>> this is not just a u.k. issue. this is going global. >> this is a big red fight. we should not assume that just because we are in the united states, we are immune from it. >> we do think there is the risk of a financial event that is going to feed into fiscal policies. announcer: this is bloomberg

surveillance with tom keene, and lisa abramowicz. jonathon: what a 24 hours we have got for you. good morning, good morning. this is bloomberg surveillance on cv and radio. it is cpi thursday. that number is a couple of hours away. lisa: just a set of how significant this could be, the last time we got cpi pronounce on september 13, we saw a 3.4% decline in the s&p. that gives you a sense of how significant a reset this number could be. jonathon: following the federal reserve minutes of yesterday, the risk of doing too little outweighs the risk of doing too much. do you think that assessment is coming a little close to balance as we hit the end of the year? lisa: there is this feeling that perhaps we are getting close to a restrictive stance and it was interesting that they did give a nod, a generous way of saying

that they touched on the fact that the rest of the world existed in those minutes. it was at the beginning of perhaps a little bit more of a balance, with respect to these risks. jonathon: did you see the latest news out of the u.k.? any volatility after tomorrow is basically over to the governor. that is the world to the chancellor. lisa: that saying that it is your responsibility, not ours and we are going to keep doing what we are going to do. what i find interesting is we see this in washington, d.c. imf is coming doubt -- is coming out and eviscerating them. it is the fiscal policy makers's responsibility, of the policymakers are so you -- are saying no. jonathon: as we go into the inflation day number, you have got a six-day losing streak on the s&p. can we break that? yields unchanged on a 10-year.

the euro is just about positive. from her by so .2%. lisa: to put that in perspective, if we get a seventh consecutive decline on the s&p 500, that will be the worst since 2020. at eight: 30 am, we get that key cpi print for the month of september. i am really watching for core inflation. this will be stripping out energy. can we get a new high, the highest levels we have seen going back decades? what will that mean for a federal reserve that may be seeing a headline number with respect to energy, but not when it comes to reds? today, there is an absolute mess in washington, d.c. tom will go through that. there's the imf, a g20 meeting, and i'm particularly interested in a couple interviews done at

the iif. what kind of sense of systemic risk are they going to really highlight, of the sense of not functioning in certain markets? treasuries. yesterday's 10-year auction was not great. you saw them sold at yields that were the highest going back to 2009, and still there was not blockbuster demand. jonathon: as the central banks step away, waved ask a broader question. who is stepping in? where finally returning to price discovery without the distortion of these guys. we are not there yet, but this is part of the journey. lisa: it goes to the point you have made. what happens when the risk is in the risk-free asset? how much has that changed international markets? jonathon: it's difficult to price international risk assets. tom keene is down the washington, d.c. for us right

now. it is cpi thursday. tom: it is cpi thursday and in 15 plus years of coming to these meetings, the april meetings, and the annual october meetings, there is no question that cpi united states inflation is front and center for every single attendee of the iif, the world bank, and the imf. today is an important day for us. we will be speaking with the managing director. she has a full plate of risk and financial instability to discuss. jonathon: looking forward to the conversation. what a lineup down in d.c. lisa: it's such a difficult time. central bankers are saying, hey, fiscal guys, it is on you. fiscal guys come up and say, no, we are going to punt. jonathon: joining us now is peter chat while. we have wanted to catch up for a

number of weeks now. can you help us identify the spillover from what's happening in the u.k. out to international markets, perhaps even u.s. credit? >> absolutely. the events in the u.k. means there has been selling of global assets. if it is liquid, it has been sold. that is the transmission we have seen. that is why there are the buyback stories that have had impact in other jurisdictions. what we have not seen yet is much by way of fear of replication of the issue we got with ldi and the rising rate environment. and that taking place in the u.s. or in europe. i will think those equivalent investors are anywhere near as large as the u.k., in terms of proportion of the domestic market. i think mechanisms are the same.

i think as we go into the rising real rate, the pension fund community is going to be selling assets. they have a surplus of assets at the moment and as this goes up, liabilities go down. it will be a much more orderly manner. how much is this the tip of the iceberg and how much is this a tip in the monetary policy in u.k.? >> in hindsight, this is something i suspect the bank has been considering because it has always puzzled me as to why the inflation forecast was way below the sort of inflation forecast that i was using internally and basically why they are having

these slums in these policies. they have stored up all of this inflation, which is eventually giving this fiscal price and low up in gilts that we are now all experts on. i think what we had in the u.k. really is symptomatic of what is happening elsewhere, but it's just in the u.k., the cost of liquidity is a bit great, so the market is much more fragile than euros and dollars. it is not finished, i don't believe. lisa: yesterday, something happened. he saw 30 year yields climb to new highs of this particular economic cycle, then suddenly, it reversed. it came after some sense that the bank of england was buying with no bids rejected. there was this feeling that finally they were going to come in on barred by any particular parameters, in terms of staving

off some of the distress. how much is that going to be what they have to do, basically going against their mandate of removing quantitative easing, go back to it in order to get financial stability over the long term? as you said, they are not all the way done with these ldi issues. i don't think they are done. i don't think they are a price insensitive buyer. their operational procedures tell us exactly what the price levels they would buy out if yesterday's trade would close. at the moment, with the rallies we have had in gilts today, if the market stays where it is, between 215 and 245, they will be buying about zero. in the market will reverse off of that. it is a very, very technical market. but i think we are still going to be moving away from this financial intervention toward asset sales from the bank of england. i think perhaps the more important question is, our asset

sales of long maturity gilts, 20 years plus, are they feasible in the environment where the ldi community is still somewhat fragile? i expect not. we will see quantitative tightening in an active selling program of the bank of england modified slightly to reflect that. i feel very strongly that the only way these inflation problems the u.k. had between deficits, you know we are not the u.s. dollar, is going to be resolved. it's much higher real rates. i think that needs to get back down to 2.5%. 10-year u.k. real rates is around 1% at the moment. it has to be above or the dollar market is. jonathon: i just want to jump in because what you just said is very important. you think ut starts at the of this month. do you also think this gilt market operation and's tomorrow? if it does, can you tell me what

the price is going to look at between tomorrow and then? >> i cannot see it being worked out without there being more volatility in the market. if this market behavior continues, or the bank of england is there with a known price level they are willing to buy at, i think these gyrations are going to be quick today and tomorrow. we could be quite underwhelmed with how much they buy today. but come monday, with that support no longer there, i think the market will struggle to find a clearing level and we could well have real yields going up high. the real question is if the ldi community is levered and liquid dated enough for them to withstand. there is now a surplus of assets, which is great. i suspect they could well be rebalanced.

what we could now move into is further selloff of gilts. i think there is a 10-year nominal yield to get to that point. but it still means that rates have to go up to a much higher regime. jonathon: we have to leave it there. thank you, sir. peter chatwell. very relaxed about something that sounds pretty crazy. lisa: it is so understated. he saying there will be more volatility, other people are saying it will crush the market. jonathon: how many people have you heard say they think ut wall happen at the end of this month? lisa: exactly. jonathon: gilts rallying this morning. we are down 18. in the next hour, we will catch up with tobias adrian --kathryn kaminski. from new york, this is bloomberg. ♪ lisa: keeping up-to-date with

news from around the world. with the first word, and lisa mateo. the international energy agency says opec's decision to severely curtail oil supply is starting to push the world into recession. the head spoke to bloomberg. >> we are not setting their policy, obviously. this is for opec to decide. but what we are saying is that by cutting supplies to the market, it is preventing a rebuilding of inventory that is still critically low. lisa: demand is now expected to contract by 340,000 barrels per day in the fourth quarter. the u.s. is considering a total ban on russian aluminum and response to the military escalation in ukraine. wennberg has learned that the biden administration is weighing a number of options, including an outright ban or a large increase in tariffs. prices search to a record in

march after the invasion. russia is second only to china in the producer of aluminum, which is crucial to most industries. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪

>> we are moving at an aggressive, but not an overwhelming pace. it allows us to get the fund rate up, to signal our commitment to keeping inflation in check and bringing it back down to 2% pay but it also gives us time to see how the economy is unfolding. jonathon: fed speak is my favorite. that was the minneapolis fed.

what is the difference between aggressive and overwhelming? what's the difference? lisa: what's the difference between that and price discovery? jonathon: fed speak drives me nuts. we are doing this aggressively, but it is not overwhelming, i promise you. lisa: when it becomes a financial stability problem, the line is a lot thinner than people thought. it is hard to know with the differential there. jonathon: cpi coming up in 12 hours -- none futures of this morning by 0.4 percent. yields unchanged at 389.85. for more on that currency by 0.1%. have you seen this statement from the saudi see? they are not backing away at all. listen to this quote here from the saudi's.

