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The Federal Reserve Contemplates a Rate Cut: CEO Daily

July 31, 2019, 11:07 AM UTC

Good morning. Katherine Dunn in London here, filling in for Alan.

It’s officially Federal Reserve Day, when bankers, traders, and markets the world over watch to see whether Fed Chairman Jerome Powell will cut interest rates for the first time since 2008.

It’s not expected to be a nail-biter. Market traders expect a “100% chance” of a rate cut, according to CME Group data. The only (relatively small) disagreement is over whether the Fed will cut rates by 25 basis points or 50. (A 25 basis point cut is the going expectation.)

The U.S. economy has continued to expand, so the cut is seen as a kind of insurance policy for a world economy that is increasingly feeling the drag of slowing global growth, rising trade tensions—particularly between the U.S. and China—and all manner of economic “uncertainties,” a word that has come up again and again this earnings season.

Domestically, a cut could also address the low inflation that has bedeviled the Fed recently, even as Powell himself has said that the job market remains strong and economic growth is moderate.

If the rate cut comes as expected, the next question is whether more cuts are in the offing, and why. Some analysts say one well-timed rate cut, to test the waters and keep growth chugging along, could be enough right now, while others expect that the Fed could take a steady but gradual approach and keep cutting this year.

The political environment can’t be ignored, either. President Donald Trump has regularly put pressure on the Fed to loosen monetary policy, and has said that he himself wants to see a large cut. But the central bank is an independent institution, and when lowering rates, Powell also faces a delicate dance: justifying and explaining any rate cuts sufficiently to bat away worries that the bank is ceding to pressure from the president.

More news below.

Katherine Dunn



Apple and the iPhone    

Apple's results were well-received late on Tuesday, as revenue rose 1% from a year earlier, eclipsing analyst expectations by about $400 million. But that had little to do with Apple's flagship product, the iPhone—sales fell 12% in the quarter, and it was the first time since 2013 that the phone didn't make up the majority of Apple's quarterly revenue. Customers are now holding onto their phones longer, and that means Apple is increasingly dependent on other services. Fortune / WSJ

Samsung's Smartphone Demand Drops 

Just as Apple has seen a declining appetite for new smartphones, Samsung has felt the struggle, too. The company's net profit dropped 53% in the quarter, largely on the back of softening demand for buying new phones and gadgets. In the mobile unit, revenue rose, but operating profit dropped 42%—signs of promotions to push sales, rather than fresh demand, which had fueled profits in the past. But other parts of its business have also felt the crunch, largely from trade tensions between the U.S. and China, as well as trade restrictions from Japan. WSJ

Airbus Earnings Take Off 

Amid a painful year for its rival, Boeing, Airbus reported that earnings more than doubled in the first half of 2018, on the back of stronger deliveries. That has put it on course to be the world's largest planemaker, eclipsing a Boeing hobbled by the grounding of the 737 Max. However, it was not all good news for Airbus, which is struggling with delays at a plant in Hamburg, and was loudly sounding the alarm on Wednesday over the risks of a no-deal Brexit. FTReuters

Ex-Audi Boss Charged

German prosecutors on Wednesday charged Rupert Stadler, formerly chief executive of German carmaker Audi—part of the Volkswagen group—in connection with the emissions scandal. The office of the public prosecutor in Munich said Stadler was one of four defendants charged with fraud, false certification, and criminal advertising practices. Stadler was already arrested in June of last year as part of the emissions scandal, and spent months in prison. Reuters


Death of India's Coffee King  

After a massive search, Indian authorities said the body of VG Siddhartha, the "coffee king of India" was recovered from a river in Karnataka. Siddhartha, the boss of Coffee Day Enterprises—India's biggest coffee shop chain—had been missing since Monday. His death has left questions about the future of the company, whose shares were sinking sharply on Wednesday. He had recently entered into talks with Coca-Cola over potentially selling part of the business, which is one of India's most ubiquitous domestic brands. FT

U.S. Women's Soccer Coach Steps Down 

After successfully bringing the U.S. women's soccer team to consecutive World Cup titles, coach Jill Ellis will be stepping down in October. The time frame isn't unusual, although there had been speculation she might stay on until the 2020 Olympics in Tokyo. In addition to being the coach for the women's team, she has been development director for the U.S. Soccer Federation and is the only woman to have the U.S. Soccer Pro License, the sport's top certification in North America. WSJ

Family Offices and Dirty Money   

In London, the wife of the former chairman of Azerbaijan's biggest bank—now in jail—is in court, facing questions about how the couple afforded their elaborate lifestyle, complete with a $14.3 million townhouse in Knightsbridge and shopping sprees at Harrods. She's being forced to do so under a new legal tool in the U.K. called an "unexplained wealth order," and the case is also raising questions about the tools used to allegedly launder the money: including "Swiss army knife"-style family offices. Bloomberg

Even Funerals Are Being Live Streamed 

There's been a rapid shift in the funeral industry: funerals are offering increasingly high-quality live streaming, a trend that's already occurring in other kinds of family events, including weddings. But the biggest takeaway? This is a development in tech that families are usually extremely grateful for. It allows more friends and family to watch the broadcast, and it means the event can be rewatched easily, which can help with the grieving process. Wired

This edition of CEO Daily was edited by Katherine Dunn. Find previous editions here, and sign up for other Fortune newsletters here.