of that dollar commodity price risk show up again. the dollar appears to be leading but we have to watch that. scarlet: limit is a good keyword here. at of that we're looking at stocks, and a little changed. the dow off by -- no commit is unchanged. : no change in policy, no change in rates, only a few changes in economic assessment. activityn of economic overseas or the dollar and no timeframe for future action. if you're feeling hawkish there is this. thattement noting near-term risks to the economic outlook has done it. -- has diminished. more favorable and investors may take that if they want to as a sign september could be a live meeting. as far as the assessment, the fence is specifically that the labor market has strengthened, noting with a call strong job gains in june and payrolls and

other labor market indicators point to what the statement calls some increase in labor market utilization in recent months. economic activity has been expanding at a moderate pace. although there is concern about the level of business spending with was a concerned expressed in the june meeting as well. there is no change in their inflation -- and there -- they continue to expect it will rise. the statement does note that -- et-based we're back -- kansas city's pastor george saying she would have preferred to raise rates by a quarter point. tom: what else do you see in the statement? the two-year yield moving up, 10 year yield clearly moving up.

we'll show you that a minute. what else did you see? mark: almost nothing different. a fourth, fifth and sixth paragraphs exactly the same as the previous months. the only real change is in the second paragraph where the eddie saenz that near-term risks for the economic outlook have diminished. that was the concern that came up without the bad jobs report in june that maybe things were going to deteriorate. the fed seems to be telling us that when i happened. economic assessment, welcome anybody could have written that. not a lot of changes and now they see things. they're not as worried as they were. see the dollar index jump up. also seeing a rise in two-year yields. we are there with jeff rosenberg. what are you seeing in the market reaction? jeff: a good curve flattening. that is pricing in a bit of fed tightening expectations on the

front end of the curve. the assessment from the second paragraph is the most important in terms of easing the near-term concerns. a lot of that was brexit-related . certainly that is consistent with what you are seeing the front end of the curve, pricing that a bit -- increased probability of fed action. joe: you mentioned the curve flattening. we have been lower early in the year but how much is a problem is that for the fed, the fact that the long end of the curve is so unresponsive? a bit of a problem if the fed is thank you about from a traditional point of view. i do not think the fed or the markets are thinking that way. you mentioned -- i'm looking further out in terms of the flattening in terms of the 30 year part of the curve, so influenced by what is happening in the rest of the world. the traditional measures of looking at the long end of the curve in seeing it as an inflation indicator, we're going to asterix those with what is

going on in terms of the boj, the ecb you're seeing a flattening. i think that will ease some of the concerns about what the flattening means for my fundamental economic interpretation point of view. and i were talking earlier about how does a be important to create maximal -- maximum opsin audi. did she accomplish that? jeff: i think this is a marginal move. it is expected in terms of upgrading the economic activity, the language shift was easing near-term concerns. in terms of option audi the fed has maintained it. most important in terms of the optionality, the fed has to have the option to be cutting -- normalizing interest rates when the market is not expecting that at all. you get is expectations beckley market as you have seen -- you have a nice function on bloomberg terms of the implied abilities. when you get at in place, that

gets the fed option audi -- optionalituy back. tom: part options is forecast. you see in forecast, past, present, and future? this is not october of last year when said they were getting ready to raise rates at the next meeting. they do want the optionality. you go back to their last economic forecast in june. or they have done is take off the table that the forecast will be wrong. develops asmy expect, which is the language the o's use, the could raise rates. we're back at conditions with a good raise rates. back to data defendants. we will last the data between now and september. the real concern after brexit him after the jobs report is the economy with slowdown significantly if it is not doing that, if it is on the path they expect, that was a pass they thought would lead them to a

couple of rate increases. so we are to that being a possibility. tom: jeff rosenberg to appear with us today demanded fireworks. we're going to do that right now. for those of you on radio, this is a beautiful and wonderful thing. , plussend it out to you from september of 2013, the market is the redline and the green line is the median of the geniuses at the fed. here we go. they get farther apart. i don't know what to do. here we are. here's the massive gap. children are watching so we can only do this once. jeff: thank you for the fireworks. you know the dots. tom: never have you seen the vigilantes so far away. the dots have been a really bad guy to what is would happen in the market. a lot of that has to do with the

