volatility dominates markets. investors wait for federal reserve chair janet yellen. alix: making their case for a high connection month. traders begin to price in september. jonathan: a pressured governing -- governor kuroda looks to get a warm welcoming. we're live from new york. david is on vacation. yellen is here. arrived.as no action in these markets, we wait for that speech. implied% is now the percentage of a rate hike in september. that is double in two weeks. did have an impact on fed rate hike expectation. understand that we have gradually moved that. you wonder what comes from this. speaking to people in london, what they want from today is a

little bit of leadership. getting this committee together, leading it. you have not heard from the fed chair for a number of months. aboutif she doesn't talk a rate hike, where does she stand in the committee versus her peers? before yellen, we hear from a slew of fed presidents throughout the program. robert kaplan, and janice lockhart joining us from jackson hole today. a big show as we can you down to yellen's speech. calm in the markets. jonathan: very much so. markets go nowhere. that is the story for the last couple of weeks. futures are dead flat. is unchanged. a little bit of price action on the dax in frankfurt. the price action is subdued. conviction is low. it is a directionless market. it is looking for some direction

from the fed chair. crude.e to have that in a week of losses potentially after three weeks of gains. you want to see a range bound market look no further than treasury. the tightest month since 2006 on the 10 year. we open this week on a 1.57%. curve, itend of the should be trading at around 78 basis points. we have been range bound for a number of weeks. will be tackling the big question over the next three hours. we go around the world from london, tokyo, four team coverage for stop no matter where you are right now all eyes are on jackson hole, wyoming, where janet yellen is set to speak at the economic symposium. the market is listening for

clues as to when the fed may raise rates again. last 24 hours different from several fed president saying the time has come. >> the most recent meeting, i did express my view that it was time to continue the process of normalization of interest rates. when i look at where we are in the job market, and inflation, i think that it is time to move. >> we have said that rates should be raised gradually and patiently. what i am thinking is the impact on the dollar but eventually de-stabilizing the rest of the world. that tells me doesn't mean we shouldn't raise rates, but it should be patient and gradual. kaplanarlier in august, did not take september off the table. he had hesitancy around the stronger dollar. jonathan: the mandate from fed chair challenge yellen -- janet

this evenat has made bigger than it should be. want to go around the world to bring in the special coverage today. e from london and manus cranny looks at how global markets are reacting. with an, a man interest. governor kuroda joins us with what today's speech could mean. i want to begin with michael mckee. we had a discussion yesterday. will he get professor yellen of the federal reserve, or the ceo of federal reserve, inc? which one do we get? withel: i would go professor yellen. there are two jackson holes underway. the headlinesn are released. they want to know when they will raise interest rate and by how much. thethme -- theme of

conference is medium to long-term. a 2%ed has said they need inflation rate. they brought unemployment down. they say that should bring inflation up. that is not happening. why are looking into that is. that is not what wall street cares about. if we get professor yellen, talk about what the biggest reaction will be? this differential, it is treasury bonds. high rate. very we need to understand the risk and reward. the risk for yellen the she trumps her number. the reward is that she goes to neutral or dovish. that seems to be the concern here. we are bereft in europe for clarity, ultimately, we are be

holden to the fed. we are -- where yellen takes us will determine the volatility in the bond market. could there be a move post jackson hole? that seems to be the question on many investor's minds. and four tightest months. we are coiled like a spring. this bond market could snap like a rubber band. jonathan: the other story is the fx market. the other side of the trade, dollar yen and governor kuroda. he is there. how significant is the fed chair's speech to the bank of japan at a time when inflation is down for a fifth straight month? >> you are absolutely right. kuroda has a dire need for adive.

a -- advice. also, he needs to take a close effectiveness of monetary policy that for three years has not delivered any real money into the japanese economy. i was jus t on the train this morning. a condominiumor outside of tokyo that had empty units. we have mortgage rates well below 1%. is he going is, how to -- what is left in the arsenal? in a way, it is an opportunity to get more creative. the conversations with the ecb will probably be in that vein. the only other issue really is dollar-yen. so far, we have seen a yen that is basically completely ignored by the flood of money out there in the market.

whether it will rise further, untilill be on hold september 20 when the boj next meets. the efficacy of the bank of japan in the european central bank is what is at play. you love a shadow. what is the transition mechanism into the economy? the shadow rate is lagging that of europe. is that because japan is weary of stimulus? this chart is saying no, it will not. the efficacy of negative rates, a moments ofng were the central banks have either got to do a full u-turn, and consider something much more radical. that is fiscal stimulus. that will be in the right of mine. here'slso earlier today,

what robert kaplan had to say about the bank of japan. robert: negative rates might buy them time. easemight, on margin, help what they are trying to do. they are not a substitute for structural reforms. those reforms are not easy. how to increase the workforce? either increased fertility or immigration, these are very difficult things to do. there are lots of structural reasons in japan. another monetary policy will address the key issues they face. they will have to ultimately come to grips at other policies -- with other policies. inflationave the reading for japan today. it is down, the non-inflation reading is more accurate. jonathan: the pressure is on kuroda, who is actually in jackson hole. how much of this is an

international forum? how much of the conversation dominated by global central banking policy, not just the fed? focus ona lot of international policy. this is tackling the problems with 50,000 foot view. there is a session this morning on negative interest rate. the efficacyk at of those. all the economies in which they have been tried. it is not a question of what does the fed do, but what do central bankers do now? that is the topic here. there will be a big role for kuroda, and others who are from other central banks. day for you and for global markets, thank you very much. manus in london. the bloomberg theme, full

coverage coming up. we have interviews with former presidents, the dallas fed president robert kaplan, atlanta's reserve president lockhart. alix: out of the business world, first word news. emma: donald trump and hillary clinton are swapping blistering attacks over race and prejudice. clinton says trump is taking hatred mainstream. trump says clinton is smearing his supporters as racist. he says she is trying to deflect from her family foundation and her e-mails while secretary of state. with explosives killed at least 11 police officers and others wounded, all of this according to turkish authorities. aolence renewed after two-year truce. says japan's

difficulty in increasing inflation. they failed to rise for a fifth straight month. it was down from a year ago. the bank of japan is reassessing its policies. that may lead to more monetary easing. this is bloomberg. alix: coming up, the hot circling jackson hole -- hawk circling jackson hole is beginning to rub off. this chart is the countdown to yellen. ♪

alix: this is "bloomberg ."

federal confusion, multiple fed presidents weighing in on a rate hike has created fusion in the market. -- confusion in the markets. the orange line is what probability was two weeks ago, the white line is what it is now. that has doubled. a chief economist, what is the probability for september look like today? kevin: that will depend on what janet yellen says. i think she feels incumbent that she must say something. giving forward guidance. that is part of the policy. i suspect she will say what you said before. she is optimistic about the economy and expects the labor market will improve. it will be appropriate to grad ually raise the federal funds rate.

