Fed’s Williams Says AI Is Now His Main Inflation Concern
Federal Reserve Bank of New York President John Williams said that among the drivers of inflation in the US, he’s most focused on demand driven by artificial intelligence. And if that demand persists, it could force the central bank to raise interest rates.
“If this creates a sustained impulse to demand relative to supply in inflation, I do think that’s the kind of situation where you don’t look through this,” Williams said Thursday during an event organized by the New York Fed. If inflation ends up being more persistent and meaningfully higher than his baseline forecast, he said, “then monetary policy would need to respond to that.”
“On the other hand, if it isn’t and things play out in a more benign way, I do think monetary policy is, and continues to be, well positioned,” he said.
As he monitors inflation, Williams said if the Fed’s preferred gauge of underlying price pressures — the so-called core version of the personal expenditures price index — comes in at a monthly pace of 0.2% over the second half of 2026, that would suggest inflation is on track to return to the Fed’s 2% annualized target.
(…) “If it’s higher than that, that would be a sign of inflation a bit more persistent.” (…)
There’s more than AI to worry about:
IEA warns of petrol and diesel supply crunch Refineries in Gulf and Russia hit by impact of wars, while global consumption has remained high
Restrictions on shipping through the Strait of Hormuz since the US and Israel attacked Iran in February meant that Gulf refiners were unable to ship their output, forcing them to reduce their operations.
At the same time, global petrol consumption has remained high, as governments have taken steps to protect consumers from high pump prices. “As a result, industry stock draws have exceeded normal rates,” said an IEA report published on Friday.
If the trend continued and refineries remained hampered by the conflict, petrol supplies would remain tight this summer, it said. (…)
The IEA said the outlook for global oil supplies would be considerably worse if shipments through the strait grind to a near-halt again.
Ukraine, meanwhile, has intensified its attacks on Russian refineries focused on exports of diesel and, to a lesser extent, petrol. Russian refineries appeared to be processing fewer than 3.8mn barrels a day, 1.6mn b/d fewer than last year, said the IEA, adding that attacks on Russia’s oil storage and infrastructure are also affecting the availability of refined products.
Russian diesel exports had halved in recent weeks, said the IEA, and Moscow on Wednesday banned exports of diesel in a bid to contain a domestic fuel crisis triggered by the strikes on its infrastructure.
In addition to restrictions on exports, Russia’s deputy prime minister Alexander Novak said the country would start importing refined products from abroad. China imposed restrictions on the export of refined oil products near the start of the Middle East conflict.
The resumption of tit-for-tat attacks between the US and Iran and Russia’s decision to limit its output means Beijing is less likely to allow oil products to be exported again.
The world’s refineries processed 6mn fewer b/d of crude in June this year than last year as export refineries in the Middle East were yet to restart operations, Russian throughputs were curtailed by attacks and plants in Asia were still running at reduced rates, said the IEA.
Meanwhile, US petrol demand, which accounts for almost one-third of worldwide consumption, remained robust despite pump prices nearly 50 per cent higher than before the war, the IEA said. The US summer driving peak was on track for a record high, as more Americans opted for domestic travel as a result of higher airfares, it added.
Concerns over an impending jet fuel supply crunch pushed some refinery operators to focus on the production of this fuel over those for road transport earlier in the Middle East conflict, tightening supplies of petrol and diesel later on.
More from the FT:
Russia is normally the world’s second-largest exporter of diesel, and has been rerouting its exports to countries such as Brazil, Turkey and the Middle East after the EU shunned its products following the full-scale invasion of Ukraine in 2022.
Diesel prices in the US climbed more than 13 per cent following the announcement, which followed a roughly 5.49 per cent increase in the price of crude oil as shipping through the Strait of Hormuz again slowed to a trickle.
Wholesale diesel futures in London rose as much as 14 per cent on Wednesday to $1,114 a tonne, the highest level in a month. (…)
“There isn’t enough capacity in the market now to make up for zero Russian diesel exports and perhaps even imports.”
Russia’s restriction of exports — and need to import fuel — has helped to keep global refined product prices high, even as crude oil prices have dropped in recent weeks. That has been a boon for refineries but is likely to stoke inflation. (…)
In June, the country’s diesel exports dropped to 7.93mn barrels, 45 per cent down month on month and 39 per cent below the three-month average, according to data from Kpler, an analytics company. (…)
Since late April, Ukraine has attacked all of Russia’s largest 10 refineries, including the biggest one in Omsk, where production was halted following an attack on July 6, as well as most of the smaller facilities. (…)
Several Russian regions have introduced rationing measures under which cars with odd and even number plates are allowed to refuel on different days, a tactic once used in the US during the Arab oil embargoes in the 1970s. Waiting times at fuel stations range from several hours to days, in one of the most visible signs for Russians of how the four-year war is now starting to affect life at home. (…)
FYI:
Diesel is the primary fuel for freight trucks, trains, barges, agricultural machinery, mining and most construction equipment, so almost every physical good uses diesel somewhere in its supply chain.
Because of that, a diesel price shock propagates much more broadly than a similar shock to gasoline, which is more concentrated in household transport.
Diesel is the most macro-sensitive barrel in the system.
China Omits Job Goal for First Time in Decades as AI Spreads
China dropped a numerical target for urban job creation over the next five years for the first time in decades, in an apparent nod to rising uncertainty over employment as AI spreads through the economy.
The government will instead keep new urban jobs at a “considerable scale” in 2026-2030, according to a five-year plan released Thursday by the Ministry of Human Resources and Social Security. Annual targets will be set flexibly based on each year’s conditions, it said. (…)
The omission highlights China’s challenge in shielding its vast workforce from AI displacement while chasing technological supremacy against the US and other rivals. (…)
Employment has long been a top priority for Beijing, which sees it as central to social stability. Officials have traditionally set the annual growth target with an eye on generating enough jobs. (…)
The ministry said it would address the employment impact of a shifting external environment — a likely reference to export strains from rising trade barriers — and emerging technologies. It pledged stronger measures to promote hiring and entrepreneurship in response to AI advances.
How Trump’s Tariffs Really ‘Work’ He hails Toyota’s investment, but what about the higher costs and manufacturing job losses?
(…) Toyota said it plans to invest $3.6 billion adding a second assembly line at a new San Antonio facility to produce its Tacoma truck and will create 2,000 jobs. The Japanese auto maker currently produces the Tacoma in Texas and Mexico, so it will be shifting production from south of the border. (…)
The Japanese car maker’s press release [made] no mention of Mr. Trump or his tariffs. Toyota says the new plant will provide “flexibility” from “advanced manufacturing technologies,” which may offset the relatively higher labor costs in Texas.
But the President is right that his tariffs are at work—in destroying U.S. jobs and raising prices. The U.S. has lost some 75,000 manufacturing jobs since January 2025, including 25,900 in motor vehicle and parts production. Manufacturing jobs have been declining since early 2023, so not all of these job losses stem from Mr. Trump’s border taxes. Some auto job losses are probably an overhang from the electric-vehicle fiasco.
Still, there’s no question his tariffs are raising costs for U.S. manufacturers. At the same time, foreign retaliation has hurt America’s farmers and depressed purchases of agriculture equipment. A slowdown in trade has also dented demand for semi-trucks.
Mr. Trump’s Section 232 national security tariffs on autos and parts have cost $35.2 billion through April of this year, and his steel and aluminum tariffs another $17.5 billion, according to U.S. government data. Mr. Trump and his advisers claim that foreigners pay his border taxes, but the evidence shows that U.S. companies, workers and consumers are picking up most of the tab.
The Anderson Economic Group estimates that auto tariffs on Canada and Mexico alone added about $1,600 to the cost of each car made in the U.S. last year. While auto makers absorbed some of the Trump tariff costs, they also passed on a large share to customers.
A March report by Cox Automotive found that tariffs drove a 10.4% increase in the average suggested retail price of a new car. Sticker prices rose by an estimated $5,000 to $8,900 for imported vehicles and about $1,600 to $2,000 for U.S.-made cars. Auto dealers—most of which are small businesses—absorbed about 4.5% of the manufacturer’s price increase.
Dealers have shed 6,100 jobs since Mr. Trump became President. Cause and effect? Manufacturers have also added fees to avoid raising base prices. Cox says GM and Ford charge “destination fees” of $2,795 for full-size trucks and SUVs. GM has increased such fees by 40% (about $800) on its Chevrolet Silverado. Call it the Trump tax.
Auto makers have also reduced imports, and in some cases discontinued sales, of entry-level models because the tariff costs render them unaffordable. One result is that younger and middle-class Americans are struggling to afford new cars, especially on the heels of the Biden inflation.
Many are driving clunkers for longer—and paying more for repairs if they break down—or buying used cars. New vehicle sales have averaged 15.9 million in the first half of this year, down from the 17 to 18 million in the five years before the pandemic. When people buy fewer cars, auto makers don’t need as many workers.
The uncertainty hanging over the extension of the U.S.-Mexico-Canada trade agreement is delaying some investments since businesses don’t know what the trade rules or tariffs will be in a few years—or even tomorrow with Mr. Trump. His trade oscillations and border taxes are a major reason the economy hasn’t performed as well as during his first term, and why Americans are so unhappy.
- Volkswagen’s Vast Jobs Factory Is Under Threat Like Never Before The German automaker wants to halve its lineup of cars as part of its second major overhaul in under two years
(…) The world’s second-largest automaker on Thursday said it would cut its lineup of cars by as much as a half and further reduce its production capacity as part of its second major overhaul in under two years.
“The cost reductions planned to date under the agreed programs are not sufficient in the current economic and geopolitical environment,” said Chief Financial Officer Arno Antlitz.
Volkswagen is facing challenges on multiple fronts. Chinese electric vehicles have eroded its business in China, which for years subsidized operations back home. Chinese brands are now making inroads into Volkswagen’s European heartlands, and President Trump’s tariffs have added billions of dollars in costs to its import-reliant U.S. business. (…)
Germany is an expensive country in which to produce cars, costing more per worker than anywhere else, according to the VDA, the local trade body. Even within Europe, automotive labor costs in countries such as Portugal, Romania and Hungary are less than a third of German levels, according to VDA calculations.
Energy is also more expensive in Germany than in many European nations, with the country no longer benefiting from cheap Russian gas in the wake of the war in Ukraine. Power costs are far lower in Spain and Portugal, where Volkswagen has some of its most competitive plants. (…)
The German manufacturer’s global auto deliveries declined 4.9% in the period, driven by a 30% drop for the BMW and Mini brands in China, it said Friday. Global sales of the main BMW car brand also fell.
The decline adds to the gloom for German luxury-car makers. Earlier this week, both Porsche AG and Mercedes-Benz Group AG reported falling deliveries on waning demand in China, where local manufacturers led by BYD Co. dominate on electric cars. At the same time, a protracted real estate crisis there erodes the spending power of affluent buyers. (…)
Sales rose in the US and in Europe, where demand for electric cars is up. BMW said the iX3 is on track to reach 100,000 orders, with the i3 sedan also sparking “high demand.”
The German manufacturer, which also owns the Mini and Rolls-Royce brands, expects an automaking margin of 1% to 3% this year after the measure declined to 5.3% in 2025. That would put BMW on course to be the least profitable major European automaker.
Zuckerberg Pledges ‘Aggressive’ Pricing With Meta’s First Pay-to-Use AI
In a crowded market for AI tools, Mark Zuckerberg wants to win on price.
Meta Platforms Inc. unveiled a version of its most advanced artificial intelligence model, Muse Spark 1.1, that includes a new paid tier for developers, marking the first time Meta has charged businesses for access to its models and providing a new revenue stream. It’ll be among the most affordable options on the market, Zuckerberg said in an interview ahead of the release.
“Since this is not an open source model, this is I think the first time that we’re doing a real serious API,” Zuckerberg said, referring to the application programming interface used to access Meta’s AI. “And the pricing is going to be very aggressive and attractive.”
The new model’s standout improvement is in its agentic capabilities, the Meta chief executive officer said. (…) Zuckerberg described Muse Spark 1.1 as having “state-of-the-art or very close to it” agentic reasoning and tool use. The model is also greatly improved when it comes to coding and Meta employees are using it internally to build products and features for various apps, he added.
Meta will also introduce a new Meta Model API system, which will be used to collect fees from developers. Its API pricing is roughly 25% of the cost advertised by other top models from OpenAI and Anthropic PBC. Developers will be able to use Meta’s model for free, but only up to a point; they’ll be required to pay for access after reaching a certain token threshold, Zuckerberg said.
“The pricing from some of the other labs is very extreme and has very high margins,” Zuckerberg said, underscoring that his strategy is to get Meta’s technology in front of as many people as possible. “We think that there’s a real ability to be able to offer frontier or very high-level intelligence at a much more affordable cost.”
(…) Meta’s models have not historically tested at the same level as those from Anthropic, OpenAI or Google. But Muse Spark 1.1 is more competitive, Zuckerberg said, and tested better than Google’s Gemini model in several categories related to agents, coding and multimodal capabilities. (…)
“We’re generally doing better than we expected,” Zuckerberg said. He acknowledged that Meta is still trailing some of the larger AI labs, including Anthropic and OpenAI, but said that the company has another new model coming, codenamed Watermelon, that he believes can help Meta “push this maximum frontier of intelligence.” He declined to share details on Watermelon’s release timeline, saying that the focus is on quality. (…)
Meta has projected record capital expenditures for 2026, is spending billions on AI talent to build out its Meta Superintelligence Labs, and has pledged hundreds of billions more to infrastructure projects. Critics have questioned whether the pivot has paid off. (…)
Zuck is Mr. Pivot. His genius stopped working after Instagram and What’sApp. His huge bets on the Metaverse, Llama, “personal superintelligence” and AI talent led nowhere but to heavy losses and markdowns, some of which have yet to be recorded.
Let’s hope his coming model “Watermelon” holds water. Otherwise, it’s just a melon.