How will America’s central bankers read the economy today?

Summary

Marketplace Morning Report: How Will America’s Central Bankers Read the Economy Today?

Release Date: January 29, 2025

In the latest episode of the Marketplace Morning Report, host David Brancaccio delves into crucial economic developments shaping the United States and global markets. The episode, titled "How Will America’s Central Bankers Read the Economy Today?" provides insightful analysis on the Federal Reserve's upcoming decisions, significant moves in the tech sector, regulatory challenges in the rail industry, strategic shifts by Starbucks, and the intersection of climate change with insurance and housing markets.

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Federal Reserve's Monetary Policy Outlook

David Brancaccio opens the discussion by focusing on the imminent Federal Reserve briefing scheduled for the day. With the economy at a pivotal juncture, the central bank's decisions are under close scrutiny.

Susan Schmidt, a portfolio manager at Exchange Capital Resources, provides her perspective:

"Investors today are expecting the Fed to make no changes at all to the current interest rate levels, and that's at 4.5%. Remember that the Fed has already dropped interest rates twice. Investors are really expecting the Fed to hold steady. It's still too uncertain to know what the changes are from the new administration and how they will impact the economy." (00:52)

Schmidt highlights the market consensus anticipating the Fed's decision to maintain the existing interest rates amidst uncertainties introduced by the new administration's policies. This stability is seen as a prelude to what could be a transformative year for the central bank.

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Tech Sector Updates: AI Innovations and Market Reactions

The episode transitions to significant movements within the tech industry, particularly concerning artificial intelligence advancements and their economic implications.

Brancaccio notes:

"Also, Microsoft and Facebook are set to report quarterly results today. The Nasdaq index on Tuesday recovered two thirds of its big loss Monday. That came after news a China-based company has a greatly streamlined but workable AI system." (01:16)

Susan Schmidt elaborates on the impact of these AI developments:

"More efficient AI models are expected to be helpful, but what it does mean is that they can be achieved at a much lower cost. If this deep SEQ model can be replicated elsewhere, that means that companies might be getting lower pricing. That's why those prices of the stocks are being impacted. The profitability of those companies might change. It doesn't eliminate or slow down the expected growth in AI. If anything, it speeds it up." (01:30)

Schmidt explains that advancements in AI, particularly more cost-effective models, are influencing stock valuations and potentially accelerating the growth trajectory of AI technologies across various sectors.

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Regulatory Challenges in the Rail Industry: The Amtrak Lawsuit

A significant segment of the report addresses the ongoing legal dispute between the Department of Justice (DOJ) and Norfolk Southern over Amtrak's priority on rail lines.

Brancaccio introduces the topic:

"Last summer, the Justice Department under the Biden administration sued a rail company. It alleged that Norfolk Southern routinely failed to give Amtrak passenger trains preference over freight trains as required by law. Now, Norfolk has asked a judge to move the case to a different federal court or to dismiss it." (01:59)

Henry Epp from Marketplace provides historical context and expert opinions:

"This dispute stems from the creation of Amtrak in the early 1970s. Before that, freight rail companies had to offer passenger rail service, but it was losing them a lot of money. So Congress created Amtrak to take over passenger trains." (02:24)

Albert Chiarella, a professor at Kennesaw State University, highlights the operational challenges:

"It's not simply as easy as passing one train around another the way you would, you know, move a sports car around a slow-moving semi truck on the highway." (04:19)

Robert Puentes from the Brookings Institution offers insights into the potential shift in regulatory stance under the new administration:

"I think it's not surprising that Norfolk Southern is seeking to have this lawsuit dismissed this year and probably going to have support from Trump's Department of Justice, given the way that he's talked about deregulation, given the way that he's talked about Amtrak in the past." (03:35)

The episode elucidates the complexities of managing shared rail infrastructure and anticipates that the current administration may favor freight companies, potentially altering the dynamics of passenger rail prioritization.

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Starbucks' Strategic Shift: Emphasizing Coffee and Sustainability

In the business spotlight, Starbucks announces a significant overhaul of its product offerings and operational practices aimed at streamlining its brand and enhancing sustainability.