what will markets think of that? beforee thing with him 10:00, it is possible but not likely in september. i don't think she will commit to a time frame. if she does, everything changes. narrow it down. people will think about the actual time it will occur. jonathan: the issue is, she did give us some time contingent guidance. she did that in may. she said the coming months. then what happened? months that coming is always coming. jonathan: it is a rolling coming months. at is ine are looking september there are a whole host of issues. what many speakers have been doing is not something that is new. they have done it in the past. bet is to get markets to

less complacent system after brexit, and priced in a zero hike probability even to the end of this year. that is something they were uncomfortable with. they are trying to move markets away from that. i don't think it means they are really eager to hike. alix: if we do get your stereo, marketcenario, does the see that as dovish, or hawkish? soon as she mentions a time, that becomes more hawkish. that was before brexit. she said i shouldn't be doing this timeframe thing. her comments after that in june were just "it will be appropriate." she took a really timeframe. he did it because brexit was coming. they did not know which way that is going to go. if she puts the timeframe back on the table, that changes

everything. they want to leave that open. i don't think she wants to breach a -- please judge -- prejudge the data. we are not on a preset course. the problems come we have all morning, every morning. if this is an academic debate playing a publicly, i want to gauge from you how difficult it is to understand what is going on at the federal reserve when an academic debate is playing a publicly? point. is a great several have proposed alternate policy frameworks. something's maybe we should examine higher inflation targeting. i think the fed is still away from adopting those new frameworks. there was a fed paper that came out last week that said existing tools may be sufficient in most

cases. for example, you could still use forward to guidance and you could generate what you need. alix: thank you very much for joining us. logan, you are sticking with us. jonathan: it will be great if you could believe what they're saying the stuff coming up, jackson hole with the flattest yield curve since 2007 in focus. later, our special fed coverage kicks into high gear. from new york, worldwide, this is bloomberg. ♪

from new york and worldwide, this is bloomberg. i am jonathan ferro. stocks go nowhere. that is your headline. the marginal losses in germany, frankfurt.

the actiond, here is across assets. there is not much of it. treadingar is just water. typically, we call that a boring market. but it is a cold spring ahead of a big event risk. alix: you have to wonder if we will have a screaming buy. that is the question. jonathan: it is the flattest yield curve since the end of 2007. and with us is praveen kevin. praveen, let's begin with you. the flattest yield curve since 2007. the flat,y this, or going into something like this? are really neutral

at this point. you have the sort of flattening of pressure that will continue. it has been with us for a while. part of that has to do with the falling rate globally. that still continues. there is a supply demand imbalance. near-term, defendant in what she says, if she does lean on the ofmework, you could see some that, for example. jonathan: you look at that curve right now, flat, flat, flat. what is it telling you about the world at the moment? slow growth a world. if people expected more, we would have a much steeper curve. is awe are observing sluggish growth. in japan, there is practically stagnation. all of that is bringing down the long-term rates. here in the united states, just look back.

we have less than 1% growth in gdp. optimistic because the labor market is doing better. since the fed is leaning towards tightening policy, that makes people think the short end yields will come up. flat, wet, flat, talked yesterday how flat -- under 100. come down another 50. you're talking about another 10% total return on top of that. you look at some of those 30 year issuances. you'll pick up some incremental yield and perhaps some spread narrowing. i think that is the reality. that is when you read the paper. that is what he is telling us about living in a low-inflation world. alix: he says no matter what you will have the buy good scenario. jonathan: the question i would

ask, 100 basis points, we're talking about the current curve right now. 150 basis points that spread, what does 100 tell you? praveen: the swap is even faltter. on -- flatter. are talkinghings we about is money markets. when you're seeing there is from 82 end of june, it went to basis point. that is what is happening already. that is money market reform. but, three month libor is a big deal. there are several banks tied to this rate. what you end up having is essentially effective tightening for these are hours -- these borrowers.

if the fed hikes again, you will see three-month libor at 105. that is ten basis points. that is incredibly flat. the last time he saw that was in hiked 300 the fed had basis points by then. jonathan: great to have you. up, central-bank distortions has stimulus created credit. later on, fed presidents join us from jackson hole. it is the countdown to fed chair janet yellen's speech. ♪

>> this is bloomberg . here is what you need to know. the biggest pension fund posted

a loss last quarter as stocks tumbled. japan's government investment pension fund lost its gains. is set to cut 3% of its work force after its takeover of sab miller. it seeks to maximize savings of the world's two largest brewers. joined theficials course, arguing the case for policy training. -- janetlen well --len will >> you said it is finally getting traction.

in the fx market, treading water . the bloomberg dollar index capturing that story. in the commodity market, you have seen most. crude comes in by four cents. on monday, u.s. 10 year yield opened up that 1.57%. tightest range on that security is 2006. they -- >> wall street weighing in on that. bloomberg news has written a

jackson hole roundup. sailing prices ahead of janet yellen's speech. her remarks are becoming a binary event. one with implications for the u.s. dollar. that means upsize in the u.s. dollar. the last time we had a speech from her outside a mandated appearance was the back end of may. allen is unlikely to provide half signal for the next rate hike. divide.ls a clear a clear divide, but a lack of

communication. >> if she comes out and does not specifically announced september withy way, is she at odds the committee? >> you talked about how the debate is playing out. , i'm going to put one hike here for the next years. the confusion is gaining momentum. >> we will have coverage of that from jackson hole. we will have an interview with jamie bullard coming at 8:00 a.m. eastern. theront and center of concern as well.

there is growing worry among investors about the state of the credit markets and influenced central banks have on bond prices. joining us now, barnaby martin. great to have you with us. the catalyst for conversation, here is the chart. europeent grade yield in over the equivalent duration german bunds. how difficult is it to price an asset like that versus 10 years ago? and become psychological to you have to accept we are in a world where you yields are low. it is not negative. it is amazing. that is life with central-bank policies.

we are about double in spread from where we were in 2007. if you can bring yourself to think not about yield, but about spread, this requires you to not look at the charts of yield. essentially, if you focus on spreads, you get sucked into a lower nominal yield. the risk is huge. how do you assume that? i feel ok, because my spread is all right. seeing signs,e both mark carney and mario

draghi are buying corporate bonds. recently, -- price -- did not move. that is a sign of what central banks are doing. a sense lulling us into of complacency. fund managers have to be aware of the macro risks out there. alix: if you have room to run, how does this wind up first in? is there a backup in the bund level? a backup in the 10 year treasury yield where this goes out the water? barnaby: it does not end it nicely. ecb or the bank of england stop buying corporate bonds. they have barely started. mark carney likes the idea of buying corporate bonds.

i'm going to buy more corporate bonds. it seems the bond buying program will not disappear anytime soon. and 13here between 12 trillion negative yielding fixed income across the globe. whistle if you like the inflation down the line. how do you trade fixed income? it gets tougher. bund curve at the and yield negatives all the way out to 10 years. the onelem could be thing they are thinking, that is inflation. could that be the biggest financial stability risk up there at the moment? something, in europe, we have a long way to go. creating problem for

inflation in the eurozone. some years down the line, mario draghi is throwing everything he cannot the problem. i cannot generate new inflation, we have a debt sustainability problem in spain and italy. he believes in it. alix: in essence, is fiscal stimulus the worst thing for the company? they go out, raise more money, you look at these companies, what do they do with the cash? barnaby: our biggest concern is when you have negative yielding debt costs is amazing.

you can go out, not think twice about an acquisition. it doesn't cost you anything. you get paid for making that decision. i worry over the next three to four years. it kind of echoes what is happening at the moment in the u.s. high-yield market. we have seen is somewhat of a discrepancy. investors saying i don't want to own you guys, but it is ok. are you using the same kind of investors? there are lest robust credits. being migrated into riskier and riskier assets. my colleague does a lot of foreign buying of u.s. credit. .here is an increase

that migration into a lower rate of credit is there. jon: financial stability has economict of the debate. is that a concern they should be thinking about? they have the zero interest rate policy. yellen, she has always brought her issues about high yield she has been vocal about bubbles. she is more cognizant of this game of financial stability. jon: barnaby martin, thank you. alix: coming up, the dollar's next move. to janet yellen in

jackson hole. this is bloomberg. ♪

jon: this is bloomberg . >> here is your business flash. anheuser-busch plans to cut about 5500 jobs once the takeover of sab miller is complete. cuts will be made over three years. they can save $1.4 billion a year after the takeover. the justice department has

investigation into the makers of vegan mayonnaise. federal investigators have discussed the undercover buyback campaign. airlines in the u.s. have they can persuade passengers and coach to overlook baggage cost and vanishing leg rooms. american airlines is offering passengers free access to its full menu of movies, tv, and music. that is your bloomberg business flash. this is bloomberg. alix: employment and inflation are the feds two key mandates. they talk about the dangers of the fed hike on a currency. >> rates should be raised patiently and gradually.

