♪ >> for the federal now, it might be easier for them to continue to attack or try to bring under control this inflation issue. >> the fed's open mind and has the fed always is. >> we are at an important inflection point. >> if you look at the 25% decline in the earlier of the year, that is a big indicator of her session. >> the economy is not out of the woods. >> this is bloomberg surveillance with tom keene, jonathan ferro, lisa abramowicz. >> jonathan ferro, lisa abramowicz, tom keene, an historic wednesday, a statement on inflation in america. kailey leinz in for jon ferro.

i talked to him yesterday, stuck in rome off of the train from naples. he is trying to get back home. he is coming out of fco and it looks to be a struggle. let's get to it on inflation. your observation to 8:30 this morning? lisa: it will be about the headline cpi number, about the course to get numbers, and the readthrough to the real economy, real wages, which we also get at 8:30 a.m. how negative two they go -- do they go? most negative on the margins with disposable income of operating. tom: i agree with you. real wages underplayed and important. i like what alan ruskin says at deutsche bank. we will give you the research done in the last 12 hours which is what surveillance does and he has december cpi above 4%. thank you for bringing this to my attention, bank of america

with four glide past, we have inflation back in the second quarter. lisa: this is the issue any raise this many times, and your right to do that. at what point does the fed signal we are done or we can start moving away? how far down do we get? you have talked about how do we get from 4% to 3%. it is a big leap. we are looking at a broadening to the inflation inputs and where people see it going is what we are watching fed speak today and going forward. tom: the inflation is about the core, the train, all the fancy global wall street before america, it is a number that is shocking and harkens to the early 1980's. lisa: the american people feeling this in every way and jerome powell recognize that which is why initially he said the fed is responding to headline inflation but as you have both mentioned, it will be more about the core and it will inform the fed's policy path, how high the terminal rate ultimately is in the research out of bank of america.

if that terminal rate is 4% or more, we could look at euro curve that reverts possibly down to -85 basis points. tom: right. we will go over the carbon version a bit. we have to pause the show and bring it to complete halt on radio or television for our auction update. we had a three year auction yesterday and a 10 year auction today and i do not care about. let's do auction talk with primo. what is the so what on this? lisa: use of the lowest ever dealer uptick of the theory year note yesterday. -- of the three year note yesterday. people see the value at the front end that perhaps fully prices with the fed is going to do. today we have $35 million and 10 year notes. the interesting thing, where is the conviction trade at a time where the fed will have to do more? we will get a cpi print that may show the conflation -- we conflation. where you go when you look at duration and we look at some of the exposures of people into the long end? we will see.

tom: we will do that with chris verrone. futures up, nasdaq futures up, and as that green on the screen across. the vix has turned for the last number of days, waiting for 830 this morning -- 8:30 this morning. in the fixed-income space, i do not know what to say. 3.25% in the two year yield and inversion which will touched -- we will touch through the show, -40 basis points is external area. ian lyngen frames out technicals to get further inversion at the -56 basis points. i have not even seen a number yet. thank you, ian, for bringing that to our attention. oil pulls back from drama yesterday in russian oil pipeline and for drama, the brief of the morning with the brain which. lisa: incredible drama. it will be dramatic. consumer price inflation, how much do we see the headline number is the one people focus on?

has the fed focuses on as i talk about deceleration. core cpi expected to accelerate and real wages as i was mentioning earlier have gone to the lowest going back to 2007, how far this data goes back. -4% real wages, that is how much the disposable income is going down before households in america as a result of the high inflation and wages not keeping pace. we will stick with brian deese from the president's cabinet later this morning. what does he say about this? 10:30 and, we look at how tight prices are. you sit oil prices are coming down a touch. how do we dovetail the expectation for a falloff in demand with real-time data which is inconclusive? today we get a host of fed speak including the chicago fed president at 11:00 a.m. and any applets fed president at 2:00 p.m. alongside blackrock's larry

fink and larry summers, the former treasury secretary of the united states. we are knocking forward guidance anymore but except we are. how do they spin what we got at 8:30 a.m.? tom: you nailed it. they are addicted in front of the bikes to pontificate where we are going. it was harder for chris verrone in the time of alan greenspan and you had to glean what the fed was doing. christopher roan is microstrategy at strategic -- strategic's. it is about the bond market, technically you see two year yields moving higher. discuss. christopher: yeah, i think the idea that the bond market buys this idea of a fed privet, we do not see on the charts. two yields are basically back at the highs. if you look at the futures were say , they are already back to 4%. we met back and looked at every single tightening cycle back to the early 70's -- 1970's.

we cannot find a tightening cycle where the fed funds rate ultimately didn't end above the rate of inflation. this idea of peak inflation, that is a math problem to us. i'm not sure it is investable. even if you get cpi lower over the next 12 months to 7, 5, 4, you need a fed funds rate above the rate of inflation, that is what history has shown us. i think that is with the two year yield is reflecting. i think that is what the shape of the yield curve is reflecting as well. it is very contradictory to the message from the market will last five to seven weeks. we have an equity market responding to this and i think overbought at resistance in a downtrend, i do not love the risk reward here on bonds or stocks. lisa: when you say overbought when it comes to stocks, i wonder how far you see the downdraft is to come if your viewers can termed -- is confirmed and if the market has knock on the reality check.

christopher: it is certainly a good question and i think what has been notable over the last two months as the market rallies, this has not been a rise in tide. just look the last week or two, this is not every group and that stock every index working. we see the weakness in china, the weakness of the last couple days in semis, friendly some of the growth in tech rallies starting to fray as well. i think this is more about risk will award -- risk reward. i think lower here makes more sense but we will see if that is right or wrong but that has not been a rising tide this rally. i think that is what is most important. lisa: where is the floor then? christopher: our view all your has been everything is going back to where it was pre-covid and you are talking about 32 to 3400 on the s&p getting it back to the precode look -- pre-covid levels. the markets challenge that over the last five to six weeks.

s&p of 50% over the last 30 days and that is an average bear market rally. we have not seen as extraordinary or remarkable to say this move is an outlier so this is we're sticking -- we're sticking with the view that this is a downtrend. tom: the core issue in technical analysis is how do you do a time series. a pointy series that goes up and makes a sharp point and comes down and makes a point. that is the twos intent spread, the vanilla spread of carbon version. how do you study the twos 10 spread if it is so poignant up and down? christopher: we have to go back to april 2000, the last time we had twos intends in this category of -50 or so basis points. i think what is important, if you have a history of the curve, the curve tends to get this pre-and session area, not during

a recessionary. the first evening that you see as the economy slows is not a bullish steepening, it is a message that the economy is slowing. i want to be careful of the curve steepening over the next couple months. it would be normal for the curve to steepen into a slowdown. tom: thank you so much, christopher roan getting a start --christopher verrone getting a started. in the five a hour i did goods and services. how will you parse inflation? lisa: that's a great way to parse because we have seen goods rolloff, how much do services maintain that? i will parse it between medical expenses and on the flipside, oil prices which we know have been declining and food prices on the margins have been declining. that goes to the core argument, it will be important because of the sticky aspects that roving

inflation continues. tom: off of a 3% owners's equivalent rent, we are out about 3.6 standard deviations. that has been a spike in living component that we have. everyone is living that coast-to-coast. to me socially and for president biden, that is the key is disses state -- key statistic. dani: it is and that's an important one. as we get closer to november, that is what the american people are feeling and what a large majority will vote on. yes the president has notched some point in his camp with gas prices coming down with inflation reduction act that has been passed by the senate. is that enough? when we are talking while prices that may be or not accelerating as fast but are still growing. tom: i want to tell you about this morning, we are excited about the show. we have cleared out before the 8:30 report for the true expertise of michael. he will join us for that entire section to get you ready for the

inflation statistics. emily wilkins from washington on the shock of mar-a-lago we have seen the last 24 hours and david will join us from j.p. morgan private bank. this historic day an inflation report. ♪ ritika: keeping you up-to-date with news from around the world, i'm ritika gupta. former president trump said he will be quested and today under oath about a real estate mogul. the investigation investigates claims that they misstated their value of assets for tax reasons. this comes two days after federal investigation searched the president's home in florida. republicans echoed the assertion that this was politically motivated. what has been called the most scrutinized economic report comes out this morning and it will give us a sense of where the fight against soaring inflation in the u.s. stands. according to a bloomberg survey, the consumer price index probably increases annualized

rate of 8.7% in july and that is down from june's figure but still way above the fed's 2% target. the cpi is out at 8:30. china ends the exercises near taiwan but they said they planned to do regular exercises in the region. they did those last week after nancy pelosi defied beijing. elon musk sold tesla stocks, his biggest sell ever. he wants to sell shares in kc is forced to go with his deal with twitter. musk says he will buy tesla shares again if the deal does not close. bloomberg learned the u.s. justice department is preparing to sue google for allegedly illegally dominating the digital ad market. this who could be filed as soon as next month. two years ago, the justice department [indiscernible] global news, 24 hours a day, on air and on "bloomberg quicktake," powered by more than

2700 journalists and analysts in over 120 countries. i am ritika gupta. this is bloomberg. ♪

