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Atlanta Fed CEO on the debt limit debacle and curbing inflation

Atlanta Fed CEO on the debt limit debacle and curbing inflation

Wed, 24 May 2023 23:07

On today’s show, we’re joined by Raphael Bostic, president and CEO of the Federal Reserve Bank of Atlanta, to discuss tightening credit conditions, the necessity of raising the debt limit, and why “we’re right at the beginning of the hard part” in the fight to tame inflation. Plus, AI is reshaping the computer chip industry and millions stand to lose Medicaid coverage.

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This is it, everybody. Our May Fundraiser is ending and it's your last chance to help us reach our goal this month at a time where support for public media is uncertain we need you. Our marketplace community of listeners to step up now. Join our community of investors and help us reach our May goal, won't you? Give now at slash donate and thanks. Reading between the feds lines on this economy from American public media, this is Marketplace. In Los Angeles, I'm Kai, Rizdole at his Wednesday, today the 24th of May, good as always to have you along. Everybody, hey, so quick, what is 12 pages long, kind of dense reading, to be honest, but may well hold the key to where this economy goes. No, it's not the secret agreement between the White House and House Republicans over the debt limit because that, as far as we know today, anyway, does not yet exist. I speak here of the minutes of the most recent meeting of the Federal Open Market Committee, which came out this afternoon in which we read so you don't have to. The FOMC, of course, sometimes called the Guardians of Interest Rates. Anyway, we read the minutes, then got Rafael Bostic on the phone to talk things over. He's the president of the Federal Reserve Bank of Atlanta. Dr. Bostic is good to talk to you again, sir. It's good to talk with you as always, Kai. So I was reading through the minutes of the most recent meeting that came out this morning as one does and a phrase hit me that I need you to decipher for me. It said many residents, many participants, focused on the need to retain optionality at the next meeting. What does that mean? Well, it basically means that we're going to let the data guide us and we don't want to be locked into any particular movement. But we know that right now the policies that we've done, the tightening that we've done, is just starting to show up into the economy. And the real question is how fast is that bite going to slow things down? And we won't know until we start seeing data points. So the conversation was really around, don't get locked into anything, let the data come in and then make a judgment after that. You did a panel a number of days ago with Austin Gools, me, at Chicago and Gina Smiley with the New York Times, who people here on the show every now and then. And one of the things you said to Gina after she asked you, you know, what happens if you guys are wrong on inflation? You said that, you know, your counsel to your staff in Atlanta is we haven't even gotten to the hard part yet. What is the hard part of this ain't it? Well, I think we're right at the beginning of the hard part. You know, as we get further into inflation getting close into our target, we're going, I'm expecting we're going to see stresses in labor markets. We've not really seen that. And when that starts to happen, people are going to be looking to us to try to do something about that as well and maybe turn away from our focus on inflation. But we can't do that because failing and getting the inflation back to the 2% target will be much more problematic for the economy. And so as people start to call out for action to provide relief in labor markets, I think what we're going to have to do is just a laser focus on the fact that, you know, our employment mandate goal, we are very, very close to that right now. And we're not close to that inflation. So we have to stay focused on inflation. You were all in the same room for this meeting on in the beginning of May, right? Yep. Okay. Here comes a sideways question. What was the vibe like? I mean, are you all seeing things the same way? So, you know, what I would say is this. Business people across the country are all feeling that slowdown is definitely coming. But there is variation in the extent to which that's happening. So in across my district, for example, and I talked to real estate folks, they tell me that the slowdown is here. There's a lot of pain happening and you guys need to really be careful. But when I talk to others, they say, look, demand is slowing, but it is still quite strong. And so we need you to stay focused and not assume that we're going to get to 2% but rather, you know, just be diligent, be ready to do what you need to do. And so that's the vibe. The vibe is, you know, we've got to be very, very much with our fingers on the pulse of the economy and all the different ways that it shows up. Let me offer the opportunity to put a stake in the feds going to cut rates at some point later this year. Is that on the table, do you think? Well, you know, I'm going to say this two ways. So one, everything is always on the table. So they can come in however it is. My base case is that we won't be thinking about a cut until well in the 24. And, you know, inflation is just double what our target is by just about every measure. I don't see scenarios where the economy is going to evolve in a way. So that inflation gets close enough to our target where we might contemplate any kind of cut. Okay. New topic. I want to ask you about banks. Sure. Paul said at the last press conference he had, you know, he thinks that the really hard part is done that we've drawn a line under the most stressful part. And then of course, first, the public goes under Secretary Yellen said the other day, we might need more bank mergers. What is your sense of where banking is and how that's affecting credit conditions and what it is the fetish trying to do? Yeah, there are really two things that I would say when I think about the banking sector. The first is that, you know, for the most part, banking deposits are stable. Banks have a lot of capital. Their customers are not nervous. And they're doing what they do. And so the risks that we saw revealed themselves to Silicon Valley Bank and the rest of the public, I don't think we're going to see those in most of the banks learn any of the banks in my district. That said, we have to be careful and we have to be mindful and be on top of all of that. And we'll continue to do that. The second point is really around how banks are approaching lending standards and they are all tightening the lending standards. And in part, to guard against the quick-to-risk, but in part because they see that there's some credit risk coming as well, my contacts tell me that the extent of their tight tightening has not been draconian thus far, though. And so I don't see evidence that we're going to be in a critical credit crunch or anything like that. But this is sort of the more orderly way that our policy typically plays through in the economy. And I think it will help us get to slow down in a way that will kind of minimize the amount of aggregate pain that we experience as we get inflation back into Turkey. Just things are in the knowledge to get back to work. I can't not ask you about the debt limit, but I don't want to give you a softball that you can then just bat away and say, well, it's up to Congress and they have to figure it out and the Fed can't save you. So here's my question. Can you believe we're talking about this again? Still? Well, you know, I would just say this through the pandemic, so many things have happened that I didn't expect could happen. I didn't think there'd be a pandemic. I didn't think we would see a war in Europe. And what I really had to do is stop having a lot of expectations about things that were somewhat inconceivable that didn't happen to play out. So, you know, I just, I'm just trying not to be too surprised. This is something that needs to get resolved because ultimately, shaken confidence in the full faith and credit of the United States government will not be good for the economy and will not be good for your average American. If I was to keep the president also the CEO of the Federal Reserve Bank of Atlanta, talk to Bostic. Thanks for your time. So I appreciate it. Always good to talk with you. Look forward to the next time. See you then. Just because I kind of have to and with the observation that we are now eight days short of June the first here is the latest from the Secretary of the Treasury of the United States of America said Janet Yellen today quote, it seems almost certain that we will not be able to get past early June and of quote, make of that what you will Wall Street today still just a hint of debt limit odds and equities will have the details when we do the numbers. The ticker symbol of the day today is NVDA. It trades on the NASDAQ if that gives you a clue. In video, the computer chip design company shares up 77% since the beginning of the year. It's got a bigger market capitalization than visa or Facebook or Tesla for that matter. And yeah, the semiconductor industry has been in the news past couple of years for supply chain reasons we have all heard about. But the reason investors have been so bullish on Nvidia two words a and I. Here's marketplace is Matt Levin on how artificial intelligence is reshaping the semiconductor business. As Chatchy PT for a short essay on whether a hot dog is a sandwich and it'll write you eight wholly original and pretty entertaining paragraphs in seconds and behind each of those paragraphs is a ton