The Fed vs. AI inflation

Well, let's see. We've got like seven or eight minutes to kill. What do you want to talk about? From American public media. This is Marketplace. In Los Angeles, I'm Kyle Riznall. It is Friday. Today is one of the 13th of November good. As it always is to have you along, everybody. Alright, so look, we're just going to start because there is a bunch of stuff to talk about. David Gurra is at Bloomberg. Courtney Smith is at Axios. Hey, you too. Hey, Kai, hi. So Courtney, first of all, it's Courtney Brown, not Courtney Smith. I apologize. I don't know. I don't know where that one came from. I truly don't know where that one came from. And thank you for not. Thank you for not correcting me live on the air. I will do that myself. All right. Anyway, so it has been a week. So let's talk about the thing of most immediate concern, inflation, CPI and PPI both came in this week. The numbers were not good. Do you suppose that the federal reserve would like a do over on its pause from its last meeting? I think there are some officials who might want a do over. Before we even got the CPI report, can I just say that a top Fed official whose name is Chris Waller came out and laid out a very precise test for what in his view would lead to a possibly half percentage point. I get the feds meeting next month. He laid out the test and the data came in exactly how he said it would need to come in for him to support a supersized rate hike. Um, I don't it doesn't seem like that's a widespread view on the committee, but remember heat dissent. He raised his hand and say hey guys. Right. I don't. I don't agree that we should stay on hold here. So something has changed. And I think what that something is is inflation pressures heating up at the economy as we saw with the data releases this week. David girl whose name I got right. Keep going with that. Um, inflation pressures are real. There's AI going on in this economy out the wazoo. We're going to talk about that a little bit later with Kristen Schwab. Um, it's not like inflation pressures are easing, I guess, is what I'm saying. No. In fact, I think they're they're broadening and we heard that from a number of fed policy makers. And this has been a busy week for people like Courtney who have to listen to all of those speeches and interviews that are taking place. But I think you know, listening to Courtney and sort of the way that Chris Waller talked about his threshold and the like it is so starkly different from the fed chair and what he's doing right now. And that comes no surprise. He doesn't want to offer forward guidance. And he's going to speak on Monday. And it's likely he'll say nothing of use to markets kind of looking for what the fed's path forward is going to be. But no, I mean, you look at the data that we got this week. And I'm contractually obligated to say we get the fed's preferred inflation gain PCE here a couple of weeks time and some of this feeds into that. And I think look, we've been dealing with a lot of these pressures. Not narrowly, but hasn't been affecting the whole breadth of the economy. We're seeing that change now. And I think that metamorphosis is what's really scaring a lot of policy makers. And so I don't know that they regret the pause that they had in place. But I think historically there's been kind of a systematic approach to the way that the fed raises rates. And I think that there is a sense here. Yes, that this is persisting longer and becoming a bigger deal than that they expected. But also, as you were looking to just a moment ago in your question, there are so many variables here at play. Obviously what happens with AI and the broader AI economy, what happens with energy prices with the war in the Middle East. And then what happens, of course, with the resilience of the consumer? I mean, that is something that everyone trumpets. And we've seen a remarkably resilient consumer, but how long can that persist in light of the pressures that everyone's under? Clearly, it's forever that the consumer can last because I personally have been asking that question on this segment of this program for years and years and years. And I'm like, how can they keep going? And yet they do Courtney. There was a period like a monthish six weeks ago when we were all hot and bothered about the bond market. And then things seem to come down a little bit. And as you and your colleague, Neil, everyone wrote, I guess yesterday or two days ago, there are more Burballings now in the bond market that they are getting upset and a little light rate. And that, of course, affects the entire rest of the economy. Yeah. And I think that just reflects the bond market waking up to the reality that I think that we started 2026. We were talking about rate cuts. That was so cute. We were talking about We get to, okay, the Fed is clearly going to have to raise rates. And I think there was this idea. It was going to be maybe a mid cycle adjustment, maybe one, maybe two. And I think what's becoming clear and you see this reflected in the bond market is, oh, wait, this actually might be a longer, a more persistent rate hiking cycle than anyone anticipated. I mean, I have a stat that's been living rent free in my head all week since we got the CPI report. Path of the CPI components are that are rising above 3% or more over the past 12 months, 50% right? That's up from about a third in August. So it's very clear that this is not in a wrong story. There's not just in a wrong story. This is not just an AI story. This is a very broad inflation problem. So something to watch for sure. David, I want to circle back to it to what the sentiment might be in the room at the FOMC when those guys are meeting. I'm sure you saw it might have even been a Bloomberg story. Austin Ghoulsby, the