>> getting inflation down to 4% is not getting us out. >> that will knock down inflation. it will be painful. >> inflation pressures are leading to these bigger problems. >> maybe inflation is peaking, but it still remains way too high. >> under the current regime, central banks are set up to fail. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: the jackson hole fallout continues. live from new york city for our audience worldwide, good morning. this is "bloomberg surveillance" on tv and radio. futures down.9 on the s&p. an eight minute speech sparks a $1 trillion market rout.

tom: the shock at the speech -- mike mckee saved me. he said i think the speech will end soon. we were making jokes about pivot the dog, the new puppy at the kansas city fed. this is one giant anti-pivot. jonathan: one priority -- get inflation down. and if we are willing to accept a recession. they are willing to accept a recession, not just a federal reserve but also the ecb. even if we enter a recession, we have basically little choice, which will continue our normalization path. tom: we start the show for all americans -- ferro is not demanding we look at the ecb. the fact is we all must look at the ecb. you see it with pound sterling will under 1.17. pound sterling is at post-brexit

weakness. jonathan: euro-dollar just about holding on. we need to talk about the prospect of qt, perhaps 75 basis points move in september. lisa: the lack of addict ability in the fed meeting here there was a paper presented talking about the unwind of the balance sheet and how it could potentially lead to a lack of liquidity that was really concerning. how do you game out how this will play out at a time when central bankers globally, not just the federal reserve, are willing to accept the pain it inputs because inflation was the one word jay powell mentioned 45 times in an eight minute speech. jonathan: not willing to accept the pain? politicians. you saw the quote from senator warren. this is the quote -- i am very worried the fed will tip this economy into recession. lisa: we have been waiting for this. this is the normal game plan,

that the fed tightens, worries of recession builds, politicians pushback. this time, she is so alone. who else is coming with her and talking about this? i do not hear a lot of anti-hawks. they are still reiterating inflation, inflation, inflation. 45 times. jonathan: i am pleased you counted. is this the beginning of politicians leaning the other way? tom: we will have to see. all this unfolds into the election as well. this was the theme in jackson hole -- jon overheard these conversations when he was pretending to be a waiter. the ecb focus we will have into september 8 -- chairman powell is getting no help long growth abroad. jonathan: not at all. he may get a little bit of help. futures on the s&p 500 now 0.9%.

nasdaq, down less than 1%. yields are up seven or eight basis points. 3.12 percent on the 10 year. the two-year through the highs of the year back to the highest levels we have seen going all the way back to 2007. and the dollar the strongest we have seen going all the way back to 2002. big things developing of the last couple days. lisa: the dollar is one of the biggest stories, how disruptive it is at a time when it is the only flight to safety you have on a consistent basis. yes, we can talk about the euro swiss. that this is potentially a massive and disruptive story. today a light day ahead of a big week of economic data in the united states. one of the troika will follow up, delivering prerecorded remarks at a workshop in chicago. i want to hear about the balance sheets. we did not hear about the balance sheet in that eight minute speech from powell.

but there are concerns about the ramifications of stricking a balance sheet that has mostly only grown. it has not really contracted over the past decade. already trading up volatility levels we have not seen for decades. our not talking about the vix. german chancellor olaf scholz traveling to prague to speak with the czech prime minister. german power costs -- this is a controversial measurement -- but it is shocking. this is exponential. this is something you would see in a parabolic function in your math class. and we get manufacturing activity for august. we could be saying it is dallas manufacturing monday, but really, this issue is manufacturing on thursday, which is important. it is something you have picked up on especially after the dreadful manufacturing we have gotten recently that people just shrugged off. jonathan: i do not think dallas

fed manufacturing monday will catch on. lisa: we could try. jonathan: you could. i am not coming along for the ride with you. tom: folks, you should have seen it. abramo at the blue heron bar. the bar came to a complete halt. there was just silence. she started in on x2 + y2 = 1 or something. jonathan: i think you already describing yourself and not lisa. [laughter] win thin joins us now from brown brothers harriman. what changed for you over the weekend? win: in a word, nothing. what was a surprise to me was how surprised the markets where. this was an aggressive, coordinated, well orchestrated effort by the fed. we are keeping on this hiking

path. you may see recession. you may not. but we are seeing hiking. chair powell summarized that whole message in eight minutes, with many mentions of the word inflation. i think the right message is tied up at this point. tom: we have seen, in the last 24 hours, a reaffirmation of a strong dollar. with your decades of work, the bloomberg dollar index really captures em. bbdxi out to record strength. what does that symbolize? win: that emerging markets will remain under pressure. if i sound like a broken record, i apologize. but the global tightening, weaker global growth, that is not the environment for emerging markets and other risk type assets. people in emerging assets -- we

have seen a flight to quality. the inflows in august -- that was a headshake. it is hard to say load up on em right now. eventually, towards the end of the fed tightening cycle, maybe we see stabilization of economic data worldwide. tom: and are we on the 7 yuan per dollar watch? perhaps we are. lisa: although this is not an issue for a lot of chinese officials. the strength of the chinese currency is not what they will necessarily hold onto. as we look at the flight to quality, the dollar strength, at what point does it become profoundly and structurally destructive akin to what we saw in march of 2020, when the fed was forced to step in in a way

that perhaps it will not this time? win: i think of it in two spheres. dollar strength is undesirable for countries in the eurozone zone trying to fight inflation. but in general, yes, there will be a lot of pain. but emerging markets is the real pain point. that is why we talked about solvency issues. for every percentage point raise the currencies for emerging markets, that makes it much more difficult for them with external debt. if you are a local currency issue were, let's say brazil, and all of a sudden, your payments in dollars become 10% more expensive, you are coming under a lot of stress. we are seeing frontier countries, kind of like the canary in the coal mine, sri

lanka, egypt -- is it a contagion lull? the fact is we are in an incredibly negative environment. the stronger links in the em will rise it out, but the wiki leaks will come under pressure. i do not think it is a systemic risk, but we will see more more countries facing really difficult times. jonathan: with difficult this is to be taken. from brown brothers harriman, thank you. many people in the equity market -- maybe it was the speech they were hoping he would not deliver. this line from chairman powell -- estimates have long run mutual and not a place to stop or pause. was this the cleanup act for the news conference a few months ago? lisa: some people are being highly critical that it was not a full on repudiation of some of the errors of the fed's past ways and assumptions.

however, yes, this is basically going in opposition to what a lot of people got from the last meeting, including we will hold them there for a long time, we are not going back to lowering rates anytime soon. it was consistent, from every fed official we spoke to. jonathan: it is easy to shake off some of these comments. they will take on renewed confirm -- renewed importance when we start to break down the markets. when they get to a 4%, how do they convince people a higher unemployment rate is a price worth paying to get inflation down? tom: in terms of data dependency, two ideas. one from the journal this morning on global domestic income, and the other is the non-pharma payroll coming friday. up to a 200,000 number. jonathan: peter tchir will have

thoughts on that, joining us and about 50 minutes time. good morning. this is bloomberg. ritika: keeping you up-to-date with news from around the world, here's a first word. i'm ritika gupta. nasa is to take its first step to return people to the moon in this decade. the uncrewed artemis 1 is scheduled to circle the moon in orbit that will take it deep into space and then return it to earth today's later. it is at a take off today. juniors were looking at a leak earlier. u.s. navy warships sailed through the taiwan strait for the first time since speaker nancy pelosi's trip to the island. the navy said its ships were demonstrating its commitment to a free and open into pacific.

goldman sachs says interest rates -- says interest rates shoot be raised. the euro zone releases the latest inflation data wednesday. in the u.k., the front runners to become the next prime minister, liz truss, is reportedly -- that could head off criticism. credit suisse is reviewing their long-term plans for its business in mainland china. it's part of a broader strategy revamp after the lender racked up billions of dollars in losses. bloomberg learned credit suisse executives are meeting to discuss topics, including their view on the china business. global news 24 hours a day on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> restoring price stability will likely require maintaining a restrict of policy stands for quite some time. the historical record cautions strongly against prematurely loosening policy. jonathan: hello, 2023, love chairman powell.

