mark: traders turn hawkish on yellen's latest comments and the biggest u.s. inflation jump in almost four years. the u.s. secretary of state prepares for his first overseas visit. how will his g-20 counterparts treat trump's man? and nestle crunch. the world's leading code company misses estimates and sees significant restructuring costs, but the ceo tells us he's not troubled by trump's protectionism. >> generally, where no fan of

anything in protectionism. mark: this is "bloomberg surveillance." by mark barton in london. seven days of gains, that was the run through yesterday for the stoxx 600. best run since july 2015. temporarily, maybe. the dollar down against the yen day, roughly 0.4% lower. traders seeking more clues for three rate increases by the fed before attempting to break past that 113 level. the u.s. 10-year yield is down by a basis point today. that is an interesting level. data today includes housing and initial jobless claims. oil, upg off with crude about 0.1%, hovering around $53 a barrel. u.s. stockpiles yesterday rising for a sixth week.

adding to this global glut. let's get the bloomberg first word news. here's sebastian salek. sebastian: u.s. intelligence agencies and the fbi are conducting investigations over donald trumps advisors and russia. that is according to four national security officials. several agencies are conducting inquiries over russia's efforts to metal in the election. trump's administration is considering several contenders as a replacement for an depositor as his labor nominee. hiser ran into trouble over admission that he employed an undocumented housekeeper. china's holdings of u.s. treasuries declined by the most theecord last year as world's second-largest economy dipped into its foreign exchange reserves. japan trimmed its holdings for a second straight year. some of america's biggest

creditors are rethinking their financing of the u.s. government amid the prospect of bigger deficits and more inflation. nestle has forecast 2017 sales and profitability below long-term targets. the world's largest food company t --cts to two more percen 2% of 4%. mark schneider steps up efforts to restructure the firm and reignite growth. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm sebastian salek and this is bloomberg. mark: thanks. traders are turning more hawkish on a u.s. rate hike. the odds of a fed increase have risen to 42% from just 30% a couple days ago. data showed u.s. inflation increased in january by the most since february 2013. it follows federal reserve chair janet yellen's second day of testimony to lawmakers, during which she rejected suggestions the central bank will respond

willy-nilly to any change in tax and spending plans by president trump. she insisted the fed is coming very close to achieving its objectives. >> the federal reserve has put in place highly accommodative monetary policies meant to spare spending in the economy and restore low unemployment, or to achieve the goal of maximum employment and price stability that have been assigned to us by congress, as i indicated in my remarks. veryieve we are coming close to achieving those objectives. mark: let's bring in neil mackinnon, global macro strategist at vtb capital. is march live? neil i think the markets are right. as you say, just a couple days ago, markets were giving a 30% probability to hike on the 15th of march.

that is understandable because the 15th of march also coincides with the expiry of the u.s. debt ceiling. it coincides with the start of the electoral cycle in the eurozone. they are all reasons janet yellen could point to to defer a rate hike until june. i think what has changed things is the u.s. inflation. they are picking up a bit. i think that will continue in the months ahead. i think janet yellen is serving notice to the markets, that they are not going to hang around. there's dangers in waiting. i think the march meeting is certainly live for a rate hike. june would is that be dead for a rate hike. mark: may be may now. neil: i think they could go in march. i do. i think that money markets should be very alert to that

possibility. it may be that markets are a little complacent about the possibility of a march rate hike. i think everything janet yellen and her colleagues are saying is, we are ready to go. we are meeting the mandates we've been set for price stability and maximum employment. we ready to go, so watch out. i think whatever president trump does, we need to watch his state of the union address as regards prospective tax reductions, both corporate and in terms of income tax. i don't think that is going to play necessarily a big role in the fed's thinking. mark: she said yesterday, she suggested that more policy from trump doesn't necessarily mean titer rate. demand and inflation. at what juncture does the trump infrastructure tech scottrade kick in? neil: it could well be that the sheer fact of just announcing entirelyngs, which is

possible, it could be a $350 billion package in total, regardless of that and regardless of when it kicks in, i think there's enough going on in terms of the u.s. economy, u.s. inflation, for the fed to move. i think they are sending a clear message that we are ready to go. we are meeting our mandates on .nflation, on the labor markets i think we've just got to be a little careful. i think the 15th of march meeting is live for a rate hike and i wouldn't be surprised if they did move. mark: how do markets start reflecting everything you've just said? does the yield on the 10-year need to be higher than just below 2.5%? is the dollar going to start another resurgence? a very think that is good point. equity markets have taken all this in stride. we have record highs in the msci world index. that is a reason in itself when

the fed might think markets are ok. the probabilities are rising. that is something bill dudley looks at. i think for sure u.s. bond , 2.5%,keep edging higher a lot of technical analysts point to 3% as a target, and i wouldn't be surprised to see that. certainly the dollar is firm. whether we see is super strong dollar is -- well, i think certainly it is unclear as to what the u.s. treasury is feeling on all that. it is interesting that the dollar hasn't taken off. euro-dollar exchange rate is holding around this 106, 107 level. parity hasn't happened. we will have to see. certainly i think that for traders, investors, people in the money markets, they need to

be alert to the possibility of a march hike by the fed. mark: neil mackinnon of vtb capital stays with us. we are going to bring you an exclusive interview with stanley fischer, 11:30 london time. that is followed by our discussion with atlanta fed president dennis lockhart. what a big day today. if you are a bloomberg customer, you can watch the show using tv as well as the video stream. you can follow all the charts, the functions, reach out to the show by clicking send i.b. to show producers to tell how wonderful you think neil mackinnon is. sunday coming up today, including, as u.s. secretary of state rex tillerson makes his international debut today, we're live at the g-20 summit. plus, mario draghi calls on germany to be calm about stimulus.

we will assess the state of the euro zone economy and the task facing the ecb. and we talk technology with the cofounder of skype, who now runs a venture capital firm investing in european tech. this is bloomberg. ♪

mark: let's get the bloomberg business flash. here's sebastian salek. sebastian: the de facto head of samsung has appeared in court for his arrest hearing. the prosecutor has added allegations of concealing profit and hiding assets overseas to earlier claims of bribery and perjury. the first attempts to take leak into custody were rejected due to a lack of evidence. snapchat's parent and a snap inc., set the valuation of its ipo at between $19.5 billion and

$22 billion. they say the company is valuing $14 and $16.n that puts it on track to be the biggest technology ipo since alibaba in 2014. has filed for an initial public offering with plans for a listing in new york and toronto. the company will seek to raise as much as $300 million in the sale. that is the bloomberg business flash. mark? mark: u.s. secretary of state rex tillerson takes his international debut today as he joins foreign ministers from around the world at the g-20 summit in germany. host of the meeting helps set topics for discussion and is ready to challenge the u.s. administration on the issue of climate change. that is according to an official in berlin. let's get the latest from patrick.

what can we expect from the g-20? the g-20 foreign ministers are meeting for only the second time. the g-20 is mostly focused on global finance issues. ministers will be talking about sustainable development, climate change, but all eyes will be on rex tillerson. to see what degree the new trump administration will be ready to deal with a whole range of multilateral issues. mark: and it comes as pressure mounts on the white house following the departure of national security adviser michael flynn. america's relationship with russia will take center stage, no doubt. >> the big meeting today is between rex tillerson and russian foreign minister sergey lavrov. they will be preparing for the g-20 summit in july in hamburg

where we are likely to see trump and putin meet for the first time if they don't meet before then. given everything that's happened in the u.s. in the past week, all foreign ministers from europe will be very interested to see what tillerson says, if he says anything. ov will probably say something after the meeting and tillerson may as well. mark: bloomberg's patrick donahue. busy day at that g-20 summit. neil mackinnon, global macro strategist at vtb capital. the russia-u.s. post-flynn saga continues, and the negative aspects ofneil mackinnon, globao strategist at vtb trump's view e world still hover in the background, whether it is protectionism, tariffs, immigration. as we alluded to, equity investors are ignoring it.

glass half-full. is there a risk in that? neil: i think that the outlook for the global economy is very positive. i think the main forecasting forecastingenerally greater economic growth this year. in terms of u.s. trade policy and the risk of protectionism, to a large degree, the comments that trump made last week with reference to the one china policy, supporting that, the very positive comments he made with his meeting with japanese prime minister shinzo abe, that all was greeted very positively by investors in financial markets who have been worried about the threat of a currency war or a trade war with the that china, japan, other countries, germany possibly, would be named as currency manipulators. that threat is pulled

back and investors are focusing on the progrowth aspects of president trump's economic policies, which is why markets are doing well. mark: we talk about the dollar, in the light of steve mnuchin, the new treasury secretary. do we expect him to be the sole purveyor of dollar talk? or is it him and trump and riskso and -- and what that mean fors currencies going forward? neil: president trump is going to say something about that. he's already made his opinions clear. from the perspective of the treasury, it has been a strong mantra that strong dollar is in america's interest. inther that means anything terms of practicality moves. i think the markets are waiting on some clarity on that.

