>> i think it's really reasonable to think that core inflation could surprise people. >> if the inflation drives meaningfully across the globe. >> we will probably see that showing up in crisis. >> one is very very unique about this is that these are in opposite of each other. announcer: this is bloomberg surveillance, with tom keene, jonathan ferro, and eason aronowitz.

-- lisa our wits. jonathon: good morning. i'm jonathan ferro. it is abysmal outside. it was nice of them to bring us inside for a show for you. tom: the weather here in wyoming for chairman powell, this is going to be really, really interesting. there was chaos here at the weather. i haven't had any sleep. i noticed at about 2 a.m., there was chairman howell rewriting his speech. jonathon: we could've talked about this all night -- tom: but that is normal jackson hole. jonathon: it is not. we got back 12 months ago, when chairman powell did his speech right here. updating that speech in the last 24 hours, history has not been kind, sir. lisa: transitory failed.

the idea of passing over inflation has not gone out in any way, shape, or form. how do we get ahead of that, especially given the feeling that perhaps some of these inflation aspects are stickier? jonathon: we seen some great articles this morning and throughout the day no doubt. jackson hole should be a central bank. tom: it's true. and avner bailey will show up to give his side. i think it is valid this time around. some real questions there. i spoke to the former governor of the bank of israel. he was not scathing, that was not the right word, but he was very cognizant that they have to reset here after a difficult few months. jonathon: we are talking about zero point 5% on the s&p 500. the one thing i looked at through the whole of yesterday

was the two-year yield. we are five or six basis points away from the years high. lisa: with greater inversion and expectation for hawkish and us. how can he deliver on that? and if he doesn't, do you see a rally in markets, especially as they pulled together. this is day one of the jackson hole meeting. i got to the airport, it did say you could rent their spray. [crosstalking] we have an incredible round of guests who be speaking with michael mckee. we are going to be getting all about the jobs market. what kind of pain, what kind of unemployment rate do we have to see in order to achieve lower inflation?

today, it is a spectacle to me that i was interested in dollar trades and there were bunch of retailers that are going to be reporting earnings. the read on the consumer that we are getting from some of these retailers is fascinating. it is a moment where we are really seeing demand and destruction in the face of inflation. tom: speaking to the people who beget dollar tree, that is a hard thing. jonathon: that's a really important point. as we catch up with fed officials, they will have to bring it down repeatedly. chairman powell tomorrow, what are you looking for? >> i think we shouldn't get ahead of ourselves. that is the starting point. we spoke about a month ago. i do think the fed is going to push back on all this chatter about pivots. i think the notion of a hiking

cycle that ends in terms of a rate cut cycle and the second half of 2023, i think we have seen consistently from fed officials that they don't really believe in that kind of cycle, that rates might well remain and plateau for quite some time. in general, i think they are pushing back on anything like a peak in the fed funds below what we have really got christ in. -- priced in. tom: on the day of the invasion of ukraine, we spoke dear colleague, and he was heated about these things, especially fiscal policy. dude you and george adjust the deutsche bank dollar call with the dollar strength that we see? >> i think what we have been doing is really pushing out in

terms of dollar weakness. the broader idea that the dollar is not going to peak in a convincing way until there is greater resolution in terms of how europe navigates its energy prices through the winter, i think that is the first quarter call. in general, the dollar strength you see is in no small part related to problems elsewhere. it is in europe, china is obviously starving, and has it's problems in terms of low interest rates the dollar, by default, remains strong at least for the next few months. tom: i like that. lisa: alan, there's a lot you are writing about that i find really compelling. the dollar is a safe haven. i take a look at notes only interest rates, but the fact that we could get a 2020 move into the dollar. how risky is that at a time when the market is trading on

macroeconomics as opposed other indicators? >> i think for the year ahead, enormous slows into the dollar, which goes into quality. by default, the dollar has brought in something to the tune of $1.4 trillion of short-term loans -- slows between now and 2022. a lot of the dollar strength does relate to slows, concerns about liquidity elsewhere, concerns about price action and risk, and the dollar is beneficiary in the cycle. there are other beneficiaries, of course. there is another number in terms of dollars in relation to gdp.

the notable outflow is to china. lisa: so, john and tom are talking a lot yesterday about how this will not necessarily support the euro. what will potentially stave off the decline? howell steep cadet decline be between the euro and the dollar? >> i think there is a short-term story and a long-term story. over the longer term, if europe and the ecb sticks to hiking interest rates because they see through this energy crisis, the euro in particular will benefit. you will see the euro above in 2023 and that kind of scenario, if we get through the winter. i think it is a case of navigating the winter. i certainly wouldn't rule out numbers like 0.95 on euro-dollar

if the energy crisis turns into rationing for the long haul and real restrictions, in terms of output. at the moment, we are thinking in terms of a slight recession. a slight negative growth in the likes of germany. but if that turns into something much worse, that is not what the markets are pricing in at this point. jonathon: i'm going to wrap it up and ask you whether you expect tension between federal banks at some point, between the ecb, the federal reserve, and the bank of england? clearly, euro-dollar is not what the ecb wants. clearly, it is not what the bank of england wants. what do you expect on the international stage? >> i don't think where they. i think central banks generally

believe in flexible exchange rates. they believe that the market is saying something in terms of trade shots in particular. that would be very sharply moving against the likes of the euro in particular, sterling to a degree. it has been helpful to the dollar. you don't want to fight real forces like terms of trade, even money policy, but i think these are very much underestimated. i think in this interest, central banks are not going to push back. jonathon: alan ruskin of deutsch's bank. great to catch up. tom: you can do the math and see the turmoil at this point. we are not anywhere near some of the drama like that joke we made yesterday about the grisly court. they don't need it. jonathon: are we getting close to that? tom: we are definitely moving in

that direction and it is a concern to be prepared for. but the stressors just aren't there yet. i'm going to guess 0.90 euro. jonathon: the currencies are not having it at all. lisa: what are they going to do about it? i think this is something a lot of people are facing, which is inflation they have not seen for more than 30 or 40 years. in the face of that, what did they do? what does that look like and how did they project out what the inflationary trend is going to be in an era of deglobalization and structurally potentially higher economy costs? jonathon: capital economics cannot a little earlier this morning and essentially said the question is no long -- no longer about how to avoid a recession, but how to handle one. i just wonder what point we start thinking about this in the united states. what really struck me this morning is how quickly we work to just ignore the pmi's.

just ignore them. lisa: negative data at this point is being looked at, even housing prices, if you take a look at housing activity, and people say it doesn't really matter. jonathon: tom keene, lisa perez -- and i am jonathan ferro. [crosstalking] life in jackson hole this morning. good morning. this is bloomberg surveillance. >> keeping up-to-date with news around the world. more pressure on consumers today after powell raises prices to record highs. it is 10 times what they were years ago. -- a year ago. russia pushes up the price of the gas that fuels your housing china has stepped up its attempt to stimulate the economy,

announcing 746 billion dollars in spending, mostly infrastructure building. they're hoping it goes far enough to counteract the covered lockdown. president is forgiving a portion of student loans for tens of millions of people. no factor will be more closely watched and inflation. bloomberg economics sees the potential of as much as 2/10 of a percentage point to the inflation rate next year. that comes when inflation is already at a four decade high. uvalde, texas has far the police chief after that shooting in which 19 fourth-graders and two teachers died. the commander of the police response waited outside for more than an hour when the gunman was inside. the unit generated more than $7

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>> an entire generation is now

saddled with unsustainable debt. the exchange for an attempt at a college degree. the burden is so heavy that even when you graduate, you may not have access to the life that a college degree once provided. jonathon: the president of the united states. from jackson hole, wyoming, good morning to you. futures at about half of poor percent -- 4%. chairman powell to deliver a speech from here 10:00 a.m. eastern tomorrow. not today. it is about 4:20 local time here. just make it a little bit calmer, play that jackson hole soothing music. and not wake up chairman powell. [laughter] tom: we had to market movement in the afternoon. but this is the last of the underwood project. in the northwest passage, you've got a fueling of the american west. there was an architectural data set this is the last project

that was built in 1955 on a huge, huge controversy. the music that we use for our jackson hole project is the original music that they used in 1955. lisa: [laughter] and we are still riding horses and buggies, but you can't see them right now. [laughter] jonathon: futures up by about 0.5%. where the front end of the yield curve coming really, really close. the high for the year is about 345 on june 14. can we get back to those levels? tom: it is this anticipation. what is fascinating to me is in the headlines, he will get the speech that she will give the speech. youtube is sort of zooming, then we will pick it up and have it on bloomberg, i believe. [crosstalking]

it's just like, it's modern technology. but the point is that we have headlines coming out and speech. what is after that? surprise, it's the data. jonathon: yesterday evening, tom said something else. it is also about the papers that get released. we always forget that, don't we? [crosstalking] tom: this year is different. let's go to jackson patrick right now in washington after all the new legislation by the president. everyone has an opinion. i don't know if you saw the "washington post" today, but it was absolutely spectacular about the two sides, the pitched battle, and asking what democrats should do for an encore. what is the future of student loan forgiveness? >> it raises a significant

question about that. megan mcardle's column argues that this makes it a bad policy because it does nothing about the underlying trend of the cost of college and sets up the expectation of future actions for forgiveness. the biden administration campaigned on this. i think they kind of entered this administration knowing they did not have a permanent or long-term solution to the cost of college. they could not do something like when they campaigned on free community college. a lot of the more ambitious proposals to get at the underlying issues were not politically feasible. they are doing what they could do. did they set themselves up for future excitations of similar action? they very well could.

