Tariffs and AI impact on US economy (with Tom, Guy, Anna)

Asks about material impact of new tariffs on US economy and whether it changes UBS's forecast.

Tom

Jonathan Pingle

The tariffs are a reminder they are here to stay; the White House had been distracted but now shows motivation to continue. The 301 tariffs feel more stable than the temporary 122 authority.

The Supreme Court ruling against the president's use of IEEPA led to a move to another authority; there was a threat to go to 15% but they never followed through.

Worries about how China will react and whether the détente between Beijing and Washington could be derailed.

Guy

Jonathan Pingle

There will always be potential for tension in the US-China relationship due to structural strategic rivalry, but the USTR is building on momentum from the summit.

The trade deficit and geopolitical tensions are ongoing sources of concern, but cooperative elements like the Board of Trade are also being pursued.

Asks about AI's impact on the US economy and what Kevin Warsh means for Fed policy.

Anna

Jonathan Pingle

AI will displace labor similarly to the 1990s internet revolution, but may open new opportunities. Kevin Warsh sees AI as a potential disinflationary force, but near-term effects from data center buildout are inflationary.

In the 1990s, for the same level of output, a third of US manufacturing workers were displaced. Warsh's repeated theme in communications over two years is AI as a disinflationary force.

Questions whether Warsh has a single mandate focus on inflation versus the dual mandate.

Guy

Jonathan Pingle

Warsh was relatively hawkish early in his career, but recent statements on AI might indicate he is more dovish today. He is not alone in prioritizing the inflation mandate.

Even Jay Powell would say you need stable prices for maximum employment. There is a conservative part of Warsh's background at the Hoover Institution that prefers a single mandate.

Asks what a Warsh Fed would look like during financial turbulence, given his desire to take the Fed out of the way.

Guy

Jonathan Pingle

The Fed has never been able to get out of the way; it has been integral to financial markets since its design. Warsh would struggle to corral 12 regional Fed presidents who are independent and want to speak.

The Fed pinned interest rates for WWII debt, bailed out commercial paper in the 1970 recession, and has been a lender of last resort throughout history.

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