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December 13, 2017

Good morning,

The Federal Reserve is all-but certain to raise the target for its key Fed Funds interest rate later today, in Janet Yellen’s last meeting as chair of the central bank. That will take the target to 1.25% to 1.50%, a range that, for all of the disinflationary factors marauding across the global economy, still looks low for a country that is in the eighth year of an expansion, is running increasingly close to full capacity, and is driving financial asset prices to exuberant new highs.

A rate hike today will mean that the Fed has—just—delivered on its guidance of raising rates three times this year, while starting on the task of unwinding the huge purchases of bonds it made in the post-crisis era. However, the more important news will be in the language Yellen uses to describe the outlook for next year, and in the ‘dot plot’ that signals where Fed policymakers think rates ought to go in that period.

So far, the working assumption in markets has been for three hikes of 0.25 percentage point each next year, but the risk—especially in view of an imminent and substantial fiscal stimulus—must be that at least some policymakers start pushing for a faster pace of tightening: with the world economy firing on nearly all cylinders, it surely won’t be as easy next year for the Fed to stay marginally ‘behind the curve’ as it has done so far (at 4.1% in November, the jobless rate is already where the Fed expected it to be at the end of 2018). Inflation may still be running below expectations, but the last crisis happened not least because the Fed was lulled into a false sense of security by a CPI that hardly reflected the dire threat from the financial system.

Appearances are important too. It will spare the incoming Fed chairman Jerome Powell some embarrassment if the prospect of a fourth hike is introduced already today, by someone who won’t have to face political pushback, rather than as a direct response to the tax plans of the man who nominated him for the job.

For all that, mine is still a minority view. According to The Wall Street Journal‘s survey, most economists still see only three hikes next year. I would venture that if it really does end up being only three, it will be because the mere prospect of a fourth causes some serious market tantrums in the meantime. Time will tell.

News below. (Alan Murray will be back tomorrow.)

Geoffrey Smith
@alansmurray
geoffrey.smith@fortune.com
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Top News

Ray Moore Judged

Doug Jones won the special election in Alabama to become the state's first Democratic Senator in over 20 years. The result narrows the Republicans' majority in the Senate to 51-49, but shouldn't derail the passage of the tax reform bill. The implications for the GOP, and more particularly for Steve Bannon's attempts to remold it, ahead of the 2018 mid-tem elections are potentially far-reaching, even if not too much should be read into a contest that revolved around the unique personality of the defeated Republican candidate Ray Moore. Time

Facebook Yields on Tax Structure

Facebook is making changes to its tax structure under pressure from U.S. and European authorities. CFO Dave Wehner said Tuesday it will in future pay taxes in the countries where it actually makes ad sales, rather than funneling international business through its Irish subsidiary, where it enjoys a disproportionately low tax rate. The EU is working on plans to force digital companies to book sales closer to the ultimate buyer, making it easier for tax authorities to capture the value-added. Whether it will be enough to mollify countries like the U.K., which are also mulling making social media networks legally liable for the content they distribute, is far from clear. Bloomberg

Boeing Hits New Highs

Boeing stock hit another record high after it announced an $18 billion stock buyback program (stretching out over the next 30 months) and raised its dividend. The top-weighted component of the Dow Jones Industrial Average is now up 86% for the year, a performance that will allow management to brush off minor irritations like Boeing's effective exclusion from a new Canadian Defense Ministry tender for the next generation of fighter jets. Ottawa has abandoned plans to buy Boeing's Super Hornet jets as a stopgap measure, in retaliation for Boeing's efforts to shut Bombardier out of the U.S. market for regional airliners. FT, metered access

Panasonic Branches Out From Tesla

Elon Musk's battery supplier at Tesla could soon have a more important customer, at least in terms of volume. Panasonic said it's likely to expand a partnership for batteries with Toyota Motor, reflecting the latter's decision earlier this year to develop fully electric vehicles. That was a move away from a strategy based on hybrid and fuel cell-powered engines. Fortune

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Around the Water Cooler

Energy Security Strikes Back

In a year when a global glut in oil has dominated energy markets, security-of-supply issues have reared their ugly head. A North Sea pipeline that brings ashore 450,000 barrels of oil a day has been shut down for unscheduled repairs, pushing Brent crude prices to a 2½ year high. It also shut in production at fields that meet 10% of U.K. gas demand on the same day that an explosion knocked out the Baumgarten gas hub in Austria, one of the biggest conduits for Russian gas coming into Europe. Energy prices have spiked across Europe as a result, and the incidents have illustrated that global markets too are no longer as able to absorb supply shocks as they were six months ago. Fortune

Indiegogo Plans to Coin It

Crowdfunding site Indiegogo announced plans to offer a service vetting ‘initial coin offerings', in an intriguing variation on the theme of making money from digital currency mania. ICOs have often outdone services like Indiegogo's traditional crowdfunding this year, even though the business cases for many, if not most, don't bear even cursory inspection. In all, they've raised $3.5 billion year-to-date, more than Kickstarter has in its entire eight-year history. Indiegogo's first ICO, which will start this week, aims to raise $5 million for a ‘Fan Controlled Football League' that allows people who buy its coins to draft players, hire and fire coaches, and call plays in real time. Those four Fed hikes can't come quickly enough. Fortune

Toyota, Western Digital Kiss and Make up

Toshiba and Western Digital agreed to settle a dispute over Toshiba's planned sale of its 50% stake in their NAND memory-chip JV. That clear the way for the Japanese company to repair a balance sheet devastated by the bankruptcy of its nuclear subsidiary Westinghouse. Under the settlement, the two companies will continue their partnership, jointly investing in chip production in Japan and sharing the company's output. A consortium led by Bain Capital and including Apple and Dell, two big customers, is set to buy Toshiba out of the business. WSJ, subscription required

A Little Over-Igor

Meanwhile in Russia, one of the most spectacular asset grabs in the whole of Vladimir Putin's presidency gained momentum. State oil company Rosneft, whose CEO Igor Sechin is widely seen as the second most powerful man in the country, secured the freeze of all the main assets of Vladimir Yevtushenkov's Sistema conglomerate from a pliant Moscow court. Sistema, which owns Russia's biggest mobile carrier MTS, is resisting the expropriation by the state of Bashneft, a smaller oil producer that was subsequently ‘privatized' to Rosneft at below-market prices. Rosneft's poor management has left it with a rising debt burden even though crude prices have doubled in the last 18 months. Rosneft claims it isn't seeking control of Sistema; the stock market appears to think otherwise. Reuters

Summaries by Geoffrey Smith; geoffrey.smith@fortune.com

@geoffreytsmith

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