An effort to give Trump more say on rates
This week, investors had planned to examine the latest inflation data, due out at 8:30 a.m. Eastern on Friday, for clues about when the Fed would start cutting interest rates. But they now have something potentially bigger to digest.
The Wall Street Journal reports that allies of Donald Trump are devising ways of watering down the central bank’s independence if he is re-elected president.
If true, that change would represent the biggest shake-up in U.S. monetary policy in decades. But it also raises questions about whether such a plan is possible — or whether Trump’s Wall Street supporters would back it.
Both big and small changes are on the table, according to The Journal, which cites unidentified sources. Among the most consequential would be asserting that Trump had the authority to oust Jay Powell as Fed chair before Powell’s term is up in 2025. While Trump gave Powell the job in 2017, he has since soured on his pick for raising rates, and has publicly said he wouldn’t give Powell a second term.
Smaller changes include allowing the White House to review Fed rules and using the Treasury Department to keep the central bank on a tighter leash.
The overall goal is to give Trump what he wants: more say on interest rates. Trump allies have discussed requiring candidates to lead the Fed to informally consult with him on such decisions and essentially act as the president’s advocate on the institution’s rate-setting committee.
We have questions about such a move, which could have huge consequences including raising the U.S. government’s borrowing costs because of investor worries about the Fed’s loss of independence.
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Does Trump really support these nascent proposals? Representatives for the former president told The Journal that “no aspect of future presidential staffing or policy announcements should be deemed official” unless it came from him or an authorized official — but they didn’t dismiss the report entirely and he has long favored more powers to chip away at the authority of the Fed and other agencies.
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Could Trump recruit a credible candidate for Fed chair under these circumstances?
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Would Trump’s financial backers, including the hedge fund billionaire John Paulson, support these plans?
For context, remember that presidents have tried to influence the Fed before. See Andrew’s 2018 interview with Paul Volcker who led the central bank from 1979 to 1987:
Mr. Volcker recounts being summoned to meet with President Ronald Reagan and his chief of staff, James Baker, in the president’s library next to the Oval Office in 1984.
Reagan “didn’t say a word,” Mr. Volcker wrote. “Instead Baker delivered a message: ‘The president is ordering you not to raise interest rates before the election.’” Mr. Volcker wasn’t planning to raise rates at the time.
“I was stunned,” he wrote. “I later surmised that the library location had been chosen because, unlike the Oval Office, it probably lacked a taping system.”
HERE’S WHAT’S HAPPENING
Antony Blinken meets with President Xi Jinping of China in Beijing. The two sides were conciliatory in public, even as the U.S. secretary of state was expected to raise numerous concerns about the countries’ relationship and Xi warned Blinken about engaging in a “vicious competition.”
Anglo American rejects BHP’s $39 billion takeover bid. The offer from its mining rival “significantly undervalues” the company, Anglo American said, setting up a potential fight. BHP must now weigh improving its bid — and figure out how to win over the South African government, whose public pension fund is Anglo American’s biggest shareholder.
Elon Musk’s xAI is reportedly close to raising $6 billion. The fund-raising round, which would include investors such as Sequoia Capital, would value the artificial intelligence start-up at about $18 billion, according to The Information. It would be one of the biggest cash hauls in an A.I. start-up amid a heated innovation race, and shows investors are spreading their bets: Sequoia is already a big investor in OpenAI.
A.I. is still giving tech giants a boost
Maybe not all tech giants are being punished for their hefty investments in artificial intelligence.
Shares in Microsoft are up nearly 4 percent in premarket trading, while those in Alphabet are up a whopping 11 percent, after they announced their latest earnings. Both are soaring a day after Meta’s stock tumbled 12 percent — the parent company of Instagram had predicted bigger-than-expected spending on A.I.
The results show that investors are willing to be patient on A.I. — as long as they can see benefits on the horizon. (Getting extra payouts like a dividend helps, however.)
Like Meta, Microsoft and Alphabet are spending a lot. Microsoft reported $14 billion in capital expenses and leases in the first quarter, up 21 percent year-on-year, while Alphabet invested $12 billion — a 91 percent increase.
By comparison, Meta spent $22 billion in the quarter, up 6 percent.
All three said they planned to keep spending on A.I.:
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“We’ll still grow our investment envelope meaningfully before we make much revenue from some of these new products,” Mark Zuckerberg, Meta’s C.E.O., told analysts.
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Ruth Porat, Alphabet’s C.F.O., said spending would be “roughly at or above” current levels.
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Amy Hood, Microsoft’s C.F.O., said investment would “increase materially.”
There are key differences: Meta also forecast lower-than-expected revenue. And investors are also still wary after the company’s multibillion-dollar investment in so-called metaverse technologies, despite no clear sign of a payoff.
