>> we are starting to get some signs that we are getting back to one labor market, but it is still not back to the way it was pre-pandemic. >> i think wage growth is actually as important as the federal report. >> the stagflationary environment, they are going to tolerate the higher degree of inflation. >> i think chair powell already set up for a possible does appointment. >> i think the market has essentially priced in the start. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: big week ahead. from new york city, for our audience worldwide, good morning. this is "bloomberg surveillance ," live on tv and radio. your equity market down 23, negative zero .5%.

earnings season begins unofficially this week. tom: i really agree with you. we spent the last hour in celebration of the nobel prize. the inflation data, and i agree with you, the mystery of this earnings season. jonathan: no mystery on the performance of bank stocks this year. year-to-date, up almost 40% of the kbw banks index. tom: grinding like brent with the vanilla spread. the difference between the 10 year and the two-year was 120 basis points. it is now 129 basis points. jonathan: have you got a word on energy? $81 handle on wti. tom: i've always believed that the fancy suits and ties underestimate when this kicks in. i was in l.a. giving a speech or something years ago. i looked out the window, and

gasoline across the street said four dollars a gallon, and that really woke me up. painted, the national price was lower than that. how soon are we going to get there? jonathan: every story tom tells has a bar in there somewhere. southwest this morning, some real news there in the last 24 hours. kailey: at to cancel more than 1/4 of their flights on sunday. they blamed weather and traffic control issues come but southwest is also dealing with a bit of a revolution when it comes to their pilots, and group of them protesting the vaccine mandate. the airline said it was air traffic control problems, but you didn't see the other airlines having to cancel the same number of flights yesterday, so it raises some major questions. jonathan: 28% at southwest, i

did not see that at delta, did not see it at united, did not see it at american in the same way. tom: this has to be reported out. we need to be very careful. we are always trying to be fact-based here. "the new york times" has a treatment that goes to what you said, they were down because of whether, because of government air traffic controllers out. why wasn't delta impacted? why wasn't american airlines impacted? but it is much more lit up like a candle in social media, a protest of people who in some form or another are anti-vaccine , supporting labor of southwest air. jonathan: southwest clearly impacted comedy stock negative about 2% now. -- impacted, the stock negative about 2% now. on the s&p we are down 21 points. we will get to the bond market, tom.

we are closed on columbus day in america, but germany is open. you can take a look at the u.k. as well. in the united kingdom, we are having a bigger and bigger conversation about hiking interest rates. the two-year over there, five basis points, approaching 60 on the session. tom: if you look at the swiss 20 year now, it is a big 1.4 percent. that might not sound like a lot of yield, but that is ginormous over where it was a few days ago. jonathan: let's get you through the days ahead. a ton coming up today and through this week. kailey: in washington, d.c. in particular, where the imf world bank meetings start today. it is more about what the fate is of managing rector kristalina georgieva. -- managing director kristalina georgieva. that will really be the undercurrent of those meetings, less so what if they say about the global economy and those

forecasts. also in terms of meetings today, kicking off the annual institute of international finance is a virtual event. interesting to hear the commentary around the banking environment, especially given we get all of those big bank earnings beginning on wednesday jp morgan. that will run through friday the 15th. finally, chicago fed president charles evans will be speaking at an event. the question is, what does the payrolls print mean? is a november taper still the most likely scenario? jonathan: we needed a reasonable report, and a lot of people think that is it. november 3 is the next meeting. on private equity, we thought at carlyle, ppg, apollo, not kkr. henry kravis, 77, george

roberts, 78, two of the founders of this company, stepping aside for new leadership. tom: henry doesn't like to get up early in the morning. roberts is even worse. but the bottom line is, these are two giants. it is not what they did get it is the win of kkr. long ago and far away, it was original. jonathan: and the likely successors scott nettle and jove a -- and joe veigh taking over. there's one left there, schwarzman. tom: it is a generational thing. you can talk about the entertainment of succession and the rest of it, but the bottom line is time is marching on, and a lot of good people are trying

to get on. i give kkr doing this over a number of years. jonathan: there's a lot of effort here at bloomberg to put this story together. we need to talk about this market. we can do that with mark howard, bnp paribas microstrategy director. right now we are -- perry barre -- bnp paribas macro strategy director. mark: thanks, jon, and good morning, everyone. we are moving in that direction. i think it is a really important narrative. we don't think the number for payrolls is going to change the u.s. taper story. we think the taper call is a tight one. central banks want to take some of the largess back. it is complicated, heavily complicated, by what you were talking about earlier in the energy and power markets.

that is a really important narrative that i urge investors not to be complacent about because it greatly complicates the task. tom: tell me about bnp paribas' thoughts about gradual. i -- the hope of thes bulls is that the moves forward will be smooth and controllable. do you buy it? mark: i do, and i don't think there is a proverbial gun at their head when they are done with tapering to necessarily hike immediately. i think the minutes this week may actually show that there's some hearty debate about that, and that they are going to be gradual, they are going to be consistent removing the tapering, but in the hikes, which we think will start in the fourth quarter of next year, they need not be immediate and rapid. they can calibrate that based on the economic conditions at the time. kailey: obviously what central banks are weighing is the

central bank equation. the equity market has been weighing that as well. you have the likes of goldman sachs and jp morgan saying the inflationary and stagnation airy fear -- and stagflationary fears will abate. how long can buy the dip continue to work? mark: it is a very vexing issue that a lot of our institutional investors are asking right now. i think my own personal view and our house view as well is that one needs to be patient about buying the dip in q4 for a couple of reasons. it is not just about higher rates and higher inflation. it is the earnings impact of all of these post-covid dynamics, whether it is higher energy because there isn't capacity coming on stream need time soon for carbon, or whether it is power challenges as a result of higher inputs and other systemic issues. we saw lebanon over the weekend, for instance. these power issues are going to be a tax on consumers, both

gasoline and other heating activities. jonathan: what is the conviction trade for you into year end? mark: i think it is being nimble , being very careful about buying the dip, being thoughtful particularly around earnings next week, when we get a lot more texture from companies who are going to have to give forward outlooks. we think earnings expectations are going to come down, so we would be patient about buying the dip. the other trait is about energy. we like u.s. high-yield versus european high-yield because there are different energy components. for example, russia and colombia versus india and china. jonathan: ruble absolutely flying recently as well. we've got to leave it there, sir. mark howard, bnp paribas senior multi-asset strategist. we come back to a question we have been asking over the last

month. will those higher prices hurt the ability of central banks to remain easy and support this economy, and all tamale support this market? tom: we are doing a lot of economics today. i'm going to ask the same question you asked. what do these higher prices mean for corporations? the bulls are saying they will adapt, they will figure it out. maybe it is a revenue raise. maybe it is different expense structures they need to work with. the bears are saying the world is going to come to an end. jonathan: the focus on margins. coming up in the next hour, the focus on higher rates, and a man who things we need them. it is drew matus of metlife investment management, the chief market strategist. he joins us in the next hour. we are down 0.5% on the s&p, -20 points. on radio, on tv, good morning. this is bloomberg. ♪ leigh-ann: with the first word

news, i'm leigh-ann gerrans. the billionaire founders of kkr are giving up their leadership roles. henry kravis and george roberts are stepping down after dominating private equity for almost half a century. they had elevated joe bae and scott nuttall to co-chief executive officers. the buyer was an fbi agent posing as a foreign official. authorities say the case involved cryptocurrency payments and a memory card hidden inside a peanut butter sandwich. hong kong's chief executive is defending coronavirus travel restrictions out of frustrating global businesses. in an interview, carrie lam said restrictions will stay in place for the foreseeable future. >> of course, i am concerned, and we are working very hard to resume normal travel in a

gradual and orderly manner, both with the mainland of china and with other laces. leigh-ann: lam says mainland chinese officials want to follow a stricter reproach to wiping of the virus. the international monetary fund's executive board will deliberate over the fate of its chief. kristalina georgieva, investigators have spoken with her and the lumber -- and the law firm that insinuate wrongdoing at her former firm. georgieva has denied any wrongdoing. 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 leigh-ann gerrans. this is bloomberg. ♪