chairman powell pushing back against anyone thinking to get rate cuts anytime soon. futures down almost 1% on the nasdaq that's on the s&p 500. yield higher seven basis points. your 2-year through the highs of the year, very close at 3.50. the highest yield going although back to 2007. levels we have not seen since 2007 on the dollar index. a story that slipped under the radar last week was this one here. energy secretary worried about low stockpiles of gasoline and diesel in the northeast, and saying this -- that it is our hope companies will proactively address the need, but that is not the case. the administration will need to consider additional federal requirements or other emergency measures. what do you make of that line

and the prospect of maybe we start to think about curtailing, perhaps banning, oil exports? tom: i think "surveillance" has been upfront about this. it is a tangible issue, but you wonder if the secretary of energy consulted with the secretary of state for that release. jonathan: or even the white house and the president of the united states. this will get tricky when the european space a crunch later this year. tom: we face a crunch right now, and that is the theme as we look to the ecb. we are focused on european affairs out to september 8. it may seem distant to america. it is not. right now, jack fitzpatrick joins us, bloomberg government. i want to go to where president biden is now. it sounds to me he should be taking a subtle set of victory laps now. is he or is he so beleaguered he cannot enjoy the moment?

jack: it seems like he is taking a bit of a victory lap. and democrats, heading towards the midterms, are playing up their legislative victories. the fairly good economic and usually of gas prices going down a bit. it does make sense for them to do that now, considering you heard senator warren saying she is concerned about a potentially somewhat severe recession or millions of jobs lost down the road, depending on what the fed does. so they think they are in the moment where they can take a bit of a victory lap, because they have gone a good chunk of what they wanted to get done legislatively. they have had fairly good news. but there's also a sense that there is potentially bad news on the horizon, and democrats are probably hoping that wait until after november. tom: the senator from vermont, patrick lakey, flogging a book this morning -- we are thrilled

he will join us in the 8:00 hour. give us a look at the strength of liberals in the party. it is a strength of liberals, like the senator from vermont, as we go into the election? jack: senator lakey -- senator leahy, they got what they wanted on student loans. they wanted more. they probably should be happy with what they got in the remnants of the bill back better agenda, but because that is a significant bill, despite it being torn down. senator leahy is a part -- in charge of appropriations in this center. i do not think there is any spending deal on the horizon. they seem to be moving slowly. they would need that to measure -- follow-up on the measures in the chips bill, largely authorizing measures, and they

need to find -- fund it in order to make it fully accessible. senator leahy in particular has a lot to do in the next few months to follow up on their victories. but it is a mixed bag for progressives overall. lisa: i want to finish up with the domestic agenda and how that pairs with the international attempt to shore up friendships with alliances. how much will the u.s. double down on exports to natural gas to europe ahead of the winter? it will be difficult in the face of ukraine and the nord stream pipeline going into maintenance later this month. how much of a conviction is there to continue these exports and continue support of europe? jack: there's enough of a conviction on -- that the department of energy letter was pretty surprising. it does seem to be in serious

contrast to what the administration has talked about in the realm of foreign policy. there really does not appear to be a flagging in the support, in measures -- not only ukraine aid measures but energy eight -- energy aid measures to europe. the department of energy letter may be an outlier. if you talk to foreign policy people, lawmakers in washington, it seems there still a good amount of support for energy exports. jonathan: thank you, jack fitzpatrick. the biggest issue is how do you balance the domestic economic tension with foreign policy issues? i think that captures it perfectly well. lisa: we saw it when there freeport lng export facility in texas went down because of disruption. and that is 1/5 of the exports to europe. we saw that actually lower natural gas prices in the u.s.,

so people started saying let's do this? other people, biden in particular, said absolutely not, we need to support our allies how much tension does this create between the energy secretary and him? jonathan: do you think they will listen to secretary granholm? lisa: no. i am not sure she has bipartisan support, even partisan support? but it goes into the uncertainty. jonathan: equities down.9 of 1% on the s&p. if you want to cash, you will be happy you want to cash. field higher on the 10 year and the two-year on a nominal basis. lisa put out a great chart this morning. tom: real yields are there and breaking higher, but by the time you get to the real yield -- look for it this friday -- you may break out to a new high, which i will eyeball 70 baseboards -- 70 basis points.

the 10 year real yield on friday moved. jonathan: we will catch up with andrew slimmon from morgan stanley in about five minutes. equities on the move, adding to the losses on friday. waking up monday, more of the same. nasdaq down. -- [indiscernible] this is bloomberg. ♪

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jonathan: it is the jay powell valve this morning. features lowered by .9% -- futures lowered by .9%. bear in mind that after friday, we are still 10% -- 10 to 11 points hired. the bonds mike has already taken out the high on a two year.

taking out the june high. all the way back to 2007 to see you two years. let's call it about 3.12. it was not just the fed that pushed back as well. yields up in germany. a little bit of euro strength in the mix. tom: it is never going to happen. and then it happens. we need to be prepared for the unexpected. dimino what the end of the year

looks like? jonathan: what i do know is that even if we have a recession, we have to keep on going. lisa: there is a high inflation rate that they are looking to get down. this is the primary concern, the question going back to your first point with stocks. why are they not more concerned? jonathan: there is a lot of space to the outside there. tom: this is the combination of commodities. nailing it on a short-term

basis. absolutely selling it on an institutional basis. thank you so much for joining us in this. you though as a guy more optimistic. now we must study earnings. he suggest that margins must be maintained. can we maintain margins through the end of the year? >> the amount seen be earnings. we will have to see. from a stockpicking standpoint, it is better to find the companies that already have the earnings. we will have to see.

the counter argument is that we are still on the a few years from the previous recession and balance sheets can withstand the shock. tom: what a to be year, is cash attractive as a legitimate asset? >> i think that is the negative of the fed raising rates. that is the negative that i see. i just have not embraced the earnings collapsing and that has been the story of the year. this is off the fact that the

second quarter was not as bad. we are calling that the push and pull. jonathan: if the two year yield is back, why do equities belong anywhere near 10% above? >> that will probably head lower. i still think that we could get a rally as the market starts the price off the next four quarters of earning. we have had -- high risk came back into the market very quickly. jerome powell getting up and

saying what he said, down those all the speculation. i think the near term is negative for the market. even with rates higher, but i think speculation right. it could be washed out. lisa: you are talking about reducing risk and i look at some of the stocks that you like like lululemon, among congressional areas that do worse during downturns. what gives? what is the difference now? >> a lot they negative views. the stock market rewards, a direction of change. you have to go high at some point. from a stock standpoint, they are down.

there is just a turn of bad news priced into it. these companies have already --the market is pricing in that they are going to miss earnings. i have always been interested in companies with a larger. i think it is safer than thinking that you can pick and choose companies that are not going to have earnings problems. lisa: d think the opposite holds true? >> absolutely.

you have to be careful with the mike wilson scenario. i think there is a lot of risk in that area. tom: how does everybody deal and they are buying three or four stocks and then you have to look at everything else. do you participate in those stocks and figure out what to buy? or do you actually run a diversified portfolio? >> i think there are plenty of companies out there. there are real opportunities. some of them were knocked down.

what brings down the largest companies? they never stay on top forever. it is usually the government. that is going to weigh on the index in the next few years, which will be good for investors who go out to buy individual stocks because it is probably better at the stock level than at the index level. it is a time when the government is starting to nose in. jonathan: they are telling people to keep buying commodities, even going into what could be a recession. where are you on the equity side

of things? they have had limited returns this year. >> lisa listed the stocks that we like. when have i been reducing energy? it felt percent the industry is classically cyclical. to me, is vulnerable because it has done so well. i think energy is a source of funding. the fact is, i think the sentiment is a 44 year low. that is the opportunity.

jonathan: thank you. the energy owners. allowing that to fund some of the retail. tom: what is really difficult to do is to sell high and then tell by again though. jonathan: always great with hindsight to look back at that moment. that was the easy point. it did not feel that way though. lisa: trading was halted for how many days in a row. people saying that a recession will dampen prices. others saying that there is still a demand. jonathan: we always deliver on time.

tom: that is true. jonathan: it is very personal. tom: is this mountain time? jonathan: i think she is still on mountain time. features down .9%. this is bloomberg. >> keeping you up-to-date with news from around the world. taking aim at the federal reserve plan to fight inflation. worried that the central bank will tipped the economy into a recession. there is something worse and that is high prices and people out of work. if an iranian nuclear deal is reached, they might be able to put oil on the market almost immediately.

in the persian gulf, a nuclear deal would most likely lead to selling oil globally again. the state is transitioning away from fossil fuel. fellow democrats are skeptical. energysolutions will spend four point three --will be building a bactrian factory -- a battery factory. it has not been decided where, but ohio is a front runner. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries.

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>> we cannot just rely on the market. i have said three .75 support percent by the end of the year and i would like to get to that level. sooner is better. jonathan: catching up with us. from new york city this morning, good morning. features are negative again. the nasdaq 100 is down. yields are up. very much on the same page. he did not even want to talk about where the rate was. i do not think he thinks that

there is much exercise. estimates are not a place to stop. tom: it very squishy math. it is a very uncertain time. there is an idea of a regime change and you wonder if we are in a regime change right now. jonathan: the new regime, we could be living with it for a lot longer. tom: some legitimate tension. part of that is commodities. this reset, into the end of the year.

atlantic council, a definitive effort. i cannot say enough because it is a wonderful walk-through of what we see. i want to talk about what john mentioned earlier that it is a global manufacturer and a select few saying it is un-american to export the stuff. discuss that as the adult in the room. >> i can understand where these people are coming from. first along, we did not have a crude oil export ban, but that is only a recent phenomenon. it started in the 70's, when we had the oil shot.

before that, america was a major supplier of energy to the world. american energy, you could essentially argue that they are responsible for winning world war ii for the allies. it is un-american to explore energy products with a shortsighted view of america. jonathan: determine of r.g. is concerned about gasoline. this is what was said in a letter to some of the energy players. hoping that they will proactively address the need or the administration will need to consider other emergency measures. how credible is that threat? >> if it is not a threat, i do not know what is a threat. pretty much saying, if you do

not stop exporting product that are commercially viable to transport, it is damaging to the market. they are an important participant in this market. we import products just like we export them. right now, the prices in europe for diesel, for natural gas and all different products are china. that is why you are seeing a lot of products in europe. russian products are no longer available. if you wanted to correct this, used --you could stop sanctioning russian experts.

we need to figure out where things can be improved. they could get video of the jones act or suspend the jones act to make it easier to transport diesel where diesel supply is very low. >> we could get into that. what is better is, figuring out if they will produce more natural gas or products. what do you feel, where prices are much more elevated than they have been in years? >> you would think that when prices are high that there is a much higher level of certainty for users to say, we are going to invest and produce more, but according to the survey of

energy producers in the region, a big part of that has to do with inflation and supply chain issues. many are finding that while they thought that their cost could go up, they are finding it is 25% or higher and it is hurting their ability. they are finding that this is very difficult. they do not know where they can find neighbor and other input in order to get this going. before, that timeline was much shorter. jonathan: what would happen if they curtailed the fuel?

>> the first thing that we would see is a major spike in the price of oil. they would ramp things up. such a high increase. almost the likes of what we have never seen. we probably would also see some issues in terms of wti. jonathan: thank you. i'm not sure that is the base case, but it is a risk. lisa: if she is going to send a letter like this to members of the gas community, saying you are issuing a threat.

lisa: why is she putting it out there? jonathan: when you said that the state department -- do you know about that? tom: politics. people get a form and we have to remember she is the former governor of michigan. jonathan: futures are down. this is bloomberg.

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>> getting inflation down to 4% is not getting the job done. >> inflationary pressures, both demand and supply. flex maybe inflation is peaking, but it is still way too high. >> they are set up to fail. jonathan: still shivering from sitting out in the field for five hours. i am jonathan ferro.

equities are down. the pushback is the fallout. tom: we were sitting there in the ice, looking at a modest market reaction. what an assessment as we went to get back. jonathan: the federal reserve with a similar message. even if economic growth looks weaker, but will it take to get inflation down? >> right now for those of you in america, this really matters. anything might be ecb.

jonathan: this one is closer to 10%? tom: but how do they try? jonathan: they are telling us that they will hike, even if they are in a recession. this is from the word. lisa: perhaps it is easier to talk to us and to do it. this is what we are seeing right now. basically saying that they need to follow it up with actions, even as they will have hiked rate in six months to give you a sense of the scope.

he laid it out in the beginning saying, i want this to be focused and clear. tom: not one but two officials stopped and said how much they agreed with the brevity of the speech. jonathan: a lot of the criticism came from the news conference. some issues were raised after that news conference. lisa: read between the lines. we will not back away. what about what they got wrong in the assumption? jonathan: it is not about the

past, it is about the present and the future. equity is softer and lower, negative. up by six basis points. ecb, not just considering a 50 basis point height. euro-dollar is firm. >> it is really shocking considering where they have been. fed vice chair is going to be delivering remark. a workshop in chicago. she will talk about what a chair jay powell said over the weekend. there is a lot of question about what the impact will be because there was a paper presented at the conference.

it will introduce a lot more the quiddity concern that people are not expecting. >> we will have to see. with their talk of the balance sheet anywhere? jonathan: i do not think they understand the consequence. i do not see how they could make a call to what it means for rate hikes. lisa: 10:30 a.m., we have the manufacturing activity for the month of august for this report, perhaps not one of the best data points that we are tracking, but perhaps a hint.

you have talked a lot about what this would mean if you see it slowing in the economy. continuing tightening in the face of weakness. lisa, thank you. let's start here. they are telling us that they will keep hiking rate in the face of weakness. do you believe them? >> to some degree. the fed might respond. they will continue to hike with some news, but they will not be over the top. they will have to backtrack. they had a perfect opportunity.

the reality is they will be data-dependent. tom: i have equities moving and bonds moving. record dollar strength. evening commodities giving some movement as well. >> i think jobs will be important. finally, we have qt starting to ramp up. it behaves very differently than rate hikes. it helps to inflate all asset prices. if that is what qt did and really pushed out asset prices, i think you will see the reverse of that. people are starting to realize

that there is a balance sheet production this year. it goes directly to asset prices. lisa: can we talk about that? talking about how this directly feeds to the leverage given to a lot of hedge funds and traders. it leads to a lot more volatility and potholes in variations. >> it will allow every other move down the risk curve. now maybe you can buy high-yield bonds. i think you are going to see a move. i think it will be difficult for high-yield leveraged loans. the main thing is to allow a

downshift. how liquid are these market? it is probably a very market. you go back to last summer when the fed fisted on doing qt and i can guarantee you that market liquidity with treasuries is way worse than it was last summer. jonathan: very uncomfortable with a comfortable consensus. this recession idea is something for next year, for 2023. everyone was lined up to stay the same thing. what do you make of that. >> i am not bearish about how the fed policy will be. i think we have turned the corner and i'm willing to bet that by december, we are complaining about problems in the economy, rather than inflation.

things are turning and rolling over. i do not like what i am seeing in housing. jonathan: he is essentially saying that we already made the turn. this is not just about the fed now. it could be worse the consensus that you hear so much of. tom: we have housing data coming out this week. but i do not have a handle on how housing and rent fits into some sort of slowdown. jonathan: we might have to wait a while. lisa: what happens while we are waiting. we start manipulating markets in this way and movements with the liquidity. do you get some sort of financial market disruption in a

way that is not what the fed is wanting to see? jonathan: that was the main takeaway. friday and through the weekend, and from the ecb as well. tom: what will save them -- i thought this was brilliant. it recapitulated what was said. you mentioned technology as being the separate feature. i think that the optimism is about technology. this is a huge, huge deal. elon musk is not involved and jeff bezos is not involved. what is involved is our collective memories. this is the new saturn five market and it is frozen on the runway right now. a blistering story of cracks in

the fuselage. it harkens back to the challenges for the space shuttle. right now there are -- they are really nervous engineers at cape canaveral. jonathan: futures down one percent on the s&p. it is nice to be back. this is bloomberg. >> keeping you up-to-date with news from around the world. threatening to delay the test flight of nasa's new rocket. it is set to lift off from kennedy space center. it will return to earth 42 days later. a u.s. navy warship is set to sail. strained relations between the u.s. and china.

the navy says they have a commitment. moving aggressively on covid. authorities are enforcing lockdown restrictions more intensively. elon musk says the world needs more oil. it is pushing to transition to renewable fuels. the ceo at tesla is not want to demonize fossil fuels. there must be a clear path to a sustainable energy future. a highly anticipated mixed reality set. apple is aiming to release next year. this is bloomberg. .

