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    Fed Officials Hint That Rate Increases Are Over, and Investors Celebrate

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    Stocks and bonds were buoyed after even inflation-focused Federal Reserve officials suggested that rates may stay steady.Federal Reserve officials appear to be dialing back the chances of future interest rate increases, after months in which they have carefully kept the possibility of further policy changes alive for fear that inflation would prove stubborn.Several Fed officials — including two who often push for higher interest rates — hinted on Tuesday that the central bank is making progress on inflation and may be done or close to done raising borrowing costs. Economic growth is cooling, reducing the urgency for additional moves.Christopher Waller, a Fed governor and one of the central bank’s more inflation-focused members, gave a speech on Tuesday titled “Something Appears to Be Giving,” an update on a previous speech that he had titled “Something’s Got to Give.”“I am encouraged by what we have learned in the past few weeks — something appears to be giving, and it’s the pace of the economy,” Mr. Waller said. “I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 percent.”Michelle Bowman, another Fed governor who also tends to be inflation-focused, said that she saw risks that factors like higher services spending or climbing energy costs could keep inflation elevated. She said that it was still her basic expectation that the Fed would need to raise rates further. Even so, she did not sound dead-set on such a move, noting that policy was not on a “preset course.”“I remain willing to support raising the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or is insufficient to bring inflation down to 2 percent in a timely way,” Ms. Bowman said.Taken together with other recent remarks from Fed officials, the latest comments offer an increasingly clear signal that central bank policymakers may be finished with their campaign to increase interest rates in a bid to slow demand and cool inflation. Interest rates are already set to a range of 5.25 to 5.5 percent. The Fed’s next meeting will take place on Dec. 12-13, and investors are overwhelmingly betting that the central bank will hold rates steady, as policymakers did at their last two meetings.Investors appeared buoyed by the Fed officials’ comments. Higher interest rates raise costs for consumers and companies, typically weighing on markets. The two-year Treasury yield, which is sensitive to changes in investors’ interest rate expectations, fell noticeably on Tuesday morning, extending its drop through the afternoon. Yields fall as prices rise. The move initially provided a tailwind to the stock market, helping lift the S&P 500 from its earlier fall to a gain of 0.4 percent, before the rally eased and the index drifted lower to an eventual rise of 0.1 percent.Fed officials have been nervously watching continued strength in the economy: Gross domestic product expanded at a breakneck 4.9 percent annual rate in the third quarter. The concern has been that continued solid demand will give companies the wherewithal to continue raising prices quickly.But recently, job growth has eased and consumer price inflation has shown meaningful signs of a broad-based slowdown. That is giving policymakers more confidence that their current policy setting is aggressive enough to wrestle price increases fully under control.Still, as both Mr. Waller and Ms. Bowman made clear, Fed officials are not yet ready to definitively declare victory — data could still surprise them. And while a recent run-up in longer-term interest rates had been helping to cool the economy, the move has already begun to reverse as investors predict a gentler Fed policy path.The 10-year Treasury yield, one of the most important interest rates in the world, has fallen drastically in recent weeks after shooting up in previous months, curtailing a sell-off in the stock market and lifting investor optimism. But higher stock prices and cheaper borrowing costs could prevent growth and inflation from slowing as quickly.“The recent loosening of financial conditions is a reminder that many factors can affect these conditions and that policymakers must be careful about relying on such tightening to do our job,” Mr. Waller said on Tuesday. More

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    How High Interest Rates Sting Bakers, Farmers and Consumers

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    Home buyers, entrepreneurs and public officials are confronting a new reality: If they want to hold off on big purchases or investments until borrowing is less expensive, it’s probably going to be a long wait.Governments are paying more to borrow money for new schools and parks. Developers are struggling to find loans to buy lots and build homes. Companies, forced to refinance debts at sharply higher interest rates, are more likely to lay off employees — especially if they were already operating with little or no profits.Over the past few weeks, investors have realized that even with the Federal Reserve nearing an end to its increases in short-term interest rates, market-based measures of long-term borrowing costs have continued rising. In short, the economy may no longer be able to avoid a sharper slowdown.“It’s a trickle-down effect for everyone,” said Mary Kay Bates, the chief executive of Bank Midwest in Spirit Lake, Iowa.Small banks like Ms. Bates’s are at the epicenter of America’s credit crunch for small businesses. During the pandemic, with the Fed’s benchmark interest rate near zero and consumers piling up savings in bank accounts, she could make loans at 3 to 4 percent. She also put money into safe securities, like government bonds.But when the Fed’s rate started rocketing up, the value of Bank Midwest’s securities portfolio fell — meaning that if Ms. Bates sold the bonds to fund more loans, she would have to take a steep loss. Deposits were also waning, as consumers spent down their savings and moved money into higher-yielding assets.Higher Interest Rates Are Here More

