>> the market has been on a severe high over the past few days. >> we see volatility across all asset markets. >> we will look at a higher for longer story. >> the fed is going to struggle to convince markets that it needs to raise 150 basis points.

jonathan: with futures unchanged on the s&p. lisa: people are expecting it to be in the mid to thousands. what does it have to be for the federal reserve to reverse the trend. jonathon: we will hear from williams a little bit later, the data, bad news, good news. we will push back against that? lisa: they say there is no scenario that they can forsake that will cause them to reverse course in the near term. that is what each and every one of them, even the former doves are saying. they are saying it again and again. is the market pricing that in? jonathon: clearly that is what the market is signaling.

if you could have a positive supply-side story than that is overwhelmingly good news. if you have a story that is just demand getting battered by high rates. lisa: is that a labor market story? people have pointed to the labor markets for the federal reserve to change, not raised rates as quickly. perhaps it is these less controllable factors like supply chains coming back online that will reduce inflationary pressure. jonathon: if we do get a bad number today, the ism, jobless claims. example after example of the market trading on bad news as if there were good news. lisa: good news can be good news, i understand that.

jonathon: i can understand how bad news brings a terminal rate down? in the long-term, if you have bad news after bad news, and you see a recession and this fed follows through which is no rate cuts and a recession, i think that is problematic. it is more questionable than just saying bad news is good news and they will back away, bye-bye. lisa: there is a nuance here that we are all attracting the wrong indicator in we will shift in the federal reserve as they look to flip these year-over-year numbers and maybe next week, the cpi will be the key figure that provides more insight. jonathon: once we get cpi we can forget all the other data.

futures right now, unchanged. lisa: he would go nuts right now. jonathon: equities are unchanged. s&p 500, up 4% on the week. a single basis point on the five-year. the kind of price action you would associate with the payroll. we are going nowhere. lisa: people don't know if it's good news, bad news. we get a sense of what the actual number is. payroll comes out, david kelly, south a research with another figure. jonathon: did you see what danny berger said, a really tight range.

190 thousand, the tightest range on high to low on the payrolls report. what do you make of that? lisa: are people getting more conviction? jonathon: it used to be so wil., lisa: also we are getting the u.s. administration response to the reports. marty walsh at 9:40. i was thinking to be interesting to see how he addresses it as well as president biden discussing that. we will have fed president john williams, into your point earlier, we have talked consistently about how they have all been on the same page. they keep talking about how they want to height rates. and they will not budge even in

the face of critics. jonathon: we will check in with bloomberg d.c. and just a few minutes time. when the history books are written, legalizing marijuana in america? lisa: this comes as president biden says that nobody should be in jail for using marijuana and abolishing that. basically, they trade off of that. jonathon: cio david ballin what are you in the team looking for? david: the high 200,000, but i

love what you were talking about because it really doesn't matter. monthly data when you look back on it, it is revised all of the time. what we will see today is in many cases an estimate of what is really happening. jonathon: what are the preconditions before you manage your risk? david: we take a look at the fed and its ability to keep rates high. after a couple of months of unemployment they will bring the rates down. when it comes to the think about -- thinking about what they are doing, it's a slow number to come down. i think what we are looking on

the equities risk, we have the ability to see what earnings will be next year rather than these huge variations. once we have a line of sign-on earnings we have a line of sight we will add equity risk and at that point you will have the ability to see the dollar peeking. right now, the fact is that the fed is on hold. lisa: it seems like you are on hold and people are winding themselves up into a tizzy. david: we are never on hold because the clients are always invested in the market. we saw a 6% uptick in hong kong.

those things matter so much to portfolios that they have to add equity to make those profits over time. what we have done is make our portfolios exceedingly defensive in terms of what we have them exposed to. we are dominantly in the united states, shares that are dividend oriented with lateral earnings. what doesn't prevent the down sign, it prevents the cushion and allows you to be in the market. lisa: how are long-duration government bonds? david: they are pretty defensive. i look back to see months ago and those bonds were worthless and portfolios but if you take a look at a 10 year yield bond and the inflation expectations that are baked into it, long-term inflation expectations in the market today at 2.4, 2.5%.

right now, we are not recommend that they extend duration because they are being paid so handsomely. i think that is another good play that is coming ahead of us. the fed is only able to keep their rates in place for a. of seven months on a peak on average. the expectations on the curve, they will keep it that way for much of next year. there's a lot of history to suggest that. once we get real data that we are heading into a recession, i think the fed will relent. jonathon: you are not the only one who believes that, the difference between what the fed speak despite what they signal. lisa: i love this discussion,

there are still rate hikes priced in for next year. even though the fed is come out saying they will not cut rates next year. he said everything worried about stability concerns. jonathon: monetary policy should be focused on bringing down inflation. the bank of england highlighted that by saying this is a financial stability decision. they have to make a separate decision about lowering inflation. lisa: the bank of england as a predecessor to what other banks are going to do. when it comes to the moment, they will have a hard time not responding to financial instability bringing everything coming to a halt. that is the reason why people are baking in rate hikes and hoping for a more dovish fed.

there was the biggest monthly decline in the balance sheet since november 2021. jonathon: coming out, the president out of fundraiser and new york city. some strong language from the president, we will catch up in d.c. in just a moment. from new york, this is bloomberg. keeping you up-to-date with news from around the world, i am lisa matteo. president biden is worried that putin threats of nuclear weapons are real and could lead to armageddon. biden said the u.s. is trying to figure out the russian president's offramp. the nobel peace prize has been awarded to human rights activist

from ukraine, russia and belarus. they were cited for documenting war crimes and abuses of power. the chair of the nobel committee criticized vladimir putin. investors will be watching the monthly jobs report very closely. it is looking to show 200 55,000 jobs since the decline in 2020. it would be an indication that the labor market is strong. our report comes out at 8:30 this morning. credit suisse announced that the cash debt buyback worth about 3 billion. it remains locked in turmoil weeks away from the announcement of a major strategic review. they have lost more than half their value this year. 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 lisa matteo, this is bloomberg. ♪ returning to the office,

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companies so they can increase production and we have refiner capacity. make sure we have enough inventory along the coast in the midwest, the west coast. we will continue to focus on bringing down prices. jonathon: that was from a conversation with amos ho chstein. futures look like this, we are about .1 percent. we are looking at 255,000 for jobs. he said something about the fed not wanting to make people unhappy. i went back to the speech from jackson hole to reread what powell had to say and it is worth replaying, they will also

bring pain to households and businesses. the goal is to make people upset just not as upset if inflation continued. these are the unfortunate cost of reducing inflation. lisa: mary daly who used to be on the more dovish camp came out just as aggressively and reiterated this in every conversation she had. not necessarily how tough it is to get a job because right now, it is not. jonathon: these are the comments from the president of the united states, warning of a nuclear armageddon. what me through those comments? annmarie: he is really upping the ante with jake sullivan saying that this is something

always putin has brandished but with the president coming out, they are trying to find an offramp. the president says, if he finds himself in a position where he would lose face and also power in russia. he is not joking, his military is significantly underperforming and this could end up in armageddon. what is going out right now from russia, what you can see across russian state tv is more pushback and criticism of the military. nothing happens without the blessing of the kremlin. they are allowing this criticism of the military and the question is, does this leave the door open for public opinion to say, in order to win this putin has

to do something better? jonathon: how do you respond to this? >> you see this clear west and east divide. we did not get any reaction from the french president. when you talk nuclear, it's not something you can casually mention. he never even uses the word nuclear. the eastern europeans have a different take on this. if you spoke to let the wayne yet, estonia, they say let's not take the bait. we know that whenever putin feels that he is in trouble he will always bring up the nuclear threats. you should not take the bait because it will only encourage him to get more forceful on that stance. when it comes to how do you offer him a way out? the finnish prime minister said the only way out of this is for

russia to leave ukraine. lisa: it raise the question about why there is a dissonance between jake sullivan and president biden. biden shakes off some of these as threats, but western european nations not so much. why president biden had such fiery rhetoric last night? annmarie: is it because the president is seeing more intel? is it because he has become more forthright with the press. he has said things that the white house continually walk backs. i remember that press conference what would the repercussions be if russia invaded? in the white house had to come back and say a single tank over that line, it would be a swift, severe response. the president often says things

out loud that other officials are more conservative when it comes to it. the second portion of that, individuals should not use foreign policy as domestic policy. this is something the president could be using to make sure at these fundraisers, we need to keep the right people in the right places to make sure we have this western front against russia and there can be no qualm about the aid we are sending and stay the status quo because of foreign policy concerns. when there are domestic issues, you see leaders point to foreign affairs. lisa: in prague, the energy ministers meet, how much is there talk about never relying on russia again for natural gas? maria: this is out of the

question, everyone says this is done. russia as a great energy supplier, energy power to europe and in general, this is over. you cannot go back to a normal relationship as long as vladimir putin as president. 40% of gas imports were coming from russia and now it's about 7%. what you see is prices going down and they are looking at countries like norway and nigeria hoping to renegotiate the contract. there is now a timeline, i spoke with the greek prime minister and he said in two weeks time, we need to have something on paper and make a decision with regards to the price gap and how we implemented. jonathon: a tough week for the white house on the international stage. lisa: how much of a lack of

response they had to it other than saying they have not used up their strategic petroleum reserve. they can sell more oil heading into the midterm elections but besides that, it is a huge number. jonathon: we caught up with bank of america speaking that we have not had the oil crisis yet. we have not had it yet, if the spr is exhausted, then we have a bigger crisis. payroll is just around the corner. sarah watt house wells fargo bank na is coming up. ♪

