>> the banking crisis has been contained given that there is good access to liquidity in the strongest banks. >> there is a downside in the equity markets but an upside today. >> people need to stop spending and you need credit to contract and that's what slows the economy and brings down inflation. >> there are obvious troubles. >> the landing will be quite a bit harder than many are discussing. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: live from the nation's capital, good morning. down in washington, d.c., the imf spring meetings are happening.

equity futures on the s&p 500 or about positive by 0.2%. in about two hours and 30 minutes, cpi in america. tom: it's more important than the imf meetings. we go right into the theater at 8:30 a.m. what i noticed is that the markets have come to a stop. the volume is next to nothing as weak await 8:30 a.m.. jonathan: by don't you believe in volume? -- why don't you believe in volume? tom: you can make that calls on volume especially on the short side. jonathan: he doesn't believe in volume, probably not the best way to start this conversation. the comment from the imf and the last couple of days, really gloomy. lisa: growth is going to be a

surprise in the bank stress will cause a real issue for the banking sector and the larger economy. had a we view janet yellen's comments given that she said i don't view the banking stress is ongoing and everything is moving along just fine. is this just a political actor or is this someone who really is the pole to oversight -- to offset what we are seeing from the fed? jonathan: the chicago fed out with speeches today, a great read. patience, prudence is the approach from him. tom: this is the economist people don't know. they associate him with political economics and he is a frontline economist under estimated time began. he is out of chicago but less with the rigorous chicago tradition but more of gary becker on the social economics

he dovetails into rigorous mathematics. jonathan: cpi is coming up later this morning and we will count you down to that. the s&p 500, equity futures are positive by 0.2 percent and yields are little higher on the 10 year. the euro is stronger again, $1.09. lisa: it is cpi wednesday. 8:30 a.m. eastern and what i'm looking at is core and i'm like -- not looking at the headline year-over-year. it's based on what we are expecting from oil prices which went down substantially but have rebounded quite a bit. i'm curious whether we get a big market response to an upside surprise in court cpi. goldman sachs said you could see a 2% decline in the s&p if you get a 6% surprise upward.

i'm not sure what you can see with that. 10:00 a.m., the bank of canada which i always watch. they have been a front-runner here and they may hold at 4.5% for a second straight decision even though economic data has surprised you the upside. how does this readthrough in the yield space? the two year yield seems to have peaked but what about longer-term yields? at 2 p.m., we get the fomc meeting minutes. we get a sense of how important bank stress was in their discussions as they raised rates and we hear from the richmond fed and the san francisco fed. jonathan: they are the ones who wanted to pause. lisa: we find out underneath the mechanics of this decision and how much dissents there was as goolsby pushed out. this is concerning and this could potentially create real

stress. tom: do i get an imf pass so i don't have to read the minutes because i am overwhelmed? lisa: there is the imf and ii and wef will hear from the bank of england. there is a host of other discussions. we will be parsing through them. jonathan: the global head of fx analysis at citibank is with us. welcome to washington. >> it's great to be with you in the flesh. jonathan: let's talk about cpi, what are you looking for? >> we think the risks are to the upside. our colleagues in economics are seeing core cpi at 0.5% core were a lot of the upside risk is maybe in the smaller categories like used cars which could pop up shortly. people are related -- are

watching for those items related to shelter. what i think is important in this reading is how the fed will interpret. the weight we look at the fed at the moment is they will probably take any excuse to be more patient as goolsby said. we think a modest upside surprise will probably be shrugged off by markets jonathan:. president goolsby talked about the data, not just the traditional indicators. we need to talk about bank lending data. is that a reason for them to have that patience to wait? >> there are many reasons at this point. reflecting that we've had the fastest tightening cycle possibly in history that many of the effects we are yet to see. if you look at the mortgage market, maybe 10 or 20% of

policy rates has ceded to actual mortgage rates that households are paying. even away from the banking stress is, that would be a good time to pause and reassess. the banking situation is creating a new layer to these concerns. the fed said they will look at that with great attention. the data we got from the federal reserve bank of dallas recently pointed to signs of unease about lending but even when it comes to the lending data, it will probably get better in the next six months or so. lots of reasons to be prudent or patients. lisa: to give a sense of how the fed is weighing these two issues, what is more important, the cpi today or jp morgan friday? >> if you ask the fed, they have to say it's about inflation. they are not at a point where they are comfortable with the

trajectory along the level of inflation. when you work in investor, you have to take a step back from the spot data and look forward and look at forecasts again when we were discarding them for a long time. not just the big bank earnings but the small banks are more in focus and they will probably be more informative than cpi data which is backward looking in many respects. tom: i look at the debate right now. we were thunderstruck yesterday by some of the interviews and the intensity of belief in a slow town -- and a slowdown and even the weak dollar case. do you need a five dollars -- a five-year plan to get to a weak dollar? >> we think of dollar weakness is a near-term window. tom: for friday or september? >> it's been going on since the beginning of the year and we think of it for maybe the majority of the rest of the year

until the end of q3. we have debt ceiling issues that won't be helpful to the dollar as well. we think there is a final hurrah waiting when the rest of the world catches up. i think that will come back so now it's a dollar centric weakness window for the next one or two quarters. summing up two days, it's the idea that goolsby had that important speech and michael darda yesterday which looks for a slowdown in real economy and a slowdown in inflation together. it seems to go against general consensus. darda says they have lost the plot. if they have to confront lowered nominal gdp, that's gotta be en $1.95.

can we think of those magnitudes it would get that level of fed failure? >> we think eventually yes. when it comes to getting through the dirt -- the recession and multiyear part of the dollar downside, we think the euro-dollar above $1.20 -- tom: do we get yen below 100? >> we could still see that. we have plenty of gyrations between now and then. you mentioned nominal gdp growth with think the fed worries about inflation when nominal gdp growth is weak but we have a host of other problems to contend with so you have to be careful what you are wishing for. jonathan: this has been great, thank you. talking about the potential for a global recession next year was interesting. then you shift to the other side of the dollar and that's where

that comes in, into next year. lisa: the hawkish-dovish response you get from the fed could provide a buying opportunity before what we get in 2024. jonathan: maybe know european vacations this summer. tom: the bottom line is, the scope and scale of $1.30 euro, you have lived it in europe, do you extrapolate that out 20 one dollar 28 sterling? these are big moves. jonathan: i remember when one dollar 30 cents was poison for the ecb and out things have changed. tom: we didn't discuss it here but one of the back stories of the imf is that the bank of japan's new leader and what will happen with yield curve control.

that's a whole separate issue. lisa: when it comes to the fact that the euro has been as weak as it has, have you seen the crowds in the tourist centers in europe? it's been unbelievable with record hoards of americans. i wondered people like it or they don't. jonathan: i think the locals in europe love the american tourists. especially if you work in hospitality. lisa: great tippers. europeans don't tip, do they? jonathan: they have a reputation for not tipping so much but that's because we pay people so well. lisa: that was very defensive. good to know. jonathan: fantastic line of guests in washington, d.c.. amy wu silverman will join us next hour and futures on the s&p 500 are just about positive. lisa: keeping you up-to-date with news from around the world

with the first word. we have the biden administration proposing a tough crackdown for the auto pollution. a tailpipe emission limit is so strict they will compel automakers to ensure two out of every three cars sold in 2032 are electric models. there are questions whether car companies can fulfill the fleet limits on carbon dioxide. president biden is in belfast, northern ireland where he will mark the 25th anniversary of the good friday agreement. that deal ended decades of violence between catholics and protestants. the president is also meeting today with the u.k. prime minister. officials at the fed are signaling there is a divide over raising interest rates again. john williams says there is still more work to do to bring down inflation. the chicago fed president became the first official to suggest policymakers may need to hold off on further hikes for now. we get the latest numbers on consumer prices at 830 a.m. new york time.

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>> given how much uncertainty abounds when these financial headwinds are going, i guess we need to be cautious. we should gather further data and we should be extra careful about raising rates to aggressively until we see how much work they headwinds are doing for us in getting inflation down. jonathan: that was a pretty speech by austin goolsby, the chicago fed president delivered yesterday. patience and prudence and we can talk about that later. lisa is back in the building. this is bloomberg surveillance. here is a flavor of the price action. before we get to the opening bell, u.s. cpi is just around

the corner. equity futures going into that are positive 0.2%. the 10 year is at three .45. dollar strength is showing some weakness. tom: there is a bloomberg financial conditions index that is moved from restrictive to a more, -- accommodative stance. it's a standard deviation measurement. it's up shortly -- sharply in 21 days. this goes to the genomics of the moment based on the data. that will be one example of how that plays off the inflation statistics. jonathan: for the last 12 months, we've gauged financial conditions on what the dollar is doing and the credit spreads. for the last month, we are seeing the shift of focus to

lending standards, i believe we get the lending officers survey. people will gauge how conditions are going. lisa: it will be ambiguous and there is no actual metric for it so it's a guessing game and how do you have that when the rest of the economy is also a guessing game? it's on top of an assumption of where we are heading which everyone tends to disagree where the imf says we're going back to where we came from and most other people think we will enter a higher inflationary regime post-pandemic. jonathan: that always sounds objective. we are about data. it's highly subjective and you get to choose which data matters more to you. you might put more weight on cpi or payrolls or this survey we will get later. lisa: it's data dependency whack-a-mole. you are looking around for what

confirms the story you want to tell. how do you put what we get from j.p. morgan friday into the data bucket? that's where it's going and respected him they will be looking at going forward. jonathan: we get the opinion officers survey may 8. i wonder if that will help chair powell and his committee. tom: the most important data point may 3 and it could be right on plan. we just don't know. jonathan: for the market at least, bank earnings in this kind of landing data are more important than cpi. tom: also deposit flows. i look at three month libor and that's all you look at. jonathan: it speaks to the deposit flight. tom: and if it's a slower level,

the answer is, you will have a continued flow. speaking of flows, flows of goods and trade. we played risk and you are doing it in reality. you have scenario analysis. what scenarios are you looking at in washington? >> there are a few things going on in the world. no one knew russia would be sending its aircraft to iran for maintenance and now you are seeing broker-deals between iran and the saudi's in the whole political landscape seems to

ship for many clients especially off the back of the lesson with russia, they are beginning to look at some of the china-u.s. tensions to see what we need to be prepared for in the event that things get worse. china is a much more rational actor than russia but folks got earned on russia lost significantly and now you nationalized. no one wants to be caught flat footed so people are trying to look at the what if scenario now to see how we can prepare accordingly. lisa: earlier this week, it was said this is a more perilous time geopolitically than we've seen in a very long time. the military leaders, former military leaders assess this. how are some of these companies preparing for that, the steps they are taking amid the other risks with inflation and growth concerns? >> they are looking at the unintended consequences. let's say there are heavier

sanctions on the commodity sector, technology companies that purchase certain precious metals to use downstream, there is a cost to that and a cost to the consumer. when you look at country related sanctions, you are trying to look at how to safeguard your human capital. there are no good answers to this. there is just a whole bunch of scenarios and playbooks to really try to iron out what could happen and what can we do. there is no good answers. that is really the challenge. jonathan: are you worried about stranded assets in taiwan or china or both? >> my plans are worried about stranded assets in any country where there is broader geopolitical risk with some having had them in russia and some that are on the verge of being nationalized. at this point, they are really looking everywhere but it's not just those countries. if you look at the other countries known to be supporting russia for instance, the uae has a ton of pressure on it for all of the influx of russian capital

and that could backfire and businesses operating in that region if the u.s. and its allies focus more harsher enforcement and sanctions on those that are harboring russian assets. jonathan: where are the allies of the united states on some of these issues. if they try to impose sanctions in a place like china as they have done with russia, with the allies be on board? >> china is not russia. china has taken an extremely measured response to all of the issues, thinking back to the trump years in the bluff and bluster of the trump rhetoric against china. china has responded in a measured way and business reacts to that and recognizes you are dealing with a much more rational actor that sees a downside risk to their economy and companies are aware of that but they also want to take certain precautions to make sure they are not caught flat-footed. jonathan: my eyes are on one person in particular. lisa: emmanuel macron basically

said we are friends of china so do business with us. i wonder if any businesses are reducing some of theirs assets -- some of their assets in those nations? jonathan: some of the conversations in washington still keep coming down to emmanuel macron. what did you make of that? >> i don't think his comments were on behalf of the block. those comments were on behalf of france. if that is the case, i think that's a far better outcome for geopolitics if that was representative of the view of the bl that mighto be a slight problem forc,. jonathan: just a bit. thank you. these conversations keep coming around. it's not for me to imply that he was doing this for self-interested reasons but we are not talking about the burning streets of paris right now. tom: that's next week.

i think the tannenbaum scenario, we will have to see. jonathan: new facility in shanghai. lots of investment there. tom: it's scenario analysis. jonathan: shall we do some next time? can we do tesla specifically? tom: no. jonathan: i didn't think so. from washington, this is bloomberg. ♪

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jonathan: live from washington, d.c., this is bloomberg surveillance. two hours out from the cpi report, futures are positive by 0.2%. a total snooze on the s&p 500 yesterday. this morning it's positive slightly. in the bond market, the two year , yields higher by three basis points, 4.05 percent on a two year yield. with foreign exchange, euro-dollar, euro stronger this morning against a weaker u.s. dollar. positive by little more than a zero point 1%. that's the price action and for

a summary on the conversations on this program, we point out lisa's latest work. subscribe to the surveillance newsletter at bloomberg.com/ surveillance. tom: what is the goal here, lisa? lisa: to understand the main themes of the day we talk about and we have so many amazing conversations with people, to understand and distill the main debates, the threads that emerge every day. jonathan: can we rename it the daily gloom? lisa: i got a couple of votes for toxic brew. jonathan: that's pretty cool. tom: i think it pops. lisa: only if you get sound effects when you open it. jonathan: please, subscribe. we will talk about it through the show. two hours away from cpi coming

up a little bit later. bank of america, wells fargo and goldman sachs and morgan stanley forecasting 0.4% inflation month over month. jp morgan citibank expect a move of .5%. court month over month is the big focus for wall street and has been over the last seven months. tom: you look at durable goods and here is year-over-year in six months ago, the adults told us differently. jonathan: it's just to get an idea of the trend. tom: the u.s. economist at t. rowe price is with us. i want to go to where we were witches diving into the inflation data. the zeitgeist's goods and services, the focus is on services.

how does real estate distort the report at 8:30 a.m. within the services vector of inflation? >> we are talking about 1/3 of the cpi basket. that's reflecting the tightness in the housing market in the u.s.. we don't have enough rental units surrendered prices increase significantly post-pandemic in the core of the cpi is the way the tightness in the housing market feeds into that index is very light so we are dealing with quarters and quarters of high rent components in the cpi basket and the housing market itself is starting to cool. tom: there was a discussion of how britain is rolling over with in a floating rate set of statistics to a new reality on inflation by resetting mortgages. we don't have that. if it's lagging, how far out to you look to get the reset of the

inflation we are living now? >> first of all, the legs on the rents are about 6-12 months i'm looking at the middle of the year the earliest when we might see signs of easing in those components of cpi and in the u.k., we have a floating mortgage market area mortgages are fixed for 30 years so the way they feed into the price component is very different. lisa: are the reasons for the fed to have a bias look for an excuse to not hike more? is there a reason in the data that perhaps is not coming out in the headline figures we will get today for the core but underneath in the small components? >> when you look at the data, we have to realize they are backward looking. all the information we are getting now our data before svb and the bank failures but going ahead, we are expecting tightening in credit conditions which will affect the economy and inflation. what we are seeing now is very strong and speaks to a different world than what we are living

now. for the fed, it will be interesting because they are making a policy decision based on something that is not forward-looking. lisa: his bank stress test inflationary? there was an interesting report talking about how it's stagflationary. if you reduce credit, then company's are forced to produce less and raise the prices. isn't this essentially a recipe for stagflation which ever you cut it? >> you are basically raising the cost of capital and the cost of doing business. there are theoretical models that make that same case that this could be inflationary. when you look at the history of data, the way credit crunches work on the economy, they have long legs. this is not going to be short-term disinflation for the fed. jonathan: does the fed have the luxury of waiting? >> i don't think they do. i think they have made it very clear that they need to at least get to what they promised us in the summary of economic

production -- projections. they need to stay there for some time. last year, powell made the analogy that he does not want to be the burns of his generation. he does not want to cut interest rates too soon. jonathan: he doesn't want to be burned. whether he risks hiking into a crisis, does he run that risk? >> i think he does and that's a risk they are prepared to take based on their reaction and their communication. they would rather over tighten than under tyson and have to do more down the line. tom: this is the key theme in the last 48 hours. right now they are over tightening and if they go 25 on the third, what level is that? >> we are little bit in the dark because we don't know what the interest rate is in real time to based on how the economy is behaving over all, the real economy, the labor market, it doesn't feel like the fed has over tightened based on what's

happening in the financial sector and banking system. maybe rates are too tight there so we are going back the to the discussion we had. maybe the financial stability interest rate might be lower than the real economy equilibrium interest rate and that's what we're finding out this quarter. tom: that's a raging debate right now. you will get minor 10 responses with economists. there is a bunch of theoretical mumbo-jumbo. our viewers and listeners are living tangible inflation. besides a 12 month look back where it gets solved, when do they feel better? >> that means when is inflation down in a meaningful way. but the labor market is not deteriorated dramatically.

this is the fine line that the fed is trying to walk. there is no guarantee that this will happen. when you look at their summary of economic projections, they tell us they explict -- they expect the unemployment rate to increase by 1%. if inflation slows but the employment rate increases, that doesn't feel great. the same time, they say this is not necessarily a recessionary outcome, but you look at the rule that tells you once the unemployment rate increases by half a percentage point, you are in a recession. lisa: we talked about how cash is flowing into money market funds and if you look at three-month yields in the u.s., they are the highest relative to 10 year yields going back to the early 1980's. could this and up causing some sort of recession by draining the economy of cash? >> banks face an interesting situation where reserves are coming down fast. when you look at the level of

deposits during the pandemic, it was growing at an above trend pace. we will see ongoing normalization in reserves and lower deposits and the flipside is that money market funds are getting some of those inflows. what do banks do if they have fewer deposits? they will lend less and that will not be a positive for the economy. how they feed to the economy will be long. just because we don't see credit falling off a cliff in the next three months, i don't think we should feel comfortable that the worst is past us. jonathan: thank you so much. the labor market, 3.5% is the unemployment rate. the federal reserve has a forecast for year end. they think unemployment is 100 basis points higher. 4.5%. this is the kind of pain that we were talking about that we

haven't yet experienced. when we do come i wonder how -- how much things will change. tom: when we rip apart the numbers in the cross minority unemployment rates are something i or elizabeth warren never imagine. i think 3.5% is great so why aren't we celebrating this and solving inflation in other ways? lisa: on one hand, if you have people who are fully employed, they will keep spending and you end up with a more persistent inflation which is the theory. if you start getting layoffs, that also has a cycle of its own and once they start to feed on each other, this is the tipping point. are we ending up in a situation were either we are overly employed and can get inflation down or do we start a cycle of unemployment that is hard to stop. i think that is the big fear. jonathan: the fed has to go from 3.5% to 4.5% in a couple of

years. tom: it's a managed statement forward. the answer is you are 100% right, it's not predictable and these are well-meaning officers. they are managing a controlled glide path because that's public policy in a political meal you. - milieu. lisa: how do you face off the political cycle with people like ron desantis eviscerating the fed and saying this was politicized and this came too late and they are moving too fast? how do these projections change tom:? tom:it will not change based on politics. they will do their best to guesstimate which is a challenging environment. i don't think they will sit there and go to santos is

correct. jonathan: is he going to announce anytime soon? lisa: hasn't ron desantis announced already? jonathan: i don't think it's official yet. it's a book tour. lisa: whatever, did people by that? jonathan: i'd buy everything politicians sorry. lisa: we would just leave that there. jonathan: coming up next, the conversation with the institute of international finance, live from the nation's capital. this is bloomberg. lisa: keeping you up-to-date with news from around the world with the first word. policymakers shrugged off bank failures last month to deliver a quarter percentage point rate hike. at 2 p.m. in washington today, we find out the but process behind their decision.