>> you gotta believe to go after a former president home with a warrant, you have got to have

the highest level of concern supporting that eventually justifies by the probable cause finding. i think that is the judgment that is telling here. tom: someone qualified, it is always good to speak to someone like the former usf video journal -- u.s. deputy attorney general there. the search for a president residence for documents. that is of course mar-a-lago in florida. we focus on this now with emily wilkins, sort of day two after day two. people reporting axios moments ago, cnn moments ago, and on and on. it seems to be a day of discovery. what is the biggest mystery we are trying to discover in day to? -- day two? >> one of the things is what led to the search warrant and

mar-a-lago. we are hearing from republicans and particularly, mitch mcconnell came out and said this search warrant is a big deal, unprecedented, and we need to know what they're looking for. at this point, we are seeing a number of reporting come out saying it seems trump when he left the white house took documents with him that should have been kept within the federal government's care, in the national archives. earlier, folks in the national archives team took about 15 boxes of papers from the mar-a-lago. washington post says additional boxes were moved after the search yesterday. that seems to be one aspect of what they are looking into. a big question, what is in these documents and is there anything in particular there that might segue into all of these other investigations currently looking at trump? tom: civics 101, can the president apply pressure on the attorney general to say this time is different than the presidential records act of 1978 and can bite into the garland let's get visible on this and at

least explain what we are doing? is that feasible? emily: i was the merrick garland is a part of biden's cabinet. at the same point, biden has taken a hands-off approach with the attorney general. remember trump -- we did see trump put pressure on his attorney general when he was in office. biden is trying to write with that, to say no merrick garland will do what he needs to do. at the same point, there are rising questions around their transparency around this. i think it is valid to ask whether the current white house would be benefited by trying to get more of the transparency as far as why the search was conducted, what they were looking for, and is there going to be more revelation from coming from whatever documentation they are looking for? lisa: a lot of people expect president biden to punt this issue to the department of justice saying it is their terrain and their independent. he also has enough on his hands. they were about to get a cpi

report that says perhaps we get peak inflation but it is decelerating, not anything comfortable. 8.7% is the overall assumption. how are they planning to position this? what is there argue point? lisa: democrats are aware inflation will be an issue -- emily: democrats are aware inflation will be an issue that dominates the november elections. it is really helping republicans. you see so many republican candidates and lawmakers say hey, you need to let up this november to get inflation down. democrats are looking at the tips bill they passed as well as the taxing climate bill that passed in the senate last week now going to be taken up by the house this friday and say we are moving this major legislation, going to lower cost, lower prescription drug costs, lower energy costs, and through this you will be able to provide relief to american families. that is what democrats answered, it is not necessarily they're going after inflation per se but they are trying to go after the

day-to-day things most americans by. lisa: thou still has to vote on the act ended strikes me there were a number of lawmakers from states eyecare in the tri-state area, new york and new jersey, that were adamant about the soul cap. they are expected to vote yes the same peer i wonder how that plays out in their home districts. emily: i think that's a great question. it's a huge issue for a lot of folks in the new jersey and new york areas. at the same point, these lawmakers are looking at a reality a few weeks ago that they were not going to get anything done on this particular issue. nothing more on health care, nothing more on climate, nothing want taxes. now they have something. for a lot of lawmakers, the ability to have something to go home and tell their constituents about bees having nothing, even if it does not have everything they wanted. there is a lot that was left out of the bill on this cutting room

floor, a lot of voters understand democrats are not getting them through, everything they initially promised, but this is way more than we were expecting even a month ago. tom: but do they go home to a dialogue forever changed yesterday with the search of a president's residence? emily: i think obviously the search is unprecedented. it is a huge news story. on the other hand, it is not something that really impacts americans in their day-to-day lives. certainly for those who are maybe hard-core republicans and democrats will have thoughts and feelings about this one but when you talk with lawmakers, particularly those running into most campaigns, the first thing they tell you author that is kitchen table issues. whatever happened in mar-a-lago this week is not really impacting the average american family. tom: emily wilkins, thank you so much. greatly appreciated with a brief on the news of washington. futures up 10, dow futures up

73, and the vix with the big turn around a 22 point. we hardly mentioned the equity market. julian emanuel at evercore isi has been outstanding about keeping track of the beans. revenue growth in reported earnings has been double-digit big inflation affected. lisa: it has been inflation affected and for now it has been relatively strong. it has been interesting to see that even in the same shop you have different strategists arguing against each other. julian emanuel account among those that do have conflicting narratives. this is a faith-based market in terms of where earnings margins are going to go. yes they have whole -- have held in so far but we heard from morgan stanley they were shrink a lot of productivity, how much it is declining, looking at producer prices, cpi we had today, putting it together and saying something has to give. tom: i have been remiss on this, productivity i will call it a three ratio dynamic area a lot

of moving parts. mattered yesterday is unit labor cost which goes to what lisa mentioned earlier, your wage after inflation is not so good. kailey: and that will be something crucial to watch as we have a conversation whether the united states is heading toward a wage price spiral. the labor costs will be critical, especially in services as we watch that metric in the cpi today. tom: we do that in two hours. the weaker. your explodes out to a 102, which will help jon ferro as he tries to get a plane back from rome. [laughter] lisa: you are lobbying him? tom: inflation

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tom: bloomberg surveillance, we are coming up on two hours away from the most important inflation's report i've seen in ages. kailey leinz info jonathan ferro. lisa abramowicz with us today. dow futures up 74. let's do this right now, curb

inversion, there is a number on the bloomberg terminal, -48 basis points. lisa: we are bumping up against history. does this mean bad things will happen in the economy? you get really unclear answers from people about whether there is depth of the inversion and any correlation to the depth of the potential downturn. tom: ambiguity. maybe we see that in currency markets as well. on these inflation reports in particular with the expertise of the dollar, mark timing -- truly legendary in the astrology if you will of piecing all of this together. mark chandler, what is sustained high inflation do to the astronomy of the market? mark: it's not just the u.s. of course that has high inflation of the world is going through it now.

i think to your point about the importance of cpi number, i am not so sure it will change anything. after the strong labor data we had for the weekend, of the market pricing in an 80% stance of a 75% -- 75 basis point hike. tom: is the dollar dynamics here pliable? when you look at the noise david rosenberg like noises coming out of the inflation report today, can an economist like you make a playable bet on resilient strong or weak dollar? mark: so much on the today cpi number. even though it's an adjustment, the spread between the u.s. two year yield and adjournment to year yield is a three year high. typically debt spread that -- the u.s. premium peaks before the dollar does. between the italian election

next month, this unusual weather we should face in europe, drying up of the rivers also a supply shock as well as the energy costs. i think europe is facing a couple of shocks in addition to the interest rate, that could drive the euro back towards its lows. lisa: that's something we've heard that perhaps we haven't seen peak dollar strength at a time when the u.s. is still doing pretty well. how much of the employment report on friday change that picture. our people getting false optimism, but overly confident about the healing of the global economy or the resilience of the global economy before they could see it happening. mark: with inflation one number the fed is focused on. when it comes to that employment market we are seeing a lot of mixed signals. jobless claims are rising.

some of the survey data, we've seen claims continuing to edge up. the labor market not that strong perhaps. but again the labor market is a lagging indicator. many think the u.s. is already in a recession. i'm not one of those people. but i would point out yesterday not just the two and 10 year curve, but yesterday the one year t-bill was auctioned at the same rate that the three year note went off yesterday. 3.2%. to me it's not that it's reflecting a recession, but changing time -- change financial conditions get more difficult. tom: was that auction talk, did i just hear that? lisa: it was very well done. that was beautiful, tom. that read well on radio. nodding off at the bond auction talk.

there is this question about positioning and the fact people are going into three year notes at a time when there are so many questions about rate hiking. they made it more vulnerable for the rally because people of closed out in the week that they've already seen the peak. mark: if you currencies had seen that. they lost the median dollars. they're so short the euro, the still short sterling. i'm not sure positioning is a big lock to the dollar right now. i think as we get into next month that we will see the dollar beginning to strengthen again. kailey: what would be the conduct -- concoction for dollar weakness? what would it take in order to sap the strength of the greenback. mark: not looking at the federal

reserve rate 75 basis points next month. another 50 or 75 before the end of the year. when i look at december, fed funds futures for next year, it's trading below the december fed fund contact issue. that's pricing in a rate cut in the second half of next year. i think is these forces gather steam, of the federal reserve can rate something before they think they well. the labor market, whether it's the economy, things will slow down sufficiently between the end of this year in the end of next year and put this on hold. some of my colleagues have done a study of the last time between the last hike and the first cut. that average was about 10 months. i don't think the market is so far off. i think that still seems to be a reasonable effect by the end of next year we are talking about changing fed policy. tom: really resounds with what

we saw from bank of america in the chart getting us out into the summer of 2023 with elevated inflation. yesterday surveillance, on the pipeline across russia moving into ukraine and splitting into three parts from latvia down to i can't remember where, they shut down the oil, brent went up and now we went the other way. lisa: getting ready to resume that flow via the southern leg of the pipeline. this had been ukrainian led shut down, not a russian led shut down which is part of the reason why you oil getting lower today ahead of this. nevertheless, i do wonder with the premium getting built into oil prices, because there is an expectation that russia will play with the flows. this will be something that will happen through the end of the year, perhaps the perfect

example of this. that is something many people are expecting. how do you get ahead of that and plan for it if you are trying to game out the pricing. lisa: the heat is breaking new york. we've gone from this ridiculous heat wave. two days ago i'd never seen this ever. it was like virginia weather. it was terrible. kailey: it has been brutal, but it's also been brutal in europe. talking about oil and gas flows from russia we have to talk about the heat wave on europe to rivers. there's a point on the rhine river that it could become impassable for cargo. germany has come to rely on coal given the concerns around russian energy flows. we are talking about climate change, energy crisis in europe that could get worse because of it and that does not believe the european economy in a good place. tom: it's been extraordinary the

last couple of days. it's been really quite something. moving to the inflationary board, dr. lee will be with us at the 7:00 hour on oil and europe as well. something important for global wall street. the moving average is frightening. it's amazing how the moving average on netherlands natural gas is sharply above where it was when the war started. lisa: it's been that you see germany in particular transition away from gas and try to increase reliance on oil. how quickly can they do that ahead of the winter. this will be a huge pressure point, a massive part of the inflation over in europe. we are seeing a declining part of the inflation share in the united states. what takes over for it and how

long will this stay is a disinflationary measure. tom: thank you for emailing in. why you guys do italian spreads. why aren't we? lisa: this has been something we've all been watching as well. with what's going on in italian yields. how that shifted around especially as we do not necessarily seen the teeth the european program. they faced a lot more problems in europe. tom: danske bank has done terrific work. it's important to understand on this day of inflation in the united states how different the european story is than what we see in the united -- in america. futures up nine, dow futures up 65.

we got a go back to this curb inversion story and i guess the velocity of it can go through it. looking at -56 basis points. kailey: this could be actually viewed as a real credibility by the fed in the market right now. people believe whatever the fed will do it's going to work and that's why long-term yields are coming down. how long does that continue, at what point do people start pushing back if they believe in this. tom: this most important day, michael mckee with us, a complete inflation brief, we will do that at 8:15. a number of economists to attend as well. after that we will move on to the markets and particularly on two important earnings in media. michael will join us here to finish up surveillance this morning. coming up, chief u.s. economist

and high-frequency economics. our first brief of the morning on this historic inflation report. please stay with us, this is bloomberg. ♪ >> several of europe major

rivers are running dry. $80 billion in trade routes. an arid summer that is set heat records. the rhine has dried up to the point of becoming virtually impossible at a key waypoint that's slowing down. in south korea the city of seoul is basing for more rain after being hit by one of the biggest ones and more than a century. widespread flooding has killed at least nine people in the capital. more than 20 inches of rain have fallen. lawmakers are criticizing the president for his part. the most since the global financial crisis. they lost a median 10.2% in the 12 months through june according to the comparison service. those with $500 million or more did substantially better gaining 9/10 of 1%.

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'm ritika gupta. this is bloomberg. ♪

>> the fed, it might be easier for them to continue to attack or at least bring under control this inflation issue while consumers maintain a slowed down but still spending for the economy to get through this. tom: talking up inflation because that's what everyone is talking about. kailey leinz info jonathan ferro and lisa abramowicz. let's talk about that, we haven't said inflation now that your living topline core trim,

adjusted according to lisa, is it 40 year high inflation whether it's 38 years, who cares, it's for decades we haven't seen this inflation. what we will suggest as it will roll over and we can extrapolate out in the next year except it hasn't rolled over yet. maybe we will see that in less than two hours. the chief u.s. economy a frequency economics. our first conversation in the morning to dying to the detail -- dive into the details. what is the detail beneath the headline data that matters at 8:30. >> we all expect to see headline inflation decelerating in july. our estimate is a little bit more to the downside that it is the consensus. it's really about core inflation and the expecting federation. it's all about risk and what we see is the push that we are going to get over the next

several months. our estimates show shelter inflation is about 5.5% peaking at 6.5%. that will keep the pressure on for cpi over the coming months and really it keeps the fed in play on a very aggressive policy stance. our estimation, our judgment is we will see a 75 basis point rate hike. a very negative surprise today. we can see 125 basis points for the rest of the year slight upside to that. tom: you are suggesting that the inflation report goes the wrong way, we may be jawboning 100 basis points in the 9:00 hour this morning? >> this is exactly what we think. all options should be on the table. if the fed is expecting to bring inflation back down to 2%, growth is secondary, inflation is in focus.

in the labor market gives them the leeway and the runway to take action to bring inflation down. base case is 75 basis points, but look out for negative. lisa: you said you are a little bit out of consensus. the projection is the lowest among the projections we track here at bloomberg. among economists. what are you seeing in terms of decelerating factors that others are perhaps underestimating. >> if the energy component. what we saw in seasonally adjusted prices. we think there's more downside risk from that and that just means we have a flat reading on year on year. it really doesn't matter. headline inflation was unacceptable. what we expect to see is moving

from a 59 -- 5.926.2. to really keep track on keeping inflation back down to the target and keeping inflation expectations anchored us what they need to do. >> one feature of inflation that is sticky is moving target basically the area of inflation keeps shifting which is what we see over the past year or so. how sticky are some of the increases we are seeing in rent and medical costs. some of these other areas outside of gas, outside of oil and food. >> this is a very good point. it's what we are looking at. we are looking at shelter and data prints. we have the substantial week in the index. i don't think shelter is going to be a major factor. if we keep services inflation

accelerating we will still have inflation that's good to be well above target over the next few months. this will be sticky and have the lag effect. the fed itself doesn't expect the inflation to go back to 2% by the end of the year. we need to move in the right direction. we will see this decelerate. that's not what the fed wants to see. kailey: there is a wage component to that. the 10 point 8% jump we saw in unit labor cost in the second quarter. how close are we to the edge of the wage price spiral? >> it is difficult to assess right now. the fed is acting to rebalance the labor market than we expected to see a little bit of demand, we are not seeing it in the labor market data. what we are seeing is the

jobless claims numbers that we are seeing an adjustment in the labor market. i'm not sure we are in a wage price spiral right now. this is can be something we are watching closely. average hourly earnings moving in the wrong direction we are not seeing the deceleration we want to see. lisa: in your best estimate what level of unemployment will we be at when we see inflation year 2%? >> it is difficult to assess that. they are saying may be the situation is different, maybe we can bring demand down. what we are seeing is we are seeing a decline in openings. we are also seeing a decline in hiring. we see rebalancing of this out bringing the unemployment rate too much. it is our expectations that it's

going to move about 4% for expectations. tom: thank you so much for framing that. high frequency economics. something we haven't talked enough about which is hoops, higher statistics, a greater inflation. the shock this of framing 100 basis points i am not prepared for that. lisa: if there is an upside surprise how much do we end up with something like that being the conversation. the parlor game, we get forward guidance that's just yammering gator -- later today from the fed members including neil who's come out as this amazing hawk among the most dovish members. how much can we glean insight from them other than the pressure from jay powell himself. maybe perhaps gut check a little bit more severely. tom: 7% even.

8.5, we have a hope and a prayer in april of 8.3. we pull back. 8.6, 9.1 and that gets me to where liz and saunders is which is looking to rent. that's the key number today. lisa: and one we will be watching carefully. as inflation peaked or was it going to be like inflation was transitory. if it is hot, can the fed wait until september 21. that's a long way away. tom: that's a really interesting question. that bears conversation. futures up eight, the vix 22.34, stay with us. ♪

>> for the fed right now it might be easier for them to continue to try and bring under control this inflation issue. >> the fed is open-minded. >> if you look at 25% decline. >> the economy is not out of the woods. >> this is bloomberg surveillance with tom keene

jonathan ferro and lisa abramowicz. tom: good morning everyone. a most historic wednesday here on inflation in 90 minutes. kailey leinz info jonathan ferro. lisa let's get to this. the answer is nothing else matters except 8:30. lisa: that's pretty much true. we try to find direction of the lackluster. it could fundamentally shift the conversation. are we talking about 50 basis points. what is the differential in the fed trajectory after this print we get at 8:30. tom: daily, your observation of the research overnight. kailey: we are already inverted by nearly 50 basis points. that raises expectations of the terminal rate. bank of america saying we can go as low as -85. tom: modeling out -50.

-85 basis points is on the edge of vulgar and as well. futures up eight, dow futures up 66. the vix showing the range bound. the two year yield a stunning 3.27 is the number to watch this morning. what we see oil gives back on some pipeline news. brent crude, $95 a barrel. dollar insurance slightly weaker as well. it will be knee-deep in three and 10 year auction. lisa: it will be knee-deep in the one story of the day. we will talk about the headline figure and the expectation 8.7%. we will talk about the core figure expect to come in at a faster pace than the other non-core elements.

i'm talking about real wages which continue to decline and are about -4%. a decline in disposable income of individuals. tom: this is the most important chart. for those on radio, it's reality for 10 years and then there some pandemic noise in the so-called -- the amount and duration is really adding up. lisa: you are seeing that on the margins in places like walmart and target. you see that with anecdotal evidence of people transitioning away from higher cost items to lower-cost ones. the most negative real wages going back to at least 2007. the one reprieve has been oil. we talked about the decline today on the heels of the resumption of woes. we get the latest oil inventory report for the united states, how much does this give a sense of perhaps a building inventories or a lack of demand. we saw a little bit of evidence

suggesting that. a lot of people have called that into question and this underpins how far the headline inflation print can keep declining. fed officials will come out and talk about that report, don't call it forward guidance. we will hear from the chicago fed president at 11:00 a.m. in the minneapolis fed president. larry summers, the former treasury secretary has been very outspoken about how this fed has been behind the curve and how they haven't been up front with what they are looking for in terms of inflation and how high unemployment will have to get and how quickly that rate can come down and how much pain the economy might have to suffer. >> we will get to the inflation questions, but right now someone who gave me my essay of the summer 12 months ago, david stubbs out of the new school of social research wrote an incredibly prescient piece last year on technology.

he joins us from jp morgan private bank. the technology of the moment which defines as you said less some of the haves and the have-nots of the american economy. they are affected differently by inflation. they are not has hurt as the technology losers. >> this has been one of the key drivers of the growing wealth and income inequality and across most of the developed world. certainly when you are faced with such a major inflation push in the corner of food and gasoline that we are seeing and will see again in a short while, it lays bare some of the weaknesses in the fragility's of the majority of the working age population in the developed world. >> i said to joyce chang make sure you write something before the end of the summer. >> perhaps technology but also perhaps goldilocks.

