Sticky Inflation is Testing the Fed; Midterm Election Countdown

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We have been remiss. One of the interns at Macro Policy Perspectives emailed me.

Okay.

I think out of Texas. You know, it's Julia. What do you want? And she said, Julia's miffed. There's just not enough Fed chat on Bloomberg surveillance. Joining us now from the Texas sphere, Julia Coronado, president, founder, Macro Policy Perspectives. Julia, are we talking less about the Fed because Chairman Warsh wants us to talk less about the Fed?

I don't know if I would describe it that way, Tom.

I mean, right now we're talking less about the Fed because it's the quiet period ahead of the FOMC meeting, number one. And number two, we all know what they're going to do. Why do we know what they're going to do? Because we got good old-fashioned forward guidance from leadership on the FOMC telling us that October was a hold to gather more information. So I think that that's the real answer is we already know what they're going to do because we, in fact, did get forward guidance.

Can you glean, folks, full disclosure, Dr. Cornell has been verbally shortlisted for governor and all that. Can you glean, Julia, the governor and president's power or push against their newly minted chairmen?

Yeah.

I mean, look, there was already a rethinking of the inflationary dynamics we're seeing before Chair Warsh walked into the door of the FOMC, of the Federal Reserve. And that kept going. So he walked into a really challenging situation. If your goal is going to be to cut rates or even to hold them steady, you are confronting a committee that was increasingly worried about stickiness and inflation, persistence and inflation. And I think that that's been borne out by the data. And so, yeah, I do think the committee dynamic is one very powerful, constraining force on Warsh.

And he read the tea leaves and knows that his job is to lead that committee. So he signed on to basically a hiking cycle.

Joy, as we think about the stickiness of this inflation, is there an argument to be made that maybe this is kind of the new normal if we're trying to reshore some manufacturing in this country? That suggests higher prices. If we're talking about limiting or eliminating immigration, that might push up wages for those that are here. Is there some structural changes that might suggest, hey, this 2% number is probably not the right target anymore?

Well, I hear that argument being made, and that sends shivers down my spine as a monetary policy aficionado. Once we start making excuses for inflation, price stability starts slipping away from us. We've done it in the past, and I do hear rumblings about that. Again, I hear, well, AI isn't interest rate sensitive. So if it's one of the drivers of inflation, the Fed can't do anything about that.

I think actually what we've seen in markets in the last few weeks illustrates that AI is interest rate sensitive. And of course it is because it's the most capital hungry sector we've had in decades. So of course, the cost of capital is going to impact investor sentiment and sensitivity to the numbers that they're putting out. So I don't like that. I don't subscribe to that line of thinking.

I think it's very important that we remember why the Federal Reserve was created in the first place.

It was out of the ashes of the railroad boom and bust. Let's not do that.

The Fed doesn't need to crush the economy. but it does need to keep inflation in check and it set a target and it needs to kind of try and meet that target.

Julia Carnato with us on Macro Policy Perspectives. Julia, do you see evidence, and I'm looking at a 10-year where Paul and I are starting to chat up a 499. We're not there yet, but do you see before the fact that the combination of inflation and real GDP could shock and nominal GDP actually start to come down? Is that a story we should be talking about?

Yeah, I mean, I think there's a number of things that could slow down nominal GDP. I think what the inflation pressures are telling us is that there is a speed limit to the AI build out. And so and, you know, consumer purchasing power is taking a hit and really consumers are being held up by wealth effects. So all of these things sort of tell us that yeah, we could see some moderation in nominal GDP growth, you know, in the year ahead.

And, you know, we've been on.

A hockey stick in terms of CapEx outlays and announced plans. Even if that growth rate slows, you know, you're going to see, you know, some more moderate numbers. So I think some moderation in nominal GDP growth is probably a baseline expectation for 2027.

What's the real wage doing right now? Yeah.

Well, real wages are not growing. The labor market is not tight.

It is fine.

It is very balanced. But we do not see any indications in the wage growth measure, any of the wage growth measures, really, that wages are firming or accelerating. And that means that this sticky inflation is taking a toll on consumer purchasing power.

I mean, Paul.

I got to be honest, I didn't come up with that question. No? That was from Adam Farstrup's deck.

Adam Farstrup's deck, exactly.

And Schroeder's came up with that question for me to get me to Julia Cardano.

We love that. Hey, Julia, as we think about AI, it just seems to be everywhere. It's in everyone's conversation, it seems like. What are the economic impacts from AI, all this spending? If you strip out AI, what does it mean for GDP growth? What does it mean for underlying inflation? We're just trying to figure out you know, how this is impacting other parts of the economy.

Yeah.

I mean, it really is kind of drawing in all heat and light, isn't it? I mean, it's, it is holding up the economy. There's plenty of ripple effects from the data center build out the AI build out into, you know, the suppliers of the components. You can see its footprint in the labor market. You're seeing construction hiring and manufacturing hiring and transportation and warehousing and adding more jobs, even as other sectors slow down. So you can see that it really is the main driver. And then again, if we turn back to the consumer, consumption's been running ahead of real income growth.

Why?

Because of AI-led wealth effects. So It's not just the U.S. either, because U.S. GDP for all of the capex boom we're in the middle of is still only growing around 2%.

Why?

Because a lot of that demand is being exported. So the chips and the components. So it's a global GDP driver, not just a U.S. GDP driver.

But it's quite material.

It really is the story. Right.

I feel more at peace now after talking to Dr. Coronado. We've done our obligatory Fed chat. It's just, you know, it's like Dr. Julia. It's therapy.

Get it done.

Julian Coronado, thank you so much. Macro Policy Perspectives here. Stay with us.

More from Bloomberg Surveillance coming up after this.

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

Obviously, I think it's 13 days I heard away from the election. Vote early, vote often. Jennifer Lawless with us, professor at University of Virginia. Wonderful, wonderful. Jennifer, you have it in your note. Thank you. I've got to bounce off Jeff Green's tour de force. The first line of young men blackpilling out. I've checked out. Professor Lawless, how much of America would you guess is checked out of this election?

Well, Ordinarily in midterm elections, the majority of the nation is checked out. But we've learned over the last decade that Donald Trump is a very motivating force for people on both sides of the aisle. And midterm turnout has increased in 2018 and 2022. It was higher than in previous cycles. And my bet is that we'll see record turnout this time. So at least a third of the country will still be tuned out and, you know, very turned off. But I do think that people will show up at the polls and more than 10 million have already cast ballots.

Interesting. Is the Senate in play, Professor, do you think? Oh, unquestionably.

I mean, depending on which predictions you look at and depending on which polls you give more weight to, there are up to a dozen seats that could potentially flip. But the Democrats don't need a dozen seats. And I think that if the election was held today. they would likely take back the Senate, probably not by a huge margin, but by one or two seats.

If you're the Republican National Committee chairperson, what are you doing today? You've got a president who's got very low approval ratings pursuing policies, whether it's tariffs or a war in Iran that don't poll well in general. I mean, what do you do here?

Well, I think we're seeing two strategies, and they're both potentially smart, but regardless, they're the only options. The first is for candidates in very close races to distance themselves from Donald Trump. And we're seeing Trump allow that a little bit more than we have in previous cycles. John Sununu in New Hampshire, for example, has said, run an ad where he basically says he's not Donald Trump and the Democrats are mischaracterizing him that way. In a previous cycle, Donald Trump would get very angry if a Republican was trying to distance himself.

That's one option.

The other option is to really drive up voter turnout and to make sure that those low propensity voters who turned out when Trump was at the top of the ticket, who are part of the MAGA base, turn out even when Trump isn't on the ticket. So I think there's this two-pronged strategy, but Basically, both are Hail Mary passes for the Republicans at this point.

Jennifer Lawless, you are definitive in the study of women in the American election history as well. I've heard almost zero about women in this midterm election.

Is that odd?

Typically, we talk about every election as the year of the woman.

Can women make gains?

Are women going to get a record number of seats in the House or Senate. This time around, identity politics just doesn't seem to be playing much of a role. Women won several contested primaries. You know, there are women who are obviously spending tons of money in this race. Alexandria Ocasio-Cortez, for example, just put a million dollars of her own money into the Michigan Senate race. But this time around, it's really about partisanship all the way.

Professor, is it too early to think about 2028? Because I don't read anything, hear anything about that.

I listen to you. Exactly. Get in front of the script.

I mean, I don't even know who we should be thinking about at this point in time.

My bet is that we'll start talking about 2028 about 48 hours after the election. The problem, of course, for candidates that are interested in running for president is that many of them are up for reelection this time around. So John Ossoff, for example, who would be a very credible candidate and a strong contender for 2028, first has to win back, win his Senate seat. And so it would be gauche to discuss running for 2028 until he gets that 2026 victory.

The view from Charlottesville, can the Democrats run to the center? To Paul's good question on 28, is this a seismic change where both parties leave the culture wars and the rest of it, the polarity, and they run to the middle?

I don't think so. I think we've reached an era of American politics where it's all about turnout and And we are polarized, and we are generally split in terms of who affiliates with the Democrats and the Republicans. And keep in mind, by the way, that the electorate is far more moderate than the candidates they elect. They're just given these choices on the left and the right. But because we're so polarized, we've gotten to the point where whether there's a D or an R in front of a candidate's name tells us almost everything we need to know.

So the goals for these candidates now is to drive up turnout among their supporters and to win over independents.

It's not about running to the middle anymore.

Jennifer Lawless, thank you so much for wisdom this morning at the University of Virginia. Professor Lawless, just definitive on the study of our election system. Stay with us.

More from Bloomberg Surveillance coming up after this.

Many talk, very few do. So you're a freshman and mostly you're worried about which happy hour are we going to?

Exactly. That's how we rolled.

It was a little different for Sean Henry at Georgia Tech as a freshman. He said, I just think I want to be entrepreneurial and figure out prime Amazon prime for people that are priming. And it is stored studio. We're thrilled he could join us today after leaving Georgia Tech. After they supported him and said, if it screws up, you can come back. After taking beverages of their choices with Kleiner Perkins and Founder Fund.

Not bad.

Not bad. Sean Henry's here after commencement. What was it like your commencement speak when you came back at Georgia Tech?

You know, if I can tease them on air, I really was hopeful for that, that honorary degree when I gave the commencement. But no, more than anything, it's kind of like the young entrepreneurial journey work. I stand up there and say, I don't have all the answers, but this is the best I have.

All the parents have a total cow. OMG, you're not completing school. Was there pushback when you exited Georgia Tech and said, I'm going to beat Amazon at Prime?

Yeah, I think with the scale and ambition of the mission, it was quite daunting to anyone we said it to back then. But that was really what enabled me to go and found the business. I ended up at Teal Fellow, and Georgia Tech was the most open door in the world, telling my parents directly, if it doesn't work, we'll have them back.

Very cool. What's the next step now? I'm not big on what we're working at this valuation, but is the next step Jassy and Amazon Bayou? Is the next step Somebody else buys you. What's the next step for Stuart?

Yeah, we completed a $ 250 million Series F at $ 3 billion earlier this year. And to your point, that's still roughly one one-thousandth of the Amazon market cap, which is 36% of U.S.

E-commerce.

And we really exist to serve the rest of that market, enable all independent merchants with prime level speeds and costs.

But we're not there yet, to be honest. We are better than the industry. The average U.S.

E-commerce business, 86% of them don't offer free delivery. The average delivery speed is between five and six days. It costs that business 12 plus dollars. Meanwhile, Amazon's delivering tomorrow for four to five dollars with free returns and free upfront promise and more. So we're closing that gap where today stored offers two day delivery across the US, across Canada, across Europe. But we're still in the pursuit of scale.

Scale is what enables us to place units close to consumers, get that last mile density, get that speed and cost and trust of Prime.

Sounds like a CEO. He's got a dumb cold, Paul.

So you guys made an acquisition today that helps you get there. Talk to us about what Steward did today.

Exactly.

And that's part of that added scale I was hitting at. So we just closed the acquisition of AMS Fulfillment, a 20 plus year operator, over 10 million annual e-commerce orders and packages, over 600 employees across over a million square feet of fulfillment infrastructure. And as I said, what we've really found is that more scale spins our flywheel of speed and cost. Earlier this year as part of the Series F, we also announced Stored Labs, which is a very dedicated investment behind robotic deployment. We're partnering with some of the most advanced agentic robotic companies out there, as well as a data foundry. And so now as we add more scale, we're not only adding 20 years of operational learnings, we're adding all that volume onto our intelligence

and scale flywheel in the business. And so really what happens is packages get faster and cheaper for every Stored customer, not just the new customers. And to the AMS team, they get the extended network of stored. All their customers get our technology, and they also benefit from cheaper and faster.

How do you move the boxes? How do you deal with the huge challenge that FedEx and others had of airlines, railroads, trucks? How do you deal with old technology?

Yeah, we spent a decade building all of the technology in-house, and that was the hardest part.

You nailed it from day one.

We looked out, and today it's kind of popular right now in 2026 to say, I'm a physical intelligence and physical AI business. But when we started, physical was... kind of a bad word in venture capital. It was the WeWork days and all these other problems that had occurred. And we said, no, you have to build all the software and all the physical network in one. That's the only way you get prime level delivery. So exactly to your point, we actually spent the first six, seven years of the decade history of Stored really just building that top to bottom, all the WMS, warehouse management, transportation management, labor management, billing management, inventory and demand planning, order orchestration,

front-end checkout technology. And really at year seven or eight, once we had built this vertically integrated stack, we reached that point of, ah, it's working. Now we can really add scale to this system and keep closing that gap farther. And that's really what we've been doing. The last four years, we've now grown over 10X.

What's the marketplace? I think of delivery. I just think of Amazon. What percentage of that e-commerce market does Amazon control and And then the rest of you guys, what do you guys make up?

Yeah, so Amazon spends about $ 212 billion a year in 2025 on delivery just for themselves. And they're 36% of the nearly $ 2 trillion US e-commerce market. And so if you trend that out to the other two thirds, they're largely left behind. Think about your average online experience. It's slow, it's bad tracking, it's unclear returns. And what we really preach to our customers is today, that delivery infrastructure is actually a marketing cost. It's actually a customer acquisition and loyalty cost. And that's what Prime has realized. And others just don't have the infrastructure or scale to achieve that on their own.

Interesting. We don't care. OK, I'm looking. You beat Duke by three points. Duke, Georgia Tech. I mean, it was ugly. Then Virginia Tech lost. What are you going to do with Boston College this weekend? You going down there to see the game?

I won't be there myself, but as a proud rambling wreck and as a board member, as we were talking about, I do root for every game, and I hope we give it to Boston College this weekend ahead.

That was for you, 92.9 FM Boston. Good morning. Sean Henry, thank you so much. Chief Executive Officer, Stored Studio from Georgia. It's just a hugely wonderful place. a wonderful story about a freshman in school saying, I have an idea. Peter Thiel, thank you so much. He is a Thiel scholar. Sean Henry, I should say. Stay with us.

More from Bloomberg Surveillance coming up after this.

I mean, Damien's here, so we can talk about, you know, Peru's peso curve. But Michael Dean's here. Introduce him. This is just glorious.

Michael Dean's the rock star of auto analysts over there. Yeah, in London. For some reason, he's here in New York. I don't know what.

I had to steal him and bring him down, Paul. I mean, he is the coolest guy in our city, James Long. I mean, dude, he goes to the paddock and all. He covers Ferrari and Porsche, covers all the great auto companies out of Europe.

So I want to ask Michael Dean, if I'm Volkswagen, what am I doing here? I mean, am I into EVs? Am I not into EVs? Do I cut my investment? I'm cutting workforce. I don't know what your European auto company's what the focus is here because the US seems like they backed off from the EVs. We're just going to build the big trucks. That's what sells here in the US. What are the European auto companies doing?

You definitely have to be in EVs. So they're certainly going down that road, but they have to restructure. And they just announced the new strategy 2030. And they're going to have to lose another 50,000 jobs. They're going to have to cut capacity. They're going to have to reduce capacity in China as well. So things are really tough for the Europeans.

Well, I think the issue is, and this goes, I'm not going to blame Damien on this one.

It's the Chinese.

I was in Paris for 12 days in the past couple weeks. I probably was in four or five BYD taxis. They're beautiful, aren't they? They're phenomenal.

I know.

I was in Paris as well.

I didn't see you.

Oh, well, we don't go to the same spots, my friend.

So they also show 50% of the show now is Chinese brands.

Is that right?

Michael, where Damien lives, I mean, Damien pops out of the garage in the Maserati Gran Turismo, just like Jon Hamm. in the Apple show. So that's like super expensive car. Help us with Europe's luxury cars that so many Americans drive. Like they're in a BMW X5 and they aspire to an X7 or someday I'm going to own a Porsche.

It seems like it's just been lost.

Yeah, I wouldn't call BMW luxury, but certainly for the pure luxury.

That's about as luxury as I go.

So Ferrari is selling less cars, making more money. The same with Lamborghini, same with Bentley.

But what the price point, Damien's always talking Maserati and Lamborghini, because that's the way he rolls. The price point for mere mortals down there, I mean, it's really threatened. Right?

Yeah, it's tough.

Prices are going up. So that's not going to change.

Well, I think it's those price insensitive buyers out there that are really driving up the price for a luxury vehicle. No, but seriously, I mean, isn't Porsche going, they're trying to eat a little bit of the cake that Ferrari built, right?

They're going to that super luxury.

I saw Matt Miller had the, yeah. Oh, my word.

So the Mission S is their concept, which is going to be launched in a couple of years. It's above the 911, probably priced about half a million dollars. What a fantastic car. But Tesla stole its thunder. So they launched the Tesla Roadster on exactly the same day. And Porsche can compete with a flying car.

All right. Let's talk about Tesla. What is this Tesla story in the marketplace these days?

Well, it's flying cars, for one.

Well, you're talking to somebody who has a pilot's license over here, right?

So Mike Dean, you know, David Dwyer, we had a lot of pilots up there in BI, very smart people.

Yeah, so I can certainly fly one.

But, you know, it's Optimus robots, it's FSD, full-service driving.

Are people still buying that argument?

I think so.

Look at the valuation.

They have to. You're right.

Michael Dean, Damien Sassar was two of our brightest at Bloomberg Intelligence. So, Damien, take this. I'm going to take a prosperous country to Indonesia. Yeah. They're buying like 114% Chinese cars, right?

I don't know if Indonesia is the real end market, but I think what you have to look at when it comes to autos and it comes to Indonesia is they are flooding the markets with aluminum right now. And I think there's a wedge going on in the base metals complex.

Here we go. Here we go.

Where you're basically looking at copper supply really falling off a cliff. And this is going to be a real Q127 story, in my opinion. So, you know, there's just not a lot of copper production. We have 14,000 plus on LME copper. It's going higher, in my opinion. And that's what I'm pricing it to my models. But then if you look at aluminium, which, again, another huge input.

it's going in the other direction. It might break below 3,000. The technicals don't look good. And so Indonesia is obviously a huge smelter. They're a huge copper producer, a huge aluminum producer. It's really their incremental supply that's driving down the aluminum price.

Mike Dean, when I look at Europe and I look at the political response to the auto realities you're truly expert in, what do you preserve? I mean, Francine talking to Merz yesterday of Germany. What do the politicians actually do about these Chinese realities.

Well, that's a good point. But finally, the EU has done something. So they're putting curbs on hybrids. They're extending the emission legislation so you can have combustion cars beyond 2035. So these are small things, but finally, they're doing something.

So do you have a winner in all this in Europe, in the US? Does your team have somebody who seems to be GM yesterday with a $ 20 gazillion share buyback? I mean, is there somebody out there that survives?

Yeah, if you're not exposed to Europe and the Chinese invasion, then sure. So GM for one.

Mike, let me ask you this. What are gas prices like there? We hear about diesel. We hear about TTF. I mean, TTF, not gas, is up, what, 200% now?

I mean, year-to-date.

Talk to us a little bit about, from your perspective, are you seeing gas prices being prohibitive? Are people not willing to traverse that much? I mean, what are you thinking?

Yeah, so funny enough, I was driving into the office this morning. So, diesel, $ 6. 00. that's still pretty cheap compared to Europe. So it's starting to have an impact and you're seeing higher take-up of battery electric vehicles. But that's morally because the Chinese imports are so cheap rather than it's the actual fuel price.

Michael, in England, like if Arsenal wins, do they get a ring? Do they get some big, ginormous ring?

It's funny you mention Arsenal because Brighton, my team, beat them 3-0 a couple of years ago.

A couple of years ago. We turned to Dan Sassauer, surveillance jeweler, this just out from front office sports. Let me hear it. Knick fans can buy one of 200 replica championship rings for $ 19, 905.

Is that all?

Is that all? I don't know if this is legitimate. I mean, it looks.

It's got to be a replica.

It's front office sports. I need to be careful with this, folks. But there's your pricing, Paul.

How much do you think those rings cost?

Did we get a number on what they actually cost?

No, I haven't seen that. They were massive.

Massive. Yeah.

But those things, Tom, I think that price point will sell out in a day.

In a day. I wonder if this tweet, I mean, there's so much. spam out there. I'm hesitant to say it, but it fits with Damien. I mean, Damien would be first.

Were you guys crying when the banner went up in Madison square garden last night?

I was right next to the one I remember 73. I was nine years old. It was awesome.

Yep.

So I'm surprised you weren't there. Cause all the sleds were there.

I'm surprised you weren't there.

Well, maybe I was. Nah, it was a beautiful night.

Side coming in here with some knowledge, unlike American sport leagues, The English Premier League does not issue official championship rings. Instead, winners receive a trophy and 40 silver medals distributed to players, coaches, and staff who make five league appearances.

Okay, all right.

That's good stuff. Much more equitable.

But as I say, watch out for Brighton this season. Third in the table. We're definitely a contender. And I haven't said that before.

And Breitner, the mighty fighting, what are they? What's their mascot?

Seagulls. The seagulls.

The seagulls. You got that now?

And they're doing better than Tottenham, right?

Well, everybody's doing better than Tottenham.

I needed that. Mike Dean, go away. The tots are ascended and they will do fine. This is a real treat, folks. We never, I mean, he's too, he can't come on with us.

No, no, he's too busy.

He's too busy. I mean, he doesn't speak to us.

No, his people.

Davian Sassauer, Michael Dean of Bloomberg Intelligence. truly read and listened to across all of global wall.

Street this is the bloomberg surveillance podcast available on apple spotify and anywhere else you get your podcasts listen live each weekday 7 to 10 a.m eastern on bloomberg.com the iheart radio app and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

Sticky Inflation is Testing the Fed; Midterm Election Countdown

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