Brancaccio reports:

"Starbucks will cut the range of coffees and other goodies it sells by about 30% in the coming months. This is from an investor briefing yesterday from the newish CEO trying to turn around what will be renamed Starbucks Coffee Company, emphasis on the coffee, not the olive oil swizzle surprise or whatever they were selling there for a while for here not to go." (04:52)

Key changes include:

• Product Simplification: Reducing the menu by 30% to focus on core coffee offerings.
• Sustainability Initiatives: Encouraging customers to use their own mugs or clean vessels instead of paper cups.
• Operational Adjustments: Reinstituting self-service milk and sugar stations.
• Monetizing Facilities: Implementing a policy where using Starbucks bathrooms requires a purchase.

These measures reflect Starbucks' strategic move towards a more focused and environmentally conscious business model, aiming to enhance customer experience while promoting sustainability.

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Climate Change Impacts: Insurance and Housing Market Dynamics

The report also touches on the growing intersection between climate change, insurance markets, and the housing sector, featuring insights from Carolyn Kuske of the Environmental Defense Fund.

Brancaccio introduces the segment:

"Months before the LA wildfires, thousands of homeowners were dropped by their insurance. Some moved over to the state-managed Fair Plan while many others remained without coverage." (06:06)

Carolyn Kuske explains:

"We see that stress in insurance markets absolutely spills over into housing and mortgage markets. We have some emerging research that shows when insurance prices go up or it gets harder to get home values go down. It also changes where people choose to locate because as makes sense, it changes the cost of occupancy in a home. If the insurance goes way up. All of a sudden, the economics of living in a particular place have changed quite a bit. We also know that you can't get a mortgage without homeowners insurance. So if it's hard to find homeowners coverage or affordable coverage, you might not be able to take out that loan." (06:27)

Kuske highlights the ripple effects of rising insurance costs and limited coverage options on housing affordability, mortgage availability, and geographical living preferences. The discussion underscores how climate-induced disasters exacerbate financial strains across multiple sectors.

Brancaccio adds:

"UCLA experts calculate that climate change made the LA fires burn hotter for longer." (07:05)

This segment emphasizes the tangible economic repercussions of climate change, particularly how it intensifies natural disasters and strains associated financial systems.

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Conclusion

The episode of Marketplace Morning Report provides a comprehensive overview of pressing economic and business issues, anchored by expert analysis and timely reporting. From the Federal Reserve's monetary policy stance and technological advancements in AI to regulatory challenges in the rail industry, strategic business adaptations by major corporations like Starbucks, and the profound impacts of climate change on insurance and housing markets, the report equips listeners with a nuanced understanding of the factors shaping today's economy.

Listeners can access the full interview with Carolyn Kuske and additional content through the Marketplace Climate podcast, available at Marketplace.org.

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This summary is based on the transcript provided and excludes non-content sections such as advertisements and introductory remarks.

Transcript

[VantageScore Representative]

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[David Brancaccio]

Central bankers interpret the economy today? I'm David Brancaccio in Los Angeles. The Federal Reserve briefing on the economy, jobs and interest rates is due in about three hours. It's likely to be a quiet start to an eventful year for the central bank. Here's Susan Schmidt, portfolio manager at Exchange Capital Resources.

[Susan Schmidt]

Investors today are expecting the Fed to make no changes at all to the current interest rate levels, and that's at 4.5%. Remember that the Fed has already dropped interest rates twice. Investors are really expecting the Fed to hold steady. It's still too uncertain to know what the changes are from the new administration and how they will impact the economy.

[David Brancaccio]

Also, Microsoft and Facebook are set to report quarterly results today. The Nasdaq index on Tuesday recovered two thirds of its big loss Monday. That came after news a China based company has a greatly streamlined but workable AI system.

[Susan Schmidt]

More efficient AI models are expected to be helpful, but what it does mean is that they can be achieved at a much lower cost. If this deep SEQ model can be replicated elsewhere, that means that companies might be getting lower pricing. That's why those prices of the stocks are being impacted. The profitability of those companies might change. It doesn't eliminate or slow down the expected growth in AI. If anything, it speeds it up.

[David Brancaccio]

Analyst Susan Schmidt in Chicago Last summer, the Justice Department under the Biden administration sued a rail company. It alleged that Norfolk Southern routinely failed to give Amtrak passenger trains preference over freight trains as required by law. Now, Norfolk has asked a judge to move the case to a different federal court or to dismiss it. As Marketplace's Henry Epp reports, the new administration could take a different route.

[Henry Epp]

This dispute stems from the creation of Amtrak in the early 1970s. Before that, freight rail companies had to offer passenger rail service, but it was losing them a lot of money. So Congress created Amtrak to take over passenger trains. Sean Jeans Gale at the Rail Passengers association says in return, the freight companies had to give Amtrak priority on the.

