♪ romaine: today was a fed beating, if you didn't know. today, the timeline from the fed was laid out. increasing purchases by $15 billion. this marks the beginning of an end of a program that was designed to shield the economy from the pandemic.

they will take action if warranted by inflation. take a look at what jay powell had to say. chair powell: it is time to taper. if warranted by changes in the economic outlook. this does not imply any direct policy. i don't think we are behind the curve. we are ready to address the range of possible outcomes. i think it would be premature to raise rates today. we want to see the labor market heal further. we think that could happen as the delta variant declines.

bottlenecks have been more persistent. we see they are now on track to persist. we think we can be patient. if a responsys call for, we will not hesitate. -- a response is called for, we will not hesitate. romaine: we had that soundbite about the tapering of asset purchases. we do not yet know the schedule for 2022. $15 billion a month is binary. it could be less. how are you thinking about the schedule of a taper? >> we have been thinking for a while that this is

straightforward, easy to communicate to the market. they won for to be an unwind. of the emergency actions that were taken. they really want to release that from the perspective of interest rate hikes. it could change. it could be a little bit faster or a little bit faster or little bit slower. it seems to me it would be a little bit faster given that inflation is on the upside. caroline: that flattening of the yield curve was because the market was undertaking a fed hike at a faster pace. you were looking for a slower rate in general. how bad do supply chain restraints need to get before we

think about a slower rate? >> that is a good question. we are all trying to wrap our eyes -- arms around the supply changes. we think some time by the middle of next year we will see easing of supply chain restraints. inflation will decelerate quite markedly. we need to see that happen. in the near term we are probably going to see worse inflation numbers, unfortunately. it looks like they are getting worse. we have an in-house measure of that. it suggests it is actually getting worse. it will probably get worse before it gets better. romaine: this came on a date when we have the latest from the treasury. there has been a lot of talk

about the debt needs. this was not really addressed in any kind of detail. . during the press conference i would think policymakers at least have to have this on their mind. the idea that this could be removed. >> for now the key for the fed, obviously they don't do that. i think the key for the federal reserve is to keep inflation. if they need to move more quickly, they will. as long as i can keep a handful on that, that will help with funding. taylor: there were a few questions on this.

what does that program do? the issues are around the supply chain. demand is there and it is strong. what are monthly bond purchases doing to fix the problem? >> they need to work their way out on their own. private companies taking some action. nothing really that affects the monetary policy. winding this down just makes sense at this point. it is becoming a signal. taylor: is there not a case that they should be going faster? >> it is a great question.

the market can interpret that as rate hikes will come quicker than expected. we see a flattening of the yield curve. i think chairman powell actually walked a fine line pretty well today. he accomplished what he wanted to. caroline: how important are the jobs now. what numbers do you look out or? do we ever get that reprise? >> friday's numbers loom large. i think the data will be very important. we are looking at the labor participation rate. are the workers going to come back? how quickly will that happen?

how quickly is it picking up? all of those things are important. we will have to see. things are still looking pretty uncertain. caroline: thank you so much. coming up, we will be talking about that. it was talked about in the 1980's. they have been back. as the federal reserve done enough? for the time being? we will discuss. this is bloomberg. ♪

caroline: today we are focused on the fed.

it was a little bit earlier that we had the u.s. treasury coming out with an announcement. you have been looking at the issuance side. romaine: there is a direct link here to the announcement we got today. he coined that term back in his old days. there is an issue that has been created. one of the reasons we have not seen this type of vigilantism is there is no room for them right now. everything out there on a net basis has been absorbed, not by the private sector, but by the fed or by policy. basically the treasury issuance out there is being bought by our own government and by another government. that has taken pressure on the

private market. taylor: it has helped driven a lot of the commentary that has been pushed this week. perhaps some of those technicals are coming into play. let's get more insight into this . talk to us about some of the vigilantes. some columnists. you are above 2%. >> i think the fed really has to step out of the way. we keep using the term bond market like it is actually a market. the feds have been coming in and buying in all of this per month.

