>> 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 23 -- vix

spread of 23. that is interesting going into the jp morgan ballet next week. two stories, brainerd and u.s. yield move. default being discussed in russia. jonathan: cpi next week. it could have an 8 handle. the response from the fed is let's go. most people assume they are late. the word "rapid." tom: rapid pace wednesday. i don't know which number of inflation causes angst with that testimony today. that will be part of it. to me it is not the level of inflation, it is the duration of high inflation. that is a mystery. months? quarters? jonathan: would you like the

early survey? tom: please. i don't know how to look it up. jonathan: estimate so far 8.3% for the march cpi report in the u.s. lisa: my question. do you think this will matter? is this baked in? the fed says we have not seen the peak of consumer price inflation. is this more important than earnings? are we going to see focus on how much we see the bottom line and profit margins repeated? jonathan: does this one change may if we see deceleration through the summer? for may, i think we are on course. we were set up by march 16. look for the minutes. lisa: that is the key deciding factor. 50 basis points seems to be the given for the may meeting. balance sheet reduction. do we understand the

implications for markets? yields higher or lower? it disrupts the trajectory. jonathan: we can debate. does it matter? what does it do? what happens to a 10 year yield? the fixed income universes divided. lisa: completely. you have a lot of people saying this is restrictive and that leads people to go into the longer edge. you have that repeated by strategists. others say it is a supply and demand story. jonathan: the nasdaq 100 lower again by more than 1%. s&p negative .7. here we go again. nine basis points. after breaching 2.65 in the last hour? lisa: remember when we talked about how amazing it would be? here we are again. where are we headed with the end

rate? 10:00 a.m., janet yellen will be speaking to a house subcommittee on her outlook for the economic trajectory, in part because of the war, because some of the aid the u.s. and other nations like to give to areas being hit by food shortages. this will have enormous random occasions -- ramifications for the economy at large. will she specify at a time when people are starting to use the r word more and more? gouged at the gas station, big oil and america's pain at the pump. draw your own conclusions. how will they be coming, by private jets? will that be the focus of the discussion. 2:00 p.m., fomc meeting minutes with details on how they plan to

wind down the balance sheet. governor brainerd talking about the rapid tightening, reduction in the balance sheet. that could be as soon as the may meeting. what does rapid mean? do they give us a sense? do we get people gaming out what that means with equivalent rate hikes? the fastest move going back to 1994. jonathan: looking forward to that hearing. those words from senator manchin, better to walk or hitchhike then take a private jet. we will find out later this morning. the headwinds from geopolitics, rising inflation and a hawkish fed are considerable however negative real rates remain an important support. we can have that conversation with the managing director of u.s. equity at citi. negative real rates remain. that support could be evaporating?

>> yes. it looks different than it did a couple weeks ago. no question, our view has been the focus on real rates helps to provide some context around price action. what we think we saw was a clear real rate correction in january that we are now on the others have. this is supportive of equities from an asset class allocation perspective. tom: i look at the formation here, so much comes from the sell side, securities research, company by company analysis of revenue, income statement, some form of operating, all the margin dynamics -- what is the nuance you take from securities research at citigroup? scott: this is a focus we have had for some time. look at the first year we dealt with this rising inflation circumstance, which kicked in a year ago at this time.

we exited q4 with record margins for the s&p, true across most sectors. profitability remains robust. s&p 500 earnings results throughout the year culminating with q4. the way we are thinking is prior to the current eastern european circumstance, earnings response to inflation increasing has been a net positive from our view. this has been aided and abetted by the energy complex, if you will. my point being, we exit q4 and go into q1 earnings results with a lot behind us that we think, it will take some time for that to respond to the fed policy initiatives being discussed. lisa: downside risk to stocks if

earnings reports are disappointing? scott: our view has been consistent. downside risk is what we consider a growth scare usually aligned with recessionary conditions. we have not seen that in the numbers. bottom up expectations have been rising for the s&p this past week. essentially, what has to unfold to turn more cautious would be just that, we proceed through q1 earnings reporting, begin to get caution regarding the second half, probably the '23 outlook and that is where you draw a line in the sand. right now bottom up expectations for 2023, s&p 500 are still high single digits, if not 10% earnings growth expectations. that appears aggressive with trajectory being discussed but we do not have data to say it is

off-base. jonathan: finish where we started on negative real rates. from an asset allocation perspective, sounds like a relative trade. when you think that trade is complicated? do you have a number in mind as we drift toward zero on real rates? scott: the way we are thinking about it is when you look at any circumstance where real rates turn positive, whether it is a 2% inflation, 2% gdp, 4% inflation, whatever, what ends up happening is the implication of real rates is at some point in the marketplace you are looking at an increased recession risk. that is where it comes into the discussion. the moment you go down that path, it begs the question of where do i want to be from an asset allocation perspective, stocks or bonds? there are moving parts. i am essentially making the point that real rates, as long

as they remain negative, should be a net positive for underlying equity valuations but if you go to a more positive real rate circumstance, other alternatives including cash come to the fore and can crowd outflows into equities which have been strong even to start '22. jonathan: important moment for this market. great to catch up, scott. as you go through the equity market, get away from the index, homebuilders all year, a massive struggle recently. we have seen it in the transports as well. investors are willing to accept a lower yield on a long bond than a shorter dated bond. that is what we are talking about. that tells you something about risk appetite. if you are willing to accept a longer dated bond, that should

tell you something. tom: tony was good on that the other day, the makeup of how we get to yield. the bid up and prices moving much more than yields emphasized. within the crises we are in, there are massive price dynamics. the satire here, in agony of what we see in ukraine, it is full force this morning. why is mr. putin mr. putin? vladimir, the original theorist, 75 years old, of make russia great again, has died. jonathan: the killings in bucha don't look far short of genocide, the view from the u.k. on the alleged war crimes. we all witnessed the pictures over the weekend. good morning. ♪

reporter: the u.s., eu and group of seven are preparing to impose more sanctions on russia after the discovery of alleged atrocities in ukrainian towns abandoned by retreating russian forces. according to the white house, penalties will be increased on state owned enterprises, plus on unspecified russian officials and their families. janet yellen today warns of an arm's economic repercussions of the war in ukraine. she will highlight the risks of rising food and energy prices to a house subcommittee. she will make it clear the u.s. will not ease economic pressure on russia. this year's unprecedented bonds accelerated after hawkish rhetoric from the fed. governor brainard says they will

likely reduce debt holdings quickly. this after an eight month losing streak, the longest on record. jetblue has offered to buy spirit for $3.6 billion, rivaling frontier. it could reshape the landscape for value air travel. global news, 24 hours a day, on air and on quicktake from bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta, this is bloomberg. ♪

>> at this critical point in the war, we must increase the pressure on prudent again -- on putin again and that is why we propose to tighten our sanctions further. the fifth package has six pillars. first, import ban on coal from russia with 4 billion euros per year. jonathan: the response to that is not enough. what else have you got? the european commission president. from new york city, futures

negative. yields higher again, eating into risk appetite. we have some response from the u.k. and germany on war crimes from boris johnson speaking to journalists. "the killings do not look far short of genocide." saying the obvious really. murdering civilians as a war crime. jonathan: that is a long-term debate. tom: what are your thoughts on the short-term debate with fighting on the black sea, the war still goes on? jonathan: we have to focus on the policy response in terms of sanctions. oil and gas, coal at 4 billion? really? listen to the words "war

crimes." can you reconcile that with banning coal imports? tom: the idea of war crimes and i heard someone mention nuremberg yesterday, those are discussions for another time and place. the atrocities are substantial. we need to point out moscow suggesting they are alleged. we will see where that goes. the annmarie hordern at 1600 pennsylvania avenue is different from the one traipsing all over continental europe leading the romantic life of international reporter. part of that was moscow, part of that was moscow and london and part of that was discussions with former oligarchs. she joins us this morning from the white house as we stop the show.

very simply, you had an important interview. he hasn't seen putin in 18 years. he was the one pushed away. what are your thoughts on the present oligarchs? reporter: he has been enemies with president putin ever since. he spent 10 years in a gulag and then he was free. he had pointed words to the u.s. he is in washington. he met with officials. he did not want to give names. the west does not see the war the way president putin does. he already believes he is at war with the west, it is just happening on ukrainian soil. putin views this as an outright

war with the west. on the oligarchs, he says it makes sense, it is the right move but under the wrong presumption, meaning it will not impact how president putin conducts himself. tom: is his life at risk for injury? is he in a compromised position meeting with the undersecretary? reporter: he has been quite vocal since he left russia. he has wanted to view russia and its future as a democratic seat, a russia that leans into the west. this is something, part of the reason why he went to jail, although russia will say it is on tax evasion and fraud charges. he has a deep conviction and belief about this. potentially his life could be at risk. we have seen cases of the russian state going after

individuals in london in the past. he remains steadfast he needs to speak out and he does so continuously. lisa: vladimir putin thinks nato is weak and will not defend the baltics if russia attacks. how much of this is general feeling? nato will be tested if vladimir putin invades a nato nation? reporter: we have heard from nato leaders saying article five they remained by and they will defend every inch of the president's words when it comes to nato. the view from the kremlin his nato is weak and that western europe and the u.s. will not go to the rescue if putin was to go into a baltic country. actually, this is a concern of eastern europeans. when you hear the likes of leaders in europe that want to

make sure they are going after russian oil and gas, what is that coming from? that is coming from eastern european countries. they are on russia's doorstep and incredibly nervous. this is the sense i got in warsaw. in poland, they are nervous. he talked about the fact that what putin sees, not in terms of this war with nato, is a nuance to the west. they see it happening in ukraine. he thinks it is all of europe. that is his mindset. jonathan: tremendous work, as always. oil execs, big oil going in front of a house subcommittee this morning, 1030 a.m. eastern time. we need to catch up with bill dudley. tom keene, he will join us in five minutes on the latest piece. tom: one of his more forceful pieces. he does not mince words of the

ramifications of any set of 25 or 50 basis point rises. it dovetails nicely with what we heard from governor brainard yesterday. jonathan: they have to get restrictive. given financial conditions, clearly the idea is they have a lot of work to do. lisa: if real rates turn positive, that is a game changer. you were pressing on this. cash becomes more appealing. is that what the fed has to do? do they have to get real rates to zero? they have been indicating that. jonathan: the vix with a little lift. tom: 30 is the pain level. we come back 18, 19, 23. dow futures negative. jonathan: it is that kind of day. [laughter]

tom: it is that kind of day. jonathan: people watch this program, they listen to it because we don't do that. they can go somewhere else for that garbage. you know that. lisa: this is going to be fun. jonathan: this is bloomberg. ♪

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jonathan: two hours away from the opening bell. the nasdaq 100 negative. quick calculation earlier. since chairman powell started speaking on march 16, the nasdaq is up from that moment even with yesterday's decline. think about that. we are about to catch up with bill dudley as he walks us through why he thinks that is part of a reason as to why this fed has more work to do. two year yields. bond market. two year picking up again. 30 year, yields higher.

where will rates be going? deutsche bank thinks 3.5% by next summer on fed funds. ecb, by the end of next year, what could it mean? a recession by the end of next year? what does it mean for europe? 250 basis points worth of hikes, let's get to it right now. think about where the italian 10 year would be. if we had a positive 2% nominal range? tom: the problem is there is a point where price matters. if you get yield up, the price down, what does that mean for mr. draghi? jonathan: a complicated life.

that is the problem the ecb's got. if they go to 50, where does that leave the debt market on the periphery? lisa: existential crisis in central banking in the developing world right now. how do you hike into weakness? how do you tame inflation in the face of something that looks more constraining when it comes to consumers and activity? jonathan: looking forward to bill dudley in just a moment. single price action with romaine. >> single name moves being dictated by the moves in the bond market combined with the fed minutes released later today , the prolonging of shanghai lockdowns and energy prices still elevated. automakers moving lower for the second straight day. interesting commentary about supply chain strains and

speculation in the market about further sanctions against russia and what that may mean for automakers with a larger european presence. nvidia shares down. new data yesterday showing the length of time to deliver tips has gotten wider, not narrower. we will have executives from the major oil companies on the hill today. chevron, most of the shares higher on the day. on the back of elevated oil and gas prices, that is the big problem congress has. i went through the prepared testimony for the ceos. mike from chevron tried to make the case in that statement that these companies don't have as much power over pricing as congress thinks they do. they said they would try to do more when it came to production and issues with buying. keep an eye on what is going on in washington, with regulators

coming into work today, chewing over the bid jetblue is making for spirit. jetblue has already been in the fight with the justice department over the alliance with american airlines. the doj said it amounts to a merger, taking jetblue to trial over that. the spirit deal with frontier that had been in the works, this has been widely criticized by liberal members of congress, saying this could not be done. our reporter did interview the ceo of jetblue. robin hayes said there was a compelling argument that a tie up would lower fares. shares both lower. tom: 1982, you enjoyed the breaking of inflation, maybe 7% at the time. william dudley went on to

goldman sachs, then onto his public service at the new york fed. we are thrilled dr. dudley could join us this morning. a lot of questions. define the difference between volker and brainard inflation? what is difference with this 8% versus 8% when you were certified at berkeley? bill: the inflation volcker had to fight built up over a longer time so expectation started to rise significantly so it is harder to get away. the good news is inflation expectations are well anchored. the fed will not have to do as much to push inflation back down. jonathan: your line in your piece this morning has got everyone's attention. "to be effective, it will have to inflict more losses on stock

and bond investors than it has so far." run us through financial conditions and how you gauge them and why you believe stocks to be a big part of that? bill: they are important in the u.s. chair powell has emphasized this in his prepared remarks. that is how policy works. the economy is run on short-term interest rates, long-term interest rates and the stock market. a lot of people have exposure. it affects their wealth. the fed has said clearly we need to tighten financial conditions, slow the economy down to keep inflation in check. financial conditions have not tightened much. stock market 4% off the high, sharply up from a couple years ago. bond yields, 2.6%, still really low, especially when you adjust for inflation. in my mind, the fed has not accomplished much yet.

if financial conditions don't cooperate, the fed could have to do more until financial markets to cooperate. lisa: talk about the consequences. if stocks are a reflection of sentiment, reflecting the way people are going out making purchases based on household wealth, what does that do to the economy? are you saying if things continue the way they are, the fed will have to impede growth to a recessionary degree? bill: markets are confident in the fed program because they have rates up 3% causing the economy to slow, then the reserve easing policy in '24-' 225, then we have a soft landing happily ever after. because the markets are so confident, they are still quite buoyant. financial conditions buoyant. the fed has to do more to slow down the economy. a soft landing is hard to achieve when the unemployment rate is so low.

powell cited the example of 1965, 1994, all examples where the fed tightened and the economy slowed but not enough to push up the unemployment rate. in all of those episodes, it kept declining. with wages running well above consistent 2% inflation, the fed will have to tighten enough to push up the unemployment rate. when the fed has done that in the past, it has always resulted in a recession. that is not their intention. they will go for a soft landing but the chances of pulling it off our low. lisa: do you think rapidly reducing the balance sheet will be enough to rapidly tighten? bill: certainly we will work on the right direction. quantitative easing would help. as you reverse course, that should push them up but we do not know by how much.

we already know what the fed is going to do. markets have not moved much. it is a big wildcard in terms of how much tightening? the big point i was make -- i would make is it will be unlikely, a year from now, we will be at this level. that is probably not sufficiently tight financial conditions to do the fed's job for them. tom: parse the difference as inflation comes down, of the importance of goods inflation coming down versus service inflation coming down. bill: both matter. the fed expectation is goods inflation will come down a lot. the composition of demand will shift away from goods and back to services and supply chain disruptions, like the auto sector, will gradually dissolve. car prices will be weaker. service sector inflation will be

more persistent. that is about labor cost. labor costs are going up because labor market is unusually tight. jonathan: why don't fed officials, when they are in the seat, talk how you did now? bill: it is unpleasant to be an official and talk about how you have to tighten. you don't want to talk about putting people out of work. the goal of policy is to keep inflation from getting out of hand. unfortunately, you have to generate enough slack in the labor market to keep inflation in check. that is unpleasant. what the fed officials talk about is how we have to keep inflation in check, to keep the most number of people employed. that is true too. they are not telling you how difficult that is to pull off. jonathan: a clinic, as always. we appreciate your time, bill

dudley, former new york fed president, now a bloomberg columnist. tom: force is the keyword. i would suggest people who would push against dr. dudley, like dr. blanchflower at dartmouth is one example, who would say horse and cart and who pushes who? corporations and the markets, will they react ahead of the fed? that is the big debate. jonathan: markets are reacting. another leg lower on the s&p. tom: look at the dow. jonathan: yields are higher by eight basis points. 10 year 2.6294. this is bloomberg. ♪ reporter:ex oligarch says from

vladimir putin's perspective, russia is already at war with the u.s. and the west. because of sanctions and arm shipments to ukraine, putin views russia as fighting the west on ukrainian soil. a summit with xi jinping, china did not want to discuss the war in ukraine. in hong kong, an official once to run for the top job. media reports china's liaison office says he has beijing's blessing. one of the most comprehensive work from home deals, now they

have the option of doing their jobs from home. they have been adopting arrangements to boost morale. the company said work on the edit button last year before any online polls, elon musk, just hours after it was announced. global news, 24 hours a day, on air and on quicktake from bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta, this is bloomberg. ♪

>> the impact of the war has so

far been contained. local banks have been affected, especially fields which have large exposure to russia and ukraine. jonathan: the words of the ecb vice president. difficult moments for european policymakers. we are down .9%, s&p 500. yields climb higher. quicklook accrued, $103, -- crude. the president of ukraine says vladimir putin's aim to conquer

all ukraine remains undiminished. that last point is going to be an issue. tom: within all the talk and the media splash, this war continues. too important of a conversation. truly extraordinary. evelyn and her family are out of hungary, they know the experience of moving out of cottonelle europe to america. -- continental europe to america. through her public service to president obama, she is now on the same page as john bolton. extraordinary. we had him on the other day. both of you say get over it. we are not going to start world war iii. discuss what america can do amid this fear we have that omg, we will have world war iii.

evelyn: what i have been arguing, and i had a washington post op-ed about this and i have been running around, like john bolton, not with my mustache on fire but with my hair on fire, is that we should not let vladimir putin deter us. he has chemical weapons and a lower threshold for nuclear use but he does not want war with nato so we should calculate the risks we are willing to take to protect civilians. me and several colleagues of mine signed a letter saying the administration should not dismiss the idea of a humanitarian no-fly zone completely out of hand. we are trying to say do not rule things out. we need to be agile and understand we may need to do more, take on more risk to save lives. i am worried as we move to the next phase of fighting, we are

not thinking enough about how to save lives. we are providing additional military support. that is important and should continue. tom: i look at the path forward. we are shocked by these atrocities. i don't want to get into the debate of the wargame but i want to know from you how pentagon or the pentagon in germany and france, how they respond to the horror? evelyn: everyone is horrified. what can be done? in the past, even in brutal wars like the balkan wars and bosnia -- i lived there after the war -- we have international agencies providing communitarian systems, trying to prevent the kind of massacres that happened in bucha and elsewhere. i would like to see the red cross taking more risk, may be

going in with armed escorts. they were held back 24 hours from rescuing citizens, civilians from mariupol this last week. other countries need to be pressured to put pressure on russia to allow civilians to be evacuated. russia is purposely trying to slaughter civilians. it is part of their effort to break the will of the ukrainian people and the government. lisa: how do you see this ending? evelyn: i am hopeful the ukrainians can take back their territory and beat the russians on the battlefield. i don't think sanctions will destroy vladimir putin's intentions. his aggressive foreign policy will continue. sanctions will take a longer time to have impact. it will be determined on the battlefield, if we can provide sufficient or enough military

means necessary for ukraine to push back the russian military, there is a chance they can regain their territory. other than that there is a compromise potentially where the ukrainians might have to give up some territory but i do not see that happening anytime soon. tom: your father has been definitive on the collapse of the hungarian aristocracy and the time from another place, even before stalin and hitler's. i am fascinated how you believe we can explain to the russian people that ukraine doesn't need de-nazification. your family lived that. how do we explain to them we don't need to de-nazify kids? evelyn: the russian government has a lot of control over its population through its monopoly on the media. they have internet saturation in

russia now. some people can get alternative news and truth but that is increasingly squeezed out. i was born in the u.s. my parents both fled communist hungary. as a child i went back to visit my grandparents, i spent summers there, i know what it is like to live under communism, when you cannot speak the truth, when you're told is a 10-year-old to be quiet because i might get my grandparents in trouble. as a 10-year-old, i knew it meant jail or something serious. with the russian people, the polling is somewhat suspect but the brainwashing is pretty effective. it will take, frankly speaking, the russian soldiers coming home or not coming home for the russian people to start to figure out what actually, what their government is doing in their name. the home front, in moscow, and russia, is not really where the war will be determined. it will be on the battlefield. jonathan: thank you as always

for joining us, evelyn. getting a read on what is going on in the country now is pretty hard. tom: depends which country. to your important point, and russia, it is a complete mystery. the most sophisticated people i know, and the most in touch people i know are saying, it is not this or that. we just don't know the structure. the tone is mr. pruden has in some way the large support of the russian people. -- mr. putin. jonathan: it would take people not coming home to open peoples eyes. tom: i saw a number yesterday of 40,000 dead or injured. i have no idea if that is valid. as those numbers climb, it will be a message to the russian

people. jonathan: a selloff this morning, down on the s&p and nasdaq. lee ferrets of state street will join us shortly. looking forward to catching up with him as equities corrected lower. this is bloomberg. ♪

>> every indicator we have tells us the economy is heading sharply lower. >> the idea that growth will slow, i do not think it is debatable. >> the equity market tends to be the strongest when things are the weakest globally. >> the thing to do is to apply common sense investing. >> the picture will look a lot different. announcer: this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa abramowicz. tom: good morn