Marketplace - The Fed cut, but the T-note yield went up. Oops!

Episode Date: September 24, 2024

Last week’s interest rate cut was supposed lower borrowing costs across the economy. But there’s been a surprising coda: The interest rate on the 10-year T-note went up. So, while the Federal Reserve intended to provide an economic reprieve, some loans may have become just a little more expensive. Also in this episode: New York and Las Vegas lead in home price growth, cement needs to go green and soft skills strengthen job skills.

Hi, I'm Kyle Rizdal, the host of How We Survive. It's a podcast from Marketplace. In 1986, before I was a journalist, I was flying for the Navy. Mr. Gorbachev, tear down this wall. It was the Cold War and my first deployments were intercepting Russian bombers. Today though, there's another threat out there, climate change. This could be the warmest year on record. Climate change is here.

Temperatures here are warming faster than anywhere on earth. And while the threat seems new, the Pentagon's been funding studies on climate change since the 1950s. I think we will put our troops and our forces at higher risk if we don't recognize the impact of climate change. This season, we go to the front lines of the climate crisis to see how the military is preparing for the threat. Listen to how we survive wherever you get your podcasts.

I believe I warned you yesterday we are going to do a bond market story. From American public media, this is MarketFlags. Music In Los Angeles, I'm Kyle Rizdal, Tuesday to day 24 September. Good as always to have you along everybody. We begin today with a little bit of a, wait, what? Story about the bond market. The Fed cut its target interest rate last week, as you know, but since then, the yield on the 10-year Treasury note has actually gone up.

We talk about the 10-year most every day on this program because it is the benchmark for lots of other interest rates, mortgages and car loans, corporate borrowing. So when its yield goes up, it is not in fact getting cheaper to borrow money across the economy. But there are reasons why this is happening. Marketplace's Matt Levin gets us going. When Bill English was secretary of the Federal Open Market Committee in the early 2010s,

he and another Fed co-worker had a kind of ritual. As soon as the FOMC announced publicly what it was doing with interest rates, they would huddle together in front of a computer and watch the bond market. And we would have a nickel bet on which way rates were going to go. And it didn't really matter which side you had on the bet because you were surprised most of the time. Historically, it's actually pretty normal that the interest rate on 10-year treasury bonds doesn't instantly mirror the Fed's actions, especially since Jay Powell has basically been telling investors for a few months now he was going to cut rates.

A lot of it is already priced in. It's also worth remembering the treasury bond market is a market and specifically a market for a very safe, very boring asset. When investors feel good about the economy, demand for those safe, boring treasuries typically goes down, and that drives the interest rate up to attract more buyers. So if you think the economy is going to land softly, why put money in low-yield government debt when you can buy Nvidia stock or GameStop or something more exciting?

Jamie Patton is at the investment firm TCW. The perceived risk of recession has actually gone down after the Fed cut rates a little bit more aggressively than the market was expecting. To be clear, just because the interest rate on the 10-year T-note hasn't budged much, it doesn't mean the cost of borrowing across the real economy won't still drop. Jonathan Wright is an economist at Johns Hopkins. You've already seen mortgage rates come down a little bit, but they're still very, very high.

I think you will see a substantial decline in fixed rate mortgages. Wright says that's because mortgage rates have lately tended to track the two-year T-note, which the Fed has more influence over. I'm Matt Levin for Marketplace. On Wall Street today, more record highs. We will have the details and the yield on the 10-year when we do the numbers. Mortgage rates have indeed been falling. Matt Levin was just talking about this.

Home prices, though, just don't seem to care. From the blue-ribbon Case-Schiller Home Price Index out this morning, home prices were up in July for the 14th month in a row, 5% higher over the past year nationwide. But that national housing market is really a bunch of local markets bundled together, right? And we noticed something interesting browsing through the data today. The two metro areas where prices grew the most last month, both more than 8 percent, New York and Las Vegas. Marketplace of Samantha Fields has more on that one. Las Vegas has everything you could possibly want, according to Mary Perry. She's been a realtor there for 34 years. We have

every sports team now, taxes are very low, best places to eat, entertainment's the best, we have all the concerts. She's not surprised so many people are deciding to move, especially because it's also still pretty affordable. Our neighboring states like California, home prices are just crazy, and people want to retire and come here and pay cash and live their best life. And they are.

The rise in home prices reflects that. They jumped more than 8% in July, second only to New York, where prices rose almost 9%. Brian Luke at S&P Dow Jones Indices says people moving from more expensive states is likely a big factor in Las Vegas. The Las Vegas market is, you know, the high tier is still over $300,000 below what is considered low tier in Southern California.

It's not quite the same in New York, which has long been one of the country's most expensive housing markets. But Ali Wolf at the housing data and consultancy firm Zonda says for all their differences Las Vegas and New York do have something in common. Strong growing economies. New York is the largest employment hub in the entire nation and it's just a diverse labor market. Las Vegas right now is still being driven by gaming and tourism. There's been so much discussion in the economy about the strength and the service sector. We're seeing that show up still being driven by gaming and tourism. There's been so much discussion in the economy about the strength in the service sector.

We're seeing that show up in the Las Vegas numbers. Both cities have big service sectors and vibrant cultural scenes. And Kenny Lee, a senior economist at Zillow and Street Easy, says both took a big hit during the pandemic. As these industries continue to recover, the workers in these fields also need housing. And he says that is likely driving demand for housing in both cities too.

I'm Samantha Fields for Marketplace. With that first Fed interest rate cut in the rearview mirror and more, one assumes, to come, we are going to take a minute here, four minutes and 35 seconds, actually, to talk about how the Fed thinks about how it thinks about interest rates. The central bank actually has a mechanism by which it does that. It's called, in the vernacular, the Framework Review. And Fed Chair Jay Powell said in his Big Jackson Hole speech last month

that they're gonna get going on the next one later this year. Corolla Binder is an Associate Professor of Economic Policy at the University of Texas, Austin. And we asked her when we got her on the phone the other day to recap the results of the last Framework Review back in 2020, which came after a series of public listening sessions.

And when that was all concluded, what they did was make their inflation target into what's called an average inflation target. So the idea was if they miss their target from below, then they're going to make up for it from above. Right. Sorry, the upshot, if I recall, was that they said in almost as many words, but not literally as many words, we're going to let the economy run hot for a little while because we've been undershooting inflation and we need to get it back up there. Exactly. That's exactly right. So inflation had been below 2% for a very long time. All the groups they talked with said,

what we really want is a full employment economy. We want to let things run hot a little bit, err on that side, rather than worry about inflation that might rise in the future. That's why they made the makeup target asymmetrical. They weren't promising to make up for overshoots, just promising to make up for undershoots. It has been, as we all know, for very long years since the last framework review. What

do you anticipate this one might look like whenever it may start? And it's going to be soon-ish. We just don't know when. Right. So I think they are going to revisit the same changes they made at the last one. I think they'll want to at least say, look, we made this change to average inflation targeting. How did this framework serve us during the pandemic? Obviously, inflation went way above target, but also, you know, inflation has come back down without a big recession. And I think they're going to be grappling with that asymmetry

that I mentioned, where they make up for low inflation, but they don't make up for high inflation. That's going to be a big issue that they will be talking about at the next framework review. What about the idea of a 2% inflation target? I've asked, I think, Rafael Bostic in Atlanta. I might have even asked Powell himself, why don't you just say, you know,

we're targeting 2.5% now and call it a day, declare victory and depart the field. And they're like, no, no, no, we can't do that. Do you think they'll revisit? No. No, okay. All right, you're a no as well. Okay, good.

I think 2% is pretty sacrosanct for the Fed, that if they were to change it, and especially if they were to change it, and especially if they were to change it now while inflation was above target, it would come off as them being opportunistic, and this definitely wouldn't be the time for it when people have just felt how painful inflation can be for the Fed to say, well,

we're gonna actually go for higher inflation. Changed our minds, yeah. Okay, one more. How the Fed Communicates. We've talked a lot on this program and everybody else who watches the Fed has talked a lot about how the Fed communicates, their efforts at transparency and trying to make people understand what they do. I will quote, however, a Brookings publication on the Federal Reserve and what it's trying

to do. And it goes like this, quote, if you give a normal person a choice of reading a Fed statement or watching a Fed press conference or watching cat videos on YouTube, they're going to choose the cat videos almost every time. And of course, I would just say they're gonna choose the cat videos all the time. What, if anything, do you think the Fed ought to do about its communication or just keep on pressing ahead?

Well, you know, if people are gonna choose the cat videos every time, what that tells you is that people don't really want to have to spend that much of their time worrying about what the Fed's doing and worrying about inflation. So that kind of tells you that the best thing the Fed can do for the public is keep things pretty stable, pretty predictable so that we don't have to watch the Fed videos. But I mean, I do think there is a duty that they do communicate with the public what they're doing and why so that we can evaluate whether they actually do what they say they're going

to do and whether it's consistent with what they've been mandated by Congress to do. Last time, last framework review four years ago, it was pretty seismic. Are you thinking it's going to be as big this time? I'm guessing not. I think that this probably isn't the time when they want to introduce something seismic. I think they would rather say, look, we had a really hard episode here. We're on kind of surprisingly strong ground today. Let's take the win, but also take some lessons from it. I don't think they're going to want to make major changes at this point.

Karola Binder at the University of Texas in Austin. Professor Binder, thanks for your time. I appreciate it. Thank you. The giant consulting company McKinsey has a sustainability division. Whence this data point comes globally, 7% of carbon emissions come from the cement industry. Obviously, there is no small amount of interest in reducing that number, including interest from big cement itself.

And two major producers announced today they're backing a startup called Sublime Systems, which is developing cleaner cement. Not clean, but cleaner. Marketplace's Stephanie Hughes has more on that. AMT – Cement is primarily made from limestone. It's heated up in kilns to around 1500 degrees Celsius. So hot, electricity won't get the job done, says Jeremy Gregory, who leads MIT's Climate and Sustainability Consortium.

Jeremy Gregory – We pretty much have to use fossil fuels now, either coal or natural gas. AMT – Gregory, who also counts wholesome as a backer of his research, says that's one reason making cement carbon intensive. Also, the limestone emits carbon as it's heated up. And cement is a key ingredient, basically the glue, and concrete, which we use a ton of. Concrete is the most used substance on earth besides water. There are ways to make cement with less carbon, including biomass instead of fossil fuels

to heat up the kilns. Also companies are making cement blends that include alternatives to limestone. And there's also a push to capture the carbon that's being emitted at cement plants, says Paul Adelecki with the Global Cement and Concrete Association. But he says decarbonization does come at a price. It would add about 5% on to the cost of a typical house, being able to deliver sort of net zero cement and concrete. Another possibility, use less concrete as we build cities,

says Jay Koh of the Lightsmith Group, a climate-focused private equity firm. If you converted areas back into parkland or greenery, then that has a much more absorptive capacity for flood events or for rain events that are increasingly happening. Essentially, less gray infrastructure and more green. I'm Stephanie Hughes from Marketplace. marketplace. Coming up. They're waiting in line. They're holding their resume, shaking. They're trying to memorize their elevator pit. Oh, the stress of the job hunt.

But first, let's do the numbers. Dow Industrial is up 83 points today two tenths percent forty two thousand two hundred and eight the Nasdaq added a hundred points the century mark six tenths percent eighteen thousand seventy four the S&P 500 ticked up 14 points about a quarter percent fifty seven and thirty two. We heard from Stephanie Hughes about efforts to make a cement manufacturing greener so let us check in with some related companies. Building materials maker CRH, headquartered in Dublin, Ireland, dipped about a half percent.

Vulcan Materials, based in Birmingham, Alabama, sank just under one percent today. Mexico-based Cemex, up 0.8%. Bonrose yield on the ten-year T-note. Prices go up, yields go down, right? 3.73%. You're listening to Marketplace. This is Marketplace. I'm Kai Rizdal. The news out of Beijing overnight was interesting. The People's Bank of China rolled out a not entirely unexpected, but still bigger than

most people had been guessing it would be economic stimulus plan. Interest rate cuts, lower bank reserve requirements, and a cut in borrowing costs for existing mortgages. That last one is worth staying with for a second because not all that long ago, Beijing had engineered a property slump trying to rein in developers who were overdeveloping by a lot. The Chinese housing bubble did indeed pop. Millions of apartments and condo units were left unfinished.

Local governments had to step in. And now, finally, some home buyers are getting the keys to their condos. Marketplace's Jennifer Pak has more now from central Henan Province. In Zhengzhou city, a condo project with 6,000 units called Qi Fu Cheng is mostly complete. Lively music blasts from a lone speaker. A flimsy red carpet held down by bricks leads to the entrance to welcome homeowners, like folk singer-songwriter Chen Peng. We've been reporting his fight to get his condo for the past few years.

Today, he's finally picking up the key. That's only taken, what, nine years? A few mix of happiness and sadness. I'm glad that I finally got my condo, but I'm sad that I must resume mortgage payments. Property staff call out Chen Peng's number and look for his key. He bought the condo in 2015 before construction started, because he was nearing 30, and his parents were pressuring him to find a wife.

Now he's 38 and still single. To be a desirable bachelor in China, he needs to own property. Over the last nine years, Chen Peng protested against the delayed construction, got detained for it, went on a mortgage boycott, almost got sued by the bank twice. And now he's finally standing in front of his new home with friends in tow.

The key won't turn, he says. A property staffer runs down to fetch another key. It's okay. This building has been a rotten tale for so long. I can wait a bit longer. A rotten tale building is a common name for abandoned developments in China. Construction here stopped in 2019 and resumed two years ago. Some construction company with a government background took over the project.

But buyers can't expect to get everything they paid for. That's the case with Zhang Feng Lian, some 700 miles away in Chongqing city. He bought an unfinished condo from troubled property giant Evergrande, which was later completed by the local government in 2022. When I bought the unit, I was told there would be a basketball court,

a cinema, a soccer field, and a swimming pool in the condo complex. But now there is nothing there, except for a few trees. Back at Chen Peng's building, he's finally got the right key. One of his friends aims a confetti popper through the front door. We all file in and see concrete. Concrete floors, concrete walls, no lights, no toilet. Chen Peng says to save money, he bought the place as bare bones as they come.

It was priced at about $91,000 in 2015. And he's mostly satisfied. I was a bit ticked off when I saw the firefighting water pipes are not hidden. But after so many twists and turns to get this condo, I think it's fine. Then he takes out a yellow vest, the same one he wore when the police detained him. The message on the vest reads, return my home, resolutely safeguard my rights. He asks me to take a photo of him wearing the vest in his new three-bedroom, as proof, he says, the protesting was worth it.

In his car, Chen Peng says he's looking ahead and has been collecting used furniture. I told my friends that I would decorate my place in the cheapest way possible. I won't even paint the walls. My plan is to spend no more than $7,000 on renovations. Many people say that's impossible. The past nine years, he says, feels like a dream. There's no way to turn back time. But what if I hadn't bought this rotten-tail project and had found another home in the

city? Would I be married right now? But he says compared to many other home buyers, he's one of the luckier ones. In Zhengzhou City, I'm Jennifer Pak for Marketplace. Let's start this next item with a stipulation. Applying for a job stinks, to be polite. That's in part because trying to find a new job always stinks, but also because technology has really changed the world the job seekers are living in.

Just one example, artificial intelligence. AI has made it easier to apply to different kinds of jobs with specifically tailored resumes, yes, while employers are using AI too to sift through what can be an overwhelming number of applications. What's missing there is the human element, the soft skills that don't just help people get jobs, but help them adapt to new technologies,

grow into new roles and work with a team. And for college students and new graduates who, thanks COVID, spent some of their time in schools socially distanced, shall we say. There's a growing recognition that their professional people-to-people skills might have suffered. Marketplace's Elizabeth Troval has that one. At a recent Carnegie Mellon University career fair in Pittsburgh, hundreds of students mill about and pitch themselves to recruiters.

It's a high-stakes scene for these students. They're waiting in line, they're holding their resume, shaking, they're trying to memorize their elevator pit. Sean McGowan works with students on career development at the school and likes to pump them up in line. Tell a story, make an actual connection. Don't worry about just listing off all of the technical skills you have from your resume. Easier said than done. R.T. Jane, a 25-year-old electrical and computer engineering master's student, attended the career fair.

It's just a very toxic event. Hearing students in front of her in line pitching themselves over and over again. At this school, everyone is so, so talented, so, so smart. You don't really have any brand name advantage because everyone goes to the same school. She tries to differentiate herself, emphasizing her work ethic and enthusiasm for learning new things. Those are two soft skills that I think help me succeed in whatever role I would take. But that is something I don't know how you communicate to recruiters, to hiring managers,

especially in a setting where it seems like all they want to see is like a couple of key words on a piece of paper. At Carnegie Mellon, Sean McGowan is working on bridging that gap as he's seen AI suck even more humanity out of the application process. We are living in an application volume society right now. We have students applying to hundreds and hundreds of jobs. He's pushing students on building relationships and being someone that an employer would want to work with

on a project 40 hours a week. But there's only so much he can do as these are skills that develop over time. How to work autonomously, how to critically think, how to be creative, those are things that are much harder to teach on a work site. And from the talent management side, Thomas Vick with talent firm Robert Half

has watched the role of soft skills transform in the past two decades or so, especially in the IT field. It was really for the longest time, you know, mostly if not entirely about the person's technical skills. He says soft skills are becoming more important as technological change

accelerates. Especially when you look at now generative AI and other things that are advancing at a rapid pace, someone's ability to be able to adapt, change, learn, and invest in themselves is becoming extremely crucial. And some schools are taking note. At Texas Christian University in Fort Worth, the school is piloting a mandatory career development program for business students that will help them develop soft skills and career readiness. Mike Caldwell runs the Career Development Center at the school. So it's doing group projects around interviews, the job search, creating a resume, crafting

a cover letter, networking with alumni, all of those different things in a course setting. While he says soft skills have always been important, he's noticed a new emphasis on that human touch, like at career fairs, which a decade ago there was talk that they were outdated. Nowadays, their career fairs are the place to be. We've been at max capacity for the last few years. Never then before, I think, people want that in-person connection. He hopes their pilot program can help students bring those soft skills to career fairs and

beyond. I'm Elizabeth Troval for Marketplace. This final note on the way out today, one last dip into the interest rate grab bag for a while. We talked last week about exactly how the Fed was going to get its key interest rate, the federal funds rate, down a half a percentage point. Open market operations is the shorthand. Matt Levin talked about it today. Justin Ho did the story for us a week ago.

And I guessed that the central bank would probably get the federal funds rate from 5.33% down to 4.9 percent or so. As of today, this data courtesy of Bloomberg, 4.81 percent on the federal funds rate, almost exactly half a percentage point. Sometimes the economy actually does work the way it's supposed to. Our digital and on-demand team includes Carrie Barber, Jordan Mangy, Dylan Miethinen, Janet Nguyen, Olga Oxman, Ellen Rolfus, Virginia K. Smith, and Tony Wagner. Francesca Levy is the Executive Director of Digital and On Demand. And I'm Kai Rizdal, we will see you tomorrow, everybody.

["The Daily Show Theme"] This is APM. Hi, I'm Kai Rizdal, the host of How We Survive. It's a podcast from Marketplace. In 1986, before I was a journalist, I was flying for the Navy. Mr. Gorbachev, tear down this wall. It was the Cold War and my first deployments were intercepting Russian bombers. Today, though, there's another threat out there, climate change. This could be the warmest year on record.

Climate change is here. Temperatures here are warming faster than anywhere on earth. And while the threat seems new, the Pentagon's been funding studies on climate change since the 1950s. I think we will put our troops and our forces at higher risk if we don't recognize the impact of climate change. This season, we go to the front lines of the climate crisis to see how the military is preparing for the threat. Listen to How We Survive, wherever you get your podcasts.