it should be patient and a gradual. alix: what is your call out of jackson hole? >> the best thing she could do that -- you mentioned your interview yesterday, one of the more interesting things to be said is when asked about the chance of hikes, he refused to

answer the question, saying it is going to cause more confusion. if janet yellen as smart, she will do the same thing. alix: if we get a stronger dollar, he is worried about the effects of the financial system. >> it depends how fast they tighten. it is hard to see the dollar taking off. it does not mean we are going to -- as we did in 2013 and 2015. jon: it seems to be away from taking it a priority.

can they step away from that way of thinking. >> the mandate is a domestic one. inflation, employment. thate moment, the fact inflation is low in the u.s. affords them the luxury of looking at other factors. if the domestic mandate was not satisfied, they would have to pay attention to that. --long as we are not saying we can look at other factors. is extraordinarily easy and we are talking about removing accommodation. a yellenhat we get is who does not commit to anything, does not mention the short-term rate hike potential. what happens to the dollar?

we have seen little movement at all. it has been a range trade for a long period time. there are other pairs getting more interesting. dollar yen is at 92. that is something we are still on track to hit. with where to pair the dollar could strengthen, that would be cable. these are long-term trades. the best outcome for the fed would be the dollar doing little. jon: the one that will jumped out at everyone is the dollar yen. we have a 100 handle at the moment. there is perception that 100 is the line in the sand. does it take central-bank impotency to get down to 92? >> there were a lot of expectations heading into the

july and april meeting. those expectations were disappointed. now those are starting to rebuild for the september meeting. we will see another disappointment. central banks are not supposed to be targeting a level of the currency. they are supposed to look at their domestic mandate. running out of tools, negative interest rates not working, reaching the limits of their asset purchase program, you have to question if there is that much they can do to affect the level of the currency. alix: you have volatility around the lowest levels of the year, around december of last year's lows. what is going to make that pick up and get action in the market? jon: we have had dollar yen pick up a little bit. are you seeing it elsewhere? a yen story atbe the moment. we are seeing extraordinarily

flat curves of the moment. -- curve, the the dollar yen, it seems to be a lot of value in selling the front end and buying the back end. alix: are we going to look at a huge emerging market fx rally? storyy have their own this year. the more we move into this environment where people are hunting for yield, you look at brazil, the more emerging markets benefit and then they face political problems. there are selective weortunities, but overall, are looking for -- performance versus yen. alix: thank you. we will be speaking again with robert kaplan coming out that 8:30 -- coming up at 8:30.

jon: there is going to be a lot more noise coming from the doj -- the boj. we will break down why the fed may need to pay attention to the libor rates. we tread water ahead of the fed chair speech in jackson hole, wyoming. this is bloomberg. musi♪

alix: this is bloomberg . does the fed need to hike or has libor done the tightening for them? we are going to explore this. this is libor, what banks charge each other to lend each other in the overnight market. it has seen a tremendous spike.

it is at seven-year highs. this is in part to new accounting rules. bank loans,some this has helped them tighten by about 25 basis points, the equivalent of a rate hike. this happening, companies are selling longer-term debts rather than using shorter-term ,ebt to pay for payroll refinance, pay off shorter-term debt. google,seen this with you see this big spike here in the last year. this is causing distortions and how investors are using their money. you have seen a lot of money pouring in. sincethe fastest pace

2014. market now going to the based on libor because that is the only place you are going to get that spike. to round out why we are seeing that, you have to look at commercial paper yields versus what you are seeing on the 10 year. this line here is your ninety-day commercial rate. it is at .8%. in terms of seeing the u.s. corporate bond yields? that is almost at zero. is at its highest levels since 2008. do? are you going to raise money and pay a yield that is the highest in seven years, or go out for the longer-term and pay the lowest yield they have had? it doesn't matter wyatt happens, the fact is that it is happening. if you have the market seeing a

market increase, does the fed need to come in and raise the rate by 25 basis points? jon: they have what is happening beyond those high rates. the story elsewhere is low rate. we can continue that conversation. we continue the countdown to the jimchair speech with bullard joining us in a moment. later we will hear from robert kaplan. just over two hours to go in a with futures dead flat. dollar yen with a 100 handle and yields are flat. ♪

alix: low volatility dominates markets. investors wait for janet yellen. deflated japan, consumer prices dropped for a fifth consecutive month. governor kuroda hopes to get a break in wyoming. david westin is off this week. yellen be able to take control of the conversation? futures dead flat. equities dead flat. if you want to encapsulate a range bound market, look no further than the treasury market. starting where

it ended off. the rate hike expectations have been re-rated double in the last few weeks. jon: let's continue the conversation. >> we are here in jackson hole with jim bullard. with me, kathleen hays from bloomberg radio. good morning to both of you. thank you for getting up so early. have heard your views on monetary policy. i want to get your views on the fed itself. there is a critique of the fed out there that has grown in recent days. that you don't know what you are doing any longer. the models don't work, the effort to generate inflation is not working and it is time for a rethink.

where would you put yourself? >> it is time to rethink our normalization plans and the way we present them. at any moment, 200 basis points, that is probably not the right characterization of what is going to happen. came up with this idea of let's not for 10 we have certainty about where the long run outcome is. we's make policy for where are today, low productivity growth environment and a low rate of return on government paper and those are the parameters we are working with, and make the right monetary policy with that. >> it seems after several decades of the said operating a simple model, you cut the rates if it is going down. now, how much room to cut in the

next recession, you move into this new model. come to the end of monetary policy as we have known it? so. do not think you might think it was simple going back, but if you lived through it all, there was always a lot of issues going on. you have productivity speed up in the 1990's. greenspan had to make a call on that. you had latin american debt .risis, the.com boom you always have to think about what is the environment. >> what is going to happen in the next recession? basis points and if you are not in favor of raising it until you see a shift, what is going to happen?

>> i am not want to talk about raising interest rates so we can lower than later. i don't think that is a good way to go. paper, hek at this says it probably is quite a bit of ammunition, so that is probably the best way to look at it. some of it would be lower rates, some is quantitative easing. if we deploy the things we deployed last time, we can probably get through a recession. >> is your goal to put a floor under a recession? to zero.cut rates we still don't have any measurable inflation. but it ison is low, not that low. maybe half a percentage point or less. >> it is at 9/10 right now. is driven by the

energy crisis and so on. it is pretty low. unemployment has come down below 5%. we are basically on target for that. inflation is a little low. we are doing well as far as our goal variables. >> we are not generating inflation or growth from monetary policy. >> monetary policy does not drive growth. you can have a temporary effect, but that wears off. runmedium-term and longer is driven by population trends and labor force trends. if you want that to be better, and i do, you cannot do that through monetary policy. monetary policy is about cyclical movement. you flatlined your forecast. we have had interesting numbers since then.

