Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories in the coming week from our Daybreak
Speaker 1: anchors all around the world, and straight ahead on the program.
Speaker 1: Is the Fed really about to press pause on raid hikes?
Speaker 2: I'm Tom Busby in New York.
Speaker 3: I'm Brian Curtis in Hong Kong. What next for the boj.
Speaker 4: I'm Kayleie Lines in Washington where Treasury Secretary Janet Yellen
Speaker 4: is getting set to take the hot seat in front
Speaker 4: of the House Financial Services Committee.
Speaker 5: I'm Stephen Carolyn London, where tech leaders are gathering as
Speaker 5: a leading industry body has worn the UK risks, losing
Speaker 5: its attractiveness for the sector.
Speaker 6: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 7: You.
Speaker 1: I'm Tom Busby, and we begin today's program with this
Speaker 1: week's latest two day Federal Reserve meeting on interest rates
Speaker 1: and joining me now to talk about what to expect
Speaker 1: when the Federal Open Market Committee wraps up on Wednesday.
Speaker 1: Bloomberg Global Economic and Policy Editor Michael McKee Michael Well.
Speaker 1: The FED has lifted the federal funds rate by a
Speaker 1: staggering five percentage points in the last fourteen months to
Speaker 1: curb runaway inflation, which is still running at more than
Speaker 1: double its two percent target, and after ten interest rate
Speaker 1: hikes in its last ten meetings, many FED watchers feel
Speaker 1: the FED is going to pause its rate hiking plans
Speaker 1: and not raise rates this week.
Speaker 2: What are you expecting For the first.
Speaker 8: Time in many years, I can't even remember the last
Speaker 8: time I said this. I don't know what the Fed
Speaker 8: is going to do. It's a close call. They are
Speaker 8: divided over whether they need to do more and when
Speaker 8: they need to do more.
Speaker 2: If they do more, And while.
Speaker 8: Wall Street has settled on the idea that they're going
Speaker 8: to not raise raids next week, they don't know. It's
Speaker 8: still an open question of whether they say but we
Speaker 8: will in July. I think the case could be made
Speaker 8: either way. And we don't know what the CPI is
Speaker 8: going to show us on Tuesday. So if we get
Speaker 8: a strong CPI, then the Fed may lean towards raising
Speaker 8: rates in June. If it's more benign, as the forecast
Speaker 8: would have it, then they probably will hold off so
Speaker 8: they can see what's happening with the economy. But right
Speaker 8: now it does look like with inflation, as you mentioned,
Speaker 8: way above their target, that something more has to happen.
Speaker 1: Well, let's go back to that CPI. Do you have
Speaker 1: any indication of what we're expecting on that and why.
Speaker 8: We are expecting a drop in the CPI? The headline
Speaker 8: CPI down to four point two percent, which puts you
Speaker 8: in that range of three percent the Fed is anticipating
Speaker 8: by the end of the year. And why would relate
Speaker 8: to a couple of things. Prices have gotten less expensive,
Speaker 8: but in large part it's used cars. They're again declining
Speaker 8: in cost.
Speaker 2: Uh.
Speaker 8: The other wild card out there is housing. We've been
Speaker 8: expecting housing prices to start to fall within the CPI
Speaker 8: to or a rise at a significantly slower pace. There's
Speaker 8: some signs of it. It hasn't happened yet, but it's
Speaker 8: anticipated happen anytime, So that too could add downward pressure.
Speaker 1: Well, let's go back to some FED policy makers. They've
Speaker 1: been out there speaking, not not recently, but at a
Speaker 1: pause in June. Does not mean the Fed's done with
Speaker 1: this current cycle of hiking rates now. One of those
Speaker 1: who thinks we're not done Neil Dutta ahead of US
Speaker 1: Economic research at Renaissance macro. Let's hear from him right now,
Speaker 1: because he spoke to Bloomberg very recently.
Speaker 9: The economy is far more resilient, as you know, than
Speaker 9: than than is that is appreciated, and that's going to
Speaker 9: mean that the FED is ultimately going to have to
Speaker 9: do more than what's than what's priced.
Speaker 2: Now.
Speaker 1: What are the chances Mike, that that is right? The
Speaker 1: FED will have to do more than what's priced in.
Speaker 8: Well, I hate to sound like the two handed economists,
Speaker 8: but I think it's about fifty to fifty. A lot
Speaker 8: of the data Douce show strengthen the economy. We've had
Speaker 8: strong job creation. The Jolts jobs data show a lot
Speaker 8: of job opening still in place. We did see jobless
Speaker 8: claims rise by a lot last week, but we don't
Speaker 8: yet know if that's a one off because it was
Speaker 8: just one week's data, or whether that's the beginning of
Speaker 8: a trend. But consumer spendings hung in there. We're seeing
Speaker 8: signs of business spending still remaining relatively strong. We know
Speaker 8: that new home construction is relatively strong, so you can
Speaker 8: make the cases Neil does. The FED is going to
Speaker 8: have to do more. The other side of the story
Speaker 8: is that we are going to see consumer spending weekend
Speaker 8: as people's nest eggs start to dwindle. We're going to
Speaker 8: see more supply chain problems out there, particularly if the
Speaker 8: West Coast doc workers go on strike. Housing may not
Speaker 8: come down as fast as people want. And we've already
Speaker 8: picked the low hanging fruit for inflation, and it's just
Speaker 8: going to get harder and harder to bring it down.
