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For the Fed, the destination matters much more than the pace

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For the Fed, the destination matters much more than the pace

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Good morning. I assume that clever companies with bad news to share issue stealthy news releases at 2.35pm on Fed meeting days, knowing that all the financial journalists will be dialled into the Jay Powell show. Let us know if we missed anything juicy yesterday: robert.armstrong@ft.com and aiden.reiter@ft.com.

50 basis points, followed by nothing

Headlines were flashed; pundits smeared on make-up and appeared on cable TV; side wagers proliferated; column inches stretched to the moon; analyst notes accumulated in teetering piles; social media lit up like a video game. And in the end the market was hilariously unimpressed. We got our big-boy 50bp cut, and equities, bonds and currencies all shrugged contemptuously, in what appeared to be a deliberate effort to humiliate the financial punditocracy.

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This indifference was not just funny. It was also a fitting end to the will-it-be-25-or-will-it-be-50 kerfuffle. As soon as the Fed had decisively signalled its pivot to cutting, what mattered most was not pace, but destination. A quarter-point difference to a single short-term interest rate is, in isolation, of little significance to the wider economy. What matters about the size of a particular cut at a particular time is what it signals about the central bank’s extended journey: where it thinks rates need to be, and when it thinks it needs to get there.

Which brings us to the neutral rate (or r*, if you like jargon): the unobservable level of rates that is consistent with full employment and low inflation. “We know it only by its works,” Chair Powell likes to say, misquoting the gospel of Matthew. He said it twice at his press conference yesterday. You’ve fallen below the neutral rate when inflation leaps; you’ve risen above it when risk assets wilt and unemployment jumps. In between, you are walking in the dark, speculating about when you might fall off a ledge or, alternately, hit your head. Central bankers generally can’t stand still, either. Economies have momentum, and policy works with a lag. The Fed must make an estimate and stumble towards it. 

The Fed’s current estimate for the neutral rate is 2.9 per cent, according to its summary of economic projections, up a tenth of a percentage point from the last SEP in June. This may not sound like much of a change, but if you look over a slightly longer timeframe, the Fed has shifted its view considerably:

This shift is in line with an emerging economic consensus that fiscal and monetary largesse, an ageing population, deglobalisation, higher productivity and assorted other factors are pushing the neutral rate up. The practical importance of the change is that the Fed does not have all that far to go to reach what it thinks (as of now) is the destination. If it moves at a brisk 50bp per meeting, it will be almost at target in March of next year (of course the intention is to go at a much more stately pace, if circumstances allow).   

If the neutral rate is closer now, why move by 50bp? The Fed’s answer yesterday: because we can. The theme of the press release and the press conference was that excellent progress of inflation allowed for a big but pre-emptive cut. We think the labour market is just fine, and because inflation is all but whipped, we can act to make sure it stays that way. Unhedged, for its part, thinks the Fed is right about this. It is likely that inflation is all but whipped, and that the economy is just fine, so a 50bp cut by itself carries little risk. But we don’t know, and probably no one knows, where the neutral rate is. All we know is we are 50bp closer to it now, and closing. 

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For most investors, this matters primarily because of the possibility of a Fed mistake. If the Fed goes too far, inflation reignites, and it comes clear the Fed is going to have to raise rates again, one will want to own (to simplify grossly) equities rather than Treasuries. If it doesn’t go far enough, and falling employment leads to a recession, the opposite bet is correct. Active investors have no choice, at this point in the cycle, to have their own view of where the neutral rate is, so they can decide which kind of mistake the Fed is more likely to make. This is much more important than the size of the next cut. But 25 vs 50 is a nice, clearly defined debate, whereas estimating the neutral rate is a university economics seminar where the syllabus is a secret, the exam date is unknown and your grade determines your salary.   

The stakes are particularly high now because risk asset prices are so stretched. Stocks, especially big US stocks, are at high multiples of earnings, and credit spreads are about as tight as they get. This means things are priced for stability, and a central bank that has to change course quickly because it has over- or undershot the neutral rate is the very opposite of stability. You are making a bet on r*, whether you know it or not. 

One good read

Spies on ice.

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Under Trump, Green Card Seekers Face New Scrutiny for Views on Israel

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Under Trump, Green Card Seekers Face New Scrutiny for Views on Israel

For decades, immigrants who have followed the rules and have not broken the law have had hopes of earning a green card, a document that allows them to live legally in the United States and gain a path to citizenship.

But under new guidance issued by the Trump administration, immigrants can now be denied a green card for expressing political opinions, such as participating in pro-Palestinian campus protests, posting criticism of Israel on social media and desecrating the American flag, according to internal Department of Homeland Security training materials reviewed by The New York Times.

The documents, which have not been previously reported, show how expansively the Trump administration is carrying out a directive from last August to vet green card applicants for “anti-American” and “antisemitic” views.

The administration includes criticism of Israel as a potentially disqualifying factor, with the training materials citing as an example of questionable speech a social media post that declares, “Stop Israeli Terror in Palestine” and shows the Israeli flag crossed out.

The materials were distributed last month to immigration officers at U.S. Citizenship and Immigration Services, which is part of the Department of Homeland Security and handles applications for green cards and other forms of legal status.

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They reflect how U.S.C.I.S. — long considered the gateway agency for legal migration — has rapidly transformed under President Trump into another cog in his administration’s deportation machine. The agency has worked to strip naturalized Americans of their citizenship and has hired armed federal agents to investigate immigration crimes.

The administration is also granting permanent legal residency to far fewer applicants. Green card approvals have fallen by more than half in recent months, according to a Times analysis of agency data.

“There is no room in America for aliens who espouse anti-American ideologies or support terrorist organizations,” Joseph Edlow, the agency’s director, told Congress in February.

