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coming up, the latest payrolls report coming in weaker than inspected leading investors to question if the fed is too slow to cut rates. treasury yields are falling across the curve. we caught up with mohamed el-erian following the jobs report. >> policy mistake, that is what i am hearing and that is what you are seeing from the price action. i think the market now fully understands that the fed might be late. sonali: taking a look at world interest rate ability, wirp go. the economist at every major bank recall -- recalibrated their forecast for the year. citigroup expecting half a cut a rate -- have a rate cut and one in december. jp morgan believing a rate cut could some -- could come sooner.

flip up the board because in addition to the swaps market you have the spot market moving drastically. the two year yield dropping 44 basis points this week and 20 today alone. a drastic move over the week that you have seen since the svb collapsed. live on bloomberg television and doi am joining -- with michael mckee and austan goolsbee. get us started. mike: thank you sonali and thank you to everyone watching us around the world including austan goolsbee. thank you for joining us mr. president. hiring job precipitously, the unemployment rate shoots up more than anticipated. everyone wants to know did the fed make a mistake by not cutting rates on wednesday? austan: well, look, i am not going to get myself into trouble

and talk about what people are thinking from the meeting. you will have to wait for the transcript to come out to see what was on people's minds. i have been saying to you mike for a long time and publicly that we have never wanted to overreact to anyone month's numbers. if you back up to the last half of 2023 then you know that the market said that there might be seven cuts for the year. and then when a month with come -- blood come in and then that seven would drop to three and then maybe an increase in rates. the job is to figure out the through line and to move in a steady way. i have been warning that we are tight and restrictive and the real said funds rate f --ed funds rate and as inflation falls that gets tighter. if we stay restrictive for too

long we have to think about the employment side of the mandate. if you take this summary, the statement of economic projections in the sep, the neutral rate of inflation, the long-term rate of inflation and unemployment. say that people think full employment is 4.1%. if unemployment is going to be up higher than the neutral rate, that is exactly the kind of pinching on the others of the mandate that the law says the fed has to think about and respond to. mike: you have been talking about a rate cut yet you voted to keep rates unchanged. why did you do that and how do you think that you are maybe behind the curve? austan: i am not going to get into talking about the secret discussions. you have to wait for the minutes and the transcript. i was a seat filler at the oscars, that is really

cleveland's seat. i was there for one meeting. the committee acts on the through line of the data and the through line of the data you should not change what that is late -- based on one month's number. overall you know that i believe that we are restrictive. i think that and i have been saying for months that what we wanted to see was improvement on inflation, especially improvement in the component like housing and services. we have seen that. the longer we were restrictive we are going to have to start thinking about the employment side. mike: you heard what the banks, economists and traders are saying. should the next move to a 50 basis point cut, and what do you think about jp morgan proposing from a bridge -- a risk management perspective that there is a strong case to act

before september 18? austan: paul volcker used to always say our job is to act and their job is to react and let us not get the order mixed up. i fully understand why markets want to jump if they get one scrap of information or they see one thing and they want to conclude a trend on a data point and i would caution us, if we had acted at the end of 2023 based on a couple of observations then the same people what have said but look, inflation went back up in the first quarter, so that was a mistake. i think the most important thing is to look at the through line. what will determine the action is we do not want to tie our hands now. we will get a lot of information between now and the next meeting. what will determine the size or if there is action at all will be the conditions. and that is the way it should

be. as i always say, if the data dogs, there is a time for walking and sniffing. the sniffing time is a lot of uncertainty and you do not know what is what. once you get the through line that is the time for walking. sonali: what exactly would it take to see a cut before the september meeting? austan: i am not going to get into speculative bits about that. but fomc -- the fomc acts in a consensus manner. we have deliberation and debate and we vote on things. i hope and i tried to bring the through line mentality of do not take one month's number, look at what the trends are. and to me they show inflation coming down across the board multiple months in a row and the labor market cooling. what we want is for the labor

market to get into good mallet -- good balance, the full employment natural rate. if we are not stopping at that and we are not neutral that we will have to think about the employment side. sonali: it is not just about the next cut but the path forward for the people who think you might get multiple half-point rate cuts. through september, november and december, what do you tell them in terms of what to expect for the entirety of the path going into next year? austan: you know i do not like tying our hands even for the next meeting so i certainly do not want to commit ourselves to what will be the rate path meeting five or seven meetings from now. with all of that said, look at the statement of economic projections and you can see that as a committee of the individuals have believed that the conditions will be appropriate to have multiple rate cuts with the unemployment

