Fed Cuts Rates With Three Dissents, Projects One Cut in 2026

25:07And 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, 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.

25:40Carol Massar:Hey, one of the things I do want to go back to this idea of transactional, And again, I want to go back to the insight that you have in 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 the president come out and say Jay 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 chair? And would there be an assumption by the person who takes that position to kind of do the president's bidding?

26:22Carol Massar:Give us some insight if you could. Well, I'll 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? And he just he had trusted me as an economist that I would get it right. So there was no pressure to sort of do his bidding. Now, with respect to Kevin Hassett or Kevin Warsh, which I think there's a good chance it's going to 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.

27:00And 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 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 Warsh. 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.

27:42So is the expectation going to be from Kevin Hassett or Kevin Warsh that they will just deliver low interest rates? You know, you make a good point. The one thing that Trump has often said to me is that he likes low interest rates. And I've always said, well, Mr. 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 whatever, you know, we saw Jimmy Carter lose because of inflation. We saw Jerry Ford lose because of inflation.

28:19We saw this. I think the major factor in this last 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 Kevin Warsh, either one of them, will be an inflation hawk. And they will, I predict, we will bring that inflation rate down to 2%.

28:46Carol Massar: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. I know you want to go somewhere else. I mean, the Republicans certainly care. And affordability is going to be a key message for them in the mid for everybody in the midterm. Hey, we only have 30 seconds left, Steve. I just want to take a sharp turn here because you because you are an economist and you watch what's happening closely. The U.S. taking a stake in publicly traded companies such as Intel, MP Materials and others. I don't like it.

29:15Why not? Hate it. No, 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 on. 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. You're old school that way. Yeah, I am. It's a different. It's definitely a different Republican Party, at least from a business perspective today.

29:45Carol Massar: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 chair 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, our great thanks to our own Bloomberg Economics U.S. and Canada economist Stuart Hall. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

30:13you're listening to the bloomberg business week daily podcast catch us live weekday afternoons from two to five eastern listen on apple carplay and android auto with the bloomberg business app or watch us live on youtube oracle shares they are down about five and a half percent here in

30:31Carol Massar:the aftermarket meantime adobe shares they're right now little change but they've been bouncing around a little bit i want to bring in bloomberg intelligence senior technology analyst donna Raghana, to break down these earnings. I want to start with what's going on with Oracle down close to 5 % in the after hours. The company reported adjusted revenue for the second quarter that met the average analyst estimate. Adjusted revenue coming in at$16.06 billion. Cloud revenue coming in$8 billion. 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 stumbles was very strong.

31:10That's been over$500 billion right now. But the realization of some of that into revenue on the cloud revenue, it was slightly lower than what Street was expecting. And one reason for that could be 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.

31:42Carol Massar: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 NVIDIA. 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.

32:15But the big question for everybody is, out of that 300 plus billion commitments are from OpenAI, where does OpenAI have the money to fund a lot of this expansion? Now, OpenAI thinks 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.

32:37Carol Massar:Hey, Anurag, can we assume that those folks that continue to invest in OpenAI, they have looked at the books, they understand the financials of OpenAI, 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 900 million users and i mean for chat gpt i mean this is the biggest consumer app out there when it comes to ai tools so there's definitely a real business there but the big question is do they need to spend you know 300 500 700 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 i'm looking i'm looking for the word debt in the press release coming from Oracle.

33:26I don't see it anywhere, Carol. But not too surprising, I think. I'm sure it'll 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 we saw CDS valuation 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 purpose vehicle where you'll have a private equity player, you will have private debt, and then you will have investments from maybe SoftBank or around the others to create an entity that can fund a lot of the Stargate orders that are flowing in.

34:08So it is going to be a little more complicated than straight out going to the debt market and raising capital.

34:13Carol Massar:I know because at some point I always wonder, you know, when there's a lot of debt being created 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 of 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 data center expansion. All right, let's go to Adobe. Yeah, I'm just looking at what's going on with Adobe right now.

34:46Now, the company gave a strong sales growth outlook. It eased concerns about AI. The company giving an outlook for revenue in the coming year that topped analyst estimates. 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 bounce around a little bit, but right now down about three-tenths of 1%. What do we need to know about Adobe's report? of? Adobe's management needs to just come out and say, we are executing properly. I would say, not worried about AI cannibalizing their business.

