Transcript: Fed lays out rate cut plans

This is an audio transcript of the FT News Briefing podcast episode: ‘Fed lays out rate cut plans’

Marc Filippino
Good morning from the Financial Times. Today is Thursday, June 13th, and this is your FT News Briefing.

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Marc Filippino
The Federal Reserve is only expecting to cut interest rates once this year, and another crypto company bites the dust. Plus, Silicon Valley is saying, no, thank you, to California’s new AI bill. I’m Marc Filipino, and here’s the news you need to start your day.

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Interest rates in the US have been at a 23-year high for a while now, and the Fed left them unchanged yesterday. No surprises there. But the interesting thing that came out of yesterday’s meeting is how the US central bank is thinking about interest rates moving forward. Here to explain is the FT’s Claire Jones who covers the Fed. Hi, Claire.

Claire Jones
Hi, Marc.

Marc Filippino
All right. So, Claire, the Fed came out yesterday with its so-called dot plot. Basically, every few months Fed participants chart out what interest rates will look like over the next few months and years, actually. What did the dot plot tell us?

Claire Jones
So yesterday’s dot plots told us that majority of the FOMC now think what we’ll either get is one rate cut this year or no rate cuts. That’s down from an estimate of three rate cuts that the committee cut to in both March and December of last year. We also got a sense of what rate-setters in the US think are gonna happen to borrowing costs in 2025 and 2026 as well. However, there’s very little certainty about exactly what will happen this year, never mind next year, in the following years. So the focus is really on what the forecast is for 2024.

Marc Filippino
I was interested to see that the Fed is only signalling one interest rate cut this year, especially because we got the May consumer price index report yesterday as well. And the inflation rate was down from the same time last year, even if it was just slightly. How does this factor into the Fed’s decision?

Claire Jones
Jay Powell said in the post-meeting press conference yesterday that everyone on the committee was aware of what happened to CPI, and they did have their opportunity to change their forecasts of rates this year. So it suggests that many on the committee still think, you know, inflation, OK, it’s fallen a bit, but they’re still rather concerned that it’s quite a way above their target. However, you know, Powell did say that he found yesterday’s reading rather encouraging. And I think the key thing to remember here is that eight people on the committee thought two cuts and Powell emphasise the point that a lot of those people who thought there might be one cut, it was a bit of a close call. So, you know, the idea that they’ll only move once this year is far from set in stone, especially after yesterday’s CPI reading.

Marc Filippino
Claire Jones is the FT’s acting US economics editor. Thanks, Claire.

Claire Jones
Thanks a lot, Marc.

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Marc Filippino
Terraform Labs is going out of business for good. That’s what the Securities and Exchange Commission said yesterday, after the crypto company was found liable in its fraud case. Terraform agreed to pay almost $4.5bn in penalties. Quick history lesson for you: between 2018 and 2022, the crypto operator raised billions of dollars from investors. They did it, though, by selling digital securities that were not properly registered with regulators. That included Terra USD, a stablecoin that Terraform CEO invented. The digital token then crashed spectacularly two years ago and rocked the crypto sector. Terraform now joins FTX and Binance, and the disgraced crypto club membership is growing, but not by popular demand.

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California is trying to rein in artificial intelligence. A new bill is working its way through the state legislature, and Silicon Valley is not happy about it. The law would force AI companies to follow a strict safety protocol, and it could set a precedent outside the state, too. Hannah Murphy joins me now to discuss. Hey, Hannah.

Hannah Murphy
Hi there. Hi, Marc.

Marc Filippino
Tell me a little bit about the details of this bill and who exactly it would impact.

Hannah Murphy
Sure. So it requires AI groups to essentially guarantee to this newly created state body that they will not develop models that have a hazardous capability. So that might be the ability to create biological or nuclear weapons or aid major cyber security attacks. These developers must also regularly report on their safety testing and report any safety incidents to this body. They must also introduce a so-called kill switch — which would fully shut down any model in the case of an emergency — and they can also be sued by the state attorney-general if they fail to prevent third parties from using their models to cause this sort of harm, or at least fail to ensure as best they can, that misuse has not taken place.

Marc Filippino
How does this effort by California play into other efforts to rein in AI?

Hannah Murphy
Right. There is increasing pressure on state and federal legislators to regulate the space to prevent potential harms as AI chatbots and tools become a part of everyday life for many people. And there’s been a flood of venture capital and company investment into the space. In October, we had President Joe Biden announce an executive order that would require companies whose AI models could threaten US national security to share how they’re ensuring the safety of their tools. This is obviously an executive order. It’s not yet translated into legislation, and it would sort of depend on who is the next president, how the AI regulatory regime might be shaped.

Marc Filippino
Just how close is this to becoming a law? It sounds like it could make a huge impact.

Hannah Murphy
Yeah. So it passed with a near-unanimous vote through California’s Senate in late May, and it will go to a vote in the California assembly in August. So, yeah, it’s creeping up on us.

Marc Filippino
So how are these companies feeling about this bill and how are they responding to it?

Hannah Murphy
We’ve got some very big names in San Francisco in AI, fiercely protesting the California bill. They claim it could severely hamper innovation, could drive start-ups in AI to leave the state altogether. Meta’s head of generative AI came out fiercely against the bill on Twitter, saying it was unworkable. It would end open-source AI in California and drive out start-ups. And I spoke to Andrew Ng who’s a renowned computer scientist. He led AI projects at Google, at Baidu. You know, he said it creates massive liabilities for what, to his mind, are science fiction risks.

Marc Filippino
Why are California lawmakers trying to push this through the legislature? What’s their reasoning behind it?

Hannah Murphy
There’s been a culture of move fast and break things in Silicon Valley since the dotcom boom. And regulators have been rightly criticised for not looking closely enough at companies as they grew through that era. So this time they’re sort of trying to get ahead of that. So proponents of the bill say, of course, the tech sector is going to push back. They don’t like regulation. They say that the bill’s scope is going to be clarified and that actually it will not hurt smaller AI groups and it will not decimate open-source. And it’s that it’s a good sort of starting point for making sure that companies can’t cut corners on safety.

Marc Filippino
Hannah Murphy covers Big Tech in San Francisco for the FT. Thanks, Hannah.

Hannah Murphy
Thank you.

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Marc Filippino
You can read more on all of these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.