Bloomberg Businessweek — "Government Shutdown Clouds Fed Outlook"

Date: October 8, 2025
Hosts: Carol Massar & Tim Stenovec
Key Guests: Kay Her (JP Morgan Asset Management, US CIO of Fixed Income, Currency, and Commodities), Stephen Carroll (Host, Bloomberg Daybreak Europe), Mandeep Singh (Global Head of Tech Research, Bloomberg Intelligence), Herman Chan (Senior Analyst, US Regional Banks, Bloomberg Intelligence)

Episode Overview

This episode centers on the economic uncertainty created by the ongoing US government shutdown, its impact on Federal Reserve policy and data availability, and the broader ripples through markets, earnings, and global economies. The hosts and guests weigh in on monetary policy, fixed income markets, the AI investment phenomenon, French political turmoil, and the rumblings of a new wave of US regional bank consolidation.

Key Discussion Points and Insights

1. The Federal Reserve’s Dilemma in a Data Vacuum

[02:16] — [11:46] Guest: Kay Her (JP Morgan Asset Management)

• Fed Minutes Reveal Little New

  • The latest Federal Reserve minutes did not provide much new insight; only minor debates appeared in the minutes, with just one dissent noted from the recent meeting.
  • "The short answer to your question is no, we didn't learn anything new...the market's really not giving US much of a reaction." — Kay Her [02:16]

• Government Shutdown Stalls Key Economic Data

  • The absence of government data like jobs numbers and upcoming CPI forces the Fed (and market participants) to turn to other indicators.
  • "We've got a government shutdown and we are in an absence of data...the Bureau of Labor Services did not release the employment data on Friday." — Kay Her [03:04]

• Earnings and the Beige Book Take Center Stage

  • Corporate earnings (starting Oct. 14) and the Beige Book (Oct. 15) are now crucial data sources for the Fed to gauge the economy’s health.
  • "The next major piece of data...is corporate earnings...The second...is the Beige Book." — Kay Her [03:04]

• Assessing Credit Quality: Eyes on the Banks

  • The fixated sectors during earnings will be banks (for credit quality and consumer health) and industrials (for margin preservation and cash flow).
  • "From the banks, what's the credit quality look at, what's the indication of the consumer? ...For the most part companies have very high margins, are they going to protect those?" — Kay Her [04:20]

• Pockets of Stress and the K-Shaped Economy

  • Recent surprises like the tree colour (tricolor) and First Brands blowups in auto lending signal stresses, especially among lower-income consumers, but there’s a growing focus on how prime consumers handle resumed student loan payments.
  • “It's not uncommon to see corporate malfeasance...We've been talking...about a K-shaped economy...lower income consumers...seemed to have stabilized. We're more focused and concerned about maybe more prime consumers starting to repay student loans.” — Kay Her [06:24]

• Trading Strategies: The Belly of the Yield Curve

  • In a context of low rates volatility and anticipation of Fed cuts, intermediate-duration, high-quality bonds are preferred.
  • "We still like the belly of the curve...We think that the rates are going to continue to be pretty rangebound here between 3.75 and 4.25%." — Kay Her [11:04]
  • "Spreads are tight, but yields are right, and that's really what the, what the driver is for investors." — Kay Her quoting Ian Steely [11:09]

• Gold’s Run: Demand vs. Macro Narrative

  • Gold has surged past $4,000/oz, driven primarily by ETF and central bank demand, not traditional macro “debasement” stories.
  • "I don't read anything different in gold pricing about, you know, US exceptionalism or the dollar flight to currency...It’s old fashioned supply and demand." — Kay Her [13:42]

2. France’s Political Crisis and Market Implications

[17:47] — [22:12] Guest: Stephen Carroll (Bloomberg Daybreak Europe)

• Prime Minister Resigns, Macron to Appoint Replacement

  • France’s outgoing PM, Sebastian Le Cornu, believes Macron is ready to install a new technocratic PM after extensive political consultations.
  • "He now expects the president to name somebody else to take on the job to lead those discussions." — Stephen Carroll [17:47]

• Fiscal Crisis Delayed (for Now)

  • Despite political instability, markets have not panicked; bond spreads have widened but are not spiking.
  • "What we've seen so far is a little bit of tension in markets, but not something that ... would describe as a fiscal or financial crisis." — Stephen Carroll [20:01]

• Risks of Snap Elections

  • New legislative elections would unsettle investors more than continued negotiations or a technocratic arrangement; a presidential election is considered the biggest market risk.
  • "A presidential election would be very dramatic...A National Assembly election would be less dramatic, and getting a new prime minister, well, could produce another shrug from markets." — Stephen Carroll [21:45]

3. The US AI Boom: Circular Funding & The Bubble Debate

[23:14] — [33:06] Guest: Mandeep Singh (Bloomberg Intelligence)

