Fed signals more economic challenges ahead

This is an audio transcription of the FT press briefing podcast episode: Fed signals more economic challenges ahead

Marc Filipino
Hello from the Financial Times. Today is Thursday, September 22. And this is your FT News briefing.

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The Federal Reserve raised rates again and Chairman Powell made it clear that the Fed would not ease. The FT has a scoop on a potential big shakeup at Credit Suisse. Plus, we’ll find out what companies are doing these days when hit by a ransomware attack. I’m Marc Filippino, and here’s the news you need to start your day.

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Marc Filipino
The Federal Reserve raised interest rates by 75 basis points on Wednesday, and Chairman Powell made it clear that the Fed would stay tough on inflation, even if it means economic hardship. He did not rule out a recession.

Jay Powell
The chances of a soft landing are likely to decrease to the extent that the policy has to be more restrictive, or restrictive for longer.

Marc Filipino
This means maintaining higher rates for longer. New projections show that the benchmark federal funds rate will rise to 4.4% by the end of this year. This is Colby Smith from the FT.

Colby Smith
The message from the Fed is clear. They won’t be backing down anytime soon in the fight against inflation. And they’re not pausing the tightening cycle anytime soon. And they certainly won’t be cutting interest rates anytime soon.

Marc Filipino
OKAY. So, Colby, I’m very interested in what happened in the markets yesterday because as soon as the announcement was made that the Fed was going to raise interest rates again, the markets went off a cliff. But then, as Jay Powell spoke, they slowly ticked off and they continued until the end of his press conference when they fell off a cliff again. What was happening?

Colby Smith
It’s hard to know, you know, what’s driving any of these market swings. But there was a lot to take away from this meeting. On the one hand, you had this extremely hawkish message from the Fed.

Jay Powell
We will continue until we are satisfied that the job is done.

Colby Smith
But on the other hand, President Powell also talked about the fact that at some point it will be necessary to slow the pace of interest rate increases. So the markets could have picked up any of those themes, but I think it’s remarkable that they ended the day much lower, because that’s the kind of reaction, I think, that those responsible for the Fed were hoping to see.

Marc Filipino
Powell also mentioned that the housing market may need to undergo a correction. What did he mean by that?

Colby Smith
So I think over the last few years we’ve seen this pretty remarkable rise in house prices. And what we’ve seen, as the Fed has raised interest rates, which in turn has influenced the cost of mortgages and other instruments to borrow against housing, we’ve seen some of that demand descend from its heights. And what Powell was referring to was the fact that this is just one of the sectors that is going to have to cool further for the Fed to see the necessary moderation in inflation that it seeks to achieve.

Marc Filipino
Colby Smith is the FT’s US economics editor.

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The FT has learned that Credit Suisse is considering splitting its investment bank into three parts, among other structural changes. The Swiss lender is trying to ride out years of scandals, and that plan would be to move away from risky investment banking to focus more on wealth management. This is the FT’s European banking correspondent, Owen Walker.

Owen Walker
Credit Suisse has been a major player in global investment banking for at least 40 years. So to really pull out of this on such a large scale – when you’re selling off parts of the business, you’re laying off workers, you’re closing down parts of the business – you know, that’s a very dramatic step. To really focus the business on wealth management and say that’s your forte. You change the characteristics and the way the bank is perceived internationally. So, you know, this is probably the biggest overhaul of the bank in four decades.

Marc Filipino
And there are two reasons for this?

Owen Walker
You know, it’s a combination of a new president who’s only been in the job for six months, a new CEO who’s been in the job for two months, the share price is less than 5 Swiss francs, which is a record of at least three decades. Shareholders are therefore desperately waiting for answers. They would find it very expensive to raise funds in the debt markets. It’s just a combination of everything that comes above them. That’s what UBS did a decade ago, and they’re kind of reaping the rewards. And that’s, you know, probably something that Credit Suisse should have done in much sunnier times.

Marc Filipino
This is the FT’s European banking correspondent, Owen Walker.

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So the other day I was CEO of a tech company, and all of a sudden this message popped up on my laptop.

sound clip
[Notification sound] We’ve been expecting you. We know that your annual income is 100 million dollars and we demand a ransom of 1.7 million dollars. To protect your business, you must pay. Do you understand?

Marc Filipino
It was a ransomware attack. This is when cybercriminals hack into your organization, freeze or steal your data, then demand money to get it back or they make it public. Ransomware attacks have tripled in the past three years. Fortunately, I was just a victim in a game on FT.com. The goal is to negotiate your exit from this kind of attack. The game is based on reporting by Hannah Murphy of the FT. She joins me now to talk more about it. Hi Hannah.

Hannah Murphy
Hi there. Hi.

Marc Filipino
Hannah, break this down for me. What is the first thing that happens when a CEO or the head of an organization suffers a ransomware attack? Where are they going?

Hannah Murphy
CEOs have several options. They can take matters into their own hands, but many will turn to what is called an incident response cybersecurity company that helps them in those critical times. And also there are so called ransomware negotiators, those kind of intermediaries who will help you accept a ransom payment request and try to negotiate that down to the lowest possible amount.

Marc Filipino
OKAY. So what do negotiators do in this kind of situation? What kind of strategies do they have?

Hannah Murphy
Speaking to the negotiators themselves, many say that some sort of delay, delay, delay tactic is best. First, because it gives you time to figure out who your adversary is, to learn exactly what they want, to learn exactly what data they have, how deep they are in your systems. It will also save you time getting your systems back up and running and assessing the damage on your end. I’ve even heard negotiators talk about delaying and delaying and delaying until the criminal kind of gives up. The suggestion being that the ransomware criminals themselves are part of highly organized gangs that are somewhat sophisticated like a commercial corporation. And these criminals may have targets they are meant to hit. And it’s kind of embarrassing for them to go to their boss and say, sorry, I only managed to negotiate a huge discount with this target. And it might be easier for them to say, Oh, the target just wouldn’t pay. And so let it be.

Marc Filipino
It’s kind of amazing that hackers have quotas like the rest of us. It is also quite amazing how sophisticated these ransomware groups have become.

Hannah Murphy
Yeah, there have been leaks inside these organizations that show exactly how, you know, they have kind of a corporate org chart and different people playing different roles. So someone will take care of the money laundering once the ransom payment comes in crypto, who will try to clean this up somehow. Another person will be somewhat responsible for deploying the hack, gaining access to systems, and finding vulnerabilities in company systems. And another may be the person sitting on the other side talking to the ransomware negotiator and trying to use as much leverage and pressure to get him to pay as possible.

Marc Filipino
So Hannah, as you point out, there are so many more ransomware attacks. They have tripled in the past three years. And a big reason for that is the shift to remote working which has left many IT systems vulnerable. But does that mean there are more of these criminals with the super-sophisticated technological know-how?

Hannah Murphy
It used to be that if you were a ransomware attacker, you had to have incredible technical knowledge, you had to maintain this very sophisticated code, and be able to find vulnerabilities in companies and deploy them. Today, there has almost been a democratization of this criminal enterprise on the dark web, thanks to which it has developed what is called ransomware as a service. So I may not have any technical knowledge, but I can buy a ransomware stream and pay for a list of potential targets, then pay someone else to put it all together and try to make a hack for me.

Marc Filipino
Hannah Murphy is technical correspondent for the FT. Thank you, Hannah.

Hannah Murphy
Thank you very much for having me.

Marc Filipino
And if you want to play the ransomware game I talked about earlier, we have a link to it in the show notes. Just so you know, I was able to negotiate my ransom down to 1.2 mins from 1.7 mins. Not to brag, but let me know if you can beat this.

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Before we go, a quick reminder that News Briefing listeners can get half an annual subscription to FT.com. For $187 a year or $40 a month, you can read all about the Fed or try to beat my high score on the ransomware game or enjoy Alphaville. Do what you want. Just go to FT.com/briefingsale. It’s FT.com/briefingsale. And as always, we’ll have a link to that in the show notes.

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You can read more about all these stories on FT.com. This has been your daily press briefing on FT. Be sure to check back tomorrow for the latest trade news.

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