WEBVTT - Tesla Offers Elon Musk an Unprecedented $1 Trillion Pay Package 0:00:02.520 --> 0:00:10.520 Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business 0:00:10.520 --> 0:00:14.400 Week Daily reporting from the magazine that helps global leaders 0:00:14.440 --> 0:00:18.360 stay ahead with insights on the people, companies, and trends 0:00:18.360 --> 0:00:23.360 shaping today's complex economy. Plus global business finance and tech 0:00:23.440 --> 0:00:27.320 news as it happens. The Bloomberg Business Week Daily Podcast 0:00:27.640 --> 0:00:31.720 with Carol Masser and Tim Stenebek on Bloomberg Radio. 0:00:32.880 --> 0:00:36.240 All right, time to talk about the world of technology 0:00:36.320 --> 0:00:39.400 because this as we had kind of an amazing visual 0:00:39.479 --> 0:00:42.920 yesterday at the White House Meta platforms, Mark Zuckerberg, Apples 0:00:42.960 --> 0:00:46.880 Tim Cook joining tech industry leaders in touting their pledges 0:00:46.880 --> 0:00:50.000 to boot spending in the United States and artificial intelligence. 0:00:50.360 --> 0:00:52.840 It was all during a dater hosted by President Donald 0:00:52.880 --> 0:00:56.280 Trump that highlighted his deepening relationship with Silicon Valley. The 0:00:56.320 --> 0:01:00.240 execs making comments at the dinner, among them Apple's Cook 0:01:00.560 --> 0:01:02.480 here in exchange with President Trump. 0:01:03.160 --> 0:01:06.480 We are all different in some ways, but we all 0:01:06.480 --> 0:01:07.680 believe in the power. 0:01:07.360 --> 0:01:10.800 Of technology to improve people's lives, and that that is 0:01:10.840 --> 0:01:12.959 the thing that binds us all together. 0:01:14.120 --> 0:01:17.480 And Tim, how much money will Apple will be investing 0:01:17.520 --> 0:01:19.360 in the United States? Because I know it's a very 0:01:19.400 --> 0:01:23.640 loud and it's you know, you were elsewhere and now 0:01:23.640 --> 0:01:26.800 you're really coming home in a big way. How much 0:01:26.840 --> 0:01:30.279 money will you be invested? Six hundred billion, six hundred billion. 0:01:31.920 --> 0:01:33.880 We're very proud to do it. That's great, Thank you 0:01:34.040 --> 0:01:35.640 very much, appreciate you, sir. 0:01:36.080 --> 0:01:38.080 All Right, Apple CEO Tim Cook last night at a 0:01:38.080 --> 0:01:40.120 dinner at the White House along with other big tech leaders. 0:01:40.160 --> 0:01:42.440 Of course you heard President Trump there and Tim that 0:01:42.560 --> 0:01:45.320 eye popping image of those CEOs at the dinner. We 0:01:45.400 --> 0:01:48.120 also had eye popping story about Elon Musk as well. 0:01:48.160 --> 0:01:49.440 There's like a lot going on here. 0:01:49.560 --> 0:01:49.800 Yeah. 0:01:49.880 --> 0:01:52.280 Okay, so let's talk about this and with somebody who 0:01:52.280 --> 0:01:54.560 knows all about it. We've got Ed lud Though with us. 0:01:54.600 --> 0:01:58.240 He's co host of Bloomberg Technology on Bloomberg Television and 0:01:58.280 --> 0:02:01.000 Monday through Friday eleven am Wall Street Time check it out. 0:02:01.120 --> 0:02:04.160 Ed joins us from the Bloomberg News bureau in San Francisco. 0:02:04.520 --> 0:02:07.840 First up, add that meeting of tech CEOs. You had 0:02:07.840 --> 0:02:10.960 Tim Cook there, you had Mark Zuckerberg there, Sam Altman, 0:02:11.200 --> 0:02:15.680 Sunder Pachai, Sergei Brin, Satinadella, Bill Gates, even members of 0:02:15.680 --> 0:02:18.919 the Trump administration who previously worked in technology or in 0:02:19.000 --> 0:02:23.600 venture capital David Sachs, for example, what was the image 0:02:24.080 --> 0:02:27.840 that this portrayed of the relationship that Silicon Valley or 0:02:27.880 --> 0:02:31.280 technology or the biggest companies in the world has with 0:02:31.320 --> 0:02:31.960 the White House. 0:02:32.880 --> 0:02:35.000 Well, there was another piece of news that came out 0:02:35.000 --> 0:02:38.079 with it, which is an almost another quid pro quo, right, 0:02:38.120 --> 0:02:41.760 which that in that clip, you heard President Trump asking 0:02:41.840 --> 0:02:43.519 Tim Cook, the Apple CEO. 0:02:43.440 --> 0:02:44.840 How much are you going to invest? 0:02:44.880 --> 0:02:45.079 Tim? 0:02:45.080 --> 0:02:47.560 Oh, six hundred billion, And the same was put to 0:02:47.600 --> 0:02:50.960 Mark Zuckerberg, who also said six hundred billion. But the 0:02:51.000 --> 0:02:54.360 background comment the President had made is that tariffs for 0:02:54.400 --> 0:02:58.880 semiconductors specifically are coming, and it's those that have pledged 0:02:59.480 --> 0:03:01.959 to in in the country that will be spared from them. 0:03:02.240 --> 0:03:03.720 That's why we look at it a little bit like 0:03:03.720 --> 0:03:07.919 a quid pro quo. But AI is at the heart 0:03:07.919 --> 0:03:12.640 of this administration's platform, right, deregulating to allow for faster 0:03:12.680 --> 0:03:16.079 building your data centers. And those people around the table, 0:03:16.160 --> 0:03:20.280 bar a few exceptions, are missing people. You know, those 0:03:20.280 --> 0:03:21.760 are the names they're leading on that front. 0:03:23.000 --> 0:03:24.720 Yeah, it's interesting. You know, it's funny. 0:03:24.760 --> 0:03:26.640 Tim and I were talking kind of before going because 0:03:26.639 --> 0:03:29.480 it's it's kind of a little bit remarkable to see 0:03:29.520 --> 0:03:32.120 these images, and I think there's a time has been 0:03:32.120 --> 0:03:35.440 a love hate relationship between the White House and Silicon Valley. 0:03:35.480 --> 0:03:37.960 What I'm just I was surprised to see Jared Isaacman 0:03:38.240 --> 0:03:40.400 on the list ed because he was supposed to be 0:03:40.400 --> 0:03:43.760 administrator of NASA. He's a shift for appointments, of course, 0:03:43.760 --> 0:03:46.839 somebody you've talked to and you know pretty well, yes, 0:03:47.760 --> 0:03:48.200 what's good? 0:03:48.200 --> 0:03:48.480 You think? 0:03:48.560 --> 0:03:51.280 You know the President pulled his name from the list 0:03:51.320 --> 0:03:54.200 and pulled his nomination. Well, why was he there? 0:03:55.520 --> 0:03:57.120 I think it's important to tell the truth. I don't 0:03:57.160 --> 0:04:00.560 know why he was there, you know, in Changu Jerry recently. 0:04:00.600 --> 0:04:03.240 I don't know that he's worked out what his next 0:04:03.240 --> 0:04:07.680 thing is going to be on social media, which is 0:04:07.960 --> 0:04:11.040 a dangerous place sometimes a lot of people would have 0:04:11.080 --> 0:04:14.400 observed that Elon Musk was not at the table, but 0:04:14.800 --> 0:04:18.080 they would say, oh, who was there representing Elon Musk? 0:04:18.200 --> 0:04:22.360 Surely it was not Jared Isaacman because of the situation. 0:04:22.400 --> 0:04:24.760 He just explained, and there were other people there at 0:04:24.760 --> 0:04:27.680 the table who also have connections to mask. But yeah, 0:04:27.760 --> 0:04:29.640 I promise you that when next I speak to him, 0:04:29.640 --> 0:04:32.120 I will ask him specifically, how'd you end up at 0:04:32.120 --> 0:04:35.440 that table. Given the president's recent handling of your nomination 0:04:35.760 --> 0:04:36.039 on the. 0:04:36.120 --> 0:04:38.560 On the Elon Musk thing. He was asked about this 0:04:38.640 --> 0:04:41.520 on social media. He replied to somebody and said, I'm 0:04:41.560 --> 0:04:43.720 not able to make I'm not able to make it, 0:04:43.800 --> 0:04:45.719 but I will have somebody represent me. 0:04:46.640 --> 0:04:49.599 That's what I'm alluding to, is I mean, I'm looking. 0:04:49.440 --> 0:04:52.200 At the list right now, is that it I don't 0:04:52.279 --> 0:04:56.200 see a representative from Tesla or from SpaceX there. 0:04:57.240 --> 0:04:57.560 Yep. 0:04:58.600 --> 0:05:00.520 I think that we're just going to have to let 0:05:00.640 --> 0:05:04.560 the reporting be done and if we still care, we 0:05:04.600 --> 0:05:07.839 will confirm who Elon's representative at that table was on 0:05:07.880 --> 0:05:09.120 the night, but we don't. 0:05:08.880 --> 0:05:11.719 Know does he really care? Because I don't know. You 0:05:11.800 --> 0:05:15.400 might get a compensation package worth about a trillion dollars. 0:05:14.920 --> 0:05:17.919 So isn't it really that important anymore? What do you 0:05:18.000 --> 0:05:18.680 know about this? 0:05:19.440 --> 0:05:19.719 Yeah? 0:05:19.960 --> 0:05:22.880 I think it's been a very long day reading a 0:05:22.920 --> 0:05:25.880 three hundred page document and there's so much detail in it. 0:05:26.279 --> 0:05:28.800 The simplest way of putting it is, it is one 0:05:28.880 --> 0:05:35.279 trillion dollars after ten years. If a very large number 0:05:35.800 --> 0:05:40.279 and sequenced series of events take place, Tesla and Musk 0:05:40.400 --> 0:05:45.080 have to meet many operational and financial milestones for the full. 0:05:44.839 --> 0:05:46.240 Trillion to be realized. 0:05:46.520 --> 0:05:49.800 And there are many other safeguards and securities from Tesla 0:05:49.800 --> 0:05:54.280 and Tessa shareholder standpoint baked into the proposal that would 0:05:54.400 --> 0:05:56.880 keep Musk focused on the task at hand. We can 0:05:56.920 --> 0:06:00.400 get into them, but for example, in order to access 0:06:00.480 --> 0:06:03.800 the last two trunches of stock, Mosk a has to 0:06:03.880 --> 0:06:06.360 pay for them up front, almost like an options being 0:06:06.400 --> 0:06:09.599 exercised at the price that the shares closed September first. 0:06:09.880 --> 0:06:13.159 But he also has to participate and sign off on 0:06:13.200 --> 0:06:16.120 the succession plan, so he has to like work on 0:06:16.160 --> 0:06:21.200 his own successor in year eight, nine and ten in 0:06:21.320 --> 0:06:25.160 order to get to not just the reward from money, right, 0:06:25.200 --> 0:06:27.800 we're not talking just about conversation, but in his case, 0:06:27.839 --> 0:06:30.720 he wanted the voting rights as well, and they're staggered 0:06:30.800 --> 0:06:31.880 over that ten years. 0:06:32.120 --> 0:06:33.640 So who is this a win win for? And I 0:06:33.680 --> 0:06:36.360 only asked because Tom Maloney has also put out a 0:06:36.400 --> 0:06:39.800 story at Bloomberg News and says that Elon Musk got 0:06:39.839 --> 0:06:42.640 this one trillion dollars with genuine threats to quit Tesla. 0:06:43.040 --> 0:06:46.400 So was the company really worried about losing Elon? 0:06:46.560 --> 0:06:48.000 So was he in the driver's seat on this? 0:06:48.040 --> 0:06:51.359 Because this package sounds like there are some guardrails around 0:06:51.440 --> 0:06:52.400 Elon in a big way. 0:06:53.080 --> 0:06:53.320 Yes. 0:06:53.440 --> 0:06:56.400 Tom Maloney has reported it beautifully. If you don't read 0:06:56.440 --> 0:06:59.640 the full three hundred page proxy, read Tom's report. The 0:07:00.400 --> 0:07:03.599 representing the board met with Elon Musk ten times in 0:07:03.680 --> 0:07:07.719 negotiation of this package. They delayed the annual shareholder meeting 0:07:08.000 --> 0:07:11.240 as they negotiated this package. They hired a number of 0:07:11.280 --> 0:07:15.200 outside firms and advisors to get the package at least 0:07:15.200 --> 0:07:17.240 over line. I say over the line, it still has 0:07:17.280 --> 0:07:20.800 to be voted on by shareholders in November. Musk's point was, 0:07:20.920 --> 0:07:23.280 if you do not give me this voting power of 0:07:23.320 --> 0:07:26.120 twenty five percent or greater, I will go and do 0:07:26.200 --> 0:07:29.239 the things that I'm interested in elsewhere XAI SpaceX et cetera. 