tv Bloomberg Surveillance Bloomberg May 9, 2022 8:00am-9:00am EDT
>> the whole point of what the fed is trying to do is to be inflation. >> what they are trying to say is they are on the case of inflation. >> we expect inflation to escalate3. >> we look around the world and everybody waited too long. >> we're looking at the next few months as higher interest rates. >> this is bloomberg surveillance. tom: good morning, an event for
money like an eventful friday and thursday we had last week. markets are on the move and not as grim as 20 minutes ago but these are debt -- difficult equity markets. jonathan: session lows on the nasdaq 100 and the s&p 500 is down. we live in the most chaotic macro economic times. tom: we will get you up to speed on that in moments with michael mckee. atlanta gdp now situated well below 3% seems to be an american economy returning to something like normal. jonathan: looking ahead to decelerating growth and hopefully looking ahead to decelerating inflation. tom: of all the research this weekend, michael mckee is on it. forget about now, look out
further to disinflation. jonathan: that seems to be the consensus we see on laois and. it's about the month on month readings in core cpi that this market will be excited on this wednesday and that's what we will be looking for. tom: the president is fixated on inflation. lisa: how much can he really do at this point? they have talked about possible profits at oil companies but it's not necessarily economic for them to invest in drilling more. what can he do against the supply chain in china? what can he do against the war in ukraine? there is uncertainty stemming from things well outside of policymakers control and that's whipping around a lot of the market activity and the economic or cast. tom: the fed debate is 4%
inflation and 3% acceptable or getting back to 2%, that doesn't play in il-4? lisa: this is the concern, how do central anchors continue to message the wage gains are perhaps bad for long-term inflation when it's the only way for people to survive and have a quality of existence? tom: we must do a data check. the vix is up for big figures with a 34 level. jonathan: your equity market is lower, headed south on the s&p 500 by 1.5%. yields are higher by four basis points. the highest we have seen the 10 year in the first some -- time since 2018 step at one point
today, the highest five-year yield going back to 2008 and we have not seen the strength we have seen in the u.s. dollar . tom: every fed president seems to be difference with comforting to know that mr. bostic took a degree in psychology. jonathan: he is sitting alongside michael mckee. michael: good morning, you guys are depressing today. raphael bostic, president of the atlanta fed, thank you for joining us this morning and wall street is depressed. the two questions at everybody on wall street wants to know is how far, how fast. let's get the good stuff out of the way. is 75 basis really off the
table? is 50 going to be good enough and how high can you end up going? >> good to see you and good to have you at our conference. when i think about our policy, the first thing on my mind is that in lesion is too high and we need to act definitively and purposefully to try to get that under control. if you look at what we've gone so far in the last two meetings, we have started the process. 50 basis points over the last 20 years is already really aggressive. i don't think we need to be moving more aggressively. i think we can stay at this pace and cadence and see how the market evolves. my expectation and hope is that as we move closer to our neutral level and far away from our accommodative stance, that we will start to see a lot of the
tightness and tension in the economy start to moderate which can then give us options and choices to what we do after that point. michael: where do you think you will be i the end of the year? >> that's a good question. i think we need to be getting somewhere into the neutral range. different people have different ideas about what that looks like but for me, i'm looking between two-two .5% as our neutral range. there is a lot of discussion about uncertainty. there is a lot of volatility and stuff that has to play out stuff once we get to neutral, i think it will be fine step in my view, we will move a couple of times and see what happens and see how the economy responds and see if
inflation continues to move closer to our 2% target and then we can take a pause and look at how things are going. michael: does that mean not move at a meeting or this will be a rolling decision? >> all options are on the table at every meeting said the ending how the economy is responding, be the economy is responding strongly so we don't have to do anything or be that the enemy is responding maybe a little less strong so we might move 25 basis ways. i will keep my mind open and observe what happens in the economy and adapt my idea of what's appropriate policy based on that knowledge. michael: economists and your colleagues have said you will have to go beyond neutral. if you had a 4% inflation rate in eighth we present fed funds
rate, you still have a negative real fed -- fed funds rate. why do you think they will have to do that? >> my hope is that a lot of things are out of our control like supply chain disruption and they should start to get to a better place. we will see how the labor market responds. there is a story last week about retirees coming back to the work place. those are things that might relieve some of the tension and labor markets and allow the supply to increase but reduces the balance between demand and supply because all of this inflation is an imbalance between the high demand in the low supply that's out there. if we can see movement on the supply side, that means we will have to push less on demand so i think that inflation will come down. we will have to see how fast and that will determine whether we have to get into restrictive territory and if we do, how far?
we've been doing surveys throughout the entire pandemic and everyone has come with predictions that have turned out not to be the case so i'm trying to be as humble as i can and being in the moment and try not to anticipate too many steps out in advance because there is a lot of stuff that has to happen. michael: does it worry you we are seeing such a rapid selloff in the market rates are going up so late? >> i think the move in market rates is interesting stuff we have not moved very far in terms of our policy rate but the market has -- has responded fairly fast and i think that's positive in the sense that they are taking on board the policy we signaled and we just have to deliver on that and i think we will do that. in terms of the volatility in equity markets, one of the things i found to be interesting
is as i talked to a number of people, the range of forecast about what will happen has broadened considerably. that will translate into higher volatility and some of what we are seeing now has to do with that. michael: what it take for you to rescue the markets? you might start cutting rates again by 2023? >> there is a lot of momentum in the economy now. you have support of over 400,000 jobs and that kind of performance in the before times would have been reason for celebration. i think we can ride out a lot of that moment even as we are raising rates. my hope is that we will get to a place where you don't start to see breakdowns in labor markets or other parts of the economy. just to be clear, i am paying
attention and of necessary, we will do whatever it takes to make sure the economy stays on a solid path. michael: a lot of your former colleagues including bill dudley and don cohen have said you cannot do this without inducing a recession. michael: i've heard the same thing. i understand that but i think the thing we have to be mindful of is that this context is nothing like we've ever seen in my lifetime and my policy space. pandemic driven disruptions and a lot of things that are intersecting in ways that i think makes it hard to know where the economy is likely to go. i'm keeping my mind open. i am an optimist but a worried optimist.
i were all the time so i will pay attention to see where things go. michael: it's an election year and there is a lot going on step you feel any political pressure? >> i'm not but we have a clear job to do and that's to meet our mandate. today the labor market is doing fine but the inflation is the real challenge. michael: thank you for joining us this morning. everybody is back together for the first time in a couple of years. jonathan: i hear it's beautiful which is why you are so happy and not so gloomy. thank you as always. the equity market is still -2% step no need to hike more than 50 basis points, get back to neutral in the economic tension moderates and we are open to going higher if needed step this
is the consensus view on the fed. at what happens if they get to 2.5 percent where the uncertainty lies stuff tom: it's a consensus view and it adapt and adjust as you move forward stuff i thought jeff rosenberg was trillions on this last week. buttressed by the news of all of schultz getting to oil sanctions. it's one breath a moment in a very difficult market. jonathan:, we catch up with the white house, the u.s. deputy secretary administrator for energy. ♪
>> inflation is to hike many to act definitively and purposefully to try to get that under control. for me, 50 basis points over the last 20 years you know is already pretty aggressive. i don't we need to be moving even more aggressively. i think we can stay at this pace and cadence and see how the markets evolve. jonathan: a fantastic lineup of guest this morning. michael mckee sat down with rafael bostic this morning. good morning, your equity market is negative once again on the s&p 500. the nasdaq is down by more than two percentage points. things are getting just a little after relatively speaking with yields up by three or four bases
points. tom: i don't even know where to go. 3.16 on the 10 year. a slightly weaker dollar in the last 40 minutes? jonathan: we are getting to levels we haven't seen for a long time stuff take the 10 year treasury, it goes up to 3.20 and you have to go back to 2018 on that stuff tom: any morning with the vix at 3.55%. we have the u.s. deputy secretary of the treasury and someone knows the minutia of sanctions. let's cut to the chase. details of the office of foreign assets control this goes back to the war of 1812. we drag it forward to some 200
employees in the office of foreign assets control. what is that office doing in treasury to defeat mr. putin? >> they are working to target russian military industrial complex. they have taken a number of steps to go after the russian financial system and we've seen their economy is contracting by more than 10% to do that and we are now focused on making sure they cannot build out their military-industrial complex and fight the war in ukraine. because of these actions, the two top tech makers are not -- tank manufacturers are not functioning. yesterday, we sanction some of their top military companies as well. tom: we get all the silliness
about things floating around. did they say a manufacture in poland says you can't do that or are they just domiciled in america? >> not only have we taken action but talking directly to the financial system and making sure they are aware they can provide services to the people who helped build those yachts or helped fuel the yachts but we have done this in collaboration with our allies and ardors. not only can you not domicile your yacht in the united states but ross 30 countries, they have taken these actions. if you happen to get your yacht to another country and you can find a company that will provide you with services, if that company provide you material support, we will sanction them as well. lisa: we are at a time when we are dealing with the idea of