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    Exxon Acquires Pioneer Natural Resources for $60 Billion

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    The acquisition of Pioneer Natural Resources, Exxon’s largest since its merger with Mobil in 1999, increases the company’s presence in the Permian basin in Texas and New Mexico.Exxon Mobil announced on Wednesday that it was acquiring Pioneer Natural Resources for $59.5 billion, doubling down on fossil fuel production even as many global policymakers grow increasingly concerned about climate change and the oil industry’s reluctance to shift to cleaner energy.After decades of investing in projects around the world, the deal would squarely lodge Exxon’s future close to its Houston base, with most of its oil production in Texas and offshore in the Gulf of Mexico and along the coast of Guyana.By concentrating its production close to home, Exxon is effectively betting that U.S. energy policy will not move against fossil fuels in a major way even as the Biden administration encourages automakers to switch to electric vehicles and utilities to make the transition to renewable energy.Exxon executives have said that in addition to producing more fossil fuels, the company is building a new business that will capture carbon dioxide from industrial sites and bury the greenhouse gas in the ground. The technology to do that remains in an early stage and has not been successfully used on a large scale.“The combined capabilities of our two companies will provide long-term value creation well in excess of what either company is capable of doing on a standalone basis,” said Darren Woods, Exxon’s chief executive.American oil production has reached a record of roughly 13 million barrels a day, around 13 percent of the global market, but growth has slowed in recent years. Despite a wave of consolidation among oil and gas companies, and higher oil prices after the Russian invasion of Ukraine last year, producers are having a more difficult time finding new locations to drill.The Pioneer deal is a sign that it is now easier to acquire an oil producer than to drill for oil in a new location.Exxon, a refining and petrochemical powerhouse, needs a lot more oil and gas to turn into gasoline, diesel, plastics, liquefied natural gas, chemicals and other products. Much of that oil and gas is likely to come from the Permian basin, the most productive U.S. oil and gas field, which straddles Texas and New Mexico and where Pioneer is a major player.Exxon’s $10 billion Golden Pass terminal near the Texas-Louisiana border is scheduled to begin shipping liquefied natural gas to the rest of the world next year. Gas bubbles up with oil from the Permian basin, making the basin all the more valuable for exports as Europe weans itself from Russian gas.The Pioneer deal would be Exxon’s largest acquisition since it bought Mobil in 1999. It is bigger than the company’s ill-fated $30 billion acquisition of XTO Energy, a major natural gas producer, in 2010. Exxon had to write off much of that investment later when natural gas prices collapsed from the high levels that prevailed when it bought XTO.By buying Pioneer now, when the U.S. oil benchmark is around $83 a barrel, Exxon is counting on prices remaining relatively high in the next few years.Exxon has been careful in recent years to invest modestly in new production as it raised its dividends and bought back more of its own stock. Buying Pioneer would add production, a big change in its strategy.The acquisition would make Exxon the dominant player in the Permian basin, far outpacing Chevron, its biggest rival.Pioneer has been a darling of Wall Street investors as it has capitalized on the shale drilling boom. Scott Sheffield, its chief executive, got the company out of Alaska, Africa and offshore fields while buying up shale operations in the Permian at cheap prices. By 2020, it had become one of the biggest American drillers, with relatively low cost production.Mr. Sheffield is retiring at the end of the year. His company has a market value of about $50 billion, roughly one-eighth the size of Exxon. Many of its oil and gas fields are still untapped.“While the company has a solid succession plan in place, oil and gas markets have been volatile and the capital available to traditional oil and gas companies in the U.S. has been limited,” said Peter McNally, an analyst at Third Bridge, a research and analytics firm.The deal would be Exxon’s first major acquisition since Mr. Darren Woods became chief executive in 2017, replacing Rex Tillerson, who went on to become secretary of state.Exxon, which reported a record profit of $56 billion last year, is flush with cash that it could invest in Pioneer’s untapped fields. Since Exxon is also a large producer in the Permian, analysts say the merger would bring greater efficiencies in operations of both companies.This is just the latest in a series of mergers and acquisitions in the oil industry in recent years. But it has been consolidating. Occidental Petroleum acquired Anadarko Petroleum four years ago for nearly $40 billion, a deal that made Occidental a major competitor to Exxon and Chevron in the Permian basin. Pioneer spent more than $10 billion buying two other Permian producers, Parsley Energy and DoublePoint Energy, in 2021.Exxon bought Denbury, a Texas energy company that owns pipelines that can transport carbon dioxide, for $4.9 billion this year. More

