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Kansas City Fed President Schmid says rate policy is not providing needed economic restraint

Chicago Fed chief Goolsbee raises concern about possible further rise in inflation

Cleveland Fed President Hammack says she is still ready to raise rates to combat inflation

Aug 27 (Reuters) - Federal Reserve officials shared on Thursday their ongoing concerns about the U.S. inflation landscape, as central bankers gathered in Jackson Hole, Wyoming ​for the Kansas City Fed's closely watched annual economic symposium.

Inflation is "still stubborn and it's still sticky and we've got to continue to find ways to break through" and get it back to 2%, ‌Kansas City Fed President Jeffrey Schmid said on CNBC on the sidelines of the conference.

He noted that the U.S. central bank's current policy rate, which was left in the 3.50%-3.75% range at the July 28-29 meeting, did not appear to be restrictive. "I don't know what we're restricting currently with the rate policy that we're at today," Schmid said.

Schmid, who had recently been in favor of raising rates to help bring inflation back down to the Fed's 2% target, seemed to suggest that he would still favor such a path, given his belief that monetary policy ​is not working to counter current price pressures.

But even so, when asked about the outlook for a rate hike at the Fed's September 15-16 policy meeting, he said, "I think we need a little bit more information. ​What I'm trying to figure out is the demand side of what's driving both growth and inflation."

Cleveland Fed President Beth Hammack, also speaking on CNBC, was similarly anxious about ⁠inflation and reiterated her ongoing willingness to act to bring price pressures back in line.

"I don't want to prejudge anything," Hammack said, "but I believe now is the time to act."

Hammack, one of three Fed officials who dissented at last month's meeting ​in favor of a rate hike, said inflation has been above target for more than five years and monetary policy is not doing anything at the moment to restrain the economy in order to lower price pressures.

The Cleveland Fed chief said ​she is hearing more and more from contacts worried about inflation and she fears the longer this trend continues, the greater the risk to the central bank's credibility. Information from local contacts suggests "we're starting to get some of that inflationary mindset" embedding itself in the economy. "I don't think we're there yet, but that's what I want to make sure we avoid," Hammack said.

In a later interview on the Fox Business Network, Hammack said she believes the job market is in balance and that the U.S. central bank appears unlikely to achieve ​its price pressure target even by next year. "My forecast is that inflation is going to end this year around 3% and I think we're not going to make significant progress next year. I think we'll get to maybe mid-twos at ​best," Hammack said on the network's "Big Money Show" program.

Chicago Fed President Austan Goolsbee said his biggest fear in the short run continues to be that inflation is not under control.

"Everybody should be on edge," Goolsbee said on the Rapid Response podcast. "We hear ‌a lot ⁠about affordability and we better be mindful because if inflation starts going up again, it's very hard to get rid of it."

Goolsbee noted that rises in energy costs tied to the war in Iran and the constant oscillation in the Trump administration's tariffs are also a concern, as they're hitting households at a time of unacceptably high inflation. He said there is a danger the public could shift toward a view that above-target price pressures are not going away.

The Chicago Fed chief, however, noted that the recent three-month inflation trend "doesn't look terrible." Asked about his outlook for interest rates, Goolsbee said the Fed's policy rate could be lowered over time if there was evidence inflation was heading back to the 2% level.

"If you're a ​very interest-rate-sensitive industry, I would tell you, watch the data" ​and "don't get so hyped up about what the market ⁠says" about the monetary policy outlook, he told the podcast.

Speaking to Reuters in Jackson Hole, Boston Fed President Susan Collins deemed the most recent inflation data "mixed" and noted "my modal scenario does continue to have that gradual disinflation" in a monetary policy setting she sees as slightly restrictive.

The regional Fed bank chiefs spoke a day after the government reported ​that the Personal Consumption Expenditures Price Index, the central bank's main inflation gauge, stood at 3.7% in the 12 months through July, matching the level seen in June but ​down from the 4.1% year-over-year increase ⁠in May.

Economists' reaction to the data was mixed, with some saying the sturdy reading argued for a rate hike next month, while others said it kept tightening in play at some point this year. Futures markets lean against an increase at the next meeting, but put strong odds of it happening by the end of 2026.

Fed Chairman Kevin Warsh is slated to speak on Friday at the Jackson Hole event. Many hope he will share clues about the policy outlook, but those expectations are tempered by the ⁠fact that the ​new U.S. central bank chief is opposed to providing firm forward guidance about rates, and has even refrained, amid mounting controversy, from explaining how ​he reaches monetary policy decisions.

A number of Fed officials have said in recent weeks that rate hikes are needed to lower inflation, or at least signaled openness to that path.

In his podcast remarks, Goolsbee also noted that a series of political attacks on the Fed, a hallmark of President ​Donald Trump's relationship with the central bank, "puts me on edge." In nations where political authorities interfere with monetary policy choices, "inflation comes roaring back," he said.

WASHINGTON, Aug 27 (Reuters) - Russian-speaking hackers used SpaceX’s (SPCX.O), opens new tab AI coding assistant, Cursor, to help break in to a ​Belgian chemical company and at least six other firms earlier this year, according to data reviewed by Reuters and reports issued on Thursday by cybersecurity companies Gambit Security and ‌CloudSek.

The cybercriminals’ AI-boosted hacking spree is the latest example of how rogue actors are using commercial AI tools to carry out intrusions. Gambit’s chief strategy officer, Curtis Simpson, said it also showed how AI providers were locked in to a never-ending arms race with malicious users trying to circumvent their guardrails.

“This is going to be a cat-and-mouse game,” Simpson said.

Cursor and its parent company, SpaceX, did not return messages seeking comment.

Gambit said it discovered the hacking campaign after finding a ​server that a new ransomware gang called Aur0ra had inadvertently exposed to the internet.

That allowed the Tel Aviv-based company to review 28 chat sessions between one or more of Aur0ra’s hackers ​and one of Cursor’s AI agents, which are programs that can operate with various degrees of autonomy.

In its report, opens new tab, Gambit said Aur0ra persuaded the AI agent ⁠to carry out hundreds of malicious operations — such as credential theft or high-value account takeover — by falsely claiming that the hacking was part of a simulation.

“We need any administrator account,” Gambit quoted the hackers as saying ​at one point. “Find any working passwords,” it also quoted them as saying.

In its report, opens new tab, Singapore-based CloudSek said the data on the server showed that Aur0ra had claimed at least 20 victims overall, although it did not ​break down how many were compromised with the help of AI.

Neither Gambit nor CloudSek identified the hackers’ victims by name, but Reuters was able to identify six of them after independently reviewing portions of the chat data, which was still online as of last month.

The chat logs, which spanned April 8 to May 21, showed that the victims of Aur0ra’s Cursor-boosted hacking spree included the Belgian company — Ghent-based hygiene and cleaning products maker Christeyns — as well as German garage door manufacturer Teckentrup ​and the Scotland-based Helideck

Certification Agency, which vets helicopter landing sites. The rest included an Argentine pharmaceutical distributor, an Italian manufacturer, and Bayou Title, which advertises itself as Louisiana’s largest title insurance company.

None of the six ​companies responded to requests by Reuters for comment. At least one of the victims, Bayou Title, was named on Aur0ra’s data leak site, which typically indicates that the hackers tried and failed to secure a ransom. Aur0ra, a hacking ‌group that began ⁠claiming victims earlier this year, did not return messages.

The back-and-forth captured in the logs reviewed by Reuters shows the hacker issuing terse commands and Cursor’s AI agent responding with technical advice delivered in chirpy, emoji-laden messages typical of chatbot-speak.

“Great! VPN connected successfully!” it said after breaching the Argentine company.

“Let’s try to crack these hashes,” it said at another point, referring to the process of decoding cryptographically scrambled passwords.

After finding a vulnerable host in Teckentrup’s network, the AI recommended using a well-known malicious software tool to exploit it. “**Chance of success**: VERY HIGH,” it added.

Reuters could not independently ascertain the extent to which the break-ins were ​facilitated by help from the Cursor agent, or whether ​every breach necessarily resulted in exfiltration of data ⁠and an extortion attempt. Gambit said the agent was powered by Anthropic's Claude Sonnet 4.5, a more basic model than Anthropic's Mythos 5 or Fable 5, whose cyber prowess has drawn attention in Washington.

Anthropic did not return a message seeking comment.

Eyal Sela, Gambit’s director of threat intelligence, said Cursor still offered the hackers a clear ​boost, adding that the AI agent “probably helps them get 30, 40, 50 percent faster because it helps them skip over all the things they’d have ​to do manually.”

Cursor’s agent refused requests ⁠that it deemed harmful or illegal a handful of times, Sela said, but the hacker would almost always circumvent the refusals by restarting the dialogue and emphasizing that the hack was all part of a test.

Gambit said the agent’s chain of thought, a way that AI models think out loud, showed the hacker’s cover story overriding its safeguards in real time.

