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All Right, Fed decision Day, the eighth and final FOMC meeting of twenty twenty five. It is done, and widely as expected, the Fed cutting rates for a third consecutive time.
The Fed also maintaining its outlook for just one cut in twenty twenty six. Okay, so two descents last time, yep, this time three descents correct, but in different ways correct, kind of spanning everything. That's Stephen Meyer into want a more aggressive interest rate cut right at fifty basis points. But maybe what people didn't expect were two dissenters who wanted to hold rate study.
Mister Goolsby of the Chicago Fed and mister Schmidt of Kansas City.
Yeah, exactly, saying we didn't need to do anything.
Okay, Yeah, so not a lot of consensus, but.
Must have been a healthy debate around the FED table on the wall. Yeah, exactly. So now we're done for the year and now we think about what's going to happen next year.
We got a lot of commentary on that from fedho J. Powell.
In fact, one of the things he really emphasized repeatedly in his comments in his opening statement that the committee is in.
A wait and see mode.
Also noting, by our account, thank you Talia, our producer, for actually pulling this out to our attention, noting by our account for the third FOMC meeting in a row, saying there is no risk free path forward.
It's a challenging situation.
In the near term. Risks to inflation are tilted to the upside, and risks risks to employment to the downside. A challenging situation. There is no risk free path for policy. You're going to get a great deal of data between now and the January meeting. Everyone around the table at the fom SE agrees that inflation is too high and that we want it to come down, and agrees that the labor market has softened in that there's further risk.
Everyone agrees on that where the difference is how do you wait those risks and what does your forecast look like? And where do you ultimately weal Where do you think the bigger risk is? And you know, it's very unusual to have persistent tension between the two parts of the mandate. We're well positioned to wait to see how the economy evolves.
We'll just have to see.
It's a very challenging situation. I think we're in a good place too, as I mentioned, to wait and see how the economy evolves.
All right, very challenging situation.
Fit your J.
Powell.
At the press conference, you also did say gradual labor market cooling justified that rate cut today. So talking about some weakness that we've got in the labor market.
Next f MC decision, folks, Not.
That we like to kind of look ahead, but we do. January twenty eight, twenty twenty sixth.
Mark your calendars, I am, are you?
Oh yeah, it'll be the first of twenty twenty six. J. Powell still will be FED chair, So it'll be interesting.
We should point out.
After the decision, President Trump at the White House made some comments tim on today's FED move.
He said that could have been doubled at least doubled. Not a surprise.
We have heard criticism from the President when it comes to FED Chair J Powell.
Well, interestingly enough, that's where Stephen Myron exactly, Stephen Myron voted, who's widely seen as somebody who has the most connection to the White House, who's on the FOMC.
Yeah, exactly right.
All right, So let's do a little bit more in terms of the commentary around this decision. We've had a lot, certainly come across the Bloomberg, including our live blog. Let's see what our Bloomberg Intelligence chief US Interest rates strategist Iri Jersey has to say about this. All right, Ira, We have heard from Fedchair J. Powell for at least the last three meetings where they cut that both sides of the Fed's mandate is challenged at the FED decision today.
Does it make sense to you?
I think it does.
I mean it was fully priced. And you know clearly when they pivoted to worrying more about employment than inflation, they were going to go more than fifty basis points as kind of these risk management cuts, and you know now that they've cut seventy five basis points. Another key phrase that Jay Powell said was that that they're now in the range of neutral. So basically, with all the committee members, what is this mystical r star or real neutral rate?
And are we there yet?
And he conceded that he thinks that they're now in the range of being at neutral. So therefore this could be the end of cuts, or maybe they're going to cut again unless the economic data changes enough for them to be comfortable cutting again, because like you mentioned, you know, he did say that there's still this balance of risk between inflation and employment.
Yeah, exactly, And look he did say we're even between now and January, not to mention between now and the end of next year, when some people think that another twenty five point rate will happen. He said, we're going to get a great deal of data between now and the January meeting, so a lot can change or a lot can be confirmed in the meantime ira before that happens. Though, I want to go back to this tension between the different parts of the dual mandate. Which part do you
believe the FED needs to focus on more? Is it inflation or is it maximum employment?
Well, I actually think that at the moment there's very little that they can do about inflation because you know that the interest rates still are relatively high compared for like the housing market, and there's not much that the Federal Reserve can actually do to help the housing market right now in terms of, you know, bringing house prices down,
Like what are they going to do there? You know, if they lower interest rates a lot more, that's just going to increase the value of some people's houses because you know, maybe mortgage rates come down a little bit, that increases affordability, and suddenly house prices actually go up,
which is actually against their mandate. And for other goods and services, they don't seem to be particularly elastic, like the elasticity to interest rate and a lot of these other goods, whether it's even automobiles or any other large purchases, there just doesn't seem to be a significant correlation between
the two at the moment. I think part of that is quite frankly, because a large portion of the population does have very low interest rate mortgages, so they're not going to refi, it's not going to Lowering interest rates isn't going to be as stimulative as it has been in previous cycles. And at the same time, lowering interest rates again, isn't going to necessarily bring inflation, make inflation go significantly higher, if you know, if you don't get
a big lending boom. And I'm not sure that that lending has you know, increased the whole heck of a lot anyway. So anyway, the fact that they were close to neutral, and we you know, we've always thought that they'd probably cut a little bit beyond three percent because personally, I'm a little bit more concerned about the job market. I think the job market shows some cracks beneath the surface that some people are either ignoring or you know, everyone's making excuse for why we're at fifty k ish
payrolls the last couple of reports that we've gotten. But the fact is is that companies are still reluctant to hire.
You have seen in some of the survey data.
Maybe that leveling out a little bit. Yeah, but I'm still concerned about the job market, and I think that the FED is and the people who voted for the cut certainly are worried about the job market more than inflation.
And we get to read on that next week. Hey, one thing I want to do before we go. We got about a minute and a half or so left here Just quickly, Ira, the FED move to expand its balance sheet again fresh purchases of short term treasury securities to maintain what they said an ample supply of bank reserves.
Just got about thirty seconds. What do we need to know here?
Yeah, well, that's actually probably the bigger story, even than everything else that we just talked about, because it's much larger than most of us thought it would be. They're adding somewhere around one hundred and sixty billion dollars of tea bills over the next couple of months.
Through the April tax day.
Risk assets seem to like that quite a lot, and it made the whole meeting a lot more doubvish to I think a lot of people's sensibilities and just looking at the whole cut plus the Qiwi light, if you want to call it that.
All right, good stuff, Ira, Thank you so much. We'll be looking out for your research. Also later on today and into tomorrow, our Jersey chief US interest rates strategist at Bloomberg Intelligence from BI headquarters in New Jersey.
Stay with us more from Bloomberg Business Week Daily coming up after this.
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We're staying on the FED decision today. We're also thinking about FED leadership come twenty twenty six, We've got a great roundtable. Steve Moore's with us. He's co founder and chair of the nonprofit Unleash Prosperity. He's a former economic and senior policy advisor to Donald Trump in twenty sixteen and twenty twenty four, and served as Chief Economist and Distinguished Visiting Fellow at Heritage Foundation for twelve years. Yeah.
He's also written a bunch of books, including trump Anomics, Inside the America First Plan to Revive Our Economy. Also another one, The Trump Economic Miracle. And you might remember back in twenty nineteen, President Trump selected Steve Moore for the Federal Reserve Board of Governors, which more ultimately withdrew from. So we have a lot to unpack and talk about. Steve joins us from Palm Beach, Florida. Great to have him here. Also with us is Bloomberg Economics US and
Canada economist Stuart Paul. He's right here in our Bloomberg Interactive Broker studio.
Steve, I want to kick it off with you. Welcome.
Nice to have you here on Bloomberg. Your key takeaways from today's FED decision.
Well, it was certainly Wall Street was happy with what happened today. It was very expected that the Fed did exactly what they announced today. Trump of course wants more rate cuts. You know, Look, inflation has come down, and it's still not where we wanted to be. We wanted to be at the two percent at target, and so we're running about two point seven two point eight, So there's still work to be done to bring inflation down. Of course, if you bring inflation down, affordability goes up.
But look, this is a booming economy right now. It is so hot. Trump is right about that. In twenty twenty six is going to be a monster year for growth and for incomes and I believe for equities.
If you were on the FOMC in a voting member, how would you have voted today? What would you have wanted to see?
I would have done exactly what they did.
You wouldn't have gone fifty basis points like Stephen Myron.
No, I'm a little bit more of an inflation hot than Steve and Steven. I know Stephen, he's a smart economist. I lean towards making sure. I think the top priority of the Fed should be to make sure that we bring that inflation rate down to the target level. We're not there yet, and you know, look at the as a political matter, Trump really needs to continue to bring that inflation rate down because people are still angry about prices.
Mister Moore, is really difficult to square the circle between being an inflation hawk and voting for or advocating for additional rate cuts. When you see somebody like President Trump focusing so much on affordability, but at the same time calling for the FED to cut rates even more, how do you really square the circle?
How would you.
Rationalize voting for a cut while also being an inflation hawk.
