Hurricane Milton and the Economy

Of hurricanes and inflation

The economy and the stock market have been defying the low-growth doomers for more than a year. Mother Nature is now testing that record.

Hurricane Milton slammed into Florida’s populous western coast, ripping a path of destruction that could cause billions of dollars in damages. S&P 500 futures fell slightly overnight after the benchmark index hit its 44th high of the year on Wednesday.

Adding to the market tensions: Investors await another big inflation report this morning.

The Fed is on high alert this hurricane season. Raphael Bostic, the Atlanta Fed president, said the one-two punch packed by Milton and Helene could affect the economy for at least six months, particularly by snarling supply chains.

Officials also worry that the closure of the Port of Tampa Bay, Florida’s largest, could disrupt fuel supplies across a portion of the state from Tampa to Orlando that is an economic powerhouse, accounting for about 2.8 percent of the national G.D.P.

Here’s the latest:

• The storm landed as a Category 3 hurricane and weakened to a Category 1 overnight. But it has spawned deadly tornadoes and huge storm surges. One striking image of the storm’s ferocity: Winds tore off a big portion of the roof of Tropicana Field, home to the Tampa Bay Rays baseball team.

• Almost three million residents are without power.

• The storm will probably exit the state Thursday.

Thursday’s economic data is expected to bring better news. The Consumer Price Index report, due at 8:30 a.m. Eastern, is predicted to show that inflation is continuing to cool, despite a rebound in the jobs market and solid wage growth.

Here’s what to watch:

• Economists forecast that headline C.P.I. rose last month by 2.3 percent on an annualized basis — the lowest increase since February 2021, according to Deutsche Bank.

• Core inflation, which strips out volatile food and fuel prices, is expected to show a 3.2 percent annual increase.

• Shelter inflation, which has an outsize importance in C.P.I. reports and is weighing on younger and lower-income voters, is expected to rise again, Goldman Sachs economists predict.

The White House would welcome evidence of slowing inflation. Donald Trump has made rising prices a central point in his attacks against Vice President Kamala Harris and the Biden administration’s handling of the economy. That message has helped him gain an advantage over Harris in some polls on that crucial issue.

But Harris has begun to eat into his lead in that area, with her support particularly strong among female voters. The big question: Can inflation moderate enough to encourage undecided voters to back Harris?

Wall Street will be watching closely, too. A low C.P.I. figure would probably increase bets that the Fed will cut interest rates two more times this year. The futures market this morning was penciling in a 0.25 percentage point reduction at next month’s meeting.

HERE’S WHAT’S HAPPENING

OpenAI reportedly doesn’t expect to be profitable until at least 2029. Internal projections by the company behind ChatGPT suggest that its losses will hit $14 billion in 2026 before revenues catch up, according to The Information. In other artificial intelligence news, a start-up run by Bret Taylor, OpenAI’s chair, is said to be near a deal to raise funds at a valuation surpassing $4 billion.

TD Bank is said to face a $3 billion fine over money-laundering charges. The Canadian lender is also expected to agree to limit its growth in the United States to settle federal accusations that it didn’t properly monitor banking activity by drug cartels, according to The Wall Street Journal. TD has said that it’s working to improve its anti-money-laundering practices, and Bharat Masrani stepped down as C.E.O. in August in part over the issue.

Brown University rejects a student proposal to divest from companies with ties to Israel’s military. The vote by the school’s governing board (which is chaired by Brian Moynihan, Bank of America’s C.E.O.) was part of negotiations between protesters and administrators last spring. Separately, the University of Michigan’s student government voted to restore funding for campus activities and clubs, after pro-Palestinian representatives withheld the money unless the school made similar divestments.

New York State adopts a gun sales code

New York is joining the list of states seeking to use the banking industry to clamp down on gun violence.

Gov. Kathy Hochul signed legislation on Wednesday would require the use of a special transaction code to flag the sales of firearms and ammunition. The initiative, whose underlying idea is something Andrew has written about for years, has been gaining traction among gun-control advocates but has proved politically polarizing.

What New York is adopting: The bill would make gun-focused stores use a special merchant category code created in 2022 by the International Organization for Standardization. The state’s attorney general would be empowered to enforce the law, with potential fines up to $10,000.

New York is the third state to require use of the code, after California and Colorado. American Express, Mastercard and Visa have adopted it — after previously resisting the initiative.

Supporters say the code is a potent tool for combating gun violence. The idea is to make firearm sales easier to track by separating them from other retail purchases. “New York is establishing a common standard for all industries and ensuring that obviously suspicious patterns of firearm purchases can be detected,” said Zellnor Myrie, a New York state senator and a sponsor of the legislation.

But the initiative has drawn strong opposition. On the same day that California started requiring the code, four Republican-led states — Georgia, Iowa, Tennessee and Wyoming — banned it. Other states, including the Democratic-led New Jersey, are weighing a ban, too.

