Bitter Pills | Summers on the Fed, Research Funding Fallout, Milei’sTough Policies, UK’s Growth Gamble

0:00Wall Street Week is brought to you by OTC Markets Group. OTC Markets' overnight platform for exchange-listed securities, Moon ATS, provides access to global securities in U.S. dollars from 8 p.m. to 4 a.m. Eastern, Sunday through Thursday. Learn more at otcmarkets.com slash moon. Moon ATS is operated by OTC Link LLC, a FINRA-registered broker-dealer, and is available only through participating broker-dealers. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need.

0:37Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM.

1:25you listen. Bloomberg Audio Studios, podcasts, radio, news.

1:45This is Wall Street Week. I'm David Weston bringing you stories of capitalism. The Trump administration has stopped major funding for some university research and threatens more. We tell the tale of what that could mean for higher education and for the startup culture it supports. Plus, Argentina seemed to be heading in the right direction despite the pain. What does it need to achieve true economic health? And are the people willing to pay that price? And as President Trump paid a state visit to the UK, we look at London's dominant role in the country's economy and whether we just may be seeing some shifts in the balance.

2:24But we start with the big question for Global Wall Street this week, as the Fed issued its long-awaited decision and summary of economic projections. Our special contributor, Larry Summers of Harvard, takes us through what we learned. It wasn't far off what the market was expecting or I was expecting. I was glad to see Jay lean into all the uncertainties in the moment. The uncertainties about inflation, the uncertainties about future policy, the uncertainties about unemployment, the uncertainties about the political environment, about tariffs. And I thought that was broadly appropriate. My own guess is that policy is currently a little looser looking at all financial conditions than people view it as being and that the current configuration, the balance of risks is a bit more tilted towards inflation rather than unemployment.

3:31So I think we're a bit on the loose side with respect to monetary policy and monetary policy signaling. But that's very much a difference of degree. And I was glad to see the emphasis on humility and on flexibility in the chairman's statement. Chair Powell more than once talked about how unusual the situation is because there are really conflicting risks here. We've got both an inflation risk and an employment risk at the same time. How unusual is that? If you go back through history, is that a really strange situation to face? Well, it's completely unprecedented for a member of the administration on leave to be a governor of the Fed.

4:12That's completely unprecedented. It's completely unprecedented for the president, on a basis that many people regard as protectual, to be trying to remove a member of the Fed. it's completely unusual for the Fed chair to be acting in a context where the president United States has called him a moron on the question of the narrow sort of economic movements this is what happens when you have a supply shock when you have a supply shock it pushes up prices and pushes down purchasing power so you can make a case for going to the brake because of the increase in prices or go into the accelerator because of the reduction in purchasing power.

5:01I'd say the dilemma probably takes that form 20 % of the time, perhaps. So it's not the norm, but it's also something that's not unprecedented. Chair Powell said that when it comes to tariffs, which is part of the uncertainty, that the consensus of the Fed right now is that it is a one-time price hit. He didn't use the were transitory, but he sort of came close to transitory. Is he right? Does he have reason to be confident that after an initial spike up, it'll come back down? Well, I think it's important to distinguish two concepts of one shot were transitory. There's what we had in 2021, when, for example, the price of used cars spiked up, and the right assumption would be that the price of used cars would come back to the normal price level.

5:54That's not what is reasonable to expect with tariffs. With tariffs, you're getting a permanent increase in the price of the goods that are tariffed. But the question is whether that's going to be an ongoing rate of change or a one-off level of adjustment. Nobody thinks particularly that it's going to be a reversed change. So this is already more problematic than the kind of supply shock people saw in 2021. And the chair is clearly right that if you're just looking at, is the tariff going to get raised again and again and again, that's very unlikely. I think the question is, will this increase be processed through into an increase in inflation expectations, which will then feed through into higher wages and higher prices and set off a cycle?

6:50And that's hard to know. And I'm certainly not sure that it will be. And less of that happened after 2021 than would have been my guess, David. But we now have had a recent experience of substantial inflation. We now have a more politicized Fed. It's a process that's playing out over a long time period. So I'm not sure we'd want to be entirely confident of the idea that it will be one and done for the inflation impact of these tariffs. He may well turn out to be right, but this is an area where I would have a lot of humility and doubt. And I regard the biggest risk in this situation is being that we lose contact with our 2 % inflation target and become a country with an inflation psychology.

7:55There has been a fair amount of political pressure, as you say, in what the president said, what members of the administration have said, in the challenge to Lisa Cook at the appointment of Stephen Myron, as you say, who's still working for the White House, even who's taking a leave of absence. Did Chair Powell and the Fed put some of that to rest in their conduct this week? That is to say, did he really make a difference in what they decided and what they said? I don't think that anything different happened because Steve Myron was in that room. I don't think there was a different word in the communique.

