TikTok towards a US Government Shutdown

16.09.2025

In this episode of SB Talks, CEO Vincent O’Neill and CIO Nick Ryder, dive into a pivotal moment for global markets as 16 central banks, led by the U.S. Federal Reserve, prepare for critical policy decisions. With rate cuts back on the table, inflation still sticky, and labor markets showing cracks, what lies ahead for monetary policy? They unpack the political tension behind the Fed’s independence, the looming U.S. government shutdown, and the uncertain future of U.S.-China trade talks, starting with TikTok.

Meanwhile, Wall Street’s AI euphoria shows no signs of slowing, with tech giants surging past $3 trillion valuations.

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Transcript

Vincent: Welcome to SB Talks. Today is Tuesday, September 16th, and I am joined once again by our trustee Chief Investment Officer, Nick Ryder. Welcome, Nick.

Nick: Thank you, Vinny.

Vincent: Now it’s good to be back, Nick and I this week will be discussing central bank meetings all around the world, headlined by the US Fed the latest on the US tariff picture, and the potential impending government shutdown, as well as the continued enthusiasm in AI lifting markets. Welcome to all our listeners.

We’ll open this week with a week of global central bank meetings. The highest profile of which will be the somewhat embattled fed where the legal battle and tussle over Lisa Cook’s attempted firing continues in the days immediately proceeding the meeting. And since the fed last met, we’ve had some interesting data. We’ve seen inflation ticking up employment, somewhat slowing. Is that likely to change the picture in terms of what you expect from the meeting?

Nick: I think it’s almost unanimous that they’ll put through a 25-basis point cut. Now there is some people pushing for a larger one, so it’ll be very interesting,

Vincent: Such as the White House, well, Donald Trump.

Nick: Trump has said that he wants a bigger cut than Powell’s thinking, and housing will soar. He, I think, has previously argued that rates should be at 1% versus four, four and a quarter and four and a half currently. I don’t think they’ll go that far. There is a slight chance of another 50. Remember a year ago they did surprise the market with a 50-basis point cut. So, we have 26, almost 27 basis points priced in.

Vincent: So, a small probability, right?

Nick: So, sort of a larger cut, guaranteed

Vincent: 25 of a very slim chance of a 50.

Nick: Yeah. To pick up on your points, inflation is still too high. Core inflation was steady in August at 3.1% year on year, and headline inflation picked up from 2.7 to 2.9, so not going in the right direction and still a fair way off the fed’s, 2% target. But Powell at his speech in Jackson Hole, some weeks ago now, did sort of tilt and suggest that the tariffs effect on inflation would likely be temporary. They may be prepared to look through that. It’d be a one-off sort of price level change and that he seemed to be more focused on the weakness in the labor market. And we have seen some weak labor market data in recent weeks.

Vincent: Trump showed some displeasure with some of that data. But the reality is that probably helps support the cause for ticking the pressure off on rates.

Nick: Oh, absolutely, absolutely. The market’s now gone to price in potentially three rate cuts by the end of this year, and another one potentially in March of next year. So, four rate cuts would take the cash rate down to sort of the mid three low three.

Vincent: Getting closer to neutral, whatever neutral might be.

Nick: Yeah, closer to neutral. So that’s what the market’s locked onto. So that, yes, as you say, the weak labor market data has supported that case. I mean, the labor market is in a very sort of confusing place.

Vincent: We’ve seen a lot of those revisions to, prior data that have been negative. So, it made the economic picture less positive than previously thought

Nick: But we know that supply in the labor market, particularly given potential estimates that net migration is either. Very low or even possibly negative at the moment. So that’s impacting the supply of new workers coming in. And so maybe you don’t need a very high, monthly growth in employment to keep the unemployment rate steady.

Vincent: Lower hiring, but lower supply, therefore, the unemployment rate remains somewhat in equilibrium.

