>> we're 30 minutes into the u.s. trading day on this wednesday, february 21. here are the top stories we're following. moment of truth, a.i. poster child nvidia reports earnings after the bell today after it tripled last year. why goldman is calling it the most important stock on earth. macro in focus, meeting minutes due at 2:00 p.m. today, expected to show the fomc sees a bumpy ride back to 2% inflation. we'll preview what to watch. and an eye on industrials. engine maker sees a down turn in north american heavy trucks this year. the c.e.o. joins in just a bit.

katie: welcome to "bloomberg markets." you take a look at these markets right now, and we're looking at a down day. the s&p 500 currently off by about .2%. and then the story gets worse from there. you take a look at the nasdaq 100, currently off about .7%. and then finally, i make my way to the philadelphia semiconductor index, currently off by more than 1%. that's as we await those nvidia earnings after the bell today. nvidia down in expectation, but that's after it's up 40% this year already. and like i said, goldman sachs called it "the most important stock on earth." and we have wall street waiting with bated breath for their earnings after the bell today. investors really looking to see if the company can hit the

sky-high expectations it's facing. joining us now to help break it down is mandeep sinning of blood vessel intelligence. when you look at what's going on in the stock, is there any way that the fundamentals can match? mandeep: i mean, for the last few quarters, we have seen what they have done in terms of the beat, and that's been driven by just a demand. so clearly pricing is there in terms of being a tail wind to top line. the question is to me is how much share can they take from traditional c.p.u.'s in the data centers. we know that's a big market. you have income, and they're used for a lot of the work loads. if it's going on to accelerate for training, which is a key term when it comes to generative a.i., then yes, nvidia can sustain that momentum. but we haven't heard as much around inferencing from nvidia

so far. it's been all about training the large models. that's the thing that investors want to focus on. katie: looking through reports, it seems like a lot of the excitement around nvidia is the fact that it was one of the first movers in this space. let me bring you a note from rosenblatt, saying that the company's multidecade vision and investment cannot be replicated by throwing billions of dollars in new chip or manufacturing development. so point taken there. but how long can they head start possibly last? mandeep: i look at their customer base. the customers are the hyper scalers, and they're running gigantic data centers, where they really have to focus on what works best for their data center foot present. so yes, it won't be you're bit quick out chip that nvidia has, but if they have to customize it to their own large model, and we just heard alphabet open sourcing the large model, so that's where it can be customized to your workload. and i think if they miss out on a customer like alphabet, that

will be huge in terms of growth expectations for nvidia going forward. katie: there's some room for disappointment there. mandeep, you're going to be a busy man today. that's mandeep singh of blood vessel intelligence. -- of bloombergintelligence. now we have another analyst on set. great to see you. let's talk about nvidia. i keep talking about this goldman note, but i can't move away from it. goldman saying nvidia, the most important stock on earth. i thought that was pretty dramatic. but then i look through your notes, and you say nvidia is either too big or too important to fail. walk me through that. >> it's basically all nvidia all the time, as we know. it sort of occurred to me with the rally the stock had, to come from, i'm want going to say nowhere, but to be the third largest stock by market cap, that puts it in a league with apple, microsoft, and google,

etc. when you've had a run like this, it leaves you very susceptible to down side. we can see it in some of the stocks that have had big runups. in some ways, like palo alto today. the bigger the runup in some cases, the worst the decline when bad news hits. and this stock, with all the money that's floated to nvidia, if there's anything that even smells like a miss, it has the potential to be really problematic. katie: to that point, you look at palo alto today, stock down the most in seven years or so. let's continue down that, because it's gotten a lot of attention. you look at what options are implying for the post-earnings move, it's 11% in either direction. that sounds big, but in the context of nvidia, how big actually is that? steve: it's interesting, because the last two earnings, the stock has actually gone down, despite huge beats, huge raises, but it had run up into the earnings so

