Finance
Fed cuts interest rates by a half point
WASHINGTON – The Federal Reserve on Wednesday enacted its first interest rate cut since the early days of the Covid pandemic, slicing half a percentage point off benchmark rates in an effort to head off a slowdown in the labor market.
With both the jobs picture and inflation softening, the central bank’s Federal Open Market Committee chose to lower its key overnight borrowing rate by a half percentage point, or 50 basis points, affirming market expectations that had recently shifted from an outlook for a cut half that size.
Outside of the emergency rate cuts during Covid, the last time the FOMC cut by half a point was in 2008 during the global financial crisis.
The decision lowers the federal funds rate to a range between 4.75%-5%. While the rate sets short-term borrowing costs for banks, it spills over into multiple consumer products such as mortgages, auto loans and credit cards.
In addition to this reduction, the committee indicated through its “dot plot” the equivalent of 50 more basis points cut by the end of the year, close to market pricing. The matrix of individual officials’ expectations pointed to another full percentage point in cuts by the end of 2025 and a half-point in 2026. In all, the dot plot shows the benchmark rate coming down about 2 percentage points beyond Wednesday’s move.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the post-meeting statement said.
The decision to ease came “in light of progress on inflation and the balance of risks.” The FOMC vote came by an 11-1 vote, with Governor Michelle Bowman preferring a quarter-point move. Investors will be eager to hear more from Chair Jerome Powell in his 2:30 p.m. ET press conference.
Trading was volatile after the decision with the Dow Jones Industrial Average jumping as much as 375 points, before easing somewhat as investors digested the news and what it suggests about the state of the economy.
In assessing the state of the economy, the committee judged that “job gains have slowed and the unemployment rate has moved up but remains low.” FOMC officials raised their expected unemployment rate this year to 4.4%, from the 4% projection at the last update in June, and lowered the inflation outlook to 2.3% from 2.6% previous. On core inflation, the committee took down its projection to 2.6%, a 0.2 percentage point reduction from June.
The committee expects the long-run neutral rate to be around 2.9%, a level that has drifted higher as the Fed has struggled to get inflation down to 2%.
The decision comes despite most economic indicators looking fairly solid.
Gross domestic product has been rising steadily, and the Atlanta Fed is tracking 3% growth in the third quarter based on continuing strength in consumer spending. Moreover, the Fed chose to cut even though most gauges indicate inflation well ahead of the central bank’s 2% target. The Fed’s preferred measure shows inflation running around 2.5%, well below its peak but still higher than policymakers would like.
However, Powell and other policymakers in recent days have expressed concern about the labor market. While layoffs have shown little sign of rebounding, hiring has slowed significantly. In fact, the last time the monthly hiring rate was this low – 3.5% as a share of the labor force – the unemployment rate was above 6%.
At his press conference following the July meeting, Powell remarked that a 50 basis point cut was “not something we’re thinking about right now.”
For the moment, at least, the move helps settle a contentious debate over how forceful the Fed should have been with the initial move.
However, it sets the stage for future questions over how far the central bank should go before it stops cutting. There was a wide dispersion among members for where they see rates heading in future years.
Investors’ conviction on the move vacillated in the days leading up to the meeting. Over the past week, the odds had shifted to a half-point cut, with the probability for 50 basis points at 63% just prior to the decision coming down, according to the CME Group’s FedWatch gauge.
The Fed last reduced rates on March 16, 2020, part of an emergency response to an economic shutdown brought about by the spread of Covid-19. It began hiking in March 2022 as inflation was climbing to its highest level in more than 40 years, and last raised rates in July 2023. During the hiking campaign, the Fed raised rates 75 basis points four consecutive times.
The current jobless level is 4.2%, drifting higher over the past year though still at a level that would be considered full employment.
With the Fed at the center of global financial universe, Wednesday’s decision likely will reverberate among other central banks, several of whom already have started cutting. The factors that drove global inflation higher were related mainly to the pandemic – crippled international supply chains, outsized demand for goods over services, and an unprecedented influx of monetary and fiscal stimulus.
The Bank of England, European Central Bank and Canada’s central bank all have cut rates recently, though others awaited the Fed’s cue.
