Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. Turn into the Federal Reserve,
Speaker 2: the list of candidates to replace Chairman j Powell reportedly
Speaker 2: down to the final five, the list emerging following extensive
Speaker 2: interviews with the Treasury Secretary Scott Besson on that list,
Speaker 2: Fed Governor Chris Waller, who joins us now Governor Wanta.
Speaker 1: Good morning, Well, Goodmorian, Joan and goom Morrian, Henry.
Speaker 2: Welcome back, Sarah. It's good to see you. How's the
Speaker 2: process going. Let's start down and then we can get
Speaker 2: into all the other good stuff. How's the intertry process going.
Speaker 3: It's going well, that's fary psych tell that secretary has
Speaker 3: a very systematic way of going down on the list
Speaker 3: and doing the interviews. As I said the other week,
Speaker 3: I had a great interview with Secretary Vest. Talked a
Speaker 3: lot about economics, said policy, the FED balance sheet, just
Speaker 3: general stuff in the economy and financial markets. It went
Speaker 3: very quick. It was about an hour and forty five
Speaker 3: minutes and next I knew it was over. So it
Speaker 3: was a great conversation. Course.
Speaker 1: I loved those kind of conversations. I can do that
Speaker 1: all day long.
Speaker 4: The Church secretor I've spoken about in the past, he
Speaker 4: wants almost a visionary, someone who looks forward, like an
Speaker 4: Alan Greenspan type, open minded. Do you get a sense
Speaker 4: of what he means by that.
Speaker 3: I think it's the idea of if you're looking at
Speaker 3: the data and it's always looking back at the data,
Speaker 3: you're kind of the data is always kind of old,
Speaker 3: and you have to think forward, like where are you
Speaker 3: going with this stuff. I've managed to do that a
Speaker 3: couple of times with thinking about this beverage curve. Arge
Speaker 3: argument back in May of twenty two that we could
Speaker 3: have the soft landing earlier this summer with the weakness
Speaker 3: in the labor market, which turned out to be true.
Speaker 3: People doubted it at the time I set up. So
Speaker 3: I think it's I don't want to, you know, brag,
Speaker 3: but you know it's that kind of being able to
Speaker 3: look at the data and see forward where things are going,
Speaker 3: and I think that's a critical thing he's looking for.
Speaker 5: You were certainly vindicated.
Speaker 4: The President was obviously excited about the fact that the
Speaker 4: FED finally.
Speaker 1: Was cutting interest rates.
Speaker 4: Have you spoken to him at all?
Speaker 1: No, I have not. I have not. Is that on
Speaker 1: the schedule? I don't know. That's up the secretary vessent.
Speaker 2: We can find that saying highfully, what's to the moment
Speaker 2: of saff the Treasury Secretary hopefully lights on in a month.
Speaker 2: I want to talk about the bit to the tice
Speaker 2: place at the end of this month as well. You
Speaker 2: had a pretty clear governments to the loss. May tink
Speaker 2: you delivered a speech and not believe the title was
Speaker 2: let's get on with it. You amphacacy for the same
Speaker 2: thing of this may tink.
Speaker 1: Yeah, I think it's it's the right thing to do.
Speaker 3: Back then, there was a issue whether you go fifty
Speaker 3: or twenty five, and I thought, I argued, we could
Speaker 3: do twenty five and see how the data comes in.
Speaker 3: Of course, we're not getting much data, and then we
Speaker 3: can think about the next twenty five So in the
Speaker 3: last six weeks, I don't think a lot has changed.
Speaker 3: We're not getting the public data, but all the private
Speaker 3: sector data that we're getting Beige Book yesterday, everything we're
Speaker 3: getting is telling roughly the same story.
Speaker 1: The labor market's weak.
Speaker 3: Growth seems to be on the stronger side, which is
Speaker 3: a bit of a puzzle right now, because you can't
Speaker 3: have a really strong growing economy and.
Speaker 1: Negative job growth.
Speaker 3: There's zero job growth, and you know, people talk about productivity,
Speaker 3: but AI hasn't had that effect yet on the labor
Speaker 3: market or productivity. It will down the road, I think,
Speaker 3: but not right away. So I don't think that's the
Speaker 3: story that's driving it. So in that case, one of
Speaker 3: these things has.
Speaker 1: To move right.
Speaker 3: Either GDP numbers start coming back down or the labor
Speaker 3: market rebounds. You just can't have growing economy and you know,
Speaker 3: very weak labor market.
Speaker 1: They just don't go together.
Speaker 2: In the meantime, do you just continue to reduce interest
Speaker 2: rights in meeting by meeting as you wait to see
Speaker 2: what's going on?
Speaker 6: What's your old approach?
Speaker 1: You think about.
Speaker 3: That, that's exactly what I've been arguing is since we
Speaker 3: don't know which way this is going to break, If
Speaker 3: the labor market rebounds, there's.
Speaker 1: Less of pressure for kind of rates.
Speaker 3: If the growth comes back down, there's more pressure for
Speaker 3: cutting rates.
Speaker 1: You don't want to make a.
Speaker 3: Mistake, So the way to avoid that is to go,
Speaker 3: you know, cautiously or carefully and do twenty five wait,
Speaker 3: see what happens, and then you can get a better
Speaker 3: idea of what to do. But if you've already started
Speaker 3: the process, you're providing whatever's initial support for the labor
Speaker 3: market that you feel is necessary.
Speaker 2: So we've had this helviie step down in payrolls growth,
Speaker 2: it's pretty clear it feels like that alone, though, might
Speaker 2: be an outline compared to everything else that's going on
Speaker 2: in the economy. You yourself just acknowledge that, what do
Speaker 2: you think is behind that? And can that persist?
Speaker 3: You know?
Speaker 1: That's the thing.
Speaker 3: When I've talked to private sector CEOs about hiring, I mean,
Speaker 3: we typically get a couple of things. Maybe early part
Speaker 3: of the summer, there was a lot of uncertaint about tariffs.
Speaker 3: We're just holding off on doing anything. One of the
Speaker 3: things I heard is firms we're going to have to
Speaker 3: pay the tariffs. One easy way to do that is
Speaker 3: just not higher take all the labor savings to pay
Speaker 3: off whatever the tariffs were. So that was one thing.
Speaker 3: Then you had this AI story, which was people like,
Speaker 3: we don't know if we're going to need to hire,
Speaker 3: but we're going to wait and find out we're going
Speaker 3: to We're not going to go out and hire a
Speaker 3: lot of people right away.
Speaker 1: So I think the.
Speaker 3: Tariff uncertainty, paying for tariffs, trying to sort out what
Speaker 3: AI really is going to do kind of put firms
Speaker 3: on their back foot. Now that's what I mean. Either
Speaker 3: they decide the AI is not going to be in
Speaker 3: the near term the big job replacement that they thought,
Speaker 3: and they're going to have to start hiring, and it
Speaker 3: comes back, teriff uncertainty goes down. All of those things
Speaker 3: could lead to a rebound. On the other hand, you know,
Speaker 3: if GDP starts softening, it's not as strong as we
Speaker 3: think that somehow the data is a kind of a
Speaker 3: mirage right now. Then the labor market is telling you things.
Speaker 3: They're just not as good as you think. Now that
Speaker 3: the financial markets are the big puzzle, I mean, I'm
Speaker 3: not the only one how much of this is just
Speaker 3: a big boom and AI and everything else is marginal.
Speaker 3: I'd kind of been arguing there's a big difference between
Speaker 3: the financial conditions for corporate America and financial conditions for
Speaker 3: main street America.
Speaker 1: If you're main.
Speaker 3: Street America, you're looking at mortgages over six percent, very
Speaker 3: expensive housing, car loans over seven percent, credit card.
Speaker 1: Interest rates in the twenties.
Speaker 3: These are not lose financial conditions for American households. So
Speaker 3: when we look at the financial market, you're seeing a
Speaker 3: lot of When people talk about credit spreads and all that,
Speaker 3: I don't think most American households care what the credit
Speaker 3: spread between corporates and treasuries are. It doesn't really need
Speaker 3: unless it shows up in mortgages. So I think there's this.
Speaker 3: It's one of the things that I find kind of
Speaker 3: puzzling right now is there's just always these dichotomies between things.
Speaker 3: If you look at AI, if you take out anything
Speaker 3: data center AI related business fix invexcement is turning down,
Speaker 3: it's not widespread.
Speaker 1: All this investment is not widespread across there's a.
Speaker 3: Real reallocation from kind of everything else in the AI.
Speaker 3: So there's this bifurcation in so many ways that make
Speaker 3: kind of reading the economy tough right now.
Speaker 2: How much influence do you have on one versus the other?
Speaker 2: Financial conditions on Main straight versus woll straight, Moos streets,
Speaker 2: immediate Moostreate's gone it's self to the risis. Can you
Speaker 2: really influence financial conditions on Maine straight?
Speaker 1: Well, that's kind of what we hope.
Speaker 3: If you think about cutting rates, which we're doing and
Speaker 3: I think will continue doing, that does have a pass
Speaker 3: through to the tenure, and the tenures often the anchor
Speaker 3: for pricing mortgages. So the tenures down to like four percent,
Speaker 3: it's coming down from four and a half.
Speaker 1: That's about a half or percent off.
Speaker 3: If it were to continue drifting below four, you'll start
Speaker 3: seeing some downward pressure for certainly mortgages. Auto loans are
Speaker 3: kind of a different thing. You're trying to figure out
Speaker 3: how to deal with tariffs on the auto industry. One
Speaker 3: thing I've heard is that got rid of a lot
Speaker 3: of cheap enancing, that the use is subsidized for consumers.
Speaker 3: That's going to raise the cost of financing. All these
Speaker 3: things are more tightening for a mainstream RKT. So hopefully
Speaker 3: these things as we go on to the rest of
Speaker 3: the years, start loosening.
Speaker 2: Up some You've been watching the program, so you know
Speaker 2: some of the things that people say on the show.
Speaker 2: I'll just go out for it briefly. Ultimately, equities at
Speaker 2: all time highs go to rip sixty percent this year.
Speaker 6: You mentioned credit spreads.
Speaker 2: It credit spreads and multidecade tights high yeld spreads near
Speaker 2: the tie of the year. And there's a theory out
Speaker 2: that that the Federserve and some officials on the FET
Speaker 2: perhaps you included, have anchored that view of this economy
Speaker 2: around the step down in payrolls growth and it's going
Speaker 2: to be loaded into reducing interest rates when maybe they shouldn't,
Speaker 2: and all that's going to do is fuel financial market access.
Speaker 2: Just to give you the response, the chance to respond
Speaker 2: to that, how would you respond to that, this idea
Speaker 2: that you run the risk of being loaded into reducing
Speaker 2: rates when maybe you shouldn't.
Speaker 3: Well, the mandate I have from Congress's maximum employment stale
Speaker 3: with prices.
Speaker 1: It's not financial markets.
Speaker 3: So I look at that's when I'm looking at the
Speaker 3: labor market.
Speaker 1: The labor market is weak.
Speaker 3: If all these loose financial conditions are going to cause
Speaker 3: a boom and excess in the US. We should start
Speaker 3: seeing some of that in the labor market. We're not
Speaker 3: seeing it. So a lot of this is I think
Speaker 3: just this is where the AI thing is. There's so
Speaker 3: much speculation on AI that it's kind of again, it's dichotomy.
Speaker 3: It's kind of overshadowing everything else that's going on. And
Speaker 3: like I said, my job is unemployment in price stability,
Speaker 3: and I think inflation will be okay, it's on up,
Speaker 3: but that's some of the terrif effects we'll come back off.
Speaker 3: But my job is about the labor market and it's
Speaker 3: not good. So if you want me to go to
Speaker 3: Congress and say, hey, tell me to start worrying about
Speaker 3: financial conditions and that's how I should set policy, let
Speaker 3: me know.
Speaker 1: But until they do that, I'm going to keep focusing.
Speaker 2: Well, let's go to the Jill mandate and let's stay
Speaker 2: with AI and the potential that introduces some additional tension
Speaker 2: into the Dull mandate that it holds back employment but
Speaker 2: also boost prices. And Marie was talking about what it
Speaker 2: could do to energy, all the spending resource intensive. We've
Speaker 2: got a guest on the program talking about the same thing.
Speaker 2: Would you see that as a potential that it introduces
Speaker 2: some additional risk into the dual mandate?
Speaker 1: Well, in terms of inflation.
Speaker 3: I mean one of the things I was asked this
Speaker 3: question by some people in the AI sector. It's like,
Speaker 3: isn't this inflationary? All this spending we're doing. I said, yeah,
Speaker 3: but you're taking it away from other sectors, So those
Speaker 3: other sectors are seeing less demand. So this is a
Speaker 3: Now you a lot of this is a sexual reallocation.
Speaker 3: And if that's the case, then the increase in AI
Speaker 3: is going to be offset by other things.
Speaker 1: Now, true energy.
Speaker 3: May have a a bump up, but then you just
Speaker 3: look at core because you kind of knock out the
Speaker 3: energy part of it. And that's really what you want
Speaker 3: to do. That's why we kind of knock off energy.
Speaker 3: It's just so volatile. It gives you the wrong signals,
Speaker 3: and we look forward. Excuse me, well, we're just looking forward.
Speaker 4: What to hear from you is you can look through
Speaker 4: TARIF induced inflation, you can look at AI induced inflation.
Speaker 4: Is there any inflation out there right now that you
Speaker 4: see that you are concerned about, because we're potentially going
Speaker 4: to get a pretty hot CPI print at the end
Speaker 4: of this month.
Speaker 3: Well, we'll see when we take the data at the
Speaker 3: board and we kind of we have various ways.
Speaker 1: We try to tease out the tariff effects.
Speaker 3: Our estimate is inflation's running above two and a half percent,
Speaker 3: and we're not seeing anything that's going to explore. Like
Speaker 3: I said, all this attention on AI is and ignoring
Speaker 3: the fact that other stuff is softening. So demand is
Speaker 3: up in one sector, it's going down another. Those things
Speaker 3: often not completely but offset. So that's why I'm not
Speaker 3: really worried about the AI stuff. And if it really
Speaker 3: did cause some big problems and energy, like I said,
Speaker 3: just if you're thinking about future inflation, just look at core.
Speaker 1: Don't bother with headline end of the month.
Speaker 4: Though you might not get the labor market report. How
Speaker 4: difficult is it? And can you even provide outlook meeting
Speaker 4: by meeting in this environment?
Speaker 3: Well, I have this joke that for those who think
Speaker 3: we're too data dependent, you're going to find out what
Speaker 3: non data dependent policy.
Speaker 1: I'm excited, but that's the point. We do have lots
Speaker 1: of data.
Speaker 3: It's like I said, we've got lots of labor market
Speaker 3: indicators that tell us the same story.
Speaker 1: It's just it's not good.
Speaker 3: We don't get a lot of other things as own
Speaker 3: labor market's great. So I think that data from all
Speaker 3: the sources is telling you the same story the labor
Speaker 3: market's week. We're getting this data, conflicting data about GDP.
Speaker 3: Like I said, the basebook came out, it was not
Speaker 3: like everything's rosy and booming. There could be still in
Speaker 3: the GDP numbers. Is still a lot of inventory pull
Speaker 3: forward that because the China tarifs weren't finalized, so get them,
Speaker 3: you know, get stuff in now. So it may be
Speaker 3: that we see, you know, GDP start to pull off.
Speaker 1: At the end of the year.
Speaker 3: I think about the tax bill in that there was
Speaker 3: a lot of incentives for business six investment. That's great
Speaker 3: that that applies equally to AI and non AI. So
Speaker 3: at the end of the day, you're still deciding whether
Speaker 3: you want to go into AI investment or non AI investment.
Speaker 3: And the AI is winning. So I don't know how
Speaker 3: much of it, how big of a help it's going
Speaker 3: to be on the non AI kind of sectors.
Speaker 1: In the economy.
Speaker 2: You've coach you SAFA Techno optimists enjoyed the speech, by
Speaker 2: the way, well thanks that I thank you for that.
Speaker 2: I just wanted to finish on this before you run.
Speaker 2: This feels different to last year when you came out
Speaker 2: last year and you made a big step down on
Speaker 2: interest rates and comep one hundred basis points off the
Speaker 2: back of the employment scare through the summer. This feels
Speaker 2: slightly different in your approach. How would you describe the
Speaker 2: differences between now and the approach of you and what
Speaker 2: you're advocating for on the Federal Reserve to what the
Speaker 2: committee did last year?
Speaker 3: Well, last year we didn't have all the tariff uncertainty,
Speaker 3: we didn't have this AI thing. Unemployment was not even
Speaker 3: remotely talked about. So I'd say those are the two
Speaker 3: big differences. Like I said, I think the tariff stuff
Speaker 3: will settle out and MB okay, the AI thing is
Speaker 3: the concern I have with the AI if it does,
Speaker 3: and I think it will materialize. Monetary policy is designed
Speaker 3: to deal with cyclical movements in the labor market. It
Speaker 3: kind of ups and downs and come with a business cycle.
Speaker 3: But this feels like a structural change. All right, Labor
Speaker 3: demand just drops and doesn't come back. That's something I
Speaker 3: can do anything about. The FED can kind of adjust
Speaker 3: policy to deal with structural changes in the economy. So
Speaker 3: it's going to be a challenge to say as anything
Speaker 3: we're seeing the labor market from AI coming down the road,
Speaker 3: is that something the FED can do anything about or
Speaker 3: should do anything about. Or are we just seeing kind
Speaker 3: of a typical cyclical mover where there's a hot sector
Speaker 3: and then it cools off later and everything's not quite
Speaker 3: as futuristic as you think it is. So that's I
Speaker 3: think for me the biggest challenge looking forward is is
Speaker 3: this a structural change or is this just a cyclical change?
Speaker 2: Is the prudent thing to do as a risk manager
Speaker 2: just to assume it might be cyclical and just in case.
Speaker 3: Yeah, I mean, if you cut and it ends up
Speaker 3: being structural, you cut.
Speaker 1: It's not going to undo whatever you did.
Speaker 3: But if it is cyclical, then you can help rebound
Speaker 3: and get the comedy back on the steve or labor
Speaker 3: market back on.
Speaker 2: A se stay with us Mulblindex. Savana's coming up off to.
Speaker 7: This memory was talking about China in the US, and
Speaker 7: there's no one better to talk to than Michael Roberts,
Speaker 7: CEO of HSBC Bank and CEO of the Corporate and
Speaker 7: institutional bank at the region. I'm just curious, given the
Speaker 7: fact that HSBC and WELCOME is such a central bank
Speaker 7: in both trade as well as in both China and
Speaker 7: in the West, how significant do you see this latest
Speaker 7: eruption of trade tensions between the US and China.
Speaker 1: Does this feel different?
Speaker 8: Yeah? No, First of all, thank you for having me today.
Speaker 9: Look, I think the world has gotten used to a
Speaker 9: lot of these tariff changes, although certainly this newest round
Speaker 9: is yet another bit of unpredictability. I think companies have
Speaker 9: been now looking for different ways to manage their supply chains.
Speaker 9: We have a survey that we've did right after Liberation
Speaker 9: Day which I think still hold trues today. We surveyed
Speaker 9: five thousand clients, so big survey, and they all said one,
Speaker 9: all of these tariffs are going to cause a lot
Speaker 9: of issues. Prices will go up to Most of now
Speaker 9: are looking at their supply chains. In the word, I
Speaker 9: think supply chain has now come to be one of
Speaker 9: the probably the most discussed terms in e C suite today.
Speaker 9: And thirdly, they're going to change and they may even
Speaker 9: change business models. So this next round, this current round,
Speaker 9: I think just tells you that they're going to have
Speaker 9: to significantly change what that is because one hundred percent tariffs,
Speaker 9: you can't absorb one hundred percent tariffs, So that means
Speaker 9: there'll be a greater acceleration to where.
Speaker 8: Those new supply chains will be.
Speaker 9: However, it is a bit of a whack a mole
Speaker 9: because you have to constantly look at where the next
Speaker 9: tariffs will come from, and that's been a challenge to
Speaker 9: many companies. They really have to figure out what is
Speaker 9: the least vulnerable place they can be or the most
Speaker 9: tariff proof place they can be, and how do they
Speaker 9: then export into the US or frankly anywhere to make
Speaker 9: sure that they can do so as effectively as possible.
Speaker 7: How much of the extra costs from tariff's been realized,
Speaker 7: not just teriffs but also the rejiggering of supply chains.
Speaker 9: Yeah, so rule of thumb, when I've talked to most people,
Speaker 9: probably seventy eighty percent is born by the producer versus
Speaker 9: the importer. The last twenty percent analysis starting to seep
Speaker 9: into en buyer the customer. I think most are saying,
Speaker 9: we can't continue to absorb that much additional costs as
Speaker 9: the importer or the distributor. Therefore it will start shifting
Speaker 9: more and more to the end buyer, the client or
Speaker 9: the customer. So that there's been a I think as
Speaker 9: strong effort, however, to try to absorb as much as possible.
Speaker 9: So I talked to a retailer, high fashion retailer saying,
Speaker 9: me and distributor or the producer out of Asia, and
Speaker 9: me as the distributor, are absorbing as much as we
Speaker 9: possibly can. We understand we could do that, but it
Speaker 9: will come to an ends.
Speaker 7: John and Amory, we're talking to Fed Governor Chris Waller
Speaker 7: and about the balance between inflation and the labor market,
Speaker 7: and there's this feeling that any kind of inflation is
Speaker 7: going to be short lived and the effect on the
Speaker 7: labor market could potentially be pernicious. Are you seeing that
Speaker 7: companies is that of raising prices, laying off workers, or
Speaker 7: trying to revert to artificial intelligence to bridge the gaps.
Speaker 1: Not yet.
Speaker 9: However, there is a lot of cost pressures. I think
Speaker 9: there's a delay a lot of investments. I mean that's
Speaker 9: the flip side of that, because I do think people
Speaker 9: want predictability. The companies need to understand where they're going
Speaker 9: to put down a lot of capital, that that capital
Speaker 9: is going to produce good returns because of more predictability.
Speaker 9: I've seen slowing of hiring, but not real firing today,
Speaker 9: and so that's kind of again the flip side of
Speaker 9: that coin. But really it's the capital and the investments
Speaker 9: that you're starting to see slow down quite a lot.
Speaker 7: Meanwhile, we've heard a lot here at the meetings in Washington,
Speaker 7: d C. At a number of themes AI, which we'll
Speaker 7: get to any second, but also this question around credit
Speaker 7: froth an AI related bubble. How much are you getting
Speaker 7: concerned akin to what JP Morgan's been talking about of
Speaker 7: a real turn in the credit cycle or some sort
Speaker 7: of later innings that give you pause and make you
Speaker 7: more cautious.
Speaker 9: Yeah, look, I do think this is not the first
Speaker 9: instance of what is inventory financing fraud, which is essentially
Speaker 9: selling you know, or using the same bit of inventory
Speaker 9: to finance multiple times. We've seen that in Europe a
Speaker 9: couple of times as well in the last say nine months.
Speaker 1: So I am more.
Speaker 9: Concerned and something that we're very focused on. So in fact,
Speaker 9: we're using technology we developed in our trade business and
Speaker 9: using it throughout all of our lending platforms now to
Speaker 9: try to go through and be very specific that everything
Speaker 9: we finance is good collateral, it doesn't have multiple leans
Speaker 9: on top of it, which is really what happened to
Speaker 9: First Brands. It's tough to do, and I think, you know,
Speaker 9: the fraudstats are getting better at it, so we're going
Speaker 9: to have to respond to being much better on due diligence.
Speaker 9: You know, we were not involved obviously directly in First Brands,
Speaker 9: so don't know how much due diligence was done. But
Speaker 9: I think these type of finance seeing arrangements are going
Speaker 9: to require much more due diligence, much greater technology, much
Speaker 9: more specific understanding exactly what you're financing.
Speaker 7: The other aspect has been just sort of how much
Speaker 7: AI has actually boosted productivity, boosted profitability versus been a
Speaker 7: real call center for the most part. Ken Griffin came
Speaker 7: out of Citadel saying that he's not seeing evidence that
Speaker 7: AI programs can really make an edge in financial markets.
Speaker 7: I know that HSBC has been big in quantum computing
Speaker 7: and has this test.
Speaker 1: Are you seeing real gains?
Speaker 7: Are you actually deploying quantitative strategies from quantitative computing on
Speaker 7: you on your trading floors?
Speaker 8: Yeah? So just for those who don't know.
Speaker 9: We had a partnership still do with IBM. We develop
Speaker 9: quantum computing really for financial markets, focusing on the bond market,
Speaker 9: and we use both quantum computing and more traditional computing.
Speaker 9: Brought them together, changed the way we look at data.
Speaker 9: There's a scene called representation data that we actually flipped
Speaker 9: into a more of a quantum computing type of mode.
Speaker 9: That led to a third twenty four percent improvement in
Speaker 9: our ability to predict a trade. So if you were
Speaker 9: going to make a trade, we get to understand that
Speaker 9: trade thirty four percent better. To see the matching between
Speaker 9: buyer and seller is really what it comes down to.
Speaker 9: So that was very effective. It's an initial study. We
Speaker 9: did how we we're tested on multiple contmcuting machines. We
Speaker 9: did all the statistical analysis, so we really do think
Speaker 9: there's something there. It can be used for any traded asset,
Speaker 9: so any asset class. I think the power that that
Speaker 9: brings is going to give an edge. I don't know
Speaker 9: how it wouldn't give an edge, but I think it'll
Speaker 9: be Once we roll it out and others roll it out,
Speaker 9: they'll be quick adoption by I think the industry. I
Speaker 9: mean it's the same industry that tries to reduce latency
Speaker 9: to its smallest possible amount. So I do think technology
Speaker 9: does bring a substantial edge.
Speaker 6: Do you think it's going to replace traders that?
Speaker 1: I don't know.
Speaker 9: I mean, I think they always be humans involved, But
Speaker 9: I think it will help traders quite a lot. And
Speaker 9: I think it'll change really the way traders think about
Speaker 9: it because when you have that much compute.
Speaker 8: Power and you could really use I think.
Speaker 9: Today, you know, we use a lot ai as you said,
Speaker 9: through alg rhythmic trading. This will just be one more
Speaker 9: substantial boost to the power of al rhythmic trading that
Speaker 9: we see today.
Speaker 8: So will it be less traders?
Speaker 1: Don't know?
Speaker 8: But are they going to have powerful machines? Definitely.
Speaker 6: So the other.
Speaker 7: Theme here, and this is something that comes up in
Speaker 7: pretty much every conversation, is the debasement of the dollar
Speaker 7: and this question of how much the dollar is losing
Speaker 7: its heft as a reserve currency internationally. Do you see
Speaker 7: any signs that people truly are moving away from the
Speaker 7: green back?
Speaker 9: Yeah, that's a great question. So I have to be
Speaker 9: traveling to Asia right after Liberation Day, and I would
Speaker 9: say that was probably the number one conversation that I
Speaker 9: was having by very big, very sophisticated large holders of dollars,
Speaker 9: and they were quite focused on this idea of dedollarization
Speaker 9: or debasement of the dollars of reserve currency. And the
Speaker 9: mere fact that they're talking about it and the terms
Speaker 9: they were tells you something is different.
Speaker 8: Now.
Speaker 9: If you look at where the dollar is today, trade
Speaker 9: flows reserve the primary currency of invoicing for most commercial flows,
Speaker 9: the markets flows, it's all well, nor than fifty percent,
Speaker 9: it's you know, sixty seventy eighty percent in all those
Speaker 9: various metrics. It will take a long time to find
Speaker 9: another reserve currency. And the other biggest question is if
Speaker 9: you're going to go away from.
Speaker 8: Dollars, what are you going to do?
Speaker 9: And you know what will be that reserve currency that
Speaker 9: replaces it. There is no other alternative today. And so
Speaker 9: that's the twin issues that you have. The conundrum, maybe
Speaker 9: go away from dollars, but what are we going to
Speaker 9: go to instead.
Speaker 7: To wrap it all up, there is this feeling that
Speaker 7: the center of finance has shifted, and it's not so
Speaker 7: clearly in the United States, and something that you've been
Speaker 7: focusing a lot, how do you see the sort of
Speaker 7: tentacles of finance in terms of where they are flowing
Speaker 7: from transforming really over the past couple of years.
Speaker 9: Yeah, No, I think there's significant transformation going on. And
Speaker 9: if you think there was a unipolar world with the
Speaker 9: US right in the middle of it, still is and
Speaker 9: you know, the US capital market is the most liquid
Speaker 9: of the world, still the dominant place to trade. However,
Speaker 9: you need to look at where trade and commercial flows
Speaker 9: are going, where financial flows are going. I would look
Speaker 9: between the Middle East and Asia as an example. Substantial
Speaker 9: increase of flows between those two regions, and they're not
Speaker 9: flows that are necessarily coming from the West just being
Speaker 9: transhipped through those reasons. They're actually wealth and that is
Speaker 9: being rechanneled in that region.
Speaker 8: Issel.
Speaker 9: I think you'll see that more and more. I think
Speaker 9: you'll see Asia Middle East coming together more and more,
Speaker 9: and I think you'll have a much more balanced equation.
Speaker 9: I don't think there'll be as a dominant source of
Speaker 9: financial flows that you've seen before. And you know, great
Speaker 9: for US because we have to be very strong in
Speaker 9: those two regions. But I do think people need to
Speaker 9: understand that there's a significant change going on and those
Speaker 9: flows will not just go through New York as they
Speaker 9: used to in past.
Speaker 2: Stay with us. More Bloomberg Surveillance coming up after this.
Speaker 7: Yeah, I would love to welcome in Scott Kirby, the
Speaker 7: CEO of United Airlines, And Scott, it's really tremendous to
Speaker 7: see not only what you did, but also the fact
Speaker 7: that you see significant upside to the fourth quarter. And
Speaker 7: I want to just start there. Where do you see
Speaker 7: the acceleration in demand?
Speaker 6: You know, Actually you look across the full year.
Speaker 10: The first three quarters were really good for United in
Speaker 10: a lot of macro volatility that happened for the aviation industry.
Speaker 10: That demonstrates the resilient of our revenue diverse, brand loyal
Speaker 10: business model. But you look to the fourth quarter, it's
Speaker 10: even more exciting because as the economy started to get
Speaker 10: back to a solid footing, at least for aviation, demonstrates
Speaker 10: a lot of upside. We think we're going to be
Speaker 10: able to grow earnings for the full year even in
Speaker 10: this environment.
Speaker 6: So it really is creating.
Speaker 10: Value for all of our customers all the way from
Speaker 10: basic economy to winning much higher market share in the
Speaker 10: brand loyal customers really is a great resilient strategy when
Speaker 10: times are difficult, but a lot of upside as the
Speaker 10: economy recovers.
Speaker 6: Here in four Q, I.
Speaker 7: Guess I want to drill into the economy because Scott,
Speaker 7: earlier in the year it had been the economy section that.
Speaker 1: Had struggled the most.
Speaker 7: I'm just wondering how much it's picking up, whether you've
Speaker 7: had to discount tickets to bring people in to compete,
Speaker 7: or whether consumers are willing to absorb higher prices and
Speaker 7: take their trips.
Speaker 6: Yeah.
Speaker 10: Well, as we've talked about before, least so the airline
Speaker 10: industries are a pretty good real time indicator of the economy.
Speaker 10: And you know, we saw for much of the first
Speaker 10: half of the year economic stress and ticket prices were
Speaker 10: lower as a result of that. But as we got
Speaker 10: into the third quarter, bookings, at least for future travel,
Speaker 10: the economy started to pick up.
Speaker 6: Bookings started to pick up, and.
Speaker 10: As we finished the quarter, you know, we've set records
Speaker 10: each of the last several weeks on most corporate revenue
Speaker 10: that we've ever booked in a single week, and a
Speaker 10: number of records, particularly in business travel, really kind of
Speaker 10: strong across the board, though internationals come back stronger.
Speaker 6: The period has extended premium.
Speaker 10: Is obviously stronger than main cabin but really we've seen improvement,
Speaker 10: you know, as we've moved through the third quarter, kind
Speaker 10: of across the board on revenue streams, with the biggest
Speaker 10: strength in the corporate segment.
Speaker 7: And that's actually something that we see across the board,
Speaker 7: particularly because they're all these deals, so people have to
Speaker 7: actually get on a plane and go see some of
Speaker 7: their clients. I am wondering, are you seeing international travelers
Speaker 7: tourists come back to the United States.
Speaker 6: I thought that was kind of.
Speaker 7: A soft spot and a sort of a tell in
Speaker 7: terms of the international reputation of the country.
Speaker 10: Well, our business is about eighty percent US point of sale.
Speaker 10: But we have and we saw a drop at international
Speaker 10: traffic earlier in the year. It's not quite back to
Speaker 10: last year's levels, but it has recovered and it's close
Speaker 10: to last year's level. So we did see a dip,
Speaker 10: but even that has come back and we think that's
Speaker 10: on the trend to getting back to normal pretty soon.
Speaker 7: Are you planning to keep capacity pretty much the same?
Speaker 7: Are you expanding to Are you planning to expand or
Speaker 7: cut back? I know that it was constrained earlier this
Speaker 7: year just because of demand. But as demand picks up,
Speaker 7: are you going to bring more planes on deck?
Speaker 10: Well, we've been growing, you know, in absolute growth, actually
Speaker 10: faster I think than in the airline in the world
Speaker 10: has ever grown for several years in a row.
Speaker 6: And that's worked really.
Speaker 10: Well for you, NINED and that's been successful. So we
Speaker 10: really haven't much changed our capacity. We tweak it here
Speaker 10: and there. The biggest change we're going to make for
Speaker 10: next year, I think is actually to reshape the seasonality
Speaker 10: of the year.
Speaker 6: You know. One of the things that's happened that's good.
Speaker 10: For our business is this third quarter peak has extended
Speaker 10: into the fourth quarter, and it's made the fourth quarter
Speaker 10: actually a better quarter from a margin perspective than.
Speaker 6: The third quarter.
Speaker 10: And what we think is as that particularly international demand
Speaker 10: has extended into the fourth quarter, there's an opportunity for
Speaker 10: us to actually fly less in the peak in the
Speaker 10: third quarter, which would be good for our RASM. But
Speaker 10: it turns out it's going to actually be good for
Speaker 10: our cost structure too, because we we have to build
Speaker 10: staffing and infrastructure everything up to that peak for six
Speaker 10: weeks of the peak summer. And so next year we're
Speaker 10: going to actually try to reshape our schedule some to
Speaker 10: lower the peak and let the demand spread across more
Speaker 10: of the year.
Speaker 7: I know earlier this year when we were talking and
Speaker 7: you said that you do expect to raise prices by
Speaker 7: single digits just to compensate for higher costs. You see
Speaker 7: that on track the same type of price increases and
Speaker 7: our consumers okay with it? Are they absorbing it?
Speaker 8: You know?
Speaker 10: This year prices have come down, as we talked about,
Speaker 10: just you know, as there was echo macro volatility, at
Speaker 10: least for aviation. I do expect them to normalize next year,
Speaker 10: and I think just over time that you should expect
Speaker 10: to see airfares grow consistent with inflation is likely what's
Speaker 10: going to happen over time.
Speaker 7: How much do you see staff wage increases?
Speaker 1: Also playing into this the idea.
Speaker 7: That a lot of the people who work for United
Speaker 7: are also saying, Okay, well things are going up, we
Speaker 7: want to pay increase.
Speaker 6: Yeah.
Speaker 10: A lot of people are the best in the world,
Speaker 10: and they deserve industry leading contract. Every time we sign
Speaker 10: a new contract with one of our union groups, they
Speaker 10: expect and deserve and will be paid at the top
Speaker 10: of the industry. So that's built into our forecast that's
Speaker 10: built into everything that we're doing. One of the great
Speaker 10: things that we're doing though at United is I think
Speaker 10: we're the best in the world at managing our real
Speaker 10: core costs and being more efficient at the airline. We've
Speaker 10: invested heavily in technology. It helps us run the airline better.
Speaker 10: But you look at the third quarter. You know the
Speaker 10: number of airlines that have talked about missing their cost
Speaker 10: guidance because of storms, and there were storms in the quarter.
Speaker 10: But we've invested so heavily in our recovery tools that
Speaker 10: we had best in the industry cost performance, and we're
Speaker 10: driving our costs lower, not by taking things away from
Speaker 10: the customer, but by actually investing in technology that lets
Speaker 10: us run a better operation for customers and is lower
Speaker 10: costs at the same time, and that also helps fund
Speaker 10: investments for the customer. We're spending over a billion dollars
Speaker 10: a year and incremental investments for the customer, but also
Speaker 10: importantly investments in our people and having them have the
Speaker 10: best pay and the best contracts in the world.
Speaker 7: Scott, I love saying that you're my favorite economists to
Speaker 7: speak to you because you do have this real time
Speaker 7: view of the economy and right now what you're saying
Speaker 7: is kind of flying in the face the weakness and
Speaker 7: some of the worries that we're hearing, whether it's from
Speaker 7: the government shutdown is going to cause disruptions, or whether
Speaker 7: it's the unemployment picture that people are increasingly worried about.
Speaker 7: How do you square those two things, This reacceleration that
Speaker 7: you're talking about with the weakness that policymakers seem to
Speaker 7: be so worried about.
Speaker 10: Well, uncertainty really is I think what drives the economy
Speaker 10: in one direction or another, And there was a lot
Speaker 10: of uncertainty to start the year.
Speaker 6: As we kind of got into the third.
Speaker 10: Quarter and some of the macro issues, the reconciliation bill
Speaker 10: passed and geopolitical situation improved, Tariffs settled into having some
Speaker 10: confidence what they were going to be.
Speaker 6: We saw that improved.
Speaker 10: Now we do now have new issues that things pop
Speaker 10: up all the time. What's happening with the shutdown could
Speaker 10: become an issue.
Speaker 6: So far it hasn't been.
Speaker 10: You know, first, the FA is doing I think a
Speaker 10: great job of running the system.
Speaker 6: We have our lowest cancelation rate in the last.
Speaker 10: Decade, our second best on time performance controllers are professionals
Speaker 10: because it's not news about it. But the controllers are professionals,
Speaker 10: view their job as safety view their job is taking
Speaker 10: care of the public. And kudos to them. They're almost
Speaker 10: all of them are showing up to work and doing
Speaker 10: their job. And has it the first couple of weeks
Speaker 10: of October. Has it really affected bookings? I think if
Speaker 10: this goes on for too long, certainly the risks escalate
Speaker 10: in the economies that goes on. I think the economy
Speaker 10: is better than most people think, but it's still tenuous.
Speaker 10: It's still a little balanced on a knife edge, and
Speaker 10: we shouldn't have, you know, unforre share.
Speaker 6: So let's get the shutdown settled.
Speaker 2: Stay with us more Bloomberg Surveillance coming up after this
Speaker 2: today and asking a one point six billion dollar loone
Speaker 2: to a subsidiary of American Electric Power. The goal is
Speaker 2: to strength and grid reliability and of course lower energy
Speaker 2: costs across the Midwest. The US Energy Secretary Chris Right
Speaker 2: joined us now from miss the Right. Miss the Secretary,
Speaker 2: welcome back to the program, sir. Let's just start with
Speaker 2: giving you some time to explain what brought us to
Speaker 2: this moment and what the broader strategy.
Speaker 11: Is, Yeah, the broader strategy is to use funds to
Speaker 11: better the American experience, lower cost rate payers, lower taxpayer expenditures.
Speaker 11: I mean, in short, President Trump got elected to get
Speaker 11: rid of the nonsense. We're not about climate politics now,
Speaker 11: we're about energy for the American people. How can we
Speaker 11: lower their cost of energy? How can we enable AI
Speaker 11: and manufacturing to reshore in our country? And this program,
Speaker 11: this loan is a perfect example of that. This is
Speaker 11: to reconductor five thousand miles of transmission lines, existing right aways,
Speaker 11: existing towers, just put better conductors up so you can
Speaker 11: get more juice through the same corridors you already had.
Speaker 11: This is the kind of things that helps American people
Speaker 11: and American businesses.
Speaker 4: Secretary, right, your department is saying that and projecting that
Speaker 4: data centers, commercial customers are for the first time ever
Speaker 4: going to use more electricity next year than household Is
Speaker 4: the federal government going to have to step in and
Speaker 4: help con American people consumers foot the bill with.
Speaker 11: The American government's doing everything we can to enable the
Speaker 11: growth of electricity production in this country. You know, the
Speaker 11: last administration was about energy subtraction, trying to get away things,
Speaker 11: get rid of things they didn't like and subsidize things
Speaker 11: that are unreliable, that use a lot of land and
Speaker 11: drive up electricity prices. So, yeah, we're trying to reverse
Speaker 11: a tidal wave. That's a challenge, but we're going to
Speaker 11: do it, and ultimately AI is not going to make
Speaker 11: electricity more scarce and more expensive in the country.
Speaker 5: It's going to make electricity.
Speaker 11: More abundant, more reliable, and ultimately more affordable, so we
Speaker 11: can walk and chew gum at the same time. It's
Speaker 11: a challenge, but we're going to get it done well.
Speaker 4: The administration, though, has purge some clean energy projects. Do
Speaker 4: you want to hoole of energy approach or just specific types.
Speaker 5: We care about?
Speaker 11: Affordable, reliable and secure energy. I get asked all the time,
Speaker 11: aren't you all of the above? No, I'm not all
Speaker 11: of the above, and I've never claimed to be. If
Speaker 11: you put it's not just more electrons on the grid
Speaker 11: to collect more wind power in the middle of the
Speaker 11: night in Iowa. That doesn't increase the capacity of our grid.
Speaker 11: That doesn't drive down anyone's prices. It doesn't allow us
Speaker 11: to reshore manufacturing our data centers here. The electricity grid's
Speaker 11: very different than your gas tank. What matters is having
Speaker 11: reliable power to meet peak demand times. If you're not
Speaker 11: there at peak demand time, you don't add any value
Speaker 11: to the grid, You just add expense.
Speaker 4: Well, when it comes to reliability. Right now, the US
Speaker 4: government is shut down. Are you speaking directly with senators
Speaker 4: about when the US government could reopen? How is it
Speaker 4: affecting your department specifically?
Speaker 11: Oh, that is a great question, and yes I am
Speaker 11: speaking to US senators on both sides of the aisle.
Speaker 11: The shutdown is definitely destructive. Everything we're trying to do
Speaker 11: is lower American energy costs and enable American businesses to
Speaker 11: build more manufacturing facilities in our country. Losing workers, having uncertainty,
Speaker 11: having funds frozen or uncertain that's not helpful. Let me
Speaker 11: get if I can give one example. We are modernizing
Speaker 11: our nuclear weapons stockpile at the Department of Energy. That's
Speaker 11: done by about one hundred thousand contractors. They're not government employees,
Speaker 11: they're contractors, so they're not going to get back pay.
Speaker 11: We've been paying them till date to date, but starting
Speaker 11: tomorrow Monday at the latest, we're not going to be
Speaker 11: able to pay those workers. If that continues, on for long.
Speaker 11: They may get other jobs. They're going to stop their
Speaker 11: efforts to modernize our nuclear weapons to guarantee the sovereignty
Speaker 11: of our country. That's not something we should mess around.
Speaker 4: Are you saying you are furlowing employees at the National
Speaker 4: Nuclear Security Administration, which keeps our nuclear stockpile in check.
Speaker 11: We have not furloughed anyone yet, but we will be
Speaker 11: out of funds by the tomorrow or early next week,
Speaker 11: so we will be forced to do that if this
Speaker 11: shutdown continues. I desperately do not want to do that,
Speaker 11: but I have to follow the law.
Speaker 4: Well, what does this mean for our national security posture?
Speaker 5: Of course, we.
Speaker 11: Keep people for emergency services or existing nuclear stockpile will
Speaker 11: be secure and will be ready. But the modernization program
Speaker 11: to replace our older weapons with new modern weapons, that's
Speaker 11: a key part of my job. We're just ramping those
Speaker 11: efforts up. We're just getting momentum there. To have everybody
Speaker 11: unpaid and not come into work, that will not be helpful.
Speaker 11: I'm adamantly in favor of ending this shutdown as soon
Speaker 11: as we can. Unfortunately, Chuck Schumer's worried more about AOC
Speaker 11: than America's nuclear safety that's just deeply un American. I'm
Speaker 11: very disappointed with the Democrats. We have a clean r
Speaker 11: to just continue the Biden level spending we had before.
Speaker 11: It's got bipartisan votes in the House and the Senate
Speaker 11: multiple times. It's just a small number of Democrats that
Speaker 11: are standing out thinking they're going to win new subsidies
Speaker 11: by holding our modernization of our nuclear stockpile hostage.
Speaker 5: This is deeply irresponsible.
Speaker 4: We also have at this moment a current trade war
Speaker 4: between the United States and China with a lot of
Speaker 4: hot rhetoric the past few weeks. What is the Department
Speaker 4: doing in terms of sourcing rare earth minerals that come
Speaker 4: from China and China right now is trying to really
Speaker 4: put a choke hold on them.
Speaker 11: Yes, that is another critical effort at our department and
Speaker 11: across the Trump administration. We have made ourselves far too
Speaker 11: dependent on, as you say, critical minerals products that come
Speaker 11: from them, that come from China. We have it across
Speaker 11: our department and across the administration effort to reshore the mining,
Speaker 11: the processing, the manufacturing for these critical projects in our
Speaker 11: country or in our friends neighboring countries or close allies
Speaker 11: of ours. This is an absolute critical effort of the
Speaker 11: Trump administration.
Speaker 5: But it's going to take time. It's years that Doug
Speaker 5: us in this hole.
Speaker 11: It's going to take us many months, hopefully not many
Speaker 11: years to get out of it. We will achieve it
Speaker 11: during the Trump administration. But you're right, we're vulnerable today
Speaker 11: and that's at a loss to Americans. Four years of
Speaker 11: unserious government focused on climate change and energy subtraction, outsourcing,
Speaker 11: anything that consumed the energy.
Speaker 5: Out of our country. That was deeply destructive.
Speaker 11: It angered Americans, and it elected President Trump.
Speaker 5: We need to fix it.
Speaker 4: You come from the private sector. Are you comfortable with
Speaker 4: the president taking stakes, equity stakes in some of these
Speaker 4: companies that he deems critical for the US national security?
Speaker 5: I am, And let me tell you why.
Speaker 11: China has used market forces to push us out of
Speaker 11: all these critical industries. As soon as we invest money,
Speaker 11: or American businesses invest money, you know, demind samarium or
Speaker 11: process that in the United States, they flood the market,
Speaker 11: drive the prices down, and people can't raise equity capital,
Speaker 11: they can't.
Speaker 5: Develop those resources.
Speaker 11: China has used manipulation of markets to keep US and
Speaker 11: the rest.
Speaker 5: Of the world out of these critical materials.
Speaker 11: We need to do things differently to make it so
Speaker 11: it does work for American businesses to do these things.
Speaker 5: In our country.
Speaker 11: That means the government providing loans, the government's providing equity capital,
Speaker 11: the government's providing other out of normal market mechanisms to
Speaker 11: make it happens.
Speaker 4: Distorting the market. Though you're a capitalist, is this not distortion?
Speaker 4: It feels like the US government is doing what China does,
Speaker 4: which is picking winners and loup.
Speaker 11: Yeah, we don't want to do this broadly in our economy,
Speaker 11: but China has effectively distorted the market to push everyone
Speaker 11: out of these critical industries. The only way for us
Speaker 11: to get back into those industries is to respond to
Speaker 11: China's market distortion. And it does require things out of
Speaker 11: the normal market mechanism, but that's in a narrow area
Speaker 11: of these critical minerals and materials. But they matter for
Speaker 11: our national security and they matter for our economic security.
Speaker 2: This is the Bloomberg Survandics podcast, bringing you the best
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