8:30I don't think there was a different anything. If anything, it probably made it harder for there to be the kind of more dovish language that the president preferred. And I think the same thing is true with respect to the attack on Governor Cook. I think that, if anything, that created a need to project vigor and rigor. I thought it was interesting that Governor Waller, who's clearly very eager to be the next chairman of the Fed, nonetheless went along with consensus view that there should be one cut rather than two and I was gratified by that and if the president knows his interest well the president will have enhanced respect for Chris Waller because of this the Fed decision was big news as we put it wasn't the only news affecting the financial community and companies as we now hear from the administration they would like to change the rules so the companies don't report quarterly in fact instead they report semi-annually is that a good idea I think it's a bad idea whose time should never come it's a bad idea because accountability and transparency have been the key to the success of America's capital markets and And quarterly earnings reports and frequent accountability and substantial sharing of information has been central to that.

10:13Whenever I hear a CEO saying they don't want to have to deal with quarterly earnings, I think of my students who don't want to have to deal with grades. And yes, sometimes they'd be more flexible to pursue their intellectual passions if they didn't have grades. But many more times they'd be free to drink beer. if they didn't have grades. And I think it's the same kind of thing, frankly, with our business leaders. It seems to me that we have had the most extraordinarily successful capital markets in the world. Who could have thought 25 years ago, 30 years ago, when the Dow Jones average was only a small fraction of what the Nikkei average was, that two-thirds of all the market value of all the companies on earth would be American.

11:10That's a tribute to the economy. That's a tribute to those companies. But it's also a tribute to our market institutions and the way our capital markets work. That's why we have so much higher multiples on American firms. So to try to erode all of that, who are you trying to help? You're trying to help people who don't want to be accountable. Why are those the people who should be the objects of our affection? You're trying to help people who have special access to company information rather than the broader public. I always thought the idea of an honest, fair market was to try to reduce the advantage of insiders relative to outsiders.

12:00this goes in exactly the wrong direction. Up next, the Trump administration is upending 80 years of funding for university research. What's at stake, not just for the schools, but for the economy?

12:19Wall Street Week is brought to you by OTC Markets Group. Thinking about joining the exploding overnight market space, but unsure where to start? Designed to meet the needs of a growing international investor base. OTC Markets' overnight platform for exchange-listed securities, Moon ATS, provides access to global securities in U.S. dollars from 8 p.m. to 4 a.m. Eastern, Sunday through Thursday. Extend your trading day and trade global securities in U.S. dollars through a FINRA-licensed broker-dealer. In the first half of 2026, over$28.1 billion U.S. dollars traded on Moon ATS. Learn more about Moon ATS.

12:55Visit otcmarkets.com slash moon. Moon ATS is operated by OTC Link LLC, a FINRA-registered broker-dealer. This week on Leaders with me, Francine Lacqua. I speak to tennis legend Rafa Nadal about how he stayed competitive despite injury. I was able to enjoy the victories probably more than if I will not have this issue. One iconic match. In my mind was, I am almost dead. And whether he misses playing. I don't miss tennis because there was nothing else to offer. Listen and watch Leaders with me, Francine Lacqua, on Bloomberg Television or wherever you get your podcasts.

13:41This is a story about trees not growing to the sky, even if those trees are holding up an important part of the U.S. economy. President Trump has made no secret of his quest to cut funding to some of the nation's most prestigious universities. We want money to go to all universities, not Harvard. They have$52 billion.

14:06To date, much of the discussion has centered on the politics of it all, whether higher education has gotten too woke and whether it's done enough to combat anti-Semitism. Anti-Semitism, pro-Hamas protests, an environment where students can't learn. Why should taxpayers around the country be funding a private university? But the president's actions have put into question a massive long-term partnership that has supported exceptional U.S. innovation over the years. A partnership between the government and higher education in the funding of basic scientific research. We have had a terrific system of innovation in the United States.

14:49Rafael Reif served as the 17th president of MIT after heading its Department of Electrical Engineering and Computer Science. It actually goes back to 80 years ago. It started with a fellow named Vannevar Bush that created something called the Endless Frontier Act, which was really a social contract between the federal government and universities. The federal government funds research in universities, scientific research, advances knowledge, and we do it here. And at the same time as we do that, we educate the leaders of the future who bring that advanced knowledge into the marketplace. And that has been at the heart of a terrific ecosystem of innovation in this country that has lasted up to this day.

15:35U.S. government funding for university research had its origins in efforts to win World War II and led to the development of new technologies such as radar and the atomic bomb. From an annual investment of$253 million during the Korean War in 1953, it exploded to some$60 billion as of 2023. But now it appears that this unique partnership may be up for grabs. What we have had the last 80 years doesn't seem to be coming back. I think the changes that the government is making right now are going to be very hard for any future government, even if it's very receptive to supporting science, to make it reversible.

16:19We have to understand that these changes are very severe, and we have to figure out a new financial model to continue advanced research and advancing science, which is at the heart of what we have been successful as a country. Before we can figure out what comes next for funding of basic research, we need a firm understanding of what the existing system has brought us. Lily Lyman is a partner at venture capital firm Underscore VC, which is, not coincidentally, based in Boston, along with dozens of colleges and universities and 350 ,000 college students. The university enterprises are an important part of this ecosystem.

16:59Over a third of our portfolio comes from places like Harvard and MIT because of this talent density and the interesting research coming out of it. So for us, it's a really important part of our sourcing strategy, and it's an important contributor to the innovation economy here in Boston. One of those benefiting from that innovation economy in Boston is Quilt Health, a digital startup backed by Underscore that seeks to put patients, clinicians, and researchers together to address complex medical conditions such as sickle cell disease. Its founder is Dr. Andy Elner, who comes out of Harvard's Brigham and Women's Hospital.

17:33In my world, which is starting companies, really early stages of companies, what drives it is really its talent. People are always asking, you know, who's the team? What's the idea they're working against? And can they build this almost impossible thing that they're interested in building? Can they solve this almost impossible problem that needs to be solved? And so, you know, a place like Boston is just a hub for, you know, really talented people, really ambitious people. And when we were looking to start Quilt, it's my second company, you know, we made the decision. We wanted to start it here.

18:06We wanted to be based here. You know, it's hard to start a company. It's hard to build a company. And any advantage you can have, you want to take. And I think just being part of this ecosystem, being in the flow of talent and ideas is really critical to solving the hardest problems. The key ideas come from places that are thinking in novel ways. Clearly, without spectacular companies that know how to fine tune those ideas and how to employ them, how to take advantage of them, how to make products and services out of them, we don't have the economy we have. So companies play a critical role in moving the best ideas and implementing them in products into the marketplace.

18:47But the basic ideas, most of those in the high tech and the academic medical centers come from research and academia that is federally funded. President Trump and his administration have challenged some of, I think, basic premises of that structure you describe of funding of basic research in universities. What is at stake if, in fact, they pull back from that funding over the longer term? Are we seeing disruption already? It's a terrible outcome. If we stop paying attention to the funding of scientific research, the funding of basic science research, we really are burning our future. We are really killing our future.

19:27Are we losing some benefits of scientific research already as labs suspend their activity? Very much so. I mean, there is quite a bit of research that has been stopped. And research in academia, stop, start, doesn't work. Once you stop something, once the laboratory is closed, once we lose the people, once we lay off people who have the experience and the expertise and the research we're doing, we lose a tremendous amount. Some of that has already happened. I tell you one thing. I think that even though we have lost quite a bit already, we still have an opportunity to just figure out how to fix the situation and not continue in the path we just got started.

20:09But I'm telling you, I honestly think that a couple of years of this, and this is irreversible. We're going to lose our advances, we're going to lose our future, we're going to lose our competition with China. So despite the headlines of what's been going on, the first half of 2025 was actually quite strong in the Boston startup ecosystem. We continue to see a lot of activities, we continue to see a lot of startup funding. But obviously the headlines and the pause in funding and research has been very disruptive. We've seen really important research, particularly in the world of health care and biotech, get paused.

20:46There have been job cuts, and there's just been a general environment of volatility the last couple months. From an underscore perspective, our deal flow has remained consistent. We continue to see these exceptional teams coming out of this ecosystem. And the entrepreneurial spirit and the capabilities and technological unlocks are still quite strong. What will be important, though, is in any innovation economy, you have multiple pieces to it. There's a talent piece to it. There's a research piece to it. There's a funding piece to it. And obviously the federal funding is an important component to the research dimension.

21:18So what we will need to do is find alternative sources of funding. What are those alternative sources of funding, and have they started to kick in yet? Lyman says there's some reason for optimism. We are seeing that. There's venture capital firms like ourselves, particularly at the early stages, but we also see some of the larger private sector companies in the life sciences space and healthcare and insurance that can pour funding into this. And then there's also later stage funding. I think a good example is if you look at Commonwealth Fusion, which is an MIT company, they just raised over$800 million from Google that was announced in the last couple weeks.

