The Fed Is Unsure About 2024. Why That’s a Problem for Markets.

If the Fed doesn’t intend to hike once more in 2023, it’s perhaps more likely to be conveyed through messaging ahead of its November meeting rather than in Wednesday’s dot plot, which shows where officials see rates going.

But there’s more scope for change to projections for 2024. In June, Fed officials penciled in 100 basis points of cuts for next year.

The Organisation for Economic Development (OECD) said Tuesday it sees U.S. economic growth slowing to 1.3% in 2024, from 2.2% this year. However, that was an improvement on the June forecast as the U.S. economy has proved “unexpectedly resilient” to the rise in interest rates.

Slowing growth gives room for rate cuts but the resilience points to the Fed keeping rates higher for longer into next year.

The problem with looking so far into the future is that everything is liable to change. Higher oil prices threaten to scupper the Fed’s battle against inflation, the success of which will determine the start of rate cuts. The economy could also continue to defy elevated rates.

All anyone wants to know is when will the cuts begin to make borrowing cheaper—while some clues will soon appear, a definitive answer is some way off.

—Callum Keown

*** Join Barron’s associate editor for technology Eric Savitz today at noon when he speaks with David Readerman, founder and portfolio manager of Endurance Capital, on the outlook for technology stocks. Sign up here.

Try your hand at this morning’s Barron’s Daily crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.

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Central Bank Could Get Tripped Up by Energy Prices, Congress

The Federal Reserve is widely expected to hold interest rates steady today, but investors will be paying more attention to what Chairman Jerome Powell says at his afternoon press conference and at the new set of economic projections the policy makers will release for inflation, unemployment, and economic output.

• The question is how long will the Fed keep rates elevated while it nudges inflation, currently running around 3.7%, back to its 2% target. One challenge is oil prices, which have crept back up toward $100 a barrel, threatening to keep the cost of goods and services higher.
• Gasoline prices have risen to a national average of $3.88 a gallon in the U.S. from $3.68 one year ago, AAA said. Gas costs jumped 11% from July to August, driving more than half of overall inflation for the month.
• The Fed’s latest set of projections will indicate where policy makers believe interest rates are headed. In June, 12 of the 18 members saw two more quarter-point increases this year, and one of those was in July. The minutes from the July meeting showed members still saw risks to inflation.
• Another barometer of the Fed’s outlook could come in the unemployment projection. In June, members saw it rising nearly a full percentage point to 4.5% in 2024, a possible recession omen. A lowered projection could indicate the Fed feels more confident about a soft landing.

What’s Next: A data-dependent Fed could also get tripped up by Congress, which is again squabbling about government funding. A shutdown on Oct. 1 could temporarily halt the release of the September jobs report, September CPI data, and third-quarter GDP estimates, all scheduled for release in October.

—Liz Moyer and Megan Cassella

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Disney Nearly Doubling Investment in Theme Parks, Cruises

Walt Disney
plans to nearly double its spending on its parks, experiences, and products segment to about $60 billion over the next decade, including expanding its theme parks, cruises, and resorts and prioritizing revenue-generating projects, according to a filing with the Securities and Exchange Commission.

• CEO Bob Iger said the entertainment company was focused on the need to grow the bottom line and invest in itself to increase returns on capital. It is looking “expansively” at how to return value and capital to shareholders, he said in a blog post.
• Disney’s parks, experiences, and products segment generated $28.7 billion in revenue in 2022, up from $26.8 billion before the pandemic in 2019. The segment’s revenue over the past 12 months was $32.3 billion.
• Disney has raised theme park ticket prices and concession prices. Shanghai Disney Resort and Hong Kong Disneyland have seen brisk growth. Rival
  Comcast
  is building attractions in Texas and Nevada and is planning a new resort for Orlando, MarketWatch reported.
• Disney is weighing several strategic options for its traditional television business, including a possible sale of ABC. Its streaming rival
  Warner Bros. Discovery
  is adding live sports streaming to its Max platform for an extra $9.99 a month.

What’s Next: Disney Parks has more than 1,000 acres of land available globally for potential development. Disney also plans to nearly double the worldwide capacity of its cruise lines, adding two ships in fiscal 2025, and another in fiscal 2026, and opening a new home port in Singapore.

—Janet H. Cho and Angela Palumbo

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Intel Says Next Generation of PCs Will Run AI

Intel
CEO Pat Gelsinger unveiled plans at a San Jose developer event for “the AI PC,” the next generation of personal computers capable of natively running artificial intelligence inference applications, which he says will bring “AI everywhere at scale.”

