Bloomberg Surveillance TV: October 28th, 2026

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0:47Lisa Shalett: Bloomberg Audio Studios Podcasts, Radio, News

0:56Brian Gardner: This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App. either we've got the old Fed or a new Fed. Either that guidance from them matters or it doesn't.

1:27Lisa Shalett: If this is a new Fed, though, think about how disruptive that would be to this market, given how mispriced people are to the idea of the chance of some sort of Fed rate hike today.

1:36Brian Gardner: Let's build on this conversation. The former IMF Deputy Managing Director and Global Economics Lab Founding Director, Gita Gopinath, joins us now for more. Gita, welcome to the program. We've been looking forward to catching up with you. Does this Fed have the luxury of skipping this meeting?

1:50Gita Gopinath: I think it does. I think, you know, there is still tremendous uncertainty about the outlook. You know, they could have done a hike, but given where we are right now in terms of market expectations, I don't expect that they're going to have a huge disruptive announcement today. So there's December. December is where everybody expects there's going to be a 25 bips hike. It's OK. I think it doesn't have one 25 bips delay for a couple of months doesn't make that bigger difference to financing conditions or to tightening monetary conditions. So I think it's okay.

2:26Lisa Shalett: Do you think, though, that the uncertainty premium that's been injected into the market over the lack of an understanding of the reaction function has been a very expensive policy, at the very least, a mistake at worst, given the fact that the market doesn't have a sense of where Kevin Warsh's ballast really is? What does Northstar is to decide whether to hike or to hold.

2:48Gita Gopinath: What Walsh is trying to do is move away from a forward guidance approach, which puts all of them in a straight jacket. And that was the case for a few years ago. He wants to move away from that. So any such transition is going to generate some increase in uncertainty. So I think we can give him that. I don't think it's a huge increase in premium associated with that uncertainty. and that will go away with more and more of these conferences and these conversations that are had. I think the bottom line is that the Fed is working under a lot of uncertainty. What's going to happen to energy prices?

3:26Gita Gopinath: It's still very troubling at this moment. It could go down, though, relatively rapidly. Financial conditions are still actually highly accommodative. You know, maybe some of the high yields have gone up, but mostly generally accommodative financial conditions. But again, with every news we're hearing questions about, you know, could we have this AI bubble versus could we have a big change? I think there's too much of uncertainty to provide clear for guidance at this moment.

3:55Lisa Shalett: You've talked about this bubble in financing for AI and you did worry that it was a bubble. And if it did blow up, that it would end up creating a real financial crisis of sorts. What do you think the Fed's role in this should be? Should they be tightening financial conditions to restrict some of the financing that's being done right now.

4:14Gita Gopinath: Yeah, when I wrote that piece, you know, I guess it was a year ago. My estimate was that the hit would be about$35 trillion to global wealth if there was a dot-com side correction. Right now, that number is$41 trillion. So it's going up. There continues to be a lot of enthusiasm in putting money in U.S. equity markets, even though there's some more caution building up around that. In terms of what the Fed should do, the Fed should certainly not go out there specifically to burst a bubble. I mean, that would be a terrible idea. They're going to have to look at the conditions that matter for inflation, whether they're actually seeing that their inflation target is moving, that the actual inflation is staying well above their inflation target for too long.

4:59Gita Gopinath: That would be their bigger concern. And you don't want to go out there, certainly, and try and spook markets and burst the bubble. That's certainly not something you want to do.

5:07Brian Gardner: Agitra, what's your reaction to the sequencing of things that the Fed chair has articulated, that the first move is a demand shock and the second move might be some supply relief? How are you thinking about that?

5:19Gita Gopinath: It certainly is the case that what we're seeing right now is a demand shock from AI. The supply relief, I mean, we're not seeing anything right now. Now, I think the expectations that will show up over time. But if you just look between now and the next two, three years, the amount of build out in AI infrastructure is just huge. I mean, so just compared to, for example, what the U.S. government is putting out in terms of its borrowing needs, that's about two trillion dollars a year. The amount of build out that we're expecting over the next year is over a trillion and a half. So these two are really very, very large numbers, which is why more generally interest rates are moving up.