fed in terms of adjusting its expectations, it's forecast, overly optimistic every year. the market has been a really better guide towards where the fed is going to go rather than the dots. tom: that is the key insight. joe: i'm looking at a chat -- on -- art the fed is feeling to generate any inflation, but by lots of measures things are going up the right direction. fed wage growth, which tracker, cpi services. most of these have been going to the right direction. when you look at that huge gap that tom show between the market and the fed, could we one day get to a moment where we are clearly hitting those targets and the market is really offsides? year and thisarts broader conversation about the disconnect between market measures of inflation, both in terms of nominal interest rates and the other way could look at

it is in terms of tips implied inflation, and what we see in terms of core measures of inflation. this is a bigger, longer run concern because there is this disconnect brewing between some signs of increases in inflation and expectations in terms of the dots for low interest rates for a very long time. this is because we have had a very persistently disappointing history when it comes to production of inflation. part of that as a headline story that confuses it because we had as big decline in oil. but what we are starting to see is the core measures of inflation turn and the bond market lagging here part of what masks that is the be yield curve. it typically should stephen when you have inflation concerns. yet it is letting because of global concerns. there are a lot of new factors in today's bond markets. q e come unconventional monetary policy, negative interest rates, global influence on interest rates is making a lot of those relationships less reliable. we certainly have to watch for

that inflation picture in the u.s. but we also have to look at the global inflation picture. the other thing is when you look at the deadlock, that is a sale forecast. these were turned in at the beginning of june. weston now, they might have a new -- a more nuanced view. you have to throw that out as you suggested. well the interesting things to focus on is the inflation part. they do not change anything about the forecast for inflation they do note that they still see market-based inflation measures as remaining low. they are still concerned that people are thinking we're headed towards deflation rather than inflation and suggest at this point the market is done them that inflation is not something to worry about. jeff: that reference of the market-based inflation indicators of the reference to tips levels. tips implied inflation levels having coming awfully late. than whateen lower the core figures have been saying and it has been in the concern.

the concern in terms of inflation dynamics is inflation expectations. if market-based measures are one of the things that influence inflation expectations, the concern is whether this low inflation is this inflationary and the fear gets embedded in the expectations. tom: i love the chart that joe has showing 28 flavors of inflation. we need to get zen. there it is. major shadow to one of our guest this morning on surveillance. this is 48 hours ago? cpi, core service sector cpi is back to trenton. 3.2%. simply --berg, very the mail began our mailbox -- i do not get any mail. in their mailbox at home, it is inflation. and that is it. jeff: the chart we are showing

here, this is a big part of the inflationary story. we were talking a moment ago by the headline figures. when you open the code and look at what is going on underneath, and big dichotomy between service inflation in goods inflation. the goods inflation is holding down the overall inflation figures while what a loud people feel in terms of their service aside of the economy as a chart was highlighting is increasing. the risk here is that if good inflation stops pulling overall inflation downward, the service side picture your clearly seeing going upward start to show up in the core figures. that is already what we're seeing in some of these figures. we're going to drive it forward with jeffrey rosenberg. coming up on bloomberg radio and bloomberg television, former president of the minneapolis fed. he has been controversial. we're thrilled to bring him in.

on the currency markets. the focus on boj. i speak after the 3:00 wall street time our with mr. gross. stay with us. ♪

tom: we have heard from the federal reserve pre-much as expected. much as expected. i want to talk about where we are on yield. we have nominal yields and real yields. of -- s not a lot

is it even feasible that we could have negative nominal rates? i think the question you're asking is negative nominal rates. negative real rates, it is a question of what we are acting -- talking earlier. more inflation is the goal. you are seeing rising expectations for a moderate increase inflation but only around 2%. that will help you real late -- rates lower. negative interest rate policy here in the u.s.. that is not a conversation. that is clearly not the conversation we're having today. today's of upgrading the assessment, the near-term balance of risks, that is a major takeaway today. that is a little bit more hawkish, more setting of the markets for normalization, maybe even earlier than has been expected. so we are pushing the fed up the conversation around negative rates. tomorrow night into friday morning the story will be about

