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

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

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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

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

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. Turn into the Federal Reserve,

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Speaker 2: the list of candidates to replace Chairman j Powell reportedly

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Speaker 2: down to the final five, the list emerging following extensive

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Speaker 2: interviews with the Treasury Secretary Scott Besson on that list,

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Speaker 2: Fed Governor Chris Waller, who joins us now Governor Wanta.

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Speaker 1: Good morning, Well, Goodmorian, Joan and goom Morrian, Henry.

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Speaker 2: Welcome back, Sarah. It's good to see you. How's the

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Speaker 2: process going. Let's start down and then we can get

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Speaker 2: into all the other good stuff. How's the intertry process going.

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Speaker 3: It's going well, that's fary psych tell that secretary has

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Speaker 3: a very systematic way of going down on the list

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Speaker 3: and doing the interviews. As I said the other week,

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Speaker 3: I had a great interview with Secretary Vest. Talked a

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Speaker 3: lot about economics, said policy, the FED balance sheet, just

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Speaker 3: general stuff in the economy and financial markets. It went

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Speaker 3: very quick. It was about an hour and forty five

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Speaker 3: minutes and next I knew it was over. So it

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Speaker 3: was a great conversation. Course.

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Speaker 1: I loved those kind of conversations. I can do that

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Speaker 1: all day long.

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Speaker 4: The Church secretor I've spoken about in the past, he

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Speaker 4: wants almost a visionary, someone who looks forward, like an

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Speaker 4: Alan Greenspan type, open minded. Do you get a sense

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Speaker 4: of what he means by that.

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Speaker 3: I think it's the idea of if you're looking at

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Speaker 3: the data and it's always looking back at the data,

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Speaker 3: you're kind of the data is always kind of old,

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Speaker 3: and you have to think forward, like where are you

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Speaker 3: going with this stuff. I've managed to do that a

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Speaker 3: couple of times with thinking about this beverage curve. Arge

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Speaker 3: argument back in May of twenty two that we could

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Speaker 3: have the soft landing earlier this summer with the weakness

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Speaker 3: in the labor market, which turned out to be true.

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Speaker 3: People doubted it at the time I set up. So

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Speaker 3: I think it's I don't want to, you know, brag,

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Speaker 3: but you know it's that kind of being able to

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Speaker 3: look at the data and see forward where things are going,

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Speaker 3: and I think that's a critical thing he's looking for.

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Speaker 5: You were certainly vindicated.

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Speaker 4: The President was obviously excited about the fact that the

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Speaker 4: FED finally.

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Speaker 1: Was cutting interest rates.

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Speaker 4: Have you spoken to him at all?

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Speaker 1: No, I have not. I have not. Is that on

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Speaker 1: the schedule? I don't know. That's up the secretary vessent.

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Speaker 2: We can find that saying highfully, what's to the moment

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Speaker 2: of saff the Treasury Secretary hopefully lights on in a month.

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Speaker 2: I want to talk about the bit to the tice

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Speaker 2: place at the end of this month as well. You

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Speaker 2: had a pretty clear governments to the loss. May tink

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Speaker 2: you delivered a speech and not believe the title was

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Speaker 2: let's get on with it. You amphacacy for the same

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Speaker 2: thing of this may tink.

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Speaker 1: Yeah, I think it's it's the right thing to do.

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Speaker 3: Back then, there was a issue whether you go fifty

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Speaker 3: or twenty five, and I thought, I argued, we could

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Speaker 3: do twenty five and see how the data comes in.

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Speaker 3: Of course, we're not getting much data, and then we

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Speaker 3: can think about the next twenty five So in the

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Speaker 3: last six weeks, I don't think a lot has changed.

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Speaker 3: We're not getting the public data, but all the private

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Speaker 3: sector data that we're getting Beige Book yesterday, everything we're

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Speaker 3: getting is telling roughly the same story.

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Speaker 1: The labor market's weak.

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Speaker 3: Growth seems to be on the stronger side, which is

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Speaker 3: a bit of a puzzle right now, because you can't

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Speaker 3: have a really strong growing economy and.

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Speaker 1: Negative job growth.

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Speaker 3: There's zero job growth, and you know, people talk about productivity,

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Speaker 3: but AI hasn't had that effect yet on the labor

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Speaker 3: market or productivity. It will down the road, I think,

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Speaker 3: but not right away. So I don't think that's the

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Speaker 3: story that's driving it. So in that case, one of

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Speaker 3: these things has.

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Speaker 1: To move right.

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Speaker 3: Either GDP numbers start coming back down or the labor

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Speaker 3: market rebounds. You just can't have growing economy and you know,

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Speaker 3: very weak labor market.

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Speaker 1: They just don't go together.

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Speaker 2: In the meantime, do you just continue to reduce interest

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Speaker 2: rights in meeting by meeting as you wait to see

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Speaker 2: what's going on?

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Speaker 6: What's your old approach?

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Speaker 1: You think about.

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Speaker 3: That, that's exactly what I've been arguing is since we

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Speaker 3: don't know which way this is going to break, If

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Speaker 3: the labor market rebounds, there's.

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Speaker 1: Less of pressure for kind of rates.

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Speaker 3: If the growth comes back down, there's more pressure for

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Speaker 3: cutting rates.

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Speaker 1: You don't want to make a.

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Speaker 3: Mistake, So the way to avoid that is to go,

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Speaker 3: you know, cautiously or carefully and do twenty five wait,

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Speaker 3: see what happens, and then you can get a better

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Speaker 3: idea of what to do. But if you've already started

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Speaker 3: the process, you're providing whatever's initial support for the labor

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Speaker 3: market that you feel is necessary.

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Speaker 2: So we've had this helviie step down in payrolls growth,

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Speaker 2: it's pretty clear it feels like that alone, though, might

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Speaker 2: be an outline compared to everything else that's going on

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Speaker 2: in the economy. You yourself just acknowledge that, what do

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Speaker 2: you think is behind that? And can that persist?

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Speaker 3: You know?

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Speaker 1: That's the thing.

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Speaker 3: When I've talked to private sector CEOs about hiring, I mean,

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Speaker 3: we typically get a couple of things. Maybe early part

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Speaker 3: of the summer, there was a lot of uncertaint about tariffs.

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Speaker 3: We're just holding off on doing anything. One of the

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Speaker 3: things I heard is firms we're going to have to

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Speaker 3: pay the tariffs. One easy way to do that is

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Speaker 3: just not higher take all the labor savings to pay

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Speaker 3: off whatever the tariffs were. So that was one thing.

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Speaker 3: Then you had this AI story, which was people like,

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Speaker 3: we don't know if we're going to need to hire,

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Speaker 3: but we're going to wait and find out we're going

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Speaker 3: to We're not going to go out and hire a

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Speaker 3: lot of people right away.

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Speaker 1: So I think the.

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Speaker 3: Tariff uncertainty, paying for tariffs, trying to sort out what

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Speaker 3: AI really is going to do kind of put firms

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Speaker 3: on their back foot. Now that's what I mean. Either

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Speaker 3: they decide the AI is not going to be in

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Speaker 3: the near term the big job replacement that they thought,

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Speaker 3: and they're going to have to start hiring, and it

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Speaker 3: comes back, teriff uncertainty goes down. All of those things

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Speaker 3: could lead to a rebound. On the other hand, you know,

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Speaker 3: if GDP starts softening, it's not as strong as we

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Speaker 3: think that somehow the data is a kind of a

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Speaker 3: mirage right now. Then the labor market is telling you things.

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Speaker 3: They're just not as good as you think. Now that

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Speaker 3: the financial markets are the big puzzle, I mean, I'm

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Speaker 3: not the only one how much of this is just

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Speaker 3: a big boom and AI and everything else is marginal.

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Speaker 3: I'd kind of been arguing there's a big difference between

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Speaker 3: the financial conditions for corporate America and financial conditions for

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Speaker 3: main street America.

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Speaker 1: If you're main.

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Speaker 3: Street America, you're looking at mortgages over six percent, very

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Speaker 3: expensive housing, car loans over seven percent, credit card.

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Speaker 1: Interest rates in the twenties.

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Speaker 3: These are not lose financial conditions for American households. So

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Speaker 3: when we look at the financial market, you're seeing a

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Speaker 3: lot of When people talk about credit spreads and all that,

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Speaker 3: I don't think most American households care what the credit

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Speaker 3: spread between corporates and treasuries are. It doesn't really need

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Speaker 3: unless it shows up in mortgages. So I think there's this.

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Speaker 3: It's one of the things that I find kind of

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Speaker 3: puzzling right now is there's just always these dichotomies between things.

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Speaker 3: If you look at AI, if you take out anything

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Speaker 3: data center AI related business fix invexcement is turning down,

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Speaker 3: it's not widespread.

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Speaker 1: All this investment is not widespread across there's a.

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Speaker 3: Real reallocation from kind of everything else in the AI.

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Speaker 3: So there's this bifurcation in so many ways that make

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Speaker 3: kind of reading the economy tough right now.

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Speaker 2: How much influence do you have on one versus the other?