everyone knows, including the federal reserve and the treasury, that a stronger dollar is not necessarily in america's interest. the federal reserve come up with all the numbers about how much of a percent mover a dollar would have on u.s. exports and gdp. there's also the risk in terms of international markets. there's a point made by the bia dollar istronger equivalent to a global rate hike. it works through the financial channel rather than the trade channel. banks like the euro banks or japanese banks that depend on dollar borrowing, or emerging market countries that have dollar-denominated debt, the worst thing that can happen is a super strong dollar and an aggressive move on u.s. interest rates. that, certainly the view on the dollar is, we will have to see. my view isif

correct and the fed starts the ball rolling to achieve three rate hikes this year, and to a large degree that has been priced in, but it can be just the move itself. we know that there's an element of political risk with the euro, with the dutch elections, the first round of the french elections, possibility of early italian elections, all this could translate into a softer euro. mark: we will talk more about europe. neil mackinnon from vtb capital will stay with us. as we await the ecb policy meeting, bloomberg intelligence says europe faces a decade of slowing growth. what does that mean for draghi? we will discuss next. this is bloomberg. ♪

mario draghi called on germany to be calm about stimulus, saying rising inflation will eventually bring higher interest rates. meanwhile, unless politics throws a spanner in the works, bi economics expects the euro area taking up over the next couple years. neil mackinnon is here. your assessment of the euro zone economy? gdp data this week was slightly weaker, zero point 4% for the last quarter. inflation is on an upward trajectory. is the eurozone in pretty good shape? neil: i wouldn't say it is in pretty good shape.

unemployment is still too high. in terms of the gdp numbers, it is slowly but surely picking up. what did make me laugh is the forecast this week where they set for the first time, quite astonishingly, first time in a decade, all e.u. members will grow. that was said without irony. you have to pinch yourself to realize that it has taken such a long side -- long time to get any semblance of growth. it is not really dramatic growth. the best it gets is something like 1.8%. that is a problem. the commission itself in the report last year reckoned that over the next 15 years, 90% of global economic growth will be outside the eurozone. that,rse on top of something the ecb will have to contend with, apart from the political risk from the electoral cycle this year, elections in france and germany, is this problem with greece.

certainly, debt levels are high not just in greece, -- i agree with the imf's analysis that greek debt is unsustainable, but we have high debt levels elsewhere. the problem they've got is that growth isn't strong enough in most cases, apart from let's say germany, for them to reduce their debt levels. i think we've got to keep an eye on greece. mark: are we approaching another summer of discontent? neil: i think we are. ministersne finance meet 20th of february, the last meeting before the dutch elections. whether they can come up with anything substantive or it is just kicking the can down the road remains to be seen. i think they will just kick the can down the road. mark: at what juncture do we get debt forgiveness? what forces the hand? neil: it is either a political decision, that the greek government says, can't pay,

won't pay. that is going to be tricky. i think there's a longer-term problem. the forecast of gdp is just way too high. then it comes down to a decision. bringy exit the euro, back the drachma, effectively default on their debt? it might be interesting whether marine le pen -- mark: the same. neil: redenominate their debt. redenomination of debt. back on the table, isn't it? neil: absolutely. mark: great to see neil mackinnon, vtb. "surveillance" continues. stay with us. ♪

[ alarm clock beeping ] weather. ♪ [ laughter ] cartoons. wait for it. [ cat screech ] [ laughter ] ♪ [ screaming ] [ laughter ]

make everyday awesome with the power of xfinity x1... hi grandma! and the fastest internet. [ girl screaming ] [ laughter ] mark: i'm mark barton in london. let's get the bloomberg first word news. here's sebastian salek. sebastian: u.s. intelligence agencies are conducting investigations over contacts

donald trump's advisers and associates had with russia during and after the presidential campaign. that is according to national security officials. they say several agencies are conducting inquiries into russia's efforts to meddle in the election. president trump's administration is considering possible contenders as a quick replacement or andy pods are. puzder ran into trouble on capitol hill over his admission that he employed an undocumented housekeeper. beenast food executive had scheduled for a confirmation hearing today. china's holdings in u.s. treasuries declined last year as the world's second-largest economy dipped into foreign exchange reserves. japan trimmed its holdings for a second straight year. some of america's creditors are rethinking their financing of the u.s. government amid the prospect of bigger deficits and more inflation or higher interest rates. forecast -- nestle has 2017 sales and profitability

below its long-term target. the world's largest food company expects revenue to rise between 2% and 4% and its trading operating margin to be stable. markis as new ceo schneider steps up efforts to restructure the firm. >> we have reaffirmed our cost savings target of more than 200 basis points by the year 2020. this will be mainly from noncustomer facing structural costs. also, basically our plant network, which needs to be optimized. sebastian: global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm sebastian salek. this is bloomberg. mark: as foreign ministers from the g-20 gather, rex tillerson will be making his debut on the world stage as u.s. secretary of state. the g-20 will also see tillerson his face-to-face with

russian counterpart, sergey lavrov, for the first time since inauguration. let's talk you politics with guntram wolff. he joins us now from brussels. thank you for joining us. what is the priority? what is the message that rex tillerson is going to want to get across at this g-20 meeting? we shall see what rex tillerson really wants to say, but certainly what i can tell you is that everybody in europe looks at it with great interest and quite a bit of concern. i think the bumpy start of the trump administration is seen in brussels as a real issue, a real concern for the global economy, global monetary system, for the european security and defense architecture, and definitely also for multilateral trade issues. europeans really want some reassuring messages coming out

of tillerson. mark: will tillerson stick to the trump script, or as some of his new cabinet has done, will he take a different, more tactful line? look, the foreign minister also should be a diplomat, but i -- my sense is that the insistence on fulfilling the 2% if an spending is going to be quite an important part of the message. and that means that many european countries have to bump up and increase their defense spending very significantly. if you take, for example, germany, the gap is really something like 30 billion annually, so germany actually does have a big job to do in terms of reaching the 2% target that trump and his administration seem to be focusing on to get the nato security protection. mark: how much of a threat is

trump's entitled e.u. rhetoric? he's almost shown disdain for the e.u. project, dismissing it as a vehicle for germany. is this bringing the e.u. bodies together? look, i think it is certainly bringing the current government in the european union somewhat together, but i think of course his message does resonate with a number of countries and populations in the european union that feel left alone and that feel left behind. i think at the moment, the prevailing mood is still one of, we have to move closer together because of this attack coming out of washington. mark: yeah.

brexit is yet to be triggered, article 50 has yet to begin, or has yet to be triggered, possibly by the end of march. will brexit form any part of the g-20 foreign minister discussions? brexit is think certainly part of the discussions, at least on the sidelines, and i think for the u.k., what we see here, really, is a very new strategic situation, where they were hoping to be out of the e.u., but still a major trading nation in a multilateral setting with a reliable the beauty of, and rules and so on that apply to every country in the world. all of a sudden, we have the biggest economy in the world, the united states, opening the -- openly questioning the wto.

that raises questions for the u.k. without a functioning multilateral trading system, countries are actually pretty much left on their own. what matters then is the ability to project influence in trade matters. that is the matter of how big you are, your size. basically, the small island out there. i'm sure many people in the u.k. administration certainly have second thoughts about brexit because trump really changed the game and not in their favor. wek: how do you expect -- just saw pictures of justin trudeau, the canadian prime minister, visiting the european parliament. once article i 50 is triggered, say by the end of march if theresa may sticks to her plan, how do you expect the early negotiations to unfold? well look, i think the

early negotiations are very much driven by the european institutions. don't forget we have a number of elections upcoming, the netherlands, france, and then germany, so the political guidance from the big countries is going to be very weak at least until fall of this year, which means that the european union institutions are the driving seat. i think they've made clear that they take a tough line. they want to take a sequential line. first, we discuss the terms of the exit. recently the brexit bill. and then, only then, once that is settled, we can discuss the future trading relations between the e.u. and the united kingdom. that means the debate will be very acrimonious and very tough and unpleasant, i think, at least until the fall, until some

political guidance will come in after the german elections. mark: stay with us, guntram wolff, director of think tank bruegel. stay with "surveillance." we're going to check in on the markets. the dollar after yellen's two days of testimony. we're going to talk technology with the cofounder of skype, who now runs a venture capital firm. hour, wethe 11:00 speak to fed reserve vice chair stanley fischer. that interview, 11:30 london time, live from washington, d.c. this is bloomberg. ♪

mark: let's check on the markets.

nejra cehic has been watching all the action. nejra: the global equity rally that took the msci world index to its first record in 18 months yesterday has faltered somewhat when it comes to europe. we are seeing the stoxx 600 down. gains, longest winning streak in 18 months for the stoxx 600. you can see some weakness coming in. elsewhere, it is a bit of a weaker dollar story. just to show you the crosses, 1.0 637 on the euro, 1.2510 on sterling. money moving into the swissie as well. we are seeing the 10-year treasury yield down one basis point. in the commodities space, gold up, copper down. oil up a little. 600 andat the stoxx digging into the sectors, i.t. stocks leading the gains here as you can see on the imap. energy stocks underperforming, down almost 0.9%.

