dani: good morning this is "bloomberg daybreak: europe." i am dani burger in london. >> we have got to get inflation behind us. i wish there were a painless way to do that. there is not. dani: more hikes and more anguish, fed chair signals a recession maybe be a trade-off. hours later, japan holds a line on its ultralow rates, driving into 820 your -- a 20 year low. boe headlines more central-bank action today. norway and south africa also announcing rate decisions. we will keep at it until the job is done, words from jay powell

yesterday. reflecting the title of an autobiography. it is clear that they have put a hawkish drive into the market. 75 basis points, what we expected but with the dots. this is a fed that does not like markets. you can see that clearly in the reaction. we have an equities rally which would make a lot of sense if they are trying to engineer a recession. that will hit earnings. it is not going to be painless to have inflation come down. perhaps stocks are operating for the american economy. two-year yields surging about 4%.

they are still continuing to climb higher today. we are at 1%. this is the highest since 2007. the curve is moving higher. that is reflecting the idea that we will have a recession. 4.6% next year. perhaps that sounds a lot like a recession. that is the most inverted since 1980. bloomberg dollar is at a record high. euro is at a new low. it will continue to weaken this morning as the sterling.

we are looking at a half-point rate rise. they both continue to fall half a percent. this is your look at europe and u.s. markets. standing by with that is julia singapore. >> -- juliette saly in singapore. >> we are waiting to see if there any moves that yen. they're also saying they are ready to take action at any time and will intervene when it is needed. we do see this big move touching 145 since 1998. this is after the doj left it. we are seeing this aggressive fed participant scratching their heads as to why we are not seeing any change from the bank of japan. ebsa that this is a clear signal we will likely see a press

conference for further details. let's flip the board. we saw the 10 year yield move for the first time since friday. we have been seeing weakness as well will we look at the currency we are seeing across asia. offshore you on also passed the dollar. there is a strong and affixed. asian stocks holding at 20 year lows. we had goldman sachs downgrading the forecast and the covid zero policy. these moves are following the fed seeing the index touching a decade low. dani: that yen chart, talk about whiplash. great stuff as always.

let's get to our reporters from around the world. and a current will help us recap the u.s. fed and reaction. rounding up the big week also is michelle. they signaled even more aggressive rate hikes ahead. jay powell is warning that it will hurt. he admits that the chances of a soft landing are diminishing. let's bring in our correspondent enda curran. 4.4 percent this year, 4.6%. is powell saying without saying it that this is a recession we are headed towards? >> he does not want to say it but he came pretty close. heard you say, a 75 point basis hike was expected.

the upgrade forecast and the warning that the economy will have to shift pain has driven home to a lot of observers that the fed has not finished the reaction. goldman sachs increasing the forecast for the extent of interest rate hikes. it is not just a 2022 story. markets well over 4% in 2023. 75 basis point move by the fed is a very hawkish message and signals we have a lot more to do in the months ahead. dani: let's talk about the worst for needs to be done. transmitting policy through tightening financial conditions. are we starting to see the cracks yet? what does the fed me to do to

get some of those cracks into the market to get inflation back down? >> this is the big question. it seems like the debate has moved on to how deep the recession will be. the market is described as being red-hot. it is not a bad thing that has to cool. when it comes to the hit from interest rates, the fed are expecting it and maybe underestimating how high unemployment may go. that is where the debate is shifting. it is now pain coming from the economy. how much we will tolerate as the fed raises interest rates. dani: thank, enda curran. there have been some big swings

as the boj stands by their monetary policy. the currency briefly touched 145, a level not seen since 1998. the boj, holding the balance rate at -.1%. let's get to paul dobson. absolute whiplash in this market. it seems like there may have been some strength but it has now disappeared. is there anything that can stop the dollar dissent at this point? >> globally it looks like nothing can stand in the way it by now. that is part of the problem. this tidal wave we are seeing across all of the markets, to be fair, there are no weak spots. there is a general underperformance.

if you are going to do intervention, help people. make people scared of you. that is probably the only weapon they have. not in a panic, but continuing to go, they will only be able to slow the flow. i think that is what we are seeing with the monetary policies. not that much action because they know they will just get washed away by the strength of the dollar. dani: you mentioned stealth intervention. what exactly is that, what would that look like if it is effective at all? >> a smoothing of the exchange rate. making sure it does not go too far and too fast. that kind of thing.

