Bloomberg Surveillance TV: June 24th, 2026

Summary

Bloomberg Surveillance TV: June 24th, 2026

Hosts: Jonathan Ferro, Lisa Abramowicz, Annmarie Hordern
Key Guests: Dan Ives (Wedbush), John Served (JP Morgan), Francis Donald (RBC)
Main Theme:
A deep dive into the state of technology markets, investment-grade debt trends—including the latest from SpaceX—and an incisive discussion of the Federal Reserve’s inflation challenge. The hosts and their expert guests explore forces shaping markets, from chip demand and pricing to the shifting burdens of inflation in the real economy.

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Technology & Semiconductor Sector: Still Early in the Game

Guest: Dan Ives, Wedbush (Starts at 02:28)

Key Discussion Points:

• Tech trade steady; Micron earnings in focus after extraordinary 250% YTD share growth, raising questions about memory chip demand.
• South Korean memory chip stocks ("golden child of the tech boom") faced a 10% pullback, raising concerns over possible "gut check" moments in the rally.
• Supply-demand dynamics for chips remain heavily imbalanced (12-15:1), suggesting strong pricing power persists for leading players.
• Despite marginal price pushback and emerging competition, the cycle is “still early”—Dan Ives analogizes it to "third inning, one out in terms of the game."

  "No cracks in the armor." (Dan Ives, 02:28)

Margins & Competition

• Profit margins remain "to the moon," but Amazon and Google challenge the pricing power of semiconductor giants.
• Margins could compress in 9-12 months, particularly as large software players (Microsoft, Amazon, Meta) increasingly design custom chips.
• "Arms race" dynamic with new entrants and companies like Apple vertically integrating chip efforts.

Winners & Selectivity in Tech

• The era of "owning the sector" is over—now, investors must be highly selective about "owning the winners."
• Quoting Ives:

  "You can't just own the space ... you have to be selective relative to own the winners." (Dan Ives, 05:11)

AI: Models, Data, and Compute Power

• Cost is rising as a decision factor for model deployment (e.g., Microsoft's Deep Seek project).
• The long-term strategic advantage is in the data and the chips, less so in the models.
• Anthropic cited as enterprise AI frontrunner, but OpenAI is catching up; a "game of musical chairs" has begun.

"It's their world, everyone's paying rent relative to what [Anthropic has] done. But that gap could narrow quickly." (Dan Ives, 06:09)

Government Policy & Public-Private Investments

• Discusses strategic government stakes and partnerships (e.g., Intel, IBM) in quantum and chip sectors.
• Competition with China reinforces urgency of US public-private cooperation.

On Underperformers: Microsoft and Meta

• Microsoft viewed as "the most oversold large cap name"—valuation and enterprise growth remain robust despite negative sentiment.
• Meta faces a "prove it" moment:

  "[Meta] right now [is] going up Mount Everest without oxygen ... That will be the prove it moment for Zuck." (Dan Ives, 07:42)

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Credit Markets & the Investment-Grade Debt Boom

Guest: John Served, JP Morgan (Starts at 11:47)

Key Discussion Points:

• SpaceX $25B Bond Sale:
  • Largest ever for the company, at a 1.4% premium over Treasuries (wider than comparable BBB debt).
  • Reflects the availability of capital and growing scale of corporate capital needs.

"So far this year we've seen six transactions of $25 billion or greater— in all of 2025 there were two." (John Served, 11:52)

• Credit Spreads & Selectivity:

  • Spreads at historic tights; investors are increasingly selective, conducting deep diligence.
  • Differentiation by credit profile grows more important—no “blind euphoria” yet.

  "Investors are taking the time to do credit work, to understand the stories and figure out relative value and pricing. So to me, it's a healthy sign for the market." (John Served, 12:42)

• Concentration Risk:

  • No immediate concern but being monitored; the magnitude of debt tied to a narrow set of growth stories (hyperscalers, AI) is unprecedented.

Global Funding & Market Diversification

• Borrowing in foreign currencies (largest-ever deals in Canadian dollar, euro, sterling) helps firms diversify and broaden their investor base.

