1 00:00:02,000 --> 00:00:04,440 Speaker 1: This is Bloomberg day Break Weekend, our global look at 2 00:00:04,480 --> 00:00:06,920 Speaker 1: the top stories in the coming week from our Daybreak 3 00:00:06,920 --> 00:00:09,920 Speaker 1: anchors all around the world, and straight ahead on the program. 4 00:00:10,039 --> 00:00:13,880 Speaker 1: Is the Fed really about to press pause on raid hikes? 5 00:00:14,320 --> 00:00:15,760 Speaker 2: I'm Tom Busby in New York. 6 00:00:15,960 --> 00:00:19,680 Speaker 3: I'm Brian Curtis in Hong Kong. What next for the boj. 7 00:00:19,640 --> 00:00:22,800 Speaker 4: I'm Kayleie Lines in Washington where Treasury Secretary Janet Yellen 8 00:00:22,880 --> 00:00:24,759 Speaker 4: is getting set to take the hot seat in front 9 00:00:24,760 --> 00:00:26,480 Speaker 4: of the House Financial Services Committee. 10 00:00:26,520 --> 00:00:28,920 Speaker 5: I'm Stephen Carolyn London, where tech leaders are gathering as 11 00:00:28,960 --> 00:00:31,680 Speaker 5: a leading industry body has worn the UK risks, losing 12 00:00:31,680 --> 00:00:33,360 Speaker 5: its attractiveness for the sector. 13 00:00:35,440 --> 00:00:39,440 Speaker 6: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 14 00:00:39,479 --> 00:00:43,280 Speaker 6: Eleve them three own New York Bloomberg ninety nine to one, Washington, DC, 15 00:00:43,600 --> 00:00:47,600 Speaker 6: Bloomberg one O six one, Boston, Bloomberg nine sixty, San Francisco, 16 00:00:47,880 --> 00:00:52,080 Speaker 6: DAB Digital Radio, London, Sirius XM one nineteen and around 17 00:00:52,159 --> 00:00:54,800 Speaker 6: the world on Bloomberg Radio dot com and via the 18 00:00:54,840 --> 00:00:56,240 Speaker 6: Bloomberg Business app. 19 00:01:00,160 --> 00:01:00,200 Speaker 7: You. 20 00:01:00,280 --> 00:01:02,560 Speaker 1: I'm Tom Busby, and we begin today's program with this 21 00:01:02,600 --> 00:01:06,479 Speaker 1: week's latest two day Federal Reserve meeting on interest rates 22 00:01:06,959 --> 00:01:09,200 Speaker 1: and joining me now to talk about what to expect 23 00:01:09,200 --> 00:01:11,920 Speaker 1: when the Federal Open Market Committee wraps up on Wednesday. 24 00:01:12,280 --> 00:01:16,600 Speaker 1: Bloomberg Global Economic and Policy Editor Michael McKee Michael Well. 25 00:01:16,640 --> 00:01:18,680 Speaker 1: The FED has lifted the federal funds rate by a 26 00:01:18,720 --> 00:01:21,960 Speaker 1: staggering five percentage points in the last fourteen months to 27 00:01:22,000 --> 00:01:24,960 Speaker 1: curb runaway inflation, which is still running at more than 28 00:01:25,040 --> 00:01:29,039 Speaker 1: double its two percent target, and after ten interest rate 29 00:01:29,080 --> 00:01:32,039 Speaker 1: hikes in its last ten meetings, many FED watchers feel 30 00:01:32,080 --> 00:01:34,440 Speaker 1: the FED is going to pause its rate hiking plans 31 00:01:34,640 --> 00:01:36,839 Speaker 1: and not raise rates this week. 32 00:01:37,200 --> 00:01:39,720 Speaker 2: What are you expecting For the first. 33 00:01:39,480 --> 00:01:42,679 Speaker 8: Time in many years, I can't even remember the last 34 00:01:42,680 --> 00:01:45,200 Speaker 8: time I said this. I don't know what the Fed 35 00:01:45,440 --> 00:01:48,320 Speaker 8: is going to do. It's a close call. They are 36 00:01:48,640 --> 00:01:52,240 Speaker 8: divided over whether they need to do more and when 37 00:01:52,400 --> 00:01:53,360 Speaker 8: they need to do more. 38 00:01:53,440 --> 00:01:57,280 Speaker 2: If they do more, And while. 39 00:01:57,080 --> 00:02:00,720 Speaker 8: Wall Street has settled on the idea that they're going 40 00:02:00,760 --> 00:02:05,360 Speaker 8: to not raise raids next week, they don't know. It's 41 00:02:05,400 --> 00:02:07,640 Speaker 8: still an open question of whether they say but we 42 00:02:07,680 --> 00:02:10,880 Speaker 8: will in July. I think the case could be made 43 00:02:10,919 --> 00:02:14,200 Speaker 8: either way. And we don't know what the CPI is 44 00:02:14,240 --> 00:02:17,320 Speaker 8: going to show us on Tuesday. So if we get 45 00:02:17,360 --> 00:02:21,720 Speaker 8: a strong CPI, then the Fed may lean towards raising 46 00:02:21,800 --> 00:02:25,640 Speaker 8: rates in June. If it's more benign, as the forecast 47 00:02:25,840 --> 00:02:29,720 Speaker 8: would have it, then they probably will hold off so 48 00:02:29,800 --> 00:02:32,920 Speaker 8: they can see what's happening with the economy. But right 49 00:02:32,960 --> 00:02:35,280 Speaker 8: now it does look like with inflation, as you mentioned, 50 00:02:35,320 --> 00:02:38,920 Speaker 8: way above their target, that something more has to happen. 51 00:02:39,840 --> 00:02:42,360 Speaker 1: Well, let's go back to that CPI. Do you have 52 00:02:42,639 --> 00:02:45,960 Speaker 1: any indication of what we're expecting on that and why. 53 00:02:46,240 --> 00:02:49,600 Speaker 8: We are expecting a drop in the CPI? The headline 54 00:02:49,680 --> 00:02:52,240 Speaker 8: CPI down to four point two percent, which puts you 55 00:02:52,280 --> 00:02:55,240 Speaker 8: in that range of three percent the Fed is anticipating 56 00:02:55,280 --> 00:02:58,480 Speaker 8: by the end of the year. And why would relate 57 00:02:58,520 --> 00:03:02,880 Speaker 8: to a couple of things. Prices have gotten less expensive, 58 00:03:03,200 --> 00:03:08,000 Speaker 8: but in large part it's used cars. They're again declining 59 00:03:08,240 --> 00:03:09,640 Speaker 8: in cost. 60 00:03:10,200 --> 00:03:10,320 Speaker 2: Uh. 61 00:03:10,480 --> 00:03:14,160 Speaker 8: The other wild card out there is housing. We've been 62 00:03:14,200 --> 00:03:18,560 Speaker 8: expecting housing prices to start to fall within the CPI 63 00:03:18,720 --> 00:03:22,040 Speaker 8: to or a rise at a significantly slower pace. There's 64 00:03:22,080 --> 00:03:24,720 Speaker 8: some signs of it. It hasn't happened yet, but it's 65 00:03:24,760 --> 00:03:28,280 Speaker 8: anticipated happen anytime, So that too could add downward pressure. 66 00:03:29,120 --> 00:03:31,959 Speaker 1: Well, let's go back to some FED policy makers. They've 67 00:03:32,000 --> 00:03:35,000 Speaker 1: been out there speaking, not not recently, but at a 68 00:03:35,080 --> 00:03:38,400 Speaker 1: pause in June. Does not mean the Fed's done with 69 00:03:38,480 --> 00:03:41,240 Speaker 1: this current cycle of hiking rates now. One of those 70 00:03:41,280 --> 00:03:44,040 Speaker 1: who thinks we're not done Neil Dutta ahead of US 71 00:03:44,120 --> 00:03:47,680 Speaker 1: Economic research at Renaissance macro. Let's hear from him right now, 72 00:03:47,680 --> 00:03:49,440 Speaker 1: because he spoke to Bloomberg very recently. 73 00:03:49,920 --> 00:03:53,040 Speaker 9: The economy is far more resilient, as you know, than 74 00:03:53,040 --> 00:03:55,160 Speaker 9: than than is that is appreciated, and that's going to 75 00:03:55,200 --> 00:03:56,760 Speaker 9: mean that the FED is ultimately going to have to 76 00:03:56,760 --> 00:03:58,680 Speaker 9: do more than what's than what's priced. 