Speaker 1: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 1: top stories in the coming week from our Daybreak anchors
Speaker 1: all around the world. And straight ahead on the program
Speaker 1: is inflation. What the Fed is really watching this coming week.
Speaker 1: I'm Tom Busby in New York.
Speaker 2: I'm Caroline Headge in London, where we're looking at the
Speaker 2: Bank of England's inflation fight ahead of its May rate decision.
Speaker 3: I'm Keiley Lynes in Washington, where President Biden is gearing
Speaker 3: up to meet with congressional leadership on the debt ceiling.
Speaker 4: I'm Ryan Curtis in Hong Kong. Where does Asia sit
Speaker 4: on the pluses and minuses of AI.
Speaker 5: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 6: Good day to you.
Speaker 1: I'm Tom Busby, and we begin today's program with the
Speaker 1: Fed's public enemy Number one, the fight against inflation, and
Speaker 1: this week's consumer price index and producer price index all
Speaker 1: about inflation. Joining me now to talk about this and
Speaker 1: whether it's what the FED is really watching at this point.
Speaker 1: Bloomberg's Global Economics and Policy Editor Michael McKee.
Speaker 7: Michael, welcome, Oh, thanks Tom.
Speaker 1: Well, we're coming off another rate hike from the Fed,
Speaker 1: the tenth one since just since last March. The central
Speaker 1: Bank's benchmark lending rate at a sixteen year high a
Speaker 1: rate a range of five to five and a quarter percent.
Speaker 1: But inflation is still hot, hot, hot. What do you
Speaker 1: think of that, Michael?
Speaker 8: I think the Fed has more work to do. That
Speaker 8: sounds like Jay Powell speaking when I say that they
Speaker 8: know that they are not there in terms of getting
Speaker 8: anywhere near their target yet. The inflation rate is still
Speaker 8: more than double the two percent target. But they do
Speaker 8: have ten rate cuts in the books, rate increases rather
Speaker 8: in the books, and that the full weight of that
Speaker 8: has not hit the economy yet. So they're betting that
Speaker 8: they are now in a position to be restrictive, that
Speaker 8: the FED funds rate is a restricted level, restrictive level
Speaker 8: now for the economy, and then it will just take
Speaker 8: time to tighten credit conditions and lead inflation to go lower,
Speaker 8: So they're going to wait and see. It means that
Speaker 8: the inflation numbers become even more important. As long as
Speaker 8: they don't go back up, then the Fed is not
Speaker 8: going to be raising rates again.
Speaker 1: And they have gone up, they've gone up, they've gone down.
Speaker 1: It's very fluid the inflation readings.
Speaker 8: Yeah, it depends on how much they were to go up.
Speaker 8: Now we're looking for in the CPI next week a
Speaker 8: relatively large rise in the headline number, which would probably
Speaker 8: be attributed to things like energy and food. The core
Speaker 8: is expected to go down, and the core is what
Speaker 8: the Fed is more concerned with. Higher on a year
Speaker 8: over your basis, but that's expected to decline and that
Speaker 8: would tell them that they're still on the right track.
Speaker 8: It's just going to take a while.
Speaker 1: And as they always say, data dependent, and by that
Speaker 1: late June meeting, we're going to get two months worth
Speaker 1: of jobs data, CPI, PPI, consumer spending reports. So there's
Speaker 1: a lot to consider for the Fed.
Speaker 8: Yeah, one gets tired of saying data dependent, but they
Speaker 8: really are in this case because now they've specifically hung
Speaker 8: their next decision on the data they had been saying
Speaker 8: month after month or meeting after meeting that they anticipated
Speaker 8: having to raise rates more, that they weren't at a
Speaker 8: point where they were restrictive. Now they're at that point,
Speaker 8: and it's a question of the data telling them whether
Speaker 8: they are accurate in estimating that or whether they think
Speaker 8: they need to do more.
Speaker 1: And the inflation target they have and they've had for
Speaker 1: a long time two percent, But the latest personal consumption
Speaker 1: expended your price index, as you said, more than double
Speaker 1: that for point two percent in March year over year.
Speaker 1: Now things are a lot better than they were, let's
Speaker 1: say last summer, when there was you know, an all
Speaker 1: time high or at least a you know, forty year high.
Speaker 1: What are we looking to see in the consumer Price
Speaker 1: Index on Wednesday? The PPI on Thursday.
Speaker 8: Well, the CPI, as I mentioned, is likely to go
Speaker 8: up on a headline basis, and the economist surveyed by
Speaker 8: Bloomberg think it'll tick down to a three ten percent
Speaker 8: gain for the core, which is what the Fed is
Speaker 8: more concerned about. On a year over year basis. That
Speaker 8: brings the core CPI to five point four percent from
Speaker 8: five point six percent. It's measured differently than the PCE.