no wonder they cannot do very much about it. without the fed being in the market like that, i think we could see the bond yield easily over 2%. it is steady right around 1.5%. 6 there is a question out there about when the fed removes itself from the equation. and whether it is even in a position to do so. the government backed itself into a corner where for the foreseeable future this is normal. >> i think that is a very good point. because the central bank has kept interest rates so low, we

have accumulated an enormous amount of debt. there is an increase in analog rates. maybe even creating the next financial crisis. >> do you think we could get that kind of meaningful shift in policy. without too much disruption? or will this be one of the moments in regards to monetary policy. >> he was an amazing central banker. one of the last truly conservative central bankers who was keeping a lid on inflation. a lot of things went right over the past couple of decades on in nation. now a lot of things are going wrong. i would say that the fed is

behind the curve on inflation. they will be stymied. they will be more liberal next year than they were this year with monetary policy. i think they will raise the inflation target. that means they will not get back to 2%. they will be stuck around 3%. that is our new target. live with it. caroline: it is interesting that taylor gets excited about regulatory change. it used to be a lot more than that. do we really want it to ever go back to what it used to be? do you want the push and the

pole of those -- pull of those private-sector movers? >> it is my own personal preference that free markets are allowed to be free. we don't have a government that is so meddlesome and intervening. the fed has become way too important in the credit markets. the bond vigilantes should be able to make a comeback here. otherwise we risk politicizing the capital markets. it has become more liberal. taylor: that could be. >> absolutely.

a couple of people might fit the role. he is certainly more progressive. his liberalism really came out with the pandemic. giving more weight to keeping unemployment down. he has only been doing it since the pandemic. her credentials as a progressive are much better. romaine: always great to catch up with you. pretty interesting calls about the future of monetary policy. taylor: i should apologize. i did some fixed income research.

i could have given him a little copyright no. i will have to go back and tell my professor that. we will give him credit for that. romaine: we will also talk about swings in the global yield curve. our next guest is also a bit of an over achiever.

♪ taylor: today we are focused on the fed. some of the world's most well-regarded macro hedge funds -- hedge funds. the cost seems to be tied to wild fluctuations in yield curves across the globe. central bankers are starting to react to persistently elevated inflation. the firm halted some trading.

let's bring in our opinion columnists for more. we are coming off a great conversation about how some of these are more technical than fundamental in nature. is that what is causing some of this? >> i would say the reason they are technical in nature is because these big names are out of their positions. they are some of the best rate traders by far in the world. you look at some of these hedge funds. their head of rates at places like goldman sachs. they leave and join these hedge funds. you look at the u.k. and the way they price for the bank of england. as well as australia. they're no longer defending their yield curve down there. some real big losses.

caroline: from a historical perspective, we are seeing this. what it used to be like in the 1980's and 1990's. what is so wrong with the way these hedge funds are playing it? >> they have a return loss on two-year notes. it is very small. the 2-year note has never lost money on an annual basis ever. yields are so low right now. even just a small move winds up magnetizing that. they are stable on the front end of the curve. romaine: this is a timing issue. >> you look at the yields.

some people joke this is the latest cryptocurrency. people were really joking about it. caroline: finance people make jokes. >> we are not laughing right now. romaine: did i tell you i took one of those tests? taylor: because you were a star. romaine: who is the overachiever now? taylor: i think was it included? we could go off on a huge tangent on this. caroline: maybe the underlying blockchain. taylor: our producers are telling us to get back on track. we hinted about the absolute levels.

inflation might not be 2%. we could be looking at a new target. it is also at that neutral rate of the fed. they could be higher than it has been. is that what they wanted all along? >> all of that makes sense to me. that seems to be where a lot of central banks are comfortable right now. they want to keep it there. what was interesting was jerome powell said current levels of inflation are not consistent with their pricing mandates. he said that right out. that is not consistent with what we want. he acknowledged it does hurt

people. it will be interesting to see how they balance that. caroline: we will have more of a read on the wage inflation. we will see if it continues to be more of a theme. you are. . always so smart maybe we should all go back. taylor: it is now. romaine: of course not. in all seriousness, this is a day that a lot of people anticipated. do you believe in the inflation story? do you believe that a rate hike can do that? caroline: transitory, he has

capitulated. romaine: did you hear the first question that guy asked him? it was a stunner. it was great. we don't have time. moving is a handful.

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>> from the heart of where innovation, money and power collide, in silicon valley and beyond, this is bloomberg technology with emily chang. emily: hot housing market. twitter and tiktok users are raging against the real estate firm as it