Prof G Markets - Fed Cuts Rates For First Time This Year & Winners and Losers of a TikTok Deal

Episode Date: September 18, 2025

Ed breaks down the Fed’s interest rate decision with Robert Armstrong, U.S. financial commentator for the Financial Times. They dig into why the Fed cut rates yesterday and what that move means for the rest of the year. Then Ed and Scott discuss the details of the deal to keep TikTok in the U.S. and question who really comes out on top. Check out our latest Prof G Markets newsletter Order "The Algebra of Wealth" out now Subscribe to No Mercy / No Malice Follow Prof G Markets on Instagram Follow Ed on Instagram and X Follow Scott on Instagram Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Terms and conditions apply. Learn more at amex.ca.com. Today's number 16. That's how many hours people spent waiting in line for Shakespeare in the park in New York this summer, one of the longest waits ever. That is 960 minutes of small talk with theater kids, or as some people are calling it,

the seventh ring of hell. Money markets matter. If money is evil, then that building is hell. Welcome to property markets. I'm Ed Elson. As you can see from my background, I am not in the studio right now. I am in what is known as the eighth ring of hell. I'm in Las Vegas at the moment, doing a talk tomorrow, which will be very fun. But lots of news to get into. So let's get into the show. It is September 18th. let's check in on yesterday's market vitals. The S&P 500 and the NASDAQ closed slightly lower following the Fed's interest rate decision. Meanwhile, the Dow hit an intraday record and ended the day in the green.

Treasury yields rose slightly, along with the dollar, and finally, Nvidia shares fell nearly 3% after China banned its tech companies from buying Nvidia chips. Okay, what's happening? For the first time in nine months, the Federal Reserve is cutting rates. As expected, Jerome Powell slashed interest rates by 25 basis points yesterday, citing a

weakening labor market. Fed officials also penciled in cuts for the two remaining meetings this year. The lone dissenting vote at the meeting was the Fed's newest member, Stephen Myron, who favored a 50 basis point cut, or the other governors voted for 25 basis points. Markets initially rallied in response, but ended the day mixed. to help us break down what this decision means for the economy and what we can expect for the rest of the year, we have our favorite financial commentator

from the Financial Times. We have the one and only Robert Armstrong. Rob, thank you so much for joining us again on Profrey Markets. It's great to be here. Very interesting meeting. A lot to say. Yes, let's just start with your initial reactions. What did you think?

I think there were two things that, um jumped out at me one was you know the the fed is stuck between its mandate right at the top of the press release they said inflation's rising job creation is falling they are being pulled in two opposite directions and the statement was very clear and chair powell was very clear we're leaning towards the employment side of our mandate of our job and so that should be a good message for markets, right? Like, we're, okay, we're cutting and we're kind of more worried about growth than inflation, broadly speaking. And that was kind of interesting. And that message came through much or a bit more clearly than I expected. I expected a little bit more of a little bit more

of a, you know, six or one, half a dozen of the other. The second interesting thing was, of course, the issue of independence. So it is not often that the statement of economic projections, which is this little folder full of charts that the Fed hands out before every meeting, which shows what the different members expect about this and this, this or that economic variable actually makes you laugh. But this one did make me laugh because they have what they call the dot plot, which is one dot on a sort of chart of expected rate policy at the end of this year. And so the 19 people on the committee and the 12 who vote put their dots on there. And all the dots were all like in this little group together, like a group of happy children.

But then there was one dot that was the unhappy, lonely child that had been rejected by the group way at the bottom of the chart. And that dot could only have come from one person. which is the new member of the committee, Mr. Meryn. Exactly. Representative on the committee of the White House. Second day on the job. Second day on the job. And in the press conference, Powell got some very fair questions from the journalists,

which were along the lines of, you rattle on no end about the importance of independence, but you have somebody who literally has a job in the White House sitting on the committee. and we all know whose dot, that lonely little dot is, what do you say about that? And he said basically two things. One, independence is good. I won't comment on Mr. Miran's presence specifically. And two, one member of the committee can't sway it because the 12 people vote, which is, I guess, a fair answer. But what about two people or three?

