What the Jobs Report Might Mean for Interest Rates

The high stakes in Friday’s jobs report

Bonds have been on an impressive monthlong rally fueled by investors’ hopes that the Fed will begin cutting interest rates next year. That bet may be tested as soon as Friday with the release of new payroll data that Wall Street expects will show the labor market cooling further.

The numbers to watch: Economists polled by Reuters estimate that employers had added roughly 150,000 jobs in November, in line with October. (The November figure is expected to include roughly 33,000 United Automobile Workers union workers returning after their strike.)

Wages will again be in focus. Data published on Wednesday by ADP, the payroll processing firm, showed growth in private sector pay has fallen to its lowest level in more than two years. The Fed would welcome similar results on Friday as it watches for data that could influence inflation.

The labor market is shifting. The number of job openings has declined significantly this year, Labor Department data released this week reveals. “Employers were scrambling for workers over the last few years, but demand has cooled and staffing levels are higher across most of the economy,” Bill Adams, Comerica’s chief economist, wrote to investors on Wednesday.

The slower-growing, but more stable, labor market has led to higher worker productivity, he added, “which reduces the wage-price pressures in business cost structures and takes the edge off economywide inflationary pressure.”

Inflation hawks have recently seen lots of promising indicators. Both the jobs and Consumer Price Index reports last month came in below analysts’ expectations, a sign that the Fed’s aggressive raising of borrowing costs — from near zero to a range of 5.25 percent to 5.5 percent over a 16-month stretch — has begun to tame inflation.

In other good news for the economy, U.S. gasoline prices hit an 11-month low this week, amid further weakness in oil demand.

Inflation is expected to stay above the Fed’s 2 percent target for another year, most economists predict, but there’s near-unanimous consensus that the central bank will vote to hold interest rates steady at its policy meeting next week.

Beyond that, futures traders this morning are betting that the Fed will begin cutting rates by March.

HERE’S WHAT’S HAPPENING

Nikki Haley takes fire for her growing support from elite donors. In last night’s Republican presidential debate, Gov. Ron DeSantis of Florida and the entrepreneur Vivek Ramaswamy criticized her over recent donations and endorsements from business moguls. Analysts said while the four participants took aim at one another, Donald Trump largely escaped criticism.

Kevin McCarthy, the former House speaker, quits Congress. “I’m leaving the House but not the fight,” the California Republican wrote in a Wall Street Journal opinion essay, announcing his departure by year end, before his term expires. McCarthy’s departure is another headache for his successor, Mike Johnson, whose slim majority in the House will get smaller.

Moody’s reportedly tells some China-based workers to stay home. The ratings agency advised some employees to avoid the office before it cut its outlook on China’s sovereign credit rating this week, according to The Financial Times. The decision comes as Western companies in the country have taken greater precautions after a series of raids on their offices and growing sensitivity among Chinese officials over reporting on the economy.

Meta reopens a debate about communications privacy and security. The tech giant will update its Messenger app with end-to-end encryption — the same level of security in its sister service WhatsApp — which effectively protects messages from being viewed by third parties. Law enforcement authorities have argued that such encryption makes it harder to track child predators, terrorists and other criminals.

An E.U.-China summit’s tests for the U.S.

European Union leaders met with China’s top leader, Xi Jinping, on Thursday, kicking off talks to press Beijing on a 400 billion euro (around $430 billion) trade imbalance and its support for Russia after Moscow’s invasion of Ukraine.

But a broader question looms over the discussions: How do Europe’s relations with China fit into the American efforts to counter Beijing?

Xi urged Europe to maintain the “momentum” in their relationship, stressing that they were the champions of a multipolar world and should “eliminate all kinds of interference” — a dig at Washington.

The stakes are high for Europe. Germany, the continent’s biggest economy, is heavily linked to China, with about a third of its businesses importing essential materials from the country. And Emmanuel Macron, France’s president, has said that Europe shouldn’t blindly follow the United States and get dragged into a war over Taiwan.

Ursula Von der Leyen wants to “de-risk” the bloc’s relationship with China. The president of the European Commission has said this may include imposing trade restrictions on technologies with potential military applications and creating a mechanism to monitor overseas investments by European companies. In September, the E.U. also said it would begin investigating Chinese subsidies of its electrical vehicle makers, over fears that European manufacturers were being undercut.