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jonathan: live from new york city, good morning to this payrolls friday. price action going into the number going two hours away looks like this on the s&p. s&p 500 -.2%. nasdaq 100, down .5%. we have a whitby week, -- whippy

week. energy names up every single day monday through thursday. those names on the group on the s&p up almost 15% in just four days. you can thank the commodity market. wti and brent look like this this morning. crude up more than one person. wti up -- we have more weight to that rally this money. lisa: i thought you were going to say thank you to opec-plus. look at earnings expectations. p will back out of energy companies all the time and say earnings are expected to be up. look at these positive earnings surprises. jonathan: did that remind you of the inflation story of the last 18 months? how do you run the story? lisa: and how much of that is

what we see with the data point, crack the narrative, trade accordingly and get further next week? jonathan: that was great. did you rehearse that? two tens and 30's look like this. your bond market trading as follows. 10 year yield looks like this, 385. two year at 427. yields up a couple basis points on twos and tens. lisa: they have been all over the place. talk about the volatility and the benchmark yield has been incredible. real yields are at the highest level going back to 2011 on a 30 year bond. real yields, inflation adjusted for the expectation of -- markets by. i'm going to get a lot of hate for this. you are seeing that climb with the feeling the fed is not going to be accommodative into the future. jonathan: we have been climbing

higher on a 10 year yield. this will be the 10th week. this will be week number 10 of yields just climbing higher. lisa: it does not feel like a steady climb considering how whippy -- jonathan: on the week, it closed things up on friday. that is where we are, a couple basis points up. jobs number not too far away. let's get there with sarah, the senior economist at wells fargo. i have a lot of notes. a lot of notes emphasize the participation rate in the labor market. is that a key one for you later this morning? sarah: it is a huge element. participation is the key to the fed being able to pull off that soft landing. getting more workers back, allowing more individuals to collect a paycheck, reducing some wage pressures and the broader inflationary pressures. i think the participation rate will be a huge focal point of

today's report. jonathan: the focal point this week was job openings. the jobs report dropping by more than one million. we have been having a conversation of whether that was a result of jobs being taken away or being filled. what is your read on that? sarah: i think it is a combination, perhaps towards more of those jobs being taken away. if we look at the direction of what we have seen in other signals of labor demand, things like hiring plans from the nfib has been trending lower since the start of the year. we see consumers own perceptions of job availability measured by the -- conference board come down. it is a sign labor demand is weakening, but you do have more people coming back into the labor force. i think that could help us put up decent jobs numbers in terms of that net gain in payrolls the next couple of on's. lisa: how important are hourly earnings when you take a look at

the stickiness the fed is concerned about, but is necessary? to keep the economy from completely tanking. sarah: we need to see average hourly earnings grow slow if we are going to be consistent with 2% inflation over time. unless we get a massive surge in productivity, which based on the latest data, even if you smooth the volatility, we are not seeing. while it does suggest households are in for a tough environment, where it is likely that average hourly earnings will still continue to trail inflation in the near term, it is unfortunately necessary and part of bringing down inflation, restoring that price stability side of the fed's mandate. lisa: we were just talking about the pain, jon was referencing the jackson hole speech and how jay powell was talking about how there was pain required to get inflation down. we have heard some people saying, the fed doesn't want too much pain. what is the appropriate amount

of pain? this is a painful way to ask this question, to use the same word over and over. what is the appropriate amount to achieve what the fed is looking for? sarah: i do not think we were the fed knows at this point. i think there is an element of inflation that has been caused by the distortions of the pandemic. even though transitory has become unfashionable and a dirty work, there is distortion that can be worked out which could help the fed. i think it goes back to your previous question on wages, and how there is so much inflationary pressure coming out of the labor market that we can get help on things like used autos, car crisis, -- car prices. with wages running close to 5% annualized, you will need to see weakness in the labor market to get inflation back down to 2% for the long haul. jonathan: there has been a bigger conversation over the last week i merrily because of developments in the u.k. that this fed could back off on

financial stability concerns. governor wallace said of this yesterday, a long with improved regulatory framework, i believe we have the tools in place to address financial stability concerns. the focus of monetary policy needs to be fighting inflation. sarah, if you are on the same side as that, is that what you believe the fed will ultimately do? let monetary policy have the exclusive goal of bringing inflation back down? sarah: i think policymakers will put first and foremost the fed funds rate, the goal of bringing down inflation will remain there focal point. when we look at the financial stability concerns aspect of that, i think to see a lot more break and more coal wrong before the fed begins to encompass that in their policy spending goals.

if you did see enough turmoil and enough weakness, that could filter into the outlook for the broader economy when we think about household wealth, hiring and investment intentions if they see so much volatility in markets. for now, the fed is going to remain focused on inflation and not deal with the financial stability side of things until they have to. lisa: when it comes to the united kingdom with financial stability, we were talking about guilds, bonds and currency. in the united states, there is discussion around the housing market and if there could be issue with financial stability there, not because there is leverage akin to the financial crisis of 2008, but household wealth standpoint and this question of how sustainable our mortgage rates are 7%. what is your view on how the fed is looking at that other than, we will get the price down? sarah: ultimately, you are seeing households in strong financial positions.

there is probably more weakness to come out of housing and home prices, but that has been one of the bossy or parts of the broader market and economy, contributing to the inflation perspective. this is a segment the fed was calling out early on as a area of concern. more fact reflects some of that correction that the are seeing. i think that is something the fed is ultimately looking at, but just a piece of the puzzle when thinking about the broader outlook and what it is going to take to bring inflation down. jonathan: we went for estimates this morning in a bloomberg survey, 255 is the median. does anything explain that? you have seen these massive ranges from economists, the low maybe being 100, the high maybe being 7000. what do you think explains the tightening up on wall street? sarah: we are getting further into the cycle, the pandemic did

throw a lot of distortions around the labor market. everything from the -- of supply comes back, the seasonal factors. as the cycle matures and we are seeing estimates get compresses, presumably, there is less one way or the other. you never fully know. we will see what happens in a few hours. jonathan: thank you, as always. sarah house. bank of england, range of headlines. i'm going to pick up one. we were talking about financial instability. bank of england bond purchasers set to buy time. by time for who? lisa: the trust administration or the central bank, how much they will have to hike rates. they didn't buy bonds for several days in a row. the bank of england refrained from buying bonds tuesday and wednesday. in those days, yields surge.

you saw a complete reversal of bonds sold off. you wonder, how much october 14 really is in a pivotal moment even though they say, we have not all of our firepower. the presence in the market, a huge stabilizer is that perhaps people are under appreciating. jonathan: -- up 50 points this week in the gilt market. quite a move. lisa: this is going to cost a lot of problems for a lot of households. how do you deal with that if you are a central bank trying to fight inflation? where does stability come into play? jonathan: -- and not doing yield curve control? isn't that the effort here? lisa: it is a narrow distention, you are hearing concerns about the ldi portfolios and tension funds and what they are doing with guilds. where does financial stability begin, where does this normal functioning leave off? jonathan: i like getting the

feedback on the terminal, everyone else in bloomberg is smarter than i am. i said, by time for who? someone said, by time for the lbi schemes. which is ultimately, distorted. from new york city this morning, payrolls around the corner. not too long from now. we are going to catch up with alexander of morgan stanley. looking forward to that. from new york, this is bloomberg. ♪ lisa: less then two hours from now, we will see if the hot labor u.s. market has started to cough. today's job market is forecast to show employers added a 255,000 workers in september, that would be the fewest since the decline in 2020. it is not expected to convince the fed to stop raising interest rates. president biden taken his first

major steps toward decriminalizing marijuana he has hardened thousands of americans convicted of possession of the drug and has ordered a review of its legal status. the impact given marijuana stocks up, rising in pre-markets. in the u.k., the labor market showing signs of cooling off according to the recruitment and employment considerations. companies are starting to impose hiring freezes because of pessimism about the outlook. employees are staying put rather than applying for other jobs, but pay continues to rise because job candidates are in short supply. bloomberg has learned talks between elon musk and twitter on his $44 billion takeover are stuck. the deal is contingent on receiving the proceeds of a $13 billion that sale. according to an april filing, several banks underwrote the debt portion of that deal. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more

than 120 countries. i am lisa mateo. this is bloomberg. ♪

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>> we need to stay the course. we said we were going to do this, we need to follow through and validate the expectations. until i see evidence underlying inflation has peaked and is hopefully heading back down, i am not ready to declare a pause. i think we are quite a ways away from a pause. jonathan: the minneapolis fed president making it loud and clear yesterday. i think we will hear from him again before the next fed decision. payrolls around the corner. 255 is the median estimate.

another group around 250 thousand, goldman sachs at the bottom at 200,000. yields are higher about a basis point. 388.88. s&p 500, unchanged on everything except for crude. we had a big rally be last four or five days. lisa: people do not understand what the decline in demand will be versus the decline in production, versus response from the white house. you -- a sea of uncertainty, not just in the crude market but or broadly. jonathan: what do you think the next giveaway from the white house will be if it is about jobs reports? i announcement on legalizing marijuana -- a announcement on legalizing marijuana? lisa: what you think? jonathan: i am not going to tell you. bloomberg economics has a big

call for next year. do you think fed funds will go to five? what separates you from everyone else, what do you think you can achieve the fed's fund rate of 5%? >> we perceived a change in their reaction a federal reserve. i suspect the -- of the -- star is higher than 4%, it is the neighbor, basically. a bid from the dot plot, they think it is up 4% now. i think that is a optimistic assumption, based on job matching data and how difficult it is to hire based on what we heard from surveys. it sounds like do stars more likely to be 4.5% to 5%. if you plug that number into any

standard policy reaction function, that would imply a fed funds rate five or higher. jonathan: some fish but you get, you may expense financial stability concerns before you get there. how do you answer that? anna: as governor waller said clearly, monetary policy tools are not designed for financial stability management. he fed has put out lots of report on that, the more appropriate tools is macro credential and micro credential policies, such as tightening the bank capital regulations. monetary policy is designed for stabilizing macroeconomic outcome. two things that would lower interest rate or pause or preempt financial risk, they are not sure at the expense of perhaps higher inflation. to them, it is a costly bet. that said, there are probably a

number of studies being done by the federal reserve and a number of others about how high rates could go before it does present a problem to the trillions of dollars in debt that have been issued during a time of incredibly low interest rates. do you have estimates of where things get a little problematic, considering the debt profile and the interest rates people have currently and where they would have to refinance that? anna: i think that test would be done in the supervision section, which would be running some stress test. i do not think that is of primary concern for the f ofc committee. to be frank, raising rates to this level will break some things. there will be an increase in defaults. into -- in 1994, mexico went into default because of the fed raising rates. that will happen, but their eyes

