Also: Amazon's grocery struggles, Huawei AI, McDonald's boycotts.
Good morning.
Fed chairs don’t frequently appear on television. Paul Volcker almost never did. Alan Greenspan did it once—Oct. 4, 1987—and was asked if he was enjoying his new job. His answer: “So far.” Two weeks later, the market dropped 22%, and he never went on TV again. Subsequent chairs, in an effort to be transparent, have done it more frequently, but still rarely. So when the Fed chair speaks, it’s worth listening.
With that in mind, here are excerpts from Scott Pelley’s interview with Jay Powell, which aired on 60 Minutes Sunday. I have edited the questions and excerpted the responses. This post is longer than usual, but worth reading for its clarity. If only every leader in Washington were so straightforward.
When will you cut interest rates?
“Well, we have a strong economy. Growth is going on at a solid pace. The labor market is strong: 3.7% unemployment. And inflation is coming down. With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully.”
Is there unanimity among Fed officials that it should happen this year?
“Almost all of the 19 participants who sit around this table believe that it will be appropriate in their most likely case for us to cut the federal funds rate this year.”
Will the decision be influenced by the election?
“We do not consider politics in our decisions. We never do. And we never will.”
Should you have raised rates sooner than you did?
“In hindsight, it would’ve been better to have tightened policy earlier.”
Is it unusual to beat back inflation without prompting a recession?
“Yeah, it’s historically unusual… I’ll tell you why I think it is. And that is that it was these pandemic-related distortions, both of demand and supply.”
Is rising federal debt a problem?
“We mostly try very hard not to comment on fiscal policy and instruct Congress on how to do their job when actually they have oversight over us…I would say this: in the long run, the U.S. federal government is on an unsustainable fiscal path.”
With people working from home and office real estate crashing, could there be another banking crisis?
“I don’t think that’s likely…We looked at the larger banks’ balance sheets, and it appears to be a manageable problem. There are some smaller and regional banks that have concentrated exposures in these areas that are challenged.”
Will China’s economic problems affect the U.S.?
“Our financial system is not deeply intertwined with theirs. Our production systems are not deeply intertwined with theirs…We may feel them a bit, but they shouldn’t be that large.”
Why is immigration so important to the economy?
“Well, first of all, immigration policy is not the Fed’s job…I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last year, a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.”
What’s the greatest threat to the economy?
“I think in the near term, I would point to the geopolitical risks…There’s a war going on in Ukraine. There’s a war going on in the Middle East, and there’s potential trouble in Asia.”
What’s the single most important factor for the future of American prosperity?
“Single most important factor? Well, with your permission, I’ll name two things.
One is I think we need to just remember that we have this dynamic, innovative, flexible, adaptable economy. More so than other countries. And this is the big reason why our economy has come through so well…
The other thing I’ll point to, for the United States, is: There’s a real desire for American leadership. Since World War II, the United States has been the indispensable nation supporting and defending democracy, security arrangements, economic arrangements…And it is clear that the world wants that. And I would want people in the United States to know that this has benefited our country enormously. It benefits our economy so much. And I hope that continues.”
You can find the full transcript here. Other news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
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Amazon’s grocery struggles
Amazon will likely surpass Walmart in quarterly sales this year, but there’s one area where the e-commerce company lags the real-world retailer: groceries. Despite investing in its Amazon Fresh delivery service and buying Whole Foods in 2017, Amazon accounts for just 3% of U.S. grocery sales, compared to 30% for Walmart. Groceries could be a lucrative market for Amazon. The sector tends to be recession-proof, and repeated buying builds brand loyalty. Fortune
Huawei embraces AI
Huawei is slowing production of its popular smartphones so it can prioritize another popular product: AI chips. Chinese companies are turning to Huawei after U.S. export controls blocked them from buying semiconductors from companies like Nvidia. Huawei took first place in China’s smartphone sales for the first two weeks of 2024, according to Counterpoint Research; it’s the first time Huawei has taken the position since the U.S. put the company on a trade blacklist in 2019. Reuters
McDonald’s boycotts
McDonald’s shares sank 4% on Monday after the fast food retailer reported $6.41 billion in quarterly revenue, below analyst expectations. The company blamed faltering global sales on boycotts in the Middle East and Muslim-majority countries sparked by one franchisee's discounts for Israeli troops. CEO Chris Kempczinski previously warned that the war and “associated misinformation” would hurt McDonald’s business. CNBC
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2024 Travel Remains Resilient The travel industry remains resilient even amid economic uncertainty, as Americans continue to prioritize experiences and leverage flexible work arrangements. Deloitte’s 2024 Travel Outlook unpacks what is driving this continued travel intent. Read more.
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