Speaker 8: So the numbers are a little off, but we do
Speaker 8: get a sort of a much broader look at the
Speaker 8: categories of inflation in the CPI, So everybody wants to see,
Speaker 8: you know, where inflation may be, which is why it
Speaker 8: gets a lot of attention. The PPI is expected to
Speaker 8: rise a little bit, but it fell in the prior month,
Speaker 8: back in March, and so for April a small rise
Speaker 8: isn't going to change the year over year situation for
Speaker 8: a final demand, it'll bring it down. So at this
Speaker 8: point it looks like with both of these on a
Speaker 8: year over year basis, we're making progress. The question is
Speaker 8: is it going to be enough progress or will there
Speaker 8: be a surprise out there and will we see inflation rise?
Speaker 8: And then the Fed have to start thinking about or
Speaker 8: the markets at least start pricing a rate increase.
Speaker 1: Oh well, we all love surprises, but not that kind now,
Speaker 1: now rate increases and the converse of that, of course,
Speaker 1: rate cuts. You spoke to Fed Shair Jpowell about all
Speaker 1: this this past week. Let's listen now to what you
Speaker 1: said and his response.
Speaker 8: Can you tell us something about what your policy reaction
Speaker 8: function is, your policy framework is going forward? When you
Speaker 8: look at the economy at the next meeting. Are you
Speaker 8: looking at incoming data, which is by definition backward looking.
Speaker 8: Are you going to be forecasting what you think is
Speaker 8: going to happen? Are you ruling out the rate cuts
Speaker 8: that the market has priced in?
Speaker 7: It didn't catch the last part, ruling markets have priced
Speaker 7: in rate cuts by the end of the year. Rules
Speaker 7: are sorry, Okay.
Speaker 6: Got it.
Speaker 9: That's what are we looking at. I mean, we look
Speaker 9: at a combination of data and forecasts. Of course, the
Speaker 9: whole idea is to is to create a good forecast
Speaker 9: based on what you see in the data. So we're
Speaker 9: always always looking at both, you know, and it will,
Speaker 9: of course, it'll be the obvious things. It'll be readings
Speaker 9: on inflation, It'll be readings on wages, on economic growth,
Speaker 9: on the labor market, and all of those many things.
Speaker 9: I think a particular focus for us going now over
Speaker 9: the past six seven weeks now and going forward is
Speaker 9: going to be what's happening with credit tightening, our small
Speaker 9: and medium sized banks tightening credit standards, uh and and
Speaker 9: is that having an effect on on on loans, on
Speaker 9: lending and you know, so we can begin to assess
Speaker 9: how that fits in with monetary policy. That'll that'll be
Speaker 9: an important thing. I just you know, we'll be looking
Speaker 9: at everything. It's again, I would just point out we've
Speaker 9: raised rates by five percentage points, we are shrinking the
Speaker 9: balance sheet, and now we have credit conditions tightening, not
Speaker 9: just in the normal way, but perhaps a little bit
Speaker 9: more due to what's happened.
Speaker 7: And we have to factor.
Speaker 9: All of that in and and make our assessment of,
Speaker 9: you know, of whether our policy stance is sufficiently restrictive.
Speaker 9: And we have to do that in a world where
Speaker 9: policy works with long and variable legs. So this is challenging,
Speaker 9: but you know, we we will make our best assessment.
Speaker 9: And that's that's what we're thinking.
Speaker 7: What about the idea of rate cuts.
Speaker 6: Yeah, so.
Speaker 9: We on the committee have a have a view that
Speaker 9: inflation is going to come down not so quickly, but
Speaker 9: it'll take some time. And in that world, if that
Speaker 9: forecast is broadly right, it would not be appropriate and
Speaker 9: to cut rates, And we won't.
Speaker 7: Cut rates if you have a different forecast.
Speaker 9: And you know markets are have been from time to
Speaker 9: time pricing and you know, quite rapid reductions and inflation.
Speaker 9: You know, we'd factor that in, but that's not our forecast,
Speaker 9: and of course, the history of the last two years
Speaker 9: has been very much that inflation moves down. Particularly now
Speaker 9: if you look at non housing services, it really really
Speaker 9: hasn't moved much and it's quite stable. And you know,
Speaker 9: so we think we'll have to demand will have to
Speaker 9: weaken a little bit and labor market conditions, conditions may
Speaker 9: have to soften a bit more to begin to see
Speaker 9: progress there. And again, in that world, it wouldn't be
Speaker 9: it wouldn't be appropriate for us to cut rates.
Speaker 1: Okay, so Pal told you this is no time to
Speaker 1: cut rates, that there's still a lot of work to do,
Speaker 1: your drive and lower. So how much worse could it
Speaker 1: possibly get?
Speaker 8: Well, it's hard to see it getting significantly worse. We're
Speaker 8: seeing the labor market loosen up a little bit and
Speaker 8: we're seeing inflation come down. Some of those two things
Speaker 8: tied together. Supply chains have normalized, so those aren't a
Speaker 8: major issue, and commodity prices have sort of flattened out,
Speaker 8: except for energy. So overall, the prognosis is for inflation
Speaker 8: to keep coming down. It's not the rate of the
Speaker 8: level rather of inflation, it's the rate which it's moving.
