Why Uncertainty Still Hangs Over the Fed’s Big Decision

Split decision

There is little suspense on Wednesday on whether the Fed will make its first interest-rate cut in four years. But even in these final hours before the central bank announces its highly anticipated move, the debate is still raging about how deep the central bank will go.

One near certainty is that the decision will reverberate on the presidential campaign trail, giving a potential boost to the Harris-Walz campaign and spurring anger from Donald Trump.

Traders on Wednesday were doubling down on their go-big bet. The futures market was giving roughly 69 percent odds that the central bank would cut its prime lending rate by a 0.5 percentage-point. That call has risen steadily as concerns have grown about the fragility of the labor market in recent weeks.

Most economists are in the go-slower camp. They point to an economy that’s losing steam — though not at risk of falling into recession — and inflation that’s easing but still high as reasons for a more cautious quarter-point decrease. Doomers also note that the last three times the Fed cut by more than that — in 2001, 2007 and in 2020 — the economy was in rough shape, and soon afterward sank into a recession.

Politicians are at the extreme ends of the debate. Some progressive Democrats, including Senator Elizabeth Warren of Massachusetts, have urged Jay Powell and his colleagues to cut by 75 basis points. Trump has made his views clear, too: He thinks the Fed should hold off until after Election Day, assuming a cut could help the Democrats.

The Fed faces a tall task whatever it decides. Go big, and the takeaway would be that the economy is hurting. Go smaller, and “the key risk will be convincing market participants that they are not behind the curve,” Josh Hirt, an economist at Vanguard, wrote in a preview note on Tuesday.

The central bank will also share its outlook for the economy. The Fed’s so-called dot plot forecast will detail its views on growth, unemployment and the path of interest rate cuts. (Goldman Sachs economists see the prime lending rate falling to roughly 3.625 percent by the end of next year, down from the 5.25 to 5.5 percent range today.)

The economy is holding up for many. The S&P has gained roughly 33 percent since March 2022 when the Fed started aggressively raising borrowing costs in the hopes of putting a lid on inflation. Tuesday’s retail sales data suggested that shoppers’ finances are still fairly healthy.

And last week’s University of Michigan consumer sentiment survey showed that households were beginning to feel better about the future.

That would suggest that inflation worries, which pulled down President Biden’s approval ratings, are easing, if not reversing. Another bright spot: the housing market.

The main worry is jobs. Employers have slowed the pace of hiring, which could portend a slowdown. “The Fed nonetheless has to take into consideration how its higher for longer regime has put pressure on lower wage earners and increasingly on lower middle-income workers,” Quincy Krosby, the chief global strategist at LPL Financial, wrote in a client note. “Small business owners similarly have been dealing with bank loans reflecting higher rates.”

HERE’S WHAT’S HAPPENING

The White House extends its review of the U.S. Steel deal. The Biden administration will allow Nippon Steel to resubmit its application for a national security review of the $15 billion takeover, The Times reports. The move will give Nippon Steel and U.S. Steel three more months to persuade government officials to approve the deal, while pushing a decision on the increasingly politicized transaction past the November elections.

JPMorgan Chase is reportedly in talks to take over Apple’s credit card business. The banking giant may take over as issuer of the Apple Card from Goldman Sachs, which is getting out of consumer lending, according to The Wall Street Journal. But a deal isn’t a given: JPMorgan wants to pay a discount for the business, and Apple has previously resisted changing the billing date for cardholders from the beginning of the month.

Sean Combs is denied bail on sex trafficking charges. A federal judge ordered the embattled music mogul to remain in jail pending his trial, after he was formally accused of sex trafficking, racketeering conspiracy and transportation to engage in prostitution. Combs, who had argued for a $50 million bond, has pleaded not guilty; he faces at least 15 years in prison if convicted on the sex trafficking charge.

Steve Cohen steps back from the trading floor. The billionaire financier is no longer trading with clients’ capital at his Point72 hedge fund, focusing instead on expanding the firm and mentoring employees, according to Bloomberg. (And, presumably, overseeing the playoff-contending New York Mets.) If Cohen sticks with the plan — he has taken similar breaks before — it would test Point72’s ability to move past its famous founder.

Child safety and deepfakes hang over social media

After years of pressure, Instagram has introduced a host of changes meant to better safeguard children on its platform. But many advocates say the moves don’t go far enough, raising the prospect of further government action against its parent company, Meta.

The news, combined with California’s new laws requiring tech companies to moderate the spread of deepfakes, underscore the regulatory challenges hanging over social media companies’ billion-dollar businesses.

Instagram’s moves are among the latest efforts to shield children from online harms. They include making accounts of users who self-identified as under 18 private by default, halting notifications for minors during the evening, and adding more supervisory tools for adults.

