COP28 Deal, Fed Rate Announcement, More Inflation, Tesla Recall

Wednesday’s premarket trading session boosted futures as analysts and investors awaited the monthly report on product prices. The Federal Reserve’s final interest rate decision of the year comes out this afternoon. In other news, the COP28 energy summit ended with a deal of sorts, and Tesla has issued a recall for some 2 million cars.

COP28 concludes

In some ways, the COP28 summit in Dubai closed with a bang. In other ways, with a whimper.

Delegates reached a deal that is not likely to satisfy everyone, especially those who had hoped for a more decisive conclusion on phasing out fossil fuels. In the final agreement, countries agreed to transition from fossil fuels in an orderly manner. The goal is to achieve net zero emissions by 2050.

The orderly transition language opened the door for fossil fuel giants like OPEC and Exxon Mobil to include technologies like carbon capture and storage into the mix of reaching the net zero goal. In a tweet Monday, former U.S. Vice President Al Gore commented, “In order to prevent COP28 from being the most embarrassing and dismal failure in 28 years of international climate negotiations, the final text must include clear language on phasing out fossil fuels.”

After the summit closed, Gore commented, “The influence of petrostates is still evident in the half measures and loopholes included in the final agreement.” That appears to be a fair summary of the two-week meeting.

Fed’s final FOMC of 2023

The last open market committee (FOMC) of 2023 ends Wednesday afternoon. At 2:00 p.m. ET, Fed chair Jerome Powell will announce the committee’s decision on interest rates. There is virtually unanimous agreement that interest rates will remain in the current target range of 5.25% to 5.50%. Most observers appear to believe the Fed will begin cutting rates sometime in the first half of 2024.

A strong labor market will continue to keep the Fed from fiddling with interest rates for a while. Raghuram Rajan, the former head of India’s central bank and now a professor at the University of Chicago Booth School, told an audience at a book tour event, “The Fed would like to see either a substantial fall in inflation, but also, the problem is the labor market is hot. … The Fed may think if rates are not doing damage, why worry.”

Indeed. According to a Bloomberg survey of economists, two rate cuts are on the table for 2024 and five more in 2025. Assuming a quarter-point cut each time, that implies that interest rates two years from now will be down around 3.5%. Inflation is widely expected to be below that level by the end of 2025, and may be as low as the Fed’s often-cited target of 2%.

All three major U.S. stock indexes are trading higher in Wednesday’s premarket. The S&P 500 was up about 0.13%, the Dow was up 0.11%, and the Nasdaq was up 0.23% about half an hour before the opening bell.

Producer prices

The U.S. Bureau of Labor Statistics released its producer price index (PPI) before U.S. markets opened Wednesday morning. Total PPI for November was unchanged after dropping 1.4% in October.

Core PPI, which excludes food and energy, rose by 0.1% month over month in November. Core PPI was unchanged month over month in October.

Compared to November of last year, total PPI rose 0.9%, and core PPI rose 2.5%. Total PPI increase was the second lowest over the past 12 months. The core PPI increase was the lowest in the same period.

Tesla recalls 2 million cars

The National Highway Traffic Safety Administration on Tuesday issued a recall notice on 2.03 million Tesla Inc. (NASDAQ: TSLA | TSLA Price Prediction) equipped with the company’s AutoPilot self-driving software. Tesla agreed last week to conduct the recall voluntarily even though it does not agree with the agency’s conclusions. The investigation began in August 2021.

Tesla notified the NHTSA that the company had initiated the recall for all 2012-2023 Model S, 2016-2023 Model X, 2017-2023 Model 3, and 2020-2023 Model Y vehicles equipped with any version of Autosteer.

The recall focuses on the Autosteer feature intended to be used on controlled-access highways or in conjunction with Tesla’s Traffic-Aware Cruise Control (TACC) system. This is a description of the safety risk from the NHTSA’s recall report:

In certain circumstances when Autosteer is engaged, if a driver misuses the SAE Level 2 advanced driver-assistance feature such that they fail to maintain continuous and sustained responsibility for vehicle operation and are unprepared to intervene, fail to recognize when the feature is canceled or not engaged, and/or fail to recognize when the feature is operating in situations where its functionality may be limited, there may be an increased risk of a collision.

Tesla expects immediately to begin sending an over-the-air software update to correct the issue. There are no out-of-warranty repairs associated with the update, and the update is free to Tesla owners.