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    Why the Jobs Report Might be Pivotal for a Jittery Stock Market

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    Stocks are sliding, government bond yields are soaring, and investors are reacting strongly to incremental economic information, parsing it for even the slightest hints about the path ahead. .Such sensitivity among investors has left markets jittery — veering between fears that the economy is running too hot and worries about a downturn so sharp that the country tumbles into recession.The squeamishness is most apparent in the $25 trillion market for U.S. Treasuries, where yields on government bonds have risen to highs not seen since 2007. Though the jump in bond yields in part reflects bets on a strong economy, the moves have fanned out into the stock market, too. For stock investors, higher yields are generally a negative — and the S&P 500 index is on track for its fifth consecutive weekly decline.After the government reported on Friday that employers added 336,000 jobs in September, sharply higher than economists had expected, stock futures, which allow investors to bet on the market before the official start of trading, dropped and government bond yields rose near a 16-year high.It’s all about interest rates.There are many different interest rates that matter. There is the rate that the Federal Reserve sets, which is a target for overnight borrowing costs. There are consumer and corporate borrowing rates, like those on credit cards or mortgages. And then there are government debt yields, which partly track the Fed’s policy rate but stretch out over much longer periods and factor in other information such as inflation and economic growth.Arguably the most important of these rates is the yield on the 10-year Treasury bond, a measure of what it would cost the U.S. government to borrow money from investors for 10 years, but also a crucial input to virtually every other long-term interest rate in the world, making it a cornerstone of the global financial system.It also influences how companies are valued and, therefore, it holds sway over the stock market. Higher treasury yields indicate higher costs for consumers and businesses, which typically weigh on the market.This week, the yield on the 10-year Treasury bond rose above 4.80 percent, its highest level since 2007, from 4.57 percent at the end of last week. After coming off that high point in the days before the jobs data was released, the yield quickly snapped back above 4.8 percent after the report on Friday. S&P 500 futures pointed to another decline, adding to a 1.6 percent loss for the week. The S&P 500 is down about 7 percent in the more than two months that the yield has been rising.Rates have been rising for a while. What’s so scary now?The Fed has been raising interest rates for roughly 18 months, but the yield on 10-year Treasuries had remained fairly steady for the first half of 2023, oscillating in a range of 3.5 to 4 percent.Over that period, the S&P 500 rallied nearly 20 percent, buoyed by better-than-expected corporate profits, slowing inflation, a resilient economy and greater consensus about the end of the Fed’s rate-raising cycle.But persistently strong economic data has led to higher expectations for growth, while concerns that inflation could remain stubbornly too high have raised expectations that the Fed may have to keep rates elevated for longer than previously thought to finish the job of taming prices. As a result, in early August, the yield on the 10-year bond began a swift ascent.That move has upended some of the market’s long-held assumptions. After a period of relative stability, investors are re-evaluating what higher rates could mean for consumers and companies, catalyzing a sell-off in the stock market. The S&P 500 slumped nearly 5 percent in September, its worst month of the year so far.Add in a sharply appreciating dollar — also tied to rising interest rates — and wild swings in the cost of oil, and the outlook for the economy has become more uncertain.“All these things thrown into a blender — the uncertainty and the speed of how things are moving — is what has kept the market uneasy,” said George Goncalves, head of U.S. macro strategy at MUFG Securities.Is congressional turmoil a factor?The recent brush with a government shutdown and the removal of Kevin McCarthy as House speaker on Tuesday did not rattle markets on their own, but it did highlight the government’s instability, a few months after narrowly averting a potentially devastating debt default.Rising interest rates have compounded concerns about the government’s finances, with the prospect of high rates focusing attention on the rising costs of servicing the United States’ mammoth debt pile and persistent budget deficits.At the moment, unemployment is low and the economy is performing better than many expected. Should growth slow, the fiscal challenge facing Washington will intensify, said Ajay Rajadhyaksha, global chairman of research at Barclays.And assuming no cuts in spending and that rates remain elevated, Mr. Goncalves said, higher deficits could beget higher yields, which in turn could push deficits higher. More

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    Rates Are Jumping on Wall Street. What Will It Do to Housing and the Economy?