sanctions on russia but incredible inflation. certain tariffs may be removed on china to reduce inflationary pressures. how actively is a treasury department discussing those removals at a time when people are wondering about the u.s.-china relationship? >> goal is always to make sure we are making trade policy consistent with their overarching goals. we are working closely u.s. trade representatives and the rest of the cabinet to make sure we have in a purse to china that puts america's interest front and center. there are other issues that other countries have as well. lisa: what do you think will be the next step with respect to additional pressure put on russia especially given some of the inflation we are seeing? >> when you think about what
russia is doing in ukraine, is a key contributor to some of the price increases we are seeing in energy and food. russian ships are blocking the ability of food to get out of you and because of russia's actions, using energy prices rise. what we are trying to do with sanctions is to end the invasion as clean as possible. we will continue to put pressure on their financial system and go after their military-industrial complex a russia does not have the arms they need to continue the word rain so they also can't project power into the future and destabilize the region. tom: we've got reports that russia to sing a 12% contraction. can you model out what form of contraction you visualize? can it be -18%? >> what we noted day is that russia has lost 15 years of
economic growth due to the sanctions we have imposed on them and that's not even talking about the inflation that's going through their economy. russian now has to make choices and that's what we want them to do, to choose between using resources to prop up their economy or fight the war in ukraine and we want them to make that choice harder by continuing to level sanctions. jonathan: good to hear from you as always. the interviews continue this morning step there are two views that things could get better on the inflation front sooner than this market expect but also, this is a generational shift in yields south of the rallies. tom: interesting is calling for a more quiet inflation.
that's a terrific view. jonathan: is peak inflation enough? is it sufficient? i don't think a lot of people believe it is. lisa: it's also what's driving deceleration. if it comes from wages, is that a good thing and we'll people want to see that? jonathan: yields are lower at the front and on a two year. a lot to figure out in the bond market. yields are up and equities are down. down 1.7% and in foreign exchange, the dollar has strength over the last five weeks. tom: you have to watch the yen.
jonathan: live from new york city on tv and radio, this is bloomberg surveillance. your equity market is lower. yields are higher but not as high as they were. the dollar was a whole lot stronger and now weaker against the euro. that currency pair is off 1/10 of 1%. tom: we will do more data checks as we see the data come in. we have the chief economist at pantheon economics and joins us for a recalibration.
we just talked to rafael bostic gave us the fed line from atlanta of the good news out there. we are in control and have options. how much in control are the central bankers? >> maybe more than markets think. they would always say they were in control. the last few months have been very difficult for them with inflation having some big spikes. we probably hit the peak and when we get cpi numbers, they will look significantly better year-over-year in the next few months, that issue could continue. i think they will be able to tell a story of what we have done is working. i think they are hoping the downshift we seem to be getting in the wage numbers will persist
and that will help us through the end of the year with a din -- with a genuine downshift. tom: how important to the late summer into the end of the year is escaping the chinese lockdown? >> that's a big deal for small sectors. the u.s. cpi is a domestic service price index. quite a lot of those goods or china sensitive like clothing, where and household electronics. you put those things together and you are looking at 1 1/0 of an index. got some extremely encouraging
look at the auto sector. the china thing is not helpful but i don't think it's a game changer as long as it doesn't get completely out of control. jonathan: the consensus view is that the fed chair clarify 50 at the next meeting and 50 after that. do you have any doubt around that second 50? >> the first 50 in june it's a done deal. by july, we would've had three cpi reports. we've also seen three months of housing data. mortgage demand is cratering. rates have gone from 3% to five and a quarter percent. applications felt 10% in april alone. there is no sign of a bottom.
over the next few months, we should see starting with the desk darling will he -- startlingly weak numbers in real estate. whether the market will want to do another 50 against the backdrop, there is a lot to pray for over the next few months but those are important things, inflation and housing. jonathan: are you questioning the journey or the destination? >> might beef with markets is they got far too aggressive on the speed the fed needs to go. i'm not arguing that rates need to be significant lay higher but i think they will raise rates in 2024 because the neutral rate will rise.
next year's story is rates going higher across the whole term. maybe the markets are too aggressive for the short-term and not thinking about what will happen next year. it could be a normalization after a long period of falling rates across the entire curve. lisa: you say wages will start decelerating and that's one of the key drivers in addition to housing that causes deceleration in inflation. is this a good thing and is it positive for the fed? we still have the base effects of what's going on in supply chain disruption. >> from the first perspective, last summer, they were running annualized of 6% and that was
nonsustainable. in the last two months, it looks like wage growth could be settling down to four which is faster than at any point in the last cycle. wage growth at that voice would -- at that pace would be normal for other cycles. it's kind of a sweet spot if we can engineer against a backdrop of chaos from china. if i were the fed thinking about in elation down the line, wage growth settling at two or 3% would be ideal. it's a plausible point that's not yet certain most of lisa: is at the absolute number or is it real wages? it's sort of a relative kind of
equation in terms of wage gains versus the cost of goods. if you're only getting a 3% wage increase but the cost of goods are surging at 10%, it doesn't look good for the american public. >> u.s. household sector is sitting on $3.5 trillion of cash which is about 14% of gdp. that's a gigantic cushion against spending a couple of hundred billion stop -- billions of dollars in crude energy. the household sector is in pretty good shape but there are some questions about distribution. overall, the household sector is in good shape. if the cpi numbers are going to moderate over the next few months, real wages will start falling less immediately stop cpi this week will be .2 while
wage growth will be .3 or .4. we are moving into a better position and i think we have this gigantic christian of accumulating savings. tom: take your optimism over to export and import dynamics for america. >> we have seen insane import numbers. it seems clear that this is substantially because domestic wholesalers are rebuilding inventory after struggling during the peak of covid. this won't last for much longer.
that's completely unsustainable and i guess the trade numbers will be quieter. the dollar has shut to the moon and europe is teetering on the edge of recession. it's not a great environment to be in exporter. i'd like to see strong exports but it's not the end of the world of doesn't happen. jonathan: and we did all this without talking about newcastle united. tom: we did. jonathan: did you watch the game yesterday? tom: that was special. jonathan: a special summer coming up in the transfer market. tom: are we leaving tuesday night or wednesday night?
jonathan: if you want to get out there? i haven't got tickets for it. i haven't seen that signed up by management. maybe we can find some tickets. do you still want to go? tom: i would call the tots. jonathan: maybe we can get you a couple of tickets for the big game thursday night. tom: i want to get four rows back behind the bench. they have fancy designer coats they have. each firm is different. i've never been to a soccer game. jonathan: we've got to change that step maybe we take the week off. tom: what is the derby that newcastle plays? jonathan: they are in a different league. those kind of teams go up and
down. tom: yankees-mets, crushing it. jonathan: red sox? tom: the only reason the red sox aren't the works in the world is because of the beloved detroit. lisa: i wouldn't know. i know it's depressing in the markets so keep your moment of zen going to stop i don't know what else to call it. tom: it's big boy talk. jonathan: you didn't text back over the weekend. tom: i was overwhelmed by mother's day. jonathan: i thought twitter would light up my phone. tom: mother's day was deeply emotional. jonathan: expensive for tk. futures are down 1.8 on the nasdaq. the s&p 500 is down by 1.4%.
this is bloomberg ♪ ritika: keeping you up-to-date with news from around the world will stop vladimir putin the celebrating russia's five against nazi germany. he said russia is defending with their fathers, grandfathers and great rent fathers fought for and the ukraine president said the russian army is dying not defending their country but trying to occupy another. the u.s. first lady jill biden made a surprise visit to ukraine and crossed into the western part of ukraine where she met with children and the wife of the president. she said the timing of her visit coincided with mothers day and was important step president biden will give a speech tuesday on his efforts to fight inflation. rising prices are threatening
the democrats holding on to congress after midterm elections. he will draw a contrast between his plan and florida senator rick scott. high-speed connections will be offered at no cost for millions of low income households as part of a program funded by the infrastructure law passed last year. bitcoin is falling toward levels last seen in july, 2021 stop it's trading at around $33,000. global news, 24 hours a day and on bloombergquint take. this is bloomberg. ♪
some of the price increases we are seeing in energy and food. russian ships are blocking the ability of food to get out of you rain. you seen energy prices rise because of the geopolitical uncertainty. with sanctions, we are trying to end that invasion as quickly as possible. tom: a very articulate u.s. deputy secretary of the treasury with close questioning about what we do on sanctions. right now, flat out from the grimace of three hours a go, it's better now? lisa: we were seeing possibly 3% losses and now we are seeing 1.5% stop i'm wondering whether the projector he is upwards for longer yields and how to fx risk appetite. tom: if you're in the equity markets, do you buy the dip?
i love your chart where you say we've been here before, 2011. >> this is not shocking. thank you for mentioning my chart. i draw pictures and i tell stories in the story is pretty clear. the fed has been way behind the curve. you so that with that fed funds. we think now is the time to take a pause and reflect and impose or react. there are many signs in the market. we are not in the business of forecasting but if you look at the balance of data in the
market, number of things say a low mid 3% yield might be where we should go. the euro-dollar curve is inverted step is telling you the fed is likely to cut rates 2-3 times starting in the middle of next year. the markets can be wrong but at -- but that's a weird and specific way for the market to be wrong. if you go back to the last four rate hike cycles, the average from when the fed funds rate start hiking and when they stop, the 10 year moves 90 basis points. he at 220 and then it would be 310. put that together we've seen the largest draw down in the treasury market in the history of bloomberg data back to 1973. it has to get to 5.5%. tom: some great work from an academic on the west is this
week looking at the bond draw down. back to 1842 and i can tell you that was difficult. lisa: from personal experience. aside from the levels you are looking at muhammad's conviction do you have to save your clients that this is a great time to buy longer-term bonds amid the carnage? >> we don't have conviction to say it's a great time to build longer bonds. we went short duration when the tenure treasury hit 57 basis once during covid. a good move has worked out well and now for clients that earn cash and are earning next to nothing, there is a reasonable opportunity to get more yield.
the short curve is the steepest since 1993. you can get short corporate said it two or three year duration stop the opportunity to extend duration somewhat on the short end is very attractive for many clients so we are cautioning them not to overreact. don't panic here as you see the sea of red. that brings down the curve returns but it improves your future returns. lower prices are better for future returns. lisa: are you thinking of the same potential opportunity and transpire in credit given the fact that we have not seen a whole saw repudiation of the spread and spreads have not wind is much. do you believe this is just the beginning of more to come or will this be a source of stable
returns? >> it depends on what the fed is going to do. it's uncertain so we want people to be diversified and have a fixed income and equities. if the fed reacts to the incoming data, it's ahead of inflation abbott than moderates later, than generally that will be a good place to be. if they continue to be behind the curve, they will have no choice to play catch-up. the last time they did, they put us in the situation. the curve starts to steepen again and they are still behind the curve stop they will have to do less later. having some overweight credit makes sense but don't go whole
hog on any of this. tom: thank you very much. it's refreshing to get away from the mumbo-jumbo. fluent to say we buy the dip in equities. you have to have the curse to buy the dip in bonds and that's an open debate now. lisa: many people have said it's a good time to add duration. many people have said there's actual value here. where are the dip buyers? they come in on the margins and then they go away? there is not a conviction you will find a lower when you get a yield curve steepening that maybe people don't think the fed is being aggressive enough and perhaps they are to dovish. tom: i'm looking at the bloomberg total return. she is only looking at credit
and high yield and the other excitements out there. it's a draw down, as they say stop lisa: at what point do we get a plateau? the real yield is the thing to watch. i'm talking about the idea we've seen a 1.5% move up in two months in real yields. this is one of the main drivers. tom: our listeners and viewers phone nominal but not real. bloomberg total return index was negative eight and now it's negative 13%. lisa: it's been brutal and people will look at this and they will see their statement and they will pull more. tom: it's uneventful day after the challenges of the european morning. futures are -16 and the vix is
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the countdown starts now. ♪ >> everything you need to get set for the start of u.s. trading. this is bloomberg "the open," with jonathan ferro. ♪ jonathan: buy from new york city, we begin with the big issues. >> stagflation is toxic for traditional assets. >> equity by itself is not a safe place. >> cash is not safe because you knock in a negative real yield. >> there is no safe haven. >> liquidity is starting to fray at the edges. >> it is really hard to get a handle on what exactly is going on. >> investors are looking for defens
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