>> markets are moving quite a lot. volatility is high, uncertainty is high. >> the issue for the u.s. is whether or not the consumer buckles under the weight of the high inflation. >> you hit shock aftershock. >> the trend in inflation is going to peak soon. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: live from new york city, good morning. this is bloomberg surveillance. i'm jonathan ferro. tom: what i'm looking at today

is a set of inflation statistics that say inflation is here. how about gold. we just had a new high on corn. there's all these indicators of prices up. jonathan: the conversation on wall street is moving. maybe the mechanical peak is. ultimately this story will persist through the year hit. they think that's going to start hitting growth and earnings as well. tom: to me the thing in the economic notes that there is this game wrapped into the fed parlor game of what is the timing of a presumed the client in inflation. i guess we have evidence that's presumed. jonathan: we can play the fed parlor game.

banks aren't rallying on that story. they aren't rallying on that whatsoever. the numbers at b of a this morning, it's a miss on investment banking revenue. look at the performance of stock in the premarket. that's a stock that's been hammered over the last month. lisa: it's not enough to shake the feeling that sin wall street. you have an increase in yields that's going to reduce some of the borrowing and you have a consumer that's going to be crimped by higher housing costs and gas prices. this doesn't leave to predictable returns. that is the story regardless of what the earnings have said. jonathan: the homebuilders are crushed by more than 30% year to date. the forward look for growth. for the federal reserve. they've got to hike into some weakness into the minds of some people.

lisa: here's what i'm struggling with as the perennial bear of this show. if you talk to michelle meyer about what you are seeing in the consumer, you're still seeing dynamism and savings. 2 trillion dollars of deposits at bank of america. so how quickly do we get to a downturn? what's the outlook for markets over the medium term? jonathan: i thought you were offering a more balanced view and i should have waited for the conclusion. the nasdaq down about 75. yields are higher i a basis point. tom: swiss franc is not giving me much this morning.

i think politically while you were away, the japanese government was quite active in their jawboning. in 127 print, wiki and is sort of like a 106 or 105 week euro. it's worth watching. jonathan: dollar-yen higher for 12 straight days. lisa: that's what they are grappling with over in japan. we get that earnings call for bank of america. john has been talking about the subsector of the s&p. this tank index is back where it was a year ago. just give you a sense of how much of a round-trip we have had in sentiment. when you look at one indicator of global momentum. the housing market continues to be a mystery. the housing market index tracks

the sentiment of homebuilders. it has taken a hit. how are they dealing with the fact that they are facing higher costs from inputs like workers. what does a 5% handle of those mortgage rates really mean for the activity in this market. st. louis fed president is speaking at the council on foreign relations ahead of that event on thursday were we get jay powell speaking in tandem with christine lagarde. real yields and to meet this really is one of the underpinning stories of assets. real yields are almost zero for the first time going back to the heart of the pandemic in 2020. are we just waiting for that inevitability. jonathan: tk, are you doing your taxes? tom: that was mike from a

helicopter pad. he says strong and weak currency. this is a really serious thing. currency pairs are one way or the other way. the canadian bonus round is both ways. the answer is the only way to say this in english is to say japanese yen is weak, not up. we are sticklers for that unless we are from london, where we quote it differently. jonathan: we have missed each other. the derating has been most severe while defensive areas have actually seen multiples expand. this has been a theme for the team at morgan stanley did big defensive shift beneath the

surface of the equity market. dan, you have been right. this defensive shift. whether there is a tactical opportunity to lean the other way. what would you say to those people? >> not yet. and good morning. we are not there yet. the interest rate expectations have come a long way as we all know from last fall. the markets are now 9% or 10% off their january all-time highs. if we are expecting these rate and the markets digested that, what can we expect for balance sheet reduction but also what can we think about in terms of the hit to the consumer and our economist recently marched down her gdp forecast for the year by

a percentage point due to higher oil and gas prices. we are entering a seasonally week period. we are going to have some tax bills come due. lisa: when you take a look at 10 year yields, at what level do they start to matter? it's become almost obsolete at a time when yields have gone far faster and higher. what are you looking for here? >> you've got to consider the level in the speed and the pace of the increases. to date we have seen equity markets discount incredibly fast pace. we're are just talking about how fast the pendulum swung in terms of great expectations. we have seen most of that

discounted in the equity market. mike wilson has been arguing that the higher rates ultimately get translated into lower multiples and we have seen multiples come down quite a bit for the index. we think there could be further derating to go. if you get that much above 3%, that's going to take another multiple points out of the index. tom: i look at sectors and simply put, do i want to be passive or active here? >> definitely a time to be active. tom: why? >> the last several years was marked by a tremendous wave for passive.

frankly that repeated the previous cycle. that was the case until 2020. we have seen a true regime shift at all levels of the economy and the market. obviously everything going on tragically in ukraine as well. given higher volatility and the cycle that's approaching late innings, we are seeing greater dispersion between stocks and sectors and you want to be very cognitive of which sectors are overweight. they don't happen to be tremendously overweighted. jonathan: is strange to see this with yields of 50 basis points over the last couple of weeks to

see the defensive do so well? what does it tell you about where we are in the cycle? >> you are seeing mixed messages from the bond market and stock market. we have observed when you see that divergence in message from big fixed income and the bond market and stock market -- that's defensive leadership is telling you that stocks are more worried about growth. that's the tricky trade-off that the fed is going to consider over the next several months. they have talked aggressively about doing everything it takes to tame the inflation tiger and put it back in its cage. jonathan: matt hornbeck will be

joining us at about 8:00 a.m. eastern time. from new york city, this is bloomberg. >> keeping up-to-date with news from around the world. defenders in ukraine have been encircled by russian forces but have not surrendered the port city. a possible neighbor lending operation and additional airstrikes. goldman sachs sees a 35% chance of the u.s. recession in the next few years. history suggests the fed will have a tough time calling inflation without causing a contraction. post-pandemic mobilization -- normalization will help the fed. china is taking stronger

measures to stabilize supply chains. it now takes about 115 days on average after they are produced in a factory in china. another rocky week following newspaper reports. a downing street gathering took on the nature of the lockdown breaking party only after johnson arrived and started pouring drinks. the prime minister's office has declined to comment. global news 24 hours a day on air and on bloomberg quicktake powered by more than 2700 journalists and analysts in over 120 countries. i'm rick. this is bloomberg. ♪

so of course we would be happy to see him in our country and it would be an important message of support to us. jonathan: will the prep -- president go to ukraine? good morning. the foreign minister of ukraine. futures this morning -.1% on the

s&p. elsewhere to the bond market yields are higher. how yields are doing nothing for the banks. take a look at be of a -- b of a . some decent numbers for the first quarter. over the last month into today that stock is down by 9%. tom: we will have apple and the rest of the new banking people out here. we did discuss ukraine. given the new war in ukraine. i want to talk about the new war in washington. we are upcoming on may 1. does anything get done in your

washington between may 1 in the first tuesday of november? >> it's going to be pretty difficult because congress is only going to have one week back in session. if your deadlines be thrown around. if they are going to sell the slimmed-down build back better package. you have also heard july 4 as a potential cut off. you are about to see the primary season take off. a lot of lawmakers will start facing elections back home. suddenly everything is under spotlight. if any decision might trigger a negative ad against you, you want to stay away from that and that vote. tom: which is the one emily wilkins is focused on? >> you got an interesting one in west virginia where you are

seeing a trump backed incumbent go up against another incumbent who says he brought back the spending to west virginia but he's up against this trump endorsement and we will see how that endorsed candidate does. you are seeing another republican on republican primary in illinois and down in texas you have that runoff. that has been a very close race. it went to a runoff. progressives are really hoping they can pick up a win there. lisa: i keep thinking about campaigning and i wonder where they are going to be campaigning the are they going to be on twitter, especially because there is potential for donald trump be invited back on. how much focus in washington is there on a new owner and privatization of twitter? >> when news like this breaks

during a congressional recess, you don't get the immediate response from lawmakers if you are able to bug them in the hall. i haven't heard a lot of response on twitter. republicans are concerned about the amount of censure going on on some of these websites. they feel it conservatives are being targeted. i think if republicans to get control of the house in november, we are going to see a lot more on this topic about what happens with big tech. lisa: social media has driven some of the conversation around what we are seeing in ukraine. we wouldn't be seeing some of the catastrophic consequences. this has not translated into an approval rating for president biden that is anything other than going lower and lower. 33% in the latest poll.