5:59Gita Gopinath: So this is very big, I would say, demand effect that's coming if this continues the way it does. And I don't, you know, there's a fair bit of uncertainty. I think there are two scenarios to prepare for if you're a Fed chair at this time. There's one scenario, which is the baseline, which is we continue this way. We have the pressure that's coming from demand. We have the inflationary effects of the AI build out energy and so on. and you follow the policy that you follow now. But there's also a possibility that you could have a serious market correction, in which case you would be in the mold of cutting interest rates very rapidly.

6:31Gita Gopinath: So, that's a lesser likely scenario, but that's absolutely not trivial at this point, I think, to keep on the table.

6:39Brian Gardner: Well, let's deal with the baseline. Do you see a path back to 2 % without containing the build out that's happening right now from major tech companies?

6:48Gita Gopinath: If you really want to push the inflation rate very quickly back to 2%, then you would be, I think we would be in a much tighter hiking mode at this moment. We're not going to do that. And I don't think that's the right thing to do. So inflation is hovering around 3%. It's not drifting further up. That's important. And that should give some confidence. And so you take the time to try and bring it down to 2%. But I don't think there's a big rush to make that happen. It's going to be slow. My sense is that if inflation settles at like 2.5%, it's OK. It's not 2%. Yes, I know. War says that it's just a 2 % target.

7:24Gita Gopinath: But hey, if it havers around 2.5%, you know, you'd take that.

7:28Lisa Shalett: If there was a serious correction, how much room does the Fed have to cut rates? And how much ability does the U.S. have to issue more debt in order to help its economy, given what we've seen in places like France, given how much of U.S. economic growth seems to be hinged to the AI trade?

7:45Gita Gopinath: Well, the Fed can cut interest rates very quickly. Absolutely, they can do that. So that brings the short end down. The question is what happens to the long end of the yield curve? And I think that is the question mark. My personal view is that it's still the case that we will see long-term yields go down, maybe not as much as has happened in the past because of all these sources of demand for capital, including from the government and the large fiscal situation and also the potential risk of inflation, which I think is much more salient these days than it was in the past. I expect the long yield will come down.

8:17Gita Gopinath: But it is true. The two things that have changed since, you know, the last crisis that we had is one, that the monetary transmission mechanism to the long yield is somewhat, I was a little more impaired given the fiscal environment that we have right now. And fiscal policy doesn't have any space left. I mean, at least it should not have that much more space left. It's debts around the world are very, very high. The US, I think, is still in somewhat of a privileged position, the way markets are treating it. But still, we're not in a situation where, if you remember pre-GFC, that GDP in the US was 60%, and now we're at 100%.

8:54Gita Gopinath: So, this is a completely different place. So, the ability to come and fix things for the economy, I think, are more impaired now than it was in the past.

9:03Brian Gardner: Geeta, before you go, have you seen Jason Furman up in Boston? And if you have, have you told him off about getting rid of the profession and replacing us all with bots?

9:13Gita Gopinath: I'm sorry, I didn't hear that. What did you say?

9:15Brian Gardner: I don't know if you've seen what he said, Geeta, but he seems to believe that he can replace economists with AI now. Regretfully, but he seems to think that we can do that.

9:24Gita Gopinath: Well, I mean, I think what he's pointing out, and we should ask Jason that, but I think what he's pointing out is that there's a hell of a lot of analysis that one can do sitting at your desktop and having these AI agents give you all that information. But at the same time, I mean, I think you need to at least have thinking of Jason, which is what indicators do you care about? Who says what? What matters? When you read an IMF report, by the way, I've used AI to translate an IMF report. It does a pretty bad job because there's so much between the lines and you need to know what actually is being said.

9:55Gita Gopinath: So I think there's still time for it. There's a lot of need for humans to figure these things out.

