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The big economic news today was no news, but an interest rate cut is looking more likely in September. From American Public Media, this is Marketplace.
In Baltimore, I'm Amy Scott in for Kai Risdahl. It's Wednesday, the 31st of July. Good to have you with us. The news out of the Fed today was, as expected, no change on interest rates. That leaves the target range for the federal funds rate at five and a quarter to five and a half percent. But
But Fed watchers noticed some small but significant changes in the accompanying statement. Compared to the statement from the June meeting, job gains have moderated instead of remained strong. Inflation remains somewhat elevated as opposed to just elevated.
and risks to achieving the Fed's employment and inflation goals continue to move into better balance, rather than have moved into better balance. Again, small changes that will launch a thousand articles, but they're ones that set the table for a rate cut soon, and at the same time leave the options open. Talking to reporters after the announcement, Chair Jay Powell said, "...essentially, we're getting closer, but we're not there yet."
The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market. If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.
The federal funds rate isn't the only tool in the Fed's toolkit for fighting inflation. The committee also said today it will continue its policy of quantitative tightening, essentially shrinking its holdings of mortgage-backed securities and government debt.
Quantitative tightening, or QT as the cool kids call it, has also helped push interest rates higher and inflation lower. But now that a September interest rate cut looks likely, there's a time to put QT back in the toolbox too. Marketplace's Matt Levin has that one.
When the pandemic hit, the Fed dusted off its emergency playbook from the 2008 financial crisis and found the Ben Bernanke Hail Mary. Buy a ton of government bonds and mortgage-backed securities to keep the economy afloat. Olu Sonola is an economist at Fitch Ratings. So we went from $4 trillion to $9 trillion. We more than doubled the balance sheet in response to the pandemic.
Growing the Fed's balance sheet was quantitative easing, and it worked, maybe too well. By 2022, with inflation roaring, the Fed said, OK, let's cool things down a bit and start getting rid of all that stuff we bought when we thought the world was ending. Excess toilet paper, hand sanitizer, and up to $60 billion a month in treasury bonds. As they offload those treasury assets into the market,
They're putting that downward pressure on prices. And upward pressure on interest rates on everything from mortgages to auto loans. That's quantitative tightening. Fast forward and now the Fed is still tightening quantitatively, even though it seems like they kind of want rates to fall soon. So it's counterintuitive. It seems like it's kind of going in opposite directions. Tiffany Wilding is lead economist at PIMCO.
But she says with both a possible rate cut and quantitative tightening, the Fed just wants to get things back to normal. A continued reduction in the central bank's balance sheet, the Federal Reserve also believes is returning the balance sheet towards neutral. The Fed has slowed the pace of quantitative tightening this year. But Matthew Lizetti at Deutsche Bank says for now, there's another reason the Fed hasn't stopped shedding bonds completely.
The smaller the balance sheet is today, the more scope they might have to respond to a shock or a crisis in the future. Not to get us worried or anything, I'm Matt Levin for Marketplace. Not much worry on Wall Street today. We'll have the details when we do the numbers.
Let's zoom in now on the employment part of the Fed's dual mandate. Friday, we'll get the employment situation summary for July from the Bureau of Labor Statistics. That's the official name of the monthly jobs report. Quick refresher. In June, employers added 204,000 jobs.
One category to watch Friday is temporary help services employment, which had the biggest decline of any industry in June. Declines in temp worker employment preceded recessions in both 2001 and 2008. So how should we interpret the current trajectory? Marketplace's Maria Hollenhorst reports.
Temporary help service employees are not one thing. It's everything. It's computer programmers. It's managers. Camp counselors or in the winter, ski instructors or your Santa Clauses. A lot of temp help workers actually go into manufacturing and transportation and warehousing. That's Lewis Hyman at Johns Hopkins University, Veronica Dollar at Pace University, and Dante D'Antonio, a senior director in economic research at Moody's Analytics.
He said companies tend to hire temp workers when they see more growth. Oftentimes they're the pinch hitter, right? There's somebody that comes in when a business needs a little bit of extra capacity. And then when that business slows down... The first thing they're going to do is they're going to cut those temp help workers. Remember when everybody online shopped their way through the pandemic? Well, temp workers filled a lot of that demand across the economy, especially in warehouses, trucking, and manufacturing.
