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

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Fulston Slock of

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Speaker 2: Apollo writing a trade war is a stagflation shark, Torson

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Speaker 2: Slock to understand for more. Torston good Morning Monday morning,

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Speaker 2: is firing the FED chair a stagflation shark.

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Speaker 3: Well, so, a stagflation shark is by definition that inflation

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Speaker 3: will go up and GDP growth will go down. But

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Speaker 3: if you fire the fiture, as we saw yesterday, the

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Speaker 3: dollar will likely go down, and at the same time

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Speaker 3: long race will be going up, and the dollar going

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Speaker 3: down is certainly inflationary. But rates going up is of

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Speaker 3: course holding back growth. So firing the FT chair will

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Speaker 3: probably mainly mean a decline in the dollar and an

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Speaker 3: increase in long rates.

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Speaker 2: Let's talk about the snack versus the FLA shed. Do

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Speaker 2: you expect to see that flation for very long?

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Speaker 4: Well, so so far.

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Speaker 3: There's a number of here from c members when they

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Speaker 3: talk about this, that they discuss what is the persistence

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Speaker 3: of the stackflation shug in other words, when tariffs start

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Speaker 3: to be more visible in the data. And I absolutely

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Speaker 3: believe the data we just got this week it is

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Speaker 3: the case that we're now seeing lift off in inflation

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Speaker 3: in goods. Because we are seeing goods inflation, which makes

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Speaker 3: up forty percent of the CPI basket, seeing on a

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Speaker 3: number of different categories tools, toys, apparel, furniture, we've seen

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Speaker 3: a fairly decent rise. And if we begin to see

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Speaker 3: that lift off now over the next several months, then

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Speaker 3: the risk is, of course that this becomes the more persistent.

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Speaker 3: And Beth Hammock from the Cleveland Fed has said that

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Speaker 3: in her district, companies that are exposed to tariffs have

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Speaker 3: been raising prices, but even companies that are not exposed

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Speaker 3: to tariffs have for competitive reasons, also been raising prices

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Speaker 3: because hey, if others are doing it, we can also

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Speaker 3: do it. So the fear it is that this does

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Speaker 3: become more persistent and more sticky. So that's why it's

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Speaker 3: so difficult for the FED to go out and the

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Speaker 3: clear victory and say, oh, this is just temporary. They

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Speaker 3: need to wait to see the peak, and we have

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Speaker 3: really only at the takeoff stage, so we have not

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Speaker 3: seen the peak. The consensus expect that later this year,

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Speaker 3: by probably in November or December. But the bottom line is,

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Speaker 3: before we could see that peak in site, it is

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Speaker 3: not clear that the FED will say that now we're

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Speaker 3: going to cut rates more meaningful.

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Speaker 2: How do we explain what's handling with services prices?

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Speaker 3: Well, so, of course, when something has a weight of

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Speaker 3: forty percent and we know very well that that's now

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Speaker 3: going up, of course the issue is, well, what about

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Speaker 3: the sixty percent? Is that also going up? The sixty

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Speaker 3: percent consists to a last degree also of wages and

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Speaker 3: what we know from deportations. Of course, at a run

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Speaker 3: rate around a million people in twenty twenty five, that

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Speaker 3: means that wage inflation would likely begin to go up

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Speaker 3: in the areas where unauthorized immigrants are working, for example,

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Speaker 3: in agriculture, construction, leisure, and hospitality. So the fear you

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Speaker 3: can have is that it's not only goods inflation coming

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Speaker 3: from tariffs. Is also the upside risk to services inflation

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Speaker 3: coming from wages, especially because of deportations potentially beginning to

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Speaker 3: play a more significant role Turstan.

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Speaker 5: Is the consumer able to absorb this well?

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Speaker 3: On the retail sales data today, It's quite interesting because

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Speaker 3: the low in consumer has been in trouble for quite

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Speaker 3: some time, because we've seen all the loan the linguaities

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Speaker 3: go up. We've seen credit card the linguagies go up.

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Speaker 3: That's mainly because low income householes generally have more debt

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Speaker 3: that generally have lower FICO scores. And when you have

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Speaker 3: more debt and the FED race race in twenty twenty two,

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Speaker 3: that means the low income houses are having hired debt

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Speaker 3: interest payments. So therefore, low income houses have been in

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Speaker 3: trouble for some time now. High income houses have been

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Speaker 3: in good shape because stock markets are home prizer up.

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Speaker 3: If you own fixed income, the cash flow you get

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Speaker 3: from private credit, public credit, that's been very very strong.

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Speaker 3: But the middle income households are now facing the news

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Speaker 3: shock that student loan payments restarted after the monitorium or

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Speaker 3: the pause on paying back your student no ended here

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Speaker 3: in May, So that means that the rating burrows are

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Speaker 3: now being told if I'm not paying my student loan,

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Speaker 3: and that means that we are, unfortunately for the consumer

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Speaker 3: outlook and therefore for retail sales here at eight thirty

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Speaker 3: seeing the risk that is not only low in consumers

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Speaker 3: that are now facing headwinds, is also the middle income consumers.

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Speaker 3: And there's about eleven million people who are not paying

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Speaker 3: their student loan on time at the moment out of

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Speaker 3: forty five million people who have a student loan. So

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Speaker 3: that means where that twenty five percent delinquity rates on

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Speaker 3: student loans. This is at risk of implying that credit

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Speaker 3: scods are going.

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Speaker 6: To go down.

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Speaker 3: According to the New York Fed Lab's This Streek blog post,

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Speaker 3: it could be as much as seventy five points on

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Speaker 3: your FICO scale, So people who have a credit score

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Speaker 3: of seven twenty five goes down to six fifty. That

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Speaker 3: means that middle income households at risk of seeing not

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Speaker 3: an ability to borrow to buy a car, house watch,

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Speaker 3: a dryer, iPhone. So therefore the risk to consumption is

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Speaker 3: that it's going to broaden out the headwinds not only

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Speaker 3: to low end but also.

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Speaker 7: To middle income when you look at tariffs as a headwind.

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Speaker 7: If the President is about to potentially settle on ten

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Speaker 7: to fifteen percent across the board for one hundred and

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Speaker 7: fifty countries, while it's an active negotiations with some of

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Speaker 7: the biggest trading partners, is that enough for the FED

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Speaker 7: to then start to model out what that could mean

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Speaker 7: and cut rates. What's the timeline between getting the final

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Speaker 7: tariff rates and the FED being willing to cut That.

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Speaker 3: Is really important because they excuse my picture, pick is

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Speaker 3: coming through the pie here in terms of terrorists and

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Speaker 3: what it means our company is going to raise prices

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Speaker 3: for consumers and that's the way we pay for tariffs.

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Speaker 3: All our company is going to take it in earnings.

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Speaker 3: So there are various simulations from the Yeald Budget lab

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Speaker 3: the pen One budget Model, the Tax Foundation. We try

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Speaker 3: to look at what are the implications of different levels

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Speaker 3: of the effective arid seriff rate, and those show indeed

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Speaker 3: that it does take time. So the FAI will not

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Speaker 3: have clarity on this issue, maybe not even this year,

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Speaker 3: which is exactly WHYMC members are so reluctant to come

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Speaker 3: up with the answers how do we even quantify what

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Speaker 3: the impact is? And the final point in your world is,

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Speaker 3: of course, also what about the hearings for the IPA

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Speaker 3: on July thirty first, that's now several weeks away. With

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Speaker 3: that all deemed that there is a risk that this

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Speaker 3: could all turn out to be not legal, what does

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Speaker 3: that then mean for the August one deadline? So in

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Speaker 3: the near term, the FED is certainly going into the

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Speaker 3: July meeting in my view, thinking we cannot just even

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Speaker 3: signal that there is any rate catch coming because we

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Speaker 3: just don't know yet the persistence, the magnitude, and therefore overall,

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Speaker 3: what are the implications of tariffs at this point?

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Speaker 2: Can I just stay with that word for how many

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Speaker 2: people make up that word way? And how many people

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Speaker 2: Joria hand up and say, you know what, actually we

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Speaker 2: should cut and we should count this month.

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Speaker 6: Yeah.

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Speaker 3: Of course, both Chris Waller and Miki Bowman have been

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Speaker 3: turning more towards talking about cuts but potentially being something

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Speaker 3: that should be likely. But the answer is to your question,

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Speaker 3: at least the vast majority of comedia at this point

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Speaker 3: is certainly at least in the reading. If you need

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Speaker 3: to look at the dot plot weighing towards saying, well,

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Speaker 3: there is probably a good argument for waiting.