i'm not sure president biden is thinking so far into the future that he is asking himself what will happen next and what will future administrations do. this is very much a decision to make a short term near-term action that would affect a lot of people now. tom: our question of the week. how do you have a successful policy? a lot of democratic views are absolutely skating. it does not make sense. >> jason furman is somebody who i think is willing to disagree with the biden administration a little more than you might guess , based on his work with the obama administration. he is speaking along with the older democrats, who are more concerned than it seems president biden is about the

near-term deficit in the track we get on. i think this is an action that illustrates that this administration can rub jason furman the wrong way in some cases. i don't think the biden administration is saying this is a perfect policy that makes sense for the absolute long-term, but is something they specifically campaigned on, people like rafael warnock and others up for reelection campaigned on it. it is sort of a "live another day" issue for the biden administration. lisa: it makes it really awkward for them. let's just be honest, because we have been worried about inflation. people are saying that if the number one issue facing voters as they hit the polls. but even democratic institutions see this as oddly inflationary, because people will be able to spend more money in their lives that they are not paying on student loans.

how does he address that? how does he speak about the "why now" about this policy? >> i think it makes a lot of sense from the biden administration's perspective, but in a political perspective. it may not make sense if you believe that reducing the deficit in addressing inflation in every way possible was bidens absolute top goal. that clearly was a higher goal for someone like joe manchin, who made that a higher priority in the "inflation reduction act." i'm not sure that was the primary focus for the biden administration. what they got out of that bill, as an example, that was potentially more of a climate bill to the biden administration. the priority for them was to address inflation in ways that they can. if you see, the numbers are 0.1%

to 0.3% can treating to inflation. i think they see that as something they can accept there are 40 million plus people who are very enthusiastic about this and they hit that campaign promise they wanted to keep. jonathon: i think we are a few months away from the midterms of the elections. lisa: but money is the midterm election question. if you are worried about inflation, the "wino" goes against that. it's very interesting. jonathon: we will talk about that with jason furman himself tomorrow. coming up this hour, sub carpenter of morgan stanley. a lot more to come. this is bloomberg. ♪

jonathon: live from jackson hole this morning, good morning. we will be catching up with the good and the great over the next couple of hours. they've had a difficult time in this economy over the last 12 months. futures shaken up as follows. asked about confident on the s&p 500. fading just a little bit, though. about your .6%.

morgan stanley yesterday absolute scathing about the idea of making a call of new highs. i will bring those comments a little later. i want to bring the bond markets we mentioned it a few times, lisa talking about it through the week. climbing back toward 340 in yesterday session, backed away a couple basis points this morning, down to 337. looking to foreign exchange, this is how we started the program this morning. euro-dollar at about 99.85. a stronger euro today, but this is got to be a problem for the ecb, a problem for the bank of england, who are grappling with much higher inflation then they would like. on the core inflation side, certainly a weaker euro is not going tom: to help them. tom:the great thing we have done on radio, it really works. the data point, to your point, is yen.

that has moved. certainly 140 is manageable. [crosstalking] jonathon: that is the difference between the ecb, the boe,, and that is really different. coming down this week with a forecast to 18% cpi in the u.k. in january. that is the sort of number we throughout there and talked about a little bit. can you imagine 18% worse in the u.k.? lisa: this is really on the heels of energy. it is not just the u.k., but europe as well. the euro valuation that you're talking about, the below parity is coming as traders price in most hawkish move ever from the ecb in the past decade. this is a game changer, in terms of central banks. the potency is in question. jonathon: not just that, the

front end of the german yield curve is questioned. the prospect of high interest rates and currency. tom: the ecb presented in full course here and comments in the coming days. right now, seth carpenter, the chief economist at morgan stanley joins us now. he can give us a historical perspective. let us frame that jackson hole just began in august of 2007. stanley fisher on the phone, urgent conversations, two weeks after your world and our world blew up. the governor rewrote his speech on august 31, 15 years ago. it is not the responsibility of the federal reserve, nor would it be appropriate, to protect lenders and investors from the consequences of their financial decisions. 15 years, that did not work out.

balance sheet dynamics, original monetary policy, explained to us how we finally extricate ourselves from a 15-year experiment that has gone wrong. >> i think that from been is important. the problem is people interpreting what happened and the financial system is so fundamental to the u.s. economy that if you are trying to save the economy, you end up intervening in a big way and markets. i think your question about extricating the policy they are set at the beginning of next month is double the pace of the runoff of the balance sheet. the market knows that it is coming and the proof will be in the pudding once we start getting balance sheets and seeing how markets absorb this. tom: so, what happens to our

viewers and listeners at a 4% level, how does it destabilize our financial system? >> were getting what up to 4%? tom: yes, yes. >> i think that that is the peak rate that we are reminding clients where the fed ends up. it is not a goal that they are shooting up beforehand, it is the result of how the economy is evolving with tightening policy. interesting comments from bostick of the atlanta fed earlier in the news that they have more data coming in. that data could come in much stronger than they thought and those sorts of determinations are going to help them decide 75 or 50 at the next meeting and ultimately where things in debt. how do we get a 4%? i think we

end up at 4% if the economy is actually fundamentally stronger than we are forecasting right now. jonathon: you mentioned gtx while. i think with to pick up on that. just yesterday, i want to share quote from yesterday's appearance. to be making some big call about new highs is quite frankly irresponsible, given what is going on with the fed. qt is coming. it is remarkable to me. i would like to know what your conversations from clients sound like right now. hardly anyone talks about qt, the impact on the market they could have, and the impact on the economy as well. how do you think about that dynamic to the next several months? >> i think is a critical part of the fed policy. mike has been there for a while and i think the recent bear market rally that he is not enthusiastic about, part of that being the selloff we have seen

this year, has been very consistent with this call. what are they trying to do with higher interest rates, underlying the balance sheets gekko -- sheet? they are trying to slow inflation down so much that inflationary pressures abate over time. that kind of slowing in growth and slowing in the economy cannot possibly be good for earnings. i think our canonic view and my view on equities are very much aligned in that regard. lisa: you said there is a larger point here, which is, how do we look at inflation and what the fed is combating? is it just about the strength of the economy or a fear that is growing among fed officials as per an article that cannot yesterday that disinflation is much more intractable than they previously thought, is rooted in a reversal of the 1990's localization, as well as strictly higher economy prices?

how much are we looking at that change in fed policy overtime? >> that is a key question. i think we want to break this into three key parts. one is that inflation cannot be controlled by itself and could very well go away on its own. by that, i'm talking about energy prices, food prices. we have seen the oil prices peak and start to come off. part of that inflation looks like it should take care of itself. then, there is the part of inflation that is really driven by strong underlying aggregate demand. if you think about housing inflation, 40% of core cpi inflation is really driven by the strong underlying economy and continued strong job gains. the third component is the mindset, the psychology, what they call inflation expectation. i think that is where the fed has the right to be worried. what happens if everybody just starts building higher?

what is the solution? i think the fed solution, and i happen to agree with it, is slowing the economy down, slowing faster than can possibly be sustained long-term. slow it down, get real life inflation down, then allow the idea that as energy prices come off, that will present a psychological change to the higher sustained inflation. jonathon: seth, we appreciate your time. seth carpenter of morgan stanley. we have the equity market from morgan stanley just yesterday. i want to say what jp morgan had to say on this market as well. it is not going to back off this year. he actually liked high yields up to about hundred 95 basis points. how to get close to 400 basis

points? guess what he thinks now? he thinks we must get rich in here, we could have a situation where high yield spreads are pushing 700 basis points. you have a dynamic where high yield is back out, 650, 700 basis points, tell us about the equity market with that going on. lisa: that is the economy the fed is trying to engineer that has not been priced in. knowledge the equity markets, but the credit markets. that is a signal to the equities [crosstalking] tom: i'm going to skip my chair one inch away from youtube. -- you two. there are no seats on any airplanes north to south. the real estate price in jackson hole is comical. we have people driving us around from idaho, which i think is one

million miles away. it is a story, i get it. there is an optimism out there that america can work through this, versus other static. lisa: we are talking past each other a little bit. [crosstalking] there is a question about longer term, making it work. and shorter term, seeing change in inflation and what the fed will have to do to combat that. jonathon: i will go another step further. tom, i think you're are on the same page. how may times have you talked about it to americans? our experience on the plane coming to jackson hole [crosstalking] it is very different to the experience that we went out yesterday on this program. one in six americans are paying higher utility bills. do you not think there is something very wrong here? i think there is something about

the strength of the overall community. tom: it is sort of a recession, if that is what we are in. the middle class of america is question. jonathon: chairman powell coming up tomorrow. live from jackson hole this morning. this is bloomberg "surveillance." [crosstalking] ♪ ritika: keeping up-to-date with his around the world. the biden administration has a judges order in idaho that women can get abortions. two research group say the government will have to drop previously on think about measures on the energy crisis. they are calling for covid-style

emergency support. natural gas prices are about 10 times higher than the last decade average. a jury has awarded the widow of esquivel star kobe bryant $60 million in damages for the photos taken at the scene of the helicopter crash that killed her husband. another victim was awarded $15 million. photos were taken by emergency personnel and shared online. a weakness in the semiconductor industry and video gaming is disappointing. that comes two weeks after the company warned sales would come in well below original expectations. bed, bath & beyond is closing in on strategic partners. they will have a line of credit around $75 million. it will give bed, bath & beyond the freedom to move on. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪

>> it technically starts by the end of the year. you are at 350 and the hiking cycle is going to be done. but the real risk is that the fed does not have futures lagging from inflation, particularly headline prices, and they keep on going. jonathon: capital markets just yesterday. if you joining in, there is a reason we are indoors. the winds are howling outside. lisa: [laughter] carry on. jonathon: they spent time

putting together a little studio inside. maybe chairman powell will wake up and walk past us. how could he possibly know that inflation would not be temporary and so-called transitory? tom: that is certainly as we look back, but looking forward is just as important. what i was thinking coming to jackson hole, ec elements of the drought across this nation. when we came, the water level was way, way lower. the lack of snow. i have never seen it two years in a row this kind of like of snow. jonathon: futures at about 0.5% on the s&p 500. coming back here to two or three basis points on the two-year. very close to the intraday multiyear high from 45, just short of that at 340. tom: the cliche, and this is

from senator edwards of louisiana years and years ago, maybe it is three americans. one joins us now. glenn hubbard -- wendy schiller joins us now from brown university. when i got here to jackson hole, coming off the airplanes, i was with foreign accents. the incredible spirit of this nation is usually contents is -- contentious. what do they do with our three americans? the haves, the have-nots, and the immigrants? >> it is important to note that even among immigrants, there is wide disparity. there are still immigrants who come to go to college in america or graduate school and stay, particularly in the tech industry, for example. then, there are immigrants that are working the lowest wage jobs and a lot of our industries.

some are documented and some are not. there are generations now of immigrants. even our political assumptions about how different ethnicities and nations of origins people vote, that is changing all the time. it is not just first-generation or second-generation now, we are talking about third and fourth generations, who have very different views from their parents or grand parents. the politics and economics every year are getting more and more disparate. it's based on where people live in the country. tom: what have you learned in the recent days or weeks of primary season, as we move to the midterms, critically with 2024, what is the power for the president, for the chairman, of immigrants? first-generation, the latino vote in pueblo, colorado shifting dramatically republican? what should they be concerned about? >> for the most import things is

that when you're an immigrant and not yet a citizen, for example, you have different political rights. but immigrants do not qualify for federal benefits, meaning they have to work for whatever they have. when you see the biden administration doing things like forgiving student loans, which we could talk about, less than 40% of america goes to college, 60% does not go to college, and you are not eligible for any of these benefits you see being than away, that sticks with you. that stays with you as you go through the nationalization process and become a citizen. i think that is what republicans figured out. democrats inmate -- democrats think immigrants will be for them, but in fact, immigrants tend to go the other direction because they say, "we work for everything we have and are not eligible for anything, and you are giving our money away." i think that is a big divide. lisa: let's talk a little bit

about the student loan relief we heard about yesterday from president biden. a lot of people are saying it is going to help heading into the midterm elections. what is your view on how inflation and partisan or bipartisan will be inflationary on the margins? >> most people vote when they are -- when they haven't asked to grind or are very enthusiastic at we know republicans have annexed a grind and people are suffering through inflation with gas prices. many who have not gone to college or art in college, or paid off their student loans already, they will not benefit from this at all. if you raise the deficit a little bit, add to inflation, that rhetoric helps republicans. people who are college educated, democrats have the majority of those voters now. they are voting democrat anyway and are already enthusiastic. i am not sure that $10,000 or

$20,000, gets others out the door. your limitary that she were limiting votes. you may not even get that student vote would've gotten from this move. lisa: you are a democrat and also at a university that is very prestigious and known for its academic prowess. do you think that this is a good policy forgetting getting prices of tuition lower or do you think it it inflates it further? >> first of all, i am registered independent, so there is my political affiliation for you. i think that university costs are outside my lane. i am a research and teaching professor. but every business, and higher education is a business now, raises its cost of penning on how much money it can make it if in fact loans are forgiven and there's the greater possibility of affording college, then there

is no reason for you diversities to cap their prices. i think the whole student loan system contributes to the rise of inflation that universities charge. like any other business, any other consumer-driven business, they will raise prices when they can. jonathon: wendy schiller from brown university. i apologize for my colleague. you are an independent. [crosstalking] you just made an assumption on ploeger party. [laughter] -- political party. [laughter] [crosstalking] the price of college tuition in america. tom: of brown university, $80,448 per year, and that does not include wendy schiller's textbook. lisa: that is brown university, where a lot of people go and

have the money to spend. this is the issue with for-profit universities. they get the jobs afterward and give them salaries that make it worthwhile. it is a larger structural policy. jonathon: people in the u.k. are falling off their feet listening to some of this. i am hearing $80,000 u.s. tom: let's break this down. [crosstalking] the bottom line is, this is a massive old for president biden. jonathon: that was beautiful. tom: no one in wyoming play soccer. [crosstalking] jonathon: live from jackson hole, this is bloomberg. ♪

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>> i think it is really reasonable to think that core inflation could surprise people to the downside. >> if the end elation -- if the inflation expectation drives meaningfully across the low. >> prices have actually celebrated inflation. >> was very unique about the cycle is that recession risks and inflation risks are altered with each other in terms of policy. >> we are in a global recession

as we speak. announcer: this is bloomberg surveillance with tom keene, and lisa abramowicz. jonathon: live from jackson hole, wyoming for our audience worldwide, good morning. this is bloomberg "surveillance." with equity futures just about positive, it is going to german powell tomorrow. tom: chairman powell tomorrow and the booming wyoming we are seeing coming in here to the airport, the prosperity of a wyoming that is booming even when in drought. that is part of what we have with productivity dirt. no question about that. massive data dependence. you mentioned earlier the bloomberg article that one since of americans are having trouble paying their electric bills. that is the core issue. jonathon: we spit -- we speak to

a .5% in america. lisa: and the fact that this is going to have an is already having a ratification, you are seeing on the margins people are changing what they eat, what they buy, how they travel because of that 8.5% inflation. you talk about this tom. how do you speak to tomorrow? tom: and who do you speak to you? the former governor of the bank of israel, john, does he speak to an international audience talking about international challenges? jonathon: i think it is tremendously difficult for this chairman to navigate with some of the proms at home. he has to worry about his message being misinterpreted. i think the best route to really confuse things is to start talking about europe and china and everything else happening on the planet. if you have a market problem as well, you can talk about that, too. since then, until very recently, we have equity markets and

credit spreads tighter, tighter. we need to ask whether we have seen financial conditions relative to what they need to do to get cpi and inflation back in. lisa: in your previous communication, he did not push back dramatically about the market does he do that now? especially considering the fact that we're looking right now i markets that are pricing in [crosstalking] [crosstalking] tom: i just don't think he is going to come out and say the markets have one. he is not good to do that. jonathon: they have been doing that for the last 10 years. tell me what happened in late 2018. tom: the red sox traded -- jonathon: there we go. now how about the policy for the federal reserve? tom: they changed policy, but here in jackson hole, i don't

think [crosstalking] lisa: it would not be the first time, especially because financial conditions are the mechanism they use to transmit monetary policy throughout the economy. that is one big issue. [crosstalking] [laughter] [crosstalking] jonathon: i'm just going to confirm for everyone that we are not inside because of bears and bison, but because of the weather. they built us a studio force inside the lodge. later, we will be going back outside. tom: i pulled an all-nighter with some of the great people here. [crosstalking] jonathon: what did you see when you walked in? a bow tie and two parts cowboy. lisa: [laughter] jonathon: taking off my bowtie, taking off my tie, and they're

like, "here come the new yorkers." the kansas city fed asked me, "are you going to look after tom tonight?" i'm like, i'm going to bed. i've no idea what happened to this one. i look forward to the comments on that. [crosstalking] futures right now at 0.5%. yields are coming in at the front end, down two basis points. lisa: obviously, we are in jackson hole. we have a whole host of great guests. seth carpenter and megan greene are also joining us at 8:30 with jobless claims. that is eastern time, not where we are right now. how much of a redo we get on the market softening and what the fed is looking for? i know, tom, you are skeptical

about dollar tree and dollar -- this is where people look for a deal. how much do we get a sense that people are pulling back from their spending? even the higher end, like nordstrom, seeing that. jonathon: walmart came out and said hi income and middle income americans are now coming walmart. that is a big change. it is not just low income workers getting squeezed. this is over the last several months. people are looking at the bills and looking to go elsewhere. that is where a lot of business has been going. tom: who thought of this year? -- this? jp morgan passed on inflation would be solved by a lessening