negative rates in market expectations that will get another 10 basis points. i like to ask you a question that is particularly relevant. we're seeing bonds and equities selloff. they had been really together for a long time coming out a selloff. sony people have portfolios that are a mix of the two premised on the idea that one hedges out the other. how challenging does that make your job when they had the same directions on the same day? jeff: that is a great question. -- do yousset classes like bonds or not like them? about often say it is not bonds in isolation, is about a portfolio. at low levels of rates when the fed is expected to normalize and what we are talking about today, why would you ever hold bonds? is because of that portfolio characteristic. when you lose confidence in that portfolio characteristic of bonds in ballast to your equity

portfolio going in the opposite direction, it is one of the most challenging things. we saw in the case of brexit and other periods earlier this year we had a big china currency commodity concerns, is we saw the traditional role of bonds being reasserted. bonds were bounced. but we have seen in the recent past the taper tantrum where that can break down and be very challenging to portfolios. well he made things we focus on it is about assessments, what we think is the correlation between risky assets and bonds will be? most recently the correlation has been traditional in the sense that bonds have been doing their role as ballasts and a portfolio. scarlet: how about recent days? jeff: there is the high-frequency observations and you can have data that moves in opposite directions from that. the question is really, signal versus the noise. filtering out some of the noise for the signal. where yields are today,

particularly the back end of the yield curve, you still have that traditional relationship. the traditional relationship cuts both ways. if things are getting better in the fed is normalizing, those rates will go higher and potentially that is higher in an environment where the economy is doing better. scarlet: stay with us. also a reminder that you can follow our top live blog for analysis on the fed decision on your bloomberg. right now we are looking at for work function which indicates the odds of a rate increase now for september has gone to 29.8% over november. it exceeds 50% want to get to march 15 at 2017. still ahead on bloomberg television and radio, 40 minneapolis fed president joins us about why he is at odds with janet yellen. this is bloomberg. ♪

♪ this is a special

report. the fed decides. we're discussing global central-bank policy and if you were to look at hrs raise between five and 30 year yields, they're flooding in germany, flattening in japan. the u.s. is following as well. we're joined once again by jeff rosenberg. jeff, it is your chart and you talk about he out u.s. treasury's get beat up because they are attractive relative to the euro and negative rates. but it is a lot more compensated than that. is not just a relative attraction argument. jeff: that chart we took from our july piece where we talked about foreign influences -- influences on u.s. treasuries. the simple way of thinking about is u.s. yields are low and yields are high vaulted to foreign yields. you make the international

comparison you have to consider what are the effects for the hedging costs. componentnsider the to the outlook, then what we see as more than just the absolute level of yield difference is that matters, it is the yield curves. the yield curves capture the relative hedging costs. when you think about erupted hedging costs, we seal the yield curve flattening in the foreign bond occurs that has helped to influence a flattening in the u.s. curve. scarlet: how much do you see that factoring into a the fed looks out -- fed looks out -- looks at? is one of many factors that go into the communication game for the fed. think that that one piece of the puzzle -- the broader picture for them is really having thinking about how to do a better job of communicating

there is factors going into the decision-making in making sure the markets know those factors as opposed to simply debating back-and-forth about are the good to go in september and december? the fed should be doing a better job of communicating with the factors are going into their decision-making and then having the markets are cast -- forecast. tom: what is their mandate right now, it seems to be a mystery to me? and 25 words or less. what is the fed's mandate? price stability and max employment. that means to keep inflation close to 2% and a means to keep unemployment low. will add the town -- i will add be on my 25 words, -- beyond my 25 words, the big challenge for the fed is it is not just about your mobile outlook, or where you expect the economy to

go. it is about the risks of that outlook. in particular you're worried about the downside risk about outlook because you do not have as many tools in your kit to offset those downside risks. rates probably keeping lower than you would on your mobile look because of your concern about those risks. tom: we're going to six someone from carnegie mellon on you. jeff: i wanted to get your thoughts on the data dependency of the fed. whether it is data dependency or data point dependency, we have seen a lot of short-term data. we had a lot of text dedicated to that the minutes. what are your views on how sensitive is the fed to short-term data? narayana: it is unfortunate. i think it ties the fed is conveying the message that their relatively sensitive to short-term data. it is more monetary

policy -- it is much more driven by the 18 to 24 months outlook to what is happening in the economy including the risks i mentioned earlier. but he did independence mantra has actually confused things a little bit in terms of conveying with the fed is looking at in terms of -- to payrolls come in 200 or at 50? i know my colleagues are looking at a broader picture thathat. again, i think they need to do a better collective job of communicating that. scarlet: what have to happen for janet yellen to signal next month that a september rate hike is on the table, that there is that optionality? narayana: i think we are getting a lot of news next week and i'm sure that news will be a part of what shapes her speech. is actuallying for

not so much about what is good to happen specifically in september, but a broader framework that allows fed watchers and republican markets to know how the fed is going to be thinking over the remainder of 2016 in the first half of 2017 about interest-rate decisions. chairman bernanke he did use jackson hole in that way, a little more expansive framework. i'm hoping that she'll use it that way as well. tom: stay with us. we're going to continue with bill and jens joining us. greatly appreciated. stay with us, this is bloomberg. ♪ [hip hop beat]

♪olympics 2016, let me get you on my level. ♪ so you never miss a moment, ♪ ♪miss a minute, miss a medal. ♪ ♪ why settle when you can have it all? ♪ ♪soccer to wrestling. track and field to basketball. ♪ fencing to cycling. diving to balance beam. ♪ ♪all you have to sa♪ ♪ is, "show me," and boom it's on the screen♪ ♪ from the bottom of the mat, ♪ ♪ to the couch where you at? ♪ ♪ show me the latest medal count♪ ♪xfinity's where it's at. ♪ welcome to it all. comcast nbcuniversal is proud to bring you coverage of the rio olympic games. tom: new york city may not be as

sultry as it has been the last few days but it is summer in new york. out with the federal open market committee report. we welcome you. and me as jay wiesenthal scarlet fu. not some of looking at the meeting but much more, scarlet, to look forward to. scarlet: and talking about bank of japan. tom: you don't care about your fed. it you are un-american. scarlet: let's get away from the central bank at the moment. mark has more from the newsroom. mark: they were rivals but president obama will tell the nation why hillary clinton should be the next president of the united states. mr. obama will deliver the keynote's reach in prime time for day three of the democratic national convention in

philadelphia. he's hoping to sit -- cement his legacy by having a fellow dimmick at the gym in office. blast not wait to president obama. beenrump: i think he has the most ignorant president in our history. disaster.n a he will go down as one of the worst presidents in the history of our country. it is a mess. mark: also vice president biden and tim kaine, secretary clinton's running mate. seekeds of terrorists will to infiltrate western europe and the united states to carry out attacks as the islamic state is defeated in syria. arector, says he expects terrorist diaspora out of syria in it has already emerged places like brussels and paris.

the attacks will be carried out on a wider scale. one of the supporters that stormed the church and killed an elderly priest yesterday was on a terror watch list. ansays he was forced to wear electronic tag that led authorities track his movements. police commandos shot and killed the two attackers. of emergency has been declared for two major wildfires burning in the state. the huge blaze in northern los angeles county is now or he percent surrounded. one person was killed. it closes parks that attracts thousands of visitors each day. powered by more than 2600 journalists and analysts and more than 120 countries. this is bloomberg. scarlet, back to you. i was making a joke about

the bank of japan but let's be clear. it's important what the bank of japan does. let's look at the data. the dow up nicely. the 10 year yield, talking about the lower yield here. that is a bit of a shock. 41.97, a shock near the 39 handle. now 0.73.ar yield, boosts by $11. pharmaceuticals winning u.s. approval to buy act of his after selling the generic business. the blessing of the u.s. ftc to buy activists -- actavis.

up .6%. let's head back to washington where our economics editor is standing by at the federal reserve. it change language a little bit here, but of concern is what it does next. before then, we get a couple of job reports. you're looking back at the labor picture as it moves ahead toward september. >> they took the trouble to add the statement that the near-term risk had diminished. it takes is back to the forecast for economic activity. the unemployment rate falling to 4.5% and rising toward the 2% goal. if we get the kind of jobs numbers we have seen for most of this year, we will be there. those conditions, they said they were going to raise rates by one or two times this year.

