June. Plus, West Texas natural gas extractors are paying to get rid of their excess, colleges are hiring managers to help athletes get name, image and likeness deals, and a complicated insurance tactic is raising patients’ out-of-pocket costs.

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CPI and ECB are the six letters of choice today from American public media. This is Market Class. In Los Angeles, I'm Kyle Rizdal. It is Thursday today, the 11th of April. Good as always to have you along, everybody. CPI, of course, yesterday's not so great, but also not completely unexpected update on consumer inflation in this economy and, related, what it might mean for what the Fed is going to do on interest rates. Keep them higher for longer, is what. ECB, the European Central Bank, which said this morning, in much nicer words, it doesn't

much care what the Fed does and that it's thinking it might cut rates in June. So Marketplace's Kristen Schwab spent some time today thinking about central bank choreography. Usually, major central banks move together by default. Bill English is a finance professor at Yale. Policy is often kind of correlated because there are big global shocks that matter. Big global shock is basically the definition of a pandemic. We all know about the high inflation that came with it in nearly all advanced economies. And some regions have

been able to cool it faster than others. A year ago, inflation in the US was 5%. In the European Union, it was more than 8%. Now inflation's been rising again here, and the EU is edging closer to its target, which brings the European central bank to a bit of a fork in the road. On the one hand, if the economies are diverging, there's no particular reason why you want to have the central banks doing the same thing. If the ECB waits for the US to cut interest rates, it could depress spending too much and force a recession. On the other hand, if the ECB feels like it has some wiggle room, waiting might help its end game.

If you don't make the move at a similar time, there is some potential risk. Wen Xin Du is a finance professor at Columbia, she says cutting rates significantly earlier than the US could shift the exchange rate. If the euro depreciates, import prices might rise and as a result, so could inflation. The depreciation pressure in their home country might work against all this effort against fighting inflation. Now central bank coordination matters less to the US. Ken Kutner, an economist who's worked at the New York and Chicago Fed, says the Federal Reserve can act on its own with

fewer consequences. Since the U.S. is the 400-pound gorilla in financial markets. Still, central bank officials here and abroad must call each other right and chat about the data points of the day. I never rose to that rank at the Federal Reserve to know whether that's the case. We do know they gather at international monetary fund meetings. The next one is next week. I'm Kristin Schwab for Marketplace.

Ah, April. Spring is in the air. Daffodils and cherry trees, lilacs are blooming. For us, not to spoil the mood too terribly much, it also means earnings season. Corporate profit and loss reveals for the January to March quarter kicked off in earnest yesterday with Delta Airlines did quite well indeed. The first big sector to report en masse is the megabanks. JP Morgan Chase, Wells Fargo and Citigroup tomorrow, Goldman

Sachs Monday, Bank of America and Morgan Stanley on Tuesday? What then do you suppose they have in store for us and what might that say about the economy and interest rates and the all important American consumer? Marketplaces Mitchell Hartman lays that out for us. Banks are kind of like economic diagnosticians. They assess the health of companies and consumers as they take in deposits, lend money on credit cards and business expansions, manage corporate mergers and stock offerings. Banks really are bellwethers of the economy.

Karen Petru is managing partner at Federal Financial Analytics. Biggest issues for the larger banks, interest rates, which we, at least I know, are going to be higher for longer, and that helps to improve bank earnings. Because the banks make more money on the interest they charge borrowers. But Petru says there's also a downside to interest rates staying high, credit losses. As consumers keep spending, their credit card balances are rising. Ken Leon at CFRA Research says while that does boost income for banks... What comes with it, of course, is some delinquencies. But it's delinquencies or problems in a healthy

economy, not one that is leaning or in any kind of recession. Right now, Leon says rising delinquencies don't threaten banks' profitability. But they do offer a window on the resiliency of U.S. consumers, says Quincy Crosby at LPL Financial. We know that the low wage earners are having difficulty. What we're looking for now has it crept up the wage scale, middle income wage earners are having difficulty. What we're looking for now has it crept up the wage scale, middle income wage earners with late payments or delinquencies. In the last round of earnings back in January, banks were warning about a possible recession

and how interest rate cuts could hurt the bottom line. Fast forward three months and the focus is on the Fed keeping interest rates high in an economy healthy enough to keep consumers spending it up. I'm Mitchell Hartman for Marketplace. Wall Street on this Thursday, all that inflation-induced agita yesterday? We'll have the details when we do the numbers. There are, believe it or not, some things in this economy that are getting cheaper. Natural gas prices in West Texas have dropped below zero, which is to say some operators are paying to get rid of their excess.

At the same time, though, higher prices of and more demand for crude oil means that drilling is up in the Permian Basin. As marketplace Elizabeth Troval explains, the higher price of one commodity is helping tank the price of another. In West Texas, energy companies are often producing crude oil and natural gas at the same time. Steve Sakala at Tufts says you can think about it like parts of a chicken. White meat is more popular than dark meat. But there's no way to produce white meat without growing a few legs.

