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Today is Monday, August 25th, and this is your FT News Briefing.
An interest rate cut may be coming to the US as soon as September. and defense companies are exploring new ways to secure European airspace.
Plus, Spanish bank Santander is joining the latest SPAC boom.
The real lucrative side of this stuff for them will be on the back end if they're able to help these SPACs find a successful merger target.
I'm Josh Gabert-Dwyan, and here's the news you need to start your day.
US Federal Reserve Chair Jay Powell seems like he's ready to make a big change. at the Jackson Hole Economic Symposium in Wyoming on Friday.
Powell signaled he was open to the idea of lowering interest rates.
It's a big turnaround for Powell, who has resisted pressure from US President Donald Trump to cut interest rates for months.
And markets responded positively on Friday.
The FT's US economics editor, Claire Jones, is in Jackson Hole and she joined us.
Hi, Claire. Hi, Josh. Okay, pal. statements weren't exactly glowing about the state of the economy.
Here he is talking at Jackson Hole. Significantly higher tariffs across our trading partners are remaking the global trading system.
Tighter immigration policy has led to an abrupt slowdown in labor force growth.
Over the longer run, changes in tax, spending, and regulatory policies may also have important implications for economic growth and productivity.
It's not exactly cheery stuff, but these factors have been playing out for a while, right?
Why do you think he's more open to cutting interest rates, Claire?
So what we got on Friday from Power was a sense that he's become a lot more concerned. above the US labor market.
What he said was that the balance of risks was shifting in a direction which meant the Fed should consider cutting US interest rates for the first time this year.
What that's all predicated on is the sense that because the labour market is weaker, Demand isn't going to be so strong and the impact of tariffs on prices is going to be transitory.
He said in the speech on Friday that he thinks The impact of tariffs on inflation is going to be a one-off shock.
There's not going to be persistent price pressures.
The last time we heard that idea that inflation is transitory was kind of right after the COVID-19 pandemic.
And that famously turned out not to be the case.
Do you think that anything will be different this time?
I think it's a very, very good question to ask.
And there's definitely the sense from some of the Fed members. that inflation's still not back to the Fed's 2% goal just yet.
It's come down a lot. but it does seem to be kind of drifting up in the wrong direction because of tariffs.
And there are some concerns that it could be persistent.
What I think Powell would point to are two things.
I think one is that he'd say, well... in order to get the sort of wage price spiral that, you know tends to produce kind of like more persistent inflation you'd need a stronger labor market The other argument he would use is that inflation expectations, which is basically a measure of how much markets and businesses trust the Fed. remain pretty well anchored, which suggests that the central bank's got enough credibility to cut interest rates.
And if inflation does surge, that people think they're serious enough to kind of go back and either stop the rate cuts or raise interest rates a little bit.
Do you have any sense of how markets are going to react to this news from J-PAL this week?
I think we saw in the immediate reaction on Friday that we saw stocks rise, we saw the government bond market move, all on the sense that A 25 basis point cut now for September is pretty much baked in.
I think it's less about next week and more about two pieces of crucial data will get in the run-up to the September vote.
One is the August Nonfarm Payrolls Report, which will give us another read on the US labour market.
And then a bit later in the month, we'll get the August CP.
So going into the meeting, the Fed officials are going to have a few more pieces of data.
And I think that's what's going to be moving markets and swaying the opinions of people on the Fed. is what those two pieces of data say.
Okay, investors are going to be watching that data.
They're also going to be watching this question of credibility that you mentioned before.
You know, Jay Powell's very keen on the credibility of the Fed.
Donald Trump has been questioning that credibility.
He's been putting a lot of pressure on Powell to cut rates.
And now that Powell has signaled that he is going to cut rates, I mean, is that a sign that he's kind of buckling to that pressure I don't think so no and it was certainly you know speaking to a lot of people here at Jackson Hole, you certainly got the sense that they viewed the speech very positively and the Language that Powell used, the terms he used, really gave a sense that it was as though it was a masterclass. in delivering the case for a court without suggesting that he was responding to political pressure there was a really kind of like you know loud applause and a real like ovation at the end for Powell and a recognition that with populism on the rise, everywhere.