well. i think it was down sort of fractionally to the last two earnings. but before that, we were up 14% and 24%. so 111% stent seem like a bad place to sort of pick a number. it's a little bit more art than science when you have to guess what the right implied volatility is. but on a longer term basis, it's about 6% to 7%, which is still pretty high. but again, there's a lot of risk built into this, so it's understandable why it's very high. katie: of course, we're paying so much attention to nvidia over the last year, two years, because it's really become synonymous with a.i., the poster child for some of the a.i. hype that we've seen in the market. and this is the kind of drama that i really like. you write, i shoulder to think what could happen if the a.i. mania breaks. let's walk deeper into that nightmare. if it did break, what could that look like? steve: we've talked about the

concentration of the mag7, we can argue whether it's constituted properly or not, etc. but there's been a huge a.i. fever to it. it's not just nvidia, it's microsoft, it's meta, it's amazon to some extent. apple to some extent. they've all benefited from the a.i. rush, shall we call it. what happens if people rush -- just as the stocks drag the market higher, as everybody plowed in, what happens if they plow out? you know, i'm not saying here's the thing, i don't have any specific insight into what the number is going to be, and it's hard to gauge what even the whisper number, so to speak, is. but if you have, the problem everybody got their hands wringing about, if that concentration changes, if that psychology shifts, where do you go? everybody is rushing into one narrow door, and that's where the problem comes in. katie: leak you said, you look at the market cap now, nvidia is in the same leagues as amazon, apple, etc. but can you remember a time when

there was so much hype around a single report in the way that we're all watching nvidia? steve: i think you have to go back to the old days of sysco, and you were not following the market in 1999 i'm sure, but there is sort of the 1999-ish feel. you know, history doesn't repeat, but it does rhyme. it's not as the same as 1999, but cisco was the stock of that era. it was the pick and shovel of the internet gold rush, just as nvidia has that for the a.i. gold rush. but the problem is we were talking about much smaller numbers. cisco actually is about where it was, you know, a little bit higher than where it was in 1999, but roughly a $200 billion market cap. that's what meta added two weeks ago friday, just in one day. the magnitudes are just so much larger, and that's why there's so much focus on this one stock, because it really is the poster

child for the a.i. craze. katie: yeah, and just to look at cisco, it was up 6% last year. that's a positive number, but nothing too amazing. steve, you're sticking with us. sit tight for just a couple of minutes, because let's look at what's moving underneath the markets. we're going to do that now. >> let's talk about palo alto. they actually saw 120% gain in the past year. of course, some of this has been due to a.i. hype. today we're actually seeing this big more than 20% drop, the biggest in seven years. what we're seeing is a cybersecurity company cut its annual revenue forecast. there are more concerns that consumers are reining in their spending. the company cut its sales forecast for the year. of course, consumers seem to be dialing up on spending. that's interesting, because obviously there have been many

high-profile cyberattacks. we remember m.g.m. resorts, so there are very high expectations in terms of revenues and outlook. but so far coming from that very high valuation level, they have been disappointed. katie: interesting juxtaposition, as you point out. all this, you know, focus on these cybersecurity attacks and still you take a look at the palo alto results, didn't really see that come to fruition. but also on the down note, i know that you have hsbc on there, pretty messy quarter it looks like. >> yeah, it's interesting, because earnings actually reached a record when we see the rises in interest rates. but what we've seen is actually an unexpected drop because of the chinese bank holding. revenue fell 80% this quarter. there is another loss due to sales of a french retail operation. when it comes to the chinese bank holding, this is a $3 billion loss, and when it comes to the retail sale of the french, this is a $2 pillion

loss. quite significant numbers. this is part of the wider campaign the bank has been doing, staying away from french retail and moving away from canada. but it has been standing in terms of wealth management and insurance in asia. so we're yet to see if this can continue to have strong revenue growth and actually boost the stock price. katie: tough reaction for hsbc, wiping out the year-to-date gains on that name. that's the hsbc story. let's go 3-3, because i think you have more bad news for me. >> yeah, i only have bad news today. glencore had $17 billion of revenue, but of course, commodity markets last year were different. we saw very high volatility, and this came after the aftermath of the invasion of ukraine. glencore slashed its debt. and for the first time in several years, when it comes to commodity trading, the company saw a huge fall in terms of

