A Fed pause, a travel boom, and an army on top of the world. We dig into those stories and more on this week's episode of Bloomberg Opinion. Columnists Jonathan Levin, Liam Denning, Rachel Rosenthal, and Brooke Sutherland join to discuss. Amy Morris hosts.
You're listening to the Bloomberg Opinion podcast count US Saturdays at one and seven pm Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Welcome to Bloomberg Opinion. I'm Amy Morris. This week we look at military training in the northernmost points of the world and how geopolitics and climate change are impacting military strategy. We're also taking a second look at those new obesity drugs, which can be expensive, so should the government step in? And the travel industry is making a comeback, except for corporate travel no matter. Companies are finding ways around that. Let's get started now. With the latest FED decision described as a hawkish pause, Federal Reserve Chairman J Powell's comments after the FED meeting indicated that more rate hikes may be to come.
It will be appropriate to cut rates at such time as inflation is coming down really significantly, and again we're talking about a couple of years out. I think, as anyone can see, not a single person on the committee wrote down a rate cut this year, nor do I think it is at all likely to be appropriate. If you think about it, inflation has not really moved down that Chara.
Powell went on to say that they're going to have to quote keep at it. Let's talk this over with Bloomberg opinion columnist Jonathan Levin covering finance, markets and M and A. Jonathan, I would like to get your reaction to Chair Powell's comments.
Yeah, well, I mean, basically, I thought he was tasked with an impossible dance and he did an okay job of it right Effectively, what I think Chair Powell is trying to do is something like what green Span did in the nineties, and of course that's the ultimate model. It's basically the only recent model of a soft landing. And what Greenspan did was he started getting concerned about inflation potentially at taking off, and he said, let's take this slowly and monitor the data. So they actually went to a skip model, which they executed on for about half a year in the mid nineteen nineties. So that seems to be what he's trying to do. But his task here again was to slow down, go to this sort of potentially every other meeting model without letting financial conditions get too loose. So you know, he went straight to the classic jaw Booning textbook, you know, and you see some of that in the summary of economic projections, and you saw a reasonable helping of it as well at the press conference. But he sort of failed in his I think objective to be hawkish when he ultimately decided that he couldn't indicate anything about what was going to happen about in the next meeting in July, and in sort of failing to commit to doing something were in July and saying that July is effectively a live meeting. You know, people said, well, you know this could still this could still really be the end.
Okay, So you kind of answered it, But I want to get a little bit deeper into it about why pausing. Now. I understand about the signals that he's trying to send, but if there's an expectation that more hikes are coming, why do this at all?
Yeah, And so again, I think it's basically two things. I think Number one, monthly data is extremely volatile. Central bankers don't like to make policy decisions off of a single month's data. So you extend out your timeframe, and you know, going forward, you now have potentially a couple of months of data to a sort of rolling average that you can make your policy decisions off of number two. It's about it's about speed, it's about velocity. Right, So we went from seventy five hikes to fifty hikes to twenty five hikes. And now if they end up going every other meeting for a while, you're effectively putting in a pace of twelve point five, right, So it allows you to sort of ease into your destination at a little bit slower of a pace and in their minds, prevent from overdoing it.
Are these plans set in stone? Is there anything that could derail them? I'm thinking of the collapse of the regional banks or some other X factor that we should be watching for between now and then.
Yeah, I mean, it could be any number of things. I wrote a column not too long ago about how the list of the sort of tail events that we all have at the top of our mind is getting shorter. But there, you know, in circumstances like this, there are always going to be things that nobody has thought of. The simple fact is it's sort of orthodoxy in the economics profession to believe in this notion of the long and variable legs. But in practice, that's always changing with the sort of broader characteristics of the US economy, and nobody can say with any precision whether or not those lags are six months now, are they twelve months? Are there eighteen months? If you take just sort of the main core CPI or in the Fed's case, core PCEE, which is their preference, the trend is really just moving sideways, and they're really, you know, before they make a meaningful change in their policy, certainly in the Duvish direction, they're going to want to see you know, two, three, four reports that show that inflation is meaningfully coming down, not just sort of flattening out at this moderately bad level.
And we are talking with Bloomberg opinion columnist Jonathan Levin about the federal reserves hawkish pause for lack of a better term.
Do you like that term, Jonathan, That's what the Fed speaker is would would like us to think it was. You know, again, there there was sort of this reluctance on Powell's part to define what's really going on here. There was this quintessential moment in the in the press conference where Powell referred to the thing as a skip. But then he doubled back because he didn't really want to show his cards. And part of the reason that he doesn't want to show his cards is because, you know, just like the rest of us, FED policy makers, really can't see the future. I talked a moment ago about how core PC and core CPI as they're traditionally conceived, are moving sideways. But there are some interesting things potentially going on under the surface that could be excellent sort of drags on the inflation picture, including what's going on in used used cars. Right, So a lot of the data nerds like to like to look at these wholesale indices of what's going on with used car prices there, and based on those, you know, we should really expect used cars, which are a big chunk of that CORE index, to start going the other way in these in these summer months. And so when you think about it, you know, by the time we get to that July decision, and certainly by the time we get into the fall, you could potentially be dealing with a different story. So this is a this is a FED that again is trying to convey a certain level of hawkishness so that financial conditions don't run away. But I think under the surface, they're also kind of hopeful that we could be dealing with a different set of numbers in one, two, three months time.
What does this mean then for market volatility?
Well, I think it means again that we're sort of beholding to the numbers. I think, you know, when when Powell says that the next meeting is a live meeting, he actually kind of kind of means it that. You know, data dependency at some points in the fed's history has been just sort of like a phrase in the FED lexicon that they just sort of say, but I really truly believe it right now, and I think the market ought to believe it too. So that creates this this environment where you know, we could potentially be getting whiplashed again by every CPI report. You know, retail sales this week coming in a little bit warmer than than people might have expected. That could be seen as a little bit hawkish for the direction of this this FED. Generally speaking, it is probably an error to read too much into any one month's a data. But I think that the way this market works nowadays, with the and so forth, that's the market that we're going to get.
What are you expecting to see in the next meeting. What are you going to be looking for?
First of all, the big question is what does the CPI look like that comes out before the next meeting. If we get that reversal of used cars, that's going to make that's going to make a big difference, right because used car prices seasonally adjusted, we're a month on month more than four percent this time around. If that flips around and then becomes a sizable drag, it changes the whole discussion, at least in the near term about core CPI. You're also going to have some favorable base effects coming into play, which potentially makes the year on year headline figure look somewhere in the range of three percent. That isn't the main thing that like economists and analysts are are looking at, but it does have a big impact for the sort of inflation expectations, and so that helps the FED in a way. So, you know, if the FED gets those two things to go to go in their favor, maybe there is still a possibility that they stay on hold here. Maybe it's really just another skip and they see what happens thereafter. If they do end up going back to a twenty five will Chair pal you know, signal that that then is the last one, or will he signal that no, this is the new pattern. Right, We're gonna We're gonna do twenty fives every other meeting to effectively put in place a piece of tightening of like twelve point five basis points per meeting. Those are the big questions to me.
All right, we're gonna watch it with you. Jonathan. Thank you as always, We really appreciate your time. Bloomberg Opinion columnist Jonathan Levin covers finance, markets and m and A. Coming up, we're gonna look at how to hide an army on top of the world. Why you're listening to Bloomberg Opinion.
You're listening to the Bloomberg Opinion podcast Contest Saturdays at one in seven pm Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
You're listening to Bloomberg Opinion. I'm Amy Morrison. We're going to take you now to a snowy mountain side in Alaska where military personnel are training with the Army's Northern Warfare Training Center, learning about the art of tomorrow's potential war at the top of the world. Joining us now is Bloomberg opinion columnist Liam Denning, who also covers energy and commodities. Liam, let's just start from the beginning. Take us there. What was your experience.
It's quite unlike any place I've ever been, so, you know, it's journey just to get there. From the East coast, we landed at Fairbanks. The Army picked us up and drove us south to Black Rapids, which is basically, you know, out in the wilderness in the Alaskan interior, and when you first pull up, it's the only way I can really describe it. This was early March, by the way, so it's very still very cold. The Delta River running alongside the highway was completely frozen. So yeah, when you get there, it kind of looks like a very basic ski resort. There's an army base at the base of a hill, and then you trudge up the slopes and you've got you know, bunny slopes, drag lifts, camp sites, backcountry trails, that sort of thing. And we spent five days with them on what they call a cold weather leader's course, where they learned to survive and fight in these very harsh cold conditions.
Bring us up to speed about the anxiety connected with Alaska and why all of a sudden, the government the military is spending so much time and so much focus there, right.
Yeah, this is kind of a long running theme with Alaska. You know, if you go back to when Alaska became a state in nineteen fifty nine, A big reason why it became a state was the experience of the Second World War where Alaska was actually invaded Japanese forces occupied a couple of the Aleutian Islands and had to be ejected. And then immediately after that the onset of the Cold War where suddenly planners in Washington woke up to the fact that you could have missiles and bombers flying over the North Pole down to the lower forty eight. So Alaska became a frontline state. We built the distant Early Warning radar line, various strategic bases, and so Alaska really has come into focus when the US, I would say broadly, is feeling kind of panicked about something. You could say something similar about Alaska's oil boom in the nineteen seventies, which which really got going after the experience of the first oil shock in nineteen seventy three. Today there is concern that as climate change changes, the topography of the Arctic potentially opens more access to its resources, to its shipping lanes. The US is waking up to the fact that Russia is reasserting its identity in the Arctic and its military and commercial presence. China, although it's not an Arctic country, is also asserting its presence there and is taking a claim certainly to maritime roots. And so I think the US, really, after a couple of decades where it had its tension focused elsewhere the Middle East Afghanistan, is now refocusing on the need to both have a credible deterrent in Alaska, but also be prepared for what may or may not happen in the future as we start to get more powers kind of vying for a position in that region of the world.
I always thought, and I think you even said this in your column, that the Arctic was sort of hands off a neutral zone.
No, yeah, it was. It was sort of that way for about thirty years or so. That a famous speech that Mikhail Gorbachev gave at the end of the eighties where he called it, I think a zone of peace and there was this general understanding that because it was environmentally sensitive, bodies like the Arctic Council, which was formed in the late nineties worked cooperatively around it. But that is changing for various reasons. I think, you know, the parallel I draw is with climate change itself. You know, the carbon emissions that lead to climate change, they don't originate in the Arctic, but they certainly find their way there and their effects find their way there. And I think something similar is happening with geopolitics.
You've talked about China and Russia, and it makes me wonder what Russia's intentions might be if that's a genuine concern that seems unbelievable.
It's tricky, right, because you do have to recognize the fact that Russia is, by definition, the biggest power in the Arctic. It has the most land, the most people, the biggest economic activity, the most energy production. So on one level, Russia's you know, Russia's efforts to stake out in the Arctic are perfectly legitimate. On the other, it has taken certain provocative measures. You know, one of the more famous ones was where a Russian submersible planted a flag on the seabed below the north at the North Pole, which was which was seen as really a kind of a provocation to the other Arctic powers, and there is an ongoing dispute about who owns which bits of the Arctic seabed, although that is to be fair, you know, being being handled by by a UN court, So it's not necessarily a huge flash point. However, I think we have to come back to events like the Ukraine War, and we have to recognize that Arctic development is a is a central part of Vladimir Putin's strategy for Russian economic development and great power projection. It's almost a personal obsession for him. And I think if you're a power like the US, you can't really separate those things because you know, at a very straightforward level, if Russia realizes it's upic ambitions, if it becomes a giant exporter of energy there, if it becomes a more dominant holder of territory there, it will use that to realize its ambitions elsewhere, and that includes it's overtly anti Western policy, its intention to crush Ukraine. So I just think, you know, on reasonable grounds, it just can't be separated.
Is it a reasonable thing to think that they would actually try to cross that rubicon. And I don't want to say attack Alaska, but encroach upon Alaska in such a way that it would become a flashpoint. That again, that just seems so far fetched, but I guess it isn't.
I think it's one of those things where, you know, and this really came home to me when I was talking to people at the at the Northern Wall for Training Center. It does seem, it does seem ludicrous to think that, you know, similar to what happened in the Aleutian Islands in the Second World War, that someone would actually try to invade, you know, a place like Alaska, and that does seem highly unlikely. However, we live in an era of hybrid warfare of unmanned drones balloons. To raise a more topical issue, and I think the sense I get from what the eleventh Airborne Division is doing, and that's the dedicated division in Alaska. I think they take it as being a situation where they don't really know exactly what the mission might be, what they might have to prepare for, whether you know, whether it's sabotage, whether it's dealing with you know, small special operations, forces that sort of thing. But what they do have to focus on is making sure that if something happens, they all prepared to deal with it.
Lian, this is fascinating. I cannot recommend this column enough to anyone with the Bloomberg terminal. Liam Denning, a Bloomberg Opinion columnist who covers energy and commodities. Thank you for taking the time with us today. Do appreciate it.
Thank you.
Coming up, we'll take a closer look at obesity, drugs and concerns about access that they won't work if you can't afford them, and don't forget. We're available as a podcast on Apple, Spotify, or your favorite podcast platform. This is Bloomberg Opinion.
You're listening to the Bloomberg Opinion podcast conchst Saturdays at one and seven pm Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
This is Bloomberg Opinion. I Mamy Morris. More than forty percent of American adults are OBEs, and the cost to the healthcare system is one hundred and seventy three billion dollars a year. The cost to our health far greater. So why is it so hard to get access to these new effective medications for weight loss? Bloomberg Opiion editor Rachel Rosenthal covers healthcare and joins as now heart disease, stroke, type two diabetes, some cancers, all related to obesity. They're among some of the leading causes of preventable deaths in the US. One might think that doctors would be prescribing these drugs handover fist, and then insurance companies would be scrambling to cover the cost. And that's not happening. What is the hang up?
Yeah, it's so much more complicated when finally we have a solution to this huge problem. You know, there's a couple of issues here. One and I think the major one is cost. These these drugs are quite pricey, upwards of you know, nine hundred two one thousand dollars a month. So I think insurers and employers are understandably a little bit worried about covering this because if they, you know, as you mentioned, with forty percent of the population you know, qualifying for these drugs, I mean, this could raise costs astronomically for employers, which are providers of what most people have health insurance through through their jobs, right, and so that's I think the big question for the commercial market. I think the other side of the market is medicare, and here it gets complicated too because not only do you have cost, but you have safety questions because it's just not quite known yet whether these drugs are safe long term for an older population.
Is there a concern about how long you can take these drugs and what happens when you stop taking these drugs? Will there be a rebound effect? Do we have that data yet?
I think this is really what a lot of doctors are focusing on right now. It is a lifelong medication. And that doesn't mean that you know, there are folks do take medication, you know, for long periods of time, so that shouldn't you know, people take statins. You know. There's all kinds of other parallels that we can think of, but it's just not tested and we do need a lot more research. I think also a lot more research needs to go into what happens if you go on and off, because you know, some folks are just taking it for a wedding, you know, and this is you know, people who may not really qualify as medically obese are trying to get access to these drugs. Just one other point on the safety issue too, is a lot of the studies have been focusing on a younger age group, whereas medicare you know, you're looking at a sixty five and up population. What these drugs do is suppress the appetite, so you are sort of eating less and taking in more calories. So there's there are questions about what that can do to you know, whether you lose muscle mass or bone bone density, and you know, if that increases what happens when you fall. So I think there are serious questions I would you know, I think some of these drugs, like some aglutide, which is you know, wigovy and nozebic are the same ingredient, have been used for diabetes. So we do have some sense that, you know, folks can take these medications, but it's still a lot more research needs.
To be done.
You talked about some people who maybe go on and off. Maybe they just take it for a while so they can slim down for their wedding or to because they're going on vacation or something. Okay, I get that, but then do they really qualify like what sort of criteria must you meet to qualify for these drugs?
Most of these folks are paying out of pocket. So if you want access to these drugs and you want your willing to shell out one thousand dollars a month by and large, or you know, maybe you are one of the lucky folks who whose employer does cover it, and that does exist, you know, there may be more flexibility there. But medicare as a rule, does not cover weight loss drugs, so you're not even qualifying for coverage if you're in that age group.
We are talking with Bloomberg Opinion editor Rachel Rosenthal about the availability of these effective weight loss drugs and what the government's role should be. Rachel, what should the government's role be in this well?
I think given all of the concerns, there's a good reason for caution. However, I think given how grave the effects are not only of obesity, but all the second order issues heart disease, stroke, diabetes, I think I think some coverage is inevitable and does make sense, but it makes sense to proceed cautiously, and I think what that would involve would be starting with perhaps a smaller subset of the Medicare population, and so you know, the Biden administration does have certain tools in its toolkit to test out innovative delivery methods, innovative payment methods for new drugs or drugs that have not been tested in certain populations, and then they can extrapolate and see. But I think that we are moving in a direction where this will make sense. The government will have some role. Given the enormous population and the enormous costs, it does make sense to think really carefully. You know, we just sort of cross the rubicon with the budget, and you know, I think we're you know, we're not exactly looking for you know, some of the estimates have it at two hundred and sixty billion dollars a year. If Medicaid we're if meant excuse me, medicare, We're to cover every eligible beneficiary.
But let's drill down a little bit and talk about Congress. You know, Congress is facing some pressures when it comes to this, whether it's their constituents who are dealing with heart disease or that they themselves are going to run for re election and would like to slim down and look good. They're human too, They're going to want to get their hands on these drugs too. What sort of pressures do you see lawmakers facing.
Yeah, it's a great point.
You know, I've also heard a lot of these folks in Congress are on these drugs themselves, and you know that certainly plays a role. People have consistuent, but also family members who are dealing with obesity, and maybe not just the medical there's all the other disorders that we've discussed, but even the mental health issues that go along with that.
So I think this is.
A real issue, and red or Blue, I think Congress is facing a lot of pressure. So I think there are you know, there are bills up for consideration to amend medicares laws. I think it will be a careful calculation given the budgetary concerns, but I think it's real and I think the Ministum does feel to be moving in that.
Direction talking about those budgetary concerns. As we said at the top, the cost of the healthcare system for the forty percent of American adults who are obese is one hundred and seventy three billion dollars a year. That's just for the obesity factor that goes along with the type two diabetes and the heart disease and stuff. Does this cost more than that? Is there not an economical way to look at that.
I think the offset question is a good one, but it's a little bit comple because we can look at it system wide and say, oh, you know, obesity and all the other issues you know cost X, but it depends on the savings of preventing those depends on who's paying. So it's very possible that commercial insurers and employers will pay for these obesity drugs. But because people change jobs, they might not have some of these effects until much later in life. They're not going to be the ones who saved, you know, So so you know, it could be that medicare ends up seeing a lot of savings if fewer people have all these other issues, but they're not the ones who are paying the costs, so and that will be borne by you know, healthy folks with higher premium. So, you know, I think like we can look at system system wide savings when we look at American health care spending in total, But the question is to you know, does this make sense? Depends on who's paying that bill, and that changes as people move through the healthcare system at different stages in their life.
You may have just answered this question, but I'm going to ask it anyway. You think there'd be a time when these drugs will be so commonplace, So maybe maybe generic more affordable, when it becomes just sort of a standard operating procedure, like if you have high cholesterol, you take a statin. If you are overweight, you'll take one of these drugs. Will it get to that point.
I don't want to underemphasize the importance of obesity prevention here, you know. I think that those principles of healthy exercise, a healthy eating and exercise need to remain core to prevention, and a lot of those things work. I think what happens is once you become obese, you know things you know, and there's a lot of research going into this right now and a lot of doctor You know, we don't have definitive answers as to what the cause of obesity is, but there are changes that are happening in the brain of an obese person in terms of understanding signals. So I think that you know, they're you know, we're a long way. I think we're moving in the right direction in terms of thinking about taking these drugs and thinking of them as a solution. They're not the end all, be all, but I do. The other really important thing is as these drugs get cheaper, which you know, smaglutide will be up for IRA negotiations as part of the Medicare drug price negotiations in the coming years, oral pills instead of injectibles, all these things. You know, market the market might move to meet to push some of these prices down, So that could seriously change the calculus.
Rachel Rosenthal, Bloomberg Opinion editor. She covers healthcare. We are taking a look at the rebound of the travel industry. United CEO Scott Kirby tells Bloomberg that travel is making a comeback, especially leisure travel.
Demand was very strong and operations were really strong. You know, Memorial Day week and both for United and for the industry at large, was one of the if not the best ever Memorial Day weekend. And as an industry we're off to strong start.
That's United CEO Scott Kirby. As more people are taking to the skies, but corporate travel, especially one off trips, remain sluggish. Still, there are alternatives for the business traveler. Bloomberg Opinion columnists Brooks Sutherland covers deals and industrial companies, and she joins us now Brook, what can we learn about the travel industry as we take a closer look at corporate travel.
So on the one hand, you have the CEO of United Airlines talking about a business recession that they think that business travel demand is about twenty to twenty five percent below where it could and should be post pandemic as we recover. On the other hand, you know the group events companies having you know, training gatherings or other sort of culture building activities or the conferences trade group associations that business is booming and doing really really well. In the hotel industry is really benefiting from that, And not only are companies hosting these gatherings, but they are splurging and upgrading. They are having shrimp bars than just the crue de tae and fruit and cheese platters. So it's a really interesting divergence in terms of how that corporate travel trend is playing out.
Do we know why, especially with the group events, why they would be the ones to bounce back faster?
Sure? So if you think about it, I mean it's sort of funny because you know, during the early days of the pandemic. We were all most concerned about group events and being around large gatherings of people. But that is one of the hardest types of corporate travel to replace with Zoom calls. So sort of the one off where maybe you're just checking in on a client, or you need to sign some sort of paperwork, or you know, you're doing sort of internal touch base type meetings that can easily be done virtually, whether that's Zoom or Microsoft Teams or whatever it might be. You can't really replicate the experience of a conference in a virtual room. I'm sure we all remember the early days of the pandemic when you had sort of these video calls with twenty thirty people on them and nobody could hear about they're speaking, and it was, you know, sort of impossible to get anything done, let alone have sort of those organic networking opportunities that come from group gatherings. So it's been really interesting to see that that category of corporate travel has actually bounced back much more quickly and much more robustly than sort of the one off corporate travel.
What are some of the perks you found. You mentioned a couple like shrimp bars, which still blows my mind, But what are some of the other perks that you may have run across.
The shrimp indicator? Yes, I mean so, I interviewed the CEO of Omni Hotels the other week and he was saying that that is one of the metrics that he uses to judge the health of the economy, that when businesses are splurting on shrimp, that you know, things cannot be that bad. But you know there are other upgrades that you can do in terms of just the sheer size of the gathering, because that means obviously, you know, you're sort of spending more money overall on the event that they He also talks about upgrades that they're doing in terms of audio, video technologies and things like that, which is really interesting.
Is this how it's going to be now? Is this a whole new model or is this just for now with is just part of the rebound?
I think that some of it likely sticks, especially if you believe that remote work is going to be part of our new normal, because if you think about it, you know, when we were all in the office five days a week, a lot of these sort of culture building training exercises happened more organically, and now if companies have workers working, you know, whether full time, remote or on a hybrid model, you need to be a lot more deliberate about how you get people together, whether that's internally or at some of these industry events and things like that. And so, you know, I think as long as the economy remains healthy, this will continue to be an important avenue for businesses. Now, you know, bottom line, when things do get tough, people probably will spend less on the shrinp bars, and you know, things like culture building become less important when you really need to start cutting costs.
Brook Sutherland is at Bloomberg opinion columnist who covers deals and industrial companies, and that does it for this week's Bloomberg Opinion. We're produced by Eric Molo, and you can find all of these columns on the Bloomberg Terminal. We're available as a podcast on Apple, Spotify or your favorite podcast platform. Stay with us. Today's top stories in global business headlines are just ahead. I Ami Morris, this is Bloomberg