two pretty good jobs numbers. tracking is looking for a growth of about 3.5% in the third quarter. if you are going to make it possiblenow, is the regime change you are waiting for will start to unfold? >> i do not think so. the regime we talked about is low productivity regime. we don't see that changing in the near term. part of the regime is low. real rates return, government paper, we don't see that changing anytime soon. those are fundamentals. make -- be monetary policy and that is what brings us to the 63 basis points projection. we see more strengthen the

economy. is it possible if this trend continues, even if the regime hasn't changed, that you will be saying we need to debate it seriously in september. >> i have not seen anything in the data that suggests those factors are changing. i would see it as making up for slower growth for the first half of the year. year-over-year, gdp growth rate is 1.2%. that is below trend growth over the last year. one of the reasons we ditched our past approach to this is we kept forecasting of love trend -- forecasting above trend growth. the cyclical dynamics have

played out and we are in this low growth regime. the low interest rate policy is contributing to that now because of the financial repression against savers, because banks profit margins are so low they may not be interested in making loans now. would it be better to raise interest rates a little bit and drive the economy through another channel? idea is close to our goals and we are pretty close to a neutral rate, which will be a low value. we are only talking about over the forecast and we are not trying to tell you what will happen over the next five or 10 years. want to ask you about the seamen of the conference, looking to the future, having resilient monetary policy ,ramework, negativity rates where do you come down on that? japan's all negative, mixed

results. bob kaplan said it would be disruptive to the banking system. what do you see? to hearl be anxious what do people say about the conference on negative rates, but i am not too enthusiastic about them. have quite a bit of firepower for a recession. i don't think we would have to go in this direction of negative rates, which has had mixed results. >> we have been speaking with -- we havent of the been speaking with jim bullard. this is a function on bloomberg that many of our viewers and use her's will the familiar with. these yellow dots at the end that is mr.,

bullard and what he thinks about reassessing the normalization us. it is basically do something, do it once, and do nothing for the next few years. alix: his reaction was -- we are close to our goals, close to neutral. the red line is the projection. williamse line is projection. the idea is we are host to the line. there is not that much room to hike. that is the better question to ask, not about the velocity of money. jon: in the long-term, he is saying we are not far away from the neutral rate. we are practically there. do it once, game over, let it go.

alix: we have heard that from dudley and williams. coming up, stocks don't need growth to head higher. all they need are low interest rate. steven wieting is up next. goer, robert kaplan joins live from jackson hole. this is bloomberg. ♪

jon: this is bloomberg . let's get a check of the markets for you. dead flat. equities going nowhere. down, i think you get the story.

on a 10 year, down about a basis point, but where it opened on the week. dollars yen trending. even nymex crude unmoved on the session. alix: that says volumes. than two hours away from janet yellen's speech in jackson hole. >> it is time to rethink our normalization plans and the way 200re presenting them area basis points, that is probably not the right characterization of what is going to happen over the forecast horizon. that is why we came up with this idea of let's not pretend we have a lot of certainty about where the long run outcome is.

those are the parameters we are working with, and then make the right monetary policy for that. alix: joining us now, stephen you -- stephen writing. >> a lot of people come into the session thinking academics are here to hear about the meeting. there is more and stake here than that. you probably one have had any tools that could predict how .onetary policy is conducted we have had nearly 200,000 jobs created on average. any way tod have had employment fed's

now. it would be between one and a half and 2%. real rate of a zero. at the same time, there are so many things that are unpredictable. the u.s. dollar in the history of flexible exchange rate. these things are big challenges. less than the reconciliation of all of that. this federal ridiculousness. that. on 2017, where rates will be, do you know where it was 12 months ago?

120 basis points higher. it is nothing but dead wrong every single time they put it out. traction within the market and it damages federal reserve credibility. a reflection on past monetary tools. any framework where you should act the cash yield to be. alix: libor has been increasing as well. your dotswer or keep as much as you want. >> even knowing where the risks are is unobtainable. of the confidence that was there before 2000 seven, it is on now.

of these issues, libor should be an issue for them. it seems to be something that is not about bank capital. jon: we have this divergence. you have this tightening elsewhere. how difficult is the current divergence? super easy is not the right characterization. you look at hard currency, yields range from -60 basis points. is supposedything to converge on zero and stay there forever, that may be a mistake.

you see not only tightening lending standards by banks, you see some tightening. these are small signs the fed needs to take into account. alex is you bring in the question, no way yelling tango if the boj needs to be on the name path. jon: coming up, no growth needed. stability will keep equities moving higher and why the different goal is your chance to buy --. this is bloomberg ♪. ♪

alix: you are looking at a shot of jackson hole.

the sun is just coming up. jon: the markets have no conviction. the bond market, low yield. i want to look at the ratio, sitting at a 2008 hi. stephen, what does the chart tell you now? bond yields are low compared to their history. around the world, low interest rates are flattering equity markets and the yield opportunities and what we think is a modest growth opportunity. strategists .2 the fact that you need growth to -- it is important to distinguish that. kind of economic growth that was embedded in valuations, when corporate bond yields were

on the s&pultiple 500 was 30 times peak, the kind of growth you would need to satisfy what was expected in the market was high. near interest rates yields, less other than 1% for all of their are owing, the growth requirement is not high. what you need is the persistence of slow but continued economic growth. if something changes, you have a problem. those three ingredients are not enough. jon: it said to go with the spread, try and forget the yield is very low against the risk consumed.

surely at some point, risk assumed needs to match price. >> relative value is still there. investment grade securities, that is globally appealing. you need the continuation of economic growth and no major credit market disruptions. there are a few signs that in isolation, it would not be desired for credit markets. part of the problem is this year, yields have fallen, credit spreads have heightened. equities have rallied.

now that you have these standard .ssets, you have to take a look the rising correlation means you from a portfolio. you have to look at uncorrelated asked its. in standard assets, gold has a negative relation with risk. there can be scenarios were gold goes down. the prices all rise, it will hurt gold. own bonds. they usually do that to offset each other. jon: we had this conversation about a month ago. we said -- where do you go? the trade was gold. >> the business cycle is different. the losses in many emerging

were extreme. they are not sitting on all-time highs. where we have been in the last three years is underweight emerging markets, underweight countries like brazil, markets like canada. have light equity, but much more substantial fixed income. get tow to diversification when the world seems correlated. ♪

jon: let's get you up to speed on the markets. futures dead flat.

the same story in the individual asset classes. dollar yen, slightly softer. it is an unchanged market. the fed chair speaks later. second quarter gdp and a second reading crosses the wires. coming in 1.1%, the second reading for growth in the second order. in terms of personal consumption, it is edging higher. that can move the needle from growth. jon: yields stay where they were to some extent. of the gdp figures is a story for the federal reserve as well.

how those differences reconcile in the coming courses will determine what the fed can and cannot do. kind if you don't have the of wage pick up, can you have the consumption and the need for consumers to spend? >> good morning from jackson, wyoming. we are probably in an environment that robert kaplan would like. you are used to much more heat. you are getting a lot of heat here as a member of the fed. the fed under a lot of this is worth monetary these. the fed under a lot of pressure over monetary policy. >> my own view is the fed has done what it can and used its

tools to generate growth. needeality is, we structural reform and fiscal monetary a company policy. people may be disappointed that monetary policy has not generated more of, but it is designed to be structured with monetary and fiscal policy. we need a full range of tools. >> the fed is honorable to its critics because the policies are not working now. what are your friends telling you about fed credibility? one is critical of the fed because we are talking about raising rate and kevin is

critical because we are not raising rate quickly. it comes with the territory. the key thing in our job is to look at the facts, understand ,onditions, do our work communicate what we are seeing an act in a way that faces reality. winning a broad range of tools. many issues we face have to do aging demographics, highased globalization levels of debt to gdp. many of these issues are best thatssed through policies grow the work for us.