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Speaker 2: Median dot Steele projects implies two cuts, Morgan Stanley, no cuts,

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Speaker 2: Bank for America, no cuts for twenty twenty five. What's

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Speaker 2: your base case given what we know? Now, what's your basically?

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Speaker 3: We have one cut in December. But I do think

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Speaker 3: that the market is way way too eager to price

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Speaker 3: in cuts. Again, the risks are and not only we

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Speaker 3: talk about tariffs as upward pressure on inflation, we also

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Speaker 3: talk about immigration restrictions and deportations as upward pressure inflation.

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Speaker 3: But let's also not forget that if you take purpose,

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Speaker 3: the FETs model of the ER's economy, and you ask

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Speaker 3: the question, what does the fat itself think is the

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Speaker 3: implication of a ten percent depreciation in the trade weighted dollar,

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Speaker 3: and the answer out of purpose is that inflation will

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Speaker 3: go up over the next four call us by zero

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Speaker 3: point three. So now we certainly don't only have the

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Speaker 3: uncertainty about terrrists putting up by pressure on inflation. We

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Speaker 3: also have immigration restrictions putting up by pressure inflation. And

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Speaker 3: then we also have that depreciating dollar for the last

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Speaker 3: six months is also putting up by pressure on inflation,

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Speaker 3: So all that argues for rates higher for longer, and

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Speaker 3: on top of that, in the long end, we're also

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Speaker 3: fiscal issues putting up by pressure on inflation. So the

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Speaker 3: whole Yel curve is likely to stay elevated for a

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Speaker 3: much more extended period than what the market is appreciating.

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Speaker 2: The Federal Reserve is projecting transit three. It's just implied

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Speaker 2: by the forecasts core PC for twenty five three point one,

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Speaker 2: twenty six two point four, then down to two point

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Speaker 2: one and twenty seven.

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Speaker 4: That's the glide path. Do you project transits? Well?

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Speaker 3: That is also if I type ECFC go on Bloomberg,

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Speaker 3: I see exactly that profile where inflation will peak at

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Speaker 3: three point three by Q four this year, and then

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Speaker 3: it will begin to come down. But noteworthy is it

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Speaker 3: including in the Fed forecast that we will only buy

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Speaker 3: then of next year have inflation is still at two

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Speaker 3: and a half. That's still way above the FETs two

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Speaker 3: percent target. So you could begin to argue if you

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Speaker 3: begin to cut rates when inflation is two point eight nine,

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Speaker 3: or if we get basic the situation where inflation sets

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Speaker 3: out to about more sticky. The risk is of course

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Speaker 3: that they will be cutting prematurely. And that's what literally

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Speaker 3: every airform cemener worries about, namely, did we cut too

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Speaker 3: quickly and are we therefore then creating more boom in

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Speaker 3: the economy, including with the one big beautiful bill lifting

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Speaker 3: GDP next year, we could have a fairly strong economy

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Speaker 3: going into twenty twenty six, and with that backdroup, it

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Speaker 3: becomes very difficult to argue that you should see a

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Speaker 3: lot of FED cuts next year.

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Speaker 2: Do you think the one hundred basis points of cuts

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Speaker 2: in the run up to the election was premature?

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Speaker 3: Well, of course at this point that we had only

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Speaker 3: all got to talk about our star as we have

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Speaker 3: done now for a long long time. And this was

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Speaker 3: the strong, strong argument at the time that monetary polsy

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Speaker 3: was restrictive, that even still in the footnotes of aform

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Speaker 3: CE member speeches talks about well, monastery pols is still

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Speaker 3: today restrictive. But if you look at it that way, well,

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Speaker 3: if monetary pols is so restrictive, why is the economic

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Speaker 3: data and still doing so well? So that suggests that

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Speaker 3: maybe this whole discussion has interestingly enough completely faded into

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Speaker 3: the backseat of the car. We're no longer talk about

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Speaker 3: our star and restrictive now we are so eager instead

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Speaker 3: to talk about the inflation or impulse coming from in

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Speaker 3: particular teriffs, but also the dollar going down. So I

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Speaker 3: think that the debate around why are we at these

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Speaker 3: levels of interest rates and where should we be? That

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Speaker 3: debate seems to be almost yesterday's debates. So that's why

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Speaker 3: I take a lot of the impulse and the discussions

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Speaker 3: on there from seeing now is all about what's coming

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Speaker 3: ahead of us, and what we know is coming ahead

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Speaker 3: of us is exactly what the forecast from the Fed

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Speaker 3: is saying amy higher inflation. J Pile said himself, we

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Speaker 3: expect a meaningful increase in inflation over the coming months.

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Speaker 3: That's a very strong statement from the Fetchure. So I

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Speaker 3: think that we should in market take that very seriously

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Speaker 3: when the Feture is taking a lot of credibility on

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Speaker 3: saying we expect a meaningful increase in inflation over the

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Speaker 3: coming months.

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Speaker 2: Tustan, it's going to say, as always, thank you, sir,

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Speaker 2: Tolston Snock that of Apollo. Jim Demarth, Bank for America

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Speaker 2: writing volatility is whipsord global markets. That's been good for

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Speaker 2: the markets. Businesses Bank of America. Jim joins a snaff

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Speaker 2: of more. Jim, good morning, good morning.

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Speaker 4: It's going to see you. Great to see you.

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Speaker 2: It's going to catch out masses of volatility. Yes, you

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Speaker 2: can have the good kind and the bad kind. Why

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Speaker 2: was this the good kind?

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Speaker 8: You know, the we'd like to think about everything in

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Speaker 8: terms of channels. You know, when there are channels of

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Speaker 8: price action, channels of volatility, those tend to be better

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Speaker 8: opportunities for investors to put money to work. You know,

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Speaker 8: if we were sitting here ten years ago, the bigger

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Speaker 8: conversation was financial repression, right, and if you look at

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Speaker 8: realized volatility in both the equity markets and in the

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Speaker 8: rates markets, let's focus on the US, those that realize

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Speaker 8: volatility is considerably higher than where we were then. And

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Speaker 8: you see a lot of investors, you know, macro strategies

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Speaker 8: are becoming much more popular today than they were ten

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Speaker 8: years ago, when it was just difficult with suppressed volatility

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Speaker 8: to deliver alpha.

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Speaker 4: And so I think, you know, volatilities here.

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Speaker 6: We're in a.

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Speaker 8: Different you know, political and economic environment than we were

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Speaker 8: ten years ago. So you know, my my suggestion, will

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Speaker 8: we get used to to a higher degree of volatility.

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Speaker 2: Do you think this is an ongoing feature of this regime.

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Speaker 8: I think just where we are in the economic cycle,

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Speaker 8: I mean, things are just very different. Right We're going

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Speaker 8: to have increased uh, you know, there's increased pending happening

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Speaker 8: in infrastructure, in technology, in defense. We've got high levels

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Speaker 8: of debt in the developed world. That becomes you know,

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Speaker 8: more topical depending on what other actions are taking place.

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Speaker 8: Our headlines are hitting during you know, during a given day,

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Speaker 8: a lot of focus on Japan, you know, for the

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Speaker 8: last month to month and a half. You know, in

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Speaker 8: April we were talking more about the US markets and

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Speaker 8: concerns about you know, a failed treasury auction, which I

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Speaker 8: think was extreme, you know, to say the least. But

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Speaker 8: you know, in the end, some of these larger structural

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Speaker 8: issues remain, and I think we'll go through periods of Yes,

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Speaker 8: there's obviously concern about out you know, fed independence and

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Speaker 8: what could happen there, you know, and I think you've

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Speaker 8: had pretty much everybody on the show talk about it

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Speaker 8: for the last the last you know, twenty four hours,

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Speaker 8: Please get the last twenty four hours. Fed independence is good.

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Speaker 4: I'll leave it that. If it starts to be threatened.

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Speaker 4: What does it mean.

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Speaker 8: I think people are going to I think people are

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Speaker 8: going to wait to see what happens. I don't think

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Speaker 8: anybody is going to be uh is going to exit

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Speaker 8: the markets on concerns that that that is a certainty.

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Speaker 8: I think with many things that have transpired over the

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Speaker 8: last ninety days, there's a there's a test period. You know,

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Speaker 8: theories are tested in the markets, markets respond, that information

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Speaker 8: is filtered back into the decisioning process, and we're going

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Speaker 8: to continue, you know, we're going to continue on that path.

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Speaker 4: But I do think, you know, when.

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Speaker 8: You think about the sovereign debt levels in developed you

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Speaker 8: know economies across the across the globe, that is a

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Speaker 8: real concern. It's going to you know, it's going to

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Speaker 8: keep popping its head up or rearing its head until

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Speaker 8: you know, there's some resolution. There was a lot more

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Speaker 8: talk about it until the bill was passed. Now it's

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Speaker 8: again a focus on Japan, and I'm sure there'll be

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Speaker 8: talks about you know, other countries in Western Europe and

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Speaker 8: you know, and in the UK as we as we

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Speaker 8: continue on that path. So now I think betting against

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Speaker 8: volatility is not a good strategy for the near and midterm.

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Speaker 7: When it comes to volatility right now, what makes this

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Speaker 7: environment potentially different or I guess you can mirror it

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Speaker 7: to Trump one point. Oh, is it's politics and policy

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Speaker 7: that is driving this in financial market?

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Speaker 3: Yes?

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Speaker 8: And again I think that's why it's a materially different

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Speaker 8: environment than we had, you know, post a financial crisis

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Speaker 8: up through COVID. While we had different administrations, the policy

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Speaker 8: path was still pretty consistent regardless of democratic or Republican administrations,

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Speaker 8: and the FED policy was very consistent. And you know,

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Speaker 8: it was q E for a large part of it,

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Speaker 8: and that was a you know, repression in volatility, and

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Speaker 8: that environment is no longer here.

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Speaker 5: What's the number one question client to ask you?

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Speaker 8: Wow, that's a that's a really great question. I think

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Speaker 8: the biggest focus remains on whether we're getting cuts this year,

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Speaker 8: you know or not. And there's some pretty strong views

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Speaker 8: on on either side, you know, And that's really a

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Speaker 8: bigger question on what do we think inflation looks like

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Speaker 8: as a transitory you know, or is it going to

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Speaker 8: s remain at a higher elevated rate. I would say

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Speaker 8: the second largest question, if you get out of the

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Speaker 8: bond markets for a second, is you know, the AI

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Speaker 8: investment period.

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Speaker 4: That we're in today, is it a bubble?

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Speaker 8: Is it a high correlation to what we saw you

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Speaker 8: know in the late nineties going into two thousand and

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Speaker 8: you know there's stories written on that that every day.

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Speaker 8: I think what's very clear is that the investment is

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Speaker 8: going to continue for the for the near to medium term,

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Speaker 8: whether it's a result of corporations or sovereign uh sovereign

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Speaker 8: you know, governments being focused on uh AI being critical

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Speaker 8: to economic growth and safety, and so you see that

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Speaker 8: regardless all around the world.

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Speaker 4: You know, governments are.

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Speaker 8: Making it one of their top mandates to be to

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Speaker 8: be a leader in.

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Speaker 2: AI drive an equity markets in a massive way, basically

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Speaker 2: at all time high still on the s and P

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Speaker 2: five hundred very close, and credit spreads a super time.

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Speaker 2: How it spreads up very very tight. Do you see

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Speaker 2: that as justified or a sign of complacency? There is

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Speaker 2: a manner another banking beliefs that maybe it's a sign

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Speaker 2: of complacency. Don't have to name it today, want your

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Speaker 2: opinion on that.

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Speaker 8: Yeah, I mean we go through periods of you know,

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Speaker 8: when the market's down, nobody wants to buy and everybody

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Speaker 8: gives fifteen reasons why it's going to go lower, and

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Speaker 8: it goes up, and then people give you reasons why

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Speaker 8: it's not going to go you know, it's not going

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Speaker 8: to go any higher. I think the markets in general

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Speaker 8: and people were you know, as humans, we have a

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Speaker 8: certain degree of fear in US and we're worried about

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Speaker 8: what could happen and what could be life threatening, and

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Speaker 8: that's just human psychology, and post a financial crisis, we

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Speaker 8: look at it and say, Okay, we know what are

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Speaker 8: we missing. I think a lot of what the issues

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Speaker 8: are that could result in a repricing in assets across

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Speaker 8: the markets, they're all out there. The question is are

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Speaker 8: the markets reflecting that in their current price? To me,

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Speaker 8: that's really the question that you always have. And you know,

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Speaker 8: the debate is today. You could sit with people today

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Speaker 8: and they'll tell you that, you know, the real level

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Speaker 8: of rates in the US market and the long end

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Speaker 8: is too high based on what their expectations are.

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Speaker 1: You know.

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Speaker 8: The converse of that is people saying that we're concerned

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Speaker 8: about long term debt because.

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Speaker 4: Of structural budget deficits. You know. Flip it over to

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Speaker 4: the equity markets.

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Speaker 8: There's many people that are excited in saying AI is real,

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Speaker 8: it's going.

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Speaker 4: To drive productivity. We're going to see a.

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Speaker 8: Boost in earnings across you know, across industries and across sectors.

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Speaker 8: And then there are others that say, wow, you know,

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Speaker 8: this is just another bubble and we've seen this, We've

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Speaker 8: seen this play through. It's a good opportunity for us.

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Speaker 8: We have a lot of clients that are thinking about

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Speaker 8: things differently, and obviously, you know, our strength is intermediating risk,

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Speaker 8: lending to them as they pursue these opportunities, and that's

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Speaker 8: what we're that's what done.

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Speaker 2: What I sense from you is that now there is

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Speaker 2: a bus to act. In early April, it felt like

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Speaker 2: a lot of people were just paralyzed by the bank drop. Yes,

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Speaker 2: where's the buyas to act coming from? Are they just

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Speaker 2: moving on from this policy story in Washington or have

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Speaker 2: they got the clarity they want at least enough clarity

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Speaker 2: to just move on.

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Speaker 8: I think the first that's a really great question, and

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Speaker 8: I think it's difficult to answer, but I would answer

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Speaker 8: it this way. You know, you start with framing what

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Speaker 8: are the extremes that could happen, and then getting comfort

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Speaker 8: within that. And I think at the time when the

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Speaker 8: tariffs were announced, the concerns were, how you know, this

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Speaker 8: could be a material negative impact on global GDP okay,

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Speaker 8: and that was reverberating. And at the same time, we

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Speaker 8: just happened to have treasury auctions, you know, within a

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Speaker 8: week's time.

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Speaker 4: And then so you had this.

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Speaker 8: Period of disruption in the equity markets, uncertainty. You get

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Speaker 8: to the bond markets, we're having large auctions. Someone starts

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Speaker 8: to focus on and proliferated in the market. What the

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Speaker 8: participation rate was of you know, foreign investors in the

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Speaker 8: three year note, which you know, if you go back

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Speaker 8: and look at the numbers, yes, that was a high

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Speaker 8: single digit participation at the time, but that's not the

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Speaker 8: first time it's been a high single digit participation relative

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Speaker 8: to participation, you know, in double digits. But you know,

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Speaker 8: if you wanted to find negative dots to connect to

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Speaker 8: come up with a very negative story, we provide, you know,

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Speaker 8: the markets provided it.

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Speaker 2: So a few months ago, twenty year real shit, Yes,

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Speaker 2: nobody in fixed income cares about a twenty year treasury

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Speaker 2: nobody nobody, And then all of a sudden you have

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Speaker 2: a SOLF twenty year and all of a sudden, that's

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Speaker 2: a reason to sell everything.

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Speaker 8: Yes, So to that point, I think that framing and

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Speaker 8: then bringing it in and as some of those outliers

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Speaker 8: or the extremes of those risks are framed and framed

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Speaker 8: narrower and narrower, that's when you get that, you know,

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Speaker 8: you get positive sentiment.

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Speaker 5: When you talk about those extremes.

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Speaker 7: Do you also think that the president has set red

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Speaker 7: lines what he's willing and not willing to do this

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Speaker 7: idea of a Trump put Do you think investors have

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Speaker 7: taken that on board.

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Speaker 4: I think that.

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Speaker 8: He's a very smart man and he's very connected to

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Speaker 8: what's happening in the markets. I don't think that that's

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Speaker 8: the only driver of his decisions, clearly based on what

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Speaker 8: the statements have come from him in the administration. But

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Speaker 8: that being said, you know, we are one of the

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Speaker 8: most powerful economies in the world, and you need to

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Speaker 8: be cognizant of that. But I do think that there's

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Speaker 8: if you're being objective and independent, you can frame things,

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Speaker 8: I think, and get to a.

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Speaker 4: Point where you know where the extremes could be.

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Speaker 8: And those extremes have been coming in and I think

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Speaker 8: that's giving people more comfort to make some of these decisions.

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Speaker 8: I mean you know, sector trends that are happening in equities.

439
00:19:45,760 --> 00:19:48,560
Speaker 8: The investment's happening. It's happening with people that have the

440
00:19:48,560 --> 00:19:51,400
Speaker 8: capital to make the investments. It's clear that the need

441
00:19:51,520 --> 00:19:53,399
Speaker 8: is there. Now, whether it's going to result in the

442
00:19:53,400 --> 00:19:57,520
Speaker 8: productivity or cost saves, you know, that's going to take

443
00:19:57,840 --> 00:20:00,280
Speaker 8: you know, more two three, four years to see that.

444
00:20:00,400 --> 00:20:02,080
Speaker 8: So I think for that sector. But then you have

445
00:20:02,119 --> 00:20:05,760
Speaker 8: it an energy investment that's happening, defense, which is you

446
00:20:05,760 --> 00:20:07,800
Speaker 8: know globally that's becoming a thing. So I think if

447
00:20:07,840 --> 00:20:10,200
Speaker 8: you look at those sectors in the equity markets, people

448
00:20:10,200 --> 00:20:14,159
Speaker 8: feel comfortable that there are strong fundamentals and technicals and

449
00:20:14,240 --> 00:20:19,080
Speaker 8: it gives them the kind of strength and optimism to

450
00:20:19,440 --> 00:20:21,560
Speaker 8: carry on. I think the bond markets are going to keep,

451
00:20:21,920 --> 00:20:24,960
Speaker 8: you know, the volatility up, and you know, Brian mentioned it,

452
00:20:25,480 --> 00:20:29,720
Speaker 8: you know yesterday. You know, we went through a historical

453
00:20:30,160 --> 00:20:34,680
Speaker 8: period of low front end rates that was unprecedented, and

454
00:20:34,920 --> 00:20:37,800
Speaker 8: I don't think those times are coming back. I think

455
00:20:37,840 --> 00:20:40,640
Speaker 8: there are people that run certain investment strategies and certain

456
00:20:40,680 --> 00:20:43,960
Speaker 8: people in the real economy that would really like zero

457
00:20:44,080 --> 00:20:45,840
Speaker 8: interest rates, and I think that's why you're seeing some

458
00:20:45,880 --> 00:20:48,320
Speaker 8: of the corrections continue in the real estate market, just

459
00:20:48,359 --> 00:20:52,840
Speaker 8: because interest rates are normalizing higher and we're going to

460
00:20:52,840 --> 00:20:55,840
Speaker 8: continue to see, you know, challenges for those industries. And

461
00:20:55,880 --> 00:20:58,919
Speaker 8: I'm not you know, highlighting just the real estate industry.

462
00:20:58,920 --> 00:21:00,919
Speaker 8: If you were a highly lever comp and you were

463
00:21:00,960 --> 00:21:04,240
Speaker 8: used to borrowing short term, that's no longer a viable strategy.

464
00:21:04,280 --> 00:21:05,840
Speaker 4: Can we finish at the long end of the curve?

465
00:21:06,000 --> 00:21:10,080
Speaker 2: Yes, it's the character of developed markets, sovereign debt markets

466
00:21:10,760 --> 00:21:15,080
Speaker 2: beginning to change. Typically by definition, when bad things happened

467
00:21:15,119 --> 00:21:18,879
Speaker 2: to DM, you bought the bonds, you bought treasuries. It

468
00:21:19,000 --> 00:21:22,280
Speaker 2: just feels like that story starting to turn. And we

469
00:21:22,320 --> 00:21:25,240
Speaker 2: have these moments of stress where we see equities and

470
00:21:25,320 --> 00:21:29,080
Speaker 2: bonds trade in tandem together. It's not just the US

471
00:21:29,160 --> 00:21:31,320
Speaker 2: we see in Europe. We're seeing in other countries too.

472
00:21:31,560 --> 00:21:33,960
Speaker 2: What's happening and how investors changing.

473
00:21:33,960 --> 00:21:36,320
Speaker 4: Well, I think it's I think, I mean, you hit it.

474
00:21:36,359 --> 00:21:38,359
Speaker 8: And that was one of the big concerns, you know,

475
00:21:38,440 --> 00:21:41,840
Speaker 8: for smart investors that saw that price action, you know,

476
00:21:42,040 --> 00:21:45,679
Speaker 8: stocks down, bonds down. That's not a good sign for

477
00:21:45,840 --> 00:21:50,919
Speaker 8: health of the markets from a historical perspective. And with

478
00:21:51,000 --> 00:21:53,680
Speaker 8: that being said, and with the concerns about the deficit.

479
00:21:53,960 --> 00:21:56,800
Speaker 8: I still think, I mean the markets are telling me.

480
00:21:56,840 --> 00:21:59,679
Speaker 8: I think that there's still optimism that there's going to

481
00:21:59,760 --> 00:22:05,679
Speaker 8: be you know, a better uh deficit environment on a

482
00:22:05,680 --> 00:22:07,520
Speaker 8: go forward basis. I mean, if you think about it,

483
00:22:07,640 --> 00:22:10,000
Speaker 8: meaning maybe we're going to get growth its higher than

484
00:22:10,040 --> 00:22:14,119
Speaker 8: that's projected, and perhaps the deficit, the structural deficit that

485
00:22:14,160 --> 00:22:17,000
Speaker 8: we have won't remain as large as what's been feared.

486
00:22:17,920 --> 00:22:19,960
Speaker 8: I mean, if you think about it, the bill was passed,

487
00:22:20,119 --> 00:22:22,840
Speaker 8: the information is now clearly out there, this is what

488
00:22:22,880 --> 00:22:25,560
Speaker 8: everybody was worried about, and there hasn't been a consistence.

489
00:22:25,600 --> 00:22:27,680
Speaker 8: There hasn't been a significant sell off. I'm not saying

490
00:22:27,680 --> 00:22:29,760
Speaker 8: that there hasn't been ten to fifteen basis points moves,

491
00:22:30,080 --> 00:22:32,040
Speaker 8: but you know, people are talking about a six percent

492
00:22:32,119 --> 00:22:36,359
Speaker 8: long bonds as a given, not as a possibility, you know,

493
00:22:36,520 --> 00:22:39,280
Speaker 8: just months ago. So I do think that the calmer

494
00:22:39,359 --> 00:22:42,520
Speaker 8: heads are prevailing and people are just want to see

495
00:22:42,560 --> 00:22:46,000
Speaker 8: this data flow through the system and see this policy

496
00:22:46,040 --> 00:22:46,919
Speaker 8: flow through the system.

497
00:22:47,040 --> 00:22:48,800
Speaker 2: Let's hope to stays that way. Let's do it against

498
00:22:48,800 --> 00:22:51,400
Speaker 2: this great great to see if thank you, sir Jim Demanda,

499
00:22:51,680 --> 00:23:04,360
Speaker 2: I thankful market. We've seen the reports, we've heard the denials.

500
00:23:04,480 --> 00:23:06,280
Speaker 2: Let's get into it with the former sen Lewis FED

501
00:23:06,280 --> 00:23:08,840
Speaker 2: President Jim Pula. Jim, welcome back to this program, Sir.

502
00:23:09,200 --> 00:23:12,040
Speaker 2: I want to get some monetary policy and economics before

503
00:23:12,040 --> 00:23:13,879
Speaker 2: we get to the politics of it all. Do you

504
00:23:13,880 --> 00:23:16,919
Speaker 2: think this is a credible argument for lower interest rates

505
00:23:17,080 --> 00:23:18,080
Speaker 2: at this month's meeting.

506
00:23:20,880 --> 00:23:26,000
Speaker 9: I do think that the FACT could resume its normalization process,

507
00:23:26,080 --> 00:23:29,000
Speaker 9: which was interrupted in the first six months of this year.

508
00:23:29,119 --> 00:23:32,000
Speaker 9: So I do think that that is the baseline plan

509
00:23:32,160 --> 00:23:36,240
Speaker 9: at this point. September would be a natural focal point

510
00:23:36,280 --> 00:23:39,280
Speaker 9: for that, and then maybe follow that up at a

511
00:23:39,320 --> 00:23:44,000
Speaker 9: subsequent meeting. But I don't think that the committee is

512
00:23:44,080 --> 00:23:48,640
Speaker 9: considering the sort of wholesale reductions in the policy rate

513
00:23:48,680 --> 00:23:53,440
Speaker 9: because inflation is still somewhat above the target and they

514
00:23:53,440 --> 00:23:55,600
Speaker 9: want to see the effects of tariffs.

