OpenAI’s Sarah Friar & Fed Chair Candidate David Zervos 8/20/25

23:19and what kind of moat anybody is going to have around any kind of business in the future, given that arguably, if this works as well as it's supposed to, I should be able to build anybody else's company and break through tomorrow. So I think a couple of things. When I talk to VCs in particular, I always ask this question because they're thinking about their portfolio. And so what I look for in an investment around AI right now is, number one, are you solving a real problem? It sounds really trite, but sometimes I think people try to solve problems that don't really exist in the world. Second, is there a true business process that's quite complicated?

23:56I think in a lot of cases, people are looking for the shiny, bright object, but there's a lot of just hardcore, like in my world, like finance, that now can be done agentically with really complex business processes. And then do you have access to data that is unique? I think the stat is something like, it's a good chat GPT question, 90 plus percent of the world's data sits behind closed doors. It sits in university settings and company settings and so on. And so can you access that in an appropriate way? That's what I think builds competitive moat. But I do think that we're moving into this world, I call it of abundance, where you're right.

24:32Like if I want planning software for as a finance person, I don't need to go buy off the shelf anymore. I can build internally the best planning software for open AI. Now, we still work, though, with companies like Salesforce. For example, you asked about GPT-5. They were one of our real reference customers. They're using it for AgentForce. And so it's a good example where even the world of enterprise software, they're grabbing hold of this. And I think the leaders will lead by continuing to deploy it. Okay, let me ask you a data question. Because people have also talked about if you have the data, that can be a super valuable component part.

25:05I had long thought that Google should be the winner of this whole ballgame because it has my email, it has my calendar going back almost two decades practically, right? I mean, it's unbelievable. And yet one of the things that's happened even in the last couple months now is you, ChatGPT, and by the way, Anthropic and others, can effectively port in to that same data stream. Now, so there's two questions. One is, should Google be allowing anybody to port into that data stream? That's what the customers are demanding, so they think they need to do it. I don't know if you would do it. And B, if that's the case, it may very well be that this idea that data is the sort of gating factor.

25:46Data will always be the gating factor, but it may be that those who have the data are going to have to open it up to everybody. Yeah, look, I think when customers say it's not Google's data and it's not, you know, any software's data, it's my data, right? This is what I've done with my employees, with my customers, and so on. So we've all built connectors in. It's actually been one of the reasons the enterprise business has been so strong. If you look at our business in the last six months, what's really outperformed, ChatGPT has been amazing on the consumer side, but what's really outperformed, what I see, is enterprise and API.

26:17And that's connectors happening. Because, again, as people come to work, they expect to be able to do an enterprise search and for it to be able to go look inside of my Slack and my email and my calendar and so on. So it's making it incredibly valuable. And then as we look forward, I think what you're starting to see is memory getting overlaid on top of that. It starts to really understand who I am, both as a professional or as an individual. And you connect that data to what I am and how I like to search. It's blowing open the search market. I think we've gone from something like 6 % share overall to 12 % in six months.

26:53And I think that underestimates, by the way, because when you are doing a conversational search in ChatGPT, you probably go back and forth five, six times. That doesn't count as five, six searches, which is what Google would count as. It counts as one. So I think we're really underestimating how much bigger search is becoming, but how much share we're taking. Can I ask you a big sort of economic question? We were talking about the Fed and how the economy is going and everything else. And one of the things that's happening is, whatever you think is happening with tariffs and everything else, the economy is absorbing a lot.

27:22In large part, I would argue, because of the AI boom, the amount of money that some of the big companies, Microsoft, Google and others and yourselves are spending on CapEx and trickles into the economy in so many ways, whether it's in construction or electricity or engineering or energy or real estate, all of it. This either gold rush, it's either a gold rush or a sugar rush. and how long you think that build-out really lasts? Because it may take several hundred people to build a data center, but it only takes five or ten to operate it. I think we are so in the early inning. I think a lot of prognosticators want to call it like we're on the sugar rush.

28:05We're not. It's more like the railroads or the build-out of electricity than anything I've seen. The Internet, it turns out in hindsight, was actually a relatively CapEx-lite build-out. And so I think we are just getting started. Now we have to do a lot to figure out how to make data centers more efficient, to think about new ways to power them. But in terms of AI, it is voracious right now for GPUs and for compute. The biggest thing we face is being constantly under compute. That's why we launched Stargate. That's why we're doing the bigger builds, as you see with Microsoft, but with Oracle, CoreWeave, and so on.

28:40And we're just getting started. How reliant are you on Microsoft? And if that partnership is not as strong going forward as it has been to this point, what does that mean? They've provided a lot of the money and the power for doing these things. Can you do it on your own without them at this point? Our relationship is changing because we've gotten so much bigger. Today, if you look at the scale, after Chattapiti launched, we did a billion dollars of revenue in the first year. It took us another year to do a billion and a quarter. We just did our first billion dollar month last month. So the scale is massive.

29:13And so as with anything, we now need multiple suppliers. So Microsoft is really important from a compute perspective, but now we're getting compute supply from many, many vendors across the spectrum. And I think that's good for both getting it, because we're compute constrained, but also risk management. But Microsoft will be an important partner for years to come. And I think we're very intertwined because of our IP. Remember, Microsoft's AI products are built on OpenAI technology. Two things. What do you make of people who are trying to play owning your effectively owning your stock via owning Microsoft or owning SoftBank?

29:49I mean, that seems to be this sort of there's like a bank shot situation since you're a private company. Yeah. What do you think of that? And also, by the way, throw in there. What do you think of folks who are trying to, quote unquote, tokenize your shares and sort of work around some of the accredited investor rules, even in the United States, to sell your shares to folks who I don't think are on your list of, on your cap table, officially at least? So first of all, it's great to see the investor interest, and it's a privilege to get to work with some of the best investors in the world. Like the round we just closed was 5x oversubscribed.

30:20So there's tons of demand. I think investors want direct investment ability into the model. Model companies are directly into AI, because you're right, today they have to do it via the larger hyperscalers. And so you're getting a little bit of everything. You're getting some access to AI, but they also have incumbent businesses that could be really disrupted. SoftBank, Masa San, you have to give a ton of credit to just his vision for AI, both through OpenAI, but also through plays like Arm. I think on the Microsoft front, investing in us through Microsoft, probably a little bit of like a multistate process that I wouldn't opine on.

30:56I'm not an analyst these days. But I think our business is just going from strength to strength, and more people are going to want to have access. tokenization situation? I think we are very mindful of making sure we keep a sound control of our cap table because, as you know, it can become pretty complex fast. And so we have very strict transfer restrictions on it. So we try to stay away from too much complexity. So when you start selling your shares effectively or selling a derivative of them. I mean, we love that there's so much interest, but we want to make sure we're working with our investors the right way.

31:30Is there any reason for you to go public anytime or do you just not need it because there's so many people who want to get into anything you offer up? I think it comes back to the strength of the business and then our mission statement. We always say we are here to build AGI for the benefit of all of humanity, for people everywhere. And part of what I like about a public offering is it democratizes who has access to owning and partaking in that upside. But I think right now we're proving we can raise capital at massive scale without being a public company. We can attract, retain employees without being a public company.

32:02So I think at some point in our future, for sure, we will look at it. But I think right now we're eyes on keeping the business momentum up. But it's not in the next year. Focus on the business first. Ultimately, the market stuff will work if your business is strong. Let me ask you one more. This morning, news reports that the U.S. government may want to take stakes in the semiconductor companies that that received money via the CHIPS Act. What do you think of that? So I think it underscores, number one, how important that AI infrastructure build is. So what we just talked about, right? This is a place that you are going to need a lot of capital coming to the table, including sovereigns.

32:41One of the things that amazed me about OpenAI is how many governments come to us to say, we want to roll out your products in our country. So Norway is the most recent example. I think the second thing is it's becoming more than just an infrastructure play. People are seeing it as part of being a national asset, effectively being a national security play. And so our goal is to make sure our AI, kind of AI that has a democratic element or completely built on democratic AI, is launched globally. What do you think of the carrot stick idea? Meaning the original CHIPS Act was a carrot. Come do something that actually historically wasn't economic.

33:17Do you view it as a public-private partnership? Democrats love that until a Republican administration does it and then they hate it. I think it is really important that the U.S. government is saying AI is an incredible part of our future. But is this okay to do it this way with industrial policy? With industrial policy, are you okay with that? I think that's the question. What I want to see is that we can get the scale of investment going that we believe is going to be required for our business. And you're okay with the government picking winners and losers. Sitting in my seat, I am short compute.

33:50The only thing I know for certainty is zero compute, zero revenue. It could be bad. It could be downside. Here's my question to you. When the president of the United States calls you up on the phone and says, look, you know what? You're using Taiwan semiconductor chips. We're subsidizing them, which, guess what? It means we're subsidizing you. And guess what? We want a stake in your company, and you're just going to give it to us because that's the way this is all going to go down. What are you going to say then? That is actually the question. I mean, I'm going to go back to what I can say, which is I want to make sure we have vast quantities of compute as a company, but importantly, as a nation.

34:33I think it is that important for folks looking forward in terms of what this technology does in health care and education, just across every. That sounds like it's one of those. It's different this time and it's OK, doesn't it? It kind of sounds like that. And it might be. It might be. After what we saw where we didn't have really important things because of our supply chains. From a national defense perspective. For national defense and for what we're doing with AI. I'm just surprised because most of the time you would say slippery slope. Because I just gave you the slippery slope example. And most of the time you would say, oh, public, private, partnerships.

35:07The government's great with chips. We're both wearing different. We switch back and forth on a daily basis. Because you asked me, like, is this, you know, is the bubble over, is it sugar high or whatever? And I just told you that it's just at the beginning. And the amount of capital required is like the railways. It's like electricity. And so it's not, I think, I don't think it can only be private sector. I think public sector. But then it becomes like a utility. But then it becomes like a utility and becomes a highly regulated business. And we could also keep Intel alive. It doesn't necessarily have to be a utility that's highly regulated.

35:39That's not a line of thinking. But historically, that's what's happened. When you take government money, they become highly regulated businesses. That is the social compact. And they don't fail. They're not allowed to fail. And failure is just as important as success in capitalism. In the end, I think you focus on your business, get your business going. You grow at the pace for growing at. She came on to talk about, like, OpenAI. Sarah Fryer. Thank you. She's got ChatTPT. Thank you for playing along. She just asked ChatTPT, is industrial policy okay? What's the answer? That is a very good deep research report.

36:15You should do that. We loved having you on the broadcast this morning. Thank you. So good to see you all. You bet. Still to come on Squawk Pod, a contender for the next chair of the Federal Reserve, David Zervos, also a CNBC contributor. And he says the ideal Fed balance sheet, that was in 2019. The balance sheet of the Fed has now contracted to the point of almost being neutral after being very stimulative for a very long time. And so you're left now with rates at a much more restrictive rate without that extra kicker from the balance sheet. And so we really need to get rates back toward a more neutral level.

36:55We'll be right back.

37:01Welcome back to Squawk Pod. I'm producer Katie Kramer. We've been following for months the road to a new chair of the U.S. Federal Reserve. between President Trump's many jabs at sitting chair Jay Powell, whose term does expire in May. I think he's done a bad job, but he's going to be out pretty soon anyway. In eight months, he'll be out. And the president's interest in other candidates for the job, including two he named on our show, former Fed Governor Kevin Warsh and economic advisor Kevin Hassett. I say Kevin and Kevin. Both Kevins are very good. And even like sitting Treasury Secretary Scott Bessent.

37:37I love Scott, but he wants to stay where he is. I will. I'll take him off because I asked him just last night, is this something you want? Nope. I want to stay where I am.

37:50Many of those potentials have come on Squawk Box to toss their hats into the ring, make their case. There are currently 11 candidates, and each one, along with Wall Street, is awaiting a speech from Jerome Powell this Friday. At the annual Jackson Hole Symposium, central bank officials from around the world give remarks about interest rates, inflation, and the state of our economies. Historically, the remarks by the sitting U.S. Fed chair have signaled monetary policy and have moved the markets. We are still two days away from Jay Powell's speech, likely among the last comments he makes before a successor becomes official.

38:25Let's get back to Joe, Becky, and Andrew. Here's Andrew. Let's talk markets, Fed, interest rates, inflation, and so much more with a guy who you probably need to know even better than you may already. David Zervos is here. He's chief market strategist at Jeffrey's, CNBC contributor. And yes, now he is officially on the list of candidates being considered for the job of Fed chairman. So good morning. Now, do you have to watch your words in a different way, do you feel like? I think that's probably fair to say. I would also say that, you know, I kind of have to come at this a little bit differently than I've done in the past, where I talk more about what I think the Fed should do as opposed to what I've done for the last 15 years, which is at Jeffries and even before that, which is talk about what the Fed will do.

39:11So I'm here to talk about a much more broader set of topics. Before we get into any of that, though, just tell us, you know, the backstory on getting on this list, what kind of phone calls you've got. And I know that you have a relationship and you've known the Treasury Secretary for a long time. I have. I've known Scott for quite a while. He's a wonderful guy and an amazing he's transitioned into an amazing treasury secretary, but he's an amazing trader as well. And so I've known Scott. I've I've met the president a few times and I've been involved with a few other folks that are part of the administration and were part of the campaign as well.

39:48So I sort of got myself closer to Washington in the last couple of years. And pulling for you so much, just so we can say David Zerva's Fed chair and CNBC contributor. Would you give that up? I would, if I have to, I would. I wouldn't. If they tell me, they're going to make you give up a lot of things if you do this job. That's something to think about before you accept. Can you manage? I was kidding about pulling for you. We're pulling for everybody. Were other CNBC contributors that have been on Fed chair lists in the past? I don't think so. I don't know. Lots of guess, but I don't know if not a contributor.

40:23I think the president, when he called in, he did talk about how CNBC was fertile ground for potential Fed chairs. He did. as well. There you are. And there you are. So here's the big question. What would you do? What would you do? Not what do you think they will do or should do. What would you do? I mean, what I would do is try to coalesce the committee around the idea that policy is actually quite restrictive. I think that argument needs to be made. And that argument is something I've been making in my research notes and in my analysis now for the better part of eight to nine months, basically going back into the late, well, basically the fall of last year.

41:08And the idea, it's a little bit wonky, but Kevin Warsh has been kind of pushing on this idea, good friend as well, that the balance sheet of the Fed has now contracted to the point of of almost being neutral after being very stimulative for a very long time. And so you're left now with rates at a much more restrictive rate without that extra kicker from the balance sheet. And so we really need to get rates back toward a more neutral level. So it's not a Fed funds versus 10 year. It's much more about the combination of the balance sheet and the rate structure. And I think someone needs to go in and argue and present with the 11 other voting members on that committee, a cogent case for why rates are more restrictive than maybe the Fed is currently thinking, the staff is currently thinking, and the street economists are currently thinking.

42:02Can I ask you, and maybe this is like a deep sort of, you know, like dark arts of what's happening here, but a number of people that I've talked to that are living in the realm that you're living in are all trying to see what Jay Powell either says on Friday in Jackson and Hull, but maybe even more importantly does in September, because that will be probably the last major decision he will make before somebody gets named. And the reason I mention this is there is a view, I don't know if you agree with this view, that if he doesn't cut rates in September, the president, first of all, will think that Jay is thumbing his nose at him.

42:45But B, would want to find somebody who is super dovish, somebody who he knows could be put in there, would get the job done effectively. But if he lowers rates, that maybe it somehow takes a little bit of the pressure off in terms of the kind of person he might select. Am I reading tea leaves too much? That seems a little deep in the weeds for me. I think the the idea of this meeting being such a critical meeting is probably I wouldn't go there I just wouldn't go I would I would argue that this meeting is an important meeting but the importance of what Jay says on forward guidance or what the committee is doing in these set of meetings leading up to a pretty significant leadership change at the board are less and less significant in fact it's becoming more irrelevant we're gonna have a committee by May of next year that's made up of four trump nominees it's going to be michelle bowman and chris waller who were already picked by the president then the seat for adriana kugler and the seat that jay vacates uh in may so you're going to have four out of seven board members that are effectively maybe another one with some of the news that's out today about some others i i sam tell he's on on this but we'll talk about that maybe a little bit later how does but my wonky question is how does the balance sheet that you described get you to the risk being much more on on growth uh than inflation why do you think that that the nature of what you described with the balance sheet is why do you think that inflation is not a problem when it seems so sticky to get down to two for the last mile i think it's been a little sticky it's come a long way joe it's come from 9.1 down to two and change but if you want two we're not two we're headed back above three could be right this is the art of central banking right you're balancing a 4.2 percent unemployment rate with a two and change inflation rate you're looking at the future and saying what are the inflationary pressures we've got demographics we've got AI one to three is good enough for government government work is what you're saying one to three is good enough maybe when you start working for the government you get you know eight foot guineas instead of two foot guineas oh yeah no doubt yeah I think that's probably fair but I guess I would just the size of the balance sheet though isn't it still more than six trillion dollars six trillion dollars but it's about 20 percent of GDP you remember it's some it's related to the size of the economy and it was 40 percent of GDP at the peak at the peak it was more than nine trillion but before 2008 it was one trillion well and that was before we went to this ample reserves kind of more highly regulated structure where I think I would kind of put a neutral balance sheet at where we were in 2019 when we had rates at about 2 % flat, yield curve at 2, and the balance sheet was 20 % of GDP.

45:35The unemployment rate was 3.5. Inflation was 1.6. We just never get back to these, being out of these emergency contingencies where the Fed is doing so much to keep things afloat. I mean, we've got those great tools if we need them, Becky, and I'm more than excited to use them if they need to be used. But the point is, if we go back to 2019, I don't want to go back to 2008 because the structure of the markets changed so much that was a neutral place there were no rate hikes no rate cuts priced in we were sitting at a two percent yield curve flat we had a balance sheet of 20 percent of gdp no qe no qt it was about as neutral as it could get with the fed edits mandate full employment at three and a half and price stability at inflation under one that's a good spot that's the place we should be looking to get back to the balance sheet is back at 20 percent of GDP within spitting distance.

46:23Let me ask you, though, to think or not to unemployment versus inflation. Yeah. Tariffs. How you think about the tariff piece? You know, there's a view that it could be a one time thing and maybe it is, but it's probably a rolling one time thing, meaning you're not going to see the inflation all happen in a month or two. You're going to roll because people have to are going to adjust. And that adjustment could take six months, could take a year i don't know and so how you how you think about that up against the employment piece you know i've been in a unique position in my discussions of the tariffs with with clients and and you know uh in public as well just saying i don't think it's nearly as big a deal as everybody's made it out to be i thought it was a very tactical set of moves that the president made sort of game theory, classic art of the deal, go in, go big, and then kind of drive it all back a little bit and get to where you ultimately want it to be.

47:21And I think that's largely been the case. We've had a tactical move to get to, you know, 10 to 20, maybe 30 percent tariffs in some cases. I very much stand with the Treasury Secretary in thinking these are one-off price level shifts and you have to look at inflation expectations and say, is something happening with inflation expectations where people think this is going to continue to metastasize. And the reality, Andrew, is it's just not there. The break-even inflation data, and even now the survey data, which I think became very noisy because of political division, that's come back down. So I feel like anchored inflation expectations, which really is, I think, the number one goal of the central bank, anchoring long-run inflation expectations, we're just anchored.

48:07You look at five-year, five-year break-evens, You'll get tenure break evens. You'll get any of these tips measures. And you look at the survey data. Like, but it's just it never even got the anchored when we went to 9 percent. And certainly the tariffs aren't the anchoring them today. But, David, you think full employment is three and a half percent? Because most people would say it's between might even be lower. Five percent. I might be lower. AI coming in. I think because if that's the case, you're going to focus on the unemployment side of things far more than the inflation. If you're willing to say one to three percent is OK for inflation.

48:33So immigration lower. I think it's more the technology story. I think it really is like what we saw in the 90s, which is we were able to bring more and more people into the labor force in various ways without creating a lot of inflation because we had that tailwind of technological advance driving disinflation. You don't think AI is going to put people out of work, that it eventually brings more people back in? It'll displace many existing jobs, create opportunities in other places. And we may be seeing people move from one set of careers to more desk jobs to vocational jobs. And we're already seeing it.

49:10It seems different this time. It seems like the 90s. It does. I like the 90s. It seems different this time that this is more, this is not just a Luddite moment where you go from buggy whips to automobiles. But this could do everything. And we go to UBI. We don't go because we're all fat and not working. Maybe in this city. Let me ask you a different question. I think you know that most of the people on the board of the Fed today, and I think most economists, talk about the independence, important of the independence of the Fed, and they want to know that the person who's leading it is full-on independent.

49:43That's what they want. That may not be the reality. And the question is, do you feel like you could be fully independent given your relationship with the Treasury Secretary, given your relationship with the president, if in fact you have a view that is at odds with the president of the United States? Well, let's let's go to exactly what you said, that that this ideal of independence. The reality is the Fed is not independent. The Fed has never been independent. And the political pressures on the Fed have always been growing and continue to grow, Whether it's letters from Maxine Waters or Elizabeth Warren pounding on the Fed to be cutting rates around election times, which was continuously happening, and Sherrod Brown when he was there.

50:27Or behind-the-scenes movements by Treasury secretaries trying to influence Fed chairs or administrations. All of that is there, and recognizing that is actually a critical feature of being a good fiduciary and being a good investor. One of the things I do at Jeffries is try to help our clients understand the Fed reaction function. Politics is in the Fed reaction function. I'm not disagreeing with you that politics is in the reaction function at all. What I'm asking is something slightly different. I think we can empirically look at Jay Powell, who was put in the role by this president, and he is now clearly at odds in terms of his opinion of the universe and how the economy should be managed with the president.

51:11So by default, you would look at Jay Powell and say, there is somebody who's independent. You may think he's wrong. Actually, I disagree with that. I think he's actually quite a bit dependent, and he's dependent from the other side of the equation. He's operating politically from the left. Okay. Or, let's put it this way, from the anti-Trump side of the equation. Whatever it is, but my point is, you would look at him and you'd say, He is independent from the president in that he is not doing what the president is telling him to do. Correct. You're with me from the president, but not from politics, politics.

51:47What drove the September rate cut of 50? But I think was that political. I think what I'm asking you is slightly different. Yeah. What I'm asking you is if the president says to you, hey, I need you to do X, Y, Z. Do you feel that you can say on TV right now that if you actually in your own brain are an independent human being and disagree with the president, that you can go out publicly and say, you know what, I'm not doing that because I don't think that's the right thing for the economy. I think you would take into account, Andrew, all of the political pressures that come from Congress, that come from the administration, that come from all of the variety of sources that they come from, and you make a decision which is going to be consistent with the goal of the institution, which is maximum employment, price stability, and making sure inflation expectations are anchored.

52:34If the president is saying something that you agree with, you shouldn't just fight with him because you want to look at it and say, oh, I'm potentially not independent because I'm agreeing with the president. I think we can agree from a perception of independence perspective that it is not helpful. I think you agree with this. It is not helpful for the president to be publicly espousing particular views about the Fed because it in fact puts whoever's in that seat in a much more complicated position to actually have credibility with the marketplace? I don't even know if I would go there. I think if the president would like to say things about interest rates and discuss them openly in public, he should be able to do so.

53:16He has views that I think are interesting and actually have been in many ways correct. What he was arguing in 2018 and 17, for example, turned out to be entirely correct. I understand that, but do you believe the marketplace cares whether whether the person who's in this job is considered a puppet or not i think that if you if you are going to be in this world of politics in washington dc you're going to have influences coming at you from every direction managing those but but i'm not saying it's about but but but trump but trump you know you do don't you understand you do you do a good impression You do a good impression.

53:56Thank you. I think at the end of the day, you're going to manage all of the political forces that come through. Oh, this is not even about Trump. It's just about the job. Okay. He just told you that he thinks that Powell is totally biased based on his left. I don't want to say that. I think he's a pro-deregulation guy. Did you ever hear a word from Powell about what happened during the early part of the Biden administration and the spending and what we were doing? And yet, yes, no, we did. Yes. Go look at every meeting. He immediately waited on tariffs. David, if you want to be an intellectually honest guy, explain to Joe what you looked at.

54:37I will say one thing and I'll give Andrew a little bit a little bit of a rope on this. Make it small. Which is, you know, the chairman did push back on a lot of really crazy stuff. On the pandemic stimulus? No, no, no. The regulatory side of the equation. Oh, I'm talking about. Michael Barr, what he was doing. I'm talking about what engendered the inflation. Yeah. And he stayed at zero. And he stayed at zero and didn't say a word. Okay. I'm going to give him the regulation and the woke stuff. I think he pushed back on both of those. All right. That's different. That's not what I'm talking about.

55:07I'm talking about. On what you're talking. That's what I said. I'm going to give him a little bit of rope. I'm not giving him all of that. the$5 trillion that both Trump and Biden spent. I think he stayed out of the fiscal debate. He did, until tariffs. And then tariffs came along and he entered into a political debate. Oh my God, now we've got to worry about it. After you let inflation go to 9%, now you've got religion on tariffs with 2.7%. As you said earlier, Joe, economics is not a science. It's an art. And they're trying to put too much precision. It's almost a pseudoscience. Yeah, you know, it could be voodoo as well.

55:40sometimes. Well, look who wins Nobel Prizes. They have diametrically opposed opinions. They both win because there's no answer. There's nothing that's true. It makes it a great field. It's like the market. I mean, it's a puzzle you can never solve, which I love. I love the whole field. I've been a passionate student of both economics and the markets all my career. I just, I go back and I think the Powell Fed has had some pushback, some legitimate pushback on the administration in areas where it went way over the edge. I give him that. But I think Joe is absolutely right that this is an administration that did not fight back on some of the worst Biden policies.

56:20And that's come back to bite us. David, early in the discussion, you said that you would like to be able to go in and be able to make your case to the Fed, to the recognition that the FOMC is not run by one person. That's an important point. You have to build a consensus.

56:40That's an important part of the job. What do you think about the people who are at the Federal Reserve, particularly the voting members of the FOMC right now? How do you think you would go about that? Do you have a relationship with any of them? Well, I've been at the Federal Reserve twice in my career. I spent all of 09 there as a visiting advisor to the board and I started my career 34 years ago. I walked through the C Street entrance of the Eccles building, which is now under deep construction, into the beautiful foyer that they're fixing up and started my career as a summer research associate.

57:10So I have a lot of deep history with the institution. I know a lot of staff members and ex-staff members. And I just, I think I've got a pretty good understanding of the place. And I think in terms of coming to a view and coalescing around a view, I do think people are open to listening to alternatives. and looking at what has happened in the course of this post-pandemic period, you have to put the puzzle pieces together. 2023, you would have every economist come through and sit here and tell you a recession is coming. The Fed had raised rates 400 plus basis points going to five and a quarter.

57:51We were going to get a recession with almost 100 % probability, the street economists. And I said something very different. I said, you know what? this balance sheet's so big and it's exerting so much stimulus into the system that 500 doesn't feel like 500. 500 feels like 200 or 300. And we're not going to get a recession. It's actually not restrictive monetary policy. That argument, I think, holds the test of time. And it's part and parcel, the argument I have today, which says that we got lulled into this false sense that high rates don't hurt us because of the balance sheet. Now the balance sheet's back down.

58:26Now they can kind of hurt us. And you don't need to cut as much because. No, no, you do because these rates are way too high. But if those rates. Four and a quarter is way too high. It was all about the balance sheet and the balance sheet is fixed now. You don't need to cut as much because every one of those cuts would be felt more impactfully. No, they will be more impactful, but you have them at a very high level. They're way above neutral. If I'm making the argument that we're going back to a 2019 style neutral level, we're 200 plus basis points above neutral. That's a lot. So I think that's where the starting point is.

59:01You're not going to have anyone. No one can go in on day one in that committee and sit at that board table and go, we're cutting 200 base points. It's impossible to do. It's impossible. You have to go intellectually in there and have a debate and coalesce a committee with a lot of different views around this idea that policy is quite restrictive. And that's that's really that's the answer to Andrew's question is how would you approach it? I think that's the way you have to approach it, because there's no dictatorial structure. This is a there's a lot of separation of powers across districts and presidents and governors.

59:40That said, four seats on the board will be. This is we didn't mention it, but so Bloomberg's writing it up that that Bill Pulte is saying, who is the director of federal housing that Lisa Cook has mortgage issues. Yeah. And whether that, yeah. So it might be maybe more than four. It might be. Yeah, I don't know. We'll see what comes of that. How come we haven't talked about that here? I've been a bit longer story. I've been going back and forth with that. Okay. David, thank you. Appreciate it. All your pleasure. Great to see you, sir. That is Squawk Pod for today. Thanks for listening. Squawk Box is hosted by Joe Kernan, Becky Quick, and Andrew Ross Sorkin.

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1:00:48Thank you.