Barclays CEO CS Venkatakrishnan Talks AI Development & Inflation

SPEAKER_1 (0:02)

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Dani Burger (0:07)

For our Bloomberg TV and Radio audiences, welcome to Bloomberg Open Interest. I am Dani Burger, live from the Barclays 24th Annual Financial Services Conference, and we have the man of the day with us. It is the Barclays CEO, CS Venkatakrishnan. Venkat, thank you so much for joining us. Great to see you this morning.

CS Venkatakrishnan (0:25)

Dani, thank you so much for having me and for covering our conference.

Dani Burger (0:29)

And look, I know it's early in the morning, but you've gathered countless of your peers. There's so much for this industry to grapple with, whether it be war, energy, rates, AI. What do you think at this moment is the single most pressing issue that financial services has to grapple with today?

CS Venkatakrishnan (0:45)

I would say there are two. One is that we're all running large companies and we're dealing with the technology and the change of technology on our companies. We can come back to that. Second thing is the overall market environment.

For me, the bond markets are the things to focus on. There's a confluence of three forces, Danny, which make the bond markets particularly interesting. One is that we've had persistent inflation.

Due to commodities, due to geopolitical events, something's out of our control. The second thing is that government spending across the world. This is true in New York, it's true in London, it's true in Tokyo. Government spending across the world has been rising as a function of GDP, so debt to GDP is going up. Pressuring the long end of the curves across the world. And then the third thing is there's been a supply, a tremendous supply of debt, especially related to data centers and to tech. All three of these things are putting pressure on the bond market. It's a confluence of three forces.

Dani Burger (1:41)

And we're speaking also just days before Fed rate decision. The BOE will also have a decision too. How much of this falls to policymakers? What is their role in this to making sure we don't see both inflation and long-term yields become unmoored?

CS Venkatakrishnan (1:55)

Yeah, so I think it's interesting. Of the three things I said, the Central Bank controls the first. Now, it's very important. They need to respond to the persistency of inflation. And actually, the more they act on the front end, the better they probably can control the long end.

And so, those are the things I imagine are weighing on their minds as they come into their decisions this week.

Dani Burger (2:18)

So does that mean we're in an environment where kind of counter-intuitively, if this is a Fed that hikes, that actually helps activity, that actually maybe helps financial services because it puts at least a ceiling or at least subdues volatility for the long end of the bond yields?

CS Venkatakrishnan (2:33)

When telegraphed and when gradual and when relatable to economic events, that's true in the starting point of a rate hiking cycle. Of course, later on, things can change.

Dani Burger (2:44)

Do policy makers, governments, do they have a role in this? Are you concerned? You obviously have a global presence. It's a global issue, be it in the UK, where your home base is here in the US, as you mentioned, are you worried that policy makers are missing something, that deficits are at risk of running out of control, and again, unmooring the long end?

CS Venkatakrishnan (3:02)

Yeah, so the second of the things, which is debt to GDP, is very much on the fiscal side. It is on the side of treasury and finance officials around the world. And I think, for instance, the UK has a budget coming up in next month, they have to look at that combination of taxes, investment and spending, and see what they can do to control long-term taxes.

Dani Burger (3:25)

Do you think that appetite is there? I mean, especially here in the US, Venkat, it's the midterms. I mean, that's not really part of the conversation at all.

CS Venkatakrishnan (3:31)

Yeah, I think, look, political pressures are always great on policy makers.

And maybe you can postpone in the short run, but these things are unavoidable in the long run. There's fiscal discipline is a really important virtue.

Dani Burger (3:46)

But is the bond market the only thing enacting that fiscal discipline now? Is that the mechanism for that?

CS Venkatakrishnan (3:50)

That is an important mechanism.

Dani Burger (3:53)

So you mentioned technology too, and I'd be remiss if I didn't mention the moment that we're kind of living in. AI fears reached a fever pitch over the weekend. And I wonder how you think about it.