WEBVTT - Breaking Down the Fed's Interest Rate Cut 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.200 us live on YouTube. 0:00:27.440 --> 0:00:27.880 We have the. 0:00:27.840 --> 0:00:31.240 Perfect guest on the state of the American economy. Francis 0:00:31.320 --> 0:00:35.720 Donald is truly a student of our holistic economy, each 0:00:35.800 --> 0:00:40.400 individual item of the algebraic equation of GDP. She is 0:00:40.520 --> 0:00:44.360 with RBC and their chief economists this morning. This could 0:00:44.360 --> 0:00:47.839 be a two hour conversation. Let's just begin with what 0:00:47.880 --> 0:00:51.639 Global Wall Street wants to know. Now, what what are 0:00:51.640 --> 0:00:54.400 they do in the speeches? What do they do in 0:00:54.440 --> 0:00:58.240 the discussions the body language when they've already modeled it 0:00:58.320 --> 0:00:59.560 in another two rate cuts. 0:01:00.360 --> 0:01:02.120 I think this is a federal Reserve that is going 0:01:02.160 --> 0:01:04.840 to have to talk their way through some increasingly painful 0:01:04.880 --> 0:01:09.600 inflation points because they have revealed their hand. I remember 0:01:09.640 --> 0:01:13.319 talking six nine months ago with you, Tom, and we 0:01:13.319 --> 0:01:15.399 were trying to figure out, oh, when there's tension on 0:01:15.440 --> 0:01:17.679 both sides of the Fed's dual mandate, which way will 0:01:17.720 --> 0:01:22.040 they lean? Very clearly, there's a wabble in the labor market, 0:01:22.160 --> 0:01:25.240 and the FED is jumping in immediately to provide support 0:01:25.319 --> 0:01:28.000 like an overprotective parent. I think is the way that 0:01:28.040 --> 0:01:31.039 I'm thinking about it. But in our view, inflation data 0:01:31.080 --> 0:01:33.880 is going to become increasingly more problematic heading into your 0:01:33.959 --> 0:01:37.120 in and not just on goods and tariffs, but also 0:01:37.200 --> 0:01:39.360 on services. So this is a FED that's going to 0:01:39.400 --> 0:01:42.039 have to explain away inflation data a lot more in 0:01:42.040 --> 0:01:42.839 the next coming months. 0:01:42.880 --> 0:01:45.240 And Paul, they just took on the Tiger Mom doctor 0:01:45.280 --> 0:01:46.520 Mirron as well. 0:01:47.040 --> 0:01:50.720 Typically speaking, how much impact do interest rates have on 0:01:50.880 --> 0:01:53.480 the labor market? If they want to address the labor market, well, 0:01:53.520 --> 0:01:54.320 cutting rates is that? 0:01:54.520 --> 0:01:55.080 Is that going to help? 0:01:55.320 --> 0:01:59.240 I love that you started with typically speaking, because typically speaking, 0:01:59.560 --> 0:02:02.640 absolutely you would ease, you would allow companies to be 0:02:02.680 --> 0:02:05.800 able to borrow more cheaply, or reduced debt burdens, they 0:02:05.800 --> 0:02:08.679 would be able to focus on labor or limit job cuts. 0:02:08.840 --> 0:02:10.480 But what do you do when the nature of the 0:02:10.560 --> 0:02:14.480 job market has changed so significantly. Job losses are predominantly 0:02:14.560 --> 0:02:17.680 in trade related sectors, and you have these big structural 0:02:17.720 --> 0:02:20.280 shifts that are pushing one in three jobs. One in 0:02:20.360 --> 0:02:23.920 three jobs right now? Are government healthcare or social assistance. 0:02:24.160 --> 0:02:26.080 That means that a third of the labor market is 0:02:26.120 --> 0:02:28.880 not particularly interest rate sensitive at all and actually not 0:02:28.960 --> 0:02:30.000 really faltering. 0:02:29.680 --> 0:02:33.840 Absolutely brilliant, and this alludes to Nancy Lazara Piper in Minneapolis, 0:02:33.880 --> 0:02:37.880 who's been absolutely brilliant on this. So we're watching Intel 0:02:38.520 --> 0:02:41.280 as well with Nvidia, Intel up eighteen percent even in 0:02:41.440 --> 0:02:44.440 Vidiot lifts here, as in Nvidia invest five billion in 0:02:44.520 --> 0:02:48.399 the beleaguered Intel. Francis Donald with US across America. Good 0:02:48.400 --> 0:02:51.240 Morning Canada. Thank you for joining us with the Royal 0:02:51.280 --> 0:02:55.000 Bank of Canada and on YouTube as well, subscribe to 0:02:55.040 --> 0:02:59.320 bloomberg A podcasts. Francis, I look at the Ballet yesterday 0:03:00.120 --> 0:03:04.120 and there was some amazing, almost surreal responses within the 0:03:04.160 --> 0:03:07.400 show that we did yesterday, and I thought Jeff Rosenberg 0:03:07.520 --> 0:03:12.239 was really good about the dynamics change, and I said, 0:03:12.280 --> 0:03:16.280 I blurted out in my clumsiness, there's a whole new 0:03:16.400 --> 0:03:19.560 data dependency given this backdrop. 0:03:20.120 --> 0:03:23.520 They stagger from data point to data point, don't they. 0:03:23.680 --> 0:03:26.000 I felt like it was more like a breakdancing than 0:03:26.120 --> 0:03:29.320 Ballet yesterday because there was a little bit more chaos 0:03:29.360 --> 0:03:33.280 and not necessarily super clear messaging. It didn't feel like 0:03:33.360 --> 0:03:36.600 it was very well choreographed in general, or at least 0:03:36.600 --> 0:03:40.280 there were dislocations within it. What I heard yesterday from 0:03:40.440 --> 0:03:43.000 Chair Powell, I know you've probably already talked about it 0:03:43.040 --> 0:03:46.560 one hundred times, was there are no risk free paths ahead. 0:03:46.960 --> 0:03:50.120 This was a haunting comment from a central banker, but 0:03:50.160 --> 0:03:54.080 it also reflects the underlying US economy, which is that 0:03:54.280 --> 0:03:57.280 we are still in the air pocket before we will 0:03:57.320 --> 0:04:00.280 know the impact of this once in one hundred year 0:04:00.560 --> 0:04:03.240 trade shock that has hit the US economy. It is 0:04:03.280 --> 0:04:05.800 our view that there are still significant inventories in the 0:04:05.920 --> 0:04:08.720 United States, and we don't know whether companies will truly 0:04:08.800 --> 0:04:12.000 pass on those costs to inflation or whether they will 0:04:12.040 --> 0:04:14.760 have to cut their own costs, and that will come 0:04:14.800 --> 0:04:17.760 down to labor. So when you talk about data dependency, Tom, 0:04:18.320 --> 0:04:20.800 what I'm looking at is one single data point, which 0:04:20.839 --> 0:04:23.240 is how many inventories are left in the United States 0:04:23.440 --> 0:04:26.080 and how long until we answer that question? Because neither 0:04:26.120 --> 0:04:28.840 of those paths are good, but they result in very 0:04:28.839 --> 0:04:30.400 different focuses from a central bank. 0:04:30.400 --> 0:04:33.720 Well, we started the show at one thirty. Tariffs wasn't 0:04:33.720 --> 0:04:37.719 mentioned until two sixteen. Okay, very good, Wow, odd, Yeah, 0:04:37.720 --> 0:04:39.360 I mean teriffs is everything right now? 0:04:39.800 --> 0:04:41.840 It's the Fed day. You guys are on top of it. 0:04:41.920 --> 0:04:45.720 So the we had mister Myron, the new appointee to 0:04:45.760 --> 0:04:49.120 the FED. He dissented and argued for more rate cuts. 0:04:49.160 --> 0:04:51.360 As I guess one it would expect that's in line 0:04:51.400 --> 0:04:53.640 with what President Trump would like to see. Other than 0:04:53.640 --> 0:04:57.359 that it was unanimous here. We had some outllyers before, 0:04:57.360 --> 0:04:59.719 but it's unanimous today. Was that important to you, well. 0:05:00.040 --> 0:05:02.440 Miss in the sense that no one else formally dissented, 0:05:02.440 --> 0:05:04.760 but there were some silent descents in there. There's certainly 0:05:04.800 --> 0:05:07.359 plenty of folks that do not see more rate cuts 0:05:07.360 --> 0:05:09.840 this year, one that sees a hike coming through. So 0:05:09.839 --> 0:05:12.159 there's a divergence of opinions on the cover reserve, and 0:05:12.200 --> 0:05:15.360 you know what, that's appropriate. It's appropriate for a range 0:05:15.360 --> 0:05:17.960 of reasons. One is that we have an incredibly fragmented 0:05:18.080 --> 0:05:20.880 US economy and this trade shock, the interest rate shock 0:05:21.000 --> 0:05:24.320 of the early twenty twenties has created. We've talked about 0:05:24.320 --> 0:05:26.320 it on this show, Haves and have Not. It's a 0:05:26.360 --> 0:05:28.960 K shaped economy. But the trade shock is also a 0:05:29.000 --> 0:05:31.760 fragmentation in the United States. There are sectors that are 0:05:31.760 --> 0:05:34.960 feeling significantly more pain than others, and depending on which 0:05:35.000 --> 0:05:38.400 region you represent, it's appropriate to perhaps have a different 0:05:38.480 --> 0:05:41.120 view on what the appropriate path ahead is. So when 0:05:41.120 --> 0:05:44.880 I see that divergence happening between opinions's opinions, it's a 0:05:44.920 --> 0:05:47.960 reflection to me of the fragmentation and the spread that's 0:05:48.000 --> 0:05:50.640 occurring in the real US economy as well. And maybe 0:05:50.640 --> 0:05:53.280 that's not such a bad thing that there's different perspectives 0:05:53.279 --> 0:05:55.160 about how to think about it and how to measure it. 0:05:55.240 --> 0:05:58.360 Francis, thank you so much. This morning, Francis Donald's gets 0:05:58.360 --> 0:06:01.200 a start and strowing here. This hour Real focused on 0:06:01.400 --> 0:06:04.320 the FED the effect on global walls to Ian Lincoln's 0:06:04.320 --> 0:06:07.320 schedule to be with us as well. Stay with us 0:06:07.560 --> 0:06:10.800 more from Bloomberg Surveillance coming up after this. 0:06:18.040 --> 0:06:21.640 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:06:21.680 --> 0:06:24.880 weekday afternoons from seven to ten am Eastern Listen on 0:06:24.920 --> 0:06:28.599 Applecarplay and Android Auto with the Bloomberg Business app, or 0:06:28.760 --> 0:06:30.240 watch us live on YouTube. 0:06:30.440 --> 0:06:33.400 We are pleased to bring you moments after He's published 0:06:33.400 --> 0:06:38.479 a detailed note Ian Lincoln of BEMO Capital Markets, and 0:06:38.520 --> 0:06:42.440 within the many paragraphs of a Lincoln Hartman note, there 0:06:42.600 --> 0:06:45.520 is a phrase. I've never seen this from the FED, 0:06:46.160 --> 0:06:51.240 tone refining. What is the paths forward from mister Powell 0:06:51.600 --> 0:06:56.000 and company? Is they tone refine the message? 0:06:56.760 --> 0:06:59.280 Well, I think that yesterday was a very good example 0:06:59.600 --> 0:07:04.920 of the committee having one opinion and Powell choosing to 0:07:05.560 --> 0:07:09.640 offer a tone refining more hawkish spin. So the market 0:07:09.760 --> 0:07:12.960 rallied following the statement because we saw a lower twenty 0:07:13.040 --> 0:07:19.240 twenty five FED projection FED funds projection. And then Powell 0:07:19.240 --> 0:07:21.560 came out and said, think of it as a risk 0:07:21.640 --> 0:07:23.880 management cut, and I think that that's why we saw 0:07:23.920 --> 0:07:25.680 the market whip sought around a bit in here. 0:07:25.840 --> 0:07:28.320 We talked to bond people yesterday and folks, I want 0:07:28.320 --> 0:07:31.680 to get away from the jargonair Lingcoln's brilliant and avoiding 0:07:32.080 --> 0:07:36.240 the jargon. But when spreads narrow, that means bonds are 0:07:36.240 --> 0:07:40.480 bid price up, yield down is compared to full faith 0:07:40.480 --> 0:07:45.480 and credit American paper. So I we're price to perfection 0:07:45.760 --> 0:07:48.760 in the bond market. And your theory is we even 0:07:48.800 --> 0:07:51.920 get lower rates from here. How do we go from 0:07:51.960 --> 0:07:55.720 price to perfection to price to perfection squared? 0:07:57.520 --> 0:07:59.680 Well, I think that what we're going to learn over 0:07:59.680 --> 0:08:01.920 the core. So the next couple of months. Is that 0:08:02.040 --> 0:08:06.040 perfection in this environment means lower rates. It means a 0:08:06.080 --> 0:08:09.080 lower term premium, and it means a Fed that will 0:08:09.120 --> 0:08:13.080 deliver on an October and December rate cut and recalibrate 0:08:13.200 --> 0:08:17.720 the policy, the front end policy lower, which will ensure 0:08:17.800 --> 0:08:21.600 at least attempt to ensure a recession is avoided and 0:08:21.640 --> 0:08:25.000 that the unemployment rate doesn't spike even further. So we're 0:08:25.040 --> 0:08:27.920 still hoping for a soft landing as a real economy 0:08:27.960 --> 0:08:30.280 at this stage, and that's what Powell is trying to ensure. 0:08:31.000 --> 0:08:33.480 So Ian, you know, looking at the tenure treasure here 0:08:33.480 --> 0:08:36.679 at four point zero five percent, where does this go? 0:08:36.800 --> 0:08:39.160 I mean, are we talking sub four percent at some 0:08:39.200 --> 0:08:40.080 point in your future? 0:08:41.760 --> 0:08:44.480 Well, we were sub four percent yesterday, and I think 0:08:44.520 --> 0:08:47.800 that it's very doable to get to our year end 0:08:47.800 --> 0:08:50.800 target of three eighty five for tens. And if anything, 0:08:50.840 --> 0:08:53.600 at this stage, given where we are, I would skew 0:08:53.720 --> 0:08:55.880 that number a bit lower. Maybe we get to three 0:08:55.960 --> 0:08:59.319 seventy five or three sixty five, and that's without an 0:08:59.360 --> 0:09:03.600 economics recession or a material slowdown. It's more of a 0:09:03.640 --> 0:09:04.280 glide path. 0:09:04.760 --> 0:09:07.440 Do you think this move by the Fed yesterday suggests 0:09:07.440 --> 0:09:11.920 that maybe the labor market, maybe the economy. Maybe they're 0:09:11.920 --> 0:09:14.400 seeing something that gets them a little bit concern more 0:09:14.440 --> 0:09:16.760 so than maybe the market is should we be taking 0:09:16.760 --> 0:09:18.360 that as a signal or is this just kind of 0:09:18.720 --> 0:09:19.960 right in line with where they should be. 0:09:21.800 --> 0:09:25.679 I would say that they're responding to the recent post 0:09:25.760 --> 0:09:30.320 Liberation Day payrolls environment combined with the bitchmark revisions which 0:09:30.400 --> 0:09:33.959 took off nine hundred and eleven thousand jobs, and they're 0:09:34.120 --> 0:09:36.960 effectively saying, the labor market's not as strong as we 0:09:36.960 --> 0:09:39.000 thought it was for the last eighteen months. We need 0:09:39.040 --> 0:09:42.160 to start normalizing. What I worry about is we have 0:09:42.840 --> 0:09:46.960 another spike in initial job as claims, which we will 0:09:46.960 --> 0:09:49.880 get that data this morning, and that gets the market concerned. 0:09:49.960 --> 0:09:51.079 That defense behind the curve. 0:09:51.280 --> 0:09:54.640 And I ended the show yesterday with our heads spinning. 0:09:54.760 --> 0:09:56.800 I mean it was you and I have been doing 0:09:56.800 --> 0:10:01.120 this for every and it was absolutely extraordinary yesterday. And 0:10:01.160 --> 0:10:06.000 I said, look, whatever the outcome here, the benefits of 0:10:06.080 --> 0:10:11.319 this financial stuff are the financial elites. How does what 0:10:11.360 --> 0:10:14.280 we saw yesterday, what I'm seeing this morning with the 0:10:14.360 --> 0:10:17.600 Nasdaq up to new highs, up one point one percent, 0:10:18.080 --> 0:10:23.760 how does that benefit Americans that don't own in Nvidia. 0:10:23.840 --> 0:10:28.079 Well, on the margin, it's good for the broader equity market. 0:10:28.320 --> 0:10:31.360 So I do think that it's there is a bit 0:10:31.400 --> 0:10:34.280 of a broad based wealth effect. But you make a 0:10:34.360 --> 0:10:38.679 very good point. The bottom two quartiles of households are struggling. 0:10:38.840 --> 0:10:41.280 We see this in some of the economic reports. We 0:10:41.400 --> 0:10:43.840 certainly hear this anecdotally, and it is going to be 0:10:43.840 --> 0:10:46.719 a very interesting next couple of quarters. 0:10:46.480 --> 0:10:49.240 Until up twenty six percent. There was jargon from Ling 0:10:49.320 --> 0:10:51.480 that was up, he's in a surveillance time out here, 0:10:51.960 --> 0:10:56.240 bottom two quartiles. Paul is half of America. Yep, that's 0:10:56.280 --> 0:10:57.760 what Lisa Matteo would say. 0:10:57.840 --> 0:11:01.400 I know she wouldn't go Matthew, honest, you'll continue Ian, 0:11:01.440 --> 0:11:04.480 what do you think the cadence of rate cuts may. 0:11:04.360 --> 0:11:06.400 Be for this FED going forward? 0:11:06.559 --> 0:11:06.800 Here? 0:11:08.640 --> 0:11:11.080 So I would say that it's going to be twenty 0:11:11.080 --> 0:11:14.840 five basis points per meeting until they get to whatever 0:11:14.960 --> 0:11:18.240 version of neutral they think that they will achieve. Now 0:11:18.320 --> 0:11:20.160 there's a case to be made that it should be 0:11:20.160 --> 0:11:23.080 twenty five basis points per quarter, and that seems to 0:11:23.080 --> 0:11:26.840 be what Powell is pushing back or pushing for, suggesting 0:11:26.920 --> 0:11:29.640 that it's going to be a meeting by meeting decision, 0:11:30.040 --> 0:11:33.000 but getting back to three percent at twenty five basis 0:11:33.000 --> 0:11:36.800 points per meeting, that would actually allow Powell to hand 0:11:36.800 --> 0:11:40.440 over the reins of the FED to the incoming chair 0:11:40.840 --> 0:11:43.640 at three percent, which I think would be an interesting 0:11:43.640 --> 0:11:45.199 setup for whoever comes in next. 0:11:46.200 --> 0:11:49.600 So what do you think is next here ian for 0:11:49.800 --> 0:11:52.199 this better reserve? Are they going to sit back and 0:11:52.320 --> 0:11:55.000 kind of be consistent I eat where data dependent, We 0:11:55.120 --> 0:11:57.760 in fact will look at this data going forward. Or 0:11:57.760 --> 0:11:59.120 do you think they have something predetermined. 0:12:01.440 --> 0:12:04.640 I expect that if the data plays out the way 0:12:04.679 --> 0:12:07.600 that they assume that it's going to play out, that 0:12:07.640 --> 0:12:10.880 they have predetermined in their mind that they want to 0:12:10.920 --> 0:12:13.520 deliver a couple more cuts, maybe a total of one 0:12:13.559 --> 0:12:16.040 hundred basis points between now and the end of the 0:12:16.040 --> 0:12:20.200 first quarter, and it's up to the data to derail that. 0:12:20.640 --> 0:12:23.240 So they don't need confirmation from the data. They just 0:12:23.360 --> 0:12:26.559 need not to see a spike in goods inflation or 0:12:26.640 --> 0:12:29.400 not to see a quick reversal back to a stronger 0:12:29.480 --> 0:12:32.120 labor market. So it is a bit of both. 0:12:32.160 --> 0:12:36.080 Frankly, Brandman brought up forward guidance yesterday, dead on arrival, 0:12:36.160 --> 0:12:39.680 I brought up a new data dependency. Take those trite 0:12:39.720 --> 0:12:43.760 phrases Ian and translate. Where we are on the death 0:12:43.840 --> 0:12:47.719 of forward guidance on a whole new world after all 0:12:47.840 --> 0:12:49.760 for data dependency. 0:12:50.920 --> 0:12:53.679 I think that the reality is the more that the 0:12:53.720 --> 0:12:58.679 FED is transparent, the more differing opinions that we hear, 0:12:59.160 --> 0:13:01.120 the more difficult that is from the market to know 0:13:01.160 --> 0:13:03.320 what the FED is going to do. And so too 0:13:03.400 --> 0:13:06.800 many talking Feds can complicate things, and I worry that 0:13:06.800 --> 0:13:09.959 that's precisely what we're experiencing at the moment. 0:13:10.520 --> 0:13:10.800 Ian. 0:13:10.840 --> 0:13:12.240 Thank you so much, Ian Lingoln. 0:13:12.440 --> 0:13:15.600 This was Vimont Capital Markets in this hour for Global 0:13:15.640 --> 0:13:18.719 Wall Street. All sorts of newsflow right now. We need 0:13:18.760 --> 0:13:20.559 to bring that to you, but we're really trying to 0:13:20.600 --> 0:13:23.400 bring you pros on the street picking up the debris 0:13:23.400 --> 0:13:26.560 of the FED meeting. Thank you, Francistano, Thank you, Ian 0:13:26.640 --> 0:13:30.240 Lingoenn will stay with us. More from Bloomberg Surveillance coming 0:13:30.320 --> 0:13:38.400 up after this. 0:13:38.400 --> 0:13:42.319 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:13:42.320 --> 0:13:45.640 starting at seven am Eastern on Applecarplay and Android Auto 0:13:45.760 --> 0:13:48.720 with the Bloomberg Business app. You can also listen live 0:13:48.800 --> 0:13:52.360 on Amazon Alexa from our flagship New York station, Just 0:13:52.440 --> 0:13:55.239 say Alexa Play Bloomberg eleven thirty. 0:13:55.320 --> 0:13:58.760 Joining us now forever with his gold and sacks, but 0:13:58.880 --> 0:14:02.120 also a tour dude with the Dallas fed Robert Keplin 0:14:02.600 --> 0:14:05.440 joins us, and I really can't say enough, folks. The 0:14:05.600 --> 0:14:10.600 timeliness is technology elites meet with the Prime Minister and 0:14:10.640 --> 0:14:16.360 the president of this specific president. He is, without question, 0:14:16.960 --> 0:14:22.560 the most innovation, most business process president in modern history. 0:14:23.240 --> 0:14:26.760 Wonderful to have you here, Robert this morning. What do 0:14:26.840 --> 0:14:33.400 we underestimate right now about this technology juggernaut? With a question, 0:14:33.880 --> 0:14:37.880 it's technology to the rescue. With all of your experience 0:14:37.960 --> 0:14:41.320 at HBS and all, what are we missing in this 0:14:42.360 --> 0:14:44.840 place forward a decade? 0:14:45.600 --> 0:14:48.000 Well, I don't think the stock market is missing it. 0:14:48.520 --> 0:14:51.200 And this is why people are saying, gee, the economy 0:14:51.200 --> 0:14:54.480 appears sluggish. Why is the stock market at record levels? 0:14:54.560 --> 0:14:57.880 Credit spreads so tied. I think the stock market is seen. 0:14:58.480 --> 0:15:02.640 We are in the early ages of an AI data 0:15:02.720 --> 0:15:08.560 center power boom, and it will It'll take a few years. 0:15:09.000 --> 0:15:14.600 But is this technology gets adopted across industries which were 0:15:14.640 --> 0:15:18.840 in the early stages of I think the market is 0:15:18.880 --> 0:15:25.480 anticipating it will create productivity improvements, margin improvements, SMP earnings 0:15:25.560 --> 0:15:31.440 improvements that will be transformative. The part we'll have to 0:15:31.480 --> 0:15:34.800 struggle with is how do we redeploy workers who lose 0:15:34.840 --> 0:15:37.840 their jobs in one area and go to another. But 0:15:37.920 --> 0:15:41.480 I think we will eventually, we will figure that out. 0:15:41.280 --> 0:15:43.920 But I think the market, the market's on this. 0:15:44.760 --> 0:15:47.080 Okay, Robert, you were at Goldman Sachs. 0:15:47.200 --> 0:15:50.520 This is just a really storied career and innovation linking 0:15:50.640 --> 0:15:53.600 finance into America. 0:15:53.720 --> 0:15:55.040 You were at Goldman Sachs in. 0:15:55.080 --> 0:15:58.200 Nineteen ninety you wandered and as a partner, and four 0:15:58.280 --> 0:16:01.080 years later our world was to and upside down. I 0:16:01.120 --> 0:16:05.200 remember late ninety four, early ninety five in the advent 0:16:05.280 --> 0:16:06.160 of the Internet. 0:16:06.800 --> 0:16:08.880 Is this as ginormous as that moment? 0:16:13.000 --> 0:16:16.479 Probably in a different way. Yeah, it'll be as significant 0:16:16.520 --> 0:16:21.960 for companies. The Internet was very significant. I think this 0:16:22.040 --> 0:16:28.400 may be more significant for increasing the rate of disruption. 0:16:29.800 --> 0:16:33.800 Every company needs to be on their front foot on this, 0:16:34.400 --> 0:16:38.280 because you need to find ways to be more efficient, 0:16:38.760 --> 0:16:42.640 to be more nimble, to do more with less, and 0:16:42.720 --> 0:16:44.920 so I think in terms of the breadth of this, 0:16:45.000 --> 0:16:48.000 I think the breadth in terms of affecting every company 0:16:48.120 --> 0:16:49.119 is more significant. 0:16:49.200 --> 0:16:52.280 Yeah, Robert, when you talk to your bankers of Goldzacs 0:16:52.280 --> 0:16:54.880 as they talk to their clients around the world. Are 0:16:54.960 --> 0:16:58.280 there are your clients feeling the same sense of urgency 0:16:58.320 --> 0:17:01.640 as it relates to AI, the same sense of opportunity 0:17:01.680 --> 0:17:02.120 in AI? 0:17:03.040 --> 0:17:04.280 They are. 0:17:04.720 --> 0:17:07.960 It is a mix of anxiety and opportunity in that. 0:17:08.080 --> 0:17:11.920 Across every industry, people know they've got to be investing. 0:17:12.040 --> 0:17:14.520 It's not an option not to invest. 0:17:15.760 --> 0:17:18.320 And many companies are worried that they're not big enough, 0:17:18.359 --> 0:17:21.760 they don't have enough heft to afford the investment, because 0:17:22.040 --> 0:17:24.520 the first impact of AI investment may. 0:17:24.359 --> 0:17:25.560 Be lower margins. 0:17:26.320 --> 0:17:29.040 But you've got to make the investment because over the 0:17:29.040 --> 0:17:31.560 next few years, your competitors are doing it, and if 0:17:31.560 --> 0:17:33.879 you don't, you're going to get disrupted out of existence. 0:17:33.960 --> 0:17:35.520 And that is why we're seeing a lot of merger 0:17:35.560 --> 0:17:37.199 activity as a result of it. 0:17:37.280 --> 0:17:38.600 But yes, every. 0:17:38.359 --> 0:17:41.000 CEO I talk to is trying to figure out which 0:17:41.080 --> 0:17:44.160 use case they have to get adoption. They're trying use cases. 0:17:44.200 --> 0:17:48.600 The thing leaders don't yet know and they're working through 0:17:49.160 --> 0:17:52.040 is which use cases will work and which won't. We'll 0:17:52.160 --> 0:17:53.879 know over the next few years, but you're going to 0:17:53.920 --> 0:17:58.119 have to go through this journey and we'll try some 0:17:58.160 --> 0:17:59.920 things that don't work well. There'll be a number th 0:18:00.119 --> 0:18:02.879 number of things that do work, and the net of 0:18:02.920 --> 0:18:06.320 it all will be a dramatic improvement I think in productivity, 0:18:06.720 --> 0:18:10.879 but it may be unpredictable in which areas Robert. 0:18:10.880 --> 0:18:12.920 One of the top news stories this morning we woke 0:18:12.960 --> 0:18:16.560 to was in Nvidiot taking a five billion dollar stake 0:18:16.680 --> 0:18:19.160 in Intel after the United States government. 0:18:19.200 --> 0:18:20.199 It's ten percent investment. 0:18:20.240 --> 0:18:22.959 That's really something that we haven't seen too often in 0:18:23.119 --> 0:18:24.440 corporate America. 0:18:24.800 --> 0:18:26.600 How do you view what's happening at Intel? 0:18:27.680 --> 0:18:30.320 So it's part of a larger picture. 0:18:30.400 --> 0:18:33.840 So there's the AI boom that we can agree on. Okay, 0:18:33.880 --> 0:18:36.399 so what do you need to power? You need semiconductors, 0:18:36.440 --> 0:18:41.560 You need sophisticated semitectors, We need more semiconductor production capacity. 0:18:41.840 --> 0:18:44.959 We also, by the way, need more power, and we 0:18:45.000 --> 0:18:49.480 need more power capacity, and all this takes investment and collaboration. 