>> real rates are going to continue to rise. they will rise throughout next year. >> recession as our base case care that will mean more cuts will happen in 2024. >> the fed will keep at it. >> we need to see wage growth come down. >> what matters is a wage price spiral. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: live from new york city for our audience worldwide, good morning. this is "bloomberg surveillance"

on tv and radio. t.k., i think we need to start friday before we kick off with monday. we need to go back to friday and the resiliency of this equity market on the face of another upside surprise. tom: you see the writing over the weekend of everyone micro analyzing forward. go back to friday and look atep. some people say it was pretty good. others go the other way. then the markets into the afternoon showed that resiliency. jonathan: if i told you the data before the release, you may have guessed the direction, not the magnitude. this is called stubbornly positive sentiment. tom: 74.75 was the first i could barely save. who sees a bottom of a bear market? you don't see it.

is this it? i am not willing to say it -- that is not our job. heads are spinning. jonathan: you know who sees the top of the bear market rally? michael wilson of morgan stanley. tom: that is an important note. jonathan: he has been nimble over the past month. plus the world cup over the weekend. what did you make that -- of that? france -- that guy is ridiculous. tom: i have not looked at my bracket yet, but i would say i love the way he comes down the ice like it is great. he comes down the wing. jonathan: graceful. tom: for that size, it is something. jonathan: 23 years old. tom: let's talk about it -- lisa is not here to tell us to shut up. the basic idea is hey, jude, don't let me down. jonathan: such an awesome football player.

so composed. tom: and it is a reason for people like me watch the world cup. jonathan: france versus england later today. someone's birthday is coming up this weekend. equity futures on the s&p 500 -.4 of 1%. we will do a get together. 3.5115 on the 10 year. tom: we got to go to the data before we bring in ron temple. there is important data. it is not a sleepy december monday. it is about the yield space get we have great guests coming up. 2's/10's down to -81 basis points. the real yield made a threat to go to .99. i'm seeing yield dynamics are of note. jonathan: next week is the big

week. this week is set to be a bit of a snoozer. quiet period for the federal reserve kicks in. next week, you have cpi and a fed decision. cpi on the 13th, fed decision on the 14th. the runaway this week, not many big things on the schedule. tom: it is a time to think and recalibrate. i've never seen so much over thinking about this if it then that pivot, then that pivot. what is great is ron temple does not know how to spell that. we have eight things to talk about through the morning. i think it is great to start with ron temple, because he does not know how to spell "pivot." jonathan: ron temple of lazard asset management. can we start with friday before we begin with this week? what did you make of the price action off the back of another big side -- big upside surprise? ron: the words used about being stubbornly positive are

accurate. there is a fear of missing out in markets. in my encounters with investors globally, it feels like there is a lot of hope still that the u.s. can avoid a recession, that the fed can micromanage this process. there is a little too much optimism embedded in markets. i do not want to be guilty of being too cute, but i do think the market is ahead of itself in terms of optimism. we are pricing in a best case scenario instead of the most likely scenario. tom: when i look at the best case scenario, it comes down to earnings and revenue it i have numbers for fourth quarter of 1, 1.5, dare i say 1.9% real gdp over inflation. does the revenue pop in the next year assist the gloom about earnings? ron: definitely this is a positive for revenue. inflation helps lift revenue. it also looks expenses.

the margins will come down. the other piece missing next year is i am in the camp that it is difficult for the fed to avoid a recession. in a recession, we typically have earnings go down 10%, 15% in a shallow recession. i worry that earnings estimates are still to optimistic. the revenue pop will not cover for all the expense pressure. it will be all about finding expenses to cut next year. tom: and a major shout out to the fd for its commercial real estate article. i am looking at combinations and transactions now that money is -- it costs something. are you going to see a roll up next year a lot of these coupled companies? -- troubled companies? ron: next year will be interesting in terms of all the different shoes that will drop in the market. we have not seen the implications of higher rates

really hit housing prices. down a few percentage points from the peak. we started to see some pain in the commercial real estate space but not much. you will see that pain spread out, whether at least consolidation challenges, but we will see challenges in the debt markets. they will lead to strategic markets. jonathan: do we need to embrace companies that are embracing austerity? i am thinking of mark zuckerberg at facebook. do you want to embrace those companies? ron: they are making the right call, especially in the tech space. a lot of these companies have basically been hiring and investing for growth, assuming they can extrapolate out from prior years. they record the reality is that that trajectory has changed. in any sector, we have had so much growth for so long, you

need this period where you pause, reflect, reassess what you need, and frankly, you take some options off the table that are not going to pay off. this is wise, and investors should be looking at this company carefully and evaluating those choices. jonathan: is it too late to buy those? ron: my view right now on the market is people should be taking profits on equities. we have had a great run-up in terms of this bear market rally. we are trading at something on the order of 19 times forward earnings. that may be using a generous e, by the way. i worry we still have downside. you have to go back almost 20 years to find another sustained period where the earnings yield of the equity market was -- effectively, we have an extensive market on the wrong e. i will be putting the money i have into equities and defensive. tom: equities or bonds?

will you load up on bonds with a lot lighter equity position? ron: personally, i think the most attractive asset right now, and it has been a long time since i've been able to say this, is cash. the bond market is to optimistic. the 10 year yield around 250, a 4 handle would be more appropriate. i will not try to tell you which quarter that will be in, but i worry we have shoes to drop that we have to wait 14 2023. it is too early. tom: one final question. does the idea of buying big revenue growth from big tech save me? is that a place to hide, to use that revenue growth over 36 months to protect from the downside you see? ron: what is important in that tech space in particular is to zoom back out and think about which structural trends still

have runway. migration to the cloud, still a lot of runway. only 30% of u.s. companies have moved to off premises, cloud use. the vast majority is still doing on premise servers. i look at a theme like that with a lot of runway and think there is something that can carry you in the years ahead. they key is getting into these stocks at the right valuation. if the market does decline as much as there may be ahead of us, you will still have downside and some of these big tech names. it may be early to be jumping in, but definitely some homework. jonathan: ron temple of lazard asset management, looking for earnings weakness in early 202023. -- early 2023. tom: the bond dynamic is so important to me, i am not sure what a -81 basis point curve in version is telling me.

i need someone to help -- jonathan: what is it telling chairman powell at the federal reserve? tom: exactly. i will go to this inflation report. we will sound like we are hyping it -- yes, we are. the inflation report is more important than the jobs report previous. jonathan: a three-part act. we get the statement, projections in the news conference. the way chairman powell has been communicating, for me and many others, how chairman powell frames risk management -- does he choose to emphasize the risk of under tightening or over tightening? for many, he seems to have flipped and talked more about the risk of over tightening. tom: i agree, but i also like the mathematics of the word "cumulative post quote that we heard from vice-chairman brainerd -- the word "cumulative" that we have heard from vice-chairman brainard.

have you seen the hate mail we are getting in? there is some guy in cambridge, england just beating up, tearing you to shreds. [laughter] he's got 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 evil exclamation points? jonathan: are you talking about mohammed -- tom: larry -- jonathan: larry was very upset about the vikings and jets. did you watch perdue and michigan? tom: we have a partial score on that. michigan 43 pair that is our score. jonathan: oil makers just collapsed. enjoyed that game saturday evening. tom: i was forced to watch it. my senior executive executive executive executive -- do you know she dresses her toes and in boilermaker -- jonathan: "spoilermakers."

live from new york. great to have you with us to kick off a new trading week. this is bloomberg. ♪ >> keeping you up-to-date with the news from around the world. i'm lisa mateo. opec and its allies started to keep oil production unchanged. it reflects the unpredictability of supply and demand. opec+ and the 2 million barrel a day reduction. european sanctions on russian crude oil came into effect today. authorities in china appear to be easing away from strict covid policies. testing requirements were eased in a number of cities. the loosening of assertions comes as china enters a downswing in its latest outbreak curve. fewer than 30,000 covid cases were reported sunday, the lowest in almost two weeks. in u.k. -- in the u.k., the rail

union rejected an offer. workers would have received 4% pay hikes this year and next, but the union says that was conditional on a number of changes, including job losses, reducing staff on board trains, and closing all ticket offices. the crown prince of saudi arabia will reportedly be one of the investors in credit suisse's new investment bank. mohammad bin salman is considering an investment to back cs first boston. credit suisse is spinning it off following huge losses. global news 24 hours a day on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo. this is bloomberg. ♪

>> there is always value in diplomacy if the parties in question, in this case, russia, are actually interested in that meaningful diplomacy. what we have seen recently is exactly the contrary. unless putin demonstrates he is interested in any full diplomacy, it is unlikely to go anywhere. jonathan: antony blinken there. here is the price action for you. equity futures on the s&p 500 down 0.4%. the euro just a couple points higher. 3.5115 on the u.s. 10 year. remarkable to see the dollar weaker on friday off the back of the payrolls report. can you explain that?

tom: i cannot -- rebecca patterson will be with us later. i am sure she will not give us a direct, but the immovable forces -- you have been out front of this -- is big figure weakness on the dollar. jonathan: clearly in the driver seat was chairman powell's address at brookings and nothing else. we shook off that data pretty quickly. we need to talk about china. new testing rules in places like shanghai. so now you do not have to have certain testing requirements to enter certain public venues. another signal that we are moving away from covid zero. tom: what i will do is look at the bloomberg folks, and strong renminbi -- we are now down well under 7 yuan per dollar. that is a strong currency,

whatever the politics and medicine is of china. jonathan: that's from 7.33 in november. tom: the depth of the system is the deepest market out there. they have their bloomberg terminal in the white house and in brussels. i am not sure if they are looking at that to see where the dollar is. annmarie hordern joins us with maria tadeo in brussels as well, medicated in spain as well. let's not go to that pay let's go to the seriousness of the war. kyiv is 17 degrees the low -- that is fahrenheit. i will let you take the centigrade. do we understand the cold of ukraine? maria: i do not think we do, especially because the situation

there, it is a cold winter, but you also have the infrastructure that is completely damaged by russia. that is the issue. the country is trying to repair things quickly, but they get broken down. they have blackouts, they have part of the country that simply do not have access to electricity, that do not have access to heating. on top of that, it is also pretty cold in the rest of europe. here in brussels, it was minus. this changes everything when it comes to the european consumer. we talked about these mild temperatures. anecdotally, i did turn on the heat this weekend. tom: everyone in europe has some collective memory or a study of history back to the cold at the end of world war ii, maybe those years afterwards, 1947, 1948. this was not fun, for those of you not read up on this. what is the urgency to do something now about a tangible cold? maria: there are two things.

when it comes to ukraine, it is about the air defense systems. i spoke to the secretary-general general, and he repeated they need it, because there's otherwise no other way to get through the winter. the nature of the war has changed. it is not an army fighting another army. it is about millions that could freeze to death in the heart of europe in 2022. we were told this will never happen again in europe. when i was in school, we were told it would never happen. the symbolic nature is very emotional and powerful. but when it comes to the rest of europe, a lot of this has to do with helping the consumer. but if you go big on fiscal stimulus versus also the concern you will feel inflation, so what wonderland does make it difficult for christine lagarde. tom: i think the american press missed this. it is colder than normal in

europe. jonathan: and we have a price cap -- tom: i think the american press missed, this weekend, the level of cold. jonathan: annmarie, can you walk us through the price cap agreed at the european level? annmarie: $60 a barrel for russian crude. if you are a buyer in this market, say india, and you want to buy russian crude, you can only buy if it is under $60 a barrel. why this is so important is because in the russian sanctions package, they said these companies that have to do with shipping and insurers, and the main block of that have huge amounts of these companies, especially countries like reese, cyprus, malta, so if you want -- greece, cyprus, malta, so if you want to access to get crude out of russia, you have to abide by this cap. russia is saying you cannot deal

with any with these cap are this is where it will get interesting, because right now, in very common grade of russian oil is trading around $50 a barrel. so russia is going to be very much so on the lower end of this cap where they are trading now. in the contracts, our country is going to say we abide by this cap? this is where it will be interesting, because russia says they will not sell to anyone who signs up to the west's cap. jonathan: how do you think china response to this? the most important meeting is xi and react -- riyadh. can you walk us through what is on the table? annmarie: for president xi, especially as you have more news of them starting to ease some of these covid restrictions, that could be a huge amount of energy demand coming back in the market from china. obviously, energy will be top of the table for xi and mohammad

bin salman. also the fact that china, of course, has been one of these countries that has not come out and condemned the war and has also wanted to recently put a potential distance between themselves and russia. the russian crude that goes to china is much more expensive. we are talking more like $70 a barrel, not $50. potentially xi is looking at more longer-term contracts from riyadh. jonathan: the other thing to pay attention to, tomorrow morning -- morocco-spain. can we get a preview? maria: we will win to 1. i am in london, already in contact with the ambassador -- we will win 2-1. tom: are you watching with ferdinand and isabella? [laughter] can spain take on the power that i see from france or argentina?

how do they do this against what appeared to be stronger, more powerful teams? maria: what is the question? why? because they scored twice in an easy game? argentina, how they actually played a good world cup? is it just messi or a team? annmarie: they lost to saudi. maria: this is not about the stars, it is about the team. we have a team. we will win tomorrow 2-1. jonathan: we will do a all caps special with maria and annmarie. can you picture that? tom: with respect, i just want to see ferro and tadeo go at it. i don't want to cast dispersion on the announcers, but with respect, i am watching

telemundo. can you see maria on fox? jonathan: on fox? jonathan: it may be -- maria, wonderful to catch up with you. annmarie in d.c. she is fired up. tom: think about what she says about us? jonathan: on the inch of aggressive about spain and france. not impressed with mbepe. tom: he's like solid. jonathan: absolutely clinical. tom: you like that? jonathan: joining us in minutes, rebecca patterson of bridgewater. ♪

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jonathan: equity futures slightly negative across the board this morning. on the s&p, the nasdaq down 0.4% on the s&p. on the nasdaq, down about a quarter of 1%. tom: maybe i am wrong -- 31, lower numbers bullish. down to 24-ish forever. you mentioned this with ron temple with an 18 handle on the vix. 20.07 right now. an extraordinary statement on

this -- can i say bull market? jonathan: they are still calling it a bear market rally. you mentioned the dow. the rally has been pretty phenomenal. tom: it has been. someone with eight sort between outside what about the doubt transports? this goes back to something called dow theory. the answer is i think it is one part and on confluence of the dow performs better mathematics than the standard and poor 500, but we have to have respect for large-cap's, and i really do not know what that means p8 i do not have a lot of wisdom here of small caps and mid-caps. jonathan: let's pick up on that conversation of whether this is a bear market or bull market. mike wilson of morgan stanley is clear he thinks it is a bear market. this is what he told us last week. >> we have more confidence that this rally will continue into

december. rates will go lower. powell's commentary is right in line with what we have been saying, which is they will pause in january. the markets are getting in front of that. this is a classic fed pause stockmarket rally. jonathan: that was last week. take a listen to what he has to say now -- already adjusted two weeks ago for this tactical rally to go higher. back end rates would need to fall. fast-forward to today, and that has what -- that is what has happened. the are now at right into our original upside targets, and we recommend taking profits before the bear returns. tom: cardinal rule -- i learned this by losing money. bond markets lead equity. a guy like mike wilson is looking and watching the spreads. one statistic, -80 points of inversion. tony dwyer published this morning and has a very cautious

view as he marks down earnings based off of inversion. jonathan: bank of america is saying the same thing. first half of 2023 is about bonds, government bonds, in response to earnings. we have to go back to comments from last week. he is looking at re-acceleration in the u.s. economy, confirmed for him by what he saw in the labor market report. i do not think i have ever seen this much debate and discussion about where we are, not where we are going. it seems to be the czar we have this much disagreement about where the economy is right now -- it seems to be the czar -- bizarre we have this much disagreement about where the economy is right now. tom: their broader edo-babble and you bring it to what we are living now. jonathan: we have seen upside

surprise and payrolls every single month going back to may. tom: i go back glass from j.p. morgan. he says, sorry, it is a fully employed america. we really think rebecca patterson for being with us from bridgewater. she had every reason to cancel after the shock of their performance last week. she is chief investment strategist of edgewater, who was doing so good. without going into the nitty-gritty of bridgewater, what were the challenges you faced in the last 90 days? rebecca: we take views that are usually 6 to 18 months out, so as we are looking at the world, we continue to be cautious on assets. we think the market is discounting goldilocks, that the fed will be able to start easing in the central -- in the second part of next year. we just do not think that adds up.

as we have seen this bear market rally in recent months, the market responding to increased hope that the fed will pause and start cutting rates next year, we have seen growth assets, risky assets performing well. but we still believe that, as we go into 2023, while there is going to be this tug-of-war, how much will the fed accept inflation versus force inflation to its target, how much growth pain will we get, we continue to believe there is another issue that must drop, the economy. it is resilient today, with the exception of housing, but the fed has to push to get wage inflation down, and they are not likely to ease next year. tom: now bridgewater, tell us about the dollar as the litmus paper of the system. suddenly weak dollar, and what does a weaker dollar signal now? rebecca: the dollar, as you

said, has been giving up a lot of its gains from earlier this year and in the last year or so. we think, as long as liquidity conditions remain tight -- remember, the fed is still raising rates. they may slow the pace, but they are still raising rates. and we have quantitative tightening, double the pace of what we saw in 2018. class, we have rate hikes: globally, with the exception of maybe japan, china. these tightening liquidity conditions tend to support the dollar. the dollar is the world's funding currency. yes, you see this selloff, this technical profit-taking on the dollar in recent months, but we do not think we have seen a major dollar top along the lines of what we saw in 1970, 1985, the early 2000's. maybe we will be in more of a range over the coming months as we go through this tug-of-war of china reopening and central banks, how much they will tighten, but we do not think we have seen a sustained turn yet. jonathan: what do you make of a

turn at the federal reserve? rebecca: we are not trying to predict the numbers -- we are trying to understand the degree of pressure is on the economy that will translate into market outcomes. certainly, if we need to see weight inflation, which by the atlanta fed's measure is still running well over 6%, if we need to get that down 2 or 3 percentage points to get u.s. inflation closer to the fed target, i think we will see the fed going at least 5% on the fed funds with a probability that they may have to go higher. the trick is, if they get to the spring some time and maybe pause to give time for fed hiking so far to play through the economy, be inflation comes down to 3%, 4%. but if the fed is not happy with that, they may have to do an additional round of tightening. we saw that before in the 1970's

and 1980's. you needed three rounds of tightening for the fed to actually get inflation under control. the market is not discounting that possibility. we are not saying it is our base case, but it is certainly a risk we think people should consider. jonathan: your base case sounds like 5%. is that fair? rebecca: i think 5% is plausible, and it is very possible we could go higher than that. jonathan: so that is the base case, largely what is in the market so far. expecting the fed to put that in the projections next week. a lot of people may sit here and say that is priced, we are done with that. and to get the extra leg of dollar strength, we need something else. what is in your base case that delivers that something else? rebecca: i tried not to interrupt you because i am dying to answer the question. it is easy. what is not priced is the fed going higher and holding. the market is anticipating right now we get significant rate cuts

starting in the second half of next year. we think, without severe economic week is to justify that, we are going to get the thought -- get the fed pausing but not cutting. if that is not changed in what the market is discounting, that can add a layer support to the dollar. we are not talking the end of quantitative tightening or rate hikes around the world as well. tom: i want to point out ms. patterson is never dying to interrupt me. she is always dying to interrupt you. jonathan: why do you think that is? to be fair, it is a good response to the persistence of the fed and holding there -- tom: rebecca and i remember when you made a six-month call. now we got we will pivot in january and in the fourth week of february, we will pivot again, and by the first week of april, we will do this, this, this area forget about it. cash is trash.

what is the value of cash to our listeners and viewers into 2023? rebecca: what is so interesting is we are really seeing the market move into a new paradigm. we have not had short-term rates this high in a very long time. it is interesting to think about how our investors going to position going -- how are investors going to position into the next decade versus the last decade? elastic it was about low commodity prices, low macro volatility. if we are in a regime with more uncertainty around the level of inflation, more uncertainty around where interest rates should settle, what is the right portfolio to construct? should you stay overweight in the u.s., overweight in tech? how much private assets should you have? we think there are some tectonic plates shifting now, and assuming they can be sustained, and we think there is a real chance they can, we will get

stronger, more portfolio allocation changes the years ahead as people realize this is a different world we are moving into. not that inflation will settle at 4% or 5%, but it could certainly settle higher than they have been with rates where they are in as well. jonathan: we have to squeeze this in -- what is the biggest change you are expecting that, so far, the conversations you are having with clients are pushing back on still, what is the number one change you think we will see? rebecca: the structural change is inflation. the cyclical change, the biggest thing to watch in any 23, is growth. we have to see growth weaker for central banks to hit their targets, and that is not yet reflect it in earnings. jonathan: rebecca patterson, thank you. tom: brilliant. jonathan: looking ahead to next year. and that view on rate cuts, that is the big debate going into 2023. tom: we deal with this every

day, guests who are world-class like ms. patterson. there was every ability for her to cancel, you know, i do not feel good, i overslept because of england -- and there she is early on a monday. jonathan: what has worked in this year, rates up, dollars stronger -- what has reserved -- what has reversed? tom: i guess they come back. that entire thing of next year is all of a sudden money has a cost. jonathan: we will talk about the ecb as well. tom: when is there meeting? jonathan: there meeting is the 15th, the day after the fed. up next, a gabriel makhlouf of the bank of ireland and the ecb. this is bloomberg. lisa: keeping you up-to-date with news from around the world. with the first word, i am lisa mateo. the price of oil is rising today. opec and its allies agreed to

maintain production at current levels. european union sanctions on crude oil exported from russia came into effect today. china is tentatively easing covid measures that have eroded fuel consumption. iran suspended the operations of the so-called morality per release -- police. for years, they stopped those who they believe were violating religious dress codes. it follows that death of a 23-year-old who fell into a, and died after getting arrested for her attire. -- is a compromise designed to win republican support for an $800 billion spending bill. republican leader kevin mccarthy said he worked out an agreement with president biden. white house officials told the washington post nothing has been resolved. in south africa, lawyers for president ramaphosa are preparing a challenge against an

advisory court who say there may be a path to impeachment. a spokes person said ramaphosa will seek a second term as the leader of the african national congress. at a sign that tesla is not having up to expectations. bloomberg plans -- learned the company plans to lower production at its shanghai factory. global news 24 hours a day on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo. this is bloomberg. ♪ ♪ we all have a purpose in life - a “why.” maybe it's perfecting that special place that you want to keep in the family or passing down the family business or giving back to the places that inspire you. no matter your purpose, at pnc private bank,

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>> the fed has to create that sort of nervousness to tip inflation down. which growth is -- wage growth

is strong, which is a good thing, but they have to slow it down, otherwise we will get a spiral. if they hold it there, they can let the system catch up. jonathan: that was brian moynihan on cbs over the weekend. the euro-dollar, the move we have seen, the dollar weakness that has kicked in, euro-dollar has gone from 95.36 to 105.65. tom: in rochester -- that is the language, money pouring into european etf's and equity markets. jonathan: so many people, offside. the fact that things in europe are not as bad as they otherwise may have been, given the energy situation and the milder weather. winter starts kicking in now. we will see how this progresses and if we can repeat the act of

getting storage levels up. next winter is the big question. tom: and i would emphasize there is a war. so much of the ecb analysis on this side of the analysis negates or lessons this -- or lessens this terrible war. right now, an interesting conversation with the most interesting guy in economic central banking today. gabriel makhlouf is with the bank of ireland. he is there governor. if you can imagine if the federal reserve did a worldwide search -- that is what the bank of ireland did, with some controversy. the british economist moving from new zealand to ireland. what is the biggest challenge christine lagarde has in the coming 90 days? gabriel: christine and -- thank you for having me, firstly.

and thank you for describing the as the most interesting person, but that is for a separate discussion. christine and all the members of the governing council are facing the sorts of challenges that i think many people across europe, if not the world, are facing, which is dealing with some extreme uncertainty. i know we have been talking about that for a while. the combination of the recovery from the pandemic, the supply chain problems that we have had, the news about china that i've have just heard you talk about, the ongoing russian war in ukraine, and so one, we have a consolation of issues that we have to navigate through -- we have a constellation of issues that we have to navigate through. it is a challenge. tom: i would note ireland's leadership in growth -- it has

been a growth engine, everything said and done. one of the -- the nominal gdp of america versus a lesser nominal gdp in europe. do you push against that? do you say we underestimate the potential of european growth award? -- forward? gabriel: i absolutely do. the potential there is huge. it is a big economy. it is ambitious for itself. and technology will be a critical platform for the future. it'll -- digitalization, climate change, and demography are the big economic transitions that we are all going through right now. europe has the potential to be ahead of all of those. jonathan: let's talk about the reality of this business and --

this is your new face december 15. does your base case in a recession in the economy now? gabriel: i have not seen the ecb forecasts, which we will see you next week, but my own view is we will likely to see the euro area in a technical recession. i suspect q4 this year will see a slightly negative number. we will likely see that for q1 next year. my expectation is we will not see 2023 as a year of recession. jonathan: how does that influence your view of how much tightening we ultimately need? gabriel: in my view, we start with the normalization in

june, we were in negative rate territory. definitely not there now. but i also think that next week, when we meet, i think 50 basis point increase is the floor we should be discussing. i expect us to get there, but i do not expect us to end there. jonathan: have you got an idea of how far you would push that? gabriel: i was about to say, how far -- how far i will push that will depend on data. and seeing what the projections are telling us, seeing what the latest data are telling us. with inflation running at 10%, our target at 2%, core inflation at 5%, i think it is clear that next week's decision won't be the last increase we make. jonathan: interest rate policy

just part of this. we also have to talk about the unwind of the balance sheets. can you talk about our thoughts are what we should be doing with the balance sheet that large of the ecb and how you would prefer to unwind it? gabriel: firstly, my preference is to unwind it. the reasons for having it in the first place, a very long period of low rates and low risk of inflation, those reasons are gone. we need to look to unwind it. my view is it needs to be done cautiously and carefully. and predictably. my preference would be for us to start slowly, leave ourselves room for accelerating. i expect us to agree at next week's meeting a set of principles, which -- four

winding things down, which the president will announce. i do not expect anything to start until next year. my own preference would be towards the end of q1. tom: governor, so important here is your experience in new zealand, where there has been a real idea of rules of the road of central banking. i think they have provided decades of leadership on that. combine your new zealand experience with the idea that we may not bring inflation down to the comfort level of decades of theory. can we live in america or in europe with a higher inflation set -- let's use america as an example -- of 3%? can there be permanence to that? gabriel: at the ecb, we had a fed before us, and one which we did last in july, and we

concluded that 2% inflation should be the target that we focus on. there has been no discussion within the governing council as to whether or not that target will be changed. that should remain our focus. i am interested in the debates academics are having. it is interesting to observe. part of this is about communication, in my view. in new zealand, the target was arranged around 1% or 2%, with the midpoint being that, so it is about how you communicate and explain what you are doing. for the moment, the ecb is absolutely focused on 2%. tom: is england communicating in the world cup? gabriel: i think the english team have got an excellent

chance to win the world cup. one of the challenges -- you mentioned christine lagarde has to remove -- has to maneuver over the coming weeks is making sure that all the members of the governing council, who are supporting different teams, can be managed appropriately. jonathan: i am not sure how your irish colleagues may feel about that -- tom: what is the signal we will see this of her 18th? jonathan: i imagine there may be some french pride coming out there. wonderful to catch up with you. governor makhlouf there. tom: i would like to do this in dublin -- jonathan: why is it always a trip involved with you? favorite bar in dublin, what is it? tom: the tour of guinness. jonathan: guinness in ireland and dublin -- we have never been? we have got to change that.

tom: i just work. jonathan: futures lower by one third of 1%. this is bloomberg. ♪ if your business kept on employees through the pandemic, innovation refunds could qualify it for a payroll tax refund of up to $26,000 per employee.

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