♪ >> this is a new fed. it is a new reaction function. they are willing to let things run hot. >> the cycle is starting with more inflation and flutter yield curves. >> i think the fed's job is to keep the eye on the medium-term. >> everything is transitory on a long enough timeframe. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: getting you ready for 2022. from new york city, for our audience worldwide, good morning. this is "bloomberg surveillance, " live on tv and radio. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. -- live on tv and radio. alongside tom keene and lisa abramowicz, i'm jonathan ferro. the year-end outlooks poor in. tom: i have never seen it like this. the deep visions we see not only at versus other houses, but just the disparity of the call of,

finance, investment, we have never seen this before. jonathan: are you finding it hard to identify a consensus view? tom: yes. where it is is exactly that. there is no consensus. there will be a mathematical consensus. nobody does it better than bloomberg, but the consensus is the sum of parts of huge idiosyncratic belief. jonathan: interested to see morgan stanley go with q1 2023 for that first fed hike. . lisa: i would say the consensus is i have not heard one call for recession, not one call for a crash. even morgan stanley with a 4400 call for the s&p, that is only a decline of about 6%, so very bifurcated in terms of direction , but not anything dramatic. that is really telling as to why there isn't more doom and gloom out there. jonathan: waiting for the 'bramo

outlook. tom: it is going to drop on december 31. [laughter] jonathan: perfect. equity futures this morning up 11 points on the s&p 500, advancing about 0.2%. these views for next year are fascinating. they are wide between morgan stanley and the likes of rbc and others. yields in about a basis point. crude want to watch, down 1.4%. lisa: this seems to be a gaining consensus among democrats that perhaps there should be some action. the one area that maybe there could be some direct intervention to bring down prices as the approval rating of the president declines on inflation concerns. today at 8:30 a.m., u.s. november manufacturing data is the first read on this month's manufacturing. a lot of people want to get a sense of how much we have to be concerned about supply chain disruptions and labor shortages

accelerating rather than decelerating. today in about 45 minutes, we get xus fed president bill dudley joining us. then the former president of the richmond fed will be talking about inflation. we will be talking about the next fed chair. do want to point to this janet yellen quote from the weekend, basically saying jay powell has done a pretty good job, but what is important is that president biden chooses someone experienced and credible and that there are a range of candidates, not necessarily weighing on one or the other, despite some of the previous discussions. they are today, not only did we get president biden siding be bipartisan for structure bill at 3:00 p.m., president biden and xi jinping of china are planning to meet virtually. how much do they discuss some of the supply chain disruptions, as well as the climate agreement they just came to that a lot of people described as progress, but water down? jonathan: and people getting into the country to find out how

to this -- how this pandemic started. lisa: how much does that become an economic concern globally, when that does have ramifications that a lot of people are saying that ship has sailed, and we have already proven that we can't get there? jonathan: data out of china overnight better, showing some stabilization. just quickly, bill dudley later in the hour, seven 45 eastern time, so in about 40 minutes. the race for the fed chair, interesting to get bill dudley's thoughts a little bit later. tom: these are two different economic philosophies wrapped around the common features -- the common features of powell and brainard. i am glad we are doing a double booking of dr. dudley and dr. lacker. jonathan: this from mona mahajan. "we continue to believe

was above trend gdp growth, for investors this means the bull market likely has room to run. markets tend not to enter bear markets unless the economy is entering a recession." exactly the point lisa was making. joining us now is mona mahajan, senior and ventas -- senior investment strategist at edward jones. congratulations on the new seat. mona: great to be back. jonathan: is it no question this market grinds higher? mona: would we do get worried, will read those 20% type bear markets, we tend to see an economy that is either in recession or entering recession, or the fed is close to the end of a tightening cycle. of course, as we look to 2020 do, neither of these conditions are in place, so yes, we think this bull market has legs still. that being said, we think returns will likely moderate, that we will likely see more normal levels of volatility. we are now in the third year of

very strong double-digit gains in the s&p. last year was close to 17%. when you look historically at those figures, a fourth-year of those type of returns is less likely, but could we get positive returns in line with earnings growth? we think that is fair. tom: i have the clearest memories of 1991, when wharton invented the dual degree track. you did that with one of the most prestigious tracks. that is based on humility. i want you to speak to edward jones clients now, sprawled across this nation and looking at the fancy people booming on both coasts. how do you respond to that? what do you tell the rest of america about the boom economy of the elite? mona: certainly in the united

states, we continue to see a bit of this will track you are alluding to, this k-shaped recovery where part of the industrial base is doing well, and part is not doing so well. but what we like to tell our clients at edward jones, nearly $2 trillion in assets, we think generally the course is to remain diversified in your portfolios. stick with equities. there's been a lot of talk on inflation and inflation fears. historically, one of the best asset classes to own in an inflationary environment is equities. even if you look at this year, cpi is at 2.3%, but equity returns close to 24%, so it certainly makes sense to stay that course. within equities, we continue to like that value cyclical trade. we are mindful that as we get towards the end of next year, there is some -- comps get tougher, but now, value

continues to remain attractive. start to look outside the u.s. there may be some room for catch up in areas of emerging markets, even non-us developed markets, as we get hopefully better reckoning in covid trends longer-term, as we get these supply chain issues hopefully easing, and hopefully start to see some stability out of china. we'll hear from biden and presidency later today -- president xi later today as well. lisa: you have consumer confidence at the lowest since 2011 here in the united states. you have things like my 12-year-old son asking if he can buy a non-fungible token this morning. is there the idea that no one sees truly dark clouds? mona: certainly when you think about black swan events, and last year could certainly be considered one, it is hard for economists to predict what could

really derail the market from a true black swan event. but generally, we do have a good sense of what earnings growth will look like next year. we have a good sense of whether or not we are seeing any big holes in the economy. when you track these economic metrics, and we have done so historically, and they have provided a good basis for looking at the future, we are not seeing any huge holes or areas of concern. i think the biggest would be inflation and a fed policy mistake, and therefore, we are hopeful that inflation does ease from these levels. we also think we won't see a repeat of what we saw this year in commodity prices, energy prices going up another $30 or $40. we won't see a repeat of auto prices increasing to the magnitude they did this year. from that perspective, we feel

comfortable with the view that positive earnings growth above trend gdp growth, certainly a consumer showing really high appetite for demand, we will see if the retail sales figure comes out, but certainly the last couple have been strong, so to us this is not a demand shock, which would probably be more worrisome than what we are seeing in the marketplace, which is more of a supply shock. jonathan: great to catch up. we are wishing you the best for the year ahead. mona mahajan there of edward jones. we've got to talk about the twitter account of the world's richest man and the ceo of tesla over the weekend, responding to a generic tweet about taxing the rich from senator sanders. elon musk had this to say. "i keep forgetting you're still alive." i've got to admit, i thought it was utterly bizarre, but the fact we have got used to this tells is what you need to know. this tweet came from michael

burry, the famed investor. "elon musk borrowed against 18 million shares and is asking bernie sanders if he needs to sell more cash. he doesn't need more cash. he just wants to sell more tesla." tom: i've said what i've said on this, and have probably been improper on that. just simply, there's a different rulebook, and someday that will be adjudicated. lisa: he also pointed to win elon musk said his stock was probably trading too high back when it was just a little more than $1000, just to give you a sense of some of the inconsistencies in elon musk's. prognostications jonathan: -- elon musk prognostications. jonathan: how is twitter not worth like $1 billion more? lisa: they have not monetized. tom: really good question. jonathan: just bizarre, the kind of things that take place on this website.

