>> with rates being higher it is more costly for us to borrow. >> our best continues to be there are earnings disappointments. >> part of the reason we have a challenges the equity market is way ahead of itself. >> the market is heavily biased towards pricing in a recession. >> the consensus is expecting a recession to start in this quarter. it does not seem like that is going to happen. >> this is bloomberg surveillance, with tom keene,

and lisa abramowicz. tom: good morning on radio and on television. it is inflation wednesday. bramo has been up all night tried to figure out the vectors of inflation. jon ferro is on assignment. the answer is inflation wednesday. lisa: we worry about the bags and how much the fed still us to do it in time people are still price again rate cuts. tom: you go right to the heart of the matter. we begin strong with peter oppenheimer of goldman sachs. stay with us. lisa: either the vector has to go down or there has to be some sort of crisis. on the inflation side it seems

sticky. something has to give and why the markets keep rising did that it will be the pricing side in the idea of disinflation. tom: mario gabelli will join us at the top of the 8:00 hour, widely anticipated. ferro reads every sunday morning. what is mary o'dea during. lisa: and how many people will have to talk about the debt ceiling. they kind of have to. there has been stasis. the inflation vectors are sticky . tom: do think after the coronation the king of england kicks that can down the road? lisa: you think there is a royal debt ceiling? just because i sit in this chair does not mean i could comment on the royal debt ceiling. tom: we will frame the inflation debate. there is service sector angst

and goods angst. i do not think will -- i do not think people understand the disparity of 7.1% services. goods up 1.5%. almost disinflation to true deflation. lisa: the problem with this, on one hand you could say you are seeing disinflation and the services side will follow. the problem is you could say when services starts to pull off new could see a real inflation of the goods. this is a push poll of the bifurcated economy that leaves people concerned about stickier inflation. tom: data check. dow down 49. the vix does not want to crawl out over 20, 18.02. in the yield space, two year yield -- big dog has done nothing.

27 585. lisa: is that it ferro quote? does he quote bitcoin. i didn't air t -- i can guarantee he does not quote bitcoin. tom: petroleum elevated over the last three days. lisa bailed this. she was in at 2:00 a.m. on inflation wednesday to get the brief ready. lisa: still here. 8:30 is when we are looking for that inflation read. i am looking at core inflation. the expectation is for it to come down attached from 5.6%. it was going higher in the prior reading. that is a problem. how hot does it have to be for this market to sell off? today we get the other pole of the market narrative, focus on regional banks.

first citizens will report earnings premarket. interesting to see how this affected them and what kind of assets they took up. tom: the truth is it has been three or four days of ebbing away. is that the right idea? lisa: interesting thing is ehh is calm, it is good. when you look at the kbw bank index it has not done anything. even the calm has not given people the confidence. aftermarket tuesday is reporting earnings -- aftermarket disney is reporting earnings. this is a read on the fate of cable news. we get a read on advertising. then we get some sort of view into media and how the sands are shifting with the social media push and where people are consuming programming. tom: disney this afternoon.

look to romaine bostick and scarlet fu for that coverage. he is in london where he holds court as chief global equity strategist at goldman sachs. peter oppenheimer has decades of experience of extracting ourselves from the worries of the moment. thank you for joining us and i love what you say near research note about finding neutrality. what do you do in the stock market when you have a neutral view? peter: we have had that view through the last year. we have been calling the environment fat and flat. flat returns at the index level with wide trading bands as the market assesses at different points the relative risk between recession and inflation. i think we are at the top of that band at the moment and what we have been arguing is within that you will get quite a lot of alpha opportunities. we have been pitching it as a

balance between deep value or we think the risk to valuation low and quality growth. it is a combination we think investors should be in a relatively flat index environment. lisa: over the past years everyone was a macro trader and over the past six months everyone is become a micro trader. there is evidence of a stock pickers market, of individuals going into stocks over etf's. is this something that will be persistent when we are shifting away from the broad indus is and clients looking at specific -- broad indexes and clients looking at specific stocks? peter: equities have been dominated by one thing only, zero interest rate world of a very low cost of capital. that has driven an environment where valuations of assets have gone up. that has been a major driver of returns which we are not likely

to see again to the same degree. it also generated an environment that was very fact based. everyone wanted growth because it benefited most from that backdrop of low cost to capital and everyone was neglecting value. it is more nuanced now. you are seeing earnings coming through across different sectors of the market. we are also seeing different leadership as well. we've been arguing europe can outperform the u.s. and has been doing better. i think investors need to be more nuanced. it is an environment where stockpicking and alpha creates a better opportunity for investors relative to beta and index investing. lisa: that makes a concern around the fragility of markets where there is a shock people are not prepared for. i wonder with the cpi report we end up with something hotter

than what people expected. if there is that vulnerability amid the malaise around the macro trade to suddenly say i need to pay attention again. peter: the macro is going to be critically important because we are close to inflection points and it is always an environment where investors become particularly heightened to risks or opportunities around marginal macro data. as you described in the introduction, we are in an environment where inflation is above what central banks want in terms of their targets. there are some risks on the downside -- now markets are pricing the best possible outcome. the equity markets are pricing a soft landing. that conversation is possible but it is what is priced.

at the margin our view is interest rate expectations need to adjust to being higher for longer to get inflation down. tom: i want to tagteam you and jeff currie on hydrocarbons. i look at shell plc with a higher dividend than exxon mobil. goldman sachs on owning big oil on the continent or big oil in america. how do you choose? peter: we like energy and commodities generally. within prices will rise from a fundamental perspective, but also the sectors are very cash generative and paying dividends and they have free cash flow yields in the midteens, particularly in europe. energy and resources were overweight in europe. we liked the resources in the u.s.. these areas of the market have very low valuations. they do not have a lot of downside risk in terms of valuation and they still have an opportunity to accrete returns

and compound returns for investors over time in the flat market. tom: if you and jeff currie are ever in new york city, we would love to get both of you at the desk. that would be at the great moment. peter oppenheimer with goldman sachs with a neutral view. i did get some enthusiasm about energy. everything i've heard in last couple of days is about where is the free cash flow? it is operating cash flow, take out the, here is what is left. lisa: there is a lot left because wearable people invest if they do not have the confidence their projects will have long-standing power if people are investing in other things? tom: is inflation wednesday. in summary things, particularly fixed income markets, everything is in between. there is this math phrase, indeterminate, which is a

mystery of are you going up or going down. as we go to 8:30 this morning, it is also have equities and bonds and commodities signaling in indeterminate trend. what will they do to get out of it? lisa: we were talking with katie kaminski yesterday. she says the signal is not a signal. we are not getting anything. it is very difficult. everyone is looking for a catalyst and not getting one. tom: another trend to follow. john henry owns a baseball team in boston. it is a trend following he has. the trend is there above the dreaded new york yankees. lisa: where were you yesterday? tom: we were up there. we were trend following. it is inflation wednesday. good morning. lisa m.: keeping you up-to-date with news from around the world, with the first word, i am lisa mateo. a lot going on in the news,

especially when it comes to inflation. president biden and congressional republicans made little progress towards averting the first-ever u.s. default. they did agree on another meeting friday which will include house speaker kevin mccarthy. the president says he viewed the meeting as productive. bloomberg has learned new york republican congressman george santos has been indicted on federal charges. he had been under investigation for possible campaign-finance violations. santos took office despite fabricating much of what he had claimed about his education and career. former president trump plans to appeal after jury in new york found him liable for sexually assaulting a woman and defaming her. it is the first verdict against him in a string of legal that threatens to disrupt the campaign. the jury also ordered the president to pay the woman $5 million.

in china, a little-known local government official has been named the top regulator, overseeing the $61 trillion financial sector. the former banker will be party secretary of the newly formed national financial supervision and management bureau. the agency regulates thousands of banks, insurers, and trust firms. global news powered by more than 2700 journalists and analysts, i am lisa mateo, and this is bloomberg. ♪ ♪ (upbeat music) ♪ ( ♪♪ ) ( ♪♪ ) ( ♪♪ ) -awww. -awww. -awww.

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>> everybody in this meeting reiterated the positions they were at. i did not see any new movement. the president says the staff should get back together. >> we asked speaker mccarthy would he take default off the table. he refused. >> the united states will not default. it never has and will. >> i have the 14th amendment but it has to be litigated.

it will end up in the same place. tom: did you think the script would be anywhere else? four voices honor american tradition of the debt ceiling. there were the worthies including the president of the united states after a meeting. i am lucky i missed the meeting. i was not sitting up at 12:00 noon going -- lisa: do not think you are so lucky because there will be so many more. tom: like friday. we are in this process and you have an opinion and i have an opinion. we will get to it in a moment. as i mentioned earlier, flat out indeterminate. american oil $72.71. lisa has noted oil has plunged

to 10950. tom: greg valliere eight as once again we are stocked into the debt ceiling debate. is there something this -- is there something different this time or if we seen this before? greg: there is something different. it is the militants in the house. there are two dozen house republicans that do not want to raise the debt ceiling at all. they may agree to spending cuts, but if there is anything more anything water down they take a walk. the house is a different dynamic. tom: why do they have power? dementia 24 voices among 300 -- you mentioned 24 voices among 300 some. greg: mccarthy only has a five seat majority. with the majority that they in a

tiny minority has a disproportionate influence. lisa: given the fact that is a tiny majority does representative george santos, does his indictment affect anything? greg: not a lot. what surprises me is that was a bigger news story than the debt ceiling. the trump legal problems in new york was a huge story. i think one of the many surprising things about this debt default saga is there is no real sense of urgency. lisa: part of this is we have seen this story before. we talked about this all of yesterday. washington is trying to get wall street interested to go back to voters to say we tried our hardest. it seems circular. at what point did they bite the bullet and resolve the issue or will it not get to that until there is more emotion and people care more? greg: i think it is the latter. they will talk and talk about extending the deadline.

maybe it is extended until the july 4 break or maybe until the end of the fiscal year. there is not enough time to get a year -- a deal done because they are on vacation all the time. they are only in for another seven or eight days in may. they are out for another june or july. with this vacation schedule i do not think they have time to get a deal done. lisa: janet yellen reportedly called all of the corporate executives and they lined up and said dutifully please do not do this. what you think will galvanize a reaction given the rank-and-file , you have the polarization on either side whether you want to cut the budget significantly, whether you want to keep certain spending. that i understand. the bigger debate is why does this have to be resolved in this issue? how is it going to end other than some sort of massive move like the 14th amendment or something worse like a default? greg: you could have that.

