WEBVTT - CPI Report, AI Chip Boom, and Starlink's Business 0:00:01.200 --> 0:00:06.480 From Marhart where Innovation, Money and Power Collie in Silicon Valley, NBN. 0:00:06.800 --> 0:00:11.320 This is Bloomberg Technology with Caroline Hyde and Ed Ludlow. 0:00:24.680 --> 0:00:27.400 And Caroline Heiner Bloomberg's world headquarters in New York. 0:00:27.560 --> 0:00:31.480 And Imed Lovelow in San Francisco. This is Bloomberg Technology. 0:00:31.080 --> 0:00:35.000 Coming up full coverage on the inflation print CPI coming 0:00:35.000 --> 0:00:38.440 in hotter than expected. Former US Treasury Secretary and of 0:00:38.440 --> 0:00:42.559 course Open AI board member Larry Summers joins to discuss. 0:00:42.960 --> 0:00:46.800 Plus TSMC sales surge after riding the AI chip boom. 0:00:46.840 --> 0:00:49.840 We'll break down the details and discuss intaeils on veil 0:00:49.880 --> 0:00:52.320 of its new Goudi three processor. 0:00:52.000 --> 0:00:55.560 And SpaceX's prized Starlink satellite business. 0:00:55.840 --> 0:00:57.920 We're still burning through more cash than it brings in. 0:00:58.080 --> 0:01:00.640 I'll bring you our exclusive Bloomberg reporting and so much 0:01:00.680 --> 0:01:03.040 more throughout this hour. At first, it is a macro 0:01:03.160 --> 0:01:05.919 day and the market is under pressure as once again 0:01:06.080 --> 0:01:10.120 pricing increases are still running little harder than the market 0:01:10.120 --> 0:01:12.440 wants to see. Zero point four percent month a month 0:01:12.520 --> 0:01:16.720 increase in consumer price index higher than had been anticipated, 0:01:16.760 --> 0:01:18.800 and indeed does a federal reserve therefore only get to 0:01:18.880 --> 0:01:21.680 hike what two times this year the market and indeed 0:01:21.680 --> 0:01:26.240 the faded signal three times previously. We reprice the idea 0:01:26.360 --> 0:01:29.280 that Fed hikes will be coming, and only two to 0:01:29.440 --> 0:01:32.240 two of them. We're seeing a one percent fall on 0:01:32.280 --> 0:01:34.240 the Nasdaq. More broadly, we're off of our lows, and 0:01:34.280 --> 0:01:36.360 indeed we are seeing a real pushback. 0:01:36.400 --> 0:01:37.479 In terms of the bond market. 0:01:37.600 --> 0:01:39.840 We're seeing yield spiking some eighteen basis points on the 0:01:39.840 --> 0:01:41.720 front end on the two year, but we're higher across 0:01:41.760 --> 0:01:44.080 the curve ed notably, though, we are down from those 0:01:44.120 --> 0:01:46.120 twenty one basis point move that we sought a little 0:01:46.160 --> 0:01:49.200 bit earlier, but nevertheless we are basically at the highs 0:01:49.200 --> 0:01:51.440 of this year. I'm looking at Bloomberg Dollar Index that 0:01:51.520 --> 0:01:55.520 strengthens into a far more hawkish tone. That's coming really 0:01:55.600 --> 0:01:58.440 from the market signing that the Fed doesn't and can't 0:01:58.560 --> 0:02:02.200 hike as many times as indeed cut as many times 0:02:02.280 --> 0:02:05.680 had been anticipated. We're currently up some seven tens percent, 0:02:05.680 --> 0:02:07.600 as many feel that perhaps we have to remain higher 0:02:07.600 --> 0:02:10.240 for longer, so fewer rate cuts coming will only be 0:02:10.280 --> 0:02:11.720 two that we get for the yes the rest of 0:02:11.720 --> 0:02:12.960 the year. Let's move on to have a look at 0:02:12.960 --> 0:02:15.520 what's happening in the price of bitcoin because as we 0:02:15.560 --> 0:02:17.160 see a more hawkish tone, yes, we're going to see 0:02:17.200 --> 0:02:19.920 risk assets Sellok, across the board, we're down some seven 0:02:19.960 --> 0:02:22.800 tenths percent on bitcoin as a dollar does indeed strengthen, 0:02:22.840 --> 0:02:25.200 but ed as we reprice what the Federal Reserve has 0:02:25.240 --> 0:02:27.959 to do, and indeed maybe they remain higher for longer. 