those policies are needed. to bere does not seem movement from the fiscal policy makers to do what you are talking about. in the absence of that, as the go beyondompelled to its mandate? >> that is the balance and attention. we are not anticipating there will be other tools used. out of our job is to call what we are seeing and if we think there is a need for myuctural reform, part of job is to call it out, to flag it, and not be silent about it. >> wall street would like janet yellen to call out when you are going to raise interest rates. are they too reliant on the fed right now? putting too much pressure on the open market

committee? >> sometimes it pays to take a step that. what i have been saying is probably the anticipated path of rates going forward will be flat. have a number of persistent headwinds. case for removing some amount of the accommodation is in the context of a slower, flatter path of rate increases. is just as rates important or more important than the exact timing of when the next move is. fev have a communication problem?

nobody really knows what is going on. >> we have to improve our communication. a speech ore interview, a snippet of what you say may be taken so it looks like there is more debate. we have to improve our communication. all of us.to if you have the time to read the speeches and the minutes, you get a full picture with the path i talked about. it can create more confusion. of thatto be cognizant and adjust our communication accordingly. look at what is going on, there are distortions in the market. cost of having a rate this low for this long.

hurts savers.t if you have any money in savings, you cannot in on it. it causes people to take more risks. people that would have one type of asset allocation are pushed to take more risks. it can create imbalances. there are some of those today. in my experience, there is the imbalance you see and it is easy to tvs in hindsight. we, from a macro point of view have tried to can't just clamp down on these because we see them there. economist andur contacts telling you is going to happen? i think we are moving towards

global supply and demand balance in the first or second quarter. record mobile inventories to work down. we expect prices to firm. they may not go up a lot, but i don't think you are going to see a big down leg, either. you will slowly see -- count coming back. break shale industry, the even cost is -- or more. you will see somewhat more red count. my guess is it will be more neutral going forward. in general, companies seem reluctant to put my to work.

is anyone in your district attorney that is going to change? >> issues driving that are weak demand. half of s&p revenues come from outside the united states. gettingery industry is disrupted. it is happening in every single industry and it is hurting pricing power of companies. manageable. energy firming will help. i am hopeful you will see improvement in cap spending. this uncertainty comes from persistent forces that will be with us for a while. >> thank you for joining us.

that is michael mckee with another federal reserve official. see as why i struggle to single hall on the fed. if you listen to what he is saying, the path of rate fed hikes going forward, this is a guy some people consider to be hawkish. .ook where the consensus is the long-term and destination is here. >> it comes down to low productivity. productivity is down by 5/10 of 1% for the second order. have reached the limits of what monetary policy can do to fix the structural issues in the economy. they are saying we are done. we cannot help you. jon: the terminal rate is lower

and that is the understanding of the debate. going to follow that story. jim bullard is saying the fed is doing their job to meet the dual mandate. what does janet yellen say? our next guest explains. you are less than 30 minutes takesefore janet yellen center stage in jackson hole. this is bloomberg. ♪

alix: this is bloomberg . coming up, dennis lockhart joins us from jackson hole. don't miss it.

>> here is your first word news. southeast turkey, kurdish militants have attacked a police checkpoint with a truck filled with explosives. all of this according to turkish authorities. violence resumed between police and kurdish militants. hundreds have been killed since then. the death toll from the earthquake has risen. almost 400 people were injured. digging.ews are still donald trump and hillary clinton . donald trump says clinton is smearing his supporters as racist. he says she is trying to deflect

scrutiny and the use of private e-mail while secretary of eight. is bloomberg. and theet yellen countdown continues. she will take center stage in just over an hour's time. we heard about how data could be impacting the fed's next move. low, not thats low, maybe half a percentage point or less. some of that is driven by energy prices and so on. it is pretty low. unemployment has come down below 5%. we are basically on target for that. a little low.

we are doing pretty well as far as our goal variables. jon: let's get to the morning meeting. great to have you with us on the program. still having this debate over september or december. why is that? the fed is moving slowly. they thought they were going to raise rates in june and july. they are being careful in the way they communicate with us. they want tonaled get one rate hike in before the end of the year. it is likely to be december because if we are a little bit late, and is better than being early. the good news is they have to raise an intent rates and it is about time. here ise commentary that there was federal confusion over the speakers of the last

few weeks. is,eems like the consensus raise hikes some time, but lower for longer. >> i think you are right. there are sometimes communications that attack a cacophonousthat are , whether it is september or december, when the time comes, they will signal that. i don't think it will happen this weekend. they have tried to soften that with the message that rate hikes andgoing to be slow methodical, opportunistic, and there will probably not be a lot of them. jon: about two years ago, divergent central-bank policy took hold. it helped people execute a lot of trades.

converging divergence, divergent monetary policy. isn't that the real story? the boj is doing what it should be doing. the fed is the only major central-bank in town talking about tightening policy. businessou look at the cycles, the feds are for more early aggressive early on. is being slowed down by what is happening overseas. it is an environment where u.s. growth is not where they would like it to be. the other message we are hearing

is they need help on the fiscal side. we need coherent fiscal policy and regulatory policy that supports growth rather than makes growth more difficult. that is one of the messages from the central bank. the same page as far as spending is concerned. they are on opposite sides of the page in terms of taxes. when you look at the big differences in the cycle, it is the lack of investment spending. thet of that has to do with fact that u.s. corporate tax rates are higher than they are in competitive countries. that is why a lot of

corporations are leaving money overseas. and republicans, that would be a major obstacle. jon: great to have you on the program. a speech coming up with janet yellen. great to have you with us. alix: two charges that make the argument for a september rate hike. until janet hour yellen takes the stage. ♪

jon: breaking news here. cloud computing services will be bought by apollo. rack space to be brought -- to be bought by apollo global. it is to be acquired for $32 a share.

that is crossing the wires at the moment. rock -- rack space to be bought by apollo global. to the action. it is time for battle of the charts. mark barton versus alix steel. look at oneaking a of the biggest problems the fed is facing now. that is inflation. this is cpi coming in. cpi coming in at 2.2%. the white line is break even inflation. i wanted to point out is the divergence between the two. they can move in the same direction. you see an increase in inflation and expectations.

inflation expectations are embedded lower. that is what the fed is struggling with. if inflation expectations are entrenched and they cannot get what do they do about it? we have heard a lot of chatter about increasing the inflation target. perhaps all you have to do is increase it to 2.5% and that will be enough to help those inflation issues. ahead of john yellen -- ahead of janet yellen, i thought it was important to highlight the sentiment we are witnessing towards the u.s. equity market. check out the white line. it is shortselling in u.s. equities. it is dwindling now from the highs we witnessed in february.

the love-hate is index. equity a gauge of sentiment. back in april, we were at the lowest levels ever. check out the bottom half. this is how the s&p 500 has fared on a weekly basis after jackson hole. on average, 2010 was a big year. jon: the vote today goes to alix steel. mark barton, you are always winning.

the idea that it is psychological more than practical because you can get inflation expectations up, that is a conversation of debate. 10:00 a.m. eastern, 3:00 p.m. u.k. time. we will talk to dennis lockhart. in jackson hole, there is a reason you go to jackson hole. it is beautiful. i hear the fly fishing is good. markets go nowhere. this is bloomberg. ♪

alix: we are 30 minutes from the opening bell and an hour away from this beach by janet yellen. coming up, atlanta federal reserve president dennis lockhart will be joining us in anticipation of what janet yellen will say. jon: very tight trading wages. it in the section over the last week or so. where are we now? around 1.57%. points.in three basis it is the spread you and i have been talking about. risk, you the event

play the flatten her. you don't play is any kind of movement in docs. jon: let's cross over to michael mckee. >> a beautiful morning it is. >> it looks better than it has. the hayes is moving out. terms ofll there in monetary policy? >> a good metaphor there. elementsay there are of the data that we are seeing that are mixed. we are in a moderate growth economy. it is natural when you have an

economy making slow progress that you are going to the data you can take in different directions. there is still some haze. andspeaking of the haze uncertainty, the market growth has slowed. inflation is far from the target. why move now? you said you could see one or two rate hikes. >> what i have said recently is i cannot imagine circumstances if we continue to see the economy perform as it has in.

none of it is locked in. we have to see how the economy seems to be performing. i think the by words the public should understand, it is cautious and gradual and there is no gun to our head. the sed has kept interest rates low for eight years. we're still not generating growth or inflation. time for a rethink on what monetary policy can do and how it works?

signals fromeing my colleagues that they are beginning to rethink things. maybe we should rethink some of the basic assumptions around is taking jim bullard a different approach than the rest of the committee. suggestions,se particularly if things are not gelling perfectly, that you go back to your basic assumptions and think and through again. >> i view models as inputs to a decision process that wires judgment. i do not let the models tell me what to think or what to do. they are useful inputs.

they use models to test hypotheses, to run through a certain set of assumptions. they are very useful. >> are the projections becoming a liability? -- is the fed losing ratebility by predicting hikes that don't come true? >> i am not going to confirm lots of -- loss of credibility. is a nuanced point that needs to be made. prediction of what is going to happen. they are forecasts and those are subject to adjustment. >> we have had a long period in time, is it useful to even have?

>> we should always be working on improving our communication. individualse 17 views in advance of a meeting with the opportunity to adjust the dots after the meetings. it is not a consensus of the committee. you look at gdp, the consumer has been holding up well. though, itvestment has been week for a prolonged period of time. there is an argument being made that there is uncertainty over where the fed is heading. there is a sense the rate of returns are so low that there is no need to go longer-term and

that is what this economy is lacking and needs. >> i share your review on business 60 investment. in my outlook, i am assuming some of tick in business investment in the second half of is anrea and that essential point to the picture evolving. it gives me some confidence in adjusting the policy rate. uncertainty is a factor. there are a lot of other uncertainties out there. balance, fiscal international developments of various kinds. when i talk to business contacts in the southeast, they cite uncertain conditions as reasons

for being cautious about capital expenditures. uncertainty is clearly a factor. you about they tell investment plans and their views of inflation going forward. hear a lot from wall street economists. what do the people on the ground in atlanta thing? >> they are saying they continue .o invest the economy saying is going to be a lot bigger and demand is going to grow. what we are getting from the is not a lotunity of confirmation of the assumption and the outlook. there is a certain amount of continuing investment. what we are looking for is expansionary investment. people who believe they should invest for the future.

>> it is about redesigning, looking at monetary policy. in the present, we have seen central banks keeping rates low. we have seen bond purchases like we have never seen. the needle on inflation is not moving much at all. of one phase end of monetary policy? approach whole new that is called for here? >> circumstances are extraordinary. with all of the different policy efforts that have taken place around the world, some are which unprecedented. we operate with a large balance sheet. we have to think about how long we deal with those conditions.

thisubject matter of symposium is perfect. what is the framework in the future? >> thank you for joining us. alix: we are getting the theme. may one hike this year and then we are going lower for longer. jon: lock are basically saying his business contacts, despite uncertainty, if they don't have future orabout the where things are going, they will continue to sit back. -- corporate profits did not make companies feel better. for an update on news outside the business world, we go to em

ma. the death toll from italy's earthquake has risen to 267. rescue crews are digging through the rubble for survivors. it has been a day and a half since they found anyone alive. richard branson said he was in a bike accident and thought he was going to die. it took place at night on one of the british virgin islands. was damagedcheek and have a number of cuts on his body. news, 20 hours -- 24 hours a day. this is bloomberg. look ating up, we will the u.s. dollar and the bond market reaction to the latest gdp figures. it is the countdown to janet yellen's speech at 10:00 a.m. eastern .

this is bloomberg. ♪

alix: this is bloomberg . the market preparing for janet yellen speaking in 45 minutes. release ofcond second quarter gdp about an hour ago. this is a 10 year yield. the number was revised down slightly lower. sessiond is off its lows. profits down 4.9% year on year. yields helping to bring down the

dollar a touch. it is near a three-month low. the dollar is trying to cling to a small weekly gain. a hike soonerg beher than later would appropriate. lockhart saying you could see two hikes this year. futures turning a little higher. a rally out of the gdp numbers. maybe bad news is good news. you are treading neutral into janet yellen's speech. you are not seeing neutral in gold. up by about seven dollars. anyway you slice it, you might see a little bit of wine. you want to hedge that asset. it is not a lot of positioning, not a lot of volatility.

jon: no convictions, a little price action and little visibility. look no further than the next 45 minutes. coming up, we will speak with a critic of janet yellen's policy. he will be joining us from jackson hole as we count you down, 40 four minutes away from the fed chair's speech. ♪

alix: welcome back. 40 minutes away from janet yellen's remarks that jackson hole. -- michael mckee is with glenn hubbard. >> he is also the dean of the

columbia business school. you keep track of what is going on in the economy. the question you and i were talking about is -- the fed has done a lot over the last eight years, most economists would say they put a floor under the recession. now, does fed policy continue to work or is it time to do something different? >> it is time to do something different. i don't think there is much that continuing the accommodation in this way is with the economy needs. it sounds more like fiscal pablo it -- fiscal policy problems and monetary policy problems. the fed being dragged into something it shouldn't be doing? generate risks.

>> i want to ask you about the election and a moment. in the event of the next recession, what happens? wrong,thing were to go what would the central bank do? it still has tools. it is not without its ability to act. that requires the president and the congress having a conversation. >> have you heard anything from any candidate that encourages them to get that idea? >> i do not know. people in your business should that question. >> you have been a longtime advisor to a number of republican candidates.

cut the deficit and taxes. that does not seem to be the republican party platform. we need long-term entitlement reform. that is the story. i wish the campaign would talk more about these issues. >> how do you convince republicans that you are on that side, that the government should be spending more money to stimulate the economy, to do the things you are talking about that need to be done. >> we have to change expectations. infrastructure is part of it. after the election, if you look

at infrastructure and work support, business tax reform, i don't see why you can do them all. -- is reform is a key at a key issue for candidates. mrs. clinton is planning to raise corporate taxes. we have a difference of opinion. we don't reform the tax code, what happens? are stuck with business leaders not looking at corporate investment in the united states. political.ot be to have one party say no is not the right answer. >> what do you do about productivity? seem to have incentive to invest in improve productivity. >> it is about several things. innovation. about

we have to keep the innovative machine of america going. the second is business investment. it is hard for productivity to rebound without investment. a lot of things we're doing are holding back productivity. was a magic answer, i would give it to you. are you optimistic or pessimistic about the long-run growth of productivity that has fallen? >> i count myself as an optimist. seen enormous waves of innovation, even in the same general purpose technologies we have now. do we have a policy environment that supports that? right now, we do not. issue we have is the productivity enhancements, capital spending being done is being done to drive down prices.

maybe policy does not know how to address it right now. >> we are seeing some deflationary pressures. overall, u.s. inflation is starting to rise. are in think we uncharted waters in that regard. i don't see the need to -- monetary policy. do you see the need for a different kind of monetary policy? a different approach to a low inflation environment? >> if interest rates remain low for a long time, there are a lot of us just to be asked area these are all real economy questions. do you think the fed is grappling with those issues or is it not on the radar screen? >> there are notes over bullet answers.

i believe chair yellen and her colleagues are doing that. most important thing for the fed to do next? move interest rates or something else? be clear about the normalization strategy. we are at full employment. ills in the economy have little to do with monetary policy. if the fed is not going to move, it needs to be clear as to why. icn argument for a better fiscal -- i see an argument for a better fiscal policy. janet yellen's speech coming up in about half an hour. jon: great work down in jackson hole. the fed seems to keep finding excuses. alix: we could see two rate hikes this year. it is not set in stone.

the idea, lower for longer. it he said at a clear can insist then we understood about two weeks ago. jon: in the long-term, for sure. hikes onof the rate the table, at a time when you have not been able to deliver any in, isn't that a little bit ridiculous? man speeches, maybe that is what you have to do. we count to down to the speeches with janet yellen from jackson hole. this is bloomberg. ♪

host bank ahead of the open here is what you need to know. janet yellen will be delivering the message anticipated speech on central-bank policy.

gdp earlier, the u.s. economy grew less than previously reported, rising 1.1%. and consumer price in japan down for a fifth straight month. the boj has some problems. as you hear the opening bell, going into this, futures a little bit softer but going nowhere. marginally0 up and the dax get flat. it is the same story in every single asset class, barely moving ahead of this speech. no big positions being taken on at 10 a.m., and we are seeing the nasdaq flipping it to negative -- flipping into negative territory. we haven't seen that kind of movement in the s&p since brags brexit.nce

a little movement to the upside. are some individual movers we wanted to highlight for you. premium. the rumors of a potential buyout started to circulate august 3. herbalife making headlines today, the wall street journal saying carl icahn has jeffrey shopping his 18% holding. at $399 million. wall street journal reporting that jeffrey actually went to acumeackman.went to we also have earnings continue to trickle out. i wanted to highlight it because total sales fell 10.4%. of you have overall weakness in

hardware sales. really feeling that pressure. jon: is the herbalife story still a thing? alix: it is. jon: it's like a soap opera. i'm going to take it to the real business, the bond market and look at flat yield curves. where do we trade? 145, it is the tightest yield since 2007. there somebody different stories. if you see a more hawkish fed what happens to the longer end? i think the development of the shape of that curve is going to

-- with it really has to do -- that orange line was two weeks ago. where the implied probability of a rate hike rise, that is where it is now. that has doubled in just about two weeks. where we were, we were at zero. ranging in the market. jon: one and three, what i found remarkable is it is not in assessment of the probability -- not an assessment of the probability. in many ways it shapes the outcome. you almost give the fed a door open to do something. it doesn't just assess the chances, but also determines the outcome as well. i want to turn to [indiscernible]

and look at markets reacting in anticipation of the janet yellen speech. lisa i know you wanted to look at that yield curve as well. that is the jargon around all of this as we going into the key event risk. put this into perspective, the jackson hole event has not been a market moving event since two thousand 10 when ben bernanke came out and announced quantitative 2.sing t the question is are they going to give a more concrete assessment of the possibility of a september rate hike? more importantly what is their assessment of the tools they have left to ignite growth? do they think they are out of ammunition? are they thinking of an additional round of quantitative easing? where are they in the growth story? and your chart showing the inflation expectations versus

the five year -- the market price versus where the fed was, this differential cannot last. it is a problem the fed really has to address in order to support credibility. alix: not really expecting the fed to do much of anything. what does that mean for a dollar yen that really needs that weaker yen to move? guest: one of the problems with the dollar yen story is when you fed speak saying we want to normalize but and make gradual path, what that means is the yield curve is going to stay flat for a long time.

the desperation and retail to step into the space to start spending money, it just isn't there. there is no sense of urgency to buy a home to invest in. the rate is going to be the same a year from now. jon: i wonder what this all means for exit. if fed chair comes out in says september is on the table, but only because the u.k.-u.s. economy is doing ok. guest: that is whether the dovish hike is possible. i think it is. going into brexit, stocks were responding positively to the economic news. that has changed a little but now, where you are looking at a market favoring dovish interpretations of fed speak.

hugeis not typically a market moving event, but if you look historically at equities over the last five jackson hole meetings, only one of which the markets went down in which there was no fed speaker, kind of awed. not surprising anybody. this is generally very of accommodative central-bank and we can expect them not to want to jostle the markets too much. at the same time there is a shift in the bullish positioning. you have positioning in terms of sentiment index. there is definitely a sentiment shift here. alix: there's this feeling of credibility. people have said the fed has talked a lot about hiking rates and they haven't. abilityhave historical napoli with when they are going to hike rates but what their

longer-term plan is, what the pace of hikes is going to be, what they're going to be looking at. williams point about a new paradigm is fars the rate goes. -- new paradigm as far as the rate goes. jon: risk of bubbles and credit for years now. what are we seeing now and does the fed me to address this to some extent? should there be a financial stability concern? el-erian came out saying he is concerned about financial stability and of the fed promotes this environment raiseo long you do the risk of rate bubbles. you are seeing credit spreads narrow but you are seeing a lot of dispersion as to what credits are getting the most up. are selecting

specific credits. alix: how much does the 20 basis points mean -- some banks have seen that 25 basis point hike. vincent: the problem is how do you inflate expectations? the easiest way for the fed to do that is get out of the belly of the curve, get back into the short end where they belong. steep in the yield curve, it might does expectations, -- the yield curve. that will get the smudge out of the pipeline. are they not talking about using a balance sheet? by are they not having that discussion? vincent: the great fear is once says we are

reducing the balance sheet you will not find a buyer. there is no one going to step in and say by an eight-year -- and say buy an eight-year or ten-year. they need to let it roll off on the short end. if they let it roll off on the long and there will be a panic. they really need to educate the market on how they are going to exit that balance sheet strategy. alix: we have 20 minutes to go and stocks, bonds, currencies. thank you. john, we are almost there. jon: we will be looking ahead to the fed chair speech and the 24 hours we have heard from several fed presidents if there is time for another rate hike. 10 minutes into the session. stocks finally on the move. the speech 20 minutes away from new york. this is bloomberg.

jon: this is bloomberg . coming up, federal reserve tank governor -- federal reserve bank governor -- alix: this is bloomberg , finally getting some movement in stocks. janet yellen's speeches 15 are most up the s&p by 4/10 of 1%. materials, tech, industrial leading the way. volume not terrible, just down 8% versus a 10 day moving average for this time of day, and the nasdaq, the weaker of the lot. as we go in -- as we go deeper

into the nasdaq, let's go to abigail doolittle. we have something very interesting going on for the nasdaq, which is the index may be slightly higher on the open but on the week the nasdaq is actually on pace for it first weekly decline in eight weeks. it will be interesting to see whether fed chair janet yellen's shift the nasdaq or if it pushes it higher so we can have in ninth weekly gain in a row. as for movers we have stocks moving on earnings reports. splunk missed analyst earnings numbers. very interesting is the fact that their cloud business is growing so fast it is eating into the -- business.

stock trading lower on ulta down after the company offered a third-quarter earnings of you missed consensus estimate. $1.25 -- make between $1.25 and $1.30. going onting what is here. very high expectations, they have beaten quarter after quarter in the past. with the bar very high, it looks like the shares of ulta are taking a breather. defined market has been for the last couple of weeks by a lack of action. a little bit of price section we are starting to see. gains across the board for equities in the united states at a time when futures were dead flat throughout the day.

this is no big deal with the ftse up about a 10th of the 1% -- 10th of 1%. come herethe 10 year are at 1.56. 1.50 year, here we are at six. alix: we had that weaker reading for second-quarter gdp. the highlight was profits down 4.9% year after year, that not factoring in the markets as much. maybe in the treasury market. are we in a bad news-good new scenario? or is it all about janet yellen yet so if you don't have corporate profits rising, how are they going to invest? jon: you have central banks doing a whole lot more. going nowhere. dollar-yen going nowhere. brought up that phrase, divergence convergence. what have we actually seen off

the back of that in terms of real divergence? alix: 25 basis point hike? jon: and it is so much more easy for the -- high, you seven-year have banks paying 25 basis points more for some of their loans overnight. that is in essence a hike for them. you are also seeing distortions in the credit market. you are seeing investors come into the limelight. because they need the actual cash flow because of the yield. essential bank tightening what we have already seen here in the u.s.. jon: i want to bring up a chart we brought up a lot 17 minutes ago and it is defining what is happening and central-bank policy at the moment, and it is the spread between two years and 30 years. we see the flattest yield curve since 2007. it tells you a couple of things. the fed is struggling to make a move and cannot go anywhere. we have seen this tremendous

flattening from the central bank of japan and ecb. and a 30 year yield that has come all the way down. spread that a yield is down. alix: he sees a long rally as much as 10%. jon: we have been looking at the yield curve throughout the program. i know it is something you look at as well. what is the signal you see in terms of the domestic versus international economy and what does that mean for the federal reserve? not even so much about domestic versus international as it is about near-term versus longer-term and kind of what the fed can control. of fed speak. they have been moving around rate tight -- rate hike

expectations. what they can't control his -- can't control is people tightening three years ahead. even though the near-term rate outlook has been whipped around. point of goes to this the one and done mentality that is big in the market. that is not necessarily a bad thing for the fed. that is what they are afraid of. you're the swing to the fed speakers today, it seems like there's more of a consensus in the market than we thought before. istral interest rates, that why you're not seeing the volatility for the longer end. shorter-term it does seem a queer hearing more and more, one hike this year may be ok.

matthew: it goes to show you, they are facing a big challenge. the weight of the world's pressing down on these market expectations. to get them up, all they can really do is talk about the next .ew meetings that is all they are able to affect. jon: we have that hearing from several fed officials and i want to get to some of the highlights leading to janet's speech at jackson hole. the views of for fed presidents on monetary policy. them i think it is time to rethink our normalization plan. them under any metric it would be time to move. , i could see two rate hikes as possible. path of ratesated will be flatter. >> 200ook at that -- basis points, that is not the

right characterization of what is going to happen over the forecast horizon. that is why we came up with this idea of let's not pretend we have a lot of certainty about where the long run outcome is, let's make policy for where we lowtoday, which is a productivity growth environment and a very low real rate return on government paper. those are the primers we are working with and make the right government policy for that. and keep those eyes out -- keep an eye out for those things in the future. >> i expressed my view that it the processontinue of normalization in interest rates. when i look at where we are in the job market, when i look at inflation and our forecast for that, i think it is time to move. , what is a normal interest rate in this post crisis --, what is -- >> what is a normal interest rate in this post crisis

environment? that terminal rate has been coming down, i think regardless of where you would pegged that scope to begin to remove accommodation. rates todaygative and whether we go back to something that looks normal less, is, or something think we will judge it. i don't think we are going to need to have high interest rates, i don't think we are going to need to cool off the economy by any means. i think it would be appropriate to continue the process of that normalization. imagine circumstances if we continue to see the economy perform as it has been, in my opinion. none of that is locked in. we just have to see how the economy seems to be performing. i don't think the committee is

risking a lot by being cautious. i don't think we are behind the curve in terms of either inflation or either risking a big financial instability event. words the the by by was the -- the public should understand is -- the data is mixed and we are in a moderate growth economy. we have an economy making relatively slow progress, we are seeing data you can take in different directions. >> we have a number of persistent headwinds. the neargh i think in term, the case of removing some amount of combination has been strengthened, that is in the context of a much slower, flatter path of rate increases. i think the path is just as important or more important than

exactly the exact time -- andve done what they can use tools to generate growth and meet its dual mandate. is we also need structural reform and fiscal monetary accompany policy to meet the challenges we face. behink people may disappointed that monetary policy hasn't generated more growth, but it is designed to act along with structural policy .nd fiscal policy i think the period of monetary policy is to be the main game in town. we need a full a range of tools. alix: and there you have the three leaders. he have janet yellen, vice chair stanley fischer, new york chair all walking there. dudley and fisher, presumably

more hawkish. at the heart of this is inflation. inflation expectations going lower. this is another bigger, longer term thing weighing on the committee. we also attend :00 at the latest university of michigan consumer sentiment numbers. this is the percentage of people who say they are worse off then a year ago due to higher inflation. consumer inflation is a good thing. this is a problem in 2000 eight when the economy was flowing. soy had a lot of inflation, they had that dichotomy they had to deal with and it is not clear what that solution is. so the concern going forward is too much inflation too late in the cycle, do we

have the same sort of thing going on? that is something they are going to have to potentially figure out. jon: there another story as to if they are reacting to what the inflation is and whether they can actually control inflation levels. where are we in that debate? matthew: i think the debate is wide open at this point. continuingrward with to question what we know more and more about inflation, where it comes from? because inflation stays low that is increasing all of these questions around this topic, it is going to be interesting to see how it plays out. alix: thank you for joining us. you have a live blog you are covering and we are three minutes away from janet yellen's speech. jon: three minutes 30 seconds away from that much anticipated fed chair speech, a direction us -- directionless market. lix: will we get it and what does it mean for the

markets? if janet yellen doesn't come out and speak about specific that term policy rakes, -- policy rates, does that mean she is more dovish? jon: i want to cross over to our colleagues mark barton and vonnie quinn. vonnie: we're going to be listening to michael mckee give a rundown of the headlines. session,losed door held for invitees only. i am vonnie quinn in new york. mark: i am mark barton in new york. this is bloomberg markets. vonnie: welcome to our coverage of the kansas city symposium in jackson hole. on standby.re the formal topic of her speeches around the monetary policy toolkit. many will be looking for clues

whether the central bank will raise rates as soon as september. a one in three audits of raising rates next month. -- three odds of raising rates next month. on the see that bloomberg. the possibility of a september move is up to 30%, december 55%. that means in november there is a 34% chance there. mark: it is fascinating to see how our work function changes. president esther george reiterating her call that [indiscernible] the caseplan says is strengthening for another increase. what had of reaction are we seeing in the u.s. ahead of going to thee:

terminal here, because you can see we have been in a range but it has been pretty low. 1.43%. that is inflation expectation in five years. market is onlye looking for inflation to stay around 1.5% for 10 years. inyou look at general markets, the dollar index is up. i'm going to show you a chart of year to datedex market. you will see in the last month or so there has been quite a lot of waste on that dollar index ended has been trading in a the year.t for we will look at the market reactions, there could be a reversal. enjoying a bit of a breather so far. mark: we'll wait with bated breath. minutes away, seconds away from the speech. let's look at what is happening with european equities. 25 seconds to go. we are on track for a weekly

advance. look at the stocks here. at 0.02%.poised really quickly, let's look at the bond market before we get the yellen statement. have a look at the bond market. i'm going to throw it back to you. mike mckee live at jackson hole with the details. michael: janet yellen has a message for you, she hasn't put a timetable on it but she says economic data has improved. increase of aan federal funds rate has increased." it is the most optimistic and direct janet yellen has been on rates in quite some time. the labor market has improved and inflation, while still low, is still subject to the transitory effect of energy. yellen goes on to caution the outlook is uncertain and that policy is noon