Transcript: The Fed cuts US economic outlook
This is an audio transcript of the FT News Briefing podcast episode: ‘The Fed cuts US economic outlook’
Marc Filippino
Good morning from the Financial Times. Today is Thursday, June 19th, and this is your FT News Briefing. The Fed is down on the US Economy. And the UK inflation rate is a bit of a bummer too. Plus, big tech companies have put all their chips on artificial intelligence, and they want Congress to clear the regulatory runway for them. I’m Marc Filippino, and here’s the news you need to start your day.
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The Federal Reserve kept interest rates on hold yesterday, and that was expected going into the meeting. But the bigger thing was the central bank cut its outlook for the US economy. Here to tell me more about what the central bank is thinking is the FT’s US economics editor Claire Jones. Hey, Claire.
Claire Jones
Hi, Marc.
Marc Filippino
So Claire, we mentioned the economy. Tell me a little bit more about why the Fed cut its outlook.
Claire Jones
So what we saw yesterday was the Fed’s economic projections really catch up with economic reality. The Fed releases quarterly forecasts. The last round we saw were in March. That was before the chaos of ‘liberation day’ in early April. What we saw, yesterday, was a downgrade in the growth expectation for this year. They now think growth is gonna be 1.4 per cent. That’s substantially weaker than it was in 2024. Inflation is gonna be higher than they thought back in March. They think it’s gonna be 3 per cent, far in excess of their 2 per cent goal. And unemployment is gonna be a little bit worse, but they still think the US labour market is gonna be pretty strong. Unemployment will creep up a little bit, but not too much.
Marc Filippino
Now the Fed also released something yesterday called the ‘dot plot’. Basically, every member of the Federal Open Market Committee charts out what they think interest rates are gonna look like over the next few years. What did this dot plot tell us?
Claire Jones
So there’s two aspects of the dot plot that I think are quite interesting. One is that people are very attached to the median dot plot projection, which gives you the kind of view of what the kind of average FOMC voter is thinking about — what’s gonna happen to interest rates. The median projection didn’t change at all. It still showed two quarter-point cuts by the end of this year. That might not look that spectacular. But what we did see is a real kind of, like, stretching of the views among the committee. Last time around, in March, very few people expected to see no interest rate cuts this year. Now, with the outlook on inflation looking so much worse, there’s really this sense in which a lot of Fed officials — seven to be exact — now don’t think there’s gonna be any space to cut interest rates this year. And that’s quite significant.
Marc Filippino
So Claire, tell me a little bit more about this push and pull when it comes to interest rate philosophy, because even though the outlook for inflation might be a little bit higher over the next few months, it seems like it’s been contained up until this point.
Claire Jones
That’s a great point, Marc. I mean, coming into this meeting, we saw a reading for May CPI inflation that was a lot better than a lot of people had feared. And Powell said yesterday — you know, in terms of other aspects of US inflation that would not be tariff-related — you know, those are pretty good. I mean, we’re not seeing the sort of burst in inflation we had in the services sector that we got, you know, after the pandemic.
The overall picture is looking OK. However, it’s gonna take a few months, at least, to see the impact of the tariffs coming through. There’s still a lot of uncertainty about what the tariffs will actually be. Businesses still have to decide how much of the tariff they’re gonna pay for themselves, and how much they’re gonna pass on to customers.
There’s a long way to go, and the Fed is saying, you know, the labour market looks pretty decent. We don’t expect a disaster there. We think there’s room to wait and see — and that is what we’re gonna do.
Marc Filippino
Claire, the Fed under Powell has been accused of moving, frankly, too slowly when it comes to moving interest rates. You know, you mentioned the burst of inflation after the pandemic. The Fed was playing catch-up and raising rates then. Is there a concern that the Fed is moving too slowly now, but in the other direction, lowering interest rates?
Claire Jones
Well, if you ask the US president, Donald Trump said yesterday morning that he’d like the Fed to cut, not by a quarter point, but by two percentage points, at least that. So there certainly is these concerns from the White House that the Fed is being too slow. Among the more mainstream economists and Fed watchers, less so. I mean, there is a case where the Fed might end up being too late, but there’s just so much uncertainty about what the tariffs are gonna do to the US economy right now that being a bit patient, it does seem prudent, it does seem the right approach.
