Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
We have the.
Perfect guest on the state of the American economy. Francis Donald is truly a student of our holistic economy, each individual item of the algebraic equation of GDP. She is with RBC and their chief economists this morning. This could be a two hour conversation. Let's just begin with what Global Wall Street wants to know. Now, what what are they do in the speeches? What do they do in the discussions the body language when they've already modeled it in another two rate cuts.
I think this is a federal Reserve that is going to have to talk their way through some increasingly painful inflation points because they have revealed their hand. I remember talking six nine months ago with you, Tom, and we were trying to figure out, oh, when there's tension on both sides of the Fed's dual mandate, which way will they lean? Very clearly, there's a wabble in the labor market, and the FED is jumping in immediately to provide support
like an overprotective parent. I think is the way that I'm thinking about it. But in our view, inflation data is going to become increasingly more problematic heading into your in and not just on goods and tariffs, but also on services. So this is a FED that's going to have to explain away inflation data a lot more in the next coming months.
And Paul, they just took on the Tiger Mom doctor Mirron as well.
Typically speaking, how much impact do interest rates have on the labor market? If they want to address the labor market, well, cutting rates is that?
Is that going to help?
I love that you started with typically speaking, because typically speaking, absolutely you would ease, you would allow companies to be able to borrow more cheaply, or reduced debt burdens, they would be able to focus on labor or limit job cuts. But what do you do when the nature of the job market has changed so significantly. Job losses are predominantly in trade related sectors, and you have these big structural shifts that are pushing one in three jobs. One in
three jobs right now? Are government healthcare or social assistance. That means that a third of the labor market is not particularly interest rate sensitive at all and actually not really faltering.
Absolutely brilliant, and this alludes to Nancy Lazara Piper in Minneapolis, who's been absolutely brilliant on this. So we're watching Intel as well with Nvidia, Intel up eighteen percent even in Vidiot lifts here, as in Nvidia invest five billion in the beleaguered Intel. Francis Donald with US across America. Good Morning Canada. Thank you for joining us with the Royal Bank of Canada and on YouTube as well, subscribe to
bloomberg A podcasts. Francis, I look at the Ballet yesterday and there was some amazing, almost surreal responses within the show that we did yesterday, and I thought Jeff Rosenberg was really good about the dynamics change, and I said, I blurted out in my clumsiness, there's a whole new data dependency given this backdrop.
They stagger from data point to data point, don't they.
I felt like it was more like a breakdancing than Ballet yesterday because there was a little bit more chaos and not necessarily super clear messaging. It didn't feel like it was very well choreographed in general, or at least there were dislocations within it. What I heard yesterday from Chair Powell, I know you've probably already talked about it one hundred times, was there are no risk free paths ahead.
This was a haunting comment from a central banker, but it also reflects the underlying US economy, which is that we are still in the air pocket before we will know the impact of this once in one hundred year trade shock that has hit the US economy. It is our view that there are still significant inventories in the United States, and we don't know whether companies will truly pass on those costs to inflation or whether they will have to cut their own costs, and that will come
down to labor. So when you talk about data dependency, Tom, what I'm looking at is one single data point, which is how many inventories are left in the United States and how long until we answer that question? Because neither of those paths are good, but they result in very different focuses from a central bank.
Well, we started the show at one thirty. Tariffs wasn't mentioned until two sixteen. Okay, very good, Wow, odd, Yeah, I mean teriffs is everything right now?
It's the Fed day. You guys are on top of it.
So the we had mister Myron, the new appointee to the FED. He dissented and argued for more rate cuts. As I guess one it would expect that's in line with what President Trump would like to see. Other than that it was unanimous here. We had some outllyers before, but it's unanimous today. Was that important to you, well.
Miss in the sense that no one else formally dissented, but there were some silent descents in there. There's certainly plenty of folks that do not see more rate cuts this year, one that sees a hike coming through. So there's a divergence of opinions on the cover reserve, and you know what, that's appropriate. It's appropriate for a range of reasons. One is that we have an incredibly fragmented US economy and this trade shock, the interest rate shock
of the early twenty twenties has created. We've talked about it on this show, Haves and have Not. It's a K shaped economy. But the trade shock is also a fragmentation in the United States. There are sectors that are feeling significantly more pain than others, and depending on which region you represent, it's appropriate to perhaps have a different
view on what the appropriate path ahead is. So when I see that divergence happening between opinions's opinions, it's a reflection to me of the fragmentation and the spread that's occurring in the real US economy as well. And maybe that's not such a bad thing that there's different perspectives about how to think about it and how to measure it.