i did promise i would talk about the dollar. this has been a conundrum. we've had two speeches from yellen that some have interpreted as hawkish. that has moved the needle on those rate hike probabilities to 44% in march. we also had that better than expected u.s. cpi data. the dollar seems impervious even to these mounting rate hike that's. a great story on the bloomberg. i was asking myself this question. the buck stops listening until the fed walks the talk on break -- on rates. does the march probability have to go to 50% to see the yen weakened beyond 115? the yen, best performer against the dollar today. look at volatility, three-month implied volatility, lowest since the u.s. election. mark: 2017 could be a year of change in europe. elections in netherlands, germany, and france.

still with us from brussels is guntram wolff, director of bruegel. presents then biggest risk? guntram: i think the smallest risk is coming from germany. i'm quite convinced of that. then i think the biggest risk is probably france, if it goes really bad. the netherlands, my --erstanding is that it is probably the center will hold, even though it could look quite ugly. i would say the real risk and the real danger is that things go badly in france and that would mean a very dramatic shock for the european union, for the euro, and for the global economy for sure. mark: do you think markets are adequately pricing in the risks of a le pen victory? guntram: well look, frankly i

don't know. i think the electoral system is of course done in a way that it is going to be pretty hard for marine le pen to win the second round in the elections. but what we do not know is what kind of new political news on all the other candidates could come up. there's chatter of course that russia is very active and so on. we don't know what's going to happen in terms of the other candidates. there could be some risk out there. mark: does a le pen victory preempt a breakup of the e.u.? guntram: well it's a very good question. my gut feeling is that in that case, indeed, it would be extremely difficult to hold

together the european union. i would suspect that we will see immediately strong market reactions if mrs. le pen gets elected, and you know, then it becomes almost a self fulfilling story. once you have strong market reactions, something has to happen, because the european central bank cannot stand forever in the fire line if we see massive capital movements. so i think there is a lot of uncertainty out there, a lot of risk, and indeed, it's a risky affair, the whole thing. mark: we will speak to you seen, guntram wolff, director of bruegel. thank you for joining us today. the world's biggest food company sees 2017 sales and profitability below its long-term target. we going to bring you the best of our interview with the company's new ceo. this is bloomberg. ♪

sees 2017 sales and profitability below long-term targets as the new chief executive steps up efforts to restructure europe's most

valuable company. caroline connan spoke to mark schneider about the results. our 2016 organic growth, while it was at the high end of our industry, it was a bit low on expectations, especially in the second half. what we did see fairly widespread across the board is a reduction in volume growth in the second half. i think that was a general trend of the industry, not specific to us. pricing did not quite kick in as fast as we would have hoped. slightly below our own expectations and the market expectations. for 2017, it is kind of a balanced view. we are also facing a whole lot of macro uncertainty. the 2% to 4% organic growth guidance, when you look at the midpoint, that is exactly the rate we have seen for the last three quarters. i think that gives us caution on both sides. i think generally in this

somewhat volatile and somewhat deflationary environment, we are better served with straightforward annual growth and earnings guidance. this is what we gave you for 2017. caroline: is the long-term growthe of 5% to 6% model over? >> what we have said is that our focus on organic growth will remain. we do believe that we can achieve organic growth in the mid-single digit range 2020. that is what we're attempting to do. caroline: you are targeting significant cost savings. can you tell us where they will come from? >> this is building on some significant cost-saving effort that was achieved in 2016. we will continue that. we have reaffirmed our cost savings target of more than 200 basis points by the year 2020. this will be mainly from noncustomer facing structural costs.

but also, basically, our plant network, which needs to be optimized. caroline: could that also include, for example, disposal of some brands that are performing not as well as others , such as the chocolate business? >> portfolio management is a different category. first we try to fix our businesses and get back to growth. we see ourselves as operating managers, not as traders. however, if something does not fit into the longer-term strategy, if there no hope of turning around organic growth, then we have been no strangers to portfolio management in the past and that will continue. caroline: given the performance of the chocolate business in north america last year, does that mean you're not excluding disposing of that unit? >> at this point, we have no specific deals to announce. caroline: in the u.s., it is your biggest market. are you concerned that the new

u.s. administration's protectionism policies? strongest one of our advantages is the natural hedge. in most markets, our top line and what we make globally are almost ideally balanced. the u.s. is no exception. generally, as a global company, we are no fan of anything that smells of protectionism. in this particular circumstance, we have no reason to be worried. caroline: i believe that most of your brands in the u.s. are produced locally, but some have to be imported. could a u.s. border tax impact those brands? >> some products are always imported. but again, when you look at the balance overall, the relationship of topline and what we make locally, i think we are at the lower end of the worry list. there are some industries ahead of us. caroline: in europe, you had good internal growth, but

pricing was negative. how do you see the outlook for deflation europe? is it ending? >> in western europe, there was quite a bit of a deflationary sentiment towards the end of the year. we hope that is beginning to turn around. there's some signs of that, but it is hard to turn the corner and call that moment in time. there is hope. nespresso hasn't raised prices in europe for years. does it have pricing power? spresso is certainly the top end of the market when it comes to cartridge systems, coffee quality, and variety. that is a business where consumers do appreciate what they are getting. caroline: will you be able to increase prices in europe significantly this year if commodity prices pick up? >> that is a general trend we have seen. i think slowly commodity prices

are coming around. be a tailwind for 2017. having said that, that situation, managing that situation, starts with good and prudent hedging. we've done a lot of that. the immediate cushion is there. that gives us more time and more patience to have a discussion with partners and consumers to make them understand that there might be some price increases. caroline: the u.k. was a challenging year in 2016. in 2017, are you going to adjust after brexit we've seen the pound we can -- are you going to adjust prices? >> the u.k. is one of our historic markets. we are very committed to it and staying close to the british consumer. we believe, going forward, where there are selective rice we will do that.

but what you will not see from us is a general, across-the-board increase. caroline: will you be able to increase prices to adjust to the weakening of the pound? >> i don't think it is linked to the pound. it is linked to run materials that are being used in some products. some will be local and some will be imported. is a discussion we are engaging enough the right time. mark: the chief executive officer of nestle. european stocks are falling for the first day in the best winning run we saw before today since july 2015. dollar lower against the yen for a second day. traders seeking more clues for three rate increases by the fed. earlierear yield was lower. it is lower. it is down by a basis point. first day in six it is falling. around $53.hovering

crude stockpiles in the u.s. rose for a six-week, the longest run of gains in almost a year. tomorrow on bloomberg, we speak to the greek former finance minister, yanis varoufakis and the u.k. defense secretary, michael fallon. do not miss those interviews. "bloomberg surveillance" continues in the next hour. tom keene joins guy johnson out of washington, where he will be speaking to fed vice chair stanley fischer. this is bloomberg. ♪

. .

tom: the morning the consideration of finally a regime change. inflation is surging in britain,

germany and now america. in this hour, george magnus of oxford, university. the ides of march are decidely upon them. this morning a conversation with vice chair stanley fischer. the devaluation of the pound. is it wealth destruction for britain? good morning, this is "surveillance." i'm tom keene. guy johnson is in london. guy, the united states on inflation is catching up with what you see in the united kingdom. guy: two things to point out on this front. it was a really broad based story yesterday. the core number really caught my eye. the second thing that caught my attention is we saw a pickup in expectations from the fed but have not seen the dollar responding to that. george magnus has written a nice

piece in one of the british papers this morning. >> u.s. agencies and the f.b.i. are investigating contacts between president trump's team before and after the campaign. the probes began before michael flynn was dismissed as national security advisor. meanwhile there is a report that president trump will have new ork billionaire leading a ve view of spy agencies. they are concerned the review could curtail their independence. he has close ties to chief strategist, steven bannon. authorities arrested a malaysian man said to be the boyfriend of the second suspect. south korean officials are said to believe that he was poisoned

with a needle or a spray. mark carney's first hire as governor to have bank of england may be the candidate to succeed him. she will keep her role as chief operating officer. that gives her the widest powers staff. f carney's guy, tom? tom: thanks so much. equities bounce. currencies, commodities. a return to the markets this morning. what an extraordinary run in equities. i don't care that it is red on the screen now. you wonder where we'll be at 3:00 p.m., 4:30 p.m. this afternoon. futures at negative four. the dollar takes a plunge. it on to the next screen. i don't have a next screen. that's right.

i don't want a next screen. guy johnson, there is your screen. guy: stoxx 600 is down. nestle, europe's biggest company, one of the most read stories on the terminal is having the biggest points impact. a stock to pay attention to. gold this morning is interesting as well. it is thursday. on thursday, u.k. stocks go x dividend. what you're seeing this morning is big names like astrazeneca and shell and b.p. going x dividend. tom: inside baseball with guy johnson. let me bring up a bloomberg now which really sets the theme for all of our conversations this morning whether it is with marty shenker, we'll do that in a moment on politics in washington and then the vice chairman in our next half-hour. this is the two-year yield.

the yellow circles are the rate increases that we have seen. to the right, our fed meetings to come. you wonder what the debates will be to get us to the march 15 meeting. i would suggest the debate changed yesterday. guy: i think the first of march is going to be really important. that number when it drops is going to be one of the critical lines in the sand for the markets to pay attention to. similar theme. so this is the odds of a fed rate rise. that is march. that is the june number. both lines are rising. now i have a third line here but it is important the dollar index is moving in the opposite direction. why on earth is that happening tom? the key con none drum for me this morning. tom: that's right. i want to bring in all the political debates we have seen over the last 24 hours. martin shenker.

gets in way too early. nobody in washington gets up until 9:00 a.m. >> that's early for washington. tom: i was at the trump hotel last night taking in the republican ground zero. there was a little bit of long faces. it has been a tough 24 hours for the enthusiasm of republicans in washington. how are they going to regain momentum? >> donald trump is remeeting with legislatures this morning. if he moves on to his economic agenda and fiscal stimulus, maybe he can change the nair ravet. tom: maybe he can change the narrative. eli was on han tained fox. of course the president picked up on that watching every episode of hanity. i think he has watched 200 episodes. it changed the dialogue in marty shenker's washington. a political assassination of a

general. general flynn was thrown under the bus. he was a fat target under national security state and also a fat target for democrats and doing this, president trump caved in to his political and bureaucratic opposition. this is fascinating. i walked by the f.b.i. building. are they the bad guys? >> in trump's world, they are not the bad guys but he claims some are leaking classified information. he is trying to get to the bottom of that. feinberg if he comes in is going to have a chillingfect. establishment washington is reacting to all of this intelligence stuff. guy: good morning. can i ask you a question about band width? the markets are waiting for the administration to deliver so much. given what is going on and the noise and if this administration that is band width to do what it needs to do from a market per

expective. >> there is no question. the dismissal of flynn is deflecting legislatures from the business of governing including the white house where there is a very chaotic situation and the g.o.p leadership in congress is having to react to all of this and not doing policy. it is going to delay and inhibit donald trump's agenda. no question about it. guy: given that agenda, how do we sequence it out? what is important now? dealing the noise. what is next on the list in terms of policy coming out? >> the key thing and something the market has been reacting to. they are going to come up with this plan in concert with congress and we're all looking for details. it is still a mystery what is going to be in that plan. tom: a regime change in inflation, the changes at the

fed, the change s that aregoing on. the president needs a regime change. can general mat tiss, secretary tillerson assist him in getting to a better trump administration or is he going to be his own worst enemy? >> they can. one of the issues we have been exploring is the fact that there are a lot of second tier jobs. there are 4011 executive jobs that the president has to fill. he is way boon. general mattis does you see not have a tom: who is on the short list for secretary of labor. you? >> no. the labor secretary from south carolina is one of the leading ames but no big names. tom: in europe, in awe of what

is going on, guy? guy: let's get a take how this is feeding into other stories. the fed is maybe one of the elements we need to be thinking about. george magnus has popped by. he has a nice piece in the paper talking about the fed. the band width issues this administration has at this point in time. does that push who to put on the fomc down a little bit? >> it is probably not the first thing that i would have thought of that would be shelved. because actually you can't -- you have three vacancies coming up. three vacancies on the board of governors. very soon the president would have to say whether he intended to renominate janet yellen and stanley fischer. thinking is that won't happen. that they would step down.

within the next three, four, five months, the president might have to nominated five of the seven-member board of governors. you can't push this off forever, otherwise you won't have a functioning fomc orp federal reserve. the white house is drowning with ussia. tom: george, this is going to be a theme across six hours of "surveillance" this morning. the idea of regime change. you'd have a low yield regime and then move on to a high yield regime. did things change yesterday? are we on towards the new regime? >> i'm not sure tom whether it changed yesterday. i would say it changed pretty much toward the end of last year actually when it looked like -- if you remember, just go back a year. last year, 2016 was the year

when four rate hikes became one. this year, and i think the expectations are already building that way at the end of 2016, it certainly seemed that people were thinking about interest rate increases in 2017 with greater conviction. so now we have -- most people expect the federal reserve to raise interest rates three times this year. obviously it could change depending on what the economic plan is and how the federal reserve interprets that. i don't think we're moving to a high interest rate regime because there are lots of things which are still keeping the overall climate for interest rates quite low. but yeah, it is regime change the sense that we are now on a gradual tightening cycle it is a chair of the federal reserve has told us we are. tom: we're going to come back with george magnus and continue this discussion. jason furman in the next hour and then the vice chairman of the federal reserve system, stanley fischer.

this conversation is immediate. stay with us. this is bloomberg. ♪

guy: this is bloomberg. argentina's president and president trump have what has been described as a cordial phone call. this happened yesterday. the leaders discussed latin america with specific attention to the role of venezuela. ining us now from the g-24 ministers meeting is argentina's oreign minister. minister, can i get a few more details of how the conversation between your boss and the president of the united states went yesterday? what kind of relationship is argentina expecting?

>> good morning to you. the conversation was good. it was the second time they spoke after the election. they spoke right after and now since the president took office, this is the first time, they talked a lot about strengthening the bilateral relationship. we have a good agenda. we reconfirmed that agenda. they particularly spoke about the opportunity of the president visiting the white house r.a. rather soon. guy: right. just out of curiosity, what do you think rather soon means? >> well, they talked about somewhere in the next three or four months. tom: conversation recently, shannon o'neil with the council on foreign relations.

i want to talk to you about what a neo mercantilist america means for latin america and particularly what it means for argentina. president trump develops a zero sum theory for trade and foreign policy, what will be the ramifications to capitalism ithin argentina? >> well, first of all, we feel not good licies are for anybody. we are convinced that the world that is interconnected and relates to each other is the way to go. argentina is an example of what it means to hunker down and to think only from borders within. so we are convinced that there is an opportunity for all of us coming together and particularly we feel that there is an opportunity for latin america to

strengthen its inner relations. trade within the region is slow, so we have chances there to increase it. if foreign direct investment is low, another opportunity to increase it, but most importantly is what the region can do together to project itself to the rest of the world and find those opportunities that may come our way. tom: when the region comes together to protect itself and to drive forward, a latin american message, will that institution, will that meeting, will that gathering include the united states of america? >> well, first of all i will not use the word protect itself, again. our view is that we all need to talk with each other and find ways to open up and find solutions together. we have different platforms to

work this through. this is one of them and then of course the u.s. and canada are both part of it. we have other platforms that are within latin america, within south america, and we can use all of them, but the point i'm trying to make is that from our vantage perspective, it is critical to think of ourselfs in an interconnected world. anything that doesn't approach solutions in that regard will be counter productive to all of us. that's where we come from and that's what we stand for. guy: minister, just to pick up on tom's question, we started this conversation talking took into account bilateral relationship between the united states and argentina. clearly bilateral relationships are the way that the white house wants to go. what relationships do the g-20 have in the lateral world? you are currently at a meeting

or a multilateral institution. bilateral, not multilateral. isn't that the way forward? >> well, you know, our sense and of course we are all going to meet secretary tillerson here. myself, i haven't met him ersonally yet. we want to hear what the details to have policy thinking are. for now, we have seen the headlines. that is something that i'm sure will be part of our conversations at g-20. it is true that you construct ties through bilateral relations. it is true that the world is more complex. that needs to be brought to everyone's attention. so in our perspective, there is an opportunity through the next few weeks and months to get into and understand that building

only bilateral relations may not be enough. tom: that is interesting to see if we can migrate to a multilateral world. thank you so much for argentina. look forward to speaking to you in our studios london and new york soon. coming up, here in washington, jason furman was the chairman of president obama's economic ad advisors. good morning. ♪

>> we have reaffirmed our cost savings tart of more than 200 basis points by the year 2020. mainly from non-customer structure costs. but also basically our network which needs to be optimized. guy: the boss of europe's biggest company, nestle, cost cutting. there is another side to this story. we talked about inflation and the read we got out of the united states yesterday. the read in the u.k. is also going up. because the pound is going down. o caroline also skked mark schneider about it. >> the u.k. is certainly one of our historic and core markets. we are very committed to it and staying close to the british consumer.

we believe going forward where there are selective price increases justified with our trade partners, we will do that, but what you will not see from us is a general across the board increase. guy: in some ways it is an interesting story. cutting costs at the same time as dealing with inflation in the u.k. it is one of the big questions we're still asking at the moment. george magnus is still with us. do wages go up in the u.k. at some point? there is very little evidence of it at this point. >> there is. it is one of the remarkable things about where for example the united kingdom and the united states are that at what we would normally recognize as being measures of full employment. normally recognize. we haven't seen that kind of wage pressure which tells us something about the labor market which policy makers don't want to recognize that much. guy: the bank is downgrading

that. does its need to downgrade it further? >> in some respects, this is unchartered waters. the proof in the pudding will be give it another six months, nine months, we are at pretty much the long end of what we would regard as a cyclical expansion. we still haven't had any wage pressure or rumblings about wages and then they will have to take that very seriously. guy: coming up on bloomberg as well, we'll talk about 2%. is the u.k. spending 2% on defense? we're going to find out. michael fall lon, the u.k.'s secretary of diswill be joining us. ♪

tom: it is a beautiful washington, d.c. a beautiful early morning. coming up, jason furman. stanley fischer will be with us

in the next hour. guy johnson is in london. i'm tom keene in washington. we say good morning. let's get to our first word news in new york. >> tom, guy, the interim chief to have securities and exchange commission may make it harder to open vexes into wall street wrong doing. looking to power to start investigations without getting approval from politically appointed commissioners. prup president trump is looking for someone to head the labor department. hisew pudsner has withdrawn nomination amid growing criticism from republicans. his ex-wife accused him of domestic abuse although she ater retracted her accusation. companies may be allowed to sell additional shares every 12-18

