Fed's Warsh Says US Facing Massive Investment Surge

[00:00:00] Speaker 1: Live from Sydney, I'm Paul Allen. This is insights. Asian stocks are staging a cautious rebound as buyers return to battered chip shares with Korea leading the recovery. Investors though remain on edge. Indonesia plunging on the risk of losing its emerging market status and treasuries holding much of the haven rally. In a few minutes, French finance minister is going to be joining us on the bond turmoil and Europe's trade imbalance with China. And later, Kevin Walsh, the Fed Chair, is going to be sitting down with IMF Managing Director Kristalina Georgieva in Bangkok. We'll bring you that conversation live as markets look for clues on rates. Let's take a look at our markets are tracking this Friday in the Asia Pacific, seeing a modest rebound after the heavy selling that we saw on Thursday. The Hang Seng Index better by 1.3%. Take a look at the Kospi though, rebounding strongly up 3% after, well, it's been a week to forget about really. The Kospi did enter a bear market yesterday, but leading that rebound today. Nikkei futures also better by 1.2%. In terms of the red that you see on the screen there, the Jakarta Composite that is taking an absolute beating down 10%. No surprise after the MSCI says Indonesia no longer merits emerging market status. It might not even merit frontier market status either, citing market dysfunction, poor enforcement, and that might end up being the only standalone market in Asia. It would join the likes of Palestine, Lebanon and Argentina. Take a look at French bond futures. Meanwhile ticking up just a little bit. The euro holding steady there at 1.12.18. Now on the topic of France, former ECB chief Mario Draghi says the eurozone central bank is unlikely to step in anytime soon with market intervention to help France. The country is facing turmoil in bond markets amid worries about its deficits and higher energy prices. Speaking at the Bloomberg New Economy Forum, Draghi said the president's situation is very different from the sovereign debt crisis that he faced when he was at the ECB's helm. [00:02:25] Mario Draghi: The bar is high for at least, I think one main reason is that inflation is high. At that time, my time, we had more kind of a deflation or at least inflation rates hovering just above zero. At that time, we had, so at this time now, inflation is high and rising. On top of everything. And I think that's the first priority by the European central bank, which is its mandate to control price stability. Well, let's get over to the IMF and World Bank meetings in Bangkok. Averill Hong standing by with our first guest. Averill. Thanks, Paul, French Finance Minister Roland Lascure joins us now. Great to have you. Thank you so much for your time, Minister. [00:02:58] Speaker 1: Thanks for having me. So we want to talk about the budget. And you've said before budget deficit likely to come in roughly 5.4 percent versus the 5 percent that's been targeted. Is there a risk that it could be wider than that? [00:03:12] Speaker 3: No. I mean, this is, you know, the end of the year. We're going to make sure we tweak it and pilot it and monitor it to land at 5.4. Obviously, we've had shocks, some of which have been international, you know, the threat of our moves, the geopolitical risk. [00:03:26] Speaker 4: But also internally. At the beginning of the year, we didn't have a budget for six weeks and therefore there was political uncertainty. We have heat waves that affected farming. So we've had, you know, bad news. And out of the 0.4 that we've been higher than previously planned, 0.3 come from a vision downwards of growth projections, 0.1 comes from the rise in interest rates that which we've all been experimenting. So, no, 5.4 is going to be the deficit this year. The main challenge is what comes after. [00:04:14] Speaker 3: So, 2027, as you're alluding to. That's being discussed in Parliament currently. And you've said before, lawmakers can make changes, but the target still needs to be five. Five is five. What are the discussions around that now? [00:04:28] Speaker 4: Well, I think people get it. Obviously, the rates have been going up. The world is watching us. So, anyone on the bench, except for crazy ones at the extreme left, realise that we need fiscal consolidation. So, as I've said to them, I'm willing to discuss anything but the essentials. And the essentials are 5% or less. If they want less, I'm happy to take it. And also the fact that that fiscal consolidation shouldn't harm a growth. You know, we need growth because we both want fiscal consolidation and growth to pick up. So, we're expecting 1% growth next year and 5% deficit. [00:05:05] Speaker 3: So, you're saying you're confident that you can win over whatever opposing forces there are when it comes to 5%? [00:05:11] Speaker 4: Well, you're probably aware that French institutions are pretty well written. General de Gaulle wrote them nearly 80 years ago. We have two guardrails that allow the budgetary discussion to stay on course. One of them is what we call Article 49.3. We can change the budget compared with the one we tabled in two weeks ago. We can put it up, you know, in front of parliamentarians and say take it or leave it. If you don't like it, you have to make the government fall. No one wants the government to fall at the moment. And the other guardrail is what we call executive orders. They're called ordonnance in French. And if we feel the parliament is not doing its job properly, we can just revert back to the budget we tabled two weeks ago. We can tablet it in. No vote. And it's the budget that imposes itself to everyone. [00:06:00] Speaker 3: How prepared is the government to use such an unprecedented move? What downsides are there to use ordonnance? [00:06:06] Speaker 4: Well, again, as I said, it's guardrails. You want to avoid using guardrails. You're happy they're there. They should keep everyone honest. But if we feel we're kind of sliding on the side, we are going to be using them for one very reason. We are doing the heavy lifting. As you know, presidential elections are coming and someone is going to inherit my office. And when I see them all, they come to my office. They look at the windows and light the chair. I said to them, what do you want to inherit? A budget or a mess? Obviously, they want a budget because they don't want you have to do dealing with, you know, a mess when they get into the office. So the most likely scenario is lots of conversations in parliaments with ups and downs and lots of noises. But at the end of the day, when push comes to shove, we will prevail because they know that at some stage someone is going to inherit this. And I have to admit that the bond market is helping me a little bit, keeping everyone honest because rates are high. [00:07:04] Speaker 3: But do you think they are convinced enough that there's a cleaning up of this mess that's going on? Are bond market investors convinced? [00:07:12] Speaker 4: Yeah, I mean, I think I do. You know, I've seen investors. I saw some last week in London. I'm seeing some in Bangkok at the moment. People get that the budget is good. And I have to explain to them what I've just done to you about the guardrails and then they get it too. So there's obviously a global phenomenon. There's a global repricing of growth, inflation in the world. The world is not so flat anymore. We know that an oil price boom today means inflation for the previous 20 years. When oil prices went up, usually bond rallies because they felt this was a growth shock because the world is not so flat anymore because geopolitical risk is here. When oil price goes up, rates go up and bond markets go down. So we have to take this into account. But France is harder hit. Yeah, it's harder hit. And when we rally, as we did yesterday, France rallies than most. So we have a bit of a beater. But at the end of the day, it's up for us to reassure the markets on the fact that that beta shouldn't be above one because at the end of the day, we're doing the heavy lifting. I'm not Donald Trump. I'm not the head of the guardian of the Iranian revolution. So a lot of this is going to happen and uncertainty is going to prevail. But I have to do my job to make sure that in that global wave, we float and you know, we're going to float. That's what I'm here to tell you. [00:08:36] Speaker 3: Convincing bond market investors, I think, is still also part of the equation for you when it comes to perhaps the moves you've seen in the bond markets recently. How would you characterize it? Do you think that the ECB would intervene if required? [00:08:52] Speaker 4: I mean, first and foremost, it's very important to realize that the bond market is working. There's no disruption. There's no excessive volatility. There's no mispricing. It's just a global repricing that's taking place quite quickly, but that's taking place in an orderly way. So there's no reason for the ECB to intervene. They're doing their job as the Fed is, as the BOJ is, as all the central banks are to prevent inflation from rising. We have to do our job. And I'm not the only one that I've got a fiscal issue. As you know, there's probably something like $18,000 billion being issued by government this year. We're issuing far less than this. So at the end of the day, the bond market is doing its job. Right. And we have to get it. And we have to make sure we do our part of the job. Central banks will do their job. Markets are doing their job. At the end of the day, what's happening is fair. So we have to be making sure that we're convinced of fair that we're doing the right thing. [00:09:53] Speaker 3: What about what you're hearing at this event among some of your European counterparts? Are they giving you a hard time because of those worries about contagion? [00:10:00] Speaker 4: I mean, I think I think they get it. There's no worry about contagion whatsoever. You know, we're all in a sand boat. Some of us are rowing a bit harder than others. But at the end of the day, they get it that we're doing what we have to do. They also get the political situation. I have to explain it as I did to you. But once they get it, they understand that at the end of the day, the next eight months, they're going to be volatile but going the right way. No, the main issue is the global uncertainty. You know, I chaired a G7 yesterday. Ukraine, we need to keep on helping them. There's lots of uncertainties there. Food supplies for very poor countries. We announced yesterday the G7 that we together put together 2.5 billion to help on fertilizers and to help on the cropping season. So we do that job. And maybe if there's one lesson to be heard and learned from these meetings, multilateralism still works. And I'm very happy as a chair of G7 finance minister that we're showing it to the world. We can still talk. We can still make things happen together and not just "chacun dans son coin", as we say in French, everyone in their own corner. [00:11:09] Speaker 3: Je ne comprend pas. The point you've been making about France having the G7 presidency, there's been a focal point as well about addressing global imbalances economically. But you have fiscal challenges and difficulties back home. Does that make it more difficult to push that agenda? [00:11:27] Speaker 4: No, because at the end of the day, people realize that global imbalances are a common good or rather a common evil. They concern all of us. China, Europe, the US, everyone's concerned. Even emerging countries that are doing okay, actually, can potentially be disturbed by a correction, a disorderly correction of global imbalances. So we've had great conversations with the G7, with other countries. Yesterday, we had an enlarged meeting with Brazil, with Korea, with South Africa was there, Kenya, India was there. This is a common good. The global economy is a common good. And we all understand that if global imbalances keep on going, we're going to have an issue one day. I mean, so far, the global economy is fairly resilient considering the number of shocks we've had to face with. But at the end of the day, if we don't embrace this as something we have to do, that's going to be an issue at some stage in the future. We don't want that. We've seen it before. [00:12:30] Speaker 3: What sort of conversations are happening with China, though? I mean, this week is about the export caps related to autos. Is France perhaps also concerned that if there's a sort of expansion to other products as well, beyond that, that China might retaliate? [00:12:46] Speaker 4: No, I think what we've been working on, and I was with my president when he met President Xi last December, I meet with my Chinese counterparts regularly, just to have a fair level playing field. We want the world to be fair. We believe in global trade. We don't want to close France. We just want French industry to be competing fairly. And in some sectors, that competition has been unfair. That's why we want to correct it. There's been great conversation last week in Beijing between the commissioner on trade and his Chinese counterpart. They had an agreement. We're working with the Germans to make sure that we use all the trades instrument we have at our disposal to make a better, fairer world. And I think the Chinese understand that because they also know that the global imbalances are not sustainable. They also understand that we all need to work together. Obviously, we all have our own agenda. We all have our own political discussions. And we all have our own internal economic challenges. And we get that. And that's why we feel as a chair of the G7, we can help people to talk. As long as you keep on talking, engaging, discussing different views, you make progress. And this is why, and this is why when I started chairing the G7 finance minister this year, I felt, is this going to be the last one? Or can we still show the world that it's working? Last week, we decided to liberate some strategic reserves to help flow the market. We are showing that it is working. And I thank the IMF and the World Bank for helping us show this at this time. [00:14:25] Speaker 3: At least conversations are happening. But what about how welcoming France, Europe are going to be to Chinese investments? What's your read on that? [00:14:33] Speaker 4: I'm going to be very clear on that. China was very welcoming to investments over the last 30 years. There was always conditions that value added would take place on Chinese soil. We have the same view. We can have Chinese investments. I integrated a battery factory three months ago. There was a JV between a Chinese investor and a French company. This is happening. We want the world to be cooperating. But it needs to be a win-win. So if Chinese companies come to France, there has to be something in it for us. [00:15:09] Speaker 3: Okay, I take your point, Minister. Thank you for sharing your time with us, with France, of course, front and center for many and investor. I appreciate your time. We will be on target on time. Okay, I'll take that reassurance from you. We'll see what happens. Roland Lascure is Finance Minister of France. Back to you, Paul. [00:15:29] Speaker 1: All right. Thanks, April. Bloomberg's April Hong there on the sidelines of the IMF and World Bank meetings in Bangkok. Coming up, Asian stocks stage a cautious rebound as the chip sell-off eases. Questions, though, remain over whether the gains can spread beyond tech. We'll discuss where T. Rowe price sees opportunities in global equities. This is Bloomberg. Welcome back here watching Inside. We've got most major markets around the Asia-Pacific staging a pretty impressive rebound after some of the selling that we've seen earlier this week, not least of which the cost be better by 3.1% at the moment. Samsung Electronics, SK Hynex among those leading the charge there. One notable exception to this, the Jakarta Composite, that's taking a beating off more than 10%. So this is after MSCI said Indonesia no longer merits emerging market status. It might not be a frontier market either. MSCI citing market dysfunction and poor enforcement as well. But elsewhere, we're seeing a little bit of recovery for risk assets today. Let's get a bit more on this with Rahul Ghosh, head of APAC equity strategy at T. Rowe price, which manages about $2 trillion in assets. Rahul, thanks so much for your time today. And I'm just wondering after that big washout that we saw yesterday, do you look at this like many investors appear to be today? Is this a dip buying opportunity? [00:17:12] Speaker 5: Thanks, Paul. I think it's one of those things where you really have to talk about what your view is on the long term or the short term. I think when there have been dips and volatility in the market, we come back to what is our belief in the sustainability of AI earnings growth and different parts of the channel. And while, you know, we don't go about saying just buy the dip at any price. We think what it has done is opened up opportunities selectively in certain places where certain stocks have been sold off because perhaps misconceptions around their monetization. Some in some areas you had stocks that are not really that AI linked also being sold off dramatically. And so we generally we look at and say the outlook is generally constructive. Nothing ever goes up in a straight line. And when you do have these bouts of volatility, you've got to try to just focus on where you think you know what the real thesis is. That's intact. And then pick those up if you can at a discount to where they were trading a couple of days ago. Well, let's dig into a couple of those idiosyncrasies. [00:18:08] Speaker 1: And I mean, top of mind is probably Corweave. I'd say their sell off has been misunderstood. And that's a narrative supported by Nvidia as well, which says, you know, Nvidia would step in if needed, but there's no need. But a point out here, of course, Nvidia is a major investor in Corweave. Corweave is a major customer of Nvidia. So how much confidence can these sorts of things give the market? [00:18:31] Speaker 5: So I think we've got a breakdown clearly when you've got companies like a Corweave or some of the new clouds that are not as well capitalized as the hyperscalers. The market is always a little bit more cautious on their balance sheet positioning strands, credit spreads, et cetera. But I think when you look at the underlying business that the hyperscalers, the clouds, the new clouds are putting out in terms of just the growth of volume token demand, what we're seeing from the latest models and chips, et cetera, coming out. The cost of generating tokens also down fairly significantly. We think that basically what happens is people tend not to really look at the underlying profitability of the models of some of these hyperscalers. So I don't want to go into, let's say, a Corweave specifically. But I do think that there's an element there where, yes, companies like a Corweave that have not, let's say, had the benefit of the balance sheets of some of the hyperscalers will face greater scrutiny. But to the extent that we're seeing underlying volumes and pricing remaining relatively robust when you look across indices for pricing token generation on the cost as well as the output side, it does give you some sense to think that perhaps the market is panicking when perhaps cautious concern is a more appropriate way to think about it. [00:19:39] Speaker 1: Do you think that what we're seeing is panic, though, or is it cautious concern? Because, you know, it's not been a great week for some of these neocloud names. And of course, here in Australia last week we had the cancellation of the enormous firmness IPO did not go ahead. Do you think this is more a case of the market finding out what it's willing to tolerate in terms of belief and how much debt is needing to be taken on to fund this build out? [00:20:08] Speaker 5: No, absolutely. Now, look, as you mentioned, you know, in the startup, right, we run a lot of money. We are fundamentally a fundamental equity asset manager, right, which means we do our research. We have views on companies, industries, theses, et cetera. So even when people are discussing AI over the last couple of years, we never talked about AI as being one broad overarching team. Our focus is always on who are the companies that can grow earnings, can grow return on capital and have balance sheet that can really accurately support that. And I think so what you're seeing now, the market is basically trying to differentiate between there's an AI cycle, an AI story and a play, if you like. But now there's many different parts of the value chain. And you can go from the hyperscalers that are in a position to maybe have more applications, more monetization. You've seen some of the steam come out of the memory trade, where perhaps now people are thinking about probably two years down the road. And people, again, focusing on what's happening in CPUs, what's happening at the people like a TSMC, et cetera. So I would say that when you look at the overall trend, it is probably the market trying to sniff out where's the real sustainability and earnings growth over not just the next one to two years. But we're talking four, five, 10. But what I would say is when you do get sharp moves in the market, the market tends to it feels like it's more panic on a daily basis, which then we have a nice rebound on a weekly or monthly view. It doesn't look like as much of a panic, but more like a cautious correction, as we talked about. [00:21:30] Speaker 1: In that context, how do you approach some of the Chinese AI names? Because, you know, the likes of Deep Seek, CXMT have proven quite compellingly that it is possible to do a lot more with a lot less. [00:21:44] Speaker 5: No, absolutely. Now, I think with the Chinese AI names, again, we've got to break it into two different categories, right? There's the companies that are developing the models and there are also the companies that are doing the hardware. And, you know, when we look at what's happening here, we still see that pretty much regardless of where you are in developing models, you know, open weight versus closed weight, those debates are ongoing. But a lot of the requirements, the critical infrastructure and bottlenecks are still not entirely within the Chinese supply chain. So we look at it and say, look, it's natural to have competition. And I think it makes sense that in a country like China, immense data troves, they have the ability to develop models that fit their situation. So it makes absolute sense that you should have a Chinese model ecosystem that works in their categorization. But all else being said, when you do look at the capability of some of the largest of frontier models that are coming out, it still seems that the frontier labs have a fairly large lead on that. And that is, I think, a function of the fact that they pretty much have much easier access to the leading edge hardware that's required, which gives them a cost advantage versus some of the Chinese labs that are coming out here. [00:22:52] Speaker 1: All right, Rahul, thanks so much for your analysis today. That is Rahul Ghosh, head of APAC Equity Strategies and Solutions at T. Rowe Price. All right, coming up, Fed Chairman Kevin Walsh, he's going to speak in Bangkok. Markets are awaiting clues on the path for rates after that hotter U.S. inflation print that we had this week. We'll bring you his conversation with the IMF chief, Kristalina Georgieva. That's up next. This is Bloomberg. This is Bloomberg. [00:23:19] Speaker ?: Thank you. [00:23:49] Speaker 1: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. [00:24:35] Speaker ?: Thank you. [00:24:35] Speaker 1: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. [00:24:53] Speaker ?: Thank you. [00:24:53] Speaker 1: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. [00:25:09] Speaker ?: Thank you. [00:25:09] Speaker 1: Thank you. Thank you. [00:25:13] Speaker ?: Thank you. [00:25:13] Speaker 1: relatively calm in the Gulf. All right. Well as we await for the start of this fireside chat in Bangkok. Kevin Walsh in conversation with Kristalina Georgieva. Let's talk a little bit more about that situation in Indonesia that plunge standing out against the broad gains that we're seeing in the rest of Asia. Let's get more with markets reporter Anthony Stevens. So Anthony talk us through some of the damage in Indonesia. This is some of the worst we've seen since the global financial crisis. Right. And I think what investors are worried about is [00:25:45] Speaker 6: that we skip a lot of steps going straight to standalone market that removes just the worry around passive outflows if it gets removed from emerging to frontier. And we start to talk about that market being uninvestable for investors that have an Asia mandate or have an emerging mandate altogether. And that's what you're seeing in the market today. We're seeing a lot of foreign hold names at limit down including big telcos. These are names that should be kind of defensive. So you can really see that it's the flow picture driving outflows. It's also showing up in the currency. The rupee is through 18000. So the government and the regulator and the exchange are all scrambling to try to find a response to this. The exchange in particular is speaking to MSCI to try to find out common ground and is saying that it has made significant progress. But as you alluded to at the top you know what they're looking at in MSCI is enforcement. Right. There's not been any enforcement any action taken against some of the bad behavior that MSCI has highlighted most notably the free float and the coordinated trading issues. This is something that is also popped up in MSCI conversations with Turkey. So clearly MSCI is taking a very hard line with this topic. [00:26:57] Speaker 1: All right Anthony thanks for that wrap up on what's happening in Indonesia. Now let's get you to Bangkok where we have Kevin Walsh the Fed chair in conversation with IMF Chief Kristalina Giorgievich. [00:27:11] Speaker 7: Chairman Kevin Walsh for those of you who may not be fully familiar with his incredible professional career. Let me say a couple of words. Chairman Walsh was a keen scholar of policy making throughout his entire life. He spent his career at this intersection of monetary policy, finance and economic policy making and he has been able to look at issues that concern not only the financial system but the lives of people from multiple perspectives as an academic in the financial markets and in the public sector. So where did he come from just before he took over the chairmanship of the Federal Reserve? He was Shepard Family Distinguished Visiting Fellow in Economics at the Hoover Institute, a lecturer at the Stanford Graduate School of Business and partner in a Dukag Family Office. He came to those from working at Morgan Stanley. He advised President George W. Bush on capital markets and banking issues but my favorite part of Kevin's career is when he first was at the Federal Reserve. At what time? In the most challenging and taxing time. He was there during the global financial crisis and he was there as the youngest ever governor at the age of 35. George W. Bush on capital markets. And he now he's now 36. George W. Bush on capital markets and he now he's now 36. George W. Bush on capital markets and he has very deep impressively deep understanding of financial markets. George W. Bush on capital markets and he's instrumental in navigating one of the most complicated periods in recent history. And set at the table with those who have made at that time critical decisions, the most consequential decisions for many in their lifetimes. So he saw crisis from the inside. I do not wish you ever to repeat this experience. George W. Bush on capital markets and as we all know in May this year he became chairman of the Federal Reserve. Great choice. I can say with admiration that you bring of course a lot of experience but one quality that you bring that George W. Bush on capital markets and I rarely see is you have profoundly thoughtful response response to questions and you never shy away of listening to opinions that may be different from yours. George W. Bush on capital markets: Now I can say when when Kevin agreed to be here I thought okay so let me see how we can get the conversation that is it is about the broad transformational trends and dig deeper into your your thinking. I want to start from where the world is today. George W. Bush on capital markets: We are here at the annual meetings. We talk about a resilient world economy but also about the fragility of this resilience, the divergence across countries. We discuss what are the sources of resilience. Could they continue? Would they last? What it would take for them to last? George W. Bush on capital markets: And I thought that it would be a great start for for today to hear from you. How do you see the world economy? How do you see that resilience on which we have been relying? Would it last? What is your advice to policy makers how they orient themselves in a time of higher uncertainty? [00:31:48] Speaker 8: George W. Bush on capital markets: So first of all, thank you very much, Kristalina. Full disclosure, Kristalina and I are old friends so those questions sounded harder but there's some softballs coming I presume so The only part of that biography that Kristalina read that I will differ with is she said her favorite part of my resume is the global financial crisis. That is not my favorite part. And when I come back to meetings of the IMF, come back to meetings of the G20, I'm obviously incredibly honored to be in this post. This is a hugely consequential time. But when I walk into the IMF, when I come to these meetings, I will say I have still a little bit of scar tissue from the deepest, darkest days of the global financial crisis. I might be over scarred from that period but better over scarred than under scarred I presume. So we can go in any direction you want. I think you were asking about the state of the global economy. So what I've tried to do, which might be a little bit of a change for policy makers, is what I try to do is look outside the window. In our business and economics and policy making circles, we can focus on the past, on the history, and look at data which we think of sometimes as contemporaneous data, but it's really lag data. It's about what happened. We can also focus a lot of our time and attention on the future. We certainly want to know what 2027 and 2028 are about, but none of us are perfect forecasters. So what I try to do in thinking about what's going on is I try to look out that window as clearly as I can. At the Federal Reserve, where we do that about eight times a year when we sit down for these FOMC meetings. We did that, I don't know, a month or so ago at the September meeting, and we came to a judgment. What are we seeing in the global economy as it affects the U.S.? I would say broadly over the month or so that's transpired since then. The world has broadly conformed to our expectations. We'll be meeting a couple more times this year, and that will be the crystallizing moment at which we're going to look out the window. What do we see? What's happening to output? What's happening to employment? What's happening to inflation? In those inter-meeting periods, especially occasions like this when Kristalina and I get to sit down without the cameras and the microphones and I get to sit down with my G20 colleagues, I'm doing at least as much listening as I am talking. Obviously the Federal Reserve and our policies spill over to the rest of the world, but their policies spill back to us too. So I had made judgments about a month ago, I'll make some judgments at the October meeting and the December meeting, but broadly let me just step back and give you now slightly dated views, which probably still hold. One is 20 years ago at meetings like this, we talked about secular stagnation. Boy, that seems, I don't know if it was as inaccurate then as it seems now, but right now we have structural growth. We have an investment surge. It's not hitting every country at the same element, but in the United States, we're having a massive investment surge. And it makes me think Kristalina, the idea of secular stagnation suggested that that was somehow inevitable. There was nothing policymakers like you and me could do about it. We learned anything in my, since my last time sitting in a post like this and now, there's a lot we can do about it. Policy matters. The investment surge isn't by accident. It's because of the consequence of good policy, both macroeconomic policy, but also, as you've heard about in the last week or two from new Nobel Prize winners, the micro foundations and decent macro policy and strong micro foundations can lead to an investment surge. It's probably the most important thing that's happening in the global economy on the upside. But to be balanced, as we central bankers have to be, you know, I came out of meetings here yesterday and today, and it's hard to be in a discussion with central bankers and not compare notes and hear the same thing about the surge in prices. It obviously affects each of us differently. At the Federal Reserve, we made very clear that we would deliver price stability, and we removed a dose of accommodation about a month ago. You know, I don't prejudge meetings, I don't believe in saying now what I might do at the meetings that we have in the balance of this year, but that was the situation. You just disappointed half of the audience or more. I know, they can all turn it off. It's a new chapter at the Fed, and we're not in that business anymore, but we can go in any direction you'd like. [00:36:37] Speaker 7: Well, this is a very good direction. So we talk about the, you already say, we look out of the window, and what we see is an economy that in some places is booming. It is being dragged upward, mostly by enthusiasm about AI. But then you go into other places, and other factors, especially the impact of war, it's dragging economies down. One thing that is happening everywhere, whether your economy is going up or it's going down, is the stubborn inflation, price pressures that are coming from everywhere. And one of the sources, of course, is the energy shock in the Middle East and the energy shock from war. But one of the sources is this investment enthusiasm about AI. So my question is, from a monetary policy perspective, how should we think about the impact of AI in the short term, in the long term? Is there anything that we are paying too little attention and should be paying more attention today? [00:38:02] Speaker 8: Yeah. So it's a great question. A couple of things. First, Crystalia, you pronounce it AI. In the US, we now pronounce it SI, just so you know. So it's probably-- [00:38:15] Speaker 7: Can I say potato, potato? That's right. [00:38:17] Speaker ?: That's right. [00:38:20] Speaker 8: I don't know how that's going to translate for the countries around the world with teams of folks. I'd say the advent of this new technology is probably the most consequential change to the US and the global economy in my lifetime at this point. So I take it seriously, but as a central banker also soberly, responsibly, I'd say it's going to do several things. First, it's obviously hitting the demand side of the economy before it's going to hit the supply side of the economy. So if you're a central banker and you're in the business of trying to ensure stable prices and full employment, you've got to recognize this as a shock. But it's a positive supply shock in the medium term. I do fundamentally believe that. But on the path to that positive supply shock, we're seeing increases in aggregate demand. That just is what it is. But I think of this shock differently than those other shocks you talked about. Shocks of war and military conflict and the rest. This one, there really is, I think, a huge benefit to the global economy, to the US economy over the horizon. So that's one comment. Second, it's a big deal for central banks because we're in the business of trying to, in some ways, distill noisy data all over the world. We get some of that from official statistics in the US, from the Bureau of Labor Statistics, the Bureau of Economic Affairs. We torture data with old-fashioned models to try to find out what's underlying inflation trends. Not so long from now, it won't be torture. We will have access at the fingertips of central banks to all the information in the world. And we'll be able to use new analytical tools to distill that data. So when we get new information, we're going to have a lot more confidence in what it tells us as we're looking outside the window and saying, is that real? Or is that lagged and noisy data subject to mismeasurement? So I think it's going to fundamentally change the conduct of monetary policy as a second point. Third, it's going to change the real economy. We don't know in the next 12 or 18 months its effect on employment. But if you believe like I believe, which is it will make economies and countries that put it to good use more productive, that it's going to make it so that we will have more wealth, then that has to be a very good thing. Yeah. But the path from where we are to there is likely to be a very bumpy one. Bumpy in our understanding of the technology. Bumpy because we really don't know what the market structure is going to be of these new technologies. Who's going to get to make the money? What are the consequences for those that bet that they were going to make money, but the market structure doesn't allow it? So I want you to hear from me optimism, but optimism leavened by the seriousness of purpose to the day jobs that you and I have. And I think it's an exciting development and it's an innovation that I think a decade from now they'll look back on and they'll say this was hugely consequential. So our job as policymakers to take it with that same kind of focus. I'll just say one more thing. On big, hard questions that don't matter much to the current policy conjuncture, my view is we at the central bank need to invest in the next policy conjuncture. So among the external task forces that I initiated about four or five months ago is one on productivity and jobs. We're going to have our first field hearing of a task force on November 16th in the Bay Area where we're going to wrestle with these issues. I'm pretty sure I've got the right questions, not sure I have the right answers. And so we've got a group of outside experts both on the task force and people in the broader community to help us engage on that. And hopefully there'll be fruits of that, not just for us in the US, but these efforts that we're doing and investigating at the Fed, these are global public goods. And might the IMF, might other G20 central banks learn, decide to adopt some of these things their own? That's the hope and expectation, the better they do, the better we do. [00:42:39] Speaker 7: Very much look forward to that. So to avoid the linguistic controversy, let's call it the NHI, the non-human intellect. So if we look at that development that is incredibly rapid, we do have to think about the impact on inflation, short and long term. We do have to think about impact on financial stability. And as you said, there is the excitement of what it may mean for productivity. On this triangle of inflation, possibly disinflation in the future, the impact on financial stability risk and the upside on productivity. Which one do you get your task forces to concentrate most on? What is, in your view, the one issue that dominates monetary policy makers? [00:43:51] Speaker 8: So first, here's my working proposition about task forces. Because I've been on task forces like you have before we were in these jobs. You want to ask them the questions, and to be full disclosure, I check in with each of my five task forces periodically. But you also want to let them be themselves. The idea of the task force on productivity and jobs, on data collection, on inflation, is to let them produce new intellectual capital. And to drop that on the Federal Open Market Committee. To share their views with the broader audience And see whether that catalyzes new thinking. Otherwise, you and I and our peers in central banking. We could just push the same ideas around. The idea is to really let them do it. There are tail risks associated with all shocks. I'm not going to bite off one tail and say it's all to the good. What I'd say is the U.S. is investing through the private sector capital in a range of new technologies, in a range of new companies, with bets on different parts of the market structure. In my business, we don't have to figure out who's right or wrong. That's what financial markets are for doing. But we do want to step back and ask ourselves the question, if various scenarios were to happen, what are the implications for our remit? Our remit, as you know, we talk about as stable prices and full employment. But inching into that, again, with the history of my visits to the IMF 20 years ago, we also want to think about financial stability risks. And the way I think about it might be a little bit different. I don't think the central bank or the international policymaking set that we should be in the business of stopping variants away from some from modal outcome. What we want to ask ourselves, though, are there negative tail side risks that we can do something about? And we have to be pretty humble about that question. I've given the task force every ability to sort of ask themselves what are the upsides, what are the downsides, and what are the implications for us. The same way I'm not going to prejudge FOMC meetings. I'm going to try not to prejudge where they come out. [00:46:13] Speaker 7: The task forces. Yes, very good. By the way, Kevin says we both have been on task forces. He was leading one that resulted in the Queen of England reporting the results to the parliament. So it's a very special chairmanship you offer. Now, I counted, Kevin, today is your 148th day on the job. And actually there is a little risk in my calculation because it depends whether you calculate in Washington or here in Bangkok, but we are about there. So what is that you have reached a conclusion now that you didn't have on the first day? How do you see moving into the job further? [00:47:09] Speaker 8: Yeah, so it's a fair question. I'm probably not best at introspection, so full disclosure on that. I'll begin by saying I'm sure glad I was there before. If I hadn't been at the Federal Reserve for five and a half years, especially during a period of some consequence, I think I'd probably be a bit more hesitant to introduce new ideas, to practice new ideas inside the Federal Reserve of 23,000 people, to sort of probe the question of, can we create a new chapter at the Federal Reserve, making the best of the Fed's traditions but recognizing this is a brand new world? So first I would say five and a half years of time served, I think has served me well. You know, it's said that sometimes someone that when they join an organization, they want to bring the fresh perspectives of an outsider. I will balance that by saying you also have to have some of the knowledge of an insider. I'm trying to think of myself as being on the edge of the inside. So what are my lessons from 148 days? First, there's an incredible depth of talent at the Federal Reserve. I must say, a little piece of me worried, I've been gone for 15 years. I wonder whether all the talent might have left at some point in those 15 years. There's an amazing amount of talent that's still there. And the lucky thing for me is when I was young, they were young too. And they're incredibly dedicated to the mission we have. They're as proud as I am to say, I work at the Federal Reserve. And so part of all these jobs is getting policy right. But one key way to get policy right is to make sure the culture is right. And if I go deep in the organization, I see brilliant people practicing new ideas, challenging each other. Maybe for people that are on the outside of the Fed, it sounds all like we're all reading from the same script. But just beneath the surface, there's something really, really impressive. And so that's a takeaway. I would say, I'm surprised the upside, how much talent is there. Now, our job in running these organizations is how do we tap into that? How do we get the benefit of what they know, but rethink, reorganize? How to bring that to bear? So that's one. Two, I'd say, where I would say I failed in my first 148 days, is mostly because of all of you and the people that are on the end of this camera. They're all focused on monetary policy. Well, 75% of the people at the Federal Reserve, they don't work directly on monetary policy. We're in a lot of businesses, businesses given to us by Congress, supervision and regulation, payment systems, consumer and community affairs. I could go on and on. I haven't been as good as I need to be to make sure they know I care about their issues every but as much as I care about the conduct of monetary policy. So I've probably been drawn a little bit, maybe because of this moment. But the head of the Fed needs to be the head of all parts of the Fed. And I say that not without enthusiasm. I say it because ultimately what matters to the central bank, what's most important about what we do, it's not the printing press. It's a powerful tool. It's neat. If you guys had one, you'd love it. But the power really comes from our institutional credibility. And that was bestowed on me by the great chairman that came before me. Yep. And the only way that we're successful in getting policy right is if we burnish that institutional credibility. And so whatever any part of the Federal Reserve does, if they slip up, if they stumble on supervision or on payments, that reflects on our institutional credibility. So my next 100 days, I'm going to try to give equal focus those other parts of the business because they matter too. And, you know, when you take over a position like this, you need to lead all of it. And you need to love the institution enough across everything they do to go back and ask first principles instead of, well, we do it this way because that's how we've always done it. That's not good enough. [00:51:24] Speaker 7: Not good enough indeed in a rapidly changing world. So you mentioned that there were the leaders before you. You're the 17th chairman of the Federal Reserve. When you look back, what is it that mostly inspired you of the leadership of the past? I don't know whether you have gotten that far to think of what you want to leave behind. But what do you think the 17th chairman of the Federal Reserve may be remembered for? [00:51:58] Speaker 8: Boy, it's been 140 days. I'm not in the legacy business. I'm in the business trying to get policy right. And so that may be what you're remembered for. Yeah, I mean, I didn't I don't think I took over at the easiest moment. I think I took over at a time that's a time of consequence. So I must say I don't think about it like that. But I'll say a word about about about my predecessors. I'm lucky enough to have known or worked with my five immediate predecessors. That's very impressive. I remember when I when I was summoned as a as a young nominee to be a governor at the Fed, one of the the ranking member of the Senate Banking Committee looked at me, thought I looked a little young, I suspect, for the job, and he wasn't so sure that I was right. And he sent me to a meeting with Paul Volcker. And, you know, I was 35 at the time. I remember going in there, still a big strapping guy. I called the Mr. Chairman. If it were these days, I would have brought one of these cell phones and done a selfie. I probably brought an autograph book showing that I was still a child. But I learned from each of them. I would say if I think back of the Volcker era, the Greenspan era, the Bernanke era, they met the moment of their times. They were each confronted with challenges that their predecessors didn't weren't confronted with. And they managed to take a great institution and match the moment. I hope I'm not brought to those sorts of challenges. I hope the next three years and eight months or so is just nothing but benign. But they were there. We will all pray for that, Kevin. But they did that. And I would say those three, they love the institution enough to be unafraid to challenge it, to change it, to think about a new chapter. That isn't somehow bad to think about reforms. They made reforms that were necessary to conquer that moment. And I would say this about each of them. They were all three very different people. But what they found in the institution was an enormous amount of talent, which is what I found. But they found themselves in a in a policy conjuncture that it was in no textbook. And they figured out how to do it. It doesn't mean that any of them had perfect records. I don't think any of them would say that. But they figured out how to make policy about as good as they could. And that's an incredible, incredible legacy. So I've learned from them. But the idea that the new the 17th chairman of the Federal Reserve is going to act like the 13th, 14th, or 15th, there's no status quo ante to return to. The world, in my view, is changing faster than at any point in my adult life. Yes, I agree. And so we need to be on our on the front of our shoes, on the front of our feet to ask ourselves, what's this mean for us? And so I can be inspired by them. I can be proud that they left the institution with more institutional credibility, which makes our job easier. But beyond that, I'm not spending a lot of time looking back. I'm spending a lot of time looking out the window and saying what's really going on. You know, you mentioned a speech I gave a little while ago in Jackson Hole. One of the themes of that is our first job is to interrogate reality, what's really happening. I think it's Orwell who said the hardest thing to know is what's right in front of you. At least for me, it's hard to know exactly what's going on out there. That's why coming to meetings like this to hear other people's perspective, see what's happening in their economy sure matters. And I plan on doing more of it. [00:55:47] Speaker 7: So what is it that these meetings so far impressed you the most? What is the one thing that that you're learning here that you would take back to your colleagues? [00:56:00] Speaker 8: So I'll take a few things back. I would say we have a lot of common challenges. Listen, I feel in the United States that the real economy, because of a resiliency that you mentioned, but because of a surge of investment, which isn't just AI, that surge of investment is broadening. That means we've got plenty of tailwinds that are giving some strength and durability to this economy. That sort of momentum is certainly not found everywhere in the world. Yes. Yep. But what is striking to me are two things. Almost everywhere in the global economy showing resilience, that I'm not sure I would have predicted five or six months ago. Given what's happening in geopolitics and hotspots around the world, if you had made me sort of give some IMF forecast of what's going on, I'm not sure I would have found that so many members of the G20 were hanging in there, whose economies were doing well. I might have said about the United States. I don't think I would have said that about so many. The other thing which is a commonality, is a common challenge, is I mentioned at the outset, is inflation is not unique to the United States. So we're looking at it together. Each of us obviously make the choices that we feel we have to make, given our own domestic remit from our own Congress, from parliaments around the world. But there are spillovers and spillbacks, and I heard, I would say, resolve from my colleagues around the world to deliver price stability. I've certainly delivered that resolve. Yes. We have different tools, different sequences. But I would say if I look back over the last few months, while we each did the right thing by our own judgment, by our own remit, it was a synchronous tightening in monetary policy in most places around the world. And that means there's no free riders. We're seeing common things and we're taking action. And I view that as a positive development. [00:58:05] Speaker 7: I very much agree. I think that the common vision around making sure that price stability is set, and it gives that confidence to businesses and households that is so important for growth to continue. And yes, I agree. That is one of the big messages from this meeting. We are running out of time. Is there anything you want to tell these people that I didn't have the wisdom to ask you? [00:58:37] Speaker 8: So, Kristalina did a wonderful job. I might invite you to my next press conference. These questions somehow are a little bit more cordial than some of the things I get. I'll just say this. I'll leave with a final comment, which is anyone that's at the Federal Reserve, particularly anyone that feels fortunate to sit in my chair, I feel an incredible amount of gratefulness. I feel as though the world is moving faster than ever. Changes to how we think about what happens in our economy is subject to differences now that might have been hard to believe five or ten years ago. But I'm grateful. I'm grateful for my colleagues at the Federal Reserve. I'm grateful for the staff. And I'm also grateful for the remarkable openness to new ideas. I have felt it in my private meetings with you. I felt it from my G20 colleagues. Our objective is to get policy right. Our objective is to think anew about questions. And the thing that we don't hear and we don't want to hear is, well, this is how we've always done it. Or this is what the model says. Or the model says this will happen after that. I prefer frameworks to going to mean regressing models. And I think with your help, Kristalino, with the help of our incredibly strong colleagues around the world, we're going to get through a time of huge consequence. And I believe optimistically, you might think naively, at least in the U.S., we're going to come out of this stronger, with a more durable economy, more capable of leading the world on economic growth, so it's not zero-sum. And hopefully, we're going to come up with some new ideas that other countries, with their own decision-making, will say those work for us, too. So, thank you. Well, ladies and gentlemen, Chairman Kevin Walsh, [01:00:36] Speaker 7: the defender of high stability. Thank you. Thank you very much, everybody.