it is decision day for the bank of england. barclays boss needs 18 months to complete the turnaround. to bloomberg.aks and d.c. is distracted. publicans insist they will plow ahead with tax reform despite the white house drama. this is bloomberg daybreak." david westin. let's go to guy johnson in the city. guy: the bank of england is saying that they may need tighter policy for the yield curve. get on it, get on it. it doesn't offer any policy guidance coming through. what it does indicate the tightening that may be needed. havemember that they do that number at the moment. hobbes is not voting. that is not going to happen. the message is clear. the bias is there at the moment.

interest rates do remain unchanged. the vote on that. the gilt purchase is 8-0. the bank of england keeps key interest rate unchanged. the vote was 7-1. the vote on interest rate, 7-1. thathan: the idea is growth hasn't turned lower in the way that they anticipated and inflation continues to grind higher. it is starting to become more open to the argument that she has put forth? guy: i think you can deduce that from the line talking about tighter policies. the markets, because it has an assessment that the bank will look through this inflation because it is transitory and linked to the currency, maybe it doesn't hold water? maybe if they are concerned about the second-round effects? that it will have an impact on

the wage story? and it could have an impact elsewhere because of that. so the implication seems to be that yes, the argument does seem to hold some water at the moment. the bank has not decided to step onto the other side of the debate. it is interesting at this point but clearly, there has been a discussion about the fact that the inflationary re-story is something that does need to be paid attention to. appear to bed does softening and you do feel that in the ip data. the bank is paying attention to cannot behat it viewed as a transitory effect and it does need to be priced in. a 6-2an: does it become in the market? we are down by .4%. we are soft on the session anyway. i do want to cross over to nejra cehic.

going into the news conference in 27 minutes, the questions for governor carney, will they be political given the fact that we have a big election coming up? that's right. when we do here mark carney speak under 30 minutes time, it will be the first time we have heard from an mpc member since prior to may 3. it will be interesting to see how the balance is the market and what approach he takes. when we have seen as the market is expecting one dissension from tristan force. that dissension was about the rates. and again, the common on how the markets are raising the rate markets in the future. so we have seen mark carney stick with that centrist view. it will be interesting to see whether he tries to prepare the market for more rate increases

further out while keeping be dovish tone in the near term. because we had expected the cut to the growth outlook for 2017 but they did raise their inflation forecast. as you know, we have seen a stronger sterling so far this year even if it is a little bit off today. jonathan: great work. nejra cehic, looking for to hearing from you later. guy johnson, thank you very much. for more, we bring in karen olney and david allen. your first initial takeaway? david owen: no real surprise. that has been the focus. theink this may come out in press conference, unrelated to that and so forth. it really took off. and that is something that they will act on, going forward. so that will be seen as tying into interest rates. a rate rise at this point isn't going to happen. and as i said before, there has

been a loss of momentum so wages has slightly rolled over. so they are very much on hold. inhink the next will be november after the german elections. at that point, we will see that. jonathan: we talked a lot of time about kristen for today. let's talk about the decision with the squeeze on real income. inflation pushes higher. is that the best case for the bank? any bank that says, we will continue to sit there? david owen: look at the gdp data. they will revise down for the outlook for this year. it is related to the consumer. obviously, real wages are getting squeezed. around 2%. cpi is printing higher. we do have this with pressure. consumer credit, the borrowing

is slowing as well. ratehan: what is the policy actually doing right now other than keeping a lid on the pound? which, if you look at the trade data is not doing a lot of good? it is important with the earnings. a weaker sterling does increase that, once you translate that back into sterling. the position does need to improve further. remove -- we wanted to stay in -- we wanted to stay relatively soft. karen olney, you deal with the european stocks. what is the picture of the u.k. economy that we are getting? how does this affect the stock market in europe? karen: it is interesting. if you take a long run view, the u.k. has been the safe haven trade. at this point in time, you have savings rates in the u.k. at a lifetime low.

household cash flow is beginning to roll. if you look at the ftse 100, you have a fall in the trade weighted sterling. 2016, it has come up a little bit. that the u.k. is no longer the anti-euro area trade and it has its own problems. david: when it comes to the pound, can we expected to remain supportive? it did go down but it has come back a little bit now. it stopped its freefall. you expect that to continue? karen: our view is a little bit weaker from here. i am not a strategist but i do think we did have the big fall and it did used earnings. it helped that the ftse 100 was 75% of sales leading the u.k.. so we have played that game and now we are starting to worry more about domestic u.k. the exciting ftse 100 trade was last year's news.

he will have a lot of hard work ahead of us to get good equity gains in the u.k. market. jonathan: let's look at the forecast out of the bank of england. to 2.7%.p the gdp forecast in the short term revised lower to 1.9%. how do you provide projections for absolutely anything? strategisted an fx where sterling will go, they give me two outcomes. we could push 1.50 if brexit goes well. we could push 1.10 if it goes badly. what kind of pitch of salt should we be taking with the forecast? david owen: absolutely huge. the bank is looking at the developments with extreme uncertainty. the brexit discussions will be hard. when theresa may called the snap election, the obvious call was for the sterling to go up because it reduces the extremely hard brexit. it reduces the risk of

negotiations breaking down. we assumed there is a larger majority to play with. at the same time, brexit will be difficult. in that environment, you expect the bank of england to be cautious and they want sterling to remain competitive and not rise. olney, almostn exclusively through last year, as you pointed out, the big long equity trade was a short sterling trade through another form. going forward, can we get a u.k. equity market that is moving away from looking at the movement in the fx market? the twof you look at biggest sectors in the u.k. that have suffered a lot, financials and energy. the energy crisis is supported. it doesn't follow a lot from here. have a better go of it than i think you could do an energy and bank play on the u.k. because the earnings are depressed.

versus history. the classic trade, the safer trade, it it is behind us. we have to do bottom-up work to decide what to buy. david: thank you so much to david owen and karen only. we want to break news. verizon have confirmed they will pay the $3.1 billion for straight path communication. this is what they were in a fight with at&t about. -- the $3.1h billion for a company that had nine employees. a total of nine employees. jonathan: not a bad business to be in. the bank of england is keeping the rates on hold. opec is raising the supply growth by 64%. that story is coming from opec this morning. we dig into that later. crude on the session with a marginal bid up by over 1.4%. coming up, we go back to london with mark carney holding a news conference after the central

bank policy decision. we will bring that to you live at 7:30 eastern. 12:30 in london. plus, it danny blanchflower. from new york with our eyes on london, this is bloomberg. ♪

emma: this is your bloomberg business flash. of snapchate parent are plunging. they added fewer users than projected. it was the company's first report since going public. facebookbeen hurt by which has copycat did virtually every feature on snapchat. boeing has temporarily suspended test flights of the new macs jetliner.

the problem is a potential manufacturing flaw in the engine made by general electric. the first debut is set for later this month. david: overhanging the bank of england monetary policy and the projections for growth is the impending departure of the united kingdom from the european union. jes schatzker sat down with staley earlier today and he asked him whether he was optimistic or pessimistic about brexit. i am just addressing what i think. i don't the get his optimism or pessimism, it is just what i think. you know, we have a bank subsidiary in ireland. that is part of the european union. employees today in continental europe from milan to paris to frank for to madrid. you know, there will be having been in

the financial industry as long as i have, it is amazing how creative we can be. now we just have to make sure we do it in the safe and sound way. us is david with owen and karen only. let's talk about how creative you can be. he says they can be quite creative. what do we know today that we didn't know last june about what the real effect of these banks will be on brexit? david owen: the u.k. position will be they will pay for the access to financial services. we do want to be in a situation where financial services to get access to the eu market. but the bank of england can't control regulation because it will be set out a friend for it. that would not fly for the bank of england, given the size of the financial sector in the u.k., they will want regulation for the u.k. so, it is still going to be messy. for ann no with interest

extremely hard brexit. nobody at this pointthe u.k. will pay for selective access. it will be difficult. jonathan: is there an argument for the money that comes to the city of london and get lent out to various companies across europe that there is a financial debility risk in moving? and that europeans could see higher borrowing costs? david owen: absolutely right. the euro clearing argument is just one example. the euthe clearing into away from london but you want all of the clearing to be done on a single platform globally and you wanted to be -- large sterling andar dollars on the same platform. the argument there is that if europe pushes too much for the euro to move, a demand of moving to new york, that is when argument that is doing the rounds in london. yes, there are issues.

it does increase costs. david: karen olney, there is uncertainty about what will happen with a natural's. how much of an overhang is the uncertainty on equities of the financial systems based in england? karen: it is interesting because we talked to the sector analyst and they are very good and experienced and they talk to management and the level of uncertainty is so significantly high. how many companies have a passport arrangement and how many thousands of passports are within a company? so i think a lot of them are still faced with a lot of uncertainty. the key thing for the european banks is that you keep the euro , the u.k.ct together can exist outside of that and we don't end up in a financial war, as david talked about. extra equity risk premium but there is a lot of uncertainty and we cannot make up answers for you. david: what about the notion of that jes staley

talked about? is there a chance or likelihood that they will have to move around think legally and have subsidiaries and do things that are formal? or is a practical matter that the operations will not be affected? karen: i just don't know. i think probably, london does remain a core center but david is probably better to ask than me. i am not in these deep discussions. coming from north america, london is a safe place to do business. i came from canada. so there is an issue that you lose an influx of people if they are not connected to europe so it to make sure it isn't too messy. as the refined details, i don't think even the ceos of many of the banks have a clue about what will happen. we don't how to reason they will react. hard, soft, in between? what does macron mean?

