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DealBook Briefing: A Rate Cut Now Looks All but Certain


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Jay Powell, the Fed chairman, strongly signaled yesterday that the Fed could cut interest rates when it meets later this month, Jeanna Smialek and Matt Phillips of the NYT write.

• The Fed expects unemployment to stay low and inflation to gradually rise, Mr. Powell told the House Financial Services Committee.

• But he added that “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”

Investors saw the comments as a virtual guarantee of rate cuts. Stocks leapt yesterday, with the S&P 500 briefly trading above 3,000 for the first time. The index is up nearly 20 percent this year and is enjoying one of the longest bull markets on record.

“That the Fed is considering a rate cut at a moment when the United States economy is strong and job market gains are solid underscores Mr. Powell and his colleagues’ concern about the future of a record economic expansion,” Ms. Smialek and Mr. Phillips write.

Can’t square a looming recession with surging stock prices? Let Mr. Phillips explain:

• Rate cuts “lower the returns on new investments in bonds, the main alternative to stocks for many investors. That makes stocks look more attractive to investors.”

• “A rate cut also makes it cheaper for consumers and companies to borrow, and that can buck up economic activity and help corporate profits.”

There’s one big uncertainty: how far cuts may have to go. Mr. Powell is “knee-deep into the relatively uncharted waters of easing monetary policy to nip possible economic damage in the bud rather than to tackle an actual slump,” James Politi and Colby Smith of the FT write. “So the central bank risks a big backlash if it does not deliver the rate cuts that are baked into expectations.”

More: Mr. Powell said that he would not resign if asked to do so by President Trump; explained why a return to the gold standard could damage the economy; and said he had “serious concerns” about Facebook’s cryptocurrency project.

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Today’s DealBook Briefing was written by Andrew Ross Sorkin in Sun Valley, Idaho, and Michael J. de la Merced and Jamie Condliffe in London.

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Prosecutors and news accounts have described the financier as a man with “nearly infinite means.” But Mr. Epstein’s wealth was not nearly that vast, according to the NYT.

Sure, Mr. Epstein was undoubtedly rich. His Manhattan townhouse is one of New York City’s most expensive homes; he owns a sprawling estate in Palm Beach, Fla., and a private island (with a mysterious temple-like structure). He was able to pledge $30 million to Harvard, and was a private-wealth client of Deutsche Bank (the lender is said to have cut ties only this year, despite compliance officers having previously raised concerns about him.)

But his riches are probably linked to two other men: Steven Hoffenberg, another financier with whom he sought to buy companies (and who was convicted of running a Ponzi scheme), and Les Wexner, the billionaire who controls Victoria’s Secret.

And his wealth-management business was unimpressive. According to a corporate disclosure form 2002, the firm had $88 million in contributions from shareholders, and a court filing that year showed it had just 20 employees.

Labor Secretary Alexander Acosta is grappling with fallout from Mr. Epstein:

• At a televised news conference, Mr. Acosta defended a 2008 plea deal he struck as a federal prosecutor that helped Mr. Epstein avoid federal charges. Mr. Acosta said the deal sought to ensure that Mr. Epstein would serve time in jail.

• The Palm Beach state attorney at the time, Barry Krischer, criticized Mr. Acosta’s remarks as a rewriting of history.

• But Mr. Acosta may have allayed White House fears about his political liability, for now.

Now that trade negotiations have resumed between the U.S. and China, how are things looking? Not great, to be honest.

The U.S. may have given up more than it got when President Trump tried to rekindle the trade talks at the Group of 20 meeting last month.

• After that gathering, Mr. Trump said that China would immediately begin buying American farm products, and that the U.S. would hold off on further tariffs on Chinese goods and ease restrictions on Huawei.

• But Beijing saw “large-scale purchases as contingent on progress toward a final trade deal that is still nowhere in sight,” Ana Swanson and Keith Bradsher of the NYT write.

• Of orders for soybeans and wheat, Larry Kudlow, the White House’s top economic adviser, said this week: “Haven’t seen them yet.”

And China has reshuffled its negotiation team, which reportedly has some White House officials nervous about the prospect of progress, according to Robert Costa and David Lynch of the WaPo:

• “Commerce Minister Zhong Shan, regarded by some White House officials as a hard-liner, has assumed new prominence in the talks.”

• Dennis Wilder, a former China analyst for the C.I.A., told the WaPo, “I am sure his instructions are to get tougher with the U.S.”

U.S. officials have “privately expressed concern this week that the Chinese are digging in and avoiding firm commitments,” Mr. Costa and Mr. Lynch add.

More: How companies that wanted tariffs are faring now.

The White House will host a gathering today to discuss “the opportunities and challenges” of social media. But it will also feature right-wing trolls who side with President Trump’s gripes about U.S. tech giants.

Among those invited: James O’Keefe, the right-wing founder of Project Veritas; Bill Mitchell, a pro-Trump conspiracy theorist; and a pseudonymous Twitter user who created a doctored video of former Vice President Joe Biden that Mr. Trump retweeted. (More mainstream conservative groups like the Heritage Foundation are also expected to attend.)

Who hasn’t been invited: Facebook and Twitter, according to Kevin Roose of the NYT. Both have faced criticism from conservative activists as allegedly punishing right-wing viewpoints, which the companies deny. The tech giants have taken steps to reduce the spread of misinformation and hateful content, which have resulted in bans and takedowns for some high-profile conservatives.

Some experts say the aim of the gathering appears to be rallying Trump supporters around bias claims and a way to “intimidate social media companies out of enforcing their rules,” Mr. Roose writes.

It may also “serve the valuable purpose of shifting attention from the halls of Washington, where Mr. Trump holds ultimate power, to the platforms of Silicon Valley, where he doesn’t,” Mr. Roose adds.

The Trump administration will investigate whether a French plan to impose a tax on American tech giants like Facebook and Google is an unfair trade practice that should be punished with retaliatory tariffs, Ana Swanson of the NYT writes.

• “France has proposed a 3 percent tax on the revenues some companies earn from providing digital services to French users.”

• “French officials expect the annual tax bill for these companies to amount to about 500 million euros, or about $563 million.”

• The policy is partly born of frustration in France over slow progress being made by the Organization for Economic Cooperation and Development, which includes the U.S., to develop a global deal for similar tax plans.

“France is unfairly targeting the tax at certain U.S.-based technology companies,” the U.S. trade representative said yesterday, adding that the tax focused on services “where U.S. firms are global leaders.” The investigation is being pursued under the same legal provision that President Trump has used to impose tariffs on China.

This is the administration’s latest attempt to protect American companies, Ms. Swanson writes, adding, “The measure will open yet another front in a global trade fight that the Trump administration says it has undertaken to level the playing field with both allies and adversaries.”

The troubled German lender is cooperating with an American investigation into whether it violated anti-money laundering laws with its work for 1MDB, the scandal-ridden Malaysian investment fund.

Prosecutors are particularly interested in Tan Boon-Kee, a former executive at the firm’s Hong Kong office who helped 1MDB raise $1.2 billion in 2014. Ms. Tan had previously worked at Goldman Sachs with Tim Leissner, a banker who pleaded guilty last year to helping the fund steal Malaysian government money.

Ms. Tan left Deutsche Bank last year after the firm discovered that she had traded emails with Jho Low, the central figure in the 1MDB scandal, according to the WSJ.

The German firm’s involvement with 1MDB dates to 2009, though U.S. authorities have suggested that the lender was misled by the investment fund’s executives.

It’s the latest headache for Deutsche Bank, which also faces scrutiny for ties to a money-laundering scheme in Denmark and potentially failing to report suspicious activity in accounts linked to Jared Kushner, among other scandals. The firm has begun a severe self-help plan this week that involves laying off 18,000 employees.

Deutsche Bank has reportedly added Dagmar Valcárcel, who was most recently a legal executive at Barclays, to its supervisory board.

Caen Cantee, an early employee of Lime who worked most recently on international expansion, has left the dockless electric scooter company.

The gut health start-up uBiome, which is under investigation by the F.B.I., has reportedly laid off half of its employees.

Jay-Z has joined the cannabis start-up Caliva as chief brand strategist.

Deals

• The cybersecurity software company McAfee is reportedly planning an I.P.O. (WSJ)

• Reformation, a clothing label popular with millennials, has sold a majority stake to the private equity firm Permira. (NYT)

• Reliance, the Indian business empire run by Anil Ambani, said it plans to sell $3.2 billion worth of assets to pay down debt. (Bloomberg)

• SwissRe has called off an I.P.O. of its British life insurance business, ReAssure, after weak demand from potential investors. (Reuters)

• The private equity firm Vista Equity Partners has reportedly raised $850 million for its second investment fund aimed at early-stage software companies. (Reuters)

Politics and policy

• The White House is reportedly pushing Congress to quickly raise the debt ceiling after a recent report showed the federal government will breach it earlier than expected. (WaPo)

• Britain said that Iranian ships tried to block a British commercial vessel in the Persian Gulf. President Trump also issued new threats against Tehran. (WSJ)

• Britain’s ambassador to the U.S., Kim Darroch, resigned in the wake of a ferocious response from Mr. Trump after candid memos he had written about the administration were leaked. (NYT)

• An audio recording suggests that Russian officials discussed funneling oil money into the far-right party of Italy’s deputy prime minister, Matteo Salvini. (BuzzFeed News)

• Federal authorities are said to be planing nationwide raids to arrest thousands of undocumented immigrant families on Sunday. (NYT)

Tech

• Treasury Secretary Steven Mnuchin has reportedly urged U.S. tech companies to seek licenses to continue selling to Huawei. (WSJ)

• The Trump administration reportedly hasn’t allowed members of Congress to read a year-old classified directive outlining new rules for the military’s cyberwarfare practices. (WSJ)

• The S.E.C. has allowed the blockchain start-up Blockstack to sell digital tokens — effectively a regulated version of an initial coin offering. (CoinDesk)

• Representative Alexandria Ocasio-Cortez, Democrat of New York, was sued for blocking critics on Twitter. (NYT)

• Amazon’s Alexa will provide British users with medical information. What could go wrong? (NYT)

• Personalized learning, championed by Silicon Valley, is actually messy to put into practice. (New Yorker)

Best of the rest

• PG&E reportedly knew for years about wildfire risks its power lines posed, but didn’t do anything to fix them. (WSJ)

• The Nordic model trades high taxes for a generous social safety net. Can it survive an influx of immigrants? (NYT)

• Harvard has suspended Roland Fryer, a superstar economist, after he was accused of sexual harassment. (NYT)

• Would you eat this fake fish? (NYT)

Thanks for reading! We’ll see you tomorrow.

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