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00:00From the world of politics to the world of business, this is balance of power with David Westin. From Bloomberg World Headquarters in New York to our television and radio audiences worldwide welcomed the balance of power. The big news today, of course, are those jobs numbers from last month really surprised everybody, maybe even the president states. This is what President Biden had to say about them a short time ago. Premise You created 12 million to 12 million jobs since I took office. That means we have created more jobs in two years than any presidential term, any time in two years. That's as strong as two years of job growth in history. And now we turn for the president estates to the man who gives the president his jobs numbers. It appears at least Michael McKee. He's Bloomberg International Economics and policy correspondent. So the president did tweet out and what he tweeted out was a link to you, Mike. Give him the jobs number. So congratulations. Only he was watching us this morning and we were able to give him some good news. Presidents get the blame for when things go wrong. So Joe Biden can, I guess, take the credit when things go right. And boy, did they go right in January. Five hundred and seventeen thousand jobs were created far, far more than even the highest estimate in the Bloomberg survey of economists. Add to that 71000 jobs additional from December and November. The unemployment rate falls to three point four percent. That ties the May 1969 number when, as Mohamed El-Erian points out, that was the last time the New York Jets ever won the Super Bowl. And it also goes back basically ties to the Korean War. So some really historic low numbers in unemployment. Average hourly earnings, the prior months revised up. So the drop in average hourly earnings isn't as big as you'd think. But it was just three tenths. And we are at four point four percent getting ever closer to what the Fed thinks is a sustainable. Average hourly earnings rate. You take a look at that and they think three to three and a half percent is compatible with a two percent inflation rate, which is what they're trying to get to. And so that's where they have gone lately. Now, in terms of the other news of the day, David, there was one other report that was also extraordinarily strong, and that was the ISF Services Index comes in at 55 to after 49 to in last month. We thought the service industries were rolling over because the numbers were bad. But look what happened in look at new orders jumping from 45 to 60 and prices paid continue to go down. So Goldilocks just doesn't even describe this kind of economic data today. It's really good news. The only question is, does it mean the Fed has going to have to tighten more if you believe in the Phillips curve? That's what it's telling in the bond market seems to have been that notion. It's head right at the moment. Thank you so much to Bloomberg's Michael McKee. Well, now we go to the person who's responsible for jobs in the administration is the U.S. Labor Secretary, Marty Walsh. He talked earlier today to Bloomberg, reacting to the jobs data. I looked at my economists and I said, you are way off today. You know, it was a great report. I mean, when you look at areas of that I think are really important business grew, health care grew, education grew. And we saw strong, steady growth in construction. I mean, so those are areas that obviously you would know better than I would. As far as signs for the economy and concerns about the economy right now, certainly I'll take this jobs report for any day of the week. And in return for the secretary of labor to somebody who still works for the secretary, labor as chief economist Betsey Stevenson. She is now professor of economics and public policy at the University of Michigan. And so thank you so much for being with us. Betsy, we always love to have you on Jobs Day. I mean, I don't want to be unfair to economists at all. And certainly you're an economist, but how do you kind of get it so wrong? Well, today is such a fun day. I don't think we want to think about economists being wrong. We want to think about what a great report we have. Look, the truth is, I'm going to tell you now. Now I have to give you the downer news. And this is a great number. Five hundred seventeen thousand jobs, you know, but there's a lot of room for error in this report. And if I was a betting woman, I would tell you that we'll probably see this corrected down a little bit. So I think instead of focusing on 517, which maybe it's really 400, we should be just looking at the overall report which told us that we've been adding more jobs than we even realized. So we saw upward revisions for November and December. We saw what we're are called the benchmark revisions. That's where we count all these. We compare all these survey estimates to actual real counts of jobs that come in through employers filing those unemployment insurance taxes. And we found out we had actually more jobs than we thought from the survey. And those real counts, those all got added in. And what they tell us is that we have had a very strong labor market recovery and we've had the recovery even as inflation has started to come down. The recovery has really once continued unabated. So, Betsy, help me with two numbers. As a non economist, they maybe they don't square at all. One of the JOLTS number we got the JOLTS number earlier this week, which I again back was I got to record levels at eleven million job openings. How can we be having that many jobs openings at the same time we're filling them many jobs. I don't understand. Oh, well, I mean, that is really because job openings happen at a point in time. If you think about it, any job you've ever taken, the job was probably open. I mean, some some people are lucky enough that they get a job through a friend where that job was never a job opening, but a job opening happens at appointment in time. So it's actually more a measure of the health of the labor market. Do we have a lot of openings? Are we creating a lot of space? Are we allowing people not just to grow, but also to move into jobs where they might be better fit? So some of those job openings just reflect churn in the labor market where companies want to expand in some places and they want to contract in others. And so they need to have openings in order to make those adjustments. And people need to be able to move to places where they might be a better fit. So I don't think we want to think about job openings directly related to no. Do we have a need for. Are we sort of short of of jobs or are these are these open? He's going to go unfilled for a long time. I think we want to think about it as a statement overall of whether there's a lot of opportunities out there. I regard list every job as benefiting somebody. But what do we know about who's getting benefited if you go below the top line numbers? What groups are particularly benefiting more than others? Well, one of the things we've seen is that women have responded much more strongly to this tight, strong labor market than men have. And so when we look at women, particularly in ages 35 to 55, that sort of I'm gonna call it the prime of life because I'm in that group, that prime of life. What we see is that they're actually working at higher rates than they were prior to the pandemic. So their labor force participation rate exceeds their labor force participation rate prior to the pandemic. We're still seeing men not fully coming back. So we know that is actually been true in every recession. Men are that are much slower than women to rebound in terms of re-entering the labor market. And we also know this was a complicated jobs report because we got some other revisions to how we should think about labor force participation more generally in unemployment. But across the board we saw is is revisions led us to realize that unemployment rates were lower for people of color than we had previously thought. So those revisions pointed to improved measures of how things are looking in the black community in terms of the unemployment rate, in terms of labor force participation and also for people with less education. So that place where the unemployment rate really came down and is lower now than we had realized in the past is among people with out a high school degree to be way overly simplistic here. Does this mean we're not going to have a recession this time to where you get this kind of strong jobs news report? Well, you know, the amazing thing is the media has been saying we're in a recession for, what, six months now at least. And there's no recession anywhere in sight. Could we have a recession in the future? Absolutely, we could. But so far, it looks like we're doing a pretty good job. I think the thing everyone's worried about right now is five hundred and seventeen jobs. That's great. But perhaps it's going to lead the Fed to tighten and perhaps it will lead them to over tighten. And if they end up over tightening, our risk of a recession goes up. But right now, things are looking great. But we are seeing that. I think the bond market right now, Professor, that in fact, it looks at the bond markets, thinks boy, thinks rates are going to go up because of the Fed. But should they go up? If you were at the Fed, would you be looking at more rate hikes because you're concerned that this kind of robust jobs performance will keep inflation going? You know, I think the Fed needs to be a lot more circumspect about how we should think about the relationship between job growth and what it means for inflationary pressure. The job growth we've seen so far has not been the cause of inflation. And the bottom line is part of the reason prices have gone up is that we simply haven't even been able to provide people with the goods and services they want. In other words, demand recovered before supply. If you look at leisure and hospitality, which you added the most jobs in this jobs report, there's still 500000 fewer jobs than they had in 2019. It's not going to help us meet demand for people going out to dinner. If we fire more cooks or we fire more waiters and waitresses, we actually need to hire more of those people to make it easier for us to serve people. That sort of expands the supply of those services. Yeah. And so I think that they just need to think harder about whether or not the relationship that we've seen from the past when we weren't recovering from a pandemic, when services were barely hurt by recessions, is really a useful model for our current situation. One last quick one if I can, Professor, and that is where are we in the supply chain? There's a lot of concern that probably part of the problem with inflation was we didn't have enough supply. Are we getting toward getting that fixed? Absolutely. It looks like supply chain pressures are easing. And I would say that that's the primary reason that we've seen inflation come down. If you showed people the job growth that we have had, the unemployment rate that we have had, and then showed them the pattern of inflation over the last 12 months, that we never would have predicted it because there's nothing in the labor market that suggests inflation should have come down. So why is inflation coming down? Because this supply chain problems are easing. And the good news is, is that what we haven't seen is tight labor markets spark ongoing inflation. That's the Fed's worry. That's why everybody's worried about today's jobs, not more. But I think that it was matched with slowing wage growth. It's fascinating. Thank you so much. Always, as I say, a treat to have you on Jobs Day. That is Betsey Stevenson. She's professor of economics and public policy at the University of Michigan's Ford School. Coming up, we're going to turn to the White House for its response to these jobs numbers with Heather Boushey of the Council of Economic Advisors. This is balance of power on Bloomberg television and on radio. This is balance of power on Bloomberg television or radio. I'm David Westin the big news around here today as the jobs numbers as five hundred seventeen thousand new jobs filled last month. And now we're going to turn to the White House for its reaction to these numbers. And Dr. Heather Boushey. She's a member of the Council of Economic Advisors. Seductive. She thank you for being with us. Always appreciate when you do. And I guess I don't want to look a gift horse in the mouth, but can you have too much of a good thing? Is it possible? Do you ever get nervous? Well, so not when we see good unemployment numbers like this today. The unemployment rate coming in at three point four percent lower than it's been since 1969. That certainly is an indication of good news for American families all across the country. People who are out there looking for work are finding jobs, and that means economic security. And so there is a lot to like in today's report. But, you know, the other thing that I saw in the report was that although wages grew last month, the pace continues to be coming down. So we're not seeing indications that the tight labor market is driving inflation. So when you combine this with other recent data that we've seen on, you know, a solid growth number coming out of the end of 2022 for GDP with an annual inflation coming down for the past six months, then it looks like that maybe we can find this Goldilocks economy that everybody's been hoping we could find. So you're an economist, Dr. Barshay, and the economists were sort of off on this one, I think it's fair to say often a good way. We're not arguing with the numbers, but what do you say to the prison, United States, when he says, how did this happen? How did we manage to add this many more jobs with this level of unemployment? And as you suggest, without raising the wages a lot. Where's the economic model taking us here? Well, I think there's a few things. I mean, one, the president himself, when he came into office, focused on getting this economy back on track, you know, fixing, addressing the pandemic issues, getting the vaccines out, getting people back to work. And I think that you see the results of that strong recovery in the labor market as we pulled out of the pandemic. Then second, he's done everything he could to get those supply chains working again so that we could see this kind of recovery. And at the same time, we've seen gas prices falling since relative to their peak last June. So you put all this together on top of the investments that the nation will be making in infrastructure and clean energy and health care all across the country and in semiconductors. And I think this is you and the president says he wants to build an economy from the bottom up and middle out. I think this is really what it looks like. So I know your job is both to look at the good things, but also to anticipate possible downsides. We talked with Larry Summers. Some of you know well, we talk to him every Friday, the former treasury secretary earlier today, and he raised the question, his mind, and he admitted he was not sure about what the numbers were pointing to. He raised the possibility that maybe we're going too far, too fast is part of what he said. Is it going to turn out that at some point people realize they've got too much inventory and labor? And we're going to see a fairly sudden stop? I think it says difficult to the economy to read, as I can remember. So you heard it there, DAX. This is Larry Summers are usually pretty confident exactly what's happening. He's not exactly sure what's happening, but is there a risk that, in fact, there is what he called a wily coyote moment where we go out over the edge and then we actually drop? Here's the thing. This is a very tricky economy. He's right about that. And it has been for a number of years. We have not seen a global pandemic in a century like what we've seen and certainly with global supply chains and how people are moving around the world. This has been a very challenging thing to get through and to understand how the challenges in energy and in supply chains affect us all. So not just the United States, but around the world. I think the one thing that we always need to be really humble about is it in recovering from this kind of economic challenge. You know, do the models that we typically rely on. Do they tell us exactly what they they would have told us in a different kind of economy? This is part of the question that so many of you know that economists are grappling with. We've seen a lot of progress on supply chains, you know. But certainly with with the pandemic, with the continued war that Putin has been raging in the Ukraine, continuing to pose challenges for energy prices, what does this mean? Will there be shocks? And will the U.S. economy be resilient enough to get through them? So far, we have been and again, that's in large part because of the steps that the president took to shore up the resiliency of the U.S. economy. So that's where I drive my optimism that we have a lot of pieces in place to maintain this momentum. But, you know, I do agree that it could be it. It's still a very challenging economic economy to predict that will shape before you came to the White House and certainly in the White House, you've paid a lot of attention to distribution of the jobs, of the wealth, of the income. What are we learning about that before the pandemic yet? We actually are pulling up the bottom quintile, as I recall. Are we seeing that now? We are seeing evidence that we that we are to use the president's term building the economy from the bottom up and middle out in terms of the distribution that we are seeing indications that wage growth has been larger for folks at the bottom end of the wage distribution. We saw indications in this data that we saw job gains for folks in less paid jobs. And so that's the kind of economy that the president's been focused on, making sure that we're creating opportunity across the income distribution and, you know, making a dent in reversing some of those very long term trends at this point of high inequality. So finally, and I don't really expect you to answer this question, but I have to ask the question, what about the personnel situation? Because you have had a team together from the chief of staff, the economic team at the National Economic Council, as well as the Council of Advisors together for two years working together. There are some changes now. We've already seen some. There may be some more as well. Are you looking at other offices there in the West Wing? Well, what I can say is that this is been an opportunity of a lifetime to work with this such incredible people. It's very sad to see them go, but I'm excited about some of the changes that are happening and look forward to continuing to working on behalf of the president. OK. I really appreciate you being with us. Always that sector. Heather Boushey, a member of the Council of Economic Advisors. Still to come, we're going to revisit President Secretary Clinton. Blinken accomplished during his visit to a troubled Israel with Middle East expert Aaron David Miller. That's coming up next. On balance of power. A Bloomberg television and on radio Tuesday, President Joe Biden delivers the State of the Union address. Join David Westin and Bloomberg's top political reporters and analysts line from the Bloomberg headquarters in Washington, D.C. as President Biden lays out his plans to tackle the war in Ukraine, Congress's debt limit standoff, immigration and more. And stay tuned after this speech as we break down the Republican response. Special coverage starts at eight thirty p.m. Eastern. Some of cast on television and radio only on Bloomberg. Your Global Business Authority. This is balance of power on Bloomberg Television Radio. I'm David Westin, we got big numbers on jobs today. You'd expect some big movements in the markets and maybe we're getting the bond market. Take us through it. We welcome now Christy Gupta. So critic. Bond market. Yeah, the bond market is selling off in a really, really big way. And I think it's best to kind of look at it from the front end of the curve, specifically the two year yield, which by all definition. I think this is a technical term is going crazy. It's 15 basis point move higher at the moment. You're looking a little bit further out. The 10 year yield 351 there still a twelve basis point move. Now, this is really just a reaction to the jobs report. Five hundred and seventeen thousand new jobs. Now, David, some of that is seasonal. We know this, that the January jobs report has always kind of been a little bit higher than previous. But even if you adjust for all that seasonality, the momentum you are seeing in the services jobs is huge and something that is not going to be well received by the Federal Reserve. And that's really significant. That's what's driving up some of these yields. Essentially the idea that maybe the Fed does have to be far, far, far more hawkish than it really indicated back on Wednesday. And that, of course, driving the dollar higher as well. And an important point you make when you say far, far from a hawkish 13 basis points is a lot of a move in the tenure. Yes. It got them all the way up to three point five. One. Right. So it isn't we're not talking about 5 percent and the 10 year. Right. Pretty modest numbers by historical norms. Right. And we're still looking and we're in a trading range when it comes to the bond market. That's probably why the equity market isn't necessarily panicking the way would have a couple of months ago. Simply this idea that they're looking at a NASDAQ that is about flat on the day, on the same day that the 10 year yield is higher by 13 basis points like a few months ago, you would have seen tech have a much stronger reaction. But the idea here simply is that how much higher can yields really go when the Fed has already said, look, inflation is coming down. We are maybe going to go hawkish, but perhaps not by the same margin as previously thought. So a lot of this for the equity market is priced in shifting the focus from the macro Fed driven narrative to more of the earnings narrative where you say the equity market is not panicking. I would go further and say they're just shrugging it off. So if they're not paying for that as the bond market, what are they paying attention to? Yeah, well, to be fair, on the headline themselves, they weren't panicking. The futures dropping one point two percent on the headlines themselves. But when you look at some of the numbers, a lot of the intraday moves, for example, are driven by a very specific companies. For example, some of the biggest gainers or kind of lifters for lack of a better term for the S & P 500 is Apple, for example, which is having a major recovery from its sell off yesterday. So that's going to be your big, heavy volume. Tesla really recovering from the idea of expanded even credits from the government that helping some of these other car companies. You have a lot of these oil companies that are major drivers as well, which again, are following commodity moves. You had Brent crude higher by want to say 3 percent earlier in the session. And that really helped the story as well. So it's kind of a sum of all parts when you look at this, as opposed to techs selling off because yields are higher. That's what we're not seeing. But we haven't seen the long term effects. The Fed, we have to wait for that for DAX meeting as a practical matter. We do have to wait for line. Believe the next meeting is March 20 seconds. We still have some time for that. We saw a lot of Fed speak up before we get there. And I just say a still a lot more earnings to really come out. So keep an eye on it because this isn't the end of it. Retail sales is going to be the next focus. Thank you so much. Pretty good with that report of the markets. You can catch her anchoring at 1 p.m. Eastern time right here on Bloomberg Markets. Coming up, Aaron David Miller of the Carnegie Endowment for International Peace on the ongoing Israeli Palestinian conflict. This is balance of power. And we are on Bloomberg Television and on Bloomberg Radio. This is balance of power on Bloomberg Television Radio. I'm David Westin big news yesterday was the secretary said Anthony Blinken will be going to Beijing. Big news today is not so fast. He's postponed it. And that's because of that Chinese supposed spy balloon which was spotted over the United States. There's been a briefing going on right now at the Pentagon with Air Force Brigadier General Pat Ryder. It's ongoing right now. But here's a little bit of what he said so far. While we won't get into specifics in regards to the exact location, I can tell you that the balloon continues to move eastward and is currently over the center of the continental United States. Again, we currently assess that the balloon does not present a military or physical threat to people on the ground at this time. We'll continue to review excuse me, continue to monitor and review options to bring us up to speed on what we know and don't know. We welcome now Washington correspondent and Marie Harder. And so how much do we know about this and the significance of this balloon? Well, listening to some of what Brigadier General Pat Ryder was also telling reporters is that they believe it'll maintain in U.S. airspace for the next couple of days. A lot of questions we still are asking. Of course, David, because Beijing came out with a statement today saying they're very regretful and this was about doing research when it comes to climate. The U.S. really does not believe that. And they maintain that this is a spying balloon. There's been a lot of questions about why they didn't brief the public earlier because the president was briefed from the Department of Defense, Lloyd Austin, on Wednesday. We're only obviously finding out some of this information now and questions about why it wasn't shot down. But the Pentagon remains that this would have too much of debris and potentially poses some risks. But what you're hearing from on top of Capitol Hill, from the likes of Senator Marco Rubio, who is the top Republican on the Senate Intelligence Committee, is saying that it should have been shot down. But all of this, David. Also, one more big question in the geopolitical sphere is when will Secretary of State Blinken make that visit to China? We know that it's postponed right now, but they did say that an appropriate time he would be visiting Beijing. I'm going to add one more question, Emery, that I don't quite understand. Clearly, we knew that balloon was up there and yet they went ahead and announced actually that the secretary said we'd go to Beijing and then they pulled it back. Was this mainly a response to the Republican reaction on Capitol Hill? What remains to be seen? Because no one has said that publicly. But that's what the tea leaves really say, doesn't it? We had Kevin McCarthy coming out talking about the fact that this is a reason why we cannot be trusting or really be dealing with the Chinese and also called for another Gang of eight meeting. We do know that the White House did get the staff of those Gang of Eight members, the top leadership on the Hill together to brief them on this. And then you had the likes of Representative Mike Gallagher, who's going to be leading this committee, this soul committee's whole purpose. What risks of China saying that even though there was these political overtures from Beijing, that it still maintains that the Chinese Communist Party has not changed their policy? So for Blinken to go in that political environment, it would've been incredibly toxic for them domestically. I should say thank you so much for the reporting from the White House by our Washington correspondent. Annmarie Horden. Well, S.E. Blinken will not be going to Beijing, which may actually be a relief because he just got back from Israel. And over there he was addressing some of the conflict between the Israelis and the Palestinians. This is part of what he had to say. We've seen the horrific terrorist attacks in recent days. We've seen over many months rising violence. We deplore overall the loss of innocent civilian life. We'll be reiterating that message and encouraging the parties to take steps to calm things down, to de-escalate tensions. We welcome to Sony, who's spent basically his career dealing with Arab Palestinian conflict. That's Aaron David Miller. He is now senior fellow at the Carnegie Endowment for International Peace. He spent 24 years, some 24 years at the State Department. So thank you so much for being with us. Give us a take on exactly what was the mission for Secretary Blinken over there and did he accomplish it? I think it was simply due every lifted, and I think the Bellingen visit has to be seen as part of a broader peace. After all, it's really unprecedented, certainly in the half dozen administrations, Republican, Democrat I've ever worked for. Within a month of the inauguration of new Israeli government, you had the national security adviser of the United States, the director of the Central Intelligence Agency. You had the secretary of state of the United States. And there are credible reports swirling around about the possibility of an early visit by the prime minister of Israel to see the president. That's extraordinary. That amount of engagement this early at this high and senior level is actually unprecedented. I think the administration, frankly, understands that the prospects for serious negotiations between Israelis and Palestinians are slim to none. And I don't want to trivialize it, but I think Slim's already left town. And I think they confront a situation where both for political and policy reasons, they're not prepared. They the administration not prepared to put themselves in a situation to take on what is arguably one of the most fraught politically issues in contemporary international relations. So a lot of good, strong rhetoric from the secretary. Other issues, Ukraine, what to do about Iran, which is the prime minister's priority. And frankly, I think for the administration, if they're worried about anything, it's not what to do about the problem of the much too promised land. It's the problem of how do you preempt a confrontation between Israel and Iran, a war with the U.S. that could lead to plunging financial markets and rising oil prices. So I think and again, I'm not criticizing Tony Blinken. I work for half a dozen secretaries of state. This was there was no serious intention here to do heavy lifting to try to unwind this problematic conflict. So as a diplomat who's toiled in these vineyards a long time, it's clear, as you just said, we're transmitting a lot. Is the Israeli government receiving? Because I'm not sure that much has changed on the Palestinian side with muffling Abbas. We do have a new government, the same old prime minister, but a new government and a number of Israeli commentators I've read said, boy, this is perhaps the most hostile Israeli government to any sort of peace, lasting peace of the Palestinians we've had. I mean, I don't use any doubt about that. You have the most right wing, even fundamentalist government in Israel's history. And the prime minister of Israel assembled this government, frankly, after four or five failed attempts in the last three years, in large part because he needs a consistent majority to find a way to nullify, defer or immunize himself against his ongoing trial for fraud, bribery and breach of trust. And until that happens, he's going to be very dependent, David, on several. Two in particular, very right wing ministers who have budgets, who have authority and who have agendas to control the Israeli police and to deal with the day to day governance and what happens on on most of the West Bank. So, no, the sun, the moon, the stars are not aligning here for a diplomatic solution. What they're aligning here for, I suspect, is a potential explosion. Well, and that's my question. Again, you as a diplomat, I've never been a diplomat. How do you handle a situation where I like situations where I think I've got a least a shot at fixing it? I'm not sure there's a shot at fixing it anytime soon. So you're not trying to fix it. You're just trying to manage it so it doesn't explode, as you just suggested. How do you do that? I think in the case of the Israeli-Palestinian problem, for an administration that's preoccupied with so many other issues, for a president whose legacies can be determined not by what happens in Israel Palestine, but what happens in Russia and Ukraine and Chinese spy balloon notwithstanding, what happens with with the Chinese and a president that most presidents don't like to fight with Israeli prime ministers unless unless there is reason to believe that the fight could produce something positive. So I think you try to manage as best you can. And I think management in this case is not going to work in administrations whom we're going to have to deal sooner rather than later with a pretty raw and grim confrontation. One last one, if I could. What about other countries in the region who could could help? And specific. Let me ask about Turkey. We have from inside IRDA one up there. And there has been a slow, fraught relationship there with Israel at times. I believe it's a bit better now. Could Turkey play a significant role here? I don't think so. I think Mr. Erdogan has his own election on his mind. And he he's. Not prepared to take positions, I think that would somehow be able to navigate that very fine line between being pro Palestinian on one side and pro Israeli on the other, no. If there is a mediator, it's Washington. But we'd have to be ready to apply both honey and vinegar incentives and disincentives, assuming the Israelis and Palestinians weaver an interested in finding a conflict ending solution. And right now I think neither are willing nor able, as you suggest quite correctly, as a bandwidth issue. When we've cut Ukraine, we've got China, we've got Iran and who knows what else. Thank you so much. It's always wonderful to have you with us. That's Aaron David Miller. He's Carnegie Endowment for International Peace senior fellow. Coming up, we're going to talk about the role of the OSCE in regulating crypto currencies with the acting comptroller. Is Michael Shu. This is balance of power on Bloomberg television and on radio. This is balance of power on Bloomberg television and radio. I'm David Westin bank regulation is terribly important to just about everybody who listens and watches Bloomberg. And we welcome somebody who's in the center of that. He's Michael Shue. He's acting comptroller of the currency. Welcome. It's very good to have you, Mr. Shue. Let me start with something you've been speaking out on, and that is too big to manage. We've heard about too big to fail. You're not talking about too big to manage. Give us the hallmarks of what makes a bank too big to manage. Well, David, first of all, thanks so much for having me on. So a bank is too big to manage, basically has problems that it can't solve over time, has negative surprises again and again and again. Bad things happen repeatedly. And despite their best efforts, they can't fix it. That's a bank that's too big to manage. And is that something that you can identify at the FCC? So in my speech, I gave a speech on this recently, I laid out an escalation framework, and the idea is that we lay out markers, we identify deficiencies and the banks can't fix them repeatedly. Given given repeated opportunities with escalation, if they can't fix it, that's proof that they are too big to manage. So we'll take action accordingly. We'll take action. That's what I'm curious about. You don't have power. I don't think to order them to divest. Do you? We have broad authorities related to safety and soundness, so we do have those authorities. We want to do this in a way that is consistent with due process, that's led by due process. And in the escalation framework I laid out, we identify the problem. Give me a chance to fix it. If they can't fix it, then we basically put on a growth restriction. If they still can't fix it, then there'll be a divestiture. So Lewis was a very hot topic, I'm sure you'd ask, but all the time. And that's regulation of cryptocurrency. Let's talk about that in Washington. And we haven't seen too much of it thus far. What is the proper way to regulate crypto currency from your point of view? And what is the role of the Office of Comptroller of the Currency? Right. So our primary mission is to ensure that the national banking system is safe and sound. That's where we are. That's our starting point on all of this. So crypto activities, as you and all of your listeners know, it's a risky space in just crypto industries in mature. So part of what we need to ensure is that to the extent that banks are engaged in crypto, are thinking about engaging in crypto, they're doing so in a safe and sound manner. And that means approaching this very carefully and cautiously. Well, I guess one of my questions is, do we know the extent to which banks and banking institutions, other financial institutions are exposed to crypto? Do we have a clear read on that? We do. And that's because there's a regular reporting system for you. So we've got supervisors in place. We have regular. This is part of the job of a supervisors to know what banks are doing. And we have a pretty good read on what banks are in the national banking system. Bank activities related to crypto. Well, I guess you must be having sort of a dry run of this right now with FTSE X, not so much FDA X itself, but some of the knock on effects of RTX. Are you seeing reverberate reverberations through the rest of the financial system? So, you know, a lot of the crypto problems started well before RTX. I mean, you really have to go back to the spring of last year with the collapse of the USD Terra Luna stable coin and all the knock on effects from that. We've been closely monitoring all of those events with a special eye on the nexus between crypto and the natural in the banking system. And so far it's appeared that we have a pretty good read on that, both also supervisors and the banks themselves. And to what extent are you finding other banking institutions or evangelists who are really directly affected by the collapse of the RTX? Well, so I'm weren't pretty regular contact with our banking agency peers. So, for instance, at the Federal Reserve, at the FDIC and at the States. So we have really good communication, coordination. This is really important for crypto because crypto is kind of everywhere and nowhere at the same time. So having that coordination across agencies is really important to ensure that we are not we don't have negative surprises. Such monitoring do give guidance to banks about exactly what they should or should not be doing, where the risks are too great. Yeah, so we always expect things to take a safe and sound approach on these things. We, along with the Fed and the FDIC put out a statement in early January where we just put a reminder here all the risks related to crypto. You banks need to do this in a safe and sound manner and across the federal banking agencies. We are unified and taking a careful and cautious approach. Are you seeing a tendency for smaller banks and sort of nonbank banks to be more involved in this space than others? Yeah. The risk of a race to the bottom is always there. And so that's part of the reason why we put out that statement to say there's no space for that race to the bottom. And yes, I think that I think that's something that we were very attentive to. So you are acting comptroller of the currency. Congratulations. I'm not trying to get you out of your job, but why are you acting? You've been acting for quite a while. What do we have a permanent control? And what's the cost of that? So this is the best job I've ever had. I would love to continue doing this. I think that question is really best directed to the White House and to others. OK. OK, fair enough. As I say, I'm not trying to get you out of your job at all. From your point of view, what are the biggest issues, challenges going forward for regulations of banks? Where would you if you had it all to do yourself, where would you move first? So our primary mission is safety and soundness. We need to make sure that trust in the banking system is maintained and safeguarded. So I've laid out priorities relating to guarding against complacency, reducing inequality, adapting to digitalisation, adjusting to climate change, risk management. These are the things that we really need to work on to make sure that we safeguard that trust. What's your view on the current policies of the bank mergers? So we've got a bank merger symposium next Friday. It's going to be open to the public. Well, we are going to be discussing all of the major issues related to how to take a modernized updated view approach to bank mergers. As I've said before, we're not for or against all bank mergers. We want good bank mergers that are pro community, pro financial stability, pro competition, other negative mergers changing because nature banks are changing opportunity, nonbank banks, if I can call them that. Yes, absolutely. These are things we need to take into account, because you've got the banking system is no longer confined to just chartered banks. You also have a number of non banks that are engaged in in the banking space and banking activities. And so we have to take all of that into account as we think about this. One less one Community Reinvestment Act, as I understand it, that's gotten crosswise at ESG. Certainly republics on the Hill are concerned about that. Where are you? So we're in the process. We put out the federal banking agencies, put out a proposed rule to modernize and strengthen the CIA. We're going through that process now as we head towards finalization. And we've gotten lots of hundreds of comments and we've worked through all of those to make sure that we're getting all of the public input as we move towards finalisation. Sure. Thank you so much. Really great to have you with us. Michael Shoe, acting comptroller of the Currency. Coming up, highlights from my conversation with Ford's CFO, John Lawler. That's next. On balance of power on Bloomberg television and radio. This is balance power. Bloomberg Television Radio I'm David Westin I talked earlier today with Ford CFO John Lawler about managing his traditional business while moving into FTSE into these. Well, when you look at us right now, we're in the midst of a double transformation. There's things that are going really well. We're number two and navies in the U.S. We have a great product lineup in that space. Lightning is is sold out our F 150 electric pickup. Our software business is moving forward. Subscriptions for our fourth pro software services grew at over 70 percent last year. So there's parts of the business that are going really well and then there's parts of the business that need to improve and aren't performing where they should be. And we talked about that yesterday in our earnings calls. We feel that we left about two billion dollars of adjusted EBITDA on the table that we should have delivered and we didn't. And so where we are being hit with supply chain issues, we're being hit with manufacturing issues, logistics issues, et cetera. And there's areas where we need to improve. And that's what we're working on. One one set of issues is a supply chain, what you can do to improve that. There's the cost issue over how you get costs down. Jim Farley, earlier I had a target of three billion dollars in savings. We heard yesterday that, in fact, that number is going to go up. What's the new target and how are you going to reach it? Well, we're looking at two, two and a half billion dollars plus in 2023. And the new target is going to be based on where we are competitively. So, you know, we have a position in the marketplace today. If you just take our cost of goods sold and look at our cost of goods sold as a percent of revenue and compare that to our competition, you see that we have opportunity. And as they improve, we need to improve more. So it's not a stagnant target. It's a moving target. And what we need to do is we need to be competitive and we need to be best in class in that ratio. So that's what we're moving towards. And we're going to do it is we're going to get back to basics. You know, we know how to do this. This is what we've been doing for over 100 years. So we're going to improve our operations. We're going to a lean focus. We're going to improve the core ability of our teams to drive waste out of the system. We're bringing in new talent. That's helping us do that. We're going back to our roots. We're going to be more simplistic in what we're doing from a standpoint of complexity, et cetera. So there's opportunities across the board in our industrial system. We've got talent now, both existing for talent and new talent. That's showing us, you know, bringing us back to our roots and showing us new ways to do it, which are in some ways the way we used to do things. And that's that's encouraging. So there's a lot there for us to lean into. And we just need to get after it. Does that mean fewer people and indeed, less production? Because I think I saw in January your inventory to sales ratio went up to 2.5. Are you concerned about excess inventory at this point? Well, that's an opportunity for us. Absolutely. Inventory did go up and that's part of our supply chain issues. As part of our logistics issues. So, yeah, there's opportunity there for sure. Everything's on the table. What I would say is that we have to improve our productivity. That doesn't necessarily mean that we're going to cut the number of programs where we're we're designing or the output that we have. We just need to do more with less. And that's the life blood of a company, right? You have to drive productivity improvements. And we're not where we need to be. And so we're gonna get there. That was Ford's CFO, John Lawler. Coming up, we'll continue on Bloomberg Radio and our second hour. We're going to talk to Derek Grossman of the Rand Corporation about that Chinese spy balloon, its balance of power on Bloomberg television and radio.

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Balance of Power Full Show (02/03/2023)

Bloomberg: Balance of Power" focuses on the intersection of politics and global business. On today's show: Betsey Stevenson, former Chief Economist, US Department of Labor. Heather Boushey, White House Council of Economic Advisers. Aaron David Miller, Carnegie Endowment for International Peace senior fellow. Michael Hsu, Acting Comptroller of the Currency. John Lawler, Ford CFO. (Source: Bloomberg)

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