what will happen in germany? uncertaintiesany that could impact the u.k. david: let third over to you, karen says you know better than she does. the uncertainty, ceos deal with uncertainties and they provide for a range of opportunities -- they provide for a range of indignities. ceos deal with uncertainty all the time. brexit is just another thing. they have to work their way around it. complex large banks -- they probably think they have to move bits of the operations now. the issue is that it is down to the regulator. they would have to move that bit of the business if it is economically viable. compliance, risk, legal -- this could be costly. but karen is right.

at the moment, we don't know what will happen. hopefully we have a better idea later in october. october 19 or october 20. the other thing i need to highlight is that we need transitional arrangements. ecb willghi and the want this bridge to be built between the u.k. leaving the eu and him leaving the ecb. david: the wanted we know for sure is that the lawyers will be just fine. that is the one constant in the world. many thanks to karen only. david owen will be staying with us as we count down to mark carney's news conference a few minutes from right now. the man whoter, wrote the biography of steve jobs. -- he wrote the back of the of steve jobs and he will be with us to talk about apple and the tech sector. later today we talked to peter szag.

this is bloomberg. ♪

jonathan: the bank of england maintained the key interest rates and that they may need to raise enters rates faster than the market suggests. assuming the brexit negotiations go well. we are minutes away from mark carney and the news conference coming at the bottom of the hour. me into thatake room. the questions that he will come up against. they going to be political? the kinds of questions he can't answer? david owen: yes. if he says it is a softer brexit, the suggestion is they could potentially raise rates. he really doesn't know. the uncertainty at this

point is still barry high. jonathan: he took an absolute beating from the media and politicians about his position and his view of what would happen post-brexit. has he been conditioned by that, too any extent? david owen: to be awfully fair to him, you had a policy vacuum. and we didn't know -- we lost george oswalt. and he called everyone into the courtroom. bloomberg, ourselves, he called everyone in and he basically said, we will support the u.k. economy and the bank of england. and that is what happened. sterling immediately price lower and the economy carried on growing and that is exactly what should have happened. jonathan: i was in the room with you. the last man standing. the only man standing. the rate cuts after, was that a

mistake? david owen: no. they have completed 10 million of the corporate buying. and we know that they could potentially do more corporate buying in the future, if needed. but the u.k. is now in the transitional place where exit discussions will kick off and we will see what happens with the economy. i wonder who is having a tougher time. -- presented with a solar powered to lip. to lip. who has the toughest job right now? david owen: mario draghi. absolutely. they can't keep supporting the eurozone. they need the euro bond, the fiscal union, nobody within the eu really wants that. but mario draghi needs it. got numbers out of the

eu saying that inflation is down and growth is up. does that make his job harder? david owen: they live in a world of small numbers. the inflation issue here is core inflation. and wage inflation, not picking up. they say they will not raise the rate until they finish doing qe. in a tight space. jonathan: david owen. thank you very much. coming up next, the governor of the bank of england. mark carney and his news conference. this is bloomberg. ♪

jonathan: from new york city and our viewers worldwide, the bank of england news conference is coming up shortly. this is how the markets are set up ahead of that. in the equity market, things are

softer in the united states. down .1%. or 12x is up by 11 points. we switch of the board, here is the situation elsewhere. in the fx market, the cable rate is south of 1.30. down .4%. the euro is unchanged. the governor's news conference, talk to me about the pushback that governor carney will get from having rates were they are and whether we get the shift from the mpc? david owen: there is uncertainty going into the discussions. the fact that wage inflation is -- will be: david owen sticking with us. coming up is the news conference with governor mark carney. for carney: the outlook u.k. growth and inflation will be influenced by the response of households, companies and financial markets to the prospect of the u.k. departure from the european union.

the mpcregard, projection continues to be conditioned on a smooth transition to the average of possible outcomes for the u.k. post-brexit trading arrangement. for some time, financial markets have hadholds different responses to the u.k. decision to leave the eu. those responses have diverged. projections, the tension between consumer strength and market pessimism would be reduced over the course of this year. that process has now begun. growth moderating and inflation picking up, household spending and gdp growth have slowed. in contrast, sterling has depreciated, following market expectations of the orderly brexit process. on balance. faner in the near term previously anticipated. real incomes pick up.

in the mpc central forecast, quarterly growth is affected to stabilize around the current rate. in 2017. 1.9% 1.75% in each of the next two years. this is as the committee had expected in a puree. a -- hasl outlook has improved with better financial conditions. trade growth and couple good orders suggest broad-based strength. and signs of robust global demand have been reflected in global asset prices with equity prices rising higher. worldc projection for growth remains near the top of the range of external forecasters. the combination of the stronger global outlook and sterling's past depreciation is likely to support u.k. trade and together,

with lower uncertainty, stronger global growth is likely to encourage investment as exporters revenue and increase capacity. turning to inflation, cpi inflation has risen above the mpc 2% target as sterling's past depreciation has begin -- has begun to go through consumer prices. the impact has been offset to some extent by the continued subdued growth in domestic costs with wage growth notably weaker than expected. the mpc expects inflation to rise further above target in the coming months, a little below 3% in the fourth quarter. conditions on the market yield curve, projections are expected to remain above the target for the forecast time. and i know the market yield curve has steepened slightly and it has rallied slightly. inflation entirely

reflects the effects of import prices and the fallen sterling since late 2015. a depreciation caused by market expectations of the material adjustment to the u.k. prospect as it leaves the european union. inflation ofion to higher import prices is likely to fade gradually through the forecast. the extent to which domestic cost pressures pick up will determine where cpi inflation settles towards the end of the forecast. wage growth has been soft in recent years, despite strong employment growth. weakness in productivity growth and a continuing drive from slack has graduated to the softness but it can't explain the full extent. uncertainty of companies about made theok i also have decision to rate way this -- to raise wages. the mpc judges that the factors currently waiting on wage growth

are unlikely to persist. and project that wages will rise significantly through the forecast and closes by the end. inflation is projected to rise. cannot prevent either the necessary real adjustments as the u.k. moves towards its new international trading arrangements, or the weaker -- or the weaker real to ae that is likely company the adjustment over the next few years. attempting to offset fully the effects of sterling would be achievable only at the cost of higher unemployment and in all likelihood, you even weaker real income growth. for this reason, the mpc's agreement specifies that in such specific circumstances, the committee must bounce any trade off towards the speed with which

it intends to return inflation to target and support the to jobs andicy activity. at the may meeting, the mpc decided that the current stance of monetary policy remained appropriate to balance the determinations of the agreement. that isal overshot of entirely due to sterling depreciation which reflects fundamental factors that monetary policy cannot affect. with such exceptional circumstances, the mpc agreement requires it to pay close attention and consideration to the trade-off between slack. forecast, thee economy is expected to operate with a degree of spare capacity. justifying that some degree of above target inflation could be targeted. isever, the output gap projected to close by the end of the forecast. reducing the committee's tolerance for above target inflation at that point. 's relies on other

things. a significant pickup in wage growth. no further slowing in aggregate demand. a lower level of sterling boosting consumer prices as .roadly as projected and the adjustment to the uk's trading arrangement being smooth. clear,e conditions may while brexit will play an important role, other factors will also deal with the outlook for inflation. and judging the appropriateness of the monetary stance, the committee will monitor closely incoming evidence regarding a range of factors. bond in policy will either direction to changes in the economic outlook as it , while supporting the necessary real adjustments. on the whole, the committee judges that if the economy follows the path broadly

consistent with the central projections, then monetary policy could need to be tightened by a somewhat greater horizonn the forecast than the gently rising pass in-flight by the market yield curve at the time of the forecast. with that, ben and i are pleased to take your questions. >> please give your name, the organization you represent and stick to one question. >> governor, can you explain in layman's language for our viewers what you are seeing with real wages and what your for wages are over the coming two years? i know that will be a real concern to people. the first thing that people are experiencing across the country and that they have experience is that the actual pace of wage growth has been relatively slow, relative

to experience. so even though i tremendous amount of employment has been created, wages are not picking up as much as they would have done in the past. the second is that we have expected since the summer of last year that there would be a squeeze on real incomes. around this time. in other words, the wages that people are getting is not for the prices in the shop. so this is going to be a more over britishime households for the rest of this year. real income growth will be negative. wages won't keep up with prices. to put it is important this in context. and the context is that the economy is still growing.