Nick: Yeah. That said, there’s some anecdotal stories of companies sort of starting to lay off workers not replace workers. There’s still a high degree of uncertainty, particularly in tariff exposed industries. I think that’s what the Fed will be focused on. It’ll be interesting to see what they say coming out of that. The other thing that I think people will be looking at is, we had a couple of fed officials last meeting that dissented that pushed for a rate cut when they elected to hold. So will those people, particularly Governor Waller who’s trying to position to replace Powell to be chair, will he be pushing for a 50 basis point cut instead of a 25? And then we have Steven Miran who will, I believe either as we speak, he’s likely being confirmed by the Senate and he will probably take a seat at the Fed meeting to fill that vacancy.

Vincent: So, what will his position be? He’ll clearly be pushing more aggressively.

Nick: Yeah. I mean, he is also keeping his job in the White House, so it’s very unusual. For him to maintain dual mandates. So, it’ll be interesting to see what comes out of that. And as you say, Lisa Cook, her case is being appealed at the moment. I’d say she will probably still be in her seat while the litigation is ongoing rather than being forcibly removed for this meeting.

Vincent: Quite intense attention and pressure on her in terms of what way she votes as well.

Nick: Well, absolutely. But, you know, some data has come out. She’s released some reports showing that one of those homes she clearly said was a, second home or a, vacation home. It’s not clear that the Trump administration has a strong case in her removal in any event.

Vincent: Just for the listeners to recap, the attempted justification for removing her for cause was that she’d had lied on some mortgage applications, someone therefore was guilty of mortgage fraud. Heavily debated and highly unusual reason for removing, unprecedented really, reason for removing. But that’s just the nature of the times we live in.

Nick: That’s right. And she hasn’t been charged, and it hasn’t been tested in court. I think the court will likely say she can stay in the role until, all of this plays out, so that gives her some time.

Vincent: The Fed ultimately meets against this backdrop under sort of a certain degree of pressure to cut. They’re likely to cut, but probably not just as much as the White House wants. Their economy is in sort of a, somewhat, as you describe uncertain space, as the data’s coming through, we’re seeing the impact of tariffs and also the potential impact of AI as well. We’ll talk later on here, no doubt about the positive, market outcomes for some companies from AI, but for real businesses and real jobs. We’re now at a point where that starts to maybe have be a factor in the economy as well.

Nick: Yeah, I mean, I would say the US economy is still performing reasonably well, despite some uncertainty around some of the labor market data. Things like the consumer still holding up AI, investment spending, obviously supporting the economy. It’s not clear that the economy is slowing a lot. And I think this meeting, this fed meeting, we’ll get a new set of forecasts, state summary of economic projections from the Fed where they give their dot plots and all those sorts of things. It’ll be interesting also to see what comes out of that in terms of how they’re seeing the economy, generally in terms of, if you go back and look at their earlier forecasts of where unemployment would be and growth, they’ve been pretty accurate. They’ve underestimated the inflation thing a little. It’s been a little bit higher than their forecast, but broadly the economy’s sort of evolving as they forecast.

Vincent: Understand how it’s probably been the right one through this journey.

Nick: I should mention there are 16 Central Banks meeting this week.

Vincent: We just focused on the headline. Who else is the Fed?

Nick: The Fed’s obviously the most important, but we also have the Bank of Canada, the Bank of England, and the Bank of Japan. So, Bank of England and Bank of Japan largely expected to keep rates steady at 4% and half percent respectively. The Bank of Canada is also meeting this week, they’re expected to cut rates. Their economy has been fairly weak. Their unemployment rate had been rising so they’re expected to cut from two and three quarters to two-point half percent. And then we’ll have the NS Bank, the Central Bank in Brazil and Indonesia, the other one’s kind of on the horizon.

Vincent: So, it’s a busy week for central bankers. Very busy week for Central Bank Watchers, such as yourself

Nick: Now the other thing that we should talk about is a sort of upcoming risk, which is a potential US government shutdown. At the end of this month apparently there’s only seven legislative days to avert that.

Vincent: Both sides seem to be digging in. So maybe share a bit of backdrop of what’s brought us here and, what needs to happen or otherwise for us to get through this,

Nick: Well, essentially they need to fund the government for the next 12 months. The budget has to be approved in the House of Representatives where the Republicans have a slim majority. They need pretty much all the Republicans to approve that. But then they need 60 votes in the Senate, which would require bipartisan support. They need some Democrats to support that.

