draghi this afternoon. republican lawmakers will be hashing out details on tax reform. hurricane harvey heads for the texas coast. oil refiners begin halting operations in good morning. withjonathan ferro along david westin. speeches, it is 1% on the s e 500 appeared the dollar is weaker. treasuries,on in that is the yield. david: it's time now for the morning of the. durable goods orders will come hole, robertackson kaplan. at 10:00, we will hear from

janet yellen and 3:00, mario draghi will be addressing the group out it jackson hole. as we look forward to those meetings today, the question for the fed is where inflation has gone if it should affect their decision on raising rates. we've heard different opinions. >> when i think about inflation, i think about our mandate, which is price stability. the economy is adding. i think we are in a pretty good place. we have monetary policy. that tells me we should gradually remove accommodations. as the outlook supports that we are moving in the right .irection, i think we are isto high inflation

dangerous, but too low is dangerous. by mike mckee. matt.g us is iwe have these two different versions. is this one of the dominant topics out there? whetherople are talking the fed owls are broken. there is not a lot of the daylight. she has long been a hawk and wanted to raise interest rates. in her interview with me yesterday, she talked about the fact she doesn't understand why inflation hasn't behaved the way she forecast it may be time to rethink that. robert kaplan is urging caution. watch the data. if we should move forward, then we should read i think what both

of them, what we haven't talked about, the financial stability question. that might call for a rate move it well. david: robert kaplan did say the world has changed, there are other factors rather than the traditional cyclical factors, technology, things like that are in he said maybe we can go with traditional things like the phillips curve. mike: there was a study yesterday that suggests it is no longer a very good predictor of what going to happen with inflation. they don't want to abandon it, it has proved a useful guide. if it does not seem to be producing the results one would

expect. there is a real question and debate within the central bank about what is wrong with the phillips curve and how we fix it. joanathan: let's talk about that paper. there is a research paper that comes out around the time of taxable and that's what everyone talks about. matt: that's a good question. we had the topic with labor markets in two years ago the topic was inflation. for the first time, the topic isn't about central bank. this paper is interesting. there are a battery of statistical analyses, you can't see relationship there in the phillips curve between unemployment and inflation. if you add an unemployment component year model, it doesn't help you at all.

this is coming from the philadelphia fed research directory. he is a top economist. he uses strong language in the paper to say we need to be cautious about using unemployment as a guide to where inflation is going. you can't see that relationship in the data. joanathan: i do wonder if this is gaining any traction with the rest of the fed. matt: it does seem like they're sticking to the story that if there is a flat person in the phillips curve, eventually you will get down to a level of unemployment where it research itself or it -- reasserts itself. we haven't gotten there in the last 30 years. it's out there in people's minds, a theoretical idea.

it still has a lot of weight and suede and -- suede. joanathan: what some you agenda? 10:00.anet yellen at of two ways, she could talk about regulation or asset rices. academicet into the portion for the rest of the day you a lot of theory will be discussed. mario draghi has an address at 3:00 wall street time. the theme will be creating a dynamic economy area there is a lot of room to speak. there is a lot of speculation that he will talk about the ecb going forward. can you imagine if we get a speech that towards us on it regulation? i'm sure you will have a good time anyway.

let's begin with you. what are the specific you are looking for today? >> this is her swan song. she is playing for her legacy. i think she is going to say that that is has been a great job improving of financial stability. if there are no real excesses in the banking system. prices are asset stretched. third, i think she will warn against too much deregulation because she thinks that may be risky. when the next financial crisis comes, she doesn't want to be laid at her door. she wants to safety regulation did it. joanathan: if she takes a line

out of stan fischer's book. david: is this a swan song or an audition? >> he will. there is a passage in the minutes that says we should not have too much deregulation. believet difficult to she is going to diverge from if sheea joanathan: mentions stretch valuations, what does that mean for you? how long will it last? >> the tendency is it won't last very long. of it's been one of those events were you see a quick sellout. last 30 minutes or maybe a day. it does seem like those things does go inrea if she

talk about it, central banks are stressed. there is leverage to the gills. she doesn't want to see the withrstone in an economy looser regulation. it makes a more compelling argument. do we see a law of diminishing returns? there is a change, but then it comes back right away. >> this is paid out over so many you see you see diminishing

returns across the board. this has been released into the how arehrough they going to resolve that tension? see when mario draghi spoke, it sent interest rates up around the world. it kind of reinforces the topic of jackson hole. they really have to work together, the interest rate market is so connect did. whatever they say influences everybody else did thank you very much.

joanathan: coming up, much more from jackson hole, wyoming. that will be live at time :00 eastern time. -- 9:00 eastern time. from your city, summer is making a comeback. ♪

emma: vice-chairman of samsung electronic spaces five years in prison. they handed down the sentence to him after finding him guilty of bribery, perjury, and embezzlement. of he says he plans to appeal. this cast out on whether he will

return to the conglomerate his grandfather founded. amazon closes its acquisition of whole foods money. it will start cutting prices on a broad section of groceries. they will combine the commerce and delivery. that is your bloomberg business flash. joanathan: prices are down to the last year and a half. we just had a conversation about inflation. that's going to be a problem. >> it will be. it's not just whole foods. there is more competition coming into the market area we see in retail online competition driving prices down. airbnb, that has been soft easily. this technological change in competition has had a big effect. that's the problem

ultimately for the federal reserve. they've got to rethink the way they are looking at inflation. >> basically, the fed doesn't know what causes inflation. that's a bit of the difficulty. it's like trying to steer ship with no compass. if i think they are lost at the moment. chair yellen is looking a little bit lost. investors are focusing more on draghi. >> i think his speech may be more important than janet yellen's speech. >> they should be paying more attention to draghi. >> i would pay more attention to mario draghi area -- draghi. >> i don't expect janet yellen to say anything. what does that speech from draghi mean to you today? tell me about the markets. of three weeks ago when we first

heard of the speech, it was all about risk. that seems to his -- have faded. >> i think to some extent we are not set up and the reason is draghi came out two weeks ago and said i am going to uphold what the ecb council said it. of they will not be talking about new policy. maybe this becomes a reruns. you are looking at a euro that has had a nice rally against the dollar. personally the dollar is going to strengthen in the near term. i think if you're looking at emboldened.s more joanathan: everybody thought this was not going to be much of a speech. is this going to be like convention?

theoesn't look like that's intervention and >> he is been rattled by what's going on. they don't want to signal that change is coming. ago, it was a revolution. keephe ecb is trying to everything calm. he doesn't want to go down the euro. the dollar has strengthened. maybe he doesn't need to be worried about a stronger euro deterring growth. >> i don't think it's growth they're worried about, it's inflation. growth is great in europe. it will take a little bit of growth and have a bigger effect on inflation. affectuld inflect -- inflation. david: evolution is change.

is he trying to set up gradually for the ecb coming off the quantitative easing? >> they don't want to do that too soon. that's the job of the september meeting, that announced something and not over. the problem is the euro has been massively undervalued. growth a country where is terrific. the euro is undervalued. they are trying to depict undervalued. i think they will get a stronger euro. they are going to have to do that. joanathan: it is driven by one country. that is the problem for setting policy there. hugee germans are a problem leading up to the eurozone crisis. now it's a big problem.

ultimate: what is the problem? issue, 12%massive your to date. if can they do anything to slow down the euro when they are talking about removing accommodations? >> i think we might be looking at this as a paper as it moves higher. what it brings slower growth and you see the eurozone high-yield bonds 20 basis points above the u.s. 10 year. you start to see some of those risk factors the reintroduced into the eurozone. that's where the problem comes. thank you both very much for being with us. coming up, we will have the

former deputy treasury secretary. this is bloomberg. ♪

david: hurricane harvey will make landfall late today. it's a category 2 storm, but will reach category 3 status around corpus christi. it is threatening interactions to refinery operations are it of you can pull the map up on your bloomberg. joining us now from london is our executive editor for commodities. how concerned should we be? theairly concerned this is worst hurricane since 2005. we are getting advisories every three hours.

they do change often. it's an inexact science to extent during -- extent. the projected winds are coming back a little bit. it is still pretty bad news. at the moment, the forecast is it will hit. that has the potential for devastating damage. pers could be 100 miles hour. -- 130 miles per hour. that could have catastrophic damage. david: our first concerns with the well-being of the people. talk specifically about the refineries for a moment. are we more concerned about wind or water western mark -- water? >> water in this case. there could be up to 35 inches of rainfall.

two ore forecasting three days. that could cause damage. we've started see some of actuate's. we have seen some shutting down of the plants. ofween one third and half refining capacity is in that area. they are cutting out. down couldry shut this be? get 35 inches of water, it's going to take a long time. we are talking about days and probably weeks the nevada. i'm being very cautious. these things are changing so fast. it could be a lot worse. we will keep an eye on it. when you look at the gasoline

market, that is what is pricing this at the moment. it's really on the refined product side need to be worried. need most.t going to it's about refined products, that is the story. david: give me an upside and a downside. what does that do to the price of gas? what kind of swing could we see? >> i'm going to be very cautious. it is a little bit of a dangerous game. bad as they are anticipating, we could see a pullback in the next couple of days. worse, i hesitate to give a forecast. joanathan: that is some

responsible journalism. it's good to see you. coming up, mohamed el-erian will be joining us ahead of two big speeches in jackson hole today. janet yellen will be speaking at 10:00 here it up president draghi will be speaking at 3:00. i will let you do the math depending on where you are. up .25%.utures are is fx market, the dollar further on the back foot. york, you are watching bloomberg tv. ♪

joanathan: from new york, we are two hours away from the cash open. futures are positive in the united states. dow futures are up .2%.