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Speaker 2: Financial conditions on Main straight versus woll straight, Moos streets,

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Speaker 2: immediate Moostreate's gone it's self to the risis. Can you

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Speaker 2: really influence financial conditions on Maine straight?

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Speaker 1: Well, that's kind of what we hope.

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Speaker 3: If you think about cutting rates, which we're doing and

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Speaker 3: I think will continue doing, that does have a pass

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Speaker 3: through to the tenure, and the tenures often the anchor

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Speaker 3: for pricing mortgages. So the tenures down to like four percent,

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Speaker 3: it's coming down from four and a half.

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Speaker 1: That's about a half or percent off.

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Speaker 3: If it were to continue drifting below four, you'll start

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Speaker 3: seeing some downward pressure for certainly mortgages. Auto loans are

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Speaker 3: kind of a different thing. You're trying to figure out

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Speaker 3: how to deal with tariffs on the auto industry. One

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Speaker 3: thing I've heard is that got rid of a lot

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Speaker 3: of cheap enancing, that the use is subsidized for consumers.

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Speaker 3: That's going to raise the cost of financing. All these

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Speaker 3: things are more tightening for a mainstream RKT. So hopefully

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Speaker 3: these things as we go on to the rest of

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Speaker 3: the years, start loosening.

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Speaker 2: Up some You've been watching the program, so you know

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Speaker 2: some of the things that people say on the show.

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Speaker 2: I'll just go out for it briefly. Ultimately, equities at

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Speaker 2: all time highs go to rip sixty percent this year.

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Speaker 6: You mentioned credit spreads.

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Speaker 2: It credit spreads and multidecade tights high yeld spreads near

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Speaker 2: the tie of the year. And there's a theory out

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Speaker 2: that that the Federserve and some officials on the FET

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Speaker 2: perhaps you included, have anchored that view of this economy

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Speaker 2: around the step down in payrolls growth and it's going

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Speaker 2: to be loaded into reducing interest rates when maybe they shouldn't,

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Speaker 2: and all that's going to do is fuel financial market access.

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Speaker 2: Just to give you the response, the chance to respond

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Speaker 2: to that, how would you respond to that, this idea

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Speaker 2: that you run the risk of being loaded into reducing

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Speaker 2: rates when maybe you shouldn't.

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Speaker 3: Well, the mandate I have from Congress's maximum employment stale

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Speaker 3: with prices.

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Speaker 1: It's not financial markets.

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Speaker 3: So I look at that's when I'm looking at the

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Speaker 3: labor market.

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Speaker 1: The labor market is weak.

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Speaker 3: If all these loose financial conditions are going to cause

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Speaker 3: a boom and excess in the US. We should start

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Speaker 3: seeing some of that in the labor market. We're not

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Speaker 3: seeing it. So a lot of this is I think

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Speaker 3: just this is where the AI thing is. There's so

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Speaker 3: much speculation on AI that it's kind of again, it's dichotomy.

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Speaker 3: It's kind of overshadowing everything else that's going on. And

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Speaker 3: like I said, my job is unemployment in price stability,

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Speaker 3: and I think inflation will be okay, it's on up,

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Speaker 3: but that's some of the terrif effects we'll come back off.

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Speaker 3: But my job is about the labor market and it's

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Speaker 3: not good. So if you want me to go to

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Speaker 3: Congress and say, hey, tell me to start worrying about

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Speaker 3: financial conditions and that's how I should set policy, let

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Speaker 3: me know.

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Speaker 1: But until they do that, I'm going to keep focusing.

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Speaker 2: Well, let's go to the Jill mandate and let's stay

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Speaker 2: with AI and the potential that introduces some additional tension

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Speaker 2: into the Dull mandate that it holds back employment but

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Speaker 2: also boost prices. And Marie was talking about what it

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Speaker 2: could do to energy, all the spending resource intensive. We've

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Speaker 2: got a guest on the program talking about the same thing.

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Speaker 2: Would you see that as a potential that it introduces

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Speaker 2: some additional risk into the dual mandate?

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Speaker 1: Well, in terms of inflation.

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Speaker 3: I mean one of the things I was asked this

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Speaker 3: question by some people in the AI sector. It's like,

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Speaker 3: isn't this inflationary? All this spending we're doing. I said, yeah,

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Speaker 3: but you're taking it away from other sectors, So those

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Speaker 3: other sectors are seeing less demand. So this is a

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Speaker 3: Now you a lot of this is a sexual reallocation.

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Speaker 3: And if that's the case, then the increase in AI

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Speaker 3: is going to be offset by other things.

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Speaker 1: Now, true energy.

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Speaker 3: May have a a bump up, but then you just

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Speaker 3: look at core because you kind of knock out the

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Speaker 3: energy part of it. And that's really what you want

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Speaker 3: to do. That's why we kind of knock off energy.

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Speaker 3: It's just so volatile. It gives you the wrong signals,

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Speaker 3: and we look forward. Excuse me, well, we're just looking forward.

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Speaker 4: What to hear from you is you can look through

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Speaker 4: TARIF induced inflation, you can look at AI induced inflation.

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Speaker 4: Is there any inflation out there right now that you

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Speaker 4: see that you are concerned about, because we're potentially going

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Speaker 4: to get a pretty hot CPI print at the end

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Speaker 4: of this month.

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Speaker 3: Well, we'll see when we take the data at the

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Speaker 3: board and we kind of we have various ways.

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Speaker 1: We try to tease out the tariff effects.

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Speaker 3: Our estimate is inflation's running above two and a half percent,

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Speaker 3: and we're not seeing anything that's going to explore. Like

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Speaker 3: I said, all this attention on AI is and ignoring

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Speaker 3: the fact that other stuff is softening. So demand is

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Speaker 3: up in one sector, it's going down another. Those things

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Speaker 3: often not completely but offset. So that's why I'm not

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Speaker 3: really worried about the AI stuff. And if it really

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Speaker 3: did cause some big problems and energy, like I said,

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Speaker 3: just if you're thinking about future inflation, just look at core.

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Speaker 1: Don't bother with headline end of the month.

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Speaker 4: Though you might not get the labor market report. How

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Speaker 4: difficult is it? And can you even provide outlook meeting

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Speaker 4: by meeting in this environment?

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Speaker 3: Well, I have this joke that for those who think

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Speaker 3: we're too data dependent, you're going to find out what

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Speaker 3: non data dependent policy.

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Speaker 1: I'm excited, but that's the point. We do have lots

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Speaker 1: of data.

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Speaker 3: It's like I said, we've got lots of labor market

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Speaker 3: indicators that tell us the same story.

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Speaker 1: It's just it's not good.

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Speaker 3: We don't get a lot of other things as own

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Speaker 3: labor market's great. So I think that data from all

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Speaker 3: the sources is telling you the same story the labor

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Speaker 3: market's week. We're getting this data, conflicting data about GDP.

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Speaker 3: Like I said, the basebook came out, it was not

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Speaker 3: like everything's rosy and booming. There could be still in

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Speaker 3: the GDP numbers. Is still a lot of inventory pull

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Speaker 3: forward that because the China tarifs weren't finalized, so get them,

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Speaker 3: you know, get stuff in now. So it may be

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Speaker 3: that we see, you know, GDP start to pull off.

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Speaker 1: At the end of the year.

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Speaker 3: I think about the tax bill in that there was

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Speaker 3: a lot of incentives for business six investment. That's great

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Speaker 3: that that applies equally to AI and non AI. So

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Speaker 3: at the end of the day, you're still deciding whether

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Speaker 3: you want to go into AI investment or non AI investment.

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Speaker 3: And the AI is winning. So I don't know how

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Speaker 3: much of it, how big of a help it's going

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Speaker 3: to be on the non AI kind of sectors.

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Speaker 1: In the economy.

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Speaker 2: You've coach you SAFA Techno optimists enjoyed the speech, by

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Speaker 2: the way, well thanks that I thank you for that.

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Speaker 2: I just wanted to finish on this before you run.

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Speaker 2: This feels different to last year when you came out

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Speaker 2: last year and you made a big step down on

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Speaker 2: interest rates and comep one hundred basis points off the

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Speaker 2: back of the employment scare through the summer. This feels

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Speaker 2: slightly different in your approach. How would you describe the

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Speaker 2: differences between now and the approach of you and what

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Speaker 2: you're advocating for on the Federal Reserve to what the

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Speaker 2: committee did last year?

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Speaker 3: Well, last year we didn't have all the tariff uncertainty,

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Speaker 3: we didn't have this AI thing. Unemployment was not even

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Speaker 3: remotely talked about. So I'd say those are the two

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Speaker 3: big differences. Like I said, I think the tariff stuff

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Speaker 3: will settle out and MB okay, the AI thing is

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Speaker 3: the concern I have with the AI if it does,

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Speaker 3: and I think it will materialize. Monetary policy is designed

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Speaker 3: to deal with cyclical movements in the labor market. It

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Speaker 3: kind of ups and downs and come with a business cycle.

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Speaker 3: But this feels like a structural change. All right, Labor

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Speaker 3: demand just drops and doesn't come back. That's something I

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Speaker 3: can do anything about. The FED can kind of adjust

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Speaker 3: policy to deal with structural changes in the economy. So

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Speaker 3: it's going to be a challenge to say as anything

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Speaker 3: we're seeing the labor market from AI coming down the road,

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Speaker 3: is that something the FED can do anything about or

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Speaker 3: should do anything about. Or are we just seeing kind

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Speaker 3: of a typical cyclical mover where there's a hot sector

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Speaker 3: and then it cools off later and everything's not quite

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Speaker 3: as futuristic as you think it is. So that's I

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Speaker 3: think for me the biggest challenge looking forward is is

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Speaker 3: this a structural change or is this just a cyclical change?

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Speaker 2: Is the prudent thing to do as a risk manager

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Speaker 2: just to assume it might be cyclical and just in case.

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Speaker 3: Yeah, I mean, if you cut and it ends up

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Speaker 3: being structural, you cut.

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Speaker 1: It's not going to undo whatever you did.

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Speaker 3: But if it is cyclical, then you can help rebound

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Speaker 3: and get the comedy back on the steve or labor

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Speaker 3: market back on.

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Speaker 2: A se stay with us Mulblindex. Savana's coming up off to.

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Speaker 7: This memory was talking about China in the US, and

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Speaker 7: there's no one better to talk to than Michael Roberts,

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Speaker 7: CEO of HSBC Bank and CEO of the Corporate and

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Speaker 7: institutional bank at the region. I'm just curious, given the

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Speaker 7: fact that HSBC and WELCOME is such a central bank

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Speaker 7: in both trade as well as in both China and

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Speaker 7: in the West, how significant do you see this latest

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Speaker 7: eruption of trade tensions between the US and China.

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Speaker 1: Does this feel different?

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Speaker 8: Yeah? No, First of all, thank you for having me today.

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Speaker 9: Look, I think the world has gotten used to a

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Speaker 9: lot of these tariff changes, although certainly this newest round

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Speaker 9: is yet another bit of unpredictability. I think companies have

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Speaker 9: been now looking for different ways to manage their supply chains.

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Speaker 9: We have a survey that we've did right after Liberation

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Speaker 9: Day which I think still hold trues today. We surveyed

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Speaker 9: five thousand clients, so big survey, and they all said one,

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Speaker 9: all of these tariffs are going to cause a lot

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Speaker 9: of issues. Prices will go up to Most of now

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Speaker 9: are looking at their supply chains. In the word, I

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Speaker 9: think supply chain has now come to be one of

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Speaker 9: the probably the most discussed terms in e C suite today.

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Speaker 9: And thirdly, they're going to change and they may even

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Speaker 9: change business models. So this next round, this current round,

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Speaker 9: I think just tells you that they're going to have

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Speaker 9: to significantly change what that is because one hundred percent tariffs,

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Speaker 9: you can't absorb one hundred percent tariffs, So that means

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Speaker 9: there'll be a greater acceleration to where.

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Speaker 8: Those new supply chains will be.

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Speaker 9: However, it is a bit of a whack a mole

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Speaker 9: because you have to constantly look at where the next

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Speaker 9: tariffs will come from, and that's been a challenge to

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Speaker 9: many companies. They really have to figure out what is

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Speaker 9: the least vulnerable place they can be or the most

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Speaker 9: tariff proof place they can be, and how do they

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Speaker 9: then export into the US or frankly anywhere to make

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Speaker 9: sure that they can do so as effectively as possible.

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Speaker 7: How much of the extra costs from tariff's been realized,

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Speaker 7: not just teriffs but also the rejiggering of supply chains.

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Speaker 9: Yeah, so rule of thumb, when I've talked to most people,

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Speaker 9: probably seventy eighty percent is born by the producer versus

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Speaker 9: the importer. The last twenty percent analysis starting to seep

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Speaker 9: into en buyer the customer. I think most are saying,

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Speaker 9: we can't continue to absorb that much additional costs as

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Speaker 9: the importer or the distributor. Therefore it will start shifting

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Speaker 9: more and more to the end buyer, the client or

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Speaker 9: the customer. So that there's been a I think as

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Speaker 9: strong effort, however, to try to absorb as much as possible.

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Speaker 9: So I talked to a retailer, high fashion retailer saying,

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Speaker 9: me and distributor or the producer out of Asia, and

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Speaker 9: me as the distributor, are absorbing as much as we

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Speaker 9: possibly can. We understand we could do that, but it

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Speaker 9: will come to an ends.

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Speaker 7: John and Amory, we're talking to Fed Governor Chris Waller

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Speaker 7: and about the balance between inflation and the labor market,

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Speaker 7: and there's this feeling that any kind of inflation is

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Speaker 7: going to be short lived and the effect on the

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Speaker 7: labor market could potentially be pernicious. Are you seeing that

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Speaker 7: companies is that of raising prices, laying off workers, or

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Speaker 7: trying to revert to artificial intelligence to bridge the gaps.

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Speaker 1: Not yet.

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Speaker 9: However, there is a lot of cost pressures. I think

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Speaker 9: there's a delay a lot of investments. I mean that's

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Speaker 9: the flip side of that, because I do think people

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Speaker 9: want predictability. The companies need to understand where they're going

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Speaker 9: to put down a lot of capital, that that capital

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Speaker 9: is going to produce good returns because of more predictability.

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Speaker 9: I've seen slowing of hiring, but not real firing today,

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Speaker 9: and so that's kind of again the flip side of

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Speaker 9: that coin. But really it's the capital and the investments

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Speaker 9: that you're starting to see slow down quite a lot.

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Speaker 7: Meanwhile, we've heard a lot here at the meetings in Washington,

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Speaker 7: d C. At a number of themes AI, which we'll

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Speaker 7: get to any second, but also this question around credit

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Speaker 7: froth an AI related bubble. How much are you getting

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Speaker 7: concerned akin to what JP Morgan's been talking about of

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Speaker 7: a real turn in the credit cycle or some sort

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Speaker 7: of later innings that give you pause and make you

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Speaker 7: more cautious.

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Speaker 9: Yeah, look, I do think this is not the first

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Speaker 9: instance of what is inventory financing fraud, which is essentially

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Speaker 9: selling you know, or using the same bit of inventory

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Speaker 9: to finance multiple times. We've seen that in Europe a

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Speaker 9: couple of times as well in the last say nine months.

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Speaker 1: So I am more.

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Speaker 9: Concerned and something that we're very focused on. So in fact,

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Speaker 9: we're using technology we developed in our trade business and

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Speaker 9: using it throughout all of our lending platforms now to

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Speaker 9: try to go through and be very specific that everything

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Speaker 9: we finance is good collateral, it doesn't have multiple leans

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Speaker 9: on top of it, which is really what happened to

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Speaker 9: First Brands. It's tough to do, and I think, you know,

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Speaker 9: the fraudstats are getting better at it, so we're going

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Speaker 9: to have to respond to being much better on due diligence.

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Speaker 9: You know, we were not involved obviously directly in First Brands,

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Speaker 9: so don't know how much due diligence was done. But

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Speaker 9: I think these type of finance seeing arrangements are going

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Speaker 9: to require much more due diligence, much greater technology, much

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Speaker 9: more specific understanding exactly what you're financing.

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Speaker 7: The other aspect has been just sort of how much

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Speaker 7: AI has actually boosted productivity, boosted profitability versus been a

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Speaker 7: real call center for the most part. Ken Griffin came

441
00:19:17,160 --> 00:19:19,919
Speaker 7: out of Citadel saying that he's not seeing evidence that

442
00:19:20,040 --> 00:19:23,800
Speaker 7: AI programs can really make an edge in financial markets.

443
00:19:23,840 --> 00:19:26,080
Speaker 7: I know that HSBC has been big in quantum computing

444
00:19:26,119 --> 00:19:26,880
Speaker 7: and has this test.

445
00:19:27,440 --> 00:19:28,560
Speaker 1: Are you seeing real gains?

446
00:19:28,560 --> 00:19:34,000
Speaker 7: Are you actually deploying quantitative strategies from quantitative computing on

447
00:19:34,119 --> 00:19:35,439
Speaker 7: you on your trading floors?

448
00:19:35,520 --> 00:19:37,239
Speaker 8: Yeah? So just for those who don't know.

449
00:19:37,400 --> 00:19:40,440
Speaker 9: We had a partnership still do with IBM. We develop

450
00:19:40,560 --> 00:19:44,160
Speaker 9: quantum computing really for financial markets, focusing on the bond market,

451
00:19:44,600 --> 00:19:48,520
Speaker 9: and we use both quantum computing and more traditional computing.

452
00:19:48,560 --> 00:19:51,400
Speaker 9: Brought them together, changed the way we look at data.

453
00:19:51,560 --> 00:19:55,000
Speaker 9: There's a scene called representation data that we actually flipped

454
00:19:55,000 --> 00:19:58,520
Speaker 9: into a more of a quantum computing type of mode.

455
00:19:58,920 --> 00:20:01,760
Speaker 9: That led to a third twenty four percent improvement in

456
00:20:01,800 --> 00:20:04,359
Speaker 9: our ability to predict a trade. So if you were

457
00:20:04,359 --> 00:20:06,639
Speaker 9: going to make a trade, we get to understand that

458
00:20:06,680 --> 00:20:09,480
Speaker 9: trade thirty four percent better. To see the matching between

459
00:20:09,520 --> 00:20:11,439
Speaker 9: buyer and seller is really what it comes down to.

