Finance
Fed wants more confidence that inflation is moving toward 2% target, meeting minutes indicate
Federal Reserve officials at their March meeting expressed concern that inflation wasn’t moving lower quickly enough, though they still expected to cut interest rates at some point this year.
At a meeting in which the Federal Open Market Committee again voted to hold short-term borrowing rates steady, policymakers also showed misgivings that inflation, while easing, wasn’t doing so in a convincing enough fashion. The Fed currently targets its benchmark rate between 5.25%-5.5%
As such, FOMC members voted to keep language in the post-meeting statement that they wouldn’t be cutting rates until they “gained greater confidence” that inflation was on a steady path back to the central bank’s 2% annual target.
“Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2 percent,” the minutes said.
In what apparently was a lengthy discussion about inflation at the meeting, officials said geopolitical turmoil and rising energy prices remain risks that could push inflation higher. They also cited the potential that looser policy could add to price pressures.
On the downside, they cited a more balanced labor market, enhanced technology along with economic weakness in China and a deteriorating commercial real estate market.
U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., March 20, 2024.
Elizabeth Frantz | Reuters
They also discussed higher-than-expected inflation readings in January and February. Chair Jerome Powell said it’s possible the two months’ readings were caused by seasonal issues, though he added it’s hard to tell at this point. There were members at the meeting who disagreed.
“Some participants noted that the recent increases in inflation had been relatively broad based and therefore should not be discounted as merely statistical aberrations,” the minutes stated.
That part of the discussion was partly relevant considering the release came the same day that the Fed received more bad news on inflation.
CPI validates their concern
The consumer price index, a popular inflation gauge though not the one the Fed most closely focuses on, showed a 12-month rate of 3.5% in March. That was both above market expectations and represented an increase of 0.3 percentage point from February, giving rise to the idea that hot readings to start the year may not have been an aberration.
Following the CPI release, traders in the fed funds futures market recalibrated their expectations. Market pricing now implies the first rate cut to come in September, for a total of just two this year. Previous to the release, the odds were in favor of the first reduction coming in June, with three total, in line with the “dot plot” projections released after the March meeting.
The discussion at the meeting indicated that “almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected,” the minutes said. “In support of this view, they noted that the disinflation process was continuing along a path that was generally expected to be somewhat uneven.”
In other action at the meeting, officials discussed the possibility of ending the balance sheet reduction. The Fed has shaved about $1.5 trillion off its holdings of Treasurys and mortgage-backed securities by allowing up to $95 billion in proceeds from maturing bonds to roll off each month rather than reinvesting them.
There were no decisions made or indications about how the easing of what has become known as “quantitative tightening” will happen, though the minutes said the roll-off would be cut by “roughly half” from its current pace and the process should start “fairly soon.” Most market economists expect the process to begin in the next month or two.
The minutes noted that members believe a “cautious” approach should be taken.
A television station broadcasts the Federal Reserve’s interest-rate cut on the floor of the New York Stock Exchange (NYSE) in New York, US, on Wednesday, Dec. 18, 2024.
Michael Nagle | Bloomberg | Getty Images
Wall Street’s fear gauge — the VIX — spiked by the second biggest percentage in its history on Wednesday, after the Federal Reserve jolted the stock market by saying it would dial back its rate-cutting campaign.
The CBOE Volatility Index surged 74% to close at 27.62, up from around 15 earlier in the day. That surge is the second-greatest in history, behind a 115% leap to above the 37 handle back in February 2018 when there was a blow-up in funds tracking the volatility index.
Wednesday’s move comes after the central bank said it will likely lower interest rates just twice next year, down from the four cuts it projected back in September, alarming investors who wanted low rates to keep fueling the bull market. The Dow Jones Industrial Average tumbled by 1,100 points to its 10th straight loss.
Typically, a value greater than 20 in the VIX indicates a higher level of fear in the market. However, for most of this year, the VIX had been suppressed below that level, worrying investors who believed the market had gotten overly complacent.
The VIX is calculated based on the prices of put and call options on the S&P 500. A spike could indicate a rush by investors to purchase put options for protection in a decline.
CBOE Volatility Index, 5 days
Still, there have been one other significant surge in the VIX in 2024. The third-biggest surge in the VIX in history occurred in Aug. 5, 2024, when fears of a U.S. recession, and a major unwind in the yen carry trade, spurred a roughly 65% increase in the VIX to close above 38. On an intraday basis, the VIX briefly topped 65 that day.
On Thursday, the VIX was last floating just above the 20 handle, down more than 25% from the prior day.
Workers setting up the TuSimple booth for CES 2022 at the Las Vegas Convention Center on Jan. 3, 2022.
Alex Wong | Getty Images News | Getty Images
Embattled Chinese autonomous trucking company TuSimple has rebranded to CreateAI, focusing on video games and animation, the company announced Thursday.
The news comes as GM folded its Cruise robotaxi business this month, and the once-hot sector of self-driving startups has started to weed out stragglers. TuSimple, which straddled the U.S. and China markets, had its own challenges: concerns over vehicle safety, a $189 million settlement of a securities fraud lawsuit and delisting from the Nasdaq in February.
Now, just over two years after CEO Cheng Lu rejoined the company in the role after being pushed out, he expects the business can break even in 2026.
That’s thanks to a video game based on the hit martial arts novels by Jin Yong that’s slated to release an initial version that year, Cheng said. He anticipates “several hundred million” in revenue in 2027 when the full version is launched.
Before the delisting, TuSimple said it lost $500,000 in the first three quarters of 2023, and spent $164.4 million on research and development during that time.
Company co-founder Mo Chen has a “long history” with the Jin Yong family and started work in 2021 to develop an animated feature based on the stories, Cheng said.
The company claims its artificial intelligence capabilities in developing autonomous driving software give it a base from which to develop generative AI. That’s the next-level tech powering OpenAI’s ChatGPT, which generates human-like responses to user prompts.
Along with the CreateAI rebrand, the company debuted its first major AI model called Ruyi, an open-source model for visual work, available via the Hugging Face platform.
“It’s clear our shareholders see the value in this transformation and want to move forward in this direction,” Cheng said. “Our management team and Board of Directors have received overwhelming support from shareholders at the annual meeting.”
He said the company plans to increase headcount to around 500 next year, up from 300.
Cutting production costs by 70%
While still under the name TuSimple, the company in August announced a partnership with Shanghai Three Body Animation to develop the first animated feature film and video game based on the science fiction novel series “The Three-Body Problem.”
The company said at the time that it was launching a new business segment to develop generative AI applications for video games and animation.
CreateAI expects to lower the cost of top-tier, so-called triple A game production by 70% in the next five to six years, Cheng said. He declined to share whether the company was in talks with gaming giant Tencent.
When asked about the impact of U.S. restrictions, Cheng claimed there were no issues and said the company used a mix of China and non-China cloud computing providers.
The U.S. under the Biden administration has ramped up limits on Chinese businesses’ access to advanced semiconductors used to power generative AI.
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