0:07:29.800 --> 0:07:33.120 What did the board get in return Section A fifty 0:07:33.160 --> 0:07:35.320 one or page A fifty one of the proxy? Point 0:07:35.400 --> 0:07:39.040 number two, We have got reassurances from Elon Musk that 0:07:39.080 --> 0:07:42.320 he will wind down his political activity. So it's not 0:07:42.360 --> 0:07:44.960 a sort of blanket all going to Elon. You know, 0:07:45.040 --> 0:07:48.600 the board has made including with the operational goals they've 0:07:48.640 --> 0:07:52.400 set forlong like these are really hard. They've got things 0:07:52.440 --> 0:07:54.560 to protect them in making sure Elon Musk is focused 0:07:54.600 --> 0:07:55.400 at the same time. 0:07:56.000 --> 0:07:58.720 Eight point five trillion dollars in market cap from one 0:07:58.720 --> 0:08:02.160 point one trillion dollars today. Ed, how does Tesla get 0:08:02.160 --> 0:08:03.440 there over the next ten years. 0:08:04.200 --> 0:08:07.280 Yes, so Tesla has a market cap today of about trillion, 0:08:07.480 --> 0:08:10.600 and one of the financial milestones for Elon to realize 0:08:10.600 --> 0:08:12.800 the full trillion of comp is for it to get 0:08:12.960 --> 0:08:16.440 to eight point five trillion dollars. It's very interesting when 0:08:16.480 --> 0:08:19.920 you set that against the operational goals. The operational goals 0:08:19.920 --> 0:08:23.000 are very much in line with AI. Grow a robotaxi 0:08:23.040 --> 0:08:27.000 fleet to one million units, robotaxis, one million, taking people 0:08:27.040 --> 0:08:31.160 on ride hail, ride sharing platform, one million humanoid robots. 0:08:31.560 --> 0:08:33.680 But the board also tucked in there a goal for 0:08:33.720 --> 0:08:38.000 Elon Musk to sell twenty million Tesla vehicles total and 0:08:38.080 --> 0:08:41.680 deliver them to consumers. And it shows that the board 0:08:41.960 --> 0:08:45.600 fought to keep Elon Musk focused on Tesla's bread and 0:08:45.640 --> 0:08:48.720 butter business, even in the likelihood that that eight point 0:08:48.760 --> 0:08:51.680 five trillion dollar value in the long run is more 0:08:51.720 --> 0:08:55.439 closely aligned to the big robotics and AI stuff than 0:08:55.480 --> 0:08:58.080 it is in the sort of now, sort of archaic 0:08:58.120 --> 0:09:01.160 business of building vehicles and selling them to comensumers. You know, 0:09:01.200 --> 0:09:03.360 that's kind of how I think the market looks at it. 0:09:04.080 --> 0:09:05.040 Ah, that's massive. 0:09:05.320 --> 0:09:06.959 Are we even crazy to think about an eight and 0:09:07.000 --> 0:09:08.800 a half trillion dollar market cap for Tesla? 0:09:09.559 --> 0:09:12.040 When I first moved to California in twenty eighteen, which 0:09:12.040 --> 0:09:14.560 ain't that long ago, right in video was a company 0:09:14.559 --> 0:09:19.080 that made GPUs that for video game developers and went 0:09:19.120 --> 0:09:22.240 into high end consoles and computers for video games. It 0:09:22.320 --> 0:09:25.000 was a few one hundred billion dollars. It's now a 0:09:25.040 --> 0:09:29.040 four trillion dollar market cap company. It's the easiest example 0:09:29.040 --> 0:09:32.160 for me to cite over a period of less than 0:09:32.160 --> 0:09:34.640 ten years of a company dumping in trillions of dollar 0:09:34.640 --> 0:09:35.280 of value. 0:09:35.480 --> 0:09:37.240 Can I just ask you why all this stuff about 0:09:37.280 --> 0:09:40.600 Elon's compensation is happening now? Is it just that they 0:09:40.600 --> 0:09:42.840 were having meetings and it's all coming out? 0:09:42.920 --> 0:09:44.520 Is there anything at the time or what? 0:09:45.600 --> 0:09:48.880 Well, a proxy needs to be filed in advance of 0:09:48.880 --> 0:09:51.800 an annual shareholder meeting, right, and the annual shareholder meeting 0:09:51.880 --> 0:09:54.280 has to happen at some point. It's happening in November, 0:09:54.320 --> 0:09:56.439 so there's a chronology to it, and the auditors have 0:09:56.520 --> 0:09:57.240 to prepare it. 0:09:58.120 --> 0:09:59.040 That's quite boring. 0:09:59.120 --> 0:10:00.920 But that's part of the answer. 