Speaker 8: And so the FED may not have to do more
Speaker 8: and just wait until we see the cumulative effects of
Speaker 8: all the tightening that's been done start to hit the economy.
Speaker 2: Well.
Speaker 1: Now, we also heard from former Vice Chair of the FED,
Speaker 1: Richard Clarida, now Global Economic Advisor at PIMCO, when he's
Speaker 1: talking about possible rate cuts. Now he's not saying until
Speaker 1: twenty twenty four after more rate hikes this year. Let's
Speaker 1: hear what he had to say.
Speaker 10: The FED has penciled into its productions a pretty sharp
Speaker 10: slow down the labor market. They have the unemployment rate
Speaker 10: going up to four and a half percent by the
Speaker 10: end of the year without any cuts, So I do
Speaker 10: think if there are cuts, it's really a twenty twenty
Speaker 10: four story. But yeah, I think the bar's high.
Speaker 2: What do you think of that?
Speaker 8: I agree with Rich that it is a very high
Speaker 8: bar for the Fed to cut rates this year, simply
Speaker 8: because we're sort of running out of time for the
Speaker 8: bad news to pile up. It certainly can, but the
Speaker 8: Fed is pretty convinced that it's going to take a
Speaker 8: lot more, whether it's just sitting on high rates or
Speaker 8: raising them even further, to bring down inflation towards their
Speaker 8: two percent target. So they do not want to cut rates.
Speaker 11: The only thing that.
Speaker 8: Would drive them to do that is if we had
Speaker 8: some sort of crash in the economy, a slowdown, if
Speaker 8: growth stayed positive, even if growth went negative for a
Speaker 8: quarter or possibly even two, although no sign of that
Speaker 8: at the moment. They're going to want to leave rates
Speaker 8: where they are. Then the question is, in twenty twenty four,
Speaker 8: where's inflation and where's the economy? So yes, there could
Speaker 8: be rate cuts next year. Once the Fed reaches its peak,
Speaker 8: it's usually seven or eight months until it starts cutting rates.
Speaker 8: So it's certainly possible. But I think one thing we
Speaker 8: have learned over the last two years is that it's
Speaker 8: almost impossible to predict what's going to happen with the economy.
Speaker 2: That's for sure well, and a lot of things are changing.
Speaker 1: You know, we talked about the unemployment rate, which you know,
Speaker 1: the FED has a target of four and a half percent.
Speaker 1: Now it's just three point seven percent. I mean only
Speaker 1: six months ago in the year no rate cuts this
Speaker 1: year that we heard Clara to talk about. But how
Speaker 1: would that affect, you know, this wide gap in what
Speaker 1: the FED has said four and a half percent and
Speaker 1: what it is right now.
Speaker 8: Well, I think come Wednesday you're going to have a
Speaker 8: different number from the Fed. That prediction was made in March,
Speaker 8: and we have seen stronger than expected labor markets since then,
Speaker 8: and to get to four and a half you would
Speaker 8: need a significant deterioration in the labor market, something like
Speaker 8: we saw in the household survey this past month continuing
Speaker 8: for the rest of the year. So I think they're
Speaker 8: going to have to mark up and the FED officials
Speaker 8: I've talked to have, so they're going to have to
Speaker 8: mark up there well marked down moderate. They're unemployment forecasts.
Speaker 8: We will also get new forecasts for inflation, and we'll
Speaker 8: see based on what we've gotten from the PCE and
Speaker 8: the CPI, which have both come down, not as far
Speaker 8: as they want, but they've come down. We'll see if
Speaker 8: they anticipate it coming down any faster, which might give
Speaker 8: a clue as to the policy path.
Speaker 2: Yeah, no, and that has been good.
Speaker 1: It's moderated a bit in April, which helped consumer spending
Speaker 1: jump a little higher. May forecast the show continued cooling
Speaker 1: and prices.
Speaker 2: But what should we be.
Speaker 1: Watching for again exactly on CPI you said four point
Speaker 1: two percent still double the Fed's target rate.
Speaker 8: We're past the I guess peak danger and we've taken
Speaker 8: the low hanging fruit off the tree in terms of
Speaker 8: bringing inflation down. The real question now is how fast
Speaker 8: do service prices come down. You've heard Japowell talk at
Speaker 8: that a lot, and those are heavily driven by wages.
