Bloomberg Wall Street Week: Barra, Tarullo, Summers

of the most influential voices. Larry Summer is the former Treasury Secretary, Bryan wynhand back of America, Will sar Ceo, Charlie Sharp. Bloomberg wool Street Week with David Weston from Bloomberg Radio. One step forward and one step back, Final approval for Fliser's vaccine. Congress moves forward on spending, but tragedy mars An already difficult pull out from Afghanistan. This is Bloomberg Wall Street Week. I'm David Weston. We begin

this week with the Fed. In his remarks to the Jackson Whole Symposium, Chapal did nothing to get in the way of some tapering of the Fed's bond buying by the end of the year. At the FMCS recent July eating, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. For more on what chair Pal said and it didn't say,

we check in with former Treasury Secretary Larry Summers. I was struck, for example, that he didn't say anything about the housing sector that's the largest part of the consumer price indices. I saw a statistic Bloomberg actually had it the other day that said, on average, when a new tenant moves into a rented residents, they're paying seventeen percent more than the old tenant. That suggests a lot of rental price inflation. If you look at owner occupied houses,

the prices are taking off. Uh. None of that has been reflected yet in our price indsease. And yet on any common sense definition, that's surely inflation. And so my guesses you'll start to see the housing component of inflation show up as rising pretty rapidly, or if you don't, it will reflect defects in the way we create Uh,

the price indusease. I the chairman mentioned rightly, uh that we've got record levels of job openings and workers are turning over very fast workers are quitting UH their jobs. I'd have thought that all of that would be a signal than in a labor shortage economy, you'd still be starting to see much more rapid wage increases then you've seen historically, but that that was a process that would take a certain amount of time. He was more serene

um about all of that. He was referencing that we had had four percent unemployment um before COVID without apidly accelerating inflation, and he was right about that, of course. But I see that we're having far more structural change in the economy, as businesses rethink their business models, when people aren't going to be coming to the office, as people rethink their lives after a year without commuting, as

the whole structure of the economy changes. And I think with all that structural change, you're likely to see some substantial increase in the level of unemployment that the economy can sustain without excessive inflation. So there's no certainties, but I think the inflation risks are graver than those that the chairman UH recognized. I think that the toxic side effects of q E are rather greater then the chairman recognized. So in the range of places where this speech seemed

likely to come down. I think that came down in a relatively uh good place from my point of view, pointing towards a taper uh this year. But in terms of the issues I've been concerned about for quite some time, that we're kind of making a bit of a paradigm uh error. Uh. I didn't expect that the speech was going to represent a deviation from the paradigm, and I

don't think it did. Hilary, the day before J. Powell came in speech, you wrote an essay in the Washington Post and which you really took on the question of quantity of easy. You mentioned inflation what you just talked about, but also some of those toxic effects, which included things like the tenor of the debt, something you've talked on this program before that overall the federal debt, we're actually going into the short side. We should be going to

the long end. And also asked bubbles and pumping money in the economy by getting it into financial assets. Tell us about why you think that would be wrong, and maybe as important, do you think QUI should go to zero? Yeah? I think, Hue. I think the question is like, as I used the analogy in the column, it's like withdrawing from Afghanistan. Uh, it's pretty clear that after twenty years, the right thing was for the United States not to be uh continuing in a war fighting mode in Afghanistan.

But you can't do You can't get there necessarily overnight, as we're learning painfully. And in the same way, I think we clearly should have zero que which doesn't mean we can get there overnight or we can get there with a uh drastic lurch. Why uh, every homeowner in America is trying to lock in a long term mortgage rather than moving towards the floating rate mortgage. The government should think the same way and be chterming out the debt.

What quee does by having the Fed issue interest bearing bank reserves to buy up longer term debt when those interest reserves can float upwards, it's shortening the maturity of the debt. Given the epic levels of debt we have, and given the very high levels of fiscal uncertainty we have, why would we want to be charming in the debt right now? Thank you so much. That's our special contry to Wall Street Week. He's Larry Summers of Harvard coming up.

We talked with former Fed Governor Dan to Rule of Harvard about the politics of reappointing J. Powe and whether there should be more coordination between the Fed and the Treasury. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. It was a big week for Banks Central and Otherwise as BECA America's longtime head of Investment Banking and CEO, Tom Monteg announced his retirement, leaving a big hole and

raising questions about succession at the bank. And FED chair J Pale appeared at the Jackson Whole Symposium amid speculation about his future as well. We spend most of our time worrying about the independence of the FED from all political influence. But is that realistic? And if it were possible, would it be the right thing? Given the enormous influence the Fed can have over the economy and our lives. Dan's Rullo served on the Federal Reserve Board with J.

Pal He is now a professor at the Harvard Law School. So, Dan, thank you so much for being with us. So address that question. I mean, we have a lot of influence of the FED right now on our day to day lives as well as the economy. Is there a role for some sort of a political factor here and is it possibly healthy for j Pale to be thinking, You know,

I do need to think about reappointment. Well, David, you know, um Bil martin U, one of the famous past chairs of the FED, for whom one of the FED board buildings is named, characterize the position of the FED as at the Federal Reserve was in the government. It was independent in the government. It was not independent of the government.

And what that is that that means is that the relationship between the FED and democratically accountable branches of government, the President and the Congress, is an issue of ongoing importance. So if you had a system whereby the FED we're self perpetuating and each chair chose his or her successor, that might make some monetary policy people happy, but it would really strain any notion of the FED being accountable

ultimately to the Congress. And as you know, Congress has the powers and Article one of the Constitution that allow the creation of the FED. So I think what we see with the four year appointment term, what we see with the requirements for testimony are way reason which Congress has tried to provide some political responsiveness, some political accountability, without making the Fed adhere to the day by day

wishes of the administration. Instance, it's not being short of a day to day coordination administration apart from Congress and the Fed, what about the Treasury and the Fed. We had Larry summers On earlier in this program saying there's an issue of the tenor of the debt right now given what they're doing with bond buying, in fact, we're sort of going more short term of the debt. Doesn't make sense. Should there be some mechanism for more coordination,

not control, but coordination? Well, I mean in fact, and I assume that this is going on between Janet Yellen and Jay Powell. There's there's always been a weekly lunch usually sometimes breakfast between the Fed chair and the Treasury

Secretary where they go over a range of issues. Uh. Those meetings can be more frequent in periods of stress, obviously, but even in normal times, fiscal policy and monetary policy dependent on one another, and in less normal times or or new kinds of times, the relationships between the two are probably sometimes harder to parse, and so it does call for at least more communication between Treasury and the FED.

I mean, something that people may have forgotten is that from most of the good part of the history of the FED there was a kind of subordination to the Treasury Department that formally ended in ninety one. But the interest of the administration and often of Congress and keeping interest rates low is an ongoing interest, uh and the FED always needs to be in a position of deciding what its posture is visa the current fiscal policy dan.

We all heard from the current chair J. Pile, part of this uh uh Jackson Holes symposium a year ago. At this same symposium, as I recall, the Chair announced the new framework for determining monetary policy based on really being willing to go above the two percent number on inflation. Some people now, including Larry Summers, are saying, you know, that framework maybe was never a good idea, but it sure isn't now because it was a dealing with the

demand side issue and now it was applies side. Is it possible I FED is sort of painting uself in a bit of a corner at corner and gotten too stubborn on its monetary policy by having that framework. I don't think so. I mean, look, there are issues in the execution of the framework, which I get to in a moment, but it seemed pretty clear to a lot of people, including people who were worried about secular stagnation, that the FED framework, which had prevailed in the pre

global financial crisis period, needed to be changed. And what I think you saw last year was not really a radical break, but instead the culmination of an evolution of the FEDS thinking about the relationship between employment and inflation.

I think that difficulty has been that the FED at that time expected that it was going to have a period of somewhat sluggish growth in which it could fill out it's meaning to maximum employment and how long inflation had to be above two percent, and with this, with the amount of fiscal stimulus, would have the quick recovery in the economy. I think the FED was back footed a bit, and it's perhaps been a little less um nimble in adapting to the new circumstances and describing what

those metrics mean under these circumstances. But I don't I actually don't think it's the framework itself that's the problem, and Indeed, I tend to agree with those who think that periodically the FED should revisit its framework, not because the framework sets monetary policy, but because it sets the

framework for discussing monetary policy. So Dan, just briefly here at the end, I wonder whether j Palal would have picked this time to give a major address that all the markets and all the pundits were paying attention for monetary policy if there weren't Jackson hole. And that leads

to why does Jackson Hole exist? Well, I mean the historically answer is the former Federal Reserve Bank of Kansas City president started it in one invited Paul Woker, and Paul Voker came, and since then it it's been kind of the centerpiece of the summer for for monetary policy. UM. I think that, you know, the traditional issues people have raised around that, David one, you know, should you have it in a vacation spot. I mean it's a national park,

it's still a vacation spot. To the preferential access that some reporters and some academics and some even market actors get. Um, I don't think people would be at all worried about that if the chair were not there. For two and I not wasn't this year, of course because it was virtual, but normally the chairs there for two and a half days. And that's you know, that's the big light in the

backyard that attracts the moths. Uh And and so the question really does become, should there be something like that that does give the pre ferential access. Let me just add one thing from the board, the Federal Reserve Board's own position. It's a mixed blessing. It's a nice um vehicle for getting across a big message when you want to.

But oftentimes the FED chairs doesn't particularly want to get a big message and doesn't want a lot of anticipation, and to the degree that the feel they have to go, it kind of puts them on the spot. And Dan could have another vacation. Thank you so much to dant Roll of Harvard, the former FED governor. Coming up, the revolution that's coming to the auto industry with all the challenges and all the opportunities with Mary Barr, a chair and CEO of General Motors. That's next on Wall Street

Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. We were in Detroit this week and had the opportunity to visit General Motors headquarters and sit down with a company's chair and CEO, Mary Barrow. In a few minutes you'll hear our discussion about electric vehicles in the future of GM. But first, as the Delta variant spread across the country, I asked her about the steps she is taking to keep her employees safe.

We've been following the safety protocols of the appropriate social distancing, wearing, mass screening and has worked quite well. Because of the outbreak of the delta variant, we are now back into wearing masks in the US, and it varies around the world based on what's happening, and our employees have just

done a phenomenal job of following our safety protocols. So we continue to evaluate all options of what we can do because we know getting everyone vaccinated is going to be critical to stopping the you know, the different variants of the disease. Right now, we're also very much focused on education because you know, there's a lot of myths out there or or a misinformation where people are making decisions to not get the vaccine based on bad information.

So we also are running an education campaign as well. So to be clear, do you know the vaccination status of your employees? Are you asking that question? Are you asking them to tell you if they're vaccinated? We are requesting in the United States, and we're working to do that around the globe, obviously following the local laws or country laws, and so we are working on that right now and that will inform the decisions that we make

as we move forward. And masks. We wear masks in our facilities, whether it's our manufacturing plants, warehouses, offices, mass are required whether you're vaccinated or not. So I talked to us also about unions and the role of unions and all this. First of all, is it okay to require vaccinations with the u A W Are they resisting that?

Are they with that? Are they united with you in this? Well, you know, first of all, I would say, in working to make sure our workforce is safe, the UAW has been a absolute fantastic partner on being data driven, following the advice from the CDC, and that's you know, really I think what has allowed us to have the very successful protocols to not only protect lives, but to protect livelihood.

And so you know, as we look at what the right thing to do as it relates to the vaccine will work with the unions and and that will be something that we negotiate with them or work with them to decide what the right thing to do is. Do you try to have the same rules for the our

employees as for the salary. We we do, but we also really respect the fact that some of our workforces represented not only by the U a W, but with other unions around the globe, and it's an important part to have that dialogue as part of the contractual process. Where's GM on bringing people back into the office. This is a hot topic all through US industries, certainly in New York. There's a whole debate by banks, for example,

where are you in bringing your people back to the office. Well, several months ago we rolled out what we call work appropriately and for those who don't necessarily have to be at work to do their jobs. First, I want to give a big shout out to all the people, whether they're in our our manufacturing, fertilities, warehouses, R and D labs, design, thank you for coming to work every day and following

the protocol so you can do your work safely. For the portion of our workforce that UM doesn't necessarily always have to be in the office. It's work appropriately and we're leaving it to the individual and their leader decide where can you do your best work, and so far it's been very well received by our employees. Going back to the unions for a moment, let me ask a

broader question about electric vehicles. We saw President Biden again with you at the White House and ahead of the u a W was there very specificly involved in The President talked a fair amount about the world of union workers in this process. Uh, it's the union help in moving faster evs or can it be a hindrance? How is it working? Because sometimes unions have not always been

progressive in adopting new technologies. Well, I can only speak to the relationship that we have with the U a W and talking about the technology and frankly, it's opportunities for growth and its opportunities to make sure that the workforce that they represent, our workforce, that they have these opportunities. We go forward and with what we're doing at Factory zero, UM and other plants around the world are and and specifically in the US, we're making sure we provide the means,

so they'll be part of our all electric future. So I think it's very positive right now. So as you look forward to this future that you clearly have crafted and you've laid on detail, and let's be honest, it's it's going well into the future in success, it's gonna last well passed you and me. As a practic matter, as you look at what is the thing that you worry the most about, what could be a potential hindrance

to achieving what needs to be achieved. Well, one of the things I talked about, I feel very confident we have the right strategy and we have the adaptability that if we have to make changes in tweaks here and there, we will. But it's speed, speed of execution, and that's what I talk about to our our team all the time, and making sure we're getting out of our own way and getting rid of bureaucracy so we can move quickly to achieve this vision. Uh. So, you have had a

wonderful run at General Motors. Tell me about your team, because one of the things that it's always trucking about you as a CEO, you always say it's the team effort. It's not just me. Tell me about who you've got on your team you particularly rely upon. Well, there's several members of the senior leadership team that are just phenomenal. I mean Mark Races, our president, and he is the most one of the most knowledgeable you know, car people, I think on the globe in the globe, So he

does a phenomenal job. And then, um, you know, we have people who have been at the company many years, like myself and Mark, Steve Carlisle who runs North America. But then we have people who have just recently joined the company like Paul Jacobson, our CEO, Alan Wexler, who

came from Sapient. And really the benefit of having all these diverse experiences and being from different industries, but also the deep knowledge of our industry I think is what makes General Motors Leadership team special and why we're able to move so quickly. That was Mary Barr, Chair and CEO of GM. Coming up more with GM's Mary bar on the electric future of her company. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week.

We've David Weston from Bloomberg Radio. It was only a dozen years ago that the American Auto industry stood on the brink of collapse during the Great Financial Crisis, something President Obama said he could not let happen. We cannot and must not and we will not let our auto industry simply vanish. And so the industry went through a painful restructuring to emerge smaller, more efficient, and more profitable. And no sooner did he get through all that than

it has to reinvent itself all over again. As the nation and the world moved to electric vehicles. There are a vision of the future that is now beginning to happen, a future of the automobile industry that is electric, battery, electric, plug in hybrid, electric, fuel cell electric. It's electric and there's no turning back. Is the industry up to this

new challenge? And if it is, will it be the traditional car companies who lead the way or will they have to make room for the pure play electric vehicle makers like Tesla and Rivian dan Ives of web Bush

says President Biden is creating a huge new market. This is the start of what I believe is a five trillion dollar market with definitely Biden kicking off the green tide away from the US, which is underperformed when we look compared to China in Europe, and i've says GM is well positioned that as GM proves out its e V vision over the coming years, the stock will be re rated more as a disruptive technology and EV play rather than its traditional auto valuation. Cathy would have our investments.

On the other hand, says the traditional automakers are just too far behind to catch up. The traditional auto manufacturer. If you look at their R and D budgets, So you look at GMS of it's R and D dollars and I'm sorry, uh, capital spending is allocated to electric they should be at almost a hundred now given what's about to happen. They have just gotten started and what they delivered our cars that don't even meet whether it's range or other metrics, um the model esque circuit two

thousand twelves. But in the end it may not be just electric cars that decide who wins and loses. It may be a cluster of different tech innovations that come with those evs, or so, says Adam Jonas of Morgan Stanley. Ford is showing a bit of a bitter urgency to it's better late than never, but General Motors is are picked under the leadership of Mary Barret, who's executing a phenomenal turnaround here with real action. This company is starting to present itself as a viable let's say, pre spac

um e t F of auto two point unicorns. To get the view from the inside, we went to Mary bar herself, chair and CEO of General Motors. I asked her if GM is turning into a tech company? Well, I really think the autom of real is becoming a software platform. So by definition, with all the software services subscriptions that we can do, we really are becoming a software company. And I guess if you want to describe

that as tech. But the thing that I think is important for General Motors is we only open up that opportunity when we sell the hardware, which is a vehicle. But that's why we're so excited, because we think we have tremendous growth in front of us. So what does it take to take this time honored company as a manufacturing company and really make it a software company? Use your word software rather than tech. Yeah, Well, I think it's First of all, it's we've redesigned many parts of

the company. The way we are fundamentally designed. Vehicles has changed. We have all of the software to UH engineers and that technology all in one group, because on a vehicle there's hundreds of millions of lines of code. And with the vehicle Intelligent Platform, which is the electrical infrastructure in the vehicle, we are now able to do over the air updates and that is giving us this platform to just do all new types of services for customers and

it's it's really an exciting time in the industry. So you have this vision for your company as a software company, did the young software engineers coming up agree with that vision? There are a lot of other big tech companies out there, and it can be Amazon, it can be Netflix, it can even be a car company that starts with the t that start as a tech company. Can you compete for the best and the brightest among the software engineers, Well,

we can and we are. I mean, we have hired over eight thousand UM employees to General Motors just this year, and most of them are our software talent and they're coming to GM, I think for a couple of reasons, but one because they want to be part of creating a world with zero crashes, zero missions and zero congestion, and so the transformation that's happening at General Motors they

want to be a part of. And then once we get once they come to General Motors, we're working really hard to make sure they see the opportunity, uh that it truly is an environment where they feel engaged and there's inclusions. So we're seeing fairly low attrition and again we're bringing in um thousands of engineers. If I'm an investor,

how do I think about General Motors today? I mean there's sort of time honored traditions like price earnings ratios for example, that apply to tech and for example, General Motors check was in the six to seven times earnings, right, tech is trading up in the seven uh something like that.

Are you going to move towards that? The multiple, Well, we definitely think there's a huge opportunity um from a multiple perspective, because a lot of times people in the past have thought about the auto industry is a very cyclical business. But when you think about the fact that General Motors we have the opportunity to grow with our our franchises from an ICE perspective. But then the e V part is complete growth and the software and services.

On top of that our growth as well. And then when you look at expanding into new businesses, whether it's on Star insurance or what we're doing with bright Drop, that is more than just an electric light commercial vehicle, but it's a whole ecosystem of how we can move goods better and make those deliveries. And with partners like Fedexit Spress, you know they're seeing the efficiency of the

systems that we're putting in place. So, Mary, take us forward ten or even fifteen years, and let's assume everything you want comes to pass. What does GM look like. I mean, for example, you've mentioned it as a software platform with other services they're attached to it. What percentage of the revenue will come from actually selling the vehicles

as opposed to the services. I actually think that we if we fast forward ten years, I think the software, services, subscriptions and the other adjacent businesses that we can grow into because of the technology that we have will be equal or greater than what we'll have from uh, you know, from selling the vehicle. That that's my vision and I think that's well, um, well within reach. When we look at the different total addressable markets and the businesses that

we're entering. What does that you to margins? Do you expect higher margins on the services than you would normally get on a manufactured product. Well, we see it today on our businesses like on Star, we see you know, a higher margin profile than we do on the actual v iCal But let's not forget you've got to sell

that vehicle to to have access to that. And that's where General Motors also, we have a reason that people should believe that we're going to lead because we already sell more vehicles in this country than anyone else on sending to side some of the limitations with semiconductors right now, and we have the highest loyalty. So when you look at the scale that we have and then the software platform that we can we can access because of that scale, that's where the growth I really think is a huge

opportunity for us. As you say, you have some experience in the marketplace with this already with on Star for example, you mentioned what does the experience tell you about that consumer demand? I mean, it's one thing to be able to provide something it's a good idea, it's another thing for consumers really don't want it. Well, we're seeing growth with on Star and you know on Star we have

over twelve million active connected vehicles. We've been in the business for twenty five years and we have a lot of learnings. We actually have over a twillion trillion connected miles on the road, and today people can buy a safety and security package, they can buy the connectivity package, they can buy both. We're seeing growth in both both types of subscriptions. Uh, and really the vehicle. You know, there's many people's stories throughout the pandemic where their vehicle

became their office because of the connectivity we provide. So these are potentially exciting opportunities. Do they also bring some challenges and let me name one specifically cybersecurity. What are you doing as GM to protect this from cybersecurity? Well, with the Vehicle Intelligent platform that we rolled out starting in nineteen, a big part of the way we redesigned that was with a focus on cybersecurity. We have some of the leading cybersecurity experts in the company from an

auto perspective, because we recognize how important it is. So it's it's built on layers of defense and we've had learnings from other industries, but that's now core to our vehicle with the vehicle intelligent platform. So in this world, again, go forward ten years, I understand you're going to have a lot more services, maybe even more service revenue than vehicle revenue. Uh what does that do in terms of

the overall number of vehicles sold? Are you envisioning a world in which GM sells fewer vehicles but perhaps returns higher profits. Now I'm I'm looking for a world where we continue to grow share and that just continues to expand the growth opportunities with the software. And I think when I look at the Ultium platform that we're putting into market this fall, you know many other traditional O E M s are just thinking about or starting to

work on dedicated electric vehicle platforms. We have one, so we can go all the way from a small crossover all the way to a SuperTruck like the Hummer EV That was Mary bar Chair and CEO of GM. Finally, one more thought, having it both ways. It's what all of us really want, right not to have to choose between two things when we really want them both, like getting everyone back to the office without risking more COVID infections or having the FED taper without causing a tantrum.

But now the Wall Street Journal brings us news about thirty six year old mother of three from upstate New York who has given us all hope or maybe just put us all the shame as she does something any of us who have ever picked up a golf club would think was impossible. Play golf extraordinarily well, and play it really fast. Lauren Cup is the head coach of the men's and women's golf teams at Hamilton College, and she took up the sport of speed golf just after

she had her first child. The idea of speed golf is to play as well as you can and as fast as you can, to give you some sense of just how well and just how fast. This Cup just set a new record by shooting one under par for eighteen holes in fifty minutes. Yes, that's five oh minutes for eighteen holes. That's what takes most of us three or even four hours, and that's on a good day.

So how does she do it well? She carries only five clubs, a driver, a putter, a six iron, a nine iron and a wedge, and whenever she can, she runs right through water hazards like creeks and oh yes, she never ever takes more than twenty seconds to look for a ball. Something that you might want to suggest to that member of your foursome who hits the ball into the woods and then insists on trying to find it. But first and foremost, there is one key rule for

speed golf. Above all, hit it straight, and at least in that one way, Lauren Cupp's approach to speed golf might serve us all in good stead. That does it for this episode of Wall Street Week. I'm David Weston. This is Bloomberg. See you next week.