D.C. readers: You're invited to Transforming Transportation!
Illustration: Aïda Amer/Axios
The Federal Reserve waded unambiguously into the conversation about climate change this week, as the San Francisco Fed produced a report detailing the potential financial, economic and monetary policy implications of global warming.
Why it matters: In addition to the effects climate change has on businesses, such as "infrastructure damage, agricultural losses and commodity price spikes caused by droughts, floods, and hurricanes," Glenn Rudebusch, a senior policy adviser and executive vice president at the San Francisco Fed, argues climate change is becoming increasingly relevant for monetary policy.
Why you'll hear about this again: Earlier this year, all 4 of the still-living former Fed chairs joined nearly 30 Nobel economists and all but 1 former chair of the White House's Council of Economic Advisers in signing a statement of support for a carbon-tax policy — one that has been gaining support from Big Oil companies, environmental groups and others across the political spectrum.
Our thought bubble, from Axios Science Editor Andrew Freedman: A key trend in the scientific literature during the past few years has been the increased recognition that global warming constitutes a major economic threat nationally and worldwide. Climate impacts are already costing nations billions in the form of extreme weather events and coastal adaptation costs for sea level rise, and these will rise more steeply in coming years.
The bottom line: "For the Fed, the volatility induced by climate change and the efforts to adapt to new conditions and to limit or mitigate climate change are also increasingly relevant considerations," Rudebusch writes. "Moreover, economists, including those at central banks, can contribute much more to the research on climate change hazards and the appropriate response of central banks."
More companies than usual are signaling that first quarter earnings will come in below analysts' expectations. But investors are selling those companies' stock less than they typically do, Axios' Courtenay Brown writes.
By the numbers: 73% of S&P companies that have given guidance for the first quarter gave negative guidance — that's slightly higher than the 5-year average of 70%.
What's happening: Companies are struggling to pass on labor, transportation and material costs. That's leading to expected profit earnings pullbacks.
What to watch: Investors "do not appear to be pricing in an earnings recession," BlackRock Investment Institute's Jean Boivin wrote in a recent note, despite projections of negative earnings growth for the first quarter of 2019 and significant markdowns for the second quarter.
McDonald's acquisition of sales assistant software Dynamic Yield to better personalize its menus is the 8th largest U.S. fast food acquisition in history but it's far and away the biggest of its kind, Courtenay reports.
It's a rare instance of a major U.S. fast food company buying something other than another fast food company.
Why it matters: The fast food industry has made technology a priority, but typically it's expressed that through partnerships. McDonald's has partnered with Uber Eats, for example, and with Dynamic Yield for a test program in Miami.
Since President Trump announced he would nominate conservative pundit Stephen Moore to the Federal Reserve, journalists economists, investors and bankers have pointed out on social media and various media outlets that he's unqualified and would undermine the political independence of the Fed.
What's happening: A group of bankers reportedly are now looking to make that feeling known to senators.
The big picture: Perhaps worse than Moore's perceived fealty to Trump is his clear lack of knowledge about basic economics.
Background: The pair had this conversation on CNN:
MOORE: Do you know what the Volcker Rule was? You know how he killed inflation? He followed commodity prices. Every time commodity prices went up, he -- he raised interest rates, and every time --
RAMPELL: That’s not what the Volcker Rule is.
MOORE: Yes, it was. That's what he did, and that's how we conquered inflation, and that's why --
RAMPELL: Google the Volcker Rule, people. That’s not what the Volcker Rule is.
MOORE: Yes, it was. Ask him. Ask him.
The bottom line: "There is no deflation, and Volcker never created the imaginary 'rule' Moore is now attributing to him. I know, because I asked Volcker," Rampell writes.
The 10-year/3-month yield curve inverted on Friday and has remained underwater since, but the 10-year note continues to hold a higher yield than the 2-year note, keeping that yield curve positive.
Why it matters: While many consider the 10-year/3-month curve inversion to be a better recession predictor, the 10-year/2-year inversion has precipitated every U.S. recession since World War II.
The big picture: Investors say a recession is now being priced in, but 1-6-month T-bills hold higher yields than 2-year notes because of uncertainty about what comes next from the Fed.
Fed fund futures prices show the market sees a 77% chance the Fed cuts rates before December and a 25% chance of multiple cuts this year., according to CME Group's FedWatch. That's a complete reversal from just a week ago when the market saw a 76% chance the Fed would hold rates steady at 2.25%–2.50%.
The market has priced a 0% chance of a rate hike this year.
The intrigue: Every yield maturity from 1-month bills to 2-year notes hold higher yields than the 5-year note, and the 6-month bill has the second-highest yield on the curve, trailing only the 30-year note.
(Investors are typically paid more for holding longer-dated maturities. An inversion of that theme shows greater market fear about what's happening in the short term than in an impossible-to-predict economic climate 10 years or more in the future.)
Watch this space: The 6-month T-bill has especially high yields because of fear over the recently breached debt ceiling, which will require Congressional action to raise by late September or early October, analysts tell Axios.