Speaker 8: We're seeing in the jobs numbers that they're still concern
Speaker 8: about hiring for service industry companies because they were the
Speaker 8: last ones to be able to fill jobs and unless
Speaker 8: that stops, or until that stops, we probably don't see
Speaker 8: wage gains drop significantly. And so at this point you're
Speaker 8: looking at some time before inflation moves moves far enough
Speaker 8: in the direction of what the fence says it wants.
Speaker 1: And let's circle back again to housing, because it's such
Speaker 1: a huge part of what they're watching, a huge part
Speaker 1: of the economy. Three jobs for every house that goes up.
Speaker 1: Mortgage rates have come off the recent high, still very
Speaker 1: high though six point eight one percent, and because there
Speaker 1: were so few homes on the market, home prices stubbornly high.
Speaker 1: Mortgage demand is lowered down twenty seven percent from a
Speaker 1: year ago. Also, homeowners we just found out so their
Speaker 1: first annual decline in equity in more than a decade,
Speaker 1: at least according to core Logic. How important is all this?
Speaker 1: This uneven recovery in housing, or maybe even a slow down.
Speaker 8: Well, Housing can be an important component of GDP, and
Speaker 8: we have seen it drop off as such in the
Speaker 8: last couple of quarters because they're not selling very many houses.
Speaker 8: They are still selling new houses like hotcakes, and builders
Speaker 8: are throwing them up as fast as they can because
Speaker 8: there is housing demand. What we're not seeing is the
Speaker 8: turnover in existing homes because with low mortgage rates locked
Speaker 8: in for so many people who refinanced over the last
Speaker 8: few years, why do you want to trade a three
Speaker 8: percent mortgage for a six percent mortgage if you're moving.
Speaker 8: So that does keep supply down and prices go back up,
Speaker 8: and that will also hurt CPI in the longer run.
Speaker 8: But we've talked about the delays in getting the declines
Speaker 8: into CPI. It'll be a while before we saw that.
Speaker 2: A lot to watch out for, Michael. Thank you.
Speaker 1: That was Bloomberg's Global Economics and Policy editor Michael McKee.
Speaker 1: And coming up on Bloomberg day Break weekend, decision Day.
Speaker 1: Also coming up for the Bank of Japan. I'm Tom
Speaker 1: Busby and this is Bloomberg. This is Bloomberg day Break weekend,
Speaker 1: our global look ahead at the top stories for investors
Speaker 1: in the coming week. I'm Tom Busby in New York.
Speaker 1: Up later in our program a big week for tech
Speaker 1: in London and Paris with some high profile industry events.
Speaker 1: But first, in addition to decision Day at the FED,
Speaker 1: we also have a decision coming from the Bank of Japan.
Speaker 1: And for more let's go to Hong Kong and Bloomberg
Speaker 1: day Break Asia host Brian Curtis and his colleague Doug Krisner.
Speaker 3: Tom After surprises from the Bank of Canada and the
Speaker 3: Reserve Bank of Australia, we look forward to the Bank
Speaker 3: of Japan meeting in the coming week. But if you're
Speaker 3: looking for change from new Governor Kazuhua, don't get your hopes.
Speaker 12: Up in the beginning of this term. For the governor
Speaker 12: in particular, you know it goes. You need to build
Speaker 12: your credibility and the first thing you want is to
Speaker 12: avoid any animistep so gradual and rhetoric is probably what
Speaker 12: you should expect for this meeting.
Speaker 13: Xavier Barreton there from HSBC Asset Management and perhaps bearing
Speaker 13: that out, only three out of forty seven economist polled
Speaker 13: are expecting a tightening move at that meeting. That is
Speaker 13: down from eighteen in the previous survey back in April.
Speaker 3: Yes, instead of June. Now it seems that July is
Speaker 3: the most likely month for a change in policy. This
Speaker 3: was from about a third of respondents. The timing appears
Speaker 3: to be moving back a little because we've heard the
Speaker 3: governor repeatedly signal the need for continued monetary stimulus. Joining
Speaker 3: us now in our studios is Taro Kimura, Bloomberg's Japan
Speaker 3: economists who spent more than ten years at the BOJ.
Speaker 3: Taro Kimura, thanks so much for joining us first. This
Speaker 3: poll was taken actually before we got the stronger than
Speaker 3: expected GDP numbers of growth of two point seven percent
Speaker 3: in the first quarter, if it's annualized, Does that change
Speaker 3: anything for the BOJ.
Speaker 7: No, I don't think so. I'm also for the stay
Speaker 7: and I am expecting the big shift will finally happen
Speaker 7: the latter half of the next year. So like thing
Speaker 7: is that the Japan's demand is very weak and although
Speaker 7: you see a q key strong indicator such as today's GDP,
Speaker 7: but it's just a rally from a very subdued level
Speaker 7: due to a pandemic. It's just on a way to recovery.
Speaker 7: So that doesn't mean, like you know, the BOJ is
Speaker 7: committing to two percent demand led inflation, but the demand
Speaker 7: level itself is not enough to ignite inflation. So that's
Speaker 7: why BOJ will keep continuing saying steamulus is needed.
