scarlet: welcome to bloomberg markets. let's get a check of the markets. s&p 500 up for a fifth straight day, holding near the highs it almost two years. we are seeing stocks in a holding pattern before the fed decision and release of all the new economic projections. you are seeing a rally in treasuries across the curb. the two-year yield comes down. ten-year comes down four basis points.

wti is a big mover all week. it is rebounding but still holding below $70 a barrel. clearly in a downtrend. the 20% plus drop since late september certainly is deflationary or disinflationary trigger as well. we will keep an eye on that for you. we are just less than one hour away from the fed's this vision were the central bank is widely expected to hold rates steady for 3rd street meeting. what is different is we get a fresh set projections and a dot plot looking into potential rate cuts in the new year. here is what our top guests have set ahead of the upcoming announcement. >> we think the market is running too far ahead of jay powell and team right now. >> they are in an awkward position clearly the next move will be a cut. technically, the bias is a hiking -- >> they have got to get the message straight.

>> there is nothing we can point to an economic backdrop today to say this right here is why we need a fed plot. it doesn't mean you need to move to cutting. >> they have a balance where they say they are going to be on pause for a little while. it's ok for the market to just a on pause. i'm excited to not hang on every single word that the fed is saying, at least for the first half. >> the traders are pushing this dream of four rate cuts next year. we think the economy is showing a significant resilience in the face of what is an 11 hikes in three pauses or skips as the fed prefers to call it. scarlet: let's go now to her own expert, international economics editor michael mckee who was at the federal reserve. let's start with market pricing. inflation data this week, cpi and ppi. half of the reports influenced

the pricing for rate cuts? michael: they have certainly put the idea into people's heads that the fed could be cutting rates. it has not changed the timing or the magnitude of the rate cuts the markets are pricing. it does support the idea. it will be interesting to see how jay powell find -- finesse is that without suggesting they are going to cut rates and feeding the market frenzy over that. he will probably say the reports show we have made progress. the cpi shows we are not there yet. we are still in the three's. we have to keep going. whether that means higher for longer or whether they take any kind of additional rate cut off the table, that remains to be seen. take a look at the statement when it comes out. third paragraph. since july, they had a sentence that starts, and determining the extent of additional policy firming that may be appropriate, if they take that out it is a signal they are probably done raising rates. scarlet: i love how you. put it,

finessing that is the one thing jay powell, the onus is on him. policymakers have a discussion on interest rates. then there is the actual words that powell chooses the use in his news conference, including in the statement. how much overlap goes behind and what powell says out loud? do we get a true depiction of what officials really pondered when jay powell was answering questions? michael: you get a generalized ascription. that is why we look at the minutes to see how the various opinions broke down. where did people come from during the meeting. we don't get that from jay powell. we get his statement, which is essentially a recitation of the fed's overall statement. then we get a mixture of his views and the committee's views on where we are and where we are going. scarlet: looking ahead, in terms of data over the next couple weeks it feels like this is the

big thing that the markets have been waiting for. after this what could move markets in terms of pricing for rate cut? michael: not a lot. we get retail sales tomorrow. that gives us an idea of how strong the economy is. the forecast is for the fourth quarter to be slower than the third quarter. at the end of the month we get the pce inflation numbers and consumer spending. those will help the fed make some decisions except the next meeting is not until january 31. we will get a new job support, new retail sales report, new cbi npc before then. -- and pce before then. it will be pretty quiet before then. scarlet: next year in 2024, don't some new fed presidents rotate in as voting members? any sense of whether it is good -- the committee turns more hawkish or dovish? michael: by definition i suppose it will turn more hawkish.

you have loretta mester coming up to the board. she's always been under the voting rotation and always been fairly hawkish. we also have rossville bostick -- raphael bostic who is not at all hawkish. looks like it will be about the same. i don't think it would be a question of hawkish and dovish then divisions are not that deep. it will be a question of timing and inflation. how far inflation has to come down before they agree it is time to make a rate cut. scarlet: michael mckee, thank you for setting the scene for us. bloomberg's international and policy editor michael mckee will be there when the fed decision comes out. we will check out with him in the top of the next hour. let's head over to kailey leinz who was standing by with the chair of the sec gary gensler. kailey: thank you so much. i'm joined by chair gensler.

effect concerned about leverage and the treasury market. does this will go far enough to address those concerns or will the sec or will the sec do more to address them? chair gensler: what we did today is one part of a set of reforms we are looking at. an important part of it. it has to do with lowering risk in the system and the u.s. treasury markets. to your question, there is a lot of borrowing leverae treasury markets. bringing things into central clearing can address that in a number of ways. one is the clearing itself does something called multiparty netting that lowers a lot of risk in the system. clearinghouses collect margin. they collect collateral against transactions. right now a lot of the market is operating and is not collecting collateral or margin.

kailey: like the icbc hack that was disruptive to the treasury markets, with his help avoid that in the future? is this a step towards avoiding that or do you still see situations like that that could arise? chair gensler: there is some relation but it's a separate risk. we have to be very aware there is risk in the symptoms -- system from cyberattacks. that is publicly revealed. it was a ransomware attack. that ransomware attack disrupted the treasury clearing broker-deal. -- broker deal. the clearinghouse operated smoothly through that. for that one clearing broker and its customers they had to quickly find work arounds. kailey: commissioner essentially suggested we cannot pretend the rule is going to solve all the

systemic risk present in this market. he mentioned higher interest rates, especially as the federal reserve is about to make another rate decision. how concerned are you about higher for longer rates and the potential vulnerabilities it causes in treasuries? chair gensler: i will leave interest rate policy to chair powell and his fellow members of the federal reserve. in terms of the u.s. treasury market we have seen greater volatility. we have seen volatility in the markets this year which are historic. earlier around the regional backing turmoil at the beginning of the year. more recently in the longer end of the curve. it's important to look at the leverage in this system. there is a lot in the relationship between banks and broker-dealers and on the other hand hedge funds.

that borrowing in the marketplace is part of what this rule will address. at least bringing the benefits of central clearing that helps lower risk. kailey: upon the subject of hedge funds, news yesterday came when a group of trade groups for hedge funds including the managed funds association filed suit regarding rules the sec passed earlier this fall related to shortselling and related securities lending. i know you cannot comment on a specific lawsuit. when you think about them collectively, the idea that wall street seems to be taking every rule you pass and taking it specifically to the fifth circuit court of appeals, how does that make you feel and maybe change how you are thinking? chair gensler: it is part of democracy. they have their rights to do that. i feel confident in the work the team has put together and the commission reviewed that went out to public comment. i would note these are two rules

to promote greater transparency in our market. as mandated by congress after the financial crisis of 2008. congress mandated securities lending and separately around shortselling in the markets. that is what we did based upon public feedback. i'm very confident in the team's work. kailey: more broadly beyond those rules when you look at the real litany of court cases the sec is now grappling with are you worried wall street is going to continue using the courts to dismantle the work of this regulatory body? chair gensler: this is not a new feature of our democracy. kailey: it is happening frequently. chair gensler: it has happened in the past as well. we put together all that we do according to the legal authorities congress has given us and how courts interpret

those authorities. we do it based on public comment and we do it based upon economic analysis. again, i feel very proud of this agency and the hard-working staff and my fellow commissioners. kailey: on the subject of congress we are about to head into an election year. there's a chance republicans could control both chambers of congress, potentially the white house. does that set a deadline on the work you were doing here knowing that theoretically within a certain number of legislative days congress could have the power to overturn some of your rulemakings? how are you thinking about the timeline? chair gensler: i think of it this way. we have a privilege of service. somebody like myself has a privilege of service and it's about doing the maximum good for the maximum number of people. our clients are 330 million americans and the time we have in these jobs. that is what i'm focused on.

kailey: the commission and the staff of the commission is hard at work on a number of issues, one of them dealing with the filings of spot bitcoin etf's. there has been a lot -- chair gensler: i suspect there is something significant about the $26 trillion treasury market which is really the base of our entire capital markets. it is how we fund our government and how of the federal reserve does monetary policy. it is how we maintain the dollar dominance around the globe. you want to ask me about crypto? kailey: in my defense, commissioner rotted up. -- brought it up. chair gensler: it's a very consequential, very important market. crypto securities are not only much smaller, it is not how we fund our government. it is not how we conduct monetary policy. for many investors they have been harmed in that market.

they are being harmed because there is too much noncompliance. it is not just noncompliance with securities laws. it is noncompliance with a raft of other laws. our sister regulator in the market space, the commodity futures trading commission, the u.s. department of treasury and financial crimes enforcement. again, i do ask, if you look at the focus of the priorities of the u.s. treasury market and what we did today is really quite important to our capital markets. kailey: absolutely, and that is why we have discussed it. you're engaging with a number of matters related to crypto specifically. i think this is fair game especially when you're having staff meeting with a number of issuers in recent days. chair gensler: i'm glad you now agree that the priorities were to the treasury markets. what is your question about bitcoin? kailey: sec staff engaged with issuers of a number of which

have filed for a spot etf. another -- a number of amendments to those filings. it seems that market participants have a since we are reaching the end stages here. typically is this not judging anyone filing but the level of engagement you are seeing signifying of things getting easier closer to resolving or things getting more difficult/ ? chair gensler: we have somewhere between eight and a dozen filings in front of this agency with regard to exchange traded products around bitcoin. the staff of the various divisions respond when market but this event have filings. we also had a court case earlier this fall in this regard so we do things according to our authorities and how courts interpret our authorities. that is what we will do here as well. kailey: i think you are referring to the grayscale case. we talked about a number of

litigation the sec is already dealing with. there's been talk about one of your other proposed rule changes related to climate disclosures. potentially unleashing a wave of litigation. how was that informing the sec's thinking as it considers the final rule? chair gensler: we have now and our capital markets not just hunters for probably over a thousand companies today that are making climate risk disclosures to investors. we have investors representing tens of trillions of dollars of assets under management, making investment decisions based on those disclosures. we put out a proposal about 20 months ago with regard to climate risk disclosures. we have got lots of comments. 16,000 comments. we are still sorting through that. just as i said earlier, if we go