of supply-side shock. jonathon: you are really scraping the barrel. [crosstalking] we are in the moment at jackson hole, wyoming. we are not talking with glenn hubbard, business professor of economics. can you tell us how challenging this moment is for the fed chair? >> is very challenging for a couple of reasons. there is significant uncertainty about inflation and recession. number two, it is important for communication. i actually have the old inflation button from the ford administration. i think chairman powell needs to do better about enforcing candor about what happened in the future and what has changed, as well as talking about the

difficult path of getting inflation all the way back down to 2%. getting back down to 4% may be straightforward, but 2% is hard. tom: our republican economics presented here that the system will solve itself? the general statement, is the religion on supply-side economics or that the american economics can heal itself if that failed? >> i don't think so. economy is a lot of self propelling mechanisms. the question is, what time period with such large shocks? i think there was a role to play with the covid pandemic and the fed cannot wait to let inflation work itself out. lisa: so, what is your view on the debate we were just having about whether this fed chair will speak to markets, what he will say about their enthusiasm

about this pivot or pause in fed rate hikes? >> i think the message he could give, to my point about candor, is what it would take to reduce inflation. think it is about the stock markets being too high or something like that, but he could outline a path that says we have work to do, getting that work done requires higher financial conditions, and speaking in general terms, i think that would be wise to make that kind of communication to the park -- to the public. lisa: there is an article in the "wall street journal" and i keep mentioning this because it really draws attention to whether we have seen the end of the low rate policy. and the possibility of inflation remaining high for a long period of time due to deglobalization, due to higher commodity prices, a lack of investment over the past few years. do you buy into this theory and

if the fed does, what does that mean in terms of how high rates have to stay and for how long? >> i think there is certainly something to the fact that we have demographic changes, structural changes, global world -- globalization changes. i would not draw a line and say this will be permanent, but it is definitely something to watch. in my mind, the concern for the fed would probably be two worlds. one in which we keep inflationary expectations anchored around 2% and the other as we go offkilter. i think that is the challenge the chair fascias -- faces and they will have to do what they have to to make sure that happens. jonathon: thank you, glenn hubbard from columbia business school. how much weakness is expected? what is the price of gdp to get inflation back down? tom: we barrel that yesterday.

there is the labor dynamic, the politics of it. how much will they tolerate? the thing we don't talk enough about is productivity. there's a lot of dynamics in this fancy word "productivity" and it is a mystery now how to jump start american productivity. jonathon: we had the luck to catch up with goldman earlier this week. the hurdle is really, really high. what we have to be discussing is not the hurdle of high interest rates, but the hurdle of pause. at what point do they pause this hiking expedition? pause at what rate and hold the echo -- and hold? lisa: it is not just that, but also for how long they pause. i think that is one of the key points, which is that it could be four years, because that is where the economy is at in terms of inflation. jonathon: i'm just talking two

years, maybe 3.5%. [laughter] what was that? tom: that was the golden eagle. lisa: [laughter] jonathon: if you are out there, you can postpone this appearance. we would prefer that you stay with us, tom. whole lot more will be joining us in six to minutes time. from jackson hole, this is bloomberg. ♪ ritika: keeping up-to-date with news from around the world. the atlantic fed president says more strong data could lead to central banks raising interest rates another 0.75%. from the wall street journal, it is too soon to say interest rates will peak. chairman powell speaks tomorrow at jackson hole about what the fed will do at next month's policy meeting.

stimulated the economy. adding 146 billion dollars of spending. most of that is infrastructure spending in china. the damage from repeated covid lockdowns and its property market are jumping. there's more pressure on consumers in france and germany. energy prices raised about 10 times higher than they were one year ago. this is from the gas supply from russia. in uvalde, texas, the school board has fired the school police chief following that mass shooting in which 19 fourth-graders and two teachers died. an investigation described redondo as faulty with police response, waiting at the school for more than one hour while the gunman was inside. we have fiscal reports fourth-quarter revenue. $1.2 billion. one fitness company says $450 million of that is due to the

ongoing restructuring. they are trying to get subscribers, but it is lower than expected. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪

>> raising interest rates doesn't solve the supply-side problem. it could even make it worse, because what we want to do right now is invest more in the supply-side auto next. but raising interest rates may make this more in -- more difficult to make those investments. jonathon: joseph stiglitz of nobel laureate. good morning to you all. futures just about positive on the s&p 500. healed higher yesterday. back today just a couple of basis points.

the fed speaks in the next 48 hours. tom: this jump from 24 to 22 is important. but both you and i know that 3.40 two by -- two-year yields is important. jonathon: germany, to, which we keep picking up on. lisa: that is the real takeaway. what will it take without that kind of follow truth -- follow-through? what can ecb do with the highest inflation a decade? tom: you can make a weak dollar, except he can't, in resilience or even stronger dollar call. jonathon: so, what are we doing here through the next couple of days? [laughter] that is the point here. it is the road to september 21 and the fed's next meeting. next year as well, perhaps even

longer. we need to focus on september, right? in the ecb, we have people essentially saying germany is not about if they goat into recession, but how deep that recession is. he had the european central bank hiking 50 basis points in two weeks time. tom: it is about energy, and steve schorr, who is in cycle peta gone this, was adamant that energy in europe matters to our american viewers and listeners. jonathon: just published moments ago, effectively the news is dire, worse than expected. that is a market question, isn't it? how that is the economy for the market if it gets worse than expected? tom: i think it is as simple as that. any politics landscape, is just to say that better or worse than expected, get out the calendar, and the calendar is simple.

the september and november elections await. jack fitzpatrick joins us from washington right now. what is happening at the white house in terms of the politics of september? >> the politics of september, big picture, the white house is trying to accomplish everything it can, especially looking at student loan forgiveness measures to deliver probably more democrats, their supporters, who may wane or wax in enthusiasm heading into the midterms. probably more democrats even then persuadable voters, to try to get supporters to turn out in november. also understanding that they may not have many opportunities in the future congresses. tom: in pennsylvania, are you telling me student loan bates matter over choice there?

>> that's what i'm getting at. i don't know the choice between federman and oz is going to come down to someone's views on student loan forgiveness. i think the focus on this kind of thing is doing what they campaigned on. giving democrats something to be enthusiastic about. and something like federman versus oz in pennsylvania, it is a truism to say it all comes down to turn out. it seems especially true in these key races that the biden administration can give their democratic supporters something to be enthusiastic about. that may be more politically valuable to them than going for the swing voters that may or may not really exist in a race like that. lisa: i crunched the numbers that we are all watching very closely, how many days the gasoline price or petrol price,

depending on how you say it, is falling in the united states. and how much is driving what we saw, which is more than a 60% chance in christ in the democrats are going to keep the senate. >> gas prices play into that if inflation can wane at all from now to november. that would be a good thing for democrats. it is still a matter of the economy overall being a weakness for democrats. when you look at a number like that, from 538 on the senate outlook, keep in mind that even mitch mcconnell has said probably a 50-50 proposition on which party ends up controlling the senate. he said candidate quality is an issue. oz in pennsylvania has had some pit bulls. there have been complaints about how much he is or is not on the campaign trail. they have not gotten moderate

swing state members to win republican primaries in arizona. there are a lot of trump loyalists who lately have had some disappointing poles on the republican side, so it may be gas prices. it may come down to a few weak candidates, giving democrats more of a chance than they would normally imagine in the midterm. jonathon: we have to leave it there. jack fitzpatrick of bloomberg government down in washington. it is interesting to see gas and what we are talking about. [crosstalking] lisa: i think that actually, that report i was reading, about how -- [crosstalking] tom is making buffalo noises. [laughter] it is how much of the strategic

side we will see from the oil release. how does that change in this 71 day streak we have seen? lisa: cannot just -- tom: can i just talk about where we are right now? it is a ranch-style home, featuring a reimagined layout. jonathon: i know what you're talking about, for sure. tom: 1200 square-foot, $2.7 million for a tiny ranch house in jackson, wyoming. this is not fancy. jonathon: the private jet for the air force that we saw? tom: what is important here as there are more private jets here than dallas. like in florida, there is no state taxes. it is very complicated. [crosstalking] we have chairman powell coming on may be the gulfstream? jonathon: we have to talk about

gas prices. gas prices in europe, up 8.6 today. i've lost track how much this month. tom: $520 per barrel equivalent. lisa: there are semi-different equivalencies that have looked at. bottom line is, ec gas prices doubling in the span of two months. that changes the discussion. tom: that is for the people in europe. [crosstalking] jonathon: brutal, as the number one issue on mind for my mom every time we talk. petrol getting higher and higher. up next on this program, we will hear from the kansas city fed president and michael mckee as well. this is bloomberg. ♪

tom: live from jackson hole. it is the annual fed get together. the host of the get together is kansas city hall -- >> we are operating with an

unemployment rate below what most people would consider to be a normal rate of unemployment. that suggests to me to see tightness come out of the economy, you may see more unemployment in the process of this tightening cycle. >> one camp says you need to keep going, and another that says you need to be careful. how much unemployment is too much? >> any someone is unemployed that does not want to be, you care about that. in the long run, which is where i am focused, you have to have a sustainable economy and the best path to full employment is condition and price stability. that is where we have to be focused to bring inflation down so we can have those conditions. >> what are you looking at when you see the housing market? mortgage rates have shot up, all kinds of people back out of

