on rates. day.ed has a bad jay powell speaks, the markets withn from a really hard the s&p and dow with one of the biggest point swings in history. as she goes, brian moynihan sees growth continuing, but at a slower pace and geopolitical risks holding us back. welcome to "bloomberg daybreak." i am here with carol massar. alix steel is off. we are waiting for the boe decision. keptise, surprise, they the rate at .75% and the and target atchase that level. this is the stance they

will take. no surprise. , no10 year in the u.k. surprise, not much movement to the british pound, 1.26. let's bring in the bloomberg senior executive editor for economics. stephanie, this isn't a surprise. they are on hold until we know more about brexit. >> absolutely. 60 economists, 59 thought there would be no change, so i'm interested about the 60th. what the boe is looking at in terms of the economy, you might have thought you would prepare investors for another rate rise in the next few months, although inflation was a bit lower than expected. budget,ications of the

more expansionary, so fiscal policy will be supporting the economy, the wages ticking up yeter than thought, everything on hold because of the endless back-and-forth over brexit and the complete lack of clarity on what happens. get some robust retail sales numbers out of the u.k. this chart shows you the inflation, the headline above 2%, the core inflation below him of the trailing off. -- below, but trailing off. only going a bit -- up, butcome but brexit comes into this because sterling is such a crucial component. if you had another major leg down or up in sterling as a result of how brexit plays out, that would have significant

medium-term effects on the inflation rate, so that is something else they can't be sure about even though there were some reassuring signals. david: were going to bring in catherine mann. what is the central banker to do? >> weight. other than the -- wait. with the domestic economy, you have to wait until the big event happens, then make a judgment whether you should be hiking, reducing, or sticking point. carol: what is the worst scenario in terms of the tickets impact, no brexit? >> it is hard to say which is the worst deal. it will hurt different parts of the economy. problemrtainty is the affecting it the most. my view is the uncertainty could

continue beyond march 29. leaders capess wait. -- can't wait. what is going on with business investment in the u.k.? >> business investment before the referendum, a bit of slowing because of this uncertainty, that it is an interesting debate. we think of the business community wanting certainty and a smooth transition. that is what business groups have said, the transition, clarity, but as you get the prospect of a second referendum, some is this leaders are asking do i want certainty, but a certain >> it, or more uncertainty and the increased chance of staying in the eu and holding on to those supply chains.

it is interesting. we are starting to see a shift in weight businesses are talking about this because of that second referendum possibility. carol: how does a second referendum factor into your perspective? >> it is part of the challenge in making a judgment on the u.k. economy. it is an added uncertainty. i agree business has decided we have to make some decisions, move forward, but if you hold out there hope that may be this current position of not knowing which way it will go, that is better than crashing out. both for the u.k. anti-e.u.. crashing out -- for the u.k. and the eu. david: now the possibility seems to be talked about more and more. ren amber riley -- amber

udd. >> although she has not spoken about it openly, she has taught about the possibility. yabl byt it is sa more peoplee is significant. you have two parties for down the middle by this european issue who have realized the only way they don't have to resolve those differences is by kicking it back to the public. you mightlways why end up with a second referendum if these parties could not get to grips with the disagreements amongst themselves and come up with a way of getting this through parliament. i think it is much more likely than a was a couple of months ago. carol: definitely a continuing story. thank you. catherine mann will stay with

us. let's get a quick check of markets. a big week or two for central-bank surround the globe. the fed raising rates, a s&prise to markets, or futures despite the equity markets in the u.s. selling off a lot following that fed decision in press conference, some support this morning with futures up .3%. europe, some selling following the decline yesterday, down .8%. the british pound is holding at its level following the boe decision. brent crude did dipped below $55 a barrel for the first time in about a year. says the, the fed balance sheet runoff is on autopilot, disappointing markets. that is coming up next. this is bloomberg. ♪

david: >> this is your bloomberg business flash. is tree of is -- altria making an investment in juul, making it the second most viable privately held company after uber. shares of airbus are following after the u.s. justice department launched an investigation into bribery allegations, being conducted in parallel with british and french investigation. airbus could face fines totaling several billion dollars. the maker of budweiser is

getting into the marijuana industry. ab inbev agreed to a partnership intotilray to look non-alcoholic, cannabis-infused beverages. that is your bloomberg business flash. david: we have three stories we are following. markets show disappointment in the fed tightening policy. brian moynihan on how geopolitics may be holding us back. the cohost of "what did you miss" and catherine mann. i'm sure you're watching the fed. explain what happened. >> the fed did with the markets , the marketm to do expectation was to increase interest rates. whether that was the right decision, that is what the market expected. there were some crosscurrents in

the data that would have allowed the fed to allow them to pause. aat was attention between -- tension between the data dependency and digestion issues in the financial markets, given an opportunity to pause, but the market expected them to move, so that puts them in a box. carol: why do you think the fed did not move? what are we missing? >> that is a problem. if they had not changed interest rates, then the market would have said the fed knows more than we do about the slowing of the economy and we should be that much more concerned, or some people believe there is inflation right frowned the corner, so they would have believed the fed is behind the

curve, so they were put in a series find. david: why did the markets react that way if they did what they expected. it really fell off a cliff. >> a big portion of the market is disconnected from reality. they have been clear about what they were going to do. the market thought the financial volatility would be enough to hold them off. they misjudged what he was jay powell is and misjudging the anxiety. , and theding the reins markets have to get in line with that. they are still misaligned with what the fed wants to do. carol: it has been a big week for central banks. ,e did hear from the boe holding its key interest rate at and, a unanimous vote

markets expected this. on the ftse has carried over from the u.s. trade we saw. we've been talking about the u.k., what is the next big focal point, counting down to march? >> we were talking about the possibility of the second referendum that would create another opportunity for us prior to march 29. there could be some discussion about the european court of justice ruling that gives them an opportunity to with draw -- to withdraw their decision to leave him a put a timetable on it. there are points of decision that come prior to the 29th. david: what does this mean for u.k. stocks and companies. are they getting left to the side? >> it is in a holding pattern. the broader economic outlook depends on the result of brexit,

the understatement of the year, but now a bank with a key rate at less than 1% that has to be prepared for some type of crisis. it talking about a drop in would bleedhich over into equities in the bond market. you have a bank here that has to prepare for the worst, even if it does not materialize. if you are an investor, you are holding. carol: companies are moving on. they have to make decisions. david: bank of america, brian moynihan, we talked about the economy. he said we are growing. the problem is geopolitics. >> these decisions have real impacts. impact on people. the impact of trade war uncertainty.