460
00:20:11,520 --> 00:20:15,359
Speaker 9: So that was very effective. It's an initial study. We

461
00:20:15,440 --> 00:20:19,560
Speaker 9: did how we we're tested on multiple contmcuting machines. We

462
00:20:19,600 --> 00:20:22,080
Speaker 9: did all the statistical analysis, so we really do think

463
00:20:22,119 --> 00:20:26,520
Speaker 9: there's something there. It can be used for any traded asset,

464
00:20:26,800 --> 00:20:30,320
Speaker 9: so any asset class. I think the power that that

465
00:20:30,400 --> 00:20:32,440
Speaker 9: brings is going to give an edge. I don't know

466
00:20:32,480 --> 00:20:34,760
Speaker 9: how it wouldn't give an edge, but I think it'll

467
00:20:34,800 --> 00:20:36,760
Speaker 9: be Once we roll it out and others roll it out,

468
00:20:36,760 --> 00:20:39,639
Speaker 9: they'll be quick adoption by I think the industry. I

469
00:20:39,640 --> 00:20:42,200
Speaker 9: mean it's the same industry that tries to reduce latency

470
00:20:42,240 --> 00:20:46,960
Speaker 9: to its smallest possible amount. So I do think technology

471
00:20:47,000 --> 00:20:48,120
Speaker 9: does bring a substantial edge.

472
00:20:48,160 --> 00:20:50,359
Speaker 6: Do you think it's going to replace traders that?

473
00:20:50,440 --> 00:20:50,800
Speaker 1: I don't know.

474
00:20:50,840 --> 00:20:52,560
Speaker 9: I mean, I think they always be humans involved, But

475
00:20:52,600 --> 00:20:54,479
Speaker 9: I think it will help traders quite a lot. And

476
00:20:54,520 --> 00:20:57,040
Speaker 9: I think it'll change really the way traders think about

477
00:20:57,040 --> 00:20:59,320
Speaker 9: it because when you have that much compute.

478
00:20:58,880 --> 00:21:01,160
Speaker 8: Power and you could really use I think.

479
00:21:01,000 --> 00:21:03,920
Speaker 9: Today, you know, we use a lot ai as you said,

480
00:21:04,200 --> 00:21:07,960
Speaker 9: through alg rhythmic trading. This will just be one more

481
00:21:08,000 --> 00:21:11,280
Speaker 9: substantial boost to the power of al rhythmic trading that

482
00:21:11,320 --> 00:21:11,960
Speaker 9: we see today.

483
00:21:12,359 --> 00:21:13,800
Speaker 8: So will it be less traders?

484
00:21:13,840 --> 00:21:14,159
Speaker 1: Don't know?

485
00:21:14,200 --> 00:21:16,439
Speaker 8: But are they going to have powerful machines? Definitely.

486
00:21:16,520 --> 00:21:17,640
Speaker 6: So the other.

487
00:21:17,480 --> 00:21:19,439
Speaker 7: Theme here, and this is something that comes up in

488
00:21:19,440 --> 00:21:22,040
Speaker 7: pretty much every conversation, is the debasement of the dollar

489
00:21:22,400 --> 00:21:25,360
Speaker 7: and this question of how much the dollar is losing

490
00:21:25,400 --> 00:21:29,040
Speaker 7: its heft as a reserve currency internationally. Do you see

491
00:21:29,080 --> 00:21:32,280
Speaker 7: any signs that people truly are moving away from the

492
00:21:32,280 --> 00:21:32,680
Speaker 7: green back?

493
00:21:32,760 --> 00:21:34,679
Speaker 9: Yeah, that's a great question. So I have to be

494
00:21:34,720 --> 00:21:37,560
Speaker 9: traveling to Asia right after Liberation Day, and I would

495
00:21:37,800 --> 00:21:40,879
Speaker 9: say that was probably the number one conversation that I

496
00:21:40,920 --> 00:21:45,240
Speaker 9: was having by very big, very sophisticated large holders of dollars,

497
00:21:45,800 --> 00:21:48,919
Speaker 9: and they were quite focused on this idea of dedollarization

498
00:21:49,040 --> 00:21:52,199
Speaker 9: or debasement of the dollars of reserve currency. And the

499
00:21:52,240 --> 00:21:54,160
Speaker 9: mere fact that they're talking about it and the terms

500
00:21:54,160 --> 00:21:55,639
Speaker 9: they were tells you something is different.

501
00:21:56,240 --> 00:21:56,480
Speaker 8: Now.

502
00:21:56,680 --> 00:21:59,200
Speaker 9: If you look at where the dollar is today, trade

503
00:21:59,200 --> 00:22:04,800
Speaker 9: flows reserve the primary currency of invoicing for most commercial flows,

504
00:22:05,880 --> 00:22:08,919
Speaker 9: the markets flows, it's all well, nor than fifty percent,

505
00:22:08,960 --> 00:22:11,040
Speaker 9: it's you know, sixty seventy eighty percent in all those

506
00:22:11,080 --> 00:22:14,440
Speaker 9: various metrics. It will take a long time to find

507
00:22:14,480 --> 00:22:17,879
Speaker 9: another reserve currency. And the other biggest question is if

508
00:22:17,880 --> 00:22:19,440
Speaker 9: you're going to go away from.

509
00:22:19,280 --> 00:22:20,840
Speaker 8: Dollars, what are you going to do?

510
00:22:20,880 --> 00:22:23,439
Speaker 9: And you know what will be that reserve currency that

511
00:22:23,520 --> 00:22:26,919
Speaker 9: replaces it. There is no other alternative today. And so

512
00:22:27,040 --> 00:22:30,440
Speaker 9: that's the twin issues that you have. The conundrum, maybe

513
00:22:30,480 --> 00:22:32,240
Speaker 9: go away from dollars, but what are we going to

514
00:22:32,280 --> 00:22:33,359
Speaker 9: go to instead.

515
00:22:33,640 --> 00:22:35,600
Speaker 7: To wrap it all up, there is this feeling that

516
00:22:35,640 --> 00:22:39,000
Speaker 7: the center of finance has shifted, and it's not so

517
00:22:39,119 --> 00:22:41,479
Speaker 7: clearly in the United States, and something that you've been

518
00:22:41,520 --> 00:22:44,000
Speaker 7: focusing a lot, how do you see the sort of

519
00:22:44,000 --> 00:22:46,840
Speaker 7: tentacles of finance in terms of where they are flowing

520
00:22:46,880 --> 00:22:49,520
Speaker 7: from transforming really over the past couple of years.

521
00:22:49,560 --> 00:22:52,199
Speaker 9: Yeah, No, I think there's significant transformation going on. And

522
00:22:52,240 --> 00:22:55,159
Speaker 9: if you think there was a unipolar world with the

523
00:22:55,280 --> 00:22:57,080
Speaker 9: US right in the middle of it, still is and

524
00:22:57,200 --> 00:22:59,280
Speaker 9: you know, the US capital market is the most liquid

525
00:22:59,280 --> 00:23:02,440
Speaker 9: of the world, still the dominant place to trade. However,

526
00:23:02,720 --> 00:23:04,680
Speaker 9: you need to look at where trade and commercial flows

527
00:23:04,680 --> 00:23:07,800
Speaker 9: are going, where financial flows are going. I would look

528
00:23:07,880 --> 00:23:11,000
Speaker 9: between the Middle East and Asia as an example. Substantial

529
00:23:11,080 --> 00:23:14,160
Speaker 9: increase of flows between those two regions, and they're not

530
00:23:14,440 --> 00:23:17,000
Speaker 9: flows that are necessarily coming from the West just being

531
00:23:17,000 --> 00:23:21,199
Speaker 9: transhipped through those reasons. They're actually wealth and that is

532
00:23:21,240 --> 00:23:23,399
Speaker 9: being rechanneled in that region.

533
00:23:23,440 --> 00:23:23,760
Speaker 8: Issel.

534
00:23:24,119 --> 00:23:25,640
Speaker 9: I think you'll see that more and more. I think

535
00:23:25,640 --> 00:23:28,520
Speaker 9: you'll see Asia Middle East coming together more and more,

536
00:23:28,800 --> 00:23:31,200
Speaker 9: and I think you'll have a much more balanced equation.

537
00:23:31,320 --> 00:23:34,280
Speaker 9: I don't think there'll be as a dominant source of

538
00:23:34,400 --> 00:23:37,200
Speaker 9: financial flows that you've seen before. And you know, great

539
00:23:37,200 --> 00:23:38,919
Speaker 9: for US because we have to be very strong in

540
00:23:38,920 --> 00:23:41,439
Speaker 9: those two regions. But I do think people need to

541
00:23:41,480 --> 00:23:44,640
Speaker 9: understand that there's a significant change going on and those

542
00:23:44,640 --> 00:23:46,760
Speaker 9: flows will not just go through New York as they

543
00:23:46,880 --> 00:23:48,000
Speaker 9: used to in past.

