As the rest of the world gets greener, the U.S. backpedals

Summary

Marketplace Morning Report

Episode: As the rest of the world gets greener, the U.S. backpedals
Release Date: January 28, 2025

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1. Federal Reserve’s Interest Rate Policy Amid New Administration Dynamics

Host Sabri Benishore opens the episode by addressing the pivotal role of interest rates as the "steering wheel of the economy." With the Federal Reserve's upcoming meeting, the central question revolves around whether to maintain current rates or adjust them in response to economic indicators and the new administration's policies.

David Kelly, Chief Global Strategist at JP Morgan Funds, provides an in-depth analysis of the interplay between fiscal policies introduced by the new administration and the Federal Reserve's monetary strategies. Kelly emphasizes the potential lag in the Fed's response to recent executive orders, suggesting that it may take several months for the Fed to fully assess the economic implications of these changes.

Key Points:

• Tax Reform and Tariffs: Kelly highlights the significance of the proposed Tax Reform Act for 2025, which aims to extend the 2017 tax cuts, and the administration’s strategy to fund this through specific tariffs. He notes, “once the Federal Reserve's got a sense of what’s really going on with immigration...and fiscal stimulus, they'll be able to judge whether the economy needs further stimulus from monetary policy” ([01:27]).

• Separation of Powers: Kelly warns against the politicization of the Federal Reserve, stating, “It's very important to have a separation between monetary policy and fiscal policy because...you end up with higher inflation” ([02:32]). He underscores the necessity of maintaining the Fed’s independence to prevent excessive inflation driven by forced monetary expansion.

Kelly’s insights suggest a cautious approach by the Fed, balancing inflation control with economic growth amidst evolving fiscal policies.

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2. Airline Industry’s Financial Health and Operational Challenges

Transitioning to the aviation sector, Sabri Benishore reports on JetBlue and Boeing's recent financial performances. JetBlue saw a slight decline in operating revenue for the fourth quarter but surpassed expectations overall. In contrast, Boeing experienced a substantial 31% drop in revenues compared to the previous year, reflecting broader challenges within the air travel industry.

Mitchell Hartman from Marketplace delves deeper into the state of major airlines:

• Revenue Growth: Airlines like Delta, United, and American Airlines have reported strong results, buoyed by increased earnings from premium seats and lucrative destinations. Airfares have risen by approximately 8% year-over-year, indicating robust demand ([05:05]).

• Demand Dynamics: Dave Jones remarks, “The demand picture is healthy” ([05:02]), suggesting that passenger interest remains high, albeit the "revenge travel" phenomenon from the pandemic has largely subsided. Airlines are adapting by launching innovative routes, such as United's services to Greenland and Mongolia, to capture niche markets ([05:20]).

Operational Challenges:

• Supply Chain Constraints: Hartman highlights significant supply-side issues, including delays in aircraft manufacturing from Boeing and Airbus, labor shortages, and air traffic control bottlenecks. Mike Stengel from Aerodynamic Advisory points out, “The big problem is on the supply side for aircraft and labor” ([05:35]).

• Maintenance Costs: Airlines are compelled to operate older aircraft due to production delays, leading to increased maintenance expenses and operational inefficiencies. Stengel predicts that Boeing and Airbus might not return to pre-pandemic production levels until 2028 ([05:35]).

These factors collectively illustrate a challenging environment for the airline industry, balancing strong demand with significant operational hurdles.

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3. Renewable Energy Advances in Europe vs. U.S. Policy Shifts

In a comparative analysis of global energy strategies, Sabri Benishore contrasts Europe’s ambitious renewable energy progress with the United States' recent policy shifts favoring fossil fuel development.

Dave Jones, Insights Director at Ember, provides a comprehensive overview:

• Europe’s Success: Europe has exceeded its renewable energy target, achieving 47% of its electricity from renewable sources and an additional 24% from nuclear energy, totaling 71% of its energy mix with minimal greenhouse gas emissions ([06:40]). This progress has been driven by substantial investments in wind and solar power, supported by consistent policy frameworks from the European Commission.