>> it's about the pandemic, and

this is not just an american issue. this is a worldwide issue, with participation rate in the workforce. we clearly have more work to do. people are concerned about the delta variant, people are concerned about their health, and i think people are reevaluating their work-life balance and changing their careers. jonathan: marty walsh, the u.s. secretary of labor. we have a shortage in this country. we have a supply issue, and we saw that in the labor market this past friday. your equity market is -16, down 0.4% on the s&p. and the bond market, with the u.s. bond market closed, it clicks. that's why lisa is not here. the bond market is closed. [laughter] the bund market is open. yields are higher by three basis points. we approach zero again. euro-dollar unchanged. up by 0.3%, we add to the price

of -- up by 3.5%, we add to the price of wti, $82. tom: i think it is a global proxy for the u.s. as well. you're just grinding up. imagine going through that 1.70% level of months ago. jonathan: we are not far. $85 a barrel on brent. jonathan: have a look at what the banks have done of the back of their september 20 second meeting at the federal reserve. up more than 10% on jp morgan, i think up more than 13% on bank of america. just a quick change like that, the conversation for the potential of higher rates, and the banks off to the races again. tom: right now we go to 1600

pennsylvania avenue and just in sync on our bloomberg white house -- and justin sink, our bloomberg white house correspondent. how beleaguered is the president? i can't find out from the media. how beleaguered is this monday morning for president biden? justin: well, he obviously doesn't have the momentum he had hoped going into this week and going into the next few weeks. basically, he was able to convince congress to punt all of those problems till december, which doesn't help them in the short term when he's about to head in a couple weeks internationally and doesn't have in hand some of the deals he wanted to be able to show off, and because he hasn't actually solved the problems. so it is not as bad as if the infrastructure deal had fallen completely through or we had the

debt ceiling, but it is certainly not a position of power. tom: what does he say to bernie sanders the arch liberal of the senate? justin: as much as bernie sanders has been voicing anger and frustration with moderates like kyrsten sinema and joe manchin, bernie also understands that this is his one chance to get big social programs through. the tougher thing is going to be getting the moderates versus selling bernie sanders on a deal that a smaller than he wants or smaller than he advocates for. sanders is willing to go along if the offer is there on the table. kailey: when it comes to the actual infrastructure package, $550 billion of partisan spending, if that fails, does president biden have to completely abandon his promise to govern in a bipartisan matter? is there any other opportunity for that? justin: the problem is that he

is struggling even to give the democrats on board. the infrastructure package, the reason it hasn't gone through isn't that the support doesn't exist. it is that those progressives and moderates are using it as leveraging in this broader fight. if the whole thing falls apart, he is really going to start facing questions on whether his presidency is a failure because this is his sort of one window to get things accomplished and get things done, and i think everyone at the white house is acutely aware of that. it is going to prompt an entire reset in his strategy if he's not able to get this in the next couple of months. kailey: what is his biggest foreign headache at the moment? justin: i think they are in some ways interwoven. you've got this big climate summit coming up at the beginning of november, and to be credible there, the u.s. is

going to have to bring climate financing to the table, going to have to bring a credible way for us to reduce greenhouse gas emissions in the u.s. for the president to do that, he's going to need that reconciliation package. foreign leaders are very tired of making commitment of their own based on the u.s., and then just seeing a new administration come into power or a democratic president not be able to deliver on the climber premises -- on the climate promises. so as the president heads into that summit in rome and then the climate summit in glasgow, if he is not able to deliver, it is going to impact some of those foreign conversations. jonathan: one of the republican talking points at the moment are higher prices. i just wonder how nervous this administration are getting, with crude at $82 a barrel on wti. when you hear the energy sector start to talk about releasing oil barrels from strategic reserves, do you sense and increased nervousness in the last several weeks? justin: i think there's two

questions there. on the energy sector specifically, we know they have stepped up conversations with opec. we know they are not ruling any of those things out. what we haven't heard yet is those proactive steps. so i think there's a little bit of wait and see going on right now, and it ties back to that climate conversation, where there are some in the white house who see a strategic advantage in their being high traditional energy prices because it helps push that green revolution. so all of that is in play on the energy sector. there is also increasing concern about the supply chain hiccups that are driving up prices, but also throwing a lot of doubt onto how successful the christmas season is going to be if people aren't able to buy gifts, if there are still supply chain problems, if we are still having lagging employment. all of that paints a really negative picture for the president. jonathan: thank you. justin sink down in washington,

