>> even though you might not think you are at maximum employment. >> the fact they think neutral is low is they do not have as high to go. >> this is "bloomberg surveillance," with tom keene, jonathan ferro and lisa abramowicz. jonathan: it is said decision day from new york city. good morning. this is "bloomberg surveillance" live on tv and radio. alongside tom keene and lisa abramowicz, i am jonathan ferro. a two-day losing streak. tom: many people say this is the most significant meeting we have seen in years. i like what you said, jon, i think there is an emphasis shift out there. jonathan: he is looking for the news conference. it is really important.

has the baseline shifted that much more chairman powell? tom: what does this mean before jon goes off and sees west ham -arsenal in the middle of the press conference. this is about dollar dynamics. the u.s. wins, the dollar wins. jonathan: i asked him whether he will be watching the game. tom: it was a bloomberg app appeared you can do that anywhere. jonathan: that is the promotion taken care of. that news conference will be important. lisa: i wanted to know what the answer was. [laughter] lisa: that might actually inform my opinion. it is a really important press conference. it is the first formal discussion jay powell will give us after his sharp pivot. many people do not fully understand. what is the main driver?

political? was there something that tipped him over with the data? jonathan: i think the committee was already there. it was in the minutes. what we saw was a chairman the did not reflect the consensus of the committee. we saw a divide between the news conference the chairman delivered and the minutes that were delivered weeks after that. it looked like the committee already made that move. lisa: jay powell has kept a tight ship. is he changing to the tone of the other, more hawkish members? the messaging and the emphasis are important. jonathan: looking forward to that decision later. special coverage on tv and radio starting at 1:30 eastern time. two days of losses into wednesday. two points on the s&p 500, up by

0.04%. the federal reserve has to get to work. tom: this is the absolute headline. the markets are speaking with confidence. we will hear it from mr. constant at the top of the next hour. it is simple. corporations will adjust, markets will adapt. lisa: i guess it is not a 1% 10 year. it is a great question. people do not understand the bond market's reaction to inflation data. believing in a transitory idea that has been cast aside at the federal reserve. 8:30 a.m., we are looking at november retail data. the important thing about retail sales -- this

includes inflation. it is not inflation-adjusted. a time when consumer price inflation is running at 6.8% year-over-year, it starts to get messy. how much is due to higher prices? how much is it due to people spending more? all eyes on discussion about accelerating the taper and potentially the balance sheet. the balance sheet has risen $8.7 trillion. we will hear from fed chair jay powell at 2:30. to parse through all of these messages out of the federal reserve, we have an amazing roster of guests. bill dudley, charles plosser, and incredible lineup.

a different tone. jonathan: big time. you pointed out that article, the former minneapolis fed president looking at the parallel between now and 1965 and the risk that we repeat the 1970's again. could you imagine five years ago him writing a piece like that. tom: he has been opinionated, very different from the approach of william dudley. he has had an outlier approach, even when he was at the fed. jonathan: a much more aggressive parts of interest rate increases that i expect they will. risking a repeat of the great inflation of the 1970's. it is so hard to reconcile that work. tom: is that in irresponsible comment? jonathan: i think it is in line with the consensus. lisa: he is in line with bill

dudley, who is also sounding the alarm. the former minneapolis fed president was incredibly dovish, throwing out the family fisher model of employment and inflation, saying something has changed, talking about the 1970's. the rhetoric has been dramatic. jonathan: let's see if the current official at the minneapolis fed will change as much. tom: it will be interesting. i want you to stay tuned on radio and television throughout the entire day. this is not a bunch of lipservice. we did the inflation watch the other day. we made it sound like a baseball game. this is different. jonathan: a football game. lisa: it is much different than the baseball game. jonathan: where is the bowtie? tom: we say thank you to greg in atlanta. this is an official atlanta

braves bowtie. this is a cut above most mlb garbage. it is a very nice time. jonathan: very cool, tom. very, very cool. tom: you don't understand it, i am medicated because i am told the d.h. will be in both leagues . jonathan: i am medicated, too, to get through this morning. what are you looking for? jack: pretty much consensus. maybe signal a rate hike shortly thereafter. i take comfort in the bond market consensus. i think that is my view that on its own, inflation will likely

abate the rollover. we are starting to see evidence of that. if you looked at inflation one year forward, we are pretty close to 2.5% by year end 2022. lisa: jack, if the fed starts talking about allowing its balance sheet to shrink and the runoff of bond holdings, does your view change based on the supply demand dynamic? jack: i think the $8.7 trillion increases a smidge through this later tightening. i do not think the fed has made a decision on that yet -- on the runoff. i think that would be after the rate hike program. it is interesting to see. you talked about the dynamic between jay powell and the rest of the committee.

he started to get incrementally hawkish right after his reappointment. my sense is, politically, he did not want to offend anyone, he needed their approval given it was not certain he would be reappointed. my sense is he probably has been hawkish for longer than he has led on and he went to make sure he was reappointed in that position. lisa: is it comfortable to go along with the -- risk assets will continue? jack: the valuations by themselves, if you look currently, they look high, 99th percentile in historical range, but adjusted for interest rates, they are not as bad as they seem. we cannot rely on valuation expense -- valuation expansion.

next year, we expect s&p earnings up 5%, 6%. i am not worried about that. the wildcard is interest rates, and maybe this is my bias, i was a mortgage-backed security trainers, the bond market is a lot smarter than the equity market. it is double in size and dom did by institutional players. -- dominated by institutional players. when you get robinhood trading, point-and-click, it is money. jonathan: you just offended half the audience. you have to go. lisa: [laughter] jonathan: enjoy the holidays. everyone we know on fixed income says the same thing. lisa: they said it behind closed doors. at the same time, it has not

been true over the past couple of years. the stock market has been more of a predictor in terms of the tone. what is the bond market telling us? jonathan: the earnings for the equity market have delivered in a massive way. to say this is all about the fed, look at the earnings, it is not all about the fed. tom: i cannot say enough about the one-year year call, to your call, three your call. jonathan: welcome back. thank you for coming. lisa: [laughter] tom: i have more time off? jonathan: i have more time off. and then you are off afterward. i might not come back. from new york, this is bloomberg. ♪ ritika: i am ritika gupta.

its highest level in more than a decade. consumer prices rose 5.1% in the last year. driven by gasoline and new cars. it might persuade the bank of england to raise rates. boris johnson had to rely on opposition votes to pass a key measure to stop the spread of the omicron variant. almost 100 members -- mandate. the u.s. house as voted to raise the nation's debt ceiling by $2 trillion. it averts a potential default. the senate passed a measure earlier and goes to president biden for his signature. the biden administration is considering whether to put sanctions on china's largest

ship maker. the u.s. will reportedly place eight more chinese companies on the military-industrial complex blacklist. one of them is a drone maker. another chinese developer is scrambling to avoid a payment failure. asking holders to extend the due date by six months. trying to provide to a record number of people. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i am ritika gupta. this is bloomberg. ♪

>> why we explained build back better the way we do is to convey to the american public

where we will lower costs. childcare is a cost burden and it will have an amazing impact year. jonathan: from new york city this morning, good morning. tom keene, lisa abramowicz, jonathan ferro. a two-day losing streak. will it become three? into the bond market, 143.77 on 10's. on crude, down about $1 on the session, down 1.4% to 69.75. a little bit of a spat with senator warren and elon musk. senator warren saying let's change the tax code so the person of the year will pay taxes and stop reloading. elon musk on twitter had other

things to say. this is where the substance might be. if you open your eyes for two seconds, you might realize i will pay more taxes than any american in history. do not spend it all at once. oh, wait, you already did. tom: for him to get out there and say, this is the check i wrote, if that is the case, fine. the senator from massachusetts has a lot of societal support. the percentage of americans and agree with there is tangible. jonathan: the schoolyard spat, not exactly helpful, either. lisa: it reminded me of the time my 12-year-old son talks about his friends. there is a larger issue they are discussing this on twitter. senator warren was provoking him because you know it is elon musk's personality.

the time of the democrats are supposed to be pushing back through the build back better plan around christmas. jonathan: the debate about taxing ordinary income and individuals with concentrated wealth, the top 700 people in the country, they are different stories. tom: it is not one or two stories, it is six or seven. the confusion around tax policy has always been there. emily wilkins joins us. there is a fed meeting today. it is single, it is focus. we will have coverage and we will move onto to many fiscal meetings turned which one will you be focused on? emily: i think the big focus is on senator joe manchin. he has been the vocal one in terms about the about of inflation, raising concerns about the financial future. tying that back to president

biden's social policy. a lot of questions will be, does he feel comfortable moving forward? does senator kristin summa feel comfortable moving forward? tom: if they have the power, what are they given so they support the senator from new york? . emily: it is a reassurance that voting for this bill, they will not be blamed. west virginia, arizona, these are not deep blue states. particularly west virginia, they voted for republicans recently and both senators understand that score and they want to make sure. they talked about recent days about paying attention to their constituents. they are hearing about dealing with higher prices and feeling the pain of the inflation. lisa: to determine what exactly

is in the build back better plan , or what will be there, it is worth thing attention to the rhetoric. the reason i found the senator warren between interesting is there is a difference between the social warrior stance and trying to create a more equal distribution of wealth versus trying to add programs to support the broader, middle and lower classes. how much does the message that senator warren is putting out there represent a significant proportion of the democrats right now? emily: if you look at the overall democratic party, it represents a significant portion. you could see that in president biden's initial plan. it had to be pared back because of concerns from kyrsten sinema. you are seeing it played out right now with the state and local tax deduction debate. the reason that the senators are looking at potentially capping the income of who receives the benefit is because democrats do

not want to be accused of giving a tax break to the wealthy. they are already being accused of that. it shows this is not just a message that resounds with the democratic base, there is also a sense in the republican base that the wealthy are not paying their fair share. lisa: is there a sense that there will be a higher capital gains tax in addition to a much smaller issue -- or resolution with the deduction cap that was implemented under president trump? emily: that is something still being discussed. something we don't talk about much is the senate parliamentarian. they have to go through this entire bill and say, yes, all the revisions meet the requirements of the reconciliation process. it is for things that have direct links to spending and revenue. if you do not have that, which is what some of the immigration

provisions rent into, you don't get to be in the final bill. jonathan: emily, thank you. i know there is a line from the president that annoyed a lot of people, he leaned into the microphone and whispered, "pay your fair share." they believe they pay their fair share. 50%-plus in some places. it is important not to conflate ordinary income with income from elsewhere and income of the superrich, the billionaires and what they pay versus someone paying on ordinary income. the likes of j.p. morgan and goldman, 40%, 50%. you ask those people what happened to their cash bonus. tom: i am aware of what happens. jonathan: it will be cut in half. tom: it will be cut in more than half. this is not an original idea.

politicians will focus on one tax at a time. our viewers and listeners do not have that luxury. they have to look at a summed tax. when you sum up the income taxes in low tax states, high tax states, add the sales tax, it adds up to a large percentage. someone wrote a brilliant essay on where $1 went through the estate, over 50, 60, 70 years. jonathan: "pay your fair share" is a line that works on the campaign trail. what is your fair share? lisa: is that the motivation behind this bill? or is it infrastructure for new parents, etc.? or is it to equalize the playing field in a theoretical talking point way? that is the key distinguishing

feature on how this will play in the 2022 midterm. tom: you are very sensitive to that. jonathan: one more day. i have to get through it. this is bloomberg. ♪

