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Power Sheet – October 26, 2015

Lots of leadership news coming up this week, with Wednesday looking especially busy. House Republicans will vote on whether they want Paul Ryan to succeed John Boehner as Speaker; assuming they give him at least 218 votes, he’ll get the job the next day on a vote of the full House. Also Wednesday, the Republican presidential candidates will debate at the University of Colorado in Boulder. Ben Carson will attract extra attention now that he leads Donald Trump in Iowa polling, and Carly Fiorina will be trying hard regain the high poll numbers she achieved fleetingly after the last debate. This one, on CNBC, will focus on the economy, and, conveniently, the Fed will announce its latest decision on interest rates that day.

Responding to the Fed’s decision either way confronts business leaders with an important kind of test: how to judge whether the environment is changing in a long-term way, the kind of change that happens rarely and demands a big response. Current market rates for Treasury securities are signaling that investors believe there’s only a 6% chance Janet Yellen and the Fed will raise rates on Wednesday. Yellen has been saying the Fed intends to raise rates this year, for the first time since the financial crisis, but after Wednesday there’s only one meeting left.

Business leaders are being forced to think about a bizarre possibility. What if we’re in some kind of new economic world where rates stay about where they are for a very long time? No one running a business today has ever experienced such a world, which is why conventional wisdom for six years has held that rates must inevitably rise, soon. But we’re way past soon, and they keep not rising. Could something be going on that we’re just not understanding? And how is a business leader who is not a professional economist supposed to decide?

Good advice in these situations is to listen to what might be called the responsible fringe – respectable commentators advancing arguments that are way out of the mainstream. For examples, look back to the housing bust and financial crisis. Yale’s Robert Shiller, who later won the Nobel Prize in economics, was telling the world that housing prices were unsustainably high, but no one wanted to hear him. Nouriel Roubini was caricatured as Doctor Doom, which was a way of marginalizing him for his downbeat forecasts – there he goes again – except that he was right. The insightful fund manager Jeremy Grantham documented an unprecedented backward risk-return relationship – investors were accepting lower returns for higher risks – but most people preferred to ignore it.

No one knew in 2007 whether these analysts were right, but wise leaders considered the possibility. Today, similarly, no one knows if we’re in the secular stagnation that former Treasury Secretary Larry Summers has hypothesized, a long-lasting cycle of low interest rates and low growth. But each passing day makes the possibility more worthy of our attention.

Leaders always have to make decisions with insufficient information. Whatever the Fed does, it won’t show us the future. That’s why leaders need to think deeply about a long-term low-rate future that’s still unlikely but increasingly plausible.

Readers: For a Fortune feature, I’d love to get your nominations of “Books That Changed My Mind” – any book you’ve read in the past year that changed your thinking. Title and a couple of sentences of explanation are all we need.


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What We’re Reading Today

General Motors, union reach agreement

Moments before its labor contract was to expire, Mary Barra‘s company and United Auto Workers representatives agreed on a deal similar to the one Fiat Chrysler workers accepted last week. GM workers will now vote on it. UAW President Dennis Williams hopes to avoid a repeat of the FCA experience, when workers rejected the first deal he brokered. Detroit Free Press

Congress tries to revive Ex-Im bank

A group of House members wants to revive the Export-Import Bank, which Congress allowed to die in July. A House vote on re-authorizing the organization, which could come as soon as today, may pass, but whether it has enough support in  the Senate is unclear. General Electric CEO Jeffrey Immelt‘s shuttering U.S. factories and moving them overseas in response to the bank’s closing seems to have swayed some Republicans who voted to let the institution’s charter expire. NPR

Walmart battles vendors over shrinking shelves

As Walmart cuts the number of items on its Supercenter shelves, vendors worry about potentially losing tens of millions of dollars in sales. For Walmart CEO Doug McMillon, it’s a continuation of his bet that Walmart’s growth will come from middle- and upper-income consumers. WSJ

Wall Street’s friend inside Google

Ruth Porat, CFO of Google’s parent company Alphabet, is gaining Wall Street fans  by her transparent explanation of the company’s plans during earnings calls. Alphabet now breaks out earnings into Google and “Other Bets,” giving investors better insight into the company’s investments. Fortune

Building a Better Leader

Microsoft has the quietest room on Earth

Satya Nadella‘s employees use it to test audio equipment.  Science Alert

Sometimes the best employees get fired

Especially if their passion fades. Fortune

Nascar CEO talks about taking over a family business

One of Lesa France Kennedy‘s biggest hurdles was getting an invitation to meetings.  NYT

Worth Considering

Paul Ryan’s budget plans hurt federal employees

Ryan uses government employee pay as a “piggy bank” to help cut the deficit, charges Rep. Chris Van Hollen, a Maryland Democrat who has worked with Ryan on budgets and has a large constituency of government workers. Van Hollen’s accusation is a warning to Ryan as he prepares to become Speaker of the House. Washington Post

Biden speaks about near-Presidency bid

In an interview with “60 Minutes,” Vice President Joe Biden said there was no truth to the rumor that his son Beau‘s dying wish was for Joe to run for President. Biden also stated he didn’t think he could win, which eventually led to his decision not to run.  USA Today

Carly Fiorina’s inconsistent HP message

She alternated between a caring and touching leadership style and one that could be tone deaf, say workers who were Hewlett-Packard employees while she was CEO. Fiorina would speak admiringly of the modest Ford Taurus that HP founders drove, then describe her 52-foot yacht in newsletters. She could also be understanding, showering workers with praise right before leading a 30,000-employee layoff.  NYT

Fortune Reads and Videos

Chris Christie got kicked out of an Amtrak car…

…for breaking the quiet rule. Fortune

People want to know when Oracle will take on Amazon

But Larry Ellison remains silent. Fortune

CEO Hubert Joly saved Best Buy…

…and now he sees potential in the Internet of Things and customer service.  Fortune

Pipeline operators have taken a beating 

Is it time for a rebound? Fortune

Birthday Wishes

Hillary Clinton turns 68 today.  Biography

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Produced by Ryan Derousseau