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Quest Means Business

Fed Holds Rates Steady, Signals One Rate Cut In 2024; Europe Follows US In Raising Tariffs On Chinese EVs; Blinken Accuses Hamas Of Changing Its Ceasefire Demands; Klarna Uses AI To Cut Costs As It Expands Into The U.S.; Autoworkers In Michigan Look Toward Election. Aired 4-4:45p ET

Aired June 12, 2024 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[16:00:07]

JULIA CHATTERLEY, CNN INTERNATIONAL HOST: All smiles at the New York Stock Exchange and as they shift to record highs for the NASDAQ and the S&P 500,

we will call that resilience in the face of today's decisions and announcements from the Federal Reserve. Those are the market and these are

main events: Fed officials predict just one interest rate cut this year down from three with inflation cooling, but slowly.

The EU announcing extra tariffs on electric cars from China.

And CNN speaks to auto workers in battleground Michigan about who they plan to vote for in the US presidential election.

Live from New York. It is Wednesday, June 12th, I'm Julia Chatterley, in for Richard Quest, and this is QUEST MEANS BUSINESS.

And a good evening once more.

Tonight, the US Federal Reserve says it sees only one rate cut this year, even as it makes progress on inflation. The Fed announced at the end of its

two-day meeting earlier, it is holding rate steady as expected, its members received fresh inflation data too, this morning. The report showed no price

rises over the past month.

The Consumer Price Index rose 3.3 percent though over the past year. Fed Chair Jerome Powell just finishing his news conference. He says the Fed is

looking at a wide range of data and it is not enough for them to lower rates at this moment.

(BEGIN VIDEO CLIP)

JEROME POWELL, US FEDERAL RESERVE CHAIRMAN: You look at all of that and you ask, are we confident? Have we reached an appropriate level of confidence

that inflation is moving down sustainably at two percent? We do see today's -- we see today's report as progress and as building confidence, but we

don't see ourselves as having the confidence that would warrant -- that would warrant beginning to loosen policy at this time.

(END VIDEO CLIP)

CHATTERLEY: Now Powell was repeatedly asked about the Fed's so-called dot- plot. That's a chart that shows where the Fed policy members think inflation rates are headed.

The median call is for just one-quarter of a percentage point cut this year. Four members expect no rate cuts in 2024.

Matt Egan joins me now, I didn't mean inflation, of course there. I meant interest rates, just to confuse our viewers. Matt, what I think today will

be remembered for is the cut that people didn't want and that is a cut to the forecast of quite simply how many rate reductions they expect to do

this year, and a lot less than what they were hoping for in March.

MATT EGAN, CNN REPORTER: Yes, that's right, Julia.

We knew today would be a significant day for the economy and I think it really lived up to the hype, but it was kind of a split decision, right? I

mean the inflation report out this morning that was better-than-expected, right? That was dovish.

We really saw some significant progress. Prices didn't budge for the first time in almost two years on a monthly basis, and even Jerome Powell during

his press conference, he said that this report was almost -- was better than almost anybody anticipated.

But the Fed -- the Fed did sound more hawkish both during the press conference and especially in those projections. We knew that the rate cut

projections had to come down, right? They were expecting three cuts back in March, but they went all the way down to just one interest rate cut, and

that is a far cry from the six cuts that a lot of people had been anticipating when the year started, and that's because obviously inflation

has been more stubborn than expected.

The Fed had to mark up its inflation projections. They are now calling for PCE to be at 2.6 percent for this year. Again, their target is two percent,

so they're not there yet.

One thing though I do think that we sort of need to remind our viewers and really ourselves, is that this is not an exact science, right? The Fed does

not have a crystal ball here. They would admit that, their track record on forecasting inflation, forecasting rates has not been great. And it hasn't

really been great for investors or for economist as a whole.

So I think we do need to be humble about what comes next. Big picture, some progress today when it comes to the cost of living and inflation. But

borrowing costs, no relief there, not anytime soon -- Julia.