• U.S. Policy Reversal: Under President Trump, the U.S. has retracted from the Paris Climate Agreement and is pushing for increased domestic oil and gas production. This policy shift contrasts sharply with Europe’s renewable momentum and raises concerns about the U.S.’s role in global climate initiatives.

• Global Implications: Jones emphasizes that Europe’s advancements are part of a broader global trend towards renewable energy. Notably, China has recently surpassed the U.S. in the proportion of electricity generated from wind and solar ([08:38]), reflecting worldwide efforts to combat climate change despite varying national policies.

Environmental Impact:

• Per Capita Emissions: The U.S. has significantly higher CO₂ emissions per capita in the electricity sector compared to Europe, exacerbated by a reliance on coal and gas ([07:00]).

• Future Prospects: Europe continues to expand its renewable infrastructure, supported by nuclear and hydroelectric power to ensure energy reliability. In contrast, the U.S. faces potential setbacks in achieving global climate goals due to reduced investment in renewables and increased fossil fuel dependency ([07:31]).

Jones concludes by highlighting the critical need for cohesive global actions to meet climate objectives, underscoring that renewable energy adoption is a universal challenge transcending regional policies.

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Conclusion

This episode of Marketplace Morning Report provides a comprehensive examination of pivotal economic and environmental trends shaping the global landscape. From the Federal Reserve's monetary policies amidst political shifts, the airline industry's resilience and challenges, to Europe's leadership in renewable energy contrasted with the U.S.'s policy reversals, the discussions offer valuable insights into the interconnectedness of policy decisions and economic outcomes.

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Transcript

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[Sabri Benishore]

Question is what to do with it? From Marketplace, I'm Sabri Benishore in for David Brancaccio. Interest rates are basically the steering wheel of the economy, and the Federal Reserve meets today to start deciding what to do with it. By all accounts, the answer right now is nothing. Higher interest rates fight inflation, but lower interest rates promote growth. And right now inflation is being a little stubborn, but mostly coming down and the economy is doing mostly fine, so might as well leave things alone. But with the new administration, a lot is changing and it is changing fast. So what now? David Kelly is chief global strategist with the JP Morgan funds. He's here to talk about it. Good morning.

[David Kelly]

Good morning.

[Sabri Benishore]

We've had so many executive orders and changes with the new administration. How long do you think it'll be before the Fed knows what those mean for the economy and starts to make decisions accordingly?

[David Kelly]

I think it may take a few months, but I think the really important question will actually be the Tax Reform act, whatever they call it, for 2025, which extends the 2017 tax cuts. And second of all, the administration is going to use tariffs to fund some of it. But once they do that, they're going to have to be specific on what the tariffs are. They can't just say we're going to put 25% tariffs on today and then change their mind the next day. They're going to have to be specific. So once the Federal Reserve's got a sense of what' really going on with immigration, but particularly what's going on with tariffs and what's going on with fiscal stimulus, they'll be able to judge, you know, does the economy really need any further stimulus from monetary policy? If inflation's looking a little high and, you know, the immigration policy and tariffs might push inflation up and the fiscal stimulus might push inflation up, why should they cut rates?

[Sabri Benishore]

Last week, President Trump said he would demand that interest rates fall. And obviously that's not something really presidents can do. But, you know, Jerome Powell, the Fed chair, his term will end next year. And I just wonder if the president did appoint someone more pliable. What would that look like?

[David Kelly]

Well, I think it would be very, very dangerous. It's very important to have a separation between monetary policy and fiscal policy because honestly, what you can see is that under both parties over the years, the budget deficit's gone up, everybody wants to spend money, nobody wants to raise taxes. So you get a lot of expansion there. And if you force the central bank to just print money to fund that, you end up with higher inflation. So it's important they maintain their independence. And I would expect that the new chairperson of the Federal Reserve, whoever that is, will also want to maintain that independence.

[Sabri Benishore]

David Kelly is Chief Global Strategist at JP Morgan Funds. Thank you so much.

[David Kelly]

Anytime.

[Sabri Benishore]

Foreign.

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[Sabri Benishore]

Reported this morning that its operating revenue in the fourth quarter was down slightly, but in general it did better than expected. Boeing, on the other hand, reported this morning its revenues were down 31% compared to a year prior and that kind of encapsulates the state of the air travel industry. Airlines are all right, but other corners of the industry are clipping their wings a little. Marketplace's Mitchell Hartman has more.

[Mitchell Hartman]

Airlines have been doing well with Delta, United and American delivering strong results.

[Dave Jones]

The demand picture is healthy.

[Mitchell Hartman]

Mike Stengel at Aerodynamic Advisory says overall US Air travel now exceeds pre pandemic levels. The major airlines are earning more on premium seats and destinations, and airfares are up about 8% year over year.

[Dave Jones]

A lot of the revenge travel is behind us. We still see carriers getting creative, like United launching service to Greenland and Mongolia.

[Mitchell Hartman]

The big problem is on the supply side for aircraft and labor, says Nicholas Owens at Morningstar.

[Sabri Benishore]

Trouble at Boeing and similar backups on Airbus planes. There's also a shortage of air traffic.

[Mitchell Hartman]

Controllers that makes it hard for airlines to add new aircraft and flights. Mike Stengel at Aerodynamic Advisory says they're flying older planes, driving up maintenance costs. He predicts Boeing and Airbus won't catch up to pre pandemic production levels until 2028. I'm Mitchell Hartman for Marketplace.

[Sabri Benishore]

Europe had a goal of using renewable energy for 40% of its energy needs by 2030. It got there right early. 47% of its power now comes from renewable energy sources. Meanwhile, in the U.S. president Trump has pulled the country out of the Paris climate agreement again and is pushing more fossil fuel development. Dave Jones is Insights director at Ember and joins us to talk about it. Welcome.

[Dave Jones]

Thank you so much.

[Sabri Benishore]

So 47% of electricity in Europe comes from renewables. Another 24% comes from nuclear. So that's 71% of its energy is not emitting greenhouse gases. First, how does that compare to the.

[Dave Jones]

U.S. yeah, that's of the electricity supply. When you compare that against the US electricity supply, that's around just under 60% is from coal and gas. Gas is by far the biggest. Coal has been falling for quite a few years now and is obviously the biggest climate success from a US Perspective.

[Sabri Benishore]

So how did Europe get to this point?

[Dave Jones]

Yeah, so much of that buildup has been through wind and solar, which has really been the priorities of the European Commission and of countries throughout Europe. And there were a couple of big changes that happened in 2024 when we did our annual review. The first one was that solar generation overtook coal for the first time. And the second one was even as that coal's falling, we registered a fifth year in a row of falling gas generation.

[Sabri Benishore]

People talk about, well, the wind can stop blowing, the sun isn't shining 24 hours a day, and so you need some amount of constant power. How much more room is there to grow for renewables, would you say?

[Dave Jones]

According to some of the country's ambitions? Absolutely huge. I think that many countries are relying with a mix of generations. So nuclear is still the largest source of electricity generation within Europe. Many people forget that even as Germany have closed its last reactors and then, and then you've got hydro underpinning all of that, which is really useful in terms of providing some of the flexibility that has been needed to integrate wind and solar throughout the last 10 years or so.

[Sabri Benishore]

Here in the U.S. president Trump wants to halt leases for wind energy projects. He wants to increase domestic oil and gas production, which is already pretty high. The U.S. of course, is a major source of greenhouse gases. So if the adoption of renewables here is is going to decelerate, what does that mean for global goals to curb warming and slow climate change?

[Dave Jones]

When you look back at the CO2 emissions per capita within the electricity sector, they're three times bigger within the US not just because that mix has more fossil fuels in, but the average electricity demand use per capita is twice that of what it is within Europe. One of the biggest installers of solar panels last year was in Saudi Arabia. It's got a target to go from almost zero renewables to 50% renewables by 2030. This isn't just an EU story, this is a global story. Already China's had that big takeoff in the last two years where it's been playing catch up on wind and solar. And as a proportion of electricity from wind and solar, China overtook the US for the first time last year.

[Sabri Benishore]

Dave Jones is Insights director at the global energy think tank Ember. Thank you so much.

[Dave Jones]

Thanks so much, Sabrina.

[Sabri Benishore]

In New York, I'm Sabri Benishore with the Marketplace morning report from APM American Public Media.

[Emily]

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