77 00:03:58,720 --> 00:03:58,880 Speaker 2: Now. 78 00:03:58,880 --> 00:04:01,120 Speaker 1: What are the chances Mike, that that is right? The 79 00:04:01,160 --> 00:04:03,720 Speaker 1: FED will have to do more than what's priced in. 80 00:04:04,400 --> 00:04:07,240 Speaker 8: Well, I hate to sound like the two handed economists, 81 00:04:07,240 --> 00:04:08,880 Speaker 8: but I think it's about fifty to fifty. A lot 82 00:04:08,920 --> 00:04:11,800 Speaker 8: of the data Douce show strengthen the economy. We've had 83 00:04:11,920 --> 00:04:15,800 Speaker 8: strong job creation. The Jolts jobs data show a lot 84 00:04:15,840 --> 00:04:19,880 Speaker 8: of job opening still in place. We did see jobless 85 00:04:19,880 --> 00:04:23,240 Speaker 8: claims rise by a lot last week, but we don't 86 00:04:23,320 --> 00:04:25,200 Speaker 8: yet know if that's a one off because it was 87 00:04:25,279 --> 00:04:28,240 Speaker 8: just one week's data, or whether that's the beginning of 88 00:04:28,279 --> 00:04:31,520 Speaker 8: a trend. But consumer spendings hung in there. We're seeing 89 00:04:31,839 --> 00:04:36,479 Speaker 8: signs of business spending still remaining relatively strong. We know 90 00:04:36,560 --> 00:04:40,279 Speaker 8: that new home construction is relatively strong, so you can 91 00:04:40,600 --> 00:04:43,479 Speaker 8: make the cases Neil does. The FED is going to 92 00:04:43,520 --> 00:04:46,520 Speaker 8: have to do more. The other side of the story 93 00:04:47,040 --> 00:04:50,840 Speaker 8: is that we are going to see consumer spending weekend 94 00:04:50,880 --> 00:04:55,120 Speaker 8: as people's nest eggs start to dwindle. We're going to 95 00:04:55,160 --> 00:04:58,400 Speaker 8: see more supply chain problems out there, particularly if the 96 00:04:58,440 --> 00:05:02,840 Speaker 8: West Coast doc workers go on strike. Housing may not 97 00:05:03,080 --> 00:05:07,240 Speaker 8: come down as fast as people want. And we've already 98 00:05:07,240 --> 00:05:10,760 Speaker 8: picked the low hanging fruit for inflation, and it's just 99 00:05:10,800 --> 00:05:12,640 Speaker 8: going to get harder and harder to bring it down. 100 00:05:13,120 --> 00:05:17,560 Speaker 8: And so the FED may not have to do more 101 00:05:18,560 --> 00:05:23,400 Speaker 8: and just wait until we see the cumulative effects of 102 00:05:23,480 --> 00:05:26,120 Speaker 8: all the tightening that's been done start to hit the economy. 103 00:05:26,760 --> 00:05:27,000 Speaker 2: Well. 104 00:05:27,040 --> 00:05:29,880 Speaker 1: Now, we also heard from former Vice Chair of the FED, 105 00:05:29,960 --> 00:05:33,440 Speaker 1: Richard Clarida, now Global Economic Advisor at PIMCO, when he's 106 00:05:33,480 --> 00:05:37,119 Speaker 1: talking about possible rate cuts. Now he's not saying until 107 00:05:37,120 --> 00:05:40,360 Speaker 1: twenty twenty four after more rate hikes this year. Let's 108 00:05:40,360 --> 00:05:41,200 Speaker 1: hear what he had to say. 109 00:05:41,720 --> 00:05:44,800 Speaker 10: The FED has penciled into its productions a pretty sharp 110 00:05:44,839 --> 00:05:47,400 Speaker 10: slow down the labor market. They have the unemployment rate 111 00:05:47,440 --> 00:05:49,440 Speaker 10: going up to four and a half percent by the 112 00:05:49,520 --> 00:05:51,880 Speaker 10: end of the year without any cuts, So I do 113 00:05:51,920 --> 00:05:54,000 Speaker 10: think if there are cuts, it's really a twenty twenty 114 00:05:54,040 --> 00:05:56,920 Speaker 10: four story. But yeah, I think the bar's high. 115 00:05:57,320 --> 00:05:58,480 Speaker 2: What do you think of that? 116 00:05:58,960 --> 00:06:01,880 Speaker 8: I agree with Rich that it is a very high 117 00:06:01,960 --> 00:06:05,720 Speaker 8: bar for the Fed to cut rates this year, simply 118 00:06:05,720 --> 00:06:08,280 Speaker 8: because we're sort of running out of time for the 119 00:06:08,520 --> 00:06:12,480 Speaker 8: bad news to pile up. It certainly can, but the 120 00:06:12,480 --> 00:06:15,320 Speaker 8: Fed is pretty convinced that it's going to take a 121 00:06:15,360 --> 00:06:18,400 Speaker 8: lot more, whether it's just sitting on high rates or 122 00:06:18,600 --> 00:06:21,560 Speaker 8: raising them even further, to bring down inflation towards their 123 00:06:21,600 --> 00:06:26,000 Speaker 8: two percent target. So they do not want to cut rates. 124 00:06:26,360 --> 00:06:26,960 Speaker 11: The only thing that. 125 00:06:26,960 --> 00:06:29,880 Speaker 8: Would drive them to do that is if we had 126 00:06:29,960 --> 00:06:34,400 Speaker 8: some sort of crash in the economy, a slowdown, if 127 00:06:34,560 --> 00:06:38,080 Speaker 8: growth stayed positive, even if growth went negative for a 128 00:06:38,160 --> 00:06:41,039 Speaker 8: quarter or possibly even two, although no sign of that 129 00:06:41,120 --> 00:06:43,440 Speaker 8: at the moment. They're going to want to leave rates 130 00:06:43,480 --> 00:06:46,479 Speaker 8: where they are. Then the question is, in twenty twenty four, 131 00:06:46,800 --> 00:06:51,640 Speaker 8: where's inflation and where's the economy? So yes, there could 132 00:06:51,680 --> 00:06:55,040 Speaker 8: be rate cuts next year. Once the Fed reaches its peak, 133 00:06:55,120 --> 00:06:58,480 Speaker 8: it's usually seven or eight months until it starts cutting rates. 134 00:06:59,240 --> 00:07:02,400 Speaker 8: So it's certainly possible. But I think one thing we 135 00:07:02,480 --> 00:07:05,640 Speaker 8: have learned over the last two years is that it's 136 00:07:05,960 --> 00:07:09,760 Speaker 8: almost impossible to predict what's going to happen with the economy. 137 00:07:10,320 --> 00:07:13,320 Speaker 2: That's for sure well, and a lot of things are changing. 138 00:07:13,400 --> 00:07:16,960 Speaker 1: You know, we talked about the unemployment rate, which you know, 139 00:07:17,040 --> 00:07:19,080 Speaker 1: the FED has a target of four and a half percent. 140 00:07:19,160 --> 00:07:21,640 Speaker 1: Now it's just three point seven percent. I mean only 141 00:07:21,680 --> 00:07:24,960 Speaker 1: six months ago in the year no rate cuts this 142 00:07:25,040 --> 00:07:27,600 Speaker 1: year that we heard Clara to talk about. But how 143 00:07:27,600 --> 00:07:31,800 Speaker 1: would that affect, you know, this wide gap in what 144 00:07:31,840 --> 00:07:33,760 Speaker 1: the FED has said four and a half percent and 145 00:07:33,800 --> 00:07:34,760 Speaker 1: what it is right now. 146 00:07:34,880 --> 00:07:36,560 Speaker 8: Well, I think come Wednesday you're going to have a 147 00:07:36,600 --> 00:07:40,640 Speaker 8: different number from the Fed. That prediction was made in March, 148 00:07:40,920 --> 00:07:45,240 Speaker 8: and we have seen stronger than expected labor markets since then, 149 00:07:45,880 --> 00:07:47,840 Speaker 8: and to get to four and a half you would 150 00:07:47,880 --> 00:07:53,080 Speaker 8: need a significant deterioration in the labor market, something like 151 00:07:53,160 --> 00:07:56,920 Speaker 8: we saw in the household survey this past month continuing 152 00:07:57,120 --> 00:08:00,240 Speaker 8: for the rest of the year. So I think they're 153 00:08:00,240 --> 00:08:01,920 Speaker 8: going to have to mark up and the FED officials 154 00:08:01,920 --> 00:08:03,280 Speaker 8: I've talked to have, so they're going to have to 155 00:08:03,280 --> 00:08:08,600 Speaker 8: mark up there well marked down moderate. They're unemployment forecasts. 156 00:08:09,320 --> 00:08:12,600 Speaker 8: We will also get new forecasts for inflation, and we'll 157 00:08:12,600 --> 00:08:16,840 Speaker 8: see based on what we've gotten from the PCE and 158 00:08:16,880 --> 00:08:19,360 Speaker 8: the CPI, which have both come down, not as far 159 00:08:19,440 --> 00:08:21,400 Speaker 8: as they want, but they've come down. We'll see if 160 00:08:21,400 --> 00:08:24,280 Speaker 8: they anticipate it coming down any faster, which might give 161 00:08:24,320 --> 00:08:26,239 Speaker 8: a clue as to the policy path. 162 00:08:26,520 --> 00:08:27,880 Speaker 2: Yeah, no, and that has been good. 163 00:08:27,880 --> 00:08:30,720 Speaker 1: It's moderated a bit in April, which helped consumer spending 164 00:08:30,880 --> 00:08:34,720 Speaker 1: jump a little higher. May forecast the show continued cooling 165 00:08:34,760 --> 00:08:35,320 Speaker 1: and prices. 166 00:08:36,800 --> 00:08:37,719 Speaker 2: But what should we be. 167 00:08:37,679 --> 00:08:41,400 Speaker 1: Watching for again exactly on CPI you said four point 168 00:08:41,480 --> 00:08:44,720 Speaker 1: two percent still double the Fed's target rate. 169 00:08:45,280 --> 00:08:50,480 Speaker 8: We're past the I guess peak danger and we've taken 170 00:08:50,520 --> 00:08:54,360 Speaker 8: the low hanging fruit off the tree in terms of 171 00:08:54,400 --> 00:08:57,400 Speaker 8: bringing inflation down. The real question now is how fast 172 00:08:57,440 --> 00:09:00,240 Speaker 8: do service prices come down. You've heard Japowell talk at 173 00:09:00,240 --> 00:09:03,080 Speaker 8: that a lot, and those are heavily driven by wages. 174 00:09:03,880 --> 00:09:07,480 Speaker 8: We're seeing in the jobs numbers that they're still concern 175 00:09:07,559 --> 00:09:12,000 Speaker 8: about hiring for service industry companies because they were the 176 00:09:12,080 --> 00:09:15,000 Speaker 8: last ones to be able to fill jobs and unless 177 00:09:15,080 --> 00:09:17,680 Speaker 8: that stops, or until that stops, we probably don't see 178 00:09:17,880 --> 00:09:23,400 Speaker 8: wage gains drop significantly. And so at this point you're 179 00:09:23,440 --> 00:09:28,880 Speaker 8: looking at some time before inflation moves moves far enough 180 00:09:28,880 --> 00:09:31,080 Speaker 8: in the direction of what the fence says it wants. 181 00:09:31,160 --> 00:09:33,959 Speaker 1: And let's circle back again to housing, because it's such 182 00:09:33,960 --> 00:09:36,240 Speaker 1: a huge part of what they're watching, a huge part 183 00:09:36,240 --> 00:09:39,480 Speaker 1: of the economy. Three jobs for every house that goes up. 184 00:09:39,960 --> 00:09:42,440 Speaker 1: Mortgage rates have come off the recent high, still very 185 00:09:42,520 --> 00:09:44,920 Speaker 1: high though six point eight one percent, and because there 186 00:09:44,920 --> 00:09:48,080 Speaker 1: were so few homes on the market, home prices stubbornly high. 187 00:09:48,640 --> 00:09:51,600 Speaker 1: Mortgage demand is lowered down twenty seven percent from a 188 00:09:51,640 --> 00:09:54,520 Speaker 1: year ago. Also, homeowners we just found out so their 189 00:09:54,520 --> 00:09:58,040 Speaker 1: first annual decline in equity in more than a decade, 190 00:09:58,120 --> 00:10:02,880 Speaker 1: at least according to core Logic. How important is all this? 191 00:10:02,880 --> 00:10:05,800 Speaker 1: This uneven recovery in housing, or maybe even a slow down. 192 00:10:06,280 --> 00:10:09,559 Speaker 8: Well, Housing can be an important component of GDP, and 193 00:10:09,600 --> 00:10:12,080 Speaker 8: we have seen it drop off as such in the 194 00:10:12,120 --> 00:10:14,880 Speaker 8: last couple of quarters because they're not selling very many houses. 195 00:10:15,400 --> 00:10:19,720 Speaker 8: They are still selling new houses like hotcakes, and builders 196 00:10:20,000 --> 00:10:22,559 Speaker 8: are throwing them up as fast as they can because 197 00:10:22,600 --> 00:10:25,080 Speaker 8: there is housing demand. What we're not seeing is the 198 00:10:25,120 --> 00:10:31,480 Speaker 8: turnover in existing homes because with low mortgage rates locked 199 00:10:31,520 --> 00:10:34,480 Speaker 8: in for so many people who refinanced over the last 200 00:10:34,480 --> 00:10:36,760 Speaker 8: few years, why do you want to trade a three 201 00:10:36,760 --> 00:10:39,640 Speaker 8: percent mortgage for a six percent mortgage if you're moving. 202 00:10:40,320 --> 00:10:44,439 Speaker 8: So that does keep supply down and prices go back up, 203 00:10:44,440 --> 00:10:47,880 Speaker 8: and that will also hurt CPI in the longer run. 204 00:10:47,920 --> 00:10:50,520 Speaker 8: But we've talked about the delays in getting the declines 205 00:10:50,559 --> 00:10:53,040 Speaker 8: into CPI. It'll be a while before we saw that. 206 00:10:53,200 --> 00:10:55,360 Speaker 2: A lot to watch out for, Michael. Thank you. 207 00:10:55,440 --> 00:10:58,560 Speaker 1: That was Bloomberg's Global Economics and Policy editor Michael McKee. 208 00:10:58,600 --> 00:11:01,480 Speaker 1: And coming up on Bloomberg day Break weekend, decision Day. 209 00:11:01,800 --> 00:11:04,680 Speaker 1: Also coming up for the Bank of Japan. I'm Tom 210 00:11:04,679 --> 00:11:15,720 Speaker 1: Busby and this is Bloomberg. This is Bloomberg day Break weekend, 211 00:11:15,800 --> 00:11:18,200 Speaker 1: our global look ahead at the top stories for investors 212 00:11:18,280 --> 00:11:20,600 Speaker 1: in the coming week. I'm Tom Busby in New York. 213 00:11:20,760 --> 00:11:23,280 Speaker 1: Up later in our program a big week for tech 214 00:11:23,360 --> 00:11:26,800 Speaker 1: in London and Paris with some high profile industry events. 215 00:11:26,840 --> 00:11:29,520 Speaker 1: But first, in addition to decision Day at the FED, 216 00:11:29,600 --> 00:11:32,000 Speaker 1: we also have a decision coming from the Bank of Japan. 217 00:11:32,320 --> 00:11:34,720 Speaker 1: And for more let's go to Hong Kong and Bloomberg 218 00:11:34,760 --> 00:11:38,520 Speaker 1: day Break Asia host Brian Curtis and his colleague Doug Krisner. 219 00:11:38,920 --> 00:11:41,840 Speaker 3: Tom After surprises from the Bank of Canada and the 220 00:11:41,880 --> 00:11:44,840 Speaker 3: Reserve Bank of Australia, we look forward to the Bank 221 00:11:44,880 --> 00:11:47,679 Speaker 3: of Japan meeting in the coming week. But if you're 222 00:11:47,720 --> 00:11:51,760 Speaker 3: looking for change from new Governor Kazuhua, don't get your hopes. 223 00:11:51,600 --> 00:11:53,800 Speaker 12: Up in the beginning of this term. For the governor 224 00:11:53,840 --> 00:11:56,600 Speaker 12: in particular, you know it goes. You need to build 225 00:11:56,640 --> 00:11:59,480 Speaker 12: your credibility and the first thing you want is to 226 00:11:59,480 --> 00:12:04,360 Speaker 12: avoid any animistep so gradual and rhetoric is probably what 227 00:12:05,160 --> 00:12:06,920 Speaker 12: you should expect for this meeting. 228 00:12:07,320 --> 00:12:12,160 Speaker 13: Xavier Barreton there from HSBC Asset Management and perhaps bearing 229 00:12:12,160 --> 00:12:16,000 Speaker 13: that out, only three out of forty seven economist polled 230 00:12:16,080 --> 00:12:18,800 Speaker 13: are expecting a tightening move at that meeting. That is 231 00:12:18,920 --> 00:12:22,160 Speaker 13: down from eighteen in the previous survey back in April. 232 00:12:22,320 --> 00:12:25,440 Speaker 3: Yes, instead of June. Now it seems that July is 233 00:12:25,520 --> 00:12:28,560 Speaker 3: the most likely month for a change in policy. This 234 00:12:28,800 --> 00:12:32,360 Speaker 3: was from about a third of respondents. The timing appears 235 00:12:32,400 --> 00:12:35,080 Speaker 3: to be moving back a little because we've heard the 236 00:12:35,080 --> 00:12:39,959 Speaker 3: governor repeatedly signal the need for continued monetary stimulus. Joining 237 00:12:40,040 --> 00:12:43,440 Speaker 3: us now in our studios is Taro Kimura, Bloomberg's Japan 238 00:12:43,520 --> 00:12:46,560 Speaker 3: economists who spent more than ten years at the BOJ. 239 00:12:47,559 --> 00:12:50,120 Speaker 3: Taro Kimura, thanks so much for joining us first. This 240 00:12:50,240 --> 00:12:53,880 Speaker 3: poll was taken actually before we got the stronger than 241 00:12:53,920 --> 00:12:57,640 Speaker 3: expected GDP numbers of growth of two point seven percent 242 00:12:58,000 --> 00:13:01,720 Speaker 3: in the first quarter, if it's annualized, Does that change 243 00:13:01,760 --> 00:13:03,120 Speaker 3: anything for the BOJ. 244 00:13:03,520 --> 00:13:05,839 Speaker 7: No, I don't think so. I'm also for the stay 245 00:13:05,960 --> 00:13:09,200 Speaker 7: and I am expecting the big shift will finally happen 246 00:13:09,640 --> 00:13:12,160 Speaker 7: the latter half of the next year. So like thing 247 00:13:12,200 --> 00:13:16,880 Speaker 7: is that the Japan's demand is very weak and although 248 00:13:17,120 --> 00:13:21,360 Speaker 7: you see a q key strong indicator such as today's GDP, 249 00:13:21,880 --> 00:13:25,040 Speaker 7: but it's just a rally from a very subdued level 250 00:13:25,200 --> 00:13:28,240 Speaker 7: due to a pandemic. It's just on a way to recovery. 251 00:13:28,480 --> 00:13:30,920 Speaker 7: So that doesn't mean, like you know, the BOJ is 252 00:13:30,920 --> 00:13:34,720 Speaker 7: committing to two percent demand led inflation, but the demand 253 00:13:34,800 --> 00:13:38,120 Speaker 7: level itself is not enough to ignite inflation. So that's 254 00:13:38,160 --> 00:13:41,560 Speaker 7: why BOJ will keep continuing saying steamulus is needed. 255 00:13:41,600 --> 00:13:43,640 Speaker 3: A few moments ago, you said you didn't expect a 256 00:13:43,840 --> 00:13:46,800 Speaker 3: change or an adjustment in policy until the latter part 257 00:13:46,840 --> 00:13:49,560 Speaker 3: of next year. Did you mean next year or this year? 258 00:13:49,760 --> 00:13:52,760 Speaker 3: And in either case what would be the main catalyst? 259 00:13:53,000 --> 00:13:56,040 Speaker 7: Yeah, I meant twenty twenty four, So I'm putting myself 260 00:13:56,120 --> 00:13:57,319 Speaker 7: a very late person. 261 00:13:57,360 --> 00:13:57,560 Speaker 2: Wow. 262 00:13:57,679 --> 00:14:01,680 Speaker 7: Actually wow. But I'm talking about big change. I'm barring 263 00:14:01,720 --> 00:14:05,240 Speaker 7: the risk scenario that the end is depreciated too much again, 264 00:14:05,440 --> 00:14:08,160 Speaker 7: or the FED is going to a rate high world again. 265 00:14:08,320 --> 00:14:10,840 Speaker 7: Maybe there would be a tweak to YCC. But in 266 00:14:10,880 --> 00:14:15,200 Speaker 7: the base scenario, BOJ want to continue stimulus because looking 267 00:14:15,280 --> 00:14:19,320 Speaker 7: at with US communication, he's clearly committing to that. He's 268 00:14:19,400 --> 00:14:22,080 Speaker 7: keeping YCC until he will see a demand led steady 269 00:14:22,080 --> 00:14:25,120 Speaker 7: two percent inflation, and in my assessment, it's very far 270 00:14:25,200 --> 00:14:28,040 Speaker 7: below as I said, in terms of the demand. And 271 00:14:28,080 --> 00:14:31,600 Speaker 7: at the same time, putting your foot into a BOJ shoes. 272 00:14:32,200 --> 00:14:36,760 Speaker 7: In history, they've already failed to exit from unconventional manitari 273 00:14:36,800 --> 00:14:40,640 Speaker 7: policy twice. It was a very scurring experience for bojs. 274 00:14:40,680 --> 00:14:43,360 Speaker 7: So that's why my take is the BOJ will very 275 00:14:43,480 --> 00:14:47,400 Speaker 7: very carefully communicate and build a case and finally made 276 00:14:47,440 --> 00:14:48,840 Speaker 7: a big change in the next year. 277 00:14:48,920 --> 00:14:52,200 Speaker 13: Well, that's an interesting point. Laying the groundwork for a 278 00:14:52,240 --> 00:14:55,560 Speaker 13: policy change. How might the BOJ go about that again, 279 00:14:56,120 --> 00:14:59,320 Speaker 13: Xavier Barton from HSBC Asset Management. 280 00:14:59,440 --> 00:15:04,000 Speaker 12: Next steps maybe further widening of the yield of control 281 00:15:04,800 --> 00:15:10,000 Speaker 12: bounds and leading the rights to continue to create up steadily. 282 00:15:10,160 --> 00:15:13,200 Speaker 12: But I think again the BOG is very is being 283 00:15:13,240 --> 00:15:16,440 Speaker 12: a lot of attention making sure that their actions are 284 00:15:16,520 --> 00:15:20,440 Speaker 12: not interfering with the l C organic growth that we've 285 00:15:20,480 --> 00:15:23,720 Speaker 12: been seeing really and it's quite important for them. 286 00:15:23,800 --> 00:15:27,920 Speaker 3: Again, that's Exavier Burton from HSBC Asset Management. So, Tara, 287 00:15:28,160 --> 00:15:31,240 Speaker 3: when the adjustment does come, will it be very gradual 288 00:15:31,440 --> 00:15:33,480 Speaker 3: like we just heard there, or do you think they'll 289 00:15:33,520 --> 00:15:36,080 Speaker 3: wait long enough that they can make a more dramatic move. 290 00:15:36,240 --> 00:15:36,480 Speaker 2: Yeah. 291 00:15:36,640 --> 00:15:39,760 Speaker 7: In the April meeting, as you know, the BOJA announced it. 292 00:15:39,760 --> 00:15:43,000 Speaker 7: It will conduct a policy review and it will take 293 00:15:43,280 --> 00:15:45,800 Speaker 7: a year or maybe a year and a half, and 294 00:15:45,880 --> 00:15:48,800 Speaker 7: I think the BOGA will use it as a stepping 295 00:15:48,840 --> 00:15:53,000 Speaker 7: stone to communicate and build a case and actually whether 296 00:15:53,080 --> 00:15:55,760 Speaker 7: acknowledge is the negative side effects of the current scheme 297 00:15:55,880 --> 00:15:58,600 Speaker 7: like vacuuming too much JGB But like you know, since 298 00:15:58,640 --> 00:16:01,960 Speaker 7: the interest rates is already zero, it has not much 299 00:16:02,080 --> 00:16:05,760 Speaker 7: effect for stimulating so maybe, like you know, whether will 300 00:16:05,880 --> 00:16:08,520 Speaker 7: make a case to getting back to more for a 301 00:16:08,560 --> 00:16:11,480 Speaker 7: normal like controlling the short term ills, but like he 302 00:16:11,520 --> 00:16:15,120 Speaker 7: will carefully build a case that those the new framework 303 00:16:15,400 --> 00:16:19,360 Speaker 7: will be still as accommodative enough and like it's it's 304 00:16:19,400 --> 00:16:22,120 Speaker 7: a sound policy framework. He will communicate like that through 305 00:16:22,120 --> 00:16:22,920 Speaker 7: a policy review. 306 00:16:23,000 --> 00:16:25,600 Speaker 13: I think we can agree that that two point seven 307 00:16:25,680 --> 00:16:28,720 Speaker 13: percent rate on annualized growth for the first quarter was 308 00:16:28,760 --> 00:16:31,920 Speaker 13: pretty impressive. Is there the chance though, the growth in 309 00:16:31,960 --> 00:16:34,480 Speaker 13: the second quarter will be markedly weaker? 310 00:16:34,680 --> 00:16:38,960 Speaker 7: Oh yes, looking at this one q GDP, it's behalf 311 00:16:38,960 --> 00:16:42,960 Speaker 7: of the growth is driven by private inventory. And also 312 00:16:42,840 --> 00:16:46,680 Speaker 7: looking ahead, like you know, the real wage is dropping. 313 00:16:46,760 --> 00:16:49,880 Speaker 7: Although like we were expecting the nominal waste growth after 314 00:16:49,920 --> 00:16:53,560 Speaker 7: the reflecting the result of annual wage hikes, but it's 315 00:16:53,760 --> 00:16:58,880 Speaker 7: the nominal wage growth itself is decelerated, the real wage dropped. Furthermore, 316 00:16:58,960 --> 00:17:01,680 Speaker 7: that implies for the second quarter it's going to be 317 00:17:01,680 --> 00:17:05,520 Speaker 7: a damping on for a recovery of consumption after the 318 00:17:05,920 --> 00:17:08,400 Speaker 7: post pandemic recovery of consumption. 319 00:17:08,560 --> 00:17:10,600 Speaker 13: It's kind of very interesting because if you look at 320 00:17:10,600 --> 00:17:14,320 Speaker 13: the equity market in Japan, the NIEK is trading very 321 00:17:14,359 --> 00:17:18,160 Speaker 13: near a thirty three year high. Is there the risk 322 00:17:18,240 --> 00:17:20,720 Speaker 13: here that if a waited were to send the wrong 323 00:17:20,880 --> 00:17:24,680 Speaker 13: signal that that may be kind of or become reflected 324 00:17:24,680 --> 00:17:27,840 Speaker 13: in equity prices in a rather sharp and negative way. 325 00:17:27,960 --> 00:17:30,800 Speaker 7: I think what's happening in the real economy and stock 326 00:17:31,040 --> 00:17:34,919 Speaker 7: market should be like thought separately. So stock market is, 327 00:17:35,080 --> 00:17:37,760 Speaker 7: you know, it's like coming over to a price for 328 00:17:37,800 --> 00:17:40,240 Speaker 7: the first time in like twenty or thirty years. It 329 00:17:40,400 --> 00:17:43,880 Speaker 7: means like we didn't exceed the price level since nineteen 330 00:17:43,960 --> 00:17:46,600 Speaker 7: eighties or something. So maybe like you know, the japan 331 00:17:46,640 --> 00:17:49,600 Speaker 7: stock I know, a stock price stock expect that suggests, 332 00:17:49,760 --> 00:17:52,960 Speaker 7: like you know, the investors think Japanese stocks are cheap, 333 00:17:53,240 --> 00:17:56,800 Speaker 7: and actually Japanese big firms are investing a lot abroad, 334 00:17:56,880 --> 00:17:59,920 Speaker 7: so that's why they incorporate the growth of the inter 335 00:18:00,119 --> 00:18:03,800 Speaker 7: national economy to their earnings. But in terms of the 336 00:18:03,880 --> 00:18:07,480 Speaker 7: domestic real economy still it's weak. So that's why a 337 00:18:07,560 --> 00:18:11,679 Speaker 7: BOH keeps stimulating. Maybe that's supported for the stock process. 338 00:18:11,880 --> 00:18:14,760 Speaker 7: I don't think any wrong message will coming out from 339 00:18:14,920 --> 00:18:16,440 Speaker 7: UETA in the next meeting. 340 00:18:16,320 --> 00:18:19,600 Speaker 3: If we take a broader look at the original Abinomics 341 00:18:19,680 --> 00:18:23,280 Speaker 3: plan and look at the third row about corporate reform. 342 00:18:23,320 --> 00:18:26,439 Speaker 3: You mentioned a little bit about corporate behavior. Are you 343 00:18:26,520 --> 00:18:30,879 Speaker 3: seeing enough reform in the economy compared to what was 344 00:18:30,960 --> 00:18:32,120 Speaker 3: hoped for and expected. 345 00:18:32,240 --> 00:18:35,480 Speaker 7: The new corporate governance for Japan's firms are introduced under 346 00:18:35,680 --> 00:18:39,200 Speaker 7: Aby's initiative, and it has been almost ten years since 347 00:18:39,240 --> 00:18:42,720 Speaker 7: it has started, so like kind of gradual improvement in 348 00:18:42,760 --> 00:18:48,359 Speaker 7: the Japanese corporate governance is supporting current rally in Nikki 349 00:18:48,440 --> 00:18:51,000 Speaker 7: stock prices. But on the contrary, like you know, in 350 00:18:51,400 --> 00:18:54,160 Speaker 7: terms of the domestic real economy, as I've mentioned, although 351 00:18:54,240 --> 00:18:58,879 Speaker 7: Curuda has has done extreme stimulus, it proved that that 352 00:18:58,960 --> 00:19:01,120 Speaker 7: doesn't boost domes take economy. 353 00:19:01,160 --> 00:19:04,000 Speaker 13: Well, is there a way in which this policy begins 354 00:19:04,040 --> 00:19:09,359 Speaker 13: to intersect with the political environment in Japan and the 355 00:19:09,400 --> 00:19:12,399 Speaker 13: ambitions that Prime Minister Kishida would have. 356 00:19:12,880 --> 00:19:15,680 Speaker 7: I don't think that, like you know, such issue will 357 00:19:16,359 --> 00:19:19,000 Speaker 7: happen in a highly probability. What I mean is that 358 00:19:19,080 --> 00:19:22,719 Speaker 7: my baseline scenario is a BOJ will keep stimulus, and 359 00:19:22,800 --> 00:19:25,360 Speaker 7: I think the government will be happy with it. And 360 00:19:25,680 --> 00:19:28,960 Speaker 7: like you know, Abbey is gone and Kishida, I guess 361 00:19:29,040 --> 00:19:32,520 Speaker 7: he doesn't have a specific own strong view on the 362 00:19:32,560 --> 00:19:36,600 Speaker 7: monetary policy, so that's why there will be less pressure 363 00:19:36,640 --> 00:19:38,200 Speaker 7: from the government's side to the BOJA. 364 00:19:38,480 --> 00:19:41,359 Speaker 3: But would the BOJ simply be cautious because it looks 365 00:19:41,359 --> 00:19:43,919 Speaker 3: like Kishia will soon call an early election. 366 00:19:44,160 --> 00:19:46,639 Speaker 7: Oh yeah, if like you know, if the BOJA is 367 00:19:46,680 --> 00:19:49,240 Speaker 7: seeking for a policy change right now, maybe it's it 368 00:19:49,320 --> 00:19:51,680 Speaker 7: might be one of the factors that the election will 369 00:19:51,720 --> 00:19:54,040 Speaker 7: be coming or and maybe they should post maybe it's 370 00:19:54,119 --> 00:19:56,400 Speaker 7: not a decisive factor, but might be one of the factors. 371 00:19:56,480 --> 00:19:58,880 Speaker 7: But my guess is whether it doesn't think any change 372 00:19:58,880 --> 00:20:00,960 Speaker 7: at Also, it doesn't matter to toorrow. 373 00:20:01,000 --> 00:20:02,280 Speaker 2: Thanks so much for being with us. 374 00:20:02,520 --> 00:20:05,840 Speaker 3: We really learned a lot. Tara Kimura, Bloomberg's japan economist, 375 00:20:06,119 --> 00:20:08,960 Speaker 3: who by the way, spent more than ten years as 376 00:20:09,000 --> 00:20:12,200 Speaker 3: an economist at the Bank of Japan. I'm Brian Curtis 377 00:20:12,240 --> 00:20:14,960 Speaker 3: in Hong Kong along with Doug Krisner. You can catch 378 00:20:15,040 --> 00:20:18,479 Speaker 3: us every weekday here for Bloomberg day Break Asia, beginning 379 00:20:18,520 --> 00:20:21,399 Speaker 3: at six am in Hong Kong and six pm on 380 00:20:21,520 --> 00:20:22,080 Speaker 3: Wall Street. 381 00:20:22,400 --> 00:20:24,359 Speaker 2: Tom, thank you, Brian and Doug. 382 00:20:24,440 --> 00:20:27,320 Speaker 1: And coming up on Bloomberg day Break weekend, a big 383 00:20:27,359 --> 00:20:29,400 Speaker 1: focus on tech in London in Paris in the coming 384 00:20:29,480 --> 00:20:31,880 Speaker 1: week with two high profile tech events. 385 00:20:32,119 --> 00:20:33,960 Speaker 2: I'm Tom Busby and this is. 386 00:20:34,000 --> 00:20:43,120 Speaker 6: Boberg broadcasting live from the Bloomberg It a active brokers 387 00:20:43,160 --> 00:20:46,600 Speaker 6: Studio in New York, Bloomberg e levon free oh to Washington, 388 00:20:46,680 --> 00:20:50,000 Speaker 6: d C, Bloomberg ninety nine one to Boston, Bloomberg one 389 00:20:50,040 --> 00:20:53,280 Speaker 6: O six one to San Francisco, Bloomberg nine sixty to 390 00:20:53,359 --> 00:20:56,520 Speaker 6: the country, Syrius XM Channel one to nineteen to London, 391 00:20:56,680 --> 00:21:00,359 Speaker 6: DAB Digital Radio, and around the globe the Bloomberg Business 392 00:21:00,440 --> 00:21:05,000 Speaker 6: app in Bloomberg Radio dot com. This is Bloomberg Daybreak weekend. 393 00:21:11,160 --> 00:21:13,280 Speaker 1: I'm Tom Busby in New York with your global look 394 00:21:13,280 --> 00:21:15,880 Speaker 1: ahead at the top stories for investors in the coming week. 395 00:21:16,280 --> 00:21:19,280 Speaker 1: Challenges facing the tech industry will be in focus in 396 00:21:19,320 --> 00:21:22,359 Speaker 1: the coming days in Europe with two big industry events 397 00:21:22,359 --> 00:21:25,720 Speaker 1: taking place in London and Paris. And for more, let's 398 00:21:25,720 --> 00:21:28,080 Speaker 1: say to London and bring in Bloomberg day Break Europe 399 00:21:28,119 --> 00:21:29,439 Speaker 1: Banker Steven Carrol. 400 00:21:29,560 --> 00:21:32,520 Speaker 5: Tom, We're heading into London Tech Week, where industry leaders 401 00:21:32,560 --> 00:21:36,240 Speaker 5: are gathering to discuss the UK technology ecosystem, while over 402 00:21:36,280 --> 00:21:39,320 Speaker 5: in Paris the focus is on startups and innovation at 403 00:21:39,440 --> 00:21:41,240 Speaker 5: Viva tech Now. These events are happening at a time 404 00:21:41,240 --> 00:21:43,639 Speaker 5: when there are questions being asked about the UK's place 405 00:21:43,640 --> 00:21:46,639 Speaker 5: as a tech hub post bregsit plus, there are broader 406 00:21:46,640 --> 00:21:49,760 Speaker 5: discussions happening in the industry around regulation, particularly when it 407 00:21:49,800 --> 00:21:52,439 Speaker 5: comes to artificial intelligence. So to discuss all of this, 408 00:21:52,480 --> 00:21:55,040 Speaker 5: I'm joined by our tech reporter Thomas Seal. Tom great 409 00:21:55,080 --> 00:21:57,439 Speaker 5: to have you with us in studio for this. This 410 00:21:57,480 --> 00:21:58,960 Speaker 5: is a good time to check in about what the 411 00:21:58,960 --> 00:22:01,280 Speaker 5: big discussions are in industry because we have all these 412 00:22:01,320 --> 00:22:04,879 Speaker 5: tech leaders in Europe, particularly coming to London for London 413 00:22:04,920 --> 00:22:07,080 Speaker 5: Tech Week as well. What are the big themes that 414 00:22:07,119 --> 00:22:09,359 Speaker 5: you'll be watching out for during these events. 415 00:22:09,720 --> 00:22:12,840 Speaker 14: So I think the UK's role, as you say, as 416 00:22:12,880 --> 00:22:15,919 Speaker 14: a tech hub is really in question at the moment. 