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Warsh Says the Fight Against Inflation Isn’t Over

11m 10s

Warsh Says the Fight Against Inflation Isn’t Over

In his first major speech as Federal Reserve Chairman at Jackson Hole, Kevin Worsh emphasized that financial conditions may not be restrictive enough to curb inflation, stating that inflation must move toward the 2% target clearly and sufficiently. While he avoided committing to a specific action, his hawkish tone prompted traders to increase the probability of a rate hike next month to about 60%, up from 35% the prior day, causing choppy market trading with all major indexes closing slightly lower. Separately, the Labor Department revised down job growth by 79,000 for the year ending in March, indicating a weaker labor market than previously thought. In corporate news, Chevron is close to expanding its Venezuelan oil operations, adding two heavy oil fields, with executives expected to sign deals in Caracas next week. Meanwhile, corporate America is bracing for a possible Democratic comeback in the midterms; companies like Meta have given $30 million to political groups, split between parties, while others hire former Democratic aides and prepare for subpoenas. Internationally, Japan intervened heavily to support the yen, spending nearly $100 billion in a month, and Iceland votes on rejoining the EU amid geopolitical tensions. These developments highlight ongoing economic uncertainty and strategic corporate and political maneuvering.

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(upbeat music) Kevin Worsh just gave his first big speech as Fed Chair and traders walked away betting on a rate hike. Plus, how corporate America is quietly bracing for a possible democratic comeback in Washington. - Companies have been very eager to show how close they are to Trump, and that has painted a target on them. - And Chevron is closing in on a major deal to expand its footprint in Venezuela. It's Friday, August 28th. I'm Sabrina Sidiqi for the Wall Street Journal filling in for Alex Osula. This is the PM edition of what's news, the top headlines and business stories that move the world today. Federal Reserve Chairman Kevin Worsh delivered his first speech as Chairman today, where he signaled that the Central Bank may not be done fighting inflation. He spoke at Jackson Hole at the Kansas City Fed's annual symposium in Wyoming. The journal's chief economics correspondent Nick Timmeros was there. - Worsh said that he would be hard pressed to call financial conditions restrictive. That means the Fed's rate might not be doing enough to influence the economy, which is what gets inflation back to 2%. Worsh said a standard inflation has to be moving toward 2% clearly and at sufficient speed to use his words, or he said the Fed would have more work to do. - Inflation is running above R2% target. So the Fed's predominant focus right now should be on prices. - Nick says that investors are taking Worsh's comments as a sign that the Fed's more likely to raise rates. Although Worsh didn't say that himself. - Worsh made a version of the Hawks argument without saying that he would necessarily join them. And the bond market reacted that way. You saw short-term yields go up. So Worsh gave everyone a more detailed picture of how he reads the economy, even if he didn't draw a map about what he plans to do about it. - I stand here today committed to a discipline, not a decision. - Traders have raised the odds of a rate increase next month to around 60% from 35% yesterday. And in other economic news, the labor market's not quite as strong as we thought. The Bureau of Labor Statistics said today that the U.S. likely added 79,000 fewer jobs than previously reported over the 12 months that ended in March. This isn't the final word though. The government's still updating the jobs figures based on more complete tax data and the official revision isn't until next year. Worsh's comments caused some choppy trading. The S&P rose at first, then turned lower, and all three indexes ended the day slightly lower. The NASDAQ was the biggest loser closing down half a percent. Meanwhile, the dollar rose moving higher with bond yields and gold prices fell more than 3%. One stock that jumped today was GAP. It shares rose 13% after the company's latest earnings report. Same store sales at the GAP division rose 10%. The company's earnings beat Wall Street estimates and GAP raised its profit outlook slightly for the year. At the company's largest division by sales, Old Navy, same store sales fell 4%. And GAP says it's working on addressing problems there. The journals exclusively reporting that Chevron and some other U.S. energy companies are nearing deals to invest billions of dollars in Venezuela's oil fields. Chevron's already operating in the country and it's close to adding two heavy oil fields and how he burdens and talks to bring in its equipment. Executives from a few companies are expected to sign production deals in Caracas next week. An energy secretary Chris Wright is supposed to be in Venezuela then too. You heard on this morning's show about how the Trump administration is in talks with Venezuela for a stake in the country's oil fields. Colin Eaton, the Wall Street Journal's global energy reporter, says the oil company's talks are a different set of negotiations. The Trump administration's negotiations with Venezuela for these 17 oil fields, which would give him a stake in 90 billion barrels of oil reserves in Venezuela. Those are on a completely separate track than all the negotiations that U.S. oil companies like Chevron are conducting. And even though those two deal-making processes are totally separate, this U.S. deal to try to get a direct stake in Venezuela and oil production could serve as sort of geopolitical insurance policy for the oil companies looking to get into Venezuela, because Venezuela's had a long history of nationalizing assets and companies are cautious about going in for those reasons. And this could be seen in theory