Vincent: So certainly not our first time to be here.

Nick: No, no. We’ve seen government shutdowns before. Some of them have been somewhat lengthy that have impacted growth. This time around there was a possible government shutdown earlier in the year, and the Democrats sort of caved in on that and didn’t really push for anything. I think there was a political angle to that.

Vincent: I think now earlier in this administration as well.

Nick: That’s right, they just lost the election. But it was before the One Big Beautiful Bill and a lot of the Doge cuts. I think this time around there’s probably a decent chance that they will resist, and they’ll ask for something in return. Now, what might that be? It could be to reinstate some of that Medicaid funding that has been taken away as part of the One Big Beautiful Bill. So, we’ll have to keep an eye on it, but it could be somewhat disruptive.

Vincent: May unsettle markets for a period albeit they seem to be becoming increasingly resilient to these sorts of events.

Nick: They are. I mean, yeah, I think what happens is obviously a lot of workers don’t get paid. They get furloughed and then they get back pay when the budget gets approved. But you can have a period where maybe some of the quality of data coming out of places like the Bureau of Labor Statistics, which generates the inflation and unemployment data, doesn’t get published or is delayed or is not that good.

Vincent: So, there are implications that’s already been a sensitive subject.

Nick: Well, that’s right. And so that would just mean we’re flying even blinder than we have been. There are certainly some issues to watch around that. It just depends on how aggressive the Democrats might be, then we might also have the Republicans try and do what’s called a stop gap funding bill. That’s just funds it through to maybe Thanksgiving.

Vincent: A bridging budget for three months. This doesn’t concern you as an investor?

Nick: Not particularly, and I don’t think the markets seem particularly focused on it. We’ve been here many times before, they tend to be fairly temporary. It’s just maybe this time around with a much more polarised government, with the Trump administration really pushing the boundaries of what the Executive can do versus Congress that maybe this is an opportunity for Democrats to push back and say, we want to assert that we have the power of the purse.

Vincent: we control the budget, that we have some authority here.

Nick: And it’s probably far enough away from the midterms that, people have forgotten in legal sensitivity won’t be as great around it.

Vincent: I think it’s a pretty high risk that we get a shutdown, but that doesn’t mean, immediate issues. Problems potentially begin to build behind the scenes the longer that may drag on.

Nick: Yeah.

Vincent: Let’s talk tariffs if we can. It feels like forever since we’ve been here. Talking tariffs Nick, and lots of activity on that front, but probably the main headline item at the present is the Chinese and American delegations meeting in Spain. Lots of important things that they need to cover, but priority number one on the agenda seems to be TikTok. The TikTok Summit, looks like there’s possibly going to be a stay on the ban of TikTok in the US, but maybe you can talk to that as you see fit, but also broader where their discussions are at in terms of trade and, other factors.

Nick: Yeah, I don’t think they got too far on discussing trade. I think they were focused on the TikTok sale. You might recall Congress, and I think even the Supreme Court had ordered that TikTok had to be divested or closed by the deadline, 17th of September. So that was bringing it into focus. I understand just hitting the wires before we met, they have this framework agreement. It’s not clear what that involves, the Chinese want to preserve the Chinese characteristics of TikTok, i.e. a little bit of soft power that they get from having that, and the Americans are focused on sort of national security and control of data. So it looks like there will be some sort of either licensing deal or equity ownership, by a US firm. But it’s still a bit vague around what that entails. Clearly Trump has 15 million followers on TikTok.

Vincent: And feels that he reached a youthful demographic successfully via TikTok in the more recent election. So that makes him a lot more positive than he maybe was on it a year ago.

Nick: That’s right. Definitely he wants to preserve it. Apparently, there’s going to be a call between President C and Trump maybe later in the week to iron out the details, but it looks like TikTok isn’t being shut down. But yes, bringing it back to tariffs, tariffs more broadly. No discussion on tariffs. Really, I think there’s still a lot going on, it’s very fluid. We know that the Supreme Court’s going to hear the validity of this use of this international economic Emergency Powers Act that Trump’s used, which the Appeals Court and the court of international trade of both said is.

