- James Bullard, Former Fed Reserve President, Dean of the Mitchell E. Daniels, Jr. School of Business at Purdue University
- Henrietta Treyz, Veda Partners Director Economic Policy Research
- Dan Ives, Wedbush Senior Equity Analyst
Former St. Louis Fed President James Bullard looks ahead to the July Fed decision and Chair Powell’s news conference. Henrietta Treyz of Veda Partners weighs in on the newest Bloomberg-Morning Consult Poll and what’s next for both the Harris and Trump presidential campaigns. Dan Ives of WedBush reacts to Microsoft earnings.
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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App. Dan joins us now for more, Dan, It's good to see you, greed b. Let's start with that cloud revenue number, so that disappointed, and then we started to hear a little bit more the contribution from AI's picking up. We're going to see that softness continue in the current quarter, but then reaccelerate. Things start to pick up again in the back half of fiscal twenty twenty five. Can you just frame the second piece of this for us? What do you think that is so much more important than what we're seeing play out this morning?
The words heard around the world and I think around the street when Nadella and Amy talked about the acceleration for a Zure in the second half and that AI monitorization that actually starts for real in January. And that's look ultimate. You go back to last week the knee jerk in terms of the white knuckle moment. Alphabet Street needed to hear about validation monization for AI. They heard it from the Deella on that call, bullish, not just from Microsoft for the broader tack socket.
And you find it out that the sucks down this morning.
Oh, I mean, in my opinion, and we were tall last night. I mean, I think there's stock that goes green in terms of I can't say today, but this isn't stick to I be shocked if it sticks because anyone that heard that conference call, you come out more bullish on Microsoft rather than any sort of skepticism because of the acceleration for Azure, because of monization, because of commercial booking, Sean and I expect. And that's how it looks knee jerk. The haters come out. They've been negative on Microsoft the last one hundred and fifty points. It all is about the AI revolution, AI monization, validation.
Why did you sound to Lisa than talking about he like.
He's like the haters over here who have been talking down this story forever, Lisa, now listen this. I don't think it sounded like people were the haters who were actually skeptical of these numbers. They weren't coming out and saying AI is bogus and then everything is wrong and they're going to tank. It was that they weren't surprised dramatically to the upside, and the actual gains that we've seen on the stock imply significant profit gains going forward. Here's one investor. It was really about the cloud services number. It needed to just be a little higher. What do you make of that? Just sort of how people have priced in the forward growth rate and whether they've gotten over their skis in terms of the pace.
Look, it's a great point, and that's why the most important thing here is show that monization's coming. Show that you're now going to have growth rates on cloud in the thirty percent. Ultimately, if you trajector it out in incremental fifteen to twenty billion for Microsoft, you're not going to see that right away. What Bates in the Dell in Microsoft showed this is coming and we're going to guide to it. So I think that was the most important thing for the call, despite in terms of the actual quarter being strong but not a wow pop the Champagne quarter.
There's also this issue of who's going to benefit the most as some of the big the big tech names build out their cloud provisions and build out some of their AI capacities.
Were both really.
Struck by AMD overnight actually seeming to gaining share. Do you think this is a game changer in terms of how much they could compete with in video?
When Lisa Sue talks, everyone listens, and I think this just shows it's not just about the godfather of AI, Jensen and Nvidia AMD. They're getting into that AI party. It's nine pm. They're gett onto the dance floor. So what you saw from Lisa's sue bullish for AMD, triangulate that with Microsoft. With what I believe we're going to hear from Amazon, Meta and others, it should monitation starting the next phase of AI playing out. That's Bush for servers now, Oracle, Dell, Poundteer salesforce now, it's about second, third, fourth derivative playing out. That's why I last everyone's focused on there's two companies in the world. Everyone's focused on Microsoft and video, AMD said, hey, don't forget about us, important.
Call and video up in the pre market as well. Off the back of some of this, there was also the story Danny was talking about it the story out of routsas that's lifting Tokyo Electron and SML, the report that they bind an administration plan to exempt ship equipment makers in Japan, the Netherlands and South Korea from upcoming export restrictions. How important is that story?
Very important because what's the one thing that could spoil the AI party. It's not fed, it's not value e shit, it's about restrictions. It's about basically like what we see on tariffs, and ultimately this viewers trying to call tech war that's playing out.
That was a huge move by.
The Beltway, just keeping that tight group where you want to sound tough and obviously in terms of what's playing out, very significant for ASML and also it just should you cannot disrupt the supply chain as all of this constraint. Microsoft talked about it as well as pointing out.
So we've done the cloud business, We've done the chip makers. We need to finish with your thing for it your baby. We need to talk about Apple, the Mark German report of the last couple of days, you've seen it. The chance that the iPhone is released in September without all the AI goodies. Now you've had this thesis for a long time. They've come out with this phone that'd be this monster upgrade cycle. It's one of the biggest pillars for your bullish call on the Apple stock. Does it change with that report from Mark German?
No at all. I mean a career report by Germans or is But developers got it on time, all the marriages. Developers are going to build hundreds of apps on it and on iPhone sixteen, even if it's an update October. We're talking a few weeks and I go back to all of our Asia checks will be in Asia again this weekend. It started off as eighty million units for iPhone sixteen. Guess what it is now based on our checks, ninety million. So the point is it is not going from eighty to seventies, going to eighty to ninety.
What that means is.
Cooper Tino news Cook sees it where demand is going to be in an AI driven supercycle.
Do we already have a sense of what some of the AI applications are consumer facing that are going to be sort of game changing because I understand on a sort of corporate sphere, but just getting sort of an emoji that's personalized isn't necessarily a game changer.
Yeah, of course, and that's why what's so important. A year from now, you're gonna have hundreds of apps on this iPhone, on the Apple ecosystem that are AI driven. That's why developers, that's the hearts and lungs of this story. Apple's given it to them Apple Intelligence. Now the AI consumer story runs through Cooper Tina, and it just comes down to water. This week, Cook's going to talk about. Obviously, June I View is almost a background noise to the actual the main event September when this gets launched. What I View is really a strong upgrade. Second, very importantly China. This will be the last negative quarter China growth stories back for Apple.
Before we get went.
On air and you were talking about how you've got a lot of events to go to and you didn't really want to show up.
Very casual.
What does casual look like for Dan ives so well?
First of the biggest insult for a college football fan or if someone calls you a casual that's to me, that is the most insulting you could ever get as a sports fan. Someone says you're a casual. Now, obviously Farah being a huge F one fan, he is along with the Netflix epic got me into F one. I will be going to my first F one race in Vegas wear my Ferrari gear.
Well done. You're not a casual, A cashl I would say it's a Red Bull fan and I've not been involved in a spoil very long.
The casual the biggest insult.
For any sports fan, without a doubt. Dan, It's good to see you. Dan, I's of webbush A dropped by the green room this morning. Dan was talking to Juning the Manuell about what was happening in the equity market. Dan said he was this close to dressing in black for this morning's appearance. When the Microsoft numbers first dropped Harris with some real momentum. The latest looks like this a new Bloomberg and Morning Console poll showing Kamala Harris closing in on Donald Trump's lead across all seven swing states, the biggest gains coming in Michigan and Arizona. Henry thetres of Vader partners writing this, Kamala Harris's entrance into the race has brought the Democratic ticket to high has not seen all year and leveled out the twenty four election. Our forecast still anticipates that Donald Trump will win the election with sixty percent odds to Harris's forty. Henrietta joined us now for more. Henryett, I want to get into something Lisa and I have been talking about out for the last two weeks, or at least the last week. This has felt like what we would call inequity markets, a position squeeze that the old CEO is left and the short positions on the Democratic stock have come off. I want to understand if it's more than just that. Are we starting to see some real momentum that could last as we go through Q three and into Q four.
I think there's a lot of reason to anticipate that this is momentum that has not peaked yet.
I'll give you a number of reasons why.
First of all, there was an actual election in Arizona last night.
We've been tracking it for the last.
Two months, but it's a primary election that Carrie Lake, the Republican candidate on the Senate ticket, against Reuben Galeo, a more progressive Democrat, think kirston Cinema who is retiring this year. Kerry Lake is very close to Donald Trump, tours with them, regularly, goes tomorrow, Lago, goes to the White House, et cetera. And she only got fifty three, I think percent of the vote, which means that amongst Republicans, seven percent of Republican voters voted.