Well, I think I believe that Wall Street puts way, way, way too much influence and interest in FED rate cuts. I mean, nobody the short term interest rate has become almost irrelevant, So I really don't believe that it's all that important. Frankly, whether it was a quarter point or fifty percent, fifty points or doing nothing. I don't think that it makes all that much difference. We should have
learned the lesson. By the way, what look, what we mean, what we'd all like to see is for those mortgage rates to come down, in the ten year treasury interest rate to come down. The FED doesn't control that. I know that may surprise people watching with the FED has no impact on the ten year treasury or the thirty
year mortgage. And we know that, by the way, And what happened in twenty twenty four when the FED cut the discount rate and what happened to the I mean the FED funds rate, and what happened to the mortgage rate and the ten year treasury went up. So I don't overly obsess about FED rate cuts. I think we're in a pretty good look. The most important thing is this incredibly healthy economy. We've got hundreds of billions of
dollars coming into the US economy of foreign investment. We've got the highest s and P five hundred, the highest Dow, and the highest Nazza in the history of the country. People are making huge amounts of money. And this is a bet when the markets go up, this is a bet that policy will be well guided and that American companies are going to make money. So I have a hard time really having many much problem with the direction that we're going in with respect to this economy. And
don't forget the sorry. In January, people will start to see the middle income people will start to feel the impact of those big, beautiful task cuts that passed and in terms of less money deducted from their paychecks and taxes, and the no tax on tips, the no tax on overtime. Those are all positive features that will help middle class Americans.
That's a really an interesting point that fiscal policy is going to be especially accommodative in twenty twenty six. And I think that one thing that's interesting is whether we're going to see monetary policy that's equally accommodative or even more so, And that's going to really depends on who we get as the next Chairman of the Federal Reserve and chairman.
Of the FOMC.
What do you make of the White House's floating of a trial balloon with Kevin Hassett about three weeks ago and then seeming to reconsider you know, if there's anybody in the world who recognizes how difficult a process it
can be to make it through the Senate. It's you, and so I'm really interested to hear what your thoughts on what your thoughts are about what's going on in the White House and on Capitol Hill in terms of whipping up the votes to support someone perhaps like Hassett or wash I like them both.
I mean, I think the two Kevens, I've been saying this for two years now that you know, it should be one of those two as the FED chairman. I also like Larry Kudlow, but I don't think Larry probably is in the runnings to do it, but he'd be an excellent FED share as well. But look, the two Covens are monetary experts. They're extraordinary economists. I really truly either one of them I think would be fantastic picks.
And I think they would also keep their eye on the most important thing that the FED needs to do, which is defend the dollar. Defend the dollar, make sure that it's strong and stable. That's all the FED needs to do. It doesn't have to worry about jobs, it doesn't have to worry about climate change or any of these other things. The most important thing is to keep prices stable and the dollars strong. I think both would do that.
Steve, you have some great insight into President Trump behind closed doors. You know, he did nominate you for a FED governor position. You ultimately backed out of it. But I'm just curious what were your conversations with President Trump or what insight can you give to our audience, an investing audience trying to understand read the tea leaves, because we do have a president that most would agree that he's transactional, and so I think we're trying to understand
that in terms of any appointments. Is that seen as an expectation that you're going to do the President Trump's bidding and listen to him if you are at the FED in terms of what needs to be done in cutting rates, if that's what he wants.
Well, look, my opinion is that it is valuable to have an independent FED, but I also believe that the FED needs to be accountable and in my opinion, and it hasn't been accountable in the last few years. That's why we got, you know, a nine percent inflation under the current Joan Powell and so.
Well, when you say that that nine percent was the result of the pandemic and incredible demand. I mean, there were some you know, unexpected events. That's crazcal policy too, fiscal policy. There was a lot of money slashing around. When you can see that that nine percent inflation, any president or any fed shair would have had to deal with that.
Well, listen. I mean, I do think that Trump made a big mistake in that he passed a big, massive spending bill right before he left office. So you could you make a good point, but it was catastrophic everything that happened under COVID. We made the biggest mistake in the history of the United States and shutting down our economy, shutting down our schools, shutting down our hospital It was outrageous, and I think we've hopefully learned that level of lesson
that will never never do it again. But you are quite correct that what caused the inflation, and I hope we remember this lesson for many, many decades to come, is that when you massively spend four trillion dollars, guess what you're going to have inflation. And it didn't stimulate the economy, it caused huge, huge reductions and real incomes
for middle class people. It destroyed middle class incomes. They lost massive amounts of money because we very stupidly printed all this money and spent it, dropped it out of helicopters. And that's a policy that's never worked.
So I want to go look. I think I think it's an important You bring up a lot of important points about what happened during the pandemic and the causes of inflation. But to Carol's point, you do have this direct line to the White House and to the President. You advised him back in twenty sixteen, you advised him
in twenty twenty four. How would you characterize the relationship with him right now and to what extent are you and how often are you speaking to him about economic matters that hit the United States.
