The Fed hikes interest rates for the 11th time

Transcript

FELIX: Good morning! Welcome to Axios Today!

It’s Thursday, July 27th.

I’m Felix Salmon, in for Niala Boodhoo.

Today on the show, what more AI means for low-wage work.

But first, the Fed came out with it’s 11th rate hike today. That’s today’s One Big Thing.

FELIX: There's some potentially good economic news. Yesterday, the Fed's staff economists said that given the recent resilience of the economy, they are no longer forecasting a recession, certainly not this year. But the Fed also raised interest rates again by a quarter of a point, bringing them to the highest level in 22 years.

Here to help us dig deeper on all this is Axios senior economics reporter, Courtenay Brown. You literally aren't even old enough to remember last time rates were this high.

COURTENAY BROWN: I mean, I was alive. I was just playing with Barbie dolls and what have you, but I was definitely alive.

FELIX:So the first question, talking of which, is this economy being kept afloat by the sheer strength of Barbie ticket sales?

COURTENAY: By Barbie ticket sales, by Taylor Swift concerts, Beyonce concerts, Drake concerts, there is a lot of, that type of activity that suggests that the consumer is doing really well, and that underpins an economy that's been far more resilient than even the highest economists of the land at the Federal Reserve were expecting. But, inflation is still really high, and they're really concerned about that, and that explains why they decided to raise interest rates, once more yesterday.

FELIX: They're worried that the economy is doing too well, that we're spending too much money rate hikes will maybe slow that down, but from what you're saying, there's not a lot of sign that 11 successive rate hikes have had much effect on that front.

COURTENAY: There are definitely sectors where it's very obvious that the Fed interest rate hikes have made an impact. Housing, for one, even though activity is starting to rebound, activity is still well below levels it was before the Fed started hiking rates, mortgage rates are obviously really high as a function of the Fed's rate hikes. But, yeah, they're still concerned that the labor market is out of balance. There's still far more demand for workers than supply of them. So they're not giving a lot of guidance about what they're going to do next and whether the economy has progressed enough for them to kind of back off the interest rate hikes that they've done.

FELIX: What would you say the chances are that this will turn out to have been the very last rate hike?

COURTENAY: I don't know. And what's incredible is it seems like the Fed doesn't know. And that's a very different position than they were in even earlier this year, where it was very clear that they needed to keep hiking rates in an effort to bring inflation down. That was definitely the mode they were in last year when inflation peaked at 9%. There was no question that they were going to hike rates at at successive meetings. But that's less clear now, and I think it's not an accident that Chair Powell did not specify as to whether or not Fed is going to raise rates in September, but September is a really long time away. The next time the Fed meets we’ll have two more inflation reports, two more jobs reports, and I think the Fed is going to take that time to determine whether or not another interest rate hike is warranted.

FELIX: you mentioned that inflation not that long ago was 9%. Where is it now?

COURTENAY: According to the Consumer Price Index, inflation was 3% between, you know, the 12 months through June 2023, so that's a pretty significant drop, but, you know, while that's great news for consumers, it means slowing price increases for food and energy, and a bunch of other things that consumers pay for, um, the Fed watches, a different measure, the core measure that excludes food and energy prices. And those have come down, but much, much more slowly than headline inflation has come down. And that's worrying for the Fed.

FELIX: But in terms of the big economy, are we really out of the woods? Is there still a decent risk that all of these rate hikes will tip us into recession?

COURTENAY: I think there's been a big reckoning on Wall Street and, you know, Chair Powell seemed to suggest, somewhat of a reckoning among, Fed staff economists that their, probably won't be a recession this year. And part of that is a function of, you know, it's almost August and so we're, we're just kind of running out of year and the data has been very strong, it would be really something if the data were to turn so, so sharply that, it would suggest that the U. S. Economy is in a recession.

FELIX: Any chance of a recession in 2024?

