>> a good morning to "daybreak: australia:." >> we are counting down to a just market -- we are counting down to the major market. >> jerome powell sickles another big move next month. >> i do not expect moves of this size to be common. today, a 50 basis point or 75 basis point increase seems most likely at our next meeting. >> u.s. stocks and bonds rising, signaling the gains will continue in asia. >> the ecb ramps up efforts to

stave off a resurgence as investors i more rate hikes -- eye more rate hikes. u.s. futures higher by 0.2% after we saw the s&p 500 ralley during chair powell's press conference. not everything he said was bullish for the markets. we heard bearish tones and rhetoric. he wants to see financial conditions continuing to tighten. he believes conditions must be more restrictive. we have seen a brutal selloff for the rest of the week that anything he says led to that relief rally with the nasdaq 100 gaining more than 2%. the fact that he talked about 75 basis point hikes not being common in the future lead to big market reactions including the dollar plunging by the most by 2020 and a two year yield plunging. this after we had seen that push

higher and today's fall by as much as 25 basis points. we are seeing crude prices rebounding in the asian session but it was about that dot plot. you can see the year end projection for the fed funds rate has been moved up to that 3.4% for 2023, 3 .8%. it is such a reversal from what we saw three months ago. not surprising we saw that market reaction, including concerns that we might be headed toward ava session. after the rate hike, the first central bank to follow suit, brazil. we had another rate hike, and we know brazil has been aggressive. they might continue to increase those rates. >> you can hear that sigh of

relief coming into the asian bond markets. we are seeing yields decline. let's take a focus in the aussie space. we had seen the three year yield jumping the bows and 30 years over the last two sessions. japan bond futures are a different story because they have seen the showdown between the bond traders and the boj yesterday, hitting a new peak when we saw futures being suspended at that selloff continuing. even if the boj pledged to stick with its program and keep buying bonds. that is a pain point for the yen, we are seeing at pullback a little bit from its recent highs. we did hear the government urging the boj to rein in that drop. equity futures at the start of trade, we are seeing futures pointing higher for australia and japan. new zealand just coming online. these markets, particularly australia and new zealand, they

are at or around lowe's we saw in 2020. we are going to be watching any lines from korea. we are hearing the finance ministry and boj meeting to discuss the fed. >> it was a balanced statement from the fed chair. extremely difficult, the tone to be struck in these, given how much is at stake. the fed admitted the reference to the return to the 2% objective because that suggests that the fomc sees these price pressers as -- price pressures as persisting. 3.4% is where futures are projecting at the moment. the question is what that looks like, another 75? a 50 through the end of the year? shery: we have four more

meetings where we spilt -- where we will see way decisions and we will be watching. right now, the chair saying that that soft landing might be possible but it will not be easy , and interesting when it comes to the forward guidance, they chose to omit expectations of a strong labor market, focusing on inflations. we will welcome our global economics and policy editor. what did you take away from the federal reserve? leading up to this, you and i have been talking about 50 basis points and sunday five basis and even 100. what you make of what happened? kathleen: within the last four weeks, month and a half, every time the fed spoke, 50 basis points is what they were talking about. something happened in the last couple days which they did not expect. it was not just cpi inflation rate up more than expected.

it was a signal from the university of michigan and their survey about inflation expectations. a record on the new york fed. that is one of the things that shifted recently, to put this in play. let's take a look at the dots. jay powell did say 50 basis points, 75, although said he does not think 75 basis point rate hikes are going to become common. the median forecast of 3.4%, it was 1.9% three months ago. from december to march, a big shift. now from march to june, if inflation does not come down, and their biggest fear of all, inflation expectations getting out of control and the range is pretty big, from 3.1% to 3.9%. i would bet the [indiscernible]

maybe 50 would be more appropriate, that is what they were advertising. she has not spoken yet. in terms of what their forecasts are, this is where a lot of focus is among economists. their previous march forecasts were considered unrealistic. they were saying, i guess you can have unemployment rising a little bit as inflation comes down. here is what changed. they did acknowledge in the updated summary, that key inflation measure at 5.2% this year. by 2024, they see inflation down to 2.2%. they had said 2.3%. but they see unemployment rising to 4.1%. that is a big increase. it is more realistic about what they are going to have to do to

