Trump Pushes Powell on Interest Rates as They Tour Fed Building

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1:44Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Business Week Daily, reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Masser and Tim Stenevek on Bloomberg Radio. I want to go now to just some updates that we heard from the president. Another redhead crossing the terminal. All these headlines coming together now. The president says firing Jay Powell is unnecessary. The president saying the Fed will do the right thing.

2:27The president was asked specifically about other names that he has in mind for the next Fed chair. He says, I have a name in mind, maybe three names in mind. He did joke with Senator Tim Scott that he would be a good pick, but he's not going to leave the Senate. The president said and reiterated there's no pressure for Powell to resign. All right, let's head back to the nation's capital and to Bloomberg News Federal Reserve reporter Jonel Marte joining us. Interesting to watch the last hour, the tour between the president and the Fed chair Jay Powell. Obviously, some back and forth in terms of the cost of the construction being done at the U.S.

3:03Central Bank. Like, jump in. Tell us what you take away from watching the interaction and some of the commentary that we got from President Trump that followed. So it appears that the president, you know, he did have an opportunity here to really hammer the Fed, perhaps even more so on what's going on with their renovation. And, you know, he's been very critical of them on social media, as you've noted. And he didn't necessarily do that. He kind of made some comments about how I sort of understand what happened and, you know, these things get more expensive over time. And he, of course, he did say I would have done things a little bit differently, offered his input on and maybe he would have avoided some of these costs.

3:49But the bottom line seems to be that he was not he did not escalate the confrontation. If anything, it felt like a little bit of a de-escalation here. And it was really another opportunity for him to bring back the message that he has been sending, which is that he wants to see lower interest rates. He would love to see lower interest rates. And, you know, it is a reminder that this is a White House that is trying to exert more influence over these kinds of decisions that are typically viewed as independent central bank decisions. What do you make of any central bank head or the head of the U.S.

4:30Federal Reserve? And I just think about every press conference that we see Jay Powell or any forum that he's in, you know, certainly very careful and thoughtful about what he says because he knows what he says can certainly impact financial markets. And I'm just curious about the back and forth of the Fed share, certainly caught off guard, safe to say, right with that new estimate on the costs, and then kind of correcting the president or saying, well, wait a minute, let me tell you what that's about. It was a little tense. So what do you, I don't know, what's the thought in terms of the Fed share kind of pushing back there?

5:06Yeah, of course, it was a unique image to see them side by side. usually they're not interacting too much in person and has, as we've noted before, it's really uncommon for the president to even go to the FAD, right? Before this, we hadn't seen it since 2006. So definitely a big image to see them together. And I guess not all too surprising to hear Powell push back. I mean, he's very much focused on numbers and the data. And if he hears a number that he's not familiar with, he wanted to see, you know, they handed him the paper and then he clarified, okay, that includes another renovation. that's already done, that was done several years earlier.

5:45So, I mean, I think that's what we have seen from Powell. You know, he's really likely to say, and his message has been, that he's focused on doing his job, focused on the economy. But, of course, if he hears a number that doesn't sound right to him, you know, he will speak up. I can only think about what happens next week. Of course, we've been in this quiet period, so we haven't heard from a lot of Fed officials. ahead of the meeting that starts on Tuesday. We hear from Fed Chair Jay Powell on Wednesday. That's the 30th. And I'm wondering if you're going to get any answers or we're going to get any answers in Washington from the Fed Chair, because I know that reporters who cover the Fed are getting their questions ready to ask him about this tour and ask him about the latest criticism.

6:30So next week, for sure, we are anticipating that he will be asked about the tour and the renovations themselves. themselves, they've gone out of their way to show the press around, to provide more information online about this renovation, because it has become a big line of attack for Republicans that want to maybe push Powell out or put more pressure on the Fed. So it's going to come up next week. We still are largely not expecting for the Fed to lower rates at this meeting, according to what investors are counting on, despite we are seeing at least two Fed officials, two Fed governors that were appointed by Trump saying that they would support a rate cut at this meeting.

7:14So, you know, it's an interesting time. We could have one or two Fed governors dissenting. But largely speaking, we're probably going to see Fed Chair Powell really kind of keep his options open, maybe more of the same, calling for more economic data before they make a big move on rates. You cover the Fed. Are you hearing anything about all of this pressure and constant attention on Fed Chair Jay Powell, what it might be doing to him? I can't speak to exactly what it's doing to him. It is something that people are watching. It's dismounting pressure on the Fed. It's not something that we have seen in recent times.

7:55times but of course it's not the first time that we've seen a president come after the Fed like this or I don't want to say like this but come after the Fed and try to influence what they do but clearly Powell has just kind of held his ground and been a staunch defender of the independence of the Fed. Would I be bad to say if there's going to be oh sorry go ahead. I was just going to say so is that it for criticism of Jay Powell do you think they kind of got to meet in person and things softened between them in person do we see the president lay off him a little bit i can't speak for trump uh but i mean i guess that would be surprising given how much he has said and how how critical he has been i mean i don't anticipate that this will mean that he's going to stop calling for lower rates yeah i wouldn't say i wouldn't take coming out of this in a big way the handing of the papers this iconic exchange there's going to be something that comes out of this.

8:51Janelle, thank you so much. Janelle Marte covers the Fed here for Bloomberg News, joining us from DC. This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. Bill Gates Breakthrough Energy Ventures is betting on a cheaper way to produce clean jet fuel and made its first investment from a fund that is backed by Alaska Air, American, and several other carriers. The investment is aimed at accelerating the commercialization of clean aviation fuel. The recipient is Boston-based Lydian, which is developing lower carbon jet fuel made from hydrogen and carbon dioxide, and is one of a growing number of companies developing next-generation clean jet fuel technology.

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11:11This product is not intended to diagnose, treat, cure, or prevent any disease. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Intel gave a stronger than anticipated revenue forecast for the current period. It offered investors a glimmer of hope. this as they wait for a turnaround under new CEO Lit Bhutan. Third quarter sales,$12.6 billion to $13.6 billion, the company said in a statement on Thursday. Analysts on average have projected a number at the low end of that range.

11:50In the after hours and ahead of that call starting, the stock moving higher by about 1.5%. The company also mentioned layoffs that will reduce staff by 15%. I want to bring in Jay Goldberg. He's back with us. He's senior analyst, semiconductors and electronics at seaport research partners he joins us from san francisco jay you've got a cell writing on intel an 18 price target updated just in the last week or so does this print change your view at all no it doesn't and i first i want to preface this by saying it pains me to say this because i want intel i really want intel to succeed america needs intel to exceed but they got a lot of work to do for them and the real the thing that matters most is progress on their foundry.

12:32And that's going to be, that's still a ways out. And so in the interim, we're just looking at product. And this quarter, it looks like product did a little bit better than expected. Data center looked a little bit better than expected, but unclear how they got there. I'm going to listen to the call and see what they say about PC Outlook. I don't have a lot of confidence that they can sustain that for the year. When you say America needs Intel to succeed, I think of what the administration before this administration did with the CHIPS Act. And I'm also looking at what this administration has promised when it comes to its own industrial policy.

13:06Is the U.S. doing enough or should the U.S. do anything to help Intel succeed at this point? Or is this a lost cause? I think Intel is savable. I think Intel certainly has the technology to do advanced semiconductor manufacturing. You look at their next process called 14A. It looks very promising and very competitive. It's just a question of the economics more than anything else. Can they get it out the door in time? You know, there are a lot of smart people at Intel. They really know their stuff. And so if they can get the economics to work on that next process, it looks much better for them.

13:41And so I don't know, you know, I'm not a policy guy. I don't know what the right approach is. I think there are things the government can do to make it easier. Lots of things have been suggested. But I think ultimately Intel can succeed commercially with their foundry business. They can do it without government support. Government support, though, wouldn't hurt. Interesting. Okay. Is there something that could come up, Jay, on the call, especially when it comes to the foundry business? Are Kujan Sabani saying the same thing, that this is crucial to their success going forward? Is there something that they could say that would make you have a little bit more hope for their outlook?

14:23I'm really curious to see what they say about their data center business. They don't have a coherent, complete AI strategy right now. And they're aware of that. And I'm really interested to hear what Lip Bhutan has to say. He's certainly very smart and knowledgeable and well-connected. They need more than they have. They just really today don't have anything that could conceivably compete against NVIDIA. And they probably won't for a while. And so which way are they going to go on that? Are they going to try to compete with NVIDIA long term? are they going to just try and make the best of it? They still have a good CPU core franchise.

14:57So I want to know how that is playing out in the marketplace where you're seeing so much share, so much wallet share is going to NVIDIA. What's Intel going to do in that world where now NVIDIA is the dominant player in the data center and Intel is sort of playing second fiddle, which is a role they haven't, you know, that's new to them. They used to be the dominant one. So how do they fit into this order? Sorry, is there room in the market for second fiddle? Is there demand for second fiddle? or does nobody want that because NVIDIA, they want to get the best or what's viewed as the best from NVIDIA?

15:27So there are two sides of that. One on the GPU side, which is what NVIDIA makes. I think the market absolutely wants an alternative. That's not Intel today, right? Probably the closest alternative they have is the internal silicon that's coming out of the hyperscalers and AMD. Intel's not even in that race right now. Separate from that, there's a conversation about CPUs, which is Intel's core product historically, and they still have good CPUs. And there's a lot of money they can make if they can figure out the right way to position those CPUs in the AI data center. And I think that's where I'd like to see them put the most effort.

16:04It does feel like they've done a lot, though. And they did talk about, Jay, that they see this restructuring substantially complete by the fourth quarter of 2025. So the fourth quarter of this year. I mean, he's getting things done. I don't know, like how much longer do you think, you know, they're going to need in order to really get this company back on a course that keeps them around for a lot longer and and keeps them or gets them back to being a significant competitor here in the chip space and the evolution of where we are? Yeah, I mean, Intel at heart, the problem is cultural. They used to be the dominant player, and now they're not anymore.

16:48And they need to reorganize, not just the number of people, but sort of how everyone thinks about the problems facing them. And that's hard to do. And I think Lipu can bring that about. He's done it in the past. But that kind of change takes a while. And I know that the headline figure is they're going to cut 15 % of the workforce. I saw somewhere else that they're actually talking about at the management layer, they're cutting 50%. 60%. And again, this pains me to say, because I have a lot of friends who work at Intel, but the company needed that, right? There's that middle management function has just gotten too bloated.

17:19And so, yeah, I agree. This is a positive step. It's a step in the right direction. And I apologize to my friends who are losing their jobs because of it, but this company needed to do this. Hey, I wanted to shift gears a little bit because we're going to have NVIDIA report at the end of August. So just about a month away, August 27th is when we will see earnings from that company. You have a sell rating on NVIDIA, a hundred dollar price target. We've spoken to you about it in the past. You are the only analyst on the Bloomberg terminal that has a sell rating on NVIDIA. Right now, the stock's at about$173.70.

17:58Give us your thesis here, especially in a year where NVIDIA stock is up close to 30%. So my thesis has always been that NVIDIA is a good company and makes good products. For me, it was much more a question of can they outperform the rest of the industry? I don't think they can. Now, the way we're structured at Seaport, I have a sell rating. I don't have an underperform rating. But that's really how I thought about NVIDIA. They're going to underperform companies like Broadcom, who are powering all the hyperscaler silicon. I think people underweight their story, and I think they have a lot of traction here.

18:35AMD is showing signs of life in GPUs. They have a competitive product now, and they're firing well. And so NVIDIA is going to keep growing, but I think that the stock is going to underperform the broader sector. And, you know, I know it's been up a lot for the year, but it's actually unperformed Broadcom. And I think AMD underperformed my sector in that time. So I think that this NVIDIA suffering from it has gotten so big so quickly, it's hard to keep the hits rolling. And I think that's the issue. Good company, but like they can't keep growing like they have been forever. All right. We need to run.

19:12We're so glad we could touch base with you again. Jay Goldberg. He, of course, is a senior analyst, semiconductor and electronics at Seaport Research Partners. We've talked with him before. He's got a sell rating on Intel. A lot of headlines. And I'm just going to pull up once again what we're seeing in terms of Intel here after the close. Now just up about six tenths of a percent. So we saw a much stronger rally earlier in the session. This is after the company gave an upbeat sales forecast after PC demand picks up. But there's a lot more. And we're waiting that call with analysts and investors.

19:42We'll track those headlines for you. This is the Bloomberg Business Week Daily podcast. Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg 1130. Well, shares of Alphabet, they are higher today off their best levels. They were up as much as 4 % right now, a gain of just shy of 2%. The Mag7 stock that has been one of the largest market caps out there said demand for AI products boosted quarterly sales and now requires an extreme increase in capital spending.

20:21So heightening pressure on the company to justify the cost of keeping up, Tim, in the AI race. We're delighted to have with someone who's closely followed for her coverage of the media, entertainment and Internet space. With us from Los Angeles, Laura Martin, senior analyst over at Needham & Company. I want to start with Alphabet, where we're going to talk about a lot with you over the next few minutes. You've got a buy rating on the stock at$220 a share. Price target trading at$193 as we speak. It bounced around aftermarket yesterday. It's gaining today. What's important to you from this latest quarterly update?

20:53The single most important number to offset the bears is the search number. So search revenue up 12 % was well above the whisper number of 10 % growth and above the Wall Street consensus number of 9 % growth. And they also had 4 % click volume, which basically is the same as last year. And that's up from 2 % click-through rate in the first quarter, which is positive because people have the bear case here is that generative AI answers lower than the economics of Google Search, which is the big money engine here. So the single most important number was that Search grew ad revenue 12%, which was 300 basis points above consensus view.

21:35The second most important number is cloud, right? They're still out of capacity with cloud, but their cloud business grew 32 % at a 20 % margin. So that's fantastic. So they're really pricing up now that they have capacity constraints. And the third most important number is YouTube. YouTube grew 13 % of revenue. And we think it's worth$73 a share here if it was separately tradable and not confined within the alphabet conglomerate. So, but I would say those are the three most important segments that people are talking about. But the bear case really is highly focused on the search revenue growth.

22:10And that's exactly where I want to go right now. Going into this print, there was so much concern about the cannibalization of traditional Google search. Why aren't we seeing that? So what they're saying is that what happens when you have those answers, when you put a Google search and then you get an answer is that people are spending 10 times more time, 10 % more time asking the next question, asking the next question. And that the shortfall in clicks per query is made up by the fact that people spend 10 % longer, which then lets Google serve more queries or more ads. So that's what they're saying is that the monetization is about equal.

22:52That's their words, about equal. But I think part of it is the extra time people spend using the answer format is offsetting the actual, you know, the downdraft in the economics per query. Hey, the extra spend, the up again CapEx, initially everyone was saying, well, that's why the stock traded down in the aftermarket. It made some folks or at least some investors, it felt like, initially nervous. What is your take on that? I think our own Mandeep Singh was saying, well, listen, it sounds like they're getting the demand and they're spending to meet that demand. Yeah, I mean, I would say that. I would say the other thing that's going on is that I think one of the reasons the stock was a little volatile is the operating income grew 14 percent, the top line grew 14 percent, 13, 14 percent.

23:40And it sort of looked like there was minimal operating leverage. But what they told us on the call that was buried in the financial statements is those costs included$1.4 billion fine, legislative fine, regulatory fine. So if you subtract that just to look at costs, the most important point we would make that I think largely is being missed, it doesn't have to do with revenue, has to do with the fact that by integrating generative AI into every aspect of their business, they've got really accelerating revenue, which everyone's focused on, but their costs are going down. OK, that's not fair. Their costs are just not going up as fast.

24:18There's a lot more operating leverage here if you exclude the fine. So I think that's why I think once they said there was this big fine in the costs, people realize that generative AI is really lowering or increasing the productivity here. And so the operating leverage is margin expansion is faster than people think at a time when revenue is also accelerating over consensus view. One thing I loved in your research, and you put this right up top, Laura, is you said we like Google's strong strategic position as number one in search, number one in streaming, YouTube, number two in mobile, Android, number three in cloud, number one in autonomous driving, Waymo, which Tim and I are both in love with.

24:55And you say LLMs make data more valuable and Google's data is best in class. Again, your view. Is Alphabet in many ways the one to beat? And why hasn't the stock been, I don't know, doing more this year? You know, I think Google, So I would say their execution has been very haphazard. It's not. And Wall Street really prefers leaders that lead from the front, like Meta, like Mark Zuckerberg. We like, you know, visible, clear, visionary leaders. And that's not what's going on here at Google. But, you know, Google, just sort of despite itself, really does have the human capital and culture and financial resources to fund what will be a retooling of American business, which is the generative AI backbone infrastructure that they're building.

25:51and they're leading by executing within their own. They're showing what's possible by executing, implementing generative AI into everything they do, every product they have and every cost center they have. So this is what's about to happen to America over the next decade is companies that follow Google's lead will have increasing margins and accelerating revenue. And if you don't, which requires a cloud, by the way, you can't do this without cloud. If you don't, you will go out of business, in my opinion, because the companies that use generative AI to increase productivity and margins and increase revenue will get higher multiples from Wall Street.