>> i don't see any reason for the fed to be moving at the 2% target. >> it is about inflation but for me it is about them labor market because that remain so strong. >> we made up for it this year from the federal reserve. >> the fed needs to do more work. >> this is bloomberg surveillance with tom keene, jonathan ferro and it's a this -- and lisa abramowicz.

>> matt miller is going his beard and kaylee, i want to start with you and i am tereus, the socking is, even though people are talking about a rally. kailey: the santa claus rally is in materializing -- is not materializing. we are positive once again but the concern around china dampened risk appetite overnight so i guess it is a question of whether or not we will be able to hold onto gains. we can try to eek out something, -- >> we will come back to a completely changed scenario. the bank of japan seems to be going full force in terms of moving yield control or maybe not. overnight, confusing signals.

matt: cameron dawson says that janice is more important than santa and that's estimate this -- fixed income is what is -- it is all about and the china story is interesting because there could be a shift. as china loses its -- loosens covid restrictions, the west could tighten covid restrictions. >> are you getting carried away with the idea that there will be a new variant and it will be armageddon again? kailey: that was the concern yesterday but we are getting headlines from the prime minister of italy saying that they have sequenced the case is to milan and they are omicron variant's.

could you start to get some of that variation? >> you are a pro at all things variation. i am curious about this question around oil and the fact that you are seeing oil prices come down today despite the fact that china's reopening. everyone knew it would be a rocky road. matt: i don't think anyone expected 37 million infections in one day. >> that is what happened in u.s. anything about what happened in new york in march 2020, was it so different? matt: no but is going to be march 20 20 again because then we are not overreacting. >> fair enough. the markets are bouncing around and they are lower and marginally positive. the euro dollar's weakness

across the board. the question of the bank of japan with unannounced dollar purchases and the dollar is weakening against the yen. matt: i think this is one of the most interesting stories and -- to me it is the most exciting storysidering the market fight against the fed and the fact that the boj --changine of yield heard -- curve control is a seminal moment. kailey: the market seems like it is testing the resolve so i guess it is a question of whether the suspect -- successor is going to be forced to abandon the policy. lisa: some people think he is going to have to rip the banding off because he has a credibility and the second thing is, they

came in with an unannounced lou up on purchases but they didn't purchase 20 or 30 year bonds and that raises questions on if they are saying we cannot control this one. mark chandler is joining us. happy new year. does the dollar weakness today makes sense based on what seems to be a reaffirmation of yield curve control by the bank of japan? >> i think i lost you. lisa: can you hear us? let's reestablish and try to get back to him but we will focus on the point because this is a? and i was reading a analysts report and people were talking about, the sky is potentially the limit if you get the abandonment of yield curve and the loosening and up reopening of china. matt: some people have made a

lot of money on it and there was a great bloomberg story, about a former george soros fund manager, who has made -- this is a continuation of the market pushing against the boj. they have been doing that a long time. it has been called the widow maker but i don't see it making any windows. -- windows --widows. matt: on -- lisa: why are yields not higher and why are they going down if they have both of these scenarios? people were saying this would be the ultimate their case for bonds and now people are saying it is a big selloff and not to worry about it. kailey: if you think that it is

about a growth slowed down and it is ok to buy duration and go back to assets and we are looking at yields far below where the fed test they will go but maybe that is part of the market pushing dance the federal reserve and you are seeing the fighting of the fed in the equity market maybe the bond market is doing that as well. katie: let's check back in -- matt: let's check back in -- lisa: let's check back in with our chandler and let's get your view on why the dollar is weakening this bite would seems to be out reaffirmation of yield curve withdrawal -- control. mark: i think the bank of japan surprised everyone but the dollar is making higher highs and even today, it is holding above yesterday's low against the japanese yen. yesterday's low is a little lower by 130. i think the attitude is you

don't want to be bit by the same dog twice and the bank of japan surprises. a lot of people are on guard that they will do so again. i think the fiscal policy and the strengthening of the year and --yen will lower inflation and take pressure -- pressure off the boj and the first quarter is important because the market shows the market is respecting rights to go positive. the overnight rate is -10 basis point. i think that is exaggerated because people don't want to be bid by the same dog twice. matt: i was excited -- this was smaller even if it continues. do we ever get that? mark: japan is a tough situation and it is not just that corona is idiosyncratic but you look at

what the bank of japan is forecasting, lower inflation blows -- below 2% and the market expectations aren't far from that. japan has a shrinking population and structural issues weighing on inflation. alere this week, japan had its third consecutive decline in industrial production in the last thing i will say about japan, we are focused on covid and china and it was tuesday that japan recorded a record number of fatalities from covid and it is not over yet. i don't know these things but it seems to me that we are getting ahead of ourselves. lisa: --matt: what struck me is the strength of the pound or the weakness of the dollar. we were at 1353 on the bloomberg dollar index and we hung around there and now we have calmed down and the pound broke down below parity.

we are up to a dollar 25 -- $1.27. have you seen the peak for the dollar? marc: what i think happening is at the end of september, i think they were exaggerating. there is a strike about -- i guess the u.k. and they will enter a recession and the trust the government decided they had a fiscal stimulus. i'm -- the economist magazine was talking about -- people were talking about the u.k. as a emerging-market economy and that kind of mentality often corresponds to extremes. i have anticipated a move towards 120 and 1.25 and we start about 1.50.

i seen -- see the dollar having a huge setback in q4 and nine at a g10 currencies all appreciate by 5% against the dollar. that is a big move. the technical indicator extended to the dollar. the short-term technical indicator tell me the downside has been exaggerated so i think that will happen early next year is that the market will reprice the possibility of a 15 basis point hi-fi the fed at the next meeting on february 1 and i think that will get the dollar the technical correction. lisa: something to the fed have to do this -- consider into 2023 is if there will be a re-inflationary impulse coming out of china when they get past

the current search in cases. how are you viewing that? marc: it is hard to understand how the chinese are able to do this and they will make -- be able to maintain a stable currency and i see that, given the turmoil in china itself, i see them having a stable currency. i think the chinese currency traps the euro and the yen. those currencies, the euro is going sideways and they were about the 28 moving average. i -- and looking for the dollar to regain. the idea of, we heard this last year with chinese ppi was a leading indicator for u.s. cpi. i don't think so. you see this clearly from policy talks.

these core service prices have little to do with china. the challenge for us is that many people want to blame other countries for our problems, whether it is china or moscow. most of our problems are homegrown. lisa: that is probably not the most popular the -- you --view. good we have to blame -- who do we have to blame? kailey: the burning question, how does you decide to grow a beard? lisa: this is not something i think about so i am curious. matt: the obvious, i have no more hair on top of my head. i need to do something. kailey: it has been a cold. lisa: it is a little scarf? matt: it does for sure and style

because i had a couple weeks off and i thought let give me -- let me give it a shot. lisa: hopefully you didn't have to fly southwest back. i came back from denver and we look at the board and everything was on time except for southwest and everyone was talking about it. it has been bad. kailey: we were talking to someone from cowan and they said this is a broken system for southwest and date under invested in technology and they are dealing with this problem poorly. lisa: matt will continue growing his beard until they update their system was the we will have sylvia jablonski -- system. we will have sylvia jablonski. this is bloomberg.

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>> there is a lot of pessimism out there that we are going to

hit at a recession that here and we are in a recession in europe that is destroying expectations so that china reopening can weigh against those expectations but we think markets are getting ready for a macro event for 2023 and could impact expectations were inflation. lisa: that was been --ben emmons. we have been reading about southwest and inflation and the labor market with jobless claims coming up in two hours. the only thing we came in to talk about this morning with matt miller and kailey leinz, we were talking about this one politician who managed to get elected despite a litany of lies that rivals anything we have seen from sam bankman-fried or elizabeth holmes and that to me is george santos. matt: he claims to have

graduated from a root but never graduated from any college and claimed to graduate -- work at several banks. he claims to own 13 different properties but lives with his sister. kailey: you claims of joining congress. once that comes to light, if you are another leader in the house republicans, what do you do if he joins her caucus? -- your caucus? lisa: terry haines joins us and we are looking at a situation with republican leaders raising i -- i process but not condemning this. what point will they have to respond in a meaningful way? terry: the moment after he takes the oath of office. congress generally, it is not in

the business of condemning people who have not joined the body. once that happens, i think he is fair game. partially, what the effect of the investigation that is being -- been announced by the nasa county district attorney and the idea, that federal prosecutors are looking at, a be enough to trigger a correctional investigation but, he served one term at the most and i think it is looking more likely that he either doesn't last a month or doesn't last the rest of the winter. there will be too much here. to investigate and the weight of this is probably going to end up driving him out. lisa: there is the amazing aspect of the quantity of lies that someone who was elected to

congress managed to put out there but it is also the fact that it went unchecked. what does it say about the democratic party and the republican vetting process if it was allowed to slide and it was easy to the mock? -- debunk? matt: you --terry: you are ahead of me at one point in the first question people as is where is democratic opposition research? there is that but it is amazing and the best thing you could say is that, at least it has picked up -- it was picked up before he comes to office but it doesn't say anything good about the degree of venting on either -- vetting on either side and doesn't do any good -- say anything good about the degree of journalism. there was a recording of -- from

washington indicating that a lot of these -- this prevarication was an open secret down here and i have no idea whether it is true but it doesn't say anything good about party congressional's. matt: the media have gone are face and we already have so much a from sam bankman-fried. that is why i grew this beard. lisa: to catch the eight. --egg. matt: italy says they have covid under control but have other cases on two airplanes in from china tested positive for covid and it is not a big deal until it is. is there any appetite in washington for travel bans or quarantines of visitors from china? is there any concern that we end up back in a place where we need to lock down?

