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    Inflation rose 0.4% in April and 4.7% from a year ago, according to key gauge for the Fed

    Inflation stayed stubbornly high in April, potentially reinforcing the chances that interest rates could stay higher for longer, according to a gauge released Friday that the Federal Reserve follows closely.
    The personal consumption expenditures price index, which measures a variety of goods and services and adjusts for changes in consumer behavior, rose 0.4% for the month excluding food and energy costs, higher than the 0.3% Dow Jones estimate.

    On an annual basis, the gauge increased 4.7%, 0.1 percentage point higher than expected, the Commerce Department reported.
    Including food and energy, headline PCE also rose 0.4% and was up 4.4% from a year ago, higher than the 4.2% rate in March.
    Despite the higher inflation rate, consumer spending held up well as personal income increased.
    The report showed that spending jumped 0.8% for the month, while personal income accelerated 0.4%. Both numbers were expected to increase 0.4%.
    Price increases were spread almost evenly, with goods rising 0.3% and services up 0.4%. Food prices fell less than 0.1% while energy prices increased 0.7%. On an annual basis, goods prices increased 2.1% and services rose by 5.5%, a further indication that the U.S. was tilting back towards a services-focused economy.

    Food prices rose 6.9% from a year ago while energy fell 6.3%. Both PCE gains were the most since January.
    Markets reacted little to the news, with stock market futures pointing higher as investors focused on improving prospects for a debt ceiling deal in Washington. Treasury yields were mostly higher.
    “With today’s hotter-than-expected PCE report, the Fed’s summer vacation may need to be cut short as consumers’ vacations fuel spending,” noted George Mateyo, chief investment officer at Key Private Bank. “Prior to today’s release, we believe that the Fed may have been hoping to take the summer off (i.e., pause and reassess), but now, it seems as if the Fed’s job of getting inflation down is not over.”
    The report comes just a few weeks ahead of the Fed’s policy meeting June 13-14.
    The Fed targets annual inflation around 2%, meaning that the current levels remain well above the goal and leading to the likelihood that the aggressive moves the central bank has made over the last year or so could remain intact.
    One way the Fed’s rate hikes are supposed to work is by bringing down demand. The April spending numbers, however, shows that consumers have continued spending in the face of both higher rates and strong inflation, meaning policymakers may have more to do.
    Immediately following the report, market pricing swung to a 57% chance that the Fed will enact another quarter percentage point interest rate hike at the June meeting. There are only two key data points before then, with the May nonfarm payrolls report due next Friday and the consumer price index out June 13.
    Along with the uptick in consumer spending, demand for durable goods also unexpectedly increased 1.1% in April, according to a separate Commerce Department report. Economists surveyed by Dow Jones had been looking for a decline of 0.8%. Excluding transportation, which increased 3.7%, new orders fell 0.2%.
    Consumers had to dip into savings to keep up their spending, with the personal savings rate of 4.1% representing a 0.4 percentage point drop from March.
    The data comes amid a high level of uncertainty about where the economy heads from here. Expectations for a recession later this year are high, considering rising interest rates, an expected credit crunch in the banking industry and consumer pressure on a variety of fronts.
    However, a report Thursday showed the economy grew more in the first quarter than initially reported, with GDP rising at a 1.3% annualized pace compared to the previous estimate of 1.1%.
    Minutes released Wednesday from the May Fed meeting showed policymakers split on their next move, as members sought to balance higher than expected inflation against the spillover effects from troubles in the banking industry. More

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    Restaurant Chain Franchises Face Scrutiny From the FTC