President Biden has wooed European allies to help with America’s China strategy, in contrast to the Trump administration. But some of Biden’s other policies have irked E.U. members, including billions in subsidies to accelerate the green transition and domestic semiconductor manufacturing. European officials say that the U.S. approach discriminates against their own companies.

China sees a gap to exploit, betting that Europe’s economic ties will force it to act as a counterweight to Washington. “Beijing hopes that Europe won’t go the same way as the U.S.” Yu Jie, a China expert at the Chatham House research organization, told DealBook.

Next year’s presidential election is also weighing on European thinking. “There is a legitimate concern about the direction of U.S. politics and how much longer Biden will be in office,” Noah Barkin, a senior adviser in the China practice at the Rhodium Group, a research firm, told DealBook. “Could we see a return of a more confrontational approach from the U.S. towards Europe?”

Google’s latest volley in the A.I. battle

OpenAI’s release of ChatGPT last year put Google on the back foot, beating the tech giant to market with an artificial intelligence product that took the public by storm. The search titan was forced to change tack, rushing out new services even if they were flawed.

After releasing an array of A.I.-infused offerings this year, Google has announced perhaps its biggest one yet: a new version of Bard, its ChatGPT rival. The question is whether that’s enough to keep it competitive with OpenAI and its partner, Microsoft. (Investors appeared unimpressed: Shares in Alphabet, Google’s parent, fell on Wednesday.)

The new Bard is powered by Gemini, Google’s most advanced A.I. model. The company said Gemini could generate more accurate responses and come closer to mimicking human reasoning in some situations. The technology was capable of beating GPT-4, OpenAI’s latest offering, in several benchmarks, according to Google, including the task of summarizing news articles.

And a version of Gemini, called Nano, is optimized for running on mobile devices. That means that chatbot services could run offline, promising greater speed and versatility — and allowing for more secure processing of personal information, because it wouldn’t have to flow over the internet.

Executives didn’t hold back in praising the new model: ​​ “This is the beginning of the Gemini era,” Sundar Pichai, Google’s C.E.O., told The Times.

Except … The most powerful Gemini tech isn’t being made available right away. Its top version, Ultra, will debut next year. The updated edition of Bard that was released on Wednesday is roughly comparable to the version of ChatGPT that’s been available for free since last year; a more powerful version of ChatGPT has been available since early this year.

And, like all chatbots, the refreshed Bard still “hallucinates,” or makes stuff up.

“As an industry we should all be braced to hear about a lot more failures. The more money people got before the party ended, the longer the hangover.”

— Jenny Lefcourt, an investor at Freestyle Capital, on the wave of start-ups being forced to shut down as investors close their wallets. About 3,200 private venture-backed U.S. companies have gone out of business this year, according to data compiled for The Times by the analytics company PitchBook; the companies had raised $27.2 billion in venture funding.

What’s your p(doom)?

An inside joke about artificial intelligence’s apocalyptic potential is going increasingly mainstream: Meet p(doom), a way to describe where someone stands on the utopia-to-dystopia spectrum of A.I. outcomes.

Dario Amodei, the chief executive of the A.I. company Anthropic, puts his p(doom) between 10 and 25 percent — higher means you’re more likely to believe the technology could wipe out humanity — while Lina Khan, the chair of the F.T.C., says hers is around 15 percent. As part of a special section on the DealBook Summit, Kevin Roose, The Times’s tech columnist, explains the morbid statistic and its place in A.I. culture:

It’s become a common icebreaker among techies in San Francisco — and an inescapable part of A.I. culture. I’ve been to two tech events this year where a stranger has asked for my p(doom) as casually as if they were asking for directions to the bathroom. “It comes up in almost every dinner conversation,” Aaron Levie, the chief executive of the cloud data platform Box, told me.

THE SPEED READ

Deals

• SpaceX is said to have started talks about selling employees’ shares at a $175 billion valuation, up from a $150 billion level set over the summer. (Bloomberg)

• McKinsey reportedly named around 250 new partners on Wednesday; that’s down sharply from last year as clients pay less for pricey consulting work. (WSJ)

• Sportsology and Ares Management are reportedly in talks to buy a 10 percent stake in the Texas Rangers, the M.L.B. team that won the World Series last month. (Bloomberg)

Policy

• Jamie Dimon of JPMorgan Chase, a longtime critic of the cryptocurrency industry, told senators he would “close it down” if he could. (Bloomberg)

• New Mexico sued Meta, accusing its Facebook and Instagram platforms of steering sexual predators to underage users. (WSJ)

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