By the way, I hope there isn't still a debate about what we did of COVID, because it really really is important that we learn how incredibly enupt almost everything that we did. And by the way, I'm in Florida right now, in Palm Beach, and one of the few politicians who got it right was Ron DeSantis, the governor here,
who did not shut down the Florida economy. And then you have these blue blue states like New York and California and my home state of Illinois that shut down their economy, and that's one of the reasons, by way the way, these blue states have never really made a recovery from their tragic mistakes.
So yeah, look, I don't think it's I don't I don't want to. We don't have a ton of time, so I don't want to rehash the pass. And I think, you know, we could do an entire segment about that, and that's.
For people, right because it was you know, we don't want to ever make that mistake again, right, we don't.
Hopefully, hopefully we don't face another pandemic. And I don't think any any of us we're countering your what you're saying there. What I'm interested in is what you're you're talking to the president about right now? What is the line that you have to President Trump on economic policy?
What I tell him is that I think the tax cuts have been enormously beneficial and it's not a commen date of fiscal policy on the tax side. What it is. I mean, like, one of the most important things we did in the Big Beautiful Bill was we are allowing businesses to you know, instantly capitalize their expenditures and write them off instantly. And I believe that's one of the reasons we're seeing this capital boom in the United States.
I mean, if you look at the last nine months, capital investment has been really strong as a result of this tax cut. So it wasn't really meant to just pump money into the economy. It was meant to incentivize through lower tax rates, lower lowering the corporate rate, giving expensing, lowering the individual income tax rate. Those are pro growth, pro supply side policies that actually help bring inflation down. I mean, it's very simple. If the economy produces more, prices go down.
Hey, one of the things I do to go back to this idea of transactional and again I'm going to go back to the insight that you have and having conversations with President Trump before he you know, made a nomination for you to join the FED and be a governor. Because we've heard Jay, the President come out and say j. Powell has been very bad for our country. He's terrible. He's a terrible FED chair. I'd love for him to lower interest rates. I call him too late. I'd love
to fire him. Tell us about would there be pressure by President Trump with who he appoints for the next FED share and would there be an assumption by the person who takes that position to kind of do the president's bidding.
Give us some insight, if you could.
I put it a little differently, it's a good question. First of all, When I was nominated to be on the FED, Trump never really you know, asked me about, well, would you cut rates or would you raise rates or so on. He just he had trusted in me as an economist that I would get it right. So there was no pressure, sure to sort of do his bidding. Now with respect to Kevin Hassett or Kevin Walsh, which I think is a good chance it's gonna be one of those two. What he is doing is picking someone,
you say, do his bidding. He's picking someone who agrees with his overall economic philosophy, and that's exactly what a president should do. I don't think that means undue influence on the independence of the FED, but I think it's basically, you know, presidents deserve the monetary policy they want, frankly, and so you know, I think they will they will do they agree with Trump on monetary policy. And that's one of the reasons one of the two of them
will be chosen. But I can't think of two economists I admire more than Kevin Hassett and Kevin worsh.
It's interesting that you bring up President Trump's economic philosophy because I think that if you were to press him to describe his economic philosophy with regards to monetary policy, he would just say he's a low interest rate guy. So is the expectation going to be from you know, Kevin Hassarter, Kevin warsh that they will just deliver low interest rates.
You know, you make a good point. The one thing that Trump has often sent to me is that he likes low interest rates. And and I've always said, well, mister President, low interest rates are good, but we also want to make sure we don't cause inflation. And so that is the kind of dual competing interests here. But I think he gets it that, you know, what destroys a presidency is inflation for one of whatever. You know, we saw Jimmy Carter, Jimmy Carter lose because of inflation.
We saw Jerry Ford lose because of inflation. We saw this. I think the major factor in this last of presidential election was inflation. Americans hate, hate, hate, higher prices. It's one of the reasons they're still in a foul mood on the economy. So I believe that Kevin Hassett and and Kevin worsh either one of them will be an inflation hawk, and they will I predict we will bring that inflation rate down to two percent.
But one does wonder, since he's not running again, assuming no third term, that maybe he doesn't care if there's inflation.
I'm just going to put that out there. Why do you want to go see?
I mean, the Republicans certainly care, and affordability is going to be a key message for them in the mid for everybody in the midter. Hey, we only have thirty seconds left, Steve. I just want to take a sharp turn here, because, yeah, because you are an economist and you watch what's happening closely, the US taking a stake in publicly traded companies such as Intel, MP Materials and others.
I don't like it. Hey, wow, no, no, no, never. You know, I've spent most of my career trying to privatize, not nationalize, So it's one of those issues I disagree with the president, and I don't want I believe in separation of business and state, and the less you know, the government does to you know, to influence business decisions.
I think the better your old school that way.
Yeah, I am.
It's a different It's definitely a different republic party.
Thank you.
From a business perspective today.
I think there's a lot of investors out there too who certainly would agree with you.
