♪ >> over the next couple of months, we will see significantly stronger inflation. >> the consumer is still seeing spending in excess of what would be normal. >> people are going to be spending, and the bounce back in oil demand is probably going to be greater than people are expecting. >> we are now at a point where supply is extremely low, inventories are extremely low, and demand is roaring, so prices are extraordinarily bought. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: cpi 90 minutes away. from new york city, for our audience worldwide, good morning. this is "bloomberg surveillance,

" live on tv and radio. equity futures down 0.4% on the s&p 500. tom: let's be clear, this is a big deal, particularly dovetailed in with retail sales. it is the give-and-take between price change and the good feeling of this economy. i would suggest we see a good feeling for gdp. jonathan: why don't you like the phrase cpi wednesday? why do we call it pays roles friday -- call it payrolls friday? tom: because it is a huge deal. jonathan: we can do job claims thursday morning if you really want to. i would rather stick with cpi wednesday and payrolls friday. tom: impact state next tuesday. jonathan: demand solid. we have seen that in job

offerings. tom: the pricing power debate we started yesterday, you've got to believe that is the debate through the summer as well. how do corporations adjust to this? robert schiffman moments ago at bloomberg intelligence reaffirming amazon credit quality after the $18 billion deal, where you got the 40 year piece. jonathan: basically the treasury curve. tom: full faith and credit. jonathan: couldn't agree more. tom: so many things to talk about, but i want to circle back to the gloom of brexit. you lived it. you led our coverage there. guess what? citigroup calls the u.k. economy resilient. jonathan: this recovery is just starting. the vaccine rollout there has been terrific, as it has been in the u.s., but europe is catching up. europe is coming together in a way that maybe wasn't expect it several months back, and that is making people or bullish on the cyclical story. tom: we all use the terminal

differently. what i look at is the euro proxies. swiss 20 year, positive 0.88%. that is a litmus paper of this kind of feeling in europe. jonathan: german tin years -- german 10-years getting closer to zero. yielding higher on yesterday's session. as your price action. supply coming a little bit later in the market. it will be the 10 year maturity. yields in a basis point right now to 1.6112%. the s&p to 4129, down 17 points. an upgrade from bmo in the last 24 hours, going to 4500 from 4200, and a tidy upgrade to energy in the mix as well. tom: as you mentioned in the last hour, resilience observed with 80% to 90% of earnings coming in. yes, it is about revenues, but

as david kostin said, looked down at margins, look at the quality of capex and investment, and that is where you get people going from 3800 to 4000. maybe going from 4200 to 4600. jonathan: let's bring in matt maley, miller tabak chief market strategist. the data at 8:30 eastern time. do you still think we are underestimating the price pressure? matt: yes we do. one thing we may be a little care for off -- a little careful of is a lot of these commodities are getting incredibly overbought. copper, some of these things, they are probably going to come down at some point on a purely technical basis. that might if some people some relief that inflation is really not a big deal. but i totally disagree, that will be a head fake because

inflation will do nothing but go higher. you look what happened before the pandemic. we had record levels of debt around the world, not just in the u.s. since then, the debt has exploded even higher. when we have a situation like that, you only have two ways out. it is default, or you can inflate your way out. the fed knows it. as bad as inflation can become a default is much worse. so those thinking inflation is going to be transitory i don't think are right. it may not be ending 70's style, but it is going to be higher, and therefore rates are going to move higher. jonathan: have you position for it? matt: you've got to play for the investments that are going to do well with higher interest rates. i turned bullish on the bank stocks and financials in general back in october because i saw the rise in interest rates, and it is continuing even more than i thought it was. i continue to feel good

about that. if we get a pullback in the commodities, i do think that would be a great opportunity to buy. but especially in the energy names, we hear certain people turning positive, some big houses on the street just turning positive on the group now. i turned positive back in october. it just shows there are still a lot of people who have not moved into that area. i don't think oil is going to come down because it is not overbought as much as some other commodities, but it is going to be important to be in the right place. tom: does rising inflation because equity market instability? matt: it's got to at some point because interest rates are going to move up. we saw what bill dudley talked about on bloomberg op-ed. the market is not pricing and for these higher prices. we saw in 2018, they said don't