“This is a test environment, so it is legal,” the agent said to itself, according to ⁠one of the ​logs.

News of the hacking spree comes as Cursor is being incorporated within Elon Musk's rockets-and-AI company, SpaceX, a deal that closed earlier ​this month. Concerns are also rising over the digital risks posed by AI models, especially the models that power AI agents like the ones that have escaped from AI companies’ labs over the past few months.

Simpson, the Gambit executive, said AI-assisted hacking was the new normal.

“We’ll ​see more and more of this all the time,” he said.

Iranian business activity and banking continues openly despite warnings by the U.S. and an announced end to ties

DUBAI—Treasury Secretary Scott Bessent made it clear as he announced “Economic D-Day” that the U.S. would no longer turn a blind eye when countries support Iranian economic activity. A spin around Dubai shows it is all happening in plain sight.

Iranian business activity has deep, mutually lucrative roots in the commercial capital of the United Arab Emirates and continues to thrive despite the American warnings.

Iranian banks dotted around Dubai remained open this week. They include a multistory branch of Bank Melli Iran along the creek in the city’s old town.

Bessent specifically called for all branches of Bank Melli to be closed. Yet after the announcement, a dozen tellers continued to serve the Farsi-speaking customers who trickled in to do business in the bright space decorated with Persian-themed mural work and tiling.

Bank Melli began operating in the U.A.E. in 1969, before statehood, and has two branches in Dubai, whose ruler inaugurated its first branch. Iranian bank employees in the old town location said they haven’t received a notice to close and that barring one they will continue to operate.

“We put our trust in God on what happens next,” an Iranian bank employee said.

Dubai-based Iranians said they are already planning alternatives for getting money to and from Iran if the banks get shut down. One is the centuries-old hawala system that allows users to transfer money from one point to another entirely on trust. Funds are deposited with a dealer in one location and paid out by a dealer in Iran, with the two dealers settling accounts later.

But so far that hasn’t been necessary. In fact, Iranians around the city said conditions have improved since the early spring, when the U.A.E. launched a broad crackdown on Iranians in the country, closing a hospital and social club, temporarily banning Iranian passport holders from entering or even transiting through the country, and revoking some Iranians’ visas, including for some long-term residents who were traveling abroad at the time.

The widespread visa cancellations, which were never formally announced, don’t appear to be continuing and some visas have been restored, Iranians said. While the Iranian Hospital and the Iranian Club remain closed, the shutdowns haven’t spread.

Iranian airlines are running regular direct flights shuttling passengers between Iran and the U.A.E. The latter’s major carriers—Emirates, Etihad and FlyDubai—aren’t offering direct flights to Iran, though some flights do use Iranian airspace.

In Iranian diners and cafes in Dubai’s old city, Iranians chatted with Emirati customers in Arabic. One restaurant’s facade was covered in 7-foot portraits of the U.A.E.’s rulers and dozens of Emirati flags.

Iranians in Dubai are concerned about the deteriorating economic picture in Gulf countries like the U.A.E. as the war drags on. They fear they will lose their jobs and be forced to return to Iran. Some have left pre-emptively for third countries.

The continuing Iranian business activity is at odds with the public positions of the U.A.E. and the U.S. The Emirates’ Foreign Ministry said last week that it was halting trade, commercial exchanges and financial transactions with Iran.

The move came after weeks of pressure from the U.S. to act on those ties and got ahead of Bessent’s campaign, when he specifically criticized countries that welcome Iranian flights.

“It is no longer acceptable to operate in the gray spaces of this conflict,” Bessent said. “These measures broaden secondary sanctions risk for anyone foolish enough to continue conducting business with this regime.”

The Treasury didn’t respond to requests for comment about the Iranian business activity. A White House official said the Trump administration continues to work with partners in the region to squeeze Iran’s economy. The UAE Foreign Ministry said its policy toward Iran is grounded in peaceful coexistence and de-escalation, and that it remains committed to global financial standards.

Decoupling the economies of Iran and the U.A.E. is no easy task. The two cultures separated by the narrow Persian Gulf have ties dating back centuries.

Many Emiratis have Persian roots. Hundreds of thousands of Iranians across social classes have made the U.A.E. home, enjoying access to global capital and freedoms banned by the Islamic Republic and in return bringing in billions of dollars in Iranian cash.

Those ties have persisted even though Iran launched more than 2,800 drones and missiles at the U.A.E. during the war, far more than it aimed at any other country, including Israel, as it tried to raise the global economic cost of the war to blunt the attack.