revenue. they're trying to please investors, by saying that ads interest rates are coming, supply chains are improving, there may be actually more demand than things improving. but it's yet, hard to see those super high revenue numbers that we saw last year. katie: and it's a tall order to please investors, while cutting the dividends, cross purposes there. thank you so much. coming up, week get a read on how the fed is thinking about the u.s. economy. we'll have a preview of those fomc minutes coming up next. this is bloomberg. this is bloomberg. ♪ hey you, with the small business... ...whoa... you've got all kinds of bright ideas, that your customers need to know about. constant contact makes it easy. with everything from managing your social posts,

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katie: in addition to nvidia earnings, we're counting down to the release of the january fed minutes, scheduled for 2:00 p.m. eastern time. investors really searching for clues on when the fed may cut rates. bloomberg's mike mckee joins us now from d.c. mike, tell me what to expect. we think about when we last heard from the fed, that meeting happening at the end of january. we've gotten some pretty significant data points since then. mike: and that's one of the important things to keep in mind with today's release of the fed minutes, katie. by the way, i'm very happy to be nvidia's warm-up act today on stage. what do we want to look for? well, of course, the fed said at the time, jay powell in his news conference, that march was too early, so do we get some language around that, agreement by fed officials that they wanted to push back on what the markets were thinking? they'll probably restate the idea that there were three cuts planned for 2024, because that's what they put in their s.c.p. at

the time. what wall street is going to look for, anything about conditions for beginning cuts. because the fed has said we want to see more progress on inflation. and so far, it's gone the other way. that's one of the problems that they've had. this was three weeks ago. that was before we saw c.p.i. go up again and we got the very strong employment reports for december and january. katie: the market laser focused on when the first cut will actually be. we're getting fed speak as well. i know we heard from the richmond fed president saying that the inflation data is so showing persistent price pressure, assist we have a lot more fed speak coming up. would you expect them to all pretty much deliver that same message? mike: i think so. what we've seen so far is a pretty united, if not coordinated effort to say we want to see continued progress, we're not ready to cut rates yet. it's justified basically by what weave seen in the c.p.e. we'll see what we get with the

p.c.e. numbers next week. but we do have nikki bowman speaking this afternoon from the board of governs. she's been one of the more hawkish members. if they sticks to that line, it won't be a surprise, but it will add weight to the idea they're not ready to do it. tomorrow we get others that sound like a wall street law firm, but they're all giving their economic outlooks. we'll get even more information to fill in what they're thinking. the real date you want to watch is march 6. that's jay powell up on capitol hill with his humphrey hawkins testimony. katie: a lot to look forward to there. mike mckee, thank you so much. let's keep the conversation going with steve, still sitting by. we were batting around a theory yesterday that you take a look at wal-mart's earnings, for example, consumers are being choiceful here, they're still spending, but trading down. when you take a look at what we're hearing from some of the retailers, and we have a lot

more to go, what picture does that paint of the economy for you? steve: to me it painted the picture of being good for wal-mart, but risky for everybody else. i love when c.e.o.'s make up new words, but i think it means that people do trade down. when they're feeling more insecure, they want to go where there's value. wal-mart has been impeccable at building value for customers for years in terms of keeping price as manageable as they can be. sometimes at the expense of the shopping experience. but we'll learn more, i guess, we really need from hear from target and kohls and macy's, maybe even costco to see -- costco probably benefits the same way wal-mart does. i think that's the problem. we don't know yet. the customer, the consumer, they have -- people have jobs, but inflation is still biting. i think the real wage increases that we see aren't uniform across the economy. credit card balances remain high, and credit card interest rates remain sky high. they're about 21%. i think people are being a lot

