500 stocks rally in the s&p heading for its highest close since august 28. joe: the question is what you miss. with the chief economist at goldman sachs to talk about what is that they are -- is at stake. alix: the past is prologue. what happened the last three times the fed raised rates. brazil, it is all about with the global markets turmoil. when of the top ceos is your best. alix: we have to begin with the markets. it was quite a rally. at one point the dow was up well over 230 points. all u.s. stocks are of about 1%. a risk on dave. caterpillar was back in the dow.

one thing that we saw was dollar strength. it does not like the market was rallying because they thought the fed would be on hold. everybody was up, it looks like a true risk on day. alix: right around 2:00, it dipped extremely. spokesman said's that president obama was not for the house ban to lift oil experts. joe: this will be a whale until that happens. we do want to take a deep dive into the bloomberg terminal looking at the 25 year charge up i guess and manufacturing group looking at the previous rate high cycle you have 1990 4, 1999 and 2000. what is interesting about this is it comes from goldman sachs and all of the are between 52

and say hi 60's -- the low 60's i should say. we are below that right now, we are at it the one. -- at 51. turn to the strength that we saw. to dive into my terminal because i mentioned short-term rates. a short-term rate. the gold line is the line on the u.s. to year, the highest level since 2011. the white line is the yield on the u.s. sex which we do not talk about a lot. about and will the fed raise rates at what happens if fed rate hikes. thees are rising at short end. it is kind of already here. be market seems to be digesting it. alix: perfect lead-in to our superstar guest.

there are two days to go until the crucial rate decision. she should make her move this month, saying it is fully appropriate for the fed to normalize policy. it is no longer appropriate for the fed to be so far away from neutral. jan hatzius is the chief economist at goldman sachs. you have been saying september since june, others have joined your camp. what you you see that so many others do not? an: it is looking at what the committee seems to be communicating at how things are developing relative to that. we switched our call to september from december right after the meeting in june because it seems like the message sent by chair yellen was more of a december baseline message it and then the question was really, did things after that come in stronger than what she expected at that time? the answer to that is no.

in our economy, it is fairly close to expectations. environment,ial clearly weaker than those were expecting. that said, pretty clearly, unless our assessment of where she was back then was very wrong, that should not even close a call this week. joe: if the fed looks of the economy right now, let's ignore the market volatility for a moment right if the fed looks of the economy is a severe not there yet, what are we going to see between september and the december meeting that would give it more confidence in the hike? with one iseconomy, continued labor market improve of that we have thawing out unemployment rate and other measures of the labor market's lack. but if you continue improvement, and strengthen the mandate. -- corew on information

inflation we are on the lowest levels of the last four years. if that gets falling that would obviously be a disaster. our expectation is that it is going to be a little higher time december hit. alix: the argument many make is that it is transitory. your work tells you something different, that it is more consistent. to writeould not want off that it has had some impact . it is slow, but it is not that low. it is only about 40 bases its less than the average of the last 20 years. but 40 bases are forgiven the weight of the index, is only about 1/10 of a percentage point. it has contributed but it seems like most of the undershoot relative to the target is due to other factors.

we as an health care costs, but it does not seem like you can explain, or most of the -- all were most of the weakness from this. there is this drumbeat give you fear it among traders that says the fed should get on with it. what is it waiting for, bite the bullet. is there any merit to the idea that the fed should get on with it and move off of zero for the second moving off zero? jan: i do not see a justification for that. people are more patient, some are more impatient. i do not think that is really that relevant a consideration for monetary policy. the question is, is the right time to move off of zero at a time when clearly you are closer on employment. you can make a reasonable are you that some slack remains.

are quite far away on the immunization side. my answer is no. alix: speaking of labor slack, you have the greates chart in the most recent note, versus the implied rate. can you explain to us what this charge means and what is life? -- chart means and what it implies? jan: the rate moved very closely with one another. the fixed rate includes marginally attached workers and involuntary part-timers. after 2008 the improvement that was nota few years ago fully matched by the fixed rate. -- blue line grappling extrapolate what would have asked him that happened if it has the same relationship is

prior to 2008. alix: it is not as long as you think. in all the measures, it implies the equivalent of a 6% climate rate, not 5.1. joe: people look back at history note that there was a lot more consensus about when it was going to happen, the fed telegraphed it more. what do you make of the fact that there is so much disagreement? some people it will be right now, something the middle of next year. for me, it is true certainly that back in 2004, when the time they actually hike in june of that year, we know it. this time it has not been the case. i think that is probably an argument, an additional argument why that is not going to go. usually there will be some

concern the market is not prepared for it. you a lot of volatility, had so the risk of adverse market reaction. that is not the only consideration. if they do not like this we will let me get to the case. alix: does that bring into question the credibility? telegraph?y need to is the credibility issue? say, they of people cap pushing back the left off. what credibility do these statements really have? i take them are sanguine view of that because they push for liftoff in response to weaker inflation numbers in particular relative to their expectations. that was the forecast there, although it was a forecast error that was shared by many people.

but responding to new information and then changing data for liftoff seems like a very rational response to something that is running in the data. joe: in addition to the market volatility, the other common thing is market slowdown around the world to what extent should that factor into their decision, and also, how prepared is to deal with this? with this excel right that slowdown? alix: you were looking at the global growth for the world and the u.s. during the previous tightening cycles. the u.s. is inching closer to world growth although bones are much lower than before. cory: world growth matters because the u.s. is not an autonomous economy. it does strange with the rest of the world and there are important financial relationships. what happens elsewhere is important and does factor into the decision.