You know, that's the kind of implied when he says, one person isn't enough. Well, you know, White House trying to get rid of. Lisa Cook. Then you have two. Right? You know what I mean? Can two sway the committee? These are good questions. Yeah. I don't mean to, I know you might have different questions, but there was one other point relative to this. Yeah, yeah, please. Which were the very interesting votes of the two dissenters last time, Bowman and Waller. So last time these two Fed governors, both Trump appointees in the last meeting when they didn't cut, they said, they dissented and said, we think the committee should have cut 25 basis points. There was a lot of chitter chatter ahead

of this meeting that there might be a three-person dissenting block, Bowman, Waller, and Marin. But this time, one dissenter, Marin, Bowman and Waller did not dissent. They were with the committee at 25 basis points. Now, the question that forces us to ask is, were they making a statement there? Were they saying, look, there's not a, there's not a Trump block. This institution is still independent of the president. I mean, maybe they just thought 25 was the right amount this time. Right. Who knows? I cannot look into the hearts of men and women. However, it's impossible not to think maybe these two Trump appointees were making a statement along the lines of, you don't own me. you don't own the committee.

Even if you have three members on it, we're not a block. We're not with the new guy, right? Yeah, which is promising. Yeah, that's promising. That's a win for the institution or the institutional lists, I would say. Yes. So just to quote the statement from this Fed meeting, quote, job gains have slowed and the unemployment rate has edged up.

Inflation has moved up and remains somewhat elevated. Yes. So to me, I read that. I think that's sort of the definition of, of stagflation. It is. We're seeing slow in growth, and we're seeing inflation move up and, quote, remain elevated. And the question is, then, why are we cutting rates right now?

And, you know, it was assumed by Wall Street and by all of us that we were going to have a 25 basis point cut. But, you know, is that necessarily the right decision? I mean, I read that. They're saying, we've got this inflation problem. It's going up. It's staying up. And yet we're going to cut rates. And I think the question becomes, okay, why are they doing that? Is it one, because this employment thing is such an important thing? Or then there's this sort of more insidious reading, which is maybe the pressure got to him. Maybe everything Trump has been saying actually did influence this Fed decision. Okay, to credit, Chair Powell, he did say we've got a, the mandate is pulling us in both directions and no path is without risk. So he acknowledged the point that you just made, that this is not an easy decision. But when pressed on this issue, I think what he's, he, his view is that the

persistence of inflation is due to tariffs. Yep. It's on the good side. It's, due to tariffs, and our best guess is that's temporary, right? So the reason we can err on the side of growth is because we think the primary cause of inflation above target is something that won't last. And we can have a debate about that, but that's his answer there. Now, he also said something that I happen to disagree with. He also said there's disinflation on the services side. I don't happen to believe that. I don't see it in the numbers. I think services inflation is stuck at three and maybe even rising a little bit in some important categories. So I don't feel as confident as the committee does about services inflation.

But he did give a coherent answer. We think the tariff thing is going to, you know, be like the pig that passes through the snake eventually. And if it's not, we'll have to make that assessment later. Yeah. I just want to gather one of your quotes because you wrote. an article about this, it was called what the Fed should do. And you

basically went through all of the different arguments why you would go with a 50 basis point card or a 25 or why you would keep rates where they are. And you actually said, you said, quote, we're with the hawks. You said, we're basically on the side of keep rates where they are. You said, quote, resurgent inflation is the scariest risk right now and not just in the sense that inflation eats away at purchasing power and grinds down in sentiment. We think another bout of inflation

could cause a market crash. So I understand you don't think that this is like Armageddon, that we have a 25 basis point cut. No, it's not. But you do see it seems as though you believe that this isn't necessarily the right decision here. I mean, I think his decision is, the 25 basis point decision, this is a bit hard to, a kind of subtle view,

and it's hard to express, but let me give it a shot. in the center of the probability curve, I think a 25% basis point cut is probably fine or even the right decision. I just see this big whopping low probability risk at the right side of the curve, which is markets overheat even more. Inflation gets going. Rates rise and the higher rates crack the market and we have a market crash. That is a low problem. probability event, but it's so awful that you kind of have to weight it a bit more heavily, even though it's low probability, just because it would stink so bad. And I think as a marketsperson, those are the kind of events that I worry about.

