prices coming down quickly, and that will be a real problem globally. >> higher inflation is eroding confidence but that has been true for many months. >> the fed has to declare that they will conquer inflation because that is their job. >> the fed will be in session -- will be successful at knocking the inflation rate down. >> this is "bloomberg surveillance." jonathon: live from new york city from our audience worldwide, good morning, this is "bloomberg surveillance" on tv and radio. alongside tom keene and lisa abramowicz i am jonathan ferro. what a move in this bond market. tom: a huge move and you can look at a short term. did you know that it is rapid pace wednesday? i think this is where we are after we heard from the presumptive vice-chairman and the bond market is moving away from what we remember. a two year yield particularly, valentine's day before the

pandemic 1.43% and look at where we are today. jonathon: i love that you base anything off of valentine's day on every given year. are you reading the fed minutes later this afternoon? tom: i am not, vice-chairman presumptive brainerd will read them for me. lisa: honestly, we had this feeling that we would get some kind of bombshell about how quickly they will wind down the balance sheet and the many -- in the meeting minutes. we knew that they were interested in -- interested in moving quickly and brainerd said that we would move quickly and everyone freaks out so you start to wonder how people will respond to the actuality of words that we have been expecting for a couple weeks now? jonathon: i read the transcript and compared it to what we learned from governor brainerd yesterday, there is hardly any daylight between the two things. lisa: that is the whole thing and we said that even in the press conference, we did not hear a dovish fed and we are

surprised that people did not pick up on the comments on quantitative tightening and here we are with people being surprised by the idea of quantitative tightening. jonathon: if you are a fed dove and you start the speech with a volker quote you will get attention and that is what she did. tom: it is a different kind of high inflation now than what mr. volker had. john williams to talk with michael mckee in a number of days, but the answer is that we are coming off such a low base that even lyle brainerd does not know where restriction clicks in and that is a huge part of the debate. jonathon: we have seen some big move so let us whip through the price action. s&p 500, futures lower down 56 -- .5%. on the nasdaq down .8%. yields higher on the 10-year. seven or eight basis points, to 6238. the dollar has been surging. the dollar index, very close to

a 100 handle. lisa: how much is it basically pricing in it, the fastest pace going back to 1994 which is what we are seeing currently. 10:00 a.m. we listen to janet yellen testifying to a house subcommittee. how has her language shifted? and how has the overall language a policy makers from the u.s. to europe shifted in terms of the economic fallout as deutsche bank projects a potential recession in the united states? janet yellen saying that this will have enormous economic repercussions for the world and perhaps we will see insight to what she sees that meaning for the u.s. economy. i know that you have your popcorn, oil executives testifying in from the house committee this hearing entitled gouged at the guy's -- at the gas station. a number of executives joining us, all of these energy executives will come and talk

about how they are adding to the supplies at a time where you have a lot of animosity particularly from the democratic side towards our industry and then at 2:00 p.m. we get the fomc meeting minutes. let us talk about what lyle brainerd actually said. "the committee will continue tightening through a series of increases and by starting to reduce the balance sheet. at a rapid pace as soon as our may meeting. we have been expecting this, this is what we knew and this triggered a massive move in the bond market and a risk off deal in stocks. jonathon: this was chairman powell on march 16. "it will be faster and much sooner than last time. i am sure that they will be a more detailed discussion in the minutes to our meeting that, in three weeks." three weeks is up today. tom: it is up today and that is fine that i will go back to the old data dependency, it is not only data dependency of the fed, but i will bring this up right now, does the fed adapt and

adjust to what the ecb decides to do. i do not think that is a question that can be ignored. jonathon: we do not know what the ecb will do. deutsche bank came out with a massive quote yesterday. your thoughts on this. deutsche bank have an ecb call -- has an ecb call between 2.5 hikes between september coming up and next december. that is a lot of hiking for an ecb over a little more than a year. tom: even more original commerzbank wrote that they made clear that the ecb is way more difficult than the fed. i thought it was a very terse note and deutsche bank with some very strong language as well. the answer here is that we are going to stagger day by day through this along with ukraine, and the answer is what lyle brainerd mentioned, it is original monetary policy they are committing. jonathon: i put that deutsche

bank quote on twitter. can you imagine the amount of pushback that i got, tons of it. lisa: they are not alone because the ecb is facing inflation that is frankly the fastest pace that they have seen in decades and they are seeing this crimping growth. how do they respond to that? it seems hard to imagine at this point. jonathon: that is the main focus of this program, what does it mean for your market. team coverage on ukraine starts right now. let us start with you, these sanctions efforts, where are we this morning? maria: well, we are about to get an official approval to this package that will be put forward by the end of the day today from the european union. we know what is in it, coal is the takeaway measure from this. it will be banned, exports from russia going into the european union. buyers have three months to wind down, tax -- contracts and they

will not be able to buy more. that is about 10 billion dollars of exports going to russia will be blocked. it is designed to increase the pain on russia, but i will say that the conversation is quickly moving to oil and gas. today we heard from the head of the european commission and council, saying sooner or later we will have to talk about oil and gas, that is the choreography, and there is huge social pressure especially after those pictures of bucha to tackle oil. everything that we have seen until now, it is clear that this will not be the end, the invasion continues with many other places that have been occupied by russians and europeans know that this is not the end of this and they need to prep already in the face of that. jonathon: you -- lisa: you say they will have the conversation about oil and gas that they have been talking about this for a while, so when do we move about talking about

it and hearing from germany and actually moving to a realistic way to do this? maria: well, i think first of all and to their credit, the europeans a few weeks ago really said repeatedly that energy is something we will not be able to touch and right now they are doing it and it is openly on the table and they used it publicly as a way to contain russia, but they do it in a way that forces all of the european countries here on the 27 member states to begin to prep serious contingency plans to a world where you do not import russian oil and gas. is it going to happen overnight? probably not. but is the political debate now on the table and is it for real? yes and it will happen in the next few days. lisa: in the united states we have this hearing and i wonder what you are expected to hear out of this with the portland spec -- executives being pummeled for pout -- oil executives for being pummeled for price gouging and they want to make a plea for more respect on the hill. annmarie: joe manchin had said

that he hopes he or -- he hopes they get there anyway but the private jets. it is an interesting time because at the same time you have individuals in washington calling them up pleading with them to pump more, and to go in and do the geology that is involved in trying to get the wells working. on one hand this will be a slap on the wrist saying for many on the left as well, the democrats saying are you price gouging, what is going on, especially when you see days when the u.s. releases one million barrels a day for six months from the strategic petroleum reserve and the moves down, why are you not seeing as much of a head. at the same time there was going to be many on the right you are going to want to show that right now we should be investing in fossil fuels and in these oil companies. jonathon: i wish that these hearings were productive and i hope that this one will be. i fear it will be a highlight reel of people running in the

midterms later this year. look at the way this has been described -- been constructed. "couched at the gas station: big oil and america's pain at the pump," haven't they already come to a conclusion about what is happening? annmarie: the title gives it away completely, but it is interesting because how tough can you go on these companies and executives when you really are trying to get them to help you? this is going to affect every single politician running for reelection in november. what are people going to vote on a november? how much it cost that day, the sticker price at the pump and how much it costs at the grocery store. these are issues affecting everyone in this is beyond party lines. jonathon: thank you. it never changes, the politics in washington. it would be nice if we had a

productive conversation and i hope that we will get one. i fear a lot of the people asking the questions will come to the new one -- will come to a new one. lisa: you are less jaded, because you are surprised by the lack of activity. it is disappointing and you are right. we have to create a new energy system that relies on fossil fuels for the near term even if we are going somewhere else in the long term. jonathon: i'm not surprised, just deeply upset and always will be. futures down .5%. lisa: there, there now. jonathon: just with politicians, i just wish they can have a productive conversation asked some questions and have a back-and-forth. yields are higher but five basis points. 2.6 275. from new york this is bloomberg. ♪ >> keeping you up-to-date with news from around the world. russia's finance minister says that foreign pranks -- banks

refuse to process its eurobond so the payments have been made in rubles. the ministry says that it considers its obligations to be fulfilled. the u.s., e.u. and others are preparing to impose more sanctions after alleged atrocities in a ukrainian town abandoned by retreating russian forces. penalties will be increased on state owned enterprises. morning market traders are betting that the fed will raise interest rates by 2.25 basis points, most in almost three decades. we will get more of a sense of their thinking today with the minutes from the last policymakers meetings are released. china reported 20,000 new cases of coronavirus. it was driven by surging infections in shanghai where authorities are building the world's largest makeshift isolation facility, a convention

center is being converted to house 40,000 patients. jetblue has offered to buy spirit for 3.6 million dollars potentially spoiling a competing bid by frontier and it could reshape the landscape for low-cost air travel. spirit says it will evaluate the offer. two months ago frontier reached an agreement to buy spirit. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> we know that this policy is accommodative as in any time when we have inflation this high end labor markets is high. there is no question that the policy has to be removed. 50 basis points will be an option we will have to consider along with other things. jonathon: great to hear with the kansas city fed president sitting down with mike mckee yesterday. pusser's negative on the s&p. futures lower by .7%. we roll over on the nasdaq

almost negative by one full percentage point. yields are higher by eight or nine basis points on the 10 year after climbing yesterday by 15 basis points. it has been a big run up on the 10-year yield. we closed out friday at 238 and here we are at 263. what a turnaround. tom: we have to do this on russia. it is falling apart as we speak. if you look at the chart on their important piece, the 2042 bond, it is a 5.5 eighths coupon yelling out over 22%. just as we started the show it has gone 26.25 down a point, and that is down from 28 a couple of days ago. these are off of the headlines arguing about how russia will pay for -- make payments and the dreaded d word is there. jonathon: it is about logistics,

it was something that damien i were talking about and this is a story this morning as russian finance ministry says that banks declined to process coop in payments. the payments have been sent in rubles. back to the conversation that we had a few weeks ago, what constitutes a default, if someone is trying to pay and it cannot get through the pipe soda fees -- so to speak, what is that? tom: it is when the market takes over. i do not know if rubles is an artificial market or not, but in the bond space, you can see it with any kind of pricing, and this 2042 bond year up. that is a precursor to talk about the american markets. we are now looking for 22% yield. he is the chief investment officer and we are thrilled that we could get an update. which desk are you hiding under eric? under the cash desk or the 100% invested in energy desk?

where you hiding this wednesday? eric: somewhere in between. our overall perspective is that this is not quite duck and cover territory, but we do think that liquidity becomes an important variable for investors to think about. so what are we doing? we have been underweight as a category and preferring to be a bit more cash diversified meaning investing in things like insurance, infrastructure, those have been good alternatives for us in the near term. but we do think that as we hear more conversations from mary daly that liquidity becomes an issue and that is something that we are working on. tom: in london it was published that -- something that said we screwed up earnings. they make very clear that the gloomy earnings outlook is overdone, do you agree? eric: we agree, it is a little overdone.

we think to 20 for the s&p at the operating level is very achievable. markets are like a to 25 or 226. we do not believe that it is invulnerable, but we believe that that could be a bearable that people think about. if you look at expectations by december, we are talking to 55 or 260. that is a multiple equivalent of about 22 or 23 times, but more like 20 or 21 at best. that is a variable that we are modeling and thinking about but we think the headline of these numbers are not material risk. jonathon: we have to be thinking about demand destruction and rates where they will be at the back end of the year. energy stocks are up by 37% on the s&p. today, they are going to get absolutely roasted on capitol hill. do you want to stay with those names? eric: probably a migration from

front commodities guessing where the stock price in crude might go and migrating down to the energy stocks and midstream energy is a good place to be in the near term. we think the more sustained level of oil will be persistent. if you look at the risk of demand destruction about the lack of supply mechanics. you have too few drillers looking out for oil, and concerns from investors about chasing price, so we do think that migrating towards more cash flow is a better place to be in the near term than where futures might be in crude. lisa: we have been talking about the deutsche bank note where they are calling for a recession. their base case in the united states over the next two years. how much have you factored in how you arrange some of your investments. eric: you had a really thoughtful tweet about inflation

and our role in the deutsche thoughts. what we are saying about inflation is not a shift in inflation expectations, the change is an expectation. it goes up if the market does not rollback. it will probably be a later this year. i read the note, i think it is a thoughtful piece of research, but the concern is the strength of the near-term downside. we do expect the back half of this year to show resilience. but next quarter in this quarter it could be a little bit sticky in terms of a base effect that is challenging for investment bankers. we think this session is a possibility with the next three

fixed months where the base effect trade-off of what the fed may do and what markets expect is more important. that is a near-term risk. jonathon: you are so diplomatic, use call something thoughtful and then disagree with it. wasn't that perfect? so thoughtful. thank you very much. i am teasing you, of course. lisa: i am going to use that. with the thoughtful point i completely disagree. jonathon: i want to go to these points by senator manchin. here is a quote from him. "i pray to god they do not come here on corporate jets." that will be the first question. tom: that is brilliant. jonathon: he suggest that they walk or hitchhike. tom: a gm in a car driving to

washington. at least there is the gulfstream this week. jonathon: futures down, for our audience worldwide, this is bloomberg. ♪

jonathan: futures negative by .6 of 1%. chairman powell spoke yesterday. even with yesterday's move lower, the nasdaq up 10%. rapid withdrawal of the balance sheet. the economy was stronger. we heard that from chairman powell, yet we still rallied yesterday even with the move lower. since that meeting, equities and the two-year higher by 70 basis points. two-year up five basis points on the day.

the 10 year up nine basis points. tom: the 10 year real yield has 4 standard deviations. huge move. it is the market doing the work for the fed? are they getting near zero real yield for the 10 year? jonathan: i had a live shot. the head shaking. lisa: it is not. financial conditions are loosening. bill dudley's column said this morning if financial conditions don't tighten, the fed will have to force them, which makes bond yields higher. tom: several of us will read them. [laughter] jonathan: two out of three on

this committee will be reading them. very close to a 100 handle, up 4%. let's go to the deutsche bank call. they are looking for 250 basis points in hikes from the ecb. where does that leave this? that would be huge. tom: the need for depreciation worry. his academics over the years -- what this amounts to is yields up, protect the euro. jonathan: what will happen to the italian debt market if they get rates up 250? is this what you want to see from the ecb or what you think is most likely? tom: i would go further and say which is the horse in which is the cart? does the ecb get out in front or

follow along like any other central bank? jonathan: this is a tremendously out of consensus call and the majority of people believe still it would be hard for the ecb to hike to 50 between now -- 250 basis points between now and december of next year. tom: recapitulating the central bank chat and what it means for the american economy, robert, when you adapted, when you see on the street, deutsche bank, the recession call, eight years out or whatever it was, how far out can you people look? can you make a guess for the autumn of 2023 or is that impossible? robert: thank you. when you're looking that far out in the economic environment like

we are in today -- uncertainty widens the farther out. looking at an economy increasingly moving into the later phase of the cycle including the fed policy tightening, that includes a labor market operating at a tight level. that increases uncertainty that far out. 2023, we see risks to the outlook becoming two-sided. tom: was the brainerd comments and this idea of rapid pace, are we getting toward the instability we learned about, not in 2007 but out a number of years when we tried rhetorical experiments? robert: brainerd was flagging this rapid pace, reduction of balance sheet consistent with what we heard from chairman powell.

we think the minutes later today are likely to indicate monthly pace of rundown maxing out at $80 billion per month. the difference may be more marginal. when we look at the balance sheet unconstrained, it ends up being not so different from our base case rate. they are basically running this down as quickly as they can but there is a lot of room to go. chairman powell thinking this could take place over three years. back to a key point on financial conditions. this is a fed trying to use policy tools to tighten financial conditions. they have made some progress on that. there is still more room to go. financial conditions remain neutral by our measures. if the fed wants to slow demand,

they need to get conditions tighter and the balance sheet will be an important tool to do that. lisa: how are you thinking about the economic ramifications in terms of what the equivalent tightening might be measured as? robert: we did some work on this in winter to think about how different asset classes would move in response to the balance sheet and what that would mean in terms of conditions. we estimated the rundown of the balance sheet we are anticipating this year is the equivalent of 125 basis points rate hike. it is just one equivalent. lisa: given the fact, is that enough, given the pace of inflation? at what point do you end up with a recessionary call like deutsche bank versus saying inflation will get

unmoored? robert: it is not enough on its own. the fed has to pursue rate hikes alongside. we are expecting 50 basis point hikes at the may and june meetings. 25 basis points hikes for the balance at each meeting for the year thereafter. that is a lot of tightening. that should have some effects in terms of tightening financial conditions. the market has largely priced in that policy path already. the effect on financial conditions gets more frontloaded. the clock starts to impact the economy, starting more or less now as expectations get into conditions.

is the backstop acting to slow economic activity? financial conditions have swung from being really accommodative to more neutral. we lost a till and for the economy. we don't have a significant headwind yet. has the combination of policy actions both realized and expectations for further actions, has a combination acted in a way that will restrain economic activity and helping the pace of economic growth down closer to potential without bringing inflation down or is there more to do? that is the position. if inflation doesn't come down and the fed determines it needs to do even more policy tightening, then what the market is expecting now, than that applies a significantly tighter backup of financial conditions and we should think recession

risk rises with that? jonathan: you are one of the very best, thank you. it is not either or. interesting use. here's a quote of the quote. "it is not an either or proposition. runaway inflation would be the greatest threat to the continuing growth of the economy and ultimately employment." "it is not a choice of one side of the mandate or the other. they have to do something about inflation." lisa: similar sentiment echoed by retail analysts, in particular on wall street saying the estimates are too high and consumers will stop spending as much. on the margins you see sentiment bleeding out. how much does that edify this either or proposition that underscores the importance of bringing down inflation? jonathan: breaking news on russia.

finance ministry saying foreign banks declined to process coupon payments on the euro bonds. tom: i have the prospectus. it is amazing the data you have available on the bloomberg. 2012-13. very successful offshore issuance for russia. can't find the exact language but i presume in this prospectus it says it has to be paid in dollars. that is the debate. jonathan: let's run through all this, damien. walk me through your interpretation. reporter: i am wondering if tom could share those bonds with me, because they are very difficult to get a hold of. i'm just saying, if tom has access, that is a pretty big deal.

anyway. the principal was supposed to be paid in dollars by russia. the new sanctions are preventing russia from doing that. $15 million was supposed to be paid in dollars but this new rule is presenting -- preventing them from doing so. the u.s. government -- [indiscernible] tom: i look at where we are. there has to be a next. damien: looking at the credit derivatives determination committee and russian railways. banks have underwritten credit default swaps on the back of the bonds, are indeed triggered into a failure to pay credit events. we should hear about that in the not-too-distant future. russian railways, 31 billion

dollars in sterling coupons due on the 25th. they missed the grace period. if the committee considers this default, a lot of money will start to change hands, triggering an awful lot of money movement that you cannot come back from. tom: interest. payments of interest other than interest due on redemption in respect to each bond will be by u.s. dollar-check, cheque, when you are fancy like damien, john on a bank in new york city and mailed to the joint holders on said bond. lisa: did russia actually tried to pay in dollars? how can they verify? how much of a story is this to appeal to creditors? jonathan: this is becoming high drama. damien, great to catch up.

another one for you. bulgaria and their view on things. they say it is prepared for an eu embargo on russian crude and gas. the conversation has changed in the last 24 hours. i don't think massively but people are still skeptical. lisa: why aren't oil prices responding more to this move in energy? some people saying it is relief that they are not going more hard on oil and gas at this point. jonathan: brent crude up 1%. coming up on foreign exchange. ♪

>> even though the recovery has been stronger and faster, i expect the balance sheet to

shrink more rapidly than the previous recovery. jonathan: governor brainard shaking things up in this bond market. futures negative. yields high yesterday by 15 basis points. tom: the four-day chart real yield, we vaulted out to a new lesser negative statistic on the 10 year real yield. i am not on the zero watch yet but that is a wild statistic. jonathan: we turned around quickly. tom: we will watch the yields through the morning. part of that is stronger dollars. that blended index out near 100. this is a joy.

all sorts of international duties, truly an expert on southeast asia, in the note, something short-term we have not mentioned, and that is the small matter of emmanuel macron and madeline le pen -- are you suggesting that is driving weak euro? >> that is one of the factors. thank you for having me. europe is so exposed to the russian crisis. under the radar, we have the first-round elections this sunday. emmanuel macron has been so focused on ukraine and russia, he has neglected mastic duties. a le pen would be very negative.

polling tends to underrepresented. it is another weight, plus weaker data. tom: what is the level of euro, not so much where things fall apart, where we tip into the perspective of weak euro or euro unraveling? win: this dollar rally has come into fits and starts. the dollar sort of settles in. the pace of euro weakness has not been huge. it used to be you would think the europeans would welcome a weaker euro but inflation is such an issue, it has become more of a problem. the weaker euro feeds into imported price pressures.

as opposed to japan where we start to hear this more and more, but i have the march 2020 1.06 hi for euro. we are talking 4 percentage points. it is all about pace in the foreign-exchange market. for now, i like the dollar higher. the pace has been controlled, moving up in little ranges from time to time. any euro bull, we have 125 basis points of tightening over the next 12 months, which is way aggressive but much more -- it was zero expected at the beginning of the year. the fed is swamping everything. lisa: if the ecb moves that many times, raise rates repeatedly over four sessions, you think

that is not enough? that is already priced into where the euro is versus fed expectations? win: fed expectations have it moving faster. terminal rate 3.25, much higher than it was one month ago. it is all fast-moving. big moves in the rates markets, we have all been lulled into complacency. back in the 1990's, 1980's, we have not seen these kind of moves. the rates markets have been artificially depressed by intervention. as central banks remove qe, these active purchases, you will see greater moves especially with liquidity drying up. lisa: given the fact you are expecting to see greater dollars

strengthening, what does that do to markets especially with food inflation, oil and gas? win: great question. i started this year negative on em's. it is not just the fed. bank of canada, rb md, north bank. we have never seen a pace like this in the past. after the great financial crisis, we saw this sort of removal but nothing on this grand scale, nothing at this pace. the fed has said we are moving much faster than we have in the past. that is generally negative for em. it is positive for risk assets. em will suffer. the good news is you look at the best performers year to date in emerging markets, chile, colombia, peru, these are

countries that have tightened aggressively. there is a sense rate hikes can help currency outperform but real economies will suffer. rate hikes, 11.75%, that should slow the economy. he touched on the russian default earlier. frontier markets particularly are vulnerable. pakistan is under severe pressure, economic and political. the weakest links in em will suffer. that is the way it always works. jonathan: soulful stuff. bill dudley this morning, "it is hard to know how much the u.s. fed will do to get inflation

under control but one thing is certain, to be effective, it will have to inflict more losses on stock and bond investors than it has so far." the former new york fed president joining us at 7:30 a.m. eastern time. tom: looking at the stock markets is important. this was alan greenspan 101. he would lecture lecture lecture on the importance of the stock market as an indicator of confidence and folding into the business part of gdp. that is what dudley is alluding to. in an economic textbook, the stock market is chapter 22. nobody gets to it. jonathan: this is a point you have made repeatedly. lisa: bill dudley says so far the fed removal has not had much effect financial conditions. jonathan: futures this morning, down by 1.1%.

on the nasdaq 100, down .3% yields higher by another 10 basis points on a 10 year yield 2.65. this is bloomberg. ♪

>> we are moving from covid inflation to conflict inflation. >> i don't see energy prices coming down the quickly. that will be a problem globally. >> higher inflation is eroding confidence. >> the fed has to come out guns blazing declaring they will conquer inflation. >> the fed will ultimately be successful in knocking inflation down. announcer: this is bloomberg surveillance. jonathan: equities continue to struggle. from new york city, good morning. this is bloomberg surveillance live on tv and radio. futures down. 10 year yields up nine basis points. tom: vicks spread of