The number of temporary health service employees hit an all-time high of 3.1 million in March 2022.
But it's been on an almost uninterrupted decline since then. So I think maybe we overdid it. Veronica Dollar at Pace University again. So some of it might be just sort of self-correction at this point, right? So that would be part. Another thing is that if you look at the businesses, a lot of them are converting these temporary workers into permanent workers. And that is a good sign.
So how should we feel if this Friday's jobs report shows another drop in temp workers? Here's Lewis Hyman at Johns Hopkins again. Instead of it being a big red buzzing signal saying it's the end of our economy, it should be seen as, oh, this is a pretty mixed story that might be more complicated than we initially think it would be. Yep, mixed signals. We've been getting a lot of those lately. I'm Maria Hollenhorst for Marketplace. ♪
We've reported a few stories over the past couple of weeks from the Fed's Beige Book. That's the bank's compendium of anecdotal information about the economy from across the country. Mark, what's your take on the Fed's Beige Book?
Marketplace's Stephanie Hughes noticed one such anecdote about the kinds of workplaces people are occupying. The Richmond Fed said agents in Virginia and Maryland noted tenants were right-sizing their offices and upgrading from Class B to Class A space. Did you know commercial buildings get grades? Here's Stephanie.
Class A office buildings are what they sound like. Classy. Nice views, good parking, crazy fast internet. Maybe a cafeteria right in the building. Class B buildings might have been Class A like in the 80s, but now the elevator's kind of creaky and the fixtures are pretty out of date. And Class C? Maybe the heating and air works every day, maybe it doesn't, but, you know, the rent's cheap. Scott Wimbrow is with McKenzie, a commercial real estate firm that manages and leases office buildings, primarily in Maryland.
He says Class C buildings in Baltimore tend to rent for between $10 to $15 per square foot. Meanwhile, for an A-plus building with a view of the water, that number's in the mid-40s.
He says those are usually occupied by corporations or big names in finance and law, whereas C buildings are often rented by small businesses. They don't mind climbing a few steps. They'll bring their lunch to work or whatever. They don't need a place to impress anybody. But recently, some companies want to impress their employees. Wimbrow says they're opting to shrink their office footprints by 15 to 25 percent.
but they want those footprints to be a whole lot nicer. So their annual rent cost is the same, more or less, but they're getting much nicer digs. And it's not always just nice digs tenants want, but fancy amenities too.
Phil Mobley is with the CoStar Group, a global real estate data and analytics firm. You know, I've called it an almost religious belief among a certain segment of tenants that what they need in the post-pandemic workplace is they need everything. In-lobby concerts, chair massages, free blowouts.
Mobley says some companies believe all this will attract talent and make that talent want to come into the office. We're sort of agnostic on whether that's actually true and whether the space, you know, really does create that sort of stickiness and attraction. Other companies are going the opposite route. Mobley's seeing some of the lower quality office spaces get snapped up because they're affordable.
There are plenty of occupiers out there who just need a place to park people, and they want to do it as cheaply and as efficiently as they can. So, Mobley says the classes of building that are more in the middle are being hurt the most. It is sometimes possible to renovate an older building, upgrade it from a Class B to an A, but it's expensive.
Chris Hudgens is a research analyst at S&P Global Market Intelligence. So we're also seeing some landlords essentially pull back a little bit and make the judgment call of, if I invest all this capital and we still can't draw tenants into this property, there's still more office space and there are tenants, is it worth my return on investment? One thing that makes that judgment call even harder is the amount of office space tenants use has been going down. Companies don't need server closets if they're using the cloud.
File cabinets and law libraries, a lot of those have gone away. So this right-sizing has been going on for a while, and the changes to how we work post-pandemic have accelerated it. Ryan Price is chief economist with the Virginia Association of Realtors. If you have your team coming in on different days of the week,
You know, they don't necessarily need a dedicated office. A lot of this is still shaking out. Businesses are figuring out exactly how much office they need, and landlords are figuring out how far they'll go to accommodate them. I'm Stephanie Hughes for Marketplace. Coming up... New Jersey found something like 200,000 units are still needed for the most low-income households. The long road to affordable housing. But first, let's do the numbers. ♪
The Dow Jones Industrial Average rose 99 points, 1.25%, to finish at 40,842. The NASDAQ added 451 points, almost 2.2%, to close at 17,599. The S&P 500 found 85 points, 1.6%, to end at 5522.
