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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg
Terminal and the Bloomberg Business app. Turn into the Federal Reserve, the list of candidates to replace Chairman j Powell reportedly down to the final five, the list emerging following extensive interviews with the Treasury Secretary Scott Besson on that list, Fed Governor Chris Waller, who joins us now Governor Wanta.
Good morning, Well, Goodmorian, Joan and goom Morrian, Henry.
Welcome back, Sarah. It's good to see you. How's the process going. Let's start down and then we can get into all the other good stuff. How's the intertry process going.
It's going well, that's fary psych tell that secretary has a very systematic way of going down on the list and doing the interviews. As I said the other week, I had a great interview with Secretary Vest. Talked a lot about economics, said policy, the FED balance sheet, just general stuff in the economy and financial markets. It went very quick. It was about an hour and forty five minutes and next I knew it was over. So it was a great conversation. Course.
I loved those kind of conversations. I can do that all day long.
The Church secretor I've spoken about in the past, he wants almost a visionary, someone who looks forward, like an Alan Greenspan type, open minded. Do you get a sense of what he means by that.
I think it's the idea of if you're looking at the data and it's always looking back at the data, you're kind of the data is always kind of old, and you have to think forward, like where are you going with this stuff. I've managed to do that a couple of times with thinking about this beverage curve. Arge argument back in May of twenty two that we could have the soft landing earlier this summer with the weakness in the labor market, which turned out to be true.
People doubted it at the time I set up. So I think it's I don't want to, you know, brag, but you know it's that kind of being able to look at the data and see forward where things are going, and I think that's a critical thing he's looking for.
You were certainly vindicated.
The President was obviously excited about the fact that the FED finally.
Was cutting interest rates.
Have you spoken to him at all?
No, I have not. I have not. Is that on the schedule? I don't know. That's up the secretary vessent.
We can find that saying highfully, what's to the moment of saff the Treasury Secretary hopefully lights on in a month. I want to talk about the bit to the tice place at the end of this month as well. You had a pretty clear governments to the loss. May tink you delivered a speech and not believe the title was let's get on with it. You amphacacy for the same thing of this may tink.
Yeah, I think it's it's the right thing to do.
Back then, there was a issue whether you go fifty or twenty five, and I thought, I argued, we could do twenty five and see how the data comes in. Of course, we're not getting much data, and then we can think about the next twenty five So in the last six weeks, I don't think a lot has changed. We're not getting the public data, but all the private sector data that we're getting Beige Book yesterday, everything we're getting is telling roughly the same story.
The labor market's weak.
Growth seems to be on the stronger side, which is a bit of a puzzle right now, because you can't have a really strong growing economy and.
Negative job growth.
There's zero job growth, and you know, people talk about productivity, but AI hasn't had that effect yet on the labor market or productivity. It will down the road, I think, but not right away. So I don't think that's the story that's driving it. So in that case, one of these things has.
To move right.
Either GDP numbers start coming back down or the labor market rebounds. You just can't have growing economy and you know, very weak labor market.
They just don't go together.
In the meantime, do you just continue to reduce interest rights in meeting by meeting as you wait to see what's going on?
What's your old approach?
You think about.
That, that's exactly what I've been arguing is since we don't know which way this is going to break, If the labor market rebounds, there's.
Less of pressure for kind of rates.
If the growth comes back down, there's more pressure for cutting rates.
You don't want to make a.
Mistake, So the way to avoid that is to go, you know, cautiously or carefully and do twenty five wait, see what happens, and then you can get a better idea of what to do. But if you've already started the process, you're providing whatever's initial support for the labor market that you feel is necessary.
So we've had this helviie step down in payrolls growth, it's pretty clear it feels like that alone, though, might be an outline compared to everything else that's going on in the economy. You yourself just acknowledge that, what do you think is behind that? And can that persist?
You know?
That's the thing.
When I've talked to private sector CEOs about hiring, I mean, we typically get a couple of things. Maybe early part of the summer, there was a lot of uncertaint about tariffs. We're just holding off on doing anything. One of the things I heard is firms we're going to have to pay the tariffs. One easy way to do that is just not higher take all the labor savings to pay off whatever the tariffs were. So that was one thing.