worry, interest rates are really low. the higher interest rates won't really make a difference, until it did. the same thing is going to happen with long-term interest rates. probably when you get above 2%, maybe a little higher than that. tom: good morning, vietnam. i want to go back to the 1960's and into the 1970's, where we had horrific inflation gyrations , and the dow, i've got to quote the dow. jonathan: please do. tom: essentially, the dow pivoted around 900 through that whole period. is what we don't see coming not the up or the down, but we get range? matt: that could very well be the case because the fed is still providing a certain amount of liquidity. even though they are going to taper back, they keep telling us we have the tools if things get really bad, but i think they want higher inflation, and they

are going to be providing a safety net that is going to be a little bit lower than the marketplace, and therefore, with this sideways market, it is going to be much more important that investors are good at stockpicking and group picking, not displaying the s&p 500 etf and going to bed. jonathan: when you and the team talk about the u.s. dollar, what does that conversation sound like at the moment? matt: it is still a very crowded trade. it is nowhere near as crowded as it was at the very beginning of the year, when everybody was saying the dollar has to go lower and it did nothing but rise in the first quarter, but it is still a crowded trade. fundamentally, we have to know that obviously, this whole issue with the climbing and the fiscal side of things means that the dollar should and almost certainly will had lower over the longer term. right now it is that a key level on a technical basis. a little bit below 90 is the

march lows. get below that and it is going to be a big problem. but near term, i'm not as sure as a lot of people are that the dollar is going to bring down from here. a lot of these commodities will see a bit of a correction. jonathan: is it fair to say that unlike others out there, you don't share that view based on what you to set about the dollar? reporter: that's true. -- what you said about the dollar? matt: that's true. we've got to take these opportunities when the commodities pullback, when the dollar bounces. take advantage of that to go back into some of the commodities, go into the emerging markets. i think that is going to be the play on a longer-term basis. jonathan: matt maley there of miller tabak, the chief market strategist. thank you. i appreciate the dow reference, too. tom: we make jokes about it, but

chelsea-arsenal this afternoon, it could be a pause to reflect. maybe that's where abramowicz is. jonathan: will yield knowledge that, given the increased importance of passive investing, that quoting the dow is like offering the score on again that no one is playing? tom: no, i do not agree with that. the dow has been the benchmark for a zillion years. the spx is a dramatically superior mark for american society. not boston consulting, not cambridge associates and the rest of them using it as a benchmark within buy side and institutional. but you wake up, you're in the uber. where is the dow? jonathan: so you are doing this for the people? tom: i'm doing it for the people. can i point out that one of the things really important here is

we have forgotten what a range bound. carter malaise, we just went flat for x number of years. i mentioned 1965 to 1975 with a drop off there. what if we are slipping into a three to five year range? jonathan: you mentioned a really important point. i spoke about this at a conference dean curnutt put on yesterday. it was a thoroughly enjoyable conversation. you were not invited. i was. we asks the question, just explored it, i thought exercise. we've got used to this idea of zero rates and rates lower for longer being great for markets. i wonder where that idea comes from because that wasn't necessarily the case at times in japan. it wasn't necessarily the case at times in europe, too. i am wondering if we have to test that theory in the states as well. tom: i would go to the giant of

pioneer who said the white lights of inflation help a lot of people out, and that is where we are heading, if it is moderate and doesn't jump up. that is the fear here. jonathan: futures down 15 on the s&p, -0.3%. from new york city this morning, good morning. alongside tom keene, i'm jonathan ferro. on radio, on tv, this is bloomberg. ♪ ritika: with the first word news, i'm ritika gupta. colonial pipeline says it will know by late today whether it is safe to restart gasoline and diesel flows. fuel shortages have spread quickly across the southern and eastern u.s. energy secretary jennifer granholm says even if colonial can restart today, it will take days to ramp up operations. israel stepped up attacks on the hamas-ruled gaza strip

