Connect with us

Business

Which Interest Rate Should You Care About?

Published

on

Which Interest Rate Should You Care About?

Watch out for interest rates.

Not the short-term rates controlled by the Federal Reserve. Barring an unforeseen financial crisis, they’re not going anywhere, especially not after the jump in inflation reported by the government on Wednesday.

Instead, pay attention to the 10-year Treasury yield, which has been bouncing around since the election from about 4.8 to 4.2 percent. That’s not an unreasonable level over the last century or so.

But it’s much higher than the 2.9 percent average of the last 20 years, according to FactSet data. At its upper range, that 10-year yield may be high enough to dampen the enthusiasm of many entrepreneurs and stock investors and to restrain the stock market and the economy.

That’s a problem for the Trump administration. So the new Treasury secretary, Scott Bessent, has stated outright what is becoming an increasingly evident reality. “The president wants lower rates,” Mr. Bessent said in an interview with Fox Business. “He and I are focused on the 10-year Treasury.”

Advertisement

Treasuries are the safe and steady core of many investment portfolios. They influence mortgages, credit cards, corporate debt and the exchange rate for the dollar. They are also the standard by which commercial, municipal and sovereign bonds around the world are priced.

What’s moving those Treasury rates now is bond traders’ assessments of the economy — including the Trump administration’s on-again, off-again policies on tariffs, as well as its actions on immigration, taxes, spending and much more.

Mr. Bessent, and President Trump, would like those rates to be substantially lower, and they’re trying to talk them down. But many of the president’s policies are having the opposite effect.

The president needs the bond market on his side. If it comes to disapprove of his policies, rates will rise and the economy — along with the fortunes of the Trump administration — will surely suffer.

Mr. Bessent may be focusing on Treasury rates, or yields, partly to relieve pressure on the Federal Reserve, which President Trump frequently berated in his first term and on the campaign trail.

Advertisement

The Fed’s independence is sacrosanct among most economists and many investors. During the campaign, Mr. Trump repeatedly called on the Fed to lower rates. Yet any threat to the Fed’s ability to operate freely could panic the markets, which, clearly, is not what Mr. Trump wants.

To the contrary, when the markets are strong, he frequently cites them as a barometer of his popularity. In 2017, he boasted about the performance of the stock market an average of once every 35 hours, Politico calculated.

Shortly after the November election, I wrote that the markets might restrain some of Mr. Trump’s actions. But I wouldn’t go too far with this now. Few government departments or traditions seem to be off limits for the administration’s aggressive changes in policy or reductions in work force, masterminded by Mr. Trump’s sidekick, the billionaire disrupter-in-chief, Elon Musk. Just look at The Times’s running tabulation of the actions taken since Jan. 21. It’s dizzying.

Still, so far, at least, the administration has been remarkably circumspect when it comes to the Fed. That doesn’t mean President Trump has entirely constrained himself: He has continued to mock the Fed, saying in a social media post that it has “failed to stop the problem they created with Inflation” and has wasted its time on issues like “DEI, gender ideology, ‘green’ energy, and fake climate change.”

Nonetheless, Mr. Bessent said specifically that Mr. Trump “is not calling for the Fed to lower rates.” Instead, the Treasury secretary said, “If we deregulate the economy, if we get this tax bill done, if we get energy down, then rates will take care of themselves and the dollar will take care of itself.” The president has not contradicted him. So far, trying to control the Fed is a line that Mr. Trump hasn’t yet crossed. The bond market is another matter.

Advertisement

Treasury rates haven’t usually garnered the big headlines frequently devoted to the Federal Reserve.

The Fed is easier to explain. When it raises or lowers short-term rates, it’s clear that somebody took action and caused a measurable change.

In reality, when we report that the Fed is cutting or increasing rates, we mean that it is shifting its key policy rate, the federal funds rate. That’s what banks charge one another for borrowing and lending money overnight. It’s important as a signal — a red or green light for stock traders — and “it influences other interest rates such as the prime rate, which is the rate banks charge their customers with higher credit ratings,” according to the Federal Reserve Bank of St. Louis. “Additionally, the federal funds rate indirectly influences longer- term interest rates.”

