US Central Bank Chair says inflation isn't beaten yet

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We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. It's World Business Report from the BBC World Service. I'm Gideon Long, yes, Kevin Walsh has made his first ever speech at Jackson Hole as the head of the US Central Bank will be picking through it. Plus, the threat of hybrid attacks on infrastructure in Europe. And what to do when AI comes after your voice? Every year in August, just for a few days, the majestic mountains of Jackson Hole in the US state of Wyoming take center stage for the US and indeed the global economy. Why? Because there, an elite group of central bankers and policymakers gather to discuss economics and monetary policy. And each year, the head of the Federal Reserve, the US Central Bank, makes the keynote speech. For the past eight years, that man has been Jerome Powell. But this year, today, the new head of the Fed, Kevin Walsh, made his Jackson Hole debut and he gave a pretty upbeat assessment of the US economy. I'm impressed by the overall performance of the economy, which appears to have strengthened. One indicator of strength is how well an economy holds up under stress. How well it holds up under shocks. On that score, both Main Street and Wall Street have been remarkably resilient. So how has this speech been received? Loretta Mesta is a former president of the Federal Reserve Bank of Cleveland and she gave me her assessment. I thought it was a very strong speech. I mean, it covered a lot of ground. He talked about his views on AI and how it will be on the economy. He offered some principles about what's guiding, should be guiding monetary policy. And then significantly, he gave his views on the current state of the US economy and implications for monetary policy. And that was something that a lot of people had been critical of that he hadn't done that in the two press conferences at the last FOMC meeting. So I think he addressed some of that criticism to give a pretty clear view of how he sees the US economy at this juncture. And of course, the Federal Reserve has this dual mandate to look at inflation, but also to look at unemployment and Kevin Walsh addressed both of those issues. Let's have a listen to what he had to say. So on the employment side of the Fed's dual mandate, for countries doing well, labor markets are quite stable. The jobless rate at 4.1% remains low by historical standards and hasn't changed much in a couple of years. Unemployment claims are near their lowest level in decades, but on the price stability side of our mandate, the numbers are more concerned. The Fed's preferred measure of inflation stands at 3.7%. The six month change a little above four. None of these measures are perfect, but they all tell a similar story. Inflation is running above our 2% target. Otherwise, we have worked to do. So Loretta, he addressed both sides of that dual mandate, but the emphasis was clearly here on combating inflation rather than dealing with unemployment, wasn't it? Well, and I think rightfully so, because as he stated, and certainly my view, is that the labor market is in balance. We've basically achieved that part of the mandate, and what hasn't been achieved is price stability and that 2% inflation target. So I think he's correct in pointing out that the real issue facing the US economy is not in the labor market. It's really on the inflation side. So clearly, an emphasis on bringing inflation down towards the 2% target. What does that tell us you think about the next Fed interest rates meeting, which you do in September? What do you expect from that meeting now? Well, I do think that he set up the conversation in a way that allows him, if he wants to move interest rates up in September, he certainly can do it. He's sort of laid out a good case for raising, I think, by saying, look, they have to focus on underlying inflation. And in his view, currently, that underlying inflation rate is not moving down, and it's certainly not moving down. It's sufficient speed, which is the other thing that he's worried about. So given the labor market is in good shape, as he said, growth is in very good shape, as he said. And inflation is the problem. He certainly set it up so that interest rates can move up. And I think that's sort of considered with my view of the economy. I think it would be appropriate for them to move up their Fed funds rate, their policy rate in September. Of course, he didn't give us forward guidance. He didn't say that's what they're going to do. But he certainly laid out the case. And I think the onus now are on the people who don't want to do that to lay out a cogent argument for not doing that. Some people said, thinking about that September meeting on interest rates, that the Fed is likely to sit tight just because of the kind of geopolitical shocks that we've seen over the last six months or so, notably with the Iran war. How do you feel? How do you think that is playing into Fed thinking at the moment, the geopolitics? Well, the Fed always has to operate in the global context. And there is increased geopolitical uncertainty, certainly. But the Fed can't sort of not do its job. And given the uncertainties, it has to sort of be forward looking as best it can. So yes, we don't really know how the Iran war is going to work out in the end. You know, we have tariffs coming into play again. But the Fed can't just sit back and wait for all uncertainty to be resolved because uncertainty is not going to be all resolved. And certainly not anytime soon. So the Fed has to proceed in what it thinks is the best stance to get price stability and maximum employment. And I think that's how they're going to be looking at the economy. And there's uncertainty no doubt, but they have to take that on board and do what they think is best. Loretta Mester. Chris Lowe is chief economist at FH and Financial in New York. Chris, we heard the Fed inside of you there from Loretta. How did the markets respond to the speech? Yeah, Gideon, I'd say pretty much exactly the same way. At the beginning of this week, the odds of a rate hike in September were at about 40%. By the end of today, those odds stood at 60%. So we heard the speech and we have concluded that it looks like Kevin Worsh is setting up for a rate hike at the next meeting. Well, we shall see. What does all this mean? I wonder for American businesses. Well, Casey Stanley is the president of Voice Systems, a software company based in Indiana. It provides accounting and payroll software to its customers. And he joins me now. Welcome to the program, Casey. Thank you very much. So Kevin Worsh's message today was basically unemployment, not a problem, inflation. Yes, a bit of a problem. Is that how it feels to you sitting where you are and managing your business? Yeah, that's exactly how it feels. As you stated, the labor market is still healthy, which is good and important. But for us, for small businesses like ours, inflation is what we feel most immediately. It's not abstract and concept. For us, it shows up in the cost of us retaining our people, the benefits we pay them, the insurance, our infrastructure really across the business. So we really have fewer places to hide from those increases. And it affects all of our customers as well. So when their costs rise, they tend to scrutinize every purchase decision more and more every budget commitment that they make even more closely. So I'm encouraged and I would agree that inflation does need to be addressed. I'd like to see it addressed in hopefully a predictable way, if possible, because that price or costability for us is really important. Just eliminating more and more uncertainty allows us to make those investment decisions. And inflation at 3.7% at the moment in the US. And as Kevin Walsh pointed out, 65 consecutive months now in which it's been well above the 2% target of the Federal Reserve. And Casey, what about interest rates? So if the next move is up, as Kevin Walsh seemed to be signaling today that it might be, what would that mean for you as a business? Well, small businesses like ours again want is a credible predictor So, you know, we need inflation to come down and we want reasonable access to capital. So, if they continue to rise, what that means for us is that while, you know, I think healthy and sound businesses like ours will still invest. But the hurdle for that investment gets higher and higher. So, every new hire we want to make, every new product initiative, we need to invest in, you know, acquisitions, expansion, you name it. Needs a clear and faster return. So, you know, that that pressure on our business tends to stack. So, as you mentioned month after month after month, we just see raising operating costs higher rate raises. The cost of financing our growth is more difficult. So, it's critical right now, in my opinion, because, you know, AI is a tremendous opportunity. We heard a lot about that today, but that also requires investment before every answer is known. So, I can tell you, as a small business, we want to fund that experimentation. We want to train our people, but we also need to strengthen cyber. We need to build out new capabilities. So, anyway, that those higher rates and that uncertainty that continues to seem to stack on top of each other makes those investments nearly impossible for us. They create a lot of unneeded headwind, in my opinion. And just briefly, Casey, apart from inflation, what are your other concerns at the moment as a business? You know, beyond those, clearly those are at the top of the list. But, you know, I would also, as usual, just the policy uncertainty in the environment. You know, we can address some of the inflationary concerns and impacts through the Fed's decisions and policy making. But, candidly, that global uncertainty, the more, what feels to small businesses a bit arbitrary in our trade policies and those things. That, you know, again, that unpredictability is really difficult. And then the classics, access to talent, you know, cyber, particularly in the age of AI, those are real. You know, I will tell you through my work at the Indiana State Chamber and its Tech Policy Committee. There is a real appetite for small businesses to lead in this innovation economy. You know, nobody wants such a special treatment, but anyway, those are some of the main concerns. Okay, Casey, thanks very much for joining us on the program and explaining that for us. Chris, Kevin Walsh has been criticized at times for miscommunicating with the market or not communicating enough. And he did address that issue, didn't he? This is what he said. A quieter Fed, a more purposeful Fed in its communications, is better able to meet its objectives. And we can be held accountable for delivering on our remit, the only true test of our credibility. A quiet Fed. What does he mean by that, Chris? And is that what markets want? It may not be what markets want, but unfortunately, I think it's what markets were going to get. Where Kevin Walsh was Fed Chairman or Jay Powell had stuck around. And the reason is that when it's absolutely clear what the Fed is going to do in the future, the Fed is very comfortable giving forward guidance, in other words, implying what it will do in the future. But when it's not clear, it's not comfortable. And the reason which Walsh explained is that the Fed starts to get into the business of misleading the markets, telling them what they think they're going to do, and then in fact not being able to follow through. And as they get closer to their policy neutral rate, it becomes much more difficult to give forward guidance. And that's the real reason the Fed has stepped back from that this year. It's not because of the change of command. Chris, it's impossible to talk about the Fed without talking about politics, Kevin Walsh, after all Donald Trump's appointment, he's seen as Trump's man, this is what the Democrat Senator Elizabeth Warren famously said about him when he was nominated. The nominee before us today, Kevin Walsh, is uniquely ill-suited for the job as Fed Chair. The Senate should not be aiding and abetting Donald Trump's illegal takeover of the Fed by installing his chosen sock puppet as Chair. So sock puppet, how Trumpian was Walsh's speech today Chris? Oh boy, I imagine Trump is fuming in fact because you remember last year he was complaining every time Jay Powell talked about the possibility they might have to raise rates. Or for that matter, any time Powell didn't cut rates fast enough, clearly Trump wants lower interest rates. So here in Kevin Walsh implies today that rates are likely to go higher. He's probably not pleased, hopefully Senator Warren takes at least a little bit of cheer from that. Chris, let me stay with us, we'll be back with you shortly. Your with your with World Business Report from the BBC World Service. Now a news headline from earlier this month. Germany is treating an incident involving an explosives-laid and drone found at a cargo airport as a potential foreign threat that's according to the Interior Minister. He also said authorities believe that was how German TV station D.W. TV reported on attacks at Leipzig airport in early August. The attacks forced the airport to close temporarily and cost its operator money. It wasn't an isolated incident, there have been drone attacks at airports in Denmark and of course the severing of underwater fiber optic cables in the Baltic. The number of these so-called hybrid attacks has risen across Europe since Russia's full-scale invasion of Ukraine in 2022 and they are having an impact on businesses. The Germans are so worried about this that they held a summit on the issue today with nine other European nations. I spoke to Elizabeth Brauer, a senior fellow at the Atlantic Council and a security expert and I began by asking her, what are hybrid threats? I call it grey zone aggression because it's a better descriptor. It's in the grey zone between war and peace. It's something that when you're targeted by it you know that it's not just business as usual. You know that it's not an accident or an innocent event but it's not a military attack. And the reason that this has become such a big issue and such a big subject of debate is that this aggression has been increasing recently. And give us some examples of how it's increased. In the decade and a half that I've been working in this area in the early years it was cyber, disinformation, election interference and the occasional assassination plot. Now what we've seen in the past couple of years is a remarkable range of incidents. So everything from sabotage of rail lines, parcel bombs have been smuggled or they were going to be smuggled on to aircraft. Fortunately that didn't happen but they were delivered at DHL depots. We have seen sabotage of CNI, so critical national infrastructure, installations we have seen drones buzzing around offshore infrastructure around airports which then had to close. We have seen suspicious incidents involving cables and pipelines. We have seen arson attack that investigations showed had been instigated by hostile countries. And so it's just a phenomenal range and it's across the board and also hostile plots against business executives. And I think this is really travelling so it's not just business operations themselves are being targeted but people in charge of those businesses. And so the Germans call this summit today to address some of these issues and that as I understand it was partly because of this attack that we saw earlier this month at Leipzig Airport which was fairly spectacularly. We had a drone hitting a cargo plane in mid-air, another drone which was found near a Ukrainian cargo plane on the tarmac. And Germany has suffered quite a few of these attacks hasn't it but it's not just Germany so give us an idea of which countries have been affected. Not just Germany, it's countries across Europe and Germany has been severely affected, Sweden and Norway have also been particular targets. These are the three top targeted countries according to Willis-Taus-Wattsens and your political risk survey but every country really has been affected including the UK which has seen arson attacks against warehouses, homes linked to Kierstamer. And what I think is so troubling about this is that you don't know if you are the operator owner of any business whether you are in the line of fire as it were because you can be in a completely innocent business sector. Nobody would consider railways particularly spectacular or controversial but yet that can be targeted and has been targeted. And how much of a headache is this for businesses? For example, like Sige airport, it had to close down when it was suffered those attacks that obviously incurs a loss. And I presume there are other examples as well of businesses that have actually incurred financial losses because of these attacks. It is a massive concern to companies and just looking at the Willis-Taus-Wattsens report for 2026, it showed that the percentage of Western companies that have suffered political risk losses above $250 million. In the most recent year was 9% and that was compared to 2% in 2020. Elizabeth brought from the Atlantic Council. Let's take a look at a few other stories. Chris Lowe from FHN Financial is still with us. And Chris, we've talked an awful lot about Canada this week and how its trade war with the United States might impact its economy. For me, Daytremp today showed that economy grew by 3.3% in the second quarter this year, year on year. That's pretty healthy. I guess the question is whether that will be sustained going forward. Yeah, it really is. I mean, just to put that into perspective, too, since the tariffs went into place last year, which was between the first and second quarters, Canada's growth was unchanged. It was absolutely flat. So the implication is that they had fairly spectacular growth in the second quarter of this year, finally getting back on their feet. And so the timing of this trade war escalation, it really just couldn't be worse. And an interesting story about the AI company Anthropic Chris. I'm sure our listeners remember that Anthropic refused to allow the Pentagon to use its AI technology on the battlefield and that the Pentagon retaliated by designating Anthropic as a national security risk. Well, now, a judge has ruled that the Pentagon acted illegally by doing that. And Anthropic says it lost a ton of money as a result of that designation. So I'm just wondering armed with this verdict, do you think Anthropic can recoup some of that money it's lost? Yeah, I imagine, but it really was devastating for a couple of reasons. I mean, one of them, of course, is the direct loss of business. But the other is that the AI space is so competitive, whoever has the latest model out. And there's a new one every couple of months is on the top of the heap and gets the lion's share of the business. So this particular verdict hit at a time when Anthropic had the best product out there. And it's going to be difficult. They have to keep up with the competition at the same time. They try to recoup the business. Okay, Chris, Chris Lowe from FHN Financial, thanks as always for being with us. Now, a group of more than 80 performers have written to the British Prime Minister urging his government to take action over companies using AI to clone their voices. The actors include Hugh Bonneville, best known for his role as the Earl of Grantham, the reassuringly posh head of the household in the hit TV series Downton Abbey. The letter is part of a campaign launched by a group called Save Our Voices Now, which wants new laws to protect people against voice theft. Peter Callfield is the campaign's founder. When I started digging deeper into the clauses of these online companies, it seemed that we don't have any rights when it comes to our voice ownership. So from an artist's point of view, that was quite scary because it's sort of like, well, we're putting our voice out there all the time, whether it's on social media or whether it's audition tapes, and it's just like, actually, what happens to that data and what happens to your voice after you've sent it off into the ether? At this point in time, we don't really have any rights or laws to protect our voice. You think that you would own your voice because you were born with it, but actually there is no law that really protects us from anyone with the right kind of AI software from copying your voice in three seconds and then using it as their own, which is quite terrifying. Well, this is not just a British problem. It's even more of an issue in Hollywood. Sasha Alexander is an actress living in Hollywood in California and she joins me now. Sasha, have you, as far as you know, ever had your voice cloned? Would you know? Hi, Gideon. No. I have not, but I don't know. Maybe it is out there and I don't know about it. Maybe it's been cloned right now, actually. Well, as indeed, I hit that cross my mind dearly today when we were preparing this program. Now, I remember Sasha the last time we had you on this program was last year and we were talking about the fact that somebody created Tilly Nourwood an AI-generated actor threatening to basically take your job now threats in theory to take your voice. You must feel as though you're just kind of constantly under attack from AI. Listen, I'm not against AI. I'm against AI being used to take something that is fundamentally part of a person's identity and livelihood, their voice and reproduce it without their knowledge, their consent or compensation. Because if somebody wants to use my voice, they should have to ask me. Technologies should give artists more tools, not just be making artists themselves disposable. That's just not, that's not the world that we've ever lived in when it comes to, you know, the experience of art. So that's my problem with it. I think that, you know, I think that consent should not become optional just because technology makes something possible. Okay. Well, I guess in a sense this is not new because I remember back in 2024, Scarlett Johansson took action against open AI after Chatchy BT launched an interactive assistant that sounded very light Scarlett Johansson. So he's been around for a couple of years. Is this something that the acting community in Hollywood is talking about a lot? Yeah. Absolutely. I mean, I just, I think the fact that AI can replicate an actor's voice doesn't mean that it has the right to. Performers should have the final say over how their identity and their work is used, like it has always been forever. You know, I think, I think the bigger issue too is just what does this do to art and the human experience? Art needs human experience, emotion and individuality to stay alive. So if we replace the people behind those performances with AI replicas and that's, you know, whether it's Tilly or whether it's our voice, we risk creating, you know, technically impressive work, but we're losing the human connection that makes art meaningful. And that's, that's a problem. I guess the issue is what can be done about it. I mean, can you copyright a voice? What changes do you think we need? Well, I mean, if you look at what's happening now, we're already seeing with children in social media, right? I mean, we've already seen that now we're hitting the regulations with children around social media, but the regulations are often coming after the technology has become widespread and the damage has already been done. So I think we need to learn from what's going on in, you know, with that topic, we need to learn from that and put some sensible protections around AI now, rather than waiting until it's too late to protect performers because it's not just about performers, it's also human beings. Like the people creating AI do not, they should not be allowed to just run the world. And do you think we need new laws to try and protect voices? Absolutely. We've needed new laws from the time Zuckerberg created Facebook. Legislation is behind the eight ball. Maybe because, you know, I don't know, everybody's profiting off of it. So there's just, you know, that small group of billionaires are making a lot of dough off of this and, you know, on our backs. But I mean, we've needed legislation from the time, you know, social media began, and now we're extending it to AI. And I think it's a real threat to just humanity and general, and art is a part of humanity. And I think we have to, we have to get some rules. Sasha, thanks very much for joining us from California. That's just about it. From World Business Report, time for me to stop talking. Just in case somebody tries to clone my voice. Is the hit Netflix show Emily in Paris just harmless, escapist TV or is Emily ruining Paris? I'm Asma Khalid, and I host the Global Story Podcast from the BBC. The president of France has described the show as super positive for his country, soft power through cinema. But is TV tourism good for a city? For more, listen to the Global Story on BBC.com or wherever you get your podcasts.