0:02:28.000 --> 0:02:28.760 What are you watching on the. 0:02:28.680 --> 0:02:32.120 Micro Well, three semiconductor related names, I would say are 0:02:32.120 --> 0:02:34.400 probably standing on their own two feet in this session 0:02:34.520 --> 0:02:37.920 rather than being caught up in what's happening with the 0:02:37.919 --> 0:02:41.520 post CPI trade. Meta is actually basically flat at ten 0:02:41.639 --> 0:02:45.919 percent higher. Next generation of its Meta Training and Inference Accelerator, 0:02:46.000 --> 0:02:48.400 its own AI chip that will now be deployed, just 0:02:48.440 --> 0:02:50.000 been announced, not doing much for. 0:02:50.000 --> 0:02:52.160 The stock Intel's down two point three percent. 0:02:52.520 --> 0:02:56.160 GALDI three AI accelerator is coming in the third quarter, 0:02:56.600 --> 0:03:00.519 Intel saying that it outperforms in some training cases in 0:03:00.680 --> 0:03:02.959 Vidia's H one hundred and will be comparable to the 0:03:03.120 --> 0:03:06.120 H two hundred that stocks down to zero point three percent. 0:03:06.200 --> 0:03:09.080 Though in Taiwan's semiconductor these are the US listed shares 0:03:09.200 --> 0:03:12.359 or ADRs, They're up one percent. The March quarters saw 0:03:12.480 --> 0:03:15.960 sales jump are better than expected sixteen percent. That's the 0:03:16.000 --> 0:03:19.200 best jumping growth going back to twenty twenty two. And 0:03:19.320 --> 0:03:21.080 the story, as we've said at the top of the show, 0:03:21.360 --> 0:03:24.120 is TSMC riding the AI wave. Remember this is the 0:03:24.120 --> 0:03:27.800 world's biggest contract manufacturer of semiconductors. 0:03:28.160 --> 0:03:31.200 Yeah, let's dig into TSMC and chipsmore broadly. 0:03:31.280 --> 0:03:33.040 We're pleased to welcome rumages. 0:03:32.600 --> 0:03:36.080 Ian King and well it was a surprise, but we 0:03:36.200 --> 0:03:41.200 perhaps were anticipating a real strengthening of TSMC's business because 0:03:41.240 --> 0:03:41.560 of AI. 0:03:43.440 --> 0:03:46.360 Yeah, I mean all roads lead to Taiwan right now. 0:03:47.040 --> 0:03:49.840 If you're going to build anything, whether it's in video 0:03:49.920 --> 0:03:54.200 and their data center accelerators, whether it's AMD who are 0:03:54.200 --> 0:03:57.400 doing better in servers than Intel, who are also getting 0:03:57.440 --> 0:04:00.800 into data center accelerators, whether it's BROADC and the networking, 0:04:01.080 --> 0:04:03.920 you are going to TSMT and you are paying for 0:04:03.960 --> 0:04:05.480 their most expensive stuff. 0:04:05.920 --> 0:04:08.680 That is pretty much a shape of the industry kind 0:04:08.680 --> 0:04:11.320 of story. There are some specific names that are interesting. 0:04:11.360 --> 0:04:14.600 Meta is interesting. A story you've been writing about Evasha accounts. 0:04:14.600 --> 0:04:17.320 They've just broken the story that they're bringing in next 0:04:17.400 --> 0:04:21.000 gen MTIA chip, but this is the in house silicon 0:04:21.480 --> 0:04:25.040 they want to deploy for their own training and influenced purposes. 0:04:25.360 --> 0:04:26.279 What do you make of it? 0:04:26.560 --> 0:04:30.200 I mean, this is them basically joining that long list 0:04:30.560 --> 0:04:33.520 and lengthening list of these companies that think, hey, I 0:04:33.560 --> 0:04:35.560 can do this better in terms. 0:04:35.320 --> 0:04:36.919 Of what I could better than who. 0:04:37.680 --> 0:04:38.240 Well that's the. 0:04:38.200 --> 0:04:39.160 Problem, isn't it right? 0:04:39.839 --> 0:04:43.000 They don't want to be paying the massive premiums that 0:04:43.000 --> 0:04:45.520 they're paying to in video, but they still are. But 0:04:45.640 --> 0:04:48.599 when it comes to a general purpose processor like this one, 0:04:49.080 --> 0:04:51.360 perhaps we can do it better than Intel. 