Its rivals showed more tangible results from their spending sprees:
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Microsoft reported a 31 percent jump in sales at its Azure cloud service, which powers many of its A.I. offerings like technology from its partner OpenAI. (Note: The Times has sued OpenAI and Microsoft, accusing both of copyright infringement of news content via their A.I. systems.)
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Alphabet also reported a 27 percent rise in revenue at its Google Cloud business.
That said, Alphabet emphasized that it was cutting costs (which Meta did last year, to investors’ delight) and also introduced a dividend and carried out a $70 billion stock buyback.
Wall Street hasn’t written Meta off yet. Despite the company’s stock tumble on Thursday, analysts still think it’s poised to become a leader in A.I. Some agreed with Zuckerberg’s contention that the company had proved it could eventually make money from new technologies.
The other high-stakes N.B.A. contest
While the N.B.A. has already seen some thrilling playoff games, the league is also managing another contest worth billions.
The basketball league got $24 billion in its current contract with Disney, which owns ESPN and ABC, and Warner Bros. Discovery, which runs TNT. Now it’s looking to double that in a new deal — and the results could reshape the media landscape.
Streaming platforms are competing hard for a piece of the pie. The N.B.A. could split its game rights into two bundles: broadcast and digital.
Some games would be taken from the current package held by Disney and Warner to create a streaming offering that would show both nationally televised contests and some playoff matches, according to The Wall Street Journal. (That said, Disney and Warner would still be expected to pay more despite showing fewer games.)
The front-runner among streamers is Amazon, which has won plaudits for its handling of football games. The tech giant signed an $11 billion, 11-year deal to show Thursday night N.F.L. matches in 2021, and this year reportedly paid $120 million for exclusive rights to air a playoff game.
That said, YouTube is also in the mix, The Journal reported.
NBC also wants a big piece of the NBA broadcast pie. It’s vying for regular-season and playoff games to show on its broadcast network and its Peacock streaming service, as well as shared rights with ABC for the finals, according to The Journal.
Warner Bros. Discovery faces a dilemma. Some analysts and investors are worried about the company paying more for a new deal while it tries to pare its $44 billion debt load: Wolfe Research downgraded its shares to an underperform rating this week on those concerns.
But sports rights are among the most highly sought media assets for a reason: Live sports are a big draw for audiences, making them a valuable bargaining chip with cable and satellite companies as well as advertisers.
“Are you better paying up for less games and hurting your financials or juicing your financials but potentially destroying your long term?” Rich Greenfield, an analyst at LightShed Ventures, said to DealBook.
The not-so-new rules for the internet
Net neutrality is back. The Federal Communications Commission voted to reinstate rules designed to prevent internet service providers from slowing or blocking services from some websites, most likely setting the stage for another legal fight between business and regulators.
The F.C.C. restored Obama-era rules that were scrapped under Donald Trump. In a vote on Thursday, the agency classified internet service as a public utility.
The rule is supposed to ensure that broadband providers like Verizon and Comcast don’t charge some websites more than others or slow delivery of content by rivals, like Netflix or YouTube. “Every consumer deserves internet access that is fast, open and fair,” Jessica Rosenworcel, chair of the F.C.C. and a Democrat, said. “This is common sense.”
Critics say the rule is another case of regulatory overreach. Broadband providers worry that the F.C.C. could move next to regulate prices. (Some states have already capped the rate that low-income households can be charged.)
In a letter sent to Rosenworcel this week, dozens of Republicans argued that net neutrality would harm the growth of the telecom industry.
Both sides’ worst fears have never become reality. The Obama administration didn’t start setting broadband prices when it created the rules. When the Trump administration repealed them, broadband companies didn’t throttle or block websites and consumers didn’t notice big changes in how they reached the internet or how much they would have to pay for it.
Democrats say rules are still needed to protect consumers in the long term. Rosenworcel has also said that greater oversight of internet infrastructure would allow the F.C.C. to better protect networks from cybersecurity attacks.
THE SPEED READ
Deals
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Shares in CVC Capital Partners rose 24 percent in their trading debut on Friday, after the private equity giant raised $2.15 billion in its long-awaited I.P.O. (Bloomberg)
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The C.E.O. of Fisker, the embattled electric-vehicle start-up, told employees that the company was in talks with four potential buyers. (Business Insider)
Policy
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The F.D.I.C. delayed plans to limit the influence of big shareholders in banks after neither of two rival proposals for doing so gained support. (FT)
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“A Chinese Firm Is America’s Favorite Drone Maker — Except in Washington” (NYT)
Best of the rest
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New York’s highest court overturned the 2020 felony conviction of Harvey Weinstein on sex crime charges, citing a lower court judge’s error during the disgraced movie mogul’s trial. (NYT)
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The Democratic Republic of Congo accused Apple of using minerals illegally exported from the war-torn eastern half of its territory in its iPhones, Macs and other products. (FT)
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