    Troubles at the restaurant chain Burgerim highlight concerns about whether franchisees need more protection in their contracts with franchisers.“Making It Work” is a series about small-business owners striving to endure hard times.When Kenneth Laskin flew to California to meet with executives at Burgerim, a start-up chain of restaurants, he was made to feel not just like another prospective franchisee, but like part of a family.The company’s executives, he said, made a point one evening of highlighting their common Jewish faith by praying with him in Hebrew.At the time, in 2017, Mr. Laskin believed he was being offered a plum deal. He paid $50,000 for the right to open up as many Burgerim franchised restaurants as he wanted in Oregon. “I got an entire state,” Mr. Laskin recalled.Today, Burgerim has run into trouble, leaving a trail of financial problems, a lawsuit by the Federal Trade Commission and broader regulatory scrutiny of whether protections for franchisees like Mr. Laskin are adequate.The challenges highlighted by Burgerim come as franchising continues to grow as a way that people are choosing to start small businesses.There has been rising concern about whether franchisees need more protection in their contracts with franchisers. That concern has found a sympathetic ear in the Biden administration and in several state legislatures, and has resulted in multiple proposed limits on franchisers’ powers.In the end, Mr. Laskin opened only one Burgerim restaurant, in Eugene, Ore., which closed in 2020 during the pandemic. Since then, Mr. Laskin has been depleting his savings to pay the bills.Burgerim, which boasted of having inventive high-quality burgers, has been criticized by former franchisees for making grand promises and poor disclosure about business risks. Of the more than 1,500 franchises Burgerim sold, most never opened, the commission said in a lawsuit that the agency filed last year against the company and its founder in U.S. District Court in California.Peter Bronstein, a lawyer for Oren Loni, who was the company’s principal executive in the United States, said that Burgerim made some business mistakes but that it was often trying to help its franchisees succeed. The two sides have been in mediation, according to the court file. Kenneth Laskin believed he got a plum deal to start as many Burgerim franchised restaurants as he wanted in Oregon. He ended up opening only one, which closed during the pandemic.Zack Wittman for The New York TimesEven as the pandemic was still bearing down, the number of franchised establishments in the country grew 2.8 percent in 2021 and 2 percent in 2022. That number is expected to increase an additional 2 percent this year, bringing the total to 805,436 franchises, according to the latest data released by the International Franchise Association, an industry group.As the franchising network expands, so does its contribution to the broader economy. Franchises employed 8.4 million people last year, a 3 percent increase from 2021.There is historical evidence, according to the International Franchise Association, that the first U.S. franchise dates back to Ben Franklin, who created a network of printing partnerships.Franchising took root in the American business landscape in the decades following World War II, with the growth of franchised brands like Howard Johnson’s hotels.Sam Falk/The New York TimesToday a fundamental symbiosis drives the business model: Franchisees pay an upfront fee to an franchiser like Dunkin’ Donuts or Applebee’s, which gets them access to all of that brand’s suppliers, advertising and technology. The franchisee can lean on these established systems to get their business up and running quickly rather than having to start from scratch. And the franchiser, in turn, receives the franchising fee, typically tens of thousands of dollars, in addition to a regular royalty payment from the franchisee.“Franchising has always been an on-ramp for the middle class to open their own business,” said Charlie Chase, the chief executive of FirstService Brands, a franchiser of home renovation and painting services.Over the years, Mr. Chase, who has served on the board of directors of the International Franchise Association, said he had helped hundreds of successful franchisees get their start. “We have created a lot of millionaires,” he said.Still, Mr. Chase said he was concerned about how some franchisees were being pushed into businesses without understanding all of the risks.He blames aggressive internet advertising for some of this (Mr. Laskin learned about Burgerim from a Facebook advertisement, for example), and also a network of third-party brokers that often push prospective franchisees to buy multiple franchises at a time.The Federal Trade Commission, under the leadership of Lina Khan, is looking broadly at industry practices including disclosure and issues such as franchisers’ unilaterally changing the terms of an agreement with a franchisee.“Franchising can be a good business model, but it can also lead to a lot of harm,” Elizabeth Wilkins, the director of the commission’s Office of Policy and Planning, said. “We are concerned about instances where the promise does not match with reality. We believe there is a significant gap that is worth our investigation.”In the case against Burgerim,  federal officials said that the company executives told franchisees they would refund their franchise fees if their business did not open, but that many people never got their money back. Mr. Bronstein, the lawyer for Mr. Loni, said offering refunds “was not the best way to run a business.”In the years since the 2008 financial crisis and mortgage meltdown, regulators have bolstered protections for consumers by improving disclosure by banks and banning certain fees they can charge. But small businesses, including franchisees, have not benefited from the same extensive regulatory scrutiny.“There is a view in the consumer protection world that small businesses do not get the same level of protections as other consumers,” Samuel Levine, the director of the F.T.C.’s Bureau of Consumer Protection, said. “Yet, consumers and small businesses, including franchisees, face many of the same challenges. That is something we are trying to address.”The F.T.C., under the leadership of Lina Khan, above, is looking broadly at industry practices at franchises including disclosure about business risks. Saul Loeb/Agence France-Presse, via Getty ImagesAs part of that effort, the Federal Trade Commission is looking at how to apply laws like the Robinson-Patman Act, an antitrust law that prevents large corporations from using discriminatory pricing to take advantage of small businesses. The agency also has proposed a rule banning noncompete clauses in employment contracts and may consider limiting the use of noncompete clauses in franchise agreements.When Mr. Laskin bought a franchise, he was not looking to become a millionaire, but rather to build a stable middle-class life.He opened his sole Burgerim store in Oregon in September 2019.But the problems started soon after his grand opening, Mr. Laskin said. Burgerim had not established a reliable food distribution system in Oregon, he said, forcing Mr. Laskin to fend for himself to supply his restaurant. In trying to help new locations get off the ground, the company never collected royalties from the franchisees, which limited its ability to support its restaurant network over the long term, Mr. Bronstein said. Still, he added, there are many Burgerim restaurants that operated successfully.Mr. Laskin kept the business going during the pandemic by offering take out. But he couldn’t find people to work during the lockdowns, which meant he and his wife ran the entire operation themselves.Mr. Laskin, who has severe back pain from years of restaurant work, hoped a franchise would offer him the chance to delegate work to employees and spare his back.But some days, Mr. Laskin would return from the burger restaurant at night unable to walk the final few yards up his driveway because of the pain from standing on his feet all day.The Burgerim leadership, Mr. Laskin said, provided no support during the pandemic.A Burgerim restaurant in Walnut Creek, Calif., last year.Gado/Getty ImagesHe closed his restaurant in May 2020 and moved to Florida. Mr. Laskin, 57, said that his back problems limited the type of work he can do and that it had been difficult finding work after his burger business closed.The struggles of the former Burgerim franchisees were brought to light in 2020 by the publication Restaurant Business, which focuses on the food service industry, in a series of articles.Some franchisees say improving disclosure or increasing regulations on fee structures will not be a panacea in rooting out the industry’s troubled actors.“Transparency is a great thing, but I am not sure more disclosure is going to change any outcomes,” said Greg Flynn, the founder and chief executive of Flynn Restaurant Group, the largest franchisee in the country with 2,400 locations and 73,000 employees, operating brands like Taco Bell, Pizza Hut and Panera.“There are a lot of stories of franchisees buying into a system and then it goes badly for them,” he added. “I would just suggest that they might have had a similar experience outside of a franchise system.”Mr. Laskin says it is not just bad timing or circumstances that were to blame. “The system is fundamentally crippled,’’ he said. “There is too much secrecy. It shouldn’t be this difficult.” More

