Federal Reserve's "Unexpected" 0.5% Rate Cut

In Today’s (3rd) Edition of “Element, by Arsh“ -

• The Federal Reserve Cuts Interest Rates by 0.5% & It’s A Massive Deal…

• Nike Is Getting A New CEO & Everyone is Fascinated By His Career…

• Microsoft & Constellation Energy Are Going Nuclear…

• A Painting by Frida Kahlo Moved Me…

FEDERAL RESERVE

The Fed Cuts Rates By 0.5% (50 basis points)

Rate Cut. On Wednesday, the Fed/FOMC (Federal Open Market Committee) decided to cut rates by 0.5% bringing down the “Federal Funds Rate” to the range of 4.75-5.00% from highs of 5.25-5.50%. This is the first rate cut since the height of the COVID-19 pandemic when the US Federal Reserve had to increase the interest rates to bring inflation back down after people started spending A LOT because of the stimulus checks by the government.

Why Should I Care? That’s a great point. While this might seem like some random finance mumbo-jumbo, these interest rates set by the Federal Reserve influence a lot of things that affect you. For example, the “Federal Funds Rate“ is directly tied to the rate of interest people have to pay for let’s say, an auto loan, a home loan (mortgage), and virtually any other type of loan you can think of. By keeping rates high, the Federal Reserve was trying to ensure people spend less, which would then bring down inflation. I actually wrote a whole deep dive on this subject in a previous edition of this newsletter, which you can find here - https://elementbyarsh.beehiiv.com/p/the-economy-my-book-reading-problems

All This For Inflation? Oh yes! The Federal Reserve likes it when the average inflation is at a moderate 2%, but that number reached over 9% in June 2022. The Federal Reserve realized that if they continued to keep interest rates low, inflation would run rampant, and virtually no one would even be able to afford the things that they need to live their lives. In addition, if inflation continued to rise, companies would start laying off people to protect their profits, and then the newly unemployed people would become a liability for the country rather than an asset.

NIKE + BUSINESS + SPORTS

Nike’s New CEO Started At The Company As An Intern…

Nike’s Current/Old CEO. Nike has been struggling for some time now and the market had realized that it was time for a change in leadership. The current CEO of Nike, John Donahoe has been at the helm of the company since January 2020. Before his time at Nike, he served as the President & CEO of Bain & Co. (a consulting firm) for 23 years from 1982-2005. He then moved to eBay where he started as the President of eBay Marketplaces before taking on the role of President & CEO at eBay. TLDR - He has always been the person to “fix“ businesses, but at Nike, he struggled to do the same.

Why Did John Fumble At Nike? It would be unfair to say that John didn’t make a meaningful difference at Nike. In fact, I would argue that a major chunk of Nike’s digital presence was designed and implemented under the leadership of John Donahoe. This includes things like the SNKRS App, Nike Run Club, Nike Training, etc. Adding these things to Nike’s arsenal was incredibly important as consumers turned to eCommerce in large numbers during and after the COVID-19 pandemic. However, he wasn’t able to realize a major problem with the company - lacking innovation!

Wait. Nike Lacks Innovation? Yes! It might seem counterintuitive, but a lot of the bestsellers at Nike were designs that were made over 30 years ago, and the team at Nike has continued to just repurpose them for the newer generation. This is not inherently a bad thing, but when a majority of your profits come from a thing that was made 40 years ago, it is difficult to focus on innovations to attract newer customers. That is exactly what happened as Nike continued to lose market share to newer companies like Hoka, On Running, New Balance, etc.

Nike’s New CEO. Elliot Hill will assume the position of Nike’s CEO come early October. Hill has been as loyal to Nike as can be expected. He started as an intern at the company in 1988 and has slowly worked his way towards the top job. I believe the Board of Directors wanted to bring in someone who truly understands the culture of Nike and can help Nike’s customers understand what it truly means to wear Nike.

MICROSOFT + TECH

Microsoft Partners With Constellation Energy For Nuclear Energy…

The Need For Energy. Microsoft has been at the front of all the recent AI hype and, like other companies, has been expanding its AI capabilities through Microsoft Azure (Their cloud computing service) and in many other ways. Naturally, all the computing for AI takes A LOT of energy, but most of the top companies have said that they want to be carbon neutral or negative by some year in the future. So, Microsoft figured out a cheat code - Open up an infamous nuclear facility by partnering with an energy company and use that nuclear energy to power the data centers!

Infamous Nuclear Facility? Yes! It’s called the “3 Mile Island”, and it was once one of the most prominent nuclear facilities in the United States. However, for several days from and after the 28th of March, 1979, a technical malfunction caused a massive nuclear accident. Fortunately, the town surrounding the nuclear facility was quickly evacuated and no harm was done to any human life. If the authorities hadn’t been quick with their evacuations, this would have caused a major loss of human life and would’ve been a major nuclear accident in a small town in Pennsylvania, USA (about 7 years before the Chernobyl Disaster). Since then, the 3 Mile Island has been closed…

Microsoft + Constellation Energy. This collaboration between these companies is interesting, especially to me. For reasons I don’t know, I have trusted the government with nuclear energy more than a bunch of profit-making corporations. Having said that, I am not completely well-versed in the minutiae of this partnership, and can’t say how big of a role the government will play in ensuring safety.

ART + LIFE

I Accidently Came Across A Painting By Frida Kahlo & It Was Incredible…

Stumbling On Art. Interestingly, I just happened to come across a print copy of this painting as I walked into my Algorithms class. This was just lying on the desk in front of me. I am not sure why, but I instinctively picked this copy up and just glanced at it. I had never been attracted to art in the way this image attracted me. Even though I didn’t know who drew this or what it symbolized, this caught my attention.

Looking Closely. Simply because there still were about 10 minutes for the class to start, I allowed myself to try to make sense of this, and I realized that the image was way more complicated than what I had realized at first glance. Then I looked closely at the face of the subject, and it looked familiar but I couldn’t have told you who she was. I then used Google Lens to find out more about the painting. It turns out that this is made by Frida Kahlo who is a very famous Mexican-American artist. This painting shows how most immigrants feel when they move to the United States for a “better life“.

The Effect On Others. After learning more about this image, I kept the piece of paper on another desk for someone else to enjoy. I could not have been more correct because just minutes after I kept this on the other desk, one of my classmates picked it up and admired it too. This is when I realized just how powerful this painting is, and how a picture can tell a thousand words…