terry: there is some concern today and i know the initial actions to require negative covid tests on direct flights in our being applied but -- applauded but it is clear that a lot more has to be done and as congress reconvenes, they will look at the adequacy of the biden administration response. it will not be enough to do what they have done already and i don't think you will see travel bans at this juncture. what you will see is a desire to want to increase covid testing to insulate america from this. kailey: while we are talking about global issues, it is not just about covid-19. there is a war in europe and earlier today, the russian foreign minister gave a issue

where he pushed back on the russia ever agreeing to peace talks and he said the kremlin will not discuss ukraine's demands and that raises the specter of a stalemate our -- for conflict and that raises a question at washington, d.c. and a question of funding. how contentious do you suspect things could get along longer the war draws on? terry: it is much less contentions in the short to medium-term demos people anticipate. there is a lot made out of suppose it republican resistance to ukraine funding. what i see is a demand by a lot of republicans for increased accountability for what the money is being used for. that is one of congress's duties. at the same time, i see mere

unity on all important policy issues with republicans and democrats and the biden administration and the understanding that solesky's right is the united states -- volodymyr zelenskyy spite is you the united states fight -- volodymyr zelenskyy's fight is the united states fight. lisa: i do want to get a sense of why washington dc and the congress members that are there are focused on all things on southwest rather than covid and russia and the were being waged on ukraine, even with situations of potential real problems and compulsive lying of an elected member of congress, southwest is the hot button issue. terry: santos has not taken

office so members are wary about criticizing some -- someone who hasn't taken their seat. matt: maybe he doesn't. terry: the bar for expulsion is high. there has only been 20 members of congress that have been expelled and 17 of those were because they were confederates. there are lesser punishments available and i suspect that congress will be joining the parade of investigations taking place in nassau county and the u.s. attorney southern district. southwest is a great way for members -- members are outraged. the idea that things will break down in this way, they didn't think it was possible. what -- you have a situation where they need to understand that things and the transfer --

transportation up -- department can try to improve the situation, whether it be technically or anywhere else. lisa: terry haines, thank you so much. it is stunning, the focus right now and abc but it is a easy win for them because outrageous art the chart -- is off the charts. carol: especially when the airplanes got so much rescue money, and the idea that you didn't invest didn't -- doesn't sit well. katie: --matt: in congress 2021, republicans were outraged by southwest and they wanted to call for hearings. lisa: we will discuss coming out with cameron dawson -- coming up with cameron dawson. this is bloomberg. that always puts you first. godaddy. tools and support for every small business first.

lisa: it is an exciting day between christmas and new year's. this is bloomberg surveillance. tom keene and jonathan ferro are on their road trip through the british countryside. matt miller and kailey leinz are here. i am glad to say. let's get a look at that company -- incredible action in markets. kriti gupta laid it out for us. kriti: it is dramatic to the point that the stoxx 600 is unchanged.

you are seeing more action in the need -- u.s. and the outperformance is crucial because there are macro stories, this one coming out of the asia, the idea of what the chinese open would look like and i would argue it is creating a defensive bid. futures are outperforming given the holiday jazz, it is outperforming the s&p 500 to the tune about 7/10 of 1% where futures are up only 4/10 of 1% and let's see that holds -- let's see if that holds and tesla is a big part of the story as we see the rebound of that stock. as we talk about the china story, the oil story is relevant and use -- you have food trading at a 77 -- crude shading at a 77 handle. at the end of the day, if you are worried about covid and a deja vu of 2020, it will show up

in the bond market and accrued market and they will be -- the crude market and they will move in sync. if you are worried about the micro-risk, you will likely see a bid into the bond market as opposed to yields higher and oil higher. they are moving in tandem for the -- past year and likely to continue in 2023. where does the dollar fall into this because if yields are higher are lower, -- or lower, the dollar will follow. some of the biggest contributors to its weakness is coming out of asia. the japanese -- japanese yen is the biggest contributor and this comes after the boj continues the bond buying's scheme. what is and is the australian dollar and that is weakness. it is down pretense of 1% against the dollar -- 3/10 of 1%

against the dollar. lisa: there is a question of whether we have to back to bond trade and it doesn't make a let's -- a lot of sense to me. as inflation over? --is inflation over? carol: i feel like --kailey: i feel like there needs to be a delineation between inflation cooling and inflation cooling to a 2% target for the federal reserve. the market seems to cling to any further softness in the inflation data without thinking about how far that leads us. matt: i think we have to focus in on the credit cracks that are showing up and there was a great story on the bloomberg about this as distressed debt are blooming to levels beyond the financial crisis. it is important to focus on that even as so many cell side strategist tell us to get in. lisa: we could go into the

differentials between the riskier and less risky credit and let's get a sense of that with the bond story and whether they can offset the risks with stocks. the return of the 60/40 portfolio. cameron dawson joining us from a cold florida. it looks like you are freezing in a basement in a place where we will count on orange groves. i am curious, whether you buy into this resurrection from the bond trade despite the reopening of china and potential disruption of your curve control in japan. cameron: we have to be careful. it is not just a blind buying up bonds because we have seen there is upward pressure on bond yields when you have china reopening which could cause inflationary problems to reemerge in 2023 but also because we have better u.s. data and if u.s. data it to be

resilient and the labor market continues to hold up, what that means is that out your pricing of cuts and 50 basis point in the back half of 2023 which put downward pressure on bond yields, as those get wound down and we see the pricing of the fed staying higher for longer because the economy is stronger, that would put upward pressure on bond yields and if you think of what that means from a credit perspective, we don't think we have price in a a recessionary scenario for credit and if we see a weakening credit for the economy -- and means today's credit spreads aren't being well compensated so we think and yields are good places are -- for opportunity but you have to be selective. matt: where are the best opportunities? hannah: -- -- we have --cameron:

we have been adding into engraftment -- investment-grade. we have been selectivel trimming somey exposures because we don't think we are being fairly confiscated and we have shifted direction over the past couple months and it is adding more defensiveness into our portfolios and we think there will be a better opportunity to add a risk within fist -- fixed income. matt: what you think about the earning situation here because -- do you think about the earning situation here because we are worried about fourth-quarter earnings that start in two weeks? we are looking at forecast for not much change. $220 on the s&p. do you expect the inflation situation and rising rates to

print --crimp margins? cameron: as we start to see the top line decelerate, not just because the economy is decelerate but also inflation is decelerating, if you have inflation, you have pricing power and inflation was good for company margins because they were able to get top fund growth and pass be pricing increases to their customers but now if we are in world where labor costs are still high and input costs are rising on the commodity front, we will see but the end result is maybe there is less pricing power in 2023 and if you don't have as much topline growth, you typically do see margin compression and are still about 100 basis points above where they were pre-pandemic. even if we see growth holds up ok, you don't fall into a recession, as you see the top line decelerate and margin

pressure, you could have a shakier earnings front for large-cap companies. kailey: what about for energy stocks because that is the sector raking in profit and one of my producers pointed out that energy stocks have outperformed oil 20 21 --to 1. how much further does the run in energy stocks go when we see declines in oil because of a concern about a slowing economy? cameron: it is incredible that energy stocks is the best performing stocks in 2022 outperformed the worst of army sectors in communication services by 100%. that spread is incredible and part of that is because of energy earnings were up in 2022, up on 75%. the streets expecting them falling 15% or so the next year,

that doesn't necessarily indicate the stocks will fall gently fee cut -- simply because the stocks are cheap. we like energy now because we see the same degree of upside we saw in 2022 into next year, we like it as a hedge and said because in a world where we see -- higher gas prices, it puts upper pressure on inflation and putting central banks hawkish. as a portfolio hedge, and has a place in our portfolios. lisa: how --kailey: how are you considering china in its reopening? cameron: we have to think of it in two stages, we have the 3 -- lockdown as the spread of covid

takes over -- but once we get's up -- get over the initial wave of covid, what happens on the other side? we have china who uses half of its oil starting to let people move around so that can put upward pressure on oil prices but we also know that china will usually stimulate coming out of a downturn. he saw it in 20 -- 2008 out of the tfc and out of 2015 and 2016 so if we see china's stimulate again and it the plant -- be pence on the labor of the stimulus. if it is like infrastructure, that could put upward pressure on commodity prices and reintroduce inflation risk into 2023 from of goods and commodities perspective. lisa: cameron dawson of newedge wealth, thank you for being with us and i hope things warms up.

as we care about the prognostications of 2023, i think about how wrong some people were. i felt bad pinpointing the biggest bulls on wall street and the story on bloomberg, -- over at oppenheimer and how they were big goals. ---bulls. i got it so wrong. matt: i would not be sitting here. there were defenses and one person said there were lacks one events --black swan events like the war in ukraine. almost everyone got it wrong in the beginning of 2022 expecting the fed to raise rates slowly,

but maybe that is because of the measured -- measures are jerome powell was getting. lisa: i wonder what the consensus is because there was a sense of optimism in 2022 and it was wrong and that the senses is or a earnings recession in the first half and something that resembles a pause and maybe not a pivot. could that be wrong? kailey: especially when you have people saying the say -- same thing, the fact that stocks will climb -- and now we will end the year around the 4000 level and if that is consensus, does that mean the some will have to change? lisa: does the index matter or is it the components? coming up next is kevin nicholson at riverfront investment group. >> i am lisa matteo. russia is rolling out peace talks with ukraine and says it will not give up despite

setbacks. alert minister also told us the kremlin will not disrupt ukraine's demands. the war is in be a lot of month and southwest airline ceo bob jordan is telling employees he is accountable for the dramatic flight cancellations. southwest is once again expected to cancel roughly two thirds of its lights, stranding thousands of passengers and jordan told employees he owns be airlines problems -- the airline's problems. there are reports that prosecutors are looking into george santos, who has admitted lying about his background. the probe is focused in part of his financial dealings and santos as insisted -- has insensate -- insisted he is not a criminal.

that point to a further cooling of overseas demand for tech components. chip production plunged 50 -- 15% from a year earlier. exxon mobil is suing the european union over a windfall profits tax. it is designed to raise billions to bring down consumer energy costs and exxon told investors that windfall taxes could cost the company at least $2 billion through the end of next year. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa matteo. this is bloomberg. ♪ about things like changing tax rates, exemption certificates or filing returns. avalarahhh ahhh