0:04:52.800 --> 0:04:56.360 Isn't it fascinating that we see this after the day 0:04:57.000 --> 0:04:59.839 after the cloud event coming from Alphabet, where that is 0:04:59.880 --> 0:05:05.400 just this ongoing tension of these big providers of cloud 0:05:05.480 --> 0:05:09.159 but also runners of AI and builders of large language 0:05:09.160 --> 0:05:11.520 models wanting to depend on in video but not too 0:05:11.600 --> 0:05:13.880 much and ultimately having to be frenemies in Is this 0:05:13.920 --> 0:05:16.400 a relationship that can continue? 0:05:17.040 --> 0:05:19.280 I mean it's been going on for years now. If 0:05:19.320 --> 0:05:22.560 you look at AWS, is the progenitor of this trend, 0:05:22.560 --> 0:05:25.400 and they have really shown that, Look, we can you know, 0:05:25.440 --> 0:05:29.039 we've got the size to make the economics work, so 0:05:29.160 --> 0:05:31.280 we will do this as much as we can. But 0:05:31.360 --> 0:05:34.719 at the same time, the actual the real silicon companies 0:05:34.720 --> 0:05:36.880 that have been around for years, are still just about 0:05:36.920 --> 0:05:39.320 in the lead. They're still able to push the performance 0:05:39.320 --> 0:05:41.440 for the limits. So that's the balance that's been struck. 0:05:41.720 --> 0:05:42.920 Let's end on Intel. 0:05:43.160 --> 0:05:47.680 Intel has introduced its latest AI accelerator, Goudi three. It 0:05:47.720 --> 0:05:50.000 will be available in the third quarter of this year, 0:05:50.000 --> 0:05:53.840 but likely not at scale, and its performance is where 0:05:53.880 --> 0:05:57.279 Pat Gelsinger has focused. What else do we need to 0:05:57.320 --> 0:05:58.600 know about Goudi three. 0:05:58.640 --> 0:06:00.720 Well, it's not so much about Gaudi three really, it's 0:06:00.760 --> 0:06:02.679 the elephant in the room, which is what in Vidio 0:06:02.800 --> 0:06:06.279 announced earlier this year, which is they'll have their new 0:06:06.279 --> 0:06:09.720 Blackwell architecture in the market probably around that time. And 0:06:09.760 --> 0:06:14.000 as Girl Single's forced to basically admit yesterday, we don't 0:06:14.080 --> 0:06:16.839 know how we'll compare to that, and the influence that 0:06:16.839 --> 0:06:18.960 people have taken from that is you won't be able 0:06:19.000 --> 0:06:19.680 to compare to that. 0:06:21.040 --> 0:06:21.360 All right. 0:06:21.400 --> 0:06:24.880 Bloomberg's Ian King, who leads ours semiconductive coverage here at Bloomberg, 0:06:24.960 --> 0:06:27.200 and he's very busy man. Now, coming up on the show, 0:06:27.240 --> 0:06:30.679 we break down today's CPI reports with former US Treasury 0:06:30.720 --> 0:06:34.599 Secretary and Open AI board member Larry Summers's coming up, 0:06:34.680 --> 0:06:35.920 Stay tuned, we'll be right back. 0:06:35.960 --> 0:06:36.680 This is Bloomberg. 0:06:48.839 --> 0:06:52.200 Coinbas and Circle has penned letters to Senators Schumer and 0:06:52.279 --> 0:06:56.760 mcconnor urging Congress to enact a comprehensive regulatory framework for 0:06:56.839 --> 0:07:00.560 stable coins and digital asset market structure. It comes a 0:07:00.600 --> 0:07:03.880 week after US Appeals Court revived a twenty twenty one 0:07:03.920 --> 0:07:10.040 consumer lawsuit against coinbase, accusing the cryptocurrency exchange of facilitating 0:07:10.080 --> 0:07:14.360 the sale of unregistered securities. Joining us now is fire 0:07:14.400 --> 0:07:17.760 Our shows ad, chief policy officer at Coinbase, on set 0:07:17.800 --> 0:07:20.280 in San Francisco. Let's start with the suit or the 0:07:20.320 --> 0:07:23.240 revival of a suit last week and just get your 0:07:23.240 --> 0:07:24.440 immediate response to it. 0:07:25.200 --> 0:07:26.080 Well, the suit you're. 0:07:25.960 --> 0:07:28.520 Talking about is a private action that has gone up 0:07:28.520 --> 0:07:30.200 to appeals, and we'll go back to the trial court. 0:07:30.240 --> 0:07:32.120 We did quite well at the trial level. Your a 0:07:32.160 --> 0:07:34.040 couple of issues of the appellate court has sent back 0:07:34.080 --> 0:07:36.200 and so we look forward to going back to the 0:07:36.240 --> 0:07:39.920 district court and settling those out. But the big issue 0:07:39.920 --> 0:07:43.320 is the litigation involving the SEC, and we feel quite 0:07:43.320 --> 0:07:44.120 good about where we are. 0:07:44.160 --> 0:07:45.000 We were able to get one of. 0:07:45.000 --> 0:07:47.880 The major pillars of the SEC's case against us knocked 0:07:47.920 --> 0:07:50.920 out at a very early stage. In the trial we're 0:07:50.920 --> 0:07:53.600 going to go to discovery, yes, and we look forward 0:07:53.640 --> 0:07:54.360 to that process. 0:07:54.800 --> 0:07:57.680 We're going to talk about your relationship with DC in 0:07:57.720 --> 0:08:00.800 the regulatory pathway. But one thing we've reflected on Bloomberg 0:08:00.840 --> 0:08:04.200 Technology in the last year is that in your industry, 0:08:04.280 --> 0:08:06.600 we continue to regulate through lawsuits. 0:08:06.840 --> 0:08:07.960 Yeah, would you. 0:08:07.920 --> 0:08:10.200 Say that that's a fair statement, and in the context 0:08:10.200 --> 0:08:13.000 of both the consumer suit and the SEC that's what's 0:08:13.040 --> 0:08:14.760 happening still. 0:08:14.800 --> 0:08:15.640 Oh absolutely. 0:08:15.720 --> 0:08:17.000 I mean, you know, in the end of the day, 0:08:17.000 --> 0:08:19.760 as a company, our goal is to get regulatory clarity. 0:08:19.840 --> 0:08:22.480 So if that's through lawsuits or otherwise, we'll take it. 0:08:22.600 --> 0:08:24.800 But the right way to regulate, particularly if the US 0:08:24.880 --> 0:08:27.120 is going to be a leader in digital asset technology, 0:08:27.600 --> 0:08:30.120 is for Congress and the administration to do what they 0:08:30.120 --> 0:08:32.559 say they want to do, which is to create comprehensive 0:08:32.600 --> 0:08:36.760 federal frameworks around crypto markets and around stable coin issuance. 0:08:36.840 --> 0:08:38.760 I think we can do it on a bipartisan basis, 0:08:38.800 --> 0:08:41.680 and we hope our letter is encouraging of that to happen. 0:08:42.320 --> 0:08:45.319 You've written this letter to Schumer and others, and McConnell 0:08:45.360 --> 0:08:45.720 and others. 0:08:45.760 --> 0:08:47.400 Why, well, we have. 0:08:47.400 --> 0:08:50.120 A shared and rejective with Treasury and law enforcement, which 0:08:50.160 --> 0:08:51.760 is to get at bad actors that are in the 0:08:51.760 --> 0:08:55.120 crypto space. So there's specific powers the Treasury should have 0:08:55.120 --> 0:08:58.160 they've asked Congress for and we're supportive of. But we 0:08:58.200 --> 0:09:00.320 also want to remind everyone of the big picture is 0:09:00.360 --> 0:09:02.800 that we need the industry to grow in the United States, 0:09:03.559 --> 0:09:06.520 reflecting US values and under US laws, and the bigger 0:09:06.559 --> 0:09:09.840 the US industry is, and the more comprehensive it is 0:09:09.880 --> 0:09:12.800 in terms of defining crypto globally, the better it is 0:09:12.800 --> 0:09:14.120 for American national security. 0:09:14.920 --> 0:09:18.400 What the lawsuits we discussed in this initiative with DC 0:09:18.520 --> 0:09:20.600 having in common is you're trying to make everyone feel 0:09:20.640 --> 0:09:23.920 better that the ghosts of your industry are behind you. 0:09:24.040 --> 0:09:26.920 Let's be honest, Sam Bankman, freed was a big story 0:09:26.960 --> 0:09:28.760 of the last week is sentencing. 0:09:29.880 --> 0:09:31.680 Do you feel like, I mean, that's your job. 0:09:31.800 --> 0:09:36.400 Are you making any progress in convincing a wide range 0:09:36.440 --> 0:09:39.840 of people that this is a cleaner industry that is 0:09:39.880 --> 0:09:40.720 making progress? 0:09:41.200 --> 0:09:41.440 Well? 0:09:41.800 --> 0:09:42.319 Absolutely. 0:09:42.360 --> 0:09:45.280 I remember much of the bad actions that we saw 0:09:45.480 --> 0:09:49.920 FDx finance others were largely offshore. So I think for 0:09:49.960 --> 0:09:51.640 a lot of people it surprises them the degree to 0:09:51.679 --> 0:09:53.480 which there is a bit of there is a dividing 0:09:53.480 --> 0:09:57.840 line between the US industry and those offshore who avoid 0:09:58.240 --> 0:10:00.920 stringent regulation. But in the end of the day, you 0:10:00.920 --> 0:10:03.640 know fifty two million Americans who have bought crypto. 0:10:03.880 --> 0:10:05.400 The American people have voted with their. 0:10:05.240 --> 0:10:07.800 Feed and their pocketbooks that they want to help update 0:10:07.800 --> 0:10:11.960 the system by participating in the crypto economy, and regulations 0:10:12.000 --> 0:10:13.719 need to keep up with them. And I think there's 0:10:13.760 --> 0:10:16.520 a bit of a gap but sometimes between policymakers and 0:10:16.559 --> 0:10:19.560 the public. And I think once people begin to see 0:10:19.559 --> 0:10:22.520 how many Americans have participated, I think they'll understand. 0:10:22.520 --> 0:10:25.920 Still, we've carried some committee hearings on this program, and 0:10:26.000 --> 0:10:29.520 we were aware of some lawmakers thoughts on your industry. 0:10:29.559 --> 0:10:32.520 If there is one area of lingering concern, it's about 0:10:32.520 --> 0:10:35.840 the use of crypto, which is a broad term now 0:10:36.360 --> 0:10:43.160 in illicit finance, finance or white collar crime. How much 0:10:43.200 --> 0:10:45.760 progress are you making we're getting DC on board to 0:10:45.800 --> 0:10:47.040 work together on that front. 0:10:48.280 --> 0:10:50.800 Well, I think Deputy Secretary i Domo said it well 0:10:50.920 --> 0:10:53.480 that the traditional financial sector is by far the larger 0:10:53.520 --> 0:10:56.839 threat to ilicted activity. They're the that's where most of 0:10:56.880 --> 0:10:59.360 the illicited activity occurs. I think they look at crypto 0:10:59.440 --> 0:11:03.120 as an area of potential future emergence as the center 0:11:03.160 --> 0:11:06.920 of listed activity, any amount of bad actions and cryptos 0:11:06.960 --> 0:11:11.760 too much. And you know, companies like ours follow all 0:11:11.760 --> 0:11:14.680 the same rules that traditional finance does. We are Bank 0:11:15.200 --> 0:11:18.959 Secrecy Act regulated and so on, and so I think 0:11:19.040 --> 0:11:21.000 those who know know that the industry in the US 0:11:21.080 --> 0:11:21.920 is a good act. 0:11:22.559 --> 0:11:23.520 It's clear what you want. 0:11:23.720 --> 0:11:26.839 But we have this House Financial Services Committee piece of 0:11:26.920 --> 0:11:29.160 legislation that patrickmc henry is trying to get through. 0:11:30.320 --> 0:11:33.160 No traction there. Why is there no traction? Really? 0:11:33.440 --> 0:11:36.760 Look, it's rare for congressihass builds through two different committees 0:11:36.800 --> 0:11:39.960 with strong bipartisan votes, and that's what we have. So yeah, 0:11:40.040 --> 0:11:43.600 I think, look, any legislation done, funding the government, funding 0:11:43.640 --> 0:11:45.280 the wars, all, that's going to be hard to do. 0:11:46.240 --> 0:11:48.080 But if you take a step back and realize that 0:11:48.120 --> 0:11:51.040 you've got Democrats and Republicans have come together who understand 0:11:51.040 --> 0:11:53.320 we need digital assets in the United States and they 0:11:53.440 --> 0:11:55.319 voted for it, I think that's exciting. 0:11:55.760 --> 0:11:59.000 Fire our Show's chief policy officer over at coinbas great 0:11:59.000 --> 0:12:01.200 discussion here in some this morning. 0:12:01.280 --> 0:12:01.920 Caroline. 0:12:02.400 --> 0:12:04.400 Yeah, we've got to turn our attention back to the 0:12:04.440 --> 0:12:07.959 macro picture right now that CPI print hotter than expected 0:12:08.440 --> 0:12:11.760 third straight time than inflationary pressures are coming in faster 0:12:11.760 --> 0:12:14.200 than expected month and month increase of zero point four percent. 0:12:14.400 --> 0:12:16.679 Now this is affecting the market check out where we're 0:12:16.720 --> 0:12:20.480 currently seeing bond markets yields the highest so far this year, 0:12:20.640 --> 0:12:23.920 yields up well, I mean, significantly higher when you're looking 0:12:24.200 --> 0:12:26.600 at a two year yield some eighteen basis points. 0:12:26.800 --> 0:12:28.640 Some of the key outperformers. 0:12:28.640 --> 0:12:30.640 Meta still manages to outperform on the day on its 0:12:30.679 --> 0:12:33.400 AI news. Intel though drag lower as we see chip 0:12:33.440 --> 0:12:37.160 makers more broadly sinking. But I'm looking at the moment 0:12:37.200 --> 0:12:41.880 Bloomberg Dollar Index currently up some eight tenths of a percent. Now, 0:12:42.040 --> 0:12:44.880 this is as we see the Bloomberg Dollar Index actually 0:12:45.080 --> 0:12:48.760 at its highest since November of last year. So dollar 0:12:48.800 --> 0:12:52.040 highest since we've seen this year. Yields highest since we've 0:12:52.040 --> 0:12:54.920 seen this year. NASDAK currently off by more than percentage point. 0:12:55.000 --> 0:12:57.360 But put it into context, we're still near the highest 0:12:57.480 --> 0:13:01.320 for equity benchmarks that we've seen on But what is 0:13:01.360 --> 0:13:04.040 the takeaway on the CPI print? What does the Fed 0:13:04.120 --> 0:13:06.800 do in terms of rate cuts? Is June off the table? 0:13:07.080 --> 0:13:09.360 So much more to discuss next with David. 0:13:11.120 --> 0:13:13.920 For our Bloomberg audiences worldwide. I'm David Western. We're joined 0:13:13.960 --> 0:13:16.160 right now by Larry Summers of Harvard, a very special 0:13:16.200 --> 0:13:18.920 contributor here on Wall Street Week. So Larry, great to 0:13:18.960 --> 0:13:21.520 have you with us on short notice. We've been talking 0:13:21.600 --> 0:13:23.720 on inflation on Wall Street Week for some time now. 0:13:23.880 --> 0:13:26.240 I know you're not hoping for more inflation, but you've 0:13:26.240 --> 0:13:28.199 been warning about it. What do you make of the 0:13:28.280 --> 0:13:30.960 numbers we sow today? 0:13:31.520 --> 0:13:35.080 I was not hugely surprised by the numbers. 0:13:35.640 --> 0:13:39.280 In an economy that's growing faster than potential, with an 0:13:39.320 --> 0:13:44.040 unemployment rate that has a three handle, in the presence 0:13:44.280 --> 0:13:51.640 of massive and growing budget deficits and epically easy financial conditions, 0:13:52.280 --> 0:13:56.880 the idea that inflation would remain robust or even accelerate 0:13:57.400 --> 0:13:59.880 should not be a surprise to anyone. 0:14:00.640 --> 0:14:02.559 And that's what this data suggests. 0:14:03.480 --> 0:14:07.840 It was not me or some outside observer who emphasized 0:14:07.880 --> 0:14:14.160 the concept of supercore inflation, that is, taking out the 0:14:14.200 --> 0:14:19.600 transitory stuff and also taking out housing, and by that measure, 0:14:20.080 --> 0:14:23.080 the inflation is running an above a six percent rate, 0:14:23.720 --> 0:14:26.400 and the three month rate exceeds the six month rate, 0:14:26.760 --> 0:14:31.800 and the six month rate exceeds the one year rate. 0:14:32.480 --> 0:14:37.480 This confirms the idea that the neutral rate is way 0:14:37.840 --> 0:14:41.560 above the two point six percent level that the FED 0:14:41.720 --> 0:14:45.760 has been using as a north star. In my view, 0:14:45.960 --> 0:14:48.440 puts back on the table. It is still not what 0:14:48.520 --> 0:14:52.200 I would expect, But you have to take seriously the 0:14:52.240 --> 0:14:56.560 possibility that the next rate move will be upwards rather 0:14:56.680 --> 0:15:02.240 than downwards, and anything could happen. Markets could crash, the 0:15:02.680 --> 0:15:04.720 indicators could turn down. 0:15:05.320 --> 0:15:09.400 But on current facts, a rate cut. 0:15:09.160 --> 0:15:13.840 In June, it seems to me would be a dangerous 0:15:14.040 --> 0:15:18.720 and egregious error, comparable to the errors the FED was 0:15:18.760 --> 0:15:24.280 making in the summer of twenty twenty one when it 0:15:24.520 --> 0:15:27.640 just didn't get the thread on inflation. 