CHATTERLEY: And that's the unfortunate fact for the lower-income members of society in America, it is most challenging for them.

Matt Egan, thank you for that report there.

EGAN: Officially.

CHATTERLEY: Randall Kroszner is former Fed governor, who is now a professor at the University of Chicago, and he joins us now.

Randy, fantastic to have you on the show. What do you make of what the Fed announced today, a bit of a reality check for consumers, if not investors,

I think.

RANDALL KROSZNER, PROFESSOR, UNIVERSITY OF CHICAGO: I think that's right.

I mean, the Fed has, I think made it very clear that they are very concerned that inflation -- the progress in bringing inflation down slowed,

and they don't want to do an early all-clear.

[16:05:06]

That's what happened in the early 1980s, and that led to a big mistake where the Fed then had to raise rates much, much more and so they're going

to be willing to wait a little bit longer. Exactly as Jerome Powell said to feel confident inflation has really come down.

We just got a good report, but that's one report.

CHATTERLEY: Yes, and this is critical and we also have to tie this into what we saw from the jobs market, which was a bumper addition of jobs net

in the past week. And of course they have to focus on inflation and jobs, too.

What does it take between now and let's call it September to justify the rate cut coming then versus perhaps leaving it until after the presidential

election.

KROSZNER: So, I think they'd have to see that the labor market isn't heating up anymore if we continue to get higher and higher numbers for job

growth, my guess is they are probably not going to move. And certainly if inflation just kind of stagnates where it is now.

Their preferred measure is the Personal Consumption Expenditures Index, a little different than the CPI. The CPI is little more heavily weighted

towards things like housing. The PCE, a little bit less so, and so they're going to be looking at that when that number comes out at the end of the

month and I so think they need to see continued progress on inflation coming down and they're going to need to see the employment rate move up a

little bit, see the job market cooling off a little bit, then I think they'd feel comfortable moving in September.

But if we are just kind of staying roughly where we are, I think they're going go our way.

CHATTERLEY: Can there be a cut at all this year? Are you more weighted towards actually achieving that one cut that they're talking about versus

perhaps not doing anything at all this year?

KROSZNER: I think it is likely that they will cut. I am not quite as optimistic as the Fed and some commentators are about how the economy is

going to evolve towards the end of the year. I think eventually the higher real interest rates that is adjusting for inflation, this is really the

first time that we've had positive real interest rates for a decade.

I think that is going to start to bite towards the end of the year, and I also think -- we always hope that the Fed can just move the dials perfectly

so that the unemployment rate will just go up to 4.1 or 4.2 and stop there.

It is very rare that they can just make sure that if they stopped where they want it with the unemployment rate going up a little bit more, and I

think that -- I think there will be a little bit of weakness and I think that is going to lead them to cut towards the end of the year.

CHATTERLEY: I mean, that's the fascinating thing about the way that were talking about this in many respects, it is down to arguably, for the most

part, the resilience of the American economy that is allowing them to be in this position where they are saying and he said today, the policy stance

based on what we are seeing at this moment is about right.

Should we also be putting more of a positive spin perhaps despite the fact that for borrowers in this country, of course, they would like to see rates

down, come down and a little bit more room to maneuver, I think on how much money they are taking home and have to spend.

KROSZNER: Sure. I mean, as you said, part of the reason that the rates are where they are is because, overall the economy is doing pretty well. The

unemployment rate is still four percent, that's a little bit higher than it was before, but oh, my goodness, if you look over the last 50 years, four

percent is a really low unemployment rate.

Job growth has still been reasonably strong. Inflation has been coming down. But households is still hurting because although now they're starting

to have their wages go up faster than inflation, for a couple of years that didn't happen. And so they still feel that they are a bit behind and that's

made people a little let weary and a little bit cautious.

So, we will have to see how things evolve and unfortunately, I am not that optimistic about any good shocks coming. I think most of the geopolitical

shocks and tensions that are there are probably not going to be positive ones and could be problematic for economic growth, as well as potentially

for inflation.

CHATTERLEY: I want to know part of the investor reaction that we saw today. Excuse me. Sorry. The record highs in the S&P and the NASDAQ was because

for some investors, at least out there, they were in some way fearful that perhaps we could be flirting with the prospect of needing to do more, not

less in terms of tightening.

Is there even a fraction of a possibility that that is a possibility, particularly if some of the strength that were seeing in the labor market

and wages actually continues to feed into prices in the economy?

KROSZNER: Sure. You're having wages grow up back up around four percent.

CHATTERLEY: Right.

KROSZNER: Overall inflation is going up around three percent or so and so that means that unless wage growth starts to slow down or productivity

really takes off, it is going to be very difficult for the price levels to come down very quickly and in that circumstance, the Feds are going to hang

tough, keep the interest rate relatively high.

[16:10:09]

And so two reasons that the Fed would do a major cut in interest rates: One would be because the economy is really getting into a very bad situation or

the other one is that the inflation has come down a lot.

Now, one of those is a great scenario. One of those is not such a good scenario, but they could both result in a substantial reduction in interest

rates.

The interest rates only go up when the economy is really firing on all cylinders and/or the inflation rate is so starting to move up.

I don't think it is going to be moving up. I don't think we are going to fire on all cylinders. I do think we are going to slow a bit.

CHATTERLEY: Well, we will see. It is going to be an interesting second half of the year.

KROSZNER: Oh, yes.

CHATTERLEY: Former Fed governor there, Randy Kroszner, great to chat with you, sir. Thank you.

To Europe now, following the US in an escalating trade battle with China over electric vehicles. The European Commission announced it is imposing

additional tariffs of up to 38 percent on Chinese EVs. It comes, of course, after US President Joe Biden quadrupled import duties.

Now Chinese EV exports to Europe have grown in recent years, this chart from the researchers at the Atlantic Council, the bottom part in blue shows

exports to the EU. It grew from under a billion just four years ago to $13 billion last year.

Anna Stewart is with me now.

Wow, Anna, if it kept up at that pace, it would be a real problem, but that certainly argues why the European Commission is taking action today. What

impact is this expected to have first and foremost, because they are trying to balance protecting manufacturers in Europe with a green energy and

future mandate.

ANNA STEWART, CNN REPORTER: Yes, and I think balance is actually a really interesting word to use here because there is a lot more nuance in what the

EU was announced versus what President Biden announced just last month with a quadrupling of tariffs on Chinese EVs being imported into the country.

There is more of a spectrum here from the EU ranging up to 38 percent, although that is on top of a 10 percent tariff which already exists, and it

takes place in July. But there is room for negotiation here, Julia.

So for Tesla, for instance, you'll see it says TBC on your screen, and that is because Tesla is still negotiating what that tariff should be based on

what subsidies it is receiving at this stage.

And then in November, the EU will decide whether or not to make these tariffs more permanent, or whether or not to ease back on them.

So it certainly leaves more room, I guess for negotiation between authorities in Brussels and Beijing. But you're right also about the

balance because there is an issue here potentially for particularly a market like Germany, they sell a lot of cars to China and car parts, and so

there is a big fee here about retaliation and already we had a comment from the Chinese Ministry of Commerce who have accused the bloc of creating and

escalating trade tension.

So for now, it is just words, but everyone is sort of waiting to see what might happen next.

CHATTERLEY: Yes, and it doesn't necessarily just have to be on cars and car parts in terms of retaliation. I am thinking about the luxury goods market,

for example, as well. We always first to talk about handbags, I know we obviously have got to talk about that.

STEWART: Always want to talk about handbags. But also cognac, more importantly.

CHATTERLEY: Good point.

STEWART: Miss Chatterley, cognac is a really interesting one because already China is actually probing anti-dumping of French cognac into China

and actually announced that shortly after the EU announced it would be probing the EV issue last year. So already we've had a bit of tit-for-tat

here.

And yes, what about the next thing? Will it be more luxury goods? This is one of those things that could really, really escalate. But I think that

the way the EU has designed it for now, it leaves that little bit of wiggle room for negotiation. Let's hope so, for you know, all of those Chinese

people who love French cognac.

CHATTERLEY: Yes, of course. And also arguably these companies could come and set up manufacturing facilities to go back to cars and begin where we

started in Europe and sell to European customers and invest in domestic jobs, of course, so there are alternative to this.

Anna Stewart, thank you for that. Cheers on the cognac, of course.

All right, coming up here on QUEST MEANS BUSINESS, US Secretary of State Antony Blinken says he is questioning Hamas, whether Hamas is negotiating

in good faith. He says the group wants the number of changes to a ceasefire plan endorsed by the UN Security Council. That's next.

(COMMERCIAL BREAK)

[16:16:53]

CHATTERLEY: Welcome back.

US Secretary of State Antony Blinken says it is time for Hamas stop haggling and accept the ceasefire proposal that is now on the table.

Blinken was in Doha earlier where he was meeting with Qatari mediators. He accused Hamas of backtracking in its latest response.

(BEGIN VIDEO CLIP)

ANTONY BLINKEN, US SECRETARY OF STATE: One side continues to change its demands, including making demands and insisting on changes for things it

had already accepted, you have to question whether they're proceeding in good faith or not.

But based on what we've seen and what I've discussed with the prime minister and what we've discussed with our Egyptian colleagues, we are

determined to try to bridge the gaps and I believe those gaps or bridgeable, it doesn't mean they will be bridged, because again, it

ultimately depends on people saying yes.

(END VIDEO CLIP)

CHATTERLEY: Paula Hancocks is in Jerusalem for us tonight.

Paula, he was even more pointed than that. He said, look the deal on the table is effectively what Hamas asked for back in May, and here we are

weeks later without some kind of deal and effectively, the goalposts keep moving, which is my words, not his, where does that leave that ability at

this moment to bridge that gap as Secretary Blinken was discussing?

PAULA HANCOCKS, CNN INTERNATIONAL CORRESPONDENT: Well, Secretary Blinken said that he does believe the gaps are bridgeable, but it doesn't

necessarily mean that they will be bridged, pointing out that it is not up to the mediators, it is up to certain people to say yes to the deal, and if

they don't, then there is very little really that they can do about it.

They have not given up. They say that they are discussing these conditions, these extra conditions that they say Hamas has put on this proposal.

But certainly, the optimism, it is there still, but it seems tempered somewhat by the reality of what is happening at this point. Now we've heard

from the forum of the hostages still in Gaza, the families represented there, they say that they fully support Antony Blinken in what he is trying

to do. They still want a deal.

Now, when it comes to those four hostages that were rescued on Saturday, one of the families is speaking. Andrey Kozlov, his family has been talking

to us and telling us about the last eight months.

(BEGIN VIDEOTAPE)

HANCOCKS (voice over): When the Israeli military launched Saturday's rescue mission in Gaza, one of the hostages thought they had come to kill him.

Andrey Kozlov shanks his name in terror to the troops. His family since the Hamas guards told them for months the signs of war they were hearing were

Israel trying to target them as they were causing trouble for the state.

His brother, Dmitri tells me he didn't understand why the IDF came. He was afraid they came to kill him. It took some time to realize they had come to

rescue him.

Psychological abuse coupled with frequent punishments marked Kozlov's captivity according to his family.

[16:20:06]

They were trying not to leave marks, his brother says because eventually it is their reputation, but they would still punish him this way or the other.

He has told us, there are some moments he will never share with us, his father says, but one he did share is that at the hottest time of the day,

they would cover him in blankets. It is a difficult or deal to be dehydrated through heat.

Kozlov, 27 years old, is a Russian citizen who moved to Israel almost two years ago. He was working as a security guard at the NOVA Music Festival on

October 7th when he was kidnapped and taken into Gaza.

His parents flew from Russia, Sunday for an emotional reunion, one, they hadn't dared to hope for after eight long months.

"This is the best scenario we could have hoped for," his father says. "To see him alive, to feel his presence and to hug him. It is outstanding."

His mother says, "We are infinitely happy to see him. He laughs, he jokes, he enjoys communicating with all of us, with his family, with doctors, with

the people who surround him."

His family says Kozlov was shocked when Israel's Prime Minister Benjamin Netanyahu came to visit him and the three other hostages rescued while in

hospital. As for those hostages still in Gaza, his father says a deal or a rescue, whatever it takes to get them out.

(END VIDEOTAPE)

HANCOCKS: Kozlov has had initial medical treatment. He has now left the hospital and is staying in a hotel with his family. We spoke to the doctor

in charge of treating these four hostages and the previous ones released last year, a little earlier this week and he said that the road to recovery

will be long -- Julia.

CHATTERLEY: Certainly will. Paula Hancocks, thank you for that.

Now, the Japanese Prime Minister Fumio Kishida arriving in Brindisi, Italy just moments ago for the G7 meeting. We are expecting the US president to

touch down there later this hour.

The G7 has also agreed to give Ukraine a $50 billion loan guaranteed by frozen Russian assets. That is according to the Elysee Palace source.

Most of the money will be reportedly provided by the United States. President Biden was pushing for the move before the G7 Summit in Italy

where he will arrive any moment and you were just seeing there coming down to the end of the steps of their plane there, the Japanese Prime Minister,

as I mentioned.

They are also expected to agree to a new security pact with Kyiv on Thursday.

MJ Lee is with us now.

MJ, this would be another huge step forward. I think there is an estimated $300 billion worth of frozen Russian assets in the West. The problem up to

now has been a lack of agreement on a shared plan of how to utilize them. And now, it seems they've come together.

MJ LEE, CNN WHITE HOUSE CORRESPONDENT: Yes, Julia, really any moment now, we should be seeing President Biden touching down in Italy to convene with

his fellow G7 leaders and while there are a number of items on their shared agenda for the next 72 hours or so, really, the utmost importance and the

top priority item that the leaders are going to be discussing are ways to show a unified front, to show their support for Ukraine as the war in

Ukraine enters its third year.

You mentioned some of them, but a number of the initiatives that we are expected to hear in the coming days from this group of G7 leaders does

include, as you said, a $50 billion loan program for Ukraine that would come from interest that is accrued from frozen Russian assets.

We also expect that there is going to be the announcement of a new 10-year security agreement between the US and Ukraine, and also of course, earlier

today, we saw the US announcing an expanded set of sanctions against Russia, including on foreign financial institutions that are deemed as

helping the Russia war effort, as well as moves that are aimed at hitting Russia's access to critical software, IT and other technologies and

equipment and as we await the president's arrival here in Italy, I think it is also just worth noting, this is his final G7 Summit of his first term.

It is really kicking off almost exactly three years to the day later after the first G7 Summit that he participated in as president, and if you just

think back to what the political mood was like, both back in the United States and just on the world global stage as well, you hear so often about

US officials talking about how back in the summer of 2021, there were a number of world leaders that were frankly just feeling relieved that the

Donald Trump era was over, that era had been marked with so much unpredictability and isolationist tendencies.

[16:25:11]

And here was President Biden, newly elected talking about how he wanted to restore the US' leadership on the world stage. So I think as this gathering

really kicks off in earnest tomorrow, we are going to see that question really crystallize for President Biden. Has that big bet that he made on

foreign policy of restoring the US' leadership and really strengthening the US' ties and alliances with its allies, has that big bet paid off?

We are, of course, seeing as the election in the US is drawing nearer, growing anxiety across the world about the possibility of a second Donald

Trump term at the White House.

I will also just finally note that tomorrow, the president will once again be meeting with Volodymyr Zelenskyy, the president of Ukraine. The two of

course, saw each other last week in France as well. They are going to be meeting and then there will be a news conference to follow.

So certainly a number of questions and topics that the president could be asked about both about the events abroad and a lot of political issues at

home as well.

CHATTERLEY: It is certainly going to be a very busy couple of days. MJ Lee, thank you so much for that.

All right, coming up here for us, as prices rise, buy now pay later is becoming this season's must have shopping accessory. The CEO of Klarna

joins us next. We will discuss the US expansion and how AI, too, is helping the company control costs.

Stay with us.

(COMMERCIAL BREAK)

[16:30:19]

CHATTERLEY: Welcome back. Wall Street was unfazed by the Fed's new expectation of just one rate cut this year.

As you can see in front of you now, the Dow finishing the day unchanged, the S&P and Nasdaq, though, closing at record highs for a third straight

session. The Nasdaq got more than 1.5 percent. The S&P 500 managing just shy of 1 percent.

The U.S. Central Bank hoping that holding rates higher for longer will eventually tame inflation. The Fed chair Jay Powell says he needed to see

more progress on that front.

(BEGIN VIDEO CLIP)

JEROME POWELL, CHAIR, U.S. FEDERAL RESERVE: We want to gain further confidence, certainly more good inflation readings will help with that. I'm

not going to be specific about how many because, you know, really it's going to be not just the inflation readings, it's going to be the totality

of the data. What's happening in the labor market, what's happening with the balance of risks, what's happening with the forecast, what's happening

with growth.

You look at all of that and you ask, are we confident, have we reached an appropriate level of confidence that inflation is moving down sustainably

of 2 percent, or alternatively, do we see really unexpected signs of weakness in the labor market that would call for a response.

(END VIDEO CLIP)

CHATTERLEY: Now rising prices are hurting consumers and firms like the buy now-pay later platform Klarna. Its credit losses soared in a quarter marked

by strong growth. Those results are due in part to the company's aggressive push into the U.S. market. The company turned to generative AI to shore up

its bottom line, saying the technology helps shrink operating expenses by more than 10 percent.

Sebastian Siemiatkowski is the CEO of Klarna and he joins us now from Stockholm.

Sebastian, great to have you on the show. After that rather alarmist introduction, I think we should talk about the U.S. business in particular

where you are, growing at a fast pace. Give us some perspective on what you're seeing on the U.S. consumer.

SEBASTIAN SIEMIATKOWSKI, CEO, KLARNA: Well, yes, I mean, we have seen about 38 percent growth on a year-to-year basis in the U.S. right now. And

actually gross profit is up almost 100 percent. So even though those losses -- you look there is kind of mix because you'll get all of Klarna and

because losses in general are slightly higher in the U.S. and Europe. But I kind of shifts it becomes a mixed effects that you see there.

I think if you look at the U.S. consumer right now, I was a little bit more concerned around Christmas. I felt that there was a weakening in the

consumption spend in the markets, and I felt that some of the Christmas sales were maybe discount driven by the retailers. But since then we have

actually seen a positive pickup in our numbers and see pretty -- you know, strong growth. I think also to some degree, obviously, interest rates

keeping at a higher rate also means that our interest-free products like buy now-pay later that are entirely out of, you know, no interest compared

to credit cards are even more attractive.

So some of that may still be the shift away from credit cards to buy now- pay later, that is also helping accelerate our business.

CHATTERLEY: Yes, people are spreading the cost. So actually it might not necessarily be a sign of a stronger consumer spending. It's simply how

they're choosing to pay for these things. Just quickly put those credit losses into perspective, though, as a proportion of the broader loan or

borrowing portfolio effectively that you have. What percentile are they?

SIEMIATKOWSKI: So, I mean, on a global basis our losses are below 1 percent on our total volume, right?

CHATTERLEY: Right.

SIEMIATKOWSKI: So in year about 20 percent, 30 percent below credit cards default rates, and it's because the underwriting, the way that buy now-pay

later model works is very different right now. Our outstanding average balance is $100, $150 versus the credit of $5,500. We don't offer

revolving, we don't try to have consumers build up big piles of debt and then charge 20 percent, 30 percent on it. We ask people to pay down in

installments so usually people pay down in about two months all of the outstanding balances.

So as a consequence of that, you just have a healthier and more healthier portfolio as well as you have an agility to move faster when macro

economical shift change, you can very quickly change your underwriting. That's happening real time and adjust to new macro economical conditions.

So it is a more sustainable and more robust credit model than the typical credit card.

CHATTERLEY: Yes, it's an important point, too. With that in mind, is the rate cut or more than one rate cut from the Federal Reserve good or bad for

your business because do people then shift back perhaps to credit cards if interest rates come down or once they see your product and like it, they

continue to use it? It's sort of a gauge of what an economic cycle does for your business, I guess, which is, you know, it's been tough to see over the

past few years.

SIEMIATKOWSKI: Indeed. I mean, now we've been doing this business for 20 years, and I've seen it in Europe over a financial crisis and so forth. So

I actually, the funny thing, it's been growing both when people said, you know, high interest rates are going bad for you, low interest is going to

be bad to you. And since then it's still be growing because I think it just speaks to there is an audience, there's a good McKinsey study based in the

U.S. that showed that about 20 percent of the credit card users in the U.S. are what we call self-aware avoiders.

[16:35:07]

People who are very unhappy and disappointed at some of the practices that credit cards have applied to encourage people to put themselves in too much

debt and they're looking for an alternative solution. And this solution is different than I think it's that audience. So it's more a shift of type of

product than necessarily a consequence of interest rates per say.

CHATTERLEY: It's also ability to gauge credit risk, I think, which sort of brings the conversation around AI. I know you've been quoted as saying over

90 percent of your staff now are using AI in some capacity, particularly in the sales and marketing department where I know you've been able to slash

costs.

Just give us a sense of where this is most useful and is in assessing credit quality of customers also sort of part of how you're utilizing AI,

too.

SIEMIATKOWSKI: So we're not using Gen AI right now in underwriting. We've used machine learning for a while in underwriting. But in other areas where

AI's, I mean, it has a profound and very significant impact on our business. So we announced in Jan., February, we launched our customer

service chatbot. It basically took over 70 percent of all customer service errands with higher satisfaction score than human agents, which actually

remove the equivalence of 700 full-time employees with the launch of that.

Now, in our case, we're outsourcing and the agencies that we used have 100,000 of MPs. So these jobs, these people simply got jobs with other

customers of theirs, but obviously long term this will have implications for those kind of jobs. We've also seen tremendous impact on our marketing

expenditure, especially in like, you know, type of producing photos and marketing material and stuff like that.

Not the really high-quality creative stuff with more than kind of day-to- day usage. And in general, actually Klarna has not been hiring since September, October last year. So we our through natural attrition shrinking

by about 20 percent on an annual basis. We're going to go from about 4,000 to 3,200 employees this year. And we're simply not hiring because we see

that due to the these tools we can do more with less and, you know, we're really into this.

What I promised my employees, though, is that we're going to pay more per employee as a consequence of this so there's something --

CHATTERLEY: OK. That was going to be my next question, my friend. Yes.

SIEMIATKOWSKI: Yes. Exactly. The cost of staff is going to go down, but per employee it's going to go up. So there's, you know, there's something for

them as well. But like I think that the -- it is tremendous and I think we are very, very optimistic in the coming 12 months. There will be continuous

opportunities to apply the technology in a way that allows us to become even more fast moving and agile.

CHATTERLEY: I've got two questions in one now, because I've been told I only have one more question. Very quickly, do you think you'll ever hire

more people as an entire business than you have today based on what you're saying about AI or do you think actually that's sort of replacement effect

is something that will be sustained? And then the second cheeky question is, IPO, Sebastian? What do you think an IPO timing?

SIEMIATKOWSKI: I just was -- I was just watching an internal project today where they had basically created an avatar of me so that we could contact

all of our large merchants with a personal message for myself and so I was like, OK, good. So it's not only customer service, also CEOs that can start

thinking about what's going to happen eventually to their jobs. I think that unfortunately, you know, this technology has its profound potential

impact.

Now, I think we as a society needs to consider what that means, because as much as people have always said, you know, there will be new jobs and

potentially there will be, if you are a 55-year-old translator, you may not retrain to become a YouTube influencer overnight, right? So I think still

society should consider how do we support people that may be affected by these changes. But with that said, I don't believe that we will ever become

more people again.

CHATTERLEY: Wow. Yes. So that really means that policymakers have to step up today with plans for retraining and accepting the truth of the massive

impact that AI is having. You have not answered the IPO question, but I think we're out of time. So I'm going to have to reconvene with you on

that. We'll speak again.

Sebastian, it's always great to have you on. Thank you. The CEO of Klarna there.

SIEMIATKOWSKI: Thank you for having me.

CHATTERLEY: Thank you.

Now, in the race for the White House, Michigan is seen as a must-win state to union auto workers so a key voting bloc there. John King went to speak

to the voters who have the potential to tilt the scale.

(BEGIN VIDEOTAPE)

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT (voice-over): It's way down from Detroit's heyday, but 134,000 members still makes the UAW a force in

battleground Michigan.

Chris Vitale works in engine development at Chrysler and believes President Biden's push for more electric vehicles hurts business.

CHRIS VITALE, MICHIGAN VOTER: The government seems to be appeasing the coasts. You know, everyone who lives in Manhattan thinks everyone should

drive an electric car.

[16:40:01]

KING: Vitale says he will again ignore union leadership and vote Trump a third time, hoping to end the EV mandates and to get better trade rules.

VITALE: So I've watched this region go from the arsenal of democracy. Now, we're happy if we can get a sports stadium or we're going to sell weed or

fireworks or whatever. It's absolutely pathetic what we have sunk to now. And our politicians just there. They're good with it. He isn't. So that's

the difference.

KING: Bob King worked at Ford for more than 40 years and served a term as UAW president when the industry was trying to recover from the 2008

financial crisis. He ties Trump's support among union autoworkers to years of lost jobs and lower wages.

BOB KING, MICHIGAN VOTER: People feel like the government and the establishment hasn't been delivering for them. Is their life better now

than it was 10 years ago or worse? And for many, many working people, it's worse. Their standard of living has deteriorated. In some cases, their

communities deteriorated.

KING: Walter Robinson, Junior bets about 40 percent of his Ford coworkers are for Trump.

WALTER ROBINSON JR., MICHIGAN VOTER: He's never done a hard day's work, not physical work. Like you do in a plant. He has a solid gold toilet at home

so I mean how can he really empathize with your life?

KING: And when you say, wait, Joe Biden walked the picket line with us. Joe Biden has been a pro-union president?

ROBINSON: They say that, you know, guns, gays, abortion, Sleepy Joe, Hunter Biden.

KING (voice-over): Robinson says the new contract wins were impressive but didn't fix everything.

ROBINSON: Gas prices are still pretty high. Food, when you go to the grocery store every time it's just me and my wife and it's $200 every time

I go to the grocery store.

(END VIDEOTAPE)

CHATTERLEY: And that's QUEST MEANS BUSINESS. Up next, "MARKETPLACE ASIA."

(COMMERCIAL BREAK)

END