d.c. there are a lot of issues that predates this administration that are not anybody's fault. we talk about reopening in economy and some of the supply chain issues that come off the back of that. there is one thing that sticks out, and that is whether we should have juiced demand the way we did. there were people who asked that question at the time we passed the most recent big bill at the start of the year. when you look at brent at $84, it is pretty clear people will be looking for someone to blame going into next year if prices stay like this. tom: i am glad you bring this up because i have brought this up, but maybe i am wrong on this. it is a hugely emotional future facing people on the right and left coast -- future that people on the right and left coast don't understand. i don't know where that is on a gallon of gas, brent, or west texas intermediate, but there is

a transition where people get very upset. jonathan: wti just south of $82 now, up by 3.3%. coming up, jeremy stretch, cibc head of g10 fx strategy. stronger dollar has been the story over the last month. on radio, on tv, this is bloomberg. ♪ ♪

♪ jonathan: earnings season just around the corner. good morning. equity futures -15, down about 0.3%. the russell down 0.3%. earnings season starts wednesday unofficially with jp morgan numbers, and we get cpi data in the united states as well on the 13th. this is the story for the bond market this warning. treasuries closed for columbus day, so you look to bunds, you look to gilts. the biggest shift we have seen more recently has been in the u.k. there is a bigger conversation now about hiking interest rates.

we've parted from the chief economist, the governor, the hawk. yields higher over in the u.k. by four basis points to 1.2% on tens. on twos, we've had a real move. why? higher prices, energy rallying. through $80 on wti. had a look at $84 on brent earlier. upside on prices and downside risk to growth. what does that mean for profits? here's the story for you. it is a chart from citi. our team at bloomberg put this together in a piece over the weekend. i thought it was a really important piece as well. what it does is get together global profit expectations, upgrades versus downgrades, and what do you end up with? we rollover pretty aggressively over the last two or three months. that is really capturing the story we have been discussing on this program for months.

that is growth expectations are heading the wrong way, and inflation expectations are heading the other way. that is not a pretty picture for risk assets. tom: and the rationalization here is that inflation won't affect anyone. how about seven dollars 44 since a gallon -- how about $7.44 a gallon, if you do the liter conversion? jonathan: we did that last week. about five pound a gallon. put the exchange layer on top of that, it is something worth of seven dollars a gallon. tom: you can only do that if you are full brit. we in america can do that. jonathan: my full brit or full yank this morning? tom: you are always full brit. there are times when you are full yank. jonathan: let's get you some movers this morning and say good morning to romaine. romaine: crude oil in the u.s.

firmly above $80. brent crude also above $80. with regards to the premarket action, you are seeing quite a few of the big names in the energy space higher. basically everything in the shale patch getting a bid here. a lot of speculation that the $80 price point might actually be the tipping point for a lot of these companies to start ramping up production. keep an eye on kkr, shares slightly higher. they are changing up the guard. this was well telegraphed, with the two leaders stepping aside to be cochairmen. two new co-ceo's stepping in now. southwest suffering 500 delays. the says those weather issues were related to issues on friday. they had no evidence that those affected the flights on sunday. they say what affected flights on sunday was an in accountability of aircraft and

staffing. the pilots union, they said that there were no planned issues with their pilots or unplanned issues, either. there's a lot of speculation about what really happened. i will leave that speculation to the interwebs. sofi getting an upgrade over at morgan starbucks getting upgrade at morgan stanley. robinhood downed after an amended filing on friday that is going to allow some of its insiders to sell their shares sooner than planned. that will take effect on wednesday of this week. also in that filing, they had some interesting commentary about some of the regulatory pressures with regards to crypto and payment for order flow. that is putting pressure on the shares. tom: inc. you so much. right now -- thank you so much. right now on the deepest markets, jeremy stretch joins us, cibc head of foreign exchange strategy.

given inflation, whether transitory or not, what would you presume the dollar will do? jeremy: good morning, tom. i think in the current environment, we continue to favor the dollar continuing to appreciate. we continue to anticipate that it will hold strongly against those funding currencies. that continues to see the euro under pressure, the yen maintaining that significant uptrend we have been seeing in terms of dollar-yen, and we see dollars was higher as well. so i think the dollar should remain relatively well supported. in the context of central-bank dynamics, we are getting somewhat closer to that tapering narrative in the u.s., and there's other funding currencies are still some considerable distance away from that because ultimately, central banks like the ecb are probably going to be on hold for the next two to three years. so i think that still favors long dollar positions. tom: jan hatzius scheduled to