how much is this going to be reflected by a much more domestic message akin to what you saw in the french elections? >> it's interesting when you look at bidens polling numbers. it does seem a good chunk of americans think he's doing well on the ukraine issues. they are dealing with high gas prices, increased inflation numbers. even though the biden administration can point to unemployment, at the same point you are really feeling a lot of americans are feeling that hit in their wallet. there is definitely still widespread support from ukraine. jonathan: you touched on something that i think is going to be fascinating, how wall street treats the story.

maybe mainstreet is still focused on the cumulative effect of high inflation. lisa: how do you deal with the nuances of how quickly it can go down? let's say we go from a .3% inflation rate to going down to 6%. is that really going to make people feel that much better and how do you calculate that in terms of consumer spending? jonathan: i want a proper read on china. a number of semiconductor companies -- supply chain impacts are rising with covid lockdowns being extended, curtailing production.

disrupt supply chains and lost production. that could be the story for the rest of this quarter. how do we deal with the china situation which i don't think is getting enough play. tom: i would go to the tech earnings. we are 10 days from a lot of clarity about that manufacturing challenge. jonathan: i know you are laser focused on that situation. lisa: when you take a look at the deceleration, how exactly are they going to get momentum. they are trying to ease financial conditions. it doesn't seem like anything is going to restart this in a massive way.

jonathan: yields are higher by almost a basis point. your dollars unchanged. from new york city, this is bloomberg. ♪

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jonathan: good morning to you all on tv and radio. a real defensive bias in this equity market. over the last month through april alone, the staples are positive. health care positive utilities positive rate banks are negative. apple and big tech. the performance of the big banks in the premarket look like this. b of a is just about positive. only one positive day so far this month. jp morgan down every single day last week. slightly negative this morning. part of the story we have been

talking about is not just a defensive bias in the equity market. it's what's been happening with the yield curve. these banks have not delivered you positive returns even with this happening in the bond market. a 50 basis point move on the 10 year treasury. the curve kicking off april. tom: the real yield coming up near the zero level would be a real hallmark. great chart from schwab this morning. the bulls are leaving the building. i would really go to dominic constance note. he is heated about a reversal in yields and he also says that simply put, this recession isn't going to happen.

it's just going to be more stagflation. jonathan: did you just call this a brown market? lisa: i'm flattered that tom thinks of me at all but i think i wouldn't say that i'm always gloomy. i hope that things turn around. jonathan: let's check in with romain. romaine: it was one of the worst performing bank stocks heading into this earnings season. the shares are higher by about a person on the day. as will is a significant drop in credit losses. about a 10th of what the street had expected. that's a little bit of optimism. there are still some broader

issues they will have to address on the conference call. the big issue that came up here on some of the conference calls. all eyes remain on twitter. those shares hire as elon musk takes to twitter to air out some of his strategy or plans with regard to what he wants to do with the company. 47 bucks a share will below -- well below the offer price. on thursday when elon musk had made that it public, at no point on thursday did a trade above that level. a lot of questions about valuation and whether he's being honest broker. those adrs down about 18% here in the premarket.

tom: we shift gears into the equity market. liquidity is for 25 days out is long-term. i love what you say about the acclaimed bloomberg function which is the accumulated guesstimate of where we are going versus just watching what yield says. which matters more right now? >> i think the work function is more reflective of where expectations will be in the next 12 months or so and that's pretty interesting at this point. it's not necessarily reflecting where yields are in the marketplace. it is to some degree in the credit markets because spreads have increased and their large

presence in the short end of the yield curve. but if you're looking at treasuries, you are not getting paid for what the work function is telling you. tom: you live in the short term space. do you believe in inertial force where they go too far and then come back? >> we do believe in that we don't think that's the current situation. we have shortened our duration on our bond portfolio. they have been less than neutral for quite some time but we have taken them lower and that duration call and that's reflective of what we don't see as overshot of a bond market at

this point. lisa: there is a sense in a lot of big bun strategists that around the 2% level for the fed funds it's probably going to be enough to cause enough damage in markets for them to pare back those rates. why do you push back on that if you are looking at an accurate reflection. >> 2% is still accommodative or neutral. 2% to 3% is needed before you become restrictive and tightening in a monetary sense. so many problems, so many issues contributing to it at this point. lisa: what's your sense -- can

you see us getting to a 4% level by the end of next year? do you think it's going to be materially higher? >> russia and ukraine certainly impacting that from a commodities perspective and even broader terms. so i think it's a global economic situation that will dictate whether that inflationary environment is going to start to go back to something more normalized. tom: the heritage of federated is the buildout of money market funds as well. it is 1.00 safe in my money market fund?

>> absolutely. safety is the basic and the tenants of the money market industry. at this point do not cause any kind of a question in. you do know that institutional prime -- after the reforms were implemented and when that occurred paid that fourth digit does move. the rounding if you are looking at it true dollar is not a all in question. jonathan: the cfo saying the

following. commercial consumer loans above pre-pandemic levels. consumers aren't resilient despite a challenging environment. lisa: why aren't people more optimistic about the banks. the prospects of ongoing earnings momentum. the reason goldman sachs put the recession risk at 35%. jonathan: they saw record quarter. just on this inflation conversation, who are the dates for the diary that i think matter. may 4 we get the next fed decision. you will two readings on cpi. may 11 and another one on june 10.

are we going to start to see more of the trend emerged on that deceleration? tom: i know you missed it at the capri at punta cana, you've got to believe those vectors continue. they are underway and they continue. but there's a raging debate's of coming down to what and that's the next debate. we're not going to get the gloom and doom of 10%. but where are we going? is it six, is it four? i don't hear anybody talking about getting back to 2% inflation. jonathan: next year they have it at 2.6. the year after 2.3. lisa: imf officials say it looks really unlikely.

i'll just say about that reading , perhaps it came in softer than people expected. that was so idiosyncratic it it was used car prices that fell. how much can you really look at an aggregate number when you look at most components of your existence rising at the fastest pace in decades. jonathan: i washed some of the coverage. just to see what the data was. but it was brilliant. well done. special moment. lisa: that's bad. dorothy cote and lisa abramowicz. bank of america positive by a little more than 1% in the premarket. this is bloomberg. ♪

>> keeping up-to-date with news from around the world. billionaire roman abramovich has met with ukrainian negotiators. he has longtime ties to vladimir putin. talks stalled after evidence emerged of russian atrocities against civilians. jerome powell may reinforce bets that the fed will raise rates. the fred's premeeting quiet period starts midnight on friday. china's quarterly production of semiconductors trunk for the first time since early 2019. covid lockdowns in shanghai and other regions disrupted manufacturing. there's also been a drop in demand for consumer electronics. companies owned by far right radio host alex jones filed for bankruptcy after being hit by a

flurry of lawsuits. one of them is his website info wars. jones called the sandy hook shooting a hoax. several attempts to free the ship using tugboats failed. global news 24 hours a day on air and on bloomberg quicktake powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪

>> i think we can achieve a soft landing. i think this is a unique set of

circumstances. it's not going to be easy. i'm not going to pretend everything goes exactly according to plan. but i think we are in a good place with monetary policy. jonathan: that was john williams in new york, fed president. futures are negative following last week's decline. we are down another .25%. yields off the highs of the session about a basis point at the moment. in the last couple of weeks you would have seen the column from bit -- bill dudley on an inevitable hard landing. he did not give us the win. this morning he offers us the win. -- when. tom: he is an academic and also

steeled in market economics. what is so important in speaking to the former president of the new york fed is he addresses with courage not the easy guess of the 70's but things to learn from the 1960's. william dudley, senior advisor to bloomberg economics and rights for us at burke opinion. robert j samuelson of the washington post and his magisterial the great inflation and its aftermath. why is now like walter heller and vietnam? >> we have lots of fiscal stimulus like you did then. we had vietnam war spending. everyone is focused on inflation and has it piqued. what's really going on is the labor market has not been this type in many decades. if the live market is too tight,

wages will continue to strengthen and if they do, we're not going to go back to 2% inflation. tom: that internet goldman sachs said that on the show a couple days ago. the labor market is shockingly tight. does that lead to the wage spiral michelle meyer just spoke about? >> we have a lot of other factors pushing inflation down. the key thing to focus on is if the labor market is this tight, what's going to happen to wage inflation. five and wage inflation is not consistent with 2% inflation objective. you need to push the unemployment rate up and that's the problem. every time the federal reserve had to push the unemployment rate up, they have ended up in full-scale recession. it's not going to occur in the near term because the fed has

not yet made monetary policy tight. it might not even happen in 2020 three because we don't know how aggressive they are going to be in terms of tightening monetary policy. inflation will get more entrenched and they will have to do it later so a hard landing is inevitable whether it happens in 23 or 24. jonathan: how do you think they will respond to a mechanical pecan inflation this year? >> they are going to take some signals from the fact that inflation is coming down. if inflation is 8% per year and then 2% because all the transitory factors are washing out, the average is still five. the unemployment rate is already at 3.6%. it doesn't really matter what happens to transitory or headline inflation.

you have to look at what's actually going on with the tightness of the market. lisa: you are suggesting that perhaps the fed should cause the hard landing sooner and closer to now and wait because the consequences will be that much worse. is that accurate? >> i don't know if they should try to cause the recession. they should always go for a soft landing. but they need to make monetary policy tighter sooner. the discussion about whether the fed has done a good job or bad job is the timing. we are still at a quarter percent to have percent -- the fed is late. they know they are late. that's why we're talking about 50 basis point rate hike. the fed wants to get to neutral very quickly but they haven't signaled much appetite for going beyond that.

the monetary policy anticipated at the end of 2023 is a very modestly tight monetary policy setting. lisa: i'm looking at the page that forecasts were interest rates will be. it's currently above 2.3%. strategists say this is priced in. what should people be pricing in if your world where the one in which the fed moved at an appropriate rate? >> the fed needs to make monetary policy type and that requires short-term rates of at least 4%. if inflation is running 3%, then neutral is not 2.5%. it really depends on where inflation is. people act as if the neutral federal funds rate doesn't matter for what inflation is. jonathan: do you anticipate the

longer they wait, the higher the pekin the feds rate will have to be? >> yes. the longer we sit with a tight labor market, the more upward pressure will be on wages. that will feed into prices so the underlying inflation rate will drift higher. each cycle inflation ratcheted higher because the federal reserve did not address the issue forcefully soon enough. so if they delay they will also have to do more. jonathan: fantastic. bill dudley. former new york fed president and provocative writer. the fed's choice is clear. higher unemployment should be relatively modest. if it waits and allows inflation expectations to get out of hand, the bill will be much higher. tom: this is a really important essay.

what captures this beautiful is robert samuelson's phrase from the 1960's precarious prosperity. the bottom line is everybody felt prosperous but were you without inflation? we are there. jonathan: the slower the fed, the harder the landing will be. lisa: i'm thinking what this means for fed officials who come out interview after interview saying a soft landing as possible. is that going to be detrimental longer-term when inflation is nothing if not easy right now? jonathan: what did they say about officials, policymakers and politicians? you have to get good at lying. lisa: this is a new calculus we have not seen for decades and it

creates a very difficult position the policymaker. jonathan: matt hornbeck of morgan stanley. with yields up 50 basis points on a tenure. this month alone. on radio and tv. this is bloomberg. ♪

>> there is a momentum to sustained growth at this point but you hit shock aftershock. >> we have to get through these next couple months, and we will be hurt by it. >> the fed will tighten. >> today looks -- >> from a monetary policy point of view it make sense for us to move expeditiously. >> this is bloomberg surveillance with jonathan ferro,, and lisa