Steve, Thank you so much. Really enjoyed this.
Steve Moore, co founder and share of the nonprofit Unleashed Prosperity and of course, as we said, a former economic and senior advisor to President Trump in both of his terms, and of course are great thanks to our own Bloomberg Economics US and Canada economist Stewart Haul.
Stay with us more from Bloomberg Business Week Daily coming up after this.
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Oracle shares they are down about five and a half percent here in the aftermarket meantime. Adobe shares there right now little change, but they've been bouncing around a little bit.
I want to bring in Bloomberg Intelligence senior technology analyst Donna rug Rana to break down these earnings. I want to start with what's going on with Oracle down close to five percent in the after hours. The company reported adjusted revenue for the second quarter that met the average analyst estimate. Revenue, adjusted revenue coming in it's sixteen point zh six billion, cloud revenue coming in eight billion dollars. What's your initial reaction here and why are we seeing the stock lower?
So when you look at Oracle results as expected, the backlog or the booking stumbers was very strong. That's been over five hundred billion right now, but the realization of some of that into revenue owned to cloud revenue was slightly lower than what street was expecting. And one reason for that good piece of supply constraint. They may not have the necessary chips or equipment to fulfill that demand. So I think there is going to be a lot more discussion on the call about it. On the other side,
there was a little bit higher capex as well. So for Oracle right now, I think the backlog or the order book does not matter What really matters is how can they convert that backlog into sales over the next few years.
All right, So you're talking about the RPO growth, right, and we are getting another headline that says it's aided by commitments from Meta and n Video. I mean, in terms of where this commitments or these you know, order flow continues to come from, does it matter that it still is so concentrated in the hyperscalers?
Well, as far as you know, the concentration is concerned really depends on who's you know, who's committing those promises. If the promises are for somebody like a Microsoft or an Amazon or somebody else like Meta, it does make sense because they actually have the cash flow to support it.
But the big question for everybody is it's out of that three hundred plus billion commitments are from OPENINGI Where does open A I have the money to fund a lot of this expansion now Opening I think so over the next few years they can get to that point where they can then spend that money. But in terms of certainty for an investor, I think you're better off when the commitment is coming from a Meta or a Microsoft.
Hey, ANAA, can we assume that those folks that continue to invest in open ai, they have looked at the books. They understand the financials of open ai because it is not a publicly held company, and we know there are some big time investors, including Microsoft in that company and others. But can we assume that there's a real business there, even though there's a lot that we don't know about it?
Oh? Yes, absolutely, there's a real business. I mean nine hundred million users and mean for chart GPT, I mean this is the biggest consumer up out there when it comes to AI tools. So this's definitely a real business there. But the big question is do they need to spend you know, three hundred five hundred seven hundred billion down the road to in order to train their models. That's an area where we are not sure how that translates into future revenue.
I'm looking, I'm looking for the word debt in the press release coming from Oracle. I don't see it anywhere, Carol, but not too surprising.
I think that schell will come up on the call.
It'll definitely come up on the call. But how should investors be thinking about Oracle's debt position? Because that was a concern a few weeks ago and you know, we saw CDs evaluation as a result.
Yeah.
See, when you look at the size of their order book, they just cannot fund it themselves. It's just not possible given the free cash flow that they generate. So they have to do something called a special but was vehicle where you'll have a private equity player, you will have private debt, and then you will have investments from maybe SoftBank around the others to create as create an entity that can fund a lot of the stargate you orders
that are flowing in. So it is going to be a little more complicated than straight out going to the debt market and raising capital.
I know, because at some point I always wonder, you know, when there's a lot of debtbek cred and there's a lot of investors involved, how much are willing to throw more money at it to make sure that it all plays out right because the nervousness of it not happening maybe because just of a shortage of capital.
Yeah, but Carol, if you look at it when they last came out in the market, I mean the news that we heard was it was oversubscribed. I mean, these companies are not having at this point any trouble raising capital for the for data center expansion.
All right, let's go to Adobe.
Yeah, I'm just looking at what's going on with Adobe right now. The company gave a strong sales growth outlook. It's eased concerns about AI. The company giving an outlook for revenue in the coming year. The top Dannal assessmates. It suggested that AI features are helping fuel growth of its creative software business. Just looking at shares of Adobe in the after hours, they are kind of unchanged. They bats around a little bit, but right now down about
three tenths of one percent. What do we need to know about Adobe's report?
Adobe's management needs to just come out and say we are executing properly. They are, you know, I always say, not worried about AI cannibalizing their business. Their margins were very strong this time. What they promised a year ago, they actually fulfilled it. For the next quarter. They are talking about ten percent growth in the overall company annual recurring revenue. So I think, overall, good results. But this is a company where honestly, the sentiment is so negative.
No matter what they do, they just can't get a break.
Hey, listen, the story today too.
Anorog is that chatgypt users can now use Photoshop and other creativity software from Adobe directly within the chatbot. So we're looking at Open Eye continuing to bring kind of third party apps into its product. Sounds like a plus for Adobe, is it, you know? And where is Adobe's role in the AI world? Where does it exactly fit in? Is it like an add on or what?
Yeah, So when you look at I think the biggest threat, the reason why Adobe stock has not been able to recover over the past two years is the biggest threat is a lot of their main products their cash cows. Whether it's Photoshop or some of the other video editing tools. People are saying, you know, I can go to an open source model and create a lot of that myself.
Now we don't think that is you know, there is a reason forul to have Adobe down the road because of workflow issues and how you edit those things and how you manage that. But that is the threat, and I think the only thing that can help them is if they consistently execute like this for next several years and showcase that their own AI products are gaining momentum and they're working closely with people like open the Eye and people like Google. I think they're both integrating those
models into their workflow. Also.
Yeah, that's hard though, because I mean in Adobe, what they want to do is they always want to come out and say, you know, are our images and what we creator are commercially safe? So what ess actually that means? The translation is that if you're creative and you're working on an ad campaign for a company, you're going to know that whatever Firefly or whatever Adobe product you're using, whatever it spits out, is something that you're not going
to get sued over. And that's not necessarily the case with the other gene High models.
No, I agree, But if you think about it, there is a case that if there is a pyramid of customers on the top, you have the enterprise customers who are very concerned about it, but it's possible at the base layer they may be customers either their individual users or you know, very smart to come.
That's a good point.
They don't they don't really care about some sort.
Of like person posting on Instagram isn't really going to care if what they created it's like, you know, by copyright. Okay, I get it, that makes sense.
All right, what do you want to go, Carol, Well, you know, I'm just thinking, you guys have a massive AI report that is out there so timely as we get ready for a new year, and.
It gets into cross industry disruption of AI.
And this is what vecher J. Powell was asked about today.
Yes, exactly, he talked about it, and you know, so I'm just curious talk to us about this report. Who you guys all talked to and what were some of the key findings.
Yeah.
You know, we embarked on this several months ago, and our entire take was, we have all this CAPEX spending on the tech side, what are the users saying, whether they are financial services firms, consumer firms, you know, hospitals, pharmaceutical companies. So we went out and looked at nine industries and over six hundred C suite executives that were surveyed for this report. And I think the biggest thing the crime takeaway for US is every sector is extremely
worried about being disruptive disrupted. Now for US, we thought only the software companies would be worried about it, but you know, we saw industrial firms, auto firms, hospitals, they were all saying that okay, you know, this is going this could shake up our business, so we need to
invest and invest mode. The second thing we saw was even in these sectors that you could considered laggards of technology adoption, the people who are you know, part of the employee base, they're very, very apt at using these AI tools that we talk about, whether that's Shack, Gipt and the others. So the level of awareness is there, the understanding is there. Now it's going to take some time for them to flow a lot of those technologies into their code business so that they don't get eaten away.
Hey, one more on this and it has to do again we're thinking about We're just coming off of a press conference with Peto J. Powell where I personally thought and I told you this, you know, as the discussions going on. One of my biggest takeaways was his answer about AI and productivity and the idea that productivity growth in the US, like he didn't think that he would see a period of time with such an extended plus
two percent in terms of GDP growth. And you know, we don't know what we can attribute to AI, but there are also so many questions about Okay, what is when to be the effect on employees, what's going to be effect on different sectors of workers. Did you guys hit on that at all in this report?
Yeah, yeah, yeah, absolutely, And you know, productivity was the number one factor. Everybody is going throwards. Other thing that we have seen, and this is more predominant in the software companies that we cover, is the level of revenue growth and the level of headcount growth hasn't widened. I mean, what I'm saying is the relationship that was very tight before has moved on. So when you have a company growing revenue at a particular rate, headcount is not growing
at that rate. We're not saying there are cuts out there, but that delta is where the productivity is coming in, which will eventually lead to and it's already we have already seen that in certain cases is higher revenue per employee, and that I think is the benchmark everybody needs to focus on.
Right, But he still had to say notching up in layoffs yet, So I mean TBD right to see how this kind of ultimately plays out. Hey, before you go, there's one other question we wanted to ask you. Meta platforms an open source money or tilting from an open source to a closed source AI model. What is this all about? I think it's called avocado. It's a new model expected to take you.
I know, I was like, what is that? I was trying to like understand. Totally califul.
Yeah, I'll take you back to many years ago when there was Linux and Windows. Linux is open source. Windows you gotta pay for it. You make money when you have Windows, and very few companies out there have made money when they have an open source product. Meta started with this open source model really because the thing is you and I can go and perfect this model and then we can use it without paying Meta any money. But if you have a closed end model, you have
to pay Meta that royalty. And you know, at the end of the day, they're spending all these billions of dollars? How are they going to monetize it? And I think that's kind of one of the reasons for that pivot.