the impact of good things people we senden cars to? let us which are feeling right now. david: what he was saying is the economy is basically growing domestically and globally. the problem is a lot of his this is are saying not sure about china, brexit, europe. the issue is when we were in a synchronized growth pattern at the beginning of the year, all that the investors knew what direction they wanted to go, ,nvest to satisfy market demand and now they don't know where the demand is coming from. the uncertainty causes them to pause, at least some of them. there is a group of smaller businesses serving the domestic marketplaces in the eu and the u.s., and those markets are

strong, the labor market momentum is strong, so those businesses are ignoring the ,rade war, ignoring wall street and continuing on with the program of contesting, hiring, producing -- of investing, hiring, producing product. is that enough to support the economy? carol: u.s. banks were supposed to benefit by a higher rate environment, in terms of margins and so on, >> and we are not seeing that. we didn't see that. one of the first things i did is look at the financial statements. bank of america is having a record year in terms of earnings and profits. they have managed to find their way through this morass. investors were looking for a benefit from rates. carol: bank of america, 18%. >> why?

they are having record profit. they are having some issues with investment banking, but the bank is doing well. tastebig banks with rod businesses have found a way to make money. brought-based businesses have found a way to make money. carol: we need that for things to improve. >> financial institutions are an important component of the real economy, and we want them to be strong to dissipate in global growth in the so you want strong financials. david: he did save they did make money off the increased rates. they have record profits. he said the stock will take care of itself. pretty much everybody stock is down right now. david: many thanks. catherine mann will be staying with us.

eight,up, trade versus the second round of payments to farmers stunned by the trade war with the u.s. agricultural secretary. this is bloomberg. ♪ is is bloomberg. ♪

david: u.s. farmers on the front lines of the trade skirmish with china. soybean exports plummeting and stockpiles growing. president trump said he authorized a second round of payments to take away some of that sting. this is what he said in his tweet. ,e welcome now sonny perdue secretary of aquaculture. good to see -- agriculture. good to see you. >> glad to be with you. david: tell us about these payments the president authorized. when will they make it to farmers and how much of this thing will they take away?

>> they will help to replace some of the lost income from the trade loss this year, because of retaliatory tariffs, but it make , but fulfills the president's commitment from the summer when he realized it had affected agriculture. we knew they would. we have a surplus in exports. that is the first place they come to try to hurt the american economy. david: maybe some relief is on the way from china itself? the purchase of soybeans and corn are going up. how material is set, or is that a small down payment? is a down payment on better trade relationships. president trump did this over the bad actions of china over a number of years, forced transfer and we have theft,

tried to work on the structural reforms for months, and china would not change its way. the president used tariffs in china retaliated. we are hopeful we can get some resolution. we would love to have china back , other markets, but they have to change their ways and play fair. david: another change coming through your department is in the snap program. explain what that is and why you are changing it? bill.are signing the farm we are happy to have that safety net. it also affects consumers in the snap program. it is our food stamp program that has gone on since the reform in 1996. we are restoring the integrity and intention of the program regarding who should get those benefits. during the great recession, we

had high unemployment and the rolls climbed. we want to help people, but resnick clinton said it ought to be a second chance and not a way of life. it has become a way of life for many adults who rely on food stamps without looking for a job. we have an economy with 3.7 unemployment, more jobs than people. we want to restore the dignity of work for the american worker. david: you have a lot of agenda -- on your agenda there. the usmca, the successor to nafta, a lot of exports to canada and mexico. what senatoryou pat toomey said yesterday. he has some doubts about a getting ratified. not extremely

optimistic we will see any movement anytime soon. i am afraid the demands will take it in a further protectionist direction, not greater economic freedom. david: are you more optimistic than senator toomey on ratification? >> i respectfully disagree with his assessment. this renewed agreement is that are in virtually all aspects than the previous have to. -- reviews nafta. it ensures a relationship between our nearest neighbors north and south. canada and mexico are our number two and three partners almost always, and they are very important. north america is the best neighborhood on the planet, and we need this agreement. when congress looks at it, they will look for worker protection and everything else.

it is vastly improved, even for agriculture. this is a better deal than what we had. that is what president trump promised, and he has presented a better deal. david: speaker policy and the democrats and the democrats in the majority, they agree with you, right? >> they will base their decision on facts. when they look at the agreement and understand, surely they will say you could have gotten this without, but that is what negotiation's are about. david: good to have you with us today. coming up, between a hawk and a hard place, the fed hikes for the fourth time in the market is rattled. this is bloomberg. ♪

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stocks, the worst day on a fed day since 2011. just a hairres higher, up about .2%. .1%.ones futures up about they had a huge swing yesterday. .3%.tse just down about bank of england keeping interest rates at .75%, as expected. is in a bear market, down about 2.8% for the thursday trade. let's look at the dollar this morning. a little bit lower, down about .7%. abouttaking a hit, down $55 at one point for the first time in about a year. concerns about economic growth weighing on brent crude. the 10-year is little changed. david: time to find out what is going on outside the business world.

korea helped racist extra president trump's efforts to hold -- north korea helped raise the stakes for president trump's efforts with kim jong-un. pyongyang insisting the two sides agree to denuclearization of the korean peninsula. yours officials say that only refer to north korea appeared the u.s. senate taking a step towards averting a partial government shutdown. lawmakers passing a bill that would keep agencies open through february 8, putting up a complication of the border wall with mexico are now the bill goes to the u.s. house where leaders from both parties have signaled support to it in tokyo, court rejecting a request from prosecutors to extend carlos ghosn's time in jail, meaning he of seek bail in spite allegations he underreported his income. he has been in jail since november 19. global news 24 hours a day on

air and on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. david: shortly after the fed's decision yesterday, i got to sit down with brian moynihan, bank of america ceo. i got his initial reaction. they were clear for months, basically saying we have a view of where the rate is where we are getting more neutral. to accommodating the economy are taking accommodation out of the economy at a too fast rate. we are getting to the bottom of that. of course they would be more cautious. i had a wise economics leader a few years ago that said everybody looks at the dot plots and gets really excited, but you have to think of it as a person climbing a mountain.

