Episode summary
Hawkish Central Banks | Bloomberg Surveillance
Bloomberg Surveillance
· · 41 min · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr · Guests: Torsten Slok, Meghan Robson, Alexis Crow, Dana Telsey, Bruce Wolfe
Summary
The discussion centered on a still-resilient U.S. economy being pulled in opposite directions by higher rates and the AI investment boom. Torsten Slok argued that nominal GDP remains unusually strong because AI spending, stock-market wealth effects, and fiscal support are offsetting weakness in housing and autos. He said the risk is that the economy has become too dependent on AI continuing to deliver growth, especially as it now drives a large share of market returns and even venture capital allocation.
A separate credit segment was more cautious. A guest from BNP Paribas said higher yields have not yet blown out spreads, but the flood of corporate bond supply tied to AI capex is raising the floor on spreads and could create more volatility. She expected two more Fed hikes and said leverage loans look more attractive than fixed-rate high-yield bonds if rates keep rising.
The show also explored Europe, where growth may lean on defense and infrastructure spending even as politics remain unstable, and retail, where Dana Telsey said luxury is weak in Europe but strong in North America. Bruce Wolfe later argued retirement systems are moving toward a hybrid of defined contribution and defined benefit features to manage longevity risk.
Key takeaways
- Torsten Slok said AI spending, wealth effects and fiscal support are keeping U.S. nominal GDP unusually strong despite weak housing and autos.
- The BNP Paribas credit view turned less bullish because AI-related bond issuance is boosting supply and could pressure spreads.
- A guest expected two more Fed hikes and said investment-grade borrowers can still absorb them unless rate moves become sharp and volatile.
- Dana Telsey said luxury weakness is concentrated in Europe, while North American store traffic and sales remain the strongest part of the category.
- Bruce Wolfe said retirement planning is shifting toward lifetime-income solutions because longevity risk is the hardest problem for households to manage.
Notable quotes
“we have two very important tailwinds. We have of course the AI spending boom”
“we are basically all of us overexposed to AI in particular in the 6040 or the broader household portfolio”
“The one thing that they do have going for them is in particular defense spending and infrastructure spending”
“the hardest nastiest financial problem to solve is the one for individuals trying to draw down money in retirement”
How the episode opens
Bloomberg Audio Studios podcasts, radio, news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Torstson Apollo joins us. Now, we got a three-hour conversation, Torstson, we're going to cram in here. I'm ready.
And to me, the absolutely shock unusual thing is this boom nominal GDP economy. And in the Fed meeting, pretty much everyone at the Fed says it's just going to keep on going and we're not going to see any decline in real GDP. That's not in the textbooks I studied.
No, it is really unusual, but that's because we have two very important tailwinds. We have of course the AI spending boom. GDP normally grows at two and now 1 percentage point of growth is coming because of the AI spending boom.
Not only on data centers and energy but also spending on tokens remember that also goes into GDP spending on tools for consumers spending on tools for corporates. All that spending combined with the wealth effect also coming out of high stock prices is all very very important for growth at the moment. And combining that with the one big middle for bill which the CBO says will add about 0.9% to GDP.
We have some really really important nonsensitive to interest rate tailwinds and these tailwinds are really the critical reason why the economy continues to do so well.
Are you modeling out a continued 5% nominal GDP which clearly within Barry Iken Green's financialization benefits the halves? — Absolutely. We expect still growth to be strong and what's really unique as you also just spoke about a minute ago is that when interest rates are high it hurts the interest rate sensitive parts of the economy which is housing and autos.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- hawkish central banks
- fed meeting
- global bond selloff
- us economic outlook
- retail sales and luxury demand
Companies and tickers mentioned
- Apollo
- BNP Paribas
- PwC
- Telsey Advisory Group
- Alight
- CS Wolfe & Associates
Watch the episode
Watch “Hawkish Central Banks | Bloomberg Surveillance” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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