the kingdom of saudi arabia would like to clarify its belief in discussion with partners and outside the government to its continuous consultation with u.s. administration, but all economic analyses that postponing the opec-plus decision for a month, according to what has been suggested, would have had negative economic consequences. the saudi's right now are telling us that the u.s. administration requested a one-month delay to the decision. the candor is not lost on anyone. it is the midterms next month. lisa: on one hand, this is either saudi arabia thrown president biden under the bus or showing he is politically motivated. on the flipside, you have the iea international report out this morning that says opec-plus, the fact that they are cutting production right now at risk of a price spike, is this a matter of fragmentation

with alliances on either side or an issue of opec-plus, as you have pointed out, being the russian alliance, given the time and conflict with ukraine. jonathon: one of our very best is joining us from out of the country. it is not getting any calmer. >> no, this rift shows everyone it is plain to see this war of words, a diplomatic spat, however you want to say it, showing the inside of their diplomatic relationship with washington. age suggests a lot of bad feelings on both sides. lisa: what does this means in terms of reality? who is the correct actor in response to supply and demand, and who potentially is either politically motivated or acting out of a lack of capacity to produce oil, even if there were an increase in demand? >> i think that both sides can

credibly argue there position there. saudi arabia is keen to keep prices strong and very worried about the potential impact of monetary policy and they slow down in the global economy, and thinks that the prudent thing to do to ensure stability in the market is to cut now, before you are faced with oversupply. on the other hand, washington will see it differently. biden has been an cartilage focused on gasoline prices and, in fact, achieved a lot. prices fell for a number of months. he will be worried about that reversing. he has made clear his concern about the potential of a price spike over the winter, putting demand on oil. as sanctions on russian oil kick in, in early december, a big, big change to the way global trade works. lisa: will this political fog

and the fog of idiosyncratic markets, diesel market surgery on the lack of refining capacity, there is an issue with what the inventories look like. developed nations inventories are to hunter 43 million barrels below their five-your average grade can you give us a sense of how significant this is, how vulnerable this makes developing nations heading into winter, with a question about supply across the world? >> i think the point that the iea, including the u.s. and europe, would make is that with our inventories much lower, it is an odd decision for opec to cut back on production. the iea has clearly highlighted inventories falling through the winter and into next year, and the vulnerability to the market. diesel is a particular problem. i think it is something people need to be very alive too. it is a lack of refining capacity, and that is being exacerbated right now in europe

by strikes in french refineries. the market is very sensitive. there was an incident at a refinery in holland this morning. that gets people jumpy we are operating a system at maximum capacity. accidents and unexpected incidents matter. there is a lot of concern in the u.s. about diesel stocks, especially northeastern u.s., or heating oil is used to heat homes. a lot of diesel is going from the u.s. to europe. it is a difficult situation. we could see this flareup over the next year. we need to figure out where to concentrate our attention. jonathon: just a final world, this is during the spr to four decade lows. they have accused opec-plus of being shortsighted. i wonder if that could be leveled at this administration as you. aren't they more exposed to the

whims of opec-plus next year because of how drained they are this year? >> is the problem of finding an issue of flow with stocks. you can argue that the spr intervention in some sense has been successful, at a time of turmoil in markets. it has cap gasoline prices more -- prices low. as a downside, and to use a metaphor, they will run out of bullets. so, they need to hope that next year, there is a bit of give in the oil market, that may be opec has another look at the market or a new supply comes from elsewhere. but at a time when production seems to be slowing, it is a difficult situation ahead. jonathon: will kennedy, thank you very much. very difficult, very complex. the decisions being made now arguably make things more fragile next year. the same for the opec-plus decision in europe. we keep treating this stuff as a

one-off. but at the same time, politicians are telling is a huge, permanent shift away from russian energy as a source. you have to ask yourself, how viable are some of these policies coming out of countries. europe as a region and america as a country. lisa: this is the reason iea pointed to storage capacity and how it has come down so dramatically. inventories have come down dramatically around the world. one point, and i feel for policymakers in this area, they don't want there to be a complete recession in the face of surging household prices for oil and gas. at the same time, how quickly can they really bring those supplies online? jonathon: is this consistent with getting reelected? they are consistent with getting elected on a very short-term. lisa: this is probably the reason there hasn't that this kind of investment. and now, can they make this investment when it is more expensive tamari? jonathon: from new york, this is

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lisa: -- jonathon: inflation dated two hours away in the united states. six days of losses on the s&p.

where positive by half of 1%. we are going to be high percentage two hours from now and the bond market. on a 10-year yield, unchanged at 3.8985 on a two-year. core month over month is the focus for wall street. as we often say, the front pages will go with headline euro cpi. we are looking core month over month. after say, the expectations on wall street, they are not looking for a major pullback. lisa: they're looking for new highs in terms of core inflation. because of some of these longer, lagging types of indicators, like rent. what is the response in markets? last time we got an upside surprise, market sold off in the

fastest pace going back to june 2020. is it insane or is it not necessarily clear with the fed does with this, other than what they have already communicated? jonathon: this market is like a spring coil. i just for this market, but for the gilt market, too. believe it or not, the treasury market is guided by what's happening at the gilt market. i think you'll understand why. yields on gilts right now down by nine basis points. the volatility in that market, i don't remember it being this volatile. the chancellor had this to say late yesterday in washington. any of this will be a "matter for the governor." what a comment from the chancellor at this moment. lisa: you could argue that it was perhaps out of their mandate to be able to say this, but a lot of people point their fingers at the budget. it is their issue, as something to do with the bank of england,

at least for the near term. jonathon: it is everyone's problem. how difficult is it to preserve financial stability and address inflation simultaneously? >> it has been historically possible to do this. the difficulty we are seeing at the moment is that the bank of england is just having to manage the chaos that the government has been creating in the bond market. and the bank of england would normally do is to put the bankrate to manage inflation. of course, that does not feed directly through to the 30-year rate. it's of the long end of the market where we have been seeing all of these problems. it is at the long end of the market that the implications are greatest to the pension funds, of course. lisa: martin, d think this bank

of england can start quantitative tightening with the financial stability concerns we have seen? >> i must say i do wonder. certainly, it you might see why the buying in of a lot of government debt in october started quantitative tightening slightly later. we may see a pause on that at the mpc meeting or possibly hear about it earlier. of course, if that happens, raising interest rates a bit more becomes all the stronger. lisa: do you think governor bailey has messed up in terms of communication over the past two weeks, given the back-and-forth of talking with clients in big investment firms in back rooms and saying, perhaps we could extend the emergency program and coming up with additional emergency measures, then with a shout morning saying you have three days left, so get your

ducks in order. creating a bit of chaos. do you think he created an unnecessary degree of confusion and markets? >> i think he has been trying to manage an externally difficult situation. where we will be if the problems still continue next week is unclear. my view is that the bank of england will have some form of more targeted intervention, it is very much saying that the pension funds that need cash can raise cash. my guess is that if they don't, the make of england might make cash available, but on less favorable terms. jonathon: we have talked a lot about how vulnerable the city is post-gypsy. i wonder if we ask ourselves questions about how fragile it might be. a lot is being said about this administration and government in the u.k. a lot of criticism worldwide has been pouring in. but how fragile, how resilient

is the system? >> none of us expected it would be that the system would face sorts of political and economic shock that we have seen through liz truss's government. some of this is the institutions have been strong and have reasserted themselves. but the damage has been done. my view is that what we have learned is that if you get a government that pursues. it us and credit policies, you can have problems, and that is the sort of issue that perhaps the people designing institutions have to sort of protect themselves against. jonathon: bank of england is now in a very, very sticky spot. we're looking at the commentary coming from the governor. they seem to be very sensitive about contributing toward fiscal dominance. martin, in a way, i wonder if there is a risk here that they overdo it, trying to push back against that, and abdicate some

of their responsibility when it comes to financial stability. can you walk me through how you engage those dynamics, those dimensions, over the last week or so? >> i think every thing is that a tight rope, obviously at a time when everything is high. make giving lynn must've been extremely and happy about introducing measures through all the different circumstances, leaving their structure looking very much like quantitive easing. that adds quite a lot to demand. and it works. the bank of england is certainly extremely nervous that people might think politicians have put a lid on long-term interest rates in the long-term. and if you do that, it does look very much like fiscal dominance, and the issues with the bank of england would then become to

provide the credit the government needs, instead of what is established in practice to control inflation. the bank of england is extremely nervous about that, but with good reason. they want the focus to be on their monetary role controlling inflation and they don't want anyone to think that their job is to get the government out of self-created difficulties. jonathon: so, they have to choose the lesser evil now, and that is difficult because they're stuck between a rock and hard place. if financial stability requires some sort of permanent facility from this big of england, are we suggesting they are we suggesting they're not willing to provide it because they're too worried about how that might be perceived? >> and so far as we think of the problems with pension funds, high interest rates actually make life easier for pension sums in the long-term. liquidity, as i understand it, and to the extent that the problem is liquidity, there are a number of ways in which the thanksgiving and can provide

liquidity. jonathon: final question. the decision on november 3. as a policymaker, let's put you around the table again. how would the incidents in the last month influence your decision about how big a rate we might need? >> i think what is been done to influence decisions is what was announced in the fiscal statement on the 35th of october, and i think it was very deliver it -- deliberate ahead of the opc. but supposing the chancellor doesn't offer any coherent way of balancing the budget, then i would be inclined to a stronger rate interest increase, because an unbalanced budget is adding to demand in the economy. bank of england needs to restrict demand, in order to bring inflation down. jonathon: martin, i'm sure you

wish you weren't on this mpc. martin weale, of king's college of london. thank you so much. lisa: they're asking important questions about facilitating their monetary or fiscal regime of this particular administration. how much can central banks push back against the past two decades, when they facilitated the borrowing benches of administrations around the develop market? jonathon: inflation wasn't a problem them. lisa: that's correct. at what point can they stand up to the fiscal regime and say, this is your problem and by the way, if we have a financial problem, we are not going to step in because we can't, because inflation is a bigger issue and that's our primary mandate. what is there correctional mechanism? jonathon: they have a duty to provide financial stability. markets aren't functioning, they have a duty to do something about that. there are concerns about

perceived fiscal dominance. surely they would have to be set aside to fulfill their obligation to stabilize market functioning. you cannot just abdicate that because you're worried about how this might be perceived. lisa: it's not necessarily abdicating. it is a question of whether they can. are they basically burning cash through a futile enterprise of trying to create financial stability while doing something at the same time of combating inflation? how much of that are we seeing right now in the united kingdom, or we couldn't get the response of people selling a bulk and remedying the issue quickly? now, they are in between a rock and a hard place to decide whether to extend a program and then not pay into quantitative tightening. jonathon: this goes back to the first question we asked of martin weale. how do you balance stability concerns with inflation? some say it is possible, others say it is almost impossible. lisa: and how much has a

politicized banks that have only been successful with a modicum of independence. this is going to be an issue at a time when there is this call from central bankers, please, fiscal policy makers, reduce this and make your job easier. jonathon: given everything they've done in the last 10 years, the idea that they were not going to take stick from policymakers, elected officials, was ridiculous. many people have wanted that for the last decade. you were one. lisa: now, the roosters are coming home. what is it? the chickens. jonathon: something like that. futures up 20 on the s&p. from new york, this is bloomberg. [laughter] ♪ lisa m: keeping up-to-date with news from around the world. in ukraine, the cap region was

struck by a rainy un-made drones, as sirens rang out across the country for the fourth morning. meanwhile, allies in brussels formed a nato meeting to offer more air capabilities for ukraine. u.k. chancellor says the bank of england will be responsible if markets suffer renew instabilit. he said that the matter for the governor. liz truss is under pressure with her conservative party to backtrack on much of her tax plan. hong kong is said to be considering easing property taxes and visa restrictions, as authorities seek to curb the brain drain from the last couple of years. these measures could be included in the main address later this month.

