What Just Happened on Wall Street?

hey it's Michael before we get started I. want to share some exciting news about. another Daily News show from the times. called the headlines here on the daily. we tell one story a day the headlines. hosted by my colleague Tracy Mumford. brings you the day's top stories along. with insights and Analysis that you've. come to know from times reporters in The. Newsroom all in about 10 minutes. something you can listen to alongside. the daily anyway the news is that you. can now find the headlines wherever ever.

you get your podcast so search for it. and subscribe to it and now here's. today's. daily we have breaking news this hour. the stock market in some very troubling. territory take a good look at your. screen if you're moving around because. this is a live look at the Dow Jones. Industrial Average down over 800 points. so far my name is Gina smik I'm the fed. and economy reporter here at the New. York Times and I'm watching the markets.

here at the open nearly everything on. Wall Street is down the S&P fell 1.8%. and the NASDAQ the tech heavy index. where we've seen some of the biggest. losses that is down over 6% and I have. been watching them in real time as they. plummet we have never been down a th000. points ever not even intraday on the. NASDAQ is that true that is true okay. and volatility is just spiking across. markets Microsoft is down 5% alphabet 5%. meta 6% Apple 9 % it's been a morning of.

just pure Carnage a relatively calm year. on Wall Street is no. more from New York Times I'm Michael. borro this is the. daily today why every major US Stock. Market plunged on Monday wiping out. hundreds of billions of dollars in value. and what the dizzying selloff can tell. us about whether the American economy is.

now headed for a. recession my colleague Gina smik is our. guest it's Tuesday August. [Music]. 6th Gina let's start with the big. question of the day why have the markets. been utterly seized by Panic and taken a. huge nose dive over the past 24 hours.

and how does that fit into a larger. economic story that we have been telling. on the show Mostly through you over the. past few years which is the story of the. US government's efforts to try to lower. inflation to bring down record high. prices by using the tool of higher. interest rates which of course make. borrowing more expensive and doing that. without pushing the economy into a. recession yes so the big question.

literally since 2022 when the Federal. Reserve started raising interest rates. to bring down inflation was can we get. inflation down without causing a. recession right and up until very. recently it looked like the answer to. that was basically yes inflation was. coming down and the economy was still. growing and the job market stayed strong. but over the past few days we've gotten. a couple of pretty important economic. reports from the US government that have. suggested that the US might not be. steering clear of a recession to the.

degree that we had thought it had. previously MH so what we're seeing in. markets today is a reaction to that and. it's kind of been magnified by some. technical things that are happening but. fundamentally the story that we're. seeing play out right now is people. getting nervous that the US might be. headed for a recession okay well talk. about those numbers that came out over. the past few days that are fueling that. worry that we might be headed for the. recession that we have so far AV voided.

for the past couple of years yeah so it. really started last Thursday which is. the day that we get our weekly jobless. claims numbers so as a reminder these. are new applications for unemployment. benefits they're sort of a proxy for. people losing their jobs and those. jobless claims numbers jumped H by how. much pretty significantly so they jumped. by 14,000 which took them to the highest. level in almost a year okay so not a. good number not a good number but the. claims data are pretty prone to Big. swings espe especially during the summer.

and so that wasn't enough in and of. itself to cause people to be really. really nervous what really made people. nervous came on Friday so on the first. Friday of every month we get the monthly. jobs report this is sort of the big. indicator of how the job market is doing. in any given month and it gives you two. really big numbers the first is just the. overall hiring number how many people. employers added to their payrolls over. the past month the second is the. unemployment rate M and both of those.

metrics looked a little bit worse in. this report than economists had expected. so what we saw was people were hiring at. a much less rapid Pace than they had. previously been and the unemployment. rate jumped up by a couple of T which. while it was only a little bit it added. to a pretty significant move up in the. unemployment rate that's taken place. over the past year and which has really. been accelerating over the past 6 months. and so taken together this set of data. that we got on Friday the Slowdown and. hiring the pop up in the unemployment.

rate combined with the jumping claims we. saw on Thursday and some other weakening. data that we've seen in the job market. really put economy Watchers on notice. you know people are starting to put. these numbers together and worry that. the state of the job market is really. deteriorating pretty quickly here and. that matters because the job market is. really the clearest and the earliest. signal of a recession so in short by the. end of last week the red lights are. starting to flash and the Panic is. beginning to creep up I don't know if I.