not that they have some few of 17 meetings down the road , what will happen. so you have a normal view of what it would be like if the economy was growing at 2.5%, 3%. a lot of work is needed early on to say here is where we are going. now we are there, now back to handholding. said it is data dependent. if unemployment stays tight in , ifs continue to grow conditions are still growth in the economy at 2% plus, we will hand,-- on the other there is a little bit of we are more worried about the factors outside of the system. stock market prices and stuff. there is the geopolitical stuff. but the key thing people are missing is when you get to

neutral, it is back to circumstances, meeting by meeting by meeting, as opposed to trying to get the path back. frankly, they have not had that much impact on the rate structure. rates are not high because the fed is liquidating. they are basically lower now than when they started spitting of the process. it is an interesting time, and people forget. i cannot know what they're going because their data dependent. david: what about the balance sheet and rates? we're going to go ahead and the matter what is on autopilot. for thea risk of that financial system? >> you have to realize it is against a big, big pool. when you talk about selloff, them not buying mortgage-backed there is 6 of which

trillion or whatever it is outstanding, that is settled debts, and that was their side of it. people have to realize that qe was needed to show confidence at the time that they were willing to push. now they don't need that support. i think they have been clear that the balance sheet would be much bigger than in the past because the cash in circulation and the reserves, plus the treasury. you almost have a balance sheet with the stuff that has to be there, so they are working their way down. it is not my position to say whether they are right or wrong, but i think it is right to get them out of the qe thing. that was unusual. i do not think it is that big of an impact. you say, how do you know? when they stepped up the last purchases, the 10-year was over 3%, now it is down to 2.80%. there is flight to quality,

whatever else is out there. that is going on. holdings,heir especially the parts they will put off, is a small part of the hole when you think about that in the context of size of those markets. do you see banker, any effective reduction of liquidity? >> destruction of the market is the question. when you have one way sellers and stuff like that. understand because you are in this business, but it is hard to explain to people. they have to sell, so the financial sector, everybody pulling money outcome of the stoxx indiscriminately, whether it is not so good or whatever. it is not a bank balance sheet question. it is a capital markets question. has been liquidity taken out on purpose by the fed, no question. and there are the worlds that make it harder for us to support the market, and a question. what we do not know is how it is going to perform.

my exclusiveof interview with brian moynihan, bank of america ceo. erik: michael mckee is joining us. and still with us is catherine mann of citi research. mike, you were down there in washington at some interesting developments yesterday. mike: i would love to have you turnaround to that trading floor and say some of that review would have gotten a different answer from the traders. x that i you to tell ali brought along a chart. some liquidity has been taken out of the market, but this is the price of credit right now. commercial paper, since the fed began raising rates go has gone up a lot. i asked chairman powell about that yesterday, and he said it is not just us. you have the treasury issuing an enormous them out of treasury bills, and that puts pressure on the markets. you have people looking to park money in cash, and that is putting pressure on the market.

so the question, is there a liquidity problem or is it just of free- after 10 years money, people do not want to pay up for it anymore. : kathryn? catherine: qe was designed to make money cheap, reduce risk spreads. that is what qe was designed to do. this implies a reversal of that, making credit more expensive, spreads wider, equity evaluations associated with a higher discount rate, so allegations will be lower. so we're not done yet. only: and we're not starting to charge some that for money, but another thing is happening, which is we had a pathway toward normalization. now as we get toward neutral, we are not sure. how difficult is that for markets to adjust to? catherine: well, it is 10 years

of having a lot of information, forward guidance being incredibly important with quantitative easing, and me dot plot came out of that to show the pathway. changing over to being data dependent will change the focus of analysis. let's look at the dot plot to see who moved down. of the fed in the economy is going to have change. 10 years that we have analysts who have been focusing on one thing, and now they need to focus on something else. carol: so they said the balance sheet will be on autopilot. let's hear from chairman jay powell. chairman powell: we thought carefully on how to do this with policy, that we would have the balance sheet runoff on automatic pilot and use monetary policy, rate policy, to adjust to incoming data.

and i think that has been a good decision. i think the run-up of the balance sheet has been spoon -- smooth and has served its purpose. i do not see us changing that. question was he answered? carol: michael mckee. we talked about how the market reacted following that response. what i don't get is, isn't this what we want the fed to be doing at this point? we want to get back to normalcy and do not want qe anymore. we want to see rates going higher because the economy is strong enough to do it. catherine: exactly. at some point, you do have to exit from quantitative easing. carol: that is the abnormal policy. catherine: it is the abnormal policy, but it has been in place for 10 years. the thing about having a balance sheet on autopilot, i think this is extremely important because it means analysts can focus on monetary policy, the standard tool, as opposed to how these two things might work together if we have questions that moved

on balance sheet and questions it moved on policy rate, how those move together. the market has much too much to think about. -- mike: how do you calibrate it if you use it as a tool of monetary policy? then there is the dot plot. all the people in the market came out of yesterday's meeting saying they are promising two rate hikes next year, and how could they do that? but that is not true. if you look at the dot plot, there are 17 forecasts for where it to be a dishware could be. it is not a consensus. 11you look at it, there are of the 17 who said two or fewer, and six of those 11 say one or fewer. so it is not like they're promising as two rate hikes. we will move as necessary. in another part of the news conference, he denied there is any politics involved

in said they will not pay attention. with respect to the balance sheet, if they started making adjustments month to month, it encourages the president and people on capitol hill to start lobbying on the balance sheet. they do not need that. there is already concerned about how much the balance sheet has affected the economy. here is a chart that shows what autopilot looks like. i do not think they want to be in the business of gaming the system and the balance sheet. they did this a couple years ago, and it would exert more of that refers quarter will be interesting. we had the continuing resolution, funding the government kicking into february, the debt ceiling coming back in march, the end of the night a-day china negotiating period. david: we need you to us the question of jay powell every month. mike: so much is going to be going on.

ok, bloomberg's michael mckee and catherine mann, thank you both for being with us. coming up, soros reduces macro wages here more on the strategy that made george soros a millionaire. this is bloomberg. ♪

carol: -- viviana: this is "bloomberg daybreak." coming up, the former minneapolis fed president. david: we turn to wall street beat, covering three things wall street is buzzing about this morning.

soros gives up on macro, for now. will they move away from the macro raging strategy setting fewer opportunities? and then a french bank has denied managing retirement guiltyafter it pleaded to foreign currency manipulation earlier this year. and moynihan ramps up the investment bank, saying they got too careful, at least in one area. carol: talk about george soros. he made billions of dollars on macro bets, whether it was currencies or bonds, and he is going back big time. >> went important distinction is that -- one important description is soros has reallocated it to his foundation, but they are not seeing a lot of opportunities in macro now. this goes back to what was talked about the other day on bloomberg tv, that there is volatility but not necessarily the right kind of volatility because it is not moving in line

with the trend. it is difficult to praise -- place your bets. in terms of funny opportunities, it is too uncertain. david: it is one thing to be volatile and another thing to be erratic. a lot of what we're seeing seems erratic, and it is not limited to the united states and president trump. brooke: with politics, it is a new story everyday. carol: it is interesting, the numbers. macro trading is done about $500 million from 3 billion last year. talk about pulling back significantly. look: and it is interesting that bigger refocusing on real estate. moving to financials, this bnp paribas story, a surprise. they are losing asset -- access to some u.s. pension assets. they are a minor player, but it

is rare you have the u.s. government saying you cannot do this anymore. it is. if you're convicted of a felony, you are meant to lose this qualified professional asset. but by tradition, the labor department has usually granted exemptions. reached a settlement with the justice department over allegations it was men ambulating foreign-exchange prices. it did get that exemption ma, but now they say it was temporary and we are going to extend it. we do not know why that is the case, but starting in 2014, the labor department said it would take a harsher look at these exemptions and i guess have more scrutiny. you are seeing that play out here. david: it leads you to wonder if it is a general policy shift and if it applies to everyone or is there something we do not know about bnp paribas? erik: i would be cautious about

extrapolating about this. it is not necessarily a very significant hit if they are not able to get that exemption. i do not know how much it can be spread around if a u.s. bank faced a similar situation. carol: it is interesting because the government need someone looking at those. some of the bigger players have gotten waivers despite paying penalties or whatever. brooke: and sometimes on the same accounts, foreign-exchange manipulation. david: this story evolves bank of america, and i did sit in with brian yesterday we talked about his investment bank, which has been lagging a little bit in quarterly earnings. he mentioned wanting to change that bond a little bit. careful, a little too so the team is putting that back out with its middle-market investment bankers.

people covering deeper in the franchise, and where we look at ourselves, we lost some shares in midsized m&a deals, and we should not do that. david: so saying a little too careful. on assets, should have taken more risk. i asked if he was going to change and he said, no, we will just be more careful. but we did go after the middle .ized m&a deals brooke: which makes sense to me. if you look ahead to 2019, that is where the activity will be, that middle market m&a. you have seen so many big deals and we have kind of reached the peak of that activity, partly because of trade tensions and uncertainties. it is hard to make those bets. and a lot of companies are coming up against antitrust issues and debt issues and cannot really do those large deals. a lot of the volume will be in that middle market. carol: they are easy to be under the radar in terms of shareholders a do not cost much

money, but there is a lot of choices out there. and if you are seeing slowing growth, you are trying to figure out how to grow your top or bottom line. this is a way to do it. brooke: exactly. you have seen analogy companies do it. 3m did a deal that was sort of out of its wheelhouse, and i think you will see more of that type of activity as companies position themselves for increased connectivity, increased digital, especially old-school manufacturing type industries. carol: bank of america, their banking fees were down like 18%. leadership have new in investment banking. thank you so much to brooke sutherland of bloomberg opinion. joiningp, rivals may be forces. daimler and bmw are talking about sharing technology to save costs. more on what i am watching next. this is bloomberg. ♪

david: is is what i am watching, daimler and bmw. yesterday there was an announcement that they are talking about getting together to make some components, not branded components. carol: this is the auto world. enemies finding fri getting together. they are going through some of the different changes. i am not surprised. well, i am. david: this shows european autos. orange is overall the stoxx 600 auto. bmw is outperforming daimler up it your point is right.

automakers are facing a soft market. and they have to invest a lot on electric vehicles and autonomous vehicles, so you see partnerships like gm teaming with honda, for example. carol: who would have thunk? lots of changes. i think we will see more of this because they are facing a lot of pressure. david: exactly we will continue to follow it. coming up, more reaction to the pension pensionh the fixed income economist. live from new york, this is bloomberg. ♪ bloomberg. ♪

david: the fed has a bad day or

chairman jay powell speaks and markets listen, really listen. the s&p and me dow having -- and the dow having one of the biggest point swings and history. says geopolitical risk is the main thing holding us back. facebook loses face. will it lead tech down after further revelations and a lawsuit? welcome to "bloomberg daybreak." i am david westin right here with carol massar. welcome, carol. alix steel is off today. carol: yes, getting a break at we want to talk about markets because we are seeing movement following the big selloff in u.s. stocks yesterday, almost a 1000 point swing on the dow jones industrial average. a different tone this one appeared the s&p futures of a hair. still some pressure over in europe, down about .9%.

the dollar also seeing some selling. perhaps that has some concerns about slowing economic growth, and maybe that is playing into the u.s. dollar trade. below $55 adipped barrel, right now at $55 60 one cents, down about 2.8% on the day. david: let's see what is making headlines as of business world. viviana: north korea has raised the stakes for president trump's efforts to will the second summit with kim jong-un. north korea says it will not its nuclear removed arsenal unless the u.s. take its nuclear weapons out of the region. the country insists they agree to the denuclearization of the korean peninsula, but u.s. officials say it only reversed up pyongyang. the u.s. and it has taken the first step towards averting a partial government shutdown, law makers passing a bill that would keep agencies february 8, putting up competition over president -- putting off

confrontation over president trump's border wall. rejected aourt request from prosecutors to extend carlos ghosn's time in jail, meaning the former nissan chairman can see they'll and fight allegations that he underreported his income. since been in jail november 19. global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am viviana hurtado. this is bloomberg. david: markets headed down yesterday when the fed announced the rate hike everyone expected, they really move when chairman powell said that although future decisions would be data dependent, the reduction in the balance sheet would not be. chairman powell: we came to the view that we would effectively have the balance sheet run off on automatic pilot in use monetary policy, rate policy, to

adjust to incoming data. and i think that has been a good decision. in the the run-up balance sheet has been smooth and has served its purpose. and i do not see as changing that. david: welcome on the telephone from rochester, new york, narayana kocherlakota, former minneapolis fed president, now a university of rochester professor and bloomberg view columnist. a, you have been in that room. i have assumed the primary job of the fed chair is not to make news at the news conferences. did mr. powell. of the mark? -- did mr. powell fall short of the mark? narayana: no, i think he was doing his job in delivering the message of the committee. thats a little surprising that message came as news to the market, really surprising to me. i think the fed has been clear if use the balance sheet as

being on automatic pilot, and the shock will be in the short-term interest rate. carol: when you look at the economy, do you see that it is a strong enough for the fed to continue raising rates? narayana: you know, i think that the right way to frame it, carol, is maybe a little differently. which is, what are your goals, and are you going to be achieving those in a reasonable time horizon? goal continues's to be -- they continue to fall short on their inflation mandate. they -- it is going to take a couple years to get there. so what is the urgency to raise rates now when you are continuing to fall short of your inflation objectives? carol: nathan sheets, come in on that. do they have to raise rates with

those inflation targets below that 2% mark? it is: as he says, constrained by its dual mandate. so part of this objective is about inflation, and inflation, fortunately, remains very well behaved. but the fed is also looking at the labor market. indication, this is a relatively tight labor market. and the fed has to be thinking about inflation not only today and will thisoad, tightness in the labor market gradually, over time, pass-through to someone higher inflation? i think that that continues to answer the question with probably yes. given that, there has been a case for a gradual removal of monetary accommodation. and then with yesterday's rate hike, they are now, according to their assessment, on the edge of

a neutral range will they will become data dependent. was, doesth ago, it the fed stick with its theories like the phillips curve? does this say sooner or later, inflation will come through on wages? that sooner or later is getting a lot later. i say what the fed will do is consistent with what it has done. series, they're comparing them against the actual behavior of performance in the economy, and it seems like the relationship is looser. so the fed has been much more gradual than any of the theories would've suggested, especially the phillips curve model of inflation. still, with a relatively strong economy and a tight labor market, there is a case for getting rates back into positive real territory, back into a

neutral range, and that is what they have done. , we have beena: trying to figure out if the fed has it right or financial markets, which has been moving lower in kind of pricing in an economic downturn, it feels like. no, there has, been a lot of movement in the markets over the last few weeks, maybe to the beginning of october or so. job is to look through those movements in markets and focus on what is going on in terms of the economy. you know, the market is more volatile than the actual economy. there is information to begin other from the market, and i think the fed took that on board. you saw that in their decision project out two rate hikes in 2019 as opposed to three. but their job is not to be

targeting some level of the s&p, much as market participants might like them to be doing that. their job is to be hitting the inflation target and keeping unemployment and maximum levels. carol: nathan is nodding fast. but are market participants, investors, seeing something that maybe everybody else is missing as a leading indicator? narayana: it is possible. on the other hand, they might not be. so there is some information to be taken from what is in markets. again, i think the fed takes some of that information on board. but equities, especially, are very volatile compared to what is going on in the mainstream economy that the fed is mandated to be concerned about. david: there is a bit of dissidents between the markets and what the fed is doing. job toe also a fed

ensure the long-term health of the financial system longer-term? qe must be extraordinary. suggested that it is good if we get off of qe. listen. >> i think it is right to get them out of qe. i don't think it is that big of an impact. people say, how do you know that? when they stepped up the last purchases, the 10-year was over 3%, and now it is down at 2.80%. there are a lot of factors with this rate structure. and, frankly,on, there holding is a small part of the hold when you think about that in the context of size of those markets. short-termeeing pain, but there is also long-term gain in terms of a healthier system. nathan: it is sometimes said that the root of normalization, and that is what the fed is doing with monetary policy, the

root of normalization is normal. and that is with the federal reserve is doing. it is moving rates back to neutral, back to normal, restoring a more historically typical kind of monetary policy. as they do that, they have to thread a needle. on the one hand, they cannot seem out of touch with markets. on the other hand, they do not want it to feel like the markets are dictating what policy is going to be. they have to thread a needle between those challenges. i think jay powell did a very nice job of that yesterday. del potro exactly, although investors saw it differently. -- carol: exec we. do you see a recession anytime soon in the next year? narayana: i think in terms of risk management with those questions. i think there is a risk of recession in the next year or two. it is material that it would be

affecting my decisions if i were still on the committee. i would be thinking about, do we have the tools, a backup for a recession of risk, and is raising rates right now, given the potential for a possible recession, is it really the right move? david: narayana kocherlakota, former minneapolis fed president, thank you very much for being with us. nathan sheets of pgim fixed income is staying with us. we have potentially big news coming out of qualcomm. qualcomm has gotten an ojunction from a munich court n iphones. there is a patent dispute going on between qualcomm and apple. there is extra judicial proceedings that have to be taken effective they are going to ben the use -- ban the use of it. proceeding similar the habited china. apple really was to take those

iphones off the market. china pup qualcomm already up about 1.6% in the premarket. this is a big win. there has been a lot of pushback and some of these cases. so this is potentially a big deal. memory serves, the iphones affected are not the newest models. bu there is a real effect in the marketplace right now. tcarol: and apple can appeal this. ongoing negotiations continuing. david: coming up, the bears come out of hibernation, but is it all doom and gloom for the economy? more on that next. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." all tree a has made it official, spending $12.8 billion for a 35% .take in jewel the investment makes jewel the second-most valuable privately held company after uber. products will be sold next to marlboro cigarettes on the top shelf in the u.s. after af airbus falling french report the u.s. justice department has launched an investigation. a probe is being conducted in parallel with british investigations. according to a newspaper, air cut -- airbus could get fines totaling several billion dollars. the maker of budweiser is getting into the marijuana industry. a research partnership has been agreed to with a canadian pot form, and they will spend $100 million to look into non-at holick cannabis infused beverages -- nonalcoholic

cannabis infused beverages. carol: thank you so much. the dollar is headed for its worst day since december 1 in the aftermath of the fed monetary tightening. nathan sheets is still with us from pgim income. what do you make of the dollar decline? nathan: i think we are still at a place where the markets are struggling to process all the various pieces and implications of the fed's decision. on the one hand, i think you have the equity market and the bond market suggesting maybe this was a little more hawkish than expected. i would have expected that to carry through with a little dollar strength. that the dollar is down is an interesting signal. thes maybe a reflection of increased uncertainty about what

is happening in the united states. that thee concern is fed will overdo it and slow down economic growth. nathan: i think that is a very reasonable read on where the markets are. there is a gap between where the federal reserve is in its confidence about the outlook and what the markets are seeing. i think what the markets are seeing is the growth in the united states, maybe more importantly in the rest of the world, has probably hit its peak and growth is coming off. and that is what i think is really setting the tone and concern. david: that may lead to a story we have not talked a much yet today, and that is the price of oil down so much. i have a chart that indicates the difference between high-yield loans to energy in the-- ask energy, high on energy is really a lot higher. oil prices of the last

six weeks have been extraordinary. i think the first leg down was the geopolitical story about sanctions and exemptions from increasedhouse and pumping by the saudis. but the second leg down is about uncertainty about global growth and about whether the demand is going to be there going forward. carol: you have spent a lot of time at the treasury working on affairs.onal when you look at what is going on around the world, catherine mann earlier was saying a year ago we were talking about secret eyes global growth and how wonderful it was. and look at where we are today. when how are you seeing the global outlook? nathan: the picture is much more complicated and varied. certainly much more interesting than it was a year ago. is hard to trade. nathan: it is hard to trade, hard to interpret as an analyst. i look through the volatility in growth numbers in euro area and

japan and ca trend -- and see a trend. the wildcard is where the chinese economy is headed. is not is president xi going to let his economy slow sharply in the face of this trade war with president trump and that strong forms of stimulus in china are forthcoming. carol: which we should know about on friday. nathan: i hope so because we have not seen him react. by our read, the economy continues to slow in china. if china's economy does not turnaround in the next three or four months, some of that has him about the global outlook will be very legitimate. my view is we will see the stimulus in china will start to pick up. david: and so much for credit reform in china. it means the leverage goes appear nathan: exactly. they tried some new kinds of fiscal stimulus with cuts and

corporate rate cuts and so forth, but it has not really got a lot of traction yet. i think, ultimately, to support the economy, they are going to have to back away, at least for a while. it means more risks than the road, even if it means more growth today. beid: nathan sheets will staying with us. coming up, another alcohol giant dips its toes into the cannabis industry. more on that partnership intraday's bottom line. that is coming up next. this is bloomberg. ♪

david: time for the bottom line, where we look at three, and is worth watching this morning. nissan's carlos ghosn back in the news today. turns out the courts and japan have said to prosecutors, no, you cannot continue to detain him and you have to allow for the possibility of bail. he has been detained since

mid-november. carol: it is interesting to see where this goes next. i feel like there are certain things out of japan and certain things out of nissan and we have different things from renault. now he can talk to press, too. so we will hear from him. david: it will be fascinating. also fascinating, i know you love cars. i love what is going on in terms of the self driving universe. came out and said analysts think the street is giving too much value to google's market cap, and he has a long-term estimate on waymo of $250 billion. over the summer, morgan stanley give it a valuation of about $175 billion. you have too said watch what they are doing in terms of self driving. they have more miles on the road, and they're not building cars. it is about the platform.

gmid: you hear about the venture, and you are, the number of miles driven is astronomically larger. carol: we are watching that. nbev has a big partnership with tilray in cannabis research. what is going on with this? >> they are striking a joint venture with tilray, and the idea is to develop marijuana-infused drinks that will be nonalcoholic. right now, this is only legal in canada, but with this type of move, they're probably looking down the road toward legalization in the u.s. this is just one of a couple deals we have seen between marijuana companies and alcoholic beverage khamenei's. -- companies. coors did one.

altria, the tobacco comedy, did anotherillion stake in company. this is a trend we have seen with alcoholic beverage companies and tobacco companies not seeing growth in the traditional market and looking at pot as a future growth avenue. carol: but it is a partnership, right? not giving the money way to do this. work top -- brooke: no, usually see this big investment, but ab inbev does not have a lot of money to spare right now. moody's just could its credit rating a few weeks ago. they basically said he cannot do any big debt funded deals are we will have to downgrade you again. not have a lots of money to throw around, but i do nothing they want to miss out on this growth trend. they are not seeing the kind of pick up you would hope for. they're struggling to compete

with craft beer makers. carol: it is also an interesting tilray story. they had a deal with novartis in terms of medical marijuana, so they are aggressively planting the seeds in all avenues of marijuana. brooke: absolutely. it is striking to see the contrast and all of them and all the different opportunities. david: their stock is only of 300% this year, only. brooke sutherland, thank you. coming up, the economy is humming along fine, but geopolitics is what we need to worry about. that is what brian moynihan, the bank of america ceo, says. more on the exclusive interview next. this is bloomberg. ♪ ♪ there's no place like home ♪

argh! i'm trying... ♪ yippiekiyay. ♪ mom.

♪ carol: you are watching "bloomberg daybreak." i am carol massar in for alix steel. let's look at the s&p 500 futures.

maybe no surprise, a little bit of a bounce back but slightly, up about .2%. dow jones futures up 29 points. the ftse paring back earlier losses, now down about 14 points. the nikkei into their territory, down 2.8%. let's break down some economic data. david: a big mess on jobless claims. 214,000 instead of 215,000. so really pretty much in line with what was expected. carol: nathan sheets from pjm fixed income is still with us -- pgim fixed income is still with us. you're watching the labor market. what does it say to you? nathan: in november, there was a little blip up in data, which led some people to worry that maybe the labor market was starting to soften. and if so, that would be a very

important involvement in judging the strength of the economy. last week, the claims were back down again. i would say this consistent with ongoing strength in the labor market. more are less confirms the fed view that the labor market continues to be strong and perform well. david: so it was a blip after all? nathan: it was a blip after all. internally, we had a big debate on how to interpret it, but it does seem like the labor market continues to perform well. david: nathan sheets will be staying with us. we will continue the discussion on the u.s. economy. i talked with brian moynihan yesterday to get his view on growth here and whether the tax cuts we had really had the stimulus affect everyone hoped for. >> i think the economy grew faster in 2018 than it would have otherwise grown.

