Speaker 1: Welcome to Bloomberg Opinion. I'm Bonnie Quinn. FED Chair Jerome
Speaker 1: Powell announced a fifty basis point move higher in rates
Speaker 1: this week. We have raised interest rates by four and
Speaker 1: a quarter percentage points this year. We continue to anticipate
Speaker 1: that ongoing increases in the target range for the federal
Speaker 1: funds rate will be appropriate in order to attain a
Speaker 1: stance of monetary policy that is sufficiently restrictive to return
Speaker 1: inflation to two percent over time. A week where markets
Speaker 1: also saw a more benign CPI report, it showed headline
Speaker 1: inflation slowing, albeit still at a seven point one percent rate.
Speaker 1: Markets went on a little ramble during Powell's news conferences
Speaker 1: has become the pattern. I asked nuomerg Opinions Jonathan Levin
Speaker 1: to parse the f O m C statement and signals.
Speaker 1: So Jonathan, the Fed chair seemed extraordinarily hawkish throughout the statement,
Speaker 1: but then the market seized on what the potential for
Speaker 1: a change in the mandate. Perhaps yeah, I mean, I think,
Speaker 1: to be fair, my take is that he really didn't
Speaker 1: change much. The markets tried to change without him in
Speaker 1: the dovish tens, right, and so what we saw at
Speaker 1: the outset was first and foremost. They come out with
Speaker 1: this statement, and if you want evidence that they really
Speaker 1: didn't change at all, just take a look at the statement.
Speaker 1: They didn't change a word. Actually, to be more precise,
Speaker 1: they changed two words, which for our purposes were completely
Speaker 1: immaterial in terms of the broader inflation fight. The press
Speaker 1: conference starts, you, uh, you get a little bit of
Speaker 1: a sense of reality seeping in. There was that moment
Speaker 1: where the chair came out and said, we think we're
Speaker 1: getting close to the level of restrictive or sufficiently restrictive,
Speaker 1: and you did see stocks come back for a little bit.
Speaker 1: But the big takeaway here is the market tried to
Speaker 1: get optimistic after this cp I. I gotta say I
Speaker 1: was feeling pretty optimistic after the c p I. But
Speaker 1: the story is we've done a complete round trip. We're
Speaker 1: exactly back where we were on Monday, as if the
Speaker 1: CPI had never happened. You get that in a minute, hopefully.
Speaker 1: But Preston wants to talk to you about the dots
Speaker 1: to some real economic projections. What did it tell you,
Speaker 1: because it does seem like there's a lot of let's
Speaker 1: call it unanimity in the very near future, but really
Speaker 1: none as you go out further. Yeah, it's interesting. So
Speaker 1: I think in terms of three that the doubts are
Speaker 1: not particularly surprising. A very simple rule of thumb in
Speaker 1: terms of how I think many on the committee are
Speaker 1: sort of thinking about what is sufficiently restrictive is very simple.
Speaker 1: They're looking at where they think we're PC is going
Speaker 1: to be, and they're looking at getting a real rate
Speaker 1: on the Fed funds rate of something like one point
Speaker 1: five one point six percent above that. So that's been
Speaker 1: sort of consistent. Actually, if you look at where we
Speaker 1: were on the September step, they were also looking to
Speaker 1: get to a real rate of about one point five
Speaker 1: percent on the Fed funds for twenty three. The only
Speaker 1: thing that's changed is that those inflation expectations got notched
Speaker 1: up a little bit. Is really interesting, and it shows
Speaker 1: a complicated time this is, and of course how difficult
Speaker 1: and complex it is to forecast in an environment like this,
Speaker 1: because the dispersion going off memory is really all over
Speaker 1: the place. On those on those projections, you're looking at
Speaker 1: a spread of like two percentage points, which you know,
Speaker 1: frankly is huge, huge, and it's not even that far out.
Speaker 1: We're only talking about another twelve months plus. So policymakers
Speaker 1: right now projecting rates when next year at five that's
Speaker 1: the media and forecast before being cut to four point
Speaker 1: one four, that's still higher than previously indicated. How close
Speaker 1: are we too sticky invlation expectations? Yeah, I think the
Speaker 1: Brookings Institution speech from Powell last month was very important
Speaker 1: in that he essentially broke inflation down into three pillars.
Speaker 1: Actually I saw four pillars right, So number one he
Speaker 1: wants to see that the economy is going below potential.
Speaker 1: Number two he wants to see those core goods prices
Speaker 1: coming down, and he's actually getting that right. A lot
Speaker 1: of the supply chains have become unclogged, and we're not
Speaker 1: just getting core goods this inflation. We're getting core goods deflation.
