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We've got a little Fed preview for you. Some fodder for sibling rivalry. Plus, sanctions are a key tool in U.S. foreign policy. But how well do they work? From American Public Media, this is Marketplace.
In Baltimore, I'm Amy Scott, in for Kai Risdahl. It's Monday, the 29th of July. Good to have you with us. It's the moment you've been waiting for. Okay, some of us have been waiting for. Tomorrow, the Federal Open Market Committee begins its two-day meeting to talk monetary policy. Few are expecting any movement on interest rates this round, which would make it the eighth consecutive meeting with no change.
and a full year since the Fed stopped raising interest rates in its fight against inflation.
The Fed isn't the only central bank meeting on interest rate policy this week. The Bank of England is weighing a potential cut, while the Bank of Japan could move in the opposite direction. Marketplace's Elizabeth Troval has the global perspective. In England, just like in the U.S., the mission has been to quell inflation, which has meant higher interest rates. Jane Foley is with Rabobank.
For the last couple of months, we've seen CPI inflation for the UK back at 2%, and that's the Bank of England's target. So you might think, well, you know, job done. But it's not so simple.
Goods price inflation has fallen quite a lot. Services inflation is proving to be very sticky in the UK. In fact, it's stable at about 5.7%. Now, 5.7% is clearly a lot higher than 2%. So it's a real headache for policy setters. She says if rate cuts do start this week, they will likely continue in small, slow increments.
Over in Japan, it's a whole different story, says Gary Huffbauer with the Peterson Institute for International Economics. There, they've... "...tried to increase the amount of inflation in Japan from practically zero to get it up to 2 percent." Let me repeat, they've actually tried to increase inflation, keeping interest rates low to stimulate a sluggish economy.
Now, Japan's inflation has surpassed 2 percent. But the economy still isn't where policymakers want it to be. Ken Kuttner is an economist with Williams College. In fact, consumers are not happy and they're sort of reigning in spending a little bit and wages have not kept up. It's actually the depreciation of the yen that's been a big contributor to inflation, Kuttner says. The yen is so, so cheap. So that's increased the cost of imports.
That's put the Bank of Japan in an awkward predicament. Raise rates or keep them low? Do we start doing contractionary policy, even though the economy does not have a full head of steam? Whether too much or too little inflation, setting interest rates is a delicate balance. I'm Elizabeth Troval for Marketplace. On Wall Street today, mixed before that FOMC meeting. We'll have the details when we do the numbers.
Last month, ahead of the latest G7 summit of global leaders, President Biden announced a new series of some 300 sanctions aimed at Russia in yet another effort to hamper the Kremlin's war against Ukraine.
Economic sanctions can include trade restrictions, asset seizures, travel bans, and they're an increasingly common and some say overused tool in U.S. foreign policy. Jeff Stein is White House economics reporter at The Washington Post, where he reported that the U.S. imposes three times as many sanctions as any other country or international body. Jeff, thanks for being here. Hey, thank you so much for having me on.
So you write about a good example of how sanctions can work in your story. Talk about what happened in 2003 when North Korea withdrew from a nuclear weapons treaty. This was a really pivotal moment in the explosion of U.S. sanctions as sort of a key tool or the key tool in our U.S. foreign policy. And
And what happened was essentially the U.S. Treasury Department realized that if they targeted an intermediary bank with which the North Koreans were trading, it was essentially processing payments for the North Koreans. They could really devastate North Korea's finances and force them to withdraw from its nuclear testing operations.
So this was a moment, as you identified, in the early 2000s when the U.S. government really started to see this tool as something that could accomplish its foreign policy objectives while leading to, at least in theory, little collateral damage and not requiring any boots on the ground or really any foreign intervention with the U.S. military. How have sanctions evolved since that moment?
I mean, they've just exploded. It seems with every president, there are more economic sanctions. It's really, I think, worth thinking back to where we were as a country during the Bush era. We had two wars that were widely regarded, I think it's safe to say, as disasters for the U.S. And in that context, there was an opening for a tool called
through which the U.S. could exert its foreign policy influence on all parts of the world with less apparent costs. And as you said, the numbers is just a hockey stick graph where you see really only a few hundred sanctions applied per year under Bush.
President Biden has imposed 6,000 sanctions in the last two years, rather 2021 and 2022. From Bush to Obama to Trump to Biden, every president has imposed somewhere between 25 and 75 percent more sanctions than their immediate predecessor. So the trend has just only pushed in that direction.