Economists think more about the center of the curve or the center of the distribution. I'm more freaked out about the tails. So that might explain my disagreement with, you know, both the chair and what the committee decided today. Yeah. So we all going to have this. If I can just add one thing. If I can just add one thing, if you look at the expectation, that dot plot that I talked about earlier, which says for each member of the committee, what do they think is the appropriate, will be the appropriate level of the federal funds rate at the end of the year. it's very split between people who think, like almost half of the committee doesn't think

another rate cut is going to be necessary this year. Right. Right. That's significant. There, about this year especially, there is significant disagreement at the Fed, right, which tells you that the stuff that you're talking about, the worries you just expressed, Ed, those worries are on the mind of the committee as a collective. and they have the upper hand with certain members of the committee.

Yes. We saw the market's reaction, first, the SPA and the Nasdaq initially popped. Then they fell as Powell was speaking. I assume that is because of that caution that we saw. They decided to cut, but then they said, but hold on. Yeah, I think it was like, yay. And then they were like, you could sort of see the market paging through that statement of economic projections and maybe looking at that.

page about, you know, 2026 rate expectations of being like, whoa, whoa, whoa, we don't love this, you know what I mean? But, you know, the first day reactions, Ed, to these things are not usually great indicators. It takes time for the market. It takes a day or two for the market to digest this stuff. Yes, exactly. And come to a consensus. Yeah. So we will get this rate cut. Going back to the dual mandate, you've got this unemployed. problem and you've got this inflation problem. And the idea is you cut rates, you start to fix the unemployment problem. You raise rates or you keep rates the same. You start to address the inflation problem. And I think everyone knows that. What I think a lot of people probably don't have source it out

in their head is like why that is. And could you just tell us what the economics are of this? Why is it? that cutting rates will help with the job market. Why is that, what is actually happening in the economy there? A crucial element of growth in any economy is the ease with which both households and companies, but especially companies can borrow. So if at the margin you make debt cheaper, you make it easier for a company to borrow money to expand its business or buy a new piece of equipment or hire new people or, you know, all of this kind of stuff. But there is, you know, but on that basis, and, you know, the chair acknowledged

this today, rightly, a quarter of a point interest rate change isn't going to make a big difference. You know, like, it may not even filter through to mortgage rates at all, which is the main channel of transmission to households, right? If households have cheaper mortgage, they refinanced, they have more money on hand, they spend, they consume more because their housing costs are lower, et cetera. But there is this very powerful signaling effect, which is that the Fed almost has this totemic or magical status in financial markets where people, when the Fed is in cutting mode, people think kind of good times are here and the vibes are positive and that flows over to, you know, greater wealth effects, enthusiasm, animal spirits, and all that stuff.

So that's the tricky thing that the Fed has to manage. It's not only controlling this one interest rate, it's got this weird job managing vibes. Yes. And that's what makes it so unpredictable, right? Because the vibes part is actually more important than the interest rate part. The long run path of interest rates, of course, matters a lot. But for any one cut, the vibes are more important than the cut itself. Yes, exactly.

You once described the position of Fed Chair on this podcast as the high priest of the economy, which I think is exactly right. Not only are you control of the interest rates, you're also in control of the way people feel about things. And then you have people like us talking on this podcast figuring out what does this actually mean. the actual downstream effects are almost less of a result of him switching the knob versus him going out there and saying this is what we're doing. Yeah. And this is, of course, why the issues of Fed independence are so important.

