WEBVTT - Apollo Chief Economist Torsten Slok Talks Fed Chair Kevin Warsh

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Here's the latest investors

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<v Speaker 1>awaiting Kevin Walsh's first meeting as Federal Reserve chair. As

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<v Speaker 1>warring inflation adds to uncertainty over the direction of rates,

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<v Speaker 1>Torston's slock of Apollo writing with geopolitical risk easing and

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<v Speaker 1>FED shair, Kevin Walsh focus on simplifying FED communication. The

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<v Speaker 1>number of words in the FMC statement could move down

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<v Speaker 1>to levels seen under Alan Greenspan. Torston joins us, Now, okay,

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<v Speaker 1>so a statement comes out, don't need to read it

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<v Speaker 1>first or just do a quick word count.

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<v Speaker 2>We certainly need to read it first because the key

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<v Speaker 2>issue here is, of course, what style of communication I

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<v Speaker 2>we're going to get, and in particular, what is the

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<v Speaker 2>forward guidance? Is that any forward guidance? Is he going

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<v Speaker 2>to say that we do not like forward guidance. This

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<v Speaker 2>is still a very very unclear area in terms of

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<v Speaker 2>what is the communication style and what is Kevin w

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<v Speaker 2>Wash going to do in terms of what is he

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<v Speaker 2>going to say.

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<v Speaker 1>At the press conference, former Fed Governor Betsy Duke was

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<v Speaker 1>just on with us. She was talking about how there

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<v Speaker 1>could be a complete rewrite of the statement, not just

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<v Speaker 1>a little tweak of the easing bias is that what

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<v Speaker 1>you're expecting as well.

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<v Speaker 2>I think that is something that we should expect as

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<v Speaker 2>one of the outcomes. We just don't know. So that's

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<v Speaker 2>the reason why the market, of course, has been used

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<v Speaker 2>to having very well anchored expectations around the dot plot.

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<v Speaker 2>The dot plot has been around now for fifteen years.

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<v Speaker 2>Almost the ACP meaning the forecast, been around for almost

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<v Speaker 2>twenty years. So most people in financial markets have grown

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<v Speaker 2>up with very anchored expectations about the economic outlook and

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<v Speaker 2>very anchored expectations about what the fab will do. And

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<v Speaker 2>this discussion about is there an anchor? Is there not

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<v Speaker 2>an anchor? Of course, it's good to have an anchor

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<v Speaker 2>in the sense that that's clear then where everyone knows

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<v Speaker 2>where we're going. But at the same time, if the

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<v Speaker 2>world changes, then it's not good to have an anchor.

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<v Speaker 2>And this is the debate up on the scale, namely,

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<v Speaker 2>do we want to have an anchor or do we

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<v Speaker 2>not want to have an anchor that will give more

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<v Speaker 2>flexibility to the affront seat in this very moment.

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<v Speaker 3>If we remove some of that and we remove some

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<v Speaker 3>of the forward guidance, does that not all things considered

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<v Speaker 3>make us a little bit more hawkish because we don't

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<v Speaker 3>have that residual easing by that had been there before.

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<v Speaker 2>Yes, and next particularly important if we begin to think

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<v Speaker 2>about the discussion around rates, because Kevin Wiss has also

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<v Speaker 2>been focusing on shrinking the balance sheet, and a compromise

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<v Speaker 2>could potentially be that, well, we're not going to change

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<v Speaker 2>much communication on rates, but maybe saying that the balancy

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<v Speaker 2>will be smaller is simplicitly also going to be a

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<v Speaker 2>tightening opposed. So it all depends on where the committee

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<v Speaker 2>stands and where they discuss today and what their outcomes

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<v Speaker 2>is in terms of how should they communicate, how are

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<v Speaker 2>they going to signal to your point, Danny that there

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<v Speaker 2>is still some problems with inflation being too high. We

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<v Speaker 2>still have a very strong label market, which all argues

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<v Speaker 2>for that the Fed should be tightening financial positions.

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<v Speaker 3>Do you think this is a chair war who will

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<v Speaker 3>want to sort of galvanize a consensus as Powell had,

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<v Speaker 3>And how challenging will that be? If so, if he

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<v Speaker 3>does want to implement something in his words of a

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<v Speaker 3>regime change for the Fed.

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<v Speaker 2>Well, Kevin was knows what he is doing. But I

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<v Speaker 2>think what is a very important challenge of course for

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<v Speaker 2>him is that he wants any changes, Basically he needs

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<v Speaker 2>to have the other eleven members on there from see

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<v Speaker 2>the voting members on board with whatever he wants to change.

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<v Speaker 2>So that's why it must be clear also for him

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<v Speaker 2>he needs to get them on his side in terms

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<v Speaker 2>of any decision made, because always decisions about not only rates,

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<v Speaker 2>also about que qt whatever needs to be changed. In

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<v Speaker 2>terms of policy, there are twelve voting members and they

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<v Speaker 2>vote about what do they want to change, And therefore

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<v Speaker 2>the number of descents also potentially becomes important. When we

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<v Speaker 2>get the statement.

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<v Speaker 1>Tomorrow, do you think we get less FED speak then?

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<v Speaker 1>With Kevin worsh as the FED.