And yet, as you give many examples of in this story, they haven't really achieved their primary goal. I mean, you talk about Cuba, Iran, Syria, obviously Russia after its invasion of Ukraine. Those regimes have remained intact despite escalating sanctions. Why haven't they been more effective? What we've seen in case after case, when the U.S. attempts to force a
dictator or a foreign leader that's committing human rights abuses, when the U.S. tries to force them out with economic sanctions, foreign leaders have gotten smarter and smarter about using the economic sanctions from the U.S. to consolidate their own power. And so rather than seeing sanctions punish the bad actor,
Often we see them end up hurting the civilian populations, vulnerable people who need food, medicine or other economic activities that are cut off from the sanctions or impact private sector leaders or business leaders that allow the dictators and regimes to step in and take over more of civil society, more of the private sector and consolidate their authority that way. And that has become a huge problem for people who want to use these tools for good in the world.
You also talk about how this system of sanctions has spawned a multibillion dollar industry that's grown up around this. And you give some examples of how sometimes this is less of a foreign policy tool than just an effort to cut off foreign competition. Yeah.
That's exactly right. There are billions of dollars, and I'm working on a follow-up story about this point narrowly, but there are billions of dollars now in Washington that are being sloshed around, particularly among former U.S. government officials who take their expertise in the sanction system to foreign governments, to foreign oligarchs. These former government officials will say, look, I have buddies who are still in the U.S. government. If you hire me, if you pay me, in some cases in
millions of dollars, I will go to the government and my former colleagues and lobby them and get them to maybe
do a different course or take sanctions in a different direction. And so it raises the question, at least, of whether this tool that is at least nominally just about U.S. foreign policy protecting American consumers, protecting, you know, advancing American foreign policy interests, is it being corrupted or is it being manipulated by who can sort of spend the most in the D.C. lobbying system?
There is a movement to rethink how we do sanctions. What are some of the alternatives? There's really two obvious answers. One is war. And I think most people would say that insofar as we do sanctions instead of war, maybe this is still a tool we want to depend on. But the alternative a lot of people would say is that we should be pushing more towards diplomacy. Or maybe we should...
view America's role in the world differently. And I think, as I said earlier, after Iraq and Afghanistan, there was a
quite loud call to say America should not be the world's policeman, that we should not be the cop bestriding every continent and telling people there what to do. But that's really difficult. It's really hard to be the president of the United States or to be the treasury secretary or the secretary of state and know that you might have the power to deter some horrible thing happening in Africa or Latin America or wherever and to be okay with that and not to take action. So
The ability of the U.S. government to respond without causing collateral damage is minimal, but the alternatives are also very difficult and to some, unpalatable. Jeff Stein wrote about economic warfare in The Washington Post. It's a fascinating story. Lots of good visuals, too. I recommend checking it out. Jeff, thanks so much. My pleasure. Thank you so much for having me on. Thank you.
Corporate earnings season continues this week with another slew of big names reporting their latest quarterly results. We'll be hearing from Microsoft, Procter & Gamble, Meta, ExxonMobil, and this morning, McDonald's got the week started with a bit of a downer. Second quarter comparable sales, also known as same-store sales, fell by 1% globally from the same period last year.
On its earnings call, the company said that customers, quote, continue to be more intentional with the dollars they spend. Marketplace's Stephanie Hughes looks at what this says about the state of consumers in this economy. Americans eat out a lot. That means a downturn in spending at restaurants can be a kind of warning for other industries, says Michael Halen, a senior restaurant and food service analyst at Bloomberg Intelligence. Restaurants are a canary in the coal mine, typically.
You know, you see a slowdown in consumer discretionary spending in restaurants before you see it in other places. Right. Halen says typically people who earn less than around forty five thousand dollars a year make up about a third of visitors to McDonald's and other fast food chains. And right now they're eating there less often. You know, they're stretched and they're concerned about their job prospects. And so they're spending less.
Halen says while the rate of inflation is going down, consumers are dealing with the cumulative effect of prices that have been rising for years now. There's no catalyst here to expect the low-income consumer spending to all of a sudden turn around. While consumers eating out less would typically be a caution sign for the economy, Ryan Sweet, chief U.S. economist with Oxford Economics, says you have to remember, this economic cycle is different. We're coming out of a pandemic where things were locked down for a period of time.