Francis, thank you so much. This morning, Francis Donald's gets a start and strowing here. This hour Real focused on the FED the effect on global walls to Ian Lincoln's schedule to be with us as well. Stay with us more from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us Live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
We are pleased to bring you moments after He's published a detailed note Ian Lincoln of BEMO Capital Markets, and within the many paragraphs of a Lincoln Hartman note, there is a phrase. I've never seen this from the FED, tone refining. What is the paths forward from mister Powell and company? Is they tone refine the message?
Well, I think that yesterday was a very good example of the committee having one opinion and Powell choosing to offer a tone refining more hawkish spin. So the market rallied following the statement because we saw a lower twenty twenty five FED projection FED funds projection. And then Powell came out and said, think of it as a risk management cut, and I think that that's why we saw the market whip sought around a bit in here.
We talked to bond people yesterday and folks, I want to get away from the jargonair Lingcoln's brilliant and avoiding the jargon. But when spreads narrow, that means bonds are bid price up, yield down is compared to full faith and credit American paper. So I we're price to perfection in the bond market. And your theory is we even get lower rates from here. How do we go from price to perfection to price to perfection squared?
Well, I think that what we're going to learn over the core. So the next couple of months. Is that perfection in this environment means lower rates. It means a lower term premium, and it means a Fed that will deliver on an October and December rate cut and recalibrate the policy, the front end policy lower, which will ensure at least attempt to ensure a recession is avoided and
that the unemployment rate doesn't spike even further. So we're still hoping for a soft landing as a real economy at this stage, and that's what Powell is trying to ensure.
So Ian, you know, looking at the tenure treasure here at four point zero five percent, where does this go? I mean, are we talking sub four percent at some point in your future?
Well, we were sub four percent yesterday, and I think that it's very doable to get to our year end target of three eighty five for tens. And if anything, at this stage, given where we are, I would skew that number a bit lower. Maybe we get to three seventy five or three sixty five, and that's without an economics recession or a material slowdown. It's more of a glide path.
Do you think this move by the Fed yesterday suggests that maybe the labor market, maybe the economy. Maybe they're seeing something that gets them a little bit concern more so than maybe the market is should we be taking that as a signal or is this just kind of right in line with where they should be.
I would say that they're responding to the recent post Liberation Day payrolls environment combined with the bitchmark revisions which took off nine hundred and eleven thousand jobs, and they're effectively saying, the labor market's not as strong as we thought it was for the last eighteen months. We need to start normalizing. What I worry about is we have another spike in initial job as claims, which we will get that data this morning, and that gets the market concerned.
That defense behind the curve.
And I ended the show yesterday with our heads spinning.
I mean it was you and I have been doing this for every and it was absolutely extraordinary yesterday. And I said, look, whatever the outcome here, the benefits of this financial stuff are the financial elites. How does what we saw yesterday, what I'm seeing this morning with the Nasdaq up to new highs, up one point one percent, how does that benefit Americans that don't own in Nvidia.
Well, on the margin, it's good for the broader equity market. So I do think that it's there is a bit of a broad based wealth effect. But you make a very good point. The bottom two quartiles of households are struggling. We see this in some of the economic reports. We certainly hear this anecdotally, and it is going to be a very interesting next couple of quarters.
Until up twenty six percent. There was jargon from Ling that was up, he's in a surveillance time out here, bottom two quartiles. Paul is half of America. Yep, that's what Lisa Matteo would say.
I know she wouldn't go Matthew, honest, you'll continue Ian, what do you think the cadence of rate cuts may.
Be for this FED going forward?
Here?
So I would say that it's going to be twenty five basis points per meeting until they get to whatever
version of neutral they think that they will achieve. Now there's a case to be made that it should be twenty five basis points per quarter, and that seems to be what Powell is pushing back or pushing for, suggesting that it's going to be a meeting by meeting decision, but getting back to three percent at twenty five basis points per meeting, that would actually allow Powell to hand over the reins of the FED to the incoming chair at three percent, which I think would be an interesting
setup for whoever comes in next.
So what do you think is next here ian for this better reserve? Are they going to sit back and kind of be consistent I eat where data dependent, We in fact will look at this data going forward. Or do you think they have something predetermined.
I expect that if the data plays out the way that they assume that it's going to play out, that they have predetermined in their mind that they want to deliver a couple more cuts, maybe a total of one hundred basis points between now and the end of the first quarter, and it's up to the data to derail that. So they don't need confirmation from the data. They just need not to see a spike in goods inflation or not to see a quick reversal back to a stronger labor market. So it is a bit of both.
Frankly, Brandman brought up forward guidance yesterday, dead on arrival, I brought up a new data dependency. Take those trite phrases Ian and translate. Where we are on the death of forward guidance on a whole new world after all for data dependency.
I think that the reality is the more that the FED is transparent, the more differing opinions that we hear, the more difficult that is from the market to know what the FED is going to do. And so too many talking Feds can complicate things, and I worry that that's precisely what we're experiencing at the moment.
Ian.
Thank you so much, Ian Lingoln.
This was Vimont Capital Markets in this hour for Global Wall Street. All sorts of newsflow right now. We need to bring that to you, but we're really trying to bring you pros on the street picking up the debris of the FED meeting. Thank you, Francistano, Thank you, Ian Lingoenn will stay with us. More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Joining us now forever with his gold and sacks, but also a tour dude with the Dallas fed Robert Keplin joins us, and I really can't say enough, folks. The timeliness is technology elites meet with the Prime Minister and the president of this specific president. He is, without question, the most innovation, most business process president in modern history. Wonderful to have you here, Robert this morning. What do we underestimate right now about this technology juggernaut? With a question,
it's technology to the rescue. With all of your experience at HBS and all, what are we missing in this place forward a decade?
Well, I don't think the stock market is missing it. And this is why people are saying, gee, the economy appears sluggish. Why is the stock market at record levels? Credit spreads so tied. I think the stock market is seen. We are in the early ages of an AI data center power boom, and it will It'll take a few years.
But is this technology gets adopted across industries which were in the early stages of I think the market is anticipating it will create productivity improvements, margin improvements, SMP earnings improvements that will be transformative. The part we'll have to struggle with is how do we redeploy workers who lose their jobs in one area and go to another. But I think we will eventually, we will figure that out. But I think the market, the market's on this.
Okay, Robert, you were at Goldman Sachs.
This is just a really storied career and innovation linking finance into America.
You were at Goldman Sachs in.
Nineteen ninety you wandered and as a partner, and four years later our world was to and upside down. I remember late ninety four, early ninety five in the advent of the Internet.
Is this as ginormous as that moment?
Probably in a different way. Yeah, it'll be as significant for companies. The Internet was very significant. I think this may be more significant for increasing the rate of disruption. Every company needs to be on their front foot on this, because you need to find ways to be more efficient, to be more nimble, to do more with less, and so I think in terms of the breadth of this, I think the breadth in terms of affecting every company is more significant.
Yeah, Robert, when you talk to your bankers of Goldzacs as they talk to their clients around the world. Are there are your clients feeling the same sense of urgency as it relates to AI, the same sense of opportunity in AI?
They are.
It is a mix of anxiety and opportunity in that. Across every industry, people know they've got to be investing.
It's not an option not to invest.
And many companies are worried that they're not big enough, they don't have enough heft to afford the investment, because the first impact of AI investment may.
Be lower margins.
But you've got to make the investment because over the next few years, your competitors are doing it, and if you don't, you're going to get disrupted out of existence. And that is why we're seeing a lot of merger activity as a result of it.
But yes, every.
CEO I talk to is trying to figure out which use case they have to get adoption. They're trying use cases. The thing leaders don't yet know and they're working through is which use cases will work and which won't. We'll know over the next few years, but you're going to have to go through this journey and we'll try some
things that don't work well. There'll be a number th number of things that do work, and the net of it all will be a dramatic improvement I think in productivity, but it may be unpredictable in which areas Robert.
One of the top news stories this morning we woke to was in Nvidiot taking a five billion dollar stake in Intel after the United States government.
It's ten percent investment.
That's really something that we haven't seen too often in corporate America.
How do you view what's happening at Intel?
So it's part of a larger picture.
So there's the AI boom that we can agree on. Okay, so what do you need to power? You need semiconductors, You need sophisticated semitectors, We need more semiconductor production capacity. We also, by the way, need more power, and we need more power capacity, and all this takes investment and collaboration.
So I thought this is a positive development and that we need to beef up our semiconductor capability to power to a lot of these developments, I think you're going to see more of these kinds of things and a lot of investment in the power sector, just the basical power sector too, to drive data centers. But semiconductors are a key part of it, and I think it's indicative of this deal is indicative of.
That, Robert Kaplin. With this, we continue with the vice chairman of Golden SAX. Of course, all of us work at the Dallas FED.
And so many email men. Are you going to ask him about DFW?
No, I'm not going to ask Robert Kaplan to fix Dallas Fort Worth and all the huge success of it. I should say, we welcome all of you in Texas. We welcome you across America, including doctor Kaplan's Kansas good Morning in Canada good Morning on YouTube world wide as well. I love to do this, Robert, when you're with me, I go to the Dallas Fed, which folks check it out.
That's brilliant.
Immediate economics, the Texas juggernaut and even with the slow in June right now, and I got a great article on a relatively quiescent inflation in Texas is by Luis Torres and Diego Moreles Burnett, Robert Kaplan, what's the pixie dust in Texas? That Montana, Mississippi in main need.
Okay, So the story of Texas over the last ten to fifteen years is migration of people and firms to the state. You know, about twelve thirteen years ago, I think population was around twenty two tuish million. We're now pushing thirty million, and we're heading north wy So. Pro business culture, very welcoming culture. Yes, no state taxes, and the reason the state is able to do no state income taxes, that is, has a sales tax and property tax.
But the reason it's able to do that has a very large oil and gas industry that produces a lot of excess funds go into the state's rainy day funds. We're the largest exporting state in the country, and so we've got a lot of features that create that make Texas a magnet in Dallas, Houston, Austin, San Antonio, a magnet for people and firms that are moving here and believe it's a better place to domicile.
I'm honored to say I'll be with the Houston CFA Institute next month.
So are you going downward?
Very good? Do something?
Do something as well?
Very good.
They don't know that my father was a fight in Texas aggy. If they'd known that, they probably would have resented the invitation.
Please, Robert, what did you hear from our Feederal Reserve yesterday that maybe kind of got your your sense going.
Well, I expected diversions and you saw diversions. What I mean by that you got You got I think six or seven, which I kind of expected, who said we're done for the year, we don't want more rate cuts. You have that a nine or ten who said we're going to do two more rate cuts. So there's and there are cross currents, and it doesn't surprise me there's disagreement. But what you also saw yesterday, I think is support and the desire to work as a team and work
with the chair. And so you could have gotten more descents yesterday, you didn't. And so it tells me that there's hefty debate and disagreement. That's great, But you also told me when it's kind of make a decision. They came together and they made a decision. And so I think the FED functioning FED independence without regard to politics, is still alive and well.
And I think that's what I saw yesterday.
It's kind of where I wanted to go, Robert.
This is a FED that's had to deal with arguably more political pressure. I guess you could say on various members of the FED. Do you think that impacts their work in any way? Do you think that impacts their policy in any way? Or are they able to maintain their independence?
Well, so, there's a very very strong culture inside the FED that demands you, to the extent humanly possible, and they are human beings, but to the extent humanly possible, you make decisions without regard to political influencer, book, political pressure considerations, and the peer pressure to do that is strong. Every statement I ever made at the FED I have to defend. If a colleague makes a statement, even if it's the chair, they've got to defend it, otherwise you're
going to question them. People there have to stand on their two feet and make merit based arguments. And so I think that culture is still alive and well there.
Robert Kappan, I want to discuss with you the mandates. You are our most business, our most MBA, Richard Fisher and others. But I mean you own the high ground on this. I guess we have it in flesh inflation mandate. I guess we have a jobs mandate. Stephen Roach and Morgan Stanley iconic for saying we have an asset bubble mandate as well. Are we getting towards Stephen Roach's asset bubble when we see bonds priced to perfection and an equity market with Walmart a pe forty.
I think that the FED pays attention to financial markets, but it's got to set monetary policy based on the economy.
And right now you have a divergence.
You've got regulatory review reform coming, you've got tax incentives coming, accelerated appreciation, you got.
An AI boom.
Those three things are not really in the economy quite yet, and so you got a sluggish economy and you have a booming financial markets. I actually think the tailwinds are significant head and so if you're at the FED, on the one hand, you pay attention to it, but you got to set monetary policy based on the underlying economy, and I think that's I think that's the right thing
to do right now, and that's what they're doing. This is not one of those stock markets that's being fueled by excess monetary policy, in my opinion, It's being fueled by other structural drivers, and the FED would do well to recognize that.
Robert.
