>> things are fragile in this fragile world and the too big to fail a reaping the benefits. >> if we don't have a big recession as many people think, the credit problems for the banks will not be that severe. >> we are seeing a liability side problem. >> there's something sick within these financials. what that is will reveal itself over time. >> i don't believe we have seen the end of this yet. >> this is bloomberg surveillance. jonathan: what a mess, live from new york city for our audience worldwide, good morning, good

morning, this is bloomberg surveillance on tv and radio alongside team -- tom and lisa abramowicz. your s&p 500 is just about positive. that quest is down another 12% today. -- pack west is down another 12% today. tom: we have to see which symbol matters this morning. i don't think we know which ones will be thursday for thursday of next week or a month from now. what a conversation, kaplan of dallas, the former fed president alluding to the mysteries we have on these regionals. jonathan: his precise words were i think the banking situation be be more serious than we currently understand and chairman powell is just around the owner. what is this fed hiking into? lisa: they are hiking into weakness in a much everyone

knows that. that seems to be present here but the unknown is what oversight we have. when robert kaplan talks about how this is nothing end, is it a drip of deposits or general pain or is there something else? tom: this is a qualified guy. good morning, dr. sahm. kaplan is a finance guy and a goldman sachs guy and he steeped in the dynamics of southern banking. for international audience, these banks are a different fabric that may be what you would see in new york. julian emmanuel reaffirming anaheim and a second half recession. jonathan: here is the call from them. they frame it pretty neatly, more deposit out floods lead to less lending and less profitability. at the same time, you look on

the tv screen and listen to the radio, 4%, these regional banking enterprises can't afford to do that. lisa: the margin gets squeezed but why would you go into a bank that has profitability challenges and difficulty lending in this environment? they are backing the regional system in a more comprehensive way perhaps with legislation but it's hard to see what will stop this trend. jonathan: this goes back to a professor from cornell. he said we have two choices before us -- either we preserve air systems by removing fdic insurance or we allow financial as wall street banks to take hold. tom: financial lights is the word here and that's where the fed comes to the rescue. this meeting is this news this afternoon.

can we agree on that? lisa: absolutely not. tom: what he says about the financial's asian -- financialization of the banking system will be historic. now many prepared statements will he have? jonathan: there will be a lot of reading from sheets of paper. the one thing we want a preview of is the single loan officer preview that was due to be unveiled next week. that's been a focus for you and i for a number of weeks. lisa: how much is that change the tone and feed into the dissent we might hear in a meaningful way as it becomes more divergent among fed presidents. jonathan: at the index level on the s&p 500, no sign of stress, is it -- positive 0.2 percent but in the bond market, monday,

the curve shifts by 10 basis points and the curve shifts lower on tuesday. down another three basis points on the session. going into the ecb tomorrow, the euro north of $1.10. finishing on crude briefly, wti dropping below 70 for the first time since march. crude in london below 75 for the first time since march with prude starting to break down more. lisa: those are concerns about recession. we get economic data including adp employment at 8:15 a.m. and ism services or april at 10 a.m. and i'm curious to see the adp report after the jolt data came out with the fastest decline in job openings ever. also we see this ongoing weakening in the labor market. at 2 p.m., we get the fed rate decision followed by the news conference half an hour later.

the special here starts at 138 -- p.m. eastern. we also get a slew of earnings. qualcomm represents the chip sector and how we are entering a downdraft, coming out before a recovery. jonathan: looking ahead to the earnings later and tomorrow as well. apple is coming up after the close. let's go through the names together, svb, signature bank, silver gate, credit suisse, first republic, yesterday the stocks of two banks got hammered in the u.s.. how many more of these things do we need to see before we stuff calling this idiosyncratic? >> that's a good point. are we entering a banking crisis here? i agree with you but i think the market was to see solutions to those banks named and there is not really a new name coming up i think you need solutions for

that i think the fed would also take this into account in their meeting. those names need to be seeing solutions but otherwise, it could follow up -- it could cause further stress. the whole index level is ok so you need to focus on the u.s. regional banks. once you see solutions, i think things will get better. tom: i did a fancy technical study today involving access and i was burning incense about the price of bonds, the price of debt and we are nowhere back to the middle tendency of the low rates we had. how far does the fed and other central banks have to go to find stability and normality within the bond market which falls into the banking industry? >> that's a good discussion about the rig where the central banks are going. i think the fed would do 25 and

then do this hawkish pause but i'm not been the camp of cuts at the end of this year because i agree that we probably need that at a higher level. i think inflation is quite sticky we are not back to an environment where yields have been. my view would be that we are not going as high as in past cycles because we are coming from a low level. the absolute number of hikes is a role to play. lisa: talking about the whip sewing action in benchmark treasury deals, what does the fed have to do to get this under control? is it a messaging issue or is it not their job? >> probably not their job to be honest but their job is to look at market stability and if you look at the bond market volatility that has been higher

than equity volatility which is unusual, you look at the highs during the crisis, you had higher equity volatility. you wonder hope for the fed will go in now you can see high followed ability in the bond market but if you compared to last year, it's been coming down. that's the trend we will see once the market realizes that the fed has been at the level where it stops. the ecb coming in tomorrow is doing more. lisa: how stabilizing are these swings? how destabilizing are these swings and deals? >> from the perspective of you need to build as of bank or a company on yields expectations, i inc. is destabilizing if you have high volatility in the

space and it's unusual to have such a high volatility. if we get to a new normal, i think it would be wrong to assume that bond volatility would be super high as it has been for many years.+ where we are in the cycle, we expect the rate hikes and that volatility should come down. i agree it is destabilizing if the volatility is high on the bond side. jonathan: what is your favorite investment idea right now? >> we are cautious on the equity side. we are underweight equities and that's the most important for us not only know but going forward for the next two or three years because the environment is changing. the index level seem ok but you need to look at the long-term investments. i really like metech because there are so many changes net the defensive space.

jonathan: thank you for being with us. some of the difficulties in the banking sector in america now. a fantastic conversation with robert kaplan yesterday and he pointed out we've had the rate shock. what we haven't had yet is the more serious phase is the credit shock. we've had the rate shock so will the credit shock follow? tom:i you mentioned the financialzation of the banking system and you go over balance sheet assets. that's the angst in banking. take the idea of deposit dynamics, do we know what those are for pac west? we don't really know but jerome cassidy mentioned the real haircut right now that has to be priced into these banks which is getting over the tangible market versus interest rate dynamics in

the financial part of the market. jonathan: the most recent update on deposits from these banks is they think things have stabilized. the first quarter was not good with things have stabilized since the end of the first quarter. this will spook them all over again. lisa: at a certain point, if these banks stop lending, all of a sudden companies are in a worse position because they are not getting loans and it builds on itself and that cycle gets people nervous. jonathan: it becomes a self-fulfilling to some extent. equity futures are posited by 0.2% and a federal reserve rate decision around the corner and another bank has failed this week and yet the central bank is set to hike 25 basis points once again. from new york, this is bloomberg. lisa: keeping you up-to-date with news from around the world with the first words -- the federal reserve appears ready to signal a pause to its aggressive interest rate hike

campaign but not before raising interest rates another 25 basis points. policymakers wrapping up their two-day meeting today with tighter lending conditions and signs of slowing economy suggests inflation cools more in the months ahead. a number of days before the u.s. reaches its debt limit and its reaching a possible resolution. either republicans break their vowel on a clean debt limit increase or democrats concede and agree to discuss spending. the treasury could run out of sufficient cash by june 1. the u.k. plans to loosen ipo rules to make london more attractive as a financial center. that's after a dramatic drop in the number of new listings in the city. the financial, authority wants to replace its premium and standard listing categories with a single offering in a bid to attract more companies. in texas, law enforcement has arrested the man suspected of shooting five people in a

neighborhood dispute. authorities say he was found hiding in a closet underneath some laundry. neighborsa gun in his yard and i says heortune got hammered after a short seller hindenburg research accused him of using a ponzi like structure at his investment firm. company shares plunged and his net worth dropped an unprecedented 41% or 10 billion dollars and he has rejected the claims. global news powered by more than 2700 journalists and analysts in over 120 countries, this is bloomberg. ♪

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>> i would prefer to do what's called a hawkish pause, not raise but signal that we are in a tightening stance because i actually think the banking situation may well be more serious than we currently understand. i think we are in the early stages, not the late stages of this banking situation. we've just seen the first phase of this which is asset liability mismanagement which is the most obvious issue. but the credit issues are about to start. jonathan: a fascinating conversation there with robert kaplan, the former dallas fed president.

they had that conversation yesterday evening and credit problems are about to start and we've heard that from many people. commercial real estate is a theme that people keep going back to. lisa: there is a fear we are seeing the effect take hold in terms of raising rates. how much further do we have and that's the fear that we have not seen the worst of it in it will percolate through the banking system with credit risk. jonathan: there is a new stock on the radar. pac west got hammered yesterday but western alliance, that is -7.5%. i want to pick up on the language that evercore used, it was a speculative attack. how much was at the shorts

coming out of first republic into the ground? tom: it will always be part of the discussion. the idea that the shorts are there is because they have an idea of what's going on. i would suggest that we haven't talked enough about deposits of these other banks. at first republic and svb we did but what's the deposit story there down? jonathan: we know q1 was dreadful. we got to some of these companies that were destabilized and that's the latest. tom: maybe they will say something this morning in the premarket. to continue our banking coverage, we thank the many emails and coverage we've had and we had jerome cassidy with this yesterday. let me begin on deposits and that is at pac west $34 billion

-20 $4 billion or do you have any belief instability or do people in beverly hills are transferring to jp morgan? >> that's a big story and it's a silent majority, individuals, households moving out of non-interest-bearing or low rate into higher rates and this is significant in this is like the groundswell that doesn't get the attention which is this mediation of average people out there saying i can get a 5% deal. that is the first battle in the second one is what we are seeing with specific banks for what's being viewed as a bear case scenario. jonathan: to worries here, worries about return of capital and worries about return on capital. do you think we've moved past the phase of worries about returns of capital and we are now firmly in the ground of

people saying i can get four or 5% elsewhere, i'm gone. does that move around return on capital? does that take you back to square one and fuel concerns about return of capital? >> i wish that was the only risk for the banks which is essentially comingbasel 3 and higher capital buffers or because of what's happened here in the u.s. that we see a raise on capital. that's the intermediate and what's notable today is that it's easy for the bear case scenario which is not us. it says we saw earlier that the backstop for banks on m&a is to wait until they get to the fdic you get a lost share agreement. it's hard to have a premium for these. it's the opportunity where these

banks of the difficulty in defending themselves mostly due to perceptions rather than reality as to what their balance sheets look like. lisa: if we do enter a recession, facing the stress these firms have already experience, are they really strong enough to withstand deposits coming out and true credit risk on their loans? >> i also cover the office market in real estate and that will take six months or longer. as we move into the credit risk for that part of the balance sheet, there will certainly be greater concerns or fees which gets into the market much earlier than what weekends -- than when we can see the impact. it will be more significant for the smaller banks than the larger banks. looking back three years from now what we will see is 3200 banks might only be seven or 800 and the publicly traded banks

will be much smaller because it's harder to frame when you have these waves. tom: on your mathematics, with all your experience, it tells me the fifth bank of the united states, jp morgan and bank of america will consolidate and get larger. is that where we are going? are we on the edge of a canadian or european structure? >> we are moving in that direction. quite honestly, senator elizabeth warren talks about too big to fail and trying to make banks smaller but that's a story from years back. we are in a new environment and from the standpoint of financial stability, it is important for the fed and regulators to look at this and see that there are benefits with scale. that's the direction we are moving. jonathan: i'm trying to work out what a circle -- what a circuit

breaker might be. can you think of a circuit breaker that is not just rate cuts? what solves this? >> we would say months ago it would be quantitative tightening or easing and playing around with mortgage backed securities and treasuries which was true in the first week with silicon valley bank where you went to quantitative easing with a quarter billion at the window. unfortunately, the fed walks slower than the market. we've been reading all the reports, the supervisory reports and it will take time for them to check all the items on the list to make sure smaller banks are safe. there is different cases in the markets move faster than regulators or the banks. jonathan: do we need rate cuts?

>> not yet. tom: we are on fed watch here. jonathan: thank you, appreciate it. it's about whether these banking models demand lower interest rates. can regional banks get by without lower interest rates? he's talking about deposit flight for a better return on capital because you can get four or 5% elsewhere. we know these institutions have got a lot of loans that are essentially two or 3% mortgages. that's problematic when you've got to offer four or five to keep deposits. lisa: they say the market moves faster than the fed and they aren't identifying these issues and saying these models are unsustainable. i feel this is someone working out intensely and they know it will hurt later and they are not sure how much and they keep going and later, they might be on the bench for two weeks. we just don't know how much more pain there will be tom: in the system. tom:it may be creative

destruction but i would call it the clearing of markets and you have to clear this out and it takes time. my experience is that this is an old british phrase -- you are overcome by events. this fed will become overcome by events and that's certainly in my opinion. jonathan: i think we talked about this last month when svb went under. first republic is going under and they are still about to hike interest rates. tom: ian bremmer and others have mentioned a washington mutual equivalent from 2008. jonathan: jp morgan is coming right up, from new york, this is bloomberg. ♪ the first time your sales reached 100k with godaddy

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jonathan: fed decision today, 25 basis point hike around the corner. on the s&p 500 right now, equity futures are posited by 0.2% and the nasdaq 100 is positive. there is, the index level which masks what's happening with the regional banks. on monday, we get prices paid on the ism manufacturing coming in hotter than expected with yields higher. meta and other companies come

out and kicking around the treasury market, yields are higher. we unwind all of that and weird to act down -- back -- and we are back down below 4%. that's going into the fed, going into the fed thursday with the euro against the dollar, $1.10, firmer by a third of 1%. socgen this morning was looking at 50 from the ecb. a couple of banks looking for 50. tom: they say let's be prepared to be surprised this afternoon. moments ago, nice break of west texas intermediate.

jonathan: two banking names get our attention, pacwest western alliance got hammered yesterday. western alliance down 4.6% and still at 2 p.m. eastern time, we expect the federal reserve to hike interest rates. bruce casper wrote this? - let's have a look at that quote. tom: it's a hawkish bias. we will see with the template is here at 10:00 a.m. michael mckee will ask questions later on. bruce casman joins us from jp

morgan, the chief economist. the imf stunned with a five-year view of tepid global growth. west texas intermediate has a 69.0 we are already at 69.57. is oil the one metric leading us to a global slowdown as the imf called for? >> i don't think right now oil, given everything that's happening geopolitically and given how the market is segmented is its telling you very much about growth directly. i will put more weight on what we are seeing in terms of the survey data. the u.s. is pretty sluggish and is probably lagging the rest of the world local growth is actually picking up through the first quarter into the second with china and europe doing quite well.

tom: reaffirm the jp morgan call on china 12 months forward. there is doubt about the chinese expansion, do you agree? >> i think there is plenty of doubt about where china will be over the medium term but there should be no doubt about the fact that this is an economy that's reopening and it's got depressed level of activities that's got policymakers which i wouldn't call supportive that they are definitely moving away from quite restrictive policies of the last year. we will see 6.5% chinese growth this year and that will fade but i don't think it will fade until later this year. we still have quite a few months of china strength ahead of us. jonathan: the federal reserve a little bit later. it's anticipated more policy firming will be appropriate.

how do you expect the language will change in this statement? >> i think it's going to change to be more equivocal instead of talking about additional policy firming, they should talk about any additional firming will be dependent upon and talk about the economic conditions as well as the assessment of financial conditions. it will be an equivocal hawkish bias but not point directly to tightening. it will keep the conversation on the possibility of tightening. lisa: do we have a sense of the balance of risks in terms of inflation re-accelerating versus a financial market crash with lag effects just starting in the regional banks? >> as you noted, there is a lot of risk here with inflation that still elevated and showing quite a bit of persistence. there is stress in the financial system. i think we should mention that everything that we see is telling us we have underlying, strong private sector.

this is not a private sector that is fragile and the way these things interact is going to be interesting to see. we think the economy is less likely to slide into recession in the near term. we think inflation will not come down we think the fed will cause in the face of these uncertainties and how that plays out six months from now becomes an interesting story. we think the credit drag will be material. but we don't think inflation will come down by itself. the case for fed easing anytime in the near term i think is not that strong. lisa: even just staying with rates above 5%, there is a question at a time when you see the job openings come down at record pace and the idea of smaller banks that are facing in existence a threat as people try to game out what that credit stress will look like. how do you get the sense that inflation still the preeminent concern? >> obviously it's not a

preeminent concern if the fed goes above 4%. what you will see today is a fed that is worried about inflation but is balancing it against the backdrop of concerns about financial stability as well as the idea that has moved very fast and it may be desirable to take a pause. the fed is not focused entirely on inflation. tom: contrast to 2008. i saw an inflation-adjusted bar chart of the washington mutual and company debacle of 2008, inflation-adjusted to the number of banks we've seen recently. when does the fed blank? how far does that bar chart had to grow up for 2023 when the facts change? >> the fed has blinked. powell and his congressional testimony talked about raising the terminal rate significantly. they didn't do that and now they

are moving toward a pause. i think we've gotten a shift of about 50 basis points on the fed in terms of guidance which is not based on what we are seeing in the economic data. i think the fed has shifted but to get the fed to think about easing in an environment where inflation is strong, we need to see a growth break or a generalized financial crisis take place, neither of which we will happen -- neither of which we think will happen anytime soon. tom: we don't see the financial crisis but to go back to maynard kaynes, when the facts change, the fed will change in how close are we to that given fbi see - fdic and senator warren? there's a point where they say we have a problem. >> and i think we see the fed operate on its liquidity facilities and we are seeing the fed moved to a pause in an environment which they otherwise wouldn't. the question you're asking, is

the fed going to preemptively ease without the economy having shown that damage? i would note that in terms of the way financial markets are functioning more broadly, they are still quite healthy. there is a lot of credit being issued in the market and a lot of private funds of equity. we are not seeing spillovers to the dollar and the rest of the world. we exceed a significant risk here and i don't want to ignore that, but i think you need to see that risk realize in a more tangible way before you talk about the fed easing. if the economy breaks and we are sitting on friday with a negative payroll report, we will change the conversation. i don't think that's the likely path we will see in economic data. jonathan: great to catch up with you. tom: can we quote him on that? jonathan: we are looking for something like 180 thousand in payrolls friday. who knows what we will get? we get surprise after surprise with resilience of the labor

market. 3.5% unemployment does not screen recession. many people says it does not scream rate cuts. lisa: voodoo people in the market trust as to how things are going forward? they said how many risks can the fed underestimate? the list keeps growing. at what point has the fed lost the upper hand when it comes to guiding markets? tom: they said you need a more polished take -- a more holistic bunch of bad effect. there is a huge move in interest rates. . when i look at the geometry of the bloomberg terminal of the increase of rates were normal -- and guessing were normal is, we are not close to normal. we have a lot of work to do to get price up and yield down as a

general statement. from a euclidean basis, we are miles away from this desired word normal. jonathan: they've been totally exposed to the rate shock of the last few months in a way that wasn't anticipated. this is the rate shock but we have not had the credit shock. they say we don't have the leverage in the system but this is a rate shock, never mind the credit issues. lisa: this is the 1986 snl banking crisis all over again. you make things more expensive for them to finance and then they lend less and that lending creates a more negative credit backed up in their loans start to sour, etc.. this we have not priced in. tom: that came from a different place from where we are now.

the number one thing to me is it's the rescue culture. we are trying to do this were no one gets hurt. it was 1986 but people said we need to close for banks, you go to philadelphia and you go to texas and you've got to go to some other state you didn't want to go to that weekend. jonathan: do you want to state -- say what state that might be? tom: no, i don't. lisa: it's basically that we are not portraying it correctly. is it a crisis?] is it 1986, we just don't know. jonathan: i'm following the program and like you to think about this. lisa: it's wall street, just be blunt. jonathan: why be so rude?

lisa: keeping up-to-date with news from around the world with the first word -- the federal reserve is expected to deliver his 10th consecutive rate hike today since march of 2022. another quarter-point raises anticipated and possibly the last in the cycle. tighter lending conditions and signs of slowing economy could cool inflation and that announcement will be at 2 p.m. ukrainian allies want to close more russian sanction loopholes and plans will be unveiled at a g7 meeting this month. multiple rounds of sanctions another economic analgesic imposed on moscow have bettered russia's economy but they haven't delivered a knockout blow. the biden administration will deploy 1500 members of the u.s. military along the border with mexico. a surge of undocumented immigrants is expected once pandemic beer restrictions are lifted this month.

the troops will not serve in a law enforcement capacity and will not interact with migrants. eli lily's experiment of drug for alzheimer's slow the progress of the disease in a five stage trial and that paves the way for the company to apply for u.s. approval. they said the drug slowed the disease by 35% every year and a half and the company spent billions of dollars in decades of research on alzheimer's. global news powered by more than 2700 journalists and analysts in over 120 countries, this is bloomberg. ♪

>> you have a banking crisis and his credit squeeze in a cost-of-living crisis and all

that is manifesting itself into weaker demand and got surpluses and oil from iran and libya and venezuela and ultimately my concern is that while that could see the for the reduction of oil, it's creating massive supply risks in the future. jonathan: great to catch up with the global head of energy at jp morgan there. if you are waking up this morning, $70 on wti, down 3% and crude in london is 75 for the first time since march, down close to 3%. that's the move in crude so let's get to the broader equity market with the s&p 500 positive by 0.2%. yields are coming in a couple of basis points on the 10 year, yields up in a big way on monday and down a big way tuesday with

the volatility in the bond market all over the place. the euro is one dollar 10 cents, stronger euro, weaker dollar off of that back of -- are for that -- ever the -- after those moves yesterday. pacwest bouncing off the bottom a little bit and western alliance doing slightly better this morning relative to an hour ago. down about four per 6% there. tom: we are talking about the shorts and deposit mysteries as well. joining is now on oil is the cofounding director of research energy aspects. i want to go to a british phrase, elasticity. i'm going to use responsiveness. what is the responsiveness of oil to a china slow down?

it's a global slowdown so what is the responsiveness of oil demand? >> oil demand is driven by economic growth. china in particular has been the biggest driver of oil demand this year so far that's expected to remain the case next year as the economy is still opening. i think a lot of that china slow down fears or little overblown because a slow down has been mostly in the manufacturing side which is due to the fact that the u.s. and europe are simply not consuming and buying enough goods. the consumer side in china remains strong because of the reopening and i'm not actually very worried about that. the problem really is in the west. you have monetary policy which is pretty much at odds with fiscal policy. it's inflationary and the

governments are pumping more money into the coming we have central banks that have mandates to get inflation down regardless of structural supply-side issues and that's with creating and a norma cement of uncertainty. oil demand is not weak even in the u.s. where we have forecast declining year on year demand growth. this is about the fear of what could happen to oil demand in the future. lisa: right now, we are seeing people price in a recession into oil prices in the west at a time when there is tightening credit conditions which could lead to a lack of investment which cause i will prices to go higher later on -- which will cause oil prices to go higher. do you agree with that outlook? >> absolutely, we have a structural supply-side problem in this market, particularly

between 2023 and 2026. we first highlighted that back in 2018 because beyond opec, nobody else has been investing. the lower the prices go now, we have seen shale pullback and tighter credit means they will not be growing much anyway. you are actually going to see a much bigger supply-side problem which goes beyond 2025. i think that's the real challenge, who else is investing? lisa: how low can prices go before that pop? we see oil prices being one of the disinflationary drivers so for this year. if they become inflationary driver, this could create an issue so how far down could they go before popping up? >> i think in the short term with all the issues around the

uncertainties around the u.s. debt ceiling, i think we could see a six handle for wti and brent. it genuine supply demand were to weaken, that's the dichotomy. physical strengths are weakening. opec cuts have not even taken place. if we get a deterioration in supply demand fundamentals, opec will step in again but right now , the cuts have to materialize to see the tightening. what we see in oil prices is the fear of uncertainty and pretty much being driven by central bankers and their policies. jonathan: thank you as always. wti is 69 and brent crude is 73, breaking down a little bit here. in the next hour, this letter signed by 10 members of congress yesterday to the federal reserve

ahead of the federal reserve decision, i find it staggering. we've criticized the previous administration so much for weighing in on fed policy. at least 10 members of congress led by senator warren had this to say -- i get this letter is signed by the usual suspects with this is not the way it's meant to be. tom: i would mention jobs in small businesses. jobs seem to be pretty darned good. employment is a massively lagging indicator and it's still pretty good. small businesses are basically flat on their back. that's my generalization. we are in an economy where some

regions are doing well but the rest of america are struggling in small businesses are like voters. jonathan: what's the for independence? tom: voters. do they have independence in england? central bank independence as a whole new thing. this ended with greenspan. none of this is imaginable during greenspan. jonathan: was it wrong when the trump administration did it but it's right when elizabeth warren does it? tom: i think it's an equal opportunity complaint society but it used to be quite removed. after the financial crisis, it's not. lisa: the fed has always been politicized. the concern is we expected a push-pull with inflation so high that it would be more balanced on the fact that is getting politicized and pushing back

against rate hikes this early given where we are inflation and we still have a strong economy points of the political pressure especially heading into an election cycle. that raises the question about fed credibility for independence and political interference at a time when there are still openings on the federal reserve board. jonathan: to your point, some of these openings on the fed board will have to be confirmed by this senate and you wonder whether this shapes the white house and their view because who could they get confirmed by individuals saying these things ahead of lisa: lisa: a fed decision? we don't really know the trajectory of the economy ahead. we just had an incredible shock in the pandemic and with respect to the geopolitical shifts and suddenly, we are looking and economy were half the people say inflation is still the preeminent concern and other people are saying we are

careening toward some sort of recession and it will hurt the regional banks. tom: we've been heading toward recession for at least two years. second half recession has been reaffirmed. i would suggest that every bit of history says the fed is data dependent on inflation and jobs. that is their mandate and they happen to be lagging various shades of lagging data. you have very shades of lagging central-bank and that's where we are now after 14 rate increases. jonathan: i'm saying that letter is highly irresponsible because you cannot believe in central-bank independence when it suits you. to do that going into the fed decision is just a bit of a joke. tom: bad form.

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>> things are fragile in this fragile world. the two big to fail are reaping the benefits. >> if we don't have a big recession, as many people think we're going to have, the credit problems for the banks will >> not be that severe. >>what we are seeing right now primarily is a pause. >> there is something sick within these financials. what this is, i think will reveal itself over time. >> we haven't seen announcer: the end yet.

announcer:this is bloomberg a "surveillance" with jonathan ferro, tom keene, and lisa abramowicz. jonathon: good morning, good morning. equity market positive by 0.1% on the s&p 500. western alliance trying to bounce into premarket, still -.46%. yesterday, an ugly session. tom: that is a stagflation session. but it does come over to banking. so many institutional players are saying that was harsh, it is all over. i got a lot of pushback about first republic. jonathon: the former dallas fed president essentially said the same thing to our colleagues yesterday. he said to wait for the credit.

lisa: and we don't know what these are. this will be a self fulfilling prophecy, when you have a situation where there are fewer deposits, ending into weakness at a time of rates staying high. jonathon: we have a great guest around the table with us. equity market positive by 0.1% on the s&p 500. bond market, yields up. tuesday, yields down or than 10 basis points. today, down 2. tom: what did they do? exxon to the rescue. jonathon: wti on handle for the first time this month. lisa: is this really sensing out some true weakness? we will discuss that. the fed discusses adp employment at 8 a.m. i'm cares to see if there is a

follow-up on weakness we saw yesterday. 2:00 p.m., the fed's decision. 2:30 p.m., jay powell's news conference. we will begin our conference at 3:00. earnings continue after the bell. zillow, trip advisor, marriott. it hasn't been so bad, which perhaps offsets some of the fears people had. tom: zillow is up 30% this year? jonathon: i wasn't aware of that. lisa: i did that this morning and i figured people thought housing declines were over. jonathon: where are they? they are not coming. tom: this is really granular new york city politics. they are looking at rent stabilization and looking at 16% lived for landlords for the next

year. jonathon: that doesn't stabilize anything. tom: no, but that is what senator warren and her letter to the fed are alluding to as well. it will be fascinating. jonathon: can we excuse the senator warren letter? tom: it's like greenspan. jonathon: as long as we are consistent about it. lisa: i take your point. i think there is a problem with creating political pressure at a time when we still have risks that are weighted to inflation, as a loss of jobs. that is something very important. jonathon: from my perspective, it is not about the federal reserve today, it's about someone trying to get attention ahead of the fed decision. it is about the senator who signed the letter. this is problematic because this is happening with unemployment at 3.5%. if it starts to decline and pressure builds, people start to

believe the fed is moving because of political pressure. then, i think you have much, much bigger problems than just regional banks getting into difficulty. lisa: some would argue that the volatility we have seen in bond markets in risk assets. people don't understand this calculus. word is political risk come in when financial risk is so clearly? jonathon: it's easier to send a letter. cut rates tomorrow. victoria fernandez joins us now, chief analyst at? . -- at crossmark. we keep saying this is idiosyncratic. do you think it is he? victoria: to an extent. don't think you will see huge losses like that in those

takeovers. those are probably done. what i am concerned about is when you look at these banks, look at the end of last year, 2022. there are bank balances, the writeups they would have to do, it was 28% of their total assets for banks across the board. people were not really paying attention to that. if we go and get a commercial real estate issue coming more and more into play, that is to 25 percent for loan banks. europe is smaller than that. we combine all of that together, rates higher, and i think we have more of an issue. not global, but not idiosyncratic either. tom: i would suggest you are hardwired to this being from texas and there is more regional banks. down in texas and across the south.

what i want to do is fold this into what crossmark and others have said. you allude to the milwaukee bucks, which did not work out. you don't want to exit the cash. how do you play the market, given the tensions lisa, jon, and i have been talking about? victoria: we don't think clients should come out of the market, you should stay in the market. when you look at defensive leading the way, underperforming low beta, leadership being very thin, the russell play thousand breath line at multiyear lows. he have to focus on quality factors out there. he want to have some exposure both cyclical and offensive in your portfolio. you can do that.

earnings were a good play for us, but we also own coca-cola, pepsi, health. you can go in and by specific names. you don't need to figure out the timing for the volatility we expect for the rest of the year. lisa: let's talk about the nature of that at a time when people say the regional banking crisis is the opening of the effects that are taking hold. do you believe that? do you believe stress will become that much more prevalent in companies, or earning projections, and we have not seen that yet? victoria: earning projections are beating, but from a very low bar. that was brought down pretty significantly. yes, i think you will have a lot of problems. you still have valuation issues. they are too high. we have the federal reserve today. you have to work 500 basis after today. let's look at the ecb.

there unemployment went down. inflation went up. you're going to tell me they're going to stop hiking rates? not at all. we will have global pressure for higher rates even if the fed pauses at the june meeting. we have the debt ceiling debate. let's remember in 2011, the s&p dropped 13% once they came to an agreement because there was a lot more austerity than what people anticipated. i think we might see some of that again. i don't think we get to the end of the debt ceiling issue and all of a sudden the debt market is strong. jonathon: are you looking at 50 tomorrow from the ecb? victoria: i wouldn't be surprised if we saw 50 tomorrow. if i was sitting there, i think i would say go for it. do 50 and then let's see. that's why i'm not sitting on the ecb right now. [laughter] jonathon: did you see the ecb for the eurozone yesterday? imagine hearing this from the opinion loan officers survey.

substantial net tightening for credits to loans and house purchases. demand for loans to increase strongly, driven by weakening housing markets. that is europe right now. lisa: this is the problem. we don't know what the effects will be, in terms of economics getting kicked out of the system. that is just europe. in the u.s., he have to imagine it is that much more extreme, given how much further the fed has gone. how do you take that into account, given inflation is still high? jonathon: tom, this is your world. tom: i stood with richard timberlake, the giant of the georgia school in washington studios years ago. i think he was 91 years old or 92 years old. dr. timberlake made it absolutely clear in every instance, every case, they found

comfort in an after-the-fact analysis. lagarde is tomorrow. she is in the same position with her unique position as a politician, not a monetary expert. jonathon: victoria, great to see you. how many years has it been? three years, plus. tom: yesterday, there were three or four guests in a row in the studio. it was like in the movie e.t., when you had to go through. jon used to wear keys on his belt that would clang around. it was amazing. chris verrone was here yesterday. "he has dna." [laughter] lisa: who is e.t.? jonathon: don't ask.

[laughter] if you are just tuning in, congratulations. equity markets by zero point 2% on the s&p 500. the bond market looks a little something like this. yields lower by couple of basis points. three point 40. going into the fed decision later this afternoon. their view is simple. we are looking for 25. any people assume they will indicate some kind of conditional pause after this. you won't get an update to the forecast. that is not this meeting, it is the one after this one in june. look for changes in their about communicating futures a little firmer. from new york city this morning, good morning. ♪ lisa m: keeping up-to-date with news from around the world. with the first word, i am lisa mateo. the federal reserve signals they are ready to pause there hiking campaign, but not before raising

another 25 points. they are right being up there today meeting today. inflation will cool more in the months ahead. the u.k. plans to loosen ipo rules to make london more attractive as a financial center. that comes after a dramatic drop in the number of news listings in the city. a financial conduct authority wants to replace its premium and standard listing categories with a singer off -- single offering bid to attract more companies. ukraine's president volodymyr zelenskyy is going to finland. he will meet with finland, sweden, norway, denmark, and iceland to discuss support for ukraine and others a quarter -- and other security matters. in texas, law enforcement has arrested the man suspected of shooting five people in a neighborhood dispute. authorities say the man was found hiding in a closet underneath some laundry. according to officials,

neighbors complained to police that he was firing a gun in his yard. they say that he then entered some is house and killed five people. an experimental drug for alzheimer's slow progress of the disease and a final stage trial. that paves the way for the company to bring this. the company has spent billions of dollars and decades of research on alzheimer's. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. i am lisa mateo. this is bloomberg. ♪

>> i think the fact the fed has raised rates by such a large degree so quickly, we really don't understand yet the full ramifications of those rate increases. now, if you take a potential or slow, ongoing banking crisis in place that on top of a slowing economy, i have to say i'm very concerned at the prospect of future rate increases. i don't understand why we would not just pause now. jonathon: everybody is piling in. that was brendan boyle from surveying you. they are about to hit pause

after they hiked 25 basis points anyway. that is the overwhelming consensus view on wall street right now. looking at the price action going into that fed decision paired we look like this on the s&p. we are positive 0.2 percent. apple earnings after the close tomorrow. then, payrolls on friday. the ecb rate decision is somewhere in between. 1.10 on the euro-dollar. yields moved aggressively lower yesterday. again this morning, just a little bit. your 10-year 3.3994. tom: a lot of stories and narratives we have to revisit for the moment. oil cannot find a bid. it was 70. then, 69.40. jonathon: same story. tom: what we're looking at is politics. i want to focus on the gentle menu just heard from. brenna boyle is a different democrat.

he is a guy from really basic means, a scholarship student to notre dame, and he did well at harvard as well. he is someone who actually understands the linkage of our monetary policy and into politics. annmarie hordern is our washington correspondent. i want you to describe the pressures brendan boyle faces. he is outside philadelphia, i believe in the second district. he is a democrat and he is fed up because half of america is struggling, even while the elites do well, given fed policy. is jerome powell aware of brendan boyle? annmarie: i think he is very aware of brenna boyle. besides senator warren, he is the individual in the house who led congressman and congresswoman to sign that letter as well. he was one of the signatories to that letter you are talking about, asking the fed to pause and reevaluate the data. he is concerned about is not just potentially what the fed

said when they hiked in march, which is that we can see at some point may be a mild recession. they are right about the potential of job losses. but also, there is still concern about the banking crisis. the underlying fact on all these four banks that have failed is the fact that they were dealing with a higher interest rate environment and they were not prepared for it. these are some of the concerns from individuals like brendan boyle, the congressman who was joining us from mocon. this is the first time he was at that conference. the notable thing he said is he is feeling and seeing the urgency about the debt ceiling drama happening right now in the business community while he was at that conference. tom: this is like a third rail with me. jerome powell grew up fancy. his father was a lawyer, etc., etc. i grew up fancy. brendan boyle did not grow up fancy. that, to me, is a primal scream

from have america saying, look, this is the reality out there. to jon ferro's piercing comments this morning, is this fed politicized enough to listen to brendan boyle? annmarie: i'm not sure if i would say the fed is politicized, but this has happened in prior fed regimes as well. you had mcconnell, john maynard doing the same thing, sending letters because they were worried about quantitative easing. this is what happens, but now it is jay powell and democrats. it is not new to me that politicians are sending letters to jay powell. obviously, the height of concerns and criticisms about the fed, and whether or not the concerns of if it was independent, when the president himself would tweet at jay powell if he did not like the outcome of those meetings and said he had no guts and said he was behind the curve and his actions.

but in terms of letters from politicians, this has happened time and time again. it just depends on the moment if it is the right or the left. lisa: are republicans pushing back, saying these letters and comments are irresponsible and fostering the chances for inflation, meaning higher for longer? annmarie: i think what republicans will say, what they constantly do, is just turn around on the democrats and talk about the reason why the fed is in this aggressive rate hiking cycle, and that is because they are trying to attain inflation. republicans will say that is because of excess spending from the biden administration. obviously, there is a ton of nuance into why we have high inflation. economists are not pointing to the bulk of this all being spending. but that is the republican argument. i don't think anyone has said that as of this letter, except maybe jonathan. tom: [laughter] is this pile on jonathan day? lisa: i can't keep track of the

political spin. he said something earlier that was really good. why don't you just get the debt ceiling resolved, which is the one thing you guys could do, rather than these potential spins on all sides of everyone being wrong? jonathon: we have to call out political grandstanding whenever it occurs. let me read you a letter. "dear jay, inflation is running at 8%, inflation is still at zero, and you are still doing qa. you need to rate hikes -- hike rates now." that is the letter they did not write. [laughter] lisa: it's true that we need to call them out. the record of being able to resolve a debt ceiling debate is terrible. jonathon: americans are hurting now. they weren't hurting last year at 8%? no, they were going around saying how great the economy was. lisa: how do we determine what

they're actually doing? to that point, is there a sense that there is growing willingness to pressure the fed on either side, including with appointments, to try to shift monetary policy from a political perspective? annmarie: you mean appointments, and terms of still waiting for the fed vice to be announced, even though brainerd has been there for months? we heard from senator bob menendez, who continues to urge the administration to make sure that as they are looking at the potential fed picks, that there is an individual from the latino community it now on the fed board. again, this has happened time and time again on the right and left. but to john's point, it is important to call out the fact that people in brendan boyle's district, if they are concerned about losing their jobs, they were concerned about their rent

as well as your. jonathon: great to get your perspective. thank you. some political pressure building in the last 24 hours. tom: we have come more restrictive. we moved from stanley fishers ultra accommodative. right now, with other things involved, we are super restrictive. my point of this in a political primal scream, i think we observe it every day in new york. basically, half of the american public is flat on their back. that is all there is to it, even with a boom in consumption. reports are full, there's all this stuff deletes are doing. but there is a huge body of americans out there that the fed is not listening to. that is a fact. lisa: it's hard enough to game out where the economy is going without political interference. it's hard enough to read the tea

leaves. and it is difficult when you have political grandstanding. whether it is president trump job owning the fed or a letter coming out and saying you are doing a bad job. there is a complete lack of clarity. and then you clog it up with partisan grandstanding. jonathon: imagine if unemployment was not 3.5%. can you imagine? tom: that's the heart of the matter. jonathon: this is happening with the .5%. tom: this lower quintile is pretty good. it is the second, third, fourth quintile of people who are hammered. jonathon: i'm not set, for the record. i'm doing ok. i had decent sleep. lisa: i'm a little concerned. [laughter] was it the et comment? ( ♪♪ ) ( ♪♪ ) ( ♪♪ )

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jonathon: quite a start to the morning. -- quiet start in the morning. that's a good news. the good news is we are up 0.2% on the s&p 500. lisa: what's the bad? jonathon: that's coming later. let's get to the bond market briefly. 10-year yield yesterday plummeting over more than 10 basis points. tom: accurate. jonathon: after climbing more than 10 basis points. it was about prices paid on the ism. we focused on the banks now. that's skip foreign-exchange and get right to these two names.

pac west rebounding. it is negative by 3%. this is better. western alliance is negative by 3%. but it's not where we were 15 minutes ago or 20 minutes ago. tom: the balance is legitimate, it's not like it is breaking through lower highs. early trading is there. but all in all, is the faith there that we can follow on and leave that behind? i'm not so sure. jonathon: lisa, i know you're looking at the same thing. it has been at first republic, svb, signature bank, silver gate, credit suisse. it seems we are moving from one name to the other. i think there is a phrase speculative attack. it's moving from one name that has gone under and moving to the next name. lisa: you mentioned pac west and western alliance and how they

have clog back. one that hasn't clog back is metropolitan bank holding. i had never heard of them before. their shares are still lower by almost 6%. small banks, you are seeing them really pummeled, but much less action in the medium-sized banks and the biggest u.s. banks. there is a clear delineation. the smaller, the worse. the bigger, the better. you can see u.s. bank doing better. zion is up 0.4%. comerica down just 1.7 percent. i think that distinction is really coming to the market. the biggest banks, you can say the shares are all but flat, even after some of the big gains you have seen. jp morgan shares just down 0.2%. bank of america less than that. citigroup unchanged. vulnerabilities where their model is financially challenged. higher interest rates, balance

going out. jonathon: we did talk about this, the fact that on monday, it looked like we had a resolution for world bank and kr e, the etf everyone is following at the moment. it did not rally. can't get off the match. still stuck down there near your today close. lisa: you put it well before when you said it is the return of capital. this question of safety, ok, that has been saved. but now it is a return on capital. you get that and all of a setting, it restricts lending. then, all of a sudden, that is the credit impulse. you pile it on and it becomes a problem. jonathon: it's really basic stuff. you have assets giving you 3% and you have to pay out 4%, 5% for your liability. profitability has gone down. that becomes a bit of a cycle. that is an issue, just make it clear. tom: i looked things up early this morning.

we contend to grind higher with a higher interest rate. i did notice a 13 month cd at 5.5%. -- 5.05%. you think that is attractive. but in the digital world, the mystery to me and the clarity to be provided is where that money moves. jonathon: you wake up and you're driving with your parents, and they are forcing you to listen to this. let's say i am running a lemonade stand. lisa: you want to invest in my stand and yours will go out of business in two minutes. jonathon: jp morgan does not have to put up rates. a have to offer 3% or 4% to attract deposits. lisa: my lemonade is better. [laughter] carry on. tom: i would point out the

lemonade stand analogy is really good for the parents. the kids are sitting there reading history in the backseat. i want to apologize to all of the children being forced to listen to us. on bloomberg war -- bloomberg radio worldwide, one of our favorite guests joins us, mark cabana. i want to go to one spread that is in a historic moment. i want you to explain at the lemonade stand what you see in a three-month 10 year spread, the t-bill compared to the benchmark at -182 basis points, while outside standard deviation over three decades. translate what that means to me are mortals. mark: what that means is that near-term path of monetary policy is going to be well above where it is expected to prevail in the longer run. in other terms, monetary

policymakers are going to set policy in a tight position in the near term. then, they are expected to go back to a more normal and lower rate over time. that is the clear sign we are seeing from the inversion of the yield curve. as we all know, that is exactly what the fed is trying to do, set monetary policy at a reasonable position, slow the economy, and get inflation under control. tom: i saw some bloomberg technical hieroglyphics today, trying to find where normalization is, this idea of a faith that we get back to normal. what metric do you use to describe where normalization clicks in? is that the 10 year yield? is that the right way to look at it? at what level of 10-year yield do we say is normal for the banking system? mark: we look at the rate cuts priced into the front end of the curve and where they begin to decline and bottom out. what we see is that it is right

around 3% or so right now. another way to look at it, if you are using fed funds expectations and you want to look in forward space is five-year, five-year ois. the market thinks the fed's neutral spot will be there right now. that is where they think they will ultimately stop coming. what that means for interest rates, you can add a spread or take one away in relations where that neutral rate position will be. for us, we think the 10-year will be at 3.25% at the end of this year and probably remain around there in the medium term. that's do to the fed setting policy summer close to 3%. then, you have a little bit of term premium or treasury cheapness and relation to our monetary policies are set over the medium term. lisa: you sound so calm at a time of people say things are breaking and will only continue to break as we get further into the cycle and lag effects take

hold. howdy push back and say this is all normal? maybe it is endemic for what is going on, but not systemic. how much are we going to see some sorts of it for your cause the fed -- fisher because the fed to change the inflation backdrop? mark: one thing we talk about is the shape of the curve, but when you think about what is happening in the banking sector, what we have been saying is that there are still signs of stretch. -- signs of stress. those have stabilized to some extent, or at least the rate of change, in terms of stress out there, is not necessarily getting as worse as it had been. but there are still signs of stress out there. those signs of stress, we think, are clearly evidenced by the emergency fed lending still happening. there evidenced by the acute borrowings we have seen from the

federal bank system. there are also evidenced by some outflows of deposits we have seen into money market mutual funds. those things still indicate that the overall level of stress in the banking system is high, it's just that we are not seeing the rate of change on that material increase. it has been slowing down recently. this is a byproduct of tight monetary policy. it is a byproduct of the fed setting policy at a restrictive level. that is what the earnings curve is telling us. it is also than causing banks to face profitability challenges. that is what the market is very focused on today. just like the lemonade stand analogy that you were using, it is costing banks a larger amount in order to hold and retain deposits. the fed has set policy into place to facilitate this, in hopes that it will ultimately restrict lending and that tighter lending will ultimately help slow the economy and get inflation under control.

what we are seeing in the banking system is very much a function of what the fed is doing in its overall stance of monetary policy and what the yield curve is essentially confirming to us. policy today is expected to be more restrictive and it will prevail in the medium term. that is unfortunately causing issues for banks. lisa: his eight a mistake for banks -- for the fed to raise rates 25 basis points when you're already seeing stress and it might actually complicate their ability to hold rates high for longer? mark: what we think we will get today's a cautious hike from the fed. they will say, we have delivered , we remain data dependent, but they will open up some optionality for a hike or a hold. we expect that the rates market will hear today from the fact, a fed that is essentially signaling that the base case from here on out is a hold.

the onus is really on the data to disprove the hold. we are going to likely here that , a more cautious sentiment from powell in his press conference today. is it a mistake for the fed to do this? probably not, given this is what they have been signaling through the dots, but will it be a mistake for them to be blind to the other cracks they have seen in the banking system and signs of slowdown in the economy? yes, that would be a mistake and we think the fed recognizes that. they are therefore going to provide optionality, in terms of their next step. that is what the market is going to hear today. they will hear that the fed is not know if the next move will be a hike or hold, but the onus is on the data to disprove the hold. that is the base case. jonathon: interesting. mark, thank you. we get to the fed decision a little later. i have to do three things. here is one. some people are wondering if

five dollars for lemonade, that is for an affluent neighborhood in say diego. kyle writes in on twitter. he said one of my kids -- my son is one of the poor kids stuck in the car listening to this. i'm sorry. western alliance now positive by 0.9%. the third one, the serious one, this headline crossing just moments ago. the kremlin was attract by a drone last night. a little more information on that. the kremlin says it was attacked by two drones last night. the russian leader, we are told, is safe. i will get you an update on that when i get more information. coming up, besty duke, the former fed governor. lisa m: keeping you up-to-date with news from around the world. with the first word, i am lisa mateo.

the federal reserve is expected to deliver its 10th consecutive rate hike today, since march of 2022. another 0.25 point raise is expected. signs of a slower economy point to cooley inflation. that decision will be announced at 2 p.m. in washington. the u.s., europe, and other ukrainian allies want to close more russian loopholes. the plants will be unveiled at ags seven leading later this month. sanctions imposed on moscow have battered russia's economy, but have not delivered a knockout blow. oil plunges for another straight day. it fell under $70 per barrel, while brent dropped below $75. the prospect of a u.s. recession is weighing on the outlook for demand. investors are turning away from riskier assets. overdose death rates from fentanyl tripled from 2016 to

2021. like morphine, it is a cheap and abundant street drug that became more widespread in use during pandemic lockdowns. shares of starbucks are falling. the coffee chain operator left its guidance for fiscal year 2023 unchanged. they called a conservative stance, given a strong second quarter. they suggest starbucks growth will weaken in the second half of the year. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. i am lisa mateo. >> --this is bloomberg. ♪

>> i would prefer to do what is called the hawkish pause. not raise, but signal we are in a tightening stance.

because i actually think the banking situation may well be more serious than we currently understand. i think we are in the early stages, not the late stages, of this banking situation. we have just seen the first phase of this, which is asset liability mismatch. it is the most obvious issue. but the credit issues are about to start. jonathon: brilliant exchange yesterday evening with robert kaplan, the former fed dallas president. on the situation with the federal reserve, the decision just around the corner. we're looking for a 25 basis point rate hike, potentially communicating a pause thereafter. perhaps we will see some of that in a statement. we may well hear questions on that in the news conference. michael mckee will be up later. here is the price action this wednesday coming into fed day, 0.2%. i can tell you earlier this morning, following the big losses for pac west and western alliance, we have more losses.

they have turned around since. pac west now up big time. up 7.8%. that is the premarket after being much, much lower. lisa: what is this? it is basically penny stock trading like that. it shows you the dynamics behind the scenes. it is not driven by fundamentals or anything concrete. but perhaps people trying to drive a narrative. jonathon: it feeds on itself. tom: where are we on the russian headline before we get to the governor? jonathon: i don't have any more information. the headline i have for you is that the kremlin says it was attacked by two drones overnight and the russian leader is safe. that is the only information i have. i think we probably need more detail. and what that word attacked actually means. we don't have any clarity on that. tom: our team is working on that right now and we will that you

know through the morning. this is the person to lean forward to on small banks in the federal reserve system of banks. she is the former fed governor. we welcome the gentlelady from the bank of tidewater as well. betsy, you lived in the 1980's banking crisis. is there an analog here? is there a similarity to what you and isaac and mitch year went through? betsy: i think it is much more similar to the savings-and-loan crisis than it is to what happened in 2008. i think that's a good analogy. i don't see it getting nearly that bad. the savings and loan industry got caught flat-footed because prior to that, deposit rates had been capped. their business model was to make long-term mortgage loans. when the cat came off of

interest rates and the rates were raised, savings and loans were upside down. some of them had an earnings problem. others decided they would solve this problem by going out and loading up on high interest rate commercial real estate mortgages. they ended up with a credit problem. i just don't think it is that widespread in the banking industry today. lisa: do you agree with what we heard from richard kaplan that this is just the beginning and there's going to be significantly more distress? or do you think it is more nuanced than that? betsy: i think it is more kolmar than that, actually. i think what happened is the fdic regulators got caught flat-footed. they have recovered, i think, really well. if you look at first republic over this weekend, except for the size, that was business as normal for the fcic. lisa: at this point, do you think the risk for the fed is

not moving enough, not hiking enough, or perhaps discounting some week this that could be the beginning of what we could continue to see with lag effects taking hold? betsy: first of all, i think the fed has a better sense of what is going on within the baking industry. they have a better sense of how any potential concerns there are out there. but the bigger issue for the fed has been commencing markets that they are serious about inflation that 4.5 percent inflation is not acceptable. i think the fed has to be careful not to signal any movement toward this rate cut that the markets are expecting, that the fed continues to say that they don't see. jonathon: betsy, always wonderful to hear from you, particularly given your expense at the federal reserve. next week, we are waiting for the officer of loans survey. do you have any idea of what is in that report? will they know

what is going to be released next week when they meet today? betsy: if it is a week from today, i don't think they will have it today. but it is a very, very soft data point. it tells you directional, but does not give you any hint on magnitude. i think it will give them some information, but i am not sure that will be enough information. i have not seen any clear signal yet that the tightening of credit is doing any of the fed's work for them. jonathon: where would you look for that signal, then? betsy: start to look for it in consumer credit tightening up and particularly some of these lenders to consumer credit. fintech, non-bank mortgage companies, you will start seeing more stress in those committees. that's what i would look for. tom: there is a bank out there called the bailey building and land.

it is something you and i studied carefully. they didn't have cell phones. jonathon: don't age betsy. you're talking about yourself. tom: yes, i am talking about myself. the basic idea here is they did not have cell phones in their hand. how does the behavior of the bank of tidewater of 2023 change , given digital media? you do not have to live with that. betsy: the panic is still the same thing. if you go back to the savings-and-loan crisis, before one of those institutions closed, it was pretty well telegraphed that that that was an institution in trouble. we took over some branches and it was remarkable to me that some of the uninsured deposits had stayed, even though it was pretty obvious for years that the institution was in trouble. the smaller banks, the deposits are pretty sticky. what happen as the fed expanded

its balance sheet, overall bank deposits grew normal -- grew enormous lee. they were trying to balance excess deposits. a lot of what you're seeing now is the natural flow, although it is happening quickly, back from bank deposits into money market funds and that sort of thing. tom: one of our themes of the show today, let from jonathan ferro, the gentleman from britain, is the political input -- jonathon: i am not stunned. don't mischaracterize. i think it is irresponsible. tom: ok, let's talk about the irresponsibility here. now, we have politicians of both persuasions weighing in. should they? betsy: no. the fed has always been absolutely, resolutely nonpolitical. but the political forces are always out there with opinions on what the fed should do,

whether it be supervision, regulation, or monetary policy. i think the political environment has more to do with regulatory and supervisory policy and how they react, than it does monetary policy. i have never seen any, and my expense with the fed, reaction to political pressure on the monetary policy side. jonathon: betsy duke, thank you. great to catch up with you. always know when lisa has things to say. i will assume the position. you describe it on radio. lisa: [laughter] tom: lean back. jonathon: non-two the face -- not to the face. tom: it's called the chicago tilt. you are like this. lisa: i have things to say. i am wondering whether economics, as a profession, has

become more politicized, with people on one side having a bent toward one thing and people on another side having a bent toward another thing. to say there is no political interference is a difficult thing to draw. this is my point. it's almost like an illegal profession. there is the conservative school of thought, the idea of originalism in this federalist society, versus the idea of a living document, etc. there is a similar kind of dissidents in economics profession, with a political bent to professions. i wonder how we can parse that out. tom: i would suggest a long-term moving average of gdp in the nation has declined some 30% and that angst is the political debate. jonathon: the question for you, sir, who is mr. potter in your analogy? who is that?

we want to know. inquiring minds. lisa: et, mr. potter, who is next? you got this. let's go. gobble gobble. i've seen bigger legs on a turkey! rude. who are you? i'm an investor in a fund that helps advance innovative sports tech like this smart fitness mirror. i'm also mr. leg day...1989! anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq-100 innovations. i go through a lot of pants. before investing carefully read and consider fund investment objectives, risks, charges, expenses

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>> rates are going up, inflation is still high, and the economy is clearly weakening.

> i don't think there is enough real growth for everything to work. >> what if the fed really doesn't start cutting? what if they just pause and hold? >> the fed will not cut. the fed will not cut if there is a recession. >> if the fed was to lower interest rates today you would get some inflation. >> this is bloomberg surveillance. tom: good morning,, everybody. jonathan ferro, lisa abramowicz, and tom keene with you. we start at 1:30 this afternoon and wrapped around this fed decision is what will they do. it starts with the statement in the third paragraph. some additional policy firming may be appropriate. will the 25 basis point hike today

they communicate an additional pause. tom: it is a fed that has to sum in the macro economics into one decision. there is some tension now that we are somewhat restrictive of the haves and have-nots. jonathan: what data? they will say we are data dependent, and we have to ask what data, and how reliable is that data right now? when they are talking about the totality of data, are they talking about what happened with pac west, or are they talking about traditional indicators? tom: i have to believe they will go back to the labor market. we have the adp report in 15 minutes. some 4% unemployment rate -- lisa: it is also a deeply

lagging indicator at a time when fast indicators are indicating some slack in the labor market. at what point do you wait? at what point do you wait to see what the effects are before making another move, or can they not afford to because of what we heard from victoria hernandez? inflation is still the primary concern. tom: i would fold it into a global view. you center on the ecb. lisa and i are removed from that. they are all in the game of trying to game out there ex post view. jonathan: compare that to the euro zone bank lending survey, where things looked pretty tight. do you want to wax ex post?

the -- citi does not think you get that pause. he thanks 25 today, 25 in june, 25 in july. tom: -- lisa: on the other cited of this, a lot of people agree with the inflationary push. automakers are cutting prices to compete. you get an idea of how much disinflation is coming in. this is the push and pull. tom: taylor swift did two nights in las vegas and with her pricing, because she got them back to some sort of pre-pandemic equivalency? lisa: pce indicator! tom: taylor swift, these are all individual stories. jerome powell does not care. he has to look at the aggregate. as victoria hernandez said, how

do you get from 4% inflation to 2%? ask fernando alonso. thank you to aston martin yesterday. jonathan: carry-on. let's not get in trouble. i just got a message that said " tom is mr. potter." tom: mr. potter -- i'm looking to begin the data check. american oil under $70 a barrel. it is going to $100. jonathan: it is not. those numbers started to come through earlier in the session. if you look at the broader market, futures are positive. yields look like this on treasuries. they are lower on the 10 year,

down 2 points. tom: we are going to dive into what is happening in a big part of the auto economy. ford motor. john lawler is the chief financial officer of ford motor. off of earnings day, their headline is ford dips as lack of outlook sparks concerns. give us the media outlook for dearborn right now. would you seen the next 90 days 90 days? >> just looking at our q1 results, they were good, 20% topline growth. we held our guidance between 9 billion dollars and $11 billion. i think all of us can agree that it is unclear how the macro economic environment will unfold through the year. there are a lot of puts and

takes that we are seeing. with a good, strong q1 and a lot of road ahead, of us a lot of puts and takes from a economic standpoint. we are comfortable with that. jonathan: it is extort -- tom: it is extraordinary, the auto business how separate it is. you are doing single digit multiples with a five percent yield. is there any pressure on you as a cfo to adjust your auto company to a modern cash distribution that makes you more competitive within the markets? >> there is a great opportunity for us with our ford plus, strategy and where this industry is heading with apps and services on top of the traditional automobile we have offered, we see that is a positive. what we need to do, our focus is

on strong capital allocation, making sure we are getting returns on the capital, and quarter over quarter performance. lisa: how complicated is it for you that elon musk is cutting prices at a time when you were already losing three billion dollars a year -- $3 billion a year on your ev effort? >> you cannot broad the segment with a broad painting brush. the lightning has incredible demand. thef150 -- the f150 lightning has demand. there will be competition there. that will create pricing pressure. that is natural. we are focused on cost reductions, we are focused on

providing good value to those customers. lisa: how much of it is just lack of demand? >> as an industry standpoint, we have had an imbalance between supply and demand. we were constrained due to covid. you are starting to see that ease so you are starting to see more pricing pressure on the type lot -- the topline. tom: provide us with a distinction, the distinction between your ev approach versus others worldwide. what is the ford unique feature on the electric vehicles 5 years out? >> when you look at our approach to ev's i think it is as good as anyone's and better than most. we are bringing customers into ford. ev customers are not loyal on the first purchase.

60% of those customers are new to ford. now we are on our second generation of design. everything we learned from our first generation, much more competitive them a cost standpoint, much more focused on what the customers value, and i am encouraged by what we are seeing from our second generation of ev's. lisa: as you try to be as efficient as, possible you have talked about cost-cutting, how much of that includes job cuts that have not been announced. >> we cannot just look at this as job cuts. good companies focus on all cost areas and we will do that. in this transformation there will be parts of our business that need to upscale, and grow and there will be parts that need to reduce, and that will be part of our focus as we go forward. jonathan: we are -- tom: we are looking for tickets here. you will do a relationship with red bull and formula one racing. will you be in miami for formula

one this weekend, and can we come along? >> unfortunately i am not. jonathan: you can come by next time. what was the cart you and i saw? what car was that, that we saw on saturday, that big ev? tom: it was a general motors product. it was a hummer. jonathan: we both started laughing, and we said to each other "there is no way that is environmentally friendly." lisa: this was in washington dc and i saw a number of those. jonathan: we are always talking about how environmentally friendly they might be. are they that environmentally friendly when you are building them at that size?

lisa: i don't think anyone could argue that it is environmentally friendly when it could be a smaller car. as far as the ev environmentally friendly argument, it is unclear. what it takes to get the copper and cobalt out of the ground, but if you could recycle it perfectly -- tom: she is a super green. lisa: that is what counts for super green on this show? tom: that is how sad it is. jonathan: looking forward to that conversation with lee ferridge. ♪ >> keeping you up-to-date with news from around the world with the first word i'm lisa mateo. russia says that it defeated 2

drones on the kremlin yesterday night. russia blames the attack on ukraine, is not commenting. the federal reserve appears ready to signal a pause to its aggressive interest rate hiking campaign but not before raising another 25 basis points. policymakers are wrapping up their two day meeting today. signs of a slowing economy suggest inflation will cool further in the months ahead. the u.k. plans to loosen ipo rules to make london more attractive as a financial center . that comes after a dramatic drop in the number of new listings in the city. an authority wants to replace its offerings -- the price of oil plunged for a second straight day. it fell under $70 barrel. the prospect of a u.s. recession is weighing on outlook for demand and investors are turning

away from riskier assets. eli lilly's experimental drug for alzheimer's slowed the progress of the disease in a trial. that paves the way for them to apply for u.s. approval. the company has spent billions of dollars and decades of research on alzheimer's. global news, powered by more than 2700 journalists and analysts, this is bloomberg. ♪ the biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently.

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helping generate and move the energy that our world needs. ♪ welcome to a new era of energy. jonathan: the adp report does not confirm the gloom. michael mckee joins us to break

it down. mike: just to throw something else into the stew here, we have a strong jobs creation number from adp. whether it translates to the national payroll support, is another question. 296,000 jobs created in the month of april, 60,000 jobs producing, although much of that comes in construction and natural resources mining because manufacturing loses 38,000 jobs. 289,000 -- the leisure and hospitality category is still struggling to find workers. it shows a slowdown in the median pay change for those who are in the job staying category, 13.2% for job changers.

that is down from in the 7's the job stayers one. adp is only private-sector's jobs. we will see if that is but they come up with for the month. they have been in the last couple of months below what the national payroll levels have been,'s will be interesting to see if the national payroll numbers are strong. tom: stickler -- jonathan: stay close. we will catch up with you soon. this afternoon the federal reserve decision, michael mckee be in the room and will break down the decision. looking ahead to payrolls, this number from adp, 296,000, the market did not move much on it.

yields or a little lower this morning. they are now higher by a basis point. just a move across from the bond market into foreign-exchange. the increase in yields is not doing much for dollar strength. the dollar is still weaker. tom: i like that analysis. they are on the correlated basis. there is a little movement. stagflation, stagnant recession statistics. that is a little off the bottom. to sum this up, lee farah jeudy -- lee ferridge joins us. i want to go to one adjective you have, which is sticky and this is the heart of the matter for jerome powell. the level and character of sticky inflation -- defined

sticky as the chairman sees it. >> not coming down fast enough, tom, simply. not just that. if you look at three months annualized in terms of core or in terms of headline cpi, headline is sticking around 4%, and court is sticking around 5%. it has been like that since november. it is not coming down. jonathan: this is a pro analysis -- tom: this is a pro analysis. you go to 90 days and do annualize it out. jonathan: our monetary policy objectives in conflict with stability concerns? tom: absolutely -- >> absolutely. there is no doubt about it. inflation is still high. it is sticky. it is not coming down fast enough.

wages are too high. average hourly earnings is more important on friday than the actual payrolls number. air not consistent with a 2% inflation target -- they are not consistent with a 2% inflation target. the fed is between a rock and a hard place right now. jonathan: are you working with the assumption that the banking stress gets worse not better? >> i don't know. no one knows at. i -- no one knows at this stage. i think it gets better. i don't think it should get worse from here. i think it should be fine, but nobody knows, and no one can say with any level of certainty how this will pan out from here. the question for the fed is do you react to the potential risk that is there in the banking sector? or do you react to the real risk in front of you, which is the sticky inflation.

that is the decision they have to make right now. for me, i think you deal with what is in front of you. we can see what happens for the banking sector later down the line, but you have to deal with that banking issue. if you take your foot off now, that will make things hard in the longer run. lisa a.: we were talking about the reaction we sought to this adp number, despite the fact that it pushed against the gloom. do you think this market is biased to the gloom, to believe that inflation is falling radically? is this question of the fed cracking the banking system rather than fixing inflation? >> we have 50 basis points of cuts and for the remainder of the year. there is no reason for us to have 50 basis points of cuts in, and yet our market is biased

that way. that shows that real money investors, institutional investors have been pessimistic since january. it is the longest run of pessimism we have seen since 2015, and that is reflected in these market prices. that is why in february when the data was very strong, the market had a massive re-think and then the banking crisis happened. you can go back to where it happened in february. the risk is as in february, that has to get taken out again. lisa a.: as an investor, how do you play that bias that you think is inaccurate? >> by playing the rates market, and looking for rates to be higher again than the market is pricing right now. i also like the dollar. what we have got at the moment is stasis.

diy has been in the 2% range for months. we are unchanged over the last three months. you have to play in the rates market. the cleanest way is to look at those year-end estimates for funds and fake those moves. i don't think the fed will be cutting anywhere near that amount at the end of the year. jonathan: thank. you for beingwith us coming up in the next -- thank you for being with us. coming up, troy guy ascii, matt horn bok, and frances donald. tom: i get it. we are not positive year to date. how long did it take -- does it take to get back out of this bear market? in 1972 to get back to the peak, it took 10 years to get back to

what we have accomplished in 18 months. i think the resiliency here is underplayed. we are looking at apple tomorrow and the spectacular luxury sector, but the answer is after a grim, pandemic bear market we came back pretty fast. i don't think that is in the zeitgeist. jonathan: one man's resilience is another man's complacency. it has been a tight regimen. 4200 has been quite scenic over the last few months. your to date we are at about 7%. a decent year to date, i'm with you, but he talked abou the prospectt of a lost decade, which is not unheard of in economic history. lisa a.: especially as we see a real fight for leadership. we have seen a lot of those

gains really derive from amazon, microsoft, from meda, and these are the big drivers at this point. leaving a lot behind, the others catch up. you can get that loss modeling the return picture for some time. tom: is anybody calling for 4300, 4400? lisa a.: lee moyne ira is the biggest producer of lemons sent to the u.s. and they have a credit line available. [laughter] mine is crushing it. tom: we will run lemon stand.

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tom: bloomberg surveillance on this fed day, our coverage this afternoon please tune in. dudley and clear at different -- lisa a.: it will be a good indication of what data points to watch. tom: professor claire it has been controversial on where he thinks this fed is going. right now we are going over to, michael mckee who is looking at something i don't really care about.

why do i care about this report? it is important, isn't it? >> it is treasury refunding. we are going to give them the information they need. treasury's auction sizes are unchanged for the second quarter. they are constrained by the debt limit. as soon as august they may need to increase them. this time the debt will be $6 million. here is the headline. the treasury will start a program of buying back older treasury debt in 2024. this is something they have not done since 2000 when they thought we had a problem with the government surplus at the time. they took some of the treasuries off the market that they did not need anymore. are a lot of these -- a lot of these older treasuries are very

low coupon, and since the markets are focused on the high interest rate once, they are not moving very -- rate ones, they are not moving very quickly. tom: lisa, this is really important stuff. you are the adult in the room here. i know this is a spread between the three month 10 year yield. it goes out to record inversion off of this announcement. lisa a.: there has been a lot of criticism of the treasury, mike, over the past decade that they did not send more debt with longer tenures giving rates -- given rates were so low. essentially, you are giving up all but free rates in order to refinance at much higher ones. >> people don't want to trade them.

they are much less liquid given the higher coupons you get from the treasury nowadays. in function they want to do the buyback program. it is a different matter from what happened in 2000, but it will be small, they say. it won't change the average maturity of the yield curve. tom: i greatly appreciate it. the two year yield is all over the map, now flattening at 3.96, just below 4%. the 10 year yield at 3.9%. the vanilla spread -56 inversion. i'm going to go toi the three-month 10 year to show the tension. 103 stunning basis points on the difference in yield between the t build and the benchmark on the difference in yield between the t build and the benchmark.

someone who has this tattooed onto his brain is jonathan. take us inside the fed today where there are 100 hundred phd's like you -- 300 phd's like you. tell us what phd's will advise the chairman to do. >> they have two tensions on the staff. a, in the last projections they did put recession in their baseline. they will also have collected for this meeting, the latest senior loan officer opinion survey, so they will be getting real-time feedback on how lending officers are thinking about potential credit tightening in the wake of the recent events in the banking system. given those downsides they still have an inflation problem so i'm sure the staff is advising them

that they need to follow through with one more rate hike. they are not out of the wood yet. there are certainly downside risks they need to tom: consider for this decision. on a theoretical -- they need to consider for this decision. tom: on a theoretical basis, is this business as usual for you, or is this original how he needs to react? >> this is really, really new. the problem they face is really different from what they faced in the 70's. there's a lot going on with tensions in the banking system. we saw that in the fed's own report on svb. they talk in that report about the actions they can take to intensify the supervisory regime for a wider range of banks. they said that these decisions

would be a burden, so the fed is very aware that what is going to unfold risks a tightening in lending standards over and above what the rapid cute -- rapid recalibration and rates may imply. at the same time they still have this sticky inflation that you all have been talking about. we are looking ahead to next week's cpi expecting another relatively strong gain. they still have this inflation problem that they need to address while they balance it against these other downside risks. it really presents a tough task for the chair. lisa a.: do have a sense how many of the hikes we have not yet seen percolate through the economy, percolate through the financial system? jonathan p.: we would estimate you are not even halfway done, in some sense. take the fed's coefficients they

have published in the past. the second in 12 months has the -- the second 12 months has a bigger impact than the first 12 months. there is still this lag effect we expect to mount over the coming years. in the fomc statement when they say they are considering the lagging effects, i think they mean it. lisa a.: one of the challenges is the belief from people that we see a structural increase in inflation going forward, and others saying it is quite the opposite. which camp to use it in and how do you determine what is right? jonathan p.: it is going to be impossible. we will all know in 20 years and there will be a lot of dissertations written about it. when we look at the cross-section -- to us population aging is disinflationary.

if it really goes into rivers, then we estimate -- the magnitudes we estimate are not large when we do these decompositions. when we think about what is unfolding with inflation, we are looking at basically households still have low inflationary expectations. if the fed succeeds in slowing the economy, taking some of the steam out, we think even with some of these structural tailwinds pushing inflation higher, you can restore price stability here. tom: you were where i wanted to go when i was researching this. i want to go back to when you were at the fed. in the prices and wages section, buried 14 floors below the building. they get warmth from the core of

the earth they are buried so low. olivia blanche arden would suggest there are other factors dampening our sector, but we will not know for 20 years. what is the fed to do with the other factors that fulton and blanchard are studying? jonathan p.: i think he is on the third floor, which is where we were too. chairman greenspan said it was the central challenge of monetary policy. it is all about having to make decisions with an uncertain knowledge of the structure of the economy and its future. you hear a lot of the current committee talk about that. this is one of the reasons we have risk management. we do not fully understand the current structure of the

economy. i think about where we were we pandemic, where we are now, the changes and i think population aging and demographics, to be fair to professor blanchard, i think those are downward pressures on r-star -- our star. population aging is intensifying more than it was pre-pandemic. it is unclear to me that, that is one of the downward forces that has been alleviated. howdy faces some of these new trade-offs? lisa a.: at a time of increasing uncertainty, jonathan, how much are you seeing an increase in the politicize asian of the economics profession -- politicization of the economic profession? jonathan p.:jonathan p.: there was such a consensus in the

1990's, but i think the polarization we see has seeped into many debates. we are spending a lot of time talking about things like the debt ceiling, for example, which is an important economic issue, and both sides, government spending levels, as well as the impact of the failure to raise the debt ceiling could have on the economy, but we have seen this polarization, and i do think it is unfortunate. my big hope is that it does not impact the institution of the federal reserve. it is important to retain that trust. its ability to be a part o -- be above partisan politics. tom: there is an interesting and somewhat attributive news out of russia and ukraine right now. you see the headlines there from russia.

i am going to go to a dow jones report. we need to be very careful in attribution here. this is a quote from the kremlin statement. "the regime may an attempt to strike with unmanned aerial vehicles the president of the russian federation." lisa a.: basically saying it is using resources to free terrorists, putin wasn't at the kremlin at the time of the attack. tom: not using resources to attack foreign territories, that from ukraine. the story is moving quickly. we will have more on that this morning and on balance of evening. stick with us, this is bloomberg. ♪ lisa m.: keeping you up-to-date with news from around the world with the first word, i'm lisa

mateo. the federal reserve is expected to deliver its 10th consecutive rate hike today since march 2022. another quarter points phrase is expected. that decision will be announced at 2:00 p.m. in washington. the u.s., europe and other ukrainian allies want to close more russian sanctioned loopholes. the plans will be unveiled this month. multiple rounds of sanctions and other economic penalties implemented against moscow have battered russia's economy, but they have not delivered a knockout blow. in texas law enforcement has arrested the man suspected of shooting 5 people in a neighborhood dispute. francisco oropeza was discovered inside of a closet hiding under some laundry. the fbi says oropeza entered his

neighbors house and killed five people. cvs has cut its earnings forecast for the year. it looks to pay for two major acquisitions that are critical to building its acquisition -- global news, powered by more than 2700 journalists and analysts in 120 countries, i'm lisa mateo, and this is bloomberg. ♪ ♪♪ ) ( ♪♪ ) -awww. -awww. -awww.

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>> i think the economy is less likely to slide into a recession in the near term. we think inflation is not going to come down and we think the fed will pause in the face of these uncertainties. how that plays out six months from now becomes an interesting story. we think the credit drag will be material and start to build but we don't think inflation is going to calm down by itself. tom: interesting story from brisk as men of j.p. morgan today with a global view -- bruce askmen of jp morgan today with a global view. it is not a small matter. creeping in in the last four weeks, but maybe not on china, growth bruce really pushed against that. lisa a.: there is a feeling that maybe we see growth now later not so much. it has been the story so far this year. tom: apple tomorrow, we are focusing the fed on our conference this afternoon. maybe we should lisa a.: have a

special. -- maybe we should have a special. lisa a.: [laughter] i'm sure that would be welcomed. tom: right now, and this is a joy, david chavarria and he has been doing bank analysis and he is one of the few people out there who has not only looked at analysis, but braided over to the new technology of bank analysis. he is quite the expert. david, welcome to the show. my answer here is in your research note you talk about rebounding deposits. do you have deposit dynamic visibility on these smaller banks? do know what is going on or is it a mystery? david: it is a little bit of a rebound. we had a lot of depositors who were spooked in early march. they have come back to some of these banks.

western alliance has seen the we kissed of deposits post -- the biggest deposits posted. they have since rebounded by $2 billion. s third of those deposits -- a third of those deposits have returned. it is a bit of handholding. they have increased to the amount of insured deposits. they are using something called insured cash sweep deposits. it is a network of banks that can swap deposits to increase the level of insurance. tom: interesting. i look at this and the zeitgeist of this morning is clearly the shorts. it is like george soros in 1992 with the bank of england. teh shorts are -- the shorts are jumping from bank, the bank, to bank -- bank to bank to bank.

david: there is not much you can do other than execute on your business plan. you can put out more data to ease concerns but, often times that backfires. we saw that happened just last march because investors think "if bank management is coming out to defend their numbers, than investors may think that there is an underlying problem." management teams should execute on the business strategy, talk to their depositors, keep them calm, and let the numbers play themselves out later on, and then take initiatives like western has done, and lend some stability to the whole platform. lisa a.: this is no longer a crisis of confidence with respect to whether you will get your money back.

it is people moving their money to somewhere they can make more. we can see that from some of these banks who have to offer significantly higher rates than the jp morgans of the world in order to get people into their cd's. banks are facing an incredible disadvantage as far as their lending capabilities. jonathan p.: i would agree with that. -- david: i agree with that. we downgraded june 2022 because of that reason. we expect wage pressure to continue weighing down the group. we saw wage instability in the immediate aftermath of signature bank going down, but the aftermath will switch back to credit quality. we are seeing the fed is likely to have another hike today. that is ultimately going to

result in a slowing economy, and rising credit costs. we remain cautious overall for the group. we highlight a few names we like on a relative basis, but unfortunately we think the group will be under some pressure. lisa a.: we heard from former fred president -- fed president kaplan overnight about how he expects this to become a significant problem for regional banks. how much are you expecting an snl-like consolidation? we will see tieups like we have not seen in 40 years. david: i don't think it will be as bad as the snl crisis but i expect consolidation to occur, and i think the fed would react much more quickly if things did start to get so extreme that it could start looking like an snl crisis. i think the fed would look to

pivot quickly and cast aside their inflation target and really bring down rates to stem it, but there is potential if the fed did not pivot, there is potential to see a crisis develop. lisa a.: that is significant. you are saying if we see more banks go out of business, this federal reserve will do a 180 and cut rates regardless of whether inflation has come down? >> i think so. my base case is that we have seen all of the banks that will go under have gone under.. fi we see a domino -- if we see a domino effect occur, and instead of for banks going under we have 10 banks going under then the fed would have no choice but pivot. tom:one of our colleagues emails -- what is the single best buy in this banking disaster?

david: one bank that got a sweetheart deal through this, new york community bank acquired certain deposits from signature bank, and that puts them in a really good position to grow their balance sheet, to really cross sell into that deposit base, and really generate good earnings appreciation. tangible book appreciation value is higher. tom: we should point out that nyc be is an original sponsor. really scrupulous about when we mentzer our sponsors, we went to -- mention our sponsors, we want everyone to know that. the important conversation of the day was betsy duke who reminds us that you have to get

granular. there is a whole granular side of the federal reserve as an institution, far away from that long table. lisa a.: what she said is that she thinks inflation considerations need to outweigh the banking sector. that is the tension of the moment. david put it well. he thinks if there are a number of bank failures, the fed will have to pivot, retrace, cut rates. how do you gain this out? we do not know what paradigm we will go with? tom: let's remember that with a slowdown, some people think we will get rates so 3% -- bub-3%. in new york they are doing --

that is not widely presumed that they will approve that. it will be much lower. we are adjusting to a new inflation while the phd's do a macro babble here. jonathan pringle was great on that. lisa a.: what is supposed to happen and what is happening are two different things. it is supposed to be coming down. what you are seeing is a re-acceleration an areas where you see rates coming in just a touch. that speaks to the tension of the moment. tom: i want to emphasize on this story there is a lack of attribution. bloomberg reports along with others on statements from the kremlin on 2 drones that are down. the bbc has a social media video with a puff of white smoke, the bbc making clear that, that is less than attributed.

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>> it is fed decision day. good morning, your equity market on the s&p just about positive. the countdown to the open starts now. announcer: everything you need to get set for the start of u.s. trading. this is bloombergtv open with jonathan ferro. -- bloomberg the open with jonathan ferro. [bell ringing] jonathan: live from new york, coming up, chair powell pausing -- preparing to