months. one analyst said the chinese market would be under too much liquidity pressure if secondary sales continue at the current pace. it is a throwback to soviet era propaganda efforts. targeting european elections this year. that put the political establishment on alert after spy agencies accused the kremlin in meddling in the u.s. presidential election. one example, russian media is giving lavish coverage to those critical of angela merkel and her open door immigration policy. global news powered by more than 2600 journalists and analysts in more than 2100 companies. this is bloomberg. tom? guy? guy: thank you very much indeed. fed policy came up against tough scrutiny in a tense session. janet yellen said president

trump's budget would not necessarily prompt higher rates. they said the fed hasn't found the right balance between regulation and growth. oxford s now, university's george magnus. the fed chair is struggling to understand what fiscal policy is going to look like in the united states. how are you guys getting on? >> the key thing right now is looking for forthcoming policy announcements. there have been a lot of words but tweets are not policy. so what we're really looking for is information what the budget policy is actually going to look like. the key thing going forward for the u.s. rate in particular, what the future path for entitlement spending looks like. guy: there have been a lot of tweets but as you say, they are not policy. given the normal political psych until the united states, when we change presidents, would you

normally expect in your experience to be knowing more about what fiscal policy is going to be looking like on both sides of the ledger? >> well, it is pretty typical at this stage when a new president has taken office to have more of a lag in bringing a budget to congress. so right now, the delay in getting more policy detail is not particularly unusual. as i say, the big things we are looking at are really what the expenditures look like and how they get financed. tom: sara, good morning. let me bring up the chart. this chart we have shown a million times. the deficit to g.d.p. the clinton surplus. down we go. we are rolling over here at 3% or 4%. sarah, do you have a model of what trump programs or policy will get us to within the deficit? do we get out to 5% or 6% of g.d.p.?

>> really, to be frank, it is very difficult to say at this point. the devil really lies in the details as far as what is the future path for spending and tax policy looks like. under obama, what you save saw were revenue to g.d.p., going up 3% of g.d.p.. spending to g.d.p. going down by roughly the same amount. the president inherited a reasonably strong information to that respect. whether it continues is an open question at this point. tom: define right now the difference between american austerity and united kingdom and continental europe austerity. the man sitting to your right has been wonderful on this. george magnus has given us great wisdom on austerity. help me with moody's austerity. what does that mean? >> that word essentially means a prolonged period of governments trying to get their deficits down. there are two ways you can do that.

a combination thereof through expenditure or revenue line. different governments choose different approaches and different speeds. for us, it is quite a broad term. guy: george, in the recent letter to investors they talked about the idea if we push the deficit up too high, it is going to be very negative for growth. in some ways you can see that push into the bond curve as well. if you were trying to figure out what the deficit story was going to mean for growth and the ability to generate revenue by taxation, where does the balance lie? are we away from where it becomes or negative or it becomes a positive? >> i can't really comment on the contents. the deficit itself i don't think is the issue. actually the deficit could be very positive for growth as it might well be in 2017-2018, depending on what the trump

presidency decides to propose. the issue for the economy and the kind of how potential growth evolves over the three, five, 10-year horizon is really more about the weight of debt than the deficit. obviously there is a lot of con nation here. successive deficits are things that actually create the debt in the first place. but actually, the debt is the problem. the deadweight of high debt to g.d.p. if it is not really addressed or if there is no plan to address it. as we have seen for example in italy's case or greece's case, it does stifle growth. i don't think the united states is in that position at this point. he issue as sarah was alluding to just now is not until the mid 2020's. it is not that far off away. the anticipated increases in

healthcare, expenditure, in particular. guy: the tax options that are out there and what they could look like from the investors' point of view, what would a broader tax do? how would that change the story? there is a big fiscal change as we can see. >> the issue here is what other things are changing in the tax system. we tend not to look at it just in isolation. but as george said it is absolutely right. the thing that is going to be key for the u.s. from a rating perspective over the medium term is really what happened what happens to the debt trajectory and that is all about entitlement spending which dwarfed all other forms of extendture. tom: is president trump a rockefeller republican in disguise? you and i are the only ones on the set and the control wrom room that know who nelson rockefeller was. are we talking about a rockefeller republican in a time

of austerity? >> well, the -- i don't know. to me, the proof in the pudding as they say will be in the eating. predictability is not the president's strong point, i would say. on the basis of what has been, you know, tweeted and circulates and passes as you know, expected policy, the wholesale tax reform, which is clearly something which the congress itself seems to be very keen to do, particularly on corporate taxes. net, it will be stimulative. particularly if it is aided and abetted by significant cuts in personal taxation as well. and aided and abetted by military and infrastructure spending too. yeah, so this is going to be -- i mean, a lot of people have down played the idea that there would be a big net fiscal

stimulus in 2017, but it is quite clear which direction this is going in provided that the administration is not too distracted. tom: guy johnson, i think this is really important yesterday, and the outrage over russian intelligence and all the uproar of back and forth with general flynn, there was a quiet tweet from the president where i believe he reaffirmed that everybody would be covered with healthcare in the united states. he talked about obamacare, the affordable care act and how he would take care of it. those are the kind of tweets that changed the dialogue. guy: absolutely. and you think about who elected him and where the base is and what these people find important then i suspect that speaks very loudly to that story and then comes back to the issue of entitlements and how that is ultimately going to change and therefore what is going to happen to the debt trajectory that we're talking about onset.

sarah, if that is to be the case, if you were to see the reality of universal coverage, and i'm stretching the point here massively. say actually things don't change as much as we maybe thought that they would, kind of give us a sense of where that would leave us. if actually the profile doesn't change much when it comes to entitlements. >> if the affordable care act itself doesn't change, that is really a drop in bucket. it is about 1.1% of total expenditure over the federal government. however, if you have no movement on other kinds of entitlement spending, if you take social security and healthcare more broadly together and medicaid and medicare, that gets you to over 50% of current expenditure and it is expected to grow to a sufficient level in the coming years and start to put pressure on the debt burden which is already highest among the aaa's

that we rate. tom: thank you. we'll continue with mr. magnus as well. in our next hour, jason furman will join us and then a conversation with the vice chairman over the federal reserve. it is a perfect time to speak to stanley fischer about the i'd of march on american -- ides of march on american productivity. this is bloomberg. ♪

guy: i'm guy johnson in london. tom keene in d.c. let's talk cars now. g.m.'s c.e.o. is in germany on something of a charm offensive in order to win support for the peugeot. el and att miller is outside opel's

h.q. matt, mary barra must have been absolutely devastated when she saw this news breaking. she hops on a plane because she realizes 2017 is a big political year for europe and dropping this deal into the middle of it makes life tricky. matt: yeah, absolutely huge. but it would be a real win if she could get rid of these division. they have been losing money for general motors for almost two decades now and last year of course they would have been profitable had it not been for brexit. he really wants to unload opel and peugeot wants to pick it up because they can double their market share and become the second biggest car maker in europe and hopefully use those economies as scale to boost margins. guy: how big a challenge does she face in getting this deal over the line? matt: the challenge i think

could come from the fact that she didn't talk to the germans about it sooner. angela merkel and the german government are not pleased with the fact that they had to learn about this reading their bloombergs rather than hearing about it from the board or from the union. the unions here in germany also haven't really said much about it. there is a little bit of radio silence from german unions and remember, they sit on or occupy half of the supervisory boards here in germany so they have a lot of decision making power as far as whether or not they get sold and then the interesting thing will be in the u.k. whether or not this combination ill continue to employee the 4,500 people that make box hauls and they can't afford to fire people in germany or obviously in france. tom: matt miller, what does the south side say?

to be direct about it, what is the negotiating power that peugeot has? matt: peugeot has been working with general motors for years. of course they almost did a combination like this previously. what they can do is sway the unions in france more easily because of course the french government is has a big stake in peugeot and hopefully they can sweet talk the german government and unions as well. the real problem is going to be the u.k. unions and if they want to continue working in that market, they do sell a lot of peugeots in the u.k.. if they want to keep that outlet, they are going to have to keep employeing those people. on the other hand, they export 85% of the box hauls they make in the u.k. and europe. guy: i have pick up on that. matt miller joining us from the g.m. atlanta germany.

george, david cameron, then the prime minister goes to the plant in the u.k. that g.m. owns and says this is exactly the kind of business that will really struggle if we vote brexit. are we now starting to see some evidence on that? >> well, it would be a corrosive and slow process. we haven't seen you know, demind of major announcements about shutdowns and you know, mass redun danceys. -- the issue is about how attractive the u.k. will be in large re as a base for -- guy: france exports most of what it makes and most of its sub come points. >> yes. this is about supply chains. guy: why would you take a risk as an owner of that asset? the first thing i would do is shut that one down. i don't understand how the politics around that plant

works. >> i think there is re-real substance in that. i have heard this in diplomatic circles from countries asking their local representatives here as it were, actually, you know, what does all of this mean for foreign investment? and not just for new investment in the u.k., but for the stock. in other words, for existing operations, the like of which you are referring in this package. so the word that goes back, you know, to the sort of principle company headquarters is if it looks like we are going to cut -- what people are anxious about is a cliff edge falling out of the single market and out of the e.u. if it is a 10-15 year get used to it over a period of time and we can make adjustments along the way, it is not nearly as panicky. what people are concerned about, some companies, in this particular case, they may not

even wait, the idea that from one day to next we'll find a sea change. you can't wait for that to happen. you have to take preemptive action now for that. guy: thank you. george magnus joining us from oxford, university. let's talk about the markets. let me show you some of the markets. stoxx 600 down. euro-dollar up 1.3%. nestle, the biggest impact this morning. ♪