of math. Stacey Raskhan is an analyst at Bernstein Research. It was something like 400 quidrillion operations. It's a lot. Chatchy PT needs really powerful computer chips to run all those operations behind its responses. Not to mention to train the AI in the first place. And right now, not a lot of companies make those chips. The one that's leading is Nvidia and then everybody else is far behind. Firms like Intel specialized in traditional CPUs, the chips that power PCs and take on one computing task at a time sequentially. Nvidia specializes in GPUs graphics processing units. They're typically used for video games, but they're also multitasking wizards. The Vekaria is an analyst with Bank of America. When you're dealing with AI workloads, you require it done of parallel calculations. And that is why customers don't mind paying extra for those GPUs. Nvidia's latest AI GPUs cost about 30 grand a pot. RIA estimates the total market will reach about 80 billion in four years. Other semiconductor companies are trying to get in on the AI business and Google and Amazon have also launched their own chip lines. But Carson Elmgren at Georgetown Center for Security and Emerging Technology says it's important to remember that Nvidia and the rest of those companies only design the chips. They outsource all of their manufacturing, essentially all to TSMC, the Taiwan semiconductor manufacturing company, which is based in Taiwan. That makes the entire AI industry vulnerable to supply chain hiccups and geopolitical threats. I'm Matt Levin for Marketplace. North Sea Brent Crew, the global oil benchmark, closed today right about $78 a barrel up a percent and a half or so. But well off its post-Russian invasion high of $122 a barrel, which was almost exactly a year ago. Saudi Arabia and its allies have been cutting production since then, propping up that price being the proximate goal, of course. But as Marketplace's Lilij Mali reports there, starting to blame market speculators for the price drop too. Saudi Arabia is the de facto leader of OPEC, which prides itself on being something like the world's central bank of oil. This kind of fundamental arbiter and influencer of the market. commodity context founder and analyst Rory Johnston says the cartel has that power because it controls a good chunk of the world's supply of oil. Last month it pulled that lever with a surprise supply cut that sent oil prices higher. The challenge has been for Saudi Arabia and for the rest of OPEC, and the price gains have not been that durable. Saudi Arabia's oil minister blames market speculators for that. That's why he's telling those who are shorting oil betting the price will fall to quote, watch out. He wants to punish them. He wants to scare the oil shorts into not shorting oil. I feel like it's kind of like, you know, I'm going to send you to your room. Tracy Schoo, cart CEO of Hill Tower Resource Advisors says the Saudis first lashed out its speculators about a year and a half ago. Their protests are growing louder now that the US is producing less shale oil. She says partly because the low price of oil has made extracting it from shale less profitable. OPEC is not afraid of shale anymore. We're not going to see US shale be at the forefront of production like they used to be. The endgame for Saudi Arabia and the rest of OPEC? Simple, says Craig Earlum, senior market analyst at Owanda. Get oil prices to move higher and stay there. They're trying to talk the price in the right direction to enable them to not have to follow up for that action. In other words, cut oil production. They would rather not cut production, but if back into a corner they will. Ahead of OPEC's meeting next month, the message to speculators seems to be, get out of the way. We're in the driver's seat. I'm Lily Dremelli for Marketplace. 7 Euro, a 6 Euro, a 5 Euro, a 4 Euro, and a 3 Euro. I'm sensing a pattern here. First, let's do the numbers. Down dust drills off 255. Today, 8 10% finished at 32,799 did the blue chips. The NASDAQ down 76 points, about 6 10% 12,484. The S&P 500 gave back 30.7 10% there, 41 and 15. We heard from Matt Levin about the boost the chip manufacturer in VDIA is getting from the demand for artificial intelligence. Well, here you go. VDIA shares down a half percent today during the session. After hours and after an earnings report in which the company said it is seeing huge demand for AI chips shares up 22% Qualcomm. Found about a half percent during the session, Intel, that 1 and 7,10% advanced micro devices AMD, about 1 1 1%. Also had a chat with the head of the Atlanta Fed. Let's take a look at some businesses headquartered in that city. Shall we? Home Depot is subjected 1 and 3 10% today. Equifax, probably best known for its credit reports, right? Dwindled 9 10 to 1%. New old brands, which makes products under the names, including Rubbermaid, Yankee