>> about an hour into historic for decision. can the market code with the outcome/ -- how come? "bloomberg markets" starts right now. ♪ let's dive into the price action. we are expecting the fomc

decision at the top of the hour. when it comes to the stock market a little bit of respite despite the two days of losses we have seen. you are also seeing the 10-year yield come down a little bit. how much of this is a reversal of the trading seen in the last two days? 75 basis points at the top of the hour. you are starting to see it widen. the risk premium coming back in the play. how much does it pay to go take on the asterisk? what are the implications we have seen? one day on monday. what are the implications or something like the dollar? it has been the story on the broader front. for today's trading comes down to just one question. willie 75 basis point increase show investors that the fed is in fact a control rather than playing catch-up?

>> i think at the end of the day there is a requirement for reallocation. that happens when debt yields are stabilizing and not rallying. it is the light at the end of the tunnel. we see no light into the back end of a bond market stabilizes. then you can see a way in which it will stabilize. right now you are in this void. you don't know where the tunnel ends. that is like going big would not be a bad idea. 75 will almost get you there. kriti: clear and avoid and we don't know where we are going. that's the consensus on wall street right now. joining us with his take is evan brown, a former employee of the federal reserve.

75 is what the market has priced at the top of the hour. if you don't get that, what is more likely, 50 or 100 and the market reaction we should expect? evan: i think 100 basis points is more likely than 50 given it's been -- 75 has been telegraphed. in an article in the washington journal, they wanted to surprise markets. it is no longer a surprise to do 75 basis points. the fed indicated they want to get to neutral as soon as possible. around 2.5%. the way you get to neutral is with 100 basis point hike, or 150 basis point hike if they really wanted to do it. we are leaning into the more hawkish end. kriti: so glad you mentioned the dot plot. anna, we have not gotten and updated dot plot since march. only one member headache -- had

a dot above three. if you're looking at this image, it is very out of whack. that's the professional term i use when it comes to the numbers we are seeing. we will get the updated dot plot. what do we need to see for the fed to perhaps re-instill confidence in investors and economists? anna: the euro-dollar market is pricing above 4%. the last time the march dot plot showed the median participants at 220% of the terminal rate. for this we are expecting the medium participate will pencil and 3.5% for the terminal rate. that is below what the market is currently pricing. the participants submitted the forecast before friday, before

the market developments. so my be updating the forecast today. i think is a dot plot would be a lagging indicator of what the fomc is thinking, it would be behind market pricing at this point. kriti: you look at the cost to clear $50,000 on treasuries, that jumped. clients were flashing warning signals. if you look at the liquidity story in the bond market, it is flashing warning signals. great reporting from our team. tracy alloway and liz mccormick. how much of the concern in the volatility we have seen the markets lately is a function of illiquidity? evan: it's a decent part of it. if you look at the speed of the

investment over the last few days, yes, we've had every pricing of the fed. we've had a tremendous spike throughout the curve as well. the velocity of these moves, i think there is probably liquidity issues. i don't think there is any trouble with the plumbing in general, the financial system is working well. the bond market is working fine. that velocity, it definitely suggests liquidity issues at work. kriti: that is something we can see on this chart right now. anna, one of the other conversations was the seesaw between rate hikes and quantitative tightening. today is not just historic because of 75 basis points. day 1 of quantitative tightening. $15 billion not getting reinvested in the market. should we hear that they will change their tune when it comes to the pace of ramping up that

qt program? anna: we do not expect any changes in the pace of qt. it would be extreme the high for them to change the pace. fiscal deficit has turned out to be smaller this year. state budgets are small. in terms of u.s. supply of treasuries, it's also going to be slower even as the fed is ramping up on qt. the short answer is, we don't expect any announcement on changing the pace of qt. kriti: she mentioned a keyword, the fiscal deficit. fiscal stimulus was part of the case for the weakening dollar in 2021. you've had quite a lot of experience in the fx space at morgan stanley in a previous life. you are looking at euro-dollar

parity on the horizon and the stronger dollar story. how do we know what we see the pivot point or the peak in the greenback? evan: i think what we need to see is growth outside the u.s. stabilize. europe has been ok. there is stagflation air he questions. -- stagflationy questions. the growth will come from china. china's stimulus is slowly happening. if that really starts to create some traction and we expect the u.s. economy to slow, that will balance things out. we are a ways away from that. we need to see more evidence that the stimulus is coming through in china and that will have positive effects for the rest of the world. kriti: an issue a lot of people are watching in stocks and bonds. evan brown and anna wong, thank

you for your time. time for mark's first word news. mark: the u.s. supreme court will provide the united states -- the united states will provide $1 billion in security assistance to ukraine. president biden told president zielinski -- volodymyr zelenskyy it will go for artillery, coastal defense and advanced rocket systems. president biden said he is announcing additional $225 million in humanitarian assistance to help people inside ukraine. the u.s. supreme court has sided with hospitals and a involving medicare reimbursements. they unanimously ruled the federal government improperly lowered drug reimbursement payments to hospitals and clinics that serve low income communities. that reduction can cost billions of dollars. shanghai is ramping up efforts to prevent wider outbreaks of covid-19.

the city will conduct mass testing through the entire city every weekend through the end of july. a temporary lockdown will be imposed on any residential complex where a covid case is detected. shanghai reported two cases requiring quarantine facilities and scores of close contacts to quarantine to prevent further spread. heavy rain and rapid snowmelt at yellowstone national park triggered flooding and tore out bridges and damaged homes nearby. the raging waters will cause roadways to be rebuilt elsewhere. it drove more than 10,000 visitors out of the nations oldest national park, which could stay closed for a week. no one was reported hurt. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am mark crumpton.

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kriti: this is "bloomberg markets." all eyes on the federal reserve at the top of the hour a truly historical moment. must get to michael mckee who was in washington right now. a historic moment here. what could possibly go wrong in the market is pricing and 75 basis points? michael: if the market got a 50 basis point movement, it might have been exploited because it has been telegraphed for days. if you went higher, there would be a bit of a spike. if they did 75, it suggests with a dot plot they will move up the pace of rate increases going forward.

people will basically have seen what the price should be. it will not be a big question. the question that might go wrong for the chairman is why you changed your views on how fasting should go? how concerned are you about the big inflation jump we saw last week? kriti: how does chairman powell navigate this and that he has to reassure the market the economy is not heading for recession while showing them the fed is taking this seriously? what kind of precedent does the set for future meetings? michael: that's a good question because forward guidance was the precedence they were using. that goes out the window if they go to 75. he's likely to say they still think they can bring it in for a soft landing. the labor market is so strong. we are looking at the end of claimant forecast in the summary of economic projections. if they go more than 5/10s

higher, they are predicting they can get a soft or softish landing. it is harder for him to sell the rate of change in the fit'-- fed's benchmark rate. they are in the blackout period which would be extremely unusual. kriti: michael mckee, it is so global here. we had an intake climactic meeting, emergency meeting for the ecb. they are looking to use anti-fragmentation to try to help deal with some of the surging that you see in italy, perhaps readjusting the reinvestment in the pat program. how does this square with an acutely hawkish federal reserve in a market that is considering 100 basis points into the

dialogue? michael: it is the fed that will affect the ecb. if that because higher, that puts pressure on the euro and put pressure on the peripheral markets in the euro zone. they have a tough job in following the fed. how fast can they raise rates given what's been happening with peripheral spend? the president of the ecb, christine lagarde, was asked about the fragmentation problem. she got the question -- duct the question -- ducked the question. at least it's an answer any gives people a little while. they have to come up with something. it's important to note 200 basis points, we are nowhere near the highs of the spreads during the crisis in 2011. kriti: some of those concerns are do we had another sovereign

debt crisis at a time when i think christine lagarde set her job is not to close the spreads and here we are perhaps doing just that. michael mckee joining us from washington, d.c. sticking with us and covering it live from washington. we will continue our countdown to the fed decision with ajay rajadhyaksha, berkeley's -- the first to call for a 75 basis point hike today. this is bloomberg. ♪

>> if we move 75 basis points tomorrow, that means the fed is moving forward. they are acknowledging inflation above 8% going forward is something we need to get control on. the question becomes, if they don't, the market expect to go 50, that moves the market even further and giving fears later on we will fall behind and we have to even more catch up. kriti: this is "bloomberg markets." that was anna han yesterday. 30 minutes to that fomc decision. 75 basis points is on the table. joining us for insight on what is next for the federal reserve, ajay rajadhyaksha, barclays global chairman of research, and gina martin adams.

thank you for joining us. gina, the markets are seeing green on the screen when it comes to the stock market. you heard anna han say 50 basis points could spook the market. what helps this market rally? gina: it's a tough handicap given the volatility we have experienced in the last couple of days. you would expect after monday's severe decline we would be in something of a rally mode. the sector positioning does tell you a lot about what the market is thinking. the market does appear to be pricing for the fed to increase rates of 75 basis points. maybe at the next meeting as well. then start the tail off at the end of the year. our work suggests the fair value of the s&p 500 is close to about 4000, as long as that case does indeed play out where the fed

tightens enough to reduce inflation over the next two or three meetings. the fed really starts to throw down the pace of gains as the earnings slows materially as well. kriti: we will keep all eyes on the stock market. what kind of precedent does the set? barclays saying historically the u.s. central bank has avoided surprising markets when it is not priced in. the fed should want to surprise the market by being more hawkish than expected given the magnitude of upset surprises in recent inflation data. that was put together back on friday when we had that cpi report. ajay, you were part of this call. if the ideas to surprise the market, the market expecting 75 basis points, does this set the stage for 100 basis points if not today, perhaps the next meeting? ajay: i don't think it does. the monday leak that the

market pays attention to, has paid attention to was the surprise. on friday, like you said, price pressures were broad enough and accelerating enough the fed needed to make a statement hike. this is that statement. i think 70 five basis points be enough. kriti: we are talking about 75 basis points, 100 basis points. if you look at euro-dollar spreads pricing and the rate hikes into the next year, or rate cuts, the market is pricing in rate cuts going into 2023, matching some of the recession calls. is that a fair assessment to make or are the markets getting that wrong? ajay: i think it's a little too aggressive. the economy has slowed quite a lot. the retail sales number tells you. the rest of the world is slowing it normally more quickly. the europeans.

you don't think china is rebounding at all. china and 2022 ends being weaker than in 2020. that is the kind of thing united states, as large an academy as it is. -- economy as it is. kriti: gina, let's get bloomberg intelligence back in the mix. i want to talk about liquidity. stock market liquidity is still an issue. quantitative tightening begins today. how much of the stock market drop have we seen in the liquidity story? when do we see that get resolved at a time when the reserve is being restrictive? gina: i don't think there is a liquidity issue the asset market. i think it is operating normally and consistent with past experience. rates re: setting and resetting very quickly after being in an environment where rates were

enormously supported for stocks. there is some quantitative tightening starting in the system. we are just moving to a state of balance from a state of a's ordinary and balance. that does create a lot of volatility in the equity market. there are signs of true illiquidity emerging. it is pretty rational frankly given this vicious shift in rates we've had. kriti: gina martin adams, ajay rajadhyaksha. we thank you both for your time. 30 minutes to the fomc decision. we have green on the screen. 1% gains on the s&p 500. looking at the 10-year yield, yields are lower in anticipation of this decision. how much of this is fundamentals and how much is tactical?

tune in for the fed decides coming up next with tom, jon and lisa. stick with us. this is bloomberg. ♪

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