>> this is bloomberg "surveillance." let's gets to the bloomberg business flash. he maker of snapchat has set evaluation at as much as $22.2 billion according to people familiar with the matter. snap could be the biggest i.p.o. since alibaba raised a record $25 billion in 2014. it is the first u.s. social media company to go public since twitterer more than three years ago. the world's largest food company is predicting slower growth this year. nestle expects sales to rise 2% to 4%, which is below its long-term target. the company has been hurt by

deflation across europe. that makes it hard for them to raise prices. air france k.l.m. is making a push to win back market share in the lucrative long haul market. they plan to boost capacity by more than 3%. profit at the main air france unit fell 54% last year. visitors stayed away from france in the wake of terror attacks. meanwhile earnings at k.l.m. rose almost 80%. that's your bloomberg business flash. guys? tom? tom: taylor, thanks so much. next hour we'll talk to stan fischer over the fed. jason furman will join us. right now george mack us in on economic theory and inflation. you know james bullard of the st. louis fed has talked about a need for a change where we're in a lower regime environment and then when inflation changes we go to a new regime. that is really controversial within economics. does stanley fischer agree with james bullard?

>> no doubt you're going to ask him, tom. you know, it is early days, right? what we have seen to dates is a very slow incremental creep up in the feesd preferred measure of inflation, which is the personal consumption. it has gone from 1.1 to 1.6%. it is probably going to inch up towards the fed's target of around 2%. none of us really know whether this is something which is going to continue that would cause us concern actually. it could happen. if we make a complete hash up of global trade and we break supply chains in the way that people fear, then it could continue very easily. tom: bring up a chart in new york, if you would. this is an international inflation chart. it shows germany, italy, the united states.

what is interesting about the leg up in inflation that we have seen recently is that we're all over due to oil, 1/3 of the way over on the right side that, red arc down to deflation. george, you know central bankers hate to be wrong. the price here of being wrong if they get the inflation surge is incalculable isn't it? they have got to wait, wait, wait, right? >> well, you'd think that they should given where we have been for the last five or six years and that the first, you know, indications of gently rising inflation, they should be licking their lips and rubbing their hands with glee. that is the nominal world which is crucial for companies apart for central banks. the nominal world is beginning to go up. that nominal growth, nominal g.d.p. and so on. so you might say that it is a little bit kind of early for the fed or for other central banks to be worrying about rising inflation. on the other hand, you know, one of the things that cropped up

for me in janet yellen's testimony this week is how the discussion on the fomc may be shifting from data dependency which has guided the fed for so long to a more strategic approach because they are beginning to anticipate changes which they may be right about or may be wrong. tom: thank you so much for getting us started on this economic day. coming up, my conversation with the vice chairman over the federal reserve system. stanley fischer on rising inflation across america. from washington, from london, stay with us, this is bloomberg. ♪

♪ tom: this morning, the consideration of everything changed if the fed inflation surges.

stanley fischer on rising inflation and the importance of each and every 2017 fomc meeting. inflation, will it kill weight growth? growth? will the white house attempted regime change of their own? good morning, everyone. this is "bloomberg surveillance." we are live in our news bureau in washington. i am tom keene. an important set of changes in washington senate around the fed is a go to the march 15 meeting. i am fascinated by the cpi output yesterday. with theested to see tce number will be coming next month.

tom: to bring you up-to-date, our first word news with taylor riggs. taylor: the fbi are investigating contact between president trump's team and during the campaign. that is according to the national security officials with knowledge of the matter. the probe began before michael flynn was dismissed as national security adviser. president trump is looking for someone to head the labor department. fast food executive andrew puzder has withdrawn his nomination in the face of growing criticism from republican senators. heng their concern, undocumented -- his undocumented housekeeper and his wife spoke of abuse. malaysia has arrested to more people in the murder of a half-brother of kim jong-il. authorities were led -- authorities arrested a malaysian man who provided information to the arrest to a woman carrying an indonesian passport.

they said the victim was poisoned. mark carney's first higher for the first governor of england. charlotte will become deputy governor for markets in banking and keeper role as chief operating officer. global news 24 hours a day powered by more than 2400 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thank you, taylor. to not offn furman to say because there is nothing going on. futures churn, but boy, do we get going. a pot in oil -- a pause in oil. stocks go dividend on a

thursday having a big impact .ecause the likes of bp that is why the stoxx 600 is don -- down. euro-dollar -- the dollar weakness is just amazing right now, but look at the inflation story. tom: very good. guys, thanks so much. innley fischer will join us about 30 minutes. jason furman has been kind enough to come in and get his perspective. we will speak to dr. fuhrman about his important research on the middle class of this nation. dr. fuhrman question of the president's council of economic advisers for president obama and was smart enough to get a job with adam poster. kevin's a really is not smart enough to get up this early. -- kevin is not smart enough to get up this early. your work has been fabulous for

us. there is a war, and i was stunned to see that the president want stephen feinberg to somehow review the intelligence agencies. i walked by the fbi building last night night and it reminded me of x-files, which was a couple of decades ago. how is a intelligence community going to react to a finance guy looking into the business? >> the sources i am speaking with inside the administration tell me that bob is likely to aslace general flynn national security council. when you take a step back and look at what we are watching, you are right, this is an administration -- a lot of competing interests right now. tom: there is a parallel path here. the idea of normality in general mattis, secretary tillerson, etc. arctic, the seal, that

is the guy the donald trump once. --which path is going to win? >> when you start talking about the political orbit surrounding people like general mattis, mr. kelly, what you are watching is a more established type of folks in the u.s. intelligence community. tom: i had to go left night to the trump hotel just to take part in the new vista. i went up to the bar and the kevin plank is right there. how to the republicans feel at the top bar, the trump hotel after the last 72 hours? >> president trump will be meeting with his congressional leaders at the white house. yes try to ease concerns that the scandals and latest headlines are not going to

utilize too much political capital from his legislative agenda. tom: dr. fuhrman, i know you have responsibilities. do you have an understanding of the vectors of economic growth in america? are we doing better? jason: there has been a big rise in optimism since the election. you see that for businesses. the big question is going to be is it justified? will this be a wily coyote moment where you run out there and there is nothing to justify it and you end up going down? does confidence become self-fulfilling, or do you see policies that fulfill it? i have used on that question. but i am much or frankly. guy: jason, can i jump in from london? listening to what the conversation started,. there is political voice around the administration. do you get a sense that will influence the ability to generate some sort of policy?

tom: we are having technical difficulties. to pick up on one guy was talking about is, can you link the economics with the politics, or is it a discrete moral right with two separate worlds in washington? date, it has been two separate worlds. i look at this administration and the basic level of incompetence we are seeing out of the white house, and it does not fill me with a great degree of confidence of economic policy. -- you have the same thing you have a guy like gary cohn, responsible and serious person. and you have other forces pulling another very irresponsible directions, and how all of that will work itself out when one person is the ultimate decision-maker is an open question. tom: i spoke briefly to gary

cohn last night in talking about the retirement of abby joseph cohen when after her for after her phenomenal career. correct me if i am wrong, there is no room for chairman of the present's council of economic advisers? how does a guy like you and economic industry respond to a president who does not think he -- of thefirm ins world. i think it plays a really important role in the economic analysis. gary cohn cannot do your job, right? jason: number one is what economists bring is a level of knowledge, and they bring an pleasingon less about the president and more about telling the truth. any president benefits from that. tom: president obama would agree

with the phrase that we just heard. kevin, thank you for your continued effort. kevin joining us every 18 minutes on "bloomberg surveillance." we will continue with dr. fuhrman. coming up, my conversation with vice chairman of the fed, stanley fischer. particularly, after the lift in inflation we saw yesterday. from washington, from london -- this is bloomberg. ♪

♪ guy: you are watching "bloomberg surveillance."