Boeing named a new CEO today that helped the troubled planemaker ascend 2%. Health insurer Humana reported customers had more hospitalizations that required an overnight stay than it had expected in the quarter that just ended. Humana's conditioned worsened 10.6%. Bonds rose. The yield on the 10-year T-note fell to 4.04%. You're listening to Marketplace.
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This is Marketplace. I'm Amy Scott. Global demand for oil just keeps growing. Despite climate pledges and investment in alternatives, demand has only fallen once in the past dozen years, in 2020, at the start of the COVID pandemic. And then it quickly roared back.
But how long demand will keep growing is an important question for oil producers and for clean energy advocates. Goldman Sachs recently projected that peak oil, when demand tops out before it begins declining, won't happen until the mid-2030s. BP, the former British Petroleum, says it could happen next year. Other estimates range from a few years to decades away.
Marketplace's Henry Epp reports on why these forecasts differ so much and why they matter. For decades, oil demand and economic growth have pretty much gone hand in hand. Steadily increasing demand is highly correlated with global GDP, global income. Christoph Ruhl is a senior researcher at the Center for Global Energy Policy at Columbia University. Very simply, the richer people get and the more people in the world get rich, the
the more they drive. Growing, globalized economies also demand more oil for shipping goods across oceans, flying people and stuff in planes, and making things with petrochemicals. From your plastic bag to toys for children. Plus fertilizer, cosmetics, and asphalt. In other words, economies that make more stuff and move more people around demand more oil. But that might be changing.
This idea that oil and the economy are kind of joined at the hip, that's no longer the case. Clark Williams-Derry is with the Institute for Energy Economics and Financial Analysis. He says this is happening for a few reasons. For one, just last year,
About one in five cars sold globally was an electric vehicle. At the same time, gas and diesel-powered vehicles are getting more efficient, says Christoph Ruhl at Columbia. And so are other sectors. The same is true for the oil which is used in shipping and in flying. And the same is true for the oil which is used to produce plastic bags and things like that.
Plus, most countries have signed on to the Paris Climate Agreement, pledging to reduce greenhouse gas emissions, which generally means cutting oil use. All of these factors – more EVs, better fuel efficiency, lower carbon emissions – mean that oil demand will probably stop growing at some point.
And for planning purposes, the oil industry and its investors would like to know when. But that is really hard to forecast. Alan Gelder works on making one of those forecasts for the consulting firm Wood Mackenzie.
It's largely the assumptions around economic activity and the rate at which new technologies penetrate. That's largely the driver of those differences between the various scenarios that you see. One wild card, he says, is how quickly new technologies develop, particularly EVs. But technology isn't the only factor. I think we'd really have to see a major shift in the culture as well in order to actually see oil demand rise.
Ellen R. Wald is a fellow at the Atlantic Council. She says countries could miss their climate pledges or EV sales could fall short. Their growth in the U.S. has slowed recently. So she's skeptical that forecasts of peak oil demand are anywhere near accurate. They're just saying if X, Y and Z happen, you're going to see this or if A, B and C happen, you're going to see that.
However everything plays out, the fact that oil companies and analysts are even talking about a potential date for peak oil is significant, says Clark Williams Derry at the Institute for Energy Economics and Financial Analysis, because the uncertainty about when it might happen is rubbing off on investors in the oil and gas industry.
Just the fact that they're thinking about it, that's the fact that they're taking this issue seriously, is a sea change for the oil industry that has relied for decades on a perception of inevitability in oil demand growth. And that perception of inevitability, Williams Dairy says, has been punctured. I'm Henry Abbott for Marketplace.
Thank you.
The shortage of affordable housing in this country for low-income people is well known, and history shows just how hard it can be to get projects built. In the 1960s, the township of Mount Laurel, New Jersey, moved to condemn dilapidated housing where many black residents lived. Worried about her neighbors, a woman named Ethel Lawrence proposed a plan for an affordable housing project that could help the displaced residents find homes.
When leaders refused, Lawrence and a group of activists took the township to court. Roshan Abraham wrote about Mount Laurel and the affordable housing battle that ensued for The New York Times. Roshan, welcome. Hi. Thanks for having me. So tell me about Ethel Lawrence. Who was she and why did she want to build affordable housing in her community?