"These other global markets... have grown in relevance in a very material way." (John Served, 14:20)

Risks from Cash Flow Deficits

• New wave of debt may come from high-growth companies (SpaceX, possible future IPOs like OpenAI, Anthropic) lacking the traditional cash flow profiles investment-grade investors are accustomed to.

Historic Moment:

"This is...the biggest theme we've seen in a very long time. What's particularly exciting ... is the level of creativity required to finance all of this." (John Served, 16:33)

• The need for “creativity” and “product agnosticism” in finance is at a high—no single template fits all funding needs.

Red Flags

• The market is not yet at the point of “blind euphoria”—a key red flag would be evidence of investors buying risk indiscriminately.
• Investment-grade spreads remain historically tight, making price discipline ever more critical.

---

Inflation, The Fed, and Real Economy Impacts

Guest: Francis Donald, RBC (Starts at 22:29)

Key Discussion Points:

• The Fed is re-emphasizing 2% inflation targeting—style over substance for now, but data will determine eventual policy (22:59).
• 40% of CPI components currently run above 3% inflation (food, healthcare, daycare).
• The persistence of “core services inflation” outside of energy puts pressure on both the Fed and American consumers.

"There is more inflation in the system outside of energy. This is a central bank that is going to have to contend with that." (Francis Donald, 22:59)

Who Bears the Burden?

• Lower and middle-income Americans are disproportionately hit—savings rates have dropped, credit card use is up, and real wages are negative for many.

"There are signs, yellow flags I would say for low and middle income Americans that are struggling now." (Francis Donald, 24:02)

• Hiking rates risks an even greater consumer slowdown, given widespread economic inequality (the "K-shaped economy").

Food Inflation as a Flashpoint

• "Food price inflation" remains a critical concern due to its universality and lack of substitutes.
• Food costs likely to remain high due to conflict in the Middle East and other persistent pressures.

"Everybody has to eat. So keeping your eye on food price inflation is going to be critical." (Francis Donald, 25:18)

• Headline inflation may fall under 2% by mid-2027, but real-life price pain lingers for consumers, creating a dissonance between official stats and lived experience.

Labor Market & Structural Economic Shifts

• US economic growth (2%) is increasingly dependent on tight labor markets and top-10% consumers, not capex or technology alone.
• Labor force contraction (mass retirements, declining participation) is transforming the economy and its cycles.

"Don't use the pre-pandemic way of thinking about a cycle ... These structural trends from AI to labor force participation rate declining are changing the way we have to think." (Francis Donald, 26:47)

Monetary Policy Challenges

• Fed policy is a blunt tool: Rate hikes hurt fragmented sectors (like housing) more than capital-intensive sectors benefitting from the AI and chip boom.
• High risk: further policy tightening could push the already uneven (K-shaped) economy into deeper divergence between income groups.

"Monetary policy is a poor tool for an economy that is fragmented by sector, by income group." (Francis Donald, 28:11)

---

Notable Quotes & Moments

• "No cracks in the armor. ... I just continue to believe: third inning, one out in terms of the game."
  — Dan Ives on ongoing tech/semiconductor bull market (02:28)
• "You have to be selective relative to own the winners."
  — Dan Ives (05:11)
• "Investors are taking the time to do credit work ... to figure out relative value and pricing. It's a healthy sign for the market."
  — John Served (12:42)
• "There are signs, yellow flags I would say for low and middle income Americans that are struggling now."
  — Francis Donald (24:02)
• "Keeping your eye on food price inflation is going to be critical. ... Everybody has to eat."
  — Francis Donald (25:18)
• "Monetary policy is a poor tool for an economy that is fragmented by sector, by income group."
  — Francis Donald (28:11)

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Timestamps for Major Segments

• Tech & Semiconductor Outlook w/ Dan Ives: 02:28 – 08:28
• Investment Grade Debt & SpaceX Bond Deal w/ John Served: 11:47 – 19:01
• Inflation and the Fed w/ Francis Donald: 22:29 – 28:57

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Summary Takeaway

This episode of Bloomberg Surveillance TV encapsulates the new complexities of today’s markets. The tech boom continues but shows the need for selectivity and risk management. Debt markets are absorbing record corporate borrowing through creativity and global reach, while the real economy faces structural strains, as inflation and policy ripple unevenly through different income groups. The discussions provide a roadmap for navigating an investing landscape reshaped by tech, credit expansion, and epochal economic shifts.