overnight. rockets were fired in a barrage against central israel, while israeli warplanes made dozens of strikes. the death toll in gaza has risen to 48. more than 300 are said to be wounded. five people have been killed in israel. donald trump's grip on the republican party will tighten today as we publicans are expected to oust liz cheney from her leadership post. cheney has persistently rebutted the former president's false claims that the 2020 election was stolen. it is another defeat for european union competition. the eu has -- the eu general court ruled amazon did not get special treatment from tax authority last year. they successfully challenged a record eu tax order. the u.s. has agreed to remove

china's me from a trump administration blacklist. they had sued the u.s. government after the pentagon issued an order designating the firm as a chinese company. i'm ritika gupta. this is bloomberg. ♪

>> this is a classical missing markets problem. even the most mainstream economics recognizes that when a market is missing, there's a role for the federal government to come in and fix that externality. the externality is a barrier to work for people who want to get into the labor market. so this is just a very simple solution to a market failure. jonathan: that was jared bernstein, member of the white house council on economic advisors, on childcare in the united states of america. good morning. alongside tom keene, i'm jonathan ferro. lisa abramowicz will be back with us on monday. a well-earned rest through the whole week. in your equity market, 42= -- your equity market, 4126 on the s&p 500. crude is firmer, up to a $66 handle, $66.03. in the fx market, euro-dollar declining to $1.2126.

one hour, 12 minutes away from your cpi print. tom: we are looking at inflation as really the theme of the moment, but there are so many other themes, including how the political landscape of america folds into our economics, our finance, our investment. jordan fabian, our white house reporter, joins us now. i want to go to cornell and the sprawl of the history that you studied in ithaca. where is the republican party right now, from where you sit at the democratic white house? where does the republican party sit as it looks back to 1860 and 1856? jordan: well, i think what the democratic white house would say is they have come along way since then, and not in a good way. they are still consumed with infighting over the 2020 election, and president trump's baseless accusations of fraud.

today, a key inflation report will be coming out that could have a lot of inflection on joe biden. republicans are concerned they are not consumed enough with combating joe biden's agenda. tom: defined for our international audience the smallness of the republican party right now. are they so large or small if they are 49% of america? ? are they lesson that -- are they less than that? which is it? jordan: despite their weakness in washington, they still have what i would think is a decent base of support. president trump won 74 million votes in 2020. joe biden, despite having good ratings on his was ponce to the coronavirus pandemic, still only has about 55% to 60% approval rating. that is pretty low in historical

terms for a president that is in his first year. so i think there's still a viable party going forward, despite all of the haranguing here in washington. tom: i think your observation on the polling of the president has been underreported, is really important right now. what is the linkage to capitol hill and to the voters of the democratic party? jordan: i would say joe biden's forte is on capitol hill. he was in congress and has relationships with many of the folks there, and is having them in this week to try to cajole them to get on board with his infrastructure plan. he can rely on a deep well of relationships there. with regards to the base of his party, there was a split in the democratic primary elections between the ascendance left wing of his party and him, coming from the more establishment wing, but so far, progressives have been very happy with what

he's done so far, so he's been able to keep that up a, keep the peace, so to say, but we will see how long that lasts. jonathan: we've heard a lot about that relationship with congressional leadership on both sides of the aisle. i just wonder if this is the real test, whether he's got to demonstrate that it is effective, that that relationship can generate some results. jordan: that is certainly a test. does this long-standing relationship with mitch mcconnell, who has a lot of power given the 50/50 split in that chamber, can biden convince mcconnell to go along with some kind of infrastructure package? i think there's a realization that this sweeping package that costs over $2 trillion that president biden has proposed is going to be pared down or broken up into pieces. but can he get mcconnell to go along with at least one piece of that? that is going to be the test underway. jonathan: we seen a lot of bloodshed in israel, and we have to pit over to the international

right now in the middle east. what is the president's position right now, and what has this administration said about what is happening between israel and hamas? jordan: the bottom line for the biden adminstration with this situation is de-escalation. that is what they have called for on both sides, to de-escalate the violence. in the broad scheme of things, i think the biden adminstration would like to focus on china, the asia-pacific, and not necessarily the middle east. they are trying to withdraw the u.s. presence there and look at thrall of troops from afghanistan, but this conflict has forced the issue back onto their agenda, and it is going to be a headache for the biden adminstration no doubt. jonathan: jordan fabian of bloomberg down in washington, d.c. the kind of story that pops up no one again, but we haven't talked about in a major way

