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- [00:01]
Podcast Host
AI could be the most transformative technology since the advent of the Internet itself. So how can we start putting it to work? Find out in the latest episode of AI That Means Business, a new podcast from Google and custom content from WSJ.
- [00:19]
Luke Vargas
Global markets process yesterday's Fed fueled sell off. Plus, the DOJ sues CVS over its alleged role in contributing to the opioid crisis. And Democrats criticize Republicans reneging on a government funding bill after Donald Trump blasts the deal. An agreement is an agreement. It was bipartisan and there was nothing more to say. It's Thursday, December 19th. I'm Luke Vargas for the Wall Street Journal and here is the AM Edition of what's news, the top headlines and business stories moving your world. Let's begin with a check in on markets a day after a Wall street sell off that saw the dow S&P 500 and Nasdaq all slide by more than 2% after the Fed signaled it would be more cautious with interest rate cuts next year. That forecast hasn't just ended next year's interest rate party before it even started. It's threatening a US Stock rally that was shaping up to top last year's and is sending ripples across global markets today as well. Well, here to help me take stock of the situation, I'm joined by Journal Finance editor Alex FR. Alex, what do you make of what we witnessed yesterday? The Dow had seen nine consecutive days of declines going into the Fed's announcement, in part because of a sense. Right. That the pace of rate cuts might slow next year. But when we finally got confirmation of that from Chair Jerome Powell, apparently that outlook hadn't been fully baked in.
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Alex Frankos
Yeah, well, I think it's a combination of things. Partially. The people were expecting the Fed to say, hey, we're going to cut a little bit less next year. We think the than we thought earlier and they went kind of farther. They said their kind of average forecast is for among the Fed participants is two cuts. Next year it had been four. Some people were hoping for three. You then had Jerome Powell say it was a tough call. So then you had a big fall in the market because people didn't love that signal. But I think behind all of this, the Dow had been falling every day but just a tiny little bit. And the Nasdaq had been rising almost every single day. So a big part of the market was at a record. The market all year has done phenomenally well. So a lot of investors heading into the holidays, they've already made their 20, 25% for the year. They've closed their books. So who's there to buy when stocks fall?
- [02:38]
Luke Vargas
Might that suggest there's more potential sliding in US and global markets to come? Should we be bracing for more declines?
- [02:46]
Alex Frankos
I mean, there could be. We've seen this pattern before where the Fed makes a big pivot and markets fall and then they kind of stabilize. And so early this morning, we're seeing Europe and Asian markets catch up with what happened yesterday in the U.S. but U.S. stock futures have kind of steadied. The dollar, which rallied very hard yesterday after the decision, is kind of stabilized. So we'll just have to see.
- [03:08]
Luke Vargas
You mentioned European and Asian markets sort of catching up to what happened in the US Yesterday. But I'm curious about global central banks and their plans. Might we see they shift in any way in response to the Fed's shifting rate cut arc for 2025?
- [03:21]
Alex Frankos
Yeah, well, so far, just today, there were a bunch of central banks that schedule their meetings right after the Fed so that they can incorporate the Fed's move into their own decision making. So we had central banks in the Philippines and Sweden cutting rates. The bank of England is expected later today not to cut rates. The places that are probably most affected are places like Brazil, which has a real problem with inflation, budget deficits, their currencies falling. And when you get a stronger dollar, that can really put pressure on economies like that. So I think for some economies, stronger dollar probably good thing because it makes their own currencies a bit weaker, boosts their exports, things are okay. But in other places, it could be.
- [04:00]
Luke Vargas
A real trial, a trial that will affect people around the world too, right? In terms of borrowing, cost implications, the strength of their currencies potentially.
- [04:08]
Alex Frankos
Absolutely. I mean, the Federal Reserve is the central bank for the United States, but it really is also the central bank for the world. There's those big impacts on the world stage, but by and large, the biggest impacts are going to be in the US and see that especially in the mortgage market, where people who had been hoping for relief that mortgage rates would come down, now you have to say, well, maybe they're not actually gonna come down as much as we thought. And so that has huge implications for a housing market that's kind of been stuck for the last couple years. And everyone's been waiting and hoping 2025, the spring home buying season, would be the first one in a while where there was some momentum going into it. But if the Fed doesn't cut rates and doesn't cut going into spring, then we're kind of status quo with mortgage rates, you know, above six, and that's a tough place to be.
- [04:53]
Luke Vargas
Journal Finance editor Alex Frankos, thanks so much for stopping by.
- [04:56]
Alex Frankos
Thank you, Luke.