Card processors initially resisted the code’s creation, arguing that Congress, not companies, should be responsible for gun-control measures. Mastercard and Visa later said that they would support it, only to pause their decision amid opposition from Republican policymakers and Second Amendment advocates. The companies ultimately agreed to adopt it to comply with the California law.

On a national level, the code has drawn dueling legislation from Democrats and Republicans.

Musk’s robotaxi dream moves closer to reality

In recent months, Elon Musk seems to have drawn as much attention for his support for Donald Trump as he has for running his businesses.

But on Thursday he’s focused on a Tesla event in Hollywood highlighting the automaker’s robotaxi efforts — called “We, Robot” — in which he is set to unveil prototypes for a vehicle that he is betting the company’s future on.

Musk sees robotaxis as the key to a new era in transportation. He has said that Tesla’s so-called Cybercab would be an autonomous vehicle that underpins a new ride-hailing platform. Individual owners would be able to make money by letting their vehicles be used by others when the cars would otherwise be idle, an initiative that Musk has called “a combination of Airbnb and Uber.”

It’s part of his push to turn Tesla into more than a car manufacturer. In April, Musk said the company should be seen as an artificial intelligence robotics business. And he’s made big strategic moves in that direction, including killing plans to develop a cheaper Tesla model and cutting the team working on expanding its supercharger network.

Musk’s shift comes amid a slowdown in Tesla’s core business. Vehicle sales account for most of the company’s revenues, but the manufacturer has been hit by an industrywide slowdown and growing competition, especially from Chinese rivals.

That said, Musk has often played down sales slowdowns, and Tesla just reported its best- ever quarter in China, a key market.

Tesla faces serious hurdles. Experts warn that the company’s autonomous vehicle systems are much less capable than those used by Alphabet’s Waymo and General Motors’ Cruise. Tesla is forgoing the use of advanced sensors like lidar, making them more prone to safety issues: The federal authorities this year linked hundreds of accidents and at least 29 fatal crashes to the use of Tesla’s existing driver-assistance systems.

Analysts are also unsure whether the rent-a-Tesla network could turn a profit. Other companies, including Uber, are working on similar plans, and if too many owners make their cars available for robotaxi rides, any profits for them and for Tesla are likely to be tiny.

Investors appear willing to give Musk the benefit of the doubt. The Tesla chief has a history of overhyping robotaxis — he said in 2019 that they would be on the road by the end of the year — but shares in the company have largely risen since he began promoting the robotaxi reveal in April.

A Trump adviser’s plan to undercut Powell

Many economists and investors have been apprehensive about Donald Trump’s plans for the Fed should he win in November, especially given his stated desire to have more of a say in the central bank’s rates policy.

Jay Powell, the Fed chair, has strongly defended the institution’s political independence, and he was not a favorite during the Trump presidency. Now, Scott Bessent, a hedge fund chief and Trump adviser, is proposing a move that could undermine the Fed chair.

Trump should nominate and seek Senate confirmation of Powell’s replacement well before the Fed chief’s term expires in May 2026, Bessent told Barron’s. More on the idea:

While the nominee would have to wait to chair the central bank’s powerful Federal Open Market Committee, which sets one of the nation’s most important interest rates, that person’s guidance, predictions and potential criticism of the Fed’s actions would weigh heavily on financial markets.

“You could do the earliest Fed nomination and create a shadow Fed chair,” said Bessent. “And based on the concept of forward guidance, no one is really going to care what Jerome Powell has to say anymore.”

Bessent’s idea would be unprecedented but could succeed in Congress, analysts say. As president, Trump explored simply firing Powell for his rate-setting decisions. But he was advised that such a move would be legally complicated and could unsettle markets.

Critics of Trump’s calls to exert more control over rates policy assailed the proposal. Ed Yardeni, president of Yardeni Research and a longtime Fed observer, told Barron’s that it would “create a lot of noise in the market.”

THE SPEED READ

Deals

• BlackRock is said to be considering buying HPS, a move that would make the asset manager one of the biggest players in private credit. (Bloomberg)

• Bernard Arnault’s family is reportedly close to buying Paris F.C., a French soccer club, with Red Bull, in what would be the luxury tycoon’s latest push into sports. (Reuters)

Elections, politics and policy

• After pledging to eliminate taxes on tips, on overtime pay and on Social Security benefits, Trump is now promising to end the “double taxation of overseas Americans.” (NYT)

• The British pharmaceutical giant GSK agreed to pay up to $2.2 billion to settle lawsuits over accusations that Zantac, a heartburn drug, was linked to cancer. (NYT)

Best of the rest

• Ratan Tata, an Indian mogul who turned his family company into a global giant that owned brands like Land Rover and the tea maker Tetley, died on Wednesday. He was 86. (NYT)

• The Spanish tennis star Rafael Nadal will retire next month, ending a professional career during which he won 22 Grand Slam titles. (The Athletic)

• Bill Ackman’s new big bet: shorting Harvard. (Puck)

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