• Executives at
  Dell Technologies
  and
  HP
  have said AI-capable laptops are coming in 2024, and Intel intends to help them get there. Gelsinger said AI-capable PCs will be enabled by its Core Ultra processor, which will use Intel’s first integrated neutral processing unit.
• Gelsinger said AI on PCs will be a “sea change moment” and noted newly public chip designer
  Arm Holdings,
  which pioneered reduced instruction set computing (RISC) chips to enhance mobile performance, now supports Intel’s OpenVino open-source inferencing platform.
• Rewind.ai co-founder Dan Siroker joined Gelsinger onstage, turned off the Wi-Fi on a demo laptop, and demonstrated that Rewind.ai was able to answer questions in plain English about data that were “seen” during the laptop’s session while not connected to the internet, MarketWatch reported.
• Melius Research analyst Ben Reitzes said Intel is a contender in the AI race, and Wall Street hasn’t priced in the “potential for hundreds of millions” in revenue the company’s AI chip Gaudi can do for its top line in coming years.

What’s Next: Intel’s CFO David Zinsner told investors that channel inventory of data center processors is taking longer to clear than it did for the company’s PC processor business. He said Intel is finding the recovery in the data center business to be “a little bit more delayed.”

—Eric J. Savitz and Janet H. Cho

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Ford Reaches Tentative Deal With Canadian Auto Workers

Canadian union Unifor said it reached a tentative deal with Ford Motor with just hours before its Tuesday strike deadline. It’s a small sign that auto makers and auto workers can agree. But in the U.S. the United Auto Workers’ Friday deadline to expand its strike still edges closer.

• The Canadian union announced earlier Tuesday that it had extended talks for 24 hours after getting a “substantive offer” minutes before the original deadline on Monday night.
• Late Tuesday, Unifor’s National President Lana Payne said in a statement that the deal, covering 5,600 workers at Canadian Ford facilities, “addresses all of the items raised by members in preparation for this round of collective bargaining.”
• Ford said earlier Tuesday: “We will continue to work collaboratively with Unifor to create a blueprint for the automotive industry that supports a vibrant and sustainable future in Canada.”

What’s Next: Wedbush analysts led by Dan Ives said the UAW dispute was reaching a “fork in the road” and they feared the strikes could be “long and nasty” for the Detroit auto makers. They cite Tesla as a clear winner because of its nonunion position and that its competitors “now face mounting costs and complexities in the years ahead.”

—Callum Keown, Janet H. Cho and Al Root

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Instacart Co-Founder Moves to Next Challenge After IPO

Instacart’s
emergence as a publicly traded company means its co-founder Apoorva Mehta is setting off on a new adventure after stepping down as CEO in 2021. The delivery platform’s initial public offering valued Mehta’s 10% holdings as the largest individual shareholder at around $1 billion.

• The stock had a volatile first day as a public company. It opened 40% higher than its $30 IPO price but lost momentum and closed up 12%. At its IPO price, Instacart had a valuation of $9.9 billion. Two years ago it was valued at $39 billion.
• Mehta has left Instacart for Cloud Health Systems, a start-up that raised $30 million in venture capital in 2022. He told Barron’s he sees his lack of healthcare experience as an asset, not a weakness. “To start a new company you have to have a beginner’s mind-set,” he said.
• Instacart is also known as Maplebear, which incorporated in Delaware in 2012. The name is a reference to Mehta’s Canadian background. The “maple” is a reference to Canada, where his family moved when he was a teenager. “Bear” refers to the flag of California, where Instacart is based.
• Instacart was one of the year’s most hotly anticipated IPOs, following chip designer Arm Holdings’ listing last week. Together, they are expected to crack open the window for the IPO market, which has been quiet most of this year.

What’s Next: In other IPO news, Klaviyo, the Boston-based digital marketing software platform, priced its debut at $30 a share, slightly above the range it set on Monday. It will begin trading today on the New York Stock Exchange under the ticker symbol “KVYO.”

—Janet H. Cho and Eric J. Savitz

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Dear Quentin,

I have a question that might appear like a simple one, especially for all the advanced money-management folks out there and for people with more money than I have. I am 50, have very little savings, and I would like to invest $50,000. What is a good type of account to start with? Where can I get a 5% or 6% interest rate?

I would like to be able to withdraw the money if there is an emergency, add to it at will, and be able to monitor it. Forgive my ignorance on the subject. I went from being homeless to owning a home, becoming a business owner and now, hopefully, doing a little investing. I just don’t have a clue where to start.

I currently have the whole amount in regular banks.

—First-Time Saver and Investor

Read the Moneyist’s response here.

—Quentin Fottrell

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner