Why the Fed Risks Falling Behind --- Waiting until September to start cutting rates might have narrowed the Fed's room for maneuver

 

"Investors seem to have gotten very comfortable with the Federal Reserve's likely path ahead, including a rate cut in September and a couple more thereafter. What could go wrong now? Actually a lot.

The Fed tried not to tip its hand too much following its meeting on Wednesday with a statement saying risks between inflation and unemployment "continue to move into better balance." At his regular press conference, Fed Chair Jerome Powell continued to insist that future moves will be fully dependent on incoming data.

But markets appear to have made up their minds. Fed funds futures are now pricing in a 100% chance that the Fed will cut rates by at least 0.25 percentage point at the next meeting in September, including a 15% chance of a half-point cut, according to the CME Group's FedWatch tool.

What is more, markets see the Fed most likely cutting by a quarter point at each of their three remaining meetings this year, in September, November and December, with a 74% chance that the target range for rates at the end of the year will be at or below 4.50% to 4.75%, from the current range of 5.25% to 5.5%.

Investors fully embraced this scenario on Wednesday as stocks and bonds both rallied. But there are risks of complacency in two directions.

First and foremost, investors might be getting too optimistic about the outlook for rate cuts, much as they were toward the end of last year before unexpectedly firm inflation readings in early 2024 pushed back their expectations. 

It is unclear what might cause an inflation rebound this time around, but geopolitical factors are a clear candidate. The breakout of a wider war in the Middle East, for instance, could send energy prices soaring and cause broader price pressures by disrupting global supply chains.

Perhaps the bigger risk, however, is that the Fed acts too slowly to react as signs of an economic slowdown build. Anecdotes from Corporate America this earnings season have tended to suggest that things could be a bit worse on the ground than aggregate, backward-looking economic data so far suggest. McDonald's Chief Executive Chris Kempczinski, for instance, said Monday that pressures on consumers have "deepened and broadened" over the course of this year.

This risk is exacerbated by the cadence of the Fed's calendar for the remainder of the year, with no meetings in August or October. So if, for example, labor-market readings start coming in weaker for July and August and keep weakening thereafter, there could be several months of deterioration before the Fed even gets around to a second rate cut at its Nov. 6-7 meeting. Just one quarter-point cut in the interim would be unlikely to do much to arrest the slowdown, especially given the typical lags for monetary policy to affect the economy.

This isn't anyone's base case at the moment. True, the pace of job creation has slowed somewhat in recent months and the official unemployment rate moved up to 4.1% in June from 3.6% a year earlier. But, as Powell rightly noted on Wednesday, that is still low by historical standards. 

At his press conference, Powell repeatedly characterized the cooling of the labor market to this point as a process of normalization from its overheated state earlier rather than anything worrisome. But he also conceded that, "I would not like to see material further cooling in the labor market."

What should worry investors most is that the Fed hasn't left itself enough time to respond adequately should that material further cooling come about. This helps explain why futures markets imply some chance of a 50-basis point cut at one of the Fed's remaining meetings this year. If that happens, the Fed might regret not having fired the starting gun in July." [1]

"Leftists are desperate to have the Federal Reserve cut interest rates, believing that higher rates are hampering the “country’s ability to combat the climate crisis.”"

1. Why the Fed Risks Falling Behind --- Waiting until September to start cutting rates might have narrowed the Fed's room for maneuver. Back, Aaron.  Wall Street Journal, Eastern edition; New York, N.Y.. 02 Aug 2024: B.9.

Meta dirbtinio intelekto kaina pašoko, kartu didėja jos skelbimų pardavimas

 

 „Meta Platforms trečiadienį pranešė, kad ketvirtinė skaitmeninė reklama sparčiai augo, o bendrovės investicijos į dirbtinį intelektą (AI) ir vadinamąją metaversą mažina pelną.

 

 Didėjančios bendrovės išlaidos atsirado dėl to, kad bendrovė visapusiškai stengėsi išnaudoti technologijų pramonę apėmusį AI bumą. „Meta“ padidino savo minimalių išlaidų gaires 2024 m., o jos kapitalo išlaidos išaugo maždaug 33%, po to, kai bendrovė balandį paskelbė, kad investicijos į infrastruktūrą, skirtos jos AI ambicijoms paremti, išaugs iki 10 mlrd. dolerių.

 

 „Meta AI metų pabaigoje ketina tapti dažniausiai naudojamu AI asistentu pasaulyje“, – sakė generalinis direktorius Markas Zuckerbergas.

 

 Praėjusią savaitę „Meta“ išleido naujausią didelės kalbos modelį „Llama 3.1“, todėl „Meta AI“ tapo prieinama daugiau kalbų ir rinkų. Zuckerbergas teigė, kad skaičiavimo išteklių, reikalingų „Llama 4“ mokymui, greičiausiai, bus beveik 10 kartų daugiau, nei „Meta“ naudojo treniruodama „Llama 3“. Ateities modeliams tai augs toliau, sakė jis.

 

 „Šiuo metu aš verčiau rizikuočiau sustiprinti pajėgumus iki, kol to prireiks, o ne per vėlai, atsižvelgiant į ilgą naujų išvestinių projektų kūrimo laiką“, - sakė Zuckerbergas.

 

 Akcijos pabrango maždaug 5 %, o tai rodo, kad pagerėjusios pardavimo prognozės ir pelnas nusvėrė investuotojų susirūpinimą dėl išlaidų padidėjimo.