i think you need one more ingredient, and that is a lot of demagoguery on social security. i think that will be a big part of the dialogue in the next two to three weeks that senior citizens might not get their benefits. that will motivate a lot of politicians. it may take something outside the box like the 14th amendment. i think it will be a legal fiasco if they try to do it. i think we will get a deal, do not think the u.s. will default, but it will take a while. tom: so we get an extension. the can is moved down the road. maybe it is something like autumn or the end of the fiscal year. why the theater? if we will get an extension i do not understand why the angst? greg: there a lot of people in the house who sincerely worried.

we have a total debt of $31.4 trillion. tom: i do not mean to interrupt. you and i have been through this five times with the late great peter peterson. where is the commission, although is that what comes out of the meeting friday? greg: you could. that would be viewed cynically. the public is convinced that inflation is the big problem and inflation has been exacerbated. in both parties, but especially the republican party there is a militants we have to do something about spending. lisa: how many people are talking about where the spending comes from? on both sides there has been spending. from your vantage point, where has more of the spending come from? greg: i think we will get some curbs on spending. if you want federal benefits you will have to work. they will clawback pandemic relief. they will have a cap on spending.

there are the rough outlines of the deal. it is that this dance will take months to finally get resolved. tom: thank you so much for the brief this morning. with agf investors, i cannot say it enough about greg valliere in the mood linking economics and business into the political ballet of washington. the ballet is happening in tokyo. our annmarie hordern in conversation friday with the secretary of the treasury. this is the g7 finance ministers meeting. the timing is interesting. we will have team coverage at 3:30 a.m. on bloomberg surveillance. i am getting. annmarie hordern says it has to be 3:30 in my afternoon. from tokyo, janet yellen. i have been to these meetings and there is a lot of body language and the conveying of the message and you wonder what janet's message will be to annmarie hordern.

lisa: especially when there a fraught domestic stage and fraught international stage and how much does that affect the international stature of the united states. this is the time it is crucial to get support around ukraine to keep going with the potential offensive. this is crucial with getting a number of other deals. how do you do this it be more like what is going on at home? are you going to default? lisa: what is interesting -- tom: foot is interesting is what korea desires or japan desires, but to remind ourselves it was a bipartisan walkway of the united states with the pacific trade agreement seven years ago. lisa: did you see yesterday italy is walking away from its belt and wrote agreement? this to me was really interesting because it was something -- u.s. representatives pushed hard against.

they are withdrawing after entering in 2018 and 2019. how much is this polarization? china, russia, saudi arabia, maybe? tom: i totally agree with you. what is fascinating is this was done by a controversial prime minister in italy. we have to get francine lacqua here to explain. it is a big deal. no question about that. in two hours the inflation report of united states of america. michael mckee with the dynamics of service sector and good sector inflation. the markets will move. stay with us. on radio and television this is bloomberg surveillance. ♪

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tom: "bloomberg surveillance", good morning to all of you looking two hours out to an inflation report in america. maybe a gallon of gas under four dollars in most of manhattan. 72 $.86 per barrel. brent crude -- $72.86 per barrel. slice and dice at 8:30. lisa: core will be that much more important. stripping out energy and food in those volatile areas.

that's the sticky area of services worlds you are talking about. tom: i dived into the research on this. good morning to the cleveland fed and the kansas city fed who led the way on this. university of michigan with this been a lot of academics. there are 14 ways to choose to measure inflation. none are any good. you pick your second best choice. my has always been the cleveland core number which does not just take out oil and energy and whatever. it varies month-to-month on what it takes out. i'm not sure that is the best number but that's what i use. lisa: he really is the reality. -- it really is the reality. what we are seeing now is a host of projections from wall street. goldman sachs is at the top of the pack. estimating a .5% rise in the core cpi month over month.

b of a at the bottom. citi seeing a printed .4% -- a print of .4%. tom: if it is a $30 pop for groceries, why am i looking at the difference between .5%, .4%, and .3%? i'm getting killed at the grocery store. lisa: we will send that to economists. tom is paying a lot on his italian artichoke hearts. he would like to remedy the situation. veronica clark weighing in. i love your thoughts, not necessarily on tom's grocery bill but the vagaries of the report and why you expect it to come in hot. veronica: we are now on the median at .4%. it is a strong .4%. .44% month-to-month increase in

core cpi. a lot of the inflation data can get more nuanced now. we are looking at the core non-shelter services in the report. recreation services, education, command occasion, expecting those to be strong. lisa: you have been vociferous at citi about the stickiness of inflation and the need for this federal reserve to go further. the market's closed i approach -- closed-eye approach. what makes you think you will be vindicated with today's data? veronica: it comes down to the stickiness of core services inflation. that is the inflation that is worrying for the fed because it's tied to tight labor markets and low unemployment rates. we saw that on friday, and strong wage growth. if you don't see the labor market loosening, if you don't see wages slowing, there is not

a lot of reason to think the pace of inflation slows. that looks consistently at around 5%. i think that becomes more clear by the time of the june fomc meeting. if the forecasts looks too low, they might have to raise those. tom: let's do the math right now. you have x number of inflation data points and you establish a vector. i believe disinflation are the arrows pointing down. i have disinflation maybe on a path to outright deflation. which way is the vector stand at 8:31 this morning? veronica: you make it sound more complicated than it is maybe. we are not really seeing a true deflation and a lot of categories. we see that in energy. maybe in food. goods, yeah, prices have been softer but prices are still very strong. we are not hoping for deflation.

we are hoping for a slower pace of inflation. tom: lisa is on top of the story 24/7. i could care less. i don't know how you model rate cuts if the arrows are going up on service sector inflation. how does real estate play in on that service statistic? veronica: the shelter component of cpi is more important here. we saw that starting to slow in march. we have seen home prices that have eased. rents are coming off. not rising as fast. that should be reflected in the service component of cpi. that will help things. that is a big component of cpi. unfortunately it is a smaller component of inflation the fed will target. pce inflation might not come down quite as fast because of that. lisa: the banks. there will be banking stress and that will bring all inflation down. that is the narrative, right?

people have been waiting for the credit cracks to worsen. the sluice? tom: i read the whole thing cover to cover. lisa: the senior loan officer opinion survey showed whatever you wanted to think of in terms of a bit of tightening, no crisis, no crisis yet. how does this factor into your call that it will not necessarily matter for the fed when it comes to the fight on inflation? veronica: the tightening of credit, we have seen that for a while. it was a positive sign we did not see it accelerating too much more in the q1 sluice. that will impact activity and inflation. that is further out down the line type of impact. it is a slower tightening of credit, which is a more positive thing. in the meantime inflation is coming in stronger than forecasted in march when they

presumably included the drag from tighter credit. things are still evolving stronger than they would have expected. lisa: i imagine you get a lot of calls pushing back. what is the most convincing argument against what you are saying? veronica: markets are not pricing further we are expecting. we are not expecting cuts in the pricing. the best argument is there are financial stability concerns. the fed could want to be more gradual. it does not need to quickly raise rates anymore. maybe it takes its time and ways to see how things evolve. in the meantime they are focused on inflation. that has to be number one. if inflation looks stronger than your forecasting, rates need to be higher. tom: you may be on the edge of bullard where we get a rate increase. maybe a second rate increase. what does mike bloomberg markets screen do -- what does my

bloomberg markets screen do? the answer is if i'm looking at a three-month benchmark, or the three-month t-bill, do i need to start modeling out 6%? veronica: i don't think we will see rates quite that high. we are in the bullard camp where we think rates are getting above -- where it is not priced. some of the deposit outflows could be worse. we have seen that for a while. people could get higher rates and take t-bills at shorter terms. that is part of the slowing of the money going out into the economy. it brings down inflation. tom: veronica, thank you so much. veronica clark from citigroup. i like how you framed that. bank of america maybe more

quiet. there is a big difference between a .5%, .4% and .3%. lisa: it is a month over month figure and year-over-year trajectory. revisions will make a big difference to understand which data we should pay attention to in these disparate points of information. tom: the sec yield on a big fund company money market fund. what is -- market fund. what does -- lisa: first citizen's first quarter data is a little muddy because it did buy silicon valley bank. what you are seeing is just a huge beat across the board. they see deposits for the full year being $137 billion. the estimate was $119 billion. far above expectations. net interest income of $6.2

billion to $6.5 billion. the estimate, four point billion dollars -- $4 billion. how much of what this is because of what they acquired from silicon valley bank? the whole morass and the banking space. -- in the banking space. tom: we get down to five dollars per share agony, and that up to $1100 on first citizens. what i would suggest it is actually a technical breakout. you look at the trading envelopes and the fancy technical stuff. unlike a lot of these banks, this actually has a real pop to it. lisa: it reminds me of a story that came out yesterday. big banks are increasing salary substantially, increasing compensation for workers quite significantly. regional banks are having to cut workers and cut compensation. there is a consolidation in the bigger firms.

i imagine this will be happening in the regionals. the more stable ones can higher the bigger, better people. you will get that ongoing consolidation. tom: i look at the chart of jp morgan. it is wednesday. the answer is, it's indeterminate our theme for the day. it is right smack dab in the middle of the trading envelope. first citizen's has a lift to it. lisa: you don't necessarily see a resurgence in the kbw index on the heels of a positive story. they want the crisis. they don't want the sense of relief. there is a bias here to look for the bad news. i think that is a trend. tom: i expect that from a woman -- the new york mets have lost six out of the last seven games. i can understand the caution, the reticence. lisa: where were you yesterday?

let's talk about it. how amazing your team is. tom: the red sox. i enjoyed boston yesterday, and thank you to the red sox. it was actually very emotional. i was shocked going back to my youth. the answer is, all that matters is what you're doing better than the dreaded new york yankees. nothing else matters. lisa: i can get on the same page on that one. tom: it is just too much. they must be inflation wednesday. futures at -7%. stay with us for this important 8:30 report. this is "bloomberg surveillance ." >> keeping you up-to-date with news around the world with the first word, i am lisa mateo. after making little progress on debt limit talks, president biden and congressional leaders had back to the drawing board on

friday for another meeting to try to everett a u.s. default. the president calls tuesday's conversation productive but house speaker kevin mccarthy said he did not see any movement. the u.s. announced a $1.2 billion package to bolster ukraine's air defenses and ammunition stocks. it includes satellite imagery services and equipment to integrate western systems. the word came after russia's president vladimir putin vowed to press on to victory in the war. wages are rising fast across england and are finally catching up to inflation. a rose 10% in the past year for those taking new jobs. that's according to data posted. figures point to a labor market that remains red-hot. they doubled down on prime minister rishi sunak's vowed to cut inflation and a half this year. xi jinping's latest cracked is focusing on experts hired by ford hedge funds and ceo's. it's an attempt to lure foreign capital into an academy --

economy showing signs of strain. on tuesday, authorities accused a global expert network of leaking state secrets and being linked to foreign intelligence. steve schwarzman has met with lori governor ron desantis. the meeting left him unconvinced the republican -- of the republican's white house prospects. schwartzman is holding up donating money to desantis. he's not supporting anyone in the republican field. global news powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo and this is bloomberg. ♪ ♪

