Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Laws podcast.
Speaker 3: I'm Jill Wassenthal and I'm Tracy Alloway.
Speaker 2: Today you are listening to a special episode of the podcast.
Speaker 2: It was recorded live at the future Proof conference in
Speaker 2: Huntington Beach.
Speaker 3: Yep, we're going to be speaking with former Dallas FED
Speaker 3: president Robert Kaplan. He is now vice chairman of Goldman Sachs. Again,
Speaker 3: this was recorded live on stage at future Proof. So
Speaker 3: take a listen.
Speaker 2: All right, let's just kick it straight off that jobs
Speaker 2: report that we got last week. In your view with
Speaker 2: your FED hat on, maybe is a fifty basis point
Speaker 2: rate cut in play for the next meeting.
Speaker 4: I think fifty basis points is still unlikely. I think
Speaker 4: we've been of the view for the last few months
Speaker 4: the job market was weak.
Speaker 5: This latest report was a little weaker.
Speaker 4: Having said that, the reason twenty five is more likely
Speaker 4: than fifty is it wasn't The jobs market is not.
Speaker 5: Falling off a cliff.
Speaker 4: We didn't get shrinkage, and inflation is running at two
Speaker 4: and three quarters to three percent above target, and so
Speaker 4: it sort of puts a little bit of a headwind
Speaker 4: on doing more than twenty five basis points.
Speaker 3: I mean, I take your point, but the report was
Speaker 3: still a huge surprise. So if you were in the
Speaker 3: newsroom when that number came out, just twenty two thousand
Speaker 3: jobs added, there was a sort of collective gas because
Speaker 3: it was way below basically the entire range of expectations
Speaker 3: for that particular month. If you're at the FED and
Speaker 3: you see a number like that, what does twenty two
Speaker 3: thousand actually tell you? Or are you sitting there going well,
Speaker 3: maybe I'll wait for the revision until I really make
Speaker 3: up my mind.
Speaker 4: I don't know that the weakness and the jobs market
Speaker 4: was a big surprise to the Fed. They didn't know
Speaker 4: exactly what the number would be, but they expected to
Speaker 4: be anemic. The reason that the unemployment rate is stayed
Speaker 4: low is we are not we've shut down undocumented immigration.
Speaker 4: We have not ramped up legal immigration, and as you
Speaker 4: well know, we are deporting some number of workers and
Speaker 4: chilling ten to fifteen million undocumented immigrants who were in
Speaker 4: the workforce, and some percentage of them are not going
Speaker 4: to work, and so supply is anemic. We've thought for
Speaker 4: the last few months that hiring was kind of we.
Speaker 5: Said at stall speed. You should assume if GDP.
Speaker 4: Growth is one a quarter one and a half percent,
Speaker 4: hiring is going to be anemic. So we could debate
Speaker 4: the number, but I don't think it was a big
Speaker 4: shock that it was weak, and I think it wouldn't
Speaker 4: surprise me to see the next number also lethargic.
Speaker 5: So why aren't we falling off a cliff.
Speaker 4: We still are running a large deficit, we have tax
Speaker 4: and sofs coming, We're in the middle of an AI
Speaker 4: data center power boom, as you just heard about in
Speaker 4: the previous session, and I think that's still bolsterining the economy.
Speaker 2: Well, then let me take the flip side of Tracy's question, because, okay,
Speaker 2: maybe setting aside reasons for concern, the flip side, as
Speaker 2: you mentioned, inflation is still running above target by most measures.
Speaker 2: The stock market I haven't actually I don't know what
Speaker 2: it's doing today, but it's very close to all time highs.
Speaker 2: Regardless of what it's doing today, all kinds of people
Speaker 2: are having a really nice time on the beach in
Speaker 2: southern California. What is the evidence that, as currently standing,
Speaker 2: that FED policy is actually restrictive? Clearly the FOMAC has
Speaker 2: come around to this view of cuts, it seems like
Speaker 2: cuts are locked in, but you don't have to have
Speaker 2: the FOMAC I view anymore. Like, is it obvious that
Speaker 2: cuts are needed at this point?
Speaker 5: Yeah.
Speaker 4: I think if it were not for the weakness that
Speaker 4: we've seen in the labor market, the FED would want
Speaker 4: to stand pat because we are It's one thing to
Speaker 4: be above your inflation target. We're not moving toward the
Speaker 4: inflation target right, We're going sideways to backing up. But
Speaker 4: with this week labor market, I think it brings the
Speaker 4: fact you need to cut into play. Now, what's the
Speaker 4: neutral rate? I think the neutral rate today you got
Speaker 4: a two and three quarters percent inflation rate. Seventy five
Speaker 4: basis point real FED funds rate means the neutral rate
Speaker 4: to me is around three and a half percent.
Speaker 5: We don't have a lot.
Speaker 4: Of space to cut to get to neutral, but I
Speaker 4: think you've got seventy five to one hundred base points.
Speaker 4: I think the goal of the Fed will be cut
Speaker 4: in September, stay restrictive, and if the labor market stays,
Speaker 4: we keep going. If it stabilizes, then then you have
Speaker 4: the option to hold off, and I think that's what
Speaker 4: they'll do.
Speaker 3: Just going back to financial conditions and stock markets at
Speaker 3: all time highs. I mean, if the FED cuts at
Speaker 3: this current juncture, you know, call it an insurance cut
Speaker 3: or whatever. But if the economy reaccelerates after that, which
Speaker 3: it may, Yeah, which it may, would you be worried
Speaker 3: about that side of the outcome, given that, as you said,
Speaker 3: inflationary pressures seem to be going sideways too, possibly up.
Speaker 5: Yeah.
Speaker 4: So a lot of people look at financial conditions and
Speaker 4: see it as a reason the Fed shouldn't act. I
Speaker 4: actually come at it from someplace different. The economic statistics
Speaker 4: are reflective of.
Speaker 5: What's going on right now.
Speaker 4: In fact, even more than that what has gone on,
Speaker 4: not even what's going on right now. The stock market
Speaker 4: and other financial markets are a assessment of what's going
Speaker 4: to happen for the next three to five years. As
Speaker 4: we know, we're in the middle and the early innings
Speaker 4: of an AI data center power boom. I don't think
Speaker 4: it's showing up yet in a lot of productivity, but
Speaker 4: I think a year or two from now it will.
Speaker 5: The stock market, rightly or wrongly, I think is making
Speaker 5: that bet.
Speaker 4: It's betting that productivity is going to improve, corporate earnings
Speaker 4: are going to get better. You're not seeing a show
Speaker 4: up in the current economy. The Fed's job is to
Speaker 4: look at financial conditions, but adjust policy based on the
Speaker 4: current economy, not the bet the market's making for two
Speaker 4: or three years.
Speaker 2: I'm glad you brought that up about the AI boom,
Speaker 2: the powers, the data center boom, and so forth, and
Speaker 2: that it's not showing up yet in productivity, but it
Speaker 2: may be showing up in greater strain on the grid.
Speaker 6: It may be showing up in greater strain.
Speaker 2: On certain electrical gear that's necessary that's been in shortage
Speaker 2: for all manufacturers for years now. As of right now
Speaker 2: in September twenty twenty five, could we say that, if anything,
Speaker 2: the AI boom is like sort of having a crowding
Speaker 2: out effect or slightly inflationary where the costs right now
Speaker 2: just on a static stent setting aside the bet, are
Speaker 2: a bit of a drag.
Speaker 4: There are two big structural initiatives that are being pursued
Speaker 4: by this administration. One is regulatory view and regulatory relief
Speaker 4: because they want to ease the speeding to adoption of
Speaker 4: AI and get more capital available. But the second thing
Speaker 4: is there's an extensive re review of the power grid.
Speaker 4: We are behind China in having enough power to fund.
Speaker 5: The AI explosion.
Speaker 4: We've got to invest more in geothermal, more modular nuclear.
Speaker 4: We need to make it easier to run a refinery,
Speaker 4: make it easier to do transmission. And I think you're
Speaker 4: going to find there's going to be enormous efforts because
Speaker 4: we are behind, and in some states, to your point,
Speaker 4: there is a crowding out and I think people are afraid.
Speaker 4: At some states, the leaders are afraid to take more
Speaker 4: data centers for fear it's going to crowd out individuals.
Speaker 4: So this is a big structural initiative that isn't getting
Speaker 4: in the press a lot, but it's a big initiative
Speaker 4: going on in this country.
Speaker 5: That's a dramatic change and it's needed.
Speaker 3: What does that actually mean for FED policy? Because if
Speaker 3: I think about this crowding out idea and all the
Speaker 3: demand for databases and the things that power them, we
Speaker 3: have seen electricity prices start to go up. I know
Speaker 3: the FED, the fed's preferred inflation measure is x energy
Speaker 3: and food prices. But on the other hand, electricity prices
Speaker 3: feed into the cost of pretty much everything. And also
Speaker 3: this doesn't seem like a bottleneck that we're going to
Speaker 3: be solving, you know, within the next two or three years,
Speaker 3: or even ten years. To be frank, if you're at
Speaker 3: the FED right now and you see electricity prices going up,
Speaker 3: how are you thinking through that pressure?
Speaker 4: So let me put it in context. There are cross currents,
Speaker 4: I mean real cross currents.
Speaker 5: You just mentioned one.
Speaker 4: On the one hand, you've got the government is trying
Speaker 4: to reduce government directed spending and replace it with more incentives,
Speaker 4: tax incentives. Obviously the tariffs have been put in place.
Speaker 4: Those are slowing growth and they have a tendency to
Speaker 4: raise costs they might be one time. And the labor
Speaker 4: force I just mentioned, we are actually decelerating and reducing
Speaker 4: labor force growth because of immigration policy. That's actually helping
Speaker 4: us be at full employment, and the Fed's been taken
Speaker 4: by that, but also makes prices stickier, wages stickier. At
Speaker 4: the same time, you just said, you've got these booms
Speaker 4: and AI and the grid, and you've got don't we
Speaker 4: need more labor, we need more power and that.
Speaker 5: Actually stresses prices.
Speaker 4: So when you're at the FED, when you've got this
Speaker 4: kind of confusion, I think that's one reason why they've
Speaker 4: done nothing so far this year. But I think the
Speaker 4: labor market is forcing their hand where if it gets
Speaker 4: even weaker, they really don't want that, and that's why
Speaker 4: they're acting.
Speaker 2: Let's talk about AI and China a little bit more.
Speaker 2: You mentioned the power element, and there are a lot
Speaker 2: of people anxious about the constraints on the US grid
Speaker 2: and you all these big CAPEX numbers and can the
Speaker 2: great even support that? What else is different besides the
Speaker 2: electricity component, because some people we've talked to you talk
Speaker 2: about there is a very different attitude towards detech diffusion,
Speaker 2: particularly out of China or supply chains that run through China.
Speaker 4: So uh, and I just got back from Asia and
Speaker 4: I was in China last week. When we talk about AI,
Speaker 4: we tend to look at the hyperscalers, these big giant
Speaker 4: companies that make up a disproportionate share of the S
Speaker 4: and P five hundred, and they're spending hundreds of billions
Speaker 4: of dollars.
Speaker 5: They're making a lot of money. When I'm in China.
Speaker 4: And we talk about it about AI, they talk about
Speaker 4: the word used diffusion. They talk about regular businesses, the
Speaker 4: McDonald's of China, Luke and Coffee in China.
Speaker 6: Ray, you look them in New York City right now,
Speaker 6: and I tried one and it's very good.
Speaker 4: Yes, but those companies are actively using AI to lower costs.
Speaker 4: So why is that happening. I'd say we're further along.
Speaker 4: China's further along than we are. Why their margins are lower.
Speaker 4: They're doing it out of necessity. Our margins in the
Speaker 4: US and our companies are higher, and so they're not
Speaker 4: as much pressure to lower costs and make AI experiments.
Speaker 4: In China, they don't have a choice. It's so competitive
Speaker 4: they need to lower costs. But the thing that struck
Speaker 4: me there's a lot to learn from what they're doing
Speaker 4: in China. Normally, if we were a little more globally integrated,
Speaker 4: we would learn those things and bring those learnings back
Speaker 4: to the United States. And it reminded me that globalization
Speaker 4: is not dead. United States is choosing to play a
Speaker 4: different role in it and stepping back. But I got
Speaker 4: to tell you, the other thing I saw there is
Speaker 4: there's more coupling going on between China and other countries
Speaker 4: that are aggressively. Canada is much more aggressive in trying
Speaker 4: to form new partnerships. So I think globalization and the
Speaker 4: Ai story go together. And I got to tell you,
Speaker 4: globalization not going away, and the US is going to
Speaker 4: have a choice in the years to come how much
Speaker 4: of a role we want to play in participating.
Speaker 5: But it's going to happen with us or without us.
Speaker 3: So we can sit here and ask you what you
Speaker 3: saw in China and what your thoughts were about China.
Speaker 3: But I am very aware that when you go on
Speaker 3: that type of trip, you have Chinese clients who are
Speaker 3: asking you your thoughts on the US and what's going
Speaker 3: on here. What are the type of questions that you're
Speaker 3: getting from Chinese clients at the moment, what are they
Speaker 3: interested in?
Speaker 4: So the biggest item i'd say of discussion is and
Speaker 4: I used to be in Asia for the first part
Speaker 4: of my career and what I found in Korea, Taiwan, China,
Speaker 4: to a large extent, their whole effort was to go
Speaker 4: from low value added manufacturing to high value added manufacturing.
Speaker 4: And they try to wean off of lower value added manufacturer.
Speaker 4: What's an example. T shirts and sneakers used to be
Speaker 4: made in China. Today they're made in Vietnam. Why China
Speaker 4: wants to move up the value chain because their feeling
Speaker 4: is they're going to raise the standard of living.
Speaker 5: To higher value added manufacturing.
Speaker 4: The question sometimes I get when I'm over there is
Speaker 4: if you're going to reshore to the United States, are
Speaker 4: you going to really reshore lumber, aluminum, some of these
Speaker 4: other lower value added manufacturing wouldn't. Solidifying the relationship with
Speaker 4: Canada and Mexico makes sense where you can get cheap
Speaker 4: natural resources from Canada, cheap labor from Mexico, and solidify
Speaker 4: North America. And so I'd say that they're not critical
Speaker 4: of us, but they're scratching their heads a little bit
Speaker 4: to say, what's the strategic rational Because you're tied on labor,
Speaker 4: you normally want to move up the value chain. And
Speaker 4: I think they realize that some of these tariffs are
Speaker 4: also intended to help generate revenue and reduce the deficit.
Speaker 4: They understand that, they're just questioning how strategic it is.
Speaker 2: Well, let me ask you a question of the on
Speaker 2: the question of what are we going to bring back
Speaker 2: in the United States, if anything, just from your purge
Speaker 2: at Goldman, do you see any private money that's come
Speaker 2: into the US for fresh sort of I don't know
Speaker 2: Greenfield capital investment either in something low margin or high
Speaker 2: margin because the terriffs have changed the math and made
Speaker 2: that investment economical.
Speaker 4: So I will say there, yes is the answer. I
Speaker 4: think there are US companies that will do more on
Speaker 4: the margin manufacturing here. I've talked to overseas companies, including
Speaker 4: I won't mention the name of one contract manufacturer in China.
Speaker 4: They are building more in the United States, and so
Speaker 4: the thing is, I don't know how long it will take,
Speaker 4: what the magnitude will be, but yes, it is happening.
Speaker 4: The flip side of that is there are many companies
Speaker 4: in the US that benefited from access to lower cost goods. Yeah,
Speaker 4: and I won't mention their name that you can you
Speaker 4: know some of them and their margins are being squeezed.
Speaker 4: And then I talked to a number of small businesses
Speaker 4: that don't have the levers to manage these tariffs, and
Speaker 4: some of them will actually go out of business or
Speaker 4: considering it by the end of the year.
Speaker 3: This is a little bit of an unfair question, but
Speaker 3: I'm going to ask it anyway. If you had to,
Speaker 3: if you have to choose one right now, would you
Speaker 3: say that tariffs are more effective at bringing back manufacturing
Speaker 3: to the US, or more effective at raising income for
Speaker 3: the US government at a time when people are worried
Speaker 3: about the deficit.
Speaker 4: I think they'll start with the second part. Tariffs raise revenue,
Speaker 4: but they slow growth, and so for every dollar of
Speaker 4: tariff revenue you have to accept, you may give some
Speaker 4: back in a little bit lower growth. I think that
Speaker 4: trade is very much worth it if you're bringing back
Speaker 4: high value added manufacturing. I don't know if it's such
Speaker 4: a good trade if you are pushing to bring back
Speaker 4: lower value added I think this administration knows that, and
Speaker 4: I think they'll be more strategic.
Speaker 5: I think you can do both.
Speaker 4: I think you could level the playing field, get a
Speaker 4: more tariff revenue. With some level of tariff revenue, I
Speaker 4: think we were thinking they were going to be closer
Speaker 4: to ten percent than twenty percent. You mean the high
Speaker 4: teens is a little higher than we expected. And you
Speaker 4: can also yes on semiconduct in other strategic areas, you
Speaker 4: can redomicile those. I think the question is you sure
Speaker 4: you want to go down the road of lumber and
Speaker 4: aluminum or do you want to let Canada do it?
Speaker 5: Is that a good strategic trade? I'm not sure.
Speaker 6: Since you mentioned it.
Speaker 2: Why is the neutral rate of interest to the extent
Speaker 2: that we can form some educated guess as to what
Speaker 2: it is. Why is it so much higher than it
Speaker 2: was in say twenty nineteen in your view.
Speaker 4: So the fact of the matter is, I think if
Speaker 4: you go way back in the Stone Age to twenty nineteen, and.
Speaker 6: It does seem like forever ago.
Speaker 5: It does.
Speaker 4: I think if we had not had COVID, I think
Speaker 4: at the right before COVID hit, the ten year treasury
Speaker 4: I think was in the neighborhood of maybe one in
Speaker 4: three quarters to two, the Fed funds rate was in
Speaker 4: the mid ones.
Speaker 5: I think we would have inched our way up a little.
Speaker 2: Hard know how good we had all those people complaining, oh,
Speaker 2: yields are so low, and then now they all wish
Speaker 2: they could go back there.
Speaker 4: Yeah, Listen, the inflation rate today is stickier. Back in
Speaker 4: nineteen it was probably one and a half one and
Speaker 4: three quarters. I still think even then the neutral rate
Speaker 4: real rate was three quarters of one percent. So the
Speaker 4: neutral Fed funds rate back then I think was two
Speaker 4: and a half ish. Today it's closer to three and
Speaker 4: a half. But there's only one reason for that. The
Speaker 4: inflation rates higher. If inflation got back down to two.
Speaker 4: I think you'd see the neutral rate back down to
Speaker 4: two and three quarters.
Speaker 3: Since you mentioned sticky inflation. There's one other thing that
Speaker 3: seems to be top of mind at the moment, which
Speaker 3: is federal reserve independence, and we should talk about that.
Speaker 3: But I guess we can get your thoughts on you know,
Speaker 3: that specific idea in a second. But one thing that
Speaker 3: seems surprising so far is that we're having this debate
Speaker 3: about what happens to the federal reserve with what seems
Speaker 3: to be a more activist Trump administration that seems to
Speaker 3: want to have a heavier hand in monetary policy. We
Speaker 3: haven't really seen much response from the market. If you
Speaker 3: look at the long end, it doesn't seem like there's
Speaker 3: a big risk premium building there. What's going on?
Speaker 5: So's make two comments.
Speaker 4: So regarding political independence, let me just make sure I
Speaker 4: frame this regulatory policy at the FED is not, underline,
Speaker 4: not politically independent. It hasn't been for a number of years.
Speaker 4: What do I mean by that? You get a new president,
Speaker 4: they pick a new head of supervision, and it's very
Speaker 4: much has been influenced for the last many years by
Speaker 4: whoever's in office. The balance sheet I would argue, is
Speaker 4: maybe a little bit in the gray air on setting
Speaker 4: the FED funds rate. Though the Fed has been politically independent.
Speaker 4: Why is the market, you said, well, not reacting more
Speaker 4: to this.
Speaker 5: I mean, the.
Speaker 4: Reality is the stock market likes the idea of lower rates.
Speaker 4: I think the thing, it's not that the markets aren't reacting.
Speaker 4: The stock market likes it. So it's starting now to
Speaker 4: take into account. It makes the real acceleration you talked
Speaker 4: about more likely. The gold market is very much taken
Speaker 4: note of it, and gold is up more than thirty
Speaker 4: five percent year to DA eight. I see it's up
Speaker 4: another one percent today, So it has and I actually
Speaker 4: think duration on the long bond while while the tenure
Speaker 4: is rallied because of slow growth, I still think we
Speaker 4: have an issue. We've got thirty seven trillion of debt
Speaker 4: to sell on our way to forty trillion. I think
Speaker 4: that the bond market may pay at the long end.
Speaker 4: We'll pay attention to how this current situation works out.
Speaker 6: What is going on?
Speaker 2: How much more gold talk is there these days than
Speaker 2: there were a few years ago.
Speaker 4: Well, I actually I've gone back over look back over
Speaker 4: the last fifty years. When's the last time we got
Speaker 4: a rally in gold like this, I think in the
Speaker 4: aftermath of the Great Recession. Remember the Great Recession, the
Speaker 4: FED took its balance sheet from eight hundred billion to
Speaker 4: four trillion, okay, and stopped and we started to run
Speaker 4: it down a little bit. In response to COVID, we
Speaker 4: went from four trillion to nine trillion, and we authorized
Speaker 4: six trillion dollars of extraordinary spending in a twenty seven
Speaker 4: trillion dollar economy. And the GDP, the net debt to
Speaker 4: GDP went from mid seventies to over one hundred percent.
Speaker 4: When you've got leverage in the United States and to
Speaker 4: some extent in the developed world getting much higher in
Speaker 4: response to COVID. That's where people started to look at gold, bitcoin,
Speaker 4: other alternatives to paper currency because they're worried that this
Speaker 4: leveraging is just keeping going on and on and on,
Speaker 4: and so it's understandable.
Speaker 3: Wait is it, though, Because one of the weird tensions
Speaker 3: of our current market situation is we have US stocks
Speaker 3: at all time highs, but also gold making new records
Speaker 3: almost every week. It feels like those two things are incompatible,
Speaker 3: at least in the long run. You know, maybe we
Speaker 3: could do it for a few weeks or a few months.
Speaker 3: But someone's got to be wrong here.
Speaker 4: I spent a lot of time talking to big institutions
Speaker 4: and about asset allocation. I think, and this is our view. Also,
Speaker 4: we think there could be a re acceleration into twenty six.
Speaker 4: We think the AI boom is for real. We think
Speaker 4: we're going to get.
Speaker 5: A lot of productivity out of AI. Okay, that is a.
Speaker 4: Good environment for corporate earnings and for stocks. What we
Speaker 4: don't know is how successful we're going to be on
Speaker 4: bending the curve of.
Speaker 5: Debt to GDP.
Speaker 4: Are we going to run another two trillion dollar deficit
Speaker 4: even with tariffs?
Speaker 5: Is it going to be higher?
Speaker 4: And in that regard, I think people can buy stocks
Speaker 4: and buy gold and be very careful about buying the
Speaker 4: tenure and the thirty year treasury.
Speaker 5: And I think that's kind of what we're seeing.
Speaker 2: Actually, I want to go back to your point about
Speaker 2: sort of globalization is happening with US or without US.
Speaker 2: There's a different approach to AI diffusion out of China
Speaker 2: than there is in US. But when you go around
Speaker 2: the world, are the American providers of tech, whether it's
Speaker 2: cloud tech or whether it's Microsoft et cetera. Are they
Speaker 2: still are they gonna win? Even if the US isn't
Speaker 2: part of that globalization wave? Will US tech still be
Speaker 2: part of the story because so much is rioting on
Speaker 2: the ongoing earnings power of seven companies.
Speaker 4: So I'll make a general comment about US companies. Generally,
Speaker 4: a typical CEO in the United States that runs a
Speaker 4: global company has probably been to Europe in their careers
Speaker 4: seventy five times or more, and has been to Asia
Speaker 4: seventy five times, has been to China multiple times, has
Speaker 4: built relationships, and has been doing it for years. And
Speaker 4: I think that's true of tech, no doubt. Many of
Speaker 4: the tech leaders you see are overseas regularly. Our political
Speaker 4: leaders and some of our leaders in certain governmental positions
Speaker 4: maybe have not been to China or overseas quite as much.
Speaker 4: And that's why you see during periods like this, the
Speaker 4: corporate world is continuing to chug along and build relationships globally,
Speaker 4: even though at national level we're sort of reorienting and
Speaker 4: trying to bring more to the United States and affect deglobalized.
Speaker 4: So we've got a kind of a diachademy, and it
Speaker 4: stands in sharp relief this is the same way even
Speaker 4: a years ago where we withdrew from the Paris Climate Accord,
Speaker 4: and yet companies in the United States, to my eye,
Speaker 4: did not slow down at all in trying to build
Speaker 4: LEAD certified buildings and focus on greenhouse gas emissions and sustainability.
Speaker 3: You talked earlier about the difference between how China and
Speaker 3: the US the corporate sphere is actually using AI. When
Speaker 3: you're looking at the US and you're looking for signs
Speaker 3: that AI is actually having a definitive needle moving impact
Speaker 3: on US productivity, what are you looking for here?
Speaker 4: What are the signs I'm looking for adoption in a
Speaker 4: broad set of industries, because here's here's how this works. First,
Speaker 4: your company gets you to try it okay, and you
Speaker 4: adopt it. Second thing you try is various use cases
Speaker 4: based on that adoption, and then third thing you figure
Speaker 4: out which use cases work and which use cases don't work.
Speaker 4: We're kind of in that phase right now in the
Speaker 4: United States. When I say China's a little farther ahead,
Speaker 4: I think they've already tried and proven some of the
Speaker 4: use cases.
Speaker 5: In more industry.
Speaker 4: We'll get there too, But you'll know when we look
Speaker 4: back ten years from now.
Speaker 5: My guess is maybe not as fast as other parts
Speaker 5: of the world.
Speaker 4: We will have gone through all that, we'll know which
Speaker 4: use cases work, which don't, will adopt them.
Speaker 5: We're going to get a lot more efficiencies.
Speaker 4: There may be as many or more jobs, but they're
Speaker 4: going to shift and we're going to have to redeploy
Speaker 4: people to where the open jobs are. But we have
Speaker 4: to go through that whole cycle. And I would say
Speaker 4: we're early. We're early in that.
Speaker 2: We just have a couple of minutes left. Here's something
Speaker 2: that's been on my mind a little bit lately that
Speaker 2: I would like your take on. How levered to the
Speaker 2: stock market is the real US economy? How much when
Speaker 2: you look around does it feel like things are dependent
Speaker 2: on these companies continuing to deliver year after year and
Speaker 2: positive asset returns.
Speaker 5: So that's a great question.
Speaker 4: So I would say the US is seventy five percent
Speaker 4: a serve economy. It is a very heavily consumer driven economy.
Speaker 4: This which makes our economy different from many in the world.
Speaker 4: And if you break down the consumer here, half the
Speaker 4: workers in this country, let's take an eighty eighty five
Speaker 4: million make fifty thousand dollars a year are unlikely to
Speaker 4: have financial assets, have lost twenty five percent plus purchasing power,
Speaker 4: and they're struggling to make ends meet. They're spending every
Speaker 4: dollar they make. But if you're a business that serves them,
Speaker 4: you're seeing they're being very careful. There's another eighty eighty
Speaker 4: five million consumers tend to be I'm exaggerate, I'm generalizing
Speaker 4: fifty five and older own their home, half financial assets,
Speaker 4: and they've made a lot of money in the markets,
Speaker 4: to your point, and they're spending because they're getting wealthier.
Speaker 4: And we've got a tale of two consumer groups. I
Speaker 4: think part of what this administration, I believe, is trying
Speaker 4: to do is help lift up this first group so
Speaker 4: that they can be more affluent and do better because
Speaker 4: right now we're very heavily dependent on this second engine
Speaker 4: based on the stock market.
Speaker 3: All right, I'm going to sneak in one more question
Speaker 3: and go back to where we started this conversation, which
Speaker 3: is on rate cuts. I know you said a fifty
Speaker 3: basis point probably not on the table, but your your
Speaker 3: gut instinct, is this going to be the start of
Speaker 3: a rate cycle, a rate cut cycle that goes into
Speaker 3: the next year twenty twenty six or is this something
Speaker 3: that you know, maybe you got one rate cut, maybe
Speaker 3: you get two rate cuts, but it's not going to
Speaker 3: go on for much longer than that.
Speaker 4: I think it will be. If it's a cycle, it's
Speaker 4: going to be a halting cycle. What do I mean
Speaker 4: by that cut twenty five in September? I think that's
Speaker 4: going to happen. Wipe the sleigh clean for the next
Speaker 4: six weeks. FED meets every six weeks. Wipe the sleigh clean.
Speaker 4: Make sure that you're can then still the labor market
Speaker 4: is weak, check inflation. If it's continued to be weak
Speaker 4: and inflation at least moderate, you may do another one.
Speaker 6: Uh.
Speaker 4: The issue I'm pointing out is I don't think we
Speaker 4: have more room to get to neutral than seventy five
Speaker 4: to one hundred basis points. So might we wind up
Speaker 4: doing two or three this year? Maybe are we going
Speaker 4: to wind up doing one hundred and fifty two hundred
Speaker 4: base points? It means you would want you would have
Speaker 4: to decide which I don't see a justification for running
Speaker 4: a very stimulative monetary policy. And I think the FED
Speaker 4: as it's currently configured will be enormously reluctant to be
Speaker 4: below restrictive or modestly restrictive as long as inflation's running
Speaker 4: above target.
Speaker 6: Rob Kaplan, thank you so much for doing this a lot.
Speaker 5: Thank you so much.
Speaker 2: So.
Speaker 3: That was our episode with Robert Capel and recorded live
Speaker 3: on stage at the future Proof Conference. I'm Tracy Alloway
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