Hikes on the Horizon, Diesel Distress and Remembering September 11 9/11/26

0:00Who's ready for a bike ride? Peppa Pig is learning to ride her bike. First, pop on her helmet. Safety first. Then, attach the push stick and give her bike a push. And watch Peppa paddle. Her legs go round and round as the wheels turn. With more than 75 sounds and phrases, every ride is a big adventure. Peppa Pig Ready Paddle Go. Available at all major retailers now. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S.

0:43and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.

1:02Thank you very much, Scott. Stocks are trying to make some gains this Friday, even as yields move up again. I'm Kelly Evans, and welcome to The Exchange. Markets are climbing a wall of worry today, rising in the face of sticky core CPI. That's putting odds of a rate hike next week up to 85%. It has the two-year Treasury hitting multi-year highs, about 465 earlier, 462 last check. The 10-year was lower on this session, but is now ticking up to 4.95%. Keep an eye on that. Oil still lower today, despite some troubling developments in the Middle East in the past 24 hours. We'll talk to Jonathan Panikoff of the Atlantic Council about that, as gasoline prices hit 4.29 nationwide today.

1:42Plus, remembering 9-11. Peter Tuchman joins us from the floor of the New York Stock Exchange, where he was working that day to share his reflections. But let's begin with today's economic reports. CPI was a touch firmer than expected on the core, and the preliminary September consumer sentiment report was pretty awful, falling four points back to near record lows, with inflation expectations hitting 4.6 % next year and still 3.4 % for the medium term. Michael Firoli is the chief U.S. economist at JPMorgan. He joins us for our opening exchange today. Mike, it's good to see you. And you just, like an hour ago, you just upped your forecast to two hikes this year.

2:19Is that right? Yeah, I think next after today's this morning's CPI report next week seems pretty likely that we're going to get a hike given given some pretty hawkish rhetoric we got over the last few weeks. I think not hiking would be risk some credibility issues. Again, I don't think it's a done deal, but I think it's certainly more likely than not. Is that because you say, as some others have, that Warsh would kind of look silly if he didn't hike, given his comments in Jackson Hole? Or is that because you think that we really should hike? Because I'm curious if you share the view. I'm a little concerned that, you know, hiking into an oil price shock could end up making things worse.

2:59Yeah, that's right. But we have a pretty stable labor market. So we've had an oil price shock also in the spring. The economy seemed to get along quite well. So we're undergoing another second oil shock now. But as I said, we've seen pretty good resilience in overall growth. And, you know, I wouldn't say this is necessarily the beginning of a long extended hiking cycle. So if it ends up being too much for the economy to handle, which I doubt there is no commitment to continue hiking after after next week. That's the big debate now, as you probably know, is how many hikes, not just will they or won't they.

3:35Even though there are some on the street like Tom Simons and Jeffrey says this report could go either way. It's not a slam dunk for a hike. It's not a slam dunk for those who say there's no inflationary pressures either. But with now prediction markets and everybody else moving to how many hikes and you guys are at two. But how much should we extrapolate? Yeah. So first of all, I'd agree it's not a slam dunk. And you can read this report in different ways. You can, of course, strip out different things and it doesn't look so bad. But the reality is you're looking at core PCE likely, you know, running at three point three percent.

4:06That's decently above the Fed's target. How many more after this then, I think, is the big question. We only have one more in December, and that's partly because we think most of the inflation we're seeing right now is due to the supply shocks we've been experiencing, namely tariffs and the energy price shocks. So we don't think this is demand-driven inflation that requires the Fed to really lean against growth in a big way. But I do think they need to burnish their credibility on fighting inflation at the risk that inflation expectations could come unanchored, which they haven't really. But as you mentioned in your rundown of the Michigan report, inflation expectations are a little bit on the high side of where you'd like to see them.

4:47So I think a hike or two would probably help to restore some credibility there or maintain credibility. That Friday morning report, I think, which is when we get both the preliminary and the two weeks later, the final consumer sentiment. We often get that preliminary mid-month one right before a Fed rate hike. And if you go back to when they started hiking in 2022 in June, that 75 basis point hike that had come on the heels, not just of a hot CPI number, but also a jump in inflation expectations and that consumer sentiment report. So I do think the Fed looks at these most recent data points is going to look at the jump in one year expectations and go, you know, maybe we should do something here.

5:21But we had Michael Falkander on the show a couple of days ago, you know, former Treasury official. And he said he thought the people were misreading what Warsh was trying to signal at Jackson Hole and that he was still he might express his hawkishness. Falkander was saying through the balance sheet, which we've heard very, very little about. And we've asked the question on the show the last couple of days. A lot of experts disagree. Is it possible that we could be surprised if Warsh comes out and says, yes, I was hawkish, but I'm going to do something with the balance sheet in order to express that point of view.

5:52I would be very surprised. Now, Worsh kind of toyed with that idea in the press conference after the June and July meetings. But then I thought at Jackson Hole, he kind of came back to the orthodoxy of saying, you know, the primary tool we have for macro stability is the Fed funds rate. And I don't think you could get the committee to go along with, you know, that's a committee decision, of course. And I strongly doubt you get the committee to go along with a big change in balance sheet policy as soon as next week. What would a change in the balance sheet look like? Just hypothetically speaking, I mean, would we be talking about selling?

6:27Where are we on that whole issue right now? Yeah. So Warsh has in the past talked about having a smaller Fed balance sheet. But to reduce the asset side of the Fed balance sheet, you need to reduce the liability side. And the primary liability that has some flexibility here is bank reserves. And bank demand for reserves isn't going to change until you change bank regulations. And that takes time. So I don't think we're talking about a 26 or probably even a 27 story. This might be something for like 28 or beyond. Yeah. And maybe it will come back after the task forces and everything else. So that's part of that review.

7:01Finally, then, Mike, how do you kind of talk about these fuel prices? We've been having debates about this literally going back to 2008 when oil spiked to 140 a barrel then, which is probably over 200 in today's terms. And it was at the same time that the economy was slowing. And the question was, should the Fed be hiking in response to that or in some ways, easing the blow, you know, accommodating that. So what is the fuel price impact having today, you think? And how should the Fed respond to it? Yeah, I think the traditional reasoning is that as long as inflation expectations are anchored, you can address the adverse growth effects.

7:38But right now, inflation expectations, as I said, they're not out of control, but they are a little bit on the high side of where you'd like to see them. So I do think the Fed can't just ignore the high inflation aspect of higher fuel prices, even if you're willing to look past the headline and just focus on the core. I still think there are reasons that the Fed may be a little bit leery here about the inflation effects, both on psychology and on second round effects into core prices. All right, Mike, thanks for making the time. Good to see you today. Appreciate it. Michael Ferroli with J.P. Morgan.

8:12Let's get more now on the price of oil, which is actually falling today, about two and a half percent, although back to 100 a barrel, kind of as you can see on the screen there. It's still lower. But we've had a lot of escalatory headlines coming out of the Middle East. Iran-aligned Houthis in Yemen overnight, further seizing the Red Sea coastline with the capture of the strategic island of Parham, also attacking Saudi Arabia's east-west pipeline. Iran is reportedly now planning a meeting with Iraq and other regional countries to discuss shipping safety. This all has diesel prices topping$6 a gallon for the first time ever,$6.06, according to AAA today.

8:46Let's bring in Jonathan Panikoff. He is director of the Atlantic Council Scowcroft Middle East Security Initiative. Jonathan, it's great to see you. And what do the events of the last 24 hours tell you? Great to be back with you. Look, I think where we are right now is once again just this state of frustration and confusion. especially for allies in the Gulf, right? There's going to be this meeting on Monday with foreign ministers, with the Iranians, probably reflecting the fact that right now they've got less confidence in U.S. security guarantees than maybe ever. The fact that it sounds like Saudi Crown Prince MBS went to Trump to ask for support in striking the Houthis.

9:26It sounds like President Trump declined that. And so right now you've got a lot of the Gulf states just looking for an exit ramp, At least something that's going to be sustainable for a little while as pressure is increasing, as you said, with the Houthi takeover of Parham, of Mocha and strikes against the East-West pipeline. What do you make of that, kind of the president's choice not to respond to anything that they were asking for yet? And why do you think that oil prices are down despite all of this? And I know it's a tough question. They are quite demand sensitive day to day. But we might have thought after the latest round that we'd be up another five bucks per barrel today.

10:05Yeah, look, we may get there by next week, depending on how things go. I think there's a couple of reasons. I think the fact that you're seeing from the Gulf states themselves an effort, at least implicitly for detente, is probably playing into this. I also think the fact that right now you're still not seeing demand nearly as high as you would, let's say, towards the winter. Chinese demand hasn't fully come back online. There's still some breaks, I think. I think there's going to be a question on how long this lasts, especially as we get further into the fall. U.S. ending, let's say, SBR releases, Chinese demand coming back online, European reserves wanting to be filled, I think could all put a lot more pressure on, especially if you're seeing pipelines struck, You don't have better resolution between Iran and the Gulf states of how to get, frankly, the street open in a more strategic and long term manner, not just kind of the one or two offs that we're seeing make it through.

11:05How much more damage could the Houthis do? And should the president consider striking them as part of his intent to keep the Iran war going, at least until some kind of outcome that he sees as satisfactory? If the idea is to bleed the economy until the point at which they come back to the negotiating table, how is the Houthi, what the Houthis are now doing, how does that complicate? Or what does that tell us about the progress that this sort of his strategic approach is having? Yeah, so the Houthis themselves have their own political agenda, right? We've seen them actually stay out of the conflict for quite a while, really quite desperately to not be involved, in part because they want to have legitimacy.

11:47They want to have some recognition of a political agenda and be a real actor in Yemen long term. And they recognize that simply being responsive to the Iranians is not going to traditionally play in their favor. But at the same time, they are the ones, it is the Iranians who are providing the Houthis with their weapons, historically, with their bigger arms. The Houthis can do significant damage if they want. They certainly have drone capabilities like the Iranians. They certainly still have some ballistic missile capabilities. The question is whether or not they will. Because of their own internal breaks, I think what you may see from the Houthis is some escalation and then a retreat.

12:27And then if things continue to go poorly, you could see them once again come back into the fight. I think they're trying to balance between not wanting to really tick the Saudis off so much that it ends long term, the chances for a political settlement, while also being responsive to the Iranians who are frustrated that the Houthis haven't done more. And look, for President Trump, it's really a question. What he's done right now is, frankly, play into the narrative more that the U.S. is not a reliable security partner, is not a reliable ally for the Gulf states, that once again, they have a priority, they need the U.S.

13:03support, and it hasn't been delivered. On the other hand, by keeping the U.S. out of this one, it is worth remembering that the U.S. had a coalition, was fighting the Houthis, backed out under President Trump last year. And frankly, we've avoided Houthi strikes since then. So a lot of factors at play kind of all pulling in different directions at once. A final question on that. We often in the past when the Houthis were involved with bigger attacks would say that they were Iran backed and Iran funded. But if Iran's funding is running dry, how much, first of all, is it? Are we sure that that's happening?

13:37And if so, how much longer can the Houthis sustain any kind of attacks? So the Houthis certainly have some inventory that they want to ensure lasts for quite a while in case they are attacked. I think on the funding side, look, it is a little bit of a black box. It's worth remembering, though, that the Iranians will largely prioritize their own regime survival above anything else, certainly above the domestic population's welfare. For them, if they believe that the Houthis are a meaningful tool to ensure that regime survival, they will find a way to funnel money to them. How much, though, I think is a really important and open question.

14:14We just don't have the great details on that yet. All right. Jonathan, thanks for now. Appreciate it. Thank you. Jonathan Panikoff with the Atlantic Council. Coming up, should the Fed look through the latest inflation shock? We'll debate that and how the stock market might react to various scenarios. scenarios we could hear from them next week. But first, Sam Altman reportedly telling OpenAI employees that the company is open to slowing development of its AI systems. But will they do that as they race toward an IPO? We'll check back in with safety researcher Sidney Van Arx as the president addresses the AI security issues late last night.

14:49Do you have any concerns about AI leading to human extinction? No, I don't have any. I have concerns that if we don't win AI, we're going to be put in a very bad position. We are leading China right now by a pretty good period. I would say a year, which is considered a lot.

15:18Who's ready for a bike ride? Peppa Pig is learning to ride her bike. First, pop on her helmet. Safety first. Then attach the push stick and give her bike a push. And watch Peppa paddle. Her legs go round and round as the wheels turn. With more than 75 sounds and phrases, every ride is a big adventure. Peppa Pig Ready Paddle Go. Available at all major retailers now. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S.

16:00and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. lucky land casino imagine signing up and finding your welcome surprise already waiting spin free with gold coins or collect sweep coins plus daily login delight sign up now let the magic talk lucky land casino where the magic happens no purchase necessary vgw group void where prohibited by law ctnc's 21 plus welcome back sam altman reacting to aic safety concerns by reportedly telling staff and an all-hands meeting that OpenAI is considering slowing down AI developments.

16:53Now, this comes as we've seen a wave of warnings around the technology just this week. Kate Rooney has more in today's Tech Check. Kate? Hi, Kelly. Yeah, so there is this growing divide right now in Silicon Valley over AI, doomsday fears, and how to react to all of the alarm bells we've heard from researchers this week. Let's start with that news from OpenAI, though. CEO Sam Altman reportedly telling staff this week that the company could potentially slow down AI development and possibly with other AI labs. But according to this report, he did warn that some might not agree to that. Bloomberg with this report and no comment from OpenAI.

17:28But Altman's comments from that report do align with what we have heard from others at OpenAI this week. One of their top researchers put out an essay earlier in the week called The Alien Mind and warned about something called alignment and keeping humans in the loop. And all of this, it does come amid a wave, as I mentioned, of major warnings in the industry from inside Anthropic. Researchers there talking about the risk of something catastrophic happening, human extinction to be exact. Brad Gerstner was on Halftime Report last hour. He pushed back extremely hard on that rhetoric. I've not talked to a single person in AI who says, full steam ahead, disregard safety.

18:07It turns out we all care about kids. We all care about the future of the country. We know the massive benefits it offers, but we also want to take the extra time to make sure that we do this safely. So Gerstner clearly in the camp of pushing back on that. And he does agree there with other AI leaders we've heard from this week. Gary Tan, we spoke about yesterday, talked to him at YC, Y Combinator Demo Day, I should say. And we also heard from Jensen Wong, the CEO of NVIDIA, at Goldman's conference. And Kelly, you are just seeing different camps here and a disagreement on how to react to what we're hearing.

18:42Also, I think questions about who the people are raising alarm. And you can see the public trying to differentiate between those who look like they have a political agenda or kind of maybe went into these companies with an eye towards what they were going to say about it. And others who have been there for years or still work there and are trying to kind of point us in different directions. I think that has been the pushback on this researcher in particular who was not there for that long at all, but has worked at OpenAI as well. You had other anthropic researchers chiming in. I talked to a bunch of people about this this week.

19:15One investor told me this week, I was asking, you know, this topic has been around for a long time. There have been people talking about catastrophic risk when we covered the Elon Musk trial. He was on the stand talking about terminator level risk. So it is not new, but what has changed dramatically in the last couple of months here is the capability of this technology. And from what I'm hearing, and these are people that talk to researchers constantly, they're saying there's been this awakening of saying, oh, man, OK, the technology is getting to this point faster than we may be expected. And that is causing some of the knee-jerk reaction and alarm bells from inside of the companies.

19:50And there is a real agreement among people that there is a risk. But I think the pushback from Gerstner, from Gary Tan, is let's think about something productive. How can we stop this? How can we actually make sure that this is used and harnessed in a healthy way, in a productive way, and not overblowing the risk? And so it's very much a tightrope for these guys. All right, Kate, thank you very much for now. Kate Rooney. Joining us once again this week is Sydney Von Arx. She is the CEO of Nightingale. Her company first discovered hacking activity of earlier open AI models over the summer. Sydney, welcome back.

20:22It's good to see you again. Yes, it's good to be back. So I want to just go over what we know about what these agents are up to. With the clarification right off the top, I don't think agents have developed their own kind of mission here. I think they're just following orders. What's incredible is the way that you guys are able to track how good they are, how creative, how inventive they are at following these orders. So to give some examples, and I think it's fascinating that you say you're afraid to even talk about the tricks that agents are using. because if the AI companies learn about them, you're worried the tricks will stop working.

20:56Those are the tricks that you're using to kind of find out what they're doing on the Internet. So how do you find, to the extent that you feel comfortable disclosing it, how do you find out what rogue AI agent swarms might be doing these days on the Internet? Well, there's lots of different methods you can use. One thing is you can just try to search basically every website, right? People scrape or save all the websites, and then you go through and you have a program, and it looks at them and it funnels them down and it tries to see which websites might have rogue agent activity. Another thing you can do is you can take these AIs and put them in situations like, oh, you've just escaped from your sandbox.

21:33Where do you go? And you can watch what they do. And then you can also think, you know, if you were an AI, what would you want to access? What constraints would you be under? And sort of work backwards from there to generate some hypotheses about where to look. When regulators are trying to figure out how they should, to the president's kind of comments we played a few moments ago, he says we're about a year ahead of China. So nobody wants to lose that lead, but they want to make sure that certain safety practices around hacking and so forth might be in place, especially as open source models might get out there and people can do more nefarious things with them.

22:06What would you recommend? What are some things you could build into? Or do you think that when Sam Altman talks about slowing down the work of OpenAI, do you take that at face value? That's a lot of different questions. So first, I think, you know, it is important that the U.S. maintain a lead in AI. But one of the ways to maintain that lead is to invest in safety and security. I mean, the weights of these models, these AIs that people develop, right, it would be very easy for China to literally steal them right now, unless they take the time to secure the models themselves. I think that the AIs are also, you know, no one wants an AI that's going to hack you all the time.

22:45That's not what we're trying to build. We're trying to build a safe AI. And so I think there's a little bit of a false dichotomy there. And then do I take what Sam Altman says at face value? I'm not trying to take it at face value. I do think, you know, he has concerns. He's expressed concerns for a long time. And I think those concerns are genuine. I'm not sure he's actually going to do everything he could to pace or slow down. I think he's feeling a lot of pressure probably to start talking about that because there's a lot of bottom-up pressure at these companies. Are there certain guardrails that you think could be part of the AI development process or no?

23:24Yes, of course. There are many different guardrails. Some of them would be very easy and very cheap and we could implement today, but we aren't. What would be some examples? So one is monitoring what these AIs are doing. I think that if you just had another AI system sort of reading over what the AIs that are being trained and evaluated are doing, then you could easily catch things like the hugging face hack or these German wiki incidents. And I think they just don't have the systems in place to be doing that reliably for whatever reason. OpenAI did allow kind of safety researchers to look over the logs of, I think, the hugging face incident, things like that.

24:03But again, that underscores the fact that that was a choice that they made. What's interesting as well is now a lot of these labs are not necessarily releasing their latest most powerful models. They're, you know, look at the way that the latest version over at OpenAI was used to crack that mathematical problem. I don't know if that's a positive or not. I mean, should the models be out there so that they can be monitored to your point? and we can develop ways to kind of respond to that as opposed to just inside these labs where these are very powerful tools now that are fully under their control.

24:39At the very least, information about them should be out there. I also think it'd be great if the models themselves were out there. I'm very scared of these AI companies having very powerful, potentially very dangerous models without safeguards that no one even knows exists, let alone knows anything about. Right, and I guess my last question would be, is there anything that can differentiate the training process from what happens when these are released into the public? Because it'd be hard to say, train one way, but then, ah, we'll restrain you when you get it. You know, I'm not sure if that would ever work, but it is the very training of it that, you know, as you guys have found out, they bypass their sandbox, they try to crack the random number generator, they use the ZZ technique to forestall detection, they experiment with whether they would be shut off immediately after answering their final question.

25:23So when people worry about the sort of computers not being able to be trained, it's because they can figure out ways to avoid their overseers intervening to stop the goal that they're trying to achieve. So I don't know if we get closer and closer to that, if that becomes a bigger concern. Yeah. So I think that there are, it's possible that when AIs are deployed in the real world, they might behave somewhat differently than in training. We don't know how they behave differently. But you're right that, you know, when they're trained, there's always some objective that they're aiming towards. And in the real world, there's not they're never going to get reinforced.

25:57They're never going to get rewarded. There's no task exactly. And so that doesn't mean that they're going to be safer in the real world. It does mean it's just very hard to predict what these systems will do. And people have lots of tests and evaluations, but they're very nascent and they're far from perfect. And that's ironic that it might be that trying to achieve a training goal is more motivating to them than maybe than what happens when they get out there in the real world. There's a lot still to learn about it for sure, though. Sydney, thanks so much. Appreciate checking back in with you.

26:25Sydney Von Marks of Nightingale. And don't miss our interview with the former Google DeepMind researcher next hour on Power Lunch. Alex Turner worked on AI safety at Google but left back in June. We'll talk to him around 2 p.m. Eastern. Coming up, Kroger cutting its sales outlook, saying lower - and middle-income consumers are under pressure, but there's a massive under-the-radar grocery headwind facing them as well. We'll tell you what it is next.

26:54Who's ready for a bike ride? Peppa Pig is learning to ride her bike. First, pop on her helmet. Safety first. Then attach the push stick and give her bike a push. And watch Peppa paddle. Her legs go round and round as the wheels turn. With more than 75 sounds and phrases, every ride is a big adventure. Peppa Pig Ready Paddle Go. Available at all major retailers now. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S.

27:36and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts. Computers are getting smarter, Silicon Valley's getting weirder, and AI is taking over. At least that's what everyone keeps telling us. Welcome to Machine Gods, a new NPR podcast that will be your field guide to the AI-powered future. We're veteran tech journalists with front row seats to the industry, and twice a week we'll make sure you get smarter about AI so you know what's real, what's hype, and what might come next.

28:15Listen to Machine Gods from NPR on the NPR app or wherever you get your podcasts.

28:24That was hanging on to a 600-point gain. Let's get to Frank Holland for the CNBC News update. Hi, Frank. Good afternoon, Kelly. The White House is reportedly weighing how to use the Defense Production Act to expand U.S. oil refining capacity. That's according to Reuters, which notes that act has never been used to add refining capacity. Refiners reportedly told the White House that federal money could be best directed towards making refineries more efficient or by expanding existing plants. No final decision has been made. Newsom signed digital safety bills into law late yesterday. They include a controversial measure that bans social media companies from offering addictive features such as infinite scroll and autoplay on their platforms to users under 16 years old.

29:05Also, penalties up to$1 million per child if found negligent. The law is the first of its kind in the U.S. And a moving tribute to 9-11 in Midtown Manhattan today. The city's Bryant Park lined up 2 ,753 empty chairs, representing the total number of people who died at the Twin Towers. Those chairs were arranged facing south towards Ground Zero. Visitors were invited to place a flower or leave a note of remembrance. Kelly, back over to you. All right, Frank, thank you very much. Joining us now with his September 11th experience is Peter Tuchman, senior floor trader at Trademoss Securities. He's worked on the floor of the New York Stock Exchange for 41 years and was walking from the subway to work when the first plane hit the North Tower 25 years ago.

29:50Peter, it's good to see you. I know I haven't been down there in a while, but this is the moment for us to look back. And you started on the floor in the late 80s, I guess. So you'd already been there for some time. What was it like that day? You know, look, getting out of the subway, I had no idea what was going on. And as I sort of approached the exchange, you could see there was already sort of almost like ash was falling out of the sky and there was already a bit of debris around. And as we got closer to the stock exchange, you could see that our security back then, you know, now we have all this experience square around the exchange where nobody can actually be.

30:27But back then they were actually driving streets. And as I got closer to the exchange, the security pulled me in as they were actually locking down the building. And we sort of were rushed into the building. And still, we didn't really understand what was going on. A number of people went back out to the building like Richard Drew, who ended up getting that incredible famous shot called Falling Man. And a number of clerks walked out, not understanding the insanity that was about to unfold. And we sort of hovered over our telephones to sort of call our family members to tell them that we were okay as sort of the story unfolded.

31:01And, you know, I worked at a company called Robert Corley securities. And one of our clerks named Angel Pabon, his father, his name was Chicky Pabon, worked at Kenner Fitzgerald. And he called us just as that first plane hit and said that we were told we're going to be taken to the roof and evacuated from there. And then the phone went dead and he was never heard from again. And so the next three hours sort of unfolded as we watched TV, tried to speak to our loved ones and understand really what was going on. And nobody did. When did you get home that day? So I was evacuated from the exchange at 1148.

31:36A number of New York City police came up the stairs. I was actually trading in 30 Broad, which is one of the expanded rooms. Back then, the exchange had five different rooms, right? Main room, blue room and whatnot. So it was sort of the height of the largest footprint that the NYSE had at that time. They came up the stairs and they said, we're not really clear whether security is prepared for this. Why don't you wrap your shirts around your face, soak them in water, and follow us? And about eight of us left the exchange as we walked outside at 1148. It was pitch black. We could not even see our hands in front of our faces.

32:11And we walked for eight blocks down to the Staten Island Ferry in thick three-foot ash, almost as if you were walking through a snowstorm, arm-in-arm, sort of walking in the middle of the street as we got before. It was probably eight or nine blocks before we saw any kind of sunlight. And when we got down there, you could see people that were jumping on the west side. They were jumping into the Hudson just out of fear. They didn't understand what was going on. People already on the east side were jumping onto boats to go to Brooklyn. And we ended up walking up the FDR for a little while. And then I sort of got a little bit paranoid that, you know, maybe if this is an attack, that they were going to bomb the highways.

32:47And so we crawled down from the FDR into Little Italy and ended up going into a small cafe that was owned by one of the guys I was with. And we sat there and sort of got sort of a semblance of sanity for a moment. I ended up walking all the way home, which was another 120 blocks. I got home at 530 in the afternoon. But the walk from the exchange through FDR by St. Vincent's Hospital, where there were bodies on tables doing triage. They had been brought by ambulances from Ground Zero, which wasn't then. And then we went to the next stop we stopped in was Penn Station. and people were all gathering around with radios.

33:27You know, this was pre-cell phone, if my memory serves me well. And people were just talking to each other, trying to understand really what had happened. We tried to get some kind of transportation to go uptown, but there was nothing. Taxis weren't picking people up. And I ended up walking all the way to 91st Street and then to 101st where I lived. So it was a full-day experience. When did you get back? And, you know, what were the days after, like, before the reopening and before there was the sense of, like you said, OK, whatever that was, it's over for now. And how do we pick up the pieces and move on amidst all of this remaining uncertainty?

34:06So, you know, obviously the days following that, it was a week before we ended up coming back to the stock exchange. Richie Grasso, who was here this morning and he was ringing the bell, was the head of the stock exchange at the time. And he worked with Mayor Giuliani, who was mayor at the time, really hard to get the exchange open. You know, it was a it was a show of force, show of resilience, you know, that the Stock Exchange is famous for, that New York City is famous for and everybody who works here. You know, that human element, which I talk about all the time, was extraordinary. Back then, we had a much bigger footprint as far as the human element on the floor.

34:39We were always in touch with each other throughout that week. And by the time we came back to work the following Monday, the city was still so shaken. You know, we were people were afraid to get on subways. I remember getting on the subway and feeling uncomfortable and getting off and walking. You couldn't get below 14th Street on any kind of mass transportation. So we'd have to get off there and walk from 14th Street to the Exchange. And you literally were walking through a war zone. You know, there was still just, you know, half cars burnt and, you know, thick dust and everything. That went on for years, really.

35:12I mean, you know, we tried to get back to the exchange. We opened it up. That was a big deal just to show the world, show everyone in the U.S., show the investment community, the resilience of New York and the traders and the New York Stock Exchange. And that was a big show of force and spirit, which was, I remember it. You know, you know the feeling. You worked here for many years with us. You know, I showed up in 2007. It was incredible. The Wall Street Journal at the time was still right next door, And which is why so many employees there were directly involved. And it was a day that you almost still couldn't talk about it.

35:44And six years later, and the site was still, it was a smoking, vast pit. I mean, it was, I'm walking over scaffolding. This is six years later, walking over scaffolding to get, just to get to the office every day. Yeah. It was easily 10 years or even more. Yeah. To be perfectly honest, although they've done an amazing job rebuilding the Fai Dai, You know, there's still little nooks and crannies of streets in this lower Manhattan where you just can see the remnants of a store that never reopened, you know, windows and doors that are still smashed and broken. You know, and literally 10, 15, 20 years, amazing, before we sort of got any kind of a real semblance.

36:24You know, it had that kind of an effect on New York City, on lower Manhattan for sure. Not on us, though. We went back to work. And, you know, I know we were told that the air was good. You know, you could smell sulfur in the air for easily a year and change. You know, I remember the suit that I wore that day. I mean, you know, I sort of kept it because it just seemed like something that was something I wanted to remember or or, you know, just sort of trying to get over the shock. You know, it was deeply traumatic for all of us, you know, and that that those probably a half an hour or so from the exchange at 1147 that morning, you know, with the New York City police officer.

37:02in that pitch black was so devastating and so traumatic. You know, we've lost a number of, we've lost 50, I think, plus brokers from the floor from cancers related to 9-11. And so, you know, that it still is imprinted on all of our minds. I think that's so well said. And Peter, thanks for joining us to relive it. I know it's tough and it's important to do. The resilience of New York Stock Exchange is unmatched around the world. You know that. I do. Peter Tuchman of Trademoth Securities. We'll be right back.

37:45Welcome back to The Exchange. Stocks are showing some resilience today amid higher Treasury yields and rising expectations for Fed rate hikes next week and in December. Let's bring in Daryl Kronk. He's the CIO for Wealth and Investment Management over at Wells Fargo. It's good to see you again, Daryl. Do we read a lot into today's trading action or is it just kind of a counter trend end of the week here? Well, I mean, I thought too much candidly emphasis was placed on this morning's CPI data. I know it was important, but if we've had two rate hikes in our forecast for probably three months now.

38:18And if you look at the data, right, the yield curve on the two year is at 460. That's 100 basis points above where the Fed's policy rate is today. So the yield curve is telling you policy is too easy. If you look at the inflation data, you know, you add PPI yesterday, CPI today, you know, the core PC is about 3.3 percent, still way above where the Fed wants to be. Policy is too easy. And interestingly, like, look at nominal growth. Most conservative estimates for last quarter were 6 % to 8%. That's almost 300 basis points above the policy rate. So that's telling you policy is too easy. So the Fed needs to hike rates.

38:54And I think markets knew that. The bond market certainly knew it. And I think equities are taking it in stride, quite frankly. Yeah, the stock market, again, I mean, you have strong gains today in spite of that. You have 10-year now kind of going, the yield going up on the session. Obviously, the developments in the Middle East. I just want to go back to what you said, which is that, you know, kind of the Treasury is trading above the Fed funds rate is telling the Fed they need to hike. Is that definitely true that that's the only way to explain, you know, yields being at those levels? Well, I wouldn't say it's the only way.

39:24I mean, let's think about it. Like the two year is what should happen with basically near term or policy rates, calm risk free rates over the next 24 months. But being 100 basis points above the Fed funds current rate is telling you that's why you that's why next week is a given. The question isn't you raised it earlier, which is a great point. It isn't about what happens next week. In fact, the surprise function would now be if the Fed maintains a hold next week and doesn't go. The question is what happens in October and what happens in December and then what happens, of course, in Q1. It's very unusual for the Fed to do one symbolic rate hike.

40:00So I think once you get the governors there and you start down this path, it actually probably has at least two, which is our base case. And the market's starting to price in three or the unwinding of the three cuts from last year. Ironically for equities, if you go back in history, when the Fed increases interest rates, the first rate hike doesn't derail equities. It's usually the second, third, fourth in the queue that starts to really grind on equities and give them indigestion. That's exactly why people are now focusing on how many there might be. So what's your answer? Look into your crystal ball.

40:34And do you think that the Fed chair Warsh, how is his reluctance to kind of give us that crystal ball, which, again, I appreciate nobody knows the future. How much does that matter in terms of how markets are going to try to discount what the Fed will ultimately end up doing? Yeah, I mean, many before me on your show have already talked about the credibility of the Fed. If they don't go next week, you can't stand in Jackson Hole and wave your hands in the air and pound the pulpit and say, you know, and give the market the impression you're hawkish. And then all the data sends out, whether it's oil prices, whether it's what we saw in the ISM number, whether it's a surprise in the nonfarm payroll number being better than expected.

41:10All those have been lead you down the path of you need to act and do something. If they don't do something, then I think the Fed has that credibility problem. I do think they need to continue to raise interest rates, right? I mean, so I think you've got probably two. And if we had to get on the fence and say two can't be the number, is it one or is it three? I would lean to three right now. Wow. We have to go. But I do. I always like to give people your actionable advice. You're underweight small caps. You're not a big fan. Kind of neutral on other markets than the U.S. You like large cap U.S.

41:41You like commodities. You're overweight there. You like materials? Anything else you'd throw out there? So beyond equities, we've liked commodities for probably the better part of a year. Carnian accepts 32 percent year to date, so been one of the best trades on the board. And we've been unfavorable long duration fixed income now for basically nine months, which has been exactly the right place to be, overweight, short term, unfavorable long term. So those have really been accretive to the portfolio. I think the question is, when do you start to pivot on the fixed income conversation? And is that at 6 percent for you on the 10-year?

42:12Where would that be? I think that might be a little aggressive, but I think north of five and a quarter or five and a half, I think that's where you start to see the risk reward premiums flip. All right. I'm like a school cafeteria. I'm lining up. I want to know. We heard six percent from Ryan Dietrich. You're saying five and a quarter, five and a half. So to the Treasury Secretary, I hope you're listening. Daryl Kronk, thanks very much from Wells Fargo today. Coming up, Kroger shares on the rise after stronger than expected earnings. But management is flagging some sales headwinds, including one from the Inflation Reduction Act.

42:41That's next when we come back. Welcome back. See a reversal in shares of Kroger there. They were falling initially after beating on the bottom line, but missing on the top line. Cutting their sales forecast, too, but reaffirming profit and earnings guidance. Brandon Gomez is here to break it down. Brandon, what did we learn from Kroger today? Hey, good afternoon, Kelly. That's right. Shares did rebound after management made clear weaker sales do not mean weaker profits. You hit the numbers already. Here's what was said on the call. Management said the cut to fiscal year sales reflects a pressured consumer who is making more trips to the store, but buying fewer items.

43:13higher fuel costs, softer confidence and reduced snap benefits, plus a 140 basis point hit from lower Medicare drug prices under the Inflation Reduction Act. Quite the list. CEO Greg Foran saying unit growth has slowed since the start of the year with customers who are buying more on need. He also addressed Cyclospora in the quarter as a temporary headwind that cost same store sales 35 basis points with lingering effects expected in the back half. But investors now focused on the offset. Kroger reaffirmed full year adjusted EPS guide of$5.10 to 5.30, maintained operating profit outlook. The company's CFO saying visibility into the same profit drivers that led Q2 will continue alongside well-managed margins and cost discipline going forward.

43:57Now, that confidence showing up in capital returns as well. Kroger raised its dividend to 11%, bought back$1 billion in stock during the quarter. So today's turnaround, less about sales improving. Competition is winning the battle right now. More about Kroger showing it's protecting earnings in a difficult grocery environment, Kelly. Good points. Brendan, thanks very much. Shares in the green, trying to stay that way. Brendan Gomez. Coming up, these shares are down more than 3 % so far this week, despite reporting first quarter revenue growth of 30%. Oh, that's the chart. We'll talk more about it next.

44:31Right for Oracle, the shares popping 7 % initially, but reversing course. They're now in the red. Their conservative guide overshadowing a triple digit increase in the cloud infrastructure business. And our next guest is staying long. Jeff Kilberg is the founder of KKM Financial and a CNBC contributor. Good to see you, Jeff. You can start there. Take it anywhere you want to go. So many great stocks to talk about this week. But Oracle is probably emblematic of appetite for the AI build out and a company that's seen as trying to make it into the big leagues. That's right, Kelly, and great to see you.

45:00And Oracle, sensational to see an awesome quarter. They beat on so many metrics. You saw their RPO, remaining performance obligations, that backlog grew by about$26 billion. And the fact of the matter is we saw 7.5%, 8 % pop this morning. And you saw a large option skew going into this print, Kelly, meaning there are a lot more calls than puts being bought. The calls are more expensive. So people had high expectations for this to move up to the$175 strike. As soon as you saw it kind of stall out at 164, 166, all those zero dated options covered and they slammed it back to even now down a little bit for the day.

45:34But I still believe in Oracle. We believe it's an essential name. If you think about how it is in every Fortune 500 company, it's so expensive to rip out. But they have the ability to also rent AI and compute. And I think the overarching theme is not necessarily the guidance. I think it's Sam Altman. Well, fair enough. I mean, you can expound on that and maybe throw Meta into the conversation, which you're also quite positive on. And look at the week they had. Yes. And I think you'll quickly wrap up Oracle. I think if open IA, Sam Altman, if all that kind of goes up in flames or down in a spiral fire, what you're going to eventually see is that someone else steps up for the compute.

46:10But if you look at Meta, a congruent line this year, another stock that's down about 16 percent from its all time high. But you've seen Meta bounce about one hundred dollars here. And this is all in the wake of their litigation. You continue to see their litigation. But what did they announce earlier this week? Muse, one of their AI agents to kind of combat Anthropic and some of the other folks that are putting out AI agents. But the question is, yes, we know their advertisement. They have four billion daily average users. So we know they can raise their ad prices. But will Muse pay off? They're about to spend 200 billion next year, Kelly, in their CapEx.

46:43And they're just just settled a 20 billion dollar loss settlement, if you will, even though they didn't admit they did anything wrong. Right. No, it's a huge, huge bet for them. Muse is a fun app to play around with. I just am reluctant to give access to the stuff I really wanted to do. I don't want to give it access to. I guess I'd put it that way. Put a button in the week in terms of the stock market, Jeff, with the rises that we've seen in the 10-year in oil prices. How are you thinking as you kind of look into next week Fed meeting and all? I see resiliency in the stock market. The fact that we're up today in the face of a 4.95, 10-year, I know crude oil has come off a couple bucks, but we have seen the CME FedWatch tool, the chances of a height rate now up at 86%.

47:23I'm still in the 14 % camp. I think everyone's talking about credibility. When has the Fed had credibility? So this isn't a credibility test. This is a fact of the matter. Do we see the Iranian war conflict coming off anytime soon? So that's what I see. But I think resiliency is the word I take away. All right. Daryl Cronk is kind of convincing me, though. He's making me feel like I'm in a more hawkish mood. Don't believe the hype. Growth talk. Jeff, thanks very much. That's it for us. Thank you for watching The Exchange. I'll join Brian Sullivan for Power Lunch after this.

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