 

 Metos bendraamžiai sulaukė kitokios reakcijos. „Microsoft“ ir „Google“ pagrindinė „Alphabet“ pastebėjo, kad jų akcijų kainos krito, nes jos pranešė apie didėjančias AI kainas.

 

 Per pastaruosius 12 mėnesių „Meta“ akcijos pabrango beveik 50%, o tai paskatino dirbtinio intelekto technologijų proveržiai, patobulinę reklamos taikymo galimybes. Ši dirbtinio intelekto pažanga padėjo „Meta“ įveikti iššūkius, kylančius dėl „Apple“ 2021 m. įgyvendintų privatumo pakeitimų, kurie 2022 m. panaikino 10 mlrd. dolerių pajamų iš socialinės žiniasklaidos įmonės.

 

 Bendrovės pardavimai išaugo iki 39,1 mlrd. dolerių, ty 22%, palyginti su praėjusiais metais. Pajamų augimas sumažėjo, palyginti su sausio-kovo laikotarpiu, kai „Meta“ pranešė, kad metinis pajamų augimas siekė daugiau nei 27%. Reklama sudarė 98% „Meta“ antrojo ketvirčio pajamų.

 

 Remiantis „FactSet“ duomenimis, trečiojo ketvirčio pajamos turėtų siekti 38,5–41 mlrd. dolerių.

 

 Numatoma, kad „Meta“ padalinio „Reality Labs“, gaminančio „Quest“ ausines ir „Ray-Ban Meta“ išmaniuosius akinius, veiklos nuostoliai „prasmingai“ padidės per likusį 2024 m. laikotarpį, nes „Meta“ toliau kuria programinę ir aparatinę įrangą. Zuckerbergas ilgus metus aukštino metavisatos arba virtualios erdvės, kurioje jis tikisi, kad žmonės dirbs ir leis laiką ateityje, dorybes. Per šį laikotarpį padalinio veiklos nuostolis siekė 4,5 mlrd. dolerių.

 

 Bendrovė paskelbė, kad padidina jos minimalių 2024 m. kapitalo išlaidų prognozę nuo 35 milijardų dolerių iki mažiausiai 37 milijardų dolerių, tačiau išlaikė maksimalią išlaidų prognozę – 40 milijardų dolerių.

 

 Apskritai, „Meta“ antrąjį ketvirtį uždirbo 13,5 mlrd. dolerių grynojo pelno. Tai buvo maždaug 73,1% daugiau, palyginti su grynuoju pelnu, kurį bendrovė uždirbo per tą patį 2023 m. laikotarpį." [1]

 

1. Meta's AI Costs Leap As Its Ad Sales Gain. Rodriguez, Salvador.  Wall Street Journal, Eastern edition; New York, N.Y.. 01 Aug 2024: B.1.

Meta's AI Costs Leap As Its Ad Sales Gain

"Meta Platforms on Wednesday said quarterly digital advertising grew rapidly while the company's investments in artificial intelligence and the so-called metaverse weighed on profits.

The company's rising expenses have come as a result of the company's all-in approach toward capitalizing on the AI boom sweeping the tech industry. Meta increased its minimum spending guidance for 2024, and its capital expenditures surged about 33% after the company said in April that costs would rise by up to $10 billion for infrastructure investments to support its AI ambitions.

"Meta AI is on track to be the most used AI assistant in the world by the end of the year," said Chief Executive Mark Zuckerberg.

Meta released its latest large language model, Llama 3.1, last week, and it made Meta AI available in more languages and markets. Zuckerberg said the amount of computing resources required to train Llama 4 will likely be almost 10 times more than what Meta used to train Llama 3. Future models will grow beyond that, he said.

"At this point, I'd rather risk building capacity before it is needed rather than too late given the long lead times for spinning up new inference projects," Zuckerberg said.

Shares rose by about 5% in after-hours trading, suggesting that improved sales forecasts and profits outweighed concerns about spending increases for investors.

Meta's peers met with a different reaction. Microsoft and Google parent Alphabet saw their share prices dip as they reported rising AI costs.

Meta's shares have risen by almost 50% in the past 12 months, a rally fueled by breakthroughs in artificial-intelligence technology that have improved its ad-targeting capabilities. Those advancements in AI have helped Meta overcome challenges posed by privacy changes implemented by Apple in 2021 that erased $10 billion of revenue for the social-media company in 2022.

The company's sales increased to $39.1 billion, up 22% compared to a year prior. The revenue growth was down compared to the January-to-March period, when Meta reported annual revenue growth of more than 27%. Advertising made up 98% of Meta's second-quarter revenue.

Third-quarter revenue is expected to be between $38.5 billion and $41 billion, ahead of analyst expectations of $38.3 billion, according to FactSet data.

Operating losses in Meta's Reality Labs unit, which produces the Quest headset and Ray-Ban Meta smart glasses, are set to increase "meaningfully" in the remainder of 2024 as Meta continues to build out software and hardware. Zuckerberg has for years extolled the virtues of a metaverse, or a virtual space where he expects people to work and spend time in the future. The division had an operating loss of $4.5 billion for the period.

The company announced that it is raising its forecast for its minimum 2024 capital expenditures from $35 billion to at least $37 billion, but it maintained its maximum forecast for expenditures at $40 billion.

Overall, Meta posted a net profit of $13.5 billion for the second quarter. That was up about 73.1% compared with the net profit that the company posted for the same period in 2023." [1]

1. Meta's AI Costs Leap As Its Ad Sales Gain. Rodriguez, Salvador.  Wall Street Journal, Eastern edition; New York, N.Y.. 01 Aug 2024: B.1.