>> i just have a hard time being too optimistic about the inflation outlook. >> the reality is that growth may slow much faster than folks believe. >> it has been brutal for both equity and debt. >> i would not be in high yield at this stage of the game. >> we are seeing some form of capitulation out there. >> this is "bloomberg surveillance." tom: good morning everyone. on radio, on television, on this hour of inflation, a critical

report in 30 minutes with michael mckee. jon ferro, it is all hinged on the used cars going from 37% inflation to 14% inflation. that is good news? jonathan: for many people, pick inflation may already be the view that is the consensus. we will find out. it is about the details. headline inflation has peaked but core inflation will fall with more of a plateau. one view from the south side going into this one. tom: morgan stanley joining us in the last hour. they are looking for inflation to come back but it is not transitory. jonathan: they are looking for an equity market that struggles. the price target at morgan stanley, 3900 is basically where we are. in between now and then next year, they are looking for an overshoot to the downside. tom: you wonder where president biden is next year. again, the president speaks. lisa: trying to get ahead of the

message on inflation as he says this is the main issue heading into the midterm election. how much does this recent policy as people start to worry about the consequences of pandemic era spending as well as how the u.s. deals with international issues affecting supply chains? tom: in the last 24 hours in the lisa abramowicz space of credit and options, but a turbulence. what is different now from three days ago in credit? lisa: the same thing that has been the issue in markets more broadly. you are starting to see credit respond to the way it hasn't in a rates care. a growth scare has to do with consequences of trying to tighten financial conditions of having higher inflation that naturally cools the momentum in the economy. tom: i digress right now. got a great lineup in this hour. dudley will join us, the former president of the new york fed with a hugely important for

percent inflation essay. jon ferro, steve major, europe, german paper back to 1%. what a difference from america. jonathan: the team at hsbc looking for that moved to go higher and stay higher. 250 on the 10 year in america. we have already seen 320 this week. all of that stuff right now is old news. for us, we spent a lot of time at 8:30 a.m. eastern time pointing out the details like the price of used cars. on main street, one number matters, $4.40 a gallon. for the president i would regulator, whatever the numbers are in 30 minutes, the $4.40 is a big problem for him. tom: i will go to food as well. wheat is up again today with corn. on the data front, i've got to go to the german 10-year .997%.

a major debate across the atlantic. jonathan: i will take farm and a bit of music along the way. listening through this one. futures up by 1.2% on the s&p. nasdaq 100 futures up by 1.4%. you have read it. lisa: i have. jonathan: i know you have. we talked about it today, the third straight day of declining yields in america. the treasury market, six basis points. tom: absolutely. no closing time, no cover charge . country boys and girls down on the farm. one of the great fans, mindy, she does her tim mcgraw. so does sam stovall with decades of wisdom here on this moment we are at. sam, what do we do? what do we do in the time of great tension? when you hear the phrase cfra

going cache, how do you respond? >> well, i think if there are some of the people out there that are worried, you look for opportunities. basically, when fear abound is when you look to take advantage of that. you mentioned in the earlier segment about how far down disney is from its 200 day moving average, and you got many industries, movies and entertainment come internet, direct we telemarketing, footwear, auto parts that are anywhere from 25% to 43% below their 200 day moving averages and more than two standard deviations below them. as an opportunist, you basically say if the cpi report comes in as a surprise, these could end up popping. jonathan: a lot of this depends on the time horizon. where do you think the opportunities are a, and how long should people hold them for? >> our focus is more of a 12 month time horizon when we look to those stocks you think -- we think you should buy and hold to

disney is one we think you should buy. salesforce.com another as with amazon. these are trading at very low relative to their 200 day. but the 12 month price targets indicate our belief that they should be held not just for weeks but for month and quarters and years. lisa: what is the consequence in markets if we do not get a mechanical peak in inflation or we get an increase in the core inflation even if the headline number comes down? how much pain could you see translate into the equity market? sam: i think the target would probably be closer to 3850 or so based on two technical and one fundamental factor. from a technical perspective, it is the broken head and shoulders pattern which points to about 3800. it is a fibonacci replacement level that brings it to 3819. if you are looking at the average pe on forward 12 month earnings, you are looking at