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    A run-up in longer-term interest rates could help the Federal Reserve get the economic cool-down it wants — but it also risks a bumpy landing.Heather Mahmood-Corley, a real estate agent, was seeing decent demand for houses in the Phoenix area just a few weeks ago, with interested shoppers and multiple offers. But as mortgage rates pick up again, she is already watching would-be home buyers retrench.“You’ve got a lot of people on edge,” said Ms. Mahmood-Corley, a Redfin agent who has been selling houses for more than eight years, including more than five in the area.It’s an early sign of the economic fallout from a sharp rise in interest rates that has taken place in markets since the middle of the summer, when many home buyers and Wall Street traders thought that borrowing costs, which had risen rapidly, might be at or near their peak.Rates on longer-term government Treasury bonds have been climbing sharply, partly because investors are coming around to the belief that the Federal Reserve may keep its policy rate higher for longer. That adjustment is playing out in sophisticated financial markets, but the fallout could also spread throughout the economy.Higher interest rates make it more expensive to finance a car purchase, expand a business or borrow for a home. They have already prompted pain in the heavily indebted technology industry, and have sent jitters through commercial real estate markets.The increasing pressure is partly a sign that Fed policy is working: Officials have been lifting borrowing costs since March 2022 precisely because they want to slow the economy and curb inflation by discouraging borrowing and spending. Their policy adjustments sometimes take a while to push up borrowing costs for consumers and businesses — but are now clearly passing through.New homes for sale in Mesa, Ariz. Mortgage rates are flirting with 8 percent, up from less than 3 percent in 2021.Caitlin O’Hara for The New York TimesYet there is a threat that as rates ratchet higher across key parts of financial markets, they could accidentally wallop the economy instead of cooling it gently. So far, growth has been resilient to much higher borrowing costs: Consumers have continued to spend, the housing market has slowed without tanking, and businesses have kept investing. The risk is that rates will reach a tipping point where either a big chunk of that activity grinds to a halt or something breaks in financial markets.“At this point, the amount of increase in Treasury yields and the tightening itself is not enough to derail the economic expansion,” said Daleep Singh, chief global economist at PGIM Fixed Income. But he noted that higher bond yields — especially if they last — always bring a risk of financial instability.“You never know exactly what the threshold is at which you trigger these financial stability episodes,” he said.While the Fed has been raising the short-term interest rate it controls for some time, longer-dated interest rates — the sort that underpin borrowing costs paid by consumers and companies — have been slower to react. But at the start of August, the yield on the 10-year Treasury bond began a relentless march higher to levels last seen in 2007.The recent move is most likely the culmination of a number of factors: Growth has been surprisingly resilient, which has led investors to mark up their expectations for how long the Fed will keep rates high. Some strategists say the move reflects growing concerns about the sustainability of the national debt.“It’s everything under the sun, but also no single factor,” said Gennadiy Goldberg, head of interest rate strategy at TD Securities. “But it’s higher for longer that has everyone nervous.”Whatever the causes, the jump is likely to have consequences.Higher rates have already spurred some financial turmoil this year. Silicon Valley Bank and several other regional lenders imploded after they failed to protect their balance sheets against higher borrowing costs, causing customers to pull their money.Policymakers have continued to watch banks for signs of stress, especially tied to the commercial real estate market. Many regional lenders have exposure to offices, hotels and other commercial borrowers, and as rates rise, so do the costs to finance and maintain the properties and, in turn, how much they must earn to turn a profit. Higher rates make such properties less valuable.The yield on the 10-year Treasury bond in August began a relentless march higher to levels last seen in 2007.Hiroko Masuike/The New York Times“It does add to concerns around commercial real estate as the 10-year Treasury yield rises,” said Jill Cetina, an associate managing director at Moody’s Investors Service.Even if the move up in rates does not cause a bank or market blowup, it could cool demand. Higher rates could make it more expensive for everyone — home buyers, businesses, cities — to borrow money for purchases and expansions. Many companies have yet to refinance debt taken out when interest rates were much lower, meaning the impact of these higher interest rates is yet to fully be felt.“That 10-year Treasury, it’s a global borrowing benchmark,” said Greg McBride, chief financial analyst for Bankrate.com. “It’s relevant to U.S. homeowners, to be sure, but it’s also relevant to corporations, municipalities and other governments that look to borrow in the capital markets.”For the Fed, the shift in long-term rates could suggest that its policy setting is closer to — or even potentially at — a level high enough to ensure that the economy will slow further.Officials have raised rates to a range of 5 to 5.25 percent, and have signaled that they could approve one more quarter-point increase this year. But markets see less than a one-in-three chance that they will follow through with that final adjustment.Mary Daly, president of the Federal Reserve Bank of San Francisco, said markets were doing some of the Fed’s work for it: On Thursday, she said the recent move in longer-term rates was equivalent to “about” one additional interest rate increase from the Fed.Yet there are questions about whether the pop in rates will last. Some analysts suggest there could be more room to rise, because investors have yet to fully embrace the Fed’s own forecasts for how long they think rates will remain elevated. Others are less sure.“I think we’re near the end of this tantrum,” Mr. Singh said, noting that the jump in Treasury yields will worsen the growth outlook, causing the Fed itself to shift away from higher rates.“One of the reasons that I think this move has overshot is that it’s self-limiting,” he said.Plenty of people in the real economy are hoping that borrowing costs stabilize soon. That includes in the housing market, where mortgage rates are newly flirting with an 8 percent level, up from less than 3 percent in 2021.In Arizona, Ms. Mahmood-Corley is seeing some buyers push for two-year agreements that make their early mortgage payments more manageable — betting that after that, rates will be lower and they can refinance. Others are lingering on the sidelines, hoping that borrowing costs will ease.“People take forever now to make a decision,” she said. “They’re holding back.”” More

