Trump Administration Prepares for Warsh Fed Chair Nod; Government Shutdown Averted

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens It's smart, calm and to the point And it fits into your morning You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris On Apple, Spotify, YouTube or wherever you get your podcasts

1:02Bloomberg Audio Studios, podcasts, radio, news. Good morning, I'm Nathan Hager. And I'm Karen Moscow. Here are the stories we're following today. Karen, we begin with President Donald Trump's choice to lead the Federal Reserve. The announcement is expected later this morning. Bloomberg's John Tucker joins us with the very latest. John, what do we know? Well, Kevin Warsh is the Trump administration's pick to be the next chairman of the Federal Reserve, at least according to our sources, Nathan. Without mentioning Warsh, the president last night said an announcement would come this morning. Just an outstanding person and a person that won't be too surprising to people.

1:46The 55-year-old Warsh served on the Central Bank's Board of Governors from 2006 to 2011 and has advised Trump on economic policy. This would mark a comeback for Warsh, whom the president passed over for the job back in 2017 when he selected Jerome Powell. Now, for the moment, investors see Warsh as less supportive of deep interest rate cuts. In the past, he's warned of inflation risks and also delivered more recent calls for the Fed to reduce its balance sheet. And the confirmation, that's not necessarily going to be smooth sailing. A key senator, Tom Tillis, the North Carolina Republican who sits on the banking committee, has vowed to block any of the president's Fed nominees until the Justice Department resolves an investigation into the central bank's renovation of its Washington headquarters.

2:33In New York, I'm John Tucker, Bloomberg Radio. Well, John, what's the market reaction to our reporting? This is almost the knee-jerk reaction, Nathan. As a result, stocks fell, the Treasury yields they pushed higher, the dollar rose, gold slid, traders dialing back bets on policy easing under Warsh. Warsh, but you have to keep in mind that Warsh has also aligned himself with the president in recent months by arguing publicly for lower interest rates, going against his longstanding reputation as an inflation hawk. So pick your stance, Karen and Nathan. All right, John Tucker, thank you. We want to stay in Washington, and President Trump has reached a tentative deal with Senate Democrats to avert a government shutdown over immigration raids that have sparked a nationwide outcry.

3:19The president is urging both parties to vote for the agreement, but House Speaker Mike Johnson says there might not be time before government funds run out tonight. It may not be possible. We have a rule of a 72-hour notice for a return, and I can try to truncate that, but I've got people literally spread around the world right now, and we have a snowstorm. Along with those comments from House Speaker Mike Johnson, Republican Senator Lindsey Graham has placed a hold on the bill. The agreement would fund the Department of Homeland Security for two weeks to allow time to negotiate on Democrats' demands.

3:52They want DHS agents to wear body cameras, obtain warrants, take off masks and no longer conduct broad immigration sweeps. While White House boarders are Tom Holman, Karen says broad sweeps will no longer be the strategy when it comes to immigration enforcement in Minneapolis. Target enforcement operations, the way we've always done it, I think we got away from it a little bit. it and we're going to make sure we do target enforcement operations. And look, I will say it again, you know, we are not surrendering our mission at all. Borders are Tom Homan spoke at a news conference heard live on Bloomberg radio after President Trump put him in charge of the operation in a bid to deescalate tensions.

4:32California Governor Gavin Newsom is blasting the move. If Tom Homan, who was accused of a$50 ,000 bribe, where charges disappeared, speaking of disappearing, cash, FBI, is the adult in the room. We are in more trouble than any of you think. California Governor Gavin Newsom has clashed with President Trump over National Guard deployments in Los Angeles last year. He spoke at a Bloomberg Newsmakers event in San Francisco, and you can catch that full conversation on the Bloomberg podcast page on YouTube. Nathan, let's turn to the weather now, where it'll be another frigid weekend, with the possibility of another winter storm.

5:10And we get the latest with Bloomberg meteorologist Craig Allen. Craig, good morning. Good morning, Karen. And yes, it is bitter cold again this morning. Temperatures, the actual air temperature is near 10. Wind chills are between zero and 10 below from Boston to New York City down to D.C. Now let's talk about the snow. Oh, by the way, before I get there, the cold goes all the way down into deep Florida. Even Miami has the possibility of freezing temperatures over the upcoming weekend. All right. As for that snowstorm, there are winter storm warnings in effect for the northern sections of Georgia through the Carolinas to southern Virginia, just to the south of the D.C.