So when there's a spike in demand for chicken breast? There is an excess of chicken legs running around that need to be sold somewhere. In West Texas, those excess chicken legs are, of course, natural gas. At Hers is with the University of Houston. That gas becomes a secondary stream. The one with the most value, of course, is the oil, which is now approaching the high 80s per barrel. So the producer makes the money on the oil and essentially is giving away the natural gas.

Hers says oil is also easier to get out of the isolated Permian Basin than natural gas, which needs pipelines to get it to customers. Carl Engum The production of natural gas has outstripped the growth in pipelines to take to market. Lauren Henry Natural gas isn't exactly chopped liver. Carl Engum is with the Texas Alliance of Energy Producers. Carl Engum This should be a boon to the consumer and it is because it keeps some manufacturing costs low. Natural gas is a major US export in the form of liquefied natural gas. It heats up our chicken legs and keeps the lights on.

A lot of electricity, and I mean a lot of electricity, is generated with natural gas as the fuel. And he says if natural gas were more expensive, electricity would be too. I'm Elizabeth Troval from Marketplace. You can make a pretty good case that women's sports have at the very least cracked the glass ceiling. Last Sunday the NCAA women'sball Championship was the most watched basketball game college or pro men or women since 2019. And one hopes it will let those athletes take better advantage of the new economic reality

in college sports, name, image, and likeness deals, NIL for short, which have been legal since 2021. And in that time, a whole university ecosystem has grown up around those deals to facilitate them. Austin Meek wrote about NIL management at the Athletics the other day. Welcome to the program. Hi, Kai. So, name image likeness, as I described above, is really good for the athletes. I want to understand the colleges and universities, their motivations for this. So how do they

approach this whole sort of newest challenge? Well, NIL, since it became legal three years ago, has become a huge part of recruiting and retaining the best players. If schools want to succeed on the field or on the court, they need to have competitive NIL programs. So what does, I mean, you won't know the nitty gritty, but a typical day for a school NIL general manager is what? Like making phone calls to brands

and trying to hook these kids up. What do they try to do? Yeah, and talking to some general managers, I got the sense there really is no such thing as a typical day for them. Every day is different. So it's a lot of conversations with brands and sponsors, conversations with donors, with athletes, trying to stay on top of a legal

environment that seems to be changing every day. Really now, especially with the transfer portal in college sports that allows players to transfer almost at any time, It really is a day-to-day type of thing to make sure that schools are providing everything they can in terms of NIL support to keep players at their school. This obviously empowers the student athletes. It seems to be kind of a pain in the neck for the schools, right, that they have to manage all this stuff now. And it's a competitive challenge for them

Well, it definitely makes their their lives more complicated So there's an old system and a new system that are kind of happening at once and the schools are in the middle of this Trying to figure out how to get as much money as they can to their athletes while not being able to pay them Directly right and so all of that money now is getting funneled through NIL, and it places huge importance on NIL and creates a big challenge for the schools to try to get as much NIL money for their players as they can. There was a great piece in the New York Times the other day, actually,

a data analytics piece, not a sports piece, on how the basketball players in the tournament that just ended were getting paid. And there's everything from like, it wasn't trail mix, but it was like some granola or something that one kid was getting money for. And just, I mean, there's all kinds of stuff that these schools are trying to hook these players up with. Yeah, it really runs the gamut from a sponsorship

with the local car dealership to a national ad campaign with Gatorade. If you think about Caitlin Clark, the basketball star at Iowa, she has a huge platform. Millions of people watched her games. The ratings were off the charts. So there's huge value in that for brands, for sponsorships. And for schools, they want to put their athletes in position

to benefit from all of that because it helps both. It helps the player and it also helps the schools make sure they can get the best players. We should say here, not to turn this into an NIL primer, but there is for the, depending on the player like Caitlin Clark and some of the other really high profile players, there's a lot of money on the line here that these schools are funneling as a little pejorative, but are guiding toward these players. Yeah, absolutely. And I think the exact role of the school in that is one of the really complicated parts of this because some of the entities that are involved in NIL, whether it's consulting

firms or third-party collectives, they have kind of a weird relationship with the school where they're they're not directly affiliated with the school, but they're working really closely together and obviously the school where they're not directly affiliated with the school, but they're working really closely together. And obviously, the school has a big interest in providing the infrastructure for athletes to be able to take advantage of this while not really directly facilitating it.