, volume has been light. the performance has been ok. futures are positive this morning. in europe, there is a rally in the commodity market once again. resourcesbasic driving that. we have speeches from yellen and draghi. the dollar is weaker. that is the theme today. the euro is positive. we have those speeches a little bit later this morning and this afternoon. let's get you some headlines. emma: president trump kick off a campaign for tax reform. it he won't be pushing his own planned or putting forth any specifics. the president will advocate middle-class tax cuts.

he will leave it up to congress to actually come up with the legislation. the u.s. is unveiling a new sanctions on venezuela. they want to punish the government for its behavior. target venezuela's financing channels. prices are up just a 1%. the boj has not the able to get inflation near its 2% target. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. as much as president trump and his advisers have said how important tax reform is, it's not apparent they are making progress. joining us is our white house

correspondent. thate not going to have one thing the plan out of the group of six after all. it's going to be the house doing thing and the senate doing there's. >> the white house has had trouble getting everyone on the same page. they've been able to put together a framework. congress has the ability to put forth the legislation. they have people who can actually put to paper the overall broader plan the president wants to enact. in some ways, this is a concession. it's not as easy as they said it. steve mnuchin said this would be over by august. they are finding out it's incredibly complex. it now they are leave it to congress. we will see whether this allows

them to get something done by the end of the year. they want to be the cheerleaders behind this effort. this sounds a little bit like health care redux. explain what the white house says. leave it to congress? >> they believe the white house has been involved. if they had leaders. they think they have together a framework. with health care, they were not as involved. they thought they had a more hands-off approach. the house could have something that can't get through the senate. something they are aware of.

joanathan: we all read the interview. they have been working on this for years. that's why we can get it done so quickly. were also working on health care for years. david: they had seven years to fix health care in didn't get it done. joanathan: they have had a few years to work on tax reform. it's a similar story. david: thank you so much for joining us today. in a long career, he rose to become deputy secretary of the treasury under george w. bush. we welcome him back. this has been a priority of this administration. are we going forward or backward? we thought we were going to have one consistent plan of presold to the house and senate. now it feels like it's dissolving. >> we are moving forward in a

different manner than 1986. a lot of the work was done behind the scenes. a proposal was. that work behind the scenes involve the same positions that are involved in today's discussion. the white house, the secretary , this isry, leadership the process working the way it should. at the end the day, revenue bills have to originate in the house. that theurprise to me is going to bee playing an important role. from the start, the doinistration has tried to is shape framework.

i think that's the appropriate thing for the administration to do. i don't this is a zero sum game. this particular point is better for the congress to start moving further out during the white house has to signal they are in support of this. the president will go out asked week to stop for tax reform. david: we just learned he is going to missouri wednesday. he is going to persuade people we need tax reform. you have been part of that process. explain how much of this is just apparent. the white house said there will be one plan. now they are taking a different path. could they not get agreement on the six individuals western mark

why is taking up to capitol hill going to make it easier? >> i don't think it makes it worse. it puts it in the normal process used to produce legislation. comparisonawing the to obamacare. one of the problems was there was a feeling they had a plan right away. this is sausage making. you have to get into the details. what you have a treasury are people who can actually help devise the changes you need to meet the goals you are setting. treasury has to be with the congress on that. at the end of the day, the congress writes legislation.

i don't see a problem with the ship. i would've been concerned with the white house just said to the congress, it's all yours. that they worked out a framework, i think that puts us in a better position than in previous legislation efforts. joanathan: business administration a big them of their own goals? we've been told that august was the month. it is september next week. >> they are learning that it takes more time than people expect to get things done in washington. our founding fathers set out to create an inefficient central government and they had lived under brutally efficient monarchies. they set up a system that was assigned to make it difficult to do things in washington. they may have exceeded their expectations.

what you have to do in washington is separate the urgent rummy important. tax reform is very important. they need to address spending. there is not much time to deal with the debt ceiling and the spending. it doesn't seem like he republicans are together. requestedent said i they tie the debt ceiling legislation into the the a's. now we have a big you with democrats holding them up. is he right? did they forgo an opportunity? >> i don't know the details of the community asian between the white house and the congress. debt limit is never easy. ice that halloween 1985 and

federal court defending the right to cut checks were so sturdy recipients the next day because the debt limit had not and raised. this has been around a long time. this is the first debt limit fight of the new administration. is paul ryan is correct and it's going to get done. it's a question of when and how. it's always a difficult fight. david: when you have people from different sides of the aisle. we now have republicans in the white house. he is criticizing the leaders. is that constructive? is he helping or hindering on wings like tax reform and things like the debt dealing western mark -- that ceiling?

interpartyng is an and intraparty issue. surenk you have to make you get as much consensus inside your own party to deal with the other side. if you can't get that, still need the votes. of it wouldn't be bad for the country to see a way for more democrats to vote for it along with republicans. that would be harbinger of what might come on tax reform. the ambassador will be staying with us. next week, we have a list of very important yes. of life from new york, this is bloomberg. ♪

emma: coming up, more from jackson hole, and interview with robert kaplan at 9:00 area this is bloomberg. now to your business flash. chrysler is speculating it might select but it's -- portfolio. it reviews strategic proposals and are considering options. there is speculation that aircraft parts and effexor might be moving to a deal with united to elegies. they canceled a roadshow. united tech knowledge he made an initial offer.

over is some nervousness how well the largest economy can keep growing. corporate confidence in germany weakened slightly. one of the concerns was a stronger euro. that is the bloomberg business flash. joanathan: some people are hoping a strong euro hurts germany. interviewers of our eastern to ask about the next government. merkel is avoiding the question. is the us now ambassador. the 90's, what a time to be in germany. for running germany this account surplus.

from where they are to where now, talk about that process. >> a tremendous amount of work in the early 90's was done by the germans themselves in economic and financial terms. paid 100 ilion dollars a year starting in 1991 to transfer the system to the east. that continues. they have a solidarity surtax to pay for unification, all done i themselves. that, germany did not see the landscape that helmut kohl talked about as quickly as expected. they went into a mild recession in the mid-90's. it was the social democratic

government that did the labor reforms. that later put germany in a better position to withstand the financial crisis in 2009. i won't say they've done everything correct. what a lot of people criticize austerity, they would say it's fiscal discipline. thishan: when we have conversation about germany, should germany be looked at as a model? >> i think there is a lot that can be learned from germany, especially around discipline. keeping your promises, saying what you mean in meaning which work under think the

the leadership has been excellent in terms of that budget read -- budget. the labor market is too tough attitudes difficult to start new businesses in germany. they don't have a challenge japan does. what they have to do is unleash the entrepreneurial spirit is where is maintaining discipline. everybody's hat is off to germany. they have an offended either act that they have an economy tied to a larger european economic -- economy. mark,were just the german they would not have an easy time exporting. >> through 1945, there had never been a time when the landmass of

germany had been at peace for more than 20 years. it's now but it is for over 70 years. the european experiment has let side ofhem to german unity nation was european immigration. we have people in germany who are proud to be german and willing to say that. they are proud to be europeans. strong people who are trans-atlanticist. david: we forget that she came from what was considered east germany. her?as that influenced very searing part of her up ringing, to see how her family moved into the east when she was young.

she had to grow up within those strictures. she was quite successful. at the end of the day, she knew how fortunate they were when freedom came. she understood how good that was for european more broadly. you have someone who has been a good german leader. madeact is has always clear that germany's future is with europe and has a transatlantic base. if you have a terminal and you want to check out tv , you can watch us online. you can interact with us directly. just go to tv on your terminal. life from new york, this is bloomberg. ♪

david: we think about the import and export of goods and that is only part of the story and that is diminishing in financial services. formerith us is the secretary. he is now with a prominent russian law firm. talk to us about the question of barriers to investment and services. are openements investment and free trade. we talk a lot about range rates and trade. flows thaty capital are the lifeblood of the economy. the most worrisome trend i see in the global economy is rising investment protectionism.