wanting to buy a home because they are expecting prices to fall more. is that a welcome tightening in financial conditions or more than the fed has bargained for? >> you saw that initial tightening in mortgage rates come quickly early in the tightening cycle. that does affect the economics of someone being able to afford a mortgage, make that payment. this isn't surprising to see these numbers come off, see sales come down. whether the actual prices, the housing valuation comes down consistent with that, i think we will have to see. >> you just mentioned that the funds rate could have to go above 4% to get to the point where you are slowing down the economy and demand. john taylor a couple of days ago on bloomberg television told me he thinks the fed should be aiming for 5% or more if inflation does not start coming

down rapidly. >> i think, certainly. if we do not see a response in bringing this imbalance between demand and supply to bear on inflation, we will again have to consider where that short-term interest rate is going to have to be. >> you wouldn't rule out something that high? >> i am not suggesting that is where we are going. the other thing we do not talk enough about is the sizable balance sheet the federal reserve has. we will be doing runoffs of that balance sheet. understanding how these two things work together, i think is going to be important to see how that runoff works as we both through the year. that is the other part of this rate increase environment that is important to watch. >> what is the danger of recession you see, and what would you see it in in terms of indications that we are slipping into contraction? >> when i go around my region, i

do not hear many signs of that from our contacts. what i there is, tight labor market, supply constraints. when i look at global growth, we have seen the imf cover forecast for global growth, we have seen the issues in china, europe and no that reduction in demand will affect our own growth here. simultaneous with the tightening cycle that the fed is underway. how it comes out imbalance over time, it is hard to know. the focus on watching these imbalances resolve themselves are going to have multiple factors that will come to bear on me. >> president biden has introduced a student loan forgiveness program, $10,000 or $20,000 depending on the program you were in per person, which is going to cost billions of dollars. a lot of economists are worried this is going to be inflationary. do you see it working against

your goals? >> i haven't looked at this particular decision. i think, always, fiscal policy is something we will take in to understand as an impact to the short-term. does it happen over a peer -- period of time? i do not have a sense of the particular impact here, given the size relative to our economy and what we are looking at in consumption, i would be hard-pressed to see what i think its impact is now. >> speaking of the world economy and what is driving it right now, drought is big. it costs much of the western united states. in europe now, is it at a point where -- to factor in policy, something like drought and what it could do to cultural production, and potentially a drag on the economy? which tilts you toward session potentially? is it something that boosts

inflation, because prices are going to get higher, particularly for food? >> issues that affect our economy are things that we have taken long into account. a region like mine, where agriculture is prominent. the idea that weather events, the idea that commodity prices come to bear on how the economy does, what it contributes to gdp, where the constraints are in that sector, i think these are -- these events are continuation of some of that. the magnitude of them may change. for example, in the kansas city fed district, drought does have an impact on the yield coming off of these droughts. it will matter over time. farmers are used to dealing with that in many respects, banks that lend to them are used to dealing with that. i think in that sense, it will have the same impact on our policy that we see across many sectors of the economy. >> a near-term decision, i think every fed official is ask this

all the time. especially you, you did defend against the first 75 basis point hike and recently said you are going to debate the 50 or 70 with your fed calling. when you see how well the economy is holding up and how little inflation has come down this far, what is your baseline? is your baseline 50 and you have to talk into 75? >> we supported 75 at the july meeting. i find it an interesting time where we debate 50 or 75, who would've thought 50, we would have a more dovish view than 75? for me coming into this september meeting, we are looking at the inflation report, a labor market report and trying to draw some sense whether we see continuation of things, that we have seen over the summer, whether progress looks like it is meaningful in some way. i look forward to getting back to a sustainable rate path, that

was my issue at the june meeting. no disagreement about the election we are headed. i think being mindful of the destination and how quickly we get there at a time where we are reducing the balance sheet. >> you have been doing this a long time. the yield adage what's called -- adage was, do not fight the fed. -- not listening to what you have been saying about how serious you are about taking on inflation. >> i do not know what drives the markets. i would not be well-positioned to say that. it is important for our communications to be clear. we want financial conditions to tighten along with the direction we are moving around policy. i think it puts a premium on being clear in our communication of having resolved board the endgame. the endgame is to bring inflation back to our 2% target. that is challenging in the

environment we are in. we are coming off and unprecedented period, the economy is still sorting itself off. we have global factors to take into that. there are a lot of factors to think about. i am sure markets are thinking about that even as we see with this interest rate cycle. >> you are retiring at the end of the year. how do you think economics and the economy of the fed have changed during your tenure? >> a lot has been done, when you think about the great financial crisis where the introduction of quantitative -- came up, zero interest rate policy has been an extraordinary time for the economy for policy to think about, how it responds to the economy. also coming into a time where we have demographic changes, broader changes around the world. the world continues to evolve in ways that sometimes look clear to us, sometimes do not. >> in this vein of your

wonderful tenure as a kansas city judge, this last part was one of the most difficult parts, seeing inflation get under control the way it has. what is the biggest lesson learned for you for the federal reserve after having gotten into this situation and now needing to get out of it? >> really, i am going to answer that by saying this is one of the things i'm looking forward to with the conference this year. it is reassessing how we understood constraints over the last couple of decades, finding ourselves again in a place of high inflation, which we had not seen or 40 years. really being reminded, whether those factors that are important to price stability. we know as our mandate that has not changed for a long time, even as the economy has evolved, even as the toolkit evolved. getting back to thinking about

how price stability is achieved, even if the world changes is going to be a important part of the discussion at the jackson hole symposium. tom: that was the kansas city fed president. there will be an open position in the next 12 months. fill out an application, mike nikki has jumped into his seat while pk -- mike mckee has jumped into the seat while tk is gone. do you think this is a theme for you after this event, where the markets have been the last couple of months and where they want to go? michael: i asked her about the fed, they are agreed that financial conditions have loosened and that doesn't help them get to where they are going. the only two -- tool they have is to tighten financial conditions. they have to go higher to get there, but there is a division between those who think

inflation is the most important thing and those in the markets who think maybe recession is coming and we need to react to that in time. gorge in june -- june dissented, you could have policy start to tighten i the time you go into a recession. she's said there isn't evidence yet of that. she is still on the inflation fighting side. jon: i do not expect them to give guidance this week. i am not expecting them to say some thing like, if unemployment goes back to 4.5%, i think we will back away. i would love to see, what is the hurdle? how high is the hurdle for them to say, that is enough pain. michael: most of the fed people are agreed, they do not know that they are anticipating going to close to four. if it has to go to five, if it has to go to six, they will do

that. her argument, which a lot of them make, is that unemployment is below the natural rate of unemployment, you've got that room to do it without pitching a recession. lisa: mr. george has had a dovish path. this is a different tone. a certain weakness in the labor market, it is necessary to get back to price stability. how much of that will be a theme, they do not want to give anything to markets to give them a chance to rally? michael: what we will see from jay powell, unemployment is going to rise. the only question is, how much. he has said, 4.1% or so is ok, the lower end of what they think the natural rate of one of limit is. if it goes higher than that, you get into this political area of the politicians starting to put pressure. you have put so many people out of work. tom: excellent work. jonathan: excellent work. what is that about --

coming up on china into current, emerging markets correspondent. this is bloomberg. ♪

>> the argument that they should hike well beyond 4% and then the only way they are going to rain inflation does not make sense. if they do, the potential if things break, the economy is quite brittle. jonathan: -- >> an application and go for it. tom: it was considered. jonathan: think about what could be. tom: back to square one, i

thought president george nailed it. the things they are trying to do, it is not in the textbooks. jonathan: it is not easy. tom: as mike mckee said, there tool is to raise rates. there is no other tool. jonathan: the political pressure might turn the other way. the political pressure is to get inflation down, get inflation down. you wonder how long that can hold if unemployment starts to climb and we see that into the end of the year. lisa: the weakness we have not seen yet. when did that create a more duality in the labor and inflation mandate for a federal reserve that only has one mandate right now? it was interesting to empathize, period,. . tom: the conflict of chutney martin in 1951, when harry truman tried to figure out how to have an independent fed. that is part of the debate of the independent fed. let's rimmer, the former

president was the apoplectic president trump. we are not hearing that. jonathan: we are not hearing that talk. perhaps, there are some people in washington who would welcome the dollar strength we are seeing. to some degree, it is helping put a lid on inflation. that is a luxury. forgive me for repeating myself. it is a luxury the u.k. and europeans do not have. lisa: it shows how much the entire playbook of the past two decades have been flipped upside down. how about president trump liking a stronger dollar now versus a weaker dollar than? it is about a complete shift in the cycle. tom: you will see, we will speak to chairman powell on radio and television as well. this is a historic building, in 1955 with the first -- in the

1960's. the first reality of history being made. 15 feet from lisa abramowicz is one of the most historic tables and international images of america, a place where james baker signed an agreement with the soviet union long ago. those tensions stay in china and the current joins, from hong kong. i wanted to describe domestic tensions that beijing faces to jumpstart a 3% growth economy. >> let me bring you up to speed on what happened today. the government has rolled out a plan to relet about 150 us billion dollars of stimulus. this will he spent on infrastructure, go through the big government owned banks and will involve local government leaders ramping up spending. they said at the same time they do not want to go overboard with

their spending. this is something on the west, chinese government and authority have been critical of excess in the west when it came to responding to the pandemic. even though there economy is slowing and they are putting more money into their real economy, they are saying it's can only go so far. that is why economists today are saying what they are doing will not be enough, it will not be a game changer to keep things around the 3% area. if i could comment on the exchange rate, china seems to be favoring a strong elon at the moment. it has been weakening and selling off in recent weeks. this week, it has come through with stronger fixed data, indicating they want a stronger currency. tom: i need to rip up the script, this is important. what mr. curran brings up. is it a fixed currency?