5:52area. Very little expected around D.C. It moves off the coast, could brush eastern Long Island. New York City, not likely to see very much. You know who's going to get the worst of this? It would probably be Cape Cod. There will be a considerable amount of snow and wind, maybe even blizzard conditions for a brief period of time. But Boston, this to show you how close things are, Boston will probably end up with very, very little, just strong gusty winds. So a very tight gradient on this. But I think the worst of the snow will stay offshore. All right, Craig, thank you. Of course, we're going to be checking back with Bloomberg meteorologist Craig Allen throughout the morning as we continue to track the storm.

6:31But now let's go back to the markets. As we mentioned, futures are lower to close out the last trading day of the month. So far this year, the S &P 500 is up 1.8 percent. But, you know, that's just one month. It is January. Apple shares are little changed in early trading. The iPhone maker delivered record quarterly sales and a better than expected forecast for the current period. But it did warn that rising component costs are threatening to squeeze margins. Bloomberg's Mark Gurman has details. Massive, massive quarter. This is a home run. their greatest quarter ever by orders of magnitude. It's a gigantic beat on overall revenue.

7:09China is back. You have a big beat on the iPhone in particular,$85 billion quarter. It's just insane. The installed base,$2.5 billion. The numbers are just beyond excellent. Bloomberg's Mark Gurman notes Apple had its biggest sales quarter in China in four years. Well, Nathan, it was quite a different earnings reaction for another tech behemoth. Microsoft shares plunged 10 % yesterday, wiping out$357 billion in market value. That's the second largest single-session drop in stock market history. The fall comes after Microsoft showed record spending on artificial intelligence as growth at its key cloud units slowed.

7:49The only bigger one-day valuation drop was NVIDIA's$593 billion route last year after the launch of DeepSeq's low-cost AI model. Separately, Microsoft reached a$750 million deal with AI startup Perplexity to use its Azure cloud service. Launching shares of SanDisk as well, Karen. They are soaring by 20 % in early trading. The computer hardware and storage companies quarterly results easily blew away analyst estimates. SanDisk was already up 127 % so far this year before those earnings. Nathan, Elon Musk is considering a potential merger with a few of his companies. on Bloomberg's Alexis Christophorus joins us with the details.

8:30Good morning, Alexis. Good morning. Yeah, it looks like Elon Musk is keeping it all in the family when it comes to his pending SpaceX IPO. Sources telling Bloomberg that SpaceX is considering a potential merger with Musk's Tesla or his artificial intelligence firm XAI. Now, any deal could attract interest from infrastructure funds and Middle Eastern sovereign investors and would potentially require a large financing component. SpaceX is targeting a June IPO that would value the company at a record one and a half trillion dollars. In New York, Alexis Christophoris, Bloomberg Radio. All right, Alexis, thank you.

9:05New York City Mayor Zoran Mamdani says Wall Street's booming year will not be enough to stave off a financial crisis. He says it's worse than the Great Recession nearly two decades ago and the city has a 12 billion dollar fiscal deficit. The mayor spoke yesterday with Bloomberg. The city's relationship with its wealthiest residents, most profitable corporations, also has to change so that we can bring this city back to firm financial footing. You know, as the mayor, I am legally required to balance the budget of this fiscal year and the next. That is something we are fully going to do. In order to do so, we have to deal with these structural problems.

9:39New York City Mayor Zoran Mamdani was a guest on Bloomberg's Balance of Power. For the full conversation, you can find that at the Bloomberg Podcast channel on YouTube.

9:50Time now for a look at some of the other stories making news in New York and around the world. And for that, we're joined by Bloomberg's Michael Barr. Michael, good morning. Good morning, Karen. A Minnesota man is charged with impersonating an FBI agent and trying to spring accused killer Luigi Mangione from jail. Mangione has pleaded not guilty to charges of killing UnitedHealthcare CEO Brian Thompson. Federal prosecutors say Mark Anderson showed up at the Metropolitan Detention Center in Brooklyn with a barbecue fork and pizza cutter in his bag. He claimed he had paperwork signed by a judge authorizing Mangione's release.