544
00:23:49,400 --> 00:23:52,840
Speaker 2: Stay with us. More Bloomberg Surveillance coming up after this.

545
00:24:02,280 --> 00:24:04,760
Speaker 7: Yeah, I would love to welcome in Scott Kirby, the

546
00:24:04,800 --> 00:24:08,760
Speaker 7: CEO of United Airlines, And Scott, it's really tremendous to

547
00:24:08,800 --> 00:24:11,760
Speaker 7: see not only what you did, but also the fact

548
00:24:11,760 --> 00:24:14,399
Speaker 7: that you see significant upside to the fourth quarter. And

549
00:24:14,440 --> 00:24:16,480
Speaker 7: I want to just start there. Where do you see

550
00:24:16,480 --> 00:24:18,080
Speaker 7: the acceleration in demand?

551
00:24:18,960 --> 00:24:21,360
Speaker 6: You know, Actually you look across the full year.

552
00:24:21,400 --> 00:24:23,520
Speaker 10: The first three quarters were really good for United in

553
00:24:23,600 --> 00:24:27,520
Speaker 10: a lot of macro volatility that happened for the aviation industry.

554
00:24:27,760 --> 00:24:30,879
Speaker 10: That demonstrates the resilient of our revenue diverse, brand loyal

555
00:24:30,920 --> 00:24:32,879
Speaker 10: business model. But you look to the fourth quarter, it's

556
00:24:32,920 --> 00:24:35,840
Speaker 10: even more exciting because as the economy started to get

557
00:24:35,880 --> 00:24:39,119
Speaker 10: back to a solid footing, at least for aviation, demonstrates

558
00:24:39,119 --> 00:24:40,600
Speaker 10: a lot of upside. We think we're going to be

559
00:24:40,640 --> 00:24:42,520
Speaker 10: able to grow earnings for the full year even in

560
00:24:42,560 --> 00:24:43,280
Speaker 10: this environment.

561
00:24:43,520 --> 00:24:45,280
Speaker 6: So it really is creating.

562
00:24:45,040 --> 00:24:47,000
Speaker 10: Value for all of our customers all the way from

563
00:24:47,000 --> 00:24:49,520
Speaker 10: basic economy to winning much higher market share in the

564
00:24:49,520 --> 00:24:53,560
Speaker 10: brand loyal customers really is a great resilient strategy when

565
00:24:53,600 --> 00:24:56,399
Speaker 10: times are difficult, but a lot of upside as the

566
00:24:56,440 --> 00:24:57,320
Speaker 10: economy recovers.

567
00:24:57,320 --> 00:24:59,480
Speaker 6: Here in four Q, I.

568
00:24:59,440 --> 00:25:03,000
Speaker 7: Guess I want to drill into the economy because Scott,

569
00:25:03,119 --> 00:25:06,240
Speaker 7: earlier in the year it had been the economy section that.

570
00:25:06,240 --> 00:25:07,120
Speaker 1: Had struggled the most.

571
00:25:07,200 --> 00:25:10,040
Speaker 7: I'm just wondering how much it's picking up, whether you've

572
00:25:10,080 --> 00:25:12,959
Speaker 7: had to discount tickets to bring people in to compete,

573
00:25:13,040 --> 00:25:16,399
Speaker 7: or whether consumers are willing to absorb higher prices and

574
00:25:17,560 --> 00:25:18,520
Speaker 7: take their trips.

575
00:25:18,960 --> 00:25:19,240
Speaker 6: Yeah.

576
00:25:19,320 --> 00:25:22,120
Speaker 10: Well, as we've talked about before, least so the airline

577
00:25:22,119 --> 00:25:24,720
Speaker 10: industries are a pretty good real time indicator of the economy.

578
00:25:24,720 --> 00:25:27,160
Speaker 10: And you know, we saw for much of the first

579
00:25:27,160 --> 00:25:30,640
Speaker 10: half of the year economic stress and ticket prices were

580
00:25:30,680 --> 00:25:33,000
Speaker 10: lower as a result of that. But as we got

581
00:25:33,040 --> 00:25:36,320
Speaker 10: into the third quarter, bookings, at least for future travel,

582
00:25:36,720 --> 00:25:37,879
Speaker 10: the economy started to pick up.

583
00:25:37,920 --> 00:25:39,400
Speaker 6: Bookings started to pick up, and.

584
00:25:39,280 --> 00:25:42,000
Speaker 10: As we finished the quarter, you know, we've set records

585
00:25:42,119 --> 00:25:44,800
Speaker 10: each of the last several weeks on most corporate revenue

586
00:25:44,800 --> 00:25:46,639
Speaker 10: that we've ever booked in a single week, and a

587
00:25:46,720 --> 00:25:49,680
Speaker 10: number of records, particularly in business travel, really kind of

588
00:25:49,720 --> 00:25:53,040
Speaker 10: strong across the board, though internationals come back stronger.

589
00:25:53,200 --> 00:25:56,200
Speaker 6: The period has extended premium.

590
00:25:55,800 --> 00:26:00,679
Speaker 10: Is obviously stronger than main cabin but really we've seen improvement,

591
00:26:00,760 --> 00:26:02,960
Speaker 10: you know, as we've moved through the third quarter, kind

592
00:26:02,960 --> 00:26:05,679
Speaker 10: of across the board on revenue streams, with the biggest

593
00:26:05,680 --> 00:26:07,199
Speaker 10: strength in the corporate segment.

594
00:26:08,480 --> 00:26:10,240
Speaker 7: And that's actually something that we see across the board,

595
00:26:10,240 --> 00:26:11,879
Speaker 7: particularly because they're all these deals, so people have to

596
00:26:11,880 --> 00:26:13,760
Speaker 7: actually get on a plane and go see some of

597
00:26:13,800 --> 00:26:18,840
Speaker 7: their clients. I am wondering, are you seeing international travelers

598
00:26:18,840 --> 00:26:20,440
Speaker 7: tourists come back to the United States.

599
00:26:20,480 --> 00:26:21,119
Speaker 6: I thought that was kind of.

600
00:26:21,080 --> 00:26:22,919
Speaker 7: A soft spot and a sort of a tell in

601
00:26:23,040 --> 00:26:26,080
Speaker 7: terms of the international reputation of the country.

602
00:26:26,640 --> 00:26:30,000
Speaker 10: Well, our business is about eighty percent US point of sale.

603
00:26:30,119 --> 00:26:32,720
Speaker 10: But we have and we saw a drop at international

604
00:26:32,760 --> 00:26:36,240
Speaker 10: traffic earlier in the year. It's not quite back to

605
00:26:36,480 --> 00:26:39,280
Speaker 10: last year's levels, but it has recovered and it's close

606
00:26:39,359 --> 00:26:41,040
Speaker 10: to last year's level. So we did see a dip,

607
00:26:41,520 --> 00:26:43,920
Speaker 10: but even that has come back and we think that's

608
00:26:43,960 --> 00:26:46,920
Speaker 10: on the trend to getting back to normal pretty soon.

609
00:26:48,160 --> 00:26:50,600
Speaker 7: Are you planning to keep capacity pretty much the same?

610
00:26:50,680 --> 00:26:53,119
Speaker 7: Are you expanding to Are you planning to expand or

611
00:26:53,160 --> 00:26:55,480
Speaker 7: cut back? I know that it was constrained earlier this

612
00:26:55,560 --> 00:26:58,400
Speaker 7: year just because of demand. But as demand picks up,

613
00:26:58,720 --> 00:27:00,680
Speaker 7: are you going to bring more planes on deck?

614
00:27:01,560 --> 00:27:04,439
Speaker 10: Well, we've been growing, you know, in absolute growth, actually

615
00:27:04,440 --> 00:27:06,080
Speaker 10: faster I think than in the airline in the world

616
00:27:06,119 --> 00:27:07,840
Speaker 10: has ever grown for several years in a row.

617
00:27:07,880 --> 00:27:09,040
Speaker 6: And that's worked really.

618
00:27:08,880 --> 00:27:11,000
Speaker 10: Well for you, NINED and that's been successful. So we

619
00:27:11,119 --> 00:27:13,840
Speaker 10: really haven't much changed our capacity. We tweak it here

620
00:27:13,880 --> 00:27:15,879
Speaker 10: and there. The biggest change we're going to make for

621
00:27:15,920 --> 00:27:19,280
Speaker 10: next year, I think is actually to reshape the seasonality

622
00:27:19,320 --> 00:27:19,600
Speaker 10: of the year.

623
00:27:19,640 --> 00:27:21,600
Speaker 6: You know. One of the things that's happened that's good.

624
00:27:21,400 --> 00:27:24,720
Speaker 10: For our business is this third quarter peak has extended

625
00:27:24,800 --> 00:27:26,919
Speaker 10: into the fourth quarter, and it's made the fourth quarter

626
00:27:27,160 --> 00:27:29,480
Speaker 10: actually a better quarter from a margin perspective than.

627
00:27:29,440 --> 00:27:30,080
Speaker 6: The third quarter.

628
00:27:30,080 --> 00:27:33,439
Speaker 10: And what we think is as that particularly international demand

629
00:27:33,480 --> 00:27:36,119
Speaker 10: has extended into the fourth quarter, there's an opportunity for

630
00:27:36,200 --> 00:27:38,960
Speaker 10: us to actually fly less in the peak in the

631
00:27:39,000 --> 00:27:41,000
Speaker 10: third quarter, which would be good for our RASM. But

632
00:27:41,040 --> 00:27:42,359
Speaker 10: it turns out it's going to actually be good for

633
00:27:42,400 --> 00:27:44,720
Speaker 10: our cost structure too, because we we have to build

634
00:27:44,880 --> 00:27:48,360
Speaker 10: staffing and infrastructure everything up to that peak for six

635
00:27:48,400 --> 00:27:50,760
Speaker 10: weeks of the peak summer. And so next year we're

636
00:27:50,760 --> 00:27:53,760
Speaker 10: going to actually try to reshape our schedule some to

637
00:27:53,800 --> 00:27:56,800
Speaker 10: lower the peak and let the demand spread across more

638
00:27:56,840 --> 00:27:57,200
Speaker 10: of the year.

639
00:27:58,400 --> 00:28:00,080
Speaker 7: I know earlier this year when we were talking and

640
00:28:00,200 --> 00:28:02,600
Speaker 7: you said that you do expect to raise prices by

641
00:28:03,520 --> 00:28:07,320
Speaker 7: single digits just to compensate for higher costs. You see

642
00:28:07,359 --> 00:28:09,760
Speaker 7: that on track the same type of price increases and

643
00:28:09,760 --> 00:28:12,280
Speaker 7: our consumers okay with it? Are they absorbing it?

644
00:28:13,160 --> 00:28:13,359
Speaker 8: You know?

645
00:28:13,840 --> 00:28:16,359
Speaker 10: This year prices have come down, as we talked about,

646
00:28:16,760 --> 00:28:19,600
Speaker 10: just you know, as there was echo macro volatility, at

647
00:28:19,640 --> 00:28:23,720
Speaker 10: least for aviation. I do expect them to normalize next year,

648
00:28:24,240 --> 00:28:27,080
Speaker 10: and I think just over time that you should expect

649
00:28:27,080 --> 00:28:30,840
Speaker 10: to see airfares grow consistent with inflation is likely what's

650
00:28:30,880 --> 00:28:32,720
Speaker 10: going to happen over time.

651
00:28:33,800 --> 00:28:36,560
Speaker 7: How much do you see staff wage increases?

652
00:28:36,640 --> 00:28:38,480
Speaker 1: Also playing into this the idea.

653
00:28:38,320 --> 00:28:40,680
Speaker 7: That a lot of the people who work for United

654
00:28:40,680 --> 00:28:43,719
Speaker 7: are also saying, Okay, well things are going up, we

655
00:28:43,760 --> 00:28:44,640
Speaker 7: want to pay increase.

656
00:28:45,320 --> 00:28:45,600
Speaker 6: Yeah.

657
00:28:45,720 --> 00:28:47,040
Speaker 10: A lot of people are the best in the world,

658
00:28:47,120 --> 00:28:49,440
Speaker 10: and they deserve industry leading contract. Every time we sign

659
00:28:49,480 --> 00:28:52,080
Speaker 10: a new contract with one of our union groups, they

660
00:28:52,720 --> 00:28:56,360
Speaker 10: expect and deserve and will be paid at the top

661
00:28:56,400 --> 00:28:58,960
Speaker 10: of the industry. So that's built into our forecast that's

662
00:28:58,960 --> 00:29:01,000
Speaker 10: built into everything that we're doing. One of the great

663
00:29:01,000 --> 00:29:03,160
Speaker 10: things that we're doing though at United is I think

664
00:29:03,160 --> 00:29:05,560
Speaker 10: we're the best in the world at managing our real

665
00:29:05,640 --> 00:29:08,800
Speaker 10: core costs and being more efficient at the airline. We've

666
00:29:08,800 --> 00:29:12,760
Speaker 10: invested heavily in technology. It helps us run the airline better.

667
00:29:13,080 --> 00:29:15,000
Speaker 10: But you look at the third quarter. You know the

668
00:29:15,120 --> 00:29:17,560
Speaker 10: number of airlines that have talked about missing their cost

669
00:29:17,600 --> 00:29:20,360
Speaker 10: guidance because of storms, and there were storms in the quarter.

670
00:29:20,680 --> 00:29:24,120
Speaker 10: But we've invested so heavily in our recovery tools that

671
00:29:24,320 --> 00:29:27,920
Speaker 10: we had best in the industry cost performance, and we're

672
00:29:28,000 --> 00:29:31,160
Speaker 10: driving our costs lower, not by taking things away from

673
00:29:31,160 --> 00:29:34,280
Speaker 10: the customer, but by actually investing in technology that lets

674
00:29:34,320 --> 00:29:37,120
Speaker 10: us run a better operation for customers and is lower

675
00:29:37,120 --> 00:29:39,480
Speaker 10: costs at the same time, and that also helps fund

676
00:29:39,760 --> 00:29:42,120
Speaker 10: investments for the customer. We're spending over a billion dollars

677
00:29:42,160 --> 00:29:44,640
Speaker 10: a year and incremental investments for the customer, but also

678
00:29:44,720 --> 00:29:48,560
Speaker 10: importantly investments in our people and having them have the

679
00:29:48,600 --> 00:29:50,320
Speaker 10: best pay and the best contracts in the world.

680
00:29:51,440 --> 00:29:53,920
Speaker 7: Scott, I love saying that you're my favorite economists to

681
00:29:53,960 --> 00:29:55,400
Speaker 7: speak to you because you do have this real time

682
00:29:55,520 --> 00:29:58,040
Speaker 7: view of the economy and right now what you're saying

683
00:29:58,160 --> 00:30:00,880
Speaker 7: is kind of flying in the face the weakness and

684
00:30:00,920 --> 00:30:02,920
Speaker 7: some of the worries that we're hearing, whether it's from

685
00:30:02,960 --> 00:30:05,520
Speaker 7: the government shutdown is going to cause disruptions, or whether

686
00:30:05,560 --> 00:30:09,280
Speaker 7: it's the unemployment picture that people are increasingly worried about.

687
00:30:09,600 --> 00:30:12,240
Speaker 7: How do you square those two things, This reacceleration that

688
00:30:12,280 --> 00:30:16,080
Speaker 7: you're talking about with the weakness that policymakers seem to

689
00:30:16,080 --> 00:30:16,920
Speaker 7: be so worried about.

690
00:30:17,760 --> 00:30:21,960
Speaker 10: Well, uncertainty really is I think what drives the economy

691
00:30:22,160 --> 00:30:23,920
Speaker 10: in one direction or another, And there was a lot

692
00:30:23,920 --> 00:30:25,160
Speaker 10: of uncertainty to start the year.

693
00:30:25,200 --> 00:30:26,800
Speaker 6: As we kind of got into the third.

694
00:30:26,600 --> 00:30:31,360
Speaker 10: Quarter and some of the macro issues, the reconciliation bill

695
00:30:31,520 --> 00:30:38,160
Speaker 10: passed and geopolitical situation improved, Tariffs settled into having some

696
00:30:38,240 --> 00:30:39,360
Speaker 10: confidence what they were going to be.

697
00:30:39,680 --> 00:30:40,760
Speaker 6: We saw that improved.

698
00:30:40,920 --> 00:30:44,120
Speaker 10: Now we do now have new issues that things pop

699
00:30:44,200 --> 00:30:48,040
Speaker 10: up all the time. What's happening with the shutdown could

700
00:30:48,120 --> 00:30:48,920
Speaker 10: become an issue.

701
00:30:49,080 --> 00:30:50,160
Speaker 6: So far it hasn't been.

702
00:30:50,240 --> 00:30:52,480
Speaker 10: You know, first, the FA is doing I think a

703
00:30:52,480 --> 00:30:54,280
Speaker 10: great job of running the system.

704
00:30:54,520 --> 00:30:57,960
Speaker 6: We have our lowest cancelation rate in the last.

705
00:30:57,800 --> 00:31:01,080
Speaker 10: Decade, our second best on time performance controllers are professionals

706
00:31:01,080 --> 00:31:04,000
Speaker 10: because it's not news about it. But the controllers are professionals,

707
00:31:04,120 --> 00:31:06,120
Speaker 10: view their job as safety view their job is taking

708
00:31:06,120 --> 00:31:08,720
Speaker 10: care of the public. And kudos to them. They're almost

709
00:31:08,800 --> 00:31:10,680
Speaker 10: all of them are showing up to work and doing

710
00:31:10,720 --> 00:31:12,920
Speaker 10: their job. And has it the first couple of weeks

711
00:31:12,920 --> 00:31:16,000
Speaker 10: of October. Has it really affected bookings? I think if

712
00:31:16,040 --> 00:31:19,160
Speaker 10: this goes on for too long, certainly the risks escalate

713
00:31:19,920 --> 00:31:22,000
Speaker 10: in the economies that goes on. I think the economy

714
00:31:22,200 --> 00:31:25,520
Speaker 10: is better than most people think, but it's still tenuous.