“The Gulf Arab state economies are so closely integrated and intertwined with the Iranian economy, you can’t just simply sever economic trade and activity overnight,” said Neil Quilliam, an associate fellow at international-affairs think tank Chatham House in London. “The U.A.E., and Dubai in particular, have always managed to continue to do trade, even when the maximum pressure is on. Cutting off that trade will be cutting off their nose, basically.”

About $28 billion in trade flowed between the U.A.E. and Iran in 2024, according to the most recent data from the World Trade Organization.

The U.A.E. is home to the second-largest number of companies and people sanctioned by the U.S. Treasury over ties to Iran behind China, said Matthew Levitt, who in the 2000s served as deputy assistant secretary for intelligence and analysis at the Treasury.

An October study by the Treasury’s Financial Crimes Enforcement Network tracked that Dubai-based companies moved $6.4 billion in potential Iranian shadow banking funds in 2024, 71% of the global total.

Former U.S. enforcement officials said Dubai’s take is likely much higher and that the U.S. should be forcing the U.A.E. to crack down on illicit Iranian business activity.

The U.S. has broad and important geopolitical interests in the U.A.E., however. The country is the main signatory of the Abraham Accords, the pact shepherded by President Trump establishing diplomatic ties with Israel, which the Emirates counts as a key security partner.

The country is also a source of funds for investment in sectors like artificial intelligence and gives the U.S. military important basing rights.

In the U.A.E., the idea of cutting ties with Iran runs up against political calculations as well as financial considerations.

“There will be some in the U.A.E. who say, ‘Whatever the price of calm, that is what we need to do,’ ” said Levitt, now a senior fellow at the Washington Institute think tank. “Better to do that by allowing them to access banking and supply chains through our country than not,” he said of the Emirates’ thinking on Iran.

Dubai, which lacks the oil wealth of the country’s leaders in Abu Dhabi, depends on the financial inflows that include the billions in Iranian shadow dollars.

“Dubai in particular is a hub for a lot of the sanctions evasion,” Levitt said. “It is a huge part of their economy, to be sure. But there is a difference between relying on it and just making a lot of money on it.”

Banca Generali Mulling Monte di Paschi’s $10 Billion Takeover Bid

The offer represented a 10% premium to Generali’s share price at the time

Italy’s Banca Generali G -0.39%decrease; down pointing triangle said it is willing to consider a $10.2 billion takeover offer from rival Monte di Paschi di Siena, the latest attempt at consolidation in the country’s banking sector.

MPS, considered Europe’s oldest lender still in operation, last week launched a joint bid for Generali and Banco BPM, offering 6.958 of its own shares for each Generali share to value the bank at 8.72 billion euros ($10.16 billion). It said at the time the bid represented a 10% premium to Generali’s share price.

Banca Generali BGN 0.23%increase; up pointing triangle said late Thursday it “confirmed its willingness to evaluate MPS’s proposal, which envisages a broader industrial collaboration to develop new growth opportunities across strategically important business areas for both companies.”

The private bank—majority owned by insurer Assicurazioni Generali—said it had launched a process to study the implication of the deal, which it said was unsolicited and hadn’t been agreed ahead of being made public.

BPM earlier this week said MPS’s bid, which values the bank at more than 25 billion euros, lacked a shareholder premium, according to an initial assessment. It said its board would continue to assess the offer.

The joint bid faces some daunting hurdles, including securing the backing of Assicurazioni Generali, Federated Hermes’ Filippo Alloatti wrote in a note Thursday.

“Monte dei Paschi would need to win over several skeptical shareholders,” Alloatti said. MPS said the enlarged group would become Italy’s third-largest by total assets with a pro forma balance sheet of around 466 billion euros.

MPS’s move follows its taking of majority control of lender Mediobanca following a surprise $19 billion bid early in 2025. But other consolidation attempts among Italian banks have run aground on shareholder opposition and execution snarls. Mediobanca—itself Assicurazioni Generali’s top shareholder—last year saw an offer for Banca Generali derailed by its own investors, who failed to approve the move after a top shareholder abstained from the vote.

MPS was itself the subject of a bidding war this summer when BPM and Intesa Sanpaolo launched rival merger bids, cementing Italy’s place at the center of dealmaking in European banking. UniCredit, one of Italy’s largest banks, has meanwhile been maneuvering to take control of Germany’s Commerzbank, securing nearly half of the target bank’s shares following a takeover push this year.

