united states. >> president trump talks infrastructure from immigration, and drug prices in his first official state of the union address, we breakdown the message and marker reaction. equities find a footing after the biggest two-day slide in global equities that's 2016 and passing of the torch, janet yellen delivers her last that decision before jay powell takes the reins. her legacy and fiscal stimulus. a warm welcome to you. i am alix steel in new york and david westin is in washington. are you awake? >> the president kept us up but i am awake. >> did you feel like it was bipartisan? it sounded like it could have been. what the president said he wanted to do was reach across the island immigration and infrastructure, he made noises in that direction but the

hall was two different houses because republicans were on their feet and cheering on the democrats were sitting on their hands and sometimes doing. -- booing. >> you are in washington, d.c. and i am new york, i have the coolest shot from our roof camera. moonis the super blood over new york city. a lunar eclipse. a blue moon and a supermoon. it should be coming your way. the last time it happened was 1982. >> i am told they have a better view in los angeles. markets, and the u.s., s&p futures finding their footing after they were decimated yesterday and you saw the worst two days for the s&p since june of 2016 and now it is steady with yields that 271% and a modestly lower, some buying on

the margin with a weaker dollar story. a stronger euro despite that economic data. crudes getting hit, -- getting hit. the fate of america's dreamers, donald trump outline the immigration plan, and markets taking a break after getting crushed. it is fed decision day. if you went to bed at 9:00 and ms. the state of the union, here are the highlights -- missed the state of the union, here are the highlights. pres. trump: it is our new american moment, never a better time than living the american dream. to every citizen watching at home tonight, no matter where you have been or where you have come from, this is your time. since the election, we have created 2.4 million new jobs. [applause]

200,000 new jobs in manufacturing alone. [applause] after years and years of wage stagnation, we are finally seeing rising wages. i call upon all of us to set aside our differences and seek out common ground as some in the unity we need to deliver for the people. this is the key. these are the people we were elected to serve. my duty and the sacred duty of every elected official in this chamber is to defend americans, to protect their safety, their families, their communities, and their right to the american dream. because americans are dreamers, too.

under the broken system, a single immigrant can bring in virtually unlimited numbers of distant relatives. under our plan, we focus on the immediate family by limiting sponsorships to spouses and minor children. i am asking both parties to come together to give a safe, fast, reliable, and modern infrastructure that our economy needs and our people deserve. david: that addresses the first time we heard alix did not stay up until 11:00. michael mckee in new york and in washington is our treasury reporter. thingsere a couple of interested in our audience, infrastructure and immigration. he gave detail on both but let's

start with infrastructure. he talked about $1.5 trillion. how realistic is it? >> you need bipartisan support, no one knows where the $1.5 trillion will come from. when you have the tax reform bill blowing up deficits and democrats are not really willing to march across the aisle. and republicans not offering the best hand across the aisle. partnershipse sound great but we do not know where the public money is coming from. david: not a lot of detail about how he will come up with the money, does the president think he will get this done this year? >> i do not think so, they talk about $200 billion over 10 years but they do not have that money. with the budget deficit right now and the fact they're trying to raise the sequester caps on defense and domestic spending, no money for this and no clear path to getting a public-partnerships --

public-private partnership system. this is a good talking point. but this is about as far as it goes. >> interesting to see you have equity stabilizing when there was optimism. this shows what happened yesterday. a huge one-day decline for the s&p, not seen since august of 2017. i wonder what the reaction to the market will be today and the treasury market. are we just ignoring washington, d.c.? >> yes and i do not think we will have reaction. you may haveng in a today, three-day reaction and then it would aid, not a donald trump thing, state of the union addresses are forgettable. i do not think it lasts past the fed meeting this afternoon with the dollar already going down, more a reflection on monetary policy with the equity markets have firmed a little bit but not outrageously higher.

there were no forward-looking plans be on this call for infrastructure reform. there is not much to it for investors to trade on. mike says the markets are largely ignoring washington and some in washington they do not pay attention to the markets. >> that is true, steven mnuchin yesterday was in the senate and afterward reporters asked him if he wakes up every morning wondering what donald trump will stay -- say about the stock market but he is not worried about the stock market as he is looking for the longer view, that goes with the dollar as well. david: markets go up and markets go down as gary cohn said. the audiencet to of one, yesterday we heard he said that two days of equity markets slipping is not a big deal when you look at 8 trillion dollars being created over the longer term since donald trump was elected. david: they third story is the fed meeting. not so much because of what will

come out of it but because of the passing of the torch from janet yellen to jay powell. it is a major development. give us a sense of how historic this is. >> the first female fed chair leaving. also, we are wondering if it is a dovish or hawkish person. we do not know what marvin good friend will be like. we know a little bit about jay powell but it remains to be seen how he handles the first couple of meetings. we are waiting to hear about a vice-chairman. alix: a dollar index at 88. anything at 2:00 to help the dollar? focusbably not, a lot of on the statement but i do not think they go far in adjusting the language of it. , ithere is an adjustment will probably be over read by traders because janet yellen will go quietly. .ay powell takes over next week

and then the focus is how do they change things for the march meeting? there are reasons to think inflation may be rising a little bit and the fed may want to rethink some of its forecasts for rate rises this year. that is down the road. today is a non-event. they will give her a cake and wish her well. herhey do not, i will buy one. it will not be newsmaking. alix: breakeven, come inside the bloomberg. i look at 10, 5, 2-year breakevens, for the five and 10, around 2%. they have to address this/ . aboutre is a line market-based estimations of inflation's and they may change that a little bit to say they have moved up recently. commodity prices are rising. you have a lot of slack in the labor market which should push wages up. there is reason to think they

may see inflation down the road or not any in terms of the theytion measures yet, so cannot say inflation is converging towards our target. they can say we expected to . you. michael mckee, thank stay with bloomberg for full coverage of the fed decision, we will bring you a special report at 2:00 p.m. in new york and 7:00 p.m. in london. coming up, the selloff in european and european equities -- american equities, more of the markets. this is bloomberg. ♪