is there a delusion here that the élan is floating? >> it is the unmanaged currency, they allow it to trade within a range. authorities have a lot of say in how far it can go in either direction and that rage. recently, the market has been pushing it down. it was weakening against the u.s. dollar, this is a policy maker for china. we had a lot of commentary in the press this week saying, it is not a one-way bet on weakness. the sooner that commentary appeared, the authorities came in and stepped up daily -- a little stronger against the dollar. to your point about the regime shift on currencies, it doesn't appear as though china is in a hurry to adopt a currency, either. lisa: right now, the pbmc is starting to get aware of the pain we see reflected, even in

the official data. the market is not -- people do not seem to believe this is going to generate confidence by consumers and businesses to go out and invest at a time where zero covid is crimping the economy. when industries are shutting down as a result of the drought and what that does two power supplies in china. what are we looking at if we look at the utility from the central banks? as well as policymakers, what does that mean about how much more pain in the chinese economy can have? >> the responses have been both piecemeal and have not been gaining traction. that is why people are saying there has to be a big hit that, does the pivot come on covid zero? you either pivot on that with the political messaging and say they will not -- state press saying, you cannot -- in the

battle against covid. real estate, part of the economy could jumpstart if they wanted to. it is piecemeal, they are putting a slow on things there. we have a stimulus on the way that will ramp up consortium, and a lot of people are asking, where is the turning point going to come for china's economy? crawling along into the end of the year, but so far, things are looking cautious. on the stimulus, they are not going to overdraw on it. jonathan: thank you. enda curran out of hong kong. this is a situation in china right now, the forecast for china gdp, 3% from goldman sachs this year. the forecast for europe, a lot of people call it a recession in the euro zone economy. anytime we ask this this week,

pressure for the chairman. lisa: how much momentum can the u.s. economy maintain in the face of what is going on overseas? is this a corporate profits issue or does this go further to the core of what is driving growth in the u.s.? jonathan: we will start the segment with how things have been turned upside down. we have gone from max elvish to max -- max dovish to max hawkish. we have gone from, i want a weaker currency to, jk, can i have a stronger one? tom: toxic. jonathan: jackson hole, up next.

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>> last year, the fed was not as smart. >> they cannot control food or

energy prices. >> globally, inflation is a big concern. they will have to factor that in. >> we are seeing wage growth, 5% plus. i think that is the issue for the fed. >> i think they can bring inflation down to even 3%. the question is, can they keep it there? >> this is "bloomberg surveillance." jonathan: i am refusing to go outside until the sun comes up. we will do this in the dark. how long do we got? lisa: a couple more hours. tom: 39th has your number. jonathan: thank you for that. good morning. this is "bloomberg surveillance" on tv and radio. it is the annual get together, and chairman tomorrow. tom: jackson hole, the comedy of

the federal reserve bank of kansas city having their event at the richest real estate center in the world. it is is saying -- insane. jonathan: are you suggesting the fed may have a role to play with these real estate prices? tom: the partition of this nation coming off the creative finance under crisis, 15 years ago starting right here, for teen years ago has led to that partition of -- surveillance correction, five bedrooms, seven bats. jonathan: would you like to react the description? anyway. we caught up with esther george of the kansas city fed. here is what she had to say.

rates higher, get demand down. how much payment are they willing to tolerate? lisa: what we have seen, they have not come out that dramatically to say, we need to get inflation under control,. , regardless of the cost. that seemed to be where she was leaning. it is much more, price stability is the bedrock of any strong economy. that is a change in tone for her, i think that is going to be reflected. jonathan: can you reconcile how this market is priced the last couple of months, and the communication they are offering? how many times have you heard "pivot?" lisa: what i want to hear, does this reflect the lack of credibility that the federal reserve has with the market? the market saying, you are not understanding the weakness. we do not buy it. we know you are trying to signal to us. next year, we are going to see that weakness trickle through. we are on the road, we believe,

to the transitory story. tom: i talked to president george last night, she said she is considering getting into -- in kansas city. jonathan: there was no official comment on whether she was interested in pivot. tom: how do you pivot? jonathan: do you think about how ridiculous this conversation is? 8.5% inflation. tom: you are correct. this next guest owns the -- behind the theory. jonathan: joining us is mohammed of bloomberg opinion, a man, who unlike this fed chairman, called this inflation spiral. the challenge for this ed chair at this annual fed get together, how big is it? >> it is huge. he is speaking to multiple audiences.

it is also huge because he's got to deal with issues with respect to the past, present and future. he has got to figure out how he is going to address his speech last year that proved off the mark. he has got to figure out what to signal about current monetary policy. let's not forget, we have a framework that is not fit for purpose. we have a policy framework fit for world of efficient aggregate demand. we are in a world for efficient aggregate supply. put this together, the challenge is big. jonathan: you are focused on the new word, stickiness. you have been focused on that for a number of months. how sticky do you think that inflation dynamic is, and how much does that tell you about how much work this chairman has to do? mohamed: i worry that core inflation is going to prove more sticky than the fed anticipates right now. we have -- starting to be a driver of higher cost and higher

prices. while headline inflation is going to go down the next two months, core may prove quite sticky. that is a problem. tom: on bloomberg radio and television, you saw -- grizzly bears standing up on the light gear. they are watching this morning. people forget why you are dr. el-erian. it is the precision of your game theory. you codified in the modern-day the -- decision, let's distill that down to the t decision that chairman powell has to make between now and september. mohamed: it is an important one. right now, the fed is so late that it is looking at two challengers. it is looking at putting the inflation genie back into the bottle, and looking at not creating too much damage with

economic growth and inequality, something you have been speaking to all morning. i do not think he has any choice. he has got to put the inflation genie back into the bottle. there is an old saying, macro stability isn't everything. without it, you have nothing. they have got to put that inflation genie back into the bottle and do it in a sustainable fashion. tom: this is the politics of it. if you have a partial differentiation from 8% u.s. inflation, the habs are benefited when you get to 6% or 5%. the have-nots, the great middle class are flat on their back. what is your timeline where all of america finally gets inflation back into the bottle? mohamed: it is going to take some time. the fed has been asleep at the wheel. that is unfortunate. what you raise is much bigger. it speaks to the fed being necessary, but not sufficient to

address our policy issues. you have got a deal with the any quality aspect, you've got to protect the most vulnerable segments of the population with focused fiscal policy. you've got to do more on productivity and equal opportunities. it is a long list, but the fed has to focus on inflation that has to do -- and has to do it in a more committed fashion than it has so far. lisa: it has been trying to sound committed. it has been basically saying inflation is the number one issue they are saying. why is the market not hearing it? mohamed: two reasons. one, the fed itself. let's not forget chairman powell stated that we were at the neutral rate. the minute the market heard that, it moved in a significant fashion. all the talk about pivot started to be ample five. that is one reason the communication has not inconsistent, that is been a problem for the last year.

the second issue, the market is looking at the impact on growth, is looking at the potential impact on markets it as jon said earlier, the fourth quarter of 2018, remembers the fed blinking. when push comes to shove, the fed is going to blink again, we are going to have a hawking fed. jonathan: you do not think this is settling anytime soon? mohamed: i do not know. i know what they should do, what they should not link. it has been difficult to call this fed. this fed has failed at analysis, failed at forecast, failed at communication. it is a -- it is difficult to say what this fed is going to do. it is easy to say what it should do, but much harder to say what it is going to do. that is why you get this disconnect you have been talking about between the markets and the fed. jonathan: easy to find out what you think.

let's wrap up this segment on what you think. larry summers called that neutral comment analytically indefensible. i think you are more diplomatic about it, you said the zip code was -- zip code for neutral was far beyond where we are now. what is the zip code or neutral? mohamed: i do not know specifically where it is. i have been warning against purest precision. there are so many structural changes going on. we are changing liquidity regimes. i said earlier, we are going from a world of efficient aggregate demand to a world of deficient aggregate supply. no one knows where neutral is. you've got to try to figure out as you go along the way, and you mustn't attempt this purest precision. if you do, the market is going to jump to conclusions and you will have to undo it. the federal officials have walked back that comment for other federal officials to come

out and say, we are not at neutral. jonathan: it is great to catch up with you. sticking with us for another 15 minutes. tom: i didn't know that. jonathan: in new york -- we are not in new york. lisa: [laughter] tom: he was there for three months, gave him a sabbatical. jonathan: local time in jackson hole, you can probably hear the café behind us start to set up. tom: this is the research we do at bloomberg surveillance. what is important about this, what has changed here in the last eight months after a raging debate of five or six years, wyoming has allowed for roadkill. if you see something in the road, you can legally pull it up. tom: [laughter] jonathan: sorry. is that research? tom: five months ago, wyoming 511 is an app you pick up where you communicate. this morning, at the meeting of

the kansas city -- we've got elk. lisa: [laughter] jonathan: if one of us does not do any real work, the other two needs to pick up the slack. are you serious? tom: i am serious. you are picking up london roadkill. jonathan: roadkill. lisa: [laughter] jonathan: stop it. from jackson hole, this is bloomberg. ♪ ritika: kansas city fed president says the bank has to get interest rates higher to bring down inflation. she spoke to bloomberg tv at the jackson hole retreat. >> we have more room to go. we would bring those rates down quickly, i have seen that in

some forecasts and they look remarkable. i think >> >> we will have to hold. over 4%? >> i think it could be well over 4%. i do not think that is out of the question. we will not know that until you watch the data sign. ritika: george said it is important the fed is clear about where it is headed. td group is joining those companies that of closed operations in russia since the invasion of ukraine. a wind down in russia -- and commercial banking units after sales soared. the company will incur $170 million in costs to hike the expert in uvalde, texas the school board has fired the school police chief following that mass shooting in which killed 19 fourth-graders and two teachers. an investigation described pete arredondo as the commander responsible for police response. law enforcement waited outside the school for more than an hour while the gunman was inside. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am ritika gupta.

this is bloomberg. ♪

> it is important we are clear about the destination we are headed. that destination is important, we have to get interest rates higher to slow down demand and bring inflation back to our target. jonathan: esther george this morning. live from jackson hole. futures positive, up .6% on the s&p 500. as we gear up for a big day ahead at jackson hole. tom: that speech tomorrow, we are thinking about fear and the underpinning of our monetary

system. that system is not just the united states, the global system. as we continue with mohamed el-erian. farmer with an economic perspective from his university of cambridge. i want to go to the international tone, central bankers of the world. a singular future i have is the focus is on plaza, quarter like partners when there is em. forget about idiosyncratic, turkey out over 18 there are. what will be the shot of powell action to a more fragile emerging-market in a third world economy? mohamed: it is a high-risk situation. you have higher rates, so more uncertain market conditions. you have global economic growth slowing much faster than most people expected. you have a stronger dollar. historically, that is not been a favorable mix for american

economies. lisa: how much does this lead back the u.s. economy? how do you bleed through the pain you are seeing in china, and is -- entering into a recession? mohamed: it is easy to say everybody has an inflation and growth problem. that is true. go further. we have massive dispersion. growth in the u.s. is relatively better than most countries. if we think the fed faces tough, -- tough challenges, look at the ecb. they have a much more fragile economy and the risk of fragmentation. i think the theme going or what is going to have a strong element of dispersion come into it. that makes markets have to spend a lot more time thinking about relative values, and not just the overall data. lisa: when you take a look at

the framework, policy are starting to think more about a structural inflation that will last a much longer time due to deglobalization and structurally higher commodity costs. the market is not buying it, they are still betting on considered return. what we have experienced the past few decades. we know that you air on the structural side, you say that is probably where we are going. what will it take for the markets to wake up to that reality, and how violent is that pivot? mohamed: i am a buyer of the notion we are changing macro regimes. from deficient aggregate demand to deficient aggregate supply. he pointed out to the wall street journal article that listed three reasons why supply is going to be a challenge in the next few years. globalization, deglobalization, etc. we are in a different machine. i think the economists

recognized it, federal officials said he recognized it. markets are in a cyclical mindset. it is going to take time and persistence on the part of central banks to convince markets that they have to think structurally and not just cyclically. jonathan: what are the characteristics of this new market regime? mohamed: resilience is going to be the key issue. i think you've got to have resilient names in your portfolios, whether it is in credit, equities, and resilience means balance sheet, managed teams. resiliency is the most important element to help you navigate this world. jonathan: can we talk about the resiliency in europe? we touched on that, you talked about it fiscal to the ecb. european gas prices are up 6.5% today. i do not think we fully realize how tough things could be in

europe later this year. do you since the same thing, and can you frame how bad you think this is going to be later this year? mohamed: it is going to be hard. it is going to be a cost crisis. you see it in the u.k., and the reaction of the u.k. much earlier than you are seeing it in continental europe. there is going to be massive demand instruction going on. europe is looking at a tough six to nine months. i like others do not see how europe escapes recession. i hate saying that, but the outlook is one of a recessionary economy. let's hope it is shallow and short. tom: general manager of the bank of -- published today, it is an extremely important piece of our behavior, our individual game theory with higher inflation.

what is the win where we given -- we begin to have higher inflation behavior? are we there now or depending on later? mohamed: it depends on who you are. if you are the striking port workers in the u.k. or underground workers, your there. you are already there. your inflationary expectations have changed. you want to protect your standard of living. it is only a matter of time until they seek not only to protect against purchasing power, but future purchasing power. in the u.s., you are not there yet. slowly, you're going to get there. what we are going to find, i know you know that in terms of game theory, the initial conditions very term initially. some workers and some companies are going to be able to protect their margin, protect their purchasing powers. others will not. jonathan: wonderful to catch up with you. are you getting comfortable in

tom's seat? mohamed: i am. it is colder here than where it is you are. jonathan: there you go. muhammad ali area and out of new york -- mohamed el-erian out of new york, thank you. difficult issues to stay on top of. tom: what we just saw in the ft in august with -- this is an elite, unique feature of americans. we think we are different, 8% inflation will not come embedded. baloney. lisa: this was partly because all of what we saw in the 1990's, people saying it is going into reverse. the idea of finding cheaper labor elsewhere and importing the disinflation from that, the idea of commodity prices being plentiful. people saying because there hasn't been an investment, the

stuff we use, it is going to be more expensive for a longer period of time. jonathan: there is a real bubble in the last 10 years within the labor market, cheap labor. now, these companies are going to try to adjust to. that is something to think about. lisa: we are seeing productivity go down, wages go up. that has been a problem for the federal reserve. how do they reshape what their narrative is? tom: we should read joe wyden next year. they can set up at the bar. have marino brothers. jonathan:

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jonathan: live at jackson hole this morning. the annual fed get together with chairman powell addressing the economy, tomorrow morning at 10:00 a.m. eastern time. let's touch a swiss mike mckee. michael: we are waiting for

numbers to cross. thought you were sending me down here to do a weather report. the rain just started to let up. maybe you can join me in a few minutes. jobless claims coming out this money, i am losing my connection. i will get the numbers in a second. initial jobless claims coming for the last week, it is crazy. the elements are conspiring against us. jon, if you have the number in front of you, you can give that. jonathan: i do not know why we made you do this. it is pouring rain outside of jackson hole. forgive me for that. tom: ♪ jonathan: ok. claims come in as a drop to the previous number, 250. it is a better number. 243. personal consumption, one point 5% in the second quarter. the gdp price index, look at

that. tom: wow. lisa: the fact the price index for the second read of second-quarter gdp was revised upward tells you something. to me, that starts to raise a question about where we end the year. what happens if we in the are at 8% cpi? what does that do for fed policy? jonathan: underlying gdp, the estimate negative 0.6%. mike, since we got you drenched in the pouring rain to look at economic data, any response to it? michael: i think that this point, the issue has been, what is the economy doing because of this question about two consecutive quarters of contraction. we have a later re-think about it. the big issue is going to be going into the third quarter, what do we see.

so far, the consensus seems to be we are at about 1.3% gdp growth. that would be a rebound. you have some economists saying we could see another contraction, a guy like ian shepherdson at pantheon who says we could see 5% growth in the third quarter. we will need to see a bit of a change before we get to that. that --jobless claims, the fact they are falling a little bit, is not bad. it suggests strength in the labor market, which the fed is counting on to raise rates. jonathan: we will take that. it is better news. thank you, outside in the pouring rain. any price action on the back of that? lisa: you are seeing two your -- two year yields list -- lift. price pressures revised upward, shows the urgency for the fed to

move. that is why we are seeing that front end continue to hang in there and raise higher. jonathan: we will take better news, 243. tom: yes. it is one data point in high-frequency data, we have to remember that everyone here is fixated on monthly and quarterly data. the high-frequency data for fed officials. jonathan: i am looking forward to the ism and a couple of weeks. the pmi was dreadful. we are shaking it off. s&p global, i think they are shaking it off because s&p global prefer in the united states to look at the ism. lisa: it has not been as reliable or as correlated with the official ism as other indicators. that said, the peripheral read is that you are seeing a material slow down. it is not just manufacturing, it is in services. you are seeing that in earnings. jonathan: ism in the next couple

of weeks, and and payroll report, another cpi report for we get to that september data. tom: as we go to september, awful what we see with the speech tomorrow. jay bryson joins us, he is chief economist at wells fargo with a national care but a company, a bank with acute microanalysis of the american economy. do not tell your international view with your domestic view right now, how close are we to a recession? jay: right now, i think we are not in a recession. the big indicator i would look at is what you have been talking about, the labor market. it does not seem to be falling apart at this point. later this year, early next year, that is when we think you are going to see a modest recession. inflation remains high, what we

