This is an edited transcript of the interview.Q: Before we get to the US economy, jobs and the Fed, did you see Samsung Electronics’ preliminary Q2 numbers? Revenues jumped 30% year-on-year and 28% sequentially. Forget the stock, which has already risen five-fold over the past year. At least for now, companies are delivering on expectations. What does this mean for the artificial intelligence (AI) trade?
A: I think the memory trade is on. Samsung has provided evidence that the hardware side of the AI trade remains firmly in place and the infrastructure build-out is continuing.
The uncertainty now is about where AI infrastructure goes from here. A key challenge is coming from China. Do companies adopt more economical, less complex and less power-hungry models from China, or do they stay with leaders like Anthropic and Gemini in the US?
That decision will determine the next phase of AI infrastructure spending. If the trend shifts towards localised computing and smaller models, we’ll likely see more spending at the enterprise level rather than at data centres. Many companies want to own the model, own the data and own the infrastructure on which they compute AI tokens.
There is also a growing focus on token security and information security, and I think that is where the AI trade is headed.
Q: Coming to the Fed, you’ve been calling for a rate cut. Last week’s jobs report, with payroll growth of just 57,000 and downward revisions to the previous two months, seems to reinforce that view. Were you surprised by how weak the numbers were?
A: Not at all. In fact, I think that number still overstates the actual pace of job creation in the US.
The Labour Department publishes another survey that asks individuals whether they are working, rather than asking companies how many jobs they created. That survey has shown a decline of about 115,000-117,000 people reporting employment every month over the past year.
So, when we look at the US employment situation, it is not very positive.Many Federal Open Market Committee (FOMC) members remain focused on energy- and tariff-related price increases, and I think the hawks have become even more hawkish. We’ll probably see that in the minutes later this week. They’re positioning themselves ahead of what I see as a more dovish rethink that Chair Kevin Warsh could bring to the FOMC.
There is a lot of positioning within the FOMC right now to strengthen the hawkish case. But I think Chair Warsh’s approach will encourage policymakers to think more carefully about which data they can rely on.
The employment survey has been revised by very large margins multiple times. You often don’t know the true picture until the third release, meaning policymakers are already three months behind where the labour market actually is. That is not acceptable for 21st-century monetary policymaking.
I think policymakers will eventually need to rethink their framework, reconsider their data sources and focus on how best to achieve the 2% inflation target. As that happens, the hawkish tone should gradually begin to fade.
Q: So, you’re saying the jobs numbers are overstating what’s happening in the US labour market. Why is that? Is AI-driven productivity responsible, with output rising while headcount stays flat?
A: Not really. AI is only beginning to show up.
Most of the weakness in job creation comes from post-COVID productivity gains. Companies have become more capital-intensive, reorganised their production processes and changed their management structures to use labour more efficiently.
After COVID, there was a rush for specialised expertise. Now those skill requirements are changing. Companies are becoming more reluctant to hire new workers and are instead redeploying existing employees into new roles created by technological advances and AI.
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The changes within the labour market are much more nuanced than the headline numbers suggest. That’s why I think weak job creation will persist for some time.
The jobs that are being created are largely in lower-paying sectors such as social services, healthcare, leisure and hospitality. We are not seeing significant job creation in higher-paying manufacturing or professional services.
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