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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia Podcast. I'm Charlie Pellett

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Speaker 2: Doug Prisoner's Office. Week Goldman Sachs is hosting its inaugural

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Speaker 2: Asia Leaders Conference in Hong Kong. Bloomberg's Avril Hong is

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Speaker 2: there and coming up will bring you her exclusive conversation

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Speaker 2: with Goldman Vice chair and former Dallas FED President Robert Kaplan.

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Speaker 2: But we begin this morning in Beijing, where once a

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Speaker 2: decade military parade is getting underway, Coming off the hills

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Speaker 2: of the Shanghai Cooperation Organization Summit, The parade will unveil

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Speaker 2: new weapons and showcase Beijing's diplomatic clout. Chinese President Jijinping

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Speaker 2: will be joined by Russia's Vladimir Putin and North Korea's

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Speaker 2: Kim Jong un for the day's festivities. Bloomberg Steven Engel

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Speaker 2: is tracking developments from Tienemann Square. He spoke with Bloomberg

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Speaker 2: television hosts April Hong and Paul Allen on the Asia trade.

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Speaker 3: Steve, what are you seeing so far and what's the

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Speaker 3: message China's trying to stand today?

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Speaker 4: Well, there are clearly many different storylines coming from this

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Speaker 4: military parade. At the top of that, of course, is

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Speaker 4: China's marking eighty years since the end of the World

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Speaker 4: War Two, and obviously wants to portray to the world

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Speaker 4: that China, as well as the Soviet Union. Now, of

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Speaker 4: course Russia, paid a great price in their contribution to

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Speaker 4: the defeat of Japan and fascism in Europe. There were

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Speaker 4: some forty seven million combined deaths between China and the

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Speaker 4: Soviet Union. So it's not rewriting history, it's just re

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Speaker 4: emphasizing that China played its part as well in defeating

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Speaker 4: the Access Party powers. Now, Shi Jinping, if it follows

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Speaker 4: suit to twenty fifteen, when I was last year and

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Speaker 4: the last time they marked a similar anniversary, the seventieth

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Speaker 4: anniversary of the winning of the World War Two, Jimping

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Speaker 4: in his speech which he will be giving, we don't

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Speaker 4: have the exact timetable, but possibly within the next hour.

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Speaker 4: But ten years ago he announced that the People's Liberation

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Speaker 4: Army would be reduced by some three hundred thousand soldiers,

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Speaker 4: and it really ushered in one of the biggest military

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Speaker 4: restructurings in Chinese history. And also we've seen a corruption

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Speaker 4: purge of top leaders, in particular in the Rocket Force,

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Speaker 4: which is overseeing China's nuclear arsenal. The Rocket Force commander

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Speaker 4: Liu Choo has been replaced, and now Hu Weidong, the

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Speaker 4: vice chair of the Central Military Commissions, might be missing

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Speaker 4: from the DAIS today here at the parade. No official

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Speaker 4: reason has been given for his extended absues from public,

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Speaker 4: but he may indeed be the highest casualty of China's

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Speaker 4: expanding military corruption probe, which has already claimed le Chan Fu,

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Speaker 4: a former defense minister, as well as another senior admiral

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Speaker 4: from the PLA Navy, Miao Hua, who was removed again.

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Speaker 4: Shiji Pin came to power promising to root out corruption,

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Speaker 4: and particularly from the PLA. He said, they'll go after

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Speaker 4: tigers and fly so big generals and also rank and

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Speaker 4: file soldiers. So that's the backdrop of this as they

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Speaker 4: roll out the military hardware, and also the growing diplomatic

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Speaker 4: clout with Vladimir Putin, also Kim Jong Unhir and other

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Speaker 4: leaders like Anwar Ibrahim from Malaysia and others from Iran

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Speaker 4: and other nations.

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Speaker 5: Yeah, Steeve, as you're speaking, we continue to see these

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Speaker 5: world leaders streaming in. It's also interesting what we've seen

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Speaker 5: between China and Russia at this event, these into gas

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Speaker 5: pipeline deal, perhaps drawing potentially the attention of Donald Trump.

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Speaker 5: But what are you seeing in terms of the Chinese

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Speaker 5: president at the stage, perhaps redrawing the Joe political middle.

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Speaker 4: But we saw it obviously over the last couple of

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Speaker 4: days that the SEO in Tianjin, remarkable footage of course

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Speaker 4: of Sijinping and Vladimir Putin and the Render Modi clasping

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Speaker 4: hands and sharing a good joke and a good laugh.

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Speaker 4: There also, of course Mody and Putin spending a long

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Speaker 4: time in Putin's limousine talking about a number of different things.

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Speaker 4: We all know that India's purchases of Russian sanctioned oil

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Speaker 4: and crude has sparked the ire of Washington, saying India

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Speaker 4: is profiteering from lower cost purchases of Russian oil. But

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Speaker 4: on top of that, we got a surprise announcement yesterday.

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Speaker 4: The long, hard fought victory for Vladimir Putin is to

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Speaker 4: get China's backing for the second gas pipeline from Russia

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Speaker 4: to China. The power of Siberia too, that, according to

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Speaker 4: Russian sources, has been agreed to by China. It has

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Speaker 4: been hard fought. I mean, it is something that the

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Speaker 4: China needs to have resisted doing so for a long

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Speaker 4: time because of the high cost involved. And also the

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Speaker 4: Chinese economy is slowing and energy demand has waned, So

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Speaker 4: why embark on such a new expensive pipeline at this time.

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Speaker 4: But the Russians say it's going to go ahead with

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Speaker 4: China's blessing, but we're still awaiting China's announcement that they

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Speaker 4: are going to go ahead, or of Siberia too. So

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Speaker 4: that's probably the most prominent deal that is sort of

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Speaker 4: been announced coming from this gathering of leaders here in

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Speaker 4: China this week.

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Speaker 3: You mentioned a little bit earlier about we've seen something

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Speaker 3: of a purge inside the military. Are we potentially going

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Speaker 3: to see some new faces among the crowd today and

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Speaker 3: what we likely to hear in Chesi Ping's speech.

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Speaker 4: Well, we could get some sort of clarity or we

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Speaker 4: might not. We simply don't know. But we do know

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Speaker 4: that since she took power in twenty twelve twenty thirteen,

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Speaker 4: he is ousted nearly one fifth of the generals that

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Speaker 4: he appointed. You know, Hujintao has predecessors Hujinao and Jong Zamen,

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Speaker 4: they didn't get rid of any of their generals during

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Speaker 4: their terms in office. So She Jinping definitely revamping as

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Speaker 4: the hierarchy in the military and demanding more loyalty and

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Speaker 4: more discipline within the ranks. So the corruption probe has

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Speaker 4: gone wide and deep. But Si Zimping understands that his

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Speaker 4: grip on power, which is now extended into a third

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Speaker 4: consecutive term, really lies as Malzadong said in holding on

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Speaker 4: to the power of the military. Malzadong was famous for

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Speaker 4: saying political power grows out of the barrel of a gun.

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Speaker 4: So I think Si Jinping has adopted that kind of mentality.

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Speaker 4: He has strengthened and increased discipline within the ranks of

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Speaker 4: the military, and that's going to be on show on

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Speaker 4: display here in the streets of Beijing within the matter

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Speaker 4: of the next hour, showing the modernization of the People's

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Speaker 4: Liberation of the Army, from the latest sealth fighters to

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Speaker 4: J twenty a to of course hypersonic missiles. The latest

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Speaker 4: technologies there and strone warfare is going to be on

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Speaker 4: display all right.

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Speaker 3: Bloomberg Chief and North Asia correspondent Steven Engel reporting from

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Speaker 3: Tianamen Square.

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Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Charlie Pellatin

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Speaker 2: this morning for Doug Prisner. We go to Hong Kong

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Speaker 2: next where Goldman Sachs is hosting its inaugural Asia Leaders Conference.

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Speaker 2: It was there that we had the chance to catch

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Speaker 2: up with Goldman's vice chair and former Dallas FED President

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Speaker 2: Robert Kaplan. He spoke exclusively to Bloomberg's April Hong.

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Speaker 5: Who, in your mind do you want to see you

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Speaker 5: taking over from Champ Powell.

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Speaker 6: I'm not going to comment on individual candidates, obviously, but

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Speaker 6: Jaypal's term as chairman ends in May, and so it

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Speaker 6: makes sense that they should start the interview process.

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Speaker 1: I think the main thing for the leader.

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Speaker 6: The next leader of the FED has to be somebody

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Speaker 6: who has strong grounding and economics and can make independent

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Speaker 6: judgments about the economy, can forge a consensus, can oversee

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Speaker 6: the that and manage it, and can operate, in my view,

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Speaker 6: in an independent manner to make the best decisions for

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Speaker 6: the US economy.