0:18:49.760 --> 0:18:53.080 So I thought this is a positive development and that 0:18:53.160 --> 0:18:58.679 we need to beef up our semiconductor capability to power 0:18:59.200 --> 0:19:02.679 to a lot of these developments, I think you're going 0:19:02.720 --> 0:19:05.919 to see more of these kinds of things and a 0:19:06.040 --> 0:19:09.040 lot of investment in the power sector, just the basical 0:19:09.160 --> 0:19:13.840 power sector too, to drive data centers. But semiconductors are 0:19:13.840 --> 0:19:15.800 a key part of it, and I think it's indicative 0:19:15.880 --> 0:19:17.840 of this deal is indicative of. 0:19:17.760 --> 0:19:20.320 That, Robert Kaplin. With this, we continue with the vice 0:19:20.400 --> 0:19:22.640 chairman of Golden SAX. Of course, all of us work 0:19:23.040 --> 0:19:24.120 at the Dallas FED. 0:19:24.000 --> 0:19:25.600 And so many email men. Are you going to ask 0:19:25.640 --> 0:19:26.800 him about DFW? 0:19:27.080 --> 0:19:29.879 No, I'm not going to ask Robert Kaplan to fix 0:19:29.960 --> 0:19:33.760 Dallas Fort Worth and all the huge success of it. 0:19:33.800 --> 0:19:36.520 I should say, we welcome all of you in Texas. 0:19:36.560 --> 0:19:41.040 We welcome you across America, including doctor Kaplan's Kansas good 0:19:41.080 --> 0:19:46.840 Morning in Canada good Morning on YouTube world wide as well. 0:19:47.480 --> 0:19:49.600 I love to do this, Robert, when you're with me, 0:19:49.720 --> 0:19:52.480 I go to the Dallas Fed, which folks check it out. 0:19:52.960 --> 0:19:54.080 That's brilliant. 0:19:54.359 --> 0:20:00.159 Immediate economics, the Texas juggernaut and even with the slow 0:20:00.280 --> 0:20:02.879 in June right now, and I got a great article 0:20:02.920 --> 0:20:08.040 on a relatively quiescent inflation in Texas is by Luis 0:20:08.080 --> 0:20:13.400 Torres and Diego Moreles Burnett, Robert Kaplan, what's the pixie 0:20:13.480 --> 0:20:19.760 dust in Texas? That Montana, Mississippi in main need. 0:20:20.800 --> 0:20:23.919 Okay, So the story of Texas over the last ten 0:20:23.920 --> 0:20:28.199 to fifteen years is migration of people and firms to 0:20:28.280 --> 0:20:31.560 the state. You know, about twelve thirteen years ago, I 0:20:31.600 --> 0:20:35.120 think population was around twenty two tuish million. We're now 0:20:35.480 --> 0:20:39.359 pushing thirty million, and we're heading north wy So. Pro 0:20:39.520 --> 0:20:47.239 business culture, very welcoming culture. Yes, no state taxes, and 0:20:47.280 --> 0:20:49.840 the reason the state is able to do no state 0:20:49.880 --> 0:20:53.160 income taxes, that is, has a sales tax and property tax. 0:20:53.240 --> 0:20:55.280 But the reason it's able to do that has a 0:20:55.400 --> 0:20:58.760 very large oil and gas industry that produces a lot 0:20:58.800 --> 0:21:03.680 of excess funds go into the state's rainy day funds. 0:21:04.320 --> 0:21:08.520 We're the largest exporting state in the country, and so 0:21:09.080 --> 0:21:12.560 we've got a lot of features that create that make 0:21:12.640 --> 0:21:18.199 Texas a magnet in Dallas, Houston, Austin, San Antonio, a 0:21:18.400 --> 0:21:22.920 magnet for people and firms that are moving here and 0:21:23.600 --> 0:21:25.840 believe it's a better place to domicile. 0:21:26.080 --> 0:21:28.520 I'm honored to say I'll be with the Houston CFA 0:21:28.640 --> 0:21:29.920 Institute next month. 0:21:29.920 --> 0:21:31.000 So are you going downward? 0:21:31.280 --> 0:21:32.280 Very good? Do something? 0:21:33.160 --> 0:21:34.240 Do something as well? 0:21:34.440 --> 0:21:34.800 Very good. 0:21:35.119 --> 0:21:36.919 They don't know that my father was a fight in 0:21:36.960 --> 0:21:39.840 Texas aggy. If they'd known that, they probably would have 0:21:39.920 --> 0:21:41.040 resented the invitation. 0:21:42.640 --> 0:21:45.040 Please, Robert, what did you hear from our Feederal Reserve 0:21:45.119 --> 0:21:49.280 yesterday that maybe kind of got your your sense going. 0:21:50.720 --> 0:21:53.800 Well, I expected diversions and you saw diversions. What I 0:21:53.800 --> 0:21:56.800 mean by that you got You got I think six 0:21:56.920 --> 0:21:59.320 or seven, which I kind of expected, who said we're 0:21:59.320 --> 0:22:01.600 done for the year, we don't want more rate cuts. 0:22:01.840 --> 0:22:03.840 You have that a nine or ten who said we're 0:22:03.840 --> 0:22:06.879