Transcript

[CBOE Representative]

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[CBOE Representative]

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[Bloomberg Announcer]

Bloomberg Audio Studios podcasts Radio News.

[Jonathan Ferro]

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferro along with Lisa Abramowicz and Annmarie Horden. 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 9am 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. Let's talk about tech. The tech trade steady and Micron earnings due out after the close today. Shares up more than 250% so far this year. Dan Ives of Wedbush writing there is some added nervousness on the important memory chip trade. We continue to believe that in this market we will continue to go through a number of gut check moments. Dan Ives of Wendbus joins us now for more than Good morning. Great to be Is this one of those gut check moments?

[Dan Ives]

It is. I think you saw it with the cost be down 10% with the golden child of this tech boom a lot in Korea in terms of memory chips. When you think about what's happened with SK and obviously Samsung and SK overtaking Samsung Micron such an important quarter relative to what we see in terms of demand ripple. What does that mean for Nvidia hyperscalers? But I continue our checks in Taiwan, in Korea, no cracks in the armor. And that's why I just continue to believe third inning, one out in terms of the game.

[Jonathan Ferro]

Further downstream though, you're starting to see some pushback to price. Increasingly does that upend some of the story?

[Dan Ives]

Look, I think on the edges that could be. Look right now demand supply caught 12, 15 to 1 in terms of where we are relative to chips. So my view is like you still, even if you had some events to even take some demand off, you don't have an equilibrium probably for another year and a half, two years, which in my view just continues to believe like the chip trade is what you continue to own. Look, hyperscalers obviously right now those were kind of the penalty box to some extent. But you will see some push against price. But it's our view like over time price comes down. It's all part of what we're seeing with tokens.

[Lisa Abramowicz]

Profit margins though kind of a key point here because profit margins have been just going to the moon. They've been incredibly, incredibly robust at some of these semiconductors in part because they can charge whatever they want. And that's changing. You are seeing some competition with Google and with Amazon coming into the fore. At what point do you start to see those margins really compress?

[Dan Ives]

Look, I think right now if there is a pressure point, you probably don't see that for another 912 months. But just like you said, a competition's coming across for. It's an arms race. You know, really when you think from what Met is doing to Amazon to Micro Microsoft, you have software companies and now they'll start to produce chips. Look what's happened even on the intel side with Apple. So that will definitely start to pressurize the situation. But in my view it just continues to be like we are still so early relative to the build out. And that's also you're going to have these gut check moments, you'll have these white knuckle periods. But we continue to view these as opportunities where you own the winners.

[Lisa Abramowicz]

Well, the winners though is the key point here. How do you know who they are when they're shifting around so quickly? And I say this, I thought one of the most interesting stories was when Microsoft came out and they said that they were going to be using Deep Seek to lower the cost of deploying some of their large language models. I mean, is this indicating that cost is now a much higher factor on the list for a lot of these big tech companies when it comes to who they're going to go with?

[Dan Ives]

Yeah, I think it's a, it's obviously technology scale, but cost clearly plays in. Is also the models. Over time, the models are going to get cheaper and cheaper. I mean, the value, if you actually start to think about it's in the data, it's in the chips. Less about the models, which is why ultimately, Anthropic, OpenAI, they're so focused on enterprise compute, they're focused on all these partnerships because essentially what's happened, everyone's building out their own moat or their own fort. And that's why it's a game of musical chairs, because eventually someone's left without a chair. Now, who are those losers? Look, that's, that's our job. That's other people's job in terms of trying to understand who the winners are. Because you, you are starting to see a separation in terms of you can't just own the space, you can't just own. It speaks to our view. You have to be selective relative to own the winners. Making sure that you're not sitting.

[Bloomberg Announcer]

When it comes to enterprise, though, isn't anthropic way ahead of OpenAI?