715
00:31:25,880 --> 00:31:29,440
Speaker 10: It's still a little balanced on a knife edge, and

716
00:31:29,480 --> 00:31:31,320
Speaker 10: we shouldn't have, you know, unforre share.

717
00:31:31,480 --> 00:31:33,760
Speaker 6: So let's get the shutdown settled.

718
00:31:34,440 --> 00:31:37,880
Speaker 2: Stay with us more Bloomberg Surveillance coming up after this

719
00:31:46,760 --> 00:31:50,040
Speaker 2: today and asking a one point six billion dollar loone

720
00:31:50,280 --> 00:31:53,320
Speaker 2: to a subsidiary of American Electric Power. The goal is

721
00:31:53,360 --> 00:31:55,880
Speaker 2: to strength and grid reliability and of course lower energy

722
00:31:55,880 --> 00:31:59,120
Speaker 2: costs across the Midwest. The US Energy Secretary Chris Right

723
00:31:59,320 --> 00:32:01,720
Speaker 2: joined us now from miss the Right. Miss the Secretary,

724
00:32:01,800 --> 00:32:04,120
Speaker 2: welcome back to the program, sir. Let's just start with

725
00:32:04,400 --> 00:32:06,560
Speaker 2: giving you some time to explain what brought us to

726
00:32:06,560 --> 00:32:09,160
Speaker 2: this moment and what the broader strategy.

727
00:32:08,760 --> 00:32:15,160
Speaker 11: Is, Yeah, the broader strategy is to use funds to

728
00:32:15,360 --> 00:32:21,040
Speaker 11: better the American experience, lower cost rate payers, lower taxpayer expenditures.

729
00:32:21,480 --> 00:32:23,920
Speaker 11: I mean, in short, President Trump got elected to get

730
00:32:24,000 --> 00:32:27,000
Speaker 11: rid of the nonsense. We're not about climate politics now,

731
00:32:27,200 --> 00:32:30,240
Speaker 11: we're about energy for the American people. How can we

732
00:32:30,360 --> 00:32:33,200
Speaker 11: lower their cost of energy? How can we enable AI

733
00:32:33,400 --> 00:32:36,800
Speaker 11: and manufacturing to reshore in our country? And this program,

734
00:32:36,960 --> 00:32:40,040
Speaker 11: this loan is a perfect example of that. This is

735
00:32:40,120 --> 00:32:45,560
Speaker 11: to reconductor five thousand miles of transmission lines, existing right aways,

736
00:32:45,600 --> 00:32:49,400
Speaker 11: existing towers, just put better conductors up so you can

737
00:32:49,400 --> 00:32:52,320
Speaker 11: get more juice through the same corridors you already had.

738
00:32:52,840 --> 00:32:55,560
Speaker 11: This is the kind of things that helps American people

739
00:32:55,560 --> 00:32:56,680
Speaker 11: and American businesses.

740
00:32:56,920 --> 00:32:59,800
Speaker 4: Secretary, right, your department is saying that and projecting that

741
00:33:00,040 --> 00:33:02,600
Speaker 4: data centers, commercial customers are for the first time ever

742
00:33:02,880 --> 00:33:06,840
Speaker 4: going to use more electricity next year than household Is

743
00:33:06,880 --> 00:33:09,239
Speaker 4: the federal government going to have to step in and

744
00:33:09,320 --> 00:33:15,280
Speaker 4: help con American people consumers foot the bill with.

745
00:33:15,280 --> 00:33:18,720
Speaker 11: The American government's doing everything we can to enable the

746
00:33:18,760 --> 00:33:22,120
Speaker 11: growth of electricity production in this country. You know, the

747
00:33:22,200 --> 00:33:25,840
Speaker 11: last administration was about energy subtraction, trying to get away things,

748
00:33:26,040 --> 00:33:29,480
Speaker 11: get rid of things they didn't like and subsidize things

749
00:33:29,480 --> 00:33:32,640
Speaker 11: that are unreliable, that use a lot of land and

750
00:33:32,720 --> 00:33:35,959
Speaker 11: drive up electricity prices. So, yeah, we're trying to reverse

751
00:33:36,000 --> 00:33:38,880
Speaker 11: a tidal wave. That's a challenge, but we're going to

752
00:33:38,920 --> 00:33:42,360
Speaker 11: do it, and ultimately AI is not going to make

753
00:33:42,440 --> 00:33:45,520
Speaker 11: electricity more scarce and more expensive in the country.

754
00:33:45,680 --> 00:33:47,720
Speaker 5: It's going to make electricity.

755
00:33:47,040 --> 00:33:51,160
Speaker 11: More abundant, more reliable, and ultimately more affordable, so we

756
00:33:51,200 --> 00:33:53,880
Speaker 11: can walk and chew gum at the same time. It's

757
00:33:53,920 --> 00:33:55,840
Speaker 11: a challenge, but we're going to get it done well.

758
00:33:55,880 --> 00:33:59,400
Speaker 4: The administration, though, has purge some clean energy projects. Do

759
00:33:59,440 --> 00:34:03,040
Speaker 4: you want to hoole of energy approach or just specific types.

760
00:34:05,160 --> 00:34:06,000
Speaker 5: We care about?

761
00:34:06,080 --> 00:34:10,680
Speaker 11: Affordable, reliable and secure energy. I get asked all the time,

762
00:34:10,719 --> 00:34:13,439
Speaker 11: aren't you all of the above? No, I'm not all

763
00:34:13,520 --> 00:34:16,560
Speaker 11: of the above, and I've never claimed to be. If

764
00:34:16,600 --> 00:34:20,080
Speaker 11: you put it's not just more electrons on the grid

765
00:34:20,120 --> 00:34:22,520
Speaker 11: to collect more wind power in the middle of the

766
00:34:22,600 --> 00:34:26,800
Speaker 11: night in Iowa. That doesn't increase the capacity of our grid.

767
00:34:27,040 --> 00:34:30,560
Speaker 11: That doesn't drive down anyone's prices. It doesn't allow us

768
00:34:30,560 --> 00:34:34,280
Speaker 11: to reshore manufacturing our data centers here. The electricity grid's

769
00:34:34,400 --> 00:34:37,600
Speaker 11: very different than your gas tank. What matters is having

770
00:34:37,719 --> 00:34:41,880
Speaker 11: reliable power to meet peak demand times. If you're not

771
00:34:42,080 --> 00:34:44,960
Speaker 11: there at peak demand time, you don't add any value

772
00:34:45,000 --> 00:34:46,760
Speaker 11: to the grid, You just add expense.

773
00:34:47,280 --> 00:34:49,960
Speaker 4: Well, when it comes to reliability. Right now, the US

774
00:34:50,040 --> 00:34:53,360
Speaker 4: government is shut down. Are you speaking directly with senators

775
00:34:53,640 --> 00:34:56,440
Speaker 4: about when the US government could reopen? How is it

776
00:34:56,440 --> 00:34:58,480
Speaker 4: affecting your department specifically?

777
00:35:00,800 --> 00:35:02,839
Speaker 11: Oh, that is a great question, and yes I am

778
00:35:02,880 --> 00:35:05,960
Speaker 11: speaking to US senators on both sides of the aisle.

779
00:35:06,400 --> 00:35:10,120
Speaker 11: The shutdown is definitely destructive. Everything we're trying to do

780
00:35:10,200 --> 00:35:14,120
Speaker 11: is lower American energy costs and enable American businesses to

781
00:35:14,239 --> 00:35:20,399
Speaker 11: build more manufacturing facilities in our country. Losing workers, having uncertainty,

782
00:35:20,880 --> 00:35:24,560
Speaker 11: having funds frozen or uncertain that's not helpful. Let me

783
00:35:24,560 --> 00:35:27,719
Speaker 11: get if I can give one example. We are modernizing

784
00:35:27,800 --> 00:35:31,280
Speaker 11: our nuclear weapons stockpile at the Department of Energy. That's

785
00:35:31,400 --> 00:35:36,080
Speaker 11: done by about one hundred thousand contractors. They're not government employees,

786
00:35:36,480 --> 00:35:39,840
Speaker 11: they're contractors, so they're not going to get back pay.

787
00:35:40,160 --> 00:35:43,520
Speaker 11: We've been paying them till date to date, but starting

788
00:35:43,560 --> 00:35:46,360
Speaker 11: tomorrow Monday at the latest, we're not going to be

789
00:35:46,400 --> 00:35:49,919
Speaker 11: able to pay those workers. If that continues, on for long.

790
00:35:50,040 --> 00:35:52,920
Speaker 11: They may get other jobs. They're going to stop their

791
00:35:53,000 --> 00:35:57,080
Speaker 11: efforts to modernize our nuclear weapons to guarantee the sovereignty

792
00:35:57,120 --> 00:35:59,879
Speaker 11: of our country. That's not something we should mess around.

793
00:36:00,280 --> 00:36:03,000
Speaker 4: Are you saying you are furlowing employees at the National

794
00:36:03,120 --> 00:36:07,800
Speaker 4: Nuclear Security Administration, which keeps our nuclear stockpile in check.

795
00:36:10,000 --> 00:36:12,759
Speaker 11: We have not furloughed anyone yet, but we will be

796
00:36:12,960 --> 00:36:16,880
Speaker 11: out of funds by the tomorrow or early next week,

797
00:36:17,040 --> 00:36:19,200
Speaker 11: so we will be forced to do that if this

798
00:36:19,280 --> 00:36:22,560
Speaker 11: shutdown continues. I desperately do not want to do that,

799
00:36:22,880 --> 00:36:24,080
Speaker 11: but I have to follow the law.

800
00:36:24,560 --> 00:36:28,719
Speaker 4: Well, what does this mean for our national security posture?

801
00:36:31,640 --> 00:36:32,480
Speaker 5: Of course, we.

802
00:36:32,400 --> 00:36:37,520
Speaker 11: Keep people for emergency services or existing nuclear stockpile will

803
00:36:37,560 --> 00:36:41,760
Speaker 11: be secure and will be ready. But the modernization program

804
00:36:41,800 --> 00:36:45,239
Speaker 11: to replace our older weapons with new modern weapons, that's

805
00:36:45,280 --> 00:36:48,279
Speaker 11: a key part of my job. We're just ramping those

806
00:36:48,320 --> 00:36:52,160
Speaker 11: efforts up. We're just getting momentum there. To have everybody

807
00:36:52,800 --> 00:36:56,080
Speaker 11: unpaid and not come into work, that will not be helpful.

808
00:36:56,640 --> 00:36:59,560
Speaker 11: I'm adamantly in favor of ending this shutdown as soon

809
00:36:59,600 --> 00:37:03,759
Speaker 11: as we can. Unfortunately, Chuck Schumer's worried more about AOC

810
00:37:04,280 --> 00:37:08,680
Speaker 11: than America's nuclear safety that's just deeply un American. I'm

811
00:37:08,760 --> 00:37:11,800
Speaker 11: very disappointed with the Democrats. We have a clean r

812
00:37:12,000 --> 00:37:15,840
Speaker 11: to just continue the Biden level spending we had before.

813
00:37:16,040 --> 00:37:19,040
Speaker 11: It's got bipartisan votes in the House and the Senate

814
00:37:19,480 --> 00:37:23,400
Speaker 11: multiple times. It's just a small number of Democrats that

815
00:37:23,480 --> 00:37:26,239
Speaker 11: are standing out thinking they're going to win new subsidies

816
00:37:26,520 --> 00:37:30,239
Speaker 11: by holding our modernization of our nuclear stockpile hostage.

817
00:37:30,440 --> 00:37:32,640
Speaker 5: This is deeply irresponsible.

818
00:37:33,160 --> 00:37:35,879
Speaker 4: We also have at this moment a current trade war

819
00:37:35,920 --> 00:37:37,840
Speaker 4: between the United States and China with a lot of

820
00:37:38,280 --> 00:37:41,200
Speaker 4: hot rhetoric the past few weeks. What is the Department

821
00:37:41,280 --> 00:37:44,600
Speaker 4: doing in terms of sourcing rare earth minerals that come

822
00:37:44,600 --> 00:37:47,120
Speaker 4: from China and China right now is trying to really

823
00:37:47,160 --> 00:37:48,440
Speaker 4: put a choke hold on them.

824
00:37:50,400 --> 00:37:53,440
Speaker 11: Yes, that is another critical effort at our department and

825
00:37:53,520 --> 00:37:57,520
Speaker 11: across the Trump administration. We have made ourselves far too

826
00:37:57,560 --> 00:38:00,839
Speaker 11: dependent on, as you say, critical minerals products that come

827
00:38:00,880 --> 00:38:04,120
Speaker 11: from them, that come from China. We have it across

828
00:38:04,200 --> 00:38:08,720
Speaker 11: our department and across the administration effort to reshore the mining,

829
00:38:09,080 --> 00:38:13,480
Speaker 11: the processing, the manufacturing for these critical projects in our

830
00:38:13,520 --> 00:38:18,000
Speaker 11: country or in our friends neighboring countries or close allies

831
00:38:18,000 --> 00:38:20,800
Speaker 11: of ours. This is an absolute critical effort of the

832
00:38:20,840 --> 00:38:21,839
Speaker 11: Trump administration.

833
00:38:22,160 --> 00:38:24,520
Speaker 5: But it's going to take time. It's years that Doug

834
00:38:24,640 --> 00:38:25,360
Speaker 5: us in this hole.

835
00:38:25,640 --> 00:38:27,960
Speaker 11: It's going to take us many months, hopefully not many

836
00:38:28,080 --> 00:38:30,000
Speaker 11: years to get out of it. We will achieve it

837
00:38:30,120 --> 00:38:33,560
Speaker 11: during the Trump administration. But you're right, we're vulnerable today

838
00:38:33,800 --> 00:38:37,000
Speaker 11: and that's at a loss to Americans. Four years of

839
00:38:37,200 --> 00:38:42,399
Speaker 11: unserious government focused on climate change and energy subtraction, outsourcing,

840
00:38:42,480 --> 00:38:44,440
Speaker 11: anything that consumed the energy.

841
00:38:44,160 --> 00:38:46,960
Speaker 5: Out of our country. That was deeply destructive.

842
00:38:47,080 --> 00:38:50,280
Speaker 11: It angered Americans, and it elected President Trump.

843
00:38:50,520 --> 00:38:51,319
Speaker 5: We need to fix it.

844
00:38:51,680 --> 00:38:55,600
Speaker 4: You come from the private sector. Are you comfortable with

845
00:38:55,920 --> 00:39:00,000
Speaker 4: the president taking stakes, equity stakes in some of these

846
00:39:00,040 --> 00:39:04,279
Speaker 4: companies that he deems critical for the US national security?

847
00:39:06,120 --> 00:39:07,880
Speaker 5: I am, And let me tell you why.

848
00:39:08,320 --> 00:39:12,520
Speaker 11: China has used market forces to push us out of

849
00:39:12,560 --> 00:39:15,600
Speaker 11: all these critical industries. As soon as we invest money,

850
00:39:15,640 --> 00:39:19,279
Speaker 11: or American businesses invest money, you know, demind samarium or

851
00:39:19,320 --> 00:39:21,960
Speaker 11: process that in the United States, they flood the market,

852
00:39:22,080 --> 00:39:25,240
Speaker 11: drive the prices down, and people can't raise equity capital,

853
00:39:25,400 --> 00:39:26,040
Speaker 11: they can't.

854
00:39:25,840 --> 00:39:27,080
Speaker 5: Develop those resources.

855
00:39:27,480 --> 00:39:31,279
Speaker 11: China has used manipulation of markets to keep US and

856
00:39:31,320 --> 00:39:31,920
Speaker 11: the rest.

857
00:39:31,719 --> 00:39:33,719
Speaker 5: Of the world out of these critical materials.

858
00:39:34,120 --> 00:39:36,880
Speaker 11: We need to do things differently to make it so

859
00:39:36,960 --> 00:39:40,320
Speaker 11: it does work for American businesses to do these things.

860
00:39:40,160 --> 00:39:40,880
Speaker 5: In our country.

861
00:39:41,160 --> 00:39:44,800
Speaker 11: That means the government providing loans, the government's providing equity capital,

862
00:39:45,080 --> 00:39:49,160
Speaker 11: the government's providing other out of normal market mechanisms to

863
00:39:49,239 --> 00:39:51,279
Speaker 11: make it happens.

864
00:39:52,640 --> 00:39:56,120
Speaker 4: Distorting the market. Though you're a capitalist, is this not distortion?

865
00:39:56,560 --> 00:39:58,879
Speaker 4: It feels like the US government is doing what China does,

866
00:39:58,880 --> 00:40:00,000
Speaker 4: which is picking winners and loup.

867
00:40:02,400 --> 00:40:04,840
Speaker 11: Yeah, we don't want to do this broadly in our economy,

868
00:40:04,920 --> 00:40:09,000
Speaker 11: but China has effectively distorted the market to push everyone

869
00:40:09,080 --> 00:40:12,120
Speaker 11: out of these critical industries. The only way for us

870
00:40:12,160 --> 00:40:15,200
Speaker 11: to get back into those industries is to respond to

871
00:40:15,320 --> 00:40:18,759
Speaker 11: China's market distortion. And it does require things out of

872
00:40:18,760 --> 00:40:21,880
Speaker 11: the normal market mechanism, but that's in a narrow area

873
00:40:22,000 --> 00:40:24,880
Speaker 11: of these critical minerals and materials. But they matter for

874
00:40:24,960 --> 00:40:28,000
Speaker 11: our national security and they matter for our economic security.

875
00:40:28,800 --> 00:40:32,359
Speaker 2: This is the Bloomberg Survandics podcast, bringing you the best

876
00:40:32,400 --> 00:40:35,719
Speaker 2: in markets, economics, antient politics. You can watch the show

877
00:40:35,760 --> 00:40:38,719
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878
00:40:38,840 --> 00:40:42,600
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879
00:40:42,760 --> 00:40:44,960
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880
00:40:45,000 --> 00:40:47,399
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