0:15:28.160 --> 0:15:30.560 Larry, you mentioned the supercore that, as I recalled, shared J. 0:15:30.720 --> 0:15:33.680 Powellmong others has talked about. Specifically, it raises the issue 0:15:33.680 --> 0:15:35.760 of are there aberrations you've seen in these data. We 0:15:35.800 --> 0:15:37.760 hear some people saying, wait a second, this is really 0:15:37.800 --> 0:15:40.520 housing and auto insurance. There are a couple of outliers, 0:15:40.760 --> 0:15:42.560 and that the rest is in this trouble saying is 0:15:42.560 --> 0:15:42.960 that right? 0:15:44.280 --> 0:15:44.880 I don't think so. 0:15:45.000 --> 0:15:49.960 Look, you can always find particular indicators that are up 0:15:50.240 --> 0:15:52.560 or down, but when you're making up. 0:15:52.480 --> 0:15:55.000 A story month after month. 0:15:55.600 --> 0:16:02.800 That's a problem when commodity prices are biking and those 0:16:02.840 --> 0:16:09.000 are being taken as a market indicator of inflation expectations, 0:16:09.520 --> 0:16:15.440 when break evens have risen, When the political economy of 0:16:15.480 --> 0:16:21.600 the country is heavily about inflation, trying to dismiss it 0:16:21.760 --> 0:16:27.920 on an indicator by indicator basis is an odd thing 0:16:28.000 --> 0:16:33.120 to do. Look, it is a technical subject, the price 0:16:33.160 --> 0:16:38.160 indices for housing. I don't think there are many Americans 0:16:38.200 --> 0:16:40.440 who feel like housing is becoming lots. 0:16:40.320 --> 0:16:43.640 More affordable these days. They really don't. 0:16:44.320 --> 0:16:49.400 And so to argue that somehow housing isn't a source 0:16:49.680 --> 0:16:55.320 of inflation psychology seems to me to be quite a surprising. 0:16:56.120 --> 0:16:58.120 View to take. 0:16:58.840 --> 0:17:03.040 Look why is why are we thinking about rate cuts 0:17:03.840 --> 0:17:07.560 when the economy is below what the FED thinks is 0:17:07.560 --> 0:17:12.520 the normal unemployment rate, when the economy is growing faster 0:17:12.880 --> 0:17:16.800 than what the FED thinks is potential, and when inflation 0:17:17.160 --> 0:17:25.560 is unambiguously above target and plausibly accelerating. The FED has 0:17:25.720 --> 0:17:31.280 once again, in important respects, lost its way over the 0:17:31.359 --> 0:17:36.040 last six or nine months. In the same way, making 0:17:36.160 --> 0:17:43.720 policy and making forecasts based on hope rather than on 0:17:44.480 --> 0:17:50.199 a hard headed look at reality. I think that the 0:17:50.240 --> 0:17:55.520 FED did a good job of cleaning up on the 0:17:55.680 --> 0:18:00.399 errors they had made in twenty twenty one, and I 0:18:00.400 --> 0:18:01.080 think it's. 0:18:01.000 --> 0:18:02.680 Reasonable to think. 0:18:02.480 --> 0:18:07.320 That they will pivot off the errors they made last 0:18:07.400 --> 0:18:13.320 fall that led markets to be ludicrously expecting six cuts 0:18:14.119 --> 0:18:17.479 this year, and I'm hopeful that that will happen. 0:18:18.160 --> 0:18:19.320 But I think the FED. 0:18:19.200 --> 0:18:30.040 Does need to learn some important lessons from this experience. 0:18:30.920 --> 0:18:32.919 Let me say one other thing if I could, David, 0:18:33.720 --> 0:18:37.159 there's been a lot of talk about nineteen ninety five 0:18:37.280 --> 0:18:39.280 as some kind of useful analogy. 0:18:40.160 --> 0:18:40.720 I think not. 0:18:41.400 --> 0:18:44.879 The unemployment rate was five point six percent in nineteen 0:18:44.960 --> 0:18:49.479 ninety five. Equity markets, as shown by what shown by 0:18:49.520 --> 0:18:50.680 the fact that they more than. 0:18:50.640 --> 0:18:55.200 Doubled subsequently, were not frothy. 