10:26Meanwhile, Mangione has a court appearance scheduled for today. Officials in Fulton County, Georgia, are vowing to fight a recent FBI raid of 2020 election materials in court. FBI Director Cash Patel says a federal judge determined there was probable cause for the search. The man who served as a Republican lieutenant governor during that time frame, Jeff Duncan, is now running for Georgia governor as a Democrat. I think everybody listening probably recognizes that Donald Trump has weaponized every single department and agency in the federal government. Certainly it feels as though this is the same case with the FBI.

11:03Duncan called it another predictable act by President Trump. A former sheriff's deputy in Illinois is now starting a 20-year prison sentence. It was handed down against Sean Grayson for the shooting death of the Sonia Massey 2024 incident. She had called 911 reporting a possible prowler. Grayson says after he and his partner arrived, he felt threatened when Massey, a black woman, moved toward a pot of boiling water. That's when he fired at her. Cliff Jones, family attorney at Ben Crump Law, spoke after the sentencing. This outcome affirms a critical principle that no one is above the law, and an unlawful use of force will carry meaningful consequences.

11:51Grayson was convicted of second-degree murder. Global News 24 hours a day, and whenever you want it with Bloomberg News Now, I'm Michael Barr, and this is Bloomberg. Karen. Thanks, Michael. Time now for our Bloomberg Sports Update, and for that, we bring in John Stashauer. Thanks, Karen. What a match. In the men's semifinals at the Australian Open, Carlos Alcares trying to complete the career grand slam. He had a two-set lead on Alex Zverev. Zverev came back to force a fifth set. Alcares pulled it out, 7-5 in the fifth. NBA Charlotte topped Dallas, but in defeat, Mavs rookie Cooper Flagg scored 49 points.

12:30The Red Wings, Patrick Kane, passed Mike Medano. Most points in NHL history by a U.S.-born player. That's your Bloomberg Sports Update. Stay with us. More from Bloomberg Daybreak coming up after this. As markets move and headlines break, what matters most is context. A Bloomberg subscription gives you unmatched reporting, sharp analysis, and powerful tools that help you connect the dots. Visit Bloomberg.com slash podcast offer to learn more. Coast to coast on Bloomberg Radio, nationwide on Sirius XM and around the world on Bloomberg.com and the Bloomberg Business App. This is Bloomberg Daybreak.

13:12And it's 514 on Wall Street. Good morning. I'm Karen Moscow alongside Nathan Hager. And we want to get more reaction to our top story this morning. Sources telling Bloomberg the Trump administration is preparing for the president to nominate Kevin Walsh to be the next Federal Reserve Chair. And for more, we're joined now by Michael McKee, Bloomberg News International Economics and Policy Correspondent. Mike, good morning. So, hey, was this choice a surprise to you when we heard about it late last night? It wasn't really. Warsh has been sort of the favorite from the beginning. We knew that Jay Powell's term would be up.

13:48And when Donald Trump was elected, everybody looked back to 2017 when he was almost chosen by the president to be Fed chair. Instead, the president went with Jay Powell, a move that Trump says he regrets immensely. But Warsh has always been in the mix and has been a strong candidate. His possibilities have moved up and down with the news cycles, but it's not a shock that he is the likely choice. Well, tell us a bit about why he's a strong candidate. Well, he has experience, a monetary policy experience, because he was on the Fed from 2006 to 2011. He's also well known on Wall Street. He's been working for Stan Druckenmiller at Duquesne Capital since he left the Fed.

14:31But what really probably appeals to the president is that Warsh has been a strident critic of the Fed, accusing the Fed of a mission creep, of doing too much instead of just focusing on monetary policy and controlling inflation. He's a critic of QE. He He wants a much smaller balance sheet for the Fed. He thinks the Fed could probably give up bank supervision. And he thinks Fed officials over communicate. So if he can get control of the committee, he will probably make a lot of changes at the Fed. And that is something I assume that Donald Trump would be happy with. If he can get control of the committee, you really emphasize that.

