Aurelia Butler

This article is an onsite version of our Disrupted Times newsletter. Subscribers can sign up here to get the newsletter delivered three times a week. Explore all of our newsletters hereToday’s top storiesThe Federal Reserve announces its decision on interest rates at 2pm ET/7pm London time. Check back here for details and reaction.New York City police stormed Columbia University’s campus and arrested pro-Palestinian protesters in an attempt to quash unrest that has spread to campuses across the nation and inflamed US divisions over the war in Gaza.Maritime experts warned that Yemen’s Iranian-backed Houthis were now threatening merchant ships in the wider Indian Ocean after they hit a container vessel well beyond the Red Sea last week. Many shipping companies have switched to the longer route to avoid Houthi attacks on the approaches to the Suez Canal in the Red Sea and Gulf of Aden.For up-to-the-minute news updates, visit our live blogGood evening.Is artificial intelligence coming for your job?The FT today puts OpenAI’s new Sora video-generation model to the test to assess its likely impact on jobs after a Big Tech reporting season dominated by an arms race on AI spending.Our tests on Sora, along with rivals Runway and Pika, focus on animation, advertising and real estate, sectors likely to feel the full force of the new technology. The results are impressive if not, at least so far, directly comparable with material created by actual humans.AI may still be in its relative infancy, but it is already dominating Big Tech investment plans.Amazon said yesterday that AI demand had fuelled a big jump in sales at its cloud computing division and it planned to spend big on supporting the technology. The company has been vying with cloud computing rivals Microsoft and Google parent Alphabet for dominance in generative AI, which has fuelled spending on infrastructure, such as data centres, to support the technology.Microsoft last week outlined a similar boost in cloud sales and AI spending as it reported revenue and earnings ahead of estimates. Analysts are closely watching the performance of its 365 Copilot generative AI assistant, which has been integrated into its suite of productivity apps.  In common with its rivals, Microsoft is also racing to meet clean energy requirements while satisfying the voracious demand of cloud computing and AI. Today it agreed to back $10bn in renewable electricity projects with Brookfield Asset Management which will bring 10.5 gigawatts of generating capacity online — the same amount needed to power the equivalent of 1.8mn homes.Meanwhile, Alphabet, whose value surged past the $2tn mark after last week’s results, said its Gemini era was now “well under way”, referring to its generative AI large language model. The company is also considering charging for certain AI-powered search features in its premium services, which already offer a Gemini AI assistant in Gmail and Docs.  The company has been criticised for being slower than rivals to commercialise generative AI — particularly in the context of Microsoft’s $13bn partnership with OpenAI and its ubiquitous ChatGPT program — despite the technology being created in-house by its researcher.Over at Meta, boss Mark Zuckerberg last week was forced to defend a spending spree aimed at turning the social media group into “the leading AI company in the world”. Shareholders were not impressed, sending the company’s stocks tumbling.Technological development however continues apace. Meta’s recently released Llama-3, along with OpenAI’s imminent GPT-5, is already testing the next frontier of AI: models capable of reasoning and planning, important steps towards superhuman cognition in machines.In the meantime, the frenzy of activity is catching the eye of regulators. The UK’s Competition and Markets Authority last week shared its concerns about the alliances between Big Tech and AI start-ups. The CMA fears that the established companies may be taking advantage of AI companies’ insatiable need for computing power to train large language models, by luring cash-strapped start-ups to their cloud services in exchange for a stake that could give them outsized influence in the fledgling businesses. The CMA is already examining Microsoft’s tie up with OpenAI, a deal that has also attracted attention from antitrust authorities in the US and Europe.Need to know: UK and Europe economyThe “New Deal for Working People” promised by the UK’s Labour party, said to be the biggest increase in worker’s rights for decades, could yet be toned down ahead of the general election.The NHS in England needs three more years to recover fully from the pandemic, held back by a lack of investment in hospital buildings and medical equipment, its chair Richard Meddings told the Financial Times. He said the service was also in a constant struggle against “the behaviours of a modern world”, including gambling and consumption of ultra-processed foods. Voters in England and Wales go to the polls tomorrow in local and mayoral elections. Here are the results to watch on Friday and their timing from Inside Politics’s Stephen Bush (and for professional politics geeks here’s his guide to the overnight results). Council funding woes are a key theme.The eurozone economy grew faster than forecast to hit 0.3 per cent in the first quarter thanks to a bounceback in Germany, the bloc’s biggest economy, which went from a contraction of 0.5 per cent in the previous quarter to growth of 0.2 per cent. Separate data showed eurozone headline inflation remaining steady at 2.4 per cent in April after 17 months of falls.The European Union expanded with 10 new members 20 years ago today. After a period of spectacular growth, these countries now need to avoid losing their competitive edge as living standards catch up with their western neighbours. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Meanwhile in Georgia, an EU candidate country, police have brutally cracked down on pro-democracy protesters fighting against pro-Russian politicians.Need to know: global economyThe head of the World Bank warned wealthy countries not to ignore Africa at a time when development budgets are being strained by wars in Ukraine and Gaza. Chief economics commentator Martin Wolf said the remarkable reduction in global poverty would soon come to an end as the poorest countries struggle to cope with the economic shocks of recent years. A substantial replenishment of funds for the International Development Association is urgently needed, he argues.Food and drinks companies including McDonald’s, Nestlé and Coca-Cola said poorer customers in the US were no longer able to absorb price rises, even as better-off consumers keep up their spending.China’s factory activity expanded for a second consecutive month, led by rising high-tech manufacturing output, according to the official purchasing managers’ index. Industrial profits data released on Saturday however raised doubts about the economy’s momentum.Need to know: businessEurope is “sleep walking” into becoming dependent on Russian fertiliser, just as it did with gas, says the head of Yara, one of the largest producers of crop nutrients.