if we see that in the jobs report, they would be justified raising rates and some may be the market starts to price that back in. until recently, he was a member of the federal open market committee and the university of rochester professor, let me ask you this. do you see the economy justifying a rate increase or at fulfille fed trying to what the forecast is. >> i think the employment picture, there's room for improvement there. be onin focus would inflation. are those stable?

are they really where we want them to be. it can create a shock for the u.s. economy. these of the factors you would be weighing against each other. the first order is an inflation picture. >> if you wait to see the whites yf inflation's eyes, can the afford to wait? proactive was the model. thend when you are near bound.

it is really worth considering. i think it is one that the committee should think about very carefully. >> ipods because i wonder how you can get an overshoot going. how much of an overshoot is an overshoot? >> the big question for the fed is if they are aiming to overshoot. it might be a shock to inflation. it's affected by big shocks all the time. the fed can't control those

things. they are really not aiming for an overshoot. under the strategy i just described for your waiting for core inflation to get back to 2% , then you would be aiming for an overshoot. given how sluggish inflation is, it would be something like 25 basis points at most. it would be aiming for 2.25. but you would be aiming for an overshoot. it takes you out to a service sector. kit talked about how it might make sense for the fed to wait. confidence that the inflation is going to get to their target.

do you think that is a strategy , without it cards looking like they made some sort of major reversal or backtracking of the approach they have taken? >> i am sure everyone would like to be able to talk about the strategy going forward. we go back to december of last year. and that was really treated as the strategy. it really was about the four rate hikes of 2016. i think the fed put itself in a situation word has to communicate more effectively.

my own assessment of those factors is weighing inflation against international global risks. up keep likely to end being patient. scarlet: it can better withstand potential shocks, but what about the proposal to raise rates further? >> i think that proposal is an interesting one. there is a lot of great debate. onhink it really relies being shaped by interest rate hikes about where inflation is going to be in a way that we haven't seen.

skeptical andy very different. jay: the former minneapolis fed president, now bloomberg view columnist. great to get your perspective. up next, the currency expert will weigh in on the bank of japan and japan's possible stimulus package. ♪

jay: this is a special report. the fed decides on bloomberg television. i'm joe weisenthal with scarlet fu and tom keene. it has been a busy week for traders. thank you for joining us. it quickly, we will talk doj. was there anything in this fed decision that taught -- jumped out to you? >> we do that we would change the language in the economy, but we did not know they would change the link which in the second paragraph. they said the outlook has diminished and it really makes it are alive meeting. they were more concerned that they were in june. it points to one or two hikes this year so it is very much alive now. scarlet: what has to happen for janet yellen to signal in august that september is a potential go? weeks ofe two extremely important data coming

out now. if that data holds up, they will have to a knowledge that. she will keep that on the table. scarlet: and we are talking jobs. >> and retail sales. scarlet has been making the case all week that it is all about the bank of japan on friday. we go to the bloomberg terminal and i want to bring up a chart of dollar-yen. it has surged the highest level since 2008. if you are listening on radio, the measure of risk to dollar #btv 2331.g we are looking for a lot of villa till it he -- volatility here. >> we have been through six months where we have since come to the conclusion that the bank of japan was out of juice.

there was nothing more they could do. and now we have this crazy idea of helicopter money being something that is perceived to be a realistic option. reason why this is so important is we get a signal about if we are moving in that direction. if this was the bank of japan a year ago, they mentioned helicopter money and we haven't even thought about it. the fact it is being considered is pretty remarkable. that is why it is such a big deal this week. this talks about volatility or shows volatility. is fiscal stimulus yen negative or positive? >> it is a normal thing to stimulate the economy on the fiscal side and not so much on the monetary side. it goes in the same direction at the same time. if that is the case, it could be inflationary overtime and it could be in terms of a weaker yen.

it's a little bit unusual because it goes hand-in-hand rather than an opposite direction. feels to me like the doj or japan comes up short of what people are excited about. the possibility that there could things in terms of helicopter money. think corona has been clear that he's not a fan of the idea. people do not trust him because he surprised the negative rate and they are skeptical putting too much weight on his promises but this is a little bit different because he's viewed as being outside the box. but they can get there through the back door. if we have a big fiscal announcement from the abe administration and he buys more government wants, it will not be in it with the announcement -- an explicit announcement.

the key of this meeting is if they buy more bonds. as them goingn down the helicopter path. ,om: you have a wonderful book your passionate book "the fall of the euro." , the litmusassume paper of the system that we see huge currency, huge stability, >>is central banks in a co if countries -- it is central banks? >> are we heading down that path or is it temporary? they call helicopter money a scam, do you agree? >> i don't think it is a scam. if you really have fiscal and monetary policy coordination and it lets the authorities spend more than they otherwise were going to, it's good for the economy.

tom: do you have faith in that? >> i have faith that if you increase fiscal spending enough, you can get inflation. boj do you agree that the meeting is more important than the fed meeting? wax if they do a big expansion, it will be seen as a signal. tom: you can stay. chief executive officer of exontec. moment,p after the 3:00 my conversation with william gross. it will be interesting. yields lower today. worldwide. this is bloomberg. ♪

everyone.morning,

good afternoon as well. it is fed day in america. no press conference. we welcome your bloomberg radio, television, and i will be speaking with ill gross in a minute. interview, we are honored that you are with us today. let's go over the terminal. a slightly hawkish fed. chart and only doing it to dazzle joe weisenthal. moves, we was brutal rolled over with a brexit rolled over on the right side. janet yellen wanted to get back to the green circle. these are standard deviations on a recovering two-year yield. do you anticipate further instability? in september or for that matter, next year? totally altered the

notion of how quick they are going to go. even if you deliver one, it's not going to be for the year. the vector isn't there. it is a one move -- >> it allows them to go without worrying so much. and i think that's part of the reason why september is live. even the move we are seeing in bonds, it is a dovish impulse for them. tom: joe weisenthal, for basis points. scarlet: let's wrap up our thoughts here. tom: are we done? can we go another hour? scarlet: another 15 minutes for bill grossman. frankly, he's the most important guy in the room because when you have the series goingere, the miniseries

on leads me to instability. that's where you will ultimately see it. ed fed.: the many-theory mike, what are your final thoughts? whatever fed can say it wants. the first paragraph of the statement was stating the obvious. the economy was better than it was in june. in the second paragraph, it was a distinct message because they never said there were near-term risks rising. they try to tell people, we are not out of the game. don't try sets completely out for december. still data dependent. was what stuck out for me the challenge of the portfolio management.

equities and bonds moving in the same direction, it is on the update have a down days. when you have a portfolio premise on the idea that they will hedge each other -- scarlet: where do you go from there? joe: how do you get diversification? you're at the whims of the changes. scarlet: and we are further out in terms of risk. basically, we have yens nordvik here. they did not change a second paragraph when they didn't have to. they say it has diminished and we have seen how the jobs report for the month of june totally changed the picture here. are you comfortable that it is just an anomaly? >> we spent a lot of time looking at the indications of the labor market and there was no signal it would be shifted down. i think april or may was noise mostly at this point. tom: why are yields lower today?

jens: you can see was happening in the bond market. there are global factors dragging them down. scarlet: global factors. they say it doesn't control rates. bloombergs michael mckee, think you for joining us from the federal reserve, and jens nordvi g, thank you so much. that wraps up the special report . stay on bloomberg television and radio because tom will be sitting down with bill gross and in just a couple of minutes, they will discuss the fed. and helicopter money. don't miss that interview. this is bloomberg. ♪

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>> welcome to "bloomberg markets ." ♪

from bloomberg will headquarters in new york, good afternoon. i have vonnie quinn. the fed leaves interest rates unchanged. the risks to the u.s. economy have somewhat diminished. bill gross of janus capital joins us in minutes. voter coalition that hillary clinton wants his left behind. facebook earnings out after the market closed today. we look at how instagram and video are driving facebook sales on mobile. we are one hour from the close of trading. let's head to the market death. julie hyman is there. are not thatocks different. the dow was up a little bit more than it was.