jonathan: from new york city for our audience worldwide, bloomberg real yield starts right now. coming up, waiting for chairman powell's next move, hoping for a recovery delayed not derailed. watching china's ever grand approach the endgame. looking ahead to chairman powell. >> i will be tuning in. >> next fed meeting. >> the fed is in a really difficult position right now. >> tapering decision which we

know the fed is looking at. >> the pressure is there for them to taper. >> it will be dependent on the evolution of how the economy moves forward. >> whatever the fed is looking to do could probably be viewed as wrong. jonathan: he has got to thread the needle. joining us to discuss is victoria, krishna my money. what are you looking for from chairman powell? >> i am not looking for much really coming out of this september meeting. last time we spoke, you asked if i thought we would get an announcement in september. i said november possibly december. i have a contrarian view because powell is sitting in a good spot right now to where he has an option available, evidence

either way with the decision he makes. if he tapers, he can start doing that because there has been a precedent set by the bank of canada, ecb reducing their amount. we have data that comes out that is weaker than expected, not just jobs report and other data as well that allows him to postpone doing that. he has evidence on either side for decision they make but i don't expect anything. it is the dot plot that will be more important because that will give us a better idea of what we will see rate hikes, whether at the end of 23, beginning of 24. jonathan: is chairman powell in a good spot? krishna: victoria is absolutely right. he has all of the optionality's he needs. that came from muddled data. whichever way he prefers to do. right now, there is no significant reason for him to commit one way or the other and

extinguish that optionality when he has no reason to. i think he is in a good spot. he has no reason to commit one way or the other. it probably comes about in november rather than december in my view. the growth picture may be weakening but it is still quite robust. the inflation picture remains a little bit of a problem for the fed. november is when i'm sticking with. jonathan: george, you agree? george: i will take a different view, they want us to go into this party, and we have spent the whole you're talking taper, they have to deliver. even if they have optionality, now is the time to do it. even july was life. now they are talking about it further in september. i am a november person. either way, they need to

deliver, otherwise the window is closing. jonathan: why do you think the window is closing? george: the data is not looking that great. they have talked about getting everything ready for tapering. if they push into 2022, it is too late. jonathan: we know that if they move ahead with tapering, they want to deal with rates. is that possible when at this meeting we also get the summary of economic projections which includes the dot plot? does that complicate life? victoria: it does, and they have tried to make the statement that these are different actions, tapering versus rate hike, but everyone will use the tapering as a timeline. that is why the taper matters. it doesn't matter truly if they start tapering this month, next month, 5 billion or $10 billion, we know we are past the need for this emergency liquidity component and it needs to come

back some. it usually takes around nine months to do so, which means it is about a 12-month timeline before rate hikes could start happening. that is the key to this. we have to see if any of those dots shift from the last meeting , so that summary of economic projections will be key. jonathan: many think that that dot plot will shift. steve englander writes the following. we think the treasury market is underpricing the hikes by the end of 2024. our base case for the dots and risk impact underpins the five and 30 flattening. let's get to the rate curve. does that resonate with you, that we may be underpricing rate hikes through next year? is it too difficult to look at right now and be precise about what the fed may or may not do? krishna: exactly. i don't know how people can come up with estimates that we are

underestimating by a precise amount of 125 basis points. it is market derived, i get it, but markets are arriving at that through a lot of guesswork. the data is so muddled right now, the volatility of fiscal impulse is so substantial over the next year and i have. thinking that you are underpricing three years out doesn't make any sense to me at all. jonathan: george, doesn't make sense to you? the range of potential outcomes, from my humble position, seems to be incredibly wide. george: the range of outcomes this year was incredibly wide. they were translating growth into higher rate forecasts which didn't come to fruition. we are still in a deceleration phase and people are extrapolating the other way. there is definitely muddled data and it is hard to forecast in this environment, but the market is pricing in what makes sense

to me. the curve has to maintain some sort of steepness. the fed could deliver, breaking this linkage of tapering and tightening through the right channel in the next couple meetings. if we get further emphasis of tapering, not tightening, at every meeting they need to make the case they are not tightening rates but taking away liquidity. jonathan: if it is hard to forecast, payrolls is an example of that, chinese retail is a good example of that, as well, how do you come about a market call? victoria: you have to take a step back and realize every single data point we are getting has a thread of the delta variant running through it. whether it is the jobs report last month, i assume we will see the same thing for the october report, whether cpi, ppi, retail sales, everything has this thread of delta running through

it. you have to take a step back and say if we are getting to peak delta, and it seems like in the hardest hit states we are, then you have to say what do the fundamentals look like? you know i'm a proponent of watching the consumer. the consumer is sitting while right now. it is not a demand problem we are having in the economy, it's a supply-side. you will probably have some inflation that continues to move higher, you have a strong consumer, good corporate earnings and margins. i think that means you'll see rates move higher. lisa abramowicz this morning called it a market of faith, and that is what people are having to do. putting some faith we will get through the bumps right now, get better in the fourth quarter, and build from there. jonathan: what do you have faith in, what kind of outcome? capturing this conversation perfectly is job openings in america. 11 million, job openings are

skyhigh in america. three options here. either supply issues fade and payrolls surge. then we start to meet that demand. or supply issues persist and we just go up aggressively. there is a third option, that perhaps this demand is time sensitive, and demand itself starts to fade. which one is the outcome that you have confidence in going into 2022? krishna: i think the supply materializes and the demand remains. the ethan harris option -- that is a very realistic option. most importantly, whether it is realistic or not, that is the option the fed believes in. this market is entirely fed dependent. it is not about whether you should have faith in anybody else other than the fed. whatever they think is what will

eventually drive the direction of the market. jonathan: george? george: i do think there is challenges to forecasting this environment, trying to get this job's market and figure out the supply chain disruptions is so hard. who knows if there is hoarding going on as well. i am more on the pessimistic side, thinking there is demand being pulled forward and we will see that give back into the remainder of the year and next year. it doesn't mean we fall to recession, but it doesn't mean that the fed is tapering into a slow down. jonathan: you have a treasury market called on? what is it? george: the treasury market have been forecasting this through the summer. do we start to price in the actual rate moves higher? i cannot see it manifesting itself in this environment. there is not enough good news to push things higher.

jonathan: coming up next on the program, the auction block. from new york, this is bloomberg. ♪

jonathan: i'm jonathan ferro. this is bloomberg real yield. time for the auction block. we kick things off in europe with a sizable offering from the eu. market wide sales surging beyond 60 billion euros. in the u.s., high-grade offerings. jp morgan's and the big banks leading the sales. the junk bond market remaining. sales at 400 billion. the main story for me this week

has got to be out of china. take a listen to what the chief economist from milken have to say. >> but we are seeing with the potential collapse is the question facing policymakers in beijing is, is ever grand systemic, too big to fail? but we will see is the potential for beijing to step in if not indirectly but directly to take on some of that debt and reassure the people in china that their property is safe. jonathan: we are approaching some kind of endgame, i have no idea what it is. victoria, george, and krishna are still with us. a lot of people outside of china don't know what to do with this story. how do you interpret things as they play out? krishna: in china credit, there is no endgame, let's be clear. there is no endgame because the chinese government and the state apparatus can do lots of things

to push the endgame to whatever they would like it to be. looking for an endgame at this point doesn't make sense. what we are dealing with is tightening in a particular sector. that has consequences. those consequences are becoming painful. william is exactly right. the hands of the chinese policymakers will be forced to stabilize the situation before it gets out of hand. that is what they are likely to do. the real question is, what do you do as an investor? right now, at a certain credit level, it's providing extraordinary opportunities that you cannot get anywhere else in the world. jonathan: are you saying you like the look of the credit market in china right now? krishna: if you look at dispersion, potential for alpha, if you can call that right, it is probably the highest there than anywhere else. what are you going to do in the u.s. high-yield market at 3.5%?

jonathan: george? george: people have to be cautious with that. if there was systemic risk, it would have been more present at this point. the chinese government has the social pact with its people. whenever will happen, they will take care of it through restructuring or capital injections. it is kind of endemic of what is going on more broadly in china, this need to ratchet things back down. long term, saving or buying through properties, probably not the most optimal solution. they will do to be more of a social safety net for the general population. that is a bigger government issue to deal with down the road. jonathan: there is one thread that is consistent in all of these responses. the policymakers in china can get the results they want. bridgewater brought this up as a

problem. we have been conditioned by recent history to believe the policymaking can get what it wants in china and the united states as well. victoria, i wonder how comfortable you are with that assessment, that policymakers can continue to get the outcomes they want? victoria: as an investor, i'm not comfortable. you look at this evergrande situation, we are talking $300 billion in debt that could come crashing down. you have banks in hong kong and china that are not lending to other firms associated with evergrande. you wonder what that will look like. we don't have exposure on the fixed income or equities side to mainland china because of the way the government works, because of the restrictions you have there, the new regulations coming out, uncertainty surrounding that. for us, we would much rather look domestically for our fixed income. when we look at equities, there are the places we would rather be internationally, whether the euro zone, japan. jonathan: you look to china, it

has a regulatory regime that is unpredictable. you have data so far this week that has beenun-for castable. you have dominoes that will fall and you don't know who holds the debt. krishna, you said you may be looking around the chinese market. i want to understand how you would approach that situation? without knowing where these dominoes could go, without knowing who holds the debt, how do you make that call at the moment? krishna: if the chinese credit markets soar and the chinese credit market today and that being a macro call more than an individual sector, -- the point i'm trying to make is the pain at the point of the real estate sector is substantial at the moment, with evergrande, chinese policymakers don't have a choice. it is a call based on that.

then you find the strongest credit within that call that you think you will be able to buy and -- jonathan: forgive me for jumping in. do you think we have seen sufficient pain before making the move? i know in hindsight you have the clarity. i know this is difficult. that is why i want to explore it with you. how do you know when to make that entry point? when they had problems in 2015, it took a long time to work things out, they threw a lot at it. krishna: you will not be able to call the bottom precisely. but given what is going on with probably one of the largest entities with lots of pain points across the financial system, across the general populace, i think it is a fair assessment to make that it may not be the bottom but we are probably getting closer to the bottom with respect to the pain

point of the policymakers. jonathan: interesting conversation. still ahead, the week ahead featuring chairman powell and a federate decision. i believe we hear from the chairman twice next week. from new york, this is bloomberg. ♪

jonathan: i'm jonathan ferro. this is bloomberg real yield. time for the week ahead. central bankers returning to force. right decisions from the boj, boe, and federal reserve. a host of global pmi's on thursday. rounding out the week with a ton of fit speak lead by chairman powell and vice chair richard clarida. with us for final thoughts are victoria fernandez, george can count those, krishna memani. when you look around, where do you see the first tightening coming from?

victoria: you would anticipate from the u.s. would make a lot of sense because we have so much liquidity, we should have started tapering. our discussion is more what the fed is going to do, maybe not what they think -- what we think they should do. i think you'll see it, earlier from overseas. maybe you see from the bank of england. although they have had some poor data come out this week as well. you may have to roll the dice. i think they will play off each other a bit, the way they will do with tapering, but i say we are looking at 12 months before we see it from anybody. jonathan: george? george: i would say bank of england makes the most sense. we are seeing emerging-market concerns about inflation, but it will take time before double markets start to kick in and have that same fear. i would say overseas first and

then the fat is close after it. jonathan: i sense you have some real reservations about whether this is transitory or not. george: on the inflation aspect? i think the problem is, as we have said at the start of the show, there is all of this data. we will see pipeline pressures come in later. it will make it challenging for the fed when we have super high inflation into next year, and the economy is not producing the growth they want but they are still trying to lay a path toward hiking. the fed has institutional memory around inflation. the longer it persists, it will force their hand. jonathan: krishna, final word. krishna: george is making a very good point. what we are talking about is the fed tightening in a cycle that is actually slowly.

enormous amount of risk that the fed is taking, if they go down that path. my conclusion, based on what george's argument is, they probably don't do anything. other than tapering, they don't give you any indication whatsoever that they are inclined to tighten anytime soon. otherwise, they can create a big problem for themselves. despite the inflation print, they totally believe it is transitory for them to do anything anytime soon. jonathan: let's play that game now, final-round. three quick questions, three quick answers. the taper decision, september, november, december, or overtaken by events? george? george: november. jonathan: victoria? victoria: november. jonathan: krishna? krishna: november, i guess. jonathan: does chairman powell get a second term? krishna: yes.

. victoria: yes. george: yes. jonathan: final question for you, debt ceiling debate. if a debt ceiling issue gets dicey, are you a buyer of treasuries or a seller? victoria? victoria: seller. george: you have to be a buyer. krishna: 100% buyer. but it's a total waste of time because nothing will come about. jonathan: isn't that the moment we are in? crazy town all the time. from new york city, that does it for us. this is bloomberg. ♪

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mark: i'm mark crumpton with bloomberg first word news. law enforcement in the nation's capital is on high alert ahead of a rally planned for saturday

in support of those arrested after the january 6 insurrection at the cap building -- capitol building. national guard troops are on standby and fencing has been reinstalled around the building. organizers are protesting the federal prosecutions of hundreds charged in the insurrection. the capitol was breached by a group of trump supporters who wanted to prevent the certification of the 2021 presidential election. mr. biden spoke with nine other world leaders during a virtual meeting, saying there is still a lot of work to do and that the need for action has grown more urgent. president biden: while the climate crisis poses an exit 10 show threat, there is a silver lining. it also presents a real economic opportunities to create jobs and