Speaker 8: That people are diverging from the FEDS view. The FED
Speaker 8: things it will take time that they've gotten the low
Speaker 8: hanging fruit, and it will take significant time to squeeze
Speaker 8: the rest of the two point two percent or whatever
Speaker 8: inflation out of the system, and the markets seem to
Speaker 8: think that it'll go much faster than that. We'll see
Speaker 8: a big drop in overall inflation over the coming months,
Speaker 8: either because the FED is suggest successful or because we
Speaker 8: go into a recession, and either way, the market wants
Speaker 8: to price in rate cuts and the Fed is disagreeing
Speaker 8: with that. And one of their concerns, and one of
Speaker 8: the concerns they had in sort of announcing a pause
Speaker 8: without announcing a pause, is they didn't want markets to
Speaker 8: go too far. They didn't want people to start pricing
Speaker 8: in further rate cuts. But that's exactly what happened after
Speaker 8: pal suggested in that answer that maybe if inflation did
Speaker 8: come down fast, then the markets might be right. He's
Speaker 8: not arguing that it's going to but just that little
Speaker 8: crack was enough for traders to slither through.
Speaker 1: Michael, thank you. That is Bloomberg's Global Economics and Policy
Speaker 1: editor Michael McKee, and coming up on Bloomberg Day Break weekend,
Speaker 1: the Bank of England's fight against inflation. I'm Tom Busby,
Speaker 1: and this is Bloomberg. This is Bloomberg Daybreak weekend, our
Speaker 1: global look ahead at the top stories for investors in
Speaker 1: the coming week. I'm Tom Busby in New York. Up
Speaker 1: later on our program the dead ceiling and what the
Speaker 1: fight over it means for the economy. But first, UK
Speaker 1: economists expect just one more quarter point rate hike from
Speaker 1: the Bank of England next week, with rates peaking at
Speaker 1: four point five percent, very different from the marketview. For more,
Speaker 1: we go to Bloomberg Daybreak Europe co host Caroline Hepger.
Speaker 2: Tom, the Bank of England is deep into its drive
Speaker 2: to tame inflation, with traders betting on a five percent
Speaker 2: potential peak rate in the UK, but the endgame is
Speaker 2: still really far from clear. So joining me now is
Speaker 2: Bloomberg's chief UK economist Dan Hanson. Great to have you
Speaker 2: on the program. Dan, the path ahead then for the
Speaker 2: Bank of England in your view now.
Speaker 10: Yeah, I mean, I think you're right about the uncertainty
Speaker 10: you've got. In the last few data releases, You've had
Speaker 10: really big surprises on the inflation front, and actually in
Speaker 10: the most recent labor market report, you had a big
Speaker 10: surprise on wages as well, So I think in the
Speaker 10: very near term and just thinking about the next meeting,
Speaker 10: I think it's it seems very likely to us and
Speaker 10: to the market, and I think most economists that they'll
Speaker 10: liferrates again twenty five basis points. I think the question
Speaker 10: then is a lot around the guidance that they provide.
Speaker 10: Are they still going to focus on the idea that
Speaker 10: they'll only liferates again if they're surprised by the data,
Speaker 10: and if that's the case, I think it is uncertain
Speaker 10: whether they will raise rates again. I think there's a
Speaker 10: question whether they want to be a little bit more
Speaker 10: forceful this time round, given the scale of the surprises
Speaker 10: that we've seen in the data. But I think our
Speaker 10: base case is that they'll liferates in May, and they'll
Speaker 10: also liferates in June. And the reason we think they'll
Speaker 10: do that is because the data, particularly on core inflation,
Speaker 10: has been very very sticky, and I think they'll want
Speaker 10: to lean against that sort of risk of inflation persistence.
Speaker 10: And I think at the Bank there is this They've
Speaker 10: talked a lot about overtightening, but I think actually if
Speaker 10: you look at the whole, the Committee as a whole.
Speaker 10: I think there's probably a view that it's better to do
Speaker 10: a little bit more than a little bit less at
Speaker 10: this point, and as you said at the start there,
Speaker 10: they've come so far they really want to just finish
Speaker 10: the job off.
Speaker 2: Yeah, I mean, the consumer price index in the UK
Speaker 2: and double digits above ten percent. But there are concerns,
Speaker 2: aren't there, around banks breaking particularly in the US in Europe,
Speaker 2: consumers struggling with food and energy bills, but also rising
Speaker 2: interest rates. How concerned do you think that the bank
Speaker 2: is going to be about suchly financial stability and other
Speaker 2: parts of the economy that may suffer after such a
Speaker 2: rapid rise.
Speaker 10: I think they'll be very, very concerned.
Speaker 7: I said they are.
