WSJ What’s News - Why the Fed Went Big With Its Rate Cut

Episode Date: September 18, 2024

P.M. Edition for Sept. 18. WSJ economics reporter Paul Kiernan discusses the Federal Reserve’s decision to cut interest rates 0.5%—its first reduction since 2020. And Hezbollah scrambles after a second wave of deadly attacks with exploding devices across Lebanon. Plus, the Journal’s Kate King on why dollar stores are responding to shrinking sales with new store openings. Tracie Hunte hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Ecolab Water for Climate. Less water, more growth. Results will vary. Learn more at Ecolab.com slash EWC. Ecolab Water for Climate. Transforming the way the world thinks about water. Hezbollah is hit by a second wave of exploding devices in Lebanon. And the Federal Reserve swung big today with a half a percentage point cut. All eyes now are on what's next. Powell signaled that he really wants to keep his options open. They're going to look at each incoming data point between now and their next meeting in November. Plus, dollar stores answers to shrinking sales.

Open more stores. It's Wednesday, September 18th. I'm Tracy Hunt 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 wait is finally over. Federal Reserve Chair Jerome Powell today announced a historic interest rate cut of half a percentage point. We now see the risks to achieving our employment and inflation goals as roughly in balance. And we are attentive to the risks to both sides of our dual mandate. In light of the

progress on inflation and the balance of risks, at today's meeting, the committee decided to lower the target range for the federal funds rate by a half percentage point to four and three quarters percent to five percent. This was the first time the Fed has cut rates since 2020. Joining us now to discuss the implications of the Fed's choice is the Journal's Paul Kiernan. Paul, first of all, what made the Federal Reserve members go for a half point cut rather than a more conservative quarter percentage point cut? My understanding is that it was kind of a close call at their previous meeting in July

as to whether to cut rates by a quarter of a percentage point or hold off. They decided to wait a little bit longer and then within days of making the decision not to cut, received some pretty unfavorable unemployment data. The unemployment rate ticked up from 4.1% in June to 4.3% in July. And that kind of alarmed a lot of economists and market participants, not because it's a high unemployment rate,

but just because the you know, the direction of travel has been in place for quite a while. So a number of economists said they probably should have gone ahead and started cutting in July. And so today they played a little bit of catch up. So what's next? Did Powell indicate where we would go from here and at what pace? No, it was pretty clear in his press conference that Powell wants to keep his options open

going forward. I mean, a half point cut is a big cut. If there's not some kind of emergency happening in the economy or in the financial markets, the Fed really prefers to move in quarter point increments. And so the press conference today, Powell said they're going to look at each incoming data point between now and their next meeting in November. That said, Fed officials in their sort of anonymous economic forecasts projected another half point being taken off the interest rate between now and the end of the year.

And so that could come all at once in the form of another half point cut, but probably not. Paul Kiernan is a reporter covering economics for the Wall Street Journal. The S&P 500, the Dow, and the Nasdaq composite rose after the Fed's announcement, then paired back those gains and turned negative. The Dow dropped a quarter point while the S&P 500 and Nasdaq Composite retreated 0.3%. Hizballah was hit again today with a wave of exploding devices as Israel signaled it's moving more aggressively against the Lebanese militant group. Walkie Talkies belonging to the group blew up in homes, cars, and in operatives' hands

across the country. The new attack killed at least 14 and injured hundreds more. Yesterday's attack killed 12 and injured more than 2,800. Hezbollah is scrambling to figure out how the attack happened. Preliminary investigations point to a highly complex plan carried out by Israel in which explosives were planted in thousands of devices headed for Hezbollah members. Secretary of State Anthony Blinken speaking today in Cairo said the U.S. didn't know

about the attack. Secretary of State Anthony Blinken speaking today in Cairo said the U.S. didn't know about the attack. With regard to Lebanon, the United States did not know about nor was it involved in these incidents, and we're still gathering the information and gathering the facts. Broadly speaking, we've been very clear and we remain very clear about the importance of all parties avoiding any steps that could further escalate the conflict that we're trying to resolve in Gaza.

Tensions across the Lebanese border have recently ratcheted up, with heavier exchanges of fire than in earlier months and more aggressive Israeli operations. Pressure is building on the Israeli government to let residents of evacuated northern communities return. Israel has faced criticism for an attack that put civilians at risk. And as the nearly year-long war between Israel and Hamas continues, we want to hear from you. What do you want to know about the conflict and where it may be headed? Send a voice

memo to wnpod at wsj.com or leave a voicemail with your name and location at 212-416-4328. We might use it on the show. Coming up, dollar stores in the U.S. are aggressively expanding in the face of shrinking sales. That's after the break. I'm not going back to university to be your friend. I'm going so I can get Uber One for students. It saves you on Uber and Uber Eats. I'm there for zero dollar delivery fee on cheeseburgers, up to 5% off smoothies and 5% Uber cash back on rides. Just to be clear, I'm there for