Against her last night.
That is a trajectory shift in a critical swing state that your polls as well laid it on and pointed to hard confirmable actual elections as opposed to even just polling data, which is the best we can do right now, suggesting that independent voters and moderate voters are trending away from Donald Trump. And that's something that you showed up in swing states across your polling last night, and others did as well, including in Pennsylvania, another critical swing state. Effectively, everywhere that Trump was ahead, he is now declining in and Harris is on the surge.
Upward the opening that you just described in places like Arizona. Do you think those kind of developments influenced the VP pick in the coming week.
Well, it's if my pet belief that Mark Kelly will be the vice presidential Canada. I don't have any special insight there, but to me, you are not going to get a tremendous move from the VP pick in either direction. Jade Vince maybe an example of how we could be wrong there. His negatives have increased pretty substantially.
I think he's negative fifteen right now. That might be a drag on the ticket, particularly with female voters.
But for Mark Kelly, I mean you really don't need to read too far into it. As my colleague Spencer Proma likes to say, I mean they're talking about a naval fighter, an ass or not, you know, gun violence survivor with his wife Gabby Giffords. It's pretty much a no brainer. But even voters in Arizona will say that it's not going to move the needle for them.
I will leave.
The polling is at sixty percent of people in Arizona say picking Mark Kelly won't move the needle.
I think it's a more broad.
National approach, specifically on immigration that leads me to think that Kelly is the candidet that Kamala Harrison choose.
And I think it just gave a lot of reasons for why this kind of has been a changed race. Why do you see the outcome being the same.
Because I don't have enough data yet. It's really very fresh. The Bloomberg Morning Console data is the best and the latest and the only data that we have across all swing states since Kamala Harris joined the ticket. So it's going to take a lot more of that to convince me. And as my clients know, I have a very aggressive incumbency bias for our purposes. Now, I believe that the incumbent in this race is Donald Trump, and I need to see the Democratic candidate, particularly in the electoral College, pull ahead two to four points in all of those states consistently in order for me to change any of the races. So I'm looking very closely at Nevada, at Georgia, obviously at Pennsylvania, but I think Arizona is moving in the direction that Kamala.
Harris wants to see.
Donald Trump's best luck is on Pennsylvania and North Carolina.
Right now, John, I love that Donald Trump is the incumbent, and basically Kamala Harris is not being considered as Joe Biden's kind of surrogate and any kind of well.
She make of that, because I remember when Joe Biden stepped down. We did, especially in the evening, and the first question we all asked about Kamala Harris is how much distance she could put between herself and Joe Biden.
Well, that's exactly the question, Henriette. I mean, how much distance is there? Isn't it fair to say that she's essentially the incumbent policy president or does she really represent an independent voice from Joe Biden.
Yeah, No, she's definitely a different candidate.
And I would love if this race were about policy, but.
We haven't gotten there yet. I mean, whenever we get to tax policy, I'll be thrilled.
But at this point, it's really the change is in Democratic activation, specifically, with double digit gains for the Democratic ticket, plus twenty five with Black voters, plus twenty four with Latino voters, huge gains with female voters, double digit gains with youth voters.
It's a new ticket and she's.
Not the incumbent because it's brought a brand new basket of voters.
To the field.
There was a slight uptick in Democratic voter registration in North Carolina in the last week, for example, so it's not that there is a policy shift, it's that this is a fresh face for the ticket. You can see it in her approval ratings, which have changed faster than any candidate I've ever seen.
You know, the most ridiculous thing about all of this, Henritta, This was the object all along to have the early debate, to engage the population, to drum up the enthusiasm, to get people engaged early. This is just not how we thought things would turn out. It was the objective of the Democratic ticket, of course, but we thought on the ticket at the top would be Joe Biden and of course Lisa. The debate went in a different direction and ultimately the outcome has been the same, but with a different name on the ticket. It's amazing, isn't it.
And we're talking instead not about policy, in fact, that's kind of lost the stage, or instead talking about weird and.
It's fair enough, and retch can I jump in just quickly, just quickly, when will we talk about policy? We've seen a massive change in this election race, and Kamala Harris has gone on some scripted rallies, which I get it, drumming up loads of enthusiasm, But when do we start to hear about actual policy.
Never I imagine it won't get around to that.
I mean, at the best case, we could say after Labor Day, when people come back from vacation, we'll start to tune in. But the immigration and maybe fentanyl are areas where I think Trump has a really good chance slamming Kamala Harris and taking away some of her early and hopefully for him not locked in gains. But I don't see a race between Kamala Harris and Donald Trump talking about you know, capital gains, tax rates or a corporate tax rate.
I really just don't see that happening.
I think it's more about the top of the message, and the gender divide is probably the biggest indicator of that. The largest divide in the electorate right now is between.
Men and women.
Interesting, Henretta, thank you, Henrita. Trace their avader partners. Let's talk to a man who's been in the actual room making the decision many times before over the years. Joining us now is Jim Bullat, the dean of the Mitchell E. Daniels Junior School of Business at Purdue University and the former Saint Louis fed President. Jim, It's wonderful to catch up with you, sir, once again, a timely conversation. You have lived this repeatedly, and you've experienced the calls coming from outside the building, beyond the FMC to do something. And we've heard plenty of those calls. You've seen them too, from the likes of Alan Blinder, from the likes of Bill Dudley, from Muhammad al Arians saying this Federal Reserve needs to get a move on. I want to pick up on the last one, Muhammad Aller, And the point that he's made is a similar one that you've made, Jim, is that this Federal Reserve seems to have become more data point dependent and not data dependent. Can you just explain the distinction and the importance between the two.
Yeah. I think if you say you're waiting to the next meeting because you want to see some data between now and the next meeting, that makes markets wonder, Okay, well what is it that could derail a red cut between now and the next meeting? If you do react to that data, then that's kind of data point dependence. And I think that's what Muhammad al Arian has been talking about. One thing that I did, I'd often say when I was on the committee was that you know, if you know you're going to do something with one hundred percent probability at the next meeting, why aren't you doing it at this meeting? And I think that gets often gets the committee into a little bit of hot water because sometimes the data don't cooperate between this meeting and the next meeting, so it can be managed, but it's it's kind of a committee dynamic that's been on and off over the last decade or more.
This is the reason why many people, including Muhammad Larry and say the FED probably is not going to cut rates today by twenty five basis points, even if there is a consensus that they are going to in September, because they haven't telegraphed it. In New disrupt markets saying what do they now think that they didn't think at the last meeting. However, Liz Young, we were talking to we were also talking to James Camp of Ego Asset Management. They're suggesting the FED could set up a fifty basis point rate cut in September. Are you sympathetic with that.
Now? I think that's too much. What I do think could happen is that they'll get going in September, but the discussion will turn to what about November, what about December? What will the pace be? Shaf Powell said that this first rate cut is consequential because it starts a process. What is that process? And if the data continue to confirm disinflationary trends, I think you could bring November onto the table and then you could have a sequence of rake cuts into the first part of next year, and then the committee could assess at that point where they are and how they want to play it from that point.
Do you feel like they've backed themselves into a corner in some ways by being so data dependent, by just repeating that sort of de facto to every question.
I don't know. This is a pretty successful policy here. You know, output growing, you know, between two and two and a half percent on a rate that's very close to the potential growth rate for the US economy, Unemployment coming up ever so slightly as they predicted, inflation coming down as they predicted. There's a lot to like about this. And the last piece of the soft landing would be to get the short end of the curve down and get rid of the inversion of the yield curve. So to do that in an organized way without signaling that you're worried about the economy, because I don't think they are worried about the economy right now.
Is really the trick here.
Jim, Do you think they should be worried about the economy right now?
You know, I think it's still to me, it looks like an economy that's in a soft landing is growing at a trend pace pretty good. Of course, there's always risks out there. There's always the possibility that some big shock would occur, or one of the geopolitical events wood would sort of roll back onto the global macroeconomy. But you just sitting here with this data, this looks awfully good. And so if they can get the last piece of the puzzle in place, I think they'll be in great shape.
I said earlier this morning that the Federal Reserve is not in the crystal wall business. It's in the risk management business, and Jim, you know that better than most. And I just wonder, when you think about the balance of risk right now, if the risk for higher unemployment is greater than the risk for higher inflation, do they need to formalize that somehow in the statement that comes out a little bit later on this afternoon.
Yeah, I would say they probably think it's more balanced than it was. You had this overheated labor market, which is now much closer to the pre pandemic labor market, but that labor market is considered pretty strong, and now you've got inflation not being nearly the still elevated, moderately elevated, but not nearly the concern that it would have been a year ago or teen or sixteen months ago, and it was up closer to five percent on the preferred measures of the committee.
So I think.
Things are relatively balanced now they can begin to lower the policy rate. There is a risk though that you know, when outputs growing a trend and unemployments at the right level and everything's going good, well, the policy rate should be at its neutral level as well. And that's the part of the soft landing that isn't there. So the you know, comments by Alan Blinder and Muhammad al Area and Bill Dudley are reflecting that I think is that they couldn't find a moment earlier this year to get started on this downward descent, and they're hoping that September will be that moment.
The problem with going back to neutral is that there is a huge debate raging in markets, and I'm sure at the foot as well, and what neutral looks like and whether we truly are in a higher inflation type of regime or whether we're going back to something familiar to pre pandemic. It seems like about six months ago everyone was saying we're in a new higher inflation regime, and increasingly it just seems like there's some doubt entering in that maybe we're reverting back to what we knew, say five six years ago.
Where are you in this.
On that, I would say that the Committee should guard against inflation dipping below the inflation target, because I think if that happens, then you will get this discussion about, Okay, we're going back to the regime that was in place between twenty nine and twenty nineteen, exceptionally low inflation, exceptionally low nominal interest rates, even negative nominal interest rates in many parts of the world, they'd be worried about that. So I don't think you want to do that. You want to approach the inflation target asymptotically from above. We're at about two and a half percent inflation right now, PCE, you'd like that to gently come down to two percent. Even when they lower the policy rate will still be a restricted policy. They will still be putting down pressure on inflation, but you don't want to put too much pressure on now because you want a glide path into the two percent target.
Based on what you just said earlier, said that the balance of risks is basically pretty equally balanced, measured at a time where inflation is coming down but still present and employment still looks like it's fairly strong.
Based on the fact that you.
Think that there is a greater risk of inflation undershooting than overshooting, that that is the bigger risk that the FED needs to counter. What would be the argument for them not to say that the.
Power of risks so far as a risk that hasn't even been talked about. But now it's time to start thinking about that as you try to get this last leg of the soft landing in place. And so you know you're coming off you know, five percent core, you know core PC inflation, you're kind of it's traumatizing for a central banker. So right now they've just been focused on let's let's make sure inflation is not going back up and that that was the story certainly in the first quarter of this year. But now that you've got better inflation reports, now you have to think about, you know, how do we play the end game here, declare victory, get into the soft landing, and then then see what's around the corner.
So why wouldn't they just put an emphasis on the employment market and say, if they're clear signs that it's softening, they're clear signs that it's normalizing, and we aren't sure where it's heading right now, we're going to focus more on that than inflation.
I think they've been gently, you know, gently saying that there. But but really the normal the labor market has been normalizing from a very hot market. You had two job openings for every unemployed worker, you know, just astoundingly high. Now you still have one point two openings per unemployed worker or so that that's the pre pandemic number that was always that was also a good labor market. So it's not that the labor market is deteriorating in a way that causes alarm or would cause the committee to move. But you have to ask if in Austin gools view, the Chicago Fed has asked, you know, if you thought five and three eighths was the right policy rate last summer when inflation was much higher, why do you think five and three ates is the same. Uh, you know, it's also the right policy rate today with a little bit higher unemployment and much lower inflation. So you do have to react to the data in the big in the big picture, and I think that's you know, the committee is looking for the right way to do that, in the right moment to do that, and it looks like September is going to be that moment.
Hi, Jim, border up, I'm not doing it right. I think I'm doing it right. Thomas and Lewis fed President Jim Filler out of patunity. Now appreciate it. Thank you very much. This is the Bloomberg Seventans podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.