Speaker 10: They're one of the only major central banks that have
Speaker 10: voiced concerns about overtightening. Now, I think when they balance
Speaker 10: the risk of overtightening versus doing too little, I still
Speaker 10: think they're probably erring towards worrying about doing too little.
Speaker 10: But nonetheless, even you know, chief economist Hugh pill at
Speaker 10: the Bank has warned about it. We've got some very
Speaker 10: vocal doves at the Bank of England talking about overtightening,
Speaker 10: so I think events in the US will certainly play
Speaker 10: on their mind. Here in the UK, financial conditions have
Speaker 10: after the sort of where things reach fever pitch following
Speaker 10: SVB and credit Swiss, things have eased off a little bit.
Speaker 10: So I think you know there is a there is
Speaker 10: a clear path to higher rates. That's not going to
Speaker 10: be an impediment to than lifting rates further. I mean,
Speaker 10: I think one one area of resilience, and they'll take
Speaker 10: some in some ways I guess takes some comfort in
Speaker 10: though it makes their inflation fight harder. Is the resilience
Speaker 10: of consumer spending in the economy in general, which has
Speaker 10: held up much better since the start of the year
Speaker 10: than many had been expected. But as I say that,
Speaker 10: that makes their inflation anyways, that makes her inflation fight
Speaker 10: harder because you've got a stronger economy, a stronger labor market,
Speaker 10: and ultimately that means it's harder to get inflation to
Speaker 10: settle at two percent as it begins to drift downwards.
Speaker 2: Okay, Dan, stay there. As we're thinking about the Bank
Speaker 2: of England's decision next week, I also wanted to bring
Speaker 2: in an interview that I did with Stephen King who's
Speaker 2: the senior economic advisor at HSBC, so really renowned economists.
Speaker 2: Of course you're nodding vigorously. He has a new book
Speaker 2: out called We Need to Talk About Inflation, and he
Speaker 2: was so interesting on this point of accountability, responsibility of
Speaker 2: central bankers, the stickiness of inflation. Where we go from here.
Speaker 2: Just want you to have a little listen to a
Speaker 2: snippet from that interview.
Speaker 11: Every crisis is different, but at the same time there
Speaker 11: are some similarities and you can tease them out. One
Speaker 11: of the similarities is that most crises, inflation wise, start
Speaker 11: with us series of excuses for why inflation is different
Speaker 11: from what people had expected. So it's energy price shocks,
Speaker 11: it's food price shocks, it's price gouging, it, whatever it
Speaker 11: might be. But actually, looking back through history, and I've
Speaker 11: looked through a lot of history, it's probably fair to
Speaker 11: say that money plays some kind of role. That if
Speaker 11: you have overduse monetary policy, or you're debasing the coinage,
Speaker 11: or you're coin clipping or whatever it was a thousand
Speaker 11: years ago, what you're now seeing is a situation whereby
Speaker 11: I suspect monetary policy which is far too loose. During
Speaker 11: the pandemic, and in particular remained far too loose after
Speaker 11: the pandemic came to an end. So you had this
Speaker 11: sort of situation where by central bank has feared a
Speaker 11: Great Depression mark too, but that never materialized. We had
Speaker 11: a series of declines in GDP which was similar to
Speaker 11: the Great Depression, but we did not have the multiple
Speaker 11: bank failures. We didn't have the mass bankruptcy is the
Speaker 11: mass unemployment. We didn't have any of those kinds of
Speaker 11: things coming through. And as a consequence, I think that
Speaker 11: we've ended up with excessively loose monetary conditions which have
Speaker 11: helped drive the underlying inflation process. And of course, when
Speaker 11: inflation first picked up, people said, it's just semi conductive prices,
Speaker 11: it's just prices of secondhand cars or whatever. But we
Speaker 11: now know that it's not just semi conductive prices or
Speaker 11: secondhand cars. It's a whole range of goods, a whole
Speaker 11: range of services, and now in some countries at least
Speaker 11: wages also moving up in nominal terms. So inflation, I
Speaker 11: would suggest, is much more embedded than the majority of
Speaker 11: central bankers and forecasters expected.
Speaker 2: Do you think that central bankers have taken on board
Speaker 2: that idea that monetary policy was too loose for too long,
Speaker 2: that they are partly to blame.
Speaker 11: Well, I think that they are keen to avoid blame.
Speaker 11: And part of the reasons for avoiding blame, of course,
Speaker 11: is that if they're blamed, they then come under tremendous
Speaker 11: political scrutiny. You know, what do these technocrats get wrong?
Speaker 11: And of course the most important thing for central bankers
Speaker 11: to try to retain the independence of the central bank.
Speaker 11: So I think there is a weird kind of desire
Speaker 11: to blame everything other than themselves for what is actually transpired.