european equity softened. this is the picture at the moment. nestle down on the bank of its numbers. the inflation number engulfed. the ecb reveals its accounts and minutes today. the attention to what they say. here is the bloomberg business flash. taylor: the world's largest food company is predicting slower growth this year. nestle expects they will drag 2.4%. the company has been hurt by falling prices across europe. we spoke witnessed the's ceo. >> in western europe, there was quite a bit of differentiation in sentiment towards the end of the year and we hope that is beginning to turn around. there are signs of that, but is very hard to turn that corner and to call that moment in time exactly. thee said he can not fix

underperforming -- the sixth biggest u.s. banks would cash in a president trump come through on his promise to cut corporate taxes. crunched the numbers in the banks could save a combined $12 billion a year. the president has called for cutting the corporate tax rate from 35% to 15%. employees at the boeing plant in south carolina have delivered a blow to organize labor voting cannot join a union. that is not a big surprise in a statement is hostile to collective-bargaining. it comes to days before the factory both out the largest 757.on -- version of the tom: taylor riggs, thank you so much. it is wonderful to speak to jason furman of the peterson institute before we speak to stanley fischer. there are too many things to talk about. dr. furman can -- dr. furman and

i can easily talk for four hours. let's talk about his work with president obama. up a viewolds has set pays to get to a discussion of the american middle class. of that wonderful sap wealth instead nation do not account for the woeful measure a middle-class angst. middle-class anxiety has been building for more than a decade, and it is mixed in with the last election with a general sense of frustration with america's leadership class. no wonder the middle class feels squeezed, because it is. i was stunned, jason, with your work in the white house grind of the middle class. what wage levels do you use to define middle-class? i know it is different in new york than it is a tebowing factory in the carolinas. sometimes just use median income, was for a household is a little over $50,000.

sometimes i look at the average for the bottom 90% of households. there, you are including the broad swath of the country. sometimes you can look at other measures, but you pretty much see all of these moving up the order together. tom: stanley fischer talks about productivity. that is technology. is technology the middle class's enemy or friend? jason: i think we need more of it. there is this sense we going through to medical technological changes. and we are, but a lot of those are concentrated on the iphone or android. outside of that, the rest of our economy is not seen anything like this changes in productivity, education, health care, construction -- all the things that make up our economy are not. overall, with the type of productivity growth we have had,

which has been low, it is hard to have the type of sustained wage growth that any of us would want to have. if we were to see significant change in the tax system and the united states and go to a border tax system, without be regressive or progressive your point of view? jason: you cannot look at one element of a tax system, you have to look at the plan as a whole. if you did with the president said and cut the corporate rate and cut the individual rate, that would be a large tax reduction for the top 1% of households. cut went half the tax to the 1% of his plan. that would be regressive change. you could do border adjustment in a different way and do it without being regressive, without having those things. the treasury secretary said that is their intention that would require a revision of the tax

policies they put forward on the campaign. i would be thrilled to see such a revision. guy: do you think the middle class -- if it in any number one for the class inflation now? jason: i don't think so. what you need is wage growth. wage growth has been picking up at the last couple years. it is running probably just below 3% nominal. takeaway 2% inflation and that is 1% month-to-month including last month's financial pay. i would like to see more firming up of that nominal wage growth. and the inflation target is symmetric. we have been below 2% for a while. to be a little bit above 2% would not worry me a whole lot. guy: when you look back at your time at the white house, and you think about what happened during a period, and you think about when it comes to she we and

monetary policy, but you be getting -- when it comes to qe and monetary policy, are you affected by the numbers with their middle-class? comes to qe, it does not work in theory, but in practice. there is a lot of people that worry about the impact of monetary policy. it lowers the unemployment rate. that will help the middle class. if it does not do that, that would hurt the middle class. congressargets that has set up for the fed are right for the middle class, and the ones the fed has been delivering on quite successfully. tom: you just spoke about the animal spirit for nominal wage growth. let your phd at harvard. -- you got your phd at harvard. how do stanley fischer and janet yellen jumpstart our animal

spirit? it seems i be are the only adults in the room right now. jason: when you take a look at what the fed has done --they has -- they are basically at their inflation target and they are at their unemployment rate target. congress gave him a job to do, and they have done exactly that job. the same people focus on that and don't get distracted by the size of the balance sheet, are they getting what they said? and all the other things, look at what they're fundamentally trying to achieve. tom: the nostalgia of the president with a portion of the oval office. let's get the nostalgia of lbj. within your research at brookings, think tank -- brookings is a think tank. --let'srson institute get everybody on the same page. do we need an investment tax credit that creates jobs?

kimi get surgical in our policy prescription? jason: i think there is a lower tax reform and a broader base, we -- that helps the middle class. you do not need to do this directly. you want to get surgical -- education is critical, not just to earnings, but be more likely to be employed. the college degree was a very insurance policy for being hit in a recession. tom: jason furman will be with us or the hour after our conversation with the vice-chairman. a fed president dennis lockhart --his shop is putting a terrific, controversial gdp and inflation theories, including sticking inflation. lockhart, later this morning. this is bloomberg. ♪

♪ the hour.st i'm guy johnson in london. tom keene in washington. still with jason furman, senior fellow. jason, i want to come back to the border tax. there are noises coming out of europe and they are growing louder that a border tax would be a protectionist measure and as a result of which, we would end up with a massive case that could be really debilitating for both sides of the atlantic. is that the wrong response? jason: that is the wrong

response. if we went to a border tax system, the way to think about that is that you are taxing companies based on destination, where their sales went to, rather than on origin, whether profits came from. sales is a much easier based attacks and it is much harder to manipulate and has a real logic to it. it is not protectionist. the response i would recommend to europe if the united states did that would be to adopt the same tax system, switch over to destination-based taxation. if the whole world did that, we but have a lot fewer problems with income shifting across borders. guy: how do you think large corporations would respond? jason: a lot of it depends on the exchange rate. i don't know if i would recommend destination-based for the united states, but it would have huge effects on exchange

rate, portfolio flows, and could lead to the type of trade war -- i don't think it will, but it might. it would make me nervous about the transition. but if we did it, it has a real logic to it. it would make sense for others to follow suit. tom: we will continue with dr. furman later in the hour. coming up next, a conversation -- stanleyce chair fischer. there is too much of talk about, but without question, this new list and inflation in germany, britain, and america. coming up, stanley fischer also on the eyes of march. from washington and london, this is bloomberg. ♪

♪ london.m guy johnson in tom keene and washington d.c. let's check out the markets. oil is catching in bid. european stocks are soft.

euro-dollar a little bit at a -- gold, a better day today. the biggest impacts on the london markets -- nestle. let's get an update. they may make it harder to open an investigation until wall street wrongdoing. that is according to people familiar with the matter. the active chairman is looking at a government lawyers to start investigations. there is a report that president trump will have stephen feinberg we review of the american intelligence agencies. -- intelligence committee is concerned the review could cartel that independent. feinberg has close ties with stephen bannon.

's media empire is targeting european elections. it is putting the political establishment on alert accusing of the kremlin interfering in the presidential --american presidential race. in china, regulators are planning new curbs on secondary shares sales. companies may be allowed to sell additional shares once every 18 months. one analyst says the chinese market would be under too much liquidity pressure if they continue at their current pace. i'm taylor riggs. this is bloomberg. taylor, thank you. let's get a data check from washington right now. equities, bonds, currencies,

commodities -- there is a general churn in the markets. pause in s&p of a futures down negative five. the dollar churning this morning. to bloombergorning television worldwide. our conversation with the vice-chairman of the fed who needs no introduction. stanley fischer's contribution to the massachusetts institute of technology, work at the bank of israel, and not the fed, has been critical to stability and economic growth within this world. you gave a speech, sir, a wonderful speech to some undergraduates, just a great come simple speech. the economy is an extreme a complicated mechanism. every getting more complicated because of rising inflation? germany, forion in

different reasons and united kingdom, and summit, a lift in inflation in america. it was very come the kid it when the inflation rate was negative and very low. inflationtarget of 2% , and we are heading in that direction. and so, it is not making life more competition at the moment. very high inflation, which of course, we will do what we have to to prevent. it could come look at the situation -- it could come look at the situation. tom: how do you define high inflation? i look at dennis lockhart who will join us later today, the alanna fed number -- the atlanta's numbers are sticky and inflation. stanley: our target is 2%.

close to 2%.e very it is something that if you are very close to 2%, it is not a problem. it if it is significantly above, you begin to worry. and you begin to act. tom: part of our relationship over the years that davos and in other important meetings has been come i really don't talk to you about the parlor game, but i have to. there is an ides of march meeting, march 15 meeting. what will you do if the -- what will you do at the march meeting? does the new inflation dynamic change the cadence of two or three rate increases as they go to the end of the year? stanley: i don't want to give you numbers on two or three.

this is consistent with what we have --with what should be happening around now. that is moving closer to the 2% inflation rate and the labor market will continue to strengthen. happen, weo things will be on the path that we expected. tom: so important is the idea of withinthrough the year the politics of washington, as i am sure you are aware, washington is in turmoil. my colleague was talking to me yesterday about how the fed acts differently as you go two-year end. year end of 2017, i would suggest it is different from any other year and you have seen -- other year end you have seen. is there a political mix you face in meetings later this year? takeey: we really do not

-- make political decisions. we take into account what is happening in the economy where people think about, and what might happen to policy. but we are not going to make our of whats on the basis pressures we are getting politically. we have targets. we are aiming to get the targets. land of we still in the ultra accommodative? we are in the land of accommodative, but i am not sure about ultra. tom: good morning to you on bloomberg radio and bloomberg television. -- i love your mathematics. we cut our productivity growth and have. that is the core issue. is it about technology? is it about automation?