wages are still growing. that wageually expect intoh will increase 2018-2019. and this higher inflation that we are experiencing now will come off as -- in subsequent years. so real income growth, we do expect it will return and people will start moving ahead with the latter years in the forecast. again, there are lots of assumptions and judgment around those conclusions but that is our best judgment. the financial times. governor, you say the forecast is dependent on a smooth exit, a smooth leaving of the european union. how dependent are they? how much with the forecast be worse if we don't have a smooth exit? gov. carney: yes. so, in order to precisely answer

that question, we would have had and alternative forecast with some variant of a disorderly negotiating process and we have not done that. so i cannot give you a precise answer to that. is that as has been the case since the august forecast of last year, we have assumed that the process of leaving the european union would be a smooth one. what does that mean? it means that there will be an agreement about the future trading relations. and there will be a transition or an implementation time from the negotiation to the new agreement. now. we, like everybody else, don't whatly know the shape of that will be. that is why there is a negotiation. that is why we have a range on

the possible outcomes. we haven't changed the judgments. what we do have is an economy which gradually adjusts to that -- to those new trading arrangements that happened some point in the future. in the future, forecast. one of the consequences -- i will finish with that -- one of the processes is that there is a fifth of a drag on productivity. but there is not any sort of sharper adjustment. sky news. this follows on those two questions. can you be specific about whether the squeeze we are seeing in the real earnings that you just talked about is a consequence, direct or indirect,

of brexit and the referendum? areadditionally to that, we almost a year on. can you tell us what impacts there have been or haven't been on the economy from the referendum vote? you packed a lot in there. a highly efficient question. so it will be a longer answer. first questionr which i will characterize as -- is the squeeze on real incomes all because of brexit? is that a fair characterization? the short answer is no. because part of the story here is that wage growth has been weak. it has been week for several years despite relatively strong actually quantities of labor

markets. in other words, how many jobs have been created. we have had a strong labor market for several years. and wage growth has been weaker. forecast, our judgment has been -- and actually, it there is probably a bit more slack in the labor market put in a positive way -- more people can work without -- more people are seeking work and the level of unemployment and the number of jobs the economy can create with a sustainable manner is higher than we thought initially. isther part of the answer that we think that week wage growth partly reflects the relatively poor productivity performance in the economy over the last several years, since the financial crisis. that predated brexit and what we have seen in the last few quarters has been some modest

improvement in productivity performance. so there are two elements there. of this squeeze around wages. pregnantdate the process. there is one element which is theely the product of decision to move the european union which is the overshoot of inflation. it is because the currency went down. and the currency went down because of a judgment. i'm not endorsing the judgment, i am observing the judgment. the judgment that there would be conferences for the u.k. with return prospects and we needed to adjust accordingly. so that element is there. i think the related question -- evidence wille is be around the country and talk -- with hesitating

to bring in higher wage costs at a time of uncertainty with market access and other costs that could be associated with the brexit process. and that workers, the bargaining dynamic, it is resulting in more modest wage settlements. , in this expect forecast -- our central expectation in the forecast is that despite those factors, we expect wages to pick up and we do expect real income growth to term positive over the course of the next few years. and that is during the time of leaving the european union. so it isn't as black and white. given that i probably used up two minutes on that answer, can i stop there? is that all right? we will go for other questions

and if we have time, i will come back. >> the bbc. governor, you spoke about the sharp squeeze on living standards this year. it are you so confident that will come to an end? and that wage growth will hit 3.75% by the end of 2019? what are the reasons for it is a rapide if rise? and what preparation does the bank do for the change in the economic direction after an election? of what ownership, higher borrowing and higher taxes? i just wondered what worked the bank has to do on the possible outcomes? well, we start the work to adjust to the new government on june 9. so that is the answer. to the second part of the

question. let me start on the first. the first question and then i will hand to ben in terms of our confidence. there is a forecast. it is driven off of the tightness in the labor market, which, even though we think the level of unemployment is lower than the car and rate of unemployment, we will continue with that. average hours worked were quite strong in the first quarter. so the market is getting tighter. you pick it up in surveys. not just our surveys. the most recent -- survey was mixed but it showed that in difficulties,ving recruitment difficulties, it continues to be above average. so there is tightness in the labor market. there is a catch up for workers to do. is path for wage growth below the path for productivity growth.

so there should be some catch up there. and the third point i would make, which is that we are conditioning on a smooth process. a smooth brexit process. that is not new. but to the extent that it is the case and the extent that uncertainty over that process is temporarily weighing on wages, it should dissipate. i wouldn't overplay that point. en, do you want -- >> one thing i would point out is that real wages are falling but real income is not. we do have some employment growth. it comesemember that from other things. thing -- there

are two other things to point out. one is that the squeeze coming from rising import prices doesn't last forever. the governor said, we're seeing it rise at the moment but it does dwindle in the forecast and it will continue to rise with the income growth in real terms. and also, making it about the it has wage growth -- been expected on many occasions. this lowered the testament of equilibrium and we still think that the tightness of the labor market does mean something for the future wage growth. in q1, it was weaker than expected but we still think that will help some recovery for the forecast time. and david? >> the telegraph.

your forecast projects more balanced growth over the next three years with a stronger business investment and exports. does the bank welcome that? can this sweet spot last? ben carney: i will let expand on the sweet spot. it still has to come. this is the forecast. couple of things of context. first, we do see some pickup in investment with positive contributions from net trade for most of the forecast. but this is not booming. growth thatstment is passed average. 1.75%.growth is 2018-2019. and given theest,

scale of the depreciation and the strength of the global economy. this is a partial answer to add conway's -- this is a partial y's questionnwa earlier -- he is not listening now. [laughter] for some exporters adding capacity right now, if they are tightly linked into the european supply chain about which there is uncertainty, it makes less sense. we are not just saying that theoretically. we know that from talking to be series of companies around the country. it isn't surprising. side, you investment actually could get some of that effects here. thate point i am making is there is more balance. you are absolutely right, that is welcome. numbers inre not big

the grand scheme of things. >> that says it all. the point of making the speech is that generating weaker anticipation of something that hasn't happened, so on the time being, we have helpful conditions for exporters. nevertheless, for the strength of the world economy, the level given thoset conditions, we are expecting it to grow. there is some rebalancing. the sunday times. going back to the wages, the forecast that you are making put a strong recovery in growth seems puzzlingly bold. given that you expect the equilibrium unemployment rate to equilibriumve it

right through the second quarter of 2020. sure is that the appropriate measure of slack? to take into account? it is not a binary thing. historically, we have, in the u k, it has been a well functioning phillips curve. in this economy. and there has been a question of whether there has been a level shift over whether the level of equilibrium and the rate of an employment has gone. different views and some think it may be lower than where we settle and some think it may be potentially higher. but it is a pretty well researched review of when we drop to the level of unemployment. but to get back to my broader

answer, it isn't as if we magically have wage pressure and wage pressure consistent with theuctivity growth and inflation of the target. because at the end, we are talking about 3.75% wage growth by the end of the forecast. productivity growth a little less than one point 5%. inflation will be a little bit above 2%. normally, when you get back into equilibrium, which is where we are by the end of the forecast, you would expect, in a perfect world -- and of course there are always lags -- but in a perfect world, you would see productivity plus insulation being nominal. so you would have nominal growth above 4%. on top of that, there is productivity catch up to be done. workers in our forecast are not getting paid for the productivity boost that we expect.

they are not being fully compensated for the productivity boost we expect in the intervening three years. theoreticalry model-based answer. a real economy answer is that have 4.7%we unemployment. we have high participation. average hours are picking up. we see improvement difficulties. there are a variety of reasons to expect wage growth to be stronger. there has been in our ship in that market. there has been productivity weakness and there may be some uncertainty that will weigh on this as well. it is also possible that the equilibrium rate of unemployment is a little lower. we have to look at that overtime. but there should be some build. and whether we have that precisely right, time will tell. >> hugo, phil? mail. daily

you have spoken about the impact on the exchange rates of inflation. i wonder what impact you see the oil price having on inflation and the recent falls in the price of crude on how this might affect the squeeze on finances this year? gov. carney: yes. you know, it is always dangerous to update forecasts in real-time. because brent crude will be below $50 and then above $50 in the course of a week. thumb, the rule of probably relative to the closing of the forecast to the trough of offoil price, which was 8% -- i'm remembering from memory in terms of consumption -- off inflation out to a year. that is something. and then there is the exchange

rate effect which has depreciated and the curve is a little steeper. you can always update the forecast. if you don't want to get too much into it. something given back from the oil price if it remains at a lower level for the british households. for monetary policy and perspectives, it is likely to come through relatively quickly. so it is interesting and it is welcome. since it would appear to be supply driven if it does exist, it is actually stimulative. .ut obviously we are not banking on it. we will deal with that in august if it does exist. and it doesn't really shade policy because you are reacting to something that happens. you would be reacting to something that is over by the time the full force of the policy move takes effect.

then ben.d about forecast. the u.k. is at full employment. we have an economy growing and it is around trend rate. the outlook gap is closing. i wonder how you can justify stimulus at these levels? what does it take for the bank to raise rates? are you worried that households cannot stomach the rate rise? gov. carney: first off. where to begin on that? the stimulus isn't excessive. it is appropriate. that is the first point. and that is the judgment of the committee. the inflation is above target. why is it above target? because the inflation -- because the exchange rate went down 60% -- went down 16% largely because of the decisions of the european union.

that is a judgment. i'm not endorsing the judgment, it is just a judgment. changing monetary policy will tradingge the future relationship between the u.k. and the european union or the u.k. and other countries. those decisions will be taken appropriately by governments. in terms of the economy, the economy is above for employment. -- full employment. part of the reason why the output gap is closing over the forecast is because monetary policy is appropriate. a have said that we used conditioning curve for the forecast come as we always do, 15 day average at the time, finalize the forecast. , there was 125 basis

point hike in interest rates over the course of the next three years. the judgment of the committee was that if the forecast is coming to pass, that is too little, and if things unfolded as forecast, you would expect us to withdraw some monetary stimulus over the next few years, but that with a draw us to miss or raising of interest rates is to a modest extent in a positive economic environment, or the economy is growing above trend and we are closing the output gap. , you have revised the savings ratio again and suggested white that -- why that is not as alarming as it might look. at the time at the march budget, mr. charlie being struck a , andrent town -- tone

highlighted it was not sustainable in his view. do you agree with that or is it a question of nuance? broadband toow dr. discuss the nuances of the savings ratio. i will preface it by saying you have to look at the difference between the direction of the savings ratio, the statistical reporting, and the cash and non-cash. all of these are relevant. special ability to be versed in all of it. i suspect he was talking in the savingsne level.