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    White House and GOP Close In on Deal to Raise Debt Ceiling

    The details had yet to be finalized, but negotiators were discussing a compromise that would allow Republicans to point to spending reductions and Democrats to say they had protected against large cuts.Top White House officials and Republican lawmakers were closing in Thursday on a deal that would raise the debt limit for two years while capping federal spending on everything but the military and veterans for the same period. Officials were racing to cement an agreement in time to avert a federal default that is projected in just one week.The deal taking shape would allow Republicans to say that they were reducing some federal spending — even as spending on the military and veterans’ programs would continue to grow — and allow Democrats to say they had spared most domestic programs from significant cuts.Negotiators from both sides were talking into the evening and beginning to draft legislative text, though some details remained in flux.“We’ve been talking to the White House all day, we’ve been going back and forth, and it’s not easy,” Mr. McCarthy told reporters as he left the Capitol on Thursday evening, declining to divulge what was under discussion. “It takes a while to make it happen, and we are working hard to make it happen.”The compromise, if it can be agreed upon and enacted, would raise the government’s borrowing limit for two years, past the 2024 election, according to three people familiar with it who insisted on anonymity to discuss a plan that was still being hammered out.The United States hit the legal limit, currently $31.4 trillion, in January and has been relying on accounting measures to avoid defaulting since then. The Treasury Department has projected it will exhaust its ability to pay bills on time as early as June 1.In exchange for lifting the debt limit, the deal would meet Republicans’ demand to cut some federal spending, albeit with the help of accounting maneuvers that would give both sides political cover for an agreement likely to be unpopular with large swaths of their base voters.It would impose caps on discretionary spending for two years, though those caps would apply differently to spending on the military than to nondefense discretionary spending. Spending on the military would grow next year, as would spending on some veterans’ care that falls under nondefense discretionary spending. The rest of nondefense discretionary spending would fall slightly — or roughly stay flat — compared with this year’s levels.The deal would also roll back $10 billion of the $80 billion Congress approved last year for an I.R.S. crackdown on high earners and corporations that evade taxes — funding that nonpartisan scorekeepers said would reduce the budget deficit by helping the government collect more of the tax revenue it is owed — though that provision was still under discussion. Democrats have championed the initiative, but Republicans have denounced it, claiming falsely that the money would be used to fund an army of auditors to go after working people.“The president and his negotiating team are fighting hard for his agenda, including for I.R.S. funding so it can provide better customer service to taxpayers and crack down on wealthy tax cheats,” a White House spokesman, Michael Kikukawa, said in an email on Thursday in response to a question about the provision.As the deal stood on Thursday, the I.R.S. money would essentially shift to nondefense discretionary spending, allowing Democrats to avoid further cuts in programs like education and environmental protection, according to people familiar with the pending agreement.The plan had yet to be finalized, and the bargainers continued to haggle over crucial details that could make or break any deal.“Nothing is done until you actually have a complete deal,” said Representative Patrick T. McHenry of North Carolina, one of the lead G.O.P. negotiators, who also declined to discuss the specifics of the negotiations. “Nothing’s resolved.”The cuts contained in the package were all but certain to be too modest to win the votes of hard-line fiscal conservatives in the House. Liberal groups were already complaining on Thursday about the reported deal to reduce the I.R.S. funding increase.But people familiar with the developing deal said that negotiators had agreed to fund military and veterans’ programs at the levels envisioned by President Biden in his budget for next year. They would reduce nondefense discretionary spending below this year’s levels — but much of that cut would be covered by the shift in the I.R.S. funding and other budgetary maneuvers. White House officials have contended those shifts would functionally make nondefense discretionary spending the same next year as it was this year.All discretionary spending would then grow at 1 percent in 2025, after which the caps would lift.Mr. McCarthy on Thursday had nodded to the idea that a compromise to avert a default would likely draw detractors from both parties.“I don’t think everybody is going to be happy at the end of the day,” he said. “That’s not how this system works.”Another provision of the deal seeks to avert a government shutdown later in the year, and would attempt to take away Republicans’ ability to seek deeper cuts to government programs and agencies through the appropriations process later in the year.The exact details on how such a measure would work remained unclear on Thursday evening. But it was based on a penalty of sorts, which would adjust the spending caps in the event that Congress failed to pass all 12 stand-alone spending bills that fund the government by the end of the calendar year.Negotiators were still at loggerheads over work requirements for social safety net programs and permitting reform for domestic energy and gas projects.“We have legislative work to do, policy work to do,” Mr. McHenry said. “The details of all that stuff really are consequential to us being able to get this thing through.”As negotiators inched closer to a deal, hard-right Republicans on Thursday were becoming increasingly anxious that Mr. McCarthy would sign off on a compromise they view as insufficiently conservative. Several right-wing Republicans have already vowed to oppose any compromise that retreats from cuts that were part of their debt-limit bill.“Republicans should not cut a bad deal,” Representative Chip Roy of Texas, an influential conservative, wrote on Twitter on Thursday morning, shortly after telling a local radio station that he was “going to have to go have some blunt conversations with my colleagues and the leadership team” because he did not like “the direction they are headed.”Representative Ralph Norman of South Carolina, said he was reserving judgment on how he would vote on a compromise until he saw the bill, but added: “What I’ve seen now is not good.”Former President Donald J. Trump, who has said that Republicans should force a default if they do not get what they want in the negotiations, also was weighing in. Mr. McCarthy told reporters he had spoken with Mr. Trump briefly about the negotiations — “it came up just for a second,” the speaker said. “He was talking about, ‘Make sure you get a good agreement.’”After playing a tee shot on his golf course outside of Washington, Mr. Trump approached a reporter for The New York Times, iPhone in hand, and showed a call with Speaker Kevin McCarthy.“It’s going to be an interesting thing — it’s not going to be that easy,” said Mr. Trump, who described his call with the speaker as “a little, quick talk.”“They’ve spent three years wasting money on nonsense,” he added, saying, “Republicans don’t want to see that, so I understand where they’re at.”Luke Broadwater More