Speaker 3: A few moments ago, you said you didn't expect a
Speaker 3: change or an adjustment in policy until the latter part
Speaker 3: of next year. Did you mean next year or this year?
Speaker 3: And in either case what would be the main catalyst?
Speaker 7: Yeah, I meant twenty twenty four, So I'm putting myself
Speaker 7: a very late person.
Speaker 2: Wow.
Speaker 7: Actually wow. But I'm talking about big change. I'm barring
Speaker 7: the risk scenario that the end is depreciated too much again,
Speaker 7: or the FED is going to a rate high world again.
Speaker 7: Maybe there would be a tweak to YCC. But in
Speaker 7: the base scenario, BOJ want to continue stimulus because looking
Speaker 7: at with US communication, he's clearly committing to that. He's
Speaker 7: keeping YCC until he will see a demand led steady
Speaker 7: two percent inflation, and in my assessment, it's very far
Speaker 7: below as I said, in terms of the demand. And
Speaker 7: at the same time, putting your foot into a BOJ shoes.
Speaker 7: In history, they've already failed to exit from unconventional manitari
Speaker 7: policy twice. It was a very scurring experience for bojs.
Speaker 7: So that's why my take is the BOJ will very
Speaker 7: very carefully communicate and build a case and finally made
Speaker 7: a big change in the next year.
Speaker 13: Well, that's an interesting point. Laying the groundwork for a
Speaker 13: policy change. How might the BOJ go about that again,
Speaker 13: Xavier Barton from HSBC Asset Management.
Speaker 12: Next steps maybe further widening of the yield of control
Speaker 12: bounds and leading the rights to continue to create up steadily.
Speaker 12: But I think again the BOG is very is being
Speaker 12: a lot of attention making sure that their actions are
Speaker 12: not interfering with the l C organic growth that we've
Speaker 12: been seeing really and it's quite important for them.
Speaker 3: Again, that's Exavier Burton from HSBC Asset Management. So, Tara,
Speaker 3: when the adjustment does come, will it be very gradual
Speaker 3: like we just heard there, or do you think they'll
Speaker 3: wait long enough that they can make a more dramatic move.
Speaker 2: Yeah.
Speaker 7: In the April meeting, as you know, the BOJA announced it.
Speaker 7: It will conduct a policy review and it will take
Speaker 7: a year or maybe a year and a half, and
Speaker 7: I think the BOGA will use it as a stepping
Speaker 7: stone to communicate and build a case and actually whether
Speaker 7: acknowledge is the negative side effects of the current scheme
Speaker 7: like vacuuming too much JGB But like you know, since
Speaker 7: the interest rates is already zero, it has not much
Speaker 7: effect for stimulating so maybe, like you know, whether will
Speaker 7: make a case to getting back to more for a
Speaker 7: normal like controlling the short term ills, but like he
Speaker 7: will carefully build a case that those the new framework
Speaker 7: will be still as accommodative enough and like it's it's
Speaker 7: a sound policy framework. He will communicate like that through
Speaker 7: a policy review.
Speaker 13: I think we can agree that that two point seven
Speaker 13: percent rate on annualized growth for the first quarter was
Speaker 13: pretty impressive. Is there the chance though, the growth in
Speaker 13: the second quarter will be markedly weaker?
Speaker 7: Oh yes, looking at this one q GDP, it's behalf
Speaker 7: of the growth is driven by private inventory. And also
Speaker 7: looking ahead, like you know, the real wage is dropping.
Speaker 7: Although like we were expecting the nominal waste growth after
Speaker 7: the reflecting the result of annual wage hikes, but it's
Speaker 7: the nominal wage growth itself is decelerated, the real wage dropped. Furthermore,
Speaker 7: that implies for the second quarter it's going to be
Speaker 7: a damping on for a recovery of consumption after the
Speaker 7: post pandemic recovery of consumption.
Speaker 13: It's kind of very interesting because if you look at
Speaker 13: the equity market in Japan, the NIEK is trading very
Speaker 13: near a thirty three year high. Is there the risk
Speaker 13: here that if a waited were to send the wrong
Speaker 13: signal that that may be kind of or become reflected
Speaker 13: in equity prices in a rather sharp and negative way.
Speaker 7: I think what's happening in the real economy and stock
Speaker 7: market should be like thought separately. So stock market is,
Speaker 7: you know, it's like coming over to a price for
Speaker 7: the first time in like twenty or thirty years. It
Speaker 7: means like we didn't exceed the price level since nineteen
Speaker 7: eighties or something. So maybe like you know, the japan
Speaker 7: stock I know, a stock price stock expect that suggests,
Speaker 7: like you know, the investors think Japanese stocks are cheap,
Speaker 7: and actually Japanese big firms are investing a lot abroad,
Speaker 7: so that's why they incorporate the growth of the inter
Speaker 7: national economy to their earnings. But in terms of the
Speaker 7: domestic real economy still it's weak. So that's why a
Speaker 7: BOH keeps stimulating. Maybe that's supported for the stock process.
