Morning Brew Daily
Fed’s Latest Rate Cut Reveals Uncertainty & Workers Turned Off By RTO Policies
Thu, 19 Dec 2024
Episode 478: Neal and Toby break down the latest decision by the Fed to cut rates and what it could mean for next year. Plus, why the proposed government spending bill has to be re-worked and why companies who have returned to office policies are not hiring at the same rate as companies with remote policies. Plus Neal shares his favorite numbers which include an interesting Alzheimer's study, 'straight edge kids' and football games clashing with weddings. Finally, all the headlines you need to know ahead of your Thursday. Build your Range Rover Sport at landroverusa.com Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What did the Fed announce in its latest meeting?
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To no one's surprise, the Fed announced its third and final rate cut of 2024 yesterday, reducing the benchmark rate by 25 basis points down to a range of 4.25 to 4.5%. So why did all three major indexes finish deep in the red? While the rate cut itself was all but guaranteed, it was the Fed's cautious outlook for 2025 that had investors a little spooked.
The Fed is now projecting only two cuts next year, as opposed to the four that were anticipated back in September. The Fed also revised their forecast for inflation to 2.5%, up from the 2.1% it originally projected.
In Jerome Powell's press conference after the announcement, he tried to frame fewer rate cuts as a vote of confidence in the economy, but he also said that the cuts announced at this meeting were a closer call than expected due to just how sticky inflation has been lately.
So, Neil, as we close out 2024 with a pretty strong economy, slowly fading inflation, and a stable job market, the question becomes, what comes next?
And Powell said two rate cuts next year. That was not welcomed by investors. The Dow had its 10th straight day in the red. The S&P had its worst day since August. Yields jumped, which shows that borrowing costs are rising. The mortgage rate jumped above 7% for the first time. This was a very violent reaction.
I think investors who had believed Powell knew what he was doing for the past couple of years saw a little uncertainty in what Powell was projecting for the future. And I think an even bigger question was, why do we have the rate cut now? A lot of the press conference Powell spent talking about how inflation was sticky and and he's worried about inflation.
Well, the last thing you want to do when you're worried about inflation is cut rates, which is what he did. So I think those two factors lower less fewer rate cuts next year and then failure to explain why they cut rates this time led to an extremely violent market reaction.
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Chapter 2: Why did the stock market react negatively after the rate cut?
There was actually a dissenting vote of the Fed officials that do vote on these rate cuts. So it was a lively discussion, I think, at that table of should we cut rates this time around. Powell's response was, in effect, that future rate cuts aren't guaranteed, so let's do it while the economy is still strong and inflation isn't too high.
rather like a bird in the hand is worth two in the bush type approach. But you're right, the market definitely did not like that, especially because the projections got so much darker, essentially. We were looking at four rate cuts, now it's down to two, and that could shift even lower if this inflation proves to be as sticky as Powell is saying it is.
I think the general interpretation of what Powell was saying was that this was a pause, not a skip. So the next Fed meeting is in January. If Powell signaled that they would just skip a rate cut then and then continuing the rate cuts going forward, I don't think the market would have reacted like it did. But this was a signal that they're kind of pausing this for now.
And one thing I also want to talk about is that, you know, Powell was asked about Trump's policies and how that would impact inflation and rate cuts. And, you know, economists do widely view Trump's policies of tax cuts, mass deportations, tariffs as being inflationary. So, you know, Powell is going to get pelted with questions about how that would shape the inflation and rate cut outlook.
He demurred. He said that it's too early to tell. It's very premature to try to make any kind of conclusion. Powell and Trump were both in the same positions in 2018 and 2019 when Trump enacted a bunch of tariffs on China. Powell said we can't really learn that many lessons from those tariffs about what might happen in 2025 if there are more tariffs.
So we are entering a state of uncertainty that we haven't seen in a few years. Powell compared it to driving on a foggy night or walking in a dark room full of furniture. You just slow down. So the word, I think, is caution.
Let's get Powell on the pod because that's actually a very nice analogy. Congressional leaders released the text of a three-month spending bill on Tuesday that was supposed to prevent a government shutdown, but the stopgap spending bill has a lot of people big mad. Inside the over 1,500-page bill were a few head-scratching inclusions.
There's $100 billion earmarked for disaster relief in the wake of a devastating hurricane season, economic aid for farmers, and a commitment to fully fund a rebuild of Baltimore's Francis Scott Key Bridge.