call it panic but definitely worries are. starting to creep in and compounding all. of this the FED literally just. reinforced their rate setting last week. they had a meeting on Wednesday right. before all of this bad labor market data. came out at which they decided to keep. interest rates on hold at their current. level 5.3% which is a two decade High. because they wanted a little bit more. confidence that inflation was coming. under control and they felt pretty good. about the job market situation and. thought it could handle a couple more. months of high interest rates and so it.

left rates on hold at this very high. level just before we saw this. deterioration in the job data got it I. want to put all this together because. it's kind of fascinating so investors. are processing a lot of information by. Friday of last week they are seeing that. the job market is slowing down they will. understand that is Central to the. question of whether or not we're headed. for a recession and they're processing. that the government's most powerful tool. for making the situation better which is.

cutting interest rates is not one that. the FED is going to employ right now. maybe it will down the road and. obviously that combination leads a bunch. of investors to decide that this is a. moment to look at their stocks and. rather than hold on to them and hope. they're going to keep going up assume. that bad things are ahead and they. should sell them right I think that's a. big part of the story I think that. investors are looking around and saying. yeah we expect the fed to cut rates in.

September they were always going to cut. rates in September right like before. before the selloff happened but is. September going to be too late to avert. a heart Landing in the economy and why. do you think Gina that stock markets. didn't just fall but fell so much on. Monday a thousand points for example in. the Dow. alone reasons all of this started in. fundamentals and concerns over the state. of the economy but it pretty quickly.

became exacerbated by technical stuff so. the first is the different central banks. are doing different things right now. Japan is raising rates the US is talking. about cutting them and when Global. Central Bank policies diverge you can. really see currency values diverge as. well and that's relevant to markets. because there are Traders around the. world who have positions that are based. on the value of an underlying currency. and when those currencies move you can. see those Traders have to pretty quickly. unwind those positions and sell the. assets and so that's probably causing.

some of the selling we're seeing right. now got it which is clearly something. that happened over the past day yes the. second thing that's really important. here is that stocks were just very high. going into this they had really been. sort of booed up by optimism about. things like artificial intelligence and. some of the the big Tech stories we've. been talking about and that means that. they had a long way to fall you know. there was just a lot of room for them to. come down here mhm and then I think the. final thing is that sometimes when.

you've got a sell-off in the market. selling leads to more selling you've got. a situation where some Traders are going. to be looking at their positions and. saying uhoh we might have people sort of. pull out of these or there will be a a. trigger at which they have to pull out. of these if they keep falling and so. Traders have to sell things in order to. raise cash in order to sort of meet. those requests as they come in and so I. think that's what we've seen we've seen. a situation where the market moves are. kind of snowballing upon themselves so. all that makes me wonder why the Federal.

Reserve to avoid more selling off and to. lessen all this anxiety doesn't just get. together and make an interest rate cut. right like do it tomorrow because. wouldn't that bring stock prices right. back up and kind of make everything bad. that just happened in all these markets. go away right the FED does not set. policy based on what is happening in the. stock market the FED sets policy based. on what is happening in the real economy.

and when it comes to the real economy I. think they're not convinced that things. are absolutely falling apart. yet and I think they worry that if they. were to react very swiftly to this if. they were to make an interest rate cut. in between their meetings which is what. we in the Press call an emergency. interest rate cut they would really. stoke the sense of panic they would make. people feel like they knew something. that like something was really going. horribly wrong in the economy and I just. don't think that they feel confident.

that that is where we are at this point. this was one point of data and they are. not ready to freak out at least not. [Music]. yet we'll be right back. [Music].

so Gina help us understand why the. people who run the Federal. Reserve can put aside all the panic in. the markets and decide this is not a. moment to pull on the emergency break. why do they see more strength than. freaked out investors do in the US. economy right now right I've talked to. some fed officials since the job market. data came out on Friday and I think that. the overwhelming sense here. is that they are wary they are watching.

this data they are watching for signs. the job market is cracking but at the. same time they're not panicking so I. think that the FED is really at this. moment taking a Long View and I think. it's really important to review sort of. how we got to this moment back in 2021. and 2022 we saw inflation really start. to take off as we were coming out of the. pandemic recession so we briefly had a. very sharp slowdown in the US the. economy kind of roed rocketed back and.

as the economy rocketed back price. increases really popped right in part. because the government spent so much. money making sure that consumers could. get through the pandemic recovery right. and in part because we had Global Supply. Chain problems and a whole variety of. other issues that really sort of. contributed to inflation and the way. that the FED dealt with that was by. starting in early 2022 raising interest. rates really sharply in order to slow. down the economy bring inflation under. control and when that happened it was.

pretty broadly expected that they might. cause a recession in the process it's. very hard to slow down the economy just. enough to cool off inflation without. slowing it down so much that you cause a. recession right and so that was the big. concern back in 2022 and 2023 if daily. listeners listen to us back then that. was what we were talking about all the. time was is the Fed going to cause a. hard Landing because there's no such. thing as a Goldilocks economy where. you're trying to conquer inflation and. you're somehow not inflicting damage on.

things like the employment Market we. kept talking about that non-stop it's. impossible to get this just right yeah. it seemed very unlikely especially based. on sort of historical precedent but what. we've seen is this really encouraging. Outlook late in 2023 and then early this. year we saw inflation coming down pretty. nicely we saw consumer spending really. holding up people are still taking. vacations they're still spending on a. whole variety of goods and services and. we actually saw overall growth hold up. you know we recently got a GDP number.

that showed that the economy expanded by. 2.8% on an annual basis in the second. quarter which is pretty solid growth and. so altogether it just kind of seemed. like the Fed was nailing this it seemed. like they were really getting that soft. Landing we'd all been hoping for and. only recently only in these last couple. of data points with the creep up in the. unemployment rate turning into something. more serious and dress claims starting. to really take a move higher I think. have we started to consider that we. might not be nailing this off Landing.

that actually these things are in. trouble okay well let's assume for the. sake of argument that in the coming. weeks and maybe month or so more. evidence comes the fed's way suggesting. that the economy is not doing well what. can we anticipate the fed's reaction. will be if their thinking starts to turn. the way of investors who have been. selling off all these stocks so we were. already widely expecting a rate cut in. September I think most economists will.

tell you that given this slowdown in the. job market the question is how big that. rate cut is going to be so early on we. were expecting just a quarter point cut. but if you look at where markets are. priced now if you talk to most fed. Watchers they'll tell you that a larger. rate cut is probably likely if the job. market continues to slow down so the FED. may decide that it needs to Veer from. its plan this plan that's been working. pretty well and if they did cut interest. rates more than they had previously said. they would would would that be an.

acknowledgement Gina that they have. taken too long to act that they have. been too slow I think that they would. say that they never had a hard and fast. plan at this at this stage you know I. think policy in A Moment Like This has. to be pretty reactive to the economic. conditions and they've been pretty clear. about that for some time and then I. think the second thing is yeah to some. extent I think if you are getting signs. that the job market is really slowing. down that you're moving a little bit. late when you're late you play catchup. and so catchup would look like.

potentially larger interest rate. decreases and so I think that if that is. what comes to pass that's probably how. people will read. it what's so interesting about this. moment is that I think it's fair to say. we tend to associate bad economic. moments. recessions with big singular events you. know 9/11 the collapse of the housing. market the pandemic that's what we think. of when we think about the US economy. going into recession. the idea that we might be heading into a.

recession now is just fundamentally. weirder because if it happens it will. have been because our government. successfully staved it off for a few. years through this very delicate process. of raising interest rates to fight. inflation and the idea is that. eventually it can't keep a lid on this. right you know Cat in the Hat style the. plates and the balls and the rakes they. all fall and it's going to be harder to. assign blame for that if and when it.

happens yeah so recently the recessions. that we've been having have been a. little bit different they've really been. caused by these big external events so. in the most recent instance obviously. that was a pandemic but putting on my. economics nerd hat here a little bit as. is my lot in life I think I would. actually compare this most to the early. 1980s recession that was a pretty bad. one and I'm not going to say that this. moment would necessarily be that bad but. what is similar here is that it was a. moment of economic slowdown that was.

really caused by the fed's attempts to. control inflation and I think that this. would be a very similar episode and in. that instance everybody blamed the fed. and Paul vulker for raising interest. rates and causing a recession and he was. not a popular figure during it and it. was very much seen as a huge policy. problem and a big black eye on the FED. but with the sort of passing of time I. think people came to see it as the FED. having successfully contained inflation.

you know the reviews of that 1980s. recession got a little bit sunnier with. time and so I think there'd be a real. question you know is this episode seen. similarly do people think that the FED. has made a huge policy error and that. this is a big mistake and that we should. all roundly blame them or do people see. this as sort of a necessary evil that. they caused a hard Landing but they had. to do it to get inflation under control. I think those are big questions and. they'll matter a lot for the legacy of. Jerome pal who's the current Fed chair. and who has been getting a lot of Plott. it recently for having gently landed the.

plane I think if if it turns out that. the plane is in for actually a hard. Landing there going to be some questions. about his legacy here questions that it. seems really began to crystallize on. Monday yeah I would say that's the. case so I don't think we can end this. conversation without recognizing that. this stock market selloff and the fears. of a recession that underly it are. occurring in the middle of a general. election for president and a lot has.

changed in that race over the past few. weeks almost all of it pretty positive. for the Democrats who are the incumbents. in this race but incumbents are almost. always seen as responsible for the. economy and by extension the stock. market which as we are discussing is in. some real turmoil as of Monday and it. feels worth lingering on all of that for. just a. moment yeah so there is a big question. here over who is going to own this.

moment you know I think we've got a. complicated situation because the. incumbent President Joe Biden is not. running for re-election his vice. president kamla Harris is but are voters. going to attribute this to her are they. going to blame the stock market sell off. on her I don't think that's entirely. clear we've seen former president Donald. Trump the Republican candidate really. trying to pin this on kamla Harris but. is that going to carry water I think. that's an open question and then just to. ask to all of this political. complication you've got the FED.

preparing to cut interest rates some. investors and economists think it's. likely that they're going to go both in. September and November just a couple of. days after the election and that that's. complicated because the FED is. independent of the political situation. you know they are not they are not. beholden to the White House and they try. to be very clear that they're. politically independent but this is. going to plunge them right into the. political Fray right around the election. President Trump has already said that. and applied that cutting interest rates. near the election would be a political.

attempt to help the Democrats the. Democrats are very uh carefully not. talking about the FED at the moment but. I think that this is going to be just a. very fraught moment for the FED. politically going forward here right. because we may have a situation where. one side is rooting for the FED to do. what it thinks will help them and the. other side may be rooting for the FED. not to do it because it may help the. opponent right and then I think to add. complication to this situation I think. no matter what side you're on you're.

kind of hoping that the FED manages to. pull this off and not cause a recession. because what president wants to be in. office next year during a recession you. know recessions don't clear up in 25. seconds they're just layers upon layers. of political complication. here so this current economic moment is. really playing out on multiple levels. there's this fed level you know the. fed's removed from politics but its. Legacy and its reputation are very much. on the line here there's this political.

level the White House doesn't really. have all that much control over this. situation but the outcome of the. presidential election is ultimately. going to be pretty potentially shaped by. it and then of course there's this sort. of human level the American people are. going to be directly and potentially. pretty profoundly affected by the. [Music]. outcome Gina as always thank you very. much thank you. [Music].

Michael we'll be right. back here's what else you need to. another day in a landmark ruling on. Monday a federal judge found that Google. had acted illegally to maintain a.

monopoly in online search the decision. endorsed claims made by the US. government that Google has denied its. competitors a chance to grow by spending. billions of dollars a year to become the. automatic search engine on many consumer. devices the ruling does not offer. remedies for Google's Behavior which. will be decided in the coming months but. those remedies could eventually include. Force ing Google to sell off parts of.

its. business. and the prime minister of Bangladesh. shik Hina has resigned and fled the. country as protesters stormed her. residents and set fire to government. offices it was a dramatic end to hena's. Reign which has become increasingly a. itarian prompting massive protests and.

violent government crackdowns in the. days before her. [Music]. ouster today's episode was produced by. Ricky netki and Shannon ly it was edited. by Liz oala with help from Lisa Channel. contains original music by Maran Lozano. and Diane w and was engineered by Alyssa.

Moxley our theme music is by Jim. brunberg and Ben Lanser of. [Music]. [Music]. wonderly that's it for the daily I'm. Michael Babar see you tomorrow. [Music].