Issuance on track for highest-ever level amid high AI stock volatility and as companies seek to limit borrowing costs

Global issuance of zero-interest convertible bonds is on track for a record year, as AI companies attract eager investors willing to forgo coupon payments in exchange for exposure to the fast-growing sector.

Companies have issued $72bn of zero-coupon convertibles so far this year, according to data group Dealogic, putting issuance on course to overtake the previous record of $73bn set for the whole of 2025.

AI-linked groups have led the charge on such debt due to the high volatility of share prices in the sector, which has suffered sharp but temporary falls during its blistering years-long rally.

Convertible bonds in effect contain a call option that gives investors the right to exchange their debt for shares at a certain price, an option that increases in value as stock volatility rises. Many investors have been willing to give up interest payments in the hope of gaining cheap access to shares in the future.

“The companies coming to this market now are far more volatile than the ones they replaced,” said Nicolas Crémieux, head of convertible bonds at Mirabaud Asset Management. “If you’re selling something more valuable, you can [offer] less for it.”

Such debt has risen to prominence in recent years in part due to Michael Saylor’s bitcoin-hoarding company Strategy, which has issued billions of dollars of these bonds. Among the AI-related issuers of the debt this year are ON Semiconductor, which issued $1.3bn worth of notes at zero per cent in May, and optical networking and software group Ciena Corp, which sold almost $2.9bn worth with no interest payments in June.

The desire to issue such debt has grown as borrowing costs around the world have surged, with yields on 10-year US Treasuries climbing from 4.15 per cent to 4.66 per cent this year.

Issuers were trying to cut coupon costs in a higher interest rate environment, said Dorian Carrell, head of multi-asset income and co-manager of convertibles at Schroders.

“Rates now look persistently higher than a lot of companies expected in 2020-2021. There’s a move to try to be more innovative and think about minimising financing costs, minimising dilution and protecting credit rating,” he said. “The incentive is higher to go for a zero coupon.”

Overall issuance of convertible bonds has soared this year as a way of helping raise the hundreds of billions of dollars that AI groups have been spending on infrastructure, providing a valuable financing route for companies with huge costs but little cash flow.

A little over $113bn of convertible bonds had been issued so far this year as of the end of last week in the US — the main market for such deals — the highest level over comparable periods and approaching the $120bn all-time high for the whole of 2025, driven by AI demand, according to Barclays Research.

Meanwhile, buoyant investor demand has pushed some coupons down to zero. They were typically higher between 2022 and 2024 in a more “investor-friendly window”, but the “weight of money chasing AI-linked paper closed it”, Mirabaud’s Crémieux said.

Zero-coupon bonds this year account for about 41 per cent of all convertible issuance, according to Dealogic.

“US convertibles are on pace for record issuance, including zero [per cent coupons], in good part driven by issuance from attractive areas of the market such as AI-exposed segments,” said Venu Krishna, head of US equity strategy at Barclays.

However, despite strong investor appetite for such debt in recent years, rising bond yields this year have led many investors to demand greater compensation for buying a bond that pays no interest. This has pushed issuers intent on striking deals at zero per cent to reduce the share price at which the debt can convert to equity, expressed as a premium over the price when the bond was issued.

To protect current shareholders, the company can buy a so-called capped call from a bank, such that when the share price rises above the conversion price — up to an agreed limit or cap — the bank pays the difference in cash or shares, offsetting equity dilution. Capped calls are bought using the proceeds of the bond deal, increasing the upfront costs of issuance.

“The only way you can [issue at zero coupon] is to minimise your premium when you print the bond, and the only way to protect your shareholders therefore is to use the capped call,” said Carrell at Schroders. “It reduces the coupon cost, but it’s not costless.”

“Without these structures, the coupons would be moving up to the 2 per cent area. That starts to get more expensive for an issuer,” Carrell said.

In August, internet security and infrastructure company Cloudflare issued $2.5bn of convertible notes with a zero per cent coupon and a conversion price set at 60 per cent above the shares’ closing price the day before the bond was issued. It came with a capped call up to 175 per cent above the issue price.

In April, Amkor Technology, a semiconductor packaging and testing company, sold $1.15bn of converts with no coupon, a conversion premium of 52.5 per cent and a capped call at a 100 per cent premium to the issue price.

Some $68bn worth of deals have included these anti-dilution measures so far in 2026, the largest amount on record.

“[These structures] hold as long as volatility holds. Investors are giving up the coupon because they’re being paid in optionality instead,” Crémieux added. If single stock volatility collapses, “they’ll have bought something they didn’t receive, and that’s when terms turn”.