One of the key themes coming into this year has been a new tariff regime regime on a global basis. As you and your bankers a Goldman work with your clients, are they feel like they're navigating their way through it or is there maybe still some more pain in terms of higher inflation slower growth?
What are you hearing from your clients?
So big, bigger businesses are navigating through The April announcements were abrupt, and they weren't. They weren't prepared yet how to adapt. Since then, they've had time, and also the tariffs have settled out closer to high teens. I think they were hoping for low teens. Fine, they can work with high teens. You're seeing some margin erosion, You're seeing relooking at supply chains. The area that I'm seeing is
struggling the most with it is smaller business. Smaller businesses don't have the levers that big businesses do.
And I do hear.
From more business people, especially if they import goods. Boy, I don't know if we can stay in business's the end of the year, so there's a divergence there.
Doctor Kevin, thanks so Much's a generous time this morning with Golden Sech's former president of the Dallas Fed. Stay with us more from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
The newspapers here is yes, we have to okay, So there were different approaches, right. It was the white tie fashion event last night's banquet at Windsor Castle. So it was the first Lady and the Princess of Wales. They were the ones that were kind of the center of attention. Everybody was wondering what they're gonna wear. Okay, So you have Kate Middleton, two completely different looks.
Okay.
So she went for this full length of felipa lepley gown. Yes, I had a call. We called the company this morning to make sure that was the way that you pronounced it.
Yeah, it was very Queen Mary.
Was very lace, full length up to the neck, long sleeves. She had the blue slash would have approved tiara. Yes, the tiara actually belonged to Queen Mary that she was wearing. She had this pearl encrusted clutch. She looked like a princess basically, that was she nailed it. Then you go to Malania Trump. She had this boulder approach, the yellow yes Carolina Herrera, sleek silhouette, you know, with a slit up the side. It was an over the shoulder, chunky
like purple silk belt around here. And then she had these long, dangly green earrings.
Yeah, so different.
Going to say, you go from the you know, the plane lace to like this old yellow and so they were saying it was.
When I saw it, I was constructed.
I'll say diplomatically, I was constructively shocked.
You were it was what a statement?
Well, it was completely different from how she arrived in the UK.
So the next dinner at two hundred people in the two hundred people in the ballroom at mar Lago, how many people, and they'll be like, in eight different colors, it looked like fur loose.
Next, okay, here we go from high fashion to what Starbucks employees can wear. Okay, because there are employees who were in file in three states who were taking legal actions in the company. Right so before they have his new dress code, he wanted to effect this is what it's going under. But before they were were allowed to wear things like patterned shirts and colors and express themselves. Okay, but now they have to wear in North America these
solid black shirts long you know, dark sleeves. They have to wear certain color pants and shoes. They can't have certain tattoos on their face or certain piercings. They change, they change and everything. Do not know who buys the clothes, the employees by the clothes, but they have to be of a certain color.
Now, yes, is that legal?
Yeah?
Yeah, I used when I was waiting tables. I know they wear wear the uniform. McDonald's buys a uniform, right, correct, But they're telling them what colors. You know they can wear pants? Oh gosh, it's probably about bucks. Yes, it's called the if you get the super large one.
Exactly.
I'm still on I still say large. I don't say eventy, I have any thank you.
It's Italy by the way right now.
So out of Saint Mark's in Venice with a big square shore, you go to the place over on the left that's like world famous.
Yet every movie.
There, and they triple the prices for everything we had life here.
Sweeney walked in.
Next Okay, this next story in the Wall Street Drill, you have to actually give it a good read.
Okay.
So it's about AI agents getting ready to handle your whole financial life. Okay, what could go wrong?
Right?
Okay? So yeah, okay, So people who manage their finances, you have a lot, you have a different apps, you have a number of loggins that you have to remember. You're trying to track all these different things. So tech and finance executives they've been investing billions of dollars in these AI tools agentic AI. I was just talking to someone yesterday because we have a conference coming up from
Bloomberry about this specifically. So they're saying, researchers saying AI assistants are going to basically examine your whole portfolio, give you advice on it. They're going to be key for financial who can't afford financial advisors. People are going to turn to this now. But they are saying that, you know what, it's not going to replace financial advisors. It's going to be kind of a hand in hand tool.
I'm not buying this whole thing. I think AIS can take a lot of jobs. Oh got it.
It's tough. So they talk about a lot of the things in there. You gotta read it.
You get the newspapers. Lisa Matteo, thank you so much.
This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.