While the Fed approved the rate hike, it left in place a program in which it is slowly reducing the size of its bond holdings. The process, nicknamed “quantitative tightening,” has brought the Fed’s balance sheet down to $7.2 trillion, a reduction of about $1.7 trillion from its peak. The Fed is allowing up to $50 billion a month in maturing Treasurys and mortgage-backed securities to roll off each month, down from the initial $95 billion when QT started.
Hiroki Takeuchi, co-founder and CEO of GoCardless.
Zed Jameson | Bloomberg | Getty Images
LISBON, Portugal — Financial technology unicorns aren’t in a rush to go public after buy now, pay later firm Klarna filed for a U.S. IPO — but they’re keeping a watchful eye on it for signs of when the market will open up again.
Last week, Klarna made a confidential filing to go public in the U.S., ending months of speculation over where the Swedish digital payments firm would list. Timing of the IPO is still unclear, and Klarna has yet to decide on pricing or the number of shares it’ll issue to the public.
Still, the development drew buzz from fintech circles with market watchers asking if the move marks the start of a resurgence in big fintech IPOs. For now, that doesn’t appear to be the case — however, founders say they’ll be watching the IPO market, eyeing pricing and eventually stock performance closely.
Hiroki Takeuchi, CEO of online payments startup GoCardless, said last week that it’s not yet time for his company to fire the starting gun on an IPO. He views listing as more of a milestone on a journey than an end goal.
“The markets have been challenging over the last few years,” Takeuchi, whose business GoCardless was last valued at over $2 billion, said in a CNBC-moderated panel at the Web Summit tech conference in Lisbon, Portugal.
“We need to be focused on building a better business,” Takeuchi added, noting that “the rest will follow” if the startup gets that right. GoCardless specializes in recurring payments, transactions that come out of a consumer’s bank account in a routine fashion — such as a monthly donation to charity.
Lucy Liu, co-founder of cross-border payments firm Airwallex, agreed with Takeuchi and said it’s also not the right time for Airwallex to go public. In a separate interview, Liu directed CNBC to what her fellow Airwallex co-founder and CEO Jack Zhang has said previously — that the firm expects to be “IPO-ready” by 2026.
“Every company is different,” Liu said onstage, sat alongside Takeuchi on the same panel. Airwallex is more focused on becoming the best it can be at solving friction in global cross-border payments, she said.
An IPO is a goal in the company’s trajectory — but it’s not the final milestone, according to Liu. “We’re constantly in conversations with our investors shareholders,” she said, adding that will change “when the time is right.”
‘Stars aligning’ for fintech IPOs
One thing’s for sure, though — analysts are much more optimistic about the outlook for fintech IPOs now than they were before.
“We outlined five handles to open the [IPO] window, and I think those stars are aligning in terms of the macro, interest rates, politics, the elections are out the way, volatility,” Navina Rajan, senior research analyst at private market data firm PitchBook, told CNBC.
“It’s definitely in a better place, but at the end of the day, we don’t know what’s going to happen, there’s a new president in the U.S.,” Rajan continued. “It will be interesting to see the timing of the IPO and also the valuation.”
Fintech companies have raised around 6.2 billion euros ($6.6 billion) in venture capital from the beginning of the year through Oct. 30, according to PitchBook data.
Jaidev Janardana, CEO and co-founder of British digital bank Zopa, told CNBC that an IPO is not an immediate priority for his firm.
“To be honest, it’s not the top of mind for me,” Janardana told CNBC. “I think we continue to be lucky to have supportive and long-term shareholders who support future growth as well.”
He implied private markets are currently still the most accommodative place to be able to build a technology business that’s focused on investing in growth.
However, Zopa’s CEO added that he’s seeing signs pointing toward a more favorable IPO market in the next couple of years, with the U.S. likely opening up in 2025.
That should mean that Europe becomes more open to IPOs happening the following year, according to Janardana. He didn’t disclose where Zopa is looking to go public.
Tencent’s Honor of Kings mobile game drew a record 33,000 fans to watch a final competition in Beijing on Nov. 16, 2024.
CNBC | Evelyn Cheng
BEIJING — Chinese gaming giant Tencent is betting on a rise in female players worldwide for its mobile game Honor of Kings, which rolled out to the U.S. and other countries in June.
