11AM Hour: Senator Mark Warner on AI Regulation, Former Fed Governor Stephen Miran & Energy Secretary Chris Wright 9/15/26

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1:25Senator Mark Warner. With a 10-year Treasury yield hitting its highest level since 07 and Fed rate hike expectations on the rise, we are joined by former Fed Governor Myron in just a few minutes. A geopolitical concern sending crude prices climbing diesel to a new record, and that all has oil executives warning on global supplies. We'll discuss the path ahead with Energy Secretary Chris Wright. Markets still trying to work its way through some chop here. S &P now a six-week low as we kind of took out that 75-80 level a moment ago. Not many sectors are green. In fact, only one, and that's energy with 1 % gain.

2:01Ten years, we've been pointed out, very much pinned to 5%, having gotten to 504 overnight. Our next guest says risk assets remain strong despite his firm predicting two hikes by year-end. Joining us this morning is HSBC Chief Multi-Asset Strategist Max Kettner. Max, welcome back. Things getting more interesting by the day, but it sounds like you do think equities can survive some lift to yields from here. Yeah, I think so. I mean, number one, right, Carl, we've seen the lift to yields already tremendously, actually. I mean, we've got almost 100 basis points of rate hikes for the Fed in the price and even more so when you look across the pond here in Europe where really the stir market has seen quite a bit of a shakeup in the last few trading days.

2:46Now, when we compare that to earnings, and I think that's the piece that is overlooked, the earnings upward revisions haven't stopped. I think this is what perhaps is a bit overlooked when people say, yeah, but equities, credit spreads, really risk assets overall just keep ignoring what's happening to yields, what's happening to oil. And I just don't think that's true. You look at the P.E. of the S &P. That's down more than four points from where we were last November. It's down more than two points from that local high that we had after the initial recovery in April and in May. So we have seen quite a bit of damage.

3:23When you look even under the hood, look within the NASDAQ 100, you've got almost 45 names within the NASDAQ 100 that have seen a multiple compression of more than 10 points since the middle of May in the last four months. You've seen almost a third of the names that have seen a multiple compression of more than 20 points. So we have seen, I would argue, a lot of pain already under the hood. Yeah, we've talked a lot about forward PEs going from 23 to 19. You think we get to 18? No, I don't think so. I think, you know, we're at such level where it's so cheap and the yearning strength that continues so unabatedly that actually I have a tough time to say, OK, you know what?

4:04We're going down another five, six percent actually in price levels even. because when you look actually also at the sentiment and positioning picture, this is also something that really has changed, I think, over the last three, four weeks. It's become significantly more bearish. The only warning sign that we are seeing on the positioning side is really from the systematic side. It's the CTAs, the momentum signals in our positioning framework that are flashing a bit of sell signals. Yes. But the rest, particularly on the discretionary side, I think, number one, We have seen over the last few days probably quite a bit of pain among the global macro community, probably across the emerging market community as well.

4:44That's number one. Number two, I think the discretionary insight is actually still pretty much closer to a buyer signal in terms of positioning rather than a sales signal. So that, I do think, does keep a lid on the downside here. So is it no longer assumed that the rise in oil prices can be considered temporary by the markets? Is that what the bond moves are showing you? No, I think we're back to where we were in March. I don't think the bond market is saying this is either not temporary or temporary. The bond market is just literally following all prices. And that is, by the way, that is across the curve.

5:16You look at Europe, you look at SOFA, so you look at the U.S. in the last two weeks, that's literally, or last three weeks now, since oil has been rising from around$80. That's literally the same levels and the same price movement as oil. You wouldn't be able to tell which line would be fixed income, which line would be oil. It's literally the same thing. And that, I don't think, is saying, oh, yeah, one is temporary or it's not temporary. It's just following oil. So this is the big wild card right now. We just need that oil story really to start looking a little bit, yeah, a little bit going to the downside.

5:52I know, I know. But where, I mean, the journal today citing these oil executives who have long argued, Max, that the buffers are diminished. finished um we've spent months talking about hormuz now we're talking about al-mandeb and this pipeline the saudis today uh some ports not loading that that that's hard to find that story getting more positive it's hard carl but on the other hand remember six months ago the story is from the same people we're also well if we're going beyond april then actually this isn't this isn't and you know it was end of april we went into may and people said oh you know what we're going to summer, oh, yeah, we're going to be absolutely depleted.

6:30There won't be any reserves left. We're after the summer now. It's mid-September and we're still here. So I am wondering, actually, whether, you know, the DOE reports from a couple of weeks ago that said actually the critical levels of reserves in the SPR are much, much lower than people have assumed so far because the last estimates were from the end of the 70s and the beginning of the 80s. I am wondering that perhaps when you look at the SPRs that actually the critical levels perhaps might still be some ways off. Yeah, let's hope we don't have to find out. Max, appreciate it, as always. Talk soon.

7:03Max Kettner, HSBC. Here to dig into the Fed decision more at Post 9 in a CNBC exclusive is former Fed Governor Stephen Myron, now strategist at Hudson Bay Capital. It's good to see you. Thanks for having me back. Thanks for coming on. So do you think they should raise rates? So I don't think they should raise rates. Let me tell you, I think there's two things going on. I think on the one hand, you've got atmospherics where the market is pricing almost complete, you know, almost a complete rate hike. You've got people talking about, oh, the Fed will lose credibility if they don't hike, which given inflation expectations are very well behaved, basically amounts to people will post mean tweets.

7:40But at the same time, the data have been moving in a better direction. Core CPI is the lowest level since March of 2021. Right. We've almost completely round tripped on that measure back to the pre pandemic levels. right? That's monumental. Every measure of core PCE, headline PCE, CPI, core PCI, they're all trending down on three-month annualized basis. And the data have been getting better. They've been giving you the evidence that what happened in the spring was a classic textbook oil supply shock of the type that the central bank normally would and should look through. We've been getting the better data.

8:15And we're not at target yet. And I don't know, it's interesting. The market it really got convinced after the Jackson Hole meeting, even though this is a Fed chairman that said, I don't want to do forward guidance. But what they heard was, we're not going to tolerate it. And therefore, to back up that statement, that's where the credibility argument comes in. They have to do something. So this comes back to what I was saying a moment ago. So if you look at inflation expectations, if you look at CPI swaps, they're pretty much at target as far as the eye can see. And one thing that's important is to consider that monetary policy has lags, it doesn't affect the economy until at least a year from now.

8:51And once you look beyond that period of which monetary policy has lags, i.e. the period in which monetary policy can affect the economy, inflation is a target as far as the eye can see. So there is no credibility issue in markets. What people talk about credibility is basically they're going to dispute, you know, oh, well, he said this and I interpreted it this way, or oh, I said that and he interpreted it that way. It's not just being tweets. I mean, last time he did not go, the long end sold off. I mean, That's where we started to see this rise in rates. It did. However, my view, if you look at what's happened in interest rates, like long-end interest rates in the last few months, you can decompose into the real component and the inflation component.

9:27As I said a moment ago, the inflation component has been extremely well-behaved. So it's all been an increase in the real component. OK, then you look at the real component and you decompose it into economic growth and a risk premium associated with holding longer-term government debt, what you'd call a term premium. Measures of the term premium have also been very well-behaved this year. In fact, the benchmark measure calculated by the New York Fed is slightly below where it was at the start of the year. That tells me that the increase in bond yields is all an improvement in economic growth. That's not a bad thing.

9:56And, of course, there are various things that catalyze the market starting to adjust to that. Part of it is AI issuance, which I think the market is recognizing is going to improve growth. Part of it is oil, as your previous guest is explaining. And then part of it is going to happen, you know, around Fed meetings that sort of catalyze people turning over portfolios, like you said a moment ago. But to me, my read of the bond market is there's no inflation credibility issue because the inflation expectations are well behaved. There's no fiscal credibility issue because the term premium is well behaved.

10:21So it's improving economic growth. This is a good increase in interest rates, not a bad increase in interest rates. We have had some 30-year fixed mortgages being quoted at 717 the last couple of days. Is that going to push people into renting? Is that negative for any kind of disinflation and shelter? Yes. So absolutely. as the economic growth outlook is getting a little bit better, right, as the economic growth outlook is getting a little better, it's doing so in an unbalanced manner. And so you've got huge growth engines coming from, for example, AI and other parts of the economy. But then there are other parts of the economy that are going to struggle a bit because of the increase in interest rates.

10:57And I think housing is one of those. And so because the housing sector tends to be so cyclical and is such a cyclical driver of employment, that's one of the reasons why I would sort of continue to be a little bit cautious on the labor market, even as the economic growth outlook is getting a lot better. Cautious on the labor market. You think those numbers are going to soften from here? Well, I'm a little bit less sure on the labor market than I am in the economy because of the way in which the AI growth is rolling out. And you've sort of seen divergences between economic growth and the labor market happen in recent years.

11:28And I think that's part of what's going on in those dynamics. That's interesting. There's a chart out today looking at software where revenue per employee, I mean, it's just blown out since the AI era really began. And people are pointing it to exhibit A if you're wondering if, in fact, this is going to hit the economy. Yeah. And so I think it's important to remember that the Fed's mandate is on maximum employment, not economic growth. And if you've got a divergence between the two of them, the Fed's got to follow the employment market. Now, the employment market looks like it's better than it was a few months ago.

11:58But I still think I'm a little bit nervous about what it could look like in the future, and therefore I would not support the Fed raising rates. On the bond market move, I mean, I get your point. Higher yields can be reflective of a stronger growth environment, except for right now, I think the studies show there's the strongest correlation between bond yields and oil prices that we've seen in years. I mean, they're basically moving tick for tick. So that really is much more of an inflation story, isn't it? Yeah, and that's what your previous guest was pointing out. And obviously that's true in the short-term data, but I think very often you get sort of catalysts for underlying moves that are related to short-term correlations that make things like that appear.

12:37But when you step back and look over the longer term, again, I decompose the interest rate into those three components, into the growth component, the overnight interest rate component, the term premium, which is the risk premium associated with holding the bonds, and the inflation component. And when you look at those components, you get the decomposition I said before. So when you hear Fed Chairman Warsh say we will not tolerate higher inflation, that this is a new regime and we will not tolerate inflation away from Target, what do you think he means? So what I think he should mean by that is we should not tolerate inflation in the period in which monetary policy can affect the economy, meaning the period after monetary policy lags have passed.

13:18Now, there's nothing the Fed can do about the fact that inflation was higher earlier this year. That's done. There's nothing that the Fed can do about the fact that inflation was higher three years ago. That's done. Policy needs to be made for what's going to be happening in Q4 of 2027 and Q1 of 2028 because of those lags. But he doesn't talk like that. I mean, nobody else really talks like that. They play with the hand they're dealt. Well, the hand that they're dealt is a forecast. And as I said, policy has to be made on a forward-looking basis, not a backward-looking basis. But if he said we're not raising rates because we don't think there's going to be inflation in a year, that's not what they do.

13:52I mean, they have to look at the data now. No, that's not what they do. So if you look at what President Williams of the New York Fed said a couple of weeks ago, he said inflation's on a good path. It's been high lately, but it's coming in line with the forecast, which is that it'll be at 2 % in the period after the lags have passed, meaning a year to a year and a half from now. That's total standard central bank norm. So what if they do go? What if they don't listen to what you're saying and they do raise rates tomorrow? What do you think that you think it'll be damaging? I do. So here's what I think.

14:22I think the inflation data have been moving in the right direction. Those three-month averages have been coming down. You would get increasing evidence that what happened earlier this year was a classic textbook transitory supply shock in oil markets. And as inflation data come down and the forecast improves, monetary policy is supposed to get more dovish. If instead you have improving inflation data and monetary policy gets more hawkish and starts hiking interest rates, to me, that shows an incoherent reaction function. So you think it'd be a mistake? I think that would erode credibility because it would make the Fed look like it's acting not based on data.

14:57The data have been that the inflation data have been coming down. They've been getting better. But he said, I'm not convinced by one or two data points. Well, we've now had a third data point. We've got additional revisions coming from the Bureau of Economic Analysis in two weeks that will likely mark down core PCE by about three-tenths of a point. So we've been getting this pattern of accumulating data. It's showing that inflation is on the right path. And the fact that this is coming in should give us more confidence in the forecast that inflation is moving in the right direction. My view, the marginal value of waiting right now is much higher than it was in June and July.

15:34And they waited then. Here's what I'll say. They held in June and July. Since then, the data have been better. If you go from holding to hiking, as the data get better, it speaks to an incoherent reaction function. I think they should have gone in July. On buybacks, we mentioned some of your published work about activist treasury issuance. Are you in favor of this move or not? So I am. So if you go back to what I was saying before, it's a good increase in interest rates, not a bad increase in interest rates. To me, that's not one that should be fought directionally in the sense that there are people who go out and argue the Fed needs to hike to control the back end of the yield curve.

16:12I think that argument is specious too. One of the reasons is because the long end has been going up for good reasons. However, that said, there's nothing that would discourage me from providing additional liquidity to the illiquid parts of the yield curve to prevent it from going up too much too fast in an excessively volatile way that would lead to negative consequences for the economy because of that excess volatility. I think providing liquidity to slow down moves and make them more orderly and prevent them from disorderly volatility, I think that's a good thing. So I think Secretary Bassett is doing exactly the right thing.

16:45And the timing ahead of the midterms, just neither here nor there? For Treasury? Yeah. No, I mean, I think that Secretary Besson acted in the most illiquid part of the yield curve in the most illiquid time of the year, which was late summer. I think that's exactly the right thing that you want to be doing. Do you think that it has been effective? Well, we don't know the counterfactual. We don't know what would have happened otherwise. But as I said, if things are moving for fundamental purposes, then you can't, it's really, really difficult to stop fundamentally driven repricings. However, what you can do is slow them down, make them happen in a more orderly manner, prevent them from going too far too fast, prevent that type of excess volatility.

17:28This is a norm for central bankers and fiscal policymakers around the world. Yeah, basically what he said as well. It's great to have you. Thank you for joining us on the eve of the big Fed decision. That is Stephen Myron, former Fed governor, with a full-throated case about why they should not be hiking. When we come back, Senator Mark Warner is with us. He'll join us as concerns around AI safety grow. We'll talk about how he's thinking about regulation after reportedly speaking with the CEOs of Anthropic and OpenAI. Plus, the Energy Secretary, Chris Wright, joins us from the G20 Energy meeting in Houston.

18:01That says oil prices continue to rise here. Diesel's at a record high. We're back in just a moment. Legacy credit scores only look at a brief snapshot in time, and that limited view often leaves millions of qualified credit seekers out of the picture. Vantage Score is changing that by modernizing credit scoring. Vantage Score uses 400 % more credit and alternative data to create a fuller picture of financial behavior, including trended credit data, rental payments, and timely utility payments. Vantage Score safely broadens access to the credit economy and brings 5 million mortgage-ready borrowers into the market.

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20:05or find Schwab Market Update wherever you get your podcasts. We keep hearing about this race, this race against China. We can't slow down. We need to beat them. Well, we don't control the entity that we're trying to create, and neither does China. I bet they've had breaches. They've had breaches, but they haven't reported them. Anthropic has. OpenAI has. Elon Musk has. Congressman Kimi had a breach and sent Chinese weapons plans back to Anthropoc. What I'm saying is I hope there's a way that you might be able to talk sense to the president about AI and the threat that you and I know it presents.

20:52I would just say that the president is completely aligned with Jensen Wang, the CEO of NVIDIA. So Treasury Secretary Besson moments ago taking questions from the House Financial Services Committee about the threat of AI. And as concerns around AI safety grow, more experts and politicians are making recommendations to regulate the tech. Our Kate Rooney joins us with a look at some of that. Morning, Kate. Hey, Carl. Good morning. So there are now some different camps starting to form around whether or not to slow down frontier AI and how to do it. On one side of this, you have the AI labs. So Anthropic, OpenAI, for example, and Anthropic CEO Dario Amadei over the weekend kicking this off, calling for a slowdown.

21:31We also just got a headline that OpenAI is now working with Anthropic and Google on this. Elon Musk tweeted over the weekend, I agree with Dario, and Musk was at the All In Summit. He expanded on some of those comments. He said when people from Anthropic and OpenAI are telling you their models are very dangerous, quote, we should believe them. He also called for peer reviews of some of the most powerful AI models. What I think would be wise to do as soon as possible, if not immediately, would be to have the major AI competitors test each other's models. So that you'd have everyone's security test harness testing everyone's model.

22:15So instead of grading your own homework, you would at least have competitors grading your homework. and raising the alarm if they see concerns. Jensen Wang, NVIDIA's CEO, was also on stage at that same event. He said companies should take real safety failures seriously, but talked about needing to draw a line between concrete risk and then predictions of human extinction. He called some of the rhetoric irresponsible. He also said that slowing down could cost the U.S. its lead over China. And President Trump is very much in that camp calling fears that AI could take over or destroy humanity a hoax.

22:52He called Jensen Wong on stage. It was on speakerphone, so that's where he actually made those comments. Pentagon Technology Chief Emil Michael finally arguing some of the existing laws out there in government authority right now already provide the tools needed to police the industry, guys. So is the assumption we're not going to get much on regulation from this administration? That's what we're hearing, Sarah. And before the weekend is a different story. I had heard from folks in D.C. who work at some of these labs on policy saying there was real momentum behind this and said as of Monday, before President Trump's comments, that there was there were calls from Congress.

23:30There was a lot of momentum on that side. But then you pause. And based on what Trump has said, it makes it much more difficult. The politics around this are getting a lot dicier. Obviously, you heard what Besson said. Therefore, the expectation is changing. And the situation on the ground in terms of any sort of legislation around this is it's making it tough. You know, nobody wants to go against the president in this or at least Republicans don't. And it's completely changed in about 24 hours in terms of the expectation and momentum behind some of this. It's also super complicated and no one fully understands how to do this.

24:02Thank you, Kate Rooney. And we're going to much more on the regulatory environment for A.I., especially on the congressional side. Senator Mark Warner is going to join us in just a moment to break down the AI legislative framework that he unveiled this summer. Plus, with a Fed rate hike widely expected tomorrow, what's at stake for the already pressured private credit sector? We'll discuss that when School Walk on the Street comes right back. From kickoff to the final whistle, trade the biggest moments in football with Calci, America's number one prediction market platform. Next Sunday, Pittsburgh takes on Burrow and the Bengals.

24:35Pittsburgh is currently trading at 42 % to win. A$100 trade pays out over$227 if they come out on top. Download Calci. Use code FAL to get$25 when you trade$25. K-A-L-S-H-I. Calci. Trade what's next. 18 plus only. Restrictions and eligibility requirements apply. Event contract trading involves risk and may not be suitable for all investors. Calci products are not available in all jurisdictions. Prices, values, and available markets may differ from those mentioned. For more information, see calci.com slash regulatory.

25:35networking, and CDW. Make amazing happen. Learn more at cdw.com slash aruba. If your workday happens in two languages, this one's for you. Whisperflow is a voice-to-text app. You talk, it types in any app in more than 100 languages. The email in English, the text to your mom in Spanish, the client note in Portuguese, and it switches languages as you do with the ums and typos gone four times faster than typing. Whisperflow is free. Get it at whisperflow.ai. That's W-I-S-P-R-flow.ai. I'm sure you, do you have any apprehensions about a$1.8 trillion deficit that would be impacted even more negatively if every American received$5 ,000 from the federal government?

26:34Well, first of all, I think putting more money in the American people's pocket should be an objective for everyone. And I believe there are ways to do it that would not affect the deficit. Yeah, and ways to do it without involving Congress. Again, that if Congress is needed, I look forward to working with Speaker Johnson. If not, then not. Treasury Secretary Besson talking about the president's proposed$5 ,000 dividend, saying that there are ways to do it without affecting the deficit. I'd like to hear more on that. Yeah, I'm looking for specifics on that. Because the president before has pointed to tariff refunds, but that doesn't even come close to paying for the more than$1 trillion that this would cost.

27:23That's why their members of Congress are not journalists. They don't follow up and ask the right questions. All right, time now for a news update. Christina Partzineblus has that for us. You tell them, yeah. Hundreds of buildings and structures at U.S. bases in the Middle East have been damaged or destroyed by Iran. The war with Iran has been ongoing since February, and that's according to the Department of Defense, Inspector General Report, which also says the U.S. is facing munitions shortfall and bottlenecks specifically in the resupply effort. A federal appeals court today will hear arguments on the Justice Department's attempt to revive criminal prosecutions against former FBI Director James Comey and New York Attorney General Letitia James.

27:59The DOJ wants the court to reverse a judge order tossing out both cases because the Trump ally who brought the cases, Lindsay Halligan, was not lawfully appointed. Apple TV and HBO taking top honors at last night's Emmy Awards. Widows Bay from Apple brought home 14 wins, including a comedy lead actor win for Matthew Rice. HBO's The Pit won Best Drama for the second consecutive year in a row with star Noah Weil taking home the statue for Best Actor. Meanwhile, Jean Smart won her fifth straight Emmy for her portrayal of a legendary Las Vegas-based comedian in the HBO series Hacks. Sarah, Carl, back to you guys.

28:36Yeah, really good night for Apple and for HBO. Thanks, KP. And Jean Smart, yeah. Yes. Still ahead, Washington racing to regulate AI or not as more and more experts call for a slowdown in development. We'll talk to Senator Warner about some of the policies he's recommending in just a minute. Elon and Sam and what they said over the weekend is that they are going to themselves privately set up a system where there are sort of independent observers within their companies making sure that things aren't going south. And I don't think that anybody in the White House would object to a private sector firm hiring people to make sure their product is safe.

29:18I think that when you call for a government, the government that might someday be run by Democrats to take over everything, that it's a recipe for disaster. That was the National Economic Council director Kevin Hassett on CNBC this morning saying nobody in the White House would object to AI companies hiring their own independent observers, but the government involvement would be a recipe for disaster. Our next guest spoke with the CEOs of Anthropic and OpenAI over the weekend and joins us now with his outlook. Let's bring in Virginia Senator Mark Warner. Senator Warner, it's good to have you. First of all, what were those conversations like over the weekend?

29:52Listen, I've been talking about this issue for the last year and a half, that we need some guardrails. I came from the tech industry before I was in politics. I think we need some guardrails around data centers, kids, around AI agents, some pretesting in terms of national security. And the fact that now the leaders of the four frontier tech models are calling for this, I think is a moment that we have to take advantage of. I'm not looking to kind of put in place EU type heavy regulations. But the candidly, Kevin has that I've got a great deal of respect for. But the idea that we're going to say to the wealthiest companies in the world, hey, we're going to trust you guys to do this on your own and have no crosscheck.

30:37I don't think the American people are going to get much assurance from that. Now, the AI companies do need, they believe they need at least some level of antitrust exemption to be able to have those cross conversations. They're not going to get that without demonstrating again to the American public that the public's going to benefit, that our humans are going to be involved. I think, you know, we I'd be open to those kind of conversations, but we've got to have national security implications out with this. Mythos, the head of NSA, when Mythos came out, said this could change the nature of warfare as much as drones.

31:16We've seen these swarms of drones, you know, on the open A.I. hugging faces and three thousand drones or three thousand. I'm sorry, A.I. agents working together, deceiving human beings. in some cases, the AI agents literally sacrificing themselves, allowing themselves to be taken out for the goal of the mission. We've got to make sure, and that was 3 ,000 agents. There were 10 ,000 agents involved in OpenAI's efforts to win the Millennium Prize, which they won recently for solving a major math problem. We've just got to have some guardrails and technical terms that's called alignment to make sure that humans are still driving this.

31:53Frankly, some of the company's sandboxes where they do this experimentation has been sloppy to date. So the idea that we're going to simply allow a kind of we'll trust you to take care of this would be short sighted. I also am sensitive to the concerns of some of the what they call small tech that whatever this effort was didn't simply install the four leading companies incumbents with more power. So this is this is concentrate. This is a really tough issue. But boy, if we miss it and look back and we have some type of and I'm not saying I'm not an AI doomer, I'm a pro AI. But if we have some kind of catastrophic event, not human extinction, I'm not arguing that, but some kind of catastrophic event and we didn't take these these warnings seriously, shame on us.

32:39Well, the problem is, you know, you have you have critics on all sides of this. And some some critics on the right will say we don't want to slow down the pace of innovation and we do not want to slow down our lead against China because that would be even scarier. But then you have critics on, you know, the more progressives in your party who say it doesn't go far enough. Senator Bernie Sanders wants to ban, you know, he wants a moratorium on data centers and to ban superintelligence. So yours might be a little too nuanced. Let me kind of sort through both of those. We are not putting AI back in the bottle.

33:11G &E is out, even if we stopped any further data centers. I do think we need minimum federal standards. And I think the industry would take this around energy use, water use, setbacks from communities. And I frankly think that the company shouldn't get bonus depreciation until they meet those standards. But that concern about data centers, I think, reflects not just the we got a ton of them in Virginia, the buildings, but the overall angst people feel about. How do I fit in? Fears about job loss, fears about, you know, this kind of potential for AGI being created. And I think the companies have not done a very good job of showing how this enormous innovation is going to actually help real people.

33:54On the flip side, the China argument. And listen, I've been chair or vice chair of the Intelligence Committee for the last 10 years. I don't want China to win this. But the idea that you put any guardrails in place will slow innovation is bogus. I mean, China already has put rules for their citizens that you can't create chatbots that could form relationships with kids. Don't we want that as well? in America. They've already taken strong measures against deep fakes. And I think for those, again, this is why I love talking to CNBC, the business audience, the Chinese model appears to be that they're using what's called distillation, where they basically steal some of the intelligence from our leading lab models, then put out their models that are open weight and open source that, you know, are at 10 % of the cost, and yet they have 90 % of the effectiveness.

34:44They seem to have a model that is replicating what they did for 20 years for stealing our intellectual property and have a slightly cheaper version. It doesn't mean we don't want to keep an eye on this, but the idea that any guardrails at all, and what I fear, there is such distrust not only in America, but around the world of American tech companies. And you also have, you know, President Trump's kind of dismissal of all our allies, so that we're at the stage now where our companies won't win because of those concerns and their concerns that we're not going to put safeguards. I frankly even think if we had this safeguard regime, we might want to invite an ally like Britain in because the UK has probably got one of the strongest without over-the-top European regulations on safety.

35:29And I do think if our companies are going to win, they have to be trusted not just in America, but around the world. And I think that safety regime is something that's important. Yeah, that's a big piece of Amadei's blog is trying to do this concurrently. among governments around the world. On the data center question, Senator, I mean, you mentioned Virginia. We've talked a lot about the concentration of data centers in Virginia, but also the number of moratoriums that are rising around the country. Has it been a net benefit to the state having that many? I think it has generated enormous amounts of revenue, particularly in the data center capital is Loudoun County.

36:05It gets close to a billion dollars a year. It funds a large chunk of the county's revenue. But even in Loudoun County, people are saying, we've got too many. And, you know, data centers, frankly, the ones that people are most concerned about, the older ones, did use a lot of energy, did use a lot of water. You know, we're ugly and noise pollution. The industry has moved where, you know, you've got closed loop systems where the water is reused. I do think data centers need to bring their own energy sources. And I think they would be willing to take that, particularly if we say if you don't make those minimum standards, you don't get bonus depreciation, which has been really used the last year and a half by these data centers.

36:46I think there's a give and take there that makes some sense. And then if a local community wanted to do more, I just think one of the things as well is many of these data centers have been put in where the local government has signed a nondisclosure agreement so that the residents themselves don't know what's happening. I think the industry realizes they kind of screwed this up. What about Elon's argument that there should be peer reviews or independent monitors as safety checks that might be more effective than Congress in doing that? Well, that's what I'm saying. It needs to be a combination.

37:19Unfortunately, the Trump administration has dismantled most of the safety positions that were put in place. They've dismantled CISA, the cybersecurity entity that would have played a role going forward. I would agree that most of the expertise is, frankly, in the private sector. But the idea that we're simply going to trust them, I think in this safety review panel, we could have, you know, cross monitoring from different companies. I think we also need a seat for what we call small tech. I think we need a seat for national security. And again, I would argue that's in the company's best interest if we had, for example, a strong ally like the U.K., who's got more expertise in the room to help validate for the company's ability to kind of penetrate the market abroad.

38:05Already, the Chinese open source models, you look at the first chat bot, chat GTP is the lead, but the next four models are Chinese open source models. So we've got to get some credibility back. Are Dario and Sam on board with your proposal? I know you spoke to them this weekend. Sam have all got variations. They think they're when when these guys and there is obviously, you know, are they doing this for self-interest? All these things have to be vetted through. But when they are are saying and I do believe they are concerned, I know Dario, for example, you know, the Crocs are the fellow who left and put out statements last week.

38:42And Dario acknowledged that he'd been saying these same things for the last year and a half. I think this has not penetrated until the reality of some of these entities, you know, jumping the fence and going out on their own, you know, seemingly not responding to human command, you know, trying to deceive humans, trying to sacrifice themselves as AI agents. That's a little spooky. And I think it is freaking people out appropriately. And, you know, the question is putting some level of safety regime in, even if I accept the critics say that might slow us a bit where it doesn't seem China's racing head anyway versus the potential downside.

39:17And I'm not saying it's going to be, you know, I'm not, again, a doomer with the existential risk. But if we had a major financial meltdown, we had a system that broke in and took over a water system or two. You could say that the reaction, public reaction would be so great that we might then, frankly, try to completely stifle AI, which would be a mistake as well. Well, we'll continue to watch your framework and see where it goes in Congress. Senator, thank you for joining us to talk about the issue du jour that is Senator Mark Warner. Still ahead this morning, the Energy Secretary, Chris Wright, is going to join us from G20, the energy meeting there in Houston.

39:53As oil prices on the rise again today, Brent off the session highs, but less than half a buck from 108. We're back in a minute. Welcome back. Oil prices on the rise once again today. Diesel at record high, 626. Morgan Brennan joins us this morning with the Energy Secretary from the G20 Energy meeting in Houston. Morning, Morgan. Good morning, Carl. That's right. Thank you. And, Secretary Wright, it's wonderful to speak with you. You just got off stage a few minutes ago announcing another deal with Japan for more investment manufacturing. That's going to happen here in the U.S. Expectation here we may get some deals with the Venezuelans are also on site at this summit and others.

40:29But before we get into that, what's moving the markets today? The closure of the east-west pipeline reports that the Saudis are actually canceling some cargos to European refiners right now. What is the latest? Well, look, these are Iran-supported attacks from proxy groups that are doing this. But the Saudis are ingenious. And I think you will see the pipeline running again very soon. This will be a brief and temporary interruption. When you say very soon, potentially days here, longer? It's still a detailed assessment, but I think it will be measured in days. It will be measured in days. And, of course, they're also taking quick action to have more of that oil these few days that isn't going through the east-west pipeline to go out the Strait of Hormuz with the United States military.

41:12Yeah, we focus so much on the Strait of Hormuz, but we're seeing increased activity in the Red Sea as well with the Houthis and strikes against the Saudis, seizing more islands, etc. So even if you see that pipeline get up and running again here in the near term, can those cargoes actually make their way to where they need to go? They can. Look, the Bab al-Mandeb is an increasing problem. Again, an Iran-backed proxy group. They're trying to bring economic terrorism to the world. Most of those cargoes now actually go through the Suez Canal and the pipeline through Egypt that sits next to the canal.

41:44So it's a longer route. It's not ideal, but energy gets to market. Yeah. We just talked about it. Carl just showed the chart. If we could bring it back up, what we've seen with diesel prices as they've climbed to record highs here. It's not just a supply crunch on the crude side. It's also what we're seeing with refining capacity come offline, whether it's in the Middle East, also whether it's in Russia right now, as well as they continue to ban exports there, too. How acute are the damages? How quickly can some of this capacity come back online? Refining is the bigger challenge. You are right.

42:14It's even bigger than the crude supply challenge right now. As you just mentioned, two conflicts. It's taken refining off in the Middle East. We've had a fair amount of refining come off in Russia. They were a big exporter of diesel. But there's self-inflicted wounds, too. Gavin Newsom's leadership closed two major refineries in California in the last 12 months. We don't need shrinking refining capacity. We need growing refining capacity. President Trump has been all in about expanding our energy production capacity, expanding our energy security and driving prices down and making us more secure.

42:48So when we get a crisis like the threat of a nuclear-armed Iran, we have the resources to navigate through that crisis. You know, it's interesting you brought up Governor Gavin Newsom because he was on X and he actually commented on you. He said everyone knew Trump's Iran war would disrupt the Strait of Hormuz, skyrocket costs. So why did the energy secretary do nothing to protect us? Americans are owed answers about what the Trump administration knew and why they failed to shield us from these predictable consequences. And we are counting down to a midterm election here. How do you respond to critics, including the governor?

43:19Well, completely false. As almost everything Gavin Newsom says about energy. In fact, if we hadn't have done the temporary Jones Act waivers, if we hadn't have taken a few other actions, There would be gas lines in California and trucks wouldn't be moving. This is a governor who's driven the highest electricity prices in the nation, the highest gasoline prices in the nation, the highest diesel prices in the nation, and the highest adjusted poverty rate in the nation, which has led to a mass exodus of business and people. And the national security perspective, 60 % of California's oil is imported from overseas.

43:52Iraq was a major supplier of oil to California. in a nation where we're a net oil exporter. Like, California has done everything wrong to make energy expensive. In peacetime, in conflict time, it's been a consistent whiffer on energy, just time after time. All right. We have to leave the conversation there, unfortunately. I feel like we just scratched the surface. Energy Secretary Chris Wright, it's great to be with you here at this event in Houston. Appreciate it. Thanks so much, Morgan. Great to be with you. Sarah, I'll send it back over to you. All right. Morgan Brennan, thank you. Still ahead, how a potential Fed rate hike tomorrow could impact private credit.

44:28We're back with that in just a moment. A Federal Reserve rate hike is widely expected tomorrow. So how could it add pressure to the private credit sector? Robert Frank has more. They say that they're OK no matter what rates do. What do you think? They're OK for now, but getting less OK by the month. And let's take a look why. The private credit worries. They largely faded this summer, but a rate hike on Wednesday tomorrow could add new pressure. companies that borrow with direct lending generally rely on floating rate debt. So that's short-term loans. A hike in the Fed funds rate would increase their interest expense at a time when defaults are already rising.

45:03So new data out yesterday from Fitch Ratings showing the U.S. private credit default rate hitting a record of 6.3 % in the 12 months through August, and more could be on the way. Fitch saying so-called maturity extensions under stress, so that's essentially pushing back a loan deadline. That accounted for nearly half of all default events. The good news is that software borrowers appear to be stable. The tech sector had, in fact, the lowest default rate among all the sectors at less than 1%. Healthcare had the largest number that's driven by private equity-backed roll-ups of healthcare practices.

45:38That was followed by industrial and manufacturing. Now, for more on the state of private credit and all your alternative investments, You can sign up for the Inside Alts newsletter at cmc.com slash inside alts. It's interesting. You know, the AI safety discussion has also raised the prospect, well, if it's so dangerous, maybe it could also be very powerful in good ways, in productivity ways, which, you know, might lead to more vulnerability for the IGV, for example. It could. And what's interesting is we're in a very strong economy. We're not in a credit cycle. And so if you're seeing defaults increase this rapidly in private credit, and I like Fitch ratings because they include deferrals as defaults.

46:20A lot of these companies are doing what's called amend and extend. I call it extend and pretend, where they're just pushing it out. So Fitch includes that. So if you're already at 6 percent, generally junk bonds are at 2 or 3 percent. In a strong economy, no credit cycle, what happens if things get worse? So that's the thing to watch. Yeah, I guess also it's what kind of tightening cycle are we in? You know, is it just going to be one or a few? And the other thing with private credit is it wasn't a tightening cycle in 2022. Yes, yes. So we have some historical context. But there was so much money coming into private credit and being deployed, there wasn't a lot of pressure on the portfolio firms to deliver and pay those debts.

47:04So it was the very beginning of the massive private credit boom back then. Now we're sort of in the middle of it and investors are pulling money out. So we'll see where it goes. Robert, thanks. Really interesting story. Getting more interesting by the day. All opinions expressed by Squawk on the Street participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates and may have been previously disseminated by them on television, radio, internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion.

47:37Such opinions are based upon information Squawk on the Street participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Squawk on the Street disclaimer, please visit cnbc.com forward slash Squawk on the Street disclaimer. Something amazing is happening in data management. Even though storage needs are constantly changing, companies are only paying for what they need now. That's because CDW customized an ever pure evergreen one SLA driven storage as a service solution, delivering hybrid cloud storage that's easy to manage efficient and continuously evergreen.

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