bring inflation down but a lot of people are saying, like bill dudley, he said these forecasters are optimistic, he thinks the fed funds rate has to go more 25% and we are going to have to, unless it is a miracle -- more to 5% and we are going to have to, unless it is a miracle, seymour before inflation comes down -- see more before inflation comes down. >> we saw that outsize market reaction in the short end of treasuries, the yield on the two year plunging. when it comes to the idea of what the narrative is, is this the market thinking it is a dovish statement or is it an adjustment? vincent: i think what kathy mentioned is important. -- kathleen mentioned is

important. going back, you can go as far back as alan greenspan. i don't see why markets and investors put that much weight into their forecasts and betting real money on what the fed things inflation is going to be in 2023. we have seen data in the last week that suggests consumer spending, which would impact inflation, is starting to slow. housing demand is shrinking. two real estate agencies cut staff yesterday because the sales are not there. sales turned negative and the fed is calling for second-quarter gdp to be zero. when you add that up, i don't see the believable case for

inflation -- i think the consumer is going to do the heavy lifting, slowing purchases to reduce prices, slow demand, which is what the fed is trying to do, and bring that supply -demand back into balance in the way inflation. >> how will the latest measures by the federal reserve impact the rest of the world? we have decisions coming up at the ecb, also having to implement new measures. tell us about the big picture repercussions. vincent: we will see what their reaction is. the ecb has basically said they are not really in lockstep with the fed. they are inclined to raise rates but they are not worried about inflation that much. the bank of canada is probably the closest to where the u.s. is in terms of marching in lockstep

with the central bank here. the central bank that has the biggest challenge is boj, given what we have seen in dollar-yen. the two year sovereign yield in the u.s. and in japan tracked closely to where the dollar-yen does. as that widens come the dollar gets stronger. that makes inflation a bigger issue for japan. we have to see what the appetite is for the boj to push up on interest rates to keep the dollar in check. >> vincent cignarella and kathleen hays. let's getting over to vonnie quinn. vonnie: good morning. the european central bank is working on new policy tools for the eurozone debt crisis. the decision was announced after the central bank made a surprise announcement. bonds yield as countries like

italy shot up to 80 or highs after the ecb announced it plans to tighten policies. president biden has told president zelenskyy that u.s. will provide another $1 billion in security assistance. that includes artillery and ammunition. also advanced rocket systems. joe biden says he is announcing $225 million in humanitarian assistance to help people in ukraine. shanghai will conduct mask over testing throughout the city every weekend through the end of july. a temporary lockdown will be imposed on any residential complex where covid cases are detected. workers at supermarkets, restaurants, and other public facing businesses will be tested every day. china is setting up tens of thousands of lab testing booths. hong kong is tightening rules for home isolation as new cases top 1000.

health officials say infected residents you don't have access to a toilet they can use exclusively will be sent to government run facilities. previously, in places considered suitable were allowed to remain at home while recovering. yes you linn energy market operator extended spot trading trying to ease supply issues. the intervention means they can compel generators to provide electricity. some plans have been -- plant seven withholding supplies. i share is facing an energy crunch were by coal-fired power plants. -- worsened by coal-fired power plants. 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. this is bloomberg. haidi: still ahead, why the risk of recession is real but not high as the fed [indiscernible] first, jay powell signals a big

interest rate move next month. this is bloomberg. ♪

>> we are committed to returning inflation to our 2% objective. inflation has surprised to the upside. some indicators have risen and

projections for inflation have been rising notably. in response, a committee decided a larger increase was wanted at today's -- warranted at today's meeting. today's increase is an unusually large one and i do not expect moves of this size to be common. from the perspective of today, a 50 or 75 basis point increase seems most likely at our next meeting. >> jerome powell speaking after the fomc decision. let's bring out our editor who is standing by with our next guest. kathleen: 20 us now, jeff lacker, former president of the federal reserve bank of richmond. it looks like a historic fed day. looks more aggressive. is the fed being aggressive enough? prof. lacker: it is a move in