more cautious and trying to keep within their budgets, and that's where wal-mart wins. katie: even with that caution, you do have some people coming out and saying that, hey, maybe the fed's next move, it might not be a cut, it could actually be a hike. take a look at the overall data we're seeing, stripping out what we're just hearing from these companies, i know that you're a volatility guy. you go for the chaos there. do you think that's something that investors should be thinking about, possibly hedging for? steve: i think right now it's probably a low probability, but to me the thing is you always have to be aware of what the black swan is. in this case, the black swan is a rate hike. now, what i would say is when we had the fed acknowledge that they were through december, that they were thinking about cutting three times this year, the market immediately said, i see your three and raise to you six. that led to sort of big fomo to the end of the year, i call it the weaponized fomo. but yet we've pared back the

expectations and the market hasn't suffered. in some ways, i think it would be a bit of a shock, but i think the fed tends to telegraph its moves so well that i think they're not just going to drop out 25 basis points to the upside without a big hint that it's coming. katie: maybe the fed speak, we really have to pay close attention to that one. to your point, we've pulled back expectations for the magnitude of rate cuts, the number of rate cuts we might expect, and the market hasn't really suffered. do you think it matters that much whether we're talking about a march, may, june start to the cutting cycle? steve: not really. 25 basis points here and there is not a huge deal in the scope of things when you're talking about 5.25% interest, if it goes to 5%, is that really going to make a meaningful difference? the one thing about timing, the faster they start, in theory the more they can do during the course of the year. if you're not talking about cuts until june, that pretty much

limits to you three to four, just by the calendar. unless, of course, things justify it. i don't even want to go road, but that's always the risk. when we came in the year, we had to figure out if we were going to have a good economy or a lot of rate cuts. somehow we've backed off the idea of a lot of rate cuts, but not really gone into the idea of a good economy, yet the stock market has still been ok. katie: let's talk about the v.i.x. i was saying to you in the commercial break, i haven't looked at the v.i.x. in a couple of days. i figured it was hanging out around 12, but you point out we do see a climb higher. we're just before 16 right now. what's going on? steve: first of all, shame on you for not watching it. but that's my life. what happens is there's sort of a natural load limit to where v.i.x. can go. we sort of bottomed out around 12.5% each time. we hadn't gone lower. the market learned its lesson

from when we tried to go to single digits and it didn't work. now we have a situation where you have more of an uncertain environment. we're talking about how many rate cuts, when, where, it's not just decided on six. we have events coming with the fed meeting, which is kind of in play. we have nvidia earnings, even though v.i.x. looks out 30 days. today is part of the 30-day look ahead. we're also seeing more correlation in the market. that's an underappreciated fee tire. when stocks are all moving together, it raises the volatility index. when the stocks are moving in different directions, let's say 7 and 493, it suppresses volatility, because if you have this side going up and this side going down, you end up sort of in the same place, so it dampening the volatility. all those are feeding back into the idea that we're getting into more of a v.i.x. that is closer to normal historical levels. 15, 16 is still on the low side historically. katie: yeah, good point.

and i learned my lesson as well, keep an eye on this one. steve, great to see you. that's the chief market strategist for interactive brokers. still ahead, we'll look at the companies making the most social buzz today. that's social climbers up next. this is bloomberg. ♪

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katie: time for social climbers, a look at the stock making waves this morning. first up, rio tinto's profit dropped 12% on weaker commodity prices and rising costs. the company did manage to pay a higher dividend and the company's c.e.o. joined bloomberg earlier today to talk about whether the dividend was too john russ. >> i believe that we are facing an opportunity where the energy

transition requires more materials than what we are producing, like aluminum, copper, even more steel as well. so i don't think so. i think we have a controlled growth. that's what our customer needs. that's what the world needs. we can do it in a profitable way. katie: so there you have it, the world's biggest iron ore miner feeling the effects of a disappointing recovery in china. next up, walgreens getting the boot from the dow. amazon will take its place on the blue chip stock bench mark beginning next monday. remember, the dow is weighted based on share price rather than market cap. and finally, planet fitness getting a workout on social media. the company's former c.e.o. is resigning from the board of directors after disagreements about job cuts at the company. the board says it will provide an update on its c.e.o. search tomorrow on their earnings call, so definitely one to watch there. and, of course, follow all the latest company buzz on trengo on