Speaker 7: I don't think any wrong message will coming out from
Speaker 7: UETA in the next meeting.
Speaker 3: If we take a broader look at the original Abinomics
Speaker 3: plan and look at the third row about corporate reform.
Speaker 3: You mentioned a little bit about corporate behavior. Are you
Speaker 3: seeing enough reform in the economy compared to what was
Speaker 3: hoped for and expected.
Speaker 7: The new corporate governance for Japan's firms are introduced under
Speaker 7: Aby's initiative, and it has been almost ten years since
Speaker 7: it has started, so like kind of gradual improvement in
Speaker 7: the Japanese corporate governance is supporting current rally in Nikki
Speaker 7: stock prices. But on the contrary, like you know, in
Speaker 7: terms of the domestic real economy, as I've mentioned, although
Speaker 7: Curuda has has done extreme stimulus, it proved that that
Speaker 7: doesn't boost domes take economy.
Speaker 13: Well, is there a way in which this policy begins
Speaker 13: to intersect with the political environment in Japan and the
Speaker 13: ambitions that Prime Minister Kishida would have.
Speaker 7: I don't think that, like you know, such issue will
Speaker 7: happen in a highly probability. What I mean is that
Speaker 7: my baseline scenario is a BOJ will keep stimulus, and
Speaker 7: I think the government will be happy with it. And
Speaker 7: like you know, Abbey is gone and Kishida, I guess
Speaker 7: he doesn't have a specific own strong view on the
Speaker 7: monetary policy, so that's why there will be less pressure
Speaker 7: from the government's side to the BOJA.
Speaker 3: But would the BOJ simply be cautious because it looks
Speaker 3: like Kishia will soon call an early election.
Speaker 7: Oh yeah, if like you know, if the BOJA is
Speaker 7: seeking for a policy change right now, maybe it's it
Speaker 7: might be one of the factors that the election will
Speaker 7: be coming or and maybe they should post maybe it's
Speaker 7: not a decisive factor, but might be one of the factors.
Speaker 7: But my guess is whether it doesn't think any change
Speaker 7: at Also, it doesn't matter to toorrow.
Speaker 2: Thanks so much for being with us.
Speaker 3: We really learned a lot. Tara Kimura, Bloomberg's japan economist,
Speaker 3: who by the way, spent more than ten years as
Speaker 3: an economist at the Bank of Japan. I'm Brian Curtis
Speaker 3: in Hong Kong along with Doug Krisner. You can catch
Speaker 3: us every weekday here for Bloomberg day Break Asia, beginning
Speaker 3: at six am in Hong Kong and six pm on
Speaker 3: Wall Street.
Speaker 2: Tom, thank you, Brian and Doug.
Speaker 1: And coming up on Bloomberg day Break weekend, a big
Speaker 1: focus on tech in London in Paris in the coming
Speaker 1: week with two high profile tech events.
Speaker 2: I'm Tom Busby and this is.
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Speaker 1: I'm Tom Busby in New York with your global look
Speaker 1: ahead at the top stories for investors in the coming week.
Speaker 1: Challenges facing the tech industry will be in focus in
Speaker 1: the coming days in Europe with two big industry events
Speaker 1: taking place in London and Paris. And for more, let's
Speaker 1: say to London and bring in Bloomberg day Break Europe
Speaker 1: Banker Steven Carrol.
Speaker 5: Tom, We're heading into London Tech Week, where industry leaders
Speaker 5: are gathering to discuss the UK technology ecosystem, while over
Speaker 5: in Paris the focus is on startups and innovation at
Speaker 5: Viva tech Now. These events are happening at a time
Speaker 5: when there are questions being asked about the UK's place
Speaker 5: as a tech hub post bregsit plus, there are broader
Speaker 5: discussions happening in the industry around regulation, particularly when it
Speaker 5: comes to artificial intelligence. So to discuss all of this,
Speaker 5: I'm joined by our tech reporter Thomas Seal. Tom great
Speaker 5: to have you with us in studio for this. This
Speaker 5: is a good time to check in about what the
Speaker 5: big discussions are in industry because we have all these
Speaker 5: tech leaders in Europe, particularly coming to London for London
Speaker 5: Tech Week as well. What are the big themes that
Speaker 5: you'll be watching out for during these events.
Speaker 14: So I think the UK's role, as you say, as
Speaker 14: a tech hub is really in question at the moment.
Speaker 14: It's got undoubted strengths for startups, but after that there
Speaker 14: are big question marks about scale up as they call
Speaker 14: it in the industry, you know, getting from that one
Speaker 14: hundred million valuation to a five million valuation. Investors seem
Speaker 14: to increasingly come from the US or abroad. But beyond that,
Speaker 14: I think there'll be some reckoning of the Silicon Valley
Speaker 14: Bank fallout and the sort of funding landscape. Silicon Valley
Speaker 14: Bank executives now part of HSBC. Of course we'll be talking.