- [04:58]
Luke Vargas
And in other markets news, the bank of Japan today held interest rates steady as it awaits further clarity on domestic tax reform discussions and Donald Trump's economic policies. Despite the hold, economists expect the BOJ to soon raise interest rates again amid encouraging signs within Japanese economic data, including wage growth and rising consumer prices that back tighter monetary policy on deck. U.S. existing home sales data for November is due from the national association of realtors at 10am Eastern. And it's a relatively busy day for earnings, with Updates due from FedEx, packaged food giant Conagra Brands and Nike. The sneaker company is expected to report its third consecutive quarterly sales decline as Chief Executive Elliot Hill tries to orchestrate a turnaround strategy that utilizes heavy discounts to try and clear out excess inventory. Coming up, Donald Trump and Elon Musk sink a bipartisan spending bill meant to avert a government shutdown. We've got that story and the rest of the day's news after the break.
- [06:06]
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- [06:40]
Luke Vargas
The US government is barreling toward a weekend shutdown after President elect Donald Trump yesterday torpedoed a bipartisan spending deal by insisting that Republicans present a narrower bill that also raises the US Debt ceiling. In a statement yesterday, Trump and Vice President elect J.D. vance criticized legislation presented by House Speaker Mike Johnson, which included more than $100 billion in disaster and farm aid, saying that a streamlined bill should be passed, quote, without Democrat giveaways, end quote. The proposed bill contained provisions related to health care, US Investment in China and pay raises for lawmakers, among other things. Elon Musk also criticized the bill in what could preview the dynamic in Washington next year as he and other Trump allies offer private counsel on Republicans ambitious legislative agenda and then publicly drum up opposition, depending on the results. Speaking after the breakdown of the agreement, House Minority Leader Hakeem Jeffries condemned GOP lawmakers for for going back on the deal. House Republicans will now own any harm that is visited upon the American people that results from a government shutdown or worse as of late yesterday, congressional leaders and rank and file members were unsure of the next steps for the spending bill. To keep the government funded, a bill must pass both the House and Senate and be signed by President Biden before a midnight deadline on Friday. The average amount that Americans spend each year on health insurance has nearly doubled in the past decade, with new data showing that healthcare spending rose by 7.5% last year alone. That finding from the Centers for Medicare and Medicaid Services represented a much faster pace of growth than the 4.6% increase seen in 2022, a trend that Journal reporter Harrietori said can be explained by the expiration of pandemic federal funding for the healthcare sector, consolidation among hospital and rising labor costs.
- [08:47]
Harrietori
The inflation for healthcare does tend to run above overall CPI inflation. That's typical over many years, and that is often due to wage costs. Because healthcare is a very labor intensive industry, it's hard to automate. So there are a lot of people who work in healthcare. Wages rose quickly in the pandemic because many people left the profession. There was a lot of burnout, a lot of turnover, and that is costly for employers and it just means that overall prices rise to cover those labor costs.
- [09:12]
Luke Vargas
The government's new annual data show that more than 92% of Americans were covered by insurance last year, with just over half of the population covered through their employer. The Justice Department is suing CVS Health, alleging the world's largest pharmacy chain contributed to the opioid crisis by knowingly filling unlawful prescriptions for more than a decade. Zachary Cunha, the U.S. attorney for Rhode island whose office brought the complaint, said that CVS has been filling prescriptions for controlled substances that lack legitimate medic purposes and were not issued in the usual course of professional practice. Here he was courtesy of WLNE ABC6.
- [09:52]
Zachary Cunha
I don't think it could be more clear that a pharmacy has an obligation under the Controlled Substances act that the prescriptions that it lets go out the door are legitimate, particularly when there are repeated red flags that we allege. These are not subtle red flags. They are overt. They are repeated, and they were repeatedly raised by CVS's own expert pharmacy staff. So as to the notion that there is some sort of regulatory ambiguity here, I reject that.
- [10:20]
Luke Vargas
The Justice Department added that CVS sets staffing levels too low for pharmacists to both meet their performance metrics and comply with their legal obligations. A spokeswoman for CVS said the company would defend itself, adding that it's cooperated with the DOJ's investigation for more than four years and disagreed with what she called the false narrative within the lawsuit and California has declared a state of emergency over the spread of H5N1 bird flu among the state's dairy cows and plans to issue protective gear to at risk farm workers. So far, no person to person spread of bird flu has been detected in California. However, the state's declaration came on the heels of a CDC report of a first instance of severe illness reported in a human related to bird flu, which occurred in Louisiana after a man was exposed to the disease by birds in a backyard flock. While the CDC assesses bird flu's public health risk as low, the highly pathogenic influenza has been rampant in poultry farms nationwide, with some 123 million birds affected. And that's it for what's news for Thursday morning. Today's show was produced by Kate Bullifin. Our supervising producer was Daniel Bock. And I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show, and until then, thanks for listening.
- [11:55]
Podcast Host
AI could be the most transformative technology since the advent of the Internet itself. So how can we start putting it to work? Find out in the latest episode of AI that Means Business, a new podcast from Google and custom content from WSJ.