Nvidia Gives Lackluster Forecast, Stoking Fears of AI Slowdown

26:42Does the president's attack on the Fed risk? Does I mean, should we be worried about the president's attack on the Fed? You should be. And I agree wholeheartedly with Bill. I think you're in such unchartered territory at the moment because remember, this is coming on the heels of many months of the administration arguing that the Federal Reserve should be cutting interest rates in accord with the political whims of the Trump administration, rather than based on its very particular dual mandate, which is about inflation and it's about the labor market. And the fact that we have a central bank that's independent, that cares about those two things and those two things alone, is a really significant source of our economic security.

27:26The way I know that is because we have experimented in the United States, as have other countries with federal reserves that become politicized. In this country, in the Nixon administration, we had Arthur Burns, who was pushing for interest rates to help President Nixon get elected. And the result of that was runaway inflation that increased from three to 13 percent over a two year period. So we do not want a central bank that functions based on short term political whims. And I'm really worried we're moving in exactly that direction. The Fed said they will abide by what the court decides. And President Trump yesterday also said he will abide by the same.

28:02But if the court decides that Lisa Cook can stay, are we past a red line? Like, is the damage already done when it comes to the credibility of the Fed? Hope that the answer to that question is no. And I really hope that what's important to note in the context of the legal discussion here is that the Supreme Court has really gone out of its way in a case about removal that had nothing to do with the Federal Reserve to signal that the Federal reserve is special and that these types of positions, because it's a quasi-private institution with a particularly important role in our economy, these types of positions are really only for cause removal positions.

28:42And frankly, for cause rises to a level in legal nomenclature that it's pretty hard to meet in the context of malfeasance. And so I think that the court has already signaled directionally that they really think protecting this institution and protecting its independence is immensely important. And I hope that that's what they continue to say as this particular legal case plays out in the courts. But the thing that I'm worried about is the sort of institutional credibility and the view by the markets and by the public and by other countries and other investors that our central bank is independent from any type of politicization.

29:20that's kind of a genie that you can't put back in the bottle. It's something that's taken decades and generations to build. And I worry that it evaporates pretty quickly as a result of some of the types of attacks that we're seeing. So I'm hopeful that the judiciary is going to step in appropriately here, but I'm still really disheartened to see the types of attacks that you've been seeing leveled at the Federal Reserve of recent. So let's keep your law professor hat on for a moment, Natasha, and talk a little bit about the definition of for cause in this context. You touched on it, but I'm curious if, let's say, the allegations about mortgage fraud end up, and we haven't seen the evidence here, we don't have that yet, but when it happened, if it happened, matters.

30:05My understanding is intent matters as well. So from a perspective, from a legal perspective, why don't you think this would qualify as a for-cause reason? I'm far from an expert on for-cause removal, nor have I looked at the specifics of this particular case, and nor, frankly, could we have at this point, because Lisa Cook hasn't been charged with any crime or anything. This is a set of allegations that have been leveled at her by the president and by the administration. What I can say is that in the particular context of removal with respect to the Federal Reserve, the court has been pretty explicit that it thinks it's important.

30:50And you saw it in the statement that the Federal Reserve put out yesterday. These are Senate confirmed positions with very long terms that run across administrations precisely to try and insulate this institution from exactly the kind of political pressure that we're seeing levied against it. And this isn't just about mortgages, nor has it been about the renovation of the Federal Reserve Building, which has taken a lot of airtime over the course of the last many months. It's very clear that what's happening here is really frustration with the direction of monetary policy. And that's really no place for the administration to be acting.

31:26In fact, it's frankly counterproductive to their goals of seeing interest rates come down and seeing economic strength be very significant in this country. We're speaking with Natasha Sarin. She's the co-founder and president of the Yale Budget Lab. She's a professor of law at Yale Law School and has an appointment to in the Yale School of Management's finance department. I promised we'd go all over. So we're going to move from the central bank to really what I think a lot of the market is kind of moving past. And that's tariffs, because earlier this month, our team reported that the average U.S.

31:58tariff rate will rise to 15.2 percent if rates are implemented as announced. This is according to Bloomberg Economics. It's up from 13.3 percent earlier and significantly higher than the 2.3 percent in 2024 before President Trump took office. Just today, the latest, the president imposed a 50 percent tariff on Indian goods to punish the country for buying Russian oil. That's the highest tariff in Asia. I'm wondering how you're looking at the fraying relationship between the U.S. and India and what's at stake more broadly when it comes to this tariff. importantly what we should understand and my colleagues the budget lab are hard at work by the way updating our estimates with respect to what happens to the effective tariff rate and what happens to the type of revenue that we're going to see coming into this country but roughly speaking you've seen about an eightfold increase in the average effective tariff rate over the course of the last eight months of this administration bringing in about three trillion dollars of revenue into the country over the course of the next decade.

33:00Importantly, and this goes a bit to your point, Tim, it's never been super clear to me what exactly the objective is of this type of trade policy and where exactly it is that the administration is hoping to land. Because part of what you've seen articulated is that this is really about sort of China and national security and being sure that our adversaries are held at bay. In that environment, I mean, you really are quite worried about the idea of alienating allies and being particular with respect to not just India, but if you think about Canada and Mexico and other countries where traditionally they've been very strong allies of the United States.

33:39And in fact, we've been encouraging of more manufacturing to shift, particularly to India and Vietnam, exactly because it shifts away from China. And so a little bit feels like this policy has been kind of incohate and all over the place. And it's hard to analyze exactly why it is we're doing what it is that we're doing in order to be able to try and judge any success. What I can say is as a result of the tariffs so far, prices are going up and going to go up further. The economy is going to be smaller and it doesn't seem like a win from the perspective of the American consumer or from American businesses.

34:17I'm glad you brought that up because I'm curious if you think this will undo all the years of goodwill that the U.S. and India have built. Well, I think that I'm worried about, frankly, is that you are in a situation where we are very exposed to particular relationships that it's taken. And this actually relates to our conversation about the Federal Reserve in that a lot of this sort of goodwill that you're describing are things that it's taken decades across administrations. to try and build the types of working relationships with our allies that have made us this global hegemon and have made us a real marker of stability in the economy, a place that other countries want to invest in and other investors, both domestically and internationally, are keen to spend time in and around.

35:03And so what you worry about in some sense is not just are you alienating one particular ally or are you moving us, sending some other countries closer into the arms of China. Of course, you're worried about all of that. But also, I think what you're worried about is the general sort of chaos of not exactly knowing where these tariffs are going to land, not knowing if it makes sense to try and shift part of your manufacturing supply chain into India, because if India's effective tariff rate is 50 percent, it's no longer the type of place where you're going to want to be pursuing a lot of that type of business.

35:39So I think it makes decision making really complicated for the United States and for the businesses that are in this country. And it also runs real risks geopolitically that are pretty concerning. I promised we'd go everywhere. We have a few minutes left. And I want to talk a little bit about the labor market and productivity in the context of record low birth rates in the United States. It's immigration that has come down quite a bit during this administration and what it means for a workforce moving forward. How do you weigh those two things? It's so interesting because I was actually talking to some colleagues or some friends who work at the Congressional Budget Office who have said that one of the reasons why you have productivity growth over the course of the next decade, that their estimates are going to average in the 1.82 % range, sorry, GDP growth in the 1.82 % range over the course of the next 10 years is precisely because it's on the back of an increase in labor supply that comes from immigration.

36:45And the reason why that's so important is because, as you're describing, Tim, we have an aging population in this country, so a big chunk of people are going to age out of the labor force. It's really important that you have that supply coming in. In a world in which you don't have that supply coming in meaningfully and you've kind of shut down pathways to immigration, as you've seen policy-wise over the course of the last many months, you start to lose a very significant driver of labor force growth, and then you start to lose a very significant driver of productivity and broader economic growth.

37:16The thing that's interesting is it's happening at the same time as you're seeing potentially this productivity revolution that's coming from artificial intelligence. So in some sense, it's hard to know exactly how to disentangle those two effects as we watch the direction the economy is going over the course of the next many years. But restricting labor supply is going to have a pretty meaningful impact, particularly on sectors of the economy like construction and manufacturing. But with AI investment booming, do you think that AI will be able to offset the lack of workers, whether in relation to immigration, the supply of workers that we have or are we facing right now?

37:55It's kind of hard to answer that question right now in some sense because it's hard to know exactly what to make of the very significant capital expenditure investments we're seeing in AI and hard to know what to make about the role that AI is having in the labor force thus far. There's a great new paper by Eric Brohn-Austin and co-authors where they look at the extent to which you're actually starting to see displacement in the labor force that has to do with artificial intelligence and its growth and usage across different sectors of the economy. And they do find that you're starting to see, particularly for younger workers who are in the most exposed industries, you're starting to see actual impacts with respect to their possibilities of labor force entry.

38:39And so I do think that there is going to be an effect here that's meaningful. It's just really kind of early innings with respect to this type of productivity change and shift and early innings with respect to knowing whether AI is really a complement or a substitute for other aspects of the labor force. Yeah, Natasha Sarin, co-founder and president of the Yale Budget Lab, professor at Yale Law School and the Yale School of Management. Thanks so much for joining us. This is Bloomberg. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

39:15This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. Globetrotters hunting for airfare bargains are in for a rude awakening. as the days of stumbling across a cheap seat on a popular flight could soon disappear. Bloomberg's Wan Ha reports that airlines from Delta to Virgin Atlantic are adopting artificial intelligence to change seat prices more quickly by weighing dozens of variables in real time, helping capture more revenue while shrinking pricing gaps that once allowed travelers to find bargain fares. Machine learning models can more accurately forecast demand by analyzing historical booking patterns, seat inventory, and seasonal trends, while also continuously tracking competitors' fares and capacity changes to update prices in near real time.

40:03The technology could lead to higher fares on busy routes as airlines pack flights closer to capacity, but may also result in lower fares on off-peak and lower-demand routes. That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com today by selecting Work Mode. available on Plus and Pro Plans. Whether you're planning a big tech event, launching a new campaign, or just stocking up on team gear, finding the right promotional products makes all the difference. 4imprint offers thousands of options from on-trend apparel and premium drinkware to tech, totes, and giveaways so you can find the right fit for any audience, purpose, or budget.

40:49You can customize it all. Your logo, your message, your look. And many items come with no setup charge to help you save. And if you're really watching the bottom line, you'll find standout choices at every price point so you can make a real impact while staying on budget. Plus, you'll get expert help, fast turnaround times, and their 360-degree guarantee. So you can be 4imprint certain your order will arrive on time and look exactly right. Whatever your goal, 4imprint makes it easy to find your perfect promo match. Explore the possibilities today at 4imprint.com. 4imprint. 4certain. Let's talk about healthcare for a second.

41:25It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling. The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day. They're a healthcare company linking patient care and pharmacy services and using data and technology to drive the whole system so care is connected, not complicated, for patients and providers. Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in-home care, and then using technology to make sure they all work together.

42:02Technology designed to help doctors spend less time on busy work and more time with their patients. And those prescriptions? Optum is working to bring costs down, save patients money, and make it easier to get refills. Little by little, Optum is helping make healthcare work as one for everyone. Head to business.optum.com to see how.

42:49Let's create smarter business. IBM.

43:19In retail specifically, Kohl's shares surged after the company offered a more optimistic full-year outlook. Abercrombie and Fitch shares, well, they've been all over the place, as high as 3.3%, as low as down 10%. Investors are trying to decipher a mostly and modestly better than expected quarterly performance. Back with us, to talk retail and more, Dana Telsey is here. She's the founder and CEO and chief research officer of Telsey Advisory Group. She joins us here in the Bloomberg Businessweek studio. So, Dana, we still have to hear from Victoria's Secret, Dick's Sporting Goods, Dollar General, Best Buy, The Gap, Macy's.

43:52But we've heard from a lot of the big ones, Target, Walmart, and the like. It's not a monolith by any means, but how are retailers doing? First of all, thank you for having me. I think retailers are doing OK. They're navigating this environment very well. Navigating it because sales strength exiting the second quarter is continuing. You're seeing the fact that consumers may be buying a little bit earlier to avoid any of the price increases, given the goods in the second quarter weren't as high tariff as what you may have. And you know what else they're doing? Marketing spend is increasing. Product innovation is driving conversion.

44:29And denim jeans are working. You're seeing across the board, whether it's Kohl's, whether it's any of the other retailers, wide leg baggy is hot these days. Like I'm in seventh grade all over again. That's what it is. Keep repeating seventh grade. Yeah, it's what we wore. It's crazy. Yeah, that's what's happening again. And the tariffs, yes, they definitely are an uptick. And you're hearing that consumers overall, we don't know what they're going to react to these higher prices. They're first expected to come late Q3 and into Q4. But the retailers are managing, frankly, a little better than what I would have expected.

45:05So you mentioned sales strengthening. Do you view this as a sign of durable consumer strength or more like pre-tariff buying or because of the great promos we're seeing? How do you assess the health of the consumer? I think the health of the consumer is pretty much okay. I think consumers are spending deliberately. I think the high end is traded down. We've consistently heard of Walmart getting the biggest growth from some of their higher income customers. You're seeing the Ralph Lauren's or the Tapestry drive average unit retail selling price increases with product innovation. And frankly, look today, hey, Hollister delivered a double-digit same-store sales increase, which was impressive.

45:42And you look at Kohl's basically improved their proprietary brands because that value customer wants to see newness in proprietary brands. And let's not forget, we're going to get the last off-pricer tomorrow, but TJX and Ross were also solid. Consumers are buying ahead of price increases. Retailers are delivering product newness. It's back to school season, and everyone's still being discerning. Another thing I'm looking at is retailers are still investing in store openings and remodels. So how much is that translating into traffic and conversion versus just being more defensive? I personally shop online and I don't go to stores anymore, but it seems like people still do.

46:21They do. When you think about store openings and retail real estate, there is more demand than there is supply. There's not a lot of new development. Any of the closures that you've had, companies and retailers are taking them. The growth of whether it's a five below a TJX, a Ross Stores, a Burlington, there's hundreds of stores that can open. You've seen the landlords overall pivot. Basically, grocery anchored shopping centers can be lifestyle also and vice versa. Wherever the consumer is located and near, it's more a focus on where can I get the goods? And yes, online is still there, but it's not either or, it's both.

46:57We got to talk about these India tariffs, 50 percent on the country. It's upending ties with Modi and with a long time and an ally that wants to even become closer to the United States. Exporters of clothing, footwear and small manufactured goods like toys are bracing for falling orders and possible job cuts. What's going to happen as a result of these tariffs? I mean, we saw it when it was just so high on China, too. Retailers work to do three things. They diversify their sourcing as fast as they can. They share the expenses with the suppliers and manufacturers. They raise prices to the end consumer.

47:32Hard to do this so quickly. And it's an obstacle. There's a great chart in the piece that comes from data from the White House. And it shows that India tariffs are the highest of any Asian nation, 50 percent. But other countries, Laos, Myanmar, 40 percent, China, 30 percent. You've got Sri Lanka at 20 percent, Taiwan, Vietnam, Cambodia, Indonesia. I mean, these places I'm mentioning all export to the United States. Many of them are areas that have been diversified to away from China. So you can only diversify so much if everybody has tariffs. Exactly. And you can't come back to the United States for all intents and purposes, given you don't have the labor and it's prohibitively expensive.

48:14What we've seen happen is we've even heard of some retailers who diversified away from China. They went back to China because the tariff became a little bit lower than some of these other places. It is moving pieces all together, and it's not staying stable. When do we see it hit the actual price of these goods? Because up to now, as you mentioned, retailers are eating some of this. But how long can that go on? Since April 16th, we've had a price tracker of 80 items. We price it every single week. We've seen some increases, but not across the board. Footwear is where we've seen the increases. expecting that by the end of the third quarter into this fourth quarter, we're going to see more expansive price increases and we're still not seeing it holistically across the board.

48:59We also have to talk about interest rates and with the potential to lower interest rates. How much support could that provide the shoppers for discretionary spending when it comes to the holiday and in the lead up to 2026? Just the fact that we'll have lower interest rates is a positive for discretionary spending. It's something that takes months in order to really put in action. But the feel-good factor of it will lead to a more productive spend. At the same time, when you're looking at the labor market, we watch it carefully because we can't see that labor market weaken because that will ultimately impact holiday season sales.

49:34The strength of back-to-school is a good pathway to holiday. It seems like broadly you sound really bullish. What could be a headwind then? What could really buckle all of this development to the downside? Labor weakening, price increases coming, and not really, and the consumer pulling back. That's why we say our theme is everything's good, but. But will consumers slow down? But will retailers have the inventory? Second quarter so far, though, coming in better than expected. How's ultra luxury doing? Slowed. Ultra luxury slowed. I think that ultra, you're not getting as many international tourists here to the US.

50:10You're seeing the Chinese not spend as much as they had been. and you're seeing prices for some of the luxury brands, did they just get too high? Interesting. So what are they doing to... Well, look what the newest thing that just happened earlier this week. Louis Vuitton introduced a beauty line for Louis Vuitton. This is the$160 lipstick? It is the$160 lipstick. But that is the newest thing they've introduced. And so they're diversifying the categories that they compete in. Is that going to work? Everyone wants a little bit of luxury. $160 compared to Hermes, which is$80 compared to Chanel, which is$50 or under.

50:47Let's see what happens. But you know what? One of the things is for all different types of luxury, consumers will pay up if there's exclusivity and a desire along with authenticity. So it seems like consumers are trading down and we don't see a lot of trading up. Is that what you're saying? Yes, we're not seeing the trade up like it had been before. If you look at the Walmart numbers, you look at the TJX, they're searching for value to maintain their pocketbooks. Maybe the lipstick will change it, Tim. $160. You can do it. I heard that there's like a really nice case that it comes into. And that's like a big part of the appeal.

51:18And then the refills don't cost$160. Oh, great. In that case, it's a real deal. Hey, Dana, always great when you join us on Bloomberg Business Week Daily. Thank you so much. 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.

51:57Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy, and everything else. So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person how you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. As industries evolve faster than ever, companies need an environment that accelerates strategic growth.

52:32And Michigan delivers on that promise. From emerging startups to global enterprises, Michigan offers what executives value most, a resilient, innovative ecosystem, diverse communities that attract top talent, and a quality of life that supports work-life balance. With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan, pure opportunity. Seize your opportunity at michiganbusiness.org. Whatever your goal, trade show giveaways, client gifts, or team gear, 4imprint has the promo products to match. With thousands of options, from apparel and drinkware to tech and totes, it's easy to find the right fit for your brand and budget with standout choices at every price point.

53:13And with their 360-degree guarantee, you can be 4imprint certain your order will show up just right, right on time. Explore more at 4imprint.com. 4imprint. 4certain. When you're running a business, the best days are the ones where priorities stay on track. For midsize and large companies, risk can affect multiple parts of the organization at once, from property and liability to cyber and regulatory challenges. At that level, managing risk becomes an ongoing discipline. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. And when losses do happen, that work is paired with insurance coverage shaped by years of underwriting, risk engineering, and claims experience.

53:56Learn more at thehartford.com slash risk mitigation. Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut.