Warsh Says Inflation Isn't Slowing | The Close 8/28/2026

[MUSIC] >> THE COUNTDOWN IS ON. EVERYTHING YOU NEED TO GET THE EDGE AT THE END OF THE MARKET DATA. THIS IS "THE CLOSE." ROMAINE: THE ANGST OVER FED CREDIBILITY SUBSIDES FOR NOW. LIVE FROM STUDIO 2 AT BLOOMBERG HEADQUARTERS I'M ROMAINE BOSTICK. EMILY: AND I'M EMILY GRAFFEO. LET'S GET A LOOK AT HOW MARKETS ARE TRADING ON THIS JACKSON HOLE DAY AFTER CHAIRMAN KEVIN WARSH VOWED TO KEEP INFLATION AT THAT 2% TARGET OR AT LEAST TRYING TO GET THERE. WE HAVE EQUITY MARKETS REACTING NOT TO MUCH, BUT WE DO HAVE S&P 500 IN THE READ ABOUT 0.3%. WHAT IS REALLY GETTING HIT ARE THE SMALL CAPS. THE RUSSELL 2000. THE SENSITIVE PART OF THE INTEREST -- EQUITY MARKET REALLY DRAGGING HERE. THE FOCUS REALLY ON YIELDS. THE YIELD CURVE FLATTENING. THE 30'S YIELD CURVE NARROWING BY ABOUT 10 BASIS POINTS AS TRADERS AMP UP BETS FOR FED RATE HIKES AND THEY ARE MAYBE NOT AS CONCERNED ABOUT WHAT IS GOING ON IN THE LONGER END. FINALLY THE DOLLAR ALSO MOVING UP. ROMAINE: PRIOR TO TODAY THERE WAS A CHORUS OF INVESTORS TO FIGHT INFLATION AND IT FEELS LIKE HE GOT THE GEOFFREY RUSH, COLIN FIRTH TREATMENT AND DID FIND A WAY TO STOP STAMMERING AND GIVE THE MARKETS WHAT THEY WANT. THAT WAS AN UNWAVERING COMMITMENT TO CURB PRICE GROWTH AND A FULL THROATED ENDORSEMENT OF INTEREST RATES AS THE FED'S PREDOMINANT TOOL. CHAIR WARSH: WE SHOULD NOT INDULGE A REGIME IN WHICH MARKET PARTICIPANTS ARE LOOKING PRIMARILY TO THE FED FOR THEIR NEXT TRADE. THE FED IS THE DECISION-MAKING AGENCY. WE MAKE CHOICES AMID UNCERTAINTY. THE DATA UPON WHICH WE DRAW MUST BE RELEVANT, CONTEMPORANEOUS, ACCURATE, AND AS ACTIONABLE AS POSSIBLE. THE FED'S PRICE STABILITY OBJECTIVE OF 2% AS MEASURED BY THE PCE PRICE INDEX IS A FIRM, FIXED TARGET, ACHIEVING BOTH SIDES OF OUR MANDATE OVER THE MEDIUM TERM IS NOT AN EITHER OR PROPOSITION. WE MUST BE CONFIDENT THAT UNDERLYING INFLATION IS MOVING TO OUR OBJECTIVE CLEARLY AND A SUFFICIENT SPEED. OTHERWISE, WE HAVE WORK TO DO. THAT IS OUR JOB, THAT IS OUR MANDATE, AND THAT IS OUR CHARGE TO KEEP. ROMAINE: JUST ABOUT A MINUTE OF A 30 MINUTE SPEECH, WIDE-RANGING SPEECH PARSED FOR EVERY SINGLE WORD AND THE PUBLISHED STATEMENT PARSED FOR EVERY SINGLE PUNCTUATION, LIKE ELLIPSES. NO EXPLANATION AS TO WHY HE IS SO CONCERNED ABOUT 65 STRAIGHT MONTHS OF A BUG TARGET INFLATION BUT DID NOT PUSH FOR A HIKE AT THE LAST FOMC MEETING IN JULY. POLICYMAKERS AT JACKSON HOLE NOW RETREAT BEHIND CLOSED DOORS FOR THE REST OF THE MEETING AND THE MARKET WILL MAKE UP WHAT IT WILL. DOLLAR HIGHER, BITCOIN LOWER. GOLD FACING ITS BIGGEST DROP OF THE MONTH AND THEN THERE IS THE FLATTENING YIELD CURVE. SHORT-TERM RATES OUTPACING LONG-TERM RATES BY 17 BASIS POINTS TODAY. THE WIDEST DIVERGENCE SINCE FEBRUARY 2025. LET'S KICK THINGS OFF TO THE CLOSE ON THIS FRIDAY AFTERNOON, JACKSON HOLE DAY WITH THE PRESIDENT OF THE MILL U.S. I DO WANT TO START NOT WITH WHAT HE SAID, BUT WITH THE IDEA OF LAYING OUT A ROADMAP FOR INVESTORS WITHOUT NECESSARILY TIPPING HIS HAND. ONE OF THE FIRST WORDS OUT OF HIS MOUTH WAS THIS AIN'T FORWARD GUIDANCE THOUGH I'M SURE WE WILL ALL TAKE IT AS SUCH. DOES IT GIVE YOU A CLEARER PICTURE ABOUT HOW THE FED WILL OPERATE GOING FORWARD? >> THANKS AND THANKS FOR HAVING ME ON AGAIN. CERTAINTY IS ALWAYS BETTER. HE IS WORKING TOWARD GIVING THE MARKET MORE CERTAINTY. FOR US IT IS CRITICAL. UNDER A VARIETY OF SCENARIOS, HOW DO THEY THINK ABOUT EACH AND EVERY SCENARIO AND HOW ARE THEY PREPARED TO ANNOY SHORT-TERM AND LONG-TERM BASIS SO IT IS NOT SO MUCH WHAT IS GOING TO HAPPEN IN A SIGNIFICANCE SCENARIO, IT IS PREPARING FOR A VARIETY OF SCENARIOS. ROMAINE: LET'S TALK ABOUT YOUR CLIENTS BECAUSE YOU SERVE THE ECONOMY WITH REGARD TO THE BUSINESSES AND CONSUMERS THAT COME TO YOU. PRIOR TO TODAY, HEADING INTO THE SECOND HALF OF THE YEAR, HAVE YOU SEEN ANY MATERIAL CHANGE IN THE WAY THEY ARE DEPLOYING, DELAYING, SPENDING, ANYTHING LIKE THAT? ARON: THE GOOD NEWS IS THERE IS GENERAL OPTIMISM. THAT LEVEL OF UNCERTAINTY HAS BEEN THERE NOW FOR A WHILE. MAYBE 12 OR 18 MONTHS SO OUR CLIENTS HAVE STARTED TO LEARN WITHIN THAT UNCERTAINTY AND NOT PREVENT THEM FROM MOVING FORWARD. WE DO WANT TO GROW. WE WANT TO WORK TOWARD OUR OBJECTIVES, LOOKING FOR CAPITAL, LOOKING FOR ADVICE. I WOULD SAY ALL THINGS CONSIDER THE ECONOMY IS SHOWING STRENGTH AND CLIENTS ARE SHOWING OPTIMISM. EMILY: CAN THE OPTIMISM CONTINUE WITH RATES MOVE HIGHER FROM HERE. ARON: ANYTIME RATES CHANGE IT AFFECTS A LOT OF THINGS. WHAT WE ARE HEARING AND SEEING ACROSS INDUSTRIES IS A LOT OF PREPARATION AND A LOT OF FOCUS ON EFFICIENCY AND CLIENTS THINKING THROUGH WHAT HAPPENS IF RATES GO UP, HOW DO I REACT TO THAT? THE MORE TIME THINKING THROUGH THOSE SCENARIOS, THEY WILL HAVE A PLAN TO MOVE FORWARD AND THAT IS WHAT WE ARE HEARING AND SEEING. EMILY: WHAT WAS YOUR BROADER REACTION LISTENING TO KEVIN WARSH WHO SAID THEY DON'T WANT TO COMMUNICATE AS MUCH BUT TO HIS DEFENSE IT WAS LIKE A 30 MINUTE SPEECH. WERE YOU ABLE TO READ THE TEA LEAVES? DOES IT FEEL LIKE THIS IS A FED THAT IS COMMUNICATING LESS? ARON: I'M DEFINITELY NOT THE RIGHT PERSON TO READ TEA LEAVES ON THE FED. WHAT I'M FOCUSED ON AND WHAT MY TEAM IS FOCUSED ON WORKING WITH CLIENTS IS THINKING THROUGH WHAT ARE THE POTENTIAL IMPACTS OF DIFFERENT SCENARIOS? HOW DO WE MAKE SURE THEY ARE PREPARED AS THEY LOOK AT THEIR LIQUIDITY AND RISK MANAGEMENT, HOW DID THEY THINK ABOUT LONG-TERM STRATEGIC THINKING AND THAT IS HOW WE ADD VALUE AND THAT IS WHY OUR CLIENTS COUNT ON US. WE HAD A REALLY TERRIFIC THIRD-QUARTER PERFORMANCE AND I THINK THAT REFLECTS THE ADVICE AND GUIDANCE WE ARE GIVING. ROMAINE: INTEREST INCOME WAS UP 4%. COMMERCIAL LOANS UP 4%. IF WE ARE HEADED TOWARD A RATE ENVIRONMENT WHERE RATES ARE HIGHER IN THAT FIGHT TO INFLATION, DOES NOT BECOME A MARGIN BENEFIT OR ARE YOU MORE CONCERNED ABOUT THE HIT TO CREDIT DEMAND? ARON: OUR MARGINS ARE UP 20 BASIS POINTS YEAR-OVER-YEAR. OUR CLIENTS ARE LOOKING TO GROW? ROMAINE: AS WE TALK ABOUT THE VARIOUS SECTORS OF THIS ECONOMY, WE THINK ABOUT SMALL BUSINESS, COMMERCIAL BUSINESS, REAL ESTATE, HOUSING, I KNOW IT IS ALL DIFFERENT INDUSTRIES. IS THERE SOME SIMILAR THREAD YOU ARE SAYING THAT BINDS THEM ALL TO THE SAME FUTURE FOR LACK OF A BETTER PHRASE? ARON: I THINK ONE THREAD IS THE FOCUS ON EFFICIENCY WHETHER LEVERAGING AI OR LOOKING AT PROCESS AND EXPENSE AND ALL OF OUR CLIENTS ARE REALLY THINKING THROUGH THAT AND A DISCIPLINED WAY, BUT WE ARE SEEING GROWTH ACROSS A LOT OF DIFFERENT SECTORS. WE SAW GROWTH IN COMMERCIAL REAL ESTATE, FINANCE, ENGINEERING, CONSTRUCTION, AND EVEN INTO THE EMERGING MARKET. WE ARE SEEING GOOD, CONSISTENT GROWTH WHERE WE ARE SEEING THESE DIFFERENT SCENARIOS BUT WE ARE THINKING THROUGH HOW DO WE GROW AND MAKE SURE WE ARE SUCCESSFUL REGARDLESS OF THE OUTCOME? EMILY: HOW MUCH OF THAT GROWTH IS COMING FROM AI? WHETHER IN CREDIT MARKETS, EQUITY MARKETS, VERSUS MAY BE LOOKING TO DIVERSIFY AND OFFER CLIENTS SOMETHING OUTSIDE OF THE AI TRADE? ARON: OBVIOUSLY BROADLY FOR THE ECONOMY THERE IS A LOT OF GROWTH TIED TO AI BUT FOR US THE FOCUS IN THE MIDWEST HAS BEEN ACROSS A LOT OF INDUSTRIES THAT ARE NOT NECESSARILY DIRECTLY TIED TO AI. AS WE HAVE GROWN IN CALIFORNIA WITH THE ACQUISITION WE MADE, WE SEE THE RELATED SECTORS. BROADLY, WE SEE GROWTH FROM BEYOND THE AI PLAY. ROMAINE: I DON'T WANT TO KEEP HARPING ON EVERY SINGLE WORD THAT KEVIN WARSH SAID, BUT THERE WAS ALSO A LOT OF TALK IN HIS SPEECH ABOUT THIS IDEA OF MONEY MATTERING. HIS WORDS, NOT MINE. IT SEEMED TO BE GETTING AT THIS IDEA OF THE VELOCITY OF MONEY BUT MORE IMPORTANTLY, FOCUSING MONEY INTO THE SYSTEM, WHICH IS YOU AND YOUR PEERS WHEN IT COMES TO THE MONEY THAT IS CREATED OUT OF THESE BANKS. IF WE HAVE STRONGER COMMERCIAL LOAN GROWTH NOW, DO YOU SORT OF LOOK AT AND INFLATION FIGHT AS BEING A FUNCTION OF THAT, COMPLEMENTARY TO THAT, OR WORKING AGAINST THAT? ARON: I THINK THE GOOD NEWS IS THAT THE BANKING INDUSTRY, WE ARE IN A VERY GOOD POSITION SO WE HAVE THE CAPABILITY AND CAPACITY TO DELIVER THE CAPITAL ALL THE WAY UP TO THE LARGEST CORPORATE CLIENTS. BANKS IN GENERAL AND CERTAINLY A BANK LIKE BMO HAS MORE THAN ENOUGH CAPITAL TO PROVIDE AND FUND FUTURE GROWTH. ROMAINE: AS WE SORT OF I GUESS HEAD INTO THE WILD BLUE YONDER HAS, WE ARE TALKING ABOUT THE ECONOMY AT LEAST ON PAPER THAT SEEMS TO BE HOLDING UP. INFLATION HIGH, NOW A FED CHAIR WHO SEEMS TO BE CLEAR HE IS WILLING TO COMMIT TO THAT. EMILY MENTIONED THE AI BOOM, A BIG DRIVER OF OUR ECONOMY. AS YOU LOOK FOR NEW OPPORTUNITIES HEADING INTO NEXT YEAR, DOES THAT BECOME A REPEAT OF THE PLAYBOOK FOR 2026 OR ARE YOU NOW LOOKING TO SOMETHING DIFFERENT? ARON: FOR US, WE ARE FOCUSED ON WORKING WITH CLIENTS ACROSS A RANGE OF OPPORTUNITIES. WE DELIVER ON LOANS AND BANKING BUT ALSO HELPING THEM WITH LIQUIDITY AND CASH MANAGEMENT. VERY EXCITED ABOUT THE TREASURY BUSINESS THAT GREW YEAR-OVER-YEAR. CERTAINLY CAPITAL MARKETS, THE M&A BUSINESS HAS SOME OF THE LARGEST PIPELINES WE HAVE EVER SEEN SO I THINK HOW WE ADD VALUE FOR OUR CLIENTS IS DELIVERING ACROSS A RANGE OF THINGS AND THAT CAN THEN EXTEND TO WEALTH MANAGEMENT AND CERTAINLY ON THE CONSUMER SIDE MAKING SURE WE ARE THERE AND WORKING WITH CLIENTS AT EVERY LEVEL SO THEY GET WHAT THEY NEED FROM CORE BANKING SO THERE IS A HUGE OPPORTUNITY FOR US NOT ONLY IN THE MIDWEST BUT ALSO IN THE WEST COAST TO GROW ACROSS A RANGE OF SOLUTIONS AND THAT IS WHAT WE ARE FOCUSED ON. ROMAINE: ARON LEVINE, PRESIDENT OF BMO U.S., KICKING US OFF TO THE CLOSE HERE. WE WILL GET MORE OF A DIRECT REACTION FROM AN INVESTOR IN EQUITY AND BOND MARKETS AND WE WILL GO BACK OUT TO JACKSON HOLE BECAUSE OUR COVERAGE HAS NOW CONCLUDED. WE WILL HAVE A SIT DOWN LATER TODAY WITH THE IMF MANAGING DIRECTOR KRISTALINA GEORGIEVA, ATTENDING HER FIRST JACKSON HOLE ECONOMIC SYMPOSIUM. WE WILL ALSO GET HER REACTION TO THE SPEECH A LITTLE BIT EARLIER. STICK WITH US. THIS IS BLOOMBERG. ♪ ROMAINE: WELCOME BACK TO "THE CLOSE," LIVE FROM OUR STUDIOS IN NEW YORK CITY BUT ALL THE ACTION RIGHT NOW IS HAPPENING OUT IN JACKSON HOLE, WYOMING. THAT’S WHERE LISA HAS BEEN STACKED OUT ALL DAY LONG. SHE HAD A SIDELINE VIEW TO THAT KEYNOTE SPEECH BY KEVIN WARSH EARLIER TODAY AND YOU ACTUALLY HERD ONE PREVIOUS TO THAT AND THAT WAS BETHHAMMOCK. SHE SAID WE HAVE TO START FIGHTING INFLATION. WHEN IS THAT GOING TO START? IN TWO WEEKS AT THE SEPTEMBER MEETING? >> RIGHT NOW A LOT OF PEOPLE THINK THAT KEVIN WARSH HASN’T LOCKED HIMSELF IN FOR A RATE HIKE BUT CLEARLY LOCKED THAT IN IN A WAY IT WASN’T PREVIOUSLY. 65 MONTHS OF ABOVE-TARGET INFLATION WHEN HE IS LOOKING AT CORE C.P. EFFORT FROM HOW THE COMPONENTS UNDERNEATH P.C.E. WERE BROAD BASED, GIVES THE SENSE THAT THERE IS A LACK OF PATIENCE AND THAT HE IS READY TO DELIVER ALONG WITH A LOT OF THE COMMITTEE. BETH HAS BEEN HAWKISH FOR A WHILE. THE CLEVELAND DISTRICT IS ASKING THAT SHE DO SOMETHING ABOUT INFLATION. IT’S BECOMING AN INCREASING PROBLEM. IT SEEMS LIKE PEOPLE ARE SAYING IT’S NOT ENOUGH TO HAVE AN EXCUSE OF WHERE THE INFLATION IS COMING FROM. THE ABSOLUTE PRICE LEVEL HAS GOTTEN INCREDIBLY CONCERNING. KEVIN WARSH CAME OUT A LOT MORE HAWKISH THAN SOME WERE EXPECTING. HE DID DIFFER SOMETHING. HE DELIVERED A SENSE THAT HE WAS CONCERNED AND THAT HE IS PREPARED TO TAKE ACTION AND THAT IS THE TONE HEADING INTO THE WEEKEND AND HAS CLEARLY PLAYED OUT THROUGH MARKETS. EMILY: WHAT WAS THE REACTION OF PEOPLE YOU TALKED TO IN JACKSON HOLE? WHAT WERE PEOPLE SAYING ABOUT WARSH’S SPEECH? LISA: KATE MOORE SAID MARKETS ARE IN STRIDE. IT’S NOT GOING TO BLINK OR SERIOUSLY SELL OFF IN RESPONSE TO HIGHER INTEREST RATES. IF ANYTHING MARKETS ARE HIGHER IN GENERAL AND RATES ARE HIGHER FOR THE SAME REASON, WHICH IS GROWTH IS STRONG AND EARNINGS IS ROBUST. IT’S NOT JUST NVIDIA. A LOT OF PEOPLE SAYING YOU CAN SEE THE PRODUCTIVITY IN MARGIN EXPANSION AND THE REST OF THE 493 THAT HAVE NOT BEEN FORGOTTEN THIS YEAR WITHIN THE S&P 500 AND RUSSELL,000. EVEN THOUGH TODAY YOU’RE SEEING THIS KNEE-JERK LET’S SELL, YOU HAVEN’T SEEN THAT OVER THE PAST COUPLE OF YEARS WHEN RUSSELL 2000 HAS ALREADY BAKED IN HIGHER INTEREST RATES. OVERALL PEOPLE ARE TAKING THIS IN STRIDE SAYING THIS IS A MARKET THAT CAN HANDLE IT. THE REAL QUESTION IS THIS A GOVERNMENT THAT BE HANDLE THAT? AT SOME POINT DOES IT BECOME SOMETHING THAT GOVERNMENT HAS TO DEAL WITH? WHERE YOU HAVE INFLATION RUNNING TOO HOT FOR TOO LONG AND LOOKING TO STEP IN. RILEY WE’LL CHECK BACK IN THIS ABOUT AN HOUR’S TIME. BACK HERE IN NEW YORK WHEN WE COME BACK WE’LL ASSESS SOME OF THE RISKS THAT INVESTORS ARE NOW HAVING TO CONFRONT. WE’LL CATCH UP WITH ANDREW SLIMM OH, N. THAT’S NEXT HERE ON BLOOMBERG. ROMAINE: SURPRISINGLY WE LEARNED A LOT TODAY OUT OF THE FED CLAIRE KEVIN WARSH. ONE INTERESTING COMMENT WAS THE SO-CALLED HALL OF MIRRORS PROBLEM AS HE TALKED ABOUT WHERE THE FED RELIES ON MARKET PRICES AND SAYING WE’RE ALL MORE LIKELY TO BE BLINDED TO NEW DROPS. IT’S AN INTERESTING TURN AND FRANKLY ALLOWS THE MARKET TO GET A BETTER SENSE OF HOW WARSH THINKS AND HOW THIS FED WILL BE GUIDED. ANDREW SLIMMON JOINS US. I’M SURE YOU WERE WONDERING ABOUT THAT SPEECH. DO YOU WALK AWAY FROM TODAY HERE ON THIS AUGUST 28 FEELING MORE CONFIDENT ABOUT AT LEAST HAVING THE IDEA OF WHERE THE FED MIGHT GO NEXT? ANDREW: YEAH, I THINK HE REITERATED AND WENT INTO MORE DETAIL OF WHAT HE LAID OUT EARLIER WHICH IS THE FED IS NOT GOING TO BE AS COMMUNICATIVE, HALL OF MIRRORS, AS HE SAID, THEY’RE NOT GOING TO LEAD THE MARKET AND HE’S BEEN VERY CONSISTENT. I THINK IT’S VERY HEALTHY. I’M HAPPY WITH WHAT HE SAID BUT I’M NOT SHOCKED AT ANYTHING HE SAID. I THINK IT’S VERY CONSISTENT WITH WHAT WE HEARD BEFORE, JUST MORE DETAIL. ROMAINE: NOW THAT YOU HAVE THAT DETAIL, HOW TO YOU ADJUST, IF AT ALL, ANY OF YOUR INVESTMENT STRATEGIES OR ALLOCATIONS PRESUMING, AS MOST SEEM TO BE DOING RIGHT NOW, THAT THE NEXT MOVE IN RATES IS HIGHER? ANDREW: EVEN IF THEY DON’T RAISE RATES, THREAT THAT THEY COULD RAISE RATES IS CAUSING A CHANGE IN THE LEADERSHIP IN THE MARKET TODAY. NOW THE SUPERMARKET IS SLAT OR DOWN A LITTLE BIT BUT IF WE LOOK UNDER THE HOOD, YOU SEE THAT REAL SPECULATIVE STOCKS ARE NOT DOING WELL. WHY? THEY WORK IF YOU KNOW THE FED IS GOING TO CUT RATES. THEY DID VERY WELL AFTER LAST YEAR’S JACKSON HOLE EVENT WHEN JEROME POWELL SAID WE’RE CUTTING RATES. THEY DON’T DO VERY WELL IN A RATE-RAISING ENVIRONMENT. THEY ARE SELLING OFF. MONEY IS MOVING INTO THE MORE STABLE LARGER CAP TECH STOCKS. FINANCIALS, GREAT FOR FINANCIALS. HE’S SAYING RATES WILL STAY HIGH SO I THINK THERE IS LEADERSHIP CHANGE AND THEN I GUESS THE OTHER THING THAT I WOULD HAVE TO SAY IS THAT YOU’RE HOPING FOR SO -- THAT’S NOT GOING TO HAPPEN. HE’S ALSO SAYING THE ECONOMY IS VERY STRONG AND I THINK EARNINGS DRIVE THIS STOCK MARKET TO HIGHER LEVELS BY YEAR END BUT DON’T EXPECT ANY -- EXPANSION. >> SO SPECULATIVE STOCKS NOT WORKING. SMALL CAPS NOT WORKING. THIS IS JUST THEN REITERATING THE PLAY THAT’S BEEN DRIVING THE MARKET FOR SO LONG, AS YOU SAID, RIGHT? LARGE CAP, MEGA CAP, TECH STOCKS, THAT’S WHERE YOU WANT TO CONCENTRATE A PORTFOLIO GOING FORWARD? ANDREW: YEAH, BUT NOT REALLY FROM LAST SUMMER UNTIL CHAIR NBA WARSH TOOK OVER. WHAT WORKED WAS THE BIG STOCKS, THE MAG 7 LAGGED. AND I THINK IF I SPOON-FEED YOU THAT I’M GOING TO CUT RATES, RATES ARE DROPPING THEN THE INEVITABLE CONCLUSION IS GO AHEAD AND TAKE RISKS. AS AN ACTIVE MANAGER WHO TRIES TO CONTROL THE AMOUNT OF RISK WE TAKE, THAT’S COMING BACK INTO VOGUE, I DON’T THINK IT’S NECESSARY IF THEY LAY OUT A PATH WHICH THEY DID BEFORE OF LOWER RATES. ROMAINE: I DO WANT TO ASK ABOUT THE OTHER BIG EVENT THAT CIRCLED THIS WEEK AND THAT WAS NVIDIA AND THE BROADER CONVERSATION AROUND AI TRADE. IF YOU BELIEVE WHAT WE SAW FROM NVIDIA THAT’S STILL INTACT, THE SPENDING IS STILL THERE AND JENSEN HUANG EXPECTS THAT SPENDING TO AT LEAST BE STRONG, AT LEAST THROUGH 2028. DO YOU LOOK AT THE VALUATIONS ON SOME OF THESE STOCKS, THE HYPERSCALERS, THE PICKS AND SHOVELS COMPANIES AND SAY THIS IS STILL A BUY THROUGH 2028. ANDREW: THEY TRADE AT VERY REASONABLE VALUATIONS SO THE MARKET IS SAYING WE DON’T BELIEVE IN THE DURATION OF THIS TRADE THE WAY THAT THESE COMPANIES ARE ARTICULATING TO US. THAT IS THE DECISION THAT AS AN INVESTOR YOU HAVE TO MAKE. IS THE DURATION -- WHY ARE THE MEMORY STOCKS UP SINGLE DIGITS? THE MARKET IS TELLING YOU THIS COULD BE -- I DON’T THINK SO. I THINK THIS IS GOING TO LAST LONGER BUT THAT’S THE KEY DECISION THAT YOU HAVE TO MAKE AND SO WHEN YOUR EARNINGS REPORTS WHERE C.E.O.’S LIKE YESTERDAY COME OUT AND SAY WE SEE VERY GOOD VISIBILITY FOR THE NEXT COUPLE OF YEARS, I THINK THAT STRENGTHENS THAT ISSUE. I DO THINK, THOUGH, THAT THIS ELECTION COMING UP THIS ALL IN IS GOING TO WEIGH ON THE DATA CENTER BUILD OUT BECAUSE IT’S GOING TO BRING INTO QUESTION THE RATE AT WHICH THAT’S GOING TO STALL OUT. RILEY THANK YOU, ANDREW. SENIOR PORTFOLIO MANAGER AT MORGAN STANLEY INVESTMENT MANAGEMENT. WHEN WE COME BACK, A BROADER DISCUSSION ABOUT AI IN THE CLASSROOM. >> I THINK THE MOST IMPORTANT THING IN EDUCATION IS THE PRODUCTIVE STRUGGLE AND IF YOU OFFLOAD THAT TO AN AIA, IT IS NOT A GREAT LEARNING EXPERIENCE SO I'M SEEING EDUCATORS NEED TO BE EDUCATED IN HOW TO USE AI AND THEN THE APPROPRIATENESS PER ASSIGNMENT. IN THIS CASE YOU CAN USE IT FOR IDEATION, AND THIS CASE YOU CAN USE IT TO CORRECT YOUR WORK, WE NEED TO TEACH TEACHERS AND STUDENTS WHEN THERE IS PRODUCTIVE STRUGGLE AND WHEN THERE IS NOT. ROMAINE: AI'S INFLUENCE ON EDUCATION. OUR NEXT GUEST IS PROMOTING AI READY CAMPUSES, AI IN THE CLASSROOM AND PLEDGING TO TRAIN MORE THAN ONE MILLION PEOPLE OVER THE NEXT FOUR YEARS. JOINING US IS THE PRESIDENT OF CISCO AND THEIR CHIEF PRODUCT OFFICER. GREAT TO HAVE YOU HERE OWN OF THE PROGRAM. LET'S START OFF WITH EXACTLY WHAT AI ACTUALLY MEANS, MEANING AI IN THE CLASSROOM, WHAT YOU SAY THAT ACTUALLY MEANS. WHEN WE TALK ABOUT THAT, WHAT IS THE ARGUMENT FOR MAKING THIS A BIGGER COMPONENT OF LEARNING? >> YES, ONE OF THE THINGS THAT IF YOU TAKE A STEP BACK AND SAY, WHAT IS HAPPENING WITH AI RIGHT NOW? THE BIG SHIFT THAT IS GOING TO HAPPEN IN SOCIETY OVER TIME IS THAT FOR THE PAST FEW HUNDRED YEARS WE HAVE ALL BEEN OPTIMIZED FOR HOW MUCH KNOWLEDGE DO WE HAVE? KNOWLEDGE IS GOING TO GET TO BE A COMMODITY AND IT IS NOT GOING TO DIFFERENTIATE PEOPLE ABOUT THE KNOWLEDGE IN YOUR HEAD. THE QUALITY OF QUESTIONS YOU CAN ASK TO GET ANY INSIGHT BACK SO IT IS A FUNDAMENTAL STRUCTURAL SHIFT IN THE MENTAL MODEL YOU HAVE TO APPROACH EDUCATION WITH WHICH IS TRULY UNDERSTAND THE QUALITY OF QUESTIONS THAT CAN BE ASKED SO YOU CAN GET EXACTLY WHAT YOU WANT BACK TO HAVE ORIGINAL INSIGHTS THAT CAN DO THINGS YOU COULDN'T DO BEFORE. ROMAINE: I'M CURIOUS ABOUT THAT STATEMENT, THAT ALMOST SEEMS TO BE MAKING A STATEMENT FOR MORE OF A HUMAN ELEMENT IN OUR CLASSROOMS. BASICALLY YOU JUST DESCRIBED THE HUMANITIES. JEETU: I DON'T THINK AI AND THE HUMAN ELEMENT ARE MUTUALLY OPPOSED, I THINK YOU NEED BOTH. BUT THAT TELLS YOU EVEN MORE YOU NEED TO HAVE AI IN THE CLASSROOM SO THAT PEOPLE CAN ACTUALLY START TO THINK IN VERY DIFFERENT WAYS THAN THE WAY THEY HAVE BEEN CONDITIONED TO THINK OVER THE COURSE OF THE PAST SEVERAL HUNDRED YEARS. ROMAINE: ON THAT POINT AND I UNDERSTAND WHAT YOU ARE SAYING BUT THE IDEA THAT THE KNOWLEDGE ITSELF BECOMES COMMODITIZED, BUT ISN'T THE KNOWLEDGE ITSELF THE FOUNDATION OF THAT HUMAN CRITICAL THINKING, INTERPRETATION ITSELF? YOU CAN'T REALLY HAVE ONE WITHOUT THE OTHER OR CAN YOU? JEETU: IT IS JUST THAT THE ABILITY TO ACQUIRE KNOWLEDGE, YOU DON'T HAVE TO KEEP IT ALL IN YOUR HEAD. WHAT YOU CAN BE ABLE TO DO IS GET UP FAR BROADER RANGE OF KNOWLEDGE THAT CAN BE MADE AVAILABLE TO YOU BUT THE QUALITY OF QUESTIONS WILL DETERMINE THE KIND OF KNOWLEDGE THAT GETS MADE AVAILABLE TO YOU. IF YOU KNOW HOW TO ASK THE RIGHT QUESTIONS, YOU WILL HAVE A VERY DIFFERENT OUTCOME THAN IF YOU DON'T KNOW HOW TO ASK THE RIGHT QUESTIONS, SO THIS IS THE THING THAT YOU HAVE TO CHART -- START TEACHING STUDENTS ABOUT. IT'S NOT THAT DIFFERENT FROM LEADERSHIP. THE QUALITY OF QUESTIONS YOU ASK YOUR TEAMS IS BETTER THAN HAVING ALL THE ANSWERS. THE QUALITY OF QUESTIONS DETERMINE YOUR SUCCESS RATES. EMILY: WHAT DOES THIS LOOK LIKE IN PRACTICE? IS THIS ABOUT TEACHING STUDENTS HOW TO PROMPT LANGUAGE MODELS? JEETU: IT IS ABOUT MAKING SURE THAT NOT ONLY THE STUDENTS KNOW HOW TO TAKE EVERY INDIVIDUAL IS GOING TO BE A MANAGER OF AGENTS, WE WILL HAVE AGENTS AT OUR DISPOSAL. WE NEED TO FIGURE OUT A WAY TO BEST UTILIZE THEM TO DO WORK ON OUR BEHALF. THAT IS THE FUNDAMENTAL SHIFT THAT HAS TO BE MADE. IF WE CAN TEACH STUDENTS FROM A VERY EARLY AGE TO BE AI NATIVE AND KNOW THAT YOU ARE GOING TO HAVE ALL THESE RESOURCES AT YOUR DISPOSAL BUT THE WAY YOU DEPLOY THOSE RESOURCES IS GOING TO BE THE DIFFERENCE MAKER WHO, THAT'S A VERY DIFFERENT SKILL TO LEARN THAT WOULD TELL YOU THERE'S NO HARM IN HAVING A CERTAIN LEVEL OF INSIGHT. EVEN OPEN BOOK EXAMS UP UNTIL NOW ONLY HAPPEN IN SELECT COURSES, SO NOW YOU'RE GOING FROM THESE OPEN BOOK EXAMS TO AI AVAILABLE TO EVERYONE AND HAVING ALL THE COMPUTE AVAILABLE TO YOU SO THAT YOU CAN MAKE SURE YOU CAN GET THE BEST POSSIBLE ANSWER TO A PROBLEM YOU'RE TRYING TO SOLVE, BUT THIS NOTION OF PROBLEM-SOLVING GETS TO BE THE CENTRAL PIECE OF EDUCATION MOVING FORWARD. EMILY: RIGHT, PROBLEM-SOLVING, CRITICAL THINKING, OBVIOUSLY VERY IMPORTANT THINGS THAT CHILDREN NEED TO LEARN EARLY ON. I'M WONDERING IF YOU THINK MAYBE THERE IS A MINIMUM AGE FOR WHEN AI SHOWS UP IN THE CLASSROOM? OR THIS IS SOMETHING THAT EVEN PRESCHOOLERS, KINDERGARTNERS SHOULD START ADAPTING? IS THERE A CERTAIN PERIOD OF DEVELOPMENT WHERE YOU WANT TO BE COMPLETELY AI FREE? JEETU: THAT'S A REALLY GOOD QUESTION, I HAVE TO THINK ABOUT THAT, I HAVE A 15-YEAR-OLD DAUGHTER AND SHE GOT INTO TECHNOLOGY PRETTY EARLY IN HER LIFE, WE WANTED TO MAKE SURE WE DIDN'T HAVE HER ONLY DOING THAT SO THERE WERE CERTAIN KIND OF TACTILE SKILLS WE WANTED TO MAKE SURE, SO I THINK YOUR QUESTION IS A REALLY GOOD ONE, LIKE YOU MIGHT NOT WANT TO HAVE AI AVAILABLE AT THREE YEARS OF AGE OR FOUR YEARS OF AGE, YOU MIGHT WANT TO MAKE SURE THERE ARE CERTAIN FOUNDATIONAL SKILLS THAT GET TAUGHT FIRST AND THEN YOU GET TO AN AI AS PART OF THE PICTURE. MY THINKING IS LIKE ONCE YOU GET TO LIKE 7, 8, 9, YOU WANT TO MAKE SURE YOU HAVE THAT INSTINCT FOR HOW IT IS GOING TO WORK AND THEN USE THAT AS A MASSIVE ACCELERATOR BUT YOU NEED TO MAKE SURE THAT YOUR FIRST PRINCIPLE FOUNDATIONAL SKILLS ARE IN PLACE. I HAVEN'T THOUGHT ABOUT THIS ENOUGH. I RESERVE THE RIGHT TO CHANGE MY MIND ABOUT WHAT AGE YOU SHOULD GET INTO IT. ROMAINE: FAIR ENOUGH. I'M CURIOUS ABOUT CISCO'S INVOLVEMENT IN THIS AND WHAT THE OPPORTUNITY, THE BUSINESS OPPORTUNITY IS FROM SCHOOLS AND UNIVERSITIES AS WE START TO SEE MORE OF THIS TECHNOLOGY INTEGRATED IN SOME FORM OR ANOTHER. JEETU: THE ROLE WE WANT TO PLAY A CISCO IS ANY TIME THERE WAS A TECHNOLOGY DISRUPTION THAT WE ARE EXPERIENCING RIGHT NOW WHICH IS A SEISMIC SHIFT, YOU WILL FIND THERE WILL BE SOME JOBS THAT ARE LOST, VIRTUALLY EVERY JOB IS GOING TO GET RE-FACTORED AND NET NEW CATEGORIES OF JOBS WILL BE CREATED. WHAT WE NEED TO DO IS MAKE SURE THAT THE PERCENTAGE OF PEOPLE THAT MIGHT LOSE THEIR JOBS, YOU WANT TO UPSKILL SOCIETY AS FAST AS POSSIBLE SO THE SUFFERING IS MINIMIZED. WE WANT TO MAKE SURE WE HAVE THE RIGHT LEVEL OF SKILLS THAT ARE IN DEMAND RIGHT NOW THAT ARE EFFECTIVELY TRAINED WITH MULTIPLE DIFFERENT VENUES AND WE WANT TO MAKE SURE WE CAN HELP DO THAT. THAT IS WHAT CISCO HAS BEEN THINKING ABOUT. ONE OF THE THINGS IN THE TECH INDUSTRY THAT HISTORICALLY HAVE NEVER BEEN A BIG FAN OF IS WE TAKE THE DOWNSIDE EFFECTS OF TECHNOLOGY AS A MATTER OF FACT, LIKE THAT IS THE COST OF DISRUPTION, SOME PEOPLE WILL LOSE THEIR JOBS. THAT IS REAL SUFFERING THAT HAPPENS SO YOU WANT TO MAKE SURE YOU CAN COLLECTIVELY AS A TECH COMMUNITY, AS A SOCIETY AT LARGE BE INVOLVED IN UPSKILLING THE ENTIRE WORKFORCE SO THEY CAN HAVE THE RELEVANT TIME AND SKILLS. ROMAINE: BUT AS YOU ARE MAKING THIS PUSH THIS PIGGYBACKS OFF WHAT EMILY WAS ASKING ABOUT ABOUT THE RIGHT AGE, WE HAVE ALREADY SEEN SOME SCHOOLS RETRENCH FROM THIS WITH CHICAGO PUBLIC SCHOOLS KICKING GEMINI OUT FOR NOW. THERE ARE A LOT OF QUESTIONS BY PARENTS ABOUT WHAT THEIR CHILDREN ARE BEING EXPOSED TO, THE DATA THAT IS BEING COLLECTED, WHO IS GOING TO OWN IT. WHEN WE HEAR ABOUT THESE VARIOUS BREACHES AND THINGS LIKE THAT, THE IDEA AS TO WHETHER THE PERSONAL INFORMATION ABOUT MY CHILD IS GOING TO BE SOMEHOW PROTECTED AS WELL AND NOT SHARED BEYOND WHATEVER THE PARENTS AGREE TO UPFRONT. JEETU: I THINK THE RESERVATION AROUND LET'S MAKE SURE THAT THE CHILD IS MATURE ENOUGH AND HAS THE CORE FOUNDATIONAL PRINCIPLES IN PLACE AND THE CORE VALUES IN PLACE BEFORE YOU START EQUIPPING THEM WITH AN EXCESSIVE USE OF TECHNOLOGY IS A VERY SOUND ARGUMENT. YOU JUST WANT TO MAKE SURE THAT YOU DON'T WAIT FOR SO LONG THAT THEY DON'T HAVE AN INSTINCT FOR IT AND THAT INSTINCT DEVELOPS TOO LATE. IT IS A FINE BALANCE TO BE MADE. YOU DON'T NEED TO START SOMEONE AT THREE YEARS OLD BECAUSE THEY MIGHT NOT HAVE THE MATURITY TO GO OUT AND ABSORB THE THINGS THEY MIGHT GET FROM AI, AND THEN OVER TIME YOU MIGHT NOT WANT TO WAIT UNTIL YOU ARE 21 TO DO IT EITHER BECAUSE THAT MIGHT BE TOO LATE. THERE IS A FINE BALANCE OF WHEN YOU START GETTING SUPPOSED TO TECHNOLOGY AND THAT MATURITY LEVEL YOU WOULD EXPECT FROM THE KIDS NEEDS TO BE THERE BEFORE YOU CAN EXPOSE THEM IN THE RIGHT WAY. ROMAINE: ALL RIGHT, GREAT CONVERSATION. WE'VE GOT TO GET YOU BACK ON A LONGER ONE. JEETU PATEL, THE PRESIDENT AND CHIEF PRODUCT OFFICER OVER AT CISCO, AND ONE OF THOSE CONCERNS DOES REVOLVE AROUND THE WORLD OF SECURITY AND THAT HAS RAISED SOME OPPORTUNITIES FOR A LOT OF THE CYBERSECURITY COMPANIES. OUR NEXT GUEST RUNS SENTINEL ONE AND THEY RECENTLY JOINED THE EARNINGS PARADE. GOING US IS THE COFOUNDER, CHAIRMAN, AND CEO. BEFORE WE GET TO SOME OF THE NUMBERS OUT OF YOUR MOST RECENT REPORT, I DID WANT TO PIGGYBACK WHERE WE LEFT OFF. AND I HAVE SEEN REPORTS FROM YOUR OWN RESEARCHERS AND I'M GOING TO QUOTE SPECIFICALLY. YOU SAY THE MODEL IS THE MALWARE AND THIS IS BECOMING A BIG CONCERN. MAYBE THIS IS A CONCERN FOR SCHOOLS AND PARENTS ALSO, THE AI ROLLOUT IS GOING FAST AND FURIOUS, BUT I DON'T REALLY KNOW WHO IS PROTECTING US RIGHT NOW? >> THAT'S A GREAT QUESTION AND I THINK IT IS TWOFOLD. ONE IS THE SAFETY OF THESE MODELS THEMSELVES. WE TALKED ABOUT PUTTING THESE THINGS IN CLASSROOMS. DO WE KNOW EXACTLY HOW THE MODEL WORKS? DO WE HAVE ALL THE PATTERNS OF PAY -- BEHAVIOR IDENTIFIED? DO WE KNOW HOW IT AFFECTS OUR NEUROLOGICAL EVOLUTION? WE DON'T REALLY HAVE THE ANSWERS TO ALL OF THOSE. ON TOP OF THAT WE ARE SEEING MELISSA'S -- MALICIOUS USAGE OF THESE MODELS. THEY'RE WAITING FROM PROMPTS FROM HUMANS AND HUMANS CAN USE THEM FOR WHATEVER PURPOSE THEY CHOOSE AND WE ARE SEEING CYBERCRIME GROUPS, NATIONSTATE ADVERSARIES, THEY ARE MISUSING THESE MODELS TO SCALE THEIR ATTACKS AND GO AFTER OUR CRITICAL INFRASTRUCTURE. THE UNDERBELLY OF OUR ENTIRE DIGITAL REALM IS NOW INFUSED WITH THE OLD INFRASTRUCTURE AND SOFTWARE THAT IS JUST NOT UP TO PAR WITH THE MODEL USAGE AND THE CAPABILITIES OF SOME OF THESE MODELS. ROMAINE: BASED ON WHAT YOU RCN, ARE THE CHIEF INFORMATION OFFICERS OUT THERE, ARE THEY GETTING SORT OF THESE INCREMENTAL BUDGETS FOR AI SECURITY? WE KNOW THE MONEY IS THERE IF YOU WANT TO BUILD A DATA CENTER OR BUILD OUT THE INFRASTRUCTURE, BUT IS THERE MONEY BEING ALLOTTED FOR THE SECURITY? TOMER: ABSOLUTELY. WE ARE SEEING MORE DEMAND, WE ARE SEEING MORE OF THESE BUDGETS DIRECTED SPECIFICALLY TO SECURE AI AS FOLKS ADOPT AI BUT WHAT IS INTERESTING IS THERE IS NO SET MODEL AS TO HOW YOU DO AI SECURITY. RIGHT NOW THERE WAS ALSO NOT A SOLUTION, MAY BE THERE NEVER WILL BE A BULLETPROOF SOLUTION, SO THE IDEA THAT WE CAN JUST USE THIS TECHNOLOGY INHERENTLY SAFELY I THINK IS A BIT MISGUIDED. I THINK WE ARE LEANING ON COMPUTER LABS TO MAKE SURE THEY PUT ENOUGH SAFEGUARDS INTO THEIR MODELS AND TYPICALLY THEY DO AND THEY DO THE BEST THEY CAN TO ACHIEVE THAT, BUT YOU ALSO HAVE OPEN-SOURCE MODELS AND IN THE CASE OF OPEN SOURCE MODELS, YOU CAN REALLY STRIP OUT ANY TYPE OF SAFEGUARD AND USE THEM FOR WHATEVER YOU WANT, SO WE ARE ENTERING THIS VERY INTERESTING PERIOD OF TIME, WHERE THE DEFENSE AND HOW YOU DEFEND YOURSELF FROM THESE ATTACKS IS NOT ENTIRELY CLEAR. WITH NEW CAPABILITIES THAT ARE DESIGNED TO ALWAYS MONITOR WITH THESE MODELS ARE DOING, ESSENTIALLY TRYING TO CONTINUOUSLY VET THE BEHAVIOR OF THE MODEL WITHOUT MAKING ANY ASSUMPTIONS THAT IT IS GOING TO DO GOOD OR BAD. BUT THE MODELS AND HOW YOU SECURE THIS, SO IT HAS ALL BEEN BUILT AS CUSTOMERS. EMILY: HOW DO YOU DIFFERENTIATE YOURSELF IN THE CYBERSECURITY SPACE WHEN THEY ARE TRYING TO CONVINCE THEM TO GO WITH SENTINEL ONE. TOMER: OUR APPROACH HAS BEEN THERE FOR ABOUT A DECADE AND WE BELIEVE IN CYBERSECURITY. WE BELIEVE THE SPEED AT WHICH ATTACKS MOVE AND THE SCALE OF WHAT WE SEE REALLY NECESSITATES A COMPLETE, AUTONOMOUS SOFTWARE THAT CAN DETECT AND PROTECT IN REAL TIME AND REMEDIATE ANY THING THAT HAS BEEN MADE. WE ARE ONE OF THE ONLY VENDORS IN THE WORLD TODAY THAT CAN PROVIDE THAT, IN PUBLIC CLOUD, IN REGULATED ENVIRONMENT, FEDERALLY BUT ALSO FOR SCHOOLS. IT’S AN AMAZING PIECE OF SOFTWARE THAT RUNS AUTONOMOUSLY. SCALES DEFENDERS FROM ATTACKS AND ALL IN ALL, WE ARE BIG BELIEVERS THAT THE NEXT STAGE IN SIGNER SECURITY IS GOING TO BE WAGE WITH AUTONOMOUS SECURITY, NOT NECESSARILY MORE PEOPLE AND CONSULTANTS, MACHINE HANDS ON KEYBOARDS BUT WITH SOFTWARE THAT CAN SCALE WHAT THEY DO. EMILY: ANNUAL RECURRING REVENUE $1.22 BILLION. BEATING ESTIMATES FOR THE SECOND QUARTER. REVENUE BEAT. WHAT’S GOING TO DRIVE GROWTH GOING FORWARD? TOMER: IN MANY WAYS OUR EMERGING SOLUTION SETS HAVE ACCELERATED IN THIS PAST QUARTER AND EVEN IN THE QUARTER BEFORE. WE’RE AT THIS JUNCTURE THAT SITS THERE AND REALLY PROVIDES THE FABRIC FOR ALL OF OUR CYBERSECURITY OPERATIONS. WHEN WE THINK ABOUT WHERE MODELS AND AGENTS ACTUALLY RUN, THEY RUN ON ADMINISTRATION, ON WORKLOADS. ON END POINTS. THAT’S WHAT SENTINELONE IS DOING. SENTINELONE HAS DESIGNED A SYSTEM TO PROTECT END POINTS AND THE HUMANS USING THEM FROM EXACTLY THESE TYPES OF ATTACKS AND THAT’S WHERE WE SEE AN IMMENSE AMOUNT OF GROWTH. THERE’S A HUGE MARKET IN INFO PROTECTION. THESE LEGACY SOLUTIONS ARE NOT ABLE TO KEEP UP WITH ATTACKS SO WE’RE SEEING A LOT OF FOLKS NOW STARTING TO MIGRATE AWAY FROM THESE INCUMBENT SOLUTIONS AND INTO MODERN PROTECTION SOLUTIONS. RILEY WE ALL KNOW, THE BIGGER PLAYERS OUT THERE, GOOGLES, MICROSOFTS, PALO ALTO NETWORKS ARE WHETHER SHING SECURITY PLATFORMS. WHY SENTINELONE AS OPPOSED TO GOING TO THOSE OTHER NAMES? TOMER: I THINK IT’S THE AUTONOMOUS NATURE OF THE PLATFORM. THERE AREN’T MANY PLATFORMS OUT THERE THAT ARE COMPLETELY HOLISTIC AND CAN WORK OUT OF THE BOX WITH NO LENGTHY INTEGRATION OR CONSULTANCY WORK. PALO ALTO, GREAT COMPANY BUT THEY HAVE SEVEN OR EIGHT DIFFERENT PLATFORMS THEY HAVE TO PUT TOGETHER TO EVEN GET TO THE POINT OF GETTING THE RIGHT VISIBILITY INTO YOUR ENVIRONMENT. I THINK THAT COMPLEXITY LEAST MORE GAPS FOR ATTACKERS TO GO AFTER. WE SECURE SOME OF THE MOST DISCERNING ORGANIZATIONS IN THE WORLD TODAY. SOME OF THE BIGGEST COMPANIES, CLEARLY THEY LOOK AT THE EFFICACY OF OUR PRODUCT, OF OUR CYBERSECURITY PLATFORM IS SOMETHING T THAT CAN BE DEPLOYED IN REALTIME WITHOUT THAT HUMAN INTERVENTION. ROMAINE: TOMER WEINGARTEN, REALLY APPRECIATE IT. SENTINELONE FOUNDER AND C.E.O. OPENAI RELEASED AN OPEN LETTER YESTERDAY CALLED A COLLECTIVE ACTION ON CYBERDEFENSE. THE CHATGPT OPERATOR JOINING REQUEST 130 OTHER COMPANIES, INCLUDING ANTHROPIC ISSUING THIS CALL TO ACTION. ONE OF THE SIGNATURE TOURS ON THAT WAS OLIVER WEINMAN. WE CAUGHT UP WITH TED MOYNIHAN TO TALK ABOUT THIS. TAKE A LISTEN. >> WE THOUGHT THIS WAS REALLY TIMELY AND THOUGHT IT NEEDS TO BE CALLED OUT THAT THE SPEED AND DEVELOPMENT OF AI AND PARTICULARLY THE CYBERRISKS BUT OTHER RISKS ARE AMPLIFYING VERY, VERY QUICKLY. THE LETTER CALLS THAT OUT AND ALSO POINTS OUT THAT THIS IS A COLLECTIVE ACTION PROBLEM. ROMAINE: IS THAT SOMETHING YOU’VE BEEN SEEING IN YOUR ROLE AT OLIVER WEINMAN. YOU’VE BEEN ADVISING C.E.O.’S AT OTHER COMPANIES NOW FOR DECADES. WERE YOU SEEING THIS AMONG OTHERS IN THE C-SUITE? >> ABSOLUTELY. GOVERNMENT, ALSO AI COMPANIES, ALL FEELING THAT THIS IS A RAPIDLY GROWING PROBLEM. I’M FROM IRELAND. WE HAVE A SAYING THERE THAT IT TAKES A VILLAGE TO SOLVE A HARD PROBLEM. THIS IS JUST THAT HARD PROBLEM. IT REQUIRES THE WHOLE SYSTEM TO WORK TOGETHER AND REALLY TO RAISE THE FOCUS ON THIS. RILEY I AM CURIOUS, TOO, ABOUT THIS IDEA. THIS LETTER COMES AT A TIME WHERE EVERYONE IS WORRIED ABOUT THE HUGGINS CASE ABOUT IT GOING OFF THE RAILS. I MEAN THE ROYAL WE, LIQUID LARGE, DO WE PUT OUR STOCK THAT THE CORPORATIONS AND OTHER FOLKS THAT SIGNED OFF ON THIS LETTER INCLUDING OPENAI ITSELF ARE THE ONES THAT CAN’T ACTUALLY BE THE GATEKEEPERS OR SENTINELS TO PROTECT US? >> IT’S A GREAT QUESTION. AI HAS BEEN BUILT BY TECHNOLOGIESES AND TECHNOLOGY COMPANIES BUT AI DEPENDS ON ALL OF US SO THIS IS SOMETHING THAT REALLY RELIES ON THE ACTION OF ALL OF US. I DO THINK THE LETTER CALLS OUT THAT AI COMPANIES NEED TO ACT AS WELL, NEED TO CREATE FRAMEWORKS SHARED WITH INDUSTRIES, PARTICULARLY WITH THE MORE CRITICAL PARTS OF OUR INFRASTRUCTURE, HOSPITALS AND SO ON. AND THAT THERE IS A RESPONSIBILITY ON COMPANIES, CYBERCOMPANIES AS WELL AS INDUSTRY AND GOVERNMENT. I WELCOME THAT BEING CALLED OUT. ROMAINE: ARE WE MOVING TOO FAST? WITH REGARDS TO YOU BEING PART OF THIS LETTER, IS THERE SOME SENSE HERE THAT FOLKS ARE CALLING FOR SOME SORT OF SLOWDOWN OF THE DEPLOYMENT AND DEVELOPMENT OF SOME OF THESE AI MODELS? TED: I ALWAYS SAY TO PEOPLE WHERE WE ARE RIGHT NOW IN THE AI KIND OF TRANSFORMATION THAT WE’RE GOING THROUGH IS KIND OF NOT MESSY MIDDLE. FOR A FEW YEARS PEOPLE WERE JUST GETTING TO GRIPS WITH THE TECHNOLOGY AND WHAT IT WAS ABLE TO DO AND ROLLOUTS. BUT NOW WE’RE IN A PHASE WHERE PEOPLE ARE TRYING TO SCALE INNOVATION AND TRANSFORMATION AND ENABLE OUR WHOLE ORGANIZATIONS AND THAT’S MESSY AND THAT’S GOING TO BE HAPPENING OVER THE NEXT FEW YEARS. IN THAT ENVIRONMENT, IT DOES REQUIRE A SENSE OF CONFIDENCE AND CLARITY AND SECURITY TO MAKE THE NEXT WAVES OF INVESTMENT. FROM THE BOARD THROUGH THE C.E.O. THROUGH THE ORGANIZATION SO I THINK TO MAKE THE NEXT STEP NOW, THAT IS WHAT IS REQUIRED. SECURITY, CLARITY, CONFIDENCE AND TRUST AND THAT IS WHY I THINK THIS IS A REALLY IMPORTANT ISSUE RIGHT NOW. EMILY: OUR THANKS TO TED MOYNIHAN FROM OLIVER WEINMAN. LET’S LOOK AT MARKETS AS WE MARCH CLOSER TO THE CLOSING BELL. WE HAVE EQUITIES SELLING OFF. MOST MOVEMENT OUT OF SMALL CAPS, INTEREST RATES SENSITIVE PARTS OF THE MARKET. YOU CAN SEE THE RUSSELL 2000 AND FLAT. THAT IS THE TERM TO DESCRIBE WHAT THE YIELD KUFIC IS DOING. FLATTENING. THE 10-YEAR YIELD UP ABOUT 12 BASIS POINTS AS TRADERS PARSE THROUGH WE’RE GOING TO BE SEEING RATE HIKES POTENTIALLY IN SEPTEMBER? AND THAT’S LIFTING THE DOLLAR. ROMAINE: WE BRING IN SASHA, CHIEF STRATEGIST AT INTERACTIVE BROKERS. YOU ANSWER THAT. ARE WE GOING TO GET A RATE HIKE THEN? >> I DON’T THINK. I’VE BEEN IN THE DECEMBER CAMP FOR A WHILE AND NOT NECESSARILY FOR ECONOMIC REASONS, IT’S FOR POLITICAL REASONS. THINKING ABOUT HOW WARSH GOT THE JOB AND WHO HAD TO APPOINT HIM TO THE JOB. WE KNOW THAT THE PRESIDENT IS STRONGLY IN FAVOR OF CUTTING INTEREST RATES. I THINK WARSH REALIZES THAT’S A NONSTARTER BUT I THINK HE DOES NOT WANT TO GO OUT OF HIS WAY TO ANTAGONIZE THE PRESIDENT BY RAISING RATES BEFORE THE MIDDLE TERMS. UNLESS THERE’S SOME CATASTROPHE TROPHIC PRINT. WE’RE GOING TO GET TOUGH TALK OUT OF THE FED AND NOT A LOT OF ACTION AND THAT’S PROBLEMATIC. ROMAINE: BUT WE HAVE TWO MEETINGS BEFORE THE MIDDLE TERMS. AS HE POINTED OUT, 62 MONTHS NOW WE’VE BEEN ABOVE THAT 2% FED TARGET. IT’S TIME TO ACT, WHAT ARE WE WAITING FOR? >> THAT’S A QUESTION MORE FOR WARSH. ROMAINE: I’M SORRY, GO AHEAD. >> WE’VE GONE UP FROM LIKE A 35% TO 65% PROBABILITY FOR SEPTEMBER. TO ME, OCTOBER IS OFF -- 90% PROBABILITY FOR OCTOBER. THAT TO ME IS OFF THE TABLE. I CAN’T SEE THEM DOING ANYTHING BARRING SOMETHING TRULY CATASTROPHIC LITERALLY THE WEEK BEFORE THE MIDDLE TERMS. RILEY WHAT’S THE POWER MESSAGE-WISE, A 25 BASIS POINT HIKE? THAT’S NOT GOING TO DERAIL THE ECONOMY OR THE MARKET BUT THAT WOULD SEND A SIGNAL THAT THAT’S BACKING UP YOUR WORDS. >> IN A NON-POLITICAL WORLD, ARE YOU 100% RIGHT. 25% BASIS POINTS IS NOT GOING TO DO ANYTHING. BETH SAID IT’S AS EASY AS THEY COME AND I DON’T DISAGREE WITH HER. THE BLOOMBERG LIKEDY INDEXS, THEY’RE ALL SCREAM SCREAMING. BUT I THINK THAT’S THE PROBLEM. I THINK IT’S SMARTER ECONOMICALLY FOR HIM TO ACT NOW, GET THAT OFF THE TABLE, WE’RE ACTIVE, WE’RE MOVING. I DON’T KNOW THAT THERE’S THE POLITICAL WILL TO DO THAT AND THAT’S I THINK WHY WE’RE AT 60, NOT 9 OR SOMETHING LIKE THAT. EMILY: DO EQUITY TRADERS CARE ABOUT THE CREDIBILITY OF THE FED? WHY IS IT IMPORTANT? >> THEY SHOULD, THEY DON’T NECESSARILY. I THINK THAT’S WHY WE’RE ONLY DOWN 20 POINTS ON THIS MOVE AS OPPOSED TO DOWN MORE SIGNIFICANTLY WITH 12 BASIS POINTS ON THE SNORT END. MY INITIAL REACTION WAS, LIKE GENTLEMEN, FEEL FREE TO RESUME YOUR REGULARLY SCHEDULED RALLY. WHAT WAS THE FIRST THINGS THAT STOCK SAID? WHEN WARSH LEFT THE PODIUM, STOCKS RALLIED BECAUSE IT’S A FRIDAY, IT’S A QUIET DAY. SO OFF WE WENT WITHOUT ACTUALLY ANY REGARD TO IT AND THEN FINALLY THE WEIGHT OF MONEY KIND OF MADE PEOPLE STEP BACK AND THINK. STOCK TRADERS, AS LONG AS THEY CAN JUSTIFY THEM WITH DECENT EARNINGS AND YESTERDAY NVIDIA WENT A LONG WAY TO THAT AND THERE WAS A HUGE ROTATION. A FAIRLY SIGNIFICANT DECENT-SIZED RALLY AND YET ONE SECTOR ONLY UP IN THE S&P 500. EMILY: I.T. >> THAT WAS IT. 10 DOWN, ONE UP. AND 200 S&P STOCKS LOWER MORE THAN ADVANCERS. WE’RE SORT OF SEEING THE HANG OVER FROM THAT BUT IF THE RIGHT COMPANIES DO THE RIGHT THINGS, THE STOCK MARKET CAN JUST SORT OF CARRY ON. EMILY: SO THAT’S WHAT’S GOING TO CARRY US THEN UNTIL WE GET MAYBE A LITTLE MORE CLARITY FROM THE FED. CARRY ON, KEEP BUYING NVIDIA. BECAUSE SOME OF THESE CHIPS ARE SELLING OFF. >> I’M NOT A HUGE SEASONALITIES PERSON BUT IT BEHOOVES US TO THINK ABOUT SEPTEMBER A LITTLE BIT DIFFERENT -- DIFFERENTLY. ONE OF TWO THINGS CAN HAPPEN. ONE, WE COULD GET A HIKE. ALSO, WE’VE SEEN SITUATIONS WHERE THE STOCKS SORT OF PETER OUT AND YOU SEE IT TODAY WITH NVIDIA. IT’S UNDER A BIT OF PROFIT TAKING. TO ME WHAT HAPPENED YESTERDAY WAS, FOR THE KIND OF RALLIES WE SAW, YOU HAD INSTITUTIONAL "MONEY FLOWING" IN AND THAT’S SORT OF WASHING IN, WASHING OUT. IT’S LIKE WE CAN’T BE MOMENTUM TRADERS TO THAT DEGREE ALL THE TIME. RILEY STEVE SOSNICK. NVIDIA SHARES DOWN 5% AFTER YESTERDAY’S 9% GAME. ALL OF THE MAJOR INDICES IN THE RED ON THE DAY BUT STILL AHEAD ON THE DAY AND IN THE MONTH OF AUGUST. A BLAKEDOWN OF ALL OF TODAY’S PRICE ACTION STARTS RIGHT NOW. >> THE CLOSING BELL. BLOOMBERG’S COMPREHENSIVE CROSS-PLATFORM COVERAGE OF THE U.S. MARKETS CLOSE STARTS RIGHT NOW. RILEY TWO MINUTES AWAY FROM THE ENDS OF THE TRADING DAY. TAKING YOU THROUGH TO THE CLOSING BELL WITH THE GLOBAL SIMULCAST. WE’RE JOINED BY TIM STENOVEC AND LISA MATEO IN TODAY FOR CAROL MASSAR. A MARKET THAT HAS CLEARLY MADE CLEAR WHAT IT THOUGHT OF THAT BIG SPEECH MADE BY KEVIN WARSH EARLIER TODAY. TIM: I DON’T WANT TO STEAL YOUR THUNDER, ROMAINE, BUT THE BOND MARKET REACTION. TWO-YEAR YIELDS UP 12 BASIS POINTS RIGHT NOW? BASIC LIB STARTING AT 10:00 A.M. ROMAINE: UP TO THROW IT OUT THERE AND THAT BIG JUMP ON THE SHORT END OF THE CURVE. NO ACTIVITY REALLY ON THE LONG END OF THE CURVE. 340-YEAR YIELD UP ABOUT 2 BASIS POINTS. THAT’S THE STORY. AND THE NEXT MOVE TO THE FED WILL BE TO HIKE RATES AND PROBABLY SOONER THAN LATER. EMILY: WHEN YOU LOOK AT THE RUSSELL 2000 SMALL CAPS ARE SELLING OFF THE MOST TODAY BY A PRETTY BIG DIVERGENCE FROM THE S&P 500. LISA: THE BLOOMBERG DOLLAR SPOT INDEX IS UP BY ABOUT .3%. SO WE’RE WATCHING THE DOLLAR CLOSELY TOO. ROMAINE: SO MUCH NEWS ABOUT THAT DEBASEMENT TRADE COMING OUT OF SECRETARY BESSENT AND THE MOVETHE DROP IN THE DOLLAR BEING REVERSED TODAY. A LOT OF QUESTIONS RIGHT NOW IS A LOT OF PEOPLE MAYBE DEPART FOR THE NEXT WEEK OR SO UNTIL AFTER THE LABOR DAY HOLIDAY. IF YOU HAVE YOUR CALENDAR OUT, MARK DOWN SEPTEMBER 16, THE NEXT FED DECISION DAY. OCTOBER 28 IS THE NEXT AFTER THAT. ELECTION DAY IS NOVEMBER 3 IN THE U.S. THE FINAL FED MEETING ON DECEMBER 9. U.S. EQUITY MARKETS, THE LOSS IS A RELATIVELY FRACTIONAL. DOW JONES INDUSTRIAL AVERAGE DOWN 10 POINTS. THE S&P DOWN 20, ONE QUARTER OF A PERCENT. THE NASDAQ DOWN 139 POINTS, HALF A PERCENT. THE NASDAQ 100 DOWN .7%. THE RUSSELL 2000 TAKING THE BIGGEST FRONT OF THE SELLOFF, DOWN ABOUT 1.4%. LISA: YOU ARE NOT LEAVING US NEXT WE COME ARE YOU? TIM: REALLY? YOU ARE GONE? ROMAINE:'S BEEN GREAT WORKING HERE. TIM: WE WILL SEE WHO SHOWS UP ON MONDAY. WE DID SEE 230 STOCKS AT HIGHER. 272 MOVE LOWER. EMILY: YESTERDAY THERE WAS ONLY ONE SECTOR IN THE GREEN AND IT WAS TECH. MORE OF A MIXED BAG TODAY. CONSUMER DISCRETIONARY, COMMUNICATION SERVICES, ENERGY, STAPLES. WHAT IS THE LAGGARD? IT IS I.T. SOME DAYS YOU ARE UP AND SOME YOU ARE DOWN, ALL AFTER THE FED MEETING. TIM: SOME OF THE STOCKS THAT MOVED HIGHER TODAY. GAINERS. LOOK AT THIS. CAP HIGHER -- GAP HIGHER BY CLOSE TO 13%. THEY HAD MICHAEL FRANCIS TO HEAD OF THE OLD NAVY BRAND. PROFIT OUTPACED ESTIMATE AND OFFSET A SALES DECLINE AT OLD NAVY AND LOWER SALES GUIDANCE. FRANCIS WILL TAKE OVER ON NOVEMBER 2. THE CURRENT CEO WILL TRANSITION TO AN ADVISORY ROLE. IT FOLLOWS A SALES DECLINE AT OLD NAVY AND THE COMPANY TRIMMED THE UPPER RANGE OF THE OTHER 426. INVESTORS CHEERING THE OVERALL RESULTS FROM GAP, HIGHER TODAY BY 13%. SHARES OF THE BUY NOW PAY LATER FINTECH COMPANY WERE HIGHER TODAY IS 17% EARLIER IN THE SESSION. A STEADY MOVE LOWER, FINISHING THE DAY IN THE GREEN. THE COMPANY DID HIT IN INTRADAY HIGH GOING BACK TO SEPTEMBER OF 2025. THE HIGHEST INTRADAY SINCE THEN AFTER THE COMPANY FORECAST REVENUE FOR THE FIRST QUARTER THAT BEAT THE AVERAGE ANALYST ESTIMATE. WE SPOKE WITH MAX ALEXION, THE COMPANY'S CEO AND HE SAID AMERICAN CONSUMERS, THE CONSUMERS HE VIEWS. HE SAYS THEY ARE HEALTHY RIGHT NOW. FINALLY TAKING A LOOK AT SOME OF THOSE SPORTS BETTING COMPANIES. DRAFTKINGS AND FLUTTER SHARES WERE HIGHER TODAY. DRAFTKINGS UP BY 4.3%. WE DID SEE THEM MOVE HIGHER MIDDAY AFTER NEW YORK -- AFTER KALSHI FACED A SETBACK IN A U.S. APPEALS COURT. THE PREDICTION MARKET. YOU CAN DO A LOT OF WHAT YOU DO WHEN IT COMES TO SPORTS BETTING ON KALSHI. IT IS NOT CONSIDERED SPORTS BETTING, AT LEAST BY LEGAL ENTITIES. THE CFTC. ROMAINE: IT IS PREDICTIVE. TIM: IT IS PREDICTING, AT LEAST THAT IS WHAT THE CFTC SAYS. THIS IS SOMETHING NOT GOING AWAY ANYTIME SOON. KALSHI FACES A CHALLENGE ON A STATE-BY-STATE BASIS. THIS IS THE LATEST SETBACK FOR THE COMPANY. FLUTTER SHARES HIGHER TODAY BY 7.1%. THE SPORTS BOOKS HAVE BEEN PRETTY BEAT UP AS PEOPLE HAVE MOVED AWAY FROM TRADITIONAL SPORTS BOOKS AND GONE TO RIVALS LIKE POLYMARKET AND KALSHI. LISA: I WANTED TO GET TO DECLINERS. PAYPAL DOWN ABOUT 12%. HERE'S WHY. THERE'S A GROUP FROM ADVENT STRIPE NOT GOING ALONG WITH THEIR $50 BILLION PURSUIT OF THE COMPANY. THAT WAS A BIG BLOW. THAT WAS NOT GOOD NEWS FOR THE COMPANY. IT WOULD HAVE RANKED AS ONE OF THE BIGGEST EVER LEVERAGED BUYOUT'S IF IT HAD GONE THROUGH. PAYPAL, THE THING IS THEY ARE STRUGGLING. MODERNIZATION IN PAYMENT TECHNOLOGIES HAVE BEEN A PROBLEM FOR THE COMPANY. RIVALS LIKE APPLE, ALPHABET HAVE SEIZED THE MARKET SHARE. YOU HAVE THE COMPANY. THEY OUSTED THEIR CEO EARLIER THIS YEAR AND HAVE A NEW CEO IN THE SPOT. HE IS SAYING IT IS SPECIFIC FINANCIAL GOALS FOR THE COMPANY. HE WANTS TO CHANGE OUT REPORTS EARNINGS AND HOW THEY ASSIGN EACH LINE OF BUSINESS. SPECIFIC REVENUE TARGET FOR THE COMPANY SHARES DOWN ABOUT 12%. ANOTHER DOWNER. THIS WAS ON THE UPSIDE YESTERDAY. NVIDIA SHARES ALSO ARE DOWN LOWER. WHAT A DIFFERENCE A DAY MAKES. THE LEADER IN AI CHIPS COMING OFF A HUGE RALLY. PROJECTED SALES GROWTH OF 70% FOR THE NEXT FISCAL YEAR. YESTERDAY IT ADDED ABOUT $442 BILLION IN MARKET VALUE. WE HAVE BEEN TALKING ABOUT DIFFERENT EXPERTS. THEY ARE SAYING, WHY THE DIP? THEY SAY DOES NOT SYSTEMIC. IT COULD BE INTEREST RELATED BUT NOT AN ISSUE. ALTA SHARES DOWN ABOUT 4% -- ULTA. THAT WAS THE ISSUE FOR ULTA. ROMAINE: WE WERE TALKING ABOUT THE TREASURY MARKET, THE FLATTENING OF THE CURVE. 12 BASIS POINT DROP -- INCREASE ON THE TWO-YEAR YIELD IS TRADERS PRICE IN SLIGHTLY GREATER ODDS THE FED WILL HIKE RATES THIS YEAR. 30-YEAR YIELD NOT GOING ANYWHERE AND THAT IS A TESTAMENT TO THE IDEA THAT THE FED WILL TRY TO GET INFLATION UNDER CONTROL. TIM: REMAINE, -- ROMAINE, HOW MUCH DOES THE AVERAGE U.S. RESIDENT EAT OF CHICKEN EACH YEAR? ROMAINE: I DON'T KNOW. 100 POUNDS. TIM: YES. 103 POUNDS. HE DID HIS HOMEWORK. HERE'S THE IMPORTANT PART. IT'S AN INCREASE FROM FIVE YEARS AGO, SIX POUNDS. RED MEAT CONSUMPTION IS DECLINING ACCORDING TO THE DEPARTMENT OF AGRICULTURE. LISA GETTING THE STORY ON MY RADAR TODAY IN THE FINANCIAL TIMES ABOUT THE CULT OF THE FIVE DOLLAR ROTISSERIE CHICKEN THAT IS DEFINED INFLATION AT COSTCO. ROMAINE: HOW IS EDIFYING INFLATION? -- THAT DEFYING INFLATION? NOT GOING OUT OF BUSINESS? TIM: THEY DO IT THEMSELVES. THEY HAVE THEIR OWN SLAUGHTERHOUSE IN NEBRASKA. MAYBE THERE IS A STORE. YOU KNOW, BRING IT ALL IN HOUSE. ROMAINE: HAVE YOU EVER BEEN TO ONE OF THOSE PLACES IN WASHINGTON HEIGHTS WHERE YOU CAN GET A LIVE CHICKEN AND THEY DO THE DEED FOR YOU? TIM: NOT ON PURPOSE. WHAT YOU GOT FOR US? ROMAINE: THE PRO BOWL. YOU ARE A TEAM SPORTS BALL FAN, TIM STENOVEC. SINCE 1951. THEY SAID THEY ARE GETTING RID OF IT. NOBODY WATCHES IT. THE PLAYERS DON'T CARE. THEY DON'T WANT TO GET HURT. IS THE EQUIVALENT OF A BACKYARD TOUCH FOOTBALL GAME. THEY FINALLY DECIDED THE END OF AN ERA. EMILY, ARE YOU A SPORTSMAN? EMILY: I'M TRYING. THOUGH DO -- THEY DO HAVE APPROVAL FOR THE NFL CHEERLEADERS. I FOLLOWED THE CHEERLEADERS. IT'S ALWAYS A FUN TIME TO SEE ALL THE DIFFERENT CHEERLEADERS COMING TOGETHER. LISA: CAN YOU FOLLOW COLLEGE FOOTBALL. EMILY: I DO FOLLOW MY COLLEGE SPORTS A LOT. I NEED TO GRADUATE. I NEED TO GROW. TIM: YOU CAN HAVE THE WEEKEND TO DO IT. MAYBE WE WILL SEE ROMAINE ON MONDAY. MAYBE EMILY. ROMAINE: I WILL JOIN CAROL WHEREVER SHE IS. TIM: THAT IS IF OUR CROSS-PLATFORM COVERAGE. HAVE A SAFE WEEKEND, EVERYBODY. SAME TIME, SAME PLACE ON MONDAY. ROMAINE: PROCUREMENT CONTINUES ON BLOOMBERG TELEVISION. WE GO BACK OUT TO JACKSON HOLE FOR REACTION TO KEVIN WARSH'S SPEECH IN A SIT DOWN WITH THE IMF MANAGING DIRECTOR KRISTALINA GEORGIEVA COMING UP NEXT ON BLOOMBERG. ♪ >> THE COUNTDOWN IS ON. EVERYTHING YOU NEED TO KNOW TO GET THE EDGE AT THE END OF THE MARKET DAY. THIS IS "THE CLOSE." ROMAINE: WELCOME BACK TO "THE CLOSE." I LOOK AT HOW EQUITIES FINISHED OUT THE DAY. MODEST LOSSES AROUND FOR MOST OF THE MAJOR INDICES IN THE U.S. MOST MAJOR INDICES STILL FINISHING THE WEEK IN THE GREEN. ALL THE MAJOR INDICES NOW ON TRACK TO POST A MONTHLY GAIN FOR THE MONTH OF AUGUST. THE REAL ACTIVITY WAS THE BOND MARKET WITH THE SHORT END OF THE CURVE SEEING MOST OF THE ACTION. BIG SELLING PUSHED YIELDS HIGHER BY ABOUT 12 BASIS POINTS. LESS ACTIVITY ON THE LONGER END OF THE 30-YEAR YIELD OF ABOUT TWO BASIS POINTS. THAT'S A FUNCTION OF WHAT WE LEARNED OUT OF KEVIN WARSH AND HIS COMMITMENT TO FIGHT INFLATION. MORE ARTICULATION THAT PUT A BID UNDER FINANCIAL STOCKS LIKE BANK OF AMERICA AND A LOT OF DISCRETIONARY STOCKS. THEY WOULD BENEFIT SHOULD INFLATION START TO COME DOWN. THAT FIGHT AGAINST INFLATION COULD SLOW THE ECONOMY AND THAT RAISES QUESTIONS ABOUT SOME OF THE LONGER DURATION NAMES LIKE NVIDIA AND THE MATERIAL NAMES LIKE ALCOA. THAT BRINGS US TO OUR TOP STORY FOR THE HOUR. IT IS NOT SO MUCH WHAT IS NEXT FOR THE FED BUT WHAT IS NEXT FOR THE ECONOMY. THE KEY TAKEAWAY WAS THE EXPLICIT ACKNOWLEDGMENT OF THE INFLATION PROBLEM AND EXPLICIT LANGUAGE THAT GETTING THE CORE INFLATION GROWTH RATE BACK DOWN TO THE FED'S 2% TARGET IS NOT JUST AN IDEA TO PASS OUT TO MARKETS. IT'S A COMMITMENT BY THE OFM SEAT TO FOLLOW THROUGH ON ITS DUAL MANDATE. -- FOMC. >> THERE IS ONE SINGLE NOBODY CAN THIS. RESPONSIBILITY FOR 65 MONTHS OF SUSTAINED ELEVATED INFLATION SITS SQUARELY WITH THE CENTRAL BANK. THAT IS WHERE IT BELONGS. HERE IS MY STANDARD. WE MUST BE CONFIDENT UNDERLYING INFLATION IS MOVING TO OUR OBJECTIVE CLEARLY AND AT SUFFICIENT SPEED. OTHERWISE WE HAVE WORK TO DO. THAT IS OUR JOB. THAT IS OUR MANDATE. THAT IS OUR CHARGE TO KEEP. ROMAINE: INFLATION IS JUST ONE SIDE OF THE MANDATE. MAXIMUM EMPLOYMENT IS THE OTHER END MARKETS ARE LOOKING FOR CLUES FOR THAT BALANCE, RAISING RATES TO FIGHT INFLATION. SOMETIMES THAT SLOWS ECONOMIC ACTIVITY WHICH MEANS A SLOWDOWN IN JOB GROWTH. WARSH DID NOT SAY JOB LOSSES WOULD BE HARMLESS OR SPECIFY HOW MUCH UNEMPLOYMENT HE WOULD TOLERATE. THAT IS THE ASYMMETRIC POLICY PROBLEM HERE. THE SILVER LINING IS THAT THE UNEMPLOYMENT OBJECT IT IS MUCH CLOSER TO BEING SATISFIED THAN THE PRICE STABILITY MANDATE. MAYBE THAT LABOR MARKET STRENGTH IS WHAT GIVES THE FED ENOUGH HEADROOM TO PRIORITIZE INFLATION AND A 2% TARGET THAT HAS REMAINED ELUSIVE FOR MORE THAN FIVE YEARS AND COUNTING. DANA PETERSON JOINS US, WHO IS OUT THERE IN JACKSON HOLE, WYOMING. I WANT YOUR REACTION TO NOT ONLY WHAT WARSH SAID BUT THE WAY HE SAID IT. WHAT DO YOU THINK IS GOING TO BE THE PRIMARY FOCUS OF THE FED OVER THE NEXT FEW MEETINGS? DANA: PRICE STABILITY. HE HAS SAID THAT REPEATEDLY AND HE WAS STRONG ON THAT TODAY. I THINK THE FED IS GOING TO CONTINUE TO KEEP RATES A LITTLE RESTRICTIVE, ESPECIALLY SINCE WE HAVE THESE STRUCTURAL DRIVERS INFLATION LEANING AGAINST THE EASING WE ARE SEEING FROM SHELTER COSTS. ROMAINE: IT GETS TO THE IDEA AS WHEN YOU WOULD SEE ACTION. A LOT OF PEOPLE ARE LOOKING AT THE NEXT MEETING LESS THAN THREE WEEKS AWAY AND SAID THE FED SHOULD JUST HIKE RATES. DID YOU GET ANY SENSE THAT WARSH IS PREPARED TO ACT RATHER THAN JUST TALK? DANA: I THINK DEFINITELY HE IS PREPARED TO ACT IF NEEDED. HE DID NOTE WE STILL HAVE SOME INFLATIONARY NEWS COMING OUT AND THERE'S THE UNCERTAINTY GIVEN GEOPOLITICAL RISK OUT THERE. I THINK THE DECISION IS NOT MADE YET, AT LEAST HE NOT -- HE CERTAINLY NOT GOING TO TELEGRAPH IT. I THINK THE FED COULD PROBABLY REMAIN ON HOLD FOR NOW UNLESS WE SEE INFLATION MISBEHAVING. ROMAINE: WHAT IS YOUR VIEW AT THE CONFERENCE BOARD WHEN IT COMES TO THE HEALTH OF THE LABOR MARKET AND HOW THAT OVERLAYS WITH WHAT WE KNOW ABOUT AND CEO EXPECTATIONS FOR INFLATION GOING FORWARD. DANA: I SEE LABOR MARKET IS STILL PRETTY HEALTHY. THE NUMBER OF PEOPLE ON NONFARM PAYROLLS IS REALLY ELEVATED. IT GOT TO A VERY ELEVATED POINT THE END OF 2024 AND WAS KIND OF FLAT OVER 2025 AND IN RECENT MONTHS IT'S BEEN PICKING UP A LITTLE BIT. THE UNEMPLOYMENT RATE IS LOW BECAUSE THE INITIAL JOBLESS CLAIMS ARE LOW AND CONTINUING CLAIMS HAVE BEEN LOW. WE DON'T SEE ANY MATERIAL INFLATION IN WAGES, WHICH IS ALSO PART OF THE LABOR MARKET. I THINK WE ARE STILL IN THIS LOW FIRE LOW HIRE STASIS IN TERMS OF THE LABOR MARKET. ROMAINE: WITH REGARD TO THE INFLATION SIDE AND THE AMOUNT OF SPENDING WE CONTINUE TO SEE IN THIS ECONOMY, I DON'T KNOW WHAT THE OFFICIAL GOVERNMENT DATA'S TELLING US, BUT EVERY COMPANY OR CONSUMER FOCUSED COMPANY THAT'S REPORTED EARNINGS HAS TALKED ABOUT THIS IDEA OF A MORE CHOICE FUL CONSUMER, THESE FOLKS ARE COMING INTO BUY WHAT THEY NEED AND NOT MUCH ELSE. ARE YOU SEEING SIMILAR PATTERNS AND DOES THAT FORCE THE ISSUE FOR THE FED? DANA: INDEED. THAT'S BEEN THE MEASURE WE HAVE HEARD AMONG CONSUMERS. EVEN EARLIER THAN NOW. LATE DECEMBER OF LAST YEAR INTO THE BEGINNING OF THIS YEAR. THEY WERE LEANING TOWARDS NECESSITIES AND AWAY FROM DISCRETIONARY ITEMS. WE ARE SEEING THAT IN THE DATA, IN REAL CONSUMER SPENDING, WHERE PEOPLE ARE SPENDING MORE ON THINGS THEY NEED LIKE FOOD AND GASOLINE, ELECTRICITY, AND MOVING AWAY FROM DISCRETIONARY GOODS ANSWER IS IS -- EVEN THINGS LIKE CARS. WHEN IT COMES TO ENTERTAINMENT, THEY ARE TRADING DENTIST -- TRADING DOWN TO STREAMING FROM GOING TO THE MOVIES. WHAT CONSUMERS ARE SIGNALING IS DEFINITELY SHOWING UP IN THE DATA NOW. ROMAINE: AS JACKSON HALL GETS UNDERWAY, THE PUBLIC SPEECH, HE GAVE THE MARKET WHAT THEY WANTED NOW, HE GOES BEHIND CLOSED DOORS, THE TASK FORCES COME ALL THIS OTHER STUFF, WHAT IS MOST IMPORTANT FOR YOU COMING OUT OF THESE MEETINGS, INDEPENDENT OF THE DUAL MANDATE SPEECH TODAY? DANA: THINK IT IS THAT PROMISE THAT THE FED AS A COMMITTEE WILL DO WHAT IS RIGHT FOR THE ECONOMY. AND SHOULD IT BE THE CASE THAT INFLATION DOES PICK UP AGAIN AND IT DISCONTINUES ITS DECELERATION, THEY WILL HIKE. I THINK THERE IS PLENTY OF ROOM TO JUST REMAIN ON HOLD. ESPECIALLY SINCE WE CONSUMER SPENDING SLOW, AS AS WELL AS PIVOTING TOWARDS THOSE THINGS THAT PEOPLE NEED AND MOST OF THE GROWTH OF THE ECONOMY THIS YEAR HAS BEEN DUE TO INVESTMENT IN TECH, ESPECIALLY A.I. AND THERE'S NO GUARANTEE THAT WILL PERSIST AT THE RELATIVE STRENGTH WE HAVE SEEN SO FAR. SO THERE'S AN ARGUMENT FOR HOLDING AND WAITING AND SEEING. ROMAINE: REALLY -- REALLY APPRECIATE YOU JOINING US, THE CHIEF ECONOMIST, LEADER OF THE ECONOMY STRATEGIST AND FINANCE CENTER OVER AT THE CONFERENCE BOARD. WHEN WE COME BACK, WE WILL FOCUS ON FINANCIAL REGULATION. THERE'S A LOT GOING ON IN WASHINGTON. WE WILL CATCH UP WITH THE FORMER SEC COMMISSIONER MIKE PIWOWAR. WE WILL HAVE THAT CONVERSATION WHEN WE COME BACK AFTER THE BREAK RIGHT HERE ON "THE CLOSE" ON BLOOMBERG. ♪ ROMAINE: AS KEVIN WARSH AND OTHERS GO BEHIND CLOSED DOORS TO DISCUSS MONETARY POLICY FRAMEWORKS, THERE ARE DEBATES IN WASHINGTON ON THE LINES IN AMERICAN INVESTING AND WHETHER THEY SHOULD BE REDRAWN. THE SEC IS CONSIDERING CHANGES AND REGULATORS LOOKING TO PUT MORE PRIVATE ASSETS INTO MARKET EXCHANGES, EXPERIMENTING WITH TOKENIZATION. MICHAEL PIWOWAR HAS BEEN STEEPED INTO THIS FOR DECADES. . I DO WANT TO START OFF WITH KEVIN WARSH. IN THAT SPEECH AT JACKSON HOLE, HE TALKED ABOUT THE IDEA THAT MOVING INTEREST RATES IS THE PREDOMINANT TOOL FOR THE FED TO FULFILL ITS MANDATE. HE SEEMED TO NOT KNOCK BUT THROUGH SHADE AT THE IDEA OF UNCONVENTIONAL MECHANISMS WHEN TIMES ARE UNCONVENTIONAL. YOU WERE ADVISOR DURING ONE OF THE MOST UNCONVENTIONAL TIMES IN HISTORY DURING THE FINANCIAL CRISIS. I'M CURIOUS TO SEE WHAT YOU THINK OF THAT COMMENTS PARTICULARLY GIVEN JUST A WEEK AND A HALF AGO TREASURY SECRETARY WAS MAKING IT CLEAR HE WAS READY TO USE UNCONVENTIONAL TACTICS TO KEEP RATES DOWN. MICHAEL: THANKS FOR HAVING ME. IT IS CONSISTENT WITH WHAT KEVIN WARSH HAS SAID IN HIS NOMINATION HEARING AND THE PRESS CONFERENCES HE'S HAD AFTER THE FOMC MEETINGS. HE REALLY WANTS TO FOCUS UNCONVENTIONAL MONETARY POLICY AND MOVE AWAY FROM THE LINES THAT ARE BLURRING IN FISCAL POLICY AND HE HAS EVEN GOTTEN TO THE POINT WHERE HE SAID EARLIER, OWNING A BUNCH OF LONG-TERM BONDS ON THE FED BALANCE SHEET IS BLURRING THE LINES OF FISCAL POLICY, SO HE IS LOOKING TO SHED THOSE FROM THE BALANCE SHEET RATHER THAN FOLLOWING THE TREASURY SECRETARY INTO INTERBREEDING IN THE MARKETS AND HE MADE THAT -- INTERVENING IN THE MARKETS AND HE MADE THAT CLEAR TODAY. UNFILTERED MARKET PRICES ARE IMPORTANT FOR THE FED TO FULFILL ITS MANDATE AND HE CAME UP WITH AN ANALOGY THAT BEN BERNANKE ABOUT YEARS AGO WHERE YOU HAVE -- IF THE FED IS LOOKING TO MARKET PRICES BUT THE MARKET IS LOOKING TO FOR GUIDANCE, YOU CAN END UP WITH A HALL OF MIRRORS PROBLEM. WHAT HE WANTS IS UNFILTERED MARKET PRICES IN THE BOND MARKET S AND DOES NOT WANT TO TRY TO MANIPULATE THAT AND HAVE MARKETS FIGURE OUT WHAT THE FED IS GOING AFTER THAT. ROMAINE: HE WILL HAVE TO RECONCILE THAT WITH HIS COLLEAGUE AT SOME POINT. YOU ARE GETTING OUT WHAT WAS KIND OF ADMONISHING HIS FORMER PRODIGY AND HE MADE THE EXACT SAME POINT, CANNOT REMEMBER THE LANGUAGE BUT IT WAS BASICALLY LIKE ONE OF THE PUREST FORMS OF KNOWING WHERE THINGS ARE GOING, LETTING THE TREASURY MARKET DO WHAT IT NEEDS TO DO AND YOU WILL GET THE MESSAGE. WARSH SEEMS TO BE INTENT ON ALLOWING FOR THAT BUT HE ALSO MADE IT CLEAR HE DOESN'T WANT THE MARKET TO DO THE WORK FOR THE FED, HE THINKS IT HAS A RESPONSIBILITY TO FIGHT INFLATION ON ITS OWN, DO YOU THINK YOU WILL DO THAT? MICHAEL: YES, HE MADE IT CLEAR, PEOPLE WERE LOOKING -- HE SAID HE WOULD NOT GIVE FORWARD THAT IS AN ADDRESS THAT RIGHT AT THE BEGINNING. AND FOLKS WERE TRYING TO FIGURE OUT, THE BIGGEST QUESTION PEOPLE ASK GOING INTO THE MEETING I HEARD WAS, AT LEAST GIVE US YOUR REACTION FUNCTION. IN THE SENSE THAT PEOPLE WANTED INSIGHT INTO WHAT DATA WE ARE USING AND HOW ARE YOU REACTING TO THAT DATA IN TERMS OF MONETARY POLICY? YOU PRETTY MUCH ANSWERED -- HE PRETTY MUCH ANSWERED THE FIRST PART OF THE QUESTION WITH THE DATA HE'S LOOKING AT. HE SPENT THE FIRST PART OF HIS SPEECH SAYING HE'S ACTUALLY LOOKING AT NEW DATA INVOLVING THE EFFECTS OF A.I. FOR THE SECOND PART HOW HE IS REACTING TO THAT, HE DID NOT GIVE AN EXPLICIT ANSWER. HE LAID OUT CORE PRINCIPLES HE IS THINKING ABOUT. ONE OF THOSE, HE STATED THAT THE 2% INFLATION TARGET IS FIRM AND FIXED AND HE MENTIONED THE PCE INDEX. THERE WERE QUESTIONS AS TO WHAT INDEX HE WOULD BE LOOKING AT AND WHETHER THE 2% WAS SOMETHING HE WOULD BE TARGETING OR HE WOULD BE SATISFIED WITH SOMETHING SLIGHTLY ABOVE 2%, WE HAVE BEEN STUCK IN THE 3% OR 4% RANGE IN A WHILE -- HE SAID I AM LOOKING AT 2 $ -- 2% AND BASICALLY LAID DOWN THE LINE, HOLDING HIMSELF ACCOUNTABLE TO THAT. ROMAINE: GIVEN YOUR HISTORY, JUST ABOUT HOW TRANSPARENT THE MARKETS ARE TO BE USED AS A RELIABLE INDICATOR, YOUR RESEARCH BACK IN THE DAY LED US TO TRACE MORE TRANSPARENCY AND BOND MARKETS, AND THAT SEEMED TO BE THE MOVE. BUT NOW IT IS PREDICTION MARKETS AND ORGANIZATION AND THESE FINANCIAL INNOVATIONS THAT COME IN, THERE'S CONCERNS THAT NOW WE ARE GOING BACK TO MAY BE A LITTLE BIT MORE OPACITY IN THE MARKETS. HOW DO YOU SEE IT? MICHAEL: THERE'S ALWAYS BEEN CONCERNS WHERE THE FED HAS BEEN INVOLVED. YOU MENTIONED THE FINANCIAL CRISIS. THE FED HAD BEEN BUYING MORTGAGE BACKED SECURITIES. SO PRICES IN THE MORTGAGE MARKET WERE ARTIFICIAL FOR A LONG TIME. NOW THE FED IS GETTING OUT OF THAT AND WE ARE STARTING TO SEE WHAT THE EXACT MARKETS ARE. IN TERMS OF PREDICTION MARKETS, THERE'S ACADEMIC EVIDENCE THEY'RE PROVIDING MORE TRANSPARENCY AND MORE INFORMATION TO FOLKS, NOT ONLY RETAIL INVESTORS INVESTING -- THE RETAIL TRADERS AS A HOBBY, BUT WE ARE ACTUALLY SEEING THE INSTITUTIONAL INVESTORS BECOMING MORE INTERESTED IN PREDICTION MARKETS. FIRST IN PRICE DISCOVERY. IF YOU WANT TO LOOK AT, WHAT IS THE PROBABILITY OF THE FED INCREASING RATES BY 25 BASIS POINTS AT THE SEPTEMBER MEETING, THE ODDS WENT FROM ONE IN THREE BEFORE TODAY'S SPEECH TO ABOUT 50-50 AFTERWARDS AND IT MATCHES PRETTY MUCH WHAT WE ARE SEEING IN THE FUTURES MARKET. THEY PROVIDE AN OPPORTUNITY FOR CONTRACTS THAT MATCH WHAT WE ALREADY HAVE OR CAN ACTUALLY GET NEW MARKETS TO BE ABLE TO HEDGE IN THESE MARKETS. ROMAINE: WE HAVE BEEN TALKING ABOUT THAT KEYNOTE SPEECH BY KEVIN WARSH AT THE KANSAS CITY SYMPOSIUM AT JACKSON HOLE, WYOMING. LISA ABRAMOWICZ IS STILL ON THE GROUND AND HAS A SPECIAL INTERVIEW SIT DOWN WITH THE MANAGING DIRECTOR OF THE IMF, KRISTALINA GEORGIEVA. LISA: AND WITH THE IMF MANAGING DIRECTOR KRISTALINA GEORGIEVA AFTER A MOMENTOUS SPEECH FROM FED CHAIR KEVIN WARSH. THIS IS YOUR FIRST JACKSON HOLE SUMMIT. I WOULD LOVE TO SAY THANK YOU FOR JOINING US. WHAT WAS YOUR TAKE AWAY FROM KEVIN WARSH SPEECH? KRISTALINA: HE DID A GREAT JOB. HE ARTICULATED HIS VIEWS ON THE RAPIDLY CHANGING WORLD. VERY CLEARLY. HIS COMMITMENT TO PRICE STABILITY, THAT 2% IS THE TARGET FOR THE FED TO ACHIEVE WAS VERY CLEAR. I THINK THE AUDIENCE WAS POSITIVELY IMPRESSED BY THE CLARITY AND ALSO THE MESSAGE HE COMMUNICATED TO THE CENTRAL BANK COMMUNITY. WE HAVE TO BE HUMBLE. THE WORLD IS CHANGING SO RAPIDLY. WE HAVE TO CAREFULLY WATCH WHAT IS GOING ON AND MAKE OUR BEST CALL FOR THE BENEFIT OF PEOPLE, FOR THE BENEFITS OF THE ECONOMY. LISA: YOU HAD A SPEECH LATER IN THE MORNING YOU WROTE THAT THE CENTRAL BANK ROLE IS TO MAKE SURE INFLATION STAYS LOW AND STABLE. HOW DO YOU UNDERSTAND THE PAST 5 -- MORE THAN FIVE YEARS WHERE INFLATION HAS BEEN ABOUT TARGET? IS THIS THE FAULT OF CENTRAL BANKERS? IS THIS SOMETHING ELSE WE CAN ADDRESS? KRISTALINA: WHAT HAS HAPPENED IS SHOCK UPON STOCK UP ON STOCK. OPPRESSED GOVERNMENTS -- THEY HAVE PRESSED GOVERNMENT TO BORROW AND SPEND MORE THAN THEY SHOULD. OF COURSE, THAT HAS SOME INFLATIONARY IMPACT. ALSO WE KNOW THAT WHEN WE WERE HIT BY COVID, AT THAT TIME THE PUBLIC SPENDING WAS PERHAPS A BIT MORE GENEROUS. HOW DO YOU KNOW HOW MUCH IS ENOUGH WHEN THE WORLD ECONOMY COMES TO A SCREECHING STOP? I WOULD BLAME CENTRAL BANKS ONLY IF THEY DON'T LEARN LESSONS FROM EXPERIENCE. WHAT WE ARE SEEING HERE IN JACKSON HOLE AND WHAT WE HEARD FROM CHAIR WARSH'S THEY ARE DRAWING LESSONS FROM EXPERIENCE. LISA: A LESSON ON ITS FACE SEEMS TO BE PERHAPS I NEED TO BE A BIT MORE RESTRICTIVE IN THEIR POLICIES. DO YOU THINK MORE BROADLY AROUND THE WORLD THAT NEEDS TO BE THE APPROACH, EVEN THOUGH SHOCKS ARE STILL COMING? KRISTALINA: WE HAVE TO ACCEPT THIS REALITY THAT THE WORLD IS CHANGING RAPIDLY AND THAT PART OF THE CHANGE IS A POSITIVE OR NEGATIVE SHOCK. RIGHT NOW WE ARE DEALING WITH TWO SHOCKS WORKING IN OPPOSITE DIRECTIONS. WE HAVE THE ENERGY SUPPLY SHOCK AND WE HAVE AI. ONE DRAGS GROWTH DOWN IN ONE PUSHES IT UP. WE HAVE TO GET ACCUSTOMED TO AN ENVIRONMENT THAT IS LESS PREDICTABLE. WHAT DO YOU DO IN THAT ENVIRONMENT WHEN FIRST, BUILD YOUR BUFFERS IN GOOD TIMES. THE ECONOMY IS DOING WELL. LET'S CUT THE DEFICIT, BRING DOWN THE DEBT. TWO, RECOGNIZE YOUR BEST FRIENDS ARE SOUND POLICIES AND STRONG INSTITUTIONS. LISA: DO YOU FEEL LIKE YOU ARE BEATING YOUR HEAD AGAINST THE WALL WHEN YOU SAY GET YOUR HOUSE IN ORDER TO PEOPLE SAYING NO THANKS, MAYBE THE NEXT GUY CAN DO IT? IT SEEMS LIKE NO ONE IS LISTENING. KRISTALINA: SUMMER LISTENING. LOOK AT EMERGING MARKETS. THEY HAVE DONE FABULOUSLY WELL. THE FRAMEWORKS ARE STRONG. THEIR FISCAL FRAMEWORKS ARE MUCH BETTER SOMETIMES. THEY DO BETTER THAN BIG ECONOMIES. SOME PEOPLE THAT HAVE HAD THE PAINFUL EXPERIENCE OF CRISES ARE LISTENING. IT IS HUMAN NATURE. WHEN DO WE FIX OUR ROOFS? WHEN THE SUN IS SHINING OR WHEN THERE IS RAIN? WE WILL CONTINUE TO SHOUT THE SUN IS SHINING, IT'S A GOOD TIME, BRING THE ROOFERS. LISA: KEN ROGOFF WAS TALKING WITH TOM KEENE AND HE SAID IT'S GOING TO TAKE A DEBT CRISIS TO REALLY CAUSE DEVELOPED MARKETS TO REALLY CAUSE DEVELOPED MARKETS GET THEIR FISCAL HOUSE IN ORDER. DO YOU AGREE? KRISTALINA: NOT NECESSARILY. WE HAVE SEEN HISTORICALLY THAT ACTIONS HAVE BEEN TAKEN IN GOOD ECONOMIC TIMES. SOUND GROWTH, GOOD HOUSEHOLD SPENDING, INVESTMENTS, AND THEN ADJUSTMENTS, FISCAL ADJUSTMENTS TAKE PLACE. BUT WE HAVE TO RECOGNIZE THAT WE LIVE IN A WORLD OF POPULAR DESIRE FOR THE GOVERNMENT TO SPEND MORE. WHY? THE GOVERNMENT HAS DONE IT OVER THE LAST COUPLE OF CRISIS. THEY DID IT AFTER COVID, AFTER THE ENTER SHOCK FROM THE WAR IN UKRAINE, THE STOCK PRICE AT THAT TIME. PEOPLE SAY YOU DID IT. CONTINUE. NOT AFFORDABLE. MY MESSAGE TO EVERYBODY IS, DELAYED NO LONGER. WHY? THE LEVELS ARE NOW ABOVE WHERE THEY WERE AFTER THE SECOND WORLD WAR. KEN IS RIGHT TO SAY, DO YOU REALLY WANT A CRISIS TO GET YOU TO DO WHAT IS NECESSARY? PLEASE ACT ON YOUR OWN. ROMAINE: IT SOUNDS LIKE THE KID WHO GOT CANDY AFTER EVERYTHING THEY HAVE DONE. YOU SAID IN YOUR SPEECH THAT IMF POPULARLY STANDS FOR ITS MOSTLY FISCAL. INTERESTING POINT AT A CONFERENCE. HOW HAS THE FISCAL DEBT OVERHANG COMPLICATED MONETARY POLICY AND MADE IT MORE DIFFICULT FOR POLICYMAKERS TO REALLY ADDRESS INFLATION HAD ON? -- HEAD ON? KRISTALINA: MORE DEMAND AND MORE SPENDING PUSHES PRICE LEVELS UP, NOT DOWN. SECOND, WHEN WE HAVE A HIGH LEVEL OF DEBT IT IS MUCH HARDER FOR CENTRAL BANKS TO ACT DECISIVELY BY RAISING INTEREST RATES. WHY? THE COST OF SERVING THE DEBT IS GOING TO GO UP. THE FED HERE, THE DUAL MANDATE, PRICE STABILITY AND EMPLOYMENT. WE DON'T WANT TO UNDERMINE THESE STRONG PERFORMERS OF THE ECONOMY. THAT IS WHY THEIR JOB IS HARDER, BUT IT IS THEIR JOB. THEY HAVE AND FOREMOST THE RESPONSIBILITY FOR PRICE STABILITY. LISA: ANOTHER ASPECT OF THE CONFERENCE HAS BEEN STABLECOIN. NO ONE WANTS TO TALK ABOUT STABLECOIN. WE ARE HERE TO TALK ABOUT SOMETHING ELSE AND IT IS NOT THE QUESTION OF HOW WE WILL HAVE DIGITAL ASSETS. THAT SAID, YOU MADE AN INTERESTING POINT ABOUT THE ROLE TECHNOLOGY PLAYS IN FINANCIAL STABILITY AND HOW IT COULD ACTUALLY EXPEDITE OR HASTEN CRISES STEMMING FROM MONETARY POLICY ASSETS OR FISCAL POLICY. CAN YOU TALK ABOUT THAT? KRISTALINA: FINANCIAL INNOVATION IS GOOD BUT IT DECREASES RISKS. IT ACCELERATES IMPACT. THE IMPACT IS POSITIVE, GREAT. IF IT IS NEGATIVE, IT CAN LEAD TO SPILLOVER IMPACTS WITH AN ECONOMY -- WITHIN AN ECONOMY AND ACROSS ITS BORDERS. MY MESSAGE IS DON'T LIVE WITH THE ILLUSION THAT TECHNOLOGY IS GOING TO MAKE YOUR LIFE SIMPLER. IT WON'T. YOU NEED STRONG POLICY FRAMEWORKS, EVEN MORE SO IN A WORLD OF FAST IMPACT FROM TECHNOLOGY. MORE, NOT LESS. LISA: I'M SMILING BECAUSE I DON'T THINK ANYONE HAS THOUGHT ARTIFICIAL INTELLIGENCE HAS MADE THEIR LIVES THAT MUCH EASIER. DO YOU THINK THE POTENTIAL ISSUE THAT COULD CAUSE SYSTEMIC EVENTS IS INFLATION AND POTENTIALLY INFLATION GETTING A BIT OUT OF CONTROL AND FORCING THE HAND OF CENTRAL BANKS MORE AGGRESSIVELY? KRISTALINA: THE GOOD NEWS IS INFLATION EXPECTATIONS ARE STILL WELL ANCHORED. WE HAVE HAD STUBBORN INFLATION. IT IS SOMETHING THAT CENTRAL BANKS OUGHT TO PAY ATTENTION TO AND TAKE ACTION IF NECESSARY. IT WAS VERY REASSURING TO HEAR CHAIR WARSH SAYING THAT. IF NECESSARY, WE ACT. BUT WE ARE NOT SEEING THE UNDERLYING TREND TO BE ONE THAT CREATES FEARS THAT INFLATION IS GETTING OUT OF WHACK. IT IS NOT HAPPENING. WHY IS IT IMPORTANT TO ACT DECISIVELY EARLY? BECAUSE OF INFLATION EXPECTATIONS WERE TO DE-ANCHOR, BUT WHAT HAPPENED IN MARKETS IS OF COURSE NERVOUSNESS LEADING TO PANIC. WE DON'T WANT THAT TO HAPPEN. LISA: DO YOU THINK THERE IS A CREDIBILITY ISSUE RIGHT NOW GIVEN THE CONCERNS WITH THE FISCAL OVERHANG AND SOME OF THE FEARS THAT THEY HAVE BEEN RELUCTANT TO ADDRESS INFLATION/ ? TRYING TO FIGURE OUT WHAT THEY ARE DEALING WITH. KRISTALINA: THEY NEED TO BE LASER FOCUSED ON TRUST IN THEIR ABILITY TO CONTAIN INFLATION. IN THAT SENSE THE MESSAGE TO CENTRAL BANKS IS IF YOU NEED TO ACT, DO NOT HESITATE. HESITATION CREATES CONCERNS. LET'S BE FAIR TO CENTRAL BANKS. THEY HAVE SUSTAINED INDEPENDENCE AND DECISION-MAKING. THE ACT ON THE BASIS OF INFORMATION. IF YOU LOOK AT THE U.S. ECONOMY, GROWTH IS STRONG, UNEMPLOYMENT IS LOW, PRODUCTIVITY IS AMAZING. 2.5% GROWTH YEAR AFTER YEAR. SO THE REAL ECONOMY IS DOING WELL. IT IS INFLATION THAT IS THE HEADACHE. LISA: SOMETHING YOU HAVE NOTED AND OTHER PEOPLE TOO IS EVERYONE IS SURPRISED AT HOW RESILIENT THE GLOBAL ECONOMY HAS BEEN IN THE FACE OF THE OIL CRISIS, NOT TO MENTION THE UNDERLYING ECONOMY. DO YOU EXPECT THAT TO KEEP GOING? IS THAT RESILIENCE WELL-FOUNDED OR IS THAT FRAGILE AND BIFURCATED IN A WAY TO GIVE YOU PAUSE? KRISTALINA: SO FAR THE RESILIENCE HAS BEEN STRONG. THAT RESILIENCE CANNOT BE TAKEN FOR GRANTED. WHY IS IT RESILIENT? THE TWO FORCES, AI BOOSTING IT UP AND NOT A STRONG IMPACT OF ENERGY PRICES AS WE FEARED. THERE WAS TALK ABOUT OIL PRICES AT $150. THAT DID NOT HAPPEN. IT DID NOT HAPPEN BECAUSE RESERVES CAN BE DEPLOYED BECAUSE OTHER SOURCES OF ENERGY, THE UNITED STATES, STEPPED UP. THE SHIFT TO ALTERNATIVE ENERGY IS QUITE PROFOUND AND ALSO BECAUSE WE ARE MORE SENSITIVE TO PRICE THAN WE THOUGHT WE WOULD BE. THE MAN WENT DOWN. -- DEMAND WENT DOWN. SUPPLIES, RESERVES, THIS IS NOT FOREVER. IF WE SEE ENERGY PRICES CLIMBING UP, THEY WOULD COMPLICATE THE INFLATION STORY. THAT IS SOMETHING THAT OF COURSE WE ARE CONCERNED ABOUT. LISA: DO YOU THINK THERE IS RISK THE DOLLAR CAN BE UNDERMINED -- IT COULD BE UNDERMINED AS THE RESERVE CURRENCY? DO YOU THINK THAT HAS BEEN PUT TO REST? KRISTALINA: WHAT IS THE ALTERNATIVE? WHEN YOU LOOK AT WHAT IS HAPPENING, AND THAT IS THE SUBJECT OF THIS SYMPOSIUM, WHERE IS FINANCIAL INNOVATION TAKING US? STABLECOINS. WHO IS BACKING STABLECOINS? THE UNITED STATES. 90% OF STABLECOINS ORIGINATE FROM HERE. -- 98%. HOW IS THAT BEING DONE? WITH TREASURY'S BACKING. THERE IS NO CLEAR MARCH TOWARDS AN ALTERNATIVE. LET ME SAY SOMETHING THAT I WISH PEOPLE WOULD PAY MORE ATTENTION TO. WHAT IS THE STRENGTH OF THE DOLLAR? IT IS THE STRENGTH OF THE U.S. ECONOMY. THE U.S. ECONOMY WITH DEEP LIQUID CAPITAL MARKETS. A LOT OF INVESTMENT IN VENTURE CAPITAL AND INNOVATION, ATTRACTIVENESS. THEY DID COME HERE. THEY DON'T GO SOMEWHERE ELSE. THIS UNDERPINS THE STRENGTH OF THE DOLLAR. THIS SAID, WE WOULD STILL BE ADVOCATING FOR RESPONSIBLE FISCAL POLICY HERE IN THE UNITED STATES AND ELSEWHERE. LISA: MANAGING DIRECTOR KRISTALINA GEORGIEVA, REALLY APPRECIATE IT. KRISTALINA GEORGIEVA, MANAGING DIRECTOR OF THE IMF AND I WILL SEND IT BACK TO YOU. ROMAINE: LISA HAS DONE A LOT OF GREAT WORK IN JACKSON HOLE, WYOMING. WE KEEP THE CONVERSATION GOING. LET'S BRING IN RIGHT NOW FORMER FDIC CHAIR AND SENIOR FELLOW AT THE CENTER FOR FINANCIAL STABILITY SHEILA BAIR. THE LAST TIME WE SPOKE, IT WAS THE FIRST FED CHAIR MEETING IN JUNE. YOU GAVE HIM AN A PLUS FOR HANDLING THE PRESS CONFERENCE. DID YOU LISTEN TO THE SPEECH TODAY? SHEILA: I WILL GIVE IT AND SHEILA: I WOULD GIVE IT AND A -- AN A . IT'S A FACTOR ON WHAT'S GOING ON WITH INFLATION. HE DID WHAT HE NEEDED TO DO. THERE IS A LOT OF SUBSTANCE. TALKED ABOUT THE ECONOMY. SHARED PERSONAL PERSPECTIVES. EXPLAINED THE LAST MEETING DECISION TO HOLD. IT WAS, YOU KNOW, TWEAKED A BIT ON THE HAWKISH SIDE BUT HE WAS GENERAL. HE WANTS CONVINCING EVIDENCE, MEANINGFUL EVIDENCE THAT INFLATION IS COMING DOWN. THE BIG QUESTION IS WHAT THE TRENDS ARE. I THINK IT IS REFRESHING. THE FED OBVIOUSLY, YOU KNOW, HINDSIGHT IS ALWAYS 20/20 BUT THEY WERE TOO EAGER TO SEE CUTTING INFLATION AND STARTED CUTTING TOO EARLY AND WE HAD A PROBLEM. THEY WANT TO SEE CLEAR EVIDENCE BASED ON THAT AND MY GUESS IS HE IS GOING TO BE RAISING RATES, IF NOT IN SEPTEMBER, IN OCTOBER. ROMAINE: HE WAS SORT OF GIVING HIMSELF A LITTLE BIT OF WIGGLE ROOM TO MAYBE GET OUT OF THAT SHOULD THINGS CHANGE. BUT I WANT TO BE CLEAR, TOO,AS HE TALKED ABOUT THIS PERSISTENT INFLATION, HE DID NOT THINK BROAD FINANCIAL CONDITIONS ARE RESTRICTIVE AND HE TALKED ABOUT HOW REAL CONSUMER SPENDING DESPITE THESE STOCKS IS STILL INCREASING. HE PAINTED A PICTURE OF A RELATIVELY HEALTHY ECONOMY. AND TO BUILD UP -- TO BUILD OFF SOMETHING, YOU ARE SUPPOSED TO FIX YOUR ROOF WHEN THE SUN IS SHINING, NOT RAINING. IF YOU HAVE A HEALTHY ECONOMY, YOU KNOW INFLATION IS RUNNING HOT, AS IT HAS FOR 65 MONTHS, WHY NOT DO SOMETHING NOW? SHEILA: I THINK THAT IS EVENTUALLY AGAIN -- UNLESS THE NUMBERS SHOW A SOMETHING DIFFERENTLY -- SHOW US SOMETHING DIFFERENTLY, FINANCIAL CONDITIONS ARE NOT RESTRICTIVE AND MANY SECTORS ARE PRETTY LOOSE AND I AM ALWAYS SCRATCHING MY HEAD ON GETTING YOUR LENDING INTO THE ECONOMY WHICH WOULD ALSO BE INFLATIONARY -- NEW LENDING INTO THE ECONOMY WHICH WOULD ALSO BE INFLATIONARY. THE FED DOES NOT LOOK AT THE SUPERVISORY OR REGULATORY SIDE OF WHAT THEY DO. HE HAS ROOM TO TIGHTEN WITHOUT HURTING THE ECONOMY. AND YOU ARE RIGHT. [LAUGHTER] THAT'S WHEN YOU WANT TO DO IT, WHEN YOU'VE GOT THE FLEXIBILITY AND BANDWIDTH TO DO IT. ROMAINE: LET ME ASK YOU ABOUT BANKS AND THE INTEREST RATE CYCLE HERE, WE ARE COMING OFF ONE OF THE MOST PROFITABLE QUARTERS IN LARGER BANKS I SHOULD POINT OUT, DO YOU SEE THE BANKING SECTOR HIM AS STRONG -- PARTICULARLY STRONG ENOUGH TO WITHSTAND IF IT DOES GET THERE, A FULL FIGHT AGAINST INFLATION WITH REGARDS TO RATES? SHEILA: AGAIN , WE HAVE WEAKENING LIQUIDITY RULES BUT I THINK THEY ARE FINE. HIGHER RATES IN MANY WAYS HELPS THEM, DOESN'T HURT THEM. THEY HAVE LONGER-TERM SECURITIES WITH LOWER YIELDS. THAT WAS A PROBLEM AT THE REGIONAL BANKS -- THAT THE REGIONAL BANKS GOT INTO IN 2023. I DON'T SEE THAT KIND OF RAPID HIKE TAKING PLACE. I MAY BE WRONG. I THINK THE BANKS -- I WOULDN'T NOT WORRY ABOUT THE BANKS IN A RISING INTEREST RATE ENVIRONMENT. I WOULD WORRY THE FED HAVING TO RAISE INTEREST RATES WHEN WE ARE SEEING THE ECONOMY SLOW AND FOUND EMPLOYMENT GO UP, THAT WOULD CREATE A PROBLEM. BUT HOPEFULLY HE CAN AVOID THAT. IT IS ANOTHER REASON WHY PROBABLY NO TIME LIKE THE PRESIDENT -- LIKE THE PRESENT . ROMAINE: HOW WE SORT OF RESOLVED OR AT LEAST ADDRESSED TO A CERTAIN EXTENT SOME OF THE DURATION RISK THAT WAS OUT THERE THAT TOOK DOWN SILICON BANK A COUPLE OF YEARS AGO? BECAUSE THAT IS STILL A CONCERN. I SHOULD POINT OUT FOR ALL THE PROFITS THE BANKS REPORTED, THEY ARE STILL SITTING ON HUNDREDS OF BILLIONS OF DOLLARS IN UNREALIZED LOSSES THAT WILL HAVE TO BE RECONCILED AT SOME POINT. SHEILA: THAT IS TRUE. AND THE CAPITAL TREATMENT LONG-TERM WILL BE HELPFUL. I THINK BANKS DO NOT HAVE TO WORK TO MARKET. THEY HAVE FLEXIBILITIES OTHER COMPANIES WOULD NOT HAVE ON THIS. SO, I THINK THEY WILL WHETHER IT -- WEATHER IT. I THINK THE 2023 KERFUFFLE WITH THE REGIONAL BANKS WOKE UP BANK MANAGERS AND EXAMINERS, TOO. THERE'S A LOT OF SCRUTINY ON UNREALIZED LOSSES AND A LOT OF BEHIND THE SCENES AND PROVIDES REACTIONS TO MAKE SURE THEY CAN WITHSTAND LOSSES, DEPENDING ON WHAT HAPPENS WITH INTEREST RATES, STRENGTHENING RISK MANAGEMENT COULD BE BETTER. BUT THESE MINI CRISES SOMETIMES HAVE POSITIVE IMPACTS. THEY WAKE PEOPLE UP, THIS IS A PROBLEM, WE NEED TO GET IT FIXED, AND THAT IS WHAT HAPPENED AFTER '23. ROMAINE: ARE REGULATORS FORGETTING THE LESSONS OF '08? YOU MENTION THE LOWER CAPITAL REQUIREMENTS THE BANKS HAVE BEEN PUSHING FOR, THE ARGUMENT IS WE ARE PUMPING MONEY AND LENDING MORE INTO THE SYSTEM IF YOU ALLOW US TO DO THIS. IS THERE A BALANCE TO THAT ARGUMENT? SHEILA: WHY WOULD WE WANT MORE LENDING? [LAUGHTER] THERE IS NO SHORTAGE OF CREDIT. THEY HAD THIS ADDITIONAL BALANCE SHEET CAPACITY. THEY WILL PROBABLY JUST DO BUYBACKS. [LAUGHTER] BUT ASSUMING THEY DO, THEY HAVE TO FIND BORROWERS. AND THEY WILL BE RISKIER BORROWERS BECAUSE PRETTY MUCH ANYBODY THAT JUST SERVES A LOAN OUT IS GIVING ONE. I THINK THERE'S SO MUCH GOING ON FRANKLY THAT IS BEYOND THE CONTROL OF THE FED THAT IS CREATING INFLATIONARY PRESSURES WHICH IS WHY I AM NOT OPTIMISTIC HE IS GOING TO SEE A TRAJECTORY ON INFLATION. BUT, NO, THERE'S PLENTY OF CREDIT OUT THERE ALREADY AND THEY ARE MAKING PLENTY OF LOANS, THEY DON'T NEED MORE CAPITAL CAPACITY TO DO SO. ROMAINE: WITH REGARD TO THE FED'S FOCUS OR LACK THEREOF ON THE REGULATORY STUFF, A LOT OF PEOPLE HATE THE DOT PLOT BUT THE ONLY THING THEY HATE MORE ARE STRESS TESTS. [LAUGHTER] I AM CURIOUS -- I DON'T KNOW, THEY FORCE US TO COVER IT, I DON'T THINK I'VE EVER LEARNED ANYTHING. BUT YOU KNOW MORE ABOUT THIS. DO THESE FED STRESS TESTS TELL US ANYTHING USEFUL? SHEILA: NO. I WROTE A PIECE FOR THIS A WHILE BACK. I THINK THEY NEED TO BE -- YOU NEED TO HAVE SOME TYPE OF STRESS TESTING PROCESS TO MAKE SURE THAT BANKS ARE PREPARED TO WITHSTAND SHOCKS ENOUGH. BUT THE NATURE OF THE SHOCKS, THE RISK CHANGES HAVE TO BE A DYNAMIC PROCESS AND THEY KEEP STRESSING ANY TYPE OF SCENARIO AND THEY NEVER STRESSED THE STAGFLATION SCENARIO AND OTHER RISKS THEY NEED TO BE FOCUSED ON. SO IT IS NOT ONLY A HUGE DISTRACTION FOR THE SUPERVISORS AND THE BANK MANAGEMENT, IT CREATES A FALSE SENSE OF SECURITY. THEY ALWAYS PASS NOW -- OH, EVERYTHING MUST BE FINE. JAMIE DIMON HAD A TELLING COMMENT THAT IT INHIBITS BANK BOARDS FROM CHALLENGING RISK MANAGERS BECAUSE, THE FED SAYS WE ARE GREAT, DID YOU SEE THE STRESS TEST RESULTS? WHEN MAYBE THEY AREN'T. THEY NEED TO GO. WE NEED TO BE REPLACED WITH A DYNAMIC PROCESS. NOT TIED TO CAPITAL. AND WHICH MAKES IT INHERENTLY CONTENTIOUS. SO I THINK MY GUESS IS KEVIN WARSH WILL BE DEALING WITH IT AND THEY WILL MAKE SIGNIFICANT CHANGES. ROMAINE: ALWAYS A PLEASURE, HAVE A WONDERFUL WE, FORMER FCIC CHAIR, SHEILA BAIR. IF YOU HAVEN'T READ "GRAB THE BULL BY THE HORNS," CHECK IT OUT. WE WILL BE BACK WITH WHAT TO SET YOU UP WITH NEXT WEEK. THIS IS BLOOMBERG. ♪ ROMAINE: JUST A PROGRAMMING NOTE, "THE CLOSE" WILL BE ON THE ROAD NEXT MONDAY, WE WILL BE LIVE FROM BALTIMORE, MARYLAND. WE WILL CATCH UP WITH CIOS AND HAD ECONOMISTS THERE AND ROB SHARP, THE CEO OF T. ROWE PRICE. KEEPING AN EYE FOR ANTHROPIC'S S1, EARNINGS FROM PALO ALTO, DELL, AND BROADCOM TO NAME A FEW. THE FIRST DAY OF THE APPLE'S CEO IS TAKING PLACE AS WELL AND FRIDAY, MACRO IN FOCUS AND THE FED, TOO, WITH THE U.S. MONTHLY JOBS REPORT. THE SECOND PART OF THE FED'S DUAL MANDATE. CATCH US ON MONDAY AT T. ROWE PRICE. ♪