join us of goldman sachs in a bit. you have the huge advantage of economics up in toronto, the analysis of small business, what we see in the dynamics of the american labor economy. how do you overlay that onto your foreign-exchange calls? jeremy: it is absolutely right, we do need to understand how the labor market dynamics are going to play out. of course, we are in the backwash of last week's labor market data, but i think we are still of the opinion that we will see a gradual movement towards the labor market improving, and i don't think that narrative has materially changed. we are still relatively constructive in terms of the macro dynamics in the u.s. you are right, that we have seen a substantial repricing of both growth and inflation, not just in the u.s., but globally. but i don't think that necessarily is going to be a defining factor in terms of

changing the broader trend towards u.s. dollar gains. jonathan: i am hearing more and more from multi-asset strategists about hedging now, with the bond market and risk assets heading in the same direction. bonds down, equities down. i am thinking more about how i can hedge that kind of story through fx, where i can find a little bit of safety. are you having a conversation about that with clients more recently? jeremy: you are right. i think we are seeing yield levels moving up, surprise falling lower, and that is causing consternation regarding the asset markets, and particular in terms of the equity space. i thing that does leave investors increasingly looking for a degree of safety and security, and i think in that context, it does lead us back towards that broader dollar narrative. but clearly where any scenario where the liquidity support mechanism is no longer quite so beneficial for the broader equity dynamics, and we are

seeing those equity markets under pressure as yields continue to climb, and that is very much a function of the energy price spikes that we are all living through as we speak. jonathan: do i find fx safety in the likes of the yen, the swissie, or do you any -- or do i need the ruble? jeremy: i wouldn't necessarily had directly towards the ruble. you are right that the yen and the swissie are often perceived to be the usual barometers of safety. we have seen that reflected in terms of moves in euro swiss as of late, but i think there's still some question marks about the yen story because we are still very much in an environment where japanese investors are exporting capital in order to facilitate and fight higher yields. we saw that in the flow data last week. so i think if we do see a significant and substantive rally in dollar-yen, there may well be opportunities to start to fade that rally, but overall, i wouldn't necessarily be rushing headlong towards the yen and swissie just yet.

i think the dollar still has significant liquidity premiums which i think will continue to support its valuations. kailey: dollar-yen dancing around 1.13, the weakest since back in december of 2018. can we blame that on higher yields, higher oil prices? jeremy: i think it is that flow data as well. we have seen those japanese investors starting to export funds looking for those higher yields. i think late last week, i did suspect that we might find it a little difficult to run up through 1.12, and yet i come in this weekend and we are near 1.13. so there is a degree of washout for positioning. dollar-yen is getting towards overbought extremes, so that mitigate against buying aggressively, but i think if we do see any dips, there will still be some residual buying interest because ultimately, those japanese investors are still looking to export capital

to benefit from that widening in the treasury spreads. jonathan: thank you, sir. got to leave it there. jeremy stretch, cibc g10 fx strategy had. where do you find the sick -- strategy head. where do you find the safety now? tom: a big figure can be different things to different pairs, but you nailed it on japanese yen. it is a 10 big figure move this year in japanese yen. the weaker yen. jonathan: so where do you find safety in a market where we are worried about higher yields, rallying crude prices? walk me through it. let's go through the fx market. we have been buying the russian ruble. that's what's got a bid more recently. tom: i do not have a triple leveraged all-cash fund said in ruble, i will put it that way. jonathan: priced in dollars,

tom? tom: priced in full faith and credit, sovereign forever, sovereign dollars. but the question is, where do you find opportunity? are you going to get in front of turkish lira? are you going to get in front of russian ruble with the hydrocarbon news flow? i love some of these more esoteric pairs. beware is what i would say. jonathan: i have no idea what the path forward has in store for us, but if you told me energy up, yields higher, norwegian krone maybe a currency that has got that sensitivity to crude, a central bank that is likely to raise interest rates again, i don't know. tom: i go to the classic phrase, don't do this at home. jonathan: i am not suggesting a trade here. i am just suggesting what has worked. tom: norwegian krone, i can see it. jonathan: jan hatzius coming up