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Speaker 5: An independent central bank is something you've cited previously as

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Speaker 5: being the mark of a successful nation. We've seen Trump

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Speaker 5: ramping up pressure on Powell moving to fire Lisa Cork

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Speaker 5: moving as well potentially to get a majority on the board.

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Speaker 4: How worrying is.

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Speaker 1: That for you?

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Speaker 6: Well, I won't comment on those individual situations, but I

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Speaker 6: do think, as you said, it's critical that the people

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Speaker 6: that are in the governor's seats and then the Bank

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Speaker 6: president's seats operate without regard to political influence or political

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Speaker 6: considerations and divorce themselves from worrying about political pressure. They

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Speaker 6: have to make the best decisions they can. They can debate,

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Speaker 6: they can disagree, they can bring innovative ideas, but it's

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Speaker 6: got to be done on the basis of what they

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Speaker 6: think is the best decision for the US economy. And

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Speaker 6: I think it's critical that that ethic. I think it's

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Speaker 6: in the interest of the United States for that ethic

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Speaker 6: to be maintained.

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Speaker 5: They're under a lot of pressure, though, how do you

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Speaker 5: think they can work with these constraints? How might that

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Speaker 5: shape policy making between now and potentially in me So, the.

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Speaker 6: Best way to deal with these pressures if I'm at

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Speaker 6: the FED is to ignore them and to focus on

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Speaker 6: the job And I would right now be focusing on

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Speaker 6: my team on the decision for the September meeting. And

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Speaker 6: it's not completely clear the job market on the one hand,

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Speaker 6: we're at full employment, but we think hiring is slowed

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Speaker 6: to stall speed. We'll see what the jobs report is Friday.

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Speaker 1: So that's on one side.

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Speaker 6: But inflation is above target, and that's before considering the tariffs.

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Speaker 6: Service sector inflation is still very sticky, and so I'd

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Speaker 6: be focusing my team on making the best decision in September.

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Speaker 6: I personally would be leaning toward cutting in September, but

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Speaker 6: I doubt it will be the start of a rate

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Speaker 6: cutting cycle. I think they'll take at one meeting at

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Speaker 6: a time. But those cross currents are complicated enough. I

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Speaker 6: would I'd make sure if I were at the FED,

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Speaker 6: keep my team focused on the issue at hand and

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Speaker 6: doing our job.

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Speaker 5: Do see strength in the labor market? You were talking

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Speaker 5: during the break about some of these structural changes underway.

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Speaker 5: How is that going to effect?

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Speaker 6: So GDP growth in the United States is solid, but

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Speaker 6: somewhat sluggish. We started the year thinking GDP growth in

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Speaker 6: the United States might be two quarter two and a

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Speaker 6: half percent. I think our best judgment at Goldman Sachs

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Speaker 6: now it's more likely to be closer to one and

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Speaker 6: a half percent.

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Speaker 1: And why is that number? One?

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Speaker 6: The tariffs at least in the short run, and the

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Speaker 6: uncertainty have slow growth. The second thing that slow growth.

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Speaker 1: Is labor force.

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Speaker 6: We are curtailing labor force supply. There are at least

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Speaker 6: ten million undocumented immigrants in the United States that are

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Speaker 6: key parts of construction, agriculture, other industries that are either

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Speaker 6: not reporting to work, they're not shopping, and it's creating

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Speaker 6: also some stickiness and slowing in the economy. And so

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Speaker 6: I think the reason the unemployment rate is solo is

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Speaker 6: because supply is declining, but hiring is also very sluggish.

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Speaker 6: So I think the FED is starting to realize maybe

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Speaker 6: they need to look through the headline unemployment rate and

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Speaker 6: realize that even though we're still looks like we're at

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Speaker 6: full employment on the surface, it's the hiring level is

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Speaker 6: very sluggish because growth is sluggish, and that would be

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Speaker 6: the argument for making some adjustment to the FED funds rate,

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Speaker 6: even though inflation is still above target.

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Speaker 5: It's interesting also because this is a FED that for

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Speaker 5: the most part, stuck to its guns about data dependency.

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Speaker 5: What is your sense of how the BLS needs to

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Speaker 5: evolve along with these structural changes that you just cite

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Speaker 5: it in the economy, including trade, you know AI, how

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Speaker 5: does it need to.

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Speaker 1: So you may know.

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Speaker 6: When I was at the FED and since I've left,

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Speaker 6: I've never been a fan of the term data dependency

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Speaker 6: because it's a piece.

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Speaker 1: Of the puzzle. What do I mean by that?

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Speaker 6: There are BLS and Commerce Department figures every month. The

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Speaker 6: problem is they're backward looking, they're aggregated.

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Speaker 1: They tend to get revised later.

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Speaker 6: So you want to look at them, but you don't

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Speaker 6: want to overreact to anyone data print. You also want

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Speaker 6: to talk to businesses. You want to look at structural trends.

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Speaker 6: You want to look at the whole mosaic. But in

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Speaker 6: that regard to your point, it's critical that the FED

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Speaker 6: still rely on BLS information.

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Speaker 1: But let me give you an example.

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Speaker 6: We've got a significant AI data center power boom going

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Speaker 6: on in.

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Speaker 1: The United States.

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Speaker 6: It will be disruptive to many industries, but disruptive in

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Speaker 6: a constructive way that will increase productivity growth that's disinflationary.

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Speaker 6: We haven't seen that quite yet show up in the data,

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Speaker 6: but I think it will. And so even though inflation's

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Speaker 6: right in above target, that structural driver has to be

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Speaker 6: taken into account because it's one reason why inflation may moderate,

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Speaker 6: And that's a good example. When you're at the FED,

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Speaker 6: you want to look at data, but you want to

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Speaker 6: look at the whole picture, including structural drivers in forming

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Speaker 6: a judgment.

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Speaker 5: That's really interesting because you talk about these cross currents

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Speaker 5: they include for the inflationary outlook, and this is coming

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Speaker 5: at a time where we still might not have seen

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Speaker 5: fully the impact from tariffs.

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Speaker 1: That's right.

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Speaker 5: What is your sense of is that going to be

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Speaker 5: coming you know, one off or more in ways?

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Speaker 6: Well, where we're going to find out and that's still

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Speaker 6: somewhat influx. But but we do know the following before

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Speaker 6: even considering teriffs. As I said, service sector inflation is

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Speaker 6: still sticky. But we know the following about goods. First

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Speaker 6: of all, goods for the last two years have been

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Speaker 6: disinflating globally. What's driving that China overcapacity, manufacturing over capacity.

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Speaker 6: That overcapacity hasn't gone away. The tariff situation may complicate it,

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Speaker 6: but I think over the horizon global overcapacity and good

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Speaker 6: and the fact that US consumers don't need to buy goods.

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Speaker 6: They can shift, they can substitute their price sensitive they

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Speaker 6: can decide to go to dinner instead of buying a

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Speaker 6: set of goods. I think that makes me think it

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Speaker 6: is more likely these tariffs will be one time more

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Speaker 6: likely to be and that the effect may moderate over time.

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Speaker 6: That and the AI boom, which is also disinflationary, and

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Speaker 6: also the fact that growth is slug which also limits

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Speaker 6: demand for goods.

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Speaker 1: I think all those things make me more.

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Speaker 6: Optimistic that maybe you'll see some moderation of the tariff

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Speaker 6: impact when we look.

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Speaker 1: Back a year from that.

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Speaker 5: Would it not make sense then, beyond September for there

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Speaker 5: to be more cuts than.

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Speaker 6: Well, those who want more cuts will argue that the

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Speaker 6: truth is I mentioned cross currents. I think in a

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Speaker 6: period where you've got cross currents, the best thing I

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Speaker 6: think you can do is don't be a prognosticator, be

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Speaker 6: a risk manager, and that means take it one meet

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Speaker 6: in at a time, So all my intention will be

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Speaker 6: focused on September. After that's done, I'll wipe the sleigh

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Speaker 6: clean and do my analysis between September and the November.

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Speaker 1: November meeting.

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Speaker 6: And that's why I I wouldn't assume this is the

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Speaker 6: start of a raid cutting cycle. I think they'll shorten

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Speaker 6: up the time frame and the prognostications and take it

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Speaker 6: one meeting at a time.

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Speaker 2: That's Robert Kaplan, vice chair at Gold and Sachs and

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Speaker 2: former Dalla U FED president, speaking with Bloomberg's April Hong

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Speaker 2: here on the Daybreak Asia podcast. Thanks for listening to

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Speaker 2: today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 2: we look at the story shaping markets, finance, and geopolitics

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Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 2: and this is Bloomberg