president of Chicago Fed saying the other day we have and these are these are very close paraphrases here. We have a real inflation issue on our hands. And this is a quote, it is borderline disturbing. Hello, Mr. Ghoulsby borderline disturbing. I mean, it's been like five years now that the Fed hasn't been able to meet its inflation target. And I guess, yes, they get it. But do they get it? Such a good question. And I think that you're right to pick up on the fact that the rhetoric seems to have changed here and that Ajita among policymakers seems to be heightened. And I would love to be a fly in the wall when they meet. I don't think the minutes will do it. Just as one. In fact, that happens. But I do think there is a greater sense of obviously the longevity. This is you mentioned. Coupled with the the the the animals that we have heard from the Fed share and other policymakers. This 2% target isn't a soft target. I mean, I think Kevin Wars said that numerous times during the last press conference. So he and they are still very much wedded to this to this goal. But but you rightly point out it has been a real specific in labor here for the Fed over the last five years to try to get that that number down and they haven't been able to, you know, I think I think you can kind of even like set that in isolation, looking at all that's compounding that now. I think I think we're hearing from all of these policymakers now most of these policymakers now a growing sense of worry about their inability to do that. Ajita and Cisifist. That's why we have a program. Yeah, a tabular lesson. Truly. Courtney, the last one to you at reasonably quickly. There is a challenge here to economic growth with this inflation, right. It's not just consumers getting cranky. It's not just the Fed working on it. But it is even though the economy is growing now. There is an economic growth challenge to know. In the sense that, you know, the economy, the consumers will stop spending at some point and then the economy will slow down. What do you think? You got like 30 seconds. Yeah. Well, I want to repeat what you said. I've been waiting for that to happen. I look at the consumer sentiment data that's just in the toilet. It's very clear that indicator is one that's more related to politics than it is the economy at least so far. They haven't stopped spending. I'm not saying that can go on forever. But as of right now, consumer spending is holding up strong. And we still have that big AI CapEx boom that's helping the economy as well. Yeah. David, is there anything to say and you now have 30 seconds? macroeconomically here about AI and Nvidia and Jensen Wong. And you can totally pass if you want to because lots has been said. No, we kind of cheekily call it the central bank of Nvidia. I mean, this is a company that's played a huge role here in propping up that AI economy. The Courtney was talking about a moment ago. And I think that's there's lots of threads of this story to pull on and follow here over the next many weeks. But it is that level of investment in all of these companies that circular financing. So I think bear is watching because it could just have profound ramifications on the overall economy and watch. We will David Gerr at Bloomberg Courtney Brown Courtney Brown. It actually on a Friday. I'm so sorry. That's twice. That's two times. The last two times I've had y'all I've messed up. Have a nice weekend, you guys. Thank you, guys. Thank you, guys. See you. Wall Street today. You know, once again, honestly, not as bad as it could have what it should have been given. You know, everything details when we do the numbers. Let's pretend for just a minute here. You have the very toughest job in corporate communications. Right now, you have give or take 96 hours until Nvidia's regularly scheduled corporate earnings report Tuesday next ordinarily, it would be a big deal. Now it is galactic and analysts and investors in the public at large are going to be listening. Oh, so closely because how that company is doing as girl was just saying is kind of important to the whole AI boom. And therefore to the economy at large, marketplaces, Stephanie Hughes continues a role playing earnings calls are pretty much always scripted, but law professor Karen. at Washington and Lee says this one in particular is going to be super planned out. The first thing you do is you do run every single word by the attorneys. Lawyers are always involved when companies disclose their financial results. Now that government investigations may be on the way, Woody says Nvidia is going to want to be extra careful about its words. She says the company will also want to get across a sense of continuity. They need to operate as if this is clearly something this company can get through and will keep the trains still are on time. The chips are going to get made. The company can still company. Woody says one benefit of having the chief financial officer step up is that she knows Nvidia's business. Still, she and her comms team are going to be working through the weekend. I'm sure there are a number of rehearsals that have been going on. And Taylor Adams has worked in corporate communications for a few publicly-traded companies. Roughly half of an earnings call is prepared remarks. The rest is Q&A from stock analysts, which means the Nvidia execs will have to field some questions about, "I'll end down." You try and contain things with the facts that you know and can actually stand behind and then really get back to the business of the quarter. Adams says it's important for the communications team to know everything that might come out. And this is probably particularly gnarly because it is dealing with personal, familial relationships. Going forward with the earnings call, despite the crisis, is a signal of business as usual, says law professor Karen Woody. You know, basically nothing to see here. Even though there's plenty, we all want to see. I'm Stephanie Hughes from our office. It's more common than you might think for people to look for work in an industry that is entirely different than where they currently are. Data from Monster.com shows that 64% of people looking for new jobs out there are applying outside of the industry that they are coming from. Sometimes, though, jumping industries might not be intentional at all. Here's today's installment of our series "Clocked Out" Stories on this week about how leaving the corporate world can lead to new opportunities. My name is Randy Spikoki and I live in Maui, Hawaii. My world is an artisan of Japanese glass-meaded braids and I'm an artisan with the Vlahina Art Society. So, did I really start this business thinking that it would be a business? The answer is no. It really was the past time it kept me busy. I'm a multitasker, but my career lasted 30 years. I was really loving what it is that I did. I was a sponge for everything human resources and organizational psychology. And in 2016-17, I had three foot surgeries and I couldn't work. And then my husband got a job in Hawaii and I was the spouse of a minister, but that's when people were giving me gifts of Hawaiian lei and I would see them wilting. And I thought, you know, I could make that out of glass beads because if I then I was making fiber beads and then I'd soften the races. The difference between the linear boxes and squares of corporate life and artist life is really left-brain right-brain. There's no map for this stuff. Three weeks ago, I had a $1,500 day and then two weeks back, it was only $130. And that's okay. I'm learning the cadence of the shoulder season. I'm learning the cadence of the tourists, but I know the value of my time. So, I tried to $20 an hour for something that I make plus the cost of goods sold. So, if it's something that took me four hours, I'll probably charge it to $120 to $150, depends upon what it is. But when Hawaiians see me in the booth, Hawaiians more than others will say that reminds me of and that compliment is truly better than purchasing it because they are recognizing my ability to represent their culture in a way that's classy and appropriate, not appropriating. I'm six years into my new career and I even just this year started to say that I'm no longer retired. I was saying I was retired for the last six years. I'm 69. I'm moving into my next phase or stage, which is the decline of life, if you will. But I'm also nurturing and growing my life in a new way that I never thought possible, and I wake up with this passion to just jump out of bed and start creating. Which is awesome, by the way. Randy Spakoki with the Lahina Arts Society on Maui, I don't know why. Wherever you are, whatever you do, you and your stories are what make this series and also not for nothing, this whole economy go around. Let us know, would you? What doors are opening and closing perhaps in your economic life, Marketplace.org/Clockdown. Coming up. How to make the best chocolate chip cookie ever without at any point consulting a chef. What could possibly go wrong? First though, let's do the numbers. 3/10 of 1 percent. Stephanie Hughes was talking about Nvidia and it's upcoming earnings shares. Earnings report rather shares have been videoed down 2 percent today. AI chipmaking rival AMD saw shares drop 8 and 3/4 percent Intel. Slumped about 2 and a half percent. Bonds down yield on the 10-year Tino. Courtney was talking about this up to 5.14 percent. You're listening to Marketplace. This is Marketplace. I'm Kai Rizdal. We talked a little bit up the top of the program. Courtney, David and I. All right. It was a lot about what the Fed might be thinking. We're going to get a chance to hear from the monetary policy horses mouth, if you will. When Chairman Kevin Moore speaks on Monday, David alluded to this. He's going to be talking about artificial intelligence and what it is going to mean for this economy. We should say here this event was planned a while ago before the whole Nvidia thing in the midterms, but AI isn't going anywhere, which means as Marketplace's Kristen Schwab reports, the central bank is going to have to figure out how to deal with its effects on inflation. Okay. So short term, there isn't a lot to debate here. Investment in AI is boosting the price of chips, which also boosts the price of stuff like phones, computers, and gaming consoles. And that's not all, says former Fed economist Ken Cutner. We know that the AI build out is putting pressure on the demand for labor, the demand for goods and services in some places. It is actually raising energy prices. He says the question is whether inflation from AI demand is a short term thing. Problem is, there's not a lot of time to figure it out. It would be much easier call now if it weren't for the fact that we're already well above the desired rate of inflation. And dealing with a bunch of other problems that push up prices like the war in Iran. Another issue, the AI build out is fueling the economy. Companies have big appetites to borrow and spend, and former Fed Governor Randy Crossner says the AI-powered corner of the stock market means some consumers have big appetites to borrow and spend. It's making many people very wealthy, and so they'd be more likely to buy houses and consume. To slow consumption, the Fed is likely to raise rates in December. But Crossner says it's probably not going to curb AI spending. This is a much excitement about AI that, you know, half percentage points higher interest rates. Not sure that's going to really slow down AI investment. This Nvidia scandal, the AI data center backlash, and the question of whether the sector is moving too fast, could put a speed bump in investment. Still, Gregory Docko, chief economist at EY Parthenon thinks AI will keep adding to the inflation soup. And that's likely to linger over the next 12 to 24 months. And help build a case for more interest rate hikes next year. I'm Kristen Schwab for Marketplace. Private equity is involved to the tune of billions of dollars in the restaurant business. Consider as just one example, inspire brands, the holding company behind Arby's and Duncan and Baskin Robbins, a whole long list of others. It is private equity owned. But it's not just fast food that's catching the eye of private investors. Consider also bakeries, even more specifically, Consider cookies. Courtney Smith is founder and co-owner of the Food Publication Ravanus. She has been covering private equity and food. Thanks for coming on. Thank you so much. Just to start with a case study here, if we could. Tell me about insomnia cookies, would you? Insomnia cookies is something a guy started in his dorm room in Boston. Which I love. Way back in the good old days of the early 2000s. And you know, it became a thing where he was literally cooking in an oven in the dorm. And that is wild. But he saw a need that campus on campus. The students really needed cookies. And he was right. It became a really big business and eventually became something private equity invested in and expanded and expanded and expanded. And now it is massive all over this country and many others. Is there something outlets or something, right? Yeah, yeah, which is a lot of cookies. Which is a lot of cookies. The point of the piece that you wrote about the private equity cookies, but also sort of the larger gist here, is that that private equity expansion didn't really make the cookies any better. Well, they were never particularly good cookies to begin with. Okay, fair. I mean, they're pretty basic. But that's where we get into the crumble of it all. Which want to be these gourmet, fancy cookies. For those not familiar, crumble cookies are. Cable cookies were started in Utah by a couple of guys who are related. And one came from tech, one came from marketing. And they built their cookie company like a tech company where they A B tested cookies and tried to figure out how to make the best chocolate chip cookie ever without at any point consulting a chef. Yeah, taking all the romance out of it. So let's extend that to the sort of larger restaurant business and private equity thing. There's a list on on ravenous of restaurants and chains that have private equity involvement and I stopped counting at 45. I mean, there's a lot of private equity money out there in restaurants. There's a lot of private equity money out there, period. I think that field has grown in the last 20 years by three or four fold. It's crazy. Restaurants are very interesting to private equity for a lot of reasons. One of them are, is it franchise owned? And that is a very attractive model. Because you can squeeze a lot out of the margins if they're franchises. And one is, will it scale? Can we just copy and paste this all over America and the rest of the world? This list that you guys had on ravenous of all these companies of which I stopped counting. Was it tough to put together just because private equity doesn't like to be sort of front and center in any of these discussions because they have not a great reputation? They do. And also, I mean, the private keeps them unregulated in a lot of ways that things on the public market are not. Yeah, it was very catches catch can. We were just, honestly, started working backwards, looking at here are some restaurants did private equity ever invest in them. And then when we went to the portfolio page, what else have they invested in? Like, this is a very incomplete list. I think it goes way deeper than this. And we cut ourselves off. So things that don't currently have a private equity investment, but maybe did in the past aren't on it. The whole ethos of private equity, of course, is to squeeze and to get more money out of it. And then maybe eventually spin it out and go public and reap the profits that way. How does that usually work out? So, IPOs are becoming less and less of a thing that private equity does. And it's more of a venture capital thing at this point. So when they do it, the companies can be left with a whole new set of expectations on the public market to live up to. New sales figures, all the stuff they got juiced to do with the private equity money. Now they have to do it without that shareholder money. Right. Also debt too, right? I mean, that's the kind of thing. Also debt and mostly private equity brings in extra debt. An example is Blackstone with Jersey Mike's the IPO this year, this July, and did it in 18 months, which is super fast and really unheard of these days. But they created two billion extra dollars of debt for the company doing it. Courtney Smith, the raveness. Courtney, thanks a bunch. Thank you. (Music) This final note on the way out today, which I will just summarize by saying ouch. Megan McCarty Karino was telling us yesterday about the plaque in that Denny's in San Jose where Jensen Huang and his co-founders came up with the idea for Nvidia. And how Denny's had to keep updating it as the company's market capitalization ticked over another trillion dollars. Well, as the saying goes, all fame is fleeting. NBC News is reporting that the plaque is now gone. Our theme music was composed by BJ Leader Man Marketplace's executive producer, Nancy Fargali, who went and Griffith is the Chief Content Officer, Neil Scarborough's Vice President, General Manager, and I'm Kyle Rizzo. I have ourselves a great weekend, everybody. We will see you back here on Monday, all right? (Music) This is APM.