Critics of Mr. Trump’s approach say the administration is seeking to restrict legitimate political speech, and has conflated opposition to Israeli government policies with antisemitism.

Basing green card decisions on “ideological screenings is fundamentally un-American and should have no place in a country built on the promise of free expression,” said Amanda Baran, a senior agency official under President Joseph R. Biden Jr.

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Administration officials said they were defending American values.

“If you hate America, you have no business demanding to live in America,” said Zach Kahler, a spokesman for U.S.C.I.S.

Abigail Jackson, a White House spokeswoman, said the administration’s policies had “nothing to do with free speech” and were meant to protect “American institutions, the safety of citizens, national security and the freedoms of the United States.”

The administration has moved aggressively against immigrants for expressing political views that officials have deemed anti-American, making ideology a central part of its immigration vetting process. Secretary of State Marco Rubio has revoked the visas of pro-Palestinian student activists, including one who wrote a column criticizing her university’s response to pro-Palestinian demands.

The Department of Homeland Security has proposed reviewing the social media histories of tourists seeking to visit the United States.

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Immigration officers have significant discretion in deciding whether to grant foreigners long-term permanent residence. They have long considered a variety of factors, including criminal records, national security threats, family ties to the United States and employment histories.

Ideology has also traditionally been one of those factors. In some cases, U.S. law forbids officers from granting green cards to people who have belonged to a Communist or other “totalitarian” political party, have promoted anarchy or have called for the overthrow of the U.S. government by “force or violence or other unconstitutional means.”

But in the past, immigration officers have focused on statements that could incite or encourage violence, given concerns about infringing on constitutionally protected speech, former U.S.C.I.S. officials said.

The new training materials reviewed by The Times guide immigration officers through the factors they should consider when ruling on green card applications. They discourage officers from granting green cards to people with a history of “endorsing, promoting or supporting anti-American views” or “antisemitic terrorism, ideologies or groups.”

Immigration officers have been told to weigh those factors as “overwhelmingly negative.”

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The documents list support for “subversive” ideologies as among other factors that could lead to an application being rejected. As an example, the materials point to someone “holding a sign advocating overthrow of the U.S. government.”

In addition, the guidance describes the desecration of the American flag as a negative factor, citing Mr. Trump’s executive order last year directing the Justice Department to prosecute protesters who burn the flag. The Supreme Court has ruled that flag burning is a form of political expression protected by the First Amendment.

Immigration officers have also been told to scrutinize applicants who encourage antisemitism “through rhetorical or physical actions.” They were instructed to “focus particularly on aliens who engaged in on-campus anti-American and antisemitic activities” after the Hamas attacks against Israel in 2023, the documents show.

Further examples in the documents of conduct characterized as antisemitic include a social media post showing a map of Israel with the nation’s name crossed out and replaced with the word “Palestine.” Another illustrative post suggests that Israelis should “taste what people in Gaza are tasting.”

Immigration officers must elevate all cases involving “potential anti-American and/or antisemitic conduct or ideology” to their managers and to the agency’s general counsel’s office for review, according to the documents.

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In recent months, the agency has also changed the way it refers to the employees who adjudicate green card applications, long known as “immigration services officers.” In job postings, it now calls them “homeland defenders.”

“Protect your homeland and defend your culture,” one posting says.

Steven Rich contributed reporting.

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America’s bid for energy supremacy is being forged in war

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America’s bid for energy supremacy is being forged in war

Additional work by Jana Tauschinski

Oil and gas tanker location and destination data are from Kpler. The map shows the latest position for vessels with an active AIS signal on April 19–20, filtered by minimum capacity thresholds: crude tankers of at least 50,000 deadweight tonnage (DWT); oil product tankers of at least 55,000 DWT; oil/chemical tankers of at least 40,000 DWT; LNG carriers of at least 150,000 cubic metres; and LPG carriers of at least 50,000 cubic metres. Net fossil fuel import data by country are based on Ember analysis of the IEA World Energy Balances 2023.

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Roommate faces murder charges in deaths of 2 University of South Florida doctoral students

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Roommate faces murder charges in deaths of 2 University of South Florida doctoral students

A 26-year-old man is facing two counts of first-degree murder in the deaths of two University of South Florida doctoral students who went missing last week, local authorities said Saturday. 

The Hillsborough County Sheriff’s Office in Florida said that evidence presented to the state attorney’s office resulted in the charges against Hisham Abugharbieh, the roommate of Zamil Limon, one of the doctoral students. 

Abugharbieh is accused of premediated murder with a weapon. He was arrested on Friday, the same day Limon was found dead. 

The family of Nahida Bristy, the other doctoral student, told CBS News that police said she is also likely dead. That is based on the volume of blood discovered at Abugharbieh’s residence, which he shared with Limon.

“Police told us she is no longer with us,” Bristy’s brother, Zahid Prato, said early Saturday.

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The family was told her body may never be found and police believe she may have been dismembered, according to Prato. 

CBS News has reached out to police for more information.

Authorities said in a statement Saturday they were still searching for Bristy.

Limon’s remains were found on the Howard Franklin Bridge in Tampa Friday morning, Chief Deputy Joseph Maurer with the Hillsborough County Sheriff’s Office said. His cause of death was pending autopsy results.

Deputies with the sheriff’s office took Abugharbieh into custody on Friday after responding to a domestic violence call at a home in the Lake Forest Community, a neighborhood near USF’s Tampa campus, officials said. He also faces charges of domestic violence and evidence tampering, as well as a charge of failing to report a death to law enforcement.

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Limon and Bristy, both 27, had last been seen in the Tampa area on April 16. 

Limon was studying the use of AI in environmental science and was set to present his doctoral thesis this week, his family said. Bristy is studying chemical engineering. 

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