the s&p advancing 0.2%. on radio on tv, taking up your trading -- on radio and tv, kicking off your trading week on "bloomberg surveillance. " leigh-ann: president biden and xi jinping have plenty to discuss during their first face to. still, expectations for a major breakthrough are low. relations between the two countries are tense. there are disputes over taiwan, human rights, and the origin of the coronavirus. the european union has approved a new sanction powers related to belarus over the flow of migrants towards the bloc's eastern border. alexander lukashenko is using thousands of migrants from iraq and syria and other countries in what the eu because a hybrid attack. he has also threatened to block the flow of natural gas from russia to the eu. a new study has found the pfizer/b.i. own tech -- the

pfizer/ioan tech -- pfizer-biontech vaccine resulted in the strongest immuno response. changes at royal dutch shell, dropping the royal dutch shell from its name, and will make the u.k. its headquarter. the energy giant is giving up its current dual share structure and walking away from the netherlands as home country. relations between shall and the netherlands have been getting worse. the dutch government says it was unpleasantly surprised by that announcement. 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. this is bloomberg. ♪

>> the challenge is these high prices that families are paying, those are real, and people are

experiencing that pain right now. we need to pay very close attention to this. we need to take it very seriously. but my view is we also need to not overreact to some of these temporary factors even though the pain is real. jonathan: walking a fine line at the federal reserve. minneapolis fed bank president neel kashkari speaking over the weekend. your equity market positive and on the s&p, 0.2 percent. yields shaping up as follows on the 10 year right now. yields come in almost a basis point to 1.5545%. looking for the president's next move. we are down by 1.32% on wti this morning. we are looking down to d.c. because there's a huge focus on the latest polls in washington on the president and this administration and the very fact that we see the growth figures where they are, but ultimately it seems to be inflation that shaped the story. 70% of americans rating this economy negatively and that washington post/abc poll. tom: as we position the have and

have-nots as well, a morning note confirms the university of michigan buying conditions level is back to where it was i believe in 1978. let's go to emily wilkins on the political ramifications here of inflation. what is the to do list for the white house, besides hold meetings? emily: it is going to be a good day for president biden. he is going to sign that infrastructure bill. he will meet with president xi jinping. tom: i get that he's going to china in that. inflation is rampant for 70% of america. what is the white house going to do? emily: part of it is going to be messaging. the white house has continued to push a narrative that bypass that social welfare and tax plan, that bill but better plan, that that will help lower inflation. the white house notes that the

plan is expected to be fully paid for. more moderate democrats have said we need to make sure we actually get that back from the congressional budget office and make sure we are seeing those scores, ensuring that package is fully paid for in terms of revenue spent, revenue raised. that is certainly something president biden is going to be keeping an eye on, and something could determine whether the house actually moves that bill forward. other than that, you are hearing some mixed messages from the biden administration on inflation. you just heard in that previous clip the fed president in minneapolis. you heard something similar from treasury secretary janet yellen, saying this is a temporary thing. once the country is able to further put covid-19 behind us, you will see inflation measures go back down. you are hearing a couple of different messages from within the democratic party, but there is certainly a high focus right now on inflation. democrats are very cognizant

that increased prices at the pump and at the grocery store don't spell good things for them now. they will not spell good for things -- good things for them in next year's midterm elections. lisa: this approval rating was shockingly low for many democrats of president biden. wonder from your seat how much this is self-inflicted. claudia sahm said i just want this election process to be overcome a talking about the fed chair selection. she said it is incredibly frustrating that it is sucking up time now, saying the attention should be elsewhere. how much does she represent the mood in washington, d.c.? emily: i feel like in washington, there's so many things the government needs to really do right now that it is hard to just focus on one thing. you have that social welfare and tax plan b houses hoping to move forward this week, but you also have the debt limit looming, i government shutdown looming. you have the fed chair and the debate over that, so you have all these things he white house

and democrats really need to move on within the next several weeks, and there's this sense that there's not a lot of time. congress is not supposed to be in d.c. next week for that thanksgiving recess. huge question as to whether they will have to stay. jonathan: the fact that we are waiting tells you there's some doubts out there within this administration. i am trying to work out what changed it. was it senator warren coming out and calling chairman powell a dangerous man? did something change? what kind of reporting are receiving? -- are we seeing? emily: the key thing is the messaging as far as who president biden nominates, and how easy that process is going to be. if you pick someone who is going to struggle to get 50 votes in the senate, that is going to mean you might not get that fed chair in place for quite some time. if you are president biden, you