global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪

>> if we do not see signs that inflation is moving down, my view continues to be that sizable increases in the target range for the federal funds rate should remain on the table. however, if inflation starts to decline, i believe a slower pace of rate increases would be appropriate. jonathon: does it end next week?

on the one handon the one hand e one hand that. governor bowman of the federal reserve. lisa: -- do we get a sense -- it actually underwhelmed people. the issue is when you have stocks and bonds both selling off, and this question about indexes and whether they will work, how much are we going to be talking about over the next decade or so over whether indexing is perhaps an obsolete model at a time when a lot of leadership, big tech, cannot participate the way they have in the past. jonathon: we can't wait in a world like this one come up with higher interest rates. it doesn't work in the same way. lisa: bowl be really compelling is how much that narrative sticks, even if we get recovery. jonathon: stuck much -- stock

not doing much. down nbc, some of our best in washington all week. i'm happy to say tom keene has a great guest with him. tom: good morning tea. it is fabulous to have john lipsky here. he looks like king charles in the motorcade, waving to everyone as he comes into the international monetary fund. he is a director at the mf, but his public service for economics is noted. dr. lipsky, thank you for joining us. you are the only one reading it was actually at plaza accord. we need another plaza accord in that. i don't want to go into a long discussion on this, how do you respond to people that say we need 1982, 19 84, 1985 again? >> people forget the role of the

plaza accord. the markets have started taking what was perceived as an overvalued dollar down beginning in february of 1985. the issue with the plaza was, were the central banks going to take the markets lower? in plaza, they decided no, we are happy with it going lower. later, they tried to say that the louvre accord, stop, that's enough. markets paid no attention and carried on. tom: what about the time to sell and all your work, and where we are now? i think about your first speech when you first join the imf, this accord. one thing about the plaza accord was everyone was on the same page. you suggest a distinguishing feature right now in this crisis is the discord that you know. >> yes, or put better, everyone is focused on their own problems that they perceive as somewhat

different than others. yes, where to fight inflation, yes, etc., but effective cooperation that was present at the global financial crisis is notable right now. tom: if they say every nation for itself, here we are. we are taking examples. the chaos in britain now is noted. has that surprised you? >> of course. but it all goes to show in the markets there, when you put them under stress, you find faults and we this is that have not been perceived previously. tom: what are the faults and weaknesses in the united states right now? we have the value of the dollar. we seem to have an easy road right now. do you believe it is? >> relatively speaking. and in exchange rates, it is always relatively -- is always relative. basically, it doesn't seem to

have the same kind of demand problems that others do. in relative terms, policy is tractable. it is not so surprising that the dollar has been going up. tom: you keep pointing out, and this is your wheelhouse, if you look at dollar strength and the weaknesses in emerging market, is it the same as before? other ghosts of the 1990's here? what does it mean for the filipino and korean currencies moving up? >> in the 1990's, there was a lot of borrowing by emerging economies and foreign economies. there was heightened sensitivity to movements in u.s. interest rates. that is still present and important, but it is in the router context that the global economic developments are creating problems for some emerging economies, not all of them. but monee -- but many low-income

markets that don't produce and have a lot of debt aren't a bad way. tom: my first question to the managing director, we will go math. to me, it is all about the x-axis, and everyone is going so fast. you have been surprised that the urgency of central banks to get up to a legitimate, real interest rate. are they moving too fast, try to get too much done too quickly? >> we will only know that in hindsight. what is clear is that they were slow to golf dime. -- to get off the dime. now, they've to work in a way to convince markets that they are really serious about maintaining anti-inflationary policies. they are rushing to get to a place where they think they want to be. tom: what is the damage of

rushing? >> it could be too fast or too far. but we have to realize that the one year plus that we go, no one saw the search as inflation coming. our understanding of the process of price formation is clearly deficient right now. tom: jonathan ferro's and might your saying we are out of time. it is inflation thursday. >> remember, that is a backward looking number. tom: i will let you tell jonathan ferro that. john lipsky, thank you so much. we want you to come back. john lipsky here with us, the former manager of the imf. his public service to america is noted. it is cpi thursday. jonathon: thank you, sir. at the top of the next hour, what you get at it: 30 eastern time, it is irrelevant. lisa: that's what markets are going to respond to as well.

how much is it backward looking and how much of the tea leaves coming together, people looking as -- looking at used cars to get a sense of how much consumer appetite is declining. we were just talking about flats. there's this idea that people feel less wealthy and they're going to do less with that. jonathon: it is the competition in the cpi that matters to almost everyone. what part of the inflation story fades and what sticks? and if they lose this power and remain sticky, margins are going to be difficult and a lot of people on the equity side of delivering that warning going into this season and very worried about the guidance that comes with it, the next quarter after number two. this is bloomberg. ♪

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>> this is not just a u.k. issue. this bond rally is going global. >> is a big warning sign and a red fight paid we should not just assume that we are in the united states and immune from it. >> the pressure is going to mount on the fed.

>> we do think that there is a risk of a financial event that is going to feed into financial policies. >> this is the most challenging fund mental block -- financial backdrop we have had in 40 years. announcer: this is bloomberg surveillance with jonathan ferro, tom keene, and lisa abramowicz. jonathon: good morning, good morning paired for our audience worldwide, this is bloomberg surveillance on tv and radio. what he futures negative -- or rather positive by 0.05%. i'm so used to saying negative. lisa: if we have a seventh day of losing, it will be the worst since february 20 20, hitting the lowest level since late 2020 yesterday yet again. jonathon: we say often that the headline number is for the headline of the newspaper. let's start with core. lisa: it's going to increase, that is the expectation.

what does that do for the fed? does that mean they have to be more aggressive and kind of squelch those voices on the outside saying i'm a little bit worried about what's happening with the financial stability. jonathon: looking for another 75 after this? lisa: ultimately. we will have to see what this says. jonathon: the economy is rolling over with it. lisa: mark wilson says that light at the end of the tunnel is a freight train coming straight at you. jonathon: if you are very bearish, it is wonderful. lisa: like me? you can say that. jonathon: price action looks a little something like this. your yields are coming in about one basis point at 3.8883. would you prefer that i was bullish all year and be wrong? just pretend there are thing is ok. lisa: if you had been bullish,

maybe every body else would have made profits. [laughter] jonathon: i'm just bringing the view from morgan stanley. lisa: is your fault people lost money today. jonathon: it drives me insane. i'm flattered people think i even make a difference. lisa: perhaps the way we see cpi numbers come in will give people a bit of relief. i'm actually starting to struggle to see what would be overwhelmingly positive, unless we get an incredible downside surprise. comes at 8:30 a.m. the expectation is for it to rise to 6.5% to -- from 6.2%. it could cause significant pain. does this mean that the economy is rolling over quickly? is this a positive thing or negative thing? global finance leaders, public and private, arlen washington, d.c. for iif, a g20 meeting, and

much, much more. jamie dimon and citigroup chair john dugin both speaking at 2 p.m. 3:00 p.m. 3 p.m. respectively at the iif. we're going to have a backward looking indicator of the cpi, particularly with respect to how fragile some financial issues are becoming. at 1 p.m., the u.s. is planning to sell it to billion dollars of bonds. yesterday's option was not great with 10-year he notes. even with yields since the highest -- the highest since 2009, do we get this sort of tepid response to this option, especially given what we are seeing over in the united kingdom? jonathon: did you just do a bond auction just for tom? lisa: i always send -- i always do a bond auction just for him. i can make them go a little nuts. jonathon: tk, walk us through what's going on in the next hour. tom: i think your peter chatwe

ll conversation was great, trying to figure out where this is heading to. the head of the imf a speak later. this is an extraordinary meeting by far and away. the most attention-filled one since 2008. but you heard from john lipsky that it goes much further than that. when you stop chatwell in this conversation, i thought that was brilliant about how you get out to 2.5% real rate. jonathon: i don't how you get out a single month from here. can you get out a couple of weeks? tell me about the ability of these policymakers in d.c. are they able to look out beyond three months? what does next year look like to them? tom: no, they don't know what's going to be out there three years, but they are trying hard to say we can't be certain of six months or one year. that is where you get the fury

about the british challenges right now. they just don't need these little crises along the way of bread -- of bad theory. jonathon: i know you're going to be talking about that, tom. coming up with the imf managing director a little waiter -- a little later. i've been excited for this one. kathryn kaminski joins us right now. can you tell me how you have done so far this year? >> just under 50%. jonathon: positive? >> yes. jonathon: how on earth to be done that? >> we are bears this year. you were talking about the bears in the bulls. it has been an extremely trendy environment. we have seen strong asset class trends. those on the systematic space, those following momentum and are unable to ensure adjuster positions have found really interesting opportunities for

those that are actually willing to take those types of positions. we've talked about the short bond trade all year. it has worked since 1994 and it continues to work. it has been the biggest theme this month or the last few weeks. lisa: based on where trends are right now, it is getting a little choppy her. is it getting harder to have a full bearish narrative, when a growing number of investors are starting to get bullish, at least vocally, about long bond? >> that's a good point, but look at what we just saw. we are also seeing volumes down. people are really hesitant. that means they think the market is not oversold yet and we are knocking -- we are not getting to the bottom yet. i think that is why you're seeing people so hesitant in the last week, because we have seen correlations so high across assets that the market is focused on one theme, inflation rising rates, and nothing else. and that is really manifesting itself in the way asset classes are behaving. you are seeing this whole market

polarize on one number. it really is the central point of where we are going, what is the next step. lisa: a lot of people talk about the difficulty in liquidity and liquid conditions right now. how much is your strategy amenable to a significant amount of assets, instead of being nimble. in other words, does size matter when it comes to earning 49% so far this year? >> we trade in the futures markets. those are some of the most liquid markets out there. they are a good place to actually realize and take different risk exposures, specifically with the fixed income markets. short cash bonds are much more difficult proposition, because you have to borrow those bonds, there's all sorts of issues with leverage and credit, personal credit, whereas future markets are place where most people go and they have a view. if they have a view that bonds should go down further and yields should go up, they go there. that is sort of a general

mechanism of a very functioning market. jonathon: a lot of the time, people become married to the view they have any market, particularly when they are rewarded for over year like you have. can you understand -- can you help us understand the process you will go through to understand when you know you need to make a move the other way? do you have a checklist or how does it work? >> this is something we get a lot of questions about as systematic traders. our main goal is not to have bias. i think what has been the most fascinating to me this year is how much people have long biased bonds and never thought about blogs going down. -- bonds going down. for us, the goal is not necessarily on what should happen, but focusing on what is happening. what is happening now is very extreme and you are seeing very strong, bearish trends across multiple asset classes, something that for most will is very uncomfortable, based on what they are used to over the last few decades. jonathon: really strong positive

correlations. do you see that breaking down at the moment? what do you think? >> we have seen a big spike in the last two or three weeks, particularly currencies and fixed income. we have seen volatility in those two sectors spike significantly based on the theme i just discussed. you are also seeing correlations at short intervals, something that is sometimes negative. you are really seeing the whole market in a shorter-term rise and focus on one theme. i think of hitting on how the numbers go today, you are either going to see that get a little bit dissipated, because people realized the fear they are looking for, or you see it accelerate because it confirms the things that they are willing -- that they are afraid of. that is why today's a big day and markets for the u.s. jonathon: congratulations on the year so far, and let's catch up before the year is out. just phenomenal performance from her in the team. lisa: she was talking about the correlations, and i was looking at data yesterday that shows the link between s&p 500 and the

citigroup -- jonathon: i saw that. lisa: that is the most negative correlation going back to 2015. good news in markets that it has been since 2015. it shows exactly what she's talking about, correlations getting more entrenched as people are more and more married to their views and look to the data to kind of confirm them. jonathon: everyone is worried about everything. we were talking about that just yesterday. some of it resonated with me because i wonder what we're going to worry about in the new year. is going to be inflation still or do we start to focus almost exclusively on growth and rolling over you? -- rolling over? does that adapt a little bit in the next few months? lisa: there's also inflation for it how does this market respond to stagflation? how they respond to a market that cannot come back in, because inflation is not coming down quickly enough to justify any type of slowdown by the federal reserve?

the best case scenario is some supply chain constrains getting eased up, as he talked about, and that would create a much more benevolent picture. jonathon: positive by half of 1%. basically unchanged on the 10-year. going pretty much nowhere. one hour 19 minutes away for inflation data. this is bloomberg. ♪ lisa m: keeping up-to-date with news from around the world. with the first word, i am lisa mateo. blackrock's profit fell 16% in the third quarter, along with equity and bond markets, as central banks continue raising interest rates to counter surging inflation. the world's biggest asset manager says the firm oversaw $7.96 trillion as of september 20, the lower since 2020.

several members of the nato alliance have signed a letter of intent to join a long-term german event to develop several layers of various missiles. nato defense chiefs are in brussels today for a second day of meetings. nigeria is considering restructuring its debt and extending the repayment period of its credit obligations. the country's finance minister tells bloomberg the governor has appointed consultants to advise on rising debts. >> we have a consultant to make an assessment of how we can provide or restructure. we want to stretch out the payments to longer periods. lisa m: the government also plans to refinance to mastic obligations due this year and next. global news 24 hours a day, on

air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i am lisa mateo. this is bloomberg. ♪

>> what's clear is they were slow to get off the dime, and now they have to act in a way to convince markets that they are really serious about maintaining anti-inflationary policies, so they are rushing to get to a place they think they want to be. jonathon: tom keene with a series of brilliant interviews over the last 24 hours, and

another series of interviews still to come. that is john lipsky, the first managing director at the imf. equity markets are shipping up as follows, going into the cpi print one hour 12 minutes from now. yields going kind of nowhere on a 10-year. down about one basis point 3.8842. tom keene, we have the countdown clock ready. inflation one hour 12 in its way. tom: everyone here in washington will be looking for that cpr report. i will be looking at cleveland cpi or the dallas tribune. what they all mean and what we see is if there's any tension for the global financial system. if you are a geek on this, part of global wall street and want to dig deeper, this is the interview of the day. tobias adrian is the director of monetary affairs and capital markets at the imf.

let me cut right to it. you are the most popular guy at these meetings. what are you telling scared politicians, what are you telling scared central bankers? >> the number one goal for monetary policy is to get inflation back down. in most countries, it is well above target, and that is the primary concern. tom: continue, please. >> having said that, financial stability is also at risk. we are looking at where we are over time. it is very concerning. tom: over time, what will shift out of these meetings? will we have a more patient jerome powell? >> that's a good question. i would expect that what's priced and at the moment is what we are very comfortable with. i do not see major changes there, relative to what is priced and what was announced by the policymakers. tom: that said you heard a few days ago was me showing jonathan

ferro in new york british gilts up seven standard deviations, price down, yield up. yesterday, correct me if i'm wrong, over 5%. should we expect more deviations in fixed income? >> i think the bank of england has had these targeted and temporary asset purchases that are scheduled to expire. they have been successful in ringing gilts down and bringing them back up in a more gradual manner. of course, the overall stance of monetary policy continues to be one of inflation above 10% in the u.k. tom: i want you to go into your iconic green book on financial stability, or frankly instability. what is a single chart our audience needs to know about? >> figure number two.

you look at that chart, it is only in acute crisis that that downside risk has been more elevated in the past 20 years. tom: what does that mean for jerome powell? is he central banker to the world? >> i am very much in favor of the kind of policies that have been announced by the federal reserve. we think this is the right path going forward. tom: but if they move 75 basis points, whatever, it is clearly nonlinear. not to go back to greenspan and measured approach, but are we going to see a more measured central bank, not only us, but england and particularly ecb? are they going to be more measured particularly because they are told to be more measured? >> my expectation is they will want to see inflation coming back down towards target. at that point, it is going to be time to be more measured.

tom: time now to get tobias adrian in trouble. let's do that. olivia had the courage of these buildings to say we need to consider a 4% run rate on inflation. adam posen with the peterson institute says maybe not 4%, but 3%. is the end outcome 10 years from now 15 years from now, we reset from 2% up to some form of inflation 2.4%, two point 8%, or dare i say the adam posen 3%? >> it was too low. the argument was to raise the inflation target to be further away from deflation. at the moment, we have the opposite problem. we have two high inflation. changing the inflation target when you are further away from the target, that would undermine credibility, so this is not the right time to change the inflation target higher.

tom: what will be the catalyst to change inflation? >> we would be back down in the inflationary environment. tom: one more question. the lights dim here in washington when tobias locks onto bloomberg. how do you use foreign-exchange? what is that foreign-exchange depreciation versus the dollar signal for your world of instability? >> financial conditions are tightening, and faster in the united states than other countries. that is one of the major drivers for these exchange rates. tom: you have 40 meetings this week? >> i have 40 bilateral's and 10 speaking engagements. tom: the only person i have ever known who had more than you is jonathan ferro. tobias adrian, thank you very much. jonathan, could you see you or me in 40 meetings? jonathon: i don't think so.

not the morning after the nights you and i have sometimes had, tom. [laughter] tom, thank you, sir. over at the imf down in washington, d.c. not a moment to start talking about 3%. the question adam posen is raising about next year is whether they start talking about. lisa: as tobias adrian was speaking, i was reading this oxford economics report where they were talking about how the increasing risk of financial instability will phase out quantitative tightening. how much are we going to start hearing about this, which will necessitate a higher inflation rate for longer? because this really does create a ceiling for how they can fight inflation. jonathon: will this fed still be doing qt in 2023? lisa: can they afford to, or will something break? and if something breaks, can

they tighten faster than what they laid out? it is just watching paint dry right now. jonathon: i don't buy that at all. lisa: totally boring. jonathon: i know some people do, but ultimately, market participants don't see it that way at all. lisa: this is the reason why, and tom, yes, i'm talking to you, but this is where we are not seeing the marginal buyer come back in. that does have to do with quantitative tightening around the world. if there starts to be some sort of ballast, do you get a ballast for a risk pricing more broadly? jonathon: do you think you're converting him? lisa: no. he is sleeping. there's no way he is interested. jonathon: carl riccadonna will be joining us and about six minutes time. about 60 minutes to go for cpi in the states. lisa: i feel like we should have the jeopardy soundtrack. [laughter] ♪

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>> jon: two hours away from the

opening bell. the opening will be dictated by what happens in the next 60 minutes. equity futures going into that look like this, positive 6/10 of 1%. six-day losing streak. you know that stat well. highs of the year on a two-year this week. high of the year just short of 400 35, 400 3497. something you can add up? why? 438 is where we are right now. 387 81 on a 30 year basis points at 386. looking at the 30 year right now it's not the treasury market we are interested in, it's the guild market in the u.k.. it's a high-stakes link contest between the fiscal authorities and the government of the bank of england who says you have three days, now about one and a half in the u.k.. the government is saying we are not ready to do a u-turn on the tax policy.

who blinks first? anyone? and how -- lisa: and how much can the market take it? i don't have a conclusive answer. have you gotten a can -- a clear answer as to how far they have unwound their leverage? i don't have a sense of where we are in terms of the financial stability thread if the bank of england goes through with this and says we are not supporting you anymore. jon: people have told me that it is starting to show up in u.s. credit in a more pronounced way. lisa: seeing a disproportionate selloff in top-rated disproportionate corporate bonds relative to high yield that doesn't make sense into a financial downturn. typically it would be the more leveraged companies that suffered more greatly but if you have u.k. pensions selling top-rated credit because they get the most money back for it, liquidate what you can, not because you want to. jon: we can talk a lot about the

u.k. government and whether they have made mistakes or not, many think they have. did you think the 45 billion in tax cuts would trigger this reaction in not just the guilt market but the global market? that spillover surprised me. lisa: this is the reason financial stability globally is the main concern for so many people. what does it say about the fragility of the state that we are and if that's all it took to cause such a massive ripple effect? jon: what's more interesting? lisa: how the market responded. jon: they have been. lisa: raising quantitative tightening questions more broadly and the ability that central bankers have to keep going. jon: we should write a paper on this. lisa: next break. jon: we will make notes on tom's next interview. sonali basak is at -- is our wall street correspondent and was out there early this

morning. you and i will be having some long conversations tomorrow. give me a read on blackrock. sonali: this is the moment of truth. how could a $10 trillion asset manager fair in the face of the storm? back below $8 trillion, the lowest level since 2020. when you look at earnings-per-share, they beat analyst estimates but you are seeing long-term flows under pressure. it is important to see where the flow turns negative. negative and retail and you also see them in institutional clients. index funds. this is the end of the third quarter. how much has this continued since then? to the pressure that lisa has been talking about, institutional clients selling more liquid products. larry fink in the statement really talking to the idea that

there is flow infix income that is strong and into alternatives. looking at the alternatives business there is still pressure their when it comes to currencies and commodities so the question remains -- how much more pain do they feel from there? lisa: this is a bellwether company considering its asset manager scope. is there a sense that people are rethinking the commitment to index funds in the face of dramatic underperformance by big tech, some of those main components here? sonali: that's a great question. blackrock is the king of this world. the passive fund question is not only a question about what it means for market structure and liquidity but also questions around the business model in terms of the more liquid things that you have to sell, you will

sell it first. etf's, for example. the fixed income flow is interesting. will larry fink be discussing more of a pivotal business shift in the qt tougher macro economic environment in the near term? larry fink is speaking here today at -- in the 5:00 p.m. our and he will be addressing the macro economic outlook. jon: you and i will be catching up in about two hours, looking forward to that. a phenomenal business, surfing the wave of the last 10 years but the wave is starting to break and seeing him in that political crosshair, larry fink, is fascinating at the moment. lisa: especially with esg environmental social governance withdrawing cash, you've got a number of businesses not wanting to do business with them, raising issues about being sort

of a stakeholder rather than a shareholder and some of the recent move in corporate america with the milton friedman model and how far they can go with that. jon: he sounded like a journalist, recently. the left in the right annoyed with me, hope i'm doing something right. lisa: we can talk more about it but it is nonetheless a political concern at the time where we have a business consideration. jon: we are within 60 minutes away from cpi in america, carl joins us. what are you in the team looking for? >> looking at this morning's report, there are a few things we do know. the rent is sticky and running heart -- hot. core service inflation is sticky and running hot. supply chain healing, with that start to materialize in lower core good inflation? there is a compelling case looking at the costs of shipping

containers across the pacific down from the peak. ripping the dollar up 16%. it should be translating into declining import prices. a big liquidation story with a lot of elements to the supply chain healing story that makes a compelling case going forward. not a compelling case that this happens in the month of september. we will be watching around the margins for clues that it's coming. yesterday's ppi was not encouraging but this is a key focal point going forward. lisa: how do you communicate this to clients question mark they have been burned by faith-based inflation and with it softening going forward, how do you tell them, if you are looking at these certain supply chains, you see the year-over-year bringing down

inflation but maybe you can ignore this one? carl: whether we are talking about the fed or private forecasters, there's much less certainty around those dynamics as they have been burned over the course of the last year from team transitory to other moderate types of forecasters as well. i think that what we have to do is acknowledge what has occurred and the fact that we are starting to come off the boil. consumer prices will probably be the last shoe to drop as we see inflection on those numbers. we could see it, we are off the peak as we look at inflation expectations numbers from the fed or the university of michigan, they are off the peaks . prices paid in the imf survey, off the peak. a lot of upstream signals that inflation is at least topping out and we haven't seen

improvement just yet but there is a compelling case to be made looking at historical relationships for some degree of improvement. now what will be difficult is that the supply chain story only gets us so far. the san francisco federal reserve did work showing 40% to 50% of inflation at the moment is supply chain related and that , it doesn't get us back to 2%. 2% is a firm brake pedal from the federal reserve holding that restrictive stance of monetary policy for an extended amount of time which in my own view is that it could stretch out over two years. jon: got to leave it there, just a bit of news on the others out of the pond. we are reporting here that u.k. officials are working on a u-turn for part of the trust tax cut plan. talks are underway about whether to reverse part of the mini budget.

the reports are coming from left, right, and center. lisa and i minutes ago were talking about the prospect of a u-turn, where it would come from . off the back of this reporting, sterling is a lot stronger on the currency pair. the session was 100 1058. the high was just a moment ago. we already had a rally in the market and i can tell you the rally is bigger now. the 10 year down by 37 basis points to north of 4%. the thirty-year yield is down by 40 basis points to 438. we talked about the blinking contest. lisa, is someone about to blink at number 10 downing street? lisa: seems like liz truss is about to blink first.

the violent reaction shows what markets think of her proposal to cut taxes and boost spending in an unlimited fashion. jon: if i you 10 downing, does it make someone else look like a hero? lisa: and over to you, governor. just kidding, don't mind us. jon: reporting suggesting that officials in the u.k. are working on a u-turn for the truss tax cut plan. it remains to be seen if it to rely. keep an eye on that. we will have an eye on inflation, 50 minutes away. >> keeping you up to date with news from around the world, i'm lisa mateo. iranian made drones ringing out -- with a raid sirens hitting this morning in kyiv.

allies in brussels for a nato defense ministers meeting are expected to offer more air defense for ukraine. the international energy agency says that the opec decision to sharply curtail oil production threatens to push prices to levels that tipped the global economy into a recession and the head of the iaea market division spoke to bloomberg. >> we are not setting their policy, obviously. this is for opec to decide. what we are seeing is that by cutting supplies to the market, rebuilding the inventory is still pretty low. lisa: demand is expected to contract by 340,000 barrels per day in the fourth quarter. north korean state media says that kim jong-un has supervised of the launch of missiles in

recent days intended for tactical nuclear strikes and warning washington that any attempt to attack could be met by strikes in south korea and japan, a fresh sign that north korea could be preparing for its first nuclear test since september of 2017. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo, this is bloomberg. ♪

>> the number one goal policy is to get inflation under target. it's well above target in the vast majority of countries and is a primary concern. having said that, financial stability is also at risk. so, when we are looking at where we are over time, it's very concerning. jon: the imf member sitting down

with tom keene just moments ago. here the lead paragraph out of london, u.k. officials at number 10 and the treasury are discussing how they can back down from the prime minister plan for a massive unfunded package of tax cut. taking a snapshot of things for you, off to the races off the back of that. 110, lower the session. that's where we trade now. off the back of this news, still lower, 447 4448. going into tomorrow, the governor of the bank of england says it's over. the gilt market operation finishes. lisa: can we say that the truss

administration blink, despite the hard language? the fact that it triggered this response, it shows how tenuous people feel about the budget of the united kingdom. jon: this is the suggestion. there are concerns in this market. lisa: the $45 billion tax cut, is that enough to trigger the turmoil to trigger and i think we can conclude it's a fragile market right now. in about 10 minutes, the market was described as febrile. i'm sure other people would agree. guilds are lower by 34 basis points. big moves in the u.k., a lot to talk about downing d.c. -- down

in d.c. tom: 45 minutes, inflation report, united states, everyone here, imf, united bank, all riveted on that 830 statistic. right now the president of the world bank joins us and i need to clear something up off of a political article, the uproar about senators and your tenure at the world bank. something was said to, you're not a scientist. i fell off my chair, you are the physics major from colorado always. clarify right now that position with the world bank given this turf for in washington. >> so it's very clear that people cause greenhouse gas emissions and it affects climate change. that should have been clear in the original remarks, scientists are not. we got off track.

what the world bank is doing is a massive amount with regard to climate change and countries that need adaptation, living the change that's going on, and with the mitigation, and intense focus on the world bank in these focuses. tom: going back decades and decades, colorado college, the way they taught science was so different back when david malpass was there. let's go back to the equation. there's that gravitational constant. now the derivatives giant says that the g is what matters right now. what does the new gravity of higher yield inflation mean for the debt tilled up? david: within physics, the gravity is always there. within economics there was a temporary time when interest rates could have been zero and there were various explanations

as to why that was working and now it is back to where there was a connection between interest rates and inflation. the central banks are moving up towards some kind of neutral that isn't inflationary. fiscal policy is changing massively. one of the themes of this week for the advanced economies is how do you mash the policies, the fiscal and the monetary, so they don't conflict? if you are tightening on one side you want to tighten on another side. jon: what about the world bank and the billions of people in the world who huge of the bank of england? -- hew to the bank of england? david: people in developing countries are seeing their currencies get weaker and a lot of their debt is in dollar terms. as the currency gets weaker, the burden goes up, interest rates go up. it's a trifecta of triple burden

going on in those countries. many of them have built up debt at the moment because that was the cyclical, the countercyclical response. there has been a lot of talk the past couple days about how to have a better debt restructuring process for the countries that hit the wall. tom: somehow seeing from currency to jacob frankel and the foreign exchange, that modern equivalent in the derivatives space with the immediacy of overnight swap and your bear stearns tenure, do you feel we have a stronger structure now with swap agreements with rich guys, the fed, to allow the world bank community to have liquidity in these distorted times? david: developing countries have this challenge with finding a swap by but for the poorer countries in general they don't.

they may be able to arrange something but when that happens it means you are under the gun and a better way to do it is to find a way to get to actual debt reduction so that you can see some light at the end of the tunnel to get out from under the debt. that applies to the lower income countries. we are off to where there are dozens and dozens where the debt is unsustainable meaning that you have to have some solution to go through it and that's under discussion. tom: challenging times to say the least. david malpass, with the world bank. jon: looking forward to your chat with the imf managing director in the next hour or so. lisa, did you ever think a u.k. budget could send equity futures to session highs? up 1% on the s&p 500. the prospect of a u-turn, the latest reporting suggesting that a conversation is underway

around having a u-turn around certain parts of the budget. for all of those who have thrown derogatory terms at the u.k. as being an emerging market, insignificant, they seem to be shaking up the markets a lot. lisa: in a significant way and throughout asset classes. i pose to you what happens if you get yield control curves abandoned over in japan. jon: on to the next crisis already? lisa: 100%. [laughter] this one is amazing, it's true. jon: let's see if they back away from that plan first. lisa: my point was about the fragility of the market. jon: same page. lisa: now that it's less. just like that. jon: let's see if we actually get any news on this. let's see what they actually do with the price action speaking for itself.

cpi in the next hour. fect. this is how it feels to know you have a wealth plan that covers everything that's important to you. this is what it's like to have a dedicated fidelity advisor looking at your full financial picture. making sure you have the right balance of risk and reward. and helping you plan for future generations. this is "the planning effect" from fidelity.

>> we keep looking for the fed pivot. fight the inflation first. then worry about that. >> i believe inflation is more sticky than what's been forecast. >> we still have policy that isn't tight. >> the fed if they had acted earlier they could have stopped it earlier but instead inflation is out of control. >> the lead indicators are falling. jon: cpi thursday, that number drops in 30 minutes. good morning, good morning for the audience worldwide. we are right here in new york city. futures are positive 1%. lisa: can we attribute the gains to the united kingdom and the possibilities of a u-turn by the truss administration for tax

cuts? jon: blame or thank, take your pick. lisa: sure but that's some serious issues. if it's one market dictating the moves, how fragile our markets, how much can a change on a dime? how much are we not seeing real volume conviction dictating the near term path of the federal reserve? jon: couple of headlines, reporting that the truss government is having some sort of conversation about backing away from programs, that they are considering raising corporation taxes next year, one element of tax cuts they might be backing away from. jon: talking about what they are funding now it's a kind of spending package to try to bring down the costs for individuals facing heating bills but this

goes back to policy, right? how do they then create something that doesn't just become a self fulfilling prophecy? you the details make it a sigh of relief or is what we are seeing in the united kingdom highlighting what we see more broadly with the costs of financing rising and nations having a hearted -- harder time dealing with it? jon: governor bailey, hero or villain? lisa: right now? who's it for? jon: guy johnson has thoughts on that and he is going to join us in a moment. market action on the s&p 500, cpi drops in 25 minutes. the bond market is up on the u.s. 10 year. the u.k. tenure is a whole lot lower. picking up that story in a moment. euro-dollar stronger, to. -- too. guy johnson joins us right now. your thoughts? guy: people wondering who is going to think first, we now

know the answer. there's an argument that bailey was talking to the government when he said you've got three days to sort this out. he may have been talking to the market as well but it seems the threat has resonated. the market is moving on rumors at the moment and we don't know the exact details about what will be reversed and which aspects will be changing. the market has been all over the place this morning. we initially saw a big move lower in yields and you do wonder if that's part of the idea with these policies and the help provided making an effect. but there have also been numbers swarming about the u-turn, a conversation happening about a u-turn. you can see the market response to that. this is what the market was primed for, waiting for the government to blink and looks

like we are getting close. lisa: how much does the government have to blink because of conservative pushback saying that it could undermine potential growth in the u.k. for years to come? guy: i think it's coming from a number of different areas. within the conservative party there's a lot of a nor -- annoyance about how this has been handled. authority diminished from the get-go, it's coming from the markets and from conservative party donors. it's coming from a host of sources at the moment. the force of that is now clearly too much for the government to bear and as a result of which we will have another u-turn. i'm not even sure which way we are facing at the moment. we will find out by the end of the day. lisa: i'm not sure if market participants are aware either. [laughter] jon: guy johnson, lucky and

happy to say david kelly is joining us from j.p. morgan asset management. talk about cpi in a moment but can you tell us what was more surprising? the announcement from the u.k. or the idea that we have had this much volatility after the announcement of what, 45 billion in tax cuts. >> we have seen regime change. the safety change protected markets on the political side and now that has evaporated in the bond market has returned. it's basically the same situation that we saw in the 1990's where central banks were not necessarily going to help the government out. well maybe -- lisa: well may, right? it phased out the minute after it's introduced with central banks coming into backup these

spending plans. from your vantage point, how much can you trust that versus the yields going higher from here, uso u.k.? david: we really have turned the corner on inflation, right? no one is saying it's going higher. we are simply talking about the slope of the slide and whatever number we get today, i believe that cpi inflation might be year-over-year today 8.1. it is coming down and because inflation is coming down, that means we should be close to a top. lisa: though even if it is coming down, 7% won't be comforting, neither will 5% if it decelerates in terms of how quickly it comes down and if core inflation continues to accelerate in the month of december. david: the historical record is inflation goes up and down, looks like the eiffel tower. whenever you have seen this in the past. unlike unemployment which is

more like a playground slide. the only part that is really sticky here is shelter and that's the equivalent of rent that nobody pays. the part that is sticky doesn't matter. i don't think -- we are too obsessed with inflation because we haven't seen this beast in 40 years and we are just too excited about it and it's not worth putting the economy into recession over. jon: well that's what the fed is doing, aren't they? david: they are overreacting. i don't mind them getting back to normal, they ought to, but they said they didn't want to add to uncertainty, but they are adding to uncertainty. we don't want to kill the economy. jon: you know better than most, ultimately we could do the debate for hours. lisa loves it, it's a sport. play it all the time. but this market, can you tell me what you think is going to happen here given what they have

been sent to do? david: i think they are still very self-conscious about this, november to december and february, but then i think they will stop and within the next year we will see a fed pivot of sorts. at some stage they have got to find themselves in offramp. a lot of economists are saying what i'm saying, startled by how many are seeing the same thing where inflation is coming down and they don't need to put the economy together. lisa: sounds like you are long on the longer dated bonds but is it positive for risk assets into year end and early 2023? david: i think so but frankly everything is unsettled we are down 25% on equities from a year ago. things are on sale and i think that what is going to happen

here with a lot of uncertainty now at the end where we emerge with a slow-growing economy and low inflation. low interest rates with fiscal policy with low growth and low inflation with low interest rates and probably decent profit margins. jon: are you saying get out the pre-pandemic playbook? david: yes, back to the future. because of the fed doing this we will end up where we were years ago. jon: so this is just aberration? david: correct. the unions aren't back. 10% is unionized in america. he would have different markets that weren't sort of instantaneous with internet technology letting you to buy anything you want at any price immediately. lisa: is this going to be another bond bull market?

david: a bit but you could only make some more -- some money there. not like the 1980's. jon: a constructive view. old playbook, old regime. lisa: a lot of people think we are going to a lower terminal rate post-pandemic after the blip simply because of the amount of hangover and slower growth you will wind up getting because of some of what we are hearing from the fed right now. jon: given how wrong we have been about 20 different things over the past 10 years, i'm doing my best to stay open-minded. no idea, no idea. not saying you should be open-minded. that's just personal for me. jon: you have to beat -- lisa: you have to be open-minded. jon: cycles move so quickly. lisa: my father is a mathematician. you always get the parameters wrong. you are making assumptions based on going back to the normal of

10 years ago, five years ago, or back to the normal of 20 to 30 years ago. jon: tom is in italy. lisa: he could talk about the euro. jon: no interest. lisa: he's so happy about it right now. jon: coming up, does jeremy need a research assistant? i would love to join. jeremy joins us in a moment. live from new york city, this is bloomberg. ♪ lisa: pfizer and its german covid vaccine partner says that -- booster shot tailored to the latest omicron variant offers better protection than the original. the latest data is the first evidence that the vaccine provides better protection compared with earlier shots based on the original strain of the virus. china defending their

controversial and costly covid zero policy for the fourth day in a row. a national health commission expert saying today at a briefing that it is inevitable that these curbs have impacted the economy. comments come just days before president xi jinping is expected to secure a precedent breaking third term in power. meanwhile in beijing, two dozen police patrolling a busy intersection after photos circulated of a rare protest attacking the president just days before that crucial communist party meeting. and it showed two unfurled manners across the bridge taking aim directly at xi jinping, criticizing his restrictive policies of lockdowns and mass testing. heavy rain in southeast australia forcing hundreds to evacuate their homes and thousands more are without power.

rivers across their most populous states have reached dangerous levels after months of above average length -- rainfall. 200 and 50 homes west of sydney were ordered to evacuate ahead of letting. -- flooding. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo. this is bloomberg. ♪

>> pushing inflation down to a certain level by pushing unemployment up is going to become increasingly difficult for the fed to stick to, that policy, especially when you have all of these problems in other parts of the world. the pressure is going to mount on the fed. jon: we are 12 minutes away from

cpi in america, going into that number, your markets shaping up, six-day losing streak. right now futures are positive by 1.1%. yields are lower, this headline is just out of germany. for those that missed it, the german inflation next year is likely to be between 7% and 8%. lisa, that's next year. not end of the month or end of the year. lisa: where was it six months ago? way down from that. how much and how quickly are things developing? they are downgrading their growth forecast pretty dramatically because this is the stagflation fear that so many people had with germany in the crosshairs. jon: it's materializing. jeremy, 11 minutes now, cpi around the corner.

what are you and the team looking for? jeremy: after ppi release yesterday there is that definite fear of a nudge with a function that provides residual support for the dollar to maintain that narrative of policy tightening. lisa: this is a big short squeeze on the pound and we are seeing whipsaw movements with people leveraging themselves into position very much into a loosely traded market. not much conviction in terms of where people are going. how much is that becoming a theme, creating more volatility going forward even if the reports are confirmed with details? jeremy: it's right, we are seeing a definitive short squeeze that is a function of an incredible degree of speculation in the u.k. with a fiscal u-turn

of some form being discussed by the prime minister while notably the chancellor and prime ministers in washington meet with the imf similar increasing speculation on the tenure of the prime minister being under extreme threat and creating a short squeeze for a significant degree of rebound rally in the market with a lack of conviction for all of these reports being denied is rubbish and a great deal of volatility making it difficult for any conviction. [laughter] jon: looking at the ftse 100, barclays, up by six point 1%. 4.8%. can you tell me, jeremy, if they are discussing this u-turn, what we don't know is if they deliver on the u-turn. what are the elements of the tax package that would need to be backed away from to convince you to come into the market again to

say by sterling? setting aside monetary fiscal is more durable, we can buy the pound here. jeremy: the first problem is of course they appeared to be moving in completely opposite directions so we would need to see some degree of reduction in terms of tax cuts and it may well be the case that reduction there could be pushed forward by year. not a big revenue ranger but it could reduce fiscal reports next year with a burden on the bank of england. interestingly the corporation tax hike is coming back into the agenda which is difficult when you try to drive for growth. the government is in a difficult spot here but if there was to be any reduction in terms of the fiscal expansion that was really driving growth dynamics into next year, that could create conditions that are constructive

with truss potentially being removed or taken out of the equation, you could easily see sterling at 17.5 pounds. there's plenty of scope for a degree of rebound that is a function of this speculation. jon: but let's see if there is any follow-through. even if they walk it all back to where they started in didn't see or do any of this stuff, would there be any scarring? jeremy: yes, that's undoubtedly true. once you lose credibility in the markets, relationships, it takes a long, long time to rebuild credibility and confidence. confidence in u.k. plc as a major g-7 trader has been undermined by the events of the last few weeks. compromised by the service, the

budget responsibility. it would take some considerable time for u.k. assets to move back to its original valuation levels with a degree of credibility discount given the assets over the course of the next few weeks and months. even if all of these fiscal events and risks are compromised lisa: anyone in the united kingdom seems to say it's not the case, but moving on to the next crisis we are looking at the yen, seeing it approaching its weakest levels since 1998, hitting that yesterday. what vulnerability is there that was exposed through relief based on what happened in the united kingdom if there is a sort of policy shift in japan? jeremy: well clearly the mof has

intervene for the first time in 25 years but the underlying metric message is that japanese monetary policy will still be very divergent around the world with its resistance being the yen going higher and that seemed to be very much in the ether's remaining in its final stages of tenure. this conclusion is that it will end in q1 where he feels confident that it's necessary monetary policy stimulus remains in play because of a lack of wage growth. that's the crux of the issue in japan but we are starting to see that inflation pressure down the pipeline for the margins making it even more difficult to see any sustained wage growth in japan. it will be the job of the next governor of the bank of japan to try to pick up the pieces and deal with the ramifications of this protracted using monetary policy until markets are

confident that yields can be reached. jon: what a tough task for anyone who takes over. jeremy, thank you. looking at it from another perspective that we don't look at enough, it's a once-in-a-lifetime opportunity to reset inflation expectations higher. this was their last ultimate goal in here's the opening for them to do it. i have sat here and said it looks like they have their head in the sand. i agree with you, backing away from yield curve control would be difficult but from there perspective they don't see inflation numbers in japan as a problem, they see it as an opportunity. jon: what happened to you, all open minded -- lisa: what happened to you, all open minded today question mark are you doing mindfulness meditation? jon: open-ended miss, mindfulness, tom is not here and i'm just more relaxed. [laughter] cpi and america next.

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jon: 10 seconds away from inflation data in america. equity futures are just off session highs.

s&p 500 with data in washington, d.c., we can cross over to michael mckee. mike: the cpi comes in 4/10 of 8% on a month over month basis, higher than it was last month and higher than expected. the core that the fed is following much more closely comes in up 6/10, same as last month, more than anticipated by the markets. it's exactly the same thing that happened last month when we saw a big reaction in the markets and year-over-year the headline dropped from 8.3 to 8.2% as the base effect came in but the core rose to 6.6% from 6.3%. so it is not a good picture here, those that were thinking that inflation might drop off fairly quickly are going to be disappointed by these numbers.

i will take a look at where the big movers are. as you say, we are off to the races. pushing it through the bond market in the front-end of the yield curve, 440 on the two-year , a new high for the year that we haven't seen since 2007. the front-end of the curve on 7, 397. breaching a couple of times over the last couple of weeks, front-end seems to be the theme. sizing up across the board here on the core month after month, which wall street was looking at . headline year-over-year, let's be honest about it that's not pretty. especially -- lisa: especially with lower energy prices that higher energy prices and not getting a flatter yield curve materially.

the fact that there is a higher yield at the long end as well indicates rethinking these inputs. jon: have you got the compositional breakdown, mike? the detail on what got us here? jeremy: it is this a -- mike: it is disappointing when you look at it. gasoline down for the month, but not enough to offset the big rises. shelter, which everybody points to as the big culprit for inflation, up by 8/10, 1/10 more than it has been in the past few months, where they had would start to moderate. owners equivalent up 1%, the calculation the government does for shelter. there was one decline in apparel, down 3/10 inventory that lisa was talking about. used cars were down by 1.1%. we have been waiting for a big

drop there but new cars are up 7/10 and the big, yeah, the thing people were not expecting, gasoline going down with other energy going up. natural gas up two point 9%. inflation contributors from areas that we weren't expecting. some thought that airline fares might go down. they are up 8/10. motor vehicle insurance has been a problem for the fed all along and is up one point 6%. a lot of underlying inflation with no signs of backing off. lisa: a couple of months ago we were talking about peak inflation. are we getting closer to that when it comes to the court? mike: you have got to think it will happen one of these months with the fed tightening and it should start to have impact, but as the fed said, with the labor market as tight as it is companies are still adding

employees to the extent that they are at higher wages and passing it along to consumers. tim bullard of the st. louis fed basically said it's up to the companies. they feel they have the pricing power now and are using it at need to realize they have to back off or it's going to hurt everybody. jon: this was never about the november meeting. it was about whether in the news conference this fed chairman could lay the groundwork for a downshift from 75 to 50 to 25. given the data calendar from now to there, do you think it is going to be very difficult for this chairman to lay the groundwork to do just that? mike: it's going to be very difficult. they want to get a 4.5%, 4.5 to 4.34 -- 4.75. the sequencing was supposed to be something along the lines of 75 in november and 50 in december.

we will get the pce inflation numbers ahead of the next fed meeting on the second. barring a big drop in that, it counts housing differently, i think you are going to see a hawkish jay powell in the news conference after that 75 basis point move. jon: a shocking number for a lot of you i guess. those of you looking for a downshift in the inflation story, pricing those markets for you it looks something like this. off the back of this one it comes in hot with equities down on the s&p off the back of a move on the front-end of the yield curve to 4.44 where we took off the highs of the year and are set to take out the lows in the opening bell. guess what, 100 4714.

bland approaching 150. lisa: the note coming out saying will they go 100. is that where we are back to? people talking about upside surprise after upside surprise, not indicating that you are seeing a sharp v-shaped decline that we heard about from david kelly? lisa: -- jon: and touching on the politics briefly this was the last inflation report before the midterms. tough spot for them. lisa: -- wages are not necessarily keeping up and it's leaving no one in a good position with lowest income individuals getting hurt the most with things like airplanes, rent, shelter, everything going up. jon: headline inflation is down from the previous month. looking at 8.1. that's your headline tomorrow in the newspaper no doubt.

wall street the focus is the month over month call in line with the previous month month over month where we had been looking for something like 0.4. it's a hot upside surprise sending the equity market a whole lot lower. seth, you have had about seven minutes to pour over the details. your take on this one, please. [laughter] seth: i will crow a bit and congratulate my team, our team, we were above consensus on the call for this trend. the stickiness that you saw an shelter inflation -- on shelter inflation was a shock for the markets that were off because of it but for us it didn't come in different from where the forecast was. there is persistence in the service side of inflation. the apparel number i thought was particular, as for a long time me and others have been talking

about the pullback by consumers for consumer goods with the challenge in this context being when other bits of inflation are just going up more strongly. lisa: right now we are seeing peak fed policy rates. is that what's required for the fed to move fast and continue moving into next year despite concerns over financial stability? seth: i'm not sure that's what's required. that's a little bit above our call but only by a hike or so. there are two ways for risk in that outlook and the last jobs report was good but softer than the one before it and if we get the downward trend continuing into the 100 something range, i don't know it will be obvious to the fed that they need to keep going all the way up.

lisa: i was struck by what you said, after a while people not willing to pay for something that is often a discretionary expenditure. you can see it with ikea, pepsi, raising prices and still having good sales. are you concerned that your team has been too sanguine about how quickly inflation could come down on the others with how pervasive even wage stickiness is right now? seth: if there is ever a time for economic forecasters to be humble, this is it. it's very difficult, the sort of falling off of inflation for core goods has taken so much longer than expected and there is a lot of uncertainty here. the fact that the labor market is obviously cooling. there was the jewel state the market reacted to that was solid but still coming down and i really think that part of the economy is going to be key.

can the fed continue the tightness and get the overall economy to slow down, get job creation to slow down? that will be the key in the median term. jon: if you are just tuning in, you missed the fireworks. equities heading south, down 1.8% on the s&p with the yield curve off to 440 three and expectations higher in the next fed meeting. in the minutes yesterday they said the costs of taking too little action outweighs the costs of taking too much action. if you anticipate their next meeting in november and they think the same thing? sonali: -- seth: i think they will be wringing their hands quite a lot. the minutes pointed out that at some point they will be having a discussion about calibrating the size of rate hikes because they don't want to go too far and do too much. i think they are getting to the

point now once we get close to 4% or over 4% they will be weighing both sides of the coin, the strength of the underlying economy is important but inflation is clearly strong. there was the point about used-car prices coming down and new car prices staying strong. it's exactly the kind of friction that's presenting such a conundrum. jon: how far can we push this, i tell you. 16 points on the two-year? lisa: watching it, it just keeps going up higher. the terminal rate is looking at 4.8 5%, moving closer to the 5% handle we heard about from larry summers and bill dudley. jon: can i just say that he was talking about the summer of 21 where he thought they would have to go a lot further than people thought they would? stacked lineup in the next hour. morgan stanley investment

management with brian dietz from the national economic council. the view from the white house on a tough, tough day for policymakers. lisa: let's get to it. seth, i would love to hear your take on the political element of it. particularly as we heard from michael mckee that energy prices were rising. we have seen it with diesel, natural gas, the winter with inventory at historic lows. how much are you concerned about this triggering a new bout of inflation? it could pose a real problem. seth: it really could. at the headline level, the winter weather is going to matter a lot. this is an issue that our friends across the atlantic know even more. it will be disastrous for them if they have a warm winter.

no question, energy prices are susceptible. the average consumer doesn't look at core the way the market does. they just look at the things that they spend their money on day in, day out, with food and energy high on the list. lisa: we were talking about the bifurcated nature and i wonder if this speaks to the uneven fortunes of those at the high-end who can buy new cars and then what i hear from a lot of executives, in the auto industry, other people can't afford the same kind of groceries they had in the past. how does it end? what is the trajectory for the overall economy as opposed to the pockets of potential pain? seth: unfortunately the people at the lower end tend to fare worse and it ends up exacerbating the inequality. if we think about that story

that was so popular about the excess savings in the economy because people were not spending as much -- because a pandemic, it looks like from the estimates that we have done the excess savings have been spent down for the people in the lower quintile , but not so for the top of the income distribution. another place where we see the disparity really showing itself. lisa: stick with us for just a moment. i want to go back to mike mckee. bringing you the latest if you are just tuning in, core level of cpi hitting its highest level in, 6.2%, year-over-year higher than expected, even the headlines were higher than expected, lower than recent highs. michael mckee has been parsing through the details where we talked about how used cars have declined but new ones have

continued to rise in terms of pricing. what are some of the other details that you think will shape the conversation, mike? mike: i think it is in general the overall number of things that went up, the breakdown of everything in the cpi, most everything under the apparel category fell. it's the only thing that shows anything like that. services up six point 7% for the year. not what the at once to see driving the core higher and part of the problem is they haven't yet been able to get a cap on expectations from businesses raising their prices. we will see if that starts to come through and with seth as you were talking about the natural gas issue is probably going to come back and write people as use gets more significant and we sell more overseas. there are already some on capitol hill saying that maybe

we should cut off gas sales to europe. especially because of ukraine. a lot of political stuff will go into this as the central bankers and finance ministers gather at the imf for their meetings and talk about the u.s. because u.s. inflation is so high that the fed has to keep going. driving things higher and affecting everybody around the world. lisa: mike, thank you so much. seth, your reaction that you have seen in the market is pretty fierce. the s&p, down 2.2% ahead of the open. the nasdaq down 3% after a very difficult year. at what point to financial stability concerns start to play into this at a time when inflation is still such an obvious concern? >> i think that selloff in equities is something that we have been calling for and the

key is to slow it down enough that we mark down the earnings expectations. that goes into the level of prices. but it's not the level of asset prices or the financial stability concerns that will be raised. it's how volatile things are. if we see credit spreads widening, with a slowing economy maybe that is what should happen . what they will be more concerned about is if they move wider in short order. something on the lines of what we saw in the u.k. a week and a half ago where you saw a huge move inside of a single day where we saw the normal reactions as the data came in and the fed was more worried about volatility or lack of liquidity. lisa: what we are seeing from the treasury options of the last few sessions, incredible volatility in the early hours over in asia and europe. how much are you getting pats on

the back from your colleagues at the trading desks, morgan stanley, the fed where you formerly worked saying it's starting to get more dicey. seth: no question that everyone in markets is starting to talk about this phenomenon but for the fed they are expecting an increase in volatility because the world is not certain and i don't back the folks at the fed see evidence of anything not working to the point where they are worried about it. lisa: given that, how much are you ratcheting down expectations for growth? that you are seeing certain types of inflation come down but not enough to give anyone comfort? seth: absolutely our baseline view for the u.s. next year is very weak. roughly half of the 1% range. that's a pretty pitiful amount of growth. another metric to think about

there is we are looking at job growth slowing down to the 50,000 per month range, a far cry from her we are now, particularly a far cry from six months to a year ago. growth has to come down a lot if the fed is going to continue inflationary pressures and in the words of the chair, that's economic pain. lisa: thank you so much for the time you have spent with us this morning, seth. down there in washington, d.c. with all the policymakers. reiterating, right now we are looking at the selloff that's worse than expected today, hotter than expected inflationary read to. there is talk about financial issues with a discussion of perhaps stopping the quantitative tightening early. from the policymakers that you have spoken with, how much is that on the table? mike: it doesn't seem to be on the table. they say at this point they are

not seeing signs of real stress in the u.s. economy, nothing like what they have seen in the u.k., and they want to give it a few more months to see if they can bump it up and see what it does. there are people who suggest the fed needs to start looking at this because not just the fed but the government is involved and as the fed backs off the treasury cells even more debt to share -- to pay for everything we and the markets may not be able to absorb all of this. that will be something that will be discussed here the imf world bank meetings. whether or not the fed wants to change its views for taper qt is still an open question but right now the fed says they don't to do that. jon: right now let's get -- lisa: right now let's get ira on the line. right now i'm looking at a peak

fed funds rate in march that is priced into futures markets on the terminal. 4.85% by march of 2023. closer to the bloomberg economics base case. what's your sense on whether this is locking in the aggressive approach from the fed ? these are not the same signs that people were looking for that they had come too late for any kind of deceleration. ira: i think we have to consider that the federal reserve will be going 75 basis points for sure. possibly even in december as well and maybe even 50 in january. i think that we are pricing for a higher terminal rate at this point and i think that the two big things, the takeaways from the markets, commenting on something mike mckee just said as well, the market is still pricing for interest rate cuts

in 2023. at some point the market has to price this out and first it has to find where they think the final terminal rate will be and once that happens we can see as the rate gets flatter, once they reach the terminal rate it will stay there for nine months at least. which is longer than they typically have. i want to say that market function is a big deal right now with a lot of volatility going wider on things like mortgage backed securities and the treasury market but one of the ironies is that the treasury department is still cutting the amount of issuance, treasuries issued, because one of the ironies is that as inflation has been high, wages have gone up a lot and tax receipts are better than anyone expected so we actually have the lowest that we have had in years in terms of

the monthly annual. so one of the ironies of having, you know, higher, higher inflation, is that we won't have to issue quite as much debt in order to make up for government spending. which is a little bit ironic. lisa: given the outlook recently it would be expensive and punitive for the u.s. to borrow at this point on the front end with the pricing in of that likelihood over a sustained amount of time from the federal reserve but on the long and i find it interesting to sell off the 10 year yield to decidedly cross the 4% threshold at a time when people question whether we are going back to a low rate regime over the next decade. what is your view and how has that changed based on how people have responded to this news that over the long term it will be harder to get rates back to where they have been?

ira: keep in mind we are still lower than the past few decades. still in the historical context from the last half-century, interest rates are still on the relatively low side. just not as low as they have been the last 10 or 12 years. i think that the longer end of the yield curve will ultimately see interest rates below 3% at some point. we are not going back to the zero handle on the front-end of interest rate and probably not for the rest of my career but we will probably see a rally at some point as we price in the federal reserve cutting interest rates. keep in mind that the higher inflation goes, the higher likelihood we have of the federal reserve having to clamp down on demand by increasing interest rates and continuing

their tightening programs meaning that we will have something longer later where the long end of the yield curve will be pretty attractive and i do think that actually in the fourth quarter of this year we will see a peak in yields. if that's where we are today that's a matter of debate. i thought it would be closer to where we are right now but obviously we have new data where we have to consider that data in the forecast. lisa: still with us down in washington, michael mckee. if ira is correct in saying that this is setting us up for a hard landing, how is this going to be communicated? at what point have people talked about putting recession as the base case in the fed forecast? mike: i think a lot of people

are putting recession as base case. the only real question is how hard it's going to be where you can't really get away with just raising rates anymore and nothing happens. the fed will be emphasizing the length of time they keep the fed funds rate at the terminal point rather than acquire the terminal point is. the market is re-pricing right now. it's hard to really put a finger on exactly where they need to go or how high they need to go. the estimate had been that it would be about four point 75%. some say 7%. but in that range. does this really change that is much as people might think? the fed knew that this would be a high inflation report and that it would take time for inflation to come down. wall street will debate the idea, but for the fed it's going to be more a question of how long they keep the terminal rate up before they start cutting.

i know they said that if you take a look at that function, something interesting is happening. you have to start pricing out the idea of a rate cut. it's still there just slightly but now the market is pricing in a rate increase, another rate increase at the end of 2023. so there is confusion in the markets about what the fed is going to do at this point futures a lightly trading but it is an interesting change in the perspective of those trying to put it where the fed will be a year from now. lisa: i was reading through the minutes of yesterday's fomc meeting and there was a slight nod to the turmoil rebounding on the u.s. economy and causing issues domestically. how much is that gaining traction at this time where i'm seeing the euro fall and the dollar strength becoming pervasive in the face of persistent inflation?

mike: it's obviously a major topic of conversation around here most of the central bankers i have spoken with the said they understood the fed had a domestic mandate, as do they and they can't do a lot of about it. they have to let it go. so the fed is going to take this into consideration. one thing they have to take into consideration is how much is global tightening affecting the policy in the united states and they don't have to do as much of it goes up but at this point they know they are in the rest of the world is but everybody has to do their own thing. lisa: as always the selloff is continuing to accelerate into the open, the nasdaq is down near 3%. dollar strength with yields higher, bond prices lower. two year yield hitting 4.5%.

solidly north of 4%. highest levels going back to 2008 with cpi coming in hotter than expected. core levels going back to 1982 on a day where people are looking to the fed to understand exactly how this will be dealt with. coming up we will hear from a member of the imf. this is bloomberg. ♪ jonathan: absolutely brutal. inflation up. 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. ♪