Candle, and Sharpie, which I did not know. Same 3 and 4 10% today. Rent own retailer, Arons, decreased by 1% bond prices down. Yielded on the trend, 10 year treasury note, rose to 3.74%. Keep your own bond, by the way. You're listening to Marketplace. Hey everyone, I'm Rimechres. Host of This is Uncomfortable, a podcast for Marketplace. This season, we explore how secrets can shape our financial lives. We've got stories about the creative lengths people go to pay off student debt, what it's like to become addicted to financial submission, and how easy it can be to get stuck in a vicious cycle. We take a look at how secrets take a toll on our lives and what price some are willing to pay for the truth. Listen to This is Uncomfortable, wherever you get your podcasts. What's up everybody? I'm Danelia Spinal, host of a new podcast from Marketplace. For your team, the show is called Financially Inclined. We're sharing the money basics your high schoolers and young adults need to know to set themselves up for success, from budgeting to buying a car and everything in between. Consider us your one stop shop for financial confidence. Listen to Financially Inclined, wherever you get your podcasts. This is Marketplace. I'm Kai Rizdo. Well, cast an eye toward the economic calendar for the end of this week to set up this next item. At the risk of repeating myself, spending by or on behalf of consumers drives 70% of this entire economy. And of late, there have been signs that spending has been slowing. So come Friday morning when we'll get data on consumer spending as well as PCE, personal consumption expenditures, the Fed's favorite measure of inflation. There will be economic insights to be had. So Marketplaces, Savannah, Mar previews, Fridays news, today with a look at what consumers are spending their money on now. Americans are pretty much set on stuff. We've been stocking up on clothing, electronics, big ticket items for our homes. And obviously there's just so many air frayers I can have on my countertop. Stephen Rogers is a managing director with the Lloyd. He says folks are trying to rebuild their savings cushions. But we're still talking about the American consumer. All right, I'm going to be responsible adult and put some money away. But I'm also going to go out and have some fun and travel. Roger says there's still pen up demand for services like airfare and hotel stays. And for folks who can't afford vacations, luxurious or otherwise, Roger says people at almost every income level are finding ways to spend on fun. So if he abakes, he's this too. She's an economist at morning console. There continues to be a surprising strength in spending in our recreation category. She says consumers are being more price-conscious about necessities at say the grocery store. So we can afford to go out. Maybe the way that we can treat ourselves is by going through the local baseball game or you know, going to a movie. So when might inflation and higher borrowing costs and fears of a recession really start to take a bite out of this kind of spending. Andrew Cecilla, a managing director with Alex partners, is also wondering. I feel like everyone has said for the last six to nine months, wait, something's going to happen. Something's going to happen. But so far, people are still taking out their wallets. On Friday, Cecilla expects will still be calling consumer spending resilient. But come June and July, he expects even our spending on services to Deb. I'm Savannah Mar for Marketplace. Over the past three years, so since the pandemic, the number of people on Medicaid and in the Children's Health Insurance Program has grown by more than 23 million. As of March of this year, nearly 95 million people were enrolled in those two programs, both of which offer free or low-cost health coverage for low-income Americans. But some of those gains and getting more people insured linked, obviously, to the pandemic are about to be lost. Marketplace's Samantha Fields tells us why. Think back for a minute to those first few weeks and months of the pandemic. More than 20 million people lost their jobs. And there was a real fear that many would also lose their health insurance. There was an expectation that the uninsured rate might skyrocket. Larry Levitt, executive vice president for health policy at KFF says to try to prevent that from happening in the middle of a public health emergency, the federal government offered states more money for Medicaid. And in return for this extra money, they required states to keep people continuously enrolled in Medicaid. And that kept millions of people insured. The change with quite dramatic. Sarah Rosenbaum is with the Milkin Institute School of Public Health at George Washington University. If you normally would have lost Medicaid because you went back to work and earned a little more, you'd keep Medicaid. Children who aged out and weren't eligible as young adults got to keep their Medicaid. By early 2022, the uninsured rate in this country had dropped to 8%. The lowest it's ever been. But now that the public health emergency is officially over, states are starting to require everyone resertify again. They're all doing it at different speeds. But over the course of the next year, KFF estimates about 17 million people could lose their health coverage, either temporarily or permanently. Jennifer Wagner at the Center on Budget and Policy Priorities says the biggest risk of people losing it permanently is in 10 states. States that have chosen not to expand Medicaid coverage under the Affordable Care Act. They have what's called a coverage gap. There's a group of individuals whose income will be too high for Medicaid, but too low for marketplace coverage. In every other state, Wagner says, everyone should be able to get some kind of health insurance, at least in theory. Through an employer, through the exchanges, or through Medicaid, because millions will still qualify to stay on it. But Sarah Rosenbaum at GW says it's likely many will lose insurance anyway, at least for a while. The estimates are that probably almost half the people who lose their coverage are not going to be losing coverage because they actually are no longer eligible, but because they somehow got lost in the system. That was always the case before COVID. Lots of people would lose coverage every year when it came time to resertify, because they didn't realize they had to, they had trouble with the paperwork, or because of administrative backlogs or errors. And even those temporary disruptions and health coverage can have major consequences for people. That's the case for Daphne Payne. She lives in Little Rock, Arkansas, with her seven kids. I have a 15 year old, an 11 year old, a 7 year old, a 6 year old, a 5 year old, a 4 year old, and a 3 year old. And all of them have been on Medicaid for the last few years. But earlier this month, after Arkansas started redetermining everyone's eligibility, she got a letter saying her youngest, the 3 year old, no longer qualifies. I don't know why yet. I don't hate people in this family. Just one child was denied his medical services, and he was supposed to be started school. But now he can't, because the school he was going to is for kids with developmental delays, and Medicaid was going to pay for it. Payne is hoping the denial was just a mistake. She's planning to apply again. But she's worried about him getting sick in the meantime. And even if he does eventually get back on Medicaid, it's likely he'll have lost his spot at the school, she says. They only hold it for 30 days. It's very hard to get keys into this program. More than likely, he won't be able to get into, it probably makes you around this time. Millions of people are going to be dealing with different versions of this in the coming months. If some of these estimates are right, we could see the biggest increase in the number of people uninsured of all time from this all time low. Larry Levitt at KFF says it'll be at least a year before we really know how it all plays out. But we had this period during a pandemic where our health insurance system worked as well as it ever has, and we came as close as maybe we will for quite some time to universal coverage. And now he says that period is coming to an end. I'm Samantha Fields for Marketplace. This final note on the way out, I said this the other day, but I really want to make sure people understand what's going on with the debt limit and how things are already happening. Not the negotiations, they are going to be whatever they are going to be and not equities, although they are starting to show signs. Let's talk bonds, short term bonds, one month treasury bills. Back at the end of April, that is a bit more than a month before Janet Ellen's June one date. They were yielding. That is the interest they were paying was about three and a half percent. The government was paying three and a half percent to borrow money for a month. Today, well inside the point where default is a non-zero risk, the government has to pay five point seven percent to borrow money for a month. Think about that for a second. And all the money the federal government has to borrow. It's like a train wreck in slow motion. All right, we're going here though is your moment of economic context. One more quick calendar heads up. Tomorrow morning, 830 East Coast time because everything seems to be East Coast time, right? The second look at first quarter economic growth, that is to say, a revision, gross domestic product January through March. Our media production team includes Brian Allison, Jake Cherry, Drew Jostet, Gary Oak Kev, Jeff Peters, Charlton Thorpe, Juan Carlos Toronto and Becca Weinman. I'm Kyle Rizzo, we will see tomorrow, everybody.