Good morning. Andrew here. An Israel-Hamas deal could pave the way for an exchange of hostages and prisoners, creating the opportunity for a real peace agreement. It could be an extraordinary moment — if it happens and endures. Long-lasting stability in the region could also make the Middle East an even more powerful force in the world economy. Meanwhile, we’re focused on the debate inside the Fed over how many times to lower interest rates this year — and what concerns policymakers have about the strength of the economy. More on that and other news below. (Was this newsletter forwarded to you? Sign up here.)
A question of cutting ratesFutures markets today suggest that the Fed will follow through on more rate cuts at the last two meetings of the central bank’s chief policy committee of the year. But new signs are emerging that such a move doesn’t necessarily have unanimous support, and that Fed policymakers are keenly aware of the risks that step might present. What’s new: Data released right after the Fed’s rate-setting committee met last month showed official support by nearly every member for cutting interest rates by a quarter point to 4 percent to 4.25 percent. Most support bringing borrowing costs down to 3.5 to 3.75 percent by year end. But minutes from the meeting published yesterday show it’s a bit more nuanced than that: “A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision,” they read. Seven of 19 policymakers indicated that they saw a need for no more cuts for the rest of the year. The debate continues over whether inflation or a slowing job market is the bigger threat. Some Fed policymakers remain uncertain about how President Trump’s tariffs will affect prices, as well as whether longer-term inflation may be here to stay. Others are looking at the labor market. John Williams, the New York Fed president, told The Times that he was keeping an eye on a gradual slowdown in hiring over the past year. He felt that the market’s trajectory justified cutting rates in September. There’s still some concern about a lack of federal economic stats. The federal shutdown forced the Bureau of Labor Statistics to withhold the jobs report for September; unless it’s resolved soon, the Consumer Price Index most likely won’t be published on Oct. 15 as scheduled either. For now, Williams professed comfort with relying on alternative data. “I think we have a reasonably good picture of what’s happening, especially around the things that matter the most to us,” he told The Times. All this points to the delicate balance Jay Powell must continue to manage. The Fed chair has said that there are “no risk-free paths” now for the central bank, and that missteps could either ramp up inflation or choke the economy. Then there’s the President Trump factor. The president has made clear that he wants bigger cuts ASAP, something Stephen Miran, a close ally who is temporarily a Fed governor, has also supported. Treasury Secretary Scott Bessent has been interviewing candidates to succeed Powell as Fed chair in May, The Financial Times reports, with a focus on interest rates and balance-sheet policy. Hanging over the process is a question about the Fed’s future political independence, a feature Williams strongly defended: “What we’ve seen from experience is that independent central banks are better at achieving the goals that the people and the government want to achieve,” he told The Times.
The Trump administration won’t impose tariffs on generic drug imports. The White House decided to exempt such medicines from levies after some officials warned that such a move could lead to price increases and drug shortages, The Wall Street Journal reports. The decision, which isn’t yet final, is the latest good news for the drug industry, after a deal between Pfizer and the White House to lower the prices of some drugs and sell medicines directly to patients. Harvard weighs seeking assurances from the White House as they negotiate a settlement. School officials have discussed internally whether to ask Trump administration officials to ensure that the school won’t be subject to further demands if a deal is reached, The Times reports. The discussions within Harvard arose after the White House asked nine schools to embrace a “compact” to more strongly align themselves with Trump policy objectives. (Harvard’s new negotiator is Steve Schwarzman, the billionaire investor and Republican donor.) Elon Musk settles a pay fight with former Twitter executives. Four former Twitter leaders agreed to end a lawsuit over more than $128 million in severance pay they say they were owed, after settling for undisclosed terms. The move ends another legal battle over Musk’s takeover of the social network, now called X, which led to mass layoffs and disputes over exit pay. Shutdown updateThe Senate again failed to advance competing measures to end the week-old government shutdown. But lawmakers are facing pressure to strike a deal as worries grow about the consequences of the closure. Here’s the latest:
Expectations for a long shutdown are growing. About half of bettors on Kalshi now expect the shutdown to last more than 25 days, while more than a third are betting that it will go on for more than 30 days. Reflection AI raises $2 billionConcerns are growing about how long the fervor for artificial intelligence businesses may last. But Reflection AI, a year-old start-up that focuses on creating open-source A.I. models that others can freely modify, is the latest sign that there’s still plenty of investor interest, Michael de la Merced reports. Reflection will announce today that it has raised $2 billion, seven months after its last funding round. The latest deal values the start-up at $8 billion, including the new money, significantly higher than the roughly $545 million valuation it fetched in March, according to PitchBook. The round was led by Nvidia, the chipmaker at the heart of the A.I. boom that has recently been pouring billions into other start-ups. (It invested $800 million and had several engineers work with Reflection AI to optimize its most recent generation of A.I. chips, DealBook hears.) Other participants in the round included existing backers like Lightspeed Venture Partners and Sequoia Capital, as well as new investors like DST Global, the former Google chief executive Eric Schmidt and 1789 Capital, the investment firm that counts Donald Trump Jr. as a partner. Reflection says it wants to be the American answer to DeepSeek, the Chinese A.I. start-up whose open-source model shocked the world with its abilities. Western open-source models so far aren’t nearly as capable, argued Misha Laskin, Reflection AI’s co-founder and C.E.O. That means many companies and institutions around the globe are becoming dependent on Chinese-built A.I. models rather than on Western-built ones. Reflection AI, whose founders came from the Google DeepMind A.I. lab, insists that it is developing a solution: “There’s a DeepSeek-shaped hole in the U.S., which I think is what makes it critical for a lab like ours to exist,” Laskin told DealBook. The round underscores A.I. companies’ huge need for resources, including computing power and talent — in other words, money. A.I. foundation model companies have raised $71.9 billion worldwide so far this year, according to the data provider PitchBook; by comparison, the sector collected $34.9 billion last year. That raises questions about whether a smaller business like Reflection AI can keep up with bigger start-ups like OpenAI, let alone giants like Google or Meta. But Laskin argued that demand for open-source models from large companies and governments will eventually give it a stable business. The clock ticks for Buenos AiresPresident Javier Milei of Argentina has bet much of his political future on promises about what he can secure from his relationship with the Trump administration. But Argentina’s central bank is burning through the last of its dollar reserves to prop up the country’s currency, the peso, as Milei awaits details about the size and timing of a financial lifeline from Washington. The latest: In recent days, Argentina’s central bank has sold about $2 billion in U.S. dollar reserves to support the weakening peso. The country has only about $680 million in reserves left, Reuters reports, giving it only a few more days’ runway at the current pace. Analysts widely expect Milei to devalue the peso, a move his administration has tried to delay until after midterm legislative elections that are set to take place this month. Anger over spiking prices under his predecessor, Alberto Fernández, ushered Milei into power, and hyperinflation has cost other presidents their jobs in the past. It’s unclear when U.S. aid will arrive. Treasury Secretary Scott Bessent said last month that the Trump administration was ready “to do what is necessary” to support Argentina. (Washington’s goal appears to be an effort to help a close ally — President Trump has called Milei his “favorite president” — and then to help him design a new currency system that ties Argentina more closely to the dollar.) Argentina’s economy minister, Luis Caputo, has been in Washington to negotiate a potential $20 billion currency swap, in which the U.S. would give Argentina hard currency in exchange for dollar-denominated bonds. But there are questions about that potential aid. U.S. soybean farmers have protested any help for Argentina, which sold more than 2.5 metric tons of soybeans to China after it suspended export taxes. That has been part of Beijing’s halt in U.S. soybean purchases, devastating American farmers. It’s also not clear how long the aid would last. If Argentines and currency traders continue to exchange their pesos for dollars, $20 billion from the U.S. could be depleted within months. We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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