Already a hit in China, the game drew a record 33,000 fans to a Beijing stadium on Saturday to watch two teams compete for a $3 million grand prize.
Surprisingly, many in the crowd were young women, reflecting how interest in mobile games has broadened out from the stereotypical male player in the days of console and PC gaming.
Launched in China in November 2015, the game’s appeal lies in its easy learning curve and relatively short sessions of around 15 minutes. Anyone with a smartphone can play for free in real time, on the go.
“Honor of Kings became an important way for me to socialize,” said Tianyun Gao, according to CNBC’s translation of her spoken Mandarin. She started playing the game in 2017 as a sophomore in college and became a professional commentator for the game’s competitions a year later.
Gao, an English major from Shanghai, has moderated Honor of Kings’ competitions in two languages, including an international event held in Riyadh, the capital of Saudi Arabia, in August. She said her hope is to see esports become as mainstream as traditional sports, noting that one of her inspirations is a Chinese soccer commentator.
Tencent ramped up its global expansion plans for Honor of Kings this year, with its subsidiary, Level Infinite, in February announcing a $15 million investment in developing the game’s tournament worldwide.
An international version of the game has been available since 2016 under different names such as Arena of Valor, but the latest global push for Honor of Kings began in 2022. The game didn’t reach the Middle East until earlier this year and only launched in the key markets of North America, Europe and Japan in June.
Less than a month later, the game topped 50 million downloads outside China, according to the company.
Overwhelmingly mobile-focused
Growth in gaming among women stems largely from their preference in playing on their smartphones, without having to invest in consoles and other technology.
“Nearly half of female players play only on mobile platforms so we have a huge addressable audience,” said Jackie Huang, head of the Honor of Kings global esports division within Tencent Games’ TiMi L1 Studio. “Women make up a significant part of our player base but we want to see this continue growing.”
He said that 45% of gamers globally are women, and that the gender composition of Honor of Kings’ users is “relatively balanced. “We strive to provide users, no matter how they identify, with [a] high quality gaming experience,” Huang said.
Gaming is Tencent’s biggest revenue driver, with international games accounting for around 28% of the its overall gaming business in the third quarter.
The company also owns Riot Games, a developer whose PC-based League of Legends has become one of the most popular names in global esports with its own annual competition. Honor of Kings, which claims 100 million players a day, uses a similar format with two teams of five players each.
Such multiplayer games are the second-most popular category for female gamers, behind puzzles, said Xiaofeng Zeng, China-based vice president at gaming research firm Niko Partners. His analysis found that 95% of women prefer mobile games.
If Honor of Kings can hold first place in China, and achieve that position overseas, then Tencent can generate half its revenue from international markets, Zeng said. He said the game’s top overseas markets by revenue are the U.S., India, Malaysia, and Indonesia.
And in the key market of Southeast Asia, Zeng said that due to a low base, female players are growing two to three times more quickly than male gamers. A newly branded Honor of Kings global championship was held last month in Jakarta, Indonesia’s capital, with Malaysian team Black Shrew Esports winning the $300,000 first prize.
Early stages
For now, no matter how popular Honor of Kings may be among women, the competitions remain dominated by men. The two teams competing in Beijing on Saturday consisted only of male players.
Huang pointed out that the global championship this year featured a female player from France’s Team Vitality, which is also managed and coached by women.
He attributed the Honor of King’s popularity among women to the game’s playable characters that are also female. Many of the figures, each with different powers, are based on Chinese historical or mythological figures.
In 2021, organizers of the Honor of Kings competition in China also launched a tournament for female players. This year’s womens finals are set to take place in December, with a prize of around $41,000 for the winning team.
“The pandemic was a large accelerator of females into the games space and we have continued to see increased engagement from female gamers,” said Chirag Ambwani, SVP, gaming and entertainment, at SensorTower, which focuses on mobile games.
Reasons include specialized and easy to access content, he said, adding that gaming participation grew overall.
As for Honor of Kings’ global expansion, Ambwani said SensorTower research showed “healthy growth,” with average revenue of more than $5 per user in the U.S. and Canada.
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