515
00:23:55,680 --> 00:23:57,760
Speaker 2: Beneath the headline, Jim, as you know, in the details,

516
00:23:57,840 --> 00:24:01,200
Speaker 2: it's very much good versus services the moment, how concern

517
00:24:01,320 --> 00:24:03,720
Speaker 2: value by what's developing in services.

518
00:24:06,880 --> 00:24:11,560
Speaker 9: I still think that the overall inflation rate is going

519
00:24:11,640 --> 00:24:15,639
Speaker 9: to continue to either stay where it is or decline slightly,

520
00:24:16,240 --> 00:24:18,720
Speaker 9: and I think that's pretty good policy. I think you

521
00:24:18,840 --> 00:24:21,280
Speaker 9: want to bring the inflation rate back to two percent,

522
00:24:21,400 --> 00:24:24,520
Speaker 9: but not too fast. And I think they've got about

523
00:24:24,560 --> 00:24:26,520
Speaker 9: the right policy to do that. But they do have

524
00:24:26,560 --> 00:24:28,920
Speaker 9: some room to lower the policy rate, and I think

525
00:24:28,960 --> 00:24:30,480
Speaker 9: we'll see that in the second half the year.

526
00:24:30,760 --> 00:24:33,359
Speaker 2: Jim, you've been on the committee, You've got plenty of experience.

527
00:24:33,680 --> 00:24:35,920
Speaker 2: Experience also if the pressure coming from the White House.

528
00:24:35,920 --> 00:24:38,280
Speaker 2: At the same time, the pressure coming from the White

529
00:24:38,280 --> 00:24:41,239
Speaker 2: House and the president's second term is much higher, much

530
00:24:41,280 --> 00:24:44,000
Speaker 2: more powerful, stronger than we saw in the first term.

531
00:24:44,320 --> 00:24:46,040
Speaker 2: When you're on the committee and you hear these kind

532
00:24:46,080 --> 00:24:48,400
Speaker 2: of threats, does it change the way you go about

533
00:24:48,400 --> 00:24:50,360
Speaker 2: your business in any way, shape or form.

534
00:24:51,960 --> 00:24:53,840
Speaker 6: No, it doesn't accept that.

535
00:24:53,880 --> 00:24:57,720
Speaker 9: What's happening is that this will induce inflation risk premium

536
00:24:57,760 --> 00:25:00,359
Speaker 9: in the ten year and so you'll get how ten

537
00:25:00,440 --> 00:25:02,399
Speaker 9: year yields than you would otherwise have.

538
00:25:02,520 --> 00:25:05,120
Speaker 10: If this wasn't going on, and then the committee has

539
00:25:05,119 --> 00:25:09,119
Speaker 10: to take that into account. I don't know why you

540
00:25:09,200 --> 00:25:12,360
Speaker 10: want to whip up an inflation risk premium, but obviously

541
00:25:12,480 --> 00:25:15,680
Speaker 10: investors want to be careful. You know how much inflation

542
00:25:16,200 --> 00:25:21,320
Speaker 10: is the new administration willing to tolerate going forward? And

543
00:25:22,560 --> 00:25:25,399
Speaker 10: that's the thing that the bond investors have to price in,

544
00:25:25,680 --> 00:25:30,040
Speaker 10: So unfortunately this is going in the wrong direction. That's

545
00:25:30,040 --> 00:25:34,120
Speaker 10: also going to push up financing costs for the government.

546
00:25:35,040 --> 00:25:37,920
Speaker 10: That depends on the weighted average maturity of the treasury

547
00:25:37,960 --> 00:25:40,959
Speaker 10: debt and some of that's longer term, so some of

548
00:25:40,960 --> 00:25:45,760
Speaker 10: that is going to be influenced also by the inflation

549
00:25:45,880 --> 00:25:52,480
Speaker 10: risk premium that will now start to develop. So unfortunately

550
00:25:53,920 --> 00:25:55,879
Speaker 10: it's going a little bit in the wrong direction I

551
00:25:55,920 --> 00:25:58,679
Speaker 10: think from probably where the administration really wants to go.

552
00:25:58,920 --> 00:25:59,960
Speaker 5: That's the market impact.

553
00:26:00,160 --> 00:26:02,520
Speaker 7: When it comes to the political theater of this, all

554
00:26:02,600 --> 00:26:05,400
Speaker 7: JP Morgan's Equity Derivatives team is that with a note saying,

555
00:26:05,440 --> 00:26:08,320
Speaker 7: what's currently unfolding before our eyes has been happening for

556
00:26:08,359 --> 00:26:10,120
Speaker 7: decades behind closed doors.

557
00:26:10,520 --> 00:26:12,639
Speaker 5: Is this idea FED independence a myth?

558
00:26:14,440 --> 00:26:17,680
Speaker 9: You know, we've talked about it before, but I don't

559
00:26:17,760 --> 00:26:19,919
Speaker 9: use the phrase. I try not to use the phrase

560
00:26:19,960 --> 00:26:23,119
Speaker 9: FED independence. I would say it's designed to be arms

561
00:26:23,200 --> 00:26:28,200
Speaker 9: length from politics, which would mean that the FED chair

562
00:26:28,280 --> 00:26:31,119
Speaker 9: is not a cabinet position like the Treasury secretary that

563
00:26:31,160 --> 00:26:33,840
Speaker 9: you get to a point as soon as you take office.

564
00:26:34,400 --> 00:26:35,680
Speaker 6: But you do get to.

565
00:26:36,119 --> 00:26:39,639
Speaker 9: Appoint the FED chair about one year into a new term,

566
00:26:39,840 --> 00:26:43,679
Speaker 9: and you know, that's to give a little bit of

567
00:26:43,760 --> 00:26:47,399
Speaker 9: political installation and so that things aren't moving, you know,

568
00:26:47,520 --> 00:26:50,720
Speaker 9: quite so rapidly and are smooth out a little bit. Otherwise,

569
00:26:50,760 --> 00:26:54,800
Speaker 9: you would have a lot of back and forth as

570
00:26:54,880 --> 00:26:58,359
Speaker 9: administrations come and go with monetary policy, and that would

571
00:26:58,359 --> 00:27:00,800
Speaker 9: be probably counter productive.

572
00:27:00,800 --> 00:27:04,239
Speaker 6: Again, you get a lot of uncertainty.

573
00:27:03,680 --> 00:27:05,560
Speaker 9: In markets that would have to be priced in, you

574
00:27:05,560 --> 00:27:08,440
Speaker 9: get a higher level of rates, so that would be unnecessary.

575
00:27:08,240 --> 00:27:12,160
Speaker 9: So I think arms length from politics is the way

576
00:27:12,200 --> 00:27:14,040
Speaker 9: to think about this. I mean, you do have political

577
00:27:14,080 --> 00:27:18,680
Speaker 9: appointees at the Fed, so obviously there's a political element

578
00:27:18,760 --> 00:27:21,960
Speaker 9: to it, but it's designed to smooth out the ups

579
00:27:21,960 --> 00:27:25,040
Speaker 9: and downs compared to what you would get for a

580
00:27:25,080 --> 00:27:26,760
Speaker 9: cabinet level position, Jim.

581
00:27:26,760 --> 00:27:29,160
Speaker 2: As you know, each leader at the Federal Reserve has

582
00:27:29,200 --> 00:27:31,920
Speaker 2: a different style. There is a theory on Wall Street,

583
00:27:31,960 --> 00:27:34,840
Speaker 2: which I'm sure you've heard that if someone is nominated

584
00:27:34,880 --> 00:27:37,200
Speaker 2: by this president that the rest of the committee believes

585
00:27:37,200 --> 00:27:39,879
Speaker 2: it's just a political puppet, the rest of the committee

586
00:27:40,080 --> 00:27:42,280
Speaker 2: will gang up against them, and maybe they'll just be

587
00:27:42,280 --> 00:27:44,680
Speaker 2: a chairman in name only. Can you describe the dynamic

588
00:27:44,960 --> 00:27:50,000
Speaker 2: on the FMC whether that's conceivable from your point of view, Yeah,

589
00:27:50,040 --> 00:27:50,560
Speaker 2: you did.

590
00:27:50,400 --> 00:27:54,920
Speaker 11: Have the example of Gay Miller during the Carter administration,

591
00:27:55,440 --> 00:27:59,840
Speaker 11: and he did not have the support of the committee

592
00:27:59,920 --> 00:28:03,960
Speaker 11: or Paul Volker in particular, who is then the head

593
00:28:03,960 --> 00:28:07,960
Speaker 11: of the New York FED. The story that I remember

594
00:28:08,119 --> 00:28:12,080
Speaker 11: that your viewers might appreciate is that there was no

595
00:28:12,200 --> 00:28:15,760
Speaker 11: smoking in the room. There was a no smoking sign

596
00:28:16,000 --> 00:28:19,800
Speaker 11: and Volker lit up his cigar and.

