Perplexity CEO Aravind Srinivas & Cleveland Fed President Beth Hammack 4/24/25

0:00Bring in show music please. Hi, I'm CNBC producer Katie Kramer. Today on Squawk Pod. A calm comes over market volatility as the Trump White House says its tariff talk to China will be less confrontational. It's like three steps forward, two steps back every single time. But Beijing says, you talking to me? If you're going to tell the public that you're talking to the Chinese, you should be talking to the Chinese. And Cleveland Fed President Beth Hammock in her first interview in the role says central bankers are watching everything. As a policymaker, it's really more about how do the markets impact the real economy rather than the markets themselves.

0:39Then Google's antitrust battles could impact innovation in artificial intelligence. CEO of Perplexity Aravind Sreenivas on his own AI search engine's exposure. Microsoft's Edge browser is a Chromium wrapper and it's a number two browser by market share. So Google has contributed to other browsers too. In a sort of open source-like way. Exactly. Plus, the president versus everybody, Fed Chair Powell, millionaires, and tariffs hitting the run for the roses in Kentucky. Most of those hats, I'm sure, imported too, are they not? The feathers, baby. It is Thursday, April 24th. Squawk Pod begins right now.

1:18Stand Becky by in 3, 2, 1, cue it please. Good morning, everybody. Welcome to Squawk Box right here on CNBC. We're live from the Nasdaq market site in Times Square. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. It's early. We're ready to go. Got a lot happening this morning. China's Commerce Ministry saying there are no talks that are ongoing with the U.S. over tariffs. That's the latest in the back and forth between those two countries. It follows the comments by Treasury Secretary Scott Besant yesterday that China and the U.S. have an opportunity to do a big trade deal, but that excessively high tariffs between them will have to come down before negotiations can proceed.

1:58The Wall Street Journal reported the White House considering cutting tariffs on Chinese goods, in some cases by more than half. But speaking to reporters on the sidelines of the IMF and World Bank annual meeting, Besant and President Trump wouldn't unilaterally lower tariffs on Chinese imports, which is what they want. There is an opportunity for a big deal here that the U.S. is looking to rebalance two more manufacturing. the identity of that would be less consumption. If China is serious on less dependence on export-led manufacturing growth and a rebalancing toward a domestic economy, I think they use the term dual circulation.

2:45Well, right now it's really singular circulation. And if they want to rebalance, let's do it together. Separately, the White House confirmed to CNBC that President Trump is considering tariff exemptions for automakers. The Financial Times saying those exemptions would be related to levies centered on the steel and aluminum industries, as well as those on the export of chemicals used to make fentanyl. Now, all this comes as dozens of states sued the Trump administration over tariffs, the suit in the U.S. courts now of international trade, arguing the president can't arbitrarily impose tariffs under the International Emergency Economic Powers Act, which Trump has cited in executing these policies thus far.

3:28It may be why fentanyl was back in the lingo again yesterday from the White House, because that is the reason Trump administration has said that that's why they should be using these emergency powers. Look, there's a lot of back and forth. It has sounded like the rhetoric from the White House has tamped down a little bit. But China coming out and saying pretty strongly there are not talks taking place right now. You watch just the way things work in Washington. You know, whenever we do a budget reconciliation, the stuff that they try to put in to say, and this is definitely. I mean, with China, maybe you can you can use it to some extent.

4:07The market was up over a thousand points at one point yesterday. yesterday and then some of the stuff that the treasury secretary said seemed to as we've seen it's like three steps forward two steps back every single time it seemed the other pieces the day before it's not oh yeah we're talking yeah i mean the other thing yesterday it's like there's been an impression that there's actually some kind of ongoing talks or even back channel talks or something that would give you a promise that there's something on the other side there's a rainbow somewhere on the other side of this the storm right and the question is the chinese are we're not even talking to these people.

4:41There is a Chinese delegation that's here for the IMF World Bank meetings in Washington this week, so there are some questions about whether that would be a way to start it, but so far, not so much. Well, you think if you wanted to have the talks, you would have already made an appointment to have the talks. But every time, okay, you hear a lot of grousing about the tariffs, but every time there's what is construed to be a blink in the tariffs, everybody writes about, ah, he's folding it. So then there's ego involved. And I'm not. You can just see it happening real time. That's exactly. I know.

5:14It's exactly what. And then so you don't know where. In the meantime, he hears from from people like the CEOs of Home Depot and Walmart and Target who were there earlier this week. And they're talking about how you could have store shelves that could be empty in a few months just because the supply chain was with this. And so depending on who's in there, who's giving their impressions of these things. We had a small business owner on yesterday who's suing the administration over this. Andrew just mentioned the dozen states that are suing. There's a lot of back and forth and a lot happening. There's a lot of people walking in and out of the Oval Office, I'll bet.

5:48And, you know, he's like whipsawed. You've got the one, you know, you've got different, you know, factions. Intra administration. That may be an explanation for what's going on, but it's not a good explanation for the way this should be going. Meaning if you're going to tell the public that you're talking to the Chinese, you should be talking to the Chinese. Meaning that's how this should be going. Talking is a nebulous term. And it depends on at what level you're talking about. Talking from your social media. Talking about at what level. There's always that. It sounds like there's virtually no talking.

6:22Not high level. Maybe not high level at this point. I hope there's a back channel. The stock market is dictating a lot of what's happening in terms of messaging. And the Treasury market. Right.

6:38Three steps forward, two steps back. Now, President Trump now criticizing Fed Chair Jay Powell again, not as strongly as he's done in recent weeks. Here's the president in the Oval Office yesterday. I haven't called him. I might call him. I haven't called him, but I believe he's making a mistake by not lowering interest rates. And I think as well as we're doing, we do much better. He's keeping rates too high. He historically has been late. Investors credited yesterday's market rally in part to the president's comments from Tuesday evening that he had no intention of firing the Fed, which was good for about a thousand points at one point, but then.

7:19And look, I wonder how long this detente lasts because the FOMC meeting, the next one is May 6th and 7th. If there's not a cut at that meeting, does he lose patience again? If there's a cut at that meeting, we're going to know a lot more about the economy. Yeah, I think I'd be shocked if there were a cut at that meeting. I wouldn't be shocked because I think by then we may see some stuff that... You think? Don't you think? I don't know. For them to actually take their eye off inflation and say that the unemployment rate is the more important part of their... We've been down numbers in inflation recently.

7:50Yeah, but the unemployment numbers have been pretty good. Right. Oil's 63, even with a big jump today. Have you ever watched... I was watching yesterday. Do you remember KJP? Every sentence began with, we've made it very clear, the last press secretary for Biden. Oh, yeah, yeah, yeah. The president has made it very clear. That must be in press secretary. That must be in 101, press secretary. Every answer to a question just from Carolyn Levitt, she starts with, the president has made it very clear. Which makes the person asking the question think, well, I'm stupid for asking the question because the answer is already known because the president has made it very clear.

8:29So if you ever do it, Sorkin, like if the Democrat wins like in 28 or something, if you ever have to do it, start every sentence with the president has made it very clear. Then it's like, of course you should know this. And you must accept my answer because it's already been made very clear. So why you're asking me, I'm not really sure. But you got it. It's a scolding technique. It's a total scolding technique. And watch how they and they're very proud when they do it, too. They're very proud. So, man, it's a big, big old game. President Trump rejecting the idea of raising the tax on the highest income Americans.

9:05It's an idea that had been circulating among some Republicans that would have allowed the 37 percent marginal income tax rate to climb closer to 40 percent. Now, yesterday in the Oval Office, President Trump was asked if he would support a millionaire tax. I think it would be very disruptive because a lot of the millionaires would leave the country. You know, in the old days, they left states. They go from one state to the other. Now, with transportation so quick and so easy, they leave countries. You'll lose a lot of money if you do that. And other countries that have done it have lost a lot of people.

9:39They lose their wealthy people. That would be bad because the wealthy people pay the tax. Republicans have been searching for ways to offset President Trump's tax cut plans and proposed spending on the defense and on the border. So we'll see how this budget could all come together. That's not the right answer. What's not the right answer? Or why he said he wouldn't. Because, number one, calling it the millionaire tax is totally misleading, I think. My whole thing is with, I don't think people know, only 5 % of businesses are C Corp. 95 % don't pay taxes that way. And this affects them. Some of them have offsets.

10:18But the ones that generate the most income, the bigger, the more successful ones do pay with the pass through rate. And it's like raising taxes on small businesses. Well, I mean, look, I think small businesses, if you look at the Russell 2000, you can see the concern around small businesses. You can talk to small business owners. Hit them with tariffs and this. Right. You can hit them with tariffs. They can't come around and then ask for an exemption on these things like the big companies can. And then to have this on top of it would be. There is a populist wing in Orrin Catholic. You know, they've been in.

10:50And J.D. Vance, I don't know. I think he sends mixed messages sometimes. But someone, you know, finally, reasonable, hopefully, gets to Trump now and again. I don't know how this happened. Hassett has said it's possible? Well, when we had Hassett on the show, he didn't knock it down. He didn't say it's possible. He basically said... Jason Smith. Whenever you ask any of the House guys writing this stuff... Their basic answer is all things are on the table because nobody knows exactly what's going to wind up this way. The 2017 success of the first Trump administration is on the table. We can reverse that.

11:24Stupid. You probably thought the Kentucky Derby was something that was tariff proof. I would. Urban? It's not bourbon. That's made in Kentucky. We're actually watching shares of Churchill Downs this morning. Earnings and the revenue numbers missed expectations. And the home of the Kentucky Derby said that it's pausing its expansion spending, blaming the uncertainty around tariffs and higher construction costs as a result. The company had announced nearly one billion dollars in multi-year expansion projects back in February of this year. The CEO said we have a responsibility to be disciplined given the recent changes in the economic environment.

12:02And they are now expecting those those anyway, they're pushing off how long it will take for them to do this construction. The stock's down by about 2%. Kentucky Derby's coming up next weekend, isn't it? NBC. Most of those hats are, I'm sure, imported too. Are they not? The feathers, baby. All the fancy hats. We don't make those here. Not the good ones. Have gasheries. You're annoying the... Well, I want mine for them, obviously. Cheese will be next. Up next on Squawk Pod, Cleveland Fed President Beth Hammock is on set. And while she's not a market participant anymore, she's still watching the ups and downs, downs and ups as a policymaker, especially in these moments of volatility.

12:46What was happening was people trying to reduce their positions, trying to pare things back to get to a more reasonable level, given the volatility in the market. And things were moving, things were transferring, and that's what you want to see in a healthy market. What the Fed is monitoring ahead of its next rate decision is right after this.

13:07This is Squawk Pod with Joe Kernan, Becky Quick, and Andrew Ross Sorkin. Up on Becky, Q. Steve Leisman is here and he brings a very special guest. Good morning, Steve. We are pleased this morning, Becky, to be joined by Beth Hammack, the new Cleveland Federal Reserve Bank president, ex of Goldman and all kinds of fun things. Welcome to your first television interview. Welcome to the conversation, I'd like to say. Thanks for having me. So let's start right away. Let's get into it. The morning the durable goods number came out up 0.1 % on the investment side. What are you hearing about how the change of policy is affecting the companies in the context you're talking to?

13:43Well, thanks for having me, Steve. It's great to be here. One of my favorite parts of the job of being Cleveland Fed president is going out in the district and talking to companies, talking to businesses and understanding how they're thinking about things. What we're hearing right now is that the uncertainty is really weighing on businesses, and it's creating issues for them in terms of planning, in terms of thinking about where they're going to go. And so some of them have put pauses on whether they're going to make bigger investments, whether they're going to invest in new facilities, new capital plans.

14:10And then they're thinking about their hiring plans. They're thinking about their labor force and do they have the people they need? How many people are they going to be able to keep on for what length of time, given what these changes might do for their businesses? What is the macro effect of this? If people hold back now, What does that mean for the economy now and what does it mean for the economy in the future? It's a great question. We don't know the answer to that. I wish I had a crystal ball. We don't have one. I think everyone is trying to work through what the implications of these tariffs and these policies are going to be, how significant the tariffs are going to be, how long they're going to stay in place.

14:41And if you're looking at building a new facility, building a new plant because you want to bring back production into the U.S., you need to have confidence that those policies are going to be in place for a long period of time. It can't just be two or four years. It's got to be 10, 20, 30 years to get that capital investment. to make sense. When you put it all together, there are people, Torsten Schlock from Apollo, other, JP Morgan as well. They say if these policies stay in place, there are 60, 70, 80, Torsten's even 90 % chance of recession. What's your outlook? I'm not really operating with a base case right now.

15:14I think the cone of possibilities is so wide. When you say base case, that means you have no sort of odds on bet in what you think. I'm looking at scenarios. I'm trying to break the world into different scenarios of what could happen. If we see businesses really start taking the tariffs and start, it impacts their input costs and they have to raise prices significantly. If we see pricing going up a lot, but we don't see an impact on growth or labor, then that could be inflationary. But it could be, like one of my colleagues says, that the tariffs could be just a change in the price level and that it's not going to be persistent.

15:48And it could be that we see actual weakening in the labor force, weakening in growth, and that would require a different set of policies. And it could be that we have the two sides of our mandate in conflict, which is the most challenging for monetary policy. If we see higher inflation and lower employment, that's where things get really complicated. How long do you think it will take you to kind of suss out which one is the more important? Because my guess would be that you'll have someone in the Oval Office who is watching very closely when you all meet next month to see what happens. Is it crazy to think that it's too soon?

16:21Or is it crazy to think that that decision could be made by that point, that you will say, okay, we know enough about what's happening here? So I think it's too soon. I think we need to be patient. I think this is a time when we want to make sure we're moving in the right direction than moving too quickly in the wrong direction. And so I would rather take our time, make sure we're looking at the data. The hard data that we've come into this quarter with are actually really good. You've got unemployment right around 4.2%. That's right around full employment. Inflation is continuing to come down right around 2.5 % on PCE.

16:51So we've seen good things in the hard data. The soft data is more concerning. A lot of the surveys have shown more worrisome, more struggling with exactly what things are going to mean. We're seeing that in the Beige Book that came out yesterday. You're hearing a lot of focus on tariffs and uncertainty. And so to me, this is a good moment for us to take our time and make sure we're moving in the right direction. You've seen that this is not a Fed that's afraid of moving quickly if we need to move quickly. And so if we have clear and convincing evidence by June, July, September. But afraid to move preemptively.

17:22That's the thing. And I know how hard it is, but saying I want to wait and see. Let's say the tariffs and we've seen when the market stock market acts a certain way. It seems like the tariffs are become less certain that they're going to be here for a long time. So on the one hand, you say that you might not get to the second derivative. It might be a one shot deal. we might not even get the one-shot deal. We might not even get that. But we do seem to have a lot of uncertainty. I think I can already say I think the risk has shifted much more to a growth risk than inflation. We had some really soft inflation numbers already.

17:58If you really want to be preemptive and be the greatest Fed in history to actually anticipate something instead of reacting to it, you would cut soon. Did I convince you? You're going to vote for it. I'm not voting this year, so it's an easy year for me. Next year. Next year. Next year we're voting again. Look, I think the Fed has proven that it can be preemptive and it will be preemptive when it's clear what the right action. When did they prove that? In 2020. I think in 2020, when you saw the onset of the pandemic. Oh, OK. When you saw the onset of the pandemic. Stay too long. Perhaps that that is a viewpoint.

18:30But I think when it's clear which way the economy is going, that's a good moment for the Fed. So what would be the flashing red signals? What would you look to? Is it the stock market? or what are the indicators that you watch most closely to think, okay, here's telling me what the real heartbeat of the country is? Yeah, it's really in the real data. I mean, the stock market, I grew up in the market, so I pay attention to the markets, but I pay attention to the markets now because of what the impact they're going to have on individuals and businesses and those signals that they're going to take.

18:56So as a policymaker, it's really more about how do the markets impact the real economy rather than the markets themselves. So what real economic numbers are it? The hard data that you're watching, What's one or two or three numbers that would be the most flashing signs? I mean, unemployment we look at, the PCE numbers, the CPI. I mean, all the big indicators are ones that we look at. But those take a while. Those take a while. You can look at other things like shipments that are coming in that are kind of faster, more real-time indicators. There are a few of those that we can try to track. One of the things I know that you watch are what's happening inside the financial plumbing.

19:27And that was one of the things that I guess that's how I first got to know you, was in the middle of the great financial crisis as you stewarded Goldman through some of their – that craziness. What did the last couple weeks look like to you? So again, I'm a policymaker. I'm not a market participant, but I did have a number of conversations. You know, my staff and I, we try to reach out. There were things we couldn't help from looking at at the time. Yeah, I mean. How did it look? Did it look like there were issues out there in terms of the plumbing? Were things clearing in a way that were not clearing in a way that made you nervous?

19:59It looked like there was a lot of volatility in the markets. And anytime you have a lot of volatility, position sizes need to come down. Because if you have a position of this size with this kind of volatility, when you have this kind of volatility, all of a sudden the risk that's in that position is so much greater. And so you need to adjust your position. So again, not a market participant, but from what I saw at the time, what was happening was people trying to reduce their positions, trying to pare things back to get to a more reasonable level, given the volatility in the market. And things were moving, things were transferring.

20:28And that's what you want to see in a healthy market, is you want to see that risk transfer can happen. And I think we did see that. I think it felt, you know, it felt like a big shift from where it had been a few weeks before. But I think in line with the level of volatility we were seeing, that was that was solid. Some people are still arguing we're restrictive, some pretty well thought of people based on where the two year is. I used to think we were restrictive and then we'd get a Friday jobs report. And it's like, oh, my God, it is just the little engine that could. We are a very resilient economy.

21:01Is it still like that, do you think, that all this hand-wringing with growth worries, every first Friday of the month, we're going to say, not yet, not yet. And then we wouldn't be too restrictive. We'd probably be just right. Again, this is why I'm thinking in scenarios rather than a base case, because I think there are a lot of different ways that we can go from here. One of the things that we hear about the labor market from people that we talk to in the districts is there is this hangover from the pandemic where businesses really don't want to let their employees go because they were so hard to find.

21:31It took them so long to train them and develop them that they are really holding on to them as much as they can. And that may help support the labor market as we're moving forward. When you think about having the clarity you need to make a decision on policy, today was a really good example. You had this massive surge in aircraft parts. It was up like 139%, which tells you this month's data is not telling you what's happening in the economy. Next month's data will probably be a snapback from that. But thinking through the inflation numbers, we haven't really seen it show up, any tariffs show up in the inflation numbers yet.

22:08They may not. The market is priced for a June rate cut. Do you feel like you could have the clarity on the inflation outlook in June to make a decision? I think we'll be watching the data carefully, and I enter every meeting with an open mind about whether it's a time that we should be continuing to be patient or a time that we should take action. And so if we have clear and convincing data by June, then I think you'll see the committee move if we know which way is the right way to move at that point in time. I like you. I like how you answer your questions. I like how you're coming at this. You don't have a set perspective.