What causes shifts in longer-term rates is much harder to pinpoint because they are set by an amorphous force: the market, with Treasuries at the core. Day to day, you won’t hear much about it unless you’re already a bond maven.

How does any market set prices? Supply and demand, the preferences of buyers and sellers, trading rules — the textbooks say these and other factors determine market prices. That’s true for tangible things like milk, eggs, gasoline, a house or a car. Treasury prices — and those of other bonds, which use Treasuries as a reference — are more complicated. They include estimates of the future of interest rates, of inflation and of the Fed’s intentions.

Advertisement

The Fed sets overnight rates, which are involved indirectly in bond rates for a simple reason. The interest rate for a 10-year Treasury reflects assumptions about many, many days of overnight rates, chained together until they span the life of whatever bond you buy. Inflation matters because when it rises more quickly than anticipated, it will reduce the real value of the stream of income you receive from standard bonds.

That happened in 2022. Inflation soared and so did yields, while bond prices, which move in the opposite direction, fell — creating losses for bond funds and for individual bonds sold under those conditions.

That’s why the increase in inflation in January, to an annual rate of 3 percent for the Consumer Price Index from 2.9 percent the previous month, immediately pushed up the 10-year Treasury yield, which stands above 4.5 percent. Trump administration policies are weighing on bond prices and yields, too.

Mr. Bessent has pointed out that oil prices are a major ingredient in inflation and, therefore, bond yields. But whether Mr. Trump will be able to bring down oil prices by encouraging drilling — while eliminating subsidies and regulations that encourage the development of energy alternatives — is open to question.

Some Trump policies being sold as promoters of economic growth — like cutting regulations and tax rates — could have that effect. But others, like reducing the size of the labor force — which his deportations of undocumented immigrants and restrictions on the arrival of new immigrants will do — could slow growth and increase inflation.

Advertisement

So could the tariffs that he has been threatening, delaying and, in some cases, already imposing. Expectations for future inflation jumped in the University of Michigan’s monthly survey in January. Joanne Hsu, the survey’s director, said that reflects growing concerns about the Trump tariffs among consumers.

“These consumers generally report that tariff hikes will pass through to consumers in the form of higher prices,” she wrote. She added that “recent data show an emergence of inflationary psychology — motives for buying-in-advance to avoid future price increases, the proliferation of which would generate further momentum for inflation.”

None of that augurs well for the 10-year Treasury yield. Nor does a warning issued by five former Treasury secretaries — Robert E. Rubin, Lawrence H. Summers, Timothy F. Geithner, Jacob J. Lew and Janet L. Yellen — who served in Democratic administrations.

They wrote in The New York Times that incursions of Mr. Musk’s cost-cutting team into the Treasury’s payment system threaten the country’s “commitment to make good on our financial obligations.” They applauded Mr. Bessent for assuring Congress in writing that the Treasury will safeguard the “integrity and security of the system, given the implications of any compromise or disruption to the U.S. economy.”

But they decried the need for any Treasury secretary to have to make such promises in his first weeks in office.

Advertisement

Other potential flash points for Treasury yields loom. The Fed has in the past manipulated the market bond supply by buying and selling securities. It’s reducing its holding now, which could put upward pressure on interest rates — and make the Fed an irresistible Trump target. At the same time, Secretary Bessent is financing the government debt mainly with shorter-term bills but may not be able to avoid increasing the supply of longer-term Treasuries indefinitely, as the federal deficit swells. Yet Congress is reluctant to raise the debt ceiling, which will bite later this year.

These are difficult times. So far, the 10-year yield hasn’t shifted all that much. The markets, at least, have been holding steady.

Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Business

Commentary: H-1B visas have always been a scam. Trump's changes won't fix the problem

Published

on

Commentary: H-1B visas have always been a scam. Trump's changes won't fix the problem

Among the government programs that produce more confusion than benefits, H-1B visas are right up there.

If you’ve been hearing about H-1B visas, it’s probably because President Trump abruptly changed its rules with a proclamation on Sept. 19.

As is typical of Trump’s shoot-from-the-hip policy-making, the proclamation produced an outbreak of fear and chaos, in this case among holders of the visas. That’s because it seemed at first that the administration was imposing a $100,000 fee not only on applicants for the visas, but on current holders reentering the U.S. from abroad, say from home leave or a business trip.

This is a de facto ban, as few organizations will be able to afford it.

— Robert D. Atkinson, Information Technology and Innovation Foundation

Advertisement

Until the White House clarified that the charge would be a one-time fee for new H-1B applications, not charged annually or for renewals or reentry, holders were advised by some employers not to leave the U.S. for the present; those who were caught off-guard overseas scurried to get home by Sunday, when the fee began.

A Sept. 19 Emirates flight from San Francisco to Dubai had to abort its departure to allow several panicky passengers to debark, according to Bloomberg.

The administration’s subsequent assurances have quelled the panic. But the proclamation has created new befuddlements, including over whether it opens the door to illicit dealings between Trump and companies bidding for the visas, and whether it’s even legal.

As my colleagues Queenie Wong and Nilesh Christopher reported, there are concerns that “a selective application of the fee could be a way the White House can reward its friends and punish its detractors.”

Advertisement

Importantly, there’s room to question whether the proclamation will solve long-standing problems with H-1B visas. So let’s take a look at the program’s malodorous history.

H-1B visas were created in 1990, under President George H.W. Bush, to relieve what high-tech companies asserted was a chronic shortage of U.S.-born workers in the STEM fields (science, technology, engineering and math).

The idea was to give highly-skilled foreign workers in “specialty occupations” the right to three years of U.S. residence renewable for a further three years — an opportunity to obtain permanent residency or even citizenship.

After a few rounds of tweaking, the annual cap on new applications was set at 85,000, including 20,000 holders of advanced degrees from U.S. universities. Higher education and nonprofit research institutions are exempt from the cap.

Things didn’t work out as anticipated. U.S. employers came to see the H-1B visas as tools to replace native-born technicians with cheaper foreign workers. Scandalously, some of the American workers were required as conditions of their severance to train the newcomers to do their jobs.

Advertisement

I documented that practice at Southern California Edison in 2015. The giant utility acknowledged that the outsourcing of workers would cost the jobs of 500 technicians who did the work of installing, maintaining and managing Edison’s computer hardware and software for payroll and billing, dispatching and electrical load management.

Essentially, Edison was replacing domestic IT specialists earning $80,000 to $160,000 with workers provided by two India-based outsourcing firms, Tata Consultancy Services and Infosys, which were paying their recruits $65,000 to $71,000. By the time the outsourcing process was complete, Edison said, its IT expenses would fall by about 20%.

“They told us they could replace one of us with three, four, or five Indian personnel and still save money,” one laid-off Edison worker told me at the time, recounting a group meeting with supervisors. “They said, ‘We can get four Indian guys for cheaper than the price of you.’ You could hear a pin drop in the room.”

Then there’s the University of California, which announced in 2016 that it would lay off 49 career IT staffers and eliminate 48 other IT jobs that were vacant or filled by contract employees. The American workers were ordered to train their own replacements, who were employees of the Indian outsourcing firm HCL Technologies.

Although the visa law specified that hiring foreign workers would not harm American workers, “the H-1B program is most definitely harming American workers, harming them badly, and on a large scale,” Ronil Hira of Howard University, an expert in the visa program, told the Senate Judiciary Committee in 2015. “Most of the H-1B program is now being used to import cheaper foreign guestworkers, replacing American workers, and undercutting their wages.”