jonathan: live from new york city, basically unchanged on the s&p right now, 0.06% on the nasdaq. come into wednesday, a two-day losing streak on the equity market. on the 10 year, let's call it unchanged. about 1.4428. an acceleration of the taper. three for 23. a conversation about the forecast. then its onto the news conference. this is going to be about the

emphasis. does he emphasize how data dependent a potential rate hike will be? tom: we are going to do this in about two minutes. alan ruskin will join us on radio and television. the harder matter is the terminal rate, we will do that in a minute and a half. jonathan: it is fascinating. how much work does the fed need to do? tom: work is the right word. jonathan: with nominal growth as high as it is. cable, sterling, where are we? a five handle over in the u.k.. after the fed, it is onto the ecb and the boe. tom: what is ecb going to do? how do they follow? their hands are tied. jonathan: completely different conversation. it is about how much flexibility is carried over from the

emergency pandemic purchase program and what this monetary policy look like through next year? the federal reserve is having a different conversation. the bank of england, some are in between. this bank of england, i cannot depend on it. i have no idea what they will do tomorrow. tom: will you turn to west ham halfway through the press conference? jonathan: i will watch arsenal-west him. tom: we look forward to that. -- jonathan: i will watch arsenal-west ham. tom: right now, alan ruskin, chief international strategist at deutsche bank. congratulations on your note on the terminal rate. what is the terminal rate and why should jay powell focus on it? alan: the terminal rate is seen

as the peak rate in any particular cycle. it is critical at this point because the market is expecting a very low terminal rate, 1.5%. if you think the fed's peak will be 1.25%, if the 10 year yield is not backup particularly sharply, conditions will not tighten very much and the equity market will prove resilient, as well. asset markets are tied together with were the terminal rate is. tom: it has been one of my great themes. alan ruskin, do we underestimate the overlay of technology on engaging where the terminal rate is or should be? do we know the technological path of the next decade to try to get to in the

terminal rate? alan: i don't think so. i distinguished terminal rates and the long term. you could have a low r-star that relates to the technological change, the natural rate of growth perhaps being lower for longer. i think in terms of this cycle, you are fighting an inflation problem and have a very high peak or terminal funds rate, even with a long-term equilibrium r-star. i would not tie those two together. jonathan: let's build on that, let's start on that. you have done tremendous research. you talked about how unusual it is to have phenomenal growth as high as it is right now and have yields and rates where they are. how unusual is that? alan: there is no historical precedents for nominal gdp running at 11% in q4.

a five-year tracking where it is currently, the rate structure sub 2% in the treasury market. there is nothing even close to this, jon. it also begs some important questions. people will say, wait a minute, the yield curve, that has been so reliable, will invert. in 18 months to two years, you will have a recession. the yield curve is not giving a pure signal. jonathan: does it tell you something about how much work the fed will need to do? alan, this goes back to the conversation you were having with tom. there is a believe we will stop at 1.75%. i have the sense you are pushing back against that. what kind of number do you have

in mind? alan: i pushback strongly. in terms of a real funds rate, historically a peak would be near 3%. we are always fighting the last war, thinking in terms of the last cycle, the real funds rate went up to zero. even then, if you just took a zero real funds rate, you would have a nominal funds rate of 2.5 percent, that would be almost a minimum. the last cycle, you did not have an inflation problem. just above 2%. the fed was not finding inflation. this cycle, you are fighting inflation. even more reason what you should have a much higher terminal rate. lisa: given the fact that the yield curve is because for a lot of people's concern should it continue to flatten, do you

think the market is underestimating a discussion about balance sheet roll off in the near term and how that would affect the long and of the yield curve more quickly? alan: the market is underestimating the general story as it relates to taper. they are not seeing taper as any sort of tightening. i think it is some tightening. if you look at the flow of funds, and you look at the role the fed has played in financing the deficit, it is critical. as that taper gets accelerated, the fed's role diminishes, you will see the premier start to pick up. i think the risk neutral rate is the thing that will have to go up substantially. the risk neutral rate is essentially the expected funds rate. lisa: given that you think the signal coming from the bond market is messy at best and not

accurate in terms of portrayal of the overall academy, jack ablin came on and said the bond market is smart money, do you think that is no longer correct? alan: i think it is problematic. people underestimate this, you do not see fed officials talk about this affectionately, the drop in helicopter money. 25% dropped into the system. they are essentially creating bubble-like conditions in all asset classes. this liquidity is going everywhere. bitcoin, equities. some people talk about excess savings. i prefer to talk about it as excess liquidity. the fed is responsible for some of this. it is not just household savings. this is prudent policy in march 2020, but it is not prudent

policy in november or december of 2021. tom: at one point, he wanted to look south and west across the new turkish reach, that has been shattered over the last 5, 6, 8 years, and shattered today with the turkish -- lira up. is that the great unknown for 2022? all of this jerome powell chat and what it means for emerging markets who do not have the degrees of freedom that america has? alan: i think the emerging-market story is complicated. if we get through the early stage of said tightening, and if the fed does what the market expects, the emerging-market complex can trade better in the second half of 2022.

in the end, it will come around to the story of the terminal rate. if the terminal rate is substantially higher than what the market is priced in, there will still be a hard time. jonathan: just wonderful, as always. good to hear from you. alan ruskin with deutsche bank. just absolutely brilliant about how much work the fed needs to do given the economic backdrop. tom: peter orszag, i give great credit. multiple tests that any monetary policy leader has. they glide out to this so-called terminal rate. my distinction is it is about economic growth at the end of the day, and the machine has worked in america. maybe it is a fiscal stimulus, maybe it is not. what is so unique about this fed meeting is how alone america is in relative prosperity. jonathan: one question for a lot

of people with this fed meeting is where the hawkish price comes from. we have talked about the taper accelerating. where does the hawkish surprise come from? lisa: bill dudley pointing to the longer-term expectations in terms of whether they will shift. what alan ruskin just said about the bond market not being the smart money because of how distorted it has become because of monetary policy is massive. the implications are massive. jonathan: another fixed income geithner it is the smart money. lisa: [laughter] jonathan: futures are down four, let's call it five. on this fed decision day, right here on bloomberg. ♪ ritika: i am ritika gupta. the u.s. death toll from the coronavirus pandemic has

surpassed 800,000, according to data compiled by johns hopkins university. 200,000 of those deaths occurred after vaccines became widely available. one of the most widely used vaccines in the world is not provide enough anti-bodies to neutralize the omicron variant, according to research in hong kong. it could have sweeping consequences for millions of people relying on the shot to protect them against covid. mark meadows refused to testify in the capital bank insurrection investigation. he submitted records but then turned to executive privilege. looking to increase pressure on china for its treatment of the population. companies must prove they were

not made with forced labor. a sign that retailers are still struggling to fully recover from the pandemic, earnings -- revenue reported less than expected. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i am ritika gupta. this is bloomberg. ♪

>> this is really about reaching the unvaccinated. many policymakers have given up. so they boost the people already

vaccinated, but that has much less value than getting a first or second dose. i think we cannot give up on the unvaccinated. jonathan: at the johns hopkins health center. from new york city, good morning. lisa abramowicz, tom keene and jonathan ferro on this fed decision day. a two-day losing streak. it could become three. we are down four points on the s&p. 1.4428 on 10's. tom: if you are fancy, you stay in the over roy and said he went to india, it is a fancy six-star hotel. bhakti hansoti does something different. i will not pronounce names because i will kill it, but we

are thrilled to have you here. what does the real india look like in this pandemic? dr. hansoti: the real india looks like rural america. fear, unvaccinated individuals, patients coming to the hospital scared. there is a fear -- they are getting prepared to be able to fight the new variant. tom: you get a cup of coffee with the leadership at pfizer, moderna, you sit down and say, here is the reality of helping the rich, poor, unvaccinated. how do you get the unvaccinated vaccinated? dr. hansoti: improving supply chain, providing vaccines,

ensuring the vaccines reach the last village is really key, that includes partnerships with governments. in other higher resource settings, issues around vaccine sentiment and how do we combat anti-vaccine sentiment? lisa: you said india is getting prepared for the omicron variant to spread, akin to what we saw in the second wave, which was terrifying. what does that look like with the omicron variant based on initial evidence that we have? dr. hansoti: what we are seeing from south africa is while the infection is common, less patients are requiring oxygen. in india, a lot of patients died from oxygen access. oxygen access in india has been

strengthened. improving border control, improving rapid testing, all of these innovations will help the spread of the virus going into rural, underserved areas. lisa: how much less the aerial it the omicron -- how much less the omicron variant is. when does this move from a virus we need to counter with vaccinating repeatedly versus the common cold. you get over it, you live, you move on. dr. hansoti: what does it mean for a virus? a virus with predictable variations like the common cold. its impact on the health system is manageable and acceptable. the number of people infecting

another person, we are not there with covid. we know the surges have catastrophic consequences on the health system. in the u.s., we are seeing several hospitals claimed they have no more icu beds. what my concern is, there will be a complacency. there are still deaths that need to be avoided. lisa: based on the trajectory of the pandemic, when will be get to that point? dr. hansoti: we are expanding vaccines. we are expecting the youngest in our society to have access to vaccines very soon. as the virus continues to evolve, transmissibility will increase.

next christmas, we will not be having this conversation. i will not be on this show, i hope. tom: oh, no. we do scientific research and the needle moves when you are on. we expect you to be talking about the two-year yields. [laughter] tom: thank you so much. jonathan: the data overnight was disappointing. there is a concern about supply chain. the chinese vaccine does not provide sufficient antibodies to fight the omicron variant. the tolerance level of the chinese communist party and local authorities is very different to what we see in the west. tom: this is a dismal decade for

the chinese. you look at the overlay of stories to the science of this, there has not been nearly enough talk about adults like dr. bhakti hansoti or amateurs like us about all these different shots, pills, and things to come. some work, some do not. jonathan: in terms of expectations, the conversation has shifted around china. we could have a stimulus push. lisa: not willing to tolerate some of the weakness being seen. there is our company, a property developer that ran into problems that is getting more concerned not because it is bigger, but because it is highly rated. there is a sign of contagion that continues to be ongoing. jonathan: we know covid zero is essentially unachievable. yet they seem to be the last man standing when it comes to that

effort. lisa: a lot of this has to say , how much does this have to do with the beijing olympics? after that, they might relax. what is the damage in the meantime and the tools they are willing to use to capture that? jonathan: what does that mean for your assessment of supply chain improvement? can we go back a few decades and hit reset? lisa: never. jonathan: before it is too late. 1.4425 on 10's. tom: can i tell you about retail sales? she goes to me, i need a sweatshirt that says "selena" on it. i cannot get in. the door opens.

a police officer opens the door and there is tabatha. i said, how much is the hoodie? she told me a number and a police officer fainted. lisa: [laughter] tom: the police officer hit the ground.

>> though concern is our central banks going to withdraw too quickly. the fed getting really aggressive. >> there may be left off evenly might not think you're at maximum employment. >> the fact that they believe neutral isn't -- means they are farther to go. >> this is "bloomberg surveillance" with tom keene, it jonathan ferro and lisa abramowicz. >> i am being bullied in the commercial break. just so everyone knows. for audience worldwide, good morning. this is "bloomberg surveillance" live on tv and radio. the fed decision hours away. tom: the bond market here has -- you mentioned nicely,