from goldman. he had a revision on his growth outlook, i downgrade for u.s. gdp. he delivered that over the weekend. we will catch up with him at about 8:30 eastern time. from new york, this is bloomberg. leigh-ann: with the first word news, i'm leigh-ann gerrans. the price of oil went over $81 a barrel. west texas intermediate futures rose 2.7% to the highest level in seven years. it was south about 30% since mid august. the global power crunch is boosting demand for oil ahead of winter. now the power crisis is also squeezing aluminum. the price jumped to the highest levels since 2008. industry insiders joked that aluminum is basically solid electricity. each ton of the metal takes about 14 megawatt hours to produce. that is enough to run an average british home for more than three years. merck seeking emergency use

authorization for a pill to treat coronavirus. that brings the drug pusher to becoming the first oral antiviral treatment for the disease. studies founded cut the risk of hospitalization by about half. merck makes the pill with its partner. factories are running out of workers to supply companies such as nike for the holiday season. the epicenter of vietnam's worst coronavirus outbreak, and response, factories are boosting pay. vietnam is the second largest supplier of clothes and shoes to the u.s. 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 leigh-ann gerrans. this is bloomberg. ♪

>> i think most of the reopening authority, we already see some softness in services, so travel activity is following. restaurant bookings are following as well. we saw in last month's report that temporary jobs were also softening. i think there's a temporary pause in the services sector. jonathan: from new york city, for our audience worldwide, on radio, on tv, alongside tom keene and kailey leinz, i'm jonathan ferro. your market down 17 on the s&p, negative zero point 4%. on the nasdaq, down around 0.6%. that was thomas costerg of p ictet. after a difficult payrolls report, he was the man looking for it. he came close to it, just 200,000 away. yields are higher by three or

four basis points to -0.115%. a revision from goldman over the weekend for the path forward. the path forward for this year, a small correction. but next year, much more so. tom: let's get to it. our conversation on the state of the american economy, jan hatzius joins us with goldman sachs. i want to fold it into a slow down and the fiscal oomph to america. did you adjust your gdp down because the fiscal party is over, the fiscal punch bowl is being taken away? jan: that is certainly the reason why we think the economy is going to slow quite a bit in 2022. we have it going to just under 2% by the fourth quarter of next year. in the near term, i think there are still some reasons to expect stronger growth. the trend is down, but i don't think it is going to be a great

sign. i think we will get some boost from the delta wave. people have a lot of pent up savings, and i think the inventory cycle is also going to boost growth, but these are already simply short-term. going forward, further on, i think growth is going to be significantly lower. tom: whatever the flavor of inflation here, what does it do to the wage and the inflation-adjusted wage? jan: i think that really depends on whether you look at the top end of the wage distribution or the bottom end. i think at the bottom end, we have seen a sharp acceleration in wage growth, we think to about 6%, as we adjust for all of the changes in composition. that is obviously the strongest we have had in many years. i do think that the extended unemployment benefits were a big driver of that, now that those

have ended, i think we will see deceleration there. but in the middle and upper end of the income distribution, we will public see continued gradual wage excel or ration as the labor market tightens. i still think it is tightening. overall, we have wages going roughly sideways in the 3.5% to 4% range. that is our current estimate of the underlying pace. and then the real wage is going to depend on what happens to inflation. in the short term, there is no real wage growth. real wages probably declining slightly because inflation is higher than that. longer term, as you go into 2022, i think we will again have real wage gains. jonathan: help me understand next year. for percent is the baseline for the year, but i am more interested in the back half of 2022. are you saying 4.5% as we get to

2022? jan: the 4% is being driven by the strength in the later part of 2021 that has carry over into the year, but as you go through the year and especially into the back half, we have it at 3% in q3 and then 1.75% in q4. so it is definitely a trend towards slow down, consistent with some of these temporary pauses petering out as you go through the year. jonathan: how do you think the federal reserve will respond to that? will they be looking at the cumulative gains, or will they be worried about growth slowing back below 2%? jan: near-term, of course, tapering is very likely to be announced at the next meeting. that is going to take until the middle of 2022. then i think the question is where is growth, where is the labor market, where is inflation. under our forecast, growth is much more moderate, and

inflation is on its way back down to something like 2% on core pce. in that environment, i don't think they are going to move directly to rate hikes. we have the hikes not starting until 2023, but of course, it is really going to depend on the data and how they compare with the criteria that the committee has laid out. they have been very clear about that. kailey: tapering isn't going to help much in reducing the supply side inflationary pressures that are out there. you could argue there's limited options for the fed to do anything about that. are the ripple effects of that being more persistent than may be expected, being underestimated? jan: the ripple effects from the supply side shortages are certainly taking longer, and i think that is pretty clearly inflation numbers, an indicator