getting into better balance and with inflation coming down to target. but even at a run rate that is a little higher than what we have seen in the last couple of months. it is not any secret, the fed has been pretty vocal about here is what the reaction function is and expecting, as is historically true, when conditions warrant a cut, they tend not to be one individual cut. the sep shows that the median dot of the dot plot has multiple cuts over the next year. mike: how weak is a u.s. economy overall. i will talk about what the governor of illinois said two days ago. interest rates are holding companies back from making the investments necessary. all these companies are companies on a generally upward trajectory over the last decade

but are having a hard time in the moment because of the challenges that the federal reserve has brought. austan: i mean, in a way that is a description of monetary policy. he says that policy is restrictive and i agree with him. when the real federal funds rate, the fed's fund rate minus inflation that is the highest it has been a long time and over the cycle as inflation comes down. we set that rate a year ago at a time when conditions were different than they are now. and, you should be tightening by choice, not by accident. you should not back yourself into tightening. we need to take the through line on inflation and unemployment and that should determine policy. i do not want to argue about the words how good or weak is the economy. the numbers are the numbers. we have seen gdp growing around

trend. we had one weaker than expected gdp growth number and then a stronger than expected in the second quarter. and so, we are growing but it is slowing down. the strongest thing in the economy has been the job market. the weakest thing has been inflation. both are converging back to let us call it normal wear what it was pre-pandemic. and our absolute goal now is that we want to settle at something like full employment, not blow through normal and deteriorate. mike: the major thing that people want to know going forward is you mentioned all of the data coming up. what will you be looking at and what will you base your interest rate decisions on? austan: i mean the dual mandate comes to us by law. the law says the primary things we have to look at our inflation

and the job market and are we maximizing employment? those are the big two kahunas going forward. it is still an economy with cross currents where you have some things that remain quite strong by historical terms and other things that have deteriorated. if you look at credit card delinquencies or small business defaults, those have been rising. and they have moved into what i call warning sign stage. so i am going to be looking at what chair powell calls the totality of the data, not just the monthly the inflation and jobs reports, but the pce inflation and jobs reports are the big two by law. sonali: we do have to leave it there and i wish we had more time. that is michael mckee and austan goolsbee off of the heels of a highly watched and surprising

jobs report. we thank you for your time. up next we will talk to kay harrah of jp morgan and steve brown to react to these comments. that is. this is bloomberg. ♪ (♪♪) (♪♪) sandals rhythm and blues caribbean sale is now on. visit sandals.com or call 1-800-sandals.

how am i going to find a doctor when i'm hallucinating? what about zocdoc? so many options. yeah, and dr. xichun even takes your sketchy insurance. xi-chun, xi-chun, xi-chun! you've got more options than you know. book now. >> we never want to overreact to any one month's numbers and if you backup the last half of 2023, you know that the market said there might be seven cuts for the year.

and then a month would come in, and the seven would drop to three and then there was a group saying there might be an increase. the job of the central bank is to figure out the through line and to move in a steady way. sonali: i am sonali basak and this is bloomberg grill yield and that was austan goolsbee speaking with us just moments ago. with us is k her -- kay herr and steve brown. when you look at jp morgan they are in line with citigroup. a call for a 50 basis group cut with one in september and in november and another maybe before september. kay: i need to clarify i am from jp morgan asset management and you are referring to michael rowley. that is not where we are. i was struck by austan goolsbee's comment because i

never thought about the similarities of federal reserve manager and portfolio manager. the sell side and markets will react to what -- to every single data point. if you think about what chairman powell said or what austan goolsbee just said they are looking at the through line at the overall data and we are doing the same thing. we are trying to manage portfolios and generate alpha and outperform here is. we are trying to focus on what is today's action and how do we respond. sonali: how do you see the conundrum, when you think about the moves in the market not just today but frankly this whole week. how do you think the market has reacted and is it justified? steve: i think kay brings up great points. we like to take stock in the total picture and as mr. goolsby laid out the fed is data dependent and on a long run trajectory for the need to validate certain data points to

recalibrate policy as they are calling it. we have expected that the fed would be on hold and they would start using. there would be growing risks in the economy and the trajectory of economic growth so they are coming more to the forefront. so the two sided nature of battling inflation and keeping the economy afloat are skewed towards the downside risk. we saw with the jobs report this morning. so we think that brings it closer to action. the most important point of the last week and a half is the pulling forward of interest rate cuts and the deepening of the trough in terminal rates. seeing the terminal closer to 3% is something we are positioning for an something that makes sense. sonali: but these in perspective, you are looking at a two year yield and now you are at 3.9%. do these moves make sense?