Speaker 14: There are panels about sustainability, about diversity and inclusion. I
Speaker 14: think something that's not on the official agenda so much,
Speaker 14: but will be a huge topic obviously, is artificial intelligence
Speaker 14: as well.
Speaker 5: Yeah, indeed, I mean that scale up question is really
Speaker 5: interesting because there was so much was made of the
Speaker 5: fact that ARM you know, a UK tech name, was
Speaker 5: deciding to list in the US and NATA in London.
Speaker 5: That's the sort of thing that particularly politicians can get
Speaker 5: very antsy about. Let's talk about the interaction between politics
Speaker 5: and technology as well. You've been reporting about this complaints
Speaker 5: really from the industry body Tech UK that the UK
Speaker 5: risks falling behind if the government doesn't overhaul its policies.
Speaker 5: What does the industry want from government?
Speaker 14: Yeah, that that statement that document from Tech UK was striking.
Speaker 14: I think some lobby bodies are much more wingy, so
Speaker 14: when they when they kind of bring out language like that,
Speaker 14: it's quite striking, and you know, something is a miss.
Speaker 14: What do they want? I think they complain in the
Speaker 14: document about the sort of short termism of some government initiatives.
Speaker 14: The government is very keen to pat itself on the back,
Speaker 14: they say with phrases like we're a tech superpower, slight superpower,
Speaker 14: but then longer term thinking seems to be somewhat absent,
Speaker 14: so just that sort of strategic nouse. They also say
Speaker 14: some more practical complaints such as lab space is very
Speaker 14: expensive here. Connecting to the electricity grid, which is important
Speaker 14: if you're, for instance, data center or making micro chips
Speaker 14: seems to be a problem in the UK. So it
Speaker 14: was a sixty page document. It went through sort of
Speaker 14: more than a dozen different areas and there were quite
Speaker 14: a few complaints.
Speaker 11: But those are two that come to mind. What are
Speaker 11: the key strong points of the UK's tech industry if
Speaker 11: we're thinking about it in a post bragsit context, where
Speaker 11: the government's really keen to promote tech industries one of
Speaker 11: the sort of things that the UK should be looking
Speaker 11: to build on.
Speaker 14: So you mentioned arm and that is one of the
Speaker 14: UK's most valuable homegrown champions, and that is an area
Speaker 14: where the UK definitely sees itself as having a strength,
Speaker 14: which is why its decision to list in New York
Speaker 14: was quite a blow. The UK strengths include it'scation system,
Speaker 14: you know, research university spinouts. A lot of these become
Speaker 14: really interesting startups, things like Oxford, nanopaor I think again.
Speaker 14: Then it's the question about how do you get them
Speaker 14: into becoming a kind of a global company.
Speaker 11: To get to that next base here.
Speaker 14: Yeah, and then regulation is seen as very strong in
Speaker 14: the UK. That's not building companies, but it's still really
Speaker 14: important when you look at the impact something like GDPR
Speaker 14: had out of Europe, which obviously pre Brexit, the UK
Speaker 14: helped write that helps set standards and helps shape everything
Speaker 14: that these companies do well.
Speaker 11: In a post bragsit world.
Speaker 5: Is that somewhere where the UK could diverge and do
Speaker 5: something different to what the European Union is doing.
Speaker 14: This is a big ongoing debate. I think we're seeing
Speaker 14: it just this week with AI. The EU has you know,
Speaker 14: published an AI Act which is quite specific, more so
Speaker 14: than the UK's approach. The UK has published a white
Speaker 14: paper which is really pretty vague and delegates of responsibility
Speaker 14: and it sort of indicates that the UK is trying
Speaker 14: to be seen as a bit light to touch, a
Speaker 14: bit friendlier come here, sort of a slightly offshore business
Speaker 14: friendly alternative.
Speaker 5: This is a conversation we've been having on Boomberg Daybreak
Speaker 5: Europe in the past few days about the rapid rise
Speaker 5: of our sopacial intelligence, particularly generative AI, and how it
Speaker 5: should be regulated. We discussed this with Nate Shardan from
Speaker 5: the Center for Ai Safety. Here's what he told us.
Speaker 9: I think voluntary can work. Voluntary can work if it
Speaker 9: has teeth. We have voluntary regulation for many things, and
Speaker 9: it's something that can work if it has teeth, and
Speaker 9: there's different ways to do that. You can design product
Speaker 9: liability schemes so that people are incentivized to enter into
Speaker 9: voluntary regulation to be behind liability shields. That's a familiar
Speaker 9: form of regulatory structure and it's something that would work
Speaker 9: in this environment.
Speaker 11: What exactly needs to be regulated.
Speaker 9: Capabilities of models, and another obvious target for regulation is
Speaker 9: the actual training of the model. We can regulate the
Speaker 9: chips and we can prevent large training runs from happening.
