Why the Federal Reserve Is Investigating Amazon
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Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York. The staff at Amazon Web Services got a surprise visit from Federal Reserve investigators earlier this year. That's unusual for the Fed to sniff around a big tech facility. but the investigators knew exactly what they were looking for. We have details in a moment. First, some money in market news you should know. Businesses pulled back on their investments in the second quarter of the year, but for the American consumer, it's blue skies ahead.
What prompted Federal Reserve investigators to visit an Amazon Web Services facility?
A monthly survey of consumers' sentiment indicates that Americans' outlook for the economy and their own buying power has remained strong and stable since the start of 2017. That's despite all the talk of trade battles and economic slowdowns overseas. The survey, by the way, was taken before President Trump's comments this week that he may impose additional tariffs on Chinese goods in September. But much of that optimism has to do with average hourly wages for private sector workers. which have risen 3.2% from a year ago, and that's up slightly from the previous month's pace. And remember those dashed buttons that allowed Amazon customers to reorder products like laundry detergent or diapers?
Why is a Fed inspection of a tech company considered unusual?
Well, they're going to be officially turned off at the end of August. Back in February, Amazon said they would stop selling the little buttons globally, and as of August 31st, consumers won't be able to place orders through them. Now, if you're a Dash button fan, you can blame devices like Amazon's Alexa-enabled Echo for making the button obsolete. But fear not, Amazon says you can still use the virtual Dash button on Amazon's website or mobile app. When you hear Federal Reserve, you think of interest rates and economic indicators. But what does the Fed have to do with Amazon? Federal Reserve examiners paid a visit to an Amazon facility this past spring, and Wall Street Journal reporter Liz Hoffman is here to tell us what they were looking for.
So Liz, this is pretty unusual, right? The Fed sniffing around an Amazon facility?
Very. One of the Fed's jobs, in addition to setting interest rates, is keeping an eye on the banks. It's their job to make sure that the banks are safe and sound and healthy. And that is obviously very important. One thing they've been getting more interested in over the last year or so is all of these really big technology companies that are vendors to banks. And they're doing more and more of a kind of behind the scenes, under the hood, you know, bips and boops and digitization that makes banking work today. And so the Fed has been getting very curious about that.
And as Amazon has grown its web services business, it's become very tightly linked to banking.
Amazon is the biggest provider of cloud computing, which is basically on-demand data and storage and analytics that banks use. Banks used to run, and some of them still do, but they had these huge data centers that they were running themselves and upgrading the servers and downloading the software. And a lot of them have said, that's not what we do well. That's not our core competency. Let's outsource it to a tech company, Amazon, Microsoft, Google, that do this for a living. And they handle things like credit card payments and all sorts of... Credit card payments, trading order flow, you know, when you want to log in and they have to send you a one-time password. Odds are that probably comes from an application on a cloud that just, whoosh, sends that out.
It seems that Amazon knows its size and influence in the banking industry and it's lobbied against more regulation, but probably was not a big fan of investigators coming around. That jumped out at me in your description of how Amazon employees reacted when the Fed showed up.
So the legal authority here of the Fed to officially regulate, examine, demand things of a company that is in a bank is a little bit unclear. Amazon, you know, from our reporting, is not against the idea, did not tell them to get lost, but had some questions about, well, what exactly do you want to see?
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