This is an audio transcript of the FT News Briefing podcast episode: ‘The Fed’s first rate cut in 4 years’
Sonja Hutson
Good morning from the Financial Times. Today is Thursday, September 19th and this is your FT News Briefing. The Fed made quite a statement with its first rate cut. And the UK’s financial watchdog wants to give savers a little pick me up. Plus, exploding pagers and walkie-talkies across Lebanon showed just how vulnerable Hizbollah really is.
Mehul Srivastava
And where this to have happened, say, during wartime, it truly would have crippled Hizbollah because you need to communicate with your colleagues far away.
Sonja Hutson
I’m Sonja Hutson, and here’s the news you need to start your day.
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The US Federal Reserve cut interest rates yesterday for the first time in four years and it was a big one half a percentage point. Fed Chair Jay Powell said that the US economy is in a good place and this rate cut is going to keep it that way.
Audio clip of Jay Powell
More specifically, the economy is growing at a solid pace, inflation is coming down closer to our 2 per cent objective over time, and the labour market is still in solid shape.
Sonja Hutson
I’m joined now by the FT’s US economics editor Colby Smith to unpack all this. Hi, Colby.
Colby Smith
Hi, Sonia.
Sonja Hutson
So half a percentage point is a pretty sizeable cut. How significant is this move?
Colby Smith
So it’s pretty significant. I mean, in the past, what we’ve seen from the Fed is that they opt for these larger decisions. When we’re in a period of acute economic or financial stress, that’s when they deviate from the traditional quarter-point pace. But this time around, we heard a different argument from chair Powell. This wasn’t about responding to weakness. This was about preventing that weakness from coming to pass. So he sees a labour market that’s still on very solid footing as inflation has come down. He said he didn’t really see signs that there is a downturn under way. But this cut is kind of a recalibration of policy in light of incoming data and the fact that they don’t want to fall far behind the curve when it comes to their policy response.
Sonja Hutson
OK. So even if Powell doesn’t view this as a sign that there are cracks starting to form in the economy, is there evidence to support that? I mean, should people be a little bit worried about this sizeable decrease?
Colby Smith
So I don’t think necessarily people have to be worried about the size of the decrease. But I think it’s important to talk about the risks on the margins to the labour market and some of the signs of cooling off that we’ve already seen. For instance, on any metric of labour market demand, those have been softening, whether it’s from the number of vacancies that companies are posting to the hiring rate in general on a month-to-month basis. Those have all cooled quite significantly. But if you are a little bit more optimistic about the outlook, you might point to the fact that unemployment claims they remain low, lay-offs are also low. And the real question is, is do these kind of marginal signs of weakness do they worsen into some broader sign of a downturn? And that’s the big open question. And that’s why we saw the Fed move as aggressively.
Sonja Hutson
And what did Powell say about how we can expect the Fed to cut rates going forward?
Colby Smith
So he was a little bit less committal about that. One of the features of the September meeting is that we get new estimates from officials that kind of aggregates their individual view on the economy. And so in this thing called the dot plot, what we did see was over the course of the year, inclusive of the September move, they expect rates to fall by a full percentage point. And then looking into 2025, they expect rates to fall by another percentage point. So this is the start in a series of cuts for sure.
Sonja Hutson
Coby Smith is the FT’s US economics editor. Thanks, Colby.
Colby Smith
Thank you.
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Sonja Hutson
The UK’s financial watchdog is pressuring banks to give customers a little boost to their savings. So basically, if you have money sitting in a savings account, your bank probably pays you some interest on it. And the Financial Conduct Authority has rules that say when interest rates are higher, your bank should give you a higher return on your money now that interest rates are falling. It seems like the FCA is worried that banks will cut savings rates faster than they should. And if that happens, the regulator is threatening to fine those lenders.
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How did someone turn thousands of pagers and walkie-talkies into small bombs? That’s what a lot of the world is asking after these old-school devices exploded across Lebanon over the last few days, killing dozens of people. Hizbollah, whose members carried the devices, has promised to retaliate. The militant group blames Israel for at least some of the attacks. My colleague Mehul Srivastava has been following the aftermath of the blast. He joins me now. Hi, Mehul.
Mehul Srivastava
Hello.
Sonja Hutson
So let’s start with the pagers that exploded on Tuesday. What do we know about how they went off?
Mehul Srivastava
So we don’t know exactly why and how. But there’s a rough theory that’s falling into place and the theory goes something along these lines, which is that when Hizbollah started buying pagers to hand out to different members, at some point, somebody from the Israeli espionage services, the Mossad or the military intelligence actually gonna handle these shipments before they landed in Lebanon and during that period were able to swap out a few components and maybe do a little bit of malware installation on the pagers themselves, and most importantly, insert a small explosive charge in there. And at some point Tuesday, around 3:30 in the afternoon, almost all of these pagers received a single alert which caused them to explode simultaneously. And it’s very clear, nobody’s proven this. This is something that’s been alleged. But Hizbollah has made it very clear that they think Israel has done this.
Sonja Hutson
Well, how could Israel have gotten its hands on these pagers?
Mehul Srivastava
An operation of this size leaves behind a large room with clues for people to sift through and put it on social media. And very quickly after the explosions happened on Tuesday, you were able to identify from the remnants of these devices, and most of them came from a single company in Taiwan called Apollo Gold. And it turns out that they had at some point licensed that brand to a small company in Budapest. And it isn’t clear whether these devices were manufactured in Taiwan or manufactured licensed somewhere in Europe, whether they were intercepted and when they got to Lebanon. But at some point in the last few months, it’s clear that somebody in Lebanon placed an order for a large number of these pagers to come in. And those are the same ones that exploded.
Sonja Hutson
Yeah, that’s something that I was wondering about, actually. Why is Hizbollah turning to things like pagers in the first place? I mean, this is really antiquated technology.
Mehul Srivastava
Yeah, it really is. I mean, one of the issues was that it’s well known that the Israeli military intelligence units have well and truly infiltrated communications networks around its regional rivals. And earlier this year, Hizbollah chief Hassan Nasrallah had begged his followers to give up their smartphones because smartphones with their GPS and their cameras and their recording abilities, give away a large amount of information that would give away Hizbollah’s intentions and plans. At that point, it appears around like 5 or 6 months ago that Hizbollah started importing this large batches of pagers and then later on started importing a larger walkie-talkies also, which we’ve seen on Wednesday, had started exploding around Lebanon also.
Sonja Hutson
So how is Hizbollah responding to the attacks?
Mehul Srivastava
I mean, Hizbollah is clearly furious about this, but it’s also humiliated because it shows that something as important as the communications between itself and its military members and other members of what is essentially a very powerful militia not only can be compromised in terms of surveillance, but can be turned into a weapon that either disables or kills a large number of its members. And where this to have happened, say, during a war crime, it truly would have crippled Hizbollah because you need to communicate with your colleagues far away. And they’ve gone from cell phones to pagers and from pagers to walkie-talkies. It’s not quite clear what comes after walkie-talkie other than going completely analogue in the way some of other Israel’s enemies have done.
Sonja Hutson
Mehul Srivastava covers cyber security for the FT. Thanks, Mehul.
Mehul Srivastava
All right take care.
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Sonja Hutson
For any Brits listening, I know you just love complaining about American chocolate, which is like fair. But the tables might be turning. There is a global shortage of cocoa and London warehouses have gone through a lot of the good quality beans. What’s left is what one former commodities rep called a poison pill. About a quarter of the remaining beans are more than three years old, so that might leave a little bit of a bitter taste in your mouth.
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You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.
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