Testing the AI Trade; US-Iran Peace Talks Continue

**SPEAKER_1** (0:02)
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**Tom Keene** (0:27)
Torsten Slok does bulletproof economics. He does it with the Continental Europe field out of Copenhagen and of course his work at Princeton as well.
Iconic and definitive, I should say, at Deutsche Bank and now at Apollo Global Management. Torsten, give us an update on real and nominal GDP in the United States of America. It's become a blur with the cacophony of the news. Twelve months forward, where are you on real GDP? Where are you on a nominal statistic?

**Torsten Slok** (0:56)
Well, the US is having three very important tailwinds to growth at the moment. One coming from the AI boom, another coming from the one big bill of a bill, and another tailwind also coming from the industrial Renaissance, meaning the political interest in bringing back production to the US of manufacturing capacity. And we're beginning to see all these three engines really fire very, very significantly because the AI boom obviously is very strong. We also have the one big bill of a bill, especially for the next two, three quarters is very strong. And we're also seeing ISM manufacturing begin to accelerate in the last six months because now the trade war uncertainty is more behind us. And now we're beginning to see the positive effects. So therefore GDP over the next 12 months should be growing in nominal terms at roughly around 5%.
And in real terms, we should have GDP growth at roughly 2%, 2.5%.

**Tom Keene** (1:42)
Is it just a set of stimuli?

**Torsten Slok** (1:47)
Well, the key issue is, of course, that the AI spending boom plays such a significant role.
And that's very important, both because it plays, of course, a role in the data center build out, but also the associated energy build out. And that's why the AI boom is so interesting from a Fed and an inflation perspective, because the AI boom is certainly inflationary initially, because we are spending a lot of dollars, about 700 billion from the hyperskillers alone on the build out. And that, of course, means more pricing and more, therefore, higher inflation when it comes to semiconductor prices, when it comes to labor, when it comes to energy, when it comes to construction workers. So initially, it is something that is not just driven by the one big bill of a bill, but it's also important driven by ultimately how long time you think the AI boom will continue.

**Paul Sweeney** (2:29)
What is the year inflation call here, Torsten? Is it a transitory energy driven inflation? Or is there something more out there?

**Torsten Slok** (2:37)
Yeah, you know, this is the Fed's debate that they don't like the word transitory. So now they call it temporary instead. And this is of course why this is of course a dangerous game because well, what if this boom in particular, of course, when it comes to the AI spending is going to last several years? And if at the same time, you also have seen tariffs put up by pressure on inflation, you've also seen, of course, ultimately energy prices also putting up by pressure on inflation. So that's why if you type ECFC go on your Bloomberg screen, look at the quarterly profile, you will see, as you all know, that the inflation levels both for headline and for core inflation is going to be above three, at least for the next 12 months. And that's, of course, the core problem for the 12 voting members on the FOMC, namely that 11 of them have said that we're not counting interest rates. And if inflation is going up, it becomes really complicated for them to lower interest rates in this environment.

**Tom Keene** (3:26)
Torsten, I don't want you to get in trouble with compliance folks. We don't take cheap shots, particularly with someone like Dr. Slok. Here's a headline. And I want to make clear, we're not going to be snarky here and go directly to this. Blackstone, not related to Dr. Slok, Blackstone Private Credit Fund, caps investor redemptions at 5%.
Okay, that headline just came out. That's like a huge deal. Torsten, forget about that headline. But when you're sitting there, Torsten, looking at your World Cup card and what Denmark's going to do, I mean, where are the Torsten Slok shadows out there in leverage or illiquidity?

**Torsten Slok** (4:08)
Yes, Denmark didn't qualify, unfortunately, for the World Cup. I knew that. So, I will be having a very relaxed summer here. But you're right, Tom. So, exactly in terms of the risks to the outlook, the key risk, of course, number one is that we still need to get the Strait of Hormuz open in some form so that all the prices are not at risk of suddenly spiking higher if some tank runs dry somewhere in the world, in particular, somewhere in Europe. So the risk of higher oil prices is absolutely the number one risk to the outlook at the moment. The second risk is this issue of inflation, because if the Strait of Hormuz remains closed, then there's even more upside risk to inflation than my ECFC Go screen is telling me at the moment. And the last thing that's also a risk is, of course, what's happening with AI.