35:21Their margins were very strong this time. What they promised a year ago, they actually fulfilled it. For the next quarter, they are talking about 10 % 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.

35:39Carol Massar:Hey, listen, the story today to Anurag is that ChatGPT users can now use Photoshop and other creativity software from Adobe directly within the chatbot. So we're looking at OpenEye 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.

36:25Now, we don't think there is, you know, there is a reason for 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 the next several years and showcase that their own AI products are gaining momentum and they are working closely with people like OpenAI 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, our images and what we create are commercially safe.

37:00So what essentially that means, the translation is that if you're a 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 Gen A 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, there may be customers, either they're individual users or, you know, very small companies.

37:31Yeah, that's a good point. They don't really care about it. Some sort of like person posting on Instagram isn't really going to care if what they create is like, you know, violate copyright. Okay, I get it. That makes sense.

37:41Carol Massar:All right. Where 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 Fed Chair Jay 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?

38:15Whether they are financial services firms, consumer firms, you know, hospitals, pharmaceutical companies. So we went out and looked at nine industries and over 600 C-suite executives that were surveyed for this report. And I think the biggest thing, the grand takeaway for us is every sector is extremely worried about being 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, OK, you know, this is going this could shake up our business. So we need to invest and invest more.

38:45The second thing we saw was even in these sectors that you could consider laggards of technology adoption, the people who are part of the employee base, they're very, very apt at using these AI tools that we talk about, whether that's SHAG, GPT, 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 core 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 the press conference with Fed Chair Jay Powell, where I personally thought and I told you this, you know, as as the discussion was going on, one of my biggest takeaways was his answer about AI and productivity.

39:27Yeah. And the idea that productivity growth in the U.S., 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, OK, what is going 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 productivity was the number one factor everybody is going towards. 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.

40:05I 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 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.

40:29Carol Massar:Right, but he still had to say not showing 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. Metaplatforms, 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 debut. know i was like what is that i was trying to understand totally california 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.

41:19But if you have a closed-end model, you have to pay Meta that royalty. And 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.

41:30Carol Massar: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? Anurag, 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. Anurag Rana, he's senior technology analyst at Bloomberg Intelligence out there at the Bloomberg News Bureau in Chicago. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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45:45Carol Massar:Or watch us live on YouTube. Fed cutting rates for three descents, projecting one cut in 2026. 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. Company has a market cap of nearly$27 billion. Shares are up 5 % year to date. And just today, Tim, Piper Sandler raising the price target on the stock from 15 to 16, maintaining, though, its underweight rating.

46:25Zach, joining us here in the Bloomberg Interactive Brokers 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 market still, of course, softening to some degree, but inflation pressures continuing to be present. And with the 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 2026. The market, by the way, is making in two cuts for 2026.

46:58Somewhere in that range seems very likely and I think helpful for the economy at this point.

47:02Carol Massar:All right, Zach. So if you were sitting down with Jay Powell, what would you want to ask him right now? That's a good question. What is he going to do after he leaves his job? Do you think he will leave his job in the spring? I would think so. That's my that's my son. But do you think that also Kevin Hassett 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 you know, as they as they think about how that they're going to chart their course on interest rate policy.

47:36I think the the path that they've chosen at this point appears to be the right one. Very data reliant appears to be, you know, we're landing the economy in a sweet spot. OK, so can Carol, are you done with Fed stuff? Can I talk here? Yes, I want to. You guys have been so acquisitive. I mean, there's been a lot of M &A in your space. You've been much more aggressive than others in your peer group. Why now in terms of the aggressive posture? Well, I wouldn't characterize our posture as aggressive. It's really, you know, for us.

48:06Carol Massar:Expansive, that's for sure. Well, certainly it's expansive. 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 partnerships that we've announced, we have a pleasure to announce two partnerships this year. It's really all in service of sustainable, long-term organic growth. You call them partnerships, not acquisitions. We really do, and that's intentional. The partnerships we've created with Veritex Bank and then Cadence Bank really are, in fact, bringing these organizations together, making one plus one equals three.

48:41And for us, we'll be a powerhouse in Texas. We'll 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.

48:56Carol Massar:So, you know, I've got family in South Carolina. They've noticed some economic softness. And certainly the Veritex 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 50 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 as a customer.

