jonathan: from new york city, for our audience worldwide, "real yield." " starts now. coming up, fed officials to taper. european lockdown heading into a big month of central bank calls. begin with the big issue, zero consensus. >> inflation. >> inflation. >> getting to the inflation conversation. >> we talk a lot using words like transitory. >> transitory.

>> not transitory. >> inc. smaller. >> this word, transitory, has been dissected far too much. >> the problem needs to be about with -- needs to be dealt with. >> we could see a situation where inflation continues to be entrenched. jonathan: joining us now to discuss is, you threaten nero's gene tannuzzo and zachary griffiths of wells fargo. jean, we have to start with you. we have goldman going in july. we have you out in december 2023. how comfortable are you with that outlook right now? >> it is in line with our economic forecast, where we have brought slowing. we have inflation also peaking early next year, then decelerating. the fed is going to let the economy run hot, try and bring

people back into the labor market, and they will hike late 2023. risks are to an earlier hike, but that is going to come down to economic outlook. it is less about the fed reaction and it is much about economic outlook. jonathan: we have to work to the taper as well. will that be accelerated in the last -- accelerated? these comments came just after governor waller said this. >> the rapid improvement in the labor market and the deteriorating inflation data have pushed me toward favoring a faster pace of tapering and more rapid removal of a combination in 2022. jonathan: zach, are we inching toward a quicker taper? zach: certainly some firm words

there, but we do not expect the taper to get accelerated in december. i'm struggling to get a read on this, are you? gene: member that this policy was put in place too weeks ago -- two weeks ago. they are trying to remind us something that they always talk about, which is that policy is not on a preset course. how better to communicate that policy is not on a preset course

that to make sure we are keeping the market abreast the things that could change that dynamic? i think we are going to hear a lot of voices on this topic, but i think in december it is unlikely we get a new reduction from the $15 billion we are starting with the november. jonathan: the reason i'm starting to read this, following all of these comments from vice chair clarida, he said the following. hawkish comments underscored the need for the biden administration to start naming candidates to the board of governors. they can push the fed's reaction function in a devilish direction. that is where this is missing right now. we are going through an inflection point for policy, and i don't understand the leadership yard next year. do you, and is that important? priya: it is extremely important. it is the economic outlook and the fed reaction function. if you do not know the chair, you do not know the vice chairs,

i think that is adding to the uncertainty. markets are trying to price in both uncertainty, as well as the fed reaction function. how nervous are they about inflation? the september dot plot showed there is a clear divide at the fed during those worried about inflation want to hike sooner. i think if you have three or four new people were movement there you can absolutely move the dot, you can move the conversation at the fed, it can affect the space. this tapering phase is already faster than the last taper. i think the fed has responded to the inflation risk. they started it earlier than anyone thought. they started tapering earlier. they are already tapering faster. they have already responded. is there a need for them to respond again? i think the threshold to make

the change in december is very high. should they start talking about it? sure. but taking that step with the changes that the fed, leadership and at the board, i think it is much too early. jonathan: additional guidance coming out of the white house. jen psaki saying we will have more to report on the fed early next week. we wait and wait and that data seems to keep changing. gene talked about this audit disconnect in this bond market. i hear people say we have to look quicker at rates. do you what do you -- what do you think we need to pay attention to? gene: the market seems to be saying, inflation is a problem, the fed needs to get started hiking. the market is pricing hikes before the fed is forecasting them. but the market is also pricing in the fed stopping their pricing cycle well short of where the fed thinks it will go. i think that is a very narrow

scenario. i think what is more likely is as we get confidence in this recovery and transition from a recovery to a traditional expansion -- which i think we have yet to do -- the market will react to that. we will see the market pricing in a higher funds rate. 2.5% or higher. jonathan: i heard from bill dudley earlier this week. this is what he had to say on the prospect of that rate going a whole lot higher. >> the market expects the peak in short-term interest rates for the fund rate to be around 1.75%. 1.7 part percent -- 1.75% would be the highest ever. the crystal ball is cloudy as you get further out. >> there we go, fed speak. jonathan: three to four. can you way and on that? when i heard that this week i have to amend i stepped back a little bit, almost fell off the

chair. do you think we can achieve those levels on the fed funds rate? zach: three to four seems a little high to us, what we do think something in the two to three area is realistic. if you think that inflation is going to be higher in this economic expansion than it has been in the past you were going to need a higher nominal policy rate to really achieve the same kind of real terminal rate. that is something we have been considering and we agree the market is pricing too low of a terminal rate, and perhaps if the fed were to suggest it could accelerate the pace of taper, maybe the market starts to reevaluate that, and that could get a boost. we think that 3% to 4% is too high. 1.75 is too low. jonathan: priya, you got a late start. to ask you where this could be going, i think that is real

crystal ball type stuff. how do you think about that at the moment? the limits of how fast they could push interest rates? priya: we are also in sac's camp. 2%, 2.5%. i think what the market is doing is pricing in what we have been debating, buying model distribution. they started early, and because of that they have to slow things down much earlier and therefore cannot have a full hiking cycle, versus the scenario where they start a bit late, let the economy run hot, and they might have to go above neutral. i think the market is pricing in these aspects, which is why we are pricing in this early start but shallow hiking cycle. it ultimately is going to come down to real rate. real equilibrium rates and inflation. i think some of the structural

forces are still very much a play, whether it is globalization of technology. to see long-running inflation expectations above 2% is tricky. has productivity picked up to the point where the economy can handle percent to 4% rates? i struggle with that. the other thing i want to highlight, there is going to be quantitative frightening -- quantitative tightening. they are going to let the portfolio run off. long end of rates will rise. there are other ways the fed is going to be tightening as well. it will not need to take the funds rate that high. jonathan: gene have you been surprised of how flattening we have seen of the yield curve? deeply negative in you -- in real terms, and yet we have not had that steepness come through the curve. i wonder how you react to that? gene: there are some near-term

factors that may be driving that in terms of demand for safe haven assets and what we are seeing in the world. there is still this u.s. growth dynamism story, but also the fact that the longest high-end yields in developed markets for the most part. there is a very interesting paper that came out of the kansas city fed justifying this idea that at some stage in the tightening cycle the fed ought to be actively letting its balance sheet run off or selling long-run securities rather than just raising the fed funds rate. i do think that in time it ends up in a steeple yield curve yet higher temporary yields. jonathan: is that the final word on that? zach: we did expect further down the road than i think others are considering at this point. it is going to come down to the fact that it didn't go that well

last time. you had the september 2019 blowup. that is fresh in people's minds, even though there has been a lot to deal with since then. we think the balance sheet runoff is a further off aspect than something in the next couple of years. jonathan: coming up on the program, the auction block. demand for junk with borrowers of all stripes rushing to market. from new york, this is bloomberg. ♪

jonathan: i'm jonathan ferro, this is bloomberg "real yield." with a resurgence in virus cases sapping the mood and primary

markets, setting the stage for the first 20-sales friday since august. the u.s. also stalling out on this friday, but not before 39 issuers came to market. and still no signs of slowing demand for new junk bonds. a bit of news out and the last couple of minutes, a high-profile case in the united states. the result of that case. kyle rittenhouse acquitted of all charges in the kenosha shootings. kyle rittenhouse acquitted of all charges in the kenosha shootings. that headline out just moments ago. we will continue the coverage on bloomberg tv and bloomberg radio for the day. going to europe, where the lockdowns are back. derek halpenny saying the ecb has an excuse to be behind the curve. >> if there is any central bank that has credence her credibility in terms of its guidance of being toward the back of the queue in terms of

rate hikes, it is the ecb. it has a solid, fundamental reason for being much more delayed and tightening. i think that has further to go. top of that what is happening with covid, and i think you could get another readjustment. jonathan: let's bring back in the team. priya, i want your view on this. priya: i think the whole covid case surge is a reminder the pandemic is not exactly over. for the ecb, they have suggested the emergency program is going to end. program is still ongoing. we think in december they are going to increase that app program. the ecb has a new framework in place. i think they want to separate out the end from the first rate hike. they do not have as much of that inflation fear. we think they are going to suggest being well behind the

curve in terms of inflation, in terms of when they are going to hike. we do think they are going to end it. they have telegraphed that, extend app. jonathan: the clue is the emergency, the emergency purchase program. gene, it may end, but ultimately they can carry that flexibility over. doesn't have that excuse to do it? gene: i think they do have that excuse. that is the key factor here. frankly the ecb is probably going to be the last in this sequence of central banks to really move toward title policy. i think moves on the bank of england side are ones to watch, frankly. if we see them actually raising rates. jonathan: your view on this, zach? zach: certainly an interesting dynamic in europe and the covid case counts.