the federal reserve releases minutes from that meeting. the march rate hike brought their benchmark rate to a range of 4.75-5%. china indicated it will maintain pressure on taiwan following its large-scale military drills. the maneuver began after taiwan's president met last week with u.s. house speaker kevin mccarthy in california. the chinese spokesperson said we will not leave any room for any form of taiwan separatist activity. senator tim scott of south carolina is one step closer toward challenging donald trump for the republican presidential nomination. he is launching an exploratory committee that would allow him to start raising money for his campaign. he is visiting several early voting states this week. walmart is cutting the number of stores in chicago in half. the nation's largest retailer says it is not made any money in his 17 years in the city. walmart faces tough competition in chicago from target, albertsons and aldie.

crime and theft were not drivers of the decision. emerson electric is an advanced talk to acquire national instruments. it has offered $60 per share for the maker of measurement systems. national instruments closed tuesday at a little more than $52 a market cap of $6.9 billion. global news, powered by more than 2400 journalists in more than 127 countries. this is bloomberg. ♪

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♪ old school wisdom, with a passion for what's possible. that's what you get from the morgan stanley client experience. you get listening more than talking, and a personalized plan built on insights and innovative technology. you get grit, vision, and the creativity to guide you through a changing world. ♪ >> we have to be vigilant because some of these pockets of vulnerability could spread and they could spread to the whole financial system. what we are seeing now is the risk that banks will look at the outlook and be a little bit more prudent. that could way down further on economy growth in the u.s. and

the rest of the world. jonathan: super gloomy stuff from the imf chief economist and we will pick up on that in a moment. equity futures going into the cpi report later this morning at 8:30 a.m.. futures are positive by a little more than 0.1 percent with yields slightly higher. tom: at 8:30 a.m., we will see how that changes. you have to look inside as well. to me, the two-year is the thing to look at. jonathan: back above 4% this morning. . tom: right now, we will look at the banking crisis with timothy adams from the very important iif, the institute of international finance. this is a gathering of the large

bankers and who will get upset with me. the stereotype is for bankers and you -- is 4 bankers and you. >> its many more than that. tom: this is a unique occurrence. i will go back to 1833 and a guy from tennessee, you grew up in the aura of andrew jackson and he said our biggest fear is bank consolidation. if we went from 4000 smaller banks that are not part of iif, to 3000 smaller banks, with anything changed? >> not at all and in 1930, we had 30,000 banks across the united states. the trajectory is pretty clear. we going toward greater consolidation and it's a skill

business. the cost of technology is incredibly expensive. tom: we had a marketing scheme in silicon valley wrapped around a bank and we all watched the svb blow up. the concern we have to have is the new banking environment. what does iif say than other than read jamie dimon's annual letter? >> i urge everyone to read it anyway. it's going to be a different system going forward. technology has dramatically changed the way financials have changed. the revolution will only accelerate that process. it's happening at a breakneck pace. jonathan: you don't think this is a banking crisis? >> i don't, it's market turbulence. as we transition from load negative interest rates, huge fiscal report and look at the

deficits we have run. we are running into an area that's more normal but going from one transition to another. we are going to see things pop. i didn't think it was a silicon valley bank but we will see other stresses in the system and that's not a crisis. jonathan: what other stresses do you expect to see? >> there is concern about commercial real estate. i think it deserves our attention over the next 36 months. jonathan: is there something about what's happened with some of the smaller regional banks that will lead to issues? >> there is a feedback loop so it's worth watching. if you look at credit card debt is still pretty strong and commercial is down. the system is pretty normal. 99% of our banks in the united states were globally over the past four weeks opened their doors and had normal business. this is a small slice and very unique institutions. lisa: no one enjoyed watching

the fallout of company struggling to wonder where they will get the money to make paychecks. there was also a larger question around what does the systemic meaning in an euro where there are specific tanks that have a dominant position in specific businesses? how has the idea of systemic been redefined? >> i think it's concentration risk. svb was the dominant player in silicon valley but in research triangle north carolina with 6000 institutions supported so it's concentration risk a we need to think about other institutions that are dominant players in a particular industry or region and ask ourselves what kind of risk that poses. lisa: how much of that equation is shifting to a geopolitical question of which banks have more dominant positions in specific countries where they are increasing tensions like the bit -- like between the u.s. and china? >> i still worry about

geopolitical issues in the conversation in japan was different relations. macron had just landed in beijing. those are the issues they keep me up at night. lisa: how concerned are the executives you meet with? do they feel there is a storm bearing down that reflects the gloom you hear from the imf projections? >> we've tried to look through the cycle and be prepared for 2024. do we have the technology and the talent for recovering growth. it's the geopolitical concerns and the fragmentation the imf talked about in their annual report. the issue of u.s.-china relations which seems to get worse by the day, those of the things i'm most worried about. jonathan: i would think -- our financial institutions doing anything that makes you worry? >> china has been alluring for 150 years.

there are questions about d risking with respect to all supply chains, nuts as the financial sector but the real economy. what are the risks operating in a variety of different markets. if you look at many of our firms that were in russia, that became untenable so we have to look at other geographies that will come under stress. jonathan: is there evidence that financial institutions are proactive about any of this? we've been talking about russia for years and years. it is not a surprise to anyone. it's not a shock. it's a failure of leadership in europe to see this one coming. chancellor unit merkel warned about this repeatedly. financial institutions have been caught with their pants down and russia so it's hardly a shock that this is happened. why were they still there and is there any reason to believe they will be proactive about issues

like china? >> i am convinced we are sensitive to the risks of u.s.-china tensions. it's a product of every conversation we have at board meetings and what do you do about it into same question the real economy is having. lisa: when is the risk of stranded assets going to supersede the risk of losing out in profits? >> in terms of china, i'm not sure we will have stranded assets. the timeline of that is different from the way in which we do capital planning. jonathan: this was an education. some difficult topics to talk about for the next several years. tom: it's the geopolitical tensions, the fragmentation seems to be the buzzword. i'm worried about the fragmentation in america. the arch question here moving from 30,000 banks to 2400 banks is where does that lead to?

what's wrong with the canadian model? not the swiss model of three banks to two banks and one. i would suggest the hysteria of 1833 is no different than the hysteria of 2023 on all these banks and do we need them to find supervision and efficiency? jonathan: there is a big quest to preserve the regional banking market in the united states. i don't think that's going away anytime soon. lisa: i go back to wendy schiller who said people's local bank tied them to their communities and this them politically and in a larger sense. has that gone away in an era of mobile banking? it underpins the angst around regional --thanks. tom: people are worried about

their banks and if they can get mileage points. it's like the 19 century walks in the door. in jamie dimon's letter, he's says we have to drag air sorry cells into the 20 first century of banking. -- into the 21st century of banking. that's what lisa says is can i get more mild points? lisa: why are you putting this on me? tom: it could be chase manhattan or whatever. i use my tot's vanity card. jonathan: anything else? amy wu silverman will join us.

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>> the banking crisis has been contained given there is good access to liquidity. >> there is more downside in the equity markets. >> you need people to stop spending, you need credit to contract and that brings down inflation. >> the fed wants to hike may be choice more but it is torn because it has these troubles. >> i think the landing could be harder than many are discussing. announcer: this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa abramowicz. jonathan: live from washington, d.c., good morning.

this is "bloomberg surveillance ." alongside tom keene and lisa abramowicz, i'm jonathan ferro. the imf world bank spring meeting for the next several days. equity futures and the s&p 500 positive. we continue to count you down to the inflation report in the united states. that 90 minutes away after cpi. the attention will then shift to bank earnings. 90 minutes away we have to deal with inflation. tom: p cpi data, the adults are focusing on core but there is more than that. i love david rosenberg's work of parsing the inflation analysis into 20, 30, 40 lines. even mike mckee cannot do that. but looking at the subsets of inflation i think will be a rich study. jonathan: in the distance, may

3, the fed's next big call. lisa: how do the even way these data points? the subjectivity of data. what does that mean when you can choose the data for the narrative you want to put out? tom: the cynicism. [laughter] lisa: it is just fact. jonathan: i happen to agree. lisa: thank you. you can color it the way you want perhaps, maybe we will get hot or cold, but there is a question of where is the trajectory given what happened with silicon valley bank and given what happened going forward? this is the angst underpinning the market and the fed. jonathan: the phrase data-dependent has become a crutch. we do not know where things are going and we are going to be data-dependent. but what data are you dependent on and how much weight would you put on cpi, gdp? and how much would you put on

the new indicators, hha data from the fed? tom: i would parse this into a financial study, a real economy study -- which we spend too much time on -- and the bank financial study. you have three broad narratives bouncing into each other like the proverbial venn diagram and they are dynamic. they change day to day. we need information on the real economy, the core financial data, and information on federal reserve details of the bank deposit flow. jonathan: the totality of the data and hopefully we get clarification from the banks. jp morgan reporting earnings friday. we were due to have earnings from first republic tomorrow we are not getting them anymore. april 24 for the first republic earnings report. i want to give you a quick snapshot of the price action. equity futures positive a little more than 0.1%.

yesterday was a total snooze on the s&p. closing unchanged. yields higher a couple of basis points. lisa: the tension of the possibility the fed is likely to hike may 3 is priced into the market with the reality this is a quickly moving economy. at 8:30 a.m. we will try to get some visibility. there are two main components. there is the inflation readings and then there is what is going on with respect to banking stress. this is one of them. does this get upended friday? core is going to be key. up from the february read. how much does that really color the conversation when you strip out the food and energy categories? at 10:00 a.m. the bank of

canada. i am curious about their rate decision. they could potentially hold rates at 4.5%, moving against the ecb and the federal reserve with a pause. what is the consequence of their signaling? how much do we see the market push back? if there is acceptance, does this give a green light to the fed to do the same? 2:00 p.m. the fomc meeting minutes. we are going to get the sense of how visceral the debate was between people saying the credit crisis you are seeing with respect to silicon valley bank's material and we need to pause. and how many come out and say, ignore it. let's go forward with 50 basis points. how much was there consensus around 25 basis points? we hear from tom barkin today and mary daly. jonathan: would you move to canada? tom: i what.

there is like five big banks and they are not in crisis. it is a really interesting debate and a lot of people use canada as a model that may be efficient and successful. jonathan: lisa was talking about sending you to canada. lisa: i did not say that. tom: the canadiens are an embarrassment though. jonathan: amy wu silverman, welcome to the program. is this the calm before the storm? amy: i think so. and for what it's worth, tom can visit toronto with me anytime. i think it is a bit of a calm before the storm because we have cpi shortly and then earnings. the volatility right now, we have a -20 vix. i think if you get a cooler cpi,

it will come down further and that is the opportunity to buy. the first few weeks of earnings is a great time to own volatility. tom: i want to look at this strange thing called skew. we are talking to lisa abramowicz about her newsletter and going for a toxic brew. i want to talk about a toxic apple skew. everyone is on board big tech and you are looking at their derivative dynamics. what did they say about the toxic apple skew? amy: i would say two things are interesting right now. option prices are high in financials. that skew is quite low. you are getting exactly the opposite picture in big tech. the option prices are not nearly as high on a relative basis but

that skew is very expensive. there is the demand for downside. a simple explanation is people have made a lot of money in tech. more demand for hedges. but it could also point to further bearishness on earnings when you get new information. if apple goes down, if google goes down, the overall market goes down with it. lisa: what is more important for you this week, is a going to be what we get at 8:30 with the cpi? or is a jp morgan earnings kicking off on friday? amy: i think this is the one time where i would say it is the financial earnings rather than cpi which has been so core to everything. but people are really going to be hanging out the words of every management team. jp morgan in the large banks but also the smaller banks when you look into the derivatives market. that options positioning is

showing a lot of magnitude. implied moves going into earnings and showing you we are still pricing nearly three times the expected move you see over the last eight quarters historically. lisa: how you translate this into an equity call? what does this mean for the fed rate hikes? if we get confirmation that we do see deposits tumble by the most in more than a decade, or that there is massive restriction in capital creation, how much does that color your view and make you bearish on certain sectors, pushing toward others? amy: the two most popular questions i get around how to structure trades is how do i play a rebound through kre? and how do i hedge tech? those of the biggest questions i get. we look at kre call spreads, qqq

put spread's, but when you lead that back into equities is the question of this inflection point. if it is, what optionality is the best way to play that? jonathan: wonderful to get your thoughts. amy wu silverman of rbc capital markets on the calm before the storm. that is in another guest that has suggested the earnings from the banks are more important than the data we have received on friday, for payrolls and cpi later this morning. lisa: we were talking about regional banks and jim pointed out why it was important to watch the regional forms. the majority of the workforce is employed by them and the 4200 regional banks are best structured to meet their needs. let's say you get them to disappear. what happens to the big banks?

beef up in cincinnati and toledo and try to serve all these businesses? or do they not get access to funding? tom: people were watching in cincinnati going bramo is conflating cincinnati with toledo? i do not think so. lisa: thank you for that insight. jonathan: this is what i get. he will not come south of 50th but he will move to canada. [laughter] that is the message i got about you. tom: just to give you a little vignette, i used to buy my hockey sticks at maple leaf guns because it was cool. and go into the fold maple leaf gardens and it was like st. peter's in rome. jonathan: that is what it meant to you? tom: sitting at the top looking down on that canadian history -- i cannot say -- jonathan: that was like me in milan. tom: yeah.

that was before zava went to afc richmond. lisa: this is like rome. listen to me and my proclamation. [laughter] jonathan: is that what dinnertime is like? do you sit around the table together? tom: and argue like cats and dogs. it is very constructive. jonathan: that is what we did as children. but it was not allowed to carry on through the night, only the dinner table. you had to let it go. lisa: did you? jonathan: absolutely. [laughter] and then you start again the following day. lisa: what does it mean to let it go? jonathan: futures on the s&p -- we should do a -- [crosstalk] from washington, this is bloomberg. ♪

lisa m.: keeping you up-to-date with the news from around the world with the first word, i'm lisa mateo. the biden administration is proposing a tough crackdown on auto pollution. tailpipe emission limits will be so strict they will compel automakers to ensure two out of three cars are electric models. still, there are questions whether car companies can fulfill the limits on carbon dioxide and smog forming pollution. in other news, officials in the fed are signaling there is a divide over raising interest rates. new york fed president john williams says there is more work to be done to bring down inflation. chicago fed president austan goolsbee became the first official to suggest policymakers may need to hold off on further hikes, for now. we get the latest on consumer prices at 8:30 new york time. donald trump wants a four-week delay in the start of a civil trial over his alleged rape of jean carol.

a cooling-off period is necessary following his indictment. the trial is due to start april 25. global news powered by more than 27 hundred journalists and analysts in over 120 countries. i am lisa mateo and this is bloomberg.

>> i have not really seen evidence at this stage suggesting a contraction in credit, although that is a possibility. i believe our banking system remains strong and resilient, so, i am not anticipating a downturn in the economy. although that remains a risk. jonathan: welcome to the world of politics. janet yellen yesterday saying, " i have not seen evidence suggesting a contraction in credit." but on friday there was exactly that. would you make of those comments yesterday? lisa: i viewed it as a political kind of speech and i view this also as her trying to parse out

how much to fortify confidence in the financial system rather than reintroduce more risk. i did not view this as an accurate assessment of where we are. i don't think anyone did. nobody came away and said, this is all clear. jonathan: i agree with the treasury secretary. [laughter] lisa: it is not just the bank failures the fact you saw the biggest two week contraction in commercial lending. jonathan: ever. lisa: that speaks for itself. jonathan: and yet, she does not see signs of contraction in credit. tom: she is not like a normal secretary of treasury. we forget the hollywood producer and wheeler dealer guy is more toward john conolly of texas. yellen is a real outlier and she is struggling with how treasuries of secretary convey. jonathan: did you call him a

wheeler and dealer? lisa: do you know where i interviewed him? tom: when i first interviewed mr. avatar -- jonathan: mr. avatar now. tom: he is a great guy and he really got used to the treasury dialogue as they went from crisis to crisis in the trump administration. the first time i interviewed him was in the hamptons gallery. that is not janet yellen. jonathan: good morning, secretary mnuchin. i wonder what he thinks of that. tom: i did not watch the new avatar. lisa: i liked it. jonathan: it is just too long. tom: it is like four hours long. lisa: but it was good. jonathan: it was good but it took two hours to get going. tom: are we ready? [laughter] we have jon ferro who is posh and living in the united kingdom. [laughter]

bloomberg social correspondent joining us now. i saw phil mattingly on cnn going back to the mother country to see the president in ireland. >> and northern ireland. tom: northern, southern, western ireland, i don't care. >> there is a big difference. tom: the difference from dublin is 117 miles but the big difference is he meets with the prime minister. the president, the prime minister, and a kid from scranton. >> if you look at what members of the dup of northern ireland are saying, current president joe biden is anti-british, and that is why you see the national security council of europe saying he is not anti-british. there is a deep connection between the u.s. and the u.k.. the president wants to make sure

he is growing this relationship and he is here to mark 25 years of the good friday agreement and have discussions about ukraine and the economy with the u.k. and u.s. but the heart of it is this is a president who likes to talk about his irish roots and most of this trip is him placing back his lineage. he is going to be on a family tour after he meets with rishi sunak and gives a number of speeches and meetings with party leaders. jonathan: what has he done to grow the relationship with the u.k.? annmarie: great question. the u.k. wants a free-trade agreement and that has been on ice since the trump administration. jonathan: that has been pushed back again. annmarie: you know this well. when brexit was being hallmarked in the united kingdom the crown jewel that was going to be a free-trade agreement outside the european union with the united states and the u.s. has not delivered. tom: can i ask the question why? annmarie: there is a number of

reasons. it is not a priority for this administration. it is not a priority to have a free-trade agreement. for the u.k., the u.s. would be a huge win. but is the united kingdom that massive of a trade partner? it is an important relationship. to the white house's defense, amanda sloat said rishi sunak will be coming to washington in june and that is where they will discuss more economic issues, like a free-trade agreement. jonathan: will they discuss the comments from macron? annmarie: that potentially will be one. we heard liz truss coming out and having her own view on that, pushing up against macron, who is taking fire right now. not just from u.s. politicians but politicians in europe. but not just macron but these leaked documents. this will overshadow every meeting the president has from here on for the next six months. lisa: that is where i wanted to go. we see dueling reports.

some people saying we don't know, this is not clear, to see how much this could potentially disrupt relationships. with seen south korea reaffirm the strength of ties. how much closed door has disrupted the willingness of allies to share information? annmarie: they are concerned not just sharing information, especially when you look at the intelligence groups, but the fact the u.s. is once again spying on allies is a concern you here. one of the things you do not see it is not so much happening in public. south korea is an interesting moment though. the head of the country will be coming to the united states for a visit that the opposition is saying the u.s. is infringing on our sovereignty by spying on us. with the leaked documents, it

has put these leaders in difficult positions. lisa: the public comments have been more investigating, we don't know everything, just wait. nobody is waiting. when they talk to the allies what kind of guidance do you hear them giving in terms of what they are understanding of who leaked the documents, when, and how significant? annmarie: we do not know yet, and i do not think they understand how significant the leak is. we have the first comments yesterday from lloyd austin. they are pretty muted and they do not give much detail. it is pretty much like, we are waiting and will update you when we find out more. jonathan: is that because they do not know? annmarie: they probably do not want to come out yet until they have all their ducks in a row and they are still investigating. jonathan: i get the feeling they are not aware of what documents are out there. annmarie: is there a potential for more documents to be leaked? how can they say, we have put

this to bed and then they could get slapped in the face? jonathan: thank you for having us. annmarie: thank you. jonathan: thank you. tk, what a saga for this white house. tom: i am with annmarie on this. i can make jokes about brexit and british tariffs but jokes are not in place here. this is really serious stuff. i think we have mark kimmitt in a little bit, but to annmarie's point, you let it phase out because you do not know the next event is. jonathan: you joke about tariffs but food standards is a big issue if you want to come to some kind of free-trade agreement. tom: i do not mean to make little of it. jonathan: the standards are more robust in the united kingdom. lisa: if we start having a discussion around u.k. tomatoes and eggs -- jonathan: more about what you do

with your chicken. we are not going to have a conversation. they just are. that would end pretty quickly. [laughter] adam posen will be joining a shortly. i am looking forward to that conversation. he is here in washington in about five minutes. equity futures positive 0.1% on the s&p 500. yields unchanged. cpi data, the inflation report 64 minutes away. ♪

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jonathan: i always see the greatest quotes are in the commercial break. tom: like a sports team. [laughter] jonathan: this is "bloomberg surveillance." 60 minutes from the cpi report. equity markets shaping up as follows. the s&p 500 and the nasdaq, the nasdaq just a little softer, down 0.1%. the s&p up a little more than 0.1%. then on to earnings with jp morgan reporting results friday. the two-year reclaiming 4.037%. looking over to europe,

remember, may 3 for the federal reserve and may 4 for the ecb. 1.0927 is where the euro dollar is. tom: huge debate on the weaker dollar. where could we be three to five years out? he is modeling stronger yen. these are big moves but this is what the financial media does not do. one quarter, two quarters, maybe one year. jonathan: two weeks. [laughter] lisa promised to pay for dinner later and we have to promote a new newsletter. subscribe, subscribe, how many times do i have to say that? [laughter]

bloomberg.com/surveillance for the bramo toxic brew. we are going to brand that. [laughter] lisa: i have to have my head in the sand because we have telegraphed it just fine. jonathan: i think that works. tom: and there will be comments today with our next guest. adam posen is with us. president of the peterson institute of international economics and without question one of the leaders in thinking about germany in the united states. dr. pozen joins us this morning. jon will talk about your wonderful essay on the static analysis of manufacturing in america. you were at brooklyn high school a million years ago and you said do not look at five years. then your undergraduate and then your phd, don't look up five years.

here's the international monetary fund with a five-year model of 3% growth. can people like you look out five years? dr. posen: we can look but we might not see. i think the imf is making a judgment call, which is within their rights, and i think it is reasonable but unfortunately it buries the lead. we are going to get a gooseing of short-term growth in the u.s., china and europe. it will be public spending on defense and not green and there is going to be a continued falling off of growth in the poor economies, who will be forced to choose between the u.s. and china. there was a very good report put out by the imf recently. you covered a good report by the world bank and my stuff. the spillovers on growth for the developing world from the u.s.-china conflict and the subsidies race between europe

and the u.s. is bad. tom: deutsche bank had some serious publishing years ago and echoed what you said the day after putin invaded ukraine. if we have the fiscal stimulus that he was talking about you are talking about right now, and we dovetail that into your colleague's phrase "fiscal space," does the united states or bolivia have fiscal space to act given the present traumas? dr. posen: you may have seen that i hosted a debate or conversation between olivier and larry summers on this very topic. olivier and larry came down that the sustained fiscal expansion and possibly inflation premium that continues going forward will decrease the amount of fiscal space. olivier's fiscal space is about

the gap between real interest rates and real growth. that has been large for a long time. this is probably going to cut that one third to one half. that does not mean the u.s. does not have fiscal space but we are more at risk than we have been for a long time and a bad shock to productivity, revenue, where interest rates could put us into bad space. one of our short goes up, meaning the gap between interest rates and growth shrinks, the bolivias, the sri lankas, the pakistans, south asia, africa, they lose fiscal space. lisa: when you have these discussions is there a tipping point for 10 year yield, for borrowing costs in the u.s. after which the current model becomes untenable? dr. posen: yes and no. sorry to do it that way. the yes is you can do fancy mathy stuff. the head of bruegel and others

have worked on this. you have to do simulations. but bottom line the odds of your tipping go up and probably go up non-linearly. once interest rates are outpacing growth that is when the bad debt dynamics kicks in. that is when you have debt to gdp it is over 100%. that is not happening this week, this month. but if that turns out to be the case, that being rates above growth rates for six months, a year, you start getting serious. jonathan: about politics has started. you mentioned the subsidies race between europe and the united states. i do not think this is getting enough coverage. you said it is very bad.

can you paint a picture as to why this is so bad? dr. posen: olivier and i and our trade experts from peterson were meeting with the european finance minister about this issue. basically, the problem with subsidies in trade is that it ends up being not just wasteful, but as i argued in my article it escalates very quickly. this is what we are seeing. the u.s. puts out the ira which includes subsidies for particular companies, not just green tech or r&d, but subsidies for particular companies on a criteria and mostly u.s. headquartered. well, we will do subsidies in retaliation. than the u.k. says, already have. we have got to keep up with this. we are not going to be left behind.

we have the indian finance minister at pie on monday and she said, we are going to do subsidies. you end up with an arms race. nobody gains the economy of scale. the competitive basis for having the winning company based on better technology or more efficient processes does not win because you have subsidizing here and there. francis says we are not going to buy american and americus as we are not going to buy french. you have this balance sheet and we have the worst things is this is open ended way the u.s. passed the latest round of subsidies it is driven by the consumer. it is not, we are going to get to this level. you produce more you get more subsidies. this becomes a fiscal issue as well as you run in place to just get to the same spot. finally, it is totally

discriminatory against the world because china, the eu and the u.s. can afford to do this. india can pretend to afford to do this. the u.k. can pretend and the rest of the world is out of luck. jonathan: it is under the guise of supply-chain resiliency. it is almost truth. you have to get more resiliency into the supply chain and that means you have to bring it home. you dismissed that straight up. i think you said it is proven to be a fallacy through economic history and i can think of several failed socialist, communist states. it is difficult to do. is the united states, europe, china, even if they can afford to do it, who says it is going to be a success? dr. posen: i agree. there is a legitimate question to be raised as private supply chains have risen organically. individual purchasing managers say, i will outsource this. i know somebody else.

there is a reasonable public policy interest in saying, let's not overdo that. but that is different from saying bringing it home a safer. -- bringing it home is safer. this is part of what i have been arguing. look at russia. russia spent 20 years trying to make itself self-sufficient so it could do things like invaded ukraine and not worry about it. and like the u.s. and china it is huge, but it does not work. you end up with a corrupt industrial complex that does not give you what you need. tom: british headline, 11 years ago, business group economist to replace arch dove at bank of england. [laughter] do you have any advice for megan green as she is anointed? there will be a coronation as she moves to the bank of england. dr. posen: i had not heard the news. congratulations. that's great.

the external members, including catherine mann, my former colleague, have a good record of giving independent thought. you mentioned me being characterized as the arched of 11 years ago -- arch dev of 11 dove of 11 years ago. be data driven and everything will be great. jonathan: it is different to say the federal reserve. why is that important and what lessons can we take from that? the model of having external members is helpful. do you think it is? dr. posen: i think it is. i fear it is not as helpful as it should be. you look at what the bank of england has done or others with the external model versus the fed and the differences are not as great as i would like to think. but i do feel it has been

important for the bank in terms of legitimacy. you end up having more split votes and open discussion and debate which is better for the public. this is hard but they are taking it seriously. occasionally, you get things right a little faster because the external members. my former colleague was quite squeaky. [laughter] tom: the worst since henry viii. dr. posen: but in this instance he was right and i think history has shown that i was right on some of the things i squeaked about. it is useful. jonathan: a clinic as always. good to hear from you. adam posen of the peterson institute for international economics. live from washington, inflation data in america around the corner. ♪ lisa m.: keeping you up-to-date with the news from around the world with the first word, i'm lisa mateo.

last month policymakers shrugged off bank failures to deliver a quarter percentage point rate hike. today at 2:00 p.m. we find out the thought process behind their decision when the fed releases minutes. the march rate hike brought the benchmark rate to 4.75% all the way up to 5%. china indicated it will maintain pressure on taiwan following is large-scale military drills. the maneuvers began after the taiwan president met with kevin mccarthy. a chinese spokesperson said, "we will not leave room for separatist activities." senator tim scott of south carolina is one step closer toward challenging donald trump for the republican nomination. bloomberg learned scott is launching an exploratory committee that would allow him to raise money for a campaign. he is visiting several early voting state this week. bed, bath & beyond says it raised more than $48 million in

an equity offering as it tries to avert bankruptcy. the home goods retailer's goal is to raise $300 million by april 26. shares of plunged in recent weeks amid pessimism about bed, bath & beyond's outlook. global news powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo and this is bloomberg. ♪

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this. the imf commentary the last couple of days so gloomy and we can pick up on that for you through the week as we cover the imf world bank spring meeting in washington, d.c. staying on top of the data, the cpi data with the latest report in 43 minutes. going into equity futures still positive 0.2% on the s&p 500. yields unchanged, 3.4393%. tom: the imf spring meetings, we digress. joining us his general mark kimmitt, former assistant secretary of state for political military affairs. he has been a terrific advisor to bloomberg on the complexities of military in this modern era. thank you for joining bloomberg surveillance. mark: thank you. tom: i want to go something off script of the themes out there. i think it has been ignored in the american press. we are reaffirming our position in the pacific rim by $100

million, 12 month commitment to the philippines and four navy army bases. most of america is ignorant of the commitment in world war ii and what happened north of manila. what i would like to know from you is the importance of this projection by the pentagon to a new pacific rim strategy, army and navy. mark: i do not want to sound trite but you and i grew up when the iron curtain was up. i think this generation is going to be growing up with the bamboo curtain. we are setting a curtain that ranges from korea to the philippines to japan down to australia to try to contain the hegemonic behavior of china militarily. cooperation and competition going on economically but there is significant concern about the hegemonic aspirations of china and that is with the military is

setting up. tom: our guests talked about an increase of pentagon spending to gdp. you are best general we have linking financial matters. it is understood that kimmitt owns the high ground. do we have the will to expand pentagon spending to gdp? mark: that is more of a political question. can the pentagon make the argument to congress and the american people that that raising of gdp is necessary at a time when, candidly, the federal budget is under significant duress from other expenditure programs? i hope they do. i think it is necessary but that is a tough sell to make these days. lisa: i keep going back to what a commentator said a couple of days ago. he said this is probably the most fraught moment geopolitically he is experienced and his generals who worked with

them have experienced in a long time. do you agree and is it focused in china or is it broader? mark: he must be quite young because the threats that we faced when i was young were far more significant. whether it was the soviet union, the impacts of the post-vietnam period, the russian-soviet interfere in africa, latin america, central america. there were significant challenges, not to mention we had a population that was absolutely unsupported on the military. we have challenges today but i am convinced the u.s. military is up to those challenges, whether it is the army, navy, air force or marines. we need to modernize, lead to expand, but our soldiers are ready. lisa: how does that dovetail into the national security leaks we have seen? perhaps the military is ready but is the intelligence infrastructure, is the

cybersecurity in place to support them? mark: i certainly hope so. i was never concerned about the intelligence products that we were getting from dia, the signals intelligence, military intelligence. cyber, i think we are in a situation where we do not know what we do not know. but the fact that russia has not been able to execute a successful cybersecurity operation against ukraine i think tells everyone we are probably ahead of where we should be. lisa: the bigger take away for a lot of people is that the u.s. is spying on allies. mark: as we always have. lisa: this is not a surprise and perhaps should not be. but that the u.s. could be -- there could be breaches if other countries share intelligence. how much are you focused on? mark: that is probably the most

important issue. allies spying on allies is something that is understood. this is not a surprise, just an embarrassment when it gets into the general public. with regards to your other question, particularly what we call the five eyes, that is a significant threat to the relationships. it reduces the intelligence flows. the other countries are better in certain areas but if they do not want to share because they cannot trust us, that will have a ground effect. jonathan: i want to talk about the united states' allies. germany was warned time and again about the energy dependence it had on russia and did not do enough to back away and we had to deal with at the last 12 months. now we are dealing with china and some might make the same accusation that europe is the weak link. they bring up the french leader

as an example. you talked about the hegemonic aspirations of china and the risks around that. for the united states to be an effective entity on the global stage, do see that with regards to china? mark: i more worried -- i am more worried about relationships. while europe is important, particularly with regards to the economic cooperation or enforcement when china violates wto, i am more concerned we have it right with the allies on the front lines. the europeans are important but less important. tom: give us a window into china. stillwell was over there and it was chaos. marshall retiring to flyover and

try to figure out the new china. has anything changed in 70 years? do we have an intelligence basis there where we can be confident of our actions? or is that can cough any -- cacophony still there? mark: i know people who know china well. i think we have got a good picture of what is happening in china. tom: this is not a mystery like gorbachev in russia where we had difficult intelligence? mark: the problem we have with intelligence is we are very good about assessing capabilities, how they tanks they have got, comedy planes they have got, how may soldiers they have. the hard part for the intelligence experts is determining intentions. what are they going to do with those capabilities. that has been going on for years and years. one can hope when it comes to

china we can find some manner in which we can come to some sort of -- i hate to use these words coming out of the cold war -- but some strike or detente. i work in the middle east. you cannot swing a dead cat without hitting a chinese businessman on a daily basis. [laughter] tom: may we quote you on that? mark: you may. they are pushing hard economically as we saw. they want to play heavily in a diplomatic field. we just got to make sure in the military we can contain the military aspirations. jonathan: you made a series of personal assessments about their intentions. what about taiwan specifically? mark: a tough policy issue. the chinese, regardless of what we are seeing, they are taking the long view. they believe that eventually taiwan will return to the

people's republic of china. they are not in a hurry. militarily they know trying to invade and occupy taiwan would be a disaster. but they have got time. jonathan: we appreciate your time this morning. thank you. general mark kimmitt, former assistant secretary of state. fantastic cover station. tom: it is a conversation that dovetails three or four dynamics. it is so important for people, especially younger people. it is a dynamic analysis of politics, military and economics. you cannot look at it with simplistic phrases. jonathan: we have got to push forward to the cpi report later this morning. about 34 minutes away. equity futures are positive 0.2% on the s&p 500. yields higher a couple of basis points. your 10-year 3.44%.

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>> look at the disconnect between equity markets and the bond market is telling you different things and it is puzzling out there. >> for the fed the near-term issue is they still have three months or so of consistently strong inflation prints. >> the fed is going to ease only if something breaks. >> the market is already pricing

in a soft landing. >> the market is not a pricing in a recession but neither is it pricing in a soft landing. it is pricing in a wait and see what happens. >> this is "bloomberg surveillance." tom: good morning everyone. spring meetings of imf and world bank from washington today and all i can say is right now no one cares about the imf meetings as the world bank gathers as well. in 29 minutes it is about one thing, inflation in america. jonathan: can we no one cares in our promote for the week. that will work. tom: they'll be great for bramo's newsletter. jonathan: equity futures right now on the s&p 500 about positive. the cpr report in america. payrolls on friday.

green light to hike on may 3 for the federal reserve. cpi later this morning likely expected to be a greenlight tyke for the federal reserve. this is more than about cpi and payrolls. it is by the bank you stress. that might be a reason to pause. have more patience and i would suggest that is the argument of the chicago fed president made yesterday in his speech. tom: i'm going to call it a mating speech. i saw in one place called him the democratic president from the service with the obama administration. goolsby and the politics of it, what i would suggest is this an inflation report of a massively data dependent fed. we cannot say enough of the urgency for them to gleam data all these many narratives discuss here in washington. jonathan: the reason i enjoyed the speech from yesterday, it was not because of the politics

and not the conclusion. it was very well thought out in a very simple fashion. ultimately emphasize he does not think the policies in conflict. if you look at the bank and stress we have seen, you can acknowledge that may be a substitute from what we are trying to achieve on monetary policy side. some people might suggest this is evidence of a future and not a bug for the federal reserve. they won't financial conditions the titan. not in a dirty weight like we have seen in the last month, but ultimately this is that direction they are trying to push things through. tom: this is the strength of the federal reserve system. mathematics, very sequential and goes we taking a much more holistic chicago and now the chicago of becker, more social view of what the fed can do.

every speech is different. lisa: we do not know what data we are looking at. we do not know where we are heading in inflationary environment. let's say post-pandemic. basically reflecting those unknowns. i am wondering if you wonder about the banking stress, is that truly disinflationary? we do not know that because it could be stagflationary. how do you put these pieces together to understand at a time were still inflation is too hot and today's core number, we are going to get in 36 minutes, could show it is accelerating when it looks to strip out. tom: lest did the data right now. 4.05 on the two year. jonathan: last week we were in the three 60's on the dock so year -- two year. this is what i people are grappling with. where is the signal, where's the noise? is the signal of the noise in the data misses or is

the signal of the noise payrolls report which came in robust resilient? what is more important here? what we learned on friday to get that will learn this morning or at the bank lending data, the look we have had so far which is not a great deal of debt but -- depth which suggests we are seeing some tightening. tom: the confusion is citigroup looking for 10 two rate increases with substantial nominal gdp and an hour and a half later michael darter going completely the other way looking for diminish real gdp, diminish inflation, and a real squeezing of that animal spirit of america. lisa: i do not get the sense that the daylight of both poles, i do not think they are getting closer together. what is going to be the

determining picture where we know maria -- feature will read -- what we know where we are at? jonathan: time and data is going to resolve this. in early may when the federal reserve meets if you get the opinion survey and it does not dramatic tidings relative to what we saw last time, people was a close and clear. i would say you have to wait to the one after that. it will take time and may be getting through the whole of this summer to find out what happens here. if yes economist at the moment what is a long and variable lags for banking shock, let see with the data looks like which is why you get a like goes be saying patients -- golsbee saying let's wait and see what this looks like. if you ever year end dot you're only one interest rate hike away from that it is good news. you have to luxury of time on

your side in a weight that they did not six months ago. the big problem for me would have been at the banking issue haven't six month ago with inflation more elevated and were still debating 50 basis points hikes and they were signaling still some way a of terminal rate. this is a different environment. they moved really quickly. now you get the luxury compared to lack thereof from a ago of having patients. tom: general kimmitt -- on the equity markets and of telling, victoria fernandez joins us chief market strategist. i've heard this from so many people contacting us, emails and newsletter. heads are spinning over the many narratives. how do you invest in equities and measured weight three ways

out given the narratives in 2023? victoria: when you're looking at a portfolio and you're looking at the data because we are data dependent too. i know your conversations earlier were about the bias and choosing the data that fits your narrative, but if we take a larger look at that and look at the whole picture, you're in a time period like six weeks ago or so of confusion. you have bears, bulls and both are adamant. the federal reserve says we are not done hiking. we have more work to do. i think they go ahead and hike in the may meeting and then take their pause. you have recession coming later this year. without outlook we say to our clients, or do we want to invest? where do we want to put money? we did not want to be on invested. we did not want to take money out of the market. want to be more defensive. look at health care.

if you're looking three years out we still think there is positive things you can have their. you look at biotech names. you want to have a little bit more cyclicality. we like clarity cars. -- we like credit cards. a lot of what has been piling into take. i think there is profitable tech. you can go in there as well. look for names like cisco. there are areas to invest but i think you need to take a step back and be more defensive with the outlook we have. lisa: data dependent. we have been talking about how it means something different to everybody in terms of which data points they look at. what data matters most to you? victoria: it is funny because any data point you give me i can probably make either a bull or bear case out of that data point. when cpi comes out, everyone has

been looking at the services number, the core services. what the fed is looking god. i think we need to be looking at the goods component. the good is where we have had disinflationary pressure. it is why we have seen these numbers come down. but let's look over the last month, apparel has gone up. furniture has gone up. use the vehicles have gone up. i would be concerned if all of a sudden we are seeing goods numbers move higher wind that has been the catalyst for disinflation over time. look at some of the underlying numbers, continue to watch the labor market. not necessarily the headline number. it is the joyous number you want to watch. we can make a labor market that starts to have a few cracks by taking jobs off of the table, by

having that visitation right move higher without having laos. watch the jolts number and the good components of cpi. jonathan: that is a soft landing hold. toya fernandez -- victoria fernandez. not look ago it was job openings. we kind of got that last week. lisa: we got that exactly. it should have been positive but people shrugged it off. at what point does data get dismissed? if he does not change the narrative all that much. that is what we keep seeing. it's today going to be a snooze fest if it comes in and in with projections. tom: the market strategist from texas dovetail and resin bag is heated goods is being underweight it right now. the goods inflation is massively disinflationary. if you get to a true deflationary trend in goods,

which is where we were pre-covid, do we need to overweight this analysis of service sector inflation? jonathan: it is always highly dependent on the seat you set in. if you're in the bond market and market participant i was take the word of public opinion the economy is guilty until proven innocent. if you are a policymaker and the federal reserve or secretary yellen, you believe the economy is innocent until proven guilty and the accusation is recession. that's a conversation it will keep haven't. i think that is a disconnect between what the market is pricing and the fed is projecting. i think people in the bond market are willing to do that. that is captured by pricing at the moment with 10 year at 3.44. not so long ago. equity futures positive .1%. a team away from inflation data in america. i have one eye, a sighting of

mike mckee. lisa: keep you up-to-date with news around the world. esquibel vice president biden met with british prime minister rishi sunak before the meeting the white house said it did not anticipate the two would discuss british calls for resumption of trade talks instead they were expected to talk about peace and investment in northern ireland in efforts to support ukraine. the biden administration is proposing a tough crackdown on auto pollution. tell emission limits will be so strict it will compel automakers to ensure two out of three cars sold in 2032 our electric models. there are questions whether car companies can fulfill the limits on carbon dioxide and smog forming pollution. donald trump was a four week delay in the start of a civil trial over his alleged rape of author gene caro. his lawyer says calling all. -- cooling off period is necessary.

the trial in the case due to start april 25. elon musk says most of the advertisers who fled twitter after he bought the company i returned. he spoke of the twitter space interview with bbc that attracted more than 3 million listeners. he also defended firing thousands of workers and he turned the table on his interviewer questioning the bbc over hate speech and covid hit information. -- covid disinformation. global news powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> the last hike was also an ever on the part of the fed. data dependency is fine as long as you are not dependent on the wrong data if you're looking in the rearview mirror you're going to be igniting bust cycles and i'm afraid we're moving into the bus part of this cycle. jonathan: this has been a feature in the conversation this morning on "bloomberg surveillance." that was mike darda. this line right here, it is find to be data-dependent as long as you're not dependent on the wrong data. that's a conversation we have had so far this morning. lisa: what do you know what the right data is? these are the bulls in the equity market saying if you look at the strain in the economy, you're not seeing the recession so stop it. in the bond market they are

saying you're not seeing it yet but it is going to come. jonathan: the bond market being proactive about all of this. discounting this idea that things are going to be all right, ok. equities right not going to the cpi report. equity futures positive not even .1%. yields higher. 10 year 3.44 higher a basis two-year 4.05%. tom: before we get to michael mckee, gregory valliere joins us. it has been a very cool spring on the east coast. the washington weather has been lovely. it makes us look forward to summer. let's go to the debt ceiling and the issues no one is talking about. what is the path of the debt ceiling debate on this beautiful april morning out to july, dare i say to the fall? greg: good morning. to my shock no one assault much

about it. -- to my shock, nobody has talked about it much. taxes will make a difference in the timing. when we hit the wall gallico probably late june. we have to remember they are gone for the whole month of august. kevin mccarthy has bond up in a feud with many of his republican colleagues -- wound up in a feud with many of his republican colleagues and i do not have a deal yet. tom: experts on fiscal entitlements suggest there is trouble out there. within the debt ceiling debate is this a congress that can do -- i'm going to have analysis this year about the -- are we going to have an analysis of the entitlement crisis that could be out eight years? greg: no, that would take too much medical courage. there were not deal with social security and medicare until the crisis is and and we are not there yet. two big fights.

to reduce spending. the other fight is the debt ceiling and a possible default. on the slaughter fight, there is no agreement among mccarthy troops. many that were not vote for a debt ceiling increase under any circumstance. lisa: there's lots of new lands and detail and neither of which plays well in some speeches -- there's lots of nuance and detail anita which plays well in some speech. we are seeing from ron desantis who may be running, we are not sure. what do you make of that, if it increases the politicized nation that the causation of the cpr report related gait and a deep thanks of how to deal with that inflation? greg: all desantis is down in one poll by 33 points. chums ahead by 33. desantis needs to shake things up,

i do not think that is 162 c for him. i will say this about the fed. there is a wildcard at the next fed meeting, it is commercial real estate. it is the concern within the fed that defaults are going to become a bigger story. that may tilt the scales to one more move. they may say we are done because of commercial real estate. lisa: how do they justify that? of their mandate is full employment and getting price stability. how do they justify their going to paul's raising rates in the face of inflationary we are going to get in shortly here by saying commercial real estate looks problematic gallico -- looks problematic? greg: it is hard to justify. they still have egg on their faces with silicon valley bank. the fear of inflation stemming from commercial real estate, you walk around washington dc there is no one in the streets. there is no one in the offices.

the fed has to acknowledge if they say really tight, you're going to get contagion. jonathan: i've always found that about washington. tom: i am sitting in the car yesterday and we do not read the bell the downer but i was in the car and the bottom line is traffic one third what i've seen before. jonathan: i never see anyone in the citi. lisa: it depends where you go. there is offices and then there actual neighborhoods. jonathan: greg, thank you. inflation data eight minutes away so mike mckee me down in washington with this time. the morning. kriti: -- michael: good morning. there are lots of people who think we will see stickiness to it. we expect gasoline prices went up and i will push up headline numbers. used cars will have been in an

unusual situation. at at some point we are going to see housing start to drop because rents have dropped. nobody's quite sure what we're we are going to get here. the feeling is it a slight drop in headline overall if you get an unchanged cord. tom: what is food doing? michael: foot has been rising at a steady pace, 5.4% per month. tom: on radio, washington has the best food. michael: fresh fruits and vegetables were up .2%. i got that right in front of me. lisa: we're talking about this before, i'm curious about this disinflation we saw in goods and outreach inflation of that disinflationary force.

he talked about used cars prices increasing in the month of march. we've also heard a furniture prices are increasing etc. how problematic is that with a rolling recession now rolling the other way? michael: it could be a problem if that all holes. the guide data from barclays and bank of america on credit card spends in recent months and both have reported good spinning down the. they'll take price pressure off. it is the services the fed is still looking at. today we will have the jay powell indicator. jonathan: are you seen a vision on the fomc? -- i see a little bit of the vision on the fomc? michael: no. they all say were going to go one more and we will look around and there are some who say we go will more and we will see if we need to go more. never the dot plot, the median dot was 5.1% that they were

seven above that including one at almost 6%. does not like it is anything new. there would be data-dependent. jonathan: we're just finding out who those dots might be. tom: do you know who the dots are? michael: no. some people will tell you and some people will not. we were pretty good idea jim bullard is at the top. lisa: i'm just imagining who are the men behind the dots. tom: -- michael: they're both very talented and experienced economies. that stays the same. goolsby seems to be more dovish at the moment. charlie evans moved around with where he thought the data was. sometimes he was hawkish and sometimes he was more dovish. the question is what is goolsby does. view to 6.1% and the economy slows down into bc any need for

the fed -- slows down and we see need for the fed to cut rates, how quickly does he jump on board? were talk about 25 basis points move in small increments. jonathan: gone of the day is 50 and 75 and a talking about potential for six. that was only a month ago. it is changed so quickly. inflation data five minutes away. mike mckee is going to break that down in just a moment. cpi around the corner. jace pricing of wells fargo joins us. equity futures just about positive. yields a little bit higher. ♪

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jonathan: the inflation report in united states seconds away. going into it equity futures look like this. just about positive by .1%, a little left after closing unchanged in yesterday's session. nasdaq softer. going to the report were up a basis on the 10 year. 3.43 on 10 year right now. inflation data in america just dropping. mike mckee has more. michael: we are starting off on a good note or at least one that parallels what economists were anticipating. the headline cpi comes in up .1%. it is lower than the .2 anticipated.

this year-over-year at 5% down 6%. a significant drop in headline cpi. the core comes in .4% increase which is what was anticipated. it is down from .5% and we are seeing a core rate on a year-over-year basis 5.6 percent, that is up from 5.5% in february. what we are seeing here is what economists anticipated and whether it is going to give you any kind of significant indication about where we are going is up in the air. the headline number probably influenced by energy. energy down 3.5 percent. gasoline prices down 4.6 percent. we know they have gone up since then. natural gas prices, i guess it is not a surprise given winter is over, natural gas prices down 7.1% appreciate utility natural

gas you would pay. food prices flight -- flat. it has fallen back some. rinse have not made -- rents have not made progress. render primary residence and oer up .5%. we are seeing the housing impact on the overall numbers. jonathan: we talk about the inflation report relative to what economists expected. the market tell you what the market was looking for. yields lower by .9 -- nine basis points. we are back to 390 on two-year. 10 year yields down five basis points. off the back of that, enthusiasm in the equity market, equity futures a bit of a popular three quarters on s&p 500 at the be unchanged going into the

printed. in line for core inflation, down from the month before, headline inflation a whole lot softer than the previous month and a little bit of a downside surprise relative to expectations. equities higher by .753 at a rally in the initial knee-jerk reaction, you'll slower. tom: i'm going to pick the equity market. can you imagine if we got the standard feature level at 4200? we're not quite there. at some point given this economic data, you're going to get a stockmarket cover of the shorts, the caution that is out there. where is that though in the towel move given this economic data? jonathan: i'll paraphrase we are too optimistic about rate cuts and not pessimistic about the reasons for the rate cuts. it is an important call. there's a difference between

getting the inflation the fed is looking for without significant economic pain. there's a worry banking developments will generate significant economic pain and i did not think we are cleared at that hurdle yet. tom: this is the point where michael darter mentioned yesterday, do you get a disinflation with ok gdp you are is gdp come in and that is the reason they have given the disinflation. jonathan: if you're the fmo see and you look at this print you were already sitting there pleading for patient come do you get more information, data on your side to take away the urgency to do more? lisa: no. i did not. i'm looking at this market and not understanding what they're looking at. want michael to weigh in on this. did you see progress other than you have transitory prices that can move in a positive direction? michael: it is the core that went down. the food and energy prices went down significantly.

gasoline prices were down as much as they were we know they have gone up. used cars and trucks down 11.2%. whatever is happening between wholesale and retail numbers, we are not seeing any action created new cars were up 6.1%. there are. some say automakers are encouraging because accused prices higher. lisa: if i wrote the fomc, do i feel confident if i was move towards this pause or cautious approach, with his give me some sense of confidence in that approach -- would this give me some sense of confidence in that approach? michael: it will reinforce the idea you're on the right track and what you need to do leave rates high left so they can relate of effect of your rate increases start to have a greater impact -- humans have the effect of your rate increases will have a greater impact. because of the lags in falling

and getting that into cpi, most economists they will not see it until the may numbers which will get an june. at that point we might see a big drop at it is another reason why the fed may want to express caution coming out of the next meeting. i'm not sure they will say we are done they will dial back the idea that rate increases are automatic. jonathan: quite a move on the equity market. yields lower at the front end by 14 basis points. we often stress payrolls or cpi sometimes these moves did not stake but this is quite significant in the front end. where down into the three 80's on the two year. three 80's is where we were trading -- treasure 80's what we are trading on friday. consensus seems to be the fed goes again on may 3 but if you

were of the opinion the fed should be more patient maybe that provides you with more evidence to be so. tom: i agree that the level is critical. the two-year to seat 3.79. we are not there yet. michael mckee dives into the data, jay bryson, thank you for joining us. one a set of data does not make a trend, we put together three months like this, what is external to jerome powell? jay: if you look at the last six months, that the core rate was up 0.4%. if you look at the last three months, you are still running at an annualized rate of close to 5%. the good news is the rent component is starting to come in. that should continue to put downward pressure on inflation

as we go forward. we are still a long way from 2%. if you are jerome powell, you look at this and say we are on the right track but i do not think this makes the case for a pause in may. this and what we saw earlier in the jobs report, i still think they go 25 in may. lisa: a lot of people agree with you and yet they seem to be pricing out the potential for further rate hikes and possibly a great rate cutting cycle to start the second half of this year. what we have to see to discount the strength in core receipt and this report? jay: we say friday, are you talking about retail sales numbers on friday? lisa: jp morgan earnings. jay: if starting to see signs

there's a lot of stress out there in financial system, with the banks and terms of earnings and credit standards, tightening, that potentially could start to swing things in the direction of a pause in may. what they say, the banks in the coming weeks here. at this point, that would be the thing to say maybe they go into pause. lisa: there seems to be a complacency in markets about the fed will be able to get inflation under control. rates will go back down to 3% or 2% in the next couple of years, i am talking 10 year yields. are you less confident based on the increasing pressure for to pause or take a step back as they wait to understand what the dynamic is? jay: in terms of the longer end of the curve, i can see that going back to 3%. i think given the structural

challenges in u.s. economy today in terms of long-run growth potential, a longer run 3% 10 year yield makes perfect sense. where i have more question is in the two-year yield. i do agree with the view that the fed is going to cut rates by the end of the year -- i do not agree with the view that the fed is going to cut rates by the end of the year. if we have a soft landing in the economy, i'd could see the inflation rate getting stuck at 3%. what is the fed do at that point? does it throw in the towel -- in the towel? they need to get down to 2%, you're not going to see rate cuts at the end of this year. you're going to see rates remain elevated. this little bit of a disagreement with a two-year is right now. jonathan: you are not the only one. thank you on the latest inflation data in america.

yields lower 11 basis points, 3.9 on two-year. equity markets where the real lived. positive .8%. the latest data 0.1 percent month over month angel i inflation. broken in our survey median estimates. much lower than previous month over month move. core 0.4 in line with expectations and slight improvement on month over month read of .5%. the take away from this one, this more life into may it is not provided more reason to do much beyond that. tom: mckee camera shows a mckee the needs to weigh in. what you got? michael: i got everyone's favorite number, core services x housing and it is a

major improvement from 0.43 increase in february 2 0.29. where down quite a bit. the bls it does say in their police it was housing -- in their release that housing and rent shall be cpi offsetting the energy price, because housing is such a big component in cpi. jonathan: equity markets picking up .8 on the s&p 500. give next hour -- in the next hour, all of that coming up in the 9:00 hour on bloomberg tv. lisa: keeping up-to-date with news around the world. china indicated it will maintain pressure on taiwan following is large-scale military drills. maneuvers began at the taiwan president met last week with house speaker kevin mccarthy in

california. a chinese spokesman said will not leave any room for any form of taiwan separatist activity. ron desantis travels to ohio and new hampshire later this week. the florida governor is expected to formally enter the rates after the state legislature wraps up in may. desantis trails the former president by 26 points. emerson electric has agreed to buy national instruments at an all cash deal valued at 8.2 billion dollars. the price represents a 49% premium to national instruments closing price on january 12 that was a day before the maker of measurement systems announce a strategic review. mortgage rates in u.s. has dropped for the fifth straight week their lowest level in two months. the contract rate for 30 year fixed loan falls 10 basis points

to 6.3 percent. the groups index of mortgage applications rose 7.8 percent. american airlines says it first quarter profit will likely fall short of wall street's estimates persistently higher costs are countering gains from travel demand. there have been signs that consumers are upping front lower fares and every since flowing in bookings. global news powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

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(we did it) start today at godaddy.com >> i was at the front line of the 2008 financial crisis. every time we thought in 2008 we have done enough, it is over. things flared up again and got worse. i'm not ready to declare all clear but there are hopeful signs that these risk are better understood and calm is being

restored. tom: as we heard from goolsby chicago yesterday, the fed president for that important fed best in the nation on the childcare economics. they on the high ground on this coming out of the pandemic. what are you going to do about infant care in this nation? we are going to get a jeffrey rosenberg but we have to mop up. the bond market. i'm looking at the two year. what are you look at? lisa: fed fund expectations and slightly coming off the number of people who are expecting the fed to raise rates at the may 30 meeting but still price in. it is the rate cuts after that i get my attention. pricing in 100 basis points again of rate cuts by january. thus this report enough to justify -- was this report enough to justify inflation is

coming down and yes it is going to come down enough to necessitate rated by? tom: themes here in washington. meetings of imf and world bank but inflation analysis and markets moving on this. certainly a lift to equities with lower yields. to synthesize, jeffery rosenberg, a portfolio manager a systematic multi-strategy fund at a black rock. it is been chaos. i'm fascinated with your wide mandate at a black rock. how you survived 2023. what have you done to your portfolio given the cacophony handed to you? jeff: it is a good framing for the question. it is particularly early period of heightened uncertainty around the outlook.

talk about in the early segments in terms of uncertainty around inflation. we are moving through this period into a new period of a pause and reflection from the fed, whether they hike in may or not. for our portfolios, it is made directional exposure, where the markets go up or down. pretty challenging environment to try to pick that direction. we have the benefit of being able to do a lot more flexible things around our portfolios. to take away the direction and look underneath the hood and played the dispersion we see in markets. one of the big stories is exceptionally high interest rate volatility relative to low equity volatility. the low equity volatility is a story at the service. underneath there is tremendous amounts of dispersion and were

trying to take advantage of that and leaned our portfolio into dispersion. lisa: as you avoid trying to take a call on what is going to happen on a time where it seems to be possible. i will love your read on what we just experience, and in line with a for cpi. core cpi coming in line with expectations and this market chairing and expecting greater rate cuts. does that make sense to you? jeff: i think jonathan ferro send this in a couple of contacts be careful about the initial market reaction as to whether or not that is a longer run message but the initial market reaction is talking about the beat on headline and the impact on food and energy prices. it helps and helps a lot in terms of the objects around inflation going down. that is the near-term market reaction. the stuff i am focused on is

about the labor markets, it is about wage inflation. it is about what we see in this report is the services. core services, that is shelter. there is a little bit of a trend coming down. i would not read a huge amount into this report in giving the all clear for that much more important and durable services inflation. it is a positive in that it is not a big negative surprise of board. i think the market is trading a little bit off of that but mostly most of the headline. lisa: as we careened towards may three at meeting of the federal reserve, what are you watching to get a sense of what is going on in real time beneath the hood with credit lending, expansion or contraction nearing? jeff: the big uncertainty, and

powell characterized it very well, the direction of the banking crisis in march is to contribute towards tighter financial conditions, to contribute to a transition of tighter monetary policy. the direction is clear. the magnitude is not. one is focus on the weekly aa's report -- everyone is focus on the weekly report. bank lending and bank lending expected standards have been in place while before the banking crisis. the issue is not whether or not it banks are tightening credit. the issue is how much did the banking crisis in march accelerate those trends. that is hard to measure. it is a celebrated some that we can measure, that is the pause is moving out of banks and into money market funds, waking up to it is no longer zero interest rates. that is perhaps a celebrated the funding because of banks -- accelerated the funding cost of

banks. where there is a real issue or economy issue remains to be seen. tom: as the equity space we can talk about bull market, bear market. in the bond market we do less. are we in the beginning of a bond bull market which is generally priced up , and yield down and if i use the 10 year for epoxy, do you frame out a lower 10 year is one or two years? jeff: the jury is out on that one year, two year framing of the question. what is been happening the last couple of weeks, remembered pre-banking crisis we were debating 50 basis points hike and whether the fed needed to do more. we kind of forgot all about that because it is much more a pivot

for is that this banking crisis a celebrated tightening. the jury is out but the momentum in the bond market is towards more of a focus on recession risk and ask lisa was talking about, the pricing in a very rapid turn towards fed rates. we think it is overstated but that is where the market is. tom: people are saying long-duration does a better come up big tech and equity does better come this time for jeffery rosenberg to do a vendor hide and read out from 30 years ago the need to go out and buy coupon bond to play a long-duration play over a year or two years? jeff: the long-duration call is really about recession verse inflation. after today's report, it appears inflation fears are waning and that is going to give more credence towards the notion that duration come once again played

the diversifier in a recession environment. when to be out as far in duration as you can stomach -- you want to be out as far as duration as you can stomach. we are more cautious on that view. today the market is paying off headline. it is the service peace and inflation from the wage picker, we still need to see that loosen up before you can say it is all clear and vary back to duration -- and we are back to duration. if you get the recession, but it becomes much more vulnerable if inflation is more sticky than we are currently anticipating. tom: thank you so much. i think this is absolutely critical. the way i would look at this is the visible, tangible bets on a short the stock market that is out there. nobody loves equities right now

wish tells me nobody loves long-term duration, fixed income. lisa: i do not know how we can understand what people love our do not love because they are buying protection against a downturn. they are renting their protection. they're not necessarily selling and you're seeing that with the big tech people have bought a bit in the past couple of months. in the bond market, i do not know how much signal the bond market got noisier and noisier. that move index with volatility surged to the highest levels in more than a decade a couple of weeks ago's. you are feeling that turn in trading positions. tom: the meetings of the imf and world bank, many narratives including defragmentation between america and china -- the defragmentation between america and china. stay with us this is "bloomberg surveillance" ♪

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jon: good morning to you all. the countdown to the open starts right now. >> everything you need to get started for the set of u.s. trading. this is bloomberg the open, with jonathan ferro. jonathan: live from washington, coming up, the latest inflation data. keeping a may hike in play. as the fisher emerges between fed officials, equity markets picking up going into bank earnings. we begin with inflation in america. >> it is about inflation. >>