Advertisement

The high-tech industry’s dirty little secret, I reported, was that the STEM shortage was a myth. The same companies wringing their hands over the supposed dearth of STEM-qualified workers were simultaneously laying them off by the tens of thousands. Indeed, experts in technology employment consistently found that “the supply of graduates is substantially larger than the demand for them in industry,” one told me. Anyway, a significant portion of H-1B recruits weren’t in jobs demanding unique skills, but workaday technicians.

Since 2020, the top employer of H-1B visa holders has been Amazon, with a total of 43,375 workers over that period — followed closely by the Indian outsource companies Infosys and Tata. In the current fiscal year, Amazon reigns, with more than 14,000 H-1B holders, followed by Tata, Microsoft, Meta Platforms, Apple and Google. I asked Amazon why it needs so many foreign workers and what work they do, but didn’t receive a reply.

The Indian outsourcing firms have dominated the H-1B system since at least 2009. For years their role has stoked controversy, in part because their employment practices have come under question.

In court, government prosecutors and civil plaintiffs have alleged that Infosys and Tata were exploiting the guest workers they brought to the U.S. Infosys settled federal fraud charges with a $34-million payment in 2013, the largest penalty in an immigration case at that time. The company denied the allegations.

That same year, Tata settled a class action lawsuit with a $29.8-million payment. The plaintiffs alleged that workers imported by Tata were forced to sign over their federal and state tax refunds to Tata, among other claims. The company didn’t admit wrongdoing.

Advertisement

Over the years, the H-1B program has made for political controversy, though Congress hasn’t taken a firm hand in correcting its issues. Conservatives and progressives alike have found reason to complain that it undermines domestic employment. Near the end of his first term, Trump shut down H-1B issuance entirely, along with some other specialty visa programs, but his initiative was blocked in federal court.

But the program remains enormously popular in the high-tech world, which has long agitated for an expansion. Its fans include Elon Musk, who tweeted in December that “the reason I’m in America along with so many critical people who built SpaceX, Tesla and hundreds of other companies that made America strong is because of H-1B.” He underscored his position with a burst of profanity, but he did promise to “go to war on this issue,” although he acknowledged that some fixing is in order.

That brings us to the issues with Trump’s proclamation. Its shortcomings resemble those that prompted federal Judge Jeffrey S. White of Oakland to overturn Trump’s ban in 2020 in a case brought by the National Assn. of Manufacturers and the U.S. Chamber of Commerce, among others.

White ruled that the authority to change the terms of the visas belonged to Congress, not the president, and that the administration hadn’t evaluated the effect of the ban on the domestic economy, as federal law required. The case was rendered moot when Trump’s ban was reversed by President Biden. I asked the White House if it was concerned that this proclamation could also be blocked in court, but got no reply.

A bigger question concerns the ramifications of the $100,000 fee. “H-1B visa fees of this magnitude will strongly discourage the hiring of the most talented members of the global labor force,” says University of Chicago economist Steven Durlauf. Instead, the policy will create incentives to move high-tech and scientific activity to other countries, effectively offshoring economic activity that should occur in the U.S., he says.

Advertisement

The fee is so high that only the biggest and richest employers will be able to pay it, locking out small start-ups that have tried to use H-1B visas to build their professional teams. The proclamation doesn’t make clear whether universities and research institutions will be exempt from the fee. Even financially well-endowed universities would find it hard to justify paying $100,000 to import a faculty member from abroad.

“This is a de facto ban, as few organizations will be able to afford it,” says Robert Atkinson, president of the Information Technology and Innovation Foundation, a high-tech think tank.

The White House says it intends to replace the current system, a random lottery apportioning available H-1B slots among all applicants, with one favoring applications to fill the highest-paid slots.

The proclamation states that H-1B abuses “present a national security threat by discouraging Americans from pursuing careers in science and technology, risking American leadership in these fields.” Never mind that students considering careers in scientific and technical fields are being profoundly discouraged by Trump’s freezes on research funding across the scientific landscape.