597
00:28:19,960 --> 00:28:21,159
Speaker 6: Started smoking his cigar.

598
00:28:21,359 --> 00:28:24,800
Speaker 9: So I think that shows you what can happen if

599
00:28:24,840 --> 00:28:28,960
Speaker 9: you nominate somebody and have somebody come into the job

600
00:28:29,400 --> 00:28:34,960
Speaker 9: that doesn't have the respect of the institution. And by law,

601
00:28:35,119 --> 00:28:37,760
Speaker 9: this is all done by committee, and really a chair

602
00:28:37,920 --> 00:28:41,400
Speaker 9: has to navigate the committee and win friends and influence people.

603
00:28:41,520 --> 00:28:46,240
Speaker 6: So that's a key element of the FED chair's role.

604
00:28:46,440 --> 00:28:49,000
Speaker 2: Jim, I've only thirty seconds left, so forgive me. But

605
00:28:49,080 --> 00:28:52,080
Speaker 2: Governor Waller was your director of research at a smile

606
00:28:52,240 --> 00:28:54,160
Speaker 2: was fed. What kind of fetchad would he make?

607
00:28:56,160 --> 00:28:57,120
Speaker 6: I think you'd be very good.

608
00:28:57,160 --> 00:28:58,640
Speaker 9: I think he's a very strong candidate.

609
00:28:58,720 --> 00:29:01,720
Speaker 12: I don't know if you'll win this, but he's certainly

610
00:29:01,760 --> 00:29:05,920
Speaker 12: got a lot of background in macroeconomics and monitoria economics.

611
00:29:06,440 --> 00:29:10,000
Speaker 12: But he's also been on the board for quite a

612
00:29:10,000 --> 00:29:12,360
Speaker 12: while now and has a lot of sense of.

613
00:29:13,960 --> 00:29:16,160
Speaker 9: Washington interface, so I think he'd probably be a good

614
00:29:16,200 --> 00:29:16,720
Speaker 9: choice here.

615
00:29:17,000 --> 00:29:17,240
Speaker 4: Jim.

616
00:29:17,280 --> 00:29:20,120
Speaker 2: I appreciate your time as always, the Fulma San libis

617
00:29:20,120 --> 00:29:21,200
Speaker 2: fed President Jimpilot.

618
00:29:31,280 --> 00:29:33,360
Speaker 1: Great to be here in Chicago and thank you so much.

619
00:29:33,400 --> 00:29:37,240
Speaker 1: I am here with Scott Kirby, the CEO of United Airlines,

620
00:29:37,280 --> 00:29:39,880
Speaker 1: after earnings came out. He really echoed what we heard

621
00:29:40,080 --> 00:29:44,000
Speaker 1: from Delta, which was a first reporter, which is stability, solidness,

622
00:29:44,080 --> 00:29:46,280
Speaker 1: a sense of recovery. You said the world is less

623
00:29:46,320 --> 00:29:49,360
Speaker 1: uncertain today than it was during the first six months

624
00:29:49,400 --> 00:29:53,240
Speaker 1: of twenty twenty five. What was the inflection point where

625
00:29:53,240 --> 00:29:54,680
Speaker 1: you saw that certainty come into play.

626
00:29:55,080 --> 00:29:58,040
Speaker 6: You know, this year a lot of uncertainty in the

627
00:29:58,040 --> 00:30:01,360
Speaker 6: first half of the year at Macro insert and that

628
00:30:01,480 --> 00:30:04,520
Speaker 6: led to an impact on bookings and demand at United

629
00:30:04,520 --> 00:30:07,560
Speaker 6: and across the whole industry. But it felt like there

630
00:30:07,600 --> 00:30:10,480
Speaker 6: was a turning point at the end of June where

631
00:30:11,480 --> 00:30:14,040
Speaker 6: the tax bill passed and the situation in the Middle

632
00:30:14,080 --> 00:30:18,280
Speaker 6: East was calmer and tariffs, while not certain, yet narrowing

633
00:30:18,320 --> 00:30:21,400
Speaker 6: the range, and it really felt like people felt enough

634
00:30:21,440 --> 00:30:25,280
Speaker 6: confidence or enough lower level of uncertainty that they kind

635
00:30:25,280 --> 00:30:27,600
Speaker 6: of came off the sidelines and were unfrozen, and particularly

636
00:30:27,640 --> 00:30:29,480
Speaker 6: for business demand, I mean, you can't stay on the

637
00:30:29,480 --> 00:30:32,600
Speaker 6: sidelines forever, and that was enough of a trigger. It

638
00:30:32,680 --> 00:30:35,160
Speaker 6: really was like a light switch flipped at the end

639
00:30:35,200 --> 00:30:37,920
Speaker 6: of June, particularly for business demand. Double digit acceleration in

640
00:30:37,960 --> 00:30:42,360
Speaker 6: business demand as we ended June, and that's continued through yesterday.

641
00:30:42,520 --> 00:30:44,680
Speaker 1: We've talked a lot about the K shaped recovery and

642
00:30:44,720 --> 00:30:48,080
Speaker 1: the idea that high end consumers have really been driving

643
00:30:48,080 --> 00:30:51,200
Speaker 1: the economy. Corporations kind of dropped off with business travel,

644
00:30:51,200 --> 00:30:51,720
Speaker 1: as you said.

645
00:30:51,600 --> 00:30:53,880
Speaker 5: They picked back up. What about the.

646
00:30:53,800 --> 00:30:56,240
Speaker 1: Rest of the travelers, the main cabin How much have

647
00:30:56,320 --> 00:30:59,280
Speaker 1: they rebounded back to where they would have been had

648
00:30:59,280 --> 00:31:01,200
Speaker 1: there not been some of the headline volatility.

649
00:31:01,240 --> 00:31:03,520
Speaker 6: So you sort of separate into those three pieces. Business

650
00:31:03,560 --> 00:31:05,760
Speaker 6: demand dropped off at the start of the year. That

651
00:31:06,160 --> 00:31:08,360
Speaker 6: seems like it's bounced back to what we were expecting

652
00:31:08,360 --> 00:31:11,960
Speaker 6: it to be as we moved into July. Premium and

653
00:31:12,480 --> 00:31:15,600
Speaker 6: higher end leisure sort of stayed consistent throughout. It never

654
00:31:15,680 --> 00:31:18,640
Speaker 6: really dropped off, and the biggest impact for the consumer

655
00:31:19,000 --> 00:31:22,360
Speaker 6: was in low end leisure. That's come back some in July,

656
00:31:22,880 --> 00:31:24,520
Speaker 6: but not as much. I'd say that's sort of fifty

657
00:31:24,560 --> 00:31:26,680
Speaker 6: percent recovered to what we were expecting at the start

658
00:31:26,720 --> 00:31:29,400
Speaker 6: of the year, So business back to mostly a full

659
00:31:29,440 --> 00:31:33,800
Speaker 6: recovery and low end leisure kind of fifty percent recover.

660
00:31:33,880 --> 00:31:35,640
Speaker 6: Premium leisure never never fell off.

661
00:31:35,680 --> 00:31:39,560
Speaker 1: We've seen sort of one entrance into the CPI report.

662
00:31:39,680 --> 00:31:42,640
Speaker 1: The idea of inflation has been airline tickets have actually

663
00:31:42,960 --> 00:31:45,600
Speaker 1: prices have been coming down, and there's this question of

664
00:31:45,640 --> 00:31:48,560
Speaker 1: whether discounting is required to bring some of the main

665
00:31:48,600 --> 00:31:51,200
Speaker 1: cabin back and whether that's going to be a persistent

666
00:31:51,240 --> 00:31:53,600
Speaker 1: trend that competing on price is going to be really important.

667
00:31:53,640 --> 00:31:56,560
Speaker 1: How much do you see that as persisting into the second.

668
00:31:56,280 --> 00:31:56,840
Speaker 5: Half of the year.

669
00:31:57,360 --> 00:31:59,840
Speaker 6: The airline industry is always good value, it always has

670
00:32:00,040 --> 00:32:02,440
Speaker 6: as attractive prices, but I think it's more of a

671
00:32:02,440 --> 00:32:05,760
Speaker 6: supply demand imbalance that there are a number of airlines.