where option prices again rose in september after several months of declines, so i do think in the next several months , we will still have a significant inflation issue. we think core pce inflation by the end of the year is at 4.2 5%, up from 3.6% at the moment. as you go into 2022, slower growth in demand and also probably a redirection to some degree of that demand from the goods sector, right now it is very concentrated in the goods sector, is probably going to normalize somewhat, and some of it is going to move into services. think that is going to result in a relaxation of these supply bottlenecks and declining goods prices, but we are not there yet. kailey: we also have a real energy crunch in the world, and that has driven crude oil prices to $82 a barrel on wti. what is the real economic impact

of crude north of $80? jan: again, it adds to the near-term stagflation narrative. it is bad for growth, but at the same time, boosts inflation. mainly headline. there is not a major impact on the core numbers. the high numbers are really driven by other factors. but it is all pointing in the same direction in terms of away from growth, and making inflation higher. tom: long ago and far away, a younger hatzius defined the housing market in america as we saw housing prices collapse. let's go to your brookings effort here. the balance sheet effects of the home price downturn. we need a rewrite. jan hatzius, on the balance sheet effects of the home price upturn, what do you make of this boom? what does it mean for our viewers and listeners? jan: i think it is one of the

items on the strong side of the ledger, and one reason i think why we are getting a good amount of balance sheet support that is offsetting to some degree the negative fiscal impulse. i think ultimately, the negative fiscal impulse is probably going to be larger, in part because this housing boom, unlike the pre-2008 housing boom, doesn't feature the same amount of mortgage equity withdrawal. that was really a particular way to turbocharge the effect back then. we are not seeing that to the same degree now, so i also think the consumption effect isn't going to be as large. jonathan: what do you make of this stagflation conversation that is taking place right now? what are you and your team telling clients about it?

jan: in the near term, it is real, if you define stagflation as deceleration in growth from the extremely rapid pace that we had it a couple of quarters ago and much higher inflation then we have had in several decades. the question is what happens as you go into 2022. i think that is going to be a more traditional, cyclical slowdown narrative with declines in inflation, but we are not there yet, and we are probably not going to be there for at least a few months longer. jonathan: just quickly, real gdp next year, they are at 3.8 percent. you are at 4%. core pce, they are at 2.3 percent. what are you at for 2022 on core pce? jan: for core pce by the end of the year, we are at 2%, so a little bit below the fed's forecast. for gdp growth, we are at 3.3%.

if you look on a fourth quarter to fourth quarter basis, the way the fed is looking at it. jonathan: appreciate that, sir. goldman sachs' chief economist on the way forward. the important piece of this for me knowing into next year is just where they cs landing at the back end of 2022. that is a sharp deceleration from where we are. tom: i love the idea here that you fold the fiscal slowdown into what the consumer is going to do in that estimate, and that comes right over to consumption and a huge part of the equity market. i'm sorry, but this is all linked in two speculation and the investment of our retirement plans. jonathan: goldman sachs and jan hatzius they small downgrade for growth and a bigger one for 2022. drew matus of metlife coming up.

looking forward to that conversation. yields are higher in germany by three basis points to just -11 basis points on tens. tom: why are we here? jonathan: you keep asking that, tom. wti just short of $82 right now. on radio, on tv, this is bloomberg. ♪ >> i'm denny clevenger with an exclusive bnp paribas open update for tennis channel. the former wimbledon winner andy murray turns back the clock i see gets in an instant classic. the 34-year-old shows no signs of his multiple hip surgeries as he fought for three hours at before setting up a meeting with alec centers verily in the third round -- with alexander zverev in the third

round. it was a disappointing day for simona halep. stefanos tsitsipas moving into round three. up next for him, italy's fabienne -- italy's fabio fognini. i'm denny clevenger.

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♪ >> covid is the enemy of everything, and it is absolutely the case in labor markets. >> it is still not back to the way it was pre-pandemic. >> the stagflationary environment, they are going to tolerate that higher degree of inflation. >> it is all about the hikes. i think the market has essentially priced in the start. >> this is "bloomberg surveillance" with tom keene,