10:00Brian Gardner: Thank you, Ketu. We appreciate it. Let's do it again soon here in New York. Thank you. Gideon Gopinath, the former IMF Deputy Managing Director. Stay with us. More Bloomberg Surveillance coming up after this.

10:16Brian Gardner: If you invest or lead a business, one-sided views aren't enough. Join me, Brad Rogoff, and my team at Barclays Research as we debate what's driving markets on the Flipside podcast. Find the Flipside wherever you get your podcasts.

10:31Lisa Shalett: With ChatGPT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask Chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at ChatGPT.com.

11:13Brian Gardner: President Donald Trump preparing for the possibility of a Democratic sweep, backstopping candidates with just six days to go until the midterms. The president reportedly making at least 20 stops in red states since September 9th. Brian Gander of Stiefel, writing voter anxiety over the economy and prices are making the possibility of a Democratic sweep more likely. However, we believe the Republicans have a slight advantage to retain the Senate. Brian joins us for more here in New York. Brian, good to see you. Good morning. Good morning. How much can we read into where the president is campaigning over the last month?

11:42Brian Gardner: A lot. I mean, the White House and the political team are going to take his time, his energy, the resources that it takes to get him there. These are all factors. And so So they just don't send him anywhere. So it does signal concern by the White House on some races that should have been safe for Republicans and put away in the win column a long time ago.

12:04Lisa Shalett: Back-to-back rallies yesterday in Texas. He was in South Carolina, Mississippi. I mean, this must signal to you that they're very concerned. At the same time, you still think that Republicans retain control in the Senate.

12:17Brian Gardner: Yeah. In some respects, I think Mississippi and South Carolina is just being cautious to make sure. I think it's an overreaction. Like I said, they don't do it by accident. Texas is a bigger problem. It has been for the Republicans from the get go. Soon as Paxson won the runoff against John Cornyn and it was an open seat, I think most people knew this was going to be a competitive race. And if Democrats can win Texas, first of all, it gives them bragging rights. They've been looking at Texas for a very long time and have come up short. It's Lucy with the football for Democrats in Texas. If they win at this time, it's big.

12:56Brian Gardner: And if Republicans, on the flip side, if Republicans can deny them that big win, that's big for Republicans and the Trump administration.

13:03Lisa Shalett: But what drives this non-consensus view you have, as opposed to everyone else who's pretty much saying that they really, truly think Democrats could win the Senate?

13:10Brian Gardner: By the way, I do, too. I do think they can win. I'm just not as optimistic or as bullish is a better word on Democratic chances than some others are. If you look at the prediction markets, they're in the 60, 65 percent range. I'm at the 40 to 45. So that is not to say that I don't see a pathway. I clearly do. But when you look at some of these key states, Texas, Kansas, these are states that Trump won by double digits in 24. I'm just saying it's a very high hurdle. And on the flip side, Democrats want to pick up Maine. I think they're going to have a tough time there. Tough to see them picking up the Senate without Maine.

13:48Brian Gardner: And could they lose Michigan?

13:50Lisa Shalett: Right.

13:51Brian Gardner: Yes, they can. Will they? We don't. We won't know until next week. But I think that's a big problem. If they were to, if Democrats were to lose Maine and lose Michigan, the pathway for them becomes very difficult.

14:05Lisa Shalett: It's a high bar. But if they do clear it, how are you thinking about potentially something like the Senate Banking Committee? Is it Elizabeth Warren? Does Sherrod Brown come back?

14:14Brian Gardner: So in this scenario, you assume that Sherrod Brown has won in Ohio. The rumor is that he has some kind of deal with Leader Schumer on seniority. I don't think he would go to the Banking Committee. I think he'd go elsewhere, probably the Agriculture Committee. And that means Elizabeth Warren at banking. which is not obviously that that's something that the industry does not want right the hearings are going to be very contentious and we we can see a lot of letters we can see the letters to the regulators the inquiries the panels of bank ceos lined up at the witness table we we all know what it's going to look like but at the end of the day just talking about the regulators there'll be a lot of angry letters and the comptroller and the fdic chair and the vice chair of supervision for the Fed will say, thank you very much.