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    Military Spending Emerges as Big Dispute in Debt-Limit Talks

    President Biden has offered to freeze discretionary spending, including for defense. Republicans want to spend more for the military, and cut more elsewhere.Funding for the military has emerged as a key sticking point in reaching an agreement to raise the nation’s borrowing limit and prevent a catastrophic default, with Republicans pushing to spare the Defense Department from spending caps and make deeper cuts to domestic programs like education.President Biden has balked at that demand, pointing to a long series of past budget agreements that either cut or increased military spending in tandem with discretionary programs outside of defense.How the sides resolve that issue will be critical for the final outcome of any debt deal. It remains possible that in order to reach a deal that prevents a default, Democrats will accept an agreement that allows military spending to grow even as nondefense spending falls or stays flat.Mr. Biden’s aides and congressional Republicans deputized by Speaker Kevin McCarthy are trying to negotiate an agreement to lift the borrowing limit before the government runs out of money to pay its bills on time, which could be as soon as June 1. Republicans have refused to raise the limit unless Mr. Biden agrees to cuts in federal spending outside of the military.The talks over spending cuts have narrowed in focus to mostly cover a relatively small corner of the budget — what is known as discretionary spending. That spending is split into two parts. One is money for the military, which the Congressional Budget Office estimates will total $792 billion for the current fiscal year. The other half funds a wide range of domestic programs, like Head Start preschool and college Pell Grants, and federal agencies like the Interior and Energy Departments. It will total $919 billion this year, the budget office estimates.A separate category known as mandatory spending has largely been deemed off limits in the talks. That spending, which is the primary driver of future spending growth, includes programs like Social Security and Medicare.Administration officials have proposed freezing both halves of discretionary spending for next year. That would amount to a budget cut, compared with projected spending, under the way the budget office accounts for spending levels. Spending for both parts of the discretionary budget would be allowed to grow at just 1 percent for the 2025 fiscal year. That could also amount to a budget cut since 1 percent would almost certainly be less than the rate of inflation. That proposal would save about $1 trillion over the span of a decade, compared with current budget office forecasts.Republicans rejected that plan at the bargaining table. They are pushing to cut nondefense spending in actual terms — meaning, spend fewer dollars on it next year than the government spent this year. They also want to allow military spending to continue to grow.“It just sends a bad message and Republicans feel like it would not be in our best interest to cut spending at this juncture, when you’re looking at China and Russia and a lot of instability around the world,” said Representative Robert B. Aderholt, Republican of Alabama, who sits on an Appropriations panel that oversees Pentagon spending. “That’s been the basic position that most Republicans have.”Mr. McCarthy sounded a similar note when speaking to reporters on Thursday. “Look, we’re always looking where we could find savings and others, but we live in a very dangerous world,” he said. He added, “I think the Pentagon has to actually have more resources.”Republicans included 10-year caps on discretionary spending in a bill they passed last month that also raised the debt ceiling through next year, and party leaders said they would exempt the military from those caps. Mr. Biden has vowed to veto the bill if it passes the Senate in its current form, which is unlikely.White House officials have hammered Republicans over concentrating their proposed discretionary savings on domestic programs, saying their bill would gut spending on border enforcement, some veterans’ care, Meals on Wheels for older Americans and a host of other popular programs.“Speaker McCarthy and I have a very different view of who should bear the burden of additional efforts to get our fiscal house in order,” Mr. Biden said on Thursday at the White House. “I don’t believe the whole burden should fall on the backs of the middle class and working-class Americans.”Congressional Democrats, including members of committees that oversee military spending, have attacked Republicans for focusing largely on nondefense programs.“If you’re going to freeze discretionary spending, there’s no reason on earth why defense shouldn’t be part of that conversation,” said Representative Adam Smith of Washington, the top Democrat on the Armed Services Committee. Republicans, he said, “are taking a hostage to advance their very narrow agenda. I’m not a fan of that. That’s not something I’m going to want to support.”Any agreement that increased military spending while freezing or cutting other discretionary spending would break from a budget-deal tradition that dates to 2011, when House Republicans refused to raise the debt limit until President Barack Obama agreed to spending cuts. The deal that avoided default was centered on spending caps that split their reductions evenly between defense and nondefense programs.The push to increase military funding while cutting more heavily elsewhere reflects a divide in the House Republican caucus. It includes a large faction of defense hawks who say the military budget is too small, alongside another large faction of spending hawks who want to significantly shrink the fiscal footprint of the federal government.Mr. McCarthy needs both factions to retain his hold on the speakership, which he narrowly won this year after a marathon week of efforts to secure the votes. And he will need to navigate them both as he tries to pass any debt-limit agreement with Mr. Biden through the House.Catie Edmondson More

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    How the A.I. explosion could save the market and maybe the economy

    Nvidia earnings crystallized an important point for both markets and the economy: For better or worse, artificial intelligence is the future.
    The company guided it was expecting $11 billion in sales for the current quarter, largely driven by its leadership position in the AI chip-supplying business.
    A lopsided market reaction Thursday served as a reminder of a stratified economy in which technological benefits tend to spread slowly.

    A Nvidia logo is seen on the company’s building at an industry park in Tianjin, China, February 7, 2019.
    VCG | Visual China Group | Getty Images

    A blockbuster profit report Wednesday from Nvidia crystallized an important point for both markets and the economy: For better or worse, artificial intelligence is the future.
    Whether it’s personalized shopping, self-driving cars or a broad array of robotics uses for health care, gaming and finance, AI will become a factor in virtually everyone’s lives.

    related investing news

    Nvidia’s massive fiscal first-quarter earnings helped quantify the phenomenon as the firm nears an elite cast of tech leaders with $1 trillion market valuations and clear leadership status both on Wall Street and in Silicon Valley.
    “AI is real, AI is not a fad and we’re only in the early innings,” said Steve Blitz, chief U.S. economist at TS Lombard. “Does it change the course of the economy over the next three to six months? Probably not. Does it change the economy over the course of the next three to six years? Absolutely, and in very interesting ways.”
    Some of the changes Blitz foresees are reduced demand for foreign labor, a “point of sale” effect where coding and creative writing can be done by machines instead of people and a host of other activities that go beyond what appears obvious now.
    Development of products such as OpenAI’s ChatGPT, a chatbot that converses with the user, has helped bring home the potential.
    “It’s hard for me to overstate the value or the impact of AI, and it is in keeping with my view that this coming decade is all about the broader application of technology beyond what we’ve seen to date, beyond computers and phones, and that application has tremendous upside,” Blitz said.

    Isolated effects so far

    For Nvidia, the upside already has been apparent.
    As if profit of $1.09 a share on revenue of $7.19 billion, both well above Wall Street estimates, wasn’t enough, the company guided it was expecting $11 billion in sales for the current quarter, largely driven by its leadership position in the AI chip-supplying business.
    Shares soared more than 26% higher around midday Thursday and the company’s market value surpassed $950 billion.
    Broader market reaction, however, was underwhelming.
    While the S&P 500 semiconductor index jumped 11.4%, the broader Nasdaq Composite rose a more muted 1.7%. The S&P 500 was up about 0.9%, while the Dow Jones Industrial Average slipped more than 50 points as investors continued to fret over the debt ceiling negotiations in Washington.

    At the same time, worries of an economic slowdown persisted — despite his excitement over AI, Blitz still thinks the U.S. is headed for recession — and the lopsided market reaction served as a reminder of a stratified economy in which technological benefits tend to spread slowly.
    “The spillover and the benefits that the rest of the economy will derive from AI is a multiyear, multidecade process,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Is this an incremental piece to growth or is this now diverting spending from other things because every other part of the economy, outside of spending on travel, leisure and restaurants, doesn’t seem to be going that well?”
    Boockvar pointed out small-cap stocks, for instance, were losing big Thursday, with the Russell 2000 off about 0.8% in early afternoon trading.

    ‘Serious holes in the economy’

    That happened even though it seems those companies would benefit from the cost-saving aspects of AI such as the ability to reduce staffing expenses. Nvidia’s chief competitor in the chip space, Intel, also was getting slammed, down 6.2% on the session. Quarterly tech earnings overall declined 10.4% heading into this week, according to FactSet, though some of the biggest firms did beat Wall Street’s lowered expectations.
    “There are some serious holes in the economy that we can’t ignore here,” Boockvar said. “If the AI craze cools, people will see that the underlying business trends of Microsoft, Google and Amazon are clearly slowing because we all breathe the same economic air.”
    AI hasn’t been a winner for everyone, either.
    DataTrek Research looked at nine big AI-related companies that came to market through initial public offerings over the past three years and found their collective valuation is down 74% from their debut levels.
    The group includes UiPath, Pagaya Technologies and Exscientia. Their stocks have rallied in 2023, up an average 41%, but the seven-largest tech companies, a group that includes Nvidia, have surged an average 58%.
    “So far, Big Tech has collectively benefited most from the buzz around gen AI. We think this trend will continue given their ability to leverage their global scale and large competitive moats when utilizing this disruptive technology,” DataTrek co-founder Nicholas Colas wrote. “Gen AI may end up making US Big Tech even bigger and more systematically important, rather than allowing upstarts to play the classic role of disruptive innovators.”
    Indeed, market veteran Art Cashin noted without the big seven stocks, the S&P 500 would surrender all of its 8% gain this year.
    “You know, supposedly, the high tide lifts all boats,” the director of floor operations for UBS said on CNBC’s “Squawk on the Street.” “This is a very selective tide. And I’m not ready to throw out the confetti yet.” More

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    New York City Moves to Regulate How AI Is Used in Hiring

    European lawmakers are finishing work on an A.I. act. The Biden administration and leaders in Congress have their plans for reining in artificial intelligence. Sam Altman, the chief executive of OpenAI, maker of the A.I. sensation ChatGPT, recommended the creation of a federal agency with oversight and licensing authority in Senate testimony last week. And the topic came up at the Group of 7 summit in Japan.Amid the sweeping plans and pledges, New York City has emerged as a modest pioneer in A.I. regulation.The city government passed a law in 2021 and adopted specific rules last month for one high-stakes application of the technology: hiring and promotion decisions. Enforcement begins in July.The city’s law requires companies using A.I. software in hiring to notify candidates that an automated system is being used. It also requires companies to have independent auditors check the technology annually for bias. Candidates can request and be told what data is being collected and analyzed. Companies will be fined for violations.New York City’s focused approach represents an important front in A.I. regulation. At some point, the broad-stroke principles developed by governments and international organizations, experts say, must be translated into details and definitions. Who is being affected by the technology? What are the benefits and harms? Who can intervene, and how?“Without a concrete use case, you are not in a position to answer those questions,” said Julia Stoyanovich, an associate professor at New York University and director of its Center for Responsible A.I.But even before it takes effect, the New York City law has been a magnet for criticism. Public interest advocates say it doesn’t go far enough, while business groups say it is impractical.The complaints from both camps point to the challenge of regulating A.I., which is advancing at a torrid pace with unknown consequences, stirring enthusiasm and anxiety.Uneasy compromises are inevitable.Ms. Stoyanovich is concerned that the city law has loopholes that may weaken it. “But it’s much better than not having a law,” she said. “And until you try to regulate, you won’t learn how.”The law applies to companies with workers in New York City, but labor experts expect it to influence practices nationally. At least four states — California, New Jersey, New York and Vermont — and the District of Columbia are also working on laws to regulate A.I. in hiring. And Illinois and Maryland have enacted laws limiting the use of specific A.I. technologies, often for workplace surveillance and the screening of job candidates.The New York City law emerged from a clash of sharply conflicting viewpoints. The City Council passed it during the final days of the administration of Mayor Bill de Blasio. Rounds of hearings and public comments, more than 100,000 words, came later — overseen by the city’s Department of Consumer and Worker Protection, the rule-making agency.The result, some critics say, is overly sympathetic to business interests.“What could have been a landmark law was watered down to lose effectiveness,” said Alexandra Givens, president of the Center for Democracy & Technology, a policy and civil rights organization.That’s because the law defines an “automated employment decision tool” as technology used “to substantially assist or replace discretionary decision making,” she said. The rules adopted by the city appear to interpret that phrasing narrowly so that A.I. software will require an audit only if it is the lone or primary factor in a hiring decision or is used to overrule a human, Ms. Givens said.That leaves out the main way the automated software is used, she said, with a hiring manager invariably making the final choice. The potential for A.I.-driven discrimination, she said, typically comes in screening hundreds or thousands of candidates down to a handful or in targeted online recruiting to generate a pool of candidates.Ms. Givens also criticized the law for limiting the kinds of groups measured for unfair treatment. It covers bias by sex, race and ethnicity, but not discrimination against older workers or those with disabilities.“My biggest concern is that this becomes the template nationally when we should be asking much more of our policymakers,” Ms. Givens said.“This is a significant regulatory success,” said Robert Holden, center, a member of the City Council who formerly led its committee on technology.Johnny Milano for The New York TimesThe law was narrowed to sharpen it and make sure it was focused and enforceable, city officials said. The Council and the worker protection agency heard from many voices, including public-interest activists and software companies. Its goal was to weigh trade-offs between innovation and potential harm, officials said.“This is a significant regulatory success toward ensuring that A.I. technology is used ethically and responsibly,” said Robert Holden, who was the chair of the Council committee on technology when the law was passed and remains a committee member.New York City is trying to address new technology in the context of federal workplace laws with guidelines on hiring that date to the 1970s. The main Equal Employment Opportunity Commission rule states that no practice or method of selection used by employers should have a “disparate impact” on a legally protected group like women or minorities.Businesses have criticized the law. In a filing this year, the Software Alliance, a trade group that includes Microsoft, SAP and Workday, said the requirement for independent audits of A.I. was “not feasible” because “the auditing landscape is nascent,” lacking standards and professional oversight bodies.But a nascent field is a market opportunity. The A.I. audit business, experts say, is only going to grow. It is already attracting law firms, consultants and start-ups.Companies that sell A.I. software to assist in hiring and promotion decisions have generally come to embrace regulation. Some have already undergone outside audits. They see the requirement as a potential competitive advantage, providing proof that their technology expands the pool of job candidates for companies and increases opportunity for workers.“We believe we can meet the law and show what good A.I. looks like,” said Roy Wang, general counsel of Eightfold AI, a Silicon Valley start-up that produces software used to assist hiring managers.The New York City law also takes an approach to regulating A.I. that may become the norm. The law’s key measurement is an “impact ratio,” or a calculation of the effect of using the software on a protected group of job candidates. It does not delve into how an algorithm makes decisions, a concept known as “explainability.”In life-affecting applications like hiring, critics say, people have a right to an explanation of how a decision was made. But A.I. like ChatGPT-style software is becoming more complex, perhaps putting the goal of explainable A.I. out of reach, some experts say.“The focus becomes the output of the algorithm, not the working of the algorithm,” said Ashley Casovan, executive director of the Responsible AI Institute, which is developing certifications for the safe use of A.I. applications in the workplace, health care and finance. More

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    McCarthy Renews Call for Spending Cuts as Debt Talks Grind On

    With a potential default just over a week away, a resolution remained elusive and Republican leaders told lawmakers they could return home for the holiday break.With a potential federal default just over a week away, a resolution to the debt limit crisis remained out of reach on Wednesday as White House and top Republican negotiators reported no breakthrough in another marathon day of discussions and members of Congress prepared to leave the capital for the holiday weekend.Negotiators met for roughly four hours on Wednesday afternoon at the White House and were silent upon leaving, which some regarded as a hopeful sign after days of public posturing from both sides. Representative Patrick T. McHenry, Republican of North Carolina and a key bargainer, rushed past reporters at the Capitol saying: “No news.”Speaker Kevin McCarthy stayed uncharacteristically close-lipped after the meeting ended, leaving the Capitol on Wednesday night without speaking to reporters. But he expressed cautious optimism, telling Fox Business that “things are going a little better.”“I think today they would say they’re making progress,” Mr. McCarthy said of the negotiators.With no deal imminent, Republican leaders told lawmakers they were free to return home for the Memorial Day weekend, but could be summoned back on short notice to vote. The announcement made clear that Mr. McCarthy and his deputies did not expect a resolution to avert a default to materialize until next week, just days from the projected June 1 deadline.At the same time, the speaker sought to reassure the markets that a deal could be reached.“I would not, if I was in the markets, be afraid of anything in this process,” he said. “I wouldn’t scare the markets in any shape or form. We will come to an agreement worthy of the American public, and there should not be any fear. Money is coming in every day.”Before the meeting, Mr. McCarthy sought to pressure President Biden and congressional Democrats to accept spending cuts to domestic programs in exchange for raising the debt limit and allowing the Treasury Department to avoid missing payments.“You have to spend less than you spent last year,” Mr. McCarthy said at a news conference in the Capitol as Biden administration and Republican negotiators gathered at the White House. “That is not that difficult to do. But in Washington, somehow that is a problem.”The administration has resisted cuts and instead pushed for a freeze on current spending levels. With Republicans insisting there be no cuts to defense or veterans’ programs, the brunt of the reductions would affect social programs that Democrats favor.Right-wing Republicans have vowed to oppose any compromise that retreats from cuts that were part of their debt-limit bill, which was approved last month along party lines, so Mr. McCarthy is likely to need a substantial number of Democratic votes to pass any agreement. But congressional Democrats are resisting cuts in the overall budget.Representative Pramila Jayapal of Washington, the chairwoman of the Progressive Caucus, said at a news conference that White House officials told her on Tuesday night that House G.O.P. negotiators had rejected proposals that could have reduced the deficit by $3 trillion, including closing tax loopholes and imposing new taxes on the highest earners. Mr. McCarthy has repeatedly said that Republicans will not accept any tax increases.“We will continue to call out and reject this reckless hostage-taking from extreme MAGA Republicans,” Ms. Jayapal said.In an effort to pressure Mr. McCarthy and other Republicans not to accept any deal that falls short of the House-passed bill, Representative Chip Roy of Texas, an influential hard-liner, released a memo asserting that every measure in the legislation was “critical.”“None should be abandoned solely for the quest of a ‘deal’,” Mr. Roy wrote.Many Democrats, too, were arguing against any compromise. Their leaders announced on Wednesday that the final two members of their caucus had signed a discharge petition aimed at bypassing Republican leaders and forcing debt-limit legislation to the floor. With their 213 signatures, Democrats would need at least five Republicans to break ranks and sign the petition for it to trigger such a vote. Democratic leaders called on Republicans to show that they are not allied with the most extreme wing of their party and help advance the petition to avert an economic catastrophe.“It does appear increasingly likely that House Republicans want a dangerous default, they want to crash the economy and they want to trigger a job-killing recession,” said Representative Hakeem Jeffries, Democrat of New York and the minority leader. “It’s my hope that five Republicans from New York or California or other moderate districts throughout the country can prove me wrong.”The House is set to begin a weeklong Memorial Day recess on Friday. Representative Steve Scalise of Louisiana, the No. 2 Republican, advised lawmakers on Wednesday night that they should be prepared to return to the Capitol within 24 hours to approve a compromise bill. Mr. McCarthy has vowed to give lawmakers 72 hours to review any plan.Treasury Secretary Janet L. Yellen has warned repeatedly that the government could exhaust its ability to meet all of its obligations by June 1. More

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    Fed Officials Were Split Over June Rate Pause, Minutes Show

    In the Federal Reserve’s last meeting, “several” participants thought rates may have moved high enough to get inflation under control.Federal Reserve officials were unanimous in their decision to raise interest rates earlier this month, but were conflicted over whether additional increases would be necessary to bring inflation under control, according to minutes from the Fed’s last meeting released on Wednesday.The Fed voted to raise interest rates by a quarter-point on May 3, to a range of 5 to 5.25 percent, the 10th straight increase since the central bank started its campaign to rein in inflation last year. Although officials left the door open to further rate increases, the minutes make clear that “several” policymakers were leaning toward a pause.“Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,” the minutes said.Still, some officials believed “additional policy firming would likely be warranted at future meetings” since progress on bringing inflation back to the central bank’s 2 percent target could continue to be “unacceptably slow.”Policymakers believed that the Fed’s moves over the past year had significantly contributed to tighter financial conditions, and they noted that labor market conditions were starting to ease. But they agreed that the labor market was still too hot, given the strong gains in job growth and an unemployment rate near historically low levels.Officials also agreed that inflation was “unacceptably high.” Although price increases have shown signs of moderating in recent months, declines were slower than officials expected, and officials were concerned that consumer spending could remain strong and keep inflation elevated. Some noted, however, that tighter credit conditions could slow household spending and dampen business investment.Fed officials believed the U.S. banking system was “sound and resilient” after the collapses of Silicon Valley Bank and Signature Bank this year led to turbulence in the banking sector. Although they noted that banks might be pulling back on lending, policymakers said it was too soon to tell how big of an impact credit tightening might have on the overall economy.One source of concern for policymakers was brinkmanship over the nation’s debt limit, which caps how much money the United States can borrow. If the cap is not raised by June 1, the Treasury Department could be unable to pay all of its bills in a timely manner, resulting in a default. Many officials said it was “essential that the debt limit be raised in a timely manner” to avoid the risk of severely damaging the economy and rattling financial markets.The central bank’s next move remains uncertain, with policymakers continuing to leave their options open ahead of their June meeting.“Whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks,” Christopher Waller, a Federal Reserve governor, said in a speech on Wednesday.The president of the Minneapolis Fed, Neel Kashkari, said in an interview with The Wall Street Journal last week that he could support holding rates steady at the June 13-14 meeting to give policymakers more time to assess how the economy is shaping up.“I’m open to the idea that we can move a little bit more slowly from here,” he said.Officials have reiterated that they will continue to monitor incoming data before reaching a decision. On Friday, the Commerce Department will release a fresh reading of the Personal Consumption Expenditures index, the Fed’s preferred gauge of inflation. Early next month, the federal government will also release new data on job growth in May. More