>> this is bloomberg daybreak. of xeroxaining control

to create an $18 billion company and get copy machines and give them a of business. -- a new line of business. a korea, samsung has approved 50-1 stock split, the called of a move to enhance shareholder value after posting record earnings in the last three months of the year. samsung reported strong demand for memory chips and is selling high-end displays and the iphone x. the biggest drop in profit from a swedish company, putting more pressure on the ceo of the rose number two fashion chain, he is trying to turn around h&m after his recent struggles. that is your bloomberg business flash. alix: s&p with a blockbuster start to the year despite the selloff this week. over the last two days, you had the rsi hitting overbought

levels. and then you had a two day down move, the worst for the s&p since june of 2016. joining us is our bloomberg intelligence chief equity strategist. when do we know if the last two days is something more? >> today will be critical. futures are suggesting we will have a positive day. if you get the followthrough, it make investors feel better about the outlook after the last two days. when you know you are in a correction, if you see 2% days, those seem to be a magic trigger. ,hen you get them up or down volatility is rising in the equity market which usually means you are in the midst of a corrective process. so far, a one-person day. 1%one-person day, it did -- day, it did seem consequential. for the 2% dayk

and for followthrough on the downside today. a third consecutive day is something we have not seen in a long time. thetrick -- tricky part of equity market is there are no levels, we broke out so far, so fast, there is not a lot to watch for any church. you look for -- in the charts. the calls for caution continue to mount with the latest renaissance technologies. citi,e goldman, significant risk of a correction. something that has changed. post tax reform. it is your wherewithal to fight against a very strong trend, as well as upper divisions to earning. where you may have six months ago or one year ago heard be

strategists and analysts suggest this could be something more, this could be more of a 5%, 10% pullback, they are prohibited from making the call because the earnings environment has been so positive. what is thiste amazing upward trend in earnings revision in the short run. stop andoint it will we will price in the tax reform and go back to an environment of normal in the equity market where we are watching the day-to-day economics and day-to-day earnings trends. we are normalized. that is not the experience right now. the upward revision estimates that eight times average face is phenomenal. it is hard to fight against. indexthis is the surprise versus the equity index, they nicely track each other. you see it in 2014-20 15 but the surprises rolling over with equities grinding higher. you talk about fundamentals but is this something we need to worry about? >> if you see economic surprises

follow-through to a deterioration in the economic outlook, it is important that the reason why the is this is the surprise index and not necessarily a rate of improvement. the rate of improvement is still accelerating. even though economists have priced it in, you are still getting very strong economic data. you are still getting stronger than expecting consumer confidence numbers, which would lead to stronger economic data going forward. the economicwhile data is one thing to consider, the earnings data that catches the economic data sometimes -- detaches the economic it is sometimes. with respect to the 500 companies in the s&p 500, their pace of earnings growth is somewhat determined by economic growth but not entirely. alix: you will be sticking with us. coming up, oil continuing is retrieved from a three-year high, what it means for big oil earnings of the end of the week.

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alix: you are looking at a live shot of a super, blood moon over los angeles. it is close to earth and really full and will be a total lunar eclipse. we have not seen it in 35 years. the thing i am most excited about today. oil,e markets, a look at the latest inventory numbers from u.s. today. stewart wallace is joining us. and gina martin adams of bloomberg intelligence is here. talk about the rise in oil. , it hase equity market had a magnificent change in equity market performance. that is because it took everyone by surprise. if you go back three months, four months, everyone thought

oil prices would be contained. maybe below $55 for the better part of the next few years. the oil market has surprised on the upside, creating a big rotation in energy stocks, which now we see the downside of to because oil prices have sold off a little bit and energy stocks have sold off more, particularly relative to the s&p 500. that has in -- it has a significant impact on stocks and it is coming from come in the fall, we were surprised by the limited supply and now we are seeing may be there is some supply coming in the markets. there is a rational response to supply, which may be results and ultimately stuck in the range again. what equity investors have to consider, these companies are creating much more better earnings outlook and better progress on top and bottom line that in the last few years. if oil prices cannot sustain the upward direction, energy stocks

cannot outperform the s&p 500. alix: back on what she talked wti versus brent spread, the difference between oil in the u.s. and european oil. at one point it was $4.50 and wti has rallied more than brent prices. that is confusing. anything oversupply will be coming from the u.s. how do you understand this market change? >> to some extent, it is a result of what opec was talking about. when they went into a technical meeting about a week ago, there was some expectations we will start to hit noises about ending the opec deal. they came out strongly, we are not abandoning the deal, we do not think the strategy is over. we are not back down to the five-year averages for stockpiles and will keep going as previously announced.

that probably impacted the brent market a little bit more than wti. was so wide for so long that those of us who have been in the market for some time were surprised there was allowed to persist. i think it is a move towards normality of sorts. who dofor those of us not follow the oil markets as close as you do, as a practical matter, you have to have something to break it out of the range. you have a fair amount of supply from shale and some opec, but what would break it out? a big uptick in global demand because of the secret eyes growth -- synchronized growth? >> i do not think we will see it on the demand side, that will not follow the cliff. that muchin mind higher prices tends to dampen demand, a logical conclusion. on the other hand, i do not think we will see a huge fight and supply. it is steady as she goes -- a huge spike in supply.

it is steady as she goes. opec has pledged to continue with the plan. i do not see where the big surprises may come from. conceivably nigeria, libya, iraq , that has always been the case. there is nothing obvious we will see a spike in demand or supply. of range we are in now sort makes sense relative to the competing interests within the market. 70, the range. you mentioned the equity market and energy and this is where we wti andhe blue line is the white line is the s&p oil ent, more of the shale play versus the entire s&p energy sector. what do you think happens if we bounce around $50, $70? >> these are the more super cyclical early-stage companies

that companies gravitate to as oil prices rise. what happens is, when oil prices pullback or are caught in the range, greater distribution of returns and the energy sector and you see some defensive plays , the multi-majors do relatively well. you start to see distribution of returns move into the refiners and marketing space. especially when oil prices are falling. what will happen, if we eliminate the uptrend and fall back in a range, this outperformance will be more limited and you see greater distribution of returns and investors start to hedge their bets with more defensive place in the energy sector. alix: she is talking about companies we have, exxon reported on friday and big oil will trickle in. what is the most important question we need to have answered? >> it depends on what side you're coming from, the things we care about the most is -- capex. have they retained the lessons

they learned for the last couple of years or will they go for it again. ? we have some big projects being talked about, a couple of approvals. is whatr side of it will happen to the dividends. does the money return to shareholders after we were told to be patient, or does the money get sold into something more exciting as a way of projects. alix: thank you both. david: what strikes me as, it's more placid this is than it used to be, it used to drive inflation and volatility. she was the founding director of the cbo and omb and a former fed vice chair. this is bloomberg. ♪

this is bloomberg daybreak.

here is where we stand. atimism in the markets after two-day drop. a triple digit rally. unemployment in germany fell to a record low. nothing seems to be able to stop the euro. basis points decline. so high and japan, the boj had to go into the bond market and by for the first time since last july. crude getting hit again. copper, you can make an argument that one point $5 trillion in infrastructure spending reverberating to the copper market. -- today.in is in the

david: the market is not reacting to what trump had to say. on what isn update making headlines outside the business world. >> trump is arguing the u.s. has arrived at a new american moment of wealth and opportunity. >> there has never been a better time to live the american dream. no matter where you have been or where you come from, this is your time. >> he did not indicate he was willing to compromise.

theresa may is in china, where she will walk a tightrope between politics and trade. she will raise the sensitive issues of human rights issues and democracy. she wants to build a powerful relationship.ade data highlights the challenges faced by the european central bank. consumer prices rose 1.3% in january. the ecb is trying to keep inflation close to 2%. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. alix: earnings from boeing. stock getting a pop. in $4.80m line, coming . that is almost double what was estimated. they raised their earnings $14.nce, the estimate was $13.38.

david: trump will be happy to see those numbers. this is a big exporter for the united states. that says something good about the trade balance, i would guess. back to washington, alice has been named one of the greatest public servants of the past 25 years. she is the vice chair of the federal reserve board and is a senior fellow at the brookings institution. i want to start with infrastructure, something the president did address. this is a bit of what he had to say. calling on congress to produce a bill that generates at least $1.5 trillion for the new

infrastructure investment that our country needs. every federal dollars should be leveraged by partnering with ,tate and local governments tapping into private sector investment to permanently fix the infrastructure deficit. david: democrats and republicans aree on that point, but how we going to pay for this? >> we need to fix our infrastructure. i wish he started a year ago. it is an important long-term investment. it is obvious a lot of things need fixing. the problem is it adds to the debt, as does the tax cut.

i am not one who thinks it would be a terrible thing if we increase the deficit in the short run, but we are heading down a track in which our national debt keeps growing and growing. outlays for ang aging population. we keep cutting taxes. how are we going to do that and invest in productivity. david: you understand the way budgets work. is it realistic to get it on the cheap? is it realistic, these private, public partnerships? >> we need states participating.

there are places you can have the private sector participating, like toll roads. public more infrastructure and the federal government has to take the lead. with a president who is a builder and it likes to make money on projects, one is always suspicious the private sector is going to make out like bandits in whatever the proposal is. said hehe president wanted to reach across the aisle, he needs bipartisan support on infrastructure and immigration. it he make progress last night? made progress if he means it. it would have been better to start there a year ago. to improve america' life for

everybody. that would have been a wonderful place for him to start a year ago. seems to be turning a corner. in hisof will be in now own party. there is a deal to be had there as there is on the budget and infrastructure. to be reachingm out in a way that will bring other people to the table. even last night, a lot of the language was blaming language.

pretending all immigrants were criminals, featuring what is a serious problem, that there are criminal immigrants, but most are not. you would not get that out of this speech. we need to crack down on ms 13, criminalsgests dominate the immigrant group and that is not true. david: you served at the fed. at together what is going on the fed'sll, with approach. how did these things fit together. how does the said interact and react? >> they have not fit together well. inhave had a fiscal policy

total chaos and gridlock. the fed has coped as well as it could for a long time. it was trying to stimulate the economy as we pulled out of this recession. the fiscal side was not helping. now it is turning around. to gradualon a path restraint of the economy, returning to more normal interest rates, while the other side is on the opposite tack of fiscal policy. .t will be stimulative david: do you see early indications of inflation coming? are you concerned we are moving too slowly?

no, i am in inflation skeptic. i read the open market committee statements for the last three or four january's. they say we hope inflation will get back to 2%. we are confident it will. it has not yet. i don't think inflation is a not in mynger, lifetime, maybe not for much longer. the reason the fed wants to raise interest rates is to get that to a more normal range, so if we have a recession they can do something about it. david: what mohamed el-erian calls a beautiful normalization. thank you. don't forget to stay with bloomberg for full coverage of the fed decision. we will bring you that report at

2:00 this afternoon in new york, some :00 p.m. in london. alix: eli lilly boosting its outlook. we will be speaking to david riggs next. in, do radio. you get tom keene and jon ferro. pimm fox joins the conversation. this is bloomberg. ♪

alix: this is bloomberg -- this is bloomberg daybreak. coming up, daniel tarullo.

alix: one stock we are watching is eli lilly. it is up over 1% in premarket. drug maker says it will free more than $9 billion in cash. ricks. us now is dave great to see you. thank you for joining us. what are you going to do with $9 million in cash? >> we are going to put it to work. our second priority is building our pipeline and looking at business development and acquisitions that can add to our core. we run out of ideas, we will give it back to shareholders. -- and levelsows

the playing field. our industry is about half american, half foreign. is a strategic benefit for us now that our tax rates are competitive. alix: you have had to cut your work force. you are going to cut it and pour the money into r&d. where does tax reform help you in those areas? to that additive agenda. we are trying to create more flexibility. more onto spend innovation. alix: does that mean layoffs are done? are done.grams we make adjustments to the workforce through time. you expect any company to do that. agenda, weductivity are going forward. we think we are at the right

employment level. we are focused on investing in our pipeline and launching the newest set of projects. it is a good advancement in the pipeline. david: the president had strong words for you. he said his greatest priority is to reduce the price of drugs. how do you react to that? what is the danger of the government regulating the price of your drugs? them getting involved, it would be a danger, but consumers are frustrated the cost they experience at the pharmacy counter is going up, even though we know drug price inflation is below medical inflation. costs are being shifted from

insurance companies to the consumer. we would like to see that change. are four iswe passing through the savings that drug companies provide two big actors. to cms and wes are proposing it to commercial regular in their commercial book. that is a solution we would be for. is anhow big of a threat providingrkshire health insurance for employees. look forward to hearing what they come up with. we have said we are for competition and innovation in health care and that medications are the best deal going. i would welcome new actors to

work with to bring down medical costs. >> the market does not agree with you. your stock got hit on. and does not sound like healthy competition. it sounds like it could hurt your business. >> people react to a lot of things amazon does. i look forward to it. interested in things like health care. there is room for innovation. that is our core business. we look forward to engaging with them. alix: thank you for your insight. one of my favorite topics of the is, the super blueblood moon

happening in l.a. we have not seen this in 35 years. we turned to wall street, where we cover three things. lbo is back. a former ubs executive takes a crack at mending the hedge fund. is jason kelly. quite 35 years. this is what we have been waiting for. doing this deal. reuters is a competitor to bloomberg lp.

$20 billion deal. to 2007 and us back 2006, dubbed the golden age of private equity. we have a chart that shows where this is placed in the world of lbo's. we will see smaller deals, a lot of money in this space. this says -- not true. >> what i find interesting about lbo business, they have been amassing huge capital, but the side deals have not followed. it is an $18 billion fund. you have to put chunks of money to work and that is the case

here. the question is -- are we going to see a series of bigger deals? alix: you wind up having two blackstone investors which is why it could be big. is this something we will continue to see? >> if you put it into the context of how active the m&a there is a lot of activity. we got through tax reform. the president said wall street was listening. those are the things that are captioning -- that are capturing 's imaginations. david: -- safe pair seen as a of hands in a lot of ways.

rob schaeffer ran the u.s. business for credit suisse for many years. he was the senior guy for the swiss bank. difficult time for big wall street banks. going outside to someone like this with a management background is not what you see from hedge funds. it speaks to the issues they have run into. it has been a management issue. they had a corruption scandal. publicly traded alternative asset managers. david: the third story is the state of the union. is wall street reacting at all? prescription drugs, infrastructure, immigration, what matters? >> infrastructure captured

people's attention. the president talked about $1.5 trillion, which is more than he said last year. that is going into infrastructure, that will be paired with private capital. alix: we had a lot of funds raised for private infrastructure. david: thank you. great to have you with us. coming up, trump covered a lot of ground, but one topic in the headlines was missing. more on what i am watching next. this is bloomberg. ♪

i am lookings what at, what we did not hear about. trump did not talk about the pressure investigation. he gave the state

of the union address, the treasury department increased sanctions against the oligarch. did not hear much about that. maybe more to come. he goes back to the white house today. he has to deal with giving an .nterview to mr. mueller that did not go away. alix: in l.a., the super blue blood moon. look at this live shot. we are watching that as it makes its way across the globe. much more coming up as you have equities,. this is bloomberg. ♪

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>> mr. speaker, the president of the united states. [applause] >> a new american moment. president trump talks infrastructure and drug prices in his first state of the union address spirit we will break down the message and the market reaction to equities fund their footing after a two-day slide of global equities and a passing of the torch. janet yellen and her last fed decision today before powell the rain. her legacy, and fist goal -- fiscal send -- stimulus. i'm in new york alone. david westin had like a half hour of sleep after the state of the union. david: it is great to be down here. will go out toy a resort in west virginia to have a retreat to decide what to do next. will they were treated by partisan lay?

i feeling that is what president trump taught -- tried to do yesterday. >> opposite directions, not to the same place. the president wanted to reach across the aisle and be bipartisan or there was an edge to the things he said. his point about the dreamers saying it is not just people who were brought here as children, all americans are dreamers. president trump: because americans are dreamers, too. move: it is an interesting . everyone says we are for the dreamers and how could you not be? wait a minute, what about all the legal people here, aren't they dreamers and how do we protect them? that takes a little bipartisan thrust away from democrats. was blowing from the democrats as well. it does not bode well for bipartisanship either. david: on the point of thing able to bring family members in it if you are here legally, as they call it, chain migration. they were not enthusiastic

through the whole thing but on that one, you hear some booze -- b -- booes. alix: you can see that is an p now intart -- chart the futures market, you want to see equities up about 14 points. stronger even though it has inflation slowing. of a bid, yields lower by one basis point. the rise in the yield is still sustaining itself and the crew continues to get hit. david: time now for the morning brief. now, we13 minutes from will hear the federal reserve's rate decision. facebook and microsoft released earnings after the bell today. back to the fed. it will be a major event not so much because of what a say but

because of actually janet yellen, this eating her last meeting as fed chair. the end of an era as we know. we will turn to someone who was there for that, who served eight years as a fed governor from 2009 2 2017. he delegated him banking regulations in the wake of the financial crisis. economicfocusing on policy and issues, he has now returned to teaching and welcome now from boston. good to have you back, dan. let me ask the obvious historic question. you were there. you saw it. how would history have been different if janet yellen had not in the fed chair? speculateicult to with any confidence, but here's what i think we can say. when janet yellen became share there was already a

good bit of talk about the need to raise interest rates. that talk only increased over the talk of the first year or year and a half of the -- being the chair. janet already led the committee and holding off the calls and continuing to support economic growth. the judgment in holding off and deciding when was the right time to begin raising rates, when the economy could sustain higher interest rates, is really the major accomplishment of her time. it is not something you could point to as an individual moment. it was the exercise of judgment coursedership over the of her four years as chair. i might add the preceding time in which she was vice chair, she provided a lot of the intellectual backdrop for decisions we made. david: talk about her as a leader?

alan greenspan, paul, they seem to have a lot of say over what the committee did. >> i think you are right in the observation, of course, i was not there but both chairman bernanke he and chair yellen, in the wake of the crisis, understood they would need to leave the committee and specifically with janet, it was both intellectual and institutional. intellectual in the sense that she herself was making the case for the proposition that there was more slack in markets than the unemployment alone suggested. institutional and personal way, she spent an enormous amount of person,h each other either in person or by phone.

to their perspectives and trying to incorporate into an overall position for the end, oftenin the getting people not fully convinced of the position she might take on board at least for to maintain a working consensus on the committee. could not seeblic a lot of leadership base -- precisely because it was sort of on the phone and in offices. in this era, i think it will be chairs of the fed. if the chair could decide and everyone else went along, that era is over. how much of that leadership strength came as a true authority for the economies? arek that mindful that we about to have jay powell who does not have the same academic background.

daniel: the country has been fortunate in the fact of who the last few chairs have been. inhave a financial crisis some -- happens to be chair but is a great student of the depression. in the last a time several years in which the labor market did not seem to be behaving as the phillips curve would have suggested it could. someone who spent a great part of her career focus on the labor inside sheetnk the -- insight she had and the fact that she dug down into the data and presented almost little what i would think of as as a >> presentation in the fomc, i think it was a very important part of the fomc's overall position of

continuing to accommodate growth at a time in which many were saying inflation was just around the corner. up forhat sets us outlook under jay powell. it shows the dual mandate you know well, so unemployment is at 4.1%. at 1.5%. is the jay powell fed going to be in the quagmire of talking about an alternative for the 2% core inflation target? >> i would suspect certainly not in the short term. here's what week -- here is what we can say. it is possible that over the next few years, things continue more or less as they have been, growths to say continuing, inflation gradually which closer to 2%, in

case, fomc decisions will be similar to those of the last year. it time to go up another quarter basis point? laste experience of the eight or nine years is a guide to the future, some unusual things people do not expect will happen. for example. inflation has not been behaving as one would have expected based on historical correlations with the unemployment rate. maybe inflation will continue to well below 2% and at some point, the fed will have to answer the question, is it really your target? on the other hand, perhaps impacton because of the of the stimulus, because of just the growth over the last eight begins suddenly to take off and there you have the traditional trade-off between growth and inflation. is somethingbility

with -- not without precedent begins to happen. the relationship between the dollar and bond prices over the last several months is one hint of the kind of thing not necessarily expected and it poses a different kind of challenge for the fed. if you asked me to handicap it, i would say the odds of something unusual happening is above 50%. >> who'd be the best vice chair to help jay powell through those three potential scenarios? >> i think probably someone who has spent his or her career studying monetary policy episodes of the past. jay has obviously been an important member of the committee over the last five years and has the experience of the current circumstances and he

knows how the institution works. i suspect what many people are thinking is, complementing his someone who has been a bit more of an academic or quasi-academic and has drawn on things that are not at recent bit -- vintage that would be helpful in what is going on in david: daniel will be staying with us. be sure to tune in, special report, the fed david: daniel we staying with us. decides, eastern time today. coming up, we will hear from steve demetrio. of the morning, this supermoon overd l.a., unbelievable orange color. take a look. the first we will have seen of this in about 35 years. this is bloomberg.

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david: still with us, daniel. when you're on the fed in your responsible to -- redoing our --ulatory a lot of talk about deregulation. underctually has changed the new administration and what done in your

estimation? done in your estimation? daniel: not much has changed. there has been steps delaying some deadlines for some of the things larger banks have to do. i do not think there has been anything particularly major in legislation but with respect to that islatory side, understandable. obviously, chair yellen is still the fed and the leadership has not changed. marty greenberg is still chair, yellen has not yet been confirmed. doesn't it bode well for friday's jobs are?

the dollar is still down by the lows. the beating of drums of a solid labor market. you can see it like at the edwin you are there. to what extent moving forward not just passing new laws, but things like the stress test, something you created as i recall? daniel: it is possible to make the stress test more stringent without a lot of fanfare. you can change the severity of the economic scenario. more opaque lee, you can change applied bynctions the model to certain asset classes.

if a fed leadership wanted to, they could certainly dialed down the severity of the test without any legislation. by the same token, if too much information about the model is given to the banks, they will effectively be able to massage out -- balance sheets the dave before admissions and the stress test will make them look perhaps somewhat more highly capitalized before than y actually are. these are somewhat subtle ways that there could be an impact on the capital level in particular. exception, of the disclosure, it is just a possibility. to -- we like

the question is what is the likelihood in your administration that the fed will move to raise rates because of concerns about asset bubbles instead of inflation data. daniel: that has been a long-standing debate that stretches back at least five years within the fomc as to the efficacy of monetary policy restraining and leaning against the wind as asset prices -- increase. most traditional monitor policy people, whether a little hawkish or dovish, tend to think the efficacy of monetary policy is somewhat limited in those circumstances and one needs to rely more on regulatory policy. almost everyone would knowledge that you should take that into

account and in some circumstances, it might be prudent to raise rates a little bit more quickly than you might because of asset bubble concerns. with respect to asset prices themselves, right now, they are a little frothy in some areas compared to history, for relatively speaking, there is not an enormous amount of behind the asset prices, and that is important for financial stability. because of asset bubble concerns. >> thank you so much, dan, with harvard law school. thank you for being with us. coming up, we will talk with the former governor of minnesota. as -- alix: adp coming and really strong. futures at the highs of the session. the move is in the two-year bond market. look at treasuries, some selling is taking place.

not a ton of movement but that is what we are seeing on the numbers. this is bloomberg. ♪

david: president trump outlined address. of the union welcome, governors. good to have you here. let's start with the state of the union. from thesten to it financial services corporations, what was relevant? did it really affect the markets at all last night? >> president trump had a good night. the leader of an institution, you see him as presidential and see him come orderlyn a way that is

and inspirational many ways, it was a good night for president trump. an optimistic feeling the economy. there will be more incentive for the economy to keep rolling. >> is it really good news for them? here at highest income tax rates in the world. reducing that significantly, all kinds of reinvestment in america. also not forget individual tax cuts. if you make $55,000 for a family of war, you do not have taxes. that is simple to occasion. other people above will get some cuts as well. overall, it is a good bill. sayingpresident went in we have to reach across the aisle on infrastructure, immigration, and things like that.

just watching the body language from the two sides of the chambers, it did not look like they were coming together. >> no question about it. he thought the anocrats would like immigration, he would look at them and try to get them to clap and they would also there. topically, democrats want immigration reform in some fashion. there is some opportunity there. public and private partnerships. an immigration, he would look at them and try to get them to clap and they would also there. president have clinical wherewithal to get something like infrastructure through? >> i think he does. the problem is the gas tax for most republicans is a nonstarter. unless you can find another way to fund it by taking it money out of another pot, it is

difficult. david: they have obviously worked in different places but putting 200 billion in getting $1.5 trillion -- >> the idea that they will be the whole infrastructure solution is totally or wildly agitated. transformative technologies applied to all of these sectors will affect not just autonomous vehicles but smart cities, smart have smallability to cars running around that we have not even yet seen deployed. discussion around transportation and health care and other things will change because of transformative technology. david: tell us how that feeds back into your number ship? companiesal service are becoming more and more technology companies and users. most of them on mobile phone or device.

few people want to go to a brick-and-mortar place anymore. that is directionally happening. the financial institutions i represent are becoming technology companies and nearly everything now on your phone. david: two democrats take the house? >> i don't think so. they will gain some seats but i don't so. >> thank you for being with us.

coming have small

cars running

alix: let's get you caught up on what is happening with the markets p are the s&p since august of last year. by about 12ures up

points. some killer adp data coming in ahead of the friday jobs report having an impact in the bond market. take a look here. you are seeing it flatten as you see more selling coming in at this front end of the curve. a two-year as wella two-year as. definitely a shift in the market in the adp numbers. the other thing we want to highlight is the treasury refunding announcement for february. here is what we know. the fed will offer a $15 billion in 30 year bonds, 20 4 billion in 10 year notes, and 26 billion in three-year notes. they lifted the auction size for all three. it is the first time they did it in quite a long time. key to the yields, what is priced in.

david: is a big uptick. by about 12 points. >> the first quarter financing these, it is less than estimated. it in some finance way. how do they fund it. where does it land on the curve? where all the hawks when you need them? it is not clear how they will get the money for it. >> not at all. the u.s. treasuries will 3, 10, and 30 year maturities. from the market reaction to the news, you want to look at the treasury market. much flat across the board. particularly in the back end of the curve, we are pretty much flat now all across the curve. 2.1 is how we trade on the two-year and dollar index is still, it still cannot get a

boost on pretty much anything. what joins me on set and do you make of this at first -- first blush? is shrinkinge fed its balance sheet. they have to issue more. it is unlikely they would issue at the short end with the flat curve that pays them to go out. think the market was super surprised at the announcement. alix: it begs the question overall of where we will see the fedance particularly if the stops as well. >> i think as long as the curve is flat, they will try and take advantage of it. they will not go in the short ad because very short things year or two, they have to refund that because the rates are higher and it won't do any good.

i think they would like to lock in low rates as much as possible. alix: how often is it reflected in rates so far? gottenink the market has really scared about inflation and really scared that we are getting back to a normal economy. they have finally taken into account tax reform. i do not think debt issues are paramount. it is the issues we are seeing where they looked at yields at 230 and said this does not make sense. alix: the reason i ask about what is factored in, is if this is an inflection point and supply and we get more supply of her time, and you have the fed backing away from the market, is that dynamic not yet in the market? stagehink we are in a where we will stop talking about our stars and how low -- >> what will we do? >> more normal market.

if you have a fiscal stimulus that is higher, the models we have can tell you where it is after five years but can't tell you where it is when there is a sudden shift. go back to where nominal interest rates are engaging that versus where the 10 year yields are. it has been a rough guide historically. suggests that rates are going up. we'll will not be below three forever. >> 10-year rates at the end of the year? >> we will see new highs. we are obviously at new highs. beckett even -- easily a be above three and if it picks up, we could see them quite a bit above. >> what does that do for the dollar? >> i think the market isn't sure what the fed will do. >> aren't they pricing in a most three hikes now? >> yes, but if you take a look at real interest rates, they are

not going up much. a big chunk of the reason why the dollar is so weak. we are used looking at nominal rate differentials because inflation was in the background and no one cared. the market now does care and the fact that european real rates have really increased well beyond u.s. rates 25 basis points faster, that gives support to the euro. the fed has to clarify with markets right now is whether 2% is 2% and that is exactly what they are aiming for, or what they are saying is look, we are aiming for two and a quarter percent in the next five years to make up for the undershoot. 2% is 2%, they think the dollar will rally quickly. if they say it is 2% plus for a couple of years, the dollar has a long way to fall because that is not the way the europeans are talking and i think the market at the ecb and exits

from stimulus in a much more from the way then looking at the u.s. with ambiguity of what the inflation target is. alix: interesting. always great to get your expect -- your perspective. just want to point out we are seeing more buying come out with a little bit of movement on the treasury funding announcement. 2.0%. david? president trump laid out his infrastructure ambitions in his speech last night to congress. is our newrump: this american moment to their the has never been a better time to start living the american dream. david: we welcome steve demetrio, chairman and ceo of jacobs. corporate clients around the world. it is one of the largest , in thes doing that

private sector. thank you for being here. you were at the state of the in address last night. the president spent a fair amount of time on the subject. what was the reaction in the hall? >> generally very positive on one side of the hall, republicans are the democrats, they were applauding. i think there was a wait and see on how this would happen. david cohen we do not have the details for a couple of weeks but one point $5 trillion but he wants a lot of it to come from private and local and state governments. is the plan realistic? >> i think it is if both sides want to make this happen. i love the fact that he focused on bipartisan culture that we want to have going forward. i think it goes beyond the two sides of the aisle working together. we see in need for governments to be more efficient and

collaborative, increase the use of technology have asian. think about our infrastructure, we have to go think about our infrastructure, we have to go back to the 1930's, the depression era, the public works program for the last major infrastructure drive in this country. since then, not much has changed. the way we asked you projects and work together, that is very similar to the way it has been done in the last 50 to 60 years and unlike other is -- industries, with have not used technology and digitization in the internet of things to really drive transformative technology in the industry. >> the president agrees with the bipartisan effort. that it cannot just be done with republicans. there is a divide between democrats and republicans. the democrats want a much larger investment and the president wanted much more leverage. bridged andat be who is right on the debate? >> the good news is both sides

want it to happen. both sides recognize we need at least 1 trillion and a half dollars to make this happen. some analysis says we need 4.5 withion to get it on par which should be on the nation infrastructure. whether it is 200 billion money from the federal government or not, the whole point is to make .t more investable there are plenty of private tops to stimulate and at on of whatever the federal funding can be. about enormous capital around the world to go. what is keeping these from being investable right now? lack of funds or some of the difficulties with bureaucracy getting these projects to take place? collects a combination of both funding and policies. when we talk about policies, it is not just in limiting red tape

-- eliminating red tape. it is to take a more adoptable policy against technology. we have tremendous tools right hand. virtual reality, the internet of drive, the ability to digital solutions and yet our policies do not incentivize for those types of technologies. we do not have the right prioritization. maybe there is infrastructure we should not be building it we shouldn't think of concrete and steel and bricks and mortars and really think about what do the irviners need based on migration and other trends we are seeing and bill the right infrastructure. david: exactly. it is a really powerful point. how is a city going to look different, if we have truly autonomous vehicles, do we need as many roads and bridges? what does that tell us about what should we invest in terms of technological infrastructure rather than, as you say, bricks

and mortar? >> i think we need a master plan. we have the ability with cell phones and gps to find out what the consumer needs are, what is what kindc pattern, of transportation of people using public versus cars, etc., and that should drive solutions. the use of taking that technology to execute projects smarter. what will you do with tax reform? steve: we will do what we always do. make the best use. it will be a benefit to jacobs and we see an opportunity to invest in a variety of things. we recently increased health care benefits for the u.s. population, investing more as a company to reduce burden on our employees. we need to grow and the tax

growth for stimulate ourselves, which will create more jobs and job security. we need to invest on education, increased capabilities and to for our employees. we are investing in technology. it will be a mix of things that really drive shareholder an employee value. >> in stronger shape because of tax cuts. -- moving forward, it sounds like it could take a long time to do. where could your company move fastest and show the biggest results in imber structure? >> it is the big three infrastructure. water solutions. a significant need for water in the u.s. and around the world. almost 2 billion people around the world lack quality water. water is one. we made an acquisition to acquire ch two m, one of the industry leaders of water.