So it gets really, really complicated, and I think all the schools are really struggling to figure out how best to do that. Yeah, it seems we've traded one thorny issue. Should students be paid for another thorny issue? How should we get those students paid, right? Yeah, and I think everybody believes in the near future there will be a system where schools can directly compensate their athletes, but we're just not there yet. And so for the moment, it all has to go through NIL and that makes it just really complicated. Right. Austin Meek at The Athletic talking NIL. Austin, thanks a lot. I appreciate your time. Thanks for having me. Coming up.

It's almost like, you know, watching divorced parents fight. Well that's not great, is it? But first, let's do the numbers. Dow industrials off two points. Yes, count them too. Less than a one hundredth of one percent, 38,459. For the blue chips today, the Nasdaq added 271 points, one and seven tenths percent, 16,442. The S&P 500 picked up 38 points, three quarters of one percent, 51 and 99.

It is, as I said earlier, earnings season. Delta Airlines helped kick it off by beating analysts estimates pretty handily. Delta soared 3% higher today. On the other hand, not such good news for CarMax. It reported earnings were down from the same time a year ago. Shares slipped just shy of 9.25%. Home furnishing brand Lovesac. Ticker symbol? L-O-V-E. What's L-U-V? Anybody know that one? I'll answer that one tomorrow. Anyway, love. LOVE, 11 and two tenths percent today. After reporting projected sales below analyst expectations, you are listening to Marketplace.

This is Marketplace. I'm Kai Rizdal. Here's a tidbit from the March jobs report we got last Friday. Leisure and hospitality is back. Forty-nine thousand new jobs last month in hotels Friday, leisure and hospitality is back. 49,000 new jobs last month in hotels, bars, and restaurants. And that puts that slice of employment in this economy back above where it was in the before times. But how people get paid for doing those jobs

in bars and restaurants is something of an issue. Specifically, how and how much should tipped workers be paid by their employers? It's an issue because it how and how much should tipped workers be paid by their employers. It's an issue because it's a tough industry. Margins are small and the pandemic did outsized damage. In more than a dozen states, restaurateurs and worker advocates are at odds over how those cooks and servers and other staff ought to be compensated. Marketplace's Sapri Benishaw has the first of two reports. Rather than his real name, we're going to call him Joseph, because this topic is such a lightning rod

that he's fearful for his job if he talks about it or is in a story about it. He is a waiter at a restaurant in New York, running between about a dozen tables. Take a look. I'll be right back with him. The food is New American. World Trade Center is within view, and the prices, well, the burgers cost almost $30.

Working at a restaurant, Joseph tells me later on Zoom, is an erratic way to make a living. During our busy season, I kind of have a full schedule, so that could range from 28 to 40 hours. During the wintertime, when it's a little bit slower, it can go down by a lot to 10 hours a week. Much of his erratic paycheck goes to something very constant.

If my income was spread evenly year-round, half of my paycheck for that month goes straight to rent. In New York, minimum wage is $16 an hour. Like in many states, restaurants don't actually have to cover all of that. They can let some of Joseph's tips count towards that minimum wage. And usually the tips more than cover it. My regular check for me looks typically like $29 to $33 an hour. This is how things work in 43 states, whose minimum wages range from $16 an hour down

to just over $7. This system has different names based on how people feel about it. The technical name is the TIP credit system or Tipped Minimum Wage. Saru Jayaraman calls it the Subminimum Wage. The Subminimum Wage for TIPped workers is a direct legacy of slavery. Jayaraman is president of the One Fair Wage Campaign, which is pushing to end the TIP credit system. It was created after emancipation to allow restaurants to hire newly freed black women, not pay them, and force them to live on a new thing that had just arrived from Europe called TIPs. Jaye Rahman says the system whereby restaurants can use TIPs to cover part of their minimum wage

obligations is a source of poverty for a workforce that is overwhelmingly women. It's also been a source of extreme, the highest rates really of sexual harassment of any industry because these women have to put up with so much in order to get tips. Jayaraman wants all restaurants to pay full minimum wage with tips on top. That she says would create a big pay bump for tipped workers. There are bills or ballot measures that would do this in a dozen states, including New York. Eliminating the tip credit in New York would be absolutely devastating. Andrew Ridgid is head of the New York City Hospitality Alliance. According to its survey,

88% of restaurants in New York believe eliminating the tip credit would be a disaster. In response, restaurants would have to significantly increase their prices on consumers who are already price sensitive. And that would result in many cases in them maybe tipping less. There are seven states that have long banned the tip credit. Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. According to data collected from around 100,000 restaurants by payment service provider Toast, people in these states do tip less, but not by much.

This system, because you get the base wage and the tips, has allowed so many tipped workers to earn much, much more than the minimum wage. Restaurants and labor advocates trade figures like punches on this particular point. Labor group One Fair Wage points to Bureau of Labor Statistics data showing a median pay of $14 an hour or $29,000 per year. The National Restaurant Association says that doesn't fully capture tips and points to data from payment service providers like Square showing a median average of $18 an hour. Amidst the back and forth, there is a place that can shed some light on what might happen if the tip credit were eliminated.

We have to look nowhere further than in Washington, D.C., which just began eliminating the tip credit last year. And D.C. is where we will look in part two. In New York, I'm Sabri Ben-Ashur for Marketplace. The list of frustrations most people have with the American health care system is long. Costs overall and out of pocket in particular. Finding and getting an appointment with a doctor you like. And do not get me started on insurance. Opaque at best, Byzantine at worst. And that's even before I tell you about something called a copay accumulator.

This is one of those stories where you're going to need a little background. Oregon Public Broadcasting's Lillian Karavick has it. Copay accumulators are complicated. If understanding a deductible is college-level, health care speak, understanding copay accumulators is PhD level. So I called up someone with a PhD, Stacy Dusetzina, a professor at Vanderbilt University School of Medicine, to help explain how we got here.

This is an arms race between drug manufacturers and plans, and they keep trying to one-up each other in this fight. It's almost like watching divorced parents fight. If this is an arms race, the people caught in the middle are patients. of one up each other in this fight. It's almost like, you know, watching divorced parents fight. If this is an arms race, the people caught in the middle are patients. Many end up surprised by copays, sometimes in the thousands of dollars. More on that in a second. But let's start with really high drug costs. Take Humira, a common medication for autoimmune disorders like Crohn's disease. Sticker price, seven grand a month.

Most patients don't pay that, thanks to help from the drug companies. So if you are watching a television commercial for a drug and it says, you can get this drug for as low as $10, that's through a co-pay assistance program. But drug makers aren't just trying to be nice. Co-pay assistance is good business. So this is a really smart way for a company to get you to use their branded drug instead of a competitor's drug. Patients get a special debit card to pay their drug co-pays, but also their deductible.

The idea is that after they hit their deductible with drug company money, insurance will start picking up the tab from there. For some drugs, that might be hundreds of thousands of dollars a year. The insurer is ultimately going to foot the difference. That's Lemoore Daphne, an economics professor at Harvard Business School. She looked at drug prices and found copay assistance leads to higher prices of about eight percentage points, which is why health insurers went, wait a minute. This isn't good for us. Insurers have been asking legislators to lower drug prices. But in the meantime, they came up with a counter move.

Enter copay accumulators. When insurance stops counting drug company money financial assistance towards a patient's deductible. That's what happened to Jerrica Code in Granite Bay, California. Her 17-year-old daughter Macy had been taking Humira since she was 14 months old to treat severe juvenile arthritis. The drug had always cost five bucks a month thanks to copay assistance, but in the fall of 2021, that changed.

When Code called her monthly refill in, On the phone, they told me that my co-insurance was somewhere around $1,600, which threw me for a big loop. It turned out her plan had a new co-pay accumulator policy. The insurance drained tens of thousands of dollars from the Humira debit card until it was exhausted, and then came back to Code for her deductible. So she suddenly owed $1,600 instead of the five she was used to. It felt like the rug was pulled out from under me.

Code ended up scraping together the $1,600 copay so her daughter didn't miss a dose and set back her recovery. My fear is I won't be able to afford my daughter's medication. It used to be that copay accumulators were the exception. Now they're the norm. By 2020, 83% of people with commercial health insurance had copay accumulators. And patients like Macy Code are the rope in a game of tug of war between insurance and manufacturers. It felt like it was on the backs of the patient, on the back of my daughter.

Who, she says, really needs her medication. In Portland, Oregon, I'm Lillian Carebake for Marketplace. This final note on the way out today, and bear with me here for a second back in 2017 as Bitcoin and crypto and blockchain were kind of becoming the new new thing There was a beverage company in New York called Long Island iced tea Fine so far right well it changed its name to long blockchain corporation and its shares spiked more than 200% just on the superficiality of the name change. Since delisted, I should tell you, I'm at a flurry of insider trading charges, but that's not this.

Anyway, shares of rent are one way. We're up 220% today after the company said it's going to start using AI as a key part of its growth strategy. Kavyaat emptor, people. Kavyaat emptor. That's all I'm saying. John Buckley, John Gordon, Noya Carr, Diantha Parker, Amanda Petrie and Stephanie Sieck are the Marketplace Editing staff. Amir Bibawe is the Managing Editor. I'm Kai Rizdal. We will see you tomorrow, everybody. This is APN.

Oscar Gomez was a Chicano student activist in the 90s, This is APM. Oscar Gomez was a Chicano student activist in the 90s, a radio DJ and a rising star. He was fire. He was charisma incarnate. Everyone had a crush on him. He was a voice of people, of people who didn't have a voice. Until his sudden and mysterious death. What happened to Oscar?

Imperfect Paradise with Forgotten Revolutionary, wherever you get your podcasts.