But there's also a cost-of-living pay increase for members of Congress, reforms for pharmacy benefit managers, and a measure that clears the way for the Washington Commanders football stadium to be moved from Landover, Maryland, back to D.C., Two of the most vocal opponents of the bill were none other than Elon Musk and his Doge co-head Vivek Ramaswamy.
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Chapter 3: What are the implications of the government spending bill?
you have the essential federal employees like TSA and air traffic controllers who still will work, but without pay. And then they get back pay at that last pre as that previous government shutdown, 420,000 federal employees were working without pay. So we have this big,
busy holiday travel season coming up, and you're probably going to encounter TSA agents and air traffic controllers who are not being paid. So that is a very interesting conundrum. So we have until tomorrow to get this bill passed, and we'll see if they go back, streamline it, and take out all of the pork that had been criticized and pass a new one.
But certainly, Elon has thrown Congress a curveball, and it's certainly a sign of things to come. Less flexibility for employees means lower headcount. That's the conclusion of new research from Revelio Labs, which found that companies requiring return to office grow their workforces more slowly than companies that allow hybrid work.
Since June 2022, companies with hybrid work policies have increased their headcount by 1.6%. For businesses mandating that employees commute to the office, that growth rate is 1%. Now, this could be intentional. Remember, workers have long suspected that return to office mandates were a sneaky way for companies to lay off employees without laying off employees.
And one executive seemed to confirm as much after Amazon announced a five day in office requirement starting in January. The AWS CEO said if employees don't want to comply, that's OK. There are other companies around. But hiring fewer people means you're also hiring fewer all-star people. A separate study from the University of Pittsburgh noted brain drain as a significant cost of RTO mandates.
The research found companies requiring in-office work took significantly longer to fill job openings and suffered abnormally high turnover, which is consistent with the other study showing slower growth. Toby, do you think corporate bosses are going to look at this and think, hmm, maybe we should be more flexible? Seems like the downsides of an in-person requirement outweigh the advantages.
potentially, but like you said, a lot of these companies that did implement RTO policies were hoping that they would see some turnover. That was kind of the hidden thing that a lot of these companies were going for. They wanted to trim down their workforce without actually conducting layoffs.
Where I do think you will see some of these companies taking pause, though, is that if your skilled employees and if your more senior employees are more likely to leave, that is something that you do not want. You mentioned brain drain, but yeah, some of these high position or higher pay grade positions are more difficult to feel, and you do not want that to experience a lot of turnover.
So I do think you potentially will see some pause, which we've already started to see some companies kind of rethink some of their RTO plans because they haven't gone as smoothly as they expected.
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Chapter 4: How are return-to-office policies affecting hiring?
Chapter 5: What are the potential consequences of a government shutdown?
These implications are actually really big because what it's implying is that there are things you can do during your lifetime that could potentially reduce your risk for dying of Alzheimer's, which is something that, of course, researchers want to dig into. Some other interesting things from this finding, too, is that
People who had jobs that involved navigating to a predetermined route, think bus drivers, airplane pilots, ship captains, they did not have a lower rate of Alzheimer's. So there is something about the fact that you do have to spatially reckon, you do have to memorize these routes that did contribute to lower Alzheimer's rate.
So that was just a fascinating thing that it's not just using navigational abilities, it is the fact that you cannot be riding a predetermined route.
Now, some critics of the study, and there were many, noted some limitations. First of all, the age of death of taxi and ambulance drivers. Ambulance drivers were the number two lowest risk after taxi drivers, was around 64 to 67 years of age. And Alzheimer's doesn't really set in until 65, so they noted that criticism.
And then there's the potential that there's a self-selection going on, the fact that Hey, people who have bigger hippocampi just naturally gravitate to being a taxi driver. So the causation correlation effect doesn't really work because maybe it's not the fact that I'm driving a taxi gives my brain a workout. It's that I really like navigating and going through cities.
That's why I'm gravitating to be a taxi driver. So those are just two of the limitations. Pointed out, this is not a definitive study, but it certainly raises really interesting questions about how creating spatial maps in your mind can give your brain a good workout. For my next number, America's youth are more straight edge than they've been in decades.