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constant contact delivers the marketing tools your small business needs to keep up, excel, and grow. constant contact. helping the small stand tall. >> sometimes people get over excited about the credit tightening. it will be a credit crunch. not really. banks are in the business to lend.

they risk adjust that lending and may charge for loans but they are not packing up their bags and not lending. tom: one of the great sets we've had with the southside research on the banking crisis. rbc capital markets. jordan cassidy there on the banks this morning. futures at -.7%. lisa, we measure this by the red and green blinking on the screen. if i cross my eyes you can get a feel for the market. there is nothing going on. that is all there is to it. lisa: there have been analysts trying to project if it is above 5.9% year-over-year core, then a 3% decline in stocks. difference below 5.2%, you look so impressed -- if it is below 5.2%, you look so impressed right now. tom: we will dive into it was

someone with some real important finance background, including working in financial control at morgan stanley years ago. christopher mcgratty staggered of the infield to shortstop. brought it over to securities research and joins us now. these banks are the new york yankees, last-place. everything is going wrong. you and your cohorts predicted it was over at frc. you are still in last-place like the new york yankees. christopher: let's check those stats on the batting average off-line. the sentiment is really terrible. fundamentals came into the you're pretty strong. we knew earnings -- came into the year strong.

we knew earnings had peak. that has shaken investor confidence. you have seen three large bank failures really shake confidence of investors. tom: it is simple. you people have your ear to the banks like nobody else. great credit to stand there and your arch competitors over the years. what do these officers do to convey their exposure in commercial real estate? what is a cfo or ceo do at 4000 banks to say here is where we are and apartment buildings? christopher: we saw the first quarter numbers and they looked great. credit numbers look strong. the commercial real estate cycle will take time to playoff. everyone is exposed about up -- concerned about office exposure. it is fairly manageable on the bank balance sheets. there will be losses but the banks are coming in with a tremendous about of earnings power. the banks will remain

profitable. dividends will be maintained. this is another component. lisa: just to build on that, there is a feeling that because of the portfolio assets that they cannot sell without locking in losses now, they are constrained with the amount they can lend. it was not really borne out in the recent sluice. anecdotally, do you hear they are tightening much more significantly and frankly much less willing to lend than they were three month ago? christopher: they are being more selective. interest rates have gone up dramatically. there is stress on some borrowers. regional banks are lending to their good customers. they are being selective. the price of deposits has risen considerably over the last year. the balance sheet liquidity situation is paramount. they are being more selective but they are lending. growth has gone from 10% in 2021 to probably 3% or 4%. the senior loan officer survey

suggested there is more deflationary pressures. lisa: do you get the sense that anything could bring the sentiment that break the sentimen -- rake the sentiment? -- anything could break the sentiment? christopher: it's about confidence and confidence is low. we can deal with negative earnings revisions and declining of valuations. we are talking about systemic risk. it's a very fragile system. there are some things that can be done. we can talk about fdic insurance coverage. the fed pause. those are important components but right now it is pretty fragile. lisa: we are getting word is reporting prosecutors are looking into short seller activity in bancshares. -- bank shares. christopher: shortselling is an important part of efficient markets. they temporarily banned short selling. we need free-flowing markets.

there has been unusual activities in options this week and that is something we will look at. tom: i know you're not doing the technicals of the index. everyone watching the show sits on the index. it is the benchmark. the damage is so great. we have to all adjust our x-axis to recovery. what is your timeline of recovery on the shattered index? is it two quarters? dear i say two years? christopher: it's been eight or nine weeks. last week we thought it was going to be the t-0, host first republic. without -- post first republic. did not happen. what we saw this morning's first citizens had good returns. they are helping to solve some of the problems.

investors are hanging onto those stories but it will take time. tom: will you be out of a job in five years? do we go down to 3500 or 35? christopher: i think it is somewhere in between. you lose about 4% of banks traditionally every year. i suggest what has happened over the last two months will accelerate consolidation. when you know with the rules are and we are learning the rules from a regulatory perspective, we need more banks, more regional banks to compete with the top four. there are going to be fewer banks in the united states and less banks in the entire world. lisa: what will it take for you to recommend all in? christopher: if we can look at these companies on fundamentals and the market looking at fundamentals and not fear, that is the key to it. tom: i walking down the sidewalk. i guy stops me. you had they guy on from kbw

talking about middle barry -- middleberry d1 hockey. it is like a no-brainer, right? it's un-american that middleberry is in d1 hockey. thanks much for confirming that. he is with kbw. we thank our team for this terrific coverage from ken lyons and jordan cassidy and others. i thought they would be a little bit of a recovery. lisa: people are looking for a bogeyman. that is what we have seen consistently. regionals is a place is going to happen. tom: just in general, yeah? we are back to 49% in new york city back to the office but that is not help commercial real estate. lisa: you think people are

sitting at home worrying and fretting? there are monumental shifts in the economy. with respect to regional banks, there is a question around profitability. there is a question about competitiveness with deposits. it is a ball of angst leaving people without a sense of what is under the hood and a lack of confidence in regulators to give a since they have a handle on this. tom: i would also go to scale. if we say each and every bank, except for the big ones, is going to be a smaller institution, you have to spread your technology expense, your labor expense. all the fixed costs across a smaller banking platform. i think that is hard. let's do a brief on inflation at 8:30 this morning. lisa has been looking at core and non-core. there is a bit of a difference here. you are focused on core inflation at 8:30. lisa: increased month over month for prior months.

a lot of people are saying services sector is continuing to chart hot gains, led by the airline sector. you are going to look at red sox tickets. tom: no. real wages. two years negative real wage. two years we have seen inflation adjusted negative weekly earnings. i find that -- i can't even frame that. lisa: this is the reason why inflation is number one fight for the federal reserve. it affects people and essentially takes less money -- puts less money and people's pockets to live their lives. tom: we will do that with michael mckee. the vix exactly 18.0%. nice adjustment over the last number days. 55 basis points. the real yield, 1.26%.

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>> with the rates being higher, it is more costly for people to borrow. >> our best guess continues to be there are earnings disappointments out there. >> part of the reason we have a challenge is the equity market is way ahead of itself. >> the market is heavily biased towards pricing in recession. >> the consensus is expecting a recession star in this quarter. it does not seem like that will

happen. announcer: this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning everyone. inflation wednesday. are going to have that for you in one hour and 31 minutes. nothing else matters. a report on the agony we have faced with inflation. services is good. you make joint -- we make jokes every viewer and listener has been slammed by this inflation. lisa a: in specific pockets as well, especially if they want to travel, eat out, or engage in any service level. top with becker yesterday about the airline industry. double budget increases -- double-digit increases. tom: john was in dca trying to get back in the three flights before mine, every seat was taken. every single seat. lisa a: it is demand and supply.

there are distortions that continue to have effects in a lot of industries, particularly of server-side issues. how does this dovetail into a broader economic call? you are pointing out there are all these different inflation data points that give tea leaves to a different narrative. how do you get a read on this one that will be under the hood, parsing out details? tom: even if we get 7.1 percent statistic today, a leveling of service sector, the fear is back there that what jonathan ferro lived with his family in england or where maria tadeo is living in brussels, which is substantially higher inflation, it is like are we like them? lisa a: if you take a look at market pricing, you do not see runaway inflation expectations. this gives the fed comfort to say yesterday we heard from

jefferson and williams that inflation is starting to come down. how quickly will it just naturally come down to something normal or are we just back to a normal that is a different era? tom: what we do is inflation-adjusted wages. i do like the eci statistics which is wages and benefits, but under weekly earnings -- i like the weekly idea versus the hour. the hour, two years of inflation-adjusted wages are down, negative. that is the social cost of what we are looking at. lisa a: eyeglass -- i am glad you are bringing this up. we keep talking about the pernicious effects of hiring and unemployment. if that gets going, it will leave a lot people without a job. if we keep going in this inflation environment, a lot of people are experiencing declines in their wages. how do you parse this out? tom: mario cavalli in the next

hour. we get right to it with negative first payrolls. futures are -7%. the vix is up. the last couple days, bouncing off 7.0. west texas intermediate is 72.87. the two-year yield is 3.50%. moving away from the bramo one point tend to a weaker 1.0952. we need a wednesday brief. lisa a: it is all about the figure that comes out in 90 minutes in the u.s. cpi report. we are looking at core, which has remained sticky. this it come down as much as people are expecting or stay sticky? how does banking fit into that? we got first results that came in well, better than acted.

and as we just heard, this is a specific story, not necessarily one that represents the broader sphere. the kbw banking index, off the pandemic. tom: you go to february 2020 and you have a nice post-pandemic lift, and flatness. this is the most emotional char out there, how close we are to banking being priced at maximum pandemic fear. lisa a: this is the main pushback look back to inflation reads as the current condition when apologists put out a note about banking conditions of 2008 levels. just getting a sense of consumer spending also with consent to the streaming content versus cable news and how they are doing on experiences which have an incredible boom as everyone tries to get back. tom: are you guys riveted to m

andalorian? lisa a: no. tom: i'm trying. it is like a lot of people with succession. it is just not the same. lisa a: i will be honest but i cannot watch anything for more than an hour without falling asleep. [laughter] tom: david kelley made a splash last time he was on with us. keith -- chief strategist at j.p. morgan. i have to redo the stunning, may last time you were on. you are looking for negative nonfarm payroll statistics out there. do you calibrate we can actually see nonfarm payrolls at some point give way to a negative statistic after the jobs report? david: it was a good headline for the month of april but it revised on the prior month's by