we have seen that move before. this investment protectionism is very concerning. germany justut of tightened their review law because of denver -- concerns about chinese investment. he is going to give a speech about a european wide investment. the commission does not have confidence on security. if they put a law in place, it's going to be reviewing for political reciprocity and other focuses. we have a filament congress that would tighten the committee on foreign investment area that's at a time when one of the reasons local economy is doing that we have had this commitment to open investment and outliers like china.

the trend seems to be tightening. to what extent is the united states doing political considerations? >> they always creep then. the review process on security matters, every investment takes place in a broader political climate. it was blocked by the congress. it never got into the process. when he career people had approved it, it was turned over by pression from the government. what the government should do is have open investment policies that say we not only want but we will compete for that investment. we are not going to let it harm our national security. you have to define national security in a way that focuses on that type of concern.

weren't forf it china, would we be talking about this right now? >> china has catalyzed the discussion, particularly efforts in tech knowledge he and other areas. what we see in the u.s. and abroad, that catalyst has had emanations that affect other countries and sectors. at the end of the day, we have to go back to a global commitment to open investment. joanathan: it was great to have you on the program. coming up, bloomberg real yield. from new york, is bloomberg. ♪

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for speeches and jackson hole. janet yellen speaks this morning and draghi this afternoon. president trump alida campaign for tax reform. republican lawmakers will hash out the details. strengthens ony its path of the coast. oil refineries are halting operations. to our viewers worldwide, good morning. i am jonathan ferro. alix steel is on assignment. futures are positive, they are up 1% after yesterday's small moves. at 118.60. yields go nowhere. david: it's time now for the morning brief. we will look at the durable goods orders and at 9:00, an interview with robert kaplan.

at 10:00, we will hear from janet yellen. at 2:00, be president mario draghi will be speaking at jackson hole. the question for the fed, where has the inflation gone? should that affect the decision to raise rates? we have heard different approaches. i think about inflation, i think about our mandate, which is right stability. relative to a growing economy, we are adding jobs. i think we are in a good place and we should have monetary policy. we should begin to gradually remove accommodation. we are moving in the right direction. i think we are. get backion may well to the 2% target.

you have to understand the cyclical forces and the model that would suit just what the forces would have been offset by new forces, which you can understand by looking at industries and talking to ceos. big day inill be a wyoming. we are joined by michael mckee. do hearaid earlier, we from the dallas fed president. the world is changing. maybe some of the ways we look at it don't apply anymore. a question of why you are raising rates at this point. if it's because inflation should rise when unemployment falls. kaplan wonders if we see the models break down.

will we see inflation stuck at lower levels. let's wait and see what happens. this debate will be going on throughout the conference. facing the same problem here in jackson hole. >> she is not likely to address this? michael: probably not. this is not a conference about him term policy. -- medium-term policy. growth ato continue the higher levels. we don't think she or draghi will come out with -- specific policy prescriptions. once in a while, that happens.

joanathan: with wage growth, when you look at real wage growth and what's coming down the pike for consumers, food prices are falling for the last year and half. whole is taking over foods and cutting prices. why are falling prices seen as a bad thing? michael: if you are a company and prices are falling, you have to cut expenses. cutway to do that is to salaries. nobody wants to do that. that would lead to a decline in living standards. that's a major concern for central bankers. that's why they fought against deflation during the recession. them take thee opposite view.

it may not be time to cut rates, it may be time to slow down raising them. joanathan: we've got a big lineup coming up. talk to me about what is coming up. behael: janet yellen will talking about financial stability. does she talk about asset markets and whether or not central banks can do anything about that? that she simply talk about regulation and whether the banks are in shape. mario draghi is the other speaker ending the day. you will speak after the luncheon. if he will talk about austrian a dynamic economy. he will stick to the topic, debt abroad. is he going to talk about the ecb and the units qe. that that is he will not.

there will be a lot of theory. joanathan: it's great to have you with us on the program. joining us is the market strategist. let's begin with you. two significant things collide, this concern about financial stability. that collides with soft inflation and the fed folding that into their outlook. >> i am going to seize on one word kaplan mentioned, he said i have faith that inflation is going to rise. that's an incredibly telling word. nearly every statistical model shows we should have some patient. there has been a tight labor market. it simply hasn't happened. the models used to establish

inflation appear roque in. the recovery has dragged on. in terms of financial stability, low market volatility has a lot of headlines. it's probably a good ring. prices are relatively narrow. equity markets are rising. a lack of volatility is not a bad thing. while inflation is going wrong lack of volatility gives fed room to work. >> i do think they have to be concerned and aware of it. and alan greenspan effect, they have some severe and an intensive consequences. he, you have local place you get higher levels of

leverage creeping back into the investment firm industry. they have to be aware of this. david: should they be worried for the related reason, as much as they have tried to get inflation going, they are creating a possible distortion to asset values? >> a have to wonder to what extent janet yellen will come full circle. i think it right the yellen. said the magnitude in nature of financial stability was warrant monetary policy. i don't know that is a longer true. a mandate.med having think on their radar.

, the thing iy worry about a level of capital the seller nation going on. one of the functions of market is capital efficient. i'm not sure that's what tapping. that's why we have low productivity. joanathan: you think there might be some distortion western mark i wonder why that is. $2 trillion do that for you. >> that's why people are watching draghi. they have and distorting bond markets by buying corporate bonds. it has had a massive affect on the market. >> the ecb is a full room right now. it is moving tighter.

that is a clear trajectory. maintains trying to easing or start tightening. david: you know the chart. this is very interesting. this is the ratio of daily earnings with what it cost to buy a share on the s&p. this is compared to what's going on the voyage pressure. it's a great chart. i did swear earlier this week and i labeled it wall street versus main street area it was in conjunction with an explosion in central bank balance sheets. benefited? i think it's clear to say that has support asset market.

that is not trickle down. we get mired into a discussion of what the central banks haven't been that's fine. the problem is to what degree? i think central bank are part of the problem. they are the biggest market abusers. cycle,his time in the it's not working. we don't see that inflation. by continue with the same efforts that are not working? a four-point rate has the effect as it did 50 years ago. the mechanisms aren't roving. they have just changed. of a great example is u.s. mortgages.

of long-term rates come down. people refinance their mortgage. you don't get that same reverse effect. it is a point to make. there is more impact on how the financial markets work. joanathan: you are sticking with this. up, or from jackson hole, and interview with robert kaplan at 9:00. get the speech from fed chair janet yellen. they coming up room wyoming. we are counting down to the opening bell. futures are positive. you are watching bloomberg. ♪

emma: the vice-chairman of samsung faces five years in prison. they found him guilty of bribery and perjury. he said he is innocent and plans to appeal. corporate confidence in germany weakened this month. that's according to a highly watched gauge. a euro that is stronger may help. the markets brace for beaches. -- speeches.

i think his speech might be more important than yellen's speech to margaret >> investors should pay more attention to draghi. >> i will pay more attention to mario draghi. --i don't expect yannick janet yellen to say anything. speechan: why is the drawing so much attention? his last appearance was three years ago where he laid the groundwork for the qe program. now it's kind of the reverse. the story with cb, does that really hold the key? among the growth in the central bank, if you look at the behavior of 10 year bonds, there

is a huge degree of skepticism from the markets that these asset purchases will slow down. >> i was going to say the same thing. there is potential tapering and >> werket may selloff in are talking about .1%. is that skepticism wanted at this point? have we been conditioned by the mistakes made it ecb before? >> i don't know if it's a prudent course of action. david: what about this? it looks like they set this up to say this is what we will do until december. what happens in january?

justify bonds at this rate? expectations, the careful to give it some wiggle room into the fourth quarter 2017. i think that's completely correct. they are continuing the program. having said that, there is an appealing narrative about qe. i don't see that happening. press aboutd in the what might be on the table in some number.

they don't know what they are going to be doing after september. i don't think we are quite there yet. we will get there. the market might be jumping the gun. the ecb is somewhat political. i'm not sure this is a story for jackson hole. joanathan: we do like beautiful stories. >> there is a question in the markets right now. the more the euro strengthens, the more it resents a headwind to the european me. the ecb has already asked rest concern about the euro strengthening. there is a question of how long they will remain dovish as the economy accelerates. this is the one disconnect in the market. the euro isn't strong enough. this is something to watch. we are going to pull of

the terminal chart here. what you will see as the white line, the blue line is the ecb. japan is yellow. it has been coming down in europe. at what point do they say why keep doing it? >> the transmission mechanism between bond buying interest rates and boosting inflation are delayed. that said, there are examples such as with going on with japan where an aggressive and unbounded easing monetary policy is stoking inflation expectations. the degree required to reach that level is so far beyond what -- federal reserve is doing. david: ok.

they will all be staying with us. coming up next week, i will sit down with warren buffett, the berkshire hathaway chairman and ceo. live from new york, this is bloomberg. ♪

david: hurricane harvey is its acted to be hurricane 3 by the time it hit the mainland. how much of an effect will this have on refineries?

>> we don't see any movement in the market, which i thought was fascinating area there is no increase in natural gas prices or crude prices. there seems to be nothing. the other thing, i was reading about how a massive storm and country couldhe destabilize the u.s. economy. this could be very serious. david: what could it do to gdp growth? >> it could torpedo it if it were bad enough. people than raising concerns about this four-door of refiners. we see nothing in the price action. joanathan: we can't have a forecast based on a weather forecast. can things like this really take a bite out of gdp western mark >> a little bit. we are talking about growth that 3%.

the actual growth rate is less than 1%. it can impact adp growth. it, 50% is somewhere in the path of the storm. we're starting from a position where we have a good oversupply of product. a negative price a couple of weeks down the road. because of that oversupply point, the impact is not as fears. one question that springs to mind, there has been little gas shut in. this may create some flooding. that could cause some problem's with natural gas. he will be sticking with us. lisa will stay with us as well. el-erian willamed

be joining us. actually, i don't know if lisa will stay with us. we are one hour in four minutes away from the cash open. it --p 500 is positive or positive. we have a weaker dollar story. the euro is set right now. you are watching number tv. ♪

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the s&p 500 negative on the month so far, could be the first month that they drop on the benchmark in the united states. and ahead of the jackson hole speech, the yield is up on the 10-year treasury. right now the dollar is dead flat against the euro. the story of the data here in the united states, durable goods for july,cked by .8% the survey, -6%. exportn you strip out transportation, durable goods capital goods orders may come in at positive 0.4%, takein line, but if you nondefense ex air, that comes in positive. nothing really to worry about in

the numbers coming out this morning. we have lisa abramowicz bloomberg gadfly and she is also a radio anchor, we've established today. [laughter] michael, let's turn to you. this is one data point. how does it fit in with the data points you are looking at? are trending water, aren't we. trend,a little bit above at least according to domestic economists and the feds. i think we are averaging a .ix-month basis on nonfarm so really there's nothing dramatic in either direction. of course, one thing that is -- that has signaling not happened is this elevation to a 3%-plus

growth retention. that's probably not quite surprising when you look at the trump administration at the moment. the best retention has long since moved to the eurozone anyway and that's one of the best reasons that has contributed to dollar weakness and your strength. the dollare need strength? the pressure is low. growth.a nice 2ish >> it seems to support in the fixed income markets, which is my specialty. think the i historical valuations, when we get to those levels, the next most likely large event will be down rather than opt. jonathan: coming into another year with treasuries around the 2.5% mark.

we have said yield is going to go high. yield is going to go hide. and here we are. what is going on with treasuries and why are people getting it so wrong? i will pull the batman villain routine and ask your riddle. buy oratter how much a sell, if the fed says we will hold this at 1.5% for attorney, bere should the 10-year i set? jonathan: you tell me. guy: probably around 1.5 percent. this is a rational approach because the alternative to buying that 10-year treasury yield and investing it over night, every night, we know it is going to be. lisa: you make it sounds

illogical. it has generated continuity in markets. -- you make it sound so logical. amazon will immediately drop prices, right question mark amidst all the sudden, challenging the idea of accelerating inflation and raising the specter of more disinflation in the food industry. we can argue whether that will end up being lower inflation overall. there will be fundamental changes in the way that people consume that will threaten the model of inflation. so, i think that -- guy: phenomenal growth rate. growth rate.nal sorry. this is the key question for yields being low. as amazon goes, and you and i went back-and-forth on twitter on this yesterday,

growth rate is a small portion of the big picture. most of what we pay for an most of what increases in price for the last 10 years are frankly either prices or servicing. servicing --e value has been significant, despite home values coming up astronomically, housing inflation has been slow. tell this to the federal reserve and they say, oh, no, we've got a problem. why is there that disconnect? guy: there is one good thing that we can talk about. if i can borrow someone's iphone, i will wave and in front of the camera. these are the hedonic improvements for improved technology. that's getting deep into the weeds and it's hard to understand the improvements down road.

i can imagine monetary policy will influence the pace of technological advancement and how apple and google will price it. david: scarcity has been your friend. scarcity will give you pricing power and allow you to move forward. we are looking at a world where it looks like scarcity is gone away. globalization, you can take overseas. digital -- there is no scarcity and digits. wage earners cannot demand better wages. is that a good thing or a bad thing? is this a new model? michael: good thing or a bad thing depends on what you think poin certainlyt drink the transitionis, is very disorienting for individuals, has caused. all kinds of social political backlash. and we have central bankers, policymakers concerned, it's also disorienting for them and in reference to previous cycles , i think we just

need to start with a clean sheet rather than trying to reverse engineer things. look at what policy stakes are rising from this. i don't think we should be too fixated about that 2% inflation number. i think we are at the stage where there are significant distortions in capital markets. those bond yields, by the way, frankly, if i try to get my head around that, i have to figure about what that means in practice. honesthave an open and discussion. i think that might be unnerving for markets. but at the moment -- a hammer probably looks like a nail and

that is where we are. it's complete cul-de-sac in terms of policymaking. jonathan: with got to leave it there. bloomberg's lisa abramowicz will be sticking with us -- he won't be. [laughter] david: she's got a radio. jonathan: she's got the radio. she's got to go. you, jonathan. the u.s. is likely to unveil more sanctions on venezuela today. that is according to people familiar with the matter. the trump administration wants to punish the government. next week president trump will a campaign for tax reform. he will not be pushing his own plan or any specifics. leaving up to congress to develop the legislation. silenttaying relatively

all summer, boris johnson is joining other brexit advocates and making concessions. johnson acknowledged the u.k. will have to pay to leave the union. just a month ago, he labeled the frexit bill as so-called extortion. today he said "we will meet our obligations." i am emma chandra. this is bloomberg. jonathan: thank you very much. the future of the federal reserve and who might be the chair of the federal reserve as well. from new york city, from that place right there, the beautiful jackson hole, wyoming, two big speeches -- one from chair yellen, the other from mario draghi. ♪

emma: this is "bloomberg markets ." i am emma chandra. coming up, mohamed el-erian. this is bloomberg. jonathan: joining us now with a very special interview from jackson hole, wyoming, michael mckee good morning to you, mike. michael: good morning. i'm here with glenn hubbard, the dean of the columbia business school. he was was the chair of the economic advisers, advice a lot of republican presidential candidates. you know washington very well. the topic of this meeting here fostering aole is

dynamic economy. what does that mean to you? glenn: to me, that means getting productivity up. from a policy perspective is about tax reform and regulatory reform and those will come up in the hallway here if not on the main floor. michael: but that is the question. it's not about policy so much. honestly in tough times monetary policy is important, but this is really about -- michael: you and other conservative columnists it wrote get 3%nth that we can growth. what you think that? glenn: we can get much more greater -- much greater productivity growth if we have the right policy environment, tax or form, revelatory reform. we can also address lost hours worked with health care

reform. but all of this includes policy action. you cannot talk yourself into a economy. i'm hopeful that the congress will come together attacks or form. michael: you are talking about the real problem. coming together and doing anything. you have spent a lot of time in washington. do you think it's possible? glenn: definitely possible. republicans and democrats know our business taxes them is broken. they know the effect it has on productivity and wages. i think a deal that is not huge and speed thing, but focused on business tax changes is politically doable as wishes economical. gary: suggested that they are leaving it back to the hill. what do you expect to come out of this? glenn: i think it will be very centered on business tax reform and i would add to what mr. cohn said. at that point the entire

administration can go out and talks about tax upon. the most important person remains the present review cannot do big tax reform without presidential leadership. the real leadership is still in the white house. michael: i can cut taxes for corporation, but i do not know what they will do with the money. we did tax or nature nation and it all ended up in mergers and acquisitions. it does not necessarily mean that there will be more productivity. glenn: we do need to allow companies to bring back overseas cash. a lot of that will going to investment. it may also go into financial assets, but that is fine. we need to make america the place to invest again. a lower corporate tax will also raisesages because it productivity growth. i think there's bipartisan support. we can't just talk about it. we need to do it. about theet's talk current economy. you want to get to 3% growth.

how far away from that are we? a ways from that, but it will require policy changes. we also have a wind at our back from better local growth, perhaps, than people anticipated. this is an environment where 3% growth is possible. it requires an almost single-minded focus on policy. have issues that are taking attention off of that and that is unfortunate. michael: in terms of monetary policy, they are focused on inflation, which seems to have disappeared. glenn: the fed should always be focus on inflation. that is part of the mandate. has not think inflation totally disappeared. there are incipient pressures. i do not think inflation is rearing its head in a dramatic way. we should continue normalizing rates at a fairly slow pace until everything changes.

michael: do you want to wait and see what happens to inflation? glenn: i think the balance sheet is where i would be putting a lot of my effort. some of my concerns about the size and scope of the economy -- i don'tfocus their and think that they have to be very large until we see a change in the inflation process. onhael: everyone seasons board with the balance sheet -- everyone seems on board with the balance sheet at this point. glenn: yes and no. i think it will be quite manageable. i think the key for the fed is to articulate two things. one, where are we going? second, how are we getting there. -- when wer that hear that. michael: where do you think they

want to go? you thinkis about how about conduct and monetary policy and how do you think of assets from noncrisis periods, and we will be hearing more from the fed on that and we really should. michael: one of the questions is whether the chair is in place next year. you think getting a going on autopilot is -- getting a going on autopilot is in the works? glenn: i don't know about autopilot. i think they're working on it this fall. and new chair will contribute something to the policy discussion, but we will have to wait and see. of his lyon the list of names for new chair is glenn hubbard. are you interested? glenn: i would say the more interesting question is what do you want the fed to do? if you can't answer that question, you can do it.

michael: do you have ideas? glenn: i think the fed needs to be a clearer communicator on the balance sheet and monetary policy. and with financial regulation, the fed has too big of a footprint and we need to think about where regulatory power is ungoverned. michael: glenn hubbard, thank you. if you become fed chair, we want you back in this chair next year. glenn: then i could say more. michael: back to you. david: if you have a bloomberg terminal, check out tv , you can interact with us directly. just go to tv on your terminal. live from new york and jackson hole, this is bloomberg. ♪

jonathan: in just over an hour, the speech from the fed chair in jackson hole, wyoming will drop across the wires. we know it's going to be about financial stability. noside of that, there is

detail. let's just say that. we are 39 minutes away. we are off 39 points on the dow. yields are going nowhere. and three dollars showing some weakness. muchhe dollar is pretty unchanged on the day. david: you know it is strong? grocery is. grocers. time makingsting no changes, announcing they will be cutting prices at whole foods as early as monday. kroger and supervalu closed at multiyear lows and the selloff is extended into european trading as early as today. i will mention -- a dutch company, but most of the sales had changed.

joining us now, our bloomberg senior reporter. i was really struck at how wide in effect this price announcement had. >> i was surprised by the surprise, to be honest or it yes, they have a lot of exposure to the u.s., but marks and spencer, tesco being down question mark whole foods has a stores in the u.k. that's just a sign of the amazon effect. just a sign that everyone thinks that any space they go into they will totally reshape and any income a player is at risk. david: we have known that amazon is buying whole foods. >> they're coming prices. we knew that would happen. they knew they would integrate prime into whole foods. we knew probably they were going to throw amazon lockers in there as well. it's more to the case that these grocers are at risk. there's an ongoing price war in grocery. there is deflation.

you have new discount is coming in. european upstarts coming in with very no-frills, basic approach and they are doing extraordinarily well in the u.s. and this is combining to create a public -- perfect storm of badness. a lot of people think we will see the same thing we have seen in grocery that we have seen apparel retail over the last years area jonathan: you are in london recently. i am wondering if the tesco experience as a case study in the u.k. of what we are about to see happen in the united states. says by the u.k. is the u.s. on steroids, if you can believe it. the u.k. grocers know how to amazon. it's a tougher market. the operating margins are much lower for operators like sainsbury's, tesco then you would see for kroger or even whole foods. david: i have not lived in

london for a long time. when you say they know how to battle amazon, what do you mean? i right now.lf business andonline we would never know that. when i lived in the u.k., we would get our groceries from tesco.com, and they are very good online delivery. they are very good. not to see that there will not be an effect. these grocers are used to cut through -- cutthroat competition. jonathan: they will be cutting prices, cutting prices. david and i were having this conversation. do it a handle on ultimately what they do want to do with whole foods? >> distribution points for certain. we know that. the ability to integrate prime into more people's lives. there is a big overlap between

prime members and whole foods shoppers. they are basically the same people, something like a two thirds overlap. when amazon bought a whole foods, a guy said, amazon was buying customers it already had, but if it can extend a foods, prices down, get new, curious shoppers who may be have never bought organic baby kale or thought whole foods was out of the reach, that is going to help. it will help build this prime ecosystem that is bringing is everything from tv to streaming video. jonathan: you can cut back the kill 90%. of next, an important interview from jackson hole with dallas fed president robert kaplan. you are watching bloomberg tv. ♪

is bracinghe market

for speeches at jackson hole. chair yellen and 30 minutes from now. president trump will lead a campaign to rally support for tax reform but republican lawmakers will hash out the details. oil refiners began halting operations. we will monitor the path of hurricane harvey. from new york city, good morning, good morning. welcome to "bloomberg markets." from the opening bell here in new york. what action back today we have two open up the trading week. the euro was a whole lot stronger than it was right now. we pulled back on the session ahead of those remarks from fed chair janet yellen. yields are going nowhere. markets more broadly appear to be in a holding pattern.

anticipating two speeches, one by fed chair janet yellen, the other by ecb president mario draghi. joining me, mohamed el-erian. great to have you on the program. i will not ask you to get out a crystal ball and predict the future, but i will ask you the kind of things you are looking to come out of this. mohamed: good morning. i'm looking for three things. one is when they come out on this tension for monetary policy on the one hand between inflation being too low, which means remain loose, but on the other hand, elevated -- the fed minutes how it elevated -- with financial stability that you should continue tightening. second, what to do if more than one central bank is trying to normalize, and this happens? specifically for the ecb, what is it thinking in terms of its paper program? list. a very ambitious

i doubt we will you're all three, but that's what i would like them to be addressing. jonathan: let's start with the first point add worker withdrew. the tension between lose financial conditions, valuations, explore that further for me. what you think will be the ultimate resolution? what is the appropriate policy response? mohamed: the market believes that low inflation will prevail when it comes to policy action. that is why it has priced lower the path of interest rate hikes. i'm not so sure, jon. i think we see more central bankers talk about the risk of financial stability and they do care about it because it could undermine financial growth. i would suspect that the market is too sanguine when a carrier -- when it comes to how much central bankers are thinking. david: do you think that markets

distorted by the rampant quantitative easing? and can they bring that back without destruction? there is no doubt in my mind, david. i think of three things. returns, but ua, and volatility. all 3.2 a distorted financial market and understandably so -- a distortedint to financial market and understandably so. the fed has targeted a macroeconomy. we have distorted markets for a good reason. hopefully they can get validated by better fundamentals that result from a policy handoff, but the process -- the prospects for that are not great right now. are a central banker, what do you do? you cannot count on washington at this point. i think that is right.

to borrow a value's, they talk the beautiful deleveraging. i call it the beautiful normalization. they have gotten quite far on it. they stopped qe, they raised interest rates three times. slowly reduce the $4.5 trillion balance she. the fed is quite advanced in this beautiful normalization. jonathan: as those headlines cross from the fed chair and about 60 minutes, as she is worried about violation, does it mean anything if they are not going to do anything about it? they are a warning to the markets not to rely on federal banks all the time. jonathan: mohamed el-erian. and i guess the problem is we continue to rely on the banks of the time. you will be sticking with this. this is the story so far. futures are positive. euro-dollar pretty much goes nowhere. price action in the

fx market and the treasury market as well with yields roundabout 2.2. i am pleased we can go to jackson hole, wyoming where michael mckee is standing by with a special guest. good morning to you, mike. morning.good we like to welcome all of our viewers to bloomberg television and listeners to bloomberg radio as we speak with robert kaplan, the fed of the federal reserve tank of dallas. you have given a number of speeches in recent days and interviews in which you have said you want to because this about monetary policy. let me put it bluntly. what are you afraid of? what are you being cautious about? the word i have used is patient. here is why i am patient. i have been an advocate that the fed raise runs -- raise rates twice this year.