there is no doubt to the extent , falling in the second half of last year from whatever level, that is unlikely to be sustainable for long. even our forecast it is roughly flat. ,hen it comes to the level unfortunately it is difficult to make a judgment, even in normal times or most the time because the level is often revised. what we alert people to in the box is we know we will get big revisions later this year. upwards, generally be and those might change the flow, so i agree you are unlikely to see -- in the end, it can't fall forever.

that is the case in our forecast. it flattens out. to level, i would be wary about making judgments. please can't be really sure what that level is goo, thing, the forecast does rely heavily on recovery of wages, pickup and wage growth, so it is not a forecast where over theon is softer forecast. it is not a forecast, not a debt fueled consumption boom. it relies on wages. it relies on the savings rate to go to zero, and negative. people can ask what ever they

want, but it is entirely appropriate to focus in on what is happening with wages, that can be expected to happen with wages, over the course of the next few years come up because it is one of the key judgments. we expect wage growth to pick up. if it doesn't, it has consequences. you spoker carney, about this threat to the world nation. seculariate this is a trend, but is accelerating and possibly a paradigm change. it is something, we do look thereular trends because are a few from time to time, and one can think of china's integration into the global trading system as a classic example of the previous decade. few secular trends

that impact consistently on inflation prices in this country, therefore monetary policy has to take it into account. it is possible that at some , machineomation learning, other terms, that that will have those impacts in the u.k., it is possible. it is not yet clear that is the case. what is clear is that the u.k. labor market to use your agitator has been buoyant, very strong. is more people employed in this country than ever before. employment growth continues to be strong. average hours growth is not just jobs, but the amount of hours people working has also picked up. in terms of the pickup and wage -- yes, it is faster wage growth than we have

been seeing. it is not especially fast wage growth. i would keep that in mind as well. your question is on point. it is the type of thing we think about, but i would not say we are in a period of time, and you can see that from the employment numbers, where there is widescale displacement of work as a consequence of these bigger trends. governor, it sounds healthy about prospects for global growth. risksu talk about the around that, the way markets are responding, also the balance between tighter monetary policy and stronger global growth around the world? >> sure. in terms of risk to global a slight skew to

the downside. that is starting from a position where we are near the top of consensus in our global forecast. that was the case in february. again, i put it in context. do of the medium-term risks relate to the rate of growth in the necessary series of adjustments in the economy, manufacturing, services sector, external demand, domestic demand , the shifts necessary in both the property market and the financial sector, and some of the pressures that exists in an economy that has high levels of private debt.

thosef those, all of issues are known to the chinese authorities, and they have plans, and we have seen moves in recent weeks consistent with , so that is one of the bigger risks. i won't presume to make any judgments about other people's monetary policies. i think the thing to watch, all context, andobal very difficult -- you could have a lot of false precision about this. if i were to finish with a , wheree global scenario you have broad-based growth, the levels of uncertainty coming pickupou start to see a in private investment relative

to savings. there could be some upward pressure on global interest rates, which will give monetary onicy more traction unchanged policy, and that is something to watch for over the horizon that affects all of us. the one last thing i will say on that is that we should all remember, and colleagues at the bank have done a lot of work -- i recommend it, that decomposes the effects on equilibrium real interest rates and the bigger efax on that are broader forces, demographics, then just the savings investment stance per se. caveat, one could to see ae and hope rise over the course of the next several years, which has consequences for policy. governor, you said hopefully

next year or the year after that wages will catch up. with at the anywhere near enough for people who are struggling to make ends meet right now? think they: well, i first thing is to recognize that ode economy is starting a peri of adjustment, and the first thing to make ends meet is to have a job come as a part of it is making a judgment in exceptional circumstances that we are in that we are, we have an appropriate stance on monetary policy so that people are in work, as many as possible , and that is why we are tolerating this overshoot of inflation, because the origin of that overshoot is the exchange

rate, and the origin of the exchange rate is the adjustment to the european union, so first and foremost make conscious decisions where there is a trade-off between people being in work and inflation higher, it is better to have people in work. obviously every household situation is different. it will be a more challenging time over the course of this where we it is a time continue to see in our view job creation and the prospect of wages picking up, and this higher inflation is temporary. it is temporary, so households -- i would put some store on that, but would not diminish the issues some people would be facing. looking at the pound, given

its recent rebound since the snap election was called, does that mean the worst is over for the pound in terms of the false we saw. also, how much will this limited resurgence in inflation be at play? gov. carney: the impact of sterling -- since february, so it will have had some depressive affect on inflation towards the end of the forecast. it is still the case of the governor pointed out at the beginning, the reason for the overshoot relative to target essentially is still that import prices, even at that stage and after sterling's rise, import prices are rising faster than usual and pushing up on inflation.

it would have been less mark than would have been the case. the town today seems to me more upbeat and optimistic on the state of the u.k. economy. with that in mind, i have the markets falling behind the curve in terms of rate price expectations. nbc perspective, is looser longer a less risky option that a premature withdrawal of stimulus? all, theey: first of judgment of seven of the eight members of the npc, the current monetary stance is appropriate to achieve our remit. the second thing though is that

we, the committee come a will set as you would expect the appropriate stance of monetary remit the balance our under exceptional circumstances. , the articledispel 50 process, the negotiation process, it is, that process and that end date of course has an influence on the economy and inflation. and if we have to take that into account to set monetary policy appropriately, and that is what we are doing, but it does not tie the hands of the inpc. it will take the necessary monetary positions at the appropriate time to get that right. by one way of illustration with this forecast, we have in our best judgment, if we follow the

path consistent with the market curve at the time we made the forecast, which basically was one 25 basis point rate increase over the next three years, the judgment of the npc is that inflation would not be returning sustainably to target. it would have come down, picked up, and domestic costs would be building, and for that reason if the economy were on that path in broad terms, we would withdraw some more stimulus over the course of that time. , two thirds ofd that is still during the article 50 process as defined in the i guess i have used your question as an opportunity to make that basic point, a point that most -- and you asked the question from a market

perspective -- that the market would appreciate. theresa may once to reduce immigration. that might make the labor market even tighter than now. the same time, it may dampen growth. do you take lower immigration into account, and to what extent? well, the first thing is that what we do for our forecast is we take the estimates of the ons for net migration into the country. they are the experts. they make the estimates. we import their views. so we don't make any independent judgment about feature government policy or the effect of future government policy. in -- ind thing is that

will get my dates wrong, but i believe it was november 2015 in did anar report -- we analysis of the effect of change in labor supply on wages. -- i think wedown use 100,000 as a normalization, we can get you the background them up at the affective labor supply on inflation, which in the end is what we ultimately changesworry about, and in the overall level of labor, whether they come from domestic, where people come into the labor -- theor net migration labor market outcomes of migration are similar to domestic workers, a little higher actually. modest impactvely on inflation, around 10 basis points order of magnitude. the reason is you supply more

labor and it has a dampening effect in the labor market, but then there is more demand and that has a tightening effect on prices and wages ultimately. all, maybe in the netherlands you did not follow this closely. specific forecast of somebody else for net migration, use that, and separately in terms of the overall shifts and impact on what we care about, what we are mandated to care about, our ultimate remit, it is a relatively small effect. last thing i will say, obviously for certain sectors and aries, it can be incredibly important. there is a process for those areas to make their views known to the government. the inflation report mentions

certain measures are domestically generated inflation is starting to pick up. how much weight do you put on those at the moment? does that make the overshoot harder to tolerate? could you elaborate on how they are expected to pick up, the inflation reports come at the end of the forecast period. thank you. gov. carney: we look at a range of dgi measures. we list some of the summary in the report. the first thing is that it is actually hard to get a pure domestic measure, which is probably the reason you look at a range. when you look at them as a whole , they have been relatively subdued.

they picked up in recent quarters. if you use for example a principal component, which is a way of extracting the core message from a series of indicators, a statistical technique. if you look at the principal component of those dgi's, they are below levels consistent with inflation being a target, so, and why is inflation above target? because the exchange rate, etc., etc. we do expect them to pick up over the course of the forecast horizon. they are exerting on the rate of inflation diminishes over the forecast horizon, but does not fully extinguish, still modest amount by the end of the forecast horizon, but virtually you can see we would expect it,

then to be consistent with target as a whole. >> it goes back to the judgment on wages. i think that is what is forecast, and in the at least, key to measure of domestic costs drives that human labor costs requires the wage growth to pick up, and in particular it moves above the rate of productivity. gov. carney: maybe i will make a general point, which is if you like the look of the forecast, we are not marketing it, but if you like the look of growth, the rate of growth and the employment performance in the odrecast, we will see a peri where we are seeing domestic cost pickup, wages pickup, unit cost pickup, other domestic measures pickup, while inflation is still above target because of the exchange rate. that is a good outcome.