then it is transportation piece. the third is resiliency. the see little -- sea level rise, cybersecurity. provide acquisitions to support for governments and corporations. >> fascinating. that is great. thank you so much for being with us. really enjoyed that conversation. coming up, facebook and microsoft. will discuss what investors are watching ahead of amazon apple. today, you could tune in to tom keene and tom farrell -- jonathan ferro. bloomberg surveillance can be heard in new york, boston, the bay area, all across the u.s., on sirius xm. as we had to break, the most evil shot of the morning, a live look at the super blue what moon of the, from the curve

observatory. a full moon close to earth and a total lunar eclipse equaling an orange moon. amazing shot. this is bloomberg. ♪

>> i'm in the hewlett-packard enterprise greenroom. coming up today, tom barrick. the news that rocked the health-care industry. the partnership among amazon, berkshire hathaway, and jpmorgan to provide care to employees. listen to what he said about the deal.

>> we have a lot of respect to them. interested. i think there is room to innovation. is no happen yesterday p reduce you seeing amazon, berkshire hathaway, on the upside. ul and up seeing health care and drug stocks get hit yesterday quite hard. that stock was down 2%. the asset management portfolio manager, it is about $15 million and he invests in tech holdings. twitter is number one. did you by mr. rick's answer? >> the health care companies will say there is room for innovation, there is room for profits for everyone but it is clear that what amazon and jpmorgan a berkshire hathaway moneyying to do is take

out of the middle man in the health care system and that is a risk to a lot of the folks. again, a central hub of the u.s. health care system. stocksold it and see the rise since we stole it. good luck to them and it is a great aspirational thing for them to take care out of the health care system. it is facing u.s. economy. it is one that esther of and many smart man. i think a lot of reaction is a little overstated. where we began to get a little more cautious, we love amazon as consumers and investors but they have gotten involved in the grocery business, a difficult business to get involved in, and the cloud business while they

are the dominant player, it is extremely competitive whether google, alking about lot of people are getting in that space and in five years, i have great confidence that amazon will be the number one player in e-commerce. i am not so sure about the cloud business. >> that would be a deal. some people point to it as a supporter. >> it is driving the investment thesis right now. that is a piece of the puzzle i am less certain about. alix: take a look at the bloomberg here. what we have seen has been enormous just not when it comes to -- a ratio of earnings forecast, tech versus -- tech versus the s&p. it has really underperformed. what does that mean, either disappointments to still factor in? >> it feels a change in particularly apple.

though we have seen revenue profit estimates for apple to creep up in the last few months quickly, these tax cut changes certainly seem to have apple with some of their overseas tax holdings. there has been a sentiment about the iphone x paired a sales blocked her death blockbuster that people expected. >> we are a little nervous for sure. just it is a company that over the past couple of years has really been an innovator. homefor instance the assistant product. technological innovations going on right now. there yet.t

it really has to be questioned a little bit. are we looking for? the question for facebook is can make you but momentum over the last couple of years? >> the answer of the time. >> facebook is very good at making money. they have a lot of questions on the horizon. you mentioned to nervousness about apple. that is the defining sentiment about facebook now. announcedy just significant changes to the newsfeed that will have maybe an uncertain impact on user engagement and advertising. the company can spend a lot more money this year weeding out information and propaganda. content.

incredible growth and incredible strong profit margins. the spending may change the investor -- >> the number one holdsincredibe strong profit margins. in -- holding, congratulations by the way. out the ipo price. classes are big piece of the puzzle. if you look the social media niche, and strong , it iszed enough important for an interesting app to have. in the next 12 to 24 months. leaving the company, it is ready , and quite busy with square as well.

are questions but i believe we will see some nice user and gave the numbers. i think this -- the prospects are bright going forward. alix: bloomberg gadfly columnist, thank you as well. coming up, smart money in the investment grade market. you can watch us online and interact with us directly. you can ask us a question and read twitter. asked david westin. ♪

alix: smart money versus dumb money. here is something that happen i wanted to point out to take a look at the chart for the top panel is what is happening in

investment grade spread. still supertight, the tightest since 2007. the bottom panel are slows, the investment-grade corporate bond etf, and we have seen outflows in the past two days. the smart money would be in the investment-grade market and the dumb money would be in the etf market, but i wonder who will run -- wind up eating right? smart. versus people always think they are the smart money. how do you know which one you are? >> if you are a retail, that could become a definite risk. big lineup. up next. this is bloomberg. ♪ we use our phones and computers the same way these days.

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coming up, the state of the union address. signs of market stability. after the biggest drop on the s&p 500 since may, futures suggest a big rebound in the open. janet yellen headed to the exit -- 30 minutes away from the opening bell this wednesday. futures up 10 on the s&p 500. the euro stronger against the dollar. treasuries and stabilize. -- treasuries stabilize. the main event over the last 24 hours, the president delivering his first state of the union address, talking trade, taxes and immigration. what he called a new america moment. >> let's begin