>> the fed is hiking aggressively into an economy that is slowing down. >> we are going to a period where the economy appears to be weakening. >> the fed was too fast, and too much. >> must hike and must tighten policy if they don't see inflation coming down to 2%. >> we are going to go into recession. announcer: this is "bloomberg surveillance." dominic: it is -- jonathan: it is payrolls firing

-- from new york to our friday. audiences worldwide, good morning, good morning. i'm jonathan ferro. futures unchanged on the s&p. tom: anticipation here during a real mystery for jobs. what is interesting, global wall street, dominic konstam to join us here and i'm sorry, it is a theory friday. theory matters today, and that is the guesstimate of where we will be in 12 months. jonathan: he is looking for a soft landing. we are looking at 250,000 for payrolls later this morning. many people are asking the same question, pockets of week is. does it show up in this market report or is it too soon? tom: i believe they clock in at a lesser number, 175,000, and there is angst about where we are going. the dynamic is really squishy. it is the dynamic of jobs, and maybe a lack of jobs with wages

-- let's call it wages friday. jonathan: the range is wide. it always is. at the low end is it -- it is about 50,000. lisa: is it wages friday, theory friday or jobs friday? i think right now it is jobs friday, and we are looking to the labor market. tom, you were highlighting this this morning. this is the key question, how much slack is there? how much can we see a weakening without the unemployment rate going up significantly? then how does the fed use this at a time when anecdotally things are weakening, not only that, you are seeing prices come down in certain quarters at the same time you have that incredibly hot cpi around the world? jonathan: at the same time you have a market rally, three whole weeks of it on the nasdaq and the s&p 500. all of the banks are lining up bank of america, goldman, barclays. what did hsbc call this

yesterday? wishful thinking? tom: what is interesting is the reaction -- reaffirmation, the tentativeness, the timidity of this into the weekend is extraordinary. the timidity is off the charts. jonathan: a crystal palace arsenal, friday, tom. that's what it is. tom: it is padres/dodgers friday. you're going to stay up late. -- we are going to stay up late. this is magical, jon. jonathan: no. it is just not working for me, tom. futures unchanged on the s&p. i will whip through the price action. lisa is going to whip you through the day ahead. yields unchanged, basically. can we get used to this, lisa? crude with an 88 handle? up .2%. lisa: how much of this is a short-term story? you have been talking about this throughout the year. how much does the decline in oil

prices rely on china remaining in a covid zero policy and that demand not coming back online? i would call it jobs friday. get the report at 8:30 a.m. to hunter 50,000 is the estimate. underneath that what we see in average hourly earnings? we have seen them trending down year-over-year. the expectation is for that to continue and go below 5%. what does that tell us about how much of a non-wage spiral there is? how much the fed has to respond to this element? also how much momentum there is in the labor market? tom barking of the richmond fed, how much does he speak to this participation rate? the 210 spread -- the 210 spread , does this mean the fed is having the effect they want what is this consortium because they might been too fast and for voting in a way that undermines

momentum that could lead to some sort of soft landing? at 9:30 marty walsh is joining bloomberg television. i'm curious what he has to say, with the messaging so tricky at a time when the federal reserve and even congress members are saying we need the labor market to cool off in order for this economy to get back under control and get some price control in the economy. this is not a comfortable message. how does he talk about that? jonathan: we will have a very serious conversation on bloomberg radio as well. mike and tom want me to ask about the red sox. i will try to squeeze that in. we have to talk about secretary blinken. tk saying china has chosen to overreact to speaker pelosi's visit. an headline after headline just dropping around this story. tom: it is a movable feast right now and into the weekend. you wonder when the white house will make some formal statement. i did notice the sanctions on speaker pelosi.