Then you had this AI story, which was people like, we don't know if we're going to need to hire, but we're going to wait and find out we're going to We're not going to go out and hire a lot of people right away.
So I think the.
Tariff uncertainty, paying for tariffs, trying to sort out what AI really is going to do kind of put firms on their back foot. Now that's what I mean. Either they decide the AI is not going to be in the near term the big job replacement that they thought, and they're going to have to start hiring, and it comes back, teriff uncertainty goes down. All of those things
could lead to a rebound. On the other hand, you know, if GDP starts softening, it's not as strong as we think that somehow the data is a kind of a mirage right now. Then the labor market is telling you things. They're just not as good as you think. Now that the financial markets are the big puzzle, I mean, I'm not the only one how much of this is just a big boom and AI and everything else is marginal.
I'd kind of been arguing there's a big difference between the financial conditions for corporate America and financial conditions for main street America.
If you're main.
Street America, you're looking at mortgages over six percent, very expensive housing, car loans over seven percent, credit card.
Interest rates in the twenties.
These are not lose financial conditions for American households. So when we look at the financial market, you're seeing a lot of When people talk about credit spreads and all that, I don't think most American households care what the credit spread between corporates and treasuries are. It doesn't really need unless it shows up in mortgages. So I think there's this. It's one of the things that I find kind of puzzling right now is there's just always these dichotomies between things.
If you look at AI, if you take out anything data center AI related business fix invexcement is turning down, it's not widespread.
All this investment is not widespread across there's a.
Real reallocation from kind of everything else in the AI. So there's this bifurcation in so many ways that make kind of reading the economy tough right now.
How much influence do you have on one versus the other? Financial conditions on Main straight versus woll straight, Moos streets, immediate Moostreate's gone it's self to the risis. Can you really influence financial conditions on Maine straight?
Well, that's kind of what we hope.
If you think about cutting rates, which we're doing and I think will continue doing, that does have a pass through to the tenure, and the tenures often the anchor for pricing mortgages. So the tenures down to like four percent, it's coming down from four and a half.
That's about a half or percent off.
If it were to continue drifting below four, you'll start seeing some downward pressure for certainly mortgages. Auto loans are kind of a different thing. You're trying to figure out how to deal with tariffs on the auto industry. One thing I've heard is that got rid of a lot of cheap enancing, that the use is subsidized for consumers. That's going to raise the cost of financing. All these
things are more tightening for a mainstream RKT. So hopefully these things as we go on to the rest of the years, start loosening.
Up some You've been watching the program, so you know some of the things that people say on the show. I'll just go out for it briefly. Ultimately, equities at all time highs go to rip sixty percent this year.
You mentioned credit spreads.
It credit spreads and multidecade tights high yeld spreads near the tie of the year. And there's a theory out that that the Federserve and some officials on the FET perhaps you included, have anchored that view of this economy around the step down in payrolls growth and it's going to be loaded into reducing interest rates when maybe they shouldn't, and all that's going to do is fuel financial market access.
Just to give you the response, the chance to respond to that, how would you respond to that, this idea that you run the risk of being loaded into reducing rates when maybe you shouldn't.
Well, the mandate I have from Congress's maximum employment stale with prices.
It's not financial markets.
So I look at that's when I'm looking at the labor market.
The labor market is weak.
If all these loose financial conditions are going to cause a boom and excess in the US. We should start seeing some of that in the labor market. We're not seeing it. So a lot of this is I think just this is where the AI thing is. There's so much speculation on AI that it's kind of again, it's dichotomy.
It's kind of overshadowing everything else that's going on. And like I said, my job is unemployment in price stability, and I think inflation will be okay, it's on up, but that's some of the terrif effects we'll come back off. But my job is about the labor market and it's not good. So if you want me to go to Congress and say, hey, tell me to start worrying about financial conditions and that's how I should set policy, let me know.
But until they do that, I'm going to keep focusing.