You know, when the market is booming and the economy is basically good, which, by the way, it still basically is, right? The economy is growing. The unemployment rate is low. It's just these things are going in the wrong direction, but they're going in the wrong direction from a pretty solid place, and that's good to keep in mind. Yes. But if things get ugly and the high priests and the high temple of our market system has been defiled somehow, then you don't know what's going to happen with vibes, right? And I think you're creating a risk that is hard to predict and possibly hard to control.

So I think it's a very, you know, it's fine to kind of do this Lisa Cook stuff now when things are okay. But when the temperature starts to rise, I think this stuff could matter. Yeah. And I'm worried about it. Yeah. Well, Rob, we really appreciate your time. And we hope to have you on for a longer episode. Love being on the show.

Thanks for having me, Ed. After the break, a look at who will control TikTok in the U.S. If you're enjoying the show, give Profty Markets a follow-up. Support for the show comes from Indeed. Your team is great and they can take on a lot. Anytime there's a new challenge and you ask, who has the bandwidth, someone always steps up. But there comes a time when even the best teams can't take on any more work and you simply need to hire more people. Indeed can help. Indeed, sponsor jobs helps you stand out and hire fast. With sponsored jobs,

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Choose security solutions from TELUS for peace of mind at home and online. Visit TELUS.com slash Total Secure to learn more. Conditions apply. We're back with Profi Markets. 242 days after the original deadline for the TikTok ban, a deal to keep the app in the U.S. is finally coming together. According to initial reporting, a consortium of U.S. companies, including Oracle, Silver Lake,

and Andresen Horowitz, will control roughly 80% of U.S. TikTok operations. Meanwhile, BightDance will hold on to the remaining 19.9%, making it the app's largest single shareholder. Still, that should satisfy one condition of the 2024 law that forced the ban or sale of the company in the first place. BiteDance's share of the app needs to fall below 20% if TikTok is to continue operating in America. But there is still one big question mark when it comes to the most important condition of all. and that is who will control the algorithm for TikTok in the U.S. You'll remember this algorithm was at the very heart of the TikTok dispute. The main reason the app was banned in the first place

was because of these national security concerns. Our government determined that the algorithm could not be left in the hands of a company with ties to the CCP. We couldn't allow bike dance to manipulate the minds of Americans with their algorithm. So where do we land on this? issue under this new framework. Well, according to a top Chinese official, U.S. TikTok operations will license the algorithm from bite dance. Again, this is all initial reporting, and the White House said, quote, any details of the TikTok framework are pure speculation. But if we are to take

the Chinese official at their word, it does appear, the algorithm will remain in the hands of China. The only difference now is that the people profiting off of that algorithm, rhythm, those people will have changed. It won't be the Chinese anymore. It will be some Americans too, or more specifically, some American friends of the president. But does that fix our national security problem? We're not so sure. However, as we said, nothing is officially confirmed yet. Trump and Xi are scheduled to have a call on Friday. They will discuss this deal. So we will have to wait and see what else we learn later in the week. In the meantime, let's bring in the man who has been calling for this ban as early as

2023. Let's get Scott on the phone. Scott, how's it going? It's going really well. I'm in midtown, headed to the airport, then going to Nashville for a speaking group tomorrow, then I'm back in New York tomorrow, and yes, everything's good.

Nashville? That's pretty exciting. Yeah, it's a great city. Have you ever been to Nashville? Never. I can see a guy like you living there. It's one of those cool kind of up-and-coming cities. Anyways, I think you'd really enjoy it all.

You're really selling me on Nashville. It sounds wonderful. I'd love to explore the great state of Tennessee with US. All right, well, we've got a lot to unpack here. We've got this consortium of US investors who appear

ready to take over TikTok. There's all of this larger question of who's actually going to control the algorithm when it's all said and done. But let's just get your initial reactions to what we've seen with this TikTok news. Well, my initial reaction is that this used to be a capitalist country with the rule of law where it wasn't this cronyism that had become almost normalized. I mean, this is, okay, first off, this TikTok or bite dance was banned. It was passed by both houses of government, and the president signed it into law. And then the new president came in and said, I'm not

