taylor: bloomberg real yield starts right now. coming up, the payrolls report highlighting a robust labor market. leaving to another inversion of the yield curve. that's where we begin with the big issue, keeping the fed under pressure. >> the data is really strong. >> the labor market is red-hot. >> this is a fed that is in

inflation fighting mode. >> they have to move aggressively. >> suggest a 50 point hike. >> inflation is going to be absolutely insane for march. >> 50 basis points in may and june. >> we shouldn't ignore the data. >> the fed will try to be data-dependent. taylor: great to have you. on a friday when jonathan ferro is out, we are renaming this -- show yield curve because that's where unfocused. as you think about the fed and economists and analysts inking the fed needs to move -- thinking fed needs to move, is

that what the further inverted yield curve today is telling you? >> it absolutely is. the economy is strong today, but it may not be in the future. this is where the debate is being had. 50 basis point rate hike in may and june is very much in the cards. eventually, i think the markets are also telling us through the yield curve that may be by late 2020 three or 2024, we may have a slowdown or even a recession. is also telling us the fed policy reaction function right now has moved very much toward fighting inflation which means if they don't get what they want, expect them to be even more hawkish. right now, we are expecting 2.8%. if we don't get inflation

numbers down, they will move that up to 3% or as high is 3.5%. they will do whatever it takes to get inflation under control and if that means an inverted yield curve, they will do it. taylor: is that what you see is wealth of the shift is going back to inflation while focusing on the full employment picture, but the priority has shifted? >> i have been saying this for about a year and a half now. it is a while that i have been worried about inflation. what we are seeing in the geopolitics, that is made something not possible to ignore anymore. this was already happening. for the better part of a decade and a half, the market has been privileged over the real economy because inflation was low and the fed could afford to cave-in every time the market got nervous. i would say that absolutely, the

fed is going to do more. i would go further. i think they are likely to end the hiking cycle closer to 4% than 2.8%. taylor: it's interesting. we're getting further comments about a growing list of banks that are boosting the rate hike expectations. jp morgan says we are now replacing our expectations for 25 basis point hikes in may and june with 50 basis point moves reverting back to 25 basis point hikes in july and thereafter. do you see that this violent move in the bond market, a signal that we have to frontload a lot of these hikes than slow it down as we reevaluate come summer? >> yes, the fed is trying to buy some credibility.

it's a horrible situation to be in, so much of this inflation is outside of their control. in much the same way as the disinflation that preceded it was beyond their control. this is a lot of global inflationary pressure we are seeing. the fed doesn't have any tools to deal with that. but it can deal with the second round effects and that's what it's trying to do. to prevent real actors in the economy and financial markets from getting to a place -- until broader markets remark -- react in a negative fashion, there's room for the fed to be much more aggressive. taylor: supply chain issues are

out of the fed's control. most economists on this show have said it's not transitory. is there more that the fed can do as they think about maybe ignoring the transitory effects and looking at inflation that they can control. >> i would break it down in different pieces. we had the correct policy in 2020 when the fed in a matter of months qe 12 and three put together because that's -- we shut down the economy in march of 2020. the big difference i think and something that is definitely within the fed control is the fact that monetary expansion went together with massive fiscal expansion and the part of the expansion that was correct

happened in 2020, but in 2021 it was clear. we had vaccines, there wasn't the need for the expansion we continue to see hand-in-hand with monetary easing which to me the remarkable thing is this continued after the fed acknowledged inflation wasn't transitory. it continued to expand the balance sheet. if i look at this could the fed do more? yes, it could and it does not control what happens in geopolitics. it could not have controlled the supply chain bottlenecks which ended up being more serious than any of us anticipated. this emerged in the second half of the year that bottlenecks weren't going away. taylor: jim, let me bring you back in.

have we seen peak yields? is this a market that is preparing for lower yields on the horizon? >> i don't think so. yields will continue to climb higher as inflation expectations continue to rise. what the fed is faced with right now is a supply shock that is pushing inflation higher. fed policy is not designed to address that. it is designed to address the demand side of the economy and to slow increase demand whether they are hiking or cutting interest rates. the only thing they can do is to really control inflation. what they have to do is slow demand down by either risking or creating a recession and that is typically the way the fed has operated over the years is within the three-year business

cycle or whatever the case may be. you get a boom bust type of a cycle. what's important is that the fed wants to keep inflation expectations anchored. right now they fear they are becoming unanchored which means that inflation can spiral continuously higher until they break its back but it's not going to be like a fed rate hike lowers oil prices or lowers food prices. that has nothing to do with it. all they can do is address the demand and ring that down such that prices may eventually come down. that's the outcome that the fed doesn't want because that causes a hard landing. they're trying to engineer a soft landing. quantitative tightening, that's public on the table at the meeting may 4. it's going to push yields a little bit higher. i would not be surprised to see the 10-year note at 3%. taylor: it's interesting as you

talk about that, the anchoring of inflation expectations. i've been watching the long and breakevens that started to break down signaling the longer-term expectations. we spoke with a guest earlier about is that signaling that we already made the puzzle -- policy mistake? >> i worry that the fed has to choose between one of two mistakes. i worry about a recession. that they are late, they mischaracterized for too long, now to regain their credibility, they have to show and hike twice by 50 basis points. taylor: could you not argue that the mistake has already been made? >> absolutely. it may require a recession in order to get inflation under

control. if inflation doesn't come down because the economy slows due to these high energy and food prices, if it doesn't come down, the fed is willing to take this risk of a hard landing and that's the main point. >> you bring us such a good global perspective. it's interesting talking about this year, the coordination of the global central banks, i want to get your perspective on the ecb that is trying to pivot, but are they pivoting fast enough? >> no is the quick answer. the fed was expending the balance sheet up until a couple of years ago -- weeks ago. central banks have become

accustomed to a world which permitted them to act slowly and cautiously. there were not any inflation shops around the corner. the paradigm shifted and their behavior has been characterized by fighting the last battle. the ecb problem is more complicated than the fed problem because of the nature of the monetary unions and diversions of economies. they are terrified of causing the kind of bond market disruptions we saw. the ecb is caught between a rock and a hard place trying to buy sufficient time to allow inflation to normalize on its own. that's what they're hoping for and they will continue to drag their feet. they will still likely be buying bonds until june.

personally i think the market is aggressive with respect to ecb rate pricing here. taylor: everyone is going to be sticking with me around the table. this is bloomberg. ♪

taylor: this is bloomberg real yield. time now for the auction block. we want to kick off in europe.

here in the u.s., high-grade bond sales topped $230 billion in march. that's the fourth most for any month on record. our guests are still with us. what was fascinating has been the big selloff in credit. are you seeing more crocs in the credit space? -- tracks in the credit space? >> i think it's generally some concern about credit. if you look in the high-yield space, over the past few months, we have seen more attractive opportunities than in quite a while. i don't think people are automatically jumping in because

they are in dissipating continued selloff. i would say that's part of it. what you are seeing is a greater degree of care in terms of -- taylor: we spoke with someone from jp morgan a few weeks ago and he said the selloff was so severe valuations were so attractive it was hard not to jump back into the credit space. as you look at spreads, how are you viewing credit? >> the initial conditions matter a lot. typically, whenever you get a potential slowdown in the economy or the fed is hiking interest rates that might induce a slowdown, you tend to look for places of weakness, overleveraged. we don't have a tremendous amount of that. we have a lot of debt, but the servicing costs are really low. corporate balance sheets are flush with cash. delinquency and fault rates

among consumers are very low. there's not an obvious catalyst what would drive default risk. the two sectors that do that are financials and energy. energy is strong because of prices. what that means is that even though the yield curve might be indicating there could be a slowdown in a year, the real issue is that it might be a mild slowdown. if we get a recession, it's a mild recession. what that also tells us is that it becomes an opportunity when things get cheap enough, i don't think they are now, but when they get cheap enough it's an opportunity to go back into credit. >> looking at the other side of that is goldman sachs. when they were looking at

reducing risk, they said from current levels, we think spreads have likely reached the low end of the range. i'm looking at credit spreads of 325 basis points over treasuries in the high-yield market. how are you thinking about the range we have been in as of late? >> i think that's a big part of the more positive side of the credit outlook. first, i think the market in general is underestimating the potential for session commit -- conditions to happen sooner. i have concerns we might see similar conditions as we go through this late cycle hawkish process. i think they underestimating how weekly things might slowdown.

there are a lot of companies starting from a stronger position in terms of balancing cash on hand. whenever risky assets are rallying, it's normally because of liquidity provision and we haven't started the balance sheet unwind. taylor: not much is grounded out with you. as you are thinking about qt, pulling out some of that liquidity in the market does that change at all as we have pivoted from qe into qt?

>> i tend to be somewhere between james and jim. i don't think that recession is necessarily eminent. i also don't think -- i think the balance sheets are generally strong. i would say that if we see qt, i would be more concerned on the ig front because of the greater duration at that and. as we come out, there were better buying opportunities than we have right now. right now, you have to be careful in terms of checking where you are investing. they're clearly going to be sectors which benefit from the current environment.

taylor: what a great roundtable. everyone is going to be sticking with me one more time because still ahead, the final spread all about the week ahead. plenty of fed speak. all of those conversations up next. this is bloomberg. ♪

taylor: this is bloomberg real yield. it is time for a look at what's coming up next week. we are finally do get some big fed speak as well. the fomc meeting minutes are coming on wednesday. closing out with big rb art rate decision on friday.

it's hard to push forward to next week what we are here on jobs day which feels like a big day. what do you want to hear most when it comes to next week? >> we are probably going to be looking at further confirmation of a fairly uniformly hawkish fed giving the market a chance to price in more and more. once it is price, the fed will deliver. taylor: will may have about a minute left. jim, your take? >> i think the fed is going to emphasize that they are here to fight inflation. they're serious about it and they will do whatever it takes. they've also start to talk about the balance sheet. >> maybe i will take the under on the front and. we are pricing what looks to be an accurate but aggressive -- i

agree that the balance sheet comes front and center and that something the market is going to have to work out how that's going to play out. taylor: what a pleasure to have these guests with me. we appreciate it on this friday. it is crazy we got another invasion -- inversion of the yield curve. almost negative seven basis points on the day. we are renaming the show real yield to yield curve. same time same place next week. this is bloomberg. ♪

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mark: america is back to work. that is president biden's

reaction to the march jobs report. the unemployment rate is down to 3.6%. the president spoke from the white house earlier today. >> more and more americans get jobs it's going to ease supply pressures. it's good news for the economy and it means that we have gone from being on the mend to being on the move. mark: he says the job growth shows his policies are working with that more needs to be done to get prices under control. talks between ukraine and russia have resumed. today's negotiations were by video link. the russian foreign minister says moscow is preparing a response to ukraine's proposals for ending the war.