COURTENAY: Well, this is what Wall Street economists they're doing. Some of them are saying we're not going to have a recession, but others are just pushing it out. So some economists that do anticipate a recession instead of it happening in the final quarter of this year. Well, maybe it will happen in the first quarter of 2024 the second quarter of 2024. So there's always a recession coming exactly when it's coming well that's anyone's guess.

FELIX: Courtenay Brown covers economics at Axios. Thanks so much, Courtney.

COURTENAY: Thanks, Felix.

FELIX: In a moment: generative AI and the future of low-wage work.

FELIX: Welcome back to Axios Today. I’m Felix Salmon.

Low wage workers are 14 times more likely than higher wage earners to lose their jobs to advances in artificial intelligence. That’s according to a new report that came out yesterday from the McKinsey Global Institute.

But turns out that’s not all bad news. Axios’ Emily Peck is here to explain why!

EMILY PECK: I just read a 76 page McKinsey report, so you don't have to. And it's about generative AI and the future of work in America. And it paints a surprisingly positive picture of AI and jobs because, you know, people are really afraid with reasons, good reason, that AI will take their jobs and put them out of work. The report actually confirms that, but what it says is AI will displace low age workers. But that's a trend that's already underway and has been accelerated in the pandemic and by automation, you know, like think about ordering kiosks at McDonald's or, self checkout at CVS, things like that.

AI is going to accelerate those kinds of changes and put those kinds of workers out of work. But the good news is there's job growth in other areas. And what we've seen in the past few years is that low wage workers can transition out of those low wage jobs into better jobs.

FELIX: Now, explain to me how AI and specifically generative AI, which is all about making up things that people are likely to say or pictures that people are likely to paint, that kind of thing. How does that mean that a whole bunch of people are going to lose their jobs, or a whole bunch of jobs are going to get obliterated?

EMILY: Right. So they looked at four categories in the lower paying job sector and said those were shrinking already. And, they gave the example of generative AI helping, people in call centers or people that are responding to customers on chats, helping them manage instead of they said, like one operator dealing with maybe like three customers at a time. AI would allow them to deal with maybe like 10 customers at a time and cut down on the number of call center employees. Because the AI would be good at responding to people in real time in a way that automation isn't as good.

And I think some other sectors that they note will see a lot of job displacement from AI. Another one would be office support staff, secretaries, executive assistants, that's already on the decline. AI could really take you to the next level on that where you didn't need a person to manage your calendar.

FELIX: Would it be fair to say that most of these jobs that AI is coming for, are these low paid white collar jobs? Like this isn't people who work with their hands outdoors, right?

EMILY: Well, these are a lot of people that work on their feet or in frontline kind of work, right? So fast food cashiers, waiters, waitresses, executive assistants, office workers, production workers who move material or work machines and things like that. But yeah, this isn't gardeners or people building houses or anything like that.

FELIX: Does the McKinsey report talk at all about which sectors are likely to see more human employees they attract some of the displaced workers?

EMILY: Yeah, so the white collar professions probably will attract more employees. They point to green technology, they point to just management jobs might grow more. And it's, this isn't to say that white collar jobs aren't going to be disrupted by AI, but the reports authors that I spoke to said the jobs will be disrupted, but they'll still be there. Like the way you do your job will change, but you're likely to still have your job.

FELIX: Emily Peck is a markets correspondent for Axios. Thanks, Emily.

EMILY: Thank you.

FELIX: And finally, there was heartbreaking news from across the Atlantic yesterday, when we learned the singer-songwriter Sinead O’Connor has died at the age of 56, one year after her son Shane died at 17. Her music — and her unvarnished opinions — electrified an entire generation, in her native Ireland and around the world.

That’s all we’ve got for you today! Tell me I was wonderful and brilliant by emailing me at [email protected]. Tell me I was terrible by emailing [email protected] or just send us a text at 202-918-4893.

I’m Felix Salmon in for Niala Boodhoo - thanks for listening - stay safe and we’ll see you back here tomorrow morning.