want to nominate someone who gets a strong vote of confidence in the senate and be able to get them into the position because we have seen with some of president biden's nominees, he has put them forward. they have stalled in the senate. he has had to redact a few of them and put forward new people. that is not something the biden administration wants to deal with right now, and they have so much other stuff on their plate. . tom: who is going to sit in the over room to advise the president on the fed nominee? is it political types, economic types, both? who are the names speaking to president biden about this? emily: we know he has done individual sit downs with powell, with fed chair lael brainard, and we know he has also heard from treasury secretary janet yellen, who has said she think that powell would be a good person to renominate, that he has done a good job as chair so far forget certainly he is also hearing from senators elizabeth warren, but also

republican senators who said if they go ahead and nominate powell again, republicans will support powell. if you are able to get to 50 senators without elizabeth warren and maybe some other more progressive democrats, that could be a route that the white house chooses to take to show president biden's bipartisan credit. there are a number of people that the biden administration is looking for on this. i think the time they are taking shows their intense focus on it. tom: she's all washington. jonathan: i thought karen was a wall street thing? tom: economic credit. jonathan: emily, thank you. [laughter] to help you answer the question you asked, who is helping the president, here's a quote from "the wall street journal." "president biden met each candidate separately on november 4, and was joined in the oval office with only one other

advisor, national economic concert director brian deese." so it sounds like brian deese had the ear of the president on this one. tom: i don't buy it. . . that is a great observation. i get that deese is involved in that. i just at this is way up the food chain, including to sarah terry yellen. lisa: we don't know what they were actually -- including secretary yellen. lisa: we don't know what they were -- what they were actually talking about. they could have been king about the vice chair i don't know how anyone gets to that february time. , and if you don't have the home of the central bank at this moment, that is a problem. jonathan: here we are in the middle of november, seemingly not moving forward at all. we could find out later this afternoon, maybe later this week. tom: i agree, it is that imminent. jonathan: your equity market futures positive nine, up 0.2 percent on the s&p. last week, just a mild, small week of losses on the s&p 500 as

we finish strong in friday's session. yields come in almost a basis point. a big conversation about the what next of the spr in america. we are down there by 1.2%. on radio, on tv, for our audience worldwide, this is "bloomberg surveillance."

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♪ jonathan: live from new york city, on radio and on tv, this is "bloomberg surveillance." here's the monday morning price action. we advanced 0.2% on the s&p. last week, just a mild move lower after finishing stronger in friday session. this morning we advanced just a little bit on the s&p 500, closing just short of 4700 on friday. morgan stanley next year looking for a move to the downside to 4400 on the s&p. that doesn't color the picture more broadly for morgan stanley. they are bullish on the economy and patient on the fed. i fund the patients on the fed interesting. get to the bond market. they are looking for the fed to make a call in q1 of 2023 at the expect pce to move back towards

a 3% handle, employment to recover, but ultimately, the said to sit and wait, patient. they sound a bit like neel kashkari. ellen's that mayor -- ellen zentner, don't take offense to that. [laughter] 30's right now, 1.9 370%. it is that fed patients that divide a lot of shops right now. a lot of people think maybe the fed blinks. other people think they wait. tom: there's absolutely no indication they are going to blink. i challenge anybody to show me a fed in the process of establishing a dialogue to blink. i just don't see it. jonathan: we will see. get to the fx market. dollar index year-to-date, up 5.6%. you get the dollar strength early as the u.s. outperforms area next year they are looking to fade some of this move. the dollar index, we haven't talked much about this. a 95 handle on dxy. tom: i really looked at it today.

i featured turkish lira with the crew at 5:00 a.m. it is a dollar resiliency, is how i would put it. jonathan: a bit of weakness on the screen this morning. 95 on the dxy. i believe this is a first time for "bloomberg surveillance." let's get some stock movers this money with kriti gupta. kriti the: -- kriti: the ev space is moving this morning. elon musk saying he might sell a little more stock in response to a tweet from senator bernie sanders. and of course, rivian shares down 1.5% after coming from its big post-ipo surge last week. you also have lucid motors reporting after the bell. those shares down ahead of that report. the retail bid coming through strong. guggenheim set to merge with ev maker whole star. those shares were up more than 25%. let's get to some of the movers that weren't in the ev space.

that of course is boeing, actually having a bit of a turnaround story, the dow heavyweight coming out with some good piece of the turnaround. tom: i love her to death. [laughter] jonathan: kriti, carry on. lisa: he wants to make sure she gets a real "surveillance" experience. kriti: they are actually restarting deliveries, key for their bottom line. he also have restarting negotiations with china, one of their major customers for the 737 max. they want to hit dollar tree. tom: another dow component. kriti: getting a $1.8 billion stake from activist investor rental rate. crops trick getting initiated at morgan stanley with an underweight. something that these have a security software company is losing some of that leadership potential. tom: i am not tearing up here

because you mentioned a dow component, which romaine never mentions, but because you have never been in the building before 9:00 a.m. it is great to see you here. thank you so much for coming in today. david riley with us now, chief investment strategist, bluebay asset management. what i love about your notes, there is always one sentence where i go, wow. you believe, looking at fixed income, looking at assets, is that we are closer to full employment than we think. that is a shocking statement. discuss. david: i think we are seeing evidence that the labor market, particularly in the united states, is pretty tight. one of the key points of evidence for that is that we are seeing a pickup in wages, although as yet, not as quickly as we are seeing in terms of inflation, and we have a level of turnover, of quits and vacancies in the u.s. economy, which is actually consistent

with an economy pretty close to full employment. that is one of the dilemmas facing the fed as it goes into next year. how close are we to, and their terminology, maximum employment? have we met that criteria? because clearly, inflation criteria is being met for a liftoff in rates. jonathan: there is a belief that the fed, with incoming data right now, is getting increasingly uncomfortable. moments ago, tom said he does not see the federal reserve blinking. for the current communication, i don't see them either. do you think they will? david: they are going to hike rates next year. i think we are going to have a situation where the unemployment rate by the time they finished tapering, by the time the end tapering in june of next year, we think the unemployment rate will be around 4% or below.

we think the core inflation will be running at 4% plus, and against that backdrop, i think the fed will start to hike rates. i think the issue in terms of what the bond market is pricing is that we keep on getting this flattening in the curve and particularly in the forward curve. if we are wrong and the fed delays, then i think we end up with the fed having to hike further at a later stage, and that is why we have a bias towards steepeners and the short duration bias in terms of 10's. -- of 10-year note's. jonathan: core pce, core inflation in and around a 4% handle. a fed that has to move quicker. perhaps they have to do more. push that through credit. what does credit look like? david: i think in parts of credit, which are going to look

pretty ugly, not on a fundamental basis. i don't think we will get a re-rating in terms of default rates, but there's a lot of investors who have not dedicated high-yield investors. there's a lot of crossover and investors who have gone into higher yields, have gone into long-duration bb credit, particularly within the u.s. market. i think they could be in for a bit of a shock if we have a said moving more aggressively then currently price. think the only counterpoint to that is because we have seen this flattening and because we have seen this for quite a lot of credit, that is to some extent, some of this fed tightening is already in the price, but nonetheless, i think there's been a lot of flows into this sort of search for yield into higher yield. i think some of that is going to be vulnerable when people start seeing negative returns, even if credit risks remain reasonably well contained. lisa: i find it fascinating that

people have very different outlooks for the economic backdrop and what the fed is going to do that they might come to the same to conclusions -- the fed is going to do, but they might come to the sink conclusions. just like morgan stanley essay and, even though the fed will hold off into raising rates in the first quarter of 2023. . david: there is a case for that, but what we have been seeing and discussed before is that u.s. assets have outperformed, and if we look in terms of credit, we can also see that in terms of credit over the last month or so , u.s.-based investment yield has outperformed relative to euro credit. there were a couple of headwinds for europe elting at the moment. covid-19 in a number of countries within europe, as cases are picking up a new have been reporting on that as well. that being said, going into next

