U.S. Stocks Fall After Fed Promises Slower Rate Cuts

Summary

WSJ What’s News Summary

Episode: U.S. Stocks Fall After Fed Promises Slower Rate Cuts
Release Date: December 18, 2024
Host: Alex Osola
Produced by: Pierre Bienname, Anthony Banci, Supervised by Michael Kosmides

---

1. Federal Reserve’s Interest Rate Decision and Market Reaction

Overview:
The Federal Reserve announced a quarter-point cut in interest rates, moving the federal funds rate to a range of 4.25% to 4.5%, marking a two-year low. This decision was largely anticipated by experts but revealed underlying uncertainties about future rate adjustments.

Key Points:

• Committee Decision: The rate cut was approved by 11 of the 12 Federal Open Market Committee (FOMC) members.
• Implications for Future Policy: The language in the decision suggests that the pace of future rate cuts may slow down in 2025, reflecting a shift in economic outlooks regarding inflation and unemployment.

Notable Quotes:

• Spencer Jacob, Global Editor of Heard on the Street:
  “I would say today was a closer call, but we decided it was the right call because we thought it was the best decision to foster achievement of both of our goals, maximum employment and price stability.”
  (00:35)

• Doug Belkin, Economics Analyst:
  “The big, big surprise is the language that it contained which suggests that the pace of rate cuts is going to slow next year.”
  (02:21)

Market Impact:
Following the announcement, U.S. stock markets experienced significant declines:

• Dow Jones Industrial Average: Fell over 1,100 points (~2.5%), marking its longest losing streak in five decades.
• Nasdaq Composite: Dropped approximately 3.5%.
• S&P 500: Declined by nearly 3%.

---

2. Russia’s Strategic Shift: Moving Military Assets from Syria to Libya

Overview:
Russia is relocating advanced weaponry and military personnel from Syria to eastern Libya, specifically to areas controlled by the Moscow-backed warlord Khalifa Haftar. This move indicates a strategic repositioning of Russian military assets to maintain its influence in the Middle East and Africa.

Key Points:

• Military Movements: Russia has deployed air defense systems, troops, and military aircraft to Libya.
• Strategic Goals: By bolstering its presence in Libya, Russia aims to sustain its regional influence amidst shifting geopolitical dynamics.
• Non-Responsive Kremlin: Neither the Kremlin nor Khalifa Haftar provided comments on the relocation.

Notable Insights:

• Strategic Importance: The Syrian bases have been pivotal for Russia’s power projection in the region. Shifting to Libya suggests an effort to diversify its strategic footholds.

---

3. Supreme Court to Review TikTok Ban’s Constitutionality

Overview:
The U.S. Supreme Court has agreed to hear a case challenging the constitutionality of a law aimed at banning TikTok, pending its divestiture from Chinese ownership. This decision places the future of the popular social media platform in judicial review.

Key Points:

• Legislative Background: Earlier this year, a bipartisan coalition in Congress passed the law amid national security concerns over TikTok’s data practices and Chinese ownership.
• Legal Proceedings: An appeals court upheld the ban, leading to the Supreme Court’s intervention.
• Timeline: Fast track oral arguments are scheduled for January 10, with the ban set to take effect on January 19 if not overturned.

---

4. Lawsuit Accuses Elite Universities of Favoring Wealthy Applicants

Overview:
A group of former students has filed a lawsuit against prestigious institutions including MIT, Notre Dame, University of Pennsylvania, Georgetown, and Cornell University. The plaintiffs allege that these universities engaged in collusive practices to preferentially admit and award financial aid to applicants from affluent backgrounds.

Key Points:

• Allegations: The lawsuit claims that universities ranked students not solely on merit but also on their financial potential, disadvantaging less wealthy applicants.
• Evidence: Internal documents obtained through discovery reveal admissions officers ranking students and sometimes admitting less academically qualified candidates to benefit from higher donations or future financial support.
• University Response: Institutions involved have denied the allegations and intend to vigorously defend themselves in court.

Notable Quotes:

• Doug Belkin, Wall Street Journal Education Reporter:
  “The documents kind of lead you to that conclusion... we allowed their high gifting or potential gifting to influence our choices more this year than last year. Sure hope the wealthy raise a few more smart kids.”
  (05:54)

• Doug Belkin on University Trustworthiness:
  “Confidence in universities, particularly elite universities, has been on a downward spiral for a decade.”
  (07:20)

Implications:
This lawsuit highlights growing skepticism and declining trust in the meritocratic nature of elite educational institutions, potentially affecting their reputations and future admissions practices.

---

5. Elon Musk Criticizes Bipartisan Spending Bill Amid House Speaker’s Challenges

Overview:
Elon Musk publicly opposed a bipartisan spending resolution aimed at preventing a partial government shutdown. His criticism adds pressure to House Speaker Mike Johnson, who is already facing internal dissent within his party over the bill.

Key Points:

• Spending Bill Details: The resolution, spanning over 1,500 pages, includes provisions deemed wasteful by some Republicans and was rushed to meet a Friday deadline.
• Musk’s Stance:
  Musk stated, “Any lawmaker who votes for this outrageous spending bill deserves to be voted out in two years.”
  (07:52)
• Potential Impact:
  Musk’s influence on lawmakers remains uncertain, and the bill faces a vote possibly as early as the evening of December 18.

Related Developments:

• Tax Proposal for Americans Abroad:
  Illinois Representative Darren LaHood introduced a bill to eliminate income tax requirements for Americans living abroad, aligning with President-elect Donald Trump’s campaign promises. This move seeks to address the double taxation issue faced by U.S. citizens residing overseas and prevent tax avoidance by wealthy individuals.

Notable Insights:

• Richard Rubin, US Tax Policy Analyst:
  “It's possible that by early next year you'll see some signs of economic weakness that will prompt them... to be more aggressive in terms of rate cuts.”
  (09:16)
• Bob Tita, Metals and Manufacturing Reporter:
  Discussed the potential impacts of Nippon Steel’s acquisition challenges on U.S. steel production.
  (10:14)

---

6. Tax Legislation Proposal Aimed at Americans Living Abroad

Overview:
Representative Darren LaHood is pushing forward a proposal to remove income tax obligations for Americans residing overseas. This initiative targets the approximately 4 million Americans living abroad and those contemplating relocation, addressing long-standing issues of double taxation.

Key Points:

• Legislative Goals:
  The bill aims to simplify tax responsibilities for expatriates and reduce the incentive for wealthy individuals to relocate to tax havens such as Bermuda, the Cayman Islands, or Monaco to evade U.S. taxes.
• Implementation Timing:
  Introduced at the end of the current Congress to gather feedback and build support, with potential inclusion in next year’s legislative agenda.
• Target Audience:
  Beneficiaries include both current expatriates and those planning to move abroad, ensuring they retain U.S. citizenship without the burden of dual taxation.

Notable Quotes:

• Bob Tita:
  “This would affect up to 4 million Americans who live outside the country... and try to do so in a way that doesn't give up their U.S. citizenship.”
  (09:16)

---

7. Nippon Steel’s $14 Billion Acquisition of U.S. Steel Faces Obstacles

Overview:
Japan’s Nippon Steel is attempting to acquire U.S. Steel in a deal valued at approximately $14 billion. However, the transaction is encountering significant resistance from political figures, labor unions, and investor skepticism, putting the future of the acquisition in jeopardy.

Key Points:

• Current Status:
  The Biden administration’s window for approving the deal is closing, creating a time-sensitive scenario.
• Opposition Factors:
  Political pushback, union resistance, and concerns over foreign investment in critical U.S. industries are contributing to the uncertainty.
• Potential Outcomes:
  If the acquisition fails, U.S. Steel may struggle to secure necessary investments for modernizing aging facilities, potentially leading to plant closures.

Notable Quotes:

• Spencer Jacob:
  “It's unclear how this is going to end up. There's still a lot of opposition to it that hasn't gone away in the past year. So it's going to be a bit of a nail biter.”
  (10:14)

• Spencer Jacob on U.S. Steel’s Future:
  “U.S. steel has said they couldn't match the sort of investment commitments that Nippon Steel has made... they just don't feel like they have the funds to invest in, particularly some of these older mills that need work.”
  (10:46)

---

Conclusion:
This episode of WSJ What’s News provided an in-depth analysis of significant economic, political, and business developments shaping the current landscape. From the Federal Reserve's cautious approach to interest rate cuts and the resultant market volatility, to international strategic maneuvers by Russia, and critical legal battles affecting technology and education sectors, the episode encapsulated the multifaceted challenges and decisions influencing global and domestic spheres.

---

For more detailed insights and updates, listeners are encouraged to tune into future episodes of WSJ What’s News.

Transcript

[Gemini]

This episode is brought to you by Google Gemini. With the Gemini app you can talk live and have a real time conversation with an AI assistant. It's great for all kinds of things like if you want to practice for an upcoming interview, ask for advice on things to do in a new city, or brainstorm creative ideas. And by the way, this script was actually read by Gemini. Download the Gemini app for iOS and Android today. Must be 18 to use Gemini Live.

[Alex Osola]

US stocks fell sharply after Fed officials signale might keep interest rates higher than investors expected in 2025.

[Spencer Jacob]

I would say today was was a closer call, but we decided it was the right call because we thought it was the best decision to foster achievement of both of our goals, maximum employment and price stability.

[Alex Osola]

And the Supreme Court will hear a case deciding whether a law that would ban TikTok is constitutional. Plus, do elite universities give preferential treatment to rich applicants? A lawsuit alleges that they do. It's Wednesday, December 18th. I'm Alex Osila for the Wall Street Journal. This is the PM edition of what's news, the top headlines and business stories that move the world today. The Federal Reserve has announced that it is cutting interest rates by a quarter point. That was a move that experts had anticipated, but it signaled greater doubt over how much and how fast it would reduce interest rates moving forward. The latest reduction, which was approved by 11 of 12 Fed voters, will lower the Fed's benchmark federal funds rate to between 4.25% and 4.5%, a two year low. To discuss that we have global editor of Heard on the Street Spencer Jacob. So Spencer, this rate cut was approved by 11 of the 12 members of this committee at the Fed. What does that tell us?

[Doug Belkin]

Well, the headline doesn't tell us very much at all because this was, as you said, completely expected. It was a little surprising that there was a dissent which was not expected. One of the 12 voting members of the FOMC. And the big, big surprise is the language that it contained which suggests that the pace of rate cuts is going to slow next year. And the expectations about inflation, unemployment and other aspects of the economy have shifted, that they are less pessimistic about unemployment rising and they're less optimistic about inflation coming down.

[Alex Osola]

Could there be any of these kinds of data points that change next year that don't exactly fit into what the Fed has predicted that could change the schedule that it's made for itself?

[Doug Belkin]

Yeah, it's not like a train conductor that sets a schedule and they have to stick to it. They're always shifting with what they see. And so, for example, it's possible that by early next year you'll see some signs of economic weakness that will prompt them the next time around or two meetings hence to be more aggressive in terms of rate cuts.

[Alex Osola]

That was WSJ Global head of herd on the Street, Spencer Jacob. Stocks fell sharply after the Fed announcement. The Dow fell more than 1,100 points, losing about 2.5% in its longest losing streak in five decades. The Nasdaq dropped about 3.5%, while the S&P 500 lost nearly 3%. We're exclusively reporting that Russia is withdrawing advanced weaponry from Syria and shifting it to eastern Libya, which is controlled by Moscow backed Libyan warlord Khalifa haftar. According to U.S. and Libyan officials, Russia has flown air defense equipment, troops and military aircraft to Libya as Moscow scrambles to preserve a military presence in the Middle East. Spokespeople for the Kremlin and Haftar didn't respond to requests for commentary. The Syrian bases have been the cornerstone of Moscow's ability to project power in the Middle east and Africa. And now Russia appears to be angling to use another old partner, Libya, as a way to retain influence in the region. The U.S. supreme Court has agreed to decide the constitutionality of a law that would effectively ban TikTok in the US if the social media app doesn't shed its Chinese ownership. Earlier this year, a bipartisan coalition in Congress passed the law in response to concerns that TikTok was a threat to national security. An appeals court in Washington upheld the law earlier this month. Now the Supreme Court will decide whether that law violates the First Amendment. With the ban set to take effect on January 19, the Supreme Court scheduled fast track oral arguments for January 10. Coming up, a lawsuit reveals how elite colleges really talk about rich applicants. That's after the break.

[Dutch Bros]

This episode is brought to you by Dutch Bros. Get stoked for all the holly jolly vibes this season at Dutch Bros. Stay cozy with returning winter faves. Hazelnut truffle mocha and candy cane mocha. Plus the new Winter Shimmer Rebel energy drink blends up sweet cream and blue razz flavor with soft top and shimmer sprinks to keep those spirits energized all winter long. Download the Dutch Bros. App to find your nearest shop, order ahead and start earning rewards.

[Alex Osola]

Former college students have filed a lawsuit against several major universities. They're suing mit, Notre Dame, University of Pennsylvania, Georgetown and Cornell University, alleging that the universities colluded to determine students financial aid packages. It's the latest Salvo in a lawsuit that began in January 2022. Central to this case is the allegation that top schools assess children of privilege differently from the rest of the applicant pool. Joining me now is Doug Belkin, who covers higher education for the Wall Street Journal. So, Doug, what evidence do the plaintiffs have to support this idea that universities consider admissions differently for the children of wealthy families?

[Richard Rubin]

As part of this suit, they have gone through discovery and gotten some internal documents from a lot of the universities looking at how they admit students and how they determine the aid that they should give different students. At Notre Dame, one of the things in the docket was that they rank students according to strength of their admissions, and some of the kids are very weak, but were put onto a list that would give them kind of a bump, were admitted. And that same year, a lot of kids who were considered exceptionally strong, they weren't able to admit because they didn't have room. So it spoke to this notion that there's probably somewhere around 3% of the students at Notre Dame in this given year, at least, who were not academically as competent as the rest of their classmates. This is something the school denies, but the documents kind of lead you to that conclusion. One of the interesting comments from the admissions officer at the time was he said, quote, we allowed their high gifting or potential gifting to influence our choices more this year than last year. And then he finished off that by saying, sure hope the wealthy raise a few more smart kids. So it's a little bit damning.

[Alex Osola]

Doug, you mentioned that spokespeople for Georgetown, Notre Dame and MIT said the schools plan to fight the suit in court and that their students all earned their places. But you also mentioned that this is a precarious time for elite universities. Why is that?

[Richard Rubin]

Confidence in universities, particularly elite universities, has been on a downward spiral for a decade. And the Republicans really effectively have run against the elites and universities in this suit and others are good proxies for elite and elitism. And that's part of the brand of these schools. And so the schools say, well, we're really meritocratic institutions. The documents in this motion belie that notion. And so that's why the story can be, I think, infuriating to a lot of our readers.

[Alex Osola]

That was Wall Street Journal education reporter Doug Belkin. Elon Musk has added to Mike Johnson's headaches as the House speaker faces an internal rebellion over a bipartisan deal he negotiated to avoid a partial government shutdown this weekend. As we mentioned in our morning show, the more than 1-500-page-enging resolution ignited a firestorm among some Republicans who criticized its inclusion of what they called wasteful provisions and the limited time they have to review it before a Friday deadline. Now, Musk, the billionaire businessman who's set to run a cost cutting effort under President Donald Trump, posted today on social media that this bill should not pass, adding later that any lawmaker, quote, who votes for this outrageous spending bill deserves to be voted out in two years. It's not yet clear just how much influence his opinion will have over lawmakers. Donald Trump himself has yet to weigh in. The bill could come to vote as early as this evening. Illinois Republican Representative Darren LaHood today is introducing a proposal that could remove income tax requirements for Americans living abroad, one of President elect Donald Trump's campaign promises. Unlike nearly every other country in the world, Americans living overseas pay taxes both in the country where they live and in the US Richard Rubin covers US tax policy for the Wall Street Journal and says LaHood is introducing the bill with a few goals in mind.

[Bob Tita]

This would affect up to 4 million Americans who live outside the country, and it would also affect people who are thinking about moving abroad and trying to do so in a way that doesn't give up their U.S. citizenship. The goal is to try to find a way to prevent really wealthy people from just saying, oh, I live in Bermuda or the Cayman Islands or Monaco, and I don't owe any income taxes to any country or someplace with a really low tax rate. LaHood is putting this bill out now at the very end of this Congress to kind of start getting some feedback so we can build support and momentum and also try and refine the proposal as they consider it for inclusion next year.

[Alex Osola]

It's been a year since Japan's Nippon Steel announced that it would buy U.S. steel for about $14 billion. The takeover bid has run into opposition from politicians and union leaders and faced skepticism from investors. Wall Street Journal metals and manufacturing reporter Bob Teda joins me now. Bob, where does this deal stand?

[Spencer Jacob]

It seems like it's in a bit of a precarious position right now. Time is running out on the Biden administration. Time is running out on the application that Nippon Steel made for approval of this deal. Under the process where you have to get approval for a foreign company to acquire a US Company, this deal is coming down to the wire. It's unclear how this is going to end up. There's still a lot of opposition to it that hasn't gone away in the past year. So it's going to be a bit of a nail biter.

[Alex Osola]

What would happen to U.S. steel if it doesn't go through?

[Spencer Jacob]

Well, U.S. steel has said they couldn't match the sort of investment commitments that Nippon Steel has made in that probably over time they would close plants and things like that because they just don't feel like they have the funds to invest in, particularly some of these older mills that need work.

[Alex Osola]

That was Wall Street Journal reporter Bob Tita. And that's what's news for this Wednesday afternoon. Today's show was produced by Pierre Bienname and Anthony Banci, with supervising producer Michael Kosmides. I'm Alex Osola for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.