factors into the gdp numbers, the evaluation of financial concerns. is a move to, this be a little later than this week in terms of hiking rates. relative even to a december call. if things go badly rest of the world, and they intensify from here, in that case they would have a good reason to push it in 2016. it is not my baseline, but it is not a crazy scenario. joe: you are staying with us after the break. alix: when we come back, what was real gdp the last three times the fed raised rates? ♪

alix: i am alix steel. joe: i am joe weisenthal. this is what the u.s. -- what did you miss. you can see three points were the fed hiked. 3.9%.dp growth averaged alix: we are not there. we're back with jan hatzius . a risk. there was there is a divergence here. what is this part line telling you about actual conditions ja?: jan: the a low-lying is are we -- weightedof average of long-term rates and credit rates.

the weeks are chosen to mimic the impact of each of these variables on gdp growth over the next year. when it is high that means we restrict the negative impulse and vice versa. is essentially our rules for financial conditions. we have a federal reserve that would like a natural conditions bench how far the way our away the -- how far away they are, when the inflation is high and the economy is overheating. now, the line is relatively low because inflation is quite low rate but actual financial conditions o have tightened quite sharply.

there has been a lot of tightening that the markets have put in place right there is an incentive for the market to push against the tightening to ease financial conditions and push it back to appropriate conditions. totallynot be mechanical about that. these role model calculations right it is more of the general idea that matters is the markets have done a lot of the things that you normally hope to achieve by tightening monetary policy and have done it in spades and done it to a degree that is somewhat excessive effect perspective. joe: we have been talking about the strength of the dollar a lot this year. the economy looks like it is doing ok. forecast q3 is pretty solid. why do we not see the solid -- slowdown in gdp forecast? all, there are a lot of things going on in the economy. secondly, a significant part of the increase in the index has

only occurred in the last couple of months. a lot of that has happened in the early part of august. i would say that at least so the data for september most -- september is first so far committed really have two indicators. the preliminary index, and both of those were relatively weak. at a minimum, you want to be a little more information on how the economy is holding up before you want to do mandatory policy. these are pretty noisy numbers. when you say the fed should think about easing rather than tightening, what does that actually mean? does that mean qe or something more nuanced? jan: it could be a range of things. the most straightforward thing to do would be to not deliver on a height that is partially priced. the probability is 25 to 30% but

nevertheless the market is trying to get some volatility that is not delivered right allows equal, that would ease conditions. of course, the question is what .s the path that they project if they wanted to do more, they can talk to others about the future. options in number of addition to qe. we are very far away from that for the hurdle for that is very high. joe: what to show tonight? asiawhat keeps me up in and the financial instability out of asia. i think there are downsides risk to the chinese and the. of course, the asian economy is quite closely linked with one another.

asia is a big place and important. alix: gray to have you. on thursday for a special part on the rates decision and new conference. up, which major airline just grabbed a transcontinental airline flight because of the severe downturn in the oil industry. ♪

alix: before the break we asked which international airline just grabbed a well-known flight because it troubles the oil industry. scandinavian airlines is

canceling the so-called oil line between houston and norway's oil capital. i love the surprise ramifications of spillover effects. i had no idea there was a flight between this small city and houston. the: moving to brazil, government has proposed a $14 million austerity land in hopes that attacks increases and spending cuts will bring its budget back. joe: the biggest mobile carrier , we are joined by amos genish . alix: what does this mean for your business? time for theenging country as a whole. we have rising inflation which is clearly a negative factor for business. unemployment is rising.

has been told for any business. people in brazil still have a desire to own a mobile and not the packages. mobile penetration is very local. also 85%tation is compared to the u.s. and other countries. there is room to grow, and we see it in pay-tv. we'll continue going forward. joe: what do brazilian policymakers need to do to restore confidence and turn everything around? >> we liked it, we were expecting to see more budget cuts. earlier, the more budgets were focused on suggesting tax hikes because we believe we impact

investments. do highot even unemployment traits. we hope that it will be strong enough to pass in the next few weeks. but no doubt there are things cap hostage coming out it might be linked to leave them, but this is the right direction rate think we are closely covered. daisy that -- teasing the president should keep her job? >> i can tell you that we believe the government finally this coming up with the right packages. the investment in the investment community easter seal outflows ney.this

not see any ipo and the brazilian market for more than a year. those is one aspect of what they are facing. we need to slow investment confidence, improves consumer confidence because purchasing .ower been affected we need this kind of action from the government from both investors. we sold it and it has been divided by its present in the past few months and this is an in a economy. that said intentions to increase

in restraint in the u.s.. your home is really something which we learn. pull this.to joe: we will do. ♪

alix: i'm alix steel. consumer price index out tomorrow at 8:30 p.m. -- a.m. eastern. you can show in excel ration in the year on year growth rate. joe: we are going to get more data on real earnings. muchse there is so

question, everyone will be watching this. to the bloomberg surveillance special tomorrow night. thanks for watching. sure, tv has evolved over the years. it's gotten squarer. brighter. bigger. it's gotten thinner. even curvier. but what's next?

for all binge watchers. movie geeks. sports freaks. x1 from xfinity will change the way you experience tv. kicks off toorce reinforce with a big data and some unconventional ownerships -- partnerships that have some new owners talking. i'm emily chang, this is bloomberg west. coming up, then a venture capitalist sounds the alarm on a tech bubble. plus snapchat discovered a new revenue stream. and masses plan to send humans to mars.