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A look inside the Fed Just who votes on these rate decisions? GLP1's why smaller portions may be coming to your favorite restaurant. And PayPal looks to turn things around by partnering with Google. For Thursday, September 18, it's Brew Markets Daily and I'm Ann Berry. More market details to come. But first, there is nothing more frustrating than wasted potential. And watching PayPal for for the past five years has been, for this reason, extremely frustrating. The original fintech giant has had all the natural advantages with which to win, the first being its scale. Last quarter alone, PayPal reported 266 million monthly active accounts, the core of these being for its classic checkout product at namesake PayPal and for its payment app Venmo, known best for starting life as a way for users to pay their friends. The second advantage it has had is tenure. Founded in 1998, PayPal IPO'd in 2002, but was bought by eBay later that year. PayPal bought Venmo in 2013, and then the bigger combined business was spun back out into the public markets in 2015. Now, with the big installed base of two early big brands, PayPal and Venmo, the company had both the reach and the time to spot trends early, like Buy Now, Pay later, or BNPL1. BNPL giant Affirm was founded in 2012 by a PayPal co founder, but it wasn't until August 2020 that PayPal even started to offer BNPL, by which time a firm was already revving up and big enough to go public off the back of just its one product. Meanwhile, Apple Pay, Google Pay, and Stripe continued to encroach on PayPal's turf, taking share from both its consumer and merchant users. Now its sluggish pace of innovation has shown in PayPal's share price. Let's pull up the chart and take a look. And for those of you, you can see it on YouTube if you're tuning in that way. And those on audio, you do see that the share price of PayPal is down 60% from five years ago. This chart is in the red, where we are now. Almost exactly two years since CEO Alex Chris joined to turn PayPal around, reorganizing the management team and the structure of the way the company goes to market to make it easier for its users to adopt a broader rang of its products. So what's next? Well, let's listen to what Chris had to say in the July earnings call about his new growth priority.
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The major players in AI, including Perplexity, Anthropic and Salesforce, are working with PayPal to create powerful new agentic commerce experiences. These new experiences will enable customers to find the right products, check out directly within the AI client track purchases, and much more.
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And adding to this lineup, Alphabet just announced that it will integrate PayPal's enterprise products to process card payments across Google Cloud and Google Play, amongst others. While PayPal certainly needs the help, although its share price is up about $10 since CEO Chris's arrival and it nudged up on the Google announcement yesterday, growth has just still been too slow to Inspire Wall Street. PayPal's share price is down nearly 20% year to date. Firms meanwhile proving it's more than a one product, pony up nearly 50%. We will keep on watching. Coming up, the Fed's rate cuts and the markets figuring out when we'll get more. We demystify the voting process that will get us there. But first, Brew Markets Daily is sponsored by Public, the investing platform for those who take it seriously. Before the show today, our producer John mentioned a feature he recently found on Public that's right.
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I've been digging into crypto lately and I discovered that on Public, along with stocks, options and bonds, you can also trade crypto. Lots of tools to build and manage your wealth. Public has access to 40 cryptocurrencies including Bitcoin, Ethereum, Dogecoin and more.
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And if you have questions about your investments, no problem, because Public has Alpha, an AI powered research assistant that can help you find the answers you're looking for. Fund your account in minutes or less. Get started at public.com brewmarkets that's public.com.
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BrewMarkets paid for by Public Investing Full Disclosure and Podcast Description now all eyes.
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Were on the Fed this week as Chairman Jerome Powell announced yesterday that the Fed would cut interest rates by 25% basis points. Long awaited and long expected. Exactly that move. There's been coverage of the Fed's dual mandate, that's employment and inflation, and debate over whether the group is becoming politicized. Well, we wanted to take a step back from the headlines and break down the structure of the rate setters and how they get to decide on something that affects us all. Because these rates, if not immediately at some point, filtered through to everything from our auto loan costs to our mortgages. So John, kick us off with some background.
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All right, just to set the stage, the Federal Reserve is the US Central bank and it has a system and it includes two core sets of people. You've got the Board of Governors, we've heard of them. That's seven members. And then there's presidents of 12 Federal Reserve banks around the United States, then the FOMC, the Federal Open Market Committee, and that's who we hear about voting. They're a mix of both of those groups.
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Well, let's start with the group that is those 12 Federal Reserve banks. Each bank is responsible for a specific geographic district in the United States and they are. These banks are located in. You ready for this? Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
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Got it.
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I did it in one breath, by the way. Now, the presidents of each of these serve five year terms. And the process by which they are selected is set out in the Federal Reserve Act. And what happens is that a new president is appointed by that specific Reserve Bank's Board of Directors, several of whom are meant to represent the public. And whenever a vacancy comes up, a candidate is found by literally hiring a search firm. And that recruitment firm will help a search committee. Consider a large nationwide pool of candidates that can come from both inside and outside the Federal Reserve System. So these 12 banks operate independently. Again, they have a board of directors and again they have a president, but they are overseen by the Board of Governors. And that, John, is a federal agency.