15:00Brian Gardner: We'll take your letter under consideration and they will go on their way. Because what we now see is that administrations really don't care what Congress says unless Congress can act and do something to block the regulators. And what we're seeing going into the next Congress is Democrats, even in a sweep, are not going to have that kind of leverage.

15:19Lisa Shalett: We were talking with a Swiss investor yesterday. I'm going to get this right this time, who said that the cooking always cools on the plate on the way from the kitchen to the table. Got it. So this idea that practiced it all night, stayed up late, the food cools, not the cooking. Well, the cooking can be a sort of synonym with the food. Why give it a hot time? You get the point.

15:41Brian Gardner: I hear the sizzle.

15:42Lisa Shalett: Okay. So is that kind of the truth about some of the pushback with respect to AI and data center buildouts and the regulatory push? Absolutely. In terms of what will actually translate into policy? Yes.

15:54Brian Gardner: When Congress gets back, they're going to have a host of issues to confront. There are going to be must-do and like-to-do. Must-do is pass a budget, maybe get a debt ceiling deal, and have to get a National Defense Authorization Act. Because there are so many competing items, I forgot to mention nominations that the Republicans are going to want to get through, that's going to crowd out a lot of other items. So I think AI, data centers, it's going to be punted probably. Maybe you get a deal on data centers. The House has already passed a bill. But I think that's a good place to then pivot because that's a light-touch deal, right?

16:35Brian Gardner: I think what we're going to see coming out of Washington is, even in a sweep environment, is not heavy-handed regulation of AI and data centers. It's a very light-touch, very symbolic in a lot of ways. And it's going to be left to administrations and the states, like we've already seen on data centers, to fill in that vacuum and regulate.

16:56Lisa Shalett: If I were just looking at some of the polling results, and I actually thought they were true, my takeaway would be that this country is more moderate than the primary system would suggest. Absolutely. Do you think that there's any read-through into the 2028 election, or do you think that there's no change because this is the structure we have?

17:13Brian Gardner: I don't think there's a read through because we have history of waves, tsunamis that that pays what we're going to see next week in which the winning party then did not follow through and win the presidential race. We do have a primary problem. I mean, there is data out there to show that only about 25 to 30 percent of voters nationally vote in primaries. 70, 75, 80 percent of voters are outsourcing their votes in the most important election, which is the primary, because we only have a handful of truly contested seats. They are outsourcing their votes to the two wings of the two parties, which leads to extreme candidates.

17:56Brian Gardner: So not to editorialize, but if people want more centrism and more moderation, vote in the election that counts, the primary, you know, Tuesday's important too. Stay with us. More Bloomberg surveillance coming up after this.

18:31Lisa Shalett: Connect your Google Drive, point to relevant files and reports, and ask Chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at chatgpt.com.

19:00Brian Gardner: Stocks inching higher heading into a critical day for financial markets. Lisa Shalder of Morgan Stanley writing, forecasts are ambitious and in bed an expectation for cyclical broadening. The aperture for upside surprise is narrow and markets are apt to be quite brittle in the face of exogenous shocks. Lisa joins us now for more. Lisa, good morning. Good morning. How do you see things later on this afternoon developing from the big tech players?

19:21Lisa Shalett: Oh, from the big tech players, I think we're going to get blowout earnings. I think things are going to be very consistent with where we are, which is we are in a mid-cycle CapEx boom. You know, these guys are, you know, going to complete this year where CapEx year over year is up over 100 percent. They're going into next year with guidance suggesting it's going to be up over 50 percent, another 50 percent. and I think the narrative is going to continue to stick and hold. What's interesting is as we think about the continuing, you know, perpetuation of circular finance where they're all owning pieces of each other's story, we're almost getting into the prisoner's dilemma of who, you know, who would, you know, you know, be skeptical of the story or change their guidance.