417 00:22:16,280 --> 00:22:20,480 Speaker 14: It's got undoubted strengths for startups, but after that there 418 00:22:20,480 --> 00:22:23,800 Speaker 14: are big question marks about scale up as they call 419 00:22:23,840 --> 00:22:26,280 Speaker 14: it in the industry, you know, getting from that one 420 00:22:26,359 --> 00:22:31,520 Speaker 14: hundred million valuation to a five million valuation. Investors seem 421 00:22:31,600 --> 00:22:34,879 Speaker 14: to increasingly come from the US or abroad. But beyond that, 422 00:22:35,160 --> 00:22:37,920 Speaker 14: I think there'll be some reckoning of the Silicon Valley 423 00:22:37,920 --> 00:22:42,080 Speaker 14: Bank fallout and the sort of funding landscape. Silicon Valley 424 00:22:42,080 --> 00:22:44,760 Speaker 14: Bank executives now part of HSBC. Of course we'll be talking. 425 00:22:46,160 --> 00:22:51,199 Speaker 14: There are panels about sustainability, about diversity and inclusion. I 426 00:22:51,240 --> 00:22:53,520 Speaker 14: think something that's not on the official agenda so much, 427 00:22:53,600 --> 00:22:56,360 Speaker 14: but will be a huge topic obviously, is artificial intelligence 428 00:22:56,359 --> 00:22:56,640 Speaker 14: as well. 429 00:22:56,680 --> 00:22:58,640 Speaker 5: Yeah, indeed, I mean that scale up question is really 430 00:22:58,680 --> 00:23:00,480 Speaker 5: interesting because there was so much was made of the 431 00:23:00,520 --> 00:23:03,240 Speaker 5: fact that ARM you know, a UK tech name, was 432 00:23:03,280 --> 00:23:05,920 Speaker 5: deciding to list in the US and NATA in London. 433 00:23:06,600 --> 00:23:09,199 Speaker 5: That's the sort of thing that particularly politicians can get 434 00:23:09,320 --> 00:23:13,880 Speaker 5: very antsy about. Let's talk about the interaction between politics 435 00:23:13,920 --> 00:23:19,840 Speaker 5: and technology as well. You've been reporting about this complaints 436 00:23:19,880 --> 00:23:22,520 Speaker 5: really from the industry body Tech UK that the UK 437 00:23:22,680 --> 00:23:26,639 Speaker 5: risks falling behind if the government doesn't overhaul its policies. 438 00:23:26,640 --> 00:23:29,040 Speaker 5: What does the industry want from government? 439 00:23:29,600 --> 00:23:33,639 Speaker 14: Yeah, that that statement that document from Tech UK was striking. 440 00:23:33,680 --> 00:23:37,439 Speaker 14: I think some lobby bodies are much more wingy, so 441 00:23:37,560 --> 00:23:39,840 Speaker 14: when they when they kind of bring out language like that, 442 00:23:39,920 --> 00:23:42,679 Speaker 14: it's quite striking, and you know, something is a miss. 443 00:23:43,240 --> 00:23:45,879 Speaker 14: What do they want? I think they complain in the 444 00:23:45,920 --> 00:23:50,560 Speaker 14: document about the sort of short termism of some government initiatives. 445 00:23:50,760 --> 00:23:53,240 Speaker 14: The government is very keen to pat itself on the back, 446 00:23:53,320 --> 00:23:57,480 Speaker 14: they say with phrases like we're a tech superpower, slight superpower, 447 00:23:57,520 --> 00:24:00,720 Speaker 14: but then longer term thinking seems to be somewhat absent, 448 00:24:00,880 --> 00:24:05,880 Speaker 14: so just that sort of strategic nouse. They also say 449 00:24:06,640 --> 00:24:09,919 Speaker 14: some more practical complaints such as lab space is very 450 00:24:09,920 --> 00:24:13,800 Speaker 14: expensive here. Connecting to the electricity grid, which is important 451 00:24:13,800 --> 00:24:17,520 Speaker 14: if you're, for instance, data center or making micro chips 452 00:24:18,520 --> 00:24:21,399 Speaker 14: seems to be a problem in the UK. So it 453 00:24:21,440 --> 00:24:24,199 Speaker 14: was a sixty page document. It went through sort of 454 00:24:24,280 --> 00:24:26,680 Speaker 14: more than a dozen different areas and there were quite 455 00:24:26,680 --> 00:24:27,320 Speaker 14: a few complaints. 456 00:24:27,359 --> 00:24:28,919 Speaker 11: But those are two that come to mind. What are 457 00:24:28,920 --> 00:24:33,080 Speaker 11: the key strong points of the UK's tech industry if 458 00:24:33,080 --> 00:24:35,600 Speaker 11: we're thinking about it in a post bragsit context, where 459 00:24:35,600 --> 00:24:38,320 Speaker 11: the government's really keen to promote tech industries one of 460 00:24:38,520 --> 00:24:40,640 Speaker 11: the sort of things that the UK should be looking 461 00:24:40,640 --> 00:24:41,119 Speaker 11: to build on. 462 00:24:42,000 --> 00:24:44,879 Speaker 14: So you mentioned arm and that is one of the 463 00:24:45,000 --> 00:24:49,960 Speaker 14: UK's most valuable homegrown champions, and that is an area 464 00:24:50,000 --> 00:24:52,280 Speaker 14: where the UK definitely sees itself as having a strength, 465 00:24:52,280 --> 00:24:54,240 Speaker 14: which is why its decision to list in New York 466 00:24:54,400 --> 00:25:00,880 Speaker 14: was quite a blow. The UK strengths include it'scation system, 467 00:25:01,040 --> 00:25:03,679 Speaker 14: you know, research university spinouts. A lot of these become 468 00:25:03,840 --> 00:25:09,840 Speaker 14: really interesting startups, things like Oxford, nanopaor I think again. 469 00:25:10,119 --> 00:25:12,040 Speaker 14: Then it's the question about how do you get them 470 00:25:12,080 --> 00:25:14,879 Speaker 14: into becoming a kind of a global company. 471 00:25:14,520 --> 00:25:15,880 Speaker 11: To get to that next base here. 472 00:25:16,200 --> 00:25:21,560 Speaker 14: Yeah, and then regulation is seen as very strong in 473 00:25:21,560 --> 00:25:24,040 Speaker 14: the UK. That's not building companies, but it's still really 474 00:25:24,040 --> 00:25:26,399 Speaker 14: important when you look at the impact something like GDPR 475 00:25:26,520 --> 00:25:29,360 Speaker 14: had out of Europe, which obviously pre Brexit, the UK 476 00:25:29,400 --> 00:25:33,600 Speaker 14: helped write that helps set standards and helps shape everything 477 00:25:33,680 --> 00:25:35,320 Speaker 14: that these companies do well. 478 00:25:35,160 --> 00:25:36,520 Speaker 11: In a post bragsit world. 479 00:25:36,600 --> 00:25:40,040 Speaker 5: Is that somewhere where the UK could diverge and do 480 00:25:40,119 --> 00:25:42,080 Speaker 5: something different to what the European Union is doing. 481 00:25:42,400 --> 00:25:44,840 Speaker 14: This is a big ongoing debate. I think we're seeing 482 00:25:44,840 --> 00:25:49,479 Speaker 14: it just this week with AI. The EU has you know, 483 00:25:49,560 --> 00:25:54,280 Speaker 14: published an AI Act which is quite specific, more so 484 00:25:54,400 --> 00:25:56,800 Speaker 14: than the UK's approach. The UK has published a white 485 00:25:56,800 --> 00:26:01,000 Speaker 14: paper which is really pretty vague and delegates of responsibility 486 00:26:01,040 --> 00:26:03,480 Speaker 14: and it sort of indicates that the UK is trying 487 00:26:03,480 --> 00:26:04,879 Speaker 14: to be seen as a bit light to touch, a 488 00:26:04,920 --> 00:26:09,680 Speaker 14: bit friendlier come here, sort of a slightly offshore business 489 00:26:09,680 --> 00:26:11,040 Speaker 14: friendly alternative. 490 00:26:11,200 --> 00:26:13,680 Speaker 5: This is a conversation we've been having on Boomberg Daybreak 491 00:26:13,760 --> 00:26:16,720 Speaker 5: Europe in the past few days about the rapid rise 492 00:26:16,720 --> 00:26:20,480 Speaker 5: of our sopacial intelligence, particularly generative AI, and how it 493 00:26:20,520 --> 00:26:23,640 Speaker 5: should be regulated. We discussed this with Nate Shardan from 494 00:26:23,720 --> 00:26:26,080 Speaker 5: the Center for Ai Safety. Here's what he told us. 495 00:26:26,200 --> 00:26:28,879 Speaker 9: I think voluntary can work. Voluntary can work if it 496 00:26:28,920 --> 00:26:33,360 Speaker 9: has teeth. We have voluntary regulation for many things, and 497 00:26:33,680 --> 00:26:37,440 Speaker 9: it's something that can work if it has teeth, and 498 00:26:37,119 --> 00:26:40,159 Speaker 9: there's different ways to do that. You can design product 499 00:26:40,280 --> 00:26:44,120 Speaker 9: liability schemes so that people are incentivized to enter into 500 00:26:44,200 --> 00:26:48,520 Speaker 9: voluntary regulation to be behind liability shields. That's a familiar 501 00:26:48,560 --> 00:26:51,760 Speaker 9: form of regulatory structure and it's something that would work 502 00:26:51,800 --> 00:26:52,560 Speaker 9: in this environment. 503 00:26:52,760 --> 00:26:55,640 Speaker 11: What exactly needs to be regulated. 504 00:26:55,200 --> 00:26:59,439 Speaker 9: Capabilities of models, and another obvious target for regulation is 505 00:26:59,560 --> 00:27:01,639 Speaker 9: the actual training of the model. We can regulate the 506 00:27:01,720 --> 00:27:05,040 Speaker 9: chips and we can prevent large training runs from happening. 507 00:27:05,600 --> 00:27:08,240 Speaker 9: And when it comes to the capabilities of the models, 508 00:27:08,600 --> 00:27:12,040 Speaker 9: credible third party auditing can be done in order to 509 00:27:12,080 --> 00:27:15,239 Speaker 9: evaluate them and say exactly what these things can do. 510 00:27:15,520 --> 00:27:18,639 Speaker 9: I think that if you put AI in charge of 511 00:27:18,720 --> 00:27:22,760 Speaker 9: things that can themselves cause harm, then the AI can 512 00:27:23,119 --> 00:27:26,520 Speaker 9: themselves cause harm. I think it's not hyperboly to imagine 513 00:27:26,560 --> 00:27:30,399 Speaker 9: that people will slowly but truly turn over control of 514 00:27:30,520 --> 00:27:35,600 Speaker 9: systems to powerful AI, and that those AI will make 515 00:27:35,640 --> 00:27:39,320 Speaker 9: decisions that pause. Harm, I think that's not science fiction. 516 00:27:39,440 --> 00:27:42,639 Speaker 9: That's what people are being incentivized to do. 517 00:27:43,680 --> 00:27:46,120 Speaker 5: That's Nate Chargan from the Center for AI Safety. Look, 518 00:27:46,160 --> 00:27:47,919 Speaker 5: I mean it's a pretty stark warning to say that 519 00:27:47,920 --> 00:27:51,680 Speaker 5: that's the extent of where AI could go. How well 520 00:27:51,840 --> 00:27:54,800 Speaker 5: I suppose prepared or well positioned is the UK to 521 00:27:54,840 --> 00:27:56,120 Speaker 5: take a lead in this area. 522 00:27:56,520 --> 00:27:59,280 Speaker 14: The UK is increasingly keen to take a lead in 523 00:27:59,320 --> 00:28:03,719 Speaker 14: this area. There are calls from UK officials to have 524 00:28:03,840 --> 00:28:08,240 Speaker 14: some kind of global agency headquartered here. In fact, like 525 00:28:08,320 --> 00:28:13,040 Speaker 14: the international atomic kind of body has one global agency. 526 00:28:14,040 --> 00:28:17,120 Speaker 14: Brad Smith, president of Microsoft, was in London meeting officials 527 00:28:17,119 --> 00:28:20,359 Speaker 14: and he spoke to reporters and he was saying that yes, 528 00:28:20,840 --> 00:28:23,280 Speaker 14: there needs to be a lot of international corporation. He 529 00:28:23,320 --> 00:28:26,480 Speaker 14: didn't explicitly endorse London, but he didn't shoot it down either. 530 00:28:26,680 --> 00:28:29,879 Speaker 5: He hasn't been terribly favorable when discussing UK regulators in 531 00:28:29,920 --> 00:28:33,880 Speaker 5: the recent past either after they blocked the takeover of Activision. 532 00:28:33,720 --> 00:28:38,040 Speaker 14: Indeed, and he did not roll back those remarks. He 533 00:28:38,080 --> 00:28:42,720 Speaker 14: also outlined some of the potential safety or regulatory maneuvers 534 00:28:42,800 --> 00:28:44,720 Speaker 14: that could be used to sort of mitigate some of 535 00:28:44,720 --> 00:28:48,040 Speaker 14: these dangers. He was saying that there's different layers of AI. 536 00:28:48,080 --> 00:28:51,080 Speaker 14: There's applications sitting on top. There's the models themselves, which 537 00:28:51,280 --> 00:28:54,040 Speaker 14: is the main focus, things like chatchbt open AI. And 538 00:28:54,040 --> 00:28:56,080 Speaker 14: then there's also the infrastructure beneath it, which I thought 539 00:28:56,160 --> 00:28:59,440 Speaker 14: was really interesting that AI is ultimately working on data centers. 540 00:29:00,400 --> 00:29:04,120 Speaker 14: You know, if you're running powerful models, running critical infrastructure 541 00:29:05,840 --> 00:29:11,200 Speaker 14: using AI, that's ultimately based somewhere. Those processes are somewhere, 542 00:29:11,400 --> 00:29:13,400 Speaker 14: and so there need to be rules around that as well, 543 00:29:13,480 --> 00:29:16,160 Speaker 14: and then you could, you know, theoretically. 544 00:29:15,720 --> 00:29:17,080 Speaker 11: Have some sort of a kill switch. 545 00:29:17,200 --> 00:29:19,120 Speaker 5: Yes, definitely something really interesting to think about when we 546 00:29:19,160 --> 00:29:21,320 Speaker 5: think about the future of that technology. I did mention 547 00:29:21,760 --> 00:29:24,880 Speaker 5: Viva Tech in Paris at the start of our conversation, 548 00:29:25,200 --> 00:29:27,200 Speaker 5: and you know, this is a kind of an ongoing 549 00:29:27,200 --> 00:29:29,840 Speaker 5: conversation in so many areas after Brexit. Is the competition 550 00:29:29,960 --> 00:29:34,000 Speaker 5: between European capitals in terms of tech. You know, how 551 00:29:34,080 --> 00:29:36,240 Speaker 5: is that competition going well? 552 00:29:36,320 --> 00:29:39,520 Speaker 14: The UK loves to roll out UK politicians love to 553 00:29:39,600 --> 00:29:43,160 Speaker 14: roll out a line that there are more startups, more 554 00:29:43,240 --> 00:29:45,880 Speaker 14: unicorns in the UK than I think France and Germany together. 555 00:29:46,960 --> 00:29:49,240 Speaker 14: But people have liken Brexit to a slow puncture. I 556 00:29:49,240 --> 00:29:53,480 Speaker 14: think that France probably has you know, seized on this opportunity, 557 00:29:53,640 --> 00:29:57,640 Speaker 14: so as Amsterdam, so as Estonia, you know, and I 558 00:29:57,680 --> 00:30:01,120 Speaker 14: think London still is probably be the best place in 559 00:30:01,160 --> 00:30:05,200 Speaker 14: Europe for things like fintech. But yeah, it's a much 560 00:30:05,200 --> 00:30:07,200 Speaker 14: more active competition than perhaps it would have been. 561 00:30:07,320 --> 00:30:11,000 Speaker 5: It's a battle certainly between those capitals to guests, secure 562 00:30:11,040 --> 00:30:12,880 Speaker 5: those new businesses and to grow them as well. Thanks 563 00:30:12,960 --> 00:30:15,200 Speaker 5: very much to Bloomberg Tech reporter at Tom Sealed there 564 00:30:15,320 --> 00:30:17,120 Speaker 5: as we look ahead to London Tech Week and we 565 00:30:17,120 --> 00:30:21,040 Speaker 5: will bring you key interviews from that event on Bloomberg 566 00:30:21,120 --> 00:30:21,800 Speaker 5: Daybreak Europe. 567 00:30:21,840 --> 00:30:24,040 Speaker 11: I'm Stephen Carroll in London. You can catch us every. 568 00:30:23,960 --> 00:30:26,400 Speaker 5: Morning here for Bloomberg day Break Europe, beginning at six 569 00:30:26,440 --> 00:30:29,000 Speaker 5: am in London and one am on Wall Streets. 570 00:30:29,120 --> 00:30:29,760 Speaker 11: Tom. 571 00:30:30,240 --> 00:30:31,080 Speaker 2: Thank you, Steven. 572 00:30:31,200 --> 00:30:34,440 Speaker 1: And coming up here on Bloomberg day Break weekend, turbulence 573 00:30:34,480 --> 00:30:37,400 Speaker 1: in the US banking industry and focus as Treasury Secretary 574 00:30:37,480 --> 00:30:39,440 Speaker 1: Janet Yellen heads to Capitol Hill. 575 00:30:39,720 --> 00:30:42,040 Speaker 2: I'm Tom Busby, and this is Bloomberg. 576 00:30:46,640 --> 00:30:49,080 Speaker 1: This is Bloomberg day Break weekend, our global look ahead 577 00:30:49,080 --> 00:30:51,520 Speaker 1: at the top stories for investors in the coming week. 578 00:30:51,640 --> 00:30:54,560 Speaker 1: I'm Tom Busby in New York. As fallout from the 579 00:30:54,600 --> 00:30:58,440 Speaker 1: recent US bank failures continues to reverberate through the economy. 580 00:30:58,760 --> 00:31:01,800 Speaker 1: Treasury Secretary Jenet Yellen gets ready to testify before the 581 00:31:01,840 --> 00:31:03,560 Speaker 1: House Financial Services. 582 00:31:03,160 --> 00:31:04,280 Speaker 2: Committee this coming week. 583 00:31:04,760 --> 00:31:06,920 Speaker 1: For more, let's add to our Bloomberg ninety nine one 584 00:31:07,000 --> 00:31:12,040 Speaker 1: newsroom in Washington and Bloomberg Sound On. Co host Kaylee lines. 585 00:31:11,960 --> 00:31:15,160 Speaker 4: Yeah, Tom, the Treasury Secretary has to do this every year, 586 00:31:15,240 --> 00:31:18,040 Speaker 4: appear before the committee to give her annual testimony on 587 00:31:18,080 --> 00:31:21,200 Speaker 4: the state of the international financial system. It's happening this 588 00:31:21,280 --> 00:31:24,160 Speaker 4: coming Tuesday, ten am Eastern time, And of course it 589 00:31:24,160 --> 00:31:26,520 Speaker 4: follows the drama over the debt ceiling and the Treasury's 590 00:31:26,520 --> 00:31:28,960 Speaker 4: ability to borrow, as well as multiple bank failures in 591 00:31:29,000 --> 00:31:31,000 Speaker 4: the US earlier this year. So I'm guessing she may 592 00:31:31,040 --> 00:31:33,240 Speaker 4: be in for some tough questions. And I have some 593 00:31:33,360 --> 00:31:36,600 Speaker 4: questions now for someone who knows all things Treasury, Christopher Condon, 594 00:31:36,640 --> 00:31:40,560 Speaker 4: who covers that in economic policy for us here at Bloomberg. So, Chris, 595 00:31:40,560 --> 00:31:42,200 Speaker 4: thank you so much for doing this. What do we 596 00:31:42,240 --> 00:31:45,600 Speaker 4: anticipate Yellen is going to be asked and then say? 597 00:31:46,000 --> 00:31:46,640 Speaker 4: On Tuesday? 598 00:31:46,760 --> 00:31:49,960 Speaker 15: There are a couple topics that Republicans on the Hill 599 00:31:50,040 --> 00:31:54,520 Speaker 15: are particularly interested in grilling Yellen about Number one. There's 600 00:31:54,640 --> 00:31:57,760 Speaker 15: an executive order that's in the works, has been in 601 00:31:57,760 --> 00:31:59,720 Speaker 15: the worst for a very long time within the Biden 602 00:31:59,720 --> 00:32:06,720 Speaker 15: missstration that would seek to restrict outbound investments to China. Now, 603 00:32:06,760 --> 00:32:13,000 Speaker 15: this would complement other policies like export controls and inward 604 00:32:13,320 --> 00:32:19,600 Speaker 15: investment restrictions that are there for national security reasons, as 605 00:32:19,600 --> 00:32:23,640 Speaker 15: the Biden administration says, and Yellen has said before that 606 00:32:23,800 --> 00:32:29,280 Speaker 15: this coming order would complement those. And basically the idea 607 00:32:29,480 --> 00:32:34,680 Speaker 15: is to prevent China from using US money to develop 608 00:32:34,840 --> 00:32:40,880 Speaker 15: technologies domestically that it's prohibited from buying from the US 609 00:32:40,880 --> 00:32:45,040 Speaker 15: and other countries. And so, you know, let's not allow 610 00:32:45,080 --> 00:32:48,240 Speaker 15: them to use US venture capital companies that bring in 611 00:32:48,280 --> 00:32:52,040 Speaker 15: cash and know how crucially to help develop technologies that 612 00:32:52,800 --> 00:32:56,400 Speaker 15: the United States doesn't want them to have. Now, this 613 00:32:56,480 --> 00:33:00,960 Speaker 15: is controversial. A lot of Republicans are very outful about 614 00:33:01,000 --> 00:33:05,280 Speaker 15: the effectiveness. In fact, Patrick McHenry, the Republican from North 615 00:33:05,320 --> 00:33:09,000 Speaker 15: Carolina who is chairman of this committee, wrote a letter 616 00:33:09,080 --> 00:33:14,320 Speaker 15: to Yellen last month expressing his severe skepticism. Let's say 617 00:33:14,360 --> 00:33:19,920 Speaker 15: about how effective this would be. China really doesn't have 618 00:33:20,000 --> 00:33:22,959 Speaker 15: a shortage of capital flowing into the country. It's not 619 00:33:23,040 --> 00:33:26,760 Speaker 15: like they're dying that they have a big capital counsel. Plus, 620 00:33:26,840 --> 00:33:30,360 Speaker 15: he pointed out in the letter, he asked, Yellen, you know, well, 621 00:33:30,360 --> 00:33:35,160 Speaker 15: can you give me examples of past instances where US 622 00:33:35,160 --> 00:33:38,560 Speaker 15: investors helped China develop technology we didn't want them to have. 623 00:33:39,160 --> 00:33:42,120 Speaker 15: I think he's responding to some concerns in the venture 624 00:33:42,160 --> 00:33:46,280 Speaker 15: capital community that these restrictions might be overly broad. The 625 00:33:46,280 --> 00:33:49,280 Speaker 15: administration has promised that they would be narrow, but they 626 00:33:49,280 --> 00:33:52,040 Speaker 15: have given zero details publicly so far. 627 00:33:52,160 --> 00:33:54,760 Speaker 4: So that's kind of on the international level, But I 628 00:33:54,760 --> 00:33:57,400 Speaker 4: wonder what kind of domestic facing questions she may get, 629 00:33:57,440 --> 00:33:59,360 Speaker 4: given we have seen bank failures. Given she will be 630 00:33:59,360 --> 00:34:02,160 Speaker 4: testifying just hours after we get an inflation print here 631 00:34:02,160 --> 00:34:04,920 Speaker 4: in the US, the day before the Federal Reserve makes 632 00:34:04,960 --> 00:34:08,640 Speaker 4: its rate decision, how is she likely to characterize the 633 00:34:08,760 --> 00:34:09,839 Speaker 4: US economy at the moment. 634 00:34:09,840 --> 00:34:11,359 Speaker 15: First of all, she's got a line that she's going 635 00:34:11,400 --> 00:34:13,280 Speaker 15: to use. She has used it for months and months. 636 00:34:13,640 --> 00:34:18,759 Speaker 15: She sees a path for the US economy where inflation 637 00:34:19,000 --> 00:34:22,400 Speaker 15: can be brought down close to the Federal Reserves target 638 00:34:22,920 --> 00:34:29,640 Speaker 15: two percent from PC inflation without dramatically increasing unemployment. That's, 639 00:34:29,760 --> 00:34:33,319 Speaker 15: you know, the proverbial soft landing. I would hope that 640 00:34:33,360 --> 00:34:36,280 Speaker 15: she would get pressed on that. I have myself tried 641 00:34:36,280 --> 00:34:36,880 Speaker 15: to press her. 642 00:34:37,000 --> 00:34:38,440 Speaker 2: Okay, you see this path. 643 00:34:38,239 --> 00:34:40,759 Speaker 15: But one might say that if you saw a ten 644 00:34:40,800 --> 00:34:44,000 Speaker 15: percent chance of that, what probability do you sign to it? 645 00:34:44,040 --> 00:34:46,640 Speaker 15: Is it greater than fifty percent? Is it lower than 646 00:34:46,680 --> 00:34:49,760 Speaker 15: fifty percent? I would personally would love to hear members 647 00:34:49,800 --> 00:34:53,840 Speaker 15: of Congress press her on that, and some hopefully will, 648 00:34:54,480 --> 00:34:57,000 Speaker 15: because this line about seeing a path is a little 649 00:34:57,000 --> 00:34:58,320 Speaker 15: bit overly vague. 650 00:34:58,640 --> 00:35:00,839 Speaker 4: All right, well, we'll see how she can characterizes it. 651 00:35:00,920 --> 00:35:03,719 Speaker 4: Come Tuesday, Janet Yellen going to be in the hot seat. 652 00:35:03,760 --> 00:35:06,000 Speaker 4: Thank you so much to our Chris Condon, who covers 653 00:35:06,040 --> 00:35:08,279 Speaker 4: the Treasury Department for us here at Bloomberg News, and 654 00:35:08,320 --> 00:35:09,640 Speaker 4: Tom I'll send it back to you. 655 00:35:09,760 --> 00:35:10,480 Speaker 2: Thank you. Kaylee. 656 00:35:10,480 --> 00:35:14,000 Speaker 1: That was Bloomberg sound On co host Kaylee Lines, reporting 657 00:35:14,000 --> 00:35:16,839 Speaker 1: from our Bloomberg ninety nine one newsroom in Washington, and 658 00:35:16,880 --> 00:35:19,400 Speaker 1: you can hear sound on weekdays one to three pm 659 00:35:19,560 --> 00:35:22,600 Speaker 1: on Bloomberg Radio. Join us again Monday morning at five 660 00:35:22,640 --> 00:35:25,279 Speaker 1: am Wall Street Time for the latest on markets overseas 661 00:35:25,600 --> 00:35:27,600 Speaker 1: and the news you need to start your day. 662 00:35:27,920 --> 00:35:28,800 Speaker 2: I'm Tom Buzzby. 663 00:35:29,000 --> 00:35:31,719 Speaker 1: Stay with US top stories and global business headlines are 664 00:35:31,760 --> 00:35:33,399 Speaker 1: coming up right now.