are laser focused on inflation. lisa: how is this time different than in previous decades? the fiscal response is not possible the same way it was in the past. anna: there is a inability to borrow at cheaper rates people have gotten accustomed to. lisa: how much does that factor into your expectation of growth in the long-term? anna: what the market has underpriced right now is the depth of the recession. i think given the fiscal response is limited, because we are already at a high trajectory of fiscal debt given our pandemic response, this session could last longer not -- recession could last longer not only because the fed decided not to ease, but there is not countercyclical fiscal policy. i will say, one silver lining on the fiscal front is the state on local government. powell said this during the

press conference, there is a lot of buffer at the state and local government level. the pandemic stimulus provided that $1 trillion to state and local government, there -- have been flowing due to higher revenues with property, higher tech revenue from income capital gains. they have been given checks, i live in virginia. i just got a $500 check, people who live in california -- jonathan: i need to move to virginia. lisa: for what? anna: they have a lot of money in the coffer. california people are getting $1000 checks. they are not the only states. connecticut, they are giving out gas holidays. opec drives the oil price up to $100, i am pretty sure given the fiscal buffers at the state and local government, we are going to see gas holidays provided by states. jonathan: this sounded super

bearish until the end. thank you. this is what it has come down to. we had the soft landing versus hard landing conversation. the other one is, they will break something, they will not break something, we will not go there. can that separate the bulls from the bears right now? lisa: anna is saying the inflation is real, the potential of breaking something is not enough to keep them boy from this. at what point does the market understand that and reprice accordingly? when do we go to the mack wilson issue of, what should the market look like if you discount any potential for removing some of the hawkishness because the possibility of something breaking? jonathan: the number one difficulty, where does the countercyclical breaking come from in a way where we play out in the pandemic and the next several decades? where does it come from? lisa: we heard about the state

and local government having you checks, giving you a gas holiday. how much of this is the future until it runs out? jonathan: doesn't this make you more concerned about inflation? lisa: the u.k. coming out with a plan to cap energy costs, with no discussion of capping demand. it becomes the problem. jonathan: that is the politics. that is why policy at the moment in a lot of places is increasingly in conflict. -- joins us shortly from td, a brilliant call from her earlier this year on yield curve inversion. yields up to basis points on a 10 year. your jobs report, just around the corner on your payrolls friday. this is bloomberg. ♪

>> the market has been on a high the last few days. >> we see volatility across all asset markets. >> we are going to look at a higher for longer story, not necessarily a scenario where banks are -- next year. >> the fed is going to struggle to convince markets it needs to do 125 basis points in the next two meetings of the year. >> this is "bloomberg

surveillance." jonathan: good morning. this is "bloomberg surveillance" your payroll reports not too far away, we are looking at 255k. lisa: how big do the numbers have to be to change the narrative on wall street, which if the fed is going to go hard, the economy is doing ok, there is signs of slowing but not enough to cause a serpent -- circuit breaker for the federal reserve? jonathan: we might get hijacked by cpi next week. all about inflation, they are looking at the totality of the data. there is one number that is a little bigger than the rest, it is inflation. that is the one that matters. lisa: that is what they are targeting more aggressively than anything else. they are willing to accept weakening in the job market and

other metrics to get inflation down. room ever when we cared about the university of michigan survey and it went away, and then we cared about dolts and it went away. how are they data-dependent if the data is shifting in terms of its importance, a read on this economy? jonathan: this data point, the next meeting is another data point. inflation is running at 8%. it gets ridiculous some time spread we are going to look at the participation rate and the jobs report later. if that does not get us excited about a surprise solution, inflation at 8%, the can they back off of cpi at a eight handle? lisa: they cannot. david bailey was highlighting this issue in markets, people believe they will raise rates significantly but will not hold them there long. if the fed comes out and says, yes, we will and everyone else

says, no. we are seeing that consistently and pricing. at what point does the fed have credibility to go through with what they are saying to convince markets to move in that direction? jonathan: a word on governor waller yesterday afternoon. what you make of that? lisa: he went through every argument for the bulls and said, you are wrong. jonathan: cold water. lisa: freezing. if you are worried about financial stability and think we are going to pause rate hikes, you are wrong. he went through each argument and tried to dash it. when could it get more clear than that? jonathan: he kept saying, no, you are wrong. that is the conversation. it is about whether they start the financial stability risk or not. lisa: do you think the federal reserve is regaining credibility? jonathan: the amount they are talking, the idea they are all on the same page, i do not think themselves they have regained

credibility yet. they are speaking the same -- repeatedly. to your point, if the governor were to go through point by point by point, everything equity falls would like to see into pushback, that tells you everything they need to know. lisa: they are listening to markets and saying, you are wrong, we are on the same page. you said it well, the fact they are speaking twice a day, three times a day to go through each point being talked about in markets. jonathan: the bulls and bears agree on, they all want it to stop. they do. price action this friday morning. equity market going into payrolls, looking at something around 255 k, that is the median estimate. futures unchanged on the s&p, yields up 384.89 on a u.s. 10 year. euro-dollar at 97.97. crude up 1%, wti 89.37.

lisa: what a muddle. chris webb on twitter said, we still care about the university of michigan sentiment. 10:00 a.m., we get the u.s. payrolls report. the low of 199,000, how much will it make a difference at a time when average hourly earnings are still rising at an estimated 5% year-over-year. marginally, much more uncertain in other areas. as every single fed official comes out and says we are going to continue raising rates even if something race, we will old of their peer today, we hear from the administration of what their response is to the labor report. 9:40 a.m. president biden speaking later in the day. how do they talk about a good labor market when you have a federal reserve pushing back and saying, this is a problem, we

need -- given inflation is up 8% or 9%? we have a daily fed show, it consists of the new york fed president and minneapolis fed president, atlanta fed president. again. how many times do they need to come out and reiterate, we are staying course. if you are pushing back, that is on you. jonathan: what are the vibes? what does that mean? what are vibes? lisa: how are you feeling today? jonathan: the vibes of the economy? that is sensitive. [laughter] talking about the vibes of the bond market from td securities. we keep celebrating your wonderful call on yield curve and version you said negative 40, maybe -50 long before we got those levels.

two tens -43, you've got a crystal ball. what is driving this? >> i do not have a crystal ball. there is a lot of uncertainty. the reason for the inversion, our payroll forecast argues for more inversion. is this idea, the economy response to a lag. there is a lead to higher interest rates. the labor market is tight, we are looking for a 300,000 payroll. the report is going to keep the fed on the mission they are going to raise rates. the front end is -- we are looking for 5%, the market is price for 4.6%. that is largely the price. it is the long end. as the markets reprice the front end, it has taken longer rates higher. that is what i struggle with. i think the fed's forecast of four point or percent by the end of next year looks optimistic, i

think they are going to tighten. they are telling us they are going to tighten. they've got qt tightening, that is going to slow things down significantly. if they want to keep rates on hold higher for longer, if the economy slows down meaningfully at some point, maybe it is not the end of point to any three, maybe it is the 2024 story. the 10 year is pricing over a long time, the fed is going to have to cut more of what is priced in. they need to take rates into accommodative territory well into the future. that is what the 10 year is pricing. i think the 10 year is sustainable at 4%. it is not a front end call, i think the call is that the long end is going to rise. we'll see growth rising, and a tone defect they will continue to raise rates. lisa: you called the fed tone deaf. how is the fed being tone deaf right now? priya: they are not tone deaf on

inflation. i think they have recognized there is a inflation problem, they want to keep expectations anchored. where they are tone deaf is the slowing in the economy, i think it is being dented versus tightening. where they are going to sound tone deaf, the economy slows down and we are used to a fed response and we are used to the preemptive response and 2019, things started to flow -- slow down and the fed said to cut things to be preemptive. i think the inflation -- reduces the policy space for the fed. i think they are going to want the data to tell them to start to cut, the data is going to slow down slowly. a lot of the data they are looking at, cpi, labor market is a highly lagging data. by the time we slow down, we will be well into a recession. i think they are tone deaf to the slowing down of the economy. lisa: you said something i want to pick up on on the 10 year

treasury yield going much lower in the future, people are discounting how much the fed is going to have to lower rates when we get that downturn. how -- what seems fair value, how do you push back against people who say we are entering a higher inflationary regime when the fed cannot afford to be as accommodative as it was the past few decades? priya: i would separate the 10 year into real rates and inflation excitations. if you believe -- commodity prices are already low, if inflation gets down to 3% by the end of next year or 2024, it is the aggression of real rates. can the economy have higher real rates? it is this narrative building we are entering a new nominal, the -- a new normal, the economy can handle higher interest rates. i do not think the potential out for for the economy or potential

growth is much higher. i do not think we can handle much higher real rates. 10 year rates are going to slow the -- sensitive sectors first. if you are nervous about inflation or think inflation might stay longer for, by real rates. i think there is evidence our equilibrium real rates are slower. you can decompose your view on the 10 year and have more faith in that real rate component. which is why it real rates are too high, they will not be able to sustain for long. jonathan: very quick, short scenario analysis. yields up, yields down. if we get a upside to price 400 k, can you tell me if it is yields up, yields down, and the same for 100 k. how does this play out in the bond market? priya: the fed is going to keep

going. they are not stopping. the long end will move higher, that is what i would look to start to go along. 100 k, i think it should be lower rates. further of the curve. you are -- the fed is telling you 100 is not going to tour them from going 125 this year in terms of continuing hikes next year. it is which part of the curve. 100 k is bullish for that long and. i would say equities is higher -- you have a hawkish fed or a slowing economy. jonathan: you would buy tens on this scenario, too. wonderful to catch up. your jobs report is not far away. 8:30 eastern time. before we get there, we catch up with alexander of morgan stanley and -- of ubs. looking forward to it. this is bloomberg. ♪ >> president biden worried vladimir putin's threats to use

tactical nuclear weapons are real and could lead to "armageddon." the president said the u.s. is trying to figure out the russian leaders offramp. but were new to his nuclear threats when he announced the annexation of territory in ukraine. nobel peace prize awarded to humans rights activists from ukraine, russia and belarus. they were cited for documenting war crimes, human rights abuses and abuse of power. at the same time, the chair of the nobel committee criticized putin and the government and belarus for suppressing activists. investors in the fed will be watching today's monthly u.s. jobs report closely. it is forecast to show employers added 255,000 jobs in september. that would be the smallest number since the decline in late 2020. it would be an indication the labor market remains strong. report comes out at 8:30 new york time. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries.

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>> we look to me heading to 4.5%

by sometime next year, which given how fast we have been raising interest rates is likely. jonathan: of the chicago fed, all of the doves sounding hawkish. do you make sense of this, lisa? lisa: there is the most hawkish among the group, james bullard who might end up being dovish later on because he doesn't need to continue hiking rates as dramatically. how much does this highlight the pain being felt by inflation and what that is doing to household budgets, not by the potential unemployment and the potential weakness in an economy that has not been realized? jonathan: payrolls one hour 12 minutes away. good morning. the price action going into payrolls shaping up as follows in the equity market on the s&p 500. futures unchanged, going nowhere. yields higher by about a basis point on a tenure at 383.67. 98 on euro-dollar.

crude, 89.28, positive 1%. for today, we were rallying hard. the bti through thursday up 12 percentage points. what did we call the spi yesterday? the strategic midterm reserve? lisa: i got pushback. people saying, this isn't appropriate because it is helping support financial stability of a nation going through a volatile time. i can see the skepticism in your for road brow, i wonder if that is echoed by other people or if they do not care. jonathan: is this the skeptical face? lisa: when you are going like this -- jonathan: come on. take a listen to this. >> we have had no oil crisis yet. the key word here is, yet. if you lose your ability to temper price acquisition, because there is a physical

disruption of oil and crude oil, you have those barrels in four. i think it is a real -- a problem releasing the spr right now. jonathan: maria tadeo and annmarie. amh, it is daye to -- it is day two of opec-plus follow. >> what you are hearing on capitol hill is this idea from lawmakers, even though they are back campaigning for the midterms, they are talking about saudi arabia and nopec, this idea that for 20 years has been kicked around. no president would ever sign this, the repercussions. this would basically give the justice department the leeway to go out and sue some of these countries are part of opec. right now, even though it is potentially a idea, you have senator grassley saying he wants to put it as anime meant to the spending bill.

his inbox was, my bipartisan with opec would crackdown on tactics from the foreign oil cartel. i asked -- widens top energy advisor about this, the statement from jake sullivan and brian deese. he said, i will let you read the tea bees. the administration is sending a warning shot. the mention of opec would give both officials nightmares. lisa: they are pushing back. i would love you to weigh in on this. we heard the oil price caps for russia, europe is talking about, was part of the reason for why they are wanting to cut reduction because of the extra uncertainty introduced by this. do you understand what these price caps are and how this is factoring into the political decision? keeping you up to date with news from around the world, with the first word. a lot of people are trying to -- annmarie: a lot people are trying to understand -- lisa: go for it.

annmarie: i will say, my thoughts on the price gap. i will hand it over, this is a huge issue for europe. u.s. officials want this to happen, it is the europeans that want to implement it because they are the one that have sanctioned that russian oil landed is the -- who have this transaction for this in terms of the ship building. the opec side, wet they do not like, -- what they do not like, they think this would upset -- this would set a bad president, the united states could decide what a producer is selling their oil at. lisa: maria, what is your deal? maria: i would say, day two of a summit by my standards in 30 minutes, it is time to break up for lunch. european leaders are locked up in a room trying to figure out what they want to do with energy prices. what is striking, i have heard

nothing. this is not a conversation about oil at all, this goes back to the fundamental issue. this is incredibly political, domestic agenda to the unit -- to the u.s. the europeans are focused, almost exclusively on gas. they are debating the price cap. there is five different options on the table that are part of the problem, they cannot agree on a solution because they have not figured out which of the options could slide. the other thing that is being debated, potentially new, the european union is saying we could perhaps revisit the tactics we used in the pandemic. we buy gas as one single unit. and outbid h other. this is something the french president floated, said could be a good idea. not as -- buy as individuals, not as the e.u.. the question is, who decides what gets what?

jonathan: maria tadeo in prague. annmarie ndc -- annmarie in d.c. you refused to step on each other. lisa: this is why, zoom medication and delays were problematic in the pandemic. it is awkward, you let the other person go, come on. this is the big take away from the pandemic. it was brutal. i give them credit, it is not easy. jonathan: there were moments it would go silent, i would have no idea we were in commercial break or not and i would stare down into the barrel of the camera and talk on my own. lisa: my kids would be eating breakfast on the couch, be quiet and be creeping over to the sink. i would be like, come on. jonathan: let's reminisce together.

payrolls are an hour away, we are looking at 255,000. the range has been wide, and all of a sudden, it is tight. i wonder what that tells you. lisa: maybe it is that no one wants to take a big yes, things are chugging along. when do we hit the precipice when we see a shift that changes the discussion where you care more about the job support? jonathan: which one is the high? jp asset market -- morgan management. jobs number 60 minutes away. we catch up with alexander of morgan stanley in a moment live from new york, this is bloomberg. ♪

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jonathan: live from new york city, this is "bloomberg surveillance." one now or away from payrolls report. s&p and nasdaq, futures going nowhere on the s&p 500 nasdaq 100 down .3%. s&p, up 3.34% on the week driven

by what has happened in energy. energy names on the s&p 500 as a group up for teen percent the past four days. wti proved thursday up 12 percentage points,. up more than 1% on wti crude, brent crude 95.42, up by 1%. let's talk about the bond market. 10 year coming close to grinding out another weekly gain on the yield, for a 10th consecutive week. yields higher by two boys -- basis points. lisa: we cannot overstate how significant that is. i want to look at a couple single names, in the semiconductor space. amd reported earnings last

night, they said third-quarter sales projections missed expectations by more than a million dollars. they said things are moving quickly, those shares down more than 5% premarket trading. this echoes what we have heard from samsung, intel, those shares down sharply year today. you are seeing more than 50% declines for amd, nvidia, tells share. you wonder at what point this is the signal for something broader to just a rapidly shifting cycle where people are buying personal devices, they have built up inventories and are not seeing the same orders. is it that same stop and go in that specific sector, or is it a broader statement that is going to hit other big tech names in a fundamental way because of real yields, the changes in monetary policy? jonathan: alvin reporting, suggesting there is a demand issue. remember the original khris

call, he is saying the earnings are going to come much quicker now. lisa: if amd, samsung, intel, these chip makers are any indication of a broader economic slowdown, particularly in the chips sector and the electronic devices people bought feverishly during the pandemic, the -- this is sending a bearish signal. will we see the data in the labor market? great to see you. i said this to sarah house, what is this going to be in 60 minutes time? >> i think headline is what markets are going to be focused on. fed needs to see substantial slowdown in job gains. participation from the medium term standpoint, we need to see more flows back into the labor market. immediately, we look at primates

labor force participation, strip those out less than 25 years old, older than 54 years old, we call that the prime age participation. we went to see those slows continue to come back into the labor market. regardless of how many job gains you've got, that is going to help you take pressure off of wages. that is a problem for the fed, when inflation is that high. jonathan: what do you think the job openings, what you think the message is from the job openings declined from this week when it comes to the story of getting supply-side response? ellen: i think of job openings as missed. what we have been hearing from companies since this summer, this comes from our equity analysis, companies have been telling us, look. we have hired the need to fill positions we have nice to have positions that have been open for a long time, we have not been able to fill them, they are

going to go away. that is the drop in job openings we are seeing now. that typically leaves slower hiring or slower payroll gains. that is encouraging to us that we are going to be right, you are going to see a more substantial slowdown in job gains. it sounds terrible, economists are the worst. that is what the fed needs to see for them to be comfortable that they are dinging the real economy. lisa: the fact we haven't seen worst data, the perverse inclination of economists that want to see inflation slow. the fact have not seen that weakening, how far away are we from the possibility of a soft landing? how much further are we then we were three months ago? ellen: it is the case all your, revisions have been going higher for inflation, lower for growth. inflation has moved into the very sticky part of the economy. as we -- it is going to be hard to get a substantial slowing in

rental prices, which is the biggest component the fed is concerned with. you've got to get the unemployment rate higher. as we are moving into next year, you are going to see more evidence of the trend in inflation softening. not a big drop, but softening. at the same time that you've got a drawdown in these job gains. that sluggish global economy, sluggish u.s. economy with evidence of that would tell you, ok. we can be more certain this trend is going to continue. that is one reason why when we talk about the fed pivot, what does that mean? does that mean they go from hiking to cutting, hiking to stopping? the first pivot is hiking to slowing those hikes. that is when markets and risk assets grab onto that message, that is the beginning of the end of the hiking cycle. as soon as you indicate you are comfortable to slow the pace, that is what we are waiting for. lisa: is it appropriate at that point to feel list on risk

assets, based on the fact you have seen the weakness that will necessarily lead to weaker profits, persistently higher on the plummet rate if you believe the stickiness a lot people speak about once people lose their jobs? ellen: i think this is the biggest debate that economists are having with strategists. in one sense, you are saying, ok. i am encouraged we are getting to the end of this hiking cycle. if you are getting to the end of this hiking cycle because things are bad, cannot be a bullish sign? you've got to have some signs the economy is slowing, but is not going to be a disaster. we have gdp growing .5% next year. statistically speaking, no different than putting a negative sign in front of it. we are walking a nice edge difference between a soft and a hard landing. jonathan: some banks have a negative sign. bank of america is one.

-- is expecting the first quarter to be negative three quarters growth next year. we asked him if the federal reserve would be cutting, he said no. do you foresee a scenario that could play out where we get a recession and they do not cut interest rates? ellen: they will cut interest rates, there will be a recession in -- the fed has lagged. they have to wait for the body of evidence of the data to come in. it can be lagged when you get evidence of negative straight quarters. it all comes down to financial markets at that point. you can be in a recession with high inflation. our markets in disarray is liquidity hampering, our credit conditions to tear rating. that is why the fed would be to respond. if a recession is coming with that. we got negative growth in the first half of this year, and they did not cut rates. we also have the fed cutting in

december 2023, later than the market expects because inflation is going to still be high even with growth as weak as we have it. lisa: what does this mean for longer-term expectations of growth, given this economy is based predicated on rates that are incredibly low, on debt that has been issued at near zero rates or benchmark rates, and suddenly, we are talking about protective period's of time with north of poor -- 4% fed funds rate. how much lower will growth have to be in the world's slowest economy over the next five years? ellen: i would think of it as separating cyclical from a longer run view. thanks of the longer run dynamics, nothing has changed. the demographic backdrop is the same, productivity metrics are about the same, it is one reason you do not see the fed revised their estimates for longer run potential growth in the economy. stick quickly -- cyclically,

we've got to digest higher rates than we've had in quite some time. what matters is, the shape of the debt you are carrying. households are locked in at low fixed rates, 97 percent of mortgages outstanding today are being held at a 30 year fixed rate. the fed is raising interest rates, the bulk of the household balance sheet interest expenses are not changing. for corporate's, we hit covid, rates zero. they recite, the debt coming due is pushed out to about 2028. you're talking about the next three or four years. because of the composition of the balance sheet in households and corporate, it is not as big as a problem as you would think in terms of growth. jonathan: it sounds like all roads lead to a high terminal rate. do we have to push it higher to slow this economy down? ellen: there is a near-term

neutral rate, you hear the fed talking about that. inflation is high, labor market is tight. they do not -- they have to go further, they do not know how much further. longer run, the dynamics have not changed. at some point in a beautiful world, there forecasts are in a beautiful world, you start to normalize policy back toward that 2.5% neutral rate they think the economy should be running out. jonathan: why are there forecasts ways in a beautiful world? ellen: the modeling always looks to return you to this beautiful -- there is noise beauty in these forecasts. lisa: there forecasting out to 2025, if any economists tell you they are forecasting out, they are lying. ellen: you can get the narrative right. they guarantee you the numbers will be wrong. the longer you go, these models are going to return you back to this beautiful equilibrium. lisa: a lot of beauty. jonathan: we need to cut that.

lisa: over and over. every time someone speaks. jonathan: it was awesome having you in the studio with us. 250 k today, right? ellen: yeah. jonathan: payrolls report, not too far away. this is bloomberg. ♪ lisa: less than an hour from now, we see if the hot u.s. labor market has started to cool off. today's job report is forecast to show employers added 255,000 workers in september. that would be the fewest in a month since the decline in late 2020. even if that happens, it is not expected to convince the fed to stop raising interest rates. president biden has taken his first major step toward

decriminalizing marijuana. president pardoned thousands of americans convicted of possession of drug. he ordered a review of the legal status. the president's actions have given marijuana stocks in the u.s. a jolt, they are rising in every market. china showing its cloud on the world stage, united nations blocked the debate on china's human rights abuses engine jang, weeks after publishing a report on the matter. the u.s. proposed draft resolution of the human rights council was narrowly blocked. china has rejected allegations that it abuses -- and muscles. it was the bank of america's last remaining legal hold up from the financial crisis. tsa has agreed to settle claims by am back financial regarding residential mortgage, backed securities for more than $1.8 billion. the bank says it expects the pretax expense of about $354 million for the third quarter. global news 24 hours a day, on air and on "bloomberg quicktake."

powered by more than 2,700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg.

>> we have tools in place to address any financial stability concerns. we should not be looking to monetary policy for this purpose. the focus of monetary policy needs to be on one thing, fighting inflation. jonathan: mr. waller, the federal reserve governor pushing back hard against those that think this fed is going to pause over financial stability concerns. lisa: how much do you think they read the endless notes on wall street and go .5 point and decide, no, no. otherwise, what are they responding to?

is it other fed officials, is it andrew bailey coming out and being like, think about this. jonathan: the bank of england started the conversation in a big way. did you get the note from stephen? when i read that, i had to check the date to make sure it was dated october 6 and not october 6 12 months ago. lisa: dirty words, inflation and -- put together. jonathan: steve, had to read it twice. transitory disinflation again, really? >> what i meant was, people who are fans of the strong dollar because they say it leads to disinflation, we have had strong dollar episodes before. unless you think it is going to last forever, the dollar comes back and you give it back. you get back to disinflation. to me, it is not a particularly

compelling argument. backbone of inflation is -- inflation through most of this period, that is what should have been affected by the dollar and didn't have that much of an impact. yet, what we are seeing is that the dollar is causing a lot of problems globally in emerging markets and elsewhere. it was the case to be made, if you think you are getting benefits from a strong dollar, this reverse currency war is playing your way, that you are probably fooling yourself. lisa: basically, to simplify this. strong dollar for longer? steven: it could be strong for longer, does not mean the dollar is stronger for longer. obviously, it depends on how risk asset types goes, the dollar has very much been propelled by risk aversion. it depends on rate differentials and how the u.s. economy goes. that is what we are waiting on,

the payrolls report this morning. lisa: we were talking about chris wallace, shedding some cold water on this idea financial stability can discerns --concerns could cause the fed to back away from rate hiking plans. a strong dollar very much falls into that question, people talking about financial stability concerns outside of the u.s. at what point based on how much strengthening we have seen versus major currencies, at what point from your vantage point does it create a destabilizing effect on the rest of the world? steven: i think when you begin to see cds blowout, spreads widen, from the point of the fed if you begin to see domestics and finance still institutions -- financial institutions under pressure because there is pressure abroad that they were not aware of and the market was aware of, they think it does become material. the thing you are never going to react to this, something your

kids are never going to bail them out if they fail to spend their allowance. you throw in the towel, they do not want to do it clearly. there is a point in which they will. jonathan: it is about signaling something. there is a difference between what they want to signal and what they actually do. talk about the signal you would take for the fed to start decelerating rate hikes? they lay the groundwork for that, how do you think the dollar response to it? steven: i think the dollar would fall. i think that would be a good thing. i think it would be sensible, even though our forecast is that they do 75 at the next meeting, i think it would be sensible to settle at 50. if it turns out to not be enough, we can add a hike or two in 2023 two bring things where they -- where we want them to be. there is enough signs the economy is slowing down, i do

not think you have to have your foot jamming on the brakes at this stage. jonathan: within q 10, how would you like to position for this? steven: i think the two currencies that have a chance of appreciating is, one is the ye n. it is supersensitive to rate differentials. improvement in risk appetite, everybody hates commodity -- right now. i think there is room under 65, there is room for it to pick up on good news. it is a bar go view. jonathan: is that a commodity story for you, the fact the rba is back, what matters more? steven: i think it is a risk appetite story. everyone is down on activity and where risk activity -- risk appetite is going. it is the data. lisa: how difficult is it to go

along on the and proactively in case there is a shift from the federal reserve? steven: i do not think it is that hard. we did a piece earlier this week, arguing the japanese intervention has been successful . not a homerun, maybe a double or something. they spent 20 billion. for a week or two without doing anything, you can see material impact in terms of the way the yen was trading. i think they can successfully impose a ceiling. if they were more aggressive and they gave hence they were eventually going to back out of yield curve control, i think they would be successful in strengthening the yen. jonathan: awesome to hear from you. we are waiting to hear what happens to the bank of japan once the governor steps aside. lisa: there is a theory that is what they are waiting for. when he leaves, they will allow

it to go away. he is not going to allow it to go away under his watch because it is basically his flagship program. jonathan: what does the bond market look like? i wonder what the bond market looks like that morning if they step away from yield curve control. lisa: it cannot be ripping the band-aid off. it would be so dramatic, when people talk about the yen they say the bigger problem is in the japanese bond market. it is not a market. it does not trade. it does not have active bids and asks, it does not have people accustomed to finding market pricing. jonathan: i wouldn't certainly express that in the jgb market, but i would be interested in doing it somewhere else. highly liquid bond markets elsewhere, you would expect yields to ship higher off the back of the decision from japan. lisa: i expect you are referring to long-term treasury yields. that is the bare case for longer term treasuries, if there is more movable yield curve control

in japan. the ripple effects to the u.s. markets would be significant. jonathan: steve englander are looking for 250,000. that is a long list, they are all tight and packed up around 300,000, 250,000, 200,000. lisa: i do not know what to make of it. that is why i didn't have anything particularly intelligent to say. jonathan: i was wondering. lisa: now, it is a tight range. i have no answer. jonathan: and about 35 minutes, the jobs numbers are going to drop. our survey estimates, 250,000. we will catch up with nadia of ubs, looking forward to it. from new york, this is bloomberg. ♪

>> what is driving inflation is low pay, low wage, low skill jobs. >> they want to see some

moderation in the labor market. >> have to look at where the situations are fragile. >> i certainly think we can live with interest rates being much higher. >> if we have some surprises the market is looking for good news, i think it will react. >> this is "bloomberg surveillance." jonathan: payrolls 30 minutes away. live from new york city this morning, good morning, good morning. this is "bloomberg surveillance." alongside lisa abramowicz, i'm jonathan ferro. counting you down to payrolls friday. brammo, futures totally changed. lisa: everyone is excited for this data point. i think it is going to be important to see how the labor market is progressing. i think right now to understand if this is going to have any determining effect on the fed's path or the narrative is a bit of a stretch. so with -- so what is the marginal trading come from?

do we interpret if this is closer to a soft landing or the fed going jonathan: -- following the 1.1 million dollars -- 1.1 million plunge in job openings would serve as a sign that tighter financial conditions are gaining traction on the labor market. lisa: this speaks to what bruce at jp morgan was saying. 100,000 jobs being created consecutively would cause some sort of pause, some sort of reassessment at the federal reserve. will they signal that? this is an honest question because they have been coming out and have been basically watching the markets and saying, guys, stop with the hoax, quit it. jonathan: if they signal we are going to go to 50, to 25, you have a decent idea of how this market response to that. we know this fed wants to keep conditions tight.

it is bizarre, isn't it? all of the fed speakers doing something, they are trying to cap financial conditions and make sure the market does not run away. lisa: they are very concerned about inflation. they won all the help they can get. what we are grappling with is monetary policy does not have that much leverage to push and pull. the one they have is making sure that markets appropriately tighten, that it is difficult for you to be able to raise money at the same kind of pace. they are going to go with at the same time people are wondering whether the labor market is not the place to be looking for what is to come. jonathan: when we get the report next week will we be talking about the data point that drops in 27 minutes' time? lisa: that will depend on whether it is coherent with the narrative the cpi print highlights. if it is coherent it will matter, if not then cpi will take precedent. jonathan: the jobs report 27

minutes away. hour after that, opening bell. yields going nowhere on the 10 year. euro-dollar not doing much either, unchanged. you have unchanged futures, unchanged to euro-dollar, unchanged 10-year. the thing that does change is crude this week. crude has been flying over the last week. the commodity up by around 12%. the energy names on the s&p, a 15% move in four days. lisa: this is because of opec-plus saying they are going to cut production by 2 million barrels, although the actual cut will not be that much because they have not hit their production target. this raises an issue, though, of spare capacity and how much higher long-term oil prices could go. you were speaking about this, and this really feeds them narrative, it is going to be a tough winter. jonathan: he has some concerns about how we using the spr.

perhaps next year if we have a real crisis in the crude market, he was keen to point out we have not had one yet. lisa: if you end up with some of the lowest levels in petroleum reserves going back to early 1980's, what kind of ability do you have to offset some of those prices? people raise the issue of going into the winter, some of the diesel prices. how do they offset that at a time where that is going to be bigger? jonathan: operation midterms. is this the final jobs report before the next midterms election or do we get one more? i wonder about the timeline going into the midterms and whether this administration can get there. the democrats can get there before we start to see the cracks in the labor market. lisa: i'm pretty sure we have one more, but it comes after the fed meeting. jonathan: it is sandwiched in between? lisa: some really interesting moments. jonathan: fascinating next month, it really is. joining us now is nadia lovell, senior strategist at ubs.

wonderful to catch up with you. those decelerating rate hikes from 75, 250, 225 everyone is hoping for, is that sufficient to add to equities here? nadia: i think so, but we do expect the market to remain volatile. these rallies, we continue to expect them. the fed remains determined to bring down inflation, and they have been clear that they will not blink. so it all depends on what the damages to the economy at the end of the day, but we remain cautious in this environment and are focused on areas of the market where we can be more durable in the face of economic slowdowns. areas like health care, as well as consumer staples. lisa: quickly, november 4 is the next payroll. jonathan: what a week. lisa: it raises issues about how quickly this market is moving. nadia, do you have a sense that

circumstances are moving faster than the lagging indicators of the previous month's jobs report can give us in a time of such change? nadia: yes. the fed has been aggressive, so it has not had time to stop and see what is happening in the economy. we are seeing signs of slowdown. earlier this week we saw a decline in the number of job openings. your seeing areas of slowdown. people are now doing hiring freezes. look at where the mortgage market is. by the time we get to the end of the year we think that is when the fed is going to stop and pause and look around and assess the situation. we are looking for a 75 basis point hike in the november meeting. we think we get 4.5% by the end of the year, then after that we

think the fed will remain on hold and assess the lag that monetary policy tends to have on the economy. lisa: lummis ago jon was talking about some of the price action. it is dull in a lot of the asset, but not oil. we have seen that this week, this incredible rally on the heels of what happened with opec-plus. how have the recent machinations affected your view on the energy sector there, when at one point people were saying it was overbid heading into a downturn? nadia: i will tell you, we have been positive on energy for most two years now. we remain positive. the rally has resumed, and it is one of the few sectors that has this uptrend, and we are concerned about the earnings outlook. we continue to believe oil prices are going to move above $110 by year end and remain that way into 2023.

obviously we continue -- the continued upward pressure will come from the ban on russia or -- russian oil later this year. we are going to see increased demand away from natural gas, even up at pressures there, and the substitution for oil. profits remain healthy, so we continue to remain positive on the energy sector opportunities. jonathan: are we redefining how we play defense in the downturn? nadia: yes. traditionally you would lean into all of the defensive sectors. as i noted, health care answer -- and consumer staples. energy has been a cyclical sector, but we think there is opportunity there because we are less concerned about the demand picture. he sort of have to have a balance in this new environment. it cannot all be traditional sectors. jonathan: what about the banks? how do they fit in? nadia: we have been neutral on

financials given market volatility in capital markets. as we head into the earnings season, the main banks should be able to benefit from net interest income side, given the fact we have this increase in interest rates and they will pick up on the industrial and consumer sent. -- consumer side. the wildcard for banks remains position for loss. there might be need for them to build up reserves. as we head into 2023 there is some -- [indiscernible] jonathan: going into the jobs report 20 minutes away, redefining defense in the equity market. talking about energy going into recession. crude $90 a barrel.

lisa: other people agree with her. we talked about earnings, they are leading the charge. i want to pick up on our point about banks and building reserves. there was a point out theoretically about banks that may have committed -- jonathan: a theoretical report? lisa: may have financed elon musk's twitter acquisition. some have it being $500 million based on where they prized things out in april. if they sell all of the debt they promised to finance. jonathan: jp morgan is next friday. for that, morgan stanley too. i think we have to discuss it. we will do that next week. goldman was on with us yesterday and talking about the defense you could play in the european banks. they have been more defensive than perhaps some people think. did you see the story from the ecb this morning? the european central bank

ratcheting up pressure on banks to keep 2022 bonuses in check amid fears on the darkening economic outlook. that is the ecb and what they think about banks going into the downturn. lisa: credit suisse is buying back bonds. head of, you know, whatever is going to happen. jonathan: fascinating stuff. randall kroszner is going to join us, at the university of chicago, and the former fed governor. we will do that shortly. from new york, this is bloomberg. lisa: keep you up-to-date with news from around the world, i'm lisa mateo. coming up in a few minutes we will get a look at the monthly u.s. jobs report. it is forecast to show employers added 255,000 jobs in september. that would be the smallest number since the decline in late 2020. it would be an indication the labor market remains strong, and could have an impact on what the fed does not. the nobel priest -- nobel peace prizes have been awarded.

there were cited for documenting human rights abuses and abuse of power. at the same time, the chair of the nobel committee criticized vladimir putin and the government of belarus for suppressing activists. president biden has taken his first major steps toward decriminalizing marijuana. president pardoned thousands of americans convicted of possession of the drug. he also ordered a review of its illegal status. meanwhile, the president's actions have given marijuana stocks a jolt. they are rising in pre-market. tesla's truck will roll out before the end of the year. elon musk said production had begun and the first deliveries will head out summer first. the rig was first unveiled in november 2017, but the launch was delayed due to a lack of battery availability and a decision to focus on its consumer models. 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 lisa mateo. this is bloomberg. ♪

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>> with inflation running well above our 2% goal, storing price stability likely will require ongoing rate hikes, and then keeping policy restrictive for some time until we are confident inflation is firmly on the path toward our 2% goal. jonathan: lisa cook, the federal reserve governor at the peterson institute. her first address at -- as federal reserve governor. in morning to you all. counting you down to payrolls. the data 12 minutes away. equities shipping compass follows -- not doing much at all. we are up about .1% on the s&p.

euro-dollar going absolutely nowhere. unchanged, unchanged, unchanged going into this one. lisa: except for one figure. jonathan: crude. lisa: we are seeing that increase pretty substantially, following a week of gains that has been extraordinary. especially given the downturn people are talking about. jonathan: we are going to get things set for you. mike mckee is going to enter the building at any moment. randall kroszner is going to help us break this down too. great to catch up with you. the number, about 11, 12 minutes away. walk us through what you will look for first of all. >> key thing is we want to see if the market is beginning to weaken. i will invoke milton friedman's famous phrase that monetary policy has impacted long and variable lags, and it is just as

true today as it was then. monetary policy we typically think of having an impact in six to 18 months. it is about six months since the fed started its tightening cycle. i think we are going to see some weakening in the labor market. lisa: given the fact you were once a fed governor, can you translate for us what we can understand from chris waller's discussion of point by point taking apart all of the bullish equity strategist out there, every argument, and saying, no, we are not going to stop our hiking? not because of financial instability, because of employment figures? mike: what happened -- randy: what happened was that after the late july meeting i thought powell was very clear about what they were going to do. the markets would not accept it. everyone started at -- started coming out saying, we are going to keep at it.

in jackson hole, i'm going to say one thing a times, which is we are going to do that. [laughter] i think what has now happened is, the fed is -- has kind of entrenched themselves. no matter what happens we are going to do it. which i think is broadly the right message to be sending, they should still be taking things a little bit more nuanced about what the data will say, etc., etc. they have gotten themselves into a corner, which is a good corner to be in, because they have to execute on this, but i think they got there in a way because the markets were not believe what they were saying earlier on. lisa: you still have people questioning it. you heard stephen englander say it is like a parent saying if you spend all of your allowance money i'm not going to give you any money for lunch, and you say, just kidding, i will give you some, but don't do it again. basically the market is saying that is what the fed is doing as

well. are you saying the same thing, it is important for them to stick with this message? mike: it is none like the message, but i think they really are saying, ok, we are not actually going to be as nuanced about the data. do not hear them say we are going to be data-dependent, you hear them say we are going to keep at it until inflation is down. that is a different way of approaching it, so i think there is going to be -- i think it is going to be brutal going forward. i think they're going to get to the low fours soon, and they are going to stick there. of course, mr. putin could do some things that up and everything, but i think they are pretty strongly committed to this. jonathan: if the federal going to keep hiking, they basically told us that, they are waiting for a string of evidence we are headed in that direction, what do you think inflation needs to

be on headline come to that conclusion? randy: it is not where it needs to be on headline. a focus on the personal consumption expenditure index, the pce rather than cpi. that is running at a lower level than the cpi's. it needs to be coming down. to see the direction and see that, i would say, probably you would not start moving down until certainly it is under 4%, perhaps even under 3%. jonathan: we are at 8% right now. it is a problem. what is that? randy: that is cpi. pce is lower. jonathan: are you saying we would have to be at 4% pce? randy: they focus on pce. jonathan: i understand that. randy: the relationship between

cpi and pce, sometimes they are closely related, sometimes they are not so closely related. they are not focused on cpi, so i don't have a view on that. jonathan: they change their mind on that every month, as you well know. randy: well, i think that is a little unfair. they have been focusing on pce for a while. they do talk about the other pieces, because that of course affects people's quality of living. their primary decision-making is going to bpce and headline, primarily core, because core gives you more information about where things are going. it is always best to put policy in the front view mirror. jonathan: randall kroszner is going to stick with us going into payrolls, which is about six minutes away. a more diplomatic than either of us. lisa: which is the reason why he was on the federal reserve governor board and neither of us are. not the only reason, but my

point is he is making an interesting point, which is originally it was about sentiment. which is the reason we cared about the university of michigan sentiment survey so much. and expectations becoming on more. do they pivot back to the pce, the core pce kind of metric to determine when to really take the pedal off the break? jonathan: i would like to give mike mckee the final word going into payrolls. mike, you're number one thing you are looking for? mike: job growth. the fed is looking for a sequential slowdown. we could look at the unemployment rate and participation rate, but the fed has gotten to the point where they don't think the precipitation -- the participation rate is going to go up more. let's look at the headline number. one thing mary daly said is, we are data-dependent, and data is a plural word. they are not just looking at

pce, they are looking at every other inflation measure, and the university of michigan. they want -- what was the word? totality. jonathan: the totality of the data. jeffrey rosenberg is going to be with us as well to break down that number in about four and a half minutes. here is how the stage is set. the equity market not doing much at all all morning. foreign-exchange as well. you're looking for 255,000. unemployment, 3.7%, in-line with the previous month as well. futures up by about .1%. the jobs number, up next. ♪

jonathan: 10 seconds away from the payrolls report in the united states. mike mckee ready to break that down for you. futures totally unchanged on the s&p 500. a little bit firmer now. with the number, is mike mckee. mike: we come in almost-on. if you are looking for 263,000,

you have won. that is the nonfarm payrolls from the month before. private payrolls up by 288,000. the forecast was for 250 5000, so we come in very close to what the consensus was. the unemployment rate drops to 3.5%. i guess we had fewer people who were looking for work. we will take a look at that in a second. average hourly earnings up .3% on the month. that pushes the number. the labor force participation rate drops to 62.3, so that is probably why we are seeing the unemployment rate to what it did. the change in private payrolls last month was revised down from -- revised down to 275,000. it looks like we are getting weaker numbers. this is the kind of drop, a sequential fall, the fed would

be looking for to suggest their medicine is working, starting to at least. jonathan: meat narratives around the payrolls report and market action, and i got whipsawed by the price action several hours later. futures are down by .75% on the s&p. positive going into the print. coming out we are negative. yields are higher by seven or eight basis points on a two-year. a ten-year up five basis points. i wonder if we are picking up on the upside surprise on the payrolls report. and that downside surprise in unemployment, and participation too. mike: the downside surprise in unemployment is what is doing it. the number is -- the number exceeding the forecast is not that great. it is 13,000 higher. some 11,000 higher in july. but august was not changed. labor market strength is about

what it was, getting weaker, but then it becomes a question of who is getting the jobs and how many people are in and out of work? i'm looking here at the employment and unemployment numbers. the labor force falls by 57,000. remember, it rose by 768,000 the month before. that is going to account for why we are seeing the unemployment rate drop, and the number of employed rises by 80,000, and number of unemployed -- the number of employed rises by 204,000. the number of unemployed falls by 251,000. lisa: not an extraordinary number, but on the margins this is not what the fed wants to see. where you are seeing is a shift away from the perfect landing of seeing more people coming into the labor force in creating a bit more slack to potentially loosen some of the price pressures that you are seeing. how would you interpret this using the other data points, as

mary daly pointed to, in terms of how much further they are away from their goals? mike: it is hard to say they are far away from their goal, because we did see the number of jobs openings dropping. mary daly was here it -- here the other day and she was suggesting the unemployment rate would trail other indicators, because there are a lot of jobs available, even if they have come down. so the number of people who lose jobs would fall, as people could take jobs that were out there. it may not be as bad as it looks. there are some who think we will get to 3.4% by the end of the year because of that. we are going to see a title labor market in the unemployment side, the household side. but we are seeing a drop in wages and a drop in the number of people getting jobs. so, overall a reasonable number. jonathan: should we do the totality of the data?

mike: yeah, well, 75 is the bar and it is going to be hard to bring that bar down for the fed. this number would tell you that 75 is what you want to do, because the labor market is still strong enough. i don't think cpi is going to fall enough that we get down to 50. it will stay at 75 at this point, because that makes sense. jonathan: we often describe payrolls as trying to drive with a blindfold on. did we win this week? congrats to the team. lisa: congrats to holland horse, but everyone deserves congratulations. mike: a participation trophy. lisa: we have to get more people involved, but there is a feeling that the range was tight. people got this correct in terms of where we were, in terms of the labor market, which is a surprise.

jonathan: everyone gets a metal. down .5% on the s&p. i joke. [laughter] mike mckee, thank you. randy joins us now, university professor at the university of chicago. futures down a little bit. your thoughts on this report? randy: i think exactly as you were describing, it is going to keep the fed on track for a 75 basis points move at the next meeting. it is broadly within the parameters of what they were expecting, as you said, that they were hoping they would still see a little bit or uptick in labor force participation, but they did not get that. i think they are expecting the unemployment rate to move up a bit. something that will be heartening is that we did not see an acceleration in wage growth. if that is not taking off that would be the most problematic

thing, because that would suggest inflation becoming quite entrenched. i think that is the other key thing to be looking at going forward, whereas wage growth at 5%, obviously that is much higher than it has been, but certainly lower than pretty much any measure of inflation. lisa: i want to stick on participation we have not gotten back to pre-pandemic levels, and a lot of people were hoping for a soft landing where you have more people come into the labor market that were sitting out during the pandemic and the aftermath. how does this rejigger the expectations of this labor market and how it has been transformed? randy: i don't think this is changing that, they are gradually coming to realize that a lot of people are not coming back in. for example, older workers. labor force participation had been high before the pandemic, and now it is significantly lower. older workers found a lot of

people they knew did not make it through covid. they want to be able to spend time with their families. and so i think those are much less likely to come back in. that is a challenge for the labor market because those are the most skilled workers. that is one of the challenges we are seeing, this skill mismatch. there are a lot of openings, but people do not have the skills for those jobs. lisa: i have to point out this tweet, reminder, be sure to put today's labor market report into your narrative, even if you have to use your shoehorn. which of the narrative be heading into your hand as we look at the totality of data -- into the year ahead as we look at the totality of data? randy: we have a strong labor market, and so people have a job opportunities -- people have a lot of job opportunities.

but as i have said before, monetary policy's impact is long and variable lag, and we are getting to that point. i do think we are going to start to see the labor market weekend through the rest of the year. the fed is going to keep at it. there is nothing in this report that is going to suggest to them they need to pull back. they are going to continue towards 4%-plus i the end of the year, and somewhere in the -- and somewhere closer to 5% they will stop. that will depend on the data and how things are evolving next year. also the uncertainties of what mr. putin might do. jonathan: we appreciate your time today, sir. randall kroszner of the university of chicago. futures down by .7%. yields are up at the front end of the curve. that is a response to the data

we got moments ago. ten-year yields up by five. coming up, catching up with rick rieder, anastasia amoroso, michael collins, and the reaction from the white house. lisa, looking forward to keeping up with -- catching up with secretary walsh. lisa: i enjoyed that twitter post, where people are saying, you can find anything you want. that is basically what has been happening. one thing that is quite clear, this labor market is it still resilient. you are seeing that resilience, which is why some people are arguing the soft landing scenario's further and further away, simple because they are to have to do more. jonathan: if you ask people what are they more concerned about, i wonder if the same answer they would give you is the same as he would get from the federal reserve right now? i suspect it might be. for that reason this fed has probably got more work to do, right? lisa: that is basically what

mary daly was saying. and he comes at a time when people are seeing a punitive level of inflation that is hurting lower income brackets. jonathan: great fun, lisa. lisa: have a great one. jonathan: post-pandemic starts thursday afternoon. stick around. we'll yield a little later to -- really yield a little later too. lisa: i'm looking forward to hearing what marty walsh has to say. you have been parsing through the data, what have you discovered in terms of some of the nuances? mike: we looked at what happened with the unemployment rate, but the interesting thing is, we did see a seasonal effect in education. state and local education lost 21,000 jobs, which is going to be seasonal, because in september everybody comes in. they did not hire quite as many

people as they thought. so we probably would have had a little bit bigger number, but we did have a big again in august, and maybe some of the school districts have moved their business to august, moved the start of school year to august. then retail sales, retailers gained only 1000 jobs. even though service-producing jobs were up 206 to 4000, most of it comes in temporary help in business services. so maybe companies are doing the opposite of what they do when the economy is getting better. they hire people temporarily until they know they need them. maybe now they are beginning to think, we don't need as many people but we still have business to do. lisa: and the retailers have been in a tough spot. those shares, plunging. how much do we start to see negative earnings revisions? jeffrey rosenberg joins us now, following the labor market report regard.

pretty much bang on for the expectations. jeff, your take on this particular jobs report? jeff: i think it'd on the head earlier in your reaction to the unemployment rate and labor force participation rate. i think that is why you are seeing a little bit of negative reaction in the front end of bond curves, a little bit of negative reaction in equity futures. i think this is a slight disappointment relative to hopes that this report would give a piece of evidence in favor of the camp that there is a slowdown and pivot underway. i think that is going to be disappointed in this report. it is one report. it is probably not even the most important report. next week we will get the most important report, which is the cpi report. in total that is the numbers that stand out to me, is the failure to see an increase in

the participation rate. that is really about the forward-looking looking view on wage pressure. the wage pressures did not go up, but they are still exceedingly high. while they stay high, that is the source of the other camp's view, which is that we are in a wage-price spiral. it is disappointing to the dovish camp, a little bit reinforcing to the hawkish camp. minor on both sides, but definitely tilting that way. that is why you are getting the market reaction you are. lisa: we have a lot of fund managers on the show, and they always say, we are not trading today. we have a certain approach and move along. how has your approach shifted as you get the multitude of data you're getting, and how much are you looking to change it heading into year end? jeff: it is a great question. the issue is the degree of uncertainty here with regards to the inflation outlook.

and it is very hard to forecast. we have a saying, if you don't have a good forecast, then observe. it is sort of what the fed is saying in terms of being data-dependent. do not know what the trajectory of inflation is going to be, so they are going to observe. it is very hard to trade every little change and turn in the data. we take a step back and look at the trend. as i highlighted, this is one piece of information that is a little bit in the camp of the hawkish camp. but no one really knows where inflation is going to go, and we have expectations, however, in the bond market, and the consensus view of a relatively benign amount of impact to the economy for the dramatic decrease in the amount of inflation. i think the weight of the proof of that being the correct view is on that side of the argument

during so, i think it is highly uncertain and today is a little bit on the hawkish side. mike: you can't trade every little data point, you say, but yesterday we saw jobless claims up a little bit, still very low, and markets turned around. we know they going to get the message that the fed is sending and just kind of sit back and let the economy go? because the fed is not going to change its mind. jeff: you know, the fed is sending mixed messages, right? if you look at the distribution of the fed funds expectation, they are all over the map, and they represent basically that it is time to slow and we want to avoid the over-tightening camp, to the we need to get inflation down and that is job number one. on top of that is a very strong history of central banks

reacting to financial stability concerns. right now with a strong labor market this is relatively easy part of the fed tightening cycle. i think they are trying to get as much as they can under the old while labor markets are strong. when you start to see significant financial stability concerns and when you start to see the slowdown they are hoping for and anticipating in the economy and labor market, the job is going to get that much more difficult, both for the fed, as well as for us and financial market participants. lisa: how comfortable are you right now with market pricing that we are going to get rate cuts next year? jeff: that was really what i was referring to, that we got the rate cuts priced into the market. we have a slow but steady decline in inflation forecast, a consensus forecast. back down to 2%, to the

pre-covid environment. without a tremendous amount of tightening required. i think that remains a challenge to be you. and we see how the data develops. today is a little bit in favor of that view. we have not seen a significant tightening yet. yes, monetary policy operates with a lag. but the real disappointment and real issue for markets will come next week, because we have not seen the slowdown in core cpi. that is the bigger concern, and it weighs into the argument that summers is making, that the market is off with respect to their forecast of how much tightening is required. and that there is going to require a lot more tightening before we see the decline in inflation that is in market expectations. i think those declines in the second half of next year, that remains to be seen. we are a little bit cautious on

adopting that view. lisa: jeffrey rosenberg, at blackrock, thank you very much. mike, i'm struck by this discussion of the fact we are going to have to get to a higher terminal rate to slow inflation. this labor market report pretty much in line with what we were expecting doesn't matter anymore. now it is cpi. mike: it has always been cpi, but inflation, because the fed does follow the dce numbers, but cpi is the proxy and gives us the biggest breakdown of where inflation is. in a sense the fed has said 75, so unless inflation collapses we will do 75. what they would like to see is progress in bringing down some of these prices. lisa: we were speaking with anna wong earlier anna and she was talking about how she could see a 5% fed funds rate and that is ultimately where they're going to get to. i differed in is that from the

rest of wall street? mike: it is not as -- well, from wall street, it is higher than wall street wants it to be. it is not that diversion from where the fed is, because most of them have marked up their numbers. there between 4.5% and 5%. if inflation proves sticky you will see those numbers go higher, maybe over 5%. they think if you get to between 4.5% and 5% that is going to be enough to put the brakes on the economy, we will not know for some time. lisa: we are looking at a two year yield of 4.32%, touching the highest levels going back to 2007, just off the initial highs. nonetheless, the knee-jerk reaction will give the fed more rogue the hike rates into your hand and possibly jan. ira jersey joining us now. your take on this report? ira: i agree with some of the

former guests, basically saying you could find anything if you are hawkish and dovish in this report. generally speaking it was middle-of-the-road enough it will keep the federal reserve on the hiking trend. i agree with mike mckee that the fed is likely to go 75 basis points in november. there is nothing in this report that should change that outlook. something that is interesting that we have seen in the market was that the yield curve has actually steepened. we were flat or into the number, to stand curve was flatter. -- the two stands -- twos-tens curve was flatter. this incoming data certainly represents. we look at the fed funds futures about the terminal rate pricing, we are starting to price finally for the fed to stay at its terminal rate above 4.5% for most of 2023 now.

before we were talking about early cuts. now the market is only pricing may be one cut in 2023. i think that is a significant change over the last couple of weeks since the last meeting. lisa: i love your take on what jeffrey rosenberg was talking about, that perhaps this data is highlighting this report put out by larry summers and a number of others where they are talking about the fed funds rate needing to be higher than people previously expected because of the stickiness of inflation. perhaps we will get that with cpi. the labor market is holding in much more than people thought. you sympathetic to that view that the terminal rate is something closer to 5%? ira: we have been had 4.5% or a little bit higher than that since may. we are now pricing for our forecast. i think the federal reserve can hike to around somewhere in that 4.5% to 5% range.

which is exactly what the market is pricing right now. and then hold it there for a while, right? the fed at some point is going to say, the long and venerable lag point of view, where once we get to that level we can hold it there for a long time. from a market dynamic standpoint if that is what happens and the market starts to expect the fed to be on hold for the better part of a year, during the half at 4.75 percent on the upper band, that means 2-year note's can probably selloff a little bit more, but not much, given where they are currently priced. the question is what does the long and do? does the 10 year and 30, do they expect a re-acceleration of inflation and the federal reserve has to hike more? in which case you get a steeper curve or less-inverted curve than what you have now. if the market is saying we are going into a recession, which is still or less the consensus, then you can wind up with a flatter yield curve and 10 year

yields rally more next year, where you still have this relatively high to year yield. -- two year yield. i think some sectors like the financial sectors, for example, like banks, they can seriously affect some of the earnings potential outlook in those sectors. lisa: ira jersey, thank you so much for your insights. mike, what do you make of this discussion of a fully-employed recession? where we do not see the labor market participate in something of a downturn, as ira was insane, turning into a base case? mike: employment is lagging, so it is going to take a while to come down. this is also a very unusual economic recession and recovery. a lot of issues. we shut down whole economy, we opened it, and a lot of people dropped out of the labor force. it is hard to get a read on

that, but the bottom line from all of this is what is going to happen is, it is going to take time. it is not going to be an immediate collapse in inflation, it is not going to be an immediate collapse in the economy. gdp is now 2.7%. we will see what it is after today. so, a rebound in growth. it is going to take time for this to play out, and the people on the wall street trading desk are going to have to have more patience. lisa: and perhaps going to be more immediate when it comes to corporate profits. we have seen that from a number of companies. gina martin adams has been tracking this. in your examination of some of the earnings reports and guidance we have gotten, how much and how quickly is the mood shifting in corporate executive c-suite, rather than just looking at these broad macroeconomic data points? gina: i think it has shifted quite materially over the course of this year.

we have seen companies migrate from their primary concern being inflation to their primary concern being a combination of the extreme currency volatility that has been recorded over the course of 2022, and the session or a-like slowdown in growth conditions. we have seen it start to show up in consensus estimates as well. as far back as june analysts were forecasting 10% growth in earnings for the third quarter earnings season. our analysts are anticipating 3%. certainly the market itself has started to forecast a recession emerging. our motto would suggest that at our september lows, provided an assumption that the bond market had the outlook for rates correct, the market was pricing for a 15% correction in earnings over the course of the next 12 months. even if you get more aggressive on the rates forecast, that suggests that terminal rate is get to 5%, and reflecting that

the two year yield needs to get to 5% over the next 12 months as well. our markets were already pricing in a 5% correction in earnings. the market is well ahead of what is likely to happen in the economy and has even forecast a severe recession. lisa: pretty severe recession. is it in all sectors or specific to retailers? specific to the semiconductor? to sectors that can remain insulated from some of the broader names that make up the index? gina: if you look at consensus expectations for a proxy -- as a proxy, the analyst consensus things six sectors are likely to record a recession as of the third quarter. in the second quarter it was three. so there is a clear spreading of weakness going on. energy is absent weakness. energy is still experiencing double-digit earnings growth, that is likely to change going into 2023.

we have seen a broadening of week is to more and more industries and sectors. the weakness is predominantly about margins as opposed to revenue, nonetheless even the revenue forecast is deteriorating. lisa: i want to pick up on this in the minute we have left. how surprised have you been that they are willing to sacrifice margins and not lay people off to cut costs in order to preserve workers through a cycle after getting burned by not having enough people after the pandemic? gina: i think this is a difficult cycle. i think this has been a surprise, but also sort of a consequence of the duration of this cycle. we were just in recession in 2020, so we have not had the opportunity to really develop a full economic cycle and see removal of some of the excesses that develop in an economic cycle driver session. this recession is a consequence of different factors than a normal type of earnings recession. a lot of it is frankly very

tough comps from a year ago. in 2021 we were experiencing extraordinary earnings growth after the 2020 correction. it is very complicated. it is a much different cycle than is the norm. inflation is clearly in a different position. much of what we are seeing on margins is reflecting input cost changes and volatility, which is clearly quite different than companies have been contending with for a long time. over the last decade we have had very suppressed inflation, very low inflation volatility allowing for margin expansion to sort of persist. this is a very different climate this time around. lisa: gina martin adams of bloomberg intelligence. thank you as always for your insights. right now we are seeing about 31 minutes from the opening bell, we are seeing the market continue with its decline, with s&p futures lower by more than one percent. you can see yields are up, stocks are down.

pre-much the playbook we have seen. coming up on bloomberg tv and radio, marty wars -- marty walsh response to this particular report, to a strong labor market in the face of inflation. this is bloomberg. ♪ jonathan: lisa said, yields up, stocks down. the countdown to the open starts 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, we begin with the big issue. it is jobs day in america. >> we still have