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>> i think we are beyond talking about recession and everyone is talking about recovery before recession is happening.

it is about inflation -- the fed needs to force the labor market rollover. lisa: one of the big conundrums in 2023 and i cannot tell what the answer is going to be because i have been looking at all of this especially with the idea of retirees who love the work forecast left the workforce -- -- who left the workforce and the workforce has shrunk. katie: i don't understand how people --matt: i don't understand how people are able to retire. it doesn't make any sense. kailey: people who retired during the pandemic when stocks were up and all they have known for decades was free money, a certain generation is doing

fine. lisa: is a suggestion is that they will come back to the labor market? they were tired when the going was good and they on retire when it gets bad. matt: i would imagine that is the flip -- the case when equity markets retract and you were talking about people getting it wrong and equity hedge funds have lost 40%, 50% two years in the row. a lot of the windfalls people had asked the government injected trillions of dollars in stimulus and the fed was so accommodative, are now gone. they need to come to the workforce at the same time china reopens. i can't imagine that we get a big drop in inflation. lisa: thank you, matt miller, our labor market economist and

when he has abbvie or, he is a labor market economist. talking about what we are seeing in terms of the winners and maybe not the lures -- not just the losers of the hedge fund world. if you bet against tech -- tesla, you have a $17 billion windfall collectively that is shorting the company after huge drop in shares. there's shares are up today and morgan stanley and others are saying we have seen the bottom. gunning us is ed ludlow. how much are people doubling down versus closing out the big short? >> i was sitting at the desk in london with dan curtis and i apologize but i should have sent the chart but the data of the bloomberg, short interest -- it is pretty low so i find this story on the bloomberg interesting. matt: it is low now? >> low now, quite.

this is historical data and you can go to other third parties to find the latest. you and i have been talking about how oversold this stock is in there is a lot at play and the driver of this stock in the premarket section today is the morgan stanley core but also elon musk and his email to tesla stock where -- staff where he says ignore the market craziness where we are the worst month and year on record. 68% year to date. he believes this will be the world's most valuable company. matt: the stock has still quintupled even with this drop. as long as investors didn't buy in november of last year, there are doing ok and longer-term investors. is elon musk going to get back

to business running tesla? is he going to put twitter aside? his see -- i guess he will not stop his political tweets. well he focus on this? -- will he focus on this? is that what the letter says? ed: that is a beautiful five-year chart. it is midday but from tokyo to san francisco, there were issues and thousands of users going down to report issues on elon musk's tweets that they are updating servers on the back end, where the data you do not see is handled and the non-user facing data. he is talking on his focus, even if he does step down as ceo, he wants to be involved changes that needs to be made including

sue -- server operation so i thought it was interesting once the issues were resolved, he was the one to communicate that, it was not like the company but it out. he took the responsibility and we don't have a good handle on who else. as the top question for me -- that is the top question for me. kailey: elon musk paid a lot of money for this and he admits he overpaid $44 billion and he has been very public -- public and open about the poor financial health of twitter. for someone who was the richest person in the world and once multiple companies made a poor business decision and even if we -- he steps back, if twitter can perform, what does that do for the desire for him to run other companies?

ed: 10 days ago, he took to twitter spaces and explained the current financials, saying that had he not taken such severe answer -- action, twitter was encores of negative cash flow of about $3 billion next year because revenues are depressed and appetizers have pulled away. if you are an investor, there is lack of stability and investors are voting with their feet in tesla shares and whether that is a proxy of their approval of his handling of twitter, we don't know but he is communicating that twitter will be ok. it is unusual elon musk. it is not what an executive officer or a fiduciary to investors, that is not how they typically communicate and i don't see that changing regardless if he steps out. -- down. lisa: before we let you go, my

kids played this horrible gain, when we drive around and whenever they see a tesla, it is -- they punch each other and it is annoying. it creates a lot of issues. we are seeing fewer tesla's. maybe we are not driving as much but how much is the issue, elong must and his radical scout and how much is it the incredible amount of demand and competition i should say from other auto manufacturers with respect to electric vehicles? ed: let's go back to morgan stanley and adam jonas -- they think there is a big moment coming where they have a inversion and supply will outpace demand in 2023 with ev's and part of that is there are many models available in consumers and key markets like china and the u.s. and they are feeling that -- the pinch of inflation.

what they actually are saying at morgan stanley is a think tesla's best position is it -- is it is the only player at its scale, and even if they cut prices and it lowers the average transaction price but the volumes are strong and they have the ability to pump out vehicles. the question you're asking is about brand damage from elon musk's behavior and we cannot quantify that. we will know at the end of 2023 where we see if they sold enough vehicles to maintain party chair. -- markets chair. ed: -- lisa: matt miller, what is your view of tesla and whether it faces cannibalization from its market share -- matt: there are a lot of competitors that i would argue have compelling products. i love the rivian truck, the

business that ed covers well and i love the ford lightning. it is fantastic. that chevy silverado is coming out and they have the hummer. these things are trickling out but they are not there yet. you have seen a lot more tesla's in terms of sales this year than last year. that is climbing but i think there will be some brand damage from elon musk's. behavior. . kailey: i was in terrible traffic driving up from virginia to new york, thinking about if i had to charge my car, i would have to be on the side of the road. lisa: we will talk about a decision not just for tesla but broadly. this is bloomberg.

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>> i don't see any reason for the fed to be moving at the 2% target. >> we have come to grips with the idea that the fed will fight inflation. >> for me, it is about the labor market because it remains strong. >> we may get up a bit from the federal reserve but that will be something where the situation is dire. >> the fed need to do more work. >> this is bloomberg surveillance with tom keene,

jonathan ferro and lisa abramovitz. lisa: tomorrow trading days and we are here. this is bloomberg surveillance and tom keene and jonathan ferro are out and i heard the turkey in tom keene also was terrific -- household was terrific. i am surprised at how much is going on. matt: i thought you were surprise it is not that boring with me and kaylee. lisa: it is wonderful with you two. there is quite a bit of action and all of us keyed in with what happened with the make of japan with his unannounced bond program. matt: there's a lot of for now with markets because that pushes back on -- giving back on your control and it really -- in italy saying they haven't seen

any new covid variants. there are concerns -- they would not be black swans if they popped up and they will be more like light gray. lisa: i and -- i love how i am consider the gloommeister. i am not always the most gloomy in the room but i am wonderfully -- but i am wondering if that is the contestants -- consensus price into markets that the bank it -- of japan is putting a band-aid on a gaping amputation. kailey: it is a question if they will have to abandon the guild -- i wonder if the chinese -- china story will play into that as you are seeing yields in australia and new zealand moving higher because of concerns about the inflationary impulse of reopening china.

want you get past the current surge -- once you get past the current surge and he had the economy firing on more so bloomberg -- cylinders -- matt: do we go back to lockdowns? lisa: we are not going back to lockdowns. kailey: there is no political or social appetite for that and airplanes are completely full and the reason why south back -- southwest gets canceled, they say they will keep line. they haven't seen any kind of retracement in demand to go places. i am sure that strategist notes will be the best contest this on what will happen next year and the conversation at the dinner table during holiday meals be the best indicator. do you have anything interesting in terms of conservator -- conversations -- i'm serious. there was bitcoin and inflation

and this year? matt: my mother asked me to explain what is going on with sam bankman-fried and fcx. --ftx. kailey: i got that over thanksgiving. matt: that was the only financial news conversation we had. lisa: my son was interested in -- i -- this was something we were all discussing, whether that would change in the new year. kailey: that is inflationary and we see the two companies shifting their supply chains out of china because of the lockdowns. if you bring that home to more expensive markets where you have to pay more for labor, that is inflationary and that hurts margins and that brings us to the earnings story that may be fine for now but everyone is

expecting things to deteriorate further. lisa: for now, it is quiet and for now, we are seeing a lift in the s&p ahead of the open, one of the last two trading days of the year hasn't budged. up 4/10 of a percent and you are seeing a rally in bonds and tanvir yields lower. the euro-dollar -- getting weakness across the board and how much is -- and crude, lower and perhaps people reassessing how messy this reopening will be. i will not give this narrative because it will be proven wrong and sylvia -- sylvia jablonski joins us now. head of defiance etfs. i want to start with the question on whether we are seeing people reassess -- and come to bonds -- is that be

inverse relationship. -- the refurb -- the inverse relationship establishing itself? sylvia: talking about dinner conversations, those were conversations about my house -- at my house. that to me is a little bit doom and gloom because i think that that is a strong opinion with a lot of reit's are investors so there are different ways look at it and it depends on what type of investor you are. if you are a long-term investors, i like that valuations have fallen in some of the top semi conductor names and top tech names are down 30% to 50% and on kaylee's last point, the lack of work is an deglobalization is an issue but what resolves that issue? what resolves it is visualization and technology. if you have that view, you can

see that and in the short-term, if you look for performance for the next three to nine months, uncertainty is there and you are best off in treasuries and defensive names. that is where to park at but consider that equities are super cheap and earnings can fall more but you will never time the bottom dollar cost averaging over the long term is where wealth creation happens. matt: what are you seeing in the close? you have a family of etf's at defiance and that allows use -- and that allows you to gauge what is going on in terms of what investors are interested in. sylvia: we are seeing be interesting things. we will pick up in communication sectors and strategic trading so you are seeing outflows from one etf into another and in terms of

themes, the questions we get most are in the space of hydrogen and this idea that we need alternative energy sources by 2050, there is a mandate or hope to agreed to go carbon neutral. it is thought the renewable energy services agency is predicting that 12% of electricity will come from hires and in the next decade and right now, that is zero and bank of america things 11 trillion will be the market cap in 30 years so we are seeing a lot of pickup and that is fuel and things like that. kailey: that reminds me of electric vehicles and tesla, the poster child of tech stocks getting eviscerated. what are you seeing in technology? sylvia: terms of tech, investors are wary. they were overvalued last year

and there are generals that let the market that have fallen and they are not getting -- giving investors the type of terms they are used to. i am not so afraid of tech and i like that -- amazon and microsoft at these prices and the future relies on things like cybersecurity and the future relies on the cloud and artificial intelligence. and electric vehicles, you cannot build these things without semi conductors and variate -- various types of technologies and software services. i think they will suffer longer but if you look at their balance sheets, inflation and rising rates, they won't be the biggest factor for these names and i think you will see a recovery with a lot of these stocks and investors are a little too afraid of them and will miss out on a rebound opportunity in the next nine months. lisa: i understand the story and i agree with you. it seems like every company says

to invest more in tech, including southwest. to go to your mother's conversation at the holiday table, there is fear about what could happen physically in names that have gotten so slammed. how does that push against your longer-term thesis that makes a whole lot of sense for an intellectual standpoint but goes against the knee-jerk reaction where yields and valuations are and some of the drama around some of the biggest names. sylvia: that is a great question and what is interesting about this market is it is so emotionally based and fueled. you don't have investors looking at fundamentals as much as they used to. if you think about last year, so many investors were wrong, or this year, so many investors were wrong about what would happen in 2022 and were overly

alleged and most of us did not expect what we saw. even the most bearish analyst had a year end a projection of 4300 and now going into next year, everyone is bearish and going to this massive infection and everyone will lose their jobs and inflation will be height. i would like to take the contrarian view that it is in the middle. if you divorce emotions, the last 100 years ago, you have the 10% annualized return at the s&p 500 and things are different. if you take that number and break it down to 6-9%, that is better than fixed income in sitting in cash and it will take patients and not taking massive losses. i think it is good to separate emotion, and have that long-term dollar cost strategy. lisa: sylvia jablonski, thank

you so much. bottom up no emotion, that seems to be what people are trying to sell us. kailey: her bottom up point is interesting because we talk about the strategist got it wrong from the top down and the bottom up, analysts got it right. as we talk about analysts earning expectations being too high, i wonder if we get a repeat of that. lisa: how much does bottom-up matter at a time when sentiments and yields and rate hikes end up being a massive driver? matt: probably more next year. lisa: that is what people are hoping for and i hope -- and i know you're hoping for more discussions about pickleball. lisa: the u.s. and italy have joined an increasing number of patients requiring covid test

from travelers from china and they are responding to the surge of infections after beijing reversed its covid zero restrictions and italy did not find any new covid you tatian's and recent arrivals from china -- goldman sachs ceo david solomon warns that job cuts are on the way. in his message, he said the firm is working on a new round of reductions that will be unveiled and bloomberg has learned that goldman will try to eliminate as much as 8% of its workforce. the bank of japan is fighting it -- against traders saying it will relax its ill curve target -- the boj doubled the ceiling for 10 year yields earlier this month. in the u.k., consumers about to cut down on non-essential -- sending. it found that people feel they

need to reduce spending and save more because of inflation. it was one of the most significant disruption to twitter since elon musk took over. the platform has restored service hours after thousands of users worldwide reporting glitches and other issues. elon musk said twitter rolled out changes to a server architecture -- to its server architecture. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa matteo. this is bloomberg. ♪ the first time you made a sale online was also the first time you heard of a town named... dinosaur? we just got an order from a dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. godaddy. tools and support for every small business first.

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>> what is happening in china and reopening is a wildcard and we know the fed has very limited

tools to deal with commodity price inflation and every time covid came back, it set is back in terms of getting back to normal. it has been disruptive and things closed down and open back up and i agree on the commodity space the that could be a tough one. lisa: that was the founder of -- what was odd, on what he was -- she was saying, -- energy prices are lower and it raises a because -- conundrum, could commodities be messy enough to reduce demand for gasoline and diesel because people are traveling around less? kailey: and jetblue -- jet fuel as well. there is a product question. i feel like we have been talking about the oil market for months and the idea of demand resurgence as soon china reopened and that will be what boosts prices and restraint supplies.

it will create more restraint in the -- and if the commodity -- opposite of that happens, not only will the commodity calls be thrown into the loop -- lisa: do you under -- do you understand the nurses being thrown around? matt: there are two different narratives and we are conflating them. you have china reopening and the reemergence of covid in china. those are the two things at odds. i don't understand why the commodities market doesn't look through this resurgence of covid and start buying oil. lisa: that is my point, is that, you have a real seeing -- messy reopening but it will end at some point. if what italy saying -- is saying is true is perhaps the cases coming from china is omicron.

matt: there are so many infections. you would not expect more than half of the people on a couple planes out of china to test positive for covid. kailey: there is a question on if we become more optimistic on the china story but more pessimistic on the growth story everywhere else and we are talking about a global recession, mabel -- maybe the oil market is more concerned about the rest of the rope and china. matt: let's talk to will kennedy, bloomberg executive in charge of oil and energy and there is a dynamic as china starts to loosen its covid restrictions and we are hearing the noise about tightening restrictions elsewhere. is that why the oil market isn't able to look through these covid -- this resurgence of covid and price barrels higher? will: we are trading in some of the thinnest status of the year

and liquidity has reduced volumes to allow. --a low. clearly, it is hard to read the difference between the short-term and the longer term and people are trying to work out how disruptive this covid wave will be both to chinese demand as people stay home or and i think this is alexa of an issue because people have not been china -- been traveling to china, but longer-term, there are many people in founder who are bullish. there's one person often bullish but he says that the upshot of china's opening is an increase of oil of three to 4 million barrels that would be -- that will be a huge demand.

i think the way to think about this is things are working in the short-term but if we think that china is going to see this through and fully open its economy, there are reasons to be bullish about the oil demand. lisa: i understand the ideas about being bullish. the fact that oil and gasoline prices in the u.s. have been low encourages people to travel more and philip they dachshund their gas tanks and how much is the this depletion of the strategic petroleum reserve. one of the main drivers behind white prices went down and the refilling of it which is expected to begin possibly pushing that in the other direction. will: i think it is fair to say, it really change the dynamic for

prices and it did succeed and what the administration wanted to do which was bringing down prices. if they are serious about refilling those reserves, it puts a floor under prices this year. the one thing we can say change about the oil market in 2022 is one of the biggest participants in that market became the federal government of the united states. i think people will remain a key driver. lisa: while the united states has reason for doing to -- so, the reason the united states had to tap the spr, russia got cut off. the reason why there was a shortage was because all of a sudden russian crude was not an option. they made it not option in retaliation for the war raged against ukraine and how is that -- but the price cap in place which probably was a no-brainer,

how is that influencing this conversation? will: alongside the china reopening, i think russia stance towards the oil market is something we have to watch. russia hasn't managed to consent -- constrained supply are be to punitive in response to the price cap and they said this week they will not sell oil to any countries who are enforcing the price cap and most of those kind -- price -- countries have embargoes on buying russia oil. russia has given itself be space to make -- the space to make a bigger response, perhaps by cutting production or saying it cannot supply and that would be one thing they could do to tighten the market and aim to get revenue higher by bringing the local press higher. the other thing i would say is that russia is dependent on very few buyers, principally china

and india and turkey. those countries would be able to drive a high bargain. as long as the market isn't supertight, it does -- it will feed into the prices that other suppliers can demand. the price could have an indirect effect of the global market by continuing to depress the price that people are paying for russian crude because so few people are able to buy. matt: the price for euros -- is lower than the cap and they sell it to people who are willing to buy and we by the distillates. after they refine it, it gets to us. will, in two weeks time, do we see $90 and a hundred dollars a barrel as china reopens and as the covid subsides hopefully and more chinese people are driving

and more factories are using energy? will: i will not make a price forecast. i do think there -- it is possible -- to create a bullish mayor to -- narrative based on the resurgence in chinese demand and the fact that there were reasons to think that supply will not rise as fast as it needs to to keep up with chinese demand. shale has disappointed in 2022. i don't think people will feel it will accelerate much faster next year. there is a shortage of investment in fields around the world and there is uncertainty about russian supplies. you have an opec cartel in saudi arabia. you said that against the supply and you can create a bullish narrative. what we don't know is what

happens with the global economy and how far western economies slow down and how far -- fast we get a hard and soft landing. lisa: thank you so much for being with us and i will say, gasoline prices have started to rise again and some people would argue, you talk about the politics of the spr release. the u.s. will make bank if they buy it back low after selling high. matt: that is true and hopefully , we can make lemonade out of these limits -- limits --lemons. lisa: from new york, with some lemonade, this is bloomberg.

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lisa: this is "bloomberg surveillance" on television and radio. kailey leinz and matt miller are here. tom keene and jonathan ferro are hunting down a good football game to indoctrinate tom keene with. there is a lot going on under the surface. bloomberg's kriti gupta has it all to highlight some of the driving trends into year end. kriti: i love my charts but i will explain them. across the atlantic the stoxx 600 not doing a ton, but

stateside you are seeing more action. outperformance and nasdaq 100 futures. outperforming the s&p 500 to the tune of .4%. you're seeing a little bit of a bid coming from a little bit of optimism in tesla after adam jonas reiterated his overweight rating. he did cut the price target but to see that rebound getting more bullish into the tech space which brings me to another stock. the biggest member of the s&p 500, arguably one of the fastest growing companies across the world. i look to look at this. you're looking at a chart of apple shares, which looks like a mirror image. one of the big questions in 2023 is if you are bullish on the stock market, to what extent you have to be bullish on apple shares given china exposure, given supply chain issues, and given the slow down in consumer demand.

that will be the story that does not diverge from the broader index. the other story is the other side of the spectrum, the cyclicality, which brings me to oil versus oil stocks which is where you see a major divergence you have been seeing since the summer, the idea that since people piled into the commodity trade, they say inflation is higher on the back of the war in ukraine. it makes sense to jump into the commodity trade. that trade has gone south but is still thriving in the equity market where you see oil stocks outperform the commodity benchmark and i think that is going to be a major story into 2023, what snaps back, the commodity trade or the equity trade? lisa: thank you so much for that update. that has been a big question, there has also been a question of whether you will see oil prices and bond yields traded tandem or whether they continue to diverge. kevin nicholson joining us.