your bloomberg terminal. coming up, a view of the economy. we'll talk to jennifer rumsey next. this is bloomberg. this is bloomberg. ♪ thanks to avalara, we can calculate sales tax automatically. avalarahhhhhh what if tax rates change? ahhhhhh filing sales tax returns? ahhhhhh business license guidance? ahhhhhh -cross-border sales? -ahhhhhh -item classification? -ahhhhhh does it connect with acc...? ahhhhhh ahhhhhh ahhhhhh

katie: investors are not the only ones waiting with anticipation for this afternoon's fed minutes. looking to get a better read on the economy. they are also paying close attention to the fed's upcoming rate cutting cycle. joining us now is jennifer rumsey, cummins ceo and board chair. cummins, a top manufacturer of diesel engines. i'm really pleased to have you here, because we talk all the

time about technology. but we -- but you have a very unique view on the physical economy. when you think about what is going on there, what is your outlook for 2024? jennifer: thanks, katie. we are coming off of record revenue in 2023. record operating performance and cash flow. a strong year were many of our markets continued to see strong demand. and we worked through some of the supply chain challenges that had constrained the industry over the last couple of years, to meet the pent-up demand out there with our customers. we had forecasted softening in the second half of the year, and this year we are projecting revenue to be down 2% to 5%. but really it has been a shallow cyclical downturn, and we are closely watching that as we see strong demand across many of our markets, even extending into 2024. really it is in the construction market and our heavy-duty market we are forecasting some

softening and taking actions to make sure we manage costs accordingly while continuing to make investments in our destination zero strategy and exciting future of our business. katie: there is a few things i want to dig into their, but let's start with the supply chain. you mention you have seen that on snarling -- unsnarling, but have you seen in me -- any implications when it comes to the middle east? jennifer: the supply chain has improved. i think we are entering a period of time we are going to continue to have some disruption. we think about resiliency in our supply chain and how we manage that. the issue in the red sea is concerning and we have taken steps to mitigate the impact of that. it is nothing significant for us. katie: what are those steps? any think about the past couple of years, the pandemic experience. there has been a lot of talk about near shoring, on shoring.

how are you thinking about that? jennifer: the strategy has and continues to be to have a strong presence in regions where we can understand the customer needs in that region. and we tend to manufacture and do a lot of tailoring for customers in those regions. we are continuing to make sure we have a -- have a robust supply chain and resiliency in the supply chain and continue to build on that, which will help us with that challenge. katie: you mention demand has been strong across segments, but i want to talk about the north american heavy truck market. you are forecasting a bit of softness there. i believe you are projecting a 10% to 15% decline when it comes to class a production this year. what is leading to that? how long-lasting would you expect that to be? jennifer: you know, the market is typically cyclical. it is something we have experienced in the past, and you have seen the freight rates reduce, back 18 months ago. many players came into the

market when there was strong demand. some of them are under a lot of pressure. that said, customers use their products really hard through the 2022 and 2023 timeframe, and there was pent-up demand. you see strong backlog for our oem customers. we have seen softening from the p that was middle of last year, but not as much as we had anticipated. so, we have projected in the second half of this year to see further slowing. that said, we are bringing a lot of new products into that market. we are investing $1 billion in our u.s. manufacturing facilities for what we call our fuel-agnostic platforms. these are a part of our destination zero strategy, to improve diesel-based solutions and give customers flexibility to use alternate fuels like natural gas and hydrogen in engines. we are launching into the heavy-duty truck market the

natural gas version of that new 15 liter fuel-agnostic platform. destination zero is about advancing those engine-based solutions and starting to accelerate our investment in these zero missions technologies like battery electric powered trains, where we are investing with partners to produce battery cells for commercial vehicles in the u.s. so, it is an exciting time as we think about the new technologies we can bring to market and how we help our customers succeed through what is going to be a tricky transition. katie: before we get to the battery conversation, you said you are still investing heavily, even with this downturn. i know you said you are proactively taking some cost-cutting measures in anticipation of that. could you walk us through what you mean by that? is cummins thinking about layoffs, for example? jennifer: we did a voluntary reduction at the end of last year in anticipation of some revenue softening.