[Albert Chiarella]

Rails because unlike tank cars full of coal, passengers mind when they are put out on a siding for three, four, five, hours.

[Henry Epp]

But despite the law, Amtrak passengers still get stuck waiting for freight trains to go by pretty often, especially on long distance routes. Jean Scale says that makes it very.

[Albert Chiarella]

Difficult for passengers who often many of them have connections, some of them are traveling for business, they have meetings, and it really hurts ridership.

[Henry Epp]

Enter the DOJ lawsuit. Last summer, it was just the second time ever that the Justice Department had sued a freight rail company for delaying Amtrak.

[Robert Puentes]

By any measure, it's a pretty dramatic step.

[Henry Epp]

Robert Puentes is at the Brookings Institution. But that dramatic step was then under the administration of a president nicknamed Amtrak Joe.

[Robert Puentes]

And I think it's not surprising that Norfolk Southern is seeking to have this lawsuit dismissed this year and probably going to have support from Trump's Department of Justice, given the way that he's talked about deregulation, given the way that he's talked about Amtrak in the past.

[Henry Epp]

The Justice Department declined to comment. So did Amtrak. Norfolk Southern argues that the lawsuit takes an overly broad view of just how much preference it should give Amtrak trains. It says what the DOJ is asking for would be like clearing roads for the president's motorcade. It argues that could create gridlock throughout the rail system. And Albert Chiarella, a professor at Kennesaw State University, says handling both freight and passenger trains, often on single track railroads, is complicated for dispatchers.

[Albert Chiarella]

It's not simply as easy as passing one train around another the way you would, you know, move a sports car around a slow moving semi truck on the, on the highway.

[Henry Epp]

One way to fix the problem is.

[Albert Chiarella]

To massively increase the amount of capital investment allocated to passenger rail transportation in.

[Henry Epp]

The United States, as in add a lot more rail to handle both passenger and freight trains. But Torella says he's pretty doubtful that the federal, especially under the Trump administration, is willing to make that kind of investment. I'm Henry Epp for Marketplace.

[David Brancaccio]

Starbucks will cut the range of coffees and other goodies it sells by about 30% in the coming months. This from an investor briefing yesterday from the newish CEO trying to turn around what will be renamed Starbucks Coffee Company, emphasis on the coffee, not the olive oil swizzle surprise or whatever they were selling there for a while for here not to go. Customers will get served in a mug or in their own clean vessel that they bring, not paper. The put in your own milk and sugar stations are coming back. And using the bathroom at Starbucks will require a purchase.

[Kai]

Hey, it's Kai. My minivan and I, as I've said on the radio, have logged a lot of miles with Marketplace luckily it's still running, you know pretty well. But if your car doesn't drive as well as it used to, listen up. It can still help drive Marketplace when you donate your old car or truck, we'll use the proceeds to support the great programs you hear every day. Start your vehicle [e-mail] vehicle in the.

[David Brancaccio]

Months before the LA wildfires, thousands of homeowners were dropped by their insurance. Some moved over to the state managed Fair plan while many others remained without coverage. For our Marketplace Climate podcast, How We Survive, host Amy Scott spoke with Carolyn Kuske from the Environmental Defense Fund about climate fueled disasters, Insurance and the Housing.

[Carolyn Kuske]

Market we see that stress in insurance markets absolutely spills over into housing and mortgage markets. We have some emerging research that shows when insurance prices go up or it gets harder to get home values go down. It also changes where people choose to locate because as makes sense, it changes the cost of occupancy in a home. If the insurance goes way up. All of a sudden, the economics of living in a particular place have changed quite a bit. We also know that you can't get a mortgage without homeowners insurance. So if it's hard to find homeowners coverage or affordable coverage, you might not be able to take out that loan.

[David Brancaccio]

UCLA experts calculate that climate change made the LA fires burn hotter for longer. You can hear how we surv wherever you get your podcasts and the full interview with Carolyn [e-mail] in Los Angeles. I'm David Brancaccio with the Marketplace Morning Report from APM American Public Media.

[Rachel]

Hi, this is Rachel from Richardson, Texas. I love the unique perspective that Marketplace offers. As a psych major, I love listening to stories and interviews that include behavioral, economic and consumer psychology, which can be hard to find in other reporting about the economy. I also enjoy hearing the experiences of small business owners around the country. Join me in supporting Marketplace with a gift today. Go to marketplace.org donate.