as a way to sort of cool people's nerves. Colin says Venezuela's oil production hasn't picked up as fast as the Trump administration had hoped. And even with these potential deals, it may take a lot more to get there. The Trump administration was initially pretty hopeful that we'd see a bigger increase in oil production by now and by the end of this year. But Venezuela is still roughly where it was a year ago, just north of a million barrels a day. Some analysts estimate optimistically that the country could get back to 1.5 million barrels a day over a year to 18 months, but for a big increase in production, getting back to 3 million barrels a day where production was like a decade ago, that's going to take several years and billions of dollars worth of investment. Coming up, what a possible Democratic comeback in Washington could mean for some of Trump's biggest corporate donors? We'll have more on that and today's other stories after the break. Some of corporate America's biggest Trump donors are quietly hedging their bets ahead of the midterms. Companies like Metta, which gave heavily to Trump's political operations and his White House ballroom, are now writing big checks to Democrats too. Paramount and Kalshi are hiring former Biden and Obama aides, and some companies are even running internal task forces to prepare for Congressional subpoenas if Republicans lose the House of Representatives in November. With House Minority Leader Hakim Jeffrey signaling that Democrats will go after companies seen as too cozy with Trump, if they regain the majority, executives are trying to cover themselves on both sides, but without alienating a White House that still controls their regulatory fate. White House reporter Annie Linsky joins us now to discuss any which companies are most exposed here. Certainly, companies like Metta, Amazon, Google, are companies that have been very eager to show how close they are to Trump, and that has painted a target on them. The other category is companies that have a strong tie to Trump or his family members, but also to some of his aides. These are companies that have added done junior to their board of directors. These are companies that have had big investments from Steve Wittkov's family or from the Lutnik children. Now, it's unclear, of course, what Democrats will do if they take the House back, but those are places where there is enormousness. You know, you mentioned Metta. They've given something like $30 million to political groups this year, alone, both Democrats and Republicans. Is that a lot? Or is this just what big companies are doing now? What Metta's giving is pretty interesting. The $30 million that we reported on is money that went into what's called a 501c4 political organization. This is also known colloquially as dark money. So these are the kinds of donations that companies make when they do not want other people to find out about it. The journal in doing our reporting, we did find out about it. And what we learned was that Metta has given 10 million to Democrats, 10 million to Republicans. And separately, they have given $10 million to Trump's C4. Typically, companies do spread money around evenly to both parties, but it doesn't typically happen quite that way with dark money. That's usually when they're trying to sort of disguise the amount of money they're giving to one side or the other. If Democrats do take the House, what are they actually going to come after these companies for? There are many, many different scenarios out there. But one of the clearest and one of the most broadly felt view is that they will be used as a way to find out more information about the Trump administration and how the Trump administration has operated. That's sort of the underlying fear. But for these companies, they realize that it's a very target-rich environment and how Democrats can't go after everybody. So the hope is that they can just not be chosen and figure out a way to where somebody else is more in the spotlight than they are. Annie, what did the companies have to say about your reporting? Did you get any comment from Mehta or any of the other companies you reported on? The companies are not very eager to talk to us about these gifts or about this environment. That was the Wall Street Journal's Annie Linsky. Annie, thank you so much. Thank you. Turning to international news, Japan has spent $98.7 billion over the past month to support the Yen. Japan made the record intervention in a joint move with the US. It came on top of an earlier round of support in the spring, and it brought Japan's total spending on the currency this year to about $170 billion. Japan's effort helped pull the Yen back from a 40-year low, but since then, the Yen has given back a lot of that. And tomorrow, Iceland's holding a vote on whether to restart the process of joining the European union. Iceland abandoned that road over a decade ago, and for years, people in the country. country have been suspicious of joining the block. There were worries about giving up part of its independence, but now with the US threatening to annex Greenland, some see being part of the EU as a smart geopolitical insurance policy. Two polls released this week showed each side holding a narrow lead making the referendum too close to call. We'll have news about the outcome of the vote on Monday morning show. So tune in. And that's what's news for this week. Tomorrow you can look out for our weekly markets wrap up what's news in markets. Then on Sunday we'll be discussing the global water crisis and what can be done to keep industry humming and taps running. That's in what's news Sunday. And then we'll be back with our regular show on Monday morning. Today's show was produced by Danny Lewis and Anthony Bansi with supervising producer Tali Arbel. Michael Laval wrote our theme music. Aisha Almuslim is our development producer. Chris Sinsley is our deputy editor. And Lytal Malad is our senior director of shows. I'm Sabrina Sidiki, have a great weekend, and thanks for listening.

Podcast Summary

Key Points:

  1. Federal Reserve Chairman Kevin Worsh’s first speech signaled the central bank may not be done fighting inflation, leading traders to raise rate hike odds to around 60% for next month.
  2. The Bureau of Labor Statistics revised down U.S. job growth by 79,000 jobs for the year ending in March, though official revisions are due next year.
  3. Chevron and other U.S. energy companies are nearing deals to invest billions in Venezuela’s oil fields, separate from Trump administration negotiations for a stake in the country’s reserves.
  4. Major corporate Trump donors like Meta are quietly hedging by donating to Democrats, hiring former Biden and Obama aides, and preparing for potential Congressional subpoenas if Republicans lose the House.
  5. Japan spent a record $98.7 billion last month to support the yen, bringing its total currency intervention spending this year to about $170 billion.
  6. Iceland is holding a referendum on restarting EU membership talks, with polls showing a narrow split amid U.S. threats to annex Greenland.

Summary:

In his first major speech as Federal Reserve Chairman at Jackson Hole, Kevin Worsh emphasized that financial conditions may not be restrictive enough to curb inflation, stating that inflation must move toward the 2% target clearly and sufficiently. While he avoided committing to a specific action, his hawkish tone prompted traders to increase the probability of a rate hike next month to about 60%, up from 35% the prior day, causing choppy market trading with all major indexes closing slightly lower. Separately, the Labor Department revised down job growth by 79,000 for the year ending in March, indicating a weaker labor market than previously thought.

In corporate news, Chevron is close to expanding its Venezuelan oil operations, adding two heavy oil fields, with executives expected to sign deals in Caracas next week. Meanwhile, corporate America is bracing for a possible Democratic comeback in the midterms; companies like Meta have given $30 million to political groups, split between parties, while others hire former Democratic aides and prepare for subpoenas. Internationally, Japan intervened heavily to support the yen, spending nearly $100 billion in a month, and Iceland votes on rejoining the EU amid geopolitical tensions.

These developments highlight ongoing economic uncertainty and strategic corporate and political maneuvering.

FAQs

Worsh used this phrase to signal that he is committed to a consistent approach to monetary policy—likely prioritizing inflation control—without committing to a specific action like a rate hike at the next meeting. It leaves room for flexibility based on incoming economic data.

Worsh's hawkish comments raised expectations of a rate hike, which typically boosts the dollar as higher rates attract foreign investment. Gold, which pays no interest, becomes less attractive when yields rise, causing its price to drop.

The revision indicates the labor market was weaker than initially reported for the year ending in March, which could influence Fed policy decisions. It's preliminary because the Bureau of Labor Statistics is still incorporating more complete tax data, with the official revision due next year.

Chevron's talks are commercial deals to invest in specific oil fields, while the administration's negotiations involve a separate agreement for a U.S. stake in 17 fields. The latter could act as geopolitical insurance for companies worried about Venezuela's history of nationalization.

Returning to 3 million barrels a day, a level seen a decade ago, would require several years and billions of dollars in investment. Current production is just above a million barrels daily, and even reaching 1.5 million could take 12 to 18 months under optimistic scenarios.

Dark money refers to donations made through 501(c)(4) organizations, which do not require public disclosure of donors. Companies use this to avoid revealing the amounts given to specific parties, allowing them to hedge political bets without public scrutiny.

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