What the Fed’s Big Rate Cut Reveals About the Economy

Investors have sent stocks and bonds higher on expectations of a soft landing. But some Republicans think the central bank overstepped its bounds.

Mission accomplished?

Global markets are rallying as investors cheer the Fed’s prodigious interest-rate cut — half a percentage point, instead of a more cautious quarter-percentage point. The move landed like a thunderbolt in American politics.

The big question: Did the Fed successfully thread the economic needle?

Investors seem to think the central bank got it right. S&P 500 futures jumped on Thursday after the benchmark fell in volatile trading following the Fed’s decision. The prices of bonds and cryptocurrencies are rising, too. And this just in: The Bank of England voted to keep rates unchanged.

Are we set for a soft landing? Jay Powell, the Fed chair, didn’t utter the phrase — shorthand for cooling the economy via interest-rate policy without causing a recession — during his post-decision news conference on Wednesday. But Jason Furman of Harvard, who has criticized the Fed’s handling of inflation, said that the central bank had just about pulled it off.

In the closest thing you’ll see to a central banker taking a victory lap, Powell said, “Our patient approach over the past year has paid dividends,” with the central bank now seeing the inflation problem as a fading risk.

Other takeaways:

• The central bank has historically resorted to half-point cuts as emergency efforts to avert recessions. But Fed officials don’t see an imminent slowdown: “Our economy is strong overall,” Powell said.
• Instead, the jumbo cut was meant to ease household finances and bolster the labor market, which has become the Fed’s new principal worry.
• Fed officials say they expect the federal funds rate to fall to roughly 3.4 percent by the end of next year, from about 4.9 percent today.
• But Powell played down the idea of another supersize cut this year. Futures markets on Thursday see two cuts of a quarter point each at the remaining two Fed meetings.

The presidential contenders weighed in. Donald Trump, who warned the Fed not to cut rates before the election, said that the central bank appeared to be “playing politics” and that the move “shows the economy is very bad.”

Vice President Kamala Harris, who could benefit from any economic uptick from the cut, called the move “welcome news for Americans who have borne the brunt of high prices.”

The debate raised anew the question of the Fed’s independence, a topic that has hung over the central bank since Trump suggested that American presidents should have more influence on rate policy.

But Powell defended the Fed’s independence as a hallmark of modern American democracy. “It’s a good institutional arrangement which has been good for the public,” he said on Wednesday. “I hope and strongly believe it will continue.”

HERE’S WHAT’S HAPPENING

The publishing giant Axel Springer agrees to break up. The company struck a deal to hand a majority stake in its classified ad business to its biggest investors, KKR and CPP Investments, and to retain control over properties including Politico and Business Insider. The transaction, which values all of Axel Springer at $15 billion, will free its C.E.O., Mathias Döpfner, to acquire more media outlets while cutting KKR’s ties to Axel Springer, a relationship that has sometimes come under scrutiny.

A government shutdown looms after another House spending bill is rejected. Republicans and Democrats on Wednesday defeated Speaker Mike Johnson’s $1.6 trillion stopgap proposal, which included a tougher voter-ID mandate that was backed by Donald Trump. Even some hard-right conservatives voted against the bill because they want deeper spending cuts, underscoring the long odds on reaching an agreement by the Sept. 30 deadline.

The Justice Department filed a $100 million claim for the Baltimore bridge collapse. The government is seeking damages from the owner and operator of the Dali, the cargo ship that rammed into the Francis Scott Key Bridge in March. The crash killed six and paralyzed the port of Baltimore, but the companies have said that their liabilities should be capped at less than half that amount.

C.E.O.s increasingly see a Harris victory

Recent polling suggests that Vice President Kamala Harris holds a slim lead over Donald Trump. A group of 60 business leaders convened by Jeff Sonnenfeld of the Yale School of Management in Washington is even more bullish about her chances of winning.

DealBook’s Lauren Hirsch got a first look at the results of Sonnenfeld’s survey, which also captures their views on the economy and on the volatile political climate. (In the survey, 37 percent of respondents identified as Republican, 32 percent as Democrat and about the same as independent.)

• Eighty percent expected Harris to win. As well as the latest findings, C.E.O. surveys conducted by Sonnenfeld during the Trump era have shown how business leaders have been moving away from a tendency to support Republican candidates.
• Executives were concerned about inflammatory rhetoric. When asked whether they believed hate speech was inciting violence, 68 percent of respondents said that they strongly agreed, while 26 percent said that they agreed. And 87 percent said that Trump should apologize for spreading debunked rumors about Haitian immigrants in Ohio.

• They’re optimistic about the economy, with 84 percent of respondents saying that the economy was headed for a soft landing. About 10 percent said that they expected a significant recession, while six percent foresaw stagflation.
• They generally favor tariffs. About 42 percent of respondents agreed that measures were needed to “protect vital U.S. industries from unfair foreign competition,” while 16 percent said that they strongly agreed.
• Two-thirds of executives said that Nippon Steel should be allowed to buy U.S. Steel. The $15 billion deal has been held up by political and national security concerns.

The survey’s findings track with strong business leader support for Harris.

• In other election news: The International Brotherhood of Teamsters said it wouldn’t endorse either Harris or Trump, though many of the union’s West Coast chapters said that they would back Harris.

The fight over the Vista deal gets messier

Little more than a week to go before a vote on Vista Outdoor’s proposed sale of its ammunition business to a Czech defense contractor, the transaction has become more complicated.

Vista’s board has endorsed a sweetened $2.15 billion offer for the division by the contractor, Czechoslovak Group, known as CSG, and rejected a $2.5 billion bid by the investment firm MNC Capital for the entire company. But a series of disclosures on Wednesday muddied the outlook.

What’s happening with Vista’s consumer business, Revelyst? In a news release on Wednesday, Vista said that it had been approached by the unnamed private equity firm that is backing MNC’s bid, which would include that firm’s taking over Revelyst. The private equity firm said that it would be willing to strike a deal for Revelyst separate from the MNC bid, according to Vista: “An agreement could be reached in conjunction with or independent of the CSG transaction,” Vista said in its release.

But in a regulatory filing, Vista acknowledged that the private equity firm only wanted Revelyst as part of a deal for the whole company, just as MNC has proposed. In short, the private equity firm wasn’t interested in buying Revelyst if CSG agreed to acquire only the ammo business. Buying Revelyst after CSG bought the ammo business would incur higher taxes.

Vista is still pushing shareholders to approve the CSG offer, even though the private equity firm isn’t currently willing to buy Revelyst in that scenario. But in a second news release Wednesday, Vista said that its board would continue to hold talks with the private equity firm.

Vista noted that CSG could walk away from its commitment to buy the ammo business on Oct. 15. Shareholders should approve that deal instead of hoping for an MNC transaction that Vista says undervalues Revelyst, it added.

It’s not clear whether shareholders will follow that advice. Vista has delayed an investor vote on the CSG offer half a dozen times now because of the likelihood that it would have been rejected. DealBook hears that at least some investors remain skeptical that Vista can get a better offer than the one from MNC; shares in Vista fell 1.3 percent on Wednesday.

A stunning fall at 23andMe

Years ago, the genetic testing start-up 23andMe was one of Silicon Valley’s hottest companies, backed by big name investors and founded by the prominent entrepreneur Anne Wojcicki.

But its future is increasingly uncertain after its board quit over a disagreement about a take-private offer by Wojcicki. The stock is now hovering at around 33 cents.

Wojcicki co-founded 23andMe in 2006 to capitalize on surging interest in ancestry and genetic health data. Her connections helped: The company pulled in $1.4 billion from investors including Sergey Brin, the Google co-founder who was Wojcicki’s husband at the time. Its board included Roelof Botha, the managing partner at Sequoia Capital, who was another investor; and Neal Mohan, now the head of YouTube and a longtime colleague of Wojcicki’s sister, Susan Wojcicki.

But 23andMe, which went public in 2021 via a special purpose acquisition company, has never turned a profit. Its market value is currently about $170 million — down from a peak of $6 billion — and the business could run out of cash as soon as next year.

Wojcicki and the board clashed over her offer to take the company private. In July, she offered to buy the company for 40 cents a share, an 11 percent premium to where the stock was trading in April. But independent directors said the offer was too low and questioned her financing.

Matters came to a head this week when all of 23andMe’s independent directors quit. “After months of work, we have yet to receive from you a fully financed, fully diligenced, actionable proposal that is in the best interests of the nonaffiliated shareholders,” they wrote in a scathing letter to Wojcicki.

She isn’t backing down. Wojcicki told employees that she was “surprised and disappointed” by the resignations and reiterated her commitment to taking the company private.

She also outlined plans to turn 23andMe into a full-scale health care business that makes drugs and provides treatments using insights from its huge DNA database. The company might also try to join the rush of companies prescribing Wegovy-related weight-loss drugs.

But 23andMe’s drug development business has struggled. And given the company’s cash burn, it’s not clear whether Wojcicki has enough time to find a cure.

THE SPEED READ

Deals

• Joe Kiani, billionaire founder of the medical device developer Masimo, may be ousted from the company’s board amid a battle with the activist shareholder Quentin Koffey. (FT)
• Google reportedly offered to sell AdX, one of its advertising marketplaces, to settle an E.U. antitrust investigation; the proposal was rejected. (Reuters)

Artificial intelligence

• Governments and private companies should create a global A.I. fund to help developing nations benefit from the technology, a U.N. report recommended. (Guardian)
• Companies shouldn’t mislead employees about whether A.I. will lead to layoffs or otherwise affect their jobs, said Jim Kavanaugh, the C.E.O. of the cloud computing services company World Wide Technology. (CNBC)

Best of the rest

• A technical update briefly restored access to X in Brazil even though Elon Musk’s social network has been blocked by a court there. (NYT)
• Adrian Wojnarowski, one of the most influential N.B.A. news breakers, is leaving ESPN to become the general manager of men’s basketball at St. Bonaventure University. (The Athletic

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