>> from new york city to our viewers worldwide, bloomberg real yield starts right now. romaine: coming up, chair powell, the tapir and the groundwork starting this year. measuring substantial progress. an eye on the cleveland report. loretta mester speaking with michael mckee in a moment. chairman powell taking stage. >> at the fomc's recent july

meeting, i was of the view, as were most participants, that if the economy evolved as broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. romaine: that was jay powell. let's get this conversation going. i will start with you, gene. we got that message of a possible tapir in 2021. with enough condition that it could be pushed back into 2022. is this what you expected? >> this is consistent. if we take apart what should happen and listen to what we think will happen based on what the consistent cores of that is speakers have been saying since june, this is very consistent. we are moving toward a tapir as a tapir as the labor market improves. it is not about inflation. inflation has checked the box. this is all about the labor market and it's gotten better.

i think we are looking for a taper later this year. it will play out over a series of fed meetings. first, they have to change their language. we would expect some move in that direction in september as you move toward that actual taper at the end of the year. romaine: the message was largely in line with what powell has said in the past, in line with the minutes from the last meeting and the commentary that we heard from various members of the fed including loretta mester. when you look at the knee-jerk reaction in the bond market, does that fit with your expectations? >> by and large it does, yes, with the idea that some in the market, including myself, were expecting them to announce a taper in september and at the start of october. now that it seems fairly clear from the chairman's comments

that there are good as it will go to perhaps january with a december announcement, that would lead to the conclusion of a steeper curve ultimately. that's a pride to some of the markets, and that is why you have this really going on. today's rally, since the news came out, is a reversal of the selloff of the last few days. romaine: matt, we heard from the cleveland fed president prior to today, she talked about the idea of getting this taper started not only this year but ending sometime by the middle of next year. we heard from powell today about the potential of starting it. we didn't get much guidance on the pace of it. what is your general expectation? >> we did not get an idea of the pace of what the slowdown was, but it definitely hit it right down the fairway in terms of leading us to likely a november start.

if you go back to 2014, it took about 10 months from when the taper started to when it finished. that is the ballpark estimate right now. if you start in november, september is sort of the wind down. if economic conditions continue to improve, you could have a shorter taper, potentially eight months. that middle to the end of the year taper is probably where he is at. i would say that he hit the ball down the fairway, great job in the speech setting up the taper. no real new information, flexibility until november could push it back if we see a week implement report. on balance, to me, a lot of his comments or more on the dovish side. romaine: all three of these

gentlemen will be sticking with us for the length of the program. we are waiting to hear from cleveland fed president loretta mester. we will get to her thoughts on that only what is happening in regards to the start of tapering but maybe the pace as well. looking at the knee-jerk reaction there on the screen. let's go to michael mckee with loretta mester. mike: we are joined by the cleveland fed bank president loretta mester. welcome to bloomberg television and radio worldwide. we don't have the beautiful backdrop we normally do but it is nice to see you virtually anyway. loretta: thank you for having me, michael. mike: what did you think of jay powell's address today, is he on team mester, team taper? loretta: [laughter] i think we see things pretty similarly. the economy has made a lot of progress. that is the great thing about

what we did early in the pandemic. now the question is is it time to step back from some of that extraordinarily accommodative policy we put on, in particular the asset purchases. the criteria that we put in the statement about what it would take to begin tapering, i think we are pretty much there. inflation, we made substantial progress in december 2020. we have also made substantial progress on the labor market. we will get another labor market report before our next fomc meeting and i'll be interested in seeing that. the only real risk here is whether the delta variant will cause more of a pullback in demand than i'm expecting. of course i'll be watching that. basically we have met our criteria and it's a question of communicating in an appropriate way so that we can make sure we are not surprising the markets

in some way. i think the chair did an excellent job today setting out the thinking of the committee. mike: should people be thinking that he september 22 fomc meeting is a possibility or announcing a taper? loretta: we started out talking about it a meeting ago, now more at the september meeting. my own personal view is that we want to use that meeting to lay out our own thinking about the pace, the timing. i would be satisfied if we began tapering sometime this year. i am looking to end those purchases and complete them by the middle of next year. i think we are all in that ballpark, need to have that meeting in september 2 codify our own thinking on that. the bottom line is we have met the criteria we put out, or we are very close to it in terms of

both the labor market side and having met the criteria on the inflation side. whether it is september, november, december, that will not make a material difference to the economy. the important messages that we have met the criteria, the economy has momentum. there are certainly risks out there. we will be carefully watching both the inflation and employment side. as the committee has said all along, how the economy goes is dependent on the virus. we now have vaccinations and i think the outcome will be a lot different than it was earlier before the vaccinations were available. mike: everyone on the committee says they would like to finish tapering before they talk about tightening. you and others have said let's get tapering over by the middle of next year. does that suggest you have concerns about inflation, the

possibility that you may have to start raising rates sooner? loretta: the way i look at it, we put on the asset purchases. first, we put them on because markets were very disruptive and dysfunctional, so it was important for us to go in and purchase those assets. we left them on because the economy really needed that very accommodative policy. now, the economy has basically improved enough that we don't need to have those asset purchases in my view supporting the economy. once we complete the purchases, the second part of this is let's think about where the economy is going, calibrating our fed funds rate. we have said what we would need to see, and that is maximum employment. on the inflation side, inflation at 2%, sustained moving about 2%

for some time. we have time once those asset purchases are completed to take an assessment of what the incoming data is telling us about underline momentum in the economy. we will still be consistent with our forward looking guidance. interest rates are longer down the road, not a topic for today, but to come after the assets are completed. romaine: a lot of the mike: a lot of the analysis on wall street is using the term dovish taper. he did talk about a ways to go, slack left in the economy. would you characterize it that way? are there concerns that you may have to hold off? loretta: there is risk in terms of the delta variant, how much that will affect demand. in my district, it certainly has a lot of the businesses that i

talk to, they are concerned about it. they have delayed the push out to the office because of the variant, but it really has not tempered demand so far. it is a concern. peoples attitudes are cautious but it has not affected activity. we need to keep watching for that. in terms of the overall strength of the economy, even if we have pullback in that, the economy will remain strong. that said, we haven't reached maximum employment in my view. there is still room to go on the employment side in terms of the criteria we put out for our first lift off of the funds rate. again, i think the economy is in a good place, policy is in a good place right now. i think we just have to let the economy continue going forward and then we will assess the need

to raise interest rates as we go. but i think we are in a good path now. let's see how the economy performs over the next several months and into next year, before we even think about where the interest rate needs to be. mike: equity markets seem to like the announcement today, the bond market has rallied a little bit. i wonder if you are concerned about asset prices, your contribution to them, and you would be relieved if they started to go back down. you mentioned you thought junk-bond leverage today was quite high. loretta: i'm always focused on what is happening in the financial markets, and that is appropriate. policy is concentrating on what is going on on the macro side of the economy. those financial stability issues we always have to pay attention to. i think there are some excesses. real estate prices are frothy, excesses i pointed out in the

junk-bond market. these are things we have to watch for but i would not be changing monetary policy based on what is happening in the financial markets. it really is an argument about what is happening on the macro side of the economy, the sense that we have made substantial progress since december. i think it is basically time to really assess the taper starting sometime this year, let those asset purchases taper off and end in the middle of next year. that is where i am in terms of where i view the economy going and the proper policy associated with that outlook. mike: in terms of the macro outlook for the economy you mentioned, has yours changed at all? where do you see inflation and on appointment growth going into 2022? loretta: i have increased my inflation outlook based on the numbers coming in.

i am probably at 3.5% to 4% for this year. a lot of the supply chain disruptions, if you talk to businesses across sectors, they all said that we thought they would turn off earlier, abate earlier. they are lasting a lot longer. they are expected to maybe last into 2023 depending on what sector you are in. that is putting pressure on prices. the question is whether that upward pressure will raise inflation expectations to levels above what we are aiming for, which is 2%. i still think inflation will come back down next year but maybe it is more risk on that. in terms of labor markets, labor markets are improved better than i thought they would at the

beginning of the year. i also think that we will continue to make progress there. we will see better labor markets as more people get vaccinated, as more people can be engage in economic activity. that is where i see things going in my baseline. the delta variant, we see in places that don't have vaccination rates that are high, we see delta creating real problems for people. we have to still be humble about our ability to forecast the virus. the economy does depend on how the virus plays out. my own view is that we have learned to navigate the virus. we have a tool, the vaccination, which can really help us get through it. i am hoping that more places will have vaccination rates that move up, so that we can continue to engage with the economy, but

we will have to see. policy is positioned to take the time to look at that. mike: that is a good way to leave it. loretta mester, president of the cleveland federal reserve. this is bloomberg. ♪

romaine: i'm romaine bostick. this is bloomberg's real yield. we are going to kick things off in europe with on markets ending the week on a busy note. issue is coming to the market. weekly sales under 30 billion euros. investment grade issue when striving to a halt. $3 billion in total sales.

the second busiest august on record. jeffrey, i will start with you. we talked about the handwringing that we saw in the weeks prior about what type of demand we would see in these auctions. now that we have more guidance out of powell as to when the taper would start, i wonder if that demand will hold up. >> i think the demand will continue to hold up at least until we get closer to a period of time where the markets get uncomfortable about a potential selloff in the bond market. up until that time, i would expect auctions will continue to go well. pushed along by both foreign investors, as long as you have a dollar doing what it is been doing, as well as u.s. investors. i fully expect the auctions to

continue on for some period of time. there is this issue with t-bills, what is going on with the debt ceiling. that is a different animal. romaine: that is a whole other can of worms that the market will have to contend with. maybe congress finally does its job. matt, when you talk about how you position yourself, what is your general take? >> our general take is this is a place that you do not want to take too much risk. you want to be balanced, diversified. high yield did widen out 50 bps. our general view right now is to maintain a quality up and quality prudent, diversified risk across a spray product, primarily investment-grade products. a place that you will be paid additional spread over time more

than your credit losses. certainly not a time to swing to the fences. even though i'm a fixed income guy, to be overweight expertise -- equities. romaine: it has been pretty hard to be a fixed income guy. we know investment-grade offers a lot of potential here. i'm curious as to whether there is any hope left for that high yield straight. it seemed to pay off for a lot of folks this year. >> the big move in high yield is definitely behind us. there is value in a few areas within levered credit. first and foremost would be rising stars. let's not forget last year we saw one of the largest ground grade debt downgrade wins we have seen since the financial crisis. still a lot of companies where we can have meaningful upgrades back to investment-grade. energy, auto, food and beverage. we could see a meaningful amount of credit upgrades.

that would put you at the higher quality at high yield. i would also say within levered credit, the leveraged loan space still makes sense in this environment, even though we are not in an environment of rising short-term interest rates. the alternative from a stability standpoint and risk profile makes leveraged loans attractive. i would put that into a context of a portfolio that would still be much more risk managed. valuation leave a little pita desired. there is still opportunity in the high-yield market in select areas. romaine: time for the final spread, the week ahead. u.s. pending home sales will be big. that is followed by consumer confidence on tuesday. look out for those eurozone and u.s. pmi's on wednesday and thursday. rounding out the week, the

payrolls report for the u.s. file payrolls report before that next fed meeting on september 21. the labor market is front and center. jay powell talked about it, the progress moving toward full employment. >> the pace of the recovery has exceeded expectations with outputs surpassing its previous peak after only four quarters, less than half the time following the great recession. as if to the case, the recovery in employment has lagged that in input. nonetheless, employment games have also come faster than expected. romaine: a little subdued but you get the message. substantial further progress has been made on inflation. if you have not yet the criteria with the labor market, and we heard that echoed by loretta mester, when you look at the labor part of the equation,

do you think that we will get there this year? >> yes, i think we will get there this year. if you look at some of the numbers, people would say that we are already there and have been there for a while. unemployment peaked at 14.8% during covid. we are now 5.4. we have not got the labor force participation back yet. that is substantial progress as far as i'm concerned. one thing that is interesting, you look at the recent report in terms of jobs openings. more than 10 million job openings across the u.s. how many unemployed people do we have? approximate .7 million. there are 10 million job openings, 8.7 billion people looking for a job. more job openings than jobs. this tells me we have definitely met both the price stability and getting closer, further progress

on both tests. in that case, as central bankers, you want to have the optionality to raise rates when you want. we are still a year and the half before they can raise rates. you want to taper sooner rather than later. their view is probably correct, but you want to manage your portfolio as a central banker, manage your policies to deal with the risk. you want to be able to raise rates sooner rather than later if the economy sets you up for that. romaine: your thoughts on the labor market and this part of the equation? >> this is an important piece of the conversation. it doesn't matter if they met the conditions, they think they have met the conditions to taper. what is more important to me is this line in the speech that there is a different and substantially stringent test in terms of what it takes to raise interest rates. powell did a very effective job

at separating the taper from interest rate hikes. it can help remind the market that last time around it was a full two years in between when the fed started tapering and when they first raise interest rates. in that timeframe, 10 year treasury yields at a decline in yields of over a full percent. i think it is a sobering reminder. even though we would expect tapering, and the fed has achieved its own threshold for that, the threshold for hiking is different. romaine: i will have to give you the last word because we are out of time. i apologize. wonderful to have you here on the program. this is bloomberg. ♪

and there you have it— -woah. wireless on the most reliable network nationwide. wow! -big deal! ...we get unlimited for just $30 bucks. sweet, but mine has 5g included. relax people, my wireless is crushing it. that's because you all have xfinity mobile with your internet. it's wireless so good, it keeps one upping itself. switch to xfinity mobile and save hundreds on your wireless bill. plus, save up to $400 when you purchase a new samsung phone or upgrade your existing phone. learn more at your local xfinity store today.

so many people are overweight now and asking themselves, "why can't i lose weight?" for most, the reason is insulin resistance, and they don't even know they have it. conventional starvation diets don't address insulin resistance. that's why they don't work. now there's release from golo. it naturally helps reverse insulin resistance, stops sugar cravings, and releases stubborn fat, all while controlling stress and emotional eating. at last, a diet pill that actually works. go to golo.com to get yours.

mark: i'm mark crumpton with bloomberg first word news.

months after vaccination. mr. bond was at the white house where he is meeting with israeli prime minister naftali bennett. president biden: we will continue to talk about the issue of booster shots. i see you started your program early with some great results. we will start in september but we are considering the advice that you have given that we could start earlier. mark: he says he has spoken with dr. anthony fauci about the issue. the pentagon is saying despite earlier reports, there was only one explosion that hit the perimeter of kabul airport. 13 service members and 75 afghan citizens died in the attack. army general major william taylor says officials believe there was only one suicide bomber. president biden has vowed to go after the terrorists.