>> dino and a strong economy? it is high prices and millions of people out of work. i am worried that the fed will tip this economy into recession. jonathan: venmo --the democrat

from massachusetts. we will hear a lot more from that. good morning. i am jonathan ferro. futures are down. yields are higher. 3.10. your two year yield through the highs. the dollar is a little bit stronger this morning. yields on the periphery are falling hard this morning. tom: you wonder if we are going to get out. right now, we are going to look at the economist center of massachusetts. i'm kidding. she is truly expert at bankruptcy law. joining us now, bloomberg government in washington. this came the independence of

this fed. give us an idea of how independent this fed is in washington. >> it is notable that you are hearing pushback and can learn from a high-profile senator, but senator warren is not only representative of the progressive wing, but she has her concern, is vocal on monetary policy. if you are going to hear pushback from someone about rate hikes, it will --it will probably be senator elizabeth warren. you are not seeing the leadership align. it does not seem like you're seeing anything from the white house that would express frustration with them. maybe it is so quiet because it is the august recess. but right now, i do not think

that this is truly a huge amount of pushback. it is notable, but i would not say it is something that threatens the fed independence. tom: i have my own opinions and i will keep them out of it, but if we get to a slowdown, this is the opportunity. we have the economist and kentucky, the libertarian --they are on the same page. what will be the level? >> i think you might see more blame from the progressive wing. this lends itself easily to republicans blaming the biden administration and the stimulus. it would probably be the republican lying, beyond that. if you are seeing frustration

with the fed, it would spread beyond senator warren, but it would primarily and initially come from the progressives and it would be very notable if you hear it from leadership aligned democrats. i would suspect that they would continue to be much more focused on criticizing the biden administration rather than the fed. jonathan: the real test is the mandated conflict. inflation is still sticky, so how much do they support the fed? the higher employment is a price worth paying to get the price down. more than the likes of senator warren. lisa: at the same time you see

this idea that the fed could curtail the economy so much that it goes into recession, but if we start to see that and inflation is the high, what more can the administration in washington you, to bring down element, aside from looking at the demand side recession. >> there are theoretical solution, but it could flip a switch and and the war in ukraine or reduce the supply constraints tighten certainty around coronavirus and that sort of thing. that is something that senator warren got into. that is the progressive aligned critique, this kind of action by the fed does not specifically target the key supply constraint.

in a perfect world, you might hear more. there is a reason this is necessary in the first place. jonathan: some report say that the secretary, janet yellen herself did not agree with the decision. the first lady did not agree with the decision. >> i have seen a mix of reporting. i some of our own colleagues were putting that some of the progressives pushing for this had been pushing the first lady to get her on board. i'm not sure about the first lady's own opposition because senators wanted more for pell

grant recipients. there was a little bit of a mate. there was some hesitance from the secretary, but a lot of the conversation wise that something was going to happen so how high could they get that number? clearly, there was a lot of success because they got this from $10,000 to $20,000. they clearly had a victory there. jonathan: once again, an example of janet yellen being marginalized on a major issue. tom: it is almost a shock to see janet yellen and the zeitgeist over the student loan debate. but to be polite --i do not

really know what to make of it. jonathan: it has been a quiet one. lisa: a silent one. when the politics do not mesh correctly, is this possibly what we are seeing? wesley sure is are down right now. and behaving. i'm not saying too much. lisa: i am impressed. tom: you would not say that much either, if you are that old. -- cold. ♪

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jonathan: live from new york city this morning, good morning, it is feeling more like the middle of june. the s&p 500 on friday, the biggest one-day drop since the middle of june. on the nasdaq 100 at last month, the biggest drop since the middle of june. the equity market still about 10 percentage points higher than the middle of june but the two-year through june highs this morning. very close, the two year in and around the year highs at about 345, 344.77.

two-year on the 10, 7 basis points to three per 1098%. -- 3.1098%. mike mckee is here talking rather week ahead, the first have about the fed and the second all about earnings. a lot of move to the downside expecting. we will keep hiking into the week. the ecb goes one step further into the weekend. here is euro. the ecb and bolsonaro suggesting they have to keep doing this to get it lower. maybe a 75 basis point move, between 50 and 75, a report suggested we could have a conversation about qt. tom: the wharton energy, wanted

a disinflationary impulse in their -- the war on energy, i wanted a disinflationary impulse in there. jonathan: different from the energy story, too. tom: i want to start a conversation with jon ferro. 12 months in equity not as bad as the gloom out there. the nasdaq is a bear market, -20%. you made an observation that a bowl, like our next guest, on the same page as a somewhat there like michael. jonathan: they want the central bank to get control of inflation and get out of the way. most people have agreed for a long time they don't want a fed to have the presence they have of this market. a speech from a federal reserve chair. it tells you how much this market is still dependent on the federal reserve.

bears, bulls and every participant agrees they want to get away from this world. tom: kathy jones, publishing moments ago with charles schwab, she says it was not the gettysburg. did you have to memorize the gettysburg address in school? jonathan: different education, different country. we learned a little about lincoln. they called it the anti-private speech. i like that. let's get with bramo. lisa: good morning. we were talking about june and where we are in the equity market, the s&p is still 10% higher. the nasdaq 14% higher, a gain of 14% since june 16. how much do we get a reversal? some of that positioning is

getting perish into big tech names. you are seeing the head of the market open today, the loss continuing on friday. apple, microsoft, more than 1% led by apple. how much is this a dual issue of not only interest rates going up, they are moving at some of the forward earnings and valuations but also some of the semiconductor concerns percolated and reiterated by every executive on the earnings call? also watching a meme stock after jeremy siegel told bloomberg he sees a place, 10 to 15% allocation for meme stocks and the appropriate portfolios. coinbase tied to the whole crypto complex down 3.4%. how much does whiting interest rates remove the froth we saw, particularly from areas that have been hammered but have more to go? tom: we will see it with futures

security, no -42 on stx futures. the dow futures under 32,000. the vix is now down 20 points, morgan stanley, tickets inexperience, we recapitulate with john, chief investment strategist at oppenheimer asset management. thrilled to have you join us this morning. explain what you are not selling the phone call. go to cash. i have ever john that in my life. why do i not want to go to cash this morning? >> thanks for having me on the show today. we have been saying we think it is good the fed is doing what it is doing. it is going after inflation, it recognizes it is going to take longer as we look at it today. for the fed to put inflation in check. but the main thing is they are

doing it and without will likely do is kill off the speculative pockets like memes or multiple currencies, multiple cyber cured is exchanges that were created. at 1.i think we had more cyber currency vehicles than there were automobile companies at the beginning of the early 20th century. lisa: right now, you see if we take out some of these pockets of frost but we will leave the market fresh to rally a new. what will be the trigger? we have not seen quantitative tightening take hold and there is more to be done. john: i think you said it. it is a matter of a space on the timeline that needs to pass with the fed being active and addressing the benchmark and the balance sheet issues. but i think it is fairly determined here to put inflation

in check. i don't think it is aggressive in a negative sense. i think this is still the ben bernanke legacy. it is highly communicative. market participants on friday were selling and there is a combination of nervous investors, permit bears -- perma -bears, and some players who got buried in the rally from june 16 that brings up double-digit returns for five sectors from that point. they got hurt and now they are going short again. --profits without promo for them. lisa: i'm looking at the s&p target on your end at 3800. how do you prepare for the possibility of being wrong? john: you have to consider, we don't live and die by a target on the s&p 500. that is almost a game played by the media and the strategists.

