Cautious optimism at the Fed

Transcript

NIALA: Good morning! Welcome to Axios Today!

It’s Tuesday, January 24th.

I’m Niala Boodhoo.

Here’s what we’re following today: new plans to curb fraud in organic food labels. Plus, the death toll rises in the Monterey Park shooting. But first: cautious optimism at the Fed is today’s One Big Thing.

A new tone for the Fed

NIALA: We've talked a lot on the podcast about the Fed's battle with inflation last year as the central bank has wrestled with interest rates. But recently the Fed’s tone has shifted to a more optimistic outlook. What does that tell us about the economy? Here to translate this Fedspeak for us as Axios’ economics reporter, Courtenay Brown. Hey Courtenay

COURTENAY: Hi, Niala.

NIALA: Okay, Courtenay. So first the 10,000 foot view. What's happening with the economy and in particular inflation right now?

COURTENAY: Well, the data that's been coming in lately, the economic data has been looking pretty good for the most part. We got the consumer price index, which, you know, is a gauge of price increases across a basket of consumer goods. For the month of December, it actually looks like prices fell in aggregate and have slowed in the 12 months through December. It’s been slowing for a few consecutive months, and that's really good news for the Fed's inflation fight. And alongside that, we've had pretty continued strong jobs growth. You see a lot of tech layoffs in the headlines and you know, that's really devastating for people who are losing their jobs. But for the most part, businesses are still really, really hungry for workers. And the unemployment rate is quite low.

NIALA: So how can you tell the Fed’s sounding more optimistic these days?

COURTENAY: I think to understand how the Fed's tone has changed, I think you need to go back to last summer when a bunch of economic reporters and top economic policy makers gathered in Jackson Hole for what ultimately was a pretty grim message from the Federal Reserve Chairman Jerome Powell. Getting back to price stability or in other words, conquering inflation is going to require economic pain. That's quite a message from the Fed chairman. And I think the scenario that Chair Powell was envisioning, um, a rise in joblessness just hasn't happened yet. So now they're more optimistic, but they have the data to kind of back up what they're saying. So inflation has been falling for several months, the U.S. labor market looks pretty, pretty strong. The economy and aggregate is slowing, but it's still pretty healthy. And there's no evidence to back up a so-called wage spiral. And that's kind of the dreaded scenario that played out a few decades ago when inflation was a huge problem in this country. Wages are slowing, which sounds devastating for working Americans of course, but the Fed is really concerned that wages will rise faster and faster and faster. And it will be really, really hard to put a lid on inflation. But that's not a scenario that's happening right now, and that's quite good news.

NIALA: So does that mean the Fed's likely to raise interest rates again next week?

COURTENAY: Oh, sure. The Fed's inflation fight is not over. You know, the story of 2022 was the Fed raising rates really quickly, really aggressively to contain inflation. I know it's only January, but it looks like the story of 2023 is that the Fed Slowing its pace of interest rate hikes and is eventually going to stop and hold interest rates at that level as they see how the economy progresses, as they see, what happens with inflation and that is what we're expecting when the Fed meets for its, policy meaning in the coming days.

NIALA: Courtenay Brown is one of the co-authors of Axios Macro. Thanks Courtney.

COURTENAY: Thanks Niala.

Another mass shooting in California

NIALA: At least seven people were killed yesterday, in a mass shooting in two locations in San Mateo County, California. A 67-year-old suspect is in custody. Local officials said the victims were Chinese farmworkers.

This came less than two days after the Monterey Park, California shooting which also involved the AAPI community. Another victim of that shooting died yesterday, bringing the death toll to 11.

In a news briefing yesterday, Chief Scott Wiese of the Monterey Park Police said the motive of that shooter – who died of a self-inflicted gunshot wound – has still not been identified.

SCOTT WIESE: The why is a big part of this. The problem is, we may never know the why. And we have to work past that.

NIALA: In a moment: the USDA takes on organic fraud.

New plans to curb fraud in organic food labels

NIALA: Welcome back to Axios Today. I'm Niala Boodhoo.

Organic food sales are more than double what they were a decade ago. In 2021, sales hit $57.5 billion. That's according to the Organic Trade Association. But now, sham overpriced products claiming the organic label have been hitting grocery store shelves, and the USDA is cracking down.

The Washington Post’s Laura Reiley has been reporting on this story. Hi Laura. Welcome to Axios Today.

LAURA REILEY: Thanks so much for having me.

NIALA: Laura, the DOJ recently brought charges involving a multimillion dollar organic scheme, so what exactly is organic fraud?

LAURA: Well, it's prevalent in commodity grains. Soy and corn are obviously enormous crops that travel around the world, they go from Asia and the Middle East to the U.S. and back again. And so these are products where if you are claiming organic status rather than conventional, you can charge 50% more, twice as much. So there's a lot of incentive to misrepresent those kinds of products.

NIALA: Is this also something that is a problem in grocery stores as well?

LAURA: Yes. So as you've probably noticed, if you go to a grocery store like Whole Foods, that really specializes in organic produce, a lot of times the little shelf talker will say, product of Mexico. So we have an awful lot of organic produce that has grown elsewhere and brought into the U.S. and that really gives growers opportunities to, if not misrepresent or flout organic rules, to bend them a little bit. So whether that's use of fertilizers or pest and weed control, or soil quality or no GMOs, all of these things that are supposed to be kind of corner pins of organic practices, you often will see people cutting corners as a way of increasing their revenue stream.

NIALA: So what are the new organic guidelines from the USDA? What is the official definition?

LAURA: What just happened last week, these new guidelines mean that more of the businesses in that supply chain have to have organic certification. The brokers, the traders, all the middlemen, so that there's more transparency linking what you get in a grocery store or at a table in a restaurant back to that grower. Brokers and traders will have to be certified. All of the imports will have certifications, there will be increased inspections and reporting requirements for organic growers. And it remains to be seen whether these will be effective in really curbing this kind of fraud.

NIALA: How do you anticipate these new guidelines will change the business of food?

LAURA: Certainly some manufacturers will be afraid of retribution from USDA. But it all comes down to whether or not there are enough inspectors who are either spot checking at the border or in a manufacturing facility, and who are really tracking back, where did you get this soy? Where did you get this corn? Some of the advocates that I spoke with said, you know, this has been problematic for decades and we have no confidence that this will really curtail some of the problems.

I mean, for instance, most of the organic milk in the United States comes from these huge dairies in California that are organic in that they're not using, you know, growth hormones and antibiotics and those kinds of things. But they're kind of organic in name only, not in spirit. Because a lot of these animals, they don't have access to pasture, they don't have some of the fundamental animal husbandry practices that are essential to that organic label.

NIALA: So what's your advice for consumers who are interested in and care about purchasing organic food?

LAURA: Well, I would say, and this is tricky because it really does mean you have to eat seasonally, I would say sources locally as you can when you can diminish the distance that that food has to travel, you are more likely to know the whole supply chain, understand, be able to track it back to its origin. And also for a food product in the grocery store, let's say a bag of pea protein, better for you chips or something like that, the shorter that ingredient list is the more likely that all of the ostensibly organic ingredients that go into that, will be true and accurate. Once you get into products that have 20, 30, 50 ingredients, the likelihood that all of them are certified organic becomes just statistically unlikely.

NIALA: Laura Reiley covers the business of food for The Washington Post. Thank you.

LAURA: Thank you.

NIALA: That’s it for us today. You can always text me with feedback and story ideas at 202-918-4893.

I’m Niala Boodhoo. Thanks for listening, stay safe, and we’ll see you back here tomorrow morning.