21:55That's critical for them to continue their innovation to bring clean energy to this nation. So there is alternative sources of capital. We're starting to see it flow in. Again, it will follow innovation and big opportunities, and we hope to see more of that continue. Although firms could fill some of the void left by the federal government, Professor Reif warns that private companies cannot be counted on to pick up the full$60 billion tab being paid by the U.S. for research, particularly the type of basic research that universities specialize in. There is, of course, research done in corporations, in companies.

22:29But most of that research in companies is done on a roadmap of products. The company is thinking that in five years from now or ten years from now, I need to have this product ready. So the research is being done focused on getting that product ready. Federally funded research in universities is actually to advance knowledge. It's not for a particular for-profit purpose. It's just to advance knowledge. And out of doing that, many of the ideas that eventually industry uses to fine-tune their products is coming from university research. So we have benefited in the last 80 years from this terrific system, and not having access to that or stopping access to that is going to basically kill the source of ideas that will power the economy for the next 80 years.

23:18Cutting back on the basic research that's powered the American economy since World War II would be a problem at any time. But it's particularly an issue now when the U.S. has a strong economic competitor in its rival, China. The presence of China is critical here because we have had, as I mentioned, the best system of innovation in the world with our knowledge economy. However, we did not have a competitor like China before. We were the only kid on the road just doing all this stuff. China comes along. They have a different model of innovation in America. We have a market-oriented model. China does not use a market-oriented model.

23:59They use a technology domination model. They have the focus on dominating a particular technology. They have an all-of-government effort to dominate it, and they get there. In most of the areas they want to dominate, they have actually done that, whether it's solar panels or EVs or whatever, they get there. That model has some advantages that we don't have, just like we have some advantages that China doesn't have. These are two different models competing with each other. What we need to do is recognize our strength and double down on those strengths, while at the same time recognizing our weaknesses and fixing them.

24:32China is doing exactly that. Given the size of the problem and how much is at stake, where do we go next? Professor Reif says we can't wait around for a solution. So I see a long-term track, which is figure out a new model. but I figure out I think we need a short-term emergency fund to make sure that as much of the fraction of funding cuts the government is doing in science research, we can just bring that back. And I think it's critical that state governments play a role on this. It's critical that state governments bring the private sector to figure out how to add funds to this emergency fund.

25:10It's critical to universities to contribute. So I think there should be a plan right now that's particularly states like Massachusetts, like Washington state, states that have significant knowledge economy, they have to start working on how to figure out to have an emergency fund for a couple of years, two, three years, while we figure out the long-term plan. There is a journey, and it's from the cutting-edge research where it's still a little bit gray, then you figure it out, but there's still an element where you have to figure out a viable commercial model, and that can take a really long time.

25:41There is a lot of venture capital here in the United States. We have the biggest venture capital ecosystem in the world, but we need to make sure that that capital is creating structures and mechanisms for that messy middle before it's obviously commercially viable and scalable. Sometimes that's venture, but sometimes it is university. Sometimes it's philanthropic, and sometimes it's private sector. But we want to make sure that that is all sort of U.S.-based or U.S.-driven capital in order to get it through that entire sort of process of development. And you can't sort of cut out pieces of it, or else it'll break the whole system.

26:12Short term or long term, ours is an ecosystem of innovation that's been growing for some 80 years. An ecosystem like a forest, in which some trimming may need to be done from time to time, but in which we also need to exercise caution before cutting down those big trees reaching toward the sky, lest we put the entire system at risk. Coming up, President Millet of Argentina hits a bump in the road to his economic revolution. We'll look at whether his plan has been working and what is next.

26:51Wall Street Week is brought to you by OTC Markets Group. Thinking about joining the exploding overnight market space, but unsure where to start? Designed to meet the needs of a growing international investor base, OTC Markets overnight platform for exchange-listed securities, Moon ATS, provides access to global securities in U.S. dollars from 8 p.m. to 4 a.m. Eastern, Sunday through Thursday. Extend your trading day and trade global securities in U.S. dollars through a FINRA-licensed broker-dealer. In the first half of 2026, over$28.1 billion U.S. dollars traded on Moon ATS. Learn more about Moon ATS.

27:28Visit otcmarkets.com slash moon. Moon ATS is operated by OTC Link LLC, a FINRA registered broker dealer. Hi, I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast. Every week, we bring you conversations with the people who shape markets, investing, and business. I speak with CEOs, Nobel laureates, market innovators, and legendary investors. Whether you own stocks, bonds, real estate, commodities, even crypto, these are discussions you absolutely need to hear. Subscribe to the Masters in Business podcast on Apple, Spotify, or anywhere you listen.