and enforce the law. So essentially, our laws, I mean, let's just say if we're going to have a dictatorship or an autocracy, let's just save money and clear out, send senators in Congress home and stop even pretending to have an SEC because this is pure, when you get to take a company and we'll come back to how strong bite dances and just carve it up for your Republican friends, another reason why I want to get involved in Democratic Party politics and help flip Congress and get the White House back is in addition to returning to the capitalist full body contact country of rights and capitalism that I love. I want to get the president and next Democratic president in office and convince him to ban LVMH and then force them to sell it to me because I'm really

into Ramoa, super into Ramoa language, and I would like to own LVMH. LVMH. I'd like to own the U.S. license to LBMH. So that is, you know, that sounds comical. It's not. That's what's going on here. He is carving up a company and giving it to his Republican friends instead of, one, it should have been banned. And then he would have been negotiating from a position of strength. And two, they want to also put someone from the U.S. government on the board. What are we going to have Cash Patel on the board? I mean, it's, it's literally, it's, It's so funny, though, it used to be an insult from the right that we Democrats are socialists. This could not be more socialist. This is, well, it's cronious, first and foremost, carving up a company, giving it to your friends. It's what they do in Russia. Yeah, it's what they do in Russia. And then, oh, but we're going to find someone from the government to be on the board.

We'll tell what they do in Russia. It is just, so anyway, I'm not a fan. I'm not a big fan of this deal. I don't think it's probably going to happen. I think she is playing Trump like a fiddle, and then it probably, I think he's just going to slowball him. And at the end of the day, the real risk here is that two-thirds of American youth spend one and a half hours a day on TikTok.

So this is equivalent to when we have let the Kremlin own CBS, NBC, and ABC in the 60s in the midst of the Cold War, it just strikes me as I don't see the risk going down. All I see is an opportunity. for Trump to dole out pieces of a very profitable company to his cronies. Your thoughts, sir? Well, just to affirm the point about this going to his cronies, that is actually exactly what's happening here. Just to go through some of the participants in this deal, you've got Oracle, the chairman of which is Larry Ellison, we predicted earlier in the week that he would be involved

in this deal in some way. Indeed, he is, and he is, of course, a close associate of Trump. You've got Andresen Horowitz, which is run by Mark Andresen. Mark Andreessen publicly supported Trump last year. You've got Susquehanna, which is run by Jeff Yass. Another big ally of the president donated $100 million to the campaign in the last cycle. So there is a theme here. You're not being hyperbolic. The people who are involved in this deal are generally friends with the guy. Now, did the, Did the deal go to them because they're friends with him? I guess we don't know, but you could, I mean, you could sort of assume. So that's the one side of this. The other side of this is ownership, this ownership problem. I mean, the whole reason we're here in the first place is because we were worried, as you say, about the idea of two-thirds of our youth spending one and a half hours per day

on a product which is designed and owned by China. And so the idea was, okay, let's get it out of China's hands. And I originally thought that that is what they were doing here. And by the way, I actually support this. I support putting this into the hands of Americans. However, supposedly, we're not actually getting the algorithm. Supposedly, we are licensing the algorithm from bite dance, aka from China.

In other words, the alga will still be in the hands of China. And in my view, that completely defeats the purpose of this whole deal. Again, we don't know for sure. But if that is the case, doesn't that just render this entire operation completely irrelevant? Yes, it does. And this is a real security spread. As we spend all this time trying to find clues and derive or somehow interpret the font on shell casings as being a radical left or radical right conspiracy,

We're not focused on the real problem, and that is that big tech, including by dance, is able to serve content that enrages people. And what's even worse is the CCP as an additional vested interest in enraging our use and continuing this trend where one out of two people might feel good about America and one out of ten people your age feel good about America. So this is geopolitically very stupid. I don't think Trump cares. He's not going to be around that long.

