WEBVTT - Apollo's Chief Economist Torsten Slok Talks AI and US Economy 

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>The nvidiopaths Gents of One saying concerns around AI's impact

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<v Speaker 2>on the workforce are over blown. Torson's lack of apolloer

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<v Speaker 2>Grease writing there is zero evidence of job losses because

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<v Speaker 2>of AI. Non farm pay rolls for May could come

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<v Speaker 2>in significantly higher than the around ninety k expected. Torston

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<v Speaker 2>joints us for more Toaston, good morning, get to see it.

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<v Speaker 2>What are people getting wrong?

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<v Speaker 3>Well, I think what people are getting wrong is this

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<v Speaker 3>whole notion that it's not only about individual companies.

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<v Speaker 4>It's what's happening at the macro level.

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<v Speaker 3>And at the macro level, it's become much easier to

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<v Speaker 3>open a business.

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<v Speaker 4>You see this in the surveys from the Census of.

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<v Speaker 3>How many business are created every week is exploding higher.

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<v Speaker 3>You're also seeing data from Stripe showing you the number

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<v Speaker 3>of solo founders of new businesses is also exploding higher.

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<v Speaker 4>So that's a lot of new businesses that are created.

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<v Speaker 3>Yes, some of them will probably only be one employer,

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<v Speaker 3>namely the founder, but a lot of these businesses will

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<v Speaker 3>also with the result in a lot more jobs. So

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<v Speaker 3>it's not only about the displacement that there might come

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<v Speaker 3>on some micro levels. It's much more about the aggregate,

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<v Speaker 3>where we have a significant increase in the number new

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<v Speaker 3>businesses that are formed.

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<v Speaker 2>It doesn't help as you know that some of the

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<v Speaker 2>individuals are the frontier of this massive persure talking about

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<v Speaker 2>a white collar wash out when it comes to the

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<v Speaker 2>lay before. So what's your message to them.

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<v Speaker 3>Well, this has started actually already in the spring of

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<v Speaker 3>last year, where there was a lot of people beginning

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<v Speaker 3>to talk about well, within one year's time, we will

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<v Speaker 3>already have layoffs and we'll a have entry level jobs

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<v Speaker 3>that may no longer exist. But here we are with

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<v Speaker 3>ADP on a weekly basis for the last eight weeks

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<v Speaker 3>producing thirty forty thousand jobs every week job this claim

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<v Speaker 3>still being low ism today, over the last six months,

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<v Speaker 3>ism has gone up. We have about fifty Ism is

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<v Speaker 3>likely going to be also high today. And now we

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<v Speaker 3>have some very strong tail when's not only from the

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<v Speaker 3>AI spending boom, but also from the one big beaultiful bill.

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<v Speaker 3>This economy really is on fire in the sense that

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<v Speaker 3>we both have strong growth and we also have upward

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<v Speaker 3>pressures on inflation, and now we also have of course

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<v Speaker 3>the ultimate risk that if AI does result in more

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<v Speaker 3>job growth, it will be really the miracle drug that

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<v Speaker 3>both creates higher productivity and also creates higher job growth.

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<v Speaker 1>That can be true at the same time that John's

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<v Speaker 1>assertion can be true, which is at white collar jobs

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<v Speaker 1>can decline its proportion of overall jobs. If you look

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<v Speaker 1>at the job growth and where it's come from, it's construction,

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<v Speaker 1>it's manufacturing, it's in healthcare, it's an education, it's not

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<v Speaker 1>in finance, it's not in media and media services. So

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<v Speaker 1>how do you square those two ideas.

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<v Speaker 3>Well, if you look at also the unimployer rates and

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<v Speaker 3>now we'll get more data on Friday, if look at

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<v Speaker 3>their own impliner rate for people that are between twenty

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<v Speaker 3>and twenty four years old, that has exactly gone down

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<v Speaker 3>in the last six months, also telling you that is

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<v Speaker 3>not the case that young people can't find a job.

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<v Speaker 3>There's some issues around what type of job they can get,

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<v Speaker 3>and yes, maybe they may not be getting an issue

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<v Speaker 3>to the job that they wanted. That may be something

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<v Speaker 3>else about expectations for young people when it goes into

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<v Speaker 3>that discussion.

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<v Speaker 4>But the bottom line feel really here is that at

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<v Speaker 4>the end of the day, young people.

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<v Speaker 3>Are actually doing really well because the own implorner rate

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<v Speaker 3>for young people is actually lower than where was six

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<v Speaker 3>months ago.

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<v Speaker 1>Okay, to build on that, the conversation yesterday among some

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<v Speaker 1>of the people who might be entering the workforce in

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<v Speaker 1>a not so distant future plumbing a discussion around becoming

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<v Speaker 1>a plumber because you're going to make a lot of

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<v Speaker 1>money in plumbing, but you're not necessarily going to make

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<v Speaker 1>a lot of money going into white collar workforce. So

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<v Speaker 1>at what point is that the type of work that

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<v Speaker 1>is going to be the future of a lot of

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<v Speaker 1>the job creation. Is that what we're seeing right now

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<v Speaker 1>some of the data.

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<v Speaker 4>Yeah, But I'm also critical of this whole idea that white.

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<v Speaker 3>Collar workers are just going to say, oh, I got fired.

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<v Speaker 3>I'm just going home my basement and sitting here rolling

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<v Speaker 3>my thumbs.

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<v Speaker 4>Of course, those white collar.

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<v Speaker 3>Workers are going to say, hey, maybe we should open

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<v Speaker 3>a business. Maybe I have some friends, maybe I had

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<v Speaker 3>some connections from my last job. And I think that

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<v Speaker 3>that's exactly what's going to make it a lot easier

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<v Speaker 3>with us language models, with agents to build a new model.

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<v Speaker 3>And that's exactly why business formation is going up. That's

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<v Speaker 3>why the number of sol founders solo founders has also

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<v Speaker 3>been going up, and that business formation will ultimately also

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<v Speaker 3>result in a lot more job growth.

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<v Speaker 5>We touch on something you said about expect that might

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<v Speaker 5>be about expectations of those entering the workforce. Are you

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<v Speaker 5>saying that potentially younger generations, if they don't like some

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<v Speaker 5>of the characterists of a job, they are going to

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<v Speaker 5>not go into the workforce, potentially maybe start their own

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<v Speaker 5>business or do something else.

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<v Speaker 3>Well, there is certainly a lot of, of course, discussion

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<v Speaker 3>around well is it because young people.

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<v Speaker 4>Can't find a job.

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<v Speaker 3>They can certainly find a job, But then why we're

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<v Speaker 3>having this discussion Maybe exactly to your point, and Marie,

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<v Speaker 3>maybe we are actually hearing more young people just not

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<v Speaker 3>having met their expectations of where they could get a job.

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<v Speaker 3>In other words, maybe they didn't get the job that

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<v Speaker 3>they thought that they could get. So yes, maybe there

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<v Speaker 3>is something also when it comes to the expectations of

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<v Speaker 3>younger households and younger people when they enter the label folds.

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<v Speaker 5>Well, you're describing me sounds like entitlement.

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<v Speaker 4>But we'll leave it there.

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<v Speaker 5>I want to ask you another question. Do you think

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<v Speaker 5>the Federal Reserve has been quote undergoing a stress test.

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<v Speaker 4>Well, I saw Jay Powell of God yesterday. He did

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<v Speaker 4>say at the last press Comfy was going to keep

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<v Speaker 4>a low profile.

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<v Speaker 3>But this obviously is generating some attention here today. So

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<v Speaker 3>I do think that it is clear that, of course

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<v Speaker 3>we'll have new leadership. That leadership is in my view,

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<v Speaker 3>absolutely going to be completely doing all the right things

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<v Speaker 3>and moving in the right direction. But it is a

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<v Speaker 3>little bit noteworthy that the outgoing chair here does bring

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<v Speaker 3>up issues just in the not in the eleventh hour,

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<v Speaker 3>but a few minutes after midnight exactly this discussion around Well, okay,

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<v Speaker 3>let's now give the new fit chair a chance and

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<v Speaker 3>he can then run with it.

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<v Speaker 4>She will do in a very good way.

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<v Speaker 2>And Kevin wash the thing was hopeful that we'd see

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<v Speaker 2>the disinflationary impact of this massive push through odds this

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<v Speaker 2>technology and then be able to have easier monetary policy.

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<v Speaker 2>Where do you stand on that, Tourston.

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<v Speaker 3>Well, we probably have to wait a little while for that,

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<v Speaker 3>because initially the AI boom will certainly be inflationary. It's

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<v Speaker 3>very clear when you look at semiconductor prices. When we

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<v Speaker 3>look at energy prices, we'll look at labor, meaning what

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<v Speaker 3>is the price of contructing a data center. And it's

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<v Speaker 3>also of course when you look at the broader equipment prices,

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<v Speaker 3>it is also very clear that this is going to

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<v Speaker 3>be inflationary on top of the upward pressure on inflation

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<v Speaker 3>coming from the lack effects of tariffs and of course

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<v Speaker 3>also higher energy prices. So initially, in the initial phase

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<v Speaker 3>of the buildout, we should actually expect the AI data

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<v Speaker 3>center buildout to be inflationary rather than this inflationion.

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<v Speaker 2>Can we finish on the price of AI. There were

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<v Speaker 2>some CEOs, not all, but some CEOs excited about the

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<v Speaker 2>prospects for a genter KI and replacing the human labor

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<v Speaker 2>force with that. When they start to realize the actual

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<v Speaker 2>cost of this, well they have second thoughts on replacement.

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<v Speaker 4>Well.

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<v Speaker 3>This is also a huge discussion around token demand and

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<v Speaker 3>token usage, and at the end of the day, token

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<v Speaker 3>users is not necessarily the same thing as creating higher productivity.

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<v Speaker 3>So that's why businesses as we speak are exactly trying

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<v Speaker 3>to figure out how much token demand do we have

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<v Speaker 3>and do we ultimately need and will it pay off?

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<v Speaker 3>And with the price of that token demand also be

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<v Speaker 3>worth it relative to the cost of labor, So it

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<v Speaker 3>really is a transition where we will need to figure

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<v Speaker 3>out over time exactly what does the endpoint look like.

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<v Speaker 3>Are we going to get to a point where we

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<v Speaker 3>will be much more productive and will be in my view,

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<v Speaker 3>probably need more labor and not less labor, especially in

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<v Speaker 3>the aggregate.

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<v Speaker 4>From the macro perspective, you're.

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<v Speaker 1>Pointing to a very much inflationary backdrop. And this comes

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<v Speaker 1>ahead of the labor market report that we get on

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<v Speaker 1>Friday that could be hotter than expected. If we see

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<v Speaker 1>the same kind of trend continue as we saw last month,

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<v Speaker 1>what do you think the Fed's response will ultimately be

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<v Speaker 1>given the fact that no one has the appetite to

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<v Speaker 1>raise rates.

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<v Speaker 3>Well, this is of course the challenge that the expectations

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<v Speaker 3>for a long time in the dot plot has been.

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<v Speaker 3>The rates are going down and the fat is going

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<v Speaker 3>to cut. And now markets and FED fund futures are

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<v Speaker 3>slowly beginning to say, well, maybe there could be a highcoming.

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<v Speaker 3>And we all know that if there's a hike coming

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<v Speaker 3>then it doesn't come alone. Hiking cycles are never just

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<v Speaker 3>one hike and that's it. It will always be three

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<v Speaker 3>or four hikes on more. So that's why the market

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<v Speaker 3>is debating with itself in breaks.

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<v Speaker 4>Well, if there is a rate.

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<v Speaker 3>Hike cycle beginning because of these factors that we both

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<v Speaker 3>have a low unemployment rate and at the same time

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<v Speaker 3>we also have up pressure on inflation, then all those

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<v Speaker 3>things would certainly argue for the risks to the upside

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<v Speaker 3>name of the rates are going to stay higher for longer.

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<v Speaker 1>The picture that you're painting of both an inflationary buildout

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<v Speaker 1>of AI plus a labor market that's poised for expansion

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<v Speaker 1>not contraction due to the extra economic activity is one

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<v Speaker 1>that could call for a rate hiking cycle. What could

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<v Speaker 1>you potentially see, I mean, what is increasingly your base

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<v Speaker 1>case going into twenty twenty seven.

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<v Speaker 3>Yeah, because this is a fit's do a mandate if

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<v Speaker 3>it has two goals exactly as you're saying, Lisa, name

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<v Speaker 3>need the unemployment rate and that's been going down, and

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<v Speaker 3>it's likely Zoo, according to the consensus, continue to go

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<v Speaker 3>down and inflation by the end of the year is still,

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<v Speaker 3>according to the consensus, three percent. So if you're three

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<v Speaker 3>percent inflation and a very strong label market, that indeed

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<v Speaker 3>opens up a much high likelihood that we will see

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<v Speaker 3>a stronger economy. Also because of the tail when the

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<v Speaker 3>not forget it's not only the AI boom, but it's

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<v Speaker 3>also the one Big Briti for Bill. And both these

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<v Speaker 3>things are not sensitive to interest rates. It's really unique

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<v Speaker 3>those factors that are sensitive to ingistrates in GDP and MEH,

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<v Speaker 3>housing and autos.

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<v Speaker 4>They are slowing down.

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<v Speaker 3>But the factors that are driving growth at the moment,

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<v Speaker 3>the AI boom and the One Big Bril for Bill.

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<v Speaker 3>It doesn't matter what their Fed funds Radi is doing.

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<v Speaker 3>We will have an AI boom. It doesn't matter what

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<v Speaker 3>their Fed funds ready is doing. The One Big Ril

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<v Speaker 3>for Bill will continue to support GDP for the next

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<v Speaker 3>several quarters.

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<v Speaker 2>Tilston, It's going to say it always is. Thank you.

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<v Speaker 2>Tustin Slock that of Apollo