Good morning. It's Tuesday, the third of October in London. This is the Bloomberg Daybreak EUROP podcast. I'm Stephen Carroll. Coming up today reports a key part of HS two is about to be scrapped, throw Rishi Sunak's pre election narrative off track.
And I'm Caroline Hipkett at the Conservative Party conference here in Manchester with the latest on that decision and the divisions that it's creating in the party.
Plus is there anything AI can't do? Jp Morgan's CEO tells Bloomberg artificial intelligence could lead to a three and a half day working week. Let's start with a roundup of our top stories. The Prime Minister is facing backlash from his Conservative Party, businesses and Northern leaders over a possible announcement to scrap part of the flagship infrastructure project HS two. Their speculation announcement could come as soon as today to ditch the northern leg of the one hundred
billion pound high speed rail project. The decision now threatens to overshadow the whole Conservative Party conference. Toy West Midlands Mayor Andy Street made his view clear, but Joyce very stark.
Either of the rumors say go on, cancel Newston cancel to Manchester, but you will be turning your back on an opportunity to level up a once in a generation opportunity. You will indeed be damaging our international reputation as a place.
To invest or.
The alternative is to work with us, engage with us, fully, embrace the private sector. Hear out what they could do to find a way that we can still build this national piece of infrastructure in a way in which we can afford and at a cost which we're all comfortable with.
Despite those pleas from Andy Streets, reports suggests that if a decision is made to ditch the project, it could feature in the Prime Minister's speech to the conference tomorrow. Back of England policymaker Catherine Mann says interest rates have only just reached restrictive territory. Speaking at an event hosted by red Burn Atlantic and Rothschild, Man disparage the Central Bank's forecasts, saying quote they've been telling a story fundamentally
different from the ones I consider likely. Catherine Mann is widely viewed as the boees most hookish rate setter, but was outvoted last month when she backed continuing increasing rates to stamp out sticky inflation. Louretta Master says the Federal Reserve will probably need to raise rates once more this year. Speaking to business leaders, the Bank of Cleveland president said the final decision will depend on how the US economy evolves in the coming months.
At this point, I suspect we may well need to raise the Fed Fund rate once more this year, and then hold it there for some time as we accumulate more information on economic developments and assess the effects of the tightening at financial conditions that has already occurred.
Mester's comments come as several of the central Bank's policymakers have weighed in with their views on the future rate path. Federal Reserve Vice Chair for Supervision Michael Barr says the US Central Bank is likely at or very near a level that's sufficiently restrictive that echoes charge their own palace, message that officials can proceed carefully on whether to hike again.
This weekend's temporary US government funding bill may have averted a shutdown, but it also left out something many wanted, six billion dollars for Ukraine. Bloomberg understands President Biden is now planning to call allies to discuss the ongoing war. At Baxter Reports.
The President says he wants to assure the Allies that the US support will continue. You cannot, under any circumstances allow America's support for Ukraine to be interrupted.
Too many lives of stake, too many children, too many people.
A call with Allies could happen as early as today, and the White House says it will announce an additional aid package for Ukraine soon. I'm at Baxter Bloomberg Radio.
The Republican Matt Gates has officially moved to out the Speaker of the US House, Kevin McCarry. The Florida congressman cited McCarthy's weekend embrace of a bipartisan deal to avert a government shutdown as provocation for the mutiny. The move tees up a high stakes vote which could dramatically shift the balance of power in Washington. McCarthy must call a vote within two legislative days, and Gates would only need the support of a handful of ultra conservative colleagues to
overthrow McCarthy if Democrats support them. The JP Morgan CEO Jamie Diamond says artificial intelligence is already being used by thousands of employees at his bank. In an exclusive interview with Bloomberg, Diamond thinks that AI is likely to make dramatic improvements in workers' quality of life, even if it eliminates some jobs.
Technologies always replace jobs. Your children will live to one hundred and not have cancer because of technology, and literally they'll probably be working three and a half days a week. So technology has done unbelievable things from mankind. But you know, planes crash, pharmacies getting misused. There are negatives. This one one of the biggest negative of my view is AI being used by bad people to do bad things. You know the fact, and I do think you know, eventually
have legal guardrails around. It's kind of hard to do because it's new, but it will add a huge value.
Diamond has previously said the technology can be used to help the bank develop new products and improve productivity. And if you want to hear that interview with the JP Morgan CEO, you can find it on the Bloomberg Talks podcast, all our most important conversations in one place. Jamie Diamond's comments around a three and a half day work week getting a lot of attention, but we're thinking about a very different three and a half days and that's the
Conservative Party conference. We heard yesterday from the Chancellor there's no money for tax cuts despite clamoring for the likes of former Prime Minister Liz Truss. But the future of the HS two rail project taking up a lot of attention at the conference. That reports the Prime Minister could scrap the leg from Birmingham to Manchester as soon as today. Let's talk about what's in store at the conference today. Carolyn Hepger is in Manchester and she joins us now
from the conference. Good morning to you, Caroline. So still no formal announcement over HS two. But are those the three biggest letters, well, two letters in a number that everyone's talking about in Manchester.
It certainly is one of them. Look is worse than scrapping the line to Manchester for high speed rail? It's indecision. Michie Sunac has refused to say whether to build the line to Manchester where we are at conference or not. Perhaps he's waiting for his big speech, but that's not until tomorrow. So that leaves the rumor mill and pretty much every conversation with ministers asking for an answer. It worries Conservatives about sunak's ability to make tough decisions toys
remember some twenty points behind the Labor polls. It has hugely angered Northern mayors, including the Conservative leader Andy Street that you heard just earlier you'll be turning your back on an opportunity to level up once in a generation. It'll damage the UK's international reputation his view. The Chancellor in his big speech yesterday, though, did talk about the
reasoning behind this. You know, why does it cost ten times more to build rail infrastructure in the UK than it does in France, the Labor mayor of Manchester telling us here on Bloomberg Radio yesterday, that's a question for the government. He said that the Conservative Party can't avoid responsibility for the cost overrun. So HS two really does definitely threaten to derail the message for long term decision
making for a brighter future. That's the slogan here at the Conservative Party conference.
Yeah, that moved to insert long term into that slogan. Very interesting as well as we think about the long road to the next election as well. Lots of talk too at the conference Caroline yesterday about tax cuts. Did the Chancellor manage to put speculation or hope that there could be tax cuts on the way to bed on his speech.
Stephen, the short answer is no. He talked about wanting a lot of tax cuts, but his speech yesterday was noted for its sobriety and the length which was pretty short. The main thing that he talked about is the IFS Institute for Fiscal Studies, a influential think tank in the UK. He said that the IFS said last week we are moving definitively to a higher tax economy. They are wrong.
That was the line that got a big reaction to the fairly sedate crowd for the Chancellor yesterday at the UK, having said that is already seeing the highest tax levels in around sixty years. Also in that speech, the Chancellor talked about this being an elemental choice between sound money the Conservatives or running out of money the Labor Party. We have to be honest about taxes is what the
Chancellor was saying. So his main points were quite small, really cutting increases in the civil service leading to savings of a billion pounds, increasing productivity in the UK, which really is a huge long term issue that takes investment that doesn't seem available, and performing the welfare state to get more people back to work. But again critics would say that ignores part of the problem, which is an
increasingly unwell workforce. So those were the sort of key lines that came out of the Chances of speech yesterday talked about taking on the declinists. But Liz Truss's speech, in contrast, got a packed crowd queuing around the block nearly a year after her disaster's mini budget. She gave no TV or radio interviews, no, just that big speech, but she talked about cutting corporation tax, building half a million new homes, and resuming fracking in order to cut
energy bills. She talked about we want to stop taxing things and banning things. I mean, she got a really rapturous welcome, even though her policies are more to the right of the Sunac Hunt government right now, and you know, the government's line, one former minister for example, saying to us it is what it is. It is a side show, literally that. So that's the sort of a view against Liz trust But you know she does now have quite a number of MP's backing her growth plan.
Yeah, that'd be fascinating to watch the dynamics playing out among Conservative Party big wigs. I suppose our supercorded a phrase Carlin Hepger at the Conservative Party conference at Manchester. Thank you very much. I wanted to bring you some more of our interview at the JP Morgan CEO Jamie Diamond. Next you talked about the state of the US economy, why he thinks rates could go to seven percent, but his comments and artificial intelligence and its impact on the
workforce having an impact too. Been speaking to Emily Chang.
Technologies always replaced jobs.
Your children will live to one hundred and not have cancer because of technology, and literally they'll probably be working three.
And a half days a week.
So technology has done unbelievable things from mankind. But you know, planes crash, pharmacies get misused. There are negatives. This is one of the biggest negative of my view, is AI being used by bad people to do bad things. Think of cyber You know, Henry Kischenerho talks about warfare, but you know the fact.
And I do think you know, eventually have legal guard with around.
It's kind of hard to do because it's new, but it will add a huge value.
And you know, for JP Morgan, if it replaces.
Jobs, and we hope to redeploy people like at First Republic. You know, we've offered jobs to like ninety percent of the people they accepted.
But we also you know, we've told them as we some of those.
Jobs are transitory, but we hire thirty thousand people a year, so we expect to be able to get them a job somewhere local and a different brandch or a different function if we can do that. So and we'll be doing that with any dislocation that takes place as a result.
AI, I want the Jamie Dimon forecast on the broader economy. First it was hurricanes and then it was storm clouds in your annual letter what's the weather now receipt?
You guys have consistently got this wrong. Okay, I'm not giving a forecast. I'm trying to I blame myself, Okay. The US has been very strong for a while, no surprise. Five trillion dollars was pump pumped in fiscally, you know, three trillion or four trillion of QI, and now that's being reversed. The consumer is still in good shape. There's still spending money. There's still have more money than pre COVID. It's spending down home prize has gone for fifteen years,
ASCID prizes are gone for fifteen years. They're in pretty good shape. And then the people are talking about deterioration. Credit is not to tearing credit card all time highs, not inflation adjusted or GDP adjusted or income adjusted, And yeah it's deterrians. We think there's normalizing and corporate credit has been quite good. So you have a strong economy. That's the here now, and all the data is a
little distorted because of COVID and things like that. When you ask the question about a forecast, and I don't make forecasts, I look out there and say, what are the range of.
Outcomes from hurricane to storm clouds?
No, I put several storm clouds, I said. When I said hurricane, I was correcting. Soon said the storm clouds dissipate. I said, no, that one may be a hurricane. We don't know what it is. Here's what they are. There're two of them that are different than other things. So we always have you know, I don't worry about the weather, and I honestly, I spend a lot of time guessing about the economy, and that to me is.
The sun her rainier. I don't worry about that.
We run the company to serve clients through thick and thin. That's what we do, to serve governments to you know, satisfy our regulators.
And that that's all weather.
But there are two things which are extraordinary today which may have different outcomes. And think of them as storm clouds. We don't know if they're going to hit, when they're going to hit, what they're going to do, Okay, so I'm not predicting that, but I'll tell you what I
worry about. So one is the fiscal money being spent is so big, largest in peacetime ever in America and kind of around the world, with already very high deficits and QT we've never had, so I know some people think QT will be uneventful.
I'm not so sure.
At a minimum, I expect volatile markets and then you've got and then all the long term fiscal things are kind of inflationary. You know, oil prices, certain commodity prices, the green economy, you know, the restruction of trade, you name it. I see it's add inflation, not subtracting inflation. So I don't think inflationary will be that, you know, keep on going down. It may not, and therefore rates may go higher. But the biggest dorm claus geopolitical, it's Ukraine,
the humanitarian crisis. You know, it's a war not far from here. It's along six hundred miles, five hundred thousand people killed. It's nuclear blackmail. It's going to affect old global relationships in America and China trade alliances. We don't know how it's going to start either. So I just put those two things. Is I keep a close eye on. And then how it affects the economy is different. And what I've been talking about that is I just.
Tell you be prepared for higher rates and slower te percent.
Are we really going there?
And I don't know.
When I said five percent, they said are we going there? Yes, it's possible, you know, so I when I talk to my board, I say, yeah, can.
It go to seven percent?
The answers yes, are the factors that would drive it, you know, higher than you know where it is today? You know four A four six or four semnob aout ten year bond. Now, yes, is supply and demand could push I yes, I'm just saying be prepared for it. And then the worst case is stacklation, you know, high race because you have a booming economy and there's a lot of competition for capital.
It's not the same thing as dagflation.
What are what are the ripple effects of the stress of that seven percent rates on business, on your growth?
Well, I'm not worried about japing Morgan shaping world. You know, we are prepared. We can handle seven percent. We can handle two percent again, Yeah, we can.
Handle that too.
I mean that's I mean, that's risk management is not the same thing as guests in the future, when risk managers look at the range of potential outcomes and being able to say yourself, we can handle this, we can handle this.
Weever we expect it, and we can handle it in between.
You know, if you bet your company and you know one outcome, So I think all companies do that. You know, every company's got different exposures. You know, input prices and output prices. You know, some interst rates don't matter it. Some it's the price of mozzarella. So what's your business? Your business is different. So, but I think we don't know the effect of these things in the economy. So they may we may have a soft landing, we may
have a mild recession, may have a harder recession. Obviously there are potential bid outcomes. You know, the worst would be economically is staflation, where you have low growth, high interest rates, and obviously if that happens, you're going to see, you know, a lot of people struggling.
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