can you give us this mysterious -- this mysterious thing? what is the "why?'s " stanley: worldwide, there is a slowdown in measure productivity. there are some people who have a basis of their arguments that the data becomes less and less appropriate as the economy moves to be more and more services -economy. upductivity growth is more in the manufacturing sector. we have a small manufacturing sector in terms of employment. we are producing roughly the share -- roughly the same share of gdp in manufacturing that we did 20 years ago. theree number of workers is down because they have become more productive. is we don't really

have a very good story at the moment, whether it is measurement. it is certainly a measurement factor. asis very hard to measure you are looking at some of the conflicts that you have. we are looking why it has declined. the education of the workforce. but we don't have a single factor to say, that is it. we just have to fix it and do a lot of things to try and get productivity to go up. launch the international two decades ago, you wrote imf essays from a time of conflict. you had to read it if you are doing anything in international economics. theg the time of crisis to united states of america. we have someone in the white house now who was elected with a primal scream of we are fed up

with the international dialogue. we need wage growth in america. how can you and fed officials assist president trump towards wage growth? stanley: wage growth has started happening. have gone up.ges we are looking at a rate increase of 2% to 2.5%. what we areby doing supposed to do, which is to keep inflation under control. around 2%, close to 22%. to by -- around 2%, close 2%. and allow the interest rate to be such that the economy will grow and unemployment will grow. tom: the guesstimate of vice chairman fisher of whether inflation is persistent, or will

he moved back to lower inflation? james bullard of st. louis has spoken about a regime change. is this a point where we see bullard's regime change from low-level interest rates too high level interest rates? or do you need to see more evidence? stanley: we have set for a long time they respect interest rates to be gradual. if they reach levels of previous years, it will be a matter of years, not of weeks or months. and we do not know what will happen. that is why they make decisions on policy as we see events in the economy. so, i don't know whether we will regime, or new

whatever jim bullard calls it. but i do know that we will be inflation close to 2% and full employment, which is somewhere around where we are now, possibly a bit lower. my seeget a lot of mail fed officials to the buffalo employment. -- i get a lot of mail when i see fed officials talking about full employment. the to americas to a better good? fullmerica is near employment and the other america is not. how can you help them? stanley: there are differences between the states in terms of employment.

and we can only bring them together by setting the framework in which economic decisions are made. namely, what the people think about the stability and the value of the dollar? our 2% inflation will cause them to think that we are there and that we are in a stable inflation price situation. if we are at full employment, those pressures for hiring from state toread state, but we should not exaggerate the differences/ . we should not exaggerate the number of states that are above the average. i have been talking to people from different states lately, and everybody i spoke to happen to be below the average. there are states like that as well.

the big issue is not so much states. it is one of the professions of people grew up in, and what has happened to those professions? given this economy has to be dynamic, it is one of the most dynamic, if not the most dynamic in the world. how do we make sure that those people whose skills are declining relative to what the market needs, how do we help them come out and get good jobs again? question that i will not ask you about russia, thathe political storm washington is in right now is remarkable. economics, ifof this american economy in your classic textbook -- is this normal economic that we are

living today, or is this something unique about our american economic experiment? stanley: we are coming out of the period of a very long period in which the economy had to be returned to health after the 2008-2009.risis of unemployment was quite hydrant a period as a result of policies -- an opponent with quite high during that period as result of policies. the average does not happen to everybody. i think that is the underlying issue that we have to deal with. seens of now, we have not a major change in the environment in which we are working. we were expecting the economy to warm up. the election results may have had some effect on how rapidly

it seemed to warm up. ask,you know, we have to where we be a few months from now, not what is happening today? we have not changed our view of where we will be. we do expect the economy to be growing at a reasonable rate. i think anybody who is deeply interested, would've listened to janet yellen yesterday and the day before, talking about signs of strengthening in the economy and the reason that the fed is a little more confident about where we are going, and how soon we will get to full employment with stable prices. tom: vice chairman stanley fischer, thank you for your time this morning. worldwide, this is bloomberg. ♪

♪ >> this is bloomberg surveillance. i'm taylor riggs. but it to the bloomberg business flash. a judge in delaware has temporarily prevented set not for scrapping a merger with anthem. the jets said they could pull out of the deal after a judge blocked a combination. and the mistimed to keep the deal alive. in china, demand for toyota's hybrid has dried up. only one was sold in december and that was the first sale since may. one analyst told bloomberg that previous sales in china have been undercut by toyota's far more popular models, the corolla and camry. the maker of snapchat as of the valuation of its initial public offering at his much. as. $22.2 billion that is according to --that is according to people

familiar with the matter. it will be the first u.s. social media company to go public since twitter. that is your bloomberg business flash. tom: taylor, thanks so much. it guy johnson in london and i am tom keene in washington. it was a privilege -- it is a privilege to have jason furman reacting to the comment is made by the vice chairman. jason furman is one of our most academic from brookings and the former chairman of the president's council, president obama. you guys worry about getting the inflation call wrong. there was that japanese moment 15 years ago -- the japanese raised their rates. the deflation is over. no it wasn't. there is a huge fear of getting a call wrong. is that where we are now, globally?

as stanley fischer said, we do not want to get the inflation call wrong. jason: he certainly do not want to get it wrong and we have been in a brick situation for a while now. the phillips curve has been really flat. you can have a low unemployment rate without a big increase in inflation. that has been our friend to date. if inflation gets above target, that could become our enemy because it would say you might need a higher level of unemployment than you normally think -- what economists used to call the sacrifice ratio. has given uscurve less inflation, but might make it harder to take inflation out. tom: let's sacrifice jason furman and bring up the chart. this is a real quick chart on the idea of a u.s. inflation. i took a foreign inflation. the white line is a cpi with a move up, but really intrigues me -- i put in core cpi. there are eight ways to gauge inflation.

-- over to theht left rather of the right side of the chart, is the inflation 2012-2011 you were on the watch when inflation rolled over. that must've been very difficult. weon: for the most part, have the fed's target inflation and we focused on output, and focused on the structural side of the economy. i never believed we were in a self reinforcing inflationary trap. but part of what i did not believe that is i that our policy makers would take the steps to make sure that did not happen. that is exactly what we saw here. we are very much aware of the danger of what had happened in japan. and because of that, we managed to avoid that. i talk aboutan productivity? america, europe,

the u.k., has become an issue we talk about. how do we get investment up and invest productively? how do we make that happen? do you think if we focus more on equity and less on giving tax breaks to death, that would happen? jason: i think we would get a better financing met. the united states, we have a negative tax rate on debt -- the investment and a capital structure is too tilted toward debt to financially fragile. i think business tax reform is not going to increase investment a lot, but it might increase the quality of investment. less distorted, less favored and more investment in areas that are productive. back into feed got

the inflationary story. can we understand the trajectory if we don't understand how investment is going to work? automation will become one of those things that we have to learn to deal with. it will become part and parcel of every stressor of life. if we look forward to trying to understand employment and the squeeze of the middle class talk about, how is automation going to change that? do you think up an aggressively over the next six years? jason: i would love to see them invest aggressively. the word automation is another word for higher output per hour of work, saying you have faster productivity growth, faster productivity growth would solve a lot of problems in our economy. one of them is it would allow you to run your economy hotter without fear of inflation. that is what we saw in the last part of the 1990's. that burst of automation let us have strong wage growth without inflation. is this a gilded age?

in our incomeed inequality that you are doing your economics and worried about the things jason furman worries about within a new gilded age? jason: the share of income going to the top 1% -- tom: what about the top 10%? jason: it is back at levels we have not seen since the 1920's. since the gilded age. now,e inequality, 1920's not like anything saw in between. are andook at where we we talk about we cannot get a tear of the economic advisers in this new administration. what do you want your own to do -- what you want gary cohn to do? what is your wish list for mr. gary cohn?

focusing on growth is important. a lot of growth comes from consistency and predictability. i have always thought that economic uncertainty was overrated as an argument, but right now, the measures of economic uncertainty are soaring. they are high and people do not know what is going to happen on trade, regulation? the second thing i would say is growth matters a lot, but it is not everything. it matters how consumers are doing. it matters how the middle class are doing. sometimes there is a trade-off there. when it comes to consumer protection for retirement savers , let's take that seriously. you want people invested in our future, not just minimizing cost for brokerages. do you get a sense of when will get clarity in washington? when do we get it? 2009, in february of

president obama put out his economic plan. in february of 2001, president bush put out his economic plan. there is a few more days left in february. but, you know, i am not counting. i'm seeing the same from this white house. the our way understaffed still. they have not put up proposals on most of the different areas. there is wrote competing factions there. i am pretty unclear. tom: jason, thank you so much -- jason furman. we will continue on bloomberg radio. this is bloomberg. good morning. ♪

♪ jonathan: as chair yellen gears

up the fed for more rate hikes, stan fischer says it is still in the land of the accommodative. pushback causes the latest secretary of state nominee from getting confirmed. more record highs as the s&p 500 completes its longest winning streak in september to test since september 2013. good morning, this is bloomberg daybreak. i am jonathan ferro alongside david westin. record highs at the close yesterday across the board. a seven day winning streak and today a slight retracement here's futures negative about 2/10 of 1% on the dow and s&p 500. if you go cross asset, you are seeing this, this thursday morning. the euro of about one third of 1%. down by about two basis points.