15:12So there could be trouble doing that, it sounds like, of course. Well, it depends. A lot depends now on Jay Powell and whether he's going to stick around or not, whether he feels the Fed's independence is threatened. If Powell were to decide that Warsh is good enough and he can quit, then that might open up two other Biden nominees to leave, Philip Jefferson and Michael Barr. And then the president would have a full complement of people on the Fed that he appointed. But it will also take legislation to make changes. So there is the possibility that if the midterms don't turn out as the way the Republicans would like, that a lot of this gets stymied.

15:55But he can still make a very strong imprint on the Fed, even if he's not totally changing things around. Big question, Karen, is what he's going to do about monetary policy and interest rates. The president, of course, wants sharp cuts. Warsh has a reputation as a hawk, which is why we've seen interest rates go up this morning in the markets. So we'll see how he balances that. We will indeed. So what is the next step before we let you go? What happens next? Well, the next step is a formal nomination. And then we have hearing nomination hearing and the Senate has to confirm him as Fed chair. Now, there's plenty of time to do that.

16:35The big question here is whether Senator Tom Tillis of North Carolina will vote for him because Tillis, a key Republican on the banking committee, said he won't vote for anybody until the subpoenas that the administration has issued to Jay Powell are withdrawn. All right. Michael McKee, Bloomberg News International Economics and Policy Correspondent. Thanks for joining us this morning. Nathan. All right, Karen, thank you. Repeating some of our top stories this morning. A tentative deal is in place to avert a government shutdown over the Minneapolis ice surge, but it might not pass before funds run out tonight.

17:08Republican Senator Lindsey Graham has placed a hold on the bill, and the House is out until next week. A powerful nor 'easter is headed for the East Coast this weekend, but the Mid-Atlantic and Northeast may be spared the worst. It's expected to dump heavy snow in the Carolinas, but only give a glancing blow to D.C., New York, and Boston. And Bloomberg News has learned Elon Musk's SpaceX is considering a merger with one of his other companies, Tesla. Sources say the billionaire's rocket company is also considering a tie-up with Elon Musk's AI startup, XAI, ahead of an initial public offering. And we have more on those stories coming up on Bloomberg Daybreak.

18:09just to get your reaction to this record sales quarter for Apple. Sales up 16 % and the revenue projected to be 13 to 16 % in the upcoming quarter. The stock, little change to lower. Gene, what's going on? Well, just I think Mark did a good setup in your segment a minute ago, just kind of enumerating the numbers. They're impressive. It's pretty clear there's like two tracks going on here. One is that the fundamentals of Apple is customers are just loving the products. And this conversation about AI having a negative impact is there really is nothing going on on the hardware side to get people to change their behavior.

18:54And so that has been a big benefit to Apple as they're kind of navigating, improving their AI features. And so what's going on, That's just been, you know, it's hard to get the right adjectives to describe. I suspect Dan's going to do a good job of framing those adjectives in. But, you know, my bigger question is why is the market reacting like it is to these incredible results? Dan, what's your reaction to this market reaction? Like I said, the shares are little change to the downside after a blowout quarter, at least as far as the top line numbers go. Yeah, look, I mean, these are staggering numbers in terms of iPhone, especially what they saw in China.

19:36And to Gene's point, you know, it always puts a great. Look, I think this stock should be up 5 % to 8 % at least. And I think part of it, but Nathan, go back to a year ago. Look at Google. No one would touch it. New York City cab drivers bearish on it. Apple will be Google in 2026. I believe we will sit here at year end, and that's where I think you're looking at 325, 350. And I think this is the first start of what's going to be a Hall of Fame chapter for Cook as he defines the AI in Coupetuna. Just to pick up on that, Dan, is that because of the AI ramp up? It's been a slow go as far as AI goes for Apple, hasn't it?

20:21Yeah, look, they've been on a treadmill at 2.5 speed. I mean, they've been watching it from the stands. But our point, and Gene talked about this as well so much, the Google deal is so important on Gemini. That's the first step to bring a new blood in from the outside. And even some acquisitions are starting to finally change DNA. And I think that's very, very important. What about monetization concerns? We saw that reflected in the reaction to Microsoft's results, certainly, Gene. yeah well with uh i just want to make one more point about apple too just trying to like uh dissect what's going on and why this market reaction is you know dan's talking about the ai i want to put a finer point on that is they really don't give us a ton around the substance of what the a what ai is going to look like and we go from dan and i go from call to call and it's just like euphoric around AI and specifics.