That's not his priority. His priority is to reward his cronies. He hated TikTok until, I'm sure, the folks at BiteDance, tweak the algorithm to have more pro-Trump content. And when Jeff Yass got in his ear. That's right. I gave him a bunch of money. And then his staff reported that, oh, wait, you're trending on TikTok.

And all of a sudden, it's very positive on you. And he decided he liked it after it had been banned and was supposedly a law. And then just from a capitalist standpoint, we're not supposed to be doling out great company. And by the way, these guys are going to make a shit ton of money. This company is an incredible company. I think it's a real security risk. But it has, they're going to buy in likely at a valuation. Bythance, Tesla and Palantir are probably the most overvalued companies in tech.

Bytance hands down is the most undervalued company. Because of this geopolitical overhang, it is trading at about two-time sales versus Tesla or Palantier at 60-time sales and open AI trading at what, 40-time sales. This company is the most undervalued company in the world. It's still a defense threat. We can walk and chew gum at the same time. It's got operating margins of 30%. A company trading at a similar price of sales,

another amazing company, Home Depot, has operating margins of more like 12 to 15%. So these guys are going to make so much money. And this is cronyism. This is all of the calories of cronyism and socialism with none of the great taste of the government actually doing their damn job and preventing a tragedy of the Commons

through the increased security risk of having a neural jack implanted it in a webbatter of our youth. The good news is I think there's still a very big probability this just doesn't happen. Well, that was the other part I was going to get to is you don't think it's happening. Well, I mean, has an understanding. supposedly hasn't something supposedly been happening here for a couple years now i think she just says

okay the guy the guy has the attention span of a cat on on mess just take the red dot over here you know have them you know do the deal slow it down do the deal slow it down say no let him try and ban it he can't ban it he's already extended the deadline until december so they don't have to do anything for three months and i i just i don't know i think she is just so much more disciplined and smarter than Trump. I think Trump and Putin both feel very emboldened right now with the new alliances. Putin's flying drones into NATO countries. And I think she is just is just toying with Trump. I just absolutely toying with him. I don't think we won't see a deal at all, but I think whatever we'll see will be a symbolic deal. It'll make Trump look

like he won, but ultimately when you dig into it, as we'll see with this algorithm, it's not really going to be a win for the American people. If the algorithm stays in the hands of China, then all of this was for nothing. Yeah, I got to be honest. I want to be clear, though, I'm addicted to the product. I like watching videos on Great Danes, seeing chiropractor aggressively adjust unwitting patients, and three people, ridiculously hot women talking about social issues. Is that wrong, Ed? I'm going to Nashville, Ed.

I'm going to Nashville. Okay, enjoy your trip, Scott. All right, brother. I'm going into the Midtown Tunnel here. I'm going into the Lincoln Tunnel. I'm going to lose you. Okay. See you, brother.

So, there you have it. TikTok may be changing hands. Scott thinks that the deal won't go through. Most news outlets are reporting it probably will. Most of the details, though, are uncertain. One thing, though, is quite clear, and that is the investors who get in on this deal, if it happens, those investors will be huge winners, because they will have gotten in on basically the most descendant social media company in the world, and crucially, they will have

done it in a forced sale. As we've discussed before, the best time to buy is when the seller has to sell. When you have to sell, you lose all of your negotiating power, you lose your pricing power, and this appears to be what is happening. China has to sell. Put another way, the price on this asset is likely to be significantly lower than if it had been sold on the free market, say if it were being sold in the public markets. So in sum, the investors are the winners here, again, if the deal goes through, the investors are the winners, and once again, it pays to be friends with Trump. Okay, that's it for today. This episode, was produced by Claire Miller, edited by Joel Patterson, and engineered by Benjamin Spencer.

Our associate producer is Alison Weiss. Our research team is Dan Shalon, Isabella Kinsel, Kristen O'Donohue, and Mia Silverio. And our technical director is Drew Burroughs. Thanks for listening to Prof.G.G.G.G.E. Markets, I'm Ed Elson. If you like what you heard, give us a follow and join us tomorrow for our conversation with Juggett Chudder, professor of economics at the University of Cambridge.