better to be emphatic if you want to make a suggestion. taiwan dollar seems to have a certain amount of smoothing going on and various other banks in this region. they're using some reserves to at least slow the pace. the pace of their own currency is weakening. on the other hand, if the fed is committed to causing pain domestically, not the rest of the world, the thesis is dollar strength and everything else in the world, weakness. dani: maybe some other central banks are taking no from the fed and surprising the markets. paul dobson, thank you. super thursday continues on with many central banks reveal their

policy division. so many investors are looking out for stability on what many are warning could be a wild day. >> whether we are going to meet the technical definition of recession or not, i expect that for hundreds of millions of people it will feel like a recession. buckle up. dani: for more, let's get to our senior asia reporter. michelle, i love what you have been writing about how insane it can be. what have we seen so far from this blockbuster thursday and how does that set us up for the rest of the day? >> i am watching the scoreboard constantly and i appreciate the terms buckle up. three down and nine to go. central banks we are watching.

others also have decisions in the 24 hours. the three central banks that have made decisions, the fed, brazil, boj, each as expected but still plenty of volatility. there are talking about still a ways to go. also, the recession becoming more real. and then, the boj watching to see if they will intervene at the end. we have four more at least. we will have the philippines out of the region expected to raise rates by 25 and 50 basis points. we will also have switzerland and norway hiking by 25 and 50 basis points. we will still have the bank of england later today among others. plenty of volatility and higher

pressure. hopefully we can all stay calm. dani: what i am gathering from this is you will probably not leave a screen all day. there is a concern about a global recession, how widespread is that your is all these central banks are trying to handle this find right now -- handled this climate right now? >> it has become more widespread. we were talking about how powell was sounding may be too confident about the soft landing and pushing too hard against investors seeing a recession as imminent. now it is much more real in the fed's eyes. we have seen projections as the focus in washington. they do see that becoming a real scenario. i do see that is something that was pointed out and really interesting in this argument.

they see the unemployment rate going up to 4.4% from 3.8%. there has never been a situation where the unemployment rate has risen by that much and there has not been a recession. that will mean a tougher landing and not a soft landing. there is a waste to go on the interest rate height cycle. pal is saying they are on the lower end. i think this concern is shared by central banks around the world. the bank of japan talking about not wanting to move too quickly. they do not wanted to become too severe. dani: thank you so much. let me know if you need me to ship you over some donuts or coffee. thank you so much for joining us. coming up, we will continue the conversation with the fed willing to tolerate a recession. is it priced in?

we will talk all about that next. this is bloomberg. ♪

>> my colleagues and i are committed to bringing inflation back down to our 2% role. we raise the target range by

three quarters of a percent and it will likely give some softening to harding conditions. we think we need to do is move our policy rate to a restrictive level that is restrictive enough to bring the rate down. we have brought it to the lowest level of what might be restrictive. we might have a median for the year and suggested at 125 basis points. dani: fed chairman jerome powell speaking yesterday on the state of the u.s. economy and the inability to avoid pain in trying to get inflation back down. powell certainly surprised the markets. dots go on your bloomberg terminal showing you where the markets landed in terms of projections. this was a move even higher and

exceeded all expectations. before they were around three and three quarters of a percent. next year, we jump up to four prints -- 24.6%. all of this coming through. let's bring in jeffrey cleveland from payden & rygel. we have 4.4% this year, 4.6 percent next year and unemployment is 4.4% next year. is the fed trying to engineer a recession? jeffrey: good morning. i think you have to imagine the possibility that the fed not only goes to 4.4% or 4.6% but also 5% in the next six month or so. i think that is a reflection of the fed trying to rein in inflation. they are willing to have a recession in order to get inflation down.

getting the unemployment rate up would qualify as a recession. they are willing to take that pain if it means price stability. price stability is what they are after. dani: 5%, talk to me about without world looks like. jeffrey: the big thing is that the bond market has underestimated just how high the fed will go and how long they will hold the terminal rate. the future market as of wednesday afternoon still had cuts in q3. i do not think that is right. i think it could stay there for quite some time. that means that two-year yields probably need to go to 5%. 10 year yields do not usually peak that far in advance of the rate being hit. if we don't get to that rate

until sometime next year, 10 year yields probably have more room to go up. i think this gives the dollar strength we have been talking about. these are probably the biggest ramifications of this hawkish fed. dani: don't fight the fed, probably a pivot will be in this latest decision. their estimate now is 4.4% of unemployment in the world. it could realistically be even higher. what would be the stomach for the fed to have it higher? it is one thing to say but to actually justify it but to actually say it. jeffrey: there is a hope it will not rise that much. job openings can come down substantially and labor demand fades. that is a hope.

i think we will end up with higher unemployment rates than 4.4%. if you look at the 2001 downturn , unemployment rose, i think something like that is in order. we had such high or entranced inflation in the u.s. running somewhere in our estimation, that is way too high. the fed has to focus on getting that down. they have to get the inflation rate lower. dani: higher unemployment. we were talking about this in the break, how would they know when it gets too high? jerome powell did not give clear example, he -- how and when will

the fed know when they have gone too far? jeffrey: we will see a rapid deceleration in housing and that will lead to rent. we will see a clear relationship between housing prices and rent. rent will come down, with a little bit of a lag. in the short run, it is hard to say. i think in their mind, the risk that every month we talk about it, that raises the risk that inflations will be gone. i like the quote, what is price stability? it is one people do not talk about inflation. it is when you are not

interested in talking about it, then the fed has done the job. i don't think we are there, we are ways away from that. dani: i cannot wait for the way when inflation is not the number one topic. i'm really enjoying this conversation. can you stick around with us? don't hang up, stay there. jeffrey cleveland, chief economist at payden & rygel. coming up, we will continue the conversation about this market that is trying to digest the fed's actions more in six months then previous rate hikes. coverage will continue throughout the hour. this is bloomberg. ♪

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dani: good morning.

this is bloomberg daybreak: europe. i'm dani burger in london. >> we have got to get inflation behind us. i wish there were a painless way to do that. there isn't. dani: more hikes, more anguish. fed chair jay powell signals inflation may be the trade-off after the fomc hikes rates by 75 basis points. the bank of japan holds the line on its low rates. recession fears billed after the fed. boe central, announcing decisions. we will keep at until the job is done. i keep going back to this because this is powell channeling his interval care. the s&p 500 attempted to rally. but then it shifted gears with

powell saying there is not a painless way to get inflation down. the equity markets taking a bit longer to get the message. the bond market is getting the message. that is the chart. the two day chart. let me show you what else we are doing cross asset. the bloomberg dollar spot. euro is that a 2002 low. sterling is at its low since 1985. showing the limits of monetary policy to stem the tide inequities. i promised you a little action. let me show you what the curve looks like. -57 basis points. this is the most inverted the curve is since 1980.

i think we have a long-term chart of it. most inverted. does it invert even further? let's bring you to our guest. still with us is jeffrey. >> you are the new kid on the block. we could see front and rates to 5%. could that happen? could we see front and rates go to 5%? >> don't rule anything out. it is clearly not the central scenario. when does inflation drop fast enough for the fed to turn around? when does the fed change its june? -- it's tune? probably around the middle of 2023.

there is space for them to hike rates. dani: i've got to say, a point we were just discussing, this idea of how will the fed know when they've gone too far? to some degree, they are not really. considering what the dot plot looks like, considering the signals they are sending out, it looks like a forecast they are going to keep going even if economic data starts to deteriorate. >> two things need to happen. core cpi needs to decelerate month to month. last month we sought up 0.6. it needs to be flat or 0.1 or 0.2 for a number of months. the second thing is they want softening in the labor market. the next jobs report, we don't want to see a 300,000 plus jobs

report, we want to see a slow and a rise in the employment rate. we want to see softening in labor market conditions. if we still see momentum in inflation and a pretty strong labor market or too tight as the chair said today, then there is stoke for the fed to keep piping -- hiking. dani: in terms of just pricing in a recession, has the market already done most of that? if you look at every maturity save for the 20-year, yields are lower to the next shortest maturity. is this market that has done its job pressing in a recession? >> clearly, the market is on high alert for a recession. the question is is that true for the broader markets?

that will be a key question. it is clearly at least 2023. dani: does it feel like the risk markets are not pessimistic enough? >> it doesn't. we see how they are. we need to see how in the grand scheme of things how they are now. the economy has been surprising to the upside and very resilient. when the recession finally hits, they will look a lot more tight. dani: part of the way that will transmit this policy is through financial conditions. is there some element of don't fight the fed on the way up, but we can't fight the fed on the way down? >> the thing he said during the press conference that i thought was interesting is that really yields, nominal yields adjusted

for inflation, real yields need to be positive across the yield curve. that is the fed chair saying financial conditions are not nearly tight enough. the need to tighten further. to me, that does mean spreads should be wider, equity should be lower if that plays out. dani: real yields have soared since jackson hole. >> real yields minas breakevens and from that point of view, they are positive almost across the curve. the call is very interesting. it translates 121 in real yields because it is pretty much anchored. sending the message the fed is doing its job properly. this is going to amount to a lot of tightening, potentially another 90 basis points if you take the forecast into account and that will be a lot for risk

assets to deal with. dani: someone is writing in asking how you would play the 210 curve and where do you see a landing given the anticipated interest rate hike to the end of 2022 and the first half of 2023? >> it is not at a place where i would like to chase it. it could definitely flatten more. if we really get an extreme hike to 5%. that is entirely possible, but it is not at a place where i would add the trade. the problem is it is entirely a trade. i will stay put on this one. dani: it does seem as if this inversion can go further with this idea that monetary policy operates with a lag. 12-18 months to see how it affects things. does that give the curve more

scope to invert? >> you could have a deeply inverted yield curve, pushing up the front end and then further out the curve, the 10 year yield responding to the downturn fears and things of that nature, so you would end up with a pretty deeply inverted yield curve. that is quite a high likelihood -- where we are headed. dani: there is an alternative. front and yields are giving you more than 4% right now. >> a lot of our investors around the world are in the front end. about a corporations that have excess cash they are keeping, they are five years and in. if there is a silver lining here, it is seeing short-term yield, front and yields at 4% or even higher, so that is good news for them. where i was going back to

earlier from an economic perspective, if you strip out inflation, so if you look at core pce or trimmed mean pc, yields still look not that attractive to me from that perspective. dani: important clarification. what do you make of the attractiveness of the front end of the curve? >> if you are defensive on risk assets, it is not a bad place to buy pure cash. you have positive real yields. clearly, rates are going to increase. these rates will keep increasing in 2023. when all things are considered and you take into account the amount of risk in the market and risk-adjusted real returns. dani: i want to bring you a chart that i markets editor put together and it is treasury liquidity and it has been worsening very rapidly, around the levels we saw the spike up

in 2020. the fed steps in, provides liquidity in the market. the fed is not doing that this time, providing liquidity to the market. does this give you reason for pause? does this give you an indication that something may break, potentially the market? >> may break down in the functioning of the treasury market would be a systemic type of event for them and that would cast some doubt about their ability to reduce the balance sheet. this is somewhere they have to tread carefully and this is why we don't think they will accelerate tight. they won't add fuel to the fire. if they want to tighten further, it will be the fed funds rate. this is clearly one of the risks that looms large. dani: i somehow totally forgot it was boe day. let's just wrap it up there.

jeff, we have to be quick, but let me start with you in terms of the bank of england and if you want to expand out to the right decisions we are getting. is the pressure on for the hawkish surprise? >> i think so, yes. the fed is the world's most important central bank. they are aggressive. that is putting a bid on the dollar and puts all the central banks on the back foot. they are trying to to offset curve weakness. it is a tough position. powell was asked and he said, i just got back from basil and talked to my global colleagues and they are on their own. this is not the time for global coordination. the fed is going to keep going and other banks will have to respond to keep up. dani: is there anything the boe can do to attract foreigners into the gilt market? >> not really.

fiscal deficits, current account deficits. if the bank of england raises rates faster, they make two of these problems worse. unfortunately there is not a magic amount of interest rates to increase by. it is a very fine path they have to walk and this is the reason we will stick to 50 basis points because they don't want to make matters worse on the growth and fiscal front. dani: thank you so much. what an all-star panel. thank you for coming in, jeff i know it is still nighttime in los angeles, go get some sleep. we appreciate your time. coming up on the program, president biden attempts to rally world leaders condemning russia for its war in ukraine during a speech at the un's general assembly. more on that story next. this is bloomberg. ♪

>> this world should see these outrageous acts for what they are. putin claims he had to act because russia was threatened, but no one threatened russia and no one other than russia sought conflict. dani: u.s. president joe biden speaking about russia's actions in ukraine at the u.n. general assembly. the ukrainian president has also addressed world leaders gathering at the u.n. in new york. in a prerecorded message, he called for russia to be further punished for its war. let's talk to maria tadeo in brussels. a lot of condemnation of russell -- russia, but mainly from western leaders. >> yes, and what a week. to have all of the western leaders in the same city at the

same time and the same place. we talk about whether or not the united nations serves a purpose, but it really has this week because it really has rallied this international coalition of western leaders, all of them repeating the same message of condemnation, unity, and what they believe is an escalation on the part of the russian federation that will cost more lives and make the word go on for longer. it is not just the u.s. president. very similar message from emmanuel macron, liz trust, even the head of the commission. you find my say also very quickly, overnight, a prerecorded message from the ukrainian president, not able to go to new york. he did say that the eyes of the ukrainian people, russia has now

engaged in a war in ukraine, but the choice of the ukrainian people have been made. dani: we heard the threat of nuclear warfare. what was the reaction to that again? >> this is not a joke, i'm not bluffing. but it is the lack of reaction from the west. the french president put it rather well, saying we have to be rigorous about this. he wouldn't even mention the nuclear word. you do not engage verbally on this. you do not engage on nuclear threats. in the case of a nuclear accident, there are no winners

out of the nuclear conflict. dani: germany has also condemned vladimir putin's push to send troops to ukraine is the government looks to prevent the collapse of the energy sector. for more, we're joined in berlin , let's start with the reaction to putin. what has the reaction been in germany from yesterday stepping the sub calling for more mobilization? >> certainly similar to what biden said. it is a form of escalation and it is basically a bad move to basically pull in the russian people into the war. but on the other side, if you take a realistic look at it in the government has said it is a sign that putin is losing control of the war and that the

ukraine is gaining ground. but there is basically in the end no good news because what it all means is that putin has no way to get out of this war. he wants to be at the end of it to show the world that he has actually made russia bigger. and therefore, this war will last much longer and that obviously is a form of escalation nobody really wants. dani: part of the fallout of this is the energy crisis in europe and there has been some controversy over the german government's plan to nationalize their gas giant. what has that backlash looked like and where do the government's plans stand? >> the economy minister presented yesterday the plans of

how to nationalize, basically. it is a major step. he didn't have much choice because of rising energy prices. but the controversy is really about, how are you going to finance this package? that is not clear. the liberals basically say they do not want this and they want to keep up the controversial levy on gas, which basically they would like to let go. there is a big complaint about how to finance this and we don't know where this is going to go because the climate in the coalition is somewhat dampened because of that. dani: coming up, it is boe day.

we will preview the central banks rate decision as the pressure mounts after a hawkish fed and an ever weaker sterling. more on that next. this is bloomberg. ♪

dani: welcome back to bloomberg daybreak: europe. i'm dani burger in london. the bank of england is set to raise interest rates today and start selling assets that it will double during the decade-long stimulus program. it is a historic tightening of monetary policy designed to clamp down on soaring u.k. inflation. let's get to lizzy burden monitoring the boe rate decision for us. what is it going to be today? >> markets reckon it is going to be 75 basis points.

economists only see 50. even if it were 50, that would be the biggest back hike since black wednesday. economists reckon liz trusts energy bailout will soften the blow of inflation in the short term. but you could also see if bank of england officials agree with that, you could see it reflected in a new inflation forecast. they have seen inflation peaking at 13%. the flipside of the energy bailout as it could necessitate so much borrowing along with the tax cuts we expect in the many budget that the bank of england says it is going to slam the brakes on tightening before it has even begun. officials have said they would not -- the other thing we will watch out for is the exchange of letters between the governor. that might give us a hand as to

where the boe is going to go. dani: it is not even 7:00 a.m. and i'm hearing trucks whizzing by you, people are shouting. it is all for the excitement around the boe i'm sure. this comes off the back of a bank that hiked 100 basis points, a fed that did 75 and was hawkish. how does that play into the boe thinking? >> given all of that, given that markets are seeing 75 basis points, 50 is going to look pretty dovish. you have to remember you've got an of this committee more dovish members that are worried about the recession risks and adding to them if they tighten aggressively. it will be interesting to see how she votes. it is also how sterling has been

performing. worst day on friday since 1985 against the dollar, but more interesting is its performance against the euro. this decision will show how much central banks around the world and sterling's performance will play into boe thinking. dani: thank. lizzy burden outside threat needle street. closing out the hour with reaction. you are looking at continued red, continued weakening in euro and a record dollar. more markets to come. this is bloomberg. ♪

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>> good morning, welcome to bloomberg markets europe. i'm anna edwards