we are continuing to look at, how do we improve business performance, how do we improve efficiency of our operations, and what are the places we can drive continuous improvement, which our investors expect us to do, while making sure we deliver for our customer needs? katie: this is a pretty cyclical market when you think about the heavy truck industry. is there anything that it -- that distinguishes this cycle from previous cycles you have seen? jennifer: for sure. this cycle did not reach the peak he would have seen in some historic cycles, especially given the underlying demand. we are not seeing the same trough. it is a softer cycle. we are watching what happens with interest rates and other indicators to see if we really do have the soft landing we all talk about. i think that will influence what really happens for us in the second half of this year. katie: a lot of hopes and dreams, especially from the fed policymakers, tilt on that soft landing. as talk about battery cells. you are investing in alternative

powertrain technologies. talk to us about demand. is that transition to zero emission vehicles taking longer than you expected? what sort of timeline are you thinking about here? jennifer: we are paying a lot of attention to that. the reality is, climate change is a real issue and we have to take action to address that. that is what our destination zero strategy is about. how do we help our customers and the planet address the issues? because of the challenge of electrifying and bringing these zero missions technologies into our applications -- which, customers are running businesses. they are making economic by decisions -- buy decisions, and the investment needed for them to transition is significant. we have to improve engine-based solutions today while also investing in the future in these zero emission solutions.

today we are selling battery electric powertrains are merely in bus applications. the application suits itself well, and there are incentives for cities that want to move to zero missions vehicles. need to continue to have investment in infrastructure and advance the technology to see broader adoption across our markets. that is going to take some time. katie: that is an important point when it comes to buses. and, of course, the charging network that exists there. makes a little more sense than personal vehicles. i do want to talk about china. cummins has a relatively high exposure to china relative to some of your peers. there has been a lot of concern about the chinese economy. we haven't quite seen that rebound that may was anticipated last two. now a lot of weakness, if you want to call it that, so far this year. what are you seeing in the chinese economy? how confident are you that we are approaching or have already seen a bottom? jennifer: we really saw the

bottom in 2022 at the height of the lockdowns they had in china. we saw some slow recovery in 2023. and this is a big truck market. you know, in the world. where we can sell and be successful in china, that helps us grow globally. it creates good paying jobs here in the u.s. we want to continue to participate in that domestic market. it is really helping us from a business perspective in china. but i would say slow recovery last year. we are forecasting the on highway market to continue a slow recovery. construction is challenging in china. there is real issues in the construction market there, so we are projecting that is going to be down this year and we are watching to see if there is any further government action to simulate the economy. but we have not seen that at this point. katie: really great to have this conversation. that is jennifer rumsey of cummins.

let's zoom out and get a check on these markets. we are going to do that with abigail doolittle. abigail: the tone remains risk off today. we have the s&p 500, nasdaq, and other index is down for a third day in a row. for the nasdaq over the last three days losing more than 2%. worst period since january 4. we are starting to see a bit of wariness on the part of investors that seemed to start last week. you can see that the vix as a 15 handle, closer to 16. that nasdaq 100 vix, closer to 20. pointing to the possibility of more volatility head. the big event after the close, nvidia. what will they report? the pressure is on for them to deliver another triple digit growth quarter on the bottom line. more than 600%. can they do it? the stock has been up more than 200% over the last year. on the year, outperforming some

of the other tech indexes, but starting to come in. will it come in more to match the s&p 500 tech index and? speaking of coming in, if we take a look at the technicals on nvidia, it is starting to break down. you can see that nvidia, well above its 200 day moving average. the last time it happened it was about 70% above. right now about 65% above, below its last low, suggesting that sellers are gaining more confidence. the recent highs are starting to be erased in some ways from a momentum standpoint. all of this suggests there could be more weakness ahead for nvidia. stay tuned after the close. katie: abigail doolittle, thank you so much. before we get to those nvidia results, jason furman, harvard kennedy school professor joins us next to talk about the state of the u.s. economy in our "wall street week" daily segment. this is bloomberg. ♪