Well, let's go to the Jill mandate and let's stay with AI and the potential that introduces some additional tension into the Dull mandate that it holds back employment but also boost prices. And Marie was talking about what it could do to energy, all the spending resource intensive. We've got a guest on the program talking about the same thing. Would you see that as a potential that it introduces some additional risk into the dual mandate?
Well, in terms of inflation.
I mean one of the things I was asked this question by some people in the AI sector. It's like, isn't this inflationary? All this spending we're doing. I said, yeah, but you're taking it away from other sectors, So those other sectors are seeing less demand. So this is a Now you a lot of this is a sexual reallocation. And if that's the case, then the increase in AI is going to be offset by other things.
Now, true energy.
May have a a bump up, but then you just look at core because you kind of knock out the energy part of it. And that's really what you want to do. That's why we kind of knock off energy. It's just so volatile. It gives you the wrong signals, and we look forward. Excuse me, well, we're just looking forward.
What to hear from you is you can look through TARIF induced inflation, you can look at AI induced inflation. Is there any inflation out there right now that you see that you are concerned about, because we're potentially going to get a pretty hot CPI print at the end of this month.
Well, we'll see when we take the data at the board and we kind of we have various ways.
We try to tease out the tariff effects.
Our estimate is inflation's running above two and a half percent, and we're not seeing anything that's going to explore. Like I said, all this attention on AI is and ignoring the fact that other stuff is softening. So demand is up in one sector, it's going down another. Those things often not completely but offset. So that's why I'm not
really worried about the AI stuff. And if it really did cause some big problems and energy, like I said, just if you're thinking about future inflation, just look at core.
Don't bother with headline end of the month.
Though you might not get the labor market report. How difficult is it? And can you even provide outlook meeting by meeting in this environment?
Well, I have this joke that for those who think we're too data dependent, you're going to find out what non data dependent policy.
I'm excited, but that's the point. We do have lots of data.
It's like I said, we've got lots of labor market indicators that tell us the same story.
It's just it's not good.
We don't get a lot of other things as own labor market's great. So I think that data from all the sources is telling you the same story the labor market's week. We're getting this data, conflicting data about GDP. Like I said, the basebook came out, it was not like everything's rosy and booming. There could be still in the GDP numbers. Is still a lot of inventory pull forward that because the China tarifs weren't finalized, so get them,
you know, get stuff in now. So it may be that we see, you know, GDP start to pull off.
At the end of the year.
I think about the tax bill in that there was a lot of incentives for business six investment. That's great that that applies equally to AI and non AI. So at the end of the day, you're still deciding whether you want to go into AI investment or non AI investment. And the AI is winning. So I don't know how much of it, how big of a help it's going to be on the non AI kind of sectors.
In the economy.
You've coach you SAFA Techno optimists enjoyed the speech, by the way, well thanks that I thank you for that. I just wanted to finish on this before you run. This feels different to last year when you came out last year and you made a big step down on interest rates and comep one hundred basis points off the back of the employment scare through the summer. This feels
slightly different in your approach. How would you describe the differences between now and the approach of you and what you're advocating for on the Federal Reserve to what the committee did last year?
Well, last year we didn't have all the tariff uncertainty, we didn't have this AI thing. Unemployment was not even remotely talked about. So I'd say those are the two big differences. Like I said, I think the tariff stuff will settle out and MB okay, the AI thing is the concern I have with the AI if it does, and I think it will materialize. Monetary policy is designed to deal with cyclical movements in the labor market. It kind of ups and downs and come with a business cycle.
But this feels like a structural change. All right, Labor demand just drops and doesn't come back. That's something I can do anything about. The FED can kind of adjust policy to deal with structural changes in the economy. So it's going to be a challenge to say as anything we're seeing the labor market from AI coming down the road, is that something the FED can do anything about or
should do anything about. Or are we just seeing kind of a typical cyclical mover where there's a hot sector and then it cools off later and everything's not quite as futuristic as you think it is. So that's I think for me the biggest challenge looking forward is is this a structural change or is this just a cyclical change?
Is the prudent thing to do as a risk manager just to assume it might be cyclical and just in case.
Yeah, I mean, if you cut and it ends up being structural, you cut.
It's not going to undo whatever you did.