since 2014. we talked about that this morning. it is certainly front page news once more. tom: it folds into the markets as well. i saw a shift last weekend where we are really starting to focus on lining up 2022. again, i mentioned marco rubio in florida with the present battle may be with the democratic party and what is supposed to be a trump state. i would fold it right over to what, for me come on inflation wednesday, is the biggest mystery, the strength of gdp. jonathan: let me ask you this quickly. at 8:30 eastern when that number drops, how do using this administration spends it? we know how the federal -- administration spins it? we know the federal reserve is going to spin this number. tom: everyone, including the haves, agree there is a part of america not participating.

jonathan: take a republican state right now, and there's a good chance that that governor right now is ending the additional ui. how does that play out? what are the consequences of that in the next couple of months? tom: it plays out to polarity in america as other states choose not to do that. it is uneven recovery. the nirvana is to get back to february before the pandemic, essentially an idea of low unemployment, a concept of a fully employed america. every report i read says we are nowhere near that, as chairman powell has stated, and quite frankly, others have stated. jonathan: but it plays into the political argument that the relief package by the democrats was too much and too broad, and that would we face now is higher prices because of that. no that is an economically flawed argument. can pick holes in it for as long as we like. that is the political debate. i just wonder how the electorate picks up on it.

tom: i'm going to give you one frame on inflation wednesday. what if inflation comes in later than expected? jonathan: i imagine you get a nice move in the nasdaq. that would be my guess. tom: one reason to stay tuned, and in the 9:00 hour, look for "the open" today with jon ferro. jonathan: thank you. on radio, on tv, this is "bloomberg surveillance." ♪

♪ jonathan: 60 minutes away from a cpi report in the united states of america. live on tv and radio, here's the price action going into that. the sb down 17. we did plant -- the s&p 500 down 17. small caps underperforming. bmo upgrading things on the s&p to 40 have hundred from 4200 -- to 4500 from 4200. jonathan golub looking for 4600 on the s&p. with that, an upgrade to energy and a downgrade to staples. others are bullish staples. they believe that is where the pricing power is. he suggests that the higher commodity prices come along energy, the higher input costs

for staples, that is going to weigh on things. switch up the board. yesterday was fascinating. when equities moved badly, there were inflation fears. energy down 2.5%. banks down 1.3%. if i showed you that yesterday morning, i think we would have been talking about inflation fears. why was the nasdaq whipping back? tom: i think there's a bull component pushing back. jonathan: i agree with you. thank you. in the bond market, twos, tens, 30's, two-year yield unchanged. 10-year year at 1.6165%. 1.74% the high-end at the end of march. tom: i thought you were doing the dow. jonathan: this is for serious people. tom: ok, excuse me. i lost my head. jonathan: i thing i'm done, tom.

are you done? tom: i'm not done. core cpi, 2.6% -- 2.3% to 2.6%. jonathan: thank you, tom. romaine, have you got some stocks for us? romaine: the fixation remains on that cpi report. tom did bring up the rally in the nasdaq yesterday. it closed flat on the day, but it was the outperformer. it is interesting to see what moved. had amazon, adobe, a lot of those names moving higher and getting bed, but a lot of other stocks got left behind, including microsoft, apple, tesla, and some of those names. the question is what is really being priced into those markets. if it is just a matter of profit-taking and rotation, may be there is not any concern. if there is a little more worry about some of those price pressures and whether they are starting to trickle in and erode some of that growth that we have seen in these stocks, that could