Speaker 11: But when you think about it, the fact that interest
Speaker 11: rates remain so low for so long that during the
Speaker 11: course of twenty twenty one, inflation was steadily picking up
Speaker 11: in the US, in the UK, in the Eurozone, and
Speaker 11: action in terms of monetary tithing didn't really take place
Speaker 11: until the very end of that year or into twenty
Speaker 11: twenty two. I would suggest that there was effect too
Speaker 11: little action too late, which is why now we've got
Speaker 11: the situation where by everyone's panicking about how far rates
Speaker 11: will have to go up because you're trying to sort
Speaker 11: of conduct a handbreak turn when the economy effectively has
Speaker 11: been sort of not much growing quickly, but there's been
Speaker 11: showing signs of building inflation and pressures for much longer
Speaker 11: than people had expected.
Speaker 2: That was Stephen King, Senior Economic advisored HSBC, who was
Speaker 2: talking to a Soboomberg radio about his new book We
Speaker 2: Need to Talk About Inflation, So very interesting on that
Speaker 2: topic of course, right back to you, Dan So just
Speaker 2: going back then to the Bank of England and talking
Speaker 2: about the kind of bigger themes around why inflation is
Speaker 2: so sticky right now. This is the central challenge for
Speaker 2: economists now and to understand how sticky it.
Speaker 10: Will remain, absolutely absolutely and I think the reason you've
Speaker 10: had this what I would call a perfect storm where
Speaker 10: inflation has gone up for reasons outside of the troll
Speaker 10: of central banks, to the most extent thing through energy prices,
Speaker 10: food prices, what traditionally we call externally driven inflation. But
Speaker 10: at the same time you've had a very very extremely
Speaker 10: i should say tight labor market and those two things
Speaker 10: have combined. You've had and you've seen workers bargain for
Speaker 10: a bigger share of the pie and you've seen wage
Speaker 10: gains go up. So I think for all central banks
Speaker 10: it's really a case of watching first of all, in
Speaker 10: terms of the sort of order of where you might
Speaker 10: see things begin.
Speaker 7: To caol off.
Speaker 10: You've got first it's the economy, then it's the labor
Speaker 10: market and unemployment. Then it's wages, then it's inflation, and
Speaker 10: it tends to sort of happen in that order. So
Speaker 10: at least in the UK, with demands holding up, there
Speaker 10: isn't a sign yet that the labor market can really
Speaker 10: loosen to any great extent that will put enough downward
Speaker 10: pressure on wage growth to ultimately deliver inflation.
Speaker 2: Back to Togg, Dan, thank you so much for your time.
Speaker 2: Bloomberg's chief UK economist, Dan Hanson, thank you so much
Speaker 2: for being with me. I'm Caroline Hepge here in London.
Speaker 2: You can catch us every weekday morning for Bloomberg day Break.
Speaker 2: You're at beginning at six am in London. That's one
Speaker 2: am on Wall Street.
Speaker 1: Tom, thank you, Caroline, and coming up on Bloomberg day
Speaker 1: Break weekend. The fight over the dead ceiling is intensifying.
Speaker 1: I'm Tom Busby and this is.
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Speaker 6: Tom.
Speaker 1: Let's be in New York with your global look ahead
Speaker 1: at the top stories for investors in the coming week.
Speaker 1: The clock is ticking on the US debt ceiling. For more,
Speaker 1: Let's head to our Bloomberg ninety nine to one newsroom
Speaker 1: in Washington and sound on host Kaylee Line.
Speaker 3: Yeah, that's right, Tom. We learned this past week that
Speaker 3: the X state could be just weeks away. Treasury Secretary
Speaker 3: Jenny Yellen writing in a letter to Congress that the
Speaker 3: Treasury may not be able to meet its obligations by
Speaker 3: early June, possibly as early as June first. That letter
Speaker 3: seemed to set President Biden in motion. He called up
Speaker 3: congressional leadership. House Speaker Kevin McCarthy, sent a Minority leader
Speaker 3: Mitch McConnell, and Democratic leader Senator Chuck Schumer, and Congressman
Speaker 3: junkin Jeffries and asked them to meet with him this
Speaker 3: coming Tuesday, May ninth. It's the sit down we've all
Speaker 3: been waiting and waiting and waiting for. The question is
Speaker 3: how much progress can really be made between Biden and
Speaker 3: Speaker McCarthy. They want very different things. The President has
Speaker 3: consistently called for a clean debt ceiling raise with no negotiation,
Speaker 3: and McCarthy wants to talk spending cuts. How do they
Speaker 3: meet in the middle. Let's get some perspective from our
Speaker 3: all star panel. Bloomberg White House reporter Josh Wingrove and
Speaker 3: Congressional reporter Steve Dennis are both joining us.
Speaker 7: So Josh, let's start with you.
Speaker 3: I understand it is a step forward for President Biden
Speaker 3: to call this meeting, but he called it for this
Speaker 3: coming week, more than a full week after Yellen's letter
Speaker 3: was delivered and the June first suggestion really came into
Speaker 3: the picture.
Speaker 7: Why the wait?
Speaker 3: Doesn't this feel like a little late to the game.
Speaker 6: Yeah, I mean we're starting to really come up against
Speaker 6: it here, absolutely, And you know there's reasons why they're
Speaker 6: waiting till then, including the Speaker's travel and Steve can
Speaker 6: talk to us here shortly about how they're sort of
Speaker 6: running out of time, that the House, Senate, and President
Speaker 6: are all in the same city at once, so that's
Speaker 6: sort of adding pressure to the clock. But you know,
Speaker 6: heading into this, I think we should temper expectations because
Speaker 6: the White House message has not been hey, we're coming
Speaker 6: in with an offer. Hey, you know, these are the
Speaker 6: kinds of things we hope the mcarthy is going to
Speaker 6: negotiate on, or hey, we think we should do a
Speaker 6: short term extension. Instead, they're saying that Biden is going
Speaker 6: into the meeting saying he wants to underscore the importance
Speaker 6: of not defaulting on the speaker. So you know, that
Speaker 6: sounds like people are still douggy, and that sounds almost
Speaker 6: like talking past each other rather than talking with each other.
Speaker 6: So I think we should temper expectations. But there are
Speaker 6: signs to look for as to whether they'll have some
Speaker 6: kind of deal. The White House hasn't closed the door
Speaker 6: to certain extreme sort of unilateral measures if it comes
Speaker 6: to that. They haven't closed the door to a short term,
Speaker 6: you know, stopgap type of extension or suspension of the
Speaker 6: dead ceiling. So these things are simmering, but we're running
Speaker 6: up against it, and there really is no sign that
Speaker 6: you decide right now is blinking.
Speaker 3: So, Steve if on the White House side, this maybe
Speaker 3: is going to be more of a talking too than
Speaker 3: actually talks or any kind of negotiation. Is that true
Speaker 3: on the congressional side as well? Are we likely to
Speaker 3: see budging on the end of McCarthy and also McConnell,
Speaker 3: who is going to be in the room too, even
Speaker 3: though largely he has been removed from this conversation so far.
Speaker 12: Yeah, so, you know, I think the Democrats really want
Speaker 12: McConnell to sort of roll up the sleeves and do
Speaker 12: what he's done many times in the past and sort
Speaker 12: of negotiate a way out of a cliff. And McConnell's
Speaker 12: made clear to us in press conferences that he is
Speaker 12: not going to do that role this year, that basically
Speaker 12: he sees his role as being sort of a wingman
Speaker 12: for McCarthy, and that any deal is not going to
Speaker 12: come out of the Senate, even said the Senate's irrelevant
Speaker 12: this time, and that the deal has to be between
Speaker 12: McCarthy and Biden. The issue is that markets are already moving,
Speaker 12: We're already seeing bond selling off for next month, and
Speaker 12: I've covered a lot of these in the past, and
Speaker 12: when markets really start moving, that amps the pressure up
Speaker 12: on both sides dramatically. What we really have is sort
Speaker 12: of like a decade long fight over the leverage over
Speaker 12: the dead limit, going back to twenty eleven, when Joe
Speaker 12: Biden ended up cutting a deal with Mitch McConnell for
Speaker 12: like a ten year deal on spending cuts in return
Speaker 12: for a dead limit increase. Right, The sort of the
Speaker 12: lesson that the Democrats learned from that and took from
Speaker 12: that is that that really sort of handcuffed the last
Speaker 12: six years of Barack Obama's presidency. They don't want to
Speaker 12: go down that road again. They don't want to be
Speaker 12: held hostage again and again and again. And that's what
Speaker 12: I hear in the hallways from all the Democratic senators
Speaker 12: that they have to dig in so that even they
Speaker 12: don't even like the idea of a short term deatlimit
Speaker 12: because they see that as just, you know, more damage
Speaker 12: for the economy. Even getting close in twenty eleven really
Speaker 12: tanked the S and P tanked consumer confidence.
Speaker 3: Well, it was two weeks before the X state that
Speaker 3: ultimately the US's credit rating was downgraded, so it's.
Speaker 12: Right, and you already you already have the you know,
Speaker 12: some of the credit rating agencies making similar warnings this
Speaker 12: time around. But you know, in the past, it's has
Speaker 12: taken markets to put the pressure on lawmakers before they've budged.
Speaker 12: And when you look at McCarthy, he you know, barely
Speaker 12: became speakers fifteen yeah ballots, and it.
Speaker 3: Was really hard for him to get the two hundred
Speaker 3: and seventeen vote needed to pass his bill. So it
Speaker 3: kind of raises a question of how much wiggle room
Speaker 3: he really has. And Josh, just on the subject of
Speaker 3: wiggling room and negotiations which McCarthy says that he wants,
Speaker 3: why isn't the White House using this as an opportunity
Speaker 3: to push for revenue raising measures for higher taxes if
Speaker 3: what the Republicans are saying they ultimately want is deficit reduction.
Speaker 3: There are two sides to that.
Speaker 6: I think they think they would. I mean, the White
Speaker 6: House basically wants to decouple the debt ceiling site from
Speaker 6: the spending discussion, right they they view McCarthy as sort of,
Speaker 6: you know, hanging the proverbial hostage up a ledge, you know,
Speaker 6: threatening to drop them, and the White Hose says, you know,
Speaker 6: like like you know, let go bring them back on
Speaker 6: on TALLI ground and then we'll talk. That is sort
Speaker 6: of where we're at on it. So you know, Biden
Speaker 6: put out his budget has three trillion andcumulative depthicit of
Speaker 6: reduction over ten years. McCarthy's is more in the four range.
Speaker 6: They're completely different ways of getting there. Biden more on
Speaker 6: the revenue side, you talked about, McCarthy more on the
Speaker 6: cut side, and so you know they're still talking past
Speaker 6: each other. But the whole question is is the debt
Speaker 6: ceiling a bargaining ship or not. Biden is trying to
Speaker 6: saddle McCarthy with this collapse that may happen here by
Speaker 6: saying it's Republicans who are holding the debt ceiling hostage.
Speaker 6: Democrats favor raising it or suspending it and then having
Speaker 6: the conversation about spending. But McCarthy's position is we have
Speaker 6: the House, we had to decide what the priorities are
Speaker 6: for the House, and that we see these things as
Speaker 6: Lincoln pretty intractable right now. We just don't see where
Speaker 6: it's going to go, and of course we're running out
Speaker 6: of time for them to stick the landing that really
Speaker 6: is the tricky part here.
Speaker 3: Well, it strikes me that Josh just said, you know,
Speaker 3: they have the House, but Steve, they don't have the
Speaker 3: House by that much. He has a very small margin
Speaker 3: to work with, which comes back to this idea of
Speaker 3: how hard it was to get him the votes he
Speaker 3: needed the first time around. So realistically, where is their
Speaker 3: room within his caucus for things to come out of
Speaker 3: that package? What are Republicans willing to lose if there
Speaker 3: are negotiations to be had.
Speaker 12: You know, the thing that McCarthy has he has not raised,
Speaker 12: like he has not said I need all of these
Speaker 12: cuts in my bill is the only thing he said
Speaker 12: is there cannot be a clean debt limit. And if
Speaker 12: you think about the position McCarthy's in where he has
Speaker 12: just a four vote majority, really he really can't come
Speaker 12: back completely empty handed. He needs to have something he
Speaker 12: can point to to his conference that says, hey, we
Speaker 12: have some leverage. We're going to get some of the
Speaker 12: things that we want, either some kind of a handshake
Speaker 12: deal committee, you know, but also probably something real and
Speaker 12: the in it you have anything real attached to it,
Speaker 12: then the entire White House argument that they're not going
Speaker 12: to give in anything for the dead limit, you know,
Speaker 12: because then limit will be a bargaining chip into the future.
Speaker 12: And that's where, you know, some of these sort of
Speaker 12: break glass scenarios start looming large because if it really
Speaker 12: is intractable and McCarthy simply will not agree to a
Speaker 12: clean deadlimit in grease and the White House keeps to
Speaker 12: their position, you know, then you start thinking, Okay, well,
Speaker 12: will they do these premium bonds to pretend that debt
Speaker 12: is not as big as it is? Will they do
Speaker 12: a platinum coin? And until the White House really shuts
Speaker 12: down those options, they start looming ever larger. As we
Speaker 12: get closer to that cliff.
Speaker 3: Diving moment yep, And we're getting closer every day and
Speaker 3: getting closer to that important conversation happening on May ninth.
Speaker 3: We'll see how much progress really can be made. Thank
Speaker 3: you both so much for joining us. Can't wait for Tuesday.
Speaker 3: Bloomberg White House reporter josh Win Grove and congressional reporter
Speaker 3: Steve Dennis, Thank you both, and Tom, we'll send it
Speaker 3: back to you.
Speaker 6: Thank you.
Speaker 1: Kaylee reporting from our Bloomberg ninety nine one newsroom in Washington,
Speaker 1: and you can hear sound on with Joe Matthew and
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Speaker 1: I'm Tom Busby, and this is Bloomberg. This is Bloomberg
Speaker 1: day Break Weekend, our global look ahead at the top
Speaker 1: stories for investors in the coming week. I'm Tom Busby
Speaker 1: in New York. Chatbots shaking things up in Asia, also
Speaker 1: sounding alarm bells for some For more, let's go to
Speaker 1: Hong Kong and Bloomberg day Break Asia host Brian Curtis
Speaker 1: and his colleague Doug Krisner.
Speaker 4: Tom More and more. Companies are rushing out new artificial
Speaker 4: intelligence projects, including some in Asia, and some companies are
Speaker 4: also holding back, preaching caution.
Speaker 13: AI capability are moving so fast it's making some people nervous.
Speaker 13: One example Jeffrey Hinton. He's one of the pioneers of
Speaker 13: modern AI. He recently quit his job at Google's Brain
Speaker 13: AI division, Hinton saying that he wants to be able
Speaker 13: to speak out more freely about the dangers the technologies
Speaker 13: can bring.
Speaker 4: Dougan, I thought we would take a closer look at
Speaker 4: some of the positives and negatives, particularly with some attention
Speaker 4: given to Asia joining us as lad Sevov Bloomberg Tech
Speaker 4: editor who is a specialist on artificial intelligence. So we've
Speaker 4: had a lot of interesting points here of late, not
Speaker 4: only the one that Doug mentioned there, but Samsung banning
Speaker 4: people from using AI, worried about what would happen if
Speaker 4: some of the information is stored on servers outside the country.
Speaker 4: In your view, are we moving too fast here or
Speaker 4: is this to be expected?
Speaker 14: Well, with respect to Samsung, I think it's a good
Speaker 14: precaution that the company's taking. What reedy Samsung is concerned
Speaker 14: about it has to do with it knowledge itself. So
Speaker 14: maybe we just dive straight into the geeky partis from
Speaker 14: my favorite I will also correct you, I am not
Speaker 14: a specialist in this sort of AI.
Speaker 7: I don't think anybody else.
Speaker 14: It's so novel, it's so new, and there is so
Speaker 14: much that goes behind that label.
Speaker 7: With AI. It's kind of like saying computer. It's so general.
Speaker 14: It covers so many different applications and technologies. The thing
Speaker 14: that we are already discussing with AI in the current
Speaker 14: moment is really the chat GPT class is these large
Speaker 14: language models that the likes of Google and chat GPT
Speaker 14: developer open Ai have really popularized with respect to that.
Speaker 14: And this is where Samsung is being cautious. If you
Speaker 14: put any information into it, it is not so much
Speaker 14: insecure with respect to open ai acting your information, but
Speaker 14: that info then trains the bot to answer queries from others.
Speaker 14: So if you're Samsung and you put any proprietary software
Speaker 14: or code in there, somebody like me can come along
Speaker 14: and say, hey, tell me about Samsung's proprietary code in
Speaker 14: Android devices, and the bot doesn't have any sort of
Speaker 14: guardrails for the most part, and it will just bid
Speaker 14: out what information.
Speaker 13: Has Recently, there was an open letter it was signed
Speaker 13: i believe by Elon Musk and thousands of others calling
Speaker 13: for a pause on development of artificial intelligence. It's a
Speaker 13: bit like putting the genie back in the bottle. Though
Speaker 13: at this point, don't you think is there any way
Speaker 13: that there could be some kind of global agreement just
Speaker 13: to slow down the rate of adoption here?
Speaker 1: Oh?
Speaker 7: You exactly right. There is no chance of that happening.
Speaker 14: We have several examples here in China of start of
Speaker 14: founders essentially saying I just needed to start an AI company.
Speaker 14: It's once in a decade, once in several decades opportunity.
Speaker 14: I don't have a name for the company yet, I
Speaker 14: just knew I need to quit my previous job and.
Speaker 7: Jump into this.
Speaker 14: It opens up such an opportunity because everybody is the
Speaker 14: start in line today. When you think about tech, over
Speaker 14: the past at least decade, probably longer, there hasn't been
Speaker 14: the opportunity for somebody to search and become the next Facebook, Slash, Meta,
Speaker 14: or the next Google or Twitter, even just because the
Speaker 14: leaders are the leaders. They have the money, they have
Speaker 14: the investment, and they just keep your investing and they
Speaker 14: keep hiring the best talent. Now, we've had big waves
Speaker 14: of layoffs, especially in the US, with really highly experienced,
Speaker 14: highly talented and well connected people in Silicon Valley and beyond,
Speaker 14: and those people are now looking at AI and the
Speaker 14: two moments coincide. So AI gives this big new opportunity
Speaker 14: where everybody from the big guys like Google and Microsoft
Speaker 14: and the ten sent and I Barbers here in China
Speaker 14: starting from Crown zero effectively and seeing how they turn
Speaker 14: the tech into something that is a product, and then
Speaker 14: you have the opportunity for small guys to get in
Speaker 14: there and just have a better idea.
Speaker 4: La thanks so much for sharing your insights with us.
Speaker 4: Flat's have off there, Bloomberg Tech Editor, I'm Brian Curtis
Speaker 4: along with Doug Kristner. You can catch us every weekday
Speaker 4: here for Bloomberg day Break Asia, beginning at six am
Speaker 4: in Hong Kong and six pm on Wall Street.
Speaker 7: Tom.
Speaker 1: Thank you Brian and Doug. And that does it for
Speaker 1: the this edition of Bloomberg Daybreak Weekend. Join us again
Speaker 1: Monday morning at five am Wall Street time for the
Speaker 1: latest on markets overseas and the news you need to
Speaker 1: start your day. I'm Tom Buzzby.
Speaker 6: Stay with us.
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