are you surprised yields are not higher this morning based on what we have seen out of china and japan? >> i definitely am. i thought all year yields were going to be higher than they currently are. i think the market has been fighting the fed all year long. the fed is searching for credibility. i think the fed will ultimately win. the yields will move higher. we have seen that over the last couple of weeks. we were close to a three and a half on the 10 year, but now close to 390 again and we will go higher. lisa: how do you push back against all of the people who say we have seen disinflation, we saw two consecutive lower-than-expected cpi reports, we saw a housing market slowing at the fastest pace on record. how do you push back against that and say all of these other geopolitical headwinds will

cause yields to go higher in prices lower? kevin: there are a couple of things at work. you have japan who has eased their cap on the 10 year. japan was the number one holding of treasuries but hedging costs have gone up, and with them broadening their cap it has also taken a buyer out of the market. we also have to remember that the fed is rolling down their balance sheet as part of qt. because mortgages, prepayments have slowed down, they are not being able to roll as much off the balance sheet as they wanted in the mortgage space so they are having to make that difference up in treasuries. there is not a natural buyer for the treasury market right now, and as we go into the new year and new supply comes on, that will put further pressure on it. we also have the consumer. the consumer is in a fairly

decent place right now, even though we saw personal spending slow in november. you have to think about what is going on with wages. wages were rising 6.4% year-over-year. the consumer is going to be important to watch because they can create more demand as they have more disposable income. kailey: as we talk about energy and the potential inflationary impulse from china, the fed cannot do anything about supply-side problems come all can do is affect demand. if it cannot rain that in it will have a hard time defeating inflation. if we can zero in on japan which is a completely different inflationary problem, if we see a full abandonment of the yield curve control policy as the market seems to be pushing, what would that ramification be across global bond markets? kevin: you will see yields

across all global bond markets go up. we saw that reaction last week when japan decided to loosen the cap you saw yields start to move up because everyone had been using japan as the risk off play , and they were using japan as a bit of supply, a demand for other bond markets because their yields were so low and they had negative yields. now that that is going away, i think the buying outside of this country as far as other bond markets is going to decline. that will force yields to go up globally. kailey: it is a good point about negative yields because we have seen that once was a massive

pile of negative yielding debt, $18 trillion, now reduced to less than a trillion dollars. when we first saw this curve control move from japan it was conversation about this might be the year end of zero and negative rates, this is the death now. are we ever going to go back to that world? it is one thing to exit it. will we ever return to the zero bound or below? kevin: most central banks will probably throw away that playbook because they see the excesses it has caused in financial markets. there has been a ton of financial engineering over the past decade. you point out we were at $18 trillion worth of negative yielding get locally at the height last year. we are down now to i believe 245 billion. we have come a long way. i think japan especially will

not go back to that because they are finally, after all this time, getting inflation in their economy because they have been in deflationary area for the last 20 or 25 years or so? that is going to be one of those things that is thrown out the playbook. here in the u.s. the fed never wanted to use negative interest rates as a policy tool and they stopped at zero. i think the rest of the world has learned from that. matt: you seem to have real conviction or faith in the fed's credibility in 2023. what kind of recession are you expecting? kevin: we are expecting a mild recession. we do not think you are going to get a soft landing. we think you will get something between a soft landing and a hard laying date. we do not think it will last

long. look at where we are from an employment standpoint. the labor market is extremely strong in the u.s.. it will not be until the second half of the year that thing start to slow down. we are now 12 months in to the fed rate hike cycle. we think that around june is when you start seeing things slow down. i do feel the fed is adamant they have to fight inflation. they do not want a replay of the 1970's and early 1980's. one of our golden rules is not to fight the fed. right now the markets are doing just that. i think it is a mistake. lisa: kevin nicholson of riverfront investment group. have a wonderful new year. the headlines have been crossing with the prime minister of italy

speaking, the eu should take control of chip supply chains and talking about the inflation reduction act in the u.s. saying the u.s. act, which does provide subsidies to certain tech companies, requires a rethink of european state aid. how much are we looking at a new -- i do not want to call the trade war, but a subsidy war of technology to try to learn the talent and keep industry at home? matt: we're definitely seeing a trade skirmish. you've started to see shots across the bow from a number of european countries. maria tadeo was talking to the german finance minister about this last week. they are concerned because the u.s. is being so protectionist in terms of giving subsidies to electric vehicle makers that use material sourced out of the u.s. or north america only. it is interesting and it has yet to play out.

treasury still has to issue guidelines they have delayed, so maybe they will be softer in terms of their protectionist bent. kailey: is this what your son was talking about when he asked about deglobalization? lisa: i do not know if he was asking about the inflation reduction act, but this does accelerate something that may begin next year. perhaps we can see a dampening. the inflation reduction act does not go into effect until the beginning of next year. this comes at a time we've not seen europe exit the woods. there is a pressure on industry from natural gas prices being as high as they are. how do you look at that, which is potential headwinds for industrialization and factory production and pair that with the inflation reduction act, it becomes challenging right now heading into 2023. kailey: especially 2023, which will likely bring more economic pain for europe and the u.s..

europe is already likely in a recession. there is still somewhat of a question around the u.s. and it is agreed if we do get there it will be short and shallow, and i'm not sure you can say the same for europe. lisa: however if china reopens that will give a huge boost to europe because there is a direct line than in the u.s.. if it re-accelerates there could be that is the upside, not that we are clarifying anything. matt: i also think short and shallow is very optimistic. i know it is consensus. kailey: he really is bringing the bloom. lisa: short and shallow seems hopeful. what if we do not get a recession at all because consumers are still spending? is that a good new scenario for stocks? we will discuss. this is bloomberg. lisa m.: southwest airline ceo bob jordan is telling employees he is accountable for the

carriers dramatic flight cancellations across the u.s.. today southwest is expected to cancel roughly two thirds of its flights, stranding thousands of passengers. jordan told employees he owns the airlines problems and its recovery. russia is rolling out peace talks with ukraine and says it will not give up despite setbacks on the battlefield. sergei lavrov said the kremlin will not discuss you grady demands it withdraw from occupied lands. china says it is up to the u.s. to take steps towards resuming military talks suspended after nancy pelosi visited taiwan. at a briefing in beijing a spokesman said the u.s. cannot expect discussions to continue while constantly harming china's interest. tensions remain as washington supports taiwan military and basing -- and beijing has

pledged to bring the island under its control. taiwan semiconductor production has trickled -- has triggered -- that ensures taiwan remains a center of technology -- exxonmobil is suing the eu over a windfall profits tax on oil companies. exxon argues the eu does not have legal authority to impose the tax. it is designed to raise billions to bring down consumer energy costs. exxon told investors windfall taxes could cost the company $2 billion through the end of next year. global news 24 hours a day -- global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

thanks to avalara, we can calculate sales tax automatically. avalarahhhhhh what if tax rates change? ahhhhhh filing sales tax returns? ahhhhhh business license guidance? ahhhhhh -cross-border sales? -ahhhhhh -item classification? -ahhhhhh does it connect with acc...? ahhhhhh ahhhhhh ahhhhhh >> historically, southwest underinvested in i.t. and technology.

this has come back in the past to hurt them. people have a right to be angry and annoyed because this is 2022 , almost 2023. they should have invested years ago in these systems and they just did not. lisa: i think a lot of people would be agreeing with helane becker, especially if they are stranded in an airport. i was an airport in denver over the past couple of days and i can tell you the anger level was high. this is bloomberg surveillance. kailey leinz and matt miller. jon ferro and tom keene are off. this has been one of the most bizarre stories to watch unfold because everybody warned about it, they knew there was going to be a problem, it already has been a problem, and they need this to keep going and make profits. they need to have a good holiday season. matt: for do they? they seem to be willing to spend less than they need to.

this already happened last year in october. they admitted at that point they had not invested in i.t. and they did not invest any more a year later. it is the biggest travel headache headlines we have seen since the guy on the united flight got clocked, remember when that guy was knocked out? lisa: this is way worse than that. matt: of course it is worse. we need some kind of uniform -- this is what congress is saying -- we need some kind of uniform policy in the u.s., the likes of which the eu has developed, where airlines compensate passengers for missed flights and that is what the focus will be for washington, d.c. lisa: pete buttigieg has talked about that. there is a question of people ended up buying their own tickets on other airlines because they do not have partnerships, whether they get compensated for those flights.

one person was quoted in a story saying i'm not expecting to get compensated but maybe some free drink vouchers. perhaps that is where the bar is. matt: i think so. it was not just southwest. i know a couple of my brothers flying out of montego bay had their flights canceled on delta and were rescheduled for 48 hours later. i would've stayed in jamaica, but they had to get back so they needed to buy jetblue tickets. the problem is southwest underperformed the rest of the industry and this has already happened before. hopefully they can do something about it going forward. lisa: indeed. matt: the ceo of hotel chain accor says he is expecting the rebound in tourism to continue through the first half of 2023, before china lifted its policy. bloomberg spoke with him at the world travel and tourism summit

in november. >> we are convinced it will be for at least the first quarter of 2023. 2024i have no announcement. what is happening in the world with inflation and may be recession, thank god we had a good 2022. i think we'll have a good first semester 2023, and the odds are -- i don't know. i am an optimist so it was a better recovery than we expected, stronger. it should be carrying on as long as people have the wherewithal to travel and money to spend on leisure. >> you've made big bets on china as have others in the industry. you've seen the images in terms of the protests, the zero covid policies. how does that way on your outlook for the new year. does that change anything at the moment? sebastian: it is too late to change anything.

we have to make a long-term bet on china. another year, i can cope with this. we need the chinese to come back outside of china but we have not seen them for a few years. you will probably not see them until summer. the good news is the chinese hospitality market is in the hands of chinese customers and it works better than i expected. i am probably ok with chinese remaining enclosed for international travelers. >> what kind of deals might you be looking at in terms of expansion into the kingdom? sebastien: i'm trying to convince everybody we have to shift the mindset from targeting to travel to targeting to local. i want tomorrow to be designed for the local community. the travels will pick and choose your hotel because it is a buzzing destination.

re-shifting our mindset. here i will go from midscale to premium to resort. i need to be stronger. >> i will drag you to europe to get your view on the rates that keep getting higher. is that sustainable in light of recession that is rippling through the economy? sebastien: i think france will be avoiding recession. when it goes very bad we do not go very bad. france will stay out of recession. u.k. might be. it is one of those things where we have been coping with 80% for two and a half years. every time there is a recession, i can tell you we can cope super well with the -3% activity.

i do not wish for it. we will adapt for it in a much better manner then we did in 2008 or 2009. yousef: you are going through a reorganization internally. i wonder to what extent there is room for further job cuts as part of that reorganization? sebastien: zero. i am missing 40,000 people within my 280,000 people organization. do not even think about a job can't. that reorganization is only trying to have better expertise in the right segment. a core premium and luxury lifestyle is different owners and different clients and i was dumb not to have done it earlier. i did not have the skill or ability to do it but it is indispensable. the sense of ownership for my executive team is better.

matt: that was the ceo of accor talking to us about travel. we will focus on the headline headaches we have seen out of southwest of the holiday season. madison mills is back to talk to us about how much they have untangled this problem they have had so far. we expect things to get back to normal by this weekend? madison: they will not get back to normal this weekend. when you look at the headlines for southwest you see this has been a recurring issue for them for years. they had a good thanksgiving this year, they only had 70 cancellations over thanksgiving. the company thought they would be ok heading into the christmas holiday, but the winter storm combined with their tech issues through everything off. we have this atmospheric river coming into the west coast so there will be another bad winter

-- another bad weather event. matt: there is atmospheric river. lisa: the atmospheric river will get you. this is basically warm weather and a lot of rain. can southwest survived this in the form it is in? i do not want to sound too extreme and pull a full matt miller, but there is this question they have done this before, this is a flaw in their system that has been pointed out before. can they survive in this form? madison: as recently as 2017 for baggage issues happening with people losing their bags from one point to another the agents were using paper to communicate those baggage changes. that is one example of how arcane the system was. heading into 2023 you had an analyst -- you had an analyst yesterday about how they would have to offer extreme discounts into the new year, may be because we are seeing consumer demand for services booming so much.

that could be a boon for southwest. if they start to offer amazing discounts that could help with this pr nightmare. kailey: no matter -- matt: no matter how cheap the ticket is you still want to get to your destination. madison: exactly. lisa: madison mills, too short. discussing everything happening with southwest. there is an issue with having to pay staff. you can discount heavily but you cannot do that long and maintain the staffs you need. that was one of the big kinks, people calling in sick and them saying if you cannot prove you were sick we will hold you accountable when people can get other jobs. kailey: it raises a profitability question. if china is to many more commodities, there is only so much discounting you can do and maintain your bottom line. lisa: unless they give a lot of drink vouchers. kailey: cheers. lisa: from new york, this is

bloomberg. ♪

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>> i don't see any reason for the fed to be moving the 2% target. >> we have finally come to grips with the idea the fed will be

fighting inflation. >> for me is all about the labor market because the labor market remains strong. >> when they get a pivot later this year but that will be something when the situation becomes much more dire. >> the fed still needs to do more work. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. lisa: there are two more trading days. there are people still trading but not that many. tom keene and jonathan ferro are not among them. they are out there searching for a holy football grail. we have a lucky roster with matt miller and kailey leinz as we parse through limping to an end and that is what it feels like after an exhausting 2022. people trying to find some reason for optimism and not quite finding enough. kailey: we are all exhausted. everybody is probably over it and ready to start fresh again next year.

every time the equity market has attempted to rally it has faded. santa claus did not come to town for this equity market. there is concern about earnings come about the prospect of recession come in concern about what the federal reserve will do if inflationary pressures persist and they have to go harder for longer, which this market has been trying to fight against. lisa: matt, i've been trying to paint you as a bear this morning because you've been talking about for now things are ok but it will get worse. you see a bullish case you are not expressing? matt: there is a bullish case, maybe a smaller one than the big cracks in the credit market i am worried about. you could see this drive down as a lot of tax loss harvesting, investors trying to lock in the losses for the 2022 tax year, but they still have conviction in the stock so maybe they buy them back in january.

that could be one of the arguments as to why santa claus is not coming to town. lisa: i think perhaps the stock market is not paying attention. in the bond market there is more optimism. matt: may i'm giving the fed and jerome powell too much credit. maybe they will not hike 50 basis points in february. i mentioned they will. maybe they do turn around and cut rate. if the both the local pressure gets too much to handle maybe that will not be able to hang. lisa: we will have to see what they do. in markets we are seeing largely stasis. we have stocks marginally higher and dollar we, usually risk on type of trade. you have 10 year yields a fractional bit lower. then you have crude also coming in.

this is not a cohesive picture. your risk on on one hand if you look at the equity markets but you have a safe haven kind of feel on the others. we also have not been talking about the yield curve. it has been de-inverting. there are signs people are expecting the fed to pull back from more hawkish proclamations and actually giving rise to a bit more optimism next year. i want to get right to our guests on that point because this is someone that is talked about the yield curve brilliantly -- a more optimism when others were pessimistic and time and again looked at charts to understand the reality of now rather than prognosticating on what is to, because often times understanding the now is more instructive instead of expecting something to come. joining us is it our danny. i want to talk about the yield curve. what is your take on why we have

seen the unwind in a way that is been very unexpected? ed: historically the yield curve inverted because it predicted recessions quite accurately. i think there is a step before that that has been widely ignored, and that is inverted yield curves typically signaled something was going to break. there was going to be a financial crisis that would morph into a credit crunch where even good borrowers should not get body and that is what caused the recession. this time around we had financial crises in the crypto market and in the spac's, a lot of the art stocks come in yet we have not seen an economy wide credit crunch. clearly credit is very difficult in the housing market and it is getting harder to get the auto market, but is not the kind of credit crunch we have had in the past. therefore we are more likely get a soft landing out of all of this.

lisa: are you saying this time around yield curve inversion does not signal recession? madison: this time around --ed: this time around at signals falling inflation. this is been the most widely anticipated recession of all time. even at the beginning of the year there were people saying we are actually in a recession. we had two negative quarters in the first half of the year and the bears were very happy to announce that was a technical recession. matt: that is a technical recession, right? ed: for one thing, any number that does not support my story is either wrong or will be revised. those numbers could easily be revised into positive territory. they were barely negative. i doubt that we could characterize that as a

recession. the index of economic indicators showed no recession whatsoever. the leading indicators are scared everybody because they are pointing to a recession early next year. there is going to be a recession, it is going to be soon. matt: what is the impact of 450 basis points of tightening in one year? where did they come to roost in a market where we have more than double loans we had in 2007? ed: the answer is that is the big concern, there will be a credit crunch. we will see it early next year or by the middle of next year. is an issue but the other side of the coin is the economy is a lot more resilient, the financial system is a lot more resilient, the banking system is

in good shape. a lot of these executives say there is a session coming but their loan portfolio continues to grow. looking at their balance sheets, there is a contradiction between what they are doing, which is lending money, and that provisioning for losses, and what they are saying. i think the banking system is in good shape. the consumers aren't good shape with concerns about credit quality issues in the auto market. wages are likely to rise faster than prices in 2023. purchasing power will be there for consumers. the labor market remains strong. kailey: if you have a consumer that will be able to keep up consuming and spending and fueling inflation, are all of these things good because they raise the prospect or the

probability of a soft landing or are they bad because of the economy holds up too well the federal reserve will not be able to do its job? ed: that is the problem the bulls are having is they cannot win. if you get an economy that is too strong and belies the idea of a recession the federal after raised interest rates a lot more. the key is the narrow path that inflation comes down more than is widely expected. we are seeing used car prices plunge. we are seeing rent inflation down dramatically. as energy prices moderate a bit of i think it will happen pretty early in the year. it will ease some of the concerns about inflation. these price index from the

regional business surveys are continuing to show moderation. kailey: if we are talking about inflation pressures coming down, upon pressures, and consumer demand holding up well. is there too much doom and gloom next year? ed: we are all debating soft landing versus hard landing. i'll not tell you there is no risk of recession. i think there's a 40% risk of a hard landing in a 60% likelihood of a soft landing. the market seem to be flipped the other way where they are more concerned about a higher probability of a recession but nobody is talking about no landing. the reality is the second half of the year, after some weakness in the first half, has some growth rates of 2% to 3% in real gdp with the consumer spending with capital spending.

it has been a rolling recession through the housing market, through retailers, and it may rule through some of the other sectors of the economy. altogether the economy is holding up, there are no landings in the economy. if it lands soft or hard, all of the forecasters are saying it will happen early net steer. -- early next year. lisa: kailey, i keep wondering about your point about people able to spend. i wonder how much this will end up a rolling recession and a rolling wave and been asian. can we get back down to 2%? if you do not get disruption of labor markets, if people still get out there and you get a rolling ball of inflation like you do have a rolling recession. kailey: i have heard the idea

that once the fed pauses at what they see as a terminal rate they see a threat back to move his height and on a patch because inflationary pressures could stick around because not enough pain is caused in the economy and therefore people are empowered to keep fueling it. lisa: you also have what we were talking about earlier with the inflation reduction act, trying to bring things domestic in terms of production and then you have europe saying wait a second, we should way on this as well. we will discuss that. coming up, stephanie aaronson, who will be joining us, brookings center of economic studies. we could talk about the labor market with her. lisa m.: keeping you up-to-date with news from around the world with the first word, i am lisa mateo. the u.s. and italy have joined a number of nations requiring covid toes for travelers from china. there responding to the surgeon

infections after beijing reversed its covid zero restrictions. italy did not find any new covid mutations in recent arrivals from china, a relief from health officials. goldman sachs ceo david solomon warned a job cuts are on the way. it is traditional year end message to staff, they say the firm -- bloomberg has learned that goldman may try to eliminate 8% of its workforce, roughly 4000 jobs. the bank of japan is voting back against traders who hope it will ease its -- the boj doubled the ceiling for 10 year yields earlier this week -- earlier this month. there are multiple reports federal prosecutors have started looking into republican drums been elected george santos who has admitted about lying about his background.

the probe is focused on his financial dealings it was one of the more significant disruptions in twitter elon musk took over the service. the platform has restored service hours after thousands of users reported worldwide glitches. another issue, musk said twitter had enabled changes to a server architecture. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

>> the fed still needs to do more work. they're not enough monitors at the federal reserve board they

recognize inflation always will be a monetary event. they have to keep being more restrictive for the first quarter and once the incremental inflation news gets better, and it is starting to come of that i think it's it's the right backdrop for a tempered risk on strategy. >> -- lisa: that was david sowerby raising this issue of the expectation for inflation to slow. the big question is not whether it will slow and how much, but what this does to the labor market, how much pain there needs to be to get inflation that low. showing us is someone who has instants of knowledge understanding the labor market, stephanie aaronson, director of economic studies there. do we have a true understanding of how tight this they reverted really is and how much wage pressure is driving things in a way that flies against the

moderation inflation a lot of people are expecting. stephanie: i think we have definitely seen a slowdown in the labor market. i do not think we have seen a lot of increase in slack but it is the case changes in payroll employment have come down, firms are adding jobs more slowly. i think we have some side things are moving in the right direction, but is very small. largely moving sideways in recent weeks. i think it -- claims have been largely moving sideways in recent weeks. lisa: every time the job readings come out you say they have been moving sideways, people do not care. they think this is missy data that does not matter. do you disagree? stephanie: the truth is there

are a lot of workers in this economy who are not eligible for unemployment insurance and that has decreased the signal we get from the data. it is also true the data are noisy, but we never had a recession with of the claims data going up. i week by week basis be that helpful, so if we start to see large increases that would be assigned and if we do not that is also signed labor workers not deteriorating. it needs to do so -- lisa: and it needs to do so if -- unemployment will have to go higher. how high will be tolerated by the federal reserve but politically? what you think that level is? stephanie: i would be surprised if we do not see the employment rate up to at least around with the fed is expecting, maybe 4.5%

-- i think there are factors that are pushing down inflation as we have just heard. the fed will be getting some help. the housing market is cooling a lot -- that means over the next six months inflation will be coming down. goods prices are already starting to rise less quickly. i am hopeful that the change in policy in china is also going to reduce pressure on goods prices. it will also be to know what happens with energy prices since that has a backdoor. i did not think the labor market needs to do all the work. matt: we are all asking for your

estimate of the nonaccelerating inflation rate of unemployment. the idea is and catherine rivera told us her dose was for preventive percent. if you do not get to that level we're looking at inflationary consumer forces -- if this were .9% and the fed only pushes unemployment to three and a half, that is not good enough for an economy that has 70% of its inflation driven by services. donated to get ohio that was -- stephanie: i think it is true that if it is 4.9%, the higher the unemployment rate goes the less inflationary the environment is, even if we do not exceed the nehru, but you will get the most bang for your buck once he on rate is above

that. my own affection is -- it has not risen that much, maybe in the neighborhood of 4.5 or five quarters. i think it depends on how much help the fed gets from external factors. there also is some evidence that the vacancy rate is following, even without much of an increase in orbit. part of the reason nehru seems to be higher is there has been a deterioration in managing workers -- if that comes down substantially that will help ease the tension a lot without seeing a big increase in the unemployment rate. matt: lisa's son has a thesis

deglobalization is driving up prices, that that is inflationary. lisa: that is just his theory. that is literally one of the consensus theories. fact-check. matt: i have been wondering about this. i was looking for pickle ball panels over christmas and the chinese panels and the chinese panels of amazon are $10. if you want to buy one is been america, that is $150. there is a huge delta. publishes deglobalization really happening and how much of an effect does it have on prices? stephanie: it is hard to say whether we will see us estate deglobalization, whether the types of policies the biden administration is trying to implement will shift a lot of production to the u.s., where indeed it will be more expensive. it is clearly the case that the

u.s. benefited significantly from china's accession to the wto and china becoming the factory of the world over the last 20 years. goods prices were falling for much of the last 20 years and that helped out the u.s. on the inflation front. with the pandemic, the deterioration in supply chains, clearly that effect has faded and i think it will be the case that over the short run deglobalization has been a factor in boosting inflation over the past year or so and it is likely to continue to be going forward. goods pricing have been rising less significantly and i think some of that effect is payday. lisa: do you have any confidence in the models or do we have a feeling this is uncharted

territory there is a new level of uncertainty around economic projections? stephanie: certainly uncertainty is very high now. one of the ways to think about the world we are living in today is we were in a regime where inflation was rising very slowly. inflation was low and very stable for about 20 years. a lot of macro economic variables were showing less volatility, growth with less volatility. there were lower inventory swings. 's was the time of the great moderation. we had a set of models for that. now we're in a different state of the world where we are buffeted by increased shocks. the economy is more volatile, inflation is more volatile, it seems to be today or achieve

where it is just more inflationary. we also have models for that state of the world. we were in that state of the world in the late 1970's and early 1980's. the issue is knowing which state of the world we are in. one thing that will make the fed's job tough going forward is as inflation comes down, they will have to figure out are we going back to the more quiescent calm state of the world we experience from the mid-1990's until the pandemic? or even if we have low inflation, are we still in a more volatile state of the world? lisa: stephanie aronson of brookings, thank you so much. this is bloomberg. ♪ avalarahhh ahhh

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lisa: this is bloomberg surveillance on the second to last trading day before the end of 2022. this is bloomberg surveillance on television and radio with matt miller and kailey leinz. tom and jon are both off for a well-deserved break ahead of the new year. we are watching markets the same as where they were before. equities up almost .5%. you have yields a touch lower as we get this breaking news, bang in on terms of the survey, the actual matching that for initial jobless claims, 225,000.

muted initial jobless claims which raises a question for markets, how do you get a recession if you do not see it in the labor market data at all? continuing claims did take up, exceeding expectations at 1.7 million ongoing continuing claims versus expectations for 1.60 9 million. nothing to scream about and say the sky is falling. up just a touch, but still an incredibly low moving average over the past few months. highlighting what is a very strong labor market, not seeing the cracks, and that is why you are seeing a bit of reaction, ongoing relief in markets. kailey: my question is winner all the job cut announcements we hear about going to start showing up in the data? overnight the ceo of goldman sachs was talking about job cuts in january.

we have stated throughout the technology, not just hiring freezes but layoffs. you're sorting to see the companies making the moves but i feel we have yet to see it show up in the actual economic data itself. lisa: dear point, the rolling ball of different scenarios, we are seeing the rolling ball of layoffs hit first some of the companies staffed up the most during the pandemic, tech in particular, banks are another one. goldman sachs has 30% more staffers than it did in 2018. the cuts are not necessarily bringing it in line. to what degree is this data instructive? even on a thin liquidity date we are not saying that big of reaction. people seem to be shrugging it off. is it simply noise at the end of the year or does this tell us something about the strength of the economy? matt: it has to tell you the economy is still strong. it is not like people getting laid off intact will work in

some other sector, people who get laid off and banks will not work in automotive. the headlines we see our anecdotal stories here and there and are not borne out in the data. we do not have more than 4% unemployment. there have not been a lot of firings this year or else other industry participants have hired those people. i cannot imagine markets do not react poorly to this number because it shows the fed is having no effect on the labor market. lisa: the market is not reacting poorly. stocks up almost .5% for the s&p. you are seeing the two year yield with a little bit of a lift, 4.357%. a bit of a move in the 10 year. nothing to write home about. yields a bit lower but at the highs of the session. to the extent people are excited

about this, on the margins, perhaps, but it is not affecting equity prices. matt: it could be a thin volume week. where are jon and tom? are they really touring the most countryside? lisa: they are taking a tour of different pubs in different places and trying to -- are you getting? they are not together. marcus ashworth is joining us. bloomberg opinion columnist and fantastic voice on the deck market. do you think there is anything instructive about the way bond markets have been responding to the thin data as well as the developing's in china and with the bank of japan given it has basically been stasis. are we entering a new era of less volatility in bonds? marcus: i am shocked -- if i go

to a british pub and bump into john and tom i will be very nervous. we have to look at things like the u6 unemployment rate. to matt's point, there is no sign coming through for the fed to get any sense of confidence they can stop with the hiking expressions and rhetoric. i do not think they will hike much more. there will come a point fairly soon where they will want to pause. the point is forget about any talk of rate cut and not maintaining a bias for the first half of next year. the labor data, which is backward looking, it will probably become the most important number of the month. inflation will be worth keeping a close eye on, but labor is what it is all about, and that

is the world. where the u.s. 10-year treasury yield goes, the rest simply follows. the trend got down as low as 3.4, it might head up around for. for the moment we cannot put too much on this number, other than well done for economists being bang on consensus. labor day as to see more tentative -- more anecdotal evidence. i see that in the housing market does a cruel see the data start to move by february. the fed is in the corner of its own making. matt: from where you are sitting in the u.k. it seems labor is bursting at the seams for more money. we had that at the end of last year at the beginning of this year in the u.s. but it seemed to die down. there is not a wage price spiral, is there?

marcus: public-sector unions are trying to start one and we can see why. the government perfectly right to push back and that is a game which people play in the u.k.. the longer the government can hold off and wait for the review , by that stage inflation and the u.k. should be turning down. clearly we have seen that already in the states. different other restrictions the u.k. are the rest of europe have , nonetheless the u.s. economy is showing us inflation is starting to at least rollover and that is something which all governments are trying their best to hang this one out and let inflation come back down as it works its way through the data and i hope they get away with that wage price spirals. there is no evidence in europe and little evidence in the u.k. and as you say, wages are rising

nicely and that is why the economy is reasonably strong. we should be very grateful we have the situation. it has caused an unpleasant squeeze on inflation. lisa: let's talk about elsewhere in the world. you said as treasuries go the rest of the world follows. to a certain extent that includes jgb which is why the bank's head to flex its muscles and have shortened bond buying. they did not touch the 20 year. when does the boj have to fully throw up its hands and given? marcus: they will never go beyond 10 years. the point is they do not want the curve to have this odd shape around the 10 year so they want to keep the whole curve. they want inflation in japan but they're starting to realize they do not want to talk as much as they did, 3.5 or rising. a lot of that is energy driven. the full forecast for japan is

below the 2% target, they know they have to calm things down. the current bank of japan chief was cleaning the stable out before his successor comes in and starts blaming things on him. the question is when will they have to raise from 50 basis points to 1%? that is coming, but i do not think before april or may been not even that -- or maybe not even then. they are hoping they can get away without raising interest rates as much because at some state over the summer the rest of the world may even start thinking about cutting or certainly markets pricing it will put far less pressure on gdp -- on jgb. they could raise little bit of pressure on the 10 year yield up to 50 basis points.

the 50 basis point capital go straight to 1%. they want to keep the markets guessing. certainly the yen has come back. lisa: marcus ashworth, thank you for your perspective. happy new year. i want to bring this up. we did get initial jobless claims bang in line with expectations of 225,000. if you look at continuing claims it is higher than we were expecting it, however, it was revised lower for the prior weekly reading. a listener writes in, it is a good point, white-collar job cuts get severance packages so they do not file for claims until months down the road. this raise the question about whether we can have a delayed reaction or tracking of white-collar jobs which may account for a disproportionate number of the cuts in the cycle. kailey: so is that long invariable lag we've been

talking about that the fed has been pressured to include in their statements over last couple of meetings, the idea we've not yet seen the full effects of this tighter monetary policy. it happened so quickly, this tightening of more than 400 basis points, you will not feel all of that right away. when does it start to kick in? matt: we do not know when. that is the milton friedman thing. we've not had an increase of rates at this level since milton friedman was running things. i am not sure how long the average gardening leave is, how long did they get severance, two months or six months, but it is probably short enough we would've seen all of the tech layoffs in the numbers by now. the point i think is probably more interesting, there is a question of how this is tracked, but there is also the question about whether there could be a disproportionate number of cuts at some of these white-collar jobs.

i think about this as people are compelled to go back to the office. i think about this when you think about service jobs decimated during the pandemic that need to hire people that have shown a reluctance to lay anyone off. you've seen this among retailers. how does that affect the economy? what sectors are not quite as affected that could in affected aztec cuts back and you get other white-collar jobs. this is just something in a totally. matt: goldman sachs, we are talking about deep cuts. kailey: 8% of the workforce is relatively deep. lisa: it is not just the typical culling of the herd but it does come off a high base. coming up, watch matt miller on "the open." this is bloomberg. lisa m.: keeping you up-to-date with news from around the world with the first word, i am lisa mateo. thousands of stranded flyers booked on southwest airlines may

get some relief soon. the carrier has canceled over three dozen flights for friday. more than 2300 have been canceled today. the airline is trying to recover from disruption caused by winter storms and outdated scheduling technology. russia is ruling out peace talks with ukraine and says it will not give up despite setbacks in the battlefield. foreign minister sergei lavrov told a state run news service the kremlin will not discuss ukraine's demand if withdrawal from occupied lands and pay reparations. the war is now in its 11th month. china says it is up to the u.s. to take steps to returning military talk suspended after nancy pelosi visited taiwan. everything in beijing a spokesperson said "the u.s. cannot expect discussions to continue while constantly harboring china's interest." beijing has pledged to bring the

island under its control. taiwan semiconductor manufacturing has kicked off mass production of next generation chips. that insures the island remains a center of a critical technology fodder by the u.s. and china. tsmc is the primary chipmaker for apple. disney's avatar sequel has delk on over $1 billion in worldwide ticket sales after disparate weeks in theaters. avatar: the way of water is one of the most expensive movies ever made. james cameron says it needs to take into billion dollars of the box office to breakeven. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

>> what we are getting too is a more normal environment where we are likely to see the fed ease what has been a traumatic level

of tightening. we will see inflation continue to moderate significantly in 2023. as something of a return to normal, it will not be an easy transition, but i suspect 2023 is going to be a lot more normal than the last three years. lisa: christina hooper, invesco chief global marketing strategist speaking on the expected path of inflation at a time of uncertainty. tom keene and jonathan ferro are both off on a well-deserved break. matt miller off to enjoy the 9:00 hour on television. this next guest is one of the smartest minds on markets but also one of the most experience with the private and public sector, having just come from the council of economic advisors to president biden. currently the chief global economist at pgim and deputy national security advisor for the biden administration. i want to start with this

question around increasing protectionism. i will get into some of your expectations for inflation, but this idea that the inflation reduction act, and what we are hearing out of europe, potentially trying to entice technology companies to come to their own shores. you think this could ignite some sort of increasing re-globalization or deglobalization we already see in effect? >> good morning. let's step back and consider the global backdrop. we are in probably the most intense until of great power competition and it is in context with repeated supply shocks like covid and the war in ukraine that major economies are saying for critical goods like semiconductors, for electric vehicle batteries as well, and some of the foundational technologies like ai and biotech, we want to have more prioritization on resilience and more supply chains around geopolitical lines rather than

just global efficiency and rather than just prioritizing inventories. i think the reorientation of supply chains is real for critical goods and foundational technologies, but there are ways for the u.s. and its allies, for tickly in europe, to cooperate in terms of getting resilience against a shared set of shops that worry us using a similar set of tools, and then ultimately, since this is a multiplayer repeated game, taking actions to make europe and our allies better off. lisa: there is applicable aspect but there are also the economic ramifications in terms of higher costs. can you dovetail your view on how the west will deal with this , how the east will deal with this, and how this affects your inflation outlook? daleep: there is a negative branch of the probability tree in which this kind of supply chain reorientation leads to more frictions, economies of scale, lower productivity, and

higher costs. there is a policy branch as well which involves the race to the top. more public investment, more indigenous innovation, or development and were expected labor forces come and higher growth potential and higher productivity and diffusion of those gains. that is the question that is now playing out before us. the u.s. is taking steps to bolster her own growth capacity. europe is doing the same. we have to manage this process carefully and see how china and other countries that do not share our objectives play their cards. this will take years to play out and as economists i am putting my bet this will ultimately lead to a next higher trend level of inflation and a lower trend level of growth. i say that with relatively low confidence because these are

early days. lisa: it raises the question about your fundamental belief that central banks will exercise restraint, that they will not raise rates as much say they will because they do not want a hard landing. can they do that in the face of the structural inflationary aspects that seem to be present and a lot of people suit big knowledge and that. daleep: we are living in a world of repeated and profound supply shops from the intensification of power competition which means more use of economic statecraft, from a bumpy transition from fossil fuels to renewables, from the supply chain reorientation, and from diffusion of technology. in that context they are fighting the battle of their potential -- of their professional lives to maintain their credibility on putting inflation so they have no choice but to execute on their mandate. that is what we are seeing and i think it will lead to an ever tightening by central banks in

the context of fitting supply shocks. i expect a bumpy road ahead. kailey: there is the over tightening risk relative to the under tightening risk allowing inflation to run too hot for too long. is the recession necessary to get the job done? daleep: central banks are doing what they can in this context. we have a labor market imbalance in this country. unfortunately labor supplies doctoring back as fast of any of us slid like. we are seeing a fall in net immigration. the fed feels all you can drew -- and get nominal wage growth. back of the 3.5% territory, which of you extreme -- if you assume 1.5% activity would be

consistent with the 3% target. if you're just relying on spot inflation data, you're likely to do too much. because of the spillovers this is not a process likely to end well. lisa: as you were just discussing -- kailey: as you are just discussing structural issues that will keep inflation elevated, should the federal reserve think were seriously about not targeting 2%? is that too low? daleep: you cannot change the goalposts when you have not won the game. changing the inflation target from 2% to 3% when you have not achieved your objective would be a serious risk to the fed credibility. defective, if we get to a court -- de facto, if we get to a

decline of inflation below 4% and that is cyclical factors, the fed doing what it can, the fed can accept the high-level inflation to make up for decades of missing the inflation target to the downside. i do not think they would announce this officially but in a practical sense that is where we would end up. lisa: had as gasoline and food prices factor into your expectations for next year, given we have seen an incredible rally in oil prices. this year not only will china come back online but the u.s. will start refilling the strategic petroleum reserve. how does that factor into what you see in 2023? daleep: i think is dangerous to extrapolate too far what we've seen the last months in terms of the decline of energy prices. we do not know how the war in ukraine is going to play out. we do not know what kind of supply shops are still in store

for russia. we do not know how opec-plus will handle its own production of energy. we do not know how the competition for a fine lng will play out in will also play out between europe, japan, china. there are toaster risks in the energy market and this is another potential headache for the fed to have to contend with as it tries to get inflation back to target. i would not assume the only component of inflation we have to worry about is services, prices, rents. i think food and energy prices are prominent risk going into next year. lisa: thank you so much and congratulations on the new job. interesting point, this question about how oil prices will factor in considering we have discussed how this will be a narrow line down in terms of inflation. lisa: it raises -- kailey: it

raises the china question for me as a persistent inflationary risk. you're not seeing it yet but when the demand does revive that will fuel it, as well as the ongoing conflict in ukraine. russia saying they're not interested in peace talks. the idea this will be perpetual conflict, the idea it has had on food or energy prices. it does present longer-term upside risk, perhaps more structurally changed inflation dynamics. lisa: if the u.s. will be buying back barrels of oil at a time you still have people traveling around and all of these conflicts and that was one of the big drivers of the decline in prices, you have to wonder how far that will go, or whether there is destruction in demand. coming up on balance of power, angela stent, senior fellow at the brookings institution, brilliant on russia and ukraine as the conflict continues to

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