the move today has been a reminder that we are not through the pandemic. that could remain an issue. i think that definitely argues for the ecb to remain patient. that has been our view all along. we tend to joke on whether they will be able to raise rates, and we think they will eventually. there are a lot of steps in between here and that point. i think it does start with the elimination of the pet program. these rate hikes are not going to happen for a while. i would say the latest developments push that out even further. jonathan: still ahead, the final spread, the week ahead featuring u.s. gdp. that conversation coming up shortly. you have been looking at live pictures from a courthouse following kyle rittenhouse, the result from that court case, acquitted of all charges. from new york, this is bloomberg. ♪

jonathan: live from new york city, i'm jonathan ferro. it is time now for the final spread. coming up, we remain on the lookout for president biden's fed chair announcement. u.s. gdp and the fmc minutes headlining wednesday. finally, u.s. markets closing on thursday for the thanksgiving holiday. looking ahead to a really key month of december. a federal reserve decision, an ecb decision, and an -- and a bank of england decision. it is all going to come in the middle of december. how key are those two days for you? priya: important. but i don't think we are going to have that many answers. from the ecb, yes, they will talk about hikes being later. the fed, we don't think they are

going to taper. i don't know if we will get very important meetings. where i think it is important is liquidity conditions have started to worsen. i think the markets could react a lot. i'm not sure we get that much more fundamental data from payrolls or from all of the central bank meetings. jonathan: zach, what about you? is that a key part of the year for you? is it too early to get any clarity, any vision on what 2022 looks like? zach: i think it is a huge part of the year, certainly for the outlook, but also in the near term. another thing flying under the radar is the debt ceiling episode comes back. secretary yellen said december 15 is the new axe date. that is the same day as the fed meeting. is it possible for the fed to accelerate the taper if the debt ceiling is looking rocky, as it was back in october?

we think that is probably going to be the situation again. have already seen liquidity deteriorate a bit. it probably gets worse into your end as people take holiday in the markets are not as active. i think that creates a difficult backdrop for accelerating the taper. outside of that we will be watching the payrolls number, the cpi prints. as far as those two numbers really changing the fed's thinking for the december 15 meeting, i think it is more going to be part of the bigger picture as they look into what type of policy moves they need to make. jonathan: gene, the physical effort, the debt ceiling debate. we are going to have it all over again. we move over that internet year, i hear people in fixed income talk about fiscal drag, talk about supply actually meeting what is happening with the taper. for a lot of people outside of that world, that is a foreign

concept. they see so much happening down in washington, the idea of a fiscal drag and between tapering does not stack up. is that what you expect next year? gene: we do expect that, that it is almost inevitable. we saw unprecedented fiscal policy response to an unprecedented pandemic. we saw almost 25% of gdp spent in a short period of time. by definition that will not be sustained and that will become a drag. i think that is ok. again, this economy is still trying to find its trend. we are still growing well above trend. we are in this recovery rather than expansion. case in point is the labor market data. the last six months we have added almost 700,000 jobs per month. the trend in a full employment economy is probably 200,000. i think a lot of this data, frankly, cannot be relied upon. we are still in a volatile

period. jonathan: let's get to the rapidfire round, guys. chairman powell or governor brainard, the fed chair? priya: governor brainard. gene: brainard. jonathan: zach? zach: powell. jonathan: interesting. i'm surprised two went with reynard. -- brainard. next year, zero hikes next year? 0, 1, 2, or more? gene: i think two is most likely next year. zach: two. jonathan: drumroll, priya misra. priya: zero. jonathan: they are looking for december 2020 three. december 15, the federal reserve, a day later on december 16 we will hear from the ecb and bank of england too. if you could pick one that you want to know the results to

ahead of time, which one would it be? priya: the boe. zach: boe. gene: it's gotta be the fed. these other ones are sideshows. jonathan: i'm surprised those two went with the bank of england. guys, good to catch up. from new york city, that is it for me. this was bloomberg "real yield." for our audience worldwide, this is bloomberg. ♪

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mark: i'm mark crumpton with bloomberg's first word news. after three and a half days of the liberalization -- of

deliberations a jury found kyle rittenhouse not lt on all counts. the teenager killed two men and wounded a third last year at a chaotic black lives matter protest. defense lawyers argued rittenhouse acted in self-defense. the 18-year-old was charged with counts ranging from reckless endangerment to intentional homicide and was facing life in prison without parole. president biden's plan to expand the social safety net, address climate change, and rewrite tax policies passed the house of representatives today. the bow comes after months of intraparty squabbling. nancy pelosi urged democrats to pass the legislation. >> today we have the honor of participating in passing legislation for the people to build back better. as i always say, with women, for the children. this occasion were not