It's like they were listening to everybody saying, well, how are we going to monetize this? All this spend, how are we going to monetize it? And Rock, thank you so much man, and that report. I'm sure we're going to lean on that a lot, especially in the new year, on our Grana. He's senior technology analyst at Bloomberg Intelligence out there at the Bloomberg News Bureau in Chicago.
Stay with us more from Bloomberg Business Week Daily coming up after this.
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FED cutting rates for three descents, projecting one cut in twenty twenty six. So we also want to get into kind of how it may impact bank lending as well. We did see banks as a whole the KBW Bank index rally in today's session off of the FED. With a little bit more perspective, let's get to Zach Wasserman. He's chief financial officer at the Columbus, Ohio based Huntington Bank.
Shares back with us. The company has a market cap of nearly twenty seven billion shares her up five percent year to date, and just today Tim Piper Sandler raising the price target on the stock from fifteen to sixteen, maintaining though it's underweight rating.
Zach joining us here in the Bloomberg Interactive Broker's Studio. Zach, great to talk with you again, especially appreciate you coming into the studio. Did the FED get it right today?
I think they did. You know, the analysis they did that showed the labor markets still of course softening to some degree, but inflation pressures continuing to be present and with a potential for some higher price pressures as we go into the early part of next year. I think they got it right, and I think the outlook for they've signaled probably one additional cut into twenty twenty six. The market, by the way, is making in two cuts
for twenty twenty six. Somewhere in that range seems very likely and I think helpful for the economy at this point.
All right, Zach, So if you were sitting down with J. Powell, what would you want to ask him right now?
That's a good question. What is he going to do after he leave his job?
Do you think he will leave his job in the spring?
I would think so, that's mine, that's myself.
But do you think then, also Kevin has it is a given? Like we're seeing that the President's meeting with Kevin Warsh like, so it feels like things are.
Still fluid well I'm not a party to those discussions. I have no clue, but I certainly think that you know, as the uh uh, you know, as they as they think about how that how they're gonna chart their course on interrul st rate policy, I think the path that they've chosen at this point appears to be the right one, very data reliant, uh appears to be you know, we're landing the economy in a sweet spot.
Okay, So can can Carol? Are you done with FED stuff? Can I talk?
Yes?
Okay to you? Guys have been so acquisitive. I mean, there's been a lot of M and A in your space. You've been much more aggressive than others in your peer group. Why now in terms of the aggressive aggressive posture, Well, I wouldn't.
Characterize our posture as aggressive. It's really, you know, for.
Us, expansive, that's for sure.
Well, certainly it's expansive. It's been it's been a dynamic year for us, but primarily from an organic growth perspective. You know, Huntington has been growing way faster than almost any other bank in the industry at this point from an organic perspective. And so when we think about these partnership that we've announced we're a pleasure to announce two partnerships this year. It's really all in service of sustainable, long term organic growth.
All them partnerships, not acquisition.
We really do and that's intentional. The partnerships we've created with Veritexs Bank and then Cadence Bank really are in fact bringing these organizations together, making one plus one equals three and for us will be a powerhouse in Texas, will be present in a lot of terrific markets across the South, and really together we're going to be a much stronger organization. So they really are partnerships and ultimately all in service of long term, sustainable organic growth.
So you know, I've got family in South Carolina. They've noticed some economic softness, and certainly the Vertex's deal was about North Carolina and South Carolina. They've seen softness in real estate which had been on fire. I'm just curious your expansion plans there, your organic growth that you want to do there. I think you guys were looking to open more than fifty branches in those states. So is that impacting any of the growth or you're on target for that.
We're on target for that. In fact, next year we expect to open one branch every two weeks in the Carolina. So we've got some products for your family, and we'd love to take you on this customer. But we're really excited about that, and in fact, the market reception we've
had so far has been tremendous. We've opened a several new branch locations just in the last few months, and each of them have beat their full year first year deposit plan before they've even opened, to give you a sense, because the market reception has been so strong.
So with the look, I know, you know, I can ask the question, but in terms of what you have planned any more acquisitions, you know, look, how are you thinking about it?
The way we're thinking about it is if something comes.
Up keepsakes to you.
Just said they expect more, They expect more acquisitions to happen.
Do you know.
I think the industry has been consolidating for twenty years. It will continue to consolidate for us. If something comes up that's a creative to organic growth, that's a great fit for us, we'll consider it. But otherwise it's all about organic growth for us.
Geographically, what's area of the country that's of interest to you, Where you're where you don't have a presence.
We love the markets that we're in right now. Yeah, our markets. We're going to be twenty one states covering more than fifty percent of the population of the country, and in markets collectively that are growing thirty percent faster.
Than the national a lot of states you're not in.
True, you know, I think our view is we're not trying to be a national bank. We're trying to you're not trying to be a national stake explicitly, Okay, we want to be deeply present in the states that we're in.
So would that mean that if there were more expansion it would be within the states that you're already in, so you can become bigger in those places rather than expanding the geographic foot printed places for something fit.
I think that that's the right characterization. Okay, yes, but I think again that's not our Our objective is not m and a per se. Our objective is organic growth.
The Goldman Financials Conference, and I think that's part of also why the KBW Bank Index really rallied in a big way out performance about two and a half percent higher. They many said, and you guys presented there too, that they're seeing a stable consumer despite worries of an economic slow down.
What are you guys seeing?
We're seeing the same. I think we just were up on stage this morning ourselves. That's a consumer stable consumer, pipelines continue to be strong. From a lending perspective on both consumer and commercial profitability is very strong. Credit is very stable. It really looks like a solid economy from
our perspective. If all you did was read our internal reports, it would belie what you're hearing in terms of the headlines, which is very encouraging as we go into the end of this year and into next year.
Why do you think you're seeing in that distinction, like you're seeing something The anecdotes and indeed some data are showing softness in places. Why are you seeing strength?
Look?
I think in total, you're seeing consumer spending continues to grow. Corporations, I think are more confident today than they would have been at the middle of this year when there was more uncertainties in the environment. We've had a tax bill pass, We've had more teriff certainty come into the environment. The government is now functioning again. I think as companies are looking forward to twenty six, they're seeing this is another
year of growth. I just came out today saying that the outlook for economic growth next year was more than two percent GDP, and so that looks like an environment where we should continue to be investing, continue to be expanding, continue to be expanding. You know, in from a commercial and consumer perspective, there is of course a bit of a so called K shaped shaped economy happening. And yeah, I think certain segments of the consumer environment have faced pressures,
particularly from inflation and higher interest rates. Our bank does not have much exposure to that, and I think in many cases the net of growth is continued to be positive.
Who is your typical consumer?
You know, from us, we're focused on the mass affluent consumer base.
And that's specifically target we do. Okay, sorry forgiving.
We target the mass affluent, and we've got a very strong base of consumers that are that are in that segment. And then of course we're also one of the large largest small business banks and commercial banks in the country as well.
What does mass affluent mean in your markets?
You know, typically we're looking at customers who have a net worth of or income of more than one hundred thousand dollars net worths that are that are high and of course we bank everyone, and we really our tagline is welcome to all, and we mean that. But for the most part our business is concentrated in that mass out of one segment.
From it, so loan origination activity. Tell us about what you're kind of seeing since do you last reported?
Yeah, In fact, we just this morning showed a quarter to date loan growth of two point eight billion dollars sequentially from last quarter. We're growing at about eight to nine percent a year on year right now and actually exceeding our own forecast that we set just a month ago.
In the Bread press conference today, I found what jap Powis said about AI really fascinating. This idea of productivity, and it's going to get me to ask every single person I talked to about not just how they're using AI, but like productivity increases at your bank, Like what are you seeing? How are they using it?
We're doing a lot in AI. Actually it's increasing. Point it sure is. I mean to give you a sense. Last year in the fourth quarter we had two Jenai projects going through our risk evaluation and implementation. Today we thirty. There's about a dozen per month that are coming into the pipeline. Software engineering is being made much more more productive.
We're seeing all manner of internal process improvement and now customer facing applications as well, things that make the loan approval process seamless and more effective, more personalized service.
Is that going to increase earnings for you?
Look?
I think it will certainly create capacity for us to then invest more. You know, our modus operandi is to harvest and try to drive efficiencies in the baseline costs so that we can deploy those expenses into investments.
A few years ago, I used to actually drive up to make a deposit. I used to talk to a teller. I mean I was a kid at the time, you know, and on my little book. But having said that, I don't talk to a teller for the most part anymore.
So will AI? In your estimation?
We are talking to CEOs, our team, our tech team just did a big AI report and they're talking to executives across industries. Everybody seems to be in on AI. But in terms of fat your j powsing hasn't really impacted the labor market yet, will it?
Does it? It has to right?
Look, I think in the end, AI will touch almost every element of human life and commercial activity, and ultimately will supplant many of the more rote processes that we use people to do. But it'll mean people could do other things. You know, this will be a change in the in the labor force in terms of what people are are doing. And there's things that people can uniquely do, make judgments, be creative, interact with other people, lead organizations.
I think, you know what's incumbent upon all employees and I think about this myself, is you know where can I shift my activities to where I uniquely add value?
People matter? You matter?
Thank you, Thank you, You matter.
Zach Wasserman, thank you so much.
With you.
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