year, i think there's going to be less headwinds clearly from duration coming out of europe and coming out of the ecb than there is going to be in terms of uncertainty around the fed. jonathan: david riley of bluebay asset management, thank you, sir , on the high-stakes bleak and contest between this market and the federal reserve. the double whammy of a cost and wage push into prices is likely leaving the fed uncomfortable. tom: we have never seen a middle of november like this. granted, there's a natural disaster in a pandemic. look at germany, switzerland, austria. look at the rocky mountain states in america. but on this incredible he strong monday we have of opinions, consensus just doesn't exist, as you said. even riley is totally different than those looking for a low unemployment rate. jonathan: two questions on the

fed stress tests. were they wrong? absolutely. mohamed el-erian calling this one of the worst inflation causing decades. it is somewhere else, and it is not pretty. have they changed their mind? that is a different question altogether because when you listen to president kashkari, a classic example of a dove on the federal reserve right now, hasn't changed his mind at all. lisa: one of the biggest conundrums. is what will raising rates actually do will that curtail -- conundrums is what will raising rates actually do. will that curtail inflation at all? why didn't we see more after the 2008 credit crisis when they were printing money then? these are some of the main questions that are fundamental that people are complete we on opposite sides of. tom: jon, you've got the right

phrase. is the gentlelady from wesley and and harvard a "classic valve? -- classic dove?" jonathan: she's been very consistent over years and years. it is not for me to say that chairman powell thinks this, chairman powell thinks that. i don't know what is going on inside the head of chairman powell. what i do know is that he changed his mind. the federal reserve chernow is a different man on this employment market compared to where he was several years ago. governor brainard has been that much more consistent on her views on the employment market. tom: the only thing that has been constant is mckee asks a question, and there is silence. jonathan: do you think a chair brainard allows mckee to go first? tom: no question on that. [laughter] jonathan: equity futures up to and on the s&p, up 0.2%. rate lineup over the next hour. come in up shortly, former new york fed president, mr. dudley.

this is bloomberg. leigh-ann: with the first word news, i'm leigh-ann gerrans. in the u.k., police say in explosion in a taxi outside a hospital in liverpool has been treated as -- liverpool is being treated as terrorism. the driver was injured and the passenger died. police say the blast was caused by an explosive device passenger was carrying. four people are now being held in the case. minneapolis fed president neel kashkari says the "central should not overreact to inflation. kashkari told pbs -- says the central bank should not overreact to inflation. kashkari told pbs that overreacting could set the economy back over the long term. signs of optimism about the aviation industry at the dubai air show. airbus ceo guillaume faury said he is starting to see signs of a recovery. airbus landed a big order of 255 narrowbody jets with wizz air

and three other discount carriers. donald trump's family run business is selling the rights to its hotel in washington, d.c. bloomberg has learned the miami-based investment firm is ending its contract to buy the hotel lease. it will be renamed the waldorf-astoria and will be managed by hilton. 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 chair powell has done a very good job of running the

fed and addressing the issues particularly that arose when the pandemic struck, but what is important is that president biden to someone who is experienced and credible, and there are a range of candidates. jonathan: whenever someone says but, listen carefully to the stuff that comes after the but. but a range of candidates. lisa: she's noncommittal. she's walking back to some of the earliest reporting saying that she was supporting jerome powell. it seems like she is not going to take a stake in this one. jonathan: i love tom keene, but then the punchline. on the sb the hundred, we are up 0.2%. yields at 1.5 560%. tom: and i would suggest we begin at this moment, as we will for the coming days and maybe even stretching out to two weeks, as citigroup just publishes they believe mr. powell will be renominated come

