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We are live for post-9 at the New York Stock Exchange. Jim and Carl have the morning off. Let's give you a look at futures as we get ready to begin trading one half hour from now. And you can see we are looking for a down open at this point. We'll also keep an eye, of course, on the bond market. We begin, though, with the world's central bankers. They are gathering at that ECB annual form. It is in Portugal as it was last year. Sarah Eisen will be moderating. It's a panel that has Jay Powell, Christine Lagarde, the Governor of Brazil's National Bank last year. I think it was Japan's National Bank this year, Brazil. And we, of course, will bring you live coverage of that event this hour. Does Sarah get to pick the extra central banker to bolt on? I don't know. I don't know. Well, look, let's be honest. Most of the questions are going to go to Powell, then to Lagarde. Yeah, I don't know. But it adds a great diversity to it. Didn't you want to add that to your trip, David? Which one? The central... You know, thankfully I was there about a year ago, so I did get to see it. But I am not the central banker interviewer at this network. I didn't think... No, but you're a big fan of all areas in Europe. I am indeed. Good timing, as always, for something like this, that Sarah's booked. 2.5% inflation coming in from Eurozone this morning, down from 2.6% in May. It was in line with expectations. The service inflation ticking up to 4.1%. And that's why the headlines crossing from the speech part of what Lagarde has been saying, that there are no rush to cut interest rates. From here, interesting couple of similarities are one key difference to the US. The similarities, unemployment remains low across Europe. 6.4%, which is very low for the Eurozone. And also that service inflation remains sticky, similar to here. Both of those factors, of course, suggesting there's no immediate need for a cut. The big difference from the US is that they have already, of course, cut once. 3.75% the rate having cut. 25 bips in June. Altogether, you can see why Lagarde's headline from her speech is, we're not in a rush to add an extra cut from here. How do you extrapolate that inflation data based on the actual activity of cutting? Is there any way to draw a correlation there? Or is it something still in wait and see? So there's one similarity between the Eurozone and the UK, which is that we're about six months behind the US. Getting to those sort of really attractive inflation readings a little bit later in the US, and probably now going to follow suit of the US, which is we're going to see things tick up again, not to the highs of 10, 11% that we saw 18 months ago, but going to tick up again from here. And the difference that you've seen with the ECB compared to both the UK and the US is that they did pull the trigger last month on a little bit of a cut when you did get those attractive readings. The question mark from here, which you guys have had for the last six months, the UK will have, and the ECB will have too, is if you didn't cut at all or didn't cut much when the readings were very low and falling, are you really going to cut when they're ticking back up again? And, you know, obviously that's why expectations for the number of cuts have been pushed back so much, and what we'll see from here if they do material. Speaking of yields, of course, we always keep a close eye on the 10 year, and that has moved up a little bit. 20 basis points. 20 basis points. And I don't know if you've been picking this up, Leslie and your calls, but I have had people starting to talk for the first time in a real way about the election. Yes. Obviously following the debate performance by President Biden and the growing belief that that has certainly made things easier, perhaps for a Trump victory, and then looking at what that would look like in terms of potential for tariffs, significant trade restrictions, maybe even more tax cuts. Nobody really talking about less spending in some ways, and so maybe that's playing out a bit in the bond market, unclear, and perhaps that is one of the reasons why we're at least seeing the futures under some pressure, this after what was not a bad day yesterday. No, that's exactly what I've been picking up on from the investor community as well, as a real focus on the presidential election following the debate, what that means for the deficit in particular and what that means for the 10 year, and I think that's partially responsible for that 20 basis point move. We saw just in two days of that 10 year yield taking higher. I think the focus has been kind of on what Trump would mean for bond yields. There doesn't seem to necessarily be a clear consensus, but the one certainty that is out there in the macro environment does seem to be that the election will encompass more spending. And with all this talk about Biden being the presumptive Democratic nominee, will they ultimately replace it? No one's talking about what all of these potential replacements would mean for deficit spending, although presumably that is also more of the same. So all in all, regardless of the outcome, you're looking at a higher deficit and additional spending in this environment where I believe even Wilford would be a better person to speak on this. It's kind of ubiquitous across the world right now with so many elections taking place, and so much political uncertainty, and I'm looking forward to look our comments as it pertains to what's going on in Europe and the election. What I think is going to be really interesting after all of these elections, whether it's French getting to next week, UK come Friday, US come November, is whether there's a reality check once we're out of campaign mode. No one's campaigning in this world today where politicians can get away with not necessarily nailing down precisely what their policies will be and they kind of don't speak the truth all the time. No one's going to say, oh, I'm in a massively high taxes and cut spending. There probably will be a bit of a reality check for all of these countries in the coming years, whether it's forced on them by the markets, like Liz Truss experienced in the most pronounced way, if it's not quite as quick as that, it's over time. So we'll see what happens on that. I think the really interesting swing factor on the US and it goes straight to the big elephant in the room on the markets and Nvidia is trade relations with China. I mean, there was a big difference when Trump came in the first time, where nobody had really talked about tariffs and being tough on China, whereas you could even argue that Biden administration has been much tougher on China than Trump was, who was kind of more talk and less action. And might things actually not necessarily ease under Donald Trump but not get tighter still than they already are. And that equation at the moment is really helping Nvidia. They've got the perfect scenario of demand is off the charts and supply is constrained in a way that, yeah, they're way ahead of the rest in terms of innovation, but there's also protectionism on that particular subsector like there's no tomorrow. So it'd be interesting to see, in fact, if that changes in a way the market's not currently expected is sort of the most people think, "Oh, Trump's obviously going to be tougher on China." I also think Europe's interesting to watch on China at the moment, kind of following the US's lead. Could that ease a little bit? So we'll see. Just in terms of yesterday, David, you said it wasn't a bad day yesterday. It was a really strong afternoon with no clear kind of reason or catalyst why after a soft morning and another record close for the NASDAQ. Of course, you get those when you're up and around these levels, but not something to sort of ignore altogether. No. And back to the budget, I mean, it will be interesting to see if we continue to have some sort of focus on it in the bond markets. As we approach perhaps as soon as next year, I guess interest costs exceeding those of allocations towards defense, which students of history were very close. The students of history will say is always a bad sign for an empire, ultimately. And they'll go back to Rome, they'll go back to all of it. That's all of it. Empire's a good word to use after that. After the scotest decision yesterday. Empire's an interesting word to use as we also approach July 4th. Great, great. All sorts of great reasons to use that word at the moment. Interesting, though, in terms of the outlook on the debt, the US is 38% of its debt pile coming up in the next three years, which is pretty high. I mean, again, it's not attractive on that measure. Right. Free for Germany. Yeah, and a much higher rate. There might be a forced decision in terms of spending once we get past elections. Yeah, I think we're already at a trillion dollars a year in debt payments. Breaking news on Tesla. Let's get to fillebo. We've got the Q2 delivery numbers for Tesla, and these are better than expected. Remember, the street was expecting about 436,000 vehicles delivered worldwide in the second quarter. Tesla delivering 443,956 vehicles in the second quarter. 95% of them, as it usually is, Model 3 and Model Y. And so this is much better than was expected production coming in at 411,000 vehicles, 410, 831 to be exact. So again, the reason you're seeing shares move higher. This is a better than expected number for the second quarter. Earlier today, we got Tesla's China numbers, and that had a few people a little bit nervous. Remember, China is the world's largest EV market, and therefore, you want to watch it closely because it's such a big part of Tesla's overall sales around the world. In June, sales totaled 71,007 vehicles, down 24% year over year for the second quarter. Tesla is going in China, a little over 200,000 vehicles delivered. And I want to show you where Tesla is relative to BYD because BYD's Q1 sales of electric vehicles. And we're not talking hybrids, pure electric vehicles, so you can compare those with Tesla. They came in at 426,000 vehicles. So Tesla still remains number one worldwide, and there you see VW, GM and Geeley as well. And in terms of annual sales, I'll be curious what this does to the estimate of what analysts are expecting for the full year. Right now, it's come down to 1.82 million vehicles expected to be delivered this year by Tesla. For a point of reference, it was 1.81 million last year, so essentially flat. Do analysts now say, "Okay, maybe we're starting to see some momentum here. Maybe we raise the full year delivery estimate." Now, as you take a look at shares of Tesla, a couple of important dates to keep in mind. February or, I'm sorry, July 23rd. After the bell, that's when we will get the Q2 results, and we'll see what kind of impact pricing in China has had on those Q2 results. And then on August 8th, this is the one that so many are focused on. This is when Elon Musk, he talks about the Robotaxy. What's the plan? Do they show us a vehicle? Do they give us a timeline in terms of Robotaxy being deployed, geofenced areas all over the place? Tons of questions surrounding what they're going to say about the Robotaxy. That comes up on August 8th. But again, guys, 4Q2 better than expected deliveries from Tesla. Just quickly feel better than expected by 4,000 or so. And obviously still marks another quarter. 8,000? Yeah. Sorry, 8,000. My maths is off or our estimates on the bottom of the screen are off a little bit. But talk me through that outlook. Even with a better quarter, even with perhaps things improving a little bit in the second half of the year. Yeah, we're still stepping back, talking about flat year over year. If we come in at 1.82, it would be flat year over year. That is correct. Well, whether it's 1.83 or 4, or we're not talking about growth. Probably speaking. Do people think that that's a one or two-year issue? Or are they just happy to price in the stock where it is and it being X growth? Look, in terms of the stock, there's no way to tell exactly what the mindset is on the Tesla investor. Because so many of them now are trying to pivot to other focuses or other focal points in terms of why they believe the stock is undervalued. Energy storage is a great example as Tesla continues to rapidly increase its energy storage deployments. People are saying that's what you should be focused on, not on vehicles. But make no mistake, vehicle deliveries is still what people generally focus on when they're looking at Tesla. And will to get back to your question, yeah, it's going to be flat year over year. This is why Elon Musk is pivoting as he mentioned at the end of Q1 to a lower priced model. Now, how much lower priced will it be than the current Model 3? That remains to be seen. What can they do? I mean, they made an announcement saying, "Oh, very early next year. Maybe even late this year, which nobody's really buying into, you will start to see us produce and roll out a lower priced model." Are you tweaking the Model 3? How much lower priced can you get? They know. Tesla knows. The world is focused on a lower priced vehicle. They are not focused on the cyber truck. That is a niche vehicle. And the issue is that Tesla spends so much time on the cyber truck when so much focus should have been, many believe, on a lower priced vehicle being developed. So, real quick, the BYD numbers give them to me again, those were worldwide deliveries for BYD, what were they? Yeah, 426 for the second quarter. Okay. And that pure electric vehicles, David. Remember, BYD also makes a ton of hybrids. Pure electric 426, Tesla 444. Got it. Interesting. Phil, thank you. Phil, well, coming up paramount is this morning's top performer on the S&P 500. We'll give you the latest on that company's, yeah, it's a saga. No doubt about that. Also, ahead, Sarah Eisen's big interview from the ECB Forum in Portugal is coming up. I'm here in Central Portugal today for the annual ECB Forum, where I'm about to sit down on stage with the head of the Federal Reserve, the European Central Bank, and the Bank of Brazil. The key question on investors' mind, what does the policy path look like from here? Now that inflation has come off of those super high rates, but not yet at desired targets, is it time for the central banks to start exiting the tight policy? We've seen all these central banks moving at different speeds. The question is, what comes next? We've got a lot to talk about. We'll bring it to you live on Squawk on the street. At EverNorth Health Services, we believe costs shouldn't get in the way of life-changing care, and we're doing everything in our power to make it possible. Behavioral health solutions that also keep your projections at their best, it's possible. Pharmacy benefits that benefit your bottom line, it's possible. Complex specialty care that cares about your ROI, it's possible, because we're already doing it, all while saving businesses billions. That's wonder made possible. Learn more at EverNorth.com/wonder. My dad works in B2B marketing. He came by my school for career day and said he was a big RO-ass man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing at me to this day. Not everyone gets B2B, but with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to linkedin.com/results to claim your credit. That's linkedin.com/results. Terms and conditions apply. Linkedin, the place to be, to be. All right, welcome back. I was away for a little while. It was so nice not talking about paramount. But here we are talking about it yet again this morning. The stock is going to be up. The Sun reports that Barry Diller and IAC, the company, he controls, taking a look at the idea of purchasing national amusements, which, as our viewers know, given how often I've talked about it, has the control stake in paramount, some 77% of the A shares. I can confirm as others have that in fact they are talking to national amusements, but they've signed some NDAs. They're in the data room. And the hope, as I understand it, is they can either make a decision in the relative near term as to whether they want to try to move forward and mount some sort of a bid that would probably have to exceed $2 billion. Remember, of course, when Skydance and Redbird thought they had their deal, they were originally paying as much as I think it was 2.3 or more. I've got to look for my voluminous notes here to find the exact number because it's not coming right to mind. They reduced it a bit. They didn't get there. That lady, Shari Redstone, ultimately rejecting that transaction, but not the idea perhaps of selling control of national amusements, particularly given so many of the different pressures she may be under, and it may be under. What would Dillard do if he were to take over? I'm anybody can guess, but of course you'd expect that he would once the deal closed replace management. I think there is this general sense that over the air broadcast network such as CBS is underutilized, still has more value. I was hearing that as well under the previous potential bids from the Skydance and Redbird. So there is that. There's the idea that you get better at making successful programs, and that helps. One thing you wouldn't get though is synergy. There was some synergy at least with the hopes for costs, synergies of some kind with Skydance being put into paramount. Certainly one would imagine, and this is not happening, that Warner Brothers Discovery were to buy the whole thing. You'd be huge synergies. Here you don't have any synergy. So you've got to figure out a plan for a company that has been, many would say, mismanaged for a long period of time to get it back. That said, even with that so-called mismanagement, at least in the view of some, there is still viewed a great deal of value potentially there, but how you actually go about increasing that stock price. And again, you're not talking about anybody getting a premium here for this stock, right? The B-shirts, none. This is simply a control stake once again that would be purchased by an outsider. For redstone based on your reporting, is it purely about price? Or is she looking for kind of the next? You know, she owns 33 million B shares, and had it been my belief the last time around, remember, she was the one that asked the Special Committee to be formed to take a look at the Skydance deal, because she was in support of it, in part because she seemed to support that plan for the best overall future health of the company that she is obviously a control shareholder in, and that her father helped put, created and put together. At this point, it seems like she just wants the biggest dollar number she can get. Is my sense that said, Mr. Diller, as a history with Paramount, he was a young man when he ran it many years ago, he competed with Sherry's father to buy it and ultimately lost back in '93, '94 for story ever covered at CNBC, by the way, Wilford. Wow. And, you know, there is... Can we dig up the tapes? I don't know. I don't think they are. They were real tapes. They were actually tapes. I think they got burned up somewhere. There are other things going on here as well though, you know, listen, the prospect again of a Trump presidency, the lack of potential M&A regulation that would come along with that, allowing for a lot more consolidation can't be underestimated in terms of what that might allow people to start thinking about doing if that were to happen. And then finally, you've also got these talks that CNBC.com reported on yesterday between Warner Brothers Discovery and Paramount about basically putting Paramount plus into Max, into HBO or Max. It's not called HBO, and giving some sort of economic stake to Paramount and having it be a global offering, so there's that as well. So I was going to ask a little bit about Warner, because you mentioned them there. Clearly, we don't know how close the dealer deal is, that the Skydance still got pretty close. Yes. Where then was the trigger to bring in some of these more bigger traditional media players that we've always wondered, oh, they'll wait to see what's happening, but they won't want to miss out on one of these deals. I mean, I think if you're Warner Brothers Discovery, despite what would be the presence of enormous potential cost synergies, billions of them, it's the antitrust concern. You're simply not going to be either, you're going to fight a year and a half, at which point you're going to watch a lot of that value start to evaporate over that period of time. So when you close the deal, these synergies are available to you or are no longer anywhere near what they were. And I think that's the case for our parent company as well. These are tough deals to imagine doing that could change if, in fact, we get a change in the administration. Warner's restricted for various reasons, it's not like they're soaring at the moment, they've got a lot of debt already themselves. For Comcast, our parent company, Disney, Netflix, this is kind of a drop in the ocean-type deal. What's Paramount's market cap right now? It's nothing. It's $14 billion in debt. Can they afford the $14 billion in debt? Can they take that one? Netflix certainly has been thought about as well, would they want to buy the studio if they could just pry that out. Everybody loves it once. That's why Sony took a look and Apollo into the studio. Perhaps underestimating again, I think some would say, and certainly Mr. Diller might even, that CBS is being undervalued in that and the Skydance people believe that as well. But how much of the messiness of this whole situation is deterring potential buyers as well? I mean, just giving all of the back and forth and, you know, at some point potential buyers might just say, "Look, I like the asset, but I don't want to deal with it." No, especially with what happened last time in terms of the control shareholder at the very last moment saying no to a deal that she had supported more or less throughout until the last couple of weeks. Yeah, that's a hard one. And that does, and people work months and months on something only to find that it's not ultimately there, you're right Leslie, that's got to be an issue. We'll keep an eye on shares of Paramount. Coming up, Sarah Eisen with a blockbuster panel at the ECB Forum in Portugal. Hi guys, I'm here in Central Portugal. The ECB annual forum is taking place, and in just a few minutes, I'm going to be conducting this panel with the head of the Federal Reserve, Chair Powell, the head of the ECB, President Christine Lagarde, and the head of the Brazilian Central Bank, President Campos Neto, about where they are right now in the fight against inflation and the possible exit from very tight monetary policy. We've got a lot to talk about moments away on Squawk on the Straight. We'll be right back. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing at me to this day. Not everyone gets B2B, but with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to linkedin.com/results to claim your credit. That's linkedin.com/results. Terms and conditions apply. Linkedin, the place to be, to be. Just a few moments from now, you can see there's setting up over there. The ECB Forum, it's in Central Portugal. If you've never been, it's a beautiful town on the water. Very nice. Big castle up at the top there. I think I got the right place. And it's bright colors, kind of like the set right there. Yeah. Like the yellow and the blue and the red. Sarah Eisen has been getting very familiar with it because this is another year. She's going to be moderating what is a really major panel discussion. Of course, Fensher Powell will be joining her ECB President Lagarde. And as well, he who shall not be named other than the governor of Brazil's Central Bank. That's what we're going with. The Central Bank has picked some great locations for their conferences, don't they? Jackson Hall. Jackson Hall coming up as well. Great. And geeky conversations in great locations. That is... geeky conversations in great locations. Yeah. That's how you bring people in. How do you bring our audience in? It's how you bring our audience in. Like the New York City subway. You may not get us going to turn around. And we're waiting for this open soon. Again, to remind it, record clothes yesterday for the NASDAQ. Not out of nowhere, of course, but kind of quite stealthy, extra one this year. And today we'll see if that holds in light of a softest European trade, but more importantly, yields ticking up again here. And it feels like 4.5 is the real trigger on the 10-year that starts to spook markets. But we're not back up at that level yet, but 20 basis points rise as nothing to overlook. It was looking at the notes out overnight. Laurie Calvassina from RBC upping their target on the S&P to 5,700 from 5,300. But an interesting period of time where on the top line of their raise note, they say this is a nervous raise. And then there's all sorts of caveats in the opening page about why they're kind of doing it reluctantly. And that does sort of speak to the moment in time that we're all getting to it. And that starts the best of the world. I'm in the year, it is. 1% final game. I think now the question is just a second. Are you sure? Can you tell me who's coming? I'm going to drop it out and open it up higher. If you open it up, you're going to stop this point. It's going to look at the real time. It's going to step it apart. It's going to step it apart. It's the big point. 3. That's a SPAC. Celebrating a 3C listing at the NASDAQ. Being global. An EV charging company. Didn't mean to interrupt you there Leslie. You said SPAC's EV charging company? Is it 2021? It's taken us back. I know. Now there are two separate things. This is the SPAC. That's the EV charging company. SPAC's are still sort of with us. They are. They didn't wait. They didn't completely go away. But they're not, you know, here in the way that they were back then. No. And there are different reporting requirements at this point. You're not seeing any of those long-term free cash flow estimates that made absolutely no sense but could be put into writing at least and help promote the stocks at the time. Those were fun times though. Speaking of the capital markets, we did get some interesting moves in the banks. Well the banks, just to mention by the way, a lot of the smaller banks are topping the S&P this morning. We're looking at United Community Banks, United Bank shares, town banks. So a lot of the smaller banks up about a percent or so as we take in these first minute or so. In a negative tape. Raymond James upgrading America and for citizen bank shares. And part of the thinking here, we also saw seaport research upgrading Bank of America on these potential talents. We're having this conversation because the three of us have been, have served time on the banking beat by the way. Which is kind of a really special. You two, yes. At least the last, what is it? Decade at CNBC, right, I would say. Both of us were just trying to fill your Tuesday. I don't, you know, I never considered myself a banking reporter. But we did not have one for many years. Mr. M&A. Yes, for many years. So I would, we used to have much more free rein. You were not a banking reporter. Now it's Sarah Eisen and everybody else. Yeah. This is, by the way, the seaport upgrade on Bank of America has a similar theme to the Lori Calvassina upgrade to the S&P. It's a reluctant upgrade. Yes. And, you know, again, I look at all this. There's the, and having not looked at it super closely, although even though it's not my beat anymore, I kind of find it hard not to read everything that comes across in London about the US banks. Bank America is back up to 40 bucks. I mean, it's not, it got down to 25. And these aren't cheap stocks at the moment. No, and a big reason why they had such an overhang, especially last year and early this year, was because of the whole balance sheet issue and all the underwater securities and investors were really punishing the stock as a result of that. Now with this upgrade and some of the thinking is kind of coming around to this idea that they're working through the balance sheet issues to roll off every single quarter in their earnings report. And so it becomes less and less of a problem depending on where rates are, of course. But the lower they get, the better that is. At the same time, according to C-Port, they could be benefiting from some NII tailwinds, net interest income tailwinds as well. That's the loan profitability metric that we talk about all the time. And so a lot of investors are expecting some kind of inflection point this year for net interest income for those, especially for those banks who are tilted toward-- And not as concerned any longer about some of the long-dated assets in the balance sheet, which of course during the banking crisis. Okay, it's starting, I'm told in my ear. That means the ECB forum. Let's go to Portugal and Sarah Eisler. Our host from the European Central Bank and President Campos Neto from Brazil. This time last year, when we were all talking, you guys were in the sort of final process of hiking rates. Fast forward one year. And now it's interesting, while I'm going to miss Governor Weta and his jokes, we've got three great panelists here going at different speeds, I would say, when it comes to reversing that course. So we'd love to just open it up, President Lagarde with you, and ask, "Where are you in this process?" Because you cut in June, so now what? Well, it's been a journey. You can't just say, "Oh, we cut in June." It's coming on the back of a period of hikes which was unprecedented facing shocks that I tried to describe yesterday over dinner. And followed by a period during which we held rates untouched and during which we were restrictive enough to actually see our medium-term target reach that 2%, which is our objective. And most recently, we have seen in our round of projections, which are really important. In September, December, March, and June, we've seen that 2% target with an oscillation of 0.1 about it at the last quarter of 2025. So it's on that basis and on the basis of what I'm happy to describe does the three-leg reaction function and all the underlying data and information that feeds those three legs, that we decided to do a 25 basis points, but in the same breath of air, I also said that it was not a linear process, that it was not a predetermined path that we were embarking upon, but a step that would be followed by further review of data, further understanding of where our three-leg reaction function would be. So that's pretty much where we are. And I would simply maybe add that we are very advanced in that disinflationary path. And we are in that sort of slow recovery, which came about during the first quarter, and which we hope will persevere. But all of that is flawed with uncertainties and big question mark about the future. Sounds like you're setting up the market for applause now. Is that right? I'm not setting up anything for, you know, anyone. I think that it's for everyone to really look into looking under the skin of the economy and see where it's heading and appreciating what our reaction function is and how we're likely to decide. Mayor Powell, you have also been on a journey and have been on hold since last July, have not cut rates like the ECB in June. Why not? What are you waiting for? So let me say that sitting here last year, there was a lot we didn't know, and we didn't know that we were just about to embark on a period of seven months of much lower inflation readings. We didn't realize that the second half of last year was going to be an extraordinary year from a growth standpoint, and also from the same point in the labor market. So things actually worked out in the second half of last year in a remarkable way. Then, as you know, in the first quarter of this year, we continue to have solid growth in the first half, actually, solid growth, and the labor market that's still strong, although we've seen a continued rebalancing in the labor market, and inflation after pausing in the first quarter now shows signs of resuming its disinflationary trend. So it's a little bit different journey. So where that leaves us is, we've made quite a bit of progress in bringing inflation back down toward target. While the labor market has remained strong and growth has continued, we want that process to continue. I think the last reading and the one before it to an inflation, the one before it to a lesser extent, do suggest that we are getting back on a disinflationary path. We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing how tight our policy is, of loosening policy. That's what we've said, and what we would like to see is more data like what we've been seeing recently. We'd also like to see the labor market remain strong. We've said that if we saw the labor market unexpectedly, we're getting that is also something that could call for a reaction. How much more confident do you want to be? The PCE number 2.6, that wasn't too bad that we got last week. That's right. So we're actually on a 12-month basis. We're actually at 2.6, both headlining core for inflation, and that represents really significant progress. I think we peaked at 5.4% in core, and the same thing has happened in headline. We've gone from 7.1 to 2.6, so yes, we've made a lot of progress. We just want to understand that the levels that we're seeing are a true reading on what is actually happening with underlying inflation. As we were saying at the last part of last year, people were saying, "You need to declare victory. This is over." Then we had a quarter of inflation, which was well above 3%. So we want to be more confident, and frankly, because the US economy is strong in the labor market, is strong, we have the ability to take our time and get this right. That's what we're planning to do. So, September? [laughter] I'm not going to be landing on any specific dates here today. Let me also say that we're well aware that if we go too soon, that we could undo the good work we've done in bringing down inflation, and if we go too late, we could unnecessarily undermine the recovery and the expansion. So we have two-sided risks now. More so than we did a year ago, that's a big change. I'd say risks are coming much more into balance now. President Compost, you have been on a different journey because you've actually been cutting rates for much of the last year and have recently paused. Why? What are you seeing in inflation data? And what are you going to do next? Okay, so if you go back a little bit, a history of time. So Brazil was one of the first countries to hike rates. I think in part because we had a different call on the dynamics of inflation, both locally and globally. And I think that turned out to be correct. And then at some point in time we started the easing cycle. And throughout this process of easing, we've seen that inflation has converged. We have some of the problems that are common to advanced economies and other Latin American countries, which is label markets are strong. So there were two points of attention. One was label market being that strong. Would that at some point in time mean inflation in the service side? And even though we haven't seen that yet, what we tried to do is to try to estimate what would be the components of labor in every service so that we can anticipate if that were to happen. We haven't seen it, but we think it's, you know, there is somewhat of a correlation when you look at the margin. And so most recently we decided to pause. That had to do not only with the current numbers and with this suspicion that we had service inflation that could pick at some point in time, and also because food prices were going back up a little bit. And I also think that's not only happening in Brazil, it's going to happen in some other places too. But also has to do with a lot of noises that we had. So we decided to interrupt the cycle. More recently we've had had a sell-off in some of the emerging market countries. Brazil was more affected, but I think this has to do much more with noises that were created than the fundamentals. And the noises are related to two channels. One is the expectation on the path of fiscal policy, and the other one is expectation on the future of monetary policy. So when you had this two at the same time, I think it created uncertainty enough that for us we needed to interrupt and see how we can fix that channel and how we can communicate better so that we can eliminate those noises. Because there is a big disconnection with the current data, both fiscal and inflation data, and the expectation. So what happened in Brazil is the expectation started to the anchor, even though the current data is coming as expected. Right, so you're talking about the fall in the stock market and the real recently. When you talk about the markets. But for us what matters is how this gets into our reaction function. So I'm talking about expected inflation, the long end of interest rate curve. So we had somewhat of a steepening of interest rate curve. We had an evaluation of the currency, but for us what matters is the expected inflation, both implied inflation from the markets and expected inflation from the surveys, those have gone up. Yeah, I mean, President Lagarde, you have described the path to 2% as bumpy. We got an inflation report in the Eurozone this morning, 2.5%, not too bad, but core was high and services are still above 4%. So what is keeping prices so sticky? Well, first of all, we had, as you said, a number that was lower than last month. So we said it was bumpy and it's proving heading in the right direction for the indicator that we use, which is HICP to measure inflation and to set our target. So that's good. But we still believe that it's likely to be a bumpy road until the end of 2024, but we still have target at the end in the second half of 2025 on the basis of our projections, and the baseline is unequivocal on that front. You are correct that services hasn't budged. So services is at 4.1, if I remember from the numbers that we got this morning, and obviously we are very attentive to the components and what is behind services. And the real issue is to understand whether those are, this is caused by sort of permanent changes, or whether it is also a factor of the lag effects of other components, which are finding their way more slowly and gradually into services. And the jury is out as to exactly what it is. The truth of the matter is that we do have a service number that has gone slightly up in the recent months, and which is now staying at this 4.1 percentage points. Now obviously we don't need to have services at 2%, because manufacturing goods are below 2%, and at the end of the day is going to be a balance between goods and services, and it depends on the weight of those within the index. But we have to look really what is behind it, and what's behind it is a lot of wages. Services has a very high component of labour. Wages also suffer from the lag impact of the labour system that we have in Europe, where clearly bargaining agreement are negotiated not only on an annual basis in some country, but sometimes on a triennial basis in other countries. So you have this catch-up effect. For those people whose renegotiation took place early this year, they had not had a negotiation of wages in the last three years. In the meantime, of course, inflation went up, and their real wages went down. So there is an element of catch-up. So we need to really unpack all that to get to the root causes of inflation behind services. So we will continue to look at that. We need data. It applies to wages. It applies to profits, because we are seeing profit gradually declining compared to the height where they weren't at the end of 22. But we need to see those profits absorbing the wage cost increases to make sure that the second round effect is out of the window, and services are also going to be on a declining path as well. Services is the difficult one. I was just going to pose that Taylor Swift is touring Europe this summer. And there tends to be an inflationary effect in services. Am I right, Chair Powell? We saw it last year, didn't we? It's not just Taylor Swift, you know, others have come as well. I don't know. I saw it Wembley, and there was a lot of spending going on. But how do you look at the stickiness of the services inflation and how tight it is to wages, which have been rising? You know, famously, services inflation is stickier, and famously it's tied to wages. I would say, so look at the U.S. labor market. We've seen a pretty substantial move toward better balance than we had a couple of years ago when labor was in extreme shortage. So what you see now is an unemployment rate that's moving back up toward a more sustainable level. You see wages moving, wage increases moving back down toward a sustainable level of wage increases inflation and productivity. And you see vacancies to unemployment ratio coming back to where it was pre-pandemic and so many other measures I could mention. So that's what we're seeing. And so the labor market, wages, wage increases are still a bit above where they would wind up in equilibrium, but nonetheless, you can see the labor market is cooling off, appropriately so, and we're watching it very carefully, but it doesn't look like it's heating up or presenting a big problem for inflation going forward. Indeed, it looks like it's doing just what you would want it to do, which is to cool off over time, not quickly, not suddenly, not steeply. It's kind of what we've been hoping to see and have been seeing. And services generally are, they're such a mixed bag, particularly non-housing services or a mixed bag. Some of what you're seeing is catch up inflation from inflationary pressures that happened earlier. That's true with insurance. It's also true with housing services inflation where you've got some pent up rent increases that have to work their way off. It turns out it takes more than one year for that to have to take several years. So we see all that in train and we don't see ourselves getting back to 2% of inflation this year or next year, but maybe late next year, but in the year after. The main thing is we're making real progress. Can you keep cutting President Lagarde if he keeps holding? Does it make it harder? Look, I'm going to give you the conventional response because that's the conventional question you ask me. We do take into account the spillover impact of whatever is decided by other esteemed colleagues. And obviously my esteemed friend, Chair Powell, is one of those. So we take that into account, but we also determine our monetary policy on the basis of what we see in our economy. And we look at the data that we get, the impact that multiple factors have on our economies and its numbers. Does it matter for you, President Coppos, what the Fed does next? Well, I think it matters to an extent, but I think there is one point that is worth mentioning, which is more recently we've seen a sell-off in some of the EM. And especially the EM that had more, the best cases for investment. And you see that this is being explained with local news. But when you have a lot of sell-offs in different markets and they all explain by local news, you have to ask yourself if there is a more fundamental factor driving there. And I think there might be. It's difficult to make the case right now, but definitely what we see now, is there is more risk premium in a lot of the emerging market countries. And it was very synchronized with the long end of the US curve. And that correlation broke. So we've seen the last couple of weeks that even though the 10-year yield is more or less stable, even actually going a little bit lower, we saw a bit of a sell-off in the emerging market countries. And I think that has to do with the fact that as you go for longer, with higher rates and much higher debt, you start extracting liquidity from the market, and eventually you are reprising that liquidity. It could just be a temporary adjustment in EM, or it could be the beginning of a more profound movement. We need to wait and see. But I think the correlation between the US treasure and some of the EM has been broken in the last couple of weeks. And I think we should pay attention to that. What about the fundamentals in emerging markets? Because the economies seem to do better during this hiking cycle than they have previously. Why do you think that is? And does it continue? I think most EMs did a better job in terms of, or at least an equal job, in terms of anticipating the process and starting the hiking process. Also in the fiscal part, on average emerging market countries spent less than 10% of GDP facing the pandemic. Advanced economies spend a little bit more than 20%. So I think there is also this thing which didn't happen in the past, which is buying large emerging markets were able to deal with the pandemic spending less. And actually when you look at the fiscal post pandemic, the emerging market continues. It's not the case of every country, but continues to do a little bit better. So I think that also make change the dynamics. And one of the things is, I think, the independence of the central bank, and the magnitude of a lot of the central banks have gained in emerging market proved to be very useful during this process of the pandemic. I mean, all of your economies did better than expected with the interest rate hikes. Wouldn't you say, Chair Powell? Yes, yes. I think particularly, yeah. I mean, many, many forecasters had a recession for in 2023, which not only turned out to be wrong in the case of the U.S., we had well in excess of 3% growth. But you still see policy as restrictive? Yes, we do. How restrictive? Well, so that's kind of an empirical question. So I guess I would say if you look at -- we do think policy is restrictive, and we think that's appropriate. I think if you look at the labor market in particular, you're seeing demand for labor gradually come down in the form of job openings and now a slight softening in unemployment in the form of wages. You see demand coming down, not just the supply that we're getting, but also demand coming down. You also see the effects of high interest rates in the housing market, and some other interest rate sensitive things. So you see that, and I think, you know, I do think that restrictive policy is working hand-in-hand with this broad supply side recovery we've had where we've seen the unwinding of the shortages and bottlenecks from the pandemic. We've also seen a recovery in labor force participation among prime-age individuals in the U.S., and then some immigration, which has also been a positive supply shock. So we've seen all those things work together to give us, you know, really significant declines in inflation. At the same time, we've got a strong labor market and growth. This was a much -- it's a great outcome for the people that we serve, and it's one that we want to do everything we can to foster. So why not just cut rates to protect it? That's what I said earlier. Is it a bigger -- sorry, I'll rephrase. Is it a bigger risk that you cut prematurely and inflation stays sticky or that you wait too long and the economy loses more momentum? You know, that is the question. And so -- and our answer to the -- our answer to the question is you -- we serve a dual mandate, right, and these two things are embodied in that mandate. You don't -- the risk on the inflation side is that you move too quickly. Inflation comes back and we didn't really solve the problem. And then we have to go back in, and that would be -- that would be very disruptive to the economy. So the other risk is that we wait too long. We understand that, and the labor market softens too much. Perhaps we lose -- we lose the expansion, you know? So needles to say we don't want to do that either. So -- but at the same time -- so we've got to balance those two. And again, given -- given the strength we see in the U.S. economy, we can -- we can approach that question carefully. But as I said earlier, though, you see -- a year or so ago, we were talking about inflation, and our framework called for us to focus on the variable -- the demand date that is further from its goal. That's not -- they've come back much closer into balance. And a good way to see it is -- is the beverage curve analysis that everybody -- everybody talks about and looked about -- looks at it. You know, we come straight down the beverage curve, which you're really getting to that place relative to job openings and hiring rates where traditionally the beverage curve is flattened out, which means -- which would mean higher unemployment as a result of further declines in -- in job openings. So we don't -- you can't know that with precision, but it's very much understood by us that we have two-sided risks, and we have to manage them. So what about the recovery in the Eurozone, President Lagarde? It's also been pretty resilient, especially on the unemployment front. How confident do you feel in sticking this soft landing? Well, we reached a level of confidence back in June when we decided to actually cut rates by 25 basis points. But as I said in the opening remarks, it's not something that is taken for granted, that is a given, and we're going to re-examine each and every step of the way, whether that confidence is actually continuously reinforced in order to continue on that path. And it's -- I mean, the remarks by Chair Powell made me really reinforce my points about data, because we are navigating in this universe of one risk versus the other, but where data is so important. And data is so important because we proceed always with the burden of the lag of time, whether it's the impact of our policy decisions, whether it's the impact of wages, whether it's the sort of on-time data or not. All of that has to be taken into account and analyzed in details so that we can feel really confident that we can go forward. At the same time, there are also political risks. Certainly their front and center. It was nice of all the authorities to make elections all happen this week, certainly in France and in England. President Lagarde, is there anything that ECB can do to shield the rest of the Eurozone from feeling any negative impact from a divided government in France or from whatever the result is of the French election in a negative way? I thank you so much for your question. (Laughter) It can't be a surprise. Because I'm not going to comment on the political situation of any of the member states, particularly those that are facing elections at the moment. But obviously, the European Central Bank has to do what it has to do. Our mandate is price stability. Price stability is obviously relying on financial stability. And we are attentive to that because this is part of our job. And we will continue to do so. Does the rise in French baneals look worrisome at all? These are the things that we monitor. This is part of the job. It's not particularly at this point in time. We do that all the time. And we are very attentive. You have fought hard for the central banks' independence in Brazil. And yet now you are the subject of many attacks from President Lula. And so I'm wondering how you're dealing with that. Attacks from me? No, no. (Laughter) No, President Campos. Attacks from President Lula. I think he called you an adversary and an enemy. Yes. Well, I think as a central bank, we have to get away from the political arena and try to go on with the technical job. And I think what we did, I think, is a living proof that everything that was done was very technical. So during the elections in which Lula was elected, the incumbent president in his last year of mandate, we increased rates in a cycle that went from 2% to 13.75%. That's the biggest increase in rates in an election year in the history of any emerging markets. So if that is not a proof that you are independent and you acted autonomously, it's difficult to find another example like that. So I think all this narrative that the central bank has been political, I think we have to get away from that and explain what we're doing. And I think what we're doing has been very technical. The last decision was unanimous, and we now have four members in the board that were chosen by the current president. And I think what we need to separate is what is the political narrative and what is the technical job that we need to do. And I think history will tell and time will tell that the job was done in the best we could do with the data that we had at hand, and that was in the most technical way. And it was done in a group of people that actually analyzed all the data and that worked very, very judiciously to be able to get to the conclusions that we did. Do you have any advice for him? You've been through some attacks from leaders. I have no advice. I will say, though, to put it in my words, we've been given this great responsibility and great powers and really important that we get it right. And we've been told to stay out of politics and just do your job, do your job. And that's what we do. We don't try to get involved in issues that are not our issues, and in particular, we're just focused on our goals and getting through that. And if we do that and do it well, I will say, in the United States, there's very broad support for an independent Fed in both political parties, on both sides of Capitol Hill and everywhere. I don't think that that's really a question, as long as we just are seen to be doing our job and staying on task at all times. Can I say something? Yes, please. I think that there are countries where governors do exactly what Chair Powell said, and yet get blamed, criticized, and I think that, for some, it takes courage to do the job, in addition to being a good, excellent technical expert. But I do wonder if you're concerned, because your term ends, President Campos, at the end of the year, and it doesn't seem like President Lilla is going to reappoint you. So do you worry about the independence of the central bank? So first, I was never up for reappointment. Regardless of who won the elections, and I've said that from the very beginning, when I helped design the independence law, I actually tried not to have the reappointment possibility in the law. And for me, the reason was, I didn't want that the president of the central bank, at any circumstance, would have any incentives to ban his knee in order to have any kind of reelection. So we need to make that very clear. Secondly, there is actually a risk premium down on the curve, and I think it has been elevated in the last couple of weeks, as to an uncertainty of what happens when the next leadership or the next team takes place. But this in Brazil is done very slowly, because the center of the president can change two directors every year, and have eight directors plus the president. So right now, we have four directors that were appointed by the current government. And the last monetary decision was unanimous. So I think what we did in the last decision proved that the group is very cohesive in trying to find the technical solution for the country. So I understand there is a risk premium, and there is always this uncertainty. But I think the group that we have, which is composed of eight directors plus a governor, voted unanimously, understanding that that was the best for the country at that time. And so I think I understand that there is a risk premium, but I think with time that risk premium will try with them to decrease. There are concerns in the United States about Fed independence. If President Trump gets elected, there have been reports that he's looking at that issue, obviously you've been subject of attacks before. What is your level of concern about that? I am not focused on that at all. And that's not just a talking point. I really think that we just keep doing our jobs. I mean, the US economy, we have 4% unemployment. It's growing at 2%. Inflation's at 2.6%. Let's keep that going. Let's do our jobs. History will judge. I think if we can keep things on that path, that's what I'm focusing on. That's the only thing I'm focused on. And as I mentioned, I do think support for the Fed's independence is very high, where it really matters on Capitol Hill in both political parties among the leaders and most of the following. And so I worry about getting the job right. That's what I worry about. I know you guys don't want to touch politics, but President Lagarde, it does bring in to focus the fiscal policies. Right? We heard President Campo say it. There are concerns about the deficits in France, if the far right should win. There are concerns in the United States about the deficits. So I do wonder if you have something to say or to warn on the fiscal front, as it relates to making your inflation fight harder. Well, fiscal matters enormously true. And it matters in two different ways from my perspective. It matters from a sort of conjunctural type of way. And thank goodness the European authorities have agreed on the fiscal governance that will take over after the growth and stability pact has been replaced, has been suspended and now completely replaced. So there is a framework within which members of the European Union have to operate, have to control the direction of their debt, have to make sure that it is sustainable going forward through the efforts that they deploy and have to keep their deficit on watch with enough flexibility, and that's the second part of fiscal spending that I'm concerned about, with sufficient of a focus on productivity, on growth, of investment that will be conducive to both. And my hope is that in addition to operating within the European fiscal framework, which has been agreed by all European members, in addition to that countries will actually look at the structural changes that they have to either continue to have in the arsenal of tools, but also that they will continue to improve going forward, because I regard that as critically important for productivity purposes, which we are lagging behind and have been lagging behind for a long time. So we're not so worried about fiscal expectations, as Roberto was saying for Brazil or emerging market economies, but we're very concerned about the fiscal rules that have to be respected within the European Union and the structural reforms that will be conducive, hopefully to productivity improvement going forward, because that's the only way for Europe to actually remain strong and thrive in those changing circumstances and transformations that we have talked about. And I know you're allergic to fiscal policy, Chair Powell, but I have heard you talk about the unsustainable debt burden of the United States, and even lately, there's been a sell-off in treasuries after increasing odds that President Trump will be reelected that there might be a sweep of either party. Doesn't that make you nervous when it comes to the progress you've had on inflation? If we do see more expansionary fiscal policy, more deficit, bigger deficits, bigger debt loads? So I'm going to give you the traditional answer to some extent, and that is that, you know, we just know fiscal policy is a job for elected people. We're not elected people, so we don't comment on it, and particularly in advance of a presidential election. We're not commenting on anyone's particular policies one way or the other. I will say more broadly, though, the United States is running a very large deficit at a time when we're at full employment, and the level of debt that we have is not unsustainable. The path that we're on is unsustainable. That's completely non-controversial. I would have thought that this is something that should be a top-level issue, and you do hear this from a lot of elected officials, but it should be a real focus going forward, is how do we get back to a sustainable path, because you can't run these kinds of deficits in really in good, good economic times for very long. I mean, I wouldn't say, I can't really speak to the time, but in the longer run, we'll have to do something sooner or later, and sooner will be better than later. President Trump? Yeah. Let's do a basic exercise. If you look at the total debt combined, just sovereign debt of US plus Europe plus Japan, that's 64% of the total global debt. In terms of cost of servicing debt, it went from 1.2% before the pandemic to around 3.3% right now. But then you added 25% of GDP to debt debt, which was the cost of facing the pandemic. So we have a much higher debt, and a much, much higher cost of servicing, which serves the debt. So I think there is an aspect globally that is the extraction of liquidity that, cumulative, will have an effect in the market that sometimes is not pricing correctly. And if you think about what we have to do right now, we have to pay for the cost of the transfer programs that we did. We need to pay for the cost of the green transition, which is somewhat expensive. We need to pay for the cost of the fragmentation, which you look at the surveys and it's very costly for companies and for governments. We need to pay for the cost of the low-income countries that spend very little doing the pandemic and now need support. We need to pay for the cost of demographics. And there is a surge in consumption of energy that needs to be paid because of the innovation. So we have a lot of bills to pay. We have a lot of bills to pay. We are at the highest level of debt that we had in a long time. And I think sometimes I stop and I think it's time for us globally to think about a way to get to some kind of stable trajectory of the debt in the next couple of years. And it's not one country or the other. It's something that we need to do collectively because the global debt is very high and it's going to start taking a lot of liquidity from the markets. And the ones that will feel the effect are not advanced economies, are the emerging economies, emerging market economies. And the low-income countries are feeling that effect already. And you think the market is mispricing this risk? I think the market was mispricing a little bit the fact that if you have higher rates for longer, the effect from extracting liquidity, depending on how much longer you're going to have these higher rates, I think the risk is higher than what the market's pricing is. I also wanted to ask you, President Campos, about China because you have a pretty good view. It's such a big trading partner for you. What's going on there? How much is China's economy slowing? I'm not sure I'm very equipped to tell you what's happening in China. I can tell you that it's very important for a lot of emerging market economies. It's very important for Brazil. We are a very big exporter of food items and iron ore. So China is a very big trade partner with Brazil. And it has been for a while. And regardless of the government, it's important to understand that that is a very important try to Brazil. The one thing that we look from looking from far away is we're trying to see what are the policy that China is doing, what is the focus, and what is the impact that these new policy will have for us. But because we sport mainly food items and iron ore, we don't see that as a big trade. I think some other countries will have a different understanding of what this impact will be. There's also trade barriers that are going up, President Lagarde, tariffs. In our election, we're talking about potentially more tariffs. Are you seeing that in terms of growth and inflationary impact? Well, we're not seeing yet more tariffs than what had been decided back, you know, eight years ago, and which was consistently maintained later on in relation to certain products. So that, for the moment, is stable. What is not stable at all is the number of protective measures. Occasionally, non-compliance with WTO rules, the level of disputes that are brought before the WTO, which is not in a position to resolve them because they are not equipped with the dispute resolution mechanism, and much straits have not been appointed to that effect. We've had more than 3,000 trade protective measures decided in the last two years, and that is like five times what is the normal average of measures that are decided. So that's a concern, and it's a concern because trade has been fueling growth and because Europe at large is not a small open economy, it's a large open economy, and trade restrictions are going to affect Europe much more so than other countries that operate without this degree of opening and vulnerability in a way. The second reason I'm concerned about it is that typically trade is conducive to innovation. Innovation is necessary for productivity, and I think that the combination of reduced trade on growth, and the impact of trade on the capacity to innovate and to improve productivity is a vulnerability for Europe, and one that we have to address very forcefully if we want to win this battle of productivity. So it's not independent from inflation, I'm not getting away from my topic, but it's one that is clearly a concern on the horizon. And it could be inflationary, I mean 10% across the board tariffs, chair Powell inflationary? Of course, I'm not going to be scoring any potential political proposals which have been talked about, it's just not our job to do that. Also, almost anything affects the economy, trade affects the economy, immigration, energy policy, those are not our jobs. There are other agencies that do those jobs. We do maximum employment price stability, so in our political economy we stay out of that. Right, but has implications for price stability, surely, and maximum employment? Again, we're not looking to be, this is exactly what we're not looking to do, which is to become players on issues like tariffs, I mean because it affects, I mean literally everything, all these things affect inflation and jobs, but not withstanding that. There are others in the elected government who are responsible for trade policy, we don't comment, that's all. So back to your job then. There is this debate among the Fed and other central bankers about where policy rates are going, our start, the neutral rate, what that rate should look like and whether it's different after COVID. What do you think? Can we go back to trade? Sure. Please. So, our start. I guess I would start by saying that the thing that we write down as part of our summary of economic projections and the thing that economists mean by our start is a longer run concept. It's the rate of interest that would hold the economy at equilibrium at a time when we're at stable prices and maximum employment and there are no shocks hitting the economy. So, this is not the economy today. So, the first thing to say is that when we're sitting in the boardroom in Washington thinking about whether our policy rate is the appropriate rate for this economy right now, we're not battling over what long run our star is because this is a different economy. This is an economy that's still recovering from the pandemic and so many forces are pushing it this way and that way and there's really not a lot of precedent, so it's a very challenging time. But the question, the R-Star question is a really interesting question and that is are we going to go back to the very low levels of neutral rates that we had in the recovery of the global financial crisis or are we going to go part of the way back from today's high rates to that? And, you know, intuitively, most people think that we won't go back to those very, very low rates that we saw during the global financial crisis recovery period, but we don't really know. I mean, the neutral rate has moved around, we think, by slow moving, longer run forces, demographics, technology, productivity over time, all of those things move it around, ultimately the balance between savings and investment. So, it's a great conversation to have, but honestly, when we're looking at policy in the boardroom, it's how is our policy affecting today's economy and do we think we're getting the results that we want? And, you know, by and large, in a world where this isn't a world of precision, we think we are. We're getting a gradually cooling economy, a gradually cooling labor market progress on inflation, 4% unemployment, 2% growth, we're getting kind of what we would want to have. And so that's, and I worry that some people, no one in this room, but some people think that the R-Star debate is the thing that dictates our assessment of how restrictive policy is. It's really not. Unless you think that the long run rate is the same as today's rate. I think that investors are trying to figure out, though, where you're going to end up and what the policy path looks like once you start cutting rates. And it becomes important then. No, I agree. It does. It's what will we discover to be, we'll find it empirically, what will we discover it to be? And, you know, I think there's a debate going on. There are people who feel very strongly that it hasn't changed and that it has changed, and ultimately it's unknowable. It does matter for the longer run. It matters for, you know, where rates all settle out, but it doesn't matter much for policy decisions today, which are the ones we're actually making. I guess we want to know if there are like 10 cuts coming or 15 cuts. I mean, do you think President Compost has changed post-COVID? Are you dealing with a different economy? So the art star story for emerging market countries is a little bit different. So, for example, if you look at, if you had a table of countries of Latin America, you would find that at least the models internally used by their own central banks. In some cases you had arts are going higher, like Brazil, from three to four and a half. But in some cases you actually had arts are going lower. So the question is, what is the short-term view and what is the long-term view, as Chairman Jay described? And I think for us it's more like trying to understand what is the structural reason for the new trading Brazil to be so high. 4.5% is really high. And I think a lot of it has a lot of structural elements from the past, but it has intensified during the pandemic. And you could go and talk about the amount of subsidized credit. You can talk about the trajectory of the debt. You can talk about productivity. For example, when you look at productivity there is one thing that a lot of people talk about, which is in the need for raising money, sometimes the adjustment is done on the revenue side. When you do the adjustment on the revenue side, if you look at what's been done in emerging market countries and even in some advanced economies you tend to go back and tax capital more than labor. Because it's very hard to tax labor coming out of a pandemic. If you tax more capital than labor, and this has already been happening for a while now globally and especially in emerging market, then you introduce another element that will bring productivity to lower. So when you look at the causes of the new trade to be so high structurally, that's I think what we need to work on. And Brazil has done a lot of reforms. We have done reforms. And I think if you compare to other EM countries, Brazil was actually able to do reforms in the middle of the pandemic. We did the Social Security reform, we were doing a tax reform, we did the labor reform, all in the middle of the pandemic. But it's still when you look at the efficiency of what was done, the end result seems to be that our structural rate is due to our neutral rate. Our start is too high. And I think we need to go on and talk about whether there are reforms that are needed in the medium term to make sure that we have a structural rate, a neutral rate that is lower than we have right now. President Lagarde, do you ever see a world where we get back to near zero interest rates absent a crisis? So I think we're heading towards that. My view at this point in time, it's very unlikely, but it's not something that I would want to pass judgment on. What I can tell you is that when we start having that conversation that Chair Powell described perfectly well and that I would completely subscribe to, I would be relieved because it would mean that we are getting closer to where we need to be. It would mean that we do not have any shock suffered by the economy nor on the immediate horizon, so that would be good news. But we are certainly not at this stage and this is not the work that we do when we set our policies going forward. One thing that's been moving fast and has the potential to impact economies is generative AI. And I know we started talking about it a little bit here on stage last year, it was early. But things have moved, President Lagarde, so how are you thinking about any impact on growth or productivity or inflation of what's happening in technology? That's a subject for which we need another hour because there are so many questions about it. Number one, there has to be some regulatory framework within which AI and generative AI in particular, especially if it's in the hands of a small oligopol of companies is actually organized in order to protect a number of rights and protection of citizens. I would start from that, which is not where we are for the moment, although there are attempts to organize in a better way as was the case with Internet. On a global basis, the use of generative AI. So point number one, point number two, I will let Roberto talk to that point because he's more of an expert than I am. The question of how much energy is used in order to test large language models is really something that is not often on the end discussion and yet it matters enormously. Third, the impact that AI will have on growth, on inflation, on productivity, I think is yet to be determined. I think most people would agree that it will have an impact throughout the ladder of jobs in most segments of the economy in areas where mechanical developments have not historically affected jobs in particular, and it will require significant amount of training and constant upskilling of people so that they can adjust to artificial intelligence, use it and not be victims of it. I would add to that that I think we at the ECB are using artificial intelligence, try to do it in a safe environment without being hostage to those companies that would like to have access to the most private of our data. So it does require a cautious management and enough control without preventing the innovation and the creativity that people can apply in the use of these tools. You use it in models, how do you use it? We use it in models, we use it in, you know, whenever we need a lot of language mining and whether it's structured or unstructured data for that matter, we use it and we are constantly pushing the frontiers of that. But as I said, cautiously because we need to protect data and we need to make sure that there is enough human judgment involved in the process of this use of artificial intelligence so that we are not either hostage to the mechanics itself. Do you think that fears over generative AI, chair Powell rendering certain jobs or industries absolute are legit? And is there anything central bank can do? I don't think we know. So you see this massive investment boom, you see serious people in the private sector and the public sector, there's a sense of something big coming here. And, you know, it feels like what that will be is it will eliminate some jobs and will create some new jobs. And the question really is for many people who will augment their labor and make them more productive or will it eliminate their job. And I just don't think we, I don't think we know that. It's too early to say. There's not a lot of central bank can do about that. You know, this is really a job for, we can supervise our financial institutions and things like that to make sure that, you know, that they understand what they're doing with all that. They understand what they're doing with all different kinds of technology. But also, like everybody else, we're, you know, we're meeting with all the experts and asking ourselves what will be the effects on productivity, on inflation, on growth. And, you know, will it be enormously displacing? And if so, of whom, you know, one thought is that it will be more people doing white collar jobs who are, you know, writing press releases and things like that. So, we just don't know. It's something we're investing a lot of time and effort. We're not using generative AI. We, you know, we're very carefully looking at that. You know, other forms of, earlier forms of AI are in fairly common use in American business. And I believe we use some of that. What about you? I know you're focused on the energy needs as well. Well, first, I think when you look at the surveys that we have, and we have plenty now on the use of AI on companies, what you have in terms of empirical evidence up to date is that the companies that use AI to enhance existing labor have had better results than companies that have replaced labor for AI. So that's something that we know. It doesn't mean that some jobs won't be replaced by others, as it was said. But I think what we need to understand is what we are seeing basically is an increase in the ability of processing data and storing data. So it's basically computer power and the ability to store data. And that's very energy-consuming. You have a couple of dimensions that you need to look in, in actual privacy, where is the limit, and what is the taxonomy of using this once it becomes a global instrument. What is the taxonomy of using this? Because you could be talking about data centers being placed in countries that have cheap energy to produce services for countries that have more expensive energy. So once you start crossing the frontiers thinking about how you're going to do this movement globally, I think there's a lot of consequences. And one of which I think is you're going to have very unequal growth between the countries that are more on the edge of producing this technology in the countries that are not, and the energy consumption also be very unequal. So I think globally we need to look at how we're going to connect the dots and create more or less a taxonomy for this development to be sustainable. In the minutes that we have left, I want to do sort of a quick lightning round of questions. Mainly, you know, we've talked about opportunities, talked about economies. What about the biggest risk facing your economies? And I do wonder if they're the same or different. Chair Powell, what's the biggest risk facing the U.S. economy right now? Yeah, I mean, I traditionally have said cyber risk to that because we know how to deal with credit risk, we know how to deal with lots of kinds of risk, you know, market dysfunction, things like that. But we haven't really had a big successful cyber attack on a financial market utility or a bank. And that's the kind of thing which I think is the stuff of lying awake at night. I would also, today, though, honestly, really, it is just the balance that we talked about, getting the balance on monetary policy right during this critical period. That's really what I think about in the wee hours. President Lagarde? Same thing. Really? Really? Cyber risk? I think, you know, I'm saying that touching word, actually, and I wish, yeah. Because it's one, if you ask the financial sector, if you ask banks with which we interact a lot, sometimes much too, they should agree in, but eventually to their satisfaction in the long run, I'm sure, because we supervise them carefully. But typically, that's a risk that they flag as one of their top priority risk, and on which I think we need to constantly improve the level of coordination, first, second, third line of defense, and best way to respond to those. Now, clearly, I'm concerned as a person more than as President of the ECB about the backlash that there is against the fight against climate change. And some would argue that it has nothing to do with central banking, but I would contend that this is actually not the case. It does have a ramification impact that we should be mindful about, but it's a risk that is there, and that will come to haunt us if we don't do much about it. I thought you were going to say geopolitical risk. That's there too, right, facing you up? Do you have political risks as defined by Mauricio earlier on? No, who is it? Yeah, Mauricio. We heard a lot about it. It's there, and it's just on the doorstep of Europe. When you look at this horrible war against Ukraine, it's a major risk, which is out there in which it's hurting those on the ground and the neighbouring countries in particular. What's your biggest risk? If you look at what markets price today, at least for part of Yemen, especially for Brazil, the conclusion would clearly be that the main risk is fiscal. But I think that comes and goes, and it has to do with growth and productivity, and a lot of the things. I think there is one other risk that I see, and it's not very tangible, which is the polarization that we leave today. If we think about the amount of time that we spend on some social issues that are connected to polarization, and there are not that meaningful to produce well-being of the society, I worry a lot about that. Yeah, so if we're sitting here on stage in one year from now, which we hope they are, the inflation rate in the U.S. will be... You know, mid to low twos? That's kind of where mid to is now. Yeah, well, we have one month at 2.6, and we had a brief visit to the low twos at the end of... I mean, sustainably, durably underlying inflation between two and two and a half is what I would say. That would be a great outcome. Headline, PCE. Yeah. President Lagarde, one year from now? One year from now, I would say low twos. Well, 2.5, latest reading, and as I said, bumpy on the way ahead, but yeah, low twos. You've been closer to 4% president compost right lately, so where do you think you are in a year from now? Well, I won't be in the central bank for now. We already established that. Yeah. But I think that the work that's been done is very technical. I'm confident that we will continue to be that way, and I think when you look at expected inflation today, I think it has a disconnect with the current inflation and has a disconnect with the fundamentals that we have in Brazil. So I'm confident that the future inflation will be lower than the expected inflation. In other words, I think what the market's pricing today is not in sync with the reality. What about the unemployment rate? We're going to go full dot plot here. Yeah. You know, I'd be happy if it were just right where it is now. That would be a good outcome, plus or minus, a couple of tenths would be good. Is that likely? Yeah, I think it's reasonable. Starting to rise. It's moved up from 3.4, we touched 3.4, so we're up to 4, but 4 is still a very low level. You know, it's been a long time since, if you take, the last time we were at 4 or below for this long is, you know, I was a teenager a long time ago. Also, unemployment rate in Europe, it's been, what, healthy? It's a historical low. Yeah. And I hope it stays there. A year from now. Yeah. What's the unemployment rate in Brazil? Well, it's close to 7% now, which is very low when you look at our history. I think probably we'll go up a little bit, not too much, but I think what we need to look at at the participation rate. So we just published a study that shows that the transfer programs have an impact in the participation rate. Our participation rate was down and then it's recovering a little bit at the margin. And I think it would be very important to understand what is the dynamics of the participation rate going further. And finally, Chair Powell, were you, were you a two-cut dot or a one-cut dot for 2024? No comment. Thank you very much. Thank you. I tried. You've been listening to the opening bell on CNBC's Squawk on the Street. 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