, is is what we want to see that we get that domestic traction, reflation if you will, as the external site is starting to come off. obviously we have to calibrate monetary policy appropriately, those are positive developments for the sustainability of this expansion. >> you said your forecasts are based on the assumption of a smooth brexit, including transition and so on. this just wondering if assessment is a bit optimistic seems to bers. may heading for a hard brexit and we have had various statements from the european union, and also reports about this infamous

dinner at number 10 recently, and what would it take for you to change your assumption, to adjust it? gov. carney: i think the first thing is that the state of objective of the u.k. government and prime minister is a comprehensive trade agreement between the u.k. and the european union, and furthermore that there is implementation that is appropriate to go from where we are today to that agreement being in place. the stated view of president to tusk that it is in everybody's interest to avoid a disruptive process. there are negotiating mandates well known, public negotiating for the other

principles better consistent with a process that will lead to an agreement, so that is the objective for both sides. it is not our place to call those into question. , we haven'to 2019,n now and march 26, for these big negotiation's to get underway. it is very early days in the whole process. volatility on markets around the world at pre-financial crisis lows and markets at record highs, do think there are risks around your forecast if markets pullback from some of these highs and volatility rises? gov. carney: the first thing to volatility is quite

low across a range of financial markets. , particularlynd in sterling, volatility is probably closest to its five-year average than any other currency pair, with maybe the exception of the canadian aussie dollar may be up there as well. are a variety of potential reasons why volatility would have been reduced, and phase ande from the the economic cycle we are where accelerationased in the global economy at a time when we are not seeing inflationary pressures there,

range from that to improvements in the resilience of the core of the financial system, to potentially volatility strategies or yield enhancing strategies of investors selling more volatility. we would not say that we would have a complete explanation for is,volatility is where it nor would we make a specific prediction about when it would necessarily a, but yes, there is , one would expect, the world has not become dramatically less uncertain, and you can certainly see some potential triggers for an increase in volatility at some point. now, how will that affect the u.k.? things we do, a different part of the institution, is to make sure that actually the core of the

financial system is managing its risks for a much higher level of volatility, credit spreads, actual credit losses -- we do that through stress testing. confidentl reasonably that they are in a good position for that, so that is one way to look at it. are out of time. thank you very much for coming everyone. jonathan: that wraps up the boe news conference with mark carney , rates unchanged at the boe at 0.25%. the vote 7-1. that was some suspicion 6-2 might be the outcome. let's bring up the boards, the

cable rate, dropping lower, down by .6% on the session. the doe raising its inflation 2.7%, cutting17, its gdp forecast. 1.17% on ahange, u.k. 10 year. salt of, that sea sterling has dominated trading. the ftse 100 on the session so far, pretty much unchanged in points down by six softer, .1%. in 30 seconds, breaking u.s. data, ppi, initial jobless claims as well. will talk about how we are set up at the moment. equity markets globally, futures softer, down .2%, by a third on the s&p 500. switch out the boards. ,reasuries look like this

yields lower by two basis points , 2.39% on a 10 year, the euro weaker, dollar stronger story. breakingof the u.s. around now. ppi coming through at 0.5 percent month on month, firmer ofn anticipated, 0.2% history about foods, energy, 0.4%, also an outside surprise, looking for 0.2 as well. lower, 200ims grind 36,000 is your read on initial jobless claims, down from 245,000previously -- previously. we have our guest joining us now. it sounds like these numbers are

encouraging. what is your reaction? danny, can you hear me? >> oh, hi. sorry. i am here. i'm here. commentary waspc overly optimistic, that rates will rise because rages will pick up. ick up.s will peak u they have said the same thing, wages 4% in two years. they never learn. every single time they are 2%. they said it again, so the whole forecast rests upon an illusion. i don't know why they keep doing it. i don't believe a word of it. they haven't learned anything. the risks are to the downside. david: i want to talk you about that wage pressure. i was talking about the u.s. economic data, ppi.

paul, let's turn to you. my initial take was these are relatively strong, but what was your reaction? >> it is difficult for jobless these to fall much below levels. remaining at these levels tells you the labor market remains tight. what was more surprising were the ppi numbers. those are definitely stronger than the market expected. are not hard economic data. these are forecasts of what will happen. actual whatse are people are recording in terms of producer prices, so they are going up, but it is a long way from the factory gate to the store. that will get diluted and water down. we have had recently for cpi have been softer than expected rather than firmer.

david: i want across now to threadneedle street. jonathan: we are following that boe news conference. your take away from the comments of the governor? wages came out so many times in this press conference. hear whatrested to danny blanche flower had to say. one of the things we focused on when we first got the decision was the fact the boe was saying interest rates needed to rise more than the market curve currently suggested at the end of the 3-4 period to keep inflation in check. they have been talking about a lot of inflation given by weaker sterling, but predicate their assumption on brexit going smoothly and think sterling could rise as a result of that, therefore they are putting a lot of inflation forecasts on domestic wage growth. a lot of questions came up about this specifically, how, when they expect an increase in

pressures.ice i have found it hard missing to this news conference to see exactly how they want that to happen. they said something to the effect that we don't look domestic wages come domestic price pressures, so that has been the challenge. are they going to convince the market of this? you are saying they were pretty much unchanged. , we havehe bond market seen sterling weaker. that seems to be a reaction to the inflation forecast being downgraded in the two years after that. jonathan: and also that 71 become 62. great work on the boe today. thank you very much. wages, weion with will give you an opportunity right now. >> i didn't hear the question before. have been talking

about a tighter labor market, wage growth around the corner. why are they going to be right to this time around? about the question i didn't hear it a minute ago. i think the answer is they haven't learned. economythem saying the is creating jobs great i looked at the numbers. last month, employment in the ,.k. fell, so that was wrong and i have just tweeted this chart. if you look at the last 10 forecasts, they have done exactly the same, wages will ink up, 4% to where it was 2006, and every time in the last 10, they have been wrong. every forecast going forward, they lower the wage growth forecasts. the hold of this forecast, the whole positive of this forecast, rests on this allusion that wages will rise. they will not. we are about to publish another

document saying they do not understand what is happening to the labor market, so this forecast is an illusion. you should not believe a word of it. the risks are to the downside come and the idea that there will be as smooth rights a, i don't believe a word of it. it is absolute nonsense. they have not understood the labor market for the last 10 years, don't understand now, and i am afraid it was complete nonsense i heard today. jonathan: complete nonsense, is that what you heard? that.ny can say they said they predicate this forecast on a smooth grexit. brexit, so the risks are on the downside. firms know that. they sat there thinking xiao we increase our workforce wages and they are thinking know because there is maybe bad stuff coming

down the pike. you both have experience working at the boe. let's get to the central banks be viewed the boe says monetary tighteningt the more than the gently rising path implies. me about what that line means for the direction of monetary policy for the boe. >> well, the comments were just toe -- everything is going be smooth come all will be wonderful, and we will start to tighten policy and start to draw down the asset purchases as this beautifully smooth brexit process calms. nobody believes that. the risks are clearly not symmetric. you do a forecast, put air rose to it, and say the arrows are the same for the upside as the downside. that is clearly not true.

firms are concerned about what is coming. we have no idea what that process will be, so the credibility of the central bank and the central bank governor saying this loopy nonsense, they have to get real and say the risks are to the downside, something bad potential could calm, and if that happens, we have limited firepower because we can't cut rates much. jonathan: is that the doe saying to the rates market that you need to tighten up, in the market saying to the bank of england, we think you are wrong? is likepickup and rates 2020, so far away. ignore it. it is wishful inking. -- thinking. comes in softer than expected, don't expect us to ease. the data at some stage will

continue to come in softer. the consumer will ease off because real wages are getting squeezed. the question is, what should the bank do about it? imagine you two would have got on like a house fire. does her argument for higher interest rates -- >> i thought there was something interesting she said, which she knows what will happen to the gdp number. up,knows it will be revised which she doesn't. she said the gdp number was far too low. revised downl get further. i don't think it will be a great loss. we will see who replaces her, but the committee voted 7-1. the real reality is there really is not much firepower there. , theave rates at .25 chancellor who does not appear to be ready to put in any stimulus, so the reality is if

things get worse, we have limited ability to do anything about it, which the market should worry about. i'm happy to say both of them will be staying with us. since we have been hearing mark carney, macy came out with earnings -- macy's came out with earnings. they missed across the board, net sales, margin, and their stock is getting hit in the premarket, down over 11%. more bricks and mortar retailers having a tough go in the u.s. read on theother consumer and behavior of the consumer. later,up, u.s., then aspen, ceo. from new york city, you're watching bloomberg. ♪

emma: coming up, sir martin sorrell. jonathan: still with us to discuss, our guests. does the federal reserve need to worry about the economy overheating? there is no sign of overheating

anytime soon, is there? pickingnflation is not up, the economy is not growing particularly fast, wages edging up, but slowly. -- in theo the u.s. last three recessions, they did not follow runaway inflation. they followed excessive risk-taking in the subprime and snl's, som, we have seen a predictable fed that kills volatility. to make my budget come i have to take bigger risks. the danger is excessive risk-taking rather than super excessive inflation. jonathan: the macy's numbers tell you more about the plight of retail, but the consumer in focus. retail sales numbers on friday. a soft gdp for the first quarter . is that an area you think should

be shown a bit more concern? is something we should concern ourselves with. we should concern ourselves as well with the actual data. boom going on, commercial property boom. i went to talk to local bankers who said they have seen evidence the economy is slowing, commercial loans are slowing. people aren't calling for equity deals, housing equity deals. when you look back last week, a big number was the falling commercial loans, by 8% in the month. dataoks like the credit are relatively soft, so you are talking about the economies needing to put the foot on the brake but the data is not sustain that. the worry is the disconnect again between the policy and the

data. be retail sales data will crucial. in the u.k., wage growth has then been nine come us apprised to everybody, and he answer is there is much more slack in the economy the people think, so the worry is the policy makers have not understood the nature of this new economy that has emerged since 2008. david: your specialty is labor economics. there are also employment numbers. i will put up a chart that tracks where unemployment rates theand shows win unemployment rate dips, we have gone into recession consistently. what you make of that? isthe reality is the nairu low. prior to new thousand la -- 2000 eight, you could use the unemployment rate.

the employment rate is three percentage points below where it was. showingreleased data wages have picked up, but the unemployment weight in new hampshire is 3%, and in some counties, below that, so the it rises, but we don't know where it is. it is probably quite a long way from here. if you use the employment rate, we are 8 million jobs from follow-up employment. always good to have you on the program sir. out howp, find barclays's ceo feels about the ongoing whistleblower case in a bloomberg exclusive coming up shortly. from newark, you are watching bloomberg. ♪ -- from new york, you're

watching bloomberg. ♪

we set down with an extensive interview with barclays. i respect the regulatory construct in the united kingdom, the bank of england. i think executives should be .eld accountable it is an important piece of regulation in the united kingdom. here, one of my goals was to be transparent with regulators. we are partners in trying to avoid the next financial crisis.

there is a constructive dialogue between park, the boe, and fca. it is important to us. i respect the framework, and let's see how this plays out. happense unthinkable and you are deemed unfit to run barclays, does the bank have a plan, a succession plan? >> i have the full support of the board. shareholder vote today. let's let the investigation run its course. >> what i still can't understand, and i know i speak for other people as well, is what would motivate you to that judgment? there are so many things in front of the chief executive officer of a bank with the complexity of barclays, decisions taken every single day.

i thought i was trying to protect a colleague who was runnable from a malicious attack , but i should not have gotten involved as i did. that was a mistake. , noour friends, colleagues you to be passionate, but even-tempered. as a person who prides himself and aigh ethical standard high standard of conduct, is that same person a person , eithereither vindictive, or emotional at times. >> i don't think i am vindictive. >> do what degree do you worried that your actions put a chill on the people you want, you need, to come ford? -- come forward? why would anybody pick up the

phone and call the whistleblower line if there was not a guarantee of anonymity? rules areblower incredibly important for maintaining and regulating control of banks. important that people feel comfortable to contact the bank or the regulators with full protection to talk about conduct , and we doarclays everything we can to make sure we have a robust whistleblowing dogram, and we would everything we can to maintain the scale and depth of that program, and all signs are that there has then no change -- >> people are using it? >> absolutely. >> i wonder if you have put safeguards in place to make sure people feel comfortable using it? >> i don't want to get into the details of the process. let's let the regulatory thing work at whistleblowing is

important to this bank, and we respect it. erik schatzker joins us from london. you pressed them appropriately, and it was revealing. i know him a bit. you know him better than i, but why his reputation, he is a decent man and man of integrity. you think he has thought through what led to this? how did he make this big of a mistake? the mistake because he was coming to the defense of a friend. there is no better way to explain it here he knows it was wrong. as you heard him say there, he is caught up in the complexity of the bank that is barclays and the effort to rebuild it. he did not think through the consequences. he he was doing the right thing. he now recognizes it was the wrong thing. as he put it to me, he said nobody was trying to hurt jes staley. the only person who hurt jes

staley was me, and i did a good job of it. david: it is unlikely he will make that mistake again, but looking forward, can he effectively lead this bank? leadership,t of which is people believing in you and respecting you. is he worried that it will be difficult for him to make difficult decisions and make it stick? >> it would be harder if he had not performed as well as he did in yesterday's shareholders vote. yes, some votes were withheld, but he still cleared and 84% margin -- not a margin, but 84% of shareholder vote in his waiver. he has the full backing of the board and fellow directors. if you did not have either of those, it would be hard, but with that backing, he can forge ahead. the dark cloud that remains is the regulatory review that could drag on for months. the senior managers regime, it's

that allility standard senior bankers and the u.k. have to submit that all senior bankers and the u.k. have to submit to, is -- it is not up to the shareholders are employees of the bank, it is up to the fca. we have yet to hear the final conclusion of that investigation. coming up next, united states. goldman sachs asset management joining us as we count you down to the opening bell. from new york, you are watching bloomberg. ♪

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republicans plow ahead with tax reform despite the drama. stocks continue to make new highs, but are not enough stocks playing in the reality. a bad year for macy's just got worse following a big decline in same-store sales. from new york city, good morning, good morning. am counting you down to the opening bell. futures softer, down .1% on the dow, negative four points on the s&p 500, coming off record highs . switch out the board. the bond market unchanged, , a dollar strength story against the pound and the euro. let's get you some movers. lots of movers in the premarket. first up, snapped down more than missed its first

quarter across the board. a big concern is the daily active user miss. 168total estimate was million. it came in at 166 million. one saying it is an overreaction. time will tell. 11%.er stock, macy's down a terrible first quarter, missed downstore sales estimates, three point 5%. earnings missed by 31%. the new ceo has his work cut out for him. finally, straight path communications down 20% after won the bidding war, paying $3.1 billion. this is more than double the , but at&t will not

be putting in a higher bad. since april up 400% 7. another story, idc drama playing out in washington, president trump firing james comey, the fbi director. people on capitol hill and around washington are asking why did he do it and why did he do it then. .aking us through this is emma: kevin cirilli. the acting fbi director is set to testify in the senate as democrats call for more answers, but republicans have been united behind this white house with the exception of a few senators who say the firing raises questions that president

trump in the white house must fully answer, particularly why the timeline for the firing came to fruition at the time that it did. i put the question about what the firing means and whether or not it will impact president authoritiesslative and his ability to craft policy. >> it is important in my view for them to process very quickly this most recent distraction. to where we can move on and talk about other things on the agenda. he is the chairman of the republican conference, and one of the senators who was hoping this white house would continue to answer these difficult questions, but right now, they have not been able to get in front of it. charge of thein project to get this behind them? who is telling the president this is how to get this behind us? told ishat i am being

this is a combination of rights president chief of staff and senior advisers. sarah huckabee sanders has been communicating the message, and not the press secretary sean spicer. i would also note that several top and prominent senators, senators who have been critical of this administration in the have, to president trump's defense, including rand paul and lindsey graham. david: thank you so much. you know we will be coming back to talk to more. fixed income at goldman sachs asset management, great to have you on the program. we were asking whether james they's firing might suck oxygen from the agenda. where are we?

where does goldman sachs sit? >> we are probably closer to the fact it does not change at all that much. it is going to be a long slog. there is a lot of work here, and when we think about the backdrop in the u.s. economy, we think the political agenda is an upside risk. we have a positive outlook on the u.s. economy, u.s. growth, u.s. labor conditions, and if you can get some of these things, that would be more positive and potentially stimulating, then that would add fuel to the fire, but we are not holding out for just that. david: i wonder if the market reaction, which was muted and subdued to the action in d.c. was more the result of a market that is positioned to ignore d.c. now. the hoax for stimulus in december, january, february are not there in the same way. would that be an accurate read?

>> that would be an accurate read. the market is not focusing on anything. it is unbelievable how complacent market participants are. you look at these indicators of market volatility, realize, ford looking, implied volatility, and you see that in equities, credit, interest rates, really across the board come up markets are looking past almost all risks out there. david: after the election, the markets went up, right? stock market stayed up, still setting records. it's all about trump. now we are saying don't count on trump. that is because we were wrong to begin with? there was something else going on? >> i don't think it was wrong necessarily. there is both a possible upside surprise. price in the

potential outcomes, markets are saying the upside risks are risks, than the downside so there is still that help out there, and you can see that priced in. things are looking pretty good even before. we are coming through a pretty good earnings season. our view is that not that the u.s. economy needs further stimulus from policy. the u.s. economy is doing pretty well. we are pretty optimistic about the second half. again come and not because there is legislation coming through. one of the things that is not focused on is the environment. we think the idea that this is perhaps a better is this environment than what we have experienced, and it can have a real impact without legislation. david: it is deregulation actually? >> i think that is a big thing. the u.s. economy does not need fiscal stimulus right now.

what it needs is to unlock productivity. deregulation or the lack of future regulation is unleashing some of these animal spirits. thed: does that answer factual question, if donald trump had not been elected president, where with the s&p 500 be today? >> that's a tough one. jonathan: that is the eec way out. david: where would the yield be? the answer is i don't think it is that much different than where we are today. again, for the same reason, which is the u.s. economy is doing well, companies are doing well, the labor market is very tight. the fed had started to embark on a tightening policy. the market was not necessarily pricing it in, and the market is not pricing it in now. talking about this complacency and markets, we

caught up with your colleagues saying the exact same thing. why do we still have the mentality through which you describe as a buy at any price still? where is the inflection point coming from? a year oru go back two, it was about risk premiums being compressed by everyone, including the fed. now the fed is moving in the opposite direction. is they are disappointed financial conditions have not tighten more , but you think about the rest ,f the world, the boe, ecb, boj they are still still in the death and do not want to put their foot on the pedal. assetsll buy less because there are less assets to buy, so the liquidity is still getting poured in, it is just coming from outside the u.s., but there is this massive desperation for yield, and it is mostly from outside the u.s..

sentiment can shift very rapidly come us and now everybody is feeling good, volatility is low, yes, there are risks, but i don't see the catalysts. you don't see the catalysts until it hits the front page, and i would say markets are complacent. that is why we are where we are, but we are positioning portfolios to be more cautious. jonathan: yesterday, mario draghi in the hague in the netherlands, and they presented .im with a solar powered shoe there was a symbolic move by the dutch parliament to do that, obviously, but is there a message for investors in europe as well? >> i think so. the question is are we in a bubble comparable? we don't think we are in a bottle. you look at the credit market, the european credit market has been in outperform or coming getting past the french election

has added fuel to the fire, so again, our view is markets are complacent. i would not suggest we are in a like a but it does seem bubble is forming and investors need to be cognizant of that and the ideal that not only do i need yield in the intermediate sense, but i need it right now. jonathan: you will be sticking with this. coming up, janet yellen's next move. one fed president explains why the economy needs three rate hikes and not two. later, walter isaacson weighing in on the d.c. drama that has dominated the front pages of the newspapers in the united states and beyond. the opening bell is 19 minutes away. this is bloomberg. ♪

eric rosengren won the central bank was in danger of lifting its foot off the policy accelerator to slowly and called for more aggressive action to prevent the economy from overheating. cheating, anyer hittin evidence this economy is close to overheating? strongeems like a statement. we think we could see growth more like 3% in the second half of this year. ae second quarter will be rebound from the first quarter, but there is some momentum there. that eating said, overheating would be a strong statement for the here and now. much in the is very labor market. we look at the unemployment rate at 4.4%.

we are clearly seeing wage growth accelerated. where still like to say is the wage growth? there is wage growth, and we have seen it consistently in the surveys, the hard data, growing and accelerating at a slow rate, so a third derivative has not picked up yet, but we do think we will see that. belowhe unemployment rate four point 5%, we don't think it will bounce up in any material way. that's where you will see overheating, if any. we do think the fed will start to put the brakes on because they don't want to get overheating in the economy. jonathan: sometimes you get stuck in the fed tea leaves, the difference between three rate hikes, to rate hikes this year. around the table at goldman sachs and put together a portfolio, is that the bank in any way shape or form? twohe difference between

and three, maybe no. people agonize. we were so focused on liftoff, then we had liftoff. to that extent, yes, you are right. minutia of it is less important, but the direction is important. not off the fed is idea of one a year. we talk a lot about that and try to determine whether that path they say they are is the path they will go on. david: the difference between two and three over six years is the difference between six and nine. if i and the fed, what keeps me from raising? every time they have race, they have not tighten. i'm ok. i can keep grazing. it is not hurting financial conditions. >> i would go further to say if they are there saying why aren't conditions tightening.

when they raise rates, they want conditions to tighten. that is the point. i think there are getting worried about the fact it is easing. stops themis nothing other than the economy falls off and we get hit with a shock, the recent inflation data has wobbled a little bit. we are getting some mixed data on inflation. , so thatstrong today would be the one thing. if they lost confidence in the inflation outlook. everything we are seeing suggests the inflation outlook will grind higher and higher with the risk of overheating, and eventually they will have to slam on the brakes. treasury,the 10 year you talk about what has happened since they lifted off. yields are lower and use a lower. "lassie 10 year -- lousy

ten-year treasury auction, buy low, sell high." i think he is throwing some shade. worldff gundlach's of the , is that where you are as well? where are we, 2.41? i would not be opening my twitter account, but our view is we saw the market, head the big selloff, a big retracement come and now we are around the 2.40 level. is still notmarket pricing in the fed wanting to tighten financial conditions. the market is pricing in one a year, 25 basis points for the next few years. we think it is 3-4. those at up. that is not priced into the market. that intermediate part of the

curve, the five-year treasury rather than the long in, investors who are going out to get some yield are going to be disappointed. jonathan: are we still lower on the 10 year? i will say yes. i think the 10 year, a three handle for sure. three 23.5%. the market will say commit maybe it keeps going. a three handle, unless our forecast hasn't changed material, that is not a bad place. thank you so much for being here. coming out, the man who wrote a biography of steve jobs here to talk about apple and the tech sector. with today, an interview

bloomberg news columnist and former omb director. live from new york and from washington, this is bloomberg. ♪

we are about a minutes away from the open. futures here in new york softer, down .1% on the doubt, .2% on the s&p. the board,ch of treasuries unchanged, 2.42 your yield on the 10 year. bricks and mortar retail continue to struggle. this time it is macy's. shares have been falling in the premarket after earnings came out, falling short of expectations on earnings, revenues, and same-store sales.

now is our expert in retail. welcome to the program. this was not a good report. >> even worse, if lowered expectations. the same time they set for the year, we think we will hold up. how do you square of those two things? they were all significantly on eps. >> the first quarter is often the worst for retailers. you don't have the holidays, easter messes things up, maybe they still have some plan for the rest of the year, but it is puzzling. digital.mber one, we have been hearing that it will all be digital. how much progress are they making? >> slow and steady. macy's came out ahead of everybody else with digital. they got people online, but

amazon is going heavily into apparel, and this is where it is hurting macy's the most. david: the other part of the plan was to close stores. how are they doing on that part of the plan? only did same-store sales drop, but the total sales and dropped his wheill. -- well. that means are good stores are not doing well. investorsone sector did not want to touch, the bulk would say retail. i wonder if we have reached peak pessimism. david, you remember that tesco situation. a moment when everyone thought tesco would fall apart. the stock has not fully recovered. they don't talk about the company their way they did two years ago. are we near that inflection point, keep pessimism? >> you have to disassociate

department stores for retail. department stores are getting the brunt of it. this is a big secular change. people are not shopping at department stores. retail sales have gone up, but department store sales are shrinking. they will become smaller companies or bought by someone else. that is where the president is come in the department stores. david: warren buffett talked about this point, saying department stores are one place you can go to get everything. that. is now it is hard to figure out how department stores survive. >> the one thing people go to the stores for come a, is what they are cutting. macy's, you a cannot get anyone there to help you. all themacy's and department stores is where most

of the pain is concentrated. there are still some positive things in retail outside of department stores. macy's down over 10%. the open four minutes away. great to have you with this. the opening bell coming up next on "bloomberg daybreak." by 31, down 4-5 points on the s&p 500, treasuries unchanged come yields at 2.42. the weaker pound story, boe keeps rates unchanged. a stronger dollar against the euro and pound. the opening bell, up next. you are watching bloomberg. ♪

jon: from new york city, you are watching "bloomberg daybreak." we are seconds away from the open, 21 to be precise. features down 29 on the dow, down 28 s&p 500.

no real drama here. just a bit softer. unchanged throughout the session at 242 on the u.s. 10 year. the dollar going nowhere at 9972. opeceadlines coming out of , not that bullish, were they? non-opec supply rising 60 something percentage points. 20 seconds into the open. the opening bell has run. abigail: we are looking at the kleins for the major averages in the u.s. the dow come s&p 500 and the nasdaq all lower. the dow on pace for its third day of declines. the s&p 500 is matching its biggest the client since the end of april. all these small moves for the major averages as investors are

considering a ton of information. the s&p 500 making a relatively big move. the nasdaq down .3%. not on pace for the record, but anything could change by the end of the day. one segment being hit today on the open, department stores. macy's down 8% after they missed ps, theyre sales com were down 4.6% versus the estimate of down 3.5%. they missed earnings by 31%. kohl's is getting a bit. -- a bid. the ceo is very positive on march and april and those trends could carry forward relative to jcpenney and dillards trading down. investors seem disappointed in dillards. snap on the open, shares plunging, down 23%. they put up a terrible first quarter as a publicly traded company.

investors are concerned about the daily active user miss. they were looking for more growth that didn't come through. sure is not too much above that ipo price of $17 per share. not too much above that ipo price of $17 per share. jon: rbc, credit suisse, jeffries from outperform. the stock getting hammered after that earnings report earnings . steve, let's begin with snap. that dreadful result from the other day -- analysts out there buy on a stock we know so little about. steve: we are not in snap. userevens a big instagram and realizes they are biting into -- >> not here.

er: is there anything on a macro level we can draw from snap? there are more alternatives out there to u.s. equities. you have higher rates around the world, you now have a little bit of strength in emerging markets where a lot of people are turning. will there be less leeway for novice companies to ms. numbers like this? -- miss numbers like this? jon: they got their faces ripped off -- snap --t is hard to use why not use amazon or apple? these are probably some of the class u.s. tech names you want to talk about. the consensus is to move international. if you look at valuations, there's a big gap on the averages.

if you look at its stock buy stock, a lot of that valuation gap has to do with our tech sector being a larger component of our index where the valuations are lofty, let's say. markets being more tilted towards financials and industrials and things like that. we like a lot of foreign names. em might be prepared to make another run. we've had a nice rally already, though. we think there's a lot of room to run on the u.s. side. david: i want to bring in somebody who knows a little bit about tech. we have the author of the definitive beyon biography of steve jobs, walter isaacson. he's the president and ceo of -- walter: and an old neighbor. david: is there room for a pretty good tech company but not a great one?