Yeah, Ethel Lawrence was a mother. She had been a schoolteacher. She had been very involved in her community. So she kind of took it upon herself to join up with –
local activist groups and try to get affordable housing built for her family and for her extended family. And she had been there for, I think like her family had been there for six generations. They had been there a long time and it was very personal for her that they be able to remain in Mount Laurel.
And so ultimately, she had to sue to try to get this house housing built. Can you tell us about the court case that led to the Mount Laurel Doctrine? Yeah. So she was connected with a group of young lawyers from a law firm called Camden Legal Services.
And they all agreed that she would be a great lead plaintiff for this lawsuit that would – essentially was trying to get affordable housing built in Mount Laurel. The state Supreme Court eventually –
decided in 1975 that not only did Mount Laurel have to build its fair share of affordable housing, the entire state of New Jersey would be required to build its fair share of affordable housing. And that led to really like 50 years worth of back and forth trying to block housing. And that got us to what we have today.
So this doctrine is now state law in New Jersey. How much affordable housing has been built as a result? There have been 70,000 units of affordable housing built since 1980 as a result of Mount Laurel. Which doesn't sound like a lot, right? But as the headline reads in your story, it's a win. Yeah.
It doesn't sound like a lot. Yeah. It's not as much as the need. And I think like a housing assessment of New Jersey found something like 200,000 units are still needed for the most low income households. But yeah, it's way more than would have been without Mount Laurel. I think most people agreed.
And just as an example of how hard it is to get affordable housing built, you mentioned a development in Cherry Hill, New Jersey. I think it's 50 some units and it's taken 25 years to build. Yeah. So that was a development where the original plan for the development was,
The affordable housing was part of the original plan. For whatever reason, when the housing was constructed, the single family home units were built first and then the affordable housing units, which were always planned to be part of the development, were going to be built after. But then after the residents moved into the single family homes.
they began protesting the idea of having that affordable housing right next to them. So there were tons of back and forth lawsuits. And after it was built, the complaints just seemed to disappear. No one was protesting anything, nothing, none of the sort of apocalyptic scenarios that they envisioned came to pass. And yeah, it seems to be doing well.
This kind of resistance plays out in communities all across the country. Are you seeing other states pursuing similar measures as New Jersey?
Yeah. I mean, different states are trying different versions of Mount Laurel, but I don't think that any area has quite the same rigorous system as the Mount Laurel system, which both has this system of allotments based on what the income levels are of the people who actually live in the town. Yeah.
And also has really robust funding mechanisms to actually build that housing and has both a judicial and now legislative framework that legally mandates that to be built. Did Ethel Lawrence ever get to see affordable housing built in her community, Mount Laurel?
No, she, the last thing that she did see is one of the lawyers from Camden Legal Services showed her a plot of land that was in Mount Laurel that is named after her and that exists today called the Ethel Lawrence Houses. But she never lived to see the actual housing that was built there. Some of her relatives lived
grandchildren aren't living in affordable housing that was created through the Mount Laurel Doctrine. But Ethel herself never lived to see that affordable housing built. Hmm. Roshan Abraham wrote about the Mount Laurel Doctrine and what it's meant for affordable housing for The New York Times. Thank you so much. Thank you. Thank you.
This final note on the way out today, one more from Chair Powell at that press conference today about weighing an interest rate cut during an election. The bottom line is, if we do our very best to do our part and we stick to our part, that will benefit all Americans. If we get it right, the economy will be stronger, we'll have price stability, people will find jobs, wages will rise in real terms, everyone will benefit.
So that's what we believe, and that's how we will always act. This is my fourth presidential election at the Fed. I can tell you this is how we think about it. This is what we do. So anything that we do before, during, or after the election will be based on the data, the outlook, and the balance of risks, and not on anything else. Expect to hear that a few more times before November 5th.
Our media production team includes Brian Allison, Jake Cherry, Jessen Duhler, Drew Jostad, Gary O'Keefe, Charlton Thorpe, Juan Carlos Torado, and Becca Weinman. Jeff Peters is the manager of media production. I'm Amy Scott. Hope to see you tomorrow. This is APM.
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