>> very premature to start thinking about pausing. >> they should only focus on getting inflation down. >> we should be careful and understand we have to get to the destination. >> it's not about the terminal rate. they are still looking at as high a terminal rate as they need. >> it is not a mature financial condition easing on the side of any fed pivot. announcer: this is "bloomberg

surveillance" with jonathan ferro, tom keene, and lisa abramowicz. jonathon: good morning, good morning. equity futures the day after the fed lower by 0.2 percent. this bond market is on the move. 470 on the morning. tom: good to see that rounded up. this is one of the most interesting days in 20 years. this is completely different from the zeitgeist i seeing this morning across media, across a lot of wall street. this is fascinating. this is called a super restrictive fed. what is your number one take away from chairman powell yesterday? tom: i got over at cbc asked him a question about international ramifications of what he and the fed is doing. you see it this morning. the fed is central bank at the world, including central banker to the united kingdom. jonathon: that moment right at

the end of the news conference, or that journalist let him wrongly to believe this is rallying. he just went through the list one by one as to why maybe this market should not be rallying. lisa: perhaps he said the quiet bits out loud. they don't want to see the market rally or loosening and financial conditions. what you are seeing is a higher terminal rate being priced into the market. 5.2% being nearly priced in, as soon as april or may of next year. jonathon: how difficult is it to be bullish right now based on what we had from the -- heard from the chair yesterday? lisa: unless you are going to see immaterial downshift in inflation that will come before early next year, it is hard to be overly bullish, which is why people can blame some of the bearish tilt of this program. that is basically what the federal reserve is saying. jonathon: i think you can blame

everything on chairman powell. many people were on the others. tom: they may be on the other side of the trade, but i cannot find words for how sensitive the markets can be now. forget about that. it is about the real yield ready to go throughout 168 to get out over 170. you mentioned the elephant in the room, the 4.7 1%. but i look at the currency screen. if i am rishi sunak, the prime minister of england, i'm looking at the fiscal. jonathon: they want a weaker dollar and they are getting that at all. tom: i think there's a thing going on here and the fact is

they are going blind to a neutral rate. i really got that from powell yesterday. many others said this was the most interesting process -- conference in ages. jonathon: let's go through the market for you. a dreadful day of losses yesterday off the back of that news conference. yields a whole lot higher on the 10-year, just south of 4.2. taking out the highs of the year, up nine basis points on a two-year. tom: yields are moving higher, but also a shift in the curve. -52 basis points on the spreads. a -60 level would be critical. jonathon: euro-dollar this morning is --

lisa: in about two hours time, we get that bank of england rate decision. a 75 basis point rate hike is coming in the face of this. perhaps the biggest about a we heard from fedor -- fed chair jay powell is that it is essential to kill off inflation for a stable labor market. our dual mandate is not in conflict. it is working together over the longer term. how does governor andrew bailey message that same thing at a: 30 a.m. when they aren't pressured by a week or pound, a fiscal policy that has yet to be released? we have isom services data at 10 a.m. eastern. i'm curious about how much they're losing momentum. there talking about rolling away from goods and services. how far can that go?

to do, -- today, we get a slew of earnings. how much do consumers continue to go out and buy. pella shares her lower ahead of what people expected. people are no longer buying bikes and sticking that them in their homes. people are saying carvana has been all over the place. they have faced some of the highest rates going back to 2009. starbucks, how much are people still going out and buying lattes and everything else, especially as they had to work? jonathon: thank you. joining us now is dominic konstam. let's just start with yesterday and that news conference. the number one take away for you, what was it? >> the main thing i thought was that at least they started to introduce the idea that the

accumulative effects of tightening to date are going to have to be considered. there is some sense of mutual and a measure of restrictiveness that is in place and going to be in place as the forwards are realized. there is a shift in narrative. i think it's important they raise the peak funds rate. but that is been going on for a while. the main thing for me is the new narrative. tom: you note yesterday, there is a single constant and there were you say this is faith-based central banking and they risk a textbook type to error. tell us about the certitude of fed policy butte wrist up against the potential for error. >> the problem is we don't really know where rates are, in

producing consistent price stability. we can look back at historical data. because we don't even have that much data, may be going back only 20 years, the neutral rate right now based on that backward looking thing would be around 1%. we could be in a new regime, in which case neutral rates are higher. those old metrics, the fed is super restrictive, but maybe not restrictive enough. understanding why neutral shifts is very important. there are a lot of behavioral things that could be going on there, structural things going on, demographics, globalization. some sense, the question is, what does a central bank do in this environment? i would suggest they have to be a bit cautious at some point, when they know old metrics that are super restrictive, perhaps they need to take a pause, recalibrate, and wait out a

couple of meetings in the course of 2024 for they decide if they need to carry on raising rates. it would be a refreshing tightening cycle or maybe everything will fall into place and we say, thank goodness, we have done enough. or maybe they have done too much and they have to scurry back in the other direction. lisa: we were talking earlier, is there any reason for there to be bullish recently? with the fed chair coming out and in some any words not being happy at the rally in the face of this inflation. what is your view on that? where could there be room for bullishness amid an absent rebuttal of a dovish pivot? >> it's hard to be bullish about anything, either bonds or equities. the issue for equities, i think is really down to a hard landing or soft landing. if there is a hard landing, you cannot be bullish on equities. they have a good downside in

earnings. we suggest another sort of 10% or 20% downside in price for a hard landing. the problem you've got is that even with a sort of soft landing, the root to a self-limiting is always margin compression. you just don't have to have a massive cost reduction on top of it, which would involve shutting down businesses. it is very difficult to be bullish. i was just saying you could do a weighted average of soft versus hard outcomes. right now, we are not getting a sense of any landing. but you could do a weighted average and say that fair value is around 3600. that is where we have been working two. if the clouds clear and it looks like a soft landing is taking hold, you have upsides around 4000 or so on the s&p. it's difficult to be bullish. but maybe if you are in the soft

landing cam, you can use some of this weakness to accumulate and cover some shorts and look for some sort of upside down the road. jonathon: certainly difficult to be in that camp right now. dominic konstam of mizuho. easy to repair the damage of doing too much sand too little. tom: this is the asymmetry we were talking about yesterday. one of the notes yesterday was the best from dominic in 20 years. it was brilliant. jonathon: how much do you think democratic senators are worried about the damage to the labor market? tom: zero. this is overcome by an event screen i'm looking at. when dominic said this is so important that we go from stanley fisher and ultra accommodative to constant coins of super restrictive. they do not believe that this fed is super restrictive. dominic says to be cautious. jonathon: look where the

emphasis is. it is on the destination, and a lot of the journey. lisa: except as dominic konstam said, we see no landing. it's very difficult. jonathon: that news conference was -- tom: it was historic. [crosstalking] i got this totally wrong. it was not a snooze fest. jonathon: futures down 0.25% this morning. this is bloomberg. ♪ >> keeping up-to-date with news from around the world. i am lisa mateo. federal chair jerome powell is declaring he is ready to raise interest rates as high as needed to get rid of inflation. at the same time, he said the fed could go to a slower rate of increases as soon as december.

meanwhile, it just under two hours from now, the bank of england is expected to deliver its biggest interest rate increase in 33 years. economists predict the u.k. central-bank will raise interest rates by 75 basis points in order to cool double-digit inflation. that would bring that base rate to 3%, the highest since 2008 and the single biggest increase since 1989. in china, the national health commission says the zero covid approach remains a strategy to fighting covid. it was hoped that it would be erased soon, but they reported the biggest jump in covid cases in months. elon musk intends to inform the affected staffers on friday. remaining twitter employees will be asked to return to the office. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700

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>> we still have some ways to go

incoming data since our last meeting suggests that the ultimate level will be higher than expected. we have ground left the cover here. and cover it, we will. jonathon: chairman powell straight out of the gate doubled down on that comment. futures this morning at negative on the s&p 500, down 0.5%. yield markets are much higher. a similar move at the front end. off the back of that, what do you get? dollar strength, euro weakness. heard from some ecb speakers this morning. it was fascinating what they have to say. president lagarde says we don't believe the recession will be able to contain inflation. i think that is basically the president talking about stagflation are scared we had another ecb officials say that this time, it is clear rates

need to go higher. but take a listen to this. in my view, recession and the euro area is a baseline scenario, it is not in the ecb's baseline just yet. this is one official. but so far, it is likely to be shallow and brief. here's an individual who wants to hike interest rates and do it even if we get a recession. tom: i agree. i totally take that point. i'm going to say, and this is so important, i think this is underreported in the financial media right now. i did not look at my bloomberg for 30 seconds and the markets moved. sterling going down to new weakness now. i am following the 210 spread right now. i have waited over eight weeks to try to figure out what the suburbs of america are doing in the midterms. we will be in washington for you tuesday and wednesday. there it is. greg has been on this at

bloomberg. kathy nails it in the "wall street journal." the democrats have lost the suburbs. are you surprised? >> i'm not surprised where sing this shift. prior to this, going into the fall and after the summer, the concern for economy, over things like abortion, they were really starting to pick up. but this pull specifically is incredibly important because it is not just the suburbs, it is suburban white women. the striking down of roe v. wade is something that resonated with them over the summer, but it really started to lose steam. if you look at the pole, these are the numbers. the top issue, 34%, and this is what is going to get them out to vote. this is a robust voting group according to this paul, in terms of how many of these women want to get out and vote. they say rising costs is their number one issue and it is costing too much to live. that is now overtaking any other concerns like abortion. tom: take philadelphia, the way

end the of the no-hitter. let's be direct. awes versus federman, this may be decided as trump and biden was. annmarie: potentially. if you look at this paul, when these suburban women were asked how they feel donald trump did as president, it is 50-50 in terms of approve and disapprove. items numbers are trailing in this latest poll. this is much worse for the administration and democratic party than the same poll in august. lisa: what do you think of the counter programming the president had during the interview with federal chair jay powell? annmarie: he was talking about a talent pipeline. i'm not sure that the fed's calendar is on the agenda for the white house the same way it is on our agenda when we do our