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The EU is investigating 20 airlines over “potentially misleading greenwashing practices”, focusing on claims that the carbon emissions from flying can be offset either through investments in environmental projects or the use of more sustainable jet fuels.Europe’s largest carmakers are struggling with falling demand and higher interest rates that are putting consumers off. The electric vehicle market has its own problems: Elon Musk has shut down the division that runs Tesla’s supercharger business and fired hundreds of staff.The chief executive of Ericsson, the Swedish telecoms equipment maker, hit out at overregulation, which he said was “driving Europe to irrelevance” and undermining the region’s competitiveness. Investors are beginning to turn their minds to the prospect of a Trump presidency 2.0. Wealth managers are diversifying across asset classes and regions to “Trump-proof” their portfolios. The World of WorkEuropeans have more time, Americans more money. Which is better? Columnist Simon Kuper considers the key factors at the heart of work-life balance.Grosvenor, the Duke of Westminster’s property company, is taking a big bet on flexible workspaces to meet demand in London’s West End. It joins other landlords and office specialists that have boosted flexible offerings to appeal to tenants who are embracing more hybrid working. How will new US rules banning the use of non-compete clauses in contracts play out? Listen to the new Working It podcast.Some good newsThe intermittent nature of renewable energy sources such as solar and wind has proved a significant hurdle in the switch from fossil fuels, but, according to the International Energy Agency, this could soon be a problem of the past: the cost of battery storage is set to fall by up to 40 per cent by 2030.Recommended newslettersWorking it — Discover the big ideas shaping today’s workplaces with a weekly newsletter from work & careers editor Isabel Berwick. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up hereThanks for reading Disrupted Times. If this newsletter has been forwarded to you, please sign up here to receive future issues. And please share your feedback with us at [email protected]. Thank you More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The first quarter’s run of higher than anticipated US inflation numbers have markets in a tizzy. Investors have been constantly tweaking their expectations for interest rates. The problem with all the frantic repricing is that it bestows an incisiveness on monetary policy that it does not actually possess — particularly at this stage of America’s inflation battle. Rate-setting has become the focal tool to guide economies. Fiscal policy is politicised and limited by budget constraints, and supply-side reforms take longer than the electoral cycle to bear fruit — although both are arguably sharper instruments. Tax and spend decisions can be targeted, and their impact on demand is faster. Land, labour and capital reforms can boost long-run supply.Nonetheless, the US Federal Reserve has historically played an important role in keeping inflation tame. Higher rates have helped pull price growth down from recent highs. But we need to be realistic about what rates can now achieve.First, the so-called transmission mechanism — or how rates affect demand — may be weaker in this cycle. Data from a Federal Housing Finance Agency staff working paper shows that between 1998 and the pandemic, the share of Americans on mortgages with rates locked in more than 1 percentage point below the market rate was never far above 40 per cent. Yet, at the end of 2023, about 70 per cent of mortgage holders had rates more than 3 percentage points below what the market would offer them on a new loan. Higher for longer rates may be futile. The impact of monetary policy can also be damped as economies become more service-intense. The manufacturing and construction sectors are more capital-intensive and more readily affected by rate changes.The implication of lower economy-wide rate sensitivity is that policymakers need to either wait longer for existing rate rises to take effect, or go higher. But some sectors are hit by higher rates faster, and harder, than others. Research by the San Francisco Fed shows spending basket components including transport and financial services are the most responsive to higher rates.Today, America’s sticky CPI holdouts are shelter and motor vehicle insurance. Both are partly a product of pandemic supply shocks — reduced construction and a shortage of vehicle parts — that are still percolating through the supply chain. Indeed, dearer car insurance now is a product of past cost pressures in vehicles. Demand is not the central problem; there is little high rates can do. This raises further problems. If rates need to stay higher to account for these less rate-sensitive components, that raises the risk of surplus stress being placed on more responsive areas. They can be over-squeezed, break and spill over more uncontrollably through the economy. It also means some parts of the population take on a higher burden. “Hand-to-mouth” households — which have large spending commitments compared to their regular income and liquid assets — can be particularly exposed to rate risk.Breaking one part of the economy to slow the rest down is a feature of monetary policy, not a bug. Historically, the Fed’s rate-rising cycles have tended to culminate in a recession or financial crisis. Some economists suggest a more optimal monetary policy might instead monitor a price index with greater weights assigned to larger, stickier and more upstream industries, to limit the inefficiencies caused by interest rates across different sectors. Either way, monetary policy is a catchall tool. It cannot control demand in a quick, linear or targeted manner. Other measures need to pick up the slack. Estimates suggest supply factors — which rates have little influence over — are now contributing more to US core inflation than demand. Tighter fiscal policy can squeeze demand further. Housebuilding can alleviate sticky shelter price inflation. Or, we can lean on higher rates until less rate-sensitive sectors are hit, or until the more sensitive ones crumble and drive a broader downturn.We need to wake up to the limits of monetary policy, in the US and elsewhere. That means fiscal policy, financial stability and supply-side measures need more prominence in the price stability debate. Better policy co-ordination may be necessary. But there are also questions for central banking. For instance, how rigid should any inflation target be when the spread, and nature, of price pressures also matter?If too much rests on the power of interest rates, ongoing volatility will be the result. Monetary policy can certainly help soften fluctuations in the economy. But other tools are needed to overcome the limitations of rate setting itself. More