49:31But we're really excited about that. And in fact, the market reception we've had so far has been tremendous. We've opened 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.

50:00Carol Massar:KeyBank CEO said they expect more. They expect more acquisitions to happen. Do you know, I think the industry has been consolidating for 20 years. that will continue to consolidate. For us, if something comes up that's accretive 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 an area of the country that's of interest to you where you don't have a presence? We love the markets that we're in right now. Our markets, we're going to be in 21 states covering more than 50 % of the population of the country and in markets collectively that are growing 30 % faster.

50:33But that means a lot of states you're not in. True. I think our view is we're not trying to be a national bank. You are not trying to be a national state. No, explicitly. 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 footprint of places you're not already? If something fit, I think that that's the right characterization. But I think, again, our objective is not M &A per se. Our objective is organic growth.

51:02Carol Massar:The Goldman Financials Conference, and I think that's part of also why the KBW Bank Index really rallied in a big way, outperformance about 2.5 % higher. Many said, and you guys presented there too, that they're seeing a stable consumer despite worries of an economic slowdown. What are you guys seeing? We're seeing the same. We're up on stage this morning ourselves. Stable consumer. Stable consumer. Pipelines continue to be strong from a lending perspective on both consumer and commercial. Profitability is very strong. Credit It is very stable. It really looks like a solid economy from our perspective.

51:38If 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 that distinction? Like you're seeing something, the anecdotes and indeed some data are showing softness in places. Why are you seeing strength in your consumer? In total, you're seeing consumer spending continues to grow. So 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 passed.

52:07We've had more tariffs certainty come into the environment. The government is now functioning again. I think as companies are looking forward into 26, they're seeing this is another year of growth. The Fed just came out today saying that the outlook for economic growth next year was more than 2 % 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, and from a commercial and consumer perspective, there is, of course, a bit of a so-called K-shaped economy happening. And I think certain segments of the consumer environment have faced pressures, particularly from inflation and higher interest rates.

52:47Our bank does not have much exposure to that. And I think in many cases, the net of growth is continuing to be positive. Who is your typical consumer? You know, from us, we're focused on the mass affluent consumer base. So that's what you specifically target? We do.

53:00Carol Massar:Okay, sorry, forgive me. Go ahead. We target the mass affluent, and we've got a very strong base of consumers that are in that segment. And then, of course, we're also one of the 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 income of more than$100 ,000 net worths that are high. And of course, we bank everyone. Our tagline is welcome to all, and we mean that. But for the most part, our business is concentrated in that mass affluent segment. So loan origination activity.

53:34Carol Massar:Tell us about what you're kind of seeing since you last reported. Yeah. In fact, we just this morning showed a quarter-to-date loan growth of$2.8 billion sequentially from last quarter. We're growing at about 8 % to 9 % year on year right now. and actually exceeding our own forecast that we set just a month ago. In the Fed press conference today, I found what Jay Powell said about AI really fascinating, this idea of productivity. And it's going to get me to ask every single person I talk to about not just how they're using AI, but productivity increases at your bank. What are you seeing? How are they using it?

54:09We're doing a lot in AI, actually. And it's increasing productivity. It sure is. To give you a sense, Since last year in the fourth quarter, we had two Gen AI projects going through our risk evaluation and implementation. Today, we have 30. There's about a dozen per month that are coming into the pipeline. Software engineering is being made much 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. So is that going to increase earnings for you?

54:41Yeah. 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 could deploy those expenses into investments.

54:55Carol Massar: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 had 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 Fed Chair Jay Powell saying, AI hasn't really impacted the labor market yet. Will 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.

55:40This will be a change in the labor force in terms of what people are doing. And there's things that people can uniquely do. Make judgments, be creative, interact with other people, lead organizations. I think 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?

56:03Carol Massar:People matter. You matter. You matter. Thank you. I'm just saying. You matter. Zach Wasserman, thank you so much. Pleasure to be with you. This is the Bloomberg Business Week Daily Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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58:13Carol Massar:Go on. Get a little out there. Into the big heart of Nevada. Where you can go off-road and off the map. On two lakes or on horseback. Dip into hot springs and dive into deserts. Climb a mountain or make your best effort. See thousands of stars in some of the darkest skies. Stake out haunted hotels. Can you make it to sunrise? There's always something new to see because we've got plenty of space to just be. Plan your trip at TravelNevada.com.