About this transcript: This is a full AI-generated transcript of Warsh Signals Inflation Progress — Open Interest 7/1/2026 from Bloomberg Television, published July 2, 2026. The transcript contains 18,927 words with timestamps and was generated using Whisper AI.
"First day of the month first day of the quarter starting with some slight declines ahead of Kevin Warsh 30 minutes ago until the start of trading. I'm Danny Berger. Bloomberg open interest starts right now. On today's show a cautious start to July as Fed chair Kevin Warsh takes the global stage in..."
[00:00:00] Speaker 1: First day of the month first day of the quarter starting with some slight declines ahead of Kevin Warsh 30 minutes ago until the start of trading. I'm Danny Berger. Bloomberg open interest starts right now. On today's show a cautious start to July as Fed chair Kevin Warsh takes the global stage in Sintra. Anthropics fable five gets the green light while meta ramps up its AI cloud ambitions and another hurdle for Nike as investors question the pace of its comeback. It's one of the stocks we're looking at this morning. Nike extending its postmarket declines. It falls this morning about one and a third of one percent. It forecasted a slowdown in the coming quarter. Also said that customers are quote under pressure around the world. And then there's bloom energy up one percent. It expanded its partnership with Brookfield from five billion to twenty five billion dollars. It will help it grow its fuel cell capabilities. And then finally finally meta up more than five and a half percent. It is building a cloud business and it will be selling excess compute for AI as it takes on Amazon Microsoft and Google. The big story of this moment in just a few moments time. We're going to be hearing from Fed chair Kevin Warsh and other central bankers at the ECB forum in Sintra Portugal. Let's head back over to the desk. Get you set up for that. Because we're going to be chatting just now with Bloomberg International Economics policy correspondent Michael McKee. Mike great to see you as well as a Bloomberg macro strategist Cameron Christ. Let's set up the groundwork first. Just what we might hear from Kevin Warsh. Mike because this is a Fed chair that decidedly does not want to show his hand too much. I don't think you're going to hear a whole lot from him.
[00:01:43] Speaker 2: First of all the conference is about the future of Europe and Europe's economy. So a lot of the questions will be directed at Christine Lagarde. And you look at what happened this morning. The European Central Bank found out that CPI had fallen significantly in the month of June in Europe. So she might be the one that makes news by saying maybe we're not going to raise interest rates. But Kevin Warsh doesn't particularly want to give any kind of signals. And we haven't had any new economic data that would move the markets or move the Fed one way or another. So I expect he'll be very circumspect about what he's going to say. And it may be in terms of U.S. markets kind of nothing. It's kind of interesting though because at his news conference Kevin Warsh said I want the markets to look at the data and decide and price that data. And then we will get that information and use it in our thinking. But the only thing we've heard this morning from bank analysts and our guests here on television is what do we think Kevin Warsh is going to tell us about what they're going to do. I think Cameron is this a market that's not already
[00:02:46] Speaker 1: already decided. That's not already done the work for Kevin Warsh given that we're just under four and a half percent on the tenure yield right
[00:02:53] Speaker 3: now. To a degree. Although what's interesting is that Mr. Warsh is famously antagonistic to forward guidance. And yet arguably it was the dot plot in the last and the last FOMC meeting that helped shape some of this some of this pricing. And the irony of course is that if Warsh himself had submitted a dot for unchanged rates this year. That's where the medium would have been. So in a sense. Ironically by not participating in forward guidance. Warsh has in the near term at least sort of enhanced its importance or its shock value on the marketplace.
[00:03:38] Speaker 1: I mean and to that point Mike we did hear from Beth hammock on CNBC yesterday saying that the U.S. may need higher interest rates to bring inflation back down. They asked about a July hike and she didn't rule it out. She said you know taking every meeting live. Is this the scenario that we're in that the S.E.P. is more important as are the other members of the F.O.M.C. If Kevin Warsh isn't speaking more he's placing more importance on them to Cameron's point. Well they're going to help drive the discussion because that's what happens with the Fed officials.
[00:04:08] Speaker 2: We see every time somebody comes out and maybe when they change their view or adjust their view a little bit then the markets react significantly to that. It'll take a while for Kevin Warsh to kind of get that out of market behavior. But the S.E.P. doesn't matter all that much. Kevin thinks it does because he thinks it binds them to their forecast. But if you listen to them they change their minds as the data change. Now we haven't had as I mentioned earlier enough data to really see some changes. So you're going to see the hawks like Beth hammock holding to their position until they get some other indication that they maybe they don't need to raise rates because inflation is coming down a little bit. So I don't think you're going to see a whole lot out of this. And I don't think that Fed communications are going to change all that much in the short run. Maybe over time he can convince them. But for right now they're pretty much where they were. So Cameron what are you looking out for over the next hour in terms of not just what Kevin Warsh
[00:05:10] Speaker 3: says but how this market might react. Well I mean I think I would tend to agree with Mike in the sense that I think he's going to play his cards pretty close to his chest particularly given that we've got a payroll number out tomorrow that. Hey I don't think it's going to change the narrative too much but a shock certainly will adjust market pricing.
[00:05:34] Speaker 1: Sorry sorry continue. I believe we I just want to note that we are just any moment going to get the start of this panel. It seems that CNBC Sarah Eisen is beginning to speak. But Cameron you know just given where market positioning is right now and that oil prices have come down so significantly does that give the Fed chair some breathing room.
[00:05:56] Speaker 3: I think it does in the near term. I mean it's really a fascinating setup because you ultimately have to price what you think the Fed will do rather than rather than what they should do. And I think there's an argument to be made that they actually should be thinking in terms of of tightening not because of spot inflation but because of the broader picture of where the neutral interest rate is. OK. And the demand for AI capital driving that up. All right Cameron thank you very much.
[00:06:26] Speaker 1: That's Bloomberg's Michael McKee and Cameron Christ and I want to take you live to Cintra where Madame Lagarde was just speaking about inflation.
[00:06:32] Speaker 4: Decided to do is way back to give up on forward guidance OK and personally and I've said that publicly if I have one regret it's to have felt bound and compelled by forward guidance. So I think what we do is now also informing market participants informing financial experts from all walks of life about how we come to our monetary policy stance. And I have called it not forward guidance but framework guidance so that those interested in how we come up to a particular decision what we take into account what intellectual process we go through what indicators we are particularly attentive to so that of course they have to do a little bit more work themselves. It's not forward guidance blindly and you just assume that it's going to be what had been calibrated as forward guidance. They will have to do a bit of homework. They will have to look at the indicators that we're attentive to. They will have to appreciate our intellectual process and what we are especially attentive to. And that includes you know if I if I go through what we did on the 11th of June we looked at the inflation outlook. Just economic and financial data with risks part of our assessment as well. And that's you know recent development as you know. We looked at underlying inflation various set of indicators and we looked at the transmission of monetary policy. So it's taking all that into account in the context of a supply shock that led us to the decision that we made.
[00:08:15] Speaker 5: Speaking of not liking forward guidance which is going to make this job so much harder for me this panel. Chairman Warsh we have inflation in the U.S. that is higher than Europe's and farther away from our target. So why are we not raising interest rates.
[00:08:29] Speaker 6: I was hoping you asked me about forward guidance.
[00:08:31] Speaker 5: Because you have so much to say there too right.
[00:08:35] Speaker 6: So we have found common cause. It's what President Lagarde said. I liked her when we met 20 years ago when she was finance minister. After that answer I love her. Reform does not stop at the water's edge. What I found most exhilarating about the last two days here is the kind of discussions that we've begun at the Federal Reserve. Has a lot of people at this conference open minded keen to think anew about the conduct of monetary policy. And and presently guards answer on forward guidance. I couldn't have said it better myself. So that we can make better decisions and do the right thing. And so my few days here have been incredibly rewarding on that. On the broad conduct of policy at my press conference I said I'm not going to give forward guidance because we're meeting in six weeks. But I have an update for you. We're meeting in four weeks. Helpful.
[00:09:33] Speaker 5: So is July on the table for a rate hike.
[00:09:36] Speaker 6: So Sarah is trying to get me to break this rule. She's going to fail. There's a lot of data that we received in that meeting. I see many of my FOMC colleagues here in Sintra. I take the views very seriously. I want. We meet in four weeks. There's a lot of late breaking news on a series of these things. And we get into that room and shut the door. We're going to have a good debate. But I don't have much more for you than that. Okay.
[00:10:08] Speaker 5: We'll get back to that. I have more questions for you. Governor Bailey, you did not raise interest rates even though your inflation is above target. But there are members of your committee that want to raise interest rates. So why are you holding back?
[00:10:21] Speaker 7: So, I mean, like Kevin and Christine, you know, we all spend a great deal of time looking at the substance of the evidence. And I think an important piece of the substance of the evidence for us is that we've got a softening economy. We're seeing a softening labour market. We're seeing some softening of activity. You know, we think we've got a bit of an output gap opening up. And we had that before the hostility broke out in the Gulf. So that's the contextual setting. I mean, because, you know, we're very focused on the risks of pass through of the energy prices to the indirect effects and things like food prices and the second round effects. And we don't obviously want it to become embedded. It is very frustrating. I was very much of the view that we were going to have inflation back at the 2.0 targets, you know, in the late spring. Everything I've seen actually since tends to confirm me in that previous view on the Gulf. But the decision not to raise rates for me was based on, you say, reading, you know, the evidence of a softening economy. And then a second thing, and this is probably where we're in a little bit of a different position from the ECB to start with, because it's the sort of the adage, you know, where you get to depends on where you start. You know, there was an expectation that we would cut rates this year. That's not unreasonable in the context of the softening economy. You know, that was off the table in March and, you know, it's off the table at the moment. So, you know, that was the context for me that I think we had some time, because by taking that sort of, in a sense, that table, you know, the mortgage rate went up 1%. So you can argue that we've actually tightened policy in the period since the conflict broke out. But like, you know, Kevin and Christine, you know, we reviewed every meeting, so we've got a meeting coming up at the end of July, and we will be looking at all the evidence again then. So we return to it.
[00:12:19] Speaker 5: Yeah, the weakening economy, though, it sounds like, are you more worried about that than the higher inflation?
[00:12:24] Speaker 7: Well, I'm not going to give you any prediction as to what we will do. I think, obviously, the thing that has happened is that energy prices have come down quite substantially. They're still a bit above where they were pre-conflict, but they've come down. But the other thing you have to be a bit careful with in the UK is that we have a delayed reaction mechanism to energy prices because of the way our household energy price cap system works. So I always say, you know, it's appropriate at the moment to borrow a soccer analogy. We always look, I'm afraid, we always look a bit better in the first half than we do in the second half.
[00:12:58] Speaker 5: I'm proud that you used the word soccer. Now the World Cup is in the US, everyone's talking soccer. Governor Macklem, your inflation rate for May was 3.2%. It was above your range for the first time in a long time, but you have not really spoken about raising interest rates. Are you comfortable where you are?
[00:13:16] Speaker 8: Well, we left our policy rate unchanged last time. So, yes, I guess we're comfortable where we are. Look, on the...
[00:13:23] Speaker 5: Going forward without forward guidance.
[00:13:26] Speaker 8: No, no forward guidance. You know, what's interesting is we're all facing pretty similar shocks, but we all start from slightly different places and we have different proximities or different exposures to these shocks. And, you know, the benefit of our frameworks with flexible exchange rates is we can direct policy for what we need in our country. So, yeah, you're going to see, you're going to see some differences. In Canada, like the UK, the economy is soft. Growth is, economy is growing, but it's been weak. There's excess supply. The labour market, there's some slack in the labour market. But, yes, inflation is clearly above the target, 3.2% in May. That's a dilemma for monetary policy. You know, if we raise rates to pull inflation down, it's going to weaken the economy further. And if inflation comes down quickly, we're going to regret that we did that. On the other hand, if we cut rates, support growth, there's a risk that the rise of inflation becomes more persistent. So, you know, when we looked at it, you know, we're sort of on the, we think, you know, our range for neutral is 225 to 325 or 225. So we're kind of at the bottom end of our neutral range, providing a little bit of support. But, you know, we think it's about the right level to keep inflation contained. You know, the other thing I would say, though, is, and this gets a bit back to your forward guidance question. I mean, we've got to be humble. There's a lot of uncertainty out there. Those risks could shift quickly. And the other part of our message is, if the situation changes, we're prepared. We're prepared to take action.
[00:15:10] Speaker 5: Do you think, Chairman Warsh, that the inflationary spark that everyone's seeing and feeling is a temporary phenomenon as a result of the rise of energy prices, which have already started reversing pretty sharply?
[00:15:23] Speaker 6: Does temporary sound like transitory? Is that what you were trying to sneak into?
[00:15:27] Speaker 5: Is it transitory?
[00:15:28] Speaker 6: So I'll build on what Governor Macklin just said. By the way, the four of us all served together in the global financial crisis in different roles. So I would say for us to be back on this stage in this circumstance is great. And they've been incredibly warm to me. President Lagarde has sort of welcomed and encouraged these sorts of new ideas that we've talked about at the Federal Reserve on these series of task forces. And Sarah, my hope is that the results of these can be a public good. If we make progress in thinking about the effect of productivity, the effect of data, new inflation frameworks, this is something we can all borrow and use from. The other thing I'll add is that monetary policy spills over from one of our economies to the other, and it spills back. I think the way Governor Macklin said it right, which is we're all being hit by a series of shocks. In the U.S., the AI shock is leading to a boom in capital expenditures. We see that first and foremost in demand, but I'm confident we're going to see it in supply at some point. So we're spending most of our time trying to monitor those developments.
[00:16:31] Speaker 5: Is it inflationary?
[00:16:32] Speaker 6: Well, in the near term, we can observe it on the demand side. But it's up to the central bank to decide whether it's inflationary. That's why I'm asking. Whether in fact it finds its way into a broader set of goods. I don't have any news for you on that, but I would certainly rather be in a position where we have two things. Where we recommit, the way I know my colleagues have, to deliver price stability. And the other piece that I'll take note of, which shows some difference, I think, among our nations, is the AI boom is showing itself first and very prominently in the United States. I'd certainly rather have this problem, where we have massive capital expenditures, instead of thinking years back where we had financial engineering. Where we had companies that weren't able to deliver profits. So they would do shareholder buybacks. Well, right now they're investing in the future because their expectation is the supply side of the economy will expand. And if it does, that has huge implications for monetary policy. But again, I'm not going to make a judgment now. We'll meet again in four weeks. But this is as exciting a time and also as a consequential a time to be a central banker that I can think of at any point, maybe outside of a crisis in my adult lifetime.
[00:17:47] Speaker 4: President Lagarde, how do you go for it? Can I pick up on a point that my friend Kevin made? It's the speed at which things change. And that is clearly accelerated by AI. And I think in that context, we have to be open to new measurements, new ways of thinking, new tools that help us and assist in making the right decisions. So I think in that context, the use of scenarios, for instance, that we have now really nailed down with milder, severe and adverse scenario to make sure that our decisions are solid and robust across scenarios. The fact that we are incorporating risk into our assessment of inflation. And I think risks, by the way, that we have to the upside on inflation and to the downside of growth are probably more broadly balanced than they were a few weeks ago as a result of what we are seeing, which happens at speed. If you look at how fast the price of oil, spot price granted, has moved down, you know, $72 a barrel now, when it was $120 back in March. These are changes that are just so accelerated that we have to be prepared to measure differently and more accurately using AI, for instance.
[00:19:04] Speaker 5: How do you make sure Europe doesn't get left behind on AI? I know it's not necessarily the central bank.
[00:19:12] Speaker 4: It's not the central bank governor's question in a way. But I know you probably have thoughts on that. No, I'll tell you something. One, I think that we have to consider that as a transformational technology breakthrough and diffusion and material technology. It's going to it needs to be analyzed from our perspective, both in terms of, you know, how much capex is going in that in that particular domain, what impact it will have, how fast will it develop? How will it diffuse? How will we reorganize the way in which we conduct work, including at our central banks, by the way, to really appreciate what impact it will have on productivity? But if it delivers the productivity expectation that we have, then it is going to be a radical change going forward. And we need to, of course, from our perspective as central bankers, we need to measure the disinflationary, inflationary impact it will have over the course of time. And it might be disinflationary first and inflationary second, or probably more so the other way around. But it all needs to take into account. Now, I take your point about Europe lagging behind in terms of investment and the frontier companies that are leading the game at the moment. But I think that we are all sort of hostage to each other, if I may say, because we need those frontier companies, but they need the market. When you represent 25% of the revenues of many of those hyperscalers, we need each other. We are in this game together. At which end of the spectrum, at which set of the supply chain to be determined, and there will be healthy competition, I'm sure. But we depend on each other. You can't dispense, we can't dispense of them, and they can't dispense of the revenue source that we constitute. So we are in this together. That's my personal view.
[00:21:04] Speaker 5: Governor Macklin, how is it impacting Canada? Do you get the tailwind from the boom in the US? Or are you still dealing with too big of a headwinds from trade, for instance?
[00:21:14] Speaker 8: Well, look, trade does continue to be a headwind. I mentioned the economy is soft. You certainly see the impact of US tariffs on our exports. I think, you know, coming back to investment, I think we get both some tailwood, but we also get a lot of competitive pressure from the US. The US is investing in a very big way. And, you know, our economies are very integrated. We have a very integrated business model in North America. That's why trade uncertainty is impacting Canada. It also means, though, yeah, Canadian firms are going to have to be competitive. What you see on AI, you know, it's very interesting talking to companies. So, you know, you survey companies, you ask them, are you using AI? Yeah, like almost everybody's using AI. But then you say, okay, have you, you know, materially changed a whole production process and, you know, made it, you know, embedded AI? That's a much smaller number. That's something like 10%, 15%, depending. So, it does show that there's a lot of potential there. The, you know, whether it's inflationary or disinflationary, I think, you know, looking out, ultimately, I mean, there's so many good reasons why this is a general purpose technology. And, you know, one of the things I picked up over the last couple of days is, well, actually, it could be even bigger than that. If it actually accelerates the process of innovation of discovery itself, it could be even bigger. But, you know, when exactly that arrives, when those disinflationary kick in, I think is a very open question. That's, you know, another one of those things we need to be humble about. In the near term, we are starting to see some pressures. You can see it, you know, you mentioned our May CPI number. If you look at computers, up 10%. How's that going to feed through the supply chain? I mean, those are the sort of things we're going to need to keep an eye on.
[00:23:13] Speaker 5: Yeah, memory chips are a big deal. There's the inflation question. Governor Bailey, there's also the jobs question. And I know it's early, and we don't exactly know. But do you think of AI at this point as a job killer or job creator?
[00:23:26] Speaker 7: Well, I think the jury's out on that question. I mean, if you look at the sort of, look at history, and you look at, I mean, Tiff's just been referring to general purpose technology innovation. And you've seen waves of general purpose technology innovation over history. And they've actually had different patterns in terms of their impact on employment. So you can't generalise, to start with. You know, there are some channels which will create jobs. There are channels which will destroy jobs. There will be channels which will substitute jobs. And what, I mean, two things matter here. One is what the mix of those channels is. And I say it has differed. Now, I do think, I mean, this is not a central bank point. This is much more of a broader public policy point. I do think we have choices in terms of public policy, you know, mixes that we adopt. On that front, particularly in things like skills and training. And the second point I make is, because again, this comes strongly through from looking at the past, is that the length of time it takes these effects to come through. And, you know, I said there's more than one labour market effect. The length of time it takes for each of those effects to come through. And therefore what the mix will be over time, differs over time. Now again, you know, we can have choices there in broad public policy terms and in how economies operate. So it's very important to look at that. But I wouldn't generalise. I mean, we're certainly, I mean, so far, you know, when I go around the country talking to businesses, yes, there's a lot of talk about it. I think a lot of businesses are using it. I mean, we're using it at the Bank of England. I would say we're still really in the experimentation phase, actually. And that's fine. I mean, that's what you'd understand. And the consequence of that is that you don't, certainly in the UK, I would say we don't see it strongly in the overall economy-wide data. But that doesn't surprise me. I think it's too early for that.
[00:25:18] Speaker 5: Chair Warsh, opinion on jobs?
[00:25:20] Speaker 6: So I'll jump in on that. First, I'll say this is one of the central questions that all of us have for our day jobs in evaluating output, employment and inflation. These are big questions in part because the rate of change of improvement in these models is moving at an exponential level. This is hyper Moore's law stuff. And so while we might see business surveys that say no big deal, my speculation is six months from now, the surveys will be saying quite the opposite. The United States is likely to be a big winner over the medium term in this. But I don't say this from a parochial perspective. The U.S. is not afraid of productivity-led economic growth. But we don't view the economics of this as zero sum. We aren't rooting for another country to fail. We're rooting for economic growth to be broad-based. That's good for the United States. It'll make all of our jobs easier. On your question of jobs, I mean, I will go back to good econ one. It's called the lump of labor fallacy for a reason. Who knew when the Internet was born that the Internet was going to create a million and a half jobs as Uber drivers? We are in the first or second inning of this revolution. This is a big paradigm shift both for the conduct of our policy and for our economies. I think the jobs will be greater. Prosperity will be stronger. The question, as one of my colleagues raised, is timing. And we have to take that timing very seriously. We have, at least in the United States, a dual mandate. And we have to deliver both on the employment side and on the stable price side. So we'll be monitoring the speed of it. But if you wanted me to sound like a pessimist and a doomer on this, I'm afraid I'm not there.
[00:27:01] Speaker 7: If I could just come back on one of the points on this whole area. I mean, the other big issue is financial stability. And this is a very big, you know, a big development in terms of frontier AI. And what we do need to see, and I think this is pressing now, is that, you know, we work together to have, you know, solid and robust arrangements for introducing these models. So that we can take, you know, take risks out as best we can, where they are created. I mean, they're always there, but they're brought to the surface, if you like, by these models. That is a very pressing issue that I think we have stronger coordination of that process.
[00:27:44] Speaker 4: And on that vein, I completely agree with Andre on that, but I celebrate the fact that apparently tomorrow, the US and the EU authorities are going to get together and sit down and decide the terms under this will best be deployed for the safety of all of us. So that's, that's a really good development.
[00:28:03] Speaker 5: I did want to bring it back to economic growth for a moment, President Lagarde, because, and I've asked you this for a few years in a row now, and you've always pushed back and have been right. Okay, I'll push back again. The stagflation question and whether Europe is facing stagflation.
[00:28:18] Speaker 4: Okay, well, then I'll repeat what I've said before. Stagflation is a concept of the seventies in circumstances that are not replicated those days. We are currently at almost lowest historical levels of unemployment. Unemployment. Employment participation continues growing. There will be different jobs to you previous questions, but employment is, is, is continuing to, to grow. But growth is weak. And, and, and, and, and, and we are taking all the right steps to make sure that we have price stability. We're not going to let inflation run, you know, out of the genius, get out of the bottle and inflation move up. We will take the necessary steps and we have. Yeah.
[00:29:04] Speaker 5: I mean, the employment story has been a positive one for Europe, for the US as well. I mean, we've seen a really remarkably resilient labor market. Chairman Warsh, how do you interpret the recent data points on the labor side of your mandate?
[00:29:17] Speaker 6: So when we met two weeks ago, I think the way we, as a committee described the labor side of the mandate is we said labor markets are steady. We said the demand side of the economy was solid. And we said the supply side of the economy, especially capex and productivity. Again, this is before we see the fruits of AI. We said that was strong. I don't want to, I don't want to sound like a wall street newsletter and update that with recent events because we follow trends. And, you know, I'll reinforce something that President Lagarde just said. We're all in the price stability business. That might not be our only business. But if there was a common thing I heard over the last couple of days, it was open mindedness on these questions of AI, open mindedness on productivity. But we've all looked around and we've seen that prices are too high. And I don't think I'm the only one on this stage that's recommitted to deliver price stability.
[00:30:10] Speaker 5: So the market was right to interpret your first news conference as hawkish.
[00:30:14] Speaker 6: Nice try.
[00:30:15] Speaker 5: Yeah.
[00:30:16] Speaker 6: I'm not, I'm not, I've just gotten advice from, from a, from my senior statesman on this group not to do that. But I'll say this, expectations of inflation over the first four months, first four weeks of this period, they've come down. Inflation risks have come down. Inflation risks have come down. Again, in our business, we don't want to over determine things. But if there were people in household or the business sector and the financial markets who thought that this central bank was going to be comfortable with an inflation objective above 2%, well, I guess they'd be disappointed. We're going to deliver price stability in the US. That's what this committee has signed up to do. And our objective is to do that. The tactics, the strategy and the rest, that's still to come.
[00:31:05] Speaker 5: No matter what the president wants.
[00:31:07] Speaker 6: We were, we've been an independent central bank for a very long time. We're going to be an independent central bank at this moment. And you're going to see no changes on that.
[00:31:18] Speaker 8: Can I come back to the stagflation point? Because I just want to double down on Christine. I mean, stagflation, it's a, you know, it's double digit inflation, double digit unemployment. And the other thing, you know, getting back to what Kevin was just saying, it's unanchored inflation expectations. That was the fundamental problem in the 1970s. We don't have that. And the only way we got out of it was we had to have, you know, a big recession to re-anchor expectations. If that happens, you know, we have fundamentally failed to do our jobs. So, yes, you know, we have a period in, I mean, Canada, yeah, the economy's weak. Unemployment's a little bit, you know, it's high. It's 6.6. Inflation is 3.2. Those are not double digit numbers. And, you know, that inflation isn't not going to be persistent. Inflation expectations are well anchored. We're going to keep them well anchored. So this whole word of stagflation, it's, it doesn't apply to the situation we have today. You got to distinguish between a rise in unemployment and inflation and stagflation. They're not the same thing.
[00:32:20] Speaker 5: Right. Some people just think of it as slower growth and higher inflation. But clearly, that's not where you.
[00:32:27] Speaker 8: It's a much more loaded word than that. Yeah.
[00:32:29] Speaker 5: Governor Bailey, you know, on this topic of forward guidance, we make light of it, but it is a bit of a change, a departure from where we've seen central banks in recent years. I know, I mean, you, you, you kind of got rid of forward guidance in 2021. You said you did. And how do we determine the difference between a reaction function and forward guidance?
[00:32:49] Speaker 7: Well, look, I mean, you know, I think we have to sort of tread carefully through this debate, not least because of the question you've just asked. But, I mean, almost anything we say, of course, can attempt to be interpreted as forward guidance. And the second thing I would observe is that, of course, all of us are making policy which is going to have effect in the future. So we sort of start with that position. I mean, I think where forward guidance has been very difficult, and therefore I'm in a very similar place to my colleagues, is that you can get locked into it very easily. You know, I've said a number of times in our committee, it's much easier to put it in place than it is to take it away. And therefore, before you actually go and put it in place, just think about, you know, what we're going to have to deal with as time goes by. Because, you know, it becomes quite problematic after a while, it overstays its welcome. So, you know, I'm also very cautious. Now, but I recognise that, you know, anything we say about the outlook for the economy can be interpreted as a view of the future. And, of course, that, you know, we have to sort of, in a sense, do that. But I think we have to be very careful about, you know, getting tied into views on where rates are going to go. That's the thing that is much more problematic.
[00:34:12] Speaker 5: But isn't it important, Chairman Warsh, to give the market a sense of how you're thinking about policy? You don't have to give them a pre-commitment, but the whole reaction function, how you think of how you're going to make policy.
[00:34:25] Speaker 6: So, I think the most important thing we can do is to get policy right. If our communications tools, if our models, if the way we've been playing things makes it harder for us to go into these meetings, have a family fight with our colleagues, and make the best decision in pursuit of our mandates, if that's an obstacle, we should get rid of it. It is said in recent weeks, well, we need to know more about your action function. If I look at trigger pullers, people that are making decisions in the bond market, in a range of markets, volatility is not up, it's down. Yields aren't up, they're down. Inflation expectations are down. So, I hear this as if people don't understand. I think they actually understand quite well. I feel incredible comfort that I'm not sure I had internalized that there is a willingness by my colleagues in the central banking community around the world to go back to first principles. We all want to make the best decisions we can. We've all been burdened with many of the policies that in some sense the Fed created in the 2008 financial crisis. This is a rare moment for us to go back to first principles, ask hard questions, review what we're doing. At the Fed we've got five outside task forces to shed new light on this. And I'm encouraged because in some sense we each think we're making our own monetary policy. But each of our monetary policies affect one another. And I'm honored to be on a stage with three colleagues who have been in the fight for 15 or 20 years with me and without me. And I won't at all be surprised if six or 12 months from now each of us are on a better path to deliver on what we've said we're going to do.
[00:36:13] Speaker 5: Who's leading these task forces?
[00:36:15] Speaker 6: We have news to come. I can tell you likely next week who will be the outside experts. Some of them would have been folks in seats like this in prior years. Some would have been academics in the audience. But we really tried to find the best minds in economics profession among practitioners, people experienced hands, including people from countries outside the U.S. We're not asking for de Tocqueville to come to America. But sometimes we need a foreigner to sort of see things clearly. And the idea of these is not to prejudge the outcomes. I'm certainly not going to do it. But I think as we make progress on this, I think some of the lessons learned might not just be for the American central banker who's new to this crew, but my colleagues on the stage.
[00:37:00] Speaker 5: I was going to volunteer for task force.
[00:37:01] Speaker 4: That's all right. At the ECB, we went through the same process. And when we started the strategy review, it takes time. And we did bring under the leadership of Philip Lane, our chief economist, it did take time to bring that. We didn't call it task force, but we had expert committees. We had groups. And it took a couple of years before we actually settled down and all agreed on the key principles, the reaction function, the elements that we would take into account, the measurements of the nature of the supply shocks and the origin and blah, blah, blah, blah, blah. It doesn't happen overnight. It's complicated. It sounds simple when you're at the end of the supply chain, but the whole process is complicated. So I really celebrate the fact that you're going into this task force exercise and are prepared to let the best minds participate in that.
[00:37:58] Speaker 5: You know, there's also been a lot of talk here about coordination and influence on each other. And I am curious, President Lagarde, now that you do have a little bit policy divergence, you guys go in maybe in different directions. Is that a good thing or is that a bad thing ultimately? The divergence between who and who? Policy. I mean, you're raising rates. They're not raising rates. You know, is that disruptive?
[00:38:20] Speaker 4: I totally endorse the comments made by I think it was both Tiff and Andrew. We started from different places. We were at 2% interest rates. I think the Fed was at 350 there about and you were at 325. Inflations were at different levels as well. And the markets were expecting cuts in various corners. So it's -- the different -- the situation was entirely different. I don't regard that as a divergence. I think the commitment is the same to maintaining price stability and doing what it takes to actually deliver on that commitment.
[00:38:57] Speaker 5: But sometimes you see wild swings in -- I mean, the dollar/yen, for instance, is at the highest level in 40 years. Is that -- is that okay, Chairman Warsh?
[00:39:04] Speaker 6: Well, before we came here, we each told a small story about Governor Weida, who's been a great colleague of many of ours. And we're rooting for his good health so that he can join us on panels like this in a couple of months. If this central bank stands for anything, it's staying in its lane on monetary policy. So if you think I'm going to wander into yen policy in Japan, you're asking way too much of it.
[00:39:28] Speaker 5: Well, it's making a move. That's all. You know, Governor Macklin, on the markets, you recently, I think, warned about excess, just given the AI trade, speculation. I think that's very much on the market's mind. Do you -- do you see signs of that, thinking of irrational exuberance of the great Alan Greenspan?
[00:39:50] Speaker 8: Yeah, we've been worrying, really, of two things. And I'm going to -- I'm going to draw Andrew into this. Andrew chairs the Financial Stability Board. I chair the Vulnerabilities Committee. So, I mean, you know, as Governor of the Bank of Canada, I'm looking at this from a Canadian perspective. But at the FSB, we're looking at it from a more global perspective. And, yeah, I would highlight a couple of vulnerabilities. You know, as we've already said, look, there, you know, there is so much potential to raise productivity growth with the adoption of AI, with the diffusion of AI. But there -- you know, we've seen this before in when there's a new breakthrough technology. I mean, the internet proved to be, you know, better than anybody imagined, created whole new businesses. But we still got the dot-com bubble. It doesn't mean there can't be a period where the market gets ahead of itself and you see a retrenchment. So, look, it'd take two sides to make the market. We don't -- we're not in the business of giving investment advice as central bankers. So -- but, you know, from a financial stability point of view, you know, you look at the sort of, you know, historical benchmarks, PE ratios, forward ratios. Yeah, things look stretched compared to those. So, that doesn't mean there's a problem, but it does mean you need to take that risk on board. The other risk we've been highlighting is we've seen very large growth of hedge funds in the sovereign debt market. And, to some extent, that's been very welcome. They've been very efficient in buying and distributing government debt. There's lots of issuance out there. Governments need investors. But a lot of this is being done with a lot of leverage, very short-term leverage. And that does make you -- a lot of it overnight in the repo market. And that does make you nervous that if there was a period of volatility and, you know, haircuts in repo markets went up or there was some disruption in repo markets, you could get a rapid unwind. You know, again, part of our job is to sort of -- markets do a good job of seeing the risks that they face individually. They have a harder time seeing the systemic risks. These trades are very low risk for each hedge fund. But when they're all doing something similar, there could be a systemic overlay. And the idea is if we can point that out, the market can guard against that risk.
[00:42:23] Speaker 7: So, yeah, I mean, look, Kevin has referred to the financial crisis a few times and he's absolutely right to do that. And one of the big questions, you know, at that time or before it was, is the subprime mortgage market going to be, you know, in a sense, the trigger and the cause of a wider financial crisis? And, you know, we didn't get that call particularly right, frankly. But the thing that we have to bear in mind is what we're trying to look for here is sort of tail risk. You know, is there something in these markets that could trigger a wider consequence in terms of financial stability? And that's, as Tiff said, that's what we're trying to do. You know, Tiff leads the work in the Financial Stability Board globally to do that. So, yeah, we're absolutely right. We look at, you know, we look at the increase in leverage in core government bond markets. I mean, these markets have changed substantially. I think the thing we've seen actually in the course of the last few months is an increase in leverage in equity markets. So, you look at hedge fund leverage in equity markets, you look at leveraged exchange traded fund markets, those things are changing. If you look at private credit, you know, the questions we're asking is, are those the things that actually can, you know, can move from tail risk into a broader consequence? So, then you have to say, what are the channels through which it can happen? So, at the Bank of England, we're doing a second system-wide exploratory scenario to ask that very question about private credit. That's our job.
[00:43:52] Speaker 5: Do you see any other broader risks emerging? And do you agree with the characterization of stretched for the market?
[00:43:59] Speaker 7: So, look, I mean, we are looking, obviously, yes, we do look at asset valuations, because you are living in a world, I mean, you've seen this, obviously, over recent months, where you've got quite a divergence between how, you know, bond yields are moving and how equity markets are moving. Now, I think a lot of this comes back to what Kevin was saying about AI. I think it's explicable in broad economic terms. But the question is, you know, is that going to lead to some wider stability issues? So, that's on the list. And then, you know, going back to what I was saying earlier, I don't want to reopen it again, but Frontier AI is obviously high on the risk as well. Yeah. So, we've got quite a list of things that we're looking at at the moment.
[00:44:35] Speaker 5: I wonder if you, Chairman Warsh, see any signs of excess, trillion dollar IPOs, high margin debt that was referenced, I mean, other things that are going on in this market that remind you of those other times?
[00:44:47] Speaker 6: Well, I would say I've been out of this business for 15 years, but I still have the scars from the global financial crisis. I suspect my colleagues do too. We take risks seriously. And that's part of the reason why each of us, I think, at the core have sort of a reformer's heart on this. What can we be doing in the conduct of monetary policy? How should we be revisiting fundamental reforms to supervision and regulation? How should we think about the payment systems that connect us all? So, this conference is principally about monetary policy. I must admit, my first four weeks at the Fed, my attention has been focused on monetary policy. But our governments have tended to give us larger jobs than that. We take it all very seriously. I'm not prepared to sort of make a broad comment denoting risks that are available in the system. But I will say this. This is the biggest time of consequence to each of our economies, I think, in our lifetime. Maybe absent the shocks of 2008 and the COVID shocks, the dramatic change in how businesses do business, how households are thinking about employment and inflation. And so, this is the time we have to go back to first principles. I know at the Federal Reserve, with my colleagues, many of whom are here, we're doing that. So, I don't want to sound complacent. At the same time, I do want to say, at least for the United States, this is a time of huge opportunity. And if the Fed can deliver on its remit to deliver prices, I've never been more optimistic about what the growth engine of the U.S. could produce.
[00:46:21] Speaker 5: The growth outlook of the U.S. economy this year is what?
[00:46:26] Speaker 6: We're playing Mad Libs now. Fill in the blank. So, I would just say this. Over the last four quarters in the U.S., structural productivity is in the high 2% range. So, potential growth looks like it's trended up. This is a time that the labor markets' hours worked are relatively flat. History says that we go from periods of low productivity to periods of high productivity. Nothing is in the bank at this time of consequence. But if the last four quarters are an indication, which is really largely before the advent of the new surge in what artificial intelligence can do, I think there's reason to be optimistic. Now, does that optimism convey into policy in the next six or nine months? Still too soon to say.
[00:47:14] Speaker 5: But strong. Strong outlook. Sounds like.
[00:47:17] Speaker 6: You're back to forward guidance. I'm going to disabuse you of trying to extract that. My view, and my colleagues I think have said this better than I, my view is financial markets and the real economy work best. When you look at what's happening in the real economy, you make your own judgments. There has been a tendency, and I take plenty of blame from this, the 08 crisis, where we were trying to suppress volatility, where we thought we needed to spoon feed markets to get out of that. That was the right policy for a crisis. It is not the right policy for the time that we have now. And so, sometimes unlearning is harder than learning, and I'm going to keep at it.
[00:47:58] Speaker 5: Okay. So, President Lagarde, how do you think about the best levers to boost growth in the Eurozone right now?
[00:48:05] Speaker 4: Capital market union. 28th regime, and boost the venture capital. Okay? So, that would be on the growth front. But I would like to add one thing. Thanks to the veterans at this podium and a few other people, we have a strong, solid, robust banking system, which is strongly well-regulated, well-supervised. And I think we should be cautious about what we are throwing away by way of simplification. So, we do simplify things, and I'm delighted that, for instance, the ECB has done away with 40 different set of declaration disclosures that were unnecessary out of the 130 plus. So, we have to go through that process. But I think we have to be cautious about how risks actually move. And risks were squarely in the banking system back in 2007, '08, when we were all together fighting this global financial crisis. So, risks travel fast. And there is no limit to the imagination of those in the financial sector who are trying to make money, as is their business, and who are taking risks. But the question is really, who eventually ends up taking the risk and sweeping the mess? So, I would contend that this regulatory work that we did at the time, we need to be very attentive, as Andrew suggested, to make sure that the risks that have moved and travelled afar, through different structures, bodies, and the different names, are also looked at carefully, and that the right measures are taken to protect the public good, and to protect the principle of who takes risks, bear the responsibility that goes with it.
[00:50:01] Speaker 5: The other big topic that I know that you all think about, and is part of your remit, is the balance sheet. And, Chairman Warsh, you have talked about, before you became Fed Chairman, that the balance sheet was too big in the United States. So, it's at $6.7 trillion right now. What level would you be comfortable with it at?
[00:50:20] Speaker 6: No forward guidance. No forward guidance. No forward guidance. And I'm not going to give... This is the balance sheet. It's the balance sheet. Okay. We're just among friends. We have a task force for that, too. Oh, great.
[00:50:32] Speaker 5: We're going to play drinking game on task force.
[00:50:35] Speaker 6: I'll say this. There is no secret that, from the 2011 period, when I was leaving the Fed through now, I wanted the Fed's balance sheet to be smaller, and I long wrote about and described, you know, interest rates should be the dominant means through which we make monetary policy. If we're in a crisis that could be a different set of rules, it's always struck me that interest rate policy is the fairest of the broad constellation of our citizens. Interest rate policy, whether we move it up or down, transmits its way into a new mortgage, credit card debt, transmits its way through a lending channel and credit channel. I've always had a view that the balance sheet works mostly through asset prices, works mostly through signaling effects. My four weeks at the Fed haven't disabused me of that idea. As we're hearing an alarm, that must be my way of saying that I've gone too far on the balance sheet. But we have a task force that you'll find out of outside people that are going to debate this topic, bring it back to my colleagues and me, to see whether we can have a judgment about whether the balance sheet should be made smaller. The only thing that I'll repeat here, which I've said repeatedly, is if there's a change in balance sheet policy, it'll be a change of my colleagues at the FOMC and the board. Those decisions will be well deliberated publicly, well understood, and will not be implemented until financial markets have come to understand what those are. It took us about 18 years to find our way into this big balance sheet, which again, in my biased view, borders on fiscal policy. It took us 18 years to get out of it. It'll take us more than 18 weeks to bring it down to size. I'm open-minded on the question. We're not going to prejudge it, but I want interest rate policy to be the working or for monetary policy.
[00:52:31] Speaker 5: Governor Bailey, you've been focused on the balance sheet. I guess at one point we were asking how big can your balance sheets get, and now I'm wondering how small they can get.
[00:52:39] Speaker 7: Well, there's a huge, there's a nice sort of sense of irony I appreciate from this conversation, because I've been accused of having too big a balance sheet and reducing it too quickly. So, you know, well, really. So can I go back to forward guidance for a moment? Because I've really eschewed forward guidance on the balance sheet. So I really don't step into this world of saying we want ample reserves, we want big reserves, small reserves. My line has always been, we will meet the system's demand for reserves, because that's the system's demand for liquidity. Now, we will also spend a lot of time, by the way, understanding why the system wants the liquidity it wants. And also, you know, the key other point, which Kevin has made very forcefully, is that's the way we actually implement monetary policy, through the short-term interest rates, transmitting out of our balance sheets into the system. And that works very well. So, you know, our world is, look, we will meet the system's demand for reserves, we will seek to understand very closely why it's doing that. The other policy I have is that I want to take interest rate risk off the central bank's balance sheet, because, you know, with a public balance sheet, interest rate risk should be in the market, not on our balance sheet. And so that's why we're moving to a repo asset side of our balance sheet, because that takes the interest rate risk off our balance sheet, which is what should be the case.
[00:54:06] Speaker 5: You mentioned that you alluded to the political heat that you get over this issue. Does that influence the way you think about it at all? I know it's not supposed to.
[00:54:14] Speaker 7: No, I think we must have, you know, a sensible policy for moving to, you know, a system where our balance sheet reflects the system's demand for reserves. So, yes, it went up during, it went above that level during the QE period. It's coming down to that level. I want the interest rate risk off our balance sheet. Those are the policies we're pursuing. And I think those are the right policies.
[00:54:36] Speaker 5: Speaking of politics, do you get let off the hook, Governor Macklin, because the Prime Minister used to be in this seat?
[00:54:42] Speaker 8: You know, we get some free advice from elected officials across the country. And, you know, as I tell them, I appreciate understanding what's going on. It's a big country. I appreciate understanding what's going on across the country. But I don't appreciate telling me what we should do with interest rates. You've got your job. We've got our job. And, you know, that needs to be respected. So, I'll just come back to the balance sheet. You know, interestingly, if you compare different central banks, you'll see a pretty wide range of sizes. In Canada, we didn't do QE in 08/09. Fortunately, in Canada, no banks failed. We did get a big shock, but it wasn't so big that we needed to invoke that emergency policy. We did use QE in the pandemic. It's the only time we have used it. But the fact that we only did it once meant that our balance sheet wasn't as big to start with. And we let the bonds run off. So, our balance sheet has run back to its new steady state. And if you compare central banks, as I said, the size of the balance sheets can be pretty different. I mean, Canada's balance sheet is a percentage -- Bank of Canada's balance sheet is a percentage of GDP is about a third of the Feds. Now, look, Canada's not the world's global reserve currency. So, yeah, there might be some differences here. But, you know, I think the results of Kevin's task force is going to be very informative to us. And the other thing I'll say about balance sheets is it's a very inside baseball kind of discussion. It's not the sort of thing most Canadians are really that engaged in. But it does -- you know, it is how we -- you know, there is an element of how do we implement monetary policy? What is the demand for reserves? We've spent, you know, the last couple days talking about new kinds of money. What do those -- what do those potentially mean for our balance sheet? So, these are questions we need some thinking on.
[00:56:57] Speaker 5: In the short time that we have last, President Lagarde, I did want to get to you on this political point. And because you have been a forceful voice for central bank independence, I know you continue to do so. And you -- I mean, unlike these guys, you have to battle more than 20 different governments and leaders. 21. 21. So, you're a pro at that. I'm just -- I'm curious if you think that there are -- if you look across, if you look out and see serious risks to central bank independence, especially in light of the Supreme Court ruling that we got in the United States, letting Fed Governor Lisa Cook keep her job.
[00:57:32] Speaker 4: Well, I think, you know, the best way we can actually all do our jobs is to be, number one, accountable, number two, independent. And the two come together. You know, and I go to the European Parliament on a regular basis to report on what we do, to explain what we do. That's the counterpart for this independence that we have. Staying in our mandate, the entirety of the mandate, is also the cynical and non-condition for deserving that independence, which is a precious good without which we would not do a good job. That's my view.
[00:58:04] Speaker 5: How did you feel about the Supreme Court ruling, Chairman Warsh?
[00:58:07] Speaker 6: We were doing so well. So, before the Supreme Court, the Fed acted independently and followed its remit. After the Supreme Court ruling, the Fed will continue to do so. I read the opinion on the plane over here. One of the secrets of the productivity-led economic growth that I was talking about at the outset is because of the constitutional design in the U.S. It's the foundational element that has given us 250 years of outperforming expectations. I believe in Article III judges. I believe in the rule of law. We'll follow the Supreme Court decision. But day-to-day, the decision reaffirms what President Lagarde already said. We are calling balls and strikes as best we can. We're taking seriously the reform objective. And we're going to deliver on the high promise that Congress gave us to deliver price stability in the context of our dual mandate. And when we do that, we don't have to worry about politics. We don't have to worry about judicial intervention. We get to look in front of us because it's a challenging step.
[00:59:17] Speaker 5: OK, we have a minute left, so I'm going to ask everybody one quickie for everybody. Two quickies, actually. Governor Bailey, I'll start with you. So, favourite economic indicator right now?
[00:59:28] Speaker 7: Sorry, there.
[00:59:29] Speaker 5: Your favourite economic indicator right now?
[00:59:31] Speaker 7: Oh, that's a trap question as well. You see, that's a trap question into forward guidance. Oh, God. Thank you, brother.
[00:59:40] Speaker 8: I'm trying. I'll tell you what, I'll answer it. Oh, there you are. My inflation forecast. Oh, there you are.
[00:59:49] Speaker 5: Governor Bailey, you have to answer.
[00:59:52] Speaker 7: Well, look, we look at a whole range of data. Oh, God. I mean, look, honestly, if you sat through our meetings, you would see more data than you could ever dream of. The other thing I say, look, I'll say this. I spend a lot of time going around the country and I talk to a lot of businesses and it's absolutely imperative that we stay in touch with the economy.
[01:00:09] Speaker 4: President Lagarde. Inflation outlook, balance of risk, underlying inflation, transmission of monetary policy. Thank you.
[01:00:18] Speaker 5: Chairman Warsh.
[01:00:19] Speaker 6: I guess I have the last word. I have one more. With the data project, the data task force, my hope, my aspiration is that nine, 12 months from now, we're going to be using new technologies to understand what's happening in the real economy in a contemporaneous, real-time way that positions us as central makers to make better decisions. That we're no longer going to have to rely solely on data that we get from government agencies with mis-measurement problems that have surveys that are no longer relevant. That every business we know that are leading in our country are using new data sources to make better decisions. My favorite data is upon us. And if we do our jobs, we'll be here a year from now and we'll say we've discovered data that helps us make better decisions. And we live up to our promises, we strengthen our credibility, and politics stays at bay.
[01:01:17] Speaker 5: Least favorite economic indicator?
[01:01:21] Speaker 6: The conventional wisdom, the conventional wisdom that we hear from time to time tells us nothing. Monetary policy works with long and variable lags, as we know, and many of these indicators are echoes of history. We need indicators that tell us what things are when we look out our window today. So when we make judgments when we next convene, they're as close to real-time as possible.
[01:01:46] Speaker 5: I thought you were going to say the dots, since you didn't do one.
[01:01:49] Speaker 6: I'm going to let one panel discussion go without me sort of wagering on the dots. There will still be dots for a short time, at the very least, but we have a task force for that. I know. And we'll revisit it.
[01:02:03] Speaker 5: Do you have a least favorite economic indicator, President Lagarde? What did you say? Least favorite economic indicator that gets too much attention.
[01:02:11] Speaker 4: Those that are wrong. Least are wrong.
[01:02:15] Speaker 5: Governor Macklin, help me out.
[01:02:17] Speaker 8: You know what? What I'd say is, especially a lot of the monthly data, it can be very volatile. And, you know, sometimes the market over-rotates on the last number. You got to kind of, you got to correlate it with other things. You've got to smooth it a bit. You know, the last monthly number is never going to be the best indicator.
[01:02:41] Speaker 7: So I'll give you one that we're wrestling with at the moment and have wrestled with for years. And it's obviously relevant, which is oil and gas futures prices. So they are terrible indicators in history. The problem is that everything else is also a terrible indicator. Very good.
[01:03:01] Speaker 5: Finally, you know, when we were coming into this year, everybody was talking about rate cuts. Is anyone still talking here about rate cuts? Show of hands.
[01:03:10] Speaker 7: Well, that's a nice try. Is that a no? That's a nice try at forward guidance. All right. I tried.
[01:03:15] Speaker 5: Thank you all very much for the candor and for your service.
[01:03:20] Speaker 1: That was the Fed Chair Kevin Warsh, ECB President Christine Lagarde, BOE Governor Andrew Bailey and Bank of Canada Governor Tim Macklin. Speaking on a policy panel at the ECB Forum in Central Portugal. I'm Danny Berger. You are watching Bloomberg Open Interest after a panel that we didn't get much information. Kevin Warsh with the moderator, Sarah Eisen, they're trying to get information out of him. He continued to reiterate no fair word guidance that there was a task force for that. The joke was made about doing a drinking game of that. He did recommit to getting inflation back to 2 percent, but said the strategy of doing so, that remains to be seen. There's a task force for that. And so front end yields, those do turn around from gains to coming in as treasuries rally, perhaps because we didn't get anything that different from a Kevin Warsh. It allows some easing of front end yields. You are looking at a Nasdaq that is underperforming. That's probably because of some news coming from Meta and getting into cloud businesses, sending cloud shares lower along with a software, not software, rather, Semiconductor sell off. Again, Brent crude at $72 a barrel. The dollar strengthens again. But again, yields may be more interesting after those comments from Fed chair Warsh. Just given we didn't get a lot of information, but a recommitment to bringing inflation down. He did say inflation expectations have started to ease unclear what exact metric he is looking at. Perhaps there's also a task force for that. So you can see front end yields coming in about three basis points. We'll break down those comments in just a second, but we should also note in the middle of that, we also got some data, ISM specifically, to help us do all of that. Michael McKee, Bloomberg's international economics and policy correspondent, start, joins us. Mike, let's just start with the ISMs. What did the data show us?
[01:05:08] Speaker 2: Well, on a headline basis, we're slowing a little bit, 53.3 from 54. But Kevin Warsh made the point early on that he thought inflation pressures had eased over the past few weeks, and the prices paid number does come down. Still very high at 73, but that's down from 82.1. Production numbers also down 52.2 from 54.3, and new orders are down 56 from 56.8. So some slowing, but still a fairly steady manufacturing thing now. The one number that we all want to look at because of tomorrow is employment. That's up, but it's still below 50 at 49.7.
[01:05:46] Speaker 1: I thought it was interesting, the questions to Kevin Warsh about why no forward guidance. Why not have any forward guidance? He basically answered saying that anything that makes it difficult for us to do, what is it, family fight that he continued to use, anything that makes it difficult to have the family fight meetings, we need to get rid of. I mean, is there some truth in that, Mike, that by giving forward guidance, it makes it more difficult to have some sort of debate among the FOMC about what they do with policy?
[01:06:11] Speaker 2: No, I don't think it makes any difference when they go into the room and they debate what they're going to do. It kind of binds the markets a little bit in that they're, they do what Kevin Warsh doesn't want them to do, and that's react to data and developments in the way they think that the Fed will. And so he wants to get that out of the markets. I'm not sure if he can, because there's so much information out there now, and the world has changed since the Greenspan Volcker days. So at this point, the most interesting forward guidance we got probably is him saying that there would be still a dot plot for a little while. So.
[01:06:49] Speaker 1: And he'd probably disagree with you calling that forward guidance.
[01:06:51] Speaker 2: So, so we may have that for a little while until the task force gets to go again. And he did give us some guidance on that, that we will hear some of the people who are going to be on those task forces, next week. He suggested some central bankers, some academics, didn't give us any names. But basically he stuck to the line he's been taking since his confirmation hearing that he's not going to give forward guidance. He wants to get that out of the, get the Fed out of that business. He thinks that inflation is the most important problem out there, and they're going to focus on that and bring inflation down.
[01:07:24] Speaker 1: So, Nat, did you get any sort of changes as to leanings of whether this is a Fed chair who is leaning towards hikes this year or keeping things steady on the more dovish side? Any clues at all you could divine from that?
[01:07:36] Speaker 2: No, not really. He basically suggested that the Fed is looking at what's happening with productivity, which is another point he's made regularly, looking at what's happening with productivity and AI. And in the short run, because of the demand for capital to build out all of the AI, that that's inflationary. And so he's sort of accepting the fact that we'll get some inflation from that. But he said, conversely, that's good for the economy overall. So at this point, he went out of his way, I think, to say, we don't know what we're going to do in terms of rates. However, when he was asked, when they were all asked about rate cuts, nobody raised their hand.
[01:08:17] Speaker 1: Again, I think that they were just like, oh, we don't want to give anything that looks like guidance, taking a note from Kevin Warsh's book. Mike, thank you very much for sticking around with us through that center panel. That's Bloomberg's Michael McKee. And again, we were just listening to the central bank conference panel in Cintra, Portugal, where we heard from the leaders of the Canadian, UK, US and ECB central banks. Kevin Warsh speaking moments ago on why he does not issue or does not want to issue forward guidance.
[01:08:47] Speaker 6: So I think the most important thing we can do is to get policy right. If our communications tools, if our models, if the way we've been playing things makes it harder for us to go into these meetings, have a family fight with our colleagues and make the best decision in pursuit of our mandates, if that's an obstacle, we should get rid of it. It is said in recent weeks, well, we need to know more about your action function. If I look at trigger pullers, people that are making decisions in the bond market, in a range of markets, volatility is not up, it's down. Yields aren't up, they're down. Inflation expectations are down. So I hear this that as if people don't understand, I think they actually understand quite well.
[01:09:38] Speaker 1: Joining us now is Shana Sissel, Banrian capital management founder and CEO. Shana, great to see you this morning. And I just want to pick up on those comments from chair Warsh. This idea that he doesn't need to issue forward guidance, or at least it's not a problem for this market, because we have seen volatility come in. Things have been relatively benign. Do you think that this is a market that will greenlight a Fed and behave accordingly if we're not getting any sort of forward guidance in this new environment?
[01:10:05] Speaker 9: I think it will be. I actually think it's a welcome change. As he noted, one of the things that has kind of dissipated from the markets has been volatility. Markets have been very low vol for a very long time, largely because of forward guidance given by the Fed. As he commented, the markets are reacting to how they think the Fed will react. And when the Fed is very transparent like that, they are not necessarily reacting to the data itself, but rather how they think the Fed will react to the data. That's not naturally something that's part of the Fed's policy. And the Fed is not responsible for ensuring that markets say low volatility. So I've been of the belief that we should position ourselves for rising volatility throughout 2026 and into 2027. And having Chairman Walsh say what he said just reiterates how I already felt. And I think that market participants will act accordingly
[01:11:03] Speaker 1: and adjust accordingly. How do you position for that, Shayna? What are the adjustments to make to account for rising volatility?
[01:11:10] Speaker 9: Well, now that's speaking my language. I'm the queen of alts, as they call me. And so alternatives are one of the best ways to mitigate volatility. It's not always the sexiest way. It's not going to, as many people might think, increase your absolute returns. But it can very well maintain strong absolute return performance while reducing overall volatility in portfolios. And when I say alternatives, I mean the diversifying kind. Most people start to associate private equity, private credit as the main ways to access alternatives. That's not what I'm talking about. I'm talking about managed futures. I'm talking about long short equity. I'm talking about market neutral. I'm talking about commodities and anything related to trend following. Those are the types of things that tend to help mitigate volatility when put into a diversified portfolio as, say, a 10 or 20 percent slug. And these are things that everybody can now access through ETFs, interval funds and otherwise. This is not something that is previously it was gate kept to only those who had sufficient wealth to meet the accredited investor hurdle. But that's not no longer the case. You can now access these types of products through ETFs and through interval funds.
[01:12:24] Speaker 1: I just wonder if we are heading to an environment where the outcome of this central bank is hiked. And it's something that the market is started to price in the likelihood of certainly not 100 percent pricing anymore. How will risk assets behave, Shana, considering more volatility that equity markets just came off the back of a banner quarter, the best since 2020. And for semiconductors, the best ever. Is this a market that's
[01:12:50] Speaker 9: prepared for rate hikes? Can we absorb that? Well, I don't think rate hikes are happening tomorrow. So I do think that the markets can absorb that because they have plenty of notice that these are likely to happen. But let's think about it at its core. What do rate hikes mean? It means that the economy is very strong. It means that inflation is rising and it's an attempt to keep things in check. That's not a bad thing. If you're a market participant, you certainly don't want things to get overheated. You certainly want valuations to be reflective of the value of these companies and not to get too out of hand. And that's that's what would cause rate hikes. Now, that said, I don't think rate hikes are coming this year. If they do, it'll be later this year. So we do have time to make adjustments. And if you look back historically, rate hikes aren't always a negative for risk assets. In fact, sometimes they can be positive. There's no true correlation. I did a project when I was at Fidelity on this regarding small caps specifically. And what we found was that it wasn't necessarily correlation that rate hikes didn't always mean that small caps would underperform. And I think we can take the next step and say that that doesn't always mean risk assets were underperform. But I do think you need to position yourself a little more defensively and for a rise in volatility. And that's where I think alternatives can be valuable and helping mitigate that risk if you're unsure of how risk assets will be. But you still want to take that risk. You want to offset it with something that will decrease the overall volatility of your portfolio.
[01:14:18] Speaker 1: Shana, really fantastic to catch up with you this morning. Shana Sissel of Bannerian Capital Management. Thank you so much. Let's get a check on your markets this morning. Just over 40 minutes into your trading day. And we are moving lower than Nasdaq down three quarters of a percent. We had gained for the past two days, leaving us with a quarter end. That was the best since 2020. It's the semis that are getting hit today along with some of the cloud providers on news that meta is building its own cloud business. Yields come in by three basis points before we heard from Shere Warsh. They were moving higher, but perhaps a Fed share that didn't give us anything new or anything more hawkish means no reason to change pricing at where we are right now, even though he does commit to getting inflation down to 2 percent. But says the methods of doing so, those have yet to be determined. Again, reiterating that he will not be giving forward guidance in his many task force. And Brent Crude falls 1.4 percent. His talks apparently in the Middle East are productive. Let's look at some of the single names moving this
[01:15:17] Speaker 10: morning. With that is Isabelle Lee. Isabelle. Hi, Danny. We do have to talk about meta as you've mentioned. They're looking to build a cloud business to sell excess compute for AI. And you see the stock here popping by almost eight and a half percent. So the company is considering selling access to various AI models as well as, quote, raw computing capacity. So you see a huge pop there, which is nice and green. Up next, we're looking at Microsoft. You have business reporting that Microsoft is again planning another round of job cuts impacting thousands of roles. So this will include sales and also consulting and also some jobs at Meta. As a reminder, Microsoft has around 220,000 employees. But you see here the stock up by 2 percent. Usually when announcements like these come, the stock does rally. And lastly, we are looking at Nike. So again, this is also a stock in the green, higher by nearly 4%. This comes even after Nike delivered a cautious outlook and said there is a expecting a slowdown in the coming quarter. So the company said customers are, quote, under pressure around the world and they especially see these in sportswear. So I don't know, maybe if you're feeling pinched, you will not buy new workout clothes. Maybe not. But like nothing motivates you more to work out than like a really nice fit. Me too. I like looking cute when I work out. I'm glad we're on the same page. Isabel, thanks so much. We're going to catch up with you in just a bit.
[01:16:20] Speaker 1: Coming up on the show, Vimeo and AOL owner Bending Spoons said to make its trading debut today after raising $1.68 billion. We get the details next. This is Bloomberg Open Interest. Let's get you some high interest stories. What's making headlines around the world with that is Isabel. Hey, Isabel. Hey,
[01:16:58] Speaker 10: Danny. President Trump's latest financial disclosure says he earned at least $1.4 billion last year. This, of course, is led by crypto related businesses. So World Liberty Financial generated over $594 million while his meme coin business reported $636 million in income. So the filing is renewing scrutiny from critics over potential conflicts of interest. And President addressed the controversy with reporters.
[01:17:25] Speaker 11: I don't get involved in my personal. We have funds that run my money. Well, I've made a lot of money before I became president and they invest my money and I don't talk to them. I never, I don't even speak to them. So I have many people. I don't know what they call closed accounts or something. You put your money in and that's it. I don't talk to them. They're big institutions.
[01:17:50] Speaker 10: And Starwood Capital has raised $10.2 billion for a new real estate fund with up to 35% earmarked for data centers as AI fuels infrastructure demand. So the firm is also targeting Sunbelt rental housing and logistics assets with more than $3 billion already committed across 20 investments. And Bending Spoons. This is an Italian software company behind Vimeo raising $1.68 billion in its Nasdaq IPO after pricing shares above the expected range at $29. The deal values the app acquisition company at about $18.4 billion. So Bending Spoons says it now reaches 500 million monthly active users across its growing software portfolio. Danny, back to you.
[01:18:28] Speaker 1: Isabel, thank you so much. Let's get more on that Bending Spoons IPO. Joining us now is Bloomberg's Anthony Hughes. Anthony, this feels like a Frankenstein of a company is the wrong word. Because I guess everything it owns is kind of similar. Like they're all Internet things. But some of them feel really from yesterday. I mean, AOL is one of their company. Eventbrite. We transfer. What exactly is this company and why would they go public? Yeah, it's going to be a really interesting IPO. It's one of three companies that's going public today.
[01:19:00] Speaker 12: The company is really a hybrid between a sort of a private equity firm and a software company. But really the core of the business is this group of software businesses that they bought. A lot of these businesses were sort of distressed or stressed and they bought them at attractive prices in their view. And they're turning these businesses around. And this is really against the grain of what's really happening in capital markets at the moment where a lot of the deals that we're writing about IPOs are really AI adjacent businesses. And people are really obsessed about the AI trade. But this is really against the grain and sort of fits into this idea perhaps that, you know, the contrarian idea that the sasspocalypse is, you know, maybe overdone and, you know, maybe there's some opportunities to, you know, bottom fish in those areas.
[01:19:44] Speaker 1: And you even made the point to me in the break that some of these were even public prior. I mean, what's the reception seem like it's going to be in public markets for Bending Spoons?
[01:19:54] Speaker 12: Yeah, well, the offering was multiple times oversubscribed and it priced above above the top end of the range, which was probably a little bit surprising. I mean, there was certainly some mixed opinions here about this company. I think people are not totally convinced about this strategy, whether it's going to work out long term. So it's going to be pretty fascinating to see how it trades. But the business is really was compared with other M&A type platforms. So some other software businesses out there that are also very much driven by M&A and acquisitions. Constellation Software is one. Roper Technologies. And these were companies were used as comps. I mean, obviously, when we look at the valuation, the price here, you know, was around about I think is around about 10 times operating earnings on a forward basis. So, you know, it was sort of in the ballpark of those other companies. And that's where some of the interest lie. And they're not not going really, really, you know, really shooting lights out in the valuation like some other IPOs. Right. Do you know anyone with an AOL account? Not at the moment. I know some hot mails out there, but no AOLs.
[01:20:51] Speaker 1: Anthony, thank you so much for joining us. Bloomberg's Anthony Hughes. And catch Bloomberg deals today, every Wednesday, 12 p.m., New York time. Today's guests include Sullivan and Cromwell, global head of M&A, Melissa Sawyer, Lazard, global head of power and energy infrastructure, George Belisic. Still ahead, National Grid CEO joins to discuss her company's push into U.S. data centers. You're watching Open Interest. Nearly an hour into your trading day. Still heading lower after two days of gains. Tech leads the declines after Meta announces that it's getting into cloud businesses that sends cloud other providers lower this morning. Yields come in after we heard from Kevin Walsh. Nothing necessarily new from him and Brent Crew down 1.3 percent. Coming up, we talk about A.I. opportunities in private capital with EQT's head of private capital. Meta is getting into the cloud business, taking on Google, Microsoft, Amazon and the Neo clouds. It plans to sell excess compute needed to power A.I. models. And that news did pressure some of the names like CoreWeave. Elsewhere, the U.S. government has removed foreign access restrictions on Anthropics fable 5 A.I. model, which originally raised national security concerns. Let's discuss all of that Bloomberg Intelligence head of tech coverage, Mandeep Singh. Mandeep, let's start with what Meta is doing. What exactly are they doing with this cloud business?
[01:22:21] Speaker 13: Well, they were under pressure with that hundred and fifty billion dollars of CapEx spend to show ROI. And we know they don't have a frontier model like Anthropic and Open A.I. And there was talk about agentic A.I. being that product. But looks like they have pivoted toward selling compute like SpaceX did, you know, right before their IPO. And it is a very lucrative business right now, given the supply constraints. I mean, SpaceX signed those two deals with Anthropic and Google for almost a 25 billion dollar run rate for one gigawatt capacity. So if you apply that type of math, then we could be talking about up to 15 to 20 billion dollars in incremental revenue per gigawatt that Meta has. When you see that then, do you view that as a pivot away from their A.I. ambitions or something that can fund their A.I. ambitions? It could fund. But I view it as a slight negative in the sense this field is getting very crowded now. The field of renting compute and the frontier models. Yes. Open A.I. and Anthropic are the ones that are actually monetizing at the model layer to an extent Google as well. But everyone else is selling raw compute to these companies. So I'm guessing the users of Meta Compute would likely be Anthropic who would say, OK, I'll take your capacity. I'll monetize it through my model layer. But look, Meta hired a lot of people last year to build this super intelligence lab to train the model to roll
[01:23:49] Speaker 1: out agentic products. Looks like that's not happening. But you set me up for a lovely segue when it comes to Anthropic. Allowed to apparently give out Fable 5 again their top model. I mean, what happened to national security concerns? Well, I think there are two
[01:24:04] Speaker 13: parts to this. One that U.S. doesn't want its leading company to be left behind because of all these restrictions. They want this model to be adopted and Anthropic or open A.I. to do well globally. And so from that perspective, I can see that side. The national security side is really the government saying we want to understand what are the capabilities of these models. And it looks like the executives of Anthropic probably sat down with, you know, the folks at the government and they sort it out in terms of, you know, what are the capabilities that could put us at risk. All right, Mandy. Thank you so much for joining. Always a pleasure to see you.
[01:24:40] Speaker 1: Mandip Singh from Bloomberg Intelligence. Let's discuss more on A.I. Investing opportunities risk joining us now is Eric Liu, head of private capital at EQT. Eric, great to see you this morning. Great to have you here. And look, EQT, I feel like you're across the spectrum with A.I., whether it be your infrastructure business or individual companies themselves, things are changing so quickly, whether it be the regulation like Mandip was just talking about or the technology itself. How do you even do you have to think about investing in these businesses, thinking about investing them and where the value and risks are when things are
[01:25:13] Speaker 14: shuffling and changing so quickly. Yeah, it's a really exciting time. I mean, A.I. is one of the more significant innovations we've seen in decades. And if you think about how we generate returns as a private equity investment firm, it's about making our companies more valuable. We buy companies. Sometimes it's a good company. We're taking it to great. Sometimes it's already great and we're taking it to the next level. But it's about how we make our companies more valuable. And having a new tool like A.I. enables us to increasingly differentiate relative to competitors of the
[01:25:38] Speaker 1: companies we're investing in. How do you how are you thinking about that regulatory risk? Not even necessarily if, you know, Washington comes in and does something with an individual company. But the idea of, oh, you could be using a model. And then D.C. says, OK, you can't use that. And the switch gets turned off. How big of a risk is that? Yes, we work with a number of different providers. I think we're fairly
[01:25:59] Speaker 14: agnostic in terms of which one. The field is moving so quickly. Sometimes company A is better than company B today. But they could be leapfrog tomorrow. So we work with everyone. We're abreast of the latest developments. But we try to be agnostic from that perspective. Investing companies delivering a product or service to their customer and trying to figure out how to do it better. And if it's work with model A versus model B today, we'll work with that model. If we need to switch, we'll switch. On the other side of things, I mean, this
[01:26:23] Speaker 1: year has seen huge disruptions in private capital because of exposure to software. We were just talking about one of our reporters, an IPO that's coming to market today that is, in effect, a holding company for a whole lot of different software applications. I was talking to Orlando Bravo at Superturn. He was like, the SaaS apocalypse is over. It's dead. Everything is fine. Is it over and dead? Is everything fine in software? Is it coming back?
[01:26:45] Speaker 14: So the thing with software that's interesting is the capital markets reaction to the software thing. And then there's actual the underlying operating companies. We're about 20 percent software. So we're not entirely a software firm like some other private equity firms. But the software companies that we've invested in continue to perform well. The revenues are growing. The profits are growing. And so as long as we're not needing to exit today, it's fine. And we continue to build the businesses. And then I think there's going to be a bit of a more differentiation going forward. I think some companies will learn to leverage AI, deepen their experience with their customers, improve their product, reduce their costs, and some companies will suffer. I think the ones that will continue to do well will continue to perform. And you'll see those
[01:27:19] Speaker 1: valuations start to come back. Is there anything you wouldn't touch right now, then, because of all this disruption?
[01:27:23] Speaker 14: I think there's sometimes companies you see where there's clearly stroke of pen risk. It may or may not happen. Those ones we won't touch.
[01:27:29] Speaker 1: We also got, in terms of regulatory volatility, a ruling from the Supreme Court yesterday that allowed the president to effectively fire someone who's very high up at the FTC. And it means for any of these independent agencies, they're a little bit less. I wonder for you, as an owner and operator of so many different businesses, if that introduces some volatility into the system for you and how you've thought about that ruling. I know it's only been 24 hours. So maybe you haven't thought about it deeply. But, you know, I think any time an industry is regulated, there's always going to be that type of risk. I think the key is a
[01:27:58] Speaker 14: avoiding stroke of pen risk on the one hand and then figuring out which risk we can box, which we can quantify and making investments on that basis.
[01:28:05] Speaker 1: I'm speaking of all these risks, you are a health care expert. You have a long history in that. You also lead up the health care team at EQT. I was looking at a PwC study just based on what volumes have been. And they basically said they're steady, but there's some risk that seems to be repricing on things like, you know, regulatory geopolitics, geopolitics, some of the software pressure. I wonder to what extent you're also seeing that. Some health care investments starting to reprice risk.
[01:28:29] Speaker 14: Yes, the health care has actually always been a highly regulated sector. You can't sell stuff unless they regulate or approve it. The customer, the government's between your largest customers. So in order to invest in health care, you have to have a stomach for regulation. You have to have a stomach for reimbursement risk. I think there are certain pockets that we'll focus on understanding those risks. And there are certain ways that we'll just stay away from.
[01:28:48] Speaker 1: Is it I mean, there are some things like, you know, the one big, beautiful bill and and questions around reimbursement. I just wonder, have you become more selective in the way you're
[01:28:59] Speaker 14: investing in health care right now? I think our strategy has been fairly consistent across time. We invest in product companies. We invest in IT companies and we invest in certain types of outsourced services to the health care sector. We focus on business to business sales and the sector that we stay away from our
[01:29:14] Speaker 1: providers where somebody does something and they build the government directly. So in the first half of this year, Bloomberg data shows that there's been two and a half trillion dollars of M&A. That's up about 30 percent compared to a year ago. That's really robust. But if you kind of look through the figures, private equity isn't as big of a contributor to that as it has been in years past. What do you think it would take to actually kind of unglue some of the system? I know EQT has been very active in exits, but the industry as a whole, what does it take to really get volumes
[01:29:43] Speaker 14: coming back? I think the volumes and fairly steady. I think that the debt markets are good and companies willing to transact, you'll see deals happen. I think right now what you're seeing, there's a bit of a bid ask spread certainly in certain sectors. Assets still trade, but only the highest quality ones. But I think over time, private equity firms can't hold assets forever. And you're starting to see a little bit of appetite to just move assets if they've been in the portfolio. Hasn't this been like a problem for the past
[01:30:06] Speaker 1: two years of LPs pounding the table saying we need distributions. Things aren't looking good. I mean, is there some serious pressure happening in this industry that I don't know. And how does that manifest itself if it continues? Yeah, the reality is we have
[01:30:18] Speaker 14: different types of investors. So somewhat liquidity, but some of them are really focused on the long term aspect of our industry. They want to compound capital. And so as long as they feel like we're doing a good job developing the companies, some investors want the liquidity and we provide DPI from them. But others don't want the capital back because then they have to redeploy it. So the key is we're always active in buying and we're always active in selling. And we try to maintain that
[01:30:38] Speaker 1: discipline. All right, Eric. So great to see you. Thank you for stopping by. It's Eric Liu of EQT. Let's get a quick check on your markets this morning over an hour into your trading day. We start the next quarter and July on the back foot down about 1% for the NASDAQ. But that's after a stellar quarter where we were up the most since 2020. And semis outperformed the best quarter ever as front end yields come in. They're down by just about three basis points after Kevin Warsh didn't necessarily add to any of the hawkish aura that was created after the FOMC meeting but committed to 2% inflation but said that inflation expectations and some gauges were starting to ease. Brent crude probably adding to that down one and a half percent. Let's look at some of the individual movers this morning. With that is Isabel Lee. Hey, Isabel.
[01:31:23] Speaker 10: Hi, Danny. We're looking at a board here that has Caterpillar, NVIDIA and Tesla. Tesla is up but the two are down. And guess what they have in common? Michael Burry. He says he's shorting all of these stocks. Caterpillar for the first time. This comes after the stock has rallied almost 90% year to date. NVIDIA and Tesla. He's also shorting according to Burry. So make of that what you will. Up next, we're also watching shares of Intuitive Machines and Firefly Aerospace. Both are Indored. Intuitive down by more than 2%. Firefly down by one and a half percent. So both of these companies were selected by NASA for their moon mission in late 2028. So in March, NASA laid out their plans. They said they will invest more than $20 billion in the next seven years to build a base on the moon where astronauts can live and work. So that's pretty cool if you ask me. And lastly, we are looking at... Why did I blank there? General Mills higher by 9%. So this comes after the company posted better than expected fourth quarter profit thanks to a boost from higher prices. Like many, they've been really trying to win consumers over lower prices because everyone is feeling the pinch. So if everyone is feeling the pinch, maybe you and I should go to the moon, maybe.
[01:32:32] Speaker 1: I don't know if that's any cheaper. That might be much more expensive. Yeah, Isabelle, thank you so much. I think groceries on the moon might be a little bit more expensive. Isabelle Lee there. Now coming up, we're going to be speaking to the National Grid CEO Zoe Unovich about the company's $1.75 billion investment to help power Microsoft's data center expansion. You're watching Bloomberg Open Interest. Now, the U.K. U.S. is driving a surge in electricity demand, fueling billions of dollars in new energy infrastructure. U.K. utility National Grid is betting on that demand with a $1.75 billion investment. And Juulint, the U.S. developer, is helping power Microsoft's data centers in Texas. Joining us now is the National Grid CEO Zoe Unovich. Zoe, so great to see you. And look, this is a really interesting idea. I wonder if in some ways this does represent a pivot, that for utilities, the most important thing that you need to add capability, that you need to add investment in, is around AI versus kind of traditional electricity demand. Yeah, I mean, firstly, thanks for having me.
[01:33:47] Speaker 15: Danny, it's great to be here, especially on such an exciting day for us. National Grid has long been invested in delivering energy through long term infrastructure to our customers. And so in some respects, you could say this is exactly what this acquisition that we've invested in today is all about. But to your point, we are now facing that sector of the market that is growing so rapidly. I mean, the increase in power demand coming from data centers and just more generally from the AI evolving across the economy. It's an exciting place for us to find ourselves.
[01:34:21] Speaker 1: It feels like it's really rewrite rewriting things really quickly, Zoe. And I wonder how far away you think we are from being able to keep
[01:34:29] Speaker 15: up with the demand from it. Well, that's why I think this investment is so important for us. What we've done in investing in Juuland, which is a technology enabled energy company, is find ways to actually bring the very best that we can across different sectors to harness that innovation and get the right solutions so that we can actually get speed and scale power to customers really quickly. And if you take a look at the specific project that we're developing, Project Kilby, you can actually bring the very best of the cultural opportunities from Microsoft, from an energy major like Chevron, through Juuland, who's brought that innovation together. And that's what's giving us, I think, a real advantage, real pace to deliver the power, but also the opportunity to scale that over over time.
[01:35:17] Speaker 1: You know, I myself lived in London for about seven years, so I'm very familiar with national grid. But to see them to see you coming over into the U.S. itself is an interesting turn. Do you think this is the start of many more opportunities for you in America?
[01:35:32] Speaker 15: It's interesting, Danny. Most people aren't aware, but we already have quite a significant scaled position in the U.S. We are servicing already both the LDCs, the local distribution companies for gas in both Massachusetts and New York. And of course, we have a very big presence there around our electric utilities as well. So we have in our five year horizon, as an example, about 70 billion pounds. So let's say between 90 to sort of 95 billion U.S. dollars, of which we have about 40 percent of that being invested in the northeast of the U.S. So we've got great capability, not just across the broader company, but already in the U.S. that helps us to bring momentum behind this acquisition that we're announcing today.
[01:36:16] Speaker 1: There are many who are, you know, see the opportunity like you do Zoe and trying to provide energy and different utility to data center projects. Is there any part of the market you think looks frothy?
[01:36:30] Speaker 15: Look, I think what we have found is that whilst the numbers of data center in the queue are significant, that the drivers behind needing this speed to power continue to be solidified in all of the conversations that we're having. And so, of course, we have conversations across many of our jurisdictions, both with data center developers, but also with the tech companies that sit behind. And I think it really is a challenging domain. And it's really about pace. And I think what's exciting about this investment that we're making, it's really through the jewel and vehicle finding a way to crack that equation. It's about speed, but it's also about doing speed at scale. And I think that's what's most exciting. And that's the unlock, I would say, around underpinning those that are real projects that really want to put money behind investing versus those that perhaps are more speculative and seeing what might pan out.
[01:37:22] Speaker 1: How do you deal with the politics of the situation, Zoe? I was just looking. There is even a lawsuit this morning around AI, very, very different from energy and what you're doing, but specifically around Albertsons and Walmart using AI algorithms to determine the price of gasoline at their pumps. I mean, there is this real deep backlash occurring in the United States right now about this fear. AI is going to be driving up my utility bills. How do you navigate that environment, especially ahead of the midterms when politicians are taking note?
[01:37:53] Speaker 15: Yeah, and the first thing I would say when it comes to specifically building projects is that we must do so in a way that's really deeply respectful for the communities that we find ourselves operating in. And that's the way we've always gone about our projects. There's a lot of opportunity for community consultation to get input from the local communities and to make sure that we're welcome in the jurisdictions that we're building in. I think that broader debate is something that, of course, will play out over the course of time, but we're really focusing on the things that we can control, where we have unique capabilities that we can bring to the story. And that's really about creating that affordable power that's reliable in the current context.
[01:38:30] Speaker 1: I understand the desire to only focus on things you can control, but when you can't control them, isn't that a real risk for the build out?
[01:38:39] Speaker 15: Well, I think there's the potential that these things could play out at different rates than perhaps might be anticipated. But I can tell you from our own five year forecast, we have solidified plans around our investment in that sort of 90 to 95 billion US dollars, which is underpinned in our jurisdictions for regulatory rate cases that are firm. And so I think we can speak with confidence in the next five years exactly what projects we will be delivering and by when. When we come to this particular announcement today, we've also got a firm PPA in place. This is something that's been signed by Microsoft for the Kilby project. And so this isn't sort of a speculative investment. This is really underpinned by the fundamentals around customers and actually meeting that demand with the right infrastructure and energy players.
[01:39:27] Speaker 1: Zoe, just quickly, because, you know, you mentioned you have commitments. What do you make of those more speculative projects? There have been quite a few of, you know, some politician leases some land, doesn't have a hyperscale or committed to it yet, but hopes that they will. I mean, do you think that those will find the right path and find the right commitments? Or do you think that there maybe is some speculation that concerns you in the overall market right now?
[01:39:48] Speaker 15: Well, I can really speak from the jurisdictions that we're most familiar with. And I think we see that there's a project maturity that evolves over time. So, inevitably, there's a lot of in the queue. We find that narrows quite quickly when you start to get into establishing contracts around capacity that people will take. And that very quickly sort of starts to simplify those that are more speculative versus those that ultimately are putting money in the ground. And so I think in our jurisdictions, we actually have a pipeline that's substantially larger. But the projects that we're actually doing designing and construction around are firm projects. They've got real money behind them. And we work very closely with the integration of how the projects are being built and how those connections into the grids might take place.
[01:40:32] Speaker 1: Zoe, this has been really interesting. Thank you so much for joining us. That's the National Grid CEO, Zoe Younovich. Coming up, oil falls as the U.S. cites progress in technical talks with Iran. We'll have your latest update with Tyler Kendall after this break. This is Open Interest. Brent is dropping below $72 a barrel as the U.S. says that technical talks with Iran have been positive and progress is being made. Joining us now is Bloomberg Washington correspondent Tyler Kendall. Tyler, what is the latest?
[01:41:15] Speaker 16: Hey, Danny. Well, these negotiations are expected to continue today in Qatar via mediators, though reportedly won't include Special Envoy Steve Witkoff and the president's son-in-law Jared Kushner, who kicked off this latest round of talks this week. So far, the White House is saying that progress is positive. We heard President Trump echo this same sentiment to reporters within the last hour or so on the heels of this Wall Street Journal report that the president has privately told his staff that he would be okay if the negotiations extended beyond the 60-day window, if that's ultimately what it took to get a deal. Now, all of this, of course, is coming after the fighting this weekend had threatened to derail the diplomatic progress altogether amid what has been this focus on the Strait of Hormuz. And, Danny, those tensions are still very much here. New this morning, Iranian state media saying that a foreign vessel ran aground, essentially got stuck in what Iran is calling an unauthorized route amid an uptick in ships transiting through that U.S. coordinated corridor that hugs the coast of Oman and tries to get those vessels further away from Iran's control.
[01:42:21] Speaker 1: Isn't this still in Iran, though, Tyler, that is talking about their desire to control the Strait of Hormuz. Just how big of a sticking point is this still in negotiations?
[01:42:31] Speaker 16: It's becoming really the sticking point at the moment, Danny, because we know that the memorandum of understanding those provisions that paved the way for this 60-day cease-fire extension really did focus on the waterway. And that's before we even get into the potential conversations that are happening about what curbs we could see on Iran's nuclear program. At this point, it's going to be one of those issues that we have to wait and see what the U.S.'s tolerance point will be. Though all of the reporting has indicated that, for now, this White House is going to choose against escalating to full combat operations and a bid to try to get this diplomatic process underway. We heard from the Treasury Secretary Scott Besson earlier this week who said that most nations at this point aren't ready to buy Iranian crude. That could also be one of those sticking points when it comes to Iran coming to the table.
[01:43:21] Speaker 1: Tyler, thank you very much. That is Bloomberg's Tyler Kendall in Washington. Catch me later. Bloomberg deals that will air today every Wednesday at 12 p.m. New York time. I know it's during the England game, but you can watch it on the split screen. I'll see you in about an hour's time. First up, Bloomberg Tech.