programming. i think the white house also wants to make sure that they say they are independent of the fed, so why would it matter if the president was speaking at the same time? today, it is five days to the midterm elections. the president is going to do anything he can every civil day to have some event to make sure he is hitting the base. lisa: to be fair, the big issue is inflation. we are looking at the economy and how much they pay for groceries, gas, everything else. who is president biden speaking with? who is he trying to message two, at a time when he is definitely crating animosity with energy companies, pointing the finger at the fed, and his own party members are saying the fed is acting overly aggressive? annmarie: this is something the white house has struggled with. sometimes, you just on a who the messaging is for. our colleague, nancy, has a great report out this morning

that really tries to show the circle the president has relied upon and widening that when he needs advice, everyone from the ceos to apple, walmart, target, and bank of america, to his grandchildren's field hockey parents when he spends a lot of his time on the weekends in delaware. one group he is really not engaging with is the oil industry. that's difficult to understand, when it is gas prices that have really infuriated american's. this pull in the "wall street journal" is showing why suburban women are going out to vote. also the fact that your chief of staff is waking up every civil day at 3:30 in the morning and the first thing he is looking at, allegedly, is the price of a gallon of gasoline in america. if you are so concerned, where you know engaging with the industry? jonathon: thank you. annmarie with the latest. you've got the war of words between the old patch and the

president right now. but last is the effective policy on energy. tom: there's a history in america of a lack of policy on hydrocarbons. i grew up with a gallon of gas being a third row for america. i don't think you get that in the zip codes of manhattan. but there is so much more going on here. the magnitude of the shift, 27 percent, i never imagined that. i have never framed it. that has got to be topic one for the democrats on this thursday morning. jonathon: they're playing the blame game. democratic senators play -- blaming the fed, the fed blaming the white house. tom: again, the poll is game changing. i will pull expert says this is

a shift pull less than a week before the elections. appia back to international markets. the united kingdom and emerging-market -- [crosstalking] how many degrees of freedom has governor bailey lost because of jerome powell in the last one for hours? jonathon: they have a problem with the fx channels. we will continue the coverage. big news in the bond markets. [crosstalking] on a two-year this morning, 4.72. from new york city, this is bloomberg. ♪ ♪

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jonathon: big moves in this market over the last 24 hours or so. futures down by about 0.5% or zero .6% on the s&p. the russell is down 0.5%. in the bond market, yields are higher by 10 or 11 basis points. get used to that.

the previous high was 10 basis points lower than that. it was a few fridays ago in the bond market on tens, just south of 4.20. if you are president lagarde or governor bailey, you have a weaker euro dollar deal with. 9741. negative 0.8%. that is working right through the g10. tom: it's the way it is weaker. it is suddenly and abruptly within the later british morning, the euro just giving out new weakness. i cannot say enough about the nuances of the market right now and the bloomberg terminal. jonathon: listen with the chairman had to say yesterday. i think we are all shocked. you have a fed chair basically saying we still believe the risk of doing too little outweighs the risk of doing too much. we also believe the path to a soft landing has gotten narrower over the past couple months.

don't pay attention to the pace of hikes. this is about the destination. that terminal rate needs to go higher. what's interesting about that last line on the terminal rate is the shift in the september numbers was already quite large. we are set to do that again in the december meeting. tom: we have jennifer mckeown with the bank of england. that papered in the press conference. we were suddenly down 500 points. jonathon: it was straight out of the gate. it was the first line, almost, in the news conference. he doubled down on it. i think it is so revealing. he was led to believe this equity market was up. he just delivered what someone told me, i think this is a great phrase, he delivered a hawkish greatest hits in about two minutes in response to that question. tom: we are not daytrading here,

but i'm looking at sterling right now. the chart is weaker. let's get a brief on that. jennifer mckeown joins us, head of capital economics with the bank of england. i cannot say enough about the quality of capital economics. let me cut to the chase. late in the press conference, the chairman was asked about the international ramifications. what are the new constraints that governor bailey faces this morning after what chairman powell said yesterday? >> i think maybe it does constrain other central banks a bit, this suddenly more hawkish tone. it is pretty confusing not only for markets, but generally. tom: how has he constrain domestic economics? i salt one report this morning about housing prices could decrease 15% or 30%. how constrained is governor bailey about the domestic

realities of the people the united kingdom? >> there are no conflicts in terms of domestic position. it is having impact on housing market, which is a real worry here in the u.k. it is really important to the rest of the economy. but otherwise, really strong in the u.k. the worst of both worlds. when there is tons of trade shot, like the gas prices, there's also domestic inflationary prices, like the u.s. we think he is going to go for a pretty big hike today. the big question is what the messaging is beyond that, whether it indicates there may be a slight softening to come. lisa: the baseline assumption markets is the bank will raise rates by 75 basis points, the biggest height going back to 1989 for the bank of england. and then raised to about a 4.25%

level, or they were stay -- where they will stay for a wall. what does that due to the pound? does it leave things where they are or does he give support, especially after the disappointments and disappointingly small hikes from the bank of england recently? >> it might get some support. our best case is that rates go farther than we are expecting, at 5% in the u.k.. we may need a 100 basis point hike today just given the constraint of pressures. going forward, into next year, we think it is the witness of the u.k. economy that is going to be really important, and decreasing risk aversion as we go into recession. i think that is likely to weigh on sterling. lisa: john was mentioning this, christine lagarde the ecb is warning that this will not tame inflation. if this applies more broadly, to the u.k. as well, what is the point of outsized rate hikes?

what is the point, if this all purpose is to reduce activity that may not lead to reduction in inflation, as christine lagarde is saying? >> it may not immediately turn the inflation picture around, but if you can pull demand down enough, then that does reduce the risk that wage growth will continue to rise, that demand will keep pushing up and pushing inflation up further. i think it is largely a matter of timing. we have to remember that it really makes sense for the federal banks to be hawkish now. if they soften now, they just undo all the work they are doing what their hikes. markets start to price in those cuts in futures, so it is a really confusing position to be in. but i don't think i would read too much into what the central banks are saying right now. what is going to matter is what

happens to their economies and domestic inflation next year. tom: there's a cohort of market economists who are suggesting that inflation can go up, turn around, and come down. is that a possible belief with capital economics, with double-digit european and double-digit u.k. inflation, that we could go up and structural economics will bring it right back down to legitimate disinflation? >> i think there is going to be disinflation next year. there are some really large statistical base effects the global inflation profiles. it is going to be the case that the headline question comes down. the real question is what happens to core inflation, whether we see underlying domestic price pressure start to come down. much more is coming to the u.s.. tom: i don't mean to interrupt, but i think this is critical. eyes the u.s. different in

believing core disinflation can occur, but you do not believe that in the city? >> i think it's partly about gas prices. in europe, we have been hit much harder by the rising gas prices. that is affecting headline inflation. and it has an impact on inflation expectations paired we have a lot of strikes going on, a lot of discontent -- discontent. we are at the peak of pressure on the cost of living and people's incomes. that's pushing up wages. it feels like things are building at the moment in european economies and there's a real risk of wage growth going up very sharply. jonathon: thank you for being with us this morning. jennifer mckeown with capital economics. the european central bank, the bank of england, they have to hit an inflation target. whether they believe they can do anything about it or not, they at least have got to retain

commitment to getting a down. that is the difference between what they will signal and what they will do. is it different between what they will signal and what they will ultimately do, is that a tradable story in the face of what we are experiencing right now? if you don't believe chairman powell do what he tells you he is going to do, do you still want to belong here? lisa: i don't know the answer to that. you want to play game theory? that's ultimately what you are asking. are you going to call their bluff and say ultimately, you cannot do this? the more people that do that, the further the fed has to go. a kind of has a self fulfilling prophecy against you. there is a larger question, which i think is expressed in the bond market. if you believe the fed will lack the political will to do what needs to be done, to bring inflation back down to 2%, you do not want to get long treasuries. right now, you cannot be certain those yields will come down materially in the way that summative people thought. that might be one of the distinguishing features that people are trying to grapple with right now.

jonathon: sometimes i think we make it a little more complicated than would -- then it is. you have some hyper bullish people who have said that the federal reserve is telling you what you want. listen to them and don't fight them. hasn't the federal reserve just told us yesterday and the news conference ultimately what they white? lisa: the fed is not in control. right now, cpi is in control. inflation is in control in a way no one has ever seen before and no one understands it. jennifer mckeown said she thinks there will be rapid disinflationary futures in the u.s. that is one reason the fed will have to back off and it's not even within their eyesight. if the fed is really in control and they are saying we don't really know, but we want to kill inflation, you are basically trading off of economic data more than the prognostications of a split fed. lisa: we are at the mercy of the next two prints from the federal reserve. in the meantime, they are in

control of financial conditions. they have proven that just yesterday by smacking the equity market back down. lisa: i agree with that. if they want to bring down federal -- financial conditions, they could do that. tom: david blanchflower had a blistering short tweet today on the disinflation we are beginning to see in some of the data. it was blistering. jonathon: he doesn't think the risk is that asymmetric peer he thinks the damage you do to the labor market is real and difficult. tom: that's his claim. that's what he is known for. i thought jennifer said something absolute profound there about labor. here is a headline from "independent" in the last two hours. in of the train strikes in november 2022, we are not seeing this headlines in america. jonathon: no, but we're are still having conversations and negotiations with unions, with inflation hitting decade highs.

the difference is they are actually going on strike. but we are having conversations with unions that might go on strike. i think they are having much harder conversations. futures on the s&p down 0.5%. down 0.6% in the bond market. yields up and away. 4.73 on the two-year. from new york, this is bloomberg. ♪ lisa: keeping up-to-date with news from around the world. with the first word, i am lisa mateo. central banks and focus again today. at 8 a.m. new york time, the bank of england is set to deliver its biggest interest rate hike in 30 years. the boe is trying to rain and double-digit inflation. meanwhile, fed chairman jerome powell is prepared to raise interest rates as high as needed to get removed and. at the same time, he says the fed could go on to a slower rate as soon as december. president biden asked voters to

consider the future of democracy when they vote in next week's midterm election. in a speech not far from the capitol, the president urged americans to reject what he called donald trump's big lie. democrats are trying to stave off the potential loss of their majorities in congress. in brazil, the president called on his protesting supporters to dismantle hundreds of roadblocks. he says they hurt the economy and are not a legitimate form of protest. in sports, for only the second time, there has been a no-hitter in the world series. christian hobby air and the houston astros combined with a no-hit philadelphia for a win. that ties the series at two games each. the only other world series no-hitter was pitched by non-larson of the new york yankees in 1956. global news 24 hours a day, on

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>> china demand coming back will of course have an impact on the market. but we are in a world where demand is launching around the world. i think there is ample supply on the market for us to not have a big impact with china coming back. jonathon: but from eric city, this is a continuation of what we experienced yesterday afternoon post fed in that news conference. equities down, futures lower, -0.7%. on a two-year, up two basis

points. euro-dollar holding on to 9734. we are down by 0.9%. tom: critical markets. we have 26.39. i am focused on sterling as we drive toward the bank of england meeting. if you get yen to move out 148 to 140 nine, that sort of confirms everything we are seeing. jonathon: how will they respond that? tom: they have less freedom than before. [crosstalking] right now, what we're going to do is address food. if you have your wheaties, you know in america comes from kansas. in the united kingdom, there are future -- there are huge food imports. kona haque with edf.

we are talking about the idea that these microeconomics, with the hardship of the ukraine, it buttresses up against the macro economics of the food economics. discuss the micro of wheat buttressed up against the difficult macro scene. >> this situation is literally two stories you have the wheat supply demand fundamental. this is not just wheat, but a lot of soft commodities. supply has been really tight. global reserves are actually historically quite low. you have this situation or you are trying to marry tight supply demand fundamentals against a macroeconomic backdrop that is bearish. yet rising interest rates, rising energy costs, and lower consumption trends. when you had that, i think the future prices tend to follow that more than the immediate

supply demand. these wheat commodities are ultimately priced in u.s. dollars. what you see is a gentle decline. tom: what do you see for a higher single-digit food inflation? how do you break that? is it about breaking oil prices? i get how the housing dynamic works, but how do we move away from high single-digit food inflation? >> the food inflation story was a while in the coming. we do from a year ago that this was happening, even before. in the middle of covid, they were going oh. you still have freight and supply chain issues in energy costs, fertilizer costs, all of this pushing up food costs. on top of that, and this is particularly for food importing countries that price their food in u.s. dollars, on top of that they have a massively rising

food import bill. this is really adding to the cost. for this inflation to now start coming up, it is not going to be overnight, that's for sure. lisa: this is the issue. there is this delay feeling and there will be time for it to come over. food is essential, unlike gasoline and oil, and the same kind away, in terms of being able to reduce consumption of oil more easily than food. how do you buy into, or not, some of the declines we have seen in crude valuations, given the expectations for a slowdown or even a recession? >> it's an interesting comparison. crude, for example, are stable at $90 per barrel. but it has not fallen to the lows of 50 that we saw at the beginning of the pandemic. i think you will see the same thing with food. they are coming off. definitely not as high as they were just before the ukraine

invasion, but they are also not coming back to the lows that we saw two years ago. i think that's the situation. fundamentals have shifted to a slightly higher structural phase, where this sticky food inflation means your baseline is moved up higher. lisa: when it comes to crude, one woman came on our show and said that she does not expect it to go back to the $72 level. the administration has pointed to the refill of the petroleum reserve. where do you sit on this? >> i think if they had not intervened, or they will be in november, i think for sure prices would have gone to the 70's level. how quickly and how effectively they can get this together and in that cut, it might be affected if they are not able to do that. i think the recessionary implications are so severe.

but my base fee is that they will do what they can to keep it at above $85. jonathon: kona haque of edn deaf man. -- ed&f. tom: this is the x-axis treatment. a bombshell phrase codified of cumulative tightening, the cumulative effect of inflation's. it's the reactionary function that stands out. jonathon: this is been the story for the last number of months. everyone finally capitulating around the story. if we get weakening and that economy, weakness in the labor marketing, they are telling you that they're going to cut -- they aren't going to cut any time soon. they push that story way, way out there next year. tom: i'm going to go to stan

fischer, as vice chair years ago. he coined the phrase "ultra accommodative." what we saw yesterday is the hearing now of neutrality. jonathon: there are a lot of people that just don't believe him. there are a lot of people who think it might get cut when the economy rolls over and the skies truly tested. he will capitulate. is that a tradable story? if you disagree with him right now, if you big ultimately they can't go forward with this and it is signaling no follow-through, is that something you can trade on? lisa: a lot of people are trying. i'm looking at futures and expect tatian -- expectation is for 2.5%. -- 5.5 percent. then, ghost on a 4.9%. how much is christine lagarde avant-garde in her comment this

morning? there are these sustain higher prices in the real world economy that rates are just not going to fix. how does the fed and the ecb responded that? do they push fiscal policy makers to borrow more money and spend at a time when rates are really high? what is the solution? jonathon: the take away the last few years was to not fight the fed. now, it is flipped. fighting the fed in the near term. lisa: which raises the question of if it is him off from said -- if it is an opposite retracement. jonathon: it is the last decade in reverse. from new york, this is bloomberg. ♪

>> it is very premature to be thinking about policy. >> until we have seen progress on inflation, the federally focuses on getting inflation down. >> i think the fed is just saying, hey, let's be careful and understand that with to get to the destination. >> it's not about the terminal rate. they are still looking at as high a terminal rate as they need to derail inflation. >> it does not want to see premature condition easing all

the signs of any fed pivot. announcer: this is bloomberg surveillance with tom keene, and lisa abramowicz. jonathon: if feels like that ended just about five minutes ago. [crosstalking] good morning, good morning. equity futures down 0.6%. the pain continues. tom: it continues and does so with a different flavor. thank you to our team for a great set of cookies. we continue with binky chadha here in a moment. when i notice is markets are speaking and this is where the bloomberg terminal really comes in. it is not just about the stock market or even fx. it is the 4.72%. jonathon: slower but higher. the 10-year at 4.20. lisa: i'm just watching the

front end and the pricing of a higher terminal rate. when does this create some real pressure that we have not seen yet? do people start to understand, as we heard, that it has to come from market compression for the fed to be happy? that's not exactly great. jonathon: q the white house. [crosstalking] [crosstalking] tom: are we going to get a windfall tax? jonathon: that was not a concrete proposal this week, it was a threat. and i think the market solid as just that, a threat. a realistic proposal on deck we can follow through with. tom: afterthought was we need windfall profits here. jonathon: are you going to tax the children? tom: i'm taxing the children. absolutely. but tell us about the stressors that are out there. [crosstalking] there are some serious stresses

that you are seeing in the poll data. jonathon: without a doubt, the economy front and center. lisa, you have mentioned this a few times. we all have. whatever we discussed about today that happened yesterday and the news conference, it is all at the bursae of the economic data still to come. with the cpi next week, cpi december 13, then a day later, the federal reserve get set to go again. that meeting will have the projections for next year and thereafter. lisa: that's why it is hard to say let's go with the fed, don't fight the fed. they don't know where inflation is going to go. i think they're clear about that. the balance of risks is definitely rated more heavily to not going far enough. that is bearish in and of itself. it is unclear if we start to get a dish inflationary force, what that does. tom: 10.5%. that is double-digit. jonathon: germany is a piece of that.

double-digit cpi across the board. tom: u.k. at 8.8%. jonathon: and it could get worse. you could make that argument that we have seen perb or inflation in america. we have debated for how long that will persist. but that is still in the future, not the past. that is problematic for them facing down higher inflation. tom: how do you do a data check? i am sorry, but it is an exceptionally interesting screen. jonathon: i went through the price action just for you, binky . 4.20 on a 10-year. euro-dollar -0.7%. what a move. tom: you see the down move 800 points yesterday. you see the dow outperformed are all of october.

we are focused on that dow jones industrial average and the quality big cap move. jonathon: i don't think he has a doubt forecast. i think we will avoid that and he will tell us what is coming up there this morning. lisa: just with neither, we have that bank of england rate decision coming up in about an hour's time. i think a 75 basis rate point hike is what's expected, the highest going back to 1989. today, we get initial jobless claims, the shift upward and that, the durable goods orders, and ism services data for the last month. how much do we start to see a little bit of a softening and services? earnings do continue. a lot of focuses on the consumer today. i am wondering, if we see all of these companies reporting, how much do we see the bifurcation come up with some sort of story other than just the haves and have-nots with strategy and consumers they are trying to attract? jonathon: we have seen that with tech and oil versus energy.

here is the proper introduction. binky chadha at deutsche bank joins us this morning. what about yesterday? >> i wanted to start with respect fully disagreeing with you very modestly. jonathon: you can disagree with me as much as you like. [laughter] >> you mentioned whether the meeting yesterday is over. i think the meeting began in march. it is not over yet. if you look at the s&p 500, it is absolutely glued to every measure of fed and fed speak. i think more importantly, looking forward, you have to keep in mind that this window we have seen of being so off, the s&p 500 being so closely tied to rates, is not the normal pattern, even in past rate hiking cycles. you have to ask yourself, what

is different, why is the s&p 500 married to the u.s. 10-year-old -- 10-year yield. i would argue that basically, and we all tend to look at risk assets or equities in a 10-year yield, i would be open to the question as to whether it is actually a question about the level of yields, the numbers we were just talking about, or is it really the speed at which has given rise to basically all of the volatility we have seen? if you take a look at the move index, it is almost 100% related with the u.s. 10-year yield. you can't really tell the rates in the volatility apart. how would argue it has been much more about the volatility. if you look at the move, we are back at the peak in march of

2020. we are outside of the global financial crisis. we were here in russia ltc m. this meeting has been going on since march and has been running an emergency meeting now for quite some time. [crosstalking] jonathon: let's talk about the volatility. if you believe this and you are bullish, you have to make an argument as to why volatility is going come back down anytime soon. can you make that argument now? >> you can make several argument spared number one is that if you look at the chart, volatility looks like a spike. if you look closer, it has been rising for quite some time. either something breaks, and that's a separate discussion, or comes back down. from a fundamental point of view, i would argue in terms of where we started in march and where we need to go, we are probably a lot closer to the end and the beginning.

it is really about predict ability and getting that volatility down. tom: you are one of the great bulls on the street. everyone wants to know, you reaffirm a bullish call. you may take it into 2023. i will take -- i will give you some slack on that. how do we adjust to what i see on the bloomberg screen? how do corporations adapt to get into a constructive 2023? >> there are two points to make here. one is how they have reacted historically to recession or concerns about recession, which is cutting and preserving and protecting your cash flow, and parking it on your balance sheet. i would say right now, the signs of that are on the scale of one to 100, so it is a very low. you are just not seeing that.

fed hiking cycles lead to recessions, but it is happening very, very slowly. last summer, we were pretty close, and i would say since then, corporate's have basically said, i just cut primitively in the pandemic and it really didn't work out very well for us. i'm not in a hurry to do that. jonathon: let's finish a. do you believe the fed does have control over financial conditions? >> i think if you look at a chart, so let me direct you to a simple chart, the butterfly chart of fed hiking and what rates are doing, and what equity markets have typically done. you can even check out the hikes of 1980. this is unique [crosstalking] jonathon: i want to talk about the world we have got right now.

i am trying to work out why this will work. the fed chairman made it pretty clear that he does not want financial conditions to ease anytime soon. >> i would characterize it as basically fed overreach. historically, the fed has not really talked about talking down equity markets and talking up credit spreads. it will work, that fever of the march meeting continuing until now. it is going to break or it will break something else. there are no two ways around that. in terms of talking down or the tightening of financial conditions, it is a strategy until it works. it will stop working at some point. jonathon: it is working right now. binky chadha of deutsche bank.

your equity market is down 0.6% on the s&p. from new york, your bond market yields higher are much, much higher. your two-year through 4.70. your 10-year having little luck at 4.20. from new york, this is bloomberg. ♪ lisa: keeping up-to-date with news from around the world. with the first word, i am lisa mateo. at 8 a.m. new york time, the bank of england is expected to deliver its biggest interest rate increase in 33 years. economists predict view case interbank will raise interest rates by 75 basis points in order to cool double-digit inflation. that would bring the base rate to 3%, the highest since 2008, and the biggest single increase since 1989. federal reserve chairman jerome powell is making it clear he is prepared to raise interest rates as high as needed to get rid of inflation. at the same time, he says the

fed could go to a slower rate of increase soon as december. powell spoke after 75 basis points were raised for the fourth time in a row. u.s. has condemned when it said was the test launch of an intercontinental bliss tics missile by north korea. the launch came one day after kim jong-un fired off at least when he three missiles. the state department urged north korea to stop the launches and return to talks over its nuclear weapons program. big job cuts on the way at twitter. bloomberg has learned that new owner elon musk plans to aluminate about half the social media were companies workforce. that's about 3700 jobs. he intends to inform the affected staffers on friday. meanwhile, remaining employees will be asked to return to the office. shares of qualcomm are following. he gave a weaker forecast than expected. that showed the market for consumer devices is eroding

faster than feared. both the economic slowdown and covid lockdowns in china are hurting sales. 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. ♪

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pres. biden: we know democracy is at risk.

we also know this, it is within our power, each and everyone of us, to preserve our democracy. i believe we will. jonathon: the president on the united states on the campaign trail for the midterms next week. from new york, price action, equities continue moving lower on the s&p 500, near session lows down by 0.7%. yields up by nine basis points on the 10-year. i two-year, in and around 4.70. weaker euro-dollar. .9742. $88 and about $.50 for crew. talked a lot about the federal reserve meeting, the 75 basis point hike. i hawkish news conference. that is on payrolls tomorrow. the estimate so far, 200 k. tom: 32nd spirit we have actually moved away from the tension of an hour ago. i get that, but nevertheless, we go to governor bailey.

went to see say today? does he have a press conference like chairman pauly? -- chairman powell? jonathon: there is. it is the forecast of the bank of england i am interested in. we get a deeper understanding of what the government is going to do with the budget. tom: so, we see a forecast today without a fiscal budget. jonathon: they should have some idea. there will be a range of outcomes. maybe you get a shift in fiscal policy. it is very interesting, nevertheless. tom: francine lacqua with the governor of england. i don't know if it is english time, new york time. tom: -- jonathon: a four hour time difference. tom: four hours see? jonathon: we go from est to gmt. tom: our bloomberg washington

correspondent, anne-marie, when we come to washington next week for tuesday and wednesday, and i hope and -- i hope to darken the door of martin's tavern, brief us on what is the difference for republicans between 51 senators and 54 senators. how big a difference is that? annmarie: that would maintain this control. there are number of issues the democrats were able to get a hold of -- get ahead of and vote on because they had majority in the senate. the senate is really what it's going to come down to. the house, the projections really show that republicans are going to win there. but whether or not they can gain control of the senate, that is going to be key in depending on how we wake up the next morning, on wednesday. we may not actually even know. but it is a big deal. if democrats are able to maintain control of the senate, it is a complete gridlock, something that wall street does like. if you see republicans gaining control, there's going to be a

lot more issues that they're going to take up with the administration. things like impeachments, etc., bills that they may be able to send to the president but that he can veto. tom: which senate race are you focused on? annmarie: i think pennsylvania, because the margin just keeps narrowing. it was very sad to watch, on a human level, but i think that debate, individuals going out after that debate, they really questioned if mr. federman was able to do his job. it is the highest office you can run for, besides president. that's one of the debates i'm going to watch because the democrats had real hope and momentum to flip that from matt matt oz, and this is a purple state. lisa: how far have we moved away from elections with trump? annmarie: that's a great question, because the president is not trump.

i think biden said it himself yesterday, outlining in his speech about democracy, that it is still about the former president and what the current president biden would call maga republicans. he says democracy is on the ballot. he is talking about political violence and the capitol police statistics show this has been up since 2016, since former president trump took office. obviously, he talked about the fact that what just happened recently in california with speaker pelosi's husband, paul, and the fact that this attacker came in, repeating words that we heard at the insurrection on january 6. where is nancy, where is nancy? this is clearly something the president has felt deeply about and he wanted to take this moment six days before the midterm elections to remind voters that it is not just about the economy, not just about abortion, not just about prescription drugs. democracy is on the ballot. the big question is whether or not this is really going to move

individuals in how they vote. jonathon: thank you. thank you very much. this is coming from the "wall street journal. this was intimate couple of minutes ago. the majority of american support is going to ukraine, but support is becoming a partisan issue, as were public in opposition gross to helping the country, according to a new "wall street journal" publication. tom: if the president was republican, would we be having this discussion? probably not. it's the minority going after the majority. jonathon: do you think it's getting worse as the economy gets worse? tom: no, i think it is a partisan theme of a minority saying, let's push against the majority president. jonathon: down at 0.7% going into the midterms. bond yields are higher off the back of a very hawkish chairman powell in that news conference. many people were absolutely

shocked by the dovish statement yesterday. it was a hawkish news conference. it will be fascinating in the coming weeks. tom: brief a spirit you follow more than i do. jonathon: leaning into the statement. [crosstalking] [crosstalking] jonathon: i've heard a lot of people say the statement was about the vice chair in the news conference was about appeasing the hawks. the chairman's job in the news conference is to reflect a consensus on the committee. that's his job. he cannot just be speaking about his opinion. tom: how alone is the vice-chairman? jonathon: i don't think she's alone. it was the emphasis of the news conference that mattered most. i think he managed to do what we all sent was the major challenge. we also the challenge for this fed chair is to indicate that they are open to smaller rate hikes without triggering a premature rise and financial

conditions to undo the work they have already done. based on that very narrow question, most people assume the chairman did affect natural -- a fantastic job yesterday. lisa: to the point he made, the dual mandate is not in conflict. in longer-term, and able to get the inflation under control, -- jonathon: equities down by 0.7% on the s&p. the federal reserve behind us, the founder -- that ecb in front a part of us. that's coming up at about 35 minutes. we will catch up with lizzy burden in england to bring that to you. this is bloomberg. ♪

jonathan: did it point of the morning, the worst fed day price action on the s&p going back to early 2021. equity futures down .7% on the s&p. on the nasdaq 100, down .9%. it is about the news conference

with chairman powell. it is no longer about the journey, it is about the destination. tom: so sensitive. jonathan: it is all about therapy. very zen. i am all about feelings and emotions. bond market looks like this. pain in the 10 year, up six basis points. 7, 8 basis points higher. pain. pain for who. painful for central banks trying to strengthen currency against the u.s. dollar. euro-dollar with a -- handle. down, down hard. tom: it is the way it is down. there has been a pause here. coming off the theatrics we will see at 8:00 from governor bailey, really got to wonder how these currencies react. jonathan: yields up, dollars stronger.

the next move is from governor bailey at the bank of england. let's get you some movers. lisa: looking at a bunch of different earnings. peloton, you cannot blame sex and the city and some potential heart attack. those shares lower. it is tricky when people are actually going to the gym, going back to living their lives. under armour shares rising 6.4%, even though there was a disappointment in forecasts. marriott, down 1.6% even though they increased some of their forecasts. this goes to the year-to-date action considering under armour is lower 66% year to date. the clear winners have been the energy companies. and some earnings we have been getting conference. conocophillips coming $20

billion of buybacks. feeds into this question of how much little pressure will be. jeremy hunt in the u.k. proposing windfall taxes and some oil majors. sheer energy reported to report earnings. tom, how do you deal with this as a politician at a time when you need to be investing and you need them heading into the winter? tom: the windfall debate will continue. we know that for certain. yesterday, somewhere in the vicinity of two thirds of the way through the fed decision, there was a modest note citigroup. they framed out a 5% to year yield. to discuss that, the global head of credit strategy. how does your world change if the two year yield moves from .0% to 5.0%? what are we going to live with a

5% to year yield? >> thanks for having me. i think the conversation around a 5% yield both in the front end and the two-year is important, as well as on the -- curve. with the 10 year. tom: oh, my word. is it about halloween? winnie: he is disappointed that we could only buy $10,000 worth of moves. tom: [applause] winnie: he is set on buying a monster truck for himself when he is older. hopefully, we get there. clients have been really focused on what has happened if these 5% levels both on the front end and the long end. i think the 2% -- 5% 10 year yield discussion is important from a credit risk perspective, whereas the 5% 10 year yield is

important from a duration risk perspective. the performance and credit portfolios this year has been equally negatively impacted by credit and duration risk. clients are trying to figure out, which bet do i take now? do i say a recession is coming, extended duration and these are going to be ok, or alternatively, am i going to get with the 10 year to 5%? tom: in your world, how do you link the two year yield move up with what we see in the new fra ois 350 beeps this morning? this is all esoteric, folks. in whitney's world, yields up. what does that mean to you? winnie: yields up has a lot to do with market liquidity functions. and, what has been happening with depository institution and

less smooth functioning in the treasury market, more broadly. we have seen over the course of this year as the fed really started to do qt and amped up its bond rolloff, the treasury market liquidity has eroded considerably. this has been particularly true in the front end of the curve, which is why we are seeing a lot of challenging movements on the lifework side of things and the front end of the treasury market. lisa: given the volatility we have seen in benchmark rates, how much can you get behind this assertion by jp morgan's bob michele when he was saying the investment of great debt is a balance, the column in the storm to hang onto, despite underlying volatility? winnie: i respect that deal. we have been constructive on u.s. investment grade debt. with all in yields at six percent in u.s. ig, historically, that is a level where you can buy high yield and

perform well in portfolios. to have a cohort of companies that are much stronger fundamentally and at 6% yield feels good. what is tripping investors up is the percentage of spread that contribute to that all in yield has been lower than it has been the past 12 tash -- the past 10 years. investors are trying to wrap their heads around how much credit risk i can take and feel comfortable with. i feel good with the 6% 10 year yield. the ig universe has a lot of flex in their liquidity, in their balance sheet in order to whether a continued, economic deceleration. lisa: given this, how much do you have to look at the tactical's? the costs -- this question of the ldi concerns of the united kingdom, but forced selling from big institutions hit with massive losses. i am talking in the private debt

and private equity world, some of which may not have been recognized yet. winnie: one of the top things we heard from investors coming into this year was, we are reducing allocation to u.s. ig. we are reducing allocation u.s. high. we realize yields are going higher. policy tightening is upon us. where people are going, floating asset class -- private equity. there is potential that we continue to see this rewrap in terms of asset allocation. the benefit the u.s. ig and high yields, a lot of investors started their years underweight, those asset classes. there is a good case to be made that they should be rotating into something else. the question is, how much liquidity do they preserve or put on hand at the beginning of the year, instead of putting all their eggs in the private credit basket? tom: when we look at short-term

paper, and i guess we have got to look at december as well, does the fed parlor game and the fed speeches we are going to get in the coming days --when we look at the speeches, does that affect short-term yields, or are they not just a beast in 2023 two stay elevated? winnie: i think the fed governors end up saying over the next few weeks is going to be important. tom: why, and in what way? winnie: we have seen a lot of volatility in the terminal rate that is priced in to the fed funds futures market in the past 12 hours or so. with the terminal rate at 5.8%, we are going to be focused on the conversation around lag affects and the appropriate pace of tightening here on out. tom: i do not mean to interrupt. this is critical. do you think various and sundry

fed speakers will talk back what we heard from chairman powell yesterday? winnie: i think there is the potential that there will be more of a focus on the lag affects, and a slower pace of rate hikes from here on out. whereas, fed chair powell would very much -- was very much focused on that higher destination in terms of fed funds rate i think the pace and the past to get to that -- path to get to that destination is uncertain. there is a lot of economic data to come from now through the end of the year. let alone, into next year. i think the fed speakers are going to be focused on that lag effect between policy tightening and actual, economic impact. when we talked to our analysts at credit sites that cover these companies, they are seeing signs of transition in terms of inflationary pressure and transition in terms of

expectations for next year. which indicates to me there is deceleration in inflation. there is deceleration and growth. the fed to acknowledge that, and that the pace of tightening needs to be much more reconciled with the lagged impact of policy tightening on actual economic connections -- conditions. jonathan: thank you. did we clarify if mini -ceaser was over the equity market? tom: a two year yield coming in, as well. i thought it was nuance between the duration game of fixed income -- jonathan: i said mini ceaser. the smaller version. lisa: he had been long going in yesterday's meeting and was very upset and was expressing incredible displeasure. it is understandable. we all feel it. jonathan: we have all been shedding a lot of tears.

futures down .8%. tom: mini ceaser. jonathan: not winnie ceaser. coming up. head of research at fx, strategy and fh bc. yields higher, stocks lower. down .8% on the aspen -- on the s&p. what a moment on the back of that news conference. from new york, this is bloomberg. ♪ lisa: central banks and focus today. at 8:00 a.m. new york time, the bank of england is set to deliver its biggest interest rate hike in 33 years. the boe trying to rein and double-digit inflation. fed chair jerome powell is

prepared to raise interest rates as high or as high as needed to get rid of inflation. at the same time, he says the fed could go to a slower rate of increases as soon as to summer. president biden asked voters to consider the future of democracy when they voted next week's midterm elections. in his speech, the president urged americans to reject what he called donald trump's big lie denying his election to feet in 2020. democrats are trying to stave off the potential loss of their majority in congress. major has given the british government a break. unusually warm weather in the u.k. last month rocked down the cost of the governments energy subsidies by almost 296 million. the unseasonably high temperatures meant households haven't switched on their heating as early as they would have in a normal year. peloton delivered a weaker outlook for the current outlook and wall street was predicting. revenue was 33% below where it was a year ago. the ceo said palatine is beating

its own timeline for turnaround. shares down about 90% over the last 12 months. global news 24 hours a day, on air and on "bloomberg quicktake." i am lisa mateo. this is bloomberg. ♪

>> as long as inflation remains elevated and above the fed's target, it is going to be focused on getting inflation down. for the foreseeable future, until we see progress on inflation, the fed is focused on getting inflation down. jonathan: the former fed vice chair joining us, covering the fed decision. fantastic to up with him. this market is down. not just inflation. that is the effort for the federal reserve to get inflation down. let's get the market down and keep it there. equities down .9% on the s&p. yields up by eight basis points.

dollar stronger, euro weaker. we are down by .8%, this fed chairman could not be clearer in that news conference. tom: q1 tightening, up 300 dow points. down 500. it was two events, it was a statement and then boom. jonathan: they kept doubling down on the statement. tom: you see it in the deepest market, foreign exchange. 113 dxy, ian hasn't moved. what do we do with euro? what does lagarde do with a hero of .86? jonathan: are we trading growth prospects or rates? tom: there we are. let's do it with darrell meyer. what are the ramifications of dxy breaking through one 213?

what are the ramifications of resilient and stronger dollar? >> it is been going well. it pains me to say, good call john yesterday on the statement around the fed. jonathan: i will take that. he just knows it is my turn to buy the round. [laughter] tom: strong dollar, what does it mean, wise one? daragh: are we talking rates, why cannot we talk both? it is both about rates and global both, not u.s. growth. that is the mistake the currency consensus has made. they have a look at the u.s. economy and said there interest rate economy is slowing. the reality is, the dollar is trading off, deceleration of global both because everyone is having to hike rates. on the u.s. side, it has become

clear amazing work by the fed yesterday. a slower trajectory for rates without fostering a massive risk on move, without fostering a this is the end. they must have spent a long time how to do that. lisa: a hawkish step down. i do not understand what could change the story you just said. you have a fed hiking rates, potentially to higher levels than previously expected. you have a u.s. economy that is better than so many others. what is going to change the dollar story through next year? daragh: the data. that is what we will end up going to. if you get two or three months of core cpi printing 0.2, then that allows the fed to say our work is done here. that is the key. the market is so impatient. want to say, let's anticipate that and expect that to come in 2000 23. the fed is saying, we have been

getting this so wrong for so long on inflation, we cannot anticipate the numbers. lisa: right now, you are projecting a terminal rate 4.75% to 5%. where do you think you are right and where could you potentially upgrade how high you would see rates going? daragh: on one day of the week, the market looks more dovish. on the next day, it looks more hawkish. i do not draw too much from that, nor do i spend a lot of energy fretting about where the consensuses r. i compare it to the road trip, when we are kids. when kids start saying, are we there yet? this has been the dollar bull run. every moment in this dollar bull run, the market says, is that dollar peak? why? the fed is going to keep raising rates, global growth is slowing, risk evasion is pervasive. you have got to buy the dollar,

the next couple of months. tom: take a random teal leaf. i bought thai baht after the big crisis, up three standard deviations, which is .8 standard deviations more than we have ever seen. how does the world adapt to jerome powell when they are looking at that depreciation or devaluation? daragh: we are in that environment again. our dollar, your problem. for economies fighting inflation, a week currency is a problem. what can they do? look at the japanese. they have tried to stem the flow. tom: should the fed listen to bangkok and the 47 other bangkok's out there? daragh: we are not at the point where destructive element of a strong dollar is such a problem for the global financial system that we have to navigate towards some kind of exit. we are not there yet. if you've got core inflation at 6%, and unemployment rate

historically low, the fed will say we've got work to do. lisa: i am focused on the euro, when that reaches a breaking point. we have seen it hovering underneath the parity level. at what point does it become a problem that either triggers the fed or the ecb at some capacity? daragh: i think it is already a problem. it is already a problem for the ecb. what do you do about it? there is not a lot to be done. the ecb has matched the fed for pace, but there is no way they are going to match them for levels. let's pretend we get to a point where both central banks have stopped. you are sat on a dollar yielding considerably lower than the euro. you are paid for doing nothing, which is fantastic. who is not going to do that? if you've got the bigger issue for the euro -- let's think about what you do to the dollar. to your point about rates and growth. when the fed raises rates, you buy the dollar because rates are going up and growth is going down.

risk aversion. in the ecb raises rates, you might buy the euro because rates are going up, but you are selling the euro because peak growth is going down. peak ambiguity around the euro dollar does not struggle with. that is why the dollar throughout this year has been buying higher despite what everybody has been saying. jonathan: i was speaking to bob michael yesterday. he talked about the calm for the store. do you get a sense there is a and to this cathartic moment of this massive demand for the u.s. dollar, to break out what we saw in march of 2020? are you anticipating that again? daragh: i think we have been on a reasonable dollar trend. a boat trending along the water to the ferry port rate as you come to the ferry port stopping point, the volatility gets turned. maybe we settle into a trading range or 2023. i do not think there will be a massive capitulation or dollar

search, it is the vault we will get. jonathan: best story teller in the business. tom: when we started talking about the ferry port. [laughter] martha's vineyard very. --ferry. i would lay down as they left the harbor. this is like, no waves. jonathan: fantastic to see you as always. equity futures down .8%. on the s&p. stick with the dollar. jeff is going to join us next it from new york, this is bloomberg. ♪ ♪♪ this... is the planning effect. 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

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>> it is very premature to be thinking about pausing. >> until we see progress on

inflation, the fed is usually focused on getting inflation down. >> i think the fed is saying, let's be careful and understand we have to get to the destination. >> it is not about the terminal rate. they are looking at as high of a terminal rate they need to derail inflation. >> they do not want to see pre-make -- premature financial condition easing on the signs of any that pivot >>. this is bloomberg surveillance. tom: good morning. a historic moment after a historic press conference. i'm going to go to the headline, the bank of england looked for an eight quarter to year recession starting now. jonathan: the central bank go 75 basis point interest rate hike from the boe from 225 to 3%. a 75 basis point hike. in the forecast, if we get a two year recession if rates follow

the market curve. the peak interest rate that we didn't get yesterday from chairman powell -- powell encouraged a higher peak rate. the bank of england saying moments ago, the peak interest rate likely lower than implied by markets. a push back against that peak you in this market. lisa: financial markets pricing in a path that heads to 5% in 2023. saying the inflation rate will likely peak at 10.9% this year, rather than the previous peak expected of 13%. perhaps seeing disinflation from some of the session they see. the eight quarter recession that is starting now. tom: sterling weaker, we will get a 111 handle on weaker sterling through the morning. john, this seems like it is in a vacuum. they do not have a fiscal policy within the political turmoil of the nation. jonathan: that is what will be interesting about the news conference. what assumptions are they making on fiscal policy? they are suggesting we are going

to get a lot of spending cuts in the next budget. tom: i do not understand. this is not in the textbooks. this is not in the big, british textbook. jonathan: this 75 basis point hike was set to be bigger than that at one point. 5, 6 weeks ago. that is a big change relative to what we expected a month ago. 75 basis point hike from the boe, cable down to 112. 10 up three basis points. outside the bank of england, working through the details in this decision, one of the best joins us now. lizzie, your take away from this decision this running? >>lizzie: it is exactly what market and economists expected. saying they might, like city or ing, would have been bad news for the bound. the groundwork was laid much

smaller than had been expected at times. in the period since the last decision, there were times where markets were looking for 200 basis points because of the need to deal with truss-onomics. we were expecting 7-2. -- went for a quarter point. a dove at the last meeting, we know to ray rowenta a dove. they were worried about the recession risks. these forecasts, i do not think you can take too much from them. the boe is flying blind. we do not know what is going to come into november 17 fiscal statement. it is particularly on energy. you got the impact of the energy bailout, but we do not know what is going to happen after april in terms of the energy support,

in terms of what happens, what it means for inflation. i would not read too much into that. interesting they are pushing back against market expectations for rate hikes down the line. jonathan: what kind of assumptions do you think they have made about the future of fiscal policy? lizzy: ritchie sunak, when he was chancellor, was known for -- preparing the markets and the press about what he was going to do. jeremy hunt and she sunak happen doing that. monitoring expectations in recent days. we can expect there to be tax rises, we can expect there to be spending cuts. the boe will know that, they cannot factor that into this decision too much until it is confirmed on november 17. -- the treasury doesn't terms of heavy lifting, the boe has to do less. jonathan: 75 basis points from

the boe. tom: we didn't see this with the fed at all. they have the presumption to guess out to the fourth quarter of 2025? is that a british thing? jonathan: you get a multiyear forecast from the fed, don't you? tom: in this environment, i am stunned they do that. they are basically looking towards deflation. in 2026. jonathan: i cannot get past next week. it is going to be a great conversation later, do not miss it. francine lacqua sitting with the bank of england, andrew bailey will bring us some of that interview at 12:00 p.m. eastern time. what a tough time that manus had. and the chancellor, and the former chancellor and the primer -- prime minister and the former prime minister. tom: does he sit next to the king or queen when he hikes at the bank of england?

[laughter] we had dominique of mizzou. now, we talk to geoffrey yu. i do not know where to begin other than, i think an emotion of our listeners and viewers. is the system near breaking? geoffrey: it is not in the u.k., dare we use the p word, pivo there ist. key signs of a -- crisis. over tightening and policy. they are worried about oversight, they are worried about hitting the afterburners of exactly the wrong point in the household cycle. some doubts or creeping in. i think that is where we are. this is very different from where the fed is now. everyone is different from where the fed is now. europe is starting to pull away and pulled back. lisa: that is where i wanted to

go. how much is this representing a seat change among central bankers? one committeeman for on the bank of england's committee did vote for a 50 basis point hike, another, a 25 point hike. how much of that will eventually filter back to the fed? geoffrey: it is only going to start to increase. starting in europe, saw in norway today, it didn't feel like 50 basis point was on the table. now, we are going to start to only see increasing dissent. not pursuing things as aggressively. the fed, i think you mentioned this earlier in the program, our dollar, your problem, is going to --to worry about in international conditions. from the u.s. point of view, it is about tightening conditions. the u.s. economy is doing well. lisa: how long can this last? how long can this divergence where the dollar is the preeminent trade and continues to strengthen, is that an entire

2023 kind of trade? geoffrey: it will last or than markets expect. it will last longer than markets hope. there will be repeated efforts to price in a pivot rate. i think there is still a few more rounds of disappointments to come. we look at fed terminal pricing is, it is going up. everyone else, it will probably start going off. jonathan: we have been discussing trading growth expectations or rates when it comes to euro and sterling. based on what the bank of england has said, is that positive news or sterling that they are pushing back against the higher terminal rate that would've hammered growth over the next couple of years? geoffrey: initially, it is not. the market is still working on rate differentials between the boe and the fed. that correlation needs to snap back after the many budget trashed it.

on a cable point of view, sterling is set to struggle. if you think of not as tight policy household is going to get relief, growth is going to be slightly better in the u.k. compared to the euro zone, relative value trades in. european divergence, dollar goes up at this point. jonathan: a bonus round with geoffrey yu. he is going to stick with us. how cool is that. sterling against the u.s. dollar, 112.30. end of september, 103.50 on cable. tom: that was a political hemorrhage, if you will. we talked about, i have trouble with the phrase black wednesday. americans do not know what it means. 1992, world of england blew up. it is a 36% devaluation of pound sterling over the last 30 years.

this guy has a chronic nature to it around this day today we are talking about. jonathan: it has been feeding higher inflation expectations in the united kingdom. lisa: this is the conundrum for the bank of england. very curious to see the evolution of some of the dissenters. how many more of them come to the table and say, it is not worth inflicting more pain, trying to get inflation under control because we may not have control over it anyway. the pound is weakening anyway. tom: should we see if catherine can come in? lisa: that would be nice. jonathan: you never hear from her. lovely catching up her. get to the bank of england, no. i do not want to talk to you guys anymore. lisa: [laughter] jonathan: we would love to hear from catherine amann. tom: in the food court in london, with rinks behind us.

-- drinks behind us. we would have blanchflower and catherine man. jonathan: i am not sure that is great for catherine man. do you want to get rated by danny for raising --? tom: she can take it. she is tough as nails. jonathan: i know she can. tom: can man -- cat, man, blanchflower's. jonathan: i would like to be a fly on the wall back in the day with blanchflower's and the king. tom: these are great people who agree to disagree. jonathan: equities negative today. down boy -- down by 1.4% on cable. we extend the invite to catherine man, if she is listening. tom: did you see the word cumulative in here? jonathan: from new york, this is bloomberg. ♪

lisa: pakistan former prime minister has been wounded by gunfire. his spokesman says he was shot in his leg, but is safe. the attack took place at a rally in the eastern province. he was leading supporters towards pakistan's capital to demand early elections. u.s. has condemned what it said was a test launch of an intercontinental ballistic missile by north korea. the launch came a day after kim jong-un's regime fired up at least 23 missiles peered the state apartment urged north korea to stop the launches and return to talks over its nuclear weapons program. the reopening of china is a dominant theme for traders the last few days. chinese equities rallied tuesday and wednesday, following unverified social media posts that signaled beijing is to move away from its strict covid zero strategy. stocks slumped today as china's top health body reiterated its

commitment to the policy. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

>> the fed has made it clear they are emphasizing the longer,

more than the higher. it is not just up and back down. the fed is going to keep interest rates at this point in time until they say improvement in the underlying inflation element. jonathan: that was bill dudley. equity futures negative off the bank -- back of chairman powell yesterday. futures down .7%. you should be excited. tom: i have never seen this before. translate, jon. can you imagine secretary of treasury yellen coming out with a statement 15 minutes after jerome powell releases a team live tightening statement? the chancellor checker managing the message in real time on the monetary events of his nation. never seen it. jonathan: the chancellor once limited interest rate rises. there is acknowledgment here before we jump too many steps ahead. there is acknowledgment of the

contribution to what is happening with interest rate hikes into u.k. chancellor yellen goes on to say the top priorities to grip inflation, difficult decisions need to be made on taxes and spending. there is an understanding here in this government and the country pushing to this idea we were expecting higher interest rates, and more rate hike started to come. what they are going to do is come up with a statement in the next month or so, a budget that is going to involve tax height -- tax hikes, which will in theory stop the bank from hiking more. tom: geoffrey yu, thank you for continuing with us. how do you spell austerity, united kingdom style? what is that going to look like? geoffrey: the tories are not going to try it -- try to call it. there are physical calculations. the u.k. does not want limited

interest rate rises because at translates into higher, debt servicing burdens on homeowners. people of which the party will consider. the natural constituency. the boe and governor has mentioned this in the past, inflation could widen and that as a society -- i think the statements are by different motivations and targeted at different groups. we will see what happens when the new year fiscal plan comes out. it is on number 11 to work together to make sure that the risk to that two-year recession view from the boe, that is a kitchen sink forecast and things can only be better than that. we will see the chancellor comes up with. lisa: do you think we are on the cusp of buying opportunity in the united kingdom, or are foreign investors starting to see stability and a sign they can start to try and find value? geoffrey: on an individual asset

class basis, the gilt market, not going to be as much in volatility as in the past. i think people are going to start to look at the long end of the curve and say if this is where the boe goes forward, a corrosive steepening is going to soften to some extent. in terms of equities, 3100, 70% of that is national earnings. 3250, that is going to continue to struggle. that is tied to the u.k. household. household is in for a world of pain. it is relative value because where the fed is, think what you want about the boe, the dollar is forecast to lead. lisa: you said something about the kitchen sink approach. people have been wondering when we are going to start seeing companies downgrade their earnings-per-share. when you start seeing central bankers say, we are going into a recession, a long one.

eight quarters is long to be projecting. at one point -- what point can we give new capitulation at a new bottom? geoffrey: i think with the new -- last round of forecasts in august, six -- the risk is, you think you have kitchen sinked the forecast and you realize there is another sink out there. that is something in terms of diving's on a corporate level, they have to be careful at this point in the cycle no matter how bad these things are. there is the possibility for things to get worse. that is what you need to be careful. tom: i need to emphasize the movable parts this odd thursday morning. my theme has been degrees of freedom. how constrained is governor bailey? how constrained is his team, kathryn mann and others? do they lose degrees of freedom

because jerome powell is saying 5% to year yield or bust? geoffrey: on the international side, it is done. do not assume that you are going to get degrees of freedom from the fed side, from the dollar side. try to manage your currency. make sure you do not import much inflation. hope the energy crisis continue to settle. on the domestic side of things, i think they will try to push the chancellor out. you need 50 billion in savings, please focus on the revenue side. the revenue will supplier is close to zero according to the imf. the fiscal spending multiplier is nonzero. the more you can lean on tax rises, revenue savings, the more you lead on spending cuts, that is worse for the economy. it is going to be a political estimation. governor bailey will have no input into that. jonathan: thank you for that. in shepherdson of pantheon macro had this to say on twitter.

powell, i am going to hike and hike until i blow the house down. giving lynn, i am not doing that. poor sterling, cable 112, sterling 123. bank of england this morning and others pushing back against the idea of a higher terminal rate. tom: norway came in like today. we are starting to see this effect. i forget this number, i did not have it memorized. the average u.s. recession is about 10 months. how is an institution -- as an institution do you adapt to a two year recession call? jonathan: if rights -- rates are are priced where they are right now. it is going to be unusual to see the economy and recession potentially and the u.k. could be around the corner in the united states. central banks not cut rates because --

we could go there and if it happens, we may not cut this time around. lisa: because we are dealing with inflation. it may not be healed with respect to rate hikes we are expecting a few believe the ecb's christine lagarde. going to ian sheppard, we are going to blow the house down versus, no veins. the u.s. economy is much stronger. is it a relevant comparison given they are different battles and these central banks are battling. jonathan: do you have that nursery rhyme? the little pigs and blowing the house down? tom did not. lisa: you do it with straw, then you do it with wood. tom: jack had dinner early. father played with kate. lisa: [laughter]

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jonathan: bases-loaded. mike mckee around the table. to break down jobless claims, do any second now. equity futures on the s&p 500, deeply negative through much of this morning. bond market yields higher. europe equity market down.

michael: no change in jobless claims for last week. 217,000, which is less than the 220,000 forecast. if jay powell is looking for some relief from the labor market, he is not getting it yet. a lot of, talk about letting people go, it is not sending people to the sidelines yet. we talk about the continuing claims numbers. 184 thousand, that is slightly higher than the prior week. it is still showing that people are getting jobs. right away. the revised initial claims numbers, 218,000. it was a drop if you want to technically call it that from the prior week. the number that may matter the most for companies going forward, nonfarm productivity rises .3%.

the forecast was for .5%. the problem is, it means companies are paying more to get less out of everything because productivity is slumped. unit labor costs up 3.5 percent. that is an improvement. that is the only good news. 10.2% in the second quarter. a bit of a drop in unit labor costs. the trade balance comes in down 73.3 billion, which was expected. the j curve, which is economic nerd talk that will get, excited -- the dollar has been strong but takes about a year for it to work itself into trade. we are -- we were expecting the trade balance to widen its narrow, but we are seeing it widen again. that subtracts from growth. jonathan: next stop, payrolls paired what should we be focusing on tomorrow morning? michael: i would switch my focus on the number of jobs -- we want to see a downshift in the number

of jobs created. unemployment rate has been holding in at 3.5%. the fed is looking for it to go to 4.4%. in september, jay powell told us to throw those numbers out. they are thinking unemployment is going to go higher. when? tom: you hit the ball out of the park. your questions were sophisticated. there was a point he quoted okun's law and the beverage curve back to back. this is a guy like me who is faking it, he cannot do it. who is advising this guy about phillips, taylor, open and -- ok un and beverage? which part of the fed has gotten into his ear? michael: the monetary division. he seems to be a quick learner. the one thing you see in all of the analysis is that powell did a great job yesterday in terms of setting the markets up out causing a market crash. jonathan: or a big market rally.

you are lucky you've got the dip -- the diplomatic mind of mike mckee this morning. tom: we had cumulative tightening that vaporized into a restatement of the terminal rate and the path. the dollar -- michael: i am sure your next guest will knit it altogether. jonathan: what i loved about the question yesterday about the yield curve, bob michele was on board with you asking it -- was that he said that particular path, that yield curve measurement, was still positive. i was thinking, come on. by what, a couple of basis points? michael: i had it on my screen when i asked. it was two basis points. tom: two tens spread comes down 55 basis points, that is a big deal within the micro data. futures -28.

dean maki was a force on wall street. he went off to a gentleman of point72, the chief u.s. economist for .72. i would dare say, the new york mets, as well. dean maki, the governor of the bank of england just framed out a two year recession. america is different. how different is the united states from the turmoil of double-digit inflation we see worldwide? michael: -- dean: the main difference is what we are moving to in the u.s. economy. europe and the u.k. are dealing with a much bigger rise in energy prices. they have a war on their doorstep. the u.s. has a lot of momentum, especially in the service sector. we think that is why jobless claims are staying low. we do not think the unemployment rate is going to rise soon. the momentum in the service sector is going to continue. the rate hikes are slowing things like housing, but it is

not having an impact on services. we think it will take a long time to have it. tom: you were weaned in stanford off of john taylor and other elites. does okun's law, the beverage curve of lsc that jerome powell mentioned yesterday and the taylor rule of stanford, are those operative theories now, or are we flying by the seat of our pants? dean: i think those rules can give some guidance. but really, the fed is not -- has not dealt with a pandemic before and the post-pandemic era . those rules can give the fed some idea of where to go, but it is a different environment right now. lisa: how do you understand the productivity levels that are not recovering at? any kind of real pace in this idea we do not see any decline in the number of people getting jobs? how do you understand this at a time where we hear anecdotally so many companies laying people

off, reducing some of their workforce through attrition? dean: i think what has happened is, not long ago, most companies were having trouble finding workers. especially in that service sector, which is 71% of u.s. employment. there is no reason they are going to start laying people off immediately. they are looking at business. there is ships from goods to service is happening, that is bolstering the service sector limit. the product uppity -- productivity numbers are being weighed down. what is an understatement of gdp in the first half of this year. it does not make sense employers were adding 500,000 jobs per month while economy was contracting. i think that will be revised with something more in line with what grossed a mistake telling us. in any case, productivity is weak right now. lisa: do you think the labor market is an accurate reflection of some of the pain being felt in the market? is this the metric the federal

reserve should be targeting now to understand the progress they are making in wringing down inflation? dean: i think the labor market is an important step of the process. of bringing down inflation. one thing i would mention, much of the inflation we have is not directly tied to wage inflation. we know about the supply chain problems, the goods and price surge we saw during the pandemic and afterwards. we -- i think wage growth in the labor market is high enough and the liber -- labor market is tight enough, the fed ultimately does need to slow it down. i think it is going to be difficult for them to do that. tom: credit suisse, barclays and deutsche bank. dominique constance says this is a fed it is restrictive. do you agree? dean: i wouldn't say they are super restrictive right now. they are raising rates rapidly, they are getting into restrictive territory. you are seeing them -- an effect

of the housing markets, clearly contracting at this point. their policy is working in that sense. i think they are dealing with a different environment now, where you do have reopening that is happening in the service sector. that means you are not going to get the service sector contracting in the way it often does during a recession. jonathan: we want to know if point72 has done any modeling on what will happen to the queens economy if aaron judge went to the mets? have you modeled that out yet? dean: i have not done it. tom: come on, we have got to know. we've got to get steve cohen and you on the show together. i think you can provide cover for us to talk to mr. cohen about this. aaron judge, texas rangers. aaron judge. steve cohen is going to let judge go to the l.a. dodgers. it is un-american.

dean: no comment. lisa: [laughter] let him go. jonathan: he is ready to pull the cable out of the back of the laptop. lisa: i do not blame him. jonathan: thank you. you've got governor bailey speaking now, pushing hard against rate prices. cable, 111. negative one point 8% on the session. tom: it bounces off of the chancellor, the secretary of treasury for the united kingdom. out with a statement following on. as you interpret that, can they pull forward their fiscal plan to help governor bailey with the uncertainty? jonathan: they would like them to. what a difference. you've got a governor of a bank of england hiking rates, both very worried about great pricing right now and what it could do the -- to the economy. particular lee in the mortgage market, pushing banks again mortgage pricing right now and saying banks may not have to go

as high as they might lisa: lisa: think. it is a different economy. with mortgage rates that are more prone to resetting in tandem with rates as -- crimping balance sheets more direct. in the u.s., this is a problem and a solution. it is a strength and weakness for the u.s. economy that we have immunized ourselves significantly from a lot of rate hikes and the transition mechanism isn't there as directly as it has been in the past. tom: it is a different transmission mechanism. what this is about is scale. the u.s. is that much bigger. americans over the years have no understanding about compartmentalized and small the united kingdom economy is. we do not understand. is 1/7 of our size? jonathan: it is tiny compared to america. tom: americans do not understand it. we are blind. jonathan: are you saying all

united kingdom is is under heathrow? tom: bond street, you go over. there is a pie arcade you go through. jonathan: can we bring up my single? this is important. bring up my single, briefly. i am sorry. lisa: [laughter] two who? jonathan: to the whole of the u.k.. i am sorry. i am trying. i am trying. that is it. i'm going to go now. the opening dow is coming up. tom: is mohammed on today? jonathan: he is not. he was on yesterday. he might have something to say about the mets and aaron judge. tom: i think he would. jonathan: i will give him a call. this is bloomberg. ♪ lisa: you guys are the best. the bank of england has increased interest rates by the most in 33 years.

policymakers voted to lift rates 75 basis points to 3%. they strongly pushed back against market expectations for this gala further rate hikes. a boe statement said it would be lower that was priced in financial market spirit u.s. authorities investigating whether executives have been gaining prearranged stock programs designed to prevent the possibility of insider trading. bloomberg has learned the justice department and the sec are using computer algorithms to look at preplanned equity sales by c-suite officials. peloton has delivered a weaker outlook for the current quarter than wall street was protecting. the fitness company revenue was 37% below what it was a year ago. ceo barry mccarthy said palatine is meeting its own timeline for turnaround. shares down about 90% over the last 12 months. media entrepreneur byron allen preparing to make a bid for pro football's washington commanders. bloomberg has learned allen is working with an investor group rate commanders owner dan snyder

has hired bank of america to explore sale of the team. alan succeeds in buying the commanders, he would be the first black majority owner of a nfl franchise. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg.

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>> we do not believe the recession will be sufficient to tame inflation. we cannot just let things roll out as it will be. we need to continue to deliver our mandate and find that interest rate that will help us reach the target we define as the 2% metric medium term. tom: you know the boys. christine lagarde, ecb president. her degrees of freedom have changed in 24 hours. lisa: degrees of non-freedom. this idea they have to keep

going even if there is a recession highlights hiking into pain, this has to be a confirmation. tom: i do not know if i buy it. what i know, this is important for those of you not sophisticates. this is an original thursday looking at the bloomberg terminal. part of that is a conversation we had earlier with dean maki, formerly with barclays, now with steve cohen. earlier with dominique constant at credit suisse, it speaks to the heritage of bloomberg surveillance. to give you an idea, not the credit suisse of the news that you know -- long ago and far away, it was neil sauce their head of research and dominique const on a credit desk that was read worldwide and he had a young, whippersnapper working with him. he would turn to ira jersey and say, explain. joining us now, ira jersey. what was it like working daily with

dominique? >> he is such a smart guy. at the end of the day, he is a macro in a big way. what i brought was a lot of the micro, bottom-up work with my time working on the credit desk. that mixture of macro and micro i think made for that particular group to be special. tom: what is a microanalysis of a 5% to year yield due to jerome powell? ira: it basically is telling the market, or the market is starting to come around to the idea finally that the federal reserve may hike to 5% and keep that interest rate there for a long time. it is going to take three months for jay powell hounding the market and saying, once we reach the terminal rate, we are staying there forever. the market had not been pricing for that. they are starting to. the dot plot had been -- more importantly, that we are

starting to price out cuts. i think that is the important information the market on board yesterday. lisa: that funds futures, 5% plus or minus a couple of basis points here and there throughout the whole of 2023. is that fully priced into credit, given your credit expertise, given we have not seen the pain a lot of people have expected? ira: spreads have the risk of going wider, particularly if you wind up with revenue growth and topline growth of a lot of company starting to come down. we are going to see a significant, slower economy. keep in mind, balance are stronger today than they were 3, 4 years ago and when interest rates were low, and a lot of companies to that as an opportunity to refinance some of their upcoming maturities. cash is very high on some corporate balance sheets. we do not expect a massive increase in defaults. you will have some. there is always defaults in the high-yield space, weaker credits

will be at risk. you want to look at ei intelligence work and distress credits. lisa: [laughter] shameless. ira: shameless plug. i am on with tom, i have to give a shameless plug. ultimately, i think we are going to have a recession. the jury is out, because of how long it is probably going to take us to dip into that recession. how deep and how long it is going to be. the deeper and longer it is, the more likely you wind up seeing credit spreads blowout more than they already have and you wind up seeing more defaults. lisa: are we there yet in respect to the market? happy -- have we overpriced the average benchmark rate over the next two years based on where the two-year is trading? ira: i think we are getting there. we are just about a little cheap to where we think we will ultimately go. there is a risk here.

think this is what the market is pricing now. there is a risk the fed goes to 5.5%. that is one of the important aspects the market has gotten after a couple of months of jay powell hounding the market and saying we are going to slow down interest rate hikes. when they slow down and get back to that 25 basis point meeting hike range, they can calibrate where they want the funds rate to go. that allows them, the slower pace allows them to tweak where that terminal rate is going to be. tom: neil sauce, i think he signed your paycheck long ago. neil sauce was heated about asymmetric realities in monetary theory. we heard that twice yesterday from chairman powell. the way i subscribe it is, he believes he can overshoot, become super, super restrictive and turnaround out manage -- and

manage a more accommodative path. is there evidence a central bank can do that? ira: they can. i think one of the things jay powell smartly said yesterday was, the window of having that soft landing is closing. the issue is, if they do exactly what you said, we are going to have a recession and it may be worse than people had ultimately thought. the way i see this playing out is, the federal reserve is dead. five, five and a quarter, somewhere around there. ultimately, once we get inflation back down under 3% on a headline pc number for a couple of months, they have to cut and cut hard. i think the market is pricing for some of that, but not enough. my surprise this morning coming in was not that he bond market was selling off, but that the curve happened flattened a lot more. i think that is what we are going to see.

-75 basis points on the two tens curves, we have not seen that yet. i think that is the next shoe to drop. tom: ira jersey, thank you so much. looking forward to the publishing of your colleagues. you will help out as well at bloomberg intelligence today. i was going to go to's tens, which is -55 basis points earlier. ira looks for the steepening. in version, i should say. i have got to go to the real yield. the heart of the matter the rest of the week, even to jobs day, the real yield 160, now 170. it is nonlinear, its effect on america. whatever the real yield you want to measure, yours is different than mine, it is non-linear and we are there where it is going to have an impact. lisa: if you have a relative or turn on the benchmark for faith and credit of the u.s. treasury, how much does that take away from the rest of the economy? how much does that take away from the rest of the financial markets that would otherwise go into -- tom: what are spreads doing?

lisa: spreads have come in on the high-yield side. that is something people are wondering about. at what point will we see this bleed into margins in a way that is reflected? that is what ira was talking about. he does not expect it to happen. they have enough cash and have locked in certain rates for a long time. tom: i do not know where to begin. other than our booking team, are we at 20 people helping us? lisa: they are doing a fabulous job. tom: we hope you enjoyed this conversation in economics and finance investment. sterling, 111.81. stunning. lisa: it is surprising it is not weaker considering the protections there. ♪

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continues. -1% on the s&p. the countdown to the open starts now. >> everything you need to get start that set for the start of u.s. trading, this is bloomberg: the open with jonathan ferro. jonathan: live from new york, slower but higher. >> you focust