149,000. the three day moving average is still falling. it is still at 220,000 right now because a lot of workers coming out last year. as the year goes on and as we go to august, september, october, the dangers of a negative payroll read is high. tom: the heritage of economics at the university college dublin is to study like crazy. the waste dynamics of the u.k. in ireland, through the depression, and onto the modern age. the answer is all of it was accompanied by pressure on labor of a pressure on wages, antilabor share. when you see two years of a negative real wage, what is the cost of that to our listeners and viewers? david: it is significant but we should look at this the other way around.

you are talking about how core services inflation is still high . it is made up of two things. owners which is kind of a myth, because it is the myth he would pay, which is 25% of cpi. they talk about airline rings and hotel rates. i experience those in business but that is not the biggest problem. for the average american, the big problem is true, energy, and actual rents. actual rents have stopped rising. they are high the stopped rising. which americans need our wage increase. when i see the fed say wage growth is too strong, no, you want wage growth to be strong to level the playing field. i do not think there is anything wrong with the wage growth. what is unfortunate is real wages are getting pushed down because workers are on the defensive. tom: david kelly channeling the

senator from massachusetts. lisa a: if people think it is not the main driver of inflation, it should be a positive for the economy. but what would you have to see during this report or elsewhere to change worldview? right now, the market believes the fed will turn and cut rates because there is going to be incredible disinflation. david: it would take a lot to change my view. if we look at all the different pieces of inflation, because we have to forecast this number, we see pressure coming off energy prices locally -- globally. we are not seeing worries about potential recession are keeping inflation down elsewhere. i see the economy largely normalizing. our numbers say today it will be around 5% year-over-year, not much changed from last year. but a year ago in may, it was

2%. this means inflation headlines will be below 4% by june. then it will flatline and come down all the way through 2024 as shelter goes the other way. we are modeling all the pieces of this. it has been tracking very close to our model throughout the last year, even though i take end at high lumber. it would take a lot to convince us we are on the wrong path. lisa a: the problem i face, and correctly if i am wrong, will i feel if people are throwing darts at a dartboard. if you look at the economic price index, it is at its highest level in more than a year. people have been surprised by the upside again and again. what to say -- what to say people are tracking the wrong things and looking in the wrong places?

david: it is a complicated economy. i think it is very wrong to use a yearbook -- a rulebook from the 1970's to figure out inflation. i think things are completely different. this spring, we have had different seasonal patterns after the pandemic and because of the evolution of the economy. i think this is helping payroll job growth early in the year. we also saw a big cost-of-living adjustments. we also have pent up demand for autos. i agree with the notion we are not in a recession in the first quarter and probably will not be in the second quarter. but there is plenty reason to seed our motion in the economy as the year goes on. and particularly in underlying inflation dynamics. tom: on stagflation, you do not buy it, do you? it is yesterday's story? david: it sounds at the new york daily headline. it sounds very -- scary.

what i am worried about is stagnation is where we may be headed. tom: david kelly, j.p. morgan asset management. you put this view together, i am not saying i agree, but boy am i am leaning forward and listening when he talks about the vectors. especially away from larry summers stagnation to something way less inflationary. lisa a: david kelly has more consensus than a lot of people calling for inflation to be stickier which is more than the world is pricing. tom: we have the inflation report near labor day. inflation report at 8:30. this is "bloomberg surveillance". lisa m: keeping you up-to-date with news from around the world. with the first word, i am lisa mateo. president biden and congressional republicans made little progress toward a writing a first ever u.s. default. they agreed on another meeting

friday which would include house speaker kevin mccarthy. president biden said he view the meeting as productive. bloomberg has learned new york republican congressman george santos has been indicted on federal charges. he has been under investigation over possible campaign-finance violations. he took office despite fabricating much of what he claimed about his education and career. former president trump plans to appeal after a jury in new york found him liable for sexually assaulting a woman and then defaming her. it is the first verdict against him in a string of legal cases that threatened to arrest during the presidential campaign. they also order the former president to pay the woman $5 million in damages. the jury stops short of file -- funding him liable for rate. christine lagarde says the fight with inflation is not over. christine lagarde said the ecb's the has ground to cover.

most economists figured the ecb will raise its key interest rates twice more in june and july. shares of airbnb are falling. the rental home company gave a cautious outlook for revenue in the second quarter. rising prices are starting to affect consumer appetite for trips. global news, 24 hours a day, on-air and on "bloomberg quicktake", powered by more than 2700 different journalists and analysts in over 120 countries. i am lisa mateo. this is bloomberg. ♪ the first time you connected your godaddy website and your store was also the first time you realized... well, we can do anything. cheesecake cookies? the chookie! manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com the morgan stanley client experience?

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>> everybody in this meeting reiterated the positions they are at. i did not see any. the president said the staff to get back together. >> we explicitly asked speaker mccarthy if you would take default off the table. he refused. >> the u.s. will not default. it never has and never will. >> the problem is it would have to be litigated. in the meantime, without an extension, we will still end up in the same place. tom: the great and worthy in washington with an anticipated meeting with legislators

yesterday over the debt and deficit of our nation. it sort of pretty watch that's pretty much went on script. lisa a: everyone knew there would be very little progress. they are meeting. that is what we know. tom: we can have another boring discussion on the debt and deficit. as a set of twitter yesterday, read how berner and bernstein. they wrote the monograph of this on the linking of the monograph system. but part of this and over all of this is a morality on debt is a huge part of the national discussion or non-discussion. romans from the bible, let no debt remain outstanding except the outstanding debt to love one another. joining us now is french hill of arkansas, a republican. give me the geraldo -- the

morality. it is a serious issue no one is talking about. is it immoral to have debt and deficits in the u.s.? rep. hill: good morning to both of you. i missed bible study this morning so that was a great reminder. it is a moral to have a debt and deficit that are not controlled -- immoral to have a debt and deficits are not controlled. we are running a deficit of over $1 trillion. you could argue that is not moral because it is substantially larger than one we have had in the past, and does not show the discipline we need to go back to a balanced budget. tom: there is a photograph of you and bush the first in your youth. that is when we had commissions of greenspan and social security that actually got something done.

i am in disbelief that simpson bowles went down in flames. by can't we go -- be like any democracy and get a new commission to do something about our debt and deficit? rep. hill: you are right. i support the idea. i thought that was one of the most effective things in the first term of president reagan. he also put social security on a stable ground by the greenspan condition which had an up or down vote on how to do that. i would support a commission like this to tackle mandatory spending a social security and medicare, to make sure they have stability and funding for the next generation. there are two thirds of our spending every year which drives the deficit and drives the debt. lisa a: there is an important conversation to be had about what is sustainable and good finance. there is another question around the manor to have it, whether we should be having this on a brings edge, holding the u.s. hostage.

is this really the proper way to discuss it when both parties have increased the deficit? rep. hill: that is while february 1 kevin mccarthy met with the president and said let's have a meeting to raise the debt limit and get things under control following the pandemic. they had a meeting and the president promised to follow up and a hundred days have gone by. what happened in the interim is only one portion of a branch of government of taking action and that is the house under kevin mccarthy's leadership to raise the debt ceiling and propose any controls and regulatory policies that would make us have a better economy and after growing economy area -- economy. lisa a: during former president trump's administration, our debt raised up. it brought us to post war. why is it so different now that we cannot have a discussion more clearly, even though we have the

same debt situation? rep. hill: i don't think that is true. the bulk of the spending was due to bipartisan spending to fight the pandemic, over $5 trillion. a shocking situation by congress. if we knew what we know today in march 2020, we probably would not have spent that much. but we didn't have a debt fight in 2019 and president trump was forced to negotiate with nancy pelosi because he was not in control of the situation, the situation president biden finds himself in now. that is why kevin mccarthy went to the present february's first and said let's do sensible deal. lisa a: what would your response be to president trump if he didn't vote before the minute to keep paying principal on the u.s. debt, even if we do go over the deadline with response to the debt ceiling? rep. hill: secretary kelly does not believe this is a practical

activity. i understand the 14th amendment but we also have legislation in the house we passed keep spending the principal payments and other mandatory payments that was passed by the house ways and ago. tom: september of 2015, mr. boehner fell on the sword and exited stage fright or left. that was a problem in the tea party at the time. explain the challenges kevin mccarthy has not to do another john boehner? rep. hill: i heard this morning or earlier that people were concerned kevin mccarthy might say one person can make a move to vacate the chair. every speaker of the house except nancy pelosi has faced the same procedural motion. it is not a new thing and can still be tabled by 218

republicans. i do not view this as something kevin mccarthy is concerned about. he is concerned about a responsible and sensible way of raising the debt ceiling and tailoring spending, going back to pre-pandemic priorities. tom: what do you need from secretary kelly? what leadership can she provide in the coming days? rep. hill: janet yellen could step in and say that she would be happy to work with speaker mccarthy and develop a very responsible and sensible deal to raise the debt ceiling, and curtail spending in the right way. i think it would pass overwhelmingly in the house and senate. president biden can sign it into law, well ahead of any deadline she set. that is precisely what president trump did with speaker pelosi. he asked secretary steven mnuchin, then the treasury secretary, to get the deal done. tom: thank you so much. republican french hill with us today.

interesting to see how the administration owns in here. it is a different secretary of treasury. this is not the usual corporate suit and tie. i say this with great respect for the people who have served over the years. this is someone that really understands the economic dynamics, particularly to labor, if we get a shut down. lisa a: speaking of invoking the 14th amendment, she said that we create a constitutional crisis. she is going to g7 to meet with other leaders of the world's biggest economies and having to face off, and say we are a united nation with all our past history and current cloud at a time when there is a huge? about whether we can even pay our bills under this. tom: friday, three :00 a.m., bramo and i will be the only ones away to listen live to annmarie hordern in tokyo. in conversation with the secretary. we'll bring you this on

"bloomberg surveillance" on friday. enrico doran with janet yellen for a balance of power and all of bloomberg world. look for this friday. we look to one hour now. one hour and four minutes away. an incredibly interesting lisa report. if you give me a service sector chart, that is the headline. lisa a: and lots of people are looking to see whether see this nudging this and whether that will change market expectations for rate cuts. tom: the vix under 18. exceptionally quiet red and green blinking on bloomberg across equities and bonds, currencies, and commodities. this is "bloomberg surveillance". ♪

tom: "bloomberg surveillance" on radio and television. jonathan ferro on assignment. he will be back. when? lisa a: back on friday. tom: come on. they couldn't give him friday off so he could slide into a sabbatical? [laughter] lisa a: you can lobby on his behalf. tom: is cruel and unusual punishment. jonathan ferro returns on some point. lisa a: are you taking him out? are you trying to say don't come back? [laughter] tom: has to come back just for

friday? that is cruel and unusual punishment. anyways, futures down -65. i am looking at the two-year yield. 4.01%. i have nothing to say from this inflation report as well. saving us today is lisa abramowicz with market movers. lisa a: this go to the point bank of america pointed out which is people are going into specific stocks increasingly and moving away from indexes, because they are giving you nothing. tom: we are not going to take a ton of time but the observation is maybe the observation of the year. lisa a: which is why live to movers every year to take a look at underpinning stories because they are not necessarily industry stories. airbnb is like that, shares lower by 14%. saying perhaps there was appetite by traveling and staying in these places, but

lower. is this a willingness to travel or a willingness to pay up for airbnb versus a hotel room? i do think there is a distinction. tom: what is the trend of airbnb? thumbs up or up thumbs down -- or thumbs down? lisa a: they said it is weaker in terms of trips. they will try to diversify. how much of this is an interest in credit? it shows how low the bar has been in the tesla competitor rivian. twilio coming out with a weaker outlook. a software company. what is interesting is people are talking about how in tech there are pockets of road good and in pockets of potential bad, especially if companies are not testing. -- not investing. tom: those are all dow jones components right there. is that it? lisa a: would you like more?

tom: it is sort of like the earnings outlook wrap up. lisa a: we are more than 90% of the way through. i love this. he said is that it? why don't you have apple on there? tom: i don't know. those are the movers. airbnb? i never saw them. lisa a: i used to all the time. the question is, is it worth it because of the amount of cleaning bills you have to pay? and then the question of what you get and the booking time. i wonder how much people are moving back to hotels? i am just speaking a little personally. jp morgan shares lower by 0.3%. tom: finally, an equity data check. [laughter] the senior debt per folio manager of global debt at invesco joins us now. you are a grizzled crow. what is the duration you work at

24/7? is it five years or seven years? >> the 10-year is always the salt of what you think about but in this environment, two has become important. tom: i got the whiting version. three months and 10 years. what does a grizzled pro-life you think about that with the signal of -- pro like you think about the signal of inversion? there is the three-month. i have my hand up here. then the two years way down here. [laughter] >> with the version of the curve, we are at historical extremes. this is why we have to have imminent recession but this is also what the market husband calling for since the fall that by second quarter, two the in recession. we have actually had discussion on our team of how much is this a ms. discussion because of -- a

misguided discussion because of all the -- tom: genetic is over at citigroup just threw in the towel over a caution call. i think it was about the coronation and the importance of king charles iii. are we going to all throw in the call -- the towel on the recession call? is that the surprise the rest of the year? >> i think people are dragging their feet and want to hold onto the narrative they have of the bed being done and grow slowing down -- of the fed being done and the growth slowing down. it has priced to the upside across the board. inflation has been sticky, the labor market has been strong. i think the fed struggles with a back and forth of the are looking to slow down the market. you have all this noise that has

been introduced the last couple months within the banking sector. at the end of the day, we will get credit tightening as a result but this after the fed goal. how do we materialize how quickly it comes? lisa a: we are 55 minutes away from the all-important data point of today which is cpi. i am looking at core to understand its trajectory. how vulnerable is the market to a surprise? a bit of malaise of i can pick my data point and will just go about my different -- my business. >> i think the market is vulnerable. we have seen the noise in the data. one month does not make a prank. we had a one month .1 corporate. now we are looking back to 0.40.5. i do not think there is consistency of the data to make a trend. both from in rates and how you would see treasury response but also broader risk is looking for we miss.

king for weakness of risks on the banking sector -- looking for weakness of risks on the banking sector. a slow down to materialize, justification for the fed to slow down right away. i am not sure if we get this right away by think that is the way the market is cute. lisa a: in terms of the catalyst for the next move, because that seems to be what people are looking for. something to happen to make them have conviction one way or another. where is the risk askew? where is the idea that we end up with an upside surprise or downsize surprise? >> and think you have stronger data and some upside surprise and stronger stability from the banking sector and growth. lisa a:'s credit the best place to be given that, given the fact you can have credit to potentially tighten? >> we look across the board and look at three effects of rate

credit affects. credit is the least compelling. effects on a global basis is the most compelling. if you think of credit in the u.s., credit evaluations are on the rich side. mortgages look more interesting than credit. i think it is a hard debate people have of you want to rent the income in credit. if and when things break, credit will break as well. tom: you two are looking at the shorter term. i am looking into the bloomberg total return corporate and ask, the classic lehman barclays that we have made good use of. as pemco said, we have a gift for years of price up, yield down. we have had an almost 16 or deviation move down off a 20 year trend. we are still down 15% from what we remember as normal. in invesco, are you managing to

get back to normal or to a new normal? >> i think it is a new normal. the environment has changed. we have a backdrop that -- has massively inflated their balance sheets and are looking to go the other way. we also have more policy in the since all central banks have shifted to focusing only on concurrent data. at some point they need to make the ship. but it probably gives you more volatility of policy actions. we have not seen this. there is big debate blake, can the fed pause and then hike again? but there is more volatility and we have a different normal. tom: what total return do we get if we get 1q out there? inflation in around 40 minutes. if we get a view from 5% down to

3%, dare i say to percent, of course cpi, help me here. price up, yield down. is the thing we are going to miss the recovery of the bond market? that we are all being way too cautious? >> i think with the shift and what we are looking for from the inflation data, the market has given a lot of credence to the fed in their credibility to bring inflation down. even though we have continued to have inflation run where it is, you have not had market measures pricing it there. on a go forward basis, the fed does not need us to be at 2.0% inflation. they are confident with this move down but sitting at 4% and 5% does not get us there. lisa a: is this a fun market? >> there are days when it is fun. i think 25 basis point swings gets a little --

[laughter] lisa a: but is it exhausting? is there something you can take advantage of? >> i think it is interesting and there are opportunities you can take advantage of. especially in a world where fiscal opportunities were so dead. our portfolios are more globally focus and you have come from a 10 year period of u.s. exceptionalism that no one cares about anything going on globally. that is an exciting story for us to tell of why em, global, and things outside the u.s. tom: in the equities space, is a single best buy in fixed income? >> when we look at those levers, fx, and a broad dollar weaker trade, the dollar tends to trade in 10 year cycles. emfx especially. tom: can a washington 97 year peace ever come back? >> it has good convection.

tom: my 401(k) is very convex right now, after loading the boat on the austrian price down. thank you so much. kristina campmany with us, with invesco. i love when she comes in because we do not have these thoughtful conversations but, what is the spread doing? [laughter] lisa a: i love the idea about the bet on a weaker dollar because this seems to be a theme we have more broadly. and this answers the question of what is behind that? is this the loss of u.s. exceptionalism? [laughter] tom: dollar strength on the euro. 55 minutes, inflation report. vincent reinhart at 8:30. lisa m: keeping you up-to-date with news from around the world. with the first word, i am lisa mateo. after little progress on debt limit talks, president biden and congressional leaders will head back to the drawing board on

friday for another meeting to try to diverge a u.s. the all. he then called tuesday's hour-long conversation productive but speaker kevin mccarthy said he did not see any movement. the u.s. announced a $1.2 billion package to boost ukraine's air defense and munitions stocks. it also includes satellite services and equipment. word came after russia's president vladimir putin without the press on in the war. wages are rising fast across england and finally catching up to inflation. pay rose 10% in the last year for those taking new jobs. figures point to a labor markets that remains red-hot. they cast out there long prime minister rishi sunak's vowed to cut inflation have. vivian report -- rivian reported a smaller than accepted laws --

smaller than expected loss. they have been seen as a leading contender to break out of the pack of ed startups but stumbled is going public in 2021 and faced a number of challenges while trying to speed up inflation. a dog named -- dog named buddy holly was named top dog at westminster dog show in new york. she is a pbgb and the first to breed to win the pot -- first of the breed to whether top prize. global news, 24 hours a day, on-air and on "bloomberg quicktake", powered by more than 2700 different journalists and analysts in over 120 countries. i am lisa mateo. this is bloomrg

>> our thesis has been that there are no companies that ultimately are immune from

recession, or significant economic slowing. we do not think this time, ultimately, will be different. our best guess continues to be there are earnings disappointments out there area -- out there. tom: lisa shalett, chief investment officer at morgan stanley. there is a divide between equities and bonds. it gives a reset in the summer of 2023. i am gasping because i remember lies -- because i realize i missed the last four episodes of mandalorian. we have to talk about this. the last 10 year yield is trailing. walt disney company is six point 2% year-over-year total return off the train dormers success of bob iger -- off the enormous

success of bob iger. he has to be going into meeting saying, we are not going to do mickey mouse. what are we going to do? fix it. lisa a: they have so many businesses and lovers pulling in different directions. we have the experience doing very well. we are about this regularly. but there is also a question around do they go with cable? what do they do with espn? how do they leverage their portfolio and address an older audience rather than just a younger subset? sort of the babysitter for a lot of people. tom: it is a blue-chip stock with 24% all in debt. that does not sound like apple or amazon. we are joined right now on bloomberg intelligence. is this why fathers use disd? it seems like a changed company.

>> it definitely does. if you look at disney's performance, it is down 45% since the snp which was up 13%. a lot has happened over the past few years. a majority is tied to the streaming losses or lack of streaming profitability. i think bob iger's main agenda item is to communicate to investors and the industry how he is going to be able to turn the ship around and get streaming to be a profitable business. tom: for the cfo, what she tongue the guy who was mr. creative? >> bob iger's return has really been about aligning the creative and the financial aspects of the company and he will do a really good job of that. it is about building a robust content pipeline but also about constant costs and rationalization. they have a $5.5 billion cost

savings initiative underway. $3 billion is constant costs and $2 million is noncontent costs. we are going to be listening and looking hard in terms of what they are saying. this is a company that lost $4 billion last year. the real investment case for disney as the potential for fiscal 2025 earnings, and we think they can actually turn the ship around and generate $2 billion in profits. any color that christine mccarthy or bob iger can offer today will be all about that. lisa a: what will drive the profitability? is it just going to be a streamlined and much smaller staff? there are going through job cuts, thousands and thousands. where is it going to be a change in content that you expect to deliver results? >> that is a great question. i think it is all of the above. the job cuts will have the

majority of their costs. that is constant costs and moderating costs -- and marketing costs. they are raining that and. there also undertaking measures on the revenue side. they have a new disney plus ad tier which will boost their pool. and they have a 38% price increase they implemented late last year. if you look at the disney plus art pool versus netflix, it is six dollars versus $16. do they have pricing power? i believe they do. this is a super fan products, and must-have have for any streaming and disney fan. they have more lovers to pool in terms of increasing prices. it will be a combination that will drive profits. lisa a: what about espn? is that still on the table as far as a spinoff? >> are actually breaking out espn for the first time.

they are bringing it out into its own division. this definitely clarifies a lot of the financials and profitability metrics because it has always been up to stated in the linear network is this. this used to be the crown jewel and has now become a big point for disney but still generates $4 billion in operating income which is not to be laughed at. the big question is how they make the bigger push into direct-to-consumer so it is incremental and not cannibalistic to espn. a spin, a.c.l., and anything they can offer will be looked at closely. tom: hulu, disney plus, espn plus. do we actually want to rio premium? is there a demand for trio premium at 1999 a month -- $19 in nine cents a month? >> there is a demand for the

product. not only does it help with customer acquisition but helps tremendously with customer retention and. for them, it is all about driving this bundle and getting the maximum -- maximize nation off engagement. they are able to do this with the bundle. tom: how far out do the lines cost where trio premium takes over the business? is that like a three-year outline path or five or even 10 years out? >> we are definitely looking at the inflection happening sometime over the next year or so. but it all depends on what their strategy is going to loop. are they going to hold onto that? they own 3 -- around two thirds. are they going to hold on or sell to comcast? bob iger speak to investors by saying everything is on the table and they are not

interested in general entertainment. this leaves a lot of unanswered questions. top and center of everyone's mind is what is their strategy going asset. >> geetha ranganathan, truly an expert on this. i enjoy doing radio with her and paul sweeney. this whole idea of just follow the nation. do you have trio premium or bundled stuff? i don't. lisa a: i don't. i will say what she was talking about in terms of pricing power where a product people would be willing to pay for is better than some fruit and we are seeing this in terms of people getting used two paying for content in a way they were not five years ago. advertising actually declined but what they saw is an increase in actual subscribers. people are getting used to this.

tom: i will agree. we are getting used to it. but it seems like with the bundles, we are bundling ourselves back to where if any of us had the courage to add up her month what we are spending on all this stuff, is it any different from my cable tv bill? lisa a: no. in some ways, it is worth spends it if you take a look at how much you are bundling. but people are able to tease what they want and that is the distinction. if people want to see something, they will pay for it, especially without advertising. there is a shift in psychology from where we were a couple years ago when people were like, do not make me pay for what i can get for free. or trying to find acts. you did that. google a phrase and get the cachet version with and they turn that off. tom: you have to lean into the

8:00 hour for us. the cio of covelli funds. we have seen many revolutions. turn off the nbc and rca and all that. the basic idea is mario have seen every technology come forward where, you have to make a profit. that is where we are with streaming. lisa a: especially at a time when there is a shakeup for inflation and some of the content is not teen. we are about an hour and a half -- about a half hour away from that. tom: thought that there would be all over this. lisa a: we are trying. tom: there is inflation analysis out there. it is like it is down -- as even coincide, what is down from 9% to 5%, but i do not hear anybody saying they feel better. lisa a: and it is still like

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watch the bond market because long-term cash flows dislike inflation a lot. >> there are no companies that are immune from recession or significant economic slowing. >> companies have been preparing now for several quarters for a recession that has not arrived yet. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. lisa: it is cpi wednesday, 30 minutes away from that inflation report. does anyone care? this is bloomberg surveillance on radio and television. tom keene, jonathan ferro, lisa abramowicz. we are awaiting that key cpi data as people try to reset, understand a catalyst for some sort of conviction in an otherwise conviction wa -- convictionless market. tom: inflation front and center

here today. mario remembers three or four times. lisa: it goes to the pricing question when you talk about stock selection and picking. you cannot get a clean narrative on a macro sense. people will look at today's cpi report. people will shrug it off and say it is one month end people trade, but that stockpicking is at a level we have not seen since the financial crisis. tom: i would suggest -- mario studied under the guidance of philip at pioneer, who said inflation is a bright light giving way boosted revenue outlook that is always underestimated. revenue doing better. lisa: a bright light that sheds some information on who is the winner and who's the loser. it will be interesting to hear from him in terms of consolidation of market share at

a time when you see bigger companies to better and smaller companies worse. tom: a headline from the new york post. this has to do with a gentleman on long island. george santos, congressman of new york, now expected to turn himself in today, to surrender to authorities. the judicial process is happening in the eastern district of new york. lisa: he was indicted by u.s. attorneys yesterday. he will reportedly surrender. the reason it is interesting is because of the small margin the republicans have in the house, five seats. there's a question, especially as we talk about the debt ceiling. we see a little bit of softness in markets heading into --are people doing anything right now? tom: no. they are not. which is good, because if good -- because if it is this boring, it's a perfect time to

talk to mario. lisa: that is the reason people are looking at single stocks. s&p futures, 4127, plunging .2%. tom: the euro report. slightly weaker. there's a football match today. i don't think that has anything to do with it. we follow the surveillance gulfstream and it's got something to do with triangulation. lisa: subtle. tom: he is the ultimate bottoms of investor. mario cut his teeth on machinery, things that if they fall on your foot can hurt you. he's got a claim with a broader portfolio over the years. i have to go -- i could not do it as a diehard red sox fan. i will not go along the atlanta braves, but this is textbook you. it was 20 something, now on the

edge of 40. explain why the braves will win the world series this year. >> sorry about the red sox losing last night. the braves were doing well. independent of that, the pitch clock is having an impact on baseball by shortening it. we will get the results over time. in addition to that, you have other reasons for attendance, for revenues. there's about 62 million shares of batra and batr. our clients own a significant piece of the voting stock. so as a result of that, we are cheerleaders for the braves and think between battery park, i think you will get 45 to $55 a share. if you do not want to own it,

such is life. that is your portfolio. but everybody listening should get 100 shares for mother's day. tom: mario gabelli on the atlanta braves. there will be reports on disney, mario. if you and gordon crawford -- people that have followed this entertainment idiocy. where you surprised at the streaming nonprofit and is disney the mother of all gabelli values? mario: you have to look at the amount of money being spent on content by the companies. disney will probably be 28 to $30 billion. netflix is trying to get up to $15 billion. paramount is higher than that. then you have apple trying to catch up, but apple cumulatively, for the last five years, has spent $13 billion, so

they don't have any content. so where and how do you find, you know, i love lucy, i love tom keene and i love lisa? those contents are buried in there and come back. for example, a beautiful life with jimmy stewart. people are going back and looking at that. how important is the embedded value? when you do theatrical box office, you have a $42 billion business, but the theater operators get 40% of that or higher, so now you go direct to streaming, and because of the regulatory organizations, companies like at&t and verizon and t-mobile don't get paid for people using their highways at a superspeed. i go over the george washington bridge and i pay less than a classe truck -- than a class a truck. you want to go global.

the u.s. has only got $350 -- 350 million people. lisa: are you still enthusiastic about paramount? do you think apple will buy them? mario: my own reaction is that whatever -- you have bob eisner doing a good job running the business. they are making good decisions. the ftc turned down an ability for them to monetize simon & schuster. they will do b.e.t. and try to raise some capital. but they have to sell or spend, which they have done before. nobody applauded them when they bought pluto for butkus and they have done a great job -- for bupkis and they have done a great job. cash dividends will be down.

a significant amount. over the next couple years, put the foundations back in place, accelerate the growth, and execute. that is what they will do. then you ask the simple question. you have a stock selling at $30. you basically multiply that by 650 million shares. you are talking about a $20 billion equity value. so you are talking about a small morsel. so they could decide, hey, apple wants to pay me x dollars and it is de minimus for them, you know, love making takes place in a variety of ways. lisa: you just got back from

omaha. you were at the berkshire hathaway annual shareholder meeting. have you ever heard warren buffett this negative, this gloomy, this pessimistic on stock? did you take a message from that? mario: i disagree completely. warren buffett pounded away at the idea that if you believe in the virtues of the american system that allowed him for 80 years, when he first started investing at the age of 13, to make a lot of money, that tailwind continues to flourish. so is he practical? yeah. he is very patient so as a result he has his cash. he's waiting for it. all of us will focus on what's coming on what he bought and sold. he has smart people working for him. tom: everyone wants to know the

value trap. you say you want to buy a southern bank for acquisition. my theme for the year is the zombie roll up. are the smaller banks one collective zombie and are we going to see a massive bank roll up led by banks in the south? mario: you have all of the right dynamics. we have a lot of banks -- let's flashback. we have been doing this for a few years. you had a crisis in 1967 when the banks lent money to oil tankers or whatever they were. in the 1970's, you had a bunch go bust. in the 1980's, 1000 banks went bust in the savings-and-loan crisis. the accountants put in a rule called hold to maturity, do not amortize, and then you had no interest rates for an extended time. the basic bank problem is you

borrow short, when the long, you have a -- short, blend long, you have a problem. you still need to have that service for the american public, the american economy. that's it. tom: we have one yankees fan down in florida. this yankees fan emails us and says the breadth of the market is important. broad-based rallies have the potential to continue while narrowing rallies are prone to failure, quoting bob farrell of merrill lynch. have you ever seen anything as narrow as what we see with apple computer and four other stocks and what do we do about it? mario: you have a lot of dynamics. if i was growing up playing world of warcraft and i am now playing diablo iv on my machines -- i want instant results. i want to play momentum. then i get on robinhood and you

get quants, al goes and ai coming together to do trading. the markets are the markets. even if gdp is down 2%, inflation is 5%, you will get nominal revenues growing at 3%. that is a large basket. companies are learning. the just-in-time inventory. you bring it closer and you get more efficient and you do ai and you start doing a lot of automation and you pray for immigration because that is where the long-term growth is coming from. lisa: we have talked about how we are seeing an increasing number of people go back to stockpicking from just simply indexing. do you notice that in the day-to-day? do you see more people interested in the trade you have always practiced and continue doing so?

