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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Applecarplay and Android Auto with the Bloomberg Business App.

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Speaker 1: us live on YouTube.

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Speaker 2: Back to earnings under Armour shares. Let's take a look.

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Speaker 2: They are down eighteen percent. They forecast worse than expected

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Speaker 2: sales and profit for the current quarter. Here to break

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Speaker 2: it all down for us, as Poohim Goyle, senior US

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Speaker 2: e commerce and retail analysts at Bloomberg Intelligence poon em

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Speaker 2: thanks for coming out this morning. So weren't they just

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Speaker 2: I'm confused because it wasn't under Armour just starting to

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Speaker 2: make this turnaround planned.

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Speaker 3: Yeah, you know what, We've seen under Armour make several

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Speaker 3: attempts at a turnaround in the last decade. So this

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Speaker 3: is another attempt. And they do have the right pillars

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Speaker 3: in place, you know, focusing on brand equity, forocusing on

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Speaker 3: full price sales. The issue is that the macro's not cooperating.

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Speaker 3: We have one hundred million dollar impact on their costs

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Speaker 3: from tariffs that they're expecting. We're seeing that they want

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Speaker 3: to push full price in an environment where promotions are

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Speaker 3: picking up, so that's going to cost them sales net net. Basically,

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Speaker 3: that means that sales are going to be down mid

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Speaker 3: to high single digits in the next fiscal quarter, and

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Speaker 3: North America, which is a clear key region for them,

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Speaker 3: could be down low double digits. So the turnaround isn't

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Speaker 3: shaping up like we expected, and I just think it

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Speaker 3: needs a lot more time right now.

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Speaker 4: That is actually what caught my eye to the weak

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Speaker 4: North America outlook. I think they're forecasting a fourteen percent

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Speaker 4: to sixteen percent drop in North America sales, which is massive.

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Speaker 4: So what then, is your view of under Armour's strategy,

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Speaker 4: especially compared to its peers like Nike or Adidas or

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Speaker 4: Adidas depending on who you're speaking with.

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Speaker 3: Yeah, so I think each of them are pursuing the

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Speaker 3: strategy in a similar way in that they're focusing on

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Speaker 3: the profitable channels to drive growth. So when you look

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Speaker 3: at Adidas, you know they've been doing really well for

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Speaker 3: the last few years, and it's in part by their

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Speaker 3: effort to really push innovation and product to the consumer

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Speaker 3: in the right channels, and really they've done a great

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Speaker 3: job When it comes to Nike, they're clearly in turnaround mode.

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Speaker 3: They are moving forward with their turnaround. We are starting

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Speaker 3: to see signs of you know, things getting better, especially

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Speaker 3: on their new products. That said, Nike hasn't reported yet.

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Speaker 3: And Nike too has exposure to Vietnam when it comes

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Speaker 3: to their production, so they will to be under pressure.

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Speaker 3: But we don't think that promotions go away completely.

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Speaker 2: Right.

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Speaker 3: Nike is liquidating a lot of inventory throats direct channel

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Speaker 3: and the promotions are very high. So when you think

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Speaker 3: about the customer, they're going to see Nike being discounted

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Speaker 3: aggressively because they're trying to liquidate inventory, and then you

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Speaker 3: see under Armour going at full price what our customer

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Speaker 3: is going to buy, right, it just means that under

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Speaker 3: Armour isn't going to be able to delay over the

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Speaker 3: growth that they're expecting to because of the current promotional environment.

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Speaker 2: So with that said, I mean, the CEO was talking

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Speaker 2: and said that they want to focus on strengthening the brand,

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Speaker 2: positioning right premium products. They came out with this U

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Speaker 2: a halo footwear you know line, is that the answer

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Speaker 2: for them?

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Speaker 3: The answer is, in part, yes, you need to have

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Speaker 3: you know what he talked about on the call, which

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Speaker 3: I think every brand needs to do, is they need

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Speaker 3: to have a good, better, best positioning within their product lineup.

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Speaker 3: So yes, you can go ahead and introduce premium product,

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Speaker 3: but remember under Armour isn't really viewed as a premium

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Speaker 3: brand like Nike is, right, So you're trying to change

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Speaker 3: customer perception here, and that doesn't happen overnight, so it'll

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Speaker 3: take time. I think the value chained that under Our

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Speaker 3: plays and is still very very important to their brand

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Speaker 3: and their ability to keep prices low there is going

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Speaker 3: to be critical. It'll be nice to see what they

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Speaker 3: do on the premium side, but I don't think they

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Speaker 3: can hang their hat on that for a turnaround just yet.

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Speaker 2: All right, you said it all. Under Armour share still

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Speaker 2: down nineteen percent. That's Punam Gooyle, senior US e Commerce

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Speaker 2: and retail analysts Over at Bloomberg Intelligence.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business app. Listen on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 2: And welcome back to Bloomberg Intelligence. I'm Lisa Matteo sitting

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Speaker 2: alongside Isabelle Lee. Paul Sweeney has the day off. All right,

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Speaker 2: we're going to get back to earnings. Wendy's cut their

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Speaker 2: full year sales guidance. They posted a bigger than expected

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Speaker 2: quarterly decline. So what is going on at the burger chain. Well,

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Speaker 2: let's bring in Michael Hallin. He's Bloomberg Intelligence senior restaurant

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Speaker 2: and food service analysts joining us live from Princeton. Mike's

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Speaker 2: thanks for coming in. What can you tell us about Wendy's.

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Speaker 2: What was the big sticking point for them?

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Speaker 5: Oh, listen, the previous management team through a lot of

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Speaker 5: promotions at the wall and none of them are really stuck.

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Speaker 5: So you know, the danger of you know, promoting a

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Speaker 5: lot of different products is twofold.

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Speaker 2: You know.

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Speaker 5: Number one, it makes the operations suffer, right, So it's

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Speaker 5: it's harder to execute in the kitchens, it's harder to

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Speaker 5: execute at the front of the house. Speed of service

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Speaker 5: ends up slipping, you know, quality of the food could

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Speaker 5: suffer because it's it's not served hot, right, and then

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Speaker 5: marketing so consumers get confused, right, Like what we saw

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Speaker 5: at McDonald's was run two promotions over the quarter, right,

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Speaker 5: Wendy's ran a handful. So when you're putting what do

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Speaker 5: you put the marketing dollars behind?

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Speaker 6: Right?

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Speaker 5: But if you start promoting something for a couple of

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Speaker 5: weeks and then switch your message, people don't really know

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Speaker 5: why they're coming to your store, don't have a good

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Speaker 5: reason to come to your stores. And so that's why

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Speaker 5: we saw this massive underperformance in the second quarter, about

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Speaker 5: four hundred basis points versus the rest of quick service restaurants.

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Speaker 4: And what is your take on when they's decision to

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Speaker 4: cut it's twenty twenty five EPs outlook below the prior

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Speaker 4: range and analyst expectation. Is it more structural weakness like

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Speaker 4: consumer trends or is it really more one off pressures

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Speaker 4: and how long do you think those issues might last?

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Speaker 5: So this is one off pressures. I mean you saw

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Speaker 5: McDonald's outperform the market by two hundred basis points, right,

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Speaker 5: and so this is primarily self inflicted. You know, restaurant

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Speaker 5: consumers are spending money. They're more discerning, however, right, and

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Speaker 5: so the chains that are providing a good, consistent experience,

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Speaker 5: good value for the money, that's where people are spending

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Speaker 5: their money. They don't want to go out and spend

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Speaker 5: a lot of money and have a bad night, a

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Speaker 5: bad lunch, a bad dinner, whatever it is, right, And

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Speaker 5: so that's why we're seeing this huge bifurcation and there's

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Speaker 5: a widening gap between winners and losers. And so for Wendys,

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Speaker 5: when you have bad operations, right, and when you have

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Speaker 5: bad service, it takes time to regain that customer trust. So,

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Speaker 5: you know, they got it to pretty terrible SAMSAR sales

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Speaker 5: here in the US for the rest of the year.

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Speaker 5: They were down five to six percent in July, which

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Speaker 5: is a horrific number, you know, way underperforming. The street,

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Speaker 5: which is over was just about a one and a

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Speaker 5: half percent increase. So this is going to take time to.

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Speaker 2: Fix now, Mike. One of the things you mentioned these promotions, right,

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Speaker 2: but Wendy's has also done things like expanded their operating hours.

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Speaker 4: Right.

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Speaker 2: They're making this push for breakfast late night business. I'm

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Speaker 2: guessing that's not working. I don't think breakfast when I

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Speaker 2: think Wendy's.

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Speaker 5: I don't know, Well, this breakfast has been an issue

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Speaker 5: for years now since they debuted it right there, and

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Speaker 5: they debuted breakfast into it, you know, at a time

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Speaker 5: when breakfast sales have been slipping, and they're slipping even

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Speaker 5: more this year because it's just an easy meal to skip.

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Speaker 5: You can grab a bagel and a coffee and easily

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Speaker 5: make it to lunch, right, And so they've been trying

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Speaker 5: to gain steam in this daypart, and so they've been

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Speaker 5: actually spending corporate dollars in addition to the franchise e

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Speaker 5: dollars to try to expand that day part at a

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Speaker 5: time when people are pulling back at breakfast and it's

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Speaker 5: been a disaster for their lunch and their dinner business.

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Speaker 4: And Wendy has also reduced his dividends significantly, and it's

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Speaker 4: CEO is also stepping down. So how do you think

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Speaker 4: these capital allocation and leadership changes might affect the strategy

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Speaker 4: moving forward?

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Speaker 5: Yeah, Kirk Tanner basically lit this thing on fire and

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Speaker 5: ran for the exits. It's you know, he made a

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Speaker 5: lot of management switches, moved a lot of people around

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Speaker 5: the organization, fired people, brought new people in, you know,

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Speaker 5: and then left right before things fell apart. Right, And

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Speaker 5: now they have an interim CEO who said the right

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Speaker 5: things on the call, right, But he comes from ups

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Speaker 5: and he's only been in the restaurant industry since December, right,

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Speaker 5: so there's definitely a void at the top. We would

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Speaker 5: love to see them find a good, strong restaurant operator

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Speaker 5: slash marketer to run this business going forward.

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Speaker 2: So what's the winning formula for them? What do they

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Speaker 2: have to do?

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Speaker 6: Is it?

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Speaker 2: Is it more promotions and more collaborations.

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Speaker 5: No, there's too many of those, So they're going to

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Speaker 5: cut They're going to cut back on them and get

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Speaker 5: the operations right right. And once you get the operations right,

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Speaker 5: meaning people go and they have a good experience, speed

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Speaker 5: of service is on point right, the food gets to

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Speaker 5: you hot right, you have a good, enjoyable experience. Once

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Speaker 5: they get that stuff nailed, then they can start pushing

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Speaker 5: on the marketing right, because you don't want people to

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Speaker 5: come back to your restaurants and then have another bad experience.

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Speaker 5: Then you're really going to be up the creek without

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Speaker 5: a paddle, right, And so that that's what it's going

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Speaker 5: to be about. It's going to be about nailing the operations.

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Speaker 5: Then once they're confident in that, then they can start

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Speaker 5: pressing more, do some more collaborations, whatever, institute more menu items,

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Speaker 5: and that's what management talked about on the call, they

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Speaker 5: said they're going to push a lot of the initiatives

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Speaker 5: they had original only planned for the second half into

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Speaker 5: twenty twenty six. But you know, it was a crazy call.

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Speaker 5: I mean they were talking about how a lot of

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Speaker 5: these initiatives they were just basically pushing out with very

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Speaker 5: little testing, which is not how you run a restaurant business.

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Speaker 2: It's not I remember that Taki's collapse. They just didn't

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Speaker 2: work out. Thank you Michael Hammon for joining us, the

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Speaker 2: Bloomberg Intelligence senior Restaurant and food service analyst.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business app, Listen on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 2: There has been a ton of stories in tech and

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Speaker 2: the news flow is continuing. I want to start with

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Speaker 2: this first one, Meta picking up Pimko blue out for

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Speaker 2: a twenty nine billion dollar data center deal. So here

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Speaker 2: to talk more about it, Man Deep Sink, Bloomberg Intelligence

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Speaker 2: senior Tech industry analysts, Mandy, thanks for joining us. So

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Speaker 2: twenty nine billion dollar data center deal. I mean that's

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Speaker 2: that's pretty big.

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Speaker 6: No, it's only if you don't look at their twenty

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Speaker 6: twenty six CAPEX number, which could be north of one

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Speaker 6: hundred billion. So look, the numbers are getting bigger and

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Speaker 6: bigger in the world of AI infrastructure. And for a

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Speaker 6: company like Meta, which was spending maybe thirty billion dollars

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Speaker 6: in capex every year and has tripled its capex probably

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Speaker 6: two one hundred plus next year, they need some external

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Speaker 6: help when it comes to you know, procuring the land,

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Speaker 6: getting power twenty four to seven. I mean, at the

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Speaker 6: end of the day, Meta is an application company that

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Speaker 6: you know does ads, and they're trying to get in

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Speaker 6: their own chips as well, but that's not their core competency.

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Speaker 6: So it makes sense that you know, they're partnering with

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Speaker 6: these large players on the infrastructure side because it will

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Speaker 6: turn out to be a supercycle, and you know, the

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Speaker 6: more partners they have in terms of these AI infrastructure buildouts,

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Speaker 6: I think it will help them in the long term.

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Speaker 4: But is this kind of public private financial structure common

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Speaker 4: for large tech infrastructures like Meta? Are they pushing into

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Speaker 4: new ground and what are the benefits of using debt

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Speaker 4: versus equity?

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Speaker 6: Well, I mean now with one hundred billion dollar CAPEX,

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Speaker 6: it's more than their free cash flow every year. So

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Speaker 6: up until now, you know, we were in that thirty

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Speaker 6: to sixty billion dollar range. Metas annual free cash flow

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Speaker 6: is around seventy billions. So from that perspective, they could

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Speaker 6: afford to fund it on their own, I mean, because

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Speaker 6: the scale keeps getting bigger and bigger every year. And look,

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Speaker 6: others may have the same problem. Microsoft has also talked

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Speaker 6: about one hundred and twenty billion dollars run rate probably

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Speaker 6: in twenty twenty six as well. So external financing will

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Speaker 6: come into play because, as I said, these companies have

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Speaker 6: the lllms, they have the data, the algorithm, the applications,

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Speaker 6: but they don't have the expertise in terms of procuring

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Speaker 6: power twenty four to seven, and you need a lot

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Speaker 6: more power when it comes to AI scale that everyone

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Speaker 6: is imagining, you know, twelve months from now, twenty four

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Speaker 6: months from now. So from that perspective, also external expertise

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Speaker 6: in terms of procuring land, setting up large clusters, how

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Speaker 6: to power them, it does make sense that they have

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Speaker 6: a private partnership there.

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Speaker 2: Now, I always hear you're talking about capex, that's so

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Speaker 2: much je, But when are we going to rese that

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Speaker 2: point where peop are going to start saying, you know what,

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Speaker 2: where's my return on investment? Like, I see you're spending

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Speaker 2: you know this much? But when are people going to

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Speaker 2: start to turn the question a little bit?

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Speaker 6: So I mean, look at how far open ai and

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Speaker 6: Nthropic have come. Right, So we know with open ai

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Speaker 6: they are at a twelve billion dollar and we'll run

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Speaker 6: rate now revenue run rate, and Thropic has five x.

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Speaker 6: It went from one billion at the start of the

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Speaker 6: year to five billion dollar rund rate. Look at Microsoft's

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Speaker 6: cloud growth number. They went to thirty nine percent growth

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Speaker 6: in Azure, seventeen percent left from AI. So look, you're

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Speaker 6: not going to see a very clear distinction between what

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Speaker 6: is the AI contribution. In the case of Microsoft, it's

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Speaker 6: very clear. But for Meta, they talked about their ads

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Speaker 6: getting better, and when you look at the growth rates,

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Speaker 6: Meta grew twenty two percent in the quarter. Compare that

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Speaker 6: to Snapchat four percent Pinterest and these are companies that

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Speaker 6: are fifty times smaller in scale than Meta. So the

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Speaker 6: fact that Meta is growing that fast, they're sort of

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Speaker 6: proving to everyone that, look, there is an advantage to

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Speaker 6: owning the infrastructure to investment in AI. And even though

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Speaker 6: the model is not similar to a Microsoft where they

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Speaker 6: are renting the cloud capacity and it's an old reredictable

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Speaker 6: revenue stream meta, I think has a higher bar to

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Speaker 6: prove in terms of your ROI question. But clearly, I

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Speaker 6: think the fact that they did so well this earnings

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Speaker 6: they already have an upper hand when it comes to

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Speaker 6: digital ads.

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Speaker 4: What about when it comes to soft Bank and the

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Speaker 4: Stargate AI push. What's significance of soft Bank buying the

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Speaker 4: fox Con plant in Ohio and can you talk about

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Speaker 4: their bigger ambitions for AI?

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Speaker 6: I mean soft Bank also has a big announcement from

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Speaker 6: earlier in the year, you know, five hundred billion up

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Speaker 6: to five hundred billion dollars in investment. So all these

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Speaker 6: companies have to figure out how is it that they're

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Speaker 6: going to deploy the money. So in the case of

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Speaker 6: soft Bank, I mean, they either partner with TSMC or

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Speaker 6: fox Con because they don't assemble their own chips. They

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Speaker 6: don't do, you know, semiconductor manufacturing, So partnering makes a

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Speaker 6: ton of sense here in the United States. And that's

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Speaker 6: where that five hundred billion dollar number you can show

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Speaker 6: that this is how much I deployed this year, and

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Speaker 6: it kind of shows your roadmap for the following years

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Speaker 6: as well, because now that you're investing in one facility,

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Speaker 6: chances are you'll probably add to that next year and

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Speaker 6: so on.

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Speaker 2: All right, man deep Sing, Always a pleasure. Glad to

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Speaker 2: have you here in the studio. Bloomberg Intelligence, senior tech

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Speaker 2: industry analyst on the latest tech announcement.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: All eyes have been on the Central Bank and interest rates, right,

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Speaker 2: but there's a new book out. It's taking a look

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Speaker 2: into how decisions behind the fit, the ECB, etc. They're

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Speaker 2: constrained by the natural rate of interest. So what exactly

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Speaker 2: is this? What we're going to do is go to

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Speaker 2: the expert. Is Tom Orlick, Bloomberg Economists chief ecomomist joins

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Speaker 2: us from DC. Thanks for joining us, tom So. The

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Speaker 2: book is called The Price of Money, A Guide to

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Speaker 2: the past, present and future of the rate Natural rate

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Speaker 2: of Interest. I got to start by asking you, what

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Speaker 2: exactly is this, this natural rate of interest?

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Speaker 7: So thanks for having me on, Lisa. So the natural

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Speaker 7: rate of interest, it's kind of a won key concept, right,

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Speaker 7: but if you're an investor in the treasury market, if

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Speaker 7: you're an investor in the equity market, if you're an

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Speaker 7: investor in the real estate market, it's pretty important. The

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Speaker 7: natural rate of interest is the rate of interest which

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Speaker 7: balances the supply of saving and the demand for investment

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Speaker 7: in the economy. And for a long time, from the

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Speaker 7: nineteen eighties through the twenty tens, it was falling, right.

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Speaker 7: That's why Larry Summers was talking about secular stagnation. That's

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Speaker 7: why the US Treasury was borrowing at such low rates

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Speaker 7: for much of the last decade. The big argument that

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Speaker 7: we make in our book, a book with essays by

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Speaker 7: my colleagues at Bloomberg Economics, edited by Stephanie Flanders, Jamie Rush,

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Speaker 7: and myself, The big argument we make is that the

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Speaker 7: forces that were dragging interest rates down for much of

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Speaker 7: the last four decades have now reversed, and we now

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Speaker 7: have gone from a world where there's too much saving,

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Speaker 7: not enough investment, and so low interest rates to a

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Speaker 7: world where there's not enough saving, too much investment, and

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Speaker 7: so the US Treasury and everybody else is going to

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Speaker 7: be paying much more to borrow.

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Speaker 4: So what are the big forces among demographics, technology, and

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Speaker 4: geopolitics that you think will drive the natural rate higher

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Speaker 4: in the coming decade.

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Speaker 7: So it's a great question, Isabelle. So let's think about

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Speaker 7: what was dragging interest rates down. So first of all,

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Speaker 7: you had too much saving. The baby boomers were working

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Speaker 7: and saving money for their retirement. China, Saudi Arabia, other

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Speaker 7: petro states were pumping their savings into the US treasury market.

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Speaker 7: And then on the investment side, well, governments had their

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Speaker 7: debt under control, government deficits were low, and growth was weak,

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Speaker 7: which meant the private sector didn't have a huge incentive

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Speaker 7: to invest. So for a long time, from the nineteen

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Speaker 7: eighties to the twenty tens, the pattern was too much saving,

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Speaker 7: not enough investment, and falling interest rates. In the last decade,

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Speaker 7: all of those trends have started to reverse. The baby

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Speaker 7: boomers have retired, so they're not adding to their pensions,

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Speaker 7: they're spending their pensions down. China, Saudi Arabia, they're not

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Speaker 7: putting any money in the US treasury market anymore, and

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Speaker 7: US treasury borrowing has exploded. President Trump inherited a deficit

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Speaker 7: of six point four percent of GDP in twenty four

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Speaker 7: and with his One Big Beautiful Bill, threatens to send

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Speaker 7: that deficit higher. So the pattern is shifted from too

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Speaker 7: much saving, not enough investment, and falling interest rates to

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Speaker 7: not enough saving, too much investment and rising interest rates.

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Speaker 7: Donald Trump wants a new FED chair to cut the

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Speaker 7: short term policy rate. Even if he does that, we

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Speaker 7: think these big structural forces are going to keep longer

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Speaker 7: term borrowing costs elevated in the years ahead.

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Speaker 2: Yeah, and you mentioned that, So your book suggests that

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Speaker 2: it's not going to be that simple to just, you know,

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Speaker 2: get a new FED chair.

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Speaker 7: Correct, Yeah, that's right. So there's there's so much excitement

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Speaker 7: around the question of who the next FED chair is

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Speaker 7: going to be. Yesterday we had Stephen Myron, the head

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Speaker 7: of the Counsel of Economic Advisors, nominated to the FED Board.

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Speaker 7: There's talk that perhaps Kevin Hassett, the head of the NEEC,

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Speaker 7: perhaps Kevin Walsh, former member of the FMC, could be

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Speaker 7: the new FED chair. And the market is betting that

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Speaker 7: whoever it is is going to move the dial and

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Speaker 7: start delivering a lower FED policy rate. But guess what,

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Speaker 7: it's not the FED which has the determining force on

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Speaker 7: the cost of borrowing across the US economy. It's actually

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Speaker 7: those bigger dynamics, the balance between saving and investment. And

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Speaker 7: the big argument we make in our book is that

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Speaker 7: that balance has shifted, and so it doesn't matter who

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Speaker 7: the FED chair is, borrowing costs are going to be

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Speaker 7: structurally higher.

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Speaker 4: And you mentioned this earlier that if the cost of

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Speaker 4: money keep rising, what then should governments, businesses, and individuals

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Speaker 4: do differently to maybe adapt.

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Speaker 7: So let's think about what impact very low borrowing costs

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Speaker 7: have had in past decades. So first for governments, when

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Speaker 7: borrowing is cheap, then governments can keep on piling on

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Speaker 7: debt and it's still sustainable. Think about equity market investors

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Speaker 7: or property market investors. If you've put money to work

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Speaker 7: in the US stock market or in US real estate

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Speaker 7: pretty much anytime over the last four decades, you've made

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Speaker 7: quite a lot of money. And part of the reason

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Speaker 7: for that is that interest rates have been low, So

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Speaker 7: your cost of borrowing to make stock or property investments

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Speaker 7: has been low. Now, with interest rates rising, all of

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Speaker 7: those dynamics swing into reverse for the US, the US

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Speaker 7: Treasury could be facing a world in the years ahead

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Speaker 7: where the cost of interest payments on their debt is

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Speaker 7: more than total US spending on the military, on defense,

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Speaker 7: on the Pentagon. For investors in the stock market or

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Speaker 7: the equity market, that upward pressure on asset prices from

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Speaker 7: low interest rates, well, at a minimum, I think we

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Speaker 7: can say that's not going to be guaranteed going forwards,

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Speaker 7: and we could well be moving into a world where

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Speaker 7: structurally higher borrowing costs actually mean downward pressure on stocks,

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Speaker 7: downward pressure on real estate.

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Speaker 2: So, Tom, what can you tell us about You know,

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Speaker 2: where is the natural rate of injuries? Where is it headed?

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Speaker 7: So the focus of our book is on the natural

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Speaker 7: rate of the ten year horizon. Now we think it's

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Speaker 7: headed up from a low of below two percent in

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Speaker 7: the mid twenty tens to around two and a half

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Speaker 7: percent today, and it's going to continue edging higher in

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Speaker 7: the months and years ahead. Now, what does that mean

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Speaker 7: for the ten year treasury the rate, which is probably

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Speaker 7: the most important one in the whole global financial system. Well,

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Speaker 7: we think something in the four to five percent range,

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Speaker 7: something around four point five percent is going to be

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Speaker 7: the new normal in the years ahead, doesn't mean there

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Speaker 7: isn't going to be huge variation around that. If the

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Speaker 7: Fed cuts policy rates, if that becomes the narrative for

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Speaker 7: the next few months, it's going to impact long term

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Speaker 7: borrowing costs. But we think the new normal around which

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Speaker 7: we're going to be fluctuating in the months and years

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Speaker 7: ahead for the ten year treasury is around four point five.

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Speaker 4: Percent and we have less than one minute left. But

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Speaker 4: you mentioned risks like AI war and climate. Give us

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Speaker 4: a sense on how exactly those might drive up the

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Speaker 4: natural rate.

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Speaker 7: So maybe we'll just talk about the AI piece of it. So, AI,

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Speaker 7: if it delivers on its promise, is going to be

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Speaker 7: a game changer for growth. And if the economy starts

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Speaker 7: growing faster, well that's going to create all kinds of

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Speaker 7: investment opportunities. Investment in the data centers to power AI,

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Speaker 7: investment in re configuration of factories and offices to take

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Speaker 7: advantage of the new technology. And if investment demand goes up,

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Speaker 7: well that changes the saving investment balance and that will

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Speaker 7: be another force which adds pressure for interest rates to

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Speaker 7: rise higher.

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Speaker 2: All right, tom Orlick, thank you so much. Good look

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Speaker 2: at the book Boomberg Economics, Chief economist here at Bloomberg.

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