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<v Speaker 2>Chair, Well, that's really challenging because telling the regional FED

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<v Speaker 2>presidents that they're not allowed to talk more, even the

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<v Speaker 2>governors that they're not to talk more, that's just not possible.

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<v Speaker 2>And given we have had a history now of a

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<v Speaker 2>lot of communication, that means also the market has been

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<v Speaker 2>putting more weight on the FED chair, and I think

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<v Speaker 2>the market continues to put most weight on the FIT chair.

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<v Speaker 1>And don't you think we've seen more of this robust

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<v Speaker 1>debate and communication because of Steve Myron who was a

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<v Speaker 1>Trump appointee. So it would be pretty odd if Kevin

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<v Speaker 1>Moorsh came in and said, actually, stop talking as much.

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<v Speaker 2>Yeah, because we've also had some of course, to your

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<v Speaker 2>point here, we have some quite diverging views in terms

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<v Speaker 2>of the dot plot. And this is of course also

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<v Speaker 2>why the dot plot creates sometimes a bit more confusion. Yes,

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<v Speaker 2>it may be anchoring expectations, but the stain of deviation

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<v Speaker 2>of those expectations also get a lot of attention. In

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<v Speaker 2>other words, how divergent are the views in terms of

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<v Speaker 2>what's going to happen in the future, And we don't

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<v Speaker 2>know which dot is the Fitchair dot. So that also

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<v Speaker 2>makes it more complicated in terms of the dots coming

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<v Speaker 2>out actually going to be helpful in the sense of

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<v Speaker 2>anchoring expectations or do they raise more questions about the

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<v Speaker 2>uncertainty of what is a disagreement on the committee.

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<v Speaker 1>There's also a debate right now whether or not Kevin

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<v Speaker 1>Moorsh puts a dot on the plot.

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<v Speaker 2>Yeah, because he could also decide to This would be

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<v Speaker 2>highly unusual, of course, that will of course decide he

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<v Speaker 2>could decide to say I'm not going to put in

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<v Speaker 2>a dot. He could also decide to say I'm not

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<v Speaker 2>going to submit my CP forecast, meaning his forecast for

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<v Speaker 2>he thinks the economy is going, that would be pretty dramatic.

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<v Speaker 2>So if the goal here for him, Remember the most

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<v Speaker 2>important job for the FET chair is really to create

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<v Speaker 2>consensus about a decision. All books written by previous FAT

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<v Speaker 2>chairs they all emphasize that a key part of the

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<v Speaker 2>job is to basically call around to all the voting

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<v Speaker 2>here from SEA members and also the non voting men,

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<v Speaker 2>and say, what do you think should be the outcome

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<v Speaker 2>of this meeting? What is your view? And try to

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<v Speaker 2>come up with some solution and try to come up

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<v Speaker 2>with some path where he can get a majority and

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<v Speaker 2>ideally a big majority for the decision that they're going

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<v Speaker 2>to take.

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<v Speaker 3>It's complicated, but does this week's news on Iran a

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<v Speaker 3>deal a memorandum of understanding being signed on Friday make

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<v Speaker 3>things less complicated for FED shair wash?

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<v Speaker 2>Absolutely, because one key issue was that inflation is still

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<v Speaker 2>at roughly three percent in COPCE and COCPI. And the

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<v Speaker 2>problem is when inflation is three and the Fed's target

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<v Speaker 2>is two, then now we have at least one good

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<v Speaker 2>news is, of course that we have enterprises coming down,

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<v Speaker 2>but we still have a fairly strong economy, getting taiblemints

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<v Speaker 2>from the AI boom, getting tablewints from the one big

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<v Speaker 2>bit of a bill. And we also at the same

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<v Speaker 2>time have up with pressure on inflation from tariffs still

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<v Speaker 2>hanging over and putting up with pressure, as several fit

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<v Speaker 2>posts have been suggesting. So the key answer to your

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<v Speaker 2>question is he absolutely is absolutely a help. He's helped

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<v Speaker 2>by the fact that enterprises are moving low. He is help.

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<v Speaker 3>But again to your point, tourist, and there's inflation coming

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<v Speaker 3>from other parts of this economy. So if he wants

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<v Speaker 3>to lean moresh if he wants to kind of like

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<v Speaker 3>fulfill the promise that he had been talking to you

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<v Speaker 3>from Trump, what points to the parts of this economy

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<v Speaker 3>can he point to you to say we can still

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<v Speaker 3>get a cut this year.

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<v Speaker 2>And the double sort is, of course that when energy

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<v Speaker 2>prices go down, then we spend less money and energy

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<v Speaker 2>and we spend more money on something else. And given

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<v Speaker 2>that literally all high frequency indicators are still very strong,

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<v Speaker 2>still very strong data from the TSA how many people

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<v Speaker 2>travel on airplanes, still very strong data on the weekly

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<v Speaker 2>data from Redbook on how many people are consuming stuff

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<v Speaker 2>at Walmart and Target and Tjmax. And we also have

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<v Speaker 2>still very strong data when it comes to Hotel Demain

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<v Speaker 2>on a weekly basis. So that just is very little

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<v Speaker 2>science that no signs essentially at this point of the

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<v Speaker 2>economy slowing down so too high inflation, strong labor market,

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<v Speaker 2>that argues, of course for the fit needs to move

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<v Speaker 2>towards a more hawky stance.