Speaker 9: And when it comes to the capabilities of the models,
Speaker 9: credible third party auditing can be done in order to
Speaker 9: evaluate them and say exactly what these things can do.
Speaker 9: I think that if you put AI in charge of
Speaker 9: things that can themselves cause harm, then the AI can
Speaker 9: themselves cause harm. I think it's not hyperboly to imagine
Speaker 9: that people will slowly but truly turn over control of
Speaker 9: systems to powerful AI, and that those AI will make
Speaker 9: decisions that pause. Harm, I think that's not science fiction.
Speaker 9: That's what people are being incentivized to do.
Speaker 5: That's Nate Chargan from the Center for AI Safety. Look,
Speaker 5: I mean it's a pretty stark warning to say that
Speaker 5: that's the extent of where AI could go. How well
Speaker 5: I suppose prepared or well positioned is the UK to
Speaker 5: take a lead in this area.
Speaker 14: The UK is increasingly keen to take a lead in
Speaker 14: this area. There are calls from UK officials to have
Speaker 14: some kind of global agency headquartered here. In fact, like
Speaker 14: the international atomic kind of body has one global agency.
Speaker 14: Brad Smith, president of Microsoft, was in London meeting officials
Speaker 14: and he spoke to reporters and he was saying that yes,
Speaker 14: there needs to be a lot of international corporation. He
Speaker 14: didn't explicitly endorse London, but he didn't shoot it down either.
Speaker 5: He hasn't been terribly favorable when discussing UK regulators in
Speaker 5: the recent past either after they blocked the takeover of Activision.
Speaker 14: Indeed, and he did not roll back those remarks. He
Speaker 14: also outlined some of the potential safety or regulatory maneuvers
Speaker 14: that could be used to sort of mitigate some of
Speaker 14: these dangers. He was saying that there's different layers of AI.
Speaker 14: There's applications sitting on top. There's the models themselves, which
Speaker 14: is the main focus, things like chatchbt open AI. And
Speaker 14: then there's also the infrastructure beneath it, which I thought
Speaker 14: was really interesting that AI is ultimately working on data centers.
Speaker 14: You know, if you're running powerful models, running critical infrastructure
Speaker 14: using AI, that's ultimately based somewhere. Those processes are somewhere,
Speaker 14: and so there need to be rules around that as well,
Speaker 14: and then you could, you know, theoretically.
Speaker 11: Have some sort of a kill switch.
Speaker 5: Yes, definitely something really interesting to think about when we
Speaker 5: think about the future of that technology. I did mention
Speaker 5: Viva Tech in Paris at the start of our conversation,
Speaker 5: and you know, this is a kind of an ongoing
Speaker 5: conversation in so many areas after Brexit. Is the competition
Speaker 5: between European capitals in terms of tech. You know, how
Speaker 5: is that competition going well?
Speaker 14: The UK loves to roll out UK politicians love to
Speaker 14: roll out a line that there are more startups, more
Speaker 14: unicorns in the UK than I think France and Germany together.
Speaker 14: But people have liken Brexit to a slow puncture. I
Speaker 14: think that France probably has you know, seized on this opportunity,
Speaker 14: so as Amsterdam, so as Estonia, you know, and I
Speaker 14: think London still is probably be the best place in
Speaker 14: Europe for things like fintech. But yeah, it's a much
Speaker 14: more active competition than perhaps it would have been.
Speaker 5: It's a battle certainly between those capitals to guests, secure
Speaker 5: those new businesses and to grow them as well. Thanks
Speaker 5: very much to Bloomberg Tech reporter at Tom Sealed there
Speaker 5: as we look ahead to London Tech Week and we
Speaker 5: will bring you key interviews from that event on Bloomberg
Speaker 5: Daybreak Europe.
Speaker 11: I'm Stephen Carroll in London. You can catch us every.
Speaker 5: Morning here for Bloomberg day Break Europe, beginning at six
Speaker 5: am in London and one am on Wall Streets.
Speaker 11: Tom.
Speaker 2: Thank you, Steven.
Speaker 1: And coming up here on Bloomberg day Break weekend, turbulence
Speaker 1: in the US banking industry and focus as Treasury Secretary
Speaker 1: Janet Yellen heads to Capitol Hill.
Speaker 2: I'm Tom Busby, and this is Bloomberg.
Speaker 1: This is Bloomberg day Break weekend, our global look ahead
Speaker 1: at the top stories for investors in the coming week.
Speaker 1: I'm Tom Busby in New York. As fallout from the
Speaker 1: recent US bank failures continues to reverberate through the economy.
Speaker 1: Treasury Secretary Jenet Yellen gets ready to testify before the
Speaker 1: House Financial Services.
Speaker 2: Committee this coming week.
Speaker 1: For more, let's add to our Bloomberg ninety nine one
Speaker 1: newsroom in Washington and Bloomberg Sound On. Co host Kaylee lines.