kay: you need to take a step back and think about the market. your you -- i was struck by the comment, in the market has been everywhere from the fed will actually hike one time because the economy and inflation re: accelerating to the fed will need to cut six to seven times. a year ago we would've said recession is coming. if we look at the jp morgan asset management perspective we have had a view that the u.s. economy is in a soft landing and will stay in a soft landing. we acknowledge that that is a difficult thing for the fed to accomplish but that is where we think they are. our expectation for a year has been that the fed will cut two times this year in the back. we try to think about managing portfolios and not getting too caught up in the daily moves and when i talk about positioning

portfolios we like duration and we also have interest in curve steepeners. but when we think about investing we are looking at the fundamental, quantitative, and technical. we absolutely see signs that the labor market is weakening. fed chairman powell recognized it and noted that the fed will move away from thinking about focusing on inflation which has decelerated by 150 basis points since the fed stopped taking a year ago and focusing instead on the labor market. they noted the -- moderation and thought about the labor market going into balance but the markets are freaking out about today is that the labor market is not coming into balance and that it is heading into a recession. sonali: that data that we saw depending on how you talk about it, they are worrying about the triggering of the psalm rule a

greater player about the recession ahead. what is that in your rule -- view? steve: we have been pointing it out as a below normal risk but it is not the base case. similarly, our base case is that we grow below trend over the last couple of years. under the surface in the jobs report, as we have had there is a little bit more of mixed conclusions and it was a weak report. the greatest risk has been the concentration and job gains in certain sectors over the last couple of months, so the broadening out of hiring has not been there. and so there has been a lot of focus on that rule. in short it says that with the unemployment rate rising by 5.5% it tends to not stop there. we are in the danger zone with employment, but as mr. goolsbee laid out, maybe next month could change that trajectory.

what is important is that a risk to one side and what it means for policy and rates, and so the moving forward of cuts, and the deepening of the totality of cuts makes sense in line with our position. sonali: i feel like we need to do the annoying thing and talk about the risks ahead for the next couple of months. you have the election coming up and concerns about potential inflationary forces under whatever administration. what are the risks so far? kay: you talk about this every day. next week we have ism services and data every week. increasingly we will get more information about the election and it seems unlikely or likely that either candidate who is

successful might be inflationary. the more immediate concern is the risk to the downside. what we can do to maintain that the base case is soft landing and that is our position. sonali: where do you think the 10 year ends next year? kay: this year, we 75. next year is a function on whether the fed is able to maintain a soft landing or if we slip into recession. in the risk will be skewed to the downside. sonali: 10-year at the end of 2025? steve: in the mid to high 300s. we expect a sloping yield curve and a normalization going from the low three's uppwa -- upwards to four. sonali: that is kay herr and steve brown. thank you for joining us and a busy -- a very busy day of economic news. the final stead -- bread and the

week ahead. the earnings season still in full swing. ♪

sonali: i am sonali basak and this is bloomberg real yield and this is the final spread. we will going to hear from the san francisco fed president mary daly plus u.s. pmi and ism services. u.s. trade balance figures and earnings from uber, reddit and airbnb. tuesday, earnings from disney and left. friday, china and earning numbers. my final thought i want to look at the wild market moves because if you thought the vix was flying so is the move index.

we look at how much volatility is seeping into the markets and on the move we are back above 100 and on the vix well above the 25 handle. that sets up from an interesting week. that doesn't from us, same time, same place next week. this is bloomberg real yield, and this is bloomberg. ♪ lmnt. more electrolytes. zero sugar. you feel the difference when you get it right. stay salty.

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sonali: welcome to bloomberg markets. stocks are sinking as a weak july jobs report is rattling wall street. we are off the lows of the day but still firmly in the red. the s&p 500 down 1.8% almost 1.9. the nasdaq 100 down 2.2%. the russell 2000, the trade that everyone was piling into