Then there was a big surge in demand for eating out because people just weren't able to during the teeth of the pandemic. So we could be seeing some a little bit of a hangover effect when it comes to dining out. There is a glass half full take on the McDonald's sales decline. Lonnie Golden, an economics professor at Penn State Abington, points out that over the past year, wages have been growing faster than prices and lower income people who've gotten raises may be skipping fast food.
Because they can afford slightly higher end types of takeout food. Think Chipotle, Panera and other fast casual spots. I'm Stephanie Hughes for Marketplace.
Coming up. If you're dating someone, you absolutely have to figure out if they are the youngest sibling or the oldest sibling. Does birth order really matter that much? But first, let's do the numbers. Dow Jones Industrial Average fell 49 points, a tenth of a percent, to finish at 40,539. The Nasdaq added 12 points, less than a tenth of a percent, to close at 17,370.
And the S&P 500 gained four points, also less than tenth of a percent, and at 54.63. Stephanie Hughes was just telling us about what a McDonald's downturn says about the economy. The golden arches heated up almost three and three quarters percent. Among its competitors, Yum! Brands, which owns KFC, Pizza Hut and Taco Bell, gained almost one and nine tenths percent.
Restaurant Brands International, which owns Burger King, Popeyes, and Canadian staple Tim Hortons, picked up 2.1%. Bonds rose. The yield on the 10-year T-note fell to 4.17%. You're listening to Marketplace.
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This is Marketplace. I'm Amy Scott. We started the show talking about interest rates as Fed officials prepare for this week's meeting. Signs are pointing to an interest rate cut soon as inflation gets tantalizingly close to the Fed's target rate of 2%.
But remember, price stability, represented by that 2% target, is just one part of the Fed's dual mandate. The other, something called maximum employment. And as Marketplace's Samantha Fields reports, measuring that is complicated.
What are we even talking about when we say maximum employment? It's normally defined as the highest level of employment the economy can sustain without generating higher inflation. Catherine Dominguez at the University of Michigan says that doesn't necessarily mean everyone who wants a job has one. It means that everyone is employed that could be employed without leading to higher inflation.
The thing is, if the unemployment rate gets too low, there's a risk that companies will have trouble finding workers and start raising wages, which will then increase their operating costs, and eventually they'll turn around and pass those higher costs on to customers in the form of higher prices.
The Fed's goal is to get as many people employed as possible without having that happen. Of course, the question is, well, what does that mean in terms of the numbers, right? Michelle Holder is at John Jay College at the City University of New York. Does it mean a 4% unemployment rate, a 5% unemployment rate? The Fed is not specific about that. Partly because the economy is not static.
The economy is dynamic. And so when you start to rely on just one target number, you risk missing the fact that those benchmarks may need to change over time as the economy changes, as the workforce changes.
That's exactly what's happened in the last decade. Bill English is a professor at the Yale School of Management. He also worked at the Fed's Board of Governors for years, including from 2010 to 2015. And he says during that time, the Fed estimated maximum employment to mean an unemployment rate of somewhere between 5 and 6 percent.
And then in the late 20-teens, the unemployment rate kept coming down, the labor market got tighter, but inflation didn't kick up. And so they marked down their assessment of what maximum employment could achieve in terms of the unemployment rate. To about 4% unemployment, which coincidentally is right about where we are now.
So could it go even lower and could it stay lower without kicking up inflation? English says that is a key question. Because the Fed could achieve higher levels of employment for a little while. You know, for a couple of years, they could engineer a big boom. But eventually, he says, a big employment boom would lead to rising inflation. So
So the notion is that there is a maximum sustainable level of employment that you can achieve and maintain. But Erica Groschen, former commissioner of the Bureau of Labor Statistics, now at Cornell, says that maximum sustainable level of employment is always going to be a moving target. The labor market is the largest and most complicated market in the economy. And we prize the dynamism of our economy by
However, that complicates measurement. At least measurement with one single number. It's never just one number. Michelle Holder at CUNY's John Jay College says instead the Fed looks at a bunch of numbers to assess maximum employment.
What's happening with wages? What's happening with the ratio of available jobs to available workers? How many people are quitting their jobs? What is happening with the number of people who are not in the labor force? Is that number growing? What is happening with actually Black unemployment, right? The Fed is looking at all of those data points and more.
Catherine Dominguez at the University of Michigan says the reality is it's doing that with inflation, too, even though it does have that 2 percent target.
Even that is not straightforward. It's more straightforward than the maximum employment mandate. But even on the inflation side, we have a lot of different measures of prices. There's PCE, the Fed's preferred measure of inflation. But there's also CPI and PPI. So I don't want to make it seem like inflation's easy and employment is really hard. I think they're both difficult. Because the economy is always changing.
I'm Samantha Fields for Marketplace. Before we go into this next story, I feel a personal obligation to remind you, dear listener, that there are lots of ways to measure success. So
So keep that in mind when I tell you that a growing body of research shows that when it comes to economic outcomes, birth order matters. Some big brothers, I mean people, just seem to have an advantage. And a new study from the National Bureau of Economic Research finds it's been that way for more than a century. Marketplace's Daniel Ackerman explains.
There's no shortage of, let's call it, folk wisdom on TikTok about how your birth order determines pretty much everything. If you're dating someone, you absolutely have to figure out if they are the youngest sibling or the oldest sibling.
I'm the eldest daughter. I'm the creative director, head of production, graphic designer, and project manager for the family Christmas cards. And then the youngest is known to just be the baby of the family, doted on, so they kind of think that the world revolves around them. And while much of that pop science is overblown or simply made up, there is pretty conclusive economic data. And fellow younger siblings, the news isn't great. It's good to be first.
Siobhan O'Keefe is an economist at Davidson College. She and her co-authors came to this conclusion by analyzing U.S. census data going back to the mid-19th century. O'Keefe says the census is a great way to learn about economics at the family level. We see where you lived, who you lived with, what your occupation was, do you own the home you live in? The census allowed O'Keefe to track siblings over time, from childhood on through to their years in the labor force, with snapshots every 10 years.
And she found that life outcomes were measurably different for firstborn siblings. They make more money. They're more likely to be in sort of managerial or white-collar jobs if you're the firstborn.
First-born women are less likely to have teenage pregnancies and more likely to be in the labor force. Bottom line, older siblings? Across the board, on all of these different measures, labor markets, economics, just sort of always likely to be doing a little better. Other studies have confirmed this advantage to the point where it's got its own economic jargon, the first-born premium. It applies to only children too. But the question is why? Why do first-borns seem to have it so great?
O'Keefe says it has to do with parental investment in the first years of a child's life. Spending more time with caregivers, having more resources is extra, extra important.
And so this means that if I'm the firstborn, when I'm in that sort of really critical development period, I'm getting 100% of my parents' time. Secondborns get 50% if they're lucky, and that slice of pie gets smaller and smaller for third and fourthborn and beyond. Of course, many of us younger siblings do plenty well for ourselves, so it's important to note some caveats here. The first thing that I always say is that this is on average.
Sandra Black is an economist at Columbia University. She used data from Norway to study how long siblings stayed in school. For education, going from the first child to the fourth child would have about three quarters of a year less of education.
And that translates into lower earnings and other outcomes. So it's not huge, but it matters. The good news for younger siblings? That not-huge pay gap can be bridged, at least in Italy. Giorgio Brunello is an economist at the University of Padua, and he found that younger siblings behave differently in the job market in that country.
And that is usually a faster route to high earnings than staying put. Brunello found that about a decade into their working lives, younger siblings in Italy closed the gap. And so while firstborn children really do have an economic leg up, Brunello has a message for the rest of us. Don't give up. I'm Daniel Ackerman for Marketplace.
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This final note on the way out today. Catch any of that Olympics opening ceremony Friday night? You and 28.6 million other U.S. viewers. Bloomberg reports that the spectacle on the Seine attracted the largest TV audience since the London Games 12 years ago and 60 percent more than the viewership for the Tokyo opening ceremony in 2021.
That's good news for NBCUniversal, which paid close to $8 billion to extend its broadcast rights to the Olympic Games through 2032, but had been losing viewership in recent years, which likely explains the interesting mix of non-athlete celebrities popping up in this year's coverage. Eyeballs beget ad dollars, of course, and on that front, NBC's doing okay, too. The company expects to bring in more than one and a quarter
a quarter billion dollars in advertising for the games and Olympic record, as it were. Our daily production team includes Andy Corbin, Elise Hassan, Maria Hollenhorst, Sarah Leeson, Sean McHenry and Sophia Terenzio. I'm Amy Scott. Hope to see you back here tomorrow. This is APM. Understanding personal finance can feel like an impossible task, but it doesn't have to be that way.
I'm Janelia Espinal, and on Financially Inclined, I'll guide you through simple money lessons that will change your financial future. Learn about credit scores, how to avoid scams, and why you need a savings account. Plus, we explore the brain science behind FOMO and what you can do to make smarter money decisions. Listen to Financially Inclined wherever you get your podcasts.