you see the potential for a goldilocks type event if you get a missing the cpi print. if it comes in lower than expectations you could see a surge in the s&p. can you explain that given that so many people see risks the other way. but there won't be that much of a move because they priced in a pivot and that upside surprise will start to incur some pain. >> let's be clear what this is, a discussion of markets over the summer. they tend to be thin and volatile. the market is desperate for some hard evidence that the inflation surge is lessening and they won't have to do is much as some people fear and that the soft landing is likely. if that's the message from the report, you could see risk assets rally significantly today and back it up tomorrow. these are short-term moves for sure. ultimately we see a lot of downside in the equity market if we do get a recession in the

previous guests have been discussing, the message received is probably going to be a sticky inflation around things like rent continuing to accelerate even his headline poles back. we are entering a new phase in the inflation debate where key drivers over the last nine months or so will start to reverse a little bit. ultimately the fed focuses on core more than headline. the core message will be worrying and still be the fed is going to do more throughout the remainder of this year. lisa: is it fun to be a strategist right now as you try to game out the potential ambiguities and come up with what people should do with their money? >> it is always fun to be a strategist because there's always interesting things going on. we have been through a whirlwind of a cycle. we see clear evidence of the moment of late cycle behavior. look at the lack of labor supply

growth, the acceleration of inflation and wages. 12 months ago, 18 months ago we were talking about early cycle conditions. we are in the shadow of covid. it's throwing all kinds of traditional relationships out the window. kailey: which one is more confounding? the equity market or bond market? >> i think the equity market rally has gone a little far for sure. so many items of evidence the global economy slowing rapidly, the corporate earnings will come under pressure from the margins. the message from the bond market makes a lot of sense which is central banks will have to do a lot more, that we have in inflation targeting central bank framework that's going to do what it's assigned to do. but it's going to have to flirt with recession at the very best outcome to do so and that's why you have the significant curve and version been discussing about.

it looks like for me that curve inversion to get even larger as we move into the fourth quarter. evidence of slowdown continues to stack up. central banks continue to hike rates. kailey: of course the reason the curve is converting we see the move potentially higher and we see yields, and at the long end which lower yields should be somewhat supportive of equities, specifically those in the growth realm. is that a good thing the reason yields are lower as that growth is slowing down. >> mechanically of course interest rates help with the discount rate with the earnings that are way out into the future gets impacted. we are seeing growth outperform value since mid may. you saw jobless claims start to rise and that was the first sign the economy in the labor market really is starting to show a few cracks around the edges. also you saw that move in interest rates and that's what

boosted growth. if interest rates keep going down, not because the fed is credible, but because the economy is sliding into recession. tom: let's go to the geometry about smooth glide paths. do you perceive the dissent of core inflation into 2023 is a smooth measured glide path or do we move down and pause? >> i think we will go up in the coming months. but you would love to think when we get to the fourth quarter, core starts to decelerate year on year and that's reasonably smooth. >> driven by goods disinflation? >> eventually moving into services. the fed needs to see that rollover. it's not in a rollover for a

good few months. going into next year there's a question it lays out. what is the big debate and quite scary in some ways is you can get inflation coming down to 4% annualized and then have it stay there. that's the issue. that's certainly a good possibility that would prevent central banks around the world from cutting whenever you want to assume they would cut. tom: to be clear you are saying services, >> energy, x shelter is the sub index you're watching. >> almost 50% of the cpi so that's the one that straightaway. you want to focus on shelter or things like hospital cost. sometimes you take those out for a core measure. services and energy. tom: don't be a stranger. a fabulous brief this morning on inflation.

equity markets with a little bit of a bounce. futures up 11. nasdaq comes out 3/10 of a percent as well. 22.25. stay with us and our next hour, michael mckee will prepare you for the inflation report. >> keeping you updated with news from around the world. what's been called the most scrutinized economic report in the world comes out this morning and will give us a sense of where the fight against soaring inflation in the u.s. stands according to a bloomberg survey the consumer price index probably increased and annualized rate of 8.7% in july. still way above the fed's 2% target. former president trump will be question today under oath. the investigation involves claims the trump organization misstated the value of its prized assets for tax reasons. that comes two days after

federal regulators search the former president's home in mar-a-lago. china has ended those military exercises near taiwan but it says it plans to conduct regular patrols in the region. the chinese began after the u.s. house speaker nancy pelosi visited taiwan. elon musk has sold $6.9 billion of stock in tesla. the world's richest person says he wants to avoid a last-minute selloff of the carmaker shares. muska says he will buy tesla shares again if the tesla deal does not close. new york city one step closer to rolling out a congestion plan. it would take effect as soon as the end of next year. it's estimated the charge would reduce traffic. 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.

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>> you've got gas prices coming down, a biden having a good summer.

it's possible the democrats losses will only be five or 10 seats in the house, maybe they will keep the senate. i can see the house staying democratic. i think it will flip. tom: short notice off the shock of what we saw. the search of president trump's residence in florida. we discussed that with emily wilkins. we go to that before the inflation in euronet -- some -- from the great northwest years ago there was the upper and lower peninsula. and off to the west i believe lonely and cold as wisconsin. we get a brief from emily wilkins of what we learned the first tuesday of this week where we had elections. what did we learn in wisconsin. always interesting state. >> it's going to be one of the states to watch. i'm going to help determine whether or not democrats wind up keeping the senate or not. you saw mandela barnes win the nominee.

you saw a lot of other democrats running drop out and endorsed him in recent weeks. he will be up against ron johnson, the first republican senator from wisconsin. he has a good amount of controversy in recent years with remarks on covid-19. he's also very much loyal to trump and has been seen as having very close ties with the former president. wisconsin is an interesting state. it's a swing state, a state that has elected a democratic governor but at the same point you've seen a lot of republicans be elected at that time. i think it will be one of the ones we will see a lot of money spent and time spent from now until november. tom: i agree with the swing stated miss of it. after the events of the last 24 hours how does that affect swing state politics? does this special does president trump sort surge because of outrage over these searches? >> to an extent yes. greg didn't excellent job laying

this out in the newsletter. to a certain extent of what happened yesterday was a bit of a lifeline for trump. they put them on the front page of the headlines. the search at mar-a-lago united a lot of republicans behind him including a lot of folks who were considering challenging him for the 2024 republican nominee. so trump is having a boost right now in the support he's seen after the surge -- search. that could translate to more for him and his brand. lisa: there's been a question of how republicans will handle this. pretty much across the board they've had the same message which is questioning the validity of this type of search. is it having the same sort of support in the populace? is this supporting some of the republican candidates that have trump backing. >> to a certain extent. if his brand codes that can be

seen as a positive thing for them, at the same point i would reiterate that a lot of this election will be decided on things like inflation. the cpi numbers will be really important as to what's can happen in november. same thing with abortion rights given the overturn of roe v. wade. those will be the big movers and shakers in the november election. a lot of folks are watching the january 6 than what's happening with trump and the deposition that's can happen today. to a certain extent those aren't things the average american thinks about every day even though they are important. >> emily wilkins always gets me in trouble. nathan from milwaukee tweets in and says tom you are disparaging wisconsin. we are not lonely. we are cold which i guess is something to consider about milwaukee and points west. >> an important clarification. i would've liked to of been cold

for this last week. you mentioned this deposition, how consequential is that? >> we knew trump would have to sit for this deposition. it was supposed to be last month and it was moved following the death of his first wife. this is an investigation that's been long going but we've heard the attorney general say they think they are close and they have a lot of evidence and they are ready to move the investigation to the point where they will be charges involved. that's good to be something to look at very closely. there are a lot of investigations going on right now. it's not clear what the result will be from a number of them. this seems like one that's nearing its end. >> a difficult question quickly, if the republicans of the party out of power, do they want high inflation or low inflation? >> if you asked any republican lawmaker they will tell you they would like inflation to be low

but this is an excellent talking point for republicans. they can really sort of pin this on average americans going to the grocery store and gas pump seeing higher prices. they know this will be an issue. if you look at the tv ads and messaging, you are going to hear about inflation from republicans. from now until november. the big question is what are republicans going to do to address inflation if they win the house and potentially the senate. tom: lisa, you know what unilever is doing with marmite. marmite inflation is a major concern. lisa: and for you as well. tom: i don't eat the stuff. lisa: honestly we are seeing in earnings across the board revenues are increasing because of inflation.

companies can increase the price but i was looking at wendy's which reported earnings about 25 minutes ago. same-store sales were lower even though the headline you can see the shares thinking. it's an example of how people are looking at how much real growth are you experiencing and there isn't about much. across the board not seeing real growth, you are seeing inflation-adjusted issues across the board to your point. tom: i'm looking here at wendy's. i have an acquaintance this summer -- with wendy's. still sees free cash flow of 215 million because of afterthoughts analyst orders. it's in the report. kailey: i do love a good frosty. what's interesting talking about the inflationary pressure and shifting consumer behavior. bank of america data out

yesterday on credit card spending slowing down in july which speaks to what we've been talking about, other cost people are facing going up. tom: i'm glad this was brought up, this is the back-and-forth whether it's someone looking for numbers or someone saying, this was stunning that we've seen numbers go up. kailey: how much does the fed respond to one print. we will have non-forward guidance later today. tom: we will bring you full market coverage after 8:30 as well. future set up 11. this is bloomberg. ♪

tom: bloomberg surveillance. we welcome all of you. tom keene, kailey leinz, and lisa abramowicz. coming up on one hour to an extremely anticipated, complex inflation report. we will get to that with marilyn watson. looking forward to talking to michael mckee around 8:16 to

dive into all of the data, the mysteries he is looking at. 2, 3-day turn in the markets waiting for this report. nasdaq advances 5.3% but i would not make much of it. vix, 22.8 . further curve inversion, -40 basis points. let's leave it at that and look at individual securities. lisa: we are 91% done with the earnings so far on the s&p 500 in terms of the number of companies. individual stories are fascinating. roblox, how people were using fewer video games and kids have things to do. you are seeing this across the board with me to game producers. those shares plummeting in the

premarket. this is because of a disappointment in the usership. tesla shares, interesting to see them popping on the report that elon musk sold nearly $7 billion his stock, so my are shares up? he wants to get ahead of some sort of firesale he would be forced to do, should he buy twitter. coinbase came in as a disappointment on the heels of the crypto asset meltdown earlier this year, lower by 5%. in other stories that i know that you are keyed into, the rights to broadcast the big ten football games. that is what we are seeing with disney and paramount. disney reports after the bell, shares of .9%. espn dropped the rights to televise big ten.

paramount partnered with nbc to pick those up. this is the key debate. how much can prices for the streaming go up given that cable pays so much for sports for their survival? i'm curious to say what disney says my they were ok dropping that. wendy's down after reporting revenues that disappointed as well as same-store sales in the u.s. also disappointing, even though on an adjusted eps standpoint they beat. people looking for longer-term resilience to figure out where to place their bets. tom: on inflation now, we bring in marilyn watson blackrock. -- of blackrock. i don't think she studied with alfred marshall, but along the way, figured out the dynamics of

price change within our economy. what is the key dynamic for president biden as he looks at this inflation report this morning? marilyn: looking at this inflation report, the following one, as well, before we get the next fed decision in september will be crucial. particularly with the midterms coming up, as well. when you look at the core cpi, we expect it to remain strong, not as strong as previous months, maybe 0.5. when you see annualized rates of 7%, that is incredibly high. when you look at the data today, headline data can come down a little bit, the drop in gasoline prices. but when you look at the overall economy, activity, we are seeing the impacts of inflation coming through in terms of expenditure.

we are seeing a decline in the jobs opening, which still remains elevated. fewer vacancies out there. it has a massive fundamental impact on the economy when you look at the prospects for the fed, the amount of money that households have in their pocket, business investments. tom: when you look at the timeline here, let's go beyond the hysteria of one port that we will see in -- report that we will see in 50 minutes. if you can look out into 2023, do you assume price down, yield of four fixed income if inflation does not get back to a 2% level? marilyn: we certainly think inflation will start to decline, will soften from here given basic facts, -- affects, a number of other issues.

but there are other factors at play which already. if you look at energy, russia invading ukraine, if you look at food, supply of some goods, potential further lockdowns in china, a lot of issues may keep inflation more uncertain. that will be one of the key things that we look at when we look at jackson hole later this month. tom: but when is your bent on fixed income paper? it is a major mystery is price can get a bid in fixed income. marilyn: in terms of fixed income, the market here is pricing in a more negative outlook. at the moment, we expect the

yield to remain in a range going to september, but going forward, there is a bid for fixed income. that when you look at other asset classes, investment-grade, high yield, you can see some incredibly attractive valuations in fixed income. you are starting to see a bid there for those that you have not seen in a long time. in terms of pricing, they will remain supported by investors, pension funds, insurance companies, any investors who need the yield. but there is a lot of uncertainty around the economy going forward. lisa: how much conviction does blackrock have in terms of filing in on the trade given the support that you see for this pricing? marilyn: we are still relatively cautious given the ultimate outlook and trajectory for the economy, but we expect to remain

aggressive for the rest of the year. inflation to remain above the 2% target. we have a decent amount of conviction that if you can find high quality assets that have an attractive yield, and we are started to find more of those, when you can see those from a bottom-up perspective, we have some pretty strong addiction that we have some attractive assets in fixed income. more than we have had in a long time. lisa: just based on yields being higher. what are you looking for before you go all in? marilyn: we are looking at the balance sheets, cash flow. we are looking at how robust different corporate and issuers are, especially as we see the slowdown in the economy. also looking at leverage. also liquidity is incredibly important.

two invest in bonds, you need to do a lot of analysis, understand exactly how what with the bond is, the price you go in at. if there is a spike in either direction, if you want to do that, where will the price be that? there are a range of factors we take into account but we have a lot more confidence now in terms of the depth of the market and heal we can get. it is now focusing on a bottom-up perspective on the quality, liquidity, balance sheets of the company. kailey: we were speaking with greg peters yesterday who said spreads were not attractive enough for me to be interested. high yield, 432 basis points north of treasuries. they have come in substantially in the last month that have. how much do you think those could widen out? marilyn: they have come in considerably. when you look at what the market is pricing in in terms of the default rate and other issues, i

think we are in a pretty benign environment right now. i think you could see spreads potentially why did a little bit when you start to see more dispersion. the next couple of months are tricky because it is the summer trading months. fed in september. a lot of key data coming through that will help to give us a stronger signal on the further trajectory of interest rates, inflation, also the path of growth, labor market, as well. when make it past the summer, we could see more volatility as we begin to understand exactly the trajectory of the economy. from there we could see spreads widening depending on the data. tom: marilyn watson, thank you so much. that is terrific insight, that we have to get "passed this summer." we have to remind ourselves, it has not turned around yet.

these are vectors moving upward, and they continue to move upward. lisa: peak inflation it is just math, but no one is projecting for inflation to increase from 9.1%? but what if you don't get any decline at all? we have not seen it. that is looming large over a very illiquid and uncertain summer. tom: futures up 10. dow futures up 62. kailey leinz, look at inflation, looking at the political imperative. it will be interesting to see, as we are mystified where we are, the white house has to be mystified where we are. kailey: and they have to message around it. something tells me that the president will point to the price at the gas pump. it is coming down.

tom: we will speak about oil, gasoline. then we will get back on the inflation script. michael mckee with a brief before that report in 45 minutes. stay with us. this is bloomberg. ritika: keeping you up to date with news from around the world, with the first word, i'm ritika gupta. former president trump has legal issues on two fronts. he will testify under oath in a new york investigation involving the valuation of his real estate holdings. this comes after his home was searched in florida. republicans echoed the assertion that the search was politically motivated. european sanctions have prevented russia from paying a transit feed to ukraine to let the oil pass through. now the hungarian refiner says it has paid the russian transit fee and oil will resume flowing.

several of europe's renters are running dry, affecting trade routes. the rhine has dried up to the point of becoming verse early -- virtually impassable at one point. that will reduce its stake in china's e-commerce leader from 24% to less than 15. the investment was one of the most lucrative in venture-capital history. the maker of the world's iphone bid quarterly profits that beat estimates. they have been navigating component shortages and covid related logistics. 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'm ritika gupta. this is bloomberg. ♪

>> despite the fact that price inflation is so elevated, financial conditions, what have they been doing? they have been easing. that suggests that the fed has more room to go. the die is cast now for a 75 basis point move. they need to leave it on the table for the remaining two meetings this year. tom: getting out into the calendar in the fall, but we will see with inflation. lisa mentioning this morning the effect on wages and what it means for chairman powell. we will attend jackson hole to give you perspective from the

world's leading academics on economics. kailey leinz is with us. thanks for joining us this morning. lisa, tom keene here. we are not back to vw rabbit's, this time is different, but maybe it is not. julian lee joins us now, oil strategist at bloomberg. i want to talk about the character of oil, a liter of gas, in this inflation that we have. do you perceive oil inflation as a permanent inflation? julian: no, i don't think it is permanent.

we have already seen over the last month that gas prices are coming down. that will have, comparing month on month, negative for inflation. yes, it is a lot --up a lot year on year, but i don't think we will continue to see it rising. you get to a certain point where high oil prices start having their own self correction mechanism, if you like, contributing to economic slowdowns. that tends to bring prices down again. we will see that happen. i have been through so many of these cycles. tom: this is what drives our listeners and viewers nuts. oil was two dollars a gallon. now it is four dollars a gallon. oil's price went up and people same you will get used to it and inflation will go away.

listeners and viewers will say that is absolute baloney. a gallon of gasoline is still four dollars a gallon. julian: a gallon of gas is about four dollars. a month ago, it was over five dollars, in some places, six dollars. this is a movable price. you track the history of whether it is crude oil prices or gasoline prices over the long history and you correct for inflation, and yes, you may see some upward movement, and in times strong movement, but you also see lengthy periods of downward movement. lisa: we will get cbi and then we will hear from the white house. potentially they will say, look, we got oil prices down, look at

how much they have declined over 56 straight sessions. is it because of the release of the petroleum reserve, decline in demand, are people speculating there will be a decline in demand in the face of a weakening economy? julian: i think probably yes, yes, yes. all of those things have contributed. certainly the release of crude the strategic petroleum reserve has had an impact on supplies globally. the concern looking forward, that will have to come to an end in october unless it is extended. demand on the eia figures look pretty weak or gasoline the summer compared to last year. i think there are expectations of tougher times ahead. lisa: to that point, how perilous is it that you have inventories at such low levels from the strategic petroleum reserve at a time when we are

heading into a winter of great ambiguity, both with respect to the european picture, what happened with china if covid comes off, and what happens with demand? julian: we have to bear in mind what the strategic reserve was created for, what the situation was like when it was created. this was created at a time when the u.s. was very heavily dependent on oil, much more than now. it was created to deal with a disruption in middle east supplies. any disruption in supplies will affect global prices. it will affect the availability of oil in the u.s. much less now than it would have done in the 1970's or almost any time since then. you look at what is happening now, the different between the shortages that we are experiencing in parts of europe

where some refiners and distributors are limiting the supply they are making available, and what is happening in the united states. oil is abundant. exports are at or close to record highs. the strategic reserve from that perspective of guaranteeing the physical availability of oil does not need to be anywhere near as big as it was. kailey: that is all on the supply side. on the demand side, have we seen any real destruction? julian: it is always very difficult to say in the near past. if you look at demand estimates, even demand history, it is frequently revised, not just weeks or months into the past, but often years into the past, as more data becomes available. what we are seeing is some measures of u.s. gasoline

demand, for example, suggests that that has been coming down over the driving season rather than going up. certainly significantly lower than last year, at least according to the eia. we are having downgrades to oil demand forecasts. i wrote about this in a newsletter, commodity newsletter yesterday. we have the usual cuts coming from the energy agency and opec tomorrow. i expect both of those will revise down there demand forecast for this year and next. tom: julian lee, thank you for the brief on oil. brent higher yesterday, $98 a barrel. right now, 94. i almost teared up with kaylee's macro economic question.

it is like poetry. lisa: i honestly love what makes you emotional. very relatable. it is a good question. where is the demand? any evidence that demand has increased? take it or leave it. tom: demand elasticity, which is a massive mystery out there. gaming out the responsiveness of an economy to the price of oil is very tough. equities advance, up 12 on s&p futures. 34 minutes from the inflation report david stay with us. -- report. stay with us.