facebook and google suck all the oxygen out of the room. a winnere get into take all phenomenon where google and facebook have done that. , it is not with snap quite clear what snap is. it is a communication tool for me, not a photograph tool. people don't quite know what it's all about. they have to get the story right . sure, there's room for up and comers like that, but they have to be disruptive. they had to create a whole new market. david: snap has defined their niche. they think of themselves as facebook through video. that is their target group. they think they have to find what they are. walter: now, they will get into content more and create 10 minute and 30 minute shows. news.ay be doing

they are also doing communications like whatsapp does. this a broad realm of things they're doing and it's all kind of cool, but if the luster goes investors and 17-year-olds, they get in trouble. is it a fad or is it sustainable? walter: it's all about how they make platform. people would build upon the facebook platform and thus it would get secure. we are talking about the first quarter, they should have guided better, they should have been more careful. it was only the first quarter. are we going to be a platform for cool content? then, they will become sustainable. david: facebook has structured this thing so they can pivot, including copying snap. motive is there

around the snap business? steve: i don't see a huge moat. there's a moat around facebook. facebook is rather sticky. is a way you, it log on to other services. i'm not sure if snap has made itself as sticky as facebook. david: what is driving the tech sector at this point? oliver: there isn't something that is happening the past two months or so. really the past month with earnings, a move from the trump trade to a specific cyclical trade. the trump trade allowed the companies that did well to coincide with those cyclical sectors. it's been very much about the banks and technology. it,ow steve has looked at

there's been a shift where financials jumped after the election and stopped. within their stead came technology stocks. expected earnings over the next year, technology is a big part of that. i look at the function every day to look at where the volume is happening. steve: the volume has been in tech. they keep asking, when is the correction going to come? we just had the correction. we just had a rotational correction. the financials are down 20% relative to the techs year-to-date. flat off 20%. that whole cyclical trade has corrected relative to the market. we think the next move up is the techs take a rest and you rotate back into others as -- jon: what is the catalyst for that?

steve: we are betting on aca coming through. on top of that, you've got the economy accelerating, the best earnings season in several years that we just came through from optimism is up. if you give optimistic businesses with more cash on their hands, you get capital investment. jon: the events of the sea over the last -- d.c. over the last way for hours, many people questioning the timing for that. rotation back into cyclicals, when will you think about making that move? steve: we are already setting up for that definitely, the backup of the year, you will see it. that's the back half of the year. this sometimetart between here and early summer. david: you know washington really well and you know tech really well.

is there a connection between the two? happens ines what washington affect the tech sector? walter: it definitely affects the health care sector and the financial sector. it affects the tech sector far less. there are certain things -- immigration, trade, the visa program. tech is cruising along unless there's some huge trade or problematic disruption. david: people have gotten a iftle nervous about trump -- tech keeps going regardless of whether we get health care or not -- walter: there's a larger issue on technology for me. i'm kind of waiting for the next big breakthrough or innovation. itn steve jobs was doing

every three years, it was like the ipod, the iphone, the ipad -- the iphone changed our lives totally. things like uber could happen. doing this podcast on innovators and half of innovation couldn't have happened since 2008 if you hadn't had things like the iphone in which an uber or airbnb or whatever could disrupt the cap industry and hotel industry. i'm not feeling that innovation. -- cab industry and hotel industry. jon: when the programmers have to focus on what's getting the most ad clicks. where is the innovation going to come from if that is the objective? walter: you've put your finger right on it. you used to have more revenue streams more easily. if it is all going to be aggregating eyeballs for ad clicks, facebook and google have got you blown out of the water.

so, you have to create some innovation that isn't just add driven. -- ad driven. david: echo -- i love amazon echo. that is a real innovation. we have a virtual reality on the horizon, artificial intelligence. it may be just around the corner. walter: there's always a lot of things on the horizon. sometimes the horizon keeps getting further and further away. hello google and alexa on the amazon echo. they are good and they will tie in with physical things. i'm not sure they are that much different than putting my iphone on the counter and turning on siri. i think driverless cars will be big. maybe augmented reality.

these are still around the corner. rally --alls the trump we should listen to this guy. thank you very much for listening to us. oliver, thank you for joining us. we are 13 minutes into the session. here's the ball up for you. we just pulled back from all-time highs. from new york, you are watching bloomberg. fallout for you. we've just pulled back from all-time highs. from new york, you are watching bloomberg. ♪

emma: this is "bloomberg daybreak." coming up, an interview with the

former omb director. david: this is bloomberg. we are back with walter isaacson whose einstein biography is behind a genius television series on national geographic. also, your innovators book. walter: i'm trying different media. david: you've been pretty successful at it. geographic national einstein show is based on my book but i'm just tuning in every week to watch it they did a really good job. ron howard is directing it. theurn einstein into a sexy wild, playful character, they did a good job while very authentic. i'm trying to tell stories of innovation and to show people it is and all that new. the hotel industry got disrupted 100 years ago, 50 years ago.

are watching airbnb, we want to keep that in perspective. david: a lot of innovation in the white house -- we are seeing all sorts of things we've never seen in the white house. you know washington and you know james comey. what is your take on what is going on in washington? is it a long-term problem or short-term blip they will get past? walter: it's more of a personality thing. donald trump for better or worse is a disruptor. come evengoing to with his staff not fully focusing on it would just fire people and do various things without thinking through the consequences. in the middle of a russia investigation and invite russian photographers in when you meet with the russian foreign minister -- what are they thinking? david: and exclude selective members of the u.s. classroom

and crichlow russia. -- class who have been critical of russia. walter: if you are kissinger, you are saying there's actual things we should be doing with russia when it comes to syria and afghanistan. seems like throwing all the balls in the air without worrying about where they will land. david: we have a president whose got a more ambitious and gender than we've seen in some time -- agenda then we have seen in some time. at the same time, we have this it'sption and typically hard to get things done in washington when there's no disruption. walter: he has a very important agenda. what i can't understand is why you don't just focus on the agenda. figure out a tax reform, which is really needed. and simplification.

maybe you can bring some democrats around and do it. even more important, and infrastructure built. -- an infrastructure built. -- an infrastructure bill. i don't know why you decide to have all these distractions. to take a russia investigation -- whether or not russia's hacking of the election violates laws or there's some collusion, you don't want to bring that to the forefront every week. let it get to its conclusion. david: if you are a major investor or running a company, what do you do? have you discount what is going on in washington -- how do you discount what is going on in washington? walter: i do think the volatility has calmed down a little bit. say you are in health care -- what is the senate going to do on this thing? we kind of know the outlines of

what a tax reform would be. you can try to tune out the static and say this is what is going to happen. it's a shame -- you could have had a real blossoming of economic activity if you'd had a real, clear tax reform plan and interceptor plan. -- infrastructure plan. david: there are things you can do without congress -- he has people around him who are pretty seasoned in various positions. can we look forward to moving forward by exact order -- executive order? walter: you are definitely going to see that. one of the biggest business changes his one people haven't been focused on, the end of net neutrality. you have new people dealing with that regulation. you will have more mergers in the telecom industry and less regulation on whether or not a

company that owns pipelines can favor certain forms of content. this sounds very, very arcane. it isn't. this is why netflix exists. this is why the disruptors exist. you have a huge open playing field where if you invent an airbnb or netflix or whatever, you find carriage. it's dangerous if you get rid of all that open playing field. thank you so much to walter isaacson. good to have you on the program, alter. -- walter. bloomberg technology has been live in boston -- they will be talking to startups and venture capitalists. this is bloomberg. ♪

jon: this is "bloomberg daybreak ." we are 24 minutes into the session. session shaping up like this. a lot softer on the dow this money. dropiggest one-day potentially since april 13. -- a little softer on the dow this morning. month 31 closing highs in 89 trading days. peeling back from those records. with the 10:00 a.m. senate intelligence committee will be holding its annual hearing with witnesses including withbi's acting director the director of national intelligence, the cia director and is a director. -- nsa director.

joining us now is kevin cirilli. this will be an interesting hearing today. kevin: interesting to say the least. the acting fbi director will testify before the senate intelligence committee. he is certain to get questions about the firing of director james comey. democrats looking to push for a special prosecutor. as of now, no republicans have joined on board in calling for that. earlier today, i spoke with senator john thune who said he's one of the senators who has questions about the timing of this firing. with the exception of a few republicans who are pushing the white house for more answers, right now, most republicans are violent and right behind president trump. are file and rank -- and rank behind president trump. david: let's do a market check. jon: let's get you up to speed

very quickly. futures and come equities down for session lows by 0.5%. yields grinding a little bit lower by a basis point. the dollar strength we saw against the euro now unchanged. dollar-yen grinding lower by .5%. a stronger japanese yen in today's session. thank you very much. have a fantastic day. you are watching bloomberg. ♪

>> breaking news this hour. we are following a senate intelligence committee hearing happening live on capitol hill. the acting fbi director will appear today in place of now ask fbi director james comey -- ex

-fbi director james comey. we will be watching this closely. mark: we will be watching the q&a session closely and bring that to you as soon as it starts. lawmakers want to question about russia's involvement in last november's election. is superantime, it thursday -- the boe keeping rates unchanged. steepening those losses during mark carney's news conference. for more, let's get over to nejra cehic. was it a less hawkish bank of england which is why we are seeing these declines in the pound? nejra: it seems so. that decline in