jonathan: any extra headlines, we will bring them to you as we count down to payrolls friday. joining us now is dominic konstam. let's start here. soft versus hard. you think we can engineer a soft landing. why? dominic: first of all you have to define what you mean by soft landing. we define it as inflation to slower growth. if inflation is sensitive you are not going to give up that much growth. there are essentially three things that drive that fear. a couple of them are explicit in the fed's view. one is that inflation expectations are coming down, and that links to lower inflation. the second thing is beverage curve, the idea that excess demand for labor drives up wages. they coming down now. we got that jobs report. that gets you a ration -- a ratio of 1.8 vacancies to employment. the third thing is that profit

margins actually expanded during covid. that meant companies were able to pass on inflation and to higher prices directly, which is very unusual. they are to do it because of the fiscal stimulus. that is gone. those profits can absorb inflation. there is this path to a soft landing. i don't see why people think it is such an elusive thing. if it does not happen in is going to be a hard landing, but you have several months where you should be expecting a soft landing, i would argue. tom: i want to talk about the way we push against the phillips curve, and maybe even the beverage curve as an exercise in euclidean geometry. do we know where we are on the continuum of jobs and wages right now, or is it truly an unknown? dominic: i think you can see where we are and going forward there is a reasonable argument

to say that maybe we don't really know, but since july last year the betas of wages to unemployment are off the charts. there has been an amazing acceleration. you see it and lots of different measures. d.c. across age cords -- age cohorts. seems to be this wage pressure, but that is when you look at the jobs report you focused on that decline in wage inflation. if unemployment is not going up much that means that wage but is collapsing, which is reflecting the excess demand for labor we see in vacancies. i think there is a good argument to say the phillips curve will flatten again going forward, and what i do is look at the actual sectors in the labor market, because there are four sectors that really drove this wage story. people and focus on it. it is freight, health, leisure. those were the sectors really covid-related, and those of the

ones coming down quite fast. it is another way of digging deeper into the data and getting more optimistic that a soft landing is plausible. it may not be 100% certain, that it is certainly the most likely scenario at the moment. lisa: even if you are right theoretically, are you right politically at a time when the fed is being pushed to do as much as possible? are you right when you talk about a two year yield down when the fed is being charged with taking the helm and controlling inflation even though their policy has a lagging effect? dominic: you know, this is a great issue because this defines all the tilly and the -- volatility in the front end. soft landing is anchored and hard landing will be anchored. it will anchor there because the fed will have to do a lot more. if jobs are as expected i can interpret that --

you still need a lot higher unemployment, and therefore the fed has to be much more aggressive. you will see them struggling between those scenarios. placing comes down then the 2.5% is plausible. if we see inflation come down the rates market will do extremely well. the fed does not need to go much further and you will end up with a constructive outcome, not just for interest rates, but also for risk assets. it is the uncertainty around that soft versus hard and how different people are focusing on different things. some people just do not believe that wage inflation can stay down unless unemployment goes up a lot that is why you get that volatility. the front and in our view will become a buy on the soft landing view. either way the backend is anchored. that is where you can find better value. i think that is why the curve is flat as well. jonathan: this is the perfect

way to start a weekend, tk. the optimism of dominic konstam. tom:dom and i have known each other for years. i believe he did not have his first gray hair at the time. what is important is the rigor of the geometry he is talking about. that is a rigor you do hear from both parties, waller and summers. this is esoteric on a hot august friday. this really, really matters to the debate, and you so that he yesterday from the bank, which one day dominic konstam is going to run. jonathan: you reckon? good to catch up, sir to get the alternative point of view. very constructive. let's look at commodities too. michael hanna out with a note this morning. oil is down 28% since the equity market close. copper is down 23%.

the nasdaq is up close to 20%. lisa: elon musk coming out last night and saying every moment of his commodities complex have -- has been coming down over the past few months. the idea that inflation seems to be rolling over. jonathan: a rally of the market changes the mood. just slowly. futures on the s&p 500 unchanged. great lineup. we will catch up with peter oppenheimer in the next hour on this equity market. from new york, this is bloomberg. ritika: keep you up-to-date with news from around the world, and ritika gupta. china is striking back at the u.s. beijing announced it will impose sanctions on nancy pelosi and her family. for her visit this week to taiwan. china is canceling military and climate talks with the u.s. and chinese military forces are conducting exercises around taiwan. democrats have agreed on a revised version of their taxing climate bill. they will drop a provision that

would have narrowed a tax break for carried interest. they also altered a minimum tax on corporations and added a new 1% tax on stock buybacks. a pivotal votes in the senate, kyrsten sinema, says she will back the revised plan. there are signs that conditions in the u.s. labor market are easing. the jobs report is out today. it is forecast to show that the u.s. added 250 thousand jobs, while the unemployment rate held near a 50 year low. last week applications for state unemployment insurance rose by their highest level in november. in u.k. the front runner to become the next prime minister says a recession is not inevitable. liz spoke -- -- liz spoke -- global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries.

i'm ritika gupta. this is bloomberg. ♪

>> china has chosen to overreact and use speaker pelosi's visit

as a pretext to increase notary activity. the fact is, the speaker's visit was peaceful. there is no justification for this extreme, disproportionate, and escalatory military response. jonathan: that was secretary blinken accusing the chinese of overreacting. from new york city this morning, good morning. counting you to payrolls friday. the data a couple of hours away. doing not much at all on the s&p 500. unchanged on the nasdaq. yields unchanged on the 10 year. muted price action going into the big day. tk, down in d.c., another focuses on china, but some good news for this white house. tom: it's good. we move the legislation forward, i guess. who is giving want to the senator from arizona? she decided to come over here. we go to emily wilkins to

actually find out what is going on. emily, let me cut to the chase. is the senator from phoenix beholden to the fatcats of wall street? emily: i mean at this point she is certainly advocating in their interests, aching sure to remove that never restriction of the capital interest tax that was going to be in there. it is something she has fought for from the beginning. initially senator joe manchin said he wanted that to remain, but she pushed back because this is how it works. tom: i get it. emily, let me cut you off. a lot of people on the radio and tv want to know this. i guess that nagler on the upper west side, or schumer, the senator of new york, would be helpful to goldman sachs. you know the names of all the victims that watches everyday. why is the senator from arizona getting such substantial support from new york, wall street? emily: number one, she has been

a senator open to having their interest. openings have been opening -- have an opening, they are going to take advantage. on the other hand you think about her state, arizona. that is a state with a lot of retirees. they do have a certain amount of wealth. she has been targeted by a number of ads and a number of groups who have really pushed for her to continue supporting their interests, and she certainly delivered with this announcement last night. lisa: that is on one side. on the other hand there was a 1% excise tax put on share buybacks that will raise more revenue, or is projected to, that is being included. any talk about how they came to pass? why that is ok with her and not the carried interest provision? emily: one of the main things that democrats are trying to do with this legislation is make sure they are reducing the deficit. so the idea is that if you have that carried interest being removed you are going to have to bring something else to be a

revenue-razor. this 1% tax was always on the table as a potential consideration. it is just that democrats did not want to raise taxes too much, or at least senator manchin and senator cinema did not want to. they will with that corporate tax and decided not to do the 1%, but now that you have the carried interest off the table they are bringing that back and having the 1% tax for companies that do stock buybacks. chuck schumer said he believes that overall this package is going to reduce the deficit $300 billion. that is something democrats can take back to their constituents, pitch them as a way they are trying to be fiscally conservative during this time of high inflation, it also be able to get their objectives done on health care and climate. lisa: so when does this get past? emily: we are going to see a procedural vote tomorrow, then an all-night vote. republicans are going to try to add amendments to kill it. we have also taken a look at the

senate parliamentarian, because she does have to fully sign off on this package and say everything they can go through with this special reconciliation process. should those two things happen democrats are moving forward on this. we could see final passage perhaps this weekend, early next week. the house is set to come back as soon as they can and move this legislation to president biden's desk. tom: i don't know if we can talk about this on air with the regulations we have, but what happens in a vote-a-rama? emily: republicans and some democrats will offer amendments. again, we are using this special process called reconciliation. it allows the democrats to move this with 50 votes, but an opportunity for these amendments to be offered. republicans are trying to do is craft particular amendments some democrats are going to feel an urge to support and that potentially once that amendment is added, hoping that package

does go down. it is going to be interesting to kind of read the tea leaves on who votes for what, what winds up hitting into the package. but democrats just a few weeks ago thought they would get absolutely nothing. now they actually have legislation, they have agreement from all 50 senators. it is within their grasp. they are looking at a tough midterm and they want to get something done. jonathan: emily wilkins, thank you. tk, everything is relative, but things getting a little bit better for this white house. they have a better story to tell now than a month ago. tom: there is no question about it. greg was fascinating yesterday, jon. also about how the republicans are giving it up. the elections we saw tuesday, there were some challenges for the gop and that makes it relatively better for the democrats. jonathan: relatively so, lisa. a little bit more balance for the senate? lisa: i keep looking at gas prices. more than 50 straight days of price declines for gasoline in

the united states. how much will that alone give a popularity boost to the democrats at a time when they need it? than they also have this legislative win? to your point, how much are we seeing a wholesale rally versus a different message being sent from the bond market versus the stock market? the stock market is saying something very positive. the bond market is a lot less clear. jonathan: i'm always uncomfortable when people say that, as if these two worlds are in separate rooms and don't talk to each other. that is just not true. lisa: ok, but you have a jp morgan model that said the s&p is currently implying a 50% probability of recession, down from 91% if you months ago. and he saw the probability increase for the same model in the treasury market. perhaps they are talking to each other, perhaps they have different timings, but there is a different message in the short term being sent. jonathan: what about the case

where you trade on lower yields and you start to realize and he don't make -- he don't take comfort from that at all? lisa: the benefit for a lot of these companies is they can still make money and are in some ways they are an inflation hedge. even if you get a downturn they are still making money on a basis. i think i could be something supporting earnings. jonathan: what a beautiful way to close out the week. it is lovely. lisa: keep watching the game. jonathan: he is totally distracted. futures unchanged on the s&p. the bond market unchanged too. payrolls two hours away. 250,000 is your estimate. from new york, this is bloomberg. ♪

jonathan: live from new york city this friday morning, good morning. equity futures shipping up as follows. no change on the s&p. payrolls two hours away. the nasdaq down about .1%. off the lows from june 16, up by almost 20% on the nasdaq. we are heading for a third straight week of gains. we are doing that with this kind

of move in the bond market. this is what brahma was talking about. a move on the front end of the curve higher, and that is the performance on the equity market. up another basis .2, lisa. the fed did everything we predicted they would do. they talked up a hawkish game. this equity market did not really respond to it. lisa: even as they talked up hawkish news, he saw at the long end of the yield curve, those bonds coming in. jonathan: in the fx market, take a look at euro-dollar. on the euro going into payrolls, looking for $250,000, if you want to check in on the house of sterling, we managed to squeeze out again yesterday. stay little bit of sterling response. some weakness right now, but the headlines in the u.k. this morning on the front pages of

the newspaper, unbelievable for this bank of england, brutal. tom: for those of you waking up in america, to describe the frenzy, the heat, the fury across the united kingdom media over governor bailey yesterday, i would call it unprecedented. jonathan: mohamed el-erian, who i will catch up with this morning, he wrote on bloomberg opinion almost welcoming the honesty of this central bank to tell us what they think about the future and how wide the range of outcomes could actually be. they are acknowledging all of those things. could you imagine if the federal reserve came out and did those things? tom: i cannot imagine. jonathan: i don't know if the fed could do anything like that even if they thought it. tom: it is a different responsibility, but i cannot imagine, there is no question about it. what is interesting was bailey's comment.

you have to believe we are going to see the path, the trajectory rapidly from this really grim view. jonathan: we are talking about soft landings are hard landings. crash landing, that is what it said after the bank of england yesterday. tom: we are going to do a clinic on wages. sarah house joins us now, senior economist at wells fargo. what is the difference between average hourly earnings and eci earnings? help our audience with this. sarah: sure. there are the average hourly earnings numbers. they come from the household survey. so they are more timely than the employment cost index, the employment cost index is fixed for composition, and importantly it includes benefits, which is about 30% of labor costs for employers. the more you look at the overall

total costs for employment and wage pressures and the inflation pressures stemming from the labor market. two different surveys, two different methodologies. tom: beautifully explain. what did they indicate right now? do they suggest an being -- ebbing in wage pressures? sarah: wage pressures are easing, more so in the average hourly earnings numbers, which we will see today. i think if you look at the overall rate, they are still pointing to a labor market that remains very strong and is contributing to above-target inflation. if you look at the eci for the second quarter, wages and benefits are still growing at five point 4% annualized pace in q2 was down from q1, but even if you factor in some generous assumptions about productivity,

which we are going to get a horrendous report on that next week, i think you are still seeing labor cost pressures still noticeably above the fed's 2% target. the fed might get help on commodity prices. we are seeing transportation costs come down, but you really need the help from the labor market to bring inflation down. we are just not there yet. jonathan: what does it tell you we are still turn -- turning out these payroll gains, yet unemployment has stabilized at 3.6%? sarah: overall there is catch up to do in terms of employment numbers. that explains part of the discrepancy between the gdp numbers for the first half versus the employment numbers. but i think in terms of how the unemployment rate has been so sticky, i think in part suggesting that the trend in participation is higher, although we have seen it back off over the past couple of months. that is going to be a hugely important number in today's jobs

report. do we begin to see that upward trend reasserts itself, or are we looking at potentially still a very sticky, low labor force participation? that feeds back into where wage pressures might go if you are not getting help on the supply side of labor. lisa: a few minutes ago dominic konstam came on the show and said that people were overestimating how much wages were increasing because it is stemming from a few sectors that were disrupted from the covid pandemic. is that what you have experienced or do you see a broader-based wage again that is going to be more alarming for the fed and speaks to something other than the soft landing some people are hoping for? sarah: i think it has that -- sarah: i think it has been broader. you have leisure and hospitality, transportation and warehousing where wages are up by double digits over the past year, let alone in february 2020, but if you look at what is happening to the wage trends across a host of major sectors,

they are noticeably higher than what we have been seeing over the last cycle. that extends to manufacturing, it extends to construction, it extends to professional and business services, education and health. i don't think you can boil this down to one sector. i think we are seeing broader price pressures coming from the labor market than just one or two industries. lisa: at the risk of getting some anger from my cohost jon ferro here, is good news going to be bad news for markets, considering that a lot of people are hoping for the fed to back off? sarah: i think so much of this is going to come down to the composition. unlike, i think, some of the asset reports, it is not about one number. i think it is going to be that intersection of the wage dynamic, risk participation, with the overall payroll numbers and unemployment rate. an ideal situation for the fed might be that participation rate coming back, and wage growth

cooling. again, you are getting help from the supply side, so that is the easier way out for the fed, which is going to limit how much the fed will ultimately have to raise rates. i think if you can put up some strong job numbers, maybe on the headlines, if you are seeing that participation rate come back i think that could be taken as a pretty good report. jonathan: for the record, i don't get angry, lisa. not with you, ever. tom: with me. jonathan: sometimes, tom. looking ahead to cpi, what are you looking for on that particular data point? sarah: we are looking for another strong gain. the headline is going to be weaker because you had that huge pullback in gasoline prices, but that shift from 1.3% to 0.2%, which is what we are looking for, and almost entirely stems from energy. you are going to get help from autos, but you were going to see the core coming in at .5%, .6%

rate. it is still hot, and if you look at year-over-year numbers those are looking up. it is going to be difficult for the fed to see that compelling evidence that we are seeing underlying pressure in inflation cool here over the next few months in time for that september fed meeting. jonathan: sarah, awesome as always. sarah house of wells fargo. looking ahead to payrolls this morning, then it is ahead to cpi. i can give you a sneak peek of the numbers now. we are looking for headlines to come down from 9.1% to 8.8%. we are looking for core year-over-year to come up to 6.1% from 5.9%. year-over-year figures, here on wall street will be focused on the month over month core number. and that is what this fed will be focused on too. you're looking for that to come in at 0.5%. 0.5% is still pretty hot. tom: it is real simple.

this was the theme of monday, tuesday this week. a lot of pros are taken back by that monthly, that may review of the dallas report. a lot of people were talking about that in the game. it is tangential to what people care about. but it is something that matters. it is sort of like how i feel about gallagher, that one year at crystal palace. i don't think crystal palace can do it without connor gallagher. jonathan: you are fired up for the game later? tom: i'm fired up for the game, and what is really important, we may be in london for the crystal palace richmond derby. jonathan: i'm not sure that is how that particular -- tom: season two of "ted lasso." jonathan: tom, that is fictional, not real. when is season three happening? tom: what do you mean it is fictional? jonathan: "ted lasso" is not real, tom. i had to break it to you. season three is coming out

there. i'm sure they are going to write a nice story for you. tom: it is fictional? jonathan: it is fictional, tom. i know it is a painful moment for you. futures, lisa. futures unchanged on the s&p. [laughter] just let him keep digging. lisa: let me say one thing. i know you did not get truly angry, but i know it is frustrating to you when people say it is good news, bad news, bad news, good news. but that is going to be pivotal to the market reaction, to the labor market report. i think that is interesting. tom: this is something else that lisa brings up. the returns of managers right now. i'm sorry, there is some reality out there. there is some good news, bad news, what do, let's take a bed. jonathan: i know people say you want to talk about is the fed. always talk about is the fed because a lot of the time all that matters is the fed. i long for the days that is not the case and we could talk about data and good news is good news

and bad news is bad news, because to everyone else bad news is just bad news. lisa: certainly on main street. jonathan: these conversations just sound alien-like, because of the involvement of central banks in markets over the last 15 years. tom: i talked to -- i thought the richmond-man city game was remarkable. jonathan: you are going to keep this up? tom: just don't give me the fictional stuff. jonathan: you think it is real? i'm sure you do. tom: he reminds me of you. jonathan: that is really rude. this is bloomberg. ♪ ritika: keeping up-to-date with news from around the world. china is lashing out at the u.s. for house speaker nancy pelosi's trip to taiwan. today beijing announced it is imposing sanctions on pelosi and her family. china is also halting meetings with american military leaders in cooperation with the u.s. on

drugs, climate, and a number of other issues. u.s. health officials have declared monkeypox a public health emergency. that is a step that will free up funding for treatment to fight the virus. the u.s. leads the world with known cases. more than 6000 of them. for the fourth month in a row global food prices have dropped. united nations index of a food cost fell more than 18% in july. the index is now at its lowest point since january. a major food exporter. people on low incomes are feeling the pinch as the cost-of-living crisis deepens. south korea has become the seventh nation to send a spacecraft to the moon. the country launched its lunar orbiter from cape canaveral on a spacex rocket. the vehicle will travel for months before entering lunar orbit to begin its mission. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries.

i'm ritika gupta. this is bloomberg. ♪ how will your business adapt to change? you could hire an office full of peyton mannings. what's up, peyton? good morning, peyton. hold for peyton. they'd huddle.... welcome to the peytonverse. such a visionary. game plan... you go. no, you go! and call audibles... double our investment in omaha! omaha! omaha! omaha! or you could use workday. omaha. the finance, hr and planning system used by over half of the fortune 500. for a be-agile-like-an-mvp world. workday. for a changing world.

>> the fed is still, oh, we think we can avoid recession, don't think we will hit a slowdown. come on. we are going to go into recession. major economies are going to go into recession. it is not going to be maybe recession as the same way as the financial rices, but it is going to be prolonged. jonathan: we need to do a roundtable. dominic konstam is not taking that path at all. he thinks we can engineer a soft landing. tom keene, lisa abramowicz, and jonathan ferro. going into payrolls. futures right now on the s&p

unchanged. on the nasdaq, negative by not even .2%. no real drama here. yields up about a basis point. tom: jobs day, we will do that in less than two hours. we do here, the debates that are out there, and they are heated now on the path of the american labor economy. we heard from dominic konstam, anna wong joins us now. maybe more than anyone i know anna wong is moving the other way. anna, we can waxed philosophical about the theory of the phillips curve, the beverage curve, the shift in the beverage curve. he said this is a chairman powell who is not very curvy, and he will just raise rates to bring inflation down? can he ignore theory? anna: that is the thing. theory is very clean. the theory will tell you that,

you know, if you want to bring the vacancy rate down the need to increase unemployment, but it ultimately settles the matter of how much the unemployment rate has to rise as you bring down the vacancy rate. right now the debate is exactly on how curvy is that curve? i tend to sign on the side with summers' camp in thinking that based on what we have seen since the 1950's i think the hope for little increase in unemployment as we bring down the vacancy rate, that is wishful thinking. tom: i look at the wishful thinking now, and what it says to me, anna wong, is that this is simply a fed inflation-centric. do they care about this morning's jobs report? anna: one report would not make a whole lot of difference, but one report does help them feel like, are they making progress?

so, if unemployment rate stays high -- i'm sorry, stays low at 3.6% and they did see a vacancy rate coming down in the june report, that means that maybe the fed's taking some soulless in -- solace in the chance of getting a soft landing. but i would say, not so fast. typically the vacancy rate can come down and the unemployment rate can lag by a little bit. i would be paying more attention in today's report on the labor participation rate. i think the fed will as well because at the end of the day what do you want? what the fed wants is for wage growth to cool an order to get wage growth to cool you need more label supply -- more labor supply or less labor demand. in the last three months we have not been seen good news on the labor participation front.

and this means the will have to do more on dampening the demand side. that would not be good for rates outlook. lisa: anna, what is a soft landing? anna: the fed's definition is if the unemployment rate rises by about one percentage point. so, if it is less than 5%, slightly higher than 4%, that would be the fed's definition. lisa: the reason i ask is, how much daylight is there between the arguments for people calling like a soft landing versus those calling for a greater likelihood of a hard landing? how much is this a distinction on the contours every recession that is somewhat inevitable in terms of her year -- in terms of year-over-year comparisons? anna: i think economists, analysts, we argue about soft landing, hard landing. at the end of the day the people on main street will feel it equally painfully.

just a 1% increase, and 1.5% increase in the unemployment rate, millions will be leaving jobs. tom: i have a difficult question on a difficult friday. is the path of a lower inflation rate a relatively smooth and gradual path, removed from shocks? or does it have some real kinks to it. does it have some real stopping points along the way? anna: that is a rhetorical question. i think basically what you are, you know, implying is, yes, it is -- there are plenty of stopping points. it is not smooth at all. i think likely what will happen is the transitory components of inflation will desaturate quickly going into next year, and we might see a headline inflation going down very sharply. then there is also the sticky part that will persist, such as

core services. parts that are driven by elevated wage inflation. so, you know, the fed might be seduced to pause rate later next year because the transition component will drive overall inflation down, closer to 3% or 4%. then if they do not keep rates high or even if they pause, then inflation comes back out, because you still have that really sticky core component that is pushing it up. we saw it happen to arthur burns in 1974. there was a recession in 1974. how would you know that prices would not come down in a recession, right? tom: i remember arthur burns. nobody watching or listening does. only i remember. jonathan: anna wong from bloomberg economics. it was a clinic.

anyway. tom: you got me going. the interview of the week was federated air mass and her gloom about the dismal 1970's. jonathan: in the last couple of months the prospect of a flip-flopping fed, if they pause too early, do they have to go again? tom: what are we going to do at 6%? besides we are going to be employed over these raging debates? it's going to be great, but i refuse to believe it is one nice, smooth curve down. jonathan: lisa has raised the same question. are we going to start cutting as soon as we stop hiking? is that what people are looking for? lisa: that's what people are looking for. that it will be the shortest time ever at that people before they start cutting. experiencing the potential for some significant downturn. otherwise how can the fed get the conviction it is not a repeat of the 1970's? it could be perilous to their reputation.

it is already somewhat potentially compromised. jonathan: alex thinks they stay up there for longer. next time he comes in we can talk to him. peter oppenheimer is going to weigh in. what a rally it has been. features right now down about .1% on the nasdaq. on the s&p, softer by .1% also. yields are higher by a single basis point. going into the payrolls data, about an hour or so away. payrolls expected to come in at about 250,000. from new york city, this is bloomberg. ♪

at fidelity, your dedicated advisor will help you create a comprehensive wealth plan for your full financial picture. with the right balance of risk and reward. so you can enjoy more of...this. this is the planning effect.

>> the fed is hiking pretty aggressively into an economy that is slowing down. >> we are going through a period where the economy appears to be weakening. >> what i worry is that on the others the fed was too fast, and too much. >> they essentially must hike and must tighten policy if they don't see inflation coming down to 2%. >> come on. we are going to go into recession. major economies are going to go into recession. announcer: this is "bloomberg surveillance" with jonatha