[Dan Ives]

Okay, I think anthropic clearly from a model perspective, I mean, it's their world, everyone's paying rent relative to what they've done. But that gap could be narrow quickly. I mean, open air is just not going to sit there on a treadmill. So OpenAI, they had their bullseye on their back. Anthropic. But you see what's happened with anthropic in terms of going after talent from Google, it's this arm. Because a lot of it is going to be. It's about the engineers, it's about compute power. And that's going to drive more and more debt raises, equity raises, and that will be also tests for the market in terms of how it handles it.

[Bloomberg Announcer]

I haven't seen you since the president briefed me and a few reporters looking into, you know, maybe doing something public private partnerships in these companies. What do you, what do you make of that? Government taking a stake?

[Dan Ives]

Look, I think it's selectively. It's important if it's done the right way. Because you could argue if you think intel, intel now, I mean, they're, you know, they're obviously in a glorious situation. Look where they were a year and a half ago. If, if government doesn't take a stake there, which ultimately led to Nvidia and more. Now you look at Lip and Intel, their core in terms of the trade when it comes to Quantum, I think that's really important in terms of some of the government initiatives. And I think IBM and Arvin have been kind of front and center there because what's happened in China because of this arms race.

[Jonathan Ferro]

Can we finish on 2 losers matter? Microsoft what do I do with those names now? They're in bear markets. Everyone's getting all balled up on the tech story. Two of the biggest tech names on the planet are in a bear market. What you do with those names now

[Dan Ives]

I think you have to separate them out. Microsoft, I think is the most oversold large cap name. Just my view. Have they made stumbles on Copilot and some other areas. But in terms of enterprise, their backyard, Azure growth, compute supply issues, I think that's ultimately a stock that, you know, five, $550 stock. So I actually think that continues just like a year ago the narrative on Google was so negative. Look where we are now for Meta look, it's approved like that. Right now they're going up Mount Everest without oxygen or whatever. What they're trying to do. That will be the prove it moment for Zuck as he ultimately tries to go and change the model. I think they're going to be successful doing it, but they have. You can't just spend on capex not showing results.

[Jonathan Ferro]

Stay with us. More Bloomberg surveillance coming up after this.

[CBOE Representative]

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[Public.com Representative]

for the show comes from public.com if you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge on Public. You can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English like if the Vix hits 25, buy a put option on the S&P 500 or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the risk. Monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market paid for by Public

[John Served]

Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services By Public Advisors LLC, SEC registered adviser Complete disclosures available at public.com/disclosures.

[Jonathan Ferro]

Let's talk about the debt deluge. Facing some pushback. Space X selling $25 billion of investment grade bonds and paying up to get it done. The company's bond maturing in 2036. Pricing at a premium of 1.4 percentage points above Treasuries, roughly half a percentage point wider than the average spread on other triple B rated debt. To discuss a man in the know. Joining us now is JP Morgan's Global co head of IG Financing, John Served. John Good morning sir. It's good to see you.

[John Served]

Good to see you.

[Jonathan Ferro]

That's a bit of a gut check I think for investment grade debt. How do you think things went in the last 24 hours?

[John Served]

I think it was another positive signal of the availability of capital. If you just take a step back. So far this year we've seen six transactions of $25 billion or greater in all of 2025 there were two. So the scale of the capital needs continues to grow. Everybody knows that. What we're really encouraged by is that the market is available and understands that and is positioning themselves on the investor side to make thoughtful investment decisions to help finance this Secular trend that is not going anywhere for obvious reasons.

[Jonathan Ferro]

We won't spend too much time on this one single issue. Don't want to get you in too much trouble. But further along the curve, the longer dated maturity, just how much wider that was trading relative to other triple B rated debt, other triple B rated pairs. What's the takeaway from that? Doubts about the credit rating agencies. How are you thinking about that?

[John Served]

The way that we're thinking about the market generally. And specifically to your question, if you take a big step back, and this is no surprise, but credit spreads are at historic tights. And so in our view, across the investment grade credit spectrum, there should be be differentiation based on different ratings and credit profiles. So one of the things that I take great comfort in is the fact that investors are not blindly buying everything right yet. Yes, there's a tremendous amount of capital being deployed here, but investors are taking the time to do credit work, to understand the stories and to figure out relative value and pricing. So to me, it's a healthy sign for the market.