mario: no but i come from a culture where we had graham todd, roger murray teaching value investing. how do you do research? what is the value of an enterprise? who is going to buy it? what would private equity pay? what is the tax structure? then you cut through all the crap. how good is the business, how good is the management? are the values well below what you think the intrinsic value is and therefore that discount, you know, will go up and down over time. you will do ok. i think the market in 45 years will be one million on the dow, so that's 7% returns. tom: you are showing your cards, your morningside heights cards. columbia business school. you mentioned graham todd and another guy went there years ago as well. do the young turks of columbia

business school believe in the traditional warren buffett securities analysis? mario: there's a lot of cultures that come in in the financial area. you want to integrate analytics. if you and i were around 200 years ago, we will be talking about the rothschilds got a pigeon to tell them who won the battle at waterloo and went and did something on the stock market. you had warren buffett go down to washington, d.c. to microfiche data. i did it at the new york stock exchange. today, i gave a speech and i said chatgpt -- i got my grandson to do it -- and it was a brilliant speech. and it took him five seconds. the question is how quickly can we gather data, how quickly can we use it, but something practical has to go in the mix. tom: speak to the people out

there that want to be in the market but are scared stiff. how do you play and participate? mario: first, you have to do what buffett says, which is patients long-term. do not worry about the short-term dynamics. if i own a farm in iowa or the bronx, i'm not going to wake up and figure out what the prices are. i'm going to say what are my cash flows and predictability and when can i harvest? same thing with good businesses. if you buy a bunch of businesses , you know, we can talk about these things. stocks will go down and up. tom: ok. this has been brilliant. mario gabelli, thank you. what did you learn? a tour de force. lisa: the difficulty in doing the discipline he was talking about. tom: doing the work. lisa: understanding how to do that research. i think some of the edge people

are looking at is investigative journalism, to dig into some of these companies, understand the dynamics that perhaps other people might be missing. lisa: it will be interesting to see. he talks about making 7% per year in equities and a lot of people have a long-term timeframe of maybe friday, maybe wednesday of next week. in the meantime, what we have, we are about 13 minutes away from the cpi report. we are expecting 5% year-over-year cpi. that is the headline figure. with core, and i keep going back to this, energy and food, 5.5% down from 5.6% in the prior month on a year-over-year basis. do we see this come in hotter than expected? that, a lot of people are saying, just to game it out, could be a significant catalyst

in a time where people have discounted inflation moving back up and said we are already in this disinflationary realm. tom: it is a lagging indicator and he's already framing out 3% inflation. that is out there. in washington, all they are hearing about, even with a gallon of gas may be being better and real estate -- rents are coming in around the country but not new york city. 5% is unacceptable. lisa: especially at a time when you have a concern about negative real wages. we also talk about what drove this inflation and a lot of people pinpoint spending, which is one of the reasons why it is that much more salient that we are having the debt ceiling debate again, and now in a more poignant way perhaps than in the past. joining us, an economic policy research director. appreciate you joining us,

henrietta. your take on the nine action -- the nonaction and nondevelopment of yesterday's meetings and whether they will yield any fruit. henrietta: that is right. anybody who has been through this before knows that they do not get anything done until they have to. we are functionally away. the house has been out of session for 10 days since their vote a few weeks back so when they had the meeting yesterday, my base case assumption, and from speaking with staff, is that nothing would come of it. they were going to shake hands, get a lot of jabs in, which we saw from speaker mccarthy, sometimes more aggressively than anticipated in an ordinary year, but he is proving what he wants to be as speaker, so this is much more about posturing. the biggest take away was that

staff would get involved. that is all i want is a former staffer. they will start meeting today at the leadership level. one area of concern i hear is the house and senate will not be in session at the same time for the next consecutive three weeks. are you concerned? i answer is no. i do not care what rank-and-file members are doing. i only care with staff is doing and they will be meeting tonight. they are free to work through the weekend. they do not have to go back to the district the way members do. so there are three full weeks to get a resolution. the way i would phrase it, briefly, look at the thursdays for the rest of may. thursday of this week, we get action out of staff. next week is the earliest i would expect a senate vote and the following week by houseboat -- week a house vote. lisa: it is like looking for smoke signals. wait for thursday and we can get some sense of what we are -- of what is going on.

i am curious about this george santos development and how it relates to some of the close margins that kevin mccarthy is working with. the new york post is reporting that gop representative george santos is going to surrender after the indictment that we heard about yesterday. he does plan to turn himself in. this highlights the kevin -- that kevin mccarthy is working with a five republican margin of error that he has to keep on the rails. does this change the equation in review? henrietta: and underscores the current equation. this is an empty shirt you are trotting around that has no committee assignments and is only voting the way mccarthy tells them to vote. i thought it was great when santos came out and said he didn't know which way he would vote. he will that whichever way mccarthy tells him to vote and that is the requirement for him to stay in congress. this underscores how razor thin the margins are for speaker mccarthy that you would keep

someone like george santos. the rest of the caucus has to explain it away. that is a tricky thing for them to do. tom: why can't we get to a commission, simpson bowles or some flavor of that? you are an expert at this. is it so fractured we cannot even get to a commission because these clowns are afraid of the outcome of a commission? henrietta: i mean, give it time. alan simpson is an all-time rockstar star as far as i'm concerned. those were great days when we had the simpson bowles commission. we had the supercommittee if you remember around that time. to give a serious answer, when i started out yesterday, i assumed there would not be any breakthroughs in the negotiations at the white house. my immediate next step was to listen for any dog whistles for a fiscal year 2024 appropriations process, discussion of the budget, discussions of actual government spending in those appropriations bills. that is something i spent my time with staff collecting

thoughts on what are the odds we kick the can down the road, just get a short-term suspension going from june 1 to september 30, which is the end of the fiscal year, and see what the odds are of something arising during that four month bridge? that is when you would see a supercommittee form. tom: you have teed up the can like lucy with charlie brown. we know the way this goes. what happens the first week of october if we move the can to september 30? henrietta: this is my worst-case scenario and has been since january, this situation where we never reach a conclusion. what you start seeing is that we only do these short-term p unts and this sword is hanging over us for the next two years. that is a bad outcome and could easily pass. in 2021, the time we could not agree on the appropriations bills, we passed a three-month

extension of those called a continuing resolution into december 3 and simultaneously bumped the debt ceiling out to that same exact period, specifically designed to get the debt ceiling to coincide with the cr expiration, which had been punted from september. that is a real risk. tom: henrietta treyz, thank you, chairman of the alan simpson fan club in washington and with veda partners as well. with senator simpson, every time you interview him, it's a risk. you have no idea what simpson will say. he's wonderful. really a throwback to a different time and place when these people were not managed and choreographed. that is part of speaking with congressman hill of arkansas. he's removed from the modern choreography of politicians. lisa: the curiosity for me today is the choreography of the

inflation report in terms of how we get the numbers, the response in markets, and the political response given this is a visceral type of number you spoke about with real wages being negative for another year. this coming at a time when a lot of people think the balance of risks seems to be more heavily weighted on cutting too much even though the inflation is perhaps a little higher. tom: the surveillance cliche

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tom: inflation in america has been the story of the biden stimulus, the pandemic. it's killed everyone. 22 years of negative wage growth. we will get statistics in a moment, a new reset on inflation and a new debate on the path forward for the price change you are facing every day. lisa abramowicz and tom keene here on the day of inflation, goods, services, and the good news is we have michael mckee to assist. these seem to be challenging

statistics. michael: they are what you would call in line. economists did a good job of forecasting cpi as the month over month change for headline and core comes in as forecast at .4%, up on a headline basis over what we saw last month, which was 0.1% increase. we are looking for any kind of revision to that. month over month -- year-over-year, 4.9% for the headline, which is below the 5% that was expected and what we saw last month. 5.5%, as expected, for the core year-over-year. real average weekly earnings, and average hourly earnings, both negative, 1.1% and .5% for weekly and hourly. you pointed out we had seen negative wage growth and we still are. tom: it is a shift.

10 basis points in the two year yield. if you are not part of global wall street, the operative word is ginormous. the two year yield down to 3.96%. the 10 year comes down five basis points as well. the bull market is intact with an equity left, futures green. what do you think? on a nice level, they go up. lisa: here is the question i have, the whisper number, much hotter, the inflation rate. taking that off the table. is that the sort of release trade we are seeing in two year yields or is there something in some of the subcomponents getting people's attention? tom: i am looking over at mckee. he has the secret sauce. it is 20 lines of data. what are you looking at, michael? michael: here is what moved during the month.

energy was up quite a bit. for gasoline, 3% during the month. so that's a significant increase. that goes into the headline. less concern for the fed. natural gas, significant decline, down 4.9%. people have been looking at that as something of an energy relief. used cars up 4.4%. they were down .9% last month and had been down for about six month before that. nine months is the total. a big rebound in used cars helping push things up. apparel up .3% on the month. medical care commodities up .5%. a lot of these were forecast by economists going into this and it looks like cpi is coming in as expected. it is important to note that the fed has always said they would expect a volatile process of inflation coming down, that it

would not be linear, we would see bounces, and that is what we seem to be seeing. tom: i am hearing as expected but markets are not telling me that. markets are moving. lisa: that is what i was going to go to. ira jersey of bloomberg intelligence put out that cpi has been among the most market moving data points in the past year. this explains that even though we are not necessarily getting the why from the actual data. is there something we are missing, the why, causing the market moving event of today? michael: i am not seeing anything that stands out as something we did not expect. what you have is a market that is attuned to -- you have people basically looking for the fed to, in july, start cutting interest rates, so everybody is repricing off that at the moment, but it will take a wild to figure out where to go. the knee-jerk reaction is something we don't necessarily need to follow through on.

airfares, down 2.6%. there is a surprise. tom, on your next vacation, you will be able to spend less money. tom: 50 lines, 100 lines of data. we will have that at 9:00 as well. we are thrilled to bring in a gentleman that can bring in the perspective here in the relative sense of this inflation to decades previous, vincent reinhart. working with chairman greenspan. chief economist at dreyfus and mellon. a big move in the two year yield. have we tamed inflation, vincent reinhart? can we say there's a confidence to get back under 3% inflation? vincent: not particularly. service inflation still has good momentum. as to lisa's question about the why, i think it is the headline,

inexplicably by rounding 12 month cpi is 4.9%. i view that as the chief talking point for politicians that inflation has dipped below 5%. tom: we go to mike mckee, who has found the one data point to help dreyfus mellon now. michael: this may have influenced trading. i got a note from somebody watching us who wondered why i did not say this before. owners equivalent rent up .5% and rent of shelter up .5%. rent of primary residence up .6%, so still seeing a lot of pressure in the real estate side of this, and that has not started to go down as people had thought. we might see some relief. we did last month but not this month. tom: this is the granularity of alan greenspan. look at each data. is there an efficacy to look at real estate data, oer or otherwise?