savings, not whatever you think university is for. Get Uber One for Students, a membership to save on Uber and Uber Eats. With deals this good, everyone wants to be a student. Join for just $4.99 a month. Savings may vary. Eligibility and member terms apply. Dollar stores in the US have typically thrived during periods of economic uncertainty, like the recent spell of high inflation. But sales at these cheaper stores are slowing down,

even as the companies behind them are pursuing an aggressive real estate expansion. Two of the big names, Dollar General and Dollar Tree, are on track to open more than 1,300 locations by the end of the fiscal year. My colleague Pierre Bienneme spoke to Wall Street Journal real estate reporter Kate King and asked why these companies are expanding despite their troubled earnings. Dollar stores want to open as many stores as possible because they want to continue to grow their market share.

They want to make sure that customers are coming to them for really low-priced household essentials rather than Walmart or other competitors. They really feel that opening more stores will help them increase sales and will overall just win them more customers. Why are dollar stores seeing revenue shrinking in the first place? We could expect they would grow given today's economic conditions. Dollar stores are seeing their sales shrink in part because lower income customers are really under pressure right now.

We've had inflation for a number of years. Higher prices mean that it's harder for lower income households to afford the goods that they need. And because dollar stores get most of their revenue from lower income consumers, when these shoppers pull back, it really hurts dollar stores bottom line. Another reason is competition. Dollar stores are competing with other discount retailers,

whether it's Walmart, Target, Five Below, TJ Maxx, these are all competitors to dollar stores' dominance with their customers. And what do those companies have that dollar stores don't? These companies are increasingly competitive on price with dollar stores, so that makes it more difficult for dollar stores to compete. And then, of course, also many other retailers

have online shopping platforms. And this is something that dollar stores haven't really invested in historically. And of course, also many other retailers have online shopping platforms. And this is something that dollar stores haven't really invested in historically. They've really focused on in-store shopping and on opening as many stores as close to their customers as possible. Are these dollar stores doing anything to break into e-commerce or catch up? Dollar stores are looking for ways to offer more digital services. One example is Dollar Tree offers in-store pickup of items bought online at some of its stores.

Dollar General is also partnering with DoorDash to have items that customers buy online delivered to their homes. But overall, it's unlikely that they're going to really invest heavily in building robust online shopping platforms. And that's because dollar stores are really built around in-person shopping. And also, it's very expensive to build out e-commerce platforms. And dollar stores operate on thin margins. That was WSJ real estate reporter Kate King speaking to my colleague Pierre Bienemey. We're exclusively reporting that Lionsgate Entertainment, the company behind the Hunger Games and John Wick franchises, plans to start using generative AI in the creation of new

movies and TV shows. The studio has agreed to give the AI startup Runway access to its content library in exchange for a new custom AI model. Lionsgate plans to first use the AI tool for internal purposes like storyboarding and eventually create backgrounds and special effects with it. After the actors and writers strikes ended last fall, more studios and production companies started exploring how to use new tools for marketing and distribution. WSJ Deputy Media Editor Jessica Tunkel told our Tech News Briefing podcast that the deal is a sign of AI's advance in Hollywood. Our sources have told us that everyone is talking to everyone.

There are some major studios that have signed deals with AI companies to do something for internal purposes. But I have not heard of anyone who is really doing a deal like this, A, that'll end up on the big screen, and B, that they'll want to license this to other studios. Just from the conversations I've had since this story broke, it is a bit of a, oh my God, this is really happening now. I don't think anyone's surprised, but they're like, wow, we're here.

One TV executive posted on my LinkedIn page after I put the story up. I need AI to generate a response because I am speechless. And you can hear more about this tomorrow on our Tech News Briefing podcast. The International Brotherhood of Teamsters said today it won't issue an endorsement of the 2024 presidential campaign, the first time the powerful union has stayed neutral in nearly three decades. The Teamsters has endorsed a Democratic presidential nominee

in every election since 2000. The union last backed a Republican candidate in 1988. And the U.S. Justice Department is suing the owner of a container ship that caused a deadly bridge collapse in Baltimore earlier this year, alleging they ignored safety issues that resulted in the vessel colliding into the span after losing power. The department is seeking more than $100 million in damages from two corporations in Singapore, Grace Ocean, the registered owner of the ship, and Synergy Marine, which managed it. A spokesman for both companies declined to comment on the allegations, but said they are looking forward to setting the record straight in court. The collapse of the Francis Scott Key Bridge in

March killed six construction workers, severed a critical highway, and brought shipping traffic to a standstill out of the Port of Baltimore. And that's What's News for Wednesday afternoon. Today's show was produced by Anthony Bansi and Pierre Bienneme with supervising producer Michael Kosmitis. I'm Tracy Hunt for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.