[Lisa Abramowicz]

How nervous are investors getting about the concentration risk that's developing given that so much of this debt is tied to the story?

[John Served]

It's something we're clearly watching very closely. We're, we're still at a point where there's a lot of capital available and investors are figuring out how they want to play this theme again. As I just said, this is, this is arguably the biggest secular theme in any of our professional lifetimes. So as an investor, you have to be a part of it. The question is how. And, and so I don't think we're at a point yet where concentration limits are a huge concern. But it is part of the dialogue because you're absolutely right. As a proportion of the overall market, it is growing and growing very quickly.

[Lisa Abramowicz]

This is a reason why you're seeing a lot of companies look to tap every single corner, picking up, you know, quarters in the couch cushions of Canada and the couch cushions of Japan. And at what point is this capital coming from other bond portfolios versus new pools of capital? Whether it be cash, whether it be equities, whether it be private equity? I mean, how much are you seeing that really unleashed?

[John Served]

Well, as, as a, as a debt person, the really exciting part of this for me has been there have been a lot more coins in the couch cushions. Right. And so if you look across the global markets, we've led the biggest Canadian dollar deal ever, done the biggest Euro deal, sterling deal. So these other global markets, which have always been there, have grown in relevance in a very material way such that the available capital is much larger which helps the the overall ecosystem in terms of how we finance these massive CapEx numbers.

[Bloomberg Announcer]

What's most attractive if you're going to do one of these offerings outside the United States, out of all of these

[John Served]

countries you're talking about, it is a combination of diversifying funding sources and demonstrating that as an issuer you won't be solely reliant on the US corporate bond market, which remains the largest, deepest, most liquid by, by a lot. In certain cases there's a pricing benefit to it. It, in certain cases it's just establishing a new investor base so that in the future you know, you can go back there. So it really is again helpful in the context of we're still in the early or mid innings of this.

[Lisa Abramowicz]

Does it worry you when a company doesn't have cash flows that really compensate over their debt and over the expenses that they have? And yes, I'm talking about Space X, but there are a number of them that are probably going to be coming to market. I'm thinking if this is a model we could see something similar from OpenAI and Anthropic once they IPO, then there's going to be a follow on debt offer offering. How important is it for people to see the show me the money the sort of the cash flows that can continue in perpetuity to overcome some of these huge debt piles?

[John Served]

Yeah, it's, it's going to be interesting to see as the story plays out and you're absolutely right that the, the cash flow profile of many of these companies is very different from what your average investment grade investor is used to seeing. The reality is there. Our investor base is getting so up to speed on all of these stories in and around the IPO that I think they're prepared to deploy capital as needed pretty quickly. Again, it will play out over time in terms of cash flow profile or what the capex curve looks like relative to servicing the debt. We're not there yet.

[Jonathan Ferro]

John, you've been in the market a long time. How would you frame this moment historically if you ever seen anything like this?

[John Served]

No, this is again, to me this is the biggest theme we've seen in a very long time. What's particularly exciting for me as well is the level of creativity that is required to finance all of this. Right. If you go back one year, there was a very predominant market narrative that the hyperscalers would finance a lot of this through free cash flow from there to several hundred billions of dollars of debt issuance around the world. A lot of asset level project financing, equity issuance in 12 months. That's an incredible journey as a capital markets person. And so for us, thinking about how to raise this capital in the most efficient way requires a lot more creativity, a lot more product agnosticism. It's not just if your capital need looks like X, then go to this market.

[Jonathan Ferro]

They're getting creative. And I wonder if there's something on your dashboard that would trigger concern. I don't think we're there yet, listen to you right now. But what would come up on your dashboard that would say, think things have gone too far? When would the red light start flashing?