672
00:32:05,760 --> 00:32:07,840
Speaker 6: You know, there are two brand loyal airlines in the

673
00:32:07,920 --> 00:32:09,760
Speaker 6: United States who are now generating the bulk of the

674
00:32:09,760 --> 00:32:14,360
Speaker 6: industry's profits. Because those customers that care about quality, care

675
00:32:14,360 --> 00:32:17,480
Speaker 6: about service, that care about technology, are We're just better,

676
00:32:17,680 --> 00:32:20,560
Speaker 6: and they're choosing us, And you can see it in

677
00:32:20,600 --> 00:32:22,800
Speaker 6: the data. You can see it in the numbers for

678
00:32:22,920 --> 00:32:26,000
Speaker 6: the more commoditized part of the business. You know, there's

679
00:32:26,000 --> 00:32:28,840
Speaker 6: simply more seats available. There's been more seats available than

680
00:32:28,920 --> 00:32:32,880
Speaker 6: there is demand. But encouragingly, there's a big change coming

681
00:32:32,960 --> 00:32:34,840
Speaker 6: in mid August. Well, we've talked about demand, and I

682
00:32:34,920 --> 00:32:37,520
Speaker 6: see an inflection demand. There's also an inflection coming in

683
00:32:37,800 --> 00:32:40,240
Speaker 6: supply as by the time we get to mid August,

684
00:32:40,280 --> 00:32:41,880
Speaker 6: there are a lot of seats. The same thing happened

685
00:32:41,920 --> 00:32:44,240
Speaker 6: last year, a lot of seats coming out of the industry,

686
00:32:44,240 --> 00:32:48,000
Speaker 6: particularly from the low end carriers who've been struggling. Those

687
00:32:48,000 --> 00:32:50,040
Speaker 6: seats are coming out. So my guess is that's going

688
00:32:50,120 --> 00:32:52,480
Speaker 6: to lead to a firmer pricing environment as we move

689
00:32:52,480 --> 00:32:54,160
Speaker 6: into mid August and one, and actually we can already

690
00:32:54,160 --> 00:32:56,280
Speaker 6: see that in our numbers for later in the year.

691
00:32:56,280 --> 00:32:58,040
Speaker 1: Are you expecting to take any capacity out?

692
00:32:59,040 --> 00:33:02,280
Speaker 6: You know, continue to prune, but there's not going to

693
00:33:02,280 --> 00:33:06,200
Speaker 6: be any structural changes to our capacity. And you know,

694
00:33:06,200 --> 00:33:08,000
Speaker 6: we are encouraged by the environment. In fact, just in

695
00:33:08,000 --> 00:33:11,000
Speaker 6: the last couple of weeks for US at least, the

696
00:33:11,360 --> 00:33:14,480
Speaker 6: yields have turned positive on domestics. They've been down, you know,

697
00:33:14,520 --> 00:33:17,080
Speaker 6: for several months as we started the year, but yields

698
00:33:17,080 --> 00:33:19,560
Speaker 6: have now turned positive for forward bookings at least, So

699
00:33:19,640 --> 00:33:20,040
Speaker 6: why have.

700
00:33:20,040 --> 00:33:22,760
Speaker 1: You not gone with the more bullish potential estimates then

701
00:33:22,920 --> 00:33:25,680
Speaker 1: for your forecast, given that you sound incredibly positive and

702
00:33:25,680 --> 00:33:27,320
Speaker 1: you have seen this ongoing rebound.

703
00:33:27,360 --> 00:33:29,120
Speaker 6: Yeah, you know, it has been it's been a good year.

704
00:33:29,280 --> 00:33:31,800
Speaker 6: I mean, it's actually pretty remarkable that we've grown earnings

705
00:33:31,800 --> 00:33:34,160
Speaker 6: and margins for the first half of the year despite

706
00:33:34,200 --> 00:33:36,360
Speaker 6: everything that's happened. But a lot has happened this year,

707
00:33:36,600 --> 00:33:39,680
Speaker 6: and we like to have a policy of being conservative

708
00:33:39,880 --> 00:33:42,640
Speaker 6: on our guidance because stuff does happen, and we want

709
00:33:42,680 --> 00:33:47,200
Speaker 6: to be able to absorb some unexpected events in our guidance.

710
00:33:47,280 --> 00:33:50,200
Speaker 6: We intentionally build it conservatively. We did that's we do

711
00:33:50,240 --> 00:33:53,080
Speaker 6: that all the time. But so really what happened this

712
00:33:53,120 --> 00:33:56,040
Speaker 6: time is we've been able to build that conservativesm back.

713
00:33:56,160 --> 00:33:59,160
Speaker 6: So you know, if nothing else happens this year, which

714
00:33:59,240 --> 00:34:02,120
Speaker 6: is a big if, and if demand stays as strong

715
00:34:02,160 --> 00:34:04,200
Speaker 6: booking demand stays as strong as it is right now,

716
00:34:04,360 --> 00:34:08,359
Speaker 6: there's probably upside. But we'd rather be conservative than than

717
00:34:08,400 --> 00:34:10,240
Speaker 6: get out two four out over our skis.

718
00:34:10,320 --> 00:34:12,319
Speaker 1: One reason why I was really excited to speak with

719
00:34:12,360 --> 00:34:14,680
Speaker 1: you is say you have a real time view of

720
00:34:14,840 --> 00:34:17,480
Speaker 1: not only the consumer and the appetite there, but also

721
00:34:17,680 --> 00:34:21,759
Speaker 1: international demand and whether there has been any damage to

722
00:34:21,800 --> 00:34:25,960
Speaker 1: the brand Americana, the idea of foreign travelers coming to

723
00:34:26,040 --> 00:34:29,000
Speaker 1: the United States for tourism, etc. You've said that there

724
00:34:29,000 --> 00:34:32,640
Speaker 1: has been a drop off at European travelers. How sustained

725
00:34:32,719 --> 00:34:34,200
Speaker 1: do you expect that to be? Are you seeing any

726
00:34:34,320 --> 00:34:37,920
Speaker 1: permanent shifts in that international inbound landscape?

727
00:34:38,000 --> 00:34:40,960
Speaker 6: You know, there has been a drop off in in

728
00:34:40,960 --> 00:34:44,160
Speaker 6: inbound Your demand of Europe is one but it's a

729
00:34:44,200 --> 00:34:47,480
Speaker 6: single digit decline, so and US point of sale has

730
00:34:47,560 --> 00:34:49,759
Speaker 6: more than made up for it. It's eighty percent of

731
00:34:49,760 --> 00:34:52,640
Speaker 6: our business. I don't think it'll be permanent. You know,

732
00:34:52,719 --> 00:34:55,240
Speaker 6: the the United States is the greatest country on earth.

733
00:34:55,880 --> 00:34:57,600
Speaker 6: It's a great place for people to come, a great

734
00:34:57,600 --> 00:35:00,719
Speaker 6: place for people to visit. Demand is affected by all

735
00:35:00,840 --> 00:35:02,840
Speaker 6: kinds of things. That we have fewer students coming to

736
00:35:02,840 --> 00:35:06,239
Speaker 6: the US right now, you know, not surprisingly that's a

737
00:35:06,239 --> 00:35:09,080
Speaker 6: big point. You are quite a bit fewer. I mean enough,

738
00:35:09,200 --> 00:35:11,400
Speaker 6: you know, it's a small, relatively small percentage of the business.

739
00:35:11,400 --> 00:35:13,800
Speaker 6: But when you're talking about one, two, three percent changes

740
00:35:13,840 --> 00:35:16,479
Speaker 6: in demand, you can see it. When you're talking about

741
00:35:16,480 --> 00:35:19,799
Speaker 6: small changes, But those my guess is that we will

742
00:35:19,800 --> 00:35:22,840
Speaker 6: get back to normal. And you know, people's desire to

743
00:35:22,880 --> 00:35:26,560
Speaker 6: travel see the world, whether you're an American or European

744
00:35:26,680 --> 00:35:29,600
Speaker 6: or a Canadian, is strong. This is a great place

745
00:35:29,600 --> 00:35:31,520
Speaker 6: to visit. And my guess is it will get back

746
00:35:31,560 --> 00:35:31,920
Speaker 6: to normal.

747
00:35:32,040 --> 00:35:34,320
Speaker 1: And if you're a senior and you're applying to colleges

748
00:35:34,400 --> 00:35:36,920
Speaker 1: right now in the US, you probably are pretty good shape.

749
00:35:36,960 --> 00:35:37,880
Speaker 5: That's all I can say.

