♪ >> we are clearly seeing a fed that is going to move faster in terms of rate hikes. >> the global selloff and rates seems to be spreading. >> will the fed permit real yields to get back to positive territory? >> overall policy remains accommodating. >> the fed has to tighten financial conditions of it tends to affect policy. 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. jonathan: the jobs report is 30 minutes away. from new york city, for our audience worldwide, good morning.

this is "bloomberg surveillance ," live on tv and radio. alongside tom keene and lisa abramowicz, i'm jonathan ferro. your equity market is positive four, up 0.1%. dk, 400 -- tk, you know the number, 402,000. -- 450,000. tom: i love that we have jared coming up in moments as we are going to fold this labor economy report into what it means for the fed and inflation and all that, but what does it mean for corporations, what does it mean for the markets. jonathan: let's start with what it means for the federal reserve. for a lot of people, the story has changed. this is no longer a case of show me why i should hike. it is show me why i should not. lisa: right. that is why a lot of people are looking beneath the headline number, taking a look at the participation rate as it slowly improves and the un-employment rate which is expected to fall to the lowest since march 2020. how can the fed say this is a labor market with a lot of slack

when we are looking at those types of an employment rates? jonathan:jonathan: the numbers have been good. the range has been incredibly wide. it is again today. 450,000 in your median estimate. here's the price action going into the number. equity futures up 0.1% on the s&p, up 17 on the nasdaq 100, up around 0.1%. euro-dollar 1.13, goes nowhere. crude up 0.6% on the day. let's get straight to it with juried wooded, head of -- with jared woodard, the head of research investment at bank of america securities. is it now a case of show me why i should not hike? jared: i think you have seen a definite shift in attitudes with

the fed and attitudes from the market in what they expect from the fed over the last six months. there was a lot of debate late last year, but now i think there's a strong consensus among investors we speak to that the fed is going to like three, maybe four times this year. for a change anymore deb's direction, that would require some surprising new data. got one of those data points this week. we were looking at the ism prices paid index, which has absently crashed over the last several months. it peaked the middle last year, and that is a forward-looking manufacturing base index. there's a lot of data points swirling around still. a lot of debate around how high inflation be, how long will it take to moderate. with the guards to fed policy and fed changes, we would need dovish surprising data to get the market looking for a less hawkish fed. tom: the great missed call last year was within the gloom, the

worry, the fear. corporations adjusted. do they adjust and adapt the cards they are handed this first quarter of 2022? jared: i think they will adapt again, and i think this is may be most important question for investors in 2022. if you are thinking about where to allocate capital, maybe you raised some cash over the past several weeks or months, where to allocate that money today, i think the number one question is to look at what corporate managers and firms decide to do with their capital. remember, u.s. companies have $7 trillion in cash and liquid assets. that is a record high, up dramatically since covid. the fastest rate of growth in corporate cash in many decades, actually. here is the question. what do they do with that? there's three things potentially companies could do this year. number one, more. number two, return capital --

more capex. number two, return capital to shareholders. companies see prospects for longer-term growth, moderating inflation, persistent unmet demand, we think they will invest to meet that unmet demand. that is higher capex, higher m&a. if things are more choppy, more volatile, you may see companies return capital to shareholders. that is your buyback and your dividend trade. very attractive long-term outperformance. finally, if it is a really hawkish fed, they may decide to simply sit on their cash the way they did for a lot of 2021. in that case, it is some of the credit sectors with low interest-rate risks, low rate sensitivity, leveraged loans, follow name jewel corporate loans, maybe even convertibles or other parts of the fixed income market could be a more attractive place than equities. lisa: how long will it take before you get a sense of what companies are doing with that cash?

is it just listening to the first quarter earnings? jared: i think it is crucial to listen to what companies are telling us they are doing. i think it is also crucial to listening to what they actually do. do they commit to higher dividend payments? what do companies actually decide to do? i think we will get a lot of clarity on that just in the first quarter. i think it will be a great set up for the rest of the year. jonathan: if i follow the buybacks, does it take me to one particular part of the equity market and leave me concentrated in one part of the s&p 500? where would it take me? jared: it would. a lot of the large firms, financials, tech buddies that have a lot of cash, here's the answer for me. i don't think it is an answer of committing to just one theme because some firms will raise their buybacks. some firms will pay a higher dividend and make that bigger commitment. but a lot of firms won't. a lot of the higher yield

companies maybe don't have that kind of flux ability, but they may see their status upgraded. those kind of fallen angels come our strategists expect a record year of $92 billion of upgrades, so i think the answer for investors is eight efforts to find mix of all three themes. your capex and m&a for the long-term growth potential, the buyback and dividend payouts, especially from larger firms that might not want to commit that cash, given the fed hikes, and then your credit trades for firms that have the validity to get upgraded or leverage loans for that low interest-rate risk. tom: how do you synthesize the bank of america viewtom:, all of the contact you've got from coast-to-coast, and say francisco blanch's shock of wonder dollars a barrel oil, how do you filter that into a confidence to invest in america, whether it is buy-and-hold or a more responsible long-term view?

what is the framework that gets you to say i want to own equities? jared: i look at things from a long-term perspective when it comes to allocating to regions, allocating capital. when we look at all of the big macro drivers of success, both in terms of markets and growth, the u.s. still looks fantastic. whether it is demographic, whether it is the balance sheet of the private checker, the u.s. has a demographic growth rate that looks better than almost all other developed countries, even better than a lot of emerging countries like china. when you look at investment in technology, you look at advanced level of intellectual capital production, the quality of our firms, right now corporate america is sitting on all of this cash, and the net leverage is low. their balance sheets are pretty pristine. households have the same story. household balance are fantastic. the u.s. consumer is still sitting on 1.9 trillion dollars

in excess cash at the household level today. so i think investors would have a hard time trying to find a better place to invest in the united states. lisa: to round out the rosy picture you put forward, i want to end where we began, talking about the federal reserve and the idea that the ism print that showed that prices paid for the manufacturers were starting to go down. do you think we could still see a transitory effect in inflation that could lead to a more dovish fed that will also give a leg up risk assets in the united states this year? jared: i think that is the hidden secret no one is talking about right now. inflation has been higher and gone up for longer than the fed and markets and i think all of us maybe would have expected a year or two ago. but we are seeing real signs of moderation in a lot of the data today, especially on the places that were stressed. the places where you are not seeing moderation,

semiconductors most important of all, perhaps, those are things that get solved through monetary policy. for hikes don't create new semiconductor chips. so i think there is a limit to what the fed can do to address these troubles. more importantly, as we get past the pandemic, as workers return and as things normalize hopefully this year, you are looking at something like 2 million workers not in the labor force in some capacity right now who can return, so wheezing there is still quite a lot of scope for normalization on the good side of things and normalization on the services side as labor returned to the workforce, and those are the recipe for quite a lot of inflation measures over the course of the year. jonathan: wonderful to catch up with you, as always. jerry wo -- jared woodard of bank of america. on that ism number, it came down from 82 to 68. to be very clear, that is still

a number that is climbing. it is above 50. 68 is punchy in any other world. it has just come down from where it was. it is still climbing. lisa: it is still climbing. we are still seeing a recovery and a strength in that manufacturing figure. but the idea that we could be seeing peak supply chain disruptions, peak pressures when it comes to input prices for some of these manufacturers is what is leading to some people to whisper that t word. jonathan: so last year. so 2021, the t word. but i am with you. haven't we seen the worst of it? just to give you a sneak peek into next week, next wednesday, cpi, the median estimate in america year-over-year right now , 7.1%. strip out food and energy, five .4%. for the estimates so far, we are looking for something north of 7% on inflation in america next week for the month of december. more on that still to come.

your payrolls report, 8:30 eastern time. from a snow in new york city -- from a snowy new york city, this is bloomberg. ♪ ritika: the u.s. jobs report is out. not long from now, it is expected to show that payrolls grew by 147,000 in december. that would be more than twice the november figure. the coronavirus has collided with a tight labor market in the u.s. as a result, hospitals are struggling to get the workers they need to treat patients. that has led to skyrocketing wages. labor expense per patient in november was 26% higher than two years ago. it is a test for european central bank officials who insist spike in prices is temporary. inflation in the euro region speeded up last month beyond already record levels. cpi rose 5% from a year ago,

faster than novembers gain and higher than the median estimate in a bloomberg survey. you can add john legend to the list of superstars cashing in on the boom market for music rights. legend has sold a catalog dating back to his first album to private woody from kkr and music company bmg. terms were not disclosed. last month, bruce springsteen sold his entire catalog for a reported $500 million. bob dylan and stevie nicks also struck some blockbuster deals. 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 ritika gupta. this is bloomberg. ♪

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>> it is going to be a really good year, but it is going to be slow growth versus last year. what we expect is that some of the heat will come out of the job openings space, which will take some of the heat out of wages. wages will still remain elevated, but they are not going to be running at a 6% pace. jonathan: the brilliant tom porcelli, chief economist at rbc capital markets. from new york, alongside tom keene and lisa abramowicz, i'm jonathan ferro. going into the jobs report for the month of december, equity futures up three, up around 0.06%. not doing much. yields higher by a single basis point to 1.7337% after a big move higher of around 20 basis points on the week. the payrolls report coming up shortly. the estimate, 450,000. a sneak peek of next week's cpi focus on wednesday, the median estimate in our survey so far, 7.1%, up from 6.8% previously. that is your headline year-over-year. strip out food and energy, 5.4%

the estimate. 4.9% the previous number. the actual number comes up wednesday morning. tom: the raging debate about where that is as we fold into march and onto december of 2022. on this jobs day, as jon mentioned, we do what we do best. i love that we have randall kroszner, the former governor of the fed, ellen centre from morgan stanley, priya misra ash ellen zentner from morgan stanley, priya misra -- ellen zentner from morgan stanley, priya misra, and now from jp morgan, james glassman. you are in phoenix working for jamie dimon with 3.1 percent unemployment. they are back below the unemployment rate before the pandemic. is phoenix a symbol of a fully employed america? james: i will bet, and it does harmonize with what we just

found in a survey of business leaders. most folks are seeing business at or above pre-pandemic levels. so we have got a really credible job recovering most of the ground that was lost during the pandemic, and that is why i thing it makes sense that the fed would be moving to the sidelines. so they've got to get started sometime. they may be concerned about inflation, but when you look at their actual views, the fed staff was talking about 1.1% inflation by the end of this year. the market view is that this will pass. the view of professional forecasters is that this will pass. so i really think we are very lucky that we've got most of it behind us, and i think we are in the final lap of getting everybody back that once a job. there are still folks out there who dropped out. they will be back probably, but it will take time to see that. tom: when you speak to the

commercial clients of jp morgan coast-to-coast, do they speak of a wage spiral? are they as worried about a wage spiral? james: it is a big challenge for them. i think the important thing is they have realized that what we are looking at here is not just about the pandemic. this has been brewing for a while. there's a shortage of workers. we have been seeing this building over the last decade, so they realize there an issue. these guys expect their profits to do better this year, and they expect businesses to continue to do well, even though they've got these challenges. i think it is a big story that the pandemic just force businesses to shift gears, to automate, and it is releasing resources, so people i have a lot of money to spend on all kinds of things, and the increase in wages we are seeing is not eating into margins because profit margins are at

all-time record highs through the third quarter. that is a story about innovation. we have seen it a couple of times in the past. when we are doing things to be more efficient, it frees up resources. it gets business the resources to pay workers when they are trying to find them. . lisa: i wonder how much this is a big business issue with was back to the profit margins and the ability to raise wages. i was looking at this nfib study that showed that 48%, a record percentage of all u.s. small business owners, plan to raise compensation, that they did raise compensation in december, and they plan to do so in the coming months. are they less able to do this, do they have smaller profit margins because they cannot capture some of the efficiencies we are seeing in the walmarts and targets of the world? james: i am not sure about that.

it is possible, but i think the small business community has more to gain from all of the automation going on here. they are benefiting from the same things that are benefiting large companies. so you are probably right, it varies within the small business community. if you are running a restaurant, you do not have the same type of resources. but i am hearing the same thing from business leaders at small and midsized businesses that i see in micro numbers. so i think -- in macro numbers. so i think you are seeing an attempt to try to manage this pend,. they are also trying to free up these resources. jonathan: jim glassman, j.p. morgan chase commercial banking. he's in the building. he has walked into the studio. it is mike mckee. drumroll, please. seven minutes away from that job sprint. what are you looking for? michael: we are on the edge of

our chairs. obviously the headline numbers going to get a lot of interest from people. remember, we had to look at the establishment survey different from the household survey. household survey showed a lot more hiring than the establishment survey, and that pushed down the unemployment rate. we are also going to building at revisions to the household survey, seasonal adjustment. so it is possible some prior months to be revised -- prior months could be revised one way or another. they can be revised up or down. lisa: how important will wages be in this particular report? michael: they will be important in the sense of do we continue that trend. do we still see people paying up, and we still see ever higher wage gains? the forecast is for a drop in the monthly rate, but with a base effect, it falls. that might be seen as

alliterative good news. jay powell was asked in his last news conference, do you see signs of a wage price spiral? he said no, not yet. jonathan: mike mckee, thank you sir. leading our coverage in around five minutes. payrolls report just around the corner. we heard it from the chairman himself, one of the reasons he made the pivot. he might have made it sooner and . employment costs. . tom: what i would go back to my just from the grind of doing "surveillance" over a number of weeks, i remember talking about omaha, nebraska unemployment at 3% something. there is jim glassman with 3% unemployment. i find a conundrum to go back to goldman sachs that we are talking about anything but fully employed america. it sure feels that way. jonathan: unemployment going into this number, four point 2%. the estimate, 4.1%. the estimate, 450,000 is your median estimate.

803,000 is the highest estimate, 150,000 on the low. on the session, yields higher to basis points -- higher two basis points. on radio, on tv, the payrolls report in america next. ♪

jonathan: seconds away from the payrolls report in the united states. live from new york city on tv and radio with tom keene and lisa abramowicz, yields a little bit higher, the curb steeper. with your jobs report, here is mike mckee. michael: not with my jobs report yet because the data seems to be delayed, the computer slow in getting things out. we are keeping and i out for the numbers as soon as they do break. it looks like a lot of people are staying home because my internet is very slow. maybe everybody is hitting the same buttons. the bloomberg terminal does not have the buttons yet either. jonathan: the estimate is 450,000. the range is incredibly wide. why are we still struggling with

this one? michael: we are still trying to figure out what it is like to come back from a pandemic. we expected people to come back in september and they did not and we expected people to come back in the fall and we saw the full report last month. it is difficult for economists to know, even if they have the formula they think works, whether that formula is right. jonathan: there is the number. 199,000 the number. they downside surprised. a downside surprised on the headline number. michael: the headline unemployment rate, 3.9%, it was 3.2% going into the pandemic, so we are getting awfully close. it does suggest big changes in the household side of things. let's take a look at the main data. the average hourly earnings number was forecast to be up .4%. it is up .6%, which pushes the

annual rate to 4.7%. that is significantly higher than 4.2% in the bloomberg survey. the participation rate is 61.9%. that is unchanged from a revised 61.9%. it was 61.8% in the initial survey. we said before the break we could see revisions today. the unemployment rate was not revised. the number of people unable to work because of the pandemic, 3.1 million people from 3.6 million people. not a huge pandemic impact. taking a look at some of the jobs created, leisure and hospitality, only 53,000. there were 209,000 in the adp survey.

leisure and hospitality also contains hotels. food and drinking places up 43,000. they are still off of where they were pre-pandemic. manufacturing, 26,000 jobs, mostly in durable goods. construction, 22,000 following monthly gains of 38,000. a little bit of a slow down there. transportation and warehousing up 19,000. that always happens in the holiday period because we have all of this internet shopping. interesting to see how many of those are laid off in january when they do not need them anymore. the revisions, 102,000 for the month of october. that goes to 648,000 in october. it had been 546,000. november only revised up to 239,000 from 210,000.

i will let you check on the markets. jonathan: yields higher by a couple of basis points. basically as you are on the low end on tends. 1.74. equity futures little bit lower. unchanged on the s&p. the nasdaq came down a little bit and bounced back up. in the fx market, bloomberg of dollar weakness. euro-dollar 1.1308. let's play a game. if you strip out the headline number for payrolls and you look at the unemployment rate, you look at hourly wages, you thought about the backdrop going into this number, for the federal reserve it is let's go, isn't it? tom: i think for the federal reserve it is further data. what i would say is alan zentner of morgan stanley nailed it. the number was little bit above her cautious number. those who lowballed the payroll

survey absolutely nailed it. what i would say is what is not in this report. what is not in this report is a boom labor account, and that needs to be studied. that is what mike mckee does. jonathan: lisa, your read on this. wages much higher than anticipated. lisa: i would argue your point is correct, it is let's go for the federal reserve. the headline number came in as a disappointment but everything else surprised to the upside, and that participation rate did not change. people are not necessarily getting back into the labor market. perhaps the number was not higher because the workers were not there to fill the role. the fact that wages -- and the jobless rate is the lowest since february 2020. cap and they argue we are not seeing full employment. jonathan: jeff rosen of blackrock will weigh in in just a moment. michael mckee, to you for more

details. michael: looking at the implement rate. small beta the labor force. -- a small gain in the labor force. that accounts for the number of people who got jobs. 651,000. the number of people who reported they were out of work, down 483,000. we saw a big swing in employment in the household survey once again. we will have to reconcile that. the news is still 3.9%, and that is something that will catch the fed's i. jonathan: stay close as always. 3.9% on unemployment. the previous read was 4.2%. the headline number 199,000, the previous number revised higher to 240,000. the estimate into this was 450,000. yields higher by three basis

points on ten to 1.75. pushing 90 basis points on twos. up almost four basis point on 30's. joining us is jeff rosenberg, portfolio manager at blackrock. your response, your reaction? jeff: the focus is the headline, while a miss, this expected to be revised higher. we have this calendar set up that december gets revised higher. it had the revisions earlier. i think the market is looking past the disappointment on the headline. the unemployment rate come the labor force participation rate, the average hourly earnings are all about the look through from the payroll report to the outlook on inflation. that is the more important story for payrolls. you saw in the minutes the

discussion about reaching maximum employment, full employment, and lift off. that has been decided. the wage count is pretty clear and we have a lot of evidence for a long time that labor markets are very strong. the issue is are they too strong , and are they a contributor to the inflation story? there is little bit of that in this report that is more the market. tom: can you frame not the certain us of it, but can you begin to frame in your mind that we are heading for an inverted two/ten spread. is this is the first discussion in the regular household survey showing 650,000 job growth, are we finally at a point where we have to begin to discuss potential curve revision with the two year yield up and up. jeffrey: it is a very big

question, it is a question we spend a lot of time talking about. the difference this time is the role of the balance sheet. when you see how much the balance sheet is contributing to financial conditions easing, you look at that time series with the balance sheet, and it makes, you were there with me. what we thought into thousand eight was historic -- what we thought in 2008 was historic balance sheet expansion, and this balance sheet makes that period look tiny by comparison. inversion, the bond market predicting the fed over does it, you're seeing some of that in the bond market already, is the tool and the uncertainty around how much will they use the balance sheet to try to take some of that accommodation out. you saw a lot of discussion on

that in the speeches and the minutes about trying to avoid that very strong curve inversion and using the balance sheet to try to tighten financial conditions without the same kind of curve inversion. it remains to be seen in we have a lot of information from the fed about the balance sheet of normalization policy. lisa: it is hard to believe we are fewer than two weeks into the new year. it has been an exhausting time in the first week of 2022. has anything changed your outlook given the fact you have gotten the meeting minutes, given the fact we seem to see a very tight labor market in today's data that you will actually adjust your view for the year ahead? jeffrey: going into this year we already had the view this was a significant set of turning points. we knew that from the meeting. we discussed it when i was on a month ago from the dot plot.

what we got out of the minutes was the narrative to that change. that narrative is that the fed recognizes they have a significant inflation problem on their hands. now it is about the market and the fed figuring out how much intestinal fortitude does the fed have to tighten financial conditions. tightened financial conditions means tighter financial conditions, lower stock prices, higher interest rates, wider credit spreads. we have seen very little tolerance for financial conditions over tightening. that is the tricky part the fed will try to weave between wanting to take some of the incredible post-covid crisis accommodation out of the market, some of the froth out of asset prices, without overdoing it. we do not have a good experience for the ability of markets to calmly go through a tightening

cycle. what we have seen in the first two weeks is a validation that there is a very different market backdrop environment than the post-covid environment. you have to go into portfolio risk taking with that understood. jonathan: always great to catch up with you. i'll be catching up with rick rieder in about 20 minutes, mohamed el-erian, anastasia amoroso, and mike collins, and the response from the white house, secretary walsh. before i run to the other studio, do not want to lose this moment. a three handle on unemployment. i go back to june 2020. back then, the fed hung unemployment at 5.5% in 2022. at a time when they made the forecast, unemployment was north of 10%. i do not know anyone that forecast unemployment to fall as

quickly as it has. for that data point to recover this fast. we have a three handle all over again. tom: it speaks to the fiscal stimulus and the priorities of the nation in a highly berland early pam -- in a highly virulent early pandemic, now we have the omicron pandemic, which is its own confusing suit. jeff lives in berg -- jeff rosenberg still with us. how do you calibrate for adjust at blackrock to the new phase of this pandemic in your market call and your fed call as well? jeffrey: as i was saying, it is a different environment when you are facing not the tailwind of ample liquidity coming in the market and financial conditions easing to an environment where

you are dealing with the uncertainty of what is the fed tightening cycle look like? you asked me about the typical playbook of the front end takes the brunt of it, the yield curve inverts because the bond market prices in the expectations will do it again, the fed will push the economy into recession. that is why the back end yields do not move as far. the difference this time is the uncertainty around the tool of the balance sheet. you could have a different kind of playbook where there is more use of the balance sheet to try to do that financial conditions tightening, and therefore a slower pace on interest rates. for the broader financial markets, that does not mean you're out of the woods. it means you are losing liquidity support, and portfolio rebalancing, the whole concept of the use of this

unconventional monetary policy of quantitative easing is to push people out the risk spectrum. if you run it in reverse, you push people back in. what is the impact and can you manage that an asymmetric fashion? these are all experiments we have never seen before. we have had a little bit of an experiment in 2019 with running quantitative tightening. it looks like we are about to run into another one. the difference is the speed of the acceleration of qe. certainly they will have to be very slow on the way down. a lot of that impact remains to be seen. tom: thank you so much for joining us today. jeffrey rosenberg is with blackrock. he mentions liquidity. that is a huge question going forward. we speak to an expert.

ira jersey joins us with bloomberg intelligence. is this doable? i guess it is original qt. it is different. what i want to know is do we have the liquidity to make our homes and dreams of 2023 be pleasant? ira: one of the challenges come and jeffrey just brought this up , how will balance sheets played to the fed tightening? bloomberg economics put out an interesting piece that according to their model the fed should hike six times this year. they will not hike six times. the question is will they start to unload their balance sheet in such a way they can effective really replace hikes with their balance sheet reduction, and what does that do to the treasury market? when i think about the balance sheet reduction i have to say

the treasury department budget deficits have been better, the treasury department have been cutting the amount of treasuries they are issuing to the market. with the fed reducing its balance sheet, that goes back up. you can see yields continued to climb this year in part because of the extra supply the market was not anticipating a couple of months ago. that is one of the reasons you've seen this selloff, particular after the minutes came out on wednesday and they focused such a massive part of the minutes about balance sheet policy going forward. jonathan: -- lisa: did this jobs report give a green light to the federal reserve to hike rates in march? ira: i think this was fine. this was a good report. i look at what i call my aggregate flavor income numbers, basically the number of jobs plus the hours worked times the

average hourly earnings. when you look at all of those things, that is been flat for the last four months, which is good. that is not a bad environment. even though you saw the average weekly hours down, you had income and wages go up. basically from a macro economic perspective, the fed has to look at things as good enough for them to start hiking. will it be march, will it be made, does it matter? not really from the macro perspective. the nuances when they do hike in march, what to they start pricing in may? i think they skip may and start thinking about june again. ultimately the market will see the front end of the yield curve steepen quite a bit if they do hike in march, which the market is 75% to 80% pricing at this point. tom: is this manageable, the idea of the steepening of a higher yield.

we mentioned the fear of curve conversion on the two year yield higher than the 10 year yield. as we go back to your work at credit suisse, do we do it with financial stability or instability? ira: i think the financial markets, i think risk assets probably end up correcting significantly for the possibility of a recession sometime in late 2023 or 2024, partly of the federal reserve -- the expectation is the federal reserve will hike too much. if the federal reserve hikes more than three times, the market is pricing for five or six hikes. the purple invert before the end of the year -- the curve will invert before the end of the year. i do not think that will happen. i think the fed is cognizant of their role in curve flattening and harming the economic environment.

it was even mentioned in the minutes they want to use balance sheets policy instead of hiking in order to avoid that flattening yield curve you just mentioned. in order to do that they have to hike a little bit slower than the market is pricing. ultimately while they might price lower, if they do that they will have to hike longer and to a higher rate. the market is pricing for the fed to hike six times. that is too low given our expectations of where the economy can end up, assuming the fed only hikes three times. if they hike more than that the economy in 2023 has to slow significantly, at least in terms of real gdp. lisa: as you take a look at markets in response to this jobs report, you see the nasdaq continuing its decline after what looks like maybe the worst weekly performance for the nasdaq going back to february of last year. not yet a tantrum.

we are not seeing it in the credit market. the rates market has sold off but it has not felt uncontrolled. when does the fed put start to come into play or is that not on the table until something more disruptive happens? ira: at the january meeting i think chair powell will have to define what they are worried about in terms of the rates market. does jay powell say we do not want the curb to flatten too much. he will say curve flattening is what happens when we hike. we want to do it in such a weight we do not harm the economy and we did not want to see that curve flattening too much. we will use the balance sheet and that is why we will start runoff of the balance sheet very early. we have been doing a lot of work on how might the fed start to unlock their balance sheet and how does that change those patterns i just talked about for the curve to remain.

it is going to flatten. the question is how much and how quickly. that is the risk. risk assets get worse if the fed goes too much too fast. so far they've done a good job in balancing those things. that will not necessarily last forever. the january meeting might be important for the future of the rates market over the next three to six months. tom: ira jersey, thank you so much. bloomberg intelligence publishing this afternoon for weekend reading. we welcome all of you on bloomberg radio and bloomberg television. jobs day. we are below 4% unemployment rate. those are the kind of numbers you get at 8:30 with michael mckee. 20 minutes on he has actually read the report. what is beneath the headline data. michael: the unemployment numbers, we had a low number of people come back into the labor force compared to november.

we saw a very large amount of hiring in the household survey. the establishment survey only sewed 199,000 -- only showed 199,000, but there were 600,000 in the household survey. that is why the implement rate went down so much. at this point the federal be looking at that as perhaps a more accurate indicator. the other interesting thing to note is in the nonseasonally adjusted numbers, retailers added workers, which is what you would expect around the holiday season. almost every category the seasonally adjusted retail numbers are job losses. whether that is because we are seeing a trend away from brick-and-mortar stores where whether it is seasonal adjustment problems because of the pandemic, we do not know. it is unusual to see significant job losses in retail. that usually comes in january. tom: dow futures down 56 come

s&p down eight. this is a joy. washington university of st. louis. charis and claire joins us from -- cara sinclair joins us from george washington university. you have any idea how to count the data amid the pandemic? is the data you see, is the data we see on bloomberg surveillance every day, is it truly believable? cara: obviously there is a lot of complexity. we were thinking about using data for modeling or forecasting. typically relying on the historical pattern being applicable to today. it is hard to find historical patterns that make sense. we are seeing novelty events happening each day and where we keep using the word unprecedented over and over

again. it is still the case that the bureau of labor statistics, the numbers they are putting out, they working hard to put out the clearest numbers that they can. it is still important to look at this information in order to be able to have some insight as to what is going on. lisa: the key question continues to be the participation rate. the fact the participation rate did not increase even though we saw the jobless late -- the jobless rate fall to the lowest since 2020 raises alarm bells. why is it people are not going back to the labor market and what could bring them in? what is your experience on the ground and from an academic setting? tara: we have to think carefully be about what the incentives are for people to participate in the labor force, and we stop the pandemic going on. that is holding back participation, both directly from concerns about the virus, but also from other challenges,

trying to figure out childcare situations, you do not know when your child might test positive for the virus. you have to care for others in the household in other ways. that is an additional constraint on labor force participation. you have to remember we still have this long demographic trend that are drawing down the overall labor force participation. we may never get back labor force participation rates we saw pre-pandemic because we have the retirement of the baby boomers happening. lisa: this raises an issue -- are we going to see wages increase much more than people are expecting because that participation rate may not go up that much higher? it may not ever get back to where we saw a pre-pandemic. what is your view on that? tara: i see this as a temporary maximum employment. at the same time, we may see

additional improvement once we get more clarity about the long-term situation with the virus. tom: thank you so much. tara sinclair with george washington university on some of the data nuances with her wonderful work at washington university of st. louis and the st. louis fed a few years back. i guess what i can say, what makes ordinary first week of the year. it feels like it has been a month. lisa: [laughter] i wish we had captured priya misra on air in her comments when she first got on. she sounded beleaguered. that is what everyone sounds like. whether is the omicron variant or kids trying to get back to school or a selloff in particular tech stocks. what i'm looking yet is the rise in real yields it is continuing on the heels of this report with the idea there is nothing in this to stop the fed from hiking rates sooner. i'm looking at five year real

yields still negative, but the least negative going back to the end of 2020. tom: the question as we move on to the january fed meeting and middlemarch fit meeting, the idea of what is the impulse? are we adjusting back and sitting, or we adjusting back all of the different analysis, do we go even further? lisa: honestly right now, the other issue we keep hearing again and again from all of our best is the fed will not try to rein in the market disruption. they want people to see the market disrupted more comfortable because that is the transmission mechanism of their policies. a much do people have to rejigger some of their optimistic provocations -- such an uncertain moment, and unprecedented moment in a fascinated one when we take a look at the labor market churn

that keeps coming out. tom: because of the jobs day we were postponed here at 8:50 7 wall st time. we have to do what we were supposed to do at 8:44, which is their surveillance cough-a-thon to make sure everyone at home understands we have the plague like everybody else. what are you doing this weekend? lisa: [laughter] going sledding down here in paris. tom: we thank our team, they have saved us this week. this is bloomberg. jonathan: yield setting higher. live from new york city were our audience worldwide. good morning, good morning. the countdown to the open starts

right now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. jonathan: live from new york city, we begin with the big issue. the fed's big event. >> the big pivot. >> the fed pivot -- the shrinking of the balance sheet. >> the transition from q. week to cutie -- the transition from qe to qt. >> probably a more hawkish tone than some have expected. >> at least three rate hikes. >> the fed proba