jonathan: live from new york city, bloomberg "real yield" starts right now. coming up, strong data keeping the pressure on the fed. officials showing no sign of pausing anytime soon as the c-suite delivers a troubling weather report. we begin with the big issue, the data providing something for everyone. >> the last solid report you are going to get for a long time. >> job creation has to decline. >> the labor market is too tight. >> this is where we could see the overheating of the u.s. economy. >> this will do nothing to deter the fed from where they are going. >> looking ahead, what is the data going to show us? >> we have made the turn on employment. >> things change quickly.

>> leisure and hospitality, business services, the trend is coming down. >> loosen it up or wage pressures will accumulate. >> a cooling in the labor market would be a good thing. boxed does the second half hold for us? jonathan: let's discuss. joining us is gargi chaudhuri, bob michele, and jim bianco. you are in the soft landing camp. as the data validated? >> hi, good to be here, and happy friday, everyone. i have definitely been on the soft landing camp, and so far i have not seen anything in the data that would make them over to the hard landing. even just looking at today's payroll report, obviously some very strong prince there. much stronger than expected, but at the same time we are slowing down. when we compare this month to

the three month moving average, we are slowing down and probably going to continue to slow down, which is exactly what the fed wants to see, what the fed needs to see, and hopefully as we sort of slow down a little bit on the job market front, i think it allows them to be a little less hawkish, which, again, allows for the soft landing. jonathan: that was the view of others. neil wrote the following. the unemployment rate was flat relative to the month prior to earnings. the participation rate picked up. good news for those expecting the fed to back off at some point. i have are others, bob michele, take the other side of the argument. which side are you on? bob: these are the easy labor reports, right? there is pent-up demand being spent. the next three months are also going to be pretty good labor reports. it is the summer, people are going to be out, they are going to be consuming. unemployment is going to remain low.

wages are going to go up, 5%, 6%. everyone is looking for summertime workers. it is when we get into the last quarter of the year, that is when we have to pay attention to the data. that is when things start to slow down. we will have a much higher fed funds rate. you will have several months of quantitative tightening. and you will have three or four more months of higher inflation hitting consumer wallets. right now, let's enjoy the next few months. jonathan: jim bianco, the data has been good. you say this is a case of good news is bad news? jim: yeah, the market wants the fed to slow down. we are looking for reasons to find a slowing of the economy this fall, or into the winter. we have got forecasts of it being a super bad feeling or a hurricane coming. if that happens we can talk about it, but right now with this number tells the fed is, go ahead and keep hiking rates like crazy because you are not creating unemployment, you can

put pain into risk markets to hopefully cool demand. and that is not what we want to see and i think it is being reflected in the market today. jonathan: jim, you don't think we have seen the high for yields, you don't think we have seen the lows for stocks. jim: that is correct. as we move forward from here, inflation is going to continue to be a problem. it probably has peaked, but that is really, as i have said before, that is not the issue. the issue is, how fast does it come down? i have been on this precise technical term of, not very, because it is going to come down not very fast. i think the fed is going to be forced to get more aggressive, and that could produce lower stock prices and higher yields. jonathan: gargi, what is the counterpoint to that? gargi: a couple of things. of course inflation is going to come down from -- some of that is going to be base effect. we look at the month over month changes, especially the cpi next

week, we are going to see inflation still going up. having said that, i think the fed has to recognize, which i think they will at some point, especially after the next three or four months of strong data, they have to realize some of this inflation is supply driven. if they continue to push and push against that supply-driven inflation, which they may not necessarily have the tools to contain, and they continue to raise rates much higher than what is priced into the market today, i think that is a double whammy for the economy. you have higher inflation we have to learn to live with, and on top of that you have higher rates. we are already seeing softening in housing data, and as we continue to push higher from the fed we probably continue to see some of the consumer demand slow down. i think that is what really worries me. inflation, certainly we are in the camp it remains stickier, but i think the fed has to learn

to live with that higher level of inflation that is supply-driven and not entirely demand driven. jonathan: bob michele, do you agree? bob: we have eight months until we hit the 3% fed funds rate market is pricing in. let's see what happens over those next eight months. sure, they are going to raise rates to that level. sure, quantitative tightening will have an impact. sure, consumption will slow down. but will it slow down enough? that is what we are waiting to see. if you go back eight months, it was october last year, nobody was thinking about russia and ukraine. so, a lot can happen. i think what is important is the fed cannot make a mistake on inflation again. they already got it wrong last year. think they're going to air on the side of raining it in. if it does not come down to three, 3.5% by year end, then they are going higher than the 3% the market is pricing in. jonathan: let's talk about the

kind of economy you are anticipating. there is a man you might be familiar with that talked about a hurricane coming. how bad do you think this is going to be, bob? bob: long-range weather forecasting is an inexact science, at best. i believe the gentleman you are referring to -- and i cannot see behind me -- if you see him coming up hind me -- jonathan: i will let you know. bob: let me know. i think he said that is one possibility, not the only one. i think it is very aspirational for central banks to think they can engineer a soft landing. you're dealing with the greatest inflation for years, and they are trying to withdraw some of the greatest liquidity ever injected into an economy. it is a tall order for any central bank. jonathan: what are the market indications of that assessment? for the treasury market, starting there, then we will get to credit later. for treasuries what does it mean? bob: i think you are already seeing that. once fed expectations got to a

reasonable level, 3% next year, the treasury market stabilized. we think the 10 year settled somewhere around 3%. let's go through the next couple of quarters and see what inflation will look like. for now there is a lot of work for fed -- for the fed to get to 3%. the markets can stay there. we are already seeing money returned to risk assets. it has gone under the radar, but may was the first month this year that high-yield or investment-grade had a positive return. both of them had a positive return. things are starting to stabilize. there will be more mining coming -- more money coming into credit. jonathan: with the conversations you are having with clients, are they looking to allocate every time yields kick higher? bob: they are. they are sitting on a lot of cash. they are looking at the repricing. they are worried about inflation, they are worried about recession, but they also have money to put to work and

they want to take advantage of the higher yields, lighter credit spreads. we have already seen a big move in the muni market. one of the things we are keeping an eye on is the quarter and. this quarter we should see some of the biggest rebalancing ever, and that money should come out of cash and go into bonds and equities. jonathan: gargi, do you sense the same thing? gargi: absolutely. to bob's point, this has been a strong month for fixed income. it is the first time since november the agg was up on the month, and i think what we have seen is everything a day in may there was inflows into fixed income funds. and a lot of that was actually in the front end of the curve. when i'm having conversations, one is those clients that have been sitting in cash and are now finally feeling comfortable to step out a little bit.

really, still staying very short on duration, looking at hsv tickers, but still stepping away from cash. then there is the other group of people that are looking at these levels on high-quality credit, better looking at close to 4% on igsb, or investment-grade credit which has a little bit of duration, have had such a significant backup. we are actually seeing investors dipping their toes a little bit, asking a lot of questions. we are seeing those inflows. if anything we are seeing short covering. hyg has been trading at a premium, and i think we are seeing some of those dip buyers entering cautiously into the market as well. jonathan: sticking with us. next, the auction block. junk bond sales coming back to life after the slowest may in 20 years. that conversation, up next. ♪

jonathan: live from new york city, i'm jonathan ferro. this is bloomberg "real yield." it is time for the auction block. closing out a busy week in quiet fashion. in the u.s., borrowers pricing $3 billion in high-grade debt on thursday alone, pushing weekly volunteer -- weekly volume to the high end of dealer estimates. a stream of issuers ranging from health care to energy pushing volume above $6 billion. keeping it on credit. mike collins seeing the potential for better returns in high spreads. quotes spreads went from arguably pretty fully-valued, you know, a few months ago, to

fair value, maybe slightly cheap. demand comes in at these higher levels of yield, and companies are doing ok. the fundamentals are still ok. even if you have a technical recession i don't think it is going to be an existential credit crisis. jonathan: a great lineup to close out the week. bob, first to you, do you agree with mike collins's estimate? bob: i do. when you look at corporate profitability it still looks good. leverages going up, but companies are doing the smart thing. we look at the high-yield market in particular -- and under your talking about increased supply -- this is a great market. in 2026% of it defaulted away. the remaining 94% are great companies. by the way, you are not buying them at yields low 5%, where you were at the start of the year. you are buying these above 7%,

with default rates still below 1%. there are a lot of pension funds thinking, 7%-something yield does diffuse my liabilities. let's add some. jonathan: what is the scope for tightening spreads now? we have had a couple -- we have had some in the last couple of weeks along. i would love your perspective, because rick rieder essentially agreed with the idea that any tightening in spreads, any loosening in financial conditions from here, could be perceived by this federal reserve as an unwarranted easing and one they might have to lean against. what would you say to that? bob: i'm not so sure they are there this month. i think, yes, at the start of the year when they looked at where inflation was, the 0% fed funds rate, and they had not begun a quantitative tightening, there was a lot of damage control. they needed tighter financial

conditions to do the work. now they have tighter conditions, but the raising rates, quantitative tightening has begun. if financial conditions moderate a bit, which they have, i think there will be ok with that. you don't want to choke off access to credit for corporate america. jonathan: jim, do you think the fed would be ok with where financial conditions are right now? jim: actually i don't think they would be ok. if financial conditions were to get better it would undermine their whole modus operandi. remember, it was this week -- let's call it what it was. the president essentially ordered the federal reserve chairman to bring inflation down. bob was right. they made a catastrophic state last year with using the word transitory. if they are going to make a mistake this year it is not going to be too dovish for a second year in a row. they're going to get very aggressive. if they see any easing of the financial conditions i think

they are going to jump on it. but the payroll report at 390 thousand, that opens the door for them to raise rates without fear of creating unemployment. unless we see a real, intangible signs -- real tangible signs, i think loosening financial conditions will be perceived as a bad sign. jonathan: when you say aggressive, can we put numbers on that? what does that mean? jim: 50 basis points for here on out 50 all the way on out. yes, i think september, right now the market is pricing over 70% chance there will be a 50 basis point hike in september. june and july are at 100%. you have four in a row, then after that you could look for another one in november. unless something breaks so bad it causes the fed to change course i think they are going to go 50 until they are done with this cycle. jonathan: gargi, i would love your view on that. gargi: the chances of them

threading this needle so finally that they were able to do this perfect soft landing, that chance has gone down. i was in that camp and i kind of still am, but i do get worried when i hear them talking about wanting to move the unemployment rate higher, essentially. you can catch it around v2 ratio and reducing the number of job openings, but at the end of the day this is a fed that wants to cool the labor market, and i think that is going to have some unintended consequences. having said that, i think there is a way in which they can prevent this. that is by raising rates by 100 basis points between now and july, they have told us they will do. excellent. and in september, i don't think they should pause, but i do think they should acknowledge that monetary policy works long and variable lags, and maybe that means a 25 basis point hike , and that allows the economy to

see after all of these 50 basis point rate rises in a stretch, with some data calling. you know, we are already seeing job openings. they are high, but they have come down. they came down this month from all high levels. we do see year-over-year inflation, especially on pce, which is the fed's preferred measure of inflation. that is going to diverge meaningfully from the cpi measure. let's say that comes down to a high three handle. i think that allows them the opportunity to stay away from a recessionary backdrop by pausing or going at a slower pace from september until the end of the year. that is where i think they are going to perceive. jonathan: vice chair brainard pushed back against that. i want to understand from your perspective, hard to do this without understanding where the data will be, but how dependent is your more constructive if you on risk assets, on this idea

that the fed has to have that reassessment in september? without that can you still be constructive on risk? gargi: two points here. on the point that brainard made, it is not about a pause in september, at 825 versus 50. i think that is exactly the conversation they should be having. i think they should err on the side of 25, which is what the market is pricing in higher than that. i agree with that. we also had -- who was that? i think it was bostick that talked about the fire and sirens, and even when the fire truck is going they are waiting to see they don't cause any more harm. there is an acknowledgment that on this path of raising rates they can actually cause some further damage. your second point around being more bullish, i would say we have definitely tempered that a little bit. we have been telling investors, coming into the field we were or positive. had this value and quality

barbell. we are telling investors that you should still stick to that quality, look at pricing power, then add minimum volatility. stay invested, but look at minimum volatility. obviously that is a more defensive stance. then adding front and government bonds as your ballast, because obviously that aligns with the view the fed doesn't go 50 basis points every meeting between now and at the end of the year. jonathan: i wrote on the bostick quote. even firetrucks slow down at intersections, lest they prevent -- lest they cause further trouble. gargi: of that one. jonathan: sticking with us. still ahead, the final spread. the week ahead, featuring another big u.s. inflation print and a big ecb decision. that conversation is up next. ♪

jonathan: live from new york

city, this is bloomberg "real yield." it is time now for the final spread. coming up, china pmi over the weekend. next week a whole host of central bank decisions, including a big one from the ecb on thursday. posing out the week with a big cpi print friday. bob, briefly, the ecb next week, are they going to be teaching us up for a rate hike? -- teeing us up for a weight -- rate hike? bob: do they do 50 or 25 out of the gate? i think because it is the ecb, they're going to do 25. jonathan: can the ecb get rates back to zero before year end? this was controversial maybe six months ago. i think this is pretty easy for you guys now. yes or no, can the ecb get rates back to zero before year end? gargi: yes. jonathan: bob? bob: yes. jonathan: jim?

jim: easily. jonathan: things have changed a lot. on inflation, i'm looking at the estimates. the median still has an eight handle. if you had to get out to december, year end, where you see cpi? expected to be eight next year, jim bianco, give me a number for cpi, year end. jim: 5.5%. jonathan: bob michele? jonathan: 5% -- bob: 5%. jonathan: gargi chaudhuri. gargi: probably closer to 4%, 4.25%. jonathan: if you think about where this fed hiking cycle ends, where you expected to end? you get to pick a number. is it a number closer to 2%, closer to 3%, or closer to 4%? which one would be, jim bianco? jim: that is a tough one, because i wanted to go 3.5%, so

i will grow closer to 4%. gargi: closer to three. jonathan: bob michele, final word. bob: closer to 3%. jonathan: thank you. from new york city, that does it from us. we will see you at the same time, same place next week. this was bloomberg "real yield." this is bloomberg tv. ♪

mark: welcome to the bnn bloomberg audience. i'm mark i'm done with first word news. speaking from delaware, president biden was asked whether he will be visiting saudi arabia, despite having vowed to make the country a "pariah." pres. biden: there is a possibility i would be going to meet with the israelis and the arab countries at the time, including saudi