Vincent: So essentially, he used emergency powers to give him the ability to enact some of these tariffs, which would typically have been outside his jurisdiction or to act solo in the White House jurisdiction.

Nick: Well, that’s right, the act doesn’t specify tariffs or it doesn’t give the President the right to create new taxes essentially. And so that’s all up in the air. Potentially it would be very interesting if the Supreme Court sides with that view, and then they have to refund all the tariffs potentially to everyone that’s paid them. How would that work? Logistical nightmare. I mean, the other things that have happened is Trump’s spoken about potentially getting the Europeans to put tariffs on India and China to stop buying Russian crude. So that’s sort of going on in the background as well. There’s still a bit going on, I think the markets really moved on.

Vincent: I just about to say that it’s sort of really moved on and there’s a lot that’s uncertainty here. But there’s almost an assumption that this will all sort of work its way through in one way or another.

Nick: Yeah, well, that’s right. And I mean, the tariffs are. Potentially going to generate $4 trillion of tax revenue over the next 10 years, and if they were knocked on their head, maybe the market would then start focusing on the budget problems that that would create. So yeah, I think it’s the market view and then there’s a lot of corporates that are still really working in this world of uncertainty, which is stopping them from hiring and investing. So, question, there’s the real economy and then there’s the market.

Vincent: So much corporates have passed on to this stage to date, regarding some of these tariffs given they don’t know tomorrow what the tariff might be, therefore, how do they set their pricing? So short term absorption, but yeah, medium term potential impacts on the consumer, which we don’t know really how big an impact that is yet.

Let’s jump across to markets and AI, the big talk topic we touched on before, enthusiasm continues in pockets. We’ve seen Alphabet join Nvidia, Microsoft, Apple, and the 3 trillion plus Club and Oracle, huge share price surge in the last week or so as well. What are you seeing on the markets?

Nick: Yeah, well, the market’s clearly liking the fact that we’re going to get some rate cuts, so markets love that particularly if it’s not due to recession. So, yep, tick for that. I mean, it’s interesting. S&P and NASDAQ reach new record highs at the same time, gold reaches a new record. They’re sort of contradictory things.

Vincent: Yeah, gold should be a sort of a more doomsday type.

Nick: That’s right, but, as you say, Alphabet, has had a very strong run in the last week or so.

Vincent: Had a positive, Antitrust ruling.

Nick: That’s right. So there was an antitrust ruling that could potentially have led to them having to divest their Chrome browser, and potentially also the Android operating system for phones. That hasn’t happened, I think they just have to share data with competitors. The market’s really like that, Alphabet’s up 32% year to date, breaking into that $3 trillion Club Oracle, which was essentially just a database company. Also, announced results, which were a bit ho-hum. Nothing too exciting there. But they did announce a $300 billion contract with OpenAI to provide cloud infrastructure. Potentially they’re going to be hosting TikTok right in the US, and also, they’ve got a strong government cloud contract as well.

Vincent: Very enthusiastic forward guidance around medium term assumptions.

Nick: It’s all forward looking, so I think, once again, it’s that, whole AI theme that’s really sort of driving markets.

Vincent: Markets certainly not run out of enthusiasm for that theme yet. Anything else on the markets?

Nick: No, I think that’s, that’s the main thing. Obviously bond yields, we’ve seen bond yields a US 10 year down to just over 4%, so it was sort of flirting with much higher levels not that long ago.

Vincent: We’ve had strong rally in US bonds that indicates that the bond market’s getting a little bit more comfortable, not saying extremely comfortable with the US debt picture more so than it was maybe a few months ago.

Nick: Yeah, I think there’s debt concerns is episodic, so market kind of doesn’t focus on it, and then maybe something brings it back into focus and then the market starts to worry about it. We have seen this a few times over the past few years, so at the moment it’s not a concern. I think if we did see, real threats to fed independence, that might refocus the minds of bond investors to worry that inflation would be much higher under that scenario. And the risk premium material and the risk premium and on longer data bonds would need to be higher.

Vincent: There was a lot packed in there. Thank you very much Nick Excellent overview and, good to be back on the podcast after a few weeks hiatus and thank you to all our listeners.

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