be a concern. microsoft down in the premarket by about 0.5%. similar story for apple and tesla. we can talk about risk sentiment. take a look at some of the ipo's over the last 12 months. some of those are actually doing pretty well. we got earnings of upstart holdings, a big fintech company there. those companies not only reporting good earnings, but strong guidance as well. you have seen that rewarded in the premarket. unity software up about 6%. names like lemonade, the online insurance company, down 6%, 7% in the premarket. when you put all of this together, it really comes down to whether you buy into the growth narrative come of the economic growth narrative, and whether or you are truly worried about inflation and the fed moving faster than anticipated. tom: to me, the gdp adjustments we received off wednesday inflation and friday retail

sales will be fascinating, to say the least. right now, this is a joy for jon and i to bring in thierry wizman with us. thierry wizman, iconic at bear stearns long ago, and most importantly, the director of global currencies and interest rates for the crew at 50 martin place in sydney, australia, with macquarie. we are thrilled he could join us with a real touch of this economics, but also with his link into the commodity boom. does inflation cause commodities, or is a commodity boom own to cause the inflation to come? thierry: it could be two ways. one of the aspects of inflation i think is driving the commodity boom is public-policy. you have quite a lot of imperative around the world to move towards a green economy. that is clearly causing some commodity prices to go up. here, the causality runs from public-policy.

but you also have to take into account that rising inflation sometimes has nothing to do with commodities. i suspect there was a little bit a speculative development did some of the commodity prices that have seen a big increase recently, but more so iron then copper, say. tom: when you talk to the experts at macquarie, and truly they are experts, how does iron ore dynamics filter into a more developed world inflation wednesday? thierry: not too much because iron goes into steel, and steel is a construction material, not something that is really that prevalent in consumer baskets. but mccoury's view on iron is not -- but macquarie's view on iron is not positive. some of the run up recently has been caused by hoarding of chinese steel mills, who are

worried that the second half of the year, chinese policy makers will come down hard because of an environmental issues, and they will restrict iron importers in the second half, and as a result, a hedging against future price increases. so that is not really a demand based story is much as it is a story about fear of import controls and fear of restrictions. copper is a different story. that is purely structurally demand driven. people are excited about the implications for copper demand coming from green economy imperatives. jonathan: what is china's role in all of this? if you had showed me china's credit impulse, i might have made a different decision on the direction of travel. what is china's role? thierry: normally china's role is as a commodity importer and demand are, and the credit cycle is hugely determinant and how much credit is being directed towards instruction, -- towards

construction and infrastructure in china. all i am saying is that this time around, maybe you are seeing this divergence between credit growth and commodity prices, is that in the case of some commodities, what is being driven is not structural demand coming out of china, or certainly not the outlook for stronger demand. maybe moving forward with monetary tightening this year, but might be moving commodities instead. there's concern about restrictions on the use of them later, and as a result, there is hoarding today. very different story, very different dynamic than what we normally get out of china. jonathan: when you look at market-based inflation expectations at the moment, to what degree do you think they are being influenced by what we are seeing in the commodity market? thierry: not that much. to some extent, you are talking about consumer prices here. the price of a house is not figured into the consumer price index. the consumer price index is the

call price of renting a house or the owner of public rent. that is not affected too much by the price of a home, so i don't think commodities themselves, certainly not basic metal commodities, or having that much of an impact. i think what is driving inflation expectations is somewhat different. it is a fed that has been politically inclined to sound very dovish and therefore fuel expectations. of course, we have everything pertaining to the demand involved around the world coming from public-policy. we are exciting to see more in europe and it is fueling the inflation expectation we have seen recently. tom: the vice chairman i believe speaks at 9:00 a.m. wall street time. can they shock the market, or can they actually have a dialogue the next 90 days where we ease our way towards the beginning of a discussion of less accommodation? thierry: they can ease into it. tom: can they do that?

thierry: not today. that doesn't mean they are going to ease into it today. i think it is too soon. even if the cpi print comes out high, 3.7 or 3.8, it is way too to early to make a determination whether it is permanent or temporary. the market has a way of addressing supply shocks timidly, and as a result, i don't think the fed is going to say today that it is time for the fed to talk about tapering. by august, may be. by august they will of these their way into it, in part because the economy will be better. it will be a more synchronized global recovery. potentially there will be or pressure as a result of that on some basic goods, not necessarily copper and iron, and at others they can talk about the need to have a discussion, and then the countdown begins. today is to early. jonathan: great to catch up, as

always. thierry wizman there of macquarie. vice chair clarida, 9:00 a.m. eastern time. it is 30 minutes after the cpi print at america. we will hear from a virtual speech to the national association for business economics. tom: maybe we will get your questions as well. jonathan: i thought he took those direct questions pretty well. tom: yeah, it was good practice before this speech. i look at it, inflation wednesday, and i'm sorry, but you have inflation across italy and france as well, and there's going to be a global reaction to what we see here. jonathan: in the conversation we have in markets will be different than the conversations policy makers have. there's a difference between looking at the moment we are in and a policy focused on the destination, the direction of travel. that's where this market is heading. tom: i thought wizman was

brilliant on iron ore. there it is moving higher. is it a market phenomenon? no, he says it is about the chinese government in their state owned government. it is about this move away from fossil fuels, too. tom: how do you say wednesday in italian? micheletti? jonathan: i love doing european languages with you. tom: i am saying inflation went that way. jonathan: are you calling it inflation wednesday now? jason furman is going to join us , former chairman of the council of x and imac -- council of economic advisers, to get his response to that report. jonathan: it is wednesday, and

we have some inflation data. call it whatever you like. equity features down 16 on the s&p 500, down 0.4%. your yield unchanged on the 10 year. in the commodity market, wti has a $62 handle. heard on bloomberg radio, seen on bloomberg tv, this is "bloomberg surveillance." ♪ ritika: with the first word news, i'm ritika gupta. the white house is facing rising pressure over gasoline shortages caused by the shutdown of that giant pipeline. help is needed to bring fuel to areas mostly supplied by the pipeline. gas stations ran dry. meanwhile, the international energy agency is saying that supply created by the pandemic

has been cleared. the iea does see one temporary setback, demand has been hurt due to the recessions of covid in india. french officials want to prevent british financial firms from gaining access to the european single market, trying to pressure the british government into honoring its post-brexit commitments on fishing rights. till yoda has come mooring back. the worlds -- the toyota has come rolling back. toyota has been able to pull ahead of the pack. it straightened out its supply chain and ramped up production to meet my zinc demand -- to meet rising demand.

-- boosted revenue this year. commerzbank revenue soared 35% in the first quarter. the bank profited from strong trading and investor backed conditions. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> you're going to be very slow

to raise interest rates, until we get to full employment and 2% inflation, and they are confident inflation is going to go above 2%. we know that is going to take a while. once they start, they are going to have to catch up, so it is going to be a period of slow and a period a fast. jonathan: that was bill dudley, former federal reserve new york bank president. good morning. alongside tom keene, i'm jonathan ferro. lisa is on break, she will be back with us monday. here's your price action going into the cpi data i date: 30 eastern -- data at 8:30 eastern time. 14 points lower on the s&p 500. a bit softer and the bond market. just a touch firmer, yields lower just a nudge. tom: don't you agree with me, the market is sending some signals here, 45 minutes away? scarlet: we are pretty muted going -- jonathan: we are pretty

muted going into an important number. speaking of bill dudley, out with a bloomberg opinion column this morning with the following line. it stands out in its own paragraph. "i think markets are severely underestimating how much that yield is likely to rise in the coming years." this goes with what he was talking about yesterday, which is once we start raising interest rates in america, it will take a while, but when we do start to increase rates, it is going to happen more quickly, and the rate we hit will be higher than this market expects to. tom: the 10 year treasury note helps determine the cost of mortgages, the value of u.s. stocks, and how much u.s. government must pay to service its growing debt. i think markets are severely underestimating, as you say, how much that yield is likely to rise. we thank president dudley for his help with bloomberg opinion. right now, kit juckes is the socgen chief foreign-exchange strategist. i want to go first to the

inflation of the moment. what is the signal from the foreign-exchange market that you see as we worry about the rate of change and rising prices? kit: i think we worry that anything that sends the world into a risk off tailspin because he good a high enough number to make people shift from transient to help, so anything that mix it look as if the fed is going to have to change its story. but it would take a pretty big shock. we are a follower in that sense. whatever helps the dollar hurts equities, and since the curve flatter in bond land. tom: we have been looking at europe today. a few are from the philippines says what about inflation wednesday? i think, because i can't speak a word of filipino. there's a 12% appreciation in

the filipino peso over the last four or five years. does em shift after what we see with rising inflation in the u.s.? kit: the em countries, if you generalize, the most developing come of the least developed, the biggest share of their cpi is made up of raw materials, goods, commodities, where we have seen the price rises be the most important. so they take that hit hardest. the thing for a lot of them is that their currencies have not been falling in the last 12 months so much because they weren't starting from the dramatically overvalued levels that we had 10 years ago. so they've had a bit more of a cushion to avoid anything really bad happening. but there's no doubt that these are the places where we don't talk about rent. we don't talk about services inflation.

it is raw materials, commodity prices, and oil is a big deal. jonathan: what was your reaction to the bill dudley piece? kit: i just listened to it. i watched it from a treadmill yesterday afternoon. [laughter] i thought to myself, you know, this idea of having a peak that goes higher than the last one by a margin, and we've lost touch, it's sits really badly with me, partly because the last time we had a peak in rates above the one before it was in 2000. that, by the way, broke a pattern because since my career started, the 1985 peak come of the 1984 peak was high, then the next one was lower. the one in the middle of the 1990's was lower. then we came down in the 2000 peak. the debt level goes up and up. the average credit rating of

companies goes down and down. we all reorganize ourselves. mortgage rates go down and peoples salary goes up, so will get use to lower rates. so if you get a situation where we think we are going to get higher rates than is currently priced income of the economy and the equity market -- priced in, the economy and the equity market fallout, so that is priced in. how far you can go above neutral has got to be a function of how far you went below neutral and how low you stayed -- and how long you stayed there. we have reasons to go below neutral this time, but now that we are here, i don't think we can go above neutral in that sense. i would be amazed, i would have a side bet with bill about the peak in hedge funds. it is not going to be that far above 2.5%.

jonathan: there's two pieces to bill's argument. one is going through neutral. the other is the speed at which we get back to neutral. if we stay at these levels for a long period of time, and then when we get liftoff, do you have a little bit more comfort with the idea that the move towards neutral would be quicker than what we saw on the previous cycle? kit: if you took the last two cycles, the fed moved faster in 2004, 2 thousand 5, 2006 and they moved into thousand after the taper tantrum. they definitely moved quicker, and it is fair to say -- moved in 2000 after the taper tantrum. they definitely moved quicker, and it is fair to say we expanded a credit bubble, so we don't want to do that again. i think there's a case for going faster to neutral, and hopefully if you go faster to neutral, if

you are managing the messaging right, you don't have to go further than that. you don't blow up the equity market. but we are not starting from where you would want to. we are just here because we have to be. jonathan: always good to hear from you. kit juckes of socgen, the chief fx strategist. a bit of a debate on expectations over the path of short-term interest rates, with bill dudley writing a really interesting couple of pieces on bloomberg opinion in the last couple of days. tom, you are familiar with the jones act, the boats that have to be owned/operated by americans to transport whatever you want to transport from one port in america to another. that becomes more critical as we have a gasoline shortage. the apartment of homeland security standing ready to review any temporary jones act waiver to carry fuel to the affected region, the east coast. tom: this is a huge political football in america. a little bit of inside baseball as well.

much more coming up. what are we, 35 minutes away? jonathan: 35 minutes away from cpi. up next, alicia levine of bny mellon. good morning. alongside tom keene, i'm jonathan ferro. this is "bloomberg surveillance" on this cpi wednesday. yields unchanged. your equity market down 0.3%. the s&p 500, 4143.

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>> over the next couple of months, we will see significantly stronger inflation. >> the consumer is still seeing spending in excess of what would be considered a normalized pace. >> this summer is going to be huge. people are going to spend, and the bounce back in oil demand is probably going to be significantly more than people are expecting. >> certainly some commodity prices are out of control. it is all most hyperbolic. >> supply is extremely low, inventories are low, and demand is roaring