Speaker 1: If you look at the past couple of prints. Housing
Speaker 1: is a little bit tricky. There are all these funky
Speaker 1: methodological things going on here, but it's clear from pal
Speaker 1: zone remarks that he expects housing to come in based
Speaker 1: on the forward looking indicators on like market rents and
Speaker 1: so forth. So it all really comes back, at least
Speaker 1: for PAL to this sector of core services and especially
Speaker 1: core services X shelter and PAL seems very much convinced
Speaker 1: that that's just going to keep chugging along unless you're
Speaker 1: able to do something about this tightness in the labor market.
Speaker 1: If you go back a few big reports before this,
Speaker 1: to the last jobs report, there was a ton of
Speaker 1: debate about how to read the latest print on average
Speaker 1: hourly earnings, and I totally get that average hourly earnings
Speaker 1: can be particularly volatile. There can be some questions about
Speaker 1: whether the makeup of that indicator is representative, so absolutely
Speaker 1: take that with a grain of salt. However, we've also
Speaker 1: seen previous months revised up on the average hourly earnings,
Speaker 1: So even if you're sort of generous in your interpretation,
Speaker 1: we have trend wage growth in this country of about
Speaker 1: five and there's no way that we're going to see
Speaker 1: the Fed get comfortable with that until it looks something
Speaker 1: more like three and a half percent. The forecast for
Speaker 1: unemployment is a rise of point nine percent and then
Speaker 1: GDP growth of point five percent. Does that seem like
Speaker 1: recessionary territory to you. Yeah, it's really tricky. I mean,
Speaker 1: I think ultimately, an interesting thing the chair said was, look,
Speaker 1: a lot of analysts, a lot of economists think that
Speaker 1: the natural rate of unemployment has moved up this atmosphere.
Speaker 1: So what you're seeing in the SEP is not necessarily
Speaker 1: an indication that we're expecting disaster, but better said, that
Speaker 1: people are expecting the israels to converge with a rate
Speaker 1: of on employment that people actually think is sustainable and
Speaker 1: non inflationary. In practice, we all know that unemployment tends
Speaker 1: to snowball. It rarely moves up in uh tiny increments.
Speaker 1: This is of course the famous some rule um and
Speaker 1: so you know, it would be a huge historic anomaly
Speaker 1: for the FED to be able to thread this needle
Speaker 1: and move unemployment up just a little bit without causing
Speaker 1: things to go off the rails and cause an honest
Speaker 1: to goodness recession. Knew. I just Ban Emmons has pointed
Speaker 1: out that the real FED funds rate, so the rate
Speaker 1: adjusted for core pc e X shelter, is just now
Speaker 1: at zero percent. So FED policy has just got restrictive,
Speaker 1: but not restrictive enough. What was your feeling on how
Speaker 1: restrictive power things policy is right now? Yeah, I mean
Speaker 1: it totally depends if I'm just going off of said
Speaker 1: funds for end of two. In other words, where we
Speaker 1: just got to versus where the committee think core PC
Speaker 1: and the year. In other words, the core PC print
Speaker 1: that we get in January, the implication is actually that
Speaker 1: the real FED funds rate might be slightly negative. So
Speaker 1: there's no question on a historic basis that we're just
Speaker 1: now getting to the territory of restrictive and you know,
Speaker 1: I expect that that is very much what is behind
Speaker 1: this attitude of the Committee to keep on going. I
Speaker 1: think what we heard from pal is that there's no
Speaker 1: indication unless they really get some shocking data in the
Speaker 1: next month or so, that they're not going to hike
Speaker 1: again when they meet for the first meeting in February,
Speaker 1: and then consensus is that they'll keep on going with
Speaker 1: at least one or two more. So what you're thinking,
Speaker 1: haven't listened to everything in Jonathan, Do we see another
Speaker 1: fifty and then twenty five or maybe we're already at
Speaker 1: twenty five and what will we plateau at next year
Speaker 1: for the rest of the year, presumably, you know, I
Speaker 1: don't think that this really changes the base case for
Speaker 1: a lot of people. As I said, I think if
Speaker 1: the FED got together and strategized and they said, what
Speaker 1: is the one message that we want to put out here.
Speaker 1: I think that that message was probably consistency, right, So
Speaker 1: if you're taking the FED at their word, you probably
Speaker 1: aren't going back to the drawing board and completely rethinking
Speaker 1: your path for the FED funds. I think our own
Speaker 1: team at Bloomberg Economics and along has nailed this. Ever
Speaker 1: since the summer, they've been calling for a five percent
Speaker 1: terminal rate, and that looks like what we're on pace for.
Speaker 1: You know, it could be five point to five at
Speaker 1: the upper extreme. If everything goes great, maybe they just
Speaker 1: do another twenty five basis points and they stopped, so
Speaker 1: four point seven five. But you know, we're really debating
Speaker 1: essentially small increments here compared to where we've come from. Yeah,
Speaker 1: that's for sure. John Authors used the word reassuring about
Speaker 1: the CPI report. Is that what it was to you? Reassuring? Yeah?
Speaker 1: I do think it was reassuring. I mean, you know,
Speaker 1: as I say, I was encouraged by that. I was
Speaker 1: clearly more encouraged than the FED was. But understand their
Speaker 1: note of caution. I think that they are right that
Speaker 1: the main thing that we have to be focusing on
Speaker 1: here is core services X shelter and look, where is
Speaker 1: that the move in core services x shelter in the
Speaker 1: most recent report implies an annualized pace of just one
Speaker 1: point five per cent, But that was one report. I'm
Speaker 1: extrapolating annualizing from one report. If you smooth out the
Speaker 1: three months average, we're at a trend pace in that
Speaker 1: particular category of around five. So that's clearly not going
Speaker 1: to be there yet. For Jerome Powell, if you believe
Speaker 1: that five is the real rate, that's not really moving down.
Speaker 1: It's sort of moving sideways since this summer, and he's
Speaker 1: going to want to see some real, honest to goodness
Speaker 1: directionality in that particular metric. Yes. In response to a
Speaker 1: question about the two average inflatient Monday's Powell sort of
Speaker 1: brushed it away, but then he mentioned that maybe there
Speaker 1: might be a longer term goal about looking at this.
Speaker 1: Did he mean that, is there the potential for the
Speaker 1: Fed to start looking at whether an average to percent
Speaker 1: inflation rate should be their mandate? I think there is.
Speaker 1: I don't think that he should have answered that question
Speaker 1: in the way that he did. I think he sort
Speaker 1: of tried to correct himself subsequently, and I think that
Speaker 1: that was the right thing to do. The bottom line is, yes,
Speaker 1: We all know that two is just a number. It's
Speaker 1: a completely arbitrary number. There is nothing magical about two
Speaker 1: percent inflation on the PC. But one thing is for sure.
Speaker 1: If this inflation fight is all about maintaining credibility, we
Speaker 1: can't be moving the ball in the middle of this fight.
Speaker 1: And I think that that is a message that Jerome
Speaker 1: pal is trying to convey, and he was right to
Speaker 1: do so. Bloomberg Opinions Jonathan Livin stay tuned a reaction
Speaker 1: to the week next from Opinions, John als Or, Is
Speaker 1: this is Bloomberg Opinion? You're listening to Bloomberg Opinion? I'm
Speaker 1: Vonnie Quinn. Well, the markets were on red alert this
Speaker 1: week for the CPI and lation data, followed by an
Speaker 1: f o MC decision which delivered a slowdown and interest
Speaker 1: rate increases and many questions for Q one historical record
Speaker 1: cautions strongly against prematurely loosening policy. We will stay the
Speaker 1: course until the job is done. Markets and the Fed
Speaker 1: locking horns. It seems I spoke with Bloomberg Opinions John
Speaker 1: Authors for some perspective. We got the FED decision the
Speaker 1: final one of the year. You wrote a column today
Speaker 1: Investors aren't supposed to fight the FED, but the conflict
Speaker 1: remains intense, and it really was quite stunning the market
Speaker 1: reaction yesterday. Powell came out and literally every single sentence
Speaker 1: and his statement was hawkish. That said, if you analyzed
Speaker 1: it really carefully, you could find a few places where
Speaker 1: if he really wanted to be more aggressive, he could
Speaker 1: have been. And I guess there was a lot of
Speaker 1: wishful thinking involved as well. People we're looking for weakness,
Speaker 1: we're looking for flaws in the armor. And decided that
Speaker 1: the fact that he was obviously signaling the possibility of
Speaker 1: hiking in small increments and that he wasn't prepared to
Speaker 1: talk down the stock market suggested that he wasn't actually
Speaker 1: really as tough as he was trying to make out. Extraordinarily,
Speaker 1: because there was this unified call from across the FOMC
Speaker 1: that we should all prepare for rates above five by
Speaker 1: the end of next year, rates are down since that
Speaker 1: came out, which is very very odd. Is it the
Speaker 1: idea that it looks more likely that we're going into
Speaker 1: recession because the FED chairs suggested a half percent growth
Speaker 1: and that's really as small as you can get without
Speaker 1: actually calling for a recession which the FED chair isn't
Speaker 1: going to do well. He's some other central banks, notably
Speaker 1: the Bank of England, have said in as many words, yes,
Speaker 1: we're going to have a recession, and ahead of the
Speaker 1: Central Bank of New Zealand has just said in as
Speaker 1: many words, yes, we expect it to be a recession
Speaker 1: because we want one. Just being very candid that that
Speaker 1: that you need to reset to avoid inflation in the future.
Speaker 1: I think the market skepticism is partly an honest almost
Speaker 1: like a version of an academic dispute. Depending on the
Speaker 1: models you use. There are sensible models that suggest that, yes,
Speaker 1: inflation really can come down pretty quickly now for everybody
Speaker 1: with all that, but there's a lot to discuss. But yes,
Speaker 1: there is a sensible argument for that. There's also a
Speaker 1: sensible argument, particularly if you're concerned about expectations about whether
Speaker 1: there is inflation, psychology can allow inflation to take grout.
Speaker 1: There's ample argument that in fact inflation is likely to
Speaker 1: be pretty durable, and that's why the FED will have
Speaker 1: no choice but to really call some pain before it's done.
Speaker 1: So that's that is where there is this critical difference
Speaker 1: of opinion. I mean to talk about things like average
Speaker 1: already earnings and how they weren't seeing what they were
Speaker 1: hoping that they would see by now an average or learning.
Speaker 1: So he sort of did tiptoe around the idea that
Speaker 1: the labor market might see pain. Yes, it has to
Speaker 1: see more pain than it's currently suffering for inflation to
Speaker 1: come down. I don't I don't see a way around
Speaker 1: that point nine percent labor market growth. Is that enough? Well,
Speaker 1: I mean it's it's if you look at, um, the
Speaker 1: kind of change in unit labor costs, if you if
Speaker 1: you look at what kind of percentage, what what kind
Speaker 1: of percentage pay rises people are demanding, and what kind
Speaker 1: of productivity gains can be made elsewhere in the process.
Speaker 1: It's I'm not saying people shouldn't demand a wage that
Speaker 1: will keep them up with inflation. They absolutely should. I
Speaker 1: don't like getting sub inflation pay rises whenever that happens.
Speaker 1: It's but that is a condition where um, you're making
Speaker 1: your you're spending more money to make the same product,
Speaker 1: which means it's price will ultimately be higher. It's very
Speaker 1: clearly directly inflationary. When you talk about this intense conflict
Speaker 1: between the Fed and the market, I mean, does the
Speaker 1: market ever win if it's going up against the Federal Reserve, well,
Speaker 1: this is the I mean, it can definitely, I'm sure
Speaker 1: impact some decision making by impacting data and financial conditions
Speaker 1: and so on. But I mean that's a very roundabout
Speaker 1: way of doing something. The FED a reserve can just
Speaker 1: come out and say something. Yes, there, I suppose there's
Speaker 1: there are two schools of thoughts here. I guess one is, yes,
Speaker 1: the idea of don't fight the Fed. There is no
Speaker 1: institution more powerful than the Federal Reserve the global economy period,
Speaker 1: ridiculous to try to argue otherwise. But there is also
Speaker 1: the suggestion that one of the quote from Bill Clinton's
Speaker 1: political guru James Carville, which I must have cited dozens
Speaker 1: of times in my career, that when he comes back,
Speaker 1: if he ever gets incarnated, he wants to come back
Speaker 1: as the bond market because the bond market can terrorize people,
Speaker 1: and there is that fact that those two things do
Speaker 1: have some kind of a symbiotic relationship, and that the
Speaker 1: bond market does have the power to change the Fed's
Speaker 1: reality if it comes to that. I would say, however,
Speaker 1: that the logic behind don't fight the Fed certainly ought
Speaker 1: to make sense, but I would my suspicion is that
Speaker 1: people are responding to a very long period in which
Speaker 1: the FED bails when the market gets ugly. Moral hazard
Speaker 1: would be your technical term for it. That that and
Speaker 1: um I would argue that the bailout of long term
Speaker 1: capital management this very Yes, that was I think the
Speaker 1: critical moment. Up until then, you'd had the Vulcan experience
Speaker 1: and green Spanner created a bare market in bonds in
Speaker 1: he'd had his irrationally zubrant speech trying to talk down
Speaker 1: the stock market that you know, the FED was still
Speaker 1: until that point plainly antagonistic to anything that looked like
Speaker 1: market excess. And after LTCM, which incidentally, as far as
Speaker 1: I can see, was the only time Paul Vulca ever
Speaker 1: publicly criticized his successor, he said, I wouldn't have done that,
Speaker 1: And I think I think now in retrospect we can't
Speaker 1: know the count factual, but I think he was probably right.
Speaker 1: Since then, you've had the concept of the green span
Speaker 1: put like nobody would have mentioned such a thing in
Speaker 1: when he really did surprise people by hiking aggressively. By
Speaker 1: the time he left, it seemed a perfectly reasonable concept.
Speaker 1: You could do graphs that, Yeah, when the SMP goes down,
Speaker 1: FED funds are follows it down, and vice versa. Once
Speaker 1: the market is safely going up, then the FED feels
Speaker 1: it's okay to raise bed funds. And obviously the Great
Speaker 1: Financial Crisis and the various fun and games with with
Speaker 1: the quee and with J. Powell's attempt to tighten things
Speaker 1: up which led to the pal There's been a succession
Speaker 1: of incidents which have ingrained in people's minds that the
Speaker 1: FED may say something, but you can bully it into
Speaker 1: submission if you're a critical market, if you're a systemic market.
Speaker 1: And I think I'm not sure that's true anymore, because
Speaker 1: ever since ninety eight, for reasons that go beyond what
Speaker 1: central banks are doing, inflation hasn't been a risk, and
Speaker 1: it certainly hasn't taken off. That isn't true anymore, and
Speaker 1: I'm therefore not sure at all that the moral hazard
Speaker 1: argument still stands. You also mentioned I want to quote this.
Speaker 1: If the FED is going to make a mistake, it
Speaker 1: will be raising weights too high, not too little, and
Speaker 1: everyone should work on that assumption. So you're warning the
Speaker 1: market in the market participants, I may well be wrong,
Speaker 1: but it's my job to try to you know, it's
Speaker 1: my job to try to come up with some sensible guidance.
Speaker 1: It seems to me that j. Powell has said in
Speaker 1: as many words that he's more prepared to overtighten than undertighten.
Speaker 1: He doesn't want to go down like the Fed chairs
Speaker 1: of the seventies who eased rates too soon and let
Speaker 1: inflation take off in a big way. Again. I would
Speaker 1: believe him he's more likely to overtighten and undertighten, and
Speaker 1: people should allocate their assets on that assumption. Bloomberg Opinions,
Speaker 1: John Authors stay tuned. Another major development this week the
Speaker 1: success of a fusion experiment for the first time, in
Speaker 1: simple terms, more energy out than in Bloomberg Opinions. David
Speaker 1: Fickling explains the chemistry and why we should celebrate the achievement.
Speaker 1: If not quite a shift in the energy outlook just yet.
Speaker 1: This is Bloomberg Opinion. You're listening to Bloomberg Opinion. I'm
Speaker 1: Vonnie Quinn. This week, US scientists accomplished something never before done.
Speaker 1: They managed to carry out a fusion reaction which generated
Speaker 1: more power than they put in. It was hailed as
Speaker 1: a so called b f D literally the phrase of
Speaker 1: the U S Energy Secretary, and the US is spending
Speaker 1: hundreds of millions of dollars into the billions when you
Speaker 1: include public private partnerships to research and potentially build out
Speaker 1: this form of power generation. But how much of a
Speaker 1: breakthrough was it this week and how much closer does
Speaker 1: it bring us to fusion power being a substitute for
Speaker 1: a less clean electricity, I asked Bloomberg Opinions David Fickling
Speaker 1: in Sydney. So, David, we've spoken several times about nuclear
Speaker 1: energy and about the future of hydrocarbons and fossil fuels
Speaker 1: and net zero and so on. Then we have this
Speaker 1: breakthrough this week. Just how big of a development is it? Well,
Speaker 1: I think it's very significant when you consider the longest
Speaker 1: true fish Remember, like nutly a fusion research is almost
Speaker 1: as old as nuclear ficion research. You know, the the
Speaker 1: first nuclear fusion designs with sort of theorized in the fifties,
Speaker 1: which was, you know, only sort of less than a
Speaker 1: decade after the first you know, the Chicago Pile one,
Speaker 1: the first nuclear fission plant um or the first nuclear
Speaker 1: fission reaction, I should say, So it's been a long
Speaker 1: time since then, and they've so far failed to clear
Speaker 1: the most basic hurdle, which is that you should generate
Speaker 1: more electricity from a reaction than you put into it.
Speaker 1: So what's significant about this is that they did generate
Speaker 1: more electricity than they put into it. Essentially, about two
Speaker 1: mega jews of energy was put in and three just
Speaker 1: over three mega jews of output came out. That's that's
Speaker 1: not a lot of electricity. That's equivalent to about the
Speaker 1: energy in in half a pizza. Doesn't sound like a lot,
Speaker 1: but you know, let's bear in mind Chicago Pile one
Speaker 1: that the first nuclear fission reaction synthetic nuclear action in
Speaker 1: nuclear fist Enrico Suffermi did that. That produced half a
Speaker 1: what of electricity, So that power that's less than you'd
Speaker 1: get from hearing a battery. So the first prone is
Speaker 1: always going to first trial, and you would hope that
Speaker 1: things could improve further from beyond that. But but having
Speaker 1: said this, there are enormous engineering problems ahead of nuclear
Speaker 1: fusion research before it becomes anywhere close to commercial viability.
Speaker 1: I think the biggest thing is that the way this
Speaker 1: fusion reaction works is essentially firing a bunch of lasers
Speaker 1: at a golden crucible containing a tiny pellet of fuel.
Speaker 1: Now those lasers, the ones that they were using the
Speaker 1: Lawrence Lives More laboratory, those are less than one percent
Speaker 1: efficient um. And of course what's actually happening in a
Speaker 1: fusion reactor, if you built it, is something that like
Speaker 1: James what would recognize that the inventor of the steam engine,
Speaker 1: It's produces heat and then the heat heats up a
Speaker 1: liquid in a bunch of pipelines, and the pipes go
Speaker 1: around and turn a turbine, and that produces electricity. It's
Speaker 1: a it's the same thing as you'd have in a
Speaker 1: certainly efficionary actor, but also like a cold cold plant
Speaker 1: or a gas plant, and the thermal efficiency of that process,
Speaker 1: you know, the amount of heat that comes out of
Speaker 1: the reactor less than fifty percent or round about fisture
Speaker 1: then typically ends up with electricity in a sort of
Speaker 1: cold plant or a gas plant or efficient plant. So
Speaker 1: if you add all that together, we talked at the
Speaker 1: moment ago about you know, two megadeals of energies put in, well,
Speaker 1: actually two hundred mega jules of energy is being put
Speaker 1: in because of course the lasers only one percent efficient.
Speaker 1: It's two megadeals of laser energy, but to power the
Speaker 1: laser you need two hundred mega jules. And of course
Speaker 1: you get out that three megadules of output, but only
Speaker 1: half of that can turn into electricity. So ultimately you're
Speaker 1: putting in two hundred megadeals of energy and you're getting
Speaker 1: out one point five megadals of energy. That's clearly a
Speaker 1: huge net energy. Think you're not actually producing electricity, you're
Speaker 1: losing a lot of electricity. So all those efficiencies need
Speaker 1: to be very, very dramatically ramped up before we're even
Speaker 1: talking about something that can confunction. But that's that's what
Speaker 1: engineering does. It improves those efficiencies. And so we've crossed
Speaker 1: one pretty important hurdle. Well, and it's a shot in
Speaker 1: the arm for those trying to solve other problems. If
Speaker 1: this particular problem has been solved, I mean, because it's
Speaker 1: been done once, does that mean it's repeatable? Well, I mean,
Speaker 1: if you if you look at the research of the UM,
Speaker 1: you know this particular facility of the National Ignition Facility,
Speaker 1: they have been for several years, they have been gradually
Speaker 1: sort of ramping up the degree of output they can get.
Speaker 1: What makes this a breakthrough is that there's more output
Speaker 1: than they put in. But for several years, if you
Speaker 1: you know, if you go through their their press releases
Speaker 1: and their announcements, you'll see, well, you know, we've hit
Speaker 1: sevent of output. We've hit output. So yes, you would
Speaker 1: hope that you could keep keeping going beyond there. And
Speaker 1: I think the other thing that that really we need
Speaker 1: to start thinking about if if this is ever to
Speaker 1: be viable, is the engineering challenges involved. I mean, what
Speaker 1: you're talking about, these fuel pellets are just a couple
Speaker 1: of millimeters across as just a little plastic bead containing
Speaker 1: a couple of isotopes of hydrogen, And if you had
Speaker 1: a working fusion reactor, what you'd be talking about would
Speaker 1: be essentially like firing a machine gun stream of these
Speaker 1: very very tiny pellets very very precisely into the middle
Speaker 1: of one of these little gold crucibles and focusing all
Speaker 1: these lasers on them at the same time, and of
Speaker 1: course using that to drive your turbines. The pellets would
Speaker 1: have to produced very cheaply. We don't really have the
Speaker 1: technology for for placing them as accurately as that, and
Speaker 1: those are only the you know, the starts of some
Speaker 1: of the challenges that we would have to face. Well,
Speaker 1: there is funding out there, so there's definitely a strong
Speaker 1: bet on this particular type of technology and on this
Speaker 1: particular type of generation of energy. So Congress directing what
Speaker 1: more than seven hundred million dollars for fusion research and construction.
Speaker 1: And there's also public private partnerships with the likes of
Speaker 1: Jeff Bezos, Bill Gate, Spear Teel all back in fusion companies.
Speaker 1: So the bets are very heavily on this technology. Or
Speaker 1: is this just one of the technologies that people are
Speaker 1: betting on. I mean, it's one of many types of technologies.
Speaker 1: And of course if you look at what people are
Speaker 1: betting on most of the moment, if you look at
Speaker 1: investment in energy as a whole, leap to energy actually
Speaker 1: sucks up a great deal of the R and D
Speaker 1: spending in energy as a whole, and historically always has,
Speaker 1: Like I think if you go back in the figures,
Speaker 1: roughly fifty percent of R and D is spent on
Speaker 1: nuclear power, which you know, nuclear powers never generated more
Speaker 1: than about prevent of the world's electricity. So it's but
Speaker 1: of course it has to suck up a lot of
Speaker 1: R and D because you seems enormously complicated, But if
Speaker 1: you look at actual overall investment in energy as a whole,
Speaker 1: nuclear power of any source has always been a rather
Speaker 1: small proportion of it, you know, historically has mainly been
Speaker 1: fossil fuels. In the past a couple of years, we've
Speaker 1: reached this point where where renewables essentially are overtaking fossil fuels,
Speaker 1: and wind and solar now sucks up more energy than
Speaker 1: than sort of upstream investment in oil and gas. And
Speaker 1: that's a very dramatic change. And that is actually, in
Speaker 1: terms of investment as a whole, what we are going
Speaker 1: to see over the next two years. The International Energy
Speaker 1: Agency just wrote on this last week of energy electricity
Speaker 1: investment over the next five years is going to be
Speaker 1: just wind and solar, just those two things. And it's
Speaker 1: worth bearing in mind that in terms of commercializing something
Speaker 1: like fusion power, the growing dominance of wind and solar
Speaker 1: in our electricity grids is going to be quite a
Speaker 1: challenge in itself because the fusion power was first conceptualized
Speaker 1: back in the fifties at a time when you build
Speaker 1: an energy grid around you know what's called baseload power,
Speaker 1: which is that you have a big power station. It
Speaker 1: provides a big lump of power, and you sort of
Speaker 1: try and match demand to the power that's coming out
Speaker 1: now what we're moving to now. Of course, wind and
Speaker 1: solar are variable. Soner doesn't generate when the sun goes down,
Speaker 1: wind doesn't generate when it when it's still, and they
Speaker 1: are the cheapest forms of power out there, So every
Speaker 1: other form of electricity generation has to sort of fit
Speaker 1: in around the growing shares of when and solar. That's
Speaker 1: potentially a problem for fusion because all that money basically
Speaker 1: translates to very large capital spending. It translates to very
Speaker 1: large power plants and gigga what scale power plants, and
Speaker 1: they're probably not very well suited towards the way the
Speaker 1: energy grid is evolving. And if you look certainly at
Speaker 1: what's happening in the fishing space, a great deal of
Speaker 1: the money and the sort of venture capital money that's
Speaker 1: going into fishing at the moment is looking at ways
Speaker 1: of making reactors smaller and more able to fit into
Speaker 1: that future. So reactors and how they're also problematic in
Speaker 1: the sense of not being particularly safe, or at least
Speaker 1: not having a long history of safety protocols and so on. Yeah,
Speaker 1: and I think that you know, past dependency is crucial
Speaker 1: with the there are no functioning small moderity. I mean
Speaker 1: there's a there's a couple that would would somehow to
Speaker 1: find themselves a small moderate reactors, but there are no
Speaker 1: real functioning some moderate fish and reactors at the moment,
Speaker 1: so we don't know a lot about their characterists is
Speaker 1: not just brand safety that I think more importantly around
Speaker 1: non proliferation, which is obviously a worry with any fish
Speaker 1: and materials. So that is a significant challenge, and I
Speaker 1: think in any safety critical technology you have to think
Speaker 1: about path dependency. We still fly planes that have pretty
Speaker 1: much the same you know, shape and form as they
Speaker 1: did in the forties, and that's really a lot of
Speaker 1: that is about past dependency and the fact that we
Speaker 1: know it's a safe design that works well. And if
Speaker 1: you look again at fish and reactors, most reactors in
Speaker 1: the world today and under construction in the world today
Speaker 1: are essentially updated versions of nineteen sixties designs. There's a
Speaker 1: lot of part dependency there. Now, what fusion is asking
Speaker 1: is to come up with an entire new technology with
Speaker 1: an entirely different set of protocols and risks that we
Speaker 1: don't really know at the moment, and that's going to
Speaker 1: be a challenge. It might be a stupid question, but
Speaker 1: explain to the difference between atomic power and fusion. So
Speaker 1: I guess fishing and fusion. Fishing and fusing, well, I
Speaker 1: mean essentially fishing, you're splitting apart some of the largest
Speaker 1: atoms in nature, and that generates electricity. Fusion, you're smashing
Speaker 1: together some of the smallert aesthoms in nature to generate electricity.
Speaker 1: So so fish and obviously mainly use uranium. It's very big,
Speaker 1: very heavy atom. It essentially will fall apart under the
Speaker 1: sort of weight of its own nucleus, and that produces
Speaker 1: spare neutrons, which are one of the particles in the
Speaker 1: nucleus of the atom, and the movement of those neutrons
Speaker 1: generates heat, which generates electricity fusion. You're doing the opposite thing.
Speaker 1: You're taking two isotopes of hydrogen. So these are varieties
Speaker 1: of hydrogen, and typical hydrogen nucleus is just one proton
Speaker 1: positively charged particle. Add one neutron to that and you
Speaker 1: get something called deuterium. Add two neutrons that you get
Speaker 1: something called tritium um. These these are both varieties of hydrogen.
Speaker 1: If you smash deuterium and tritium together, you can produce
Speaker 1: an atom of helium, and then you get a spare neutron,
Speaker 1: which just does with suffishient reaction can be used to
Speaker 1: generate heat and electricity. Now the advantage of this, of
Speaker 1: course is the uranium is pretty rare in the world.
Speaker 1: As you said before on this program, you really have
Speaker 1: to have a good relationship with CASA down if you
Speaker 1: want your uranium rate. Absolutely, there's a sort of fuel
Speaker 1: supply problem around nuclear fission that a little bit like
Speaker 1: with sort of cobalt from Congo or let's face it well,
Speaker 1: from Saudi Arabia. The people who produce the fuel are
Speaker 1: really potentially can have a lot of influence over your
Speaker 1: ability to generate electricity. Now, of course, hydrogen it's the
Speaker 1: main ingredient of water H two O. Every country in
Speaker 1: the world has plentiful water and certainly enough force to
Speaker 1: power a nuclear reactor. You can filter deuterium out of water.
Speaker 1: It's actually quite a common ingredients. So called heavy water,
Speaker 1: which is water with deuterium atoms in it is used
Speaker 1: in a lot of conventional nuclear reactors right now, and
Speaker 1: tritium can also be made from nuclear reactor. It's a
Speaker 1: little bit more complicated, but in principle that the fuel
Speaker 1: is very abundant, it's available to any country on Earth,
Speaker 1: and of course, unlike fish, and it's producing helium four,
Speaker 1: which is a stable atom, it is not radioactive, so
Speaker 1: you're not getting radioactive waste from the fuel. Having said that,
Speaker 1: of course, what happens when any neutron hits another atomic
Speaker 1: nucleus is it transmutes that and generally that will often
Speaker 1: turn into a radioactive material. So the neutrons that are
Speaker 1: creating the heat, they are also creating radioactive material. In
Speaker 1: this case, it's not the waste fuel, but it's actually
Speaker 1: the reactive vessel itself. There are a few proposals for
Speaker 1: chemistries that don't do this quite as badly as others,
Speaker 1: but there's a genuine risk that's certainly if you're using basically,
Speaker 1: you know, this DT fuel, deuterium and tritium, these hydrogen isotopes,
Speaker 1: then the reactive itself will actually degrade, transmute into other materials,
Speaker 1: and become radioactive waste in itself, and you'll have to
Speaker 1: replace it very regularly, so there are huge challenges. That
Speaker 1: was not what I was expecting you to say. That
Speaker 1: really puts the kibosh on the whole project if that
Speaker 1: word happened. But we don't know that that's going to
Speaker 1: happen yet, right well we well, I mean, I think
Speaker 1: we do know that it would be enormously challenging to
Speaker 1: use a hydrogen based fusion reaction that is not going
Speaker 1: to degrade and damage the vessel reactor. There are proposed
Speaker 1: chemical alloy solutions to this, but it's all immensely complicated
Speaker 1: and it's not really what anyone has been researching yet. Remember,
Speaker 1: we've taken seventy years to get to the point of
Speaker 1: a fusion reaction that actually generates more intrician you put
Speaker 1: into it. These engineering problems, I mean, they're not even
Speaker 1: the next hurdles across, but they're several hurdles down the way,
Speaker 1: and all this on the servers of Nezeral. If it works,
Speaker 1: it has tremendous potential. Personally, I suspect that you know,
Speaker 1: fish and we have a working nuclear technology that produces
Speaker 1: similar levels of energy energy from the sort of same
Speaker 1: amounts of material. I'm not yet convinced that fusion has
Speaker 1: enough advantages over fishing, and fishing has enough struggles as
Speaker 1: a technology. So I'm not yet convinced that fusion is there,
Speaker 1: But of course it does get there, then it's it's
Speaker 1: tremendously exciting. So you know, I think it's worthwhile that
Speaker 1: we are spending the money in investigating this and in
Speaker 1: developing it and sort of ironing out some of these difficulties.
Speaker 1: But in terms of is usually going to be a
Speaker 1: big part of the electricity grid in my lifetime or
Speaker 1: my children's lifetime, I doubt it. I think we know
Speaker 1: that we will have a grid mainly based on wind
Speaker 1: and solar with an analystis nuclear fision. They're about like
Speaker 1: ten percent or maybe a bit more than ten percent,
Speaker 1: and with maybe hydrogen or maybe abated natural gas as
Speaker 1: a sort of way of managing some of the variability.
Speaker 1: But we're not going to have countries power by nuclear fusion.
Speaker 1: Loomberg Opinions, David Fickling. That does it for this week's
Speaker 1: Bloomberg Opinion. As always, send your thoughts are away. I'm
Speaker 1: at Viquan at Bloomberg dart Net. We're produced by Eric
Speaker 1: mollow Until next time on Doomburg opinion,