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abigail: this is bloomberg

markets. you are looking at a live shot of the principal room. former fed vice chair richard clarida. this is bloomberg. katie: it is time now for wall street week. you're looking at the strength of the u.s. economy and what to anticipate from the fed. joining me now is wall street week host david westin and jason furman, harvard kennedy school professor of the practice of economic policy, and former council of economic advisers chairman. certainly a heavy weight it comes to economic. david: certainly someone we both pay attention to. jason, thanks for being with us. 80 it is looking a gift horse in the mouth. why is this economy so strong and why did so many of us not get it? we are surprised it is this strong. jason: look, we have had a

battle between fiscal and moderate -- and monetary policy. fiscal policy has been expansionary. i'm not just talking 2021. last year it was expansionary too. monetary policy has been contracting, and you see that playing out with consumer spending, outweighing week categories like residential investment, which have been held down by monetary policy. katie: where would i look for the pockets of weakness? you think about how many rate hikes we have seen from the fed, over 500 basis points or so. it feels like it has not put a damper on the labor market, on inflation. yes, we have cooled quite a bit, but where are we seeing the effects of those much higher interest rates? jason: look, i think residential investment was just really hit hard initially. it plateaued, but plateaued at a lower value. a lot of the other categories of

interest-sensitive investment, like equipment investment, also has performed quite weekly. i think that whole category of gdp. if you look at the labor market, hours have been trending down. not talking about that trend in january, but what we have seen over the last year and a half. there has been some week is. on balance the strengths have outweigh the weaknesses. david: let me take the other side of that. i me take it -- talk about the strengths. what is going to give the economy the next push. i have learned it is either having more workers or more productivity. where is he going to come from? jason: we don't have a lot of -- a lot more workers, which surprises me. you look over the last year and the employment rate for prime age workers has basically plateaued. far and away the most important thing is productivity growth. that is also far and away the hardest thing to understand and forecast. katie: when it comes to

productivity growth, you write that the productivity boom is massively overstated, massively in all caps there. what do you make of the argument that we could see artificial intelligence contribute to productivity in a similar way that the internet did in the 1990's? jason: let's distinguish between two different things. one, what are we seeing in the macro data? there are some people saying productivity is up 2.7%. that is really high. that is the beginning of a boom. the problem is that a year ago productivity was down 2%, and so over the last two years productivity growth has been quite weak. it is a volatile thing. it bounces around. i think anybody touting those great productivity numbers, unless a year ago they were fretting about productivity, is probably overly optimistic. then you actually talk to

people, read the newspaper, on the internet yourself, generative ai is amazing. i think at some point it will show up in the productivity data, but i don't think it is there yet and i don't think i would count on it being there in the next one or two years, which is the time horizon relevant for the fed. david: he read bloomberg we spend a lot of time talking about the fed. there is a lot of speculation about rate cuts. what impetus is there to cut rates right now for the federal reserve, and what is in the economic data that would say they need to. why did they need to cut? -- do they need to cut? jason: inflation is around 2%. it is important to remember that with rates at 5.25 percent, they are really restrictive. if they cut rates they will still be very restrictive, just not very, very restrictive. the mistake that the fed made in 2021 was, they thought lifting off was contractionary.