An annual national survey of teens showed that substance use is hitting new lows while abstaining from drugs is hitting new highs. For example, about two thirds of 12th graders said they hadn't used alcohol, marijuana, cigarettes or e-cigarettes in the last 30 days, the largest share since measuring began in 2017. These findings have shocked public health officials in the best way.
Drug and alcohol use among teens fell the most in history during the pandemic when kids were at home with their parents instead of playing beer pong with their friends. But researchers fully expected the toking and drinking to pick back up when COVID was over. That hasn't happened. Instead of rebounding, drug use has continued to fall years after stay-at-home rules were lifted.
Yeah, I think it's because a lot of teens who do end up experimenting with drugs or alcohol, they usually start in the ninth grade, your first year of high school, because you see a lot of your older peers doing it. But if you break that cycle and the incoming ninth graders never saw anyone
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Chapter 6: How does the job market respond to workplace flexibility?
Let's sprint to the finish with some final headlines. TikTok will fight for its life at the Supreme Court, which said yesterday it will hear arguments on a law that would ban the app on January 10th, nine days before it goes into effect. TikTok is arguing that the law, which compels its owner ByteDance to sell it or else face a ban in the U.S., violates the First Amendment.
Congress passed the measure earlier this year, citing national security concerns posed by this immensely popular Chinese-owned app. But for TikTok, there is hope the Supreme Court agreed to hear this case.
Yeah, just the fact that the Supreme Court is setting aside time for oral arguments shows that the justice do see at least some critical questions about the First Amendment here. I know we've talked a lot about this TikTok saga, but this is probably the time where we are going to finally get a decision one way or the other.
So if you've been kind of tuning it out, this is the time to, you know, tune back in.
I want your prediction. Ban or no ban? I think... Is the Supreme Court going to stay it or let it go?
See, it's hard. I don't know what the Supreme Court will actually argue on the grounds of First Amendment, but I think overall, eventually, the app will not be banned just because there's so many logistical issues to it. So I'm going to say no.
Toby says, let it ride. The first severe bird flu case was reported in the U.S. The CDC said that a patient in Louisiana has been hospitalized with bird flu, which is the first confirmed severe case of the H5N1 illness in the U.S.
More than 60 mild human cases of bird flu have been reported this year following an outbreak that has killed 123 million poultry since 2022 and infected more than 860 dairy herds. As for the severe case, the person had been in contact with birds, both sick and dead, in backyard flocks, the CDC said.
Health officials stress the risk to the human population remains low, but many critics say the US response has not been sufficient.
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Chapter 7: What does the future hold for corporate policies on remote work?
Risk to the public remains low, but there's definitely some threats to these cattle herds. It originally started in Texas, but now California has become kind of the epicenter of this bird flu cattle epidemic. Yesterday, OpenAI unveiled a new feature that lets you call ChatGPT directly from the phone number 1-800-CHAT-GPT. It's part marketing stunt and part useful feature edition.
If your hands are full in the kitchen and you really want a classic, delicious lasagna recipe, but your mom isn't picking up, dial up ChatGPT and ask it for an answer. But don't chat for too long. Callers will get 15 minutes of free chats per month.
Neil, is this a good idea? It's not a new idea, that's what I'll say. Back in 2007, Google launched a phone hotline called Goog411, which offered free directory assistance by voice. They shut it down three years later without an official explanation. But there was speculation that they used the voice data from you calling Google to train voice recognition software.
And Google VP Marissa Meyer, who was later the CEO of Yahoo, basically acknowledged this was the case. So even as far back as 2007, there was controversies around training data.
I think it is so funny, too, that every technological advancement we've had this year is something that Google tried 10, 15 years ago. I mean, think about it. Google Glass, they were early to that. Now we're seeing all this range about Meta Ray-Bans. Obviously all the artificial intelligence stuff, they were very early to as well.
So it truly does say sometimes just timing the market is as important as actually the features that you are releasing.
Let's wrap it up there. Thanks so much for spending your morning with us and have a wonderful Thursday. For any questions, comments or feedback, send an email to Morning Brew Daily at morningbrew.com. And if you're enjoying the show, please share it with a friend, family member or co-worker who needs a 25 minute news blast in the morning. For a more specific sharing idea, here's Toby.
I want you to share it with the college football fans in your life. This is going to be a very stressful weekend for a lot of you. I hope none of you are getting married either, but send them this pod. Send them a little bit of Neil and Toby. Hopefully we can calm their nerves.
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