20:17Lisa Shalett: So I don't think we're there. Look, I think what we're saying as we look at the tech cycle is that just where the bottlenecks are shifting, right? So I think what's going on with semiconductors is, yes, as long as you have a CapEx dollar being spent, you absolutely are going to have the picks and shovels. But the bottlenecks are moving to power, right to electricity generation and that's really where we're going to have some real questions we also know about the bottlenecks coming from politics right and whether or not all of you know the capex that is quote-unquote planned will be able to actually be planted and lit right uh and so um i think that's going to be you know the story of the next you know 24 months uh is how much of this actually lights up.

21:08Lisa Shalett: But to Lisa's point, I think if things are slower than currently expected, that could potentially play into this theme of scarcity where the pricing power that we've seen that the semiconductor makers have, that pricing power starts to perpetuate throughout the supply chain and could actually intensify, which makes, to your point, the Fed's quest ever more complicated.

21:39Brian Gardner: One potential bottleneck you didn't mention, financial markets. Yes. Is there one developing?

21:44Lisa Shalett: I do think that increasingly investors are being discriminating. I think that's what you're seeing with the broadening of the tech options, adjusted spreads and credit widening. Um, there's still liquidity in the system. There's still money in motion. Um, and you know, where there are good balance sheets, there will be lending. Uh, and we have still have a handful of good balance sheets. Um, there are a couple of folks who are starting to look shaky who've re levered. Um, but that's, you know, they, uh, by our estimation, I think, uh, last week we published something on, you know, if, if the neocloud suddenly couldn't get any more financing, it's maybe 10 % of the capex spent.

22:31Lisa Shalett: It's just not big enough to kind of change the narrative. You were talking to Beach here earlier this morning, and he was saying the types of off-balance sheet structures that are coming up to finance some of these players is sort of the mid-cycle of some sort of bubble. And that's sort of how he sees the financing developing. Do you see it the same way? Absolutely. Everyone says, are we in the bubble? My answer is always, of course we are. And the question is just how close are we to it popping? And that's where the debate is. I think we still have a ways to run because I do think that there is money to be spent.

23:12Lisa Shalett: And I think these guys are going to put it in the ground, quote unquote, come hell or high water. There was a sense that maybe we would get less CapEx, at least financed by debt markets, over the past three weeks, which was part of the reason, or at least some people were speculating, part of the reason for the bid into Treasuries was there wasn't the same degree or possibly in the future of competition for capital. Why haven't we seen it reverse as it becomes completely evident that there is just as much competition for capital coming down the pike with debt sales coming from AI? Yeah, that's an interesting question.

23:45Lisa Shalett: Look, I think Jonathan made a fantastic point, which is part of what we're doing is we're re-levering the whole balance sheet. So, you know, as the fire kind of started to heat up on debt, you saw, you know, you saw Meta decide, hey, I'm going to do an equity issuance. And it got eaten up. Right. And so they're testing markets. And there again, there's liquidity there. And so we're going to play this two step, I think, between the equity and debt markets to fund this now. You talk about how it's a fever pitch right now when it comes to the midterm elections and policy, and then actually, potentially, it's undiscounted that things could go wrong.

24:26Lisa Shalett: What do you mean by that? Well, I would just say, look, there's a huge amount of complacence, right? Complacency in markets. We were very heartened to see a little bit of profit-taking in the prior three weeks because we saw that as healthy. We saw that as building some skepticism into valuations. but look complacency is never good and and this idea that hey as long as the music is playing everyone's gonna dance um i i just think it's human nature we've seen this movie before uh and i don't know that this time's gonna gonna be that different because again i don't see any one player kind of raising their hand necessarily and and saying game over we're out these things usually end in pain where, you know, the white flag is flown when the battle has already been lost.

25:32Brian Gardner: This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6 a.m. to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business App.

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