0:18:56.160 --> 0:19:01.000 Particularly in nineteen ninety five, we had just come off 0:19:01.119 --> 0:19:06.879 a major program of deficit reduction rather than being in 0:19:06.920 --> 0:19:14.119 a program of unprecedented fiscal expansion. And we have really 0:19:14.240 --> 0:19:17.240 clear evidence of a kind we don't yet have now 0:19:17.880 --> 0:19:24.520 of productivity acceleration, and interest rates. 0:19:24.240 --> 0:19:26.360 Were higher than they are right now. 0:19:27.440 --> 0:19:31.840 So the case that somehow this moment looks like nineteen 0:19:31.960 --> 0:19:36.439 ninety five and that's a reason for cutting is something 0:19:36.480 --> 0:19:41.959 that I find inexplicable. Another thing that it seems to 0:19:41.960 --> 0:19:49.200 me is problematic is the notions that are increasingly being. 0:19:48.960 --> 0:19:52.399 Brooded about that the FED is going to slow QT. 0:19:53.560 --> 0:19:57.040 Of course, one of the things that today's movement and 0:19:57.119 --> 0:20:02.320 interest rates, the interstrates that interest rates moves that we've 0:20:02.359 --> 0:20:07.120 seen over the last month mean is that the Fed's 0:20:08.160 --> 0:20:13.560 efforts to do parry trades in the bond market have 0:20:13.840 --> 0:20:19.399 proven to be extremely expensive for taxpayers. And the length 0:20:19.440 --> 0:20:23.200 of time for which the FED is going to be 0:20:23.800 --> 0:20:29.440 showing annual losses or on a mark to market basis 0:20:29.640 --> 0:20:33.720 large balance sheet losses that looks like it's longer than 0:20:34.119 --> 0:20:39.679 we thought some months ago. So we need a FED 0:20:39.920 --> 0:20:45.800 that stays focused on what is very clearly the focus 0:20:45.800 --> 0:20:51.680 of the American people, which is price stability. And I'm 0:20:51.720 --> 0:20:54.480 afraid there are some signs that in the last few 0:20:54.520 --> 0:21:01.359 months they have lost their focus in favor of more 0:21:01.400 --> 0:21:06.240 ambitious economic theories about preempting. 0:21:07.200 --> 0:21:10.640 Slack that's not happening. Were some such Lary, You're. 0:21:10.520 --> 0:21:13.120 Always the first to warness that things can change, So 0:21:13.160 --> 0:21:15.439 we can't predict what's going to happen in the fall 0:21:15.520 --> 0:21:17.679 and into next year. You've said you think it's definitely 0:21:17.680 --> 0:21:20.879 a mistake for the Fed to cut in June. But 0:21:21.200 --> 0:21:23.320 given where we are now, what you know right now, 0:21:23.359 --> 0:21:24.720 if you had to make a decision, are we going 0:21:24.800 --> 0:21:27.399 to see any cuts this year? And what is the 0:21:27.520 --> 0:21:28.960 likelihood of actually an increase? 0:21:32.600 --> 0:21:36.359 Just to quibble with what you said, I said, on 0:21:36.680 --> 0:21:39.720 current facts, I see no case for. 0:21:39.720 --> 0:21:43.119 A cut in June. But facts can change. 0:21:43.240 --> 0:21:46.800 Inflation indicators could come in much lower than most of 0:21:46.920 --> 0:21:47.840 us are expecting. 0:21:48.200 --> 0:21:50.040 The economy could turn down. 0:21:50.560 --> 0:21:55.920 So never make an absolute judgment about policy several months 0:21:55.920 --> 0:22:02.159 from now, because all kinds of surprises could could happen. 0:22:02.800 --> 0:22:07.320 I think the odds are that the next rate cut 0:22:07.400 --> 0:22:11.480 will be down rather than up. But I think you 0:22:11.600 --> 0:22:14.840 have to assign a greater probability to the next rate 0:22:14.880 --> 0:22:18.880 cut rate move being up than you did. 0:22:19.480 --> 0:22:20.440 Several months ago. 0:22:20.920 --> 0:22:23.399 I don't know whether it's fifteen percent or it's twenty 0:22:23.440 --> 0:22:28.840 five percent, but somewhere in that range is what I 0:22:28.880 --> 0:22:32.359