>> the fed is not going to move wednesday. the bigger story is cpi which would change the chance and a meaningful way the fed could cut this year. >> until we see weakness in the economy or inflation down to 2%, they are just not going to cut. >> they will lean toward caution before cutting too quickly. >> they will try to do what they can to give an accurate picture of where they are headed but the problem is -- >> if they become to data dependent, you and up risking real mistakes. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: bloomberg surveillance starts right now, live from new york city this morning, good morning, good morning for our audience worldwide. equity markets are at an all-time high coming into cpi wednesday. your line up looks like this.

at 8:30 a.m. eastern time, cpi then the fed decision and then 30 minutes after that a newscast. how does this morning informed this afternoon? lisa: last time we had a cpi print the same day as an fomc decision was june 10, 2020. it has been four years since we have seen this type of potential doubleheader. doesn't the fed already have this data? how much are they already incorporating? jonathan: it's all about the. plot. where is that. for 2024 and how many cuts does it imply for this year. we are looking for 41% of economists signaling to cut and an equal number expect for cuts and apparently the difference between two and one. it's quite massive. lisa: there is the question

about whether this could do no harm in it the overriding concept that they will not materially show -- shake up the market. if they say one mark -- one cut, they could be saying we are rethinking our estimates and we are pushing back significantly how we plan cutting rates and will send a strong message and do they want to? jonathan: the two-year at the moment is about 4.83 which is not changed on the session. four consecutive fed meetings of the two-year rallying unfed decision day and then we make it five so we've had five consecutive decisions with the two-year rallying. chairman powell has one give and does he show one later? lisa: we just have the 27th record high on the s&p 500 and the 15th on the nasdaq and a rally in bonds. economists are talking about weakness under the hood and how we haven't seen it. there is a caution pervading

that we've seen for months that have not borne out. does jay powell lean into that at a time when there is underlying angst about the revival of inflation? there is no way he will suddenly come out and over half the expectations because he hasn't done so before. it doesn't seem like a lot of people see this as necessary. jonathan: i wonder what the chances are of reopening to july. we could have that conversation later. got cpi later this morning at 8:30 a.m. and a chairman who will go into a news conference who we know has done this before with some daylight between him and the committee based on what he delivers in the news conference. most economists on wall street are zeroing in on july. you've got team no cuts at all.

i wonder how some of this changes later this afternoon. lisa: especially if he says we are making good progress and we just need to see a couple of more prints. does that increase the odds? the chance of the july rate cut is 8% as implied by the fed funds future and a 50% chance by september. we are looking at less than two cuts being fully priced into the market + when everyone expects they will reaffirm some of their guidance. jonathan: the start of may seems like a long time ago but it's not. going into that news conference, we were wondering whether we are sufficiently restrictive. in the news conference, he said we are sufficiently restrictive and that was the news conference over. we played this game before. lisa: looking for him to be a hawk but he never delivers.

that's the tension right now between a lot of estimates from economist talking about weakness under the hood and the record high after record high in the equity market. there is a case to be made for weakness. if he leans into that, he will have support for that. you talk about the cracks whether it's in commercial real estate for the lower end consumers and he can lean into that but how many people are pounding the table and talking about the sudden surge in inflation? those people got quieter so he can cater to these people without making an error and that's likely what people do. jonathan: looking forward to doing all of that with you. this will be dictated by what we here at 830 a.m. eastern time when cpi drops. it's adding more weight on the s&p 500 going into that data, up 0.1% with bond yields just about not changed. the euro is firmer, $1.07 50.

bloomberg's hermann chan of commercial real estate risk and looking ahead to a new dot plot. the s&p 500 reaching a fresh all-time high before today's cpi data and fed decision. i'm pleased to say bob is with us for more. walk me through what you are looking for at 8:30 a.m. this morning. >> obviously, i am data dependent. like everybody. i have no idea what that number will be. i wish the number was a little lower. i expect we will get the same number again. inflation has remained sticky. i think we will see more of that. jonathan: do you think there is a risk that inflation stabilizes

above target? do you get the sense from the chairman that he shares that view? >> i think he has to continue to work into that view. the probability of getting to 2% inflation in my view is pretty close to zero. somehow they have to lean into the language that we've done enough and inflation has come down and maybe it will not get down to 2%. i don't know how they finesse that but i think that's where they are headed. lisa: there is the issue whether we will see the recession that people have been predicting. it has been delayed significantly. do you think we need the recession in order to get inflation back down to 2%? >> yes, i think we need that recession to get it down. the fed doesn't want a recession and they do want to percent inflation. that's a tall order in my view. they will have to compromise on one or the other and i think

what they will compromise on his let's not worry about inflation down to two, we don't want and -- we don't want a recession. lisa: do you say long bonds are hairy given the fact that inflation will be what has to give, not the surly growth? -- not necessarily growth? >> i think the bond market has been vacillating with that trading range that is not sure either. i think we will get more of that. in the meantime, earnings keep delivering and that's why stocks go from high to high or at least a few of them. lisa: we are talking about nvidia and anyone who partners with openai. who are they not partnering with? they are what nvidia is to hardware nai to software. when do you follow their tracks and invest? >> i think you have to be there, nvidia, apple, microsoft.

we own them maybe a little less than her benchmarks but nevertheless, we think you have to be there. while these stocks have been great, they are still not ridiculously priced compared to any comparisons to the past. you've got to be there and as you pointed out, we are having a narrowing in the markets of the average stock is doing nowhere nearly as well as the broad averages. jonathan: yesterday we had apple at all-time highs but we need to bring up the financials. they are the bottom of the pile in yesterday's session. citibank was down 3.7% and jp morgan down by more than 2.5%. what do you make of the consensus in the financial market yesterday? >> the weakness to me can be bought. i think the financials are still pretty cheap. a lot of lending took place outside the banking system and therefore the balance sheets are better than you might think at this point in the cycle. and yet, worries are creeping

into the system because the economy is not uniformly moving higher. it's becoming more mixed and that's a confusing time. you get the manufacturing side saying one thing in the service side saying another thing so how do you square that? that's part of what investors are concerned with? ♪ jonathan: we will talk about this later in the program but there was a concern at pimco that we would see more bank stress. maybe last year's stories just last year story so is that in the past? >> i think it's inevitable we will have more issues whether it's a ram real estate or things related. not all financials have perfect balance sheets. yes, we like the financials but we preferred the biggie -- the bigger money center banks which have less real estate and financial services, the visa and mastercard of the world. lisa: how much are the big banks

exposed to the political risk we've seen? there is concern over what the new elections could mean for policies in the region. how do you understand how to insulate yourself from that? >> with great difficulty. he only thing you can say is they are pretty cheap so many of the risks are in their but there is so much policy uncertainty and so many election still to take place in this calendar year. we don't know -- take the u.s. for example, there will be addict -- a big difference in the financial outcome depending who gets elected president and whose controlling the senate and the house. jonathan: thank you. we don't know which way to look so let's look to europe. we will talk about the prospect of a change in leadership over there from emmanuel macron this morning -- it's absurd to think i will resign before 2027, some concerns about that in yesterday's session.

the french 10 year yield was up another 10 basis points. it finished the session flat off the back of the pushback from the french government. they want to reduce the deficit by growth and that's what we're hearing from emmanuel macron this morning. lisa: can you are not seeing much of a reaction in the bond market in reaction to that's was not clear how receptive this is. the point you made about growth is key. the issue here is the potential for downgrade when we heard that from other people. france was downgraded by some credit rating agency so how much do they face another undermining of their credit worthiness when this has been the discussion for a long time, growing your way into your deficit and it has really worked out many people would like. jonathan: the words of the french president this morning and the news conference going into the g7 and we will catch up with anne-marie later this morning. he is going to the g7 a weakened

layer in a big way. lisa: most of the leaders are going to the g7 as weakened leaders. that's what i find fascinating. how many of these leaders are preparing to step down or potentially could get removed from their position. it could be the last of some key leaders so how does that colored the discussion at a time when there was a populist bent from the electorate and many of these regions? jonathan: the france/germany spread is wide. let's get you an update on stories elsewhere. dani: u.k. economic recovery has stalled in the run-up up to their general election. gdp was flat in april compared to the previous months and economist have expected a .1% drop in output. it's a setback for prime minister rishi sunak was been campaigning on evidence that the economy is turning the corner. paramount global shares are down the premarket more than 2%, the drama continues with chair sherry redstone who has walked

away from a deal to sell the media empire. redstone rejected the latest proposal from sky dance tuesday after lengthy negotiations. there are other bidders waiting in the wings including apollo global management, seagram's and stephen paul. paramount is loaded with debt and is losing tv audiences. helping the s&p rise to a record yesterday was apple was shares soaring more than 7% to close at a new record high. gains added to hundred 15 billion dollars to the company's market cap, making it one of the biggest single day value add by any company in history. the record came after the company's annual worldwide developers conference where it showcased a number of features related to ai. that's your brief. jonathan: thank you. an odd session for apple yesterday. the stock did nothing in the morning. lisa: everyone was saying by the rumor and sell the news and then

they said i'm in. jonathan: a record high. go figure. up next, property pain for regional banks. >> the fed probably looks to the cre situation and says this is something we cannot do -- address directly because this is a secular change in the demand for commercial real estate after covid. jonathan: that conversation is up next, live from new york city this morning, good morning. ♪ (♪♪) ♪ well i was raised by careful hands ♪ ♪ yeah, they made me who i am ♪ ♪ so i'm off to see... ♪ we invent them. we design them.

we build them. and one day, we have to let them soar. ♪ i'm always coming home ♪

jonathan:tk's back around the table a little later this afternoon with coverage kicking up at 130 p.m. eastern time in the decision is at 2 p.m. in equity futures on the s&p 500 are positive by 0.1% with yields just about unchanged. we need to talk about the latest in europe. emmanuel macron and france, absurd to think i will resign before 2027. the french bond market is not doing much in response to this response. lisa: transponder picking up after an 11% decline since friday. all of the banks got hammered and france in particular. there is a question that if there is uncertainty on policy

on an international level, that could be the worst thing for banks regardless of the policies. the uncertainties makes it difficult to plan ahead. jonathan: pain for regional banks this morning -- >> the fed probably looks of the cre situation and says this is not something we can really address record because this is a secular change in the demand for commercial real estate after covid. what they are watching more broadly is it foreseeing the effect of high interest rates. in that perspective, they are probably justified in feeling the policy rate itself is high. jonathan: commercial real estate and focus for all the wrong reasons as one new york landlord sells an office building at roughly a 67% discount. pimco expects more regional bank failures in the united states with institutions holding cre assets. hermann chan is with his around the table. this story never went away but it's back on the table and a

bigger way now so what do you make of that note from pimco yesterday? >> i think the industry is on pretty solid footing and's despite the negativity my headlines, there is a difference between perception and reality. the banks of very small exposure to office commercial real estate, it's about 2% of their loan book. we haven't seen a lot of losses come forward so far. there is a big maturity while in 2024, about $200 billion of commercial real estate will mature this year. there will be the potential there. jonathan: let's piece this together. this asset class may not be a margin us asset class. what is the difference between the building in midtown west and everything else you cover? >> office commercial real estate gets lumped together. the regional banks are regional

in nature so they go to suburban office properties that are holding up at her than what you see in central business districts. you have to go to to the details more to understand what the exposures are. lisa: we are talking about this because some people are looking for the cracks in the system as we had torta potential fed rate decision. it doesn't seem to be affecting the equity market but it should have an effect on some of the commercial real estate markets. it hasn't been codified or solidified by having sales. there is a difference between saying that perception is different than reality and saying there are still a number of banks that have to emerge or fail unless there is a change in the rate structure. is it fair to say there are still failures but they will not be systemic in the same kind of way? >> i think there could potentially be problems down the road for smaller regional banks, community banks that of

overexposure to commercial real estate and also maybe haven't built up their reserves like some of the larger regionals. the thing with the worries about commercial real estate is this has been going on for many quarters of banks have been building up their reserves and cushioning their reserve and allowances in the event losses occur. there are some smaller banks that have less of a cushion so there could be problems. lisa: there is also the issue of lack of sales and if you get a couple of fails, do you have a sense of who the rescue banks are at a time when we spoke to buy dez bob dimon of barclays that said it wouldn't be in anyone's interest for j.p. morgan to bail out anymore banks? >> they've been pretty vocal about looking for potential m&a down the road. they are looking for j.p. morgan and bank of america and they did a -- done a good job of

extending their coast-to-coast influence. they want to get bigger and his other banks like u.s. bancorp that's in the same boat. we would expect the larger regionals to participate. jonathan: there is a generation of investors spooked by this conversation and the remember the phrase that said subprime is contained and when people talk about real estate, cre is contained. is there anything that makes you think you might be wrong? anything on your radar you think is something to watch? >> if we get something other than office commercial real estate troubles, if it metastasized to other areas like multi-apartments or we get higher losses in areas like commercial lending which we haven't seen yet, that would create more worries but the actual exposures to office seems to be fairly manageable. lisa: a lot of people are saying

it's not the height rates that will cause valuations a come down but it's if rates get dropped like one percentage point and get volumes moving again and then you get price discovery in a market that's essentially been broken for a couple of years. that's when you see the price declines. do you buy into it that possibly when the fed starts to move, that's when it will catalyze these issues? >> there are two sides of the coin. while that price discovery would potentially be a problem, the flipside is that you're refining costs are low. there could be a push pull dynamic there. jonathan: it's good to catch up with you. we will have more in this story later with pimco pushing back on regional bank stress. the building in midtown west is getting a lot of attention in the last couple of days. lisa: the incredible discount it was in midtown manhattan given

that it was sold for lower than the amount of the loan or the value of the outstanding loan shows how much pain there could still be in terms of losses being incurred by a number of banks. there is a distinction between systemic failure and single bank failures. it seems like there is more trouble down the pike and everybody agrees there will be banks that will not exist in their current forms. canopy systemic in person after person says no. it will not rise to the level of necessarily the fed's attention. in other words, they will not necessarily cover all of these losses when they come down the pike if they don't break the system. jonathan: it doesn't mean banks won't fail and that's what we saw take place last spring. let's catch up with anne-marie on her vacation in italy? amh in italy as resident biden prepares for the g7. it feels like she's been away for a lifetime. lisa: can the southern coast of

italy with her friends? jonathan: i'm told she might not come back. why are we here? we are here for the fed decision. lisa: i think the fed should decide. jonathan: maybe the ecb goes on tour sometimes. lisa: i think the fed should do that. ♪

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jonathan: equity futures on the s&p 500 are posited by 0.1%, a little bit of a lift after an all-time high at the close yesterday. the nasdaq is positive by 0.1% and the russell is slightly positive as well. the two year in the u.s. is up. deutsche's thanks alan ruskin said the two-year has rallied for four consecutive fed meetings. you could make it five after the may meeting and we will make it six later today. lisa: more than likely, everyone makes fun of me for the options session. the auction yesterday had 10 year notes that were sold. it was unusually strong going into the fed meeting. that is indicative of where they

will tilt and where people think the data will come in. they think it will come in with softer inflation and give the fed a pass to cut rates going forward and claim victory. jonathan: put a floor under bonds after three years slide. can we put a floor under french bonds because they have been falling and yields have been rising. we are up like 20 basis points in two days. now we are back to 3.22 on the french 10 year. it's absurd to think emmanuel macron will resign is what he says. lisa: you could argue he wants to reduce the deficit by growth and is worth about one basis point to relieve some of the concerns people have that france will expand its deficit and get downgraded once again by credit rating agencies. he's in a tough spot.

he is walking into the g7 incredibly weekend. people are questioning how much power he has and how much is malone the most powerful politician in the room? jonathan: at the moment, it looks like there's not much daylight there after the results over the weekend. in france over the weekend, deficits matter. don't be conditioned by your experience in the united states. united states has a privileged environment and we will talk about whether we can retain that privilege matter but it matters in places like france and italy and greece. lisa: at what point do they matter in the united states in the most liquid market for rates in the world. this has been on people's minds for quite a while and this is the biggest debate at the pimco quarterly meeting.

they were basically saying we are sure it will matter at some point but we don't know when that is. when will you get a credible push back? could it be an election that triggers that? it doesn't mean it's not there and it doesn't mean it can't rear its head and cause a sudden market reaction without people expecting that. jonathan: on surveillance this morning, a double dose from markets with cpi data at 8:30 a.m. and we are expecting court cpi to come in at zero point 3% month over month in the fed decision at 2:00 p.m. in the jay powell news conference later. it's setting the stage for the news conference at 2 p.m. lisa: people are looking for a dovish fed chair. basically the market will probably rally for a sixth straight time after his news

conference and the projections will matter and where people fall on some of the forward-looking projections. this may be that pivot point where people start to talk about the long-term mutual rate. do they start to hint they are acknowledging that rates might not fall as much as they thought that we are not going back to the 2.5% neutral rate that people previously understood? that will be a game changer and it will be the fed coming to the market rather than the market coming to the fed. jonathan: we will spend the whole day talking about the. plot. the former st. louis fed president jim bullard, you remember he was the guide that left the. therefore years. he said i'm not playing this game anymore. lisa: he doesn't like the dots any think it's silly and he doesn't want to play but i'm excited he will play with us. i know that someone in our world

is to blame. jonathan: go, perdue, indiana. lisa: that was the reason why we booked him. jonathan: 90 minutes away that conversation. the biden administration is looking to further restrict china for artificial intelligence. officials are looking to target new type of chip design used to process ai it's unclear when officials will make the final decision. we will talk about that later. europe and the united states are pushing back against china's advance. lisa: the way they are pushing back is different. we will parse that through over the next few months. there is a question of an effective band versus making it more expensive which is not really a ban especially if the products are coming in cheaply. the u.s. has an issue. with biden, he is proposing

things that don't take effect that quickly and don't have material consequences in the near term like electric vehicles from china. they are not coming into the united states oh how do you come up with something that is real world influence by not jacking up prices for consumers and not destroying business for american companies and that's the albatross a lot of companies are dealing with. jonathan: elsewhere, g7 leaders are looking to announce freezing russian assets. john kirby telling reporters to expect new moves to unlock the value of sovereign assets to help rebuild ukraine. annmarie hordern is in italy and joins us now. i will save the questions on your vacation so tell us what we can focus on in the next couple of days. annmarie: this is going to be the main potential deliverable the biden administration wants to get over the finish line. when it comes to the immobilized frozen assets, it's about $300 billion.

there's been discussions for about a year on how they can use the funds from these assets to help ukraine with ukraine restructuring. the issue at the moment is that they are still at the negotiating table. we seen a draft but what's missing is the plan for how they will use this money. with the u.s. would like to do is have this liquidity. what do these profits mean now to the future of the interests? can they give $50 billion worth to ukraine? even if the political will is there, and admiral kirby saying they will get there, even if the political will is there, the details are complicated. what happens in six months time when the eu 27 nations have to renew those sanctions to make sure the assets are frozen and some of them say they don't want to do that. if these difficult negotiations and we cannot really just assume that the elections that happened

over the weekend are not making these conversations much more complicated. as you discussed, emmanuel macron comes here much we can leader and you have olaf scholz coming here when he's dealing with a lot of right-wing politics at home and some lawmakers didn't even show up to volodymyr zelenskyy's speech tuesday. the european electorate is feeling issues that have to do with immigration. it's also the economy. it doesn't really match up to what leaders will be talking about in southern italy. lisa: let's talk about how that's shaping some of the conversations. we are talking about ukrainian aid and some of the money unlocked from the russian assets. those negotiations have been going on for a long time. in the past few days, how has the discussion on the ground changed, focusing on things like what you just mentioned like immigration? annmarie: this is the one

deliverable they want to be able to come to the table with and they can is a g7. at home, there electorate wants more focus on internal problems like cost-of-living, immigration. immigration is something georgia maloney has been focused out and she's willing to stand out after the u.n. -- after the parliamentary elections. she wants to talk about food in africa. we will talk about investment in middle and lower income countries potentially in africa. it some of this investment to maybe keep more people willing to stay in the global south instead of looking to migrate to places like europe and the united states. usually, the high level deliverables are done and dusted. eu leaders come and sign the dotted line but the issue now is negotiators are still at the table trying to hammer this out. what happened over the weekend is just casting a little more

difficulty. there is more reluctance on the part of some of these countries to sign up for giving ukraine another 50 billion dollars of interest payments when they are not sure exactly how they will be made whole in the future. jonathan: what are we missing? how good is it in the south of italy? annmarie: it's the best. it's one of the greatest coasts. there are two coasts arm the heel of the boot of italy. i did not draw the short straw for this trip. jonathan: i am not jealous at all and we will catch up with you later. annmarie with the amalfi coast behind her. lisa: i feel bad for her. she is suffering. couldn't you see the suffering? there was pain in her face. she seemed really unhappy. jonathan: she had a gelato, my

goodness. i spent all my summers there as a kid. why am i not there? let's get you an update on other stories. here's your bloomberg brief. dani: the eu has notified chinese automakers of an additional round of tariffs on ev imports. the european commission says they will range from 17% to 38%. they are expected to go into effect next month after an already 10%. tariff currently it will also had western carmakers like ted lieu export their cars from china to europe. carmakers like tesla who exports their cars from china to europe. elsewhere in europe, french president emmanuel macron is calling on moderates to regroup to defeat the far right after maria le pen's one and the general election. he addressed voters for the first time this morning after he called for a snap election and

he said it's absurd to think he will resign before his term ends in 2027. the french finance minister says if the far right wins, a debt crisis is possible in france in a liz truss scenarios possible. that's get a check on oracle shares, up 0.8%. they reported better-than-expected bookings and announced partnership deals with rivals after the close yesterday. oracle revealed an agreement to make its namesake database available on google cloud infrastructure and they announced a partnership with microsoft and openai. the ceo said she expects revenue growth to increase by double digits in the current fiscal year and in 2025. that's your brief. jonathan: we will check in withdani in about 30 minutes time. into the dot plot -- >> we will probably end up with two cuts in the dot plot but the

risks are skewed toward one cut. most of the members want to keep optionality about being able to cut interest rates as early as september. jonathan: that conversation is around the corner. what's the difference between one and two. from new york, that is next, this is bloomberg. ♪

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good game. thanks for coming to our clinic, first one's free. jonathan: stocks in the s&p 500 are positive by 0.1% going into the fed decision later and cpi this morning. under surveillance this morning, delving into the dot plot -- >> we are probably going to end up with two cuts in the dot plot but the risk is skewed toward one cut and there will be the distribution almost in evenly

split fomc between one and two cuts this year. most of the members which includes powell want to keep optionality about being able to cut interest rates as early as september. jonathan: u.s. cpi is due at 8:30 a.m. serving as the last piece of economic data out of the feds 2:00 p.m. decision. steve is with us around the table, good morning. we've all been obsessing whether it will be three down to two or one but you said there's not much difference. >> there really isn't because the forward structure rate is what's been helping the economy along. the fed has been promising rate cuts for a long time and promising sequential rate cuts.

as long as they don't change that narrative, the forward structure of rates doesn't change much. if it's three this year versus two this year but as for next year as opposed three next year, what's the difference? we will get to the same place in 2026. jonathan: how do you think the labor conversation will change things today? >> i think the continued strength in the employment numbers are important. i think the uptick in the unemployment rate that we see is also important to keep them wanting to cut rates but it's nowhere near the level that suggest we've gotten back to normalcy in the labor market. therefore, it restricts them from going further with policy at this juncture. lisa: the wall street journal had an article yesterday with an inside view of what's going on. they say the best course of action for the fed is to do nothing and make no moves and do no harm and make no surprises

and effectively are taking the summer off to value -- to evaluate how hiring and jobs and spending our attitude deck -- two decade high? >> i think the markets have already priced in good news. you look at the way the market behaved on the 10 year note auction versus the three year note auction. i think people put those trades into the market already. it doesn't mean it wouldn't be a positive initial response but is it sustainable? that becomes the problem. the markets are defining a nice trading range. at 5%, you love to buy it and it 4.70 come you don't want to own it. you will doubly by ed five rather than sell because the fed will give you promising rate cuts. i think the dynamic stays in the market. lisa: this hinges on the idea that the market believes the rates will be higher than they

are now but not material fire and the fed will cut rates substantially at some point giving the extra fuel without having the recession so many people thought was inevitable. >> i think people do believe it's higher but not substantially higher. i think it is substantially higher. i differ from people on the street. i believe the neutral fed funds rate as at a nominal level is 4% which means maybe they are 125-150 basis points restricted but given the fact of the forward structure rates take so much out, are they really restrictive at all? that's with the economy just this is why the economy has been resilient including accommodative fiscal policy. we are looking at an economy that's incredibly healthy. it's no surprise that the economy is resilient and will -- and we will continue to be above trend this year. lisa: the opposite end of the

argument says there is a lot of weakness under the hood. you are seeing weakness under the hood and the hiring market and lower and middle income families are spending less and they are curtailing their spending and we've seen cracks in the credit market pressuring some of the banks. how much credence do you give to these arguments? >> considering that we bought 15 .9 million in automobile sales, those argument sarong. they are made to look like that and it's easy to identify something negative but it's not easy to identify something positive. you look at the claims data, it will tell you nothing's going on in the labor market. the payroll data is telling you the economy is healthy. wage gains are telling you the economy is healthy and you have an inflation rate that arguably is either 3.5 43.6. this economy has underlying strength and i can identify something and say that's

horrible but the problem is, is the liquidity disappearing from the system or finding someplace else to go? right now it's finding someplace else to go in that's what keeping the economy resilient. jonathan: i have visions of neil kashkari going into this meeting saying sufficiently restrictive. what would change their mind? >> only time. this is a group of political economists. because of that, they really want to manipulate policy. jonathan: what does that mean? >> they are not anti-inflation hawks. they test their concepts or how to maximize social welfare by keeping the labor market type not how we maximize social welfare by creating a consistent economy with 2% inflation. that would allow the animal spirits in the economy to take over. they want to monkey around and be the garage mechanic who says let me just tune up my gas

mixture on my carburetor and see if i can get some extra horsepower. that's the kind of people they are. they want to play with the levers and they spent their whole lives itching to play with the levers and now they are in a position to do it and that's what they want to do. when that happens in the past, we create inflation. lisa: you pointed to the fact that the tenure auction was successful and there is a complacency. we've been talking about the ghost of liz truss circling around different it can't amaze. how much is this raising the specter, i don't want to say it but a sort of realization in the bond market to really look at the deficit and the financing of it as well as potential inflation going forward? >> when you go back and look at what happened to george bush, george senior bush, he did what he needed to do in order to bring the budget to a better

balance after the ronald reagan environment. at that point, we were looking at 4% yields of the long end of the curve. the market paid no attention to what he did. bill clinton comes in and raises taxes and suddenly real yields drop at the long end of the curve and the bill clinton miracle starts moving forward. this time through, i think it's the opposite. when we get past the election and see we've got a $2 trillion deficit and whoever gets and whoever gets in wants to make it three, i think that's when you can have that type of realization moment which means over the balance of this year, the market continues to buy on that. jonathan: do we have an inflation problem with that later this year? >> i think the inflation is stuck at 3% and i worry that the combination of inflation being stuck and not being priced into the market and the 2% real yields priced into the market when it should be closer to three are going to be a realization that hits the market but we probably wait until 2025 and see these people are just willing to spend money ad nausea

and that's when the bond market says i have a problem. jonathan: what is the difference between 3% and 2%? how big a gap is that? >> there is not a big enough gap from a macro economic perspective. the question is credibility. the world is sitting here saying every central bank is credible on 2% inflation. therefore, we have traded currencies on nominal interest rate differentials. if the federal reserve is the lone central bank saying three but i have to prove it, then do we start trading currencies on real interest rate differentials? if we do, does the dollar go lower? if the dollar goes lower, the inflation story you have about the improvement that's taken place in goods prices holding down inflation reverses. then they have a real inflation problem. lisa: what is the difference

between saying they will allow inflation to move within a target of 2-3% versus just upgrading their inflation forecasts for the next year and the year after that but saying we still have a mandate to get things down to 2%? >> really not much if you believe the credibility. the credibility becomes the issue in this is where you get credibility is when there is rampant fiscal policy excess, you create monetary policy restrictiveness to offset it. this is how you got inflation fighting credibility. when you are in an environment of wanting to support the fiscal policy excess with monetary policy, you lose your inflation fighting credibility. unfortunately, that's where i think they will go in 2025. jonathan: this was valuable to get your opinion, thank you. looking ahead to the decision later in an interesting 12 months ahead, the ghost of lis

trusses government. it's making its way around global bond markets. lisa: did someone message you on that? jonathan: liz truss is still with us, it's the ghost of her government. lisa: what steve was talking about is important which is a sickly how you maintain credibility while not achieving the target for years and years? jonathan: coming up next, the second half of bloomberg surveillance with bank of america and michael sheppard and cpi dropping at 8:30 a.m. ♪

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>> the fed will not move wednesday. the bigger story is cpi which will change the chance and a meaningful way the fed could cut this year. >> until we see weakness in the economy where inflation is down to 2%, they are just not going to cut. >> they will lead -- lean toward caution before cutting quickly. >> they will give an accurate picture of where they are headed but they are data-dependent. >> if they become to data dependent, you end up risking real mistakes. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: cpi data it is 19 minutes away. -- is 90 minutes away.

the second hour of bloomberg surveillance begins right now with stocks at all-time highs coming into wednesday and adding weight to the rally, up zero point 1% on the s&p 500. cpi report this morning and the fed this afternoon. lisa: the expectation is that jay powell will come out and do nothing as much as he can. they hinted at that yesterday but there is the question of what is the inflationary backdrop? we don't have a sense of that area you can make an argument either side on that. jonathan: we talked about the fed coming down from three cuts to two. one analyst said there is no difference. you have to look at trajectory for rates beyond 2024. lisa: there is a statement of economic projections and how much does this federal reserve

increase their expectations this year and the year after even after they cut rates like at the ecb. does the fed follow suit? do they have to raise their baseline control rate in some way. do they give a sense they are doing these discussions that are pivotal debates? jonathan: you look at growth and inflation and you look at unemployment. unemployment in the last forecast is unemployment at 4% air and and that's where we were friday. i wonder what they read into that labor market and do they focus on the household survey? i'm intrigued have chairman howell will navigate that story. lisa: the way they interpret that of the increased that even by 0.1%, there will be an interpretation in the market they see more weakness. what did they see that we don't see and the answer is nothing.

it opens more of a door to potentially cutting rates sooner. they don't necessarily have a crystal ball but we've been getting conflicting information. jonathan: the chairman has basically said he's not worried about upside inflation risk. i think that will be important. some are looking for a dovish news conference. lisa: that's in line with it doesn't really matter when you start, it's the timeframe that you push at the next year. we raise a bigger question which is essentially how much they are looking at a potential economy that maybe the inflation is not at risk of going higher but what if it's sticky and how they deal with that? how do we understand restrictiveness? neel kashkari has talked about

that and do they address that in their commentary? we hope they do because the underpinning a lot of discussion. jonathan: i'm thinking of mike schumacher yesterday. this has been a losing game for months. lisa: we get to play this every single day but we play losing games. jonathan: we play it again at eight dirty a.m. yields are lower in the bond market by almost one basis point. we are focused on debt auctions and supply was decent yesterday afternoon. lisa: it was a $39 billion auction of tenure notes. these have been traditionally been really bad the past few months about they came in very strong and dealers took down a lower percentage. are they sniffing out some sort of weakness or disinflationary information? jonathan: your take away is that

if it went bad it was bad but if it went good it's bad? lisa: there is the sense there is not the worry of the liz truss moment people think there is potentially out there, the ghost of the liz truss moment, not her. jonathan: because she is very much with us. bank of america will be with us and why the bears are looking through the wrong end of the telescope. europe announces fresh tariffs on china. we begin with our top story, stocks are at all-time highs ahead of today's doubleheader. good morning to you. what is looking through the

wrong end of the telescope, what does that mean? >> we are all focused on what has happened over the last couple of years. you pull open your bloomberg and look at it chart year to date of the past few years, it shows softening trends in most of these parameters and it shows inflation is down from high levels. the delinquencies are up a little bit but if you take your finger and squish that and zoom out all the way to a 50 year time horizon, things today are actually kind of awesome. that's a technical term. we are at of the legacy level that's generally lower than where we been in normal cycles of the past. financial obligations, same story. if you look at jobs, we are at a healthy level but not super tight like we were coming out of covid. i feel there is this case to be made and i know everybody hates

the word goldilocks but we talked about this before. everyone is so focused on what could go wrong and it's because we've been trained by cataclysmic events that happened in our careers. we've seen covid in the global financial crisis and russia and asia -- we are all about crises and tail risk and that's our base case. the base case is something i think in between. 10% of the time or less we get stagflation or a meaningful slow down. most of the time, we get some semblance of goldilocks. that's the view that we are espousing that until things fall off a cliff until we see widespread job losses and the consumer really deteriorate on these measures, it's not necessarily time to throw up equities. jonathan: can you make the argument that the best stories already price? >> i can't, if you look at the

spread between defensive or secular growth companies and the rest of the market, still very wide. i would argue that people have been forced into the equity market because it's run-up and forced into these seven magnificent companies. there is a very small exposure to cyclicals. if you look at the beta of the average mutual fund now, professional investors, their beta exposure is at all-time lows. that's not a bet on an upmarket. that is a very defensive level of risk taking. the pain trade we think will be cyclical and potentially companies that benefit from inflation not necessarily growth, tech, magnificent seven, etc. lisa: but it hasn't worked yet. it makes sense.

you've got this recovery and the cyclical should do well and they should deliver on earnings and they should deliver on forward projections. they haven't. they portray this uncertainty in this way that is hinged on the lower and middle income consumer. why will that change? >> maybe it takes the election and moving past that uncertainty to get these juices flowing. i think there is a lot of money that is sitting on corporate balance sheets or is waiting to be borrowed from banks. it's on projects that are more must do then nice to do. if you think about infrastructure that's super old in the u.s. and there hasn't been a manufacturing cycle in a while and we are bringing all the stuff back to the uso companies want to spend money but they don't know how. what is the lay of the land after the election? will he be in a continuation of

bidens proposals or see something different? the idea is as time goes by and we see inflation, volatility and rates moderate which it already has, companies get a better handle on what's to come and start to spend money and that unleashes the cyclical drivers. i just don't see the real drivers for a massive recession playing out. it would involve major job cuts across the board and a lot of companies are still saying that the labor market is very tight. unless we allow free immigration or something massive as far as changes the demographic in the u.s., it's difficult to say we will see wage disinflation ordeal inflation. when you look at cpi and supply constraints on commodities and food, etc., we are still in an

environment where the supply level of inflation will keep things sticky. i think there is an argument to be made that inflation remains sticky and higher than what everyone's expecting and what the fed is tethering their expectations to and that's an environment where you want to own inflation protected companies like cyclicals. lisa: what about valuations? they say valuations are presenting the biggest challenge so how do you push back against that? >> record highs are not that unusual. the market normally goes up especially in an inflationary environment. i think the level today, we don't have as much conviction in the absolute index level moving higher. at the beginning of the year, there were many more bears than bowls on the market and today there were probably an equal split.

the level of the index may be capped around these levels and we haven't upped the target to anything beyond 5400. i think the internals of the market present great risk. if you want to diversify your portfolio, you have to own something that's not working right now. in my view, that's cyclicals and large-cap value and that's where i have the highest conviction on the size and style basis. in a few years, we will look back on this moment as the moment you wanted to buy large-cap value dividend yield. you heard it here first. come back into years and see where we are. jonathan: we will see you before then. good to see you as always. the price target is 25 basis points north of where we are at lisa: lisa: the close yesterday. which is a sell off compared to what we were doing.

the internals are important and valuation is a problem and only a couple of stocks but not a problem in other areas that have been left for dead. it's a way that defies the lack of recession for so many banks. this is one of the biggest debates, is the consumer rolling over or normalizing? jonathan: a welcome calling or an unwelcome deterioration? that will not be settled in the next week or so. equity futures are posited by 0.1%. let's get an update on stories elsewhere. dani: apple shares soared more than 7% yesterday to close a new record and trade above their $3 trillion valuation. market cap added was $215 million which is the biggest single day gain by any company in history. that came after the annual

developers conference where they featured a number of ai features. former president donald trump met with bitcoin miners at mar-a-lago tuesday night. he told attendees he loves and understands cryptocurrency. he said he is an advocate for minors of the retakes the white house and he has been increasingly highlighting crypto on the campaign trail in recent weeks. is yourgmt a rolex or a batman? is your watch gaining or losing value? the pepsi model rose about 4%. meanwhile, the one you're looking at now is the same watch but in black and blue declined 10%. it's now $16,000. pepsi was the original color when it was introduced in the 1950's and is still one of the scarcest rolexes. that's your brief. jonathan: have you heard of this before? i wouldn't like an expensive

watch named after a soda brand. lisa: it's very expensive nostalgia. jonathan: some guys are looking at their watch. they got that green rolex on the wrist. it's wednesday apparently. up next on the program, clamping down on china. >> we should definitely avoid any kind of trade war. the trade wars neither in the interest of the u.s. nor china nor europe nor any country in the world. nevertheless, we have an issue with the unfair trade practices. jonathan: we will get the latest from the team here at bloomberg. from new york, this is bloomberg. ♪

jonathan: i'm getting controlled

by anne-marie on twitter. she's sending pictures of food. lisa: in talking about how difficult her life is. jonathan: super difficult assignment at the g7 in the south of italy. equity futures on the s&p 500 look like this, posited by 0.1%. about an hour and 12 minutes away from cpi in the u.s.. clamping down on china this morning -- >> we should definitely avoid any kind of trade war because it's neither in the interest of the u.s. nor china nor europe nor any country in the world. nevertheless, we have an issue. with unfair trade practices with a high level of subsidies and different capacities. we will spare no effort to defend our interests.

jonathan: the european commission announcing its imposing additional tariffs on almost 40% of electric vehicle shipped from china as the biden administration weighs more restrictions on china's access to chip technology used for ai. we continue now with mike sheppard in washington. talk to us about how this sets the stage for the g7 later this week? >> this is the g7 meeting about multilateralism and getting along and free trade but that's not the sentiment you have. even the biden administration with inflation reduction has been a serious concern for people here. what happened to the conversations about friend-shoring and now it's about on shoring. they want to unify and get on the same page and or messaging around china. when biden wakes up and slaps

100% tariffs on chinese ev's, they go to the only market that can absorb it which is europe. europe is much slower moving so we've seen this phenomenon across different commodities. the u.s. throws of trade areas and where is the capacity go? it goes right to europe area lisa: i want to get your sense about how different europe's approaches to the united states. they are not throwing up huge barriers, they are saying in europe it will just be a little more expensive to give us a competitive edge as not the same full of teeth effort the united states is offering. >> there is also a lot more discussion within europe within the countries about what they want to see. the french have been more outspoken on china. the germans take a much more cautious approach. the germans said a lot of the cars that get shipped into europe from china are actually european brands or tesla which

has it huge factor in shanghai. many of the huge automakers here on their most high-margin items are produced here in europe and they go to china. we've not had anything get on retaliation. having just spoken with some of the major carmakers in germany, that's what they anticipate. they are looking at the global production footprint. lisa: a lot of the leaders that are coming to the g7 are coming from a we can position and are speaking about some of the high priority issues like ukraine and geopolitical cooperation but they are not reaching the voters. what is your sense of the biden campbell try to message this going forward at a time were china's very much -- what is your sense that the biden campaign will try to message this going forward at a time when china's very much under

attack. >> they will have to speak to leaders and try to find the degree of common ground where they can find another way to stand against russia's aggression ukraine and find ways to nip that in the bud. they also have to message it back home with a limited tone. that's where you see the messaging coming in much more forcefully on china and the things oliver was talking about, the idea of on shoring and trying to build up the manufacturing base in the u.s. move like that will resonate with voters were looking for jobs and looking for sustained economic growth. jonathan: as you know, the president would've liked to of gone to the south of italy to talk about leadership and multilateralism and the global order and the dark forces of nationalism in europe rising once again. he cannot do that in quite the same way can he come a after

what we saw in the elections over the weekend in europe? >> it's a much tougher position for him to take. they will be looking for ways they can at least find a little bit of common ground to maintain the unity. we are seeing the u.s. come out with efforts to curb russia's access to technology they will need to produce missiles that are raining on ukraine. they will try to message that more broadly with other g7 leaders. it will be much more difficult with those leaders in europe on their back feet after this week's election. jonathan: how do they recalibrate after that? does giorgia meloni have more power after the weekend? >> this is a referendum for a lot of people on national politics. giorgia meloni is the only person of the g7 that walked away with a firm hand so she is

completely in the spotlight as having the chance to host everybody here. is this in just the g7, it's something close to g 14 with people coming from turkey, the uae, brazil, argentina. emmanuel macron is basically running an election campaign where he is touting the same things he's done in the past and says the center needs to hold and we have these radical groups in france. will that work again? it worked the first time around but it's part of the reason why they've done so well. he is weak and so fundamentally that now there is that void and is being filled by the national front. jonathan: this is giorgia meloni's g7 in a big way. thank you to the both of you. it's a very different approach to china coming out of your than 100% tariffs out of the u.s. a couple of weeks ago.

lisa: i'm trying to understand why there was a 20% tariff versus byd which is 17.4%. jonathan: it's about tesla coming out of china into europe. lisa: there is debate and whether they will amend the tariffs on tesla. how they calculate some of these? you are particular overproduced and you will get a particular tariff versus what is the direct competition in europe that could potentially be at risk if they slap a tariff on one company versus another? it highlights the fussures around this. jonathan: notice how the conversation went quickly to chinese retaliation. we've been talking been a level playing field but the passenger car imports from europe to china is 15% already.

that's why so many manufacturers are in china. they make it difficult to export into that country. maybe we are using retaliation to loosely. lisa: what if they get banned at a time when mercedes has 40% of the business in china? jonathan: you can see why they are concerned publicly. from new york, this is bloomberg. ♪

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it about 60 minutes we jonathan: , cpi. s&p 500 futures are positive on the nasdaq, up by two, a bit of a lift after the all-time highs of yesterday's session, thank you apple. especially -- lisa: especially given the political risks we've been talking about in the sympathy selloff in the u.s. with europe. yesterday we got the 27th record high this year. the 15th record high on the nasdaq. best day since november of 2022, $215 billion on their market cap. how are we just sort of numb to these moves? these are everyday occurrences we just don't even think about anymore. jonathan: in the premarket apple

was barely moving and then it picked up after the launch. but on the day of the launch of ai, we were down something like 2%. lisa: it doesn't make sense. honestly, it doesn't cohere. people sang just wait, maybe dan ives got out there and said be able? i don't know. either way, the fact that it jumped so much and we just shrugged it off like this is what happens, it's bizarre, these moves are not normal. some people would call it fragility in terms of how big the jumps are on a daily basis for the biggest names ever in the history of the u.s. capital markets. jonathan: closing out the first half with two different stories for apple, struggling to start the year, finishing the first half, getting better. dan ives wins, and what'd he say, he would wear a green jacket? lisa: the most of next -- obnoxious piece in his wardrobe.

jonathan: i'm not sure that dan would use words like obnoxious, but sure. [laughter] best-dressed man on wall street. lisa: there were comments like -- i'm not going to let you out of the house looking like that. then he said no rhyme or reason to his wardrobe, he picks things out. jonathan: the more he upsets his wife, it works better. lisa: better for how he feels. jonathan: interesting homelike. lisa: reality check. we've all been there. jonathan: thumbs up, let's go. i'm sure it resonates with a lot of the men waking up this morning. [laughter] turning to the two-year, unchanged, let's call it 4.83. you have talked about it twice already, let's make it three times. decent auction yesterday, went quite well. lisa: which is unusual. is it just people sang the whisper number? a softer cpi?

is this basically the baked in disappointment with baked in positive downward surprise that we had before the labor market or that was completely incorrect? is that what people were sniffing out yesterday? jonathan: european markets, more on what micron had to say yesterday, the french yield coming in just a little bit, down three basis points yesterday, spreading between france and germany on the 10 year maturity, just spook by the politics, maybe trying to undo a bit of that but it has been a struggle. lisa: how do you undo the uncertainty and even people in his own party called this a mistake. why are you opening up the government to rule from a more populous more right-leaning branch? he's basically saying we will grow our way into the debt, don't worry about it, i'm here and i have you back and as you pointed out, that is worth three basis points. jonathan: all eyes are on the

doubleheader today. cpi at 8:30 followed by the fed rate decision, widely expected to keep rates on hold over the uncertainty in the dot plot. cpi, estimates month over month for headline inflation are 0.1% in the survey. stripping out food and energy, that's the medium estimate in the survey. lisa: what would be considered a bad read versus a good read? how big will the response be? i know this is something that j.p. morgan and lis are looking at on the heels of a downward or upward surprise at cpi. of course all of this will likely be undone by the fed news conference at two: 30 where jay powell comes out and says we are still planning to cut. jonathan: there is a feeling that this will set the tone for that decision. do you not by that? lisa: this fed has been talking about how more than one month of data needs to be factored in. they will probably have the data

yesterday and likely factor it to some of their outlooks. i'm just wondering that if they discount the increase in inflation, it will give you a sense of how dovish they are leaning and are they really leaning into some sort of disinflation, the same. right? it's only if they said they haven't gotten the certain to yet that it pushes back. jonathan: this story popping up over the weekend in a big way, emmanuel macron saying it's absurd to think that he will resign before his term ends. even if his party suffers in the snap elections he called. his surprise decision to dissolve the lower half of the french parliament was big in the parliamentary election. some people think it was absurd for him to call snap elections. lisa: other people saying that it is a brilliant way to get ahead of the no-confidence vote that was coming down the pike for the parliament members that might have undermined his ability to govern anyway simply

because it ups the drama and takes the onus off what he has done so far. jonathan: of course he doesn't get to run into thousand 27. the fear is that someone loser with fiscal policy would come into power. i would call that absurd once again, this man is loose with fiscal policy even because he's in power. lisa: growing into the debt load? we hear this everywhere. we have heard this for years. guess what hasn't happened? debt load has increased at a much faster pace than what we have seen. my big question is -- what is the fiscal response to a downturn in economic wealth if you have this deficit already? which government official to say that we can't help you, just suffer? it's not going to fly. you have to wonder at some point that it looks like as deficits go bigger? jonathan: i've always said that the chico between dm and em -- cheat code between dm and em to

go south? fiscal school authorities are then allowed to act counter cyclically. em has a different problem. what we saw in europe, greece, that went along long way, making things hard to respond. france was sort of grouped in with germany, they were always considered less of a hybrid. more of a pure dm. do you think we are closer to testing that for the likes of france? based on the price action, these are the conclusions that people are pointing to. lisa: this is why steve is brilliant. he talked about the credibility issue for the reserve that came with not fighting the fiscal impulse dramatically. because at this point there is a question of what happens in that type of scenario. as the fed essentially monetize a greater fiscal impulse? do they buy a bigger amount of bonds to finance it? essentially just canceling out

the debt so that you can stimulate the economy? you just put it all together. there's a lot of anxiety underpinning but otherwise on the surface morning to evening looks like a confused and totally fine market. jonathan: lots of elections making it even more confusing, let's put it that way. pimco with a big warning overnight of regional bank failures in the united states as a result of a very high concentration of commercial real estate loans. one new york city office building set to be sold at a 67% discount from the purchase price. will sees her writing that the biggest challenge of banking exposure to cre is in the tail. many are in the outsize exposure with smaller banks having less cushion to absorb default losses . however, it does help with systemic concerns. winnie joins us with more. good morning to you, good to see you in person around the table. we have to separate systemic

risk from the prospect of banks failing. banks can fail and you can have the other, it can happen, we saw that last spring. what's on the table with cre going into the rest of this year? winnie: i think that the biggest thing that we miss sometimes is that it's not a homogenous asset class. there are a lot of different things in there. concerns are over certain types of office property. that is an even smaller amount of exposure. yes, there is absolutely going to be losses over the next probably two years to three years, perhaps even longer depending on how long we stay at these elevated rates and how long occupancy rates stay low. but the big positive is we haven't had this massive over construction build. bank balance sheets are not overleveraged to construction loans, development loans. that is usually where you see the biggest losses and there are absolutely going to be some issues in the banking system,

but banks have been proactive in trying to reserve for that. the banks with more exposure to office properties especially have been reserving at a rapid pace that has outpaced the challenges within that sector. lisa: i know that people don't like to compare this to baseball games, but let's just go there. what inning are we end in terms of the real estate we reckoning? with commercial real estate, where are we? winnie: great question. feels like the first few innings of this baseball analogy work no-hitters, right question mark fast and furious, high rates, not much in terms of transactions to get a good idea where property values are. now i think the game is going to slow down a little bit and we are probably in already the fifth inning or so. but i think that the first few innings were played faster than the remainder of the game and now it will be a solo play. lisa: what do you make of the

theory that when the fed cuts rates, that is when things are going to be borne out in the market, people solidifying losses? all of those people who, not just merchant real estate but residential, people locked into their homes will go out and sell their homes, lb at at lower valuations. do you see that it is likely, the idea that there will be more of a rake -- reckoning when the rates come down? winnie: if they came down dramatically, 5.5% to 2% over six months, there would absolutely be a reckoning. it wouldn't indicate some sort of massive risk passion every force has resulted in disinflation and the fed is now chasing things lower. our expectation is that it will be a much slower game in terms of fed rate cuts in general. i think that that would be a little bit of a slower play of the kind of reckoning of asset valuations in real property. jonathan: bank of america said that we are looking at the wrong thing basically and i'm para

fries -- paraphrasing, we should be zooming out on the year trendline. is that why credit spreads are as tight as they are with valuations and equities as tight as they are? winnie: i think a number of factors are supporting valuations. first is the cash on the sidelines, that's the dynamic being recycled out into other asset classes, it's throwing off a lot of interest that needs to get reinvested. the reality is we have gone through a significant deleveraging cycle as it relates to the consumer and bank lending. that is just going to result in putting cash to work in other places, right? if we are not overleveraged, there is just more cash. jonathan: are you saying that high rates are one of the reasons credit spreads are so tight? winnie: absolutely. the yield buyers are winning. anytime there is a backup and yields, people get back in because they say that investment-grade of the 5.5%,

6%, historically that is a homerun. high yield at 8%? historically that's a great bet. you have seen the higher rates shift the fundamental direction of management teams. they don't want to be overleveraged and balance sheets. they don't want to be doing massive m&a. lisa: you like to ration more than credit? that's the opposite of what you have been saying for quite a bit. what cause you to shift? winnie: in the near term we are looking for vulnerability on the credit side as the adjustment were expecting rates to be higher for longer hasn't really played through in those highly leveraged capital structures in the loan market. in the ig market, we still like taking credit risks and are fine going down even in the high-yield market. duration here looks really attractive for kind of the first time in a long time. we have been saying that if the 10 year treasury is north of 4.5 percent, you should be extending

duration. jonathan: winnie, this was great, awesome to catch up. winnie cisar, there. updating your stories elsewhere this morning with your bloomberg green, here is dani burger. dani: the paramount head has walked away from the offer to merge with sky dance, ending months of drama and intense negotiations. redstone had been pushing for a merger with sky dance over other offers in a move that she thought would be the best interest for her company legacy. yet she had months of resistance from management and shareholders, forcing ellison to revise his offer but redstone has changed her mind. $14 billion in debt and a struggle to compete on streaming, it's unlikely that paramount can stay independent. the eu has notified chinese automakers of an additional round of tariffs on imports. the european commission said it would range from 17% to 38% for some of the other automakers,

basically making a clarification on whether they are cooperative or not. it's expected to go into effect next month. high rates hitting western carmakers like tesla. the commission said that tesla might get its own rate. china has signaled it is ready to make moves against them, threatening measures across agriculture, aviation, and cars with large engines. the blackrock ceo, larry fink, and the microsoft ceo are among the business leaders heading to italy for the g7 summit this week. cohosted by president biden and the italian prime minister, supporting the italian push to invest into developing countries. microsoft and blackrock climbed to comment when we reached out. jonathan: that's a strange one. why would you decline to comment? going to see them there? lisa: depends on why they are there in who they are discussing things with. i'm surprised that elon musk is not there saying, "really, excuse me, i'm american."

jonathan: up next on the program, mega forces at work. >> the main trend, not necessarily for two or three companies, but those who are exposed to these longer-term secular trends, like ai and internet commerce and cloud computing, they have further to go. jonathan: that conversation is up next. live from new york, this is bloomberg. ♪

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jonathan: cpi data, 42 minutes away. equities look like this. the s&p 500, record highs yesterday. up another 1/10, yields are lower. it could all change at 8:30 eastern time when we get cpi data. under surveillance this morning, mega forces at work.

>> the main trend is not just two or three companies, but companies exposed to longer-term secular trends like ai and internet commerce and cloud computing. they have further to go. it is an example of investors looking beyond two or 3, 4 or five companies and looking at who the beneficiaries are of the ai revolution. jonathan: here's the latest, the apple ai search at an all-time high as there's a double dose of investment. scott cronin writing that the market appears to be citing a cut on decelerating macros. all told, the s&p 500 continues to be influenced by the structural growth opportunity of general -- generative ai offsetting the mixed macro picture. scott is with us for more. i will say it for you since you won't do single names on tv, but is this another way of saying

ignore the fed and by nvidia? >> it's another way of saying that wall street is different from main street and the fed influence has been a main street shoe in terms of economic activity underscoring fundamentals. jonathan: we've heard a million times that it's the equity market and not the economy. is this a pretty good example of that? >> we have done some sanity check work on this and if earnings solely followed gdp over time, our back of the envelope is that the s&p would be worth 4600. what you are paying and current levels is going to tell you at some level what you are paying for the expectation for growth over and above economic activity . clearly this is being influenced by the mega cap component and the ai tailwind it now has. basically it says that for those who think my gosh we are hitting an equity market bubble, i would

say that your downside is probably 15% in that regard and when you step back to look at it with the new growth driver that we do have regarding spending on ai and other metrics around that, the s&p is actually in a pretty good fundamental place. we have been joking that the best bet is cash nvidia and that's what they are taking from tech stocks generating a lot of cash with cash itself. that is the approach to take macroeconomic environment that is highly uncertain. how concerned are you about this type of behavior leading to real crowding in a specific number of stocks? i think that's a really good point. we are obviously really concerned about crowding, but so far i would say that if you look at valuations, look at ratios, the pe overgrowth, turns out that your peg ratio has actually come down.

what has been happening is the underlying earnings expectations for the mega cap growers have been supporting the price action valuation. to your earlier point, though, whether you want to call it a joke, but i think it is reality, you are right. what you have is a fed policy circumstance that is at risk of unintended consequences. so, on main street if you were a non-saver, you have issues like higher inflation presumably coming down with now higher interest rates. it's a much different set up then if you are a saver and you are earning a decent return on cash, much different than prior to covid. it's the same thing in corporate america. the mega cap growth tech part of the market tends to carry more cash in that's a different discussion in terms of looking at commercial real estate and real estate utilities with staples and parts of industrials where they tend to be more debt

laden. so, the fact here is that the bed, intended or not, is providing a different type of headwind and tailwind to different parts of the economy and different parts of the stock market. if the fed were to start cutting rates, would it make you more constructive on these other areas or what it depend? it kind of depends. the other work done recently is that if you cut 200 basis points of fed rates in the next year, it would create all things equal, roughly 1.7 percent earnings drag on the s&p 500. essentially mega cap growth companies would lose more in, in their cash income then they would in what they pay on their debt. so, it is a bit of a circuitous argument on this, but as you go down into small mid-cap, you begin now to trade more in mind with the underlying economy. you don't have the mega cap

influence, almost by definition or indication. you have lesser tech weight with higher industrials exposure and you are more economically sensitive. at the margin, small and mid-cap would benefit from a rate shift, but the perspective here is that historically when we have gone into more prolonged periods of fed easement, it's usually on the others recession and during recessions you tend to have a major drawdown in earnings and we don't think we are looking at that right now. it is a more mixed picture this time, lisa. scott, before you go, i want to mention the pulse monitor that you put out. opportunity to talk about the late and great tobias as well. where is it? feels like a missed program where everyone is bearish and then the next minute we are super bullish and it changes day to day. where are we? euphoria, been there for a couple of weeks now, right? we have been in and out. q1, there was an april pullback,

and i we are back in. the way that we are spinning around now is that we are focused a bit more on the cross asset is often based around the rally and what it has done is begun to switch cross asset valuation more in favor of bonds . so, the culmination of that, where we are trading versus our estimates of fair value for the s&p and the index suggests to us that we are looking at a digestion but that's a different discussion then the longer-term fundamental set up that we still think looks pretty good. scott, you are one of -- jonathan: scott, you are one of the best. the median. showing basis point cuts with powell emphasizing the dovish message they are looking for in his press conference. lisa: the team has been talking about the fact that even though they are pushing back to first

cut expectation to september from july, they are still kind of expecting the same framework and for the fed to respond to it in that way. isn't that kind of what everybody is expecting today? jonathan: we will see after we get cpi at 8:30. lisa: would you call it a losing game? jonathan: it is. lisa: i know. jonathan: want to talk about the dot plot? we will talk to a man who hates it more than you do. it's the perfect set up for inflation, alongside ira and frances. all of that, coming up from new york city this morning. good morning.

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>> you know we see that trends in inflation are exactly where the fed wanted to be. >> it's going to be difficult for policymakers to get excited about a rate cut unless cpi is these in. >> one message from chair powell is that it's not the year-over-year rate, is the sequential monthly pace. >> it's a reasonable conversation to have about a cut. >> fed cuts are essential for

the soft landing to continue. if inflation does let them do that, then there will be problem. jonathan: in many ways, this is like the super bowl in the last six hours. eight: 30, cpi. six hours later, a fed decision from a news conference with chairman powell that starts at 8:30. lisa: who does the halftime show? jonathan: it's us, we are the entertainment. we are going to sing. lisa: really? jonathan: tom is going to sing. he promised. he brought his guitar, it will be a singsong around the table. a nice reunion, it will last about two hours and we will do it all over again at the next eating. lisa: an actual pivotal moment with a lot of people trying to understand if we this is the correct way to read the recent data. ultimately, it just depends on what the fed thinks. if the fed thinks it is

weakness, how much does it shift where we are? jonathan: it's fair to see this with inflation data and then in the afternoon, data with the number that we are about to see shaping the projections that we get at 2 p.m. and the tone of the news conference at 2:30. we will see but that is if you are on wall street at the moment. lisa: it's difficult to understand because they say there have to be a cumulative number of data points, but the last time it happened that we had the cpi print on the same day as a fed decision was june of 2020. that is how long ago this happened. it's a rare occurrence. granted, they probably got the data yesterday, but it highlights how whipsawed the data can become. first the shot, then the chaser. jonathan: shot and chaser? a little bit later. these are the scores going into that inflation data. yields are almost unchanged. the 10 year, 4.49.32.

euro-dollar, with china bouncing after the euro weakness and macron saying that he's not resigning and maybe that is worth 2/10 of 1% on the euro-dollar. lisa: but this has highlighted to me, and this week has been fascinating from this point of view, political risk. even though people cannot predict it or prepare for it, what we have seen from french banks, holy cow, and 11% decline since friday. when you take a look at some of the moves, you wonder how much, how exposed are we to other risks and how does the fed deal with that given that policy has an effect on growth, on inflation, on all the things they are trying to prepare for? jonathan: weakness in the u.s. banks as well, even though there were tech driven all-time highs. beneath the surface, financials were really weak. coming up, we catch up with jim bullard ahead of a cpa print --

cpi print. ira jersey with some bond traders abandoning the fed day rally. and a reaction to the latest sprint. the top story, cpi is 26 minutes away. that's coming as the fomc to day meeting comes to a close, likely determining what the dot plot looks like going forward. the former st. louis fed president saying that he only sees one or two cuts on the table this year because of inflation. jim is with us here in new york. good morning. scott: good morning. good morning. ira: fantastic to see you. i want to talk about your dot plot from a few years ago, you said enough of this, the dot is at the bottom and you left it there for the next couple of years. how do you approach it, how do you think the officials will approach it today? jim: at that time i wanted to get the idea across that we had just switched to a low interest rate, low inflation regime.

and that we were unlikely to break out of that regime anytime soon and it was probably a better forecast just to say that you wish say in the regime. now with the pandemic coming along and upending the global macro economy, looks like we are in a different regime now. so, maybe it will be different today. jonathan: let's play it. would you just leave it up there? jim: i think that's high. i would like to see the -- see the yield curve normalize. i think that yields will be higher going forward than anything we saw between 2009 and 2019. lisa: do you think the fed is accurately projecting that? jim: rates higher for longer? the long run dot is 2.6 and maybe that will shift up a little today. the idea that you are going to have that low of a policy rate,

that's a harder story to tell, i think. lisa: earlier our guests said that there was a real test of credibility, where we would essentially vacillate between 2% to 3% inflation or even stay at 3% even a fed of any for cutting rates in the near term. you agree? that this is essentially a 3% in asian target that has not been and unseated by the fed? jim: no it's 2% and if inflation stays above 2%, policy would have to be wildly restrictive to try to push it back to 2% over a reasonable amount of time, but the key thing is what time horizon do you think it should take to get inflation back to target? if you look at the projections, we are probably talking two years, something like that. 80 basis points to go on core inflation with 40 basis points in one year, 40 next year.

so, it's not the urgency that we had when inflation was much higher just two years ago. jonathan: how much collaboration is there on the fomc? do you go off into a corner to pull it down ahead of time? jim: i have tried to call around to my colleagues and stuff, but it is very time-consuming to call everybody. they have their own staff and their own stories to tell. if it works better to give your own view, there is a lot of communication by osmosis. you kind of know what everybody says. you see it all the time. jonathan: yesterday we heard from someone who basically said that for the federal reserve with implied cuts this year, the median. came down. lisa and i basically sent to that individual -- what are you talking about? chairman powell will be on the phone saying we need to massage and collaborate? that's not how it works, is it?

jim: no, and people have strong views. they take their role very seriously on the committee and they are not really willing to say i'm going to compromise my view just because something might happen on that particular day. jim: but that has raised -- lisa: that has raised the question of how to message perfectly and is there true consensus. what's the difference between consensus view and groupthink go coalescing around the idea that inflation is maybe a little bit higher, but not that much higher . rates are restrictive even though the economy keeps chugging. jim: one thing to keep in mind is that the board staff serves the whole board of governors. they all see it as a same analysis, they have the same projection. they might have of you relative to what the staff presents and they might deviate a little bit,

but they do not have their own independent staff. at the banks, they all have their own research teams with different views on what the board staff thanks. so you know, the tendency for some of the dots to be clustered would be at the board of governors. lisa: you were at the fed into thousand 20 dealing with these issues. that was the last time we had a cpi print the same day as a fed decision. jim: yeah, it's like a solar eclipse. [laughter] lisa: yeah, we are staring into the political sun. [laughter] . how much is that altar the discussion? lisa: -- jim: one thing i would caution, what happens on this day of the meeting, the first thing that will happen is the staff will come out and say -- here is what the cpi report said. most people will know the number, at least the headline number at that point, and they

will give a brief analysis of that. but the only thing that will matter is is it different from what the staff forecast? did it come in hotter or colder than the staff forecast? if it came in as expected, staff will say it didn't change anything, we already expected this. usually it's not big news. it would have to be some blowout difference. lisa: is it correct that the balance in risks is roughly balanced or is it more heft -- heavily weighted to one than the other? jim: well, inflation has been high and you want to finish the job and get it back to targets. that should be job one. the labor market seems pretty strong based on the jobs report from last friday. with other aspects of the economy seeming pretty good. atlanta fed dp for the second order is over 3% on the annual rate. lisa: changes daily.

jonathan: it does, but if you are just attracting interest trying to make a statement based on the data that you have in hand right now, growth looks pretty good. inflation is starting high. might as well stay hawkish. jonathan: i've never seen people so skeptical of payroll as they were on friday. walk me through how you interpreted that economic data in the establishment and household surveys and how you read into that? when you say that maybe we need to be hawkish, some people are thinking that we need to be dovish. how do you interpret the economic data? jim: unemployment ticked up to 4%, that's interesting, but it is still below everyone's estimate of the natural rate of unemployment. we have been saying at the fed that unemployment should probably be expected to run a little bit higher than it has. you know, low for's, mid for's.

that's a good unemployment rate still for the u.s. and on the headline number, i was just inking about this, so i plotted something no one ever does, the percent change year-over-year in upfront payrolls. so, if you look at that, when you're ago you would have been at two per -- 2.5% growth year-over-year, now you are at one point 75 year-over-year. it shows the slowdown. the 1.75 and still be faster than -- so if you took that to be the runway, we always go on the monthly number, which is so volatile. how are we supposed to interpret this? other measures of the economy will go in the year-over-year rate that controls better for seasonality. jonathan: we are lucky that we have you for the entire hour area jim will be sticking us through this he guided at 8:30 eastern time. session highs are up, updating stories elsewhere this morning with your bloomberg brief, here

is dani burger. dani: the eu has notified chinese automakers of an additional round of tariffs on imports. the european commission says it will range from 17% to 38% for some of the automakers and they are expected to go into effect next month. higher rates will hit western carmakers like tesla who export from china to europe. moments ago, volkswagen responded saying that he negative effects outweigh potential benefits and that the timing is detrimental to currently weak ev demand. in france, the president is calling on moderates to regroup to defeat the far right after the marine le pen party was the winner in the election. he addressed voters for the first time since calling snap collection, saying it's absurd to think that he will resign before his term man's. yesterday the french finance minister said that if the far right wins, the debt crisis is

likely possible in france and a liz truss scenario is possible. the president-elect of mexico attempted to ease the concerns of investors, perhaps unsuccessfully. the peso, weaker versus the dollar this morning. she spoke tuesday after the landslide election win that had sparked fear over unchecked reforms. speaking at a news conference she said that investors don't have a reason to worry and added that the economy is stable and that the currency is down over 10% instant june 2 vote, by far the worst performer in the world over that time. jonathan: thank you for that. imagine this, the french finance minister, the sitting finance minister saying that a liz truss moment is possible. lisa: it's a problem. a problem for a host of reasons. you are not raising credibility in your currency or in the bond market. i feel like a liz truss moment

has to be codified in some way. jonathan: across the screen, you want an emoji or something like that? [laughter] lisa: there you go. jonathan: euro, trying to bounce. up next, ira as bond traders on wand debts. that conversation is up next. from new york, good morning. ♪ because sometimes the best road forward, is the one you didn't expect. (♪♪)

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jonathan: in many ways, the week begins in about 13 minutes. 8:30 cpi data is just around the corner. equity futures are posited by 0.1%. morning calls, a high percent of target calls rating at 150 for new contract signings, real -- reaffirming the ability of oracle to capitalize on the

generative ai wave. next up, citi raising its price target with increasing use cases for uber globally, maintaining the company is one of the top picks. finally, luke capital with a price target on paramount going to eight dollars, citing the end of the talks with sky dance and no transaction or takeover of any kind now expected as the most likely scenario for the media giant. cpi is the main event and is just around the corner. that's for a rally as a double risk event kicks off in 12 minutes. ira jersey joins us now for more. deutsche bank has been counting the meetings. we have had five consecutive meetings, fed day rallies at the front-end of the yield curve. does that end today? ira: it could, though i expect the fed will probably be more

middle-of-the-road than others think. people do expect the dot plot to show only two cuts for the rest of the year and so three. i think we are all in consensus at this point. frankly, i think that the bond market with two-year, three-year notes, they will become more on what the fed says for 2025. so, will the federal reserve be somewhat more hawkish and price out a lower terminal rate and therefore maybe roil the front-end of the market little bit? like you say, it's possible to sell off a are more hawkish than think. jonathan: going on that a little bit more, something we heard from steve at mozilla, they could go from three to two and even one, but ultimately push the app up to 2025. is that what you are anticipating? ira: when you look at the preponderance of the data, it does seem that things are

slowing but are not disastrous at this point. so, if a lot of members of the federal reserve and the current members push up the longer-term dots, even the longer run that is a little less important, when you think about the path of the fed, what we have seen over the next -- last couple of months is we keep on pushing out when the fed is going to start, but ultimately the terminal rate has also moved up. everyone thinking the fed would cut down to 3% by 2026, but now that has come up almost 100 basis points now. if that is the case, you have to reprice the rest of the curb. especially if the market thinks that is going to be realized. of course, fed stocks are almost never realized and it is something we have to get into the back of our head, that is their forecast and they are just about as good and bad at forecasting as everyone else. will the market believe the dots

will be realized? i believe that's where you can read some volatility but i think they will be moving it up a bit and i think that that is the reason why you might think could get a bit of a selloff, potentially. at least at 2:00. now, jay powell can reduce that by being more dovish at the press conference and that is why we have these double whammy's at the end of a fed day. lisa: you like options, were you watching the yesterday bond? ira: absolutely. lisa: what was your interpretation? was it because of this feeling that the cpi number might come in softer than expected with raider disinflation than is currently the consensus? ira: when i first saw that the number was strong, i thought that healers had set up effectively for the auction. indirect investors when you look at the statistics, that they would stay away. it was before the cpi and the

fed. instead the indirect came in with strong demand. so, and users might have been a little bit underweight duration, short in yield curve steepeners. but by selling tenure notes, they used the liquidity that is a bond or note auction like yesterday to basically cover those positions before the fed to. i think it was a little bit surprising that the market seemed to be leaning short and you had that cover. it was certainly one of the strongest of the cycle and i think there was one bond auction in early 2022 that was even close to being this strong. jonathan: pretty solid. ira, thank you. the biggest difference between our forecast in their forecast is that their forecasts have big consequences, sometimes. lisa: and they haven't been

right about some of those but they were more right than the market was and we have to keep reminding people of that. it's kind of like running in lace. that that is what we have been doing in the market, this losing game. a point going forward about how they have actually been kind of projecting not many cuts and now it's coming to fruition. jonathan: jim, bill dudley is a former colleague of yours and i'm sure a friend as well. the fed, finding inflation? again. even at 5.25%, a short target might not behind have to call the economy. if that was presented at a committee today and presented right now, how would you respond to that? jim: the committee is restrictive in the balance of the evidence is that this is a high interest rate for this economy. you can make arguments around

it. i think that they are pretty much restrictive here. i will say this about restrictiveness, if you think that last summer was the right number for the policy rate and then core inflation comes down to hundred points in the fall, how can it still be the rate with only 80 basis points to go to get to the 2% target? that's a basic argument i think for it pretty restrictive. lisa: somewhat argue that it is in the fed funds rate that is the reason the rates came down. some say it is the supply-side shock most of the labor force. it raises a question, do you agree with that? second of all, how big of an impulse would it be for the economy if the fed lowered rates and companies were

given credit and frankly the economy is doing just fine in terms of the client machine? jim: the inflation came down because of that credibility. it really is the moves of 2022, especially the 475 in a row, the jackson hole speech, eight or nine minutes. all it said was getting inflation back to target. it's that with the subsequent lose after that that convinced markets that the fed was serious about the targets. there was a moment in the spring of 2022 where that was slipping away, the confidence in the fed was slipping away. they definitely reestablish that confidence and paid handsome dividends in 2023 when the inflation came down dramatically. now it's a situation where they have core pce over 12 months with the dallas fed over 12 months going below 3%. hopefully, heading lower.

so, i think it has been a really successful policy that is all about the fed. jonathan: there's the music. it's all about the fed, all about cpi. up next, five minutes away, the scores. equity futures on the s&p 500 breaking down cpi with michael mckee as we kick off a doubleheader. we will catch up with jim and francis mcdonald. all of that on the other side. from new york city, this is bloomberg. ♪

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♪ jonathan: the whole trading week has been building up to this. cpi data due in about 20 seconds. s&p futures positive by 0.1% going into that data, nasdaq up by 0.15%/ . yells lower by a single basis point. with economic data, here's mike mckee. good morning, michael. >> looks like further additional progress for the fed. we will have to get the data from jay powell later but the cpi comes up not at all, flat for the headline number. the forecast was for a 10th, that's after 0.3 last month. the core comes in up 0.2, lower than the 0.3 that was anticipated.

that puts the year-over-year numbers at 3.3% for the headline, down 0.1% from 3.4 percent last month and 3.4% for the core on a year-over-year basis. that's 0.2% lower than 3.6 last month. the headline numbers are pretty good. let's take a look at what we are seeing in terms of the major categories. food just 1/10. food and home, which has been a campaign issue, flat for food. energy overall down 2%. gasoline prices down 3.6%. natural gas down 0.8% so good news there. new car prices down 0.5%. a lot a focus on used cars, which were up zero point 6% but new cars have doubled the waiting in the cpi of used cars -- a .6% but new cars have

doubled the waiting in the cpi of used cars. for shelter, up 0.4%. rent of primary residence up 0. 4, no change there. owner's equivalent rent up 0.4%. so the rents stay about where they have been for the last few months, no real progress there. if you look back to what chris waller was saying a couple of weeks ago, he has to look out to three digits to see what the real changes are in the cpi. we will look for those as well. jonathan: stay close. let's get to it. it's the most important number in international finance. and right now, this is the right kind of downside surprise. equity futures positive by 0.8%, on the nasdaq 100 up by one percentage point. check out the russell and i will give you the why. turn the page and get to the bond market. the two-year yield absolutely

ripping. yields down by 14 basis points the front end of the curve. we have not seen 5% at the front end of the curve since the fed last met on the first day of may. we are backing away. we are down 10 to 4.4389. get to foreign-exchange. you can guess what the dollar is doing. the euro is stronger against the weaker dollar. positive by 0.75%. stocks are up, yields are lower, the dollar is weaker. lisa: how does jay powell interpret this? is this going to be opening the door to a july rate cut, because guess what, we are even closer to our goal? i think the decision is fascinating between the connection between the rate market and the stock market. it does not totally make sense that you see in outperformance of tech stocks in addition to the russell 2000.

some people argue rate cuts will not benefit small caps as much as some other sectors. a lot of uncertainty as we carry through. you have always had first reaction is not the way we are going to end the day. that could be the case today but the right side of downside surprise making its way to a pivot party. jonathan: this is part one of a two part story. got a news conference with chairman powell. if you are just joining us, 0% month over month headline cpi. 0.1% was the estimate. previous month was 0.3. core stripping out food and energy. michael mckee has been pouring over the numbers. what jumps out for you know? mike: one of the things the fed has been looking at is super core, which is services less energy. is up just 0.4% for a month over

month basis and a year-over-year basis, we are up 4.8%. that's down only fractionally. there's still some inflation on the services side that the fed is looking at. some of the services things we have been worried about like airfares have not gone up. airline fares down 3.6%. your surveillance coanchor probably got a discount on her trip to the g7 so that's good news. lisa: can you give us a sense how you think this is going to filter into what we hear later today? >> i think it's going to probably reinforce what most of the officials came into the meeting with, the idea that inflation is going to continue to fall. they may not have put the exact numbers on it but i don't think this changes anything in terms of anybody's view in terms of how many cuts they are going to put in their dot plot.

it does make the idea of changing their forecast for the pce, and remember, cpi runs a number of basis points above pce. revising that up, maybe that makes a little bit more difficult. it's a difficult question for jim bullard, because he's been in that room. it's rare that we get date of this important on the day of a fed meeting. but i know they can change their views for the scp and the dots up until about mid morning. jonathan: jim bullard, the floor is yours. what would you do after that print? jim: i think this was good news for the committee. they've been looking for a softer report. they got it here. but the typical reaction would be, ok, this is good but this is one month's numbers. we would need more news going in this direction in order to, in order to forge ahead with our easing policy. i think that will be the baseline reaction. but it does keep hope alive for

those that have been looking for an earlier rate cut. jonathan: you think the door is open for july? jim: no, i don't. i think the best you can do in july is set up a possible move in september and you will have more data by the time you get there. jonathan: francis alongside us is all. i want to get out to you and get your early reaction to that cpi print. >> i literally breathed a sigh of relief for a lot of the reasons i suspect chair powell did, too. for consumers who are not going to see as much month over month increase in prices. for all the economist with a september rate cut in their forecast, air probably also relieved. bigger picture, higher rates are working to bring down inflation. this was an increasing concern, are rates restrictive enough? do we keep them this high? why is inflation not moving downward? this is one print. we have three more before the september meeting. as exciting as this is, i am

more interested on the cpi print that comes up september 11, one week before the fed's september cut. that may end up being much more important than this one. we will take it as a win. it's good news for markets, but it's one print. lisa: jim bullard was also talking about the pain speech in jackson hole that jay powell gave a couple of years ago when he said that essentially this is inflation that's running too hot and we are going to get inflation back down and it was going to require pain in the coming. you were expecting to see that pain. we have not seen it on a broad-based level. do you have a sense on whether this disinflation is the immaculate type that we have been talking about? or if this is just one dot and a series where things are kind of shifting, we are at a tipping point? >> i would hope that would be the outcome for the american people. leading indicators continued to show weakness ahead. we are at a 4% unemployment

rate. i am watching today to see from the federal reserve, they already had 4% penciled in for the end of this year. are we really going to go through the end of the six months without an additional increase in the an apartment rate? it takes about two years -- in the unemployment rate? it takes about two years for that to work its way through the system. we are not at the end of the impact of rate hikes, we are at the very beginning. while magnitude of the downside for the u.s. economy is up for debate, the director should not be. there that -- the direction should not be. there will probably be a much larger slow down in jobs later this year. that's when the federal reserve can bring those rates down, we think in some temper. if it -- in september. lisa: it feels like a stretch for the in employment rate to stay where it is for the for dutch unemployment rate to stay where it is for the foreseeable future.

>> by being credible and moving quickly, the fed was able to get firms to change their pricing strategies quickly. inflation came down relatively quickly. one simple theory about how this works would be that you, the fed threatens recession, everyone looks ahead, they see that that might be a possibility, they don't want to raise prices into that and the inflation goes away relatively quickly. that is not the most popular theory around here or on wall street but that is, you know, that is something that you have to take into account because the anticipated effects can overwhelm sort of the mechanical effects and you get lower inflation right away. this is something i was advocating for in 2024, let's move quickly, let's try to quash the inflation quickly. this report today is helping that story. jonathan: forgive me for going off piece but just entertain me for a moment. french 10 year yields down by about seven or eight basis

points. that cpi print was more important to the bond market than anything macron has had to say in the last 12 hours. lisa: the reason why jay powell should go on tour. it does highlight that this is the market that everyone is watching regardless of external factors. jonathan: the most important data point in global finance. your thoughts on this one? >> obviously, better than some people had feared. on the core cpi, it was a low 0.2, so it was actually under 0.2%. i think that is something that traders have been able to kind of grasp onto. like you noted, this is pulling down all global sovereign bonds out the moment where, bond yields at the moment. german yields are down by six basis points, like you said. france down by seven basis points. the beta to that is only half of what's going on in the u.s. where you have five year yields off 50 basis points at one point. that just shows that we are now going to be pricing in for two

full cuts probably before the end of the year. as you get additional data, obviously, the market is going to have to shift expectations pretty dramatically. >> i have a question for you. if you just took read based where inflation is right now and you said 0.2 every report through the end, of the year you would get year-over-year core pc inflation on a 12 month basis at 2.8 at the end of the year. we started out at 2.8 in january on that metric, we would end up at 2.8, so maybe that's not really enough. you need even better reports to be able to show progress through this year. what do you think? >> i think part of it, james, is the fact that we are not increasing, right? a couple of months ago when we had a couple of inflation scares, the market really dragged on that and said what

happens if the federal reserve does not cut at all this year or maybe even hikes? keep in mind, in january, the market was pricing for almost no chance of the fed staying on hold this year. and now, we are actually pricing or were pricing, i don't know where we are the second, but we were actually pricing via options on short-term interest rate futures for about a 20% chance of potential hikes by the end of the year. i suspect that when you get, if you get another print similar to this where you have another 0.2 again on the core that people will, say progress is being made the federal reserve is still more likely to remain on hold and/or cut than they are to to be even thinking about hiking interest rates before the june 2025 at this point. i do think that there is a seachange and it matters. to your point, i still think that the market is going to say, ok, what's the trend versus

where we were? as opposed to just looking at ok, 0.2 forever is probably not going to be sustained. jonathan: ira jersey of bloomberg intelligence. appreciate that. we got this data, 0.0% month over month headline inflation against an estimate of 0.1 previous number, 0.3 stripping out food and energy, 0.2% the number. lisa: jim bullard saying this was the immaculate disinflation people are looking for. francis mcdonald still with us. do you see this as the immaculate disinflation? can you bet on that and arrange a portfolio around it? francis: fortune it feels like immaculate disinflation or for me. we had no change in inflation month over month and a pretty good nonfarm payroll number, that's exactly what this

immaculate disinflation would be defined as. what do we see next? i do see some downward momentum that is occurring in the economy. let's remember if you are sitting on a trading floor, your managing portfolios, numbers like this are not just about changing your base case. it's not like something like this would make you move from a december to november or even a september rate cut, it could also be about -- this number probably is not going to change anyone outlook as to what will happen next. that will be based on the forecast. it does reduce the chance that the fed would if you have it in your scenarios have to hike again or that they have to stay for a prolonged hold. sometimes it's about reducing those fat tails on your outlook as opposed to the individual. that is tradable but usually around the conviction of your trade or the balance of risks or how much leverage you are putting onto it as opposed to the trade itself. lisa: what could jay powell say that would really move the needle in your book? francis: he could speak to some of his longer-term concerns that

are not inflation or jobs. for example, well, he cannot do it, but interest cox for the federal government are very high. 19% never revenue is going toward interest cost. some of the risks of higher for longer, that will move the dial. we have three more inflation report, three more of just about everything until september. the fed is in a holding period, the market is in a holding period, and each individual fed commentary will be far less important than the sum of all their parts. i am sure we will talk about this meeting all day but far more interesting about the evolution over the next three months, that will be more important than any singular event. jonathan: thanks for being with us. frances donald of. man u life team september, city, goldman, morgan stanley, they will be feeling pretty good today. you think there is a risk that we get too carried away with sprint this morning -- with this printer this morning? >> that always happens in

markets. it is one number. it is, as francis said come a sigh of relief to some degree because it is the previous reports that have not come in softer that have been causing the angst, and so this is back on track for disinflation. and but it is only one number. you can -- you are going to need more of this going forward, as governor waller highlighted in his recent speech. lisa: that's the formal take. the informal take. jonathan: [laughter] like of the cameras not on him? lisa: how many of the -- like pretend the camera is not on him? lisa: how many of the fed officials are saying mission accomplished? >> they, would not say that even to themselves. it's good to have a good number but we get lots of numbers all the time. you guys do, too. and you can't put too much weight on anyone read. but it is encouraging its going

in the right direction. i am sure jay will say that at the press conference. jonathan: you are going to stick with us. a final word from jim interest among. if you are just joining us, inflation, the right kind of downside surprise coming. stripping out food and energy, we get 0.2, we were looking for 0.3. going into the opening bell, equity futures positive by 0.7% and a big rally in the bond market. two-year yields down by about 13 baseboards, briefly breaking -- 13 basis points, briefly breaking 4.70. let's get you an update on stories elsewhere as well as some details on the cpi report. hears dani burger for more. > that's the price action in the bond market. i want to go through what swaps are pricing in at the moment. a full quarter-point cut is what we have in november, full basis point for september and a two

full cuts for the entirety of the. it came in flat for the month of may and now we gear up for the fed rate decision at 2:00 p.m. eastern. elsewhere, u.s. mortgage applications rose for the first time in five weeks. mortgage rates did ease closer to 7%, according to the data from mortgage bankers association. applications to find a home crease by 8.6%. the latest reporting week followed memorial day. biden administration is considering further restrictions on china's access to chip technology. sources said measures being discussed would limit china's ability to use cutting edge chip hardware known as gate all around. it's unclear whether officials will make a final decision, emphasizing they are still determining the scope of a potential companies like nvidia, intel and amd are looking to start mass semi conductors with this gaa design within the next

year. jonathan: coming up on the program, up next we will set you out for the day ahead including a post cpi for decision. equity futures running hot as inflation starts to cool. ♪ [introspective music] recipes. recipes that are more than their ingredients. ♪ [smoke alarm]

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jonathan: it is quite a market reaction. equity futures positive by 0.8%. yields much lower. right away through the curve. on a 10 year maturity done 11 basis points. a break of 4.30, 4.29. we are counting down to the opening bell. today at 2:00 p.m., fed rate decision and forecast are released. 30 minutes later, a chairman pounds conference.

tomorrow, more data and another round of jobless claims. umich consumer sentiment data plus a boj rate decision. jim bullard, the former st. louis fed president, and now dean of the perdue school of business, from indiana. great to have you with us over the last 50 minutes or so. a final word from you based on what we have seen already this morning going into this fed decision later this afternoon? jim: this is good news for the fed. the policy is working. we are bringing inflation down. i think all that is good. it is just one number. we will need a string of numbers going forward that will confirm this. hopefully, we will get that. i would just say something we have not talked about is bond market volatility. and you got a big reaction out of this number today. i have described the last 15 months in the two-year as mr. toad's well dried. it's really been very volatile

-- wild ride. it's really been very volatile and sentiment shifting back and forth. i think it would behoove the u.s. economy to get that to settle down, maybe not be quite so dependent on individual readings on numbers. but if we can get going on the rate declines in an organized way, i think that will probably settle down. lisa: that volatility, is it a sign of the financial market strength that it has not taken it down or just a pointer for jody? -- of fragility? jim: i think inflation declined so rapidly in the second half of 2020. the way. markets work, that got extrapolated out that that would continue and that would we would be at 2%. jonathan: is it the fed that's responsible for this volatility? isn't this the fed? >> i think it's a combination of

the fed reacting with the data -- interacting with the data as the data comes in. it was a surprise that inflation went down so much but then leveled out. may be ahead of time, you could have predicted that. jonathan: what is your best guess now? what's your best guess for this year and beyond? >> two rate because this year based on sitting here today looking at the state i think that the most likely outcome. jonathan: any idea on the destination, the ultimate selling point? >> i think -- settling point? >> i think 3.5 on the funds rate and the 10 year trading at 4.5, then you would have a nice upward sloping yield curve, the soft landing would be complete. jonathan: that's like a dream. jim bullard, former st. louis fed president and now dean of the business school of purdue university. coming up, a fantastic lineup. t.k. is going to be in the corner alongside bramo and me.

special edition of "bloomberg surveillance." we will be joined by j.p. morgan's bob michele, julia coronado, we will catch up with diane swonk, and mohamed el-erian. fantastic lineup. lisa: at a time of incredible volatility in the right direction for the market today, we take a look at how much the bond market has reacted. will it stick after the press conference? jonathan: equity futures positive on the s&p and quite a sizable bond market rally. from new york, this was "bloomberg surveillance." ♪

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matt: off to the races after inflation came in later than expected. we should hit all new highs on the s&p and nasdaq. the countdown to the open starts right now. good morning. another downside surprise for u.s. inflation is sending futures higher and in yields of as investors countdown to chairman powell. we begin with the big is -- issue, signs of slower inflation. >> good news for the committee. they have been looking for a softer report and they got it here but the typical reaction would be this is good but one months numbers and we need