So the bottom line is that, as is usual, Trump’s H-1B policy works at cross-purposes with his other initiatives. For decades, the H-1B program has been ripe for fixing. If only the Trump White House took the time to craft a sensible repair.

Advertisement
Continue Reading

Business

How Nexstar’s Proposed TV Merger Is Tied to Jimmy Kimmel’s Suspension

Published

on

How Nexstar’s Proposed TV Merger Is Tied to Jimmy Kimmel’s Suspension

ABC pulled Jimmy Kimmel’s late night show on Wednesday after conservatives expressed outrage over a monologue the host had given two days earlier.

Here’s an excerpt from Mr. Kimmel’s monologue:

Advertisement
Advertisement

“We hit some new lows over the weekend with the MAGA gang desperately trying to characterize this kid who murdered Charlie Kirk as anything other than one of them, and doing everything they can to score political points from it. In between the finger-pointing, there was grieving.

The suspension was the latest demonstration of how members of the Trump administration have been able to influence the operations of media companies without imposing new policies. In this case, a broadcaster that is pursuing a $6 billion merger, which must be approved by the Federal Communications Commission, put pressure on ABC before the network’s parent company, Disney, announced its decision to suspend Mr. Kimmel’s show.

Advertisement

1:00 p.m. E.T. on Wednesday, Aug. 5

Podcast video circulates of the F.C.C. chairman threatening ABC and calling on local affiliates to pull Mr. Kimmel’s program.

Advertisement

Hours before ABC made the announcement, the F.C.C. chairman, Brendan Carr, said on a right-wing podcast that local ABC stations should “push back” and “pre-empt” coverage that does not serve “their local communities.” (Pre-empting, in broadcast terms, refers to replacing programming with another show in advance of its airing.)

Mr. Carr also told the podcast’s host, Benny Johnson, that the F.C.C. might take action against ABC.

Advertisement
Advertisement

“When you see stuff like this, I mean, look, we can do this the easy way or the hard way. These companies can find ways to change conduct and take action frankly on Kimmel or you know there’s going to be additional work for the F.C.C. ahead. …”

“I think that it’s really sort of past time that a lot of these licensed broadcasters themselves push back on Comcast and Disney and say, ‘Listen, we are going to pre-empt.’”

Advertisement

6:11 p.m.

Nexstar, which owns ABC affiliate stations, announces it will not air Mr. Kimmel’s program.

Advertisement

After the podcast interview, Nexstar, which owns 32 ABC affiliate stations, announced that it would “pre-empt ‘Jimmy Kimmel Live!’ for the foreseeable future,” and added: “Nexstar strongly objects to recent comments made by Mr. Kimmel concerning the killing of Charlie Kirk.”

Nexstar has good reason to try to appease the F.C.C. at the moment: In August, the company announced that it intended to buy one of its competitors, Tegna, which owns 13 ABC affiliate stations. But in order for the deal to go through, Mr. Carr and the F.C.C. would have to not only approve it, but also potentially raise the nationwide cap on the percentage of households a single entity’s television stations are allowed to reach.

Broadcasters have pushed the government for decades to raise or repeal the cap, which is currently set at 39 percent. If the Nexstar-Tegna deal goes through, Nexstar’s reach is likely to exceed the limit.

Advertisement

Shortly after Nexstar’s announcement, Sinclair, a company that owns 31 ABC affiliate stations, said it would also suspend Mr. Kimmel’s program.

Of ABC’s 205 affiliate stations, 63 are owned by Nexstar and Sinclair, and another 13 are owned by Tegna.

Advertisement

Sources: The Federal Communications Commission, ABC, Nexstar, Sinclair and Tegna.

Advertisement

Note: Stations were cross-referenced between ABC’s and affiliates’ lists, and checked against F.C.C. records.

By The New York Times

Together, they make up about 37 percent of all of ABC’s local affiliates.

Advertisement

Advertisement

Approximately 6:30 p.m.

ABC says it will suspend Mr. Kimmel’s program “indefinitely.”

Minutes after Nexstar’s announcement, and just hours after Mr. Carr’s podcast appearance, ABC announced that it was suspending Mr. Kimmel’s program “indefinitely.”

Advertisement

It was unclear how big a role, if any, the plans for pre-empting by Nexstar played in Disney’s decision. (Sinclair did not publicly announce that it would also pre-empt the program until after Disney’s decision was made public.)

Advertisement

7:00 p.m.

F.C.C. chairman thanks Nexstar on social media, shortly after the company announced it would pre-empt Mr. Kimmel.

Advertisement

“I want to thank Nexstar for doing the right thing.”

Advertisement

As the outrage over Mr. Kimmel’s comments grew, Robert A. Iger, Disney’s chief executive, along with a close lieutenant, had been hearing from worried advertisers, people familiar with the decision told The New York Times this week.

Last year, Mr. Trump sued ABC’s news division for defamation. ABC settled with the president in December, a rare and significant concession by a major news organization as the president grew increasingly antagonistic to media companies he viewed as critical of him and his allies.

Advertisement

Before Mr. Kimmel’s show was set to begin taping Wednesday, the people familiar with Disney’s decision said, executives had grown concerned that another opening monologue could further inflame the situation. So they made the call for the show to go dark — at least temporarily.

Continue Reading

Business

Disney, Universal and Warner Bros. Discovery sue Chinese AI firm as Hollywood's copyright battles spread

Published

on

Disney, Universal and Warner Bros. Discovery sue Chinese AI firm as Hollywood's copyright battles spread

Walt Disney Co., Universal Pictures and Warner Bros. Discovery on Tuesday sued a Chinese artificial intelligence firm called MiniMax for copyright infringement, alleging its AI service generates famous characters including Darth Vader, the Minions and Wonder Woman without the studios’ permission.

“MiniMax’s bootlegging business model and defiance of U.S. copyright law are not only an attack on Plaintiffs and the hard-working creative community that brings the magic of movies to life, but are also a broader threat to the American motion picture industry,” the companies state in their complaint, filed in U.S. District Court in Los Angeles.

The entertainment companies requested that MiniMax be restrained from further infringement. They are seeking damages of up to $150,000 per infringed work, as well as attorney fees and costs.

This is the latest round of copyright lawsuits that major studios have brought against AI companies over intellectual property concerns. In June, Disney and Universal Pictures sued AI firm Midjourney for copyright infringement. This month, Warner Bros. Discovery also sued Midjourney.

Shanghai-based MiniMax has a service called Hailuo AI, which is marketed as a “Hollywood studio in your pocket” and used characters including the Joker and Groot in its ads without the studios’ permission, the studios’ lawsuit says. Users can type in a text prompt requesting characters such as Yoda from “Star Wars” or DC Comics’ Superman, and Hailuo AI can pull up high quality and downloadable images or video of the character, according to the document.

Advertisement

“MiniMax completely disregards U.S. copyright law and treats Plaintiffs’ valuable copyrighted characters like its own,” the lawsuit states. “MiniMax’s copyright infringement is willful and brazen.”

“Given the rapid advancement in technology in the AI video generation field … it is only a matter of time until Hailuo AI can generate unauthorized, infringing videos featuring Plaintiffs’ copyrighted characters that are substantially longer, and even eventually the same duration as a movie or television program,” the lawsuit states.

MiniMax did not immediately return a request for comment.

Hollywood is grappling with significant challenges, including the threat of AI, as companies consolidate and reduce their expenses amid rising production costs. Many actors and writers, still recovering from strikes that took place in 2023, are scrambling to find jobs. Some believe the growth of AI has threatened their livelihoods as tech tools can replicate copyrighted characters with text prompts.

Although some studios have sued AI companies, others are looking for ways to partner with them. For example, Lionsgate has partnered with AI startup Runway to help with behind the scenes processes such as storyboarding.

Advertisement
Continue Reading
Advertisement

Trending