21:19But then you get to Apple and these precious once every three months opportunities, they don't say much to the street. And when they don't really frame in, like for example, they acquired a company for$2 million Israeli AI audio company. That news broke yesterday, QAI. And there's no comment on the call. No one even mentioned it. And I think it kind of speaks to investors just want to hear more. And because of what happened with Apple on the missteps out of the gate, that treadmill speed that Dan's talking about, because of that, Cook doesn't want to say much, which is fine. But that's, I think, what's happening is that disconnect.

21:59You know, on the Microsoft side, it's that small change in terms of how they think about Azure growth has a massive impact on, to the downside at least, on shares recently. Dan, let's pick up on that as far as Amazon. What was your reaction when you saw that plunge in Microsoft stock after their earnings? I mean, look, I don't think that was Nadella, the Microsoft's best call. I think they didn't really give clarity as much about Azure in terms of what growth is going to look like. CapEx, look, we saw it from Meta a quarter ago, right? I mean, obviously it's going to be this quarter, but CapEx investors want to see the monetization.

22:45Microsoft, it was a little disappointing relative to Whispers. And obviously the stock got crushed. And that's going to be, you know, as G and I have talked about, that's going to be the narrative this year. If you excel, look at Meta. But if you trip over the shoe laces like Microsoft, and I believe it's an opportunity, but it speaks to the scrutiny. Is this a leveling off of valuations, Gene, this reaction to what we saw from Microsoft? Could that be reflected in some of the other big tech names as well? I think it speaks to some of the concern that investors have that we're one quarter away from things kind of getting bad.

23:30And I mean, that's kind of been around for a year or so. But you look what happened to software yesterday more broadly. It was down 5%, 6%, 10%. And so I think it's still this kind of skepticism. And I think ultimately what's going to happen is that this is going to be more significant. The growth is going to be higher for longer. And I think some of this concern, the fundamentals will just kind of show that there is no need to worry. I'll just put a quick context onto it. We use these models internally. We have strategies that use AI for picking stocks as well. We have humans. And we're deep in these models.

24:13And our experience is that the inference side, the thinking side, is going to be hundreds of thousands of times bigger. I know it sounds crazy than the training side. And I think that reality just hasn't come close to sinking into the market. And I think when that happens, you're going to see investors start to turn more positive on these companies. Dan, I want to ask you how this sets up for Amazon's results next week. Is the bar higher now for AWS to outperform after what we've seen from Microsoft and Apple? Look, I think, I mean, to some extent, I think the Amazon bar is something where I think they're going to excel from a cloud perspective.

24:56I actually think Microsoft's one where the bar, it may be a little higher. I think Amazon's actually being underestimated. I think you're going to say, look, in terms of earnings, Google, Amazon, I view it as just another step in the right direction. Gene said, you come out of this earnings season, this is not a bubble. It's actually more validation of the spending, but investors are digesting it, and you're seeing some just general nervousness. And just 30 seconds left, unfortunately, but Dan, I've got to get your reaction to our reporting from Bloomberg News that SpaceX is considering either a merger with Tesla or with XAI.

25:31What could that mean for Tesla since you follow that company so closely? I think it's very bullish. It speaks to our view in terms of this is something that always is what we thought should happen in terms of XAI and SpaceX. And it speaks to what's going to be, I think, a historical year for Musk and Tesla. This is Bloomberg Daybreak, your morning podcast on the stories making news from Wall Street to Washington and beyond. Look for us on your podcast feed by 6 a.m. Eastern each morning on Apple, Spotify or anywhere else you listen. You can also listen live each morning starting at 5 a.m. Wall Street time on Bloomberg 1130 in New York, Bloomberg 99.1 in Washington, Bloomberg 92.9 in Boston, and nationwide on Sirius XM Channel 121.

26:17Plus, listen coast to coast on the Bloomberg Business app now with Apple CarPlay and Android Auto interfaces. And don't forget to subscribe to Bloomberg News Now. It's the latest news whenever you want it, in five minutes or less. Search Bloomberg News Now on your favorite podcast platform to stay informed all day long. I'm Karen Moscow. And I'm Nathan Hager. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak.