How One Central Banker Is Sizing Up the Iran War

0:00Pierre Wunsch:Instagram teen accounts default teens into automatic protections for who can contact them and the content they can see. Explore teen accounts and all of our ongoing work to protect teens online at Instagram.com slash teen accounts.

0:17Bill Ackman:Markets hold their breath ahead of President Trump's looming deadline to take out Iran unless it reopens the Strait of Hormuz. Plus, how should central bankers respond to the ripple effects of the war?

0:30Patrick Coffee:We'll ask one. If we are not at the end of it by June, we're probably going to have to high crates. But if it would morph in some form of financial crisis or tension in financial systems, then it really becomes much more difficult to manage.

0:43Bill Ackman:And Bill Ackman makes a play for the world's largest music company. It's Tuesday, April 7th. I'm Luke Vargas for The Wall Street Journal. And here is the AM edition of What's News, the top headlines and business stories moving your world today.

1:01Bill Ackman:Iran and the U.S. are rejecting each other's diplomatic offers just hours ahead of President Trump's deadline to start bombing Iran's bridges and power plants unless it opens the Strait of Hormuz. We report that Iran has rejected a proposal from Washington that would have seen a 45-day pause in fighting in exchange for reopening the Strait, saying that it wanted a permanent ceasefire, the lifting of sanctions, compensation for war damages, and a new arrangement for governing the strait going forward. In response, President Trump said that Iran's proposal was, quote, not good enough, but it's a significant step.

1:38Bill Ackman:U.S. stock futures are flat and oil prices are hovering around$110 a barrel ahead of this evening's deadline.

1:48U.S.

1:49Bill Ackman:health insurance stocks are rallying off hours after the Trump administration said it would boost 2027 Medicare Advantage payments by almost 2.5%. That dramatic increase, which represents about$13 billion in additional payments to insurers, comes after an earlier proposal to hold payments flat drew fierce criticism from the industry and torpedoed shares back in January. While the move signals strong federal support for the private insurer program, officials are proposing to eliminate a lucrative billing practice by requiring that diagnoses be linked to specific medical services, a new rule that's meant to prevent insurers from receiving payments for medical chart reviews that lack an associated doctor visit.

2:35Bill Ackman:Samsung is forecasting a more than eightfold jump in its Q1 operating profit as demand for its AI chip soars. Journal tech reporter Ji Young-sun says it's a major reversal of fortune for Samsung, who just over a year ago had simultaneously yet to make a splash with its specialized HBM memory chips used in data centers and was seeing its more conventional chips pile up on shelves.

3:00Pierre Wunsch:A year ago, these conventional memory chips were in a demand slump. But today, they're in a massive shortage, mostly because demand has bounced back for data servers that are now needed to support all the AI models that are being used today. So AI has basically put Samsung in a very good position. They're continuing to see strong demand for HBM, while prices of conventional memory chips are surging exponentially. As a result, Samsung shares are performing very well. They're up more than 60 % since the start of the year, and that's even as markets have remained volatile due to the Middle East conflict.

3:32Bill Ackman:Meanwhile, fellow South Korean consumer electronics giant LG is forecasting a Q1 earnings rebound, with profitability slated to improve as it beefs up production in the U.S. to avoid tariffs.

3:51Bill Ackman:Bill Ackman's Pershing Square Capital is offering to buy Universal Music Group, whose roster includes the likes of Taylor Swift, heard there, Kendrick Lamar, and Billie Eilish. Pershing Square said the transaction, which would involve a new entity listing on the New York Stock exchange is expected to close by year's end. Universal didn't immediately respond to a request for comment. The deal would value the company at around$60 billion, and its stock is soaring on news of the offer. And Amazon and the U.S. Postal Service have made a deal. After threatening a two-thirds pullback in the number of packages that it ships through the USPS, we exclusively report that a tentative agreement will lead to just a 20 % reduction in volume.

4:36Bill Ackman:If approved, the deal would avoid a major revenue drop for the struggling post office and avoid delivery headaches for Amazon, especially in rural areas. Coming up, will the shock of the Iran war force Europe into interest rate hikes before the summer? And we'll look at the brands saying no to AI slop in their ads after the break.

5:01Pierre Wunsch:WSJ's Take on the Week gives you a leg up on the world of money and investing. We cut through the noise and dive into markets, the economy and finance. I'm Telus Demos. And I'm Miriam Gottfried. We break down the big trades, speak with the key players. And find out what's important for investors in the week ahead. Subscribe to WSJ's Take on the Week wherever you listen to podcasts.

5:28Bill Ackman:A month into the Iran war, Gulf oil and gas remains mostly locked off from the world. Energy prices keep rising, and even with second-order effects caused by fertilizer shortages or disrupted shipping still months off, we are already seeing higher inflation cropping up in official statistics. So how should a central banker react? Do nothing? Well, you risk higher prices being baked into an economy still scarred by the pandemic, or raise rates and risk sapping economies of their growth potential. One central banker facing just such a decision later this month when he'll vote on the European central bank's next rate move is Pierre Wunsch, the governor of the National Bank of Belgium.

6:10Bill Ackman:Governor, thank you so much for being with us on What's News.

6:13Patrick Coffee:Pleasure.

6:13Bill Ackman:How much is the war in Iran dominating your attention these days?

6:17Patrick Coffee:95 percent. No, I mean, I'm also running an institution. But beyond that, when talking about monetary policy, it is, of course, the major source of uncertainty. And I would say our reaction function is probably of second order in terms of uncertainty compared to the uncertainty in just the lengths and the depths of the crisis.

6:34Bill Ackman:Of which are you more certain now than you were, say, a week ago?

6:38Patrick Coffee:Not really. I mean, we listen to the communications coming from the US and also the reactions from Iran. It's not easy to read. And like the markets, we get signals, I would say, every day in one or the other direction. and of course the length of the crisis, you were of course referring to the fact that typically for a central banker, a supply shock, an energy shock is one of the most difficult to deal with. And of course, last time we were a little bit late, you know, team transitory before acting. So this is something probably we have to draw the lessons from.

7:10Bill Ackman:Just very top level, the differences between 26 and 2022, inflation's not as high. What else do you see as the major differentiators between these two situations?

7:19Patrick Coffee:Well, you don't have the same level of bottlenecks that were all over the place and took us some time to understand that this was really a very specific crisis, the exit from COVID and then the energy crisis on top of that, where we had lost 40 % of our gas supply from Russia. So we're a little bit less exposed now on the inflation front. But at the same time, after a long period of low inflation, economic agents, firms and workers were a little bit taken by surprise. So it took some time before people would react to the shock and you started having the second round effects. So I guess now the question is, OK, the shock might be a little bit less important from a European perspective than it was back then.

7:58Patrick Coffee:But at the same time, it might be that firms say, OK, we don't want to be the last one to raise our prices. They might react more quickly. And then one of the big differences is that, especially in Belgium and France, we don't have the fiscal capacity to absorb the shock as we did for COVID or as we did for the Ukraine crisis. One of the concerns is that, and we see that in Belgium, if political parties want to do it as they did before and basically try to absorb the shock by increasing public expenditure, this might more into potentially some tensions on the fiscal front. You might see some downgrades from rating agencies down the line.

8:34Patrick Coffee:So far, I think we can deal with this crisis. I would say if we are not at the end of it by June, we're probably going to have to hike rates. But if it would morph in some form of financial crisis or tension in financial systems, then it truly becomes much more difficult to manage.

8:49Bill Ackman:You said if we don't see resolution by June, we might have to hike rates. There is a rate decision coming this month. You will be voting on that. Should a rate increase be on the table in a few weeks or is that premature?

9:00Patrick Coffee:You know, in a way, hiking 25 basis points wouldn't change. much. Inflation is already at 2.5%. We're not going to be able to control the direct effects of the crisis. We need to move at some point to control the indirect effects. So the issue is more of an issue of communication. What would you signal by hiking in April or in June? The way I feel comfortable putting it is, if this is not done by June, I think we're going to have to hike. But I don't want to exclude a hike in April. Now, if this lasts, we are going to have also to work on demand. We need some demand destruction. So just giving subsidies for people to be able to keep buying gas and oil without feeling too much of an impact would not be the right policy because we need some demand destruction.

9:42Patrick Coffee:And we've been able to reduce, for instance, natural gas consumption during the gas crisis after the war in Ukraine by 20%. But that was on the basis also of administrative measures like reducing the temperatures in buildings. So we need collectively to reduce our demand because there is just less gas and oil.

10:00Bill Ackman:Earlier, you mentioned 95 % of your attention was being taken up by the Iran war. Are you worried that with this crisis commanding the headlines day in and day out, it's distracting Europe from its other challenges?

10:15Patrick Coffee:Well, yes and no. I mean, the long expected hoped for recovery in Europe will be probably delayed again. At the same time, I think it will allow maybe to refocus, for instance, on our energy policies where, you know, we had a, in a way, bubble on climate ambition, that we were extremely ambitious and we thought people would back that. And then there was a backlash. We might refocus now also on the strategic autonomy aspect of it. We know we are dependent on the rest of the world, the US, China, but also for energy, the Middle East on many fronts. And hopefully this is going to again confirm that we need to find a good balance between all these considerations and that we should not throw away the green agenda.

10:54Patrick Coffee:I think the green agenda, we need to be disciplined. And it's difficult for the tradable sector in the energy intensive industry because we don't have cheap ways to decarbonize. But on the households front, electric vehicles, renewables, this is more or less a no-brainer. From this perspective, I think the current shock could help. It is also basically reinforcing again the feeling that Europe has to be united, confronted with these shocks.

11:19Bill Ackman:And do you feel that among your governing board peers heading into the end of the month?

11:24Patrick Coffee:Yeah, I think that the spirit is one of, we've been confronted already with so many crises over the last few years. Broadly speaking, we've done what we should do. We were back at actually at our target of 2%. So we'll have to do it again.

11:38Bill Ackman:Pierre Wunsch is the governor of the National Bank of Belgium. Governor, thank you so much for being with us on What's News. Pleasure.

11:48Bill Ackman:And finally, what's AI slop and what's not? To try and stand out from the crowd, journal marketing and advertising reporter Patrick Coffey says that some brands are now adding no AI disclaimers to their ads, hoping to be spared from a growing backlash against content made with AI.

12:06Pierre Wunsch:We're already reaching the point where people are so distrustful that they're starting to assume, if they don't see otherwise, that things are AI generated. A recent survey from Gartner, a market research firm, found that 68 % of consumers regularly question whether the material they see online is real. Another report from a software firm found that 63 % of consumers think brands have a duty to disclose when they use AI in their marketing. But the rules at the moment are essentially that there are no rules. Every platform has made some apparent attempt to automatically identify and label AI-generated materials, but they've already thrown up their hands and said this is just too big of a problem for us to handle.

12:51Bill Ackman:While social media platforms may be sitting out this fight, some regulators aren't. New York last year became the first state to pass a law requiring that businesses disclose the use of AI-generated humans in their marketing content, with the law scheduled to take effect in June. And that's it for What's News for this Tuesday morning. Today's 100 % Authentic show was produced by Hattie Moyer. Our supervising producer was Daniel Bach. And I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. And until then, thanks for listening.

13:31Pierre Wunsch:How do you prepare for the week ahead? Why not Let's start with thinking about your investment portfolio. On WSJ's Take on the Week, we break down the top headlines. If the AI narrative hits a wall, there's no question in my mind that the U.S. economy starts to go perilously close to recession. And we go behind the biggest stories in markets, the economy and finance. I'm Telus Demos. And I'm Miriam Gottfried. We break down the big trades and speak with the key players. I'm very focused on making sure that we can get inflation back to target. Let us help you start your week. With WSJ's take on the week, subscribe wherever you listen to podcasts.