i think it has been good, stimulus. loan growth is not growing a lot because people still have all the uncertainty here and they do not know what to do. david: is it geopolitics fundamentally that they're worried about? >> these decisions have real impacts. people have to change their business model. the effect of a trade war, uncertainty moving around your supply chain, the impact of things breaking down between us and people we sent cars to her this and cars to us. it will cause people to say, wait a second, i have to think about some thing i do not have to think about. that is what you're think about. everybody predicted 2019 would be slower than 2018, and now the economy is predicted to slow down. last year, the was a fair amount of confusion about slowed and versus dish slow down versus

negative growth -- slow down versus negative growth. david: so the markets are sending a lot of signals right now, some of which are not very pleasant. how much of it is signal and how much is noise? how much of it is for metals and how much is just trading and cinnamon? if it is financials looking forward to earnings over the next couple of years, you still have the s&p earnings growing at high single digits next year, that way for a mentally good. but there is a question of whether it will grow at that rate. that tug-of-war between slowing down and staying positive versus slowing down and tipping over. how long can a recovery last? i think the market signals are trying to figure out what that earnings flow is, and that goes back to the economic picture and the environment.

that is back to geopolitics and things like that. i think if you stick from the basics, this year we think the gdp is around 3%. at 2.7%, but we brought it down to 2.5% very recently. it is still a growth rate consistent with many years. it is still a strong year. but when the car is decelerating, does not feel it. you look around the world and 2.8% growth for this year and maybe 3.6% for last year. we come down. that pulling down of estimates versus last year at this time because of cash flow increasing is creating signals. david: do you have a sense of what happened to that money, that $1.5 trillion in tax cuts? did people spend it or invested? >> if you think about the

consumer side of it, first of it, it is a 10-year number, confuses people. but let's talk about what consumers are doing. if you think about consumers and think twice 16, 2017, 2018, the growth rate of cash moving out of their accounts in terms of card usage, checks written, bills paid, cash out of atm's, all those forms of payment will total $2.5 trillion to $3 trillion, of 8.8%. that is over last year. last year over the year before, 6% range. that year before was 3%. so if you think about that, that is an acceleration, and that came because people got more money in a paycheck and saw balances go up. to the broad of america, when

they get a tax returns because of standardized deductions and things like that, that is not factored in yet. we pay 200,000 people around the world, and with other paychecks get bigger, and that money made it into the economy slowly but surely. it has accelerated at a higher bar against last year. that is all good news spear david: that was part of my exclusive interview with brian, the bank of america ceo. colombia still with us is nathan sheets of pgim income. -- carol: still with us is nathan sheets. we talked about the strength of the consumer. the consumers are so important to the economy. is it enough to keep momentum going? nathan: i think the answer to that is broadly yes. consumers, probably two thirds or 70% of the u.s. economy. and the u.s. consumer right now

is solid. as you said, the fiscal stimulus is a supporting spending. the labor market is strong. wages are gradually rising. in the aggregate, balance sheets are pretty good. consumer.strong u.s. that really is the core of this expansion. david: does business believe the consumers are strong? if they did, they would see demand it would be investing more, wouldn't they? nathan: the investment story is interesting. the consumer is strong and they got big corporate tax cut. u.s.s the time for businesses to invest.we were seeing that in q1 and q2, and it kind of came off the boil in q3. question for u.s. expansion next year is, does investment comeback? carol: what do they need for it to come act?

nathan: they need confidence in the consumer. -- and the other point brian moynihan highlighted, it may be that they are deterred from investing due to some of the geopolitical uncertainty. it trade war is an enormous risk for the u.s. economy. you have brexit. there are lots of uncertainties on the european continent with france. italy may be looking a little bit better, but who knows. there is a lot to worry about in that sphere, and that may the causing businesses to hold back a little bit relative to where we need them to be. carol: the white house will start thinking about the 2020 elections and the policies it is implementing or not getting a trade deal done with china and how that is impacting them. we talked about farmers and aid. nathan: 2020 must loom large in

the policy and the expectations for the white house. think theade war, i president has 2019 to try to prosecute it. once we get into 2020, i don't think he wants trade war uncertainty impacting farmers and consumers. carol: david is laughing. david: had fiscal stimulus and tax cuts. the president has in his power in different form of stimulus, getting deals on trade. how much stimulus with that give to the u.s. economy? nathan: i think an agreement on trade, and let me be blunt, i have negotiated with the chinese, and they offered this administration more than they have offered previous administrations. he can harvest those gains, claim a he can harvest those ga, claim a victory, and remove a big source of uncertainty from the u.s. economy when he chooses . carol: so you are saying the

chinese really have made progress in terms of offering up a lot. nathan: absolutely. they are putting things on the table that they have not put on the table before. the question is, how do you get them to do it in a way that is actually enforceable? carol: we have heard so much talk out of the chinese, and we do not always get follow-through. nathan: follow-through is the challenging part. david: nathan sheets, really great to have you here. coming up, facebook losing face. shares drop after the company is sued over a privacy breach. we will discuss it with a facebook shareholder, dan morgan. that is coming up next. this is bloomberg. ♪

viviana: this is "bloomberg daybreak."

coming up later, an exclusive interview with bill dudley, former new york fed president. david: automakers have faced a slowdown this year, but one carbon -- one car company is outperforming the equity market, and it may not be the one you expect your it it is tesla. out thisler lays it morning. he is going as now welcome back, matt. yearsla has had a good despite everything we heard. matt: it has had a great year, actually. hard to believe that it may be its best year in terms of relative value. tesla has outperformed every major car company, 10 of them, let's say, this year in terms of sales growth, equity performance, and product, loyalty.

this new model 3 has turned out to be the best-selling car in america in terms of revenue, which is sort of extraordinary when you think about an electric vehicle. david: we have a chart that shows the total market cap of tesla, gm, and fort. fall, the fell below gm, but it shot back up again. even though they make a handful of automobiles compared to gm or ford. matt: the key thing to watch is over the past five years, the so screw it -- the sales growth, which has exploded. if you think about investors, what do they get excited about? they get excited about growth. when you see growth, that is what gets them interested. no growth, they are looking elsewhere. that is where the industry is right now because there is no growth. the taxhat about

subsidies and tax credits people have gotten to buy a tesla, how much of that has been a factor? matt: no question it really helps you but if you look at the model 3, which is meant to be the every person vehicle as opposed to the model s, the luxury. the model 3, with or without the tax break, is outselling entry-level luxury line, , marblescombustion from all caps a car committees we know well. it is literally a car that people appreciate. they appreciate it more. so the tax credit is a benefit, but it is not deciding tesla's performance. david: can they sustain it? talk about elon musk in the infrastructure. spacex is a very different company from tesla, and it is run by a president who is very accomplished, a woman whose table he able and with a great

team. he has had a lot of turnover at the top. this he have the team to continue that sort of growth? matt: if you think about it, he doubled down in 2008, argue blew the worst year for all of us in the financial context since the great depression. he said i am betting on this company, and this is the oligarch of any that is totally dedicated to dealing with climate change. it is the only car company right now that is completely zero emissions. there are a lot of people who increasingly think that is where our future is, zero emissions, and he is the only one doing it. he isl of his antics, actually on the right side of history at this point. carol: interesting when you put generale context of motors, which shutdown factories recently. she put her key person in charge of ev vehicles.

and bewe have to wake up more aggressive. matt: they have not done it yet. general motors actually give us the electric vehicle in a 1990's and then killed it. david: they now have investment for softbank and honda, joint ventures. if you look at the market value, it is something like a 35% of the total market cap of gm. that is before you take into account that sort of market. they are growing fast. matt: i own a tesla. i have had one since 2014. and is the difference, gm its dna is still internal combustion engine. daimler is still internal combustion engine. bmw, the ultimate driving machine, is internal combustion engine. tesla, completely, totally electric. ok, the difference between those

two categories is huge. until committees say no, all of our dna should be zero emissions -- until companies say no, all of our dna should be zero emissions. i am not sure the goliath triumphs. carol: i do wonder though, considering the year in elon musk has had, is very volatile, has really, and he skirted close in terms of regulators and oversight. does that get him in trouble? matt: he is still ceo. there's no question there are video sequences -- idiosyncrasies. but what are the shareholders saying and doing with a product? he has more loyalty, tesla has more loyalty, in shareholders than gm does. in this article today, mutual

more enthusiastic about tesla than about any other car company. it is a marvel when you think about it. investors can put their money where ever they want. carol: whenever you bring up tesla and you bring in investors, you get heated people on both sides. david: with a great brand, you. we about it. editor in chief emeritus, matt winkler, thank you so much. carol: it is a great read. here's what i'm watching, and other shoe to drop for facebook. the company was sued by the district of columbia over a privacy breach yesterday, and that is after reports from "the new york times" that they had more than 150 companies allowed to access more personal data from users than it disclosed. dan morgan of sin over --

ownsus joins us, and he facebook in his portfolio. every week, something comes out about facebook that makes me question its future. how do you see it? dan: when is this going to end? we started in march and thought thinks settled down. we went through the congressional committee testimony, and everybody critiqued that. and now we get this article breaking about sharing data with other tech companies. it is very disturbing, obviously something facebook cannot seem to address. behind could get this them, there is a many great opportunities for them going forward. until they do, continued negative headline news. curl pot, you like the stock. -- carol: ok, you like the stock. are you adding to it? dan: it is a stock we bought after the ipo when it dipped a little bit and started coming back up again, and the stock

slid. inis still on our buy list terms of it is a stock we can look at. in terms of the timeliness of purchasing the stock right now, it would be nice to see some of these dark clouds pass over and start to get positive momentum. fiscal year 2019 earnings estimates are basically flat. with of that is associated cost increases related to security. revenues expected to be about 23%. i would expect the stock to be a little bit flat over the next six months, not only because of headline risks, but because there does not seem to be a lot of growth going into the next year. david: even before you grow, you have to keep would you have. whatder at one point -- at point, does it have to be a structural change, talking management?

there have been so many of these issues, and they say we will get it right next time. some public interest groups say there has to be changes in management. dan: something has to have it internally. they bring in some group of people -- they will have to bring in a group of people to self police themselves or get an outside consulting group to tell the how to run in terms of policy. at this point, it is frustrating because it keeps repeating itself. even though we get upper management telling us things have changed, so that is something that is structural from within. but in terms of the big picture down to,ook, it comes do they maintain that dominant position in terms of market share for advertising? about 70% ofle, the online advertising market. we have not heard of major advertisers dropping away from them, and that is what i have focusing on. with our teching

team here at blaber, one of the things they say for 2019 -- here at bloomberg, one of the things they say for 2019 will be a media perspective and search. you have a mixed congress at this point. what do you see coming out of washington in terms of regulatory oversight? dan: that is one of the sectors within technology that will be difficult, not only for facebook. you have twitter, snap, google. they are all in that space in terms of data mining and selling data for advertising dollars. and the possibility with the house controlled by the democrats, republicans our hands off a little bit. you might see some sort of congressional committee trying to pass some laws to try to govern these committees. that is something to be concerned about within technology so within that group, no doubt.

carol: if we do get something out of regulators, does that make you then put a different rating on your stock? dan: as long as they are growing and harvesting those advertisers , that is the huge thing for us. it is really all numbers. badother stuff, yeah, it is news and does not sound good, but it all comes down to the numbers. that is really the key for us. david: how much of their advantage right now is that there is not really a close rival? dan: you are right. ,e know that facebook is huge what, $2.27 billion, a monster number. you could probably put all the others together, twitter, snap, and it still would not eclipse facebook. also remember that for every one new subscriber facebook signs up in the u.s., they sign and additional six overseas. you have these other trademarked

names people do not associate with facebook like whatsapp and message or an, which are just beginning to monetize. these are things that are extra legs to the facebook story thtat could continue behind the scenes if people do not think about facebook. of synovusmorgan trust, we appreciate your time. time will tell what happens with facebook. i think he made a good point. if they do not have any -- they do not have any real competitors. and we've seen tech pick up lobbying efforts. ferro.next, jonathan this is bloomberg. ♪

jonathan: the countdown to the open starts right now.

up, the federal reserve unable to make incredibly high expectations. stocks dropping on the german's seventh meeting that chairman -- chairman's seventh meeting. 30 minutes away from the opening bell in new york city. good morning. we are heading for a third week of losses. treasuries stable. the dollar weaker. this thursday the market is focused on one thing following the fed decision. >> the balance sheet. >> the balance sheet. >> balance sheet reduction. >> just because you put it away and don't focus on it does not mean it's not operating in the backdrop. >> i wish the chairman made a list of things that he could be thinking about should the market turmoil and volatility be a concern.