WEBVTT - Bloomberg Surveillance TV: August 29th, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amerie Hordern. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.880 Terminal and the Bloomberg Business App. 0:00:36.280 --> 0:00:39.360 Krishna Guha, Evercore ISI, Vice Chair and head of Central 0:00:39.400 --> 0:00:42.199 Bank Strategy, joins us now for more. Krishna, thanks so 0:00:42.280 --> 0:00:44.280 much for joining us this morning. Do you have an 0:00:44.360 --> 0:00:47.800 understanding of how the court will define for cause in 0:00:47.840 --> 0:00:48.479 this case? 0:00:50.120 --> 0:00:53.199 So I'm not an attorney, I'm an economist, and so 0:00:53.440 --> 0:00:57.960 I certainly don't want to mislead your viewers by offering 0:00:58.640 --> 0:01:02.440 legal expertise here that I don't have. What I will say, 0:01:02.440 --> 0:01:05.880 of course, is that the four course protection and the 0:01:05.959 --> 0:01:10.759 idea that this establishes a high standard before a president 0:01:10.920 --> 0:01:14.840 can consider removing a FED official, is central to our 0:01:14.920 --> 0:01:19.440 understanding of how Central bank independence operates in the US, 0:01:19.720 --> 0:01:22.120 so there's a lot at stake in this litigation. 0:01:22.680 --> 0:01:25.960 Christna, you're head of central bank strategy at Evercore, I say, 0:01:25.959 --> 0:01:30.440 as well as vice chairman. And then I wonder what 0:01:30.480 --> 0:01:34.039 you think about inflation. We're looking for pc to come 0:01:34.080 --> 0:01:37.120 in at two point nine percent. We had Core CPI 0:01:37.200 --> 0:01:39.800 at three point one percent. We had Core PPI at 0:01:39.800 --> 0:01:43.360 three point seven percent. Yet Chris Waller says it's close 0:01:43.440 --> 0:01:45.120 enough to two. Do you agree. 0:01:46.840 --> 0:01:50.640 I think what's important here is that the inflation that 0:01:50.680 --> 0:01:55.000 we really care about is the second round inflation. It's 0:01:55.040 --> 0:01:59.080 the risk of inflation persistence, and no on as a 0:01:59.120 --> 0:02:03.440 matter of theory or practice, thinks that the central bank 0:02:03.920 --> 0:02:08.800 should be directly responding to the first round effect of 0:02:08.960 --> 0:02:14.519 tariffs like attacks mechanically on prices. The issue is what 0:02:14.720 --> 0:02:19.360 pressure does that, if any, in part to underlying inflation dynamics. 0:02:19.680 --> 0:02:24.160 That's the second round question, and so I'm less focused 0:02:24.400 --> 0:02:29.280 on the individual month's inflation passed through from tariffs. That's 0:02:29.280 --> 0:02:32.240 the first round mechanical stuff that I am trying to 0:02:32.280 --> 0:02:36.880 assess what the risks are of inflation persistence and balancing 0:02:36.919 --> 0:02:40.520 those against the risks to the labor market. I actually 0:02:40.560 --> 0:02:44.320 think the conditions likely have been met for an initial 0:02:44.840 --> 0:02:50.640 cautious step down towards a more neutral rate. But I 0:02:50.680 --> 0:02:53.880 also think that the FED should be very careful about 0:02:53.960 --> 0:02:56.920 signaling what follows from here and making it clear that 0:02:56.960 --> 0:02:59.840 it'll take the time it needs to assess the incoming 0:03:00.080 --> 0:03:04.240 data and judge whether, for instance, by December, the case 0:03:04.280 --> 0:03:06.240 for another cut has or hasn't been met. 0:03:06.280 --> 0:03:08.760 Well, what if the FED didn't Krishna take the time 0:03:08.760 --> 0:03:13.240 and needs What if the FED wasn't as thorough? What 0:03:13.280 --> 0:03:17.480 if the FED was stacked with Trump appointees who just 0:03:17.520 --> 0:03:21.560 wanted to do the President's bidding? Would you buy then 0:03:21.840 --> 0:03:25.000 ten year treasuries? I mean, does four to twenty make 0:03:25.080 --> 0:03:25.639 sense to you? 0:03:27.760 --> 0:03:32.680 So I am concerned about the outlook for central bank independence, 0:03:33.360 --> 0:03:38.360 and I'm concerned about the Cook affair in that context. Obviously, 0:03:38.640 --> 0:03:42.080 if the President is able to push Governor Cook out, 0:03:42.440 --> 0:03:47.000 then that accelerates the timeframe over which his nominees may 0:03:47.040 --> 0:03:50.240 acquire a majority on the FED board. And that's as 0:03:50.280 --> 0:03:53.320 you know. That then raises questions as to whether we 0:03:53.440 --> 0:03:57.400 might see an unprecedented effort to deny certain Reserve Bank 0:03:57.480 --> 0:04:03.480 presidents renewal again without cause. But also that the move 0:04:03.520 --> 0:04:06.280 against Cook, based on allegations that have not yet been 0:04:06.360 --> 0:04:09.680 charged or proven in court or established by any kind 0:04:09.680 --> 0:04:14.880 of quasi judicial process, essentially weakens the protections that future 0:04:14.920 --> 0:04:17.679 FED governors, by the way, including the people who present 0:04:17.760 --> 0:04:20.720 trumpets in place, will have in the event that they 0:04:20.800 --> 0:04:23.719 have to make decisions in the future that this or 0:04:23.720 --> 0:04:28.720 a future president doesn't like. So this does absolutely all 0:04:28.760 --> 0:04:31.880 bear then on how you think about the outlook for 0:04:31.920 --> 0:04:36.640 policy and what may happen to bond yields. I personally 0:04:36.680 --> 0:04:39.880 feel that the market is likely underpriced for the risk 0:04:39.920 --> 0:04:42.360 that we could see a more more of a break 0:04:42.520 --> 0:04:46.599 in FED institutional practice and potentially the conduct of monetary 0:04:46.640 --> 0:04:50.440 policy over the next year or so, as the FED 0:04:50.480 --> 0:04:55.400 Board transitions and as the administration attempts to acquire more 0:04:55.520 --> 0:05:01.240 authority over who gets to determine when for course conditions 0:05:01.240 --> 0:05:01.719 have been mere. 0:05:02.040 --> 0:05:04.599 Bill Dudley and Layel Brainer agree with you. We spoke 0:05:04.640 --> 0:05:06.599 to both of them this week. In terms of the 0:05:06.640 --> 0:05:10.640 market reaction, what kind of I guess yield should we see, 0:05:10.680 --> 0:05:13.800 say on the ten year, if the market was really 0:05:13.839 --> 0:05:15.680 taking into account that this could be more of an 0:05:15.720 --> 0:05:17.360 erosion of FED independence. 0:05:19.040 --> 0:05:21.240 So I think what you see at the moment is 0:05:21.520 --> 0:05:24.400 that the bond market is not really quite sure how 0:05:24.440 --> 0:05:28.880 to interpret, first of all, the actions relating to Cook, 0:05:30.440 --> 0:05:37.200 and secondly that the market is wary of shortening bonds 0:05:37.200 --> 0:05:41.240 aggressively in an environment in which, per Governor Walla yesterday, 0:05:41.560 --> 0:05:45.000 we could discover soon that last three payroll months were 0:05:45.040 --> 0:05:49.120 negative right once all the revisions are in. These are 0:05:49.160 --> 0:05:53.200 not necessarily the microeconomic conditions in which you would want 0:05:53.200 --> 0:05:56.760 to ramp yield. But I would say that if and 0:05:56.800 --> 0:05:59.760 we're still dealing in a probabilistic and uncertain environment, that 0:06:00.080 --> 0:06:04.040 if we were to get further confirmation over time that 0:06:04.080 --> 0:06:08.520 the FED is losing independence, and if this resulted, as 0:06:08.680 --> 0:06:12.560 historically generally it has in a central bank becoming more 0:06:12.600 --> 0:06:16.800 structurally dubvish, that I do think at some point you 0:06:16.839 --> 0:06:21.800 would likely see a substantial response in the bond market. 0:06:22.120 --> 0:06:24.960 The issue, of course, is when and under what circumstances 0:06:25.000 --> 0:06:28.120 would that happen. I think it's hard to predict and 0:06:28.200 --> 0:06:32.120 certainly hard to say with any confidence that that adverse 0:06:32.200 --> 0:06:35.080 bond market reaction would come immediately. 0:06:37.279 --> 0:06:38.000 Stay with us. 0:06:38.160 --> 0:06:50.200 More bloomber of surveillance coming up after this, We're going 0:06:50.279 --> 0:06:52.600 to turn to Tech Now. Heath Terry, head of technology 0:06:52.640 --> 0:06:57.080 and Communications at City Research, says, quote first AI analyst 0:06:57.120 --> 0:07:00.960 on Wall Street believes AI revenue will serve eighty billion 0:07:01.080 --> 0:07:04.920 dollars in twenty thirty from forty three billion dollars this year. 0:07:05.080 --> 0:07:09.320 Heath joins us now for more, Heath, that's a massive jump. 0:07:09.640 --> 0:07:11.520 And if you think that's where it's going to go, 0:07:11.760 --> 0:07:13.320 is this market underpriced? 0:07:14.560 --> 0:07:16.840 Look, that's that's the way we look at it. 0:07:16.880 --> 0:07:19.000 I mean, you know, we are in the very early 0:07:19.040 --> 0:07:24.040 stages of this AI cycle, and really we think sort 0:07:24.080 --> 0:07:27.240 of posed for an inflection ahead of us. A lot 0:07:27.280 --> 0:07:29.920 of things that sort of matter to driving growth are 0:07:30.160 --> 0:07:33.840 about to clear in in gross favor. The bottlenecks that 0:07:33.840 --> 0:07:39.040 we've seen in capacity constraint, the model development advances that 0:07:39.080 --> 0:07:42.080 we're seeing particularly around agentic AI, and then of course 0:07:42.160 --> 0:07:44.760 you know the biggest of those being what we think 0:07:45.640 --> 0:07:49.480 could be called AI squared, the idea that AI on 0:07:49.520 --> 0:07:51.600 its own can start programming AI. 0:07:52.840 --> 0:07:56.720 So, you know, I wonder Heath your take on what 0:07:56.880 --> 0:08:00.920 happens in China, because in Nvidia first didn't give us 0:08:00.920 --> 0:08:03.360 a forecast for the third quarter. They had nothing in 0:08:03.400 --> 0:08:06.480 the second quarter, and then the CFO came out and 0:08:06.520 --> 0:08:08.840 said maybe two to five billion, but she's not really 0:08:08.920 --> 0:08:12.000 sure about the president's deal to get a fifteen percent 0:08:12.040 --> 0:08:13.440 take of everything they sell there. 0:08:13.520 --> 0:08:15.440 And to me, it just seems. 0:08:15.120 --> 0:08:18.000 Like the Chinese Communist Party is willing to do a 0:08:18.040 --> 0:08:20.400 whole lot to make sure it's companies don't buy our 0:08:20.480 --> 0:08:23.120 chips anyway. So what's your take on that whole story. 0:08:23.920 --> 0:08:26.640 Look, I think you're seeing that kind of mindset from 0:08:26.760 --> 0:08:31.160 every country China, certainly the countries in the Middle East, 0:08:31.760 --> 0:08:34.640 you know, major countries in Europe and the US. Of course, 0:08:34.920 --> 0:08:37.920 everyone feels like AI is an important enough technology that 0:08:37.960 --> 0:08:41.680 you cannot just suc seceed it to sort of the 0:08:41.720 --> 0:08:45.720 global winners, which in other cycles have always been American 0:08:46.160 --> 0:08:49.520 And I think you know, the mistakes of the Internet 0:08:49.600 --> 0:08:52.680 era for a lot of companies on a country basis, 0:08:52.760 --> 0:08:55.680 or a lot of countries on a company basis, of 0:08:55.840 --> 0:08:59.520 allowing the US companies to come in and sort of 0:08:59.760 --> 0:09:03.520 be their own local champions is something that no one 0:09:03.600 --> 0:09:06.720 really wants to make in AI. Now, that's a really 0:09:06.760 --> 0:09:10.440 hard thing to actually enforce for most countries. China can 0:09:10.480 --> 0:09:12.920 obviously do it. They actually did it very successfully in 0:09:12.920 --> 0:09:15.520 the Internet era. I mean, there are no bigger internet 0:09:15.559 --> 0:09:18.679 companies outside of the US than those that are in China, 0:09:18.720 --> 0:09:20.040 and I think they want to make sure that they 0:09:20.080 --> 0:09:22.080 do the same thing when it comes to when it 0:09:22.080 --> 0:09:22.679 comes to AI. 0:09:22.880 --> 0:09:27.200 I noticed also yesterday that an analyst from E Marketer said, 0:09:27.880 --> 0:09:31.079 we have to see returns on these investments and soon. 0:09:31.240 --> 0:09:34.200 And the threat is that these big hyperscalers who are 0:09:34.200 --> 0:09:39.480 spending forty percent of Invidia's revenue and forgive me that 0:09:39.480 --> 0:09:41.120 I'm heavy on in video, but they just came out 0:09:41.160 --> 0:09:44.520 with earning. So it's occupying my mind that these big 0:09:44.600 --> 0:09:47.400 hyperscalers may pull back on the margin in terms of 0:09:47.400 --> 0:09:50.040 capex if they don't start to see return soon on 0:09:50.080 --> 0:09:53.400 the applications, on the AI applications that they're powering. What 0:09:53.440 --> 0:09:54.199 do you think about that? 0:09:55.000 --> 0:09:56.959 Look, I don't think there's any chance of that, right. 0:09:57.000 --> 0:10:00.800 I mean, we go back a year ago and you 0:10:00.880 --> 0:10:06.640 had the CEOs of Alphabet, Meta, Microsoft all get on 0:10:06.679 --> 0:10:10.080 their earnings calls and say some version of the risk 0:10:10.120 --> 0:10:13.120 of overinvest investing is far less than the risk of 0:10:13.280 --> 0:10:16.240 underinvesting in this space. And then we fast forward a 0:10:16.320 --> 0:10:19.080 year later and they've all said, you know what, even 0:10:19.120 --> 0:10:22.880 though we believe that we actually underinvested and capacity constraints 0:10:22.920 --> 0:10:25.760 are still there. Microsoft in particular called that out on 0:10:25.800 --> 0:10:29.040 their most recent earnings. And so you don't see that 0:10:29.120 --> 0:10:33.720 kind of demand outstripping supply if the returns aren't there. 0:10:34.040 --> 0:10:36.400 And there have been a range of studies and MIT 0:10:36.600 --> 0:10:38.839 had theirs which I think most people sort of misunderstood 0:10:38.880 --> 0:10:41.920 or didn't get past the headline. IDC has had one 0:10:41.920 --> 0:10:44.680 that said that you know, cfo or CIOs are getting 0:10:45.080 --> 0:10:47.480 three point seven x for every dollar they put into 0:10:47.679 --> 0:10:49.839 to AI. So there's a lot of work being done 0:10:49.880 --> 0:10:52.199 around this. We obviously did a lot of work around 0:10:52.200 --> 0:10:54.199 this in the one hundred and paid twenty page report 0:10:54.240 --> 0:10:58.040 that we published earlier this week, and the returns and 0:10:58.160 --> 0:11:01.560 admittedly their early returns at the early return show that 0:11:01.600 --> 0:11:03.760 this stuff is working at the enterprise level. 0:11:04.240 --> 0:11:06.480 He's something that Jonathan has been bringing up a lot 0:11:06.480 --> 0:11:08.160 when it comes to the AI story. I'd love to 0:11:08.160 --> 0:11:10.480 get your take on is do we have the power 0:11:10.600 --> 0:11:15.280 the electricity needed to run this industry and especially given 0:11:15.280 --> 0:11:16.920 the outlook you have in your research. 0:11:17.800 --> 0:11:20.439 Yeah, Look, this is something we cover a lot the 0:11:20.840 --> 0:11:23.720 team at City that covers the industrial space and the 0:11:23.800 --> 0:11:25.920 energy space that spent a lot of time on this, 0:11:26.240 --> 0:11:28.600 and look, they're going to be bottlenecks. But here's the 0:11:29.640 --> 0:11:31.040 for lack of a better time, kind of the sad 0:11:31.080 --> 0:11:36.280 reality of this is that when there are shortages, when 0:11:36.280 --> 0:11:40.040 they are bottlenecks, capacity and supply moves to the highest 0:11:40.120 --> 0:11:42.679 value usage, they move to the highest bidder, for lack 0:11:42.720 --> 0:11:44.960 of a better term, and that's going to be AI. 0:11:45.200 --> 0:11:46.920 And so, yeah, they're going to be shortages, they're going 0:11:46.960 --> 0:11:50.920 to be bottlenecks. But if you're in AI and you're 0:11:50.960 --> 0:11:55.240 building a twenty billion dollars data center, you're far more 0:11:55.360 --> 0:11:57.480 likely to get the equipment you need, the power you 0:11:57.559 --> 0:12:00.400 need than the person who's next further down that down 0:12:00.440 --> 0:12:03.719 that line on that list. And so there will be bottlenecks, 0:12:03.760 --> 0:12:05.520 but I don't think you're going to see them in AI, 0:12:05.640 --> 0:12:06.800 and I don't think that they're going to be the 0:12:06.800 --> 0:12:10.360 things that sort of slow development here. Stay with us. 0:12:10.520 --> 0:12:22.520 More Bloomberg surveillance coming up after this. We're going to 0:12:22.520 --> 0:12:25.319 stick with retail investors digesting a slew of earnings from 0:12:25.320 --> 0:12:28.520 the sector and their signals about the economy. Data Telsea 0:12:28.679 --> 0:12:31.600 of the CEO of Telsey Advisory Group, saying the tariff 0:12:31.679 --> 0:12:35.120 impacts on EPs and margins are being managed and price 0:12:35.200 --> 0:12:38.400 increases have not been fully passed on to customers. The 0:12:38.520 --> 0:12:40.679 bulk are expected to be visible in the third and 0:12:40.720 --> 0:12:44.000 fourth quarter, and Dana joins us, now, good morning, good morning, 0:12:44.160 --> 0:12:47.080 very busy earning season. When will we see the full 0:12:47.080 --> 0:12:48.160 impact of the tariffs. 0:12:48.360 --> 0:12:50.000 I don't think you're going to see the full impact 0:12:50.000 --> 0:12:52.800 of tariffs until heading into the fourth quarter, and it's 0:12:52.800 --> 0:12:55.760 on a select group of merchandise. And frankly, when you 0:12:55.800 --> 0:12:58.199 think of the newness that's coming in, particularly on the 0:12:58.240 --> 0:13:01.840 apparel side, perhaps you'll see more of the price increases 0:13:01.880 --> 0:13:04.320 on the newer products, which you may not even know 0:13:04.360 --> 0:13:07.120 because they never were issued before. So that's some of 0:13:07.160 --> 0:13:09.320 the bulk of it. What we've seen, is we've gone 0:13:09.320 --> 0:13:12.160 through earning season, is you haven't heard that it's been 0:13:12.160 --> 0:13:14.400 the full impact. And keep in mind, we've had a 0:13:14.440 --> 0:13:17.800 price tracker on eighty items since April, and what we've 0:13:17.800 --> 0:13:21.640 seen on iconic items, whether Levi's five oh one, Barbie dolls, 0:13:21.960 --> 0:13:25.600 we haven't seen big increases across the board. It's very 0:13:25.640 --> 0:13:27.480 selective with those price increases, you know. 0:13:27.520 --> 0:13:30.960 I'm the administration has long argued that this is just 0:13:31.080 --> 0:13:33.920 like a sales tax, and it's only just a one 0:13:34.000 --> 0:13:37.280 time price hike. But the thing is, these tariffs trickle 0:13:37.400 --> 0:13:41.440 in over months and months and months, and the manufacturers 0:13:41.760 --> 0:13:44.160 try and hold back price increases when they can, so 0:13:44.160 --> 0:13:46.360 they take some into margins, they pass some to suppliers. 0:13:46.559 --> 0:13:48.560 I feel like we're going to see a step up 0:13:48.640 --> 0:13:49.880 of prices over time. 0:13:50.160 --> 0:13:53.280 That's what's expected. The expectation is it will step up, 0:13:53.480 --> 0:13:55.319 and you're right, it's a third to third. A third, 0:13:55.679 --> 0:13:59.000 a third look to diversify their sourcing, a third look 0:13:59.040 --> 0:14:01.720 to share the cost with manufacturers, and then a third 0:14:01.720 --> 0:14:04.200 of the headwind is passing the prices onto the consumer, 0:14:04.440 --> 0:14:06.560 which we not have fully seen yet. 0:14:06.720 --> 0:14:10.120 What do you think about? Jonathan Levin wrote a column 0:14:10.160 --> 0:14:13.199 for Bloomberg Opinion yesterday pointing out that we have higher 0:14:13.440 --> 0:14:16.560 pes on some of these retailers than we do on Nvidia. 0:14:16.600 --> 0:14:18.520 If you look at the forward pe for cost Co, 0:14:19.040 --> 0:14:23.120 it's fifty two times earnings and in Vidia is only forty. 0:14:23.440 --> 0:14:27.520 Why are investors willing to ascribe such a value to 0:14:28.000 --> 0:14:28.920 these retailers? 0:14:29.240 --> 0:14:32.480 Frankly, for something like a Costco, you have annuity from 0:14:32.560 --> 0:14:35.720 continued membership. You don't have a lot of people not 0:14:35.840 --> 0:14:38.440 renewing their membership. The fact that you still have the 0:14:38.520 --> 0:14:42.440 opportunity to grow your unit base globally, that it encaptures 0:14:42.480 --> 0:14:46.160 such a wide customer. So I've got great value on prices, 0:14:46.320 --> 0:14:49.280 I've got a sticky customer base that's only growing, and 0:14:49.320 --> 0:14:52.160 I still have the ability to open more units. And 0:14:52.520 --> 0:14:56.240 don't forget Kirklands. They've got private label that's of value 0:14:56.480 --> 0:14:57.920 that can expand to many more. 0:14:57.840 --> 0:14:59.640 Category fantastic products when it go. 0:15:00.000 --> 0:15:01.600 Always impressed by Kirkland products. 0:15:01.640 --> 0:15:03.040 Are you a big costco shopper? 0:15:03.160 --> 0:15:03.720 Yeah, I love it. 0:15:03.760 --> 0:15:05.120 Do you have a costco membership? 0:15:05.200 --> 0:15:07.160 Of course, I have the executive membership. 0:15:07.200 --> 0:15:08.880 Wow, you're definitely a different person than I remember you 0:15:08.920 --> 0:15:12.160 a few years ago. So who's doing well in this environment? 0:15:12.520 --> 0:15:15.600 It's the costcos, It's the walmarts because they're big and 0:15:15.640 --> 0:15:18.320 they're able to really mitigate these tariff concerns. 0:15:18.400 --> 0:15:20.320 What about off price? Look what you just saw at 0:15:20.360 --> 0:15:23.560 Burlington a five percent same store sales increase. Look at 0:15:23.560 --> 0:15:27.800 Alta Beauty very strong, that whole beauty category. There's newness 0:15:27.800 --> 0:15:30.920 and beauty and it's driving demand. What about the category 0:15:30.960 --> 0:15:34.120 of Denham and we've seen Denham be look at Levi's 0:15:34.600 --> 0:15:37.560 they talked about Denham on the category side. I mean 0:15:37.720 --> 0:15:40.360 Gap did well with denhim both at Old Navy and 0:15:40.440 --> 0:15:43.120 the Gap brand. And you're seeing in some of the 0:15:43.120 --> 0:15:46.640 intimates areas the rebound of Victoria's Secret in the turnaround 0:15:46.840 --> 0:15:50.480 with the inflection point and intimates give consumers something that's 0:15:50.520 --> 0:15:52.560 new and different, they'll open their wallet. 0:15:52.760 --> 0:15:53.760 No denim intimates. 0:15:53.800 --> 0:15:54.920 I hope there's no denim in. 0:15:55.360 --> 0:15:58.560 Yeah. When it comes to Matt Tmi, you've got to 0:15:58.600 --> 0:16:02.160 have good genes, right, This is the whole American eagle debate, 0:16:02.360 --> 0:16:04.200 is there or do you see a push in retailers 0:16:04.200 --> 0:16:07.560 of trying to go to this cultural Americana? 0:16:08.280 --> 0:16:10.440 You know what? I think it is cultural? What's part 0:16:10.440 --> 0:16:13.440 of the conversation. So you look at the Catside group 0:16:13.480 --> 0:16:16.840 that basically has the better denin campaign for Gap. It's 0:16:16.960 --> 0:16:20.360 driving up tremendous number of views. You take a look, 0:16:20.400 --> 0:16:23.840 look what was just signed by Abercrombie, whether it is 0:16:23.880 --> 0:16:27.280 the NFL Partnerships, whether it's the Dallas Cowboys. How do 0:16:27.320 --> 0:16:29.120 your remain relevant and expand your. 0:16:29.040 --> 0:16:30.760 Audio that Brittany Mahomes is now going to be the 0:16:30.760 --> 0:16:33.120 face of Averercrombie, Travis Kelcey and I think this came 0:16:33.160 --> 0:16:35.600 out in the day they announced their engagement is. 0:16:35.600 --> 0:16:36.680 Doing American Eagle. 