[John Served]

The red lights would start flashing if it felt like there was blind euphoria. And again, it does not feel that way. Whether it's underlying credit work or in project financing, where it's looking at the actual contract terms, investors are doing the work in understanding what's actually happening here. If you move it away from the AI ecosystem theme, what we're all watching is, and I said this at the outset is credit spreads are just historically tight. If you, if you buy a generic investment grade bond today, 85% of your coupon is the treasury yield. And so effectively it's an enhanced Treasury. Right. And so I think about, you know what that means in a, in a rockier economic environment.

[Jonathan Ferro]

Well, the question we've been asking is why are people so much more comfortable taking the credit risk when the additional yield is so small and they seem to be more concerned about the treasury than they are the corporate credit.

[John Served]

Yeah.

[Jonathan Ferro]

Are you hearing the same thing?

[John Served]

Yeah, and it's interesting. Part of it is corporate credit fundamentals in general remain very strong. And so there's a comfort level with that, but there is also just a tremendous amount of capital that, that has to be deployed. But I do think again with, even within the investment grade universe, there is differentiation. But you're absolutely right, it is to me, that's what we're watching is, it's, it's a, it's a historically tight spread.

[Jonathan Ferro]

Stay with us. More Bloomberg surveillance coming up after this.

[CBOE Representative]

And pause really quick. Wanted to also mention that not Only is Windows 11 Pro designed to help unlock operational efficiency, build long term advantage for your business, it can seriously level up your team's productivity. And since I know you all love stats, guess what? I got Microsoft commissioned stats. Compared to Windows 10 PCs, Windows 11 Pro users reported on average 50% faster workflows and collaboration, 42% faster completion of demanding workloads. And on average 61% longer battery life. Windows 11 Pro chip to Cloud Security is designed to help employees stay protected and uninterrupted at the office, at home, the coffee, coffee shop, wherever they work. Speaking of uninterrupted, you IT managers are going to love this one. The Microsoft Commission survey also reported Windows 11 Pro PCs having a 62% drop in security incidents compared to Windows 10 PCs. Because Windows means business, upgrade to Windows 11 Pro at windows means business.com Support

[Public.com Representative]

for the show comes from public.com if you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge on Public you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English like if the Vix hits 25, buy a put option on the S&P 500 or if my cash balance goes above $20,000, move the excess into my direct Index. You approve the workflow and your agent handles the risk, monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market paid for by Public

[John Served]

Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors, LLC.

[CBOE Representative]

SEC registered advisor complete disclosures [e-mail] disclosures

[Bloomberg Announcer]

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[Jonathan Ferro]

The next read on inflation, 24 hours away with PC data just around the corner. Francis Donald of RBC writing the new wrinkle in our outlook is Walsh positioning the Fed as keen to return inflation back to 2%. Should the Fed begin hiking the heat under inflation may be more contained. Francis joins us now for more. Francis, good morning, good to see you. Debate we've had so far this morning and over the last week is whether this is a change in style or substance, a change in policy or how we communicate policy. How would you describe it?

[Francis Donald]

Certainly a change in style and we'll wait to see whether it's a change in substance. But John, our take is always has been follow the data. The data will tell us where central banks are going to go, give or take a little bias to one side or the other. 2550 basis points. And right now the problem is inflation, which finally we have a chair of the Federal Reserve which is calling it out. You know, 30% of the CPI basket is running above, I'm sorry, 40% of the CPI basket is running Above 3% right now, including food, daycare, health care, even pet services are running above 3%. Way away from that Fed's target. And there is more inflation in the system outside of energy. This is a central bank that is going to have to contend with that. But more importantly, this is an American per people that is going to have to contend with ongoing inflationary pressures in core services all the way to food. And this is a central bank that is finally acknowledging there is a problem here and something needs to be done about it.

[Jonathan Ferro]

Can they address the problem? Frankly Francis, how rate sensitive is that demand that's leading to this price pressure?