the right direction. it is a big step today, taking everything considered about the meeting together. in the direction of greater realism. inflation forecasts for this year is 5.20 5%, much more realistic. the unemployment rate is forecast to rise a bit in the federal funds rate path is higher and more realistic. nonetheless, there projections lie at the outer edge of credibility in my view. the inflation rate falls to 2.5% next year, the unemployment rate never gets above 4%, or the median doesn't, until 2024. the federal funds rate only reaches 4%, clips that, at the end of 2023. this is a best case scenario. a number of things that are outside their control have to

break in their direction, supply chains have to heal themselves. and wage rates have to decelerate smartly as well. i think they are going to find that is going to take more aggressive rate hikes. kathleen: how aggressive will they have to be? how high is the funds rate going to have to get and how quickly is it going to need to get there? prof. lacker: i think it is going to have to go to 5.5 -- have to go to 5.5% or 6%. that is based on the historical record that indicates real interest rates, inflation-adjusted rates, have to get above zero to have any chance of restraining inflation. the fed's policy rate is negative on an inflation-adjusted basis.

to get it into positive territory, it has to get above the current level of expected inflation, which indicators suggest is around 5.5% to 6%. we are going to have to raise a pretty smartly. >> can the fed do that without crashing the economy? prof. lacker: i don't think so. i think they missed the opportunity to do this without a recession, without a significant increase in the unemployment rate. i would love to be proven wrong but i don't see how that can happen, how they can restrain demand enough and pullback inflation without causing a significant downturn in the labor market. haidi: it seems like the blunt tools that the fed has are maybe

feeling -- feeding more into inflation expectations. at the same time, to these policy tools have as much of a chance of working when it comes to combating energy and food prices? prof. lacker: ultimately, they will have the potency they need if they raise rates enough, but you are right to point to the delay last year as hamstringing this year. i think the fact that they took so long to get on top of this to start moving until march this year has led inflation expectations become more embedded at least over the short term and it has encouraged wage rates to rise at a more rapid pace to make up for that inflation. i think we have embedded wage inflation that is going to keep prices up at an elevated level. kathleen: people are looking a

lot at financial conditions. they are looking at the fact that the balance sheet reduction is starting now. how much lift is that going to give the fed? you think the fed's rate has to be a lot higher than the median. prof. lacker: i think the balance sheet is a sideshow. it is large and they are reducing it at a decent clip, they could go faster. some fed officials hinted about the possibility about needing to resort to outright active sales. i think that would be a good sign if they did that. if they started selling in particular mortgage-backed securities, there is no reason why they should be providing stimulus to the housing market at this point. the housing market is overheated, it is one sector where they need to ratchet down.

i don't think the effect on overall economic activity is large enough from the type of balance sheet adjustments that are contemplated to be material factors here. >> this insistence from jay powell that a soft landing is possible as more voices say, if you don't get a real recession, you are going to have higher unemployment installer demand. is it tougher for the fed now to send this signal, doing whatever it takes, especially so close to a midterm election, especially at a time when inflation has become not just a monetary policy, but political as well? prof. lacker: they are walking a fine line. they are expressing their determination, their commitment to bring inflation down. they have said in the past they believe they can do it with a soft landing. i think they have backed away from that a little bit in this

meeting. they dropped a critical sentence. the sentence said they believe with appropriate policy, they can bring inflation down and maintain a strong labor market. they deleted that, indicating they are not certain they can do that soft landing. that is an indication they think they are running the risk of a recession. their commitment to reducing inflation means we are committed to running the risk of causing an obsession -- of causing a recession to get that done. the inching up to that opinion, i think we will see if that place in the marketplace. shery: racing is priced in when it comes to the rate hikes into 24. it was good to have your insight. we have more analysis coming up, this time with vincent reinhart.

this is bloomberg. ♪

>> taking a look at the day ahead for australia and new zealand. australia's energy minister says significant blackouts can be avoided after the suspension of spot trading on the key national energy market. outages have put the electricity network under stress. australia's unemployment data is out later, economists are expecting 25,000 jobs added in may. we are awaiting new zealand's third-quarter gdp in half an hour. next, what it sees

>> a big change from the fed. >> the fed caught up with the marketplace again rate hikes. >> the fed needs to send the message that it is going to crush inflation. >> they said they are going to move expeditiously. >> i don't think it is just so much headline cpi. it is a fact that they are seeing inflation expectations. >> the question is if they will deliver on the path they laid out. >> i think the fed's forecasters are optimistic. >> these numbers are fantasyland. the unappointed rate is fantasyland. -- the unemployment rate is fantasyland. >> how much is the fed going to tolerate higher unemployment? >> we have never had a period where inflation has come down

more than 2% without recession. >> the fed says they are going to pull off something that is never been accomplished in u.s. economic history. shery: sticking with that, this is all about the fed, central banks around the world. we are seeing economists are adjusting expectations for the next meeting. annabelle: we got a call this morning from barclays. they were one of the first to call for that 75 basis point move. jay powell did leave the door open to such a move in the future but saying it would not be likely. barclays expecting the fed to hike by 50 basis points at their next meeting. a couple factors they are looking at. the first sign is weakness in the u.s. housing market. the second factor is retail sales. we did get those numbers on wednesday and we did see a decline for the first time in five months.

the reason is investors are saying to hold back from big ticket items with high interest rates, particularly in the auto space. >> hollenback is not what some investors are recommending when it comes to buying bonds. annabelle: this is from t. rowe price saying this is the most attractive entry point we have seen in years for bonds. t. rowe price does have four point $1 trillion in assets under management so we hope they know what they are talking about. a few caveats as well, investors need to understand moderation. if you pull up the terminal chart, we have seen debt prices plummet. this line in white is the u.s. high-grade bonds, now at a record low. t. rowe price looking at opportunities in the a.m. dollar-denominated space. it does say selecting the right

country and underlying security is critical. haidi: let's discuss all of that can be outlook for global bonds with jasmin argyrou, portfolio manager with credit suisse and joins us here. great to have you with us. we thought in the short end of treasuries coming down in the wake of the fed announcement. is that momentary? jasmin: i think the volatility is not over. the likelihood is that policy rates in the u.s. may need to go to a more restrictive stance than the market is pricing in. that is where the balance of risks lie. when inflation is as high as it is today, it is extremely volatile.

high inflation and high volatility go hand-in-hand. that is going to add to the fluctuations in bond markets. >> for australia, the minimum wage is one of the drivers. where does that place the divergent see? jasmin: the decision on minimum-wage is not really the main issue for the australian inflation outlook. it is about the labor market. the labor market is as tight as it has been in 20 years or more. that is going to put upward pressure on inflation. the pressure from a tight labor market is going to play out. we have been predicting wage growth to accelerate. the decision on a minimum wage has not changed our view and it

was not predicated on that view. it is predicated on the imbalances that might be present in the labor market, both here and the u.s. in the u.s., it is far worse. that is why in the u.s., policy rates will probably need to be restrictive for some time. in australia, we think the cash rate will peak at 2.5%. that is about neutral. haidi: the idea of neutral continues to change, particularly when it comes to the fed. is there a risk of undershooting or overshooting? perhaps what other central banks are doing is feeding into that. jasmin: that is a good point. the neutral rate of interest or where the policy is accommodative or restrictive might depend on where the fed

funds rate is relative to history. it is also important to look at financial conditions. today, chair powell talked about this. the policy of a central banks make will be calibrated with the view of how the market is responding. to some extent, the market has been anticipatory, forward-looking. markets have done a lot of the work for the fed. now, there is a risk they are overshooting. central banks will calibrate their response. shery: stick around, we want to continue the conversation. we have seen gyrations in europe , especially with italian bonds. a new european central bank tool wants to prevent government that blowout, that could mean more asset purchases. vetoes are few and far between,

leaving economists speculating what form the instrument may take. let's get more from john. explain this. this is to tackle that fragmentation. >> it is a rerun of 10 years ago of when the debt off peripheral countries came into question because they had such a serious problem with indebtedness that they were not going to be able to keep within the fiscal limits that were set under the euro zone's founding treaty. that crisis flew over eventually because mario draghi, then head of the ecb and now prime minister of italy, said he would do whatever it took to deal with it. if you are going to have higher rates to combat

of fragmentation comes back. there are some countries that can afford the high and yields necessary to combat inflation and others, significantly italy, can't. that is the issue that we now know from how the market has reacted to the ecb last week, we know the market requires the ecb to deal with it. shery: we are looking at a fifth consecutive hike in as many meetings. how much more will they have to do given we are talking about uncommon moves from central banks? the labor market is pretty hot as well. do they have room? john: i don't think so. the bank of england is in a difficult position where we do have a worse inflation problem than some other countries. we also have, thanks in part to

brexit, which bet not have been the greatest of ideas, there's a shortage of labor which means there is more pressure on wages as well. the expectation which i imagine is going to be fulfilled because they don't want to cause too much excitement is we are going to get a 25 basis point hike on them tomorrow but i find it hard to believe they are not going to continue beyond that. the other point they have to contend with, they have managed to get down to $1.20. when you have a weak economy, you will find a pathway to inflation. shery: john authers here with the latest. let's go back to essman argue -- back to jasmin argyrou. tell us about these bond movements and what the latest

from the ecb about this new tool could mean? also the divergence in confidence as well. jasmin: i think it is essential that policies that are laid out by the ecb address the fragmentation problem that has been discussed because what we don't need is differential financial conditions across countries in europe. that is not the objective. they have to make sure they address this explicitly and not vaguely, and also markets are volatile as it is given the steep trajectory of cash rates around the world. i am hopeful that policy will be addressed. haidi: always great to have you with us.

jasmin argyrou here in sydney. shery: investors will be watching a right decision in taiwan, one your interest rates soared to a record high. back to back rate hikes for the first time in over a decade. a bloomberg survey expecting a 25 basis point increase. tracking an aggressive federal reserve. rate expectations are rising well out into the next two years , consensus as taiwan's key rate peaking above 2% in the third quarter of 2023. haidi: chinese property developers getting approval to extend their june dollar bond, this as a china's 11th largest builder, they propose to delay repayment of the dollar bond that is set to mature on june

25. they had intended to redeem it as soon as possible, pay maturities in the second half of this year. it does look like holders have given that approval to extend that june dollar bond. that consent to extend was on friday. we have met that deadline. we have seen onshore corporate bonds spread, so china tightening in recent days. we have high-yield debt falling for a sixth straight week. taking a look across australian sovereigns on the back of the plunge in yields on the short end of treasuries. perhaps not a dovish fed, but he more realistic fed, this is what we are seeing across australia. the three year bond falling 20 basis points.

we have futures jumping to extend gains. we see some semblance of i guess calm being restored when it comes to sovereign markets. we saw pressure when it comes to the shorter end. we are seeing yields plunge sharply this morning. coming up next, and electricity supply shortage, we get the details just ahead. this is bloomberg. ♪

haidi: new zealand gdp numbers just crossing the bloomberg. we are seeing first quarter gdp falling quarter on quarter. it is missing expectations. we were expecting a gain, we actually see a contraction. when it comes to the your on your number, we see a rise of 1.2%, a big mess on expectations. this is one of the first in the world to begin their tightening cycle, they are expected to begin their five-year exit from qe holdings beginning next month to sell the bonds they acquired during the qe program. quite a bit of volatility expected.

we are seeing some weakness in those numbers despite a return to normal when it comes to exiting the covid zero strategy and a return of economic activity. let's get you to vonnie quinn. vonnie: israel central bank has raised its benchmark rate. it also warned it may have to keep tightening rates until pressures ease. food shops have kept year on year inflation about 10% since september. lawmakers are debating. the world health organization bill hold an emergency meeting to assess monkeypox. the recent outbreak -- they will decide if there outbreak will require the agency's highest alert level. the virus has been endemic to some developing nations for decades but spread across europe

and the u.s. in recent weeks. the chief white house medical advisor has tested positive for covid and is experiencing mild symptoms. he has not been in contact with president biden, but real self-isolate and continue to work from home. the 81-year-old is fully vaccinated and has been boosted twice. gazprom is curbing supplies to germany by 60%, adding to a 50% cut inflows to italy. germany's economy minister accuses russia of trying to unsettle markets. 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. this is bloomberg. haidi: australia's market has attempted to ease and

electricity crunch that has been worsened by some plants withholding supply after price cuts. why have we found ourselves in this situation? we know there's a global energy crunch. is it a classic supply and demand situation? >> it is actually a perfect storm of factors which led to an unprecedented event. you have the invasion of ukraine leading to high coal and gas prices. an early freezing winter means demand is higher the moment. when you add on aging coal fleets, almost a third of that capacity is off-line due to maintenance. this means prices have been high for next ended period of time, the market operator was forced to reduce the maximum price to generate. they reduced it to the point where some could no longer afford to keep generating and it has removed 10 gigawatts of capacity from the market.

the market can no longer match supply and demand and it was forced to step in and take control entries when generators get paid -- which generators generate and how much they generate. shery: tell us about the impact of australia's recent election on this. will: these events were in play before the new labour government was elected. it is unclear what tools they have to solve this crisis. australia has power market has suffered for a long time from the lack of strategy and long-term planning. an honest will be on the new government to create a long-term strategy will not only deal with crises like this, but he carbonized the power market and pushes it toward its net zero target. haidi: will we know that labor is planning to formalize its pledge when it comes to emissions reduction? do you expect volatility in the transition? will: that is what people have

been saying. more renewable's to higher volatility. what we are seeing now, feel generators are creating volatility. if more renewable's are pushed into the market, labor will have to make a plan which ensures there is dispatch special capacity whether that be from gas generators or hydro and batteries. shery: be sure to tune into bloomberg radio to hear more from today's newsmakers and get in-depth analysis, not broadcasting live in hong kong. lesson be other apps. -- listen via the apps. stay with us. ♪

>> we don't employ any leverage, we don't have any type of lending out of underlying assets. instead, when investors put capital to work, it is invested one for that underlying token. as you are looking at the crypto lenders out there, some of them have employed too much leverage. >> grayscale ceo on leverage. we are seeing a little bit of rebound for bitcoin from that december 2020 low. we have seen it fall towards

that 20,000 level. veterans now seeing the level that you need to watch for bitcoin is 19,511, that would be the high the coin hit in 2017. if you look at the trading history, that is the level you need to watch for that technical drop to continue. ether gaining ground. take a look at u.s. futures. a little bit of a rebound, up 0.4%. nasdaq 100 futures also higher after stocks in the u.s. rallied during jay powell's press conference when he talked about the 75 basis point move not being common. haidi: let's get you a check of the business flash headlines. wellington management planning to add 500 employees in the next two years despite the selloff. the ceo sees the bear market as

an opportunity for expansion. they oversee over $1 trillion in assets. >> we think it is part of a very important part of studying the opportunity set and risk set of 5000 custom ease -- 5000 companies. >> is there off-line sustainability? >> absolutely. >> the world's biggest maker of electric car batteries operating at 410 yuan per share. it represents a discount through wednesday. shery: we are watching that meeting between authorities and south korea and how to respond to the fed rate hike and market volatility.

we are hearing from the finance minister, saying that government and be ok will respond with market volatility that south korea will work to prevent the one-sided move. the finance minister saying monetary policy and south korea will focus on price stabilization, repeating what we have heard from the new governor . the finance minister saying they will conduct emergency bond buybacks if volatility widens in the be ok will buy command bonds if needed. coming up, vincent reinhart breaks down the fed's decision. plus, a global advisor tells us why central banks need to be prepared for the global tightening tsunami. this is bloomberg. ♪

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