Federal Reserve poised to raise rates a half-per cent

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This is an audio transcript of the FT News Briefing podcast episode: Federal Reserve poised to raise rates a half-per cent

Jess Smith
Good morning from the Financial Times. Today is Tuesday, May 3rd. And this is your FT News Briefing.

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US central bankers are meeting today amid expectations for a half point interest rate hike. Amazon workers voted no to the latest attempt to unionise a warehouse.

Taylor Nicole Rogers
This is a major, major setback.

Jess Smith
Plus, demand for wind energy is soaring, but that’s not translating into big profits. I’m Jess Smith, in for Marc Filippino, and here’s the news you need to start your day.

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Amazon warehouse workers in New York City have rejected an effort to form a union. It’s a very different outcome the last month, when organisers succeeded in unionising a warehouse just across the street. I asked the FT’s Taylor Nicole Rogers why one facility voted yes and the other no.

Taylor Nicole Rogers
Well, I think a lot of labour leaders are going to spend the rest of the year trying to figure that out. But if I had to make one guess logistically, it’s that the leaders of this Amazon Labor Union were actually all employees at the facility across the street. The one where they won last month. So just logistically, it would be harder for them to make inroads at this facility, get to know people, engage workers, those kinds of things, especially in the face of really fierce opposition from Amazon.

Jess Smith
So Taylor, we’ve got these two cases in New York with split results, and we still don’t have a result from another Amazon union battle from last year. That’s the one in Bessemer, Alabama. Amazon’s still challenging those results. But does this say anything about the broader effort to unionise at Amazon?

Taylor Nicole Rogers
I think it just shows how difficult it is. I think a lot of people last month were saying, oh, we’re at this huge moment when a new labour market, everything is going to be so much better for workers. But I think this just goes to show how logistically difficult it is to pull off a victory like the one they saw last month. And just from my conversations with these workers, I know that they are very, very determined and they will certainly be filing for another election as soon as they’re allowed to. So I wouldn’t say that this is, you know, a once and for all loss for them. But it, of course, is a major, major setback.

Jess Smith
That’s the FT’s US labour and equality correspondent, Taylor Nicole Rogers.

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Also in the US, yields on the 10-year Treasury popped up to 3 per cent yesterday as investors braced for the Federal Reserve to raise rates. Fed officials begin a two-day meeting today, and the expectation is that they’ll raise rates by half a percentage point. Here’s the FT’s Colby Smith.

Colby Smith
So this half point increase would be the first time since May of 2000 that the Fed is taking this kind of aggressive action. And I think it really just shows that the Fed has quite a lot of catching up to do when it comes to bringing policy to a more appropriate stance in light of both the strength of the labour market and tightness there, as well as the overshoot of inflation beyond its 2 per cent target.

Jess Smith
Colby, I wanna ask you more about that, this idea that the Fed is playing catch-up. You spoke to a former Fed governor who said the Fed wishes it had started earlier. Obviously, hindsight is 20/20, but is that a popular opinion that the Fed should have started tightening earlier?

Colby Smith
I think when you see the scope of inflation today, in a lot of ways, people hope that the Fed, you know, had started to scale back some of that accommodation earlier. But of course, some of the shocks that have exacerbated the inflation situation were really impossible to forecast. It would have been quite difficult to have, let’s say, predicted that we would have seen this kind of full-scale invasion of Ukraine by Russia, which has really helped to kind of push food and energy prices higher, which in turn has pushed up headline inflation. But even before we got that shock, some of the kind of pandemic bottlenecks, supply chain issues, you know, really strong demand for goods, all of that had combined to create the inflation situation that has persisted for quite some time. So I think in a lot of ways a lot of these things were quite difficult for the Fed to have forecasted. But I think there has been a wholesale criticism that they perhaps were a bit too slow to remove that policy support.

Jess Smith
Colby, the Fed has been very clear in telegraphing this half-point rate rise. Are markets ready for this or do you think there could be a reaction?

Colby Smith
So markets are definitely prepared for this. Something that Jay Powell, the chair, has done over the past couple of months is be very explicit in the lead up to these meetings about what exactly the Fed is going to do and the way in which Powell kind of talked about it also alluded to the fact that we could see multiple of these 50-basis point hikes this year as the Fed seeks to push its benchmark policy rate to a more neutral setting that no longer stimulates growth and encourages demand. So markets have priced in, you know, looking beyond May, two more 50 basis point hikes this year, as well as further action for the remainder of the year. So in a lot of ways, markets are wholly prepared for this aggressive move.

Jess Smith
Colby Smith is the FT’s US economics editor.

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European countries are planning to use more renewable energy to reduce their dependence on Russian oil and gas. But an earnings report out yesterday from the world’s largest wind turbine maker is a reminder that more demand doesn’t necessarily mean lots of profit. The Danish company Vestas reported a bigger than expected loss in the first quarter and it slashed its outlook for the rest of the year. Here’s the FT’s Richard Milne.

Richard Milne
Just really like the whole renewable energy industry, it’s been on something of a rollercoaster ride recently. Got a lot of wind in its turbine, so to speak, by Russia’s invasion of Ukraine. But the problem it and the rest of the industry has is they’re having real trouble making money. They’ve got a lot of cost inflation with things like steel, but also transporting parts around the world. So it’s sort of quite an odd picture.

Jess Smith
Richard, are these issues just affecting wind energy or are you seeing this with other kinds of renewables?

Richard Milne
Yeah, well, so this is one of the big questions, because what we’ve seen in the sort of solar panel sector that essentially any US or European attempts to compete in the industry just got completely crushed by Chinese companies. And there are some people who are sort of similarly apocalyptic about wind power. Now, a lot of these companies been around, they’ve got a very strong track record. Vestas, Siemens Gamesa, you know, they do very well in offshore wind, which is primarily something that’s taken place in Europe. So they’ve got some things to hope for. But at the same time, governments aren’t exactly looking to push the price of power up. So these companies have got to find a way of making money without government subsidies and to deal with this sort of cost inflation they’ve got at the moment.

Jess Smith
So how important is wind energy for countries as they try to transition to greener alternatives?

Richard Milne
I think it’s absolutely central to it. It’s hard to see a sort of green transition without wind energy of some sort. In some countries, this could provide bulk of energy to come with some kind of baseload from gas or nuclear or some hydropower or something like that. But I think for many countries and in the west, wind power is the future. And in order for that to work, you need companies like Vestas can make decent returns. So it’s gonna be critical to see how this works out.

Jess Smith
Richard Milne is the FT’s Nordic and Baltic bureau chief.

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Efforts to make the shipping industry a bit greener got a big boost yesterday. One of the world’s biggest shipping nations, Japan, told an industry regulator that it would support a carbon tax. Japan put forward a proposal that would have industry pay for every tonne of CO2 that it emits. The plan initially would raise more than $50bn a year. The funds would be channelled back into projects aimed at reducing emissions from shipping.

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Before we go, a quick correction. Yesterday in our story about Italy’s relations with Russia, we said that Silvio Berlusconi was prime minister when he travelled to Crimea to meet with Putin in 2014. In fact, he’d already stepped down.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

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