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>> i don't think we are going back to april 2 of time where you wake up worried about deflation. i think it will be opposite for the next two years. >> consumers have enormous

ability to take on higher prices. >> we are seeing positive news that equities could perhaps go higher in a tightening environment. >> we are absolutely seeing a very disrupted economy begin to heal. >> this is bloomberg surveillance with tom keene jonathan ferro, lisa abramovitz. lisa: countdown to a pivotal cbi report. -- cpi report. how much do we get a reaction that is bifurcated with a heavier weight to the upside surprise that the downside surprise? tom: i don't have a clue on that important question. mike mckee will be with us in 15 minutes to go into everything. to me the most interesting point, david stubbs of jp

morgan, take out, energy, this new shelter inflation we have got, and where do services stand? lisa: how much will that be the source? the pivot away from goods to services, how much of that has been curtailed by lack of confidence? people are talking about a sudden about base from what the fed projection will be. there is a lot of time between now and september, jackson hole, a lot of data that could confirm or rebut what we get. tom: we have to remember so many of these series still shows whatever listeners and viewers feel, higher inflation. let's be clear, it has not turned around. lisa: why we are looking at real wages and going more negative. as we look at this report, what are you most focus on to give us a compass on how to frame the data, the better response? kailey: i think it will be about

the core metric, how sticky this is. on the one hand, it would be significant to see price growth moderate, but prices will still climb. the fed would still like to get down to 2%, so it is not about a single data point. it's about how quickly they can get down to their target and what rate it will take for that to get there. lisa: is it fair to call this cpi wednesday? tom: no question. lisa: ppi thursday? university of michigan friday? tom: what we will see in 27 minutes is a big deal today. lisa: i would agree. markets are up, but the lack of conviction is noteworthy to me. nasdaq futures up .4%. a churn as you see heels, of their highs. yield curve inversion very much front and center, sending a

pretty severe message. tom: in the last day, near 50 basis points. it two year yield higher than the 10-year yield by half a percentage point. what is amazing, suggestion that we could see more rapid curve inversion. lisa: bank of america charting that out, brian nick, as well. how you get to a disinflationary environment that is more comfortable. how does the fed influence that one way or the other? brian, what are you looking for today, where is the balance of risk? upside or downside surprise in the markets? brian: when you account for the severity of response, the risk is still to the upside. if we get a hotter than expected core number, if the rent inflation is not only staying high but accelerating, that means the fed will be even more

reluctant to take its foot off the brake. this will just add to the evidence that the fed will not be able to pivot to slower pace of rate hikes or even rate cuts by next year. we also want to see confirmation of the headline number. i think the market is looking through that. while the market saw the fed getting more hawkish as oil took the baton and ran with it, i don't think the market is falling for, as long as oil prices are in decline the fed will be more dovish. i don't think there is symmetry there and people have caught onto that. lisa: do you think the market has reacted properly to two 75 basis point rate hikes, followed by a balance sheet unwind? are people looking over the potential lag effects of those kinds of moves? brian: as somebody who worked in

asset management, i would say yes. if i were at the fed, i would say no. the fed seems likely to hike by 75 basis points unless there is a major change in the data. we can expect them to become, if not more hawkish, but to keep the message out there that they are worried about containing inflation. even a .6 core inflation number this morning will give them plenty of fuel. tom: i want to go to kailey leinz, working with david blanchflower over at dartmouth. she is all over demand destruction. does nuveen see demand destruction, a prerequisite to lower inflation? brian: in some areas, yes. the 12 months ending in june, gasoline prices were up 50%, but nominal consumption was only up 40. there is some demand destruction, not large compared

to the price move we are seeing. throughout this whole process of two and a half years, consumers have been really good at adapting, rotating out of where prices are rising, going into where prices are falling. the overall inflation shock has not been as high as the headline numbers. if you are driving less out of necessity, having to cut back on discretionary spending to pay for necessities, that is a different feeling. that is why you see this consumer sentiment readings as for as they have been. kailey: what we heard from the chipmakers over the last few days, talking about a slowdown in demand. they make chips for smartphones and pcs. maybe it shows a shift away from expensive electronics. today's report will have implications for the economy and federal reserve. what is the readthrough for corporate earnings?

the second quarter has not been that awful. brian: revenues have been the key. the biggest risk to corporate earnings is not necessarily inflation in and of itself but the effect it has on demand. if revenues are growing at double-digit, we will not be that concerned about corporate earnings. seems like they don't well with the higher energy and wage costs, but if revenue goes up, there is not any place for these companies to turn. you talk about we'll wages earlier. that is the key. we need to get real wages back up before nominal wages collapse under the weight of a slowing economy. kailey: how much do you think the fed will be successful? we are talking about -- the needle they have to threat is difficult. we talk about how narrow the runway is to a soft landing. where do you put the odds on this actually working for them? brian: not as high as they were three months ago, because we got

the higher inflation data, higher-than-expected rate increases. the notion that there will be cutting or pivoting by march of next year is probably too much to hope for at this point unless we are in a more severe recession. in which case, the only cutting for negative reasons. i don't think markets are currently pricing in a severe recession outcome. we think maybe there is something in between that soft landing, disinflation scenario and severe recession. that seems to be where we are at. i think that is the middle ground that the markets are betting on. tom: as we go to michael mckee in the next segment, we need to revisit a pregnant issue. inflation at 40 years on. how long before we get back to some form of normal?

is it like when the chicago cubs win again? how long until it is back to, not 2%, but normal inflation? brian: i would settle for just the yankees winning. when we talk to clients and ask about getting back to normal, i say the next six to 18 months will still feel abnormal, as crazy as the last two years have felt. 2024 is when we start to see the three handle, gdp growth rate that feels not spectacular but not terrible. tom: thank you for framing that timeline. we greatly appreciate his ability. he survived economics with blanchflower. you got a purple heart when you graduate from his lectures. lisa: i wonder what danny would think of those comments.

he has had a pretty strong view on there being more slack in the labor market, how the fed will move too quickly, going against the grain politically as well as sentiment. tom: i had the privilege of lecturing to a packed lecture hall with professor blanchflower at dartmouth. it is a little bit intimidating when douglas irwin, international trade, is sitting in the front row. lisa: the elasticity of tang -- tom: all of these people are way better than i will ever be. we spoke about economic history. that is the moment we are in, 19 minutes away. this is history that we are living. lisa: what is the historical analog? tom: it is not bob seeger. we have more response from robert seeger in the 1970's then

anything else we have done. lisa: people are saying it is more the 1940's. tom: we will sing a duet. futures advance, up 17. michael mckee is next. this is bloomberg. ♪ ritika: keeping you up to date with news from around the world, with the first word, i'm ritika gupta. a few minutes from now we will get what is called -- economic report in the world. the consumer price index probably rose at an annual rate of 8.7% in july, still above the fed's 2% target. in new york, former president trump says he will be questioned today under oath about his dealings as a real estate mogul. the investigation looks at claims that the organization

misstated values of its assets for tax reasons. this comes after investigators searched the former president's home in florida. china has ended those unprecedented military exercises near taiwan but says it plans to conduct regular patrols in the region. they began the drills after house speaker nancy pelosi visited taiwan. the uk's foreign office has summoned the chinese foreign ambassador to discuss beijing's wide-ranging escalation against taiwan. elon musk has sold $6.9 billion of stock in tesla. he says he wants to avoid a last-minute selloff the carmaker shares in case he is forced to go ahead with his deal to buy twitter. 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'm ritika gupta. this is bloomberg. ♪

>> the markets are entirely too comfortable with this notion that it will just be a straight line down, smooth and easy,

right to the fed's 2%. i still think there is lots of room for volatility, rates to move both higher and lower, credit spreads to be much more volatile. tom: greg peters with an important comments yesterday on what will happen. he was tilting toward price down, yield up in the fixed income space. 11 minutes away from an historic report. we will be briefed by the guy that knows best. michael mckee is bloomberg economics and policy correspondent, but more than that, he and i have lived other inflation bouts. this is not the 1970's. mike: inflation dynamics have changed a lot. the first thing that comes to mind is the energy intensity in the economy. the mileage on cars has gotten better, appliances are better,

we use less electricity and gasoline, so that has a mitigating effect on prices. it is hard for people who are at the gas pump to see, but when you look at inflation adjusted prices, they are lower. tom: you go through the headline data better than anyone i have seen. it is a partition of goods, disinflation, surging goods inflation, it has rolled over. service sector inflation, trend line has moved up but not rolled over. which matters to you in 10 minutes? mike: we will get a look at services inflation because that is the largest part of the economy, also but was missing over the pandemic. now people are coming back and taking advantage of services, travel. the big impact on services is labor cost. we saw the unit labor cost number rise almost 11% yesterday for the second quarter.