3860 on the s&p 500, so i would tend to say that before all of this has shaken out, we probably do need to get to a very deep correction or a very mild bear market. tom: you own the high ground on as you put it in your note the length of the runway. for people to have confidence in this market, what is the minimum runway now? three year vision or can i dare say to go to a two-year vision going forward? sam: i think you can go. first off, when you realize we are in correction mode right now, 17% decline on the s&p 500, on average, it takes four months to get back to breakeven. every time we have had a 20 plus percent advanced in a prior calendar year, the market fell into a decline of more than 10% early in the new year, but if that decline started in the first quarter, we got back to breakeven before the year was

out, so i would tend to say two to three years is certainly a very comfortable timeframe that takes garden-variety bear markets only 14 months to get back to breakeven. so a lot quicker than most people would anticipate. jonathan: given the buzz word of the last two years is unprecedented, is history useful at this moment? sam: of course it is. so many people like to pooh-pooh history and say today is so different from at the desk from every other time but the one constant has been human reaction. human involvement, knowing that fear is a greater motivator than greed but greed steps in and takes advantage of opportunities. jonathan: wonderful to get your perspective. a constructive view. deutsche bank published a want to believe. the market wants to believe that

at a minimum the worst has been seen on u.s. inflation. nowhere is this more evident than the extorting of a collapse in inflation breakeven rates that have dominated the bond rally. lisa, we have been talking about this repeatedly the last few days per get it is more than notable what has been happening with breakevens. lisa: have they gotten ahead of themselves? citigroup asking the question and seeing we could point to core inflation. how much of a surprise will this be to markets if we get something that is not a deceleration? how much of a shock given the fact that people want to believe we are there? jonathan: they want to believe in a big way. largely expected to see peak inflation in a .5%. year-over-year, mechanically the stuff should come down. you repeated it is not about where we peak but where we plateau. where we come down to and stabilize at and what this means for the federal reserve and what they do. tom: i will take a three month moving average.

great on things like durable goods and other stuff. why is inflation any different? you have to look at the three month moving average. smooth it out to see what the trend is forget we will do it with one data point? jonathan: i don't think so. i am looking to catch up with someone later out with a piece on bloomberg opinion today that the fed needs to get real about rates. how high will the fed need to go? his view, probably a lot higher than you think. tom: the backend of the essay is brutal. to see this from a former official is really something. he said they got to get the language tougher on the balance sheet. jonathan: he used the b word himself. brutal honesty could spare everyone a lot of trouble in the end. lisa: andrew bailey the ring leader in terms of honesty. how much they have to say the

only way to counter inflation is going to be a dose of pain for the economy that we don't want to do but it is better to have that in the short term to avoid longer-term much more severe pain. how much do they have to come out and say that? we don't know the answer to that because we are waiting for geopolitical issues, but if china's shutdowns end, how much does not resell the right? if we do not get that re-acceleration, what happens? jonathan: the latter is the hope. lisa: basically, no demand is less of the issue. it is more of the supply. jonathan: looking forward to catching up with bill dudley later this morning. does anyone the fed want to be governor bailey? i strongly suggest nobody right now at the federal reserve wants to look anything like the bank of england. tom: like arsenal and tottenham? jonathan: i will find out. lisa: call him on his cell phone. jonathan: futures up more than 1%. this is bloomberg. ritika: keeping you up-to-date

with news from around the world i'm ritika gupta. ,the u.s. house has approved a $40 billion aid bill for ukraine that provides economic and humanitarian assistance. it is significantly larger than the $33 billion the president asked for. an economist will be the first black woman on the federal reserve board of governors. she when the confirmation by the narrowest possible margin requiring a tie-breaking appearance by vice president kamala harris. the u.k. and eu are at it again over the post-brexit deal for northern ireland. this trust says the european union's proposals on trade arrangements will not work. she said the u.k. will take unilateral steps if a new agreement cannot be negotiated. the eu is ready to suspend their trade deal if the u.k. foregoes the northern ireland protocol

forget china facing a tsunami of coronavirus infections. they have warned that could lead to 1.6 million deaths. china's vaccination campaign will be in position to prevent an omicron wave. philip morris international is accelerating its push beyond cigarettes. the company agreed to buy a company in a $60 billion transaction. for the poorest generated 30% of its net revenues from smoke-free products. global news 24 hours a day -- global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2,700 journalists and analysts in over 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> if the fed is aggressive enough, it can move the demand sufficiently to pain inflation, but that is a very painful process. i think ultimately to get out of this without a recession, the fed is going to need some help from the outside world. we are going to need some supply chain improvement and commodity prices to come down. jonathan: the global chief economist at citi. inflation data 12 minutes away. new york city this morning, good morning. the bounce, squeeze, rally, whatever you want to call it, continues. yields down again off of the lows of the session but down 4 basis points. crude higher by 3.9%.

euro-dollar 10546. the currency pair firmer. you will hear from the president later at 1:15 eastern delivering remarks on what they call prudence price hike. scathing from the wall street journal. mr. barnett blamed inflation on the pandemic and vladimir putin, admitting the democrats poured kerosene in the acceleration last march with the spending bill. inflation was at 7.9% when mr. putin invaded ukraine. one little snippet from that piece this morning. tom: i am so happy you saw that. i frankly missed it because this is not a normal editorial. this is widely researched and has a density. a single sentence shows the complexities. poultry producers say the ethanol mandate obviously moving up corn is driving up the cost of their feedstock and that some of the complexities the

president will meet in the midwest. jonathan: one of many. just compare and contrast some of the fonts in that piece to the thoughts of the president yesterday and likely more of the same this afternoon. tom: 11 minutes away from this important inflation report forget we go to the gentleman who is truly an expert. what does short term papers say about this report? what is the anticipation? >> the anticipation the last couple of days is it will be reasonably benign forget be reached -- benign. maybe we reached peak inflation. we have now priced out just in the last couple of weeks almost three interest rate hikes for the total, so we were at one point pricing for 3.5% and that we are much closer to 3%. it has been a pretty dramatic pullback from the amount of hawkish and is expected by the market.

lisa: how much of this is noise and short coverings so people do not squeezed out ahead of this? ira: i think that is certainly part of it, but there is a bit of a change in the idea that there is still somewhat of a fed put. the markets being is because they have been the past couple weeks really created the sense that the fed is not going to be able to go as aggressively as they think because eventually the wealth effect and financial markets will be so volatile that the fed will not be able to hike as much as part of the thinking in some traders's minds. as the yield curve gets higher and higher, it becomes more costly to be short as well. it was really easy to contort when you were not paying anyone a coupon. now that you have to pay someone a coupon, it is harder to stay short for a long time. lisa: what does this mean in terms of how violent the reaction in markets could be one

way or another to today's cpi print? ira: i think the bigger risk at this point is if inflation is a little higher than the market expects. once that happens, i think you wind up getting at least one more hype priced back in so you could end up seeing the three year and five your part of the yield curve selloff pretty aggressively, especially given that it outperformed so much over the past couple days. tom: we have to leave it there with mike mckee entering the building. joining us now, michael mckee, who more than anyone i know is attuned to the zeitgeist right now. his trip to palo alto, the hoover. what did you learn? why is this inflation report different from lbj's 5% or carter's 12%? what is different this time? michael: in a way it is not different because the fed has to attack a problem that is difficult to attack because half

of the problem is the supply-side at the fed can only work on the demand side. they admit it will be more difficult than just bringing down inflation, but they also do not want to have the kind of recessions that came after the carter years. tom: how do they do that? what is the mechanism for loretta mester, who you talked to in the last four hours? how does she manage down economic growth? i don't understand how you do that. michael: they have two thoughts. one is they need to get to neutral, define that how you want, by the end of the year very quickly so they are putting downward pressure on the economy. the other is that the economy is so strong with jobs and none women where they are that they have room to move. they can move up without as much danger in the past. jonathan: you are one of the best at this and will break the numbers down for us in seven minutes. we will get four different cpi figures. what matters to you? what should we be focused on?

michael: i will tell you about is to the fed and jay powell. they have reinforced that they are looking at month over month cpi court because they want to see improvement there. if you are looking at month over month and it comes down at a slower pace, it suggests inflation is slowing down, and that will take out the base effect of a year ago. so it will be a much more clean read on inflation. while wall street may focus on the year-over-year number, the fed will be looking at the month over month numbers to hopefully see some movement lower. jonathan: awesome. looking forward to coverage six minutes away. a .5% the previous read year-over-year on headline. only one bank as a forecast of 8.5%. at the low end, you got ethan harris at bank of america looking for 7.9% forget core cpi month on month, if that is what the fed is following, the market will cue off of that too. tom: we talk about the consumer

and main street but to be fair, that is what you do in academics. you look at the short-term, the rate of change if you will of inflation, which is its own growth rate. jonathan: lisa, we are looking for deceleration. lisa: deceleration but in what? does it matter if it is deceleration in some of the non-core items? the idea of energy driving this with fluctuations in gas. are people looking at lodging, airplane tickets, wages? how much does that end up being the much bigger driver of the fed response? jonathan: the number in five minutes and then the breakdown with mike mckee. great guests coming up. tom: it is about this balance between the nominal economic and the nominal rate and the inflation-adjusted rate so it is not just one moving part here. it is really three items moving around. the word i use, very sophisticated, this is a squishy report coming up. jonathan: chief economist and

microstar just joining us very shortly. futures up by little more than 1% on the s&p and the nasdaq up by 1.4%. yields are lower for a third straight session. we are down by four or five basis points. 29461. the inflation print in america up next on "bloomberg surveillance." ♪

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jonathan: seconds away, moments away from inflation data in america. from new york city this morning, good morning to you all forget futures up by 1% on the s&p 500. on the nasdaq 100, up by 0.8% forget with the data is michael mckee. michael: cpi on a month over month basis, it is up but down from what it was last month but ahead of the forecast. less food and energy. the core up 0.6%. that is an upside missed that will not make markets or the fed happy. 0.4% was the forecast. 0.3% in prior months. 8.3% month-to-month and core is at 6.2%. that comes down from 6.5% keep

in mind that the year-over-year figures are based -- the drop is based on a base effect that inflation was so high in these months last year that it was mechanically going to fall but the month over month numbers come in a little hotter than the fed expected. right now, it looks like food was up 0.9%. the 17th consecutive monthly increase. food at home up 1% down from last month but still a significant jump. energy down 2.7%. people predicted that. gasoline down 6.1%. that is in part a seasonal adjustment. it is something that could turnaround as we see gasoline prices rise again into the summer. shelter increased 0.5%. rent up 0.6%. owners equivalent rent 0.5%. that is not good news and suggests housing prices are

still waiting on the overall index -- weighing on the overall index. i am looking for the autos. oh. jonathan: keep digging. one number matters right here. month on month core cpi, 0.6. the previous week, 0.3. the median estimate, 0.4. the range on wall street anywhere from 0.3 to 0.5. no one was anywhere near this. nobody called 0.6, and that is why the market moves the way it has done. down on the s&p. the nasdaq lower by half of 1% and off to the races at the front end of the yield curve forget your 10 year is up three basis after being lower. we are up eight basis points on the front end. your three year is up nine and five europe six. tom: you mentioned john and mickey. these are wow statistics.

real average weekly earnings, negative three point 4%. stunning. and i wonder, not that the president knew the details, but you have to wonder if the heads up -- if the white house got a heads up on this to give him two days of face time. jonathan: i would suggest not a lot changes for the president later because gas prices are where they are forget that was already a problem for him. wall street will be talking about a 0.6 percent core cpi month on month figure. main street will talk about 8.3%. down from a .5% in previous months. the problem is we don't have the scale of deceleration that this market and wall street economists were looking for. we go back to the start of this morning and it is not about where it peaks but where it plateaus and how much deceleration we get through the summer as the fed looks to be assessed at the end of august. 0.6% month on month encore is a

problem. lisa: if this is deceleration, it is not working. they will have to be more aggressive forget the fact that it is coming from rents, wages, the fact that companies can keep raising prices and not meet resistance is something the fed will need to address. they cannot blame on supply chains and oil shortages. jonathan: the year-over-year stuff is mechanical. the month on month, you see that 0.6%. how surprised are you? michael: i am not surprised because some analysts forecasted we might see that because there is some data that appeared to show up. it changed its methodology for estimating new-car prices. just starting this month, new-car prices went up 1.1%. it had been 0.2 percent, 0.3% beforehand. we have a big jump in car prices that is a methodological change and will eventually work its way out of the numbers.

used cars fall again, second month in a row, down 0.4% forget not so bad. airline fares up 18.6%. if you have been in an airport lately like i have, everyone is flying so the airlines are making up some ground. we also saw natural gas up 3.1%. seasonally adjusted going the other way from gasoline. tom: michael, i am looking at one of the into real data points you are an expert at. it looks like there are 40 lines of inflation. i can make a joke about beverages but let's move on from the joke. apparently up 5.4%. physician services go nowhere. it is a jumble. it is a mix. what do they do with a jumble that we see here? michael: what they will be looking at besides the month over month headline change is the month over month changes in core goods that people buy on a regular basis and try to figure out.

apparel prices down 0.8% on the month month over month, so maybe that is some deceleration. that is what you will be looking at to see if prices are starting to come down in some key areas. of course, nobody expects it to fall off a cliff. by the end of the year, they are hoping to get somewhere between 4% and 5%. we will see how this continues to play out. part of this will be the supply chain problems. maybe now we have clothing in the stores because we did not have it in the fall. lisa: you just got finished hobnobbing with fed officials and academics. we are looking at a surprise to the upside. this is not what they say they want to see. they are data-dependent. is this enough data to change views and get people to be more persistent in terms of the pace and duration of the rate hikes? michael: no, this will not change anything. this is sort of on point what they expected. it is not what they want, but it

is certainly something they are not going to be surprised about. some of the things that pushed up prices are things obviously the fed cannot do anything about. they are not looking at the year-over-year numbers on the happen. that is what americans are doing. that is what will be in the headlines of the newspaper. the fed will be looking at where the inflationary pressures are coming from and will disregard gasoline and food. jonathan: wonderful work as always. thank you. futures down by a quarter of 1%. nasdaq 100 futures, -0.7%. we are seeing this bleed into the bond market a little but. we are back to 271, higher by 10 basis points. off the highs of the year so far. it certainly keeps the heat on the federal reserve going into the next meeting and beyond. tom: michael joins us now, chief economist and micro center just at m km partners. you and i had a scintillating

conversation five or six days ago about the nominal nature of the american economy. this kind of inflation, if we see it over one month, two months, three months, what does it say about the combination of real gdp and inflation? michael: i think these numbers obviously are two hot -- too hot so this is a bit of a shot to the upside, but i would go to the point that jonathan just made where the peak which looks like a dip is in now on a year-over-year basis is potentially a lot less important than where the numbers settle and where the plateau is. if we have really rapid nominal gdp, aggregate demand, even if the year-over-year numbers come down by half, we settle about 4% or just above that by the end of the year, that looks like the plateau and that is still a major problem for this bond market, a major problem for this

federal reserve, and as we are seeing, a major problem with valuations that support the s&p 500. they are going down and going down because long-term interest rates have been going up. jonathan: that landing strip for the soft landing gets a little bit lower with this number? michael: i think it does. the fed has its work cut out for it, but it needs to slow aggregate demand. typically starting from behind the curve, the success rate is not very high, so usually what happens is central banks start off too slow when they are behind the curve. that is the definition of being behind the curve. eventually, they apply too much braking force later on and that is typically when you are in a bust part of the cycle. i don't think that part plays out this year. but they have missed the boat of this year. i think it is pretty obvious now. they really should have gotten the tightening process going last year.

even with that press conference last week, powell seemingly explicitly ruling out greater than 50 basis points moves. why will anything out in the early innings? step away from the forward guidance and take it meeting by meeting. i think the message was a bit bungled and confused as well and that is not helpful in this environment. lisa: there is a big debate about where the drivers of inflation are coming from and how much is really within the fed's control and that is under fitting the hesitance for a more aggressive approach by jay powell. how much do you agree with that, that the bulk of the inflationary purchase are coming from overseas, geopolitical issues, and not from the dynamism in the labor market, the willingness to spend, from consumers that still have a lot of cash? michael: it is confusing because we do have these supply-side

sharks playing out and they are raising inflation and the fed cannot do anything specifically about those shocks, but we have also had a super robust nominal gdp backdrop. nominal gdp is robust to supply-side shocks meaning that a supply-side shock will change the competition but not the level or growth rate of nominal gdp, so we can actually get to a rough and ready answer to that question by looking at how much nominal gdp has overshot its previous trend and how much inflation has overshot the previous trend. if you do that, it looks like 60% to 70% of the inflation overshoot is actually demand-side, aggregate demand, nominal gdp. if that is not the province of the fed, why do we even have a fed? that is the fed's responsibility, not the supply shocks. they are real but this inflationary overshoot in large measure is due to aggregate demand. tom: if they politically

embedded 50 basis point rate hikes and they sort of say and i am being very sophisticated here, let's see what happens, how far out a trajectory do you see? if they go 50-50, etc., do they really analyze two meetings out in july or do they go out further before there is a lot of navelgazing over what to do next? michael: i think they just need to try to extricate themselves from the last business cycle. we still have fed officials out there saying we want to get to neutral and neutral is around 2.5. that might have applied to the last business cycle but the cycle looks different, whether it is nominal gdp inflation, the rapidity of the fall in the under putman rate, and so the fed has basically made two mistakes here. one is assuming a flat curve until 3.5% on appointment because that is where we were at the end of the last cycle, and

then assuming the neutral interest rate is right around the same position it was in the last cycle. that is a problem. really, what they should be doing is saying we got explicitly aiming for nominal gdp to a more sustainable growth rate consistent with 2% average inflation over time. that would probably be about 4%. that looks as of april the proxies for money income or nominal gdp are closer to 9%, so still way too fast. i think that is the best shot the fed has engineering a soft landing. it will be difficult, but embracing the phillips curve in the neutral interest rate of the last cycle is just simply not going to cut it. that will lead to a policy mistake and a severe face plant and putting the economy on the line. jonathan: thank you sir. with equities down on the s&p

and the nasdaq down by 1.1%. futures were positive this morning by 1.65%. straight off the back of that number, the wrong kind of upside surprise. yields moving higher. they were down. much more so at the front end. great lineup in the next hour to go through this. joining us in the next hour on bloomberg tv to work our way through this. tom: this morning will be quite extraordinary to see, especially coming off of the presidents politics linking our economics, finance, and investment. joining us right now, we welcome you on radio and television over the shock of the inflation report that harkens back to the middle 1960's. we mentioned carter of 12% inflation. maybe he was out at berkeley reading his economic books

at the time. dudley joins us, and he has been out front on what has happened. i am not going to mince words, bill dudley, this is one inflation report, but important that you highlight our jarring disconnect. how disconnected are we right now from where we need to go? >> i think the federal reserve is the fed has not been stating just what their goal is into .5%, but the means to achieve that goal. at the press conference, wanted to talk about why monetary policy might just have to be neutral but go type. i think tight monetary policy is what will be required to get inflation under control. tom: why are they timid? william: it is not clear to me. they are certainly not timid about talking about what the end goal is but if you are talking about the end goal of two point percent -- 2% inflation, if you

start to sugarcoat it, financial conditions do not tighten as much and you run the risk that people will lose confidence in the federal reserve. people are still confident the federal reserve will do its job. but if you keep under promising what is required, i think there is a loss of credibility down the road. lisa: do you think this is sugarcoating or that jay powell does not believe we will get a more persistent level of inflation that many people including yourself are talking about? william: i think you can see it in the fed's own economic projection. what they showed was inflation was magically melting away despite a monetary policy that did not get to tighten and rates did not rise, which happened to be about 3.5%. that sort of magical immaculate

disinflation, the federal reserve tighten monetary policy. that is what is required. i think the federal reserve should be more forthright about explaining that to the american public. lisa: do you think andrew bailey charted the path for fed officials saying, look what we will be hiking rates into a slowing economy and we might just exacerbate a recession, but a near-term recession will be what is necessary to bring supply and demand more into balance to actually create more growth later on? william: i don't think the fed necessarily has to say there will be a recession. but i think they should explain that a soft landing is difficult to achieve when you have to push up the un-up limit right to hold down inflation. tom: from where you sit with decades at goldman sachs and all of your academics as well, i think our audience is fascinated by what politicians can do.

if we stretch in our recent memory from lbj to jimmy carter to richard nixon, who was handed that from carter, and onto the present president, what do presidents do about inflation? are they even part of the discussion? william: i think the public has an exaggerated view about what any administration can do about inflation. the biden administration, probably the most import think they have done is the strategic petroleum reserve and that is putting some downward pressure on oil prices. but i think the reality is the president's ability to do something about inflation is extremely limited. the only thing the president can do is get congress to tighten fiscal policy to make the fed job a little easy. tom: truly a historic moment particularly with the inflation-adjusted. william w is with us. the former new york fed president. he has been shocking in his

prescient nature and guessing on where the pricing is going. if you are just joining us, we are getting used to 8% inflation. waiting to get mr. jersey lined up on a bond market with a two year yield higher by nine basis points. uncle mickey doing what he does best, which is speak to people like president dudley and also go through the my new shirt and the data. what does this report say about wage growth and the fear of a wage spiral? michael: it does not give us a whole lot of new information because the real average hourly earnings which they calculate by subtracting inflation from where people work, are down 2.6% same as last month. no change there so we are still behind inflation. i talked to a number offend officials in the last few days about what companies are telling them that they are seeing a wage price spiral, and they are seeing prices continue to go up

but do not feel like they have enormous pressure on them yet to raise prices. tom: bill dudley, we go to you on this question. i see wage growth but also the lack of wage growth over the last 15 years or so. is there fear of a wage spiral different now than it was decades ago? william: i think there has to be some fear of it. we have 1.9 unfilled jobs, an all-time record. the consequence of that should be higher wages. higher wages should be the consequence of headline inflation and what wages are doing today. wages should go higher. lisa: do you agree with chris who came out yesterday saying there is so much froth in the labor market that we can withstand a softening that would be more beneficial rather than detrimental, even if it led to fewer opportunities?

william: i think that is what they have to do. i think they are trying to sugarcoat this a little bit. we can reduce the demand for labor without increasing unemployment. so if you were, but don't worry, you will get a job. that is again sugarcoating it. that will be painful. lisa: when we talk about the drivers of inflation, it is one thing for the fed to respond to a labor market that is hot, rents going up. it is another thing to reply to the supply chain that is disrupted and a shortage of goods that ensues there interviewed do you think that it matters -- therein. do you think that it matters for it becomes entrenched in the psyches of americans? william: at the end of the day, the fed's job is to make sure supply and demand right out.

if it last for a long time which is the case currently, the fact that it is due to supply chain disruptions would not matter because supply chain disruptions are persistent and you will have an inflation consequence. lisa: real quick here, you were talking earlier about a 45% fed funds rate. have you changed your view on how high the fed will have to go? william: i think four or five higher. would not shock me if i am 526 months from now. tom: what does not do on the employment trend to the economy and auto limit right? i want you to go for the curve here and link it in. what does it do to the unappointed rate? william: i think an appointment is about what is happening and demand. demand will be fine because right now it is above supply in a number of key areas like housing and autos. i think the economy will be fine

in 2022 but this makes the job more difficult. tom: thank you so much. very important sap get he is the former president of the new york fed. ira with us now forget you just -- now. you just heard bill dudley frank out which is above 3%, maybe 5% or 4%, forms of interest rates, maybe terminal value, way above 3%. what does that do to the fixed income space? ira: i think the first thing is people will be pricing and the market is already there pricing a recession by 2024. so you wind up having a pretty significant inversion of the yield curve, particularly if you get interest rates and the fed funds rate above 3.5%, but first, we have to get there. we were at 3.5% terminal interest-rate from the fed and priced out a lot of that down to 3%. first, we have to price that back in. i think the market you have seen

over the last 20 minutes or ago suggests we priced out too much dovishness from the fed and that will have to priced some of that back in. i think you have seen the steepest you will see the yield curve this year. lisa: when we took a look at this number, we said this is a significant shift in terms of the expected deceleration. it seems like you don't think it is a wow moment for the bond market. do you agree? ira: it was a little bit of a wow moment. there were people thinking we were going to get 0.5% so 0.6% because of airfares, people look through that a little bit, but i think we had been so dovish for the last week or so and at this point that has to shift. we took out a chance of a 75 basis point hike in june but that does not mean the fed will not hike 50 basis points single

meeting this year, which means we can price in another 7500 basis points worth of hikes by the end of this year. it is pretty hawkish in general and something like you just heard bill dudley talk about that the fed needs to be more hawkish. i think that is the first thing the fed will do. they will hit that we will go 50's and do not go anymore. tom: welcome worldwide. a stunning inflation report. nasdaq 100 now approaching -27% on drawdown. -1.7 percent on the nasdaq 100. spx -40 points. the vix goes the other way. 34.30. the vix touched a 35 level days ago forget lisa: there is more volatility but how to play that is a hard call given the people are looking at pricings that might be reflected in the vix. i struggle with the idea of longer-term interest rates being pinned in a yield curve that is

inverting as we hear bill dudley and others talk about the fed losing the plot, losing the narrative, possibly losing faith because they continue to be behind the curve. what is your view on when that kicks back in? because right now it seems like there is a haven bid for the 10 year. ira: i think there is a little bit, but keep in mind everyone was in the yield curve flattened almost all year and that was the consensus. certainly it was our view as well. we had kind of a flesh of some of those so people have to reengage into those flatters. it is hard to do if you have been stomped out of a trade within the last week to get back into those kinds of trades. but i think over time as we get more data and that suggests the economy will be strong and we are going to have inflation that will stay by year-end, then you will have probably more of that yield curve flattening bias. tom: look at the bloomberg total

return index. pick your flavor. look at all the history. the answer is priced down like we have not seen. there are all sorts of articles of that back centuries and back decades. if you have a capitulation in bonds, is there a point where people just sell bonds like they sell equities? ira: i think there is and you have to remember we always talk about the treasury market being a risk-free asset but when you think about 30 year treasuries, if you look at the price of 30 year treasury prices and two years, the 30 year is down work because of risk and interest rates with the shorter duration sector. this is unprecedented in terms of negative returns. if we were to end the euro right now, this would be the worst year for treasuries ever in history. the reason for that is when you had big moves in the 1970's,

yields were much higher so you were able to absorb -- interest payments were able to absorb some of the price down moves. today, we cannot do that. humans are still so low that you get small moves in interest rates and wind up having negative returns. tom: thank you so much forget absolutely fascinating within the bond space. lisa, flat-out extraordinary, flat-out near unexpected. lisa: it shows where the balance of risks where and how much people were jumping on this as a potentially longer time that we will see such persistent inflation. the equity market move is as notable as the bond yield move because it is a knee-jerk reaction lower. nasdaq leading the way. the fact that you are in session lows down near 2% even after all the carnage and with the massive correction shows you how concerned people are about what the repricing is for truly persistent inflation that does not return to levels

historically. tom: i will use a cliche very quickly. we are in original territory in bonds. we have never seen on a percentage basis these price declines. it is original. lisa: we saw a second people come in and buy for the long end. now are they going to get their guts checked and how behind the curve is the federal reserve? tom: euro still 10519. a weaker yen. 13074. absolutely extraordinary. please stay with bloomberg. this is bloomberg. ♪ jonathan: live from big city this morning, good morning. inflation hot than expect the. the countdown to the open starts right now.

>> everything you need to get set for the start of u.s. trading. this is bloomberg the open with jonathan ferro. ♪ jonathan: we begin with the big issue. all pushing cpi the wrong way. let's get to mike for somewhere. >> we were thinking that we would get a decline and we did because of base effects. the headline comes in better than the 1.2%.