US Economy 'Quite Dependent' on AI as Growth Engine, Says Tani Fukui

[00:00:00] Speaker 1: I'm sure they do. They do actually do a lot of data that do a lot of analysis on data on the distribution of of earnings and and spending. So I think I think they do whether the Fed had I mean, the Fed has its hands tied because it doesn't it doesn't have the tools to redistribute wealth or have different interest rates for different levels of household income. Right. They their hands are tied. They have to look at the macroeconomy. They can't look at, you know, the the folks that are struggling any more than they can look at only the A.I. folks. So that's that's the problem there. Right. But it is a problem. [00:00:45] Speaker 2: I agree with you. It's huge. It seems like this 2 percent number that the Fed has as it relates to it, inflation target goal. It seems maybe it's less relevant today in a world where we're on shoring more and more stuff. That presumes or implies maybe some higher costs. A.I. spending maybe is an inflationary push. Less immigration. Presumably that might push up wage rates. Do those structural things suggest that maybe two percent isn't really the right number? [00:01:14] Speaker 1: A hundred percent. I mean, I think the the problem is that the Fed is in a pickle. Right. They have committed to two percent. Yeah. They reaffirmed it recently. And so that's that's a problem that they have that as a commitment. And if they change their they change their targets, that's going to undermine credibility because of the changing gold post situation. But I think you're right. I mean, this is all New Zealand's fault. Right. New Zealand picked two percent. Now we're all suddenly at two percent. Right. Not clear that we have to have exactly the same inflation rate as New Zealand. [00:01:45] Speaker 2: Are these rates we're seeing out there, you know, a 10 year at or close to five percent right here? We're at four ninety eight now. Are those rates maybe they're just appropriate for an economy that's growing nominally six or maybe even more percentage? I don't know. [00:02:00] Speaker 1: I think we're we're in a better ballpark now than we were a couple of weeks ago, I think. I think there was a little bit of a falling knife situation there where people were just afraid to step in front of that of rising yields. Now, I think this this level approximately makes a lot more sense given given the fundamentals of the economic economy. [00:02:20] Speaker 2: When you talk about broader market trends here with your clients, what is the conversation today? Is it is AI overdone? Do I need to be try to diversify? Do I need to think U.S. versus non-U.S.? What are some of the broader discussions you're having? [00:02:36] Speaker 1: I mean, I think the broader discussion really is that the AI we are the U.S. economy right now is dependent, quite dependent on AI as a growth engine. It's not the only thing I think the consumer is actually doing a little bit better these days. I know let's OK, let's not say doing better. They are spending more, which is perhaps because, as you said, home heating oil is so high, is so expensive, but they are spending more. And we've got defense rising as an important sector. But AI is a big thing, and you can't fully ignore it, but you can't overcommit. [00:03:17] Speaker 3: Tiny Fukui MetLife with us. Just thrilled to have her in here today on a Friday to give us a bigger view of things. Of course, into elections. I've been surprised how tariffs haven't played a part in this. This goes to your wheelhouse at UCLA years ago. Did tariffs process out as you perceived they would, or were you surprised by what these onerous tariffs did to Americans? [00:03:42] Speaker 1: Well, so I would say in my previous job, we always looked at, I worked for the federal government, analyzing tariffs, right? And it's always a relatively small share of the total economy. [00:03:55] Speaker 3: Two percent, three percent. [00:03:57] Speaker 1: Yeah, very big in certain sectors and in certain parts of the country, but overall, not as much of a big deal. The uncertainty is what gets a lot of the businesses. And so we see some CPI effects, some inflation effects, but it's not huge, and I'm not surprised that it's not huge. [00:04:19] Speaker 3: So if it's 10-ish now, if the Budget Lab at Yale has it at a 10%, where is your optimal tariff level if beforehand it was 2-ish? [00:04:30] Speaker 1: As a good economist, you always want zero tariffs. Oh, I know she's going there. [00:04:36] Speaker 3: It's great entertainment, folks. [00:04:38] Speaker 1: Yeah, no, but, you know, there's also the change, the pace of the change matters. And going back to oil, I know this is terrible for consumers, but oil, higher oil prices are a net growth enhancer for the U.S. right now. [00:04:54] Speaker 2: Really? Because we're a net exporter. [00:04:55] Speaker 1: Yes, we're a net exporter. [00:04:57] Speaker 3: This is a surveillance break exclusive. You're telling me $114.90 a barrel is positive for America? For GDP growth. [00:05:08] Speaker 1: Not for you and me, for GDP growth. [00:05:10] Speaker 3: Oh, skepticism floating around. She mentioned calculus, so I go to the Tito's and Tang for you. [00:05:16] Speaker 2: Yeah, I mean, the U.S. has become a net exporter of oil, so that jibes. So how sticky is the inflation out there, do you think? If we were to get a resolution tomorrow, President Trump on the golf course tomorrow says, you know, I've had enough, let's walk away. [00:05:31] Speaker 3: Tony, he's on fire today. That's the smartest question today. How sticky is the inflation? [00:05:36] Speaker 1: Sticky? Well, I mean, I take issue with your premise that it's going to be over tomorrow, right? That's the fundamental problem is that if it were going to be over and you could show me evidence that it is going to be over and it's not going to be un-over, right? Then I can tell you that everybody will be super happy. But I take issue with that initial question. [00:05:59] Speaker 3: One final question. We're doing this as the VIX is going to give me a 20 here in a moment, folks. Markets deteriorating. I got to go to a Drew Mattis question just to harass him, you know, working with Drew. Tony, look at this. Alan Greenspan would say, Chapter 23 of any economics textbook, the market matters to the economy. If we finally get a legitimate correction or, dare I say, a bear market, what does that do to the American economy? [00:06:25] Speaker 1: It's a problem. I mean, that is one of the reasons why consumers are doing well. I think last time I came here, I was looking at net wealth, net wealth across the board has improved, growth has improved since last year, even for the relatively, you know, the 20th percentile and up. So if you don't have, if you look at your, if you look at your stock portfolio, 401k, your investments, and that's, or even your house price, home price, if, well, home prices may be, may still keep going up. But if your, if your assets, if your retirement is going down, big problem for a lot of people, they'll stop spending.