our fed coverage with michael mckee. we look forward to advising you with the best guests we can find over the coming days and weeks. we start strong with william dudley, bloomberg opinion columnist, the former president of the new york federal reserve, and for years with goldman sachs as well. you mention in your essay on the fed with some degrees of constraint, i would say, a path forward. is the powell and brainard path all that much different forward into 2022, 2023, and 20 24? william: i don't think so. i think they are pretty much on the same page in terms of the inflation pressure we are seeing now is mostly transitory. the entire fomc has supported the current policy path. there have been no dissents for many meetings. the chair can't just do what the chair once. they have to bring the rest of the committee along with them. i think the difference between powell and brainard is pretty

slight in terms of what monetary policy will actually turn out to be. tom: some of this is a guesstimate of previous inflations. we will talk about this with jeffrey lacher in a bit. dudley leans to the post-world war ii, 1947 super inflation, and then eisenhower deflation, where mr. lacher suggests maybe it is more pernicious like what we saw in the 1960's. which kind of inflation is this? william: i don't think we have the answer to that because we haven't had this kind of recovery from a pandemic before. what we do know is inflation pressures are turning out to be higher for longer. we know it is starting to feed into wages and that is starting to feed into inflation expect patients, so even if the initial impulse turned out to be transitory, we could still have low nesting -- have it long-lasting.

it is pretty remarkable if you step away for a moment and say we expect the fed to be adding monetary policy at a time when inflation is running over 6%. jonathan: a market participant can be super nimble. it seems to be a really high bar for a federal reserve participant to change their mind. as you point out, this is way higher than expected. it is broader, it is stickier, but i don't hear them changing their mind. from your experience, but does it take to change their view? william: they are in a tough place because if they change their mind, they have to accelerate the taper to get the taper done quicker because they made it clear they are not going to taper, they are not going to be buying assets and at the same time raising short-term interest rates, so the taper has to be completed before they left off. two accelerate the taper would be problematic because they have tried to push this out in a very controlled way to avoid a taper tantrum. if you accelerate the taper, you

will get the taper tantrum you have been trying to avoid the last six to 12 months. jonathan: do you conclude that this is no longer a data-dependent federal reserve, given what you just said? william: i think there's a case to be made for accelerating the taper. just look at the economic and make sure -- economic information we have been seeing. the labor market is very tight. but i think it is very difficult for them to actually do that because that is admission of a policy error, and it creates the risk of this taper tantrum. at the end of the day, i think they will probably wait. should they wait? we will see. lisa: you said basically they have put themselves between a rock and a hard place. are you saying that they have already committed a policy error by waiting as long as they have, particularly for ending their bond purchases? william: i think they have made a mistake in the sense of being so slow to start the taper. they visibly said we are not going to start until we have made substantial progress towards these goals of

employment and inflation, and now the taper isn't going to be completed until june of next year on the current trajectory. that is a very slow path of removal of accommodation, given the economic information we are seeing. by locking themselves in this way, i think they have doubled down on being late. lisa: this is an important to stiction when you say this is the fed's doing, when some people are arguing, even if they were to raise rates, it would not have a material effect on the inflationary inputs. that won't solve supply chain disruptions. that won't necessarily heal some of the labor shortages. are you basically saying that at this point, they are lacking the tools to really curtail inflation in a controlled way, and that they are hoping it just remedies itself without them having to act? william: monetary policy obviously can't supply constraints. only time can solve supply constraints. but what monetary policy can do is keep temporary shocks of inflation from the coming more

persistent and long-lasting by preventing it from getting into inflation expect asians and wages. i think the biggest risk for the fed is that the labor market may turn out to be tighter sooner than they anticipated forget if that is the case, they are going to have to make monetary policy much tighter at some point. tom: you have been in the trenches of market economics, working with younger jan hatzius at goldman sachs. have you ever seen such an odd consensus, so many not idiosyncratic, but original modeling forward 12 months of the guesstimates of market economics? william: i think the fed has been very clear about what their framework is and there apply trajectory. i think it is unusual to commit yourself for so long into the future about what you're going to do when, as we are seeing, the economic environment can change very quickly. it is also an environment which is highly uncertain. does not like we have a lot of experience from recovery from pandemics, so i think the fed probably made a mistake by locking themselves into it in a