forward, as i cannot prejudge anything, we will do it based on the law and how courts interpret our authorities. kailey: thank you so much for your time. that is the chair of the securities in change commission gary gensler. scarlet, back to you. scarlet: great job trying to get some answers out of the sec chair. gary gensler talking primarily about the new rules they have imposed on hedge funds and brokerages to centrally clear much more of the u.s. treasury's trades and the structural overhaul for the $26 trillion market. he says that is the regulators' priority but he said the sec has about eight to 12 filings tied to a bitcoin spot etf in front of it and is going through that as it is supposed to. they addressed climate risk disclosures. let's go back to the fed decision that is coming up at the top of the next hour, about 40 minutes away. we welcome george ball, former

ceo of prudential securities he was close with paul volcker with the last crisis. he's the chairman of sanders morris harris. it is great to speak with you. i wanted to start with the idea that the data last week showed the labor market is cooling but pretty resilient after all the tightening. the data this week reinforced the idea that inflation is slowly retreating. which matters more to the federal reserve at this juncture? george: the fed at this point is looking at data on the current basis . i would join the consensus. there will not be an increase in the fed funds rate at this meeting. everybody except that and is right. the chair the fed, chair powell, will present hawkish leak -- hawkishly but with a balanced

view that will not be disruptive to the market. to the contrary side, people are looking forward to a cut in the fed funds rate as being positive for the market. something like that happening comparatively soon. i did work at prudential securities on paul volcker was on the board. one night late in london he told me the way you cure inflation is to cut off the head of the snake. take the head of the snake and paraded through the village -- parade it through the village several time before they believe the snake inflation is dead. we will be here for a year in terms of the fed funds rate. there will not be a cut anytime soon. even if inflation appears to be under control the fed knows the lesson of backing away too quickly will re-create the disease. scarlet: thank you for sharing

that story. it's colorful but also very telling in terms of the fed's insistence remains vigilant. how much uncertainty, how much conviction did he have and how he approached fighting inflation in private? in public he presented as very hawkish. i'm curious if you saw him betray any signs of doubt or skepticism. george: paul volcker believed inflation robbed everybody, particularly the less affluent, and he was right about that. inflation was a perfidious thief that would come in the knife and steal the wealth of everyone and the less affluent. he was absolutely adamant about that. he by the way would say publicly and privately that companies can prosper as they are today in a broadly 5% interest rate

environment. corporations have the ability to embrace that into both be profitable and grow. he hated inflation but he thought a fair market rate of interest was something a capitalist society could embrace comfortably. scarlet: fantastic to get your insights. thank you and appreciate you joining us today. george ball, chairman at sanders morris harris. still ahead, pimco's tiffany wilding joins us as we count you down to the fed decision. this is bloomburg. ♪ -- bloomberg. ♪

scarlet: we are just over 30 minutes from the fed decision at the top of the next hour. we want to bring in tiffany wilding, chief u.s. economist at pimco. great to speak with you. there's all most no doubt that the fed will hold rates where they are. the question is whether it's a hawkish hold, a neutral hold over a dovish hold. is that leaning determined more by the current economic data or the market's positioning? tiffany: yeah. i think that's a great question. i think if you look at the economic data that we have seen over the period since september,

there has been some incrementally good news on the inflation side. growth still remains relatively robust. the labor market remains tight. i think when you balance these two things against each other, what it would suggest is you have a committee may be more convinced they might not need to be hiking further, although they want to keep the optionality. you don't necessarily have a committee that thinks they should be cutting more imminently. chair powell will have to try to balance those two issues in his discussion today. that will be complicated by the fact that the new summary of economic projections comes out they are not going to deliver a hike that was previously put in there. even despite that we are not convinced the fomc wants to ease financial conditions dramatically, although they might not want to tighten dramatically either.

scarlet: the fomc is seen holding rates unchanged for the third straight meeting. if two straight holds is equivalent to a pause, what does three straight holds signal to the market? does that mean and of cycle? -- end of cycle? tiffany: the fed's job has been tricky. they wanted to ultimately signal that they will be on hold without the market pulling forward their rate cuts as markets do because they are forward-looking and without significantly easing financial conditions. the communication style they have used the help that is basically to say we think we are done for now but we always have the option. economic data and the economy has been strong. we could have to hike at some point in the future. that kind of communication is what i would continue to expect out of powell. one of the key things he has

told us is he does not want to revisit the 1970's under arthur burns where inflation re-accelerates. they will probably be lagging in terms of easing because of that. scarlet: very well said given what george ball was telling us. what is the biggest underestimated risk for the u.s. economy? very quickly here. tiffany: i think there is definitely a scenario where the u.s. economy remains strong. you get tight labor markets are result in inflation that is maybe hanging about the fed's target longer than they would expect. as a result of that they are going to want to maintain some optionality. there are scenarios on the other side where the markets have been pricing in a little bit more these days. this is never going to be a straight shot path. expect some volatility in the markets.

scarlet: tiffany wilding, appreciate you joining us, pimco economist. this is just the beginning. team surveillance will take you over with expert analysis ahead of that decision. tom, lisa and john will guide you through. this is bloomberg. ♪

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