Marc Filippino
That’s the FT’s Claire Jones. Thanks, Claire.
Claire Jones
Cheers, Marc.
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Marc Filippino
UK inflation is staying stubbornly high. It clocked in at 3.4 per cent last month, according to figures out yesterday. And the outlook for inflation has become more uncertain because of the escalating conflict in the Middle East that could push oil prices higher. The Bank of England meets today, and the new inflation number makes it more likely that it keeps interest rates steady, like the Fed did yesterday. The BOE has cut rates four times since last summer. And traders expect two more rate cuts this year.
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Big tech companies in the US are lobbying for a 10-year ban on certain rules for artificial intelligence. The provision already passed the House of Representatives last month as part of President Trump’s budget bill, the one he’s calling the ‘big beautiful bill’. Now, the provision just needs to get through the Senate. This decade-long moratorium on AI regulation faces a bit of an uphill battle though. Here to talk more about this is the FT’s US business and politics correspondent Alex Rogers. Hey, Alex.
Alex Rogers
Hey, Marc.
Marc Filippino
OK, so what are the details of this provision, Alex?
Alex Rogers
So Congress right now is debating whether or not to pass a 10-year ban on states regulating AI. Some studies suggest that over a thousand AI related bills have been introduced across the United States and the big tech companies are pushing for a ban on states regulating their industry in favour of a, as they would say, a temporary pause or a light touch framework. They’re looking for a way for the federal government to provide some certainty. As they face states across the country looking to regulate their new industry.
Marc Filippino
And which companies are really pushing for this ban and what are they worried about specifically?
Alex Rogers
So Microsoft, Amazon, Meta, Google, the major big tech companies have hired lobbyists and have pressured Congress to pass this 10-year ban. The whole debate is innovation versus safety in a way. If you have all of the big tech companies on one side saying, we will lose our lead in AI, then you also have on the other side a bunch of different states who want to regulate this industry. In California or New York or Tennessee, they may all have different ideas about how to regulate. The AI companies, though, on the other hand, they’re saying that if this happens, then China or other countries will take the lead in AI.
Marc Filippino
How likely is it that this provision is gonna make it into the big beautiful bill?
Alex Rogers
The 10-year ban has already passed the House, and now the debate is in the Senate. The Republican Senator of Texas, Ted Cruz, is pushing for this provision to pass the Senate. Right now, he’s facing opposition from a few other Republican senators. Josh Hawley of Missouri is one. He thinks that individual states really should have the power to pass their own AI regulation. Marsha Blackburn of Tennessee also seems to be an opponent of this ban. And every vote matters. The Republicans have to pass this bill on a party-line vote with no Democrats, and so they can only afford to lose a few. And the question gets really wonky in the Senate because for the Senate to pass the big beautiful bill, everything needs to have a budgetary impact. When you’re just passing a 10-year moratorium on states regulating AI, it’s hard to determine what the budgetary impact of that would be. And so we don’t know yet if this provision’s going to pass to Senate.
Marc Filippino
Regardless of how the ban fares in the Senate, is there anything that tells us about how the relationship between tech companies and Washington is changing?
Alex Rogers
I think this just shows that the tech industry writ large has learned the lessons of the past. The famous example is Microsoft not understanding in the 90s how powerful Washington is, and then Washington comes down and threatens to break up these companies. The tech industry now is very savvy but had to deal with Washington, and so when they see a huge bill like this one, big beautiful bill come up, they have an opportunity here to strike and to pass something that benefits themselves.
Marc Filippino
Alex Rogers is the FT’s business and politics correspondent. Thanks, Alex.
Alex Rogers
Thanks, Marc.
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Marc Filippino
The conflict between Israel and Iran is starting to hit global supply chains. Insurance prices are skyrocketing for ships travelling through the Strait of Hormuz near Iran. Now the rates to cover the ships themselves, not including cargo, are up more than 60 per cent since the start of the war between Israel and Iran last week. The Strait is a key route for crude oil. No missiles have been fired at a ship there, but insurers are concerned about safety in the region. Vessels going through the Strait of Hormuz face a tonne of threats, including attacks by the Iran-backed Houthi rebels. And the increased risk could mean that some insurers flat out stop offering coverage altogether.
You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.