vincent: one reason the market did take good news out of shelter inflation -- provided upside to overall inflation is chair powell indicated the forward-looking indicators of the shelter prices he looks at suggests there could be good news soon. once you delve into the details, you might get trapped in the seaweed. lisa: trapped in the seaweed and yet this is the seaweed jay powell himself has sent us to. mike was talking about the core services without housing, the seaweed the fed says they will hinge their inflation outlook on, and people pointing out that fell to less than 5.2% on a year-over-year basis from 5.7% in the prior month. taking a look at that type of cooling might give the fed some encouragement to move away from more aggressive rate hiking or

rate stabilizing projections that people had. do you think that is enough for do you think this is a head fake? vincent: i think it is a head fake. i think you have it right, that the chair does slice and dice the data because he wants to get the slightly more than half consumer price basket that he thinks has momentum. the shelter inflation is projected to continue to soften. that will be good news, but it does not change the core problem. there is some momentum there. the core question to ask -- sorry to use that -- is was today's print disqualifying for fed action in june? the answer is no. lisa: you think the bar -- this is important -- you think that the bar is more heavily weighted to fighting inflation still, even though a lot of people think that now the bar is

preserving financial stability and perhaps employment. vincent: it is about stopping, because once they stop, once they go a meeting without policy action, everybody will assume that the fed is drawing a line under this policy firming cycle. and so you better be sure that, when you stop, you are not going to look back and regret it just a couple months later. they slowed a little early in january relative to what in retrospect they think they should have done. they are having flashbacks to that right now. lisa: what we you say to people who say this is evidence of disinflation, another sign that it is naturally happening, especially as you see almost downright disinflation in certain goods? how do you push back against this in a longer-term trajectory and say, no, you are wrong, this is more akin to the 1970's?

vincent: i agree that it is a sign of disinflation. it is a sign of a little bit of disinflation, but when you start high above goal, it's a long process. the fed will take this as encouragement. they should. it is headed back to goal. but they have to be confident it is headed back to 2%. this is just another drop in the ocean. tom: we continue with vincent reinhart of dreyfus and mellon on this day of important inflation data. we looked at the two year yield with a 10 basis point swing, back under 4%, 3.95%. futures up 15. 3149. i want a 4150 print so i can rounded up to 4200 but i'm sorry. we have a nice lift in the equity market. it's a stock market that will not go down. lisa: this idea that if the fed does not raise rates more or even cuts them, it will be

positive. we have a sense that if the fed does pull back that will be a good thing and will allow growth to persist? vincent: it will support economic activity. it may not be a good thing over the medium-term because, if they regret it, the worst thing that can happen to markets is the fed having to tighten later this year. tom: vince reinhart, thank you so much. michael mckee page 42 of the report. michael: we have core services ex housing, which everybody is interested in. it goes down to .27% from .29% month over month and down to 5.16% from 5.73%. tom: that vector of service disinflation is still in place, albeit barely sloped. michael: yeah. that is a good way of putting it. i was looking at the chart. that's a good way of putting it. lisa: how volatile has -- i am

curious, though, about whether we have seen that incredible volatility people are talking about. michael: we have seen it in the month over month numbers, but we are seeing in this core ex housing, we are down to five .16%, a 50 basis point move almost. lisa: we will continue this conversation coming up. andrew, erik, liz young and alexander yoakam on the regional banks. tom: liz young has been on fire on twitter. really informative. lisa: how do we get sense on how to move forward from cpi wednesday? this is bloomberg. ♪ >> keeping you up-to-date with news from around the world, with the first word, i am lisa mateo. after making little progress on debt limit talks, president

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>> i will be particularly focused in assessing the evolution of credit conditions and their effects on the outlook for growth. >> we will get a lot of data

between now and our june meeting. tom: john williams of the new york fed speaking on the changes before this inflation report. your headline as the market day opens in 45 minutes is simple. inflation has moved to the markets and continues to in the last 10 minutes. i am using the 10-year yield as a barometer down 10 points to 3.95%. we have moved even lower, note price higher, yield lower, to 3.94%, a substantial move. i will call that 15 basis points. the nasdaq 100 up .8%, s&p futures put it on up 28 point, 4162. michael mckee is with us. he's experienced at talking with fed governors and presidents and has trouble with former fed

presidents because they are afraid of him. william dudley joining us, former new york fed president and bloomberg opinion columnist. i have eight ways to go. i will do inflation and mckee i am sure will have smarter things to say. 5% is flat out acceptable. everyone understands that. what inflation rate is that moment where bill dudley relaxes? bill: i think when the fed gets the inflation rate down into the 2% range and there's more slack in the labor market and wages are rising 3% to 4% rather than 5% to 6%. the fed is making some progress on the inflation front but not much progress on the labor market and the wage trend, so it's hard to see inflation getting back to 2% with a labor market this type and wages this high. tom: in your studies at berkeley, is it necessary to have unemployment go up to bring inflation down? why can't we move the inflation

needle, the disinflation needle, and keep america employed? bill: that would be the ideal outcome. it would be great if we could operate at a 3.4% unemployment rate with 2% inflation, but that has not happened in the past. that level of tightness generates wage gains inconsistent with 2% inflation. and the federal reserve does not think that will happen. their last projection suggests they will need to push unemployment over 4.5% to be successful in bringing inflation down, so they need to push unemployment up more than 1% to be successful. michael: bill, it's mike. switching to that jobs report data, the calculations people are making to get to that 4.5% by the end of the year, which the fed has forecast, we need to start losing tens of thousands or hundreds of thousands of jobs

a month. do you see any prospect of that? bill: it reiterates the tension between what the fed thinks in terms of how long it would have to keep rates high versus what the market thanks. the fed thinks this will be a slow process that takes months. when we get the next summary of economic projections you will probably see the fed being less optimistic in how fast we can bring inflation down back to 2%. the labor market is still strong and the fed has not gotten the progress they wanted on that score. they need payroll gains of 50,000 or less to push the unappointed rate up a meaningful amount and they don't have anything like that. tom: is there any way they can accurately forecast what will happen to wages given this labor market we have? bill: they can see what is happening through a broad set of wage indicators and what is happening is not unusual

relative to what you would expect given the tightness in the labor market. if you look at the jolts report, that suggests the labor market has eased a little bit, but that ratio of unfilled jobs to unemployed workers is still high. chair powell says he needs that ratio at 1:1 and we are at 1:1. 6, so we have a ways to go. michael: speaking of, are they there in terms of being restrictive enough or is there anything in this data or the data you have seen so far since the last meeting that would suggest that maybe they need to do more? michael: they think they are restrictive enough and one reason is we will see some credit constraints from the banking sector because of the turmoil in the banking area. they think credit conditions will be tighter as banks pullback.

one area you have to be concerned is the housing sector, the most interest rate sensitive sector of the economy, seems to be bottoming out. if monetary policy is tight and the housing market is starting to recover again, that raises a question of whether the fed is sufficiently tightening. tom: i want to go to your latest essay, which has a single sentence in it that is not inflammatory but shocking to a lot of people, and i will suggest that bill dudley, like stephen roach, you people are looking for a new fed mandate around fed stability. financial stability. are you advocating a three-part fed with a responsibility of inflation dynamics, jobs dynamics, and financial stability dynamics? bill: well, the way i would put it is financial stability is a necessary condition for an effective monetary policy. if you don't have financial stability, you don't have effective monetary policy.

so part of the mandate would have a focus on financial stability. the fed missed what was going to happen in the banking sector. if you look at the november financial stability report, there was nothing about the potential funding risks of regional banks, nothing about the large losses on their balance sheet, nothing about the risk that uninsured depositors might leave. so the fed did not catch it. i give the fed credit for the report they published recently on what went wrong with silicon valley bank. they do recognize there were failures, but that is not sufficient. monetary policy also contributed to what happened big -- what happened because the fed kept interest rates low for a long time, flooded the banking system with deposits. some banks took those deposits and it didn't work out for them, so the fed's monetary policy did contribute to the problems we see in the banking sector. tom: this harkens back to stephen roach screaming about a

new fed with a new mandate in a modern economy and whether it was roach at morgan stanley or bill dudley at goldman sachs, this was the dovetail of market economics into the academic discussion chair powell has to face every day, and here we are looking at it again. michael: bill raised the question of what do you think the fed's reaction function is now given the new monetary policy framework does not apply at the moment? bill: they will keep rates at this level or maybe higher until they see -- until they are confident inflation will get back to 2%, and to be confident that inflation gets back to 2%, they need more progress on the labor market, wage inflation and services inflation. tom: when do we get under 3% inflation? give us your market economic analysis today of the timeline

to 3%. when do we see it? bill: before the end of the year, because housing inflation will come down dramatically. housing inflation in the cpi and pc lacks a lot behind what's actually happening in housing. that will start to turn down sharply in the second half of the year and that will help. tom: thank you for joining us. superb essay, thought-provoking essay, for all in commercial banking for bill dudley. there are so many ways to go here. nasdaq up .8%. this is the optimist's case, you know, secular stagflation. it's a resilient american economy. michael: what we are seeing is a reaction to an overreaction, where people started pricing in rate cuts immediately.

obviously that will not happen so they have to readjust. tom: annmarie hordern on the west coast of japan. a lovely resort on the west coast, looking over to korea, with chair yellen. excuse me, secretary of treasury. they had a conversation friday. explain why yellen is different because of her economics and federal reserve background. how does that make her a different secretary of the treasury? michael: she understands what is going on with the economy and can make her on forecasts. she knows what both sides, treasury and the fed, can do, and she will be in charge of deciding what they will do. tom: some brief questions for annmarie hordern. she is with balance of power and she will have a conversation with the secretary of treasury. look for that early friday morning, 3:30 new york time, 8:30 in london, deep into the

afternoon in hong kong. markets on the move after the inflation report. stay with us. this is bloomberg. ♪

lisa: shares popping after possible optimism. lisa abramowicz in forte jonathan ferro. nasdaq leading the pack as we prepare for what could be a disinflationary relief. countdown to the open starts now. >> everything you need for the start of u.s. trading, this is bloomberg: the open with jonathan ferro. lisa: coming