i thought he did an excellent job. the content was measured. it was solemn yet lively as well. very good. romaine: we thank you for your time and sharing those anecdotes . charles. we will continue our coverage here on bloomberg television. special coverage of what is happening in the u.k. we will be back to the markets in the u.s. before that, joe mathieu was standing by. ♪ joe: the ukrainian counteroffensive is progressing in the north. less so in the southern region. officials and russian military bloggers are saying the push in

the north has been surprising in its speed as russia ratchets of pressure on european energy markets. racing to show allies the work can be wo. -- won. -- getting the price of natural gas under control. calling for a mandatory reduction in demand so far. >> the reduction targets. this is a smart way forward. by reducing consumption in the most extensive hours. joe: not much details. the real fight starts next week when the ec president says out concrete measures for legislation. in the u.s., the national september 11 memorial museum

will observe the 21st anniversary of 9/11 with a commemoration ceremony this weekend on sunday. it will honor the 2983 men, women and children killed in the attacks at the world trade center, the pentagon, a board flight 93 and those killed on the ferry 26, 1993 world trade center bombing. 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 am joe mathieu. this is bloomberg. romaine: this is bloomberg markets: the close. a little after 1:30 in new york. we are keeping an eye on what's going on with u.s. markets. rallying in the u.s. with the s&p 500 up on the date. it opened higher. barring major change here, it

will probably close higher. the first time we have seen a wire to since august 25. oil getting a reprieve with brent crude around $92 a barrel. the british pound, 115.91. the japanese yen clawing its way back. right around 142.59. taylor: blink and you missed it. the front end is up, 1.3557. the highest since 2007. we are seeing a boost in yields on the front end of the yield curve in the u.s. this is the one-year. just a massive rate of change we have had off the depths of the lows earlier in january. caroline, we will go across assets. where we are in terms of valuations, this is part of the

forward p/e ratio. we are finally around the 10-year average when we think of how stocks are being valued on another decent day of a big rally at 1.5% to 2% gain. caroline: we are looking at the direction of travel, all risk assets on the high side. what is happening over in the u.k., interestingly, the bank of england delayed its interest rate decision by a week to allow for the period of mourning. the announcement will now come on september 22. joining us now, michael mckee. the fact we have pushed back, does this change the viewpoint on if it is 50 basis points, 75 basis points? it has a little more data gathering mode and closer to the

mini budget from the chancellor of the exchequer. michael: it will hardly change with the think of england has to do. inflation pressures are so great. even though we are heading into recession, you look at where the inflation is now, 10.1%. it is forecasted to go higher in 2023. goldman sachs says i can go to 22%. the bank will have to do a lot of work to bring that down. the forecast is in the markets, leaning towards 75 basis points. and continue rising to 4% or more by the time they finish their work in march. romaine: that's the interesting thing about what the bank of england said in the ecb as well. while in the u.s. we are talking about inflation, the general xbase vision -- expectations will rise because of energy costs. michael: a much bigger issue for the u.k.

it is right there and gets energy from europe and because they are getting the blowback from the ukraine more. trade gets interrupted. for the united kingdom, it is a worse problem than it is for the federal reserve. taylor: let's talk about the federal reserve. we were looking at the breakevens, they started to come down pretty much all the way across the curve. we were speaking with guests yesterday thinking maybe the market was getting ahead of itself. the market is driven by the headlines versus the core. do you believe the breakevens on what they are telling us? michael: i don't think it became unanchored. the fed has enough credibility that within a certain range people have trust in the fed to do what needs to be done to bring down inflation over the course of the next year or so. the issue has been, does

inflation take off for reasons the fed cannot control? two energy prices go back up? now it is looking like they are not going to. it feeds that. officials have been very clear. they are going to keep pushing rates up. they are all leaning towards 75 in september. i am sure that is what we will end up with. romaine: we heard from charles evans yesterday. bloomberg's michael mckee all over the central bank policy across the world. we want to continue this conversation and put it into the context of the fixed income space. jim keenan is joining us now along side: barton -- collin barton. jim, it's been a relatively busy be globally for a lot of sales

and activity with regard to investor repositioning. is this something people are trying to front run? jim: we are certainly busy. the new norm is a lot of volatility. there's an enormous about of uncertainty in the market in how the transition will go. it's a complete tug-of-war between a level of inflation or the direction of inflation, corresponding policy and what that means for growth. it will be something the markets will have to grapple with over the next year. i would expect a high level of volatility. as the market starts to foresee some shift in policy or a data point that could project that out there will be a lot of repositioning in a thin market.

in august, we saw a lot of the risk -- de-risking in that space. caroline: pushing us forward, i'm looking at a 10-year yield down two basis points but pressurizing in the yield curve on the front end. i'm interested in your perspective on the longer-term yields if we have peaked or not. collin: we do think they have peaked. when we saw the 10-year treasury yield at 3.5% in june, we thought that was the peak for the cycle. they could reverse the recent trend of little bit. it has been rising over the past month. maybe it retests that 3.5% area. we think the upside is limited. when the fed hikes rates, that should bring inflation down. we are starting to see and hopefully continue to see that. that's close growth.

we don't think the fed is going to be able to get much higher than with the markets are pricing in right now. . they are pricing in around 4% and are breaking in cuts. that is in line with seeing the 10-year treasury yield at the 3.3% or three point percent level we have seen lately. we don't see it rising much from here. we are telling clients to take advantage of these yields. we have not had much yield for the past handful of years but here they are at the highest levels we have seen since the end of the financial crisis. given the lack of upside potential we think it makes sense to move out a little on the yield curve and not waiting for the fed to hike. taylor: what do real yields mean to you? jim: i agree with collin's point.

i think you are going to continue to seek good financial conditions tightening. as well across the overall market. i think you will start to run the risk in a more recessionary environment or stagflationary environment. i think you will see an inverted curve. i think evelyn verse -- the universal happen over time. -- inverse will happen over time. i think it will rinse over the next year or so and ability to have a more diversified income portfolio. the last several years people have avoided duration and every aspect. as you see the curve steepen, or the new level of the yield curve, there are opportunities across investment grade.

as you see the repricing of spread risks and think the high-yield markets look attractive in the next year. romaine: expand on that with folks being more ready to embrace duration. is it a geographical disparity baked into that as well? collin: we think it does make sense to take on a little interest rate risk for your portfolio there. you can get higher yields compared to most other parts of the world. that has been the case for a while now. most central banks are tightening policy. we are seeing global yields rise. the u.s. has an advantage. one thing we are focusing on is that real yields market which we think is relatively attractive. you are talking about breakeven rates being relatively well anchored right now. yes, inflation is high.

expectations are for inflation to come down. you don't see too many forecasts of inflation coming down to 2% or 2.5% in the next 12 months. energy is clearly a wildcard. if energy prices continue to fall, that can be a drag on headline cpi. there is still a lot of inflationary pressures i -- and maybe settled in the 3% to 5% area. it's attractive for investors who are worried about inflation being high. real yields negative across the curve in on whatever inflation compensation you get. we think it looks relatively attractive today. taylor: i would lifted pivot to cutie and -- qt and if it is working. the whole thing is not running as fast as maybe they otherwise would. we are nowhere near that peak

qt, about $95 billion a month. are you worried qt is not working? collin: i would say that a little differently. the fed has pivoted and will use all aspects to try to get inflation back to the normalized level. between hiking rates and quantitative pricing, we are in an inflationary environment. those will be me means by which they use all measures to get back to a normalized rate. you will continue to see financial conditions tightening. you are seeing that with the yields back up and the credit markets, the mortgage markets. all of the above will be part of the fed's toolkit over the next six to 12 months. taylor: we did not get a full 30 minutes of real yield in, but we try to get two of our most

esteemed guests. that will be good enough. we appreciate both of your time. jim keenan and collin martin. we will talk about the qt, the global central banks as well. another significant rate hike this month, along with the st. louis fed president jim bullard. he said i support a significant increase at the next meeting on september 20. think of the policy rate to a setting that is clearly restricting demand. joining us now diana swonk. such a pleasure to have you here. what does that restrictive territory look like to you? diana: the fed things it is about where they are at today. they think we are close to neutral. we can debate that. they want to see more of a slowdown that we are already seeing. it looks like growth in the third quarter is less than 1%.

this is the fed trying to engineer potential growth with a rising in the on appointment right. how high for how long? they want to do a mild prolonged slowdown with a rising unemployment rate, a.k.a. ever session and whether -- a recession. the point is to grind inflation down slowly. moving from 6% to 4% inflation, that is not hard to get. 4% inflation to 2% inflation is where the heavy lifting comes. that is hard for the fed. i love mike mckee. i actually think the federal reserve is at stake right now. this is part of powell's legacy in terms of being tough on inflation now. romaine: that is what i am curious about when you talk about going from 4% to 2%. there are a lot of days the fed

could have settled for a 4% and hoped maybe normal economic cycles takes care of the risk. do you think the fed has that luxury? do you think they would be willing to maybe pause and wait and see or continue to push this? diana: i think they will go to 4% and hold, and then they will see if they need to do more and watch how it comes. no, they will not settle for a higher rate of inflation now. that came up at the jackson hole training. jason thurman had a qualified answer about how maybe we could start with a higher rate of inflation. not now. this could unanchor inflation expectations. now is not the time for the fed to say we will settle and stop short. that is not good enough for a

for combating inflation and their credibility. caroline: talk about the data they are depending on until the run-up for the next meeting. we do get a cpi print. should we anticipate any shock and awe? diana: you can see a very weak inflation because of this drop in energy prices. we will see a negative print in terms of month-to-month moves and below 8%. that is not enough for the federal reserve. what matters is what going on in core. they are looking at the labor market, even as firms said their demand was softening they were still hiring because they had staffing shortages they have not filled. that is the challenge the fed faces. the labor market has long legs and some tailwind at a time when you want to be slowing down demand dramatically. that hard to get to the 4% to the non-distortionary rate of

inflation. the strength of the dollar si exporting -- is exporting financials abroad. forward banks are having to raise the rates more. we are about to find out how many sins an ultra low rate environment actually takes over. we could see financial fragility and the fed's worst nightmare is if they have to do a u-turn. we have a larger credit market before we have inflation to be a nonissue. that sets the stage for stopping their profits and maybe stoking a much longer inflation. taylor: can you comment on the balance sheet? why we can't seem to get to that maxed upper limit. there is some wonky math that

may be causing some of that. why aren't we getting more maxed rolloff? diana: it is that. what's important is the new york fed trading desk. they are looking to hit those targets. we will get to those targets. we will see how we get there but they will not sell assets. that is part of -- even though they are doing quantitative tightening, they wanted to be in the background and predictable. if they cannot make their targets, that's another load to their credibility. that is a blow to the legacy powell has at the federal reserve and that's very important. that is what they want. they want to be consistent and they want it to work right. they are very committed to getting it to where they need to be by the end of the month. it will be interesting to see what that actually means. romaine: we have a few more

economic data points for we get to the next fed meeting. there's been focus on consumer spending and how resilient it has been, the back-and-forth between goods and services here. it's expected to be flat. is there a way consumer spending can hold up in the rate hikes and the aftereffects of it? diana: what's important is we know we are losing ground. we had overshot and we did better to set the new trend above the previous trend. on the good side you have everything from the housing market, which is in a recession, now working in reverse. that will trigger additional spending and everything from vehicles to housing remodeling, appliances, furniture. all of that showing up in the reverse now as the housing market is priced out.

that will undercut inflation. the interesting part is pent up demand. we cannot make up for holiday parties ever canceled. even though services is strong, services spending is not back to the previous trends we were at pre-pandemic. you will see very deep consumer spending but the reeling consumer spending is another step. that will be what is tough for the fed. how to get to the next step on have employment relatively robust. caroline: diana swonk, always great to get the devil in the details with you. stay well. more coming up. we will be returning from buckingham palace we heard from king charles iii amid the royal family as they wait for the queen's passing. this is bloomberg. ♪

caroline: we returned to the united kingdom. the world continues to mourn the loss of queen elizabeth ii, but welcomes the new reign of king charles iii. just having his first speech to his nation, the 14 members of the round of the commonwealth. speaking to the country where he is now monarch, but continues to mourn the death of his mother. >> they were touching words, caroline. thanking his darling mama. a speech he has had a long time to prepare for. emphasizing the continuity in his own commitment with loyalty, respect and with those values.

calling a deliberate parallel with his mother's commitment as a young queen to dedicate her life to service. also for sizing his commitment not just to britain but to the commonwealth, because as well as being king he is head of the commonwealth. something the queen had agreed in 2018. notably there are parts of the commonwealth that have republican sentiment. he emphasized changes he intends to make from becoming answer whales to the king -- prince of wales to the king. he has to have a different relationship with charities and issues he's been passionate about. he acknowledges the need to be neutral in his new role. he has not always been shy about his views. i would note before the speech he was out in the public, shaking hands with the public. a very deliberate acknowledgment

of the need to share in the public's grief. caroline: thank you so much for staying late again. lizzy burden. from new york, this is bloomberg. ♪

joe: here's the first word. king charles iii delivered his first address to the united kingdom and the nation. he paid tribute to his mother's queen elizabeth ii legacy and vowed to continue her service to the country. >> queen elizabeth's was a life well lived, the promise of destiny cap. he is mourned most deeply in her passing. that promise of lifelong service i renewed to all today. joe: he also expressed his love for princes william and harry.