0:10:01.720 --> 0:10:03.800 One of the things we need to ask too, is 0:10:03.920 --> 0:10:06.760 that the shareholders are going to decide to if Tesla 0:10:06.840 --> 0:10:11.679 should invest in his AI startup, XAI significant. I mean, 0:10:11.720 --> 0:10:15.320 it does feel like Eland's rolling everything into one or 0:10:15.360 --> 0:10:15.719 wants to. 0:10:16.800 --> 0:10:20.760 This is a shareholder initiated proposal. Many shareholders tried to 0:10:20.760 --> 0:10:22.520 get the proposal on the docket. In the end they 0:10:22.559 --> 0:10:28.080 went with just one by a single retail shareholder, Xai. 0:10:28.880 --> 0:10:29.760 You could use GROC. 0:10:29.800 --> 0:10:33.200 I used it this morning, a voice assistant based chatbot 0:10:33.320 --> 0:10:38.160 in Tesla vehicles. Bigger picture, Xai has a very different 0:10:38.200 --> 0:10:41.640 model to say Anthropic and open Ai. Despite all the 0:10:41.679 --> 0:10:44.240 headlines about all the money those two AI startups have 0:10:44.480 --> 0:10:48.479 open Ion and Fropic, they basically lease the data center capacity. 0:10:48.720 --> 0:10:52.520 They don't own the assets outright. Xai does. It's committing 0:10:52.559 --> 0:10:55.560 tens of billions of dollars to buy the GPUs and 0:10:55.600 --> 0:10:58.640 put them in a data center. So you know, the 0:10:58.720 --> 0:11:02.480 rationale is that their synergy, that the work Xai is 0:11:02.520 --> 0:11:06.120 doing on software can benefit Tesla owners and Tesla vehicles. 0:11:06.360 --> 0:11:08.559 But it's also a bit of a lifeline. And if 0:11:08.600 --> 0:11:10.280 you allow me to do the plug, I'm going to 0:11:10.280 --> 0:11:12.880 write about this in my newsletter and column on Monday, 0:11:13.320 --> 0:11:16.240 because you know, that's the thing that shareholders also have 0:11:16.320 --> 0:11:19.400 to face. You know, does Xai on paper have the 0:11:19.440 --> 0:11:22.920 ability to stand on its own two feet? Or is 0:11:22.960 --> 0:11:25.120 this going beyond an investment by Tesla? Is it a 0:11:25.120 --> 0:11:27.160 bailout of one Elon must company of another? 0:11:27.640 --> 0:11:30.360 And just in the last forty seconds to push back 0:11:30.360 --> 0:11:32.440 on this a little bit, as Mark Germers told us, 0:11:32.440 --> 0:11:36.760 some of the lms and the tech there's a concern 0:11:36.840 --> 0:11:39.920 that this could be a bit of a commodity. 0:11:40.600 --> 0:11:43.600 Correct, and also the benchmarking figures for GROCK four are 0:11:43.720 --> 0:11:47.280 very good. But again it's a business model based thing. 0:11:47.320 --> 0:11:50.760 Elon Musk is committed to moving super quick, committing capital 0:11:50.800 --> 0:11:55.840 to buying GPUs and the models completely different. Again, it 0:11:55.880 --> 0:11:59.400 is not a binding proposal. It is a shareholder initiated one. 0:12:00.120 --> 0:12:03.320 If it successfully passed in November, then the board needs 0:12:03.360 --> 0:12:04.840 to look at it and decide if it is a 0:12:04.880 --> 0:12:08.400 prudent and beneficial thing to Tesla to make that investment. 0:12:08.559 --> 0:12:11.040 But as I reported earlier in the year, SpaceX has 0:12:11.040 --> 0:12:14.959 put two billion into Xai, right, so why not Tesla? 0:12:15.040 --> 0:12:17.800 Oh and by the way, ed, you can promote anything 0:12:17.840 --> 0:12:19.520 you want on our air. You're ed Ludlow. 0:12:19.880 --> 0:12:21.679 All right, we're looking forward to the newsletters. Shehars a 0:12:21.720 --> 0:12:24.320 Tesla by the way, up almost four percent. Edla the 0:12:24.400 --> 0:12:25.840 co host of Bloomberg Technology. 0:12:26.720 --> 0:12:29.520 Stay with us. More from Bloomberg Business Week Daily coming 0:12:29.600 --> 0:12:30.480 up after this. 0:12:34.679 --> 0:12:38.520 You're listening to the Bloomberg Business Week Daily Podcast. Catch 0:12:38.600 --> 0:12:41.280 us live weekday afternoons from two to five e's during 0:12:41.520 --> 0:12:45.440 Listen on Applecarplay and Android Otto with the Bloomberg Business app, 0:12:45.600 --> 0:12:47.840 or watch us live on YouTube. 0:12:48.440 --> 0:12:50.000 All right, we want to get to what is really 0:12:50.040 --> 0:12:52.559 our top story on this Friday, and there's a lot 0:12:52.600 --> 0:12:54.319 going on, but we have seen some coolness in the 0:12:54.400 --> 0:12:57.480 US labor market as a result of that data point 0:12:57.520 --> 0:12:59.400 we got at eight thirty one. 0:13:00.240 --> 0:13:00.840 It depends. 0:13:02.320 --> 0:13:04.120 I think we were pretty on time with it. We 0:13:04.200 --> 0:13:06.920 got a notice though, just ahead of that number that 0:13:06.960 --> 0:13:10.480 there were some technical difficulties. That's something that is kind 0:13:10.520 --> 0:13:11.000 of new to me. 0:13:11.280 --> 0:13:12.719 It's definitely new to me as well. 0:13:12.760 --> 0:13:14.480 It's not the only time, but I think this was 0:13:14.520 --> 0:13:16.880 on the government side, by the way, not on the note. 0:13:16.679 --> 0:13:18.200 Not on the Blueberg side of ironic. 0:13:18.840 --> 0:13:21.480 It definitely, though, did mean a new narrative and reset 0:13:21.520 --> 0:13:22.720 when it comes to US rates. 0:13:22.760 --> 0:13:24.120 Let's get to that part of the story. 0:13:24.160 --> 0:13:27.960 Bloomberg Intelligence GUS interest rate strategist Ira Jersey with us 0:13:27.960 --> 0:13:31.679 from New Jersey. Ira, just the whole morning and how 0:13:31.679 --> 0:13:36.680 it played out unusual, Yeah, like was top of mind 0:13:36.720 --> 0:13:37.240 for you there. 0:13:38.040 --> 0:13:39.960 Well, what's kind of funny, right, we got all those 0:13:40.640 --> 0:13:44.840 that information that around ten minutes after eight that hey, 0:13:45.440 --> 0:13:48.320 the number might be delayed. You know, that's happened before. 0:13:48.400 --> 0:13:50.520 It's been a long time, but it has happened before 0:13:50.559 --> 0:13:54.320 that You've had delayed numbers because websites break things like that. 0:13:54.559 --> 0:13:56.160 So I think they were teeing us up for it 0:13:56.200 --> 0:13:58.680 being late, and then we ultimately got it right on time, 0:13:59.000 --> 0:14:02.439 which was a little interesting. But yeah, week numbers across 0:14:02.480 --> 0:14:05.520 the board. You look at the revisions June, we actually 0:14:05.520 --> 0:14:08.520 had job losses in the non farm payroll series, right, 0:14:08.520 --> 0:14:10.320 We haven't had one of those for quite a long time. 0:14:10.800 --> 0:14:13.719 And you know, and you just see job momentum has 0:14:13.840 --> 0:14:17.480 slowed so significantly over the last four or five months 0:14:17.840 --> 0:14:20.280 that it's a foregone conclusion at this point that the 0:14:20.280 --> 0:14:24.040 Fed's going to cut Now. The question is, and you know, 0:14:24.120 --> 0:14:27.200 I keep on reminding myself, you know, last year we 0:14:27.200 --> 0:14:30.200 said the same thing. I said, the Fed's gonna cut rates, 0:14:30.200 --> 0:14:32.360 are probably going to cut one hundred basis points, but 0:14:32.400 --> 0:14:34.760 it's going to be over four meetings wound up. They 0:14:34.760 --> 0:14:37.520 did a fifty basis point cut in September. That's some 0:14:37.600 --> 0:14:40.240 of the talk that I'm hearing from investors right now 0:14:40.800 --> 0:14:42.840 that you know, they're wondering, Hey, is the Fed going 0:14:42.920 --> 0:14:45.720 to cut fifty? I do think personally the bar is 0:14:45.760 --> 0:14:48.840 pretty high for the Fed to cut fifty in September. 0:14:50.000 --> 0:14:52.600 But you know, we will get a week, we get 0:14:52.600 --> 0:14:56.120 a week CPI report, and maybe they do. The chances 0:14:56.160 --> 0:14:58.080 they think of a week CPI reported pretty low though. 