00:00I want to bring in Jennifer Lee now, Senior Economist with BMO Capital Markets.
00:03Jennifer, great to speak with you, as always.
00:05And I kind of look at what we're seeing in notes from investors going forward.
00:08If there is any market reaction to this, it seems like the consensus is likely to be short-lived.
00:13This industry has gotten so big, the demand for chips is so insatiable.
00:17Yes, folks might take stock here going into Monday morning, but it's not going to be a major setback.
00:24How do you read what's happening here, the importance of this essay and the reaction to it?
00:29Good morning, and thank you for having me on.
00:31By the way, I find it very difficult to follow your previous guests.
00:34I was not doing that at 17, by the way.
00:35I think I was listening to Madonna with my permed hair.
00:39Anyway, oh, my God, I'm giving you guys my age now.
00:42It's okay, Madonna is her own neural network.
00:44You don't need to be ashamed of Madonna.
00:46No shame, no shame.
00:48I think recession is a bit too early to say.
00:51I mean, oh, my gosh, I'm going to, again, give away my age.
00:53But, you know, I'm thinking of Janet Jackson saying, let's wait a while, right?
00:56I think that's what everyone is sort of doing right now.
00:58And this hasn't been, this has sort of been happening over the last, you know, a little
01:02while, this pause, I guess, just sort of like, just hold off and see what's happening here.
01:08And are things going too quickly?
01:10You know, we got that earlier this summer.
01:12I think it was in May when the former CEO of Google, I believe, you know, was booed at
01:17a commencement speech.
01:18And I think that shocked everybody.
01:20Yeah, and then there, you know, like a lot of the grads are saying, you know, I studied,
01:25you know, for four to six years or whatever, for my graduate degree.
01:27And, you know, what jobs are waiting for me?
01:29And, you know, current people in the labor force are also wondering what's going to happen
01:34with jobs.
01:35States are starting to hold back on building of these data centers.
01:39New York and I think Texas just recently announced that they're going to also hold a
01:43little bit of moratorium, slow things down again.
01:45So there is concern about all this economic impact.
01:48But at the same time, you know, I will say, and of course, we're going to see the impact
01:51on the market.
01:51We're going to see the impact on consumer spending.
01:53And that's where things are going to slow things down a bit now.
01:56But it's not going to be forever.
01:57The infrastructure is there.
01:59You know, this is a long, you know, like 20-year horizon sort of situation.
02:04It's not something that's just going to change overnight.
02:07But again, just slowing things down is not a bad thing.
02:10At the same time, you know, we're also investing because we think about like the labor market,
02:14right?
02:14The labor force is a supply-demand issue.
02:16And right now, supply of people, I guess, if you want to put it that way, is starting
02:21to slow.
02:21We're not adding organically to the labor market with globally, you know, fertility rates and
02:26birth rates, you know, at or near record lows.
02:29So there is still going to be continued push toward more automation, more AI, more robotics,
02:36if you will.
02:36So again, this is just sort of like a step back in the, you know, in a bunch of steps
02:41forward.
02:42I'm also wondering, as you look at these companies and how investors and markets are
02:45likely to react, you know, there's, there's a bubble certainly not pop, but there have
02:48been a couple of ripples across it.
02:50And as you look at some of the concerns people have about this industry, one of the things
02:54we've talked about here is they haven't really figured out a way to make this technology
02:57profitable yet.
02:58The part of it that is more likely to be profitable are those task-based AIs.
03:03So I wonder is if this is, sure, it might be altruistic, but it also might just be pragmatic,
03:08them focusing on the sectors of their company that are safer, but also are more likely to
03:12make them money and make stockholders happy if and when they do go public.
03:16That's, you know, that's, that's, that's a great point.
03:18And it's, it's very possible.
03:19I mean, I'm not, I'm not sitting here in their minds, so I can't say exactly what they're
03:22thinking.
03:22But again, you know, in the grand scheme of things, you know, these are, this is a technology
03:27that's going to change, you know, the way we live, the way we operate, the way our
03:31workflow, the workflow process works.
03:33And this is impacting every single sector across the universe, you know, from, from healthcare
03:38to law to economics, you know, I'm sure my job at some point is going to be replaced.
03:43I shouldn't say I'm sure, but you never know.
03:44Even like agriculture and all that, you know, so this is, again, just a step back.
03:50I don't know how long the step back will be and how big the step back will be.
03:53But again, one step forward, two steps back, or sorry, one step forward, two steps back.
03:58I got you.
03:58You know what I'm saying?
04:01Let me draw a segue here.
04:03Kevin Warsh, the Fed chair, has talked a lot about AI, it being a potential productivity
04:06boost here to the economy more broadly, using that as a segue.
04:10How are you thinking about the meeting this week in light of the inflation data that we
04:13got on Friday, Thursday and Friday of last week, PPI and CPI, looking at work on the Bloomberg
04:18here, all but a done deal.
04:19It seems like that they're going to hike at this meeting on Wednesday.
04:23Your sense of the, yes, the pressure that Kevin Warsh is under, but what you're looking to
04:27hear from him on Wednesday when he delivers remarks after that decision.
04:32So I have been feeling quite tingly about this upcoming Fed meeting.
04:36And by the way, it was just quite a surprise, I guess, to see markets react the way they did.
04:41I mean, understandably, with that CPI report.
04:43And by the way, I just want to say, I don't remember whether it was like one single inflation
04:47report that had so much importance to it.
04:51But the chair has been sounding, it seems like he's been progressively more hawkish, surprisingly
04:57so somewhat, in each of his public appearances since he officially took the job back in May.
05:03And of course, his last public speech, I believe, was in Jackson Hole when he said that, yes, the
05:11spring and summer inflation numbers weren't that bad.
05:13But at the same time, he's not seeing a lot of improvement just yet.
05:16And if they don't continue to see more improvement, then there will be work to do.
05:20And, you know, they need to see inflation coming back down to 2% at a sufficient speed.
05:25And I don't know what sufficient speed means exactly, you know, but I don't think it is
05:31what the Fed chair is looking for right now.
05:33So, yeah, I think we do believe that the Fed will go in September at the next meeting this
05:39coming week.
05:40But it's going to be what he says during the press conference.
05:43That's what everyone's going to be hanging on to.
05:45You know, he always talks about how his, like, for forward guidance, he will be vague.
05:49I'm sure he will be vague.
05:51And it will be, again, worrying from the ECB.
05:53You know, everything's going to be data dependent.
05:55Everything's going to be done on a meeting-by-meeting basis.
05:57And specifically for the Fed, let's see what the task force say.
06:01But, you know, we are now looking for, like, at least a couple of rate hikes before the end
06:04of the year.
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