miley judgment is we are making progress on full of women, gdp should grow in excess of 2% this year. we are obviously not meeting our inflation target. but the bigger thing is we are closer to be neutral rate then people might think. saidars ago i might have that we needed the neutral rate. today i think that number is two, betweene mid- two and three. they were accommodative, but not as accommodative as people think. there are structural forces in the economy. we should be gradually and patiently -- and i think we can afford to do this gradually and patiently and that's all i have been advocated -- all i have been advocating. i think we can afford to be patient. that does not mean we might not raise one more time this year, -- i like to see one more

would like to see more data we are making progress. staysl: if inflation where it is, does that rule out december for you? >> i don't want to prejudge it. as we remove slack from the labor force, we are creating some wage pressure. we will have some price pressure. not the way we would have seen historically. i think inflation pressures are moving. i think they are moving gradually and i think the red move accommodation gradually and patiently. michael: do you think with the current level of interest rates there's any danger to the economy that the fed could slow things down? if you leave rates where they are, is that going to help bring inflation? the key that you are

talking about is are we accommodative? we clearly are. we are still accommodative, and i think all things being equal, that should stimulate the economy and that is where we are. i think the performance of the economy is consistent with that view. janet yellen speaking today. there are colleagues you make the case with the fed the tightening with seen financial conditions are still getting looser and that justifies a rate increase. robert: so, the thing that i -- and i've spent my life in the markets. i'm not a phd economist. i'm a business person. -- low cap rates for business, what i am looking for is debt buildup associated with those high valuations and that is what i'm watching for. i think a market valuation or real estate valuation will not

.reate a systemic risk i think it might be healthy. but i'm looking for debt buildup associated with it. so far, i don't see that, but i am watching for it. one of the reasons i have not seen it, we have very strong measures for banks. debt am more focused on hold up and other excesses than the ua shin. but we should get higher creditons and tighter spreads. it tends to encourage people to reach for liquid assets. are there other asset classes? i am watching for excess debt buildup or people in asset classes that look liquid, but prices become illiquid. i have been scrutinizing and i've said this publicly, the

high-yield funds that offer liquidity. is aw that high-yield great example of something that might look great today and creates a mismatch. i think the industry has tried that, but that is an example of the excess i am watching. obviously credit default swaps, counterparty exposure, those things, i think we have a better grip on because we have good stress testing. we did not have good stress testing pre-crisis and the biggest thing in all of this talk about regulatory review -- which is healthy -- we need to maintain the big banks stress testing and that is how you get out of the stress scenario what you get out of these embedded imbalances. i think investors have gotten used to the idea that rates will be lower for longer.

with the 10-year treasury at 2.2 globalximately and interest rates lower, i think people are getting comfortable with the idea that maybe we lowld get used to these rates and the reason that they are getting used to it is perspective growth while it is solid, it does not look like it will get meaningfully better. one of those reasons is the aging population, slower , so ironically, even though aging demographics and other headwinds should slow gdp growth and keep rates low, so investors start to get comfortable with low cap rates for real estate, a higher pe might be justified because we will be in this for an extended time. member, is a voting there any reason to expect that you would not do this in september?

robert: i think we should begin on the balance sheet as soon as possible. it's a healthy thing. it's a good thing. central banks around the world on a substantial portion of government bonds. it may be having some effect on the 10-year. i think that would be a good thing. i think we articulate a very clear plan publicly on how we are going to reduce the balance sheet. we have time to get started and i think we can do this and are appropriate way and get our in an appropriate way in get our balance sheet sorted and we should start that same. jackson holere in with robert kaplan. we are live around the world on bloomberg television and radio. let's keep talking about the balance sheet. what impact do you think it will have on markets? when you blew up the balance sheet, asset prices rose. are going to see the same things happen in reverse? robert: here is what has

changed. from the time i was observer in the balance sheet watching this to when we did it -- because i was not at the fed at the time, at the time the fed started to do qe and pythons, it was in the early stages globally of central banks buying more government bonds. we are now in a time today where we have in a norma's amount of liquidity. it's not just the fed. other central banks have participated in this. we have crafted a plan where -- we are not selling these securities. we are simply not replacing , andities as they come due we will do this in a phased in way. we have articulated that. market participants are well aware of it. we have not seen -- if anything and10-year have done this

we do this in a way that minimizes the impact on the mortgage-backed securities market and i think this has been a plan that has been well communicated and i think it should be effective. not know what mario draghi is going to say but the ecb has said that they will stop buying at the end of the year in their qe program. how do you think the combination of the fed and the ecb will impact bond yields? do you have any forecast? so, there is no textbook for building up the balance sheet and there's no textbook for winding it down other than what i tend to look at with treasuries and mortgage-backed securities, what is the daily volume and what is the size we are talking about running down as a percentage of daily volume? to my eye, this is very manageable. right now they're just talking

about way to go. i believe we have done this in a way that will minimize the impact on the market. michael: if you think the neutral rate is lower than we might otherwise believe, does that imply you will be ratcheting down your forecast when you get to the next summary of economic projections in september? over the years, as you wherethe terminal rate, all of the central bankers say we are going to stop, it has been inching down over the last number of years. it may have a little bit further to go. myill speak for myself and others around the table. i love the view that the terminal rate is lower. my view on what the terminal rate is is lower than what it was two years ago.

we will have to see. i will be submitting this in september. i don't want to pre-preview that -- michael: oh, come on that. robert: i think it is closer to 2.5% than 3%. michael: let's put it this way. is the market closer? robert: it looks like the market is assuming the neutral rate is lower than we might have said. but the truth is, if you look at the 10-year treasury, some of that might be central bank liquidity. that tells you a little bit about the expectations of future growth. , ihink like everything else don't always understand what the market is saying, but i always try to pay attention to what the market say -- to what the market say. michael: we have a question from a viewer along those lines. what are the forces that have changed the neutral rate? robert: i think the biggest

driver is cross reg's future growth. the biggest of fat -- the biggest thing affecting this is demographic. -- the workforce growth is slowing. it's going on in most of the world. this is an issue facing china. we have offset that by increasing their leverage, but they have a population issue. gdp is made up of growth in the workforce and growth and productivity. so, if you have a slow growing workforce, you can deal with that by getting more women into the workforce, people live -- working longer, training, which i have been a big advocate of an immigration has been a way of growing the workforce historically. but where we stand outcome of this lower neutral rate is a function of slower growth and that has been a function of

sluggish demographic trends that go on for number of years. we can do things to deal with them, but the reality is workforce growth is projected to change over the next 10 years. are you optimistic or pessimistic about what is going to happen on the fiscal side and are you concerned at all about a debt ceiling crisis? robert: as a central banker i am careful about publicly and capping -- as a business person i tried to regularly handicap, but as a business banker i try to think about what i think should happen. ishink regulatory growth positive. infrastructure spending, i think, could be very helpful. tax reform, underlying reform could be positive. i'm a little more concerned about policies relating to train and immigration -- two trade and

immigration because that can be a source of growth. in so, i am watching these different policies and i try to speak out on once i think will help and ones that will create more headwinds. thankl: robert kaplan, you for joining us worldwide on timber television and radio. back to you in the studio. thank you for a terrific, interesting interview. still with us to react to the conversation from jackson hole, mohamed el-erian. i really want to focus on the neutral rate, where the fed it'sdent kaplan as said going down, going down principally because of demographics. and he does not expect the same sort of growth or we should not expect the same sort of growth. do you agree? mohamed: yes. that was a great interview with a very thoughtful president kaplan. i do agree the neutral rate is

probably between 2% and 3%. i do agree that this means policy remains a accommodative and i do agree that structural .orces are having a big impact i also agree with what he said about balance sheet reduction, that he does not expect it to disrupt markets. where i might add a little to his emphasis is about the risk of financial instability -- not within the banking sector. i think the banking sector is solid, but in terms of the extent, particularly the that the system has liquidity for investors through the proliferation of etf's in less liquid asset classes. i think that is an important issue and i'm glad he explored it. david: where would you expect to see that first? if you look at the

proliferation of the etf's in emerging markets they are basically promising liquidity to investors even when the governing market paradigm changes. investor, what do you do when you are rationed in a certain as a class? you sell something else. when you sell something else, you create contagion. that is an issue i think central bankers should be focusing on and it is outside of the normal domain. at thee trained to look banks. as banks have gotten safer risk as monk -- risk has migrated to nonbanks. if i listen to the interview again and i was an investor, didn't mr. caplan just validate market pricing in the treasury market in a quite if attic way? you to doeah, he told

things. he says he wants patience and gradualism, and that is what the market is pricing in. but he also warned and said people are getting used to lower for longer. right? that could be interpreted one of two ways. i think he validated the market pricing by downplaying the need for a rate hike and by downplaying financial risk. that, when hend was asked the question about investors being complacent, he did not ask that question directly. he followed up by saying investors have gotten used to the idea that rates will remain lower for longer, but he followed that up by saying rates will stay lower for longer. against this conversation of complacency, they might be uncomfortable with market valuations, but it does not say that it necessarily is wrong.

jonathan: --mohamed: it was hard for him to say anything else. he was careful answering mike mckee felt question about the ecb and what happens if more than one central bank goes on a normalization policy at the same time. that is a question we do not have an answer for. we may have a situation in the next 12 months, if the global economy can use to improve, where it's not just the fed normalizing, it is the bank of japan, the bank in china. that's an important issue to keep on the radar screen. david: i want to focus on the word contagion -- not in the banking sector as much, but the non-bank sector and perhaps a mismatch of liquidity going on. what should a central bankers such as mr. kaplan be doing to avoid that danger because that starts to sound a little like

2007, 2008. it's a little like 2007, 2008, but with a huge difference. banks have gone a long way in strengthening the payment system and they have gone a long way in strengthening the u.s. banking system as a whole. the risk of a sudden stop and economic activity as we saw in the last quarter of 2008 and the first quarter of 2009 is pretty low. you can get stability that undermines economic growth and that is the concern for central banks. what should they do? they should slowly reduce the support for the market so, to put a question over what markets assume which is that central banks will be there bff's. markets have been conditioned to believe that central banks will always repress volatility and i think the time has come to

change that conditioning, but in a very gradual way. jonathan: when we began this conversation you outlined three points you want to see come from jackson hole, questions you want answers to. one of the questions is whether these guys can do it at the same time. ecbhave a fed chair, and president and a bank of japan governor, can they do the same thing at the same time? only if the other policymaking entity a step up to their responsibilities. in the united states, that means congress and the administration making progress on tax reform, the regulation, infrastructure, and using that as a foundation to do more on the functioning of the labor market that president kaplan talked about, doing more about labor the training. so, yes, they can do it, but if and only if other policymaking entity step up for their

responsibilities. jonathan: it's great to have you with us. you are sticking with us. mohamed el-erian. stay with us. we are counting down to the opening bell. the market open will happen in almost exactly four minutes time. s&p 500 futures are positive. a quarter of 1%. the story of the bond market as follows -- it yields about four basis points higher. in the fx market, euro-dollar treading water over the last couple hours at around 118 -- 4 at the moment. this is bloomberg. ♪

jonathan: from new york, this is "bloomberg daybreak." we are approximately 23 seconds away from the cash open. more precise than that. futures are up, positive by a quarter of 1%.

the benchmark in the united states come all three of those negative on the month so far, but the s&p 500 despite the political chaos drama, whatever you want to call it, whatever side of the debate you are on, we are up on the s&p 500. really what you expect for the summer weeks, but not what you expect with janet yellen remarks dropping in 30 minutes time. five hours after that, we will get remarks from mario draghi as well. the story on bonds as follows. yields about a basis point lower on treasuries. softer,ust a little bit down about a 10th of 1%. let's get the market open this friday. here is abigail doolittle. abigail: we have the buyers stepping up ahead of jackson hole. janet yellen speaking this morning and mario draghi this afternoon. we have modest gains for the dow, s&p 500, and nasdaq.

this follows back-and-forth action this week. days. days and two down weekly gains for the three major averages. that breaks a streak of declines, especially for the nasdaq. a four-week losing streak on the cusp of being broken and a return to a bullish attitude for starts this week. let's see how the day and the week ends. turn into another segment that is bullish right now as hurricane harvey bears down on texas. we are looking at a rally for gas on the week up nearly 6%. this as the refineries are shutting ahead of that storm, but there is still real world demand for gas. prices going higher. the refiners doing well themselves. that is the difference between the input price of oil, which has been going down, and the output of gasoline. marathon not a refiner, but up about 3% on the week. we have a little bit of a bullish edge thi for this part

of the energy complex.lots of drama down in d.c. the debt ceiling. we saw a big issue on the debt ceiling in the crisis back into the 11. it was averted at the last minute, but it had consequences for the financial market even though in the real world it turned out to be much do about nothing if you will. this is the russell 2000 in 2010 into 2011. a beautiful uptrend and then choppy trading right around here in july of 2011 when the debt ceiling was raised by republicans. it was not enough. investors got so edgy, it led to a 30% correction. very interesting. this year, a very quick pop in rally into the tightly range. the interesting thing will be to see whether or not there is drama right down to the last minute and what the effects could be on the russell 2000, especially based on what happened in 2011. with correction back then since the 2000 and crisis, so lots of moving pieces to keep an eye on. jonathan: great work with the

charts. thank you very much. pieced in his latest discussed why we will not see a government shutdown. when push comes to shove, neither political party will wish to be associated with a highly embarrassing downgrade of the u.s. sovereign credit rating. a highly unpopular government shutdown. mohamed is still with us from california. we do not expect that, investors in some ways have to brace for political turmoil at the end of next month. what is the message signaled that you are taking from the current debate? mohamed: i think there is a couple of things. first, we are seeing some signs that markets are paying attention. just look at what happened to the treasury notes relative to november, but the main issue will not be whether we have a technical default, whether we have a government shutdown. i think we will avoid that, but there will be a lot of broken glass. why that matters for markets,

because it further delays things that are already priced into the marketplace, which is progrowth tax reform, program infrastructure. so be careful of the collateral damage from very heated rhetoric and posturing and blame games over the debt ceiling. david: let's try to quantify because one of the biggest problems right now is opportunity cost. for example, there are 12 legislative days in the entire month of september for congress. they have to deal with the debt ceiling, funding , and that is before they can think about tax reform. as a practical matter, might they just run out of time and space to make any substantial progress on the reform area? mohamed: that is a real risk. if that happens, we are going to 8, and weing about 2012 are going to start talking about the midterm elections and how

divided politically this country is and how neither side will want to be seen to be collaborating on something. david. absolutely right, there is an opportunity cost, and the window is much smaller than what a lot of people believe it is. david: we all just listened to that interview with robert kaplan, the dallas fed president. what he said about growth specifically if he thinks deregulation is hopeful. he thinks tax reform, and he emphasized reform is really positive. balance out for media regulation on one hand, tax reform on the other. endless like this administer to move forward on its own with deregulation, not so much tax reform. mohamed: i do not think you can get to 3% growth via deregulation alone. you need deregulation. you need to improve the productive environment. infrastructure really matters.

you need to remove distortions in the tax system. is about tax reform. just cutting rates will not get us there. i believe that is all a foundation, and you have to continue building on progrowth measures. you need a holistic approach, and for that, you need the administration and congress were together. jonathan: gary cohn in the financial times that are getting a a lot of attention with an interview with him. he is ambitious and hopefully will get all of this pass by the end of the year. if that does happen, for the markets right now, the base case is not much will happen, but if it does happen, would you fundamentally change your assessment of financial markets? would you become that bullish? mohamed: yes i would. i would become less worried about the big wedge that has been created between financial assets of here -- up and fundamentals down here. there is a stronger case for arguing fundamentals will validate asset prices.

if they can get things done, it would be great. next week, we will hear more about the administration's plans on this, but it is important to also question, where is congress? jonathan: what is your base case right now? mohamed: the base case is going to attain allt the objectives that the administration has in terms of economic policies because of what is happening in congress. remember, we are seeing now divisions within the republican party, and that is worrisome. david: to go back once again to the kaplan interview, he talked about the terminal right or the neutral rate being close to 2.5% than 3% largely because of growth. we were to get some form of meaningful tax reform passed by the end of the year, what with that due to the neutral rate? what happens? mohamed: i think the main

consequence of that, david, would be that the fed would feel more comfortable about getting to the neutral rate faster. if we were to see major tax reforms, infrastructure efforts, the fed would be much more comfortable about raising rates faster than what is now priced in. jonathan: just to wrap things up with you, probably the most important question for the weekend outside of financial markets, floyd mayweather. david: i knew it. where is your money? fan,ed: i am not a boxing so i look at this from a distance. i am going to ask you, where is your money? jonathan: i am not allowed to have a view. i have a view on the market. david: you are a journalist. jonathan: in the commercial break. mohamed, thank you very much for joining us. appreciate your time and insight as ever. eight or nine minutes until the session. in about 22 minutes time, we

should get those remarks from janet yellen. they will drop a class the bloomberg -- across the bloomberg terminal. full coverage on bloomberg radio. the story of the market so far is a push higher to close the week. positive on the week, negative on the month, but we are pushing one third of 1%. the tone in europe pretty solid. of a really decent rally in the commodity markets over the last quarter, the last month or so. copper up. the story of the market, a bear coming into treasuries. yields higher by about a basis point. 218 is your yield by u.s. tenure. the dollar a little bit softer going into those remarks by janet yellen and later a speech from mario draghi. 1.1812 is how we play on the single currency against the u.s. dollar.positive by about 1/10 of 1%.

the attention of investors worldwide on jackson hole nextming, for the day and the next 20 minutes as we count down to the comments from fed chair janet yellen. this is bloomberg. ♪

>> this is "bloomberg daybreak." i am emma chandra. coming up on monday, alex, former federal reserve five fed chair, joins us. this is bloomberg. the main event today may be the twin bill of janet yellen and mario draghi, but come tomorrow, all eyes will turn from jackson hole las vegas and the battle of the undefeated floyd mayweather. he won 49 bouts. he has lost none and has had no

ties. some consider him the greatest pound for pound boxer of all time. you will be battling it out with somebody who some do not think is a boxer at all. in thecgregor is 19-0 ufc without a blemish on his record as well. there could be upwards of 5 million people spending $100 a piece on showtime. even ringside physicians have warned the fight is not safe, that conor mcgregor can be seriously injured in what oddsmakers say as a bad mismatched. to now take us through the economics of this matchup is chad. we have been talking about this all week long. take us through the economics. start with where it will be, how many people will be there. >> the fights this weekend, we have talked about this for six months. mgm has kind of exclusive rights to the fight, particularly in las vegas. it is a close viewing circuit. if you are trying to watch the fight on the las vegas strip, you can only watch it in an mgm

casino. the fight and the way it will be at the new t-mobile arena, which has been open for over a year. the golden knights will play nhl this upcoming winter. the economics are really favorable towards mgm. there is a lot of parties going on, day parties, night parties, and that is where vegas will thrive. only a handful of people can afford to go to the fight, but everyone was to be part of this day and be around particularly the after party. jonathan: we were looking for tickets on ticketmaster. $2500? david: by $50,000 on the ground level. -- like $15,000 on the ground level. chad: there was a question if they would feel at that price. looks like they are filling. $150 to watch it one of their other arenas on a big screen. david: we are putting out a chart with comparisons to mayweather and manny pacquiao.

the orange thing is the paper view avenue. the yellow is the gate ticket. they are projecting significantly higher on paper view for mcgregor. chad: we are not forecasting that. we are looking at the casino business, but it is projected to generate over $500 million of pay-per-view. we heard as much as $700 million. i know a lot more bars and restaurants are supposed to participate during this fight versus the participation during the mayweather-pacquiao quite. jonathan: the hype for this fight has been absolutely ridiculous. i want to understand when we wake up on sunday morning and it is an absolute fast and away the way people anticipate. e? they buy the next hyp or can this be the line in the sand where people say you cannot do this anymore? chad: there is a lot r iding on the brand of the ufc.

to your earlier point, nobody really knows the true odds. the oddsmakers opened up with mayweather as a massive favorite, a favorite that we have not seen in many of his fights, and now it is kind of closed where it is a little closer about. -- bout. david: yesterday it was like 5.5 to one. chad: at the beginning, it opened at 16 to one. now you have the charts putting big money on mayweather. the average joe's are placing a couple dollars on mcgregor because they want to see it. particularly with the lottery this week. david: how much money could mgm put in their pocket? chad: we think for the quarter -- one thing to remember is august, it will be 110 degrees in vegas. this is a time when people do not want to be in las vegas. gaming revenues and hotel rates are the lowest out of any month in the year. david: is that why they put it then?

specifically because it is a slow time and it will bring people in? chad: mayweather historically has wanted to fight in may. how this played out, this was kind of the right time because of a lack of conventions during the month, and mgm and ufc picked this date. for mgm's bottom line, it can account for anywhere from $10 million and $30 million of ebita. there are big players in the market staying at in the big suites. though one is saw in the movie "the hangover," you will have some players there gambling millions of dollars. boxingn: you mentioned have a new challenge, vegas had a new challenge in the dallas cowboys stadium that came into effect a couple years ago. what has las vegas done in terms of capacity to really address that situation and ensure the likes of floyd mayweather continue to fight in vegas and do not go elsewhere? chad: well, i think you look at some of the best arenas in the world, t-mobile certainly

upgraded vegas's opportunity to get those fights. we toured the facility early this year. it is remarkable one new stadiums can do these days in terms of vips moving in and out, actually putting in two different shows for one arena. there is many arenas out in las vegas. that is why they continue to lean their. david: fair to say it is a one off. was the continuing effect if any on mgm? is there any spill over to the business in general? chad: mgm just went through two years of cost cutting, some nice margin improvement. from a capital allocation standpoint, they considered a dividend earlier in the year. they were talking about buybacks. leverage has just come under a level that makes this a much more investable stock than we have seen over the past couple of years. after next year, after macau and springfield are open, they have nothing to spend. then it is free cash flow

harvest mode. mayweather goes the distance. the most interesting prop bet we have seen, the over and under of punches landed by mcgregor is 30. david: wow. chad: for a 12 round fight. jonathan: floyd will dance around, make it close, and then say we will do it again, and we will be doing it again. david: a little cynicism. jonathan: money talks. [laughter] david: chad, thanks very much for being here. if you have a bloomberg terminal, you want to check out tv . you can watch us online, quick on our trust and graphics, and interact with us directly. live from new york, this is bloomberg. ♪

we are a little closer to the

neutral rate than people might think. i think 10 years ago, i might rate, thethe neutral rate at which we are neither accommodative or restrictive, maybe 4% or 5%. today, i think that number may be as closer to the mid-2%, between 2% and 3%. i believe we should be moving on the balance sheet as soon as possible in the very near future, and i think beginning this balance sheet reduction is a healthy thing, a good thing. jonathan: that was robert kaplan earlier on bloomberg tv. now let's take a look at the rest of the day' agenda ins jackson hole. what a day we have coming up. at 10:00 a.m. eastern, we will hear from janet yellen. remarks will drop across the bloomberg terminal.later at 3:00 eastern time, mario draghi will be doing the same thing. joining us is carl. let's begin by reflecting on robert kaplan and we will go through the janet yellen and mario draghi speeches we will

get later. we are not used to talking about the dallas fed and doves. >> no. new development. jonathan: that was a dovish interview. >> absolutely. he is very focused on the demographic issues, demographic and productivity. add the two together, that gives you the potential growth rate of the economy, and he sees very slow demographic growth, and economists are still wringing their hands over why productivity growth is slow. that is the low point, then extrapolate we will have slow growth going forward. in a slow growth, low-inflation environment. historically, new fell fed funds is where nominal gdp growth is running so if we are looking at fed fundsor a neutral rate, that means you are looking at nominal gdp of 2% to 3%. a 2%u are hitting inflation target, that means you are getting very little growth in that environment. david: he clearly said closer to 2.5% than 3%.

.75% ornot talking t2 2.8%. carl: if that is the case, the fed is not nearly accommodative as the current level of interest rates would suggest. i would also argue way back when former chair bernanke was writing blog posts about globalization, he said there should be a significant interest rate buffer before they start the balance sheet deadline. if we are talking about mutual growth of 2% or what not, we do not have much of an interstate interest rate buffe. david: he was saying i want to start rolling up the balance sheet as soon as possible. carl: exactly. he is aggressive in terms of his view for the balance sheet, but if you are looking at such low growth and low inflation and as he said there is no textbook for the balance sheet unwind, it seems somewhat of a conundrum to book so aggressively at such a low growth, low-inflation

environment. jonathan: when a chair drops her speech in six minutes time, are we going to learn anything about whether janet yellen shares the same views as mr. kaplan? carl: i think she will signal she is pondering these types of issues and that those pose a real risk to growth going forward, but i think her aim is to maybe not disrupt the markets too much. she will signal that yes valuations are a concern, but she will highlight that perhaps they are justified given the greater regulation and capital requirements that have been instituted since the financial crisis. david: if the fed does the way of mr. kaplan, does that make mr. draghi's job more difficult, if not today, than in general? we will have not as strong dollar. carl: regardless, president draghi's job will get more difficult as the ecb is moving closer to the point where they have to start pulling back on policy accommodation.

if we look at janet yellen and mario draghi's track record as a professional diving competition, yellen does a better job because she makes less splash in the financial market. draghi tends to make these comments on do whatever it takes and whatnot that impacts the market. i think that is the bigger risk today. jonathan: janet yellenjonathan: an inherited a trichet fed. nearly 26 minutes. that is where we are at. here is where the market is trading. investors, the attention turns to jackson hole, wyoming. that speech from janet yellen coming up around the corner. coverage right here on bloomberg tv. ♪ ♪

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vonnie: janet yellen just about to speak in jackson hole, and the embargo is lifting right now. let's get the details from michael mckee. michael: everybody, take your fingers off the trading button. you will not be trading or selling on this one. this is the boring janet yellen. her speech largely a recitation of the history of the financial crisis and regulatory failures and how things have improved since then. she praises the swift u.s. regulatory response to the great recession, particularly changes in liquidity and capital requirements that have made banks safer, she says. "the evidence shows that reforms since the crisis have made the financial system substantially safer." she says that is reflected in the credit default swap pricing. investors see the same sort of progress that he fancies. --