predictive path of how they were going to behave. jonathan: there was one conversation this year that stood out for me, sitting down with you and mohamed going into the summer. talked about it subsequently, this the fed started to move -- that if the fed started to move, they may have to move more quickly. that was an original thought going into the summer. we had this conversation about the fed being behind the curve, and that i will ask someone, what does the fed do? they will say one hike in q3, one in q4, and they will repeat the move the year after, and it sounds very smooth and orderly. can you inform our audience -- you just agreed with that to some extent. can you inform our audience how? william: the market expects the peak federal funds rate to be around 1.75%. that is the lowest peak ever, going back to the 1950's. this idea that somehow the peak

is going to be extremely low in an environment where inflation is extremely high just seems completely inconsistent to me. lisa: a lot of people will argue one of the reasons why is because of all of the debt that has been issued, because of the high valuations in stocks, that pensions rely on retirees, so they will argue the fed could torpedo it. william: of course, the fed does not want to cause a premature recession, but policy has to tighten financial conditions. tighter financial conditions is the mechanism that slows down the economy and prevents the economy from continuing to overheat. obviously there's risks in doing that. you want to do the enough so that there's not higher and higher inflation, but not enough that you cause a recession. the more you tighten monetary policy, the higher the risk it will cause recession. jonathan: what kind of rate path deal imagine, how shallow, how

steep? incrementally, what kind of moves would you expect? william: i think they will probably start after june or a little bit later, and go to a higher rate than people think. what i think is interesting, it feels complete a forgotten, what happened between 2004 and 2006, where the fed tighten 17 times in a row, each meeting a quarter percentage point. that seems extreme, but remember, inflation wasn't a problem then, and financial conditions weren't as accommodative as today. that is certainly an alternative type of path. i certainly expect peak to be well above the 1.75% price point. jonathan: does that have a 3% handle? william: probably 3% to 4%. the crystal ball is cloudy as you get further out. tom: there we go, that speak. the crystal ball is cloudy go, fed speak. the crystal ball -- fed speak.

the crystal ball is cloudy. [laughter] jonathan: just to get into the mind of a former policymaker, just to speak openly about what they think compared to where this market is. tom: i was going to ask the exact same question of dr. dudley. i think i would have asked it a little less rude. to ask a former official to signal the restrictive -- jonathan: that is not what people are thinking about it all. tom: that is not even consensus. that is not even what is called the fan distribution out there. jonathan: if you find people that disagree on the inflation outlook come of offer you this really orderly outlook on said rates of 50 basis points next year maybe, 50 basis points after that. they will push back consistently against that all year. tom: the complexities here, and i do think part of this is living the failure of all of this mumbo-jumbo out of the

1960's into the 1970's, the volcker courage, as sarah there's an -- courage, etc. there's an earned humility that we don't of a clue what is happening with price change. my view is corporations will adapt because i learned that in 1974, 1975. jonathan: and they have done for much of this year. getting some commentary from secretary granholm, saying the president is all over higher gas prices and higher inflation. looking at the limited tools he has on gasoline, the president was to see an increase in oil supply. the president is evaluating spr. that we have known now for a number of weeks. lisa: it shows how little he can really do to counter the wider spread inflationary pressures. i want to really highlight something bill dudley said that really struck me. he said the later the fed waits in the cycle to tighten policy, the higher the risk that it could lead to recession, and that 3% to 4% yields are a potential base rate for the federal reserve.

it raises some real questions. jonathan: if you just tuned in and missed that conversation with the former new york fed president, we will get that out for u.s. and as we can. your equity market up 11 on the s&p, advancing 0.25%. per our audience worldwide, this is "bloomberg surveillance." ♪

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>> in this negative yielding world, all roads lead to equities. >> the way to beat inflationary pressures is with record high profitability. >> you are just not going to have that earnings to push the ark it's much higher next year -- the markets much higher next year. >> ripping away stimulus and hitting the brakes probably won't be good for anyone in the economy. >> it is telling us this economy might actually be react salary to. -- be re-accelerating. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone.