>> this is a period where could be difficult for the fed does sound anything other than hawkish. >> they're going to have to thread the needle away from the ledge. >> they do not want to intentionally cause a recession and getting to that will require luck. >> despite recession risk rising, they want to continue. >> inflation is so extreme. you have to hike. announcer: this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa abramowicz. jonathan: good to be back.

live from new york city, for the audience worldwide, good morning. this is "bloomberg surveillance ." alongside lisa abramowicz, on jonathan ferro. futures down 9/10 on the s&p. lisa: this ahead from the federal reserve and a dozen other central banks within 24 hours. they will raise rates 500 basis points and people are trying to price and what that means. jonathan: equities down, the two-year advancing for an eighth consecutive session. the 10-year through 350. how many guests came on the last couple of months and said it was a june high? now we have a september high. lisa: this raises the question, how can buyers come back in? or is there a reset of how high inflation will stay because central banks do not want to experience the pain required to get inflation back down to 2%?

we expect more discussions about this. questions about what 4.5% fed funds rates means for the economy. jonathan: i found a glimmer of hope for wells fargo with chris harvey. he said, the decelerating path by the market and ourselves is expected to be a near-term positive. how many people share that view? will be actually get the decelerating approach? at the moment, it is 75 and 75 again in november. lisa: if you look at where they have put things, there is deceleration and a pivot next year. perhaps not as aggressive as people thought. what is not understood, and this is what i am thinking a lot about, it is not understood what kind of economic pain 4% to 4.5% will incur. that is the question. if it incurs a lot of pain, what does that mean in terms of what

you expect with equity valuations? jonathan: simple question for wednesday. will the forecast from the federal reserve capture that pain? will capture the risk of hard landing? lisa: if it doesn't, what does that say about credibility? jonathan: how many guests have called them aspirations? [laughter] jonathan: former vice chair rich clarida, we are all looking forward to that. futures down 9/10 of 1% on the s&p 500. yields higher four or five basis points. the 10-year briefly 350. the euro-dollar down, negative at this point. lisa: very much dollar strength. a big question is, how concerned is the rest of the world about that? leading to importing inflation. here is what we are watching. more pageantry out of the u.k. and housing data this week.

it is a massive week. the united nations general assembly will meet in new york. president biden will go from london to washington and then to new york. expect a lot of gridlock but also discussion of the new world order we keep talking about with china and russia in the western states. on wednesday, this is the main issue. fed rate decision and rate decisions from another dozen banks in 24 hours. this is something i am not understanding. what is the joint of fact of all of this hiking? we are talking about the global easing cycle. how you put that in reverse when people are talking about excess liquidity? at 12:00 p.m. on thursday, janet yellen will be making some testimony. people are concerned about what she is going to say about the irs. also, digital dollars, big topic of discussion. i am curious what she has to say about inflation given her mea

culpas about transitory. jonathan: and the focus on the u.k. in a very different way. back to reality for the conservative prime minister, liz truss. we get a bank of england decision and staring down the barrel of $113 on sterling. lisa: look at the fx market is already weighing in. it was not great for great britain. jonathan: mike mckee joins us in new york. let's start with the fed. 75 or 100? how unusual would it be to follow up with 100 given they have not signaled that? mike: it would be virtually unprecedented. you have to go back to the paul volcker years. they have gone as much as 400 and one meeting during the volcker years. we are nowhere near that.

if you got 100, it would shock people in the markets and there would be a knee-jerk reaction the fed does not want to risk. variable lags. they do not know when that is going to hit the economy. they would rather be more cautious than 100. not that 75 is mild by any means. lisa: how much discussion is there in your federal reserve circles about the disproportionate effect of rate hikes on lower income individuals? they used to be more concerned about the varying effects. now it seems that one mandate and that is to get inflation down at the expense of anything else. is that really what the discussions are like? mike: essentially. they have been concerned in recent years more publicly with people in the lower income strata, but they also feel inflation is a big tax on those people. more so than wealthy people with big bank accounts. getting inflation down is a good move for people in the lower

income strata. there will be job losses, but they think the job losses can be contained because there are a lot of openings. their focus is going to stay on inflation. jonathan: mike mckee, thank you. covering all the central bank decisions this week. 350 on the 10 year briefly. the yields up for basis points. -- four basis points. joining us as david stubbs of jp morgan. give me one good reason to be bullish right now. david: if you're going to make the bullish case and look at the resilience of your domestic consumer spending for the western world, you're also going to look at how much tightening has been priced in and expectations of recession broadening across wall street. bullish would be a soft landing,

a soggy economy next year, but one that avoids recession and a cool down in earnings. lisa: that is not an endorsement of risk asset. i wonder, there is an alternative and it is cash, it is short-term instruments yielding something on inflation-adjusted terms for the first time in a long time. is there any justification not to just hide in some of these instruments, collect the income, and wait for a clear entry? david: we are absolutely recommending parts of the fixed income universe at this point. a lot of value is being created for the short and long end. the 10 year is at 350. we see a lot of value. there is plenty of ways to meet your financial goals if you want

single digit returns without taking equity risk. that is the first time you can say that in a long time given the era we have been through on interest rates. but also, you really see some value be created in the structural changes that we see in the economy going forward. clean energy, fintech, some tremendous value in the themes that are going to be huge drivers. lisa: i want you to elaborate. you said you would be buyers of 10 year treasuries at 3.5%. do you think this is the new peak and they cannot continue to lose more value, yields up further? david: no, we would never say that definitively. part of the fixed income space right now -- if we do go into recession next year, we

would expect bond yields to follow. there is absolutely not a risk free trade but a lot of our clients had very short duration. clients have been waiting to leg into better yields over the longer term. here they are. i think for the right portfolio looking for that stable return, this is now an option as they had not been in the previous decade. jonathan: david stubbs of jp morgan. that positive correlation between equities is pretty toxic. the curve is 4%. lisa: how much more can you actually see yields rise on the front end if you have 4%, 4.5% fund rates? almost baked into expectations

if you look at the futures trading. what is that mean for the curve inversion? does that mean it widens to record levels? people keep piling into the tenure treasuries. but longer-term, this confers pain expressed in lower inflation, lower growth the next 10 years. jonathan: this was written about over the weekend. in a rate hiking cycle around the midterms, we would be having a conversation about the fed sitting out. that is not the conversation this time. lisa: do you think if they cared about the midterm elections that anyone would say it remotely connected to the federal reserve? they will stay away from that because that is toxic. they are not politically motivated. [crosstalk] [laughter] jonathan: futures down 8/10 of

1%. live from new york, this is bloomberg. ♪ >> keeping you up-to-date with news from around the world. leaders gathered in london for the funeral of queen elizabeth ii. more than 2000 attended the ceremony in westminster abbey for the longest-serving monarch. over the last four days hundreds of thousands of people lined up for hours to pay their final respects. president biden says u.s. forces would defend taiwan if there were an unprecedented attack. it was the administration's latest pledge of support as they seek to deter china from increasing military pressure on taiwan. the president was interviewed for "60 minutes." president volodymyr zelenskyy has pledged to retake all russian-controlled territory after the recent advances.

he hinted another offensive is being planned. ukraine claims some russian military units suffered loss rates up to 90% in their retreat. in hong kong, local media reports the city may end hotel quarantine and free covid tests for incoming travelers. that would be the most significant move yet, and more than two years after global isolation. changes may come before a series of major international events that start for hong kong in late october. volkswagen wants to raise $9.4 billion from the ipo of carmaker porsche. it would be europe's largest listing in over a decade. vw is seeking a valuation of $75 billion. that is below an earlier top end goal of $85 billion. 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 am lisa mateo.

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>> we have got a substantial underlying inflation problem. that does not come out without very substantial monetary policy adjustment and the market is waking up to that fact. it is now building in substantially more monetary policy adjustment. jonathan: is it enough or too much? that was larry summers on "wall street week" over the weekend. live from new york city, good morning. with lisa abramowicz, i am jonathan ferro. andrew hollenhoff is asking

whether it will be neutral. lisa: it is a moving target. how can they signal that at a time when they want to keep financial conditions tightening? we will not get much clarity. they will have a hawkish tone otherwise the market will move against them. jonathan: we are down 9/10 of 1% on the s&p, yields are higher, dollar is stronger. nick bennenbroek, let's start right there. 4% to 4.5% being priced in. is it restrictive or neutral? nick: probably neutral. you have core inflation at 6.3% in headline inflation at 8%. the forecast at wells fargo is that'll be neutral but we do have risk to the upside. jonathan: they want growth below potential. they want to bring inflation down.

how much below potential do we need growth to be to get inflation back toward target, back toward to present? -- back toward 2%? nick: good question. trying to engineer a soft landing is a delicate balance. maybe even unreasonable in terms of expectations. it is landing an aircraft on a picnic blanket. growth of half of 1%, that is very precise that you could bring it to that level but not dip into recession. it is going to be extremely difficult to be so precise in terms of interest rates. lisa: there is question about the collateral damage as the dollar strengthens. the strongest going back to 2002.

the world bank has been warning we will enter global recession if the fed continues to tighten at the pace projected. do you agree? nick: we do agree in the sense of we have recession for the united states. we think it is more likely than not. when you look at the eurozone and the united kingdom, it has even clearer a path. i would not want to criticize central banks and policymakers. it is unfortunately the world we live in and the reality and it is going to be hard to get that longer-term inflation under control without a significant disruption to the near-term growth. lisa: how much is this being driven, particularly the pain, in non-us countries by the strength of the dollar? having to import inflation and frustrating banks and fiscal policy makers. nick: i think it is a relevant point. i think the strong dollar of the

u.s. is not a particular problem. it is probably helpful given the inflation they have. but we have started to see some banks, the bank of japan a perfect example, and even the european central bank started to notice the weakness of the euro. the strong dollar i do not think is an issue for the federal reserve. but it is becoming, at least bothersome, for many foreign banks. at the end of the day, it is those biggest inflationary pressures, even in the euro zone and the u.k., that are the main issue. jonathan: what is failing on the fx front? china is trying to do the same on any given day. that is not working out. do you expect a policy response from the central banks?

nick: i would say the answer is probably not. certainly not for the bank of japan, for example. you go back to her three decades and even the bank of japan in the 1990's, when it was an active player, those interventions were, at best, moderately successful. the foreign exchange market is much more liquid. most central banks if not all will refrain from intervention. lisa: what do you expect to hear from the bank of japan this week? nick: when you look at the bank of japan, the typical pattern this year has been speculation that they will allow bond yields to rise and they will have to give way on the cap.

but they have been comfortable with the idea they have got modest growth and one of the feud countries that has limited -- one of the few countries that has limited growth. i think they will continue to say, we will keep the bond yields low. i do not see any change in message to them. jonathan: hard to imagine the fed will have sympathy for them. nick bennenbroek of wells fargo, thank you. lisa: suddenly they get a currency that reflects the normalcy of the difference. i question how comfortable it is. we were talking about this last week in london. how the grocery store prices reset at the end of this month. we were talking about this with jeffrey yew. people will experience a week yen relative to the dollar. is that comfortable? jonathan: i wonder how

comfortable the bond market would be with the removal of yield curve control when we have twos at 393. 350 earlier this morning. lisa: one of the tail risks for the 10 year yield, even hit the 5% level, would be the bank of japan abandoning the yield curve control. that would roll markets in a way people are not expecting. the currency is expecting some sort of change policy disruption but not necessarily the gtv market. jonathan: has not been a market for a long time. 349 on the 10 year. lisa: david stubbs reiterated that saying this is the time to go long. if you had short duration, you are getting yields. ok, but what happens? the balance of risks. less likely the bank of japan

will abandon control. jonathan: will talk about the opportunity in a minute. matt brill of invesco will join us in five minutes. if you're just tuning in, futures are down 9/10 of 1%. yields are higher briefly on the 10 year, just short of 350 on the 10 year. 392 on the two-year. from new york, this is bloomberg. ♪

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>> we are into the thick of what we think will be a disappointing earnings. >> to get inflationary pressures under control, cost have to be lower. >> we have problems at the

capacity restraints. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: live from new york city from our audience -- for our audience worldwide, good morning, good morning. alongside lisa abramowicz, i'm jonathan ferro. features down 1% on the s&p 500. yields are higher. lisa: 10 year yields reaching the highest since 2011. two year yields continue to climb on the expectations of hiking. it will curtail longer-term growth but will be enough to get to the 2% target? jonathan: 3.93 on a two-year, eight consecutive days. have we seen the bulk of the rate shock? lisa: right now the market is

pricing in a 4% fed funds. what is not known is what pain it will cause on the economy. is this a liability with people having locked in mortgage rates at low rates and the idea that people don't have as much consumer debt and companies flush with cash? this makes the economy more billion and the mechanism is delayed making it hard to see the pain when it comes. jonathan: bank of america said in the last 18 months, headline inflation has been the upside 11 psi -- 11 times and the downside only twice. with this be another soft inflation, 75 to 50? that was the soft landing hope. lisa: especially because of what elements were driving inflation.

not only was it rent which infects lower -- affects lower income individuals. i was looking at the atlanta fed wage tracker, it has a 6.7% average gain in wages, below headline numbers but the highest going back to 1983. how do policymakers message this is a bad thing that they want people to lose their jobs and get smaller increases at a time when people are arguing for a bigger part of gains for so long? jonathan: is going to be difficult for this government to keep giving the fed the space they are giving them. over the weekend, talking about the fed getting inflation lower and house prices will come down. when we start to see job losses, will everyone be on the same page that we need to keep hiking? lisa: is not just in the united states, global leaders will get

together and deal with the same inflationary pressures and post-pandemic realities, but a very different landscape based on the dollar and that the u.s. has stronger wage growth. how much pressure is there internationally at a time when it has been difficult question mark jonathan: -- difficult? jonathan: the prime minister, liz truss, it is confronting reality through the rest of the week. lisa: do you think she is confronting reality? jonathan: the reality of the policy put out there. it is expensive and we don't know how much it is owing to cost but we know it is very expensive. lisa: the reality of a pound below 1.14, weaker than black wednesday, the anniversary of last week going back to 1986, i believe.

jonathan: made the right decision rest week. lisa: thank you. jonathan: on the nasdaq 100, down. we have to get comfortable with 3.50. it was only a week or so we were talking about re-.70, 3.90 -- 3.70, 3.90. rates above high-speed the equity market 5% off of june lows. lisa: certainly people at morgan stanley and others saying the fact that consumers keep spending and cpi increases and

it is not decelerating shows strength, not necessarily the pain that will happen later on. jonathan: the head of u.s. investment grade at invesco joins us. have we seen the worst of it and do you want to start buying? ? matt: if you look at valuations, it is hard to and valuate. investors are early it is painful to be early. if you are early, you are wrong and right now ruin that has been early has been wrong. you're probably going to make money over the next year but over the next few weeks, who knows. lisa: a lot of people question what spreads with the extra premium own corporate debt over the benchmark credit of the united states whether that is pricing in the economic pain at

a 4.5% federal is conferring. do you think so? matt: right now it is not. it is not pricing in a hard recession. at this point, yields historically have not been the site in her teen years. look at the credit spread in yields, a different story we are not seeing a lot of pain in corporate credit. it has mainly been rate driven. unless this inflation continues forever, at some point we will get the fed more balanced and see the strength of balance sheets when out -- win out. lisa: numbers of investors have gotten bullish on the prospect of credit. seeing equity like potential returns in credit.

do you agree it is time to lean in and get good returns? matt: we look at the difference between equity yields and credit yields period like to look at three to five year because you don't have to take on a lot of duration. you are getting extra yields behind bonds than stocks. to me it is very attractive time to be buying bonds versus stocks. i'm not a stock expert but it looks good to me. from that standpoint, you are locking in 5% yields for the first time since 2009 on 10 year credit and the same on credit. i think the timing is difficult. jonathan: no problem with the bond market guys talking about stocks. the stocks talking about it all the time. we reflect on the following and have been doing it for a few months. what i get from guests on this program is that these issues are

still somewhat temporary and even if the fed goes to 4.5 percent, ultimately we go to the world of the last 10 years or so. are you pushing back against that? matt: i think we will eventually get there but it is taking so long to get there. it is taking longer to get out of everything and get back to normal. the longer term trends down the road, technological innovations, key drivers of having lower inflation because they can't take it up right now. any expectations we would have for a quick turnaround have been put on hold. from that standpoint, we will have to write this out longer -- ride this out longer. it is not happening nearly as quickly as we would like it too we will have to rely on

valuations. lisa: what would you ask fed chair jay powell? matt: what are you going to do with the mortgage book? are you going to start to sell, are you considering that? and i want to know how patient are you? we know there have been a lot of hikes in the pipeline and will hit the economy. how patient are you willing to be and at what point are you going to be even more aggressive , 100 basis points rather than 75? i think you will take his time and he has to no this will slow the economy. if he says this is out of patience, that will be a problem. jonathan: matt brill from invesco, nice to catch up. 3.94 on a 10 year. at levels we have not seen since 2011. it has been a wild. lisa: if you look at

investment-grade corporate bonds, the yield is the highest going back to 2009, more than 5%. it goes to your question, are we going back to what we are used to in three years, four years, or is this regime change and a move away from zero rates and the ability to keep lowering rates in response to financial pain because of the inflation we have seen and the fact that it is hard to get rid of? jonathan: i would suggest it is on the former than the latter. lisa: whether there is a sense of structural inflation is different but how long before people realize that? some are saying it is here, it is stickier, especially the way people have termed out debt creates more availability for rates to be higher generally in the economy. jonathan: where in an era of unprecedented pop -- we are in an era of unprecedented rates.

there are big questions to ask. tk not in touch saturday. thank you so much for introducing me to this garbage. i'm sure that was a compliment. features -.8% on the s&p. from new york, this is bloomberg. ♪ lisa: it was a final public moment for a woman who reigned over a country for 70 years. world leaders gathered in london for the funeral of queen elizabeth ii. her funeral was at westminister abbey. hundreds of thousands waited in line to pay their respects. president biden says u.s. forces would defend taiwan if there was what he called an unprecedented

attack. it was the latest pledge for support. the president was interviewed on the cbs news program "60 minutes." a recession most looks inevitable to economists. those polled by bloomberg put the probability of two straight quarters of contraction at 80% in the next 12 months, up from 60% in a previous survey. there is growing concern that energy could cause a slump in economic activity. the executive arm has funds earmarked for the government in hungry because of allegations of corruption and fraud. he has rewritten the constitution overall, election rules, and extended his influence over the courts and education. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i am lisa mateo.

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>> we agree with what we signed onto a long time ago that there is a one china policy and taiwan makes their own judgments about their independence. we are not encouraging them to be independent, that is there

decisions. >> would u.s. forces defend the island? pres. biden: yes, if there was an unprecedented attack. tom: live from new york -- jonathan: live from new york city, this is uber surveillance. -- bloomberg surveillance. on a two-year, 3.93. on a tenure, 3.50, the highest on a tenure going back to -- on a 10-year, 3.50, the highest on a 10-year going back to the 1980's. have we had the consequences of the rate shock? i think people would push back and say no. lisa: you are seeing a lack of demand when you have a time arguably shortage or lack of supply to meet certain demand in the oil market good to see that decline is notable. jonathan: gas prices are lower

that has been the thing for this pricing, helping him out. lisa: it is lower because people expect lower growth and people like to move around. not great. jonathan: our d.c. correspondent is in d.c. can we talk about the comments on taiwan. is it what the president is looking for? annmarie: he was asked if they would defend it militarily, and then aides came up and said they would send more hardware. not only would he say we would defend taiwan, that you have them sing u.s. policy has not changed, are you saying u.s. forces would defend taiwan in the event of a chinese invasion, unlike ukraine and again a yes from the u.s. president.

it comes at a time when u.s.-chinese relations are in a difficult place. had a speaker pelosi go to taiwan. massive drills of military around the street of china, cutting off climate and military talks with the united states. in washington, top of new legislation saying taiwan is a non-us nato ally and sending more military hardware. you have deterioration in the two countries and now the u.s. is saying it is going to put the backs up of individuals in beijing, head of this massive party congress for xi jinping. lisa: is any correlation between his comments now and the meeting with putin? annmarie: he wants to show that he will defend countries like

taiwan and countries he feels other nations are being encroached on their sovereignty. what you saw between xi jinping and vladimir putin was putin for the first time sank china, we know we put you in -- saying to china, we know you put you in a difficult position. lisa: he talked a lot about things saying the pandemic is over and he expects inflation to abate and talked about the potential for another run at president, saying he would decide after the midterm elections. is that a shift in tone, us conviction at a time when he doesn't have the popularity behind the likelihood of a 2020 for run? annmarie: he talked about the fact that if he was going to come out and declare this as there are legal issues that go into it and he is not ready to make that decision but will at some point. there is lots of talk saying

that if it would be president trump that it would be president haydn for the democrats. the first lady jill biden said she have -- had the conversation with the president. we have seen the president come under strain and pressure in the poll, i think the nbc pull out is astonishing, 45% -- poll out is astonishing, 45% approval rating. it took a year to get back to this point, less than two months from the midterm elections. jonathan: we talked about the candidate potentially being on his side. if the midterms were back in the spring, they would take a beating. if the midterms were right now, just how close are things? annmarie: credit where credit is

due, you said earlier this summer that the calendar may be on the democrats' side. can you imagine midterm elections in june with gas prices at five dollars a gallon? it is very close right now. in the same nbc poll, they are leveling out in terms of what people are focused on. when you look at the polls, it comes down to immigration, the economy. people are more for the republicans. when it comes down to health care and abortion, you see the numbers tick up. a poll a month ago said overall they say they want to go out and when they vote the top of mind is economy and second is reproductive rights and third is inflation. you do see two major competing issues that both sides are trying to help on.

the calendar is on their side that if this is in the summer it would be much more difficult. jonathan: the president will speak later this week. what a change in the last three months. lisa: three months, 97 days straight of falling gasoline prices. how much is really the driving factor at a time when that is the benchmark for so many driving down the street? if you take a look at the gasoline price is, it has changed. jonathan: a strong correlation between u.s. consumer sentiment and what you are speaking to. lisa: i wonder what happens if there is a change in china. if there is a change in zero covid, a shift with respect to winter months, does that change the narrative? how quickly can that happen?

jonathan: a strong inverse correlation. futures down .9%. no doubt someone will say, what are you talking about? lisa: i appreciate that. jonathan: i was correcting me, not you. former vice chair richard clar ida. this is bloomberg. ♪ ♪

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jonathan: from new york, good morning, alongside lisa abramowitz. futures down .9%. yield higher, up four basis points briefly through 3.50. 3.93. up six basis points. the dollar is stronger. on euro-dollar, higher. down on crude, wti down to

82.71. prude is up and gas is up and it is bad -- crude is up and gas is down and it is bad. lisa: that is for the oil market and potentially the bond market. yields are up and that is bad and yields are low and the fed has to hammer them higher to get tightening. right now it is a tricky position. woody can figure out the soft landing joe biden was talking about. jonathan: if and when the 10 year yield plummeting, it will be really bad. lisa: of course. jonathan: i get the game. it is worth pointing out. the chief economist at the conference board is joining us. can you tell us how bad things are in this economy? are you seeing the same thing? dana: we are seeing resilience

and the labor market is strong. there are still a lot of job openings good when we look at gdp tracking in the fourth quarter, maybe we will have something slightly north of zero. spending was up in august in real terms. also the trade outlook is looking better with all of that, we think it is a great opportunity for the fed to raise rates to tackle elevated inflation lisa: is resilience good or bad? you are saying it is bad for the economy longer-term. dana: the thing is that inflation is bad, headline inflation for cpi was only 8.3%. the core moved up 6.3% period a lot of the drivers are food and

shelter costs, that is negative for the consumer and erodes their incomes so it is not a good thing if you have that. certainly it weighs on housing purchases nonetheless, it is still a good thing overall for the economy. lisa: do you have a sense of how quickly we will see the effect of rate rises? since it will happen at some point in the near future, how long does it take before it hits the economy? dana: is difficult to know. we would say it takes 12 to 18 months to feedthrough but we are seeing the fed actions having an impact on the housing market and that is a positive for the fed in terms of addressing inflation , even though the fed does not

target asset prices. in terms of the consumer price index, the fed needs to do the work now and we should see the effects later next year. we are thinking key inflation will not return until very early 2024. jonathan: all the research has been somewhere on wall street upgrading terminal rate view. goldman looking at 4.25% by year end. it may be higher than that. the number one pushback that we get is that we can't live with 4% rates, the economy can't live with that and the debt is too high. do you agree with that? what is the constructive view on if we can live with a 4.5% funds rate. dana: the board him out early with that call for an interest

rate topping out at 4%. they are saying it could be higher inflation and doesn't move and it remains sticky. certainly when you think about what policymakers have been saying, they are saying we are in for pain which i think is code for brief recession, and when you look at labor markets, that is strong and will remain robust and there will still be hiring and i think with all that, the u.s. economy will have to indoor a period of elevated -- endure a period of elevation. that -- lisa: do we see a commensurate increase in expectations for the unplanned rate with every increase?

dana: we think with the forecast of the 4% feds fund rate, we think the rate will drive -- rise to 4%. even if we go to 4.5%, that is probably around the neutral rate . that suggests we still have a very strong labor market. we are not expecting to see 5% or 6% unemployment. this is a different market. it will help keep the labor market from worsening relative to the overall economy. lisa: is it constructive for us to look at averages when we talk about the labor market and how well different households can weather this, especially because you are talking about half of the income driven by households is more than $100,000 put out by morgan stanley, most own homes it outright or with mortgage

rates locked in at low rates. the rest of the economy and households are really struggling , most because they have lower income and because they pay rents and have to deal with increase. how do you gauge that out at a time when we are looking at averages to determine policy? dana: when you look at wage gains, the folks who gained most in terms of wage gains over the last couple of years haven't people on the lower end of the spectrum and people quitting and purple -- people working in in-service who have lower wages in general. those of the people who have seen the biggest gains in wages. we should look at the granular data, but it is not the case that those at the lower end of the spectrum are losing out what they have been gaining by quitting and also through the aggressive tactics companies have been using to attract

labor, especially for businesses like restaurants, hotels, manufacturing, transportation that tend to have folks on the lower ends of the income spectrum. jonathan: a question was raised, what is the appropriate time frame to bring inflation act towards target? you hear from dana it is 2024, not a 2023 story. i wonder if it is skewed towards pushing it out further. this may be more difficult than we have given it credit for. lisa: and perhaps people won't have the appetite for economic gain to get it down to 2% by 2023 or 2024. do we get comfortable with a 3% target for a little longer? jonathan: would you go with that? do you think it is taking longer? dana: it is in the forecast that it is going to take a while.

we don't have interest rates following year because we think inflation is going to remain elevated. certainly this will take some time, but there is the possibility and i have seen earlier in the spring that the fed will get more comfortable with having inflation close to 3% than 2% especially if we have a very significant downturn in economic activity. it is also a function of the fact that we have a lot more inflationary pressures such as labor shortages, semiconductor shortage, industrial policies, where businesses have to reorient supply chains and so all of those things will get passed on to the customer. it will be very difficult for the fed to keep inflation close to the 2% target. so i think those are all forces out there that will weigh on the

fed over the longer term. jonathan: thanks for being with us, dana peterson from the conference board. lisa: your point earlier, have been seeing peak yields on the 10 year treasury? people expecting us to get back to 2% inflation rates perhaps in 2024. what happens if they don't or they signal they will go less aggressively and wait to see what the ramifications are and adjust as needed, because they are worried about the potential consequence to the economy? what does that say about the 10-year. jonathan: basically are questioning their credibility and whether you truly believe the conditions we experienced since the 1970's which with the speech from chairman powell. when unit 23, it starts to

signal you are comfortable and what happens to the outlook for inflation? lisa: i keep thinking about the comment on twitter with the hawk on the shoulder and just screeching like a hawk. you are right, how do they go back? it is a very call circumstance to understand what is going on in the economy. the data is moving quickly and we don't have the sense of how the interest rates will be. it is difficult to have a forecast in this uncertainty. jonathan: that was a very special moment for you to be a to the federal reserve. lisa: i appreciate it. i aspire to be called special.

jonathan: futures down three quarters of 1%. tk will be us in a couple of days. perhaps we will see him again. perhaps he will move currently london. live from new york, this is bloomberg. ♪ lisa m.: leaders from around the world gathered in london for the funeral of queen elizabeth iii. . hundreds of thousands of people lined up for hours to pay their final respects. president biden said he warned

xi jinping it would be a huge stake to violate sanctions imposed on russia. there has been no indication aging has provided weapons. ukraine's president has renewed his pledge to retake all russian-controlled territories after his country's recent advances. he hinted that another offensive is being planned. ukraine claims that some units of russia suffered loss rates of 90% in some. photo quarantine -- hotel quarantines and testing could end more than two years of global isolation before a series of international events for hong kong starting late in october. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo.

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>> they are feeling their way to how far they have to raise the federal fund rate. they want to be restrictive and demand to slow down so underlying inflationary pressure stretched and. -- starts to end. getting to that point will include luck. lisa: speaking with us last week there this is the main issue. so many market participants to get to a soft landing taking a narrower confluence of potential outcomes. we have been tracking this closely as we talk about peak hawkish miss or complete pricing of market expectations. -- hawkishness or complete

pricing of market expectations. you are talking about fedex. explain. peter: looking at the data and a lot of the data is backward looking. what is contemporaneous and effective? the fedex warning is real. it came on the heels of cpi where we had housing inflation up, when the biggest contributors to cpi. nothing good is going on in the housing market right now. i know where the data is headed and it is going to be weak and scary. lisa: do you think there will talk about this wednesday? peter: they have been so hawkish starting at jackson hole and somebody has to step back and say, we have to be careful. it does take some time to take

the hikes through the economy and everything we are seeing real-time saying this is getting a little dangerous. the expectation on cpi is long. powell will wind up having that come out. lisa: you said it is getting dangerous. a lot of people talk about the resilience of the consumer. fedex is an outlier. global economy slowing down but what are you looking about saying things are getting dangerous? peter: if you look at the control group, expectations were point five and they sent -- spent 0%. i'm watching inventory which has been month after month of inventory build. companies overestimated consumer demand and didn't realize how

much consumers were pulling forward because they were worried about supply chains and companies worried and overstocked. you look at the marketplace. all industries are struggling and they were spending money where they could, buying chips, computers. they have to focus on survival and that will be a big chunk of the economy. the companies are spending. lisa: you said the fed chair jay powell needs to let out his inner dove to counteract weakness you are building rapidly. others would argue this is what they are counting on. this goes back to the discussion that exhausted so many people.

is that basically what you are saying this is a bull case for markets because it is a bare case for the economy and federal reserve? peter: i think it is a temporary bull case. you might get a bounce on the pad -- fed it be if it's -- fed if he pivots. we will get lower bond yields and commodity prices are the trade. let's not forget we started quantitative tightening aggressively and we will see more of that. i've always believed that quantitative easing forces people on the spectrum. i think the quality will be that quantitative tightening allows people to move down the risk spectrum. you had that as an additional headwind. lisa: i am looking at two-year yields pushed hi, 3.93% --

pushed high, 3.93%. is it a good thing as an investor to go into bonds as an actual haven at a time when they are providing yields. we have heard talking up bull bonds. peter: i like bonds. i hate to say it because it has been a disaster but the 20 year treasury is appealing. we have seen more support for the 20 year over the past three weeks. it is an outlier in the yield curve so it seems attractive. unlike the long and more than the front end but it is going to be important. i don't think stocks will go higher, maybe initially but it will be a risk off. lisa: we heard from oaktree and they have been talking about extreme yield returns for credit , for longer-term debt, talking

up equity-like returns. will this be less people for bond investors and for stocks? peter: it will be less painful. quantitative tightening will people that and the ability for bonds to rally. it will take time for the economic data to sink in. you will get a decent gain paired i could see a 10% over the next month or two. lisa: what are you looking to hear from fed chair jay powell on wednesday? peter: i would like to see the forward-looking stuff, maybe a shout out to fedex and say, we have to manage both sides of this. there are a lot of signs inflation is rolling over. we have to look at the more contemporaneous data. i think something by that would be realistic. i think markets would respond

poorly. lisa: i wonder your perspective on oil prices. what signal is nearly $80 on wti sending to global markets looking for imbalance in supply and demand? peter: it is a negative signal. we have been yet lower oil prices and historically when you go back to the 2000 and the financial crisis, lower oil prices is generally bad for equities, a single -- signal the economy is slowing. we underestimated how important crypto was. it is a high probability it starts dying off. that is another source of demand. we are spending more policy time responding to prior problems then to the current problems.

lisa: thank you so much for being with us on a day when people are trying to figure out the meaning behind near 4% to year yield, shocking to get my head around that. coming up on balance of power, betsy stephenson a respected economist speaking. we are looking at yields higher across the board, 3.50, as people reset expectations had of wednesday's fed meeting. this is bloomberg. ♪

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jonathan: equity struggling to make a comeback, futures down by about point 1%, the countdown to the open starts now. >> everything you need to get set for the start of u.s. trading, this is u.s. -- bloomberg: the open with jonathan ferro. ♪ jonathan: live from new york, the big issue. what will central banks taking center stage. >> we have the all reports of fed meeting. >> the fed has a lot of work ahead of itself as do other central banks. >> the u.s. inflation is horrific. >> it th