But if it is cyclical, then you can help rebound and get the comedy back on the steve or labor market back on.
A se stay with us Mulblindex. Savana's coming up off to.
This memory was talking about China in the US, and there's no one better to talk to than Michael Roberts, CEO of HSBC Bank and CEO of the Corporate and institutional bank at the region. I'm just curious, given the fact that HSBC and WELCOME is such a central bank in both trade as well as in both China and in the West, how significant do you see this latest eruption of trade tensions between the US and China.
Does this feel different?
Yeah? No, First of all, thank you for having me today.
Look, I think the world has gotten used to a lot of these tariff changes, although certainly this newest round is yet another bit of unpredictability. I think companies have been now looking for different ways to manage their supply chains. We have a survey that we've did right after Liberation Day which I think still hold trues today. We surveyed five thousand clients, so big survey, and they all said one, all of these tariffs are going to cause a lot of issues. Prices will go up to Most of now
are looking at their supply chains. In the word, I think supply chain has now come to be one of the probably the most discussed terms in e C suite today. And thirdly, they're going to change and they may even
change business models. So this next round, this current round, I think just tells you that they're going to have to significantly change what that is because one hundred percent tariffs, you can't absorb one hundred percent tariffs, So that means there'll be a greater acceleration to where.
Those new supply chains will be.
However, it is a bit of a whack a mole because you have to constantly look at where the next tariffs will come from, and that's been a challenge to many companies. They really have to figure out what is the least vulnerable place they can be or the most tariff proof place they can be, and how do they then export into the US or frankly anywhere to make sure that they can do so as effectively as possible.
How much of the extra costs from tariff's been realized, not just teriffs but also the rejiggering of supply chains.
Yeah, so rule of thumb, when I've talked to most people, probably seventy eighty percent is born by the producer versus the importer. The last twenty percent analysis starting to seep into en buyer the customer. I think most are saying, we can't continue to absorb that much additional costs as the importer or the distributor. Therefore it will start shifting more and more to the end buyer, the client or
the customer. So that there's been a I think as strong effort, however, to try to absorb as much as possible. So I talked to a retailer, high fashion retailer saying, me and distributor or the producer out of Asia, and me as the distributor, are absorbing as much as we possibly can. We understand we could do that, but it will come to an ends.
John and Amory, we're talking to Fed Governor Chris Waller and about the balance between inflation and the labor market, and there's this feeling that any kind of inflation is going to be short lived and the effect on the labor market could potentially be pernicious. Are you seeing that companies is that of raising prices, laying off workers, or trying to revert to artificial intelligence to bridge the gaps.
Not yet.
However, there is a lot of cost pressures. I think there's a delay a lot of investments. I mean that's the flip side of that, because I do think people want predictability. The companies need to understand where they're going to put down a lot of capital, that that capital is going to produce good returns because of more predictability. I've seen slowing of hiring, but not real firing today, and so that's kind of again the flip side of
that coin. But really it's the capital and the investments that you're starting to see slow down quite a lot.
Meanwhile, we've heard a lot here at the meetings in Washington, d C. At a number of themes AI, which we'll get to any second, but also this question around credit froth an AI related bubble. How much are you getting concerned akin to what JP Morgan's been talking about of a real turn in the credit cycle or some sort of later innings that give you pause and make you more cautious.
Yeah, look, I do think this is not the first instance of what is inventory financing fraud, which is essentially selling you know, or using the same bit of inventory to finance multiple times. We've seen that in Europe a couple of times as well in the last say nine months.
So I am more.
Concerned and something that we're very focused on. So in fact, we're using technology we developed in our trade business and using it throughout all of our lending platforms now to try to go through and be very specific that everything we finance is good collateral, it doesn't have multiple leans on top of it, which is really what happened to
First Brands. It's tough to do, and I think, you know, the fraudstats are getting better at it, so we're going to have to respond to being much better on due diligence. You know, we were not involved obviously directly in First Brands, so don't know how much due diligence was done. But I think these type of finance seeing arrangements are going to require much more due diligence, much greater technology, much more specific understanding exactly what you're financing.
The other aspect has been just sort of how much AI has actually boosted productivity, boosted profitability versus been a real call center for the most part. Ken Griffin came out of Citadel saying that he's not seeing evidence that AI programs can really make an edge in financial markets. I know that HSBC has been big in quantum computing and has this test.
Are you seeing real gains?
Are you actually deploying quantitative strategies from quantitative computing on you on your trading floors?
Yeah? So just for those who don't know.
We had a partnership still do with IBM. We develop quantum computing really for financial markets, focusing on the bond market, and we use both quantum computing and more traditional computing. Brought them together, changed the way we look at data. There's a scene called representation data that we actually flipped into a more of a quantum computing type of mode. That led to a third twenty four percent improvement in
our ability to predict a trade. So if you were going to make a trade, we get to understand that trade thirty four percent better. To see the matching between buyer and seller is really what it comes down to. So that was very effective. It's an initial study. We did how we we're tested on multiple contmcuting machines. We did all the statistical analysis, so we really do think there's something there. It can be used for any traded asset, so any asset class. I think the power that that
brings is going to give an edge. I don't know how it wouldn't give an edge, but I think it'll be Once we roll it out and others roll it out, they'll be quick adoption by I think the industry. I mean it's the same industry that tries to reduce latency to its smallest possible amount. So I do think technology does bring a substantial edge.
Do you think it's going to replace traders that?
I don't know.
I mean, I think they always be humans involved, But I think it will help traders quite a lot. And I think it'll change really the way traders think about it because when you have that much compute.
Power and you could really use I think.
Today, you know, we use a lot ai as you said, through alg rhythmic trading. This will just be one more substantial boost to the power of al rhythmic trading that we see today.
So will it be less traders?
Don't know?
But are they going to have powerful machines? Definitely.
So the other.
Theme here, and this is something that comes up in pretty much every conversation, is the debasement of the dollar and this question of how much the dollar is losing its heft as a reserve currency internationally. Do you see any signs that people truly are moving away from the green back?
Yeah, that's a great question. So I have to be traveling to Asia right after Liberation Day, and I would say that was probably the number one conversation that I was having by very big, very sophisticated large holders of dollars, and they were quite focused on this idea of dedollarization or debasement of the dollars of reserve currency. And the mere fact that they're talking about it and the terms they were tells you something is different.
Now.
If you look at where the dollar is today, trade flows reserve the primary currency of invoicing for most commercial flows, the markets flows, it's all well, nor than fifty percent, it's you know, sixty seventy eighty percent in all those various metrics. It will take a long time to find another reserve currency. And the other biggest question is if you're going to go away from.
Dollars, what are you going to do?
And you know what will be that reserve currency that replaces it. There is no other alternative today. And so that's the twin issues that you have. The conundrum, maybe go away from dollars, but what are we going to go to instead.
To wrap it all up, there is this feeling that the center of finance has shifted, and it's not so clearly in the United States, and something that you've been focusing a lot, how do you see the sort of tentacles of finance in terms of where they are flowing from transforming really over the past couple of years.
Yeah, No, I think there's significant transformation going on. And if you think there was a unipolar world with the US right in the middle of it, still is and you know, the US capital market is the most liquid of the world, still the dominant place to trade. However, you need to look at where trade and commercial flows are going, where financial flows are going. I would look
between the Middle East and Asia as an example. Substantial increase of flows between those two regions, and they're not flows that are necessarily coming from the West just being transhipped through those reasons. They're actually wealth and that is being rechanneled in that region.
Issel.
I think you'll see that more and more. I think you'll see Asia Middle East coming together more and more, and I think you'll have a much more balanced equation. I don't think there'll be as a dominant source of financial flows that you've seen before. And you know, great for US because we have to be very strong in those two regions. But I do think people need to understand that there's a significant change going on and those flows will not just go through New York as they used to in past.
Stay with us. More Bloomberg Surveillance coming up after this.
Yeah, I would love to welcome in Scott Kirby, the CEO of United Airlines, And Scott, it's really tremendous to see not only what you did, but also the fact that you see significant upside to the fourth quarter. And I want to just start there. Where do you see the acceleration in demand?
You know, Actually you look across the full year.
The first three quarters were really good for United in a lot of macro volatility that happened for the aviation industry. That demonstrates the resilient of our revenue diverse, brand loyal business model. But you look to the fourth quarter, it's even more exciting because as the economy started to get back to a solid footing, at least for aviation, demonstrates a lot of upside. We think we're going to be able to grow earnings for the full year even in this environment.
So it really is creating.
Value for all of our customers all the way from basic economy to winning much higher market share in the brand loyal customers really is a great resilient strategy when times are difficult, but a lot of upside as the economy recovers.
Here in four Q, I.
Guess I want to drill into the economy because Scott, earlier in the year it had been the economy section that.
Had struggled the most.
I'm just wondering how much it's picking up, whether you've had to discount tickets to bring people in to compete, or whether consumers are willing to absorb higher prices and take their trips.
Yeah.
Well, as we've talked about before, least so the airline industries are a pretty good real time indicator of the economy. And you know, we saw for much of the first half of the year economic stress and ticket prices were lower as a result of that. But as we got into the third quarter, bookings, at least for future travel, the economy started to pick up.
Bookings started to pick up, and.
As we finished the quarter, you know, we've set records each of the last several weeks on most corporate revenue that we've ever booked in a single week, and a number of records, particularly in business travel, really kind of strong across the board, though internationals come back stronger.
The period has extended premium.
Is obviously stronger than main cabin but really we've seen improvement, you know, as we've moved through the third quarter, kind of across the board on revenue streams, with the biggest strength in the corporate segment.
And that's actually something that we see across the board, particularly because they're all these deals, so people have to actually get on a plane and go see some of their clients. I am wondering, are you seeing international travelers tourists come back to the United States.
I thought that was kind of.
A soft spot and a sort of a tell in terms of the international reputation of the country.
Well, our business is about eighty percent US point of sale. But we have and we saw a drop at international traffic earlier in the year. It's not quite back to last year's levels, but it has recovered and it's close to last year's level. So we did see a dip, but even that has come back and we think that's on the trend to getting back to normal pretty soon.
Are you planning to keep capacity pretty much the same? Are you expanding to Are you planning to expand or cut back? I know that it was constrained earlier this year just because of demand. But as demand picks up, are you going to bring more planes on deck?
Well, we've been growing, you know, in absolute growth, actually faster I think than in the airline in the world has ever grown for several years in a row.
And that's worked really.
Well for you, NINED and that's been successful. So we really haven't much changed our capacity. We tweak it here and there. The biggest change we're going to make for next year, I think is actually to reshape the seasonality of the year.
You know. One of the things that's happened that's good.
For our business is this third quarter peak has extended into the fourth quarter, and it's made the fourth quarter actually a better quarter from a margin perspective than.
The third quarter.
And what we think is as that particularly international demand has extended into the fourth quarter, there's an opportunity for us to actually fly less in the peak in the third quarter, which would be good for our RASM. But it turns out it's going to actually be good for our cost structure too, because we we have to build staffing and infrastructure everything up to that peak for six
weeks of the peak summer. And so next year we're going to actually try to reshape our schedule some to lower the peak and let the demand spread across more of the year.
I know earlier this year when we were talking and you said that you do expect to raise prices by single digits just to compensate for higher costs. You see that on track the same type of price increases and our consumers okay with it? Are they absorbing it?
You know?
This year prices have come down, as we talked about, just you know, as there was echo macro volatility, at least for aviation. I do expect them to normalize next year, and I think just over time that you should expect to see airfares grow consistent with inflation is likely what's going to happen over time.
How much do you see staff wage increases?
Also playing into this the idea.
That a lot of the people who work for United are also saying, Okay, well things are going up, we want to pay increase.
Yeah.
A lot of people are the best in the world, and they deserve industry leading contract. Every time we sign a new contract with one of our union groups, they expect and deserve and will be paid at the top of the industry. So that's built into our forecast that's built into everything that we're doing. One of the great things that we're doing though at United is I think we're the best in the world at managing our real core costs and being more efficient at the airline. We've
invested heavily in technology. It helps us run the airline better. But you look at the third quarter. You know the number of airlines that have talked about missing their cost guidance because of storms, and there were storms in the quarter.
But we've invested so heavily in our recovery tools that we had best in the industry cost performance, and we're driving our costs lower, not by taking things away from the customer, but by actually investing in technology that lets us run a better operation for customers and is lower costs at the same time, and that also helps fund
investments for the customer. We're spending over a billion dollars a year and incremental investments for the customer, but also importantly investments in our people and having them have the best pay and the best contracts in the world.
Scott, I love saying that you're my favorite economists to speak to you because you do have this real time view of the economy and right now what you're saying is kind of flying in the face the weakness and some of the worries that we're hearing, whether it's from the government shutdown is going to cause disruptions, or whether it's the unemployment picture that people are increasingly worried about.
How do you square those two things, This reacceleration that you're talking about with the weakness that policymakers seem to be so worried about.
Well, uncertainty really is I think what drives the economy in one direction or another, And there was a lot of uncertainty to start the year.
As we kind of got into the third.
Quarter and some of the macro issues, the reconciliation bill passed and geopolitical situation improved, Tariffs settled into having some confidence what they were going to be.
We saw that improved.
Now we do now have new issues that things pop up all the time. What's happening with the shutdown could become an issue.
So far it hasn't been.
You know, first, the FA is doing I think a great job of running the system.
We have our lowest cancelation rate in the last.
Decade, our second best on time performance controllers are professionals because it's not news about it. But the controllers are professionals, view their job as safety view their job is taking care of the public. And kudos to them. They're almost all of them are showing up to work and doing their job. And has it the first couple of weeks of October. Has it really affected bookings? I think if this goes on for too long, certainly the risks escalate
in the economies that goes on. I think the economy is better than most people think, but it's still tenuous. It's still a little balanced on a knife edge, and we shouldn't have, you know, unforre share.
So let's get the shutdown settled.
Stay with us more Bloomberg Surveillance coming up after this today and asking a one point six billion dollar loone to a subsidiary of American Electric Power. The goal is to strength and grid reliability and of course lower energy costs across the Midwest. The US Energy Secretary Chris Right joined us now from miss the Right. Miss the Secretary, welcome back to the program, sir. Let's just start with giving you some time to explain what brought us to this moment and what the broader strategy.
Is, Yeah, the broader strategy is to use funds to better the American experience, lower cost rate payers, lower taxpayer expenditures. I mean, in short, President Trump got elected to get rid of the nonsense. We're not about climate politics now, we're about energy for the American people. How can we lower their cost of energy? How can we enable AI and manufacturing to reshore in our country? And this program,
this loan is a perfect example of that. This is to reconductor five thousand miles of transmission lines, existing right aways, existing towers, just put better conductors up so you can get more juice through the same corridors you already had. This is the kind of things that helps American people and American businesses.
Secretary, right, your department is saying that and projecting that data centers, commercial customers are for the first time ever going to use more electricity next year than household Is the federal government going to have to step in and help con American people consumers foot the bill with.
The American government's doing everything we can to enable the growth of electricity production in this country. You know, the last administration was about energy subtraction, trying to get away things, get rid of things they didn't like and subsidize things that are unreliable, that use a lot of land and drive up electricity prices. So, yeah, we're trying to reverse
a tidal wave. That's a challenge, but we're going to do it, and ultimately AI is not going to make electricity more scarce and more expensive in the country.
It's going to make electricity.
More abundant, more reliable, and ultimately more affordable, so we can walk and chew gum at the same time. It's a challenge, but we're going to get it done well.
The administration, though, has purge some clean energy projects. Do you want to hoole of energy approach or just specific types.
We care about?
Affordable, reliable and secure energy. I get asked all the time, aren't you all of the above? No, I'm not all of the above, and I've never claimed to be. If you put it's not just more electrons on the grid to collect more wind power in the middle of the night in Iowa. That doesn't increase the capacity of our grid. That doesn't drive down anyone's prices. It doesn't allow us to reshore manufacturing our data centers here. The electricity grid's
very different than your gas tank. What matters is having reliable power to meet peak demand times. If you're not there at peak demand time, you don't add any value to the grid, You just add expense.
Well, when it comes to reliability. Right now, the US government is shut down. Are you speaking directly with senators about when the US government could reopen? How is it affecting your department specifically?
Oh, that is a great question, and yes I am speaking to US senators on both sides of the aisle. The shutdown is definitely destructive. Everything we're trying to do is lower American energy costs and enable American businesses to build more manufacturing facilities in our country. Losing workers, having uncertainty, having funds frozen or uncertain that's not helpful. Let me get if I can give one example. We are modernizing our nuclear weapons stockpile at the Department of Energy. That's
done by about one hundred thousand contractors. They're not government employees, they're contractors, so they're not going to get back pay. We've been paying them till date to date, but starting tomorrow Monday at the latest, we're not going to be able to pay those workers. If that continues, on for long. They may get other jobs. They're going to stop their efforts to modernize our nuclear weapons to guarantee the sovereignty of our country. That's not something we should mess around.
Are you saying you are furlowing employees at the National Nuclear Security Administration, which keeps our nuclear stockpile in check.
We have not furloughed anyone yet, but we will be out of funds by the tomorrow or early next week, so we will be forced to do that if this shutdown continues. I desperately do not want to do that, but I have to follow the law.
Well, what does this mean for our national security posture?
Of course, we.
Keep people for emergency services or existing nuclear stockpile will be secure and will be ready. But the modernization program to replace our older weapons with new modern weapons, that's a key part of my job. We're just ramping those efforts up. We're just getting momentum there. To have everybody unpaid and not come into work, that will not be helpful. I'm adamantly in favor of ending this shutdown as soon as we can. Unfortunately, Chuck Schumer's worried more about AOC
than America's nuclear safety that's just deeply un American. I'm very disappointed with the Democrats. We have a clean r to just continue the Biden level spending we had before. It's got bipartisan votes in the House and the Senate multiple times. It's just a small number of Democrats that are standing out thinking they're going to win new subsidies by holding our modernization of our nuclear stockpile hostage.
This is deeply irresponsible.
We also have at this moment a current trade war between the United States and China with a lot of hot rhetoric the past few weeks. What is the Department doing in terms of sourcing rare earth minerals that come from China and China right now is trying to really put a choke hold on them.
Yes, that is another critical effort at our department and across the Trump administration. We have made ourselves far too dependent on, as you say, critical minerals products that come from them, that come from China. We have it across our department and across the administration effort to reshore the mining, the processing, the manufacturing for these critical projects in our country or in our friends neighboring countries or close allies
of ours. This is an absolute critical effort of the Trump administration.
But it's going to take time. It's years that Doug us in this hole.
It's going to take us many months, hopefully not many years to get out of it. We will achieve it during the Trump administration. But you're right, we're vulnerable today and that's at a loss to Americans. Four years of unserious government focused on climate change and energy subtraction, outsourcing, anything that consumed the energy.
Out of our country. That was deeply destructive.
It angered Americans, and it elected President Trump.
We need to fix it.
You come from the private sector. Are you comfortable with the president taking stakes, equity stakes in some of these companies that he deems critical for the US national security?
I am, And let me tell you why.
China has used market forces to push us out of all these critical industries. As soon as we invest money, or American businesses invest money, you know, demind samarium or process that in the United States, they flood the market, drive the prices down, and people can't raise equity capital, they can't.
Develop those resources.
China has used manipulation of markets to keep US and the rest.
Of the world out of these critical materials.
We need to do things differently to make it so it does work for American businesses to do these things.
In our country.
That means the government providing loans, the government's providing equity capital, the government's providing other out of normal market mechanisms to make it happens.
Distorting the market. Though you're a capitalist, is this not distortion? It feels like the US government is doing what China does, which is picking winners and loup.
Yeah, we don't want to do this broadly in our economy, but China has effectively distorted the market to push everyone out of these critical industries. The only way for us to get back into those industries is to respond to China's market distortion. And it does require things out of the normal market mechanism, but that's in a narrow area of these critical minerals and materials. But they matter for our national security and they matter for our economic security.
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