0:14:58.080 --> 0:15:00.680 So twenty five base points is done, and now the 0:15:00.760 --> 0:15:05.880 question is October, December, January, March, and then do they 0:15:05.880 --> 0:15:08.560 go more? And that's where I think we need to 0:15:08.560 --> 0:15:11.680 start focusing on. Is that terminal rate? How far are 0:15:11.720 --> 0:15:13.360 they going to cut two? Are they going to go 0:15:13.400 --> 0:15:14.920 to only three percent? Or are they going to go 0:15:14.960 --> 0:15:16.320 to like two and a half percent. 0:15:16.520 --> 0:15:20.440 The criticism from the Trump administration for months on J. 0:15:20.560 --> 0:15:22.240 Powell has been that he has been too late, that 0:15:22.280 --> 0:15:25.400 the Federal Reserve has been too late. Is the President 0:15:25.480 --> 0:15:27.400 vindicated with a report such as this. 0:15:29.120 --> 0:15:31.960 Well, maybe one meeting quite frankly, because if you look 0:15:31.960 --> 0:15:34.000 at the preponderance of data that was coming in the 0:15:34.000 --> 0:15:36.840 first half of the year, right through through the May 0:15:37.400 --> 0:15:41.520 numbers altogether, they really weren't bad, right, and so, and 0:15:41.640 --> 0:15:44.760 inflation still remains stubbornly high and above the fed's two 0:15:44.800 --> 0:15:48.320 percent target. So you know, the question always becomes the 0:15:48.360 --> 0:15:51.040 FED has a dual mandate. Do they care more about 0:15:51.080 --> 0:15:53.200 the employment part of their mandate or do they care 0:15:53.280 --> 0:15:56.440 more about the inflation part of their mandate? And I 0:15:56.440 --> 0:15:59.280 think at this point they can say employment's what's important. 0:15:59.280 --> 0:16:02.640 Because if the employment situation stays where it is so 0:16:02.840 --> 0:16:07.400 very weak but not not disastrous, or weekends further, right, 0:16:07.440 --> 0:16:09.880 so you start to get negative payroll prints, wages start 0:16:09.880 --> 0:16:12.240 to come down. You did see wages. That what worries 0:16:12.240 --> 0:16:14.400 me about this report more than even the payroll number 0:16:14.440 --> 0:16:17.080 was the fact that wages started to moderate. That's been 0:16:17.200 --> 0:16:20.840 that's super important. But the you know, now you're at 0:16:20.840 --> 0:16:23.640 the point where, okay, look, if the job market gets 0:16:23.680 --> 0:16:25.640 really bad, we don't have to worry about inflation because 0:16:25.680 --> 0:16:28.080 prices are going to come down anyway, because consumption is 0:16:28.120 --> 0:16:30.560 going to go down. So I think that the you know, 0:16:30.840 --> 0:16:33.520 now it's clear and obvious that they have to start 0:16:33.560 --> 0:16:37.600 cutting interest rates. Wasn't so clear in June August, you know, 0:16:37.840 --> 0:16:40.080 or the July meeting. You could you could argue maybe 0:16:40.080 --> 0:16:43.360 they could have cut, but I think that that you know, 0:16:43.400 --> 0:16:46.040 if I'm a FED governor, if I were in their seat, 0:16:46.760 --> 0:16:49.680 you know June, I probably wouldn't have been cutting personally. 0:16:49.760 --> 0:16:51.400 Well, one thing they certainly want to avoid is any 0:16:51.440 --> 0:16:52.480 kind of stagflation. 0:16:52.720 --> 0:16:55.760 Constant Hunter is with us as well, chief economists at Yeah, 0:16:55.880 --> 0:16:58.600 you the Economist Intelligence Unit here in our studio, going 0:16:58.600 --> 0:17:00.640 to join in on this. Gout shoud I saw you 0:17:00.720 --> 0:17:02.480 not in your head a couple of times jump in 0:17:02.560 --> 0:17:04.000 on what we got this morning. 0:17:04.359 --> 0:17:06.720 So, I mean, if we look at that headline number, 0:17:06.760 --> 0:17:10.160 twenty two thousand looks really weak when we think about 0:17:10.320 --> 0:17:15.320 what would be replacement rate historically, however, as Powell talked 0:17:15.320 --> 0:17:18.639 about in his Jackson Hole speech, right, we have a 0:17:18.720 --> 0:17:21.479 decline in supply, that is, the decline in the amount 0:17:21.560 --> 0:17:24.280 of people that are in the labor force and a 0:17:24.359 --> 0:17:28.360 decline in demand. So that decline in the supply, which 0:17:28.359 --> 0:17:30.359 is now growing at like two tens of up percent 0:17:30.440 --> 0:17:32.280 year over year, if we sort of smooth it a 0:17:32.320 --> 0:17:36.000 little bit for three months, right. That is the denominator 0:17:36.359 --> 0:17:39.000 in the unemployment rate, and this is really really important. 0:17:39.000 --> 0:17:42.240 We could keep growing at this pace, unemployment rate's going 0:17:42.320 --> 0:17:45.480 to stay about where it is. So the but as 0:17:45.520 --> 0:17:48.240 Ira was saying, consumption's going to weaken because if you 0:17:48.320 --> 0:17:51.199 think about jobs growth, that's one of the things things 0:17:51.200 --> 0:17:54.560 that feeds consumption growth. So there's a feedback loop where 0:17:54.600 --> 0:17:58.640 this slows consumption, slows demand, slows growth. And they're going 0:17:58.680 --> 0:18:01.560 to need to cut just to me, that four point 0:18:01.560 --> 0:18:04.840 two four point three percent unemployment rate, but they probably 0:18:04.880 --> 0:18:07.919 need to cut a lot less than the market is thinking, 0:18:08.400 --> 0:18:11.879 given this shrinkage and supply. And if you ask me, 0:18:12.040 --> 0:18:15.160 that's what caused the big turnaround inequities today. People dug 0:18:15.240 --> 0:18:18.600 into the details of this number and realized, wait a minute, 0:18:18.920 --> 0:18:21.520 because of this shrinking supply, they might not need to 0:18:21.560 --> 0:18:22.200 cut as much. 0:18:22.280 --> 0:18:24.879 So what does that mean to you? Twenty five basis 0:18:24.880 --> 0:18:27.640 points in September and then that's it until twenty twenty six. 0:18:27.800 --> 0:18:30.399 Oh, I think it's hard to know the exact timing. 0:18:30.480 --> 0:18:32.960 We think at least another three cuts over the next 0:18:33.000 --> 0:18:36.560 six months. It's going to depend on how sticky inflation 0:18:36.680 --> 0:18:40.320 is what we've seen in core services that's been remarkably sticky. 0:18:40.359 --> 0:18:42.920 So we're not even talking about the goods sector where 0:18:42.920 --> 0:18:45.400 we're seeing price increases, but everybody anticipates. 0:18:45.480 --> 0:18:46.119 Dare I say it? 0:18:46.119 --> 0:18:50.320 It is going to be transitory but the dirty word 0:18:50.359 --> 0:18:55.639 in economics. But it's that core good stickiness that I 0:18:55.680 --> 0:18:57.960 think if I were a Fed governor or a voter 0:18:58.080 --> 0:18:59.880 on the FOMC, that would keep me up at night. 0:19:00.119 --> 0:19:03.000 Arah, I mean, is J Powell the feeling incredible pressure 0:19:03.080 --> 0:19:03.480 right now? 0:19:05.720 --> 0:19:08.080 I don't, you know, I don't know. I'm not sure 0:19:08.200 --> 0:19:11.520 if he you know, I can't get into his head, right. 0:19:12.080 --> 0:19:14.680 You know, I've met Chair Powell a couple of times, 0:19:14.720 --> 0:19:18.199 but you know, mostly in passing at events. But I 0:19:18.320 --> 0:19:22.199 would imagine that the Federal Reserve is trying to be 0:19:22.480 --> 0:19:24.919 as you know, neutral as they can and trying to 0:19:24.960 --> 0:19:27.119 look past a lot of the rhetoric coming out of 0:19:27.119 --> 0:19:29.679 the White House. I mean, you can't completely ignore it, 0:19:29.800 --> 0:19:32.840 right for sure, But you know, you look at Secretary 0:19:32.920 --> 0:19:35.520 Besson and if you look at his Wall Street Journal 0:19:36.000 --> 0:19:42.240 ed which Mike just talked about with Austin Golsby with Austin, yeah, 0:19:42.359 --> 0:19:45.160 they you know they were talking about in there. There's 0:19:45.200 --> 0:19:47.840 some I think legitimate criticisms of what the Federal Reserve 0:19:47.840 --> 0:19:50.680 has done over the past fifteen years, but it also 0:19:50.800 --> 0:19:53.040