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That's right. It's a federal agency in Washington D.C. it's responsible for conducting monetary policy and regulating financial institutions. And those seven members are nominated by the President and confirmed by the Senate and they serve 14 year terms. I found that really interesting. And so then again, the FOMC is a blend of both what you're talking about and the board.
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So let's break that down a little bit more. So the FOMC consists of 12 individuals, right? And just to lay this out, we've got 12 presidents of Federal Reserve banks. We've got seven members of the Board of Governors. That's a total pool of people of 19, right? At any one moment in time, 12 of those 19 are on the FMC, always the seven board of governors. But then five of those 12 Reserve bank presidents rotate. They serve one year terms on the committee on a rotating basis. So this is really interesting, John. You've got folks with a mishmash of terms, right? We've got some people on the federal side, we've got some people on the, meaning the Board of Governors. We've got some at the independent Federal Reserve bank side. And we've got folks who've been in some cases appointed under different presidents in different moments. So you've really got a hodgepodge of folks. You know, there's Quite a lot of diversity on here. Now, the group of 12 people that constitutes the Federal Open Market Committee meets eight times a year to set policy, just as they did earlier this week. And to your point, John, different terms, and this 14 year term in particular is a pretty long time.
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Right? And it leads to there being openings. Not everyone serves all 14 years. And so there's periodic openings. So let's take two examples from the headlines. Yeah, there's Lisa Cook. We've been hearing about her. She was nominated by President Biden, sworn in in 2023 for a term ending in 2038. That's that 14 year term. She's the Fed governor who weeks ago was preliminarily removed from the board based on allegations of mortgage fraud. She was then reinstated by an appeals court ruling hours before the meeting started on Tuesday. And just today we heard that President Trump's administration has asked the US Supreme Court to allow the firing of Cook. So her story continues. Then there's Stephen Myron, who President Trump nominated to fill a vacant position on the board of. And he was sworn in just hours before the latest FOMC meeting.
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Okay, so the FOMC voted, as I mentioned, and yesterday the decision came out that the Fed was going to lower rates by a quarter percentage point. And so here's what the market looks for. And the market is sort of familiar with the way in which the FOMC is constructed. The market likes to see, given all the diversity. We've just talked about how united or not the FOMC is when it comes to deciding what to do on a rate decision. And we saw yesterday that the board was pretty unified, voting 11 to 1 to lower the Fed rate. Now, here's what's really interesting. The vote is made public. You can literally see how every single member of the FOMC voted. And yesterday that one person, the outlier, was Stephen Myon. To your point, he'd actually voted for a deeper half point cut. So we're nearly done nerding out. Stay with us. We're not quite there yet. We just got one more thing, because the second output of this group of people that the markets look at is something called the dot plot. Now, if you've got 12 of the 19 individuals we've talked about serving on the FOMC at any one point in time and voting publicly, here's what all 19 get to do, and they get to do anonymously. They get to articulate what they think the federal funds rate should be in coming years. So each member anonymously assigns a dot so you can see this visually and then the market will go look at it. We pulled it up. For those of you who can see on YouTube, we've pulled up the most recent dot plot. And for those of you on audio, here, what's, here's what it looks like. It's a scatter graph and we'll post a link to this. I can post it my Instagram so you can go check this out and nerd out with me. But this dot plot is again something that the market looks at. You'll see those 19 dots each of the individuals and you see where they think rates trend over a three year period. Now here's what this is not. This is not a plan. The dot plot is not a plan. It is not a concrete path. It is simply a visual way of representing what each individual member of these 19 folks with a ton of information, they think of their own economic models, they may have their own set of assumptions, but it's the perspective of 19 individuals very well placed to figure out what the rate should look like over time. That's why it's so important. That's why we keep watching this.
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It's fascinating and I'm going to be.
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Looking for that, that scattered with me now going forward. So we'll keep, we'll keep coming back to this because you know, again, just to summarize what happened yesterday, there is now an expectation looking at the dot plot, looking at some of the comments that came out of the Fed decision yesterday, that they will probably, you know, there's a view there could be two more cuts this year, which is more rate cutting than had actually been expected for 2025. Some of that activity had expected to be pushed into 2026. This is going to stay pretty fluid. Let's take a quick break and then when we come back, the biggest headlines of a day which saw a ton of big news. It's 4pm on the East Coast. There's the bell. The market's closing and we don't have a ticker tape. So we'll throw it over to our human ticker, our producer John. That's right.
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The major indices marched toward more record highs today. The S&P 500 was up half a percent, the Dow finished up a third of a percent and the NASDAQ was up nearly 1% on the day. Here's some market headlines on Wednesday, as at its annual developer conference, Meta unveiled three new types of smart glasses. One of them, called Meta Ray Ban display, has a tiny screen in its lens that can display Apps share media to Instagram and play music from built in speakers. And Ann, we've been following the distinction that Meta has made by partnering with Ray Ban. Seems like the sense of style helps this product over, you know, Apple's Vision Pro headset, which was not very popular. Would you wear these Ray Bans?
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Okay, so I would distinguish this from the Apple Vision Pro headset because I'm not, I don't want the whole immersive thing where my peripheral vision is cut off. It's different from the Ray Bans that sort of perch on your nose and it's a bit. I do wear glasses actually for long range, so that makes more sense to me. I got to tell you, I do like the idea of hearing music as I'm, as I'm walking along. I really don't need to be distracted walking through the streets of Manhattan with trying to look at my Instagram. I'm just trying really hard not to walk into people or lampposts at this point in time.
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Yeah, you've got to be careful.
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Be careful.
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Also, there was a classic moment at the preview presentation. There was glitches in the unveiling of the product. The AI in the glasses was unable to provide a steak sauce recipe and among other actions. And Mark Zuckerberg was part of the presentation and on stage he said the irony of the whole thing is that you spend years making technology and then the WI fi at the day catches you.
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I got. He blamed the WI fi. Let me be super clear on this. He did not say our AI didn't work. He said the WI FI connection went down.
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Exactly.
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So whether it's true or not, let's assume it was true. But it was a clever comeback no matter what.
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And shares in Meta were up about a percent.
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There you go. It was a great save. Well, shares of intel, more, more movement There surged over 30% today on news that Nvidia is investing $5 billion in the company as part of a deal to co develop data center and PC chips. Now, of course, we've been following intel as it received a $2 billion investment from SoftBank in August and nearly $9 billion investment from the US government. So here's what's very interesting. Intel shares, as I said, surged over 30%. Intel shares now up over 50% year to date. So what I was watching for is what the market would think about this with respect to Nvidia. Nvidia shares are actually up nearly three and a half percent today on the news. So it looks like the market likes this collaboration and just one thought I had while I was reading this. This collaboration, coming at a moment when there is uncertainty about Nvidia's opportunity to sell into China, does feel like the market is liking the fact that there could be maybe an alternative source of revenue that's coming up on the back end of this investment.
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That's right. And Darden restaurants, and that's Olive Garden, Longhorn Steakhouse and others, they reported earnings today. And it raised its full year sales outlook, but cautioned that higher food and labor costs, coupled with the company's push to keep prices low, will keep earnings low in the near term. And I thought this was interesting. During the recent quarter, Olive Garden tested smaller portion entrees at lower prices to appeal to value seeking diners as well as to those diners who are on weight loss drugs. So we're starting to see the effect that GLP1s are having across different sectors. And Darden says the cheaper and smaller meals will mean smaller checks. But increased traffic and quarterly sales of Darden rose 10% to 3 billion, which was in line with Wall street estimates. But the reported headwinds sent the stock down nearly 10% today.
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So do you know why this one caught my eye? Actually, John, before I moved to America full time, when I'd come to visit as a tourist, I would always think to myself, wow, the portions here in the United States are so much bigger than the ones I've seen in the UK or in. And I actually, I'd order, you know, fractional portions, half portions. So it's interesting to see this trend.
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Sure. We're getting European at American prices.
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Oh, interesting. Well, look, this week, final thought, we have been covering the IPO of Star Pub, the ticket reseller. And today there was major news on its chief competitor, Live Nation, which owns Ticketmaster, the FTC and seven states have sued Live Nation for failing to stem the use of automated ticketing bots. The lawsuit alleges that the nation's largest ticketing platform failed to enforce its own purchase limits, allowing resellers to buy up large numbers of tickets for popular events. Essentially, the charge is that Ticketmaster is triple dipping by collecting fees each time tickets are sold. So it's rewarded when scalper bots drive up prices. This is the kind of thing that we knew drove like Taylor Swift bananas during the eras tour when she really said, look, it's so unfair for my fans when ticket prices on the resale market soar in this fashion. Now, shares in Live Nation dipped on the news, though it wasn't as dramatic a dip as perhaps might have been expected. Meanwhile, StubHub, continuing its march down from its IPO much more dramatically, affected just generally today, down as much as 6%. That's it, folks, for today's Brew Markets Daily.
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Brew Markets Daily is hosted by Ambery and produced by John Cotto, Tarka Delatief and Emily Milian. Our technical director is Uchena Wal, OGU audio assistance by Brittany Dottocco and the president of Morning Brew Inc. Is Devin Emery. If you'd like to get in touch, send an email or voice memo to brewmarketshow morning brew.com wake up tomorrow with.
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The Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.