750
00:35:38,040 --> 00:35:41,080
Speaker 1: There's also a question about the further uncertainty, and tariffs

751
00:35:41,120 --> 00:35:43,120
Speaker 1: are almost a certainty at this point.

752
00:35:43,560 --> 00:35:45,960
Speaker 5: How do you expect to absorb them? Are you planning

753
00:35:46,040 --> 00:35:46,319
Speaker 5: or do you have.

754
00:35:46,320 --> 00:35:49,359
Speaker 1: A base case for whether you'll increase prices or whether

755
00:35:49,400 --> 00:35:51,120
Speaker 1: we'll just hit margins more significantly.

756
00:35:51,160 --> 00:35:53,920
Speaker 6: You know, for United we're fortunate that most of our

757
00:35:53,960 --> 00:35:57,440
Speaker 6: aircraft come from Boeing so here in the US, and

758
00:35:57,520 --> 00:36:00,239
Speaker 6: even in the airbus deliveries we have are mostly used

759
00:36:00,280 --> 00:36:02,359
Speaker 6: here in the United States, so tariffs don't have as

760
00:36:02,360 --> 00:36:04,719
Speaker 6: big of a direct impact on US as they do

761
00:36:04,800 --> 00:36:07,440
Speaker 6: perhaps on our competitors. The bigger issue for US is

762
00:36:07,920 --> 00:36:10,840
Speaker 6: the impact that has on the macro economy. And you know,

763
00:36:11,080 --> 00:36:13,920
Speaker 6: I feel really good you were right earlier you said

764
00:36:13,960 --> 00:36:16,160
Speaker 6: we have a real time indication of the economy. We're

765
00:36:16,200 --> 00:36:18,759
Speaker 6: a very good real time indicator of what's going on

766
00:36:18,840 --> 00:36:21,279
Speaker 6: with the company. Not always advanced, but good real time.

767
00:36:21,360 --> 00:36:24,440
Speaker 6: And it really does feel like something changed at the

768
00:36:24,520 --> 00:36:27,120
Speaker 6: end of the jewe the level of confidence, at least

769
00:36:27,200 --> 00:36:30,920
Speaker 6: less uncertainty. People are moving forward, and I think on

770
00:36:30,960 --> 00:36:33,960
Speaker 6: tariffs there's a narrower range of outcomes, like probably not

771
00:36:33,960 --> 00:36:35,520
Speaker 6: going to be one hundred and forty five percent on time.

772
00:36:35,560 --> 00:36:37,920
Speaker 6: There's a narrow range of outcomes, and people have had

773
00:36:37,960 --> 00:36:39,759
Speaker 6: six months to sort of figure out how to deal

774
00:36:39,800 --> 00:36:42,680
Speaker 6: with it and have some contingency planning. Whatever the reasons are,

775
00:36:43,000 --> 00:36:45,840
Speaker 6: it does feel like there's more certainty with Boeing.

776
00:36:46,120 --> 00:36:47,920
Speaker 1: Do you expect the deliveries to be on time or

777
00:36:47,960 --> 00:36:49,440
Speaker 1: do you expect there to be more competition with all

778
00:36:49,440 --> 00:36:51,640
Speaker 1: the other countries that are making deals to buy gooing plans.

779
00:36:51,920 --> 00:36:54,120
Speaker 6: You know, that will be an interesting point of what

780
00:36:54,160 --> 00:36:57,640
Speaker 6: happens with tariff's. I guess his aviation ultimately will wind

781
00:36:57,719 --> 00:37:01,239
Speaker 6: up excluded. It's the one industry. US exports six times

782
00:37:01,280 --> 00:37:05,239
Speaker 6: more aviation products than we import, so the big trade

783
00:37:05,239 --> 00:37:07,160
Speaker 6: surplus on that side, So my guess is those will

784
00:37:07,160 --> 00:37:11,440
Speaker 6: wind up excluded. But Boeing, you know, is back on track.

785
00:37:11,480 --> 00:37:13,200
Speaker 6: You know, if narrow bodies are actually ahead of schedule

786
00:37:13,880 --> 00:37:16,160
Speaker 6: for US, wide bodies are still behind. I think that's

787
00:37:16,160 --> 00:37:19,000
Speaker 6: a less a Boeing issue, probably more engine issue and

788
00:37:19,040 --> 00:37:21,680
Speaker 6: the supply chain for engines. I think that's a longer term,

789
00:37:22,280 --> 00:37:26,359
Speaker 6: multi year challenge to get the wide body back on track.

790
00:37:26,400 --> 00:37:28,720
Speaker 6: But Boeing seems to have turned the corner on production.

791
00:37:29,000 --> 00:37:31,120
Speaker 1: I just want to finish on Newark and whether Newark's

792
00:37:31,120 --> 00:37:31,800
Speaker 1: turned the corner.

793
00:37:31,880 --> 00:37:34,640
Speaker 5: I do know that we could go for an hour.

794
00:37:34,480 --> 00:37:38,560
Speaker 1: About the delays and some of the drama around that airport.

795
00:37:38,680 --> 00:37:41,399
Speaker 1: You guys have a huge presence there. You have made

796
00:37:41,400 --> 00:37:45,920
Speaker 1: this partnership with Jeff Blue and move to JFK. Do

797
00:37:45,960 --> 00:37:48,080
Speaker 1: you expect to expand more in the Tri state area

798
00:37:48,120 --> 00:37:50,640
Speaker 1: to try to diversify your presence away from you at first?

799
00:37:50,640 --> 00:37:53,840
Speaker 6: I'm really pleased with what Secretary Toughy and the Department

800
00:37:53,840 --> 00:37:58,160
Speaker 6: Transportation FA have done. My entire career at United have

801
00:37:58,200 --> 00:38:00,279
Speaker 6: been trying to get Newark on an equal footing with

802
00:38:00,320 --> 00:38:03,320
Speaker 6: the Guardian JFK. That's essentially putting slide controls. Have the

803
00:38:03,400 --> 00:38:05,719
Speaker 6: number of flights at the airport equal to the capacity

804
00:38:05,719 --> 00:38:08,279
Speaker 6: of the airport, and we've finally done that and you

805
00:38:08,280 --> 00:38:11,520
Speaker 6: can already see the results. In June, Newark was the

806
00:38:11,560 --> 00:38:15,680
Speaker 6: most reliable of the three New York Area airports. It's

807
00:38:16,160 --> 00:38:18,000
Speaker 6: and the future looks really good. So we feel really

808
00:38:18,000 --> 00:38:20,279
Speaker 6: good about Newark and it's a crown jewel and we're

809
00:38:20,320 --> 00:38:22,279
Speaker 6: going to grow it and you know, it's always going

810
00:38:22,280 --> 00:38:24,360
Speaker 6: to be a crown jewel for United But from the

811
00:38:24,520 --> 00:38:26,680
Speaker 6: first day I got here to United I wanted us

812
00:38:26,719 --> 00:38:29,399
Speaker 6: to get back into JFK. Our goal is to be

813
00:38:29,640 --> 00:38:33,400
Speaker 6: the premier flag carrier of the United States and we

814
00:38:33,440 --> 00:38:35,680
Speaker 6: need to be in JFK to do that. So the

815
00:38:35,760 --> 00:38:38,160
Speaker 6: Jet Blue partnership is a great way for us to

816
00:38:38,160 --> 00:38:40,279
Speaker 6: have a partner who cared has the same sort of

817
00:38:40,320 --> 00:38:43,440
Speaker 6: culture on DNA, for customers to get back, you know,

818
00:38:43,480 --> 00:38:45,120
Speaker 6: and have a presence on both sides of the river.

819
00:38:45,280 --> 00:38:47,560
Speaker 1: Scott Kirby, thank you so much for taking the time today.

820
00:38:48,320 --> 00:38:51,880
Speaker 2: This is the Bloomberg Sevenants podcast, bringing you the best

821
00:38:51,880 --> 00:38:55,440
Speaker 2: in markets, economics, angiopolitics. You can watch the show live

822
00:38:55,560 --> 00:38:58,560
Speaker 2: on Bloomberg TV weekday mornings from six am to nine

823
00:38:58,600 --> 00:39:02,319
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or

824
00:39:02,360 --> 00:39:04,960
Speaker 2: anywhere else you listen, and as always on the Bloomberg

825
00:39:05,040 --> 00:39:06,879
Speaker 2: Terminal and the Bloomberg Business app.

826
00:39:10,800 --> 00:39:11,319
Speaker 3: Mm hmm