From Marhart where Innovation, Money and Power Collie in Silicon.
Valley, NBN. This is Bloomberg Technology with Caroline Hyde and Ed lud Love.
I'm Karine Hyde at Bloomberg's world headquarters in New York. Ed Ludo, who's off today? This is Bloomberg Technology, the UK's antitrust watchdog. It strikes again, this time with an investigation into Amazon and Microsoft's cloud services. Details on yet more concerns that US tech giants could be abusing market power for US. It is day two in the historic FTX fraud trial. A look into the crypto hedge fund at Almedia Research in Caroine Ellison's role.
And this hour we have.
An exclusive conversation with San Francisco Fair President Mary Daily from the Economics Club of.
New York, who do not want to miss it. We're looking at Amazon, also off by one point four percent. Interesting.
This is being eyed in the CMA by the UK in terms of its home monopolization. They are potentially worried about of the cloud market. Remember the FTC analyzing Amazon here in the United States about its marketplace. And of course this is all in this atmosphere of more regulation coming towards some of these big tech companies and the worry of the prominence they have. Let's just stick on that particular role of Amazon right now. I want to bring in Bloomberg's Thomas Seal for more. But the CMA
is once again trying to show its chops here. They did it with Microsoft and Activision Blizzard, and now they're analyzing Amazon and Microsoft in this case.
That's right, it's the next one in the series and Microsoft again in the spotlight for another cloud concern. Microsoft and Amazon between them occupy about seventy to eighty percent of the British cloud computing and storage market. Offcom found after it's been looking at this for a year and it's decided there are concerns and it's given this to the antitrust watchdog, the CMA, which kicks off a huge process again.
Amazon itself has come back and said, you know, you're misreading our data.
Ultimately, what is the argument of offcom. What are they.
Seeing in terms of pricing power that these two players have.
Yeah, they really outlined three concerns in the big Offcom study. One of them is this thing called egress fees basically exit fees if you try to take your data out of the cloud, you get charged, especially if it's a big amount of data and more and more people are doing this, this is something that could lock you in. This is what offcom is kind of worrying about. Another thing is interoperability. Lots of big companies want to run
more than one cloud, different clouds for different things. That's technically difficult. And the final thing is discounting. For big committed spend, this could incentivize keeping all of your eggs in one basket, and that's not very competitive. That's another worry that the offcome outlined.
Amazon has come back and said, look, we just agree with offcomm's findings. Quite bluntly, they say, we're based on a fundamental misconception of how the IT sector functions and the services in discounts that they offer remind us Thomas, like, this is really expensive.
To be an offerer of cloud you have to almost be a huge player.
How hard is it to have fundamentally a lot of smaller players within this.
Yeah, I think Amazon and Microsoft didn't fall into this. They've really built the backbone of the Internet. You know, massive data centers, warehouses, subse cables, increasingly edged data centers which are close to cities so that you get that snappy five G internet that everyone's going to be increasingly needing. So you know, they have put a lot of work into maintaining and building this position. But Offcom and now the CMA are going to be looking into well, can
anyone else get into this? Is this going to impact on the kinds of services that we have in the future, and you know, are their potential concerns for what this means for AI, which is going to you know, people think youse if more cloud computing than.
We use today.
Ultimately we're interested also in just the UK visav the US vis a.
V Germany too.
I mean, the EU has also been looking into competition within the cloud space. How much is that something that some of the big tech companies are having to navigate.
I'm really sorry there, I've lost you. I think you were asking about international comparison.
Yes, let's look at Germany for a moment.
Yes, I mean it's it's an interesting one for the CMA because post Brexit it's sort of out there alone, whereas before it was part of Europe. Offcom's report does note what's going on in other parts of the world, so notes the FTC looking at this, the EU looking at this, and ultimately maybe the CMA becomes, you know, more of a sideshow as these much bigger regulatory regimes, you know, hone in on this same market, and.
Also start to think not just about the impact from well work perspective, social media perspective, but now of course generative AI and foundational model perspective. Thomas Seal, great to have some time with you. Thank you for laying it
out when it comes to Amazon. Now let's get back to antitrust here in the US, because Google's trial, well, it's still under way, and in transcripts unsealed by the judge last night, we learned that Apple actually held talks with dot Go to replace Google as a default search engine for the private mode on Apple Safari browser. Ultimately they rejected the idea. Blomberg Sarah Ford and now joins us in Washington. And yet more sort of detail.
Coming out here of just how much Apple had.
Analyzed other competitive search offerings out there.
Yes, and exactly the unsealing of this testimony last night was really quite extraordinary in a very important part of this case. In fact, the judge himself said that he read through the testimony which had been taken in a sealed courtroom. He read through it line by line and felt that that what is being said here by these executives really cuts to the heart of the case against Google.
And this has to do with Google's, you know, twelve billion dollar agreement with Apple allows it to be the default search engine on all Apple iPhones and other desktops, So it gives them access to a tremendous amount of data, and we know that data and building scale for a search engine is actually key to sort of keeping that that, you know, those search results high and quality and dominating the market.
I mean, the level of detail, as you say, is extraordinary.
Duc dot Go CEO, testifying that what he met with Apple twenty meetings in the phone calls with various Apple executives, including.
The head of Safari.
Does this, though, ultimately paint a picture that yes, they didn't find a better offering out there than what Google currently serves to the market. They're not favorizing Google because of the money. It's just that it's a better search product for the consumer.
Well, that is true, and in fact, there was testimony from the Apple executive who negotiated the deal with Google, John John Andrea, and he said ultimately they didn't go for an alternative. He also revealed there had been talks with Being as well in twenty eighteen twenty nineteen, but they ultimately decided that Google was the best. So certainly
that's a business case. But I think this testimony is going to be very critical in terms of how the judge ultimately decides about the market issues and the dominance issues. And this is not a jury trial, so the judge will will be the one to decide this case.
And is of course earlier this week that the judge had from Satin Nadella, the CEO Microsoft, who was trying to be out there building Being as a competitor. And it's in this moment though, that we feel that there is some competition potentially coming from a being with the partnership that they have with Open Ai, certainly as search
perhaps pivots in this generative AI world. From all the testimony thus far, is there any weed that you're getting as to which direction the judge might end up landing here.
It's still too soon to say, but certainly the government is putting on the best case that it can. This is a test case in every way. This has never been done before. And this afternoon, actually the expert witness for the Justice Department is going to be testifying about market definition and so that's going to be key information that the judge is going to need in order to make this decision.
We'll keep the rest of it with your help, Sarah Fordon, Thank you very much. Indeed, all things regulation at the top of this show. Meanwhile, coming up, we're going to be looking at another trial, but this one well a fraud one Sam Bangwun freed, the disgraced thirty one year old preparing to convince a jury that his crypto empire wasn't a fraud. And let's take a look at quickly it shares as we go to break There's plenty of things on the move when you look at the micro detail today.
So apart from the macro.
Jobs data, we're looking at individual companies that are currently not on the downside. On a day of selloff, Rivian absolutely tumbling. We saw it as much as nineteen percent. This is the company electric vehicle company. It's actually looking to sell more convertible debt. What does that mean, Well, it could end up booting the supply of shares out there.
So we're seeing a depressing force on the stock. We're off by some twenty percent let's call it nineteen dollars is where we trade and also looking.
At Lucid Group.
Now interestingly this could be falling in sympathy, but also the ev maker actually offering.
A new, perhaps cheaper model.
Investors may be reading the worry about whether that's really a price cut in this current environment. This sounds on nine percent one of the worst performers on the NASAK one hundred a day.
This is a Bloomberg technology.
We've got to get you up to speed with the latest on the trial of former FTX head Sirm Magmund Freed. Please to say, not at the courthouse, but here in the New York studio is Shnali Bassak, but really keeping the context broad here of now, who else is going to be giving evidence? What shocking revelations we could hear from it?
Yeah, and I must say it's interesting. I love being on set next to you, but that courthouse right now is just also fascinating. You have the witnesses one by one starting to come up, including a developer at FTX who has been speaking about his long friendship with Sam Megmin fried since mit.
As well as what he was told while.
He was working at the company in the safety and security of the firm while he was there. More interestingly, you have Gary Wang, who was the former technology officer of co founder of FTX, expected to testify as early as today. Remember Gary Wang was one of the people who had pled guilty and is a cooperating witness for the trial. One of three very important key figures from
the very inner workings of FTX. As we know, the prosecution has drawn out that really there were only a few people that knew the extent to which this was allegedly this fraud was carried out.
And one of the key people is Caroline Evison Allison, who of course was heading up Alameda Research, which Ultimate was attested to be sharing and co mingling funds from Alari day.
The Caroline Ellison part of this is just becoming more and more pronounced as this trial goes on. She was brought up both in the prosecution's opening arguments as well
as the defense for the prosecution. Remember that in her circle I was talking about, they were talking about bringing her to the fore along with some of the other co founders for them to explain their interactions with Sam bankman Fried alongside the evidence that will be presented, the prosecution really defines two ways that Alameda had taken money through FTX by means of both cash as well as
through its digital wallets. So they will be using Caroline Ellison to show how that exactly had happened and when and what Sam bankman Fried knew and what he had actually directed. Now, in the defense part of the argument, they have said that Caroline Ellison was the one that
was running Alameda. They had made the case in the defense that one person cannot be not one person, that one CEO can be at all places at all times, and as a shareholder of Alameda, had directed Caroline Ellison to do things like hedge the portfolio ahead of the crash that had led to the ultimate bankruptcy of FTX, despite the alleged co mingling of the funds. So remember this is Sam Ingmanfrey's former girlfriend we are talking about, who had a lot of details about how Sam operated himself.
It will be up to the jury to decide whether that defense will be sufficient enough to really pin a lot of the blame not just on Sam but his colleagues who have already played guilty.
By the way, fascinating.
Thanks for keeping us up to speed on it, Shannadi bus like there with all things FTX. But let's go macro now, let's go to the Economic Club new or one piece of say our own Lisa Bromowitz A sitting down, none of them in the San Francisco Fed President, it's very daily listening.
If it doesn't need to hike again again, I'm going to remind everybody my views are my own, and I don't speak for anyone on the committee, but that's exactly how I think about it. So just instead of that, let's go back to the June SEP where, if you remember or maybe you don't, I'll remind in the June summary efcconomic projections there were two more rate hikes projected for this year. Then in July we took one of those rate hikes and another one in the September SEP
was the median outlook. But the bond market has tightened quite considerably over about thirty six basis points since we met in September. Well, that is equivalent to about a rate hike, right, and so then the need to do tightening additionally is not there? So from my own perspective, that's what I look at my job as I see it.
Our job, as I see it.
Is not to tighten, just do our part. It's to watch financial conditions. Because monetary policy works, We raise the funds rate and it moves through all the other interest rates. If financial conditions are sufficiently tight, our work is not necessary.
Because we don't need to boost them more.
Yeah, because that makes sense absolutely and reach clared I said today that the rise and yields actually does the Fed's job for it.
Would you agree with that?
Would you sympathize that kind of sentiment, that is actually how it works, right, if financial conditions tightened. I mean, one of the things that's happened in the last ninety days and certainly in the last few weeks, is that financial markets have collectively seem to take on board a
variety of things. But one of the things that I heard from many commentators and many of the market outreach I do is that they have a general understanding now that we are committed at the FMC to keeping rates higher for longer in an effort to bring inflation fully back down to two percent, And that recognition, along with all the other factors we could put in a list about why bond yields have risen are affecting certainly the
financial conditions and the tightening. And I see that as a positive outcome that we would have tighter financial conditions, because then we can really get the job done of putting inflation back to rest.
When is a sell off something that's welcome from a perspective of finding the market is coming to terms with what the FED has been saying, and when is it disorderly to disruptive on a level that causes concern.
So you always want an orderly repricing over a disorderly repricing. And so far, what I see is this, you know, and this is why we watch it so carefully. But here's how I'm seeing it is that what we're having, what is happening is financial markets. They are actually trying to find their footing in the right price for things, and they've got to digest a lot of information. One is the supply and demand changes in the treasury space right so supply is going up and demand is going down,
especially from foreign buyers. So that is a one factor to digest. Another factor to diest is FED policy, and for guidance in the SEP. A third factor to digest is this increasing conversation people are having about whether the real neutral rate of interest is actually risen. So we came into the pandemic or with it at about point five,
which means nominal neutral about two point five. And when people say, oh, the neutral rate might have risen for variety of factors, I'm hearing everything from meybe it's five to something that I would seem more likely, which is between two five and three for the nominal neutral.
You know, probably there is. We don't know if it's risen.
Frankly, I don't think anybody really knows, but certainly we should have those conversations. But then markets try to price that in. So all of those factors, and there's lots of uncertainty in the economy and geopolitical risk and you know, our own fiscal risk, and so that's what markets do. They digest a lot of information and try to find their footing on it.
And I think that's what we're seeing.
But so far it hasn't spilled over into disorderly so far. Even today when the job's claims came up and it was sort of I don't know what to make of it, right.
So that's what the market serve ad it.
You didn't see things shaking up in a wild or disorderly fashion.
So so far, so good.
Here bond quote of the day, four seventy on the tenure I just checked.
So that's it.
Seems like yields are coming in as we speak to her point about it not being disorderly. Back in March, when there was this concern about the banking situation, yields were at the low of March. We're about one hundred and fifty bases points lower than where they are now. Are you seeing the same type of financial distress today that you did back then?
Even on the peripherez?
How do you rationalize why it hasn't materialized in the same kind of way.
So March was a unique situation, and we want to learn from that unique situation.
But it was an unique situation in this way.
We had a bank run, an old, very old fashioned but true bank run, where the bank's liquidity was completely squeezed and it went, it dissolved in a period that was it was short, rapid period of dissolution, and then that's filled over to two other banks and that was
the extent. Now, one of the things I always remind people of is we have over four thousand banks in the country and three failed and all other banks that even felt the stresses, and there were a large number that felt stresses because they were near neighbors in sort of size and balance sheet distribution composition. They felt stresses, but they managed those stresses because in part they had
been a little more effective at edging their risks. And then the FED and the Treasure with the Treasury support came in with the BTFP, and that produced a lot of calmness in the water. So since that time, banking stresses have really not been something that when you ask people in the community or the business leaders what do you top of your worries, that is not something they list.
They list inflation, uncertainty, etc. So I think one of the reasons that we are seeing this yield rising not spilling back over is that essentially we know what's going on in the banking sector. Investor letters have been published for months saying here's what this balance sheet looks like.
Here's what this balance sheet looks like. So there's not a surprise.
And the second is because the banking system is safe, sound, and resilient, and we have remedies in place that solved parts of the of the crisis and the stresses. So I think we're coming in. It's the same thing when you have the rise in yields. We're doing it against a strong economy. We're doing it against a strong, a solid banking system.
So that just means that the.
Ripple effects are not going to be tipping things over. The fragility is not there, right, it's a sound system, and then you have this and so then you have it able to absorb the tension points.
One thing that there's.
Been a huge debate around is the long and variable lags, And this really speaks to this question of all of a sudden, if you think that ten year yields are five percent rather than four percent or three and a half percent, that changes what implication there is into different business models. How much does it change the business model of commercial real estate owners of different residential real estate owners of some of the constituents for you speak to on a regular basis.
So I'm going to separate that's a terrific question, but I'm going to unpack it into two parts. If you don't mind the long and variable lags and the how are people reacting to that? And I just met with a variety of commercial real estate CEOs with national footprints on Monday, so I can bring some of that to this conversation. But we start with the long and variable
lags part. So definitely there's always a debate. If you want to really get in debate, get a PhD in economics, and you know, spend a lot of time if you're in macro debating long and variable lags of monetary policy.
So here's what we can all agree on.
There are lags and they're variable, and then people even debate about long how long are they? But I go with long and variable lags, and the question is we know that from the FEDS communications to financial markets went quickly, and then the question is how long does it take to get through the economy. I'm of the view that we're still seeing the effects of that. We saw it initially in housing, then we started seeing it in investment.
Now we're starting to see it in the labor market and inflation, etc. And so it's absolutely happening and we want to continue to watch that. Because we were with the risks were balanced on the economy, we could easily I think at this point overcorrect than undercorrect, and that's why taking the time to do it right is sort of where I think we need to be now. On what I'm hearing in these was rising yields. They're less
concerned about. They have been less concerned at least my commercial real estate roundtable, less concerned about the lags in monetary policy as much as this there is this time when people were in one of men, just one person described it as sort of it's almost like a foot race, right, but it's really just like a I have to see if the FED will cut rates before I have to refinance my properties, And so you're in a look ahead and you're saying, well, if the Fed cuts rates like
the markets suggest they will markets suggested six months ago, early in twenty twenty four, or at least by the middle of twenty twenty four, then by the time I refinance,
I'm golden. But that equation changes if we're higher for longer to get inflation down, or if the nominal if the yields are just going to be higher, well, then projects that penciled out at near zero interest rates or something much lower, they don't pencil out at five and so I think one of the things that we think a lot about is what's the switch point for commercial real estate, because you really want that to be an orderly repricing, and so far it has been rather than a disorderly one.
But I think that's something that's a.
Risk worth watching, is that these higher yields change the psychology of what's possible for people and they start making those adjustments immediately, as opposed to a timeline that goes with the REFI schedule.
Just to build on that, this idea of five percent or four point eight or four point seven percent of long term rates that's being increasingly priced into markets, how much does that imply a significantly greater degree of distress in some of these areas like real estate, commercial real estate that rely on this idea of refinancing five ten years down the line.
You know, it's I think we have to and this is one of the things we're going to have to do just as a nation, is if we're in a low higher interest rate environment in general, and I can't I don't think we should jump to the conclusion that that's where we are. I think we should have a conversation is it going to be the low interest rate environment, or we're going to have a dominal neutral of two point five or is it going to be something higher?
Is are we going to be fighting inflation from above our target now for a persistent amount of time, or is it going to go back to fighting our target. We don't know the answers yet, So I think what I'm what I was really important is commercial real estate owners and purchasers and things they have to be willing to tip to play the longer game. Right, what's the longer game look like? And how do I get to
the longer game? And I'm hearing this in the San Francisco CEO round table, and now again these folks have a national footprint, but I'll share what I learned is that you know they're already trunching their properties. If you've got really high quality stuff, you're putting all your work in terms of leasing into that property deals to be had, so people with income to use they're buying those properties up because property ultimately and buildings are valuable down the road.
If you have.
Property that you think isn't just in the world of higher interest rates and lower in office work, then you just say well, okay, I'm going to go back to land value, and I'm going to not try to spend a lot of time releasing that property or wait it out, because and I think that's the repricing we're going to need to see. We are just going to need to digest some of those losses and position for the new world. The yields going up, I think it's just it doesn't
change that dynamic. It just brings people awareness sharply to the problem. Right You could have seen the problem coming, and I think many did, which is why I'm not I don't have alarm bells ringing commercial real estate people. They just tell me this all the time, and I have learned to believe them. You really have to have a strong constitution to be in commercial real estate because
it goes through cycles. And the way the successful ones persist is they recognize that the downpoint isn't forever, nor is the high point, so they get used to it, and they stockpile, and they refi early when they see interest rates going up. They're trying to put stuff into longer maturity so that they can not have to refly at the higher interest rates right away.
So I think that's going on.
But that is a sector to watch, as all of us know, and this will be just another piece. The higher bond yields will be another piece that makes the scrutiny have to be more intense.
To connect that to the idea of financial distress, people talk about a FED put How high is the bar for the FED put How high is the bar for financial distress for the FED Reserve to come in and to cut rates and to take actions to add liquidity to the system. How much higher is the bar at a time where inflation is.
Still running at the level so that it's running.
So I'm going to separate these two things. I think they get pushed together all the time in a way that I don't think about, so I want to separate them. So there's monetary policy that's about the two goals that Congress gave us full employment, price stability, and we raise and lower the funds rate to do those types that work. And because it's made this is all gets conflated more
easily because we have a balance sheet policy. So we use the asset purchases for two functions, market dysfunction and quantitative easing. Right to put additional policy accommodation.
In when we hit the ZLB. So we have both, but.
They can't actually persist separately. So let's take the BTFP. The BTFP didn't change monetary policy. We went in, we saw some stress in the banking sector. With the help with the backstop from the treasury open to the BTFP facility helped calm the banking stresses, and monetary policy went on. And I think that's the way you should think about it. So I unpack those things. I hear a lot about the.
FED put in this. What I really would do is.
We have tools that can be used, and the tools we use for financial location are different than the tools we use for monetary policy, and both can occur. So we shouldn't have to give up our promise to the American people, our commitment to achieve our mandated goals and bring inflation back down to price stability, because we have some dysfunction in the markets.
But I right now don't see dysfunction.
What I see is prices have gone up for bond yields, prices have gone down.
Yields have gone up for bonds.
The ten year now and other rates look similar to what you know. We might have penciled in in a sep for how much we were going to hold rates higher for longer because of the inflation. And I think they'll respond as the data come in to I think markets have a better sense now, although you know, I can't.
Be sure this. I don't want to.
Say things that I don't have certainty about, but it seems there's a more more of an understanding.
About the fedch reaction function now.
And big part of the reaction function understanding that seemed to be missing was that we want to get inflation down to two percent, and in our forecast we don't see it coming down to two percent like that, And in order to keep it coming down to two percent, we have to keep rates restrictive in order to bring the economy more into balance, the labor market into balance, and inflation down to two.
You talked about vigilance, and you talked about agility, and with respect to agility, you wanted to be able to teak policy according to what you're seeing in markets.
And one thing that people have been speculating.
And I'm sure this is sort of one of these theoreticals that make you roll your eyes.
My goodness, I never roll my eyes.
Well, I will say, uh, when people talk about what you said in your speech, which is that as inflation falls and as growth slows, that the policy rate, even by not moving, by keeping it steady, is a policy action, and it is actually tightening policy at that point, How agile should the FED be to make adjustments to the rate so that the restrictive.
Level is the same.
That might be lowering rates, but not because of financial distress, not because of some sort of recession, not because of weakness.
So that's a terrific question.
And I would argue that we're now entering into the hardest phases of policy making, right, the hardest part. So I think if phase one is the one we just complete, the one we completed, we completed it earlier this year, rates are too low, inflation's too high. There's only one direction north, So everybody can agree, there's no nobody's confused. It's just a matter of how quickly can you get to restrictive territory and without causing any concerning disruptions.
So we've accomplished that phase one.
Phase one was an easy phase. You just have to communicate we're going that way. Inflation will come down. The biggest concern that I had during that phase one, well, I had two, how fast can we go without distressing things?
And two? Oh, how will we communicate that we're doing that? Right?
Those are the two things I was worrying about. How fast can we go? And how can we communicate that so that we don't lose credibility?
Right? Because I was worried about the inflation expectation. So that's down.
Phase two is fine tuning where we maintain the p grate, and then phase three is trying to bring it down to two percent. And so right now, the way it's penciled in in the SEP, if the inflation forecast holds and the inflation forecast you see more generally policy is growing more restrictive. So you might ask, well why, Well, I think it's because it's challenging to get that super core inflation down. We've got the easy ones behind us, right.
Goods inflation has already come down a lot. Housing inflation is in train. We have to keep watching it. But that supercore is going to need persistent work. But if we saw and the labor market strong, we're doing this against a very strong labor market. We'll see tomorrow effe persist. But so far, pretty strong, solid labor market, good consumer spending, good GDP growth. I mean, there's nothing about the economy
that's faltering. If that should change, well, then of course we could adjust rates so that we keep a level of restriction right for the economy we have. I don't really want to try to tell you what that's going to be, because honestly, that's what the whole speech about is about. We have to tolerate our uncertainty of not knowing what is going to do next year, but to know what elements we have and how would we react to whatever situation unfolds. That's ultimately humans hate this and
markets hate it more. Nobody likes uncertainty, right. They want to know people, We all want to know exactly what's.
Going to happen.
But I think right now, projecting to confidently what will happen is actually a policy mistake because then you end up with surprising people and things. So I just I think it's really important that we stick to conveying our reaction function, conveying how we treat often balance things, how we approach the uncertainties, and then as we get more information, as everybody does, then we'll of course see what to do next with.
Respect that economy and what's going on and what you see going on there. You talk about the labor market and how strong the labor market is, and I know you've done an incredible amount of research in economic inequality and the worker and the labor market through that lens. How do you view some of the labor strikes, what's going on in Detroit, what's going on with respect to the Kaiser health systems, what's going on with just the Hollywood strikes which are sort of resolved but.
Maybe not so.
I think, you know, the picture of the labor market is broader than just the strikes. I think the strikes get a lot of because they're big labor actions, But in general, we've seen a rebalancing of the labor relationships with firms. That is a very common occurrence in an extremely tight labor market. Right there, demand for workers is outstrip supply of workers. That means that workers would have more power to say, I want to live here, do
this have this other thing? So workers who aren't in union and don't have regularly scheduled negotiated contracts, well they can make those adjustments more continuously. Right, So a lot I'm sure you've experienced this too, But if you're an employer in twenty two and even late twenty one, you really saw wage demands rise special circumstances. I want to live in here and work in there, and I don't want to come back to the office.
A lot of changes in.
How workers were relating to their employers, and there was also a relative demand shock for low wage workers that moved restaurant workers to hotel workers, to delivery drivers and other things, so that whole work situation was changed. I see the labor actions that have been taken recently as they're on regularly negotiated contract schedules, and those schedules came up and they say, well, we've got to A lot's changed since we negotiated the last contract. Pandemic wage rates
have risen. We have not been in continuous negotiations with you, and we want to get in a better negotiation with you to ensure that we have some shared responsibility for the rapidly rising inflation and rapidly rising changes in the
contours of the labor market. So I think this is so to answer your question, I think this is completely predictable given the imbalance we've had between demand and supply for workers, and there are going to be some renegotiations, either in continuous space like we have been seeing, or when contracts become up for negotiation you have to renegotiate the terms of employment.
What's the difference between renegotiating the terms of your employment and a wage price spirral.
Oh, that's a huge difference. So let me I love that kind of question. Fantastic. Okay, So that's straight.
Labor renegotiations are I'm looking at you know what I've we had to put up, what I've had to deal with.
As an employee.
A lot of it is I've got this wage and the inflation's going up this so my real wages falling. That's something that was commonly happening in twenty two in the United States. Real wages we're falling for many, many groups of workers, many tiers of wages. And that's something people workers recognize, right, they recognize when they're real wages are falling, they're losing purchasing power, they're falling behind even though they're earning. So that is what a labor negotiation is.
It also could be like in healthcare and things, hours work, terms of trade, you know, schedules, et cetera. A wage price spiral is that people get wage growth and then producers I mean you know, firm selling, passed that along to consumers. That causes inflation to go up, and then they see that inflation and they ask for wage growth and you see this high correlation, A fact that's worth looking at. It's a very cool plot because it tells you why we're not in a wage price spiral right now.
Is prior to eighty five, the correlation between wage growth and price growth was like point eight five. That broke down after the vulgar disinflation, and it really is now like point two five point three, et cetera. So you don't have that one for one pass through of wages to prices, prices to wages. It just doesn't work that way. And even now you see wage growth moderate rating. And I also look at short run inflation expectations. Short run
inflation expectations are coming down as they come down. Research out of the San Francisco FED is shown and others have confirmed this that short run inflation expectations are what people are using when they go into negotiate wages, and so as those come down, you get release of wage pressure. So we are the worries about wage price viral. You know, people were worried about it in twenty two, and I really we took that very seriously.
We asked how that was going. At this point, those.
Are really abated, and now we're really at a point about getting the wage growth rate to be balanced in the economy, bringing the labor market into balance, adding the kinds that thout. You know, you knew about a hundred that jobs per month to keep pace with the labor force growth. At the last call, we were at one hundred and fifty. So tomorrow's labor market report will tell us whether we've made more progress on that space or just sort of in that same place we've been in.
But that's how it's different. They're completely different. One keeps me up at night. One is just a natural part of an economy.
So I love that.
When we were speaking ahead of this, we were talking about anecdotal data, and I said, you know, I love that to study the sociology of markets and anecdotes are really important, and she said, I don't view them as anecdotes.
They're qualitative data. I think I said it that way. You did, and you corrected me, you said, absolutely not. I wouldn't call it anecdotes. It is qualitative data.
What is the qualitative data or the anecdotes that Here's why.
I do call the anecdotes, because anecdotes are like I talk to Bob in the grocery store and then I now I know everything. And that's what people trade anecdotes all the time because they heard one person to people, four people at a party, say at the FED, the regional thread presidents in particular, I think it's one of the big benefits of having a regional FED. When the when the folks who set this up set it up, I think they they thought this would happen, and it
does happen. Is the regional fed presidents and the entire regional FED teams. We're in our districts collecting qualitative information by talking to many people like you, having roundtables, et cetera.
But then we write it up.
And so the difference in an anecdote and qualitative information is we we quantify the qualitative information. If one person says it, it does not mean it's the thing we should.
Take on is fact.
But if fifty people say the same thing, well, that's an early warning sign or a some flavor that helps us, you know, push flesh out what the what the what the aggregate data are telling it and what the qualitative data are telling me or really ill, there's many things, but I'll tell you a few. So at the beginning of this year, I'd say most of my conversations, when I asked them what's your biggest concern?
They said recession. Then it switched to stagflation.
They thought we're gonna have high inflation forever, just low growth like we did before the pandemic. And now I say, what's your biggest worry? And this is really remarkable. They say, well, I'm really worried about generative AI and how it changes my business in ten years.
I'm really worried we're not.
Educating our population enough to keep pace with the jobs we are creating.
So why am I focusing on those?
Because those are longer term concerns, which means the anxiety they have about their short term business has gone down and it is being replaced with the things that really should keep business leaders up at night, right is how is this going to transform my business?
Do I have the workforce I need? Not? Today? But five years from now, ten years from now, what.
Do I need to do in my communities to ensure that we're durable.
So that has been a ce change.
And then when you meet, when you drill down, like with commercial real estate leaders, of course they're thinking hard about Okay, I've got this property, what's the future? But their attitude it was really interesting. The board doesn't matter what position they're holding, as they say, they're going to
be losses, but they're going to be opportunities. And what I'm trying to do in my business when I went around to each of them, is say I'm trying to minimize the losses and maximize my ability to see and take the opportunities. And so I see that as a positive change in the environment we're in. And it's why I said in this in the speech that the recession
fears are being replaced by soft landing. Soft landing is just in their description, something that happens that doesn't break the economy and bring all their attention to how do I manage through a significant downturn? And I am not seeing that in there when I take the temperature on that, I'm seeing Instead they're talking about these longer term issues that they're grappling with.
Does that mean that they're hoarding labor reluctant to cut jobs because they do have this expectation that even if there is some sort of slow down, there is going to be a brighter future ahead with not as many qualified UH employees is available to do the jobs that need to get done.
So I'm gonna I have the benefit of having done this work for a while. I was at the FED long before I became the president, and I've been a labor economist in my whole career. So I would like to broaden that that part out just to tad. So, it is very common when employers go through big shocks that that carries over into their behavior. So let's go to the fact that in the financial crisis, employers had
to cut nominal wages. They hate cutting nominal wages. They they because it demoralizes employees, et cetera.
So that had a long tail. They had to.
Fire a lot of workers, right, they had to let go and they you know, for a lot of employers, if you're not the very largest employers in our country, you're you're letting go of people. You know, each and every member of your team, and you had to let those workers go, and then you had to cut nominal wages.
It's extremely painful. So then they hired extraordinarily slowly and kept working people over time and other things, just so they didn't have to be in a situation where they would have to let go of workers should another shot come. So now what I'm seeing is the opposite of this. In the pandemic, people lost workers because they were afraid to come to work, or they just they decided to take early retirement, or they moved away. And so now
employers are like, oh, gosh, I better keep people. So I think we have to put certain amount of this behavior we're seeing to that. But the other part is, and this is another benefit of doing this for a while, I think is another part is that the way it works in most cycles is that the very first thing that happens is hiring slows. The second thing that happens is layoffs occur. You don't have a lot of firms
laying people off before they slowed their hiring. So when I'm looking at metrics for what I think is happening to the labor market, I'm looking at hiring statistics, job filling rates, you might have postings out there, but you're not filling. And what I'm seeing is a general slowdown, but not a cliff. But you know, obviously if there was a significant downturn then and businesses have to resize,
but we're not seeing that yet. Even the layoffs we've seen have come in the tech sector where they got a little bit ahead of themselves on growth and then had to rebalance their workforce to meet the actual growth they were going to have. So I don't see anything out there that is ringing an alarm bell about the workforce. And people say labor hoarding, I kind of think of it as we're just always fighting the last war.
And you fight the last war of we had to lay off a lot of people. You don't want anybody new. You fight the last war of oh my gosh, I lost a lot of people. You hang on tight. We're also in a very tight labor market.
From the employer's perspective, it's loosening, but from an employer's perspective, they still have to spend a lot of their time finding workers to replace workers you leave, or if they want to open a new slot, that's expensive, so they definitely want to hang on to as many people as possible.
I have to open it up to questions in a second, but I do want to just ask you this before I do that. What do you think right now is the biggest misconception.
We're going to leave Lisa Ramowitz there with San Francisco FED President Mary Daily talking about the job cuts and the tech sector, talking about the implications of generative AI, talking about some of the labor relationships that we've seen overall in Hollywood. Much more on Live Go if you want to be keep on listening in to that macro perspective, but stay with us on Broomberg Technology or with that with much more to do with the labor market and
women within it. It is in Bloomberg Technology. So we've just been hearing from Mary Daily about the labor market. Let's talk about women's presence within it. Because Chief it's the private membership network designed to connect and support women executive leaders. It's hosting chief X first conference in Palm Springs,
bringing hundreds of members together in person, thousands virtually. We want to check in on really what's being said by some of the key speakers they've had across the tech world. They've had was the CEO of Slack. There, for example, we welcome Chief CEO and co founder Karen Childers. Now, I'm pretty sure always great to be in person. What is the atmosphere like, how much resilience and optimism is there among women in executive roles right now?
Yeah, well thanks for having us.
It's really exciting to join from Chief X our first ever conference for CHIEF here in Palm.
Springs, and the energy has just been really magical.
So CHIEF is the most powerful network of senior executive women and we really built CHIEF under the mission of changing the face of leadership. And we do that by building a great community that can come together and support each other and build the connections that are needed to really tackle the loneliness and challenges that can come with
senior executive leadership. And it's been really exciting to have a new experience of Chief X of being able to bring women from all over the US, in UK here in Palm Springs to be to really deepen those relationships and have even more inspirational conversations, give us.
The context the backdrop though with which some of these executives find themselves because look, we are saying actually record participation rate of women in the labor force.
But then there's nuance to it, and.
There's been studies I think just announced the last day or so McKenzie lean in and Foundation of course Cheryl Samberg's.
Looking at how perhaps women aren't managing to break into managerial roles.
We're actually seeing more executive levels c suite, but not at the lower sort of funneling points. How are you talking about that?
Yeah, so, I mean Chief is focused on senior executive women. Over forty percent of our membership are actually C suite and that's where you're actually starting to.
See some shifts.
So we've moved from twenty five percent to twenty eight percent of C suite positions being held by women, but importantly, even within c suite, women of color or only six percent, and we have not seen any changes in those numbers. And then, as I think you are pointing to, there
is still very much this broken rung. So even as we're starting to see some progress in the c suite, that advancement is going to be really challenged when we're still seeing a lack of progress in that middle management level. And that's where even though you also see that ambition is so much greater women are more interested in participating in the workplace, People have greater ambition of wanting to go up the corporate ladder.
One of the things that is really highly pointed to.
Is flexibility being such a key part of allowing for that ambition to become reality.
And what about it in text, You're really fazing right.
Now as companies that are pulling people back into the workplace and removing some of that flexibility, and that's going to be a real challenge for us to continue to push these numbers.
Yeah, Carolyn Dwelling on that, because you're a leader in the text, how much you seeing a lack of flexibility or more in the sector than which we work.
Yeah, I mean, I think that you are seeing that a lot of companies are starting to pull back on a lot on those policies. And I think some of that has to do with both the economy in a way of somewhat reducing their workforce by saying like some people will opt out of that and that will actually help them as they go through workplace reductions. But I think what that people aren't keeping in mind is that the people who need the flexibility the most are women
and underrepresented minorities. Those are the people who have found the most benefit from the flexibility that has come into the workplace over the last several years. So all of these companies who have also had these commitments to DEI, that's really going to challenge them as they really pull back on the flexibility in the workplace.
Important message, and it's interesting how some of this focus on DEI moves with all the economic economic realities which we face as well.
I'm interested in your own.
Realities because I mean Chief is a unicorn. From last time we counted and you were raising money March twenty twenty two, you raised one hundred million, you were one point one billion dollar valuation. Is that still standing and how is your business growing?
Yeah?
Well, we are twenty thousand members strong at CHIEF. It has been just phenomenal to see that growth over the last several years. But there's still five million women in the US alone who are VP level and above.
So the opportunity is for CHIEF to become an even.
More powerful community, a powerful network, to really be able to create the support and the change that is needed to change the face of leadership.
There's still so much opportunity for us.
And while I think there is this pressure across the ecosystem where companies are pulling back on their commitments to DEI and they are pulling back on their commitments to ESG. What is needed more than ever are good leaders, regardless
of gender, regardless of race. And there's still an investment that needs to be had there and there's still a place for chief to play that role while also really continuing to push companies who you know, they made the commitments when it was easy, and how do you make sure that people are really still holding to those statements and the importance and the benefits we all have grown to recognize exist for companies who have great diversity in their workforce.
Carolyn Child as Chief, CEO, co founder, we thank you for your time that does it for this ad division.
Of Bloomberg Technology.
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