have seen is real disposable income has trended down. that is another way to say that, purchasing power. credit card debt is up, savings rate is down. consumers are going to hit the wall and start to retrench, that puts us into a modest recession beginning of next year. tom: got to go to franchise, wells fargo -- wells fargo economics. your housing expertise, give us an update on housing inflation and rental inflation in america. jay: the way that enters into the gdp numbers or seeping -- cpi numbers, it comes with a long lag. the are seeing softening and house prices, we are starting to see softening in terms of rental prices. that is going to remain coming in with a long lag. that is one of the reasons why we continue to believe the core

pce deflator, the core pci index, the year-over-year rates are going to remain relatively elevated. lisa was talking about the core pce deflator earlier. at the end of this year, you are looking at a year-over-year rate of 4.5%. lisa: what does that mean for next year? this is where i think the market would disagree with some and say, it is going to come down quickly, the fed year-over-year comparison affects are going to take effect and you are going to see a real deceleration in inflation. do you agree or are you looking at something much closer, to stickier inflation that the fed could hold rates higher than longer for? jay: we do believe the core pce inflation rate is going to come down next year. that is predicated on our view of a recession. once you get a recession, you start to get softness in prices. if we do not have a recession, consumers continue to spend, we

do not have a recession, we do not think the core pce inflation comes down as fast as we generally think. in terms of the fed, when you see a recession in history, they start to cut pretty quickly. we think they are going to hold the fed funds rate constant, at 4.25% through the middle part of next year just to make sure that inflation is coming back towards their 2% target. i do not think the fed comes running to the rescue as soon as we see the economy tipping into a recession. lisa: i keep seeing -- saying they are data dependent. i want to ask you about the messiness of that data. last year, we got labor market data that underestimated just how much strength there was, how much demand there was for labor. what is your view on what we are getting wrong now? which data is distorted and we are going to look back and say, if only we had gotten a clearer picture? jay: the thing we made be

getting wrong now is the labor market. we may be getting mixed signals. if you look at the ism numbers you were talking about recently, we have seen softness the last few months in terms of the ism number. the birth death model, which is a technical thing, that maybe pushing up the reported nonfarm payroll numbers. i think maybe we are getting the labor market data wrong. i'm sure the people at the fed are crunching through those numbers right now. that would be the thing i would look at. tom: right. i want to go to a marvelous effort by the ft and colby smith on the 40-50 year history of the fed. has there been any time where the fed is really addressing the americans outside the financial system? is there talk, or are they doing

something new in 2022? jay: let's go back to 2019, when they first started to take a broader view of the neighbor market. afferent ethnic groups, things like that. that is true. i think what they are doing now, they are looking more than outside the financial elite. when we all know that inflation affects everybody in the economy. it arguably affects lower income americans more than it does higher income americans. i believe they are taking a very broad, expansive view outside of the financial elite. they are focused on inflation right now, they seem committed to ring that inflation rate down. if it does, that will bring financial relief to lower classes of americans. jonathan: jay bryson of wells fargo, thank you. looking ahead to economic data in a few weeks as we anticipate

a speech from chairman powell on friday. a sneak peek to payrolls on september 2. here is the estimate, $295,000. tom: i did not know that. jonathan: 295 is the median estimate. lisa: we keep hearing how wrong people are getting the labor market. we heard date rice and say, perhaps we look back at the one area we are still getting run. when you anecdotally go around, how many hiring signs you see? everywhere, it is like, we want to hire people. tom: this is the bull case. we were looking at the irish times, the surging irish employment is one anecdote. you see it with claims, you see the number again? jonathan: 295 is the jobs number. tom: 150 was normal.

we are popping to 95. it is a terrible economy. terrible. it is terrible. optimistic people, outside. jonathan: what appears bearish in that debate, that payrolls number. tom: i am looking forward to the huge social response to president george. jonathan: can you confirm that is not true? lisa: we will confirm is not true. jonathan: in jackson hole, this is bloomberg. ♪ ritika: president biden planned to secure a portion of student loans by tens of millions of people will rip through the economy.

bloomberg economics said it would add .2% to inflation, at a time where inflation as at an all decade high. -- has entered a shallow recession treated by surging energy prices. economists at the swiss bank predict the economy will shrink by .1% in the third quarter, and .2% in the fourth. power prices set records today in germany and france. for the first time in a month, global looking pox cases have declined, according to the world health organization. new cases around the world fell when he 1% in the week that ended sunday. americans are growing concerned about the supply for the vaccine. china taking steps to support iran after a two year low against the dollar, the people's bank of china -- higher than expected level.

it signals the central bank wants to slow the pace of the currency's depreciation. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪

>> i know what they should do, they should not blink. it has been difficult to call this fed. this fed has unfortunately failed at analysis, failed at forecast, failed at munication. it is very difficult to say what this fed is going to do. it is easy to say what it should do. that is why you get this this connect between the markets and the fed. tom: mohamed el-erian visiting our new york studio as we is it wyoming. it is the meeting of the kansas

city fed, we welcome you on bloomberg radio and television. some years, more quiet, or academic. that is not the case, this fractured 2000 22. the chairman speech tomorrow. as well, the discussions happening right now, this thursday as the sun comes up. we will drive forward the conversation, we stay with you in the next hour. tomorrow, we go even further on with a live broadcast, first time of the fed chairman from this kansas city fed. what we have heard from honda larry and and synthesize it in the bank of -- mohammed el-erian. we do that with the global head of g10 fx strategy at the bank. thank you for joining us and rethink us on strong dollar. does zeitgeist, if at some point the dollar moves the other way, win do we see dollar weakness?

what are the conditions that will allow for a dollar weak>? ? >> it is simple. the dollar has weakened so much because of high, particularly in the u.s. and the hawkish fed. we need the fed to stop -- start being more concerned about growth than about inflation for the dollar to start weakening. i wouldn't necessarily say the dollar would get stronger, because it is at a 20 year high. i would expect it to remain strong, i think we are still far from a situation with the fed where we -- have recession under control, and -- tom: to work off of deutsche bank who joined us a few hours ago to begin our coverage, ellen ruskin is looking at flows. let's take switzerland, which is

always overwhelmed by money coming in and ever stronger swiss franc. is america being overwhelmed by flows coming in, which is supporting the dollar, harming the degrees of freeman that chairman powell has? >> not necessarily. we see investment buying on the dollar, but nowhere as much as one expected, even the fairly strong dollar bond. usually at this level, the dollar with respect to the market would be long and stretched on the dollar. before the dollar started, maybe now, it is slightly long dollar position. we have not seen the close of being --, the position is on the dollar, you can get the position

squeeze. that is, however, if you get a -- of financial conditions become the -- because of a strong sentiment. that does not -- that makes the job aggregate more difficult. tom: one of the partitions, the present president of the united states who has been quiet on dollar dynamics. the previous president was very strident about the harmful effects of strong dollar. could bank of america document that american business is harmed by a strong dollar? >> not necessarily. it is fully consistent with fundamentals. it has to do with the fact that the u.s. economy has recovered from the pandemic much stronger than the rest of the world. the u.s. economy, the labor a market is extremely tight. it is more like the economy has

been doing well, to well, and the dollar -- round up the strong dollar. the strong dollar is not of concern at this point. the concern is inflation. tom: very quickly, if i want to be opportunistic in q3, one of the trades you recommend where i can make a number of big figure points? >> i would say, keep buying the dollar -- i wouldn't necessarily to buy the dollar, but whenever you get the opportunity and get the dollar --, by. i believe for the rest of the year, the dollar will remain strong. tom: thank you. on the depth of the system, what the dollar means per lead me do a data check, bring in jonathan ferro and lisa abramowicz. it is important with the data, with the sun rising across

jackson lake. three out this morning, we think a bear in the distance and the majesty of eagles flying from the south of the jelly stone park earlier on. joining us from outdoors away from roadkill, jonathan ferro. jonathan: the first thing someone said to me about two minutes ago, is tk scared of the rain and staying indoors? as we go towards the opening dow, we need to set up where markets are. preoccupied with going into chairman powell. after the rally we have had the last couple of months, excluded what has happened in the last couple of weeks, we have been asking whether what we have seen is an unwarranted easing of financial conditions. lisa: how does the fed push back against that at a time where they have tried to, but not with the conviction people need to hear? the message has been inconsistent. what will it take for the markets to hear the message they want to be sending right now. jonathan: tk, you said it,

times. cpi at -- percent, how long do they need to raise and hold 4%? this conversation about rate cuts is not a conversation for officials here that have it. tom: what is so important on a topic for jason furman tomorrow, the social partition of a disinflation. the have's clicking and with benefits at even 4%. the have-nots crushed until we get to a certain level. what is that level, and will jerome powell to find tomorrow a new, non-2% level? jonathan: lisa, you know better than most. for economists, it is good versus bad. we all know things and china are not great. we know things in europe are ugly. we know in the united states, we

are going to have difficulties later this year. is it better or worse relative to what we expected a couple months ago? lisa: is it better than expected in the u.s., meaning the fed has to be harsher than expected when it comes trying to penalize and remove some of that? jonathan: did they bring -- out here? lisa: inside, we hear the platter of the café. jonathan: mike mckee is out here with a cowboy hat. not serving hot drinks. christian ramadi is warning us in five minutes. we hear from megan green, as well. from jackson, wyoming this morning, good morning.

>> this is an extended edition of bloomberg surveillance with tom