The Fed’s Not Finished

Plus: Data centers increasingly rely on a precious resource: water. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

July 27, 2023

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TOGETHER WITH

Good morning.

British billionaire Joe Lewis, the owner of Tottenham Hotspur football club, is in big legal trouble. The US Securities and Exchange Commission indicted Lewis on allegedly “orchestrating a brazen insider trading scheme,” repeatedly abusing his corporate boardroom access to provide insider information to friends, romantic partners, personal assistants — even the pilots of his private jet — often coupled with loaning them the funds to place massive stock market bets.

Lewis will be released on a $300 million bond secured by his yacht and said private jet, a US prosecutor said. Talk about an own goal.

Morning Brief

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It’s time for another interest rate hike.

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AI slurps up more than just data.

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Wiping Apple and Google off the map.

Fiscal Policy

Jerome Powell Resumes His Rate Hike Campaign

(Photo by Federal Reserve Board of Governors via Flickr)

They’re baaaack.

After a summertime rate-hiking hiatus last month, the Fed raised interest rates again Wednesday, this time to a 22-year peak. But what happens going forward — amid slowing inflation and incredibly low unemployment — is anyone’s guess, including, it seems, Fed Chair Jerome Powell.

What’s Eating Powell?

The quarter-point rate hike brings interest rates to a target range of 5.25% to 5.5% — and an uncertain vision of what comes next. On the one hand, Powell said he was pleased by the consumer price report that showed inflation increased just 3% year-over-year in June, well down from a 9% peak and the lowest mark in about 15 months. He also said the Fed has upgraded its assessment of economic growth to “moderate” from “modest,” an outlook assuredly sunnier by at least a degree or two, and says the Fed is no longer projecting a recession. “We’re seeing a strong economy,” Powell noted.

Mission accomplished then? Not exactly. Powell also said the white-hot labor market would still likely need to take a hit to lower inflation, and that he doesn’t see inflation falling to the Fed’s 2% target until at least 2025. And while he said the Fed isn’t committed to raising rates when it meets again in September, he didn’t rule out a back-to-back hike. However, Powell did make a firm and hawkish commitment of refusing to lower rates this year as well. If he sounds stuck between optimism and pessimism, it’s because he may well be. According to a Bloomberg analysis published earlier this week, Powell is increasingly finding his Federal Open Market Committee fractured between hawks and doves — a divide that may dictate policy moving forward:

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The hawks, led by Fed Governor Christopher Waller, are hung up on how high service prices are still driving inflation, which they blame on the tight labor market’s increased wages. Some hawks even pushed to raise rates last month, when the campaign went on pause, Bloomberg reports.

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The doves, led by Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee, say they’ve already compromised enough amid the most aggressive rate hikes in decades. They reject the need to cool the labor market, and argue interest rates will effectively increase with disinflation anyways, aka “passive tightening.”

Bonds, Stocks and Bonds: One group that isn’t too happy with Powell’s latest remarks: quick-twitch quant-heavy trading firms, which can execute a series of killer trades in the span of a Powell press conference, according to another Bloomberg report. The stock market and bond markets were reliably spiking as much as 2% during Powell’s hour-long pressers throughout the year, Bloomberg found. Quant firms essentially capitalized on the widespread perception of Powell’s modest dovishness, buying big and selling quickly before markets could normalize at the end of the press conference. But Powell’s appearance on Wednesday delivered a small market dip. Even algorithms, it seems, don’t enjoy the indecisiveness.

– Brian Boyle

Climate

The AI Race Could Drink Up Precious Water

It turns out the real thirst trap is AI.

Thames Water, London’s water utility, told Bloomberg it’s looking at ways to restrict water supply to data centers at times of high demand. And that’s in the UK, which is a) very rainy and b) surrounded by ocean — in more drought-prone countries, the demands of ever-thirstier data centers could lead to major clashes with locals, as detailed in a second Bloomberg report.

Waterworld

Data centers use water to cool the semiconductors that whirr inside them. It’s tough to get a precise read on exactly how much water the average data center uses, but it’s highly likely that the commercial adoption of generative AI will up their usage. “More sophisticated algorithms such as generative AI systems need large-scale databases and computer power to be trained and developed,” Dr. Ana Valdivia, an AI expert at the Oxford Internet Institute, told The Daily Upside. Just training Chat-GPT3 used 700,000 liters (185,000 gallons) of water according to a research paper published in April by the University of California, Riverside, and the University of Texas, Arlington.

The generative AI boom is less than a year old, but already Thames Water wants to wean London data centers off water at times of heightened need:

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“Whilst we are looking at physical methods to reduce water use, including introducing flow restrictions on pipes, we prefer to take a collaborative approach with data centers, including encouraging them to explore water reuse and recycling options on-site,” John Hernon, strategic development manager at Thames Water, told Bloomberg.

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Some locals in a small town in Spain are protesting the building of a new data center for Meta, which the company predicts it will use 195 liters per second (51.5 gallons) at peak periods. “People are not aware of the amount of water that goes into watching a kitten meme,” Aurora Gómez, a spokesperson for the resistance group, told Bloomberg.

It’s not just in Spain that tensions are rising, as Dr. Valdivia said conflicts with locals have also arisen in Chile and the Netherlands.

Mango Hard or Go Home: The immediate effects of climate change are becoming apparent in Mediterranean fruit salads. Southern Italy now produces three times the number of mangoes, avocados, and bananas than it did five years ago, according to The Wall Street Journal. A guide told this reporter in Taormina last October that the one tropical fruit Sicilian farmers refuse to grow is pineapple, lest someone try putting it on a pizza.

– Isobel Asher Hamilton

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Tech

Big Tech Allies Map Out a Challenge to Google and Apple

Turn left onto… war.

An organization founded by Meta, Microsoft, Amazon, and TomTom has launched its first open-source location dataset, giving developers who want to integrate maps into their platforms a potential alternative to forking over their hard-earned cash to integrate maps made by Google and Apple. So what’s in it for the dream team?

Here Be APIs

For the past decade or so, if you were developing an app that uses a map somewhere in your interface, you probably used either Google or Apple Maps. Both require third-party developers to pay for the privilege via an application programming interface (API), although apps developed natively for Apple get off the hook.

Last year, Meta, Microsoft, Amazon, and TomTom banded together to form the Overture Maps Foundation (OMF), to which they all chipped in location data, to build an open-source, free-to-use map. On Wednesday, it launched its first dataset:

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The OMF said it had incorporated data “on over 59 million places worldwide” to aid mapmakers.

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“Anyone who works in mapping knows that the initial data is just the beginning,” OMF executive director Marc Prioleau said in a statement. “The ongoing challenge lies in maintaining the data amidst constant changes to meet user expectations,” he added. If you’ve ever driven the wrong way down a newly one-way street at Google Maps’ directions, you know what he means.

In the Crease: Exactly what commercial benefit OMF’s founding members glean from the alliance, other than just ticking off Google and Apple, isn’t entirely clear — unless they’re just sick of paying Google and Apple for holding the map.

– Isobel Asher Hamilton

Extra Upside

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Rev your batteries: Major automakers team up to rival Tesla’s EV charging network.

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Barbie party: Gap taps Mattel exec who revived Barbie brand as new CEO.

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Just For Fun

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Disclaimer

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