The fight that Powell's having with the White House is a fight that A lot of central bankers in the room felt like he's fighting on behalf of them too.
Claire Jones is the FT's US economics editor.
Thanks, Claire. Thanks a lot, Josh. Venture capitalists are pouring money into European air defense.
They're looking at ways to build Iron Dome-style systems on the continent to counter drone attacks.
It's inspired by Israel's interception system, and some major VCs are backing early-stage defense tech companies like Germany's Titan Technologies and the UK-based Cambridge Aerospace.
European leaders have been increasingly interested in missile defense tech since Russia's full-scale invasion of Ukraine in 2022.
That conflict has seen both sides use cheap, mass-produced drones to a pretty devastating effect.
The goal now is to build an equally cost-effective system to defend European airspace.
For its part, the US is hoping to build a quote-unquote golden dome to ward off missile attacks aimed at the US.
The Spanish bank Santander is using SPAC deals to try to carve out a place for itself on Wall Street.
So-called special purpose acquisition vehicles are shell companies that raise money on public markets with the aim of later merging with an already established company.
SPACs have been controversial and Santander's move into SPACs has come about thanks to some notable hiring decisions. so says Josh Franklin who joins me now to talk about them hi Josh hi there Josh, tell me about Santander.
It's a European bank, not a huge name on Wall Street.
What's their story? Yeah, no, Santander, it's this Spanish bank primarily known for retail or Main Street banking.
So bank branches, their red logos are pretty commonplace across most parts of Europe. not really known for being a major player on Wall Street and in corporate deal-making and investment banking.
But really this is a strategy that started a couple of years ago.
They went on a bit of a hiring spree. trying to hire a lot of pretty established investment bankers on Wall Street in the hope that this would help bring in the deals that would add a little bit of a kind of Wall Street element to its Main Street business.
Where do SPACs fit in with all this? And can you also explain just what SPACs are for people who... might not remember them?
So SPACs are a bit of a niche within a niche on Wool Street.
It's basically doing an IPO or initial public offering of a shell company that raises money with the goal of eventually merging with an operating company that would then become or fill the shell of the shell company.
It's an alternative route to the public markets for the company that merges with the SPAC.
It was often a bit of a quirky corner of investment banking and of the equity capital markets world. but listeners may remember it really kind of becoming a bigger defense.
They're looking at ways to build Iron Dome-style systems on the continent to counter drone attacks.
It's inspired by Israel's interception system.
And some major VCs are backing early stage defense tech companies like like Germany's Titan Technologies and the UK-based Cambridge Aerospace.
European leaders have been increasingly interested in missile defense tech since Russia's full-scale invasion of Ukraine in 2022.
That conflict has seen both sides use cheap, mass-produced drones to a pretty devastating effect.
The goal now is to build an equally cost-effective system to defend European airspace.
For its part, the U.S. is hoping to build a quote unquote golden dome to ward off missile attacks aimed at the U.S.
The Spanish bank Santander is using Santander has kind of made their way into SPAC. through these savvy decisions, but SPACs are still, they've had their ups and downs.
Is this a risky move for the bank? So I think two things.
One, Santander is not competing against a lot of other mainstream banks to win these deals. the likes of JPMorgan Chase and Goldman Sachs, Just after the SPAC boom fizzled in 2022, a lot of these banks retreated from these deals. the competition for them isn't as fierce as it is in other corners of the market.
And then the other thing that's a little different than Santander is doing here is Previously, because SPAC deals are kind of one-two punches, the initial IPO and then the merger with the operating company.
Fees were normally split about 50-50. What Santander is doing in its most recent deals is taking a pretty modest fee upfront.
And then the real lucrative side of this stuff for them will be on the back end if they're able to help. these SPACs find a successful merger target.
So they're kind of trying to do things a little bit differently so there's kind of greater alignment for the banks to continue to work with the SPACs and find like a good transaction even after the initial IPO is done.
Well, I guess we'll see what happens when they find a target company.
Josh Franklin is the FT's US banking editor.
Thanks very much, Josh. We'll check back in in two years.
Thanks very much. You can read more on all of these stories for free when you click the links in our show notes.
This has been your daily FT News briefing.
Check back tomorrow for the latest business news.
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