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    Higher Rates Stoke a Growing Chorus of Deficit Concerns

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    A long period of higher interest rates would make the government’s large debt pile costly, a possibility that is fueling a conversation about debt sustainability.The U.S. government’s persistent budget deficit and growing debts were low on Wall Street’s list of worries when interest rates were at rock bottom for years. But borrowing costs have risen so sharply that it is causing many investors and economists to fret that the United States’ big debt pile could prove less sustainable.Federal Reserve officials have raised interest rates to about 5.3 percent since early 2022 in a bid to control inflation. Officials predicted at their meeting last month that interest rates could remain high for years to come, shaking expectations among investors who had bet on rates falling notably as soon as next year.The realization that the Fed could keep borrowing costs high for a long time has combined with a cocktail of other factors to send long-term interest rates soaring in financial markets. The rate on 10-year Treasury bonds has been climbing since July, and reached a nearly two-decade high this week. That matters because the 10-year Treasury is like the market’s backbone: It helps drive many other borrowing costs, from mortgages to corporate debt.The exact cause of the latest run-up in Treasury rates is hard to pinpoint. Many economists say a combination of drivers is probably helping to drive the pop — including strong growth, fewer foreign buyers of America’s debt, and concerns about debt sustainability in and of itself.What’s clear is that if rates remain elevated, the federal government will need to pay investors more interest in order to fund its borrowing. America’s gross national debt stands just above $33 trillion, more than the total annual output of the American economy. The debt is projected to keep growing both in dollar figures and as a share of the economy.While the climbing cost of holding so much debt is stoking conversations among economists and investors about the appropriate size of the government’s annual borrowing, there is no consensus in Washington for deficit reduction in the form of either higher taxes or big spending cuts.Still, the renewed concern is a stark reversal after years in which mainstream economists increasingly thought that the United States might have been too timid when it came to its debt: Years of low interest rates had convinced many that the government could borrow cheap money to pay for relief in times of economic trouble and investments in the future.The deficit as a share of the economy rose this year under President Biden even though the economy was growing.Pete Marovich for The New York Times“How big of a problem deficits are depends — and it depends very critically on interest rates,” said Jason Furman, an economist at Harvard and former economic official under the Obama administration. “That’s changed a lot,” so “your view on the deficit should change as well.”Mr. Furman had previously estimated that the growing cost of interest on federal debt would remain sustainable for some time, after factoring in inflation and economic growth. But now that rates have climbed so much, the calculus has shifted, he said.Since 2000, the United States has run an annual budget deficit, meaning it spends more than it receives in taxes and other revenue. It has made up the gap by borrowing money.Tax cuts, spending increases and emergency economic assistance approved by both Democratic and Republican presidents has helped fuel the rising deficits in recent years. So has the aging of America’s population, which has driven up the costs of Social Security and Medicare without corresponding increases in federal tax rates. The deficit as a share of the economy rose this year under President Biden even though the economy was growing, just as it did in the prepandemic years under President Donald J. Trump.Now, borrowing costs are poised to add to the gap.Higher interest rates are a leading cause, along with surprisingly weak tax collections, of what the Congressional Budget Office projects will be a doubling of the federal budget deficit over the last year. The deficit, when properly measured, grew from $1 trillion in the 2022 fiscal year to an estimated $2 trillion in the 2023 fiscal year, which ended last month.If borrowing costs climb further — or simply remain where they are for an extended period — the government will accumulate debt at a much faster rate than officials expected even a few months ago. A budget update released by Biden administration economists in July predicted annual average interest rates on 10-year Treasury bonds would not exceed 3.7 percent at any time over the next decade. Those rates are now hovering around 4.7 percent.That recent surge in longer-term bond yields ties back to a number of factors.While the Federal Reserve has been raising short-term interest rates for roughly 18 months, rates on longer-term bonds had remained fairly stable over the first half of this year. But investors have been slowly coming around to the possibility that the Fed will leave interest rates higher for longer — partly because growth has remained solid even in the face of elevated borrowing costs.At the same time, there have been fewer buyers for government bonds. The Fed has been shrinking its balance sheet of bonds as it reverses a pandemic-era stimulus policy, which means that it is no longer buying Treasuries — taking away a source of demand. And key foreign governments have also pulled back from bond purchases.“We’ve whittled down to a smaller universe of buyers,” said Krishna Guha, head of global policy and central bank strategy at Evercore ISI.Some analysts have suggested that the pickup in bond yields could also tie back to concerns about debt sustainability. To pay higher interest costs, the government may need to issue even more debt, compounding the problem — and focusing attention on America’s mammoth debt pile, said Ajay Rajadhyaksha, global chairman of research at Barclays.“The problem is not just that number,” he said, referencing the increasing deficit. “The problem is that this economy is as good as it gets.”The economy has remained strong even though the Federal Reserve has raised borrowing costs. That has many expecting the Fed to leave rates higher for longer.Jim Wilson/The New York TimesThat, several economists have said, is the core of the issue: America is borrowing a lot even at a time when the unemployment rate is very low and growth is strong, so the economy does not need a lot of government help.“Right now we have an incredible amount of issuance at the same time as the Fed is messaging higher for longer,” said Robert Tipp, chief investment strategist at PGIM Fixed Income, noting that typically higher issuance comes in periods of turmoil when central bank policy is more accommodative. “This is like a wartime budget deficit but without any help from the central bank. That is why this is so different.”White House officials say it is too early to know whether rising bond yields should spur Mr. Biden to add new deficit-reduction proposals to the $2.5 trillion in plans he included in this year’s budget. Those proposals consist largely of tax increases on corporations and high earners.“We might be having a different discussion about this a month from now,” said Jared Bernstein, the chair of the White House Council of Economic Advisers. “And when you’re writing budgets, you don’t go back and change your path lightly.”The Treasury Department has sold close to $16 trillion of debt for the year through September, up roughly 25 percent from the same period last year, according to data from the Securities Industry and Financial Markets Association. Much of that issuance replaced existing debt that was coming due, leaving a net debt issuance of around $1.7 trillion, more than at any other point over the past decade except for the pandemic-induced bond binge in 2020. The Treasury’s own advisory committee forecasts the size of government debt sales to rise another 23 percent in 2024.Maya MacGuineas, the president of the bipartisan Committee for a Responsible Federal Budget and a longtime proponent of reducing deficits, said it was hard to tell what had caused rates to climb recently. Still, she said, the move serves as a “reminder.”“From a fiscal perspective, the story is very simple: If you borrow too much, you become increasingly vulnerable to higher interest rates,” she said.Santul Nerkar More

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    Battle Over Electric Vehicles Is Central to Auto Strike

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    Carmakers are anxious to keep costs down as they ramp up electric vehicle manufacturing, while striking workers want to preserve jobs as the industry shifts to batteries.A battle between Detroit carmakers and the United Auto Workers union, which escalated on Friday with targeted strikes in three locations, is unfolding amid a once-in-a-century technological upheaval that poses huge risks for both the companies and the union.The strike has come as the traditional automakers invest billions to develop electric vehicles while still making most of their money from gasoline-driven cars. The negotiations will determine the balance of power between workers and management, possibly for years to come. That makes the strike as much a struggle for the industry’s future as it is about wages, benefits and working conditions.The established carmakers — General Motors, Ford Motor and Stellantis, which owns Chrysler, Jeep and Ram — are trying to defend their profits and their place in the market in the face of stiff competition from Tesla and foreign automakers. Some executives and analysts have characterized what is happening in the industry as the biggest technological transformation since Henry Ford’s moving assembly line started up at the beginning of the 20th century.Nearly 13,000 U.A.W. workers walked off the job at three plants in Ohio, Michigan and Missouri on Friday after talks between the unions and the companies in three separate negotiations failed to result in agreements before a Thursday deadline. Pay is one of the biggest sticking points: The union is demanding a 40 percent pay increase over four years but the automakers have offered roughly half as much.But the talks are about more than pay. Workers are trying to defend jobs as manufacturing shifts from internal combustion engines to batteries. Because they have fewer parts, electric cars can be made with fewer workers than gasoline vehicles. A favorable outcome for the U.A.W. would also give the union a strong calling card if, as some expect, it then tries to organize employees at Tesla and other nonunion carmakers like Hyundai, which is planning to manufacture electric vehicles at a massive new factory in Georgia.“The transition to E.V.s is dominating every bit of this discussion,” said John Casesa, senior managing director at the investment firm Guggenheim Partners who previously headed strategy at Ford Motor.“It’s unspoken,” Mr. Casesa added. “But really, it’s all about positioning the union to have a central role in the new electric industry.”Under pressure from government officials and changing consumer demand, Ford, G.M. and Stellantis are investing billions to retool their sprawling operations to build electric vehicles, which are critical to addressing climate change. But they are making little if any profit on those vehicles while Tesla, which dominates electric car sales, is profitable and growing fast.Ford said in July that its electric vehicle business would lose $4.5 billion this year. If the union got all the increases in pay, pensions and other benefits it is seeking, the company said, its workers’ total compensation would be twice as much as Tesla’s employees.Union demands would force Ford to scrap its investments in electric vehicles, Jim Farley, the company’s chief executive, said in an interview on Friday. “We want to actually have a conversation about a sustainable future,” he said, “not one that forces us to choose between going out of business and rewarding our workers.”Attendees at the Detroit Auto Show looking at a 2024 Chevy Silverado EV in Detroit this past week. Talk of the autoworkers’ strike loomed over the show.Brittany Greeson for The New York TimesFor workers, the biggest concern is that electric vehicles have far fewer parts than gasoline models and will render many jobs obsolete. Plants that make mufflers, catalytic converters, fuel injectors and other components that electric cars don’t need will have to be overhauled or shut down.Many new battery and electric vehicle factories are springing up and could employ workers from the plants that have shut down. But automakers are building most aggressively in the South where labor laws are tilted against union organizers, rather than in the Midwest, where the U.A.W. has more clout. One of the union’s demands is that workers in the new factories be covered by the automakers’ national labor contracts — a demand that the automakers have said they can’t meet because those plants are owned by joint ventures. The union also wants to regain the right to strike to block plant shutdowns.“We are at the dawn of another industrial revolution and the way we’re going is the way we went in the last industrial revolution — a lot of profit for a few and misery and not good jobs for the many,” said Madeline Janis, executive director of Jobs to Move America, an advocacy group that works closely with the U.A.W. and other unions.“The U.A.W. is really taking a stand for communities across the country to make sure this transition benefits everybody,” Ms. Janis added.Automakers have been racking up record profits during the last decade, but they cannot afford to lose time from work stoppages in their race to compete with Tesla and foreign automakers.The three companies are already struggling to get their electric vehicle business going. A new G.M. battery factory in Ohio has been slow to produce batteries, delaying electric versions of the Chevrolet Silverado pickup and other vehicles. Ford this year had to suspend production of its electric F-150 Lightning in February after a battery caught fire in one of the pickups that was parked near the factory for a quality check. And Stellantis won’t even begin selling any fully electric vehicles in the United States until next year.Those problems and Tesla’s growing sales could put the union in a strong position to extract a good deal.On Thursday, in a sign that automakers are willing to go much further than they had previously, G.M. offered a 20 percent pay raise over four years. That is half of what the union is seeking but far more than workers received in recent contracts. President Biden on Friday strongly supported the union in remarks at the White House. The administration has been pouring billions into programs to promote electric vehicles and does not want a strike to delay a centerpiece of its climate policy.Despite all the money that automakers have made in recent years, their executives express a profound unease about the growth of electric vehicles, which account for 7 percent of the U.S. new car market so far this year and are on track to surpass sales of one million this year. Managers are acutely aware that traditional companies like theirs have a poor track record of retaining dominance after a big change in technology. Witness the way that Apple sidelined Nokia and Motorola as cellphones became smartphones.Auto company executives and most industry analysts underestimated how quickly electric vehicles would catch on and cannot confidently forecast how sales, which have been bumpy lately, will grow in the future. “I don’t think anyone can perfectly predict what the adoption will be,” Mary T. Barra, the chief executive of General Motors, said in an interview with The New York Times last month.Speaking to “CBS Mornings” on Friday, Ms. Barra said an excessive pay raise would undermine G.M.’s ability to continue producing vehicles with internal combustion engines while also developing electric vehicles. “This is a critical juncture where investing is very important,” she said.Still, unions and their supporters are unlikely to express much sympathy for auto executives. Ms. Barra and the leaders of Ford (Jim Farley) and Stellantis (Carlos Tavares) have gotten tens of millions of dollars in compensation packages in recent years. The companies’ shareholders have been rewarded with dividends and share buybacks.Unions “are not going to have a lot of patience for sob stories,” said Karl Brauer, executive analyst at iSeeCars.com, an online marketplace.Adjusted for inflation, wages for autoworkers in the United States have fallen 19 percent since 2008, according to the Economic Policy Institute, a left-leaning research group.At the same time, union officials are aware of the changes in the industry and have said they do not want to handicap G.M., Ford and Stellantis as the companies try to recover ground they have lost to Tesla, which has aggressively resisted attempts to unionize its factories. The Detroit carmakers also face challengers like Rivian, a start-up that makes electric pickup trucks and sport utility vehicles in Illinois, as well as foreign-owned rivals like Mercedes-Benz and Toyota, whose U.S. factories, mostly in the South, are not unionized.“That’s the biggest challenge here,” Mr. Brauer added, “trying to commit to a long-term contract in an industry that is very uncertain and unpredictable over the next five years.”Union supporters say it would be wrong to blame workers if the traditional carmakers cannot compete with Tesla and other rivals.“If you look at the breakdown at what it costs to build an E.V., labor is a very small part of the equation. Batteries are the most,” Ms. Janis of Jobs to Move America said. “This idea that the U.A.W. is going to price Ford, G.M. and Stellantis out of the market is not true.”But other analysts said that a long work stoppage could help Tesla and foreign automakers gain ground on G.M., Ford and Stellantis.“If something happens to disrupt their business, does that give a leg up to the emerging electric vehicle makers?” said Steve Patton, who overseas the consulting firm EY’s work with auto companies. “Who stands to benefit if there is a protracted strike?” More

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    G.M.’s Sales Jumped 19% in the Second Quarter

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    General Motors, Toyota and other automakers sold more trucks and sport utility vehicles as supply chain problems eased and demand remained strong despite rising interest rates.Some of the country’s biggest automakers reported big sales increases for the second quarter on Wednesday, the strongest sign yet that the auto industry was bouncing back from parts shortages and overcoming the effects of higher interest rates.General Motors, the largest U.S. automaker, said it sold 691,978 vehicles from April to June, up 19 percent from a year earlier. It was the company’s highest quarterly total in more than two years.Automakers have struggled in the last two years with a shortage of computer chips that forced factory shutdowns and left dealers with few vehicles to sell. More recently, rising interest rates have made auto loans more expensive, causing some consumers to defer purchases or opt for used vehicles.“I’m not saying we are on the cusp of exciting growth here,” said Jonathan Smoke, chief economist at Cox Automotive, a research firm. “But we are now at a turning point where the auto market returns to more balance. It’s the beginning of returning to normal.”The easing of chip shortages has allowed automakers to restock dealer lots, making it easier for car buyers to find the models and features they want, Mr. Smoke said. At the end of June, dealers had about 1.8 million vehicles in stock, nearly 800,000 more than at the same point in 2022, according to Cox data.Sales have also been helped by strong job creation and rising wages, Mr. Smoke said.At the same time, however, higher interest rates and higher car prices have put new-car purchases out of reach of many consumers. In the first half of the year, the average price paid for a new vehicle was a near-record $48,564. The average interest rate paid on car loans in the first six months of 2023 was 7.09 percent, up from 4.86 percent a year earlier, according to Cox. The average monthly payment in the first half was $784, up from $691.“Demand will be limited by the level of prices and rates, which are not likely to come down enough to stimulate more demand than the market can bear,” Mr. Smoke said.Cox estimated that total sales of new cars and trucks rose 11.6 percent in the first half of the year, to 7.65 million. The firm now expects full-year sales to top 15 million, which would be a rise of 8 percent.Several automakers reported solid quarterly sales on Wednesday. Toyota said its U.S. sales rose 7 percent, to 568,962 cars and light trucks. Stellantis, the company that owns Jeep, Ram, Chrysler and other brands, reported a 6 percent rise, to 434,648 vehicles.Honda, which had been severely hampered by chip shortages, said its sales rose 45 percent to 347,025 cars and trucks. Hyundai and Kia, the South Korean automakers, each sold more than 210,000 vehicles, posting gains of 14 percent and 15 percent.Electric vehicles remain the fastest-growing segment of the auto industry. Rivian, a maker of electric pickup trucks and sport utility vehicles, said on Monday that it delivered 12,640 in the second quarter, a 59 percent jump from a year earlier. And on Sunday, Tesla reported an 83 percent jump in global sales in the second quarter.Cox estimated that more than 500,000 electric vehicles were sold in the United States in the first six months of the year, and that more than one million would be sold in 2023, setting a record for battery-powered cars and trucks in the country.Tesla, which does not break out its sales by country, remains the largest seller of E.V.s in the U.S. market. Cox estimated that the company sold more than 161,000 electric cars in the second quarter in the United States. Ford Motor, which offers three fully electric models., reports its quarterly sales on Thursday.G.M. sold more 15,300 battery-powered cars and trucks, but nearly 14,000 were the Chevrolet Bolt, a smaller vehicle that the company will stop making at the end of the year. The company also sold 1,348 Cadillac Lyriq electric S.U.V.s and 47 GMC Hummer pickup trucks. Chevrolet will soon start delivering a new electric Silverado pickup truck, which uses the same battery technology as the Lyriq and Hummer. More