[Francis Donald]

Well, this is the challenge. There is a lot of breadth under inflation and who's bearing the challenges of that? Well, it's low and middle income Americans. And while our take has been that the inflation issue is not really an energy issue, that has been one compounding factor. What's happening under the surface is there are cracks starting to form amongst low and middle income Americans. That savings rate has dropped pretty precipitously since the start of the energy crash. We've seen an uptick in credit usage, real wages have gone more negative. And so there are signs, yellow flags I would say for low and middle income Americans that are struggling now. If we raise interest rates, It's a catch 22. And this is a central bank that hasn't really had to deal with this challenge of the K shaped economy which is being divided by Demographics and also by income uses. So this I think will be Washington, Russia's biggest challenge, not inflation. If it was straightforward inflation and the regular pre pandemic economy, you could hike interest rates, bring down. But now with a very weak bottom 90% of American consumers, you hike interest rates just too far, you risk a much bigger slowdown in the consumer.

[Lisa Abramowicz]

What's a bigger hit on the income of lower income consumers? Frances? Interest rates going higher or the way that inflation has ticked up in a number of different components sense?

[Francis Donald]

I'm continuously worried about food price inflation and a lot of our leading indicators tell us there is still some impact coming from that, from the conflict in the Middle east that will be more lagged. Food inflation is one of those pieces of inflation that Americans see every single day and they cannot substitute away from it. Sometimes we see some moves from beef to chicken to peanut butter, but everybody has to eat. So keeping your eye on food price inflation, inflation is going to be critical. And here's the big challenge is the part of my job is to talk to everyone from hedge funds who are looking at headline inflation and how rates are pricing that in, but all the way over to CEOs now, markets are going to be very relieved because inflation has probably peaked in headline terms. And by Q2 of 2027, once we get to the summer of 2027, our call is that headline inflation will be sub 2%. But if you're a CEO running a business, particularly one that's not exposed to consumers, consumers are still going to be struggling with price pain that isn't going backwards. So you're going to get a dichotomy here between headline inflation that maybe soothes the Fed, maybe soothes markets, but doesn't impact real America, and navigating that transition is going to be challenging through the rest of 2026 and into 2027.

[Lisa Abramowicz]

Are you seeing any, for lack of a better phrase, trickle down from the hyperscaler investment, the capex, etc. To middle and lower income, just average consumers. Given the fact that so much of the growth has really come from there. And if you strip that out, the US Would probably be in a shrinking type of condition.

[Francis Donald]

Well, we wouldn't be shrinking, but we certainly wouldn't be close to 2%, which is about where we see the trend economy going right now. That 2% is coming, of course, from this massive infrastructure buildout. It's also coming from big government. And of course the savior of the headline continues consumer, which is that top 10%. What's going to continue to matter for consumers and why we think that the U.S. economy can persist at 2% is because the labor market is very, very tight. That will continue to be the most important thing. And the labor market is going to stay tight and has nothing to do or almost little to do with what's happening in AI. It has to do with mass retirements, a shrinking labor force participation rate and a consumer that now is not going to be judged on whether they have a job or not. But are they making enough money and working enough hours in order to pay for life? So you've got many structural themes that are happening under the surface. And the core message I have for clients is don't use the pre pandemic way of thinking about a cycle as a good element or a good way to think about where the economy is going to go next. These structural trends from AI to labor force participation rate declining are changing the way we have to think about the American economy. And it means that markets are going to react differently, businesses are going to operate differently.

[Bloomberg Announcer]

Well, when it comes to the Federal Reserve, I mean Kevin Moore said the monetary policy somewhat restrictive in some sectors, them raising interest rates is not going to hurt the build out, but might continuously restrict those certain sectors like housing.

[Francis Donald]

That's exactly right. Monetary policy is a poor tool for an economy that is fragmented by sector, by income group. And we've seen this, we've seen central banks across the the entire world who are struggling with what do you do when your regions look very different? What do you do when your incomes look very different? For now, the mandate of the central bank is price stability. Oh, and labor. But Fed Chair war just maybe put that to the side for a little bit. And if your mandate is inflation, then that's what you got to target. So the biggest risk moving forward to me is not a huge move in the bond market. It's not a collapse of the US Economy. It's what happens to middle and low income Americans in a hiking environment. In our view, it's probably going to take a lowercase K economy and move it to an uppercase K economy.

[Jonathan Ferro]

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 6am to 9am 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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