“We decided to focus on what parents think because they know better what’s appropriate for their children than any tech company, any private company, any senator or policymaker or staffer or regulator,” Adam Mosseri, Instagram’s chief, told The Times.

The changes came in response to heaps of criticism of Instagram and other platforms, leading to greater pressure from regulators. In June, the U.S. surgeon general called for cigarette-like labels on social media, warning about the technology’s mental health risks, while in July, the Senate passed the Kids Online Safety Act to require more safety measures for children. Lawsuits by state attorneys general have also taken aim at Meta’s business practices.

Referring to Instagram, Jim Steyer, the head of the children’s advocacy group Common Sense Media, said the company was “only acting now because they’re under pressure from lawmakers, advocates and a groundswell of public opinion.”

It’s unclear whether the moves are enough. Critics note that the changes don’t solve a bigger problem — kids lying about their ages when they sign up for an Instagram account. (The platform says it takes down such accounts when it learns about them.)

Not included in Tuesday’s announcement: a broader effort to verify users’ ages when they sign up.

Meanwhile, California wants better policing of deepfakes. Its new set of laws is among the most extensive in the country aimed at the A.I.-generated spoofs, especially if they’re intended as election disinformation. (That said, only one of the laws will come into force in time for the 2024 election.)

Expect strong pushback on First Amendment grounds from tech companies — and leaders like Elon Musk, who has posted false audio of Vice President Kamala Harris on his X platform. (Gov. Gavin Newsom of California has already put Musk on notice.) The fight is expected to head to the courts.

“That product isn’t ours.”

— Hsu Ching-Kuang, the founder and president of the pager maker Gold Apollo, which was identified as the supplier of devices used in attacks in Lebanon on Tuesday that killed at least 11 people. Hsu said another manufacturer made the pagers, using his company’s branding as part of a licensing deal.

The cost of powering A.I.

Investors have been plowing billions into the start-ups trying to commercialize artificial intelligence ever since OpenAI introduced ChatGPT in late 2022. Now, BlackRock and Microsoft have made a huge bet that the next boom will focus on the infrastructure behind the technology.

The companies are joining forces on a new investment vehicle. The world’s biggest asset manager and the tech giant are looking to raise up to $30 billion as well as another $70 billion in debt financing, making the fund one of Wall Street’s biggest ever.

MGX, the Abu Dhabi-backed investment company, is a partner in the new venture. And the chipmaker Nvidia will advise on technical details.

The aim is to build data centers and energy projects to meet surging demand. Goldman Sachs estimates the data center power needs could grow 160 percent by 2030, accounting for 3 percent to 4 percent of overall energy consumption.

The A.I. revolution will only add to those pressures: A ChatGPT query requires nearly 10 times the power needs of a Google search, according to the International Energy Agency.

The energy industry is warning that the U.S. needs a plan. “A.I.’s advance will depend not only on the design labs of Silicon Valley, but also on the gas fields of the Permian basin,” Michael Wirth, Chevron’s C.E.O., told the Gastech conference in Houston on Tuesday.

A government official shot back that President Biden’s infrastructure bill has committed billions to building new energy projects.

The new fund is BlackRock’s first major deal since it bought Global Infrastructure Partners. BlackRock’s boss, Larry Fink, says the global economy is set for an “infrastructure revolution” and paid $12.5 billion for GIP to build a business around that idea.

“Mobilizing private capital to build A.I. infrastructure like data centers and power will unlock a multi-trillion-dollar long-term investment opportunity,” Fink said on Tuesday.

BlackRock isn’t the only one seeing big opportunities. This year alone, the tech investor Silver Lake spent billions for a stake in Vantage Data Centers, and the private equity firm General Atlantic bought the London-based infrastructure investor Actis.

But some governments are trying to slow construction. Ireland, which is home to more than 80 data centers and a key tech hub for Europe, has had to essentially ban new construction around Dublin because of fears that it would overburden the electric grid.

THE SPEED READ

Deals

• The Transportation Department cleared Alaska Airlines’s proposed takeover of Hawaiian Airlines, but required the value of loyalty points and some routes to be maintained. (NYT)

• Air Mail, Graydon Carter’s digital media start-up, has hired the merchant bank Raine to find a buyer. And the British news start-up Tortoise Media, is in talks to buy The Observer, Britain’s oldest operating Sunday newspaper, from Guardian Media Group. (NYT)

Elections, politics and policy

• Elon Musk said that SpaceX would sue the F.A.A. for “regulatory overreach” after the agency accused his rocket company of violating spacecraft launch rules. (Axios)

• As president, Donald Trump approved a cap on state and local tax deductions. As a candidate, he’s promising to lift those so-called SALT limits. (CNBC)

Best of the rest

We’d like your feedback! Please email thoughts and suggestions to dealbook@nytimes.com.