Speaker 4: Yeah, Tom, the Treasury Secretary has to do this every year,
Speaker 4: appear before the committee to give her annual testimony on
Speaker 4: the state of the international financial system. It's happening this
Speaker 4: coming Tuesday, ten am Eastern time, And of course it
Speaker 4: follows the drama over the debt ceiling and the Treasury's
Speaker 4: ability to borrow, as well as multiple bank failures in
Speaker 4: the US earlier this year. So I'm guessing she may
Speaker 4: be in for some tough questions. And I have some
Speaker 4: questions now for someone who knows all things Treasury, Christopher Condon,
Speaker 4: who covers that in economic policy for us here at Bloomberg. So, Chris,
Speaker 4: thank you so much for doing this. What do we
Speaker 4: anticipate Yellen is going to be asked and then say?
Speaker 4: On Tuesday?
Speaker 15: There are a couple topics that Republicans on the Hill
Speaker 15: are particularly interested in grilling Yellen about Number one. There's
Speaker 15: an executive order that's in the works, has been in
Speaker 15: the worst for a very long time within the Biden
Speaker 15: missstration that would seek to restrict outbound investments to China. Now,
Speaker 15: this would complement other policies like export controls and inward
Speaker 15: investment restrictions that are there for national security reasons, as
Speaker 15: the Biden administration says, and Yellen has said before that
Speaker 15: this coming order would complement those. And basically the idea
Speaker 15: is to prevent China from using US money to develop
Speaker 15: technologies domestically that it's prohibited from buying from the US
Speaker 15: and other countries. And so, you know, let's not allow
Speaker 15: them to use US venture capital companies that bring in
Speaker 15: cash and know how crucially to help develop technologies that
Speaker 15: the United States doesn't want them to have. Now, this
Speaker 15: is controversial. A lot of Republicans are very outful about
Speaker 15: the effectiveness. In fact, Patrick McHenry, the Republican from North
Speaker 15: Carolina who is chairman of this committee, wrote a letter
Speaker 15: to Yellen last month expressing his severe skepticism. Let's say
Speaker 15: about how effective this would be. China really doesn't have
Speaker 15: a shortage of capital flowing into the country. It's not
Speaker 15: like they're dying that they have a big capital counsel. Plus,
Speaker 15: he pointed out in the letter, he asked, Yellen, you know, well,
Speaker 15: can you give me examples of past instances where US
Speaker 15: investors helped China develop technology we didn't want them to have.
Speaker 15: I think he's responding to some concerns in the venture
Speaker 15: capital community that these restrictions might be overly broad. The
Speaker 15: administration has promised that they would be narrow, but they
Speaker 15: have given zero details publicly so far.
Speaker 4: So that's kind of on the international level, But I
Speaker 4: wonder what kind of domestic facing questions she may get,
Speaker 4: given we have seen bank failures. Given she will be
Speaker 4: testifying just hours after we get an inflation print here
Speaker 4: in the US, the day before the Federal Reserve makes
Speaker 4: its rate decision, how is she likely to characterize the
Speaker 4: US economy at the moment.
Speaker 15: First of all, she's got a line that she's going
Speaker 15: to use. She has used it for months and months.
Speaker 15: She sees a path for the US economy where inflation
Speaker 15: can be brought down close to the Federal Reserves target
Speaker 15: two percent from PC inflation without dramatically increasing unemployment. That's,
Speaker 15: you know, the proverbial soft landing. I would hope that
Speaker 15: she would get pressed on that. I have myself tried
Speaker 15: to press her.
Speaker 2: Okay, you see this path.
Speaker 15: But one might say that if you saw a ten
Speaker 15: percent chance of that, what probability do you sign to it?
Speaker 15: Is it greater than fifty percent? Is it lower than
Speaker 15: fifty percent? I would personally would love to hear members
Speaker 15: of Congress press her on that, and some hopefully will,
Speaker 15: because this line about seeing a path is a little
Speaker 15: bit overly vague.
Speaker 4: All right, well, we'll see how she can characterizes it.
Speaker 4: Come Tuesday, Janet Yellen going to be in the hot seat.
Speaker 4: Thank you so much to our Chris Condon, who covers
Speaker 4: the Treasury Department for us here at Bloomberg News, and
Speaker 4: Tom I'll send it back to you.
Speaker 2: Thank you. Kaylee.
Speaker 1: That was Bloomberg sound On co host Kaylee Lines, reporting
Speaker 1: from our Bloomberg ninety nine one newsroom in Washington, and
Speaker 1: you can hear sound on weekdays one to three pm
Speaker 1: on Bloomberg Radio. Join us again Monday morning at five
Speaker 1: am Wall Street Time for the latest on markets overseas
Speaker 1: and the news you need to start your day.
Speaker 2: I'm Tom Buzzby.
Speaker 1: Stay with US top stories and global business headlines are
Speaker 1: coming up right now.