• Defining “Circular Funding” in AI

  • Complex deals (e.g., Nvidia funding OpenAI) are mutually reinforcing, but not all funding is secured.
  • "Nvidia is spending $10 billion and giving it to OpenAI for them to add up to 10 gigawatts of capacity...Out of that, Nvidia is going to put $100 billion. The rest, OpenAI still has to raise." — Mandeep Singh [23:14]

• Insatiable AI Infrastructure Demand

  • Capex requirements for AI are skyrocketing; compute for generative AI is about 10x costlier than traditional search.
  • “If Google generates $100 billion in operating cash flow, now they are talking about spending more than that...to add more capacity. And that's why the numbers are so big here.” — Mandeep Singh [25:35]

• Funding Flows and Bubble Fears

  • Despite concerns of a misallocation of capital, current demand is outstripping supply, especially as measured by Nvidia’s margins.
  • "When you see a trend like that, yes, there will be probably some misallocation of capital...But right now, it's very hard to question the pace of this build out." — Mandeep Singh [28:49]

• AI Rewards: Investors Seek Capex, Not Caution

  • Stocks outperforming are those companies aggressively investing in AI, not the conservative ones.
  • "The stocks that have outperformed are the ones that have spent their capex...If you have been conservative and just focused on margins, your multiple has shrunk." — Mandeep Singh [30:14]

• Index Concentration Risk: Not an Immediate Concern

  • The dominance of a few mega-cap firms persists, but secondary software players may be rerated based on successful LLM strategy adoption.
  • "The picks and shovels trade has carried on...The businesses that end up using LLM as an intelligence layer...you will see a rerating in their multiple." — Mandeep Singh [32:22]

4. Regional Bank M&A Heats Up

[36:57] — [44:07] Guest: Herman Chan (Bloomberg Intelligence)

• Merger Wave Among Regional Banks

  • A recent $11B Fifth Third–Comerica deal follows deregulation and improved stock prices, fueling further consolidation.
  • "There's a bit of a crest right now...A lot of that is really driven by deregulation efforts under the Trump administration. That's encouraging more bank M&A." — Herman Chan [36:57]

• Post-Crisis Deposit Lessons Drive Deals

  • The SBB/First Republic failures reinforced the need for diverse, stable deposit bases. Fifth Third’s proficiency in branch/retail banking attracted Comerica.
  • "Deposits are the lifeblood...This deal with Comerica and Fifth Third is a direct reflection of that." — Herman Chan [38:01]

• Competition, Regulation, and Technology Push Consolidation

  • With 4,500 banks in the US, the pressure from big national banks, fintech competitors (Chime, SoFi), and heavy regulatory/compliance burdens drives continued M&A activity.
  • "There’s about 4,500 banks in the United States. And so is there really a need for that many? I would say no." — Herman Chan [41:04]
  • "Fintechs like Chime and sofi are really gaining a lot of new customers...it makes for a really tough operating environment." — Herman Chan [41:14]

• What to Watch for in Bank Earnings

  • Capital markets activity, strong commercial lending (especially to nonbank financials), and the impact of recent and future Fed rate cuts are under scrutiny.
  • "IPOs have been picking up...Commercial lending has been pretty strong...and the interest rate cut that happened in September should help on the deposit funding side as well." — Herman Chan [42:22]

Notable Quotes & Memorable Moments

• "We are in an absence of data. ...It's unlikely that we're going to get CPI next week. So what are we looking at? Corporate earnings...the Beige Book." — Kay Her [03:04]
• "We still like the belly of the curve...Spreads are tight, but yields are right." — Kay Her [11:04], [11:09]
• "What we've seen so far is a little bit of tension in markets, but not something...would describe as a fiscal or financial crisis. In France, this is still a political crisis." — Stephen Carroll [20:01]
• "Circular funding is Nvidia spending $10 billion and giving it to OpenAI for them to add up to 10 gigawatts of capacity." — Mandeep Singh [23:14]
• "The stocks that have outperformed are the ones that have spent their capex...If you have been conservative and just focused on margins, your multiple has shrunk." — Mandeep Singh [30:14]
• "There’s about 4,500 banks in the United States. And so is there really a need for that many? I would say no." — Herman Chan [41:04]

Timestamps for Key Segments

| Time | Topic / Segment | Key Participants | |------------|--------------------------------------------------|----------------------| | 02:16–11:46 | Fed uncertainty, data gaps, bond market, gold | Kay Her | | 17:47–22:12 | France’s political crisis and market risks | Stephen Carroll | | 23:14–33:06 | AI investment cycle, circular funding, bubble | Mandeep Singh | | 36:57–44:07 | Regional bank M&A wave and earnings outlook | Herman Chan |

Summary in the Show’s Tone

Throughout, the discussion is brisk, filled with expert analysis but maintains Bloomberg’s practical-yet-engaged tone. Guests are candid about both risks and opportunities—whether it’s Kay Her’s wry take on the “belly of the curve” or Mandeep Singh’s pragmatic view on AI hype. Each segment offers actionable insights for market watchers and investors needing to keep a pulse on fast-moving financial, tech, and geopolitical dynamics.