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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Laws podcast.

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Speaker 3: I'm Jill Wassenthal and I'm Tracy Alloway.

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Speaker 2: Today you are listening to a special episode of the podcast.

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Speaker 2: It was recorded live at the future Proof conference in

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Speaker 2: Huntington Beach.

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Speaker 3: Yep, we're going to be speaking with former Dallas FED

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Speaker 3: president Robert Kaplan. He is now vice chairman of Goldman Sachs. Again,

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Speaker 3: this was recorded live on stage at future Proof. So

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Speaker 3: take a listen.

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Speaker 2: All right, let's just kick it straight off that jobs

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Speaker 2: report that we got last week. In your view with

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Speaker 2: your FED hat on, maybe is a fifty basis point

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Speaker 2: rate cut in play for the next meeting.

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Speaker 4: I think fifty basis points is still unlikely. I think

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Speaker 4: we've been of the view for the last few months

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Speaker 4: the job market was weak.

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Speaker 5: This latest report was a little weaker.

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Speaker 4: Having said that, the reason twenty five is more likely

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Speaker 4: than fifty is it wasn't The jobs market is not.

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Speaker 5: Falling off a cliff.

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Speaker 4: We didn't get shrinkage, and inflation is running at two

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Speaker 4: and three quarters to three percent above target, and so

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Speaker 4: it sort of puts a little bit of a headwind

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Speaker 4: on doing more than twenty five basis points.

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Speaker 3: I mean, I take your point, but the report was

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Speaker 3: still a huge surprise. So if you were in the

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Speaker 3: newsroom when that number came out, just twenty two thousand

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Speaker 3: jobs added, there was a sort of collective gas because

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Speaker 3: it was way below basically the entire range of expectations

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Speaker 3: for that particular month. If you're at the FED and

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Speaker 3: you see a number like that, what does twenty two

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Speaker 3: thousand actually tell you? Or are you sitting there going well,

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Speaker 3: maybe I'll wait for the revision until I really make

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Speaker 3: up my mind.

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Speaker 4: I don't know that the weakness and the jobs market

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Speaker 4: was a big surprise to the Fed. They didn't know

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Speaker 4: exactly what the number would be, but they expected to

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Speaker 4: be anemic. The reason that the unemployment rate is stayed

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Speaker 4: low is we are not we've shut down undocumented immigration.

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Speaker 4: We have not ramped up legal immigration, and as you

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Speaker 4: well know, we are deporting some number of workers and

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Speaker 4: chilling ten to fifteen million undocumented immigrants who were in

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Speaker 4: the workforce, and some percentage of them are not going

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Speaker 4: to work, and so supply is anemic. We've thought for

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Speaker 4: the last few months that hiring was kind of we.

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Speaker 5: Said at stall speed. You should assume if GDP.

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Speaker 4: Growth is one a quarter one and a half percent,

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Speaker 4: hiring is going to be anemic. So we could debate

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Speaker 4: the number, but I don't think it was a big

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Speaker 4: shock that it was weak, and I think it wouldn't

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Speaker 4: surprise me to see the next number also lethargic.

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Speaker 5: So why aren't we falling off a cliff.

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Speaker 4: We still are running a large deficit, we have tax

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Speaker 4: and sofs coming, We're in the middle of an AI

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Speaker 4: data center power boom, as you just heard about in

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Speaker 4: the previous session, and I think that's still bolsterining the economy.

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Speaker 2: Well, then let me take the flip side of Tracy's question, because, okay,

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Speaker 2: maybe setting aside reasons for concern, the flip side, as

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Speaker 2: you mentioned, inflation is still running above target by most measures.

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Speaker 2: The stock market I haven't actually I don't know what

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Speaker 2: it's doing today, but it's very close to all time highs.

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Speaker 2: Regardless of what it's doing today, all kinds of people

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Speaker 2: are having a really nice time on the beach in

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Speaker 2: southern California. What is the evidence that, as currently standing,

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Speaker 2: that FED policy is actually restrictive? Clearly the FOMAC has

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Speaker 2: come around to this view of cuts, it seems like

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Speaker 2: cuts are locked in, but you don't have to have

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Speaker 2: the FOMAC I view anymore. Like, is it obvious that

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Speaker 2: cuts are needed at this point?

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Speaker 5: Yeah.

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Speaker 4: I think if it were not for the weakness that

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Speaker 4: we've seen in the labor market, the FED would want

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Speaker 4: to stand pat because we are It's one thing to

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Speaker 4: be above your inflation target. We're not moving toward the

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Speaker 4: inflation target right, We're going sideways to backing up. But

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Speaker 4: with this week labor market, I think it brings the

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Speaker 4: fact you need to cut into play. Now, what's the

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Speaker 4: neutral rate? I think the neutral rate today you got

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Speaker 4: a two and three quarters percent inflation rate. Seventy five

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Speaker 4: basis point real FED funds rate means the neutral rate

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Speaker 4: to me is around three and a half percent.

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Speaker 5: We don't have a lot.

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Speaker 4: Of space to cut to get to neutral, but I

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Speaker 4: think you've got seventy five to one hundred base points.

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Speaker 4: I think the goal of the Fed will be cut

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Speaker 4: in September, stay restrictive, and if the labor market stays,

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Speaker 4: we keep going. If it stabilizes, then then you have

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Speaker 4: the option to hold off, and I think that's what

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Speaker 4: they'll do.

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Speaker 3: Just going back to financial conditions and stock markets at

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Speaker 3: all time highs. I mean, if the FED cuts at

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Speaker 3: this current juncture, you know, call it an insurance cut

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Speaker 3: or whatever. But if the economy reaccelerates after that, which

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Speaker 3: it may, Yeah, which it may, would you be worried

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Speaker 3: about that side of the outcome, given that, as you said,

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Speaker 3: inflationary pressures seem to be going sideways too, possibly up.

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Speaker 5: Yeah.

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Speaker 4: So a lot of people look at financial conditions and

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Speaker 4: see it as a reason the Fed shouldn't act. I

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Speaker 4: actually come at it from someplace different. The economic statistics

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Speaker 4: are reflective of.

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Speaker 5: What's going on right now.

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Speaker 4: In fact, even more than that what has gone on,

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Speaker 4: not even what's going on right now. The stock market

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Speaker 4: and other financial markets are a assessment of what's going

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Speaker 4: to happen for the next three to five years. As

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Speaker 4: we know, we're in the middle and the early innings

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Speaker 4: of an AI data center power boom. I don't think

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Speaker 4: it's showing up yet in a lot of productivity, but

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Speaker 4: I think a year or two from now it will.

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Speaker 5: The stock market, rightly or wrongly, I think is making

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Speaker 5: that bet.

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Speaker 4: It's betting that productivity is going to improve, corporate earnings

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Speaker 4: are going to get better. You're not seeing a show

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Speaker 4: up in the current economy. The Fed's job is to

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Speaker 4: look at financial conditions, but adjust policy based on the

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Speaker 4: current economy, not the bet the market's making for two

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Speaker 4: or three years.

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Speaker 2: I'm glad you brought that up about the AI boom,

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Speaker 2: the powers, the data center boom, and so forth, and

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Speaker 2: that it's not showing up yet in productivity, but it

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Speaker 2: may be showing up in greater strain on the grid.

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Speaker 6: It may be showing up in greater strain.

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Speaker 2: On certain electrical gear that's necessary that's been in shortage

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Speaker 2: for all manufacturers for years now. As of right now

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Speaker 2: in September twenty twenty five, could we say that, if anything,

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Speaker 2: the AI boom is like sort of having a crowding

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Speaker 2: out effect or slightly inflationary where the costs right now

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Speaker 2: just on a static stent setting aside the bet, are

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Speaker 2: a bit of a drag.

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Speaker 4: There are two big structural initiatives that are being pursued

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Speaker 4: by this administration. One is regulatory view and regulatory relief

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Speaker 4: because they want to ease the speeding to adoption of

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Speaker 4: AI and get more capital available. But the second thing

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Speaker 4: is there's an extensive re review of the power grid.

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Speaker 4: We are behind China in having enough power to fund.

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Speaker 5: The AI explosion.

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Speaker 4: We've got to invest more in geothermal, more modular nuclear.

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Speaker 4: We need to make it easier to run a refinery,

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Speaker 4: make it easier to do transmission. And I think you're

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Speaker 4: going to find there's going to be enormous efforts because

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Speaker 4: we are behind, and in some states, to your point,

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Speaker 4: there is a crowding out and I think people are afraid.

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Speaker 4: At some states, the leaders are afraid to take more

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Speaker 4: data centers for fear it's going to crowd out individuals.

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Speaker 4: So this is a big structural initiative that isn't getting

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Speaker 4: in the press a lot, but it's a big initiative

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Speaker 4: going on in this country.

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Speaker 5: That's a dramatic change and it's needed.

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Speaker 3: What does that actually mean for FED policy? Because if

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Speaker 3: I think about this crowding out idea and all the

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Speaker 3: demand for databases and the things that power them, we

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Speaker 3: have seen electricity prices start to go up. I know

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Speaker 3: the FED, the fed's preferred inflation measure is x energy

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Speaker 3: and food prices. But on the other hand, electricity prices

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Speaker 3: feed into the cost of pretty much everything. And also

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Speaker 3: this doesn't seem like a bottleneck that we're going to

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Speaker 3: be solving, you know, within the next two or three years,

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Speaker 3: or even ten years. To be frank, if you're at

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Speaker 3: the FED right now and you see electricity prices going up,

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Speaker 3: how are you thinking through that pressure?

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Speaker 4: So let me put it in context. There are cross currents,

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Speaker 4: I mean real cross currents.

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Speaker 5: You just mentioned one.

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Speaker 4: On the one hand, you've got the government is trying

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Speaker 4: to reduce government directed spending and replace it with more incentives,

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Speaker 4: tax incentives. Obviously the tariffs have been put in place.

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Speaker 4: Those are slowing growth and they have a tendency to

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Speaker 4: raise costs they might be one time. And the labor

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Speaker 4: force I just mentioned, we are actually decelerating and reducing

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Speaker 4: labor force growth because of immigration policy. That's actually helping

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Speaker 4: us be at full employment, and the Fed's been taken

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Speaker 4: by that, but also makes prices stickier, wages stickier. At

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Speaker 4: the same time, you just said, you've got these booms

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Speaker 4: and AI and the grid, and you've got don't we

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Speaker 4: need more labor, we need more power and that.

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Speaker 5: Actually stresses prices.

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Speaker 4: So when you're at the FED, when you've got this

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Speaker 4: kind of confusion, I think that's one reason why they've

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Speaker 4: done nothing so far this year. But I think the

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Speaker 4: labor market is forcing their hand where if it gets

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Speaker 4: even weaker, they really don't want that, and that's why

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Speaker 4: they're acting.

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Speaker 2: Let's talk about AI and China a little bit more.

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Speaker 2: You mentioned the power element, and there are a lot

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Speaker 2: of people anxious about the constraints on the US grid

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Speaker 2: and you all these big CAPEX numbers and can the

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Speaker 2: great even support that? What else is different besides the

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Speaker 2: electricity component, because some people we've talked to you talk

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Speaker 2: about there is a very different attitude towards detech diffusion,

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Speaker 2: particularly out of China or supply chains that run through China.

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Speaker 4: So uh, and I just got back from Asia and

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Speaker 4: I was in China last week. When we talk about AI,

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Speaker 4: we tend to look at the hyperscalers, these big giant

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Speaker 4: companies that make up a disproportionate share of the S

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Speaker 4: and P five hundred, and they're spending hundreds of billions

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Speaker 4: of dollars.

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Speaker 5: They're making a lot of money. When I'm in China.

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Speaker 4: And we talk about it about AI, they talk about

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Speaker 4: the word used diffusion. They talk about regular businesses, the

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Speaker 4: McDonald's of China, Luke and Coffee in China.

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Speaker 6: Ray, you look them in New York City right now,

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Speaker 6: and I tried one and it's very good.

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Speaker 4: Yes, but those companies are actively using AI to lower costs.

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Speaker 4: So why is that happening. I'd say we're further along.

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Speaker 4: China's further along than we are. Why their margins are lower.

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Speaker 4: They're doing it out of necessity. Our margins in the

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Speaker 4: US and our companies are higher, and so they're not

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Speaker 4: as much pressure to lower costs and make AI experiments.

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Speaker 4: In China, they don't have a choice. It's so competitive

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Speaker 4: they need to lower costs. But the thing that struck

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Speaker 4: me there's a lot to learn from what they're doing

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Speaker 4: in China. Normally, if we were a little more globally integrated,

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Speaker 4: we would learn those things and bring those learnings back

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Speaker 4: to the United States. And it reminded me that globalization

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Speaker 4: is not dead. United States is choosing to play a

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Speaker 4: different role in it and stepping back. But I got

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Speaker 4: to tell you, the other thing I saw there is

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Speaker 4: there's more coupling going on between China and other countries

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Speaker 4: that are aggressively. Canada is much more aggressive in trying

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Speaker 4: to form new partnerships. So I think globalization and the

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Speaker 4: Ai story go together. And I got to tell you,

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Speaker 4: globalization not going away, and the US is going to

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Speaker 4: have a choice in the years to come how much

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Speaker 4: of a role we want to play in participating.

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Speaker 5: But it's going to happen with us or without us.

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Speaker 3: So we can sit here and ask you what you

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Speaker 3: saw in China and what your thoughts were about China.

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Speaker 3: But I am very aware that when you go on

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Speaker 3: that type of trip, you have Chinese clients who are

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Speaker 3: asking you your thoughts on the US and what's going

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Speaker 3: on here. What are the type of questions that you're

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Speaker 3: getting from Chinese clients at the moment, what are they

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Speaker 3: interested in?

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Speaker 4: So the biggest item i'd say of discussion is and

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Speaker 4: I used to be in Asia for the first part

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Speaker 4: of my career and what I found in Korea, Taiwan, China,

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Speaker 4: to a large extent, their whole effort was to go

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Speaker 4: from low value added manufacturing to high value added manufacturing.

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Speaker 4: And they try to wean off of lower value added manufacturer.

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Speaker 4: What's an example. T shirts and sneakers used to be

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Speaker 4: made in China. Today they're made in Vietnam. Why China

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Speaker 4: wants to move up the value chain because their feeling

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Speaker 4: is they're going to raise the standard of living.

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Speaker 5: To higher value added manufacturing.

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Speaker 4: The question sometimes I get when I'm over there is

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Speaker 4: if you're going to reshore to the United States, are

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Speaker 4: you going to really reshore lumber, aluminum, some of these

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Speaker 4: other lower value added manufacturing wouldn't. Solidifying the relationship with

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Speaker 4: Canada and Mexico makes sense where you can get cheap

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Speaker 4: natural resources from Canada, cheap labor from Mexico, and solidify

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Speaker 4: North America. And so I'd say that they're not critical

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Speaker 4: of us, but they're scratching their heads a little bit

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Speaker 4: to say, what's the strategic rational Because you're tied on labor,

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Speaker 4: you normally want to move up the value chain. And

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Speaker 4: I think they realize that some of these tariffs are

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Speaker 4: also intended to help generate revenue and reduce the deficit.

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Speaker 4: They understand that, they're just questioning how strategic it is.

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Speaker 2: Well, let me ask you a question of the on

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Speaker 2: the question of what are we going to bring back

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Speaker 2: in the United States, if anything, just from your purge

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Speaker 2: at Goldman, do you see any private money that's come

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Speaker 2: into the US for fresh sort of I don't know

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Speaker 2: Greenfield capital investment either in something low margin or high

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Speaker 2: margin because the terriffs have changed the math and made

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Speaker 2: that investment economical.

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Speaker 4: So I will say there, yes is the answer. I

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Speaker 4: think there are US companies that will do more on

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Speaker 4: the margin manufacturing here. I've talked to overseas companies, including

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Speaker 4: I won't mention the name of one contract manufacturer in China.

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Speaker 4: They are building more in the United States, and so

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Speaker 4: the thing is, I don't know how long it will take,

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Speaker 4: what the magnitude will be, but yes, it is happening.

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Speaker 4: The flip side of that is there are many companies

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Speaker 4: in the US that benefited from access to lower cost goods. Yeah,

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Speaker 4: and I won't mention their name that you can you

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Speaker 4: know some of them and their margins are being squeezed.

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Speaker 4: And then I talked to a number of small businesses

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Speaker 4: that don't have the levers to manage these tariffs, and

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Speaker 4: some of them will actually go out of business or

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Speaker 4: considering it by the end of the year.

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Speaker 3: This is a little bit of an unfair question, but

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Speaker 3: I'm going to ask it anyway. If you had to,

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Speaker 3: if you have to choose one right now, would you

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Speaker 3: say that tariffs are more effective at bringing back manufacturing

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Speaker 3: to the US, or more effective at raising income for

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Speaker 3: the US government at a time when people are worried

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Speaker 3: about the deficit.

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Speaker 4: I think they'll start with the second part. Tariffs raise revenue,

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Speaker 4: but they slow growth, and so for every dollar of

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Speaker 4: tariff revenue you have to accept, you may give some

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Speaker 4: back in a little bit lower growth. I think that

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Speaker 4: trade is very much worth it if you're bringing back

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Speaker 4: high value added manufacturing. I don't know if it's such

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Speaker 4: a good trade if you are pushing to bring back

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Speaker 4: lower value added I think this administration knows that, and

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Speaker 4: I think they'll be more strategic.

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Speaker 5: I think you can do both.

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Speaker 4: I think you could level the playing field, get a

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Speaker 4: more tariff revenue. With some level of tariff revenue, I

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Speaker 4: think we were thinking they were going to be closer

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Speaker 4: to ten percent than twenty percent. You mean the high

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Speaker 4: teens is a little higher than we expected. And you

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Speaker 4: can also yes on semiconduct in other strategic areas, you

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Speaker 4: can redomicile those. I think the question is you sure

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Speaker 4: you want to go down the road of lumber and

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Speaker 4: aluminum or do you want to let Canada do it?

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Speaker 5: Is that a good strategic trade? I'm not sure.

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Speaker 6: Since you mentioned it.

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Speaker 2: Why is the neutral rate of interest to the extent

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Speaker 2: that we can form some educated guess as to what

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Speaker 2: it is. Why is it so much higher than it

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Speaker 2: was in say twenty nineteen in your view.

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Speaker 4: So the fact of the matter is, I think if

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Speaker 4: you go way back in the Stone Age to twenty nineteen, and.

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Speaker 6: It does seem like forever ago.

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Speaker 5: It does.

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Speaker 4: I think if we had not had COVID, I think

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Speaker 4: at the right before COVID hit, the ten year treasury

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Speaker 4: I think was in the neighborhood of maybe one in

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Speaker 4: three quarters to two, the Fed funds rate was in

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Speaker 4: the mid ones.

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Speaker 5: I think we would have inched our way up a little.

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Speaker 2: Hard know how good we had all those people complaining, oh,

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Speaker 2: yields are so low, and then now they all wish

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Speaker 2: they could go back there.

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Speaker 4: Yeah, Listen, the inflation rate today is stickier. Back in

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Speaker 4: nineteen it was probably one and a half one and

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Speaker 4: three quarters. I still think even then the neutral rate

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Speaker 4: real rate was three quarters of one percent. So the

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Speaker 4: neutral Fed funds rate back then I think was two

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Speaker 4: and a half ish. Today it's closer to three and

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Speaker 4: a half. But there's only one reason for that. The

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Speaker 4: inflation rates higher. If inflation got back down to two.

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Speaker 4: I think you'd see the neutral rate back down to

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Speaker 4: two and three quarters.

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Speaker 3: Since you mentioned sticky inflation. There's one other thing that

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Speaker 3: seems to be top of mind at the moment, which

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Speaker 3: is federal reserve independence, and we should talk about that.

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Speaker 3: But I guess we can get your thoughts on you know,

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Speaker 3: that specific idea in a second. But one thing that

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Speaker 3: seems surprising so far is that we're having this debate

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Speaker 3: about what happens to the federal reserve with what seems

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Speaker 3: to be a more activist Trump administration that seems to

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Speaker 3: want to have a heavier hand in monetary policy. We

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Speaker 3: haven't really seen much response from the market. If you

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Speaker 3: look at the long end, it doesn't seem like there's

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Speaker 3: a big risk premium building there. What's going on?

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Speaker 5: So's make two comments.

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Speaker 4: So regarding political independence, let me just make sure I

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Speaker 4: frame this regulatory policy at the FED is not, underline,

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Speaker 4: not politically independent. It hasn't been for a number of years.

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Speaker 4: What do I mean by that? You get a new president,

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Speaker 4: they pick a new head of supervision, and it's very

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Speaker 4: much has been influenced for the last many years by

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Speaker 4: whoever's in office. The balance sheet I would argue, is

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Speaker 4: maybe a little bit in the gray air on setting

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Speaker 4: the FED funds rate. Though the Fed has been politically independent.

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Speaker 4: Why is the market, you said, well, not reacting more

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Speaker 4: to this.

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Speaker 5: I mean, the.

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Speaker 4: Reality is the stock market likes the idea of lower rates.

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Speaker 4: I think the thing, it's not that the markets aren't reacting.

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Speaker 4: The stock market likes it. So it's starting now to

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Speaker 4: take into account. It makes the real acceleration you talked

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Speaker 4: about more likely. The gold market is very much taken

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Speaker 4: note of it, and gold is up more than thirty

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Speaker 4: five percent year to DA eight. I see it's up

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Speaker 4: another one percent today, So it has and I actually

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Speaker 4: think duration on the long bond while while the tenure

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Speaker 4: is rallied because of slow growth, I still think we

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Speaker 4: have an issue. We've got thirty seven trillion of debt

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Speaker 4: to sell on our way to forty trillion. I think

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Speaker 4: that the bond market may pay at the long end.

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Speaker 4: We'll pay attention to how this current situation works out.

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Speaker 6: What is going on?

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Speaker 2: How much more gold talk is there these days than

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Speaker 2: there were a few years ago.

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Speaker 4: Well, I actually I've gone back over look back over

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Speaker 4: the last fifty years. When's the last time we got

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Speaker 4: a rally in gold like this, I think in the

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Speaker 4: aftermath of the Great Recession. Remember the Great Recession, the

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Speaker 4: FED took its balance sheet from eight hundred billion to

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Speaker 4: four trillion, okay, and stopped and we started to run

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Speaker 4: it down a little bit. In response to COVID, we

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Speaker 4: went from four trillion to nine trillion, and we authorized

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Speaker 4: six trillion dollars of extraordinary spending in a twenty seven

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Speaker 4: trillion dollar economy. And the GDP, the net debt to

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Speaker 4: GDP went from mid seventies to over one hundred percent.

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Speaker 4: When you've got leverage in the United States and to

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Speaker 4: some extent in the developed world getting much higher in

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Speaker 4: response to COVID. That's where people started to look at gold, bitcoin,

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Speaker 4: other alternatives to paper currency because they're worried that this

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Speaker 4: leveraging is just keeping going on and on and on,

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Speaker 4: and so it's understandable.

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Speaker 3: Wait is it, though, Because one of the weird tensions

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Speaker 3: of our current market situation is we have US stocks

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Speaker 3: at all time highs, but also gold making new records

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Speaker 3: almost every week. It feels like those two things are incompatible,

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Speaker 3: at least in the long run. You know, maybe we

402
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Speaker 3: could do it for a few weeks or a few months.

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Speaker 3: But someone's got to be wrong here.

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Speaker 4: I spent a lot of time talking to big institutions

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Speaker 4: and about asset allocation. I think, and this is our view. Also,

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Speaker 4: we think there could be a re acceleration into twenty six.

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Speaker 4: We think the AI boom is for real. We think

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Speaker 4: we're going to get.

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Speaker 5: A lot of productivity out of AI. Okay, that is a.

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Speaker 4: Good environment for corporate earnings and for stocks. What we

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Speaker 4: don't know is how successful we're going to be on

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Speaker 4: bending the curve of.

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Speaker 5: Debt to GDP.

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Speaker 4: Are we going to run another two trillion dollar deficit

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Speaker 4: even with tariffs?

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Speaker 5: Is it going to be higher?

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Speaker 4: And in that regard, I think people can buy stocks

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Speaker 4: and buy gold and be very careful about buying the

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Speaker 4: tenure and the thirty year treasury.

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Speaker 5: And I think that's kind of what we're seeing.

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Speaker 2: Actually, I want to go back to your point about

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Speaker 2: sort of globalization is happening with US or without US.

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Speaker 2: There's a different approach to AI diffusion out of China

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Speaker 2: than there is in US. But when you go around

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Speaker 2: the world, are the American providers of tech, whether it's

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Speaker 2: cloud tech or whether it's Microsoft et cetera. Are they

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Speaker 2: still are they gonna win? Even if the US isn't

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Speaker 2: part of that globalization wave? Will US tech still be

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Speaker 2: part of the story because so much is rioting on

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Speaker 2: the ongoing earnings power of seven companies.

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Speaker 4: So I'll make a general comment about US companies. Generally,

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Speaker 4: a typical CEO in the United States that runs a

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Speaker 4: global company has probably been to Europe in their careers

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Speaker 4: seventy five times or more, and has been to Asia

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Speaker 4: seventy five times, has been to China multiple times, has

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Speaker 4: built relationships, and has been doing it for years. And

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Speaker 4: I think that's true of tech, no doubt. Many of

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Speaker 4: the tech leaders you see are overseas regularly. Our political

439
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Speaker 4: leaders and some of our leaders in certain governmental positions

440
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Speaker 4: maybe have not been to China or overseas quite as much.

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Speaker 4: And that's why you see during periods like this, the

442
00:24:37,560 --> 00:24:42,720
Speaker 4: corporate world is continuing to chug along and build relationships globally,

443
00:24:43,119 --> 00:24:48,160
Speaker 4: even though at national level we're sort of reorienting and

444
00:24:48,240 --> 00:24:53,320
Speaker 4: trying to bring more to the United States and affect deglobalized.

445
00:24:53,680 --> 00:24:56,800
Speaker 4: So we've got a kind of a diachademy, and it

446
00:24:56,920 --> 00:24:59,800
Speaker 4: stands in sharp relief this is the same way even

447
00:24:59,840 --> 00:25:03,959
Speaker 4: a years ago where we withdrew from the Paris Climate Accord,

448
00:25:05,000 --> 00:25:08,240
Speaker 4: and yet companies in the United States, to my eye,

449
00:25:08,480 --> 00:25:12,160
Speaker 4: did not slow down at all in trying to build

450
00:25:12,240 --> 00:25:16,920
Speaker 4: LEAD certified buildings and focus on greenhouse gas emissions and sustainability.

451
00:25:17,720 --> 00:25:20,560
Speaker 3: You talked earlier about the difference between how China and

452
00:25:20,600 --> 00:25:24,840
Speaker 3: the US the corporate sphere is actually using AI. When

453
00:25:24,880 --> 00:25:27,040
Speaker 3: you're looking at the US and you're looking for signs

454
00:25:27,040 --> 00:25:31,639
Speaker 3: that AI is actually having a definitive needle moving impact

455
00:25:31,760 --> 00:25:34,560
Speaker 3: on US productivity, what are you looking for here?

456
00:25:34,640 --> 00:25:38,359
Speaker 4: What are the signs I'm looking for adoption in a

457
00:25:38,400 --> 00:25:43,720
Speaker 4: broad set of industries, because here's here's how this works. First,

458
00:25:44,000 --> 00:25:47,640
Speaker 4: your company gets you to try it okay, and you

459
00:25:47,680 --> 00:25:51,520
Speaker 4: adopt it. Second thing you try is various use cases

460
00:25:52,000 --> 00:25:54,760
Speaker 4: based on that adoption, and then third thing you figure

461
00:25:54,760 --> 00:25:57,520
Speaker 4: out which use cases work and which use cases don't work.

462
00:25:57,720 --> 00:26:00,159
Speaker 4: We're kind of in that phase right now in the

463
00:26:00,280 --> 00:26:03,320
Speaker 4: United States. When I say China's a little farther ahead,

464
00:26:03,440 --> 00:26:05,680
Speaker 4: I think they've already tried and proven some of the

465
00:26:05,800 --> 00:26:06,440
Speaker 4: use cases.

466
00:26:06,720 --> 00:26:07,679
Speaker 5: In more industry.

467
00:26:07,960 --> 00:26:11,600
Speaker 4: We'll get there too, But you'll know when we look

468
00:26:11,640 --> 00:26:12,760
Speaker 4: back ten years from now.

469
00:26:12,880 --> 00:26:16,119
Speaker 5: My guess is maybe not as fast as other parts

470
00:26:16,119 --> 00:26:16,560
Speaker 5: of the world.

471
00:26:16,840 --> 00:26:18,840
Speaker 4: We will have gone through all that, we'll know which

472
00:26:19,000 --> 00:26:21,600
Speaker 4: use cases work, which don't, will adopt them.

473
00:26:21,800 --> 00:26:23,640
Speaker 5: We're going to get a lot more efficiencies.

474
00:26:23,840 --> 00:26:26,640
Speaker 4: There may be as many or more jobs, but they're

475
00:26:26,640 --> 00:26:28,919
Speaker 4: going to shift and we're going to have to redeploy

476
00:26:29,040 --> 00:26:31,439
Speaker 4: people to where the open jobs are. But we have

477
00:26:31,480 --> 00:26:33,920
Speaker 4: to go through that whole cycle. And I would say

478
00:26:33,920 --> 00:26:35,679
Speaker 4: we're early. We're early in that.

479
00:26:36,119 --> 00:26:38,040
Speaker 2: We just have a couple of minutes left. Here's something

480
00:26:38,080 --> 00:26:40,040
Speaker 2: that's been on my mind a little bit lately that

481
00:26:40,080 --> 00:26:43,080
Speaker 2: I would like your take on. How levered to the

482
00:26:43,119 --> 00:26:46,400
Speaker 2: stock market is the real US economy? How much when

483
00:26:46,440 --> 00:26:49,240
Speaker 2: you look around does it feel like things are dependent

484
00:26:49,680 --> 00:26:52,760
Speaker 2: on these companies continuing to deliver year after year and

485
00:26:53,040 --> 00:26:54,320
Speaker 2: positive asset returns.

486
00:26:54,640 --> 00:26:55,800
Speaker 5: So that's a great question.

487
00:26:55,800 --> 00:26:59,520
Speaker 4: So I would say the US is seventy five percent

488
00:26:59,600 --> 00:27:04,480
Speaker 4: a serve economy. It is a very heavily consumer driven economy.

489
00:27:04,520 --> 00:27:07,600
Speaker 4: This which makes our economy different from many in the world.

490
00:27:08,000 --> 00:27:11,320
Speaker 4: And if you break down the consumer here, half the

491
00:27:11,400 --> 00:27:14,240
Speaker 4: workers in this country, let's take an eighty eighty five

492
00:27:14,320 --> 00:27:19,320
Speaker 4: million make fifty thousand dollars a year are unlikely to

493
00:27:19,320 --> 00:27:24,000
Speaker 4: have financial assets, have lost twenty five percent plus purchasing power,

494
00:27:24,240 --> 00:27:27,000
Speaker 4: and they're struggling to make ends meet. They're spending every

495
00:27:27,080 --> 00:27:30,800
Speaker 4: dollar they make. But if you're a business that serves them,

496
00:27:31,160 --> 00:27:35,359
Speaker 4: you're seeing they're being very careful. There's another eighty eighty

497
00:27:35,400 --> 00:27:39,720
Speaker 4: five million consumers tend to be I'm exaggerate, I'm generalizing

498
00:27:39,880 --> 00:27:43,280
Speaker 4: fifty five and older own their home, half financial assets,

499
00:27:43,760 --> 00:27:45,800
Speaker 4: and they've made a lot of money in the markets,

500
00:27:45,840 --> 00:27:49,040
Speaker 4: to your point, and they're spending because they're getting wealthier.

501
00:27:49,600 --> 00:27:53,040
Speaker 4: And we've got a tale of two consumer groups. I

502
00:27:53,040 --> 00:27:55,720
Speaker 4: think part of what this administration, I believe, is trying

503
00:27:55,760 --> 00:28:00,199
Speaker 4: to do is help lift up this first group so

504
00:28:00,240 --> 00:28:04,080
Speaker 4: that they can be more affluent and do better because

505
00:28:04,160 --> 00:28:07,560
Speaker 4: right now we're very heavily dependent on this second engine

506
00:28:07,920 --> 00:28:09,119
Speaker 4: based on the stock market.

507
00:28:09,560 --> 00:28:11,520
Speaker 3: All right, I'm going to sneak in one more question

508
00:28:11,600 --> 00:28:14,080
Speaker 3: and go back to where we started this conversation, which

509
00:28:14,520 --> 00:28:17,560
Speaker 3: is on rate cuts. I know you said a fifty

510
00:28:17,600 --> 00:28:20,560
Speaker 3: basis point probably not on the table, but your your

511
00:28:20,640 --> 00:28:23,439
Speaker 3: gut instinct, is this going to be the start of

512
00:28:23,480 --> 00:28:27,320
Speaker 3: a rate cycle, a rate cut cycle that goes into

513
00:28:28,000 --> 00:28:30,760
Speaker 3: the next year twenty twenty six or is this something

514
00:28:30,800 --> 00:28:33,400
Speaker 3: that you know, maybe you got one rate cut, maybe

515
00:28:33,440 --> 00:28:35,200
Speaker 3: you get two rate cuts, but it's not going to

516
00:28:35,280 --> 00:28:36,840
Speaker 3: go on for much longer than that.

517
00:28:37,320 --> 00:28:40,000
Speaker 4: I think it will be. If it's a cycle, it's

518
00:28:40,040 --> 00:28:42,360
Speaker 4: going to be a halting cycle. What do I mean

519
00:28:42,400 --> 00:28:45,640
Speaker 4: by that cut twenty five in September? I think that's

520
00:28:45,800 --> 00:28:49,280
Speaker 4: going to happen. Wipe the sleigh clean for the next

521
00:28:49,320 --> 00:28:52,840
Speaker 4: six weeks. FED meets every six weeks. Wipe the sleigh clean.

522
00:28:53,240 --> 00:28:55,640
Speaker 4: Make sure that you're can then still the labor market

523
00:28:55,720 --> 00:28:59,200
Speaker 4: is weak, check inflation. If it's continued to be weak

524
00:28:59,520 --> 00:29:02,800
Speaker 4: and inflation at least moderate, you may do another one.

525
00:29:03,400 --> 00:29:03,520
Speaker 6: Uh.

526
00:29:03,760 --> 00:29:06,600
Speaker 4: The issue I'm pointing out is I don't think we

527
00:29:06,680 --> 00:29:09,960
Speaker 4: have more room to get to neutral than seventy five

528
00:29:10,000 --> 00:29:13,479
Speaker 4: to one hundred basis points. So might we wind up

529
00:29:13,520 --> 00:29:16,520
Speaker 4: doing two or three this year? Maybe are we going

530
00:29:16,560 --> 00:29:18,560
Speaker 4: to wind up doing one hundred and fifty two hundred

531
00:29:18,560 --> 00:29:21,640
Speaker 4: base points? It means you would want you would have

532
00:29:21,680 --> 00:29:25,640
Speaker 4: to decide which I don't see a justification for running

533
00:29:25,680 --> 00:29:29,560
Speaker 4: a very stimulative monetary policy. And I think the FED

534
00:29:30,080 --> 00:29:35,560
Speaker 4: as it's currently configured will be enormously reluctant to be

535
00:29:35,560 --> 00:29:39,440
Speaker 4: below restrictive or modestly restrictive as long as inflation's running

536
00:29:39,480 --> 00:29:40,120
Speaker 4: above target.

537
00:29:40,600 --> 00:29:43,280
Speaker 6: Rob Kaplan, thank you so much for doing this a lot.

538
00:29:43,480 --> 00:29:45,520
Speaker 5: Thank you so much.

539
00:29:58,080 --> 00:29:58,160
Speaker 2: So.

540
00:29:58,240 --> 00:30:00,960
Speaker 3: That was our episode with Robert Capel and recorded live

541
00:30:01,000 --> 00:30:03,880
Speaker 3: on stage at the future Proof Conference. I'm Tracy Alloway

542
00:30:03,880 --> 00:30:06,120
Speaker 3: and you can follow me at Tracy Alloway and.

543
00:30:06,080 --> 00:30:08,800
Speaker 2: I'm Joe Wisenthal. You can follow me at the Stalwart.

544
00:30:09,080 --> 00:30:12,200
Speaker 2: Follow our producers Kerman Rodriguez at Kerman Arman, dash O

545
00:30:12,240 --> 00:30:15,400
Speaker 2: Bennett at Dashbot and Cale Brooks at Calebrooks. For more

546
00:30:15,400 --> 00:30:18,200
Speaker 2: odd Loads content, go to Bloomberg dot com slash odd Lodge,

547
00:30:18,200 --> 00:30:20,800
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548
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549
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550
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