it is serious because we talk about the direct for the fed and how wide it can go. but we are diversified across large caps, for in caps, small caps. your growth your value and growth right now, dividend stocks, and we are doing quite well. with the portfolios we manage under those. we have got to say there is a chance we could see 4800 if we go back and see a routing off of this -- rally off of this challenge. it is likely when you look at history, and republished regularly the maximum drawnout factors -- figures from market. two payments. stocks could go up, even if interest rates rise and there's concern over inflation. i got into this in 1983 but i have been through a bunch of

hikes. it is always rough and naysayers say the fed is going to fail. but i recall the s&p 500 was somewhere between 120 and 160. and friday, with all of the drama around closing 4057, i think monetary policy can be effective and has proven to be so even though it can be wrong. tom: it is important to note, it is so patient -- ancient the doubt was 158 points in 1953. jonathan: can you promise if we get to 4800 year end, you so good to call as a media gain and something you don't care about? we will say. come on. every single one of you puts the year outlook into the top narrative, the price target, the media gain. always great to catch up.

oppenheimer asset management. you need a bullish view because now, everyone is looking at this and a lot of people are thinking the same thing. you have a federal reserve that are going to hike into weakness. the adjustment on ranks already, something went 345 on the two-year in america. and mike wilson can tell you it is obvious what happens next. the seven ecb italian, we will have growth. it will get hammered and we will keep hiking with his you want to get inflation down. tom: you mentioned it earlier, both the bears and the bulls are looking to get corporate performance -- looking at corporate performance. earnings, revenues, will he be slow down? edge they have the cardinal rule, in every case, adapt and adapt rapidly.

as an aside, retail has the holidays coming up. jonathan: and with earnings happening, can you keep repeating that through the next couple of quarters given what the fed is about to do? lisa: especially retailers, i looked at a survey that talked about people spending less on goods during the holiday season. so some of them keep percolating out. what does the strong dollar do? i do wonder, we are seeing the dollar at the strongest level going back to 2002. how does that affect the multinational? jonathan: with jp morgan, year-end targets -- they are immediate now. lisa: that could be one explanation. we can discuss what will come out to be bullish. it is a media gain but it plays the media. jonathan: futures down .9% on

the nasdaq, from new york city, this is bloomberg. ♪ ritika: keeping you up-to-date with news from around the world with the first word, i'm ritika gupta. today is the test flight of the new moon rockets, but it could be delayed. issues were discovered during the operations. this is set to carry three test dummies on the mission. taking aim at the federal reserve plan to fight inflation. she says she is worried the central bank will tip the economy into a recession. juan says there is -- warren says there is some thing worse than this and that is high prices and millions of people out of work. we may be able to put millions of barrels of oil on the market almost immediately, estimated there is up to 93 million barrels stalled in the persian

gulf. this will perhaps lead to iran being able to sell oil globally again. california governor gavin newsom has a bill to keep the plant open, arguing for keeping pg&e operating because of closure in 2025 and as they transition away from fossil fuels. still, democrats in the legislature are skeptical. lg energysolutions will spend $4 billion to build a factory in the u.s.. they want to have many vehicles by 2040. location has not been decided, but ohio is a front runner. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> i think we need to move and we need to move methodically toward a restrictive stance. in my view, depending on the data, if we get to above 3.4 by year end, then we see. jonathan: the philadelphia fed, patrick harker this weekend. good morning, with lisa abramowicz and jonathan ferro, the s&p and the nasdaq down -- tenure up seven basis points, 3.11% on a two year, five basis points. coming in a bit earlier,

tom: bitcoin under $20,000, we have not been anything on that and we will see. the crypto show tomorrow, it will schedule an evening under $20,000. here is kriti gupta. kriti: the ripple effects when around the world. the chinese you want -- we are looking at the difference between the the juan -- let me give numbers to visualize what i'm trying to show you. the difference on an average day in the last six months or so is about 20 5/10, to the fourth decimal place.

that has gone as high as -120. we have to be consistently surprised what they're doing as we try to stabilize. the ripple effect goes to the japanese yen, the korean won, and you start to see the two largest economies diverge in the monetary policy. this could become a trade story for this. tom: there is a nuance of currency, depreciation and valuation. depreciation is a floating rate currency and valuation is a traditional fixed rate currency. china is in the middle. it has been a 14% appreciation or devaluation i'm going to call it, going back to 2014. and joining us now, our chief asia economics correspondent. is the system their normal

enough where beijing cares about chinese devaluation? or is it so removed in our totalitarian regime that is not normal economics. >> very much cares what the exchange rate does. in 2015, they allowed the market more room to move it around a little, but in the range, all the fundamentals like the moment suggests the currency should be weaker, but now what is happening is they are coming in and making sure they are putting it on the stability. on the one hand, they are often the want to import inflation. they have said china does not have a broad-based inflation at the moment, particularly with commodity prices. and it is all about disability, they don't want to accelerate, the market has already been happening at a rapid clip. to the point that was just made, the one -- you juan -- they are

not seeing the value that is important. stability, they have to see key trading partners in the region as well as that is among the factors. lisa: this is really complicated especially because we have seen a decades long monetary regime. its head in every which way, including the desire for a weaker currency to increase exports. but it is up for a stronger currency so you don't import that much inflation. how's it going to play out when this starts to affect the trade situation, less trade, less export from china. when does that become a conflict? enda: this is undoubtedly the big question. later in the year, if exports are stopping, will they tolerate

the yuan where it is, and this is a time of year when trade is expected to slow down. it has been one of the pillars of this recovery of the last few years. but they might see the authorities under pressure. the one weakening as well. -- yuan weakening. trade is a big part of that. lisa: we have also been talking about power outages, slowing down mid fracture output. that is coming back online but you are seeing around the rest of the nation, lockdowns be ensuing, like in beijing. they try to keep covid under control. at what point does this have a permanent effect on the world reputation of china and the structural changes of international companies? enda: notre dame had more perceptions and lockdowns, they

say the government is sticking with the covid zero policy, everybody else can stick with it, more perceptions in testing. shenzhen and hong kong, the world's biggest wholesale electricity markets, restrictions on the lockdown at the moment. economists are downgrading the forecast to china and 3.5% for the year. we just mentioned impact from extreme weather. exports expected to slow down and of course, ongoing covid zero. you might suggest, there is no return at all. there is the warning there's no returning. china might not allow a disaster ahead of that. jonathan: thank you, and economist on bloomberg, talking about a range of countries

including china. those expectations and projections have been lowered all the way out to the third quarter of next year. the number he mentioned, 3.5% is the median, down from 3.9. we mentioned the forecast from goldman and numeral a few times, but gold and something like 3%. gdp growth, numeral at 2.8% -- numeral -- nomura at 2.8%. lisa: some have said it is a political move more than economic because they don't want to be seen as bearish. the question is when two they get back to that level? and also being lowered, progressively through the year. it is concerning, not only for china but also global growth projections. jonathan: if it is good it probably isn't, and if it is bad it must be really bad. tom: as he said, maybe it is

more accurate than we care to believe. i don't know, but i do say the veracity of the data i just talked about, there was the suspect ntc that with stuff that doesn't even make the headlines. operations being bailed out by a company you and i have never heard of. jonathan: it is complex right now that these bigger stories don't even make it into the headlines. tom: it is true. what we have to fall back on is the data of bloomberg surveillance. jonathan: that's great. this is bloomberg. ♪

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>> somehow we have to find a manageable pathway down to a lower level of inflation. >> i think we are seeing the peak. and i think we can hopefully look forward to that. >> the people who are cb do not need the money.

the people who pay the interest rates are the former. >> we know constraints are outside of the purview of the fed, that is where the problem emerges. >> the amount of contraction we have seen shows there can be trouble ahead. announcer: this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning. jonathan ferro, lisa abramowicz and tom keene. jonathan ferro, it is not just stocks, it is bonds, currencies, oil, they move. jonathan: the dollar is the strongest going on the way back to 2002. the two year yield the highest since 2007. we i taking out the 2014 highs. two basis points away from having a little look at 350. tom: what is interesting is the calendar, we have got to get out. out is not to next jerome powell

press conference, it is to september 8, because europe matters to america. jonathan: the ecb, they have one priority, to get inflation down and they are willing to tolerate is low down in the economy. how much are they willing to tolerate that? i think they wanted to communicate their hurdle, the pause, it is a lot higher than you think it is. tom: 1939, 1912, whatever. how do you raise rates into a war? jonathan: how do you raise rates into a recession? tom: lisa, what did you read about this weekend that matters to you after jackson hole? lisa: the discrepancy is people who believe the economy can withstand a 4% interest rate for a longer time, for two or three years. then i think it is the ceiling right now between those, and i wonder how much john stoltz represents a more bullish tilt of yes, these companies can sustain it.

perhaps some of the ultimate corners of -- will get it now. and other say, no, this will be painful. there will be a downturn, and it will be difficult for some companies to stomach. tom: not that i can remember, but mr. bullard says frontload, what are we frontloading into if we see a sustained level for one to three years, as a number of people are talking about? jonathan: it is into the unknown. they are focused on one thing. jim bullard tried to push this, we asked about the longer-term neutral, that dot at the end of the dot plot. he does not even want to talk about it. we have to deal with what is in front of us right now. 8.5%. and rates are too low for many on the committee. tom: i am looking at the dollar. this is a really good set of math on em currencies with

record dollar strength. sterling, 1.17 exactly. this penalty -- the euro at .9996. jonathan: negative follow-through from friday into monday. equity futures are lower. negative on the nasdaq by 1.2%. the story of the equity market, it is much lower. bond market, higher and higher. we are fading a little bit from the highs this morning. but still higher by six basis points. i do not know what to do with the euro-dollar. we have got yields breaking out this morning. the ecb will discuss qt. the willy discuss a 75 basis point rate hike. it will send them into a recession, but they are willing to keep going. do you buy or sell? tom: what is interesting is the diffuse amount of a currency not against the major pair like the

euro-dollar, but the summation of euro check and on and on. all those micro movements will matter. jonathan: the checks of the rotating presidency of european -- this year, and they are trying to cali get together the energy crisis. it's not going away. and, i would suggest that what we heard over the weekend from the ecb governor is we might have to face the consequences of higher inflation for a lot longer, may be several years. that is a new conversation. tom: i agree. jonathan: this may not be a one year story, it might be a multiyear story. tom: let's get to our guest. she has been at the new york fed. she is qualified to talk to us. meghan swiber. where is your access, where are

you on the continuum of u.s. rates strategy? meghan: what i think we need to take in mind is jerome powell delivered this clear message that the fed is going to do what it takes to get inflation down, even if that means paying for businesses -- pain for businesses and households. we are expecting a wild recession to occur into next year. that is what the fed needs to do to basically get inflation back down. jonathan: back down to what, though? 2% with a amount of recession -- a mild recession? meghan: i think the fed needs to target that 2% level. as we heard jerome powell discussed last week, they are not looking at moving the inflation target. they will do whatever it takes to accomplish that. i think that the fed will likely keep liking until they really see progress being made here. and as we heard last week, they

are not looking at the recent cooling and inflation as anywhere near a victory. jonathan: with that in mind, as we see more about the appropriate time, getting back towards target, which is at me for how you push that vie through the curvew? meghan: what we see right now is the fed topping out between 3.5% to 3.75%, that means the two has more room to go higher, but it is the backend of the curve we need to see the markets price the risk of recession. of the fed ultimately moving back down at some point, once they have reached their expected inflation rate, once they have reached target. and they have moved unemployment along the -- be on longer run averages. ultimately, we think the fed will deliver cuts beginning in the second half of next year, but for right now the market is focused on where the terminal

rate is necessarily going to be. lisa: this is shocking because jay powell said we are not going to cut rates. we will hold rates at a high for a long time or for as long as it takes. how much can you have this conviction around the idea of rate cuts given the fed speak against that? meghan: part of why he has been pushing back on this and other members of the committee have as well, is because they are forecasting a soft landing. if you look at the dot plot from june, what you see is they are able to hold rates at that 4% level well through 2024. but that is because it comes with only a very modest move higher in the unemployment rate. that is a very optimistic picture. thinking that is all it will take to get inflation back down to target. lisa: but, and i apologize for

cutting you off, if we see a hard landing, a deep downturn that will eat the rate cuts by the second half of next year, does that mean inflation will also be back down or will it be the fed saying, we are not going to keep rates where they are? meghan: what we are envisioning is this mild recession does what is needed to cause inflation to move back down to target. think of the composition of the inflation basket. one one hand we see the improvement of supply chains putting downward pressure on goods, but it is really wage pressure keeping service elevated. we need to see the unemployment rate move higher. ultimately, we think that that will bring inflation back down to target. at that does not mean that the fed cannot cut with inflation modestly above target. that'because the fed iss going to get to a terminal rate, but still be aggressive, something

closer to 4%. that is well above their expectation of where that mutual read is. they can still have a modestly aggressive policy stance with the fed funds rate at 3% instead of 4%. jonathan: to be clear, you are not questioning the reaction function of the fed, you are questioning the forecast? meghan: yes, that is exactly right. so, what we see is the fed is expecting this very soft landing. we think that that will be hard for them to achieve. what we generally see is most fed hiking cycles and with something like a recession. taht is what we are -- that is what we are expecting this time. jonathan: 350 almost this morning, can you give is a number on what you think the upside is? meghan: we see it around 2.75 or so. tom: come on. 2.75? meghan: the fed funds rate, we

see it around 3.75. jonathan: the two-year as well? meghan: 3.5% or so. jonathan: very close. good to go through that. there is an important difference between questioning the reaction function communicated going into the weekend or just questioning the forecast. and think of america is just questioning the forecast. lisa: perhaps market is doing that as well because you are not seeing a huge reversal but you see something like, at one point can the fed get ahead of the narrative while also being behind on the projections of what the economic outlook will look like. jonathan: that is what was shared this morning. he thinks that weakness is right here and right now. lisa: although, especially with the unwind, it is unclear how quickly they can -- it. jonathan: we are down on the s&p. live from new york city with tom keene and lisa abramowicz, i am

jonathan ferro. more to come on the labor market in america. this is bloomberg. ♪ >> keeping you up-to-date with news from around the world, the schedule today with a new rocket could be delayed with and possible crack being discovered. they started and stopped the fueling of the rocket multiple times. a u.s. warship has gone through the taiwan strait for the first time since nancy pelosi visited the island. that trip led to chinese military exercises around taiwan. and china is moving aggressively on covid as a meeting of party leaders appointed authorities to enforce lockdown around beijing more intensively. mass tests in the engine.

elon musk became the richest person in large part to his electric car company, still at an energy conference he said he is not want to demonize fossil fuel. >> i do think we actually need more oil and gas at this time, not less. but simultaneously moving as fast as we can to a sustainable energy economy. >> he spoke as europe is grappling with its worst energy crisis in decades. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm ritika gupta. this is bloomberg. ♪

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>> inflation is extremely high, so there is unimaginable -- a level we are at unimaginable 18 months ago. we have to get that under control. that is our top priority. jonathan: that is the atlanta fed president speaking this past

friday. good morning, live on tv and radio with lisa abramowicz and tom keene. futures are lower. we have a little bit of an equity market sell off, down by a little more than 1% on the nasdaq 100. let's round this up for you. yield on a 10 year 3.1%. the euro is showing strength, slightly up on the currency pair. a 75 basis point rate hike is on the table. the process of qt being discussed as well. payrolls, as well, 300k is the estimate still, a little bit up from last week. tom: how do you have a recession with 300,000 units? i do not get it. jonathan: it is difficult to call that a recession. but people ask whether the labor

market is lacking? ultimately, will it spill into the labor market sometime soon. tom: we have been committed to economics and we are looking forward to giving the jackson home treatment to centro when they come around and portugal. at those, there are academics. we avoid them like the plague. but every once in a while we get lucky and we lasso in one of them. at jackson hole this year, francesco bianchi, johns hopkins professor of economics. stopped at traffic by saying fiscal economics. a 29 page paper loaded with math i do not understand. matrix algebra -- we cannot do that on tv but we can talk about the basics and policy prescription out of this. you say there can be a monetary led solution or a fiscal led solution. does the fed do a fiscal led

solution or is that the part of congress and of the president? francesco: right now i think the fed is committed to bringing inflation down. our paper shows the fed also needs cooperation from the fiscal authorities. we look back at the 1960's and 70's, and provide an argument that there was a physical phenomenon ultimately. a policy that combined with overspending and noncommitment to that stability. now the question the fed is asking is about moving interest rates up, so i question is if going forward we see the necessary fiscal adjustment to bring inflation down, that would be the fiscal solution. tom: what did you learn from -- you come from the neutrality of europe, of italy, costanza and portugal and the rest of them,

so you are the foreigner looking in at the debate. what have you learned about mmt in this crisis? francesco: i think what we have learned is fiscal policy can be extremely powerful. it arguably put a stop to the interest rate environment that we were in for 10 years. the risk of deflation, we forget where we were one year ago. the fed was concerned about deflation. we intervened with fiscal policy forcibly, and that led to the solution. it caused a big jump in inflation, arguably because it compounded with things like the pandemic, of course, the supply chain problems, the russian conflict, but ultimately fiscal policy proved to be a powerful mechanism. i think what we learned on the other hand is it discounts cost. the cost is inflation.

it's easy to do policy with the benefit of hindsight, but with the benefit of hindsight we went overboard. lisa: there is an implication here, it is not is what the response was it is the expectation in the consumer's my there will be more fiscal stimulus if there is another downturn, in that will lead to inflation expectations becoming unmarred. how much does that cramp the ability of policymakers to add fiscal stimulus in the face of a recession, mitigating downturn or going for the fiscal stimulus of the past few years and leading inflation that' beeen than in the past? francesco: what we want is to be able to use this powerful mechanism in recessions, but in order to do that we need to guarantee that in the medium run we are on a stable path. what that implies is when things

are good, when we do not need to provide fiscal stimulus, we should refrain from doing that. tom: one quick question, i want to go back to the courier paper, dsge, how can we trust this math? all the smart guys like you, the matthew are doing, has it been proven -- the math you are doing, has it been proven wrong? francesco: it is a way to formalize ideas. what we are discussing is something everybody can relate to. people had ideas, then came the math. it is a way to put it in order. i do not think that the models, the macro models have failed, if anything there are things we forgot about. tom: lisa, good news, i just got the car to take you to your

house to explain matrix algebra two lisa's kids. jonathan: thank you. fiscal policy and what it means for inflation expectations. i wonder what it means for europe. ultimately, we are looking for a fiscal policy to offset the pain. lisa: if you are looking at an inflation problem, and francisco's point is well taken, that it exacerbates this expectation that policymakers will jump to the solution to the rescue in the face of tribulation, it will allow inflation to go further up, even if it temporarily mitigates the pain. tom: i will push against that. i think there are so many unknowns now i really question the core mathematics of what we have seen from the professor. the uncertainty is out there. off of a natural pandemic -- they are huge. jonathan: the chief investment strategist over at cfra will

join us in a minute. on the nasdaq 100, down by a little more than 1%. we are feeding a little bit, off the lows in the equity market. off of the highs in the bond market. below where we were this morning on the 10 year. the euro is showing strength. euro-dollar is positive by half a percent. this is bloomberg. ♪

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jonathan: this is bloomberg surveillance. as the session grows older, things get better for the equity market. lower on the s&p. the nasdaq is down by not even one full percentage point. yields off of the highs as well. 3.09% right now. the euro-dollar is back to parity. 1.0016. sitting you up for payroll friday the latest estimate is 300k.

this is what citi is saying. whether the fed rate is 50 or 75 will depend on september 13. use car prices will wear on the core reading for other services will keep us expecting a 75 basis point increase. a debate on whether it will be 50 or 75. the message from jerome powell is bigger than that, we have a job to do. not backing away anytime soon. and even if we get weakness, we will keep on hiking. tom: let's do a ferguson counterfactual. why did the market move right away when jerome powell spoke? why did it take two or three hours for boone? jonathan: i do not know, you want me to explain things tick by tick? tom: i was surprised we did not see reaction right away from him. jonathan: we got it in the end. tom: features -32. the vix was up by two big

figures. i will not be gloomy and say we are on the vix 30 watch. we are lining up people with equity experience. that would be stan stovall. we thank him this morning. sam, as you think to a monday morning, what's your lead theme given the volatility? sam: that we end up retesting the june 16 low, but right now our belief is we do not set a lower low. right now, increased volatility in september.

but i think we will get through this ok. tom: the hallmark of your father's work and your work is corporate analysis. explain your confidence in margin resiliency in corporations until the end of the year and next year. sam: we are just beginning the final months of the third quarter, earnings estimates are affected to be about 4.3% this quarter, however six of the 11 sectors in the s&p are predicted to show declines. but when we look at the profit margins, they have held up exceptionally well in the second quarter. they were expected to be down by 5.3% and they were in line. so, we are expecting to see some continued whittling in profit margins, primarily as inflation remains sticky, as price hikes for inputs, etc., are felt by

corporations. the question will be what kind of damage will be done to earnings and profit margins as the year progresses? lisa: a key aspect is how the fed response, how much they tighten policy and confirm and act on the message that jay powell was sending on friday. how much did that shape your narrative, how bullish you can get? sam: we are expecting a 50 basis point increase in september, but knowing that there could be a coin toss depending on the data. maybe it will get revised to 75. but right now it is a 50 estimate for september, 25. the remaining meetings this year. it is important that the fed keep that higher fed funds rate through 2023, and possibly early into 24, as they want to make sure that they can strangle inflation. i would say that right now

momentum models are continuing to point to inflation led sectors like energy and materials, but also to defensive staples and utilities at the expense of the more growth areas of communication services, consumer discretionary and tech. lisa: you are buying energy equities, is that what i am hearing? interesting given what we're are hearing from goldman right now. sam: we have to look to the energy stocks for a couple reasons. one, they still offer a nice dividend yield. but more important is if you look to the absolute pe ratio versus long-term history, the s&p 500 energy sector is trading at a more than 50% discount. when you look to a relative pe ratio the numbers look the same, so unless you think that energy is going to just stop being of interest, i think that there is still a long-term opportunity. lisa: on the one hand you have the people who say that energy

structurally will be a winner, just longer based on supply and demand. if you believe in a recession, on the other, you think that the equity markets will penalize oil. that is what we have seen over the past few weeks. does, that matter the idea that the -- that things are slowing naturally because of inflation and it will be bad for energy prices? sam: the closer we get to a recession, and if you look going back to world war ii, every time the year on year percent change and cpi exceeded 6.5%, we had both a bear market and recession. and while the bear markets ended up being deeper on average when it was accompanied by a recession, not all of those bear markets ended up being 30% plus. so, looking at depth of the recession, our economists are basically saying it would end up being shallow, and as a result

probably not have the kind of disruptive demand aspect towards energy as one might expect. tom: there was a chart out this weekend that reminded me of your legendary father and john mackey of the 1940's, the collapse of rca of 1929. every generation has an rca. are we so arrogant that we feel this time is different? sam: no, whether it is penn central, drexel burnham, etc., or bear stearns in 2008, there usually is a collapse that ends up signaling a lapse bell to the bear market. we have yet to see that and i think it is something we probably will see. maybe it is an international bank, who knows what kind of company it might be, or something closer to the 21st century where it was something more crypto related.

we have yet to see that. tom: we are not talking crypto this morning, it is under 27,000. sam stovall, give us an update on the efficacy of a 60-40 portfolio. sam: i think 60-40 is still something to be focusing on. yes, this is a rare situation in which you have bonds a down by 27%, the s&p off by 24%, but bonds offer balance. and they go back -- and if you go back in years, every time we had a sharp selloff one year we ended up with double-digit returns the second year. they snapback clean. jonathan: thank you. let's get you up to speed on the latest. they where santos and a rocket -- nasa was going to send a rocket around a moon, but they have found some issues. and the latest is they had to

call off the rocket launch for the moon orbits has flight. tom: i was not surprised. i was thunderstruck by an particle out two hours ago by the associated press. not to get into a science exercise, but this is hyper complex. the structure of this is totally different. and what is key's do have solid fuel down below. let's leave it at that. and up top you have supposedly super liquid hydrogen, liquid oxygen, except one of the pipes has a crack. and that harkens back to other disasters. i expected this. this thing has been trouble from day one. like, you know surveillance runs like a swiss watch -- i mean. jonathan: i am sure it runs just like nasa. tom: but nasa does not run like a swiss watch. jonathan: [laughter] i am saying we are not efficient astronauts, as they must be. tom: when will it launch?

who knows. lisa: there is a bigger issue that goes towards policy, and that this is a public endeavor. it is not elon musk or jeff bezos. but i think this is important, this is a federally backed mission to the moon. and trying to get it back up and running with space exploration and it speaks for a pollution for space investment on a national scale. jonathan: it is a small setback this morning. nasa is investigating a potential crack as a temperature issue with one of the main engines. as they grapple with that, they have scrapped the launch. the s&p 500 is down by three quarters of 1%. the nasdaq 100, down 8/10 of 1%. yields are higher by five basis points. the equity market is off of its lows this morning and bond

market is off of its highs. lisa: how much are we going to shift in tone after friday? why was the reaction delayed? what were people reading into that eight minute speech as they wind over the words? jonathan: perhaps -- the more i read it, the more i read it the more it was a direct attack on this moment we are in and pushback against criticism. maybe some mistakes made in the news conference. i think we can say that. line up the lines. he was reacting against the idea that if they see weakness they will pause. none of that in there at all. tom: there's a moment that harkens back to the heritage of england, and that is tennis. serena at 7:00 p.m. tonight -- just historic. jonathan: i was lucky to watch

her on opening night years ago, it was very cool. has anybody tried to buy tickets for the u.s. open? i was shocked by how expensive they are. the same tickets i got last summer have doubled for this same weekend, which is absurd. tom: i will have to make a call. jonathan: i am not going unless the tickets come down. and this is the secondary market, which is difficult. lisa: are you pleading for someone to? jonathan: i would not accept that at all. i was looking in the secondary market and they have doubled. we are not going this year, guys. futures are off of their those. this is bloomberg. ♪ >> keeping you up-to-date with news from around the world. goldman sachs says buy now and

worry about the recession later. analysts say declines in from materials offer a great entry point. they see the risk-averse session outside of the next year as relatively low. governor gavin newsom has introduced a bill to keep the last nuclear plant in california open. he argues by keeping it operating is needed as the state transitions away from fossil fuels. his fellow democrats are skeptical. and honda and lg energy solution will spend $4.4 billion to build a battery factory in the u.s. the japanese carmaker wants to phase out fossil fuel vehicles by 2040. the location has not been decided. ohio is reported to be a front runner. and the rocket launch, nasa's new moon rocket launch has been scrubbed, as they focus on a problem with one of the four

main engines. the countdown clock was stopped at 40 minutes before a potential launch. the mission will be carrying three test dummies on a three-week mission. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪ how will your business adapt to change?

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tom: good morning. this is "bloomberg surveillance." breaking news out of europe, we are watching the ecb, but this is a bond or lien saying do something -- bond or lien saying do something. translate. lisa: it is a european project coming together, the european union preparing the power market for an emergency intervention. this is by ursula von der leyen at a meeting today. an how muchd does it read through into specifications at that we do not yet know,

including the removal of certain emissions caps, and also a regulation, a little but more on how prices could go. tom: we celebrate now. we do this in washington, whether conservative or liberal, we celebrate somebody in the senate who is doing the right thing. senator patrick just of late he is retiring with his full abilities and 82 years old, retiring with a wonderful memoir for all. a memoir of senator patrick lahey. we welcome the former dj from st. michael's college, patrick leahy. senator, i want to cut to the chase. the liberals of your youth, stu jackson of washington, hhh of minnesota, and a young lahey substituted for the new progressives. what do the new progressive need to learn from the liberal theology that you lived? sen. leahy: i think they have to

learn that you can talk about doing things or you can do it. tom: yep. sen. leahy: accomplishing legislation is more difficult. it requires you to stop talking, except with each other, and work out -- try to pass things. you go back to lyndon johnson. he had a number of senators wh supported segregationo. he brought people together and it required hard work. jackson did the same thing. they would bring in republicans and work with them and get it done. i worry that, and i appreciate a number of things the so-called progressives stand for on

climate control and education, and all, but it is one thing to talk about it, it is another thing to accomplish it. in a lot of these things, you have to settle for 85% this year with legislation. get that other 15% next year. it is never an all or nothing game. lisa: do think president biden is the right person to lead that effort post 2024? sen. leahy: well, he has done a lot of great legislation -- gotten a lot passed. he's lowered the deficit in many ways. and, most importantly, he brought us back into the world of nations. look at the animosity that donald trump hasn't shown towards nato and other countries

in his favoritism of russia. and with the joe biden, you have a clear view of what russia is like. with ukraine, he brought our european allies together in a way we have not seen in decades. and i know that totally surprised the vladimir putin. but it also showed at the united states was back in a leadership role. lisa: but people speculate that perhaps he should not be the person to run again for 2024, specifically because of the fact he is older and does not have the same enthusiasm. do you agree? do you think it is time for new leadership? sen. leahy: i think of joe biden wants to run again, i will support him. that is a decision only he can make. the same i i have people urging me to run again in vermont, but it is a six-year term and i have things i want to

do and still do, so i am retiring. probably at the top of my influence in the senate. but joe biden will have to make that decision himself. i cannot think of anybody, any people who have ran, including the former president, who could have brought nato together the way that he did. and could have gotten some of the legislation we've passed, everything from covid to child nutrition. i mean, name it. i do not think anybody else could have done it the way that he did. tom: we are out of time, but i urge you to speak again to bloomberg about "the road taken." it is extraordinary. i cannot say enough about how it is about a liberal from another time and place. senator leahy, it is too bad we

had to cut this off. we have a surging euro off of the headlines in brussels. lisa: headlines about the european union working together to restructure their electricity grid in europe. that is the goal laid out by ursula von der leyen. and we are getting comments out of germany saying that they are looking at dampening electric prices. just how important it is for cohesion around europe. and it is giving a lift to the euro. tom: also a rebound -- rather the yield decline in the german two year reverses with more enthusiasm. lisa: we should add, the euro surge is now above clarity. we now have above one versus the dollar. natural gas prices are plunging by 20% in the european project today, as a result of german

stockpiles that where more than expected. how much it gives them steam. tom: we can do the off of the bloomberg, that is what we are trying to do. netherlands net gas, which is a little dated -- we are a little bit off of the peaks here. but we will see how that devolves. what we know for certain is europe of matters. we have been to jackson hole, many articles written about the importance of the visitors there from europe,and we will do all we can with the jobs report on friday. and then onto that critical ecb meeting. futures are at -34. stay with us. this is bloomberg. ♪ >> welcome back to a special u.s. open update from bloomberg tv and radio from tennis channel. the 142n edition of the u.s.

is kicking off. serena williams will take center stage as she takes on her opponent. her tournament is ending at flushing meadows. you can guarantee there will be if house to watch what could be the legend's last match and honor her legacy. cookoff is also in action on monday -- this will be the second match of the day on arthur ash. all eyes will be on or off on a doll as he looks to extend his lead in the all-time list at the slam. at the spaniard is looking for his 23rd major crown in the big apple. do not forget, tennis channel live at the u.s. open hits the air daily at 9:00 a.m. eastern. ♪

jonathan: live from new york city this morning. the countdown to the up and starts right now. >> everything you need to get set for the start of u.s. trading. this is bloomberg the open with jonathan ferro. jonathan: live from new york city, we began. market routes