it wasn't. at first it was shifting from more expansionary to somewhat less expansionary. it is the same thing now in reverse. we are not talking about putting the pedal on the gas, you're just talking about easing up on the break. in a world where rates are quite high right now, i think that makes sense to do sooner rather than later. katie: let's talk about the magnitude of rate cuts needed to get out of restricted territory. because there is anywhere from three to six rate cuts priced in for 2024, depending on what day you look at it. if the goal is to get out of restrictive, get back to neutral territory, what magnitude of rate cuts is needed to do that? jason: you know, they don't know. it is a process of explanation. they are going to have to see the data, do a little more. unfortunately when data is noisy and has lagged that is a lot easier said than done. my guess is if they started in

may, cut rates every other meeting, i think it would have a lot more information on this at the end of the year. i think the neutral rate is something in nominal terms around 3%, 3.25%, but i don't think they should be in a hurry to get themselves to neutral. but they should not take too long to get started o moving in that direction and learning more in the process. david: i'm going to push you here a little bit. i wonder why, given the strength of the economy, the american people don't seem to believe it is that good of an economy. you see poll after poll saying, we don't feel good about this economy. do you have any idea why that is? jason: there is some basis for negativity, which is over the last three years real wages have done quite badly. you have seen price growth outstripping wage growth in that period of time. that being said, the levels of sentiment are more like deep

recession levels than mildly pessimistic levels. i think a lot of that is unrelated to the economy. some of that is partisan polarization. the important thing is, it is getting better. consumer sentiment has gotten better in the last couple of months. it hasn't shown up in the president's approval ratings, but these things happen with long and variable lags. katie: when it comes to that sentiment some people have advanced the theory that it is because of the outright level of prices. the pace of inflation has slowed, but the level of prices are much higher than they have been going back quite a while. what do you make of that argument? if that is the case, do we need deflation to boost sentiment here? jason: right, so on the levels, i think in some ways that is thinking of the inflation rate over a longer period of time. so rather than measuring over one year they are measuring over something like three years, and prices are up, i can't remember,

20% or something over the last three years. wage growth has been higher than normal too, but price growth has outstripped wage growth. i think people are looking at that. i think that is part of the pessimism, but it is still not enough to explain as much pessimism as we see. in terms of deflation, is not going to happen unless we have a catastrophic recession. so, at some point people will get used to this price level. i hope at some point wages will fully catch up with prices, and that is why they get used to it. but deflation is just not an economic policy option. katie: really enjoyed this conversation as we try to make sense of this economy. that is harvard kennedy school professor jason furman. david, what else do you have coming up? david: tomorrow we have josh friedman to talk about what opportunities he is seeing as those 500 basis points in rate hikes has gone into effect. on friday we are going to be talking with eric cantor, the

former house majority leader, about what happened with that nice relationship with the business community and his republican party. katie: a lot to look forward to there. those conversations, of course, in "wall street week ." this is bloomberg ♪ -- bloomberg. ♪

katie: let's take a quick look at some of the stocks hitting highs and lows. we have diamondback energy hitting a 52-week high. the producer beat expectations. you also have norfolk southern hitting highs. they are getting upgraded by barclays, saying the potential for management changes will be positive. do have shares of garmin higher after beating earnings expectations. a lot of people buying watches. on the downside you do have

glencore to hitting a 52-week low after reporting a steep drop in profit and lowering its dividend. coming up, kristin bitterly, citigroup head of investments, joins "bloombergtechnology -- bloomberg technology" coming up next. this is bloomberg. ♪ ahhh it's basically tennis for babies, but for adults. it should be called wiffle tennis. pickle! yeah, aw! whoo! ♪♪ these guys are intense. we got nothing to worry about. with e*trade from morgan stanley, we're ready for whatever gets served up. dude, you gotta work on your trash talk. i'd rather work on saving for retirement. or college, since you like to get schooled. that's a pretty good burn, right? got him. good game.

thanks for coming to our clinic, first one's free.

announcer: from the heart of where innovation and money collide, in silicon valley and beyond, this is "bloomberg technology," with caroline hyde and ed ludlow. caroline: i'm caroline hyde at bloomberg's headquarters in new york. ed ludlow is off. coming up, all eyes on nvidia as the $1.7 -- $1.7 trillion