0:16:37.000 --> 0:16:39.080 Partnership with American Eagle, you do have to have a 0:16:39.120 --> 0:16:41.040 celebrity endorsement tied to your brand. 0:16:41.320 --> 0:16:43.760 It's working. I mean you look at Beyonce and Levi's 0:16:44.080 --> 0:16:47.120 and the effectiveness of being able to capture the number 0:16:47.160 --> 0:16:50.320 of their audience and their clubs. You're part of their 0:16:50.320 --> 0:16:50.800 club now. 0:16:50.960 --> 0:16:53.760 By the way, I was shocked the other day when 0:16:53.760 --> 0:16:57.000 I looked at the tj Max stock chart over five years, 0:16:57.040 --> 0:17:02.440 they absolutely crushed it. And I'm guessing that like a 0:17:02.520 --> 0:17:05.440 Burlington and a Ross stores and these discounters are all 0:17:05.480 --> 0:17:08.240 doing very well. What do you like the best? Like 0:17:08.280 --> 0:17:11.879 if you could own a couple of retailers, only a 0:17:11.880 --> 0:17:13.760 couple of retailers, which would they do When you. 0:17:13.640 --> 0:17:16.040 Think of best in class in my world you talked 0:17:16.040 --> 0:17:19.439 about Costco. Look at TJX. They are best in class. 0:17:19.480 --> 0:17:22.960 They have category strength. It's very impressive what they've done. 0:17:23.240 --> 0:17:25.800 You take a look, frankly, what Alta Beauty is doing 0:17:25.800 --> 0:17:28.520 and the Beauty Unleashed plan with the new CEO. Well, 0:17:28.560 --> 0:17:31.800 she's promoted CEO. But it's working and they're capturing a 0:17:31.800 --> 0:17:35.600 wider customer base. It's compelling. You look at brand leaders 0:17:35.800 --> 0:17:40.080 and brand leaders like a tapestry, like a Ralph Lauren Levi's. 0:17:40.320 --> 0:17:43.720 They're effective because they capture the consumer and you think 0:17:43.760 --> 0:17:47.280 about what can be what can be enhanced. Take a 0:17:47.280 --> 0:17:50.679 look at Bathroom Bodyworks, watching that very carefully for the 0:17:50.800 --> 0:17:52.920 speed which they're transforming their. 0:17:52.840 --> 0:17:56.320 Business Bottles and bodyworks. Is that just like soap bombs 0:17:56.440 --> 0:17:57.119 or it's. 0:17:56.960 --> 0:18:00.919 Soaps and sanitizers, But what about forty million loyalty members, 0:18:01.320 --> 0:18:03.639 forty million loyalty members who are going there on a 0:18:03.680 --> 0:18:07.880 regular basis that matters and today capturing that customer's key. 0:18:08.040 --> 0:18:08.680 Here's the key. 0:18:08.720 --> 0:18:10.359 That sounds like the consumer has too much money? 0:18:10.520 --> 0:18:11.240 Well not yet. 0:18:11.760 --> 0:18:15.320 Well it depends some people like you know, special bath 0:18:15.359 --> 0:18:16.440 bombs and things like that. 0:18:16.560 --> 0:18:17.680 And also there's a trade doown. 0:18:17.840 --> 0:18:20.639 Here's the true Here's the big question though, in the 0:18:20.720 --> 0:18:23.840 luxury market, especially makeup, would you buy do you think 0:18:23.880 --> 0:18:27.199 consumers will buy one hundred and sixty dollars lipstick. 0:18:27.400 --> 0:18:31.040 Very expensive, more expensive than the Emez eighty dollars lipstick 0:18:31.119 --> 0:18:34.359 or Chanelle fifty dollars lipstick. Yes, there will be people 0:18:34.359 --> 0:18:36.800 who buy it because it's the entryway too. Instead of 0:18:36.840 --> 0:18:39.359 getting the two or three thousand dollars naval full bag, 0:18:39.440 --> 0:18:41.320 you're going to get one hundred and sixty dollars lipstick 0:18:41.320 --> 0:18:43.399 and you'll get a case that says LV Wow. 0:18:43.600 --> 0:18:45.080 You really think that people are gonna buy this? 0:18:46.320 --> 0:18:49.440 You can't surpass what a brand can generate with a 0:18:49.560 --> 0:18:50.560 lifestyle offering. 0:18:50.760 --> 0:18:52.600 And for Matt, if you don't know this is Vaton 0:18:54.080 --> 0:18:57.560 stay with us. More Bloomberg surveillance coming up after this. 0:19:06.840 --> 0:19:08.720 Now we're going to get a reaction from Ryan Wang, 0:19:08.720 --> 0:19:11.800 the US economist at HSBC. So what do you make 0:19:11.800 --> 0:19:12.040 of this? 0:19:12.880 --> 0:19:16.080 Yeah, Well, as Michael said, the numbers are broadly in 0:19:16.119 --> 0:19:19.159 line with expectations. I still do think it's important that 0:19:19.200 --> 0:19:21.359 we're seeing that step up in the core PC inflation 0:19:21.440 --> 0:19:23.800 rate up to two point nine percent. The Fed has 0:19:23.840 --> 0:19:26.240 been projecting that it will reach at least a little 0:19:26.240 --> 0:19:28.080 bit above three percent at the end of this year, 0:19:28.320 --> 0:19:29.960 and that's very key. I mean, if we know that 0:19:30.000 --> 0:19:32.040 inflation is going to go up, and then we're hoping 0:19:32.080 --> 0:19:34.800 that inflation eventually begins to cool off after the full 0:19:34.840 --> 0:19:37.359 effect of tariffs comes through, it's still important to track 0:19:37.440 --> 0:19:38.320 these numbers every month. 0:19:38.359 --> 0:19:41.280 How uncomfortable is it to actually see on your screen 0:19:41.359 --> 0:19:44.600 two point nine percent for core PCEE yet at the 0:19:44.640 --> 0:19:46.679 same time pretty much knowing the FED is going to 0:19:46.720 --> 0:19:48.320 cut interest rates next month. 0:19:48.640 --> 0:19:51.119 Well, that's that's really the tricky part. I mean, inflation 0:19:51.200 --> 0:19:53.480 admittedly is much slower than it was just a few 0:19:53.560 --> 0:19:56.399 years ago. We're not getting those types of price increases. 0:19:56.440 --> 0:19:58.560 But at the end of the day, three percent is 0:19:58.560 --> 0:20:01.400 still not the fedes two percent. And this is why, 0:20:01.440 --> 0:20:04.480 although we do have some kind of consistency amongst the 0:20:04.520 --> 0:20:07.600 FED policy makers, FED shared drone pal saying that yes, okay, 0:20:07.600 --> 0:20:10.360 tariffs are going to be a one time effect, even 0:20:10.400 --> 0:20:13.040 if that one time effect takes a year or multiple 0:20:13.119 --> 0:20:16.080 quarters that fully pass through. But still we need to 0:20:16.119 --> 0:20:18.080 track the data. And I do think you know, if 0:20:18.080 --> 0:20:21.480 the FED does cut rates by twenty five base points 0:20:21.480 --> 0:20:24.320 in September, it's still not going to necessarily mean a 0:20:24.320 --> 0:20:26.800 sequence of rate cuts. And that's largely because of these 0:20:26.800 --> 0:20:27.639 inflation numbers. 0:20:27.880 --> 0:20:33.240 Chris Waller called underlying inflation close to two percent. I 0:20:33.280 --> 0:20:36.439 don't know if he's a statistician, but do you agree. 0:20:37.400 --> 0:20:38.280 Well, I just think. 0:20:38.160 --> 0:20:40.720 It's very tricky to get into this idea of just 0:20:40.880 --> 0:20:43.560 excluding the tariff effect and trying to look at inflation 0:20:43.640 --> 0:20:46.159 on that basis. So no, I mean, if we were 0:20:46.200 --> 0:20:48.600 talking about core inflation that was below two and a 0:20:48.640 --> 0:20:51.160 half percent, Okay, now we're talking about arrange, that's sort 0:20:51.200 --> 0:20:54.080 of within a few tents. But when you see an 0:20:54.080 --> 0:20:56.760 inflation rate that's closer to three percent, and really it's 0:20:56.760 --> 0:20:59.600 the mix of inflation that's coming through. Some of it 0:20:59.640 --> 0:21:02.399 has been, you know, incremental increases in goods prices that 0:21:02.880 --> 0:21:05.199 are clearly related to tariffs, but some of it has 0:21:05.200 --> 0:21:08.200 been on the services side, and that's more structural. Of course, 0:21:08.200 --> 0:21:12.240 services inflation tends to run above goods inflation, and although 0:21:12.240 --> 0:21:15.800 we've seen some deceleration in rental inflation, the overall numbers 0:21:15.800 --> 0:21:17.560 are still adding up to to what we see two 0:21:17.600 --> 0:21:18.080