how much our services companies able to pass that along, need to pass that along? it is a different calculation they're trying to figure out what your input costs are at a steel mill. that is a number to look at, services price inflation. lisa: a lot of people have pointed out that before the previous 9.1% cpi print, the white house brought out janet yellen to talk about why yes it is high, it's a problem, but they are fighting it, there are elements that are less scary. right now they are saying nothing. some are taking a signal, saying it will be a downside surprise. is there any credence to this? mike: i don't know. [laughter] this could be the briefcase indicator. the white house has been trying to manage the public's expectations for economic data,

particularly the jobs number. they knew we would have a bad cpi because of energy prices last time. that we will probably have a better headline number but that does not mean that overall inflation will slow hugely. that might be getting into the area of, is getting hard to explain to the public, so we will stay away from it. if it is a good number, i imagine you will hear from the white house. lisa: i've also been struggling with real wages. how do you message that labor should be a bigger share of the overall corporate profits at a time when people are worried about runaway inflation, wage spiral, but also the cost of living that is getting out of control for a lot of people? what is the correct message? mike: that is a very tough message to send. the fed is stuck with that dilemma saying we want to bring down demand so that wage increases moderate. but at the same time, jay powell

says we want people to continue to get higher paychecks, so how the you delineate what is the proper amount? from an economic point of view, you could look at a 3%, 3.5% increase on a year on year increase as acceptable, economists don't think will produce a lot of inflation. but that becomes hard for the public to understand in this dynamic. i don't even mention how hard it is for the administration to talk about that. kailey: on the federal reserve and how they will read the data, it will be important, it is why we've been talking about it for the last two and half hours. but we are getting at here on august 10 -- your birthday, by the way. that may get another cpi print before the next meeting. how much will this includes whether the move is 75 basis points in september? mike: that will depend on the makeup of it. the headline number will not

matter that much because it is so heavily influenced by energy and food, sings that both of those -- signs that both of those will start to come down. they want to see broad-based price increases, are those unit labor costs being passed on through a lot of different industries? if that is the case, they could be leaning toward 75. we have the pce at the end of august, and then we have the cpi in september. if there is a trend, we may get another view of how that trend is playing out. particularly interesting is the next cpi report in september it is during the fed blackout. we will get a response today from a couple of feta speakers about what they see in the cpi today, but you will not see any guidance in september when that comes out. tom: the chart of the two year yield lifting up ever so

slightly into this inflation report. 3.28% on the two year yield. because it is your birthday, do the braves win tonight? mike: that is only fair. they did not do kailey any papers yesterday losing. tom: happy birthday, michael mckee. important coverage on what we see with price change in america. lisa, we have to remember this is not a bunch of mathematical mumbo-jumbo, this is a huge part of america flat on their back. lisa: including lower income tiers, people making the decision to fill up their gas tank and buying an extra sweater, pair of pants. how much do we see that continue to pressure margins versus alleviate, people pushing back

against pricing and getting prices back down? tom: as we go into this report, four minutes away, we barely touched on health care, and i hear that percolating in studies. kailey: that will be a point that the administration is trying to make. when we look at that inflation reduction act, we know that some health care pricing is included in that. not sure economists agree it will have a near-term impact. tom: we welcome all of you to this historic report on the nations inflation. futures up 13. stay with us. with michael mckee, this is bloomberg. ♪

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tom: bloomberg surveillance. we welcome all of you today. tom keene, kailey leinz, and lisa abramowicz. moments away from an inflation report, waiting the numbers to cross the bloomberg terminal. michael mckee will give us a view to what could be a constructive report. mike: it comes in better than

expected with cpi on a month over month basis flat, no change at all. that is down from 1.3% in the month of june. a major drop in the headline number. core goes up by .3%. the forecast was 4.5%, in june, -- for 0.5%, in june, .7%. cpi year-over-year, -- the core is at 5.9%. the expectation was it would go higher. 5.9 was the same number in june. the expectation is what go higher to 6.1% because pressures were spreading. this is the kind of knew that will make the folks at the bureau of labor statistics and the white house and the fed smile. tom: look into the data further. we will come back later.

futures up in the markets. dow over 33,000. 2% move on the nasdaq 100. describe the 2/10 spent with a launch to a lesser inversion. lisa: the two year yield plunged on the heels of the right kind of downside surprised. -43 yield curve inversion. how much does this really move the needle when you are still talking about core cpi at 5.9%? that will be the key message for a lot of fed officials. tom: a step at a time. the dollar coming in weaker as well. the level of surprise on a distribution of all the experts you reviewed, where are we on that distribution? this has to be right on the edge of great news. mike: as long as you define great news as something that does not move that much.

as one of your guests was saying before -- tom: the president will come out and say we have gone from 9.1% to 8.5%. can the president extrapolate out and say that we will be at 8.3% in 30 days? mike: my guess looking at this is maybe he can. looking at some of the underlying numbers. we don't know what will happen with energy prices. the war goes on in ukraine. at this point, gasoline was down 7.7% in the month. in june, it rose 11.2%. do we get the same kind of percentage drop? hard to say. food prices went up, 1.3% higher, 1% in june. agricultural commodities have fallen, so maybe that will work its way into prices. ppi tomorrow. food prices also depend a lot on the weather. you cannot say, for sure, these

things will happen, but we finally see a drop in used-car prices. waiting a long time for that, down .4%. new car prices up .6%. apparel prices -- this is one to watch -- down .1, after rising .8 the month before. all of the earnings reports we have had on retailers, they are talking about large inventories that they will need to markdown to get rid of, because they did not get them into stores in time for the right season. discount stores will be putting those things on sale. tom: nasdaq futures up. 2.6%. i just extrapolated out a core cpi trend. this is bogus mathematics, but

you get back to a 2% core cpi in the vicinity of the end of 2024. lisa: bogus mathematics, what everyone needs on a wednesday morning. you are right to be looking at the nasdaq and the s&p surging. how much is this not what the fed wants to be seeing at a time when they want financial condition to tightened, want to get it done quickly? how much will that officials push back against the believe in a doubling down of the fed pivot on the heels of this data? mike: they will push back on. this is one report. there are several more reports before they have to make the next decision. you look at the other categories in, there is still some worrisome news. rent half a percent. rent a primary residence up .7%. owner equivalent rent, the measure they look at to see what house is are doing, up .6 after

.7 last month. the shelter and the rent category still going on a fairly strong days. that will be a problem going forward. it takes a long time to get through the system. tom: michael mckee will dive into the pages of data that we see in this nation report. a constructive inflation report. we will summarize in the 9:00 hour with the white house view. futures up 67. the nasdaq up 2.4%. mike: here is the worst news for you, tom. distilled spirits at home, up .7 in the last month, after .1 in june. tom: i heard about that from michael pond before you brought that up. pond always diving into the inflation data. you and i go back to when nobody wanted to talk to you because inflation was boring.

it is now less than boring. when do we get back to for an inflation? michael: first of all, this is a good report. this is a necessary print for the fed, but not sufficient. we need to see more. you can think about this print as the weather. it is better today than it has been over the past few days but it is still summer. it is not great. it is in the right direction but we are certainly not there yet. tom: what will be the bond response to this? you are expert about the analysis of the full faith and credit. what is your government bond theme of a better inflation report for america? michael: what does it mean for the fed? it makes it more likely that our call will be right, for the september fomc hike of 50 basis points. if we had gotten another strong reading, even on consensus going into it, that increases the

chance of 75. we feel comfortable about our 50 basis point call, less than what was priced in. not surprising that we are seeing a rally here with a steepening in the curve. lisa: how about that bogus mathematics that tom was trying. is there any linear extrapolation that you are looking at to determine how quickly we go back to a rate that is much more palatable to both consumers as well as officials? michael: the details matter. one of the key details of today's report, the shelter component, which makes up 40% of core, is still rising at a strong rate. if the downside surprise was because of a couple of outliers that are not expected to continue, that will not give the fed any complacency here. they will continue on the factors within cpi, the trend. the fact that shelter component still looks strong, you cannot

extract today's print into the august print, which we expect to be strong. lisa: how surprising the knee-jerk reaction we are seeing in equities, strong rally. people are going full risk on. much would you do that versus lean into that on the expectation that we are seeing a deceleration, we are past peak inflation? michael: not surprising. these days, when data comes out, the market reaction particularly on assets, good news is bad news . we saw that in the appointment report on friday. we got a really good report. that raised expectations of more fed hikes, which is not good for risk on assets. we have a report today that leads to a little bit more less hawkish fed, and therefore it is good for risk assets today. tom: michael mckee with us as

well. michael pond of barclays with us. terrific inflation report, a joy for the white house. markets celebrate, up 68 on the s&p. nasdaq up 1.2%. michael mckee has had a few minutes to dive into the report. you are making a joke about spirits at home. that is the degree of granularity you can go to. what is another item that sticks out? mike: one thing i was interested in is what happened with medical care, new legislation that was just past. prescription drugs were up .3% after a .1 gain. that is a fairly high move, so something that could be affected if the administration is able to get something in place to negotiate for medicare, if the company don't raise the prices on people who don't get medicare.

nonprescription drugs up 1.3%. if you are taking tylenol because you had too many distilled spirits, tom, you are paying more for that. the recreation component up .2. commodities with declining prices, as we have seen for television, video clement, etc. some of the inflation dynamics we are used to are coming into play here. tom: if you are just joining us on radio and television, michael mckee is with us, michael pond of barclays. after an historic inflation report. brian deese will be in conversation with lisa within the hour. markets continue to surge. s&p 500, 1.7% move. vix, we have walked away from 22 to a more constructive market of

20.69. kailey: i am looking at breakeven rates. on the two year yield, 2.70%. michael pond, does that seem correct, that two years out from now we will have inflation that much closer to the fed's target? michael: we think so. the market is price for a decent amount of disinflation. our forecast has even more, lori inflation that what the market has priced in. the market is price for almost 3% inflation, not just next year, but two years from now. the markets not believing that the fed has yet done enough to bring inflation down anytime soon. if we look further out, five years, that is priced more consistent with the fed target of 2%. the market thinks that over time the fed will get it right, but it will take several years, not just a couple quarters. tom: michael pond, stay with us.

we are only doing michaels today on the inflation show. michael gapen joins us now. an important add-on on to our coverage. b of a has a cautious call on the equity markets and the bond space. you have the best chart i have seen in three days, the duration of painful inflation for america. does it really sustain into next year and even into 2024? michael: we think it does, in the sense that it will take a few years for ocean to get back down to the fed's target, for store price stability. we think there will be sticking is primarily in the area of some of these services prices. airlines gave us a bit of a relief today. there will likely be some ongoing stickiness on the services side.

the very good news in this report is what we saw with used cars. we have all been waiting for these durable prices to come down. that would be the next shoe to drop after gasoline prices come down. a lot of good news in this report. i think we are looking for some stickiness in services to persist. tom: let me steal the thunder from kailey leinz discussing demand destruction. do we see demand destruction in this report away from used cars? michael: not in this one particular report. we see some relief here. paradoxically, the weaker the rest of the world gets, sometimes it helps out the u.s. in this case the decline in energy prices and how quickly that feedthrough to gasoline prices. if this is the first of successive reports where we see some reversals in durable goods prices, that will help the consumer. kailey: the fed's goal is to get

financial condition get more restrictive, but we see a more than 2% rally on the s&p 500, financial conditions getting easier. is a good news report on the inflation front still a bed news report for the federal reserve if that is the outcome? michael: the labor market is extremely strong, demand conditions are strong. as your previous guest, michael pond, mentioned good news is bad news in terms of the fed. a soft landing outlook is greatly improved if core goods start rolling over. this soccer inflation print, the more the fed can accept good news on the other cited the data front. they need these types of reports in order to improve the likelihood of soft landing. tom: i believe we are in august. we will get to september. there will be another report. mike: i believe september 13.

tom: the point is, if we get two months like this, how does that change the dialogue for chairman powell? does he take it to relapse? mike: he doesn't take a victory lap but make sure that everyone knows the fed is still focused on this. michael gapen could probably give you a better answer off the top ofhis head than me but it will be a while before they feel comfortable. they will have to get down to 3% or so, what they are hinting, before they do any move. how long does that take? tom: down futures up. spx up 71 points. 2.4% move on the nasdaq 100. kailey: let's bring michael pond

back into the conversation. a few minute to digest the report but the moves are sticking in the bond market. can they stick past today? michael: what we think was clear in this report, the inflation outlook is much more balanced than it had been. a few months ago, everything was pointing in the same direction of risk to inflation being on the upside. commodities, shipping costs, the dollar, all in the same direction. now it is a much more balanced outlook. wages, as michael gapen said, are -- on the flipside, commodities have rolled over. copper, palm oil, corn. pick any commodity, like the off of it peak. shipping costs on a year-over-year basis is down

30%. energy is down. it is a much more balanced outlook. that is some of what we got today. you really need consistency in these reports. one report is not what it takes. kailey: one report is not all that we are getting. ppi tomorrow, what is the readthrough? michael: ex energy prices we are likely to see solid underlying price pressures in the domestic economy. .4, .5 which is where the market is thinking. later in the week, it will be interesting to see if import prices next petroleum decline for the second straight month. that is where consensus is. back to michael pond's point, we need to see these coming through on more than one report. getting a strong dollar to give us some pass-through on import prices in the context of lower trade cost to be very important.

we suspect a blend. strong underlying price pressures, producer prices, but we could get leave on import prices. tom: i have five michael's with me today. who did this? michael gapen bank of america, what is the single attribute that drives in nation lower from a 9% level? michael: i don't think there is one. you don't get that outcome on inflation like this without a multitude of things happening. we relief on energy and commodity races. we are getting that. when you pay back on core goods prices. we need moderation on the domestic economy. i don't think it is one thing. we did advances on multiple fronts. michael: if i could add onto to that, inflation expectations.

the vet in june was concerned about a sharp jump in inflation expectation components on the michigan survey. that is back down, as well as inflation expectation components on the new york fed survey, so that is an important factor for the fed in their outlook for inflation. tom: michael gapen needs to leave us. thank you so much for dropping by on this historic moment. michael with bloomberg economics. michael pond barclays. bring in cameron crise who is synthesizing this. i want to give a shout out to first two michael nathanson. it is an all michael show. talking about the media. we will do that again soon. kailey: record number of michaels. let's get to cameron crise, who

is also parsing the data. looking at the moves we are seeing on the back of this move, dramatically lower. futures are dramatically higher. the dollar is dramatically weaker. is this a new jerk reaction or one that will stick out the back of the sprint? cameron: ultimately we are unwinding a lot of what we priced after the payroll figure. essentially that pushed us to 75 for september and now we have gone back to 50. i suspect we will continue to price 50 for september. i would think, certainly on the yield front, these moves will probably stick by on large. as for equities, that remains subject to the ebb and flow, not

only of inflation and monetary policy, but sensitivity to growth numbers. if we see henceforth that the growth numbers are looking poor, one might posit that these will be more vulnerable. kailey: we could see a fresh catalyst across asset classes later on today when we get reaction from these numbers from federal reserve officials. michael mckee, two hours away from charlie evans talking about the economy, neel kashkari will be discussing inflation in particular. what do you expect their messaging will be after a print like this one? mike: charlie evans a little more dovish than neel kashkari but they will deliver the same bottom-line message. this is good news but we will wait until we get much closer to the decision to make a decision about what we will do in september. as cameron was saying, things can go back and forth. greg peters was talking about

how volatility is the name of the game. that is what we will be seeing with all of these numbers for the next month. nobody really knows where we are going with this. tom: michael pond, what is your lead concept as you write or barclays this morning? cameron: from the fed perspective -- michael: from the fed perspective, you have to think of them as a risk manager. a year from now, if inflation was still hot, they will be seen as make a mistake. if inflation is softer, they will call that a win. from a risk management perspective, this print does not change the outlook. they still need to continue to focus on bringing inflation don't even though this is good news. tom: i will let you go even though you have duties. we will continue with michael mckee and cameron crise. just on a hunch, i did a retrace of the dow jones industrial

average. exactly a 50% retracement of the top to the bottom making it back to the top again dow 36000. do you know that a bear market you label? >> hindsight is the easy answer. historical analogs in the market peaked in march. almost reached a new high in september the s&p 500. even the nasdaq one came within $.13 bubble peak september. a retest or substantial rally after an initial drawdown assistant with a lot of the

historical price action. unfortunately you only know if you are in a new bull market once you make a new high. that only comes with the benefit of hindsight. kailey: will the federal reserve be happy to see new highs in the equity market when they want tighter financial conditions? at what level would they step in and say no? cameron: that is the question. echoing the previous speaker, the battle has not been won yet in terms of inflation. this is an encouraging first step on the path but it is not the end of the journey. it is the beginning of the journey. to see financial conditions loosen markedly, boosting nominal demands again, is sort of counterproductive. this is not the end of the

tightening cycle. let's not forget we have another payroll cycle and another cpi decision be or they get to their decision in september. everything could still change. tom: cameron crise, thank you for joining us this morning. kathleen jones joins us from charles schwab. good news. do i buy bonds, bills, notes? kathy: as all of your previous speakers have been saying, it is a first step, certainly not conclusive that we have peak inflation behind us. but all along we have thought, as long as the fed is determined to get inflation down, the yield curve will invert. they will tighten until that happens. ultimately that is good news for the bond market. kailey: that curve inversion is less so than after the report,

-42 basis. have we already seen the depth if this is the trend? kathy: if we get more good prints like this, easing up in the labor market data, i would say maybe that was it. historically it's been hard to go below what he basis points on 2/10s. we did in the early 80's but cents. that could be the if we are in a place where we start to see these trend in the right direction. tom: moving to fed policy. michael mckee has had to leave to get ready for his coverage. we still have a bid to the market, not down to a 19 vix, but we are getting there. 20.58. it is today a sea change for the analysis of this fed?

is today a profound day or another day along the path? kathy: we will only know a couple of months from here. it could be a huge sigh of relief. it gives them some breathing room. it could mark a turning point. we just need to see confirmation of that, we start to see the numbers ebb a bit consistently. then the fed can say this was the turning point. kailey: a turning point in the pace of rate hikes or the ultimate destination? kathy: the pace more than the destination. the destination has been up for grabs anyway. there has been wide disagreement among economists, fed members come in the market, as to where the destination is. we still do not know. but the pace could ease up a bit, which would be good news. tom: kathy jones, appreciated. too short notice here.

she is at charles schwab. neal dutta posted this moments ago. he gets to the story of. wage growth is running way chop. absent a turnaround in productivity, this will ultimately fuel higher prices. in a single sentence, the hold and of the sufficiency of our economy, our productivity, wage growth, and the idea of how it affects price. kailey: it will be something to watch in the reports going forward. when we have heard from all of our guests, this is good news, but this is only one day of data. another cpi report coming prior to the next policy decision. is this the beginnings of a making of a trend or just a standup report? tom: i will be optimistic about it, after a bang up job support